Pipeline Magazine spoke exclusively to Eni’s CEO, Claudio Descalzi, about the importance of Egypt to the Italian firm’s oil and gas business and how it is coping with the new oil price environment
Since taking over at Eni two years ago what has been your main focus?
Since the beginning, my main focus has always been to provide Eni with greater value for greater solidity. The first step when I took over was changing our organisation, from a divisional model to a fully integrated one. After that, we deeply reviewed our company’s cost structure. We worked hard in order to transform Eni into a more closely integrated oil and gas business, maintaining its focus on exploration success. The aim was building a much more robust Eni capable of facing a period of lower oil prices and generating sustainable returns and creating value for shareholders. Moreover, we invested in research in order to increase the efficiency and sustainability of our operations, reducing both costs and environmental impact. We can sum up the fundamental principles of the company’s model saying that we finally became an energy company working to build a future where everyone can access energy resources efficiently and sustainably. Our work is based on passion and innovation, on our unique strengths and skills, on the quality of our people and in recognising that diversity across all aspects of our operations and organisation is something to be cherished. We believe in the value of long term partnerships with the countries and communities where we operate. That’s the basis of our new mission.
How is Eni coping with the continued low oil price environment?
Over the past 30 years we have had many cycles with the oil price going upward and many others ownward, but the abnormality is the high price rather than the contrary. No one can make certain predictions but if we look at the fundamentals I think the situation is not sustainable for long. Indeed, a recovery in prices is very likely. Despite the sharply weaker commodity price environment, in recent times we achieved outstanding results in executing our strategy for organic growth, capital expenditure optimisation and efficiency enhancement. In Eni, we have budgeted an average price of $40 for 2016, and in our 4-year strategy we are most interested in conventional assets and near-field discoveries, very close to our facility in order to have a low cost structure and a very reduced time to market. That’s why our technical breakeven is around $20 per barrel.
Are you planning any further asset sales in the near future? On disposal, in 2015 we cashed in 7 billion euros out of the 8 billion that was targeted for the entire 2015-2018 strategic plan. Now we targeted 7 billion euros of further disposals over the next four years, mainly through our dual exploration model, which provides the capability to anticipate cash flows and reduce capex, by diluting stakes where we have a high participating interest.
In your opinion, what is the key challenge facing the energy industry? What is Eni doing to prepare for the changing market?
I think that the oil industry should work as much as possible in order to align costs with prices. In this moment, the keyword is lower costs. As far as Eni is concerned, we already have a competitive cost structure based on two main levers, namely an efficient operating model, which aims to continuously revise contractual terms, and a continued effort in reducing costs in the supply chain, with regard to the operating model, our asset portfolio is based on exploration focused on near-field assets, mainly conventional plays and very selective high risk-high reward projects.
Q: What upcoming opportunities do you see in the Middle East region?
The development of energy reserves in the eastern Mediterranean and the possible synergies related to future energy project involving in particular Israel, Cyprus and supply chain, with regard to the operating model, our asset portfolio is based on exploration focused on near-field assets, mainly conventional plays and very selective high risk-high reward projects.
What upcoming opportunities do you see in the Middle East region?
The development of energy reserves in the eastern Mediterranean and the possible synergies related to future energy project involving in particular Israel, Cyprus and an important figure that highlights the weight that the country has our company’s production. This is without considering the contribution of the future upcoming productions, including Zohr. Eni has been operating in Egypt since 1954 and it is the first of the countries in Africa where we started operating. Today we are the leading producer of hydrocarbons in the continent, and this journey has just begun in Egypt, a country that we consider home. Anyway, we like to think that Egypt is very important for Eni as well as Eni is very important for Egypt. In Egypt, the entirety of Eni’s gas production stays in the country and thanks to the development of Zohr discovery, the company will help to create the conditions for the country’s energy independence. Outside the energy sector, Eni promotes local projects, helping to diversify countries’ economies. Eni’s cooperation model is also its commitment to the development of local skills. In the last five years, Eni has increased the proportion of local employment by more than 21 per cent and on average the level of local employees in its consolidated affiliates has reached around 80 per cent.
Can you provide any updates on the Zohr project timelines and deliverables?
We have just announced the completion of the sixth well. The production tests of the well started mid-November and lasted for about 10 or 15 days. We are proceeding in line with the project’s development plan with the production start-up expected by 2017.