UPDATE 4-Eni joins other big oil firms in focus on rewarding shareholders

Thu Feb 13, 2014 3:00pm EST

* Proposes raising 2014 dividend to 1.12 euros from 1.10

* Cuts annual output growth target by 1 pct to 3 pct over 2014-17

* Says could sell stake in Mozambique Area 4 gas field

* Aims to raise cashflow

* Cuts spending plans for next four years by 5 pct

By Sarah Young and Giancarlo Navach

LONDON, Feb 13 (Reuters) - Italy's Eni said it would increase payouts to investors and reduce spending over the next four years, despite cutting its annual forecast for output growth, falling in behind Europe's other big oil firms on dividends and costs.

To help fund the growing dividend, Eni also flagged a possible further stake sale in huge gas fields it has found off the coast of Mozambique, as it said it would target asset disposals of 9 billion euros ($12.3 billion) over four years.

Like other big oil companies, Eni is facing calls from investors to control spending and return spare cash as they worry about rising costs and returns if oil prices drop.

Italy's biggest listed company said on Thursday it was targeting a dividend of 1.12 euros ($1.52) a share on 2014 earnings - having just lifted it to 1.10 euros in 2013 from 1.08 euros.

Announcing its strategy for 2014 to 2017, Eni also said it planned to cut capital expenditure by 5 percent from an earlier plan and target substantially higher operating cashflow generation.

"The 5 percent capital expenditure reduction is the main takeaway for me, which combined with the step up in cashflow provides clear line of sight for investors on dividend growth," Bernstein analyst Oswald Clint said.

On the New York Stock Exchange, Eni was trading up 1.2 pct at $46.34 while in Milan the stock earlier closed at 16.98 euros, down 0.2 percent

The higher dividend and larger cash flow targets came despite the company's downgrade to annual production growth.

Eni cut its target for output growth to 3 percent a year between 2014 and 2017, lower than a previous forecast of more than 4 percent out to 2016, to reflect output disruption in Nigeria and Libya, and falling gas demand.

Cuts to capital spending and higher dividends have also been announced by Eni's larger rivals Royal Dutch Shell and Total, during a fourth quarter results season that has seen big oil companies across Europe and the U.S. fail to lift profits and pledge to sell assets.

Chief executive Paolo Scaroni said the company was considering reducing its stake in the Area 4 gas field in Mozambique to 35 percent from the current 50 percent after companies expressed interest.

"We will analyse potential buyers. We are looking for a potential partner who is also a buyer of gas, possibly in the region," he told reporters at a press conference in London.

Last year Eni sold a 20 percent stake in the gas-rich offshore field to Chinese oil company CNPC in a $4.21 billion deal.

Eni said it was targeting cash flow of about 15 billion euros this year and next and 17 billion over the two years after that, up from 11 billion euros in 2013, fuelled by the capital spending cut and disposals.

Capital spending over the next four years would now come in at 54 billion euros, 5 percent lower than the previous plan.

At 9 billion euros, the value of disposals planned by the world's No. 6 oil major over the next three years lags the 12.9 billion worth of sales from 2012 and 2013, which included proceeds of 2.2 billion euros from its investment in Arctic Russia.

SMALL PROFITABILITY, HUGE BUREAUCRACY

Production setbacks in Nigeria and Libya, countries where it does not expect a pick-up in output until next year, have hindered the company, but Scaroni said Eni was also frustrated with progress in Iraq.

Eni wants to invest more to lift output there, but is being thwarted by bureaucracy, he said.

"We are asking ourselves, is it worth it? Is it worth it to stay in Iraq with all these problems, small profitability, huge bureaucracy," he said, adding that he had also spoken to the government there.

"Either you remove the obstacles or we remove ourselves out of the country," he said he told them.

Halted output at the vast Kashagan oilfield in Kazakhstan has also affected Eni's production. It said it believed production would regain the level expected originally in 2015.

Eni's fourth quarter adjusted operating profit, announced earlier on Thursday, fell by 29 percent to 3.52 billion euros, hit by the production setbacks and a strengthening of the euro.

The company said the outlook was tough and it expected gas sales, refining volumes and retail sales to fall slightly this year as economic weakness persists at home and in Europe.

Eni also said on Thursday that it had made a large oil and gas discovery off the coast of Congo, which Equita analysts said could be worth one billion euros.

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