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Eni in North Africa: Leveraging Proximity to Expand Oil and Gas Exploration and Marketing

When it comes to leveraging proximity and good business and political ties within the region to expand its core activities, the Italian oil and gas giant Eni can be considered a best practice. Considered one of Italy's largest corporations, Eni operates through a number of subsidiaries and units in the areas of energy and hydrocarbons.

Present in 70 countries, it employs some 72,000 workers worldwide. The company is listed on both the Milan and the New York (NYSE) stock exchanges and its 2004 revenue topped €58.3 billion, while net profit came to €7.3 billion. In the first nine months of 2005 the company generated net profits of €6.6 billion (+35%) and hydrocarbon production reached a level of 1,714,000 boe/day (+7.3%).

Knowledge of its immediate region has had a positive impact on the company's core business. In the first half of 2004, oil and gas production from North Africa accounted 23% of the company's total production. In the first half of 2005, that share grew to 26.2% for a regional production of 449 kboe/day on a total of 1,714 kboe/day. And the recent feud between Russia and Ukraine is likely to push Eni to invest more in North Africa to secure more oil and gas from that region.

In North Africa, Eni is already witnessing a significant growth in oil and gas production. In 1H05 output from the region grew 21% year on year. Although Egypt was the biggest source of output for Eni in North Africa with 197 kboe/day or 44% of the region's output, it is in Algeria and more importantly in Libya where the company is witnessing the strongest growth in terms of production. Production in Algeria rose 25% from 1H04 to 1H05 to 85 kboe/day and in Libya it expanded by a strong 77.6% to 151 kboe/day. In Tunisia, production grew by 6.6% year on year to just about 16 kboe/day, while the share of Egypt fell accordingly. Overall, the company is forecasting a 2004-2009 a 14% compound annual growth rate (CAGR) for the region. The bulk of this growth will be driven by a 26% CAGR for its gas production and a 8% CAGR for liquid production.

The following is a brief review of what the company is doing in North Africa:

LIBYA
In Libya, Eni made significant progress in 2005 as it has won four exploration permits following an international tender issued by the Libyan Government. The exploration permits cover an overall area of 17,876 km² and are located in the Murzuk and Kufra southern basins, in the southern part of the Country. As a result of the permits acquired in Murzuk, Eni has strengthened its position in a high potential region where the El Feel giant field has already been producing.

The area awarded in the Kufra basin represents an important commitment in an equally high potential territory in the Southeastern part of the Libyan desert. The exploration activity of Eni includes 6 new exploration wells and 7,500 km of seismic surveys.

Eni has been awarded the greatest number of permits as an operator in a tender, which received applications from over 50 foreign companies. The Italian company has been present in Libya for approximately 50 years and it has recently completed two major projects in the country on time and within budget. These are the development of the oil field of El Feel in the Murzuk, which will reach a production of 150,000 barrels of oil equivalent per day and the Western Libyan Gas Project, which will allow a production of 10 billion cubic meters of gas per year, 8 billion of which is to be exported to Italy through the trans-Mediterranean Greenstream pipeline. In Libya, Eni equity production is about 190,000 boe per day.

Eni's first entry into Libya dates back to the late 1950s. In the oil and gas exploration and production sector, Eni signed its first exploration and production agreement with Libya in 1959, regarding Concession 82. In 1966, a second agreement was reached concerning Concession 100 (located next to the previous one) where the Bu' Attifel field was discovered (Eni's interest 50%) which started production in 1972. In 1974 an Exploration Production Sharing Agreement was signed for onshore and offshore areas near Tripoli, where the Bouri field was discovered (Eni's interest 30%), which started production in 1988. In 1997, the Elephant Field was discovered (Eni's interest 33.3%) in the NC-174 area in the Murzuk Basin, located 800 km south of Tripoli. This field became operative in January 2004.

In 2004, Eni's share of the oil and gas production in Libya averaged about 97,000 barrels of oil equivalent per day (boe/day).

Finally, In October 2005 Eni won four exploration permits in Libya covering an overall area of 17,876 km2 located in the Murzuk and Kufra southern basins, in the southern part of the Country.

Wafa and Bahr Essalam fields' development:
The joint development of the Bahr Essalam field (in the NC41 permit), in the Mediterranean about 110 km off the coast of Tripoli, and the Wafa field (in the NC-169 permit), approximately 500 km south-west of Tripoli, is underway. Eni is a partner in the development with a 50% interest. Within the development of the Wafa field (onshore), 24 producing wells have been completed, as well as a condensate treatment plant and the laying of two pipelines of about 520 km, for the transport of the natural gas and condensates to Mellitah on the Libyan coast. Within the development of the Bahr Essalam field (offshore), 17 producing wells were completed and the Sabratha producing platform is near completion along with the laying of an underwater pipeline of about 110 km for the transport of the gas and condensates to Mellitah. In this location, a gas treating plant was constructed for the gas coming from Bahr Essalam, as well as a terminal and a compression station for the gas coming from Bahr Essalam and from Wafa. Exports of natural gas to Italy started in October 2004 through the Greestream gas pipeline, linking Mellitah to Sicily (a 520 km long pipeline with a diameter of 32 inches, which reaches a maximum depth of 1,127 meters). When fully operational, this gasline will allow the export of 8 of the 10 billion cubic meters per year of natural gas that will be produced from these two fields.

