| ||
UNITED STATES |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
OR | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 200 | ||
OR | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ | ||
OR | ||
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report |
Commission file number: 1-14090
Eni SpA
(Exact Namename of Registrant as Specifiedspecified in Its Charter)its charter)
Republic of Italy
(Jurisdiction of Incorporationincorporation or Organization)organization)
Piazzale1, piazzale Enrico Mattei 1,
00144 Rome, Roma
Italy
(Address of Principal Executive Offices)principal executive offices)
Marco Mangiagalli
Eni SpA
1, piazza Ezio Vanoni
San Donato Milanese
20097 Milano
Italy
Tel +39 02 52041730
Fax +39 02 52041765
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
————————————————————
Securities registered or to be registered pursuant to Section 12(b) of the Act:Act.
Title of each class | Name of each exchange on which registered | |
Shares | New York Stock Exchange* | |
(Which represent the right to receive two Shares) | * Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
NoneNone.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None.None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary shares of euro 1.00 each4,005,358,876
Indicate by check mark whetherif the Registrantregistrant is a well knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act:Act.
Yes | No |
If this report is an annual or transition report, indicate by check mark whetherif the Registrantregistrant is nornot required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:1934.
Yes | No |
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:days.
Yes | No |
Indicate by check mark whetherif the Registrantregistrant is a large accelerated filer, an accelerated filer, or a non accelerated filer. See definition of "Accelerated"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP | International Financial Reporting Standards as issued by the International Accounting Standards Board | Other |
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement Itemitem the Registrantregistrant has elected to follow:follow.
Item 17 | Item 18 |
If this is an annual report, indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):.
Yes | No |
* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
Presentation of Financial and Other Information
Statements Regarding Competitive Position
Page | ||||
Certain Defined Terms | iii | |||
Presentation of Financial and Other Information | iii | |||
Statements Regarding Competitive Position | iv | |||
Glossary | v | |||
Abbreviations and Conversion Table | viii |
i
Item 11. | QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK | 149 | ||
Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 149 | ||
PART II | ||||
Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 150 | ||
Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 150 | ||
Item 15. | CONTROLS AND PROCEDURES | 150 | ||
Item 16. | ||||
Board of Statutory Auditors Financial Expert | 151 | |||
Code of Ethics | 151 | |||
Principal Accountant Fees and Services | 151 | |||
Exemptions from the Listing Standards for Audit Committees | 152 | |||
Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 152 | |||
PART III | ||||
Item 17. | FINANCIAL STATEMENTS | 154 | ||
Item 18. | FINANCIAL STATEMENTS | 154 | ||
Item 19. | EXHIBITS |
ii
Certain disclosures contained herein including, without limitation, information appearing in "Item 4 – Information on the Company", and in particular "Item 4 – Exploration & Production", "Item“Item 5 – Operating and Financial Review and Prospects"Prospects” and "Item 11 – Qualitative and Quantitative Disclosures about Market Risk" contain forward-looking statements regarding future events and the future results of Eni that are based on current expectations, estimates, forecasts, and projections about the industries in which Eni operates and the beliefs and assumptions of the management of Eni. Eni may also make forward-looking statements in other written materials, including other documents filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). In addition, Eni’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. In particular, among other statements, certain statements with regard to management objectives, trends in results of operations, margins, costs, return on capital, risk management and competition are forward looking in nature. Words such as ‘expects’, ‘anticipates’, ‘targets’, ‘goals’, ‘projects’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Therefore, Eni’s actual results may differ materially and adversely from those expressed or implied in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report on Form 20-F under the section entitled "Risk Factors" and elsewhere. Any forward-looking statements made by or on behalf of Eni speak only as of the date they are made. Eni does not undertake to update forward-looking statements to reflect any changes in Eni’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any further disclosures Eni may make in documents it files with the SEC.
CERTAIN DEFINED TERMS
In this Form 20-F, the termterms "Eni", the "Group", or the "Company" refersrefer to the parent company Eni SpA and its consolidated subsidiaries and, unless the context otherwise requires, their respective predecessor companies. All references to "Italy" or the "State" are references to the Republic of Italy, all references to the "Government" are references to the government of the Republic of Italy. For definitions of certain oil and gas terms used herein and certain conversions, see "Certain Oil and Gas Terms""Glossary" and "Conversion Table".
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
The Consolidated Financial Statements of Eni, included in this annual report, have been prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB) and IFRS issued by the IASB as adopted by the European CommissionUnion following the procedure contained in Article 6 of the EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002. Until December 31, 2004, Eni prepared its Consolidated Financial Statements and other interim financial information (including quarterly and semi-annual data) in accordance with Italian GAAP. IFRS require adopting companies to restate only one year of past financial statements. Pursuant to SEC Release 33-8567, "First-time Application of International Financial Reporting Standards", Eni is not required to include in this annual report financial statements for any earlier periods. Accordingly this annual report includes financial information prepared in accordance with IFRS as of and for the two years ended December 31, 2004 and 2005.
IFRS, under which Eni’s Consolidated Financial Statements have been prepared, differ in certain significant respects from U.S. GAAP. For information on the differences between IFRS and U.S. GAAP as they relate to Eni, see Notes 33, 34 and 35 to Eni’s Consolidated Financial Statements included herein.
Unless otherwise indicated, any reference herein to "Consolidated Financial Statements" is to the Consolidated Financial Statements of Eni (including the Notes thereto) included herein.
Unless otherwise specified or the context otherwise requires, references herein to "dollars", "$", "U.S. dollars" and "U.S. $" are to the currency of the United States, and references to "euro" and "€" are to the currency of the European Monetary Union.
iii
STATEMENTS REGARDING COMPETITIVE POSITION
Statements made in "Item 4 – Information on the Company", referring to Eni’s competitive position are based on the company’s belief, and in some cases rely on a range of sources, including investment analysts’ reports, independent market studies and Eni’s internal assessment of market share based on publicly available information about the financial results and performance of market participants. Market share estimates contained in this document are based on management estimates unless otherwise indicated.
iv
GLOSSARY
A glossary of oil and gas terms is available on Eni’s web page at the address www.eni.it. Below is a selection of the most frequently used terms.
Financial | ||
Leverage | ||
Net borrowings | Eni evaluates its financial condition by reference to "net borrowings", which is a non-GAAP measure. Eni calculates net borrowings as total finance debt less: cash, cash equivalents and certain very liquid investments not related to operations, including among others non-operating financing receivables and securities not related to operations. Non-operating financing receivables consist of amounts due to Eni’s financing subsidiaries from banks and other financing institutions and amounts due to other subsidiaries from banks for investing purposes and deposits in escrow. Securities not related to operations consist primarily of government and corporate securities. For a discussion of management’s view of the usefulness of this measure and its reconciliation with the most directly comparable GAAP measure which in the case of the Company refers to IFRS, see "Item 5 – Financial Condition". | |
TSR (Total Shareholder Return) | Management uses this measure to asses the total return of the Eni share. It is calculated on a yearly basis, keeping account of changes in prices (beginning and end of year) and dividends distributed and reinvested at the ex-dividend date. | |
Business terms | ||
Associated gas | Natural gas, occurring in the form of a gas cap, overlying an oil zone, contained in the reservoir’s crude oil gas. | |
Average reserve life index | Ratio between the amount of reserves at the end of the year and total production for the year. | |
Barrel/BBL | Volume unit corresponding to 159 liters. A barrel of oil corresponds to about 0.137 metric tons. | |
BOE | Barrel of Oil Equivalent. It is used as a standard unit measure for oil and natural gas. The latter is converted from standard cubic meters into barrels of oil equivalent using a certain coefficient (see "Conversion Table"). | |
Concession contracts | Contracts currently applied mainly in Western countries regulating relationships between states and oil companies with regards to hydrocarbon exploration and production. The company holding the mining concession has an exclusive on exploration, development and production activities and for this reason it acquires a right to hydrocarbons extracted against the payment of royalties on production and taxes on oil revenues to the state. | |
Condensates | These are light hydrocarbons produced along with gas that condense to a liquid state at surface temperature and pressure. | |
Conversion capacity | Maximum amount of | |
Conversion index | Ratio of capacity of conversion facilities to primary distillation capacity. The higher the ratio, the higher is the capacity of a refinery to obtain high value products from the heavy residue of primary distillation. | |
Deep waters | Waters deeper than 200 meters. | |
Development | Drilling and other post-exploration activities aimed at the production of oil and gas. | |
v
Enhanced recovery | Techniques used to increase or stretch over time the production of wells. | |
EPC | Engineering, Procurement and Construction. | |
EPIC | Engineering, Procurement, Installation and Construction. | |
Exploration | Oil and natural gas exploration that includes land surveys, geological and geophysical studies, seismic data gathering and analysis and well drilling. | |
FPSO | Floating Production Storage and Offloading System. | |
FSO | Floating Storage and Offloading System. | |
Infilling wells | Infilling wells are wells drilled in a producing area in order to improve the recovery of hydrocarbons from the field and to maintain and/or increase production levels. | |
LNG | Liquefied Natural Gas obtained through the cooling of natural gas to minus 160 °C at normal pressure. The gas is liquefied to allow transportation from the place of extraction to the sites at which it is transformed back into its natural gaseous state and consumed. One tonne of LNG corresponds to 1,400 cubic meters of gas. | |
LPG | Liquefied Petroleum Gas, a mix of light petroleum fractions, gaseous at normal pressure and easily liquefied at room temperature through limited compression. | |
Margin | The difference between the average selling price and direct acquisition cost of a finished product or raw material excluding other production costs (e.g. refining margin, margin on distribution of natural gas and petroleum products or margin of | |
Mineral Storage | According to Legislative Decree No. 164/2000, these are volumes required for allowing optimal operation of natural gas fields in Italy for technical and economic reasons. The purpose is to ensure production flexibility as required by long-term purchase contracts as well as to cover technical risks associated with production. | |
Modulation Storage | According to Legislative Decree No. 164/2000, these are volumes required for meeting hourly, daily and seasonal swings in demand. | |
Natural gas liquids (NGL) | Liquid or liquefied hydrocarbons recovered from natural gas through separation equipment or natural gas treatment plants. Propane, normal-butane and isobutane, isopentane and pentane plus, that were previously defined as natural gasoline, are natural gas liquids. | |
Network Code | A code containing norms and regulations for access to, management and operation of natural gas pipelines. | |
Over/Under lifting | Agreements stipulated between partners which regulate the right of each to its share in the production for a set period of time. Amounts lifted by a partner different from the agreed amounts determine temporary Over/Under lifting situations. | |
Primary balanced refining capacity | Maximum amount of feedstock that can be processed in a refinery to obtain finished products measured in BBL/d. | |
Production Sharing Agreement ("PSA") | Contract in use in African, Middle Eastern, Far Eastern and Latin American countries, among others, regulating relationships between states and oil companies with regard to the exploration and production of hydrocarbons. The | |
vi
Proved reserves | Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of the impact of changes | |
Reserve life index | Ratio between the amount of proved reserves at the end of the year and total production for the year. | |
Reserve replacement ratio | Measure of the reserves produced replaced by proved reserves. Indicates the company’s ability to add new reserves through exploration and purchase of property. A rate higher than 100% indicates that more reserves were added than produced in the period. The ratio should be averaged on a | |
Ship-or-pay | Clause included in natural gas transportation contracts according to which the customer is requested to pay for the transportation of gas whether or not the gas is actually transported. | |
Strategic Storage | According to Legislative Decree No. 164/2000, these are volumes required for covering lack or reduction of supplies from extra-European sources or crises in the natural gas system. | |
Take-or-pay | Clause included in natural gas supply contracts according to which the purchaser is bound to pay the contractual price or a fraction of such price for a minimum quantity of gas set in the contract whether or not the gas is collected by the purchaser. The purchaser has the option of collecting the gas paid for and not delivered at a price equal to the residual fraction of the price set in the contract in subsequent contract years. | |
Upstream/Downstream | The term upstream refers to all hydrocarbon exploration and production activities. The term downstream includes all activities inherent to the oil and gas sector that are downstream of exploration and production activities. |
vii
ABBREVIATIONS
mmCF | = | million cubic feet | KBBL | = | thousand barrels | |
BCF | = | billion cubic feet | mmBBL | = | million barrels | |
mmCM | = | million cubic meters | BBBL | = | billion barrels | |
BCM | = | billion cubic meters | ktonnes | = | thousand tonnes | |
BOE | = | barrel of oil equivalent | mmtonnes | = | million tonnes | |
KBOE | = | thousand barrel of oil equivalent | GWh | = | gigawatthour | |
mmBOE | = | million barrel of oil equivalent | TWh | = | terawatthour | |
BBOE | = | billion barrel of oil equivalent | ||||
/d | = | per day | ||||
BBL | = | barrels | /y | = | per year |
CONVERSION TABLE
1 acre | = | 0.405 hectares | ||
1 barrel | = | 42 U.S. gallons | ||
1 BOE | = | 1 barrel of crude oil | = | 5,742 cubic feet of natural gas |
1 barrel of crude oil per day | = | approximately 50 tonnes of crude oil per year | ||
1 cubic meter of natural gas | = | 35.3147 cubic feet of natural gas | ||
1 cubic meter of natural gas | = | approximately 0.00615 barrels of oil equivalent | ||
1 kilometer | = | approximately 0.62 miles | ||
1 short ton | = | 0.907 tonnes | = | 2,000 pounds |
1 long ton | = | 1.016 tonnes | = | 2,240 pounds |
1 tonne | = | 1 metric ton | = | 1,000 kilograms |
= | approximately 2,205 pounds | |||
1 tonne of crude oil | = | 1 metric ton of crude oil | = | approximately 7.3 barrels of crude oil (assuming an API gravity of 34 degrees) |
viii
PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
NOT APPLICABLE
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
NOT APPLICABLE
Item 3. KEY INFORMATION
Selected Financial InformationInformation
The Consolidated Financial Statements of Eni have been prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB) and IFRS issued by the IASB as adopted by the European Commission following the procedure contained in Article 6 of the EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002. Until December 31, 2004, Eni prepared its Consolidated Financial Statements and other interim financial information (including quarterly and semi-annual data) in accordance with Italian GAAP. IFRS require adopting companies to restate only one year of past financial statements. Pursuant to SEC Release 33-8567, "First-time Application of International Financial Reporting Standards", Eni is not required to include in this annual report financial statements for any earlier periods. Accordingly theUnion. The tables below show Eni selected historical financial data prepared in accordance with IFRS as of and for the years ended December 31, 2004, 2005, 2006 and 2005 and in accordance with U.S. GAAP for the five year period ended December 31, 2005.2007. The selected historical financial data for the years ended December 31, 2004, 2005, 2006 and 2007 are derived from Eni’s Consolidated Financial Statements included herein. IFRS, under which Eni’sin Item 18. All such data should be read in connection with the Consolidated Financial Statements have been prepared, differ in certain significant respects from U.S. GAAP. For information onand the differences between IFRS and U.S. GAAP as they relate to the Eni, see Notes 33, 34 and 35 to the Eni’s Consolidated Financial Statements.
related notes thereto included herein.
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2003 (1) | 2004 | 2005 | 2006 | 2007 | |||||
(million euro except data per share and per |
CONSOLIDATED PROFIT STATEMENT DATA | |||||||||||||||
Amounts in accordance with IFRS (euro): | |||||||||||||||
Net sales from operations | 57,545 | 73,728 | |||||||||||||
Operating profit | |||||||||||||||
Exploration & Production | 8,185 | 12,574 | |||||||||||||
Gas & Power | 3,428 | 3,321 | |||||||||||||
Refining & Marketing | 1,080 | 1,857 | |||||||||||||
Petrochemicals | 320 | 202 | |||||||||||||
Oilfield Services Construction and Engineering | 203 | 307 | |||||||||||||
Other activities | - | (395 | ) | (902 | ) | ||||||||||
Corporate and financial companies | (363 | ) | (391 | ) | |||||||||||
Unrealized profit in inventory (1) | (59 | ) | (141 | ) | |||||||||||
Operating profit | 12,399 | 16,827 | |||||||||||||
Net profit pertaining to Eni | 7,059 | 8,788 | |||||||||||||
Data per ordinary share (euro) (2): | |||||||||||||||
Operating profit | 3.29 | 4.48 | |||||||||||||
Net profit: basic and diluted | 1.87 | 2.34 | |||||||||||||
Data per ADS ($) (2) (3): | |||||||||||||||
Operating profit | 8.91 | 10.61 | |||||||||||||
Net profit: basic and diluted | 5.06 | 5.54 | |||||||||||||
Amounts in accordance with U.S. GAAP (euro): | |||||||||||||||
Net sales from operations | 45,848 | 43,632 | 48,018 | 54,698 | 70,331 | ||||||||||
Operating profit (4) | 8,853 | 7,861 | 9,215 | 11,739 | 15,528 | ||||||||||
Profit before cumulative effect of change in accounting principle and income taxes | 10,330 | 8,350 | 9,274 | 12,324 | 16,281 | ||||||||||
Net profit before cumulative effect of change in accounting principle | 6,098 | ||||||||||||||
Effect of adoption of SFAS No. 143 | 198 | ||||||||||||||
Net profit | 6,317 | 5,292 | 6,296 | 6,401 | 7,583 | ||||||||||
Data per ordinary share (euro) (2): | |||||||||||||||
Operating profit | 2.26 | 2.05 | 2.44 | 3.11 | 4.13 | ||||||||||
Net profit: basic and diluted | 1.62 | 1.38 | 1.67 | 1.70 | 2.02 | ||||||||||
Data per ADS ($) (2) (3): | |||||||||||||||
Operating profit | 4.02 | 4.30 | 6.15 | 8.42 | 9.78 | ||||||||||
Net profit: basic and diluted | 2.88 | 2.89 | 4.21 | 4.60 | 4.78 |
CONSOLIDATED PROFIT STATEMENT DATA | ||||||||||||
Net sales from operations | 57,545 | 73,728 | 86,105 | 87,256 | ||||||||
Operating profit by segment | ||||||||||||
Exploration & Production | 8,185 | 12,592 | 15,580 | 13,788 | ||||||||
Gas & Power | 3,428 | 3,321 | 3,802 | 4,127 | ||||||||
Refining & Marketing | 1,080 | 1,857 | 319 | 729 | ||||||||
Petrochemicals | 320 | 202 | 172 | 74 | ||||||||
Engineering & Construction | 203 | 307 | 505 | 837 | ||||||||
Other activities | (395 | ) | (934 | ) | (622 | ) | (444 | ) | ||||
Corporate and financial companies | (363 | ) | (377 | ) | (296 | ) | (217 | ) | ||||
Impact of unrealized intragroup profit elimination | (59 | ) | (141 | ) | (133 | ) | (26 | ) | ||||
Operating profit | 12,399 | 16,827 | 19,327 | 18,868 | ||||||||
Net profit attributable to Eni | 7,059 | 8,788 | 9,217 | 10,011 | ||||||||
Data per ordinary share (euro) (2) | ||||||||||||
Operating profit: | ||||||||||||
- basic | 3.29 | 4.48 | 5.23 | 5.14 | ||||||||
- diluted | 3.28 | 4.47 | 5.22 | 5.14 | ||||||||
Net profit attributable to Eni basic and diluted | 1.87 | 2.34 | 2.49 | 2.73 | ||||||||
Data per ADR ($) (2) (3) | ||||||||||||
Operating profit: | ||||||||||||
- basic | 8.18 | 11.14 | 13.13 | 14.10 | ||||||||
- diluted | 8.17 | 11.12 | 13.12 | 14.10 | ||||||||
Net profit attributable to Eni basic and diluted | 4.66 | 5.82 | 6.26 | 7.48 |
1
As of December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2003 (1) | 2004 | 2005 | 2006 | 2007 | |||||
(million euro except number of shares and dividend information) |
CONSOLIDATED BALANCE SHEET DATA | ||||||||||
Amounts in accordance with IFRS: | ||||||||||
Total assets | 72,853 | 83,850 | ||||||||
Short-term and long-term debt | 12,684 | 12,998 | ||||||||
Capital stock issued | 4,004 | 4,005 | ||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||
Total assets | 64,976 | 66,122 | 71,995 | 72,354 | 82,977 | |||||
Short-term and long-term debt | 12,379 | 15,320 | 16,144 | 12,697 | 12,954 | |||||
Capital stock issued | 4,001 | 4,002 | 4,003 | 4,004 | 4,005 | |||||
Other Financial Information in accordance with IFRS: | ||||||||||
Capital expenditure | 7,499 | 7,414 | ||||||||
Weighted average number of ordinary shares outstanding (shares million) | 3,912 | 3,827 | 3,778 | 3,772 | 3,759 | |||||
Dividend per share (euro) | 0.750 | 0.750 | 0.750 | 0.900 | 1.100 | |||||
Dividend per ADS ($) (5) | 1.48 | 1.71 | 1.83 | 2.17 | 2.63 |
CONSOLIDATED BALANCE SHEET DATA | ||||||||||
Total assets | 72,853 | 83,850 | 88,312 | 101,460 | ||||||
Short-term and long-term debt | 12,684 | 12,998 | 11,699 | 19,830 | ||||||
Capital stock issued | 4,004 | 4,005 | 4,005 | 4,005 | ||||||
Minority interest | 3,166 | 2,349 | 2,170 | 2,439 | ||||||
Shareholders’ equity - Eni share | 32,374 | 36,868 | 39,029 | 40,428 | ||||||
Capital expenditures | 7,499 | 7,414 | 7,833 | 10,593 | ||||||
Weighted average number of ordinary shares outstanding (fully diluted - shares million) | 3,778 | 3,775 | 3,763 | 3,701 | 3,669 | |||||
Dividend per share (euro) | 0.75 | 0.90 | 1.10 | 1.25 | 1.30 | |||||
Dividend per ADR ($) (2) | 1.83 | 2.17 | 2.73 | 3.24 | 3.74 |
(1) |
(2) | Euro per Share or dollars per American Depositary | |
(3) | ||
2
Selected Operating Information
The tabletables below setsset forth selected operating information with respect to Eni’s proved reserves, developed and undeveloped, of crude oil (including condensates and natural gas liquids) and natural gas, as well as other data as of and for the years ended December 31, 2001, 2002, 2003, 2004, 2005.2005, 2006 and 2007. Data on proved reserves, production of oil and natural gas and hydrocarbon production sold includes Eni’s share of reserves and production of affiliates and joint ventures accounted for under the equity or cost method of accounting.
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
Proved reserves of oil at period end (mmBBL) | 3,948 | 3,783 | 4,138 | 4,008 | 3,773 | |||||
Proved reserves of natural gas at period end (BCF) | 17,072 | 18,629 | 18,008 | 18,435 | 17,591 | |||||
Proved reserves of hydrocarbons in mmBOE at period end (1) | 6,929 | 7,030 | 7,272 | 7,218 | 6,837 | |||||
Reserve replacement ratio (2) (three year average) | 226 | 202 | 179 | 117 | 89 | |||||
Reserve life index (3) | 13.7 | 13.2 | 12.7 | 12.1 | 10.8 | |||||
Average daily production of oil (KBBL/d) | 857 | 921 | 981 | 1,034 | 1,111 | |||||
Average daily production of natural gas available for sale (mmCF/d) (4) | 2,827 | 3,015 | 3,174 | 3,171 | 3,344 | |||||
Average daily production of hydrocarbons available for sale (KBOE/d) (4) | 1,353 | 1,449 | 1,536 | 1,586 | 1,693 | |||||
Hydrocarbon production sold (mmBOE) | 499.7 | 523.3 | 556.2 | 576.5 | 614.9 | |||||
Oil and gas production costs per BOE (5) | 3.85 | 3.83 | 4.16 | 4.92 | 5.59 | |||||
Profit per barrel of oil equivalent (6) | 5.48 | 5.08 | 5.95 | 8.87 | 12.20 | |||||
Sales of natural gas to third parties (7) | 63.72 | 64.12 | 69.49 | 72.79 | 77.08 | |||||
Natural gas consumed by Eni (7) | 2.00 | 2.02 | 1.90 | 3.70 | 5.54 | |||||
Sales of natural gas of affiliates and relevant companies (Eni’s share) (7) | 1.38 | 2.40 | 6.94 | 7.32 | 8.53 | |||||
Total sales and own consumption of natural gas (7) | 67.10 | 68.54 | 78.33 | 83.81 | 91.15 | |||||
Transport of natural gas for third parties in Italy (7) | 11.41 | 19.11 | 24.63 | 28.26 | 30.22 | |||||
Length of natural gas transport network in Italy at period end (8) | 29.6 | 29.8 | 30.1 | 30.2 | 30.7 | |||||
Electricity production sold (9) | 4.99 | 5.00 | 5.55 | 13.85 | 22.77 | |||||
Refined products production (10) | 37.78 | 35.55 | 33.52 | 35.75 | 36.68 | |||||
Balanced capacity of wholly-owned refineries (11) | 664 | 504 | 504 | 504 | 524 | |||||
Capacity utilization of wholly-owned refineries (12) | 97 | 99 | 100 | 100 | 100 | |||||
Number of service stations at period end (in Italy and outside Italy) | 11,707 | 10,762 | 10,647 | 9,140 | 6,282 | |||||
Average throughput per service station (in Italy and outside Italy) (13) | 1,685 | 1,858 | 2,109 | 2,488 | 2,479 | |||||
Petrochemicals production (10) | 7.83 | 7.12 | 6.91 | 7.12 | 7.28 | |||||
Oilfield Services Construction and Engineering order backlog at period end (14) | 6,937 | 10,065 | 9,405 | 8,521 | 9,964 | |||||
Employees at period end (units) | 72,405 | 80,655 | 75,421 | 70,348 | 72,258 |
2003 | 2004 | 2005 | 2006 | 2007 | |||||
Proved reserves of liquids of consolidated subsidiaries at period end (mmBBL) | 4,138 | 3,972 | 3,748 | 3,457 | 3,127 | |||||
of which developed | 2,447 | 2,471 | 2,331 | 2,126 | 1,953 | |||||
Proved reserves of liquids of equity-accounted entities at period end (mmBBL) | 36 | 25 | 24 | 142 | ||||||
of which developed | 19 | 18 | 26 | |||||||
Proved reserves of natural gas of consolidated subsidiaries at period end (BCF) | 18,008 | 18,278 | 17,501 | 16,897 | 16,549 | |||||
of which developed | 10,224 | 10,501 | 11,159 | 10,949 | 10,967 | |||||
Proved reserves of natural gas of equity-accounted entities at period end (BCF) | 157 | 90 | 68 | 3,022 | ||||||
of which developed | 70 | 48 | 428 | |||||||
Proved reserves of hydrocarbons of consolidated subsidiaries in mmBOE at period end (1) | 7,272 | 7,154 | 6,796 | 6,400 | 6,010 | |||||
of which developed | 4,230 | 4,300 | 4,275 | 4,032 | 3,862 | |||||
Proved reserves of hydrocarbons of equity-accounted entities in mmBOE at period end (a) | 64 | 41 | 36 | 668 | ||||||
of which developed | 31 | 27 | 101 | |||||||
Reserve replacement ratio (2) | 142 | 91 | 43 | 38 | 38 | |||||
Average daily production of liquids (KBBL/d) | 981 | 1,034 | 1,111 | 1,079 | 1,020 | |||||
Average daily production of natural gas available for sale (mmCF/d) (3) | 3,174 | 3,171 | 3,344 | 3,679 | 3,819 | |||||
Average daily production of hydrocarbons available for sale (KBOE/d) (3) | 1,536 | 1,586 | 1,693 | 1,720 | 1,684 | |||||
Hydrocarbon production sold (mmBOE) | 556.2 | 576.5 | 614.9 | 625.1 | 611.4 | |||||
Oil and gas production costs per BOE (4) | 5.59 | 5.79 | 6.90 | |||||||
Profit per barrel of oil equivalent (5) | 12.20 | 14.97 | 14.03 |
(a) | Mainly refers to Eni’s share of proved reserves relating to three Russian companies purchased by Eni as part of a bid procedure for assets of bankrupt Yukos (Eni’s share was 60%). Gazprom was granted an option to acquire a 51% interest in these three entities. Should Gazprom exercise its call option, Eni’s interest would be diluted to approximately 30% and proved reserves that were booked in connection with the acquisition would be reduced by approximately 50%. | |
(1) | Includes approximately | |
(2) | Consists of: (i) the increase in proved reserves of consolidated subsidiaries attributable to: (a) purchases of minerals in place; (b) revisions of previous estimates; (c) improved recovery; and (d) extensions and discoveries, less sales of minerals in place; divided by (ii) production during the year as set forth in the reserve tables, in each case prepared in accordance with SFAS 69. See the unaudited supplemental oil and gas information in | |
(3) | ||
Natural gas production volumes exclude gas consumed in operations | ||
Consists of production costs (costs incurred to operate and maintain wells and field equipment including also royalties) prepared | ||
Results of operations from oil and gas producing activities, divided by actual sold production, in each case prepared in accordance with |
3
Selected Operating Information continued
Year ended December 31, | |
2003 | 2004 | 2005 | 2006 | 2007 | |||||
Sales of natural gas to third parties (6) | 69.49 | 72.79 | 77.08 | 79.63 | 78.75 | |||||
Natural gas consumed by Eni (6) | 1.90 | 3.70 | 5.54 | 6.13 | 6.08 | |||||
Sales of natural gas of affiliates (Eni’s share) (6) | 6.94 | 5.84 | 7.08 | 7.65 | 8.74 | |||||
Total sales and own consumption of natural gas of the Gas & Power segment (6) | 78.33 | 82.33 | 89.70 | 93.41 | 93.57 | |||||
E&P natural gas sales in Europe and in the Gulf of Mexico (7) | 5.03 | 4.70 | 4.51 | 4.69 | 5.39 | |||||
Worldwide natural gas sales | 83.36 | 87.03 | 94.21 | 98.10 | 98.96 | |||||
Transport of natural gas for third parties in Italy (6) | 24.63 | 28.26 | 30.22 | 30.90 | 30.89 | |||||
Length of natural gas transport network in Italy at period end (8) | 30.1 | 30.2 | 30.7 | 30.9 | 31.1 | |||||
Electricity sold (9) | 8.65 | 16.95 | 27.56 | 31.03 | 33.19 | |||||
Refinery throughputs (10) | 33.52 | 35.75 | 36.68 | 36.27 | 35.21 | |||||
Balanced capacity of wholly-owned refineries (11) | 504 | 504 | 524 | 534 | 544 | |||||
Retail sales (in Italy and rest of Europe) (10) | 14.01 | 14.40 | 13.72 | 12.48 | 12.65 | |||||
Number of service stations at period end (in Italy and rest of Europe) | 10,647 | 9,140 | 6,282 | 6,294 | 6,441 | |||||
Average throughput per service station (in Italy and rest of Europe) (12) | 2,109 | 2,488 | 2,479 | 2,470 | 2,486 | |||||
Petrochemical production (10) | 6.91 | 7.12 | 7.28 | 7.07 | 8.80 | |||||
Oilfield Services Construction and Engineering order backlog at period end (13) | 9,405 | 8,521 | 10,122 | 13,191 | 15,390 | |||||
Employees at period end (units) | 75,421 | 70,348 | 72,258 | 73,572 | 75,862 |
(6) | Expressed in BCM. | |
(7) | ||
(8) | Expressed in thousand kilometers. | |
(9) | Expressed in | |
(10) | Expressed in | |
(11) | Expressed in KBBL/d. | |
(12) | Expressed in | |
The sum of the order backlog of Saipem SpA and Snamprogetti SpA, expressed in |
4
Exchange Rates
The following tabletables sets forth, for the periods indicated, certain information regarding the Noon Buying Rate in U.S. dollars per euro, rounded to the second decimal (Source: The Federal Reserve Board).
High | Low | Average(1) | At | ||||
(U.S. dollars per |
Year ended December 31, | ||||||||||||||||
2001 | 0.95 | 0.84 | 0.90 | 0.89 | ||||||||||||
2002 | 1.05 | 0.86 | 0.95 | 1.05 | ||||||||||||
2003 | 1.26 | 1.04 | 1.13 | 1.26 | 1.26 | 1.04 | 1.13 | 1.26 | ||||||||
2004 | 1.36 | 1.18 | 1.24 | 1.35 | 1.36 | 1.18 | 1.24 | 1.35 | ||||||||
2005 | 1.35 | 1.17 | 1.24 | 1.18 | 1.35 | 1.17 | 1.24 | 1.18 | ||||||||
2006 | 1.33 | 1.19 | 1.26 | 1.32 | ||||||||||||
2007 | 1.49 | 1.29 | 1.37 | 1.46 |
(1) | Average of the Noon Buying Rates for the last business day of each month in the period. |
High | Low | At | |||
(U.S. dollars per |
December 2005 | 1.20 | 1.17 | 1.18 | |||
January 2006 | 1.23 | 1.20 | 1.22 | |||
February 2006 | 1.21 | 1.19 | 1.19 | |||
March 2006 | 1.22 | 1.19 | 1.21 | |||
April 2006 | 1.26 | 1.21 | 1.26 | |||
May 2006 | 1.29 | 1.26 | 1.28 | |||
June 2006 (through June 12, 2006) | 1.30 | 1.26 | 1.26 |
November 2007 | 1.49 | 1.44 | 1.47 | |||
December 2007 | 1.48 | 1.43 | 1.46 | |||
January 2008 | 1.49 | 1.46 | 1.48 | |||
February 2008 | 1.52 | 1.45 | 1.52 | |||
March 2008 | 1.58 | 1.52 | 1.58 | |||
April 2008 | 1.60 | 1.56 | 1.56 | |||
May 2008 (through May 14, 2008) | 1.55 | 1.54 | 1.55 |
Fluctuations in the exchange rate between the euro and the dollar affect the dollar equivalent of the euro price of the Shares on the Telematico and the dollar price of the ADSsADRs on the NYSE. Exchange rate fluctuations also affect the dollar amounts received by owners of ADSsADRs upon conversion by the Depository of cash dividends paid in euro on the underlying Shares. The Noon Buying Rate on June 12, 2006May 14, 2008 was $1.26$1.55 per euro 1.00.
Risk Factors
Competition
There is strong competition worldwide, both within the oil industry and with other industries, in supplyingto supply energy to the industrial, commercial and residential energy markets.
In the Exploration & Production business, Eni encounters competition from other oil and natural gas companies in all areas of its operations.
• | In the Exploration & Production business, Eni faces competition from both international oil companies and state run oil companies for obtaining exploration and development rights, particularly outside of Italy, and developing and applying new technology to maximize hydrocarbon recovery. If Eni fails to obtain new exploration and development acreage or to apply and develop new technology, its growth prospects and future results of operations and cash flows may be adversely affected. The current trend of the industry towards a reduction of the number of operators through takeovers or mergers may lead to stronger competition from operators with greater financial resources and a wider portfolio of development projects. | |
• | Eni is increasingly in competition with state run oil companies who are partners of Eni in a number of oil and gas projects and titles in the host countries where Eni conducts its upstream operations. These state run oil companies can change contractual terms and other conditions of oil and gas projects in order to obtain a larger profit share from a given project, by this way reducing Eni’s profit share. For example, Sonatrach, the Algeria national oil company, is seeking to modify the contractual terms of certain PSAs in which Eni is party to achieve a redistribution of the tax burden of such PSAs. In fact, Sonatrach alleges that it is currently bearing part of the tax burden attributable to Eni following the enactment of certain modifications to the country’s tax regime. If this negotiation results in a negative outcome for Eni, the future profitability |
5
of certain of Eni’s PSAs in Algeria will be reduced. For more information on this matter see "Item 4 – Exploration & Production – Algeria". |
U.S.
particularly in Europe, Eni faces competition from severallarge well-established European utilities and other international oil and gas companies in growing its refinerymarket share and refined product marketing businesses. In retail marketingacquiring or retaining clients. Furthermore a number of large clients, particularly electricity producers, in both the domestic market and other European markets are planning to enter the supply market of natural gas. At the same time, a number of national gas producers from countries with large gas reserves are planning to sell natural gas directly to final clients, which would threaten the market position of companies like Eni which resell gas purchased from producing countries to final customers. These developments may increase the level of competition in and outside Italy, Eni competes with third parties (including international oil companies and local operators such as supermarket chains) to obtain concessions to establish and operate service stations. Once established, Eni’s service stations compete primarily on the basis of pricing, services and availability of non-petroleum products. In Italy plans for the upgrading and efficiency improvement ofboth the national service station network can advance only in accordanceand other European markets for natural gas and reduce Eni’s operating profit.
• | In its domestic electricity business, Eni competes with other producers and traders from Italy or outside of Italy who sell electricity in the Italian market. | |
• | In retail marketing of refined products both in and outside Italy, Eni competes with third parties (including international oil companies and local operators such as supermarket chains) to obtain concessions to establish and operate service stations. Once established, Eni’s service stations compete primarily on the basis of pricing, services and availability of non-petroleum products. In Italy, political and institutional forces are urging greater levels of competition in the retail marketing of fuels. Eni expects developments on this issue to further increase pressure on selling margins in the retail marketing of fuels. | |
• | Competition in the oilfield services, construction and engineering industries is primarily based on technical expertise, quality and number of services and availability of technologically advanced facilities (for example, vessels for offshore construction). |
The Company’s failure or inability to respond effectively to competition could adversely impact the evolutionCompany’s growth prospects, future results of the regulatory framework, which lags behind that of other major European countries.operations and cash flows.
Eni also faces significant competition from certain international operators in the oilfield services, construction and engineering industries. Such competition is primarily on the basis of technical expertise, quality and number of services and availability of technologically advanced facilities (for example vessels for offshore construction).
Risks associated with the exploration and production of oil and natural gas
The exploration and production of oil and natural gas requires high levels of capital expenditureexpenditures and entails particular economic risks and opportunities.risks. It is subject to natural hazards and other uncertainties including those relating to the physical characteristics of oil orand natural gas fields. The production of oil and natural gas is highly regulated and is subject to interventionconditions imposed by governments throughout the world in matters such as the award of exploration and production interests, the imposition of specific drilling and other work obligations, environmental protection measures, control over the development and abandonment of fields and installations, and restrictions on production. The oil and gas industry is subject to the payment of royalties and excise duties,income taxes which tend to be higher than those payable in respect of many other commercial activities.
Exploratory drilling efforts may not be successful
Drilling for oil and gas involves numerous risks including the risk of dry holes or failure to find commercial quantities of hydrocarbons. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be unsuccessful as a result of a variety of factors, including among others, unexpected drilling conditions, pressure or irregularities in formations, equipment failures or fires, blow-outs and various forms of accidents, marine risks such as collisions and other adverse weather conditions and shortages or delays in the delivery of equipment. Exploring or drilling in offshore areas, in particularparticularly in deep water,waters, is generally more complex and riskier than in onshore areas; sothe same is true for exploratory activity in remote areas or in challenging environmental conditions such as those we are experiencing in the case ofCaspian region or Alaska. Specifically, in the Caspian Region or Alaska.
these complex environmental conditions resulted in higher drilling expenses as discussed under "Item 4 – Exploration & Production – Caspian Area". Failure in the activity of explorationto discover commercial quantities of oil and natural gas could have an adverse impact on Eni’s future growth prospects, results of operations and financial condition.liquidity. Because of the percentage of Eni’sEni plans to invest significant capital plans devoted to higherexpenditures in executing high risk exploratoryexploration projects, it is likely that Eni will continue to experienceincur significant exploration and dry hole expenses. High risk exploration projects include projects executed in deep and ultra-deep offshore and in new areas where the Company lacks installed production facilities. In particular Eni plans to explore for oil and gas offshore, oftenfrequently in deep water or at deep drilling depths, where operations are more difficult and costly than on land or at shallower
6
depths and in shallower waters. Deep water operations generally require a significant amount of time between a discovery and the time that Eni can produce and market the oil or gas, increasing both the operational and financial risks associated with these activities. In the case of the Company, risky exploration projects are conducted in the deep offshore of the Gulf of Mexico, Australia, Brazil, the Barents Sea, India, and offshore Ireland. In 2008, management plans to spend significant amounts of exploration expenditures in these areas that may result in significant dry hole expenses.
In addition, lack of necessary equipmentsessential equipment such as a shortage of deep water rigs could further delay operations or increase exploration costs, thus increasing both operational and financial risks.
In addition, Furthermore, failure in findingto find additional commercial reserves could dampenreduce future production of oil and natural gas which is highly dependent on the rate of success of exploratory activity.
Development projects bear significant operational risks which may adversely affect actual returns on such projects
Eni is involved in numerousseveral development projects for the production of hydrocarbon reserves, principally offshore. Eni’s future results of operations rely upon its ability to develop and operate major projects as planned. Key factors that may affect the economics of thosethese projects include:
• | the outcome of negotiations with co-venturers, governments, suppliers, customers or others | |
• | timely issuance of permits and licenses by | |
• | the Company’s relative size compared to its main competitors which may prevent it from affording opportunities to participate in large-scale projects or affect its ability to reap benefits associated with economies of scale, for example by obtaining more favorable contractual terms by supplier of goods and services; | |
• | the ability to design development projects so as to prevent the occurrence of technical | |
• | delays in manufacturing and delivery of critical equipment, or shortages in the availability of such equipment, causing cost overruns and delays; | |
• | risks associated with the use of new | |
• | changes in operating conditions and costs, including the sharp rise in procurement costs | |
• | the actual performance of the reservoir and natural field decline; | |
• | the ability and time necessary to |
Furthermore, deep waterwaters and other hostile environments, where the majority of Eni’s planned and existing development projects are located, can exacerbate these problems. Delays and differences between estimatedscheduled and actual timing of critical events, as well as cost overruns may adversely affect completion, the completiontotal amount of expenditures to be incurred and start-upstart up of production from such projects and, consequently, actual returns. Finally, developing and market hydrocarbons reserves typically requires several years after a discovery is made. This is because a development project involving an array of complex and lengthy activities, including appraising a discovery in order to evaluate its commerciality, sanctioning a development project and building and commissioning related facilities. As a consequence, rates of return for such long-lead-time projects are exposed to the actual returnsvolatility of oil and gas prices which may be substantially lower with respect to prices assumed when the investment decision was actually made, leading to lower rates of return. For example, we have experienced increased budgeted expenditures and a substantial delay in the scheduling of production start up on such projects.the Kashagan field, where development is ongoing. Moreover, in July 2007 these matters triggered a dispute with the relevant Kazakh authorities. In January 2008, the Kazakh authorities and the partners of the consortium North Caspian Sea Production Sharing Agreement (NCSPSA), which conducts operations at the Kashagan field, reached a settlement of this dispute. The parties have agreed, among others, to the following terms: (i) the proportional dilution of the participating interests of all the international members of the Kashagan consortium, allowing the national Kazakh company KazMunayGas’ stake to increase matching that of the four major shareholders at 16.81%, effective January 1, 2008. The Kazakh partner will pay to the other co-venturers an aggregate amount of U.S. $1.78 billion; (ii) a value transfer package to be implemented through changes to the terms of the NCSPSA, the amount of which will vary in proportion to future levels of oil prices. Eni will contribute to the value transfer package according to its new participating interest in the project. See "Item 4 – Business Overview – Exploration & Production". If the Company is unable to develop and operate major projects as planned, it may have a material adverse effect on our results of operations and liquidity.
7
Inability
in replacingto replace oil and natural gas reserves could adversely impact results of operations andearningsfinancial condition
Eni’s results of operations and earningsfinancial condition are substantially dependent on ourits ability to develop and sell oil and natural gas. Unless we arethe Company is able to replace produced oil and natural gas, ourits reserves will decline. Eni’s proved reserves of subsidiaries declined by 6.1% in 2007 and by 5.8% in 2006. In addition, Eni’s reserve replacement ratio was 38% in both 2007 and 2006, and 43% in 2005, meaning that the Company replaced less reserves than those produced. These reductions were greatly impacted by lower reserves entitlements in the Company’s Production Sharing Agreements and similar contractual schemes. In accordance with such contracts, Eni is entitled to a portion of a field’s reserves, the sale of which should cover expenditures incurred by the Company to develop and operate the field. The higher the reference prices for Brent crude oil used to determine year-end amounts of Eni’s proved reserves, the lower the number of barrels necessary to cover the same amount of expenditures. See "Item 4 – Business Overview – Exploration & Production". Future oil and gas production areis dependent on the company’sCompany’s ability to access new reserves through new discoveries, application of improved techniques, success in development activity, negotiation with countries and other owners of known reserves and acquisitions. An inability to replace reserves could adversely impact future production levels and growth prospects, thus negatively affecting Eni’s future results of operations.operations and financial condition.
Lifting and development costs are
increasingtrending up and this could reduce profit per BOEforin theoil industryExploration & Production segment
Profit marginsProfits per BOE in the oil industryExploration & Production segment are being affected by a steady rising trend in lifting and development costs as a result of the following:a number of industry-wide operating factors, including: (i) the increasingly high percentage of complex development projects in our portfolio (such as those in deep and ultra deep waters and in harsh environments) whichenvironments, such as with the Kashagan field). These projects in complex environments bear higher lifting and development costs as compared to development projects located onshore and in traditional environments; (ii) inflationary pressure affectingcontinuing increases in the purchase prices of raw materials and services in connectiondue to the worldwide economic recovery;sector-specific inflation; and (iii) lackan increasingly severe shortage of specialized resources (such as engineers and other valuable technicians) and critical equipment (such as drilling rigs) especially in remote areas.areas, leading to project delays and cost overruns. Eni’s management expects this rising trend ofin lifting and development costs to continue in the medium term and this could lead toforeseeable future, resulting in a reduction incontinuing pressure on our profit margins per BOE.
Changes in crude oil and natural gas prices may adversely affect Eni’s results of operations
The exploration and production of oil and gas is a commodity business with a history of price volatility. The single largest variable that affects the Company’s results of operations and financial condition is crude oil prices. Eni generally does not hedge its exposure to variability in future cash flows due to crude oil price movements. As a consequence, Eni’s profitability depends heavily on crude oil and natural gas prices.
Crude oil and natural gas prices are subject to international supply and demand and other factors that are beyond Eni’s control. OPEC member countries control, production ofincluding among other things:
(i) | the control on production exerted by OPEC member countries which control a significant portion of the worldwide supply of oil and can exercise substantial influence on price levels; | |
(ii) | global geopolitical and economic developments, including sanctions imposed on certain oil-producing countries on the basis of resolutions of the United Nations or bilateral sanctions; | |
(iii) | global and regional dynamics of demand and supply of oil and gas; | |
(iv) | prices and availability of alternative sources of energy; | |
(v) | governmental and intergovernmental regulations, including the implementation of national or international laws or regulations intended to limit greenhouse gas emissions, which could impact the prices of hydrocarbons; and | |
(vi) | success in developing and applying new technology. |
All these factors can affect the worldwideglobal balance between demand and supply offor oil and can exercise substantial influence on its price levels. International geopolitical tensions and political developments, including sanctions imposed on certain oil-producing countries on the basis of resolutions of the United Nations, can also affect world supply and prices of oil. Such factors can also affect the prices of natural gas because natural gas prices for the major part of our supplies are typically tiedindexed to the prices of crude oil and certain crudes and refined petroleum products. Lower crude oil prices could have an adverse impact on Eni’s results of operations and cash flows from operations.
Furthermore, lower oil and gas prices over prolonged periods may also adversely affect Eni’s results of operations and cash flows by: (i) reducing rates of return of development projects either planned or being implemented, leading the Company to reschedule, postpone or cancel development projects; (ii) reducing the Group’s liquidity, entailing lower resources to fund expansion projects, further dampening the Company’s ability to grow future production and revenues; and (iii) triggering a review of future recoverability of the Company’s carrying amounts of oil and gas properties, which could lead to the recognition of significant impairments charges.
8
Uncertainties in Estimates of Oil and Natural Gas Reserves
Numerous uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The accuracy of proved reserve estimates depends on a number of factors, assumptions and variables, among which the most important are the following:
• | the quality of available geological, technical and economic data and their interpretation and | |
• | projections regarding future rates of production and timing of development expenditures; | |
• | whether the prevailing tax rules, other government regulations and contractual conditions will remain the same as on the date estimates are made; |
• | results of drilling, testing and the actual production performance of Eni’s reservoirs after the date of the estimates which may require substantial upward or downward revisions; and | |
• | changes in oil and natural gas prices which could | |
Many of these factors, assumptions and variables involved in estimating proved reserves are beyond Eni’s control and may prove to be incorrectchange over time.time and impact the estimates of oil and natural gas reserves. Accordingly, the estimated reserves could be materiallysignificantly different from the quantities of oil and natural gas that ultimately will be recovered. Additionally, any downward revision in Eni’s estimated quantities of proved reserves would indicate lower future production volumes, which could adversely impact Eni’s results of operations and financial condition.
Oil and gas activity may be subject to increasingly high levels of income taxes
In recent years, Eni has experienced adverse changes in tax regimes applicable to oil and gas operations in a number of countries where the Company conducts its upstream operations. For example, in 2006 changes were enacted in the rate of taxes applicable to profit before taxation for upstream operations in the United Kingdom and in Algeria. As a result, in its 2006 profit and loss account Eni recorded an aggregate expense of euro 526 million for higher taxes payable and adjustments to deferred tax liabilities.
Management believes that adverse changes are always possible in the tax regimes of any country in which Eni conducts its oil and gas operations, regardless of the level of stability of the political and legislative framework in each country. These adverse changes would translate into negative impacts on Eni’s future results leadingof operations and cash flows. Furthermore, the marginal tax rate in the oil and gas industry tends in the long-term to change in correlation with the price of crude oil which could make it difficult for Eni to translate higher oil prices into increased depreciation, depletion and amortization charges and/or impairment charges, which would reduce earnings and shareholders’ equity.
net profit.
Political Considerations
A substantial portion of our oil and gas reserves and gas supplies are located in politically, socially and economically unstable countries where we are exposed to material disruptions to our operations
Substantial portions of Eni’s hydrocarbon reserves are located in countries outside the EU and North America, some of which may be politically or economically less stable than EU or North American countries. At December 31, 2005,2007, approximately 73%70% of Eni’s proved hydrocarbon reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supply comes from countries outside the EU and North America. In 2005,2007, approximately 60% of Eni’s supplies of natural gas came from such countries. See "Item 4 – Gas & Power – Natural Gas Supplies". Adverse political, social and economic developments in any such producing countryof those countries may affect Eni’s ability to continue operating in that country,an economic way, either temporarily or permanently, and affect Eni’s ability to access oil and gas reserves. In operating in politically unstable countriesParticularly Eni faces risks in connection with the following:following issues: (i) lack of well-established and reliable legal systems;systems and uncertainties surrounding enforcement of contractual rights; (ii) other politicalunfavorable developments in laws, regulations and laws and regulations (such as expropriationcontractual arrangements leading for example to expropriations or forced divestituredivestitures of assets and unilateral cancellation or modification of contract terms), for examplecontractual terms. A case in April 2006,point was the expropriation of Eni’s titles and mineral assets relating to an important oil field were transferred to the Venezuelan state oil companyDación oilfield in Venezuela which occurred in 2006, following itsthe unilateral cancellation of thea service contract regulating oil activities in this field by the field;Venezuelan state oil company. For a discussion on developments for this matter see "Item 4 – Exploration & Production – Venezuela"; (iii) restrictions on exploration, production, imports and exports; (iv) tax or royalty increases (including retroactive claims); and (v) civil and social unrest forleading to sabotages, acts of violence and incidents. For example, in the first quarter of 2006 certain episodes of civil2007 we experienced continued social unrest in Nigeria causedleading to a number of disruptions at certain Eni oil producing facilities.facilities in the Country. As a consequence, our oil and gas production in the Country declined by an estimated amount of 25 KBOE/d from the previous year. In the first quarter of 2008, the Company has experienced a slow ramp up of production. See "Item 4 – Exploration & Production – Oil and Natural Gas Reserves"; and "Item 5 – Recent Developments". While the occurrence of these events is unpredictable, it is likely that the occurrence of such events could cause Eni to incur material losses or facility disruptions, by this way adversely impacting Eni’s results of operations and cash flows.
In August 1996,9
Our activities in Iran could lead to sanctions under relevant U.S. legislation
Eni is currently conducting oil and gas operations in Iran. The legislation and other regulations of the United States adoptedof America impose sanctions on this country and may lead to the imposition of sanctions on any persons doing business in this country or with Iranian counterparties.
Under the Iran and Libya Sanctions Act (the "Sanctions Act"of 1996 (as amended, "ISA"), which implements sanctions against Iran with the objective of denying Iran and Libyait the ability to support acts of international terrorism and fund the development or acquisition of weapons of mass destruction. On April 23, 2004destruction, upon receipt by the U.S. authorities of information indicating potential violation of this act, the President of the United States terminated the application of the Sanctions Actis authorized to Libya, with the remaining economic sanctions against Libya lifted on September 23, 2004. The Sanctions Act still applies to Iran and authorizes the President of the United States to imposestart an investigation aiming at possibly imposing sanctions from a six-sanction menu under certain circumstances against any person includingfound in particular to have knowingly made investments of U.S. $20 million or more in any foreign company, making investments in Iran, thustwelve-month period, contributing directly and significantly to the enhancement of Iran’s ability to develop its hydrocarbons resources. The Sanctions ActFurthermore, the ISA envisages that the President of the United States is scheduledbound to expireimpose sanctions against any persons that knowingly contribute to certain military programs of Iran, effective on August 5,June 6, 2006. Eni does not believe that enforcementcannot predict interpretations of, or the implementation policy of the Sanctions Act againstU.S. Government under, ISA with respect to Eni’s current or future activities in Iran or other areas. Eni has incurred capital expenditures in excess of U.S. $20 million in Iran in each of the last 8 years. Management expects to continue investing in Iran yearly amounts in excess of that threshold in the foreseeable future. Eni’s current activities in Iran are primarily limited to carrying out residual development activities relating to certain buy-back contracts it wouldentered into in 2000 and 2001 and no sanctions have a material adverse effectever been imposed on its financial condition or results of operations. However,Eni’s activities in the country.
Adding to Eni’s risks arising from this matter, a bill to amend and extend the extra-territorial reach of the economic sanctions imposed by the United States with respect to Iran has been passed by the U.S. House of Representatives and may lead to the passage of new laws in this area. Iran continues to be designated by the U.S. State Department as a State sponsoring terrorism. For a description of Eni’s operations in Iran and Libya see "Item 4 – Information on the Company – Exploration and& Production – North Africa and Rest of World".
It is possible that in future years Eni’s activities in Iran may be sanctioned under relevant U.S. legislation.
We are aware of initiatives by certain U.S. states and U.S. institutional investors, such as pension funds, to adopt or consider adopting laws, regulations or policies requiring divestment from, or reporting of interests in, companies that do business with countries designated as state sponsors of terrorism. These policies could adversely impact investment by certain investors in our securities.
Cyclicality of the Petrochemical Industry
The petrochemical industry is subject to cyclical fluctuations in demand, with consequentconsequential effects on prices and profitability exacerbated by the highly competitive environment of thethis industry. Eni’s petrochemicalspetrochemical operations which are located mainly in Italy, have been in the past and may be adversely affected in the future be adversely affected by worldwide economic slowdowns and excess installed production capacity, as well as by economic slowdowns in many industrialized countries. The dislocation ofcapacity. Furthermore, Eni’s petrochemical activities to geographic areas like the Far Eastoperations face increasing competition from Asiatic companies and national oil producing countriescompanies’ petrochemical divisions which providecan leverage on certain long-term competitive advantages has weakened the competitivenessin terms of petrochemicals operations in industrialized countries, includinglower operating costs and feedstock purchase costs. In particular, Eni’s petrochemical operations. Petrochemical operations are located mainly in industrializedItaly and Western Europe where regulatory framework and public environmental sensitivity are generally more stringent than in other countries, are also less competitive than those locatedespecially Far East countries, resulting in higher operating costs of our petrochemical operation compared to the above-mentioned areasCompany’s Asiatic competitors due to stricter regulatory frameworksthe need to comply with applicable laws and growingregulations in environmental concerns which prevail in industrialized countries.
and other related matters.
Liberalization of the Italian Natural Gas Market
Legislative Decree No. 164/2000 opened completelyup the Italian natural gas market starting onto competition as from January 1, 2003. This means thatAs a result, all customers in Italy are free to choose their supplier of natural gas. The decree, among other things, introduced rules which have a significant impact on Eni’s activity, as the companyCompany is present in all the phases of the natural gas chain,chain; in particular:
until December 31, 2010, antitrust thresholds are in place for gas operators in Italy as follows: (i) effective January 1, 2002, operators are prohibited to transmit into the national transport network imported or domestically produced gas volumes higher than a preset share of Italian final consumption. This share was 75% of total final consumption in the first year of regulation, decreasing by 2 percentage points per year to achieve a 61% threshold in terms of final consumption by 2009 (this share amounted to 65% in 2007); and (ii) effective January 1, 2003, operators are forbidden from marketing gas volumes to final customers in excess of 50% of overall volumes marketed to final customers. Compliance with these ceilings is verified annually by comparing actual average shares reached by any operator in a given three-year period for both volumes input and volumes marketed to customers to average shares permitted by the law for the same period. Actual shares are computed net of losses (in the case of sales) and volumes of natural gas consumed in own operations. Based on a bill passed by the Italian upper house, Eni expects that these antitrust thresholds will be renewed when they expire in 2010; and 10 access to natural gas infrastructures is guaranteed to any natural gas operator on the basis of certain procedures that must be transparent and non discriminatory. Natural gas infrastructures comprise high pressure, high sized pipelines for transporting natural gas over long distances, certain depleted fields to store natural gas, regasification facilities and low pressure, small sized pipelines for distributing natural gas to residential and commercial clients located in urban centers. Tariffs to use these infrastructures are set by the Authority for Electricity and Gas, an independent governmental body. Eni expects that a combination of | ||
The new regulatory regime has the effect of limiting the sizeeffects and increasing competition will limit growth prospects and profitability of Eni’sour natural gas business in Italy.Italy as discussed below.
Eni’sEni has been experiencing significant pressure on its natural gasmarginmargins1 since the inception of the liberalization process inItaly may decrease permanently compared to historical levelsItaly. In addition, unfavorable trends in Italian demand and supply of gas could add further pressure
In order to meetSince the expected growthinception of the liberalization process in the Italian natural gas market, over the medium and long-term, Eni entered into long-term purchase contracts with producing countries that currently have a residual average term of approximately 15 years. Existing contracts, whichhas been experiencing rising competition in general contain take-or-pay clauses, will ensure total delivery of approximately 67.3 BCM/y ofits natural gas (Russia 28.5, Algeria 21.5,business leading to lower selling margins due to the Netherlands 9.8, Norway 6 and Nigeria 1.5)entry of new competitors into the market. Certain competitors of Eni are supplied by 2008. The above quantities are basedthe Company itself, generally on the annual contract quantitybasis of the relevant contract. The average annual minimum quantity that Eni is committed to purchase under its take-or-pay obligations is approximately 85% of said quantities.long-term contracts. In fact, in order to comply with the above mentioned regulatory thresholds relating to volumes input intosupplied through the national transport network and sales volumes in Italy, Eni signed multi-yearsold part of its gas availability under its take-or-pay supply contracts withto third party importers inparties importing said volumes to Italy and started implementing a strategy of increasing naturalmarketing them to Italian customers. For more information on Eni’s take-or-pay contracts, see "Item 4 – Gas & Power – Natural gas sales in the rest of Europe in order to sell outside Italy natural gas volumes available under its take-or pay contracts, exceeding mandatory thresholds. In prior years Eni sold the majority of its natural gas availability on the Italian market. This change in the sale mix is structural and is adversely affecting Eni’s results of operations. Further, managementpurchases".
Management expects Eni’s gas selling margins on natural gas in Italy to comeremain under pressure in the foreseeable future years due to the entry into the market of new competitors, including the impact of theconsidering Eni’s gas availability under its take-or-pay supply contracts, build-up of Eni’s supplies to the above mentioned competitors and possibly new competitors entering the Italian importers.market also in light of ongoing or planned capital projects intended to expand the transport capacity of import pipelines to Italy and to build new import infrastructures, particularly LNG terminals. In fact, Eni is currently implementing its plans to upgrade its natural gas import pipelines mainly from Algeria and Russia to Italy to achieve an increase of 16 BCM/y in import capacity reaching full operation in 2009, of which 10 BCM are expected to come online in 2008 (3.3 BCM are already operating; 6.6 BCM are expected to come online by year end). Further 3 BCM/y of new import capacity will be added by upgrading the GreenStream gasline from Libya with expected start up in 2012. A large portion of the new capacity deriving from Eni’s upgrading projects has been or is planned to be sold to third parties. In addition, Eni expects a third party’s new LNG terminal with an 8 BCM/y capacity to commence operations by end of 2008.
Despite the fact that an increasing portion of natural gas volumes purchased by Eni under its take-or-pay contracts is planned to be marketed outside Italy, management believes that in the long-term unfavorable trends in the Italian demand and supply for natural gas, also due to the possible implementation of all publicly announced plans for the construction of new supply infrastructures, and the evolution of Italian regulations of the natural gas sector, represent risk factors to the fulfillment of Eni’s obligations in connection with its take-or-pay supply contracts and may result in a downward pressure on gas selling margins. Based on the foregoing, Eni’s future results of operations and cash flows might be adversely affected.
EniEni’s growth prospects in Italy are limited by regulation
Due to the antitrust threshold on direct sales in Italy, management expects Eni’s natural gas sales in Italy to increase at a rate that cannotwill not exceed the growth rate of natural gas demand in Italy. Management believes this development might have a material adverse impact on Eni’s results of operations.
Eni is committed to increasing natural gas sales in Europe. If Eni fails to
grow natural gas sales in Europe as planned,achieve this target, future growth prospects may be adversely affected. Furthermore, Eni may be unable to fulfill its minimum take obligations under its take-or-pay purchase contracts and this could adversely impact results of operations and liquidity
Over the medium term, Eni plans to increase its natural gas sales in Europe also to absorbleveraging on its natural gas availability under take-or-pay contracts.purchase contracts it has entered into with major natural gas producing countries (namely Russia, Algeria, Libya, Norway and the Netherlands). Should Eni fail to increase natural gas sales in Europe as planned due to poor strategy execution or competition, Eni’s future growth prospects, results of operations and cash flows might be adversely affected also taking account that Eni maymight be unable to sell all the volumesfulfill its contractual obligations to purchase certain minimum amounts of natural gas purchased underbased on its take-or-pay purchase contracts and this could adversely impact results of operations.currently in force.
Due to the regulated access to natural gas transport
infrastructureinfrastructures in Italy, Eni may not be able to sell in Italy all the natural gas volumes it planned to import and, as a consequence,itthe Company may be unable to sell all the natural gas volumes whichEniit is committed to purchase under take-or-pay contract obligations
Over the next few years,medium term, Eni plans tohas scheduled its import certain volumes of natural gas usingto Italy based on the highestassumption to use the purchase flexibility ascontractually provided for by its take-or-pay purchase contracts.contracts during periods in which
(1) | For a definition of margin see "Glossary". |
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demand is expected to peak. These import programs are also based on the assumption that Eni also assumes that it will be entitled toobtain the necessary transport capacity on the Italian transport infrastructure.network. However, EniEni’s planning assumptions are inconsistent with current rules regulating the access to the Italian transport infrastructureinfrastructures as provided for by the Network Code currently in force which has been drafted underin accordance with Decision No. 137 of July 17, 2002 of the Authority for Electricity and Gas. Such rules establishedestablish certain priority criteria for the entitlement to transport capacity of natural gasentitlements at points where the Italian transport infrastructure connects with international transport networksimport pipelines (the so-called entry points to the Italian transport system). In particular current rules establish thatSpecifically, Eni’s gas volumes purchased under take-or-pay contracts entered into before 1998, as in the case of Eni, have the rightare entitled to a priority in the entitlement toallocation of available transport capacity equal tofor amounts not exceeding average daily contractual volumes. There is therefore no guaranteed access priority forAccordingly, Eni’s contractedpurchase volumes exceeding average daily contractual volumes. In fact, take-or-pay contracts entered intovolumes are not entitled to any priority in gaining access to the Italian transport infrastructures. The contractual flexibility represented by Eni before 1998 envisage Eni’s right to offtakeuplift daily volumes larger than the average daily contractual volume; this contractual flexibility provided by the difference between the maximum daily volume Eni is allowed tovolumes under its take-or-pay purchase and the average daily contractual volumecontracts is used when demand peaks, usually during the winter.wintertime. In the event of congestion occurs at entry points natural gas volumes not receiving priority are entitled to the Italian transport network, under current regulation available transport capacity would be entitled firstly to operators having a priority right, i.e. holders of take-or-pay contracts within the limits of average daily contractual volumes. Then any residual available transport capacity would be allocated in proportion with requests from operators.to all pending capacity requests. Eni considers Decision No. 137/2002 to be inconsistent with the overall rationale of the European natural gas legislativeregulatory framework, especially with reference to Directive 98/30/CE (superseded and replaced by Directive 03/55/CE) and Legislative Decree No. 164/2000, and is challenginghas opened an administrative procedure to repeal Decision No. 137/2002 before the competentan administrative courts.court. See "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power". However, Eni cannot rule out a negative outcome infor this matter. Accordingly,However, management believes that Eni’s results of operations and cash flows could be adversely affected should market conditions and/orin light of current regulatory constraints prevent Eni from selling its whole availability of natural gas purchased to fulfill take-or payits minimum take contract obligations (i.e.,(e.g. in case a congestion occurs at the entry points of the Italian transport infrastructure, whichEni would force Enibe forced to offtakeuplift a smaller volume of gas than the minimum contractual off take). See "Item 5 – Management Expectations of Operations".
The Italian Government, Parliament and the regulatory authorities in Italy and in Europe may take further steps to
improveincrease competition in the Italian natural gas market and such regulatory developments may adversely affect Eni’s results of operations and cash flows
Eni cannot predict future developmentsItalian institutional and political forces are urging a higher degree of competition in the regulation of the Italian natural gas market. Also an institutional debate is ongoing in Italy regarding the liberalization of the natural gas market and this may produce significant developments onin this matter.area. A brief description follows of certain recently enacted laws and certain proceedings before the Authority for Electricity and Gas and the Italian Antitrust Authority in order to allow investors to gain some insight ofinto the complexity of this matter. For a full discussion of laws and procedures described herein see "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power ".Power".
In 2003, Law No. 290 was enacted which prohibits Eni from holding an interest higher than 20% in undertakings owning natural gas transport infrastructure in Italy (Eni currently holds a 50.07%50.04% interest in Snam Rete Gas, which owns and manages approximately 97% of the Italian natural gas transport infrastructure). A decree is expected to be enacted by the Italian Prime Minister to establish the relevant provisions to implement this mandatory disposal. The deadline for the disposal, which was initially scheduled for December 31, 2008, is to be re-scheduled in a 24-month term starting from the date in which this decree from the Italian Prime Minister becomes effective. Currently, Eni is unable to predict any deadline of this disposal.
On the basis of the findings of a joint inquiry conducted from 2003 through June 2004 on the Italian natural gas market, the Authority for Electricity and Gas and the Italian Antitrust Authority (the "Antitrust Authority") acknowledgedconcluded that the overall level of competition of the Italian natural gas market is unsatisfactory due to the dominant position held by Eni in many phases of the natural gas chain. According to both the Authority for Electricity and Gas and the Antitrust Authority, the vertical integration of Eni in the supply, transport and storage of gas has restricted the development of competition in Italy notwithstanding the antitrust ceilings introduced by Legislative Decree No. 164/2000. It was further stated that the price of natural gas in Italy (in particular for the industrial sector) is higher than in other European countries.
In October 2005,November 2006, the Authority for Electricity and Gas startedconcluded an inquiry concerning the competitive behavior of operators selling natural gas to residential and commercial customers withcustomers. This inquiry acknowledged that the aimretailing market for natural gas in Italy lacked a sufficient degree of definingcompetition due to current commercial practices and the existence of both entry and exit barriers. The Authority plans to implement measures to improve competition.competition in this market.
In February 2006,November 2007, the Italian Authority for Electricity and Gas and the Italian Antitrust Authority closedopened an inquiry concerning Eni’s competitive behavior concluding that Eni abused its dominant positionto gain insight into the functioning of the natural gas storage activity in Italy, particularly with regard to its decisionlack of investments by operators directed to suspend a plan for the upgrading of the import pipeline from Algeria and to unilaterally cancel certain contracts to sell the relevant transportexpand capacity to third parties. Contracts were signed earlystore natural gas in 2003 andItaly. Eni through its wholly-owned subsidiary Stogit Italia owns almost the relevant upgrade is expected to become effectiveentire storage capacity currently existing in 2007. The Antitrust Authority fined Eni by an amount of euro 290 million.Italy.
On May 5, 2006, the European Commission started an inquiry in order to verify an alleged abuse of dominant position on the part of Eni in violation of Article 82 of the EEC Treaty and Article 54 of the CES Agreement in the activities of international gas transport and wholesale and retail supply of gas.12
Management believes the institutional debate on the degree of competition in the Italian natural gas market and the regulatory activity to be areas of attention for management and cannot exclude negative impacts on Eni’s financial condition or results of operations in future years deriving from developments on these matters.
Eni believes an oversupplymatters on Eni’s future results ofnatural gas is likely to occur in the long-term (beyond 2009)
Eni plans to upgrade its natural gas import infrastructure from Algeriaoperations and Russia to Italy, with expected start-up in 2008 and late 2008/2009, respectively. Taking into account the build-up of supplies of natural gas from Libya through the Greeenstream gasline and of Eni’s fourth long term take-or-pay purchase contract from Russia, an additional import capacity of 883 BCF/y is expected to be available for the Italian natural gas market starting in 2009. A large portion of this expected import capacity has been or is planned to be awarded to third parties. In addition, certain operators in the Italian natural gas market have publicly announced plans to develop LNG terminals in Italy. Eni expects at least one new LNG terminal with a 283 BCF/y capacity to start operations by 2009 thus adding new import capacity to the Italian market. Management believes the pace of demand growth in the Italian natural gas market may not meet the expected increase in supplies of natural gas market starting in 2009 and beyond. If this projections materialize, a decrease in natural gas margins is likely to occur.cash flows.
Decisions of the Authority for Electricity and Gas
inon the matter of natural gas tariffs may diminish Eni’s ability to determine the price at which it sells natural gas to customers
On the basis of certain legislative provisions, the Authority for Electricity and Gas ("the Authority") holds a general monitoring power on pricing in the natural gas market in Italy and the power to establish reference selling tariffs in thefor supply of natural gas to residential and commercial segmentsusers taking into account, among other things, the public interest goal of containing the inflationary pressure due to a rise inrising energy costs. The decisions of the Authority for Electricity and Gas on these matters may limit the ability of Eni to pass an increase in the purchase cost of fuelsnatural gas on to the final consumersconsumers. Specifically, upon finalization of a complex lengthy administrative procedure started in 2004 and closed in March 2007, the Authority: (i) set the raw material cost component in supplies to residential users consuming less than 200,000 CM/y for the period from January 1, 2005 to June 30, 2006 – at the same time imposing to Italian natural gas. Ingas importers (including Eni) to renegotiate supply contracts with resellers to residential users in order to take account of the impact of these new amounts; and (ii) confirmed the indexation mechanism for updating the raw material cost component in supplies to above mentioned users in force from July 1, 2006, establishing in particular with Decision No. 248/2004 the Authority for Electricity and Gas established, among other things: (i) that an increase in case the international price of Brent crude oil isdecrease below the 20 dollars per barrel threshold or exceed the 35 dollars per barrel threshold the corresponding variations of the raw material cost are only partially transferred on to residential and commercial users of natural gasgas. Management cannot exclude the possibility that in case international pricesthe future the Authority could implement similar measures that may negatively affect Eni results of Brent crude oil exceedoperations and liquidity. For more information on this issue (particularly the 35 dollars per barrel threshold;Authority’s Decisions No. 248/2004, 134/2006 and (ii) that79/2007) see "Item 4 – Regulation – Gas & Power".
Antitrust and competition law
The Group’s activities are subject to antitrust and competition laws and regulations in many countries of operations, especially in Europe. In 2007, Eni accrued significant provisions amounting to euro 130 million against pending antitrust proceedings before the European Commission. In previous years, Eni also recorded significant loss provisions against antitrust proceedings before the Italian natural gas importers – including Eni – must renegotiate supply contracts to wholesalers in order to take account of the reduction of the price of natural gas sold to residential and commercial users. A proceeding has commenced betweenAntitrust Authority, the Authority for Electricity and Gas and Eni, which appealed Decision No. 248/2004the European Commission. It is possible that the Group may incur significant loss provisions in future years relative to an administrative court.
Eni’s management expects a negative outcome ofongoing antitrust proceedings or possible new proceedings. The Group is particularly exposed to this matter. Eni has accrued a material provisionrisk in its 2005natural gas and refining and marketing activities due to its large presence in these markets in Italy and in Europe. See Note 28 to the Consolidated Financial Statements in orderfor a full description of Eni’s main ongoing antitrust proceedings.
Furthermore, based on the findings of antitrust proceedings, plaintiffs could seek payment to reflectcompensate for any alleged damages as a result of antitrust business practices on part of Eni. Both these risks could adversely affect the risks associated with this matter. In 2006 management expects Eni’sGroup’s future results of operations to be adversely impacted by a material amount in light of the high Brent crude oil prices, in the event Decision 248/2004 is implemented in its original form. See "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power" and "Item 5 – Financial Review and Prospects".
cash flows.
Environmental, Health and Safety Regulation
Eni may incur material operating
costsexpenses andliabilitiesexpenditures in relation to compliance with applicable environmental,regulationshealth andfuture environmental developmentssafety regulations
Eni is subject to numerous EU, international, national, regional and local environmental, health and safety laws and regulations concerning its oil and gas operations, products and other activities, including legislation that implements international conventions or protocols.activities. In particular, these laws and regulations require the acquisition of a permit before drilling for hydrocarbons may commence, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with exploration, drilling and production activities, as well as refining, petrochemicals and other Group operations, limit or prohibit drilling activities onin certain protected areas, provide for measures to be taken to protect the safety of the workplace and health of communities involved by the company’s activities, and impose criminal or civil liabilities for pollution resulting from oil, natural gas, refining, petrochemical and petrochemicalother Group’s operations.
These laws and regulations may also restrict emissions and discharges to surface and subsurface water resulting from the operation of natural gas processing plants, petrochemicalspetrochemical plants, refineries, pipeline systems and other facilities that Eni owns.owned by Eni. In addition, Eni’s operations are subject to laws and regulations relating to the production, handling, transportation, storage, disposal and treatment of waste materials. Environmental, health and safety laws and regulations have a substantial impact on Eni’s operations. Some riskManagement expects that the Group will continue to incur significant amounts of operating expenses and expenditures to comply with environmental, health and safety laws and regulations, also taking into account possible future developments in environmental regulations in Italy and in other countries where Eni operates, particularly the implementation of increasingly strict measures decided at both international and country level to reduce greenhouse gas emissions.
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Eni’s results of operations and financial condition are exposed to risks deriving from environmental, health and safety accidents and liabilities
Risks of environmental, costshealth and safety incidences and liabilities isare inherent in certainmany of Eni’s operations and productsproducts. Notwithstanding management’s belief that Eni adopts high standards to ensure safety of its operations, it is always possible that incidents like blow-outs, spillovers, contaminations and similar events could occur that would result in damage to the environment, workers and communities. In particular, Eni and there can be no assurance that material costs and liabilities will not be incurred.
Although management, considering theis performing a number of remedial actions already taken with the insurance policies to cover environmental risks and the provision for risks accrued, does not currently expect any material adverse effect on Eni’s Consolidated Financial Statementsrestore certain industrial sites which were contaminated as a result of its compliancethe Group’s activities in previous years. Management expects other remedial actions to be implemented in future years. The Group has accrued risk provisions to cope with suchall existing environmental liabilities whereby both a legal or constructive obligation to perform a clean-up or other remedial actions is in place and the associated costs can be reasonably estimated. The accrued amount represents the management’s best estimates of future environmental expenses to be incurred taking into account the probability that new and stricter environmental laws might be implemented and regulations, there are risksthird parties’ claims. Notwithstanding this, management believes that it is possible that in the future Eni may incur significant costsenvironmental expenses and liabilities in future yearsaddition to the amounts already accrued due to: (i) the chance of as yet unknown contamination; (ii) future developments in environmental regulation; (iii) the results of on-going surveys or surveys to be carried out on the environmental status of certain Eni’s industrial sites as required by the applicable regulations on contaminated site; and other possible effects deriving from the implementation of Decree No. 471/1999 of the Ministry of Environment; (iv) the possible effects deriving from the implementation of certain enacted regulations such as the ones deriving from Decree No. 367 of the Ministry of Environment published in January 8, 2004, regarding the fixing of new quality standards for aquatic environment in relation to dangerous substances, and those deriving from the application of European directive 2004/35/EC concerning environmental responsibility for prevention and reclamation of environmental damage; and (v)(iii) the possibility ofthat new litigation and the difficulty of determining Eni’s liability, if any, as against other potentially responsible parties with respect to such litigation and the possible insurance recoveries.
might arise.
Legal Proceedings
Eni is a party to a number of civil actions and administrative proceedings arising in the ordinary course of the business. Although Eni’s management does not currently expect a material adverse effect on Eni’s financial position and results of operations on the basis of information availableIn addition to date and taking account of existing provisions Eni’s management cannot rule outaccrued as of the balance sheet date to account for ongoing proceedings, it is possible that in future years Eni may incur materialsignificant losses in addition to amounts already accrued in connection with pending legal proceedings due to: (i) uncertainty regarding the final outcome of each proceeding; (ii) the occurrence of new developments that management could not take into consideration when evaluating the likely outcome of each proceeding in order to accrue the risk provisions as of the date of the latest financial statements; (iii) the emergence of new evidence and information; and (iv) errors in the estimateunderestimation of probable future losses.
Risks
deriving from changesrelated to Changes inoil pricesthe Price of Oil, Natural Gas, Refined Products andin natural gas, refined and petrochemical products prices and marginsChemicals
Operating results in certain of Eni’s businesses, particularly the Exploration & Production, Refining & Marketing, Gas & Power and Petrochemical segments are affected by changes in the price of crude oil and by their impactmovements in crude oil prices on prices and margins of natural gas and refined and petrochemical products.
Eni’s results of operations are affected by changes in international oil prices
Overall, lower oil prices have a net adverse impact on Eni’s results of operations. The effect of lower oil prices on Eni’s average realizations offor produced oil prices is generally immediate. HoweverFurthermore, Eni’s average realizationrealizations for produced oil differsdiffer from the price of Brent crude marker crude Brentprimarily due primarily to the circumstance that Eni’s production slate, which also includes heavy crudes,crude qualities, has a lower API gravity compared with Brent crude (when processed the latter allows for higher yields of valuable products compared to heavy crudes,crude qualities, hence higher market price).
The favorable impact of higher oil prices on Eni’s results of operations may be offset by
thedifferent trendsofin marginsinfor Eni’s downstream businesses
AThe impact of changes in crude oil prices on Eni’s downstream businesses, including the Gas & Power, the Refining & Marketing and the Petrochemical businesses, depends upon the speed at which the prices of gas and products adjust to reflect these changes. Wholesale margins in the Gas & Power business are substantially independent from fluctuations in crude oil prices as purchase and selling prices of natural gas are contractually indexed to prices of crude oil and certain refined products according to similar pricing schemes. However, quarterly performance and year-to-year comparability of results of Eni’s natural gas business may be somewhat affected by the indexation mechanism of the raw material component in gas supplies to residential customers and certain resellers to residentials in Italy in accordance with applicable regulations from the Italian Authority for Electricity and Gas as outlined above in the risk factor describing the "Liberalization of the Italian Natural Gas Market". Specifically, this indexation mechanism provides a certain time lag between movements in the price of crude oil and the related adjustment to the selling price of natural gas. For a detailed discussion of this indexation mechanism in Italy see "Item 4 – Regulation – Gas & Power – Natural gas prices".
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In the Refining & Marketing and Petrochemical businesses a time lag exists between movements in oil prices and movements in the prices and margins of natural gas and refined and petrochemical products. In particular, trends of natural gas margins in Eni’s natural gas business tend to mitigate the impact of changes in oil prices on Eni’s operating results due to different movements in prices of certain energy parameters to which natural gas purchase and sale prices are contractually indexed in different proportions and as measured over different reference periods.finished products.
Eni’s results of operations are affected by changes in European refining margins
The results of operations of Eni’s Refining & Marketing segment are substantially affected by changes in European refining margins which reflect changes in relative prices of crude oil and refined products. Generally,products as outlined above. Furthermore, Eni’s realized margins are also affected by relative price movements of heavy crude qualities vs. light crude qualities. In 2007, Eni’s refining margins declined significantly compared to 2006 due to a time lag existsweak trading environment exacerbated by the circumstances that price differentials between changesheavy crudes and light ones narrowed sharply resulting in oil prices and movementsa substantial reduction in refined products prices.the profitability of complex throughputs.
Eni’s results of operations are affected by changes in petrochemical margins
Eni’s margins on petrochemical products margins are affected by trends in demand for petrochemical products and changes in oil prices which influence changes in costpurchase costs of petroleum-based feedstock. Generally, an increase in oil price determines a decrease inGiven the commoditized nature of Eni petrochemical products, it is difficult for the Company to transfer higher purchase costs for oil-based feedstock to selling prices to customers. In 2007, the profitability of Eni’s petrochemical segment was significantly affected by lower selling margins in the short-term. Prolonged weakness of the European economy as well as Eni’s own structural weaknesses have prevented Eni’s Petrochemical segment from returning to profitability in recent yearsfor commodity petrochemical products due to the inabilityhigher purchase costs for oil-based feedstock that were not fully transferred to transfer increasesselling prices of oil-based feedstocks into selling prices. Due to industry conditionsproducts. Management’s outlook for 2008 is also challenging, and weak economic growth in Europe, management does not expect any significant and durable improvement in Petrochemicals segment profitability over the foreseeable future.
trading environment from 2007 and possibly a further contraction in margins on petrochemical products.
Risks from Acquisitions
Eni constantly monitors the oil and gas market in search of opportunities to acquire individual assets or corporations in order to achieve its growth targets or complement its asset portfolio. Acquisitions entail an execution risk – the risk that the acquirer will not be able to effectively integrate the purchased assets so as to achieve expected synergies. In addition, in the current high oil price environment, acquisitions entail a financial risk – the risk of not being able to recover the purchase costs of acquired assets, in case a prolonged decline in the market prices of oil and natural gas occurs. We also incur unanticipated costs or assume unexpected liabilities and losses in connection with companies or assets we acquire. If the integration and financial risks connected to acquisitions materialize our financial performance may be adversely affected.
Exchange Rates
Movements in the exchange rate of the euro against the U.S. dollar can have a material impact on Eni’s results of operations. Prices of oil, natural gas and refined products generally are denominated in, or linked to, U.S. dollars, while a significant portion of Eni’s expenses are denominated in euro.euros. Similarly, prices of Eni’s petrochemical products are generally denominated in, or linked to, the euro, whereas expenses in the PetrochemicalsPetrochemical segment are denominated both in euroeuros and U.S. dollars. Accordingly, a depreciation of the U.S. dollar versusagainst the euro generally has an adverse impact on Eni results of operations.
operations and liquidity because it reduces booked revenues by an amount greater than the decrease in dollar-denominated expenses. The Exploration & Production segment is particularly affected by movements in the U.S. dollar vs. the euro exchange rates. In 2007, Eni’s operating profit in this business segment declined by an estimated amount of euro 1.4 billion due to a 9.2% depreciation of the U.S. dollar versus the euro. Based on current trends in the U.S. dollar vs. the euro exchange rates, management expects the operating profit of the Exploration & Production segment to be negatively affected in 2008.
Risks deriving from Eni’s Exposure to Weather
in Italy and SeasonalityConditions
Significant changes in weather conditions in Italy and in the rest of Europe from year to year may cause variations inaffect demand for natural gas and some refined products; in colder years, demand is higher. Accordingly, the results of operations of the Gas & Power segment and, to a lesser extent, the Refining & Marketing segment, as well as the comparability of results over different periods, may be affected by such variationschanges in weather conditions. In addition, Eni’s results2007, operating profit in the Gas & Power business was negatively affected by unusually mild winter weather resulting in lower gas sales from a year ago.
Furthermore, our operations, particularly offshore production of operations reflect the seasonality in demand foroil and natural gas, are exposed to extreme weather phenomena that can result in material disruption to our operations and certain refined products used in residential space heating, the demand for which is typically highest in the first quarterconsequent loss or damage of the year, which includes the coldest months,properties and lowest in the third quarter, which includes the warmest months.
facilities.
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Interest Rates
Interest on Eni’s financialfinance debt is primarily indexed at a spread to benchmark rates such as the Europe Interbank Offered Rate, "EURIBOR""Euribor", and the London Interbank Offered Rate, "LIBOR""Libor". As a consequence, movements in interest rates can have a material impact on Eni’s financialfinance expense in respect to its financialfinance debt.
Critical Accounting Estimates
The preparation of financial statements entailsrequires management to make certain accounting estimates that are characterized by a high degree of uncertainty, complexity and judgment. These estimates affect the reported amount of the Company’s assets and liabilities, as well as the reported amount of the Company’s income and expenses for a given period. Although management believes these critical accounting estimates are thoroughly applied and underlying amounts are fairly determined, management cannot rule out thatto represent the best outcome of the estimation process, actual outcomes mayresults could differ from such estimates, due to, among other things, the following factors: uncertainty, lack or limited availability of information; the availability of new informative elements, variations in economic conditions such as prices, significant factors (e.g., removal technologies and costs) and the final outcome of legal, environmental or regulatory proceedings. See "Item 5 – Critical Accounting Estimates".
Item 4. INFORMATION ON THE COMPANY
History and Development of the Company
Eni SpA with its consolidated subsidiaries is engaged in the oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. Eni has operations in about 70 countries and 72,25875,862 employees as of December 31, 2005.2007.
Eni, the former Ente Nazionale Idrocarburi, a public law agency, established by Law No. 136 of February 10, 1953, was transformed into a joint stock company by Law Decree No. 333 published in the Official Gazette of the Republic of Italy No. 162 of July 11, 1992 (converted into law on August 8, 1992, by Law No. 359, published in the Official Gazette of the Republic of Italy No. 190 of August 13, 1992). The Shareholders’ Meeting of August 7, 1992 resolved that the company be called Eni SpA. Eni is registered at the Companies Register of Rome, register tax identification number 00484960588, R.E.A. Rome No. 756453. Eni is expected to remain in existence until December 31, 2100; its duration can however be extended by resolution of the shareholders.
Eni’s registered head office is located at Piazzale Enrico Mattei 1, Rome, Italy (telephone number: +39-0659821). Eni branches are located in:
• San Donato Milanese (Milan), Via Emilia, 1; and
• San Donato Milanese (Milan), Piazza Ezio Vanoni, 1.
Internet address: www.eni.it.
The name of the agent of Eni in the United States is Viscusi Enzo, 666 Fifth Ave., New York, NY 1010310103.
Eni’s principal segments of operations and subsidiaries are described below.
Eni conducts its exploration and production activities through its Exploration & Production Division and certain operating subsidiaries. Eni’s exploration, development and production activities commenced in 1926, when Agip SpA was established by the Italian Government with a mandate to explore for and develop oil and natural gas. Agip SpA was merged into Eni SpA effective as of January 1, 1997 to become Eni’s Exploration & Production Division.
Eni is engaged in exploration and production of hydrocarbons in Italy, North Africa, West Africa, the North Sea, the Gulf of Mexico, Australia, South America and areas with great development potential such as the Caspian Sea, the Middle and Far East, India and Alaska. In 2005, Eni’s hydrocarbon production available for sale averaged 1,693 KBOE/d and, at December 31, 2005, Eni’s estimated proved reserves totalled 6,837 mmBOE with a life index of 10.8 years. In 2005, Eni’s Exploration & Production segment hadinvolves oil and natural gas exploration and field development and production, as well as LNG operations in 36 countries, including Italy, the UK, Norway, Libya, Egypt, Angola, Nigeria, Congo, the U.S., Kazakhstan, Russia and Australia. In 2007, Eni’s production of oil and natural gas amounted to 1,684 KBOE/d on an available-for-sale basis. As of December 31, 2007, Eni’s proved reserves of subsidiaries stood at 6,010 mmBOE; Eni’s share of reserves of equity-accounted entities amounted to 668 mmBOE. In 2007, Eni’s Exploration & Production segment reported net sales from operations (including intersegmentinter-segment sales) of euro 22,47727,278 million and operating profit of euro 12,57413,788 million.
Eni conducts its natural gas and electricity generation activities through its Gas & Power Division and certain operating subsidiaries. Eni’s natural gas supply, transmission and distribution activities commenced in the 1940s with the commercial sale of natural gas to industrial users in Northern Italy. Snam SpA was merged into Eni SpA effective as of February 1, 2002 to become Eni’s Gas & Power Division.segment involves supply, transport, distribution and marketing of natural gas, as well as of LNG. This segment also includes the activity of power generation that enables Eni to extract further value from gas, diversifying its commercial outlets. In 2005,2007, Eni’s worldwide sales of natural gas amounted to third parties totalled 52.4798.96 BCM, including 5.39 BCM of gas sales made directly by the Eni’s Exploration & Production segment in Europe and the U.S.. Sales in Italy and 23.44amounted to 56.13 BCM, in the rest of Europe; Eni’s share of natural gas volumes sold by its affiliates totalled 8.53 BCM (of which 7.85 billion was sold in the rest of Europe). Natural gas volumes consumed in operations by Eni and Eni’s subsidiaries – mainly in electricity generation, refining and petrochemicals operations – totalled 5.54 BCM. Natural gaswhile sales in Italy include: (i) salesEuropean markets were 35.02 BCM that included 10.67 BCM of gas sold to wholesalers, mainly local companies selling natural gascertain importers to residential and commercial customers, and to large industrial and thermoelectric customers which are supplied by aItaly. Through its 50.04 per cent-owned subsidiary Snam Rete Gas, Eni operates an Italian network of high and medium pressure pipeline network; and (ii) sales to residential and commercial customers which are supplied by a low pressure pipeline network. Eni’s high and medium pressure gas pipeline networkpipelines for natural gas transport that is about 30,700-kilometerapproximately 31,081-kilometer long, in Italy, while outside Italy Eni holds transmission rightscapacity entitlements on a network of European pipelines extending for approximately 5,000 kilometers made up of high pressure pipelines. Eni’s naturalpipelines to import gas transport network in Italy is ownedfrom Russia, Algeria, Libya and managed by Snam Rete Gas SpA. Snam Rete Gas is listed on the Italian Stock Exchange, Eni’s share being 50.07%. Snam Rete Gas transports natural gas on behalf of Eni and third parties ("shippers"); in 2005 its transported volumes were 85.10 BCM, of which 30.22 billion were on behalf of third parties.North Europe production basins to European markets. Eni, through its 100% 100 percent-owned
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subsidiary Italgas and other subsidiaries, is engaged in natural gas distribution activity in Italy serving 1,2821,318 municipalities through a low pressure network consisting of approximately 48,00048,750 kilometers of pipelines as of December 31, 2005.
2007. Eni conductsproduces electricity and steam at its electricity generation activities through its wholly-owned subsidiary EniPower SpA, which owns and manages Eni’s power stationsoperated sites of Livorno, Taranto, Mantova, Ravenna, Brindisi, and Ferrera Erbognone and Ferrara with a total installed capacity of approximately 4.5 gigawatt4.9 GW as of December 31, 2005.2007. In 2005, sold production2007, sales of electricity totalled 22.77 terawatthours.totaled 33.19 TWh. Eni owns other minor power stations locatedoperates a re-gasification terminal in Eni’s petrochemical plantsItaly and refineries whose production is mainly for internal consumption. The accountsholds indirect interest or capacity entitlements in a number of these power stations are reported within Eni’s Refining & MarketingLNG facilities in Europe, Egypt and Petrochemicals segments.
in certain projects under construction in the U.S.. In 2005,2007, Eni’s Gas & Power segment hadreported net sales from operations (including intersegmentinter-segment sales) of euro 22,96927,633 million and operating profit of euro 3,3214,127 million.
Eni conducts its refining and marketing activities through the Refining & Marketing Division and certain operating subsidiaries. Activities commenced in the 1930s, when Eni initiated the development of the industrial and retail markets for refined products in Italy. AgipPetroli SpA was merged into Eni SpA effective December 31, 2002 to become Eni’s Refining & Marketing Division. Eni’ssegment involves refining and marketing activities are located primarilyof petroleum products mainly in Italy and in the rest of Europe. In 2005,2007, processed volumes of crude oil and other feedstock amounted to 37.15 mmtonnes and sales of refined products were 50.15 mmtonnes, of which 28.05 mmtonnes in Italy. Retail sales of refined product at operated service stations amounted to 12.65 mmtonnes including Italy and the rest of Europe. In 2007, Eni’s retailingretail market share for refined products in Italy through its Agip-branded network of service stations was 29.7%29.2%. In 2005, Eni divested its wholly-owned subsidiary Italiana Petroli which is engaged in the retail marketing of refined products through a network consisting primarily of leased service stations, under the IP brand. In 2005, sales of refined products totalled 51.63 million tonnes, of which 30.29 million were in Italy. The balanced refining capacity of Eni’s wholly-owned refineries totalled 524 KBBL/d as of December 31, 2005. In 2005,2007, Eni’s Refining & Marketing segment hadreported net sales from operations (including intersegmentinter-segment sales) of euro 33,73236,401 million and operating profit of euro 1,857729 million.
Eni’s petrochemical activities commenced in the 1950s, when it beganinclude production of basic petrochemicals at its Ravenna industrial complex. Through Polimeri Europa SpA and its subsidiaries, Eni operates in olefins and aromatics, basic intermediate products, chlorine derivatives, polyethylene, polystyrenes, and elastomers. Eni’s petrochemical operations are concentrated in Italy and in Western Europe. In 2005,2007, Eni sold 5.4 million tonnes5.5 mmtonnes of petrochemical products. In 2005,2007, Eni’s PetrochemicalsPetrochemical segment hadreported net sales from operations (including intersegmentinter-segment sales) of euro 6,2556,934 million and an operating profit of euro 20274 million.
Eni’s oilfield services, construction and engineering activities commenced in the late 1950s. Throughare conducted through its 43 per cent-owned subsidiary Saipem SpA (a 43% owned subsidiary) and its subsidiaries, Eni operates inSaipem’s controlled entities. Activities involve offshore construction, in particularparticularly fixed platform installation, subsea pipe laying and floating production systems. Through Snamprogetti SpA (a wholly owned subsidiary)systems and its subsidiaries Eni is a provider ofonshore construction. Offshore and onshore drilling services and engineering and project management services are also provided to the oil and gas, refining and petrochemical industries. In 2005,2007, Eni’s Oilfield Services,Engineering & Construction and Engineering segment hadreported net sales from operations (including intersegmentintragroup sales) of euro 5,7338,678 million and operating profit of euro 307837 million.
A list of subsidiaries of Eni is included as an exhibit to this Annual Report on Form 20-F.
Strategy
Eni’s strategy is to grow the Company’s main businesses over both the medium and the long-term, with improving profitability. This strategy is designed to create long-term shareholder’s value particularly through significant dividend distributions. Over the next four-years, Eni plans to deployexecute a strategy of organic growth intended to sustain the group’s business over the long-term.
In the Exploration & Production activities, Eni plans to grow production of oil and natural gas through organic growth, targeting a production level of more than 2 mmBOE/d in 2009, which corresponds to a compound average growth rate of approximately 4% under certain trading environment assumptions (See "Item 5 – Management Expectations of Operations"). Eni plans to reach said production target by leveraging in particular on the contribution of recently completed large development projects and projects in the development phase in Angola, Libya, Nigeria, Egypt, Iran, Algeria and Kazakhstan. Management will continue to evaluate opportunities to increase production through the purchase of corporations or individual assets. Eni intends to pay special attention to reserve replacement in order to ensure the medium to long-term sustainability of its business. Eni intends to optimize its portfolio of development properties by focusing on areas where its presence is established, seeking for new opportunities and divesting marginal assets. Eni intends to develop its LNG business also through the purchase of interests in liquefaction plants in order to better exploit its natural gas reserves in North and West Africa. In exploration activities Eni intends to renew its portfolio of properties focusing on such areas where management believes a high mineral potential exists, on assets in areas where its presence is established (in particular Egypt, Nigeria, the United States, Italy and Norway) and to start exploration in newly acquired areas (in particular Alaska, Libya and India).
In the Gas & Power activities, Eni plans to grow natural gas sales in the rest of Europe and to develop its presence in the LNG business in order to compensate for lower growth opportunities on the domestic market due to the limits imposed on operators by the sector regulation and increasingly intense competition. In Italy, Eni plans to comply with regulatory limits on direct sales and input volumes to the national transport network by optimizing allocation of supplies between direct sales in Italy and in the rest of Europe and by using natural gas at its own electricity generation plants and, at the same time, leveraging on the expected consumption growth. In the medium term, management expects its natural gas sales in Italy to decline from the 58 BCM level recorded in 2005 as a consequence of increasing competition from third parties. Eni plans to implement a more attractive commercial offer than Eni’s competitors’ on the basis of the quality of services, pricing formulas including different indexation schemes to suit various customers’ purchasing profile and the integration of supply of gas and electricity. Management plans to grow natural gas sales on European markets by leveraging on the availability of Eni’s equity gas and on a diversified portfolio of supply contracts, an extensive gas pipeline network, which allows for the supply of natural gas from several sources, and long standing relationships with producing countries. Eni intends to strengthen its presence in markets where its presence is already established – such as the Iberian Peninsula, Germany and Turkey – and to develop sales in markets with significant growth and profitability prospects (in particular France and the United Kingdom).
In the Refining & Marketing activities, Eni intends to maximize returns from its existing assets. In the refining activity Eni plans to invest in new primary distillation capacity and in new conversion capacity to make its refining system flexible enough to obtain a higher yield of middle distillates and to achieve a greater vertical integration with its upstream activities. In marketing Eni aims to improve its competitive position in Italy and to increase sales in selected neighboring countries in the Rest of Europe.
Eni’s oilfield services construction and engineering activities play an essential role in contributing to technological innovations and in the implementation of world-scale projects thus supporting Eni’s growth process in the oil & gas business.
In technological research and innovation activities Eni plans to implement a relevant capital expenditure programmeprogram amounting to develop such technologies that management believes may ensure competitive advantages in the long-term and promote sustainableeuro 49.8 billion to support organic growth. Eni plans to continue developing existing programmes on clean fuels, sulphur and greenhouse gas management as well as projects such as the upgrading of heavy crudes (EST), high pressure gas transmission (TAP) and Gas to Liquids (GTL).
In pursuing this strategy Eni plans a capital expenditure programme amounting to euro 35.2 billion over the next four years. Eni plans to financefund this capital expenditure programmeprogram by using themeans of cash flows provided by operating activities. Over the next four year period,four-years, the Company expects to distribute to its shareholders a flowannual amounts of dividends in line with the current level of 2005 under certain assumptionsin real terms (See "Item 8 – Dividends"). Eni aimsplans to allocate cash flowflows provided by operating activities in excess of capital expenditureexpenditures and dividend requirementspayments to continue its programmeprogram of share buy-backrepurchases, while at the same time maintaining a strong balance sheet. See "Item 5 – Management Expectations of Operations".
Eni’s strategy in its Exploration & Production operations is to grow production leveraging on development of assets in its portfolio and the integration of the assets acquired in 2007, including Burren Energy Plc that was acquired in January 2008. Eni plans to achieve a production growth rate of 4.5% on average over the 2008-2011 period, under Eni’s Brent price scenario of 64 U.S. dollar per barrel in 2008, decreasing to 55 U.S. dollar per barrel in 2011 (See "Item 5 – Management Expectations of Operations"). High oil prices represent a risk to the achievement of the Company’s planned production target due to Eni’s exposure to PSAs whereby higher oil prices result in lower production entitlements. On May 14, 2008 Brent price was 121.14 U.S. dollar per barrel. For a description of Eni’s production volume sensitivity to oil prices see "Item 5 – Management Expectations of Operations". Management will continue to evaluate opportunities to increase production through acquisitions. Eni intends to pay special attention to reserve replacement in order to secure the medium to long-term sustainability of its business.
In its Gas & Power activities, Eni intends to grow natural gas sales in the international market, preserve the profitability of the Italian marketing business, effectively manage regulated businesses, and develop a global LNG business. Eni targets worldwide gas sales of 110 BCM in 2011, including E&P sales in the North Sea and the U.S.. In particular, Eni plans to achieve an annual average growth rate of 9% in international sales in the four-year period 2008 to 2011. Eni plans to grow its international sales mainly: (i) in Europe, where Eni expects to expand sales in those markets where its presence is already established – i.e. the Iberian Peninsula, Germany, Turkey, France and the UK – leveraging on the Company’s competitive advantages given by gas availability, access to infrastructures and long-term relationships with the most important producing countries (mainly Russia, Algeria and Libya); and (ii) in the U.S. where Eni plans to grow sales by leveraging on a number of LNG projects that are currently being
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executed. In Italy, Eni plans to implement a marketing plan aiming at preserving the profitability of its Italian operations against an expected increase in competition. Management forecasts sale volumes to remain stable compared to current levels. Eni intends to focus the most profitable customer segments, upgrade the commercial offer by tailoring pricing and services to customers’ specific needs and leverage the full potential of the combined supply of gas and electricity ("dual offer"). A strong focus will be devoted to reducing marketing expenses.
In its Refining & Marketing activities, Eni intends to improve profitability through the following steps. In its refining activities, Eni plans to implement a number of capital projects designed to upgrade its refineries with the aim of: (i) increasing conversion capacity so as to obtain a higher yield of middle distillates; (ii) enhancing flexibility in order to process low-quality crude that is typically discounted in the market-place; and (iii) reducing operating costs. In marketing, Eni intends to strengthen its leadership position in the Italian retail market by improving the quality of the offer through high standards of service, the marketing of premium fuels, tailored promotional initiatives to retain customers and advanced convenience formats. Eni will also continue to develop sales in a number of selected markets in the rest of Europe.
