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Eni's (E) Growth Challenged by Delays in Upstream Projects

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On Dec 14, 2015, we issued an updated research report on Italy-based Eni SpAE .

A certain degree of ambiguity looms with respect to the economic slowdown, particularly in the Euro Zone, where the company has a significant presence. The European gas, refining and marketing, and chemicals sectors also remain highly volatile. Overall demand will likely remain weak due to the ongoing economic dormancy. Eni believes that its Gas & Power division will remain under pressure due to stiff competition and saturation in the Italian market.

For 2015, the divestment of Eni's assets in Germany and unusual weather conditions as encountered in 2014 might lead to some adversities. The company also announced its four-year plan for 2015-18, which projects a fall of 17% in capital expenditure to about €48 billion ($50 billion). These are likely to affect company's profitability going forward.

Eni's upstream portfolio carries greater political risk than its peers as it has highest exposure to the OPEC countries. Other risks faced by Eni are further disruptions in production and the inability to sell its non-core assets. We believe that any downtrend of the global economy will affect the supply-demand fundamentals of oil and gas, thereby hurting the sales prices for crude oil, natural gas and refined products.

Eni's growth momentum is considerably affected by delays in new upstream projects, cost pressures and failure to complete planned asset divestiture programs on schedule. Moreover, the company's international operations remain susceptible to political and economic risks.

However, Eni expects 2015 oil and natural gas production to increase from that of 2014. The start-up of new fields and ramp-up of the projects already started in 2014, primarily in Angola, Congo, Egypt and the United States, will fuel growth.

We believe that Eni's constant efforts to expand its upstream operations in Cyprus, Egypt, Vietnam, Indonesia, Pakistan and Kenya will help in generating profitable growth in the future. For 2015, volumes are also expected to rise marginally from the 2014 level. Project start-ups, inputs from big projects in Algeria, Iraq, Australia, Russia and Egypt, along with a strategic position in non-conventional gas, are expected to augment volumes going forward. The expected production ramp-up at the Venice refinery is also likely to increase production of biofuels.

Zacks Rank and Stocks to Consider

Eni carries a Zacks Rank #4 (Sell). Some better-ranked players from the energy sector are Energy Transfer Equity, L.P. ETE , ReneSola Ltd. SOL and Boardwalk Pipeline Partners, LP BWP . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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ENI SPA-ADR (E): Free Stock Analysis Report

RENESOLA LT-ADR (SOL): Free Stock Analysis Report

ENERGY TRAN EQT (ETE): Free Stock Analysis Report

BOARDWALK PIPLN (BWP): 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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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