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One of Italy's largest companies by market value,
Eni
(Milan: ENI, NYSE: E) is in the midst of a restructuring that will
increase the company's exposure to exploration and production.
Some of this effort stems from governmental fiat. The Italian
Cabinet in May 2012 decreed that Eni must sell much of its 52.5
percent controlling stake in Snam (Milan: SRG), which owns and
operates the nation's largest natural gas storage and distribution
network. Since taking office, Prime Minister Mario Monti's
government has focused on liberalizing the nation's gas
distribution network and freeing up Snam to invest in other
European gas grids. EU regulators had criticized Eni for blocking
access to some pipelines and preventing supply from flowing to
areas with the highest prices.
Eni on June 15 finalized the sale of a 30 percent interest in
Snam (minus one share) to Cassa Depositi e Prestiti (CDO), the
postal savings bank in which the government owns a 70 percent
stake. The integrated oil company will receive EUR3.43 (USD4.31)
for each Snam share, which equates to EUR3.517 billion. Snam will
also have to repay Eni more than EUR11 billion in debt after the
split, as the Super Oil formerly raised cash to meet the
distribution company's financing needs.
During a conference call to discuss the transaction, Eni's CEO
confirmed that the company will divest its entire equity stake in
Snam and noted that the firm had received a number of unsolicited
inquiries from institutional investors. Reuters has reported that
sovereign wealth funds from Abu Dhabi and Qatar had expressed
interest in purchasing Eni's remaining ownership stake, citing
sources within the Super Oil.
The deal comes on the heels of a series of pipeline divestments
to settle antitrust charges EU regulators had levied against the
company and the sale of a 5 percent equity interest in Galp Energia
(Lisbon: Galp), Portugal's largest oil company, to Amorim Energia
for EUR14.25 per share. Management has indicated that Eni had
received unsolicited offers from financial institutions for another
18 percent to 20 percent stake in Galp Energia and expects a deal
to close before year-end.
What are the implications of these divestments? Management
estimates that the Snam sale would have reduced 2011 earnings
before income and taxes by 12 percent but emphasized that the
impact on free cash flow would be negligible. The move also enables
the firm to allocate 60 percent of its budgeted capital
expenditures to exploration and production, up from 50 percent in
2011.
With more than 60 major field developments expected to add about
700,000 barrels of oil equivalent production to Eni's portfolio
through 2015, management estimates that the firm's hydrocarbon
output will grow at an average annual rate of 3 percent over this
period.
A series of impressive discoveries in 2011 also prompted Eni to
increase its forecast for average annual production between 2015
and 2021 to 3 percent. Chief among these finds: An estimated 40
trillion cubic feet of natural gas in Area 4 of the Ravuma Basin
offshore Mozambique, a block in which Eni owns a 70 percent
ownership interest.
Over the next few years, management expects to invest about
EUR400 million in additional well tests to further define the
structure and generate a development plan that will start in 2018.
This project will supply the local market and export natural gas in
liquefied form. Other promising developments include two additional
Yamal gas fields in Russia and the Kashagan play in Kazakhstan.
Eni's long-term exploration plans include opportunities offshore
west and
east Africa
, as well as a recent agreement with Rosneft (Moscow: ROSN) to
explore for oil and gas in the Barents Sea and the Black Sea.
Through a memorandum of understanding with China National Petroleum
Corp, Eni is also evaluating shale oil and gas blocks on the
Mainland.
The Italy-based energy giant's gas and power segment (9.8 of
2011 revenue) has suffered from declining volumes because of
reduced demand in Europe and price competition from liquefied
natural gas. But Eni in recent years has renegotiated natural-gas
supply contracts with major suppliers such as Libya's national oil
company, Sonatrach and Gazprom (Moscow: GAZP), moves that have
helped to offset some of these challenges.
With the bulk of its revenue coming from exploration and
production and a credible plan for output growth, Eni represents a
solid bet for investors seeking growth and income. Management also
recently reaffirmed the firm's 2012 dividend and announced a
share-buyback program.
However, investors should note that dividend growth may slow in
coming years as the company shifts its focus to exploration and
production. If you are prudent investor looking for high-dividend
stocks with good growth potential, check out our free report on the
top 5 companies that pay dividends
.