Summary
- In Egypt, there are new tender offers for exploration licenses.
- Eni will not have to compensate Nigeria for the Opl 245 case. No more liability claims.
- Plenitude acquired another photovoltaic plant in Texas and reaches a capacity of 878 MW in the USA.
- The company is still trading at a depressed valuation and our buy rating is confirmed.
Here at the Lab, we had good timing with our Eni investment idea ( E ). In 2022, being patient with the Italian oil major really paid off (Fig 1). At first, we decided to wait, and then we increased our target price to overweight. Since our Q3 expectation released in October, the company's return was almost 20% compared to a flat movement of the S&P 500 (Fig 2).
Fig 1
Fig 2
Today we are back to comment on the company's latest development which is pretty supportive of our buy target opportunity:
- A few months ago, we published an article called: Eni Is Ensuring Gas Diversification . At the time, the company reached an agreement to secure more gas supplies from Algeria. In line with the EU gas diversification plan, Egypt decided to reopen oil and gas exploration. Energy Minister Tareq al-Molla anticipated that there will be an international tender to assign licenses in 12 blocks, six of which are offshore in Mediterranean waters and another six onshore in the Nile Delta area. The deadline is set for Q1 2023 and as a reminder, we should recall that Eni's biggest discovery was in this area. Egypt aims to multiply investments for the development of new resources. Indeed, the Eastern Mediterranean is one of the regions considered most promising for guaranteeing Europe new supplies of oil and gas, alternatives to those that once arrived from Russia;
- In the same article, we emphasized how Saipem's capital increase was not a fairy tale. Just a few days ago, Saipem announced a new $1.2 billion offshore contract in Egypt and Guyana. The latter was awarded by ExxonMobil Guyana for the development project of the Uaru oil field located in the Stabroek block, while the former was obtained by Petrobel for the transport, installation, and pre-commissioning of 170 kilometers of pipeline for the Egyptian Zohr field. Looking at Saipem, although the new contracts may not immediately enter into the company's backlog (due to the lack of some authorizations), order collection value could reach €9.2 billion compared to an average of the period 2017-21 by less than €4 billion. According to our estimates, the new contracts will be positive also at the margin level, and we expected a double-digit margin contribution starting from 2024;
- Still related to point #2, under-investments in oil explorations were pretty recurrent in the past. Eni offers a strong team in the exploration area, and this should support a re-rating;
- Here at the Lab, there is no news on the super tax profits and we believe that Political Risks are already Priced In . However, it is important to note that Exxon decided to sue the European Union and its ordering to stop the tax on the extra profits of the oil giants. This should be supportive of Eni too. In our calculation, we already included extraordinary taxes for a total consideration of $340 million;
- It is key to report that no compensation is due to Nigeria by Eni for the Opl245 field. The Nigerian counterpart was asking for a billion dollars in damage. Opl 245 is a complicated story that has dragged on for years. In 2011, Eni and Shell decided to purchase a license for almost $1.3 billion. For bribery allegations and many changes in the Government, in May 2021, the Nigerian project related to the exploration of the offshore block expired. Eni requested the conversion into a development license with the full conviction that it has complied with all contractual terms. So far, however, the Nigerian authorities have not agreed to the conversion, and the group risks losing $2.5 billion in investments already paid, without being able to extract even a barrel of crude oil. For this reason, Eni has promoted international arbitration to the ICSID in Washington. At the moment, all is suspended but at least we can remove $1 billion in liability claims;
- A special paragraph is due to Plenitude, Eni's renewable energy arm. In 2022 due to unfavorable market conditions, the IPO was postponed; however, the company is still pursuing its strategic business plan. Plenitude's aim was to reach more than 11 million customers by 2025 and install over 30k charging points for electric mobility. Additionally, the company plans to exceed 15 GW of installed capacity in renewable energy by 2030 and achieve carbon neutrality by 2040. Recently, the green energy giant announced the PLT Energia acquisition. And today, again, Plentitude communicated another add-on in Texas reaching 878 MW production in the US market;
- Going back to the IPO detail, here at the Lab, we value Plenitude at approximately €9 billion, and Eni was willing to sell 30% of its capital;
- Eni's price-earnings ratio is still at 3x compared to the sector average of 7x. This is totally unjustified. With the above positive news, we decided to maintain our overweight rating with a €16 per share target.
For further details see:
Oil Investors, You Should Look At Eni