Eni Posts Loss as Refining Unit Offers No Buffer From Price Drop

  • Company reiterates that it plans to cut investment by 20%
  • Hydrocarbon production climbed 3.4% in first quarter

Eni SpA posted a quarterly loss as a collapse in crude prices hurt the Italian oil major that lacks the refining business that sheltered European rivals.

While the company boosted production and cut costs, it wasn’t enough to offset the plunge in crude prices to a 12-year low. Peers BP Plc and Total SA posted better-than-forecast earnings this week as their refining operations profited from cheap crude, but Eni’s loss was larger than analysts’ estimates.

“Eni doesn’t have sophisticated refineries so that you can replicate the kind of results that we saw at BP or Total,” said Danilo Onorino, a portfolio manager at energy-focused Dogma Capital SA, which doesn’t own Eni shares. “They are left mainly with the results of the upstream.”

An adjusted net loss of 77 million euros ($88 million) compared with a profit of 701 million euros last year, Eni said in a statement Friday. Stripping out the chemicals and engineering and construction businesses that Eni is exiting, the loss was 479 million, worse than the expectations of analysts surveyed by Bloomberg.

Total reported adjusted net operating income from refining and chemicals of $1.13 billion in the quarter, 17 times as much as Eni.

Very Weak

Eni shares were little changed at 14.34 euros as of 1:15 p.m. in Milan trading, bringing this year’s gain to 4.3 percent. That compares with the 8.9 percent advance in the 20-member Stoxx Europe 600 Oil and Gas Index.

The exploration and production unit, upon which Eni is heavily reliant, saw adjusted operating profit drop 91 percent to 95 million euros. The results were “very weak” and give the impression that Eni is conservative about the outlook for this year, according to Giuseppe Rebuzzini, an analyst at Fidentiis Equities SV SA,

“The fundamentals of the oil market remain weak,” Eni said. “Management is planning to increase efforts to optimize capex and reduce operating costs by exploiting the deflationary pressure induced by the fall in crude oil prices.”

Eni is cutting investment this year by 20 percent as it joins other oil companies in responding to the rout in crude by shelving projects, reducing dividends and firing workers. 

Upstream Performance

Eni’s oil and gas production rose 3.4 percent to the equivalent of 1.75 million barrels of oil a day as output started in fields in countries such as Norway. The average forecast of five analysts surveyed by Bloomberg was for 1.78 million barrels a day.

While Eni’s net cash from operating activities fell 56 percent to 1.3 billion euros, the company is still generating earnings and cash from its upstream business, Oswald Clint, an analyst at Sanford C. Bernstein, said in a note.

That “will not be the case across the industry this quarter,” Clint said. With further cuts in spending, “Eni’s upstream business should continue to outperform,” he said.

U.S. oil majors Exxon Mobil Corp. and Chevron Corp. will both report quarterly earnings later today whereas Royal Dutch Shell Plc is due to report on May 4.

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