In its Engineering & Construction activities, Eni aims developing and expanding its geographical reach and technical characteristics of its world class fleet, by capturing opportunities arising from a growing market in drilling and oilfield services sectors. In order to achieve this, management plans to leverage on Eni’s strong position in faster growing markets and its consolidating relationships with major companies and National Oil Companies.
In technological research and innovation activities, Eni plans to implement significant capital expenditures amounting to euro 1.7 billion to develop such technologies that management believes may ensure competitive advantages in the long-term. Eni plans to continue developing ongoing programs focused on reducing costs to find and recover hydrocarbons, developing clean fuels, upgrading heavy crudes (in particular the EST project), monetizing natural gas through projects such as high pressure high distance gas transmission (TAP) and Gas to Liquids (GTL), and protecting the environment by investing in the fields of renewable sources of energy and reduction of GHG emissions.
KeySignificant business and Portfolio Developments
The most significant eventsbusiness and portfolio developments that occurred during 2005in 2007 and to date in 20062008 were the following:
• | In | |
• | In May | |
• | ||
• | In October 2007, Eni signed a | |
• | In November 2007, Eni announced the terms of a recommended cash offer to acquire the entire issued share capital of the UK-based oil company Burren Energy Plc. This acquisition closed in January 2008. Total cash consideration amounted to approximately euro 2.3 billion, of which euro 0.6 billion were spent in 2007. Burren holds producing assets in Congo and Turkmenistan flowing at a rate of over 25,000 BOE/d and partners with Eni in the Congolese assets that Eni bought from Maurel & Prom. |
In addition, in 2007 Eni closed the following transactions:
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• | In June 2007, a gas sale agreement was signed between the consortium conducting operations at the Karachaganak field (Eni is co-operator with a 32.5% stake) and KazRosGaz, a joint venture established by the Kazakh and Russian companies KazMunaiGaz and Gazprom. This agreement lays the foundations for the development of | |
• | In June 2007, Eni signed a framework agreement with Gazprom to build the South Stream pipeline system which is expected to import into Europe volumes of natural gas produced in Russia across the Black Sea. |
• | In June 2007, Eni acquired a 27.8% interest in Altergaz, the main independent operator in the French gas market. Eni plans to support Altergaz development in the French retail and small enterprises segments through 10 year supply contract for 1.3 BCM/y. | |
• | In September 2007, Eni purchased a 16.11% stake in the Czech Refining Company, increasing Eni’s ownership interest to 32.4% and equal to a refining capacity of 2.6 mmtonnes/y. | |
• | In October 2007, Eni purchased 102 retail fuel stations from ExxonMobil Central Europe located in Czechia, Slovakia and Hungary and related additional marketing activities. | |
• | In November 2007, Eni purchased a 13.6% interest in the Angola LNG Ltd Consortium (A-LNG) committed to build an LNG plant. The plant will be designed with a processing capacity of 1 BCF/d of natural gas and produce 5.2 mmtonnes/y of LNG and related products. |
Recent developments are described below.
• | In January 2008 the international partners of the North Caspian Sea Production Sharing Agreement (NCSPSA) Consortium and the Kazakh authorities signed a Memorandum of understanding to settle a dispute commenced in August 2007 regarding conditions and rights for developing and exploiting the Kashagan field. For further details on this transaction see "Item 4 – Exploration & Production – Kazakhstan". | |
• | In | |
• | In | |
In 2007, capital expenditures amounted to euro 10.6 billion, of which 84.7% related to the Exploration & Production, Gas & Power and Refining & Marketing businesses, and primarily related to: (i) the development of oil and gas reserves (euro 4,788 million) deployed predominantly in Kazakhstan, Egypt, Angola, Italy and Congo, and exploration projects (euro 1,659 million) particularly in the Gulf of Mexico, Egypt, Norway, Nigeria and Brazil; (ii) development and upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 886 million) as well as upgrading of natural gas import pipelines to Italy (euro 253 million); (iii) the ongoing construction of combined cycle power plants (euro 175 million); (iv) projects designed to upgrade the conversion capacity and flexibility of Eni’s refineries, including construction of a new hydrocracking unit at the Sannazzaro refinery, and to build and upgrade service stations (totaling euro 979 million); and (v) the upgrading of the fleet used in the Engineering & Construction segment (euro 1,410 million).
In 2007, Eni’s acquisitions amounted to euro 9.7 billion and mainly related to: (i) a 60% interest in three Russian gas companies as part of the liquidation procedure of bankrupt Russian company Yukos. Through the same transaction Eni also purchased a 20% stake in the oil and gas company OAO Gazprom Neft. Gazprom was granted a call option to purchase a 51% interest in those three gas companies and the 20% stake in OAO Gazprom Neft; (ii) the purchase of upstream assets in the Gulf of Mexico; (iii) the purchase of upstream assets onshore Congo; (iv) the purchase of a 24.9% interest in Burren Energy; (v) the acquisition of a further 16.11% stake in the Ceska Rafinerska in the Czech Republic increasing Eni’s ownership interest to 32.4%; (vi) the purchase of 102 retail fuel stations and related marketing assets located in the Czech Republic, Slovakia and Hungary; and (vii) the purchase of a 13.6% stake in the Angola LNG consortium.
In 2006, capital expenditures amounted to euro 7.8 billion, of which 89.6% related to the Exploration & Production, Gas & Power and Refining & Marketing segments, and was primarily related to: (i) the development of oil and gas reserves (euro 3,629 million) in particular in Kazakhstan, Angola, Egypt and Italy, exploration projects (euro 1,348 million) particularly in Angola, Egypt, Norway, Nigeria, the Gulf of Mexico and Italy, including the acquisition of 152,000 square kilometers of new acreage (99% operated by Eni); (ii) upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 785 million); (iii) the ongoing construction of combined cycle power plants (euro 229 million); (iv) projects aimed at improving flexibility and yields of refineries (euro 376 million), including the start up of construction of a new hydrocracking unit at the Sannazzaro refinery, and upgrading the refined product distribution network in Italy and in the rest of Europe (euro 223 million); and (v) the construction of a new FPSO unit and upgrading of the fleet and logistic centers in the Engineering & Construction segment (euro 591 million).
In 2005, capital expenditureexpenditures amounted to euro 7.4 billion, of which 91% related to the Exploration & Production, Gas & Power and Refining & Marketing segments, and was primarily related to: (i) the development of oil and gas reserves (euro 3,952 million), in particular in Kazakhstan, Libya, Angola, Italy and Egypt, exploration
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projects (euro 656 million) and the purchase of proved and unproved property (euro 301 million); (ii) upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 825 million); (iii) the continuation of construction of combined cycle power plants (euro 239 million); (iv) actions for improving flexibility and yields of refineries, including the completion of construction of the tar gasification plant at the Sannazzaro refinery, and the upgrade of the refined product distribution network in Italy and in the rest of Europe (overall euro 656 million); and (v) upgrading of vessels and other equipment and facilities in Kazakhstan and West Africa in the Oilfieldoilfield services and construction business (euro 346 million).
In 2005 capital expenditure decreased by euro 85 billion over 2004, or 1.1%, due to a euro 299 billion reduction, or 20.6%, in the Gas
BUSINESS OVERVIEW
Exploration & Power business due principally to the completion of the Greenstream underwater pipeline project and the nearing to completion of the power generation development plan.Production
In 2004, capital expenditure amounted to euro 7.5 billion (of which 94% related to theEni’s Exploration & Production Gas & Powersegment involves oil and Refining & Marketing segments) and concerned: (i) development of hydrocarbon fields (euro 4,369 million) in particular in Libya, Iran, Angola, Italy, Kazakhstan, Egypt, Nigeria and Norway, and exploration (euro 499 million); (ii) upgrading of Eni’s natural gas transmission and distribution network in Italy (euro 721 million); (iii) the construction of the tar gasification plant at the Sannazzaro refinery, actions on refineries for the adjustment of automotive fuel characteristics to new European specifications and the upgrade of the refined product distribution network in Italy and in the rest of Europe (for a total of euro 669 million); and (iv) the continuation of construction of electricity generation plants (euro 451 million) and the completion of the Greenstream underwater pipeline project (euro 159 million).
BUSINESS OVERVIEW
Exploration & Production
Eni operates in the exploration and field development and production, of hydrocarbonsas well as LNG operations, in 36 countries, including Italy, North Africa, West Africa, the North Sea,UK, Norway, Libya, Egypt, Angola, Nigeria, Congo, the Gulf of Mexico, AustraliaU.S., Kazakhstan, Russia and South America. It also operates in areas such as the Caspian Sea, the Middle and Far East, India and Alaska where management believes a great mineral potential exists.Australia. In 2005,2007, Eni produced 1,6931,684 KBOE/d; asd on an available-for-sale basis. As of December 31, 2005,2007, Eni’s proved reserves totalled 6,837of subsidiaries stood at 6,010 mmBOE; Eni’ share of reserves of equity-accounted entities amounted to 668 mmBOE.
Eni’s strategy in its Exploration & Production operations is to increase production leveraging on the development of assets in portfolio and the integration of the assets acquired in 2007, including Burren Energy Plc that was acquired in January 2008. Eni plans to grow production of oil and natural through organic growth, targetingachieve a production level of more than 2 mmBOE/d in 2009 which corresponds to a compound average growth rate of approximately 4%4.5% on average over the 2008-2011 period, under certain trading environment assumptions (See "Item 5 – Management Expectations of Operations"). Eni plansHigh oil prices represent a risk factor to reach saidthe achievement of the Company’s planned production target due to Eni’s exposure to PSAs whereby higher oil prices result in lower production entitlements. On May 14, 2008, Brent price was 121.14 U.S. $/BL. A description of Eni’s production volume sensitivity to oil prices is disclosed under "Item 5 – Management Expectations of Operations". Future growth will be driven by leveragingthe development of new projects located mainly in particular onthe key producing basins of North and West Africa and the Caspian region, and the contribution of recently completed great development projectslong-life fields, including Kazakhstan, Libya, Congo, Nigeria and projects in the development phase in Angola, Libya, Nigeria, Egypt, Iran, Algeria and Kazakhstan.Italy. Management will continue to evaluate opportunities to increase production through the purchase of corporations or individual assets. Eni intends to pay special attention to reserve replacement in order to guarantee the medium tomedium-to long-term sustainability of its business. Eni intends to optimize its portfolio of development properties by focusing on areas where its presence is established, seeking for new opportunities and divesting marginal assets. Eni also intends to develop its LNG business also through the purchase of interests in liquefaction plants in order to better exploitmonetize its naturallarge base of gas reserves mainly in North and West Africa.
In exploration activities, Eni intends to renew its portfolioconcentrate resources in well established areas of properties focusing onpresence where availability of production facilities, existing competencies and long-term relationships with host countries will enable Eni to readily put in production discovered reserves, reducing the time-to-market and capturing synergies. Approximately 70% of planned capital expenditures will be directed to such core areas where management believes a high mineral potential exists, assets(located mainly in areas where its presence is already established (in particular Egypt, Nigeria, the United States, Egypt, Libya, Nigeria, Angola, Italy, Norway and Norway)Congo). Eni also plans to selectively pursue high risk/high reward opportunities arising from expansion in areas with high mineral potential. Eni expects to purchase new exploration permits and to start exploration in newly acquired areas (in particular Alaska, Libya and India).divest or exit marginal or non strategic ones.
Eni plans to improve profitability of its performanceoperations by searching forimplementing operating solutions with lower operating costs and exploiting synergies.
In order to execute these strategies, Eni intends to invest approximately euro 25.1 billion on reserve development and field optimization and euro 4.7 billion on exploration projects over the next four-year period. Further euro 3.7 billion will be spent to upgrade natural gas storage sites in Italy and to execute LNG and transport projects through equity-accounted entities.
Oil and Natural Gas Reserves
Eni continues to exercisehas always exercised rigorous control over the booking of proved reserves. The Reserve Department of the Exploration & Production segment, reporting directly to the General Manager, is entrusted with the task of keepingcontinuously updating the Company’s guidelines concerning reserve classification criteria ("criteria") constantly updatedevaluations and of monitoring theirthe periodic process of estimate. The criteriaquantification process. Company guidelines follow Regulation S-X ruleRule 4-10 of the U.S. Securities and Exchange Commission (SEC) as well as, on specific issues not regulated by rules, the consolidated practice recognized by qualified reference institutions. The current criteria applied by EniCompany guidelines have been examinedreviewed by DeGolyer and MacNaughton (D&M), an independent oil engineerspetroleum engineering company, which confirmed that they are complianthas certified their compliance with theapplicable SEC rules. D&M has also stated that the criteriacompany guidelines regulate situations for which the SEC rules are less precise, providing a reasonable interpretation in line with the generally accepted practices in international markets. When participating in exploration and production activities operated by other entities, Eni also estimates its proved reserves on the basis of the mentioned criteria also when it participates in explorationabove guidelines.
20
The process for evaluating reserves involves: (i) business unit managers (geographic units) and Local Reserve Evaluators (LRE), who perform the evaluation and classification of reserves including estimates of production activities operatedprofiles, capital expenditure, operating costs and costs related to asset retirement obligations; (ii) geographic area managers at head offices checking evaluations carried out by other entities.business unit managers; and (iii) the Reserve Department, which provides independent reviews of the fairness and correctness of classifications carried out by business units and aggregates worldwide reserve data and calculates equity volumes. Moreover, the Reserve Department has the responsibility to ensure the periodic certification process of reserves, to perform economic evaluation of reserves and to update continuously the Company guidelines on reserves evaluation and classification.
Beginning inSince 1991, Eni has requested qualified independent petroleumoil engineering companies to carry out an independent evaluation2 of its proved reserves on a rotationrotational basis. Eni believes these independent evaluators to be experienced and qualified in the marketplace. In particularthe preparation of their reports, these independent evaluators relied, without independent verification, upon information furnished by Eni with respect to property interest, production, current cost of operation and development, agreements relating to future operations and sale, prices and other factual information and data that were accepted as represented by the independent evaluators. This information was used by Eni in 2005determining its proved reserves and included log, directional surveys, core and PVT (Production Volume Temperature) analysis, maps, oil/gas/water monthly production/injection data of wells, reservoir, and field; field studies, reservoir studies; engineers comments relative to field performances, reservoir performances, development programs, work programs etc.; budget data for each field, long range development plans, future capital and operating costs, actual prices received from hydrocarbon sales, instructions on future prices, and other pertinent information to calculate NPV for the fields required to undertake an independent evaluation. Accordingly, Eni believes that the work performed by the independent evaluators is to be considered an evaluation of Eni’s proved reserves as opposed to a determination. We also note that the work performed in evaluating our reserves may not be the same work that the independent evaluators perform when evaluating other companies’ reserves. Notwithstanding the above, the fact that the independent evaluations achieved the same results as those of the Company for the vast majority of fields support the management’s confidence that the Company’s booked reserves meet the regulatory definition of proved reserves and are reasonably certain to be produced in the future. Additionally, for those fields where a discrepancy arose, the Company has adopted the reserve estimate indicated by the independent evaluators whenever the latter was lower than the Company’s estimate. In any case, those differences were not significant.
In 2007, a total of 1.641.8 BBOE of proved reserves or about 24%of subsidiaries have been evaluated, representing approximately 30% of Eni’s total proved reserves of subsidiaries at December 31, 2005, have been evaluated. The results of this independent evaluation confirmed Eni’s evaluations, as they did in past years.2007. In the 2003-2005 three year2005-2007 three-year period, independent evaluations concerned 84%64% of Eni’s total proved reserves;reserves of subsidiaries were subject to independent evaluations. As at December 31, 2007 the most important of Eni’s properties which were not subject to an independent evaluation were: Kashagan (Kazakhstan), Bayu Undan (Australia), Cerro Falcone and Monte Alpi-Monte Enoc (Italy). In 2007, Eni’s proved reserves purchased in particular evaluations concerned allRussia have also been evaluated as amounting to 617 mmBOE. These reserves related to the new development projects, including Kashagan, and most large-sized mature fields.acquisition of a 60% interest in three equity-accounted Russian gas companies.
Eni’s proved reserves of oil and natural gassubsidiaries at December 31, 2005 totalled 6,8372007 totaled 6,010 mmBOE (oil and condensates 3,7733,127 mmBBL; natural gas 17,59116,549 BCF) representing a decrease of 381390 mmBOE, or 5.3%6.1%, from December 31, 2004. The reserve replacement ratio was 40% in 2005; the average reserve replacement ratio for the last three years was 89%. The average reserve life index is 10.8 years (12.1 at December 31, 2004). The reserve replacement ratio was calculated dividing additions to proved reserves for year 2005 by total production, each as derived from the tables of changes in proved reserves prepared in accordance with SFAS No. 69 presented in Note 35 to the Consolidated Financial Statements. Management considers the reserve replacement ratio to be a key measure of the ability of the company to sustain its growth prospects. However, the ratio measures past performance and cannot be used to forecast the ability of management to replace produced reserve in future years.
Addition2006. Additions to proved reserves booked by Eni’s subsidiaries in 20052007 were 25381 mmBOE derived from :deriving from: (i) extensions and discoveries (156(201 mmBOE), with major increases booked in particularAngola, Congo, Egypt, Kazakhstan, Tunisia and United States; and (ii) improved recovery (23 mmBOE) mainly in Nigeria, Norway, KazakhstanAlgeria and Algeria; (ii)Angola. These increases were offset in part by a negative balance of 143 mmBOE resulting from downward and upward revisions of previous estimates. Downward revisions of previous estimates (down 98 mmBOE)mainly related to lower entitlementadverse price impacts in certain Production Sharing Agreements (PSAs)3 and buy-back contracts duedetermining volume entitlements in Eni’s PSAs (down 348 mmBOE) resulting from higher year end oil prices (Brent price was $96.02 per barrel at December 31, 2007 compared to higher oil prices$58.925 per barrel at December 31, 2006). These negative revisions were recorded mainly in Kazakhstan, Libya and Angola, and Libya; (iii) improved recovery (89 mmBOE),were partly offset by upward revisions in particularEgypt, Italy, Nigeria and Norway. Acquisitions amounted to 156 mmBOE reflecting a contribution of purchased properties in Algeria, Angolathe Gulf of Mexico and Kazakhstan; and (iv) purchase of proved property (106 mmBOE) in Kazakhstan, Australia, Italy and Angola. The increase offset in part the decline related to production for the year (634 mmBOE).Congo. Due to risks inherent in the exploration and production business, a degree of uncertainty still exists as to whether these additions will actually be produced. See "Item 3 – Risks associated with exploration and production of oil and natural gasgas" and – Uncertainties"Uncertainties in estimates of oil and natural gas reserves.reserves". Proved reserves of Eni’s subsidiaries were determined based on Eni’s working interest of 18.52% in quantifying reserve entitlements of the Kashagan project as of December 31, 2007. As part of the agreements defined with the Kazakh Republic, the change of Eni’s interest to 16.81% in 2008 will determine a decrease of approximately 50 mmBBL in Eni’s estimated net proved reserves of the Kashagan field with respect to December 31, 2007 (information on the Kashagan agreements is provided below under the section "Caspian Area" on page 35).
As of December 31, 2007 Eni’s share of proved reserves of equity-accounted entities amounted to 668 mmBOE. In 2007, proved reserves booked in connection with the acquisition of a 60% interest in three Russian gas companies amounted to 617 mmBOE. Gazprom was granted an option to acquire a 51% interest in those three gas companies. Should Gazprom exercise the call option, Eni’s interest would be diluted to approximately 30% and proved reserves that were booked in connection with the acquisition would be reduced by approximately 50%. Management believes that Gazprom will likely exercise its call option.
(2) | From 1991 to 2002 DeGolyer and MacNaughton, from 2003 also Ryder Scott. |
21
The reserve replacement ratio for Eni’s subsidiaries was 38% in 2007 (38% in 2006 and 43% in 2005). The average reserve life index for Eni’s subsidiaries was 9.6 years at December 31, 2007. The reserve replacement ratio was calculated by dividing additions to proved reserves by total production, each as derived from the tables of changes in proved reserves prepared in accordance with SFAS No. 69 – See supplemental oil and gas information in Note 39 to the Consolidated Financial Statements. The reserve replacement ratio is a measure used by management to assess the extent to which produced reserves in the year are replaced by reserve additions booked according with SEC criteria under Rule 4-10 of Regulation S-X. Management considers the reserve replacement ratio to be an important measure of the ability of the Company to sustain its growth prospects. However, this ratio measures past performances and is not an indicator of future production because the ultimate development and production of reserves is subject to a number of risks and uncertainties. These include the risks associated with the successful completion of large-scale projects, including addressing ongoing regulatory issues and completion of infrastructure, as well as changes in oil and gas prices, political risks and geological and other environmental risks. Specifically, in recent years Eni’s performance in replacing produced reserves has been affected by the impact of higher year-end oil prices on reserves entitlements in the Company’s Production Sharing Agreements (PSAs) and similar contractual schemes. In accordance with such contracts, Eni is entitled to a portion of field reserves, the sale of which should cover expenditures incurred by the Company to develop and operate the field. The higher the reference prices for Brent crude oil used to determine year-end amounts of Eni’s proved reserves, the lower the number of barrels necessary to cover the same amount of expenditures.
The table below show Eni’s calculations of its reserve replacement ratios for the years ended December 31, 2005, 2006 and 2007.
Subsidiaries | Equity-accounted entities | ||
2005 | 2006 | 2007 | 2005 | 2006 | 2007 | ||||||
(mmBOE) |
Additions to proved reserves | 271 | 244 | 237 | (18 | ) | 1 | 639 | |||||||||||
of which purchases and sales of reserves-in-place | 106 | (172 | ) | 156 | 617 | |||||||||||||
Production for the year | (629 | ) | (640 | ) | (627 | ) | (5 | ) | (6 | ) | (7 | ) |
Subsidiaries | |
2005 | 2006 | 2007 | |||
(%) |
Proved reserves replacement ratio of subsidiaries | 43 | 38 | 38 |
Proved developed reserves of subsidiaries at December 31, 20052007 amounted to 4,3063,862 mmBOE (2,350(1,953 mmBBL of oilliquids and condensates and 11,22910,967 BCF of natural gas), representing 63%64% of total estimated proved reserves (60%(63% and 58%63% at December 31, 20042006 and 2003,2005, respectively).
Proved reservesVolumes of oil and natural gas applicable to long-term supply agreements with foreign governments in mineral assets where Eni is operator represented approximately 11% of all proved reserves at December 31, 2005 (10% at December 31, 2004; 8% at December 31, 2003).
With effective date April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the service contract governing activities at the Dación oil field where Eni acted as a contractor, holding a 100% working interest. As a consequence, starting on the same day, operations at the Dación oil field are conducted by PDVSA which replaced Eni Dación BV, Eni’s wholly-owned subsidiary that had been operating the field until that date.
Eni believes that it is entitled to a market value compensation for the expropriation of the Dación field. On these basis, Eni is available to reach an agreement with the Venezuelan authorities. In case an amicable settlement is not possible, Eni will take any other action in order to protect its interest in Venezuela. Based on internal and external independent evaluation, Eni is confident that a fair market compensation will not be lower than the book value of the Dación related assets. Accordingly, management decided not to impair the book value of Eni’s Dación assets. In 2005 and in the first quarter 2006, the Dación field production rate was about 60 KBBL/d. Management expects Eni’s proved reserves of hydrocarbons to be reduced by an amount of approximately 175 mmBBL corresponding to Eni’s net proved reserves of the Dación fieldtotaled 676 mmBOE as of December 31, 2007 (583 and 604 mmBOE as of December 31, 2006 and 2005, as a consequence ofrespectively). Said volumes are not included in reserves volumes shown in the loss of Eni’s title to the field.table herein.
The tabletables below setsset forth a geographical breakdown of Eni’s proved reserves and proved developed reserves of hydrocarbons, on a barrel of oil equivalent basis, for the periods indicated.
22
Proved reserves
Eni’s proved reserves of hydrocarbons by geographic area
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(mmBOE) |
Italy | 1,315 | 1,199 | 996 | 890 | 868 | |||||
North Africa | 2,122 | 2,033 | 2,024 | 2,117 | 2,026 | |||||
West Africa | 1,136 | 1,287 | 1,324 | 1,357 | 1,279 | |||||
North Sea | 879 | 825 | 912 | 807 | 758 | |||||
Rest of the World | 1,477 | 1,686 | 2,016 | 2,047 | 1,865 | |||||
Total consolidated subsidiaries | 6,929 | 7,030 | 7,272 | 7,218 | 6,796 | |||||
Unconsolidated entities | 41 | |||||||||
6,929 | 7,030 | 7,272 | 7,218 | 6,837 |
Italy | 868 | 805 | 747 | |||
North Africa | 2,026 | 2,018 | 1,879 | |||
West Africa | 1,279 | 1,122 | 1,095 | |||
North Sea | 758 | 682 | 617 | |||
Caspian Area | 1,087 | 1,219 | 1,061 | |||
Rest of the World | 778 | 554 | 611 | |||
Total consolidated subsidiaries | 6,796 | 6,400 | 6,010 | |||
Equity-accounted entities | 41 | 36 | 668 |
Eni’s proved reserves of oilliquids by geographic area
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(mmBBL) |
Italy | 309 | 255 | 252 | 225 | 228 | |||||
North Africa | 1,171 | 1,072 | 1,080 | 993 | 961 | |||||
West Africa | 976 | 1,022 | 1,038 | 1,056 | 936 | |||||
North Sea | 552 | 498 | 529 | 450 | 433 | |||||
Rest of the World | 940 | 936 | 1,239 | 1,284 | 1,190 | |||||
Total consolidated subsidiaries | 3,948 | 3,783 | 4,138 | 4,008 | 3,748 | |||||
Unconsolidated entities | 25 | |||||||||
3,948 | 3,783 | 4,138 | 4,008 | 3,773 |
Italy | 228 | 215 | 215 | |||
North Africa | 961 | 982 | 878 | |||
West Africa | 936 | 786 | 725 | |||
North Sea | 433 | 386 | 345 | |||
Caspian Area | 778 | 893 | 753 | |||
Rest of the World | 412 | 195 | 211 | |||
Total consolidated subsidiaries | 3,748 | 3,457 | 3,127 | |||
Equity-accounted entities | 25 | 24 | 142 |
Eni’s proved reserves of natural gas by geographic area
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(BCF) |
Italy | 5,640 | 5,295 | 4,166 | 3,818 | 3,676 | |||||
North Africa | 5,509 | 5,563 | 5,467 | 6,453 | 6,117 | |||||
West Africa | 925 | 1,533 | 1,656 | 1,729 | 1,965 | |||||
North Sea | 1,892 | 1,899 | 2,223 | 2,051 | 1,864 | |||||
Rest of the World | 3,106 | 4,339 | 4,496 | 4,384 | 3,879 | |||||
Total consolidated subsidiaries | 17,072 | 18,629 | 18,008 | 18,435 | 17,501 | |||||
Unconsolidated entities | 90 | |||||||||
17,072 | 18,629 | 18,008 | 18,435 | 17,591 |
Italy | 3,676 | 3,391 | 3,057 | |||
North Africa | 6,117 | 5,946 | 5,751 | |||
West Africa | 1,965 | 1,927 | 2,122 | |||
North Sea | 1,864 | 1,697 | 1,558 | |||
Caspian Area | 1,774 | 1,874 | 1,770 | |||
Rest of the World | 2,105 | 2,062 | 2,291 | |||
Total consolidated subsidiaries | 17,501 | 16,897 | 16,549 | |||
Equity-accounted entities | 90 | 68 | 3,022 |
Eni’s proved developed reserves of hydrocarbons by geographic area
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(mmBOE) |
Italy | 825 | 774 | 702 | 671 | 620 | |||||
North Africa | 875 | 797 | 806 | 961 | 1,230 | |||||
West Africa | 640 | 703 | 710 | 749 | 793 | |||||
North Sea | 773 | 724 | 822 | 707 | 611 | |||||
Rest of the World | 654 | 705 | 1,190 | 1,212 | 1,021 | |||||
Total consolidated subsidiaries | 3,767 | 3,703 | 4,230 | 4,300 | 4,275 | |||||
Unconsolidated entities | 31 | |||||||||
3,767 | 3,703 | 4,230 | 4,300 | 4,306 |
Italy | 620 | 562 | 534 | |||
North Africa | 1,230 | 1,242 | 1,183 | |||
West Africa | 793 | 798 | 766 | |||
North Sea | 611 | 571 | 524 | |||
Caspian Area | 548 | 525 | 494 | |||
Rest of the World | 473 | 334 | 361 | |||
Total consolidated subsidiaries | 4,275 | 4,032 | 3,862 | |||
Equity-accounted entities | 31 | 27 | 101 |
23
Eni’s proved developed reserves of oilliquids by geographic area
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(mmBBL) |
Italy | 171 | 168 | 173 | 174 | 149 | |||||
North Africa | 685 | 610 | 640 | 655 | 697 | |||||
West Africa | 539 | 554 | 560 | 588 | 568 | |||||
North Sea | 476 | 426 | 464 | 386 | 353 | |||||
Rest of the World | 443 | 483 | 610 | 668 | 564 | |||||
Total consolidated subsidiaries | 2,314 | 2,241 | 2,447 | 2,471 | 2,331 | |||||
Unconsolidated entities | 19 | |||||||||
2,314 | 2,241 | 2,447 | 2,471 | 2,350 |
Italy | 149 | 136 | 133 | |||
North Africa | 697 | 713 | 649 | |||
West Africa | 568 | 546 | 511 | |||
North Sea | 353 | 329 | 299 | |||
Caspian Area | 266 | 262 | 219 | |||
Rest of the World | 298 | 140 | 142 | |||
Total consolidated subsidiaries | 2,331 | 2,126 | 1,953 | |||
Equity-accounted entities | 19 | 18 | 26 |
Eni’s proved developed reserves of natural gas by geographic area
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(BCF) |
Italy | 3,665 | 3,397 | 2,966 | 2,850 | 2,704 | |||||
North Africa | 1,103 | 1,084 | 962 | 1,760 | 3,060 | |||||
West Africa | 584 | 863 | 866 | 924 | 1,289 | |||||
North Sea | 1,721 | 1,727 | 2,075 | 1,845 | 1,484 | |||||
Rest of the World | 1,221 | 1,283 | 3,355 | 3,122 | 2,622 | |||||
Total consolidated subsidiaries | 8,294 | 8,354 | 10,224 | 10,501 | 11,159 | |||||
Unconsolidated entities | 70 | |||||||||
8,294 | 8,354 | 10,224 | 10,501 | 11,229 |
Italy | 2,704 | 2,449 | 2,304 | |||
North Africa | 3,060 | 3,042 | 3,065 | |||
West Africa | 1,289 | 1,447 | 1,469 | |||
North Sea | 1,484 | 1,395 | 1,293 | |||
Caspian Area | 1,618 | 1,511 | 1,580 | |||
Rest of the World | 1,004 | 1,105 | 1,256 | |||
Total consolidated subsidiaries | 11,159 | 10,949 | 10,967 | |||
Equity-accounted entities | 70 | 48 | 428 |
Mineral Right Portfolio and ExplorationActivityActivity for the year
As of December 31, 2005,2007, Eni’s portfolio of mineral rightsright portfolio consisted of 1,04141,220 exclusive or shared rights for exploration and development in 3436 countries on five continents, for a total net acreage of 266,0025394,490 square kilometers (234,180(385,219 at December 31, 2004)2006). Of these, 55,09837,642 square kilometers concerned production and development (41,997(48,273 at December 31, 2004)2006). Outside Italy net acreage (373,826 square kilometers) increased by 41,40311,103 square kilometers mainly due to the acquisition of assets after international bid procedures in Libya, Egypt,Angola, Congo, Russia and the Gulf of Mexico, as well as exploration property in Australia, India, Nigeria, Pakistan, Angola, Algeria, the United StatesKingdom and Ireland and purchases of mineral assets in Nigeria, Alaska and Australia. These increases were offset in part by releases in Italy, Brazil, Congo, Morocco and Tunisia and divestments of assets in the British section of the North Sea.Alaska. In Italy, net acreage (20,664 square kilometers) declined by 9,5821,832 square kilometers due to releases.
A total of 5281 new exploratory wells were drilled (21.85in 2007 (43.5 of which represented Eni’s share on the basis of its working interest in relevant properties)share), as compared to 6668 exploratory wells completed in 2004 (29.52006 (35.9 of which represented Eni’s share). OverallIn addition, 28 exploratory wells were in progress at year end. The overall commercial success rate was 40% (38% net to Eni) as compared to 43% (49% net to Eni) in 2006. In 2005, 52 exploratory wells were completed (21.8 of which represented Eni’s share), with an overall success rate of 39.3% in 2005 as compared to 52.1% in 2004; the(the success rate of Eni’s share of exploratory wells was 47.4% in 2005, as compared to 57.3% in 2004.
).
Production
The matters regarding future production, additions to reserves and related production costs and estimated reserves discussed below and elsewhere herein are forward-looking statements that involve risks and uncertainties that could cause the actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties relating to future production and additions to reserves include political developments affecting the award of exploration or production interests or world supply and prices for oil and natural gas, or changes in the underlying economics of certain of Eni’s important hydrocarbons projects. Such risks and uncertainties relating to future production costs include delays or unexpected costs incurred in Eni’s production operations.
In 20052007, oil and natural gas production available for sale averaged 1,6931,684 KBOE/d (oil and condensates 1,111(liquids 1,020 KBBL/d; natural gas 3,3443,819 mmCF/d) increasing by 107, a decrease of 36 KBOE/d, or 2.1%, compared to 2004, up 6.7%2006 mainly due to disruptions in Nigeria due to continuing social unrest (down 25 KBOE/d), due to: (i) production increases registered mainlyunplanned downtime and technical issues in Libya, Angola, Iran, Algeria, Egyptthe North Sea and Kazakhstan; and (ii) the start-up of fields in Angola and Libya. These increases were partly offset by: (i) an estimated 32 KBOE adverse entitlement impact in PSAs and buy-back contracts related to higher international oil prices; (ii)mature field declines, in mature fields mainlyparticularly in Italy and the United Kingdom; and (iii)Kingdom, as well as price impacts in certain PSAs. Production performance for the effectyear was also impacted by Venezuela’s expropriation of the divestmentDación oilfield
24
assets which took place on April 1, 2006 (down 15 KBBL/d over 2006). These negative factors were offset in part by the contribution of proved property carried out in 2004 (16 KBOE) and of hurricanesacquired assets in the Gulf of Mexico (10 KBOE). Theand Congo (up 45 KBOE/d on annual average) and production increases in Libya, Egypt and Kazakhstan. Oil and natural gas production share of production outside Italy was 85% (82.6%88% (as compared to 87% in 2004)2006).
Production of oil and condensates (1,111liquids (1,020 KBBL/d) increaseddecreased by 7759 KBBL/d, or 5.5%, compared to 2004, up 7.4%,2006. Production decreases were reported mainly in Nigeria, Venezuela and the United Kingdom due to the above-mentioned causes. The most significant increases were registered in: (i) Angola,the United States due to the contribution of purchased assets and the resumption of full activity at plants damaged by hurricanes in the second half 2005; (ii) Egypt, as a result of production ramp-up at the el Temsah fields; and (iii) Kazakhstan due to a better performance of the Hungo and Chocalho fields within phase A of the development of the Kizomba area in Block 15 and the start-up of the Kissanje and Dikanza fields within phase B of the same project in Block 15 (Eni’s interest 20%) and the start-up of the Sanha-Bomboco fields in area B of Block 0 (Eni’s interest 9.8%); (ii) Libya, due to full production at the Wafa field and the start-up of the Bahr Essalam field (Eni’s interest 50%); (iii) Iran, due to full production at the South Pars field Phases 4-5 (Eni operator with a 60% interest) and production increases at the Dorood (Eni’s interest 45%) and Darquain fields (Eni operator with a 60% interest); (iv) Algeria, due to full production at the Rod and satellite fields (Eni operator with a 63.96% interest); (v) Kazakhstan, in the Karachaganak field (Eni co-operator with a 32.5% interest) due to increased exports from Novorossiysk terminal on the Russian coast of the Black Sea; and (vi) Italy, due to increased production in Val d’Agri resulting from full production of the fourth treatment train of the oil center. These increases were partly offset by declines of mature fields, in particular in the United Kingdom, and by the effect of the divestment of assets carried out in 2004.field.
Production of natural gas available for sale (3,344(3,819 mmCF/d) in 2007 increased over 2006 by 173140 mmCF/d, compared to 2004, up 5.5%or 3.8%, due to increases registered in: (i)mainly in Libya, due to full production at the Wafa field and the start-upas a result of the Bahr Essalam field (Eni’s interest 50%); (ii) Egypt,build-up of the Western Libyan Gas Project; the Gulf of Mexico, due to the start-upcontribution of acquired assets; Norway, particularly at the BarboniAasgard (Eni’s interest 14.81%) and Kristin (Eni’s interest 8.25%) fields. Gas production decreased due to mature field declines in Italy and the Temsah 4 platform in the offshore of the Nile Delta;United Kingdom.
Oil and (iii) Kazakhstan and Pakistan. These increases were partly offset by declines of mature fields, in particular in Italy, the effect of the divestment of assets effected in 2004 and of the hurricanes in the Gulf of Mexico.
Hydrocarbongas production sold totalled 614.9in 2007 amounted to 611.4 mmBOE. About 68%Approximately 61% of oil and condensateliquids production sold (402.6(370.3 mmBBL) was delivereddestined to Eni’s Refining & Marketing segment (70% in 2004). About 44%segment; 37% of natural gas production sold (1,219(1,385 BCF) was delivereddestined to Eni’s Gas & Power segment (40% in 2004).segment.
The tables below set forth Eni’s production of oil and condensatesliquids and natural gas on an available-for-sale basis for the periods indicated.
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(KBBL/d) |
Production of oil and condensates (1) (2) | ||||||||||
Italy | 69 | 86 | 84 | 80 | 86 | |||||
North Africa | 228 | 252 | 250 | 261 | 308 | |||||
West Africa | 219 | 222 | 236 | 285 | 310 | |||||
North Sea | 204 | 213 | 235 | 203 | 179 | |||||
Rest of the World | 137 | 148 | 176 | 205 | 228 | |||||
Total | 857 | 921 | 981 | 1,034 | 1,111 |
Liquids production (1) | ||||||
Italy | 86 | 79 | 75 | |||
North Africa | 308 | 329 | 337 | |||
West Africa | 310 | 322 | 280 | |||
North Sea | 179 | 178 | 157 | |||
Caspian Area | 64 | 64 | 70 | |||
Rest of the World | 164 | 107 | 101 | |||
Total | 1,111 | 1,079 | 1,020 |
(1) | Data includes Eni’s share of production of affiliates and joint venture accounted for under the equity method of accounting amounting to 7, 8 and 8 KBBL/d in 2007, 2006 and 2005 respectively. |
Year ended December 31, | |
2001 | 2002 | 2003 | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
(mmCF/d) |
Natural gas production available for sale (1) (2) (3) | ||||||||||
Italy | 1,313 | 1,260 | 1,181 | 1,067 | 972 | |||||
North Africa | 497 | 560 | 559 | 619 | 900 | |||||
West Africa | 82 | 87 | 128 | 143 | 151 | |||||
North Sea | 450 | 516 | 596 | 560 | 563 | |||||
Rest of the World | 485 | 592 | 710 | 782 | 758 | |||||
Total | 2,827 | 3,015 | 3,174 | 3,171 | 3,344 |
Natural gas production available for sale (1) (2) | ||||||
Italy | 972 | 883 | 763 | |||
North Africa | 900 | 1,187 | 1,357 | |||
West Africa | 151 | 232 | 220 | |||
North Sea | 563 | 557 | 557 | |||
Caspian Area | 207 | 214 | 222 | |||
Rest of the World | 551 | 606 | 700 | |||
Total | 3,344 | 3,679 | 3,819 |
(1) | ||
(2) | Excluding production volumes of natural gas consumed in operations. | |
Volumes of oil and natural gas purchased under long termlong-term supply contracts with foreign governments or similar authoritiesentities in properties where Eni acts as producer totalledtotaled 75 KBOE/d, 57 KBOE/d and 20.5 KBOE/d in 2007, 2006 and 2.9 KBOE/d in 2005, and 2004, respectively (2003 amounts were immaterial).respectively.
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The table below sets forth certain information and operating data regarding Eni’s principal oil and natural gas interests for the year endedas of December 31, 2005.2007.
Principal oil and natural gas interests at December 31, 20052007
Commencement of operations | Number of interests | Gross exploration | Net exploration | Net development acreage (1) | Type of fields | Number of producing fields | Number of other fields | |||||||||
Italy | 1926 | 180 | 31,048 | 24,053 | 12,700 | Onshore/Offshore | 83 | 79 | ||||||||
North Africa | ||||||||||||||||
Algeria | 1981 | 37 | 14,352 | 3,792 | 860 | Onshore/Offshore | 23 | 15 | ||||||||
Egypt | 1954 | 56 | 34,918 | 22,644 | 4,180 | Onshore/Offshore | 35 | 28 | ||||||||
Libya | 1959 | 15 | 44,955 | 37,703 | 15,466 | Onshore/Offshore | 11 | 7 | ||||||||
Tunisia | 1961 | 11 | 6,464 | 2,317 | 1,601 | Onshore/Offshore | 9 | 6 | ||||||||
119 | 100,689 | 66,456 | 22,107 | 78 | 56 | |||||||||||
West Africa | ||||||||||||||||
Angola | 1980 | 53 | 15,234 | 2,310 | 715 | Offshore | 36 | 32 | ||||||||
Congo | 1968 | 20 | 9,855 | 4,224 | 880 | Offshore | 16 | 8 | ||||||||
Nigeria | 1962 | 49 | 46,075 | 8,922 | 6,539 | Onshore/Offshore | 119 | 69 | ||||||||
122 | 71,164 | 15,456 | 8,134 | 171 | 109 | |||||||||||
North Sea | ||||||||||||||||
Norway | 1965 | 51 | 26,601 | 8,814 | 128 | Offshore | 14 | 13 | ||||||||
The United Kingdom | 1964 | 84 | 6,504 | 1,506 | 652 | Offshore | 29 | 15 | ||||||||
135 | 33,105 | 10,320 | 780 | 43 | 28 | |||||||||||
Rest of World | ||||||||||||||||
Australia | 2001 | 15 | 31,948 | 22,349 | 3,299 | Offshore | 2 | 1 | ||||||||
Brazil | 1999 | 2 | 2,203 | 2,057 | Offshore | |||||||||||
China | 1983 | 4 | 866 | 181 | 103 | Offshore | 8 | 4 | ||||||||
Croatia | 1996 | 3 | 6,056 | 3,029 | 988 | Offshore | 2 | 6 | ||||||||
Ecuador | 1988 | 1 | 2,000 | 2,000 | 2,000 | Onshore | 1 | 1 | ||||||||
India | 2005 | 2 | 14,445 | 5,698 | Onshore/Offshore | |||||||||||
Indonesia | 2001 | 12 | 31,419 | 15,859 | 984 | Onshore/Offshore | 7 | 8 | ||||||||
Iran | 1957 | 4 | 1,456 | 820 | 820 | Onshore/Offshore | 4 | |||||||||
Kazakhstan | 1995 | 6 | 4,934 | 959 | 488 | Onshore/Offshore | 1 | 5 | ||||||||
Pakistan | 2000 | 14 | 21,876 | 11,692 | 615 | Onshore/Offshore | 6 | 1 | ||||||||
Saudi Arabia | 2004 | 1 | 51,687 | 25,844 | Onshore | |||||||||||
Trinidad & Tobago | 1970 | 1 | 382 | 66 | 66 | Offshore | 3 | 2 | ||||||||
The United States | 1968 | 389 | 7,890 | 3,569 | 389 | Onshore/Offshore | 17 | 8 | ||||||||
Venezuela | 1998 | 4 | 1,701 | 867 | 511 | Onshore/Offshore | 5 | 2 | ||||||||
458 | 178,863 | 94,990 | 10,263 | 56 | 38 | |||||||||||
Other | 9 | 6,276 | 1,279 | 1,114 | Offshore | 1 | ||||||||||
Other countries with only exploration activity | 18 | 89,056 | 53,448 | Onshore/Offshore | ||||||||||||
Outside Italy | 861 | 479,153 | 241,949 | 42,398 | 348 | 232 | ||||||||||
Total | 1,041 | 510,201 | 266,002 | 55,098 | 431 | 311 |
Italy | 1926 | 162 | 25,991 | 20,664 | 12,582 | Onshore/Offshore | 82 | 103 | ||||||||
North Africa | ||||||||||||||||
Algeria | 1981 | 36 | 11,432 | 3,041 | 902 | Onshore | 24 | 14 | ||||||||
Egypt | 1954 | 56 | 24,443 | 14,469 | 3,011 | Onshore/Offshore | 34 | 30 | ||||||||
Libya | 1959 | 16 | 37,749 | 33,289 | 796 | Onshore/Offshore | 12 | 14 | ||||||||
Tunisia | 1961 | 11 | 6,464 | 2,274 | 1,558 | Onshore/Offshore | 19 | 3 | ||||||||
119 | 80,088 | 53,073 | 6,267 | 89 | 61 | |||||||||||
West Africa | ||||||||||||||||
Angola | 1980 | 55 | 20,527 | 3,570 | 1,398 | Offshore | 42 | 27 | ||||||||
Congo | 1968 | 24 | 11,099 | 4,905 | 968 | Offshore | 19 | 7 | ||||||||
Nigeria | 1962 | 50 | 44,049 | 7,756 | 5,715 | Onshore/Offshore | 83 | 51 | ||||||||
129 | 75,675 | 16,231 | 8,081 | 144 | 85 | |||||||||||
North Sea | ||||||||||||||||
Norway | 1965 | 49 | 15,335 | 5,390 | 123 | Offshore | 13 | 7 | ||||||||
United Kingdom | 1964 | 88 | 5,445 | 1,239 | 610 | Offshore | 36 | 11 | ||||||||
137 | 20,780 | 6,629 | 733 | 49 | 18 | |||||||||||
Caspian Area | 1995 | 6 | 4,933 | 959 | 488 | Onshore/Offshore | 1 | 5 | ||||||||
Rest of world | ||||||||||||||||
Australia | 2001 | 19 | 62,510 | 31,544 | 891 | Offshore | 2 | 1 | ||||||||
Brazil | 1999 | 4 | 2,920 | 2,774 | Offshore | |||||||||||
China | 1983 | 3 | 632 | 103 | 103 | Offshore | 10 | 3 | ||||||||
Croatia | 1996 | 2 | 1,975 | 988 | 988 | Offshore | 5 | 5 | ||||||||
East Timor | 2006 | 5 | 12,224 | 9,779 | Offshore | |||||||||||
Ecuador | 1988 | 1 | 2,000 | 2,000 | 2,000 | Onshore | 1 | |||||||||
India | 2005 | 3 | 24,425 | 9,091 | Onshore/Offshore | |||||||||||
Indonesia | 2001 | 10 | 27,999 | 16,047 | 656 | Onshore/Offshore | 7 | 8 | ||||||||
Iran | 1957 | 4 | 1,456 | 820 | 820 | Onshore/Offshore | 3 | |||||||||
Pakistan | 2000 | 22 | 38,426 | 21,155 | 601 | Onshore/Offshore | 6 | 3 | ||||||||
Russia | 2007 | 4 | 5,126 | 3,076 | 1,168 | Onshore | 3 | 6 | ||||||||
Saudi Arabia | 2004 | 1 | 51,687 | 25,844 | Onshore | |||||||||||
Trinidad & Tobago | 1970 | 1 | 382 | 66 | 66 | Offshore | 2 | 3 | ||||||||
United States | 1968 | 558 | 10,619 | 6,024 | 937 | Onshore/Offshore | 63 | 13 | ||||||||
Venezuela | 1998 | 3 | 1,556 | 614 | 145 | Offshore | 1 | |||||||||
640 | 243,937 | 129,925 | 8,375 | 102 | 43 | |||||||||||
Other countries | 9 | 6,311 | 1,364 | 1,116 | Offshore | |||||||||||
Other countries with only exploration activity | 18 | 299,568 | 165,646 | Onshore/Offshore | ||||||||||||
Outside Italy | 1,058 | 731,292 | 373,827 | 25,060 | 385 | 212 | ||||||||||
Total | 1,220 | 757,283 | 394,491 | 37,642 | 467 | 315 |
(1) | Square kilometers. |
Eni’s principal regions of operations are described below. In the discussion that follows references to hydrocarbon production are to be intended to be hydrocarbon production available for sale.
Italy
In 2005, Eni’s hydrocarbon productionEni has been operating in Italy totalled 256since 1926. In 2007, Eni’s oil and gas production amounted to 208 KBOE/d and represented 15% ofd. Eni’s total production. Eni’s exploration and development interestsactivities in Italy are concentrateddeployed in the Adriatic Sea, the Central Southern Apennines, Sicilymainland and the Sicilian offshore Sicily and the Po Valley. Natural gasEni’s exploration and development activities in Italy are regulated by concession contracts.
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The Adriatic Sea represents Eni’s main production availablearea in Italy, accounting for sale averaged 972 mmCF/d and represented approximately 67%30% of Eni’s hydrocarbondomestic production in Italy. Eni’s principal2007. Production is composed mainly of natural gasgas. Main operated fields are locatedBarbara (155 mmCF/d net to Eni), Angela-Angelina (64 mmCF/d), Porto Garibaldi (57 mmCF/d) and Cervia (46 mmCF/d).
Eni is operator of the Val d’Agri concession (Eni’s interest 60.77%) in Basilicata Region, Southern Italy, resulting from the Adriatic Sea (Barbara, Angela/Angelina, Porto Garibaldi/Agostino, Cervia/Arianna, Porto Corsini, Reginaunitization of the Volturino and Bonaccia, which collectively accounted for 50%Grumento Nova concessions made in late 2005. Production from the Monte Alpi, Monte Enoc and Cerro Falcone fields is fed by 22 production wells of the 47 foreseen by the sanctioned development plan and is supported by the Viggiano oil center with a treatment capacity of 104 KBBL/d. Oil produced is carried to Eni’s refinery in Taranto via a 136-kilometer long pipeline. In 2007, the Val d’Agri concession produced 106 KBOE/d (65 net to Eni) corresponding to 31% of Eni’s production in Italy.
Eni is operator of 15 production concessions onshore and offshore Sicily. Its main fields are Gela, Ragusa, Giaurone, Fiumetto and Prezioso, which in 2007 accounted for 9% of Eni’s production in Italy. In 2007, production started at: (i) Fiumetto-4 well and Pizzo Tamburino concessions in the onshore of Sicily, with production at 600 BOE/d and 1,000 BOE/d, respectively; (ii) Tea/Arnica/Lavanda field in the Adriatic Sea, with production peaking at 35 mmCF/d and which was linked to Ravenna Mare power station; and (iii) Candela field in the Puglia Region, with production at 3,531 CF/d. The first development phase was completed through linking of existing facilities. In 2007, development activities concerned in particular: (i) optimization of producing fields by means of sidetracking and infilling (Gela, Gagliano, Cervia, Barbara, Bonaccia and Emma); and (ii) continuation of drilling and upgrading of producing facilities in the Val d’Agri. The main ongoing development project is Miglianico, located in the onshore of the Abruzzi Region. Three development wells have been drilled. The project provides for the construction of facilities to treat production volumes of oil, to be delivered to logistic structures of the Refining & Marketing segment. The production volumes of gas will be input into Italian natural gas transportation network. Production is expected to start in the second half of 2009, peaking at 7 KBOE/d. |
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In the medium term, management expects production in Italy in 2005) and into remain stable at current level due to the Ionian Sea (Luna, which accounted for 9.2%).
Productionproduction ramp-up of oil in Italy averaged 86 KBBL/d. Eni’s three major oil fields, Val d’Agri in Southern Italy, Villafortuna in the Po Valley and Gela in Sicily, represented 82% of Eni’s total oil production in Italy in 2005. Other oil fields are Aquila in the Adriatic offshore of Southern Italy, Rospo in the Adriatic Sea, Prezioso and Vega offshore Southern Sicily, and Giaurone and Ragusa in Sicily.
Exploration activities onshore yielded positive results with the Mezzocolle 1 well (Eni’s interest 100%) containing natural gas in the Imola permit in the central Apennines, with the Longanesi 1 well containing natural gas in the Po Plain (Eni’s interest 100%) and with Argo-1 well (Eni’s interest 60%) testing an offshore gas accumulation in the Sicily Channel.
In the Val d’Agri the expected production peak of 73 KBOE/d net to Eni was reached as planned. Oil production derives from the first 19 wells drilled of the 38 foreseen by the development plan.
Production maintenance actions were performed on the offshore Annabella, Armida, Barbara, Garibaldi gas fields and the Rospo oilfield through the drilling of infilling wellsongoing new field project and sidetrack activities, increasing production by about 75 mmCF/d.
During 2005continuing development activities concerned: (i) continuation of the development plan of the onshore Candela and Miglianico fields and the completion of the development of the Naide field; (ii) continuation of drilling and connection of development wells in the Val d’Agri; (iii) the optimization of producing fields by means of sidetracking and infilling (the Annabella, Armida, Barbara, Garibaldi gas fields and the Rospo oilfield); (iv) construction of an additional sealine for the optimal management of the fields connecteddesigned to the Fano terminal; and (v) the beginning of the development phase of the Annamaria field.
As part of the development of onshore gas fields in Sicily the following projects are in an advanced phase: (i) in the Pizzo Tamburinocounteract mature field the first well is scheduled for the second half of 2006 with expected production of approximately 6 mmCF/d; in 2007 according to the actual production of the first well a second one is expected to be drilled; (ii) in the Fiumetto field, an infilling well is expected to start production in the first half of 2007 with an expected peak flow of approximately 7 mmCF/d; and (iii) in the Samperi field, start-up is expected in the second half of 2006 peaking at approximately 7 mmCF/d.
In December 2005 Eni acquired for euro 90 million (including net financial debt transferred of euro 17 million) a 90% interest in Sarcis SpA holding onshore permits/concessions in Sicily.decline.
North Africa
Eni’s operations in North Africa are conducted in Algeria, Egypt, Libya and Tunisia. In 2005,2007, North Africa accounted for 27%34% of Eni’s total worldwide production of hydrocarbons.oil and natural gas.
Algeria. Eni has been present in Algeria since 1981. In 2005,2007, Eni’s oil production in Algeria averaged 86 KBBL/85 KBOE/d. The principal oil producing fields operated by EniOperating activities are located in the Bir Rebaa area in the South-Eastern desert and include the following exploration and production blocks: (a) Blocks 401a, 403 a/d (Eni’s interest 100%); (b) Blocks 401a/402a (Eni’s interest 55%); (c) Blocks 403 403a(Eni’s interest 50%) and 403d404a (Eni’s share between 50%-100%interest 12.25%), which; and (d) Blocks 212 (Eni’s interest 22.38%) and 208 (Eni’s interest 12.25%).
Exploration and production activities in Algeria are regulated by Production Sharing Agreements (PSAs) and concession contracts.
Production in Block 403a/d is supplied mainly by the HBN and Rom and satellite fields and accounted for approximately 52%23% of Eni’s production in 2005Algeria in 2007. The main project underway is the Rom Integrated project, designed to develop the reserves of the Rom Main (Eni’s interest 100%), ZEA (Eni’s interest 75%) and Rom Nord fields. The project provides for the construction of a new oil treatment plant with a capacity of 32 KBBL/d. First oil is expected in 2011.
Production in Blocks 401a/402a is supplied mainly by the Rod and satellite fields and accounted for approximately 22% of Eni’s production in Algeria in 2007. Infilling activities are being performed in order to maintain the current production plateau.
The main fields in Block 403 are BRN, BRW and BRSW and accounted for approximately 14% of Eni’s production in Algeria in 2007. Extensive exploration activity is being performed. In October 2007, Eni and the Algerian state company Sonatrach signed an agreement for the renewal of the development and production concession on this block.
Block 208 is located South of Bir Rebaa. The El Merk Synergy plan for the development of this block in conjunction with the development of adjoining blocks operated by other companies is the main project underway in Algeria. Other interests heldThe project scheme provides for the construction of a Central Production Facility. Start-up is expected after 2011. In 2007, basic engineering work was completed.
In 2006, Sonatrach requested international oil companies, including Eni, to renegotiate the economic terms of certain PSAs in light of certain changes enacted in the tax regime applicable to oil activities. Although tax terms applicable to existing PSAs partied by Eni are HBN, HBNS, HBNSE and satellitesinternational oil companies have not been modified, Sonatrach asserts that it is currently bearing higher taxation on behalf of foreign oil companies. On this basis, Sonatrach intends to renegotiate the economic terms of those PSAs, particularly Blocks 401a/402a (Eni’s interest 55%), 404 (Eni’s interest 12.25%) and Ourhoud (Eni’s interest 4.59%), which in 2005 accounted for approximately 48% of Eni’s production in Algeria.
Exploration activities yielded positive results in permits P 404 in area C (Eni’s interest 25%), near the HBNE field, with the SFSW-3 appraisal well on the Sif Fatima discovery and P 403 c/e (Eni’s interest 33.33%) with the ZNNW-1 appraisal well. In both permits the presence of hydrocarbons was confirmed at a depth of about 3,000 meters.
In Block P 403a/d (Eni’s interest 50%) the NFW ROM-6 discovery well and the ROM North-1 appraisal well were drilled at a depth of about 3,400 meters and confirmed the extension of the new oil levels in the ROM field. The ROM integrated development project entails production from these new levels also through the reinjection of gas produced in the nearby BRN field, reducing gas flaring by nearly 90%. Management expects production of the ROM field to peak at 16 KBOE/d net to Eni in 2009.
The EKT, EMK, EMN and EME fields are in the development phase in block 208 (Eni’s interest 12.25%). The development plan provides for, in order to restore the drillinginitial economics of 142 wells andsuch contracts. At present, management is not able to foresee the constructionfinal outcome of a central facility forsuch renegotiations.
In the production of stabilized oil, condensates and LNG. Managementmedium term, management expects production of this fieldin Algeria to commence in 2008, peaking at 13 KBOE/d netdecline slightly due to Eni in 2010.mature fields decline.
EgyptEgypt. Eni has been present in Egypt since 1954. In 2005,2007, Eni’s share of production in this country amounting to 207231 KBOE/d and accounted for 12%14% of Eni’s total annual hydrocarbon production.
In 2005, oil and condensate production averaged 90 KBBL/d net to Eni and came mainly from Eni’s main producing liquid fields are located in the Eni operated Belayim and Ashrafi fieldsconcession (Eni’s interest 100%) offshore in the Gulf of Suez and Melehia inSuez. Gas production mainly comes from the Western Desert, which covered 74%operated or participated concession of Eni’s crude oil production in Egypt.
In 2005, natural gas production available for sale averaged 671 mmCF/d net to Eni. The main natural gas producing interests operated by Eni are concentrated in the Nile Delta: onshore the Abu Madi and el Qar’a interests and in the Mediterranean offshore, the North Port Said (former Port Fouad)Fouad, Eni’s interest 100%), Baltim (50% interest), Ras el Barr (50% interest, non-operated) and el Temsah interests. Production(50% interest) offshore the Nile Delta. In 2007, production from these concessions covered nearly allalso including a portion of liquids accounted for 90% of Eni’s natural gas production in Egypt.
Exploration yielded positive resultsand production activities in Egypt are regulated by concession contracts and PSAs.
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Development activities are underway in the offshore area of the Nile Delta: (i) in the North Port Said concession (Eni’s interest 100%), production started at the Semman gas field. Production is expected to peak at 46 mmCF/d net to Eni. Development activities at the el Gamil plant progressed by increasing compression capacity to support the el Temsah and Ras el Barr production concessions; (ii) in the Ras el Barr concession (Eni’s interest 50%), development activities of the Taurt field are underway. This project provides the drilling of production wells which are expected to be linked by sealines and umbilicals to existing onshore treatment facilities. Production is expected to start in second half of 2008; and (iii) in the el Temsah concession (Eni operator with a 50% interest), production started at the Denise A platform. The production build-up is expected to be completed in the first half of 2008. Through its affiliate Unión Fenosa Gas, Eni has an indirect participation in the Damietta natural gas liquefaction plant with a producing capacity of 5 mmtonnes/y of LNG corresponding to approximately 268 BCF/y of feed-gas. Eni is currently supplying 53 BCF/y to the first unit for a twenty-year period. Future supplies will be secured by developing the Taurt and Denise fields which are expected to supply 23 KBOE/d of feed-gas to the first unit. The partners of this project are planning to double the plant capacity by means of the construction of a second train seen operating in 2011. Eni will supply 88 BCF/y to the second train for a twenty-year period. The reserves which are destined to feed this second train have already been identified, including any additional amounts that must be developed to meet the country’s domestic requirement under existing laws. The approval from relevant Egyptian Authorities is expected in the first half of 2008. In April 2008, Eni signed a memorandum of understanding relating to the thermoelectric sector in Egypt, where the Company will provide its technology for the combined production of electricity and steam from gas-fired plants. Main discoveries for the year were achieved in: (a) the offshore area of the Nile Delta with the Satis-1 discovery well (Eni��s interest 50%), showing the presence of significant amounts of gas at a depth of over 6,500 meters, as well as the Andaleeb-1 and Aten-1 discovery wells (Eni’s interest 100%); (b) the onshore area of the Western Desert with two near field discoveries in the Melehia (Eni’s interest 56%) and West Razzak (Eni’s interest 80%) development permits and in the East Obayed exploration permit (Eni’s interest 100%) with in Faramid-1 exploration well; and (c) the Gulf of Suez with near field discoveries in the offshore Belayim Marine permit (Eni’s interest 100%). These ongoing exploration activities aim at supporting the expansion plan of the Damietta LNG plant. In the medium term, management expects to increase Eni’s production in Egypt to approximately 240 KBOE/d reflecting ongoing development of gas reserves, despite expected mature oil field declines. Libya. Eni started operations in Libya in 1959. In 2007, Eni’s oil and gas production averaged 242 KBOE/d, the portion of liquids being 58%. Production activity is carried out in the Mediterranean offshore facing Tripoli and in the Libyan desert area. |
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In October 2007, Eni signed a major petroleum agreement with NOC, the Libyan National Oil Corporation. The agreement provides the extension of Eni’s mineral rights in Libya until 2042 and 2047 for oil and gas properties respectively, and the launch of large projects in gas monetization and exploration. This agreement will enable Eni to efficiently develop its long-life producing fields over a long time frame by applying its advanced techniques for maximizing the recoverability of hydrocarbons. The projects defined by the agreement regard: (i) overhauling the exploration activities in high-potential areas where Eni is already present; (ii) monetizing additional and substantial gas reserves through the upgrading of the GreenStream export pipeline, achieving an additional transport capacity of 106 BCF/y and the construction of a new LNG plant near Mellitah designed to produce 177 BCF/y, equivalent of LNG to be marketed worldwide. Under this agreement, the properties owned by Eni have been grouped into six contract areas (onshore and offshore) regulated according to Production Sharing Agreements. Onshore, the following concessions:areas have been identified: (i) AshrafiArea A, including the former concession 82 (Eni’s interest 50%) in; (ii) Area B, former concessions 100 and the Gulf of Suez with the drilling of the NFW Ashrafi 1X well that found hydrocarbons at a depth of about 1,700 meters; (ii) Belayim LandNC 125 field (Eni’s interest 50%); (iii) Area E, with the drilling of NFW BLSW-1 well that found gas at a depth of over 3,000 meters; (iii) Belayim MarineBlock NC 174 (Eni’s interest 33.3%); and (iv) Area F, with Block 118 (Eni’s interest 50%) in the Gulf of Suez. Offshore areas are: (i) Area C with the drilling of the BMNW-4 outpost well which allowed to report mineralized levels at a depth of about 3,000 meters. This well was linked to the existing production facilities; and (iv) North Port Said (Eni operator with a 50% interest) with the drilling of the PFM-D-1 well which found gas and condensates at a depth of about 5,000 meters.
Development activities are underway in concessions in the offshore of the Nile Delta: (i) North Port SaidBouri oil field (Eni’s interest 50%) where the Barboni gas platform started production in May 2005 at an initial level of about 35 mmCF/d while work continued for the expansion of the el Gamil terminal where in 2005 natural gas production net to Eni increased from 388 to 459 mmCF/d;; and (ii) el Temsah (Eni operatorArea D, with a 25% interest) where in August 2005 gasBlocks NC 41 and liquid production started at the Temsah 4 platform. In the second quarter of 2006 production of gas and condensates is expected to start from platform Temsah NW. Peak production at 41 KBOE/d net to Eni is expected in 2008.
In January 2005 the LNG production plant at Damietta was started-up. The plant (Eni’s interest 40%) has a treatment capacity of 247 BCF/y. Eni plans to supply 106 BCF/y of its natural gas production volumes in Egypt to this plant in the next 20 years. A second liquefaction train is planned to be installed at the plant with the same capacity of the first train. Eni plans to supply its production gas to this line as agreed in an intent protocol signed with the Egyptian Government in March 2005.
In January 2005 the NGL plant in Port Said was started-up. The plant (Eni’s interest 33%) has a treatment capacity of 1,095 mmCF/d of natural gas and annual production of 330,000 tonnes of propane, 280,000 tonnes of LPG and 1.2 mmBBL of condensates.
In the medium term management plans to increase Eni’s hydrocarbon production in Egypt leveraging on the development of natural gas reserves in existing areas. This increase is expected to be offset in part by production decline of certain mature oil fields.
Libya Eni started operations in Libya in 1959. In 2005, Eni’ s share of production in this country amounting to 158 KBOE/d accounted for approximately 9% of Eni’s total annual hydrocarbon production.
In 2005 Eni’s hydrocarbon production averaged 158 KBOE/d, of which 76% was oil. The main oil, condensates and gas fields operated by Eni are Wafa onshore in permit NC-169 A and Bahr Essalam located in the NC-41 permit in the Mediterranean offshore north of Tripoli started up in September 2004 and August 2005, respectively, as part ofNC 169 (onshore) that feed the Western Libyan Gas Project (Eni’s interest 50%). Production from the two fields is treated at the Mellitah plant under completion on the Libyan coast. Natural gas is carried to Italy through the underwater Greenstream pipeline. In 2005 the two fields produced 74 KBOE/d. Total peak production at 128 KBOE/d net to Eni is expected in 2006. When fully operational in 2006 the gasline is expected to transport and export to Italy a total volume of 283 BCF/y (141 BCF/y net to Eni). This volume will be entirely sold to third parties on the Italian natural gas market under long term contracts. In addition 71 BCF/y are expected to be sold on the Libyan market. In 2005, volumes transported to Italy through this gasline amounted to approximately to 163
In the exploration phase, Eni is operator of four onshore blocks in the Muzurk basin (161/1, 161/2&4, 176/3) an in the Kufra area (186/1, 2, 3 & 4). In May 2007, the Government of Libya issued a tax law that amended the profit taxation regime for foreign oil companies operating under PSA schemes. In line with past practice, Libya’s National Oil Company (NOC) was designated as tax agent on behalf of foreign oil companies operating under PSA. The new tax regime is expected to become effective from 2008, after receiving instructions from NOC on the determination of the asset tax base recognized at January 1, 2008 (which instructions might result in an adjustment of related deferred tax liabilities). Eni does not expect the adoption of the new law to have a significant impact on the agreed oil profit share under PSAs currently existing between the Libyan state company and Eni. As a part of the Western Libyan Gas project (Eni’s interest 50%), ongoing projects to upgrade production facilities aim at increasing current natural gas production by 35 BCF/y and supporting current oil production plateau of the Wafa field. Export of natural gas leverages on the GreenStream pipeline, which delivered 313 BCF in 2007. In addition, 29 BCF were sold on the Libyan market for power generation. In 2007, the production of the Wafa and Bahr Essalam fields was 154 KBOE/d net to Eni (up 36% from 2006). Other ongoing development projects regarded the ANC118 field (Eni’s interest 50%) by linking it to existing facilities at the Wafa and Mellitah plants and the monetization of gas volumes currently flared at the Bouri field (Eni’s interest 50%) by processing at the Sabratha platform and exporting them via the GreenStream pipeline. |
Main discoveries for the year.
Other significant fields are: (i) Bu-Attifelyear were achieved in: (a) offshore Block NC41 (Eni’s interest 50%100%) onshore in, where the central-eastern desertU1-NC41 discovery well showed the presence of oil and Bouri (Eni’s interest 30%) in the Mediterranean offshore facing Tripoli which accounted for 43% of Eni’s production in Libya in 2005; and (ii) Elephant in the NC-174 onshore permit in the south-western desert (Eni’s interest 23.33%) which in 2005 produced 9 KBBL/d net to Eni.
In October 2005 following an international bid procedure Eni obtained an exploration license as operator of four onshore blocks with a total acreage of 18,220 square kilometers, located in the Murzuk basin (161/1, 161/2&4, 176/3) and in the Kufra area (186/1, 2, 3, 4).
Exploration yielded positive results in offshore block NC-41 (Eni operator with a 50% interest) with the drilling of well NFW T1-NC41 which found oil andnatural gas at a depth of 2,770 metersover 2,600 meters; and yielded 4.6 KBBL/d of crude oil and 13 mmCF/d of gas in test production.
In the NC-174 permit(b) onshore concession 82 (Eni’s interest 23.33%50%), where the YY1-82 discovery well showed the presence of oil at a depth of about 800 kilometers south of Tripoli the development of the Elephant oil field continued. In October 2005 the new 725-kilometer long pipeline linking it to the Mellitah plant started operations. The upgrading of the Mellitah plant will be completed in the first half of 2006. Management expects production of this field to peak at 150 KBBL/d (35 KBBL/d net to Eni) in the second half of 2006.5,000 meters.
In the medium term, management expects to increase significantly Eni’s production in Libya owing to the expected ramp-up of new mineral structures near the Western Libyan Gas Project fields, despite mature field declines.
Tunisia. Eni has been present in Tunisia since 1961. In 2007, Eni’s production amounted to 15 KBOE/d. Eni’s activities are located mainly in the Mediterranean offshore facing Hammamet and in the Southern desert areas.
Exploration and production in this country are regulated by concessions and Production Sharing Agreements.
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Production mainly comes from the 158Adam (Eni operator with a 25% interest), Oued Zar (Eni operator with a 50% interest), MLD (Eni’s interest 50%) and El Borma (Eni’s interest 50%) onshore blocks. In 2007, the development of Maamoura offshore field was sanctioned. Production is expected to start in 2009 and flow at 7 KBOE/d leveld.
Main discoveries in 2007 were achieved in: (i) the Adam concession, where the Karma-1 and Ikhil-1 exploration wells found oil and the Nadir-1 exploration well showed the presence of 2005 benefiting fromgas. The three wells were linked to existing production facilities; (ii) the expected achievementBordi el Khadra permit, where the Nakhil 1 exploration well showed an oil formation and was linked to existing production facilities; and (iii) the Larich concession, where the Larich SW-1 exploration well showed the presence of fulloil and gas.
In the medium term Eni expects production atin Tunisia to increase due to the Western Libya Gas Project and at Elephant fields.development of recent discoveries.
West Africa
Eni’s operations in West Africa are conducted in Angola, Congo and Nigeria. In 2005,2007, West Africa accounted for 20%19% of Eni’s total worldwide production of hydrocarbons.oil and natural gas.
AngolaAngola. Eni has been present in Angola since 1980. In 20052007, Eni’s oil production averaged 122132 KBOE/d. Eni’s activities are concentrated in the conventional and deep offshore.
The main blocks participated by Eni are: (i) Block 0 in Cabinda (Eni’s interest 9.8%) west of the Angolan coast; (ii) Development Areas in the former Block 14 (Eni’s interest 20%) in the deep offshore west of Block 0; and (iii) Development Areas in the former Block 15 (Eni’s interest 20%) in the deep offshore of the Congo basin. Eni also holds interests in other minor concessions, in particular in some areas of Block 3 (with interests varying from 12 to 15%) and in the 14K/A IMI Unit Area (Eni’s interest 10%). In the exploration phase, Eni is operator of Block 15/06 (with a 35% interest) and holds interests in Block 3/05-A with a 12% interest. Exploration and production activities in Angola are regulated by concessions and PSAs. In November 2007, Eni acquired a 13.6% stake in the Angola LNG Ltd Consortium responsible for the construction of an LNG plant in Soyo, 300 kilometers North of Luanda. This facility will be designed to produce 5.2 mmtonnes/y of LNG by processing 1 BCF/d of natural gas. The project has been sanctioned by the Angolan Government and Parliament and will develop significant amounts of gas reserves along a 30-year period. The project has high environmental value since it allows the collection of the associated gas from offshore production blocks, in compliance with the zero flaring policy. The LNG is expected to be delivered to the U.S. market at the re-gasification plant in Pascagoula, in the Gulf of Mexico, in which Eni, following this agreement, has acquired a re-gasification capacity equivalent to approximately 177 BCF/y. |
In December 2007, Eni finalized another agreement to be part of a second gas consortium which will evaluate existing gas discoveries and explore further potential in the Angolan offshore to support the feasibility of a second LNG train. Eni is technical operator, with a 20% interest.
Development activities at the Landana and Tombua oil fields in offshore Block 14 progressed, achieving early production at the Landana field which was linked to existing facilities at Benguela/Belize. Production is expected to peak in 2009 at 130 KBBL/d and accounted for 11%(23 net to Eni).
Development of Eni’s total annualthe Banzala oil production.
Eni’s main oil producing fields are locatedfield in Block 0 in Cabinda (Eni’s interest 9.8%), Block 14 (Eni’s interest 20%)moved forward with the installation of the two scheduled production platforms, which had been previously started up in June 2007 and Block 15 (Eni’s interest 20%).
The main oil fields in Block 0 are Takula, Nemba and Malongo. In the first half of 2005 production started at the North Sanha/Bomboco oil, condensate and LPG offshore fields. LPG is produced through an FPSO (FloatingJanuary 2008, respectively. Production Storage Offloading) unit, the largest in its class in the world. At Sanha a complex for the reinjection of gas into the fields has been built aiming at reducing gas flaring by 50%. In 2005 production from this block (38 KBBL/d) accounted for approximately 31% of Eni’s production in Angola. Peak production of oil, condensate and LPG is expected to peak in 2009 at 10027 KBBL/d (10 KBBL/d net to Eni) in 2007. The main field in the deep waters of Block 14 is Kuito which in 2005 produced approximately 58 KBBL/d (10(3 KBBL/d net to Eni).
In Block 15 the Hungo and Chocalho fields started-up in August 2004, and the Kissanje and Dikanza fields, started-up in July 2005 within phase A and B31
As part of Phase C of the development of reserves in the Kizomba deep offshore area, development activities of the Mondo and Saxi/Batuque fields in Block 15 are nowongoing. A common development strategy is expected to be deployed in production. Bothboth projects, envisaging the installation of FPSO vessels. In January 2008, the Mondo field was started up. The Saxi/Batuque fields are developed by means of an FPSO unit.expected to start-up in 2008. Peak production of phase B at 250100 KBBL/d (47 KBBL/d net to Eni) was reached in late 2005. Peak production of phase A at 250 KBBL/d (43 KBBL/d(18 net to Eni) is expected in 20062008 and will be kept2009, respectively. In September 2007, production started at the same levelMarimba field by means of additional production from marginal fields. Another relevant field in Block 15linking to existing facilities at Kizomba A. Production is Xikomba. In 2005 production from Block 15 (70 KBBL/d) accounted for approximately 56% of Eni’s production in Angola. Development is underway at: (i) Mondo field with expected start up in 2007 and expected capital expenditure net to Eni amounting to approximately $360 million; and (ii) at Saxi-Batuque fields with expected start uppeak in 2008 and expected capital expenditure net to Eni amounting to approximately $380 million.
The project is underway for the development of the Benguela, Belize, Lobito and Tomboco oilfields at a depth between 300 and 500 meters in Block 14 (Eni’s interest 20%). The project provides for the drilling of 50 wells and the installation of a compliant tower with production facilities for Benguela/Belize. The first oil was produced in January 2006. Lobito and Tomboco are planned to be developed by means of underwater completion and to be connected to the compliant tower of Benguela/Belize with start-up scheduled in the second half of 2006. Management expects production from these four fields to peak at 18839 KBBL/d (32(7 KBBL/d net to Eni).
Main oil discoveries were made in 2008. Total capital expenditure net to Eni is expected to amount to approximately $460 million.
Offshore exploration activities were successful in the following areas: (i) Block 0, former Cabinda (Eni’s interest 9.8%)14, with the NFW 70-5X well that found hydrocarbons at a depth of 2,335 metersLucapa-1, Menongue-1 and yielded 2 KBBL/d of crude oilMalange-1 wells and natural gas in test production; (ii) Block 14K/A-IMI (Eni’s share 10%)15/06 with the drilling of the Lianzi-2ST and Lianzi-2OH appraisal wells on the LianziSangos 1 discovery which showed the presence of natural gas and crude oil layers at a depth of more than 3,000 meters; and (iii) Block 15 (Eni’s interest 20%) with the Batuque-3 appraisal well on the Batuque discovery which confirmed the presence of hydrocarbons at a depth of about 2,000 meters.
In May 2006, Eni acquired the operatorship (Eni’s interest 35%) of a new exploration area in Block 15.well.
In the medium term, management expects to increase Eni’s production to approximately 200130 KBBL/d benefitingreflecting contributions from the expected achievement of full production of fields started-up in 2005 and the contribution of newongoing development projects.projects, despite mature field declines.
CongoCongo. Eni has been present in Congo since 1968 and its activities are concentrated in the conventional and deep offshore facing Pointe Noire and onshore. In 2007, production in 2005 wasaveraged 67 KBOE/d.
Eni is the second largest international oil producer, with oil fields operated by Eni accounting for 28% of Congo’s total oil production in 2005 (65 KBBL/d net to Eni). Eni.
In April 2007, an agreement was signed awarding to Eni the Marine XII exploration permit (Eni operator with a 90% interest) offshore Congo. The goal of the initiative is to exploit the relevant gas potential and feeding a power plant. In May 2007, Eni closed the acquisition of exploration and production assets from the French company Maurel & Prom onshore Congo, for a cash consideration of approximately for euro 1 billion. Acquired properties brought in an additional production of approximately 17 KBOE/d and proved reserves amounting to approximately 33 mmBOE. Eni’s principal oil producing interests operated in Congo are the Zatchi (Eni’s interest 65%) and Loango (Eni’s interest 50%) fields and Blocks Marine VI (Eni’s interest 65%) and VII (Eni’s interest 35.75%) as well as the acquired assets including the producing fields of M’Boundi (Eni’s interest 43.1%) and Kouakouala A (Eni’s interest 66.67%). In 2008, Eni’s working interest in the M’Boundi field will reach 80.1% due to the acquisition of Burren Energy finalized early in 2008. Eni holds a 35% interest in the Pointe Noire Grand Fonde and Pex permits. Eni also holds interests in the exploration phase in three deep offshore blocks: Mer Très Profonde Nord (Eni operator with a 40% interest), Mer Très Profonde Sud (Eni’s interest 30%), Marine X (Eni operator with a 72% interest), and Le Kouilou onshore permit (Eni operator with a 48% interest). |
Exploration and production activities in the Congo are locatedregulated by Production Sharing Agreements.
Development activities of the acquired M’Boundi field moved forward with the revision of the production scheme and layout, as well designing activities regarding application of advanced recovery techniques and associated gas monetization. In particular, Eni signed an agreement with Congolese authorities for doubling the Djeno power plant and building a new power plant to be fired with associated gas produced at the M’Boundi field. These projects are expected to start-up in the offshore facing Pointe Noire:second half of 2008 and by end of 2009, respectively.
Development activities at the Zatchi, Foukanda, Mwafi and Djambala fieldsAwa Paloukou (Eni’s interest 65%90%), the Loango field and Ikalou-Ikalou Sud (Eni’s interest 50%100%) fields are underway. Production is expected to start in 2008, peaking at 13 KBOE/d net to Eni in 2009.
Main oil discoveries were made in Mer Très Profonde Sud permit (Eni’s interest 30%) with the Persée Nord Est-1 well, drilled at a depth between 2,700 and 3,500 meters, and the Kitina field (Eni’s interest 35.75%) operated by Eni accounted for approximately 59%Cassiopea Est-1 well, drilled at a depth of 2,900 meters and which yielded 5,300 BBL/d in test production.
In the medium term, management expects to increase Eni’s production in Congo due to the contribution from recently acquired assets, targeting a level of 140 KBBL/d in 2005. Eni holds a 35% interest2011. Key growth drivers will be the integration and development of assets acquired from Maurel & Prom and Burren Energy in the Pointe Noire Grand Fond and Pex permits.addition to projects underway.
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NigeriaNigeria. Eni has been present in Nigeria since 1962. In 2005,2007, Eni’s hydrocarbonoil and gas production averaged 149119 KBOE/d located mainly in the onshore and accounted for 9%offshore of Eni’s hydrocarbon production.the Niger Delta.
Eni’s principal producing fields in Nigeria are located in: (i) fourIn the development /production phase Eni is operator of onshore blocks (OMLOil Mining Leases (OML) 60, 61, 62 and 63) in the Niger Delta63 (Eni’s interest 20%), which in 2005 accounted for 35% of Eni’s production in Nigeria; (ii) the and offshore OML 125 block (Eni’s interest 50.19%), where the Abo field is located which produced over 14 KBBL/d net to Eni in 2005. The development of other levels of the Abo field are expected to reach a production peak of 38 KBBL/d (15 KBBL/d net to Eni) in 2007;OMLs 120-121 (Eni’s interest 40%) and (iii) the offshore OML 119 block, operated through a service contract, where the Okono and Okpoho118 (Eni’s interest 12.5%). Through SPDC JV oil fields are located, which produced 55 KBBL/d (19 KBBL/d net to Eni) in 2005.
joint venture, Eni also holds a 5% interest in the 31 onshore blocks and a 12.86% interest in the 5 conventional offshore blocks of NASE, the largest oil joint venture in the country. In 2005 production of this joint venture net to Eni accounted for about 34% of Eni’s production in Nigeria.blocks.
In November 2005 the Bonga oil fieldexploration phase Eni is operator of Oil Prospecting Leases (OPL) 244 (Eni’s interest 12.5%60%), situated in the OML 118 permit offshore Nigeria in waters of a depth between 950134 (former OPL 211 - Eni’s interest 50.19%) and 1,150 meters, was started up. Development is achieved by means of an FPSO vessel connected to 17 producing wells (9 already drilled)onshore OML 135 (former OPL 219 - Eni’s interest 12.5%) and OPL 282 (Eni’s interest 90%). Production is expected to peak at 200 KBBL/d (23 KBBL/d net to Eni) in 2006.
In September 2005March 2007, Eni acquired as operatorsigned a Production Sharing Contract for the OML 120 and OML 121 development licenses from Nigerian companies. The concessions, where the Oyo field was discovered, are located approximately 70 kilometers offshore the western coast of the Niger Delta in Nigeria. Two exploration wells are going to be drilled in 2006.
Exploration yielded positive results in the offshore OML 125 blockOPL 135 permit (Eni operator with a 50.2%48% interest) located in the Niger Delta. The arrangement with a 25-year term envisages an exploration stage with a five-year term and a subsequent development phase of oil and natural gas reserves located in the drillingproximity of existing facilities and the Kwale/Okpai power station where Eni is operator.
Exploration and production activities in Nigeria are regulated mainly by Production Sharing Agreements and service contracts where Eni acts as contractor for state owned companies.
The Forcados/Yokri oil and gas fields (Eni’s interest 5%) are currently under development offshore and onshore the Niger Delta. Development is expected to be completed in 2008 as part of an integrated project aiming at providing natural gas supplies to the Bonny liquefaction plant. Offshore production facilities have been installed. The onshore project provides for the upgrading of the Abo 8 appraisal well that found oil layers atYokri and North/South Bank flowstations and the realization of a depth of 2,142 meters and in the offshore OPL 219 block (Eni’s interest 12.5%) with the drilling of the Bolia 3X appraisal well that found oil levels at a depth of over 3,000 meters.gas compressor plant.
Eni holds a 10.4% interest in Nigeria LNG Ltd which manages the Bonny liquefaction plant located on Bonny Islandin the eastern Niger Delta, with a treatment capacity of approximately 8121,236 BCF/y of naturalfeed gas corresponding to a production of 17 million tonnes/22 mmtonnes/y of LNG alongon 6 trains. The sixth train has been started in 2007. The seventh unit is being engineered with over 2.2 million tonnes/start-up expected in 2012. When fully operational, total capacity will amount to approximately 30 mmtonnes/y of LPG and 1.1 million tonnes/y of condensates on five trains. The fourth train was started up in late 2005 and the fifth in January 2006. The fourth train and the fifth train are expected to reach full production in 2007. Nigeria LNG’s partners have planned a further capacity expansion to 1,448 BCF/y,LNG, corresponding to a productionfeedstock of 30 million tonnes of LNG by means of the installation of two more trains (one already under construction) with start-up expected between 2007 and 2011. Eni expects its share of capital expenditure for the planned capacity expansion to amount to $1.2 billion; this expenditure is expected to be completely financed by cash generated from the plant operations.
approximately 1,624 BCF/y. Natural gas supplies to the plant (first six trains) will beare provided under a gas supply
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agreement with a 20 year20-year term from production of the NASESPDC joint venture (Eni’s interest 5%) and the NAOC JV of Blocks OMLOMLs 60, 61, 62 and 61 (Eni operator with a 20% interest). When63.When fully operational in 2008, theysupplies will supplytotal approximately 3.5 BCF/3,461 mmCF/d (0.27 BCF/d(268 net to Eni). In 2007, Eni’s supplies were 173 mmCF/d. LNG production is sold under long-term contracts and exported to European and American markets by the Bonny Gas transport fleet, wholly-owned by Nigeria LNG Co.
Eni corresponding to approximately 47,000 BBL/d). Capital expenditure net to Eniis operator with a 17% interest of the Brass LNG Ltd Company for the development activityconstruction of a natural gas liquefaction plant to be built near the existing Brass terminal. This plant is expected to amount to approximately $560 million.
In April 2005, the Okpai power station (independent power plant, Eni’s interest 20%) started operations,start operating in 2012 with a generationtreatment capacity of 480 megawatt10 mmtonnes/y of LNG corresponding to 618 BCF/y (approximately 64 net to Eni) of feed gas on two gas and one steam turbines. The power station is fed with2 trains for twenty years. Supplies to this plant will derive from the collection of associated gas from nearby producing fields and from the nearby Kwaledevelopment of gas fields in permit OML 60 (Eni operator with a 20% interest), which will supply 71 mmCF/dthe OMLs 61 and 62 onshore blocks. The venture signed preliminary long-term contracts to sell the whole LNG production capacity. Eni acquired 2 mmtonnes/y of natural gas when the power stationLNG capacity. The front end engineering is fully operational. The project is part of Eni’sunderway and the Nigerian government’s plan to reduce CO2 emissionsfinal investment decision is expected in the atmosphere.second half of 2008.
In the medium term, management expects to increase significantly Eni’s production in Nigeria to approximately 200 KBBL/KBOE/d, leveraging onreflecting in particular the development of natural gas reserves, in particular in order to ensure supplies to the Bonny plant, and the contribution of fields started-up recently, as in the case of Bonga, and of new development projects.reserves.
North Sea
Eni’s operations in the North Sea area are conducted in Norway and the United Kingdom. In 2005,2007, the North Sea accounted for 16%15% of Eni’s total worldwide production of hydrocarbons.oil and natural gas.
NorwayNorway. Eni has been operating in Norway since 1964. In 2004 Eni’s hydrocarbon production averaged 136 KBOE/d. Eni’s principal producing interestsactivities are performed in the Ekofisk field (Eni’s interest 12.39%)Norwegian Sea, in the Norwegian section of the North Sea and in the Barents Sea. Eni’s production in Norway amounted to 134 KBBL/d in 2007.
Exploration and production activities in Norway are regulated by Production Licenses (PLs). According to a production license, the holder is entitled to perform seismic surveys and drilling and production activities for a few years with possible extensions.
Eni holds interests in six production areas in the Norwegian Sea. The main producing fields are Aasgard (Eni’s interest 14.82%), Kristin (Eni’s interest 8.25%), Heidrun (Eni’s interest 5.12%), Mikkel (both with a(Eni’s interest 14.9% interest)) and Norne (Eni’s interest 6.9%) fields in the Norwegian Sea, which together accounted for 90%68% of Eni’s production in Norway in 2005.
In November 2005 production started at theNorway. The main structures under development are located near Kristin, oil and gas fieldparticularly Tyrihans (Eni’s interest 8.25%6.23%) located in the PL134 permit in the Haltenbanken area about 200 kilometers off the coast in the Norwegian Sea. Oil production is treated on a semi-submersible platform with a capacity. Economic development of 125 KBBL/d. Productionthis field is expected to peak at 218 KBOE/d (18 KBOE/d net to Eni) in 2007. In the same permit the Tofte formation discovered with the first producing well on Kristin will be developed. Theachieved through synergies with the Kristin production facilities will allow a viable development of the nearby Tyrihans field (Eni’s interest 7.9%), expected to start-up in 2009, in coincidence with the expected production decline of Kristin.
In November 2005 the Svale and Stær oil fields in the PL128 permit (Eni’s interest 11.5%) were started up, exploiting synergies with the nearby Norne production facilities. Production is expected to peak at 56 KBBL/start in 2009, when production of Kristin is expected to decline which will make spare capacity available to process production from Tyrihans.
Eni holds interest in four production licenses in the Norwegian section of the North Sea. The main producing field is Ekofisk (Eni’s interest 12.39%) in PL018 which in 2007 produced 352 KBOE/d (6 KBBL/d(44 net to Eni) and accounted for 32% of Eni’s production in 2006.Norway. Ongoing projects for Ekofisk aim at maintaining and optimizing production by means of infilling wells, the development of the Growth Area and upgrading of existing facilities.
TheCurrently Eni is only performing exploration activities yielded positive results in Barents Sea. Operations in this area are focused on the Barents Seaappraisal of the mineral potential of the large Goliath discovery made in 2000 at a water depth of 370 meters in PL 229 (Eni operator with a 65% interest) aimed at its commercial development. The project is progressing in accordance with the second appraisal Goliath South well onprogram. The final investment decision is expected in 2008. Critical equipment (rigs) to develop the field has already been booked.
In 2007, Eni sold a 30% stake of the Prospecting License 259 (Eni’s interest 70%) and the whole interest of the Prospecting License 256.
Main discoveries for 2007 were achieved in the: (i) Prospecting License 393 (Eni’s interest 30%), near the Goliath oildiscovery, where the 7125/4-1 Nucula exploration well showed the presence of hydrocarbons at a depth between 800 and gas discovery. Management expects the Goliath South well may results in the discovery of additional hydrocarbon reserves either from the expected reservoir or from deeper layers. Goliath is located in Block PL 2291,450 meters; (ii) Prospecting License 122 (Eni’s interest 65%20%)., the appraisal of the Marulk discovery increased the recognized mineral potential; (iii) Prospecting License 312 (Eni’s interest 17%), where the Gamma discovery well showed the presence of gas at a depth of 2,500 meters; and (iv) the Prospecting License 293 (Eni operator with a 45% interest) the Afrodite discovery well showed the presence of gas and condensates at a depth of 373 meters.
In the medium term, management expects to slightly increase Eni’s production in Norway, reflecting the planned development projects, partly offset by mature field declines.
The United KingdomKingdom. Eni has been present in the United Kingdom since 1964. Eni’s activities are carried out in the British section of the North Sea, in the Irish Sea and in some areas East and West of the Shetland Islands. In 20052007, Eni’s net production of hydrocarbonsoil and gas averaged 141120 KBOE/d.
Eni’s principal producing interests34
Exploration and production activities in the United Kingdom are Elgin/Franklin (Eni’s interest 21.87%), MacCulloch (Eni’s interest 40%), fields located in the Liverpool Bay (Eni’s interest 53.9%) and J-Block (Eni’s interest 33%). In 2005 these fields accounted for 77% of Eni’s production in the United Kingdom.
Exploration yielded positive results in the P/233 permit in blocks 15/25a (Eni’s interest 12%) in the central section of the North Sea with the NWF 15/25°-DD well drilled at a depth of over 2,000 meters and flowed about 4 KBBL/d of high quality oil and natural gas in test production.
Development activities concerned: (i) the start-up of the Farragon field (Eni’s interest 30%); and (ii) linkage of the gas and condensate Glenelg (Eni’s interest 8%) and West Franklin (Eni’s interest 21.87%) fields to the Elgin Franklin production platform.
In July 2005 Eni divested some exploration assets located in the central section of the North Sea as part of its strategy of asset portfolio rationalization.
In November 2005 the British government announced a draft law to increase corporate income taxesregulated by levying a supplementary charge increase of 10 percentage points (from 10 to 20%). In the event this draft law is enacted, management estimates an adverse 1.2 percentage points impact on Eni Group’s tax rate in 2006 as compared to 2005. Approximately half of the expected increase will relate to a provision for deferred taxation. Given the expected production decline of the area for the decline of mature fields, the adverse impact of higher rates of taxes in the United Kingdom will diminish with time.concession contracts.
Eni holds interests in 12 production areas in the British section of the North Sea. The main fields are Elgin/Franklin (Eni’s interest 21.87%), the J-Block (Eni’s interest 33%), the Flotta Catchment Area (Eni’s interest 20%), Andrew (Eni’s interest 16.2%) and Farragon (Eni’s interest 30%), which in 2007 accounted for 58% of Eni’s production in the United Kingdom. In 2007, production started at the Blane (Eni’s interest 18%) and West Franklin (Eni’s interest 21.87%). The Blane field was linked to existing production facilities with a peak production of 21 KBOE/d (approximately 4 net to Eni) already reached. The West Franklin field was linked to the production facilities of the nearby Elgin Franklin field and is expected to peak at 20 KBOE/d (4 net to Eni) in the second half of 2008 with the scheduled start-up of a second development well. Appraisal of the large Jasmine discovery in the J-Block is underway. Eni holds interests in six production blocks in the Liverpool Bay area (Eni’s interest 53.9%) in the Eastern section of the Irish Sea. Main fields are Douglas, Hamilton and Lennox and their extensions which in 2007 accounted for 24% of Eni’s production in UK. Eni holds interest in 6 production permits located East of the Shetland Islands. Main fields are Ninian (Eni’s interest 12.94%) and Magnus (Eni’s interest 5%) which in 2007 accounted for 4% of Eni’s production in the United Kingdom. Main discoveries in 2007 were in: (a) Block 205/5a (Eni’s interest 23%) with the Tormore discovery, at a depth of 610 meters, which yielded 32 mmCF/d of gas and 2,200 BBL/d of condensates. Production is expected to start through synergies with the adjoining Laggan discovery (Eni’s interest 20%); and (b) the J-Block gas and condensates were found nearby the recent Jasmine discovery. Joint development of these two structures is being assessed in combination with existing facilities. |
Rest of the WorldCaspian Area
In 2005,2007, Eni’s operations in the rest of the worldCaspian Area accounted for 21%6% of its total worldwide production of hydrocarbons.
In Brazil in January 2006 following an international bid procedure held in October 2005 Eni acquired the operatorship of a six year exploration license in Block BM Cal-14, covering an area of about 745 square kilometers in the deep waters of the Camamu-Almada basin, about 1,300 kilometers north of Rio de Janeiro. In March 2005 the exploration license of Block BM-C-3 (Eni’s interest 40%) was converted into an evaluation area. The test phase of the Peroba discovery well containing oil is scheduled within 2006. Exploration yielded positive results in Block BM-S-4 (Eni’s interest 100%) with the drilling of the NFW Belmonte-1A well which foundand natural gas at a depth of over 5,000 meters. The relevant authorities allowed a third exploration period for this block which will last two years and provides for the drilling of one well.
In China offshore exploration activity yielded positive results in Block 16/19 (Eni’s interest 33%) in the South China Sea about 180 kilometers south east of Hong Kong with the drilling of the HZ25-4-1 well (Eni’s interest 100%), which found hydrocarbons at a depth between 2,200 and 3,800 meters and flowed about 5 KBBL/d of oil in test production. The HZ25-4 field will be started up by means of the production facilities existing in the area. In Block 16/19 the HZ25-3-2 appraisal well confirmed the extension of the reserves of the HZ25-3 oil field.
In India in July 2005, Eni was awarded the right to conduct exploration activities as operator in Blocks 8 and D-6, following an international bid tender. Block 8 (Eni’s interest 34%) is located onshore in Rajasthan in the northwest of India, and extends for 1,335 square kilometers. Block D-6 (Eni’s interest 40%) is located deep water in the Indian Ocean, some 130 kilometers east of the Andaman Islands, and covers an area of 13,110 square kilometers. This contract marks the beginning of Eni’s upstream activities in India. In September 2005 Eni and the Indian Oil & Natural Gas Corporation signed a memorandum of understanding establishing mutual cooperation between the companies aimed at finding new exploration and production opportunities. In particular, the companies will exchange information on a range of deep offshore exploration projects in India and in other countries, with an option to exchange equity interests in selected upstream and midstream projects.
In Mozambique in March 2006, following an international bid tender, Eni obtained the exploration license for Area 4, located in the deep offshore of the Rovuma Basin 2,000 kilometers north of Maputo. The block covers an area of 17,646 square kilometers in an unexplored geological basin with great mineral potential according to surveys performed.
In Turkey in September 2005 an agreement has been reached with the Turkish Group Calik concerning feasibility study for the realization of a new oil pipeline from the Black Sea Turkish coast east of Samsun (Unye) to Ceyhan, on the Turkish Mediterranean coast. The new oil transportation infrastructure will include: (i) a new loading terminal in Samsun; (ii) a 550-kilometer long pipeline with design capacity of 1.5 million barrels of oil per day; and (iii) oil storage facilities to be built in the existing terminal in Ceyhan. The construction of a pipeline represents a faster, environmentally safer and more economic alternative to the transportation of oil by ship through the Turkish Straits of the Bosphorus and Dardanelles.gas.
AustraliaKazakhstan-Kashagan. Eni has been present in AustraliaKazakhstan since 2000. In 2005 Eni’s hydrocarbon production averaged 21 KBOE/d mainly of oil.
1992. Eni is the single operator of the North Caspian Sea Production Sharing Agreement (NCSPSA) with a 65%participating interest equal to 18.52% as of the offshore Woollybutt oil field, which in 2005 accounted for 51%December 31, 2007. The other partners of Eni’s production in Australia.
Eni holdsthis initiative are Total, Shell and ExxonMobil, each with a 12.04%participating interest currently of 18.52%, ConocoPhillips currently with 9.26%, and Inpex and KazMunayGas each currently with 8.33%. Each partner’s participating interest in the liquidsproject will change according to the terms of the Memorandum of Understanding signed among the parties, including the Kazakh authorities, on January 14, 2008. Information on this agreement is included below. The change in participating interests will apply retroactively as of January 1, 2008.
The NCSPSA defines terms and conditions for the exploration and development activities to be performed in the area covered by the contract. The Kashagan field was discovered in the northern section of the contractual area in the year 2000. Management believes this field to contain a large amount of hydrocarbon resources.
As of December 31, 2007, Eni’s proved reserves booked for the Kashagan field amounted to 520 mmBOE, recording a decrease of 76 mmBOE with respect to 2006 mainly due to the impact of increased year-end oil prices on reserve entitlements in accordance with the PSA scheme. Proved reserves for the field as of December 31, 2007 were determined according to Eni’s then current participating interest of 18.52%. As part of the agreements defined with the Kazakh Republic, the change of Eni’s interest to 16.81% in 2008 will determine a decrease of approximately 50 mmBBL in Eni’s estimated net proved reserves of the Kashagan field with respect to December 31, 2007.
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As of December 31, 2006, Eni’s proved reserves booked for the Kashagan field amounted to 596 mmBOE, recording an increase of 107 mmBOE with respect to 2005 due to an extension of the proved area and project cost revision, offset in part by the impact of price revisions.
As of December 31, 2007, the aggregate costs incurred by Eni for the Kashagan project capitalized in the financial statements amounted to $2.6 billion. This capitalized amount included: (i) $1.8 billion relating to expenditures incurred by Eni for the development of the oilfield; and (ii) $0.8 billion relating primarily to accrued finance charges and expenditures for the acquisition of interests in the North Caspian Sea PSA consortium from exiting partners upon exercise of pre emption rights in previous years. The $2.6 billion amount was equivalent to euro 1.8 billion based on the 2007 year-end euro/U.S. dollar exchange rate. As of December 31, 2006 the aggregate costs incurred by Eni for the Kashagan project that were capitalized by Eni in its financial statements amounted to $1.9 billion, corresponding to euro 1.5 billion based on 2006 year-end exchange rates.
Costs borne by Eni to explore and develop this field are recovered in accordance with the mechanisms typically contemplated by a PSA scheme, which is widely used in the industry. In this type of contract the national oil company or State-owned entity assigns to the international oil company (the contractor) the task of performing exploration and production with the contractor’s equipment and financial resources. Exploration risks are borne by the contractor and production is generally divided into two portions: "cost oil" is used to recover costs borne by the contractor and "profit oil" is divided between the contractor and the national company according to variable schemes and represents the profit deriving from exploration and production. Accordingly, recoverability of the expenditures is subject to approval from the relevant State-owned or controlled entity who is party to the agreement. Similarly, cost overruns are recovered to the extent they are sanctioned by the State-owned or controlled entity who is party to the agreement.
To date, costs incurred for the development of the Kashagan oilfield relate to scheduled works and in accordance to the budget duly approved by the Kazakhstan authorities, and are therefore recoverable subject to customary audit rights.
