Tuesday, March 15, 2011

Eni 2010-2014 business plan clouded by Africa unrest

Eni is planning to achieve 3% annual production growth by 2014, higher compared to the previous plan of 2.5%. About 80% of the production due to come on-stream over the plan period will be from giant projects, in particular from those in Venezuela, Russia, the Arctic region and Angola.

The company’s strategy of quickly developing oil and gas resources could work but depends a lot on Africa — this now looks challenged given the unrest in North Africa. ENI is one of the biggest foreign operators in Libya which gets more than half its oil and gas from Africa and which is one of the fattest dividend yields among European oil majors.

The production target is clearly at risk if the unrest goes on and if that happens, Eni have to cut the dividend. In any case the troubles remove potential upside to the 2011 dividend. Before the North Africa crisis erupted Eni had succeeded in renegotiating its gas supply contracts with Libya. But that is now on hold given the suspension of Libyan flows. Italy has increased Russian gas imports. Gazprom will now be strengthened in renegotiations with Eni as Italy, and Europe, once again relies on Russian gas.

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