Eni Meets Target in Iraq - Analyst Blog

Italy's Eni SpA (E) touched the first production milestone at Zubair oilfield in Iraqunder the Zubair Technical Service Contract (TSC). The production rate has increased from approximately 183,000 barrels of oil per day (the initial production rate on the TSC effective date of February 18, 2010) to a sustained rate of over 201,000 barrels of oil per day. This was the minimum required production rate to trigger cost recovery.

The Eni lead consortium won the contract for developing the oilfield last year. Other players include U.S.-based Occidental Petroleum (OXY) and South Korea's Kogas. This was a 20-year term contract, which may extend up to 25 years. During this time period, the consortium plans to invest a total sum of $20 billion.

With this successful increase in production, the consortium's contract cost recovery commences. The group has earned an additional remuneration fee of $2 per barrel on incremental oil production.

Eni plans to increase investments in the exploration and production space with greater emphasis on new projects in Iraq and Venezuela. Eni's strong presence in North Africa and the Middle Eastis likely to result in growth. Moreover, additional production is expected from acquired properties in the Gulf of Mexico and Congo as well as the expected build-up in gas production in Libya.

However, we are concerned about the company's Gas & Power segment as margins and sales volumes are continuously hit by strong competitive pressures. Consequently, our Neutral recommendation for Eni remains unchanged with the Zacks #3 Rank (Hold).

 
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