By Eric Sylvers
Eni SpA (E) Thursday reported a steep drop in adjusted
second-quarter net profit as low crude oil prices and the poor
performance of a unit hammered the Italian oil and gas company's
financial results.
Adjusted net profit, which strips out special items and the
change in the value of oil inventories, plunged 84% in the second
quarter to EUR139 million ($153.55 million). Revenue fell 19% to
EUR22.19 billion.
Eni had a net loss of EUR113 million in the second quarter,
compared with a EUR658 million profit in the corresponding period
last year.
The plunge in crude oil has hurt Eni like its rivals, including
Royal Dutch Shell PLC, which Thursday said profit fell by a third
in the quarter and that it will cut 6,500 jobs. But Eni has also
had to grapple with the implosion of its 43%-owned oil and gas
services unit Saipem SpA. The unit this week took a huge writedown
on quarterly results and said it would lay off almost a fifth of
its workforce in the next two years. Saipem has issued several
profit warnings over the past few years and is embroiled in
corruption allegations in Algeria and Brazil.
Eni gave some good news, saying that new project startups and
ramp-ups pushed production 11% higher in the quarter to 1.75
million barrels of oil and equivalent natural gas volume a day. The
company raised its forecast for production growth this year to more
than 7% from 5%.
"Eni, as with others in the sector, continues to manage through
the downturn," wrote Barclays analyst Lydia Rainforth in a note,
adding that the increase in production guidance for the year is one
of several "encouraging signs."
Part of the improvement in production came from Libya, where Eni
has continued to show strong numbers despite the country having
fallen into violent chaos, with four Italians working for an Eni
contractor kidnapped earlier this month. While most of Eni's
production in the North African country is offshore and therefore
shielded from the unrest on land, if the situation worsens
investors are likely to question how long Eni can continue its
Libyan tightrope walk.
"So far so good in Libya," said Eni Chief Executive Claudio
Descalzi in a conference call with analysts.
Mr. Descalzi said Eni is closely following developments in Iran
to see if there could be the requisites to invest if sanctions are
lifted. With the steep cut in expenditure in the industry that has
followed the decline in oil prices, the potential boost to global
production from Iran will be needed down the line.
"Iran can potentially play an important role" in the oil and gas
sector, said Mr. Descalzi. "Potentially because they need to invest
more than $100 billion to achieve strong production. We are trying
to understand the timeframe."
The average price of Brent crude, the global benchmark, was 44%
lower in the quarter compared with the corresponding period last
year. A modest rebound in the quarter has been largely erased by a
new decline in July. Thursday Brent traded at about $54 a barrel.
Mr. Descalzi has said he is preparing Eni to confront a long period
of oil at $63 a barrel. At that price, the company can increase its
cash flow organically and boost its dividend, the executive has
said.
Excluding the results of Saipem, Eni's adjusted net profit was
EUR448 million, a 46% drop.
Eni, which is 30%-owned by the Italian government, set its
interim dividend on this year's results at 40 European cents. Eni
has said its total dividend for this year will amount to 80
cents.
Write to Eric Sylvers at eric.sylvers@wsj.com
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