Eni Eyes Vietnam Expansion

Zacks

Italian energy major Eni SpA (E) intends to farm in to gas exploration block 114 in the Song Hong basin, offshore Vietnam -- a promising southeast Asian market.

Earlier, exploration block 114 was fully held by India-focused integrated energy firm Essar Energy Plc, which had a production-sharing contract on the block since 2010. Eni has inked a contract with Essar to procure a 50% stake in the block and has also acquired the operatorship of the block, simultaneously.

Per the agreement, which still awaits Vietnamese government approval, Eni will be responsible for the purchase of a 3D seismic survey along with the spudding of two wells. Essar took Eni as a partner, as it was having trouble arranging additional outlays required to commence gas production. The London-listed company also intended to share the risk as well as focus on growing its core assets.

Block 114 spreads over 5,900 square kilometers in the Song Hong basin -- an area considered to be resource rich, as has been proved by considerable exploration successes in nearby blocks.

The current agreement reinforces Eni’s strategy of expanding in the Far East regions, having large mineral deposits. In June 2012, Eni’s wholly owned subsidiary, Eni Vietnam, had acquired a 50% interest in Block 105-110/4 and Block 120 from Australia's Neon Energy Ltd. and Singapore-based KrisEnergy Ltd.

The government of Vietnam is offering investment incentives to foreign companies capable of drilling offshore, and to those keen on sharing technology with state-owned PetroVietnam, which lacks these capabilities.

Vietnam is on the threshold of becoming the next exploration hub in Asia. The region’s focus on finding commercial oil and gas would aid in meeting future energy demands. The company’s holdings in the high quality exploration blocks with immense potential that remain largely unexplored bode well going forward.

Eni, which faces competitive threats from Statoil ASA (STO), holds a Zacks #3 Rank that translates into a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.

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