Eni SpA (E) Releases its Strategic Plan for 2016 to 2019


Eni SpA (E – Analyst Report) released its Strategic Plan for the period from 2016 to 2019.

eni logoPer the plan, Eni intends to undergo a transformation to enhance its long-term growth while meeting short-term financial constraints. The company anticipates a cumulative production growth of 13% over the planned period in spite of a cut in upstream capital expenditure by 18%. Eni proposes to keep its operating expenses below $7/BOE.
Over 2016–2019, hydrocarbon production is estimated to grow by more than 3% per year. The company expects growth to be driven by the ramp up and startup of new projects, which should produce a total of about 800 thousand barrels of oil equivalent per day (MBOED) in 2019. In view of such a tepid oil price environment, the company has drastically reduced its average breakeven price of new projects to $27/BOE from $45/BOE.
The renegotiation of long-term gas contracts and cost cuts in logistics helped Eni’s Gas and Power (G&P) business to report almost breakeven results in 2015. The new plan will further boost profits through increased focus on earlier initiatives as well as growth of the retail customer base by 20%. Per the new plan, the cumulative cash flow from operations in 2016–2019 will amount to 2.8 billion euros and earnings before interest and tax (EBIT) of 900 million euros in 2019. The structural breakeven for G&P is expected in 2017.
Eni intends to reduce its breakeven to about $3 per barrel by 2018 to deal with the structural weakness in its Refining sector. The company will, however, maintain its current refining capacity. This will result in a cumulative cash flow from operations of 2.9 billion euros over the plan period. The Refining business reached adjusted EBIT breakeven in 2015, two years ahead of plan. The Refining & Marketing segment is expected to reach an adjusted EBIT of 700 million euros by 2019.
Over the four-year period, the company plans to invest mainly on high value projects with fast returns and on the development of conventional projects. Capital expenditure is estimated at about 37 billion euros, down 21% from the previous plan. The new disposal program will comprise asset sales of 7 billion euros, mainly through the dilution of high working interest stakes in recent substantial discoveries. Also, uncommitted capital expenditure will be nearly 40% of the total investments in 2017–2019. This will provide Eni substantial flexibility if oil prices continue to remain weak going forward.
Currently, Eni carries a Zacks Rank #5 (Strong Sell). Some better-ranked players from the energy sector are SolarEdge Technologies, Inc. (SEDG – Snapshot Report), Braskem S.A. (BAK – Snapshot Report) and Enviva Partners, LP (EVA – Snapshot Report). Each of these stocks sports a Zacks Rank #1 (Strong Buy).