Italian oil giant Eni looks to Russian reserves for future expansion.
While Italy’s largest oil company Eni announced an impressive 13-percent increase in first quarter profits on Friday, the company’s new accord with Russia’s Rosneft to explore the untapped reserves of the Arctic Sea promises more growth in the future.
Eni announced an adjusted net profit of 2.48 billion euros (3.29 billion U.S. dollars) for the quarter driven by the resumption of production in Libya and higher oil prices.
The company’s Chief Executive Paolo Scaroni welcomed what he called “excellent results” and noted that the strategic agreement it endorsed with state-controlled Rosneft this week was a good sign for the future.
“I’m very pleased with the agreement we have signed with Rosneft as it underpins our exploration opportunities for many years to come, further boosting our prospects of long-term growth,” Scaroni said on Friday.
Scaroni and Rosneft President Eduard Khudainatov signed the accord in Moscow on Wednesday in front of Russian Prime Minister and president-elect Vladimir Putin.
It provides for the joint development of licenses in the Black Sea and the Barents Sea, exchange of technology and personnel and Rosneft’s acquisition of a participating interest in Eni’s international projects.
The deal follows a similar accord reached recently between Rosneft and U.S. energy giant ExxonMobil in which the Russian company will get a 30-percent stake in projects in the United States, the Gulf of Mexico and Canada in exchange for access to Arctic and Black Sea reserves.
Under the latest accord, Eni will take a 33.33-percent stake in the project while giving the state-controlled Rosneft access to Eni projects outside Russia.
“Rosneft is committed to doing business with world-class majors that have offshore production expertise, cutting-edge technologies and are ready to invest in long-term hi-tech projects in Russia,” Khudainatov said.
“I strongly believe that our partnership will help boost the two companies’ resource base and capitalization,” he said.
The companies will explore the Fedynsky and Central Barents fields in the Barents Sea and the Western Chernomorsky field in the Black Sea — offshore fields estimated to have total recoverable reserves of 36 billion barrels of oil.
Rosneft believes the Barents Sea fields are very promising because of their proximity to an offshore area in Norway where at least three large fields have been discovered in recent years.
Seismic data and the recent discovery of hydrocarbons in the Romanian section of the Black Sea means it is highly likely that oil and gas will be found at the Western Chernomorsky field, according to the company.
Eni is thrilled with the potential of the new exploration which will begin amid what it described as a “challenging” economic slowdown and volatile market conditions in 2012.
“We have gained access to two vast and extremely promising areas in Russia, a great hydrocarbon producer,” Scaroni said.
“This success is the result of our long standing relationship with Russia, of the recent developments in west Siberia upstream and of our discoveries in the Norwegian Barents Sea, the first in the area,” he said.
Professor Carlo Andrea Bollino, an energy economist at Luiss University in Rome, told Xinhua that the new accord was significant.
“This is important because the Arctic could be the new frontier. It is close to Canada and it is close to Russia,” Bollino said. “It is very important for the explorations of these fields.”
“The significance of this deal is demonstrated by the fact that Putin was present. It was blessed by the Russian president-(elect),” Bollino said.
In its 2012 market outlook released on Friday, Eni said it expected international oil prices to be supported by growing demand from China and other emerging economies with a full year average price of 113 U.S. dollars a barrel for benchmark Brent crude.
Eni is looking to make Russia’s “first partner” in the production of hydrocarbons and together they will consider areas of interest in North Africa, Alaska of the United States and northern Europe.
Putin’s announcement this month that Russia would abolish duties levied on the exports of hydrocarbons produced in Russia’s Arctic offshore areas and a reduction in the mineral extraction tax has promoted fresh interest from foreign firms.
Last week, Eni started pumping hydrocarbons for the first time at the Samburgskoye field in Siberia and recently renegotiated its partnership with Gazprom, another Russian gas company.
The Italian energy giant also sees potential for growth in China after signing a production agreement with the China National Offshore Oil Corporation earlier in April.
In its earnings report on Friday, Eni said exploration of Block 30/27, which is 400 km off the coast of Hong Kong in the deep water of the South China Sea, had “high exploration potential.”
Eni has been present in China since 1980 and holds equity of 16.33 percent in two offshore Blocks located in the South China Sea (16/08 and 16/19), which have daily production of around 10,000 barrels a day.