By Eric Sylvers
MILAN-- Eni SpA Wednesday reported a steep drop in net income as
the global plunge in crude prices cut into profitability at the
Italian oil company's main exploration and production unit,
offsetting improvements at other divisions.
Net income fell 46% to EUR704 million ($768.5 million) in the
first three months of the year compared with EUR1.30 billion in the
same period a year earlier. Revenue dropped 19% to EUR23.79
billion.
Like rivals BP PLC and Total SA that reported earnings Tuesday,
Eni is reeling from the low price of Brent crude which averaged $54
in the first quarter of 2015, half its price from a year earlier.
Chief Executive Claudio Descalzi has said he sees oil reaching $70
a barrel next year. Brent traded at about $65 on Wednesday.
The drop in oil prices led to a sixfold increase in Eni's
refining margin compared with the previous quarter. The company
warned of headwinds that include lower demand, overcapacity and
competitive pressure from oil products imported from Russia, Asia
and the U.S. where there are lower cost structures. Eni's refining
and marketing division--which includes refining, chemicals
production and retail gas stations--reported a small profit
compared with a loss in 2014.
"All mid-downstream businesses have returned to profitability,"
said Mr. Descalzi in a statement.
Eni has offset lower revenue with cost cuts. Last month it
became the first major oil company to say it would cut its
dividend. At the same time, the company said it would suspend its
buyback plan, increase cost cuts and sell EUR8 billion of assets
over the next four years. After initially plunging almost 5% on the
news of the dividend cut, Eni has since gained about 13% with
analysts cheering what they see as the energy giant's realistic
approach to the new normal of lower oil prices.
The strong dollar, which during the quarter climbed about 11%
against the euro, boosted Eni, which has subsidiaries that use the
U.S. currency.
The company said it sees a moderate strengthening of the world
economy in 2015 although risks remain, including the uncertainty
surrounding the rebound in the eurozone and the extent of the
slowdown in China.
In the quarter, Eni produced 1.7 million barrels of oil and gas
equivalent, 7.2% more than the first quarter of last year. Mr.
Descalzi, who has called on the Organization of the Petroleum
Exporting Countries to rein in production to stabilize oil prices,
has said Eni will continue to increase production, as fields that
have recently come online--from the U.S. to Africa and Asia--pump
more oil and gas.
Part of the quarter's increase in production came from Libya,
where Eni is the only Western oil company pumping near capacity and
an Eni-Libya joint venture has also recently made an important
offshore discovery. Despite the positive quarter there, however,
Mr. Descalzi last week warned that the situation in the war-torn
country is worsening.
There has been an additional challenge in the last few days as
striking workers shut down an important Libyan oil field jointly
run by Eni and its local partner.
Adjusted net profit, which strips out special items and the
changing value of inventories, fell 46% to EUR648 million, well
above the EUR461 million analysts had been forecasting. The
company's tax rate fell by about 6 percentage points on the quarter
because the exploration and production unit, which saw profit fall,
faces a higher tax rate than the other units. Also, some interest
gains in the quarter weren't taxable.
Eni earned EUR0.20 per share in the quarter compared with
EUR0.36 in the year-ago period.
Write to Eric Sylvers at eric.sylvers@wsj.com
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