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 and a lower tax
rate.
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.
Exploration and production--that has traditionally been the
company's main profit generator--saw profit fall in the first
quarter this year. However for the first time in almost five years
ENI reported quarterly operating profit in the same period at all
three other main divisions ---- gas and power, refining and
marketing, and engineering and construction.
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.
"Overall the results show that the business model is very
resilient to the oil price fall and that the restructuring plan
under the new CEO is well advanced," Bernstein said in a note to
clients.
A key part of the restructuring has been cost cuts, which have
helped offset lower revenue. In the past 12 months Eni has
"recovered" EUR600 million, Mr. Descalzi said in a statement. Part
of that savings is from cost cuts.
Morgan Stanley called the cost savings in the past year
"encouraging."
Last month Eni 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, contributing to a reduction in its tax bill of EUR1.3
billion, 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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