Eni's Libyan oil production near complete halt

Libyan volunteers stand on the outskirts of the eastern town of Ras Lanouf, Libya, Thursday, March 10, 2011. Government forces drove hundreds of rebels from a strategic oil port with rockets and tank shells on Thursday, significantly expanding Moammar Gadhafi's control of Libya. (AP Photo/Tara Todras-Whitehill)
Libyan volunteers stand on the outskirts of the eastern town of Ras Lanouf, Libya, Thursday, March 10, 2011. Government forces drove hundreds of rebels from a strategic oil port with rockets and tank shells on Thursday, significantly expanding Moammar Gadhafi's control of Libya. (AP Photo/Tara Todras-Whitehill) (Tara Todras-whitehill - AP)

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By COLLEEN BARRY and CASSANDRA VINOGRAD
The Associated Press
Thursday, March 10, 2011; 2:46 PM

LONDON -- The chief of Eni, the biggest gas exporter from Libya, said Thursday that oil production across the battle-torn country is near a complete halt and that the Italian company's output is down to little more than supplying power to Libyan households.

Libyan exports normally account for around 2 percent of world supplies, but the violent clashes between forces loyal to longtime leader Moammar Gadhafi and rebels have split the country in half and crippled its lucrative energy sector.

Paolo Scaroni told analysts in London that he nevertheless expects the production disruptions to be temporary as all sides in the fight have an interest in resuming exports.

Eni's own production was down by two-thirds, Scaroni said. What is still running is mostly gas extraction to generate electricity, and turning that off would just create more problems for civilians, he said.

"The electricity is not for Mr. Gadhafi. It is for the Libyan people," Scaroni said.

Eni executives are in touch with Italian officials, who are in turn consulting with the European Union. "So far, we have been encouraged to continue production," Scaroni said.

The company has nevertheless suspended activity at offshore gas facilities as well as production at its Bu Attifel oil field due to insufficient staff, Scaroni said.

During normal periods, Eni exports about 12 percent of its natural gas from Libya via the Greenstream pipeline, which also has been suspended.

Before the crisis, Eni's normal daily production of both oil and gas was 280,000 barrels of oil equivalent. The split was roughly 40 percent oil, and 60 percent gas.

Scaroni said OPEC's secretary-general, Abdulla Salem El-Badri, a Libyan, had called to find out how much Libyan crude - and not just Eni's production - is missing from the market due to the conflict.

"This gave me the impression that OPEC wants to react to the lack of Libyan crude in order to avoid excessive hikes in the price of crude and disruption of refineries that are using Libyan oil," Scaroni said.

Oil prices soared above $100 per barrel last week as the uprising in Libya essentially shut down the country's exports.

Nearly all of Eni's foreign staff has left the country, and many Libyan workers have taken leave, Scaroni said.

Eni facilities have not been damaged, and Scaroni said the company will be able to resume operations when the situation has stabilized. In terms of earnings, he said the short-term production losses will be offset by higher oil prices.

At a news conference later, Scaroni said that any damage from fighting - though not terrorism - would be covered by insurance.

"We are more in the war situation," he said.

Scaroni downplayed any Libyan financial investment in Eni - an issue since the EU has issued an asset freeze against senior Libyan officials - calling it "a legend." He said 0.5 percent of Eni shares belongs to an entity with Libya in its name based in Bahrain - a figure he called "not essential."

"Until today, as far as the Europe Union and Italy are concerned, we can make any business in Libya. There is no restriction whatsoever," Scaroni said. "That may change. We are not doing it because we are not producing oil." Eni would react, he said, if the rules change.

In the meantime, Scaroni emphasized that Eni has been encouraged to continue making gas for the domestic market "for the well-being of the Libyans because I don't think anyone wants the whole of Libya to stay without electricity."

Scaroni addressed investors during a presentation of Eni's four-year business plan, which will focus on production in Iraq, Venezuela, Angola and Russia. The company, he said, has limited investments planned in Libya over the next two years, and no major startups there over the course of the four-year plan.

Eni, which has operated in Libya for more than 50 years, expects the production halts in Libya to be temporary due to the importance of the energy industry to the nation's economy, Scaroni said.

"On this assumption, we do not expect impact on our long-term production profiles," Scaroni said.

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Barry reported from Milan.


© 2011 The Associated Press

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