Several executives and analysts have wondered how Eni would pay for the two deals it recently signed. Shelling out $1.35bn for Heritage’s Ugandan assets is in itself not a huge sum for the Italian energy group, nor is the signing bonus attached to its agreement to develop Zubair, Iraq’s fourth largest oil field. The true costs come later. Together the two ventures could take more than $30bn to develop. With Eni acting as the main partner in both, its own bill will be relatively hefty, especially for a company whose gearing is already above its comfort zone.
Here, in his own words, is how Paolo Scaroni, the company’s chief executives,sees it:
These are two challenges in two very different ways. Iraq is a challenge that will need a lot of people in a relatively easy project in a difficult country. It is the opposite in Uganda, which is a complex project in terms of infrastructure, but in an easy country.
In Iraq – long one of the world’s most established, if also the most politically troubled, oil producers – Eni has promised to boost the Zubair field’s production from 200,000 barrels a day to 1.125, b/d in seven years.
The Iraq thing is going to keep is very busy for the next few years. We would never have thought of doing Iraq if we didn’t control Saipem [the oil services company]
In Uganda, Eni comes in at the start of the process and will help turn the country into an oil producer, building a refinery, rehabilitating a railway, building a pipeline and turning parts of Lake Albert from a nature reserve into an oil producing region.
Though Uganda is unlikely to overtake Angola and Nigeria in terms of production volume for Eni, it will swallow more of its capital expenditure in then next 3-4 years than any other sub-Saharan country in which Eni is active. It is also Eni’s chance to show it can develop a complex project from scratch and add to it oil reserves and production organically (ie through drilling, rather than buying more mature assets from other companies). It also fits Mr Scaroni’s ambition to be Mr Africa.
Lake Albert has to be explored on the Ugandan and the DRC [Democratic Republic of the Congo] side. There is a lot of potential. I think we will have lots of good surprises.
Paying for the ventures:
Eni earlier this year had to cut its dividend and has a gearing of 42 per cent, compared to 20-30 per cent at many other integrated oil companies.
We are capping the amount of investment we want to make in both countries. We will use early first oil cash-flow to finance the project. It will not be harmful to our balance sheet.