The development plan of the Kashagan field was originally sanctioned by the Kazakh authorities in February 2004, contemplating a three-phase development scheme including partial gas Bayu Undan field where liquidre-injection in the reservoir to enhance the recovery factor of the crude oil. The sanctioned plan budgeted expenditures amounting to U.S. $10.3 billion (in 2007 real terms) to develop phase-one, with a target production level of 300 KBBL/d. First oil was started-uporiginally scheduled to be produced by the end of 2008. Eni was expected to fund these expenditures according to its participating interest in 2004. Productionthis project. On June 29, 2007, Eni, as operator, filed with the relevant Kazakh authorities amendments to the sanctioned development plan. These amendments rescheduled the production start-up to 2010 and estimated development expenditures for phase-one at U.S. $19 billion. The production delay and cost overruns were driven by a number of natural gas currently underfactors: depreciation of the U.S. Dollar versus the Euro and other currencies; cost price escalation of goods and services required to execute the project; an original underestimation of the costs and complexity to operate in the North Caspian Sea due to lack of benchmarks; design changes to enhance the operability and safety standards of the off-shore facilities.
In July 2007, the Kazakh authorities rejected the proposed amendments to the sanctioned development plan. In August 2007, the Government of the Kazakh Republic sent to the companies forming the NCSPSA consortium a notice of dispute alleging failure on part of the consortium to fulfil certain contractual obligations and violation of the Republic’s laws. Negotiations commenced with a view to settle this dispute.
On January 14, 2008, all parties to the NCSPSA consortium and the Kazakh authorities signed a memorandum of understanding for the amicable resolution of this dispute. The material terms of the agreement are: (i) the proportional dilution of the participating interest of all the international members of the Kashagan consortium, following which the stake held by the national Kazakh Company KazMunayGas and the stakes held by the other four major shareholders will each be equal to 16.81%. These changes will be treated ateffective January 1, 2008. The Kazakh partner will pay the Darwin liquefaction plant which hasother co-venturers an aggregate amount of U.S. $1.78 billion; (ii) a capacity of 3.5 million tonnes/y. In January 2006 the first shipment of LNG was madevalue transfer package to be implemented through changes to the Japanese market. A production peakterms of 160 KBOE/d from this field (18 KBOE/d netthe NCSPSA, the amount of which will vary in proportion to Eni) is expected in 2008.
Offshore exploration was successful in: (i) Block AC/P-21 (Eni’s interest 40%) with the NFW Vesta-1 well that located oil and gas at a depth of over 3,300 meters; (ii) Block WA-25-L (Eni’s interest 65%) with the Woollybutt-4 appraisal well which confirmed the presencefuture levels of oil in the western extension of Wollybutt-3 at a depth of over 2,000 meters; and (iii) Block WA-208 P (Eni’s interest 18.66%) with the NFW Hurricane-1 well that identified natural gas at a depth of over 3,000 meters.
In December 2005 Eni purchased further interests and reached 100% in permits WA 279-P and WA 313-P in the Bonaparte offshore basin off the northern coast of Australia where the Blacktip and Penguin fields are located. Total capital expenditure net toprices. Eni is expected to amountcontribute to approximately $325 million. In the same basin Eni purchased a 39%value transfer package in proportion to its new participating interest in the WA 34-R permit whereproject; and (iii) an increased role of the RubiconKazakh partner in operations and Prometeus fieldsa new operating and governance model which will entail a greater involvement of the major international partners.
Although the project was not stopped during the negotiation process, its progress slowed down. The NCPSA consortium has presented to the Kazakh authorities a revised budget and schedule for the execution of the phase-one of the project, and the relevant discussions are located.currently ongoing.
The magnitude of the reserves base, the results of the first four tests conducted on development wells and the subsurface studies completed to date support expectations for a full field production plateau of 1.5 mmBBL/d, which represents a 25% increase above the original plateau as presented in the 2004 development plan. An independent reserve evaluation performed by a petroleum engineer (Ryder Scott Petroleum Consultants) fully supports the target production plateau of the Kashagan field. The achievement of the full field production plateau will require a material
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amount of expenditures in addition to the development expenditures needed to complete the execution of phase-one. However, taking into account that future development expenditures will be incurred over a long time horizon, management does not expect any material impact on the company’s liquidity or its ability to fund these capital expenditures.
In December 2005 Eni signed Headsaddition to the expenses incurred for developing the field, further capital expenditures will be required to build the infrastructures needed for exporting the production to international markets, for which various options are currently under consideration by the consortium. These include: (i) the use of Agreementexisting infrastructure, such as the Caspian Pipeline Consortium pipeline (Eni’s interest 2%) and the Atyrau-Samara pipeline, both of which are expected to undergo a capacity expansion; and (ii) the construction of a new transportation system. In this respect, it is worth mentioning the project aimed at building a line connecting the onshore Bolashak production center with the Darwin PowerBaku-Tbilisi-Cehyan pipeline (where Eni holds an interest of 5% corresponding to the right to transport 50 KBBL/d).
Kazakhstan-Karachaganak. Located in West onshore Kazakhstan, Karachaganak is a liquid and Water Utility Company forgas field. Operations are conducted by the supplyKarachaganak Petroleum Operating consortium (KPO) and are regulated by Production Sharing Agreement lasting 40 years, until 2037. Eni is co-operator of a total amountthe venture with 32.5% interest.
In 2007, production from this field averaged 234 KBBL/d of 20 BCMliquids and 743 mmCF/d of natural gas, being 70 KBBL/d and 238 mmCF/d Eni’s share, respectively. This field is developed by producing liquids from the Blacktip field for a 25 year period starting in January 2009.
Croatia Eni, through a 50/50 joint venture with INA,deeper layers of the national Croatian company, operatesreservoir and re-injecting the Ivana naturalassociated gas field, located 40 kilometers West of Pola in the Adriatic offshorehigher layers. This scheme enables to increase the recovery of liquids. Approximately two-thirds of liquid production are stabilized at the Karachaganak Processing Complex (KPC) with a capacity of 150 KBBL/d and exported to Western markets through the Caspian Pipeline Consortium (Eni's interest 2%) and the Atyrau-Samara pipeline. The remaining third of non-stabilized liquid production and volumes of associated gas not re-injected in approximately 40 meter deep waters.the reservoir are marketed at the Russian terminal in Orenburg. The fieldplant treatment capacity is operated throughbeing upgraded which will enable to increase exported volumes by 56 KBBL/d from 2009.
In June 2007, the operating consortium and KazRosGaz, a joint company established by KazMunaiGaz and Gazprom, signed a gas sale contract. According to the terms of this agreement, the consortium will deliver, from 2012, approximately 565 BCF/y of raw gas to the Orenburg plant, in Russia. This agreement has created conditions for the start up of Phase 3 of the development project of the field targeting development of natural gas reserves that management believes to amount to significant volumes. The agreement was approved by the Boards of both parties. In this context, in 2007 construction started of the Uralsk gas Pipeline, 150-kilometer long linking from 2009 the field to the Kazakh pipeline network. As of December 31, 2007, Eni’s proved reserves booked for the Karachaganak field amount to 541 mmBOE, recording a decrease of 82 mmBOE with respect to 2006 as a result of downward and upward revisions of previous estimates. Downward revisions mainly related to an adverse price impact in determining volume entitlements in accordance with the PSA scheme. These negative revisions were partly offset by upward revisions mainly related to the finalization of the gas sale contract as outlined above.
In 2007, Eni’s operations in the rest of world accounted for 13% of its total worldwide production of oil and natural gas. Australia. Eni has been present in Australia since 2000. In 2007, Eni’s net production of oil and natural gas averaged 18 KBOE/d. Activities are focused on conventional and deep offshore fields. The main production blocks in which Eni holds interests are WA-25-L (Eni operator with a 65% interest) and JPDA 03-13 (Eni’s interest 10.99%). In the exploration phase Eni is operator with a 100% interest of 7 blocks in permits WA-279 P and WA-313-P, where the Blacktip and Penguin fields are located. |
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In August 2007, Eni signed an agreement to purchase a main production platform, called Ivana A,30% interest in four exploration blocks in the Exmouth Plateau area in Australia. The four blocks are located at a maximum water depth of 2,000 meters. Eni’s equity interest will increase by 10% after at least one exploration well is drilled. Eni will be the operator during the development phase.
In September 2007, Eni acquired a 40% interest and three satellite platforms, Ivana B, D and E.
As partthe operatorship of the development plan of the natural gas discoveriesJPDA 06-105 exploration permit, located in the areainternational offshore cooperation zone between East Timor and Australia. Two oil discoveries are located in this permit. The exploration plan provides the enddrilling of 2005a well in 2008.
Exploration and production activities in Australia are regulated by concessions, while in the beginning of 2006 the Ika, Ida, Ivana Ccooperation zone between East Timor and K fields were started up. Production from these fields is sent to the Ivana K platform and from this platform through a 57-kilometer long pipeline to the Garibaldi K platform. A 43-kilometer long pipeline is under construction to reach the Croatian coast near Pula. Two fields, Katarina and Annamaria,Australia (JPDA) they are under development and are expected to start-up in late 2006 and early 2009, respectively.regulated by PSAs.
In the medium term, management expects to increase Eni’s production in Australia through ongoing development activities.
China. Eni has been present in China since 1984. In 2007, Eni’s production amounted to approximately 78 KBOE/d benefitingd. Activities are located in the South China Sea.
Exploration and production activities in China are regulated by Production Sharing Agreements.
Production derives mainly from offshore blocks 16/08 and 16/09 operated by the CACTOG consortium (Eni’s interest 16.33%). Oil production, destined to the domestic market, derives mainly from the fullHZ26-1 field (Eni’s interest 16.33%) through fixed platforms, one of them underwater, linked to an underwater transport facility to the Zhuhai treatment plant. Ongoing development activities concerned mainly the HZ25-3/1 field with expected start-up in 2009.
Croatia. Eni has been present in Croatia since 1999. In 2007, Eni’s net production of natural gas averaged 51 mmCF/d. Activities are deployed in the new fields.Adriatic offshore facing the city of Pula.
Exploration and production activities in Croatia are regulated by PSA.
The main producing gas fields are Ivana, Ika & Ida, Marica and Katerina which operated by Eni through a 50/50 joint venture with the national Croatian oil company.
Development activities of the Annamaria, Irina and Ana/Vesna discoveries are ongoing. A common project is expected to be deployed in all of them, envisaging the installation of production platforms which shall be linked to existing facilities. Start-up is expected in 2009.
IndonesiaIndia. Eni has been present in India since 2005 and is performing exploration activities in onshore Block RJONN-2003/1 (Eni’s interest 34%) and offshore Blocks AN-DWN-2003/2 (Eni’s interest 40%) and MNDWN 2002/1 (Eni’s interest 34%).
The exploration program for Block RJ-ONN-2003/1, located in the desert of Rajastan, provides drilling of four wells in the first four years of the license. Any hydrocarbons discovered will be sold locally.
The exploration program for Block AN-DWN-2003/2 near the Andaman Islands provides drilling of three wells in the first four years of the license. In 2007, activity concerned the acquisition of seismic data in order to plan the exploration and drilling activity.
Indonesia. Eni has been present in Indonesia since 2000. In 2005 hydrocarbonEni’s production netamounted to Eni averaged 2217 KBOE/d. Eni’s producing interestsd, mainly gas, in 2007. Activities are locatedconcentrated in the western offshore and onshore areaof Borneo and offshore Sumatra.
Exploration and production activities in East Kalimantan (Borneo)Indonesia are regulated by PSAs.
Production consists mainly of gas and derives from the Sanga Sanga PSApermit (Eni’s interest 37.81%) operated by Virginia Indonesia Co, in which Eni holds a 50% interest. This area produces mainly natural gas (about 80%).with seven production fields. This gas is treated at the Bontang liquefaction plant, the largest in the world, and is exported to the Japanese, South Korean and Taiwanese markets. Ongoing activities aim at maintaining the current production plateau by means of infilling wells and the optimization of existing ones.
OffshoreIn January 2007, Eni and Pertamina signed a Memorandum of Understanding aimed at identifying joint development opportunities for exploration activity yielded positive resultsand development activities.
Main ongoing projects include the joint development of the five discoveries in the Bukat block (Eni operator with a 41.25% interest) inKutei Deep Water Basin area (Eni’s interest 20%). Production will be treated at the Tarakan basin offshore BorneoBontang LNG plant. The project has not yet been sanctioned by authorities.
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Exploration activity was successful with the drillingTulip East offshore discovery (Eni’s interest 100%), and an appraisal well of appraisal wells on the Aster oil discovery madefield (Eni’s interest 66.25%) was drilled and yielded 5 KBOE/d in 2004. The Aster 2 and 3 wells confirmed the presence of additional reserves of high quality hydrocarbons and the exploration potential of the basin. In 2006 and 2007 further appraisal activities are scheduled in order to reach a definition of the field’s development plan.test production.
IranIran. Eni has been present in Iran since 1957. In 2005 liquid2007, production net to Eni averaged 35 KBBL/26 KBOE/d. Eni’s activities are concentrated in the offshore of the Persian Gulf and onshore.
Exploration and production activities in Iran are regulated by buy-back contracts.
The main producing oil fields operated by Eni under buy-back contracts are: (i)are South Pars phases 4 and 5 (Eni operator with a 60% interest, the remaining 40% interest being held by Iranian partners) in the offshore of the Persian Gulf. These phases were started upGulf and Darquain located onshore which accounted for 88% of Eni’s production in 2004. AtIran in 2007. Eni also holds interests in the beginning of 2005 the gas treatment plant as part of the developmentDorood field (Eni’s interest 45%).
The main ongoing project of the field was completed. In 2005, production of gas reached a rate equivalent to the 706 BCF/y production plateau; the field produced also one million tonnes/y of propane and butane and 108 KBBL/d of condensates (33 KBBL/d of condensates net to Eni) through separation from natural gas. Eni’s share of condensates is destined to cover development costs incurred by Eni and to remunerate capital employed by Eni; and (ii)regards the Darquain oil field (Eni operatoroperated by Eni with a 60% interest,interest. Upgrading activities are underway by means of drilling additional wells, increasing capacity of the remaining 40% interest being held by Iranian partners) located onshore approximately 50 kilometers north-east of Abadan. On this field the second development phase is underwayexisting treatment plant and aimsgas-injection. These actions aim at increasing production from the present 50 KBBL/d to over 160 KBBL/d (14 KBBL/d net to Eni) through the increaseby 2009.
The legislation and other regulations of the existing treatment capacity,United States of America impose sanctions on this country and may lead to the drillingimposition of new producing wellssanctions on any persons doing business in this country or with Iranian counterparties. Particularly, under the Iran Sanctions Act of 1996 (as amended, "ISA"), which implements sanctions against Iran with the objective of denying it the ability to support acts of international terrorism and fund the injectiondevelopment or acquisition of weapons of mass destruction, upon receipt by the U.S. authorities of information indicating potential violation of this act, the President of the United States is authorized to start an investigation aiming at possibly imposing sanctions from a six-sanction menu against any person found in particular to have knowingly made investments of U.S. $20 million or more in any twelve-month period, contributing directly and significantly to the enhancement of Iran’s ability to develop its hydrocarbons resources. Furthermore, the ISA envisages that the President of the United States is bound to impose sanctions against any persons that knowingly contribute to certain military programs of Iran, effective on June 6, 2006. Eni cannot predict interpretations of, or the implementation policy of the U.S. Government under, ISA with respect to Eni’s current or future activities in Iran or other areas. Eni has incurred capital expenditures in excess of U.S. $20 million in Iran in each of the last 8 years. Management expects to continue investing in Iran yearly amounts in excess of that threshold in the foreseeable future. Eni’s current activities in Iran are primarily limited to carrying out residual development activities relating to certain buy-back contracts it entered into in 2000 and 2001 and no sanctions have ever been imposed on Eni’s activities in the country. It is possible that in future years Eni’s activities in Iran may be sanctioned under relevant U.S. legislation.
Pakistan. Eni has been present in Pakistan since 2000. In 2007, production net to Eni averaged 50 KBOE/d, mainly gas. These two fields account
Exploration and production activities in Pakistan are regulated by concessions (onshore) and PSA (offshore).
Eni’s main permits are Bhit (Eni operator with a 40% interest), Sawan (23.68%) and Zamzama (17.75%), which in 2007 accounted for 85%90% of Eni’s production in Iran.Pakistan.
In 2007, Eni and State oil company PPL signed an agreement providing for a swap of interests in the offshore Blocks M, N and C. Within this agreement, Eni holds 70% interest in the M and N blocks and 60% interest as operator in the C block.
In April 2008, upgrading facilities was completed at the Bhit gas field leading to the start-up of the satellite Badhra field.
Main discoveries for 2007 were achieved in: (a) the Gambat permit (Eni’s interest 30%) where the Tajjal 1 exploration well showed the presence of gas at a depth of 3,845 meters; (b) the Kadanwari permit (Eni operator with a 18.42% interest) where the Kadanwari 18 appraisal well confirmed the presence of gas at a depth of approximately 3,400 meters; and (c) the Latif permit (Eni’s interest 33.3%) where the Latif 1 exploration well discovered a hydrocarbon formation at a depth of 3,520 meters.
Russia. In April 2007, as part of Eni’s strategic alliance with Gazprom, Eni, through the partnership in SeverEnergia (60% Eni, 40% Enel), former EniNeftegaz, acquired assets of Lot 2 as part of the liquidation procedure of bankrupt Russian company Yukos. Eni’s share of cash consideration of this transaction amounted to euro 3.73 billion. Acquired assets included: (i) a 100% interest in three Russian companies (Eni’s share being 60%) operating in the exploration and development of natural gas reserves, OAO Arctic Gas Co, ZAO Urengoil Inc and OAO Neftegaztechnologia with proved reserves amounting to 617 mmBOE net to Eni, as well as certain minor assets that are expected to be sold or liquidated. Eni and Enel granted Gazprom a call option to purchase a 51% interest in these investments to be exercisable within two years from the purchase date. Should Gazprom exercise its call option, Eni’s interest would be diluted to approximately 30% and proved reserves that were booked in connection with the acquisition would be reduced by approximately 50%. These investments are accounted under
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the equity method as Eni jointly controls them based on agreed terms with the other partners. As these entities did not produce any revenue in the year, no significant loss or gain on equity evaluation was recorded in the profit or loss account; and (ii) a 20% interest in OAO Gazprom Neft which was purchased only by Eni. Eni granted Gazprom a call option on this 20% interest in OAO Gazprom Neft to be exercisable within two years from the purchase date. The strike price equals the purchase price plus a contractual remuneration on capital employed, less dividend distributed. This interest is classified as a current asset and assessed at fair value trough profit or loss as provided by the fair value option of IAS 39, considering that the call option is being assessed in the same way. The fair value of OAO Gazprom Neft is based on currently quoted market price as this company is listed at the London Stock exchange. As a result of this accounting treatment, a gain equal to the contractual remuneration of capital employed was recognized in 2007 profit and loss account (net gain of euro 188 million). See Item 5 for a more detailed discussion.
The three acquired gas companies are located in the Yamal Nenets region: (i) OAO Arctic Gas Co owns two exploration licenses, Sambugurskii and Yevo-Yahinskii including seven fields currently in the appraisal/development phase. Main fields are Sambugorskoye currently under development and production testing and Urengoiskoye; (ii) ZAO Urengoil Inc owns exploration and development licenses for the Yaro-Yakhinskoye gas and condensate field; and (iii) OAO Neftegaztechnologia owns the exploration and development license of the Severo-Chasselskoye field.
During 2007, certain activities were executed in order to set up the operational organization and take control of existing assets. An overall plan was assessed to complete and start acquired assets. Ongoing development activities moved forward bringing the wells to a sufficient level of safety and assessing resumption of construction of production and transportation facilities, as well as defining a seismographic activity. Finalization of the gas sale contracts is underway.
Saudi Arabia. Eni has been present in Saudi Arabia since 2004. Ongoing activities concern exploration of the so-called C area in order to discover and develop gas reserves. This license is located in the Rub al Khali basin at the border with Qatar and the United Arab Emirates. The exploration plan provides for the drilling of four wells in five years. In case of a commercial discovery, the contract will last 25 years with a possible extension to a maximum of 40 years. Any gas discovered will be sold locally for power generation and as feedstock for petrochemical plants. Condensates and NGL will be sold on international markets. Drilling of the second commitment exploratory well is underway.
United States. Eni has been present in the United States since 1966. Activities are performed in the conventional and deep offshore in the Gulf of Mexico and more recently onshore and offshore Alaska.
In 2007, Eni’s oil and gas production deriving only from the Gulf of Mexico averaged 68 KBOE/d, significantly growing from 2006 (up 114%) due to the acquisition of producing assets from Dominion Resources. This acquisition closed in July 2007 with an outlay of euro 3.5 billion. Acquired properties brought in an additional production of approximately 75 KBOE/d and proved reserves amounting to 123 mmBOE.
Exploration and production activities in the United States are regulated by concessions.
Eni holds interests in 400 exploration and production blocks in the Gulf of Mexico, 60% operated.
In October 2007, following an international bid procedure Eni was awarded 26 new exploration licenses in the Gulf of Mexico, covering a gross acreage of 606 square kilometers.
In March 2008, following an international bid procedure Eni was awarded 32 exploration leases. The subsequent development phase will leverage synergies relating to proximity of acquired acreage to existing operated facilities. Formal assignation is subject to approval by the relevant authorities.
The main fields operated by Eni with a 100% interest are Allegheny, East Breaks and Morphet as well as assets acquired from Dominion Resources including Devils Towers, Triton and Goldfinger (Eni operator with a 75% interest). Eni also holds interests in the Dorood (45%Medusa (Eni’s interest 25%), Europa (Eni’s interest 32%), and King Kong (Eni operator with a 56% interest) fields.
Development of acquired assets in the year allowed the start-up of production at the San Jacinto (Eni is operator with a 53.3% interest), Q (Eni’s interest 50%) and Balal (45%Spiderman (Eni’s interest 36.7%) oilfields. Development of these fields inwas performed by installing underwater facilities to link to the offshoreIndependence Hub platform. The production plateau of the Persian Gulf located respectively near the Kharg island and about 100 kilometers south-west of the Lavan island. The development of Dorood is expected to be completedapproximately 25 KBOE/d has been reached at the end of 2006 with a peak production of 50 KBBL/d.
Kazakhstan Eni has been present in Kazakhstan since 1992. Eni is co-operator with British Gas with a 32.5% interest of the Karachaganak oil, gas and condensate field. In 2005 production from this field (net to Eni) averaged 64 KBBL/d of liquids and 207 mmCF/d of natural gas. Most of the liquids produced are exported to Western markets through the Caspian Pipeline Consortium pipeline (Eni’s interest 2%). This pipeline is connected to the Novorossiysk terminal on the Russian coast of the Black Sea. In 2005 exports amounted to 42.5 KBBL/d net to Eni, corresponding to 41.7% of oil and gas produced by the field net to Eni. The rest of liquid production is exported and sold, as unstabilized condensates, on the Russian and Kazakh markets. The development plan of the field provides for the production of additional liquid and gas reserves by means of a gas treatment plant and the drilling of production wells.
As part of the North Caspian Sea PSA, where the Kashagan field is located, on March 31, 2005 Eni (operator) and the other members of the consortium, except for one, purchased British Gas’s interest (16.67%) in proportional shares, according to the option exercised in May 2003, and sold half of this newly acquired interest to the national Kazakh company Kazmunaygaz (KMG), a new partner in the PSA with an 8.335% interest. Following these two transactions (the sale to KMG was closed in May 2005), Eni increased its interest from 16.67% to 18.52% and continues acting as operator. The outlay for this transaction amounted to $200 million. The development plan of the Kashagan field, presented at the end of 2002 and approved in February 2004, mainly foresees: (i) production start-up in 2008 at an initial level of 75 KBBL/d. Management plans production level to increase to 450 KBBL/d at the end of the first phase of development and to reach a plateau of 1.2 mmBBL/d at the end of the field development; (ii) total capital expenditure estimated at $29 billion ($5.4 billion being Eni’s share). Such capital expenditure plan is currently under revision in order to take into account depreciation of the U.S. dollar versus the euro and the rising trends in the costs of certain production factors (such as materials and oilfield services). The above mentioned amount does not2007. Main projects include the capital expenditure for the construction of the infrastructure for exporting production to international markets, for which various, options are under scrutiny by the consortium. These include: (i) the use of existing infrastructure, such as the Caspian Pipeline Consortium pipeline and the Atyrau-Samara pipeline; and (ii) the laying of a pipeline connecting the Bolashak production center with the Baku-Tbilisi-Cehyan pipeline (BTC, Eni’s interest 5%). This new system includes the laying of a 750-kilometer long pipeline with a 42 inch diameter from Bolashak to Kuryk and a reception terminal on the other side of the Caspian Sea near the starting point of the BTC pipeline.
At December 31, 2005, the total amount of contracts awarded for the development of reserves at the field was over $8.8 billion for the completion of the first phase of the field’s development plan (Tranches 1 and 2) which includes the drilling of development wells, the construction of infrastructure and facilities for offshoreLonghorn discovery (Eni’s interest 75%) trough installing production (drilling, treatment and reinjection of sour gas for maximizing the oil yield) and onshore treatment plants. The most advanced techniques are goingplatform. Production is expected to be appliedstart in the construction of the planned infrastructure and facilities in order2009 peaking at 28 KBOE/d (approximately 19 net to cope with high pressures in the field and the presence of hydrogen sulphide.Eni).
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Exploration activity was successful with the Kodiak oil and gas discovery (Eni’s interest 25%) that will be developed trough the facilities of the operated Devil’s Tower platform. Eni’s activities in Alaska are currently in the exploration and development phase in 158 blocks with interests ranging from 10 to 100%, over half as operator. In February 2008, following an international bid procedure Eni was awarded 18 exploratory license in Alaska, 4 blocks as operator. Formal assignation is subject to approval by the relevant authorities. In April 2007, Eni acquired 70% and the operatorship of the Nikaitchuq field, located offshore on the North Slope of Alaska. Eni, which already owned a 30% stake in the field, now retains the 100% working interest. Nikaitchuq will be the first development project operated by Eni in Alaska. In October 2007, the phased development plan was sanctioned by the authorities. Production is expected to start at the end of 2009 with production plateau at 25 KBOE/d in 2014. Main projects include the development of reserves at the offshore Oooguruk field (Eni’s interest 30%) in the Beaufort Sea. Production is expected to start in the second half of 2008 peaking at 17 KBOE/d (5 KBOE/d net to Eni) in 2010. |
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In the medium term, management expects to increase Eni’s production in Kazakhstan from the current level of 100 KBOE/d leveraging onreflecting the development and integration of natural gas reserves at Karachaganakassets acquired and the start-up of Kashagan.
Pakistan Eni has been present in Pakistan since 2000. In 2005 production net to Eni averaged 48 KBOE/d, mainly of natural gas. The main natural gas producing fields operated by Eni are Bhit (Eni’s interest 40%) and Kadanwari (Eni’s interest 18.42%), which in 2005 accounted for 43% of Eni’s production in Pakistan. Eni also holds interests in the Sawan (23.68%), Zamzama (17.75%) and Miano (15.16%) fields. In the first quarter of 2005 the Rehmat field (Eni’s interest 30%) was started-up.
Eni is operator in the Gorakh permit (Eni’s interest 92.5%) in Kirthar Foldbet area and holds an interest in other permits in the Middle Indus Basin.
Eni purchased the Indus M and Indus N exploration permits in the offshore of the Indus Delta with a total area of 5,000 square kilometers. In February 2006 Eni purchased the permits Rajar, Mithi, Thar and Umarkot in the East Sindh area.
United States Eni has been present in the United States since 1966 and holds various mineral interests in the Gulf of Mexico and Alaska. In 2005 Eni’s hydrocarbon production averaged 33 KBOE/d and was obtained in the Gulf of Mexico. The main producing fields operated by Eni are Allegheny (Eni’s interest 100%) and King Kong (Eni’s interest 50%). Another relevant field is Medusa (Eni’s interest 25%). These fields accounted for 71% of Eni’s production in 2005.
In May 2005 the K2 oil field (Eni operator of the development phase with an 18.17% interest) was started-up. The field’s development includes two additional subsea wells linked to the nearby Marco Polo platform, operated by a partner. A peak production of 38 KBOE/d (7 KBOE/d net to Eni) is expected in 2007.
Eni purchased 22 exploration blocks in the Gulf of Mexico following its participation to the 194 (March 2005) and 196 (August 2005) Lease Sale.
In Alaska in August 2005, Eni purchased from the U.S. independent company Armstrong Oil & Gas 104 exploration blocks onshore in the North Slope and offshore in the Beaufort Sea. The blocks, with a total acreage of 1,409 (1,111 net to Eni) square kilometers, include two fields in the pre-development phase holding estimated 170 mmBBL of oil of reserves.
Production for 2005 was adversely impacted by shutdowns of certain facilities as a consequence of the hurricane season. Management expects residual hurricane-related impact in 2006. See the paragraph "Production" above and "Item 5 – Recent Developments".Alaska.
VenezuelaVenezuela. Eni has been present in Venezuela since 1998.
In 2005 daily production averaged 61 KBBL/d net toJune 2007, Eni and came fromsigned a memorandum of understanding with national state-owned company PDVSA which defines the Dación oil field. Seeterms for the paragraph "Oil and natural gas reserves" above.
Thetransfer of the development activity of the Corocoro field in Venezuela to the new contractual regime of "empresa mixta". Eni will retain its 26% interest in this project. On December 5, 2007, the agreement was finalized. First oil field (Eni’s interest 26%)was achieved in the West Paria Gulf is in progress. The plan provides for a phased development depending on the results from wells and reactionfirst quarter of the field to water and gas reinjection.2008. Production is expected to start in 2008 with a peak of about 70at 66 KBBL/d (17 KBBL/d net to Eni) in 2009..
In JanuaryFebruary 2008, Eni and the Venezuelan Authorities reached a final settlement over the dispute regarding the expropriation of the Dación field which took place on April 1, 2006. Under the terms of the settlement, Eni will receive cash compensation to be paid in seven yearly installments. This cash compensation is not subject to Venezuelan taxation and yields interest income from the date of the settlement. The net present value of this cash compensation is in line with the book value of assets, net of the related provisions. In February 2008, Eni dropped the international arbitration proceeding commenced in 2006 following an international bid,against PDVSA.
In February, 2008 Eni was awardedand PDVSA signed a strategic agreement for the Cardon IVdevelopment of the Junin Block exploration license5 located in the Orinoco oil belt. This block covers a gross acreage of 670 square kilometers. Once relevant studies have been performed and a development plan defined, a joint venture with another international oil companybetween PDVSA (60%) and Eni (40%) will be established to execute the project. Eni intends to contribute its experience and leading technology to the project in order to maximize the Gulfvalue of Venezuela.
the heavy oil. In particular, it will make available its EST (Eni Slurry Technology) proprietary technology. This is a highly innovative technology for the complete conversion of heavy oils into high-quality light products.
Capital
ExpenditureExpenditures
See "Item 5 – Liquidity and Capital Resources – Capital ExpenditureExpenditures by Segment".
Storage
Natural gas storage activities are performed by Stoccaggi Gas Italia SpA (Stogit) to which such activity was conferred on October 31, 2001 by Eni SpA and Snam SpA, in compliance with Article 21 of Legislative Decree No. 164 of May 23, 2000, which providedprovides for the separation of storage from other activities in the field of natural gas.
Storage services are provided by Stogit through eight storage fields located in Italy, based on ten storage concessions63 vested by the Ministry of Productive Activities.
In 2005 Stogit increased2007, the share of storage capacity used by third parties up towas 56% (53% in 2004). From the beginning of its operations, Stogit markedly increased the number of customers served and the share of revenues from third parties:parties; the latter, from a nearly negligible amount, the latter accounted for 44% of total revenues in 2005.non-significant value, passed to 43%.
Storage | 2002 | 2003 | 2004 | 2005 | |||||
Available capacity: | ||||||||||
- modulation and mineral | (BCM) | 7.1 | 7.1 | 7.5 | 7.5 | |||||
. share utilized by Eni | (%) | 66 | 53 | 47 | 44 | |||||
- strategic | (BCM) | 5.1 | 5.1 | 5.1 | 5.1 | |||||
Total customers | (No.) | 20 | 30 | 39 | 44 | |||||
. modulation and upstream storage customers | (No.) | 14 | 24 | 29 | 35 |
Storage | 2005 | 2006 | 2007 | |||
Available capacity: | ||||||||
- modulation and mineral | (BCM) | 7.5 | 8.4 | 8.5 | ||||
. share utilized by Eni | (%) | 44 | 54 | 44 | ||||
- strategic | (BCM) | 5.1 | 5.1 | 5.1 | ||||
Total customers | (No.) | 35 | 38 | 44 |
(3) | Two of these are not yet operational. |
42
Gas & Power
Eni is engaged in the businessEni’s Gas & Power segment involves supply, transport, distribution and marketing of natural gas, supply,as well as of LNG. This segment also includes the activity of power generation that enables Eni to extract further value from gas, diversifying its commercial outlets.
Eni’s strategy in its Gas & Power segment is to grow international sales, preserve the profitability of Italian gas marketing operations, increase operational efficiency and effectiveness mainly in regulated businesses (i.e., Italian transport and sale mainlydistribution activities), and develop a global LNG business.
In the future, management expects that natural gas will satisfy an increasing portion of global energy needs. According to Eni’s internal estimates, worldwide gas demand will grow at an annual rate of approximately 2.8% through 2020, outpacing the expected annual growth rate in Italytotal energy consumption.
In Europe, Eni expects gas demand to grow at an average annual rate of 2-3% by 2020, reaching an amount of 780 BCM. The main driver of this growth will be the wider use of gas in power generation. A growing portion of European gas requirements is expected to be satisfied by imports via pipeline. According to Eni’s estimates, European gas imports will cover at least 85% of consumption from the current level of 60%, due to domestic production decrease. Eni expects that LNG will play an increasingly important role in diversifying sources of supply and in the restwill cover approximately 25% of Europe. Eni is also engaged in the businessEuropean consumption needs by 2020 (currently LNG represents 15% of electricity generation, which is conducted in Italy.European needs).
EniAgainst this backdrop, management plans to growincrease international natural gas sales in the rest of Europe and to develop its presence in the LNG business in order to compensate for lower growth opportunities on the domestic market due to the limits imposed on operators by the sector regulation and increasingly intense competition. In Italy, Eni plans to comply with regulatory limits on direct sales and input volumes to the national transport network through an optimal allocation of supplies between direct sales in Italy and in the rest of Europe and by using natural gas at its own electricity generation plants and, at the same time, leveraging on the expected consumption growth. In the medium term, management expects natural gas sales in Italy to decline from the 58 BCM level recorded in 2005 as a consequence of increasing competition from third parties. Eni plans to implement a more attractive commercial offer than Eni’s competitors’ on the basis of the quality of services, pricing formulas, including different indexation schemes to suit various customer’s purchasing profile, and the integration of supply of gas and electricity. Management plans to grow natural gas sales on the European market leveraging on Eni’s gas availability ofunder long-term supply contracts and equity gas, access to infrastructures, long-term relationships with key producing countries (mainly Russia, Algeria and Libya), market knowledge and a diversifiedwide portfolio of supply contracts, an extensive gas pipeline network, which allows for the supply of natural gas from several sources, and long standing relationships with producing countries.clients. Eni intends to strengthen its presence in European markets where its presence is already established – such as the Iberian Peninsula, Germany, France, the United Kingdom and Turkey – and to develop salesits marketing activities internationally, particularly in markets withthe U.S. leveraging on the planned expansion of the Company’s LNG business.
In 2007, natural gas demand in Italy amounted to 84.9 BCM; approximately 90% of gas requirements were met through imports and 10% was covered by domestic production. Eni expects natural gas consumption in Italy to increase at an average growth rate of approximately 2% through 2020, reaching an amount of 111.2 BCM in 2020 (gas volumes are projected at 93.2 BCM in 2011), driven by rising consumption in the power generation sector. Growing gas needs will be met by a projected increase in import capacity, which will be supported by significant growthcapital expenditure projects designed to upgrade existing infrastructures and profitability prospects (in particular France and the United Kingdom).to build new ones.
In Italy, in an increasingly competitive market, Eni also intends to accelerate the developmentpreserve selling margins and sales volumes of its LNG businessmarketing operations by leveraging on the expected growth of gas demand and implementing marketing initiatives designed: (i) to focus the most profitable customer segments; (ii) to upgrade the commercial offer by tailoring pricing and services to customers’ specific needs; and (iii) to develop the combined offer of gas and electricity ("dual offer"). A strong focus will be devoted to reducing marketing expenses.
In the medium term, Eni plans to increase worldwide sales targeting a global scale through the acquisitionvolume of interests110 BCM by 2011, leveraging on expected growth in assets covering the whole LNG chain (in particular regasification terminals) and alsointernational sales that are projected to monetize its natural gas reserves in West and North Africa, in the Far East.achieve an average annual rate of increase of 9%.
The matters regarding future natural gas demand and sales target discussed in this section and elsewhere here in are forward-looking statements that involve risks and uncertainties that could cause the actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties relating to future natural gas demand include changes in underlying economic factors, changes in regulation, population growth or shrinkage, changes in the relative mix of demand for natural gas and its principal competing fuels, and unexpected developments in the markets for natural gas and its principal competing fuels.
Demand for Natural Gas in ItalySupply of natural gas
In 2005, natural gas demand in Italy totalled 86 BCM (increasing by over 7% over 2004). In 2005, about 18% of natural gas requirements were met through domestic production (including natural gas volumes offtaken from storage), while imports covered 82%. Eni expects natural gas consumption in Italy to reach about 95 BCM in 2010, corresponding to an compound annual growth rate of about 2%.
Most of this increase is expected in electricity generation, because of the significant advantages of the use of natural gas in combined cycle plants, due to its lower investment cost, higher yields and reduced polluting emissions as compared to other fuels. Demand is expected also to increase from residential and commercial users, due to the increased use of natural gas in residential space heating, in households and services, in large tertiary firms and as vehicle fuel.
Natural Gas Purchases
In 2005,2007 Eni’s Gas & Power segment purchased 82.56consolidated subsidiaries supplied 83.80 BCM of natural gas with a 6.475.47 BCM increase over 2004, up 8.5%, in line with the increase in sales and related to higher volumes purchased outside Italy (7.04 BCM), offset in part by lower production volumes supplied in Italy (0.57 BCM)decrease from 2006, down 6.1%.
Natural gas volumes supplied outside Italy (71.83in 2007 (75.15 BCM) represented 87%decreased by 3.91 BCM from 2006, or 4.9%, reflecting unusually mild winter weather in Europe. Lower volumes were purchased: (i) from the Netherlands (down 2.54 BCM from 2006); (ii) from Russia (down 2.51 BCM from 2006) also due to implementation of total supplies (85%agreements signed in 2004)2006 with Gazprom, whereby Gazprom started to supply certain Italian importers that were supplied by Eni in previous years; and (iii) from Algeria via pipeline (down 2.29 BCM from 2006).
Outside Italy increases concerned purchases43
Supplies from Libya (3.29 BCM) and from Algeria (0.72 BCM). Imports of LNG destined to Italy increased by 0.181.54 BCM in 2007 due to the partial resumptionbuild-up of gas production from Eni-operated fields. In addition supplies from Sonatrach afterRussia to Turkey increased by 0.97 BCM, in line with the accident occurreddevelopment of the Turkish market.
Supplies in early 2004 atItaly (8.65 BCM in 2007) declined by 1.56 BCM from 2006, or 15.3%, due to mature fields declines.
Gas volumes from equity production amounted to 20 BCM representing approximately 20% of total volumes available for sales. Main equity volumes derived from: (i) Eni’s Italian gas fields (7.87 BCM); (ii) the Skikda liquefaction plantWafa and Bahr Essalam fields in Nigeria.Libya linked to Italy through the GreenStream pipeline. In 2007, these two fields supplied 3.62 BCM of equity production to the Gas & Power segment; (iii) certain Eni’s fields located in the British and Norwegian sections of the North Sea (5.81 BCM); and (iv) the Gulf of Mexico (1.8 BCM).
In 2005, a total of 0.84 BCM of2007, natural gas were withdrawnvolumes uplifted from the storage sites ofdeposits owned by Eni’s subsidiary Stoccaggi Gas Italia SpA (Eni’s interest 100%) aswere 1.49 BCM, compared to 0.93net input of 3.01 BCM in 2004.2006.
The table below sets forth Eni’s purchases of natural gas by source for the periods indicated.
Natural gas supplies | 2001 | 2002 | 2003 | 2004 | 2005 | |||||
Natural gas supply | 2005 | 2006 | 2007 | |||
(BCM) |
Italy | 14.62 | 12.67 | 12.16 | 11.30 | 10.73 | ||||||||||
Russia for Italy | 19.51 | 18.62 | 18.92 | 20.62 | 21.03 | ||||||||||
Russia for Turkey | 0.63 | 1.60 | 2.47 | ||||||||||||
Algeria | 18.39 | 16.35 | 16.53 | 18.86 | 19.58 | ||||||||||
the Netherlands | 7.00 | 7.55 | 7.41 | 8.45 | 8.29 | ||||||||||
Norway | 1.10 | 4.83 | 5.44 | 5.74 | 5.78 | ||||||||||
Croatia | 0.31 | 0.65 | 0.35 | 0.43 | |||||||||||
the United Kingdom | 1.48 | 1.98 | 1.76 | 2.28 | |||||||||||
Hungary | 3.11 | 3.05 | 3.56 | 3.57 | 3.63 | ||||||||||
Libya | 0.55 | 3.84 | |||||||||||||
Algeria (LNG) | 1.79 | 1.92 | 1.98 | 1.27 | 1.45 | ||||||||||
Others (LNG) | 0.30 | 0.72 | 0.70 | 0.69 | |||||||||||
Other supplies | 0.03 | 0.03 | 0.04 | 0.12 | 1.18 | ||||||||||
Others outside Europe | 0.96 | 0.96 | 1.14 | 1.20 | 1.18 | ||||||||||
Outside Italy | 51.89 | 55.40 | 59.00 | 64.79 | 71.83 | ||||||||||
Total supplies | 66.51 | 68.07 | 71.16 | 76.09 | 82.56 | ||||||||||
Withdrawals from (inputs to) storage | 0.13 | (1.43 | ) | 0.84 | 0.93 | 0.84 | |||||||||
Network losses and measurement differences | (0.92 | ) | (0.50 | ) | (0.61 | ) | (0.53 | ) | (0.78 | ) | |||||
Available for sale | 65.72 | 66.14 | 71.39 | 76.49 | 82.62 |
Italy | 10.73 | 10.21 | 8.65 | ||||||
Russia for Italy | 21.03 | 21.30 | 18.79 | ||||||
Russia for Turkey | 2.47 | 3.68 | 4.65 | ||||||
Algeria | 19.58 | 18.84 | 16.55 | ||||||
Libya | 4.61 | 7.70 | 9.24 | ||||||
the Netherlands | 8.29 | 10.28 | 7.74 | ||||||
Norway | 5.78 | 5.92 | 5.78 | ||||||
the United Kingdom | 2.28 | 2.50 | 3.15 | ||||||
Hungary | 3.63 | 3.28 | 2.87 | ||||||
Croatia | 0.43 | 0.86 | 0.54 | ||||||
Algeria (LNG) | 1.45 | 1.58 | 1.86 | ||||||
Others (LNG) | 0.69 | 1.57 | 2.32 | ||||||
Other supplies Europe | 0.41 | 0.78 | 0.76 | ||||||
Outside Europe | 1.18 | 0.77 | 0.90 | ||||||
Outside Italy | 71.83 | 79.06 | 75.15 | ||||||
Total supplies of subsidiaries | 82.56 | 89.27 | 83.80 | ||||||
Withdrawals from (input to) storage | 0.84 | (3.01 | ) | 1.49 | |||||
Network losses and measurement differences | (0.78 | ) | (0.50 | ) | (0.46 | ) | |||
Volumes available for sale of Eni’s subsidiaries | 82.62 | 85.76 | 84.83 | ||||||
Volumes available for sale of Eni’s affiliates | 7.08 | 7.65 | 8.74 | ||||||
E&P volumes | 4.51 | 4.69 | 5.39 | ||||||
Total volumes available for sale | 94.21 | 98.10 | 98.96 |
In order to meet the medium and long-term demand for natural gas, particularly in particular of the Italian market,European markets including Italy, Eni entered into long-term purchase contracts with producing countries that currently havecountries. In 2006, Eni signed a residual average termlong-term supply agreement with Gazprom whereby Eni extended the duration of its gas supply contracts to approximately 1522 years. Existing contracts, which in generalgenerally contain take-or-pay clauses, will ensure a total of about 67.3approximately 62.4 BCM/y of natural gas (Russia 28.5, Algeria 21.5, the Netherlands 9.8, Norway 6 and Nigeria LNG 1.5) by 2008. The average annual minimum quantity (take-or-pay) is approximately 85% of said quantities. 2010.
Despite the fact that management plans to sell outside Italy thean increasing volumesportion of natural gas availablevolumes purchased under Eni’s take-or-paysaid contracts is planned to be sold outside Italy, management believes that in the expected development oflong-term unfavorable trends in the Italian demand and supply offor natural gas, inalso due to the medium and long-termpossible implementation of all publicly announced plans for the construction of new supply infrastructures, and the evolution of Italian regulations of the natural gas sector, represent risk factors to the fulfillment of Eni’s obligations in this segment represent a risk element in the management ofconnection with its take-or-pay supply contracts. See "Item 3 – Risk Factors" and "Item 5 – Contractual Obligations".
In 20052007, Eni withdrew about 3.8 BCM morepurchases under its take-or-pay contracts were higher than its minimum offtakeuplift obligation. See "Item 5 – Recent Developments and Management ExpectationsThis amount relates mainly to a contractual year, rather than a calendar year (from October to end of Operations"September for a sizeable part of Eni Gas & Power long-term supply contracts).
In 2003 Eni and Gazexport (Gazprom) signed an agreement under which Eni has the right to sell the gas it purchases from Gazexport (Gazprom) in countries other than Italy. This agreement entails the cancellation of the so called territory destination clause. Gazexport (Gazprom), in turn, can sell its gas to other Italian operators. The European Commission approved this transaction and requested Eni to assume additional obligations favoring competition, in particular: (i) Eni should make volumes of natural gas purchased from Gazexport (Gazprom) available outside Italy; and (ii) Eni shall promote the upgrading of the TAG gasline (from Austria into Italy) with deadlines consistent with the decision of third parties to build LNG terminals in Italy.
44
Marketing
Natural Gas Sales
in Italy and Europefor the Year
In 2005 natural2007, Eni’s worldwide gas sales (91.15(98.96 BCM, including own consumption, and Eni’s share of affiliates sales and E&P sales in Europe and in the Gulf of affiliates)Mexico) were up 0.86 BCM from 2006, or 0.9%, due to growth achieved on international markets, in particular in markets in Europe (up 3.64 BCM) and outside Europe (up 0.91 BCM). These increases were partly offset by lower sales to Italian importers (down 3.43 BCM) and to the domestic market (down 0.96 BCM).
Natural gas sales in Italy were 56.13 BCM (including own consumption) and declined by 0.96 BCM from 2006, or 1.7%.
The Italian market includes three groups of clients: industrial, residential and power generation users; they are further grouped as follows: (i) large industrial clients and power generation utilities directly linked to the national and the regional natural gas transport networks; (ii) residential customers include households (also referred to as the retail market), the tertiary sector (mainly commercial outlets, hospitals, schools and local administrations) and small businesses (also referred to as the middle market) located in large metropolitan areas and urban centers; and (iii) wholesalers, mainly local selling companies which resell natural gas to residential customers through low pressure distribution networks.
In 2007, the decline in sales on the Italian gas market was primarily due to lower sales to industrial users (down 1.56 BCM), also owing to competitive pressure, and residential users (down 0.64 BCM) mainly due to unusually mild winter weather. Sales increased by 7.340.54 BCM overand 0.38 BCM in the power generation and wholesalers segments. Sales under the gas release programs (2.37 BCM) increased by 0.37 BCM from 2006. These sales related to certain proceedings settled between Eni and the Italian Antitrust Authority. In June 2004, up 8.8%,Eni agreed with the Antitrust Authority to sell a total volume of 9.2 BCM of natural gas (2.3 BCM/y) in the four thermal years from October 1, 2004 to September 30, 2008 at the Tarvisio entry point into the Italian network. In March 2007 a new gas release program was signed for volumes amounting to 4 BCM of natural gas to sell in the two thermal years from October 1, 2007 to September 30, 2009 at a virtual exchange point in the Italian market.
Sales to importers in Italy (10.67 BCM) declined by 3.43 BCM mainly due mainly to highera switch from supplies of Libyan gas to volumes directly sold in Italy to a number of clients in view of optimizing Eni equity production, as well as the expiration of a supply contract with Promgas.
Gas sales in markets in the rest of Europe (up 3.15 BCM),(24.35 BCM including affiliates) increased in the Italian market (up 2.392007 by 3.64 BCM, or 4.8%) and natural gas supplies for power generation at EniPower’s power stations (up 1.84 BCM, or 49.7%).
In an increasingly competitive market, natural gas sales to third parties in Italy (52.47 BCM) increased by 2.39 BCM over 2004, down 4.8%17.6%, reflecting an increase in sales to end users, also due to a cold winter, primarily relating to power generation (up 1.68 BCM or 10.6%), industries (up 0.68 BCM or 5.5%) and the residential and commercial segment (up 0.44 BCM or 6%). Thesemarket share gains. Main increases were offset in part by lower sales to wholesalers (down 1.82 BCM or 13.1%) related to the so called gas release carried out in accordance with certain decisions of the Antitrust Authority. See "Regulation of the Italian Hydrocarbon Industry – Gas & Power – Inquiries by Italian and European Antitrust Authorities – Sales contracts outside Italy" below.
Natural gas sales in the rest of Europe (23.44 BCM) increased by 1.9 BCM (up 8.8%) due to increasesmainly registered in: (i) Spain (up 1.67 BCM over 2006), due to higher supplies to the Turkish market viapower generations segment; (ii) Turkey (up 0.94 BCM over 2006), due to the progressive reaching of full operations of the Blue Stream gaslinepipeline; (iii) France (up 0.86 BCM); (ii) sales under long-term supply contracts to importers to Italy (up 0.57 BCM), also0.55 BCM over 2006) due to reaching full supplies from Eni’s Libyan fields; (iii) France, related to the increase in supplies to industrial customersmarketing initiatives targeting small businesses and to wholesalers (up 0.5 BCM);residential customers; and (iv) Germany and Austria related to increased suppliesNorthern Europe (up 0.3 BCM) to Eni’s affiliate GVS (Eni’s interest 50%) and other operators.
Own consumption7 was 5.54 BCM, up 1.84 BCM from 2004, or 49.7%, reflecting primarily higher supplies to EniPower due to the coming on stream of new generation capacity, primarily reflecting supplies to EniPower (4.41 BCM), to Polimeri Europa (0.35 BCM) and to Eni’s Refining & Marketing segment (0.27 BCM).
Sales of natural gas by Eni’s affiliates (net to Eni and net of Eni’s supplies) amounted to 8.53 BCM, increasing by 1.210.53 BCM over 2004, up 16.5%,2006). Sales in markets outside Europe (2.42 BCM in 2007) grew by 0.91 BCM, or 60.3% as compared to 2006, on the back of higher LNG volumes sold on the Asian and concerned: (i) GVS (Eni’s interest 50%) with 3.39 BCM; (ii) Galp Energia (Eni’s interest 33.34%) with 1.56 BCM; (iii)Northern American markets by the affiliate Unión Fenosa Gas (Eni’s interestshare 50%) with 1.52 BCM; and (iv) volumes of natural gas (1.45 BCM) treated at the Nigeria LNG Ltd liquefaction plant (Eni’s interest 10.4%) in Nigeria, sold by Nigeria LNG Ltd to U.S. and European markets..
The tabletables below setsset forth Eni’s sales of natural gas by principal market for the periods indicated.
Natural gas sales | 2001 | 2002 | 2003 | 2004 | 2005 | |||||
Natural gas sales by entities | 2005 | 2006 | 2007 | |||
(BCM) |
Italy | 56.74 | 50.43 | 50.86 | 50.08 | 52.47 | |||||
Wholesalers | 21.09 | 17.02 | 15.36 | 13.87 | 12.05 | |||||
Gas release | 0.54 | 1.95 | ||||||||
End customers | 35.65 | 33.41 | 35.50 | 35.67 | 38.47 | |||||
Industrial users | 18.53 | 14.43 | 13.17 | 12.39 | 13.07 | |||||
Thermoelectric users | 12.21 | 12.48 | 15.03 | 15.92 | 17.60 | |||||
Residential | 4.91 | 6.50 | 7.30 | 7.36 | 7.80 | |||||
Rest of Europe | 6.05 | 12.77 | 17.54 | 21.54 | 23.44 | |||||
Outside Europe | 0.93 | 0.92 | 1.09 | 1.17 | 1.17 | |||||
Total sales to third parties | 63.72 | 64.12 | 69.49 | 72.79 | 77.08 | |||||
Own consumption | 2.00 | 2.02 | 1.90 | 3.70 | 5.54 | |||||
Total sales to third parties and own consumption | 65.72 | 66.14 | 71.39 | 76.49 | 82.62 | |||||
Sales of natural gas of Eni’s affiliates (net to Eni) | 1.38 | 2.40 | 6.94 | 7.32 | 8.53 | |||||
Europe | 0.93 | 1.93 | 6.23 | 6.60 | 7.85 | |||||
Outside Europe | 0.45 | 0.47 | 0.71 | 0.72 | 0.68 | |||||
Total sales of natural gas | 67.10 | 68.54 | 78.33 | 83.81 | 91.15 |
Total sales of subsidiaries | 82.62 | 85.76 | 84.83 | |||
Italy | 58.01 | 57.07 | 56.08 | |||
Rest of Europe | 23.44 | 27.93 | 27.86 | |||
Outside Europe | 1.17 | 0.76 | 0.89 | |||
Total sales of Eni’s affiliates (Eni’s share) | 7.08 | 7.65 | 8.74 | |||
Italy | 0.07 | 0.02 | 0.05 | |||
Rest of Europe | 6.47 | 6.88 | 7.16 | |||
Outside Europe | 0.54 | 0.75 | 1.53 | |||
Total sales of G&P | 89.70 | 93.41 | 93.57 | |||
E&P in Europe and in the Gulf of Mexico (a) | 4.51 | 4.69 | 5.39 | |||
Worldwide gas sales | 94.21 | 98.10 | 98.96 |
The Italian Natural Gas Market
The Italian natural gas market is made up of three main segments: residential and commercial, industrial and thermoelectric. Customers can be divided into three groups: (i) high consumption final users directly linked to the national and regional natural gas high pressure networks (industries and power stations); (ii) customers of the residential and commercial sector such as residential and commercial users, hospitals, schools, public utilities, small enterprises located in urban centers supplied by wholesalers through low pressure networks; and (iii) wholesalers (mainly local selling companies and distributors of natural gas for automotive use) purchasing natural gas to sell it to residential and commercial customers.
In 2005, Eni’s natural gas sales to wholesalers amounted to 12.05 BCM (down 13.1% over 2004).
In 2005, natural gas consumption in the Italian industrial segment amounted to approximately 21.8 BCM (approximately 25% of total final consumption), with a 2.3% decrease from 2004. In 2005, Eni’s sales of natural gas to industrial users amounted to 13.07 BCM (up 5.5% over 2004).
In 2005, natural gas consumption in the Italian thermoelectric segment amounted to approximately 33 BCM (approximately 38% of total demand), with an approximately 14% increase over 2004. In 2005, Eni’s sales of natural gas to thermoelectric users amounted to 17.60 BCM (up 10.6% over 2004).
Natural gas consumption in the residential and commercial segment amounted to over 30 BCM (35% of total demand), with a 6.9% increase from 2004 due to the effect of weather conditions. Eni manages directly over 5 million residential customers and in 2005 Eni’s sales to this segment amounted to 7.8 BCM (up 6% from 2004).
Transmission, Dispatching and Regasification Activities
Transmission, dispatching and regasification activities in Italy are carried out by Snam Rete Gas, a company listed on the Italian Stock Exchange (in which Eni holds a 50.07% interest). Eni’s primary transmission network was conferred to Snam Rete Gas in July 2001 in implementation of Legislative Decree No. 164/2000 concerning the Italian natural gas market, which provides for the separation of transmission, dispatching and regasification activities from all other activities in the natural gas segment. This Decree also establishes that transport activity qualifies as a public concern activity and consequently is regulated.
The Italian natural gas transmission system is made up of a national pipeline network and a regional pipeline network for a total length of 33,000 kilometers, of which 30,712 kilometers are owned by Eni.
The Italian national transmission network is made up of high pressure trunklines, mainly with a large diameter, which carry natural gas from the entry points to the system – import lines, storage sites and main Italian natural gas fields – to the linking points with the regional transmission network. The national network includes also some interregional lines reaching important markets.
The regional transmission network is made up of the remaining lines and allows the transmission of natural gas to industries, power stations and local distribution companies of the various local areas served.
At December 31, 2005 the national pipeline network owned by Eni extended for 8,392 kilometers.
Underground pipelines have a maximum diameter of 48 inches and carry natural gas at pressures of 24 to 75 bars. The underwater pipeline crossing the Messina Strait has a diameter of 20 to 26 inches and carries natural gas at a pressure equal to or higher than 115 bars.
The major pipelines interconnected with import trunklines that are part of Eni’s national network are:
In 2005 Eni’s national network increased by 196 kilometers due to the upgrade of the trunklines for gas imported from Russia and Algeria.
Eni’s regional transmission network is made up of pipes with smaller diameter than the national lines for a total length of 22,320 kilometers. These pipes carry natural gas at pressures between 5 and 12 bars, between 12 and 24 bars and between 24 and 75 bars. In 2005, Eni’s regional network decreased by 29 kilometers despite the entry into service of new lines.
Eni’s system is completed by: (i) 11 compressor stations with a total power of 683 megawatt; and (ii) 5 marine terminals linking underwater pipelines with the on-land network at Mazara del Vallo, Messina and Gela in Sicily and Favazzina and Palmi in Calabria for the Greenstream pipeline.
The control room of the dispatching system is located in San Donato Milanese and oversees and monitors the whole transmission network in cooperation with peripheral units. In 2005 this system obtained the ISO 9001-2000 certification. Peripheral units are represented by eight districts that monitor the transmission network through 60 centers that guarantee operation, maintenance and control of the whole system. Each unit is responsible for operations in accordance with technical specifications and applicable laws and regulations.
In addition to the international pipeline transmission system, natural gas also enters Eni’s system through the Panigaglia (Liguria) LNG terminal, which receives LNG carried by tanker ships. This terminal is currently the only one in Italy and at its maximum capacity can input 3.5 BCM/y into the transmission network. In 2005, volumes of LNG regasified amounted to the equivalent of approximately 2.49 BCM of natural gas.
In 2005 a total of 85.1 BCM of natural gas were input into the national network, of 64% of which was owned by Eni.
In the next four years Eni plans to carry out capital expenditure of approximately euro 3.5 billion aimed at the upgrade of its transport network in view of the expected increase in import capacity (in particular from Russia and Algeria).
Natural gas transported in Italy (1) | 2001 | 2002 | 2003 | 2004 | 2005 | |||||
|
Eni | 58.17 | 54.56 | 51.74 | 52.15 | 54.88 | |||||
Third parties | 11.41 | 19.11 | 24.63 | 28.26 | 30.22 | |||||
Enel | 6.28 | 8.28 | 9.18 | 9.25 | 9.90 | |||||
Edison Gas | 2.98 | 4.61 | 7.49 | 8.00 | 7.78 | |||||
Other | 2.15 | 6.22 | 7.96 | 11.01 | 12.54 | |||||
Total | 69.58 | 74.40 | 76.37 | 80.41 | 85.10 |
(a) | E&P sales include volumes marketed by the Exploration & Production segment in Europe for 3.59 BCM and in the Gulf of Mexico for 1.8 BCM for the year 2007 (4.07 and 0.62 BCM, respectively for the year 2006). It also includes volumes marketed in Europe for 4.51 BCM for the year 2005. |
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Natural gas sales by market | 2005 | 2006 | 2007 | |||
(BCM) |
Italy | 58.08 | 57.09 | 56.13 | |||
Wholesalers | 12.05 | 11.54 | 11.92 | |||
Gas release | 1.95 | 2.00 | 2.37 | |||
Industries | 13.07 | 13.33 | 11.77 | |||
Power generation | 17.60 | 16.67 | 17.21 | |||
Residential | 7.87 | 7.42 | 6.78 | |||
Own consumption | 5.54 | 6.13 | 6.08 | |||
Rest of Europe | 29.91 | 34.81 | 35.02 | |||
Importers to Italy | 11.53 | 14.10 | 10.67 | |||
Markets | 18.38 | 20.71 | 24.35 | |||
Iberian Peninsula | 4.59 | 5.24 | 6.91 | |||
Germany-Austria | 4.23 | 4.72 | 5.03 | |||
Turkey | 2.46 | 3.68 | 4.62 | |||
Northern Europe | 2.93 | 2.62 | 3.15 | |||
Hungary | 3.39 | 3.10 | 2.74 | |||
France | 0.15 | 1.07 | 1.62 | |||
Other | 0.63 | 0.28 | 0.28 | |||
Outside Europe | 1.71 | 1.51 | 2.42 | |||
E&P in Europe and in the Gulf of Mexico | 4.51 | 4.69 | 5.39 | |||
Worldwide gas sales | 94.21 | 98.10 | 98.96 |
The ItalianElectricity Sales for the Year
In 2007, sales of electricity (33.19 TWh) increased by 2.16 TWh from 2006, up 7%, reflecting higher production availability due to full operations of the Brindisi plant and higher volumes purchased from third parties in Italy and outside Italy. Sales of steam (10,849 ktonnes) in 2007 increased by 562 ktonnes from 2006, up 5.5% and were directed to end customers.
Sales of electricity amounting to 33.19 TWh were directed to the free market (63%), the electricity exchange (26%), industrial sites (8%) and Electricity Sevice Operator (3%). In 2007, Eni started to market electricity to the retail segment leveraging on the launch of a combined integrated offer of gas and electricity (dual offer) leading to the acquisition of approximately 120,000 customers.
To this end, in 2007 Eni implemented an internal reorganization of its activities of production and marketing of electricity. Effective from January 1, 2007, electricity marketing activity has been managed by the Eni gas marketing department in order to better manage and integrate the marketing of gas and electricity. Power generation activity remained entrusted to Eni’s subsidiary EniPower.
Planned Actions and Sales Target
In the medium term, Eni plans to increase its sales volumes of natural gas system is suppliedin international markets, mainly in Europe and the U.S., in order to compensate for about 82%lower growth opportunities on its domestic market due to sector-specific regulation imposing limits to the size of Italian gas operators. In order to achieve its growth targets, Eni will leverage on its strengths represented by gas availability both as equity gas and under long-term purchase contracts, operational flexibility ensured by access to a large transport network, re-gasification terminals and logistic assets, a large portfolio of clients and market knowledge.
(i) Italy
In the medium term management expects to comply with importedmarket limits imposed by Italian sector-specific regulation, in terms of both volumes intake into the national network and sales volumes, through the optimal allocation of Eni’s available volumes of gas transmittedbetween sales in Italy and in the rest of Europe, and the use of gas in Eni’s power generation plants, leveraging also on the expected increase in demand.
Eni targets sales volumes of approximately 50 BCM in 2011. This target takes account of the expected increase in competitive pressure due to new supplies coming on stream on the Italian gas market. Specifically, import capacity to Italy is projected to increase by 25 BCM over the next four years. In next two-year period, approximately 21 BCM of new capacity are expected to come on stream in connection with Eni’s ongoing upgrading projects of its international pipelines, mainly from Russia and Algeria, as well as the ongoing construction of an LNG plant by a third party.
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In order to support sales and profitability of its marketing operations in Italy, Eni intends to implement an effective marketing policy, intended to deliver value to customers leveraging on the quality of the service and the offer of customized price formulas. Eni’s marketing initiatives will focus mainly the middle and retail markets, also leveraging on the expected development of the combined offer of gas and electricity to residential customers ("dual offer").
At the same time, Eni expects to preserve its selling margins by means of reducing the cost to serve leveraging on technological innovation, streamlining front-end and back-end processes and achieving economies of scale and synergies, particularly those driving from the dual offer in terms of process integration for acquiring, retaining and managing customers.
(ii) European Markets
In the future, Eni intends to strengthen its leadership in the European gas markets, targeting to increase both volumes and market shares. A review of Eni’s presence in key European markets and volume targets for 2011 is presented below.
France. Eni sells natural gas to industrial clients and resellers and plans to increase its market share mainly in the segments of small businesses and retail, leveraging on the liberalization of the market that has started from July 1, 2007.
Specifically, the retail segment presents attractive grow opportunities with 11.5 million of customers and consumption equaling 60% of total national consumption. Eni expects to ramp-up sales on the French market to achieve approximately 5 BCM of sales by 2011. This target represents an annual average growth rate of 33%. Eni expects its market share to reach 9% from the current 3%.
Eni’s development plans on the French market will leverage on the expansion of direct sales and on the partnership with the affiliated entity Altergaz, of which Eni acquired a 27.8% stake in 2007 exercising joint control with the other partners. Altergaz markets gas to small businesses and the retail segments supplying 3,500 clients, with revenues of approximately euro 60 million. Eni will support Altergaz’s development in the target segments through a 10-year supply contract of 1.3 BCM/y and will pursue synergies with its own commercial structure.
Germany. Eni is present on the German natural gas market through its affiliate GVS (Gasversorgung Süddeutschland GmbH - Eni 50%) which sold approximately 4.94 BCM in 2007 (2.47 BCM being Eni’s share). Eni boasts also a direct marketing structure.
In the medium term, Eni plans to increase significantly its sales to the business segment, leveraging on the pursuit of opportunities arising from the ongoing liberalization process. The planned target is to sell 6.9 BCM in 2011, equal to a 6% market share with an annual growth rate of 8.4%.
Iberian Peninsula
Portugal. Eni operates on the Portuguese market through its affiliate Galp Energia (Eni’s interest 33.34%), which sold approximately 5.94 BCM in 2007 (1.98 BCM being Eni’s share). In the medium term, sales are expected to remain stable.
Spain. Eni operates in the Spanish gas market through Unión Fenosa Gas (Eni’s interest 50%) which mainly supplies natural gas to final customers and power generation utilities. Eni boasts also a direct marketing structure. In 2007, gas sales of Unión Fenosa Gas amounted to 3.64 BCM (1.82 BCM Eni’s share). Unión Fenosa Gas operates in the LNG business through an 80% interest in the Damietta liquefaction plant, on the Egyptian coast (see below), and a 7.36% interest in a liquefaction plant in Oman. In addition, it holds interests in the Sagunto (Valencia) and El Ferrol (Galicia) re-gasification plants, with 42.5% and 18.9% interest, respectively.
Eni plans to increase sales volumes in the Iberian Peninsula from the current 6.91 BCM level to approximately 8.9 BCM by 2011, with an annual average growth rate of 7%. Sale increases will be driven by an expected expansion of Unión Fenosa Gas and the development of direct sales, mainly to the Spanish power generation segment supplied by means of LNG.
UK/Northern Europe. Eni through its subsidiary North Sea Gas & Power (Eni UK Ltd) markets equity gas produced at Eni’s fields in the North Sea and operates in the main continental natural gas hubs (NBP, Zeebrugge, TTF). Eni plans to grow volumes sold on the markets of the UK/Northern Europe from the current 3.2 BCM level to approximately 6.9 BCM by 2011, with a 21% average annual growth rate.
Turkey. Eni and Gazprom jointly market natural gas to the Turkish company Botas under a long-term supply contract. Volumes of natural gas are supplied via the Blue Stream transport system (see below) that links the Russian coast (Dzhubga) to the Turkish coast (Samsun) crossing the Black Sea. In 2007, Eni’s share of sales amounted to 4.62 BCM. Leveraging on the expected demand growth, Eni plans to increase sales up to 6.4 BCM by 2011, equal to a 9% growth rate.
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(iii) The United States
Eni’s plans to expand its natural gas sales in the U.S. are described under the "LNG business" below.
Infrastructures
Eni operates a large European network of integrated infrastructures for transporting natural gas, linking key consumption basins with the main producing areas (North Africa, Russia and the North Sea).
In Italy, Eni operates almost all the national transport network and a significant portion of local distribution networks for the delivery of natural gas to residential and commercial users. Availability of re-gasification capacity in Italy and the Iberian Peninsula and storage sites ensure a high level of operating flexibility. These assets represent a significant competitive advantage. In order to increase the diversification and reliability of supplies and to cope with expected European demand growth, Eni is implementing plans for upgrading the transport capacity of its import pipelines from Russia, Algeria, North Europe and Libya, and expanding and modernizing its national transport and distribution networks. This plan envisages capital expenditures of approximately euro 5.6 billion to be deployed in the next four-year period. Particularly, the Company plans to increase the transport capacity of its international pipeline by 10 BCM, coming on stream in 2008, and further 6 BCM coming on stream in 2009 relating to ongoing upgrading projects.
International Transport Activities
In order to import natural gas to Italy, Eni owns capacity entitlements in a network of international high pressure pipelines extending for a total of over 4,300 kilometers;kilometers enabling the Company to import natural gas produced in which Eni owns transportation rights, in particular:Russia, Algeria, the North Sea and Libya to Italy. A description of the main pipelines is provided below.
• | ||
• | The TTPC pipeline imports natural gas from Algeria. This is a 742-kilometer long pipe made up of two lines each 371-kilometer long with a transport capacity of 27 BCM/y and three compression stations. Natural gas from Algeria is transported across Tunisia from Oued Saf Saf at the Algerian border to Cap Bon on the Mediterranean coast where it links with the TMPC pipeline. The transport capacity of this facility is expected to be increased by 6.5 BCM/y from the current level of 27 BCM/y. A first portion of 3.2 BCM/y has come on line late in April 2008, while the second portion is expected to start operations by October 2008. The whole new capacity has been awarded to third parties. The capacity of the TMPC downstream pipeline is already adequately dimensioned. TMPC crosses underwater the Sicily channel. | |
• | The TMPC pipeline importing natural gas from Algeria is 775-kilometer long, is made up of five lines each 155-kilometer long with a transport capacity of 33.5 BCM/y. It crosses underwater the Sicily Channel from Cap Bon to Mazara del Vallo in Sicily, the point of entry into the Italian natural gas transport system. | |
• | The TENP pipeline importing natural gas from the Netherlands is 1,000-kilometer long (two 500-kilometer long lines) with transport capacity of 15.5 BCM/y and four compression stations. This facility transports natural gas from the Netherlands through Germany, from the German-Dutch border of Bocholtz to Wallbach at the German-Swiss border. Eni plans to expand the transport capacity of this pipeline by 2 BCM coming on stream late in 2009. A further capacity expansion is being assessed. | |
• | The Transitgas pipeline | |
• | ||
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Eni holds a 50% interest in the Blue Stream underwater pipeline linking the Russian andcoast to the Turkish coast of the Black Sea. When fully operational,Through this 774-kilometer long pipeline, with a transmission capacity of 49 mmCM/d, is expected to transport 16 BCM/yEni transports gas volumes purchased in 2010 (Eni’s share 8 billion) of Russian natural gasRussia to be sold on the Turkish market. This pipeline is 774-kilometer long on two lines and has transport capacity of 16 BCM/y.
Agreement with Gazprom: South Stream project
On June 23, 2007, as part of the strategic alliance with Gazprom, Eni signed a Memorandum of Understanding for building the South Stream pipeline system that will transport volumes of Russian gas to European markets across the Black Sea. The agreement provides for a technical and economic feasibility study of the project, also including political and regulatory evaluations and considerations, and sets the guidelines for the cooperation between both companies for planning, funding, building and running the pipeline. The transport capacity of South Stream will be defined through feasibility studies on the basis of market (see "Development Projects" below). Atanalyses that will be carried out in the countries involved as well as in end markets. An evaluation by Saipem indicates that expenditures required by this project are comparable to those required for the construction of 2005a full LNG chain. The South Stream pipeline is expected to be composed of two sections: (i) an offshore section crossing the firstBlack Sea from the Russian coast at Beregovaya (where also the Blue Stream pipeline originates) to Varna on the Bulgarian coast for a total of 900 kilometers at maximum depths of 2,000 meters; and (ii) an onshore section crossing Bulgaria, with two alternatives: one directed to North-West crossing Serbia and Hungary linking with the gaslines from Russia and the other directed to South-West through Greece and Albania linking directly to the Italian network. This initiative will support Eni in extracting further value from the gas properties that Eni bought in Russia upon a bid for assets of bankrupt Russian company Yukos. See "Exploration & Production – Russia".
Italian Transport Activity
Eni, through Snam Rete Gas, a company listed on the Italian Stock Exchange, in which Eni holds a 50.04% interest, owns the major part of the Italian natural gas transport network as well as the only re-gasification terminal currently operating in Italy.
Under Legislative Decree No. 164/2000 that regulates the Italian natural gas market, transport activities are supervised by the Authority for Electricity and Gas which sets methods for calculating tariffs and transport return on capital employed.
Eni’s network extends for 31,081 kilometers and comprises:
(i) | a system of trunk-lines that extends for approximately 8,548 kilometers and is made up of high pressure large diameter pipes which carry natural gas from the entry points to the system – import lines, storage sites and main Italian natural gas fields – to the linking points with regional transport networks. This network also includes certain interregional lines reaching important markets; and | |
(ii) | a system of regional transport networks extending over 22,533 kilometers, made up of smaller pipes which transport volumes of natural gas to large industrial complexes, power stations and local distribution companies in the various local areas served. |
In 2007, Eni’s national transport network increased by 192 kilometers due to certain upgrades to both national backbones (69 kilometers) and the regional network (123 kilometers).
The major pipelines interconnected with import trunklines that are part of Eni’s national network are:
- | two lines with a 48/42-inch diameter, each approximately 1,500-kilometer long, including the smaller pipes that cross underwater the Messina Strait, connect Mazara del Vallo on the Southern coast of Sicily where they link with the TMPC pipeline carrying Algerian gas, to Minerbio (near Bologna). This pipeline is undergoing an upgrade with the laying of a third line with a 48 inch diameter 403-kilometer long (of these 309 are already operating). Available transport capacity at the Mazara del Vallo entry point is approximately 91 mmCM/d; |
- | a 36-inch line, 67-kilometer long linking Gela, the entry point of the GreenStream underwater pipeline into the national network near Enna along the backbone that transports gas coming from Algeria. Transport capacity at the Gela entry point is approximately 30 mmCM/d; |
- | two lines with 42/36/34-inch diameters extends for a total length of approximately 900 kilometers and are connected to the TAG pipeline from Russia at Tarvisio. This facility cross the Po Valley reaching Sergnano (near Cremona) and Minerbio. This pipeline has been upgraded by the laying of a third 264-kilometer long line with diameter from 48 to 56 inches from Tarvisio to Zimella (Verona) and by upgrading the Malborghetto compression station. The pipeline transport capacity at the Tarvisio entry point amounts to approximately 113 mmCM/d plus the transport capacity available at the Gorizia entry point of approximately 5 mmCM/d; |
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- | one line, with a 48-inch diameter, 177-kilometer long extends from the Italian border at Passo Gries (Verbania) where it connects with the Transitgas pipeline carrying gas from Norway and the Netherlands, to the node of Mortara, in the Po Valley. The pipeline transport capacity at the Passo Gries entry point is of 64 mmCM/d; |
- | one line, with a 30-inch diameter, 170-kilometer long, which links the Panigaglia terminal to the national transport network near Parma. The pipeline transport capacity at the Panigaglia entry point is of 13 mmCM/d. |
Eni’s transport system is complemented by: (i) 10 compressor stations with a total power of 758 MW; (ii) 5 marine terminals linking underwater pipelines with the on-land network at Mazara del Vallo, Messina and Gela in Sicily and Favazzina and Palmi in Calabria for the GreenStream pipeline; and (iii) a control room of the dispatching system located in San Donato Milanese, which oversees and monitors the whole network in cooperation with peripheral units.
Snam Rete Gas is currently assessing the construction of the Italian section of the Dzhubga compression station on the Russian coastnew Galsi pipeline connecting Algeria to Italy through Sardinia with an 8 BCM/y capacity.
The Italian section of the Black Sea started operations. It isthis new infrastructure will be made up of three turbocompressorsan onshore section crossing Sardinia and three turbogenerators thatan offshore section reaching Tuscany where it will allow tolink with the national network for a total length of 600 kilometers. Galsi will be responsible for project engineering and obtaining needed licenses and authorizations, while Snam Rete Gas will build the pipeline and manage it when operational.
For the next four years Snam Rete Gas approved a capital expenditure plan of approximately euro 4.3 billion aimed mainly at the upgrade of its transport network in view of the expected increase thein import capacity.
In 2007, volumes of natural gas transported.
input in the national grid (83.28 BCM) decreased by 4.71 BCM from 2006, down 5.4%, mainly due to lower volumes of natural gas input to storage for the rebuilding of stocks. Eni transported 30.89 BCM of natural gas on behalf of third parties in Italy in line with 2006.
In 2007, the LNG terminal in Panigaglia (La Spezia) regasified 2.38 BCM of natural gas (3.13 BCM in 2006), discharging 73 tanker ships (96 in 2006).
Gas volumes transported (a) 2005
2006
2007
(BCM)
Eni 54.88 57.09 52.39 On behalf of third parties 30.22 30.90 30.89 Enel 9.90 9.67 9.36 Edison Gas 7.78 8.80 7.16 Others 12.54 12.43 14.37 Total 85.10 87.99 83.28
(a) Includes amounts destined to domestic storage. Distribution Activity
Distribution involves the delivery of natural gas to residential and commercial userscustomers in urban centers through low pressure networks. Eni, through its 100% subsidiary Italgas and other subsidiaries, is engagedoperates in the distribution activity in Italy serving 1,2821,318 municipalities through a low pressure network consisting of over 48,000approximately 49,000 kilometers of pipelines supplying 5.85.6 million customers at December 31, 2005.and distributing 7.3 BCM in 2007.
Under Legislative Decree No. 164/2000 concerningthat regulates the opening up of theItalian natural gas market, in Italy defines distribution as aactivities are supervised by the Authority for Electricity and Gas which sets methods for calculating distribution tariffs and return on capital employed. Distribution activities are conducted under concession agreements whereby local public administrations award the service which is subjectof gas distribution to regulation and its management is entrustedcompanies. According to natural gas companies by local governments exclusively under bid procedures. Concessions existing atLegislative Decree No. 164/2000, the coming into forceaward of the Decreeservice will have to take place by competitive bids from the end of a transition period and awarded with a bid procedure expire onhowever, no later than December 31, 2012; all other2012. Future concessions expire on December 31, 2007 (with an optional three year extension in casewill last no more than twelve years.
Eni intends to develop its served market and improve efficiency and quality of public interest). See "Regulationservices rendered. For the next four years Eni defined a capital expenditure plan of approximately euro 1 billion for the Italian Hydrocarbon Industry Gas & Power" below.
development/upgrade of its distribution networks and their technological upgrade.
The target is to serve 6 million clients and increase distributed volumes to 8.3 BCM by 2011.
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Development ProjectsThe LNG Business
Eni is engagedintends to speed up the development of its LNG business on a global scale, aiming at building or acquiring assets in various development projects concerning the saleLNG value chain in order to seize the opportunities arising from the increasing role of natural gasLNG in European markets andsatisfying energy requirements. Expansion in LNG will enable Eni to fully monetize its large equity reserves.
By 2011 Eni plans to sell 14.5 BCM of LNG (including E&P sales) with an annual growth rate of 5.4% over the next four years.
Eni’s main assets in the LNG business are described below.
Italy. Eni operates the only re-gasification terminal operating in order to strengthen its market shareItaly at Panigaglia (Liguria). At full capacity, this terminal can input 3.5 BCM/y into the Italian transport network. In 2007, a total of 2.38 BCM of natural gas were input in area where its presence is already established (Iberian Peninsula, Germany, Turkey) and to develop sales in markets with interesting growth and profitability prospects (in particular France and the United Kingdom).national network, of these 47% were re-gassified on behalf on Eni. Eni plans to increase the flexibilitycapacity of the Panigaglia plant by 4.5 BCM, expected to come on line by 2014. Estimated capital expenditures amount to euro 359 million.
Egypt. Eni, through its operations by upgrading its logistical assets.
In these European markets Eni can leverage on the availability of equity gas and a diversified portfolio of supply contracts,interest in Unión Fenosa Gas, has an extensive gas pipeline network, which allows for the supply of natural gas from several sources, and long standing relationships with producing countries. Eni intends to develop its presenceindirect interest in the LNG business which provides interesting growth prospects, leveraging on the value of its assets, on its participation inDamietta liquefaction projects aimed at exploiting its natural gas reserves (mainly in North and West Africa, the Far East and Australia) and on the purchase of interests in regasification terminals located in strategic consumption markets (such as the United States, the United Kingdom and the Far East).
Germany Eni has been present on the German natural gas market since late 2002 through GVS Gasversorgung Süddeutschland GmbH) in which it holds a 50% interest. Through a 1,863-kilometer long gas pipeline network (of these 1,750 are owned and 113 are managed) it transports and markets about 7 BCM/plant that produces approximately 5 mmtonnes/y of gasLNG equal to local distribution companies serving about 750 municipalities in the South-Western areasa feedstock of the country.
In January 2005 Eni agreed a 14 year contract, starting in 2006, for the supply of 1.27.6 BCM/y of natural gas to the German company Wingas.gas. The gas will be delivered at Eynatten at the German-Belgian border. In the medium term, Eni plans to increase its natural gas sales from the 4.2 BCM level recorded in 2005.
Iberian Peninsula
Portugal Eni operates on the Portuguese market through Galp Energia (Eni’s interest 33.34%). On December 29, 2005, Eni, Amorim Energia (a privately held Portuguese company in which Sonangol, the national oil company of Angola, holds a minority stake) and Rede Electrica Nacional (REN) entered an eight year long shareholders agreement for the joint management of Galp Energia (Galp). The agreement came in force on March 29, 2006 after the occurrence of all the suspensive conditions, among which: (i) the authorizationpartners of the European Commission issuedproject (including Eni’s Exploration & Production segment) agreed on March 24, 2006; (ii)terms for doubling the purchase on March 28, 2006 of a 1% stake in Galp by Caixa (a primary Portuguese financial institution) which also entered the shareholder agreement of December 2005; and (iii) the change in the powers of the Portuguese State in Galp (golden share) resulting from the approval by Galp’s Shareholders’ Meeting held on March 29, 2006 of new by-laws consistent with the agreement between Eni, Amorim Energia, REN and Caixa. At the present date shareholders of Galp are: Eni (33.34%), the Portuguese State (17.711%), Parpublica (12.293%), REN (18.30%), Amorim Energia (13.312%), Iberdrola (4%), Caixa Geral de Depositos (1%), Setgas (0.044%).
Key guidelines of the agreement are as follows: (i) the establishment of a new set of corporate governance rules setting, among others, percentages of share capital voting rights necessary to make relevant decisions; (ii) an industrial plan targeting the achievement of a leading market position in natural gas, refining and petroleum products marketing in the Iberian Peninsula, an increase in the weight of upstream activities in Galp’s asset portfolio and access to the Portuguese electricity sector; (iii) placement of part of the stake held by the Portuguese State in Galp through an initial public offering by year end of 2006; (iv) spin-off of certain regulated asset of Galp (natural gas transport network, storage sites and the Sines LNG regasification plant) ideally by the end of 2006; those assets are agreed to be sold to REN; (v) transfer of REN’s stake in Galp to Amorim Energia within an 18 month period from the effective date of the agreement; and (vi) a five year lock in period.
This agreement replaces the pre-existing agreement between Eni and the Portuguese State.
In 2005 Galp sold about 1.56 BCM of gas to approximately 820,000 customers and managed a high, medium and low pressure network covering about 11,700 kilometers.plant capacity. The assets of Galp include among other things two import infrastructures: the Transmaghreb pipeline and the Sines LNG regasification plant. Following the entry into force of the new agreement, these transport and regasification infrastructures areproject is expected to be spun off.
Spainsanctioned by relevant Egyptian authorities in the first half of 2008. In order to market its share of LNG, Eni operates on the Spanish market through the Unión Fenosa Gas group (Eni’s interest 50%, the remaining 50% being held by Unión Fenosa SA), which is active in naturalintends also to build two gas supply and sales to final users and to power generation companies. In 2005 natural gas sales of Unión Fenosa Gas amounted to 1.52 BCM. Unión Fenosa Gas is active in LNG through an 80% interest in a liquefaction planttanker ships with a capacity of over 7155 KCM each.
Spain. Eni through Unión Fenosa Gas holds a 21.25% interest in the Sagunto re-gasification plant, near Valencia, with a capacity of 6.7 BCM/y. At present, Eni’s capacity entitlements amount to 1.6 BCM/y located at Damietta on the Egyptian coast, that started operations in January 2005, andof gas. A capacity upgrading plan has been sanctioned targeting a 0.8 BCM/y capacity increase by 2009. Eni through Unión Fenosa Gas also holds a 7.36% interest in a liquefaction plant under construction in Oman, completed in 2005. In addition, it holds an 18.9% and a 42.5%9.5% interest in the El Ferrol and Sagunto regasification plantsre-gasification plant, located in Galicia, which started operations in November 2007. This facility has treatment capacity of approximately 3.6 BCM/y, 0.4 BCM/y being Eni’s capacity entitlements.
USA. Eni is implementing plans to expand its presence in the strategic U.S. market where Eni holds a 40% capacity entitlement in the Cameron re-gasification terminal under construction managed byon the Reganosa and Saggas companies. The Sagunto plantcoast of Louisiana. This facility is expected to start operations between 2006 and 2007.
Inhave an initial capacity of 15.5 BCM/y, 6 BCM being Eni’s entitlement. Eni is entering into a number of agreements to ensure its share of supplies to the medium term, Eni plans to increase its natural gas sales from the 5.3 BCM level recordedplant, particularly: (i) in 2005.
Turkey Blue Stream Eni and Gazprom hold equal shares in Blue Stream Pipeline Company BV,February 2007, an agreement was signed with Nigeria LNG Ltd, which operates the Blue Stream transport system, that linksBonny LNG plant in Nigeria, to purchase, over a twenty-year period, 1.375 mmtonnes/y of LNG, equivalent to 2 BCM/y of gas, deriving from the Russian (Dzhubga)upgrade of the Bonny liquefaction plant (Train 7) expected for 2012; and (ii) negotiations are also progressing with Brass LNG Ltd for the purchase of 1.67 mmtonnes/y of LNG capacity approximately equivalent to 2.3 BCM/y of gas.
In December 2007, Eni purchased a share of 5.6 BCM/y capacity of the Pascagoula re-gasification plant under construction in Mississippi. This deal is related to the Turkish (Samsun) coastAngola LNG project in partnership with Sonangol (See Development initiatives in the Exploration & Production segment) which envisages construction of the Black Sea. In November 2005 the first section of the compressor station at Dzhubga on the Russian coast of the Black Sea started operating. This station is made up of three turbocompressors and three turbogenerators and will allowan LNG plant designed to increase volumes transported. The gasline transportsproduce 5.2 mmtonnes/y to be fed with natural gas produced in Russia which isAngola. The LNG will be marketed in the Unites States at the Pascagoula site. Under the agreement, Eni will also have the right to have its equity gas in Angola liquefied, shipped and regasified at Pascagoula by Angola LNG for a quantity equivalent to 0.94 BCM/y.
Electricity Generation
Eni conducts its power generation activities at its sites of Ferrera Erbognone, Ravenna, Livorno, Taranto, Mantova, Brindisi and Ferrara. In 2007, electricity production sold jointly by Eni and Gazprom in Turkeywas 25.49 TWh, up 0.67 TWh or 2.7% as compared to 2006 mainly due to the Turkish company Botas under a long-term contract. In 2005 volumes transported and sold in Turkey amounted to 5.14 BCM of natural gas (50% of which were Eni’s share) corresponding to an 18% market share. Volumes transported and marketed will increase progressively in future years and are targeted to about 16 BCM/y (8 billion net to Eni) in 2010.
France In July 2005 Eni signed a long term agreement with French company EDF for the supply of 860 mmCM/y of natural gas starting in October 2006.
Upgradingramp-up of the international transport network Eni has defined a program for the upgrade of transport gaslines from Algeria and Russia. Eni plans to increase the transport capacity of the TTPC gasline from Algeria by 6.5 BCM/y, with a 3.2 BCM starting on April 1, 2008 and an additional 3.3 BCM increase starting on October 1, 2008 with an expected expenditure of euro 345 million. A corresponding capacity on the TMPC downstream gasline is already available. The first section of the upgrade was assigned to third parties in November 2005.
Eni plans to upgrade the transport capacity of the TAG gasline from Russia by 6.5 BCM/y with a 3.2 BCM increase starting on October 1, 2008 and an additional 3.3 BCM increase starting on April 1, 2009 with an expected expenditure of euro 275 million. The first section of the upgrade was assigned to third parties in February 2006. In addition, the upgrade related to the build-up of the fourth import contract from Russia is nearly completed (up 4 BCM from 2007).
Considering also the full capacity from 2006 of the Greenstream gasline from Libya (8 BCM/y) and the upgrade underway of the TAG gasline in the light of the build-up of the fourth import contract from Russia (up 4 BCM/y from 2007), from 2009 a total of about 25 BCM/y of new import capacity are expected be available for the Italian market. Except for the 4 BCM/y of the Russian contract, 14.4 BCM of this new capacity have already been sold to third parties and a further 6.6 BCM/y are expected to be sold under open bidding procedures.
Libya Eni’s Gas & Power segment purchase 80% of the natural gas production of the Libyan natural gas producing field of Wafa and Bahr Essalam operated by Eni (with a 50% interest). The share of production belonging to the Libyan partner National Oil Company is purchased under a long term supply contract with a 24 year term. When the two fields achieve full production in 2006, production plateau volume are expected to be 10 BCM/y of which 8 BCM/y will be purchased by Eni’s Gas & Power segment and imported to Italy via the Greeenstream gasline. These volumes are sold to Italian third party importers under long term supply contracts with a 24 year term and delivery point at Gela in Sicily. The remaining 2 BCM/y natural gas availability from production is expected to be sold on the Libyan market by the two partners.
LNG
Eni is a party in various initiatives in the area of LNG. What follows is a description of the major initiatives.
United States On August 1, 2005, Eni signed an agreement with the U.S. company Cameron LNG LLC (belonging to the Sempra Energy group) to purchase a share of the regasification capacity of the Cameron liquefied natural gas terminal under construction in Louisiana expected to be completed in 2008-2009. The share of regasification capacity purchased amounts to 6 BCM/y for a period of 20 years, which corresponds to about 40% of the overall initial capacity of the terminal (15.5 BCM/y). This transaction will enable Eni to sell part of its natural gas reserves from North African and Nigerian fields in the United States.
Egypt In January 2005, the first LNG shipment was made from the Damietta liquefaction plant (Eni’s interest 40% through its 50% interest in Unión Fenosa Gas) that is targeted to produce about 7 BCM/y. The partners in the project (Unión Fenosa Gas, the Egyptian company EGAS and oil producers Eni and BP) have planned an expansion of the plant consisting in the construction of a second train with the same capacity of the first one with expected capital expenditure amounting to approximately $1.5 billion and start-up in 2009. Eni will supply about 3 BCM/y of natural gas to the first train for twenty years. Further volumes will be supplied to the second train under an intent protocol signed in March 2005 with the Egyptian Government.
Spain Eni holds a 9.5% and a 21.25% interest in the El Ferrol and Sagunto regasification plants under construction and expected to start operations between 2006 and 2007. Eni’s share of regasification capacity amounts to 1.8 BCM/y.
Other Developments
Agreement between Eni and Gazprom/Gazexport
In October 2005 Eni and Gazprom agreed to promote a new set of agreements aimed at widening their cooperation agreeing also to cease a previous agreement signed in May 2005. Negotiations are underway.
Sale of the water business
In March 2005, after receiving the authorization of the Italian Antitrust Authority, Italgas divested its majority interest (67.05%) in Società Azionaria per la Condotta di Acque Potabili to Amga SpA and Smat SpA for a cash consideration of euro 85 million (euro 15.57 per share). In May 2005, after receiving the authorization of the Italian Antitrust Authority, Italgas divested its 100% interest in Acquedotto Vesuviano SpA to Gori SpA for a cash consideration of euro 20 million. The above transactions are part of Eni’s strategy of concentrating its resources in its core natural gas business.
Purchase of Siciliana Gas
In May 2006 Eni purchased a 50% interest of Siciliana Gas SpA for a cash outlay of euro 98 million. The Italian Antitrust Authority approved the transaction on February 1, 2006. With this purchase Eni becomes the sole owner of Siciliana Gas SpA and through this company also of 100% of Siciliana Gas Vendite SpA. Siciliana Gas SpA has been operating in Sicily since 1979 and holds the rights for the distribution of gas to 76 Sicilian municipalities, including Agrigento, Enna, Trapani and Gela (of these 70 concessions are operating) through a 2,600-kilometer long network and with 186 employees. It owns Siciliana Gas Vendite SpA operating in the sale of natural gas to end users with approximately 215,000 customers and sales volumes of about 190 mmCM/y and 50 employees.
Toscana Energia SpA
On January 24, 2006, Eni, Italgas and the local authorities partners of Fiorentina Gas SpA and Toscana Gas SpA signed a framework agreement for developing an alliance in the area of natural gas distribution and sale. As part of the agreement, the partners incorporated Toscana Energia SpA (Eni’s interest 48.7% the remaining 51.3% interest being held by municipalities and local banks) to which they contributed in kind their interests in Fiorentina Gas and Toscana Gas. These two companies operate in natural gas distribution to 97 municipalities through a 7,900-kilometer long network serving 1.6 million customers. They will be merged in Toscana Energia within two years under the framework agreement. The local authority partners will play a role of strategic guidance and control, while Italgas is the industrial partner and has operating and management responsibilities. The agreement provides also for the establishment of a regional sales company (600,000 customers, 1.1 BCM sold in 147 Tuscan municipalities) under Eni’s control, through the merger of Toscana Gas Clienti SpA (Eni’s interest 46.1% through Italgas) and Fiorentina Gas Clienti SpA (Eni’s interest 100%).
Electricity Generation
Eni, through EniPower, is one of the major operators in electricity generation on the Italian market. Operating since 2000, EniPower owns power stations located at Eni’s sites in Brindisi Ferrera Erbognone, Livorno, Mantova, Ravenna, Ferrara and Taranto withplant. Total installed capacity in operation of approximately 4.5 gigawattwas 4.9 GW at December 31, 2005 (3.3 gigawatt in 2004).2007.
In 2005,By 2010 Eni sold 27.56 terawatthours of electricity, of which about 22.77 were produced by EniPower, correspondingintends to over 5% of the Italian market, and 10.66 million tonnes of steam. Approximately 57% of sales were directed to end users, 28% to the Electricity Exchange, 8% to GRTN/Terna (under CIP 6/92 contracts and imbalances in input) and 7% to wholesalers. All the steam produced was sold to end users.
Eni is completing acomplete its plan for expanding its electricitypower generation capacity, targeting in 2009 an installed capacity of 5.5 gigawatt withGW. At full capacity, production amountingis expected to 30 terawatthoursamount to approximately 31 TWh. Supplies of natural gas are expected to amount to approximately 6 BCM/y from 2008, corresponding to over 10% of electricity generated in Italy at that date. PlannedEni’s diversified supply portfolio. Residual expected capital expenditure amountsamount to euro 2.40.5 billion of whichin addition to the euro 1.82.2 billion is already expensed.invested until 2007.
High efficiency, low environmental impact and reduced expenditure and construction times are the main features of these plants, which show interesting profitability prospects due to the expected increase in demand for electricity and the ability to operate in co-generation (combined electricity and steam generation). The co-generation modetechnology has been acknowledged by the Authority for Electricity and Gas as a production modetechnology that entails priority on the national dispatching network and the exemption from the purchase of "green certificates"8.
Eni estimates that with Article 11 of Legislative Decree No. 79/1999 concerning the same amountopening up of energy (electricity and heat) produced, EniPower power stations will reduce emissions of carbon dioxide by approximately 11 million tonnes, as compared to emissions caused by conventional power stations.
EniPower intends to become a cost leader in the Italian electricity industry thanksmarket obliges importers and
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producers of electricity from non renewable sources to input into the high technology contentnational electricity system a share of electricity produced from renewable sources set at 2% of electricity imported or produced from non renewable sources exceeding 100 GW. Calculations are made on total amounts net of co-generation and optimal sizeown consumption. This obligation can be met also by purchasing volumes or rights from other producers employing renewable sources (the so-called green certificates) to cover all or part of such 2% share. Legislative Decree No. 387/2003 established that from 2004 to 2006 the minimum amount of electricity from renewable sources to be input in the grid in the following year be increased by 0.35% per year. The Minister of Productive Activities, with decrees issued in consent with the Minister of the plants itEnvironment, will define further increases for the 2007-2009 and 2010-2012 periods.
The development plan is building. When fully operationalunderway at Ferrara (Eni’s interest 51%), where in 2008, consumptionpartnership with EGL Luxembourg (a company belonging to Swiss group EGL), construction of naturaltwo new 390 MW combined cycle units is underway.
Eni has also planned the installation of a new 240 MW combined cycle unit at the Taranto site (current capacity 75 MW).
New installed generation capacity uses the combined cycle gas fired technology (CCGT), ensuring a high level of Eni’s plants is expected to reach over 6 BCM/y, supplied by Eni.efficiency and low environmental impact.
Power Generation | |||||||
2003 | 2004 | 2005 | |||||
Purchases | ||||||||
Natural gas | (mmCM) | 940 | 2,617 | 4,384 | ||||
Other fuels | (thousand tonnes of oil equivalent) | 847 | 695 | 563 | ||||
Sales | ||||||||
Electricity production sold | (terawatthour) | 5.55 | 13.85 | 22.77 | ||||
Electricity trading | (terawatthour) | 3.10 | 3.10 | 4.79 | ||||
Steam | (thousand tonnes) | 9,303 | 10,040 | 10,660 |
Power Generation | 2005 | 2006 | 2007 | |||
Purchases | ||||||||
Natural gas | (mmCM) | 4,384 | 4,775 | 4,860 | ||||
Other fuels | (ktoe) | 659 | 616 | 720 | ||||
- including cracking steam | 96 | 136 | 137 | |||||
Sales | ||||||||
Electricity production sold | (TWh) | 22.77 | 24.82 | 25.49 | ||||
Steam | (ktonnes) | 10,660 | 10,287 | 10,849 |
The development plan has been completed at all sites except for Ferrara (Eni’s interest 51%), where in partnership with Swiss company EGL AG construction is underway of two new 390 megawatt combined cycle units which will bring installed capacity to 840 megawatt with startup expected in 2007.Eni’s operated power stations are described below.
Ferrera ErbognoneErbognone. On May 14, 2004 the combined cycle power station was inaugurated, the first one in Italy after the opening up of the electric market. This power station has an installed capacity of approximately 1,030 megawattMW articulated inon three combined cycle units, two of them with an approximately 390 megawattMW capacity are fired with natural gas, the third one with approximately 250 megawattMW capacity is fired in part with natural gas and complemented with refinery gas obtained from the gasification of tar from visbreaking from Eni’sa heavy residue form crude processing at the nearby Eni-operated Sannazzaro de’ Burgondi refinery.
RavennaRavenna. Two new combined cycle 390 megawattMW units started operations in 2004. Added to the existing 190 megawatt,MW, the power station’s installed capacity reached approximately 970 megawatt.MW.
BrindisiBrindisi. ThreeThis power station has been upgraded by installing three new combined cycle units, each with capacity of 390 megawatt units, two of which started operations in 2005, the last is expected to start operation in the second half of 2006. When fully operational theMW, bringing overall capacity at approximately 1,320 MW.
Mantova. This power station will have a total capacity of approximately 1,320 megawatt, including already existing amounts. The completion of the power station is expected between the end of 2005 and the second quarter of 2006.
Mantova Twohas been upgraded by installing two new combined cycle units, each with capacity of 390 megawatt units started operations in 2005 with full operation in early 2006. The power station will have a total installedMW, bringing overall capacity toat approximately 840 megawatt.MW. This power station will providealso provides steam for heating purposes delivered to the Mantova’s urban network through a remote heating system.heat exchanger.
Ferrara EniPower owns 51% of the share capital of Società EniPower Ferrara (SEF) in partnership with EGL Swiss. SEF started the construction of two new combined cycle units with a capacity of 390 megawatt each which will bring total installed capacity at Ferrara to 840 megawatt. Operations are expected to start in 2007. In 2004, some 80 megawatt of capacity were purchased.
Capital
ExpenditureExpenditures
See "Item 5 – Liquidity and Capital Resources – Capital ExpenditureExpenditures by Segment".
Refining & Marketing
Eni is engaged inEni’s Refining & Marketing segment involves refining and the sale of refined products, mainly in Italycrude oil and the rest of Europe.
In the refining business, Eni plans to strengthen the competitive positioning of its refining system by increasing the primary refining capacity and conversion capacity and implementing actions to improve flexibility of refineries. Eni’s objectives are optimization of processed feedstocks, adjustment of the slate of refined products to the evolution of demand and strengthening of the degree of integration with Eni’s upstream activities. Eni’s strategy in its refining business is based on the following assumptions regarding trends in demand and the trading environment: (i) an expected worldwide decline in gasoline consumption in favor of diesel fuel, in connection with the expected evolution of the car fleet towards an increasingly high spread of diesel engine cars; (ii) the progressive substitution of fuel oil with natural gas in Italy; (iii) a further increase in worldwide differential between light and heavy crudes that favors high conversion capacity refineries; and (iv) the implementation of European fuel specifications as concerns quality standards of fuels.
