March 15, 2012 5:33 pm

Eni raises oil production growth target

Eni, the Italian oil group, raised its long-term production growth target as it moves to develop a series of big oil and gas discoveries from Norway to Mozambique.

Paolo Scaroni, chief executive, said in an interview that the company expected to increase production by 3 per cent a year “for many, many years to come” thanks to a string of “spectacular” exploration successes that had added roughly 1bn barrels of oil a year to the company’s resource base since 2008.

In a strategy update to investors, Mr Scaroni described 2011 as an “extraordinary” year for Eni, which found large volumes of natural gas off the coast of Mozambique, and, in partnership with Statoil, discovered a big oilfield in the Arctic waters of the Barents Sea. These complemented other big finds in west Africa. The company has also seen a quick recovery in its Libyan production, which was disrupted by last year’s conflict.

Eni said 60 planned project start-ups in Russia, Norway, Venezuela, Angola and Kazakhstan will deliver 700,000 barrels a day of new production over the next three years. Mr Scaroni said Eni should be pumping about 2.4m barrels of oil equivalent a day by 2021, compared with 1.68m boe/d last year.

Some analysts have questioned the company’s ability to deliver such large-scale projects on budget and on time, especially after its bruising experience in Kazakhstan. The company was embroiled in a long-running dispute with the Kazakh authorities over its Kashagan oilfield in the Caspian Sea, the world’s largest oil development, which was hit by huge cost overruns and delays. Mr Scaroni insisted that in the past couple of years Eni has “successfully delivered projects on time and on cost”.

However, bringing Eni’s big portfolio of projects on stream will require significant funds. Eni said its capital expenditure will rise 14 per cent, from €39.1bn between 2011 and 2014 to €44.8bn between 2012 and 2015. Spending on exploration will increase 50 per cent from €3.6bn to €5.5bn.

Mr Scaroni insisted that high oil prices meant the company had the necessary financial firepower to cope with the big increase in spending. Also, under plans drawn up by the Italian government, Eni will divest its 52 per cent stake in Snam, the gas distribution network, and is also considering selling its 33 per cent stake in Galp, the Portuguese oil company.

Mr Scaroni said these divestments would “give additional strength to our balance sheet”, especially as they would allow Eni to deconsolidate €12bn of Snam’s net debt.

Eni said its production would grow at 3 per cent a year until 2015 – the same target given at its last strategy update – but upgraded its long-term growth target beyond 2015 from about 2 per cent to roughly 3 per cent – largely thanks to the huge gas resource it has discovered off Mozambique. Its 3 per cent target for 2012-15 was based on an oil price of $90 a barrel in 2012 and 2013 and $85 a barrel in 2014 and 2015.

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