Oil Majors Must Rethink Business to Survive, Eni Says (Update1)

Bloomberg: Oil Majors Must Rethink Business to Survive, Eni Says (Update1)

By Maher Chmaytelli and Anthony DiPaola

April 20 (Bloomberg) — International oil companies must improve their technological expertise to survive a trend of increasing nationalism among nations owning energy resources, Eni SpA Chief Executive Officer Paolo Scaroni said.

“They need to profoundly rethink their business model in order to survive and prosper in the new oil and gas landscape,” he said today in a speech to the International Energy Forum in Rome, attended by Saudi Arabia, Venezuela, Iran and other members of the Organization of Petroleum Exporting Countries. “The relative positions of international energy companies and national energy companies are changing, and not in our favor.”

The share of global oil reserves held by international oil companies has dropped to 6 percent, from 75 percent in the 1970s, and governments in some producing nations are taking close to 90 percent of the profit from operations, he said. Even with oil prices near records, “companies’ profitability is decreasing, in many cases below their cost of capital,” Scaroni said.

The future viability of international oil companies such as Eni, Exxon Mobil Corp. and Royal Dutch Shell Plc depends on their ability to develop complex fields in deep waters, recover oil from aging fields and build other “challenging projects” that state- run national oil companies can’t do alone, he said.

“That’s why a long-term vision is necessary, but it must be effectively `sold’ to the financial community” which seeks immediate returns, said Scaroni, whose company, based in the Italian capital, is the country’s largest oil company.

Energy Security

Fulvio Conti, chief executive officer of Enel SpA, Italy’s largest utility, said the European Union should adopt a collective approach to ensure energy supply security, rather than have each of the 27 members act separately.

“To avoid security of supply being jeopardized, by shortages and price increases, it is of paramount importance to establish effective partnerships between producing and consuming countries,” Conti told the conference.

The EU, the second-largest energy market behind the U.S., imports more than half its natural gas, mainly from Russia and Algeria, he said. More than 62 percent of its energy needs are bought from outside the region and the bloc’s dependency is growing, he said.

Qatar is diverting some liquefied natural gas supplies that were destined for the U.S. and Europe to China instead, because the Asian country pays more, Qatar’s oil minister said yesterday.

No Charity

A new supply agreement this month between Qatar and China “is a diversion” from Europe and the U.S., “not new production,” Abdullah bin Hamad al-Attiyah told yesterday in Rome. “We are not in the charity business. Whoever will give me the best price, I will follow him.”

Russia has the world’s largest proven deposits of natural gas, followed by Iran and Qatar. Qatar is the world’s largest supplier of LNG, which is gas that cooled and condensed for transport by ship.

Iranian Oil Minister Gholamhossein Nozari told reporters in Rome that he will talk to companies about joint projects, though no new contracts are expected to be signed during the forum.

Scaroni, Conti and Nozari are among more than 40 company chiefs and 90 energy ministers attending the three-day biennial energy forum, where industry leaders will discuss investment, resource nationalism and sustainable development. Rising energy costs are pushing some consumers, such as airlines, to bankruptcy.

OPEC officials including Saudi Arabian Oil Minister Ali al- Naimi have rebuffed previous requests from U.S. and European politicians for more oil, saying supply is sufficient and high prices are being driven by investors using commodity markets as a hedge against the falling value of currencies. Pressure from consumers to raise output is “probably politically driven,” oil newsletter Argus reported yesterday, citing al-Naimi.

To contact the reporters on this story: Maher Chmaytelli in Paris at [email protected]; Anthony DiPaola in Rome at [email protected]

Last Updated: April 20, 2008 06:28 EDT

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