Italy’s Eni SpA reaches around the globe
It may not be a household name in North America, but Italy’s Eni SpA is a major presence in the world oil industry, easily ranking in the top ten by any measure of company size. Fortune ranked the company 17th in its list of the 50 most profitable companies in the world, behind industry rivals ExxonMobil, Shell, BP, Chevron, Total and Malaysia’s Petronas.
In terms of production, Eni is about the size of ConocoPhillips, though its revenue is barely more than half the amount generated by the Houston company. By either measure, it’s significantly smaller than its European rivals.
But unlike some of the other super majors, Eni is making major gains in the amount of oil and gas it brings out of the ground.
In the second quarter, Eni’s production jumped 6.4 percent to 1.725 million barrels of oil equivalent daily, from 1.621 million BOE per day in the same period a year earlier. And that increase came despite the impact of production-sharing arrangements, where host countries take a slice of production that increases with higher oil prices. Profits rose 44 percent for the quarter.
Production risingFor the year as a whole, Eni is expecting a 5 percent gain in production, after showing 4 percent growth in 2004.
There are plenty of reasons to expect the company to meet that target. Last month, two big developments started producing major amounts of oil.
In Iran’s Darkhovin oil field near the border with Iraq, Eni started bringing in 55,000 barrels daily. That’s the first stage of a $1 billion project that will be pumping 160,000 bpd as early as the fourth quarter of next year.
Meanwhile, the Kissanje and Dikanza fields in deepwater offshore Angola started production, with 250,000 bpd expected by the end of the year. Eni’s share of that will be 45,000 bpd. Eni has a 20 percent share in that development, half as much as operator ExxonMobil. BP and Statoil are the other partners.
Overall, Eni’s reserves are more than 7.2 billion barrels of oil equivalent, most of it in Italy and Africa. It has 71,000 employees around the globe.
Active in U.S. GulfIn the United States, Eni’s activities up to now have all been in the Gulf of Mexico, where the company’s deepwater drilling expertise has been a big asset. Total U.S production, all from the Gulf, runs about 45,000 bpd.
The company is operator and sole owner of Allegheny and Morpeth, and operates King Kong with a 50 percent interest. It is also involved in the Medusa, Timon and K2 fields in the Green Canyon.
Caspian roleAmong the company’s big international projects is the giant Kashagan field in the Caspian Sea, where Eni is operator and holds an 18.5 percent interest. The field, with recoverable reserves estimated at up to 13 billion barrels, is expected to start production in 2008 and reach 1.2 million bpd at peak production. Eni also is co-operator of the Karachaganak field in Kazakhstan, with a 32.5 percent interest there and current production to the company of more than 70,000 bpd.
Just more than half of Eni’s oil reserves and production are in Africa, where the company has been operating for decades. It has been aided by U.S. laws and policies that have kept — or booted — some of its competitors out of countries such as Libya and Iran.
Eni is the leading international operator in Libya, where fields operated by the company produce nearly a fifth of Libya’s oil. The company also has a major presence in Italian neighbors Egypt and Algeria. It also operates fields accounting for about a tenth of Nigeria’s oil.
The company gets 25 percent of its oil production from North Africa, 28 percent from West Africa, 19 percent from its North Sea assets and 8 percent from Italy. The rest of the world provides 20 percent.
Mideast presenceThe company is active in Iran at the big offshore South Pars gas concentration. Eni is also working in Saudi Arabia with a license for gas extraction in the Rub al Khali basin near Qatar and the United Arab Emirates.
In Asia, it’s a partner with ConocoPhillips in the Bayu-Undan field in the Timor Sea near Australia, which just started LNG production. Eni has a 12 percent interest there.
Earlier this year, Eni made a move toward Unocal, but bowed out after the bidding went well beyond the $58 a share Eni was reportedly willing to pay. Chevron won that one with an offer worth more than $66 for each Unocal share.
In oilfield services and contracting, Eni subsidiaries Saipem and Snamprogetti both have offices in Houston. Saipem leases a fleet of floating production and storage vessels as well as providing offshore drilling services, mainly in Africa, the Middle East, and the North Sea. It’s also been involved in the maintenance, modification and operations segment, taking over various oilfield operations for owner companies.
The group has also been involved in major new LNG facilities, with Saipam promoting its expertise in design and construction of regasification facilities, tanks and vessels, as well as the offshore floating systems that may be used more extensively if terrorism concerns affect siting of onshore terminals.
Snamprogetti has been involved extensively in engineering and contracting for LNG facilities, as well as traditional natural gas processing units. It has been part of the construction and design group for seven liquefaction trains with total capacity of more than 26 million tonnes annually. The company is active in huge projects in Nigeria and Qatar, for example.
Eni has shown recent interest in LNG in the United States, announcing a contract with Sempra in early August to take capacity of 600 million cubic feet daily for 20 years at the proposed Cameron terminal in Louisiana.
Broad range of operations
Along with its E&P activities, Eni has an extensive refining and marketing operation in Italy under the Agip brand name. It has a power generation arm, and also natural gas transmission and pipeline operations in Italy. The pipeline business is likely to be sold, generating cash that could be used for other investments.
The company already has a major war chest of cash and stock — a recent Smith Barney report said it could afford to return up to $10 billion to stockholders. Indeed, the company had been buying back stock under former CEO Vittorio Mincato.
Future direction unclear
But Mincato was replaced in June by Paolo Scaroni, who was picked for the job by the Italian government. Scaroni, who has scarce background in the oil industry, came from Enel SpA, a huge utility that, like Eni, is government-controlled.
Scaroni hasn’t detailed his vision for the company’s future, and his own future as well as the company’s direction could change if the Italian government takes advantage of high oil prices and cashes out its 30 percent stake in Eni to pay off some of the country’s debt.