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Eni Chief Scaroni Warns of Risk That Libya Could Turn Into a Failed State

Eni SpA (ENI), the biggest foreign oil producer in Libya, warned against allowing Libya to end up as a failed state.

“What would be the worst potential outcome is to have a kind of Somalia situation in Libya that has no government for a long period of time,” Chief Executive Officer Paolo Scaroni said in an interview with Bloomberg Television late yesterday. “But if this happens, this will not just be Eni’s problem. It will be a problem for Europe, for everybody.”

The uprising against the rule of Libyan leader Muammar Qaddafi has intensified, sending oil prices to a 2 1/2-year high. The division of the country into two wouldn’t “necessarily be bad for us,” Scaroni said, since a prolonged power vacuum would be the worst possible outcome.

As the biggest energy producer in Africa, Rome-based Eni has had plenty of experience in dealing with revolutions in the past, the CEO said.

“And normally contracts are respected, simply because everyone who is in power needs” the income generated by oil exports, he said.

Eni said it will halt all remaining oil output from Libya in the next few days. Production has already been cut by two- thirds. The Italian company pumped 280,000 barrels of oil equivalent a day from Libya before the crisis.

Output Target

Eni is targeting output growth in excess of 3 percent through 2014, led by projects in Iraq, Venezuela, Angola and Russia. That forecast depends on the suspension of Libyan production being temporary, Scaroni told analysts at the company’s strategic plan presentation in London yesterday.

The company said that the impact of lower output in the north African nation has been more than offset by higher oil prices.

Facilities are on “hot standby” in Libya ready to restart quickly, it said in a presentation. None of the company’s oil infrastructure has been damaged by the violence. Eni is currently producing 10 million cubic meters of gas a day to supply the domestic market.

Speculation about a Libyan stake in Eni is a “legend,” Scaroni told a press conference. “We found only one entity which owns 0.5 percent of the company, has Libya in its name but is based in Bahrain,” he said. The producer has since informed the market regulator about the shareholding.

Investment

Eni plans 53.3 billion euros ($74 billion) of investments in the next three years, most of which will be focused on upstream operations. The company said its overall production in 2014 will exceed 2.05 million barrels of oil equivalent a day. It had previously targeted annual output growth of 2.5 percent from 2010 to 2013.

“Our confidence is underpinned by progress on giant projects in Venezuela, Russia, and Angola,” Scaroni said. “We are now entering a very positive productive phase.”

The current dividend estimate is based on oil prices at $70 a barrel, Scaroni said. Eni would consider changing the base for the estimate if oil prices remain higher, the CEO said.

Eni will keep its 33 percent stake in Galp Energia SGPS unless it gets a premium to the share price performance of Portugal’s biggest oil company in the past three months, according to Scaroni.

Petroleo Brasileiro SA (PETR4), Brazil’s state-controlled oil producer, last month ended talks with Eni to buy a 4.1 billion- euro stake in Galp.

Eni would also consider the sale of its stake in Snam Rete Gas SpA, the owner of Italy’s natural-gas grid, Scaroni said.

“If we had approval of the government and found a buyer willing to pay a premium on the market price we would consider the sale,” he said.

To contact the reporters on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net Olivia Sterns in London at osterns1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net.

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