In the oilfield services, construction and engineering sector, Snamprogetti and Saipem participated in the projects concerning the realization of the Az Zawiyah and Ra's Lanuf refineries, the ammonia plant at Marsa El Brega, the LNG plant at Marsa El Brega, the plant for the recovery of condensates at Bu' Attifel and the offshore platforms for the development of the Bouri field. Saipem also participated in the construction of the Greenstream gas pipeline.

ALGERIA:
The Italian company has been equally active in neighboring Algeria with the successful drilling of a test well. Eni has concluded drilling and tests of the explorative well "ROM 6" with positive results. The well is located in the Berkine basin, 200 km South-East of Hassi Messaoud.

The ROM 6 well has been drilled to a 3,596-meter total depth and production tests on different mineralized levels show an overall capacity of more than 5,000 barrels of oil per day, whilst confirming the great potential of the Northern area of the field.

The well is located in the ROM license (Eni 100%). Drilling activities and tests have been carried out in partnership with the Algerian state oil company Sonatrach through the jointly owned company Groupement Sonatrach-Agip. Current Eni equity production of oil and gas in the Country is some 90,000 barrels of oil equivalent per day (boed).

Eni's activities in the exploration and production sector in Algeria are more recent than Libya's and dates back to 1981. At present, the main fields operated by Eni - BRN, BRW, BRSW, HBN, ROM, ZEK, ZEA, ROME and ROD and satellites - are located in the Bir Rebaa area, in the South-Eastern part of the Algerian desert whereas the main fields in which Eni holds participations are the HBNS field (Eni's interest 12.25%) and Ourhoud field (Eni's interest 4.59%).

In the second half of 2003, production started from the ROM oil field, located west of Bir Rebaa and development was completed of the Ourhoud oil field, located south west of Bir Rebaa. In 2004, the ROD oil field and neighboring areas (Eni operator in the production phase, with a 63.96% interest) started production.

In 2003, three new discoveries were made in Block 404 (Eni's interest 25%) in the South-Eastern part of the Algerian desert, close to the Tunisian border. The presence of hydrocarbons was discovered on the Zermoul el Kbar permit, where Eni is operator, at a depth of about 3 thousand meters.

In 2004, Eni's quota of the production of oil and natural gas in Algeria averaged approximately 68 thousand barrels of oil equivalent per day (boe/day).

In the natural gas sector, the first agreement between Eni and Sonatrach for the supply of natural gas was signed in 1972. Deliveries of natural gas to Eni began in 1983. In 1991 a second agreement was reached, to increase the supplies of natural gas to 19.5 billion cubic meters/year.

In May 2005 Eni and the Algerian company Sonatrach reached an agreement for the expansion of the Trans Tunisian Pipeline Company (TTPC) pipeline carrying natural gas from Algeria to Sicily through Tunisia. The agreement sets the increase up to 3.2 billion cubic meters of annual transport capacity starting from 2008 and up to further 3.3 annual billion cubic meters starting from 2012. In September 2005 Eni and Sonatrach set up the new company Transmed SpA, for the transport of Algerian gas. The transport capacity of the import line from Algeria today is around 27 billion of annual cubic meters and will reach 33.5 billion of annual cubic meters in 2012.

The investment for the expansion of the TTPC pipeline amounts to 330 million euro and will be entirely financed by Eni. The additional transport capacity will be completely put at the disposal of third importers in Italy. Eni also imports 2 billion cubic meters per year of liquefied natural gas (LNG) from Algeria, through the terminal of Panigaglia.

The Transmed Gas Pipeline System:
In 1955, Algeria discovered in the Hassi R'Mel area one of the most important natural gas reserves in the world. A major infrastructural project was developed - the Trans-Mediterranean, or "Transmed", Gas Pipeline System - to supply gas from this area to Europe. The Transmed Gas Pipeline System is approximately 2,000 km long - 371 km in Tunisia, from Oued Saf saf, at the Algerian border to Cap Bon (the TTPC Pipeline); 155 km across the Mediterranean Sea, from Cap Bon to Mazzara del Vallo, in Sicily, reaching a depth of about 600 meters in the Sicilian Channel (the TMPC Pipeline) and about 1,470 km in Italy, from Mazzara del Vallo to Minerbio, near Bologna - and includes 8 gas compression stations.

A 550 km pipeline transports the natural gas in Algeria, from the Hassi R'Mel area to Oued Saf Saf, where it is channeled into the Transmed Gas Pipeline System.

In the engineering and construction sector, Snamprogetti and Saipem carried out the design and construction of the Hassi R'Mel-Oued Es Saf Saf Gas Pipeline (to connect with Transmed Gas Pipeline System), the infrastructures for the recovery of condensates and the reinjection of the natural gas at Rhourde Nouss, the oil production centre at Bir Rebaa North, the Hassi R'Mel-Arzew pipeline (500 km) and Hassi R'Mel-Skikda gas pipeline (575 km).

