Eni (E) Incurs Wider-than-Expected Q2 Loss; Revises View

EniSpA (TO:E) reported second-quarter 2016 adjusted loss from continuing operations of 27 cents per American Depository Receipt/ADR (€0.12 per share), substantially wider than the Zacks Consensus Estimate of loss of 4 cents. The company posted earnings of 9 cents per ADR (€0.04 per share) in the year-earlier quarter. The year-over-year underperformance was mainly due to low production and gas sales.

Operational Performance

Total liquids and gas production in the second quarter was 1,715 thousand barrels of oil equivalent per day (MBoe/d), down 2.2% year over year.

Liquids production was 852 thousand barrels per day (MBbl/d), down 5.6% from the year-ago level of 903 MBbl/d. Natural gas production inched up 0.7% year over year to 4,709 million cubic feet per day (MMcf/d).

ENI (MI:ENI) SPA-ADR Price, Consensus and EPS Surprise

ENI SPA-ADR Price, Consensus and EPS Surprise | ENI SPA-ADR Quote

Gas sales were 21.15 billion cubic meters (Bcm), down 5.5% from the year-ago quarter on decreased sales and lower volumes marketed.

Financials

As of Jun 30, 2016, the company had long-term debt (including current portions) of €25.8 billion. The debt-to-capitalization ratio was 33%.

In the reported quarter, net cash generated by operating activities from continuing operations amounted to €1.7 billion. Capital expenditure totaled €2.5 billion.

Outlook

Eni believes that a certain degree of ambiguity still looms with respect to the economic slowdown, particularly in the Euro zone and China. This apart, the volatile market conditions persisting in the industry raise concerns. This Italian oil giant expects the uncertainty to prevail in the European gas, refining and marketing and chemicals sectors going forward.

The company expects 2016 oil and natural gas production to remain flat year over year. Production in the Val d’Agri district will remain suspended till the end of the year and decline of mature fields will further contribute to the downside. However, the company believes that the adversities will likely be offset by new field start-ups and ramp-ups.

The company expects gas sales in 2016 to decrease year over year. This is mainly because of an estimated reduction of the contractual minimum take of supply contracts.

Eni expects its refinery intakes to remain flat year over year. This does not include the impact of the disposal of Eni’s refining capacity in CRC refinery in Czech Republic finalized on Apr 30, 2015.

The company intends to cut its full-year capital spending by 20% from 2015 levels.

Zacks Rank

Eni currently carries a Zacks Rank #3 (Hold). Some better-ranked players from the energy sector are Sasol Ltd (NYSE:SSL) , Murphy USA, Inc. (NYSE:MUSA) and QEP Resources, Inc (TO:E) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).