Eni to Cut Spending, Slash Dividend and Sell Assets Amid Low Oil Price -- 2nd Update

By Eric Sylvers 

LONDON-- Eni SpA said Friday it would reduce spending, slash its dividend, suspend its buyback plan and sell EUR8 billion ($8.5 billion) of assets over the next four years as the Italian oil and gas company hunkers down to face a prolonged period of lower oil prices.

The four-year plan for the years 2015-18 projects a 17% fall in capital expenditure compared with a previous plan. Eni said it would pay a cash dividend on this year's earnings of EUR0.80 a share, a 29% reduction from 2014. The company left open the possibility of following rivals, including Royal Dutch Shell PLC, and paying dividends beyond this year in shares.

Eni and other oil companies large and small are grappling with the rapid decline in oil prices over the past nine months that has forced them to find creative solutions to cut costs while maintaining dividends and exploration activities that will guarantee future growth. While the price of oil has rebounded from lows reached in January, the International Energy Agency, an energy watchdog, Friday said in its monthly report that the price could soon begin to fall again.

In its four-year plan, Eni is forecasting Brent crude oil, the global benchmark, will average $55 a barrel this year, rising to $70 in 2016, $80 in 2017 and $90 in 2018. Friday Brent traded at about $56 a barrel.

About half of the value of the asset sales will come as Eni unloads stakes in recently developed projects such as a massive gas find in Mozambique. Eni owns 50% of the gas field after having sold a 20% stake two years ago for $4 billion. The company has been successful in recent years in finding new oil and gas fields and often early on in the life of the assets has sold stakes to share development costs.

"Ultimately we are building a much more robust Eni that can face a period of lower oil prices," Chief Executive Claudio Descalzi said while presenting the company's new four-year plan.

Mr. Descalzi said the dividend will increase in future years "in line with our growth." Eni has traditionally had one of the highest dividend payouts in the industry. As in the past, half of this year's dividend will be paid in September with the rest in the beginning of 2016, said Massimo Mondazzi, Eni's chief financial officer.

"The decision to re-base the dividend in 2015 is appropriate and in line with our strategic objectives considering the new oil price scenario," Mr. Descalzi said.

Eni's directors discussed the reduction in the dividend at two board meetings and then at another informal gathering before voting unanimously to support Mr. Descalzi's proposed cut, said Chairwoman Emma Marcegaglia.

UBS called Eni's decision to cut the dividend a "bold step" because the higher payout risked "skewing strategy to protect it." Eni's dividend payout is now below several peers, including Shell, though the comparison is somewhat false as the other companies are paying partly in shares, said the bank.

Eni, 30% owned by the Italian government, also said it had suspended its buyback program, which had already slowed to a standstill in recent months, with an eventual relaunch to be evaluated when market conditions improve.

The new capital expenditure plan calls for EUR48 billion in spending through 2018. Half of that spending hasn't been finalized and can be adjusted up or down depending on industry developments, said Mr. Descalzi who is targeting annual growth of oil and gas production of 3.5% in 2015-18, half a percentage point higher than a previous plan.

Of the asset sales, 70% is expected to be carried out in the first two years of the plan. The first large sale might be a portion of the Mozambique gas field, which Eni put on the block last year.

Many Asian companies have expressed interest in buying a stake in the Mozambique field, said Marco Alvera, the head of Eni's gas business. It is expected that most of the gas from the field will be liquefied and shipped to Asia on tankers.

Eni's shares fell 4.6% to EUR15.58 as investors dumped the stock following the announcement of the dividend cut.

Write to Eric Sylvers at [e-mail]

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