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Eni to maintain foothold in Iran

November 13, 2007

By Guy Dinmore in Rome

Published on FT: November 13 2007

The Italian oil giant Eni intends to maintain a foothold in Iran while acknowledging US-led pressure on international companies to cut exposure to the country. Paolo Scaroni, chief executive of the energy group, told the Financial Times that Eni did not intend to expand its presence under current political and commercial conditions and that the company would honour UN decisions.

However, he also signalled that Eni had no intention of pulling out of Iran, where it is one of the largest foreign investors: “We will stick to our contracts,” he said.

It would not be “appropriate” for anyone to force Eni not to respect its existing contracts, he added.

So far, UN sanctions imposed on Iran for refusing to suspend sensitive areas of its nuclear development programme have not directly touched its oil and natural gas sector. However, Gordon Brown, UK prime minister, raised on Monday the possibility of imposing UN and European Union sanctions in that area.

According to oil industry and US sources, the Bush administration, acting with authority from Congress, has threatened non-US companies with punitive measures should they sign new energy deals with Iran.

Asked about pressure from shareholders in the US, where divestment campaigns are growing, Mr Scaroni said he would expect them to “react to a major move on Iran”, adding: “But we are not there yet.”

He said instead Eni was waiting for Iran and the west to get their relations “on a reasonable footing”.

Mr Scaroni said he did not know of any big western oil company submitting bids in Tehran’s recent oil exploration licensing round. He indicated that Iran might have to look elsewhere for investment: “Maybe the Chinese”.

In mid-2001 Eni concluded long negotiations with Iran and signed a $920m contract to develop the Darkhoein oil field. This addition to three existing interests made Eni the largest foreign investor in Iran at the time.

Mr Scaroni, who became chief executive in 2005, said projects were going “reasonably well”. But expressing his dissatisfaction with the commercial terms offered by Iran, he said Eni would not sign such “buy-back” contracts again.

His comments echoed those of other western majors who accepted less favourable conditions than offered elsewhere simply to gain a foothold in Iran, described by Mr Scaroni as a “country with enormous potential”.

Mr Scaroni said Eni had been present in Iran and Libya since the 1950s. That commitment is paying off with respect to Tripoli where Mr Scaroni met Muammer Gadaffi, Libyan leader, last month. Eni has just negotiated a 25-year extension of its oil and gas contracts in Libya, albeit under tighter commercial terms reflecting higher world prices.

For many years Eni was the only major operating in Libya because of the poor business climate under international sanctions. But in 2003 Tripoli moved to shed its rogue status by agreeing to dismantle its nuclear weapons programme and accepting responsibility for the 1988 Pan Am bombing.

Libya was the most important country for Eni in terms of equity production, Mr Scaroni said. Eni will also build its first gas liquefier.

“Libya has a great future in gas. In Libya we did not move out. Nor in Iran . . . When we maintain a presence long term it is always positive.”

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