Italy’s Eni doubles down in Venezuela with rising hope of recovering debt

MILAN, Sept 4 (Reuters) - Analysts said on Friday that Italian oil company Eni has improved its prospects for recovering more than $2.3 billion owed by Venezuela after signing a new oil project deal in the country this week.

Having operated in Venezuela for nearly three decades, Eni has built up those receivables from state-owned oil group PDVSA.

As Washington and Caracas moved this year to reopen Venezuela’s oil sector to international investment, Eni faced a stark choice: either deepen its commitment to the country or jeopardize its chances of recovering its claims while the United States seeks to restructure old debt.

The Italian group’s decision to remain in the country despite political upheaval, economic collapse and U.S. sanctions is starting to yield results.

On Wednesday, Eni signed an agreement with PDVSA to develop the giant Junin 5 heavy oil project in the country’s Orinoco Belt, gaining a key role in U.S.-backed efforts to revive the nation’s oil industry.

An Eni spokeswoman said: "The deal will provide further opportunities for value creation for the country and for the gradual recovery of outstanding receivables."

Eni and PDVSA plan to invest around $1.5 billion annually in the project, which currently produces about 12,000 barrels per day (bpd). Output is expected to reach 400,000 bpd by 2030.

The project converts Eni’s existing stake in Junin 5 into a 25-year production-sharing agreement, with Eni serving as the field operator.

Barclays analysts stated: "We see the deal as an opportunity to unlock future production and recover existing receivables."

After a Caracas signing ceremony for oil deals between a handful of international companies and Venezuela, which was attended by President Delcy Rodriguez and U.S. Energy Secretary Chris Wright, Eni Chief Executive Claudio Descalzi said on Wednesday that work would start immediately at Junin 5.

"We will begin drilling the first well tomorrow," he said.

In addition to Venezuela’s direct debt to Eni of $2.3 billion, the country owes $400 million related to a 20-year-old natural gas joint venture at the Perla field, equally owned by Eni and Spain’s Repsol.

Eni kept running the offshore Perla gas project even after U.S. sanctions stopped Venezuela’s payments and contributed to PDVSA’s rising debts. Output has gone almost exclusively for domestic use.

But in March, a new pact opened the possibility of future Venezuelan gas exports from that field, boosting Eni’s prospects.

Davide Tabarelli, head of energy consultancy Nomisma Energia, said: "Projects that risked becoming stranded assets can now make a contribution to the group and help support its production growth."

Eni also owns a stake in the Corocoro offshore oil field, where production was halted in 2019 due to U.S. sanctions on PDVSA. There has been no news yet on changes to that project.

Industry sources said Eni produces about 64,000 boepd in Venezuela and could eventually increase that to 1 million boepd.

Washington now wants to address Caracas’ large debt burden. Wright recently said that China would have no claim on revenue from Venezuela’s fields that would be partially controlled by Washington, potentially cutting off a key mechanism Caracas has used to repay Chinese loans.