Italy's Eni Raises Its U.S. Profile

ltalian titan Eni SpA, which has benefited from its ability to invest and expand in countries off-limits to American rivals, this year sharply raised its exposure on the home turf of Chevron Corp. and Exxon Mobil Corp.

Eni's shift toward greater investment in the U.S. reflects a strategic effort to diversify a production portfolio that has relied disproportionately on countries such as Iran and Nigeria, where political instability means a greater chance of a production disruption.

The centerpiece of the Italian company's burgeoning U.S. campaign is a $4.8 billion acquisition of Gulf of Mexico assets from Dominion Resources Inc. In addition, Eni stepped up its activities in Alaska , recently winning state royalty relief for a heavy-oil project expected to come online in 2009. Also, Eni has added capacity in Mississippi to receive liquefied natural gas, supplementing a 2005 transaction for similar capacity in Louisiana .

The Dominion deal provided an overnight surge to Eni's production, although the company won't be able to gauge the full success of the deal until it completes more exploration in the years ahead.

While Eni's U.S. investment won't transform the company immediately, it provides a measure of stability at a time when oil-producing countries such as Venezuela and Nigeria are pressuring international oil companies for a bigger share of the benefits of high prices. At the same time, some analysts see limits to the scale of Eni's U.S. ambitions, in part because the Italian company might dislike rendering itself more vulnerable to such U.S. policies as an aggressive crackdown on companies that invest in Iran .

Analysts generally praise the rationale behind Eni's U.S. expansion, but are divided on Eni's overall investment prospects, with some pointing to lingering uncertainty surrounding the problem-plagued Kashagan project in Kazakhstan . Eni's share-price appreciation has lagged behind that of most its peers in 2007. Eni's current valuation is up about 6% compared with the start of the year; that is on the low end compared with many of its peers. Exxon Mobil is up 24%; Royal Dutch Shell PLC is up about 14%; and Total SA is up 12%. Eni shares closed at 25 euros ($36.23) in Milan trading yesterday.

Although still dwarfed by Exxon, Royal Dutch Shell and Total, Eni's rate of production growth from about one million barrels a day in the late 1990s to about 1.8 million in recent years bested those of larger rivals. With a bigger retail natural-gas business and a more limited global refining presence, Eni's asset base differs somewhat from that of the other big oil companies.

During its annual strategy update in February, Eni promised 3% annual average production growth through 2013. But that projection has looked increasingly challenged, as the timeframe for Kashagan has been pushed back from 2005 to 2008 to 2010. Irene Himona, an analyst at Exane BNP Paribas in London , expects the massive project to begin producing in about 2012 or 2013.

In addition to the Dominion acquisition, Eni has struck a series of smaller deals this year, including a $5.8 billion deal to purchase Russian assets held by the former Yukos and a pending $3.5 billion buyout of Burren Energy PLC, which would supplement Eni's foothold in Congo .

"They've moved from being a large regional player into a more international player," said Jason Kenney, an analyst at ING in London .

Eni remains interested in buying into the Canadian oil sands, but said its buying spree won't extend into next year.