In the marketing of refined products Eni plans to strengthen its competitive positioning in Italy and in a number of European markets. Based on public data, Eni is the main operator in the markets for refining and marketing of refined products in Italy. Eni’s refining and marketing operations are efficiently integrated and supported by restructuringa full set of logistic assets. Refining know-how, strong market acceptance of the Agip brand, the ability to develop innovative fuels, and the integration with upstream operations represent Eni’s principal competitive advantages. Eni’s key medium term target is to enhance the profitability of its downstream oil business.
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The strategic guidelines to attain this target are:
• | to upgrade Eni’s refining system; | |
• | to improve profitability and qualitative standards of the Italian retail network; | |
• | to selectively develop the retail business outside Italy; and | |
• | to pursue higher levels of operational efficiency. |
In the next four years the implementation of these strategies is expected to be supported by a capital expenditure program of approximately euro 4 billion mainly targeting refinery upgrading, its distribution networkparticularly by increasing conversion capacity, flexibility and implementing an innovative marketing strategy,efficiency of the key elements of whichCompany’s plants. Significant expenditures are expected to be an offer of high quality fuelsdeployed to enhance Eni’s retail operations in Italy and differentiated promotional initiatives intended to support customer loyalty. Inincrease the rest of Europe, Eni intends to develop or strengthen its market share in certain geographic areas where it can obtain logistical and operating synergies and exploit its Agip brand. Eni plans to grow sales volumes buying, leasing and building well equipped and high throughput services stations and by launching marketing campaigns aimed at consolidating the perception of the Agip brand in targetselected European markets.
The matters regarding future plans discussed in this section and elsewhere herein are forward-looking statements that involve risks and uncertainties that could cause the actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties include difficulties in obtaining approvals from relevant Antitrust Authorities and developments in the relevant market.
Supply and Trading
In 2005,2007, a total of 66.48 million tonnes59.56 mmtonnes of oilcrude were purchased (67.05by the Company’s Refining & Marketing segment (65.70 mmtonnes in 2004)2006), of which 37.30 million tonnes were31.57 mmtonnes from Eni’s Exploration & Production segment9, 14.85 million tonnessegment. Volumes amounting to 16.65 mmtonnes were purchased under long-term supply contracts with producing countries, and 14.33 million tonneswhile 11.34 mmtonnes were purchased on the spot market. SomeApproximately 24% of oilcrude purchased in 2007 came from West Africa, 19% from North Africa, 17%22% from countries of the former Soviet Union, 16%18% from North Africa, 15% from the Middle East, 14%12% from the North Sea and 7% from Italy and 3% from other areas. Some 31.07 million tonnesItaly.
Approximately 25.82 mmtonnes of crude purchased in 2007 were resold, representing an increase of 1.32 million tonnes over 2004, up 4.1%.down 15.8% from 2006. In addition, 3.58 million tonnes3.59 mmtonnes of intermediate products were purchased (3.10(3.18 mmtonnes in 2004)2006) to be used as feedstocksfeedstock in conversion plants and 16.21 million tonnes16.14 mmtonnes of refined products (18.8(16 mmtonnes in 2004) sold as a2006) were purchased to complement to own production on the Italian market (4.97 million tonnes) and on markets outside Italy (11.24 million tonnes).
availability.
Refining
Eni is engaged in theEni’s refining business in Italy and owns interests in refineries in Germany and the Czech Republic with asystem has total refiningrefinery capacity (balanced with conversion capacity) of approximately 35 million tonnes38.1 mmtonnes (equal to 701748 KBBL/d) and a conversion index of which 30.2 million tonnes56%. Eni’s five 100 percent owned refineries have balanced capacity is located in Italy.
Eni’s refining systemof 27.2 mmtonnes (equal to 544 KBBL/d), with a 58.6% conversion rate. In 2007, refinery throughputs in Italy is made up of five wholly owned refineries and a 50% interest in the Milazzo refinery in Sicily. Eni plans to upgrade its refining system with a capital expenditure foroutside Italy were 37.15 mmtonnes.
In the next four years, amountingEni plans to approximatelyincrease the profitability of its refining operations by investing euro 2.4 billion (including logistics activities). Main actions planned are:in plant upgrading and enhancement.
Eni’s investment plans are designed to take advantage of certain expected market trends in the refining industry:
(i) | a significant reduction in European demand for gasoline is expected in the medium term, while consumption of diesel fuel is expected to grow driven by the continuing renewal of the car fleet; | |
(ii) | a slowdown in the demand for gasoline on the U.S. market is expected, reflecting the diffusion of more energy efficient car models and the increasingly widespread use of bio-fuels; | |
(iii) | demand for middle distillates is expected to increase from current levels reflecting, in addition to the above mentioned higher needs of diesel fuels for automotive uses, increased demand form the airlines sector and for petrochemical feedstock; | |
(iv) | implementation of increasingly tight environmental regulations in Europe will require significant capital expenditures for refinery upgrading; | |
(v) | demand for fuel oil is expected to decrease due to increasingly strong competition from natural gas in firing power plants; and | |
(vi) | opportunities will arise to monetize heavy crudes and non conventional resources by applying advanced refinery technologies. |
Eni’s refinery capital projects will be designed to: (i) an increase of primary processing andplant conversion capacity also in lightview of boosting middle distillate yields and extracting value from equity crude, the availability of which is expected to increase in the Mediterranean basin over the medium term; (ii) improve refinery flexibility in order to optimize processed feedstock and capture market opportunities arising from an expected increased availability of equity oilheavy/sour crudes that are typically discounted in the Mediterranean area; (ii) an improvement of refinery flexibility with the aim of optimizing feedstock processing; andmarketplace; (iii) the production ofproduce fuels in line with demand and in compliance withproduct specifications provided for increasingly tight European environmental standards.standards; and (iv) enhance operational efficiency of refineries. By 2011, Eni also aimstargets to achieve a conversion index of 60% (65% in Italy) and a volume of refinery throughputs on own account of 37 mmtonnes (the comparable volume in 2007 was 35 mmtonnes that excludes volumes processed at achieving a higher degree of vertical integration with Eni’s upstream
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refineries where the Company has no interest). Middle distillate yields are expected to come in at 43% in 2011 from 41% in 2007 and downstream activities, increasing intake processing of equity crudes and feedstockcrude volumes transferredprocessed to petrochemicals activities.increase from 30% to 35% relative to all processed feedstock.
The table below sets forth certain statistics regarding Eni’s refineries at December 31, 2005.2007.
Location | Ownership Interest | Conversion | Balanced Primary Distillation Capacity (2) | |||||
Wholly-owned refineries: | ||||||||
Sannazzaro | Lombardy | 100.0% | 42.5 | 160,000 | ||||
Gela | Sicily | 100.0% | 140.1 | 100,000 | ||||
Taranto | Apulia | 100.0% | 71.6 | 90,000 | ||||
Livorno | Tuscany | 100.0% | 11.4 | 84,000 | ||||
Porto Marghera | Veneto | 100.0% | 22.8 | 70,000 | ||||
59.2 | 504,000 | |||||||
Partly-owned refineries: | ||||||||
Milazzo | Sicily | 50.0% | 69.6 | 80,000 | ||||
Ingolstadt/Vohburg/Neustadt | Germany | 20.0% | 32.6 | 52,000 | ||||
Schwedt | Germany | 8.0% | 41.8 | 19,000 | ||||
Kralupy/Litvinov | Czech Rep. | 16.3% | 28.8 | 26,000 | ||||
49.7 | 177,000 | |||||||
Total Eni | 56.7 | 681,000 | ||||||
Refining system in 2007
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Wholly owned refineries | 678 | 678 | 544 | 58.6 | 69 | 22 | 36 | 29 | 89 | 46 | 82 | 102 | ||||||||||||||||
Italy | ||||||||||||||||||||||||||||
Sannazzaro | 100 | 223 | 223 | 170 | 46.6 | 34 | 29 | 29 | 73 | 95 | ||||||||||||||||||
Gela | 100 | 129 | 129 | 100 | 143.5 | 35 | 36 | 46 | 82 | 106 | ||||||||||||||||||
Taranto | 100 | 118 | 118 | 110 | 64.3 | 22 | 38 | 97 | 104 | |||||||||||||||||||
Livorno | 100 | 106 | 106 | 84 | 11.4 | 88 | 110 | |||||||||||||||||||||
Porto Marghera | 100 | 102 | 102 | 80 | 20 | 22 | 79 | 100 | ||||||||||||||||||||
Partially owned refineries (1) | 917 | 232 | 204 | 48.3 | 172 | 25 | 56 | 27 | 77 | 88 | ||||||||||||||||||
Italy | ||||||||||||||||||||||||||||
Milazzo | 50 | 248 | 124 | 80 | 72.3 | 41 | 25 | 32 | 68 | 106 | ||||||||||||||||||
Germany | ||||||||||||||||||||||||||||
Ingolstadt/Vohburg/ Neustadt (Bayernoil) | 20 | 258 | 54 | 52 | 32.6 | 58 | 90 | 95 | ||||||||||||||||||||
Schwedt | 8.33 | 231 | 19 | 19 | 41.8 | 49 | 27 | 91 | 92 | |||||||||||||||||||
Czech Republic | ||||||||||||||||||||||||||||
Kralupy e Litvinov (Ceska Rafinerska) | 32.4 | 180 | 35 | 53 | 29.6 | 24 | 24 | 80 | (2) | 80 | (2) | |||||||||||||||||
Total refineries | 1,595 | 910 | 748 | 56 | 241 | 47 | 36 | 85 | 116 | 46 | 81 | 101 | ||||||||||||||||
(1) | ||
(2) |
Italy
Eni’s refining system in Italy is composed of five 100 percent owned refineries and a 50% interest in the Milazzo refinery in Sicily. Each of Eni’s Italian refineries in Italy has an operationaloperating and strategic setup adequatefeatures that aim at maximizing the value associated to maximizing return on assets and monetizing itsthe asset structure, the geographic locationpositioning with respect to end markets and the integration with Eni’s other Eni business segments.activities.
The Sannazzaro, with a refinery has balanced primary refining capacity of 160170 KBBL/d and an equivalenta conversion index of 42.5% is46.6%. Management regards it as one of theEni’s most efficient refineries in Europe.profitable refining assets. Located in the South-West of the Po Valley, at the confluence of the rivers Po and Ticino, it supplies mainly markets in north-westernNorth-Western Italy and Switzerland. The high degree of flexibility of thisThis refinery allows it to processprocesses a wide range of oil from Russia, Africa and Asia, CPCfeedstock, such as Caspian Pipeline Consortium Blend crude oil from the Caspian Sea carried throughand the CPC pipeline and oilBonga crude from Eni’s nearby Villafortuna field.Nigeria. From a logistical standpoint, this refinery is located along the route of the Central Europe Pipeline, which links the GenovaGenoa terminal with French speaking Switzerland. This refinery contains two primary distillation plants and a vacuum unit.
The conversion plants are:relevant facilities, including three desulphurization units. Conversion is obtained through a fluid catalytic cracker (FCC)(FCC4), an HDCKa hydro-cracker (HDCK) middle distillate conversion unit and a visbreaking thermal conversion unit two catalytic reforming plants, an isomerization plant, an alchilation plant, an MTBE plant and three desulphurization plants for middle distillates and one for naphtha from cracking. In 2005 works continued forwith a gasification facility using the completion of the tar (heavyheavy residue from visbreaking) gasification plant that willvisbreaking (tar) to produce syngas that will be used to firefeed the nearby EniPower power stationelectricity production plant at Ferrera Erbognone. In the medium term Eni plans to upgrade theA significant conversion capacity ofand flexibility upgrading program is ongoing in order to further enhance this refinery; planned actions include: (i) construction offacility. Specifically, a newhigh pressure hydrocracking unit with a processing capacity of 28,000 BBL/28 KBBL/d which will allowis under construction with expected start-up in 2009. In addition, Eni plans to develop a conversion plant employing the Eni Slurry Technology with a 20 KBBL/d capacity for the productionprocessing of one million tonnes/y ofextra heavy crude and tar sands producing high quality diesel fuel with low sulphur content;middle distillates and (ii) construction of a new deasphalting unit with a capacity of 18,000 BBL/d for the separation of vacuum residues of asphaltenes with the aim of obtaining additional feedstocks for the cracking plant. Works are expected to be completed by 2008. Capital expenditure for this project is expected to amount to euro 400 million.
Gela, with a balanced primary refining capacity of 100 KBBL/d and an equivalent conversion index of 140.1% represents an upstream integrated pole with the production of heavy crudes obtained from nearby Eni fields offshore and onshore Sicily, while downstream it is integrated with Eni’s nearby petrochemical plants. Located on the Southern coast of Sicily, it manufactures fuels for automotive use and residential heating purposes, as well as petrochemical feedstocks. Its high conversion level allows it to minimizereducing the yield of fuel oil and semi-finished products. Besides its primary distillation plants, this refinery contains the following plants: an FCC unit with advanced technology for the conversion of low grade feedstocks and two coking plants for the vacuum conversion of heavy residues. All these plants are integrated in order to process heavy residues and feedstocks and manufacture valuable products. This refinery also contains two reforming units, an alchilation unit, an MTBE unit and plants for desulphurization of gasoil and naphtha from cracking. The power plantzero. Start-up of this refinery also contains modern residue and exhaust fume treatment plants which allow the complex to comply with the most exacting environmental standards.facility is scheduled in 2012.
The Taranto, with a refinery has balanced primary refiningrefinery capacity of 110 KBBL/d and an equivalenta conversion index of 60.5%,64.3%. This refinery can process a wide range of crudescrude and semi-finished products with great operational flexibility.other feedstock. It mainly produces fuels for automotive use and residential heating purposes for the South-EasternSouthern Italian markets. Besides its primary distillation plants this refinery contains a flash vacuum unit,and relevant facilities, including two plantsunits for the desulphurization of middle distillates, a reforming unit, an isomerization unit and conversions plants such as:this refinery includes a two-stage thermal conversion plant (visbreaking/thermal cracking) and an RHU conversion plant that allows to convertfor the conversion of high sulphur content residues into valuable products and catalytic cracking feedstocks.feedstock. It processes most of the oil produced in Eni’s Val d’Agri fields carried to Taranto through the Monte Alpi pipeline; in 2005pipeline (in 2007 a total of 3.1 million tonnes2.5 mmtonnes of this oil were processed. In the medium-term processed).
Eni plans a relevantto upgrade the conversion capacity of this refinery by building plants that will enable to extract value from fuel oil and other semi-finished products currently exported.
(4) | This definition applies to the term margin whenever used in Item 5. |
54
Gela, with a balanced refinery capacity of 100 KBBL/d and a conversion index of 143.5%, this refinery located on the southern coast of Sicily is highly integrated with upstream operations as it processes heavy crude produced from nearby Eni fields offshore and onshore Sicily. In addition, it is integrated downstream as it supplies large volumes of petrochemical feedstock to Eni’s in site petrochemical plants. The refinery also manufactures fuels for automotive use and residential heating purposes.
Its high conversion level is ensured by an FCC unit with go-finer for the upgrading of feedstock and two coking plants for the vacuum conversion of heavy residues. The power plant of this refinery also contains modern residue and exhaust fume treatment plants which allow full compliance with the tightest environmental standards.
An upgrade of the Gela refinery will be implemented by means of two projects for increasing primary refining and conversion capacity with an expected expenditureupgrade of euro 800 million. The first project entails constructionthe power plant, the building of a new 17,000 BBL/d capacity hydrocrackinggas fired generation plant with a new associated hydrogen unitand other facilities to increase profitability by exploiting the synergies deriving from the production of feedstock for electricity generation and sale of increasing volumes of electricity on the manufacture of approximately 0.6 million tonnes/y of high quality diesel fuel. Works are expected to be completed by 2008. The second project entails the construction of: (i) a new topping plant with a capacity of 4 million tonnes/y with an associated vacuum unit with a capacity of 2.5 million tonnes/y; (ii) a new plant for the desulphurization of middle distillates with a capacity of 2.3 million tonnes/y; and (iii) ancillary units and utilities with other logistical assets. Works are expected to be completed by 2009.market.
Livorno, with a balanced primary refiningrefinery capacity of 84 KBBL/d and an equivalenta conversion index of 11.4%, manufactures mainly gasolines,gasoline, fuel oil for bunkering, specialty products and lubricant bases. Besides its primary distillation plants, this refinery contains a vacuum unit, a reformer unit, an isomerization plant, two desulphurization units for middle distillates and two lubricant manufacturing lines. Its pipeline links with the local harbor and with the Florence storage sites allow the Livorno facility to operate with great efficiency as concerns reception,by means of two pipelines optimizing intake, handling and distribution of products.
Porto Marghera, with a balanced primary refiningrefinery capacity of 7080 KBBL/d and an equivalenta conversion index of 22.8%20%, producesthis refinery supplies mainly gasolines and other light products for the supply of markets in North-Eastern Italy Austria, Slovenia and Croatia.Austria. Besides its primary distillation plants, this refinery contains a reformer plant, an isomerization plant, two gasoil desulphurization units and a two-stage thermal conversion plantplants (visbreaking/thermal cracking) for increasingdesigned to produce yields of valuable products.
Rest of Europe
In Germany Eni holds an 8.3% interest in the Schwedt refinery and a 20% interest in Bayernoil,, an integrated industrial pole includingthat includes the Ingolstadt, Vohburg and Neustadt refineries. Eni’s refining capacity in Germany amounts to approximately 70 KBBL/d. Eni’s share of the production of the three integrated refineries and of the Schwedt refinery isd mainly used to supply Eni’s distribution network in Bavaria and Eastern Germany.
The partners of these refineries plans to restructure the whole complex, by building a new hydrocracker with a capacity of approximately 2 mmtonnes/y (40 KBBL/d), revamping other assets (in particular a reformer and a hydrofiner) and shutting-down a topping unit. This project is expected to be completed in 2009 and aims at increasing middle distillate yields and reducing the production of gasoline. In 2007, Eni holdspurchased a 16.33% interestfurther 16.11% stake in Ceska Rafinerska, which owns and manages increasing its overall stake to 32.4%. The Ceska Rafinerska includes two refineries, Kralupy and Litvinov, in the Czech Republic. Eni’s overall balanced conversionshare of refining capacity from this refinery amounts to 2753 KBBL/d.
Eni is evaluating a restructuring of the Bayernoil refinery pole and the purchase of interests in strategically located refineries aimed at supporting growth in its distribution activities in the rest of Europe.
On March 2, 2005 Eni sold to Erg SpA its 28% interest in Erg Raffinerie Mediterranee SpA and Erg Nuove Centrali SpA, anticipating the maturity (November 2006) of Eni’s put option, provided for by the agreement for the restructuring of the Priolo site signed on October 1, 2002. In order to guarantee the continuity of existing supply contracts of oil-based feedstocks to Polimeri Europa, Eni’s processing contract for about 2 million tonnes/y of crude oil retains validity until December 31, 2006 at the conditions (yields and payments) reflecting the current setup of the refinery.
The table below sets forth Eni’s petroleum products availability figures for the periods indicated.
Petroleum products availability | 2001 | 2002 | 2003 | 2004 | 2005 | |||||
Availability of refined products | 2005 | 2006 | 2007 | |||
|
Italy | |||||||||||||||
Products processed in wholly-owned refineries | 32.24 | 30.09 | 25.09 | 26.75 | 27.34 | ||||||||||
Products processed for third parties | (1.45 | ) | (1.88 | ) | (1.72 | ) | (1.50 | ) | (1.70 | ) | |||||
Products processed in non owned refineries | 5.92 | 6.27 | 8.43 | 8.10 | 8.58 | ||||||||||
Products consumed and lost | (1.95 | ) | (1.91 | ) | (1.64 | ) | (1.64 | ) | (1.87 | ) | |||||
Products available | 34.76 | 32.57 | 30.16 | 31.71 | 32.35 | ||||||||||
Purchases of finished products and change in inventories | 5.19 | 6.27 | 5.86 | 5.07 | 4.85 | ||||||||||
Finished products transferred to foreign cycle | (4.96 | ) | (5.56 | ) | (5.19 | ) | (5.03 | ) | (5.82 | ) | |||||
Consumption for power production | (1.74 | ) | (1.07 | ) | (1.06 | ) | (1.09 | ) | |||||||
Sales | 34.99 | 31.54 | 29.76 | 30.69 | 30.29 | ||||||||||
Outside Italy | |||||||||||||||
Products available | 3.02 | 2.98 | 3.36 | 4.04 | 4.33 | ||||||||||
Purchases and change in inventories | 10.27 | 12.16 | 12.12 | 13.78 | 11.19 | ||||||||||
Finished products transferred from Italian cycle | 4.96 | 5.56 | 5.19 | 5.03 | 5.82 | ||||||||||
Sales | 18.25 | 20.70 | 20.67 | 22.85 | 21.34 | ||||||||||
Sales in Italy and outside Italy | 53.24 | 52.24 | 50.43 | 53.54 | 51.63 |
Italy | |||||||||
Refinery throughputs | |||||||||
At wholly-owned refineries | 27.34 | 27.17 | 27.79 | ||||||
Less input on account of third parties | (1.70 | ) | (1.53 | ) | (1.76 | ) | |||
At affiliates refineries | 8.58 | 7.71 | 6.42 | ||||||
Refinery throughputs on own account | 34.22 | 33.35 | 32.45 | ||||||
Consumption and losses | (1.87 | ) | (1.45 | ) | (1.63 | ) | |||
Products available for sale | 32.35 | 31.90 | 30.82 | ||||||
Purchases of refined products and change in inventories | 4.85 | 4.45 | 2.16 | ||||||
Products transferred to operations outside Italy | (5.41 | ) | (4.82 | ) | (3.80 | ) | |||
Consumption for power generation | (1.09 | ) | (1.10 | ) | (1.13 | ) | |||
Sales of products | 30.70 | 30.43 | 28.05 | ||||||
Outside Italy | |||||||||
Refinery throughputs on own account | 4.57 | 4.69 | 4.70 | ||||||
Consumption and losses | (0.24 | ) | (0.32 | ) | (0.31 | ) | |||
Products available for sale | 4.33 | 4.37 | 4.39 | ||||||
Purchases of refined products and change in inventories | 11.19 | 11.51 | 13.91 | ||||||
Products transferred from Italian operations | 5.41 | 4.82 | 3.80 | ||||||
Sales of products | 20.93 | 20.70 | 22.10 | ||||||
Refinery throughputs on own account | 38.79 | 38.04 | 37.15 | ||||||
Total equity crude input | 12.53 | 13.66 | 11.22 | ||||||
Total sales of refined products | 51.63 | 51.13 | 50.15 |
55
In 20052007, refining throughputs on own account in Italy and outside Italy were 38.79 million tonnes, up 1.10 million tonnes37.15 mmtonnes, down 0.89 mmtonnes from 2004,2006, or 2.9%2.3%, owing to the expiry of a processing contract at the Priolo refinery. Excluding this effect, refinery throughputs in Italy increased by 1.5% due to higher processing at Eni’s wholly-owned refineriesthe better performance of Taranto, Livorno and Sannazzaro also as a resultGela refineries because of fewer maintenance standstills. These increases were offset in part by the impact of the maintenance standstill of the Porto Marghera refinerylower planned and lower processing at the Gela refinery following the damage caused by a sea storm to the docking infrastructure in December 2004. Processing on third party refineries increased, especially at the Milazzo refinery (Eni’s interest 50%). unplanned downtime.
Total throughputs on wholly ownedwholly-owned refineries (27.34 million tonnes)in 2007 (27.79 mmtonnes) increased 0.59 million tonnes0.62 mmtonnes from 2004, or 2.2%, with full balanced capacity utilization. About 32.3%2006, up 2.3%.
Approximately 30.2% of all oilvolumes of processed came fromcrude in 2007 was supplied by Eni’s Exploration & Production segment (33%(35.9% in 2004).
2006), representing a decrease of over 5% from 2006. Lower equity volumes of some 2.44 mmtonnes related to a reduction of supplies of the Libyan Bu-Attifel crude processed at the Priolo refinery due to the above mentioned process contract expiry.
Logistics
Eni is engagedthe leader in storage and transport of petroleum products in Italy. ItsItaly with its logistical integrated infrastructure consistsinfrastructures consisting of 12 directly managedoperated storage sites and a network of petroleum product pipelines.
Eni holds interests in five companiesjoint entities established by partnering the major Italian operators in the oil businessoperators. These are located in Vado Ligure-GenovaLigure-Genoa (Petrolig), Arquata Scrivia (Sigemi), Venice (Petroven), Ravenna (Petra) and Trieste (DCT) aimedand aim at reducing logistic costs and increasing efficiency and providing integrated services to customers.efficiency.
ForEni operates in the transport of oil and refined productsproducts: (i) on land Eni also ownsthrough a pipeline network integrated byof leased and owned pipelines extending over 3,2102,130 kilometers of these 1,513(1,315 kilometers are wholly owned. Transportowned by sea of crudesEni); and refined products takes place(ii) by sea through spot and long-term lease contracts of tanker ships. For the secondary
Secondary distribution of refined products to retail and wholesale markets Eniis executed almost exclusively through the management of third parties who also owns a fleettheir means of tanker trucks and manages third-party owned vehicles.
Eni also holds a 65% interest in Costiero Gas Livorno, a company that operates an underground storage facility in Livorno with the capacity to store 45,000 CM of propane.transportation.
In the medium-term Eni intends to upgrade the integration of its logistics system with its refining system.medium term Eni plans to upgrade logistical assetsenhance the efficiency of its logistic operations by: (i) implementing an integrated logistic model ("hub" model) designed to centralize handling of products flows on a single platform enabling real time monitoring; and (ii) introducing more efficient operating modes in order to support the developmentcollection and delivery of orders with the Taranto refinery. In particular Eni is evaluating the constructionaim of a new storage site for gasoils and gasolines in Campania and of three pipelines, of which two linking the refinery to the new storage site and one for the transport of virgin naphtha to the Eni’s Brindisi petrochemical complex. Eni intends also to optimize its logistics system by rationalizing its structures in Lazio, the Po Valley and the Naples area.
reducing unit delivery costs.
Distribution andMarketing
Eni markets a wide range of refined petroleum products, primarily in Italy, through an extensive direct salesoperated network of service stations, franchises and other distribution systems.
The table below sets forth Eni’s sales of refined products by distribution channel for the periods indicated.
Oil products sales in Italy and outside Italy | 2001 | 2002 | 2003 | 2004 | 2005 | |||||
Oil products sales in Italy and outside Italy | 2005 | 2006 | 2007 | |||
|
Italy | ||||||||||
Retail sales | 11.64 | 11.14 | 10.99 | 10.93 | 10.05 | |||||
Wholesale sales | 11.24 | 10.64 | 10.35 | 10.70 | 10.48 | |||||
22.88 | 21.78 | 21.34 | 21.63 | 20.53 | ||||||
Petrochemicals | 4.23 | 3.82 | 2.79 | 3.05 | 3.07 | |||||
Other sales (1) | 7.88 | 5.94 | 5.63 | 6.01 | 6.69 | |||||
Sales in Italy | 34.99 | 31.54 | 29.76 | 30.69 | 30.29 | |||||
Outside Italy | ||||||||||
Retail sales rest of Europe | 2.47 | 2.57 | 3.02 | 3.47 | 3.67 | |||||
Retail sales Africa and Brazil | 1.71 | 1.44 | 1.18 | 0.57 | ||||||
4.18 | 4.01 | 4.20 | 4.04 | 3.67 | ||||||
Wholesale sales | 5.55 | 5.65 | 6.01 | 5.30 | 4.50 | |||||
9.73 | 9.66 | 10.21 | 9.34 | 8.17 | ||||||
Other sales (1) | 8.52 | 11.04 | 10.46 | 13.51 | 13.17 | |||||
Sales outside Italy | 18.25 | 20.70 | 20.67 | 22.85 | 21.34 | |||||
53.24 | 52.24 | 50.43 | 53.54 | 51.63 |
Italy | ||||||
Retail marketing | 10.05 | 8.66 | 8.62 | |||
Wholesale marketing | 12.11 | 11.74 | 11.09 | |||
22.16 | 20.40 | 19.71 | ||||
Petrochemicals | 3.07 | 2.61 | 1.93 | |||
Other sales | 5.47 | 7.42 | 6.41 | |||
Total | 30.70 | 30.43 | 28.05 | |||
Outside Italy | ||||||
Retail marketing | 3.67 | 3.82 | 4.03 | |||
Wholesale marketing | 4.50 | 4.60 | 4.96 | |||
8.17 | 8.42 | 8.99 | ||||
Other sales | 12.76 | 12.28 | 13.11 | |||
Total | 20.93 | 20.70 | 22.10 | |||
51.63 | 51.13 | 50.15 |
56
In 20052007, sales volumes of refined products (51.63 million tonnes) were down 1.91 million tonnes over 2004,(50.15 mmtonnes) decreased by 0.98 mmtonnes from 2006, or 6.2%1.9%, mainly due to the divestment of activities in Brazil carried out in August 2004 (down 1.51 million tonnes), lower sales volumes sold to oil companies and traders outsidein Italy, (down 305,000 tonnes), declininglower volumes supplied to the petrochemical sector due to the expiry of a processing contract at the Priolo refinery and a decline in wholesale sales volumes in Italy (220,000 tonnes) and lower sales on the Agip branded network (130,000 tonnes) related to lower domestic consumption.Italy. These declines were partly offset in part by higher retail and wholesale sales on markets in the rest of Europe (357,000 tonnes) due to the implementation(up 0.41 mmtonnes, or 5.1%).
Retail Sales in Italy
Eni markets refined products in Italy trough its Agip-branded network of Eni’s development strategy.operated service stations.
Following the approval of the Italian Antitrust Authority granted on August 25, 2005, on September 6, 2005 Eni divested 100% of the share capital of Italiana Petroli ("IP") to api - anonima petroli italiana SpA for euro 190 million. IP is engaged in the retail marketingIn 2007, volumes of refined products through a lease concession network of approximately 2,900 units, under the IP brand. As part of the sale transaction, the parties signed: (i) a five year fuel supply agreement under which IP will purchase from Eni agreed amounts of fuel each year; and (ii) an 18 month long agreement for the supply of lubricants and fuel transport services from storage sites to service stations. Consequently the impact on sales of the divestment of IP was marginal since the lower volumes soldmarketed on the retail market were substantially offset by the volumes supplied to the divested company under the contracts in force.
Retail Marketing
Retail sales in Italy
Sales of refined products on retail markets in Italy in 2005 (10.05 million tonnes)Italian network (8.62 mmtonnes) were down 0.88 million tonnes39 ktonnes from 2004,2006, or 8.1%0.5%, reflecting primarily the divestment of IP. Sales volumes on the Agip branded network (8.76 million tonnes) were down 130,000 tonnes, or 1.5%,mainly due mainly to a decline in domestic consumption. This decline mainly regarded gasoline volumes, while gasoil sales increased following the same pattern as national consumption (down 1.9%)trends. Market share decreased slightly from 29.3% to 29.2%; market share is computed as ratio of Eni’s sales volumes to national consumption as published in particular ofnational statistics.
The average throughput per service station measured on gasoline and LPG, whose effects were offset in part by an improved performance. Market share of the Agip networkgasoil sales was up 0.2 percentage points2,444 kliters, down 0.8% from 29.5 to 29.7%. Average throughput of gasoline and diesel fuel of the Agip network was substantially unchanged at 2,509,000 liters (down 0.7% from 2004).2006.
At December 31, 2005,2007, Eni’s retail distribution network in Italy consisted of 4,3494,390 service stations, 2,895 less34 more than at December 31, 2006, resulting from the start of 26 new service stations and a positive balance between acquisitions/releases of leased outlets concessions (up 23 units), in addition to 13 service stations that were acquired upon rental from third parties. In 2007, 23 low throughput service stations were shut down or divested and 5 highway concessions expired.
Retail volumes of BluDiesel – a high performance and low environmental impact gasoil – amounted to approximately 735 ktonnes (850 mmliters in 2007), up 1.2% from 2006 and represented 14% of gasoil sales on the Eni’s retail network. At year-end, virtually all Agip branded service stations marketed BluDiesel (about 4,094 equal to 93%).
Retail volumes of BluSuper – a high performance and low environmental impact gasoline, on sale since 2004 (7,244– amounted to approximately 98 ktonnes (114 mmliters), in line with 2006 and covered 3% of gasoline volumes sold on the Eni’s retail network. At year-end, service station), duestations marketing BluSuper totaled 2,565 units (2,316 at December 31, 2006) covering to approximately 58% of Eni’s network.
In March 2007, Eni launched its new "You&Agip" promotional program designed to boost customer loyalty to the divestmentAgip brand. This three-year long initiative offers prizes to customers in proportion to purchases of IP (2,915fuels and convenience items at Agip’s stores as well as at the ones of certain partners to the program. At every purchase of fuels or convenience items, clients are granted a proportional amount of points that are credited to a fidelity card. Clients are able to decide how to accumulate points and when to spend them. At year end, the number of active cards was approximately 3.9 million. Volumes of fuel marketed under this initiative represented 40.1% of total volumes marketed on Eni’s service stations). Excludingstations joining the effectprogram, and 39.4% of IP’s sale,overall volumes marketed on the Agip brandednetwork.
Eni plans to strengthen its competitive position in Italy by upgrading its outlets to attain European standards of quality and service. The Company intends to leverage on marketing initiatives designed to retain the various segments of clients, develop the offer of premium products and execute its convenience offer through quality store formats. A strong focus will be devoted to pursue high levels of operating efficiency. In the next four years, Eni plans to invest approximately euro 0.7 billion in the upgrading of its network, increasedtargeting to build, acquire and upgrade service stations with planned standards of service and quality. Expenditures will also be directed to comply with applicable environmental standards and regulations.
By 2011, Eni expects to achieve approximately 11.4 billion liters of volumes sold (approximately 11 billion liters in 2007) with a retail network composed of approximately 4,400 service stations, of which 75% of owned sites.
57
Retail Sales in the Rest of Europe
In recent years, Eni’s strategy focused on selectively growing its market share, particularly by 20means of acquiring valuable assets in European areas with interesting profitability perspectives. In implementing its growth strategy, Eni has been able to leverage on synergies ensured by the proximity of these markets to Eni’s production and logistic facilities, brand awareness and economies of scale.
Over the last four years, retail volumes of refined products marketed in the rest of Europe have grown more than 33% (equal to a compound average growth rate of 7.5%).
Growth outside Italy will continue to be selective and aimed at strengthening Eni’s competitive position in key markets. Capital expenditures aimed at growing and upgrading Eni’s network are planned at euro 0.4 billion in the next four years.
In 2007, retail volumes of fuels marketed in the rest of Europe totaled 5 billion liters (4.03 mmtonnes), up 5.5% from 2006 reflecting both organic growth and the purchase of 102 service stations in the Czech Republic, Slovakia and Hungary.
At December 31, 2007 Eni’s retail marketing network outside Italy was represented by 2,051 service stations an increase of 113 units from December 31, 20042006. The network’s evolution was as a resultfollows: (i) 125 service stations were acquired, of which 102 units in the Czech Republic, Slovakia and Hungary; (ii) 10 new outlets were opened; (iii) 25 low throughput service stations were closed in Spain and Austria; and (iv) a positive balance of acquisitions/releases of lease concessions (27(up 3 units), the opening of 12 new service stations was recorded, with positive changes in Spain, Hungary and an increase in highway service stations (two service stations) offset in part by the closure of 21 less efficient service stations.
Eni plans to strengthen its competitive positioning in Italy by restructuring and upgrading its distribution network and implementing an innovative marketing, the key elements of which are expected to be an offer of high quality fuels and differentiated promotional initiatives intended to support customer loyalty.
In 2005 sales volumes of BluDiesel – a high performance diesel fuel virtually sulphur free that improves engine performance – on the Agip branded network amounted to nearly 1 billion liters, a decline of about 13% from 2004 due mainly to the increasingly high sensitivity of consumers to the price of fuels in light of the increase in prices in the year. At 2005 year end service stations selling BluDiesel were over 4,000 (about 3,900 at 2004 year end) corresponding to approximately 92% of Eni’s Agip branded network.
In 2004, Eni started to sell the new BluSuper gasoline, which guarantees better engine performance and efficiency and reduces polluting emissions, due to its high antidetonating power resulting from a higher octane number (98 as compared to 95 of ordinary gasolines) and its lack of sulfur. BluSuper complements BluDiesel, sold since 2002, and is part of Eni’s strategy to improve the quality of its fuels, anticipating their compliance with EU regulations (mandatory from 2009) and targeting its offer to customers’ requirements, leveraging on Eni’s integrated refining-logistics-distribution system. In 2005 sales volumes of BluSuper amounted to 150 million liters. At 2005 year end Agip branded service stations selling BluSuper were 1,719 (about 1,000 at 2004 year end) corresponding to approximately 39% of Eni’s network.
In January 2006 Eni started to sell "Ad-Blue®", a water solution containing urea for technologically advanced heavy duty vehicles. This additive, compatible with the new characteristics of most trucks built in Europe reacts with exhaust gases thus reducing emissions and consumption and improving engine performance.
In 2005, Eni continued its Do-It-Yourself campaign which allowed customers accessing self-service outlets provided with an electronic card to obtain price discounts or gifts in proportion to the total amount of purchased fuel, plus a bonus for the most loyal customers and long-distance drivers. At year end the number of cards distributed exceeded 3.8 million; turnover on cards increased by 9% from 2004. The amount of fuel purchased with these cards was about 37% of all fuel sold on Agip branded service stations.
Eni also continued its AgipMaxi promotional initiative addressed to truck drivers who purchase diesel fuel at the approximately 800 Agip branded service stations participating in the program. Active fidelity cards were over 38,000.
The improvement in the quality of service to customers led to a further expansion of the automation process of the domestic network. At December 31, 2005 nearly all Agip branded service stations were provided with a corporate credit card system.
In 2005, Eni continued the development of the European Multicard Routex paying card addressed to professional transport (transporters and car fleets) with sales of 1.414 billion liters (up 3.4% over 2004), while the number of customers provided with this card increased by about 5,000 to 50,000 users at year end. Multicard is used internationally and is part of the international Routex consortium, made up of four oil companies.
Eni continued the development of its non-oil retail activities aimed at promoting the development of its network in line with European standards, such as the diffusion of self-service facilities, high-tech car care systems, and services to customers in particular 1,000 café and fast food outlets as well as innovative commercial outlets. To this end Eni owns master franchisor rights with exclusive rights for the oil sector for some international brands of the restaurant and catering sector.
In 2005, a total of 80 new affiliates were added to the AgipCafè® branded outlets launched in 2003, and by year end 287 franchises were active, while 10 new convenience stores under the "SpazioAgip" brand name were opened, thus reaching a total of 19 locations. Also 45 new car-wash facilities were opened at Agip branded service stations, thus reaching a total of 685 units. In the next four years Eni intends to continue the development of its non oil activities and expects to provide 70% of its Agip branded network with these structures by 2009 (50% in 2005).
Retail sales outside Italy
At December 31, 2005, Eni’s retail distribution network outside Italy was represented by service stations located in the rest of Europe, mainly in South-Central Germany, Spain, South-Western France, Austria, Switzerland, the Czech Republic, and Hungary, and consisted of 1,933 service stations, 37 more than at December 31, 2004, due in particular to the acquisition of lease concessions in Spain, France and Germany. Throughput per service station averaged 2,427,000 liters, up 1.4% from 2004. Sales of refined products totalled 3.67 million tonnes, representing an increase of 0.20 million tonnes over 2004, up 5.8%, reflecting higher sales mainly in Germany, Spain and the Czech Republic.
Eni intends to develop or strengthen its market share in certain geographic areas where it can obtain logistical and operating synergies and exploit its Agip brand. Eni plans to grow sales volumes buying, leasing and building well equipped and high throughput services stations and by launching marketing campaigns aimed at consolidating the perception of the Agip brand in target markets.
Non oil activities outside Italy are performed under the "CiaoAgip" brand name in 1,120 service stations, of these 330 arenegative ones in Germany and 163France. Average throughput (2,578 kliters) was up 3.7%.
The key markets of Eni’s presence are: Austria with a 7.8% market share, Hungary with 7.9%, Czech Republic with 7.7%, Switzerland with 5.9%, South-Central Germany with a 4.2%, and South-Western France with 1.1% on national base. These market shares were calculated by Eni based on public data on national consumption and Eni’s sales volumes.
In 2008, management expects to divest its retail and wholesale marketing activities in France, representing 58%the Iberian Peninsula following the exercise of a call option on part of Eni’s partner Galp Energia (Eni’s share being 33.34%), in accordance with the whole Agip branded network outside Italy (97% when calculatingagreement signed in December 2005 by the percentage on all ownedmajority shareholders of Galp Energia (in addition to Eni, Amorim Energia and Caixa Geral de Depósitos). The transaction, subject to approval from European antitrust authorities, includes 371 Agip-branded service stations).
stations.
Wholesale Marketing andOtherSalesbusinessesWholesale
Eni sells gasolinesmarkets gasoline and other fuels on wholesale markets, including diesel fuel for automotive use and for heating purposes, fuels for agricultural vehicles and for vessels, gasolinesgasoline and fuel oil. Major customers are wholesalers, the agricultural andusers, manufacturing industries, public utilities and transports. Agricultural customers and fishing fleets are supplied directly at 60 agricultural centers and 90 owned or leased marine fuel outlets.
Eni provides its customers with its experienceexpertise in the area of fuels with a wide range of products that cover all market requirements. Along with traditional products provided with the high quality Eni standard, there is also an innovative low environmental impact line, which includes AdvanceDiesel and Biodiesel (with very low content of hydrogen sulfide, particulates and carbon dioxide) especially targeted for heavy duty public and private transports.
Customer care and product distribution is providedsupported by a very widespread commercial and logistical organization present all over Italy and articulated in local salesmarketing offices aided byand a network of agents sales persons and concessionaires.
In 2007, volumes marketed on wholesale markets in Italy, which excludes the Avio and Bunker businesses, were approximately 7.54 mmtonnes down 0.68 mmtonnes from 2006, or 8%, mainly reflecting a decline in domestic consumption of heating oil by the power generation sector, the exceptionally mild weather conditions that negatively influenced the sales of heating products in the first quarter and competitive pressure.
Sales volumes on wholesale markets outside Italy in 2007 were 4.96 mmtonnes, up approximately 360 ktonnes from 2006, or 7.8%, mainly due to the growth in the Czech and Iberian markets.
Eni also sellsmarkets jet fuel directly at 3847 airports, of which 27 are in Italy, andItaly. In 2007, these sales amounted to 2.35 mmtonnes (of which 1.97 mmtonnes in Italy) up approximately 175 ktonnes. Eni is active also in the international market of bunkering, marketing marine fuel (bunkering) directly atin 38 ports, of which 23 in Italy. In 2007, marine fuel sales were 1.72 mmtonnes (1.58 in Italy) decreasing approximately 86 ktonnes as compared to 2006.
Sales on wholesale markets in Italy (10.48 million tonnes) were down 0.22 million tonnes from 2004, or 2.1%, mainly due to a decline in domestic consumption and lower sales of fuel oil to the power generation segment, due to the progressive substitution of fuel oil with natural gas as feedstock for power plants.58
Sales on wholesale markets outside Italy (4.50 million tonnes) declined by 0.80 million tonnes, or 15.1%, due mainly to lower LPG sales resulting from the divestment of activities in Brazil, offset in part by higher sales in the rest of Europe, in particular in Central-Eastern Europe, while they declined in Germany and Spain.
Other sales (22.93 million tonnes) increased by 0.36 million tonnes, or 1.6%, dueamounted to 21.31 mmtonnes and mainly to higher sales in Italy related to supplies to IP (up 650,000 tonnes) offset in part by lowerregarded sales to oil companies and traders outside Italy (down 305,000 tonnes).
(19.39 mmtonnes) and 1.93 mmtonnes supplies to the petrochemical sector.
Other Businesses
LPG
In Italy Eni is engagedleader in theLPG production, distributionmarketing and sale of LPG. In 2005 Eniwith 539 ktonnes sold 649,000 tonnes of LPG for heating and automotive use (under the Agip brand and wholesale), with equal to a 19%17.4% market share. An additional 400,000 tonnesAdditional 225 ktonnes of LPG were soldmarketed through other channels mainly to oil companies and traders.
LPG activities in Italy derive theirare supported by direct production, availability from 11 bottling plants and a number of owned storage sites in addition to products from five Italian refineries and from imports receivedimported at the three coastal storage sites located in Livorno, Naples and Ravenna. Product availability and customer requirements are met also with 10 other owned plants/storage sites in Italy and 45 contracts for bottling and storage with third party facilities. Eni’s LPG sales network is organized over six sale areas with 3 direct sales offices, 21 agencies and 24 concessionaires. Products are sold also to over 150,000 customers owning small tanks, while the sale network of LPG bottles includes over 11,000 outlets. In the past few years LPG pipelines were developed and over 13,000 customers are served through direct links with 95 storage facilities.
Outside Italy Eni is also present in Ecuador with a 36.4% market share in 2005.
Lubricants
Eni operates eight8 (owned and co-owned) blending plants, in Italy, Europe, North and South America, Africa and the Far East.
In Italy Eni isEast which manufacture finished and fatty lubricants. With a market leader in lubricants with the manufacturing of base oils and with awide range of products includingcomposed of over 650 different blends.blends, Eni masters international state-of-the-arthas an important know-how for the formulation of products for vehicles (engine oil, special fluids and transmission oils) and industries (lubricants for hydraulic systems, industrial machinery and metal processing).
In Italy Eni is leader in the manufacture and sale of lubricant bases according to public data. Base oils are manufactured primarily at Eni’sEni refinery in Livorno. Eni also owns two facilitiesone facility for the production of additives and solvents. solvents in Robassomero.
In 2005,2007, retail and wholesale sales in Italy amounted to 133,000 tonnes132 ktonnes with a 23.9%24.3% market share. Eni also sold approximately 5,000 tonnes4 ktonnes of special products (white oils, transformer oil and anti-freeze fluids).
Outside Italy sales amounted to approximately 139,000 tonnes,90 ktonnes, of these about 50% were registered in Europe (mainly Spain, Germany, the Netherlands and Spain)France).
Oxygenates
Eni, through its subsidiary Ecofuel (Eni’s interest 100%), sells aboutmarkets over 2 million tonnes/mmtonnes/y of oxygenates mainly MTBE (9%ethers (approximately 10% of world demand) and methanol.methanol (approximately 1.5% of world demand). About 67%56% of products are manufactured in Italy at Eni’s plants in Ravenna, Venezuela (in joint venture with Pequiven) and Saudi Arabia (in joint venture with Sabic), while the remaining 33%44% is bought and resold. In 2007, a test campaign of ETBE from third parties.bioethanol was carried out at Eni’s plant in Ravenna. In Venezuela Eni plans to convert its MTBE plants are being converted to the manufactureproduction of isoethane, due to the environmental problems posed by MTBE.
isooctane.
Capital
ExpenditureExpenditures
See "Item 5 – Liquidity and Capital Resources – Capital ExpenditureExpenditures by Segment".
Petrochemicals
Eni operates in the businesses of olefins and aromatics, basic and intermediate products, chlorine derivatives, polystyrene, elastomers and polyethylene. Its major production sites are located in Italy and Western Europe.
Eni’s strategy in its petrochemical business is to effectively and efficiently manage operations in order to lower the break-even considering the volatility of costs of oil-based feedstock and the commoditized feature of Eni’s main products. In 2005fact, Eni’s profitability in the petrochemical businesses is particularly sensitive to movements in product margins that are mainly affected by changes in oil-based feedstock costs and the speed at which product prices adjust to higher oil prices, also considering the cyclical nature of demand. See "Item 3 – Risk factors". The Company does not expect to incur significant amount of expenditures to develop this business. In future years, management forecast a yearly level of expenditures in line with 2007 mainly targeted to upgrade plant efficiency, execute de-bottlenecking interventions and to comply with all applicable regulations on environment, health and safety issues.
In 2007, sales of petrochemical products (5,376,000 tonnes) were(5,513 ktonnes) increased by 237 ktonnes from 2006, up 189,000 tonnes, or 3.6% from 2004, reflecting primarily higher sales of intermediates (up 13%)4.5%, olefins (up 8.8%) andincreasing in all business areas except for aromatics (up 6%(down 2.9%) related to positive demand, higher product availability and. Increases reflected the fact that intermediate sales,performance in particular acetone and phenol, declined2006 was hit by an accident occurred at the Priolo refinery in the first quarter of 2004 following a standstillApril 2006, as well as positive market trends.
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Petrochemical production (8,795 ktonnes) increased by 1,723 ktonnes from 2006, up 24.4% due to an accident atthe transfer of the Porto Torres dock. These increases were offsetplant from the Other Activities segment (up 1,274 ktonnes) and the impact on 2006 production of an accident occurred at the Priolo plant as outlined. Excluding these effects, production increased by 195 ktonnes, or 2.8%, due to a good performance at the Ravenna, Ragusa and Sarroch plants. Production was lower at Porto Marghera due to unplanned standstills in part by a decline in: (i) elastomers (down 4.5%) related mainly to the standstillsecond half of the polychloroprene rubber plant in Champagnier, France; (ii) styrene (down 2.6%) related to standstills and shutdowns; and (iii) polyethylenes (down 2.3%) due to weak demand for LDPE and LLDPE.year.
At December 31, 2005, Eni’s sales network covered 17 countries, with Italy accounting for 51% of sales, the rest of Europe for 44% and the rest of the world for 5% (54%, 40% and 6%, respectively in 2004).
Production (7,282,000 tonnes) was up 164,000 tonnes from 2004, or 2.3%, in particular in basic petrochemicals. Nominal production capacity declined 1.8% from 2004 due mainly to revisionswas in line with 2006. Excluding the impact of the nominal capacityconsolidation of the Gela cracker and the shutdown of the DMC and ABS plants in Ravenna. ThePorto Torres plant, average plant utilization rate calculated on nominal capacity was up 3increased by 4 percentage points from 75.276.4% to 78.480.6%, due mainly to fewer maintenance standstills.the impact of the Priolo plant outage in 2006.
About 35.8%Approximately 48.9% of total production was directed to Eni’s own productionproductions cycle (36.7%(35.2% in 2004)2006). Oil-based feedstocksOil based feedstock supplied by Eni’s Refining & Marketing segment covered 23%21% of requirements (22%(10% in 2004)2005).
Prices of Eni’s main petrochemical products increased on average by 4%; all business areas posted increases. The most relevant increases were registered in: (i) styrenes (up 6.0%), in particular compact polystyrene and ABS/SAN; (ii) elastomers (up 5.5%), in particular nytrilic, SBR and thermoplastic rubbers; (iii) polyethylene (up 4.9%) with increases in all products; (iv) intermediates (up 4.8%) in particular phenol and cycloexanone; and (v) olefins (up 3.8%), in particular ethylene. However, these prices increases did not made for higher purchase costs of oil-based feedstock (virgin naphtha was up 20.4% in dollar terms, 10.3% in euro), particularly from the second half of the year, and as a result product margins significantly decreased from a year ago. Based on current trends in oil prices, the Company does not expect any meaningful improvement in 2008.
The table below sets forth Eni’s main petrochemical products availability for the periods indicated.
Year ended December 31, | |
2001 | 2002 (1) | 2003 (1) | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
|
Basic petrochemicals | 6,119 | 4,304 | 4,013 | 4,236 | 4,450 | ||||||||||
Styrene and elastomers | 1,537 | 1,538 | 1,635 | 1,606 | 1,523 | ||||||||||
Polyethylene | 84 | 1,274 | 1,259 | 1,276 | 1,309 | ||||||||||
Polyurethane | 91 | ||||||||||||||
7,831 | 7,116 | 6,907 | 7,118 | 7,282 | |||||||||||
Internal consumption | (3,185 | ) | (2,607 | ) | (2,651 | ) | (2,616 | ) | (2,606 | ) | |||||
Purchases and change in inventories | 588 | 984 | 1,010 | 685 | 700 | ||||||||||
Total products | 5,233 | 5,493 | 5,266 | 5,187 | 5,376 | ||||||||||
Basic petrochemicals | 4,450 | 4,275 | 5,688 | ||||||
Styrene and elastomers | 1,523 | 1,545 | 1,632 | ||||||
Polyethylene | 1,309 | 1,252 | 1,475 | ||||||
7,282 | 7,072 | 8,795 | |||||||
Internal consumption | (2,606 | ) | (2,488 | ) | (4,304 | ) | |||
Purchases and change in inventories | 700 | 692 | 1,022 | ||||||
Total products | 5,376 | 5,276 | 5,513 |
The table below sets forth Eni’s sales of main petrochemical products by volume for the periods indicated.
Year ended December 31, | |
2001 | 2002 (1) | 2003 (1) | 2004 | 2005 | |||||
2005 | 2006 | 2007 | ||||
|
Basic petrochemicals | 3,928 | 2,894 | 2,704 | 2,766 | 3,022 | |||||
Styrene and elastomers | 1,138 | 1,151 | 1,171 | 1,038 | 1,003 | |||||
Polyethylene | 84 | 1,448 | 1,391 | 1,383 | 1,351 | |||||
Polyurethane | 83 | |||||||||
Total sales | 5,233 | 5,493 | 5,266 | 5,187 | 5,376 | |||||
Basic petrochemicals | 3,022 | 2,882 | 3,023 | ||||||
Styrene and elastomers | 1,003 | 1,000 | 1,041 | ||||||
Polyethylene | 1,351 | 1,394 | 1,449 | ||||||
Total sales | 5,376 | 5,276 | 5,513 |
Basic petrochemicals
Sales of basic petrochemicals (3,022,000 tonnes) increased by 256,000 tonnesof 3,023 ktonnes reported an increase of 141 ktonnes from 2004,2006, up 9.3%4.9%, mainly due to higher product availability and due in particular to the fact that 2006 was affected by the outage of the Priolo cracker. Main increases were registered in all basic chemicals businesses.
In olefins (up 8.8%) sales of ethylene (up 10.7%), propylene (up 5.8%) and butadieneintermediates (up 33.6%8.9%) increasedwhile aromatics sales declined (down 3%), in particular xylene (down 12.5%) due to high demand from the Far East. In aromatics (up 6%)shutdown of the paraxylene line at Priolo in April 2007, offset in part by higher sales of the most remunerative products (paraxylene up 13.5% and metaxylene up 35.1%) increased supported by a particularly lively market. In intermediatesbenzene (up 13%15.8%) phenol sales increased 16.7% and acetone sales increased 11.1% related to a positive trend in demand and the fact that in the first quarter of 2004 sales declined due to a standstill for an accident at the Porto Torres dock..
Basic petrochemical production (4,450,000 tonnes)(5,688 ktonnes) increased by 214,000 tonnes from 2004 (up 5.1%) due to increases registered in all businesses (olefins1,413 ktonnes, up 3.8%, aromatics up 8.4%, intermediates up 7%)33.1%.
Increased olefin production derived mainly from the Brindisi (up 19.9%), Dunkirk (up 12%) and Priolo (up 8.1%) crackers. Declines concerned Gela (down 26.7%) where only one line was active and Porto Marghera (down 13.2%) due to a planned maintenance standstill.60
Styrene and elastomers
Styrene sales (581,000 tonnes) decreasedin 2007 (594 ktonnes) were slightly higher from 2006 (up 1.2%). Increasing sales in ABS/SAN (up 34%) reflect the higher product availability due to the fact that 2006 was affected by 16,000 tonnestechnical problems at the Mantova plant. Increases of compact polystyrene (up 7.3%) were due to market recovery. Declines were registered in styrene (down 41%) due to lower availability because of unexpected outages.
Elastomers sales in 2007 (447 ktonnes) increased by 8.3% from 2004, down 2.6%2006 due to the consolidation of nytrilic rubber sales following the purchase of the Porto Torres plant from Syndial. Excluding this effect, elastomer sales were in line with 2006. Increases recorded in SBR (up 1.3%), BR (up 5.3%) and thermoplastic rubbers (up 5.5%), due mainly to a positive market trend, were offset by lower ABS/SAN availabilitysales of EPR (down 23.6%3.6%) relatedand lattices (down 5.1%).
Styrene production in 2007 (1,117 ktonnes) increased by 2.7% over 2006.
Elastomer production in 2007 (515 ktonnes) increased by 12.7% over 2006 due to the shutdownconsolidation of the Ravenna plantPorto Torres plant. Excluding this effect, elastomer production increased by 6%. Increases were registered in April 2005 andall products, except for EPR rubber (down 2.7%) reflecting lower availability of productsraw materials due to technical accidents caused by power cutoffsproblems at the MantovaPorto Marghera plant in the last quarter of 2005. This decline was offset in part by the 2.8% increase in expandable polystyrene sales pushed by the strong increase in demand especially in Eastern Europe, in particular for increased consumption in the segment of thermal insulation and industrial packaging.
Elastomer sales (422,000 tonnes) decreased by 19,000 tonnes from 2004, down 4.5%, due mainly to the standstill of the Champagnier plant (polychloroprene rubbers) and the decline in SBRlattices (down 12.7%3.8%) and TPR (down 2.5%) rubber due to a decline in demand related totechnical problems at the crisis in the shoe manufacturing industry. These declines were offset in part by an increase in sales of EPR rubber (up 19.6%) and latex (up 7.5%), due to lively demand.
Production of styrene (1,048,000 tonnes) declined by 70,000 tonnes from 2004, due mainly to plant shutdowns and standstills.
Elastomers production (475,000 tonnes) decreased by 13,000 tonnes or 2.5%, due to plant standstills and a declining demand for SBR rubber (down 4.8%) and BR (down 4.2%), while demand for EPR rubber (up 13.7%) and latex (up 11%) increased in line with the increase in demand.Hythe plant.
Polyethylene
Sales of polyethylene (1,351,000 tonnes) decreasedPolyethylene sales in 2007 (1,449 ktonnes) were up 55 ktonnes or 3.9%, from 2006, reflecting positive market conditions for LPDE (up 6.7%) and EVA (up 3.6%).
Production in 2007 (1,475 ktonnes) increased by 32,000 tonnes from 2004, down 2.3%223 ktonnes over 2006, or 17.8%, due to a decline in demand foraffecting all products, in particular LDPEexcept for EVA (down 3.4%2%) and LLDPE (down 1.9%), also due increasing competition from imported products.
Production (1,309,000 tonnes). HDPE production increased by 33,000 tonnes or 2.6%, due mainly to increases in LLDPE (up 8%78.7%), due to the flexibility atconsolidation of the Brindisi Porto Torres
plant, also LLDPE and LDPE increased by 9.8% and 8% respectively due to the fact that produced mainly LLDPE in its high pressure line, while HDPE production declined (down 6%).
2006 was impacted by the outage of the Priolo cracker.
Capital
ExpenditureExpenditures
See "Item 5 – Liquidity and Capital Resources – Capital ExpenditureExpenditures by Segment".
Oilfield Services
Engineering & Construction and Engineering
Eni operates in engineering, oilfield services and construction both offshore and onshore through Saipem, a companysubsidiary listed on the Italian Stock Exchange (Eni’s interest is 43%), operating in offshore and onshore drilling and construction and LNG.
Eni, through its subsidiary Snamprogetti (100% Eni), is engaged in engineering and contracting. Saipem boasts strong competitive position in the area of plants for hydrocarbon production, treatment and transport, for the liquefaction and treatment of natural gas, for the conversion of heavy residues from conventional and non conventional crudes, for the chemical industry, for power generation, infrastructure and environmental protection.
Orders acquired in 2005 amounted to euro 8,188 million. Approximately 89% of new orders acquired were represented by work to be performed outside Italy, and 11% by work originated by Eni companies. Order backlog was euro 9,964 million at December 31, 2005 (euro 8,521 million at December 31, 2004). Projects to be carried out outside Italy represented 88% of the total order backlog, while orders from Eni companies amounted to 7% of the total.
On February 24, 2006, Saipem agreed to purchase the entire share capital of Snamprogetti owned by Eni SpA. The transaction was closed on March 27, 2006. The integration of the companies will boost their role in the development of Eni’s oil & gas core business.
Orders acquired and order backlog | |||||||
2003 | 2004 | 2005 | |||||
Orders acquired | (million euro) | 5,876 | 5,784 | 8,188 | ||||
Oilfield Services Construction | 4,298 | 4,387 | 4,735 | |||||
Engineering | 1,578 | 1,397 | 3,453 | |||||
Originated by Eni companies | (%) | 11 | 14 | 11 | ||||
To be carried out outside Italy | (%) | 91 | 90 | 89 | ||||
Order backlog | (million euro) | 9,405 | 8,521 | 9,964 | ||||
Oilfield Services Construction | 5,225 | 5,306 | 5,513 | |||||
Engineering | 4,180 | 3,215 | 4,451 | |||||
Originated by Eni companies | (%) | 10 | 8 | 7 | ||||
To be carried out outside Italy | (%) | 81 | 84 | 88 |
Oilfield Services and Construction
Saipem intends to consolidate its competitive positioning in the segment of large offshore projects for the development of hydrocarbon fields and the construction of large export infrastructure byrelevant market leveraging on its technological and operational skills, engineering and project management capabilities and ability to operate in complex environments. Leveraging on these assets, Saipem plansenvironments, owing also to address key success factors ofthe integration with Snamprogetti. Considering ongoing favorable trends in demand and profitability in the market represented by the ability to evaluate risks in the bidding phase, technological innovation, ability to manage efficiently the execution of projects by delocalizing support activities to low cost areas and enhancing local contents by employing local resources and creating decentralized logistical bases.
oilfield services, Saipem intends to leverage on its skills, to carry out the following fundamental strategies: (i) to strengthen its competitive position in the field of large offshore and onshore projects for the development of hydrocarbon fields; (ii) to develop its presence and entermarket share in the strategic segmentsfield of deepwater, FPSO, gas monetization of natural gas (GTL, LNG) and upgrading of heavy crudes by developing the required skills and resources mainly in the engineering and project management phases. It also planscrude upgrading; (iii) to expand in the leased FPSO business and in floating LNG treatment systems for liquefaction and regasification of LNG.
Saipem intends to intensifyincrease efficiency improvement actions in all its activities, in particularlevels, particularly by reducing supplyprocurement and execution costs while maintaining a high utilization rate of equipment and improving its flexible structure in order to reduce the impact of possible negative cycles.cycles; (iv) to promote use of local contractors and assets in host countries; and (v) to support Eni’s investment plans.
Saipem expects to invest approximately euro 4.7 billion over the next four years to upgrade its fleet of construction vessels and offshore drilling rigs as well as logistic centers and support facilities.
The most significant orders wonOrders acquired in 2005 in oilfield services and construction were:
In the Offshore construction area: in West Africa: two turnkey contracts were awarded: (i) the first one for Total Upstream Nigeria for the installation and operation2007 amounted to euro 12,011 million, of underwater, umbilical and riser pipelines; and the construction of an unloading terminal, a mooring system for the FPSO vessel and the laying of a pipeline. Works willthese projects to be carried out byoutside Italy represented 95%, while orders from Eni companies amounted to 16% of the Saibos FDS and Saipem 3000 vessels; and (ii) the second one for Esso Exploration Angola Ltd for the engineering, procurement, construction and installation of subsea lines for the Marimba field development in Block 15; in Indonesia: two turnkey contracts for BP Berau Ltd for the construction of two platforms and the related underwater pipelines linking the Tangguh field with the gas liquefaction plant onshore; and in Thailand: a turn key contract for Thai Oil Public Company Ltd for the construction of unloading facilitiestotal. Order backlog was euro 15,390 million at December 31, 2007 (euro 13,191 million at December 31, 2006). Projects to supply oil to a refinery in Sri Racha in the Gulf of Siam. Works will be performed in 2007, and the installation will be carried out by Castoro 8 vessel.
In the Leased FPSO area a contract for Petrobas for the conversion of an oil tanker into the new Vitoria FPSO vessel with a production capacity of 100,000 BBL/d and a storage capacity of 1,600,000 BBL for the developmentoutside Italy represented 95% of the Golfinho 2 field offshore Brazil at a depth of 1,400 meters.
In the Offshore drilling area two contracts were acquired. The first one for Total Exploration and Production Angola, involving the deep water drillship Saipem 10000 for activitiestotal order backlog, while orders from Eni companies amounted to be performed on the Rosa field for two years plus the option of a further two years. The second one for Burrullus Gas Company involves the renewal of contract for the semi-submersible Scarabeo 6 for three months in Egypt.
In the Liquefied Natural Gas area two contracts were awarded: (i) the first one, in association with Technip and Zachry, for the engineering and procurement of tanks for an LNG regassification terminal on the Quintana island in Texas; and (ii) the second one, in consortium with the Mexican company Gutsa, for the construction of infrastructure for the mooring and dry-docking of tankers at the Costa Azul in Mexico.
In the Onshore construction area two turnkey contracts were acquired: (i) the first one for Saudi Aramco to convert the existing East-West pipeline from oil to gas transport. It includes also fabrication, construction, installation and commissioning of new sections of East-West line and related facilities. Works will be performed in early 2008; and (ii) the second one for Sonatrach-Sonelgaz for the engineering, procurement and construction of a gas-fired power station.
In the Onshore drilling a contract for the North Caspian Sea consortium for drilling activities in Block D22% of the Kashagan field utilizing two drillings rigs owned by the client. Activities will be performed for five years.total.
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2005 | 2006 | 2007 | ||||
Orders acquired and breakdown by business | (million euro) | 8,395 | 11,172 | 12,011 | ||||
Offshore construction | 3,096 | 3,681 | 3,496 | |||||
Onshore construction | 4,720 | 4,923 | 6,236 | |||||
Offshore drilling | 367 | 2,230 | 1,644 | |||||
Onshore drilling | 212 | 338 | 635 | |||||
Originated by Eni companies | (%) | 11 | 24 | 16 | ||||
To be carried out outside Italy | (%) | 90 | 91 | 95 | ||||
Order backlog and breakdown by business | (million euro) | 10,122 | 13,191 | 15,390 | ||||
Offshore construction | 3,721 | 4,283 | 4,215 | |||||
Onshore construction | 5,721 | 6,285 | 7,003 | |||||
Offshore drilling | 382 | 2,247 | 3,471 | |||||
Onshore drilling | 298 | 376 | 701 | |||||
Originated by Eni companies | (%) | 7 | 20 | 22 | ||||
To be carried out outside Italy | (%) | 88 | 90 | 95 |
Business areasOffshore construction
OFFSHORE CONSTRUCTION
Saipem is able to executewell positioned in the market of large, complex projects for the development of offshore hydrocarbon fields by integratingleveraging on its technical and operational skills, supported by a technologically advancedtechnologically-advanced fleet, and the ability to operate in complex environments, withand engineering and project management capabilities acquired on the marketplace over recent years. Saipem intends to enhance its market (among which Bouygues Offshore, Moss Maritime, Petromarine, Idpe)share strengthening its EPIC oriented business model and leveraging on its relationships with major oil companies and National Oil Companies ("NOCs"). The services that Saipem can currently provideHigher levels of profitability are expected to its customers can cover the main market segments such as: (i) floating production units (FPU); (ii) underwater developments; (iii) fixed platforms;be achieved outsourcing non core engineering and (iv) pipelines. Management expects the demand for these servicesbuilding activities to increaselow cost centers, achieving economies of scales in particular in the FPU and underwater development areas, due to the increased share of deep water development projects. Key areas are West Africa, Asia Pacific, and Latin America.
Saipem operates in the area of deep offshore hydrocarbon field development by means of the construction and installation of FPUs. Among FPUs, FPSO vessels offer the main interesting market prospects due to their storage capacity, which allows to develop fields remote from transport infrastructure, and to their versatility, which allows at the end of the useful life of a field to relocate vessels on other fields thus expanding their useful life.
Saipem is engaged in the segment of underwater development in the deep offshore, which includes laying of small diameter pipes, umbilical lines, risers and other sub sea structures thanks to the design ability of its engineering structureshub and using local resources in contests where this represents a competitive advantage. Investments will be focused on constantly upgrading Saipem’s fleet, by building a new pipe layer, a semi-submersible unit for sub-sea development and two FPSO units to be leased to customers. These investments will allow the installation capacityupgrading of its vessels. Saipem isoperational capabilities in deepwater and sub arctic contexts. Investments will also engaged inbe directed to upgrading yards and related equipment and facilities and building and upgrading local construction centers to support the segmentexecution of design, procurement and installation of fixed platforms, in particular in the segment of ultra heavy lifting, thanks to the technical features of its vessels. Saipem is able to execute the laying of large diameter long distance subsea pipelines and transport infrastructure both in conventional and deep offshore.important projects.
ItsSaipem’s offshore construction fleet is made up of 25 vessels and 45 robotized vehicles able to perform advanced subseasub-sea operations. Among itsIts major vessels are: (i) the Saipem 7000 semi-submersible dynamic positioned vessel, with dynamic positioning system, with 14,000 tonnes14 ktonnes of lift capacity, (the highest of this kind in the world), capable to lay pipelines using the J-lay technique to the maximum depth of 3,000 meters. This vessel has been used to lay the Blue Stream pipeline in the waters of the Black Sea at the record depth of 2,150 meters; (ii) the Saibos FDS for the development of underwater fields in dynamic positioning, provided with cranes lifting up to 600 tonnes and a system for j-layJ-lay pipe laying to a depth of 2,000 meters; (iii) the Castoro 6 semi-submersible vessel, capable of laying pipes in waters up to 1,000 meters deep; (iv) the Saipem 3000 multifunction vessel for the development of hydrocarbon fields, derived from the transformation of the Maxita that canable to lay rigid and flexible pipes and is provided with cranes capable of lifting over 2,000 tonnes;2 ktonnes; and (v) the Semac semisubmersiblesemi-submersible vessel used for large diameter underwater pipe laying. The fleet also includes also remotely operated vehicles (ROV), highly sophisticated and advanced underwater robots capable of performing complex interventions in deep waters.
OFFSHORE DRILLING
The most significant orders awarded in 2007 in Offshore construction were: (i) an EPC contract on behalf of MEDGAZ for the installation of an underwater pipeline system to transport natural gas from Algeria to Spain; (ii) an EPC contract on behalf of Saudi Aramco for the construction and installation of 16 platforms, 80 kilometers of underwater pipelines and related facilities aimed at maintaining production capacity at certain oilfields in Saudi Arabia; (iii) an EPIC contract on behalf of Total for the construction and installation of a sub-sea pipeline designed to transport natural gas from Block 17 field to an onshore LNG terminal under construction in Soyo in Angola; and (iv) an EPIC contract on behalf of Enagas SA for the construction and installation of two pipelines for gas transportation in Spain.
Onshore construction
Saipem operates in the construction of plants for hydrocarbon production (separation, stabilization, collection of hydrocarbons, pumping stations, water injection) and treatment (removal and recovery of sulphur dioxide and carbon dioxide, fractioning of gaseous liquids, recovery of condensates) and in the installation of large onshore transport systems (pipeline, compression stations, terminals). Saipem intends to capture opportunities arising from an expected increase in demand for those services from oil majors, by leveraging on its solid competitive position and integration with Snamprogetti engineering capabilities.
Operations are mainly conducted in Africa and the Middle East. Saipem also boasts an established presence in remote areas such as the Caspian Sea and Far East Russia, leveraging on its ability to operate in hostile
62
environments, managing complex projects and enhancing local content, in addition to providing on land services complementing offshore activities (key factor in projects in areas such as the Caspian Sea).
The most significant orders awarded in 2007 in Onshore construction were: (i) an EPC contract on behalf of Qatar Fertliser Company SAQ for the construction of two new plants designed to produce ammonia and urea and associated production facilities at the Qafco industrial complex in Qatar; (ii) an EPC contract on behalf of Sonatrach for the construction of three oil stabilization and treatment trains with a capacity of 100 KBBL/d and transport and storage facilities as part of the development project of the Hassi Messaoud field in Algeria; (iii) an EPC contract on behalf of Saudi Aramco for the construction of nine sea water treatment units as part of the expansion plan of the Qurayya plant installed at the Khursaniyah field in Saudi Arabia; and (iv) an EPC contract also for the construction of in field water injection units at the Qurayya plant.
Offshore drilling
Saipem provides offshore drilling services to oil companies mainly in key areas such as West Africa, the North Sea and the Mediterranean Sea, it operatesSea. It boasts significant market positions in the most complex segments of deep and ultra deep offshore. Management expects demand forultra-deep offshore drilling services to increase steeply in the short to medium-term according to the exploration plans announced by the major oil companies. Management expects unit tariffs to be supported by a shortage of supply. West Africa is confirmed as one of the most attractive areas. Saipem can seize these market opportunities by leveraging on the outstanding technical features of its equipment. Itsdrilling platforms and vessels, capable of drilling exploration and development wells at a maximum depth of 9,200 meters. Demand for drilling services is expected to substantially increase in future years reflecting exploration and development plans of oil majors. Based on current trend in equipment availability, management expects unit tariff to rise in future years. In order to pursue market opportunities, Saipem intends to upgrade its drilling rigs, improving their technical characteristics to enhance its role as high quality player capable of operating also in complex and harsh environments. Particularly, over the next four years Saipem intends to build: (i) the two semi-submersible new generation platforms Scarabeo 8 and 9, to be employed in drilling operations in the deep-water of the Barents Sea and in the Gulf of Mexico on behalf of Eni’s upstream activity; (ii) the Perro Negro 6 to conduct operations in shallow water; and (iii) the new S12000 drilling ship to perform operations in West Africa. Significant investments are planned to upgrade the equipment considering the characteristics of certain important projects and relevant contractual conditions, as well as to set up equipment supporting the project itself.
Saipem’s offshore drilling fleet consists of 10 vessels properlyfully equipped for its primary operations and some drilling plants installed on board of fixed offshore platforms. One of its most important offshore drilling vessels is the Saipem 10000, designed to explore and develop hydrocarbon reservoirs operating in excess of 3,000 meters water depth in full dynamic positioning. The ship has a storage capacity of 140,000 BBL and canis able to maintain a steady operating position without anchor moorings by means of 6 computerized azimuth thrusters, which offset and correct the effect of wind, waves and current in real time. Capital expenditure for building this ship amounted to about $300 million. The vessel is operating in ultra deep waters (over 1,000 meters) in West Africa.
Other relevant vessels are Scarabeo 5 and 7, third and fourth generation semi-submersible rigs able to operate at depths of 1,900 and 1,200 meters of water, respectively. Average utilization of drilling vessels in 2007 stood at 94.7% (89.6% in 2006).
LEASED/SALE FPSOSaipem provides to oil companies servicesThe most significant contracts awarded in Offshore drilling in 2007 included: (i) a 5-years long contract for the developmentuse of offshore hydrocarbon fields by leasing its FPSO vessels. Following acquisitions carried outthe S12000 drilling ship, currently under construction, in recent years (in particular Moss Maritime and Bouygues Offshore), Saipem significantly strengthened its design skills. The leasingAngola on behalf of an FPSO represents an alternative to direct expenditure for oil companies. West Africa and Latin America are the markets with the highest expected growth rates due to the number of development projects announced or started-up by oil companies. Saipem’s main vessels are: (i) FPSO Firenze, a tankerTotal. This drilling ship which, after its conversion into a floating production and storage vessel, has been installed in Eni’s Aquila field, in the Adriatic Sea, where it operates at a depth of 850 meters; and (ii) FPSO Mystras that has been installed since January 2004 in the Okono and Okpoho oil fields operated by Eni with a 100% interest in the deep offshore of Nigeria. Saipem intends to expand its market share in this business and plans to upgrade its offer by adopting the new generic FPSO vessels, designed and equipped in direct cooperation with the client in order to identify standard features that make the vessel easily employable in more than one development project according to the client’s portfolio of fields. In this light, Saipem is building its new Vitoria unit that will be operating on the Golfinho 2 field in the offshore of Brazil.
ONSHORE CONSTRUCTIONSaipem operates in the construction of plants for hydrocarbon production (separation, stabilization, collection of hydrocarbons, pumping stations, water injection) and treatment (removal and recovery of sulphur dioxide and carbon dioxide, fractioning of gaseous liquids, recovery of condensates) and in the installation of large onshore transport systems (pipelines, compression stations, terminals). The demand for this kind of services from the oil industry is expected to increasecommence operations in the medium-term, in particularfirst quarter of 2010; (ii) a 12-month long distance pipelines represent onecontract for the use of the favorite systemsdrilling ship Saipem 10000 in Angola on behalf of Total; and (iii) a 12-month long contract for linking production areas with their end markets, despite the increasing competition from other transport modes (LNG, GTL). The main operation areas are Africa anduse of the Middle East. Saipem also boasts a consolidated presencesemi-submersible platform Scarabeo 3 in remote areas such as the Caspian Sea and Far East Russia, leveragingNigeria on its ability in operating in hostile environments, managing complex projects and enhancing local content, in addition to providing on land services complementing offshore activities (key factor in projects in areas such as the Caspian Sea). Saipem intends to consolidate its competitive positioning in the strategic segmentbehalf of monetization of natural gas (GTL, LNG) and upgrading of heavy crudes by upgrading and acquiring the skills and resources necessary in the engineering and project management phases, which are key factors in this segment characterized by large EPC contracts. The acquisition of Snamprogetti is a key step in this direction.Addax Petroleum.
ONSHORE DRILLING
Onshore drilling
Saipem operates in this area as main contractor for the major international oil companies performingexecuting its activity mainly in Saudi Arabia, North Africa and Peru,South America, where it can leverage on its knowledge of markets, long-term relations with customers and integration with other business areas. Saipem also boasts a long standingsolid presence in remote areas (such as(in particular in the Caspian Sea) based, leveraging on its operatingown operational skills and its ability to operate in hostile environments. Onshore drilling is conducted through 23 drilling platforms and 15 workover plants that can drill to 10,000-meter depths in high pressure and high temperaturecomplex environments.
LNGSaipem operatesAverage utilization of rigs in the LNG segment following its purchase of Bouygues Offshore and Moss Maritime which contributed their experience2007 stood at 99.6% (94.3% in the LNG chain, complementary to the onshore and offshore transport of natural gas. The markets offering the highest potential are Asia, Europe and the Americas. Services provided by Saipem include: (i) the onshore segment which, according to management, shows interesting growth prospects, where Saipem is engaged2006). Rigs were located as follows: 13 in the design and construction of regasification terminals, storage tanks andPeru, 12 in the design of gas tanker ships. Saipem also intends to acquire skills and critical mass in liquefaction; and (ii) the offshore segment, that includes FSRU (Floating Storage Regasification Units) and FNLG (Floating Liquefaction plants for Natural Gas) integrated systems which, according to management, show interesting growth prospects in the medium-term due to their lower environmental impact and greater flexibility as compared to other systems. Saipem intends to develop its presence in this segment.
MAINTENANCE, MODIFICATION & OPERATIONSaipem is also present in the MMO business which complements the company’s activities and provide interesting growth prospects for the increasing tendency of oil companies to outsource these services (both routine work and upgrading/revamping) and for the development of remote areas for hydrocarbon production. Saipem is capable of seizing the opportunities provided by this segment by leveraging on its specialized know-how also as project manager, on its resources and network of logistical bases.
Engineering
Snamprogetti intends to consolidate its competitive positioning in the market of high complexity onshore projects, mainly in the strategic segments of oil and gas, natural gas monetization (GTL, LNG) and ethylene. In order to attain this objective, Snamprogetti intends to focus on the role of the main contractor, leveraging on its skills in terms of project management capabilities, a wide and integrated array of services provided and availability and continuing development of proprietary technologies.
Snamprogetti intends to expand the supply of qualified services in the phases of front end loading of projects (feasibility studies, conceptual, basic and front end engineering and project management) mainly to major clients and as a support to Eni’s investment plans.
It plans also to intensify actions for improving operational efficiency and flexibility also through the rationalization of its operating structure, full utilization rates of low cost engineering and fabrication centers, the optimization of procurement, the adoption of the most stringent international best practices in terms of working tools and methods and the hiring of highly qualified resources.
Snamprogetti intends to continue enhancing its proprietary portfolio of technologies by means of support activities to the development on an industrial scale of technologies in strategic areas, such as the conversion of heavy crudes and high pressure transmission of natural gas, and the development of know-how in the field of the manufacture of high quality fuels and in the area of natural gas monetization (GTL, syngas, methanol, ammonia, urea).
In 2005, the engineering order backlog increased by euro 1,236 million due in particular to the recovery ongoing in reference markets, in particular the following contracts were awarded: (i) an EPIC contract for Abu Dhabi Gas Industries (GASCO) for the construction of a single line plant with a treatment capacity of 24,400 tonnes/y of LNG at the Ruwais complex in the United Arab Emirates. Works include also the construction of storage facilities, new port infrastructure and the provision of ancillary services; (ii) the Escravos GTL project in Nigeria, in joint venture with U.S. company KBR for Chevron for the construction of a 34,000 BBL/d plant for the production of diesel fuel, naphtha and LPG; and (iii) the Hawiyah GTC projectVenezuela, 9 in Saudi Arabia, 7 in Algeria, 3 in Kazakhstan, 2 in Italy and 1 in Ecuador.
The most significant orders awarded in 2007 in Onshore drilling were: (i) a contract on behalf of PDVSA for a five-year lease of three new rigs in Venezuela; (ii) a contract on behalf of Saudi Aramco for the constructiona three-year lease of five rigs in Saudi Arabia; and (iii) a natural gas treatmentcontract on behalf of Petrobras for a four-year lease of three new rigs (one conventional rig and compression plant with a capacity of 31,000 BBL/d.
Business areas
PLANTSOil & Gas Snamprogetti is engagedtwo new-generation hydraulic rigs) in the executionnorth-east of complex and technologically advanced projects in the area of plants for hydrocarbon production, natural gas treatment and monetization (LNG; recovery and fractioning of natural gas liquids). Based on the capital expenditure plans announced by oil companies, Snamprogetti expects a growth in the demand for services in these areas. In particular the segment of transport and treatment of natural gas seems the most dynamic due to the progressive globalization of demand and supply of natural gas. Snamprogetti intends to consolidate its know-how in natural gas treatment by means of acquiring and developing needed competence in particular in the business of liquefaction. Significant capital expenditures for expanding liquefaction and regasification capacity of about 130 million tonnes/y of LNG (equivalent to 180 BCM/y) are expected in the next four years.
Refining Snamprogetti is engaged in the segment of conventional plants (grass root refineries and refining units) and in the segment of plants for the hydroconversion and hydrotreatment of heavy residues and distillates. Snamprogetti intends to seize the growth opportunities of the business of plants for heavy residue conversion and production of clean fuels. Growth in this business is supported by the wider availability of heavy crudes and by the increasingly stringent environmental requirements on emissions established worldwide. At Eni’s Taranto refinery the first demonstration plant with 1,200 BBL/d capacity based on the Eni Slurry Technology is nearing completion. This technology has a high strategic value and aims at meeting the increasing demand for upgrading of heavy crudes and non conventional crudes (tar sands) and for conversion of refining residues (see: "Innovative Technologies" below).
Chemical complexes Snamprogetti is engaged in the area of plants for the conversion of natural gas (syngas, GTL, hydrogen, ammonia, methanol and urea) and gas-to-chemicals (ethylene and ethane derivatives). Snamprogetti plans to grow in the strategic segment of conversion of natural gas to liquids (GTL) for the manufacture of high value added products (LPG, diesel fuel and virgin naphtha); in this segment, where syngas is a critical element, Snamprogetti owns a proprietary technology through its subsidiary Haldor Topsøe. Snamprogetti holds a sound position in the design and construction of plants for the production of nitrogen-based fertilizers and high-octane additives for gasoline (MTBE, ETBE, TAME and iso-octene/iso-octane), based on proprietary technologies. Snamprogetti intends to strengthen its competitive position in the segment of world scale plants for ammonia and urea production, demand for which is supported by increasing consumption in Asia, with capital expenditure in new capacity concentrated in areas where gas has a competitive price (Middle East, Africa, Latin America). Snamprogetti intends to seize the opportunities for the construction of plants for the manufacture of world scale ethylene in particular in areas where feedstocks have a low price (especially the Middle East). Snamprogetti intends to seize this opportunity leveraging on its skills.
Energy Snamprogetti is active in the design and construction of combined cycle power stations also fired with refinery residues (IGCC - Integrated Gasification Combined Cycle). Snamprogetti intends to make use of the relevant know-how it acquired in the construction of EniPower power stations searching for new projects in Italy and outside Italy.
FIELD UPSTREAM FACILITIES AND PIPELINESSnamprogetti is engaged in the design and construction of pipelines for the transport of hydrocarbons, collection networks and upstream plants (construction of primary separation plants, gas and water injection systems, compression and pumping stations), the demand for which is expected to grow. Snamprogetti is developing new advanced technologies for high pressure transport of natural gas aimed at the monetization of reserves located in remote areas (see: "Innovative Technologies" below).
INFRASTRUCTURESnamprogetti is active in the field of design and construction of great infrastructure in Italy. In particular it is working at the completion of the high speed/high capacity train tracks from Milan to Bologna.
AQUATER - ENVIRONMENTAL ACTIVITIESSnamprogetti, through its Aquater - Environmental Activities division, is active in the field of projects for environmental remediation and reclamation, protection of the soil and integrated water systems in the framework of the optimization of compatibility of industrial development and environmental protection. The division provides a wide range of engineering services for the soil, the environment and natural resources and is active both as a consultant and as a main contractor in the area of environmental remediation, reclaiming of plants, waste management, water purification and civil works.
CEPAV UNO AND CEPAV DUESnamprogetti holds interests in the CEPAV Uno (50.36%) and CEPAV Due (52%) consortia that in 1991 signed two contracts with TAV SpA for the construction of the tracks for high speed/high capacity trains from Milan to Bologna (under construction) and from Milan to Verona (in the design phase).
As part of the project for the construction of the tracks from Milan to Bologna, an addendum to the contract between CEPAV Uno and TAV SpA was signed on June 27, 2003, redefining certain terms and conditions of the contract. In 2005, the consortium CEPAV Uno requested a time extension for the completion of works and an additional payment amounting to approximately euro 800 million. CEPAV Uno and TAV failed to solve this dispute amicably, and on April 27, 2006, CEPAV Uno notified TAV of a request for arbitration, as provided under the terms of the contract.
At the end of 2005, CEPAV Uno Consortium had completed works corresponding to 71% of the total contractual price in line with the contractual obligations.
As concerns the Milan-Verona portion, in December 2004 CEPAV Due presented the final project, prepared in accordance with Law No. 443/2001 on the basis of the preliminary project approved by an Italian governmental authority (CIPE).
The final project was due to be examined by TAV for final approval. CEPAV Due started an arbitration procedure against TAV for the recognition of damage related to TAV’s belated completion of its tasks. A final decision is expected late in 2006.Brazil.
Other ActivitiesCapital Expenditures
See "Item 5 – Liquidity and Capital Resources – Capital Expenditures by Segment".
Eni’s63
Corporate and other activities are organized as follows:
These activities include the following businesses:
• | the "Other | |
• | the "Corporate and financial companies" |
Management does not consider Eni’s activities in these areas to be material to its overall operations.
Seasonality
Eni’s results of operations reflect the seasonality in demand for natural gas and certain refined products used in residential space heating, the demand for which is typically highest in the first quarter of the year, which includes the coldest months and lowest in the third quarter, which includes the warmest months. Moreover, year-to-year comparability of results of operations is affected by weather conditions affecting demand for gas and other refined products in residential space heating. In colder years that are characterized by lower temperatures than historical average temperatures, demand for gas and products is typically higher than normal consumption patterns, and vice versa.
Research and Development
In technologicalTechnological research and innovation activities Eni plans to implement a capital expenditure programmerepresent key factors in the 2006-2009 four year planimplementing Eni’s business strategies. Eni’s efforts in ordertechnological innovation are primarily intended to develop such technologies that management believes may ensure competitive advantagesso as to meet the environmental issues and climate change, to overcome limits in accessing to hydrocarbon resources, to strengthen partnerships with producing countries and to develop renewable sources of energy.
Eni is conducting R&D activities aimed primarily at reducing the long-termcosts of finding and promote sustainable growth. Eni plans to continue developing existing programmes on clean fuels, sulphurrecovering hydrocarbons, upgrading heavy oils, monetizing stranded gas and greenhouse gas management as well as projects such asprotecting the upgrading of heavy crudes (EST), high pressure gas transmission (TAP) and Gas to Liquids (GTL).
In 2005, Eni’s costs incurred for research and development amounted to euro 204 million, of these 32% were incurred by Eni’s research department, 25% by the Exploration & Production segment, 24% by the Petrochemical segment and 13% by the Refining & Marketing segment. At December 31, 2005, a total of 1,420 persons were employed in research and development activities. In 2004, Eni’s costs incurred for research and development amounted to euro 257 million, of which 39% were incurred by Eni’s research department, 21% by the Exploration & Production segment, 21% by the Petrochemical segment and 12% by the Refining & Marketing segment. At December 31, 2004, approximately 1,470 persons were employed in research and development activities (1,400 at December 31, 2003).
Inenvironment. Over the next four years, Eni plans to invest approximately euro 11.7 billion balancing resources between projects aimed at reaching short-term objectives for business units with group-wide projects aimed at strengthening medium to long-term business sustainability. In particularimplement its strategy in technological innovation matters. Particularly, the main focusmanagement expects to upgrade the following lines of Eni’s R&D lines are: (i) reserve&D:
• | Reserve replacement ratio and reduction of mineral risk;
With regards to environmental protection, Eni intends to develop the "Along with Petroleum" program aimed at identifying and developing research projects on the most advanced aspects of large scale use of renewable energy sources and energy efficiency. Over the next four years, approximately euro 120 million will be addressed to this program. In particular, Eni expects to focus on the fields of greenhouse effect mitigation through bio-fuels, photovoltaics, solar energy, hydrogen production from renewable sources as well as carbon dioxide capture and geological sequestration. In 2007, Eni’s expenditures on R&D amounted to euro 208 million which were almost entirely expensed as incurred. 47% of R&D expenditures were directed to the Exploration & Production segment, 32% to the Refining & Marketing segment, 14% to the Petrochemical segment and 7% to the Engineering & Construction segment. Eni’s expenditures on R&D amounted to euro 220 million and euro 204 million in 2006 and 2005. 64 At December 31, 2007, a total of 1,082 people were employed in research and development activities. In 2007, a total of 69 applications for patents were filed.
Insurance Eni constantly assesses its exposure for the Italian and foreign activities that are mainly covered through the Oil Insurance Limited ("OIL"), a mutual insurance and reinsurance company that provides An insurance risk manager works in close contact with managers directly involved in core business activities in order to evaluate potential risks and their financial impact on the Group. This process allows Eni to define a constant level of risk retention and, conversely, the amount of risk to be transferred to the market. The level of insurance maintained by Eni is generally appropriate for the risks of its businesses.
Environmental Matters
Environmental laws and regulations have a substantial impact on Eni’s operations. Some
A brief description of major environmental laws impacting
The most important changes introduced by the Decree regarded reclamation and remediation activities as this Decree provided a site-specific risk-based approach to The Decree 152/2006 was amended by two subsequent decrees: Legislative Decrees 284/2006 and The most important aspects of these regulations to
European Union
On December 21, 2007, the European Commission published its proposal of directive on the issue of industrial emissions. In view of the general call for "better regulation", the draft incorporates the reviews of six sector-specific directives (IPPC, Large Combustion Plants, VOC - Volatile Organic Compounds - - emissions, incineration of waste and titanium industry). The
In December 2005, the European Commission proposed a Waste Framework Directive which is now at the last stage of elaboration. The draft introduces a new waste strategy and proposes a life-cycle approach, focuses on waste policy by improving the way of resources consumption. The scope is to
In
Safety. The safety of Eni’s employees and
Eni’s safety
66
In Costs incurred in 2007 to support the safety levels of Health. Eni’s
certification programs of management systems for production sites and To protect the health and safety of
In
On February 16, 2005, the Kyoto Protocol entered into force and, with it, the commitments of the Annex I Parties which have ratified the Italy, as an EU Member State, is
67 set by the Kyoto Protocol. Eni already carried out Zero Gas Flaring projects in Nigeria and Congo while others are underway. In The best solutions for compliance with the Kyoto Protocol are the use of low emission energy sources and the adoption of highly efficient technologies. To address the greenhouse gas challenge, Eni To ensure comprehensive, transparent and accurate accounting for GHG emissions, which is consistent over time, Eni introduced For safer and more accurate management of GHG emissions and with a view to supporting accounting, Eni provided all its divisions and business units with a dedicated database, in order to gather and report GHG emissions according to the Protocol and to ensure completeness, accuracy, transparency and consistency of GHG accounting as required by certification
As a support to its general strategy for a sustainable management of greenhouse gases, Eni continued its programs for the development of natural gas in Italy and outside Italy, by means of technologically advanced projects such as the Blue Stream gas pipeline from Russia to Turkey and the In Regulation of
The matters regarding the effects of recent or proposed changes in Italian legislation and regulations or EU directives discussed below and elsewhere herein are forward-looking statements and involve risks and uncertainties that could cause the actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties include the precise manner of the interpretation or implementation of such legal and regulatory changes or proposals, which may be affected by political and other developments.
Eni’s exploration and production activities are conducted in many Licenses (or concessions) give the holder the right to explore for and exploit a commercial discovery. Under a license, the holder bears the risk of exploration, development and production activities and provides the financing for these operations. In principle, the license holder is entitled to all production minus any royalties that are payable in kind. A license holder is generally required to pay production taxes or royalties, which may be in cash or in kind. Both exploration and production licenses are generally for a specified period of time (except for production licenses in the 68 United States which remain in effect until production ceases). The term of Eni’s licenses and the extent to which these licenses may be renewed vary by area.
A similar scheme to PSAs applies to Service and "Buy-Back" contracts. In general, Eni is required to pay income tax on income generated from production activities (whether under a license or production sharing agreement). The taxes imposed upon oil and gas production profits and activities may be substantially higher than those imposed on other businesses.
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The Board can engage external advisors or other experts to the extent it determines necessary to carry out its duties. The Board is provided with the funds it deems necessary for payment of compensation to independent advisors or other experts and of ordinary administrative expenses involved by the execution of the Board’s duties.
The Board of Statutory Auditors comprises five auditors and two substitute auditors, appointed by the Shareholders’ Meeting foremployees who have a three year term.
On May 27, 2005, Eni’s Shareholders’ Meeting appointed the following statutory auditors for three years and however until the Shareholders’ Meeting approving financial statements for fiscal year 2007: Paolo Andrea Colombo (Chairman), Filippo Duodo, Edoardo Grisolia, Riccardo Perotta and Giorgio Silva. Francesco Bilotti and Massimo Gentile are alternate auditors. A curriculum of these auditors is published on Eni’s internet site. The same Meeting also determined the yearly compensation for the Chairman of the Board of Statutory Auditors and each Auditor amounting to euro 115,000 and euro 80,000, respectively.
Paolo Andrea Colombo, Filippo Duodo, Edoardo Grisolia and Francesco Bilotti were candidatessignificant role in the list presented by the Ministry of Economy and Finance; Riccardo Perotta, Giorgio Silva and Massimo Gentile were candidates in the list presented by institutional investors coordinated by Fineco Asset Management SpA.
Statutory Auditors are appointed in accordance with Eni’s by-lawsBy-laws with a list vote; at least two auditors and one substitute are chosenelected from minority candidates. According to Article 28.2 of Eni’s By-laws, as revised by the Shareholders’ Meeting of May 25, 2006, to implement the provision of Law No. 262 of December 28, 2005 (law on the protection of savings), the Shareholders’ Meeting shall elect Chairman of the Board isof Statutory Auditors a member elected from a list other than the first candidateone obtaining the majority of the list that received the highest number of votes. Auditors are autonomous and independent even from the shareholders who elected them. The lists of candidates include declarations made by the candidates on the possession of honorability, expertise and independence requirements prescribed by applicable regulation and a professional resume of each candidate, and are depositedmust be filed at the Company’scompany’s headquarters at least 10 days before the date of the Shareholders’ Meeting on first call and are published in three national newspapers, two of which shall be economic newspapers. Lists are also filed with Borsa Italiana and published on national newspapers.Eni’s website.
In accordance with the TUF, Statutory Auditors shall possess specific requirements of independence, and the professional and honorability requirements as prescribed by a regulation of the Minister of Justice. As for professional qualifications of the candidates, Article 28 of Eni’s by-laws, consistentBy-laws, in line with the provisions contained in thesaid Decree of the Minister of Justice, No. 162 of March 30, 2000, statesforesees that at least two auditors and one substitute auditor are chosen among chartered auditors and must have performed auditing activities forthe professional requirements can also be acquired with at least three years and that auditors not meeting these requirements must be chosen among those provided with the level of professionalism described in Decree No. 162/2000. For the purposes of said Decree, the by-laws define as related subjects commercialprofessional experience or by teaching business law, corporate economybusiness administration and finance, as well as at least a three year experience in a managerial position in geological or engineering and geology.businesses. Eni’s auditors are all chartered auditors.
Article 28 of Eni’s by-lawsBy-laws also allows statutory auditors to assume other appointments in control entities according to the limits set by Consob coming in force on June 30, 2008. Until that date Eni’s By-laws prohibits the appointment as statutory auditor of persons that are statutory auditors or members of the supervisory board or members of the management control committee of at least five companies listedwith registered securities in regulated markets that are not subsidiaries of Eni SpA. At least two effective Auditors are empowered to convene the Shareholders’ Meetings and at least one effective Auditor is empowered to convene the Board meetings.
Statutory auditors receive in advanceAuditors declared to possess independence and honorability requirements as foreseen by the law.
In its meeting of meetings ofMarch 12, 2008 the Board of Directors adequate and thorough information onStatutory Auditors verified that all issues subject to Board evaluation and resolutions.
Eni’s by-laws allow meetings to be held by teleconference.its members comply with the independence criteria prescribed.
In 20052007, the Board met 2218 times with an average participation of 83%89% of its members.
In 2005,External Auditors
As provided for by Italian law, external auditors must be a chartered company appointed by the Shareholders’ Meeting, up to a maximum of three engagements, each with a three year term. Eni’s external auditors, PricewaterhouseCoopers SpA, were appointed by the Ordinary Shareholders’ Meeting on May 24, 2007, for the three financial years ending December 31, 2007, 2008 and 2009 in accordance with Italian law. At the end of this engagement, PricewaterhouseCoopers SpA will cease to act as Eni’s external auditors.
In 2007, Eni’s External Auditors met with Eni statutory auditorsStatutory Auditors in order to discuss: (i) critical accounting policies and practices applied for the purpose of a proper representation of Eni’s results of operations and financial condition; (ii) alternative accounting treatments provided for by generally accepted accounting principles concerning material items discussed with management, including ramifications of the use of, the impact deriving from the application of said alternative disclosures and treatments and relevant information, as well as the treatments preferred by external auditors; and (iii) the contents of any other material written communication between external auditors, and management.
For a description of the special powers of the State, see "Item 10 – Memorandum and Articles of Association – Limitations on Voting and Shareholdings – Special Powers of the State" below.
Significant
differencesDifferences incorporate governance practicesCorporate Governance Practices as per Section 303A.11 of the New York Stock Exchange Listed Company Manual
Corporate governance standards followed by Italian listed companies are set forth in the Civil Code and in the Legislative Decree No. 58 of February 24, 1998, "Single text containing the provisions concerning financial intermediation" (Testo unico delle disposizioni in materia di intermediazione finanziaria, the "TUF"), as well as by the Self-discipline Code of listed companies (the "Code") issued by the Committee for corporate governance of listed companies.. As discussed below, Italian corporate governance standards differ in certain aspects from NYSE standards.
The civil code and the TUF assign specific binding and irrevocable powers and responsibilities to company’s corporate bodies. The Code, based on this regulatory framework, provides recommendations on corporate governance intended to reflect generally accepted best practices. Although these recommendations are not binding, Borsa Italiana SpA requests listed companies to publish an Annual Report on corporate governance which contains, besides a general description of the corporate governance system adopted, also any recommendation that was not followed and the reasons for this choice. Eni adopted the Code.
above, Eni’s organizational structure follows the traditional Italian model of companies which provides for two main separate corporate bodies, the Board of Directors and the Board of Statutory Auditors to whom are respectively entrusted management and monitoring duties. duties are respectively entrusted.
This model differs from the U.S. unitary model which provides for the Board of Directors as the sole corporate body responsible for management and through anfor audit committee established within the same Board for monitoring.
Below is a description of the most significant differences between corporate governance practices followed by U.S. domestic companies under the NYSE standards and those followed by Eni.
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INDEPENDENT DIRECTORS
NYSE Standardsstandards. Under NYSE standards listed U.S. companies’ Boards must have a majority of independent directors. A director qualifies as independent when the Board affirmatively determines that such director does not have a material relationship with the listed company (and its subsidiaries), either directly, or indirectly. In particular, a director may not be deemed independent if he/she or an immediate family member has a certain specific relationship with the issuer, its auditors or companies that have material business relationships with the issuer (e.g. he/she is an employee of the issuer or a partner of the auditor). In addition, a director cannot be considered independent in the three yearthree-year "cooling-off" period following the termination of any relationship that compromised a director’s independence.
Eni Standardsstandards. In Italy, the law for listed companies states that at least one member, or two members if the Board is composed by more than seven members, must possess the independence requirements provided for Statutory Auditors of listed companies. In particular, a director may not be deemed independent if he/she or an immediate family member has relationships with the issuer that could influence their autonomous judgment, with its directors or with the companies in the same group of the issuer. Eni’s By-laws increases the number and states that at least one member, if the Board is made up by up to five members, or three Board members, in case the Board is made up by more than five members, shall have the independence requirement. Eni’s Code foresees further independence requirements, in line with the ones provided by the Code on Corporate Governance issued by the Italian authority for exchange (Borsa Italiana Code), that recommends that the Board of Directors includes an adequate number of independent non-executive directors "inin the sense that they: a)they do not entertain,maintain, nor have recently maintained, directly or indirectly, or on behalf of third parties, nor have recently entertainedany business relationships with the company, its subsidiaries,issuer or persons linked to the executive directors or the shareholder or groupissuer, of shareholders who controls the company ofsuch a significance ableas to influence their autonomous judgement; b) neither own, directly or indirectly or on behalfjudgment.
