Eni second-quarter profit drops 84% as Saipem reports loss

7/30/2015

MIKAEL HOLTER

MILAN (Bloomberg) -- Eni SpA said second-quarter profit dropped 84% as its oil-and-gas contractor unit Saipem booked $1 billion in writedowns earlier this week after a plunge in crude prices.

Adjusted net income declined to 139 million euros ($153 million) from 883 million euros a year earlier, Italy’s largest oil producer said Thursday in a statement. It proposed a dividend of 40 euro cents a share after maintaining cash flow at 5.7 billion euros in the first half, almost unchanged from a year earlier despite oil’s plunge.

“Beyond the Saipem debacle, Eni’s results are actually really impressive,” Oswald Clint, an analyst at Sanford C. Bernstein & Co. LLC, said in a note to clients.

Crude producers have seen profit eroded by a 50% slump in prices over the past year amid a global oversupply. Integrated companies such as Eni -- those with refining operations as well as exploration and production -- have used the drop in oil costs to boost fuels output, helping to buoy the balance sheet.

Eni fell as much as 1.4% and was little changed at 15.83 euros a share by 10:58 a.m. in Milan.

The company’s refining, marketing and chemicals unit posted a 79 million-euro net adjusted profit, up from a loss of 204 euros a year earlier, helped by an almost four-fold increase in its refining margin to $9.13/bbl.

Exploration, Production

The exploration and production unit’s adjusted net profit fell 50% to 571 million euros, even as output rose 11% from a year earlier to 1.75 MMboed. The Rome-based company raised its forecast for full-year output growth to more than 7% from 5%.

Refining and productivity gains were offset by an adjusted net loss of 717 million euros at the engineering and construction unit, which includes Eni’s 42.9% share in Saipem. The Milan-listed contractor on Tuesday said it plans to cut 8,800 jobs as writedowns of 929 million euros led to a net loss of 997 million euros in the second quarter.

“Saipem is still one of the stronger contractors,” CEO Claudio Descalzi said in a phone interview on Bloomberg TV. “I don’t say that Saipem is a concern for us, it’s an opportunity. And I am happy about what they are doing now” in terms of cost cuts and refocusing its business, he said.

Eni expects to maintain leverage, or its ratio of net borrowings, within 30% at the end of the year, it said. In March, Eni became the first major oil company to announce a dividend cut following the slump in crude prices.

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