Agip pursues aggressive E&P program

Luciano Sgubini, Chief Operating Officer of Eni’s Agip Division, says his company has emphasized technology through volatile oil pricing scenarios and will increase exploration / development budgets 15 to 20% this year

Q. Mr. Sgubini, in one year, there has been a major change in the price of oil. How does Agip view the oil market regarding spending plans for this year?

A. In line with the strategy of an accelerated growth of Agip Division, our industrial investment plans for the year 2000 are substantially higher than in 1999. Exploration investments are expected to increase more than 25%, and development spending by 15%. A significant share of exploration investments abroad (32%) is devoted to deep offshore activity.

Q. Following the appointment of the new Eni Chairman last November, will there be any changes in policy regarding Agip Division?

A. Essentially no, we will continue the Division’s objective of pursuing an efficient growth and reduction in fixed costs by improving internal processes and increasing the utilization of outsourcing services.

Q. Where do you plan to be active this year internationally? Will the Caspian area projects move ahead?

A. Eni’s E&P activity will be mainly focused on high-potential exploration areas in North and West Africa, the Caspian Sea and the Gulf of Mexico, and in significant development projects in North and West Africa and the North Sea.

In particular, in the Caspian area, Eni will be engaged in exploration in Azerbaijan, offshore Kazakhstan and in the further development of Karachaganak field (Kazakhstan). Agip Division’s equity production from Karachaganak started in 1998. The 1999 average production of gas and condensate was 37,110 boepd. The expected production will double by 2003 – 2004 – as a consequence of the CPC start-up and completion of development activities.

Q. In Italy, how will Agip’s projects be affected by higher oil and gas prices?

A. Higher oil and gas prices will further improve domestic and overseas economic results. In Italy, oil and gas production of about 350,000 boepd in the current year will remain substantially stable over the next three years. Agip’s most relevant activity is connected to development of the Val D’Agri project, with a forecast production of 25,000 boepd in 2001 and peak production of about 100,000 boepd by the year 2004.

Q. Volatile oil prices never seem to stop R&D on new E&P technology. What new technologies are Agip developing or testing? Have you some results or milestones to note in your various operations?

A. As you suggest, during the recent oil pricing scenarios, our R&D level of expenditure has not changed, because we believe that effective research improves cooperations by increasing the exploration rate of success and reducing costs and time to market, thereby contributing to an overall better economic return. Actually, the process of technology transfer has been accelerated.

Regarding deep water, we are developing a subsea separator and boosting system that will be installed in mid-2000. We have also successfully completed field tests of an innovative system, based on fiber optics, to monitor production risers.

On the operations front, the full industrialization of a series of innovative technologies, allowing data acquisition for seismic and formation evaluation while drilling, improves the achievement of exploration results. It is worth mentioning, also, the increasing application of our proprietary technology "Lean Profile" which, by reducing sizes of holes and casings, allows the cutting of drilling time and cost by 30 to 50%.

Q. In the U.S., the public does not care if $10 oil causes the loss of 50,000 oil workers, but higher gasoline / diesel costs spur action from the government. Most planners are looking at average long-term oil prices in the $19 – 20 range. Do you share this view?

A. The current oil price is the result of exceptional circumstances. Such a price may entail consequences not only for consumer countries, but also for the OPEC countries. We believe that a situation of oil market equilibrium may, in the long term, lead to the suggested price range, which appears to be supported by outlooks for world oil demand and supply.

Q. To replace your reserve base, do you see a critical need to put more rigs back to work?

A. Activity envisaged for the next few years has already taken rig requirements into account. As a matter of fact, deep offshore activity has been planned by securing Scarabeo 7 and Saipem 10000 drillships, and having a number of semisubmersibles and land rigs with long-term contracts for more conventional environments.

Q. How would you summarize Agip’s operating philosophy?

A. Our objective is to strengthen Agip’s competitive position in areas where it is already active and select new areas having high exploration potential and easy production access to the market.

Editor’s note: In November 1999, Mr. Gian Maria Gros-Pietro was appointed Chairman of Eni SpA. He graduated in economics and business studies from the University of Turin in 1964, where he remains a full professor of industrial economics at the Faculty of Economics and Business Studies. From 1974 to 1995, he was director of Ceris, the leading economics research institution of CNR, the Italian National Research Council. And from 1997 to 1999, he served as chairman of IRI, Istituto per la Ricostruzione Industriale. Mr. Gros-Pietro presently holds positions as chairman or member of numerous scientific, management, economic and social organizations.