OREANDA-NEWS. Italy's Eni will sell part of its stake in oil services company Saipem and use the proceeds to help finance its exploration and production operations.

The 12.5pc stake will be sold to Italian state infrastructure fund FSI, for as much as €487mn ($538mn). As part of the deal, Saipem will repay €6.1bn it owes to Eni, and then on completion Eni and FSI will support a €3.5bn capital raising by Saipem.

The deal will see Eni reap €5.4bn net, and after completion it will still own around 30pc of Saipem.

Eni's chief executive Claudio Descalzi said the deal will enable the company "to focus on our core activities and to enhance our financial flexibility. The additional financial resources will be used to develop the very significant oil and gas reserves we have discovered over the past few years and to strengthen our balance sheet in line with our targets."

Eni earlier this year resolved to focus on proven areas, near-field exploration and fast-tracking developments, and said it budgeted €28bn for development capital expenditure (capex) in 2015-18. The recent discovery of the 30 trillion ft? (850bn m?) Zohr gas field offshore Egypt is likely to suck up around a third of that total alone. Total planned capex for 2015-2018 is €47.8bn, a 17pc reduction from the 2104-2017 plan.

Eni reports its third quarter results tomorrow. The company made a loss in the second quarter despite one of the highest periods of organic production growth it has ever experienced. Lower oil prices were partly to blame, but a €929mn write-down by Saipem also weighed on results.

Saipem hopes the capital raising will bring its net debt to a level in line with its sector peers, and allow it to attain more competitive rates when it comes to refinancing its outstanding debt.

Sapiem already announced a wholesale review of its business, along with jobs cuts. Like its peers, Saipem has been affected by delays and cancellations to contracts, cost reductions and pressure on supply-chain margins as the industry readjusts to lower oil prices.

Today Saipem said it has increased its cost cutting target to €1.5bn by 2017, from the €1.3bn announced in July, and said its profit in the three months to 30 September fell to €54mn from €76mn in the same period a year earlier. Saipem maintained its outlook for a full year loss of around €800mn.