Eni Aims To Soothe Investor Fears with Output Plans

ROME (Dow Jones)

Eni SpA (E), Italy's biggest oil and natural gas company by volume, estimated Friday that hydrocarbon output growth will outstrip that of its peers, a forecast it hopes will quell investor alarm over its dividend policy.

State-controlled Eni, like its peers, is focusing its upstream attention on harder-to-get oil to boost reserves as hydrocarbon-rich countries limit access and output declines at older fields. Its new four-year plan estimates average annual hydrocarbon output growth at more than 2.5% a year through 2013 and 2% through 2016.

Eni expects to reap the benefits of entering some of the world's most challenging oil assets, including Kazakhstan's Kashagan project, Venezuela's Junin 5 heavy oil field and Iraq's Zubair one.

Despite the bullish production outlook, investors have grown concerned over Eni's dividend policy. Last month's announcement of a 23% dividend cut for 2009 earnings startled investors, and Friday Eni signaled to shareholders that its dividend policy will be cautious, indicating payouts will rise from 2011 in line with inflation in the industrialized world, presuming oil prices are around $65 a barrel.

"In real terms that means a flat dividend," said Roberto Mascarello, an analyst with Kepler Capital Markets. "The market was expecting a more aggressive policy."

At 1610 GMT, shares were down EUR0.40, or 2.3%, at EUR17.40, underperforming Italy's benchmark FTSE Mib Index' roughly flat reading.

Eni "decided to give precedent to production growth versus dividends and the market didn't like this," said Gianmaria Bergantino, a fund manager at Bank Insinger de Beuafort NV in Rome.

"Eni confirms its strategic priorities of delivering robust long-term hydrocarbon production growth superior to the average growth of its peers," the company said in a statement.

Last month, BP PLC (BP) said it expects its oil and gas output to be lower in 2010 than 2009, but to resume growth in 2011 in line with the company's target of a 1%-2% annual increase. Total SA (TOT) forecasts 2% annual growth between 2009-2014.

Output will likely top 2 million barrels of oil equivalent a day in 2013, and growth will be based on organic development rather than acquisitions, Eni said.

This year's hydrocarbon production is likely to be in line with last year's 1.769 million barrels of oil equivalent, Eni said.

"We have a rich pipeline of projects" to keep the company busy over the next four years, Chief Executive Paolo Scaroni said during a presentation in Milan. He added the company was open to "small" acquisitions but didn't see any on the horizon.

The plan for 2010 to 2013 forecasts investments of EUR52.8 billion, about 8% more than the capital expenditure budget in the firm's 2009-2012 plan.

The new investments will be made entirely in the exploration and production area, with a particular focus on Iraq and Venezuela. Eni will take 41 new fields onstream in the next four years, resulting in about 560,000 barrels of oil equivalent a day.

"I think the new plan is solid as it focuses on oil projects," said fund manager Bergantino, who added he is now buying Eni shares, having not owned any before the plan.

It also aims to boost its international gas sales by more than 3% a year, reaching 118 billion cubic meters by 2013 and a market share in Europe of more than 22% that year.

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