UPDATE 2-Eni grapples with ailing refining business as Fitch warns on rating

Tue Jul 8, 2014 6:12pm EDT

Related Topics

* Eni's Fitch rating at risk without refinery overhaul

* Meeting between unions, Eni CEO ends inconclusively

* Three-quarters of refineries face problems-union bosses

* Eni strategy to focus on upstream E&P - sources (Recasts after meeting with unions)

By Stephen Jewkes and Oleg Vukmanovic

MILAN, July 8 (Reuters) - Italy's Eni could be at risk of a credit downgrade if it fails to turn around its troubled refining business soon, Fitch Ratings said on Tuesday, as a meeting between the oil major and trade unions over the threat of plant closures ended inconclusively.

Fitch said that while weak refining margins would not prompt downgrades for major oil and gas companies, Eni was different because of the relative size of its Italy-focused refining and marketing unit.

It said failure to introduce consistent improvement in the refining business over the next 12 to 18 months could be one factor that triggered a downgrade of the Italian group's A+ rating.

The warning came as Eni's new chief executive officer gears up for a strategy presentation this month, which sources have said could announce the paring back of some of its refining business to focus on more profitable upstream oil and gas exploration.

Europe's refining sector is facing growing pressure from increasing international competition, excess production capacity and weak domestic consumption.

State-controlled Eni, which has five wholly owned refineries in Italy and one half-owned plant, posted an adjusted net loss of 232 million euros last year in its refining and marketing division. Italian consumption of refined products fell from 72 million tons a year in 2006 to 53 million tons a year in 2013.

"The company wants to dispose of their downstream and mid-stream operations in Italy, especially refineries and chemicals though they'll have a hard time getting it past the government," one industry source said.

A banking source with knowledge of the matter said Eni could consider joint ventures with partners to help it downsize.

Three quarters of Eni's Italian facilities face being shut down, downsized or converted to other purposes as weak refining margins take their toll, raising concerns about the potential loss of thousands of jobs, union bosses said.

Eni's Gela refinery, which produces 100,000 barrels per day, is one of those at risk of shutting down for good since weak demand caused prolonged inactivity, a separate source said.

On Tuesday evening trade union leaders met Eni Chief Executive Officer Claudio Descalzi to discuss the group's plans for the sector.

"We're very concerned. Descalzi said he wants to dismantle the refineries, not sell them but convert them," Sergio Gigli, the secretary general of the Femca Cisl union who was at the meeting, told Reuters.

Emilio Miceli, secretary of union Filctem Cgil, said Eni had confirmed stoppage of the Gela refinery and the petrochemical facility at Porto Marghera.

"There's a clear willingness on the part of Eni to stop flows and activity," he told Reuters.

Eni could not be reached for a comment.

Any refinery shutdowns in Italy would be good news for independent competitors such as Saras and API and for the European sector as whole. (Additional reporting by Ron Bousso and Giancarlo Navach; editing by Sophie Walker and Cynthia Osterman)

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