Exxon Mobil Corporation Cracks Deal with Eni SpA Over Mozambique LNG Project

Exxon Cracks Deal with Eni SpA Over Mozambique LNG Project
Delays in public announcement of the deal came over differences in valuation amid oil downturn

Eni SpA (ADR) (NYSE:E) has finally cracked a deal with Exxon Mobil Corporation (NYSE:XOM) over the sale of stake in Mozambique LNG plant. As reported by Reuters, citing two sources close to the matter, although the deal has been reached, the energy giants choose to remain tightlipped. "We do not comment on market rumors or speculation," stated a representative for Exxon.

According to the sources, both companies have agreed on the terms of the deal, according to which Eni would retain control on the Area 4 gas blocks while Exxon would acquire its desired stake in the offshore LNG export project.

In recent weeks, news of Exxon mulling over the acquisition of Eni owned gas discoveries in Mozambique were doing the rounds. Interest of the energy giant in the country can be traced long. On October 28, Exxon was awarded three offshore gas fields in Mozambique. This gave a new angle to the development opportunities in the country. "We look forward to further discussions with the Mozambique government on the development of a production-sharing contract for the blocks," Exxon spokesperson added.

Reflecting upon Eni, the company had earlier shown resistance toward auctioning too much of its 50% stake in the gas blocks at Area 4. The company has repeatedly emphasized about its desire to have its foothold in the gas fields. In conversation with analysts, CEO Claudio Descalzi stated: "Our model is to remain and keep the operatorship or keep, in any case, a clear control on the asset - the asset that we discovered." However, Mr. Descalzi has now raised the stake on the auction block by 10, from 15% to 25%.

Containing around eighty-five trillion cubic feet of natural gas, the gas deposits of Mozambique seem highly lucrative for the energy giants. With Exxon, globally the largest oil company in the US by market value, bidding for the deal, higher valuation of deal was expected by Eni. In 2013, the Italian energy giant had disposed of 20% share of interest in the Mozambique based gas blocks to Chinese energy company, CNPC for $4.2 billion.

Since then, oil prices have considerably plunged — West Texas Intermediate currently trading at $41.80 per barrel, down by 0.13% and Brent crude at $44.27 per barrel, down by 0.02%. In the wake of the continuing commodity price crash, Exxon too has its financial position in deep troubled waters. Business Finance News believes that differences over the valuation of the deal are what could have taken the energy companies longer to finalize the deal. The same reason can be cited behind the companies delaying the public announcement of the deal.

The deal is likely to reap benefits for the economy of Mozambique. Plagued by tax burden, the country disclosed hidden debt in its books of $1.4 billion in April. Following this, the World Bank and other major donors, declined to offer any aid. Thus, the gas deal, capable of generating capital gains tax of as much as $1.3 billion, would serve as a jackpot for the economy.

According to the International Monetary Fund, the gas deal and other hydrocarbon discoveries in Mozambique might not be able to ease the leverage position of the country in the short term, but is highly likely to ease the economic distress of the country in the long span.

So far, the news has had no impact on Exxon stock, since it continues to remain up 0.1%, currently trading at $87.56 per share.

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