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Italian oil major Eni (E) has a long tradition of doing business in Russia. It was one of the first European industrial groups to establish and develop economic and commercial relations with the former Soviet Union in the middle of the last century, when Eni's founder Enrico Mattei began cutting energy deals and bartering engineering services for crude in the early 1950s. In 1969, with the signing of the first contract for the supply of 6 billion cubic meters per year of natural gas -- which went into effect in 1974 -- Eni and Gazprom (OTCPK:OGZPY) established a working relationship. Since then, cooperation with the Russians has intensified decade after decade, and nowadays Italy is considered in the Russian Federation as one of the most loyal trade partners in the energy sector.

In the past two weeks, the collaboration has gone two steps further:

1. Samburskoye Field

On April 20th, for the first time in its corporate history, Eni began production of hydrocarbons from the Samburskoye field, located in western Siberia.

The gas and liquids production of the field is operated by SeverEnergia, a company in which Eni holds a 30% stake and Enel (OTCPK:ENLAY) -- which I suggested buying last month -- a 20% stake. It will reach in 2015 a maximum gas and liquids production of 145,000 barrels of oil equivalent per day (43,000 boepd net to Eni). Eni CEO Paolo Scaroni said they agreed to sell a share of the project's natural gas to Gazprom at a reasonable price. Enel instead plans to burn its share of the gas at the power plants it owns in Russia.

Both Eni and Enel bought Yukos' gas assets at an auction in April 2007, committing to the option of taking Russian partners later on. The Samburskoye field is the first of these assets to go into operation, representing an important milestone in Eni's plans for growth in Russia, which will lead to a production of about 200,000 boepd net to Eni in 2019.

2. Cooperation With Rosneft

Rosneft (OTC:RNFTF) is an integrated oil company majority owned by the Russian government and is one of the top oil producers in the world. On April 25th, Eni signed a strategic cooperation agreement for the joint development of licenses in the Black Sea and the Barents Sea on the Russian shelf, the exchange of technologies and personnel, as well as Rosneft's acquisition of a participating interest in Eni's international projects.

Russian Prime Minister Vladimir Putin, who was attending the meeting, commented on the agreement. He said, "I am confident that these projects on the shelf will be successful, and I want to assure you that the Russian government will do everything to support projects of this kind."

The deal is similar to that between Rosneft and Exxon Mobil (XOM), as Eni takes a minor stake of 30% in the joint project and pays up-front investment costs. Putin's announcement this month that Russia would lighten the tax burden on offshore projects -- by scrapping export duty and cutting mineral extraction tax -- has led to a rush by foreign majors to seek deals.

Eni's Scaroni was quoted as saying:

This project is really attractive and of strategic importance for us. The field is located in the Barents Sea. We know this ocean perfectly well, because we were the first ones to open an oil field on this shelf.

The deposits are estimated to hold total recoverable resources of 36 billion barrels of oil equivalent, worth more than $3.5 trillion at current prices. The Barents Sea prospects are very promising also thanks to the surrounding discoveries made by Eni in the Norwegian sector.

Conclusion

These two deals prove that Eni is keen on increasing its offshore activities -- let's not forget its giant gas finds in offshore Mozambique -- and is determined to become a high-profile international player in the energy sector. I am confident that after recent developments Eni ADRs are worth at least $60 and investors who would like to diversify their portfolio internationally should consider buying Eni's shares, as the recent pullback offers a good entry point. Last but not least, let's not forget that the company pays a dependable 6% dividend.

Source: Eni Going Full Throttle In Russia