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Eni (E) Unveils Progressive Strategic Plan for 2019-2022

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Eni SpA E has released its strategic plan for 2019-2022, which reflects the usual progress from the same executed in the previous years. Through the plan, the company intends to continue boosting business value.

The company has undergone a successful transformation. This has led to a more integrated set-up, which has positioned the company to witness further growth in the upstream sector. Also, the mid-downstream businesses have been reorganized, which are financially more sound and will yield results amid low oil price scenarios.

Dividend    

Eni intends to increase dividend for 2019 to €0.86 per share, up 3.6% from 2018 tally and will be payable in cash.

Upstream

During the 2019-2022 period, Eni proposes to invest about €3.5 billion for exploring new acres of land with resource potential of 2.5 billion barrels of oil and gas. It plans to drill around 40 wells on a net acreage of 460 thousand square kilometers at a unit cost of less than $2.

Over the same phase, hydrocarbon production is estimated to grow 3.5% a year. The uptick will be backed by ramp-up and commissioning of new projects, which is likely to contribute about 600 thousand barrels of oil equivalent per day in 2022. The expansion of existing fields is expected to add 290,000 barrels of oil equivalent per day in 2022.

During the period under review, about 18 major start-ups will be completed. Eni will operate about 77% of the total equity production. Of the total production reached at the end of the plan, three areas — Middle East, Norway and Mexico — will contribute 260,000 barrels of oil equivalent per day.

From 2019 to 2022, Eni expects a cumulative free cash flow generation of €22 billion. This is subject to the success of the exploration strategy and the extensive portfolio of new conventional projects with a break-even of less than $25/barrel along with a rigorous financial discipline.

Gas and Power

The segment is projected to witness rapid growth in the company’s liquefied natural gas (LNG) portfolio with a target set at 14 million tons per year of contracted volumes in 2022 and 16 million by 2025. Further, through the improvement of the equity component, volumes are expected to reach 14 million tons per annum (MTPA) in 2022 and 16 MTPA in 2025.

Moreover, the gas portfolio and retail sector in Europe is likely to register growth. Customer base is expected to reach about 12 million in 2022, up 26% from 2018.

These upsides will enable the business to attain an EBIT of €700 million in 2022, of which 70% will be generated from retail. Cumulative free cash flow during 2019-22 is estimated at €2.3 billion.

Refining & Marketing and Chemicals

Eni expects strong growth during the planned period with a cumulative free cash flow of €2.6 billion and an EBIT of more than €270 million in 2022. Refining break-even is expected at $1.5/barrel from 2023.

To achieve the targets, Eni intends to restart the Sannazzaro EST plant bymid-2019, boost the green refining capacity to 1 million tons per and commissionthe bio-refinery in Gela. Also, the second phase of the development of Venice is likely to be concluded by 2022. By the end of 2023, the refining capacity will increase by 40% due to the acquisition of a 20% stake in Ruwais refinery in the UAE. Moreover, consolidation of the company’s leading marketing position in Italy is expected to increase to 25%, capitalizing on the new sustainable mobility initiatives.

New Energy Solutions

The latest New Energy Solutions business is expected to grow over the four-year period. The upside will be attributable to a unique model based on incorporation with existing assets and activities. This is likely to create new opportunities and value for the company. This unique model will bring synergies in energy costs for production facilities and increase availability of more gas for local consumption or export. Return from these projects is expected in the range of 8-12%. The company plans to complete 60 brownfield and Greenfield projects. Moreover, through investments worth €1.4 billion, Eni will develop more than 1.6 GW of new capacity by 2022 and up to 5 GW by 2025, over the medium to long term.

Decarbonization Process

Eni has outlined a decarbonization process and expects to follow a comprehensible as well as definite climate strategy with total investment of more than €1 billion in the 2019-22 period. The model emphasizes a cut in direct greenhouse gas (GHG) emissions and targets a net zero direct emissions in the upstream business by 2030. The company plans to achieve the targets through projects designed to reduce process flaring, eliminate fugitive emissions of methane and undertake energy-efficiency measures.

Financial Strategy

The capital expenditure for the plan is estimated at €33 billion, of which €8 billion will be invested through 2019. The company will focus on high-value projects with quick returns. Based on Brent price of $62 per barrel and a gas price similar to 2018, the CFFO is expected to grow by around €1 billion from 2018 figures and will further increase €2.6 billion in 2022.

During the period, free cashflow is projected at a CAGR of 17%. Based on Brent price of $60 per barrel, Eni is assumed to realize an operating cash flow of more than €11 billion in 2018, which might further appreciate above €2 billion in 2021.

Eni expects dividend cash neutrality to improve from $55 per barrel in 2019 to $50 per barrel by the end of 2022.In 2019, Eni also expects to begin a four-year buyback program with an initial capital allocation of €400 million. In the following three years, assuming leverage below 20%, the annual capital allocation will amount either to €400 million in a $60-65 Brent scenario or €800 million with the same above $65.

Zacks Rank & Key Picks

Currently, Eni carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are  CrossAmerica Partners L.P. CAPL, Antero Resources Corporation AR and Lonestar Resources US Inc. LONE. While Antero Resources and CrossAmerica Partners sport a Zacks Rank #1 (Strong Buy), NuStar Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CrossAmerica Partners is involved in the wholesale distribution of motor fuels, comprising gasoline and diesel fuel. The company delivered an average positive earnings surprise of 452.2% in the last four quarters.

Antero Resources’  is an independent explorer, primarily engaged in the acquisition and development of natural gas, natural gas liquids and oil resources in the Appalachian Basin. The company earnings beat the Zacks Consensus Estimate in two of the last four quarters.

Lonestar Resources US Inc. LONE is a Fort Worth, TX-based exploration and production company. The top line for 2019 is expectedto increase 4.3% year over year. It currently has a Zacks Rank of 2.

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