October 26, 2018 / 6:37 AM / 2 years ago

UPDATE 2-Eni flags likelihood of buyback next year as profits soar

* Q3 adjusted net profit 1.39 bln euros vs forecast 1.02 bln

* Raises full-year profit guidance at gas and power division

* Cuts output growth target to 3 pct from 4 pct (Recasts lead, adds management, analyst comments)

By Stephen Jewkes

MILAN, Oct 26 (Reuters) - Italian oil major Eni flagged on Friday the likelihood of a share buyback next year after cash flow in the third quarter jumped and profits rose six-fold to beat expectations.

In a conference call with analysts, finance chief Massimo Mondazzi said a buyback was a priority, providing market conditions remained stable.

Over the last year the world’s top oil and gas companies have come under growing pressure to return more cash to shareholders as profits and oil prices get back on track after a three-year crunch.

“The trajectory is positive ... our aspiration is for a progressive dividend with a buyback, on condition our leverage stays below 20 percent,” Mondazzi said.

Eni has said it could buy back shares providing its leverage ratio - debt to equity - is below 20 percent on a stable basis.

In the third quarter, the ratio was below that level and Mondazzi said he expected it to be well below that mark in the final quarter too.

“We’ll inform the market in our strategy update in March,” he added.

In July, Shell launched a $25 billion share buyback, months after French peer Total began its own $5 billion programme.

Eni’s adjusted net profit in the third quarter rose to 1.39 billion euros ($1.6 billion) from 0.23 billion euros a year earlier, boosted by firmer oil prices. That was above analysts’ consensus forecast provided by the company of 1.02 billion.

It also reported a surprise profit at its Gas & Power division, where it raised its adjusted operating profit guidance for the year to 550 million euros from 400 million.

“It was a strong beat with good cash flow generation,” a Macquarie analyst said in a note, adding lower production growth for 2018 was largely expected.

Eni cut its output target for the year to 3 percent growth from a previous 4 percent due to lower local gas demand in Libya, Venezuela and Ghana.

But it said the lower volumes would have a negligible impact on cash flow.

The state-controlled company has one of the strongest discovery records in the industry in recent years after two giant gas finds in Mozambique and Egypt.

It is ramping up production at its Zohr field offshore Egypt, where it is now targeting 3.2 billion cubic feet (bcf) of gas per day by the end of 2019 from a previous 2.7 bcf.

Eni said talks with partner Naturgy over re-opening their Damietta LNG facility in Egypt were at an advanced stage and the plant should begin working again next year.

At 1430 GMT, Eni shares were up 0.6 percent at 15.06 euros.

$1 = 0.8794 euros Reporting by Stephen Jewkes; Editing by David Holmes and Mark Potter

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