Eni Confident of Dividend Even with Lower Oil Prices

Eni, the most active of the foreign oil majors in Africa, has one of the best discovery records in the industry, with large gas fields in Mozambique and Egypt. More recently it also made an oil find in Mexico.

Under its so-called "dual exploration" strategy, the company aims to sell down stakes in fields it operates to raise cash to fund future development and support dividends.

"We have all the tools to cope with oil at $45 a barrel," CEO Claudio Descalzi told analysts on a second-quarter results call when asked about dividend sustainability.

"We are able to tackle this situation, and we won't be using scrip dividends," he said, referring to a practice where investors are offered shares in place of cash.

Eni, whose cash flow jumped 56 pct to 2.7 billion euros in the second quarter, has committed to paying a dividend in 2017 of 0.80 euros per share.

Investors in oil firms have been unnerved by weak oil prices, which have struggled to hold gains that followed a deal between the Organization of the Petroleum Exporting Countries and some other producers to cut crude production from January.

Prices climbed above $58 a barrel in January, recovering from the 2016 lows of just $27. But Brent has since slipped back and is now hovering around $52, leading banks to downgrade price forecasts and investor concerns about shareholder returns.

Eni, which has pledged to cut spending this year by about 18 percent, earmarked about 32 billion euros of investments in its four-year business plan in March.

Descalzi said there was room to reduce those investments if needed. "In the second half of the plan 50 percent of the capex is not yet committed ... we have flexibility," he said.

 

Output Ahead
Eni, which will benefit from a ramp-up at Kazakhstan's giant Kashagan field, said it expected output this year to jump 5 percent to 1.84 million barrels per day as projects in Angola, Ghana, Indonesia and Egypt come on stream ahead of schedule.

Longer term, it expects output to rise 3 percent a year.

Eni said its discovery in the Gulf of Mexico could contain more than the 1.3 billion barrels of oil equivalent in place estimated so far. It said it would decide early next year whether to proceed with investment there.

"We own 100 percent of Mexico and it's clearly one of our future targets (for selling down)," Descalzi said.

Eni, which has agreed to sell stakes in its Mozambique and Egyptian fields to ExxonMobil and Rosneft, expects to raise 4 billion euros this year from disposals.

Santander oil analyst Jason Kenney, who was upbeat about Eni on a three- to five-year outlook, said the market had underestimated the value of Eni's dual exploration strategy.

"Investors have proved unwilling to support Eni for its valuable discovered resource potential," he said.

Shares in Eni closed up 0.3 percent, broadly in line with the European oil and gas sector. Milan's blue-chip index closed down 0.9 percent.