algeriaEnte Nazionale Idrocarburi (ENI) S.P.A.

Company Profile and History

ENI S.P.A. is an Italian multinational oil and gas company, present in 70 countries, and currently Italy's largest industrial company with a market capitalization of approximately € 87.7 billion euros (US$138 billion). The Italian Government owns a 30% golden share in the company. It is one of the world's top ten oil and natural gas companies.

ENI has its origins in the 1920s when the Italian government formed Azienda Generale Italiana Petroli (Agip) to pursue exploration for petroleum and natural gas in Italy. With the restructuring of industry after World War II, Agip and related state-owned energy companies were grouped together to form ENI. In 1953 ENI was established as the national hydrocarbons company. ENI became a joint-stock corporation in 1992 as the Italian government prepared a five-stage privatization program for the company. In 1998 the company officially changed its name to ENI S.P.A.

ENIs presence in Algeria dates back to the mid ‘50s and focused on the supply of natural gas through a gas pipeline to be constructed across the Mediterranean Sea (Transmed) and the acquisition of exploration and development permits.

In 1977, ENI signed a first agreement with Sonatrach, for the supply of natural gas to Italy and the Transmed gas pipeline system was built. Deliveries began in 1983 and at full capacity reached around 12.3 billion cubic meters per year. In 1991 a second agreement was signed to increase gas supplies to 19.5 billion cubic meters per year and the Transmed system was expanded and another pipeline was built.

In the exploration and production sector, in 1981 ENI, through Agip, acquired a concession on Block 403. ENI's oil production in Algeria began in June 1995 with the discovery of the Bir Rebaa North field.

In Country Location

Oilfield Services, Construction and Engineering

Saipem S.P.A (Filiale)
Industrial Zone Wylai de Quargla - P.O. BOX 97
Hassi Messaoud - Algiers
Telephone: +(00213) 29 768105

Snamprogetti S.P.A. (Filiale)
n. 85 Lotissement El- Feth - El Biar
16300 - Algiers
Telephone: +(00213) 21 924113/252

Exploration & Production

ENI Algeria Production B.V.
Pins Maritimes Algeria Business Center 16211 - El Mohammadia
Algiers
Telephone: +(00213) 21 891200

Services and Products

ENI focuses on three core businesses: Exploration & Production (E&P); Gas & Power (G&P); and Refining and Marketing (R&M). It is also engaged in petrochemicals, oilfield services; engineering; bunkering; marketing of marine fuel, sale of oxygenates and lubricants; and construction and drilling both offshore and onshore through Saipem, a subsidiary listed on the Italian Stock Exchange. ENI further operates a network of high and medium pressure pipelines for natural gas transport.

In Algeria it is involved in the exploration and development of hydrocarbons and gas. It also operates the Trans Tunisian Pipeline Company (TTPC) pipeline which transports natural gas from Algeria across Tunisia from Oued Saf Saf at the Algerian border to Cap Bon on the Mediterranean coast where it links with the Transmediterranean Pipeline Company Limited (TMPC) pipeline. The TMPC pipeline crosses the Sicilian Channel from Cap Bon to Mazara del Vallo, the point of entrance in Italy.

Number of Employees

78,880 employees as of December 31, 2008

Financial Information

Net Sales from Operations € 108, 148 million
E&P net sales from operations €33,318 million
Worldwide sales of natural gas 104.23 BCM
G&P net sales from operations €36,936 million
Sales of refined products 50.68 mm tonnes
Retail sales of refined products at service stations 12.67 mm tonnes
R&M net sales from operations €45,083 million
Petrochemical net sales from operations €6,303 million
Engineering & Construction net sales from
operations
€9,176 million
Revenues-onshore construction €4,462 million (49% of total revenues)
Revenues-offshore construction €3,818 million (42% of total revenues)
Total revenues €108,868 million
Revenues-E&P €33,318 million
Revenues-G&P €36,936 million
Revenues-R&M (€45,083 million)
Revenues-Petrochemical (€6,303 million
Revenues-Engineering & Construction (€9,176 million

Market Share

In 2008, Algeria produced 1.42 million bbl/d of crude oil. Algeria also produced 450,000 bbl/d of condensate and 357,000 bbl/d of natural gas liquids, bringing total oil liquids production for the year up to a total of 2.23 million bbl/d. According to Oil and Gas Journal (OGJ), Algeria contained an estimated 12.2 billion barrels of proven oil reserves as of January 2009, the third largest in Africa (behind Libya and Nigeria).
According to Oil and Gas Journal (OGJ), Algeria had 159 trillion cubic feet (TCF) of proven natural gas reserves.

ENI’s daily production of liquids, natural gas and hydrocarbons in Algeria in 2008 was 80 kbbl/d, 18.5 mmcf/d and 83 kboe/d respectively.

ENI is present in the Country with 36 mining concessions covering a gross acreage of 11,432 square kilometres of which 3,041 net to ENI.

Business Objective

ENI's stated objective is to create new value to meet its shareholders' expectations through the continuous improvement of cost efficiency and the quality of its products and services and through the attention to the needs of its employees and the commitment to a sustainable growth pattern also encompassing the careful assessment of the environmental impact of its activities and the development of innovative and efficient technologies. It further aims to grow in the activities of finding, producing, transporting, transforming and marketing oil and gas.

Business Model

ENI’s business model strategy is based on the following pillars: select the best capital and investment; pursue capital and operating efficiency; preserve a solid capital structure; manage risks; leverage research and innovation and; promote the sustainability of the business model.

