MILAN—Eni SpA said Thursday that it swung to a net loss in the third quarter as low oil prices reduced the profitability of the Italian company's core oil and gas exploration business and another unit posted a large loss.

The net loss in the three months to end-September was €952 million ($1.05 billion) compared with a net profit of €1.71 billion in the same period last year. Revenue declined by almost a third to €18.81 billion.

Like its competitors, Eni is grappling with what industry executives and analysts say will be a sustained period of low oil prices. Brent, the global benchmark, averaged $50 a barrel in the quarter compared with double that in the same period last year. Cost cuts and a reduction in its dividend announced in March have helped Eni weather the two-thirds drop in the profitability of its oil and gas business so far this year, but the oil and gas unit is no longer able to offset the struggling other businesses on its own.

In a further move to confront the new reality of depressed oil prices, Eni yesterday agreed to sell 12.5% of its troubled oil services unit Saipem to an Italian state-run investment fund. The sale, plus Saipem's repayment of debt, will bring Eni €5.4 billion. The proceeds of which will be used for its exploration and production business and to shore up its balance sheet.

Eni Chief Executive Claudio Descalzi has indicated that the remaining 31% stake his company still owns in Saipem could be lowered further, though he is in no rush to do so in light of the company's depressed stock. The shares have lost half their value in the past two years as Saipem issued multiple profit warnings and cycled through three CEOs.

With Brent at $55 a barrel, and excluding the proceeds from the Saipem sale which is slated to be completed in next year's first quarter, Eni can cover its investments in 2015 with its organic cash flow, Mr. Descalzi said in a news release.

Eni's success in exploration over the past year offered a bright spot in the company's third quarter results. Production of oil and natural gas rose 8.1% on the quarter, slightly above analysts' forecasts, and Eni boosted its guidance for production on the year two percentage points to 9%. Eni's top recent discovery is a massive natural gas field off the Egyptian coast.

Adjusted operating profit, a closely watched measure of profitability that strips out one-time items, fell by three-fourths in the quarter to €752 million, slightly below analysts' forecasts of €778 million.

The gas and power division wiped out most of that profit as it reported a quarterly loss of almost €500 million. That loss—due largely to the difference between what Eni prepaid for natural gas in past years and the lower price during the most recent quarter—doesn't affect Eni's cash flow and won't be repeated in future quarters, according to Bernstein Research.

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

 

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(END) Dow Jones Newswires

October 29, 2015 07:05 ET (11:05 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
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