MILAN Eni (ENI.MI) is facing growing problems in Africa as social unrest in the resource-rich continent escalates to threaten production targets on a continent where the Italian oil company is the biggest foreign producer.
On Wednesday, Eni cut its production outlook for the year to reflect shrinking volumes from Libya and Nigeria, saying it now expected output to be lower than in 2012.
The group saw its oil and gas production fall 3.8 percent in the third quarter to 1.653 million barrels of oil equivalent per day. Around 57 percent of that came from Africa - the highest proportion of any of the western world oil majors, where it ranks in the top 10 for both production and market value.
"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," said Andrea Scauri, oil analyst at Mediobanca.
Eni trades on an EV/EBIT earnings multiple for 2014 of 4.6 times compared to a European average of 5.8 times, he said.
Eni has been present in Africa since 1954 with 8,000 people working for it across the continent and remains committed to its presence there.
"We believe in Africa and it doesn't scare us to pump billion of dollars into new countries on whose stability, solidity and growth we willingly bet," Chief Executive Paolo Scaroni said in September.
Scaroni, who is fond of saying oil cannot be found in Switzerland, is being investigated as part of a corruption probe in Algeria involving Eni's oil services affiliate Saipem (SPMI.MI). His mandate comes up for review next year.
In the third quarter Eni's adjusted net profits fell almost 30 percent, mainly due to outages in Libya and Nigeria.
Libya's oil exports have dropped to less than 10 percent of capacity as protests halt operations while Nigeria, Africa's biggest oil exporter, has seen production fall due to widespread oil theft and pipeline leakages.
Royal Dutch Shell (RDSa.L) has already sold blocks in the Niger Delta while Eni has said it is reviewing its position there and is looking to focus investments in offshore development.
But besides its strong presence in North Africa Eni also has frontier exploration prospects in Sub-Saharan Africa, with positions in Ghana, Gabon, Angola and, especially, Mozambique.
Eni's giant gas discovery in Mozambique's Rovuma basin was the group's biggest ever resource discovery with an estimated 80 trillion cubic feet of gas in place.
But an escalation of tension in Mozambique where the former rebel group Renamo said it was ending a 1992 peace accord has cast a shadow over prospects.
While east Africa is a hot new province for oil and gas exploration, excitement has been tempered by wrangles with governments, gaps in regulations and rickety infrastructure.
Tullow Oil's (TLW.L) recent suspension of drilling in Kenya after protests showed that popular impatience for a share of the spoils is compounding problems energy firms face building an oil and gas industry from scratch in East Africa.
As aging fields dry up, oil majors are increasingly spending more to look for hydrocarbons in countries that until recently were off the sector's radar screens. At the same time though, they face shareholder pressure to keep a lid on costs as the oil price cycle threatens to turn down.
Hence the actions Eni and others are taking to keep their investors happy.
Shares in Eni rose on Wednesday after it posted an adjusted net profit in the third quarter of 1.17 billion euros to beat an average forecast of 972 million in a Reuters poll of analysts.
"It's good news because despite the problems in Africa the group has shown it can replace some of the missing volumes from elsewhere," a Milan analyst said.
The company also reassured investors by saying it would be starting a buy-back programme of up to 6 billion euros in the coming weeks. This follows BP Plc's (BP.L) announcement of a dividend hike on Tuesday.
The Italian state has flagged its intention to sell a direct stake of 4.3 percent in Eni as part of its debt reduction plans.
Such a sale would leave state-controlled lender Cassa Depositi e Prestiti with a stake of around 26 percent that some analysts suggested could leave the company vulnerable to unwanted attention.
"If Eni cancels the shares the effect will be that CDP's stake will rise back to the safety zone," the Milan analyst said.
Eni's 2014 production growth should be boosted by this year's start-ups - three in Algeria, Angola LNG which began in June, and Kashagan in Kazakhstan which wobbled into first production a few weeks ago. The UK-Jasmine field is set to start up in the fourth quarter and Goliat in the Barents sea during 2014.
(Reporting by Stephen Jewkes; Editing by Agnieszka Flak and Andrew Callus)