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Oil Giant Drafts Libya Vet Amid Italian Olive Grove Skirmish

Bloomberg
September 13/ 10:04

Eni SpA has been adept at producing oil in some of the world’s most hostile environments, from the deserts of North Africa to the Arctic Ocean. It’s proving less sure-footed at keeping the crude flowing in the olive groves of its own backyard in southern Italy.

Val d’Agri -- more than 200 miles (322 kilometers) southeast of Eni’s Rome headquarters -- has the potential to become Western Europe’s biggest onshore field. But output was shut for seven of the past 18 months amid a probe into allegations of illicit waste-water disposal and a subsequent crude leak.

To help get Val d’Agri back on track and to more effectively tap its 1 billion barrels of reserves, Eni dispatched a 56-year-old veteran of the company’s drilling campaigns in Libya and Kazakhstan. One of Walter Rizzi’s main jobs is to win back public support in the mountainous region of Basilicata, where some locals aren’t convinced the economic boost from oil royalties is worth the environmental risk.

“Being here is strategic for us for several reasons," said Rizzi, vice president of Eni’s special project for Val d’Agri. "The oil quality is extremely high, meaning the refinery cost is low, and the potential is huge.”

Rizzi will draw on his field experience and former role as head of safety to fulfill that potential by restoring the trust of the community and clarifying the benefits of a reserve where output began in 1990s. Rizzi said the years he spent in the Caspian Sea oil town of Atyrau in Kazakhstan convinced him of the importance of frequent contact with local officials and inhabitants.

Political Opposition

While he will live in Milan, Rizzi will travel several times a month to the region and work from a new office Eni plans to open in Potenza, the provincial capital. From that base, opposite the town hall, the former naval engineer will help coordinate the project with Francesca Zarri, appointed this year as vice president of Eni’s southern district.

Rizzi’s passion for skiing and mountaineering may help to reassure locals in the Basilicata Dolomites, but politicians such as Paola Nugnes, a lawmaker in Italy’s Five Star Movement, may prove harder to persuade.

"Italian oil is dirty, bad and ugly,” said Nugnes, who was part of a commission that investigated Eni’s activities in the region. “Basilicata territory is not suited for oil extraction activities. Environmental oversight is inadequate.”

Seventeen months ago, output from the Val d’Agri was halted by the waste-water probe. While changes to an oil-treatment plant allowed production to restart, operations were shuttered for another three months in April with the discovery of a crude leak at the Viggiano site.

Eni and partner Royal Dutch Shell Plc estimate the disruptions led to about 700 million euros ($837 million) in lost production, before operations at Val d’Agri resumed on July 18.

Health Factor

Eni Chief Executive Officer Claudio Descalzi has said an internal investigation found the company’s practice of water re-injection wasn’t dangerous and complied with Italian law. Eni said it’s confident the court in Potenza“will confirm the company acted correctly.”

Gianfranco Tarsitani, a professor of hygiene and social medicine at Sapienza University in Rome who undertook medical and psychological tests on the local population, said the scientific community is still divided on whether there is a tangible impact on the local environment and health of the people.

“The population has more fear than what is justified by scientific data, but fear also has a negative impact on health,” said Tarsitani, who has consulted for Eni at Val d’Agri.

Opposition to the project is set against those who have benefited from about 2.2 billion euros of royalties paid by Eni and Shell and the 2,000 jobs created at Val d’Agri. The economic boost is most clearly seen in Viggiano, where the main production site is located.

"This is a royalties economy,” said Michele Margherita, general manager of GDM Margherita, which has increased its employees 10-fold to 100 by providing services such as snow clearing to the oil industry. “The hope is that our kids will stay here."

Ski Lift

Amedeo Cicala, the mayor of Viggiano, said the town is struggling to spend the 3.6 million euros of royalties it received last year, but is constructing a new swimming pool and an 800-seat theater. He also hopes to develop a new ski area over the next few years.

"The ski lift would be the first of this kind operating in the area,” he said. “We hope this will bring tourism back to Viggiano.”

Still, local antipathy, combined with the slump in crude prices three years ago, have deterred Eni from increasing Val d’Agri’s output from 80,000 barrels a day to 104,000 barrels a day, let alone from making the investments required to lift its capacity to almost double that level.

Brent crude has averaged about $52 a barrel so far this year, compared with $99 in 2014. The global benchmark on Wednesday was trading down 0.2 percent at $54.14 as of 13:12 p.m. in Singapore.

While Val d’Agri accounts for just 3.5 percent of Eni’s production, Rizzi isn’t giving up. To restore trust between the state-owned corporation and the local population, he’s been highlighting benefits while tempering “misplaced expectations” about what the project can deliver.

“Italy is key to Eni’s industrial project and Val d’Agri is one of the key assets within this framework,” Rizzo said. “We will continue to invest to create long-term value via a strategy which puts the environment and people at the heart of it."

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