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Eni to Dish Out $400M in Taxes

Zacks Equity Research

Italian energy giant Eni SpA (E) announced that it has agreed to pay $400 million in taxes on proceeds for a July divestment of stake in Area 4 offshore gas field in Mozambique. In July, Eni sold 28.57% of its stake for $4.2 billion to state controlled China National Petroleum Corporation.

The tax deal agreed between the CEO of Eni and the Mozambiquen president will be mutually beneficial. On one hand, Eni got off the Mozambiquen tax hook cheaply which was touted to be as high as $1.35 billion after including the effects of a capital gains tax of 32%.

On the other hand, the incumbent Mozambiquen administration was under severe criticism at home owing to allegations of kick backs in lieu of granting massive tax breaks to international energy companies operating in Mozambique. It is alleged that earlier companies like Rio Tinto plc (RIO) were let easily off the tax hook.

Mozambique’s offshore gas reserves have received a boost from the recent finds in the region and it is estimated to hold reserves of about 150 Tcf.  A regional liquefied natural gas (LNG) project as well as discoveries in Area 4 are likely to be commissioned in 2018, further enhancing the productivity of the region.

Going forward, Eni believes that a certain degree of ambiguity still looms with respect to the economic slowdown, particularly in the Euro zone, and volatile market conditions. This Italian giant expects the uncertainty to prevail in the European gas, refining and marketing and chemicals sectors. Overall demand will likely remain weak due to the ongoing economic dormancy.

The company expects 2013 oil and natural gas production to be in line with the 2012 level. The start-up of major projects, such as those in Algeria, Angola and Kazakhstan, and production ramp-up at fields started in 2012, in particular in Egypt, will be offset by loss of production in Nigeria and Libya, mature field declines and the effect of asset disposals.

For 2013, refining throughputs are expected to decline from the 2012 level of 30.01 million tons. The downside would be due to the ongoing industry downturn and the planned shutdown of the Venice plant. These negatives are expected to be partly offset by the start-up of the new EST technology conversion plant at Sannazzaro.

Eni currently carries a Zacks Rank #4 (Sell). But there are other stocks in the oil and gas industry that are performing well. These include Matador Resources Company (MTDR) and Pembina Pipeline Corporation (PBA), which hold Zacks Rank #1 (Strong Buy).

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