Eni Drills Heron South-1 Well - Analyst Blog

By Zacks Equity Research,

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MEO Australia Limited confirmed that Eni SpA ( E ) has drilled a shallow-water appraisal well − the Heron South-1 − in the Timor Sea, off northern Australia.

The well − drilled on the NT/P68 exploration permit using ENSCO 109 (350' ILC) jackup rig − remains operated by Eni with a 50% interest, while MEO Australia holds the rest. This drilling campaign of Heron South-1 well is in sync with Eni's farm-in agreement signed last year under which the company will receive 50% share in the permit.

Drilling operation is expected to take 60 days to achieve a total depth of 4,230 meters and it aims at verifying the productivity of the Elang-Plover reservoir and the gas composition.

Separately, Eni holds an option to gain a 50% interest in the Blackwood gas discovery in the NT/P68 permit. For this, the company was expected to carry MEO's costs in the course of the acquisition of a minimum of 500 square kilometer (193 square miles) of 3D seismic as well as drill one well in the Blackwood area.

Earlier this year, Eni completed the acquisition of the 766 square kilometer Bathurst 3D survey and has 365 days left since the date of completion to decide upon whether to drill the Blackwood exploration well or not.

We believe Eni's constant efforts to expand its upstream operations and such endeavors in the Barents Sea, Angola, Indonesia and Australia will go a long way to generate profitable growth in the future.

Recently, Eni signed a sale and purchase agreement with the U.S. supermajor Chevron Corporation ( CVX ) for 25% farm-in to three exploration blocks - LB 11, LB 12 and LB 14 - offshore Liberia. The blocks are assumed to be similar to that of Deep Cretaceous discoveries elsewhere in the West African Transform Margin such as Mozambique, Ghana and Suriname. The deal indicates a new market for Eni and will assist the company to further explore the West Africa Transform Margin.

However, we are concerned about Eni's act of reorganizing projects at major fields, the closure of the Elgin-Franklin platform off the British section of the North Sea and liquids losses in Nigeria. Further, the weak natural gas scenario worldwide, arising out of continued oversupply and low demand could hurt the company's performance in the near term.

Eni currently holds a Zacks #3 Rank, which translates into a Hold rating for the period of one to three months. Our long-term Neutral recommendation on the company remains unchanged at this stage.

CHEVRON CORP (CVX): Free Stock Analysis Report
ENI SPA-ADR (E): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CVX , E

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