In accordance with Eni’s By-laws, the Board of third parties, a quantity of shares enabling them to control the company or exercise a considerable influence over it nor participate in shareholders’ agreements to control the company; and c) are not immediate family members of executive directors of the company or of persons in the situations referred to in points a) and b)". TheDirectors periodically evaluates independence of directors is periodically revieweddirectors. Eni’s Code also provides for the Board of Statutory Auditors to verify the proper application of criteria and procedures adopted by the Board of Directors taking into account the information provided by the directors themselves. The Code also recommends that to evaluate the independence "inof its members.
The results of the caseassessments of earlier business dealings, reference shouldthe Board shall be madecommunicated to the previous financial yearmarket.
In accordance with Eni’s By-laws, should the independence requirements be impaired or cease or the minimum number of independent directors diminish below the threshold set by Eni’s By-laws, the Board declares the termination of office of the member lacking said requirements and for work relationships and functions of executive director, to the three preceding financial years".
The Code provides for a qualitative evaluation,his substitution. Board members are expected to inform the company if they lose their independence requirements or any reasons for ineligibility or incompatibility that considers the whole of the relationships held, in order to check as the case may be if the existing relationships between the issuer and the director are such to impair the director’s independence.
In 2005, Eni’s Board of Directors judged that the Chairman and its non-executive members comply with the independence standards, as provided for by the Code. Director Marco Pinto is an employee of the Ministry of Economy and Finance.might arise.
MEETINGS OF NON EXECUTIVE DIRECTORS
NYSE Standardsstandards. Non-executive directors, including those who are not independent, must meet at regularly scheduled executive sessions without management. In addition, if the group of non-executive directors includes directors who are not independent, independent directors should meet separately at least once a year.
Eni Standards standards.Neither Eni’s non-executive directorsDirectors nor Eni’s independent directorsDirectors must meet separately, under the Code’s corporate governance rules.
AUDIT COMMITTEE
NYSE Standardsstandards. Listed U.S. companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Securities Exchange Act of 1934 and that complies with the further provisions of the Sarbanes-Oxley Act and of Section 303A.07 of the NYSE Listed Company Manual.
Eni Standardsstandards. In its meeting of March 22, 2005, Eni’s Board of Directors, making use of the exemption provided by Rule 10A-3 for non-U.S. private issuers, has identified the Board of Statutory Auditors as the body that, starting from June 1, 2005, is performing the functions required by the SEC rules and the Sarbanes-Oxley Act to be performed by the audit committees of non-U.S. companies listed on the NYSE (see paragraph "Board of Statutory Auditors" earlier). Under Section 303A.07 of the NYSE listed Company Manual audit committees of U.S. companies have further functions and responsibilities which are not mandatory for non-U.S. private issuers and which therefore are not included in the list of functions shown in the paragraph referenced above.
NOMINATING/CORPORATE GOVERNANCE COMMITTEE
NYSE standardsstandards. U.S. listed companies must have a nominating/corporate governance committee (or equivalent body) composed entirely of independent directors that are entrusted, among others, with the responsibility to identify individuals qualified to become board members and to select or recommend director nominees for submission to the Shareholders’ Meeting, as well as to develop and recommend to the Board of Directors a set of corporate governance guidelines.
Eni Standardsstandards. This provision is not applicable to non-U.S. private issuers. The Corporate Governance Code backed by Borsa Italiana allows listed companies to have within the Board of Directors a committee for directors’ nominees proposals, above all when the Board of Directors detects difficulties in the shareholders’ submission of
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nominees proposals, as could happen in publicly-ownedpublicly owned companies. Eni has not set up a nominating committee, considering the nature of its shareholding as well as the circumstance that, under Eni by-laws,Eni’s By-laws, directors are appointed by the Shareholders’ Meeting based on lists presented by shareholders or by the Board of Directors.
Compensation
Board members’ compensation isemoluments are determined by the Shareholders’ Meeting, while remuneration levelsthe emoluments of the Chairman and CEO, in relation to the powers entrusted to them, are determined by the Board of Directors based onconsidering relevant proposals ofmade by the Compensation Committee and after consultation with the Board of Statutory Auditors.
Key elementMain elements of the compensation of the Chairman, the CEO, the other Board members of the Board and of Eni’s three General Managers are outlined as follows.described below.
CHAIRMAN
The compensation of the Chairman of the Board of Directors has been resolved by Eni’s Shareholders’ Meeting ofon May 27, 2005 and it includes:
a) | a | |
b) | a |
With respectregard to the powers delegated to the Chairman, the Board of Directors determined further compensation, as follows:
a) | ||
b) |
Compensation of the Chairman also includes an insurance against death or permanent inability caused by injury or sickness in the exercise of his duties or under certain other circumstances as stipulated collectively for all managers of Italian companies producing goods and services. In particular, a specific insurance policy has been underwritten which guarantees euro 500,000 to survivors with an annual charge for Eni of euro 8,000.
In 2005 the Chairman received a total compensation amounting to euro 871,000.16,000.
CEO
Compensation for Paolo Scaronithe CEO has been resolved by the Board of Directors of Eni in connection with his position both as Chief Executive Officer ("CEO")CEO and as General Manager of the parent company Eni SpA. He was appointed to both positions on June 1, 2005.
As General Manager of Eni SpA, his terms of employment are regulated by the "Contratto collettivo nazionale di lavoro per i dirigenti di aziende produttrici di beni e servizi" (the Italian national collective contract for managers of manufacturing companies)companies producing goods and services), as well as by any internal agreement stipulated by the representatives of managers and Eni SpA. He may be appointed as board member of Eni’s subsidiaries and affiliates;
The CEO compensation as provided for by Article No. 2389 of the Italian Civil Code deriving from such appointments is to be repaid to Eni as it is included in his remuneration under section a) below.
Compensation includes the following:following items:
a) | ||
b) | ||
c) |
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in terms of total shareholder return that considers both the stock appreciation and the dividend (see below for a more detailed description of Eni’s long-term incentive schemes applicable to top and senior managers). Under this scheme the CEO received: |
i) | an annual award of a deferred monetary bonus for the period 2006-2008. The target level of | |||
an annual award of stock options |
severance | ||
as an integration to the severance payment described above, should the employment contract of Mr. Scaroni as General Manager of Eni SpA be terminated upon expiry of the term of his office as CEO or upon earlier termination of such office, he will be entitled to receive a | ||
competition clause: the CEO agrees not to be engaged, on his own account and directly, in any business that may be in competition with the businesses of Eni, as per its | ||
the pension scheme corresponds to the scheme applied to Eni managers and provided by INPS (the Italian state social security entity) to all Italian workers. In addition, the CEO is included in an additional pension scheme under the form of an Eni | ||
like all other Eni managers, Mr. Scaroni is entitled to participate in a health insurance | ||
insurance against death or permanent inability caused by injury or disease in the exercise of his duties or under certain other circumstances as stipulated collectively for all managers of Italian manufacturing companies. In particular a specific insurance policy has been underwritten on behalf of Mr. Scaroni which guarantees euro 7.5 million to survivors in case of death, however determined, with an annual charge for Eni of euro 62,000. |
MEMBERS OF THE BOARD OF DIRECTORS
The compensation of members of the Board of Directors has been determined by Eni’s Shareholders’ Meeting of May 27, 2005 and includes:
a) | ||
b) | a |
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The Board of Directors in the meeting of July 27, 2006, as proposed by the Compensation Committee and advised by the Board of Statutory Auditors, determined an additional element of remuneration for the Board members holding positions in Board’s committees, with the exclusion of the Chairman and CEO. Said fee amounts to euro 30,000, and euro 20,000 for the position of chairman of a committee and of member of a committee, respectively. This amount decreases to euro 27,000 and euro 18,000 in case a member holds positions in more than one committee.
GENERAL MANAGERS
The terms of employment of the General Managers of Eni’s Divisions are regulated by the "Contratto collettivo nazionale di lavoro per i dirigenti di aziende produttrici di beni e servizi" (the Italian national collective contract for managers of companies producing goods and services), as well as by any internal agreement stipulated by the representatives of managers and Eni SpA. The General Managers of Divisions may be appointed as members of the Board of Directors of Eni subsidiaries and affiliates; compensation deriving from such appointments as provided for by article No.Article 2389 of the Italian Civil Code is to be repaid to Eni as it is included in their remuneration under section a) below.
Their remuneration includes:
a) | a base salary, defined considering the position held and their specific responsibilities, with reference to appropriate market levels as benchmarked against national and international companies of comparable size, complexity and scope in the oil and gas, industrial and service sectors. Base salaries are reviewed and adjusted on | |
b) | a performance bonus paid yearly, |
c) | long-term incentives in the form of a deferred monetary bonus and stock options according to the same scheme as the CEO. Under this scheme the three General Managers have received: |
i) | a yearly | |||
ii) | a yearly award of stock |
d) | a | |
severance payment as regulated by Italian laws, which consists | ||
the pension scheme corresponds to the scheme applied to Eni managers and provided by INPS to all Italian workers. In addition, the General Managers are included in the additional pension scheme of Eni managers which provides an integration to the public pension. For further details see section | ||
like all other Eni managers, they are entitled to participate in a health insurance Fund financed by Eni managers and Eni which provides reimbursement of certain medical expenses on the basis of rules and parameters as provided for by the Fund’s | ||
an insurance against death or permanent inability caused by injury or disease in the exercise of his duties or under certain other circumstances as stipulated collectively for all managers of Italian manufacturing companies. |
With the expectionexception of the CEO as described above, none of the Directors of Eni has service contracts with the company or any of its subsidiaries providing for benefits upon termination of employment.
Pursuant to Article 78Remuneration earned for 2007 by members of Consob Decision No. 11971 of May 14, 1999, compensationthe Board of Directors, including the CEO and the Chairman, the three General Managers and Eni’s senior managers attending on a permanent basis the meetings of the Steering Committee of Eni (total amount) is reported in the table below. Emoluments earned by the Statutory Auditors of Eni and general managersare also included.
Follows a description of Eni’s divisions, who held the position in 2005 including for a fractioneach column of the year, are reported in the table below.following table:
Pursuant to Consob decisions:
• | " | |
• | "Non cash benefits" | |
• | "Bonuses and other incentives" |
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year to both the Chairman and the | ||
• | " |
The following table contains details of compensation of directors, statutory auditors and general managers.
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employment contract. |
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Board of Directors | ||||||||||||||||||||
Roberto Poli | Chairman | 01.01-12.31 | 05.30.08 | 831 | 8 | 40 | 879 | |||||||||||||
Vittorio Mincato | CEO | 01.01-05.27 | 230 | 1,386 | (3) | 9,649 | (4) | 11,265 | ||||||||||||
Paolo Scaroni | CEO | 06.01-12.31 | (5) | 05.30.08 | 252 | 62 | 588 | 902 | ||||||||||||
Mario Giuseppe Cattaneo | Director | 01.01-05.27 | 57 | 10 | 67 | |||||||||||||||
Alberto Clô | Director | 01.01-12.31 | 05.30.08 | 123 | 10 | 133 | ||||||||||||||
Renzo Costi | Director | 01.01-12.31 | 05.30.08 | 122 | 10 | 132 | ||||||||||||||
Dario Fruscio | Director | 01.01-12.31 | 05.30.08 | 117 | 10 | 127 | ||||||||||||||
Guglielmo Moscato | Director | 01.01-05.27 | 59 | 10 | 69 | |||||||||||||||
Mario Resca | Director | 01.01-12.31 | 05.30.08 | 121 | 10 | 131 | ||||||||||||||
Marco Pinto | Director | 05.28-12.31 | 05.30.08 | 68 | 68 | |||||||||||||||
Marco Reboa | Director | 05.28-12.31 | 05.30.08 | 68 | 68 | |||||||||||||||
Pierluigi Scibetta | Director | 05.28-12.31 | 05.30.08 | 68 | 68 | |||||||||||||||
Board of Statutory Auditors (6) | ||||||||||||||||||||
Andrea Monorchio | Chairman | 01.01-05.27 | 51 | 51 | ||||||||||||||||
Paolo Andrea Colombo | Chairman | (7) | 01.01-12.31 | 05.30.08 | 107 | 67 | 174 | |||||||||||||
Luigi Biscozzi | Auditor | 01.01-05.27 | 38 | 51 | 89 | |||||||||||||||
Filippo Duodo | Auditor | 01.01-12.31 | 05.30.08 | 91 | 55 | 146 | ||||||||||||||
Edoardo Grisolia (8) | Auditor | 05.28-12.31 | 05.30.08 | 48 | 48 | |||||||||||||||
Riccardo Perotta | Auditor | 01.01-12.31 | 05.30.08 | 92 | 59 | 151 | ||||||||||||||
Giorgio Silva | Auditor | 05.28-12.31 | 05.30.08 | 48 | 13 | 61 | ||||||||||||||
General Managers | ||||||||||||||||||||
Stefano Cao | E&P Div. | 01.01-12.31 | 397 | 797 | 1,194 | |||||||||||||||
Luciano Sgubini | G&P Div. | 01.01-12.31 | 311 | 2,286 | (9) | 2,597 | ||||||||||||||
Angelo Taraborrelli | R&M Div. | 01.01-12.31 | 229 | 566 | 795 | |||||||||||||||
2,591 | 70 | 2,423 | 14,131 | 19,215 |
Name | Position | Emoluments for service at Eni SpA | Non-cash benefits | Bonus and other incentives (1) | Salaries and other elements | Total | |||||||||
(thousand euro) | |||||||||||||||
Board of Directors | |||||||||||||||
Roberto Poli | Chairman | 765 | 16 | 388 | 1,169 | ||||||||||
Paolo Scaroni | CEO | 430 | 62 | 1,277 | 1,016 | 2,785 | |||||||||
Alberto Clô | Director | 138 | 10 | 148 | |||||||||||
Renzo Costi | Director | 134 | 10 | 144 | |||||||||||
Dario Fruscio (2) | Director | 126 | 10 | 136 | |||||||||||
Marco Pinto | Director | 133 | 10 | 143 | |||||||||||
Mario Resca | Director | 130 | 10 | 140 | |||||||||||
Marco Reboa | Director | 148 | 10 | 158 | |||||||||||
Pierluigi Scibetta | Director | 134 | 10 | 144 | |||||||||||
Board of Statutory Auditors | |||||||||||||||
Paolo Andrea Colombo | Chairman | 115 | 88 | (3) | 203 | ||||||||||
Filippo Duodo | Auditor | 80 | 72 | (4) | 152 | ||||||||||
Edoardo Grisolia (5) | Auditor | 80 | 80 | ||||||||||||
Riccardo Perotta | Auditor | 80 | 38 | (6) | 118 | ||||||||||
Giorgio Silva | Auditor | 80 | 45 | (7) | 125 | ||||||||||
General Managers | |||||||||||||||
Stefano Cao | Exploration & Production | 1 | 551 | 935 | 1,487 | ||||||||||
Domenico Dispenza | Gas & Power | 1 | 457 | 654 | 1,112 | ||||||||||
Angelo Taraborrelli (8) | Refining & Marketing | 1 | 386 | 340 | 727 | ||||||||||
Angelo Caridi (9) | Refining & Marketing | 1 | 210 | 211 | |||||||||||
2,573 | 82 | 3,129 | 3,398 | 9,182 | |||||||||||
Senior managers (10) | 10 | 2,570 | 3,529 | 6,109 | |||||||||||
(1) | ||
Based on performance achieved in | ||
Compensation for the service is paid to the Ministry of Economy and Finance. | ||
Includes the compensation obtained as Chairman of the Board of Statutory Auditors of Snam Rete Gas SpA until April 26, 2007 and as Statutory Auditor in Snam Rete Gas SpA for the following months. | ||
(7) | Includes the compensation obtained as Statutory Auditor in Snamprogetti SpA and as Chairman of the Board of Statutory Auditors of TSKJ Italia Srl. | |
(8) | In | |
(9) | Appointed by the Board of Directors on August 3, 2007. | |
(10) | Managers, who during the year with the CEO and the General Managers of Eni divisions, have been member of the Eni Directors Committee (seven managers). |
For the year ended December 31, 2005,2007, the aggregateoverall compensation paid to or on behalf of the executive officerspersons responsible of key positions in planning, direction and control functions of Eni SpA wasGroup companies, including executive and non-executive directors, General Managers and Eni’s senior managers amounted to euro 20.0625 million. The foregoingbreak-down is as follows:
2007 | |
(million euro) |
Fees and salaries | 17 | |
Post employment benefits | 1 | |
Other long-term benefits | 3 | |
Fair value stock grants/options | 4 | |
25 |
The above amounts include salaries, fees for attending meetings,annual emoluments, lump-sum amounts paid in lieu of expense reimbursements, stock options, stock grants,stock-based compensation and other deferred incentive bonuses, health and pension contributions and amounts accrued to the reserve for employee termination indemnities, which is used to pay severance pay as required by Italian law to employees upon termination of employment. The members of the Board of Directors in their capacity as such are not entitled to receive such severance pay. At December 31, 2005,2007, the total amount accrued to the reserve for employee termination indemnities with respect to members of the Board of Directors who
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were also employees of Eni, with respect tothe three general managers and with respectEni’s senior managers was euro 2,780 thousand. The break-down of this amount is presented in the table below:
Name | (thousand euro) |
Paolo Scaroni | CEO and General Manager of Eni | 159 | ||
Stefano Cao | General Manager of the E&P Division | 641 | ||
Domenico Dispenza | General Manager of the G&P Division | 407 | ||
Angelo Taraborrelli | General Manager of the R&M Division (1) | 424 | ||
Angelo Caridi | General Manager of the R&M Division (2) | 144 | ||
Senior Managers (3) | 1,004 |
2,780 |
(1) | Position held until August 2, 2007. | |
(2) | Appointed on August 3, 2007. | |
(3) | No. 7 managers. |
Long-term Incentive Schemes
In March 2006, the Board of Directors approved a new long-term incentive scheme for the managers of Eni and its subsidiaries (excluding listed subsidiaries), as proposed by the Compensation Committee. This new scheme is designed to motivate more effectively and retain managers, linking incentives to targets and performance achieved in a tighter way than previous incentives schemes. This new incentive scheme applies to the executive officers2006-2008 three year period and is composed of Eni SpA was euro 3.36 million.
a deferred monetary bonus, linked to the achievement of certain business growth and operating efficiency targets, and stock option awards based on the achievement of certain targets in terms of total shareholder return. This scheme has a structure intended to balance monetary and stock-based components of the remuneration, as well as to link financial and operating performance to share performance in the long-term.
Deferred monetary bonus
This leg of the long-term incentive scheme provides a basic bonus paid after three years from the award according to a variable amount equal to a percentage ranging from 0 to 170% of the amount established for the target performance in relation to the performances achieved in a three-year period as approved by the Board of Directors. Performances are measured in terms of achievement of preset annual EBITDA targets, as assessed by comparing actual results with set targets under a constant trading environment.
The following table sets out the basic bonus awarded in the year 2007 to the CEO and to the General Managers of Eni’s Divisions, and the total amount awarded to Eni’s senior managers.
Name | Deferred bonus awarded |
(thousand euro) |
Paolo Scaroni | CEO and General Manager of Eni | 787 | |||
Stefano Cao | General Manager of the E&P Division | 380 | |||
Domenico Dispenza | General Manager of the G&P Division | 268 | |||
Angelo Taraborrelli | General Manager of the R&M Division (1) | 236 | |||
Angelo Caridi | General Manager of the R&M Division (2) | 140 | (3) | ||
Senior managers (4) | 1,126 |
(1) | Position held until August 2, 2007. | |
(2) | Appointed on August 3, 2007. | |
(3) | Assigned by Saipem on July 25, 2007, to Angelo Caridi who held the position of CEO of Snamprogetti until August 2, 2007. | |
(4) | No. 7 managers. |
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Stock
compensationOptions
Stock grants
WithEni can award share options to managers holding strategic positions or positions of significant responsibility for the aimachievement of improving motivationthe Company’s results. This incentive scheme is designed to ensure that managers’ interests are aligned with those of shareholders and loyaltyto stimulate entrepreneurial behavior on part of managers. Differently from previous schemes, the 2006-2008 stock option plan introduced a performance condition upon which grants can be exercised. The Board of Directors determines the number of options to be exercised after a three-year vesting period upon verification of performances achieved. The amount of options is determined in a percentage ranging from 0% to 100% of the amount underlying each year of the plan, depending on the performance of Eni managers through the linkingshares measured in terms of compensationannual Total Shareholders Return as compared to the attainmentthat achieved by a panel of preset individual and corporate objectives, making management participatemajor international oil companies in corporate risk and motivating them towards the creationterms of shareholder value and increasing at the same time their contribution to the management of the Company, beginning in 2003, Eni has offered its own shares purchased under its buy-back program (treasury shares) for no consideration to those managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code15 who have achieved corporate and individual objectives.
Assignments vest within 45 days after the end of the thirdmarket capitalization. Options can be exercised along a three year from the date of the offer.
period. Under this stock grant plan, onthe Board resolved to award to Eni’s managers 6,128,500 options pertaining to 2007 with a strike price equal to euro 27.451 and 7,050,000 options at a strike price of euro 23.119 pertaining to 2006.
At December 31, 20052007, a total of 3,127,200 grants17,699,625 options were outstanding for the assignmentpurchase of an equal amount of treasuryordinary shares (equal to 0.08% of current capital stock) subdivided as follows: (i) a total of 1,018,400 grants (fairnominal value euro 11.20 per share) related to 2003; (ii) a total of 912,400 grants (fair value euro 14.57 per share) related to 2004; and (iii) a total of 1,196,400 grants (fair value euro 20.08 per share) related to 2005.
Stock options
Eni offers to managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code16 who hold positions of significant responsibility for achieving profitability or strategic targets, the opportunity to acquire a shareholding in the Company as an element of remuneration through the assignment of options for the purchase of Eni’s treasury shares.
Options provide grantees with the right to purchase Eni shares on a 1 to 1 ratio after three years from the date of the grant and upon a five year vesting period, at a price corresponding to the higher of the arithmetic average of official prices recorded on the Mercato Telematico Azionario in the month preceding the date of the grant and the average cost of the treasury shares as of the day prior to the assignment (strike price). Strike price for the 2005 assignment was euro 22.512 per share.
Grantees are able to make use of an advance from a Group finance company to purchase shares, on condition that at the same time they sign an irrevocable order for selling the shares through the finance company. Proceeds from the sale must then be used to repay the advance.
At December 31, 2005 there were 13,379,600 outstanding options,each, carrying an average strike price of euro 17.705 per share.
23.822. The weighted-averageweighted average remaining contractual life of options outstanding at December 31, 2003, 20042006 and 20052007 was 5.6 years, 6.64 years and 7.67 months and 5 years and 7 months respectively. All stock options granted are considered fixed.
The following is a summary of stock option activity for the years 2003, 20042006 and 2005:2007:
2003 | 2004 | 2005 | |||
2006 | 2007 | ||
Number of shares | Weighted average exercise price | Market price (a) | Number of shares | Weighted average exercise price |
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Options as of January 1 | 3,518,500 | 15.216 | 8,162,000 | 14.367 | 11,789,000 | 15.111 | 13,379,600 | 17.705 | 23.460 | 15,290,400 | 21.022 | 25.520 | ||||||||||||||||||||
New options granted | 4,703,000 | 13.743 | 3,993,500 | 16.576 | 4,818,500 | 22.512 | 7,050,000 | 23.119 | 23.119 | 6,128,500 | 27.451 | 27.447 | ||||||||||||||||||||
Options exercised in the period | (354,000 | ) | 14.511 | (3,106,400 | ) | 15.364 | (4,943,200 | ) | 15.111 | 23.511 | (3,028,200 | ) | 16.906 | 25.338 | ||||||||||||||||||
Options cancelled in the period | (59,500 | ) | 15.216 | (12,500 | ) | 14.450 | (121,500 | ) | 16.530 | (196,000 | ) | 19.119 | 23.797 | (691,075 | ) | 24.346 | 24.790 | |||||||||||||||
Options outstanding as of December 31 | 8,162,000 | 14.367 | 11,789,000 | 15.111 | 13,379,600 | 17.705 | 15,290,400 | 21.022 | 25.520 | 17,699,625 | 23.822 | 25.120 | ||||||||||||||||||||
of which exercisable at December 31 | 73,000 | 14.802 | - | - | 1,540,600 | 16.104 | 1,622,900 | 16.190 | 25.520 | 2,292,125 | 18.440 | 25.120 |
(a) |
The fair value of stock options granted during the years ended December 31, 2003, 20042006 and 20052007 of euro 1.50, euro 2.012.89 and euro 3.33,2.98, respectively, was calculated applying the Black-Scholes method and using the following assumptions:
Fair value of stock options | 2003 | 2004 | 2005 | |||
Risk-free interest rate | (%) | 3.16 | 3.21 | 2.51 | ||||
Expected life | (year) | 8 | 8 | 8 | ||||
Expected volatility | (%) | 22 | 19 | 21 | ||||
Expected dividends | (%) | 5.35 | 4.5 | 3.98 |
2006 | 2007 | ||||
Risk-free interest rate | (%) | 4.0 | 4.7 | |||
Expected life | (year) | 6 | 6 | |||
Expected volatility | (%) | 16.8 | 16.3 | |||
Expected dividends | (%) | 5.3 | 4.9 |
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The following table presents the amount of stock options awarded to Eni’s CEO, the three General Managers and Eni’s senior managers.
CEO and General Manager ofEni | General Manager | General | General Manager | General | Senior managers (1) | ||||||
Paolo | Stefano | Domenico | Angelo Taraborrelli (3) | Angelo | |||||||
Options outstanding at the beginning of the period: | ||||||||||||||||||
- number of options | 1,380,000 | 314,500 | 137,000 | 269,500 | (5) | 238,000 | 54,500 | 73,500 | (6) | 926,500 | ||||||||
- average exercise price | (euro) | 22.801 | 21.641 | 22.244 | 3.988 | 20.624 | 19.896 | 17.519 | 21.709 | |||||||||
- average maturity in months | 73 | 70 | 65 | 73 | 68 | 74 | 67 | 69 | ||||||||||
Options granted during the period: | ||||||||||||||||||
- number of options | 573,000 | 155,500 | 110,000 | - | 96,500 | - | 48,500 | (6) | 472,500 | |||||||||
- average exercise price | (euro) | 27.451 | 27.451 | 27.451 | - | 27.451 | - | 26.521 | 27.451 | |||||||||
- average maturity in months | 72 | 72 | 72 | - | 72 | - | 72 | 72 | ||||||||||
Options exercised at the end of the period: | ||||||||||||||||||
- number of options | - | 63,500 | 14,500 | - | 73,000 | 24,000 | - | 46,000 | ||||||||||
- average exercise price | (euro) | - | 16.576 | 15.013 | - | 15.431 | 16.576 | - | 13.743 | |||||||||
- average market price at date of exercise | (euro) | - | 27.529 | 24.721 | - | 25.774 | 25.306 | - | 24.756 | |||||||||
Options outstanding at the end of the period: | ||||||||||||||||||
- number of options | 1,953,000 | 406,500 | 232,500 | 269,500 | (5) | 261,500 | 30,500 | 122,000 | (6) | 1,353,000 | ||||||||
- average exercise price | (euro) | 24.165 | 24.655 | 25.159 | 3.988 | 24.593 | 22.509 | 21.098 | 23.985 | |||||||||
- average maturity in months | 63 | 62 | 60 | 61 | 62 | 67 | 60 | 61 |
(1) | No. 7 managers. | |
(2) | The award to the CEO has been integrated by a monetary incentive to be paid after three-year in relation to the performance of Eni shares, and is equal to 96,000 options granted in 2006, with a strike price of euro 23.100 and 80,500 options granted in 2007, with a strike price of euro 27.451. | |
(3) | In office until August 2, 2007. | |
(4) | Appointed on August 3, 2007. | |
(5) | Options on Snam Rete Gas shares: awarded by the company to Domenico Dispenza who held the position of Chairman of Snam Rete Gas until December 23, 2005. | |
(6) | Options on Saipem shares: awarded by the company to Angelo Caridi who held the position of CEO of Snamprogetti until August 2, 2007. |
Stock Grants
In 2003 Eni implemented a stock-based incentive scheme based on the awards of treasury shares for no consideration to those managers of Eni who achieved corporate and individual targets. This scheme applied to the three-year period 2003-2005. Grants vested within 45 days after the end of the third year from the date of the award. This incentive scheme was discontinued in 2006.
Under this plan, as of December 31, 2007, a total of 902,800 grants were outstanding for the award of an equal amount of treasury shares (equal to 0.05% of capital stock) pertaining to 2003, 2004 and 2005 assignments as follows: (i) a total of 2,500 grants (fair value euro 11.20 per share) related to 2003, (ii) a total of 798,700 grants (fair value euro 14.57 per share) related to 2004 and (iii) a total of 1,072,400 grants (fair value euro 20.08 per share) related to 2005. The following is a summary of stock grant activity for the years 2006 and 2007:
2006 | 2007 | |||
Number of shares | Market price | Number of shares | Market price | |||||
Stock grants as of January 1 | 3,127,200 | 23.460 | 1,873,600 | 25.520 | ||||||||
New rights granted | - | - | - | - | ||||||||
Rights exercised in the period | (1,236,400 | ) | 23.933 | (966,000 | ) | 24.652 | ||||||
Rights cancelled in the period | (17,200 | ) | 23.338 | (4,800 | ) | 26.972 | ||||||
Stock grants outstanding as of December 31 | 1,873,600 | 25.520 | 902,800 | 25.120 | ||||||||
of which exercisable at December 31 | 156,700 | 25.520 | 68,100 | 25.120 |
(a) | Market price relating to new rights granted, rights exercised in the period and rights cancelled in the period corresponds to the average market value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of the resolution of the Board of Directors regarding the stock grant assignment; (ii) the date of the recording in the grantee’s securities account of the emission/transfer of the shares granted; (iii) the date of the unilateral termination of employment for rights cancelled) weighted with the number of shares. Market price of stock grants at the beginning and at the end of the year is the price recorded at December 31. |
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The following table presents the amount of stock grants awarded to Eni’s CEO, General Managers and Eni’s senior managers.
Grants outstanding | Grants | Grants | Grants outstanding | ||||
Number of grants | Average maturity in months | Number of grants | Average | Number of grants |
| Number of grants | Average maturity in months | |||||||||
Vittorio Mincato (1) | CEO | 104,800 | 19 | 40,200 | 38 | 145,000 | 19.951 | - | - | ||||||||
Stefano Cao | General Manager of the E&P Division | 40,500 | 20 | 16,000 | 38 | 12,800 | 23.785 | 43,700 | 21 | ||||||||
Luciano Sgubini | General Manager of the G&P Division | 40,500 | 20 | 16,000 | 38 | 56,500 | 22.784 | - | - | ||||||||
Angelo Taraborrelli | General Manager of the R&M Division | 17,500 | 20 | 16,000 | 38 | 5,400 | 23.785 | 28,100 | 24 |
Paolo Scaroni | |||||||||||||||
CEO and General Manager of Eni | - | - | - | - | - | - | |||||||||
Stefano Cao | |||||||||||||||
General Manager of the E&P Division | 29,000 | 15 | 13,000 | 24.447 | 16,000 | 8 | |||||||||
Domenico Dispenza | 5,800 | 8 | 5,800 | 24.447 | - | - | |||||||||
General Manager of the G&P Division | 53,900 | (1) | 13 | 15,300 | 4.554 | 10,200 | 28,400 | 7 | |||||||
Angelo Taraborrelli (2) | |||||||||||||||
General Manager of the R&M Division | 21,800 | 17 | 5,800 | 24.447 | 16,000 | 8 | |||||||||
Angelo Caridi (3) | |||||||||||||||
General Manager of the R&M Division | 12,700 | 15 | 5,800 | 24.447 | 6,900 | 8 | |||||||||
Senior managers (4) | 50,900 | 15 | 22,400 | 24.447 | 28,500 | 8 |
(1) |
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Options outstanding at the beginning of the period: | ||||||||||||
- number of options | - | 499,000 | 182,000 | 170,000 | 96,500 | |||||||
- average exercise price | (euro) | - | 15.090 | 15.185 | 15.086 | 15.379 | ||||||
- average maturity in months | - | 67 | 79 | 79 | 81 | |||||||
Options granted during the period: | ||||||||||||
- number of options | 699,000 | - | 75,500 | 60,500 | 50,000 | |||||||
- average exercise price | (euro) | 22.509 | - | 22.509 | 22.509 | 22.509 | ||||||
- average maturity in months | 96 | - | 96 | 96 | 96 | |||||||
Options exercised at the end of period: | ||||||||||||
- number of options | - | 499,000 | 56,000 | 230,500 | 23,500 | |||||||
- average exercise price | (euro) | - | 15.090 | 15.216 | 17.035 | 15.216 | ||||||
- average market price at date of exercise | (euro) | - | 19.980 | 22.784 | 22.964 | 22.784 | ||||||
Options outstanding at the end of the period: | ||||||||||||
- number of options | 699,000 | - | 201,500 | - | 123,000 | |||||||
- average exercise price | (euro) | 22.509 | - | 17.920 | - | 18.308 | ||||||
- average maturity in months | 91 | - | 82 | - | 83 | |||||||
(2) |
The table below sets forth the amount and maturity of stock options granted to Eni’s executive officers in 2005:
|
| ||
(4) | No. 3 managers. |
Number of options | 1,350,000 | 2,329,500 | |||
Average exercise price | (euro) | 22.509 | 19.217 | ||
Maturity | (days) | 1,096 | 707 | ||
Expiration | (days) | 2,923 | 2,498 | ||
Weighted average exercise price for options existing as of December 31, 2005 | (euro) | 15.231 | |||
The information in the table above is current as of June 5, 2006. No additional options have been granted from December 31, 2005 to that date. Eni issues only ordinary shares. For further information on Eni’s stock compensation see Note 26 to the Consolidated Financial Statements.
Investor relations and information processing
In concert with the launch of its privatization process, Eni adopted a communication policy, confirmed by the Code of Conduct, aimed at promoting an ongoing dialogue with institutional investors, shareholders and the markets to ensure systematic dissemination of exhaustive complete, transparent, selective and prompt information on its activities, with the sole limitation imposed by the confidential nature of certain information. Information made available to investors, markets and the press is provided in the form of press releases, regular meetings with institutional investors and the financial community and the press, in addition to general documentation released and regularly updated on Eni’s internet site. Investor and shareholder relations are handled by special Eni functions.
Relations with investors and financial analysts are held by the Investor Relations office. Information is available on Eni’s web site and can be requested from investor.relations@eni.it.
Relations with the press are held by the Relations with the press unit.
Relations with shareholders are held by the Corporate Secretary office. Information is available on Eni’s web site and can be requested from segreteriasocietaria.azionisti@eni.it and the toll-free number 800940924 (Outside Italy 80011223456).
Information regarding periodic reports and major events/transactions is promptly released to the public, also through the internet site. A specific section of Eni’s site contains all press releases, procedures concerning corporate governance, presentations provided in meetings with the press and financial analysts, notices to shareholders and bond holders and information concerning shareholders’ and bond holders’ meetings, including proceeds thereof. Documents available to the public free of charge are mailed on request.
On February 28, 2006, Eni’s Board of Directors updated the "Procedure for the disclosure of information to the market concerning Group activities" approved on December 18, 2002 and published on Eni’s internet site. The procedure acknowledges Consob guidelines and the "Guidelines for information to the market" issued in June 2002 by the Ref Forum on company information and those included in the laws implementing the European Directive on market abuse, defines the requirements for disclosure to the public of price sensitive events (materiality, clarity, homogeneity, information symmetry, consistency and timeliness) and the information flows for acquiring data from Group companies and providing adequate and timely information to the Board and the market on price sensitive events. It also contains sanctions applied in case of violation of its rules in accordance with the crimes identified and sanctioned by the new law on the protection of savings.
Eni’s Code of Conduct defines confidentiality duties upheld by Group employees relating to the treatment of sensitive information.
Internal dealing
On February 28, 2006 the Board of Directors approved a procedure concerning the creation and updating a register of persons with a right to access privileged information at Eni, as provided for by Article 115 of Legislative Decree No. 58 of February 24, 1998 which states that "listed issuing companies and the subjects who have a control relation with them, or acting in their name, must establish and regularly update a register of the persons that, due to their professional activity or functions performed have access to information as described in Article 114 (privileged information)". The procedure implementing Consob Decision No. 11971/1999, as amended, defines: (i) terms and procedures for the recording and possible cancellation of the persons that, due to their professional activity or functions performed on behalf of Eni, have access to privileged information; and (ii) terms and procedures of information of said persons of their recording or cancellation and relevant reasons. The procedure became effective on April 1, 2006.
In the same meeting the Board approved the "Internal dealing procedure" for the identification of relevant persons and the communication of transactions involving financial instruments issued by Eni SpA and its listed subsidiaries, which substitutes the Internal Dealing Code approved by the Board on December 18, 2002.
The procedure implements the provisions of Article 114, paragraph 7 of Legislative Decree No. 58 of February 24, 1998 which states that "subjects performing administration, control or management activities for a listed issuer and managers having regular access to privileged information as per paragraph 1 and having the power to make operating decisions that can affect the development and future situation of the issuer and whoever holds shares corresponding to at least 10% of the company’s share capital and any other person controlling the issuer are obliged to inform Consob and the market of any transaction involving financial instruments issued by the issuer, also when performed by others on their behalf." This communication is due also by spouses not legally separated, children, parents, relatives living with the subject and in the other cases indicated by Consob in implementation of Directive 2004/72/CE of the European Commission. Eni’s procedure: (i) identifies relevant persons; (ii) defines the transactions involving financial instruments issued by Eni SpA; (iii) determines the terms and conditions for the disclosure to the public of such information; and (iv) reports the sanctions introduced by the law for the case of non compliance. The procedure that became effective on April 1, 2006 is published on Eni’s internet site.
Employees
At December 31, 2005,2007, Eni’s employees numbered 72,25875,862 representing an increase of 1,9102,290 employees from December 31, 2004,2006, or 2.7%3.1%, reflecting a 2,4792,628 increase in employees hired and working outside Italy and a 569338 decline in employees hired in Italy. Eni seeks to maintain constructive relationships with the labor unions.
Employees hired in Italy were 40,192 (55.6%39,427 (52% of all Group employees), of. Of these, 37,49336,300 were working in Italy, 2,4802,940 outside Italy and 219187 on board of vessels. As compared to 2004, the 569vessels, with a 338 unit decline in employees wasfrom 2006; of these 40 persons left the group due mainly to changes in consolidation (723 employees, due to the divestment of the water business, IP and technical services at Porto Marghera) offset in part by the positive balance of persons leaving their job and new hirings and net transfers from unconsolidated subsidiaries.consolidation.
The process of improvement in the quality mix of employees continued in 20052007 with the hiring of 2,0992,632 persons, of which 727 were hired726 with open-end contracts. A total of 1,3721,906 persons were hired with this type of contract and with apprenticeship contracts, most of them with university qualifications (800(1,117 persons of which 509759 are engineers) and 533733 persons with a high school diploma. During the year 2,0272,943 persons left their job at Eni, of these 1,4382,189 had an open-end contract and 589754 a fixed-term contract.
Employees hired and working outside Italy at December 31, 20052007 were 32,066 (44.4%36,435 (48% of all Group employees), with ana 2,628 persons increase of 2,479 persons due to the positive balance of new hiringshires with open-endfixed-term contracts and persons leaving their job in Saipem and Snamprogetti (2,639the Engineering & Construction segment (approximately 1,800 employees) due mainly to new contracts in Saudi Arabia and the negative balance (160 persons)sale of persons leaving the jobCamom SA and new hirings with open-end contracts736 persons in the restExploration & Production segment, of these approximately 400 following the Group.purchase of Dominion and Maurel & Prom.
Employees at year end | 2003 | 2004 | 2005 | ||
Employees at year end | 2005 | 2006 | 2007 | |||
(units) |
Exploration & Production | 7,492 | 7,477 | 7,491 | 8,030 | 8,336 | 9,334 | ||||||
Gas & Power | 12,982 | 12,843 | 12,324 | 12,324 | 12,074 | 11,582 | ||||||
Refining & Marketing | 13,277 | 9,224 | 8,894 | 8,894 | 9,437 | 9,428 | ||||||
Petrochemicals | 7,050 | 6,565 | 6,462 | 6,462 | 6,025 | 6,534 | ||||||
Oilfield Services Construction and Engineering | 25,583 | 25,819 | 28,684 | |||||||||
Engineering & Construction | 28,684 | 30,902 | 33,111 | |||||||||
Other activities | 6,380 | 4,983 | 4,638 | 2,636 | 2,219 | 1,172 | ||||||
Corporate and financial companies | 2,657 | 3,437 | 3,765 | 5,228 | 4,579 | 4,701 | ||||||
75,421 | 70,348 | 72,258 | 72,258 | 73,572 | 75,862 | |||||||
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The table below sets forth Eni’s employees at December 31, 2003, 20042005, 2006 and 20052007 in Italy and outside Italy:
2003 | 2004 | 2005 | ||||
(units) |
Exploration & Production | Italy | 4,555 | 4,539 | 4,510 | |||
Outside Italy | 2,937 | 2,938 | 2,981 | ||||
7,492 | 7,477 | 7,491 | |||||
Gas & Power | Italy | 10,302 | 10,216 | 9,733 | |||
Outside Italy | 2,680 | 2,627 | 2,591 | ||||
12,982 | 12,843 | 12,324 | |||||
Refining & Marketing | Italy | 6,882 | 6,879 | 6,680 | |||
Outside Italy | 6,395 | 2,345 | 2,214 | ||||
13,277 | 9,224 | 8,894 | |||||
Petrochemicals | Italy | 5,585 | 5,237 | 5,164 | |||
Outside Italy | 1,465 | 1,328 | 1,298 | ||||
7,050 | 6,565 | 6,462 | |||||
Oilfield Services Construction and Engineering | Italy | 5,314 | 5,580 | 5,799 | |||
Outside Italy | 20,269 | 20,239 | 22,885 | ||||
25,583 | 25,819 | 28,684 | |||||
Other activities | Italy | 6,367 | 4,959 | 4,616 | |||
Outside Italy | 13 | 24 | 22 | ||||
6,380 | 4,983 | 4,638 | |||||
Corporate and financial companies | Italy | 2,577 | 3,351 | 3,683 | |||
Outside Italy | 80 | 86 | 82 | ||||
2,657 | 3,437 | 3,765 | |||||
Total | Italy | 41,582 | 40,761 | 40,185 | |||
Total | Outside Italy | 33,839 | 29,587 | 32,073 | |||
75,421 | 70,348 | 72,258 | |||||
of which senior managers | 1,733 | 1,764 | 1,748 | ||||
Employees at year end | 2005 | 2006 | 2007 | |||
(units) |
Exploration & Production | Italy | 5,027 | 5,273 | 5,535 | ||||
Outside Italy | 3,003 | 3,063 | 3,799 | |||||
8,030 | 8,336 | 9,334 | ||||||
Gas & Power | Italy | 9,733 | 9,602 | 9,114 | ||||
Outside Italy | 2,591 | 2,472 | 2,468 | |||||
12,324 | 12,074 | 11,582 | ||||||
Refining & Marketing | Italy | 6,680 | 7,196 | 7,101 | ||||
Outside Italy | 2,214 | 2,241 | 2,327 | |||||
8,894 | 9,437 | 9,428 | ||||||
Petrochemicals | Italy | 5,164 | 4,948 | 5,476 | ||||
Outside Italy | 1,298 | 1,077 | 1,058 | |||||
6,462 | 6,025 | 6,534 | ||||||
Engineering & Construction | Italy | 5,799 | 6,164 | 6,618 | ||||
Outside Italy | 22,885 | 24,738 | 26,493 | |||||
28,684 | 30,902 | 33,111 | ||||||
Other activities | Italy | 2,636 | 2,219 | 1,172 | ||||
Outside Italy | - | - | - | |||||
2,636 | 2,219 | 1,172 | ||||||
Corporate and financial companies | Italy | 5,153 | 4,363 | 4,411 | ||||
Outside Italy | 75 | 216 | 290 | |||||
5,228 | 4,579 | 4,701 | ||||||
Total | Italy | 40,192 | 39,765 | 39,427 | ||||
Total | Outside Italy | 32,066 | 33,807 | 36,435 | ||||
72,258 | 73,572 | 75,862 | ||||||
of which senior managers | 1,748 | 1,604 | 1,585 |
Share Ownership
As of April 30, 2006,2008, the totalcumulative number of shares owned by the Eni’s directors, statutory auditors and executive officers of Eni SpA as a Groupsenior managers, including the three General Managers, was 202,078414,531 equal to approximately 0.005%0.01% of Eni’s share capital outstanding atas of the same data. In this time frame, no further options to purchase Eni shares were granted by the Company to those persons as compared to grants existing as of December 31, 2005.2007 (see tables in the section "Stock Option Plans"). Eni issues only ordinary shares, each bearing one-vote right; therefore shares held by Eni SpA directors, statutory auditors and executive officersthose persons have no different voting rights. The break-down of share ownership for each of those persons is provided below.
125
Name | Position | Number of shares owned |
Board of Directors | ||||
Roberto Poli | Chairman | - | ||
Paolo Scaroni | CEO and General Manager of Eni | 42,299 | ||
Alberto Clô | Director | - | ||
Renzo Costi | Director | 1,422 | ||
Marco Pinto | Director | - | ||
Marco Reboa | Director | - | ||
Mario Resca | Director | - | ||
Pierluigi Scibetta | Director | - | ||
General Managers | ||||
Stefano Cao | General Manager of the E&P Division | 121,925 | ||
Domenico Dispenza | General Manager of the G&P Division | 99,715 | ||
Angelo Caridi | General Manager of the R&M Division | 31,695 | ||
Board of Statutory Auditors | 3,850 | |||
Senior managers | 113,625 |
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
As of May 25, 2006,9, 2008, the Ministry of Economy and Finance and Cassa Depositi e Prestiti SpA and Gruppo Banca Intesa were the only persons known by Eni to own more than 2% of any class of Eni SpA’s voting securities. At such date, the total amount of Eni SpA’s voting securities owned by these shareholders was:
Title of Class | Number of Shares Owned | Percent of Class | ||
Ministry of Economy and Finance | 813,443,277 | 20.31% | ||
Cassa Depositi e Prestiti | 400,288,338 | 10.00% | ||
Banca Intesa | 97,522,352 | 2.44% | ||
Title of class | Number of shares owned | Percent of class | ||
Ministry of Economy and Finance | 813,443,277 | 20.3% | ||
Cassa Depositi e Prestiti | 400,288,338 | 10.0% | ||
The Ministry of Economy and Finance, in agreement with the Ministry of Productive Activities,Economic Development, retains certain special powers over Eni. See "Item 10.10 – Additional Information – Memorandum and Articles of Association – Limitations on Voting and Shareholdings – Special Powers of the State". For a discussion of the Eni share buy-back program see "Item 16E – Purchases of equity securitiesEquity Securities by the issuerIssuer and affiliated purchasers"Affiliated Purchasers". As of June 10, 2005May 9, 2008 there were 15,700,02443,128,072 ADRs, each representing fivetwo Eni ordinary shares outstanding on the New York Stock Exchange, corresponding to 1.96%2.1% of Eni’s share capital. See "Item 9 – The Offer and the Listing".
Related Party Transactions
In the ordinary course of its business, Eni enters into transactions concerning the exchange of goods, provision of services and financing with non consolidated subsidiaries and affiliates as well other companies owned or controlled by the Italian Government. All such transactions are conducted on an arm’s length basis and in the interest of Eni companies.
Amounts and types of trade and financial transactions with related parties and their impact on consolidated earnings and cash flow, and on the Group’s assets and financial condition are describedreported in Note 2636 to the Consolidated Financial Statements.
Item 8. FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
See Item 18 – Financial Statements.
126
Legal Proceedings
Eni is a party to a number of civil actions and administrative arbitral and other judicial proceedings arising in the ordinary course of business. Based on information available to date, and taking into account of the existing risk provisions, Eni believes that the foregoing will not have an adverse effect on Eni’s Consolidated Financial Statements.
Following The following is a description of the most significant proceedings currently pending; unlesspending. Unless otherwise indicated below, no provisions have been made for these legal proceedings as Eni believes that negative outcomes are not probable or because the amount of the provision can notcannot be estimated reliably.
Environment
Eni SpACriminal proceedings
ENI SPA
Subsidence.In 1999, the public prosecutor The Court of Gela started an investigation in order to ascertain alleged soil and sea pollutionRovigo conducted investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration and extraction activities in the dischargeRavenna and North Adriatic area both on land and in the sea. Eni appointed an independent and interdisciplinary scientific commission, composed of pollutantsprominent and highly qualified international experts of subsidence caused by Eni’s Gela refinery. In November 2002, "Italia Nostra"hydrocarbon exploration and extraction activities, with the association "Amici della Terra" filed civil claims relatedaim of verifying the magnitude and effects and any actions appropriate to thisreduce or to neutralize any subsidence phenomenon in the area. This commission produced a study which excludes the possibility of any risk to human health or damage to the environment. The study also states that worldwide there are no instances of accidents of harm to public safety caused by subsidence induced by hydrocarbon production. It also shows that Eni employs the most advanced techniques for monitoring, measuring and controlling the soil. This proceeding is in the first level hearing stage. The Veneto Region, other local bodies and requested the payment of damage claims fortwo private entities have been acting as plaintiffs. Eni was admitted as a total of euro 15,050 million. In July 2003, the relevantdefendant. The Court decided forthat the transmission of the inquiries to the public prosecutor, recognizing a violation of Article 440 of the penal code (water and food substances corruption). Three environmental organizations act as plaintiffs and requested damage payment for euro 551 million. Two of these organizations are also acting against the Gela refinery.
In 2000, the public prosecutor of Gela started an investigation on alleged prohibited emissions from the refinery of Gela, which are purported to have had negative effects on the health of a number of citizens of Gela, and on a lack of declaration of such emissions in violation of Presidential Decree No. 203 of 1988. The investigation ended with an action for events that have occurred since 1997. The Municipality of Gela, the Province of Caltanissetta and others filed civil claims in this proceeding and requested the payment of compensatory damages for a total of euro 878 million. The judgment of first degree beforemust be heard by the Court of Gela is pending.Ravenna.
Alleged damage. In 2002, the public prosecutor of Gela started ancommenced a criminal investigation in order to ascertain alleged pollutiondamage caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (former(formerly EniChem SpA) and Raffineria di Gela SpA. Some local public entities,The judge for the preliminary hearing dismissed the accusation of adulteration of food products, while the proceeding for the other allegations regarding pollution and environmental NGOs and landowners are acting as plaintiffs. On January 17, 2005, a second inquiry phase aimed at ascertaining which sort of emissions had eventually produced the alleged pollution caused bydamage remains underway.
Alleged negligent fire in the refinery of Gela, was completed. On February 3, 2006, the notice of the conclusion of preliminary investigations was filed conclusion of the preliminary inquiry.
Gela. In June 2002, in connection with a fire inat the refinery of Gela, a criminal investigation began concerning arson,alleged negligent fire, environmental crimes and crimes against natural heritage. On May 12, 2004beauty. First degree proceedings ended with an acquittal sentence. In November 2007, the first hearing was held.public prosecutors of Gela and of Caltanissetta filed an appeal against this decision.
Investigation of the quality of ground water in the area of the refinery of Gela. In 2002, the public prosecutor of Gela startedcommenced a penalcriminal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. The investigation concerns theEni is charged of having breached environmental rules aboutconcerning the pollution of water and soil and of illegal disposal of liquid and solid waste materials. On November 7, 2003The preliminary hearing phase was closed for one employee who would stand trial, while for the judge forother plaintiffs the preliminary investigations acceptedhearing phase is not yet completed.
Alleged negligent fire (Priolo). The public prosecutor of Siracusa commenced an investigation regarding certain Eni managers who were previously in charge of conducting operations at the Priolo refinery (Eni divested this asset in 2002) to continueascertain whether they acted with negligence in connection with a fire that occurred at the inquiries as requested byPriolo plants on April 30 and May 1-2, 2006. After preliminary investigations the public prosecutor to ascertainrequested the stateopening of a proceeding against the refinery’s storage tanks and the presence of infiltrations of refinery products into the deep water-bearing stratum, due to a breakage in some tanks. With a decision of November 3, 2003, the Courtmentioned managers for preliminary investigation, in agreement with a request ofnegligent behavior.
ENIPOWER SPA
Alleged unauthorized waste management activities. In 2004, the public prosecutor of Gela, ordered the preventive seizure of 92 storage tanks, later reopened except for nine tanks that remained under seizure but do not prevent full operations at the refinery. The report filed by experts of the public prosecutor is currently under review.
In March 2002 the public prosecutor of Siracusa started an investigation concerning the activity of the refinery of Priolo for intentional pollution of water used for human consumption and requested a technical opinion, not yet concluded, to ascertain alleged infiltrations of refinery products into the deep water-bearing stratum used for human consumption purposes in the Priolo area. The proceeding is still in the preliminary investigation phase. A qualified company has been given the task to verify the cause, the origin and the extension of the alleged infiltration. For protective purposes, actions have been taken to: (i) create safety measures and clean-up all of the polluted area; (ii) reallocate wells for drinking water in an area farther from and higher than the industrial site; and (iii) install a purification system for drinkable water. With a decision of June 1, 2004 the seizure was lifted on the storage tanks that had been seized on April 17, 2003, except for five storage tanks that are still under seizure. The report of experts has been filed and its findings can be opposed to defendants.
In relation to the investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration, on May 21, 2004, following the decision of the Court of Rovigo the Nucleo Operativo Ecologico dei Carabinieri of Venice placed under preliminary seizure the Dosso degli Angeli, Angela/Angelina - Ravenna Mare Sud fields and the related wells and platforms. On June 10, 2004 the Court responded to the claim filed by Eni and lifted the seizure of the Angela/Angelina - Ravenna Mare Sud fields and related wells and platforms. On March 10, 2005, the Court of Cassation confirmed this decision. On February 5, 2003, a seizure had already been applied to the Naomi/Pandora platform, the Naomi 4 Dir, Naomi 2 Dir and 3 Dir - Pandora 2 Dir wells, and the underwater pipeline for the transportation of gas to the Casalborsetti facility. Eni believes it has always acted in full compliance with existing laws under the required authorizations. Taking account of the observations of the consultants of the Court of Rovigo on which the Public Prosecutor based his case, Eni constituted an independent and interdisciplinary scientific commission, chaired by Prof. Enzo Boschi, professor of seismology at the Università degli Studi di Bologna and chairman of the Istituto nazionale di geofisica e vulcanologia, composed of prominent and highly qualified international experts of subsidence caused by hydrocarbon exploration, with the aim of verifying the size and the effects and any appropriate actions to reduce or to neutralize any subsidence phenomenon in the Ravenna and North Adriatic area both on land and in the sea. The commission produced a study which denies the possibility for any risk for human health and for damage to the environment. It also states that no example is known anywhere in the world of accidents that caused harm to the public safety caused by subsidence induced by hydrocarbon production. The study also shows that Eni employs the most advanced techniques for the monitoring, measuring and control of the soil. On May 11, 2006 the Court of Rovigo accepted as plaintiffs the Veneto Region, the Ente Parco della Provincia del Po, the Ferrara Province, the Venice Province, the city of Venice, the city of Comacchio, the Rovigo Province and two private entities. Eni was accepted as a defendant. The Court of Rovigo rejected the accusation of environmental disaster and therefore transferred the proceeding to the Court of Adria, where the first hearing has been scheduled for October 31, 2006.
EniPower SpAIn autumn 2004 the Public Prosecutor of Rovigo startedcommenced an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to the samples of the soil used induring the construction of the new EniPower’sEniPower power station in Mantova. EniPowerThe prosecutor requested the closingCEO of the investigation.
Polimeri Europa SpABefore the Court of Gela one criminal action took place relating to the alleged violation on part of Eni of environmental regulations on waste management concerning the ACN plantEniPower and the disposalmanaging director of FOK residue deriving from the steam cracking process. The defendant was found guilty and a damage payment in first instance was required to be made to an environmental association acting as plaintiff. The sentence was passed to the civil court for the quantification of any further damage and claim. Eni appealed the Court’s decision.
Syndial SpA (Former EniChem SpA)In 1992, the Ministry of Environment summoned EniChem SpA and Montecatini SpA before the Court of Brescia. The Ministry requested, primarily, to require environmental remediation for the alleged pollution caused by the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibilityat the time of the alleged crime to remediate, require them to pay environmental damages. stand trial.
Air emissions. The amount is going to be determined during the proceeding, but it will not be lower than euro 136 million, or determined by the judge as compensatory liquidation. EniChem acquiredpublic prosecutor of Mantova commenced an investigation against two managers of the Mantova plant in June 1989, as partconnection with air emissions by the new power plant.
SYNDIAL SPA (FORMER ENICHEM SPA)
Criminal action commenced by the public prosecutor of the Enimont deal. Edison SpA must hold Eni harmless or pay compensatory damage for any damage caused to third parties by plant operations before Montedison’s sale, even if the damage occurred later. Edison agreed on a settlement that quantified damage to be paid covering also Syndial. The proceeding continues for the alleged damage in the 1989-1990 period.
Brindisi.In 2000, the Public Prosecutorpublic prosecutor of Brindisi startedcommenced a criminal action against 68 persons who are employees or former employees of companies that owned and managed plants for the manufacture of dichloroethane, vinyl chloride monomer and vinyl polychloride from the early 1960s to date, some of which were managed by EniChem from 1983 to 1993. At the end of the preliminary
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investigation phase, the Public Prosecutorpublic prosecutor asked for the dismissal of the case in respect of the employees and the managers of EniChem. Plaintiffs presented oppositions, whilebut the prosecutor confirmed histhe request for dismissalto dismiss the case.
Civil and administrative proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
Alleged pollution caused by the activity of the case.Mantova plant. In 1992, the Ministry of Environment summoned EniChem SpA (now Syndial SpA) and Edison SpA before the Court of Brescia. The Ministry requested, primarily, environmental remediation for the alleged pollution caused by the activity of the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, the payment of environmental damages. Edison agreed on a settlement with the Ministry whereby Edison quantified compensation for environmental damage freeing from any obligation Syndial, which purchased the plant in 1989. Syndial failed to settle this dispute with the Ministry. The proceeding is still pending.
Summon before the Court of Venice for environmental damages allegedly caused to the lagoon of Venice by the Porto Marghera plants. On December 18,13, 2002, EniChem SpA (now Syndial SpA), jointly with Ambiente SpA (now merged ininto Syndial SpA) and European Vinyls Corporation Italia SpA, was summoned before the Court of Venice by the Province of Venice. The province requested compensation for environmental damages that were not quantified, allegedly caused to the lagoon of Venice by the Porto Marghera plants, which were already the subject of two previous criminal proceedings against employees and managers. In a related action, European Vinyls Corporationmanagers of the defendants. EVC Italia and Ineos presented an action for recourse against EniChem and Ambiente.to be indemnified by Eni’s Group companies in case the alleged pollution is proved. The requests forenvironmental damage is being assessed by an independent consultant.
Claim of environmental damages, allegedly caused by industrial activities in the area of Crotone, commenced by the President of the ProvinceRegional Council of Venice and that of EVC Italia to EniChem and Ambiente have not been quantified. The final judgment is pending.
On January 16, 2003 the Court of Siracusa issued personal cautionary measures against some employees of EniChem SpA and Polimeri Europa SpA. They are accused of illicit management relating to the production, disposal and treatment of liquid and solid waste materials and of obtaining illicit income. Polimeri Europa and EniChem, will act as plaintiffs. The collection of evidence effected before the hearing starts in Court has been concluded and preliminary investigations have ended with the confirmation of accusations. During the inquiries traces of mercury were found in the sea. The Public Prosecutor of Siracusa started an inquiry for ascertaining the conditions of sediments and marine fauna in the bay of Augusta. According to the plaintiffs, mercury would have been spilled into the sea and poisoned the marine fauna and therefore resulted in fetal malformations and abortions due to the consumption of contaminated seafood fished in this area. The chlorine soda plant, built in the late 50s was conferred to Syndial in 1989 when the Enimont joint venture was formed. It was therefore easy to prove that Eni holds no responsibility for the crimes it was accused of. On March 15, 2006 the judge for preliminary investigations decided the dismissal of the case against Syndial employees.
Calabria. On April 14, 2003, the President of the Regional Council of Calabria, as Delegated Commissioner for Environmental Emergency in the Calabria Region, startedcommenced an action against EniChem SpA related(now Syndial SpA) with reference to environmental damages for approximately euro 129 million and to financial and non-financial damages for euro 250 million (plus interest and compensation) in connection with loss of income and damage to property allegedly caused by Pertusola Sud SpA (merged into EniChem)industrial activities in the area of Crotone. On June 6, 2003 EniChem appeared beforeIn addition, the court and requestedProvince of Crotone is acting as plaintiff, claiming damage for euro 300 million. With a decision in May 2007, the rejectionCourt of Milan declared the invalidity of the damages and, as counterclaim,power of proxy conferred to the paymentDelegated Commissioner to act on behalf of the total costs forCalabria Region with the remediation works already underway.notice served to Syndial SpA and decided the liquidation of expenses born by the defendant. The Province of Crotone entered the proceeding, claiming environmental damages for euro 300 million. Technical aspects concerning the role of the delegated commissioner make it necessary to decide onappealed this aspect.decision. The second instance court accepted this appeal and Syndial was notified onrepealed this determination. On October 21, 2004, of the request of the Calabria Region to appearSyndial was convened before the Court of Milan in orderby the Calabria Region which is seeking to obtain a preliminarycondemnation of Syndial for a damage payment, in anticipationshould the office of the expirationDelegated Commissioner for Environmental Emergency in the Calabria Region cease during this proceeding. The Calabria Region requested a damage payment amounting to euro 800 million as already requested by the Delegated Commissioner for Environmental Emergency in the Calabria Region in the proceeding commenced in 2003. This new proceeding is in the preliminary investigation stage. This proceeding was unified with the one opened by the Ministry of the special office for managing emergency events in Calabria. The Region requested payments for over euro 800 million.
On February 28,Environment. In 2006, the Council of Ministers, the Ministry for the Environment and the Delegated Commissioner for environmental emergencyEnvironmental Emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan in order to obtain the ascertainment, quantification and payment of damage (in the form of pollution of land, air and water pollution and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the municipalityMunicipality of Crotone and in surrounding municipalities. The local authorities requestrequested the ascertainment of Syndial’s responsibility as concerns expenses borne and to be borne for the cleanup and reclamation of sites, currently quantified at euro 129 million. This proceeding concerns the same companymatter and damagesdamage claim as indicatedthe proceedings commenced by the Delegated Commissioner for Environmental Emergency in the previous paragraph.Calabria Region and the Calabria Region against Syndial in 2003 and 2004, respectively.
In March 2004, Sitindustrie SpA, whichSummon for alleged environmental damage caused by DDT pollution in 1996 purchased a plant in Paderno Dugnano from Enirisorse (now merged into Syndial SpA), summoned Syndial SpAthe Lake Maggiore. A proceeding is pending before the Court of Milan, requesting to establish the responsibility of Syndial SpA in the alleged pollution of soils around the plant and to require it to pay environmental damages necessary for remediation. Syndial opposed the claim based on an absence of the right of action of the plaintiff. The judge has not yet decided on Syndial’s opposition.
In October 2004, Sitindustrie SpA started an analogous proceeding against Syndial concerning the plant for the manufacture of products in copper and copper alloy at Pieve Vergonte.
In May 2003Turin by which the Minister of the Environment summoned Syndial SpA before the Court of Turin and requested environmental damagesdamage for euro 2,3963,237 million as well as the additional expenditures needed for the reclamation and remediation of the site in relation to alleged DDT pollution in theat Lake Maggiore allegedly caused by the Pieve Vergonte plant. On March 1, 2006An independent consultant estimated the State Lawyer in an attemptenvironmental damage and related reclamation expenditures to settleamount to euro 1,273 million. This estimate has been filed with the case proposed thatcourt. Syndial pay 10%opposed this estimate. Parties are waiting for a final determination by the court. The Italian Ministry enacted a ministerial decree providing for the: (i) upgrading of a hydraulic barrier to protect the site; and (ii) presentation of a project for the environmental remediation of Lake Maggiore. The administrative court of Piemonte rejected Syndial’s opposition against the outlined environmental measures requested by the Ministry of the requested damage correspondingEnvironment. Syndial expects to euro 239 million. This attempt to settle failed.repeal this decision.
The municipalityAction commenced by the Municipality of Carrara startedfor the remediation and reestablishment of previous environmental conditions at the Avenza site and payment of environmental damage. The Municipality of Carrara commenced an action atbefore the Court of Genova requesting to Syndial SpA the remediationto remediate and reestablishment of therestore previous environmental conditions at the Avenza site and the payment of certain environmental damage.damage which cannot be
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cleaned up as well as further damages of various types (e.g. damage to the natural beauty of this site). This request is related to an accident that occurred in 1984, as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), at the time owner of the site, had carried out safety and remediation works. The Ministry of the Environment joined the action and requested the environmental damage payment – from a minimum of euro 53.5 million to a maximum of euro 78.593.3 million – to be broken down among the various companies that managedran the plant in the past. Previous managers include Syndial called into the action as a guarantor,summoned Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA. The judge requested an expert report to be preparedSpA, who ran the plant in previous years, in order to ascertain whatbe guaranteed. A report produced by an independent expert charged by the judge was filed with the Court. The findings of this report quantify the residual environmental damage at euro 15 million. With a sentence of March 2008, the Court of Genova rejected all claims made by the Municipality of Carrara.
Ministry for the Environment Augusta harbor. The Italian Ministry for the Environment with various administrative acts ordered companies running plants in the petrochemical site of Priolo to perform safety and environmental remediation works in the Augusta harbor. Companies involved include Eni subsidiaries Polimeri Europa and Syndial. Pollution has been remediateddetected in this area primarily due to a high mercury concentration which is allegedly attributed to the industrial activity of the Priolo petrochemical site. Polimeri Europa opposed said administrative actions, objecting in particular to the way in which remediation works have been designed and what remainsinformation on concentration of pollutants has been gathered. The Regional Administrative Court of Catania with its decision of July 2007 annulled the decision made by the Service Conference of the Ministry of the Environment concerning Priolo and the Augusta harbor. The Ministry and the municipalities of Augusta and Melilli filed a claim with an Administrative Court of the Sicily Region which accepted the claim In January 2008 the Regional Court of Catania accepted two further claims on this matter, while the decision of the Administrative Court of Lazio is still pending.
Other judicial or arbitration proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
Serfactoring: disposal of receivables. In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA and which is controlled by Eni SpA. The claim relates to be cleaned up after the interventions startedan amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and continuedTerni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment on the due date. Following payment by EniChem/Syndial.Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidator of Agrifactoring commenced proceedings in 1991 against Serfactoring to recover such payments (equal to euro 182 million) made to Serfactoring based on the claim that the foregoing guarantee became invalid when Federconsorzi was itself placed in liquidation. Agricoltura and Terni Industrie Chimiche brought counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent. The expert report quantifiesamount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the damage stilloriginal receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004; the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be remediateddetermined following the decision. Agrifactoring appealed this partial decision, requesting in particular the annulment of the first step judgment, the reimbursement of euro 180 million from Serfactoring along with the rejection of all its claims and the payment of all proceeding expenses. The judge of the Court of Rome, responsible for the determination of the amount of damages to be paid to Serfactoring and Agricoltura, decided on May 18, 2005 to suspend this determination until the publication of the decision of the court hearing the appeals. On argument, Serfactoring and Syndial requested that the final decision Court return the case to its original court. The Court of Cassation accepted the appeal and the return of the case to its original court.
ENI SPA
Fintermica. Fintermica presented a claim against Eni concerning the management of the Jacorossi joint venture with reference to an alleged abuse of key roles played by Eni SpA in the joint venture, thus damaging the other partner’s interest and the alleged dilatory behavior of Syndial in selling its interest in the joint venture to Fintermica. The parties decided to commence arbitration on the matter. The examining phase is ongoing and an independent assessment of this matter is being executed.
SNAMPROGETTI SPA
CEPAV Uno and CEPAV Due. Eni holds interests in the CEPAV Uno (50.36%) and CEPAV Due (52%) consortia that in 1991 signed two contracts with TAV SpA for the construction of two railway tracks for high speed/high capacity trains from Milan to Bologna (under construction) and from Milan to Verona (in the design phase). With regard to the project for the construction of the line from Milan to Bologna, an Addendum to the contract between CEPAV Uno and TAV was signed on June 27, 2003, redefining certain terms and conditions of the contract. Subsequently, the CEPAV Uno consortium requested a time extension for the completion of works and a
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claim amounting to euro 800 million. CEPAV Uno and TAV failed to solve this dispute amicably. CEPAV Uno opened an arbitration procedure as provided for under terms of the contract on April 27, 2006.
With regard to the project for the construction of a high-speed railway from Milan to Verona, in December 2004, CEPAV Due presented the final project, prepared in accordance with Law No. 443/2001 on the basis of the preliminary project approved by an Italian governmental authority (CIPE). As concerns the arbitration procedure requested by CEPAV Due against TAV for the recognition of costs incurred by the Consortium in the 1991-2000 ten-year period plus suffered damage, in January 2007, the arbitration committee determined the Consortium’s right to recover the costs incurred in connection with the design activities performed. A technical independent survey is underway to assess the amount of compensation to be awarded to the Consortium as requested by the arbitration committee. TAV appealed the arbitration committee’s determination. In April 2007, the Consortium filed with the second instance court of Rome an appeal against Law Decree No. 7 of December 31, 2007 revoking the concessions awarded to TAV which resulted in the annulment of arrangements signed between TAV and the Consortium to build the high-speed railway section from Milan to Verona. The European Court of Justice was requested to judge on this matter. In the meantime, TAV decided to not request the reimbursement of advances paid to the Consortium.
Antitrust, EU Proceedings, Actions of the Authority for Electricity and Gas and of Other Regulatory Authorities
Antitrust
ENI SPA
Abuse of dominant position of Snam alleged by the Italian Antitrust Authority. In March 1999, the Italian Antitrust Authority concluded its investigation started in 1997 and: (i) found that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam for euro 2 million; and (iii) ordered a review of the practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Authority did not appeal this decision. The decision on the merit of this dispute is still pending before the same Administrative Court.
Formal assessment commenced by the Commission of the European Communities for the evaluation of alleged participation to activities limiting competition in the field of paraffin. On April 28, 2005, the Commission of the European Communities commenced a formal assessment to evaluate the alleged participation of Eni and its subsidiaries in activities limiting competition in the field of paraffin. The alleged violation of competition is for: (i) the determination of and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. After, the Commission requested information on Eni’s activities in the field of paraffin and certain documentation acquired by the Commission during an inspection. Eni filed the requested information. This proceeding is at the preliminary investigation stage following the communication of a statement of objections by the European Commission. Eni accrued a provision against this proceeding. The final hearing was held in December 2007.
Ascertainment by the European Commission of the level of competition in the European natural gas market. As part of its activities to ascertain the level of competition in the European natural gas market, with Decision No. C(2006)1920/1 of May 5, 2006, the European Commission informed Eni on May 16, 2006 that Eni and its subsidiaries were subject to an investigation under Article 20, paragraph 4 of the European Regulation No. 1/2003 of the Council in order to verify the possible existence of any business activities breaching European rules in terms of competition and intention to prevent access to the Italian natural gas wholesale market and to subdivide the market among a few operators in the activity of supply and transport of natural gas. Officials from the European Commission conducted inspections at the headquarters of Eni and of certain Eni subsidiaries and collected documents. Similar actions have been performed by the Commission also against the main operators in natural gas in Germany, France, Austria and Belgium. In April 2007, the European Commission made known its decision to start a further stage of inquiry, and stated that elements collected so far induced in the Commission the suspicion that Eni adopted behaviors leading to "capacity hoarding and strategic underinvestment in the transmission system leading to the foreclosure of competitors and harm to competition and customers in one or more supply markets in Italy". In the same document, the Commission states that "It is important to note that the initiation of proceedings does not imply that the Commission has conclusive proof of an infringement. It only signifies that the Commission will conduct an in-depth investigation of the case as a matter of priority".
TTPC. In April 2006, Eni filed a claim before the Regional Administrative Court of Lazio against the decision of the Italian Antitrust Authority of February 15, 2006 stating that Eni’s behavior pertaining to implementations of plans for the upgrading of the TTPC pipeline for importing natural gas from Algeria represented an abuse of dominant position under Article 82 of the European Treaty and fined Eni. The initial fine amounted to euro 390
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million and was reduced to euro 290 million in consideration of Eni’s commitment to perform actions favoring competition including the upgrade of the gasline. Eni accrued a provision with respect to this proceeding. With a decision filed on November 29, 2006, the Regional Administrative Court of Lazio partially accepted Eni’s claim, annulling such part of the Authority’s decision where the fine was quantified. Eni is waiting for the filing of the motivations of the Court decision to ascertain the impact of said decision. Pending this development, the payment of the fine has been voluntarily suspended. In 2007, the Regional Administrative Court of Lazio accepted in part Eni’s claim and cancelled the quantification of the fine based on the Antitrust Authority’s inadequate evaluation of the circumstances presented by Eni. Eni filed an appeal with the Council of State, as did the Antitrust Authority and TTPC. Pending the final outcome, Eni awaits for the determination of the amount of the fine to be paid.
POLIMERI EUROPA SPA AND SYNDIAL SPA
Inquiries in relation to alleged anti-competitive agreements in the area of elastomers. In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the field of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. At present, proceedings are pending before the European Commission regarding the CR and NBR products. In March 2007, the Commission sent to Eni, Polimeri Europa and Syndial a statement of objections, thus opening the second phase of this proceeding. In December 2007, the European Commission dismissed Syndial’s position on CR and imposed on Eni and Polimeri a fine amounting to euro 132.160 million.
The two companies have filed an appeal with the EU Court of First Instance against this decision and, at the same time, paid the fine in March 2008. Investigations relating to other elastomers products resulted in the ascertainment of Eni having infringed European competition laws in the field of synthetic rubber production (BR and ESBR). On November 29, 2006, the Commission fined Eni and its subsidiary Polimeri Europa for an amount of euro 272.25 million. Eni and its subsidiary filed claims against this decision before the European Court of First Instance in February 2007. The Commission filed a counterappeal. Pending the outcome, Polimeri Europa presented a bank guarantee for euro 200 million and paid the residual amount of the fine. In August 2007, Eni submitted a request for a negative ascertainment with the Court of Milan aimed at proving the non-existence of alleged damages suffered by tire manufacturers. With regard to NBR, an inquiry is underway also in the U.S., where class actions have also been commenced. On the federal level, the class action was abandoned by the plaintiffs. However, the federal judge has yet to acknowledge this abandonment. With regard to other products under investigation in the U.S., settlements were reached with both relevant U.S. antitrust authorities and the plaintiffs acting through a class action. Eni recorded a provision for these matters.
Regulation
Inquiry of the Italian Authority for Electricity and Gas regarding information to clients about the right to pay amounts due for natural gas sales in installments. With Decision No. 228/2007, the Italian Authority for Electricity and Gas commenced a formal inquiry regarding information to clients about the right to pay amounts due for the natural gas sales in installments in order to possibly put a stop to the alleged infringement of the clients’ rights and to impose a fine. In April 2008, the Authority concluded its inquiry and fined the Company by euro 3.2 million.
Toscana Energia Clienti SpA. Eni’s subsidiary Toscana Energia Clienti started an action against a customer regarding alleged lack of measurement of gas consumption due to inability to access a measurement facility at the customer’s site, also in connection with the application of Resolution No. 229/2001 of the Italian Authority for Electricity and Gas. This customer has annual consumption in excess of 5,000 CM. The defendant has filed a counter-claim in relation to this proceeding. This proceeding is in a preliminary stage.
DISTRIBUIDORA DE GAS CUYANA SA
Formal investigation of the agency entrusted with the regulations for the natural gas market in Argentina. Enargas started a formal investigation on some operators, among them Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. In April 2004 the company filed a defensive memorandum. On April 28, 2006, the company formally requested the acquisition of documents from Enargas in order to have access to the documents on which the allegations are based.
Tax Proceedings
ENI SPA
ICI Pineto. With a formal assessment presented by the Municipality of Pineto (Teramo) in December 1999, Eni SpA has been accused of not having paid a municipal tax on real estate for the period from 1993 to 1998 on four oil platforms located in the Adriatic Sea which constitute territorial waters in front of the coast of Pineto. Eni was requested to pay a total of approximately euro 17 million including interest and a fine. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application as requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two
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degrees of judgment at the Provincial and Regional Tax Commissions. However, the Court overturned both judgments, declaring that a municipality can consider requesting a tax on real estate in the sea facing its territory and with the decision of February 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the matters of the proceeding. On February 22, 2007 the Commission held the hearing, and the filing of the judgment is pending. On December 28, 2005, the Municipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested from Eni is euro 24 million including interest and penalties. Eni filed a claim against this request which was accepted by the first degree judge with a decision of December 4, 2007.
AGIP KARACHAGANAK BV
Claims concerning unpaid taxes and relevant payment of interest and penalties. In July 2004, the relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of the tax audits performed for fiscal years 2000 to 2003. Claims by the Kazakh authorities concern unpaid taxes for a total of $43 million, net to Eni, and the anticipated offsetting of value added tax (VAT) credits for $140 million, net to Eni, as well as the payment of interest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the original amounts were reduced to $26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding the residual matters. Eni recorded a provision for this matter.
AGIP KCO NV
In December 2007 the Kazakh tax authority filed a notice of tax assessment for fiscal years 2004 to 2006 to Agip KCO, operator of the Kashagan contract. Allegedly unpaid taxes, including interest and penalties, amount to approximately $235 million net to Eni and relate to unpaid amounts and inapplicable deductions on value added tax and the default in applying certain withholding taxes on payments to foreign suppliers. The same notice also informs the companies which are parties to the Kashagan contract that further assessments are pending on undeductible costs for $188 million net to Eni and higher taxable income of Kazakh organizations for $48 million net to Eni. The company filed an appeal. Eni recorded a provision on this matters.
Court Inquiries
EniPower. In June 2004, the Milan Public Prosecutor commenced inquiries into contracts awarded by Eni’s subsidiary EniPower and on supplies from other companies to EniPower. These inquiries were widely covered by the media. It emerged that illicit payments were made by EniPower suppliers to a manager of EniPower who was immediately dismissed. The Court presented EniPower (commissioning entity) and Snamprogetti (contractor of engineering and procurement services) with notices of process in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In its meeting of August 10, 2004, Eni’s Board of Directors examined the aforementioned situation and Eni’s CEO approved the creation of a task force in charge of verifying the compliance with Group procedures regarding the terms and conditions for the signing of supply contracts by EniPower and Snamprogetti and the subsequent execution of works. The Board also advised divisions and departments of Eni to cooperate fully in every respect with the Court. From the inquiries performed, no default in the organization emerged, nor deficiency in internal control systems. External experts have performed inquiries with regard to certain specific aspects. In accordance with its transparency and firmness guidelines, Eni will take the necessary steps in acting as plaintiff in the expected legal action in order to recover any damage that could have been caused to Eni by the illicit behavior of its suppliers and of their and Eni employees. In the meantime, preliminary investigations have found that both EniPower and Snamprogetti are not to be considered defendants in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In August 2007, Eni was notified that the Public Prosecutor requested the dismissal of EniPower SpA and Snamprogetti SpA, while the proceeding continues against former employees of these companies and employees and managers of the suppliers under the provisions of Legislative Decree No. 231/2001. Eni SpA, EniPower and Snamprogetti presented themselves as plaintiffs in the preliminary hearing.
Trading. An investigation is pending regarding two former Eni managers who were allegedly bribed by third parties to favor the closing of certain transactions with two oil product trading companies. Within such investigation, on March 10, 2005, the public prosecutor of Rome notified Eni of two judicial measures for the seizure of documentation concerning Eni’s transactions with the said companies. Eni is acting as plaintiff in this proceeding. In spite of the fact that the Public Prosecutor filed a request for dismissing this proceeding, the judge for preliminary investigations ordered to start the penal action.
TSKJ Consortium Investigations of the SEC and other Authorities. The U.S. Securities and Exchange Commission (SEC) is currently investigating alleged improper payments made by the TSKJ consortium to certain public officials in relation to the construction of natural gas liquefaction facilities at Bonny Island in Nigeria. The TSKJ consortium is formed by Eni’s subsidiary Snamprogetti (Eni’s interest being 43.41%) with a 25% interest and, for the remaining part, by subsidiaries of Halliburton/KBR, Technip and JGC. Eni and its subsidiary Snamprogetti adhered to a request for voluntary collaboration notified by the SEC in June 2004. The SEC request aimed at
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obtaining information regarding the TSKJ consortium. Eni and Snamprogetti also adhered to other requests for voluntary collaboration made by other authorities which are currently investigating this matter.
Gas Metering. On May 28, 2007, a seizure order (in respect to certain documentation) was served upon Eni and other Group companies as part of a proceeding brought by the Public Prosecutor at the Courts of Milan. The order was also served upon five top managers of the Group companies in addition to third party companies and their top managers. The investigation alleges behavior which breaches Italian criminal law, starting from 2003, regarding the use of instruments for measuring gas, the related payments of excise duties and the billing of clients as well as relations with the Supervisory Authorities. The allegation regards, interalia, the offense contemplated by Legislative Decree of June 8, 2001, No. 231, which establishes the liability of the legal entity for crimes committed by its employee in the interests of such legal entity, or to its advantage. Accordingly, notice of the commencement of investigations was served upon Eni Group companies (Eni, Snam Rete Gas and Italgas) as well as third party companies. The Group companies are cooperating with the Supervising Authorities in the investigations.
Agip KCO NV. In November 2007, the public prosecutor of Kazakhstan informed Agip KCO of the start of an inquiry for an alleged fraud in the award of a contract to the Overseas International Constructors GmbH in 2005.
Settled Proceedings
ENI SPA
Inquiry of the Italian Authority for Electricity and Gas regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006. With Decision No. 37 of February 23, 2006, the Italian Authority for Electricity and Gas commenced an inquiry on the activities of natural gas selling companies, including Eni, in order to potentially impose a fine or an administrative sanction regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006. For the 2004-2005 thermal year and for the period from October 1, 2005 to December 31, 2005, the Authority for Electricity and Gas supposed that given the weather of the period, the use of modulation storage capacity was featured by a higher volume of off takes with respect to the volume which would have been necessary to satisfy the commercial requirements for which the storage company entitled Eni to a priority in the conferral of storage capacity. According to the Authority for Electricity and Gas, such situation was in contrast with applicable regulation. With Decision No. 281/2006 of December 6, 2006, the Authority for Electricity and Gas closed said inquiry and fined Eni by euro 90 million of which euro 45 million pertaining to thermal year 2004-2005 and euro 45 million to thermal year 2005-2006 as a consequence of Eni having violated regulation in force pertaining to the priorities in the conferral of storage capacity. Eni settled the matter pertaining to thermal year 2004-2005 by paying a fractional amount of the fine imposed in accordance with Law No. 689/1981 and filed an appeal before the Regional Administrative Court of Lombardy requesting the annulment of the fine pertaining to thermal year 2005-2006. On June 19, 2007, the Regional Administrative Court of Lombardy ruled in favor of Eni and annulled that section of Decision No. 281/2006 of the Authority for Electricity and Gas imposing a fine on Eni for thermal year 2005-2006. Among other things, the Court’s ruling established that the elements collected by the Authority to fine Eni were lacking a sufficient degree of proof. The terms for appealing this decision on part of the Authority expired. Consequently this proceeding closed without any further liability for the Company. Unutilized provisions that were accrued for this proceeding in 2006 were reversed in 2007.
Inquiry of the Italian Antitrust Authority in relation to collusive mechanisms for the pricing of automotive fuels distributed on the retail market. With Decision of January 18, 2007, the Italian Antitrust Authority opened an inquiry to ascertain the existence of a possible agreement limit competition in the field of pricing of automotive fuels distributed on the retail market in Italy in violation of Article 81 of the EC Treaty. This inquiry concerns eight oil companies, including Eni. According to the Authority, said companies would have been putting in place collusive mechanisms intended to influence the pricing of automotive fuels distributed on the retail market by way of a continuing exchange of informative flows since 2004. In April 2007, Eni filed with the Italian Antitrust Authority a proposal of initiatives, based on certain rules established by the same Authority, enabling companies to reach the closure of a proceeding without sanctions or fines when they present counteractive measures designed to eliminate an infringing behavior. In December 2007, the Antitrust Authority approved the initiatives proposed by Eni and decided to close the inquiry without ascertaining any violation and imposing any fine. In particular, Eni is engaged in initiatives designed to contain and possibly reduce the retail prices of fuels in the hyper-self selling mode until they are in line with European averages. It also committed itself to pursue agreements with large chain stores.
STOCCAGGI GAS ITALIA SPA
Tariffs. With Decision No. 26 of February 27, 2002, the Italian Authority for Electricity and Gas determined tariff criteria for modulation, mineral and strategic storage services for the period from April 1, 2002 to March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stoccaggi Gas Italia SpA (Stogit) filed its proposal of tariff for modulation, mineral and strategic storage for the first regulated period. With Decision No. 49 of March 26, 2002, the Authority for Electricity and Gas repealed Stogit’s proposal and defined tariffs for the first regulated period. Stogit applied the tariff determined by the two decisions, but filed an appeal against both decisions with the Regional Administrative Court of Lombardy requesting their cancellation. With a decision dated September
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29, 2003, that court rejected the appeal presented by Stogit. Stogit filed an appeal to the Council of State against the sentence, which was rejected by the Council of State on January 6, 2006.
POLIMERI EUROPA SPA
Violation of environmental regulations on waste management. Before the Court of Gela a criminal action took place relating to the alleged violation of environmental regulations on waste management concerning the ACN plant and the disposal of FOK residue deriving from the steam cracking process. Defendants were found guilty and a damage payment in first instance to an environmental association acting as plaintiff was required to be made. The amount of said damage payment is immaterial. The sentence was passed to the Civil Court for the quantification of any further damage and claim. Eni appealed this sentence and was acquitted by the Court of Appeal of Caltanissetta for non-existence of the crime.
RAFFINERIA DI GELA SPA
Soil and sea pollution. In 1999, the public prosecutor of Gela commenced an investigation in order to ascertain alleged soil and sea pollution caused by the discharge of pollutants by Eni’s Gela refinery. Three environmental organizations are acting as plaintiffs and have requested damage payment for euro 551 million. With a Decision of February 20, 2007, the Court of Gela dismissed these allegations.
SYNDIAL SPA
Summon for the ascertainment of responsibility in the pollution of soil of Paderno Dugnano. In 2004, Sitindustrie SpA, which in 1996 purchased a plant in Paderno Dugnano from Enirisorse (now merged into Syndial SpA), summoned Syndial SpA before the Court of Milan, requesting to establish the Syndial SpA’s responsibility in the alleged pollution of soil around the plant and to require it to pay environmental damage necessary for remediation. The Tribunal of Milan rejected the plaintiff’s request with a sentence released on June 10, 2006. The deadline to appeal the Tribunal sentence expired on November 1, 2007.
ENI SPA
Notification to Eni Petroleum Co Inc of a subpoena by the Department of Justice of the United States of America Antitrust Division and request of information and documents relating to activities in the field of wax and of a deposition. On April 28, 2005, the Department of Justice of the United States of America - Antitrust Division, notified Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005 and a deposition on the same date. The Company informed the department that it does not produce nor import wax in the United States of America.
ENI SPA
Decree of the Lombardy Region. With a decree dated December 6, 2000, the LombardiaLombardy Region decided that natural gas used for electricity generation is subject to an additional regional excise tax in relation to which Snam SpA (merged into Eni SpA in 2002) should substitute for the tax authorities in its collection from customers. Given interpretive uncertainties, the same decree provides the terms within which distributing companies are expected to pay this excise tax without paying any penalty. Snam SpA and the other distributing companies of Eni believe that natural gas used for electricity generation is not subject to this additional excise tax. For this reason, an official interpretation was requested from the Ministry of Finance and Economy. With a decisionDecision of May 29, 2001, the Ministry confirmed that this additional excise tax cannot be applied. The Region decided not to revoke its decree and Snam took appropriate legal action. On the basis of action carried out by Snam, the Council of State decided on March 18, 2002 that the jurisdiction of the Administrative courtCourt did not apply to this case. In case the Region should request payment, Eni will challenge this request in the relevant Court. The LombardiaLombardy Region decided with regionalRegional Law No. 27/2001 that no additional tax is due from January 1, 2002 onwards, but still requested the payment of the additional taxes due before that date.
With a formal assessment presented by the municipality of Pineto (Teramo), Eni SpA has been accused of not having paid a municipal tax on real estate The action for the period from 1993 to 1998 on four oil platforms located inrecognition of such taxes bears a five-year term. Consequently, the Adriatic Sea territorial waters in frontexercise of such action has expired.
SNAM RETE GAS
Environmental tax of Sicilia Region upon the coastowners of Pineto. Eni has been requested to pay a total of approximately euro 17 million also including interest and a fine for lacking declaration. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the application of the tax at requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. But the Court of Cassation cancelled both judgments declaring that a municipality can consider requesting a tax on real estate also in the sea facing its territory and with a decision of February 21, 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the other reason opposed by Eni. On December 28, 2005 the municipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested to Eni is of euro 24 million. Eni filed a claim against this request.
Agip Karachaganak BVIn July 2004, relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of the tax audits performed for fiscal years 2000 to 2003. Claims by the Kazakh authorities concern unpaid taxes for a total of $43 million, net to Eni, and the anticipated offsetting of VAT credits for $140 million, net to Eni, as well as the payment of interest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the original amounts were reduced to $26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding residual matters. Eni recorded a specific provision for this matter.
Snam Rete Gas SpA
primary pipelines. With Regional Law No. 2 of March 26, 2002, the Sicilia Region introduced an environmental tax upon the owners of primary pipelines in Sicily (i.e.(e.g. pipelines operating at a maximum pressure of over 24 bar). The tax was payable as of April 2002. In order to protect its interests, Snam Rete Gas filedpaid eight installments for a claim with the European Commission, aimed at opening a proceeding against the Italian Governmenttotal of euro 86.1 million and the Tax Commission of Palermo. The Authority for Electricity and Gas, although acknowledging that the tax burden is an operating cost for the transport activity, subjected inclusion of the environment taxsuspended payments in tariffs to the final ruling on its legitimacy by relevant authorities. With the ruling of December 20, 2002, the Court judged the tax at variance with European rules. In December 2002 Snam Rete Gas suspended payments based on the above Court ruling. Payments effected until November 2002 totalled euro 86.1 million. In January 2003 the Sicilia Region presented an appeal to the Council of State against the rulinga decision of the Regional Administrative Court of Lombardia forLombardy. At the part that statessame time, Snam Rete Gas promoted all actions required to protect its interests with Italian and European Authorities. On June 21, 2007, the varianceEuropean Court of Justice declared the regional law with European rules. On December 16, 2003, the European Commission judged the tax instituted by the Republic of Italy, through the Sicilia Region, to be in contrast withcontrary to European rules and withto the cooperation agreement between the European Economic Community and the Peoples’ Democratic Republic of Algeria; the European Commission also stated that such environmental tax is in contrast with the common customs tariff because it modifies the equality of customs expenses on commoditiesAlgeria, under which certain products (including natural gas) imported from third countries andthis country could create a deviation in tradenot be subjected to customs or other duties. Following this ruling, the Sicilia Region cancelled the law introducing the tax with such countries and a distortion in access and competition rules. The Commission with its opinion presented on July 7, 2004 formally requested Italy to cancel the tax. The Italian Government must conform within two months from the receptionRegional Law No. 15 of the opinion. As it did not conform, on December 20, 2004 the European Commission passed the case to the Court of Justice requesting a ruling.August 21, 2007. With a decision dated January 5, 2004, and confirmed on March 4, 2005 byvarious the Regional Tax Commission and the Provincial Tax Commission of Palermo declared the environmental tax of the Sicilia Region illegitimate because it is in contrast withcontrary to European rules and therefore accepted Snam Rete Gas’s claim for the repayment of the first installment of euro 10.8 million, already paid in April 2002 to the Sicilia Region. On May 4, 2004, the Sicilia Region repaid the first installment. As for the seven remaining installments paid after April 2002 (euro 75.3 million) the Provincial Tax Commission of Palermo with decision of January 5, 2005 confirmed the illegitimacy of the tax condemningcondemned the Region to repay the amounts paid and interestcashed amounts. In its budget law for 2008, the Region accrued tothe necessary provisions for repaying Snam Rete Gas. The SiciliaOn February 17, 2007 the Region presented recourse to the Regional Tax Commission at Palermo, a hearing has been scheduled for April 5, 2006. On November 3, 2003, the Sicilia Region, following the procedure presented byand Snam Rete Gas concerningsigned an agreement that provides for the yearly liquidationrepayment in six annual installments starting from the first quarter of the tax for 2002, requested liquidation of tax, fines and interest (euro 14.2 million) relating to the unpaid December 2002 installment.2008. On December 30, 2003March 1, 2008 Snam Rete Gas filed a claim with request of suspension of payment as a resultreceived the first payment.
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ENI SPA
Inquiry of the liquidation notice received from the Sicilia Region with the Provincial Tax Commission of Palermo, that,Italian Antitrust Authority on June 25, 2004 accepted Snam Rete Gas’s claim and decided the cancellation of the liquidation notice served by the Sicilia Region, confirmed by the Regional Tax Commission on March 7, 2005. In any case Snam Rete Gas will not have to pay the tax: if the tax is considered illegitimate in other Courts of law, the company will have the right to the restitution of the money. If, to the contrary, the tax is considered legitimate by the other Courts, the Authority for Electricity and Gas will include the tax (Decision No. 146/2002 and No. 71/2003) in tariff with automatic and retroactive effects.
Other judicial or arbitration proceedings
Syndial SpA (former EniChem SpA) - Serfactoring SpA
jet fuel. In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA which is controlled by Eni SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment at the due date. Following payment by Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidator of Agrifactoring commenced proceedings in 1991 against Serfactoring to recover such payments (equal to euro 182 million) made to Serfactoring based on the claim that the foregoing guarantee became invalid when Federconsorzi was itself placed in liquidation. Agricoltura and Terni Industrie Chimiche brought counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent. The amount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004: the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be determined following the decision. Agrifactoring appealed against this partial decision, requesting in particular the annulment of the first step judgement, the reimbursement of the euro 180 million amount from Serfactoring along with the rejection of all its claims and the payment of all expense of the proceeding. The appeal pending was set to be discussed in a hearing set for March 16, 2007 but was rescheduled for October 27, 2006 upon request of Agrifactoring. The judge of the Court of Rome, responsible for the determination of the amount of damages to be paid to Serfactoring and Agricoltura decided on May 18, 2005 to suspend this determination until the publication of the decision of the Court of Appeals, in accordance with Article 295 of the Code of civil procedure. Against this suspension Serfactoring and Syndial requested to the Court of Cassation the cancellation of the suspension and the return of the case to its original court.
Syndial SpA (former EniChem SpA)In 2002, EniChem SpA was summoned by ICR Intermedi Chimici di Ravenna Srl before the Court of Milan in relation to a breach of a preliminary agreement for the purchase of an industrial area in Ravenna. ICR requested payment of compensatory damages for approximately euro 46 million, of which euro 3 million are compensatory damages and euro 43 million are for loss of profits. During 2004 the preliminary inquiry was completed. With a judgment of October 11, 2005 the Court rejected ICR’s request and order that ICR pay all expenses. ICR filed a claim against this decision.
Antitrust, EU Proceedings, Actions of the Authority for Electricity and Gas and of Other Regulatory Authorities
Eni SpAIn March 1999, the Antitrust Authority concluded its investigation started in 1997 and: (i) verified that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam euro 2 million; and (iii) ordered a review of these practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Antitrust Authority did not appeal this decision. The decision on this dispute is still pending.
With a decisionDecision of December 9, 2004, the Italian Antitrust Authority startedcommenced an inquiry on the distribution of jet fuel against six Italianoil companies operating in Italy, including Eni and some of its subsidiaries, that storecertain entities jointly controlled by said oil companies engaged in the storing and loadloading jet fuel in the Rome Fiumicino, Milan Linate and Milan Malpensa airports. The inquiry intends to ascertain the existence of alleged limitationsrestrictions to competition as said oil companies would agree to divide among themselves the supplies to airlines. On December 22, 2005, the Authority notified the preliminary results of the inquiry concerning: (i) information flows to said oil companies related to the functioning of sharedthe jointly-controlled entities engaging in the storage and uploading companies;of jet fuel; (ii) barriers to the entrance of new competitors;competitors in the capital of such entities operating the activities of storing and loading; and (iii) the price of jet fuel which is deemed to be higher than on other European markets. On June 20, 2006, the AntitrustAuthority notified Eni the final decision of this proceeding to Eni and fined Eni by an amount of euro 117 million. The AntitrustAuthority fined other oil companies involved in thethis matter. Eni is evaluatingfiled an opposition against this decision in order to file a claim against it decision before an administrative court.court and suspended the payment of this fine. On January 29, 2007, the Regional Administrative Court of Lazio accepted only partially the opposition made by Eni and annulled part of the decision of the Authority. In particular, a measure providing for the involved oil companies to cease their joint participation in the capital of the entities operating the activities of storing and loading jet fuel was annulled. Eni accrued a provision with respect to this proceeding. As a consequence of this decision, Eni paid a fine amounting to euro 117 million. Eni also decided to appoint independent directors in the boards of those joint ventures, replacing Eni managers acting as board members. Eni filed an appeal against this decision before an higher administrative court requesting for its rejection or a reduction of the fine.
Inquiry commenced by the Italian Antitrust Authority concerning an alleged abuse of dominant position in the use of the total continuous regasification capacity of GNL. On April 28,November 18, 2005, the Commission of the European Communities started a formal assessment to evaluate the alleged participation ofItalian Antitrust Authority notified Eni and its subsidiaries to activities limiting competitionsubsidiary GNL Italia of the opening of an inquiry, in accordance with Article 14 of Law No. 287/1990, concerning an alleged abuse of dominant position in the field of paraffin. The alleged violation of competition would have consisted in: (i) the determination ofassignment and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. On November 3, the Commission requested information on Eni’s activities in the field of paraffins. On November 29, 2005 Eni filed the requested information. On April 21, 2006 the Antitrust Authority requested information on the processing of raw paraffin, which Eni supplied in a letter dated May 25, 2006.
The Department of Justiceuse of the United States of America - Antitrust Division, notified Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005. The Company informed the department that it does not produce nor import wax in the United States of America.
Polimeri Europa SpA and Syndial SpAIn December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the area of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. The first product under scrutiny was EP(D)M: the European Commission submitted to inspection the manufacturing companies of that product, among which Polimeri Europa SpA and Syndial and requested information from those two companies and to their controlling company, Eni SpA. After the inquiries the Commission decided to open a procedure for violation of competition laws and notified Eni, Polimeri Europa and Syndial the relevant charges to that effect on March 8, 2005. At a hearing held on July 27, 2005 the two companies presented memoranda and confirmed their position. The parties await for a decisiontotal continuous regasification capacity of the Commission.
EP(D)M manufacture is also under scrutiny in the United States, where the Department of Justice of San Francisco requested informationPanigaglia terminal (owned by GNL Italia) during thermal years 2002-2003 and documents to Polimeri Europa Americas Inc, a U.S. subsidiary of Polimeri Europa and to its deputy chairman and sales manager. Class actions were filed claiming damages in relation to the alleged violation. In July 2005 Syndial signed a settlement agreement for the civil class action which entails the payment of approximately $3.2 million, approved2003-2004, as already reported by the federal court.
The investigation was also extended to the following products: NBR, CR, BR, SSBR and SBR.
The European Commission started an investigation regarding BR, SBR, SSBR. On January 26, 2005 the Commission dropped the charges in relation to SSBR, while for the other two products the Commission started an infraction procedure by notifying Eni, Polimeri Europa and Syndial the relevant charges. The companies presented a written memorandum and the Commission decided to open an inquiry as a consequence of which the Commission sent a new description of the charges. The companies are preparing a new memorandum.
With regard to NBR an inquiry is underway in Europe and the USA, where class actions also have been started. The class action at federal level was abandoned by the plaintiffs. The federal judge acknowledged this abandonment.
With regard to CR, as part of an investigation carried out in the USA, Syndial entered into a plea agreement with the Department of Justice pursuant to which Syndial would agree to pay a fine of $9 million, while the Department of Justice would agree that it will not bring further criminal charges against Syndial or against its affiliate companies. On June 27, 2005 the plea agreement was approved. For CR the civil class action was closed with a settlement agreement approved by the federal judge on July 8, 2005 whereby the company will pay $5 million. The European Commission requested Eni, Polimeri Europa and Syndial to provide information about CR. The two companies decided to cooperate with the Commission.
Eni recorded a provision for these matters.
Stoccaggi Gas Italia SpAWith Decision No. 26 of February 27, 2002, theItalian Authority for Electricity and Gas determined tariff criteria for modulation, mineral and strategic storage services foron the period starting on April 1, 2002 until March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stoccaggi Gas Italia SpA (Stogit) filed its proposal of tariff for modulation, mineral and strategic storage for the first regulated period. With Decision No. 49 of March 26, 2002, thesame matter. The Authority for Electricity and Gas repealed Stogit’s proposal and defined tariffs forconcluded its inquiry by signaling the first regulated period. Stogit applied the tariff determined by the two decisions, but filed an appeal against both decisions with the Regional Administrative Court of Lombardia requesting their cancellation. With a decision dated September 29, 2003, that Court rejected the appeal presented by Stogit. Stogit filed an appealfact to the Council of State against the sentence whichAntitrust Authority. In a later communication Eni was rejected by the Council of State on January 6, 2006.
