Italian oil and gas company Eni SpA swung to a net loss on energy-price declines in the fourth quarter and predicted a tough time ahead for the international oil industry.
The energy giant Friday posted a loss of 874 million euros ($1.12 billion) in the fourth quarter because of lower oil prices, compared with a profit of 3.01 billion euros a year earlier.
Adjusted net profit, a closely watched figure that strips out gains and losses on inventory, fell 28% to 1.94 billion euros. Eni also trimmed its oil and gas production targets for the coming years, though the targets remain more aggressive than many of its larger competitors.
Eni Chief Executive Paolo Scaroni in an interview painted a bleak outlook for the industry. Oil prices would stay low, he said, and the European market for natural gas would be flat after some 20 years of growth.
Refining margins -- the difference between the price refiners pay for crude and the price they get for the gasoline they sell -- have fallen from about $9 a barrel a month ago to $3 barrel now and would stay low, as the economic crisis hits gasoline consumption, he said. New refineries due to come on stream in the coming years could lead to excess capacity in the industry.
But Mr. Scaroni said Eni, which has aggressively extended its global reach in recent years with a string of acquisitions, is well-positioned to ride out the downturn. He said it produces oil more cheaply than many of its rivals. Its natural gas business is to a large extent regulated by the Italian government, which means cash flows are stable; and its refining business is small relative to competitors. "We think we can continue to grow more than anyone else," he said.
Oil majors' poor earnings have raised concerns about their ability to keep paying out generous dividends and maintain ambitious investment programs if oil prices stay at their current low levels for the foreseeable future. Mr. Scaroni said Eni would be "cash neutral," or able to make payouts to shareholders and fund capital spending without having to raise new debt, at a price of $43 a barrel for Brent crude.
Some analysts worried that Eni's finances might be stretched in the coming months. "Eni shares still appear to offer strong yield, but investors may begin to fret over limited balance sheet flexibility and risk to future dividends," Citigroup said Friday in a research note.
Unveiling the company's strategy for the next four years, Mr. Scaroni said Eni's energy production would grow by 3.5% a year through 2012, slowing to 3% between 2012 and 2015. That was less than the projections it announced last year, of 4.5% growth for 2007 to 2011. Company officials said Eni is rescheduling some projects, such as a liquefied natural gas development in Egypt and the planned expansion of a big oil field in Kazakhstan.