Eni S.p.A. is the sixth-largest vertically integrated oil company in the world, by market cap. Aside from the usual upstream and downstream activities that most of the oil majors engage in, Eni is also a major natural gas and electric utilities company, and operates in the oilfield services industry through its stake in Saipem S.p.A.. Positioned in Italy, the company has a geopolitical advantage over many of its competitors in that it has greater access to the high-yield, albeit politically risky African and Middle Eastern reserve markets; this can been seen in the distribution of the company's reserves, as over half of them are concentrated in North and West Africa and the Caspian Sea.
Eni's reserve distribution means it is less exposed to maturing reserves and declining production, as Africa and the Middle East are regions that are relatively undeveloped by Western oil companies - they had been left alone until recent spikes in oil prices and declining production in North America and Europe made them more lucrative. These regions are, however, more prone to political risks, like nationalization, as well as violence issues, like terrorism, which are common to developing nations in these regions. Such events are a constant threat to Eni's production and profit margins. To counter problems like these, the company has been investing more stable regions like the Gulf of Mexico, where production is less assured but there are very few outside risks.
International oil price fluctuations make most of Eni's business rather volatile: rising oil prices are good for exploration and production, the root of most of Eni's income, but bad for refining and marketing, the segment with the largest amount of revenue. Since both play large parts in the company's business, fluctuating oil prices tend to take these segments on wild rides. Tempering such volatility, Eni's Gas and Power segment allows the company to act as a gas and electric utilities distributor, keeping a significant portion of its business independent of price fluctuations. Eni competes with companies like Exxon Mobil, Royal Dutch Shell, Chevron, LUKOIL, BP and ConocoPhillips.
Eni operates in five business segments: Exploration and Production accounts for approximately 42% of the group's net capital employed, Gas and Power accounts for 35%, Refining and Marketing accounts for 12%, and Petrochemicals and Construction and Engineering account for the last 11%. Eni has upstream operations in all major hydrocarbon-producing regions of the world, including North Africa (Egypt, Libya, and Algeria), West Africa (Nigeria and Angola), the North Sea, and the Caspian Sea region.
Eni's Refining and Marketing and Petrochemicals segments are sensitive to oil prices, and well as the prices of other inputs. As these prices increase, refining margins tend to decrease.
Eni's Engineering and Construction segment is an oilfield services provider that builds and contracts rigs for and to other oil and gas exploration companies.
Most of the rest of Eni's reserves are located in Europe and Russia, but with over half of its reserves in Africa and the Caspian Sea, Eni is especially exposed to risks associated with these regions. Africa is a relatively young development region for oil and gas explorers. In the past, most of the world's oil production came from areas like North America and Europe, as well as cartel-controlled OPEC nations. Since these regions have started to mature (especially North America and Europe, areas where output is uncontrolled and publicly-traded oil companies can drill to their hearts' content), exploration in Africa and the Middle East has increased, as has the overall output of the regions. With large quantities of untapped oil reserves, these areas are ripe for the drilling, and Eni, because of its position on the Mediterranean, has a head start on their development.
The reason North Africa and the Middle East weren't hot spots of development in the past is that they are incredibly turbulent regions. Eni, though benefiting from higher productivity and lower rates of decline, faces correspondingly higher threats to its employees, equipment, and assets than many competitors who have large holdings in stable regions. Political strife, genocides, terrorism, and constantly changing political regimes leave international oil companies open to risks like violence or nationalization. The Kazakh government asked for $7 billion from the Eni-led consortium of oil companies (including Exxon Mobil, Royal Dutch Shell, ConocoPhillips, TotalFinaElf, S.A., Inpex Holdings, and KazMunaiGas) as compensation for production delays and ecological damages. In the settlement of the dispute, Eni was forced to agree to eventually cede all of its shares in the 13 billion barrels of oil equivalent region to KazMunaiGas. The development consortium also agreed to pay $4.8 billion. Kazakhstan, like other countries that Eni tends to operate in, relies on oil exploration and production to drive its national economy. Because of this, these countries are more likely to force Eni to pay more or to cede project share to national oil companies.
Because of the risks associated with African and Middle Eastern oil fields, Eni has recently been attempting to break into more reliable production markets. Though this area has seen production declines in its conventional wells, it is increasingly productive for companies willing to spend on deepwater production. Eni has a history of deepwater oil exploration in the Gulf, with a 2005 discovery of a deepwater reserve filled 20 MMboe. Thirty-two new exploration licenses should give the company plenty of chances to find new, high-yield reserves without the political risks associated with its deepwater projects in
Though Eni is no longer a state-owned oil company, the Italian government owns 30% of the company's shares. Eni's shareholder ownership is severely limited by the regulations that the Italian government has placed on Eni. No shareholder other than Italy, for example, can own more than 3% of Eni's shares; any shareholder that does forfeits his/her voting rights above 3%. Furthermore, the company's By-Laws afford the Italian Minister of Economy and Finance special powers, including the right to appoint a board member without voting rights and the power to veto shareholder resolutions affecting the State's interest in Eni. This means the company cannot enter into mergers without the state's permission, it cannot move its headquarters outside Italy, and it is more likely to pursue business strategies that benefit the Italian government rather than the company's shareholders.
Eni's Gas and Power segment makes up 31.7% of the company's revenues, and 21.9% of its operating income. These segments are far less dependent on oil prices and natural gas prices than Eni's E&P and R&M segments, as government regulation guarantees profitable utilities prices while electricity can be generated from any number of sources. Oil and gas prices have fluctuated heavily over the past few years, though the most recent trend is a rise in prices, with a barrel of oil trading in international markets over $100. Because both are nonrenewable forms of energy (they will eventually run out), slowing discoveries of new sources combined with increasing demand has led to rising prices - and to speculation that production is approaching peak oil quantities. Whether this is true or not, oil and gas are commodities: one company's oil can only be differentiated from another company's oil based on price. Eni's exploration and production business sees margins increase when oil and gas prices rise, but its refining and marketing segment (which is larger than its E&P segment) sees margins decrease. R&M margins shrink with rising oil prices because refined petroleum products are also commodities. Eni cannot pass on the rising cost of inputs to customers because another refiner might come along and undercut the company's prices - classic price-competition. Eni's Gas and Power segment, however, is far less affected by commodities fluctuations, and so hedges the company against a volatile market that other oil and gas companies are heavily exposed to.
By market cap, Eni is the world's sixth largest vertically integrated oil and gas company.