December 8, 2017 / 3:23 PM / 10 months ago

Italy's Eni targets plastics purchase in strategy shift - sources

    * Lagging rivals, Eni looks to more downstream work
    * Shift aims to help offset volatile oil prices
    * Exploration still the focus after Africa, other successes

    By Stephen Jewkes
    MILAN, Dec 8 (Reuters) - Energy firm Eni aims to express an
interest in bidding for an Italian bioplastics business in a
move that underlines a longer-term desire to hedge its exposure
to oil and gas, financial sources said.
    Eni wants to revive its chemicals, retail and
refining businesses to offset volatility in oil prices and
regain favour with investors after its shares underperformed
those of industry rivals in the past three years, the sources
said.
    The state-controlled major is looking at the Italian assets
of bioplastics multinational Mossi Ghisolfi, which has been put
under creditor protection, two banking sources said.
    "Non-binding bids are due in the next few days and Eni is
there," one of the sources said, adding that the deal was worth
"hundreds of millions of euros".
    There has been media speculation about Eni being interested
in Mossi Ghisolfi, but this is the first time it has emerged the
group would submit bid interest in the assets.
    Eni did not comment.
    The potential acquisition, although small for Eni, flags an
ongoing strategy shift for CEO Claudio Descalzi, who has spent
four years creating a lean exploration business, racking up big
discoveries in places like Mozambique and Egypt.
    While keeping a firm focus on exploration, the 62-year-old
reservoir engineer now wants to rejig the business model to
bolster and create greener midstream and downstream businesses
like marketing and refining as a hedge against oil price swings.
    An acquisition of Mossi Ghisolfi's Italian unit, which uses
agricultural waste to make plastics, would fit such a profile.
    The move comes at a time when the boom in renewable energy
and the prospect of a world powered by electric vehicles is
creating a challenge for the oil industry.
    
    BALANCED PORTFOLIO
    Eni has been sounding out investors on why its shares have
underperformed and feedback suggested more downstream protection
is needed, said two fund managers contacted by the group.
    Its heavy presence in high-risk areas such as Libya and
Nigeria was another reason for concern, they said. 
    "It makes sense to build a more balanced portfolio less
exposed to oil price swings ... It will help boost multiples and
support the stock," said Mediobanca oil analyst Alessandro
Pozzi.
    Since oil prices plunged from above $100 a barrel in 2014 to
below $30 in 2016, Eni shares have fallen more than 20 percent
while France’s Total has risen 7 percent and Royal
Dutch Shell 9 percent. [reut.rs/2AuObMh
]
    Total and Shell have fared better because they have greater
exposure to downstream businesses such as refining and
petrochemicals, where demand is lifted by economic growth fueled
by lower crude prices.
    Exxon Mobil Corp said last week it was revamping its
refining and chemical operations to boost profits.
    Eni, whose exploration and production (E&P) arm generated
more than 80 percent of operating income over 2015 and 2016, has
been the industry's best discoverer in recent years. But its
downstream business has struggled.
    A year or so ago, it toyed with the idea of selling its
chemicals and retail operations but pulled both deals, opting
instead to streamline operations and make them more profitable.
That strategy has led it to consider acquisitions, sources said.
    CEO Descalzi has said the group could float its retail arm
with an initial public offering (IPO) within two to three years.
    A banker familiar with the matter said Eni wanted to
strengthen its retail business, adding this could involve
acquisitions.
    Eni is seeking to reduce its carbon emissions, making new
investments in solar plants and converting refineries to
biofuels. Last month, it signed a deal with carmaker Fiat
Chrysler to work on new carbon-low fuels for cars.
    It also plans to expand its liquefied natural gas (LNG)
business.
    "It used to be all about E&P. Now at its roadshows Eni
dedicates almost half the time to downstream," the banker said.
 
 
    
 (Additional reporting by Danilo Masoni; Editing by Edmund
Blair)
  
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