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Eni (E) Joins ADNOC's Huge Refining Unit Through $3.3B Deal

Zacks Equity Research

Eni S.p.A. E recently inked a Share Purchase Agreement with Abu Dhabi National Oil Company (“ADNOC”) for acquiring 20% stake in its refining business, for a cash price of around $3.3 billion, marking one of the largest-ever refinery-related transactions. Austrian oil and gas producer OMV AG also acquired 15% stake in the business for around $2.5 billion. Following the closing of the transaction, ADNOC will retain the rest of the interest in the refining unit.

Markedly, ADNOC’s refining business is one of the largest businesses in the world with a refining capacity of 922,000 barrels per day (BPD). ADNOC operates three refineries in Ruwais East, Ruwais West and Abu Dhabi. Notably, the Ruwais complex has the fourth highest refining capacity in the world. The refining assets of ADNOC are strategically placed to supply Asian, African and European markets. The deal, which is expected to close in third-quarter 2019, values the refining business at around $19.3 billion.

Eni, along with ADNOC and OMV, has plans to create a trading unit that will sell the refined products to international clients. The companies are expected to own equivalent stake in the trading arm as they will hold in the refining business.

The deal is expected to boost Eni’s existing global refining capacity of 548,000 BPD by 35%. It will further reduce Eni’s refining break-even target margin by 50%. The move can also enable the company to gain higher margin and diversify the downstream businesses via entering UAE’s downstream market. Eni already has a presence in UAE’s upstream market. The deal further increases Eni’s footprint in the region. The company has operations in Oman, Bahrain, Lebanon and Iraq.

Notably, the company stated that a development plan for the Ruwais facility is underway, which will increase its competitiveness as well as profitability. Eni will bring in its technological knowledge on the table to maximize the margin from refined outputs. ADNOC has plans to invest $45 billion by 2024 to increase Ruwais’ processing capacity by 600,000 BPD.

Price Performance

Eni has lost 9.7% in the past year compared with 15.9% collective decline of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, Eni has a Zacks Rank #5 (Strong Sell). Investors interested in the energy sector can opt for some better-ranked stocks as given below.

Houston, TX-based Shell Midstream Partners, L.P. SHLX is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 60 days, is expected to grow 27.7% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Houston, TX-based W&T Offshore, Inc. WTI is an oil and gas exploration and production company. Its bottom line for 2018 is expected to increase more than 78% year over year. It delivered average positive earnings surprise of more than 38% in the trailing four quarters. The stock currently has a Zacks Rank #2.

YPF Sociedad Anonima YPF is a Buenos Aires, Argentina-based integrated energy company. Its bottom line for 2018 is expected to increase more than 27% year over year. The company currently has a Zacks Rank #2.

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