Eni SpA, the world's sixth-largest oil company by market value, has had a great run the past six years. Now, some investors fear it could become a victim of its own success.
Investors have come to expect plenty from Eni, which tripled its stock price under its previous chief executive, Vittorio Mincato, and increased its daily production of oil and natural gas more than 70 percent. That helped turn Eni from an also-ran in the oil business into a player. Mincato's strong management helped energize the former state-run behemoth while his prudence guaranteed that Eni wouldn't overpay for acquisitions.
Chief executive Paolo Scaroni, who took the helm in June, has an arguably more difficult task: bringing Eni into the same league as bigger oil companies such as Royal Dutch Shell PLC of the Netherlands and Total SA of France.
Eni's current daily production is about 1.7 million barrels of oil equivalent, compared with almost 2.6 million for Total and more than 3.5 million for Shell. That is the scale and ambition that some investors have come to expect, though it is likely to be much harder to achieve.
Finding additional cost savings will be harder for Scaroni because much of the cleanup at Eni has been completed. In addition, Mincato's prudence means that Eni never made the bold, transformative acquisition that many had been expecting, though it made plenty of smaller ones, such as British-Borneo Oil & Gas PLC and Lasmo PLC. To build the business now, Scaroni would have to go hunting for assets at a moment when sky-high oil prices have made many targets prohibitively expensive and supply concerns have driven big oil companies and oil-thirsty nations as China and India to scour the world for deals.
"Eni is coming through a very strong production-growth phase. But our analysis indicates that that is coming to an end, which puts them under some pressure," said Tom Ellacott, an analyst at energy consultant Wood Mackenzie in London.
For now, investors seem pleased with Scaroni's performance. Eni shares have risen 15 percent on the Milan stock exchange in the past three months.
Analysts estimate that Eni could spend as much as $18.36 billion without putting its credit rating at risk. In recent years, Eni flirted with two big acquisitions: Enterprise Oil PLC in 2002 and Unocal Corp. this year. Its bids were much too conservative to come away with the prize. Some now think that Eni may have missed the boat.
"The acquisition that we felt would have helped Eni was Unocal. At the time, these deals were viewed as quite pricey, and they held back. But with some hindsight, it looks like it would have been a cracking deal for them," Ellacott said.
The thinking among Eni executives is that a major acquisition will have to wait until prices come down. Scaroni has pledged to stick to the target of producing 2 million barrels of oil equivalent a day by 2008, and that would require an ambitious 5 percent annual growth rate. The company says it will try to achieve that through organic growth.
Scaroni, 58, a former McKinsey & Co. consultant, comes to Eni from a stint at the helm of Italian utility Enel SpA, where he produced an annual total shareholder return of more than 18 percent during his three-year tenure.
He has been busy since taking over. Last month, Scaroni signed new exploration deals in Alaska and India. Still, his most ambitious project to date, a bid for a big refinery in Turkey, fell short.
Buying the refinery would have nearly doubled Eni's refining capacity. It refines about half the oil it produces, while Exxon Mobil Corp., for example, refines more than double the oil it produces. In addition, Turkey represents a strategic location for Eni. As the sole operator of the massive Kashagan oil field in the Caspian Sea -- the largest new find of the past 30 years -- Eni will have to transport some of that oil across Turkey.