Italy’s Eni softens 2019 growth target as lower prices dent earnings

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Highlights

Targets 2-2.5% production growth for 2019

Venezuelan, Indonesian output slipping

Heavy crude prices hit refining margins

London —
Italian oil major Eni Friday softened its oil and gas production growth target for the year as slipping volumes from Venezuela and Indonesia dent the impact of rising output from a raft of new upstream projects.

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Reporting weaker second quarter earnings on lower prices and thinner refining margins, Eni said it sees average oil and gas production growth of 2-2.5% in 2019, compared with previous guidance of 2.5% for the year.

“The projected range is assuming a production level of 40,000 boe/d in Venezuela and a scaling down in production volumes at our Indonesian project to factor in a slowdown in end markets in Asia,” Eni said in an earnings statement.

Last year, Eni’s production from Venezuela fell to 48,000 boe/d, down from 61,000 boe/d in 2017, amid the escalating political and economic crisis in the country. The company has debooked reserves due to reduced volumes from the offshore Perla gas field and taken a writedown on its 40% stake in the Junin 5 asset in Venezuela’s Orinoco heavy oil belt.

Eni’s reported oil and gas production in the second quarter averaged 1.825 million b/d of oil equivalent, down 2% on the year, due mainly to the expiry of its Intisar gas fieldcontract in Libya last June.

The oil major expects production growth this year will be fueled by the continued volume ramp-up at Egypt’s massive Zohr gas field, the ramp-up at two Libya projects, as well as planned startups offshore Mexico, Egypt, Algeria and at the Trestakk project in Norway, the company said.

Combined, the new field start-ups and ramp-ups are projected to add some 250,000 boe/d to Eni’s production this year, it added.

The completion of planned maintenance work at Kazahkstan’s giant Kashagan field and Norway’s Goliat project will mean production growth versus 2018 will accelerate from the third quarter, Eni said.

EARNINGS SLIP

Eni reported a 27% year-on-year fall in its adjusted net earnings for Q2 to Eur562 million, hit by lower oil and gas prices, weaker refining margins and lower production.

The company said it generated cash flow of Eur3.38 billion in the quarter, down from Eur3.42 billion in Q1 but up 43% year on year.

On breakeven cash flow, Eni has said it expects to cover organic capital expenditure and the dividends at a Brent price of $55/b this year with a capital spending guidance of $8 billion.

“We expect to generate additional organic cash surplus in the near future owing to our expectation that Brent will exceed our level of cash neutrality, which at approximately $55/b is forecast to remain below actual oil prices,” Eni said Friday.

REFINING WEAKER

Downstream, Eni confirmed it expects its refinery breakeven margin to hit $3.50/b at the end of 2019, pushed higher by widening differentials between light Brent crude benchmark and high-sulfur content crudes.

Over the year, Eni said it expects its refinery breakeven margin to average $4.40/b.

In Q2, Eni’s reference refining margin was $3.70/b, up slightly from the previous quarter but down 10% from the year-ago quarter level of $4.10/b.

Eni posted a Eur48 million adjusted profit for its refining and chemicals segment for the quarter, down 28% on the year, dented by the rising cost of heavy, high-sulfur crudes as OPEC production cuts continue to crimp supply and exports from Iran and Venezuela slide.

“The trading environment for complex throughputs was markedly down in the first half 2019 due to narrowing price differentials between heavy/sour crudes and the Brent benchmarkcrude, resulting in heavy crudes traded at a premium versus Brent for most of the first half,” Eni said.

Eni’s refining crude throughputs were 1% higher on the year at 5.63 million mt as a result of lower maintenance work at its Sannazzaro and Taranto plants.

— Robert Perkins, robert.perkins@spglobal.com

— Edited by Wendy Wells, wendy.wells@spglobal.com