The agreement between the Eni SpA (E)-led consortium developing the Kashagan oil field and Kazakh authorities to end a dispute is seen as a positive catalyst for the Italian energy giant, analysts said Monday.
"We argue that given the overhang that has persisted with the well-publicized troubles of this field, resolution may provide some grounds for a relief rally on Eni," wrote Citigroup analyst James Neale in a note. He rates Eni at buy.
Early Monday, Kazakh state energy company KazMunaiGas said talks over the Kashagan dispute have ended successfully with all consortium members agreeing that its stake can be increased to the same level as that of the largest consortium members.
The two sides had been in negotiations since last summer after the consortium officially informed the Central Asian country's government that there was a second delay in the start of output and increased costs.
Kashagan in now expected to start production in the third quarter of 2010, revised from 2008. The original start date was 2005.
The closure of the deal is seen as positive for Eni stock as "the negotiated agreement will allow the Kashagan partners to push forward with more certainty," said Jason Kenney of ING. He has a buy rating on Eni.
Under the agreement, KMG's stake in the consortium will rise to 16.6%, at the expense of all the other partners. The other big shareholders - Eni, ExxonMobil Corp (XOM), Total SA (TOT) and Royal Dutch Shell PLC (RDSB.LN) - will also each hold 16.6%, down from 18.5%. The remaining two shareholders, ConocoPhillips (COP) and Inpex Holdings Inc. (1605.TO), will also see their stakes diminish.
The Kazakhs will pay $1.78 billion for the additional 8%, wrote the Wall Street Journal, citing a person close to the talks. This person added that the consortium agreed to make an additional payment to Kazakhstan of between $2.5 billion and $4.5 billion, depending on the oil price.
"The deal ends a very tough and uncertain negotiation that has hit the (Eni) stock in 2007," said a Milan-based analyst who asked not to be named.
Eni remains operator of the project, although Italian daily Corriere della Sera reported, without citing sources, that Total, ExxonMobil and Shell will join the Rome-based company in running the project from 2010 or 2011.
ING's Kenney said it might be good for Eni to be a joint operator and to have other partners involved.
"Had the partners been involved earlier then we might not have had to go through these negotiations (of the last few months)," said Kenney.
Cheuvreux analysts value the negative impact of the deal close to EUR700 million, or EUR0.17 an Eni share. They maintain stock at outperform.
An Eni spokeswoman confirmed an agreement had been reached and that the consortium will likely issue a press release later Monday. She declined further comment.
Shell didn't return a call seeking comment. A Total spokeswoman said the French oil company is "satisfied" an agreement was reached and that the development activities will continue without interruption.
At 1208 GMT, Eni shares were up EUR0.10, or 0.4%, at EUR25.10 in an slightly higher overall market.