ENI SpA: Rare Investment Opportunity Amid Libyan Crisis

| About: ENI S.p.A. (E)

The famous investor John Templeton said, "Buy when there is blood in the streets." There is blood in the streets of Libya. The regime of the strong man Muammar Abu Minyar al-Gaddafi is embattled following a series of bloody protests. For American investors, there are no easy direct investment opportunities in Libya. Fortunately, there is a gem that trades in the good old USA that investors may want to keep on their watch list. The gem is ENI SpA (NYSE:E).

The news from Libya is fast changing. At the time this article was written, it appears that a prolonged civil war in Libya is a distinct possibility – with the opposition in control of Eastern Libya and Gaddafi controlling the west.

Libya is a tribal society, and it appears that fracturing of the country along tribal lines is a strong possibility. To properly time entry into the investments described below, investors will need to develop a basic understanding of the geography of Libya. The map shows the situation as it exists now.

Eni is the much storied Italian oil and gas company with a long history in Libya. The map shows the geographic proximity of Italy to Libya, which was once an Italian colony. Eni has been operating in Libya since 1959. Eni’s net production from Libya is 108 kbbl/d of liquids and 780 mmcf/d of natural gas. These are substantial numbers by any means.

Success of an investment in Eni depends on proper timing of the entry. The proper timing, in turn, depends on knowing which side ends up controlling which areas of Libya. A brief look at the geography of Eni activities in Libya is in order. Eni has four main producing fields in Libya - El Feel, Bouri, Bu Attifel, and Wafa and Bahr Essalam.

El Feel produced approximately 110,000 barrels per day in 2009. This field is located 800 kilometer from Tripoli in the southwest region of the desert. For the time being it appears that this field may stay under the control of Gaddafi.

Bouri produced approximately 45,000 barrels per day in 2009. This field is offshore in the Mediterranean Sea in front of Tripoli. Unless the international community takes some naval action, for the time being, this field is also likely to remain under the control of Gaddafi.

Bu Attifel produced approximately 14,000 barrels per day in 2009. This field is located in the eastern desert and is likely to be under the opposition’s control.

Wafa and Bahr Essalam contain both onshore and offshore facilities.

GreenStream Pipeline

These are the most important fields for Eni and are located in western Libya. Due to significance of these fields, little bit deeper understanding is helpful in analyzing the news flow from Libya. These fields, for the time being, are likely to stay under the control of Gaddafi. These are natural gas fields. The gas produced is sold in Libya and exported to Europe. The gas is transported to Italy along the GreenStream pipeline. In 2009, Wafa Essalam produced 148,000 barrels of oil equivalent per day (boe/day) of liquid and natural gas (about 112,000 barrels net to Eni). The gas from Bahr Essalam is transported to the Mellitah treatment plant, where the majority is sent to Europe along the GreenStream pipeline. In 2009, approximately nine billion cubic meters was exported to Europe. Also, one billion cubic meters were sold for generating electricity in Libya, and an additional 200 million cubic meters were used for fueling the GreenStream compression station.

Theoretically, there are three main possible outcomes in Libya:

  • Gaddafi regains control of the country.
  • Libya is divided into two countries, western Libya and eastern Libya.
  • Opposition controls the entire country.

From the foregoing information, it is clear that in the event of either of the first two possibilities, Eni comes out well because of its longstanding relationship with Gaddafi.

In the event of the third outcome, there is more uncertainty in the near term. In the long term, such development should lead to more western influence, which will be good for Eni.

The point is that in all credible eventualities, Eni is likely to prosper in Libya. Any big weakness in the stock price will be a buying opportunity. Readers are cautioned against buying Eni at the current price. There is blood in the streets of Tripoli, but enough bloodletting has not yet happened to Eni’s stock price.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in E over the next 72 hours.

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