Eni’s chief executive, Paolo Scaroni, said the discoveries had come after Eni spent five years studying East Africa, where very little oil and natural gas had been found. When Mozambique made exploration blocks available in 2006, Eni bid and got the one it wanted. “Although Mozambique was a new country, we thought the chances were reasonable, about 20 percent,” of finding something, Mr. Scaroni said during an interview in Milan. “Of course it was high-risk, high-reward.”

1. Italy's Oil Leader, Eni, makes a push toward the top. Huge
natural gas field discovered in Mozambique
Eni’s chief executive, Paolo Scaroni, said the discoveries had come after Eni
spent five years studying East Africa, where very little oil and natural gas had
been found. When Mozambique made exploration blocks available in 2006, Eni
bid and got the one it wanted. “Although Mozambique was a new country, we
thought the chances were reasonable, about 20 percent,” of finding
something, Mr. Scaroni said during an interview in Milan. “Of course it was
high-risk, high-reward.”
Richard Carson/Reuters
Paolo Scaroni is the chief executive of Eni of Italy, which has found huge natural gas fields in Mozambique in East Africa
MILAN — Tucked away in a building on the outskirts of Milan is the “nirvana
room,” so called perhaps because of the good tidings it contains. There,
geologists working for the Italian oil company Eni don 3-D glasses to
contemplate fluorescent images of underground geological formations and try
to divine which might be worth tens of millions of dollars in exploratory drilling.
The mood around Eni has been nirvana-like lately as the company’s explorers
have made some lucrative enlightened guesses. Beginning in 2010, Eni and a
rival, the Houston-based Anadarko Petroleum, made a series of finds
off Mozambique, a country in East Africa, that add up to the largest natural
gas discovery of recent years — the equivalent of about 16 billion barrels of oil.
Eni controls the largest share of the Mozambique findings, with 70 percent of
an offshore block in the Indian Ocean called Area 4, in what is known as the
Rovuma Basin.
Eni’s chief executive, Paolo Scaroni, said the discoveries had come after Eni
spent five years studying East Africa, where very little oil and natural gas had
been found. When Mozambique made exploration blocks available in 2006, Eni
bid and got the one it wanted.
The challenge now will be to fully capitalize on that opportunity, which will
require the company to help manage Mozambique’s transition into a major
energy exporter. And building multibillion-dollar plants in remote areas to turn

2. natural gas into liquids for transport on specialized ships will also test Eni’s
skills.
These days, oil and natural gas exploration is an industry as fraught with
geopolitical risks as it is with geological ones, as the recent hostage-taking
attack in Algeria has made clear. And Eni is as aware as any European energy
company of the dangers of politically volatile North Africa, given its own
extensive operations in Algeria and Libya.
But for now, at least, Mozambique is not one of Africa’s trouble spots. And in
any case, energy companies tend to follow opportunities wherever they can
find them.
“Although Mozambique was a new country, we thought the chances were
reasonable, about 20 percent,” of finding something, Mr. Scaroni said during an
interview in Milan. “Of course it was high-risk, high-reward.”
It was after Anadarko, a U.S. independent, announced a discovery in an
adjacent tract that Eni, which had been preparing to drill in another part of its
block, decided to put its first well near Anadarko’s tract.
Mr. Scaroni, a graduate of Columbia Business School in New York with a
master’s degree in business administration, took the top job at Eni in 2005
after spending much of his career outside Italy and the oil business. He has
been gradually reshaping the company into more of a machine for finding and
producing oil and natural gas and less of the lumbering state conglomerate
that had toiled in the second tier of global oil giants.
Mr. Scaroni, 66, also has the crucial task of maintaining Eni’s relationships with
a group of fossil-fuel-rich but prickly host countries that include Iraq, Libya,
Russia, Venezuela and, elsewhere in Africa, Angola and the Republic of Congo.
He regularly turns up in places like Baghdad or Brazzaville that might give
other chief executives pause.
During the interview, the Zubair field in Iraq was on his mind. “We have a
company with 150 expatriates in Iraq, with a huge effort for security, and the
economic result for us is very little, since we are paid $2 per barrel,” he said.
“From time to time, we ask ourselves: Is it worth it?”
Eni is the largest foreign producer of oil and gas in both Algeria and Libya. Eni
executives say they were surprised and shocked by what happened to BP and
Statoil, which are partners in the Algerian plant that was seized, and are
tightening up their own security measures. They note that Eni already has
large numbers of Algerian troops inside the perimeters of its Algerian sites,
while troops apparently were not posted inside the seized complex at In
Amenas.