Moreover, Snamprogetti completed the Skikda refinery, the gas pipeline that links west Algeria to Morocco (260 km) and the high density polyethylene plant at Skikda. The company has also supplied engineering services for the development of the gas fields at Rhourde Chouff and Rhourde Hamra, for the natural gas treatment complex at Hamra and for the oil pipelines of Hassi R'Mel-Arzew (510 km) and Mesdar-Haoud El Hamra-Skikda (760 km).

Saipem installed 6 pumping stations, the arrival terminal of the Haoud El-Hamra-Arzew oil pipeline and the oil centre at Rhourde Ouled Dejmaa (ROD). Eni conducts production activities in Tunisia in the El Borma oilfield and in the Hammouda and Oued Zar oil and gas fields (Eni's interest 50%).

TUNISIA:
In 2004, Eni's share of the oil and natural gas production in Tunisia averaged approximately 14 thousand barrels of oil equivalent per day (boe/day).

In the oilfield services, construction and engineering sector, Snamprogetti and Saipem designed and carried out the Tunisian section of the Transmed gas pipeline system (the pipeline system that transports natural gas from Algeria to Italy), about 370 km long, which crosses the Tunisian territory from the border with Algeria (Fériana) to Cape Bon.

EGYPT:
Eni's exploration and production activities in Egypt began in 1954 and, today, Eni is Egypt's major international oil and gas operator. Eni also operates in Egypt in the natural gas liquefaction sector and performs engineering and construction activities.

In the exploration and production sector Eni operates through the International Egyptian Oil Company ( IEOC ) which carries out exploration activities and participates in production activities through "joint operative companies" established with the Egyptian General Petroleum Corporation (EGPC) , of which Petrobel is the main one. The exploration and production activities are carried out in the Western Desert, the Nile Delta and the Mediterranean, the Gulf of Suez and the Red Sea. Eni's oil production comes mainly from the Belayim and Ashrafi fields, located in the Gulf of Suez, and the Melehia field, in the Western Desert whereas Eni's gas production comes mainly from the fields of Abu Madi and El Q'ara in the Nile Delta and Temsah, Karous, Port Fouad, Darfeel, Aken, Hapy and Baltim in the Mediterranean.

At the beginning of 2004, the Nouras field in the North Port Said permit was put into production, and, in May 2004, a 50-50 joint venture with another European oil company successfully completed the drilling of the exploration well Taurt 1, located 70 km north-east of Port Said, in the Rass El Barr permit.

The exploration activities gave positive results in 2004 with five oil discoveries in the Gulf of Suez - in the permits of Belayim Marine (Eni's interest 50%) and Ashrafi (Eni 50%) - six gas discoveries in the offshore of the Nile Delta - in the permits of Seth/Ras El Barr, Denise, Temsah, and Port Fouad/North Port Said - and two discoveries in the Western Desert.

In 2004, Eni's share of the oil and natural gas production in Egypt averaged about 200 thousand barrels of oil equivalent per day (boe/day).

Damietta LNG Plant:
The Damietta natural gas liquefaction plant, owned and operated by the Spanish Egyptian Company ( SEGAS ), in which Union Fenosa Gas (a 50%-50% joint venture between Eni and Union Fenosa) holds an 80% interest, has a liquefaction capacity of 7 billion cubic meters of natural gas per year, equal to approximately 5 million tons/year of liquefied natural gas (LNG), and it is fed mainly from gas fields located in the Nile Delta, operated by Eni. The plant started operations in October 2004. In March 2005, a Memorandum of Understanding was signed setting the basis for the realization of a second liquefaction train at Damietta, which will double the capacity of the plant to 10 million tons/year of LNG.

Moreover, Eni participated in the realization of the Intersinai Gas Pipeline, that links the gas fields in the Nile Delta to the border town of EL Arish, on the North Sinai coast. Eni also holds stakes in the Egyptian United Gas Derivatives Company (Eni's interest 33.33%), that operates a plant for the recovery of the heavy fractions of natural gas and the Egyptian International Gas Technologies Company (Eni's interest 40%) that intends to develop the use of natural gas for road transportation.

In the oilfield services, construction and engineering sector, Snamprogetti and Saipem participated in the consortium for the construction of the Suez-Mediterranean Crude Oil Pipeline System ( Sumed ). In addition to the above, Snamprogetti has realized several condensate recovery units, offshore production platforms, the LAB plant at Amerya and the water treatment plant for industrial and municipal waste at Helwan. It has also provided engineering services for many pipelines. Saipem has carried out extensive drilling activities and has participated in the construction and installation of several production platforms in the Gulf of Suez.

In April 2005 Saipem awarded by IEOC ( International Egyptian Oil Company ) a contract for the charter of the semi-submersible drilling rig Scarabeo 4 to drill 4 wells off Egypt.

© The North Africa Journal 2006