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Bloomberg: Eni Wins Alaska Break After Biggest Oil Deal Setback (Update1)

By Joe Carroll

Jan. 27 (Bloomberg) — Eni SpA, the energy company stripped of control of the world’s biggest oil project earlier this month, got Alaska to agree to cut its tax rate on a state development to 5 percent if oil prices tumble.

Eni’s royalty payments to the state of Alaska for crude pumped from the Nikaitchuq field will drop from 12.5 percent, if oil falls below $42.64 a barrel, the state’s Department of Natural Resources said on its Web site late yesterday.

The lower rate will apply to a section of the oil field known as Schrader Bluff, which is the first area Eni plans to develop. Royalties will be tied to the price for Alaska North Slope crude sold on the U.S. West Coast, which last fell below the $42.64 threshold in February 2005.

“Eni has shown that oil or gas production from the Schrader Bluff pool would not otherwise be economically feasible,” Natural Resources Commissioner Tom Erwin said in a report released yesterday by Governor Sarah Palin.

Rome-based Eni lost sole-operator status at the $136 billion Kashagan oil field in the Caspian Sea on Jan. 13, after cost overruns and multiyear delays prompted the government of Kazakhstan to demand a bigger stake and $5 billion in penalties.

Eni’s partners in Kashagan, including Exxon Mobil Corp., Total SA, Royal Dutch Shell Plc, ConocoPhillips and Japan’s Inpex Corp., were forced to surrender parts of their stakes. In exchange, Exxon Mobil, Total and Shell will jointly oversee development of the field with Eni and the Kazakh-owned oil firm.

State’s Interests

At the offshore Nikaitchuq field in Alaska, Eni is the sole owner and operator, having acquired a 30 percent stake from Armstrong Oil & Gas in 2005 and the remaining 70 percent from Anadarko Petroleum Corp. a year later.

The royalty modification “is in the best interests of the state,” Erwin said in the report.

The tax break for Eni comes at a time when Alaska has been boosting levies on oil-industry profits, prompting some major energy companies to curb investment in the state.

London-based BP, operator of the biggest U.S. oil field at Alaska’s Prudhoe Bay, last week cut its 2008 spending plan for the state by $100 million in response to an increase in taxes on oil producers’ net profits to 25 percent from 22.5 percent.

Exxon Mobil has also said it may curtail or delay some projects because of the increase in the profits tax.

Nikaitchuq

Crude from Alaska’s North Slope jumped 62 percent last year, the biggest annual gain since 2002, according to data compiled by Bloomberg.

After averaging about $26 a barrel from 1995 through 2005, the price has risen 42 percent in the past two years, outpacing the 38 percent gain in benchmark crude futures traded in New York. North Slope crude rose 33 cents to $88.69 a barrel on Jan. 25.

Eni, the world’s eighth-largest oil company with sales of more than $320 million a day, expects to begin pumping oil from the field in late 2009, according to a Jan. 25 statement distributed by the Italian stock exchange.

The company plans to invest about $1.45 billion in Nikaitchuq, which may yield as much as 180 million barrels of crude, the statement said. Nikaitchuq means “to persevere” in Inupiaq, the native language along Alaska’s North Slope.

Eni underperformed its biggest European rivals in the past year. Eni fell 12 percent in the past 12 months, compared with gains of 6.8 percent by Shell, and declines of 0.8 percent and 3.8 percent for BP and Total, respectively.

Irving, Texas-based Exxon Mobil, the world’s biggest oil company, rose 14 percent during the same period.

To contact the reporter on this story: Joe Carroll in Chicago at [email protected] .

Last Updated: January 27, 2008 13:29 EST

http://www.bloomberg.com/apps/news?pid=20601085&sid=a8K8KwEDLglg&refer=europe

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