New deals possible if crude prices stay low, former Eni chief says

Multinational oil companies will be ready to negotiate new agreements with producing countries feeling pressure from lower crude oil prices, but the emphasis will be on reviving neglected fields instead of finding and developing new ones, a former Eni SPA chief executive said.

“Eni and other major international oil companies want to go to already producing fields in Iran once sanctions end and apply their technology to recover more oil,” Paolo Scaroni, who now is the Rothschild Group’s deputy chairman, told his audience at Johns Hopkins University’s School for Advanced International Studies on Oct. 21. “No one is interested in investing billions and waiting 7-8 years to produce oil.”

But companies themselves aren’t immune from financial pressure resulting from continued lower global crude prices, Scaroni said. “They’re cutting more expensive investments to preserve shareholder dividends,” he said. “They can only do this for another 2-3 years.”

This is leading some multinationals to withdraw from frontier areas if there’s no significant near-term potential and concentrate on improving recovery rates in older fields, Scaroni said. “What these companies know that national oil companies don’t is enhanced recovery, which lets them increase rates from 30% to 50% and higher,” he said.

“It’s a process of continuous improvement,” he said. “It’s not a breakthrough, but every international oil company spends a lot each day to increase its recovery rates.”

Scaroni said he does not expect global crude prices to increase soon unless there’s a significant supply disruption. A decrease is more likely with additional production possible from Iran (6-7 million b/d), Iraq (9-10 million b/d), and Libya, he said. Another 10-15 million b/d on the world market could push prices down to the $30/bbl range, he said.

Russia and Saudi Arabia can both be expected to continue producing at nearly full capacity, Scaroni said. “Saudi Arabia actually triggered the price drop when it decided to defend its market share. The number of shale oil wells in North America has declined ever since, and probably won’t start to increase until the price hits $60[/bbl],” he told his audience.

Scaroni also noted that more companies and governments are saying global climate change is real in the last 2 years, “which means renewables will go ahead regardless of oil prices.” He said, “But if we do not solve storage challenges, their progress will be constrained. The technology is not there yet, but there are thousands of peoples around the world who are working on it.”

Contact Nick Snow at nicks@pennwell.com.

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