LONDON — The Algerian investigation into alleged corruption by the Italian oil services firm Saipem is beginning to have an effect on the company’s business, it emerged from financial results reported this week.
Saipem has long been a main contributor to the profit of its parent, the oil giant Eni. But on Wednesday, Eni reported sharply lower earnings in part because of a sharp drop in income at Saipem.
Eni said Wednesday that adjusted net profit for the quarter fell about 42 percent from last year to €1.4 billion, or $1.8 billion.
On Tuesday, Saipem’s chief executive, Umberto Vergine, said the corruption inquiry was causing the Algerian authorities to delay payments to Saipem for oil and gas construction. He estimated the value of the payments at risk at €500 million.
The company said the delays had contributed to a 13 percent increase in net debt during the quarter to €4.8 billion.
“We are having some difficulties to get recent payments, and the worst-case scenario is we won’t get these payments,” Mr. Vergine told analysts on Tuesday.
Mr. Vergine said Wednesday that he was also reviewing and revising low margin bids, including one in Abu Dhabi, potentially leading to some lost business.
“The company highlights continued poor contract terms and, for the first time, ongoing Algerian corruption allegations impacting the speed of invoicing and payment in Algeria,” wrote analysts at Macquarie in London in a note.
Mr. Vergine said media reports on the scandal were complicating discussions with clients about projects in Algeria. He said that he expected this situation to continue but that there was “no significant impact on business from recent events.”
Saipem also said that the company had been informed by the Algerian prosecutor that the investigation might be expanded, though the company said it did not have details. It said that €80 million in company bank accounts in Algeria had been frozen, a move upheld by the Supreme Court of Algiers.
For several years Algerian prosecutors have been investigating alleged illegal payments by Saipem executives to Algerian officials. The focus of the investigation moved to Italy late last year. Saipem’s then chief executive, Pietro Franco Tali, resigned in December.
In February, Milan prosecutors said they were expanding their inquiry into the oil giant Eni, which owns about 43 percent of Saipem, and into Eni’s chief executive, Paolo Scaroni. Both Eni and Mr. Scaroni denied any wrongdoing.
Underlining the company’s close relationship with Eni, Saipem’s chief financial officer, Stefano Goberti, said Wednesday that 92 percent of the company’s financial debt was financed through Eni. “We do go to Eni for any financing needs,” he said.
In January, Mr. Vergine shocked markets by warning that Saipem’s profit this year would be roughly half of what it was in 2012. In line with these forecasts, the company reported a 52.4 percent decline in net profit for the first quarter to €110 million from the year earlier. Revenue of €3.1 billion was only about 1 percent lower.
Saipem blamed the fall in profitability on low margin contracts and said in a lengthy presentation on Wednesday that it was taking measures to avoid undesirable deals, including withdrawing bids from some projects.
The decline in Saipem’s earnings contributed to lower profit at Eni, but so did a 10-day shutdown of its main gas facilities in Libya due to militia violence, as well as disruptions in Nigeria. Eni’s oil and gas production for the quarter was down a hefty 4.9 percent.
Massimo Mondazzi, Eni’s chief financial officer, told analysts that Libyan production was now back to normal though “the situation remains challenging.”
The company also lost €148 million in its troubled gas and power business, largely because of weak demand in Italy and the high cost of gas from suppliers like Russia. Mr. Scaroni, the chief executive, did not take part in the call.
Article source: http://www.nytimes.com/2013/04/25/business/global/25iht-oil25.html?partner=rss&emc=rss