3. So far, Mr. Scaroni has smoothly sailed Eni through Libya’s chaotic transition
from the regime of Col. Muammar el-Qaddafi to a new government that is still
trying to find its balance. Unlike most other oil companies, Eni thrived under
the Qaddafi regime, developing new fields and building a $9 billion facility at
Mellitah, west of Tripoli, to pipe natural gas under the Mediterranean.
Mr. Scaroni was quick to go to Benghazi in April 2011 to meet the rebel
leadership, even before Colonel Qaddafi’s fall. Since then, Eni has restored
most of its Libyan production, which represents 14 percent of Eni’s oil and
natural gas output.
But Mr. Scaroni knows he cannot be complacent. The Wafa field, an important
Eni site in Libya, is 35 kilometers, or 22 miles, east of In Amenas. The Libyans
do have a special incentive for protecting the field: It keeps the lights on in
that country, producing 50 percent of the gas that fuels Libyan power plants.
In gaining early access to Mozambique, Eni trumped other major oil
companies, which have been shut out of the country, even though it was the
scene of four of the five largest finds worldwide last year.
“We missed East Africa,” Mike Daly, BP’s head of exploration, lamented at a
recent conference. “Eni are the people who have been the most successful
there.”
With the finds in Mozambique, along with others in the Barents Sea and off
Indonesia, Mr. Scaroni has leeway to do what one of Eni’s big shareholders,
Knight Vinke Asset Management, an activist fund manager based in Monaco,
has been urging: focus on exploration and production and get rid of extraneous
assets.
He is gradually selling Eni’s holdings in other businesses, including SNAM, a
regulated natural gas distribution business in Italy, and a 33 percent holding in
GALP, a Portuguese oil company. Those deals have raised about €7.4 billion, or
$9.9 billion, and have helped cut net debt. “We are preparing the balance
sheet to be ready to develop all the discoveries we have made,” Mr. Scaroni
said, noting that Eni faced a “season of big capital expenditure” before reaping
the rewards of added production.
Given the new focus, Mr. Scaroni has resisted selling Eni’s controlling stake in
Saipem, a drilling and engineering subsidiary. That is despite Saipem’s having
embarrassed Eni in December when Milan prosecutors said they were
investigating company executives over suspicions of corruption in Algeria.
As part of that episode, Saipem’s chief executive resigned; so did Eni’s chief
financial officer, who had previously been finance chief at Saipem.

