We reaffirmed our Neutral recommendation on
) on Jun 20, 2013, based on its recent international endeavors
which we believe will provide ample opportunity for profitability
in the coming quarters. The ongoing recovery in the global
economic scenario as well as development and commissioning of new
fields are the key drivers of this volume growth.
However, sluggish demand, supply glut and competitive pressures
in Europe are expected to weigh on the stock. The company holds a
Zacks Rank #3, which is equivalent to a short-term Hold rating.
The Italian oil major's outlook for the upcoming months is
favorable, given its 2013-2016 strategic plans to enhance
production and implement steps to control costs and increase
profitability. The company remains upbeat on its production
growth target, expecting more than 4% growth annually, up from 3%
expected until 2022.
We believe that Eni's constant efforts to expand its upstream
operations in Cyprus, Egypt, Vietnam, Indonesia, Pakistan and
Kenya will go a long way in generating profits in the future.
Moreover, project start-ups, inputs from big projects in Algeria,
Iraq, Australia, Russia as well as Egypt, as well as its
strategic position in non-conventional gas, are expected to
augment volumes going forward.
During the first quarter, the group's total liquids and gas
production were 1,600 thousand barrels of oil equivalent per day
(MBoe/d), mainly attributable to new production start-ups and
ramp-ups, particularly in Russia, Egypt and Angola which offset
decline in mature fields.
Eni expects its 2013 oil and natural gas production to be higher
than the reported 2012 level, given the commissioning of major
projects like Kashagan in Kazakhstan as well as other assets
including the Angola liquefied natural gas and the gas assets in
Algeria. Moreover, stepped-up production at the fields
commissioned last year also raises our optimism on Eni's assured
profitability over the coming quarters.
For the second quarter of 2013, the Italian energy giant believes
that a certain degree of ambiguity still looms with respect to
the economic slowdown, particularly in the Euro zone, and
volatile market conditions. This Italian giant expects the
uncertainty to prevail in the European gas, refining and
marketing and chemicals sectors. Overall demand will likely
remain weak due to the ongoing economic dormancy.
The company expects 2013 oil and natural gas production to be
higher than the 2012 level given the commissioning of major
projects like Angola liquefied natural gas and the gas assets in
Algeria. This is expected to be accompanied by stepped-up
production at the fields commissioned last year.
Worldwide gas sales are expected to be at par with the 2012
level. Despite experiencing lackluster demand, management seeks
to boost sales volumes and market share as well as maintain and
develop its retail customer base.
For 2013, refining throughputs are expected to remain at the 2012
level of 30.01 million tons. However, retail volumes in the
domestic market are expected to weaken due to the expected
reduction in demand for the domestic use of fuels.
We believe Eni's constant efforts to expand its upstream
operations in Egypt, Vietnam, Indonesia, Pakistan and Kenya will
augment volumes going forward. Again, project start-ups, inputs
from big ventures in Iraq, Australia, Russia and Egypt, as well
as its strategic position in non-conventional gas are also
expected to contribute to volume expansion.
Other Stocks to Consider
While we prefer to remain on the sidelines for Eni, there are
other stocks in the sector that appear more attractive. These
include Zacks Rank #1 (Strong Buy) stocks
Oasis Petroleum Inc.
Sanchez Energy Corporation
Hornbeck Offshore Services, Inc.
ENI SPA-ADR (E): Free Stock Analysis Report
HORNBECK OFFSHR (HOS): Free Stock Analysis
OASIS PETROLEUM (OAS): Free Stock Analysis
SANCHEZ ENERGY (SN): Free Stock Analysis
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