Italian energy behemoth
Eni SpA
(
E
) plans to depart its oil and gas business in India, according to
industry insiders. Difficulty in obtaining regulatory approvals for
the related blocks prompted Eni to take this move. The company is
now in talks with state-owned oil company Oil and Natural Gas Corp.
Ltd ("ONGC") for its exit.
In India, Eni holds interest in three blocks through its Indian
affiliate, Eni India. The company holds a 40% operational stake in
the AN-DWN-2003/2 block in the Andaman and Nicobar Islands region,
while ONGC and GAIL (India) Ltd own 45% and 15% interests,
respectively. The company has a participating interest of 34% in
ONGC operated Mahanadi block MN-DWN-2002/1 and operates the
Rajasthan block RJ-ONN-2003/1 with a 34% stake. ONGC and Cairn
India Ltd possess 36% and 30% shares, respectively, in the
Rajasthan block.
Following the purchase of Burren Energy Plc back in 2008, Eni
also holds its position in the sector through Hindustan Oil
Exploration Co., Ltd. with a 47.16% share.
However, Eni India surrendered its Rajasthan block recently as
one-third of it is under a protected area classified as a desert
forest. Again, in 2010, the Indian government considered
postponement of the contractual commitments of Eni with regard to
its Andaman and Nicobar Islands block. This was mainly on account
of the block's proximity to the rocket stage impact zone of the
Indian Space Research Organization. Eni was thus unable to attain
the required drilling consent from the department of space.
Although the Italian giant aims to exit its Indian oil and gas
business, constant efforts to expand its upstream operations and
endeavors in the Barents Sea, Angola, Indonesia and Australia will
go a long way in generating profitable growth in the future.
The company expects its 2012 oil and natural gas production to
be in line with the reported 2011 level of 1.58 million barrels of
oil equivalent per day (MMBoe/d) on the ramp-up of activities in
Libya, in an effort to attain the pre-crisis level.
The production in Libya is expected to be fully operational by
the latter half of 2012. The start-up of new fields in Algeria and
offshore Angola and the gas joint development in Siberia will also
fuel growth.
However, we are concerned about Eni's refining business as its
underlying fundamentals are still weak following the political
disturbances in the Middle East that could suppress production.
Immense competition from peers such as
Statoil ASA
(
STO
) is also a threat to the company.
Eni currently holds a Zacks #3 Rank, which translates into a
Hold rating. Our long-term Neutral recommendation on the company
remains unchanged at this stage.
ENI SPA-ADR (E): Free Stock Analysis Report
STATOIL ASA-ADR (STO): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research