After Leading Oil Industry on Exploration, Eni Seeks to Cash In

  • Italian oil major uses super-computer to vet potential finds
  • Eni in "advanced" talks to sell minority stakes in fields

One of the most cherished assets held by Italy’s largest oil company, Eni SpA, isn’t a refinery or an oilfield -- it sits inside a building in the small town of Ferrera Erbognone near Milan: one of the world’s fastest super-computers.

The giant machine, used to generate detailed views of oil reservoirs buried thousands of meters underground, is part of Eni’s bet on exploring for new fields. In the last decade, the company has spent $41 billion drilling dozens of wells from Mozambique to Pakistan and Angola.

The investment has paid off. Since 2005, Eni has found the equivalent of about 18 billion barrels of oil, more than double the second-best performer among major oil groups, Norway’s Statoil ASA, according to data from consultants Wood Mackenzie Ltd. Now, the Rome-based company is seeking to cash in on its success, selling minority stakes to help finance development of the discoveries.

“Eni has become a stand out oil explorer," said Andrew Latham, vice-president of global exploration at Wood Mackenzie in Edinburgh. “They have invested heavily in exploration relative to their size."

Remaining Operator

Eni Chief Executive Officer Claudio Descalzi, 60, said the company prefers to sell a portion of any discovery, retaining a holding of 30 percent to 50 percent while remaining the operator.

“That way we profit from monetization of the exploration success, we reduce our capital expenditure, and we get capital to inject in the developing of the assets," he said in an interview in London.

The Italian group has found several fields that could attract buyers, including gas reserves off Egypt and oil fields in Gabon and Congo. Eni Chief Financial Officer Massimo Mondazzi told investors last month the group was in "well advanced" discussions to raise cash from its exploration portfolio.

In 2013, Eni sold a 20 percent stake in its gas discovery in Mozambique to China National Petroleum Corp. for $4.2 billion. The Italian group still controls 50 percent of the project, signaling it has room to sell an additional stake.

Eni controls 100 percent of the giant Zhor gas field off Egypt, discovered in August and the biggest find ever in the Mediterranean Sea. It also controls all of a large gas field in Gabon found last year. In Republic of Congo, it owns 65 percent of oil and gas discoveries made between 2014 and 2015.

Luxurious Position

While oil below $50 a barrel will curb the amount Eni is able to raise, Neil Beveridge, an analyst at Sanford C. Bernstein & Co. in Hong Kong, said in a note that among the major energy companies only the Italian group was "in the luxurious position of being able to monetize early equity in their own discovered resources."

Eni was born as an exploration company in 1926 when Agip SpA was established by the Italian government with a mandate to explore for oil and natural gas. Since then, the tradition for exploring has continued and the company has outspent larger rivals.

In 2006, when the most recent exploration push started, Eni invested almost $1.7 billion looking for oil and gas, nearly as much BP Plc that year, a company with almost twice the market value. In 2014, that had climbed to $3.8 billion, not far from the budget at Chevron Corp. the second-largest U.S. oil producer.

Descalzi, a physics graduate who started his career in oil reservoir engineering and became CEO last year, said two factors explained Eni’s success.

“One is our technological effort, working with super-computers and proprietary software,” he said in the interview. “The second is our focus on conventional assets in areas where we have operational synergies and in areas where we know deeply the geological context."

Super-Computer

Eni’s latest super-computer -- currently the 19th fastest in the world, according to researchers at the U.S.’s Lawrence Berkeley National Laboratory -- was bought a year ago to replace another, slightly slower, machine that powered its petroleum exploration effort for years.

The new computer is part of the technology center the Italian company opened in 2013 in Ferrera Erbognone.

Among major oil groups, only Total SA and state-owned Saudi Arabian Oil Co. own computers ranked among the world’s 50 most powerful , according to the Lawrence Berkeley data. Petroleum Geo-Services ASA, a Norwegian company that specializes in processing geological data for the oil industry, operates the world’s 14th most powerful computer in Houston.

"Computing power is key," Irene Himona, oil analyst at Societe Generale SA, said in a note to clients. "Each reservoir is typically divided into ‘cells’ to be analyzed; a few years ago they could analyze a few million cells. Now simulations are run with 240 million cells."

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