The company expected much of its growth to come through acquisitions. In 2008 the company for instance acquired the Belgian company Distrigas; completed the acquisition of Burren Energy Plc; finalized an agreement to acquire all the common shares of First Calgary Petroleums Ltd, a Canadian oil and gas company with exploration and development activities in Algeria.

ENI’s strategy in its E&P operations is to pay special attention to reserve replacement in order to secure medium to long-term sustainability of its business. ENI further intends to concentrate resources in well established areas of presence where availability of production facilities, existing competencies and long-term relationships with host countries will enable ENI to readily put in production discovered reserves and to selectively pursue high risk/high opportunities in areas with high mineral potential.

ENI’s key medium-term target is to enhance the profitability of its downstream oil business and to reduce the cash requirements of the business by applying tight financial discipline on capital expenditures. The strategic guidelines to attain this target are: to upgrade ENI’s refining system through a focused capital program; to improve profitability and qualitative standards of the Italian retail network; and to pursue higher levels of operational efficiency.

In Algeria ENI focuses on enhanced oil recovery & brown field projects in the oil sector and the development of high potential LNG & Gas to Liquid (GTL) projects.

Ownership of Business

Exploration and production activities in Algeria are regulated by Production Sharing Agreements (PSAs) and concession contracts. Operating activities are located in the Bir Rebaa area in the South-Eastern desert and include the following exploration and production blocks: (a) Blocks 403 a/d (ENI’s interest 100%); (b) Blocks 401a/402a (ENI’s interest 55%; BHP Billiton-45%); (c) El Merk B 208+Ngl 404 (Anadarko 24.5%; ENI 12.25%; Maersk 12.25%; Sonatrach 51%); (d) under development Blocks 212 (ENI’s interest 22.38%; Sonatrach-77.62% ); and (e) IAN-EOR (ENI 33.57%; Teikoku 14.43%; Sonatrach 51%).

The Rhourde Oulad Djemma ROD oil development was developed by the Organe d’Operating Conjoint (OOC) and is operated by a joint operating entity comprising Sonatrach and ENI, known as the Groupement Sonatrach Agip (GSA).

In 2008, following the acquisition of all of the common shares ENI gained control of First Calgary Petroleums Ltd, a Canadian oil and gas company with exploration and development activities in Algeria. Assets acquired include the operatorship of Block 405b with a 75% interest with resources in excess of 1.3 billion boe, approximately half is gas. Production start-up is expected in 2011 with a projected production plateau of approximately 30 kboe/d net to ENI by 2012.

In December 2008, following an international bid procedure, ENI was awarded the operatorship of the Kerzaz exploration block (Block 319a-321a) covering a gross acreage of 16,000 square kilometers. Exploration activity start-up is expected in 2009.

Benefits Offered and Relations with Government

In negotiating oil concessions with producer states, its first president, Enrico Mattei introduced an innovative formula for joint investment that deliberately sought to eliminate the middleman role previously played by the major oil companies. Instead of simply paying a fixed fee for oil concessions and then assuming the entire burden of development, as the majors did, Mattei offered producer states a partnership in the exploitation of their natural resources.

In 1986, Algeria approved a new Oil Law by which ENI became the first foreign company to sign a new Production Sharing Agreement (PSA).

In 2008 ENI and Sonatrach signed a framework agreement to set out the common contractual ground of the Block 403a/d project and to extend the duration of the Rhourde Messaoud and Zemlet Adreg development licenses for a further 10 years and the Bir Rebaa North license for a further 5 years.

The new Algerian hydrocarbon law No. 05 of 2007 introduced a higher tax burden for Sonatrach that requested to renegotiate the economic terms of certain PSAs in order to restore the initial economic equilibrium. ENI signed an agreement for Block 403 while negotiations are ongoing for Block 401a/402a and Block 208. At present, ENI is not able to foresee the final outcome of such renegotiations. If this negotiation results in a negative outcome for ENI, the future profitability of certain of ENI’s PSAs in Algeria will be reduced.
Saipem has been awarded for the first time the role of main contractor for the construction of a large gas liquefaction plant in Algeria, with a capacity of 4.7 mmtonnes/y of LNG near the Algerian city of Arzew; and an EPC contract on behalf of Sonatrach for the construction of three LPG production trains with a total capacity of 8 mmCM/d aS.P.Art of the development of the Hassi Messaoud field in Algeria.

Product Development

On blocks 403 a/d the main project underway is the construction of a new oil treatment plant with a capacity of 32 kboe/d and water and gas injection.

On Blocks 401a/402a infilling activities are being performed in order to maintain the current production plateau. ENI is currently also implementing its plans to upgrade its natural gas import pipelines from Algeria and Russia to Italy to achieve an increase of 13 BCM/y in import capacity reaching full operation in 2010. Specifically, the upgrading of the TTPC pipeline from Algeria was completed in 2008 and is expected to be fully operational in 2009.

In 2008 Snam Rete Gas (ENI subsidiary and the main Italian operator for the transmission and diS.P.Atching of natural gas) and Galsi S.P.A. (project company Sonatrach- 41.6%; Edison S.P.A. (Italy) - 20.8%; Enel (Italy) - 15.6%; Sfirs (Italy) - 11.6%; Hera Trading (Italy) - 10.4%) signed the final agreement for the construction of the Italian section of a new pipeline importing gas from Algeria to Italy, via Sardinia. This project represents the first step towards a methane supply for Sardinia, a region that currently does not have natural gas available.