Eni to Adopt Cost-Cut Measures to Overcome Oil Price Slump - Analyst Blog
The prolonged period of oil price slump has forced Italian oil and gas company EniSpA E to cut down its spending, lower dividends and sell assets worth €8 billion ($8.5 billion) over the next four years, 70% of which will be put up for sale before 2016. These efforts are directed to save funds to spur future production growth.
The four-year plan for 2015–18 anticipates a fall of 17% in capital expenditure to about €48 billion ($50 billion) as against a previous plan. Eni announced a cash dividend of €0.80 a share on this year’s earnings, down 29% from 2014. The company did not turn down the option of following rivals like Royal Dutch Shell plc (RDS.A) and paying dividends in shares beyond this year.
The rapid fall in oil prices over the past nine months has compelled Eni and other oil companies, both large and small, to find innovative ideas for cost reduction while maintaining dividends and exploration activities that ensure future growth. Eni said that its dividend will rise once it begins witnessing growth.
Eni has further deferred its buyback program, which had already come to a halt in recent months. The company, however, plans to relaunch it only after assessing the improvement in market conditions.
The International Energy Agency, an energy watchdog, mentioned in its monthly report that though oil price has recovered from lows hit in January it could soon begin to fall again. In its four-year plan, Eni has projected Brent crude oil, which is considered to be the benchmark worldwide, to average $55 a barrel in 2015, increasing to $70 in 2016, $80 in 2017 and $90 in 2018.
Eni intends to derive about half of the value of the asset sale by shedding stakes in recently developed projects like a huge gas find in Mozambique. Currently, Eni holds 50% in the gas field after farming out 20% two years ago for $4 billion. In recent years, the company has been successful in finding new oil and gas fields. Eni has also often sold stakes early on in the life of the assets to share development costs.
Eni is aiming for an annual output growth of 3.5% in 2015–2018, up from the 3% in its earlier 2014–2017 plan.
Eni currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks from the oil and gas sector include Valero Energy Partners L.P. VLP, Western Gas Equity Partners, L.P WGP and Hallador Energy Company HNRG. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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