Distribuidora de Gas Cuyana SAThe agency entrusted with the regulations for the natural gas market in Argentina ("Enargas") started a formal investigation on some operators, among these Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas statedinformed that the inquiry has been extended also to thermal year 2004-2005 and to Snam Rete Gas which is the parent company has applied improperly calculated conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation.GNL Italia SpA. On April 27, 2004, Distribuidora de Gas Cuyana presented a defense memorandum to Enargas, without prejudice to any possible appeal. On April 28,September 25, 2006, the Company filed a formal request for examiningAntitrust Authority sent Eni the documents used as evidence of the alleged violation.
Court inquiries
The Milan Public Prosecutor is inquiring into contracts awarded by Eni’s subsidiary EniPower and on supplies from other companies to EniPower. The media have provided wide coverage of these inquiries. It emerged that illicit payments have been made by EniPower suppliers to a manager of EniPower who has been immediately dismissed. The Court presented EniPower (commissioning entity) and Snamprogetti (contractor of engineering and procurement services) with notices of process in accordance with existing laws regulating administrative responsibility of companies (Legislative Decree No. 231/2001). In its meeting of August 10, 2004, Eni’s Board of Directors examined the situation mentioned above and approved the creation by Eni’s CEO of a task force in charge of verifying the compliance with Group procedures regarding the terms and conditions for the signing of supply contracts by EniPower and Snamprogetti and the subsequent execution of works. The Board also advised divisions and departments of Eni to fully cooperate in every respect with the Court. From the inquiries performed, that have not yet covered all relationships with contractors and suppliers, no default in the organization and internal controls emerged. For some specific aspects inquiries have been performed by external experts. In accordance with its transparency and firmness guidelines, Eni will take the necessary steps for acting as plaintiff in the expected legal action in order to recover any damage that might derive to Eni by the illicit behaviorfindings of its suppliersinquiry. Eni then presented the Antitrust Authority certain commitments based on Article 14-ter of Law No. 287/1990. On November 23, 2006, the Antitrust Authority resolved to publish such commitments effective the following day. On March 9, 2007, the Antitrust Authority resolved to accept Eni’s commitments and of their and Eni’s employees.
Within an investigation on two Eni managers,to close the Public Prosecutor of Rome on March 10, 2005 notified Eni of the seizure of papers concerning Eni’s relations with two oil product trading companies.
TSKJ Consortium - Investigations of SEC and other Authorities
In June 2004 the U.S. Securities and Exchange Commission (SEC) notified Eni a request of collaboration on a voluntary basis, which Eni promptly carried out, in order to obtain information regarding the TSKJ consortium in relation to the construction of natural gas liquefaction facilities at Bonny Island in Nigeria. The TSKJ consortium is formed by Snamprogetti (Eni 100%) with a 25% interest and, for the remaining part, by subsidiaries of Halliburton/KBR, Technip and JGC. The investigations of the Commission concern alleged improper payments. Other Authorities are currently investigating this matter.inquiry without charging or fining Eni. Eni is currentlycommitted to perform a gas release amounting to 4 BCM in a two-year period, starting on October 1, 2007. Eni is implementing its obligations under the gas release agreement and providing its owntimely information to the Commission andAntitrust Authority on this activity.
Alleged intentional poisoning (Priolo). In March 2002, the public prosecutor of Siracusa commenced an investigation concerning the activity of the refinery of Priolo to other authorities.
Settled Proceedings
Tax ProceedingsIn August 2005,ascertain whether infiltrations of refinery products into the internal revenue service of Venezuela served to Eni Dación BV four formal assessment on income taxesdeep water-bearing stratum used for the years 2001 to 2004 that, by excluding the deductibility of certain costs: (i) annul the losses recorded for the periods amounting to a total of bolivar 910 billion (corresponding to $425 million); (ii) determine for the same periods a taxable income amounting to a total of bolivar 115 billion (corresponding to $54 million); and (iii) request a tax amounting to bolivar 52 billion (corresponding to $24 million) determined by applying a 50% tax rate rather than the 34% rate applied to other companies performing activities analogous to those of Eni Dación BV. In particular it excluded the deductibility of: (i) interest charges due to other Eni Group companies that provided loans denominated in U.S. dollars; and (ii) exchange rate losses recordedhuman consumption purposes in the financial statements and related to such loans resulting from the devaluation of the Venezuelan currency. The formal assessments served have a preliminary nature and do not request immediate payment nor do they specify the amount of a fine (from 10 to 250%) and of interest (average rate for the period approximately 23%). Eni Dación filed a claim for the cancellation of the assessment.Priolo area had occurred. In the 2005 accounts, Eni recorded a specific provision for this matter. In April 2006 the appeal was rejected and the final tax assessment was issued. The final tax assessment: (i) substantially confirmed the preliminary assessments, although reducing the originally assessed income tax liability to bolivar 39 billion ($18 million); and (ii) imposed fines and late payment interests of bolivar 109 billion ($51 million). Eni Dación BV presented a further administrative appeal before the expiration of the time limit for filing a judicial tax appeal, thereby obtaining a reduction of the overall amount from bolivar 148 billion ($69 million) to bolivar 52 billion ($24 million) including taxes in the amount of bolivar 12.5 billion ($6 million) and fines and late payment interest in the amount of bolivar 39.5 billion ($18 million). In order to avoid further charges deriving from the increase of the corresponding fines and late payment interest, Eni Dación BV paid the newly assessed amount in May 2006, thereby reaching a settlement. Consistently, Eni Dación BV filed an integrative income tax return for year 2005, considering the new tax bases for years 2001 to 2004, and paid accordingly bolivar 128 billion ($60 million) of income taxes and bolivar 4.4 billion ($2 million) of fines and late payment interest.
During 2003, the Customs District of Taranto sent 147 formal assessments and amendments to bills of entry for finished products and goods and semi finished products produced by Eni’s Taranto refinery in 2000, 2001 and 2002 to Eni SpA, as the successor entity of AgipPetroli SpA following its merger into Eni. The notification regards about euro 24 million of customs duties not paid by the company because the imported products were not yet finished goods, but were destined to processing, for which ordinary customs tariffs allow exemption. The formal assessment did not contain the determination of any administrative penalties provided for by customs rules. The penalty can be from one to ten times the amount of taxes not paid. The notification was based on the fact that the company did not have the administrative authorization to utilize the customs exemption. The company, believing it acted properly pursuant to Circular 20/D/2003, started a proceeding for an administrative resolution, according to the customs rules. The company asked the Regional Director of Customs of Puglia for the annulment of the received assessments as a measure of self-protection. With a decision of November 26, 2004 the Regional Director accepted Eni’s appeal and ended the litigation by canceling the 147 formal assessments. On March 12, 2004 the Comando Nucleo Regionale Polizia Tributaria Puglia notified a verbal action of observation to the company. In this action there is an alleged offense of smuggling and falsification of accounts for the same imports, already subjected to the previous assessments of the Customs District of Taranto and other occurrences between January 1999 and February 2003. The verbal action made by a Fiscal Officer, sent to the Public Prosecutor in the Court of Taranto, reclaims the omitted payment of customs for about euro 26 million. The notification was based on the same lack of administrative authorization, already contested by the Customs District of Taranto, that was concluded in favor of Eni by the Regional Director. On January 26, 2006September 2007, the judge for the preliminary investigation of the Court of Taranto dismissed the accusations and closed the assessment.filed a request to dismiss this proceeding.
Legal ProceedingsIn 1997, Grifil SpA summoned AgipPetroli SpA (merged into Eni SpA in 2002) before the Court of La Spezia. Grifil requested payment for the remediation of a polluted land parcel part of the La Spezia refinery (which was closed in 1985), sold to it in 1996 by Italiana Petroli SpA later merged into AgipPetroli SpA. The claims for these damages amount to euro 103 million. At the end of 2002 Grifil and AgipPetroli reached an agreement under the terms of which AgipPetroli had to pay half of the clean-up costs, the total amount of which was set by an independent appraisal at euro 19 million, with AgipPetroli’s share corresponding to a maximum of euro 9.5 million, Grifil in turn had the obligation to remediate the polluted soil and to renounce any claims against Eni. Grifil did not fulfill its obligations to remediate the polluted soil; however, maintaining the possibility of precautionary requests and claims against Grifil, Eni decided to remediate the polluted soil with the assistance of a company interested in developing the parcel of land that agreed to pay 13% of the remediation costs. The first action promoted by Grifil before the Court of La Spezia remained pending. On January 7, 2004 the Municipality of La Spezia put Eni in possession of the area and from that date Eni started remediation works paying the relevant costs on its own. Eni requested the conservative seizure of Grifil’s land parcel, up to a maximum value of euro 19 million. With two administrative measures, on December 2, 2003 and January 13, 2004 respectively, the Court of Genova declared the right of Eni legitimate, based on the sale contract stipulated between Italiana Petroli and Grifil, to claim the payment of all clean-up expenses that Eni will incur as Grifil did not fulfill its obligation. The judge closed the inquiry phase and stated that the judgment can be brought to an end. As for the value attributable to the conservative seizure of Grifil’s land parcel (up to a value of euro 19 million), the Court requested Eni to file the contracts for the remediation work with the court, in which the amounts paid are recognized. The contract with an international company specializing in remediation was signed on April 15, 2004 and immediately presented to the Court. In order to preserve Grifil’s asset as a way to recover its credit versus Grifil, Eni, which is paying for the remediation works, also filed an ordinary revocation of title, so that, while waiting for the Court’s ruling, Grifil will not be able to sell the land parcel to third parties. On September 6, 2005 Eni and Immobiliare Helios SpA (that acquired all of Grifil’s share capital) reached a settlement that: (i) concluded all disputes outstanding with Grifil and constitutes a waiver to any possible future claim directly or indirectly related to the sale of the land parcel; (ii) passed to the acquirer all residual expense to be incurred for the reclamation of the land parcel with the explicit approval of the municipality of La Spezia; and (iii) provided for Eni to pay to the new owner of Grifil a lump sum of euro 15.1 million that will be paid when the new owner provides confirmation of works performed for the reclamation; the sum is covered by provisions in the risk reserve.
In 1997, an action was commenced before the Court of Venice concerning the criminal charges brought by the Venice public prosecutor for alleged mismanagement of the Porto Marghera plant starting in the 1970s until 1995 and for the alleged pollution and health damage resulting therefrom. Defendants included certain employees of Eni which has been managing the Porto Marghera plant since the beginning of the eighties. On November 2, 2001, the Court of Venice acquitted all defendants. The appeal against the decision was presented by the public prosecutor, the State Attorney on behalf of the Ministry of Environment and the Council of Ministers, 5 public entities, 12 associations and other entities and 48 individual persons. On December 15, 2004 the Venice Court of Appeals confirmed the preceding judgment, changing only some marginal parts. As concerns some defendants, the Court of Appeals decided not to proceed due to the statute of limitations for some crimes, while it confirmed the preceding judgment for the other matters. On May 19, 2006, the Court of final instance, before which plaintiffs appealed the decision of the Court of Appeals, acquitted all defendants stating that pollution and mismanagement of the plant occurred before the eighties and consequently Eni and its employees could not be deemed responsible for that. In January 2006 Eni settled this matter with the Council of Ministers and the Ministry for the Environment paying an amount of euro 40 million. Under terms of the settlement, the latter will abstain from the recourse to the Court of final instance and will not act on any other environmental damage concerning the management of Porto Marghera until the date of the settlement. Eni had already recorded a provision for this matter which was sufficient to cover the amount of the settlement.
Dividends
Eni’s dividend policy in future periods, and the sustainability andof the current amount of future dividends over the next four yearfour-year period, will depend upon a number of factors including the increase in earningsfuture levels of profitability and in cash flow provided by operating activities, a sound balance sheet structure, capital expenditureexpenditures and development plans, andin light of the "Risk Factors" set out in Item 3. Eni SpA’sThe parent Company’s net profit and, therefore, the amounts of earnings available for the payment of dividends therefrom will also depend on the level of dividends received from Eni’s subsidiaries. However, subject to such factors, in the Board of Directors expectsnext four-year period management plans to recommendpay to future meetings of shareholders to maintain a flowyearly amounts of dividends in line with the level of 2005 for the next fourfiscal year period.2007 in real terms. On May 25, 2006,April 29, 2008, Eni’s general shareholders’ meeting approved a dividend, of euro 1.10 per share for fiscal year 2005 as proposed by Eni’s Board2007, of Directors. This dividend (ofeuro 1.30 per share, of which euro 0.450.60 per share was already paid in October 2007 as an interim dividend with the balance of euro 0.70 per share to be paid late in May 2008. Total cash outlay for the 2007 dividend is expected at euro 4.58 billion (including the euro 2.20 billion already paid in October 2005) represented an increase of 22% with respect to the dividend paid for fiscal year 2004 (euro 0.90 per share); the ratio of aggregate dividends payments to consolidated net profit (pay-out) for year 2004 stands at 47%2007). Eni plansIn future years, management expects to continue paying interim dividends for each fiscal year, with the balance to the full year dividend to be paid in future years.each following year.
Significant Changes
See "Item 5 – Recent Developments"developments" for a discussion of significant events occurred after 2007 year-end up to the latest practicable date, including a review of Eni’s results of operationsperformance in the first quarter of 20062008, an agreement
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regarding the Kashagan project and other material developments that occurred after December 31, 2005.settlement of the Company’s dispute with the Venezuelan authorities regarding the Dación expropriation.
Item 9. THE OFFER AND THE LISTING
Offer and Listing Details
The principal trading market for the ordinary shares of Eni SpA, of a nominal value of euro 1.00 each (the "Shares"), are traded on the Blue Chip segment ofis the Mercato Telematico Azionario or MTA ("Telematico"), the Italian screen-based dealer market, which is the principal trading market for shares in Italy. The Shares are traded on the Blue Chip segment of Telematico, which includes shares of the companies whose market capitalization amounts to more than euro 1,000 million. American Depositary SharesReceipts ("ADSs"ADRs"), each representing two shares, are listed on the New York Stock Exchange. The ratio has changed from one ADSADR per five Shares to one ADSADR per two Shares, effective January 10, 2006.
The table below sets forth the reported high and low reference prices of Shares on Telematico and of ADSsADRs on the New York Stock Exchange, respectively. Due to the ratio change, the historical prices of ADSsADRs have been adjusted by an adjustment factor of 2.5. See "Item 3 – Key Information – Exchange Rates" regarding applicable exchange rates during the periods indicated below.
Telematico | New York | ||
High | Low | High | Low | ||||
(euro per | (U.S. $ per |
2001 | 15.598 | 11.564 | 27.880 | 21.000 | ||||||||||||
2002 | 17.145 | 12.938 | 32.844 | 24.360 | 17.145 | 12.938 | 32.844 | 24.360 | ||||||||
2003 | 15.746 | 11.881 | 37.992 | 26.460 | 15.746 | 11.881 | 37.992 | 26.460 | ||||||||
2004 | 18.748 | 14.723 | 50.580 | 36.940 | 18.748 | 14.723 | 50.580 | 36.940 | ||||||||
2005 | 24.960 | 17.930 | 60.540 | 47.400 | 24.960 | 17.930 | 60.540 | 47.400 | ||||||||
2006 | 25.730 | 21.820 | 67.690 | 54.650 | ||||||||||||
2007 | 28.330 | 22.760 | 78.290 | 60.220 | ||||||||||||
2004 | ||||||||||||||||
2006 | ||||||||||||||||
First quarter | 16.640 | 14.723 | 40.536 | 36.940 | 24.880 | 23.050 | 60.650 | 55.170 | ||||||||
Second quarter | 17.980 | 16.319 | 43.364 | 38.924 | 24.810 | 21.820 | 62.630 | 54.650 | ||||||||
Third quarter | 18.584 | 16.272 | 45.804 | 39.608 | 24.430 | 22.590 | 62.900 | 57.080 | ||||||||
Fourth quarter | 18.748 | 17.651 | 50.580 | 44.244 | 25.730 | 23.050 | 67.690 | 58.400 | ||||||||
2005 | ||||||||||||||||
2007 | ||||||||||||||||
First quarter | 20.480 | 17.930 | 54.288 | 47.400 | 25.720 | 22.760 | 66.720 | 60.220 | ||||||||
Second quarter | 22.070 | 19.270 | 54084 | 49.004 | 27.150 | 24.130 | 72.840 | 64.710 | ||||||||
Third quarter | 24.960 | 21.430 | 60.540 | 51.320 | 28.330 | 23.310 | 78.290 | 63.160 | ||||||||
Fourth quarter | 24.770 | 21.640 | 59.020 | 51.628 | 26.680 | 23.320 | 75.660 | 67.220 | ||||||||
2006 | ||||||||||||||||
2008 | ||||||||||||||||
First quarter | 24.880 | 23.050 | 60.650 | 55.170 | 25.580 | 20.870 | 75.130 | 61.790 | ||||||||
January 2006 | 24.880 | 23.710 | 60.650 | 57.640 | ||||||||||||
February 2006 | 24.860 | 23.840 | 59.510 | 56.550 | ||||||||||||
March 2006 | 23.770 | 23.050 | 58.130 | 55.170 | ||||||||||||
April 2006 | 24.810 | 23.370 | 61.320 | 57.050 | ||||||||||||
May 2006 | 24.570 | 22.500 | 62.630 | 58.680 | ||||||||||||
June 2006 (through June 5, 2006) | 23.600 | 23.340 | 60.780 | 60.280 | ||||||||||||
January 2008 | 25.580 | 20.880 | 75.130 | 62.840 | ||||||||||||
February 2008 | 23.340 | 21.140 | 70.700 | 61.790 | ||||||||||||
March 2008 | 23.350 | 20.870 | 71.630 | 65.000 | ||||||||||||
April 2008 | 24.770 | 21.820 | 77.160 | 68.570 | ||||||||||||
May 2008 (through May 9, 2008) | 25.660 | 25.110 | 79.410 | 75.950 |
JPMorgan Chase Bank,Bank. N.A. (the "Depositary") functions as a depositary bank issuing American Depositary Receipts ("ADRs")ADRs pursuant to the Deposit Agreement amongbetween Eni, the Depositary and the beneficial owners ("Beneficial Owners") and sometimes registered holders from time to time of ADRs issued thereunder.
At June 5, 2006May 9, 2008 there were 45,497,40143,128,072 ADRs outstanding, representing 90,994,80286,256,144 ordinary shares, or 2.27%2.1% of all Eni’s shares outstanding, held by 6591 holders of record (including Thethe Depository Trust Company) in the United States of America, 6288 of which are U.S. residents. Since certain of such ADRs are held by nominees, the number of holders may not be representative of the number of Beneficial Owners in the United States or elsewhere.
The Shares are included in the S&P/MIB, the new primary Italian stock exchange index that measures the performance of the 40 leading companies in leading industries listed on the markets organized and managed by
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Borsa Italiana SpA ("Borsa Italiana"). The constituents of the S&P/MIB are selected according to the following criteria: sectorialsector representation, market capitalization of free-float shares and liquidity. Since September 20, 2004 S&P/MIB is the principal indicator used to track the performance of the Italian stock market and is the basis for future and option contracts traded in the Italian Derivatives Market ("IDEM") managed by Borsa Italiana. TheEni’s Shares are the second largest component of the S&P/MIB, after the shares of Unicredito Italiano SpA, with a weighting of approximately 16.5%,14.6%. as established by Standard & Poor’s and Borsa Italiana after reviewing the composition of the S&P/MIB on May 19, 2006.March 25, 2008. In addition, future and option contracts on the Shares are traded on IDEM and securitisedsecuritized derivatives based on the Shares are traded on the Italian Securitisedsecuritized Derivatives Market ("SeDeX"). IDEM facilitates the trading of future and option contracts on index and shares issued by companies that meet certain required capitalization and liquidity thresholds. SeDeX is the Borsa Italiana electronic regulated market where it is possible to trade securitisedsecuritized derivatives (covered warrants and certificates).
Since January 14, 2002, the rule on theimposing a minimum lot of shares for transactions on the Telematico has been eliminated.abolished. Outside Telematico, block trading is permitted for orders that meet certain minimum size requirements and must be notified to Consob and Borsa Italiana. Starting from May 15, 2000, the Shares have been also trading on a special market, named After Hours trading market or TAH ("After Hours"), after the closureclosing of the day time of Telematico under special rules. Since March 28, 2000, a three-day rolling cash settlement has been applied to all trades of equity securities in Italy, instead of the previous five-day settlement.
Markets
Telematico is organized and administered by Borsa Italiana which is subject to the supervision and control of the Commissione Nazionale per le Società e la Borsa (the National Commission for Companies and the Stock Exchange or "Consob"), the public authority charged, inter alia,interalia, with regulating investment companies, securities markets and public offerings of securities in Italy to ensure the transparency and regularity of the dealings and protect investors. Borsa Italiana is a joint stockjoint-stock company (Società per Azioni) that was established to manage the Italian regulated financial markets (including Telematico) as part of the implementation in Italy of the EU Investment Services Directive.Directive ("ISD"). Borsa Italiana has issued rules governing the organization and the administration of the markets it regulates, which are Telematico (shares, convertible bonds, pre-emptive rights, warrants, ETFs and Funds), Mercato MTAX (high growth companies), After Hours, Mercato Expandi (small companies), ETFplus (Exchange Traded Funds and Exchange Traded Commodities market), IDEM (index and stock derivatives market), SeDeX (covered warrants and certificates), and MOT (bond markets)market), as well as the admission to listing on and trading on these markets.
If the opening price of a security (established each trading day prior to the commencement of continuous trading based on bids received) differs by more than 10% (or such other amount established by Borsa Italiana) from the previous day’s reference price, trading in that security will not be permitted until it is authorized by Borsa Italiana authorizes the trading.Italiana. The reference price is calculated for each security as a weighted average of the last 10% of volumes traded in a single day. If in the course of a trading day the price of a security fluctuates by more than 5% from the last reported sale price (or 10% from the opening price), trading in that security will be automatically suspended for a certain period of time. In the event of such a suspension, effect is not given to trades agreed but not confirmed before the suspension.
Effective JulyNovember 1, 1998,2007, following the Italiannational implementation of the EU Markets in Financial Instruments Directive (2004/39/EC) ("MiFID"), the so called ‘concentration rule’ has been superseded. The MiFID, that replaces the ISD, establishes the legal framework governing investment services and financial markets in Europe. With the new regulatory regime of MiFID, orders can be routed not only to Regulated Markets but also to either Multilateral Trading Facilities ("MTF"s) or Systematic Internalisers. An MTF is a multilateral system, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments – in the system and in accordance with non-discretionary rules – in a way that results in a contract. A Systematic Internaliser is an investment firm or a bank which deals on own account by executing client orders outside a Regulated Market or an MTF. Italian exchanges and securities are primarily regulated by Legislative Decree No. 58 of February 24, 1998 ("Decree No. 58"), which consolidated. This decree requires that the previous regulation primarily by restating the provisionsprovision of Legislative Decree No. 415 of July 23, 1996.
Decree No. 58 provides that trading of equity securities, as well as any other investment services may now be carried out on behalf ofand activities to the public by società di intermediazione mobiliare (securities dealingon a professional basis is reserved to banks and investment firms, or "SIMs"), which are firms authorized intermediaries, authorized banks and certain types of finance companies.to provide investment services or activities. In addition, banks and investment firms organized in a member nation of the EU are permitted to operate in Italy provided that the intent of the bank or investment firm to operate in Italy is communicated to Consob and the Bank of Italy by the competent authority of the member state. Pursuant to Decree No. 58 the Bank of Italy, in agreement with Consob, is responsible for regulating clearance and settlement. Non-EU banks and non-EU investment firms may operate in Italy subject to the specific authorization of Consob, andin agreement with the Bank of Italy. Pursuant to Decree No. 58 the Bank of Italy, in agreement with Consob, is responsible for regulation, clearing and settlement of transactions involving financial instruments. The regulations and measures of general application adopted by the Bank of Italy and Consob are published in the Gazzetta Ufficiale.
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Item 10. ADDITIONAL INFORMATION
Memorandum and Articles of Association
The full text of the memorandum and articles of association of Eni as amended by Eni’s Extraordinary Shareholders’ Meeting held on May 25, 2006,24, 2007, is attached as an exhibit to this annual report. See Exhibit 1."Exhibit 1".
Eni is incorporated under the name "Eni SpA" resulting from the transformation of Ente Nazionale Idrocarburi, a public law agency, established by Law No. 136 of February 10, 1953. The company objects arecompany’s purpose is the direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the field of hydrocarbons and natural vapors, such as exploration and development of hydrocarbon fields, construction and operation of pipelines for transporting the same, processing, transformation, storage, utilization and trade of hydrocarbons and natural vapors, all in compliance with concessions required by law.
The companyCompany also has the objectpurpose of direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the fields of chemicals, nuclear fuels, geothermy and renewable energy sources, in the sector of engineering and construction of industrial plants, in the mining sector, in the metallurgy sector, in the textile machinery sector, in the water sector, including derivation, drinking water, purification, distribution and reuse of waters; in the sector of environmental protection and treatment and disposal of waste, as well as in every other business activity that is instrumental, supplemental or complementary with the aforementioned activities.
The companyCompany also has the objectpurpose of managing the technical and financial co-ordination of subsidiaries and affiliated companies as well as providing financial assistance on their behalf.
The companyCompany may perform any operations necessary or useful for the achievement of the company objects;its purpose; by way of example, it may initiate operations involving real estate, moveable goods, trade and commerce, industry, finance and banking asset and liability operations, as well as any action that is in any way connected with the company objectspurpose with the exception of public fund raising and the performance of investment services as regulated by Decree No. 58 of February 24, 1998.
The companyCompany may take shareholdings and interests in other companies or businesses with objects similar, comparable or complementary to its own or those of companies in which it has holdings, either in Italy or abroad, and it may provide real and or personal bonds for its own and others’ obligations, especially guarantees.
Directors
The Board of Directors is invested with the fullest powers for ordinary and extraordinary management of the company and, in particular, the Board has the power to perform all acts it deems advisable for the implementation and achievement of the company objects,Company purpose, except for the acts that the law or Eni’s by-lawsBy-laws reserve to the Shareholders’ Meeting.
For a complete description of the powers of the Board, the Managing DirectorCEO and the Chairman, appointments, role of the Board and rules and procedures of the meetings of the Board see "Item 6 – Board Practices".
The Board of Directors and the Managing Director report timely, at least every three months and however in the Board of Directors meetings, to the Board of Statutory Auditors on the activities and on the most relevant operations regarding the operational, economic and financial management of the company and its subsidiaries: in particular the Board of Directors and the Managing Director report to the Board of Statutory Auditors on operations entailing potential conflicts of interest. Article 2391 of the Italian Civil Code applies in the case of interests of the Directors.
The Chairman and the members of the Board are remunerated in an amount established by the ordinary Shareholders’ Meeting. Said resolution, once taken, will remain valid for subsequent business years until the Shareholders’ Meeting decides otherwise.
There are no provisions as to retirement based on age-limit requirements, or requirement of share ownership for a director’s qualification in Eni’s by-laws.
By-laws.
Limitations on Voting and Shareholdings
General
There are no limitations imposed by Italian law or by the by-lawsBy-laws of Eni SpA on the rights of non-residents of Italy or foreign persons to hold or vote the shares other than the limitations described below (which are equally applicable to residents and non-residents of Italy).
The by-laws provide thatAccording to Article 6.1 under Eni’s By-laws, no person, in any capacity, may own shares amounting to more than 3% of Eni SpA’s voting share capital. Such maximum limit is calculated taking into account the aggregate shareholding of a controlling entity, whether an individual or a legal entity (each a "person"); its directly or indirectly controlled entities, as well as entities controlled by the same controlling entity; affiliated entities, as well as relatives within the second degree by blood or marriage (except for a legally separated spouse). Affiliation exists
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as set forth in applicable Italian legislation, as well as between entities that, directly or indirectly, through controlled entities (other than those managing investment funds) are bound, even with third parties, by agreements relating to the exercise of voting rights or the transfer of shares or interests in third-party companies or other agreements relating to third-party companies as specified by applicable Italian legislation if such agreements relate to at least 10% of the voting share capital of a listed company or 20% of the voting share capital of a non-listed company. For purposes of calculating the 3% limit, shares held through a fiduciary nominee or intermediary are taken into account.
Any voting rights attributable to shares held or controlled in excess of such 3% limit cannot be exercised, and the voting rights of each entity to whom such limit on shareholding applies are reduced proportionately, unless otherwise jointly disposed of in advance by the parties involved. In the event that shares held or controlled in excess of the maximum limit are voted, any shareholders’ resolution adopted pursuant to such a vote may be challenged if the majority required to approve such resolution would not have been reached without the vote of the Sharesshares exceeding such maximum limit. Shares not entitled to be voted are nevertheless counted for the purpose of determining the quorum at a shareholders’ meeting.
Under the provisions of Law No. 602 of November 27, 1996, the 3% limit does not apply to shareholdings in Eni SpA held by the Ministry of Economy and Finance;Finance, state-owned entities controlled by other entities or by the State. The 3% limit does not apply, in the event that such limit is exceeded as a result of the acquisitions of shares pursuant to a mandatory tender offer (offerta pubblica di acquisto totalitaria) or a preventative tender offer, (offerta pubblica di acquisto preventiva), each as provided for by Decree No. 58,TUF, regardless of whether a majority of the voting rights is acquired thereby. The approval of the Ministers as described below in "– Special Powers of the State" is however requested for Sharesshares acquired pursuant to tender offers.
For other limitations that may affect voting rights, see "– Reporting Requirements and Restrictions on Acquisitions of Shares".
Special Powers of the State
Under Italian laws, the State, acting through the Minister of Economy and Finance in agreement with the Minister of Productive Activities (together with the Minister of Economy and Finance, theEconomic Development (the "Ministers"), holds certain special powers in connection with any transfer of a controlling interest in certain State-owned companies operating in public service sectors, including Eni SpA. The law places no limit on the duration of such special powers. Such powers are to be exercised in accordance with EU principles. Specific guidelines have been introduced by
Regarding the DecreeSpecial Powers of the President ofState, Eni’s By-laws acknowledge in Article 6.2 that the Council of Ministers (DPCM), May 4, 1999, which sets forth the conditions in which the Ministers can exercise theirItalian State holds certain special veto over a company’s strategic decisions. Accordingpowers pursuant to Article 66 of Law 488, dated December 23, 1999, such guidelines have been confirmed by the DPCM dated June 10, 2004.
Pursuant to the DPCM of April 1, 2005, on April 13, 2005, the Eni’s Board of Directors modified the Eni’s by-laws in order to apply the provisions of Law No. 350 of December 24, 2003 (2004 budget law), which modified Article 2 of Law Decree No. 332 of May 31, 1994, as modified and converted into Law No. 474 of July 30, 1994, regarding the Special Powers of the State. Eni’s by-laws acknowledge in Article 6.2 that the Special Powers of the State are as follows:1994:
a) | opposition with respect to the acquisition of material shareholdings by entities affected by the shareholding limit as set forth in Article 3 of Law Decree No. 332 of May 31, 1994, converted with amendments into Law No. 474 of July 30, 1994, which – as per Decree issued by the Minister of Treasury on October 16, 1995 – include those representing at least 3% of share capital with the right to vote at the ordinary Shareholders’ Meeting. Any opposition is required to be expressed within ten days as of the date of the notice to be filed by the Board of Directors at the time a request is made for registration in the Shareholders’ Register if the Minister considers that such an acquisition may prejudice the vital interests of the Italian State. Until the ten-day period has expired, the voting rights or any rights other than the economic rights connected with the shares representing a material shareholding may not be exercised. If the opposition power is exercised on the basis that prejudice may be caused by the operation to the vital interests of the Italian State, the transferee may not exercise the voting rights or any rights other than the economic rights connected with the shares representing a material shareholding and must sell said shares within one year. If the shareholder fails to comply, the law court, upon request of the Minister of Economy and Finance, will order the sale of the shares representing a material shareholding according to the procedures set forth in Article 2359-ter of the Civil Code. The act through which the opposition power is exercised may be appealed by the transferee before the Regional Administrative Court of Lazio within sixty days as of its issue; | |
b) | opposition with respect to the subscription of shareholders’ pacts or agreements as per Article 122 of Legislative Decree No. 58 of February 24, 1998, involving – as per Decree issued by the Minister of Treasury on October 16, 1995 – at least 3% of the share capital with the right to vote at ordinary Shareholders’ Meetings. In order to allow the exercise of the above mentioned opposition power, Consob notifies the Minister of Economy and Finance of the relevant pacts or agreements communicated to it pursuant to the aforementioned Article 122 of Legislative Decree No. 58 of February 24, 1998. The opposition power may be exercised within ten days as of the date of the notice by Consob. Until the ten-day period has expired, the voting rights or any rights other than the economic rights connected with the shares held by the shareholders who have subscribed the above mentioned pacts or agreements may not be exercised. If the opposition power is exercised on the basis that prejudice may be caused by said pacts or agreements to the vital interests of the Italian State, the shareholders pacts or agreements shall be null and void. If in the shareholders’ meetings the shareholders who have signed shareholders’ pacts or agreements behave as if those pacts or agreements disciplined by Article 122 of Legislative Decree No. 58 of February |
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24, 1998 were still in effect, the resolutions approved with their vote, if determining for the approval, may be sued. The act through which the opposition power is exercised may be sued by the shareholders who joined the above mentioned pacts or agreements before the Regional Administrative Court of Lazio within sixty days as of its issue; | ||
c) | veto power with respect to resolutions to dissolve the company, to transfer the business, to merge, to demerge, to transfer the company’s registered office abroad, to change the company objects and to amend the | |
d) | appointment of one Board member with no voting rights. Should such appointed Director lapse, the Minister of Economy and Finance, in agreement with the Minister of |
With a decision published on May 23, 2000, the European Court of Justice declared that Italy, in granting the Minister of Economy and Finance "special powers" and introducing them in the by-lawsBy-laws of some privatized companies, violated the obligations imposed by Articles 43 (former Article 52, right of establishment), 49 (former 59, free provision of services) and 56 (former 73b, free movement of capitals) of the European Treaty.
In accordance with past decisions, the Court analyzed Italian legislation in force at the expiration of the terms defined in the European Commission'sCommission’s informed opinion, therefore itopinion. Therefore the Court did not take into account DPCM of May 4, 1999, Article 66 of Law No. 488/1999 and DPCM of June 10, 2004 and Law No. 350 of December 24, 2003 which included provisions limiting those "special powers" of the Minister of Economy and Finance.Finance and the Minister of the Economic Development. These are currently being analyzed by the European Commission.
Furthermore Law No. 266 of December 23, 2005 (the Budget(Budget Law) in Article 1, paragraphs from 381 to 384, in order to favor the process of privatization and the diffusion among the public of investmentsshareholdings in companies also held byin which the State holds significant stakes, introduced the option to include in the by-lawsBy-laws of listed companies formerly entirely owned by the State, as in the case of Eni SpA, regulations against takeovers, which in particular provideprovisions for the issueissuance of shares and securities bearing the same characteristics as shares which give to the special meeting of relevant holders the right to request the issuance on their behalf of new shares, also at nominalpar value, and similar shareholding certificatesor securities bearing the right to vote at both ordinary and extraordinary Shareholders’ Meetings in favor of one or more shareholders identified in terms of the number of shares held.meetings. The introduction of these norms which are subject to approval by the EU, will causein Eni’s By-laws would entail the cancellation of the above mentioned special powers of3% threshold to individual shareholdings, except for the State, as contained in Article 6.26.1 of Eni’s by-laws.By-laws. To date Eni’s By-laws have not been modified to adopt this provision.
Minority
Protection Provisionsprotection provisions
Under Italian laws, the by-lawsBy-laws of companies such as Eni SpA, that impose a maximum limit on the number of shares that may be held by any shareholder must provide for the election of directors and statutory auditors through the voto di lista (voting list) system, to ensure that minority shareholders of a company are represented on its boardBoard of directorsDirectors and boardBoard of statutory auditors.Statutory Auditors. Accordingly, Eni’s by-lawsBy-laws require that the members of the Board of Directors and the Board of Statutory Auditors of Eni SpA not directly appointed by the Ministers (see "– Special Powers of the State") be elected on the basis of candidate lists presented either by the Board of Directors or by one or more shareholders (including the Minister of Economy and Finance) representing in the aggregate at least 1% of the share capital of Eni SpA having the right to vote at ordinary shareholders’ meetings. Such candidate lists must be deposited at the registered office of Eni SpA and published in at least three Italian newspapers having general circulation in Italy (two of which must be business dailies). Publication of the candidate list presented by the Board of Directors shall occur at least 20 days before the first call (as defined below) of the Shareholders’ Meeting. Such term is reduced to 10 days in the case of candidate lists proposed by shareholders. Each shareholder may present or participate in the presentation of only one candidate list and each candidate may appear on only one list.
UnderAccording to Article 17.3 of Eni’s by-laws,By-laws Board members are elected in the election of the members of the Board of Directors will proceed as follows:following manner:
a) | ||
b) | the remaining Board members will be drawn out from the other candidate lists; said lists shall not be linked in any way, even indirectly, to the shareholders who have presented or voted the list that has obtained the highest number of votes; to this purpose the votes obtained by each candidate list will be divided by one or two |
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quotient, a new vote will be taken by the entire Shareholders’ Meeting and the candidate elected will be the one who obtains a simple majority of the votes; | ||
c) | if through the procedure described above the minimum number of independent Directors set by these By-laws is not elected, the quotient is calculated according to letter b) above in order to be assigned to the candidates present in each list; the independent candidates not yet drawn from the lists pursuant to letters a) and b) above, who have got the highest quotients will be elected in order to meet the provision of the By-laws on the number of the independent Directors. The Directors so appointed will replace the non independent Directors to whom the lowest quotients have been assigned. If the number of independent candidates is lower than the minimum limit set by the By-laws, the shareholders’ meeting will make a resolution with the majorities prescribed by the law to substitute the not independent candidates who have the lowest quotients; and |
d) | to appoint Board members for any reason not covered by the terms of the aforementioned procedure, the Shareholders’ Meeting will make a resolution with the majorities prescribed by the law in order to assure that the Board composition complies with the current legislation and the By-laws. |
The electionvote by list procedure shall apply only in case of membersappointment of the entire Board of Statutory Auditors is governed by the same rules, except that the Board of Directors may not present a candidate list to the Board of Statutory Auditors, and that, pursuant to Decree No. 58, Eni’s by-laws provides that, in the event of a Board of Statutory Auditors formed by more than three Auditors, at least two of them be appointed by minority shareholders.Directors.
The Extraordinary Shareholders’ Meeting held on May 28, 2004 approved an amendment to Article 17.3 of the by-laws according to whichEni’s By-laws also provides that companies that are controlling entities or under common control, as defined by Article 2359, first Paragraph,paragraph, of the Civil Code, or companies controlled by the same entity of the company presenting a list shall not present nor take part in the presentation of another candidate list.
Several provisions of Italian legislation are intended to increase the protection of minority shareholders. In particular: (i) shareholders’ meetings must be called also upon request of holders of at least 10% of the outstanding Shares (the Board of Directors, however, may refuse to call the meeting when conflicting with the company’s interests) (Article 2367 c.c.)Civil Code); (ii) the attendance quorum required for a valid shareholder meeting at an extraordinary shareholders’ meetingExtraordinary Meeting is more than 50% of the outstanding shares on first call, while on second call the attendance quorum is more than 1/3 of the Shares outstanding and on third call the attendance quorum is more than 1/5 of the shares outstanding. On first, second and third call, resolutions may be passed with the approvalapproved by a majority of at least two-thirds2/3 of the sharesShares represented at the meeting, on the first, second or third callShareholders’ Meeting (Articles 2368-2369 c.c.) by the majority, one-third and one-fifth of the outstanding share capital, respectively;Civil Code); (iii) shareholders’ actions against the Board of Directors and the Statutory Auditors. Official Receivers and the Managing DirectorAuditors may be initiated by shareholders holding at least 5%2.5% of the outstanding shares (Article 2393 bis c.c.)(Articles 2393-bis and 2407 Civil Code); (iv) the actions for which a single shareholder may sue the directors for individual damages (Article 2394-bis c.c.); and (v) collective shareholders’ complaints2395 Civil Code) or complain to the Board of Statutory Auditors may be promotedabout directors’ misconduct; if the complaint is filed by shareholders representing at least 2% of the share capital of a listed company, the Statutory Auditors are required to investigate with no delay and report to the shareholders’ meeting (Article 2408 Civil Code); and (v) shareholders holding at least 5% of the outstanding share may report to the Court directors’ serious misconduct. The Court may order the inspection of the management, adopt interim measures and replace directors with a judicial Commissioner (Article 2409 c.c.)Civil Code). The company’s by-lawsBy-laws may further lower the thresholds in (iii), (iv) and (v) and increase the voting quorums under (ii). Effective from July 1, 1998, accounting control functions are under
Law of December 28, 2005, the exclusive competenceso called "Legge sulla tutela del Risparmio" (protection of company’s independent auditors, and the company’s Board of Statutory Auditors no longer carries out such functions.
Further protectionsavings), contains further protections to Italian minority shareholders was introduced by Law of January 12, 2006, the so called "Legge Risparmio", that provided for among others the followings:listed companies; in particular, said law:
• | sets new independence and honorability requirements for directors of listed companies; | |
• | introduces the list vote for the election of | |
• | delegates to Consob the power to regulate the appointment of a statutory auditor by minority shareholders. | |
• | delegates to Consob the determination of the limits to the number of memberships of boards of directors and boards of statutory auditors that | |
• | states that the chairman of the Board of Statutory Auditors must be elected among the candidates presented by minority lists; and | |
• | introduces the function of |
Companies must amend their own by-laws within twelve months from141
This certification is set forth in a specific report attached to the annual and semi-annual financial reports according to a format established by Consob. |
These provisions are implemented in Eni’s By-laws. The provisions regarding the entry into forcepresentation, deposit and publication of list of candidates for the office of director or statutory auditor do not apply to Eni as, for the Company, the matter is disciplined by the special legislation contained in Law No. 474 issued on July 30, 1994, regarding the so called "privatized companies".
Legislative Decree No. 303/2006 introduced changes to this law on protection of savings; in particular:
• | at least one Board member, if their number is not higher than seven, or two Board members, if their number is higher than seven, shall have the independence requirements set forth by the current legislation and the By-laws. If these requirements elapse the Board member will be removed (Article 147-ter); and | |
• | the professional requirements of the "Manager responsible for the preparation of financial reporting documents" (Article 154-bis). |
Eni’s By-laws was already in compliance with the above mentioned provisions regarding the appointment of directors and statutory auditors and the qualification of the law. Certain provisionsdirectors. In particular, Eni By-laws sets at three the number of independent Directors if the Directors are more than five.
In accordance with Article 24 of Eni’s By-laws, as provided for by the TUF, the Board of Directors under proposal of the CEO in agreement with the Chairman and with the approval of the Board of Statutory Auditors appoints a manager in charge of the preparation of financial reports. The appointed person must be chosen among persons who for at least three years:
a) | have been in charge of financial reporting or control activities or business administration for listed Italian or European or OECD companies with share capital of at least one million euro, or | |
b) | have acted as external auditors of the same companies described above, or | |
c) | have performed professional activities or teaching at university level in accounting and finance, or | |
d) | have held managerial positions in private or public entities engaged in finance, accounting and control. |
The Board of Directors verifies the adequacy of his powers and means in order to fulfill this law were already reflected into Eni’s by-laws; certain other provisions have been incorporated into Eni’s by-laws effective May 25, 2006 by Eni’s Extraordinary Shareholders Meeting.task and the respect of relevant administrative and accounting procedures.
Reporting
Requirementsrequirements andRestrictionsrestrictions onAcquisitionsacquisitions ofSharesshares
Under Consob Regulation, any direct or indirect participation in excess of 2%, 5%, 7.5%, 10% and subsequent multiples of 5% in the voting shares of a listed company must be notified to such company and to Consob, within five open market days from the effectiveness of the transaction triggering such obligation to notify.
The obligation to notify also applies to any direct or indirect participation owned through ADSs.ADRs.
For listed companies, whose by-lawsBy-laws impose a maximum limit on the number of shares that may be held by any shareholder, Consob is entitled to fix different relevant thresholds by decree.
Further, the reduction of the foregoing interest below the relevant thresholds must be notified within the same terms.
Shares held in excess of any such threshold cannot be voted in the event the above notices have not been provided. Any resolution in violation of such limitation can be voided if challenged in court by shareholders and Consob, if the resolution would have not bebeen adopted without the consent of the shares in question.
The relevant thresholds noted above shall be calculated including: (i) shares registered in the name of the relevant reporting person whose underlying voting rights are attributed to third parties, and viceversa;vice versa; and (ii) shares held through third parties and shares whose voting rights are attributable to such third parties, excluding shares registered in the name of, or endorsed to, fiduciaries, as well as shares whose voting rights are attributed to intermediaries for purposes of the management of mutual or individual savings.
Furthermore, calculation of 5%, 10%, 25%, 50% and 75% thresholds shall also take into account shares outstanding which the relevant reporting person is entitled to purchase or to sell directly or through third parties. Shares to be purchased through the exercise of conversion rights or warrants shall be calculated only in the event the acquisition can take place within a sixty days period.
In the event the same relevant participation is directly or indirectly held by two or more entities, then the obligation to notify may be satisfied by one of such person, provided that completeness of information is guaranteed.
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Any participation exceeding 10% of the voting capital of an unlisted company, including any foreign company, owned by a listed company must be notified to such non-listed company within seven days from reaching such threshold. Similarly, the non-listed company must be notified about any subsequent reduction of such participation below the 10% threshold.
Listed companies are also required to notify Consob of their participation exceeding 10% of the voting share capital of non-listed companies owned at the end of the first six months and of the full year. Such notification is due within 30 days from the date of approval of the Annual Report and the Report on the First Six Months, respectively.
In the event the same relevant participation is directly or indirectly held by two or more entities, then the obligation to notify may be satisfied by one of such entities, provided that completeness of information is guaranteed.
The 10% threshold shall be calculated including: (i) shares registered in the name of the relevant listed company, even if voting rights are attributable to third parties; (ii) shares whose voting rights are attributable to the relevant listed company, in the event such voting rights entitle such party to exercise a dominant or material influence at the ordinary shareholder’s meeting; and (iii) shares registered in the name of third parties and shares whose voting rights are attributable to third parties.
In addition to the rules of Article 2359 bis2359-bis of the Italian civil code governing the acquisition of shares of the parent company by a controlled subsidiary, Decree No. 58/1998 regulates additional cross-ownership matters as follows.
Cross-ownership between listed and non-listed companies may not exceed 2% of the shares of the listed company or 10% of the shares of the non-listed company. For calculating these ownership thresholds, the rules for calculations of interests in listed and non-listed companies apply.
The company ultimately exceeding the 2% or 10% interest in a listed or unlisted company respectively may not exercise the voting rights on the shares held in excess of such thresholds; such shares must be sold within 12 months.
If anyone holds an interest exceeding 2% of the share capital of a listed company, such listed company or any entity controlling such listed company may not acquire an interest exceeding 2% of the share capital of a listed company controlled by said holder. If the foregoing limit is exceeded, the holder who last exceeded the foregoing limit or both the holders, if it is not possible to ascertain which holder exceeded such limit last, may not exercise the voting right related to the shares exceeding the foregoing limit. Such limits are not applicable in case of a tender offer for acquiring at least 60% of the ordinary shares of a listed company. For a description of the limitation on cross-ownership between a company and its subsidiaries, see "Purchase by Eni SpA of its Own Shares".
Under Decree No. 58, any agreement, in whatever form, intended to regulate the exercise of voting rights in a listed company or in the companies controlling a listed company, together with any of its subsequent amendments, renewal or termination, must be: (i) notified to Consob, within five days from its execution; (ii) disclosed to the public through the publication, in summary form, in one Italian newspaper having general circulation, within ten days from its execution; and (iii) deposited in the Companies’ Register of the place where such listed company has its registered office within 15 days from its execution.
The same requirements also apply to agreements, in whatever form, that: (a) impose an obligation of prior consultation for the exercise of voting rights in a listed company and in its controlling companies; (b) contain undertakings limiting the transferability of shares and other securities granting rights for the acquisition or subscription of shares; (c) provide for the acquisition of the shares and securities; and (d) contemplate or cause the exercise, also in association with other persons, of dominant influence over the listed company that issued the shares and its controlled entities.
In the event the obligations set out above are not completely satisfied, then the agreement is ineffective and the voting rights connected to the relevant shares may not be exercised. In case of violation of such limitation imposed on the voting rights, a resolution can be challenged if such resolution would have not been approved without the vote of such shares.
If the parties have agreed upon the duration of the agreement, such duration cannot exceed three years. In absence of agreement, each party to the agreement can withdraw from such an agreement by giving a six month notice.
In accordance with Law No. 287 of October 10, 1990, any acquisition of sole or joint control over a company that would create or strengthen a dominant position in the domestic market in a manner that eliminates or significantly reduces competition is prohibited. However, if the acquiring party and the company to be acquired
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operate in more than one EU member state and together exceed certain revenue thresholds, the antitrust approval of the acquisition falls within the exclusive jurisdiction of the European Commission.
Shareholders’
Meetingsmeetings
Shareholders’ meetings are convened through a notice to be published on the Italian Official Gazette or the following newspapers: "Il Sole 24 Ore", "Corriere della Sera" and "Financial Times", according to the By-laws and in compliance with the rules in force regulating the exercise of the vote by mail.
Registered shareholders are entitled to attend and vote at ordinary and extraordinary shareholders’ meetings. Each holder is entitled to cast one vote for each share held. Votes may be cast personally, by proxy or by mail, in accordance with applicable regulations. Meetings are called by Eni SpA’s Board of Directors when required or deemed necessary, or on request of shareholders representing at least 10% of outstanding shares, who must provide an agenda of the matters to be discussed to the Chairman of the Board of Directors. Meetings may also be called, by the Board of Statutory Auditors or by two auditors, provided that such call has been notified in advance. Shareholders representing at least one fortieth of Eni share capital, both on an individual and a cumulative basis, may ask, within five days as of the date of publication of the shareholders’ meeting notice, to add other items in the agenda. The request shall contain the matters to be proposed to the shareholders’ meeting. Said faculty may not be exercised on the matters upon which, pursuant to the applicable legislation, the shareholders’ meeting resolves on the basis of a proposal of the Board of Directors or on the basis of a project or report of the Board. The integrations accepted by the Board shall be published at least ten days before the shareholders’ meeting date, through a notice to be published as indicated above.
Ordinary Shareholders’ Meetings must be convened at least once a year.year within 180 days after the end of the fiscal year of the parent company Eni SpA. The notice convening the meeting is to be published at least 30 days before the date fixed for the meeting. At these ordinary meetings, shareholders approve the financial statements, resolve upon dividend distribution, if any, when necessary, may appoint Directors, Statutory Auditors and when necessary, the external auditors, determine their remuneration and vote on the liability of Directors and Statutory Auditors and approve Shareholders’ Meeting regulation. Under current legislation, the reports and proposals of the Board of Directors to the Ordinary Shareholders’ Meeting for any item on the agenda of the meeting and the financial statements to be submitted to the shareholders’ approval, shall be deposited at the shareholders’ disposal at the Company’s registered office and at Borsa Italiana.
Extraordinary meetings of shareholders may be called to pass upon proposed amendments to the by-laws,By-laws, capital increases, mergers, consolidations, demerger, issuance of debentures, appointment of liquidators and similar extraordinary actions. The notice of a Shareholders’ Meeting generally specifies two meeting dates ("calls") and because Eni SpA is listed such notice may specify three calls for Extraordinary Shareholders’ Meetings.
The attendance quorum required for a valid shareholder action at an ordinary meeting on first call is 50% or more of the outstanding shares, while on second call there is no attendance quorum requirement. At a duly called ordinary meeting, in both first and second calls, resolutions may be approved by a simple majority of the shares represented at the meeting.
The attendance quorum required for a valid shareholder meeting at an Extraordinary Meeting is more than 50% of the outstanding shares on first call, while on second call the attendance quorum is more than 1/3 of the Shares outstanding and on third call the attendance quorum is more than 1/5 of the shares outstanding. On first, second and third call, resolutions may be approved by a majority of 2/3 of the Shares represented at the Shareholders’ Meeting.
The financial statements of Eni SpA are submitted for approval to the annual shareholders’ meeting, which must be convened within 180 days after the end of the financial year. Shareholders are informed of all meetings to be held by publication of a notice in the Gazzetta Ufficiale and in at least one Italian newspaper of general circulation at least 30 days before the date fixed for the meeting. Under current legislation, the reports and proposals of the Board of Directors to the Shareholders’ Meeting for any item on the agenda of the meeting and the financial statements to be submitted to the shareholders’ approval, shall be deposited at the shareholders’ disposal at the Company’s registered office and at Borsa Italiana.
Admission to the meeting is granted to shareholders who requesteddeliver the notification of attendance pursuant to Article 34 of Consob Deliberation No. 11768 of December 23, 1998,communication issued by financial intermediaries under applicable laws at least fivetwo business days prior to the date of the meeting on first call. The Extraordinary Shareholders’ Meeting, held on May 28, 2004, approved the amendment of Article 13 of the by-laws according to which the term is reduced to two days. For a description of the procedures to be followed by Beneficial Owners of ADRs to attend shareholders’ meetings and exercise voting rights with respect to underlying Shares, see "Description of American Depositary Receipts –- Voting of Deposited Securities". Beneficial Owners of Shares held with Monte Titoli need only to instruct the relevant banks associated with Monte Titoli which holdholds their accounts to procure admission tickets and proxy forms.
The Extraordinary Shareholders’ Meeting held on May 28, 2004, approved the amendment to Article 23 of the by-laws according to which the Board of Director is allowed to resolve: (i) the merger and demerger of at least 90% directly owned subsidiaries; (ii) the establishment and winding up of branches; and (iii) the amendment to the by-laws to adequate its provisions to the current legislation.
Pursuant to Legislative Decree No. 213 dated June 24, 1998, Eni SpA’s shares have been "dematerialized" (the shares are not longer incorporated in a certificate). Therefore for the exercise of the rights connected to outstanding Shares not yet dematerialized, Shareholders must first deliver such shares to a financial intermediary associated with Monte Titoli.
Shareholders may appoint proxies by completing the form attached to the admission ticket. Directors, Statutory Auditors, auditors and employees of Eni SpA or of controlled companies, and the External Auditors of Eni SpA, banks and Monte Titoli may not be appointed proxies. Any one proxy may not represent more than 200 shareholders of Eni SpA. A proxy may be appointed for a single meeting, including the first, second and third call thereof unless the proxy is general or given to a company, association, foundation, other entities or institutions to an employee. The by-lawsBy-laws of Eni SpA provide for voting by mail. There are no limitations arising under Italian law or the by-lawsBy-laws of
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Eni SpA on the right of non-resident or foreign persons to hold or vote the Shares other than limitations that apply generally to all shareholders.
Rules relating to proxies are established by Decree No. 58 and the related Consob Regulation No. 11971 dated May 14, 1999. Accordingly whereby: (i) proxies may be solicited, collected or exercised by banks, investment firms and shareholders’ associations; (ii) proxies may be granted only in respect of shareholders’ meetings that have been called; and (iii) proxies may be limited to voting on particular proposals. Decree No. 58 also allows companies to implement vote by mail procedures and establishes new regulations relating to, among other things, takeovers, cross-shareholdings, shareholders’ agreements and saving shares.procedures.
Meetings of Eni’s shareholders are conducted according to the "Eni SpA’s Shareholders’ Meeting Regulation" as approved by the Ordinary Shareholders’ Meeting of Eni on December 4, 1998 and amended by the Ordinary Shareholders’ Meeting held on May 28, 2004 in order to adequate the provisionprovisions to the new rules contentcontained in the Civil Code for the participation to the Shareholders’ Meetings.
Subscription
Rightsrights
New shares may be issued pursuant to a resolution of shareholders at an extraordinary meeting. Under the Italian law, shareholders have a preemptive right to subscribe for new issues of shares and debentures convertible into shares in proportion to their respective shareholdings. Subject to certain conditions, principally designated to prevent dilution of the rights of shareholders, this right may be waived or limited by resolution taken by an extraordinary Shareholders’ Meetingshareholders’ meeting by the affirmative vote of more than 50% of the shares outstanding. Such percentage applies to all calls of the meeting.
Liquidation
Rightsrights
Under the Italian law, subject to the satisfaction of the claims of all other creditors, shareholders are entitled to athe distribution of the remaining liquidated assets of Eni SpA in proportion to the nominal value of their shares. Holders of savings shares and preferred shares, if foreseen by the by-laws,By-laws, in the event such shares are issued by Eni SpA, are entitled to a preferred right to distribution from liquidation up to their nominal value. Thereafter, if there are surplus assets, ordinary shareholders rank equally in the distribution of such assets. Shares rank pari passu among ordinary shareholders in a liquidation.
Material Contracts
None.
Documents on Display
It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at 100 F Street, NE, Room 1580, Washington, DC 20549 and at the SEC’s other public reference rooms in New York City and Chicago. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The SEC filings are also available to the public from commercial document retrieval services and in the website maintained by the SEC at www.sec.gov. It is also possible to read and copy documents referred to in this annual report on Form 20-F at the New York Stock Exchange, 20 Broad Street, 17th floor, New York.
Exchange Controls
There are no exchange controls in Italy. Residents and non-residents of Italy may effect any investments, divestments and other transactions that entail a transfer of assets to or from Italy, subject only to the reporting, record-keeping and disclosure requirements described below. In particular, residents of Italy may hold foreign currency and foreign securities of any kind, within and outside Italy, while non-residents may invest in Italian securities without restriction and may export from Italy cash, instruments of credit or payment and securities, whether in foreign currency or euro, representing interest, dividends, other asset distributions and the proceeds of dispositions.
Updated reporting and record-keeping requirements are contained in recentthe Italian legislation which implements an EU directive regarding the free movement of capital. Such legislation requires that transfers into or out of Italy of cash or securities in excess of euro 12.5 thousand be reported in writing to the Ufficio Italiano Cambi (the Italian Exchange Office) by residents or non-residents that effect such transfers directly, or by banks, securities dealers or
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Poste Italiane SpA (Italian Mail) that effect such transactions on their behalf. In addition, banks, securities dealers or Poste Italiane SpA effecting such transactions on behalf of residents or non-residents of Italy are required to maintain records of such transactions for five years, which records may be inspected at any time by Italian tax and judicial authorities.
Non-compliance with these reporting and record-keeping requirements may result in administrative fines or, in the case of false reporting and in certain cases of incomplete reporting, criminal penalties. The Ufficio Italiano Cambi will maintain reports for a period of ten years and may use them, directly or through other government offices, to police money laundering, tax evasion and any other crime or violation.
Taxation
The information set forth below is a summary only, and Italian, the United States and other tax laws may change from time to time. Holders of shares and ADSsADRs should consult with their professional advisors as to the tax consequences of their ownership and disposition of the shares and ADRs, including, in particular, the effect of tax laws of any other jurisdiction.
Italian Taxation
The following is a summary of the material Italian tax consequences of the ownership and disposition of shares or ADRs as at the date hereof and does not purport to be a complete analysis of all potential tax effects relevant to the ownership or disposition of shares or ADRs.
Income tax
Dividends received by Italian resident individuals in relation to participationsinterest exceeding 2% of the voting rights or 5% of the share capital ("substantial participations"interest") are included in the taxable income subject to personal income tax to the extent of 40% of their amount. Personal income tax applies at progressive rates ranging from 23% to 43% plus local surtaxes. Dividends received by Italian resident individuals in relation to non-substantial participationsinterest not related to the conduct of a business are subject to a substitute tax of 12.5% withheld at the source by the dividend paying agent. This being the case, the dividend is not to be included in the individual’s tax return. If the non-substantial participations areinterest is related to the conduct of a business, dividends received are included in the taxable business income to the extent of 40% of their amount.
Dividends received by Italian pension funds are included in the overall result of the pension funds subject to aan 11% substitute tax. Dividends received by Italian collective investment funds are included in the overall result of the collective investment funds subject to a 12.5% substitute tax. Dividends received by Italian real estate investment funds are not subject to tax in the hands of the real estate investment funds. Entities exempt from IRES (company income tax) are subject to the substitute tax at the rate of 27%.
Dividend paid to non-Italian residents are subject to the same substitute tax levied at source by the dividend paying agent at the rate of 27%, provided that the participations areinterest is not connected to an Italian permanent establishment. Up to four-ninths of the substitute tax withheld might be recovered by the non-resident shareholder from the Italian Tax Authorities upon provision of evidence of full payment of income tax on such dividend in his/her country of residence in an amount at least equal to the total refund claimed.
The substitute tax may be reduced under the tax treaty in force between Italy and the country of residence of the Beneficial Owner of the dividend. Italy has executed income tax treaties with approximately 70 foreign countries, including all EU member states, Argentina, Australia, Brazil, Canada, Japan, New Zealand, Norway, Switzerland, the United States and some countries in Africa, the Middle East and the Far East. Generally speaking, it should be noted that tax treaties are not applicable where the holder is a tax-exempt entity or, with few exceptions, a partnership or a trust.
In order to obtain the treaty benefit (reduced substitute tax rate) at the same time of payment, the Beneficial Owner must file an application to the dividend paying agent chosen by the Depositary stating the existence of the conditions for the applicability of the treaty benefit, together with a certification issued by the foreign Tax Authorities stating that the shareholder is a resident of that country for treaty purposes.
Under the tax treaty between the United States and Italy, dividends derived and beneficially owned by a U.S. resident who holds less than 10% of the Company’s shares are subject to an Italian withholding or substitute tax at a reduced rate of 15%, provided that the participations areinterest is not effectively connected with a permanent establishment in Italy through which the U.S. resident carries on a business or a fixed establishment in Italy through which such U.S. resident performs independent personal services (for further details please refer to the relevant provisions set forth in
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the Italy-U.S. Tax Treaty). In the absence of such conditions, the dividend paying agent will deduct from the gross amount of the dividend the substitute tax at the statutory rate of 27%.
Based on the certification procedure required by the Italian Tax Authorities, to benefit from the direct application of the 15% substitute tax the U.S. shareholder must provide the dividend paying agent with a certificate obtained from the U.S. Internal Revenue Service (the "IRS") with respect to each dividend payment. The request for that certificate must include a statement, signed under penalties for perjury, to the effect that the shareholder is a U.S. resident individual or corporation, and does not maintain a permanent establishment in Italy, and must set forth other required information. The normal time for processing requests for certification by the IRS is normally about six to eight weeks.
Where the Beneficial Owner has not provided the above mentioned documentation, the dividend paying agent will deduct from the gross amount of the dividend the substitute tax at the statutory rate of 27%. The U.S. recipient will then be entitled to claim from the Italian Tax Authorities the difference ("treaty refund") between the domestic rate and the treaty one by filing specific forms (certificate) with the Italian Tax Authorities.
According to the Italian tax law as reflected in the Deposit Agreement, the Company is not involved: (i) in withholding amounts due by holders of ADSsADRs to relevant taxing authorities in connection with any distributions relating to ADSs;ADRs; or (ii) in the procedures through which certain holders of ADSsADRs may obtain tax rebates, credits, refunds or other similar benefits. Pursuant to the Deposit Agreement, the custodian and the Depositary have undertaken to use reasonable efforts to make and maintain arrangements to enable persons that are considered theto be resident in United States residents for purposes of applicable law to receive any rebates or tax credits (pursuant to treaty or otherwise) relating to distributions on the ADSsADRs to which such persons are entitled inentitled. In addition, the Depositary has agreed to establish procedures to enable all holders to take advantage of any rebates or tax credits (pursuant to treaty ofor otherwise) relating to distributions on the ADSsADRs to which such holders are entitled and to provide, at least annually, a written notice, in a form previously agreed to by the Company, to the holders of ADSsADRs of any necessary actions to be undertaken by such Holders.
TransferCapital gains tax
In general terms, no Italian transfer tax is payable in the following cases:
The mentioned exemption from transfer tax does not entail the application of stamp duty or registration tax.
To provide a more complete picture, transfer tax is currently payable at the following rates:
Capital Gains Tax
This paragraph applies with respect to capital gains out of the scope of a business activity carried out in Italy.
Gains realized by Italian resident individuals upon the sale of substantial participations areinterest is included in the taxable base subject to personal income tax to the extent of 40% of their amount, while gains realized upon the sale of non substantial participations areinterest is subject to a substitute tax at a 12.5% rate.
For gains deriving from the sale of non substantial participations,interest, two different systems may be applied at the option of the shareholder as an alternative to the filing of the tax return:
• | the so-called "administered savings" tax regime (risparmio amministrato), based on which intermediaries acting as shares depositaries shall apply a substitute tax (12.5%) on each gain, on a cash basis. If the sale of shares generated a loss, said loss may be carried forward up to the fourth following year; and | |
• | the so-called "portfolio management" tax regime (risparmio gestito) which is applicable when the shares form part of a portfolio managed by an Italian asset management company. The accrued net profit of the portfolio is subject to a 12.5% substitute tax to be applied by the portfolio. |
Gains realized by non residentsnon-residents from non substantial participationsinterest in listed companies are deemed not to be realized in Italy and consequently are not subject to the capital gains tax.
On the contrary, gains realized by non-residents from substantial participationsinterest even in listed companies are deemed to be realized in Italy and consequently they are subject to the capital gains tax.
However double taxation treaties may eliminate the capital gains tax. Under the income tax convention between the United States and Italy, a U.S. resident will not be subject to the capital gains tax unless the shares or ADRs form part of the business property of a permanent establishment of the holder in Italy or pertain to a fixed establishment available to a shareholder in Italy for the purposes of performing independent personal services. U.S. residents who sell shares may be required to produce appropriate documentation establishing that the above-mentioned conditions of non-taxability pursuant to the convention have been satisfied.
Inheritance and
Gift Taxgift tax
No inheritancePursuant to Law Decree No. 262 of October 3, 2006, converted with amendments by Law No. 286 of November 24, 2006 effective from November 29, 2006, and Law No. 296 of December 27, 2006, the transfers of any valuable assets (including shares) as a result of death or donation (or other transfers for no consideration) and the creation of liens on such assets for a specific purpose are taxed as follows:
a) | 4 per cent: if the transfer is made to spouses and direct descendants or ancestors; in this case, the transfer is subject to tax on the value exceeding euro 1,000,000 (per beneficiary); |
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b) | 6 per cent: if the transfer if made to brothers and sisters; in this case, the transfer is subject to the tax on the value exceeding euro 100,000 (per beneficiary); | |
c) | 6 per cent: if the transfer is made to relatives up to the fourth degree, to persons related by direct affinity as well as to persons related by collateral affinity up to the third degree; and | |
d) | 8 per cent: in all other cases. |
If the transfer is made in favor of persons with severe disabilities, the tax applies in Italy to the transfer of shares or ADRs by reason of death. Transfer of shares or ADRs, even if held outside Italy, by reason of donation are subject to the ordinary Italian transfer tax on the value of the gift exceeding euro 180,759.91, only if the donee1,500,000. Moreover, an anti-avoidance rule is not the spouse, a direct descendant or a relative up to the fourth degreeprovided for by Law No. 383 of the donor. However, tax applies in the fixed amount of euro 129.11.
An anti avoidance rule applies toOctober 18, 2001 for any gift of assets (such as(including shares) which, if sold for consideration, would give rise to capital gaingains subject to a substitute tax as per(imposta sostitutiva) provided for by Decree No. 461 of November 21, 1997. In particular, if the donee sells the shares for consideration within five years from the receipt thereof as a gift, the donee is required to pay a relevant substitute tax will apply on the capital gain determinedgains as if the gift had never been given.
taken place.
United States Taxation
The following is a summary of certain U.S. federal income tax consequences to U.S. Holders (as defined below) of the ownership and disposition of Shares or ADSs.ADRs. This summary is addressed to U.S. Holders that hold Shares or ADSsADRs as capital assets, and does not purport to address all material tax consequences of the ownership of Shares or ADSs.ADRs. The summary does not deal with special classes of investors, such as tax-exempt entities, dealers in securities, traders in securities that elect to mark to market, certain insurance companies, broker-dealers, investors liable for alternative minimum tax, investors that actually or constructively own 10% or more of Eni SpA’s Shares, investors that hold Shares or ADSsADRs as part of a straddle or a hedging or conversion transaction and investors whose "functional currency" is not the U.S. dollar.
This summary is based on the tax laws of the United States (including the Internal Revenue Code of 1986, as amended, (the "Code") its legislative history, existing and proposed regulations thereunder, published rulings and court decisions) as in effect on the date hereof, and which are subject to change (or changes in interpretation), possibly with retroactive effect. The summary is based in part on representations of the Depositary and assumes that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. U.S. Holders should consult their own tax advisors to determine the U.S. federal, state and local and foreign tax consequences to them of the ownership and disposition of Shares or ADSs.ADRs.
As used in this section, the term "U.S. Holder" means a beneficial owner of Shares or ADSsADRs who or that is: (i) a citizen or resident of the United States; (ii) a domestic corporation; (iii) an estate the income of which is subject to the United States federal income tax without regard to its source; or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.
The discussion does not address any aspects of the United States taxation other than federal income taxation. In particular, U.S. Holders are urged to confirm their eligibility for benefits under the income tax convention between the United States and Italy with their advisors and to discuss with their advisors any possible consequences of their failure to qualify for such benefits.
In general, and taking into account the earlier assumptions, for the United States federal income tax purposes, U.S. Holders who own ADRs evidencing ADSsADRs will be treated as owners of the underlying Shares. Exchanges of Shares for ADRs and ADRs for shares generally will not be subject to the United States federal income tax.
Dividends
Distributions paid on the shares generally will be treated as dividends for U.S. federal income tax purposes to the extent paid out of Eni SpA’s current or accumulated earnings and profits as determined for U.S. federal income tax purposes, but will not be eligible for the dividends received-deduction generally allowed to corporations. To the extent that a distribution exceeds Eni SpA’s earnings and profits, it will be treated, first, as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in the shares or ADSs,ADRs, and thereafter as capital gain. A U.S. Holder will be subject to U.S. federal taxation, on the date of actual or constructive receipt by the U.S. Holder (in the case of Shares) or by the Depositary (in the case of ADSs)ADRs) with respect to the gross amount of any dividends, including any Italian tax withheld therefrom, without regard to whether any portion of such tax may be refunded to the U.S. Holder by the Italian tax authorities. If you are a non-corporate U.S. Holder, dividends paid to you in taxable years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the Shares or ADSsADRs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the shares or ADSsADRs generally will be qualified dividend income. The amount of the dividend distribution that you must include in your income as a U.S. Holder will be the U.S. dollar value of the euro payments made, determined at the spot euro/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss
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resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.
Subject to certain conditions and limitations, Italian tax withheld from dividends will be treated as a foreign income tax eligible for credit against the U.S. Holder’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. To the extent a refund of the tax withheld is available to a U.S. Holder under Italian law or under the income tax convention, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. See "Italian Taxation – Income Tax" above, for the procedures for obtaining a tax refund. Dividends paid on the Shares will be treated as income from sources outside the United States. Dividend paid in taxable years beginning before January 1, 2007 generally will be of "passive" or "financial services" income, and dividends paid in taxable years beginning after December 31, 2006 will, depending on your circumstances, be "passive" or "general" income which, in either case, is treated separately from other types of income for purpose of computing the foreign tax credit allowable to you.
Sale or
Exchangeexchange ofSharesshares
In general, a U.S. Holder will recognize gain or loss for U.S. federal income tax purposes on the sale or exchange of Shares or ADSsADRs equal to the difference between the U.S. Holder’s adjusted basis in the shares or ADSsADRs (determined in U.S. dollars), as the case may be, and the amount realized on the sale or exchange (or if the amount realized is denominated in a foreign currency its U.S. dollar equivalent, determined at the spot rate on the date of disposition). Generally, such gain or loss will be treated as capital gain or loss if the Shares or ADSsADRs are held as capital assets and will be a long-term capital gain or loss if the shares or ADSsADRs have been held for more than one year on the date of such sale or exchange. Long-term capital gain of a non-corporate U.S. Holder that is recognized in taxable years beginning before January 1, 2011 is generally subject to a maximum tax rate of 15%. In addition, any such gain or loss realized by a U.S. Holder generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.
Item 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the possibility that changesthe exposure to fluctuations in currency exchange rates, interest rates or oil, natural gas, petroleum products and electricitycommodity prices will adversely affect the value of the group’sGroup’s financial assets, liabilities or expected future cash flows. Eni has developed policies aimed at managing the market risk inherent in its activities and, in accordance with these policies, the group enters into various transactions using derivativeEni’s financial and commodity instruments (derivatives). Derivatives are contracts whose valueperformance is derived from one or more underlying financial instruments, indices or prices that are defined in the contract. The group also trades derivatives in conjunction with these risk management activities. Eni does not enter into derivative transactions on a speculative basis.
All derivative activity, whether for risk management or trading, is carried out by specialist teams that have the appropriate skills, experience and supervision. Eni’s Board of Directors has defined a policy that requires the Treasury Department of Eni SpAparticularly sensitive to determine the maximum level of foreign exchange rate and interest rate risks that can be assumed by Eni’s companies responsible for treasury operations. Such policy also defines the eligible counterparties in derivative transactions. Eni’s Treasury Department is responsible for monitoring compliance with Eni’s policy and the correlation between the indicators adopted for both measuring the tolerable risk level and composition of the portfolios and market conditions.
As far as interest rate and foreign exchange rate risks are concerned, calculation and measurement techniques followed by Eni’s finance companies are in accordance with established banking standards (such standards are established by the Basel Committee). However, the tolerable level of risk adopted by Eni’s subsidiaries is more conservative than the recommended one. Eni’s guidelines for the management of commodity risk contain maximum limits to the price risk deriving from trading activities.
According to International Accounting Standard No. 39 "Financial instruments: recognition and measurement" (IAS 39), derivatives are classified as hedging instruments when the relationship between the derivative and the subject of the hedge is formally documented and the effectiveness of the hedge is high and is checked periodically. When derivatives constitute a fair value hedge, the group’s exposure to market risk created by the derivative is offset by the opposite exposure arising from the asset or liability. When derivates are designated as a part of a cash flow hedge, changes in the fair value of the derivates are initially stated in net equity and then recognized in the profit and loss account consistent with effects economic produced by the hedged transaction. Derivatives that do not meet the conditions required by IAS 39 qualify as derivatives held for trading purposes and are accounted for at fair value, with change in fair value recorded in the profit and loss account.
Nature and classification of derivative financial instruments held by Eni as of December 31, 2005 and related fair value at the same date are set out in the table below.
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Fair value of non-hedging derivates | ||||||||
Exchange rate | 73 | 3,681 | 214 | 8,743 | ||||
Interest rate | 14 | 1,281 | 101 | 5,145 | ||||
Commodities | 30 | 405 | 63 | 417 | ||||
117 | 5,367 | 378 | 14,305 | |||||
Fair value of cash flow-hedging derivates | ||||||||
Exchange rate | 0 | 5 | 5 | 42 | ||||
Interest rate | ||||||||
Commodities | 32 | 171 | ||||||
32 | 176 | 5 | 42 | |||||
Sensitivity analysis
The Company has estimated its market risk exposure using sensitivity analysis. Market risk exposure has been defined as the change in fair value of derivative financial and commodity instruments and other financial instruments assuming a hypothetical 10 percent adverse change in market prices or rates. The interest rate used for periods shorter than one year is LIBOR/EURIBOR. The Company has applied the sensitivity analysis to derivative financial and commodity instruments and other financial instruments that are exposed to interest rate, foreign exchange rate and commodities price risk. Actual changes in market prices or rates may differ from hypothetical changes.
The table below presents the potential impact on the fair value of the current financial instruments as of December 31, 2005, of an increase or a decrease of 10% in the interest rate yield curves in each of the currencies.
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Interest rate | ||||||||||||||||||
Financial instruments | 233 | 1,499 | 236 | 1,698 | 38 | (54 | ) | |||||||||||
Derivative financial instruments | 1,281 | 5,145 | 14 | 101 | 47 | (48 | ) | |||||||||||
- of which interest rate swap | 1,281 | 5,145 | 14 | 101 | 47 | (48 | ) | |||||||||||
1,514 | 6,644 | 250 | 1,799 | 85 | (102 | ) | ||||||||||||
Exchange rate | ||||||||||||||||||
Financial instruments | 197 | 120 | 235 | 120 | 13 | (12 | ) | |||||||||||
Derivative financial instruments | 3,686 | 8,785 | 73 | 218 | 164 | (202 | ) | |||||||||||
- of which interest currency swap | 1,277 | 2,316 | 58 | 73 | 170 | (175 | ) | |||||||||||
currency swap | 2,378 | 6,370 | 15 | 139 | (15 | ) | (15 | ) | ||||||||||
other | 31 | 99 | 6 | 9 | (12 | ) | ||||||||||||
3,883 | 8,905 | 308 | 338 | 177 | (214 | ) |
As of the same date, Eni’s exposure to commodity market risk was immaterial.
Currency risk Fluctuations in exchange rates can have significant effects on the group’s reported profit. The effects of most exchange rate fluctuations are absorbed in business operating results through changing cost-competitiveness, changes in the price of certain products via indexation to international parameters quoted in U.S. dollars, lags in market adjustment tocrude oil and movements in ratesthe euro/U.S.$ exchange rate. Overall, a rise in the price of crude oil has a positive effect on Eni’s results from operations and conversion differences accounted forliquidity due to increased revenues from oil and gas production. Conversely, a decline in crude oil prices reduces Eni’s results from operations and liquidity.
The impact of changes in crude oil prices on specific transactions. For this reason, the total effectCompany’s downstream gas and refining and marketing businesses and petrochemical operations depends upon the speed at which the prices of finished products adjust to reflect changes in crude oil prices. In addition, the Group’s activities are, to various degrees, sensitive to fluctuations in the euro/U.S.$ exchange rate fluctuations is not identifiable separately in the group’s reported profit, nor is the whole exchange rate risk entirely covered. In addition to the euro, which the currency adopted for financial reporting purposes, the main underlying economic currency of the group’s cash flows is the U.S. dollar. This is because Eni’s major productsas commodities are generally priced internationally in U.S. dollars or linked to certaindollar denominated products pricedas in U.S. dollars. Eni’s foreign exchange management policy is to minimize economic and significant transactional exposures arising from movementsthe case of gas prices. Overall, an appreciation of the euro against the U.S. dollar. The group co-ordinatesdollar reduces the handlingGroup’s results from operations and liquidity, and vice versa.
Please refer to Note 28 to the Consolidated Financial Statements for a qualitative and quantitative discussion of the Company’s exposure to market risks. Please also refer to Notes 7 and 20 to the Consolidated Financial Statements for details of the different derivatives owned by the Company in these markets.
As part of its financing and cash management activities, the Company uses derivative instruments to manage its exposure to changes in interest rates and foreign exchange risks centrally, by netting off naturally occurring opposite exposures wherever possible to reduce the risks, and then dealing with any material residual foreign exchange risks.
Interest rate risk The group is exposed to interest rate risk on short- and long-term floating raterates. These instruments and as a result of the refinancing of fixed rate finance debt. Eni’s policy foresees to incur long-term debt at a floating rate, or at a fixed rate depending on opportunities at the issuance with regards to the level of interest rates, in euros or in U.S. dollars according to general corporate purposes (to optimize level of liquidity, to optimize revenue from investments considering existing interest yield curves, and to minimize the cost of borrowing).
The group is exposed predominantly to Euribor (Euro Interbank Offered Rate) and U.S. dollar LIBOR (London Inter-Bank Offer Rate) interest rates as borrowings are mainly denominated in euro or U.S. dollars. To manage the balance between fixed and floating rate debt, the group enters intoprincipally interest rate and cross-currency swaps in which the group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed notional principal amount.currency swaps. The proportion of floating rate debt at December 31, 2005 was 83% of total finance debt outstanding.
Commodity risk Eni’s results of operations are exposed to fluctuations in prices of crude oil, petroleum prices, natural gas and electricity. Changes in commodity prices are absorbed by the Group’s business units. A decrease in oil prices generally has a negative impact on Eni’s results of operations and vice versa. EniCompany also bears commodity risks in connection with certain trading activities. Eni’s trading function uses financial andenters commodity derivatives as part of its ordinary commercial and trading activities and, from time to time, to hedge the associated tradingexposure to variability in future cash flows due to movements in commodity prices, in view of crudepursuing acquisitions of oil refined products, electricity and related instruments to manage certaingas reserves as part of the group’s exposuresCompany’s ordinary asset portfolio management or other strategic initiatives. These instruments and their accounting treatment are detailed in Notes 7 and 25 to price fluctuations.the Financial Statements.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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PART II
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
Item 15. CONTROLS AND PROCEDURES
Disclosure controls and procedures
In designing and evaluating the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the Company’s management, including the principal executive officerChief Executive Officer and principal financial officer,the Chief Financial Officer, recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management necessarily was required to apply its judgementjudgment in evaluating the cost-benefitcost benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
It should be noted that Enithe Company has investments in certain unconsolidated entities. As Enithe Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily more limited than those it maintains with respect to its consolidated subsidiaries.
The Company’s management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-14(c) under the Exchange Act Rule 13a-14(c) as of the end of the period covered by this Annual Report on Form 20-F. Based on that evaluation, the principal executive officer and principal financial officer have concluded that these disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective at thecan only provide reasonable assurance level.with respect to financial statement preparation and presentation. Also, the effectiveness of an internal control system may change over time.
The Internal Control Committee assists the Board of Directors in setting out the main principles for the internal control system so as to appropriately identify and adequately evaluate, manage, and monitor the main risks related to the Company and its subsidiaries, by laying down the compatibility criteria between said risks and sound corporate management. In addition this Committee assesses, at least annually, the adequacy, effectiveness, and actual operations of the internal control system.
The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of its internal control over financial reporting based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on the results of this evaluation, the Group’s management concluded that its internal control over financial reporting was effective as of December 31, 2007.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2007, has been audited by PricewaterhouseCoopers SpA, an independent registered public accounting firm, as stated in its report that is included on pages F-1 and F-2 of this Annual Report on Form 20-F.
Changes in Internal Control over Financial Reporting
There have not been changes in the Company’s internal control over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Item 16A. Board of Statutory Auditors Financial Expert
Eni’s Board of Statutory Auditors has determined that four members of Eni’s Board of Statutory Auditors qualify as "audit committee financial expert", as defined in Item 16A of Form 20-F. These four members are: Paolo Andrea Colombo, who is the Chairman of the Board, and Filippo Duodo, Riccardo Perotta and Giorgio Silva. All members are independent.
Item 16B. Code of Ethics
Eni adopted a code of ethics that applies to Eni’s Board of Directors and Board of Statutory Auditors, as well as all Eni’s employees including Eni’s principal executive officer, principal financial officer and principal accounting officer. Eni published itsThe Company’s code of ethics is published on Eni’s website. It is accessible at www.eni.it, under the section Publications -"Sustainability – Corporate Responsibility -Governance and Corporate Ethics – Code of Practice.Ethics". A copy of this code of ethics is included as an exhibit to this annual report.Annual Report on Form 20-F.
Eni’s code of ethicethics contains ethical guidelines, describes corporate values and requiredrequires standards of business conduct and moral integrity. The ethical guidelines are designed to deter wrongdoing and to promote honest and ethical conduct, compliance with applicable laws and regulations and internal reporting of violations of the guidelines. The code also affirms the principles of accounting transparency and internal control.control and endorses human rights and the issue of the sustainability of the business model.
Item 16C. Principal Accountant Fees and Services
PricewaterhouseCoopers SpA has served as Eni independent public auditor for fiscal year 2003 and as Eni principal independent public auditor for fiscal years 20042005, 2006 and 2005,2007 for which audited Consolidated Financial Statements appear in this annual reportAnnual Report on Form 20-F.
The following table shows total fees paid by Eni, its consolidated and ourunconsolidated subsidiaries and Eni’s share of fees incurred by joint ventures for services provided by Eni public auditor PricewaterhouseCoopers and its member firms, with respect to the previous two years:years indicated:
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2005 | 2006 | 2007 | ||||
(thousand euro) |
Audit Fees | 12,591 | 22,240 | 26,383 | |||
Audit-Related Fees | 190 | 166 | 169 | |||
Tax Fees | 246 | 303 | 81 | |||
All Other Fees | 38 | 6 | 120 | |||
Total | 13,065 | 22,715 | 26,753 |
(thousand euro) | 2004 | 2005 | |
Audit fees | 9,344 | 12,591 | |||
Audit-related fees | 136 | 190 | |||
Tax fees | 344 | 246 | |||
All other fees | 54 | 38 | |||
Total | 9,878 | 13,065 | |||
Audit Fees principally include fees billedprofessional services rendered by the principal accountant for the standard audit workof the registrant’s annual financial statements or services that needs to be performed each yearare normally provided by the accountant in order to issue an opinionconnection with statutory and regulatory filings or engagements, including, from 2006, the audit on the Consolidated Financial Statements of Eni. It also includes other audit services which are those services that only the external auditor reasonably can provide, such as comfort letter/consent letter, certification services, assistance and revision of documents filed with the SEC.Company’s internal control over financial reporting.
Audit Related Fees include fees billed for other assurance and related services provided by auditors, but not restricted to those that can only reasonably be provided by the external auditor signing the audit report,principal accountant that are reasonably related to the performance of the audit or review of the company’sregistrant’s financial statements suchand are not reported as Audit Fees in this Item. The fees disclosed in this category mainly include audits of pension and benefit plans, merger and acquisition due diligence, audit and consultancy services rendered in connection with acquisition deals, checks on internal control systems over financial reporting, certification services not provided for by law and regulations and consultations concerning financial accounting and reporting standards.
Tax Fees include professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. The fees disclosed in this category mainly include fees billed for the assistance with compliance and reporting of income and value added taxes, assistance with assessment of new or changing tax regimes, tax consultancy in connection with merger and acquisition deals, services rendered in connection with tax refunds, assistance rendered on occasion of tax inspections and in connection with tax claims and recourses and assistance with assessing relevant rules, regulations and facts going into Eni correspondence with tax authorities.
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All Other Fees include products and services provided by the principal accountant, other than the services reported in Audit Fees, Audit-Related Fees and Tax Fees of this Item and consists primarily of fees billed for consultancy services related to IT and secretarial services that are permissible under applicable rules and regulations and consist primarily of consultancy services related to IT and secretarial services.regulations.
Pre-approval
Policiespolicies andProceduresprocedures of the Internal Control Committee
The Board of Statutory Auditors informed allhas adopted a pre-approval policy for audit and non-audit services that set forth the procedures and the conditions pursuant to which services proposed to be performed by the principal auditors may be pre-approved. Such policy is applied to entities within the Eni Group companies that they cannot request Eni’s external auditorswhich are either controlled or jointly-controlled (directly or indirectly) by Eni SpA. According to performthis policy, permissible services other than audits, services related to audits, and towithin the company’s capital markets transactions. This restriction applies to our principal external auditor and to other external auditors performing audit services relating to 5% or more of Eni’s consolidated revenues or total assets. Services strictly related to audit services and to the company’s capital markets transactions have been listedcategory are pre-approved by the Board of Statutory Auditors.
Audit services and services strictly related to audit services and to the company’s capital markets transactions have been identified as permissible and have been pre-approved by the The Board of Statutory Auditors, which also informed all Group companies that pre-approval by the BoardAuditors’ approval is required on a case by case basis for any other service requestedthose requests regarding: (i) audit-related services; and (ii) non-audit services to be performed by the external auditors including those non-audit services which are permissible under applicable rules and regulations. In such cases, the Company’s internal audit department is charged with performing an initial assessment of each request to be submitted to the Board of Statutory Auditors for approval. The internal audit department periodically reports to Eni’s Board of Statutory Auditors on the status of both pre-approved services and services approved on a case-by-case basis rendered by the external auditors.
During 2005,2007, no audit-related fees, tax feesAudit-Related Fees, Tax Fees or other non-audit feesOther Non-Audit Fees were approved by the Board of Statutory Auditors pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i) (c) of Rule 2-01 of Regulation S-X.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Making use of the exemption provided by Rule 10A-(c)10A-3(c)(3) for non-U.S. private issuers, Eni has identified the Board of Statutory Auditors as the body that, starting from June 1, 2005, is performing the functions required by the SEC rules and the Sarbanes-Oxley Act to be performed by the audit committees of non-U.S. companies listed on the NYSE (see "Item 6 – Board of Statutory Auditors" above).
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following tables present purchases of own shares by Eni from the beginning of the program through May 31, 2006 (1):9, 2008:
Period | Number of shares (million) | Average price | Total cost | Share | ||||
2000 (Since September 1) | 44.38 | 12.92 | 574 | 1.11 | ||||||||||||||||||
2000 (since September 1) | 44.38 | 12.92 | 574 | 1.11 | ||||||||||||||||||
2001 | 110.00 | 13.58 | 1,494 | 2.75 | 110.00 | 13.58 | 1,494 | 2.75 | ||||||||||||||
2002 | 52.26 | 14.74 | 771 | 1.30 | 52.26 | 14.74 | 771 | 1.30 | ||||||||||||||
2003 | 23.95 | 13.76 | 329 | 0.60 | 23.94 | 13.76 | 329 | 0.60 | ||||||||||||||
2004 | 4.23 | 16.60 | 70 | 0.10 | 4.23 | 16.60 | 70 | 0.10 | ||||||||||||||
2005 | 47.06 | 21.97 | 1,034 | 1.18 | 47.06 | 21.97 | 1,034 | 1.18 | ||||||||||||||
2006, through May 31, 2006 | 25.02 | 23.74 | 594 | 0.62 | ||||||||||||||||||
Total purchased as of May 31, 2006 | 306.90 | 15.85 | 4,866 | 7.66 | ||||||||||||||||||
2006 | 53.13 | 23.35 | 1,241 | 1.33 | ||||||||||||||||||
2007 | 27.56 | 24.69 | 680 | 0.68 | ||||||||||||||||||
2008, through May 9, 2008 | 11.76 | 22.61 | 266 | 0.28 | ||||||||||||||||||
Total purchased as of May 9, 2008 | 374.32 | 17.26 | 6,459 | 9.35 | ||||||||||||||||||
minus: | ||||||||||||||||||||||
- stock option exercised and shares grantedpursuant to stock option and stock grant plans for the 2003-2005 three year period | (5.01 | ) | ||||||||||||||||||||
301.89 | 7.54 | |||||||||||||||||||||
- stock options exercised and shares granted pursuant to stock option and stock grant plans | (14.32 | ) | ||||||||||||||||||||
Total shares held in treasury | 360.00 | 8.99 |
152
Total number of shares purchased | Average price paid per share (euro) | Total number of shares purchased, as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs.(2) | ||||
At December 31, 2004 | 234,812,701 | 13.79 | 234,812,701 | 165,605,112 | ||||||
January 2005 | 560,260 | 18.17 | 235,372,961 | 165,044,852 | ||||||
February 2005 | 854,920 | 19.06 | 236,227,881 | 164,193,332 | ||||||
March 2005 | 1,297,742 | 19.92 | 237,525,623 | 162,901,290 | ||||||
April 2005 | 3,764,013 | 19.49 | 241,289,636 | 159,137,277 | ||||||
May 2005 | 4,030,350 | 19.80 | 245,319,986 | 155,307,627 | ||||||
June 2005 | 1,041,403 | 21.23 | 246,361,389 | 154,802,124 | ||||||
July 2005 | 57,200 | 21.46 | 246,418,589 | 154,812,924 | ||||||
August 2005 | 494,349 | 23.53 | 246,912,938 | 156,116,575 | ||||||
September 2005 | 33,900 | 24.57 | 246,946,838 | 156,496,575 | ||||||
October 2005 | 20,875,450 | 22.37 | 267,822,288 | 135,746,725 | ||||||
November 2005 | 7,974,000 | 22.82 | 275,796,288 | 127,864,925 | ||||||
December 2005 | 6,081,000 | 23.62 | 281,877,288 | 121,986,025 | ||||||
January 2006 | 4,539,921 | 24.23 | 286,417,209 | 117,874,304 | ||||||
February 2006 | 2,449,000 | 24.17 | 288,866,209 | 115,478,004 | ||||||
March 2006 | 6,163,400 | 23.35 | 295,029,609 | 109,420,304 | ||||||
April 2006 | 3,629,000 | 24.17 | 298,658,609 | 106,045,904 | ||||||
May 2006 | 8,246,033 | 23.43 | 306,904,642 | (3) | 98,105,871 |
At December 31, 2006 (1) | 335,002,779 | 16.46 | 335,002,779 | 75,040,134 | ||||
January 2007 | 2,172,700 | 24.71 | 337,175,479 | 73,246,534 | ||||
February 2007 | 2,241,350 | 24.08 | 339,416,829 | 71,090,284 | ||||
March 2007 | 4,103,431 | 23.26 | 343,520,260 | 67,174,803 | ||||
April 2007 | 1,739,600 | 24.43 | 345,259,860 | 65,528,803 | ||||
May 2007 | 1,229,950 | 25.52 | 346,489,810 | 64,682,203 | ||||
June 2007 | 2,344,600 | 26.42 | 348,834,410 | 62,629,203 | ||||
July 2007 | 1,239,070 | 26.61 | 350,073,480 | 61,605,133 | ||||
August 2007 | 2,333,300 | 24.85 | 352,406,780 | 59,387,133 | ||||
September 2007 | 2,214,800 | 25.34 | 354,621,580 | 58,578,533 | ||||
October 2007 | 2,881,625 | 25.15 | 357,503,205 | 56,472,408 | ||||
November 2007 | 3,895,400 | 23.99 | 361,398,605 | 52,592,508 | ||||
December 2007 | 1,163,513 | 24.60 | 362,562,118 | 51,474,995 | ||||
January 2008 | 2,709,130 | 22.13 | 365,271,248 | 48,873,565 | ||||
February 2008 | 3,380,161 | 22.25 | 368,651,409 | 45,504,204 | ||||
March 2008 | 2,606,938 | 22.01 | 371,258,347 | 42,908,766 | ||||
April 2008 (3) | 2,242,200 | 23.41 | 373,500,547 | 40,678,566 | ||||
May 2008 (through May 9, 2008) | 819,500 | 25.48 | 374,320,047 | 39,859,066 |
(1) | ||
(2) | Based on the authorized purchase ceiling, deducting the total number of shares purchased and | |
(3) | On April 29, 2008, Eni’s Ordinary Shareholders’ Meeting authorized the continuation of the program for the repurchase of own shares for a further 18-month period and up to 400 million ordinary shares, nominal value euro 1 each, corresponding approximately to 10% of Eni’s share capital, for an aggregate amount not exceeding euro 7.4 billion. The 400 million shares and the euro 7.4 billion thresholds take into account the number and amount of Eni shares held in treasury as of April 29, 2008. As of April 29, 2008, Eni held |
153
PART III
Item 17. FINANCIAL STATEMENTS
Not applicable.
Item 18. FINANCIAL STATEMENTS
Index to Financial Statements:
Page | ||
Report of Independent Registered Public Accounting Firm | ||
Consolidated Balance Sheet at December 31, 2007 and 2006 | ||
Consolidated profit and loss account for the years ended December 31, 2007, 2006 and 2005 | ||
Consolidated Statements of changes in shareholder’s equity for the years ended December 31, 2007, 2006 and 2005 | ||
Consolidated Statement of cash flows for the years ended December 31, 2007, 2006 and 2005 | ||
Supplemental cash flow information for the years ended December 31, 2007, 2006 and 2005 | ||
Notes to the Consolidated Financial Statements |
Report of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2004 and 2005
Profit and loss account at December 31, 2004 and 2005
Statement of changes in shareholder’s equity for the years ended December 31, 2004 and 2005
Statements of cash flows for the years ended December 31, 2004 and 2005
Supplemental cash flows information for the years ended December 31, 2004 and 2005
Notes to the Consolidated Financial Statements
Item 19. EXHIBITS
1. By-laws as amended as of May 25, 200624, 2007
Certifications:
12.1. Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act
12.2. Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act
154
SIGNATURES
The registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: JuneMay 21, 20062008
Eni SpA |
/s/FABRIZIO COSCO |
Fabrizio Cosco |
Title: Deputy |
155
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Eni SpAIn our opinion, the accompanying consolidated balance sheets and the related consolidated profit and loss
account,accounts, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flowsand of changes in shareholder's equitypresent fairly, in all material respects, the financial position of Eni SpA and its subsidiaries(the "Company")at December 31,2005,2007 and2004,December 31, 2006, and the results of their operations and their cash flows for each of thetwothree years in the period ended December 31,2005,2007 inaccordanceconformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adoptedinby the European Union.TheseAlso in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements,are the responsibilityfor maintaining effective internal control over financial reporting and for its assessment of theCompany’s management.effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing in Item 15 Controls and Procedures of the 2007 Annual Report to Shareholders. Our responsibility is to expressan opinionopinions on these financial statements and on the Company’s internal control over financial reporting based on ouraudits.audits (which were integrated audits in 2007 and 2006). We conducted our audits
of these statementsin accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform theauditaudits to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includesmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for ouropinion.opinions.
International Financial Reporting StandardA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded asadopted by the European Union varynecessary to permit preparation of financial statements incertain significant respects fromaccordance with generally accepted accounting principles,generally acceptedand that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of theUnited Statescompany; and (iii) provide reasonable assurance regarding prevention or timely detection ofAmerica. Information relating tounauthorized acquisition, use, or disposition of thenature andcompany’s assets that could have a material effectof such differences is presented in Notes 33, 34 and 35 ofon the financial statements.
As discussed
F-1
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
Notes 2, 4, 6 and 17conditions, or that the degree of compliance with thefinancial statements, as a result of adopting IAS 32 and IAS 39 on January 1, 2005, the Company changed its method of accounting for financial instruments.policies or procedures may deteriorate.PricewaterhouseCoopers SpA
Rome,
June212006May 2008
F-2
Effects of the adoption of IFRSCONSOLIDATED BALANCE SHEET1Starting in 2005 companies with securities listed on a regulated stock market of a Member State of the European Union are required to prepare their Consolidated Financial Statements in accordance with the international accounting principles (IFRS) approved by the European Commission.
At January 1, 2004, date of the first application of the new accounting principles, which corresponds with the first period to be compared, Eni must present a balance sheet which:
• reports all and only the assets and liabilities accounted under the new accounting principles;• accounts the assets and liabilities as if the new accounting principles had always been applied (retrospective method); and• reclassifies the items indicated under different principles instead of IFRS.
The effect of the adjustments of the initial balance of assets and liabilities to the new accounting principles has been accounted with a corresponding entry to shareholders’ equity, taking account of the relevant fiscal effects to be recognized as deferred tax liabilities or deferred tax assets.
In application of IFRS 1, the following is the indication of: (i) balance sheet at December 31, 2004 restated under IFRS; (ii) profit and loss account of 2004 restated under IFRS; (iii) the reconciliation between shareholders’ equity, including minority interest, of 2003 and 2004 reported under Italian GAAP and shareholders’ equity under IFRS; (iv) the reconciliation between net profit of the Group at December 31, 2004 reported under Italian GAAP and net profit under IFRS.
The international accounting principles are reported in the section "Principles of consolidation". The main options provided under IFRS 1 and adopted in the first time application of IFRS concern the non-reopening of the business combinations and the designation of January 1, 2005, as the date of the first application of IAS 32 and 39, concerning the valuation of financial instruments, including derivatives.
Inclusion of Saipem in consolidation
As regards to the information reported in the reports of the year 2005, the following restatements and reconciliations have been modified to include the recent guidelines of the International Accounting Standards Board (IASB), relating to the conception of "de facto" control and providing the inclusion in the scope of the consolidation of the Saipem SpA and its subsidiaries.
Saipem SpA, in which Eni held a 43.26% share of voting stock as of December 31, 2005, was excluded from consolidation due to a restrictive interpretation of the provisions of IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries, according to which full consolidation is admissible only if the parent company holds the majority of voting rights exercisable in ordinary shareholders’ meetings, or failing this, when there exists an agreement among shareholders or other situations that give to the parent company the power to appoint the majority of the Board of Directors. Under this interpretation Saipem SpA, despite being controlled by Eni in accordance with article 2359, paragraph 2 of the Italian Civil Code, was accounted for under the equity method.
IASB is reviewing the requirements of IAS 27; in October 2005, IASB Update published a statement indicating that the concept of control as defined by IAS 27 included the situation as described by article 2359, paragraph 2 of the Italian Civil Code, despite the fact that the lack of precise indications allows also for a different interpretation of this standard. IASB declared its intention to provide more detailed indications on the exercise of control in its new version of IAS 27. In consideration of the intention expressed by IASB, Eni included Saipem SpA and its subsidiaries in consolidation under IFRS starting January 1, 2004, with the aim of giving an economic and financial state of the Group more consistent with its commercial situation.
Balance sheet at December 31, 2004The following is the reconciliation to IFRS of Eni’s balance sheet calculated in accordance with Italian GAAP at December 31, 2004:
(million euro)
F-3 CONSOLIDATED PROFIT AND LOSS ACCOUNT
F-4
F-5
F-6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYcontinued
F-7 CONSOLIDATED STATEMENT OF CASH FLOWS
F-8 CONSOLIDATED STATEMENT OF CASH FLOWS continued
F-9
SUPPLEMENTAL CASH
Transactions that did not produce cash flows
F-10 The Consolidated Financial Statements of Eni Group for Basis of presentation The Consolidated Financial Statements
Oil and natural gas exploration and production activity is accounted for in conformity with internationally accepted accounting
contracts. The Consolidated Financial Statements have been prepared The Consolidated Financial Statements include the statutory accounts of Eni SpA and the accounts of
2007 Consolidated Financial Amounts in the notes to
euros (euro million).
When acquired, the net equity of The purchase of additional ownership interests in subsidiaries from minority shareholders is recognised as goodwill and represents the excess of the amount paid over the carrying value of the minority interest acquired.
F-11 Gains or losses
Inter-company transactions
Foreign currency translation
Cumulative exchange differences resulting from this translation are recognized Financial statements of foreign subsidiaries which are translated into euro are denominated in the functional currencies of the entities operate. The U.S. dollar is the prevalent functional currency for the entities that do not adopt euro.
