The Wall Street Journal-20080216-Earnings Digest- Eni- Net Soaring- Will Renegotiate
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Earnings Digest: Eni, Net Soaring, Will Renegotiate
Full Text (573 words)Paolo Scaroni, chief executive of Italian oil and gas giant Eni SpA, expects more oil-producing countries will try to rewrite their deals with the industry's biggest players this year.
"The pendulum is now on the side of the oil-producing countries," he said in an interview. "We have to be ready to renegotiate and find fair terms."
Mr. Scaroni spent a good chunk of the past year trying to hash out a new agreement with the government of Kazakhstan, which was enraged by delays and cost overruns at the Eni-operated Kashagan oil field in the northern Caspian Sea. Eni and other foreign oil firms with stakes in the project eventually agreed to a costly settlement with the Kazakh government and also sold a chunk of their interest to the Kazakh state oil company.
In the past two years, Eni has also been forced to renegotiate its production-sharing agreements with Libya and Algeria. Eni on Friday signed a deal to end a dispute with Venezuela, which in 2006 seized the Dacion field Eni had been developing. Eni said it received cash but didn't specify further terms. "We have to be ready to renegotiate others," he said.
Mr. Scaroni was speaking as Eni released its fourth-quarter results and announced new strategic goals through 2011. The company said the latest quarter's net profit almost doubled due to its key upstream division and on the back of stronger crude prices and higher volumes sold following its recent acquisition spree. Net climbed to 3.01 billion euros ($4.41 billion) compared with 1.52 billion euros in the same period of last year.
Eni said adjusted net profit, the income figure that is most closely watched by analysts and excludes changes in the value of inventories and special items, advanced 14% to 2.68 billion euros from 2.36 billion euros the year earlier.
The company also said it increased its average annual hydrocarbon output growth target to 4.5% through 2011 as a result of its acquisitions. Eni previously estimated an average annual growth rate of 4% for the 2007-2010 period.
Mr. Scaroni said he now was focused on "digesting" the acquisitions he made in the past year, which include a purchase of the U.K.'s Burren Energy PLC as well as sizable assets acquired in Russia that once belonged to bankrupt OAO Yukos.
"Russia has been by far the best deal we made in 2007," said Mr. Scaroni. Critics have said Eni, by participating in the auction, helped Moscow legitimize a policy of reasserting control over energy resources at the expense of private firms. Eni has shrugged off the criticism.
Mr. Scaroni says Russia will play a crucial role in Eni's strategy going forward. As a result of the auction, the company now holds significant upstream assets in Russia.
He acknowledged the risks of doing business in Russia, but noted that Europe's growing gas needs mean that he and other big players on the continent have little choice but to strengthen ties with Russia's gas monopoly, OAO Gazprom. "We're talking about gas and that means Gazprom, and we're talking about Russia and not the North Sea. But we feel that it is a phenomenal deal," he said. "We want to be in Russia to look for the opportunities that may arise in the future. As far as our strategy in gas is concerned, since Europe is importing more and more gas, I want to have the best possible relations with the biggest gas producer."
