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The Wall Street Journal: Eni’s Russian Coup

June 19, 2007, 5:07 pm
Posted by Mark Gongloff

The Wall Street Journal’s Guy Chazan reports what could be a major coup for Eni:

At a moment when some Western oil majors are being forced to walk away from exploration and production projects in Russia, Italian energy giant Eni thinks it might have actually landed one.

Eni chief Paolo Scaroni said the company might be able to keep its 20% stake in Russian oil producer Gazprom Neft, the oil arm of Kremlin-controlled gas monopoly OAO Gazprom, which has a call option on the stake. “When we made the deal, if you’d met me I would have told you that the chances of us holding the 20% were small,” he said in an interview. “Now, today I think that those chances are growing considerably.”

He said Eni would make a “big effort” to convince Gazprom that it was in its interests to retain Eni as partners in Gazprom Neft. “I think they realize we can bring some benefits to the party,” he said, citing Eni’s engineering talent and technology.

Upstream projects in Russia have been hazardous terrain lately for Western oil companies. Royal Dutch Shell was last year forced to cede control of the huge Sakhalin-2 energy project to Gazprom, and observers say Gazprom is also close to muscling in on a big Siberian gasfield being developed by BP’s Russian joint venture.

Keeping the Gazprom Neft stake, which it bought in April with Italian utility Enel, would be a coup for Eni. The two acquired the interest, along with two gas-producing companies, ArcticGaz and Urengoil, at an auction of the assets of bankrupt oil giant OAO Yukos. At the time, it was widely believed the Italians were acting as a front for Gazprom: It was later announced that Gazprom had an option to buy most of the auctioned assets within two years.

Eni was criticized then for lending legitimacy to the breakup of Yukos, which was destroyed in an avalanche of back tax bills many saw as politically motivated. The fact that Western oil companies like Eni were prepared to take part in such controversial auctions showed to what lengths they were prepared to go to attain the ultimate prize — access to Russia’s huge oil and gas reserves.

Now, if Eni plays its cards right with Gazprom Neft, it will be able to book Russian reserves and entrench itself in Russia’s Siberian oilfields – a feat that has eluded all but a few western supermajors.

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