Current assets
In the Available-for-sale financial assets include financial assets other than derivative financial instruments, loans and The fair value of financial instruments is When F-12 Receivables are Transferred financial assets are Inventories, including compulsory stocks and excluding contract work in progress, The cost for inventories of hydrocarbons (crude oil, condensates and natural gas) and petroleum products is determined by applying the weighted-average cost method on a three-month basis; the cost for inventories of the Petrochemical segment is determined by applying the weighted-average cost on an annual basis. Contract work in progress is Hedging instruments are described in the section Non-current assets
In the case of The company recognizes material provisions for the retirement of assets in the Exploration & Production business. No significant asset retirement obligations associated with any legal obligations to retire refining, marketing and transportation (downstream) and chemical long-lived assets are generally
Assets carried under financial leasing or concerning arrangements that do not take the legal form of a finance lease but substantially transfer all the risks and rewards of ownership of the leased asset are recognized at fair value, net of taxes due from the lessor or, if lower, at the present value of the minimum lease payments. Leased assets are included within When the renewal is not reasonably certain, leased assets Tangible assets, from the moment they begin or should begin to be used, are depreciated systematically using a straight-line method over
F-13 by the Assets that can be used free of charge by third parties are depreciated over the shorter term of the duration of the concession and the useful life of the asset.
If there is no binding sales agreement, fair value is estimated on the basis of market values, Value in use is Discounting is carried out at a rate that takes into account the implicit risk in the sectors where the entity operates. Valuation is carried out for each single asset or, if the realizable value of a single asset cannot be determined, for the smallest identifiable group of assets that generates independent cash inflows from their continuous use, the Intangible assets
Intangible assets are initially stated at cost as determined Intangible assets with a Goodwill and other intangible assets with an indefinite useful life are not amortized. The recoverability of their carrying value is F-14 pro-rata on the basis of the carrying amount of each asset in the unit. Impairment charges against goodwill Costs of technological development activities are capitalized when: (i) the cost attributable to the Exploration and production activities
Expenditure for the exploratory potential, represented by the costs for the acquisition of the exploration permits and for the extension of existing permits, is recognized under Acquisition costs for proved reserves and for possible and probable reserves are recognized Exploration
Development
Costs related to unsuccessful development wells or damaged wells are expensed immediately as Impairments and reversal of impairments of development costs are made on the same basis as those for tangible assets. Production
F-15 production entitlements against both cost oil and profit oil are accounted for on an accrual basis whilst exploration, development and production costs are accounted for according to the policies mentioned above.
Grants
Financial fixed assets
Other investments, included in non current assets, are recognized at their fair value and their effects are included in shareholders’ equity under The risk deriving from losses exceeding shareholders’ equity is recognized in a specific provision to the extent the parent company is required to fulfill legal or implicit obligations towards the subsidiary or to cover its losses. Receivables and financial assets to be held to maturity
Financial liabilities
Provisions for contingencies
F-16 (iii) the amount of the obligation can be reliably estimated. If the When the liability regards a tangible asset (e.g. site restoration and abandonment), the provision is stated with a corresponding entry to the asset to which it refers; profit and loss account charge is made with the amortization process.
In the Employee
The liabilities related to defined benefit plans benefits. The actuarial gains and losses of defined benefit plans Treasury shares
Revenues and costs
Revenues are recognized upon shipment when, at that date, buyer. Revenues from
F-17 producers are recognized on the basis of Eni’s net working interest in those properties (entitlement method). Differences between Eni’s net working interest volume and actual production volumes are recognized at current prices at period end. Income related to partially rendered services
Revenues are stated net of returns, discounts, rebates, bonuses and Costs are Costs Operating lease payments are recognized in the profit and loss account over the length of the contract. Labor costs include stock grants and stock options granted to managers, consistent with their actual remunerative nature. The Fair value of stock options is The costs for the acquisition of new knowledge or discoveries, the study of products or alternative processes, new techniques or models, the planning and construction of prototypes or, in any case, costs borne for other scientific research activities or technological development, which cannot be capitalized, are Accounting
Eni accounts for buy/sell transactions in the consolidated The topic
F-18 including buy/sell transactions, should be combined and considered as a single arrangement when the transactions were entered into "in contemplation" of one another. EITF 04-13 was ratified by the FASB in September 2005 and is effective for new arrangements, or modifications or renewals of existing arrangements, entered into beginning on or after April 1, 2006, which In Eni’s consolidated Exchange rate differences
Monetary assets and liabilities in currencies other than functional currency are converted by applying the year end exchange rate and the effect is stated in the profit and loss account. Non-monetary assets and liabilities in currencies other than the functional currency valued at cost are Dividends
Income taxes
date and the tax rates estimated on annual basis. Deferred tax assets or liabilities are provided on temporary differences arising between the carrying amounts of the assets and liabilities Deferred tax assets and liabilities are Derivatives
Derivatives are classified as hedging instruments when the relationship between the derivative and the subject of the hedge is formally documented and the effectiveness of the hedge is high and is checked periodically. When hedging instruments cover the risk of variation of the fair value of the hedged item (fair value F-19 The Economic effects of transactions, which relate to purchase or sales contracts for commodities entered into to meet the entity’s normal operating requirements and for which the settlement is provided with the delivery of the goods, are recognized on an accrual basis (the so-called normal sale and normal purchase exemption or own use exemption). Financial statements The statement of changes in shareholders’ equity includes profit and loss for the year, transactions with shareholders and other changes in shareholders’ equity. The statement of cash flows is presented using the indirect method, whereby net profit is adjusted for the effects of noncash transactions. Use of accounting estimates
Oil and gas activities
Eni reassesses its estimate of proved reserves
F-20 production and reserves to which Eni is Oil and natural gas reserves have a direct impact on certain amounts reported in the Assuming all other variables are held constant, an increase in estimated proved developed reserves for each field decreases depreciation, depletion and amortization expense.
Impairment of assets
For oil and natural gas properties, the expected future cash flows are estimated principally based on developed and non-developed proved reserves including, among other elements, production taxes and the costs to be incurred for the reserves yet to be developed. The estimated future level of production is based on assumptions
Goodwill and other intangible assets A cash generating unit is Asset retirement obligations F-21 financial statements. Estimating In addition, the ultimate financial impact of environmental laws and regulations is not always clearly known as asset removal technologies and costs The subjectivity of these estimates is also increased by the accounting method used that requires entities to record the fair value of a liability for an asset retirement When liabilities are initially recorded, the related fixed assets are increased by an equal corresponding amount. The liabilities are increased with the passage of time The recognized asset retirement obligations are based
combinations
liabilities
The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows:
F-22
Contingencies
Revenue recognition in the
Recent accounting principles
F-23 Accounting standards and interpretations issued by IASB/IFRIC and not yet been endorsed by EU
On September 6, 2007, IASB issued a revised IAS 1 “Presentation of Financial Statements”. The revisions require, among other things, a statement of comprehensive income that begins with the amount of net profit for the year adjusted with all items of income and expense directly recognized in equity, but excluded from net income, in accordance with IFRS. The revised standard will come into effect for annual periods beginning on or after January 1, 2009. On January 10, 2008, IASB issued a revised IFRS 3 “Business Combinations” and an amended version of IAS 27 “Consolidated and Separate Financial Statements”. The revisions to IFRS 3 require, among other things, the acquisition-related costs to be accounted for separately from the business combination and then recognized as expenses rather than included in goodwill. The revised IFRS 3 also allows the choice of the full goodwill method which means to treat the full value of the goodwill of the business combination including the share attributable to minority interest. In the case of step acquisitions, the revisions also relate to the recognition in the
By contrast, disposal of any interests that the parent retains in a former subsidiary may result in a loss of control. In this case, at the date when control is lost the remaining investment retained is increased/decreased to fair value with gains or losses arising from the difference between the fair value and carrying amount of the held investment recognized in the profit or loss account. The revised Standards shall be applied for annual periods beginning on or after July 1, 2009 (for Eni: 2010 financial statements). On January 17, 2008, IASB issued a revised IFRS 2 “Share-based payment”. The amendment specifies the accounting treatment of all cancellations of a The amendment shall be applied for annual periods beginning on or after January 1, 2009. On November 30, 2006, IFRIC issued IFRIC 12 “Service Concession Arrangements” which provides guidance on the accounting by operators for public-to-private service concession arrangements. An arrangement within the scope of this interpretation involves for a On June 28, 2007, IFRIC issued IFRIC 13 “Customer Loyalty Programmes” which addresses how companies, which grant their customers loyalty, award credits when buying goods or services, should their obligation to provide free or discounted goods or services if and when the customers redeem the credits. In particular On July 5, 2007, IFRIC issued IFRIC 14 “The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” which provides guidance on how companies should determine the
Eni F-24
|
(million euro) | Dec. 31, | Dec. 31, | ||
Listed Italian treasury bonds | 980 | 1,088 | ||||
Listed securities issued by Italian and foreign merchant banks | 255 | 243 | ||||
Not quoted securities | 31 | 37 | ||||
1,266 | 1,368 |
Investments | 2,476 | |||||
Securities held for operating purposes | ||||||
Listed Italian treasury bonds | 329 | 229 | ||||
Listed securities issued by Italian and foreign financial institutions | 80 | 27 | ||||
Non-quoted securities | 11 | 3 | ||||
420 | 259 | |||||
Securities held for non-operating purposes | ||||||
Listed Italian treasury bonds | 508 | 168 | ||||
Listed securities issued by Italian and foreign financial institutions | 40 | 5 | ||||
Non-quoted securities | 4 | 1 | ||||
552 | 174 | |||||
Total securities | 972 | 433 | ||||
972 | 2,909 |
SecuritiesEquity instruments of euro 1,3682,476 million included the carrying amount of a 20% interest in OAO Gazprom Neft which is listed on the London Stock Exchange and was acquired on April 4, 2007 through a bid on the liquidation of the second lot of ex-Yukos assets. The classification of this transaction in this line reflects the call option granted by Eni to Gazprom on the entire ownership interest. This option is exercisable within 24 months starting on the date of acquisition. If exercised, the price of the ownership interest will be set at the acquisition price of euro 3.7 billion, less dividends, plus share capital increases, contractually agreed financial remuneration and additional financing costs. In application of the IAS 39 fair value option, the OAO Gazprom Neft investment was carried at fair value and changes were reflected in the profit and loss account rather than in a reserve of shareholders’ equity so as to maintain alignment with the inclusion in profit and loss of the derivative call option. Consequently, the carrying amount of this equity instrument was equal to its fair value as quoted on the stock market, less the fair value of the call option; this was the equivalent of the option strike price at December 31, 2007.
Available-for-sale securities decreased by euro 539 million to euro 433 million (euro 1,266972 million at December 31, 2004) are available2006) because securities owned by Eni SpA (euro 235 million) and the group insurance company Padana Assicurazioni SpA (euro 213 million) reached maturity. In addition, a euro 125 million amount of securities owned by Padana Assicurazioni SpA was classified within assets held for sale. At December 31, 20042006 and December 31, 20052007, Eni did not own financial assets held for trading.
ValuationF-25
The effects of the valuation at fair value determined an increase forof securities are set out below:
(million euro) | Value at Dec. 31, 2006 | Realization to the profit and loss account | Value at Dec. 31, 2007 | |||
Fair value | 8 | (6 | ) | 2 | |||
Deferred tax liabilities | 2 | (2 | ) | ||||
Other reserves of shareholders’ equity | 6 | (4 | ) | 2 |
On disposal of securities owned primarily by Eni SpA, the cumulative changes in fair value of euro 86 million recorded with a corresponding entry toderiving from the shareholders’ equity (euro 6 million)recognition of such assets at fair value and the related deferred tax liabilities (euro 2 million). At January 1, 2005 the first application of IAS 32 and 39 determined an increase of euro 192 million, with a corresponding entry tohave been recognized in the shareholders’ equity (euro 13 million)profit and to deferred tax liabilities (euro 6 million)loss account as finance income and income taxes, respectively (see Note 27 - Shareholders’ equity).
Securities held for operating purposes of euro 465259 million (euro 474420 million at December 31, 2004) are made for operating purposes and concern2006) were designed to provide coverage securities of technical reserves of Padana Assicurazioni SpAEni’s insurance companies for euro 453256 million (euro 474417 million at December 31, 2004)2006).
The fair value of securities was determined by reference to quoted market prices.
3 Trade and other receivables
Trade and other receivables of euro 17,902 million (euro 13,734 million at December 31, 2004) consisted of the following:were as follows:
(million euro) | Dec. 31, | Dec. 31, | ||
Trade receivables | 10,525 | 14,101 | ||||
Financing receivables | 521 | 492 | ||||
Other receivables | 2,688 | 3,309 | ||||
13,734 | 17,902 |
Trade receivables | 15,230 | 15,609 | ||||
Financing receivables: | ||||||
- for operating purposes - short-term | 242 | 357 | ||||
- for operating purposes - current portion of long-term receivables | 4 | 27 | ||||
- for non-operating purposes | 143 | 990 | ||||
389 | 1,374 | |||||
Other receivables: | ||||||
- from disposals | 100 | 125 | ||||
- other | 3,080 | 3,568 | ||||
3,180 | 3,693 | |||||
18,799 | 20,676 |
Receivables are recordedstated net of the allowance for doubtful accountsimpairment losses of euro 891935 million (euro 755874 million at December 31, 2004)2006):
(million euro) | Value at | Additions | Deductions | Other changes | Value at | |||||
Trade receivables | 570 | 119 | (22 | ) | (24 | ) | 643 | |||||||||||
Other receivables | 185 | 123 | (10 | ) | (50 | ) | 248 | |||||||||||
755 | 242 | (32 | ) | (74 | ) | 891 |
Trade receivables | 587 | 98 | (38 | ) | (52 | ) | 595 | |||||
Other receivables | 287 | 109 | (7 | ) | (49 | ) | 340 | |||||
874 | 207 | (45 | ) | (101 | ) | 935 |
TradeIncluded in 2007 trade receivables was the contractually agreed set off of trade payables and receivables between Eni North Africa BV and the National Oil Co (the Libyan state company) for euro 1,798 million.
Advances of euro 14,101 increased by euro 3,576156 million in 2005 as compared to 2004. This increase relates primarily to the Gas & Power segment (euro 1,671 million), Refining & Marketing (euro 1,010 million) and Exploration & Production (euro 806 million) and concern exchange rate differences due to the translation of financial statements prepared in currencies other than euro for euro 216 million. Trade receivables concern advances70 million at December 31, 2006) were paid as a guarantee of contract work in progressprogress.
Trade receivables included euro 1,844 million of receivables not impaired that became due but were not provided for. Of these, euro 999 million were 1-90 days overdue, euro 145 million were 3-6 months overdue, euro 329 million were 6-12 months overdue and euro 371 million were overdue for more than 12 months. These
F-26
receivables were primarily due from high credit quality public administrations and other highly reliable counterparties for oil, natural gas and chemicals products supplies.
Receivables for financing operating activities of euro 101384 million (euro 95246 million at December 31, 2004).
Financing receivables of2006) included euro 492246 million due from unconsolidated entities under Eni’s control, joint ventures and affiliates (euro 521 million) concern receivables made for operating purposes for euro 480 million (euro 510241 million at December 31, 2004)2006) and concessions, primarily,a euro 112 million cash deposit to consolidated subsidiaries, joint ventures and affiliates.provide coverage of Eni Insurance Ltd technical reserves.
"Other" receivables ofReceivables for financing non-operating activities amounted to euro 3,309990 million (euro 2,688143 million at December 31, 2004) consisted2006) of the following:which euro 898 million related to a collateral cash deposit made by Eni SpA to guarantee certain cash flow hedging derivatives. Further information is provided in Note 20 - Other current liabilities and 25 - Other non-current liabilities.
Other receivables were as follows:
(million euro) | Dec. 31, | Dec. 31, | ||
Accounts receivable from: | ||||||
- joint venture operators in exploration and production | 784 | 1,123 | ||||
- insurance companies | 322 | 539 | ||||
- Italian governmental entities | 216 | 228 | ||||
1,322 | 1,890 | |||||
Receivables relating to factoring activities | 347 | 324 | ||||
Prepayments for services | 204 | 259 | ||||
Other receivables | 815 | 836 | ||||
2,688 | 3,309 |
Accounts receivable from: | ||||||
- joint venture operators in exploration and production | 1,376 | 1,699 | ||||
- Italian government entities | 266 | 386 | ||||
- insurance companies | 223 | 253 | ||||
1,865 | 2,338 | |||||
Prepayments for services | 440 | 194 | ||||
Receivables relating to factoring operations | 191 | 182 | ||||
Other receivables | 684 | 979 | ||||
3,180 | 3,693 |
Receivables relating toderiving from factoring activities foroperations of euro 324182 million (euro 347191 million at December 31, 2004) relate2006) were related to Serfactoring SpA and concern essentiallyconsisted primarily of advances for factoring activitiesoperations with recourse and receivables for factoring activitiesoperations without recourse.
Other receivables included euro 537 million of receivables not impaired that became due but were not provided for. Of these, euro 160 million were 1-90 days overdue, euro 19 million were 3-6 months overdue, euro 97 million were 6-12 months overdue and euro 261 million were overdue for more than 12 months. These receivables were mainly due from public administrations.
Receivables with related parties are described in Note 32.
36 - Transactions with related parties.
4 Inventories
Inventories of euro 3,563 million (euro 2,847 million at December 31, 2004) consistedBecause of the following:short-term maturity of trade receivables, the fair value approximated their carrying amount.
4 Inventories
Inventories were as follows:
Dec. 31, | Dec. 31, | |||
(million euro) | Crude oil, gas and petroleum products | Chemical products | Work in progress | Other | Total | Crude oil, gas and petroleum products | Chemical products | Work in progress | Other | Total | ||||||||||
Raw and auxiliary materials and consumables | 303 | 199 | 394 | 896 | 210 | 217 | 645 | 1,072 | ||||||||||||||||||||||
Products being processed and semi finished products | 37 | 19 | 2 | 58 | 59 | 18 | 1 | 78 | ||||||||||||||||||||||
Work in progress long-term contracts | 399 | 399 | 418 | 418 | ||||||||||||||||||||||||||
Finished products and goods | 891 | 482 | 37 | 1,410 | 1,222 | 572 | 20 | 1,814 | ||||||||||||||||||||||
Advances | 84 | 84 | 181 | 181 | ||||||||||||||||||||||||||
1,231 | 700 | 483 | 433 | 2,847 | 1,491 | 807 | 599 | 666 | 3,563 |
Raw and auxiliary materials and consumables | 436 | 258 | 682 | 1,376 | 861 | 299 | 809 | 1,969 | ||||||||||||
Products being processed and semi finished products | 43 | 20 | 8 | 71 | 74 | 27 | 15 | 116 | ||||||||||||
Work in progress | 353 | 353 | 553 | 553 | ||||||||||||||||
Finished products and goods | 2,063 | 536 | 62 | 2,661 | 1,962 | 703 | 17 | 2,682 | ||||||||||||
Advances | 1 | 287 | 3 | 291 | 179 | 179 | ||||||||||||||
2,543 | 814 | 640 | 755 | 4,752 | 2,897 | 1,029 | 732 | 841 | 5,499 |
F-27
Inventories wereare stated net of the valuation allowance of euro 9375 million (euro 12992 million at December 31, 2004)2006):
(million euro) | Value at | Additions | Deductions | Other changes | Value at | |||||
|
| ( | ) |
| ) | 75 |
|
Work in progress long-term contracts of euro 418 million (euro 399 million at December 31, 2004) are net of the payments received in advance of euro 5,180 million (euro 5,156 million at December 31, 2004).
At January 1, 2005, the date of the first application of IAS 32 and 39, inventories for work in progress long-term contracts were restated by excluding from the valuation the effects related to derivatives that do not meet the conditions required to qualify as hedging instruments. The exclusion of the effects related to derivatives resulted in a decrease for work in progress long-term contracts of euro 38 million with a corresponding entry to the shareholders’ equity (euro 24 million) and to deferred
5 Current tax assets (euro 14 million).
5 IncomeCurrent tax receivablesassets were as follows:
Income tax receivables of euro 697 million (euro 674 million at December 31, 2004) consisted of the following:
(million euro) | Dec. 31, | Dec. 31, | ||
Italian tax authorities | 466 | 422 | ||||||||||
Foreign tax authorities | 208 | 275 | ||||||||||
674 | 697 |
Italian subsidiaries | 44 | 634 | ||||
Foreign subsidiaries | 72 | 69 | ||||
116 | 703 |
IncomeThe euro 590 million increase in the current income tax assets of Italian subsidiaries primarily related to receivables of euro 697 millionfor interim tax payments exceeding full-year taxation payable (euro 674 million at December 31, 2004) concern value added tax credits for euro 406 million (euro 459 million at December 31, 2004) and excise taxes customs duties natural gas and customs expenses for euro 60 million (euro 29 million at December 31, 2004).
557 million) made by Eni SpA.
6 Other current tax assets
Other current tax assets of euro 369 million (euro 588 million at December 31, 2004) consisted of the following:were as follows:
(million euro) | Dec. 31, | Dec. 31, | ||
Fair value of non-hedging derivatives | 117 | |||||||||||
Fair value of cash flow hedge derivatives | 32 | |||||||||||
Other assets | 588 | 220 | ||||||||||
588 | 369 |
VAT | 303 | 376 | ||||
Excise and customs duties | 86 | 316 | ||||
Other taxes and duties | 153 | 141 | ||||
542 | 833 |
At January 1, 2005 the first application of IAS 32The euro 230 million increase in excise and 39 resulted in the accounting at the fair value of derivatives that do not meet the conditions requiredcustom duties primarily related to qualifyreceivables for interim tax payments exceeding full-year taxation payable (euro 235 million) made by Eni SpA.
7 Other assets
Other assets were as hedging instruments for an amount, net of differentials on derivative contracts (Italian GAAP), of euro 76 million with a corresponding entry to the shareholders’ equity (euro 32 million) and to deferred tax liabilities (euro 44 million).follows:
At as January 1, 2005, fair value of non hedging derivative contracts of euro 117 million consisted of the following:
(million euro) |
|
| ||
Non-hedging derivatives on exchange rate | ||||
Interest Currency Swap | 58 | 1,277 | ||
Currency Swap | 15 | 2,378 | ||
Outright | 9 | |||
Options | 17 | |||
73 | 3,681 | |||
Non-hedging derivatives on interest rate | ||||
Interest Rate Swap | 14 | 1,281 | ||
14 | 1,281 | |||
Non-hedging derivatives on commodities | ||||
Over the counter | 21 | 394 | ||
Other | 9 | 11 | ||
30 | 405 | |||
117 | 5,367 |
Fair value of non-hedging derivatives | 569 | 629 | ||||
Fair value of cash flow hedge derivatives | 37 | 10 | ||||
Fair value of fair value hedge derivatives | 1 | |||||
Other assets | 248 | 441 | ||||
855 | 1,080 |
Commitments concerning non-hedgingF-28
The fair value of derivative contracts which do not meet the criteria to be classified as hedges under IFRS was as follows:
Dec. 31, 2006 | Dec. 31, 2007 | |||
(million euro) | Fair value | Purchase commitments | Sale commitments | Fair value | Purchase commitments | Sale commitments | ||||||
Non-hedging derivatives on exchange rate | ||||||||||||
Interest Currency Swap | 137 | 1,075 | 325 | 170 | 821 | 291 | ||||||
Currency swap | 46 | 4,068 | 1,434 | 69 | 1,596 | 2,881 | ||||||
Other | 38 | 4 | 3 | 18 | 11 | |||||||
183 | 5,181 | 1,763 | 242 | 2,435 | 3,183 | |||||||
Non-hedging derivatives on interest rate | ||||||||||||
Interest rate swap | 66 | 127 | 3,266 | 91 | 248 | 3,466 | ||||||
66 | 127 | 3,266 | 91 | 248 | 3,466 | |||||||
Non-hedging derivatives on commodities | ||||||||||||
Over the counter | 35 | 85 | 177 | 12 | 75 | 22 | ||||||
Other | 285 | 1 | 850 | 284 | 2 | 1,218 | ||||||
320 | 86 | 1,027 | 296 | 77 | 1,240 | |||||||
569 | 5,394 | 6,056 | 629 | 2,760 | 7,889 |
The fair value of these derivative contracts was determined using an appropriate valuation method based on market data at year-end.
At December 31, 2007 cash flow hedging derivatives with a fair value of euro 10 million were entered into to manage foreign currency exposures of the Engineering & Construction segment. The nominal value of euro 48 million and euro 132 million referred to purchase and sale commitments, respectively. At December 31, 2006 cash flow hedging derivatives with a fair value of euro 37 million were related to the future marketing of certain crude volumes produced by the Exploration & Production segment. The nominal value of euro 421 million was related to sale commitments (further information is given in Note 20 - Other current liabilities and Note 25 - Other non-current liabilities). Changes in fair value of the effective hedging instruments were recognized in equity for euro 27 million.
Information on the hedged risks and the hedging policies is given in Note 28 - Guarantees, commitments and risks.
Other assets amounted to euro 5,367 million and concern commitments on exchange rate for euro 3,681 million (fair value of euro 73 million), on interest rate for euro 1,281 million (fair value of euro 14 million) and on commodities for euro 405 million (fair value of euro 30 million).
Commitments concerning cash flow hedge derivatives amounted to euro 176 million and concern for euro 171 million hedging derivatives contracts related to the purchase of electricity.
Other assets of euro 220441 million (euro 588248 million at December 31, 2004) include2006) and included prepayments and accrued income and prepaid expenses for anticipated provision of service of euro 49297 million (euro 9165 million at December 31, 2004)2006), rentals for rentals and fees of euro 1621 million (euro 2220 million at December 31, 2004)2006), and insurance premiums for premiums due to insurance companies euro 1210 million (euro 18 million(same amount at December 31, 2004)2006).
At December 31, 2004 otherF-29
Non-current assets include differentials on derivative contracts for euro 316 million,
8 Property, plant and equipment
Analysis of which euro 242 million related to financing receivables and liabilities.
Non-current activities
7 Fixedtangible assets
Fixed assets of euro 45,013 million (euro 40,586 million at December 31, 2004) consisted of the following: is set out below:
(million euro) | Net value at the beginning of the year | Investments | Depreciation | Other changes | Net value at the end of the year | Gross value at the end of the year | Provisions for amortization and | |||||||||||
Dec. 31, 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dec. 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land | 1,185 | 7 | (8 | ) | (987 | ) | 197 | 274 | 77 | 373 | 16 | (3 | ) | 57 | 443 | 483 | 40 | |||||||||||||||||||||||||||||||||||||
Buildings | 608 | 45 | (97 | ) | (4 | ) | 5 | 1,021 | 1,578 | 3,159 | 1,581 | 1,453 | 81 | (113 | ) | (12 | ) | (5 | ) | 38 | 1,442 | 3,236 | 1,794 | |||||||||||||||||||||||||||||||
Plant and machinery | 28,246 | 2,878 | (3,349 | ) | (149 | ) | (769 | ) | 3,992 | 30,849 | 66,312 | 35,463 | 36,568 | 1,858 | (4,510 | ) | (197 | ) | (1,586 | ) | 3,240 | 35,373 | 79,873 | 44,500 | ||||||||||||||||||||||||||||||
Industrial and commercial equipment | 517 | 159 | (120 | ) | (1 | ) | (6 | ) | (127 | ) | 422 | 1,622 | 1,200 | 372 | 130 | (120 | ) | (6 | ) | 50 | 426 | 1,659 | 1,233 | |||||||||||||||||||||||||||||||
Other assets | 286 | 91 | (104 | ) | (1 | ) | (7 | ) | 64 | 329 | 1,149 | 820 | 318 | 82 | (78 | ) | (1 | ) | (9 | ) | 16 | 328 | 1,382 | 1,054 | ||||||||||||||||||||||||||||||
Fixed assets in progress and advances | 8,501 | 3,605 | (166 | ) | (305 | ) | (4,424 | ) | 7,211 | 7,762 | 551 | |||||||||||||||||||||||||||||||||||||||||||
Tangible assets in progress and advances | 5,929 | 3,971 | (18 | ) | (364 | ) | (3,218 | ) | 6,300 | 6,822 | 522 | |||||||||||||||||||||||||||||||||||||||||||
39,343 | 6,785 | (3,670 | ) | (329 | ) | (1,082 | ) | (461 | ) | 40,586 | 80,278 | 39,692 | 45,013 | 6,138 | (4,821 | ) | (231 | ) | (1,970 | ) | 183 | 44,312 | 93,455 | 49,143 | ||||||||||||||||||||||||||||||
Dec. 31, 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dec. 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land | 197 | 5 | (4 | ) | 175 | 373 | 421 | 48 | 443 | 4 | 151 | 598 | 628 | 30 | ||||||||||||||||||||||||||||||||||||||||
Buildings | 1,578 | 41 | (108 | ) | (8 | ) | 12 | (62 | ) | 1,453 | 3,152 | 1,699 | 1,442 | 76 | (99 | ) | (3 | ) | (3 | ) | (37 | ) | 1,376 | 3,203 | 1,827 | |||||||||||||||||||||||||||||
Plant and machinery | 30,849 | 2,443 | (4,240 | ) | (192 | ) | 1,827 | 5,881 | 36,568 | 77,806 | 41,238 | 35,373 | 1,882 | (4,724 | ) | (41 | ) | (1,535 | ) | 4,925 | 35,880 | 83,123 | 47,243 | |||||||||||||||||||||||||||||||
Industrial and commercial equipment | 422 | 113 | (126 | ) | 10 | (47 | ) | 372 | 1,623 | 1,251 | 426 | 185 | (125 | ) | (1 | ) | (8 | ) | 73 | 550 | 1,884 | 1,334 | ||||||||||||||||||||||||||||||||
Other assets | 329 | 65 | (102 | ) | 12 | 14 | 318 | 1,182 | 864 | 328 | 86 | (83 | ) | (3 | ) | (11 | ) | 24 | 341 | 1,361 | 1,020 | |||||||||||||||||||||||||||||||||
Fixed assets in progress and advances | 7,211 | 3,891 | (60 | ) | 590 | (5,703 | ) | 5,929 | 6,526 | 597 | ||||||||||||||||||||||||||||||||||||||||||||
Tangible assets in progress and advances | 6,300 | 6,299 | (97 | ) | (646 | ) | (464 | ) | 11,392 | 12,044 | 652 | |||||||||||||||||||||||||||||||||||||||||||
40,586 | 6,558 | (4,576 | ) | (264 | ) | 2,451 | 258 | 45,013 | 90,710 | 45,697 | 44,312 | 8,532 | (5,031 | ) | (145 | ) | (2,203 | ) | 4,672 | 50,137 | 102,243 | 52,106 |
Capital expenditures of euro 6,5588,532 million (euro 6,7856,138 million at December 31, 2004)2006) primarily relaterelated to the Exploration & Production segment (euro 4,2694,925 million), the Engineering & Construction segment (euro 1,401 million), the Gas & Power segment (euro 1,0791,084 million), and the Refining & Marketing segment (euro 642944 million) and Oilfield Services, Construction and Engineering segment (euro 343 million, of which euro 340 million related to construction and drilling activity). Capital expenditures include financial expense forincluded capitalized finance expenses of euro 159180 million (euro 116 million at December 31, 2006) essentially relatingrelated to the Exploration & Production segment (euro 97105 million), the Gas & Power segment (euro 30 million) and the Refining & Marketing segment (euro 31 million) and Gas & Power segment (euro 2926 million). The interest rate used for the capitalization of finance expense was between 2.2%ranged from 4.4% to 5.2% (3.3% and 6.1%5.4% at December 31, 2006).
DepreciationThe depreciation rates used with the exclusion of tangible assets depreciated on a UOP basis, were as follows:
(%) | |||||||||
Buildings | 2 | - | 10 | ||||||
Plant and machinery | 2 | - | 10 | ||||||
Industrial and commercial equipment | 4 | - | 33 | ||||||
Other assets | 6 | - | 33 |
Exchange rate differences due to the translation of financial statements prepared in currencies other than euro of euro 2,451 million relate to companies whose functional currency is the U.S. dollar (euro 2,300 million).
Impairments of euro 264145 million concernwere primarily mineral assetsrelated to producing oil and gas properties of the Exploration & Production segment (euro 15686 million) and petrochemical assetsa refining plant of Syndial SpAthe Refining & Marketing segment (euro 7552 million). The recoverable amount consideredused in determiningassessing the impairmentimpairments charges was calculateddetermined by discounting the expected future cash flows using a rate included between 6.5%before taxation at discount rates ranging from 11.2% to 12.2% derived from the weighted average cost of capital and 9.8%that took into account the sector-specific risk.
Foreign currency translation differences of euro 2,203 million were primarily related to translation of entities accounts denominated in U.S. dollar (euro 2,125 million).
Other changes in the net book value of euro 258 million includetangible assets (euro 4,672 million) were primarily due to the acquisition of oil and gas upstream properties in the Gulf of Mexico (euro 3,050 million) from the U.S. Company Dominion Resources and in Congo (euro 1,464 million) from the French company Maurel & Prom. The change from prior year was also due to the consolidation of Frigstad Discover Invest Ltd acquired by the Engineering & Construction segment (euro 232 million) and the initial recognition and changes in the reviews to the estimate of dismantlingestimated decommissioning and restoration costs of sites for euro 576158 million essentially related to the Exploration & Production segment (euro 562 million); this increase wassegment.
F-30
These increases were partially offset by the change in scope of consolidationasset disposals of euro 122172 million, following essentially the sale of Società Azionaria per la Condotta di Acque Potabili SpA (euro 82 million), Acquedotto Vesuviano SpA (euro 20 million) and Acquedotto di Savona SpA (euro 20 million) and the sale of businesses and the elimination of fixed assets ofwhich euro 97141 million primarily related to the Exploration & Production segment (euro 37 million).
segment. The gross carrying amount of fully depreciated property, plant and equipment that is still in use amountaccumulated impairments amounted to euro 11,0763,295 million and euro 3,328 million at December 31, 2006 and 2007, respectively.
At December 31, 2007, Eni pledged tangible assets of euro 54 million primarily concerned the gasline network of Snam Rete Gas SpA (euro 3,692 million), refineries and oil deposits of Refining & Marketing segment (euro 2,639 million) and petrochemical plants of Polimeri Europa SpA (euro 1,901 million) and Syndial SpA (euro 1,598 million)as collateral against certain borrowings (same amount at December 31, 2006).
Government grants recorded as a decrease of property, plant and equipment amountamounted to euro 9651,195 million (euro 9101,067 million at December 31, 2004).
At December 31, 2005 fixed assets have been pledged for euro 475 million primarily as collateral on debt incurred by Eni (euro 482 million at December 31, 2004)2006).
Assets acquired under financial lease amountagreements amounted to euro 13442 million, and concernof which euro 7229 million forrelated to FPSO ships used by the Exploration & Production segment asto support of oil production and treatment activities.activities and euro 13 million related to service stations in the Refining & Marketing segment.
Fixed assetsProperty, plant and equipment by segment
(million euro) | Dec. 31, | Dec. 31, | ||
Fixed assets, gross: | ||||||
- Exploration & Production | 40,322 | 49,120 | ||||
- Gas & Power | 20,680 | 21,517 | ||||
- Refining & Marketing | 8,947 | 9,420 | ||||
- Petrochemicals | 4,311 | 4,402 | ||||
- Oilfield Services Construction and Engineering | 3,524 | 3,878 | ||||
- Other activities | 2,300 | 2,248 | ||||
- Corporate and financial companies | 194 | 213 | ||||
- Elimination of intra-group profits | (88 | ) | ||||
80,278 | 90,710 | |||||
Accumulated depreciation, amortization and writedowns: | ||||||
- Exploration & Production | 19,561 | 24,640 | ||||
- Gas & Power | 7,445 | 7,757 | ||||
- Refining & Marketing | 5,586 | 5,864 | ||||
- Petrochemicals | 3,130 | 3,263 | ||||
- Oilfield Services Construction and Engineering | 1,878 | 2,031 | ||||
- Other activities | 2,007 | 2,054 | ||||
- Corporate and financial companies | 85 | 92 | ||||
- Elimination of intra-group profits | (4 | ) | ||||
39,692 | 45,697 | |||||
Fixed assets, net: | ||||||
- Exploration & Production | 20,761 | 24,480 | ||||
- Gas & Power | 13,235 | 13,760 | ||||
- Refining & Marketing | 3,361 | 3,556 | ||||
- Petrochemicals | 1,181 | 1,139 | ||||
- Oilfield Services Construction and Engineering | 1,646 | 1,847 | ||||
- Other activities | 293 | 194 | ||||
- Corporate and financial companies | 109 | 121 | ||||
- Elimination of intra-group profits | (84 | ) | ||||
40,586 | 45,013 |
Property, plant and equipment, gross | ||||||
Exploration & Production | 49,002 | 54,284 | ||||
Gas & Power | 22,277 | 23,137 | ||||
Refining & Marketing | 11,273 | 12,421 | ||||
Petrochemicals | 4,380 | 4,918 | ||||
Engineering & Construction | 4,363 | 5,823 | ||||
Other activities | 1,967 | 1,543 | ||||
Corporate and financial companies | 321 | 344 | ||||
Elimination of intra-group profits | (128 | ) | (227 | ) | ||
93,455 | 102,243 | |||||
Accumulated depreciation, amortization and impairment losses | ||||||
Exploration & Production | 26,000 | 27,806 | ||||
Gas & Power | 8,210 | 8,660 | ||||
Refining & Marketing | 7,482 | 7,926 | ||||
Petrochemicals | 3,308 | 3,819 | ||||
Engineering & Construction | 2,138 | 2,310 | ||||
Other activities | 1,874 | 1,461 | ||||
Corporate and financial companies | 145 | 148 | ||||
Elimination of intra-group profits | (14 | ) | (24 | ) | ||
49,143 | 52,106 | |||||
Property, plant and equipment, net | ||||||
Exploration & Production | 23,002 | 26,478 | ||||
Gas & Power | 14,067 | 14,477 | ||||
Refining & Marketing | 3,791 | 4,495 | ||||
Petrochemicals | 1,072 | 1,099 | ||||
Engineering & Construction | 2,225 | 3,513 | ||||
Other activities | 93 | 82 | ||||
Corporate and financial companies | 176 | 196 | ||||
Elimination of intra-group profits | (114 | ) | (203 | ) | ||
44,312 | 50,137 |
9 Other assets
Other assets of euro 563 million related to the service contract governing mineral activities in the Dación area owned by the Venezuelan branch of the Eni Dación BV subsidiary. Effective April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the Operating Service Agreement (OSA) governing activities at the Dación oil field where Eni acted as a contractor. Since then operations at the Dación oil field are conducted by PDVSA. In February 2008 Eni reached a settlement agreement with the Republic of Venezuela thus terminating the dispute for the Dación field. Under the terms of the settlement agreement, Eni will
F-31
receive a cash compensation to be paid in seven annual installments. This cash compensation is not subject to taxation and yields interest income from the date of the settlement. The net present value of the compensation corresponds to the carrying value of expropriated assets, net of provisions. Consequently, Eni dropped the international arbitration proceeding commenced in 2006 against PDVSA.
8 Inventories10 Inventory - compulsory stock
Inventories
Inventory - compulsory stocks of euro 2,194 million (euro 1,386 million at December 31, 2004) consisted of the following:stock was as follows:
(million euro) | Dec. 31, | Dec. 31, | ||
Crude oil and petroleum products | 1,229 | 2,037 | ||||
Natural gas | 157 | 157 | ||||
1,386 | 2,194 |
Crude oil and petroleum products | 1,670 | 2,015 | ||||
Natural gas | 157 | 156 | ||||
1,827 | 2,171 |
Compulsory stocks, arestock was primarily held by Italian companies (euro 1,2861,688 million and euro 2,0572,008 million at December 31, 20042006 and at December 31, 2005,2007, respectively) and represent certainin accordance with minimum quantities requiredstock requirements set forth by Italian law.applicable laws.
9
11 Intangible assets
Intangible assets of euro 3,194 million (euro 3,313 million at December 31, 2004) consisted of the following:were as follows:
(million euro) | Net value at the beginning of the year | Investments | Amortization | Other changes | Net value at the end of the year | Gross value at the end of the year | Provisions for amortization | |||||||
Dec. 31, 2004 | |||||||||||||||||||||
Intangible assets with a definite life | |||||||||||||||||||||
Costs for research and development | 167 | 549 | (634 | ) | 25 | 107 | 843 | 736 | |||||||||||||
Industrial patent rights and intellectual property rights | 162 | 60 | (137 | ) | 89 | 174 | 977 | 803 | |||||||||||||
Concessions, licenses, trademarks and similar items | 934 | 10 | (106 | ) | (22 | ) | 816 | 2,154 | 1,338 | ||||||||||||
Intangible assets in progress and advances | 133 | 71 | (145 | ) | 59 | 64 | 5 | ||||||||||||||
Other intangible assets | 203 | 11 | (54 | ) | 64 | 224 | 549 | 325 | |||||||||||||
1,599 | 701 | (931 | ) | 11 | 1,380 | 4,587 | 3,207 | ||||||||||||||
Intangible assets with a indefinite life | |||||||||||||||||||||
Goodwill | 1,982 | 13 | (62 | ) | 1,933 | ||||||||||||||||
3,581 | 714 | (931 | ) | (51 | ) | 3,313 | |||||||||||||||
Dec. 31, 2005 | |||||||||||||||||||||
Intangible assets with a definite life | |||||||||||||||||||||
Costs for research and development | 107 | 699 | (683 | ) | 41 | 164 | 1,059 | 895 | |||||||||||||
Industrial patent rights and intellectual property rights | 174 | 37 | (122 | ) | 48 | 137 | 1,056 | 919 | |||||||||||||
Concessions, licenses, trademarks and similar items | 816 | 31 | (101 | ) | 746 | 2,205 | 1,459 | ||||||||||||||
Intangible assets in progress and advances | 59 | 74 | (57 | ) | 76 | 81 | 5 | ||||||||||||||
Other intangible assets | 224 | 13 | (30 | ) | (50 | ) | 157 | 470 | 313 | ||||||||||||
1,380 | 854 | (936 | ) | (18 | ) | 1,280 | 4,871 | 3,591 | |||||||||||||
Intangible assets with a indefinite life | |||||||||||||||||||||
Goodwill | 1,933 | 2 | (21 | ) | 1,914 | ||||||||||||||||
3,313 | 856 | (936 | ) | (39 | ) | 3,194 |
Dec. 31, 2006 | |||||||||||||||||||||
Intangible assets with finite useful lives | |||||||||||||||||||||
Exploration expenditures | 164 | 1,337 | (1,102 | ) | 10 | 409 | 1,290 | 881 | |||||||||||||
Industrial patents and intellectual property rights | 137 | 31 | (97 | ) | 41 | 112 | 1,113 | 1,001 | |||||||||||||
Concessions, licenses, trademarks and similar items | 746 | 168 | (110 | ) | 52 | 856 | 2,417 | 1,561 | |||||||||||||
Intangible assets in progress and advances | 76 | 146 | (71 | ) | 151 | 156 | 5 | ||||||||||||||
Other intangible assets | 157 | 13 | (26 | ) | (3 | ) | 141 | 457 | 316 | ||||||||||||
1,280 | 1,695 | (1,335 | ) | 29 | 1,669 | 5,433 | 3,764 | ||||||||||||||
Intangible assets with indefinite useful lives | |||||||||||||||||||||
Goodwill | 1,914 | 170 | 2,084 | ||||||||||||||||||
3,194 | 1,695 | (1,335 | ) | 199 | 3,753 | ||||||||||||||||
Dec. 31, 2007 | |||||||||||||||||||||
Intangible assets with finite useful lives | |||||||||||||||||||||
Exploration expenditures | 409 | 1,682 | (1,812 | ) | 470 | 749 | 1,509 | 760 | |||||||||||||
Industrial patents and intellectual property rights | 112 | 40 | (81 | ) | 77 | 148 | 1,179 | 1,031 | |||||||||||||
Concessions, licenses, trademarks and similar items | 856 | 12 | (83 | ) | 1 | 786 | 2,449 | 1,663 | |||||||||||||
Intangible assets in progress and advances | 151 | 312 | (86 | ) | 377 | 381 | 4 | ||||||||||||||
Other intangible assets | 141 | 15 | (24 | ) | 26 | 158 | 572 | 414 | |||||||||||||
1,669 | 2,061 | (2,000 | ) | 488 | 2,218 | 6,090 | 3,872 | ||||||||||||||
Intangible assets with indefinite useful lives | |||||||||||||||||||||
Goodwill | 2,084 | 31 | 2,115 | ||||||||||||||||||
3,753 | 2,061 | (2,000 | ) | 519 | 4,333 |
Costs for research and development forF-32
Exploration expenditures of euro 164749 million mainly concernrelated to acquisition costs of unproved reserves included in business combinations and the purchase of mineral rights (euro 157 million). This item also includes exploration expenditures amortizedmining rights. Main additions in the year 2005included exploration drilling expenditures which were fully amortized as incurred for euro 5651,610 million included within “investments” (euro 4911,028 million in the year 2004)at December 31, 2006).
Concessions, licenses, trademarks and similar items for euro 746786 million primarily concern thecomprised transmission rights for natural gas imported from Algeria (euro 618544 million) and concessions for mineral exploration (euro 67204 million).
Other intangible assets with a definite lifefinite useful lives of euro 157158 million includeincluded royalties for the use of licenses by Polimeri Europa SpA (euro 8676 million) and the estimated expenditurescosts for Eni’s social responsibility projects to be incurred following contractual commitments with the Basilicata Region relatedin relation to mineral development programs in Val d’Agri (euro 3222 million). following commitments made with the Basilicata Region.
DepreciationThe depreciation rates used arewere as follows:
(%) | |||||||||
Costs for research and development | 10 | - | 33 | ||||||
Industrial patent rights and intellectual property rights | 20 | - | 33 | ||||||
Concessions, licenses, trademarks and similar items | 7 | - | 33 | ||||||
Other intangible assets | 4 | - | 25 |
(%) | |||||||||
Exploration expenditures | 10 | - | 33 | ||||||
Industrial patents and intellectual property rights | 20 | - | 33 | ||||||
Concessions, licenses, trademarks and similar items | 7 | - | 33 | ||||||
Other intangible assets | 4 | - | 25 |
The gross carrying amount of fully depreciatedOther changes in intangible assets that is still in use amountwith finite useful lives amounted to euro 10,340488 million primarily related to the acquisition of unproved reserves in the Gulf of Mexico from the U.S. company Dominion Resources (euro 470 million) and in Congo from the French company Maurel & Prom (euro 58 million). This increase was partially offset by negative exchange differences of euro 71 million.
Goodwill of euro 2,115 million primarily concern costs for mineral research of Explorationrelated to the Gas & ProductionPower segment (euro 9,748 million).
Goodwill for euro 1,914 million concerns primarily the Oilfield Services, Construction and Engineering segment (euro 8231,125 million, of which euro 805756 million relatesrelated to the purchase of minorities in Italgas SpA in 2003 through a public offering), the Engineering & Construction segment (euro 746 million, of which euro 711 million was in respect of the purchase of Bouygues Offshore SA, now Saipem SA), the Gas & Power segment (euro 817 million, of which euro 803 million relates to the Public Offering for Italgas SpA shares during 2003), the Exploration & Production segment (euro 220158 million, of which euro 215153 million relates towas in respect of the purchase of Lasmo Plc, now Eni Lasmo Plc) and the Refining & Marketing segment (euro 5186 million).
In order to determine the recoverable amount,For impairment purposes, goodwill related to the acquisition of Bouygues Offshore SA and Italgas SpA has been allocated to the following cash generatingcash-generating units:
(million euro) | Dec. 31, | |
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
Domestic gas market | 706 | |||||
Foreign gas market |
| 50 | ||||
Bouygues Offshore SA | ||||||
Onshore constructions | 296 | |||||
Offshore constructions | 415 | |||||
711 |
TheGoodwill is assessed by comparing the carrying amount of each cash-generating unit (comprehensive of goodwill) with its fair value. In the absence of data allowing the determination of the fair value of a unit, the recoverable amount is the value-in-use. Value-in-use was determined by computing, for the first four years, the discounted cash flows expected assuming current market assessments, and management’s long-term planning assumptions thereafter.
The expected future cash flows before taxation have been discounted at rates ranging from 4.9% to 13.1% derived from the weighted average cost of cash generating units is determined based on expected cash flow estimated by usingcapital for the strategic market assumptions of Eni’s 2006-2009 planGroup and discounted by using a rate included between 5.6% and 7.7%. Forthat take into account the years not included in the strategic,sector-specific risk. Thereafter, Eni has used an incrementalgrowth rate included betweenassumptions ranging from 0% andto 2%. Key assumptions are based on past experience and take into accountreflect current market assessment of the current leveltime value of interest rate.money.
Other changes in goodwill of euro 3931 million primarily relateincluded the difference between the cost of acquisition of own shares by Snam Rete Gas SpA over the corresponding share of net equity (euro 139 million). Such increase was
F-33
partially offset by the classification of the associated goodwill allocated on Gaztransport et Technigaz SA (euro 81 million) as asset held for sale and the derecognition upon disposal of the associated goodwill allocated on Camom SA (euro 13 million). Goodwill allocated to these investments derived from the saleacquisition of Società Azionaria per la Condotta di Acque Potabili SpA (euro 18 million) and Acquedotto Vesuviano SpA (euro 3 million).
Bouygues Offshore SA. Negative foreign currency translation differences amounted to euro 14 million.
10 Investments
12 Investments
Investments accounted for using the equity method
Investments accounted for using the equity method of euro 3,890 million (euro 3,156 million at December 31, 2004) consisted of the following:
Equity-accounted investments were as follows:
(million euro) | Value | Acquisitions and subscriptions | Deduction for dividends | Other changes | Value | |||||||||||
Dec. 31, 2004 | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in unconsolidated subsidiaries | 106 | 11 | 6 | (6 | ) | (4 | ) | (4 | ) | 109 | ||||||||||||||||||||||||||||||||||||||
Dec. 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in unconsolidated entities controlled by Eni | 146 | 4 | 15 | (8 | ) | (8 | ) | (6 | ) | 1 | 144 | |||||||||||||||||||||||||||||||||||||
Investments in joint ventures | 1,851 | 119 | 215 | (6 | ) | (276 | ) | (47 | ) | 90 | 1,946 | 2,322 | 33 | 516 | (26 | ) | (302 | ) | (79 | ) | 42 | 2,506 | ||||||||||||||||||||||||||
Investments in affiliates | 947 | 119 | 180 | (57 | ) | (71 | ) | (19 | ) | 2 | 1,101 | 1,422 | 1 | 356 | (2 | ) | (440 | ) | (31 | ) | (70 | ) | 1,236 | |||||||||||||||||||||||||
2,904 | 249 | 401 | (69 | ) | (347 | ) | (70 | ) | 88 | 3,156 | 3,890 | 38 | 887 | (36 | ) | (750 | ) | (116 | ) | (27 | ) | 3,886 | ||||||||||||||||||||||||||
Dec. 31, 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in unconsolidated subsidiaries | 109 | 30 | 6 | (2 | ) | (3 | ) | 10 | (4 | ) | 146 | |||||||||||||||||||||||||||||||||||||
Dec. 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||
Investments in unconsolidated entities controlled by Eni | 144 | 4 | 10 | (2 | ) | (9 | ) | (6 | ) | 141 | ||||||||||||||||||||||||||||||||||||||
Investments in joint ventures | 1,946 | 12 | 375 | (27 | ) | (202 | ) | 98 | 120 | 2,322 | 2,506 | 1,109 | 481 | (130 | ) | (351 | ) | (173 | ) | (132 | ) | 3,310 | ||||||||||||||||||||||||||
Investments in affiliates | 1,101 | 6 | 389 | (4 | ) | (96 | ) | 34 | (8 | ) | 1,422 | 1,236 | 813 | 415 | (3 | ) | (220 | ) | (42 | ) | (11 | ) | 2,188 | |||||||||||||||||||||||||
3,156 | 48 | 770 | (33 | ) | (301 | ) | 142 | 108 | 3,890 | 3,886 | 1,926 | 906 | (135 | ) | (580 | ) | (221 | ) | (143 | ) | 5,639 |
Acquisitions and subscriptions for euro 481,926 million concerned mainly the subscriptionsrelated to the: (i) subscription of capital increase of Servizi Porto Marghera ScrlArtic Russia BV (euro 171,041 million; Eni 60%) following the acquisition of the three Russian gas companies – OAO Arctic Gas, OAO Urengoil and OAO Neftegaztechnologia – by OOO SeverEnergia (Artic Russia BV 100%) as part of a bid procedure for assets of bankrupt Yukos; (ii) acquisition of 24.9% of Burren Energy Plc (euro 601 million); (iii) acquisition of 16.1% of Ceska Rafinerska AS (euro 211 million), and (iv) subscription of capital increase of Enirepsa Gas Ltd (euro 12 million) and Lasmo Petroleum Development BV (euro 10 million) and the acquisition of Acam Clienti SpA by Eni SpA (euro 642 million).
Gains from the valuationShare of profit of equity-accounted investments using the equity method of euro 770906 million primarily relaterelated to Galp Energia SGPS SA (euro 280 million), Trans Austria Gasleitung GmbH (euro 54 million), Lipardiz Construçao de Estruturas Maritimas Lda (euro 46255 million), Unión Fenosa Gas SA (euro 44181 million) and, United Gas Derivatives Co (euro 79 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 64 million), Trans Austria Gasleitung GmbH (euro 43 million), Blue Stream Pipeline Co BV (euro 3039 million), Supermetanol CA (euro 34 million) and Gaztransport et Technigaz SAS (euro 31 million).
Losses from the valuationShare of loss of equity-accounted investments using the equity method of euro 33135 million primarily relaterelated to Geopromtrans LlcArtic Russia BV (euro 1163 million) and, Enirepsa Gas Ltd (euro 1135 million) and Starstroi Llc (euro 15 million).
Deduction following the distribution of dividends of euro 301580 million primarily relatesrelated to Unión Fenosa Gas SA (euro 173 million), Galp Energia SGPS SA (euro 56126 million), Trans Europa Naturgas Pipeline GmbHEnBW - Eni Verwaltungsgesellschaft mbH (euro 2942 million) and, United Gas Derivatives Co (euro 40 million), Supermetanol CA (euro 36 million), Trans Austria Gasleitung GmbH (euro 28 million) and Supermetanol CA, Gaztransport et Technigaz SAS (euro 28 million) and Azienda Energia e Servizi Torino SpA (euro 17 million).
Other changes of euro 143 million were primarily related to: (i) the exclusion from the scope of consolidation of Haldor Topsøe AS (euro 69 million); (ii) the classification as held for sale of interests in Fertlizantes Nitrogenados de Oriente (euro 89 million) and Gaztransport et Technigaz SAS (euro 33 million).
F-34
The following table sets out the net carrying valueamount of euro 3,8905,639 million relating to equity-accounted investments (euro 3,1563,886 million at December 31, 2004) consisted of the following companies:2006):
(million euro) | Dec. 31, | Dec. 31, | ||
Net | Eni’s interest % | Net | Eni’s interest % | |||||||||
Unconsolidated subsidiaries: | ||||||||||||
- Eni Btc Ltd | 48 | 100.00 | 55 | 100.00 | ||||||||
- Others (*) | 61 | 91 | ||||||||||
109 | 146 | |||||||||||
Joint ventures: | ||||||||||||
- Unión Fenosa Gas SA | 404 | 50.00 | 459 | 50.00 | ||||||||
- Blue Stream Pipeline Co BV | 116 | 50.00 | 280 | 50.00 | ||||||||
- Raffineria di Milazzo ScpA | 168 | 50.00 | 172 | 50.00 | ||||||||
- EnBW - Eni Verwaltungsgesellschaft mbH | 150 | 50.00 | 168 | 50.00 | ||||||||
- Azienda Energia e Servizi Torino SpA | 171 | 49.00 | 165 | 49.00 | ||||||||
- Eteria Parohis Aeriou Thessalonikis AE | 151 | 49.00 | 152 | 49.00 | ||||||||
- Super Octanos CA | 82 | 49.00 | 113 | 49.00 | ||||||||
- Trans Austria Gasleitung GmbH | 60 | 89.00 | 88 | 89.00 | ||||||||
- Supermetanol CA | 59 | 34.51 | 88 | 35.20 | ||||||||
- Unimar Llc | 97 | 50.00 | 84 | 50.00 | ||||||||
- FPSO Mystras - Produção de Petroleo Lda | 75 | 50.00 | 73 | 50.00 | ||||||||
- Lipardiz Construção de Estruturas Maritimas Lda | 20 | 50.00 | 66 | 50.00 | ||||||||
- Transmediterranean Pipeline Co Ltd | 57 | 50.00 | 63 | 50.00 | ||||||||
- Siciliana Gas SpA | 52 | 50.00 | 60 | 50.00 | ||||||||
- Toscana Gas SpA | 56 | 46.10 | 55 | 46.10 | ||||||||
- Eteria Parohis Aeriou Thessalias EA | 41 | 49.00 | 39 | 49.00 | ||||||||
- Transitgas AG | 32 | 46.00 | 32 | 46.00 | ||||||||
- CMS&A Wll | 15 | 20.00 | 31 | 20.00 | ||||||||
- Others (*) | 140 | 134 | ||||||||||
1,946 | 2,322 | |||||||||||
Affiliates: | ||||||||||||
- Galp Energia SGPS SA | 670 | 33.34 | 896 | 33.34 | ||||||||
- United Gas Derivatives Co (UGDG) | 97 | 33.33 | 128 | 33.33 | ||||||||
- Fertilizantes Nitrogenados de Oriente CEC | 75 | 20.00 | 92 | 20.00 | ||||||||
- Haldor Topsøe AS | 39 | 50.00 | 62 | 50.00 | ||||||||
- Acam Gas SpA | 44 | 49.00 | 45 | 49.00 | ||||||||
- Distribuidora de Gas del Centro SA | 37 | 31.35 | 41 | 31.35 | ||||||||
- Termica Milazzo Srl | 27 | 40.00 | 21 | 40.00 | ||||||||
- Others (*) | 112 | 137 | ||||||||||
1,101 | 1,422 | |||||||||||
3,156 | 3,890 |
Unconsolidated entities controlled by Eni: | ||||||||
- Eni Btc Ltd | 46 | 100.00 | 42 | 100.00 | ||||
- Others (*) | 98 | 99 | ||||||
144 | 141 | |||||||
Joint ventures: | ||||||||
- Artic Russia BV | 925 | 60.00 | ||||||
- Unión Fenosa Gas SA | 503 | 50.00 | 507 | 50.00 | ||||
- Blue Stream Pipeline Co BV | 293 | 50.00 | 298 | 50.00 | ||||
- EnBW - Eni Verwaltungsgesellschaft mbH | 234 | 50.00 | 256 | 50.00 | ||||
- Azienda Energia e Servizi Torino SpA | 165 | 49.00 | 162 | 49.00 | ||||
- Eteria Parohis Aeriou Thessalonikis AE | 157 | 49.00 | 154 | 49.00 | ||||
- Toscana Energia SpA | 111 | 48.72 | 133 | 49.38 | ||||
- Raffineria di Milazzo ScpA | 171 | 50.00 | 126 | 50.00 | ||||
- Trans Austria Gasleitung GmbH | 81 | 89.00 | 96 | 89.00 | ||||
- Super Octanos CA | 97 | 49.00 | 90 | 49.00 | ||||
- Lipardiz - Construçao de Estruturas Maritimas Lda | 97 | 50.00 | 88 | 50.00 | ||||
- Supermetanol CA | 90 | 34.51 | 78 | 34.51 | ||||
- Unimar Llc | 70 | 50.00 | 71 | 50.00 | ||||
- FPSO Mystras - Produçao de Petroleo Lda | 63 | 50.00 | 58 | 50.00 | ||||
- Transmediterranean Pipeline Co Ltd | 50 | 50.00 | 47 | 50.00 | ||||
- Eteria Parohis Aeriou Thessalias AE | 46 | 49.00 | 41 | 49.00 | ||||
- Transitgas AG | 31 | 46.00 | 30 | 46.00 | ||||
- CMS&A Wll | 27 | 20.00 | 22 | 20.00 | ||||
- Altergaz SA | 18 | 27.80 | ||||||
- Saibos Akogep Snc | 38 | 70.00 | 5 | 70.00 | ||||
- Haldor Topsøe AS | 71 | 50.00 | ||||||
- Others (*) | 111 | 105 | ||||||
2,506 | 3,310 | |||||||
Affiliates: | ||||||||
- Galp Energia SGPS SA | 782 | 33.34 | 911 | 33.34 | ||||
- Burren Energy Plc | 592 | 24.90 | ||||||
- Ceska Rafinerska AS | 325 | 32.44 | ||||||
- United Gas Derivatives Co | 117 | 33.33 | 140 | 33.33 | ||||
- ACAM Gas SpA | 45 | 49.00 | 45 | 49.00 | ||||
- Distribuidora de Gas del Centro SA | 37 | 31.35 | 33 | 31.35 | ||||
- Fertlizantes Nitrogenados de Oriente CEC | 88 | 20.00 | ||||||
- Gaztransport et Technigaz SAS | 29 | 30.00 | ||||||
- Others (*) | 138 | 142 | ||||||
1,236 | 2,188 | |||||||
3,886 | 5,639 |
(*) | Each individual amount included herein |
The net valuecarrying amount of investments in unconsolidated subsidiariesentities controlled by Eni, joint ventures and affiliates includeincluded the differences between purchase price and Eni’s equity in the investments of euro 553661 million. Such differences relateprimarily related to Unión Fenosa Gas SA (euro 195 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 180193 million), Galp Energia SGPS SA (euro 107106 million), Ceska Rafinerska AS (euro 97 million) and Azienda Energia e Servizi Torino SpA (euro 7169 million).
ProvisionsF-35
The fair value of listed investments was as follows:
Shares | Ownership (%) | Price per share (euro) | Fair value (million euro) | |||||
Galp Energia SGPS SA | 276,472,160 | 33.34 | 18.39 | 5,084 | ||||
Burren Energy Plc | 35,136,033 | 24.90 | 16.60 | 583 | ||||
Altergaz SA | 750,892 | 27.80 | 24.00 | 18 |
The table below sets out the provisions for losses related to investments of euro 21 million (euro 30 million at December 31, 2004), included in the provisions for contingencies relate essentially to Geopromtrans Llc (euro 19 million).
Other investments
Other investments of euro 421135 million (euro 529154 million at December 31, 2004) consisted of2006), primarily related to the following:following equity-accounted investments:
(million euro) | Dec. 31, 2006 | Dec. 31, 2007 | ||
Polimeri Europa Elastomères France SA (under liquidation) | 50 | 50 | ||||
Charville - Consultores e Serviços Lda | 37 | 31 | ||||
Industria Siciliana Acido Fosforico - ISAF - SpA (under liquidation) | 31 | 28 | ||||
Southern Gas Constructors Ltd | 9 | 14 | ||||
Geopromtrans Llc | 19 | |||||
Others | 8 | 12 | ||||
154 | 135 |
Other investments
Other investments were as follows:
(million euro) | Net value at the beginning of the year | Other changes | Net value at the end of the year | Gross value at the end of the year | Accumulated impairment charges | |||||||||||
Dec. 31, 2006 | |||||||||||||||||||||
Investments in unconsolidated entities controlled by Eni | 41 | (20 | ) | 21 | 49 | 28 | |||||||||||||||
Investments in affiliates | 9 | 9 | 10 | 1 | |||||||||||||||||
Other investments | 371 | 4 | (31 | ) | (14 | ) | 330 | 332 | 2 | ||||||||||||
421 | 4 | (31 | ) | (34 | ) | 360 | 391 | 31 | |||||||||||||
Dec. 31, 2007 | |||||||||||||||||||||
Investments in unconsolidated entities controlled by Eni | 21 | 3 | (1 | ) | 2 | 25 | 36 | 11 | |||||||||||||
Investments in affiliates | 9 | 1 | 10 | 11 | 1 | ||||||||||||||||
Other investments | 330 | 190 | (36 | ) | (47 | ) | 437 | 443 | 6 | ||||||||||||
360 | 193 | (37 | ) | (44 | ) | 472 | 490 | 18 |
Dec. 31, 2004 | ||||||||||||||||||||||||
Unconsolidated subsidiaries | 79 | (1 | ) | 78 | 86 | 8 | ||||||||||||||||||
Affiliates | 106 | 2 | (1 | ) | 107 | 117 | 10 | |||||||||||||||||
Other investments | 316 | 65 | (18 | ) | (20 | ) | 1 | 344 | 398 | 54 | ||||||||||||||
501 | 67 | (18 | ) | (20 | ) | (1 | ) | 529 | 601 | 72 | ||||||||||||||
Dec. 31, 2005 | ||||||||||||||||||||||||
Unconsolidated subsidiaries | 78 | 1 | (38 | ) | 41 | 68 | 27 | |||||||||||||||||
Affiliates | 107 | (100 | ) | 2 | 9 | 9 | ||||||||||||||||||
Other investments | 344 | 23 | (30 | ) | 41 | (7 | ) | 371 | 375 | 4 | ||||||||||||||
529 | 24 | (130 | ) | 41 | (43 | ) | 421 | 452 | 31 |
Other investments related toInvestments in unconsolidated subsidiariesentities controlled by Eni and affiliates are valuedstated at cost adjustednet of impairment losses. Other investments, for impairment. Investments in other companies are essentially valued at cost adjusted for impairment, because thewhich fair value cannot be reliably determined.determined, were recognized at cost and adjusted for impairment losses.
Acquisitions and subscriptions for euro 24193 million essentially concern the subscriptionsmainly related to the capital increaseacquisition of Darwin13.6% of Angola LNG Pty Ltd (euro 22 million).
Sales of euro 130 million essentially relate to the sale of Erg Raffinerie Mediterranee SpA (euro 100 million) and Discovery ProducerAngola LNG Supply Services Llc (euro 20190 million).
F-36
The net carrying amount of Otherother investments of euro 421472 million (euro 529360 million at December 31, 2004) concerned2006) was related to the following companies:entities:
(million euro) | Dec. 31, | Dec. 31, | ||
Net | Eni’s interest % | Net | Eni’s interest % | |||||||||
Investments in unconsolidated entities controlled by Eni | 21 | 25 | ||||||
Affiliates | 9 | 10 | ||||||
Other investments: | ||||||||
- Angola LNG Ltd | 175 | 13.60 | ||||||
- Darwin LNG Pty Ltd | 108 | 12.04 | 87 | 10.99 | ||||
- Nigeria LNG Ltd | 90 | 10.40 | 80 | 10.40 | ||||
- Ceska Rafinerska AS | 31 | 16.33 | ||||||
- Others (*) | 101 | 95 | ||||||
330 | 437 | |||||||
360 | 472 |
Unconsolidated subsidiaries (*) | 78 | 41 | ||||||||||
Affiliates: | ||||||||||||
- Erg Raffinerie Mediterranee SpA | 100 | 28.00 | ||||||||||
- Others (*) | 7 | 9 | ||||||||||
107 | 9 | |||||||||||
Other investments: | ||||||||||||
- Darwin LNG Pty Ltd | 89 | 12.04 | 126 | 12.04 | ||||||||
- Nigeria LNG Ltd | 86 | 10.40 | 100 | 10.40 | ||||||||
- Ceska Rafinerska AS | 30 | 16.33 | 35 | 16.33 | ||||||||
- Discovery Producer Services Llc | 19 | 16.67 | ||||||||||
- Interconnector (UK) Ltd | 23 | 4.62 | 27 | 5.00 | ||||||||
- Others (*) | 97 | 83 | ||||||||||
344 | 371 | |||||||||||
529 | 421 |
(*) | Each individual amount included herein |
The provisionsProvisions for losses related to other investments, ofincluded within the provisions for contingencies, amounted to euro 6428 million (euro 6130 million at December 31, 2004), included2006) and were primarily in the provisions for contingencies, concernedrelation to the following companies:entities:
(million euro) | Dec. 31, | Dec. 31, | ||
Industria Siciliana Acido Fosforico - ISAF SpA (in liquidation) | 39 | 35 | ||||
Caspian Pipeline Consortium R - Closed Joint Stock Co | 16 | 21 | ||||
Other investments | 6 | 8 | ||||
61 | 64 |
Caspian Pipeline Consortium R - Closed Joint Stock Co | 27 | 25 | ||||
Other investments | 3 | 3 | ||||
30 | 28 |
Other information about investments
The following aretable summarizes key financial data, net to Eni, as disclosed in the amounts, according to Eni’s interest, from the lastlatest available financial statements of unconsolidated subsidiaries,entities controlled by Eni, joint ventures and affiliates:
(million euro) | Dec. 31, | Dec. 31, | ||
Unconsolidated entities controlled by Eni | Joint ventures | Affiliates | Unconsolidated entities controlled by Eni | Joint ventures | Affiliates | |||||||
Total assets | 1,315 | 7,906 | 2,998 | 1,247 | 7,781 | 4,252 | ||||||||||||
Total liabilities | 1,182 | 5,466 | 1,753 | 1,111 | 4,526 | 2,061 | ||||||||||||
Net sales from operations | 71 | 5,536 | 4,905 | 99 | 4,667 | 5,134 | ||||||||||||
Operating profit | (1 | ) | 790 | 454 | 14 | 674 | 502 | |||||||||||
Net profit | 3 | 465 | 351 | 14 | 318 | 410 |
The total assets and liabilities of unconsolidated controlled entities of euro 1,247 million and euro 1,111 million respectively, (euro 1,315 million and euro 1,182 million at December 31, 2006) concerned for euro 873 million and euro 873 million (euro 900 million and euro 900 million at December 31, 2006) entities for which the consolidation does not produce significant effects.
F-37
13 Other financial assets
Other financing receivables were as follows:
(million euro) | Dec. 31, 2006 | Dec. 31, 2007 | ||
Financing receivables: | ||||||
- receivables for financing operating activities | 532 | 677 | ||||
- receivables for financing non-operating activities | 252 | 225 | ||||
784 | 902 | |||||
Securities: | ||||||
- securities held for operating purposes | 21 | 21 | ||||
21 | 21 | |||||
805 | 923 |
Financing receivables are presented net of the allowance for impairment losses of euro 24 million (same amount at December 31, 2006).
Operating financing receivables of euro 677 million (euro 532 million at December 31, 2006) primarily concerned loans made by the Exploration & Production segment (euro 512 million) and Gas & Power segment (euro 87 million). The euro 145 million increase was primarily related to the Exploration & Production segment for euro 157 million and was offset by negative exchange differences of euro 82 million.
Non-operating financing receivables of euro 225 million (euro 252 million at December 31, 2006) concerned a restricted deposit held by Eni Lasmo Plc as a guarantee of a debenture (euro 246 million at December 31, 2006).
Receivables in currencies other than euro amounted to euro 821 million (euro 693 million at December 31, 2006).
Receivables due beyond five years amounted to euro 509 million (euro 396 million at December 31, 2006).
Securities euro 21 million (same amount as at December 31, 2006) designated as held-to-maturity investments were issued by the Italian Government.
Securities have a maturity beyond five years.
The fair value of financing receivables has been determined based on the present value of expected future cash flows discounted at rates ranging from 3.8% to 6.0% (3.6% and 5.6% at December 31, 2006).
The fair value of securities was derived from quoted market prices. The fair value of financing receivables and securities did not differ significantly from their carrying amount.
14 Deferred tax assets
Deferred tax assets were recognized net of offsettable deferred tax liabilities for euro 3,526 million (euro 4,028 million at December 31, 2006).
(million euro) |
|
|
|
|
|
| ||||||
Total assets | 1,341 | 6,699 | 3,603 | 1,404 | 7,423 | 2,763 | ||||||||||||
Total liabilities | 1,227 | 4,755 | 2,530 | 1,263 | 5,161 | 1,295 | ||||||||||||
Net sales from operations | 63 | 4,361 | 4,250 | 63 | 4,617 | 1,560 | ||||||||||||
Operating profit | (4 | ) | 318 | 115 | (1 | ) | 609 | 176 | ||||||||||
Net profit | (1 | ) | 172 | 38 | (2 | ) | 328 | 371 |
1,725 | 1,273 | (1,724 | ) | (219 | ) | 860 | 1,915 |
Total assets and total liabilities relating to unconsolidated companiesOther changes of euro 1,404 and euro 1,263860 million were primarily related to additions reflecting: (i) a limited right for each subsidiaries to offset deferred tax assets against deferred tax liabilities (euro 1,341 and euro 1,227 million at December 31, 2004) concern502 million); (ii) the recognition of the deferred tax effect against equity on the fair value valuation of derivatives designated as cash flow hedge for euro 1,004378 million.
F-38
Further information is provided in Note 20 - Other current liabilities and euro 1,004 (euro 935 and euro 935 million at December 31, 2004) companies for which the consolidation does not produce significant effects.
Note 25 - Other non-current liabilities.
11Deferred tax assets are described in Note 24 - Deferred tax liabilities.
15 Other financial assets
Other financial non-currentreceivables
The following table provides an analysis of euro 1,050 million (euro 936 million at December 31, 2004) consisted of the following:other non-current receivables:
(million euro) | Dec. 31, | Dec. 31, | ||
Financial receivables | 913 | 1,001 | ||||
Securities | 23 | 49 | ||||
936 | 1,050 |
Tax receivables from: | ||||||
- Italian tax authorities | ||||||
. income tax | 501 | 486 | ||||
. interest on tax credits | 322 | 325 | ||||
. Value Added Tax (VAT) | 37 | 42 | ||||
. other | 13 | 11 | ||||
873 | 864 | |||||
- foreign tax authorities | 30 | 30 | ||||
903 | 894 | |||||
Other receivables: | ||||||
- in relation to disposals | 2 | 7 | ||||
- others | 83 | 197 | ||||
85 | 204 | |||||
Other non-current receivables | 6 | 12 | ||||
994 | 1,110 |
Financial receivables are presented net of an impairment charge of euro 25 million (euro 21 million at December 31, 2004).
Financial receivables of euro 1,001 million (euro 913 million at December 31, 2004) concern receivables made for operating purposes for euro 754 million (euro 673 million at December 31, 2004) and non-operating financial receivables for euro 247 million (euro 240 million at December 31, 2004), of which euro 241 million related to a fixed deposit held by Eni Lasmo PlcCurrent liabilities
16 Short-term debt
Short-term debt was as a guarantee of a debt issue (euro 234 million at December 31, 2004). Financial receivables made for operating purposes primarily concern the Gas & Power segment (euro 499 million) and the Exploration & Production segment (euro 170 million). The increase in financial receivables made for operating purposes of euro 81 million primarily concern the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 96 million).follows:
Receivables in currency other than euro amount to euro 845 million (euro 712 million at December 31, 2004).
Receivables due beyond 5 years amount to euro 625 million (euro 402 million at December 31, 2004).
Securities of euro 49 million are considered held-to-maturity investments and concern securities issued by the Italian Government for euro 22 million and securities issued by Italian and foreign financial entities for euro 27 million.
At January 1, 2005, the date of the first application of IAS 32 and 39, securities for euro 50 million were reclassified as held-to-maturity.
Securities for euro 21 million concern securities made for operating purposes (euro 22 million at December 31, 2004).
The valuation at the fair value of other financial assets did not have any significant effect.
12 Deferred tax assets
Deferred tax assets of euro 1,861 million (euro 1,827 million at December 31, 2004) are net of deferred tax liabilities for which Eni possesses the legal right of offset of euro 3,347 million (euro 2,346 million at December 31, 2004).
(million euro) |
|
| ||
Banks | 3,178 | 4,070 | ||||
Ordinary bonds | 3,176 | |||||
Other financial institutions | 222 | 517 | ||||
3,400 | 7,763 |
Short-term debt increased by euro 4,363 million primarily due to the balance of repayments and new proceeds (euro 4,850 million) and to changes in the scope of consolidation (euro 98 million), offset by negative currency translation differences (euro 583 million). Debt comprised commercial paper of euro 3,176 million mainly issued by the financial company Eni Coordination Center SA.
Short-term debt per currency is shown in the table below:
(million euro) | Dec. 31, 2006 |
| ||
Euro | 3,119 | 5,453 | ||||
U.S. dollar | 161 | 1,591 | ||||
Other currencies | 120 | 719 | ||||
3,400 | 7,763 |
In 2007, the weighted average interest rate on short-term debt was 4.9% (3.9% in 2006).
F-39
At December 31, 2007 Eni had undrawn committed and uncommitted borrowing facilities available of euro 5,006 million and euro 6,298 million, respectively (euro 5,896 million and euro 6,523 million at December 31, 2006).
These facilities were under interest rates that reflected market conditions. Charges in unutilized facilities were not significant.
17 Trade and other payables
Trade and other payables were as follows:
(million euro) | Dec. 31, 2006 |
| ||
Trade payables | 10,528 | 11,092 | ||||
Advances | 1,362 | 1,483 | ||||
Other payables: | ||||||
- in relation to investments | 1,166 | 1,301 | ||||
- others | 2,939 | 3,240 | ||||
4,105 | 4,541 | |||||
15,995 | 17,116 |
Included in 2007 trade payables was the contractually agreed set off of receivables and payables between Eni North Africa BV and the National Oil Company (the Libyan state company) for euro 1,798 million.
Advances of euro 1,483 million (euro 1,362 million at December 31, 2006) were related to payments received in excess of the value of the work in progress performed for euro 772 million (euro 884 million at December 31, 2006), advances on contract work in progress for euro 324 million (euro 197 million at December 31, 2006) and other advances for euro 487 million (euro 281 million at December 31, 2006). Advances on contract work in progress were in respect of the Engineering & Construction segment.
Other payables were as follows:
(million euro) | Dec. 31, 2006 |
| ||
Payables due to: | ||||||
- joint venture operators in exploration and production activities | 1,146 | 1,624 | ||||
- suppliers in relation to investments | 923 | 1,015 | ||||
- non-financial government entities | 274 | 397 | ||||
- employees | 336 | 257 | ||||
- social security entities | 339 | 226 | ||||
3,018 | 3,519 | |||||
Other payables | 1,087 | 1,022 | ||||
4,105 | 4,541 |
Payables with related parties are described in Note 36 - Transactions with related parties.
The fair value of trade and other payables did not differ significantly from their carrying amount considering the short-term maturity of trade payables.
F-40
18 Income taxes payable
Income taxes payable were as follows:
(million euro) | Dec. 31, 2006 |
| ||
Italian subsidiaries | 158 | 247 | ||||
Foreign subsidiaries | 1,482 | 1,441 | ||||
1,640 | 1,688 |
Income taxes payable of Italian subsidiaries were positively affected by the fair value valuation of cash flow hedging derivatives (euro 492 million). This effect was recorded in the relevant provision within equity. Further information is provided in Note 20 - Other current liabilities and Note 25 - Other non-current liabilities.
19 Other taxes payable
Other taxes payable were as follows:
(million euro) | Dec. 31, 2006 | Dec. 31, 2007 | ||
Excise and customs duties | 683 | 804 | ||||
Other taxes and duties | 507 | 579 | ||||
1,190 | 1,383 |
20 Other current liabilities
Other current liabilities were as follows:
(million euro) | Dec. 31, 2006 | Dec. 31, 2007 | ||
Fair value of non-hedging derivatives | 395 | 412 | ||||
Fair value of cash flow hedge derivatives | 40 | 911 | ||||
Other liabilities | 199 | 233 | ||||
634 | 1,556 |
F-41
Fair value of derivative contracts which do not meet the formal criteria to be recognized as hedges in accordance with IFRS was as follows:
Dec. 31, 2006 | Dec. 31, 2007 | |||
(million euro) | Fair value | Purchase commitments | Sale commitments | Fair value | Purchase commitments | Sale commitments | ||||||
Non-hedging derivatives on exchange rate | ||||||||||||
Currency swap | 11 | 928 | 363 | 63 | 2,096 | 296 | ||||||
Interest currency swap | 19 | 133 | 124 | 5 | 140 | |||||||
Other | 2 | 69 | 1 | 7 | 76 | 1 | ||||||
32 | 1,130 | 488 | 75 | 2,312 | 297 | |||||||
Non-hedging derivatives on interest rate | ||||||||||||
Interest rate swap | 30 | 1,077 | 1,045 | 24 | 722 | 401 | ||||||
30 | 1,077 | 1,045 | 24 | 722 | 401 | |||||||
Non-hedging derivatives on commodities | ||||||||||||
Over the counter | 52 | 568 | 67 | 12 | 49 | 58 | ||||||
Other | 281 | 855 | 75 | 301 | 1,187 | 28 | ||||||
333 | 1,423 | 142 | 313 | 1,236 | 86 | |||||||
395 | 3,630 | 1,675 | 412 | 4,270 | 784 |
|
|
|
|
|
|
Other changes of euro 975 million primarily concern the set-off, for each company, of deferred tax assets with deferred tax liabilities (euro 1,035 million). Such decrease has been partially offset by provisions to the reserves of the shareholders’ equity following the first application of IAS 32 and 39 (euro 60 million).
Deferred tax assets are described in Note 21.
13 Other non-current assets
Other non-current assets of euro 995 million (euro 1,008 million at December 31, 2004) consisted of the following:
|
| |||
Accounts receivable from: | ||||||
- Italian tax authorities | ||||||
. income tax credits | 506 | 508 | ||||
. interest on tax credits | 294 | 309 | ||||
. value added tax (VAT) | 55 | 37 | ||||
. other | 8 | 7 | ||||
863 | 861 | |||||
- foreign tax authorities | 49 | 44 | ||||
912 | 905 | |||||
Other receivables | 32 | 79 | ||||
Other non-current assets | 64 | 11 | ||||
1,008 | 995 |
Current liabilities
14 Current financial liabilities
Current financial liabilities of euro 4,612 million (euro 4,150 million at December 31, 2004) consisted of the following:
|
| ||||
Banks | 2,189 | 3,894 | ||||
Financial liabilities represented by commercial papers | 1,540 | 60 | ||||
Other financing institutions | 421 | 658 | ||||
4,150 | 4,612 |
The increasefair value of current financial liabilities of euro 462 million is primarily due to the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 595 million). Such increase has been partially offset by the balance of payments and new proceeds of liabilities (euro 144 million).
Short-term debt by currencythese derivative contracts was as follows:
|
| |||
Euro | 2,393 | 4,029 | ||||
U.S. Dollar | 1,329 | 323 | ||||
British Pound | 253 | 4 | ||||
Other currencies | 175 | 256 | ||||
4,150 | 4,612 |
The weighted average interest rate of Eni’s short-term debt was 2.5% and 2.8% for the years ended December 31, 2004 and 2005, respectively.
On December 31, 2005 Eni maintained committed and uncommitted unused lines of credit for euro 5,855 and euro 4,783 million, respectively (euro 5,304 million and euro 7,771 million, respectively, at December 31, 2004). These agreements provide for interest chargesdetermined using an appropriate valuation method based on prevailing market conditions. Commission fees on unused linesdata at year-end. The fair value of credit are not significant.
15 Trade and other payables
Trade and other payables ofcash flow hedging derivatives amounted to euro 13,095911 million (euro 10,53340 million at December 31, 2004) consisted of2006) related to contracts expiring in 2008 entered into by the following:
|
| |||
Trade payables | 5,837 | 8,170 | ||||
Advances | 1,211 | 1,184 | ||||
Other payables | 3,485 | 3,741 | ||||
10,533 | 13,095 |
Trade payables of euro 8,170 million increased by euro 2,333 million in 2005 as compared to 2004. Such increase primarily concerns the Gas & Power segment (euro 969 million), Refining & Marketing segment (euro 577 million) and Exploration & Production segment in order to hedge the exposure to variability in future cash flows expected in the 2008-2011 period deriving from marketing an amount of Eni’s proved hydrocarbon reserves equal to 2% of proved reserves as of December 31, 2006 in connection with the acquisition in 2007 of production, development and exploration upstream properties onshore Congo from the French company Maurel & Prom and in the Gulf of Mexico from the U.S. company Dominion Resources. Change in fair value (euro 334871 million) and includesof the exchange rate differences related tohedging instrument directly recognized in equity was euro 878 million for the translation of financial statements prepared in currencies other than euro (euro 137 million).
Advanceseffective portion whilst the ineffective portion of euro 1,18416 million was recognized in the profit and loss as finance expense (the time value component). Cumulative currency translation differences increased by euro 23 million. Further information on the fair value recognition in the consolidated balance sheet and profit and loss account of contracts with a maturity in 2009-2011 is given in Note 25 - Other liabilities under the section other non-current liabilities. The nominal value of these cash flow hedging derivatives referred to purchase and sale commitments for euro 1,399 million and euro 1,977 million, respectively (euro 1,2114 million and euro 525 million at December 31, 2004) concern payments received in excess of2006). Information on the value ofhedged risks and the work in progress performed for euro 550 million (euro 554 million at December 31, 2004), advances on contract work in progress for euro 309 million (euro 47 million at December 31, 2004) and other advances for euro 325 million (euro 610 million December 31, 2004). Advances on contract work in progress of euro 859 million (euro 601 million at December 31, 2004) concern the Oilfield Services, Construction and Engineering segment.
Other payables of euro 3,741 million (euro 3,485 million at December 31, 2004) included the following:
|
| |||
Payables due to: | ||||||
- joint venture operators in exploration and production | 655 | 1,264 | ||||
- suppliers in relation to investments | 996 | 951 | ||||
- employees | 264 | 314 | ||||
- Italian governmental entities | 240 | 313 | ||||
- social security entities | 232 | 229 | ||||
2,387 | 3,071 | |||||
Cautionary deposit | 20 | 6 | ||||
Other payables | 1,078 | 664 | ||||
3,485 | 3,741 |
Payables with related parties are describedhedging policies is given in Note 32.
28 - - Guarantees, commitments and risks.
16 Taxes payable
Taxes payable of euro 3,430 million (euro 2,498 million at December 31, 2004) consisted of the following:
|
| |||
Income taxes payable | 1,200 | 1,742 | ||||
Customs and excise duties | 793 | 896 | ||||
Other | 505 | 792 | ||||
2,498 | 3,430 |
Taxes payable of euro 1,742 million increased by euro 542 million. The increase resulted primarily from foreign companies for euro 622 million following the increase of profit before income taxes and the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 73 million); such increase was partially offset by the decrease of the income taxes of Italian companies (euro 80 million).
17 Other current liabilities
Other current liabilities of euro 613 million (euro 505 million at December 31, 2004) consisted of the following:
|
| |||
Fair value of non-hedging derivatives | 378 | |||||
Fair value of cash flow hedge derivatives | 5 | |||||
Other liabilities | 505 | 230 | ||||
505 | 613 |
At January 1, 2005, the first application of IAS 32 and 39, resulted in the accounting at the fair value of derivatives that do not meet the conditions required to qualify as hedging instruments for an amount, net of differentials on derivative contracts, of euro 82 million with a corresponding entry to the shareholders’ equity (euro 36 million) and to deferred tax assets (euro 46 million).
Fair value of non-hedging derivative contracts of euro 378 million consisted of the following:
|
| |||
Non-hedging derivatives on exchange rate | ||||
Currency Swap | 139 | 6,370 | ||
Interest Currency Swap | 73 | 2,316 | ||
Other | 2 | 57 | ||
214 | 8,743 | |||
Non-hedging derivatives on interest rate | ||||
Interest Rate Swap | 101 | 5,145 | ||
101 | 5,145 | |||
Non-hedging derivatives on commodities | ||||
Options | 23 | 17 | ||
Over the counter | 21 | 323 | ||
Future | 5 | 67 | ||
Other | 14 | 10 | ||
63 | 417 | |||
378 | 14,305 |
Commitments concerning cash flow hedge derivatives amounted to euro 42 million and concerned commitments on exchange rate derivatives.
At December 31, 2004 other liabilities of euro 505 million included differentials on derivative contracts for euro 141 million, of which euro 46 million related to financing receivables and liabilities.
Non-current liabilities
18
21 Long-term debt and current portionmaturities of long-term debt
Long-term debt andincluded the current portion maturing during the year following the balance sheet date (current maturity). The table below analyzes debt by year of long-term debt, including the relevant expiration dates, were as follows:forecast repayment:
(million euro) | December 31, | Long-term maturity | ||||
Type of debt instrument | Maturity range | 2004 | 2005 | Current maturity 2006 | 2007 | 2008 | 2009 | 2010 | After | Total | ||||||||||
Banks: | ||||||||||||||||||||
- ordinary loans | 2006-2017 | 2,166 | 2,174 | 261 | 493 | 150 | 272 | 248 | 750 | 1,913 | ||||||||||
- interest rate assisted loans | 2006-2013 | 101 | 45 | 32 | 4 | 3 | 2 | 2 | 2 | 13 | ||||||||||
- other financings | 2006 | 9 | 3 | 3 | ||||||||||||||||
Ordinary bonds | 2006-2027 | 5,331 | 5,339 | 391 | 705 | 471 | 126 | 939 | 2,707 | 4,948 | ||||||||||
Other financing institutions | 2006-2019 | 927 | 825 | 46 | 137 | 37 | 124 | 181 | 300 | 779 | ||||||||||
8,534 | 8,386 | 733 | 1,339 | 661 | 524 | 1,370 | 3,759 | 7,653 |
Type of debt instrument | Maturity range | 2006 | 2007 | Current maturity 2008 | 2009 | 2010 | 2011 | 2012 | After | Total | ||||||||||
Bank loans | 2008-2022 | 2,298 | 6,073 | 159 | 607 | 423 | 121 | 4,106 | 657 | 5,914 | ||||||||||
Other bank loans at favorable rates | 2008-2013 | 13 | 9 | 2 | 1 | 2 | 2 | 1 | 1 | 7 | ||||||||||
2,311 | 6,082 | 161 | 608 | 425 | 123 | 4,107 | 658 | 5,921 | ||||||||||||
Ordinary bonds | 2008-2037 | 5,097 | 5,386 | 263 | 324 | 919 | 167 | 30 | 3,683 | 5,123 | ||||||||||
Other financial institutions | 2008-2020 | 891 | 599 | 313 | 118 | 12 | 28 | 12 | 116 | 286 | ||||||||||
8,299 | 12,067 | 737 | 1,050 | 1,356 | 318 | 4,149 | 4,457 | 11,330 |
F-42
Long-term debt, of euro 8,386 million including the current portion of long-term debt, decreasedincreased by euro 148 million.3,768 million to euro 12,067 million (euro 8,299 million at December 31, 2006). Such decrease is primarilyincrease was due to the balance of payments and new proceeds of liabilities (euro 376 million) and toeuro 3,885 million as well as the effectconsolidation of exchange rateFrigstad Discover Invest Ltd that accounts for euro 170 million. This was offset by: (i) the negative impact of foreign currency translation differences; (ii) translation differences arising on the alignment to the year end exchange rate of debtsdebt taken on by euro-reporting subsidiaries denominated in currenciesforeign currency which are translated into euro at year-end exchange rates (euro 312 million).
Debt from other than functional currency (euro 309 million)financial institutions of euro 599 million included euro 37 million of finance lease transactions. The following table shows residual debt by maturity date, which was obtained by summing future lease payments discounted at the effective interest rate, interest and as increase, to the effectnominal value of exchange rate differences on the translation of financial statements prepared in currencies other than euro (euro 478 million).future lease payments:
Maturity range | |||
(million euro) | Within 12 months | Between one and five years | Beyond five years | Total | ||||
Residual debt | 7 | 25 | 5 | 37 | ||||
Interests | 4 | 7 | 4 | 15 | ||||
Undiscounted value of future lease payments | 11 | 32 | 9 | 52 |
Eni entered into financing arrangementslong-term borrowing facilities with the European Investment Bank relatingwhich were subordinated to bank debt that requiresthe maintenance of certain financial ratios generallyperformance indicators based on Eni’s Consolidated Financial Statementsor ofconsolidated financial statements or a rating not inferior to A -A- (S&P) and A3 (Moodys)(Moody’s). At December 31, 20042006 and 2005,2007, the amount of short and long-term debt subject to restrictive covenants was euro 1,1041,131 million and euro 1,2581,429 million, respectively. Furthermore, Saipem SpA and Saipem SA entered into financing arrangements with bankscertain borrowing facilities for euro 27575 million (euro 300 million), that requireand euro 34 million, respectively, with a number of financial institutions subordinated to the maintenance of certain financial ratios generallyperformance indicators based on Saipem’s Consolidated Financial Statements.the consolidated financial statements of Saipem and separate financial statements of Saipem SA. Eni and Saipem are in compliance with the covenants contained in itstheir respective financing arrangements.
Bonds of euro 5,3395,386 million concernconsisted of bonds issued within the Euro Medium Term Notes Program for a total of euro 4,3654,916 million and other bonds for a total of euro 974470 million.
BondsThe following table analyses bonds per issuing entity, maturity date, interest rate and currency as ofat December 31, 2005, including the issuing entity, the expiration dates and the interest rates, by currency, were as follows:2007:
Amount | Discount on bond issue and accrued expense | Total |
| Maturity | % rate | |||||||
(million euro) | from | to | from | to | ||||||||||||
Issuing entity | |||||||||||||||||||||||||||||||||||||||||
Euro Medium Term Notes: | |||||||||||||||||||||||||||||||||||||||||
- Eni SpA | 1,500 | 41 | 1,541 | Euro | 2013 | 4.625 | 1,500 | 43 | 1,543 | Euro | 2013 | 4.625 | |||||||||||||||||||||||||||||
- Eni Coordination Center SA | 876 | (2 | ) | 874 | British pound | 2007 | 2019 | 4.875 | 5.250 | ||||||||||||||||||||||||||||||||
- Eni SpA | 1,000 | (3 | ) | 997 | Euro | 2017 | 4.750 | ||||||||||||||||||||||||||||||||||
- Eni Coordination Center SA | 516 | 5 | 521 | Euro | 2007 | 2015 | variable | 683 | 4 | 687 | British pound | 2010 | 2019 | 4.875 | 5.125 | ||||||||||||||||||||||||||
- Eni SpA | 500 | 16 | 516 | Euro | 2010 | 6.125 | 500 | 16 | 516 | Euro | 2010 | 6.125 | |||||||||||||||||||||||||||||
- Eni Coordination Center SA | 274 | 5 | 279 | Euro | 2008 | 2024 | 2.876 | 5.050 | 367 | 8 | 375 | Euro | 2008 | 2015 | variable | ||||||||||||||||||||||||||
- Eni Coordination Center SA | 216 | 3 | 219 | U.S. dollar | 2013 | 2015 | 4.450 | 4.800 | 277 | 5 | 282 | Euro | 2008 | 2024 | 2.876 | 5.050 | |||||||||||||||||||||||||
- Eni Coordination Center SA | 161 | 4 | 165 | U.S. dollar | 2006 | 2007 | variable | 277 | 2 | 279 | Japanese yen | 2008 | 2037 | 0.810 | 2.810 | ||||||||||||||||||||||||||
- Eni Coordination Center SA | 152 | 152 | Japanese yen | 2008 | 2021 | 0.810 | 2.320 | 173 | 2 | 175 | U.S. dollar | 2013 | 2015 | 4.450 | 4.800 | ||||||||||||||||||||||||||
- Eni Coordination Center SA | 83 | 1 | 84 | Swiss franc | 2006 | 2010 | 1.750 | 2.043 | 31 | 31 | U.S. dollar | 2013 | variable | ||||||||||||||||||||||||||||
- Eni Coordination Center SA | 14 | 14 | Swiss franc | 2007 | variable | 30 | 1 | 31 | Swiss franc | 2010 | 2.043 | ||||||||||||||||||||||||||||||
4,292 | 73 | 4,365 | 4,838 | 78 | 4,916 | ||||||||||||||||||||||||||||||||||||
Other bonds: | |||||||||||||||||||||||||||||||||||||||||
- Eni USA Inc | 339 | 2 | 341 | U.S. dollar | 2027 | 7.300 | 271 | 3 | 274 | U.S. dollar | 2027 | 7.300 | |||||||||||||||||||||||||||||
- Eni USA Inc | 254 | 1 | 255 | U.S. dollar | 2006 | 7.500 | |||||||||||||||||||||||||||||||||||
- Eni Lasmo Plc (*) | 219 | (11 | ) | 208 | British pound | 2009 | 10.375 | 205 | (9 | ) | 196 | British pound | 2009 | 10.375 | |||||||||||||||||||||||||||
- Eni USA Inc | 170 | 170 | U.S. dollar | 2007 | 6.750 | ||||||||||||||||||||||||||||||||||||
982 | (8 | ) | 974 | 476 | (6 | ) | 470 | ||||||||||||||||||||||||||||||||||
5,274 | 65 | 5,339 | 5,314 | 72 | 5,386 |
(*) | The bond is guaranteed by a |
Bonds dueAs at December 31, 2007 bonds maturing within 18 months amount to(euro 584 million) were issued by Eni Coordination Center SA for euro 435388 million and concernby Eni USA Inc (euro 255 million)Lasmo Plc for euro 196 million. During 2007, Eni SpA and Eni Coordination Center SA (euro 180 million). During 2005 Eni issued bonds for euro 441997 million through Eni Coordination Center SA.and euro 121 million, respectively.
Long-term debt andF-43
The following table analyses the current portioncurrency composition of long-term debt includingand its current portion, and the related weighted average interest rates by currency, was as follows:on total borrowings:
Dec. 31, | Average rate | Dec. 31, | Average rate | |||||
Euro | 5,704 | 3.3 | 5,344 | 3.6 | ||||||||
U.S. dollar | 1,476 | 6.4 | 1,709 | 7.0 | ||||||||
British pound | 1,082 | 6.1 | 1,082 | 5.3 | ||||||||
Japanese yen | 96 | 1.4 | 153 | 1.4 | ||||||||
Swiss franc | 146 | 1.1 | 98 | 2.6 | ||||||||
Other currencies | 30 | 8.7 | ||||||||||
8,534 | 8,386 |
Euro | 5,566 | 4.0 | 9,973 | 4.4 | ||||
U.S. dollar | 1,261 | 7.8 | 900 | 8.6 | ||||
British pound | 1,259 | 5.9 | 882 | 6.2 | ||||
Japanese yen | 167 | 1.4 | 281 | 1.9 | ||||
Swiss franc | 46 | 2.0 | 31 | 2.0 | ||||
8,299 | 12,067 |
OnAt December 31, 20052007 Eni maintainedhad undrawn committed unused lineslong-term borrowing facilities of credit for euro 1,0701,400 million (euro 710520 million at December 31, 2004)2006). These agreements provide for interest charges basedInterest rates on prevailingthese contracts were at market conditions. Commission fees on unused lines of credit areCharges for unutilized facilities were not significant.
Financial liabilities for euro 251 million are guaranteed by mortgages and liens on fixed assets of consolidated companies and by pledges on securities and fixed deposits (euro 274 million at December 31, 2004).
Fair value of long-term debt, including the current portion of long-term debt, amounts to euro 8,732 million (euro 8,748 million at December 31, 2004) and consisted of the following:
(million euro) | Dec. 31, | Dec. 31, | ||
Banks | 2,276 | 2,222 | ||
Ordinary bonds | 5,509 | 5,633 | ||
Other financing institutions | 963 | 877 | ||
8,748 | 8,732 |
Ordinary bonds | 5,239 | 5,523 | ||||
Banks | 2,311 | 6,148 | ||||
Other financial institutions | 865 | 719 | ||||
8,415 | 12,390 |
Fair value was calculated by discounting the expected future cash flows usingat rates between 2.8%ranging from 3.8% to 6.0% (3.6% and 5% (2.4% and 5.2%5.6% at December 31, 2004)2006).
19 ProvisionsAt December 31, 2007 Eni mortgaged certain tangible assets and pledged restricted deposits as collateral against its borrowings for contingencies
Provisions for contingencies of euro 7,679198 million (euro 5,736231 million at December 31, 2004) consisted2006).
Analysis of net borrowings, as defined in the following:“Item 5 – Operating and Financial Review and Prospects”, was as follows:
(million euro) | Dec. 31, 2006 | Dec. 31, 2007 | ||
Current | Non-current | Total | Current | Non-current | Total | |||||||
A. Cash | 3,745 | 3,745 | 1,699 | 1,699 | |||||||||
B. Cash equivalents | 240 | 240 | 415 | 415 | |||||||||
C. Available-for-sale securities | 552 | 552 | 174 | 174 | |||||||||
D. Liquidity (A+B+C) | 4,537 | 4,537 | 2,288 | 2,288 | |||||||||
E. Financing receivables | 143 | 252 | 395 | 990 | 225 | 1,215 | |||||||
F. Short-term debt towards banks | 3,178 | 3,178 | 4,070 | 4,070 | |||||||||
G. Long-term debt towards banks | 131 | 2,180 | 2,311 | 161 | 5,921 | 6,082 | |||||||
H. Bonds | 685 | 4,412 | 5,097 | 263 | 5,123 | 5,386 | |||||||
I. Short-term debt towards related parties | 92 | 92 | 131 | 131 | |||||||||
L. Long-term debt towards related parties | 16 | 16 | 16 | 16 | |||||||||
M. Other short-term debt | 130 | 130 | 3,562 | 3,562 | |||||||||
N. Other long-term debt | 74 | 801 | 875 | 313 | 270 | 583 | |||||||
O. Total borrowings (F+G+H+I+L+M+N) | 4,290 | 7,409 | 11,699 | 8,500 | 11,330 | 19,830 | |||||||
P. Net borrowings (O-D-E) | (390 | ) | 7,157 | 6,767 | 5,222 | 11,105 | 16,327 |
Available-for-sale securities of euro 174 million (euro 552 million at December 31, 2006) are held for non-operating purposes. Not included in the calculation above were held-to-maturity and available-for-sale securities held for operating purposes amounting to euro 280 million (euro 441 million at December 31, 2006), of which euro 256 million (euro 417 million at December 31, 2006) were held to provide coverage of technical reserves for Eni’s insurance companies.
