Eni Sees Biggest Mediterranean Gas Find Boosting Cash Flow

Eni Claims Largest Gas Field Find in the Mediterranean
  • Discovery will `positively' affect its dividend, Eni CEO says
  • `Super giant' field may hold 30 trillion cubic feet of gas

Eni SpA’s discovery of a “super giant” natural gas field off the Egyptian coast will help boost the Italian company’s cash flow and “positively” affect its dividend, Chief Executive Officer Claudio Descalzi said.

“This discovery is going to put us in a stronger position,” Descalzi said in an interview on Bloomberg Television on Monday. The find, which Descalzi said is the largest gas discovery in the Mediterranean Sea, will “make our position in terms of cash flow much more robust than before.” Revenue from the deposit, together with cost cutting and asset sales, will help Eni withstand oil prices that Descalzi sees trading at between $45 and $60 a barrel “for the next couple of years.”

Eni’s shares gained as much as 4.4 percent in Milan on Monday, one day after it announced that the deep-water deposit in the Zohr Prospect in the Shorouk block may hold 30 trillion cubic feet of gas, equivalent to 5.5 billion barrels of oil. Eni, which wholly owns the license for Shorouk, said the discovery validates its strategy of exploring in mature areas. Italy’s largest oil producer had recorded an 84 percent drop in second-quarter profit.

Egyptian Demand

International oil and gas companies are seeking new deposits amid the depletion of existing fields. Egypt’s energy demand is rising as the Arab world’s largest population grows, making the country more reliant on imports from Persian Gulf states. The latest discovery will contribute to Egyptian supply for decades, Eni said.

The shares gained 17 cents, or 1.2 percent, to 14.58 euros at 2:39 p.m. in Milan. That gave the company a market value of 53 billion euros ($60 billion), second only to lender Intesa Sanpaolo SpA on the Italian exchange.

Oil in Europe headed for a fourth monthly decline as global supply continued to exceed demand. European benchmark Brent crude has fallen 15 percent this year after tumbling 48 percent in 2014. Brent for October settlement traded 2.4 percent lower at $48.86 a barrel at 1:20 p.m. London time on the ICE Futures Europe exchange.

“We’ll have ups and downs in the range of between $45 to $50 to $60 a barrel,” Descalzi said. “This is going to last for some time.”

Eni will start drilling production wells and installing pipelines in January or February and hopes to begin producing gas “in a couple of years,” Descalzi said. The development will be “low cost” since it’s located near facilities Eni has in the area, and the company will pay for the project with its own funds, he said.

Export Plans

“A find of this size should be enough to cover a lot of Egypt’s energy gap,” Robin Mills, a Dubai-based analyst at Manaar Energy Consulting, said by phone Sunday. “They’ll likely have to meet domestic needs first, before any export plans are discussed. This will also put a damper on Israeli plans to export gas to Egypt.”

Eni will need at least four years to develop the field and is unlikely to produce in the Shorouk block before 2020, Mills said. The company said it planned to appraise the field and start “fast-track development.” It didn’t provide dates for the project in the statement.

Some output from the Egyptian field could be shipped to Italy or other destinations as liquefied natural gas, Descalzi said in the interview. Eni is a partner in a plant at Damietta on the Mediterranean coast that chills gas into a liquid so the fuel can be sent by ship to buyers not linked by pipelines. The facility hasn’t been operating for lack of gas.

Israeli Fields

Companies including Noble Energy Inc., which are developing gas fields in Israel, have been pushing plans to export the fuel to Egypt, Jordan and the Palestinian territories. Delek Group and partners in the Tamar field off Israel’s Mediterranean coast signed an export contract with Egyptian buyers in March. Plans remain stalled as the Israeli government has been formulating an energy policy.

Natural gas futures in New York have dropped more than 30 percent in the last 12 months. The October contract on the New York Mercantile Exchange fell 2.5 percent to $2.646 per million British thermal units at 1:09 p.m. London time.

Eni will proceed with plans to divest some of its peripheral businesses as the drop in oil prices puts pressure on earnings, Descalzi said. The company has asked advisers to look at options including the sale of interests in Nigerian oil and gas fields. In March, Eni became the first major oil company to announce a dividend cut after prices slumped.

Gas Venture

Egypt is the first foreign country Eni entered, in 1954. The Rome-based company already produces gas and crude there, pumping about 200,000 barrels a day of oil equivalent.

Descalzi, who became CEO a year ago, met Egyptian President Abdel-Fattah El-Sisi and the country’s prime minister on Saturday in Cairo to discuss the discovery, the Egyptian petroleum ministry said in a statement on Sunday that confirmed Eni’s find.

Descalzi led Eni in its largest gas discovery at the Mamba field in Mozambique, where the producer found 75 trillion cubic feet of the fuel in offshore deposits of its Area 4.

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