Eni's Strategy in Libya Raises Eyebrows

Italian energy company Eni revealed that, in 2011, it received a subpoena from the U.S. government regarding its operations in Libya from 2008 to 2011. The subpoena, Eni said, was related to alleged illegal payments made to Libyan officials. Eni generated 15 percent of its revenue from operations in Libya before last year's war but suffered a financial loss because of the conflict. In a statement, the company said it expected its business to return to normal this year. With a corruption charge on the books and a former Eni consultant in the Cabinet, that should go without saying.

NATO forces last year entered the civil war in Libya ostensibly to protect civilians from attacks by forces loyal to Moammar Gadhafi. The conflict there nearly brought the global oil markets to its knees, forcing the International Energy Agency to call for the release of strategic petroleum reserves to offset liquidity concerns during the summer. Eni said the conflict forced it to close "almost all" of its production facilities and blamed the war for a 1.3 percent decline, or $492 million, loss in revenue generated from exploration and production.

About midway through the war, when the interim National Transitional Council began to gain international legitimacy, Eni started slowly returning to work in Libya. The Italian government, meanwhile, was among the first to recognize the NTC as the legitimate leadership in Tripoli. On Oct. 13, exactly one week before Gadhafi died after falling into rebel hands, Eni announced that it, along with Libya's National Oil Corp., started tests to restart the Greenstream natural gas pipeline, which had supplied Italy with about 10 percent of its natural gas before the war began in 2011.

By November, the interim government had a formal Cabinet in place with Abdulrahman Ben Yezza serving as the country's oil minister. Ben Yezza once served as the chairman of Eni Oil Co., listed as a joint venture between the Italian energy company and the Libya's NOC. He once had a consulting job with Eni and, in 2005, helped it land a deal for the rights to drill for oil in Libya. Not exactly a smoking gun for corruption charges, and certainly well outside the SEC subpoena, but surreptitious nonetheless.

In June, about five months into the NTC's tenure, the U.S. government was already suspicious of Eni's operations in Libya, including activity conducted during 2011. In December, the SEC called for more documents related to the subpoena. Eni's production in Libya is about where it was before the conflict in Libya began in February 2011. In its most recent filing, the company explains its strategy for exploration and production operations is based on "strengthening its leadership in core areas." With a former chairman in the government and a corruption charge on the books, the phrasing of that statement should raise some questions.

Eni has operated in Libya since the 1950s, long before Gadhafi came to power. No charges have been filed against the company and it said it was cooperating fully with the SEC.

By. Daniel J. Graeber of Oilprice.com