4. The combination of discoveries and disposals plus the prospect of a buyback of
as much as €6 billion of the company’s stock helped lift Eni’s share price 15
percent last year. That was the second-best stock performance among major
oil companies, after Rosneft of Russia, according to Bernstein Research, an
investment analysis firm. Eni’s stock is up an additional 5.6 percent so far in
January.
For investors, that is a welcome change for a company that had previously
lagged behind its peers. “We have to give them credit for executing,” said
Oswald Clint, an analyst at Bernstein in London.
To keep up the strong performance, though, Eni faces some difficult tasks and
decisions. A big question is whether Eni — or Anadarko, for that matter — has
what it takes to manage Mozambique’s likely transition from a small onshore
producer to potentially one of the world’s leading natural gas exporters, on a
scale with Australia and Qatar. To export to the Asian customers that are the
most likely buyers, Mozambique will need huge liquefied natural gas plants for
preparing the gas for shipping, as well as other facilities that do not yet exist.
Neither Eni nor Anadarko has strong credentials in processing and shipping
liquefied natural gas, or L.N.G., which requires skills beyond those required for
conveying natural gas via pipelines. Another complexity will be the remote
location of the facilities.
“Northern Mozambique is pretty much a frontier area lacking any
infrastructure; this will add to the challenges of developing Mozambique
L.N.G.,” said Mansur Mohammed, an analyst in Edinburgh for Wood Mackenzie,
an energy and mining research firm. Mr. Mohammed estimated the cost of the
initial phase of the projects at about $50 billion.
Mr. Scaroni said that Mozambique would become larger than any investment
Eni had previously made. He acknowledged that he was talking to other
companies about selling potential stakes, though he said Eni preferred to do
more exploration and initial development before bringing in partners.
On Dec. 21, Eni and Anadarko signed an agreement to build L.N.G. facilities
together, which could help cut costs.
A logical partner would be Royal Dutch Shell, one of the world’s leading L.N.G.
players. Shell agreed last year to buy Cove Energy, a small British company
that holds an 8.5 percent stake in Anadarko’s Mozambique block. But Shell was
outbid by PTT Exploration & Production of Thailand, which paid about £1.2
billion, or $1.9 billion.
Based on the Cove sale, Eni figures that its share of Mozambique natural gas is
valued in the $15 billion range.

5. Mr. Scaroni said that under its president, Armando Guebuza, Mozambique had
devised a “very reasonable” program for developing its oil and natural gas
resources with the aid of advisers from Norway, a country whose petroleum
system has become a model for new producers. The government of
Mozambique seems to have little problem with its foreign partners making
profits, but it wants to make sure that natural gas is used for the country’s
development.
“The government seems to signal that it wants the commercial companies to
make a good profit but not to give them the lion’s share,” said Bjorn-Erik
Leerberg, a partner at Simonsen, a Norwegian law firm that has been advising
Mozambique.
Mozambique is not expected to start producing the offshore natural gas until
late in this decade at the earliest. Bernstein has said it expects Mozambique to
yield very high returns on investment, close to 30 percent, for its gas
developers. Of course, achieving that sort of profit would require a stable
government; continued high prices for natural gas in Asia, which have yet to
be affected by the shale gas boom in the United States; and smooth and
efficient operations.
Eni’s track record on major projects has not always been stellar. Delays and
cost overruns have reduced returns to an estimated 7 percent on the giant
Kashagan project in Kazakhstan, where Eni was the operator until 2008,
according to Bernstein. That is below Eni’s 8 percent cost of capital. The
estimated $48 billion first phase of the project is about eight years behind
schedule.
Eni is considered a major producer, with output equivalent to about 1.7 million
barrels a day. Its output is double that of a large independent like Anadarko.
While it is only half the size of Shell, by any other standard, Eni is huge:
79,000 employees and net profit of €6.3 billion for the first nine months of last
year. The Italian government holds a 30 percent stake.
The corporate credo is that it is a “two-flag” company — one that tries to work
as a cooperative partner with its host countries. In the case of the Republic of
Congo, Eni yielded to the president’s request that Eni expand one power plant
and build another for the country, which was short of generating capacity.
Mr. Scaroni has also been supportive of Russian energy projects including
Southstream, a proposal for bringing Russian natural gas to Western Europe by
means of a pipeline under the Black Sea, bypassing countries like Ukraine.
That cooperation has helped Eni obtain a foothold in the Russian Arctic through
a venture with the state oil company Rosneft in the Barents Sea, where Eni has
already had success on the Norwegian side.

6. As for Mozambique, Mr. Scaroni said he had visited the country seven or eight
times, once during the Christmas holiday in late 2011. A picture in his office
shows his son with a fish he caught during that visit.
“I meet the president every time I go there,” he said of Mr. Guebuza. “I am
keeping him informed about potential partners; every change in the
consortium has to have their approval.”
FONTE: nytimes.com