Italian oil firm Eni SpA connected east Africa's gas riches to energy-hungry China on Thursday with the sale of a 20-per-cent stake in its Mozambique offshore project to Chinese oil company CNPC.
The $4.21-billion (U.S.) deal, still subject to approval by Mozambique authorities, provides Eni with extra funding and reduces its share of an estimated $50-billion development bill. The Italian firm still has 50 per cent of its biggest ever gas discovery – one that larger international oil and gas companies eye with envy, and chief executive Paolo Scaroni said the company may yet sell more.
"It's great early monetization on what is a world-class project and helps reduce Eni's risk exposure to the area," said Jason Kenney, oil analyst at Santander.
The deal connects one of the planet's biggest untapped gas resources with its fastest growing gas consuming country, and could accelerate the onset of competition for Asian markets between east African and Australian supplies of Liquefied Natural Gas (LNG) – gas that is frozen and squeezed into special ships for export.
It came as Eni outlined its strategy for the years ahead, raising its output growth target to 4 per cent a year from 3 per cent for the next four years, and promising higher returns for shareholders in future. Some of the payouts will come from the asset disposal program it has been conducting. Eni shares outperformed their peers on Thursday, climbing 2.9 per cent to €18.45 ($24 U.S.).
Despite the obvious benefits to Eni from the deal, analysts said the price paid by CNPC, at between $2.1 and $2.25 dollars per barrel of oil equivalent (boe) of reserves, was lower than some expectations, reflecting concerns about the direction of gas prices globally. It appears to vindicate industry heavyweight Royal Dutch Shell PLC's decision to back out of a much higher-priced auction last year – at $3 per boe – for a stake in a neighbouring gas block – known as Area 1.
The other shareholders in Eni's Area 4 prospect are Empresa Nacional de Hidrocarbonetos de Mocambique, the Mozambique state firm, Korea's Kogas (Korea Gas Corporation), and Portugal's Galp Energia, each with a 10-per-cent stake.
Area 1 is owned by U.S. explorer Anadarko Petroleum Corp. and several other investors. A stake in it is also up for sale.
In total, the Rovuma field holds around 150 trillion cubic feet (tcf) of gas, enough to supply Germany, Britain, France and Italy for 15 years. Area 4 is thought to contain around 75 tcf. Area 1 is believed to be bigger at about 90 tcf.
CNPC, parent of Hong Kong and New York-listed PetroChina Co. Ltd., has been in talks to buy the Area 4 stake for some time.
Sources have said other oil majors like Exxon Mobil Corp., Chevron Royal Dutch Shell and Total SA were interested. But a deal with these larger companies might have threatened Eni's ownership of a project that is crucial to its future, while CNPC also creates the crucial customer connection that LNG projects traditionally need.
Eni and Anadarko have said they plan to unite exploitation of the two fields to boost their value, but in the meantime, attention now moves to the bidding for the stake in Area 1.
Anadarko and Indian tycoon Venugopal Dhoot are selling a 20-per-cent stake in Area 1. It was Thai group PTT which won the contest with Shell for Area 1 shareholder Cove Energy PLC with a $1.9-billion bid after Shell backed away from a bidding contest.
CNPC, China's biggest energy company, already has gas and LNG joint ventures in place with Shell in Australia, China and Canada.
China is the world's second-largest oil consumer and its growing demand for gas is the driver for most new LNG projects around the world, especially since the shale gas revolution in the United States wiped out U.S. import demand.
Thursday's deal also demonstrates the country's determination to shift to cleaner burning gas as a transport fuel in an initiative that could cut its oil consumption by a tenth.
In a connected agreement, Eni said it had also signed a joint study agreement with CNPC to develop the Rongchang onshore shale gas block in China, joining Shell among international players there.
China has huge shale resources, possibly bigger than those of the United States, but they are still a long way from being developed in any meaningful way.
The block covers about 2,000 square kilometres in the Sichuan Basin, close to the main consumption markets in China.
Eni already has shale-gas agreements in countries such as Poland, Ukraine and Vietnam and which already has a shale agreement with China's Sinopec.
Eni is due to hold a strategy meeting later on Thursday with analysts focusing on shareholder remuneration after a series of disposals in recent months.