Share price of Italy’s Eni SpA (E) moved up 0.5% on its announcement of having moved closer to a settlement with Norwegian giant Statoil ASA (STO) with the signing of a Heads of Agreement (HoA). The agreement relates to the revision of the terms of its long-term gas supply contract including price and volume. However, the share price surprised with a drop of 2% in the following trading session.
In order to facilitate the parties to carry out an exhaustive agreement in the context of a changing European gas market the arbitration proceedings started by Eni has been suspended for 30 days.
Eni had slapped a NOK 60 billion ($10 billion) arbitration case against Statoil and claimed compensation from the Norwegian supplier for charging prices above prevailing market levels since the deal was signed in 1998.
While Eni had earlier renegotiated prices on supply deals with Russia’s Gazprom and Sonatrach of Algeria, Statoil had declined to alter its long-term supply contract with the Italian customer. However, Statoil was reportedly offering price concessions to other buyers.
The contract price was linked to the oil price. As per Eni, it had been paying 30% to 40% higher than the European market levels for Statoil’s gas.
Eni decided to suspend the arbitration case against Staoil after the pair reached a preliminary pact to modify a long-term supply deal.
The HoA with Statoil forms part of Eni's endeavor to renegotiate all third-party gas supply contracts, with the aim of achieving a competitive portfolio by Jan 1, 2016.
Eni currently holds a Zacks Rank #5 (Strong Sell). Other stocks in the oil and gas sector such as Helmerich & Payne, Inc. (HP) and Patterson-UTI Energy Inc. (PTEN) with a Zacks Rank #1 (Strong Buy) are expected to outperform.