Facing instability in Africa and bribery accusations against its drilling subsidiary Saipem, Italian oil giant Eni is now reporting an adjusted net profit of 1.2 billion euros for the third quarter, down 29% from the same period last year.
Overall production was down 3.8% for the quarter and 3.1% for the first nine months of 2013, with production averaging 1.65 million barrels per day for the quarter.
Looking ahead, Eni said it now expects full-year production to be lower than in 2012, its second cut in 2013 target output this year.
"The historically high exposure to Africa is one of the major problems facing the group and is why it trades at a discount to its European peers," Reuters quoted Andrea Scauri, oil analyst at Mediobanca, as saying.
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Nigeria has been suffering its worst production disruptions in four years, with industrial-scale crude oil theft from pipelines, sabotage and technical problems causing crude output to drop overall to less than 1.9 million barrels a day over the summer.
In Libya, where Eni is the dominant foreign oil company, Eni was losing about 50,000 barrels per day in production in the third quarter. Libya's oil exports have dropped to less than 10% of capacity as protests and roving militias halt operations.
Eni's is also facing problems in Mozambique, where it has made a major gas discovery in the Rovuma basin with an estimated 80 trillion cubic feet of gas in place. But an escalation of tensions with the former rebel group Renamo threatens instability as the group pulls out of a 1992 peace accord.
“Considering that these trends are temporary and given the solidity of our businesses, we will start the buyback program,” Paolo Scaroni, Eni’s chief executive said. Eni’s board has approved a share buyback program of up to 6 billion euros, which is expected to launch in the coming weeks.
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Eni is also being hurt by the performance of its Saipem drilling and construction subsidiary in which it owns a 43% stake. Saipem has been rocked by corruption scandals in Algeria and Nigeria. Saipem’s profit was down by about 39% for the quarter.
In July, Saipem was found guilty by Italian court of international corruption over Nigerian contracts won between 1994 and 2004 through a consortium that included Snamprogretti Netherlands BV—at the time a wholly owned Eni subsidiary. Saipem was slapped with penalties of over 25 million euros and plans to appeal the verdict.
Saipem is also embroiled in judicial investigations in Italy and Algeria for allegedly paying bribes to secure $11 billion worth of contracts.
By. Charles Kennedy of Oilprice.com