Eni Sticks to Production Guidance as Cash Cheers Investors

Italian oil and gas group Eni SpA (E) kept to its full-year production outlook on Thursday after third-quarter results beat expectations, shrugging off falling oil prices.

Oil majors have seen their stock market values fall since mid-June, in step with a 25 percent drop in crude oil prices to four-year lows on slowing global demand and ample supply.

State-controlled Eni said adjusted net profit reached 1.17 billion euros ($1.5 billion) in the three months to Sept. 30, above a consensus forecast of 861 million in a Reuters poll of six banks and brokerages.

Operating cashflow was 3.98 billion euros, which the company said was its best in a third quarter for five years. In a conference call with analysts, CFO Massimo Mondazzi said he expected cash generation to grow further in the final quarter.

"Crucially the upstream business is still expected to deliver stable volumes in 2014 and the company remains free cashflow positive," Bernstein Research said in a note.

Some analysts have warned that lower oil prices could make it more difficult for Eni to sell the 11 billion euros of assets it has pledged to shed, increasing pressure on its dividends.

Eni shares closed up 1.5 percent while the European sector was down 0.08 percent.

European peers Royal Dutch Shell (RYDAF), BP, and Total have all met or beat analyst forecasts in the third quarter. Shell said quarterly profit rose by almost a third, beating forecasts.

Eni's mature field declines and maintenance prompted a 4.7 percent fall in oil and gas production in the quarter to 1.58 million barrels of oil equivalent per day. But the company still sees output for the year in line with 2013.

"Our exploration is continuing to deliver extraordinary results which will drive future growth in our upstream portfolio," Chief Executive Claudio Descalzi said.

Under Descalzi, Eni is shifting its focus to the bread-and-butter business of looking for oil and gas, and investing heavily to secure reserves in costly projects such as Mozambique, the Baltic Sea and Kazakhstan.

The company is facing headwinds in the giant Kashagan oil field in Kazakhstan, which has seen costs spiral and output delayed after faulty pipelines led to a shutdown of production.

Antonio Vella, Chief Upstream Officer, said production should restart at Kashagan in 2016.

Eni, Africa's biggest oil producer, said on Thursday it had found about 1 billion barrels of oil equivalent off the coast of Congo.

Brokerage Equita said the discovery was important because of the short time-to-market time frame. "Considering a recovery rate of 30 percent for oil and 70 percent for gas, the discovery could be worth about 750 million euros," analyst Roberto Letizia said.

The slip in oil prices is piling pressure on oil companies to protect earnings by cutting investments and selling assets.

Eni, which said it expected to spend less this year on capital expenditure than the 12.8 billion euros it invested in 2013, still needs to raise around 6 billion euros over the next four years as part of an 11-billion-euro disposal plan.

Mondazzi said the company had room to sell part of its recent discoveries in the Congo and Indonesia as well as another stake in its bumper gas field in Mozambique's Rovuma basin.

Eni, which is placing increasing focus on Asia, sold nearly 30 percent of its Mozambican subsidiary to China National Petroleum Corporation last year in a deal worth $4.2 billion, and has said it is ready to sell another 10-15 percent.

(By Stephen Jewkes; Editing by Mark Heinrich)