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Oil Driller Eni at Risk in Libya as Political Unrest Spreads

Eni has been in Libya since 1959, ten years before Qaddafi seized power in a military coup. Photographer: Chris Warde-Jones/Bloomberg
Eni has been in Libya since 1959, ten years before Qaddafi seized power in a military coup. Photographer: Chris Warde-Jones/Bloomberg

Feb. 22 (Bloomberg) -- Eni SpA, the Italian oil producer that’s drilled in Libya during the whole of Muammar Qaddafi’s 41-year rule, is the foreign company with most to lose as violence escalates and the regime threatens to unravel.

As the former colonial power, Italy is the biggest investor in Libya and Rome-based Eni is at the forefront of the relationship. Italy’s largest company pumps almost 250,000 barrels a day in the North African country, or about 14 percent of its total production. Eni’s shares extended declines today after falling the most in 19 months yesterday.

“Italy and particularly Eni are heavily exposed in Libya and stand to lose a great deal if things fall apart,” said Nicolo Sartori, an energy and security researcher at Rome’s IAI Institute for International Affairs. “Eni’s production and exploration interests in the area are considerable.”

Diplomats resigned and soldiers deserted in protest after violent repression of anti-government demonstrators left hundreds dead in Libya, North Africa’s largest oil producer. Popular uprisings have already toppled autocratic regimes in Tunisia and Egypt. Oil prices jumped to a two-year high in New York today.

Eni said today that gas supply to Italy and Europe through its Greenstream Mediterranean pipeline has been suspended. Some petroleum production has also been stopped, Eni said in a statement, adding that facilities have not been damaged. The company said Italy, which gets about 10 percent of its gas from Libya, will be able to compensate for the loss through supply from other sources.

OMV, Repsol

Other companies affected by the protests in Libya include Austria’s OMV AG and Repsol YPF SA of Spain. OMV, which derives about 12 percent of its production from Libya, said yesterday it’s withdrawing all non-essential staff. Repsol, which relies on Libya for about 3.8 percent of its global output, said today that exploration and production operations are being suspended.

BP Plc suspended exploration yesterday and RWE AG halted operations. Statoil ASA closed its office in Tripoli and France’s Total SA said today that all non-essential staff are being pulled out.

“The reinjection of political uncertainty is likely to still be a concern for the market,” Barclays Capital wrote in a research note. It calculated that Libya accounts for 10 percent of Eni’s net income, 8 percent for OMV and 4 percent for Repsol.

Evacuate Staff

Eni also said today it is completing repatriation of its workers and their families and will leave 34 workers in Libya. The company, which gets another 13 percent of its production from Egypt and has smaller operations in Tunisia and Yemen, has said it continues to operate in all the countries affected by political unrest.

Eni fell 0.9 percent to 17.28 euros today in Milan. The exchange was shut earlier due to “technical issues.” Shares of Eni slumped the most since July 2009 yesterday.

“The market is naturally jittery given the fact that Eni has 10-year contracts that could suddenly become scrap paper if the people that negotiated and signed them are gone,” said Alessandro Frigerio, a fund manager at RMJ Sgr in Milan who doesn’t hold Eni shares. “One can only hope that the longstanding links with the country and Eni’s experience in difficult zones will help.”

Historic Ties

Eni has been in Libya since 1959, 10 years before Qaddafi seized power in a military coup. Ties between the two countries have strengthened in the past two years since the Italian government apologized for colonial rule from 1911 to 1943 and the two signed a treaty of cooperation.

“When Qaddafi falls it will all depend on whether the Libyans consider Eni’s historical relationship with the country or Italy’s recent ties with Qaddafi,” said Edoardo Liuni a financial analyst at IlNuovoMercato.it in Rome. “Certainly all the oil majors will be shaking if the new leaders decide to nationalize everything.”

Libya has used its oil wealth to become one of the biggest foreign investors in Italy. Libyan investors own 7.2 percent of UniCredit SpA, Italy’s biggest bank, including a 4 percent stake held by Libya’s central bank, according to Bloomberg data. Libya also owns 2 percent of Finmeccanica SpA, Italy’s biggest defense company, and 7.5 percent of Juventus soccer club.

Biggest Source

Libya is Eni’s largest source of oil and gas with 244,000 barrels of oil equivalent a day produced in 2009. Eni holds 8,951 square kilometres (3,500 square miles) of developed oil fields in the country, or about one fifth of the company’s total, according to data on the company’s website. Libya produced an average of 1.6 million barrels a day in January, according to data compiled by Bloomberg.

Eni may be able to find solace in the fact that any regime that follows Qaddafi’s will likely be as dependent on oil and gas revenue as its predecessor, said Christine Tiscareno, an analyst at Standard & Poor’s in London

“It looks like the protesters are pragmatists, not idealists,” Tiscareno said in a phone interview. “If they overthrow the regime, they’re still going to need revenue from foreign oil companies. I don’t think there’s cause for alarm at the moment, but if they get kicked out of the country, Eni’s in trouble.”

Crude futures for April delivery in New York rose as much as 9.8 percent today from the Feb. 18 settlement and London-traded Brent surged to the highest since September 2008.

To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net

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

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