Eni sees weak 2012 on European slowdown
Thursday, 16 February 2012 | 12:41
Italian oil and gas group Eni sees economic gloom in Europe hurting its business in 2012, citing "poor recovery prospects" for its gas business and "a depressed trading environment" for its loss-making refining division.
Reporting results ahead of a strategy presentation due next month, the company said it expects oil and gas output to grow from last year's 1.58 million barrels a day but indicated this would be driven by a post-war recovery in its Libyan production.
"Recovery perspectives look poor in the gas sector," Eni said in a statement on Wednesday after reporting an 11 percent fall in gas sales in the final quarter.
It said gas demand is expected to be soft due to slow economic activity and increasing competition from renewables while European refining margins will remain at unprofitable levels due to high costs of oil supplies, sluggish demand and excess capacity.
Weak demand and increasing competitive pressure have hurt gas businesses across Europe while refining margins have come under pressure from excess capacity and high inventories.
Adjusted net profit in the fourth quarter fell 9.5 percent to 1.54 billion euros ($2 billion) on the poor gas and refining performance.
"The gas results were very disappointing. The market consensus will need to come down on this," a Milan-based oil analyst said.
Eni's gas business has been impacted by its long-term gas contracts with Algeria and Russia where prices are locked in at levels higher than spot prices.
After the successful renegotiation of Algerian gas contract terms, the focus is now on closing talks with Gazprom.
In a conference call with analysts Eni CEO Paolo Scaroni said he expected to reach a deal with Gazprom in the first part of 2012 and hoped to give details at the March strategy meeting.
Hydrocarbon production in the fourth quarter was down 14 percent at 1.68 million barrels a day, mainly due to Libya, where Eni expects to have output back at pre-war levels in the second half.
Libyan production has already returned to 80 percent of its 270,000 barrels a day norm and Eni has previously said it could reach 300,000 barrels per day in 2013 with a doubling of production in ten years.
"We expect upstream production in 2012 to grow by 10 percent," Scaroni told analysts.
Ramp up in Italy and Iraq and new field start-ups in Algeria and offshore Angola are expected to boost production but these increases will be partly offset by mature field declines, Eni said.
Claudio Descalzi, head of E&P, told analysts the situation in Iraq "is improving", noting that Eni will participate in the fourth bidding round in the country. But he added the group would not consider looking at operations in Kurdistan if that would jeopardise its position in South Iraq.
Eni, which is targeting an output growth of 3 percent per year to 2014, said it expected its 2012 investments to be almost in line with last year's 13 billion euros.
MOZAMBIQUE SUCCESS "GETTING BIGGER"
A rare bright spot in the announcement was a new gas discovery offshore Mozambique.
Eni said it had made a new giant offshore natural gas discovery in Mozambique with a potential capacity of 212.5 billion cubic metres (bcm).
"Mozambique is a resource success. It just keeps getting bigger and bigger. By my calculations this new incremental discovery is worth around $2.5 billion," Santander oil analyst Jason Kenney said.
Eni, which produces 55 percent of its output in Africa, said Mozambique is its biggest gas discovery as operator.
The new discovery takes the total volume of gas in place at the Mamba complex to about 850 bcm.
Eni has 70 percent of the Mamba operation. Scaroni said the group had received offers of interest from virtually every integrated oil operator.
"First we need to complete the exploration. Then we can perhaps decrease our stake to around 50 percent and attract new partners," he said.
Eni gave no details on the outlook for its refining margins which remained unprofitable in the fourth quarter but said it expected retail sales of refined products to be slightly lower this year.
"We see Eni's refineries as not best placed to benefit from recent refinery closures," Bernstein said in a research note.
Swiss-based Petroplus, Europe's largest independent refinery by capacity, was forced to close three of its refineries as it files for insolvency in a move that is seen as helping other operators.
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