Eni Swings to Net Loss on Low Oil Prices
October 29 2015 - 07:20AM
Dow Jones News
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)
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