Eni Set to Gain Most From Libya Peace as Oil Price Deters Rivals

  • Accord for national unity government due on Wednesday
  • Eni beating chaos as output rises over 300,000 barrels/day

No company has more to gain from a deal to repair Libya’s broken government than Eni SpA, Italy’s largest oil producer and the biggest investor in the war-torn North African country.

With a United Nations-brokered deal for a government of national unity due to be signed in Morocco on Wednesday, Eni is hedging its bets. Claudio Descalzi, Chief Executive Officer, said the company was “talking to everyone -- the National Oil Company, the central bank, we talk obviously with Tobruk too,” a reference to one of the two rival parliaments claiming legitimacy. 

The Libyan oil industry as a whole has mirrored the country’s descent into chaos since the 2011 rebellion that ended Muammar Qaddafi’s 42-year rule. Rome-based Eni has proven to be an exception: before the civil war Eni was producing the equivalent of more than 260,000 barrels per day on average. Now, with its sites off-shore and in remote desert locations away from scenes of fighting, it has ramped up output to more than 300,000 barrels per day.

“Our production in Libya is above all gas and what we have seen in the last years is that internal demand has grown, and this is a very positive sign. It means people are using gas for domestic and industrial purposes,” Descalzi told reporters at a conference on Mediterranean crises in Rome on Friday, adding that Eni was increasing its gas production.

The low oil price also plays in Eni’s favor, said Nicolo Sartori, an energy and defense analyst at Rome’s Institute for International Affairs. “The market remains unstable, any political agreement will take time to ensure stability, and it’s hard to see energy companies rushing in with the oil price so low,” he said. “The first to relaunch activity will be companies like Repsol SA and Total which are already there.”

Signing Ceremony

Under a plan one year in the making, representatives of the two rival parliaments -- the General National Congress, based in Tripoli, and the House of Representatives based in Tobruk in eastern Libya -- as well as other factions, are expected to commit to set up a new government within 40 days of this week’s signing ceremony.

Italy, the former colonial power in Libya, gathered ministers and senior officials from 17 countries, including U.S. Secretary of State John Kerry, in Rome on Sunday to push for the deal. With only about two-thirds of Libya’s power factions taking part in the Rome talks, German Foreign Minister Frank-Walter Steinmeier cautioned that bringing peace was not “completely reached.”

The migration crisis, and the conquest by Islamic State of Qaddafi’s hometown of Sirte among other areas, have made the Libyan crisis even more of a pressing issue for Italy only a few hundred kilometers away. 

Italy has a long and turbulent history with the North African country, which was occupied following the Italo-Turkish war of 1911-1912. Even after Qaddafi forced Italian citizens residing in Libya out of the country in 1970, Italy continued to do business there, with Eni at the forefront.

Normal Life

Descalzi declined to predict how soon business could be back to normal once a UN accord was reached. “I don’t know. It’s clear that normal life means having the security to send expatriates to work there normally,” Descalzi said. Italy gained 1.2 billion euros ($1.3 billion) in dividends from its 30% share in Eni last year.

Eni has repatriated almost all its Italian personnel back to Italy, although expatriates are still working at off-shore sites. The company, which first settled in Libya in 1959, considers itself, as Descalzi quipped, “a Libyan company.” Under Qaddafi, it supported charities run by his son Saif.

In October, Eni said profit was wiped out in the third quarter after its gas and power unit reported a wider loss and higher taxes hurt exploration and production. The total adjusted net loss was 257 million euros compared with net income of 1.17 billion euros a year earlier. With tumbling oil prices, Eni has been forced to cut spending, sell assets and cancel projects to weather the slump.

Unlike BP Plc and Total SA, Eni has been spared the need to write off millions of dollars in investments in Libya because of the conflict. In July, BP said it had taken an impairment of almost $600 million in the second quarter as fighting forced it to suspend an oil exploration campaign. Three months earlier, Total became the first European oil major to take an impairment in Libya, writing off $755 million from onshore assets.

More Concessions

“The impact on Eni’s productive capacity hasn’t been dramatic but it needs to expand in new areas which it wanted to develop before the conflict,” said energy analyst Sartori adding that Italy relied on Libya for 12 percent of its gas and for 8 percent of its oil last year. “If Libya was stable again Eni could exploit many more concessions than it is exploiting now.”

Enduring political feuding and clashes between rival militias have cut the country’s production to 497,000 barrels per day last year, according to Eni’s World Oil and Gas Review. This compares with 1.6 million barrels before the 2011 civil war.

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