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Eni sees no room for big-ticket upstream projects in unbalanced market: upstream chief

Highlights

Big-ticket projects such as Kashagan no longer feasible

Time-to-market for resources now key consideration

Oil market 'structurally long,' determined by policy decisions

London — Oil markets remain structurally unbalanced and at the mercy of policy decisions, and consequently Italy's Eni sees no scope for new large upstream investments of the kind it built its reputation on in locations such as Kazakhstan, upstream director Guido Brusco said Feb. 24.

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Speaking at the online IP Week conference, Brusco cited Kazakhstan's Kashagan development, in which Eni played a leading role, as an example of the kind of project the company would no longer undertake, saying both exploration and development activity would be constrained, and the ability to easily transport resources to market was also an important consideration.

Noting the aspirations of national oil companies to build an international presence, including in downstream markets, he said this meant a "new model" for relations between companies such as Eni and national companies. But he also said resource-rich countries would have to work harder to increase their attractiveness for investment, by developing their domestic markets, particularly for gas.

The comments echoed those by some of Eni's major oil and gas rivals, but are noteworthy for a company with a historical reputation for big-ticket projects around the Middle East and North Africa, and for sometimes out-pacing its larger rivals.

"The large projects which were driving us in the past, Kashagan -- the $50 billion -- those projects are no longer in the strategy of our corporation," Brusco said. "We are looking more at incremental projects which will develop discovered resources. But we are not thinking of multi-billion projects any more."

On oil prices, he said OPEC+ countries were keeping 8 million b/d of production off the market and Iran, Libya and Venezuela could "technically" add another 2 million b/d if political conditions were right, while US shale oil remained a decisive factor.

"Despite the general capital expenditure squeeze, the market is still structurally long and unable to self-balance, most of the US tight oil is breaking even at $40-50/b," he said. "We can clearly see that in the medium run the prospects of the market are in the hands of OPEC and the US, and a great deal of this price uncertainty hangs on policy rather than market fundamentals."

In addition, he highlighted commitments on decarbonization by the US and China, and said the COVID-19 crisis "may have lasting consequences on the way we work, the way we travel, the way we spend our money, making the developed economies less oil-intensive. All in all, a lot of uncertainties still remain in the oil market in 2021."

In view of these factors and the pressures of the energy transition, Eni was changing its approach to exploration and development, he said.

Exploration prospects

"Exploration is not dead, but it will need to change. There will be less space for frontier exploration, we'll see only very selective high-risk, high-reward initiatives. Exploration will be more near-field and infrastructure-led. Development projects need to reduce their time to market," he said.

"Larger conventional projects which were in the past very much liked by international oil companies may increasingly be carried out in multiple distinct phases for this reason," he said.

"Companies need also to make sure their production has a value and access to the final markets. This requires stronger integration between Exploration & Production and the trading arms within the corporation."

On Kazakhstan, Brusco said the country was still "very much on our radar screen," but echoed statements by a number of international companies suggesting an incremental approach to future investment at Kashagan or the other large field where Eni is a leading investor, Karachaganak.

Globally, "we think we will be sanctioning projects in the range of $5-6 billion with a time to market which is shorter," he said. "This is the approach both at Kashagan and Karachaganak, but those are very much on our radar screen and we will look forward to new investment over there."