By Eric Sylvers 

MILAN-- Eni SpA Wednesday reported a steep drop in net income as the global plunge in crude prices cut into profitability at the Italian oil company's main exploration and production unit, offsetting improvements at other divisions.

Net income fell 46% to EUR704 million ($768.5 million) in the first three months of the year compared with EUR1.30 billion in the same period a year earlier. Revenue dropped 19% to EUR23.79 billion.

Like rivals BP PLC and Total SA that reported earnings Tuesday, Eni is reeling from the low price of Brent crude which averaged $54 in the first quarter of 2015, half its price from a year earlier. Chief Executive Claudio Descalzi has said he sees oil reaching $70 a barrel next year. Brent traded at about $65 on Wednesday.

The drop in oil prices led to a sixfold increase in Eni's refining margin compared with the previous quarter. The company warned of headwinds that include lower demand, overcapacity and competitive pressure from oil products imported from Russia, Asia and the U.S. where there are lower cost structures. Eni's refining and marketing division--which includes refining, chemicals production and retail gas stations--reported a small profit compared with a loss in 2014.

"All mid-downstream businesses have returned to profitability," said Mr. Descalzi in a statement.

Eni has offset lower revenue with cost cuts. Last month it became the first major oil company to say it would cut its dividend. At the same time, the company said it would suspend its buyback plan, increase cost cuts and sell EUR8 billion of assets over the next four years. After initially plunging almost 5% on the news of the dividend cut, Eni has since gained about 13% with analysts cheering what they see as the energy giant's realistic approach to the new normal of lower oil prices.

The strong dollar, which during the quarter climbed about 11% against the euro, boosted Eni, which has subsidiaries that use the U.S. currency.

The company said it sees a moderate strengthening of the world economy in 2015 although risks remain, including the uncertainty surrounding the rebound in the eurozone and the extent of the slowdown in China.

In the quarter, Eni produced 1.7 million barrels of oil and gas equivalent, 7.2% more than the first quarter of last year. Mr. Descalzi, who has called on the Organization of the Petroleum Exporting Countries to rein in production to stabilize oil prices, has said Eni will continue to increase production, as fields that have recently come online--from the U.S. to Africa and Asia--pump more oil and gas.

Part of the quarter's increase in production came from Libya, where Eni is the only Western oil company pumping near capacity and an Eni-Libya joint venture has also recently made an important offshore discovery. Despite the positive quarter there, however, Mr. Descalzi last week warned that the situation in the war-torn country is worsening.

There has been an additional challenge in the last few days as striking workers shut down an important Libyan oil field jointly run by Eni and its local partner.

Adjusted net profit, which strips out special items and the changing value of inventories, fell 46% to EUR648 million, well above the EUR461 million analysts had been forecasting. The company's tax rate fell by about 6 percentage points on the quarter because the exploration and production unit, which saw profit fall, faces a higher tax rate than the other units. Also, some interest gains in the quarter weren't taxable.

Eni earned EUR0.20 per share in the quarter compared with EUR0.36 in the year-ago period.

Write to Eric Sylvers at eric.sylvers@wsj.com

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