TAKING THE PULSE: Collapsing oil prices likely took their toll
on European oil and gas companies in the fourth quarter.
However, analysts expect Total SA (TOT) to notch up one of the
lowest earnings declines of the wider European oil and gas sector,
helped by its relatively low costs and support from European
refining.
By contrast, Repsol SA (REP) is expected to report one of the
steepest falls in profit as a strong downstream performance was
unable to compensate for a decline in output and weaker results at
its YPF unit.
Oil prices plunged by $33 per barrel to about $57 a barrel in
the fourth quarter from a year earlier, J.P. Morgan says.
Most industry observers expect oil prices to recover in the
medium term, but depending on how much longer low prices persist,
focus is on possible cuts in planned investments and dividends at
some companies.
COMPANIES TO WATCH:
--- Total SA (TOT)(4Q/FY 2008 earnings) (Feb. 12) ---
MARKET EXPECTATIONS: SocGen expects the company to demonstrate
"the best resilience to the weaker economic climate of the European
oil majors." Dresdner Kleinwort said upstream production figures
will be poor but expects Total to post a solid result.
MAIN FOCUS: Total said it expects higher oil prices will return,
so its capital expenditure plans for next year will be one key
focus. Merrill Lynch sees the company keeping 2009 capex broadly
flat in dollar terms. JP Morgan highlights another focus - which
projects the company will go ahead with in 2009 given current oil
prices. Analysts see Total as one of the majors most readily able
to maintain its dividend amid weak oil prices.
--- Eni SpA (E) (4Q 2008 - Feb. 13) ---
MARKET EXPECTATIONS: Fourth-quarter net profit and operating
profit are expected to drop more than 15% annually as weaker crude
prices take their toll on earnings.
An estimated oil and natural gas production increase for 2008 -
seen at a modest 1% to 2% range on the year - as a result of the
company's acquisition spree won't be sufficient to offset the slide
in crude prices, said analysts.
Eni's important Gas and Power division is also expected to be
hit by lower electricity consumption and from industries as the
Italian economy slipped into a recession.
MAIN FOCUS: Market players are keen to see details of the
2009-2012 growth plan, with special emphasis on the new capital
expenditure in a lower oil price environment, and new production
targets.
Observers will be watching out for comments on acquisition
opportunities, the growth strategy for the Gas and Power division
and the effects of output reductions in OPEC countries.
--- Repsol SA (REP) (4Q/ FY 2008 earnings - Feb. 26) ---
MARKET EXPECTATION: Adjusted fourth-quarter profit is seen
falling 29% to EUR464.6 million, according to the average estimate
of seven analysts polled by Dow Jones Newswires. Adjusted net
profit includes inventories, but excludes minority interests and
one-off items.
Repsol earnings are expected to be hard hit by the oil price
decline due to an export tax in Argentina that kicks in once the
WTI price falls below a certain level.
Production is also expected to be lower, due to a natural
decline in Argentina, and a contract revision in Libya. Refining
margins, in particular in Iberia, are likely to be robust, but
demand likely declined.
MAIN FOCUS: A slowdown in demand, in particular in Spain and
Argentina, could hit Repsol more than other oil companies, due to
the great importance of refining in its results. Together with the
impact of lower oil prices, that could force the company to review
some of its investment plans.
On the upside, consortia including Repsol may produce further
positive - and possibly giant - exploration news from Brazil. The
likely need for a massive amount of funding to develop fields there
could, however, put strains on company finances.
Industry observers will also closely watch whether Spain's
Sacyr-Vallehermoso SA (SYV.MC) will soon succeed in selling its 20%
stake in Repsol after attempts to sell it to Lukoil of Sinopec so
far seem to have failed.
--- Gas Natural SPGS SA (GAS.MC) (4Q/ FY 2008 earnings - Feb.
10) ---
MARKET EXPECTATION: Fourth-quarter profit is anticipated to rise
20% to EUR279.6 million, according to the average estimate by four
analysts polled by Dow Jones Newswires.
Profit is expected to be pushed up by higher Spanish electricity
pool prices, and a rise in electricity output in Spain and Latin
America.
Gas distribution and supply is expected to rise far less
rapidly. Analysts will closely watch margins in the gas business,
which still accounts for the bigger part of company earnings.
MAIN FOCUS: With the planned purchase of Union Fenosa SA
(UNF.MC), Gas Natural will increasingly become an integrated
natural gas and electricity utility.
Also, "adding Union Fenosa's gas assets, Gas Natural would
become one of Europe's major natural gas suppliers," says Bankinter
analyst David Garcia Moral, but adds "there are still uncertainties
about whether Gas Natural will be allowed to keep Union Fenosa
Gas."
In particular, Union Fenosa's lucrative LNG assets in Egypt are
seen as valuable. However, Eni, which currently owns 50% of Union
Fenosa Gas, already has made clear that it would like to acquire
the other 50%.
-By Bernd Radowitz, Dow Jones Newswires; +34-395-8125;
bernd.radowitz@dowjones.com;
(Adam Mitchell in Paris and Liam Moloney in Rome contributed to
this report.)
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