Eni to Reduce Capital Spending, Expects Oil Price to Remain 'Weak'

Eni S.p.A. is planning to reduce capital spending by 20 percent in 2016 amid expectations that the price of crude oil will remain “weak”.

The spending cuts will be made by re-phasing and rescheduling capital projects, being increasingly selective with exploration plays and renegotiating contracts for the supply of capital goods, according to a company statement. Eni insists, however, that these initiatives are expected to have a “limited” impact on its plans to grow production in the short and medium term. The Italian energy firm is also aiming to reduce its operating costs.

Eni revealed in its latest results statement that it had cut its capital expenditure (CAPEX) by 17 percent in 2015, up from an initial guidance of 14 percent, and decreased its operating expenditure per barrel of oil equivalent by 13 percent. The oil and gas firm posted a net loss of EUR 8.821 billion ($9.71 billion) in 2015, compared to a profit of EUR 1.291 billion ($1.42 billion) in the year before. Hydrocarbon production grew by 14 percent to 1.88 million barrels of oil equivalent per day in the fourth quarter of 2015, which was the highest level in five years, and rose 10 percent to 1.76 million boepd for the full year.

Eni’s Chief Executive Officer, Claudio Descalzi, commented in a company statement:

“In 2015, Eni achieved remarkable results in its transformation process, which will see the group become even more focused on its core oil and gas business, and even better organized to compete in a low energy price environment as reflected in the Eni scenario which is aligned with a conservative market consensus.

“The complex deconsolidation of Saipem has been completed in four months providing Eni with net proceeds of EUR 4.8 billion ($5.2 billion). Our efforts to rationalize costs have achieved better than expected results, and enabled us to self-finance CAPEX in 2015 at $50 per barrel, $13 per barrel less than expected a year ago. These actions of efficiency, however, have not affected Eni’s impressive level of growth in the market, in the short or the medium term. In E&P, production grew by 10 percent. Both our exploration resources and our proven reserves, recorded high growth, demonstrating the quality of our portfolio of assets.

“In 2016, similar to the previous year, we are continuing Eni’s transformation process with the goal of making the group even stronger and better able to operate in difficult external conditions, enabling us to maintain solid growth expectations. Based on these results, I will propose to the board of directors on 17 March the distribution of a final dividend of EUR 0.4 ($0.44) per share.”

In a separate statement, Eni announced that it had completed the drilling of the Zohr 2X well, which is the first appraisal well of Zohr discovery. Zohr 2X was drilled to 13,684 feet and encountered 1,614 feet  of continuous hydrocarbon column in a carbonate sequence with “excellent” reservoir characteristics. A comprehensive formation evaluation program from the well suggests that Zohr is composed of a single and continuous “mega tank” of natural gas, fully comprised in the Egyptian Exclusive Economic Zone (EEZ) and within the Shorouk Block.

Eni’s Zohr appraisal plan envisages the drilling of three further wells to fully delineate the field which potentially holds up to 30 trillion cubic feet of lean gas in place (5.5 billion of barrels of oil equivalent in place).


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