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Eni Signs Qatar Oil Deal, Deepens State Cos Links 2nd UPDATE: Eni Signs Qatar Oil Deal, Deepens State Cos Links

Dow Jones
April 20, 2008: 08:44 AM EST

(Adds more Eni CEO comments, analyst comments and background)

By Spencer Swartz and Liam Moloney

ROME -(Dow Jones)- Italian oil and gas company Eni SpA (E) on Sunday continued its recent string of expanding ties with state-run oil companies, this time signing a deal to pursue multibillion dollar oil and natural gas projects with small Gulf state Qatar.

The deal comes weeks after Eni, one of Europe’s biggest energy companies, signed new deals with the Venezuelan state-run oil company, Petroleos de Venezuela SA (PVZ.YY), and strengthened its relationship with Russian gas giant, OAO Gazprom (GAZP.RS).

Under the latest deal, Eni and state-run Qatar Petroleum will jointly pursue gas and oil exploration projects in Africa and the Mediterranean region. The agreement also entails cooperation on refining, petrochemical and power projects.

The agreement highlights the increased willingness of some Western oil and gas companies, largely shut out from drilling for hydrocarbons in the Middle East, to strike cooperation deals – often for less lucrative service contracts – with national oil companies in order to further their growth prospects.

“The balance of power is shifting to national oil companies,” Eni Chief Executive Paolo Scaroni told journalists in Rome at an industry conference of national and Western oil companies.

In past decades, U.S. and European oil companies typically worked independently of their national oil company counterparts.

But with oil prices at record highs and national governments in control of most of the world’s proven crude reserves, Western companies are having to find new ways to grow their profits and oil and gas reserve base. Scaroni estimated that international oil companies own just 6% of the world’s proven crude reserves.

Echoing that sentiment, Royal Dutch Shell PLC (RDSB.LN) CEO Jeroen van der Veer told journalists earlier Sunday that oil companies had to adapt their growth models to new circumstances without elaborating.

For Eni, the latest cooperation deal is also about returning to do business with Qatar, the world’s leading natural gas exporter and home to the world’s third largest gas reserves after Russia and Iran.

Eni, which is about 30% state-controlled, pulled out of Qatar in 2002 because it was considered uneconomic to operate there at the time. But Eni’s Scaroni atoned for that withdrawal, calling it shortsighted.

“One of our biggest mistakes was to exit Qatar. Qatar is an important part of our future strategy,” Scaroni said.

The country’s oil minister Abdullah bin Hamad Al-Attiyah welcomed Eni’s return to Qatar and said the two sides would invest billions together in projects without giving specific figures. “Yes, this represents a correction of the past, ” Al-Attiyah said.

Eni and Qatar Petroleum will both finance and take roles as operators in the various projects they pursue, Scaroni said.

Late last year, Eni reached a deal with the Libyan government to jointly develop oil and gas projects in the North African country and extend existing contracts.

Analysts said Eni’s latest deal underscored the company’s aggressive position on signing agreements with state companies to improve its growth prospects and diversify where it drills for oil and gas.

“Doing joint ventures to boost production with national oil companies goes in the right direction” for Eni because of the emboldened position of state-run energy companies, said Patrizio Pazzaglia, a fund manager at Bank Insinger de Beaufort in Rome.

Scaroni declined to comment on the profit and revenue prospects of the Qatar deal, but highlighted the growing financial challenges U.S. and European energy companies face with their national counterparts.

“The average government take is now moving to overcome the critical barrier of 90%, which means that oil companies’ profitability is decreasing – in many cases below their cost of capital,” Scaroni told conference delegates earlier in the day.

A number of oil companies, including BP PLC (BP), Marathon Oil Corp. (MRO), Shell, and Total SA (TOT), have signed or renegotiated less profitable deals with governments in Libya, Russia and Venezuela over the past year or so.

-By Spencer Swartz and Liam Moloney; Dow Jones Newswires; +44 (0)207 842 9357; [email protected]

(END) Dow Jones Newswires
04-20-08 0844ET

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