F-44
Financing receivables of euro 1,215 million (euro 395 million at December 31, 2006) were held for non-operating purposes. Not included in the calculation above were financing receivables held for operating purposes amounting to euro 384 million (euro 246 million at December 31, 2006), of which euro 246 million (euro 241 million at December 31, 2006) were in respect of securities granted to unconsolidated entities controlled by Eni, joint ventures and affiliates primarily in relation to the implementation of certain capital projects and a euro 112 million cash deposit to provide coverage of Eni Insurance Ltd technical reserves.
Non current financial receivables of euro 225 million (euro 252 million at December 31, 2006) were related to a restricted deposit held by Eni Lasmo Plc as a guarantee of a debenture (euro 246 million at December 31, 2006).
22 Provisions for contingencies
Provisions for contingencies were as follows:
(million euro) | Value at | Additions | Deductions | Other | Value at | |||||
Provisions for site restoration and abandonment | 1,967 | 694 | (108 | ) | 95 | 2,648 | |||||||||
Provisions for environmental risks | 1,649 | 522 | (157 | ) | 89 | 2,103 | |||||||||
Loss adjustments and actuarial provisions for Eni’s insurance companies | 573 | 100 | (18 | ) | 52 | 707 | |||||||||
Provisions for contract penalties and disputes | 208 | 359 | (36 | ) | 3 | 534 | |||||||||
Provisions for revision of selling prices | 321 | 321 | |||||||||||||
Provisions for taxes | 235 | 87 | (38 | ) | 25 | 309 | |||||||||
Provisions for restructuring or decommissioning of production facilities | 214 | 94 | (113 | ) | 195 | ||||||||||
Provisions for OIL insurance | 91 | 36 | 127 | ||||||||||||
Provisions for losses related to investments | 91 | 24 | (3 | ) | (27 | ) | 85 | ||||||||
Provisions for onerous contracts | 71 | (6 | ) | 15 | 80 | ||||||||||
Provisions for prize promotion | 63 | 52 | (57 | ) | (6 | ) | 52 | ||||||||
Other (*) | 645 | 264 | (173 | ) | (218 | ) | 518 | ||||||||
5,736 | 2,624 | (709 | ) | 28 | 7,679 |
Provision for site restoration and abandonment | 3,724 | 550 | (315 | ) | 15 | 3,974 | ||||||
Provision for environmental risks | 1,905 | 356 | (353 | ) | (50 | ) | 1,858 | |||||
Provision for legal and other proceedings | 654 | 146 | (77 | ) | (7 | ) | 716 | |||||
Loss adjustments and actuarial provisions for Eni’s insurance companies | 565 | (81 | ) | (66 | ) | 418 | ||||||
Provision for taxes | 221 | 37 | (20 | ) | (25 | ) | 213 | |||||
Provision for losses on investments | 184 | 13 | (20 | ) | (14 | ) | 163 | |||||
Provision for restructuring or decommissioning | 157 | 17 | (18 | ) | (26 | ) | 130 | |||||
Provision for OIL insurance | 108 | (27 | ) | (1 | ) | 80 | ||||||
Provision for marketing and promotion initiatives | 50 | 62 | (47 | ) | 65 | |||||||
Provision for onerous contracts | 100 | (50 | ) | 50 | ||||||||
Provision for revision of selling prices | 172 | 24 | (172 | ) | 24 | |||||||
Other (*) | 774 | 408 | (359 | ) | (28 | ) | 795 | |||||
8,614 | 1,613 | (1,539 | ) | (202 | ) | 8,486 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
ProvisionsThe provision for site restoration and abandonment of euro 2,6483,974 million, represent primarilyis mainly composed of provisions for the estimated future costs for the decommissioning of oil and natural gas production facilities at the end of the producing lives of fields, well-plugging, abandonment and site restoration (euro 2,6133,884 million). The provisions ofincreases in the provision for the year ofamounted to euro 694550 million includedue to the initial recognition and changes in the reviewspresent value of estimated expenditures creating a corresponding item of property, plant and equipment of an amount equivalent to the estimate of dismantlingprovision or change in estimates (euro 60 million and restoration of sites recognized as a balancing entry to the asset to which they refers (euro 592 million)euro 317 million, respectively) and financial expense due to the passage of time charged torecognized in the profit and loss account as finance expense (euro 102173 million);. The discount rates used ranged from 4.2% to 6.2%. Decreases in the discount rate used is included between 3%provision amounted to euro 315 million, of which euro 207 million in connection with lowered estimated expenditures and 5.4%.euro 108 million related to the reversal of utilized provisions. Other changes of euro 9515 million include exchange raterelated to acquired oil & gas properties in Congo and in the Gulf of Mexico (euro 130 million). Offsetting these effects were negative foreign currency translation differences on the translation of financial statements prepared in currencies other thanfor euro (euro 109 million).155 million.
ProvisionsProvision for environmental risks of euro 2,1031,858 million represent, primarily related to the estimated costs of remediation in accordance with existing laws and regulations of active production facilities forrecognized by Syndial SpA (euro 1,4451,362 million), the Refining & Marketing segment (euro 405 million), the Corporate and financial companies aggregate, relating to guarantees issued in relation to properties sold (euro 122339 million) and the Gas & Power segment (euro 6192 million). ProvisionsThe increases in 2005the provision of euro 522356 million were primarily concernrelated to Syndial SpA (euro 223 million) and the Refining & Marketing segment (euro 28295 million), including the effect due to the passage of time for euro 11 million recognized as finance expense. Decreases for euro 353 million were related to the reversal of utilized provisions
F-45
primarily by Syndial SpA (euro 170211 million) and the CorporateRefining & Marketing segment (euro 100 million) including the reversal of unutilized provisions of euro 18 million no longer required.
Provision for legal and financial companies aggregateother proceedings of euro 716 million primarily included charges expected on failure to perform certain contractual obligations and proceeding on legal and administrative matters. These provisions are stated on the basis of Eni’s best estimate of the expected probable liability. The increase in the provision of euro 146 million was primarily related to Syndial SpA (euro 5079 million). Decreases in the provision of euro 77 million included the reversal of unutilized provisions of euro 67 million, of which euro 46 million related to the cancellation by the Regional Administrative Court of Lombardy of a fine imposed by the Authority for Electricity and Gas.
Loss adjustments and actuarial provisions for Eni’s insurance companies of euro 707418 million representrepresented the liabilities accrued for claims on insurance policies underwritten by Eni’s captive insurance company. Deductionscompanies. Changes in the provision of euro 1866 million concern deductions not corresponding to cash expenditureswere primarily in respect of liabilities directly associated with assets classified as regards to the reported accidents.
Provisionsheld for contract penalties and disputessale of euro 534 million are based on Eni’s best estimate of the expected probable liability. Provisions of the yearinsurance subsidiary Padana Assicurazioni SpA for euro 359 million primarily concern the fine imposed on February 15, 2006 by the Antitrust Authority on Eni (euro 290 million). Deductions of euro 36 million concern deductions not corresponding to cash expenditures for euro 2364 million.
Provisions for the revision of selling prices of euro 321 million primarily concern the provision for the estimated adverse impact of the application of Decision 248/2004 by the Italian Authority for Electricity and Gas from January 1, 2005 affecting the parameters for the upgrading of the raw material component in price formulas for end users (euro 225 million).
ProvisionsProvision for taxes of euro 309213 million primarily includeincluded charges for unsettled tax claims toin connection with uncertain applicationapplications of the tax regulation for foreign companiessubsidiaries of the Exploration & Production segment (euro 268158 million). Deductions
Provision for losses on investments of euro 38163 million concern deductions not correspondingwas made with respect of losses from investments in entities incurred to cash expenditures for euro 30 million.date, where the losses exceeded the carrying amount of the investments.
ProvisionsProvision for restructuring or decommissioning ofunused production facilities of euro 195130 million mainly representwas primarily made for the estimated future costs related tofor site restoration and remediation in connection with divestments and facilities closures of the Refining & Marketing segment (euro 156124 million). DeductionsDecreases in the provision of euro 11318 million concern deductions not corresponding to cash expenditures forincluded the reversal of unutilized provisions of euro 282 million.
ProvisionsProvision for OIL insurance cover of euro 12780 million include the provisionsincluded mutual insurance provision related to thefuture increase of insurance charges that will be paid in the next 5 years period, due by Eni for participationparticipating in the mutual insurance of Oil Insurance Ltd, following to the greaterincreased number of accidents that occurred in 2004 and 2005.
ProvisionsProvision for losses on investmentsmarketing and promotional initiatives amounted to euro 65 million and was made in respect of marketing initiatives envisaging awards and prizes to clients in the Refining & Marketing segment. Decreases in the provision of euro 8547 million represent losses incurred to date in excessincluded the reversal of the carrying value of investments (see Note 10).unutilized provisions for euro 3 million.
ProvisionsProvision for onerous contracts of euro 8050 million concernprimarily related to Syndial SpA and relate to contracts for which the termination or execution costs exceed the benefits arising from that contract.relevant benefits.
ProvisionsProvision for prize promotionthe revision of selling prices of euro 5224 million includeprimarily related to the Gas & Power segment. Decreases in the provision of euro 172 million included the reversal of unutilized provisions of euro 122 million primarily related to the Refining & Marketing segment in relation to promotions directed towardsadoption of the attainment of an increase on sales volumes onnew tariffs’ regime introduced by Decision 134/2006 by the Agip branded networkItalian Authority for Electricity and intended for station operators, for truckers and motorists that perform the fuel fill-up at the "Isole Fai da Te".Gas.
DeductionsUtilization of other provisions of euro 173359 million include deductions not corresponding to cash expendituresincluded the reversal of unutilized provisions for euro 53159 million of which euro 27 million concern provisions for long-term construction contracts.no longer required.
Other changes of euro 28 million include exchange differences due to the translation of financial statements prepared in currencies other than euro of euro 159 million; such increase has been partially offset by reclassifications essentially to social projects and financial receivables (euro 140 million).
F-46
2023 Provisions for employee benefits
Provisions for employee benefits of Eni Group concern indemnities upon termination of employment, pension plans with benefits measured in consideration of the employee’s year compensation preceding the retirement and other benefits.were as follows:
(million euro) | Dec. 31, 2006 | Dec. 31, 2007 | ||
TFR | 608 | 499 | ||||
Foreign pension plans | 268 | 219 | ||||
Supplementary medical reserve for Eni managers (FISDE) and other foreign medical plans | 100 | 99 | ||||
Other benefits | 95 | 118 | ||||
1,071 | 935 |
Provisions for indemnities upon termination of employment essentially concernprimarily related to the provisions accrued by Italian companies for employee termination indemnities ("TFR"), determined using actuarial techniques and regulated by articleArticle 2120 of the Italian Civil Code. The indemnity is paid outupon retirement as capital and is determined bya lump sum payment the amount of which corresponds to the total of the provisions set aside, calculated in consideration of the employee’s compensationaccrued during the employees’ service period andbased on payroll costs as revalued until retirement according to the retirement.Italian legal scheme. Provisions to TFR,for Italian post-retirement indemnities, considered for the determination of relevant liabilities and costs,expenses, are net ofreduced by the amounts paiddrawn by employees and funded to pension funds.
Following the enactment of the Italian Budget Law for 2007, employees had until June 30, 2007 to decide whether to transfer their future provisions and any amounts accrued from January 1, 2007 for post-retirement indemnities under the Italian TFR regime to pension funds or the treasury fund held by the Italian administration for post-retirement benefits (INPS). Companies with less than 50 employees were allowed to continue recognizing the provision as in previous years. The choice applied retrospectively from January 1, 2007. Therefore, the allocation of future TFR provisions to pension funds or the INPS treasury fund determines that these amounts will be classified as costs to provide benefits under a defined contribution plan. Past provisions accrued for post-retirement indemnities under the Italian TFR regime continue to represent costs to provide benefits under a defined benefit plan and must be assessed based on actuarial assumptions.
Following this change in regime, the existing provision for Italian employees was reassessed to take account of the curtailment due to reduced future obligations reflecting the exclusion of future salaries and relevant increases from actuarial calculations. As a result of this a non-recurring gain of euro 83 million was recognized in profit or loss.
Pension funds concernare defined benefit plans ofprovided by foreign companiessubsidiaries located primarily,mainly in the United Kingdom, Nigeria and Germany. Benefits consistunder these plans consisted of a returnpayments based on capital determined on the basis of the length of serviceseniority and the compensationsalary paid in the last year of service, or analternatively, the average annual compensation paid insalary over a determineddefined period precedingprior to retirement. Group companies provide healthcare benefits to retired managers. Liability to these plans and the retirement.
current cost are limited to the contributions made by the company. Other benefits essentially concernprimarily related for a deferred cash incentive scheme to managers and certain Jubilee awards. The provision for the supplementary medical reserve for Eni managers (FISDE) and jubilee awards. Liability and costs related to FISDE are calculateddeferred cash incentive scheme is assessed based on the basisprobability of the contributions paid by the company for the retired managers.reaching planned targets and employee reaching individual performance goals. Jubilee awards are benefits due following the attainment of a minimum period of service and, regarding tofor the Italian companies, they consist of a remuneration in kind.an in-kind remuneration.
F-47
The value of employee benefits, for the periods indicatedestimated by applying actuarial techniques, consisted of the following:
Foreign pension plans | ||
(million euro) | TFR | Gross liability | Plan assets | FISDE | Other benefits | Total | ||||||
2006 | ||||||||||||||||||
Current value of benefit liabilities and plan assets at beginning of year | 653 | 757 | (359 | ) | 96 | 37 | 1,184 | |||||||||||
Current cost | 99 | 18 | 2 | 48 | 167 | |||||||||||||
Interest cost | 22 | 28 | 3 | 6 | 59 | |||||||||||||
Expected return on plan assets | (24 | ) | (24 | ) | ||||||||||||||
Employees contributions | (3 | ) | (88 | ) | (91 | ) | ||||||||||||
Actuarial gains (losses) | (67 | ) | (2 | ) | (3 | ) | (5 | ) | 6 | (71 | ) | |||||||
Benefits paid | (94 | ) | (16 | ) | 12 | (5 | ) | (2 | ) | (105 | ) | |||||||
Amendments | 2 | 2 | ||||||||||||||||
Curtailments and settlements | (7 | ) | 6 | (1 | ) | |||||||||||||
Currency translation differences | 1 | (6 | ) | 16 | 11 | |||||||||||||
Current value of benefit liabilities and plan assets at end of year | 614 | 771 | (440 | ) | 91 | 95 | 1,131 | |||||||||||
2007 | ||||||||||||||||||
Current value of benefit liabilities and plan assets at beginning of year | 614 | 771 | (440 | ) | 91 | 95 | 1,131 | |||||||||||
Current cost | 13 | 13 | 1 | 38 | 65 | |||||||||||||
Interest cost | 23 | 32 | 4 | 2 | 61 | |||||||||||||
Expected return on plan assets | (23 | ) | (23 | ) | ||||||||||||||
Employees contributions | (126 | ) | (126 | ) | ||||||||||||||
Actuarial gains (losses) | (52 | ) | 3 | 12 | 1 | (1 | ) | (37 | ) | |||||||||
Benefits paid | (64 | ) | (35 | ) | 18 | (6 | ) | (7 | ) | (94 | ) | |||||||
Amendments | 1 | 2 | 3 | |||||||||||||||
Curtailments and settlements | (62 | ) | (201 | ) | 201 | (62 | ) | |||||||||||
Currency translation differences | 3 | 36 | (4 | ) | 1 | (9 | ) | 27 | ||||||||||
Current value of benefit liabilities and plan assets at end of year | 476 | 621 | (362 | ) | 92 | 118 | 945 |
The gross liability for foreign employee pension plans of euro 621 million (euro 771 million at December 31, 2006) included the liabilities related to joint ventures operating in exploration and production activities for euro 112 million and euro 67 million at December 31, 2006 and 2007, respectively. A receivable of an amount equivalent to such liability was recorded. Other benefits of euro 118 million (euro 95 million at December 31, 2006) primarily concerned the deferred monetary incentive plan for euro 69 million (euro 37 million at December 31, 2006) and jubilee awards for euro 40 million (euro 44 million at December 31, 2006).
The reconciliation analysis of benefit obligations and plan assets was as follows:
TFR | Foreign pension plans | FISDE and other foreign medical plans | Other benefits | |||||
(million euro) | Dec. 31, 2006 | Dec. 31, 2007 | Dec. 31, 2006 | Dec. 31, 2007 | Dec. 31, 2006 | Dec. 31, 2007 | Dec. 31, 2006 | Dec. 31, 2007 | ||||||||
Present value of benefit obligations with plan assets | 605 | 439 | ||||||||||||||||||
Present value of plan assets | (440 | ) | (362 | ) | ||||||||||||||||
Net present value of benefit obligations with plan assets | 165 | 77 | ||||||||||||||||||
Present value of benefit obligations without plan assets | 614 | 476 | 166 | 182 | 91 | 92 | 95 | 118 | ||||||||||||
Actuarial gains (losses) not recognized | (6 | ) | 23 | (63 | ) | (33 | ) | 9 | 7 | |||||||||||
Past service cost not recognized | (7 | ) | ||||||||||||||||||
Net liabilities recognized in provisions for employee benefits | 608 | 499 | 268 | 219 | 100 | 99 | 95 | 118 |
F-48
Costs charged to the profit and loss account were as follows:
(million euro) | TFR |
|
|
| Other benefits | Total | ||||||
2006 | |||||||||||||||
Current cost | 99 | 18 | 2 | 48 | 167 | ||||||||||
Interest cost | 22 | 28 | 3 | 6 | 59 | ||||||||||
Expected return on plan assets | (24 | ) | (24 | ) | |||||||||||
Amortization of actuarial gains (losses) | 2 | 21 | 5 | 28 | |||||||||||
Effect of curtailments and settlements | (1 | ) | (1 | ) | |||||||||||
Other costs | 1 | 1 | |||||||||||||
124 | 42 | 5 | 59 | 230 | |||||||||||
2007 | |||||||||||||||
Current cost | 13 | 13 | 1 | 38 | 65 | ||||||||||
Interest cost | 23 | 32 | 4 | 2 | 61 | ||||||||||
Expected return on plan assets | (23 | ) | (23 | ) | |||||||||||
Amortization of actuarial gains (losses) | 1 | 3 | 4 | ||||||||||||
Effect of curtailments and settlements | (83 | ) | 41 | (42 | ) | ||||||||||
(46 | ) | 66 | 5 | 40 | 65 |
Dec. 31, 2004 | ||||||||||||||||||
Current value of benefit obligation at beginning of year | 521 | 483 | (224 | ) | 259 | 130 | 910 | |||||||||||
Current cost | 54 | 17 | 17 | 3 | 74 | |||||||||||||
Interest cost | 25 | 25 | 25 | 6 | 56 | |||||||||||||
Expected return on plan assets | (14 | ) | (14 | ) | (14 | ) | ||||||||||||
Contributions paid | 1 | (21 | ) | (20 | ) | (20 | ) | |||||||||||
Actuarial gains/losses | 29 | 46 | (7 | ) | 39 | 8 | 76 | |||||||||||
Benefits paid | (52 | ) | (18 | ) | 11 | (7 | ) | (9 | ) | (68 | ) | |||||||
Amendments | 11 | 11 | 11 | |||||||||||||||
Exchange rate differences and other changes | 11 | (2 | ) | 9 | 9 | |||||||||||||
Current value of benefit obligation at end of year | 577 | 576 | (257 | ) | 319 | 138 | 1.034 | |||||||||||
Dec. 31, 2005 | ||||||||||||||||||
Current value of benefit obligation at beginning of year | 577 | 576 | (257 | ) | 319 | 138 | 1.034 | |||||||||||
Current cost | 59 | 18 | 18 | 5 | 82 | |||||||||||||
Interest cost | 25 | 30 | 30 | 6 | 61 | |||||||||||||
Expected return on plan assets | (16 | ) | (16 | ) | (16 | ) | ||||||||||||
Contributions paid | 1 | (46 | ) | (45 | ) | (45 | ) | |||||||||||
Actuarial gains/losses | 47 | 66 | (24 | ) | 42 | (6 | ) | 83 | ||||||||||
Benefits paid | (49 | ) | (19 | ) | 11 | (8 | ) | (10 | ) | (67 | ) | |||||||
Amendments | 3 | 3 | 3 | |||||||||||||||
Economic effect of curtailment or settlement of the plan | (6 | ) | (5 | ) | (5 | ) | (11 | ) | ||||||||||
Exchange rate differences and other changes | 87 | (27 | ) | 60 | 60 | |||||||||||||
Current value of benefit obligation at end of year | 653 | 757 | (359 | ) | 398 | 133 | 1,184 |
Gross liability relating foreign pension plans of euro 757 million (euro 576 million at December 31, 2004) includes pension plans with no plan assets for euro 180 million (euro 166 million at December 31, 2004).
Current value of benefit obligation of foreign pension plans includes liabilities of joint ventures operating in exploration and production activities.
Current value of the obligation relating other benefits of euro 133 million (euro 138 million at December 31, 2004) concern primarily FISDE for euro 96 million and jubilee awards for euro 29 million (euro 106 million and euro 26 million at December 31, 2004, respectively).
Reconciliation of net liabilities for benefits recordedThe main actuarial assumptions used in the balance sheets wasevaluation of post-retirement benefit obligations at end of year and in the estimate of costs expected for 2008 were as follows:
TFR | Foreign pension plans |
|
| |||||
Dec. 31, 2004 | ||||||||||||
Current value of the benefit obligation | 577 | 319 | 138 | 1,034 | ||||||||
Actuarial gains/losses not recognized | (18 | ) | (16 | ) | (7 | ) | (41 | ) | ||||
Past service cost not recognized | (11 | ) | (11 | ) | ||||||||
Provisions for employee benefits | 559 | 292 | 131 | 982 | ||||||||
Dec. 31, 2005 | ||||||||||||
Current value of the benefit obligation | 653 | 398 | 133 | 1,184 | ||||||||
Actuarial gains/losses not recognized | (76 | ) | (71 | ) | 3 | (144 | ) | |||||
Past service cost not recognized | (9 | ) | (9 | ) | ||||||||
Provisions for employee benefits | 577 | 318 | 136 | 1,031 |
Fund for employee benefits of foreign pensions plan of euro 318 million (euro 292 million at December 31, 2004) includes liabilities of joint ventures operating in exploration and production activities for euro 95 million and euro 130 million at December 31, 2004 and 2005, respectively; a receivable was recorded against such liability.
Fund for other benefits of euro 136 million (euro 131 million at December 31, 2004) concern primarily FISDE for euro 99 million and jubilee awards for euro 29 million (euro 99 million and euro 26 million at December 31, 2004, respectively).
Costs for employee benefits recorded in the profit and loss account consisted of the following:
|
|
|
| |||||
2004 | ||||||||||||
Current cost | 54 | 17 | 3 | 74 | ||||||||
Interest cost | 25 | 25 | 6 | 56 | ||||||||
Expected return rate on plan assets | (14 | ) | (14 | ) | ||||||||
Amortization of past service cost | 1 | 1 | ||||||||||
Amortization of actuarial gains/losses | 1 | 1 | ||||||||||
Total cost | 79 | 29 | 10 | 118 | ||||||||
2005 | ||||||||||||
Current cost | 59 | 18 | 5 | 82 | ||||||||
Interest cost | 25 | 30 | 6 | 61 | ||||||||
Expected return rate on plan assets | (16 | ) | (16 | ) | ||||||||
Amortization of past service cost | 3 | 1 | 4 | |||||||||
Amortization of actuarial gains/losses | 6 | 6 | ||||||||||
Economic effect of curtailment or settlement of the plan | (6 | ) | (4 | ) | (1 | ) | (11 | ) | ||||
Total cost | 78 | 31 | 17 | 126 |
Costs for other benefits of euro 17 million (euro 10 million at December 31, 2004) concern FISDE for euro 7 million and jubilee awards for euro 7 million (euro 6 million and euro 3 million at December 31, 2004, respectively).
Principal actuarial assumptions used for the valuation of employee benefits consisted of the following:
|
| Other benefits | ||||||
2006 | ||||||||
Discount rate | 4.3 | 3.0-13.0 | 4.5 | 4.0-4.3 | ||||
Expected return rate on plan assets | 3.5-13.0 | |||||||
Rate of compensation increase | 2.7-4.0 | 2.0-12.0 | 2.7-4.5 | |||||
Rate of price inflation | 2.0 | 1.0-10.0 | 2.0 | 2.0-2.5 | ||||
2007 | ||||||||
Discount rate | 5.35 | 3.5-13.0 | 5.5 | 4.8-5.4 | ||||
Expected return rate on plan assets | 4.0-13.0 | |||||||
Rate of compensation increase | 2.7-3.0 | 2.0-12.0 | 2.7-4.0 | |||||
Rate of price inflation | 2.0 | 1.0-10.0 | 2.0 | 2.0 |
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ForeignWith regards to Italian plans, demographic tables prepared by Ragioneria Generale dello Stato (RG48) were used. Expected return rate by plan assets has been determined by reference to quoted prices expressed in regulated markets.
Plan assets consisted of the following:
(%) | Plan assets | Expected return | ||
Dec. 31, 2005 | ||||||
Securities | 50.2 | 7.4 | ||||
Bonds | 35.0 | 4.9 | ||||
Investment property | 1.7 | 8.1 | ||||
Other | 13.1 | 10.5 | ||||
Total | 100.0 |
Securities | 23.3 | 6.8-8.4 | ||||
Bonds | 27.1 | 3.1-10.0 | ||||
Real estate | 1.7 | 5.8-15.0 | ||||
Other | 47.9 | 2.8-13.0 | ||||
100.0 |
21 Deferred tax liabilities
Deferred tax liabilitiesThe effective return of the plan assets amounted to euro 4,89011 million (euro 3,94827 million at December 31, 2004) are2006).
F-49
With reference to healthcare plans, the effects deriving from a 1% change of the actuarial assumptions of medical costs were as follows:
(million euro) | 1% Increase | 1% Decrease | ||
Impact on the current costs and interest costs | 1 | (1 | ) | |||
Impact on net benefit obligation | 11 | (9 | ) |
The amount expected to be accrued to defined benefit plans for 2008 amounted to euro 48 million.
The analysis of changes in the actuarial valuation of the net liability with respect to prior year deriving from the non-correspondence of actuarial assumptions with actual values recorded at year-end was as follows:
(million euro) | TFR | Foreign pension plans | FISDE and other foreign medical plans | Other benefits | ||||
2006 | ||||||||||||
Impact on net benefit obligation | (19 | ) | 13 | (4 | ) | 4 | ||||||
Impact on plan assets | 3 | |||||||||||
2007 | ||||||||||||
Impact on net benefit obligation | (8 | ) | 6 | |||||||||
Impact on plan assets | 3 |
24 Deferred tax liabilities
Deferred tax liabilities were recognized net of offsettable deferred tax assets for which Eni possesses the legal right of offset.euro 3,526 million (euro 4,028 million at December 31, 2006).
(million euro) | Value at | Additions | Deductions |
| Other changes | Value at | ||||||
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| ( | ) |
| ) | 898 |
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Other changes of euro 1,041898 million were primarily concernin respect of: (i) the set-off, for each company, of tax assets and deferred tax liabilities (euro 1,035 million). Such change has been partially offset by provisions to the reserveseffect of the shareholders’ equity following the first application of IAS 32 and 39 (euro 50 million) and valuation at fair value of financial instrumentscertain oil assets acquired by the Exploration & Production segment in Congo (euro 2507 million).; (ii) a limited right of subsidiaries to offset deferred tax assets against deferred tax liabilities (euro 502 million); (iii) the recognition of the deferred tax effect against equity on the fair value evaluation of derivatives designated as cash flow hedge for euro 3 million.
Deferred tax liabilities consisted of the following:
(million euro) | Dec. 31, | Dec. 31, | ||
Deferred income taxes | 6,002 | 8,237 | ||||
Deferred income taxes available to be offset | (2,054 | ) | (3,347 | ) | ||
3,948 | 4,890 | |||||
Deferred income taxes not available to be offset | (1,827 | ) | (1,861 | ) | ||
Net deferred tax liabilities | 2,121 | 3,029 |
Deferred income taxes | 9,880 | 8,997 | ||||
Deferred income taxes available for offset | (4,028 | ) | (3,526 | ) | ||
5,852 | 5,471 | |||||
Deferred income taxes not available for offset | (1,725 | ) | (1,915 | ) | ||
4,127 | 3,556 |
F-50
The most significant temporary differences giving rise to net deferred tax liabilities were as follows:
(million euro) | Value at | Additions | Deductions |
| Other changes | Value at | ||||||
Deferred tax liabilities: | ||||||||||||||||||
- accelerated tax depreciation on fixed assets | 3,885 | 1,378 | (235 | ) | 274 | 553 | 5,855 | |||||||||||
- application of the weighted average cost method in evaluation of inventories | 300 | 351 | (2 | ) | 649 | |||||||||||||
- site restoration and abandonment (fixed assets) | 104 | 234 | (35 | ) | 8 | 38 | 349 | |||||||||||
- capitalized interest expense | 219 | 12 | (12 | ) | 26 | 245 | ||||||||||||
- other | 1,494 | 161 | (200 | ) | 49 | (365 | ) | 1,139 | ||||||||||
6,002 | 2,136 | (484 | ) | 331 | 252 | 8,237 | ||||||||||||
Deferred tax assets: | ||||||||||||||||||
- assets revaluation as per Law 342/2000 and 448/2001 | (1,177 | ) | 79 | 2 | (1,038 | ) | ||||||||||||
- site restoration and abandonment (provisions for contingencies) | (870 | ) | (355 | ) | 130 | (37 | ) | 94 | (1,096 | ) | ||||||||
- non deductible amortization | (324 | ) | (401 | ) | 178 | (77 | ) | (244 | ) | (868 | ) | |||||||
- accruals for doubtful accounts and provisions for contingencies | (513 | ) | (487 | ) | 159 | 2 | (839 | ) | ||||||||||
- tax loss carryforwards | (102 | ) | (59 | ) | 58 | (15 | ) | (42 | ) | (160 | ) | |||||||
- other | (895 | ) | (476 | ) | 323 | (29 | ) | (130 | ) | (1,207 | ) | |||||||
(3,881 | ) | (1,778 | ) | 927 | (158 | ) | (318 | ) | (5,208 | ) | ||||||||
Net deferred tax liabilities | 2,121 | 358 | 443 | 173 | (66 | ) | 3,029 |
Deferred tax liabilities: | ||||||||||||||||||
- accelerated tax depreciation | 6,851 | 582 | (1,246 | ) | (423 | ) | 493 | 6,257 | ||||||||||
- application of the weighted average cost method in evaluation of inventories | 649 | 263 | (177 | ) | (4 | ) | 731 | |||||||||||
- site restoration and abandonment (tangible assets) | 683 | 40 | (115 | ) | (14 | ) | (55 | ) | 539 | |||||||||
- capitalized interest expense | 232 | 3 | (51 | ) | (7 | ) | 177 | |||||||||||
- other | 1,465 | 322 | (410 | ) | (53 | ) | (31 | ) | 1,293 | |||||||||
9,880 | 1,210 | (1,999 | ) | (490 | ) | 396 | 8,997 | |||||||||||
Deferred tax assets: | ||||||||||||||||||
- assets revaluation as per Laws No. 342/2000 and No. 448/2001 | (1,017 | ) | 218 | 11 | (788 | ) | ||||||||||||
- site restoration and abandonment (provisions for contingencies) | (1,496 | ) | (176 | ) | 129 | 72 | 108 | (1,363 | ) | |||||||||
- depreciation and amortization | (744 | ) | (129 | ) | 236 | 62 | (47 | ) | (622 | ) | ||||||||
- accruals for impairment losses and provisions for contingencies | (1,000 | ) | (396 | ) | 522 | 1 | (40 | ) | (913 | ) | ||||||||
- carry-forward tax losses | (83 | ) | (44 | ) | 41 | 6 | 1 | (79 | ) | |||||||||
- other | (1,413 | ) | (528 | ) | 578 | 78 | (391 | ) | (1,676 | ) | ||||||||
(5,753 | ) | (1,273 | ) | 1,724 | 219 | (358 | ) | (5,441 | ) | |||||||||
Net deferred tax liabilities | 4,127 | (63 | ) | (275 | ) | (271 | ) | 38 | 3,556 |
Deferred tax assets are recognized for deductible temporary differences to the extent that expectedis probable that sufficient taxable profit will be available against which part or all of the deductible temporary differences can be utilized. In the case future fiscal profits are consideredtaxable profit is no longer deemed to be sufficient for the utilization of these assets.
Noto absorb all existing deferred tax liabilities have beenassets, any surplus is written off.
In May 2007 the Government of Libya issued an amended tax law regarding profit taxation for foreign oil companies operating under PSA scheme. In line with past practice the Libya’s National Oil Co (NOC) was designated as the tax agent on behalf of foreign oil companies operating under PSA. The new tax regime is expected to become effective from 2008, after having agreed beforehand with NOC the recognized tax base of the assets at January 1, 2008, and the consequent possibility to re-determine deferred taxation and the detailed recognition criteria applied. Pending the issuance of the new guidance, deferred taxation was determined by using the recognition criteria applied in relation toprior years. The adoption of the reserves of consolidated subsidiaries because such reserves arenew legislation is not expected to be distributed (euro 269 million).
Underhave any significant impact on the agreed oil profit share under PSA currently existing between the Libyan state company and Eni. Italian fiscal laws,taxation law allows the carry-forward of tax losses can be carried forward inover the five subsequent periods, excepting lossesyears. Losses suffered in the first three periods of lifeyears of the company thatcompany’s life can however be, for most part, carried forward without limit. Taxindefinitely. The tax rate applied by the Italian subsidiaries to determine the portion of carry-forwards tax losses to be utilized equalled 27.5%; this rate equalled on average to 29.8% for foreign entities.
Carry-forward tax losses of foreign companies can be carry forward on average for more than five periods and for a considerable part can be carried forward without limit. Tax recover correspond to a tax rate of 33% for Italian companies and to an average tax rate of 30% for foreign companies.
Tax losses amount to euro 1,8181,261 million and can be used in the following periods:
(million euro) | Italian | Foreign | ||
2006 | 10 | |||||
2007 | 7 | |||||
2008 | 11 | 66 | ||||
2009 | 8 | 43 | ||||
2010 | 46 | |||||
Over 2010 | 234 | |||||
Without limit | 1,393 | |||||
19 | 1,799 |
2008 | 9 | 2 | ||||
2009 | 3 | 22 | ||||
2010 | 14 | |||||
2011 | 36 | |||||
2012 | 72 | 3 | ||||
Beyond 2012 | 2 | |||||
Without limit | 1,098 | |||||
84 | 1,177 |
TaxF-51
Carry-forward tax losses of euro 270 million expected to be offset against future taxable profit and were in respect of foreign subsidiaries for which is expectedeuro 198 million. At the utilization amount toend of 2007, euro 54779 million and essentially concern foreign companies (euro 536 million); the relevantof deferred tax assets amount to euro 160 million,were recognized on these losses, of which euro 15859 million concernwere in respect of foreign companies.
subsidiaries.
22No deferred tax liabilities have been recognized in relation to certain taxable reserves of unconsolidated entities under Eni’s control because such reserves are not expected to be distributed (euro 135 million).
25 Other non-current liabilities
Other non-current liabilities of euro 897 million (euro 427 million at December 31, 2004) consisted of the following:were as follows:
(million euro) | Dec. 31, | Dec. 31, | ||
Income tax liabilities | 23 | |||||
Other payables | 204 | 767 | ||||
Other liabilities | 200 | 130 | ||||
427 | 897 |
Fair value of cash flow hedge derivatives | 1,340 | |||||
Current income tax liabilities | 215 | |||||
Payables related to capital expenditures | 26 | 22 | ||||
Other payables | 207 | 295 | ||||
Other liabilities | 185 | 159 | ||||
418 | 2,031 |
Other payablesThe fair value of cash flow hedge derivatives amounted to euro 1,340 million related to contracts expiring within 2009-2011 entered into by the Exploration & Production segment in order to hedge the exposure to variability in future cash flows expected in the 2008-2011 period deriving from marketing an amount of Eni’s proved hydrocarbon reserves equal to 2% of proved reserves as of December 31, 2006 in connection with the acquisition in 2007 of production, development and exploration assets upstream properties onshore Congo from the French company Maurel & Prom and in the Gulf of Mexico from the U.S. company Dominion Resources. The effective portion of the change in fair value of the hedging instrument directly recognized in equity was euro 1,332 million whilst the ineffective portion of euro 76736 million (euro 204 million at December 31, 2004) concern payables related to capital expenditures forwas recognized in the profit and loss as finance expenses (the time value component). Cumulative currency translation differences increased by euro 59728 million.
Other liabilities at December 31, 2004 of euro 200 million include Further information on the fair value recognition in the consolidated balance sheet and profit and loss account of fixed interest rate financial liabilitiescontracts with a maturity in 2008 is given in Note 20 - Other current liabilities.
The nominal value of Lasmo Plc (now Eni Lasmo Plc)these derivatives referred to purchase and sale commitments for euro 2 million.
2,804 million and euro 3,404 million, respectively.
23The fair value of derivative contracts was determined by using valuation models that take into account relevant market data at the balance sheet date.
Information on the hedged risks and the hedging policies is shown in Note 28 - Guarantees, commitments and risks.
The group’s liability for current income taxes of euro 215 million was due as special tax (with a rate lower than the statutory tax rate), relating to the option to increase the deductible tax bases of certain tangible and other assets to their carrying amounts as permitted by the 2008 Budget Law.
26 Assets held for sale and liabilities directly associated with assets held for sale
Non-current assets held for sale and liabilities directly associated with non-current assets held for sale of euro 383 million and euro 97 million related to the disposal of Padana Assicurazioni SpA (the related assets and liabilities amounted to euro 180 million and euro 97 million, respectively) and in Gaztransport et Technigaz SAS (the investment amounted to euro 114 million) and in Fertlizantes Nitrogenados de Oriente (the investment amounted to euro 89 million). Gaztransport et Technigaz SAS is a company owning a patent for the construction of tanks to transport LNG. Fertlizantes Nitrogenados de Oriente is specialized in the production of fertilizers.
F-52
27 Shareholders’ equity
Minority interest
Minority
Profit attributable to minority interest and the minority interest in profit and shareholders’ equity relate to the followingcertain consolidated subsidiaries:subsidiaries related to:
(million euro) | Net profit | Shareholders’ equity | ||
2006 | 2007 | Dec. 31, 2006 | Dec. 31, 2007 | |||||
Saipem SpA | 303 | 514 | 879 | 1,299 | ||||
Snam Rete Gas SpA | 287 | 268 | 1,004 | 865 | ||||
Tigáz Tiszántúli Gázszolgáltató Részvénytársaság | 1 | 79 | 79 | |||||
Others | 16 | 15 | 208 | 196 | ||||
606 | 798 | 2,170 | 2,439 |
Eni shareholders’ equity
Eni’s net equity at December 31 was as follows:
(million euro) |
|
| ||
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Share capital | 4,005 | 4,005 | ||||
Legal reserve | 959 | 959 | ||||
Reserve for treasury shares | 7,262 | 7,207 | ||||
Cumulative foreign currency translation differences | (398 | ) | (2,233 | ) | ||
Other reserves | 400 | (914 | ) | |||
Retained earnings | 25,168 | 29,591 | ||||
Treasury shares | (5,374 | ) | (5,999 | ) | ||
Interim dividend | (2,210 | ) | (2,199 | ) | ||
Net profit for the period | 9,217 | 10,011 | ||||
39,029 | 40,428 |
Share capital
At December 31, 2007 the parent company’s issued share capital consisted of 4,005,358,876 shares (nominal value euro 1 each) fully paid-up (the same amount at December 31, 2006).
On May 24, 2007 Eni’s Shareholders’ Meeting declared a dividend distribution of euro 0.65 per share, with the exclusion of treasury shares held at the ex-dividend date, in full settlement of the 2006 dividend of euro 1.25 per share, of which euro 0.60 per share paid as interim dividend in October 2006. The balance was payable on June 21, 2007 to shareholders on the register on June 18, 2007.
Legal reserve
This reserve represents earnings restricted from the payment of dividends pursuant to Article 2430 of the Italian Civil Code.
Reserve for treasury shares
The reserve for treasury shares represents the reserve destined to purchase own shares in accordance with the decisions of Eni’s Shareholders’ Meetings. The amount of euro 7,207 million (euro 7,262 million at December 31, 2006) included treasury shares purchased. The decrease of euro 55 million primarily concerned the sale and grant of treasury shares to Group managers following stock option and stock grants incentive schemes.
Cumulative foreign currency translation differences
The cumulative foreign currency translation differences arose from the translation of financial statements denominated in currencies other than euro.
F-53
Other reserves
Other reserves of negative amount were euro 914 million (at December 31, 2006 other reserves of positive amount were euro 400 million) and included:
The valuation at fair value of securities available for sale and cash flow hedge derivatives, net of the related tax effect, consisted of the following:
Cash flow hedge derivatives | Total | |||||
(million euro) | Gross reserve | Deferred tax liabilities | Net reserve | Gross reserve | Deferred tax liabilities | Net reserve | Gross reserve | Deferred tax liabilities | Net reserve | |||||||||
Snam Rete Gas SpA | 331 | 321 | 2,025 | 1,158 | ||||||||
Saipem SpA | 133 | 115 | 846 | 915 | ||||||||
Tigáz Tiszántúli Gázszolgáltató Részvénytársaság | 4 | 6 | 78 | 82 | ||||||||
Others | 14 | 17 | 217 | 194 | ||||||||
482 | 459 | 3,166 | 2,349 |
The decrease in the shareholders’ equity of Snam Rete Gas SpA of euro 867 million concern the distribution of an extraordinary dividend of which euro 1,171 million was paid to minority interest.
Eni shareholders’ equity
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Reserve as of December 31, 2005 | 27 | (8 | ) | 19 | 27 | (11 | ) | 16 | 54 | (19 | ) | 35 | |||||||||||||||
Changes of the year 2006 | 2 | 2 | 1 | 1 | 3 | 3 | |||||||||||||||||||||
Amount recognized in the profit and loss account | (21 | ) | 6 | (15 | ) | (27 | ) | 11 | (16 | ) | (48 | ) | 17 | (31 | ) | ||||||||||||
Reserve as of December 31, 2006 | 8 | (2 | ) | 6 | 1 | 1 | 9 | (2 | ) | 7 | |||||||||||||||||
Changes of the year 2007 | (2,237 | ) | 867 | (1,370 | ) | (2,237 | ) | 867 | (1,370 | ) | |||||||||||||||||
Foreign currency translation differences | 51 | (26 | ) | 25 | 51 | (26 | ) | 25 | |||||||||||||||||||
Amount recognized in the profit and loss account | (6 | ) | 2 | (4 | ) | (6 | ) | 2 | (4 | ) | |||||||||||||||||
Reserve as of December 31, 2007 | 2 | 2 | (2,185 | ) | 841 | (1,344 | ) | (2,183 | ) | 841 | (1,342 | ) |
Share capital | 4,004 | 4,005 | ||||
Legal reserve | 959 | 959 | ||||
Cumulative translation adjustment reserve | (687 | ) | 941 | |||
Reserve for treasury shares | 5,392 | 5,345 | ||||
Treasury shares | (3,229 | ) | (4,216 | ) | ||
Other reserves | 3,965 | 5,351 | ||||
Retained earnings | 14,911 | 17,381 | ||||
Net profit for the period | 7,059 | 8,788 | ||||
Interim dividend | (1,686 | ) | ||||
32,374 | 36,868 |
Share capital
At December 31, 2005 Eni SpA had 4,005,358,876Treasury shares (nominal value euro 1 each) fully paid-up (4,004,424,476purchased
A total of 348,525,005 ordinary shares (324,959,866 at December 31, 2004). The increase concerns the issuing under the stock grant plan of 934,400 shares2006) with a nominal value of euro 1 each, subscribed by managers following the expiration of the plan issuedwere held in 2002 (883,300 shares) and the agreed termination of employment (51,100 shares). On May 27, 2005 Eni’s Shareholders Meeting decidedtreasury, for a dividend distributiontotal cost of euro 0.90 per share, with the exclusion of treasury shares. The cash dividend was made available for payment on June 23, 2005 and the ex-dividend date was June 20, 2005.
Legal reserve
The legal reserve of Eni SpA represents earnings restricted from the payment of dividends pursuant to Article 2430 of the Civil Code.
Cumulative translation adjustment reserve
The cumulative translation adjustment reserve represents exchange differences due to the translation of financial statements prepared in currencies other than euro.
Reserve for treasury shares
The reserve for treasury shares of euro 5,3455,999 million (euro 5,3925,374 million at December 31, 2004) contains earnings destined to purchase2006). 35,423,925 treasury shares in accordance with the decisions of Eni’s Shareholders’ Meetings. The decrease(40,114,000 at December 31, 2006) at a cost of euro 47 million concern the sale and the grant of treasury shares to the Group managers following the stock option and stock grant plans.
Treasury shares
Treasury shares amount to euro 4,216768 million (euro 3,229839 million at December 31, 2004)2006) were available for 2002-2005 and consist of 278,013,975 ordinary shares nominal value euro 1 owned by Eni SpA (234,394,888 ordinary shares nominal value euro 1 at December 31, 2004). Treasury shares of euro 237 million (euro 286 million at December 31, 2004), are represented by 17,428,300 shares (21,006,600 shares at December 31, 2004) and are destined to 2002-2004 and 20052006-2008 stock option plans (14,004,500(34,521,125 shares) and 2003-2005 stock grant plans (3,423,800(902,800 shares).
The decrease of 3,578,3004,690,075 shares consisted of the following:
Stock option | Stock grant | Total | ||||
Number of shares at December 31, 2004 | 14,574,000 | 6,432,600 | 21,006,600 | ||||||
- reclassifications (*) | 2,658,400 | (2,658,400 | ) | ||||||
17,232,400 | 3,774,200 | 21,006,600 | |||||||
- rights exercised | (3,106,400 | ) | (339,100 | ) | (3,445,500 | ) | |||
- rights cancelled | (121,500 | ) | (11,300 | ) | (132,800 | ) | |||
(3,227,900 | ) | (350,400 | ) | (3,578,300 | ) | ||||
Number of shares at December 31, 2005 | 14,004,500 | 3,423,800 | 17,428,300 |
Number of shares at December 31, 2006 | 38,240,400 | 1,873,600 | 40,114,000 | ||||||
Rights exercised | (3,028,200 | ) | (966,000 | ) | (3,994,200 | ) | |||
Rights cancelled | (691,075 | ) | (4,800 | ) | (695,875 | ) | |||
(3,719,275 | ) | (970,800 | ) | (4,690,075 | ) | ||||
Number of shares at December 31, 2007 | 34,521,125 | 902,800 | 35,423,925 |
At December 31, 20052007, options and grants outstanding were 13,379,60017,699,625 shares and 3,127,200902,800 shares, respectively. Options refer to the 2002 stock plan for 903,100107,500 shares with an exercise price of euro 15.216 per share, to the 2003 stock plan for 4,106,500281,400 shares with an exercise price of euro 13.743 per share, to the 2004 stock plan for 3,659,0001,124,000 shares with an exercise price of euro 16.576 per share, and to the 2005 stock plan for 4,711,0003,812,000 shares with an exercise price of euro 22.512 per share.
Other reserves
Other reservesshare, to the 2006 stock plan for 6,467,775 shares with an weighted average exercise price of euro 5,351 million (euro 3,965 million at December 31, 2004) refer to Eni distributable reserve for euro 5,219 million (euro 3,896 million at December 31, 2004)23.119 per share and for euro 35 million to the reserve2007 stock plan for the valuation at fair value of securities available for sale and cash flow hedge derivatives. The increase of Eni distribuitable reserve5,906,950 with an weighted average exercise price of euro 1,323 million primarily concern the destination of the residual income for 2004 (euro 1,300 million),27.451 per share.
Information about commitments related to stock grant and stock option plans is included in accordance with the decisions of Eni’s Shareholders’ Meetings of May 27, 2005. The valuation at fair value of securities available for sale and cash flow hedge derivatives consists of the following:Note 30 - Operating expenses.
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Reserve as of January 1, 2005 | 19 | (6 | ) | 13 | 19 | (6 | ) | 13 | |||||||||||||||||||
Changes of the year | 8 | (2 | ) | 6 | 27 | (11 | ) | 16 | 35 | (13 | ) | 22 | |||||||||||||||
Reserve as of December 1, 2005 | 27 | (8 | ) | 19 | 27 | (11 | ) | 16 | 54 | (19 | ) | 35 |
F-54
Interim dividend
Interim dividend of euro 1,686 million concerned the interim dividend for the year 2005 for2007 amounted of euro 0.452,199 million corresponding to euro 0.60 per share, with the exclusion of treasury shares, as decided by Eni’s Shareholders’ Meetingsthe Board of Directors on September 20, 2007 in accordance with article 2433-bis,Article 2433-bis, paragraph 5 of the Italian Civil Code; the dividend was paid on October 27, 2005.25, 2007.
Distributable reserves
At December 31, 20052007 Eni shareholders’ equity included distributable reserves for approximately euro 36,00034,000 million, a portion of which is subjectedwas subject to taxation upon distribution. Deferred tax liabilities have been recorded in relation to the reserves expected to be distributedshare of profit recognized on equity-accounted affiliates and joint ventures (euro 32 million).
Reconciliation of statutory net profit and shareholders’ equity of the parent company Eni SpA to consolidated net profit and shareholders’ equity
Net profit | Shareholders’ equity | |||
(million euro) | 2006 | 2007 | Dec. 31, 2006 | Dec. 31, 2007 | ||||
As recorded in Eni SpA’s Financial Statements | 5,821 | 6,600 | 26,935 | 28,926 | ||||||||
Difference between the equity value of individual accounts of consolidated subsidiaries with respect to the corresponding carrying amount in the statutory accounts of the parent company | 3,823 | 4,122 | 16,136 | 16,320 | ||||||||
Consolidation adjustments: | ||||||||||||
- difference between cost and underlying value of equity | (52 | ) | (1 | ) | 1,138 | 1,245 | ||||||
- elimination of tax adjustments and compliance with accounting policies | 627 | 649 | (1,435 | ) | (1,235 | ) | ||||||
- elimination of unrealized intercompany profits | (237 | ) | (435 | ) | (2,907 | ) | (3,383 | ) | ||||
- deferred taxation | (195 | ) | (97 | ) | 1,244 | 711 | ||||||
- other adjustments | 36 | (29 | ) | 88 | 283 | |||||||
9,823 | 10,809 | 41,199 | 42,867 | |||||||||
Minority interest | (606 | ) | (798 | ) | (2,170 | ) | (2,439 | ) | ||||
As recorded in Consolidated Financial Statements | 9,217 | 10,011 | 39,029 | 40,428 |
F-55
28 Guarantees, commitments and risks
Guarantees
Guarantees were as follows:
|
| |||
(million euro) |
|
| Total | Unsecured guarantees | Other guarantees | Total | ||||||
As recorded in Eni SpA’s financial statements (Italian GAAP) | 4,684 | 5,288 | 29,433 | 29,656 | ||||||||
Treasury shares | (3,229 | ) | (4,216 | ) | ||||||||
Difference between the equity value and result of consolidated companies and the equity value and result of consolidated companies as accounted for in Eni SpA financial statements | 4,444 | 2,718 | 9,470 | 13,483 | ||||||||
Consolidation adjustments: | ||||||||||||
- difference between cost and underlying value of equity | (112 | ) | (44 | ) | 2,592 | 2,558 | ||||||
- elimination of tax adjustments and compliance with accounting policies | (2,197 | ) | 1,617 | (244 | ) | 313 | ||||||
- elimination of unrealized intercompany profits | (235 | ) | (40 | ) | (2,498 | ) | (2,677 | ) | ||||
- deferred taxation | 612 | (313 | ) | (133 | ) | 2 | ||||||
- other adjustments | 345 | 21 | 149 | 98 | ||||||||
7,541 | 9,247 | 35,540 | 39,217 | |||||||||
Minority interest | (482 | ) | (459 | ) | (3,166 | ) | (2,349 | ) | ||||
As recorded in Consolidated Financial Statements (IFRS) | 7,059 | 8,788 | 32,374 | 36,868 |
Consolidated subsidiaries | 6,539 | 6,539 | 6,388 | 6,388 | ||||||||
Unconsolidated entities controlled by Eni | 3 | 294 | 297 | 150 | 150 | |||||||
Affiliates and joint ventures | 5,682 | 1,735 | 7,417 | 5,896 | 1,099 | 6,995 | ||||||
Others | 79 | 52 | 131 | 12 | 279 | 291 | ||||||
5,764 | 8,620 | 14,384 | 5,908 | 7,916 | 13,824 |
24 Guarantees, commitments and risks
Guarantees
GuaranteesOther guarantees issued on behalf of consolidated subsidiaries of euro 12,8626,388 million (euro 12,6676,539 million at December 31, 2004)2006) primarily consisted of: (i) guarantees given to third parties relating to bid bonds and performance bonds for euro 3,244 million (euro 3,467 million at December 31, 2006), of which euro 2,351 million related to the Engineering & Construction segment (euro 2,726 million at December 31, 2006); (ii) VAT recoverable from tax authorities for euro 1,286 million (euro 1,393 million at December 31, 2006); (iii) insurance risk for euro 259 million reinsured by Eni (euro 246 million at December 31, 2006). At December 31, 2007 the underlying commitment covered by such guarantees was euro 6,050 million (euro 6,160 million at December 31, 2006).
Other guarantees issued on behalf of unconsolidated subsidiaries of euro 150 million (euro 297 million at December 31, 2006) consisted of letters of patronage and other guarantees issued to commissioning entities relating to bid bonds and performance bonds for euro 144 million (euro 288 million at December 31, 2006). At December 31, 2007, the following:underlying commitment covered by such guarantees was euro 19 million (euro 204 million at December 31, 2006).
Unsecured guarantees and other guarantees issued on behalf of joint ventures and affiliated companies of euro 6,995 million (euro 7,417 million at December 31, 2006) primarily concerned: (i) an unsecured guarantee of euro 5,870 million (euro 5,654 million at December 31, 2006) given by Eni SpA to Treno Alta Velocità - TAV - SpA for the proper and timely completion of a project relating to the Milan-Bologna train link by CEPAV (Consorzio Eni per l’Alta Velocità) Uno; consortium members, excluding unconsolidated entities controlled by Eni, gave Eni liability of surety letters and bank guarantees amounting to 10% of their respective portion of the work; (ii) unsecured guarantees, letters of patronage and other guarantees given to banks in relation to loans and lines of credit received for euro 824 million (euro 1,214 million at December 31, 2006), of which euro 677 million related to a contract released by Snam SpA (now merged into Eni SpA) on behalf of Blue Stream Pipeline Co BV (Eni 50%) to a consortium of international financial institutions (euro 756 million at December 31, 2006); (iii) unsecured guarantees and other guarantees given to commissioning entities relating to bid bonds and performance bonds for euro 119 million (euro 251 million at December 31, 2006).
At December 31, 2007, the underlying commitment covered by such guarantees was euro 1,562 million (euro 2,470 million at December 31, 2006).
Unsecured and other guarantees given on behalf of third parties of euro 291 million (euro 131 million at December 31, 2006) consisted primarily of: (i) guarantees issued on behalf of Gulf LNG Energy and Gulf LNG Pipeline and on behalf of Angola LNG Supply Service Llc (Eni 13.6%) as security against payment commitments of fees in connection with the regasification activity for euro 204 million; (ii) guarantees issued by Eni SpA to banks and other financial institutions in relation to loans and lines of credit for euro 20 million on behalf of minor investments or companies sold (euro 87 million at December 31, 2006). At December 31, 2007 the underlying commitment covered by such guarantees was euro 281 million (euro 121 million at December 31, 2006).
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Commitments and contingencies
Commitments and contingencies were as follows:
(million euro) | Dec. 31, | Dec. 31, | ||
Commitments | ||||
Purchase of assets | 9 | |||
Other | 207 | 200 | ||
216 | 200 | |||
Risks | 1,329 | 1,520 | ||
1,545 | 1,720 |
Other commitments of euro 200 million (euro 207 million at December 31, 2006) were essentially related to a memorandum of intent signed with the Basilicata Region, whereby Eni has agreed to invest euro 177 million in the future, also on account of Shell Italia E&P SpA, in connection with Eni’s development plan of oil fields in Val d’Agri (euro 181 million at December 31, 2006).
Risks of euro 1,520 million (euro 1,329 million at December 31, 2006) primarily concerned potential risks associated with the value of assets of third parties under the custody of Eni for euro 1,126 million (euro 918 million at December 31, 2006) and contractual assurances given to acquirers of certain investments and businesses of Eni for euro 376 million (euro 393 million at December 31, 2006).
Risk factors
The main company risks identified, monitored and, as described below, managed by Eni are the following: (i) the market risk deriving from the exposure to fluctuations in interest rates, foreign currency exchange rates and commodity prices; (ii) the credit risk deriving from the possible default of a counterparty; (iii) the liquidity risk deriving from the risk that suitable sources of funding for the Group’s business activities may not be available; (iv) the country risk in oil & gas activities; (v) the operational risk; (vi) the possible evolution of the Italian gas market; (vii) the specific risks deriving from the exploration and production activities.
In 2007 Eni’s management reviewed and revised policies and guidelines regarding standards to identify, assess, control and manage market risks of significance to Eni. The purpose was to issue a reference book on policies to be handily consulted and updated as appropriate. In 2007 risk policies have been revised to take account of changes in the group’s organizational structure (following the merger with Enifin on January 1, 2007 and the establishment of Eni Trading & Shipping) as well as needs to further integrate risk management.
Market risk
Market risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the group’s financial assets, liabilities or expected future cash flows. Eni’s market risk management activities is performed in accordance with standards prescribed by policies and guidelines mentioned above, providing for a centralized model of conducting finance, treasury and risk management operations based in three separate entities: the parent company’s (Eni SpA) finance department, Eni Coordination Center; Banque Eni subject to certain Bank regulatory restrictions preventing the group’s exposure to concentrations of credit risk.
Additionally, in 2007, Eni Trading & Shipping was established and has the mandate to manage and monitor solely commodity derivative contracts.
In particular Eni SpA and Eni Coordination Center manage subsidiaries’ financing requirements in and outside of Italy, respectively, covering borrowing requirements and employing available surpluses.
All the transactions concerning currencies and derivative financial contracts are managed by the parent company as well as the activity of trading certificates according to the European Union Emission Trading Scheme. The commodity risk is managed by each business unit with Eni Trading & Shipping ensuring the negotiation of hedging derivatives. Eni uses derivative financial instruments (derivatives) in order to minimize exposure to market risks related to changes in exchange rates and interest rates and to manage exposure to commodity price fluctuations. Eni does not enter derivative transactions on a speculative basis. The framework defined by Eni’s policies and guidelines prescribes that measurement and control of market risk are to be performed on the basis of maximum tolerable levels of risk exposure defined in accordance with value-at-risk techniques. These techniques make a statistical assessment of the market risk on the Group’s activity, i.e., potential gain or loss in fair values due to changes in market conditions taking account of the correlation existing among changes in fair value of existing
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instruments. Eni’s finance departments define maximum tolerable levels of risk exposure to changes in interest rates and foreign currency exchange rates, pooling Group companies’ risk positions. Calculation and measurement techniques for interest rate and foreign currency exchange rate risks followed by Eni are in accordance with established banking standards, as established by the Basel Committee for bank activities surveillance. Tolerable levels of risk are based on a conservative approach, considering the industrial nature of the company. Eni’s guidelines prescribe that Eni’s group companies minimize such kinds of market risks.
With regard to commodity risk, Eni’s policies and guidelines define rules to manage this risk aiming at the optimization of core activities and the pursuing of preset targets of industrial margins. The maximum tolerable level of risk exposure is pre-defined in terms of value at risk in connection with trading and commercial activities, while the strategic risk exposure to commodity prices fluctuations – i.e. the impact on the Group’s business results deriving from changes in commodity price – is monitored in terms of value-at-risk, albeit not hedged in a systematic way. Accordingly, Eni evaluates the opportunity to mitigate its commodity risk exposure by entering into hedging transactions in view of certain acquisition deals of oil and gas reserves as part of the Group’s strategy to achieve growth targets or ordinary asset portfolio management. The group controls commodity risk with a maximum value-at-risk limit authorized for each business unit. Hedging needs from business units are pooled by Eni Trading & Shipping which also manages its own risk exposure.
The three different market risks, whose management and control have been summarized above, are described below.
Exchange rate risk
Exchange rate risk derives from the fact that Eni’s operations are conducted in currencies other than the euro (mainly in the U.S. dollar). In particular revenues and costs denominated in foreign currencies maybe significantly affected by fluctuations in exchange rates typically due to conversion differences on specific transactions arising from the time lag existing between the execution of a given transaction and the definition of relevant contractual terms (economic risk) and conversion of foreign currency-denominated commercial and financial payables and receivables (transaction risk). Exchange rate fluctuations affect the group’s reported results and net equity as financial statements of subsidiaries denominated in currencies other than the euro are translated from their functional currency into euro (translation risk).
Generally, an appreciation of the U.S. dollar versus the euro has a positive impact on Eni’s results of operations, and vice versa.
Eni’s foreign exchange risk management policy is to minimize economic and transaction exposures arising from foreign currency movements. Eni does not undertake any hedging activity for risks deriving from translation of foreign currency denominated profits or investments except for single transactions to be evaluated on a case-by-case basis.
Effective management of exchange rate risk is performed within Eni’s central finance departments which match opposite positions within Group companies, hedging the Group net exposure through the use of certain derivatives, such as currency swaps, forwards and options. Such derivatives are evaluated at fair value on the basis of market prices provided by specialized sources. Changes in fair value of those derivatives are normally recognized in the profit and loss account as they do not meet the formal criteria to be recognized as hedges in accordance with IAS 39. The VAR techniques are based on variance/covariance simulation models and monitor the risk exposure arising from possible future changes in market values over a 24-hour period within a 99% confidence level and a 20-day holding period.
Interest rate risk
Changes in interest rates affect the market value of financial assets and liabilities of the company and the level of finance charges. Eni’s interest rate risk management policy is to minimize risk with the aim to achieve financial structure objectives defined and approved in management’s plans. Borrowing requirements of the group’s companies are pooled by the group’s central finance department in order to manage net positions and the funding of portfolio developments consistently with management’s plans while maintaining a level of risk exposure within prescribed limits.
Eni enters into interest rate derivative transactions, in particular interest rate swaps, to effectively manage the balance between fixed and floating rate debt. Such derivatives are valued at fair value on the basis of market prices provided from specialized sources. Changes in fair value of those derivatives are normally recognized through the profit and loss account as they do not meet the formal criteria to be accounted for under the hedge accounting method in accordance with IAS 39. Value at risk deriving from interest rate exposure is measured daily on the basis of a variance/covariance model, with a 99% confidence level and a 20-day holding period.
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Commodity risk
Eni’s results of operations are affected by changes in the prices of products and services sold. A decrease in oil and gas prices generally has a negative impact on Eni’s results of operations and vice versa. Eni manages the exposure to commodity price risk by optimizing core activities in order to achieve stable margins. In order to manage commodity risk in connection with its trading and commercial activities, Eni uses derivatives traded on the organized markets of ICE and NYMEX (futures) and derivatives traded over the counter (swaps, forward, contracts for differences and options) with the underlying commodities being crude oil, refined products or electricity. Such derivatives are valued at fair value on the basis of market prices provided from specialized sources or absent market prices, on the basis of estimates provided by brokers or suitable evaluation techniques. Changes in fair value of those derivatives are normally recognized in the profit and loss account as they do not meet the formal criteria to be recognized as hedges in accordance with IAS 39. Value at risk deriving from commodity exposure is measured daily on the basis of a historical simulation technique, with a 95% confidence level and a one-day holding period.
The following table shows values in terms of value at risk, recorded during 2007 (compared with year 2006) referring to interest rate risk and exchange rate in the first section, and to commodity risk in the second section.
(Value-at-risk - parametric method variance/covariance; holding period: 20 days; confidence level: 99%)
2006 | 2007 | ||
(million euro) | High |
|
|
|
|
|
|
|
| |||||||||
Consolidated companies | 3,228 | 3,228 | 5,839 | 5,839 | ||||||||||||
Unconsolidated subsidiaries | 7 | 532 | 539 | 4 | 203 | 207 | ||||||||||
Affiliated companies and Joint Ventures | 4,901 | 1,922 | 40 | 6,863 | 4,900 | 1,772 | 40 | 6,712 | ||||||||
Others | 70 | 169 | 239 | 64 | 40 | 104 | ||||||||||
4,978 | 5,851 | 40 | 10,869 | 4,968 | 7,854 | 40 | 12,862 |
Interest rate | 5.15 | 0.45 | 2.01 | 1.10 | 7.36 | 0.47 | 1.39 | 4.35 | ||||||||
Exchange rate | 2.02 | 0.02 | 0.24 | 0.21 | 1.25 | 0.03 | 0.21 | 0.43 |
Guarantees given on behalf of consolidated companies of euro 5,839 million (euro 5,026 million at December 31, 2004) consist primarily of: (i) guarantees given to third parties relating to bid bonds and performance bonds for euro 3,057 million (euro 2,929 million at December 31, 2004), of which euro 2,397 million related to the Oilfield Services Construction and Engineering segment (euro 2,296 million at December 31, 2004); (ii) VAT recoverable from tax authorities for euro 1,386 million (euro 1,156 million at December 31, 2004); and (iii) insurance risk for euro 298 million reinsured by Eni (euro 396 million at December 31, 2004). At December 31, 2005 the underlying commitment covered by such guarantees was euro 5,491 million (euro 4,818 million at December 31, 2004).
Unsecured guarantees, other guarantees and secured guarantees given on behalf of unconsolidated subsidiaries of euro 207 million (euro 539 million at December 31, 2004) consisted of unsecured guarantees and letters of patronage given to commissioning entities relating to bid bonds and performance bonds for euro 165 million (euro 144 million at December 31, 2004). The decrease of euro 332 million essentially concerned the reclassification to consolidated subsidiaries of the guarantees given on behalf of Eni Middle East BV (euro 367 million at December 31, 2004). At December 31, 2005, the underlying commitment covered by such guarantees was euro 145 million (euro 467 million at December 31, 2004).
Unsecured guarantees, other guarantees and secured guarantees given on behalf of joint ventures and affiliated companies of euro 6,712 million (euro 6,863 million at December 31, 2004) primarily concerned: (i) a guarantee of euro 4,894 million (the same amount as of December 31, 2004) given by Eni SpA to Treno Alta Velocità(Value-at-risk - TAV - SpA for the proper and timely completion of a project relating to the Milano-Bologna train link by the Consorzio Eni per l’Alta Velocità - Cepav Uno (Eni 50.4%historic simulation method; holding period: 1 day; confidence level: 95%); consortium members, excluding unconsolidated subsidiaries, gave Eni liability of surety letters and bank guarantees amounting to 10% of their respective portion of the work; (ii) unsecured guarantees, letters of patronage and other given to banks in relation to loans and lines of credit received for euro 1,360 million (euro 1,633 million at December 31, 2004), of which euro 844 million related to a contract released by Snam SpA (now merged into Eni SpA) on behalf of Blue Stream Pipeline Co BV (Eni 50%) to a consortium of financing institutions (euro 731 million at December 31, 2004). The decrease of euro 273 million primarily concerned the extinguishing of a guarantee of euro 250 million given on behalf of EnBW - Eni Verwaltungsgesellschaft mbH (Eni 50%) and Albacom SpA (euro 88 million), partially offset by the increase of the guarantee given on behalf of Blue Stream Pipeline Co BV (euro 113 million); (iii) unsecured guarantees, letters of patronage and other given to commissioning entities relating to bid bonds and performance bonds for euro 274 million (euro 118 million at December 31, 2004). The increase of euro 156 million essentially regarded guarantees on behalf of the Oilfield Services Construction and Engineering segment; (iv) performance guarantees of euro 62 million given on behalf of Unión Fenosa SA and Unión Fenosa Gas SA (Eni 50%) in relation to contractual commitments related to the results of operations of subsidiaries of Unión Fenosa Gas SA (euro 111 million at December 31, 2004); and (v) secured guarantees of euro 40 million (the same amount as of December 31, 2004), relate to mortgages, liens and privileges granted to banks in connection with loans. At December 31, 2005, the underlying commitment covered by such guarantees was euro 2,938 million (euro 3,500 million at December 31, 2004).
Other guarantees given on behalf of third parties of euro 104 million (euro 239 million at December 31, 2004) consist primarily of guarantees given by Eni SpA to banks and other financing institutions in relation to loans and lines of credit for euro 92 million on behalf of minor investments or companies sold (euro 160 million at December 31, 2004). At December 31, 2005 the underlying commitment covered by such guarantees was euro 75 million (euro 103 million at December 31, 2004).
Commitments and contingencies
Commitments and contingencies euro 1,655 million (euro 1,620 million at December 31, 2004) consisted of the following:
2006 | 2007 | ||
(million |
|
| Average | At period end | High | Low | Average | At period end | ||||||||
Commitments | ||||||
Purchase of assets | 200 | 219 | ||||
Sale of assets | 124 | |||||
Other | 319 | 220 | ||||
643 | 439 | |||||
Risks | 977 | 1,216 | ||||
1,620 | 1,655 |
Obligations for purchases and sales of assets of euro 219 million (euro 324 million at December 31, 2004) concern securities for euro 116 million (euro 183 million at December 31, 2004) and investments for euro 103 million (euro 141 million at December 31, 2004). Obligations relating to marketable securities concern the placement on the market of securities managed by Sofid Sim SpA. This company sold Italian Government bonds to investors, primarily employees, and simultaneously entered into interest rate swaps with such investors wherein it received the rate of interest on such Italian Government bonds and paid a floating rate of interest linked to Euribor. Such investors could sell their securities back to Sofid Sim SpA at any time at par value plus related interest with the simultaneous cancellation of the related swaps. Against the commitment related to interest rate swaps Sofid Sim SpA entered into derivatives for which Sofid Sim SpA receives a variable rate more profitable than the one renown by the shareholders. The operation ended on January 1, 2006 following the expiry of the government bonds. The decrease in obligations related to investments of euro 38 million primarily concerns the exercise by Erg SpA of a call option for the purchase of a 28% shares of Erg Raffinerie Mediterranee SpA (euro 100 million) and the expiry of obligations for purchases and sales of the shares of Nuovo Pignone SpA following the sale of the investment (euro 31 million); such decrease was partially offset by the obligation assumed by Eni SpA related to the acquisition from ESPI - Ente Siciliano per la Promozione Industriale (in liquidation) of 50% of the capital share of Siciliana Gas SpA and 1 share of Siciliana Gas Vendite SpA (euro 98 million).
Other commitments of euro 220 million (euro 319 million at December 31, 2004) are essentially related to a memorandum of intent signed with the Basilicata Region, whereby Eni has agreed to invest, also on account of Shell Italia E&P SpA, euro 193 million in the future in connection with Eni’s development plan of oil fields in Val d’Agri (euro 206 million at December 31, 2004). The agreements between Syndial SpA and various government entities, employee and trade groups whereby Syndial SpA, in order to further develop the chemical segment and protect the environment with respect to the Porto Marghera plant of euro 90 million at December 31, 2004, expired following the subscription of a new agreement that determined a specific provision.
Risks of euro 1,216 million (euro 977 million at December 31, 2004) primarily concern potential risks associated with the value of assets of third parties under the custody of Eni for euro 794 million (euro 551 million at December 31, 2004) and contractual assurances given to acquirors of certain investments and businesses of Eni for euro 402 million (euro 406 million at December 31, 2004).
Management of risks
Foreword
The main risks identified and managed by Eni were the following:
Hydrocarbons | 35.69 | 5.40 | 17.80 | 8.59 | 44.59 | 4.39 | 20.17 | 12.68 | ||||||||
Gas & power | 46.63 | 18.36 | 31.01 | 22.82 | 54.11 | 20.12 | 34.56 | 25.57 |
Market risk
Market risks include exchange rate risk, interest rate risk and commodity risk. Their management follows a set of guidelines and procedures that concentrate the treasury function in two captive finance companies operating in the Italian and international financial markets.
In particular, the financial company operating on the domestic market (Enifin) manages all the transactions concerning currency exchange and derivatives. The risk of commodity prices is managed by each business unit while Enifin manages the negotiation of hedging derivatives. In order to minimize market risk related to changes in interest rates, exchange rates and commodity prices, Eni enters into financial and commodity hedging contracts for the purpose of reducing its exposure to market risk. Eni does not enter into derivative transactions on a speculative basis.
Eni’s Board of Directors has defined a policy that requires the Treasury Department of Eni SpA to determine the maximum level of foreign exchange rate and interest rate risks that can be assumed by Eni’s finance companies. Such policy also defines the eligible counterparties in derivative transactions. Eni’s Treasury Department is responsible for monitoring compliance with Eni’s policy, as well as the correlation between the indicators adopted for measuring of the tolerable risk level, the portfolio of financial instruments and market conditions. Eni’s operating subsidiaries are required to reduce foreign exchange rate risk to a minimum level by coordinating their operations with such finance companies.
As far as interest rate and foreign exchange rate risks are concerned, the calculation and measurement techniques followed by Eni’s finance companies are in accordance with established banking standards (such standards are established by the Basel Committee). However, the tolerable level of risk adopted by such companies is more conservative than that defined by the Basel Committee.
Eni’s guidelines for the management of commodity risk contain maximum limits to the price risk deriving from trading activities. Directions in this area are entrusted to a commodity risk assessment team, while the treasury department controls the respect of said limits and the development and updating of methodologies followed.
Exchange rate risk
Exchange rate risk derives from the fact that Eni’s operations are conducted in currencies other than the euro (in particular the U.S. dollar) and by the time lag existing between the recording of costs and revenues denominated in currencies other than the functional currency and their realization (transaction exchange rate risk). An appreciation of the U.S. dollar versus the euro generally has a positive impact on Eni’s results of operations.
Interest rate risk
Variations in interest rates affect the market value of assets and liabilities of the company and its net borrowings.
Commodity risk
Eni’s results of operations are affected by changes in the prices of products and services sold. A decrease in oil prices generally has a negative impact on Eni’s results of operations and vice versa.
Credit risk
Credit risk is the potential exposure of the Group to loss inlosses that would be recognized if counterparties failed to perform or failed to pay amounts due. The maximum exposure to credit risk is given by the eventcarrying amount of non-performance by a counterparty.financial assets. The credit risk arising from the Group’s normal commercial operations is controlled by individualeach operating unitsunit within Group-approved guidelines. Eni’s financial companies followprocedures for evaluating the reliability and solvency of each counterparty, including receivable collection and the managing of commercial litigation. The monitoring activity of credit risk exposure is performed at the Group level according to set guidelines approved by Eni’s treasury departmentand measurement techniques to quantify and monitor counterparty risk. In particular, credit risk exposure to large clients and multi-business clients is monitored at the Group level on the choicebasis of highly credit-rated counterparties in their use ofscore cards quantifying risk levels. Eni’ s has established guidelines prior to entering into cash management and derivative contracts to assess the counterparty’s financial soundness and commodity instruments, including derivatives.its rating. Eni has notnever experienced material non-performance by any counterparty. As of December 31, 20052006 and 2007, Eni hadhas no significant exposure to concentrations of credit risk.
Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the Group’s business activitiesgroup may not be available.available, or the group is unable to sell its assets in the marketplace as to be unable to meet short-term finance requirements and settle obligations causing material financial losses in the case the group is required to incur additional expenses to meet its obligations or under the worst of conditions a default. Eni manages liquidity risk by targeting an optimal ratio between equity and total debt consistent with management plans and business objectives, including prescribed limits in terms of maximum indebtedness rate and of minimum debt ratio between medium/long-term debt and total debt as well as between fixed rate debt and total medium/long-term debt. This enables Eni to maintain an appropriate level of liquidity and financial capacity as to minimize borrowing expenses and to achieve an optimal profile of composition and duration of indebtedness. The Group has access to a wide range of funding at competitive rates through the capital markets and banks. Thebanks and coordinates relationships with banks centrally. At present, the Group believes it has access to sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements.
OperationEffective management of liquidity risk has the objective of ensuring both availability of adequate funding to meet short-term requirements and due obligations, and a sufficient level of flexibility in order to fund the
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development plans of the Group businesses, maintaining an adequate finance structure in terms of debt composition and maturity.
This implies the adoption of a strategy for pursuing an adequate structure of borrowing facilities (particularly availability of committed borrowings facilities) and the maintenance of cash reserves.
Undiscounted long-term debt by maturity date, comprehensive of the current portion and contractual interest payments at December 31, 2007, was as follows:
Maturity | ||
(million euro) | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | |||||||
Long-term debt including the current portion of long-term debt | 1,342 | 1,606 | 1,884 | 786 | 4,514 | 5,253 | 15,385 |
Country risk
Substantial portions of Eni’s hydrocarbon reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American. At December 31, 2007, approximately 70% of Eni’s proved hydrocarbons reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supplies comes from countries outside the EU and North America. In 2007, approximately 60% of Eni’s domestic supply of natural gas came from such countries. Developments in the political framework, economic crisis and social unrest can compromise temporarily or permanently Eni’s ability to operate or to economically operate in such countries, and to have access to oil and gas reserves. Further risks related to the activity undertaken in these countries, are represented by: (i) lack of well established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; (ii) unfavorable developments in laws and regulations leading to expropriation of Eni’s titles and mineral assets relating to an important oil field in Venezuela which occurred in 2006, following the unilateral cancellation of the contract regulating oil activities in this field by the Venezuelan state oil company PDVSA; (iii) restrictions on exploration, production, imports and exports; (iv) tax or royalty increases; (v) civil and social unrest leading to sabotages, acts of violence and incidents. While the occurrence of these events is unpredictable, it is possible that they can have a material adverse impact on Eni’s financial condition and results of operations. Eni periodically monitors political, social and economic risks of approximately 60 countries where it has invested or with regard to upstream projects evaluation where Eni is planning to invest, in order to assess returns of single projects based also on the evaluation of each country’s risk profile. Country risk is mitigated in accordance with guidelines on risk management defined in the procedure “Project risk assessment and management”.
Operational risk
Eni’s business activities present industrialconducted in and environmental risks andoutside of Italy are therefore subject to extensive government regulations concerning environmental protection and industrial security in most countries. For example, in Europe, Eni operates industrial plants such as refineries and petrochemical complexes that meet the criteria of the European Union Seveso II directive for classification as high risk sites.
Thea broad scope of Eni’s activities involves a wide range of operational risks such as thoselegislation and regulations, including specific rules concerning oil and gas activities currently in force in countries in which it operates.
In particular, these laws and regulations require the acquisition of explosion, fire or leakagea license before exploratory drilling may commence and the compliance with health, safety and environment rules. These environmental laws impose restrictions on the types, quantities and concentration of toxic products, production of non biodegradable waste.various substances that can be released into the environment and on discharges to surface and subsurface water.
All these events could possibly damage or even destroy wells as well as related equipmentIn particular Eni is required to follow strict operating practices and other property, cause injury or even deathstandards to persons or cause environmental damage. In addition, sinceprotect biodiversity when it conducts exploration, drilling and production activities may take place on sites that arein certain ecologically sensitive (tropical forest, marine environment, etc.), each site requireslocations (protected areas).
Environmental, health and safety laws and regulations have a specific approach to minimize thesubstantial impact on Eni’s operations and the related ecosystem, biodiversityexpenses and human health.liabilities that Eni may incur in relation to compliance with environmental, health and safety laws and regulations are expected to remain material to the group’s results of operations or financial position.
For this purpose, Eni adopted the most stringent standardsguidelines for the evaluation and management of industrialhealth, safety and environmental (HSE) risks, complyingwith the objective of protecting Eni’s employees, the populations involved in its activity, contractors and clients, and the environment and being in compliance with local and international rules and standards. Businessregulations. Eni’s guidelines prescribe the adoption of international best practices in setting internal principles, standards and solutions.
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The ongoing process for identifying, evaluating and managing HSE operations in each phase of the business activity is performed through the adoption of procedures and effective pollution management systems tailored on the peculiarities of each business and industrial site and on steady enhancement of plants and process.
Additionally, coding activities and procedures on operating phases allow to reduce the human component in the plant risk management. Operating emergencies that may have an adverse impact on the assets, people and the environment are managed by the operating (business) units evaluatefor each site. These units manage the HSE risk through specific proceduresa systematic way that involves having emergency response plans in place with a number of corrective actions to be taken that minimize damage in the related industrialevent of an incident. In the case of a major crisis, Divisions/Entities are assisted by the Eni Crisis Unit to deal with the emergency through a team which has the necessary training and skills to coordinate in a timely and efficient manner resources and facilities.
The integrated management system on health, safety and environmental risks in addition to taking accountmatters is supported by the regulatory requirementsadoption of the countries where these activities are located.
Since 2003, Eni has introduced a modelEni’s Model of management system, a general procedure to be appliedHSE operations in all its operating sites,the Divisions and companies of Eni Group. This is a procedure based on an annual cycle of planning, implementation, control, review of results and definition of new objectives. The model is directed towards the prevention of risks, the systematic monitoring and control of HSE performance, in a continuous improvement cycle, also subject also to audits by internal and independent experts. At December 31, 2005 six system audits had been performedEni has major facilities certified to international environmental standards, such as ISO14001, OHSAS 18001 and four are planned for 2006.
Any environmental emergency is managed by business units locally with their own organization under preset reaction plans to foreseeable events aimed at limiting damageEMAS particularly in the Petrochemicals and at activating adequate responses.Refining & Marketing divisions.
Eni has two emergency rooms (at Milanprovides a program of specific training and Rome) provideddevelopment for HSE staff in order to:
• | promote the execution of behaviors consistent with guidelines; | |
• | drive people’s learning growth process by developing professionalism, management and corporate culture; | |
• | support management knowledge and control of HSE risks. |
Possible evolution of the Italian gas market
Legislative Decree No. 164/2000 opened the Italian natural gas market to competition, impacting on Eni’s activities, as the company is engaged in all the phases of the natural gas chain. The opening to competition was achieved through the enactment of certain antitrust thresholds on volumes input into the national transport network and on volumes sold to final customers. These enabled new competitors to enter the Italian gas market, resulting in declining selling margins on gas. Other material aspects regarding the Italian gas sector regulation are the regulated access to natural gas infrastructure (transport backbones, storage fields, distribution networks and LNG terminals), and the circumstance that the Authority for Electricity and Gas is entrusted with real time monitoring systemscertain powers in the matters of natural gas pricing and in establishing tariffs for the collectionuse of data on georeferenced maps for all Eni sites and logistics worldwide. In addition to its own emergency teams, Eni entered agreements with international agencies in order to maximize its ability to react in all its operating sites.
At year end 2005 Eni employed over 2,000 full time equivalent employees in HSE activities, prevention of environmental risk, safety and health.
Country risk
Substantial portions of Eni’s hydrocarbon reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American countries.
At December 31, 2005, approximately 73% of Eni’s proved hydrocarbon reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supply comes from countries outsideinfrastructures. Particularly, the EUAuthority for Electricity and North America. In 2005, approximately 60% of Eni’s domesticGas holds a general surveillance power on pricing in the natural gas market in Italy and the power to establish selling tariffs for supply of natural gas came from suchto residential and commercial users consuming less than 200,000 cubic meters per year (qualified as non eligible customers at December 31, 2002 as defined by Legislative Decree No. 164/2000) taking into account the public goal of containing the inflationary pressure due to rising energy costs. Accordingly, decisions of the Authority on these matters may limit the ability of Eni to pass an increase in the cost of fuels onto final consumers of natural gas. As a matter of fact, following a complex and lengthy administrative procedure started in 2004 and finalized in March 2007 with Resolution No. 79/2007, the Authority finally established a new indexation mechanism for updating the raw material cost component in supplies to residential and commercial users consuming less than 200,000 cubic meters per year, establishing, among other things: (i) that an increase in the international price of Brent crude oil is only partially transferred to residential and commercial users of natural gas in case international prices of Brent crude oil exceed the 35 dollars per barrel threshold; and (ii) that Italian natural gas importers – including Eni – must renegotiate wholesale supply contracts in order to take account of this new indexation mechanism.
In order to meet the medium and long-term demand for natural gas, in particular in the Italian market, Eni entered into long-term purchase contracts with producing countries. NegativeThese contracts which contain take-or-pay clauses, will ensure total supply volumes of approximately 62.4 bcm/y of natural gas to Eni by 2010. Despite the fact that an increasing portion of natural gas volumes purchased under said contracts is planned to be sold outside Italy, management believes that in the long-term unfavorable trends in the Italian demand and supply for natural gas, also due to the possible implementation of all publicly announced plans for the construction of new import infrastructure (backbone upgrading and new LNG terminals), and possible evolution of Italian regulatory framework, represent risk factors to the fulfillment of Eni’s obligations in connection with its take-or-pay supply contracts. Particularly, should natural gas demand in Italy grow at a lower pace than management expectations, also in view of expected developments in the supply of natural gas to Italy, Eni could face a further increase in competitive pressure on the Italian gas market resulting in a negative impact on its selling margins, taking account of Eni’s gas availability under take-or-pay supply contracts and execution risks in increasing its sales volumes in European markets.
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Specific risks associated with the exploration and production of oil and natural gas
The exploration and production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks. It is subject to natural hazards and political frameworkother uncertainties including those relating to the physical characteristics of these countries can compromise temporarilyoil or permanentlynatural gas fields. Exploratory activity involves numerous risks including the risk of dry holes or failure to find commercial quantities of hydrocarbons. Developing and marketing hydrocarbons reserves typically requires several years after a discovery is made. This is because a development project involves an array of complex and lengthy activities, including appraising a discovery in order to evaluate its marketability, sanctioning a development project and building and commissioning related facilities. As a consequence, rates of return of such long-lead-time projects are exposed to the volatility of oil and gas prices and the risk of an increase in developing and lifting costs, resulting in lower rates of return. This set of circumstances is particularly important to those projects intended to develop reserves located in deep water and hostile environments, where the majority of Eni’s abilityplanned and ongoing projects is located.
Managing sources of funds
Eni management makes use of the leverage as a financial measure to operate economicallyassess the soundness and efficiency of the Group balance sheet in terms of optimal mix between net borrowings and net equity, and to have access to said reserves.
Eni monitors constantly the political, social and economic riskcarry out benchmark analysis with industry standards. Leverage is a measure of the approximately 100 countries where it invested or intendscompany’s level of indebtedness, calculated as the ratio between net borrowings and shareholders’ equity, including minority interests. In the medium term, management plans to invest with special attentiontarget a level of leverage up to 0.4 which is intended to provide an efficient capital structure and the evaluationappropriate level of upstream investments. Country risks are mitigated by meansfinancial flexibility.
Other information about financial instruments
The book value of appropriate guidelinesfinancial instruments and relevant economic effect for risk management that Eni defined in its procedure for project risk assessment and management.
the year 2007 consisted of the following:
Finance income (expense) recognized in: | ||
(million euro) | carrying amount | profit and loss account | equity | |||
Held-for-trading financial instruments | |||||||||
Non-hedging derivatives (a) | 217 | 78 | |||||||
Held-to-maturity financial instruments | |||||||||
Securities | 21 | ||||||||
Available-for-sale financial instruments | |||||||||
Securities (a) | 433 | 39 | (6 | ) | |||||
Receivables and payables and other assets/liabilities valued at amortized cost | |||||||||
Trade and receivables and other (b) | 19,606 | (242 | ) | ||||||
Financing receivables (a) | 2,276 | 112 | |||||||
Trade payables and other (c) | 17,533 | 3 | |||||||
Financing payables (a) | 19,830 | (558 | ) | ||||||
Assets at fair value through profit or loss (fair value option) | |||||||||
Investments (a) | 2,476 | 188 | |||||||
Net liabilities for hedging derivatives (a) | 2,241 | (52 | ) | (2,237 | ) |
(a) | Gains or losses were recognized in the profit and loss account within "Finance income (expense)". | |
(b) | In the profit and loss account, impairments and losses on receivables were recognized within "Purchase, services and other" for euro 177 million whilst negative exchange differences arising from accounts denominated in foreign currency and translated into euro at year-end were recognized within "Finance income (expense)" for euro 6 million. | |
(c) | Positive exchange differences arising from accounts denominated in foreign currency and translated into euro at year-end were recognized in the profit and loss account within "Finance income (expense)". |
Legal proceedingsProceedings
Eni is a party to a number of civil actions and administrative arbitral and other judicial proceedings arising in the ordinary course of business. Based on information available to date, and taking into account of the existing risk provisions, Eni believes that the foregoing will not have an adverse effect on Eni’s Consolidated Financial Statements.
Following The following is a description of the most significant proceedings currently pending; unlesspending. Unless otherwise
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indicated below, no provisions have been made for these legal proceedings as Eni believes that negative outcomes are not probable or because the amount of the provision can notcannot be estimated reliably.
Environment
1. Environment
1.1 Criminal proceedings
ENI SPAIn 1999,
(i) | Subsidence. The Court of Rovigo conducted investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration and extraction activities in the Ravenna and North Adriatic area both on land and in the sea. Eni appointed an independent and interdisciplinary scientific commission, composed of prominent and highly qualified international experts of subsidence caused by hydrocarbon exploration and extraction activities, with the aim of verifying the magnitude and effects and any actions appropriate to reduce or to neutralize any subsidence phenomenon in the area. This commission produced a study which excludes the possibility of any risk to human health or damage to the environment. The study also states that worldwide there are no instances of accidents of harm to public safety caused by subsidence induced by hydrocarbon production. It also shows that Eni employs the most advanced techniques for monitoring, measuring and controlling the soil. This proceeding is in the first level hearing stage. The Veneto Region, other local bodies and two private entities have been acting as plaintiffs. Eni was admitted as a defendant. The Court decided that the proceeding must be heard by the Court of Ravenna. | |
(ii) | Alleged damage. In 2002, the public prosecutor of Gela commenced a criminal investigation to ascertain alleged damage caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (formerly EniChem SpA) and Raffineria di Gela SpA. The judge for the preliminary hearing dismissed the accusation of adulteration of food products, while the proceeding for the other allegations regarding pollution and environmental damage remains underway. | |
(iii) | Alleged negligent fire in the refinery of Gela. In June 2002, in connection with a fire at the refinery of Gela, a criminal investigation began concerning alleged negligent fire, environmental crimes and crimes against natural beauty. First degree proceedings ended with an acquittal sentence. In November 2007, the public prosecutors of Gela and of Caltanissetta filed an appeal against this decision. | |
(iv) | Investigation of the quality of ground water in the area of the refinery of Gela. In 2002, the public prosecutor of Gela commenced a criminal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. Eni is charged of having breached environmental rules concerning the pollution of water and soil and of illegal disposal of liquid and solid waste materials. The preliminary hearing phase was closed for one employee who would stand trial, while for the other plaintiffs the preliminary hearing phase is not yet completed. | |
(v) | Alleged negligent fire (Priolo). The public prosecutor of Siracusa commenced an investigation regarding certain Eni managers who were previously in charge of conducting operations at the Priolo refinery (Eni divested this asset in 2002) to ascertain whether they acted with negligence in connection with a fire that occurred at the Priolo plants on April 30 and May 1-2, 2006. After preliminary investigations the public prosecutor requested the opening of a proceeding against the mentioned managers for negligent behavior. |
ENIPOWER SPA
(i) | Alleged unauthorized waste management activities. In 2004, the public prosecutor of Rovigo commenced an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to the samples of soil used during the construction of the new EniPower power station in Mantova. The prosecutor requested the CEO of EniPower and the managing director of the Mantova plant at the time of the alleged crime to stand trial. |
(ii) | Air emissions. The public prosecutor of Mantova commenced an investigation against two managers of the Mantova plant in connection with air emissions by the new power plant. |
SYNDIAL SPA (FORMER ENICHEM SPA)
Criminal action commencedby the public prosecutor of Gela started an investigation in order to ascertain alleged soil and sea pollution caused by the discharge of pollutants by Eni’s Gela refinery. In November 2002, "Italia Nostra" and the association "Amici della Terra" filed civil claims related to this proceeding and requested the payment of damage claims for a total of euro 15,050 million. In July 2003, the relevant Court decided for the transmission of the inquiries to the public prosecutor, recognizing a violation of Article 440 of the penal code (water and food substances corruption). Three environmental organizations act as plaintiffs and requested damage payment for euro 551 million. Two of these organizations are also acting against the Gela refinery.
Brindisi.In 2000, the public prosecutor of Gela started an investigation on alleged prohibited emissions from the refinery of Gela, which are purported to have had negative effects on the health of a number of citizens of Gela, and on a lack of declaration of such emissions in violation of Presidential Decree No. 203 of 1988. The investigation ended with an action for events that have occurred since 1997. The Municipality of Gela, the Province of Caltanissetta and others filed civil claims in this proceeding and requested the payment of compensatory damages for a total of euro 878 million. The judgment of first degree before the Court of Gela is pending.
In 2002, the public prosecutor of Gela started an investigation in order to ascertain alleged pollution caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (former EniChem SpA) and Raffineria di Gela SpA. Some local public entities, environmental NGOs and landowners are acting as plaintiffs. On January 17, 2005, a second inquiry phase aimed at ascertaining which sort of emissions had eventually produced the alleged pollution caused by the refinery of Gela, was completed. On February 3, 2006 the notice of the conclusion of preliminary investigations was filed conclusion of the preliminary inquiry.
In June 2002, in connection with a fire in the refinery of Gela, a criminal investigation began concerning arson, environmental crimes and crimes against natural heritage. On May 12, 2004 the first hearing was held.
In 2002, the public prosecutor of Gela started a penal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. The investigation concerns the environmental rules about the pollution of water and soil and illegal disposal of liquid and solid waste materials. On November 7, 2003 the judge for preliminary investigations accepted to continue the inquiries as requested by the public prosecutor to ascertain the state of the refinery’s storage tanks and the presence of infiltrations of refinery products into the deep water-bearing stratum, due to a breakage in some tanks. With a decision of November 3, 2003, the Court for preliminary investigation, in agreement with a request of the public prosecutor of Gela, ordered the preventive seizure of 92 storage tanks, later reopened except for nine tanks that remained under seizure but do not prevent full operations at the refinery. The report filed by experts of the public prosecutor is currently under review.
In March 2002 the public prosecutor of Siracusa started an investigation concerning the activity of the refinery of Priolo for intentional pollution of water used for human consumption and requested a technical opinion, not yet concluded, to ascertain alleged infiltrations of refinery products into the deep water-bearing stratum used for human consumption purposes in the Priolo area. The proceeding is still in the preliminary investigation phase. A qualified company has been given the task to verify the cause, the origin and the extension of the alleged infiltration. For protective purposes, actions have been taken to: (i) create safety measures and clean-up all of the polluted area; (ii) reallocate wells for drinking water in an area farther from and higher than the industrial site; and (iii) install a purification system for drinkable water. With a decision of June 1, 2004 the seizure was lifted on the storage tanks that had been seized on April 17, 2003, except for five storage tanks that are still under seizure. The report of experts has been filed and its findings can be opposed to defendants.
In relation to the investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration, on May 21, 2004, following the decision of the Court of Rovigo, the Nucleo Operativo Ecologico dei Carabinieri of Venice placed under preliminary seizure the Dosso degli Angeli, Angela/Angelina - Ravenna Mare Sud fields and the related wells and platforms. On June 10, 2004 the Court responded to the claim filed by Eni and lifted the seizure of the Angela/Angelina - Ravenna Mare Sud fields and related wells and platforms. On March 10, 2005, the Court of Cassation confirmed this decision. On February 5, 2003, a seizure had already been applied to the Naomi/Pandora platform, the Naomi 4 Dir, Naomi 2 Dir and 3 Dir - Pandora 2 Dir wells, and the underwater pipeline for the transportation of gas to the Casalborsetti facility. Eni believes it has always acted in full compliance with existing laws under the required authorizations. Taking account of the observations of the consultants of the Court of Rovigo on which the Public Prosecutor based his case, Eni constituted an independent and interdisciplinary scientific commission, chaired by Prof. Enzo Boschi, professor of seismology at the Università degli Studi di Bologna and chairman of the Istituto nazionale di geofisica e vulcanologia, composed of prominent and highly qualified international experts of subsidence caused by hydrocarbon exploration, with the aim of verifying the size and the effects and any appropriate actions to reduce or to neutralize any subsidence phenomenon in the Ravenna and North Adriatic area both on land and in the sea. The commission produced a study which denies the possibility for any risk for human health and for damage to the environment. It also states that no example is known anywhere in the world of accidents that caused harm to the public safety caused by subsidence induced by hydrocarbon production. The study also shows that Eni employs the most advanced techniques for the monitoring, measuring and control of the soil. On May 11, 2006 the Court of Rovigo accepted as plaintiffs the Veneto Region, the Ente Parco della Provincia del Po, the Ferrara Province, the Venice Province, the city of Venice, the city of Comacchio, the Rovigo Province and two private entities. Eni was accepted as a defendant. The Court of Rovigo rejected the accusation of environmental disaster and therefore transferred the proceeding to the Court of Adria, where the first hearing has been scheduled for October 31, 2006.
ENIPOWER SPAIn autumn 2004 the Public Prosecutor of Rovigo started an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to samples of the soil used in the construction of the new EniPower’s power station in Mantova. EniPower requested the closing of the investigation.
POLIMERI EUROPA SPABefore the Court of Gela one criminal action took place relation to the alleged violation on part of Eni of environmental regulations on waste management concerning the ACN plant and the disposal of FOK residue deriving from the steam cracking process. The defendant was found guilty and a damage payment in first instance was recognized to an environmental association acting as plaintiff. The sentence was passed to the civil court for the quantification of any further damage and claim. Eni appealed the Court’s decision.
SYNDIAL SPA (FORMER ENICHEM SPA)In 1992, the Ministry of Environment summoned EniChem SpA and Montecatini SpA before the Court of Brescia. The Ministry requested, primarily, to require environmental remediation for the alleged pollution caused by the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, require them to pay environmental damages. The amount is going to be determined during the proceeding, but it will not be lower than euro 136 million, or determined by the judge as compensatory liquidation. EniChem acquired the Mantova plant in June 1989, as part of the Enimont deal. Edison SpA must hold Eni harmless or pay compensatory damage for any damage caused to third parties by plant operations before Montedison’s sale, even if the damage occurred later. Edison agreed on a settlement that quantified damage to be paid covering also Syndial. The proceeding continues for the alleged damage in the 1989-1990 period.
In 2000, the Public Prosecutor of Brindisi startedcommenced a criminal action against 68 persons who are employees or former employees of companies that owned and managed plants for the manufacture of dichloroethane, vinyl chloride monomer and vinyl polychloride from the
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early 1960s to date, some of which were managed by EniChem from 1983 to 1993. At the end of the preliminary investigation phase, the Public Prosecutorpublic prosecutor asked for the dismissal of the case in respect of the employees and the managers of EniChem. Plaintiffs presented oppositions, whilebut the prosecutor confirmed histhe request for dismissal ofto dismiss the case.
On December 18, 2002 EniChem SpA, jointly with Ambiente SpA (now merged1.2 Civil and administrative proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
(i) | Alleged pollution caused by the activity of the Mantova plant. In 1992, the Ministry of Environment summoned EniChem SpA (now Syndial SpA) and Edison SpA before the Court of Brescia. The Ministry requested, primarily, environmental remediation for the alleged pollution caused by the activity of the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, the payment of environmental damages. Edison agreed on a settlement with the Ministry whereby Edison quantified compensation for environmental damage freeing from any obligation Syndial, which purchased the plant in 1989. Syndial failed to settle this dispute with the Ministry. The proceeding is still pending. | |
(ii) | Summon before the Court of Venice for environmental damages allegedly caused to the lagoon of Venice by the Porto Marghera plants. On December 13, 2002, EniChem SpA (now Syndial SpA), jointly with Ambiente SpA (now merged into Syndial SpA) and European Vinyls Corporation Italia SpA, was summoned before the Court of Venice by the Province of Venice. The province requested compensation for environmental damages that were not quantified, allegedly caused to the lagoon of Venice by the Porto Marghera plants, which were already the subject of two previous criminal proceedings against employees and managers of the defendants. EVC Italia and Ineos presented an action to be indemnified by Eni’s Group companies in case the alleged pollution is proved. The environmental damage is being assessed by an independent consultant. | |
(iii) | Claim of environmental damages, allegedly caused by industrial activities in the area of Crotone, commenced by the President of the Regional Council of Calabria. On April 14, 2003, the President of the Regional Council of Calabria, as Delegated Commissioner for Environmental Emergency in the Calabria Region, commenced an action against EniChem SpA (now Syndial SpA) with reference to environmental damages for approximately euro 129 million and damages for euro 250 million (plus interest and compensation) in connection with loss of income and damage to property allegedly caused by industrial activities in the area of Crotone. In addition, the Province of Crotone is acting as plaintiff, claiming damage for euro 300 million. With a decision in May 2007, the Court of Milan declared the invalidity of the power of proxy conferred to the Delegated Commissioner to act on behalf of the Calabria Region with the notice served to Syndial SpA and decided the liquidation of expenses born by the defendant. The Province of Crotone appealed this decision. The second instance court accepted this appeal and Syndial repealed this determination. On October 21, 2004, Syndial was convened before the Court of Milan by the Calabria Region which is seeking to obtain a condemnation of Syndial for a damage payment, should the office of the Delegated Commissioner for Environmental Emergency in the Calabria Region cease during this proceeding. The Calabria Region requested a damage payment amounting to euro 800 million as already requested by the Delegated Commissioner for Environmental Emergency in the Calabria Region in the proceeding commenced in 2003. This new proceeding is in the preliminary investigation stage. This proceeding was unified with the one opened by the Ministry of the Environment. In 2006, the Council of Ministers, Ministry for the Environment and the Delegated Commissioner for Environmental Emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan to obtain the ascertainment, quantification and payment of damage (in the form of land, air and water pollution and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the Municipality of Crotone and in surrounding municipalities. The local authorities requested the ascertainment of Syndial’s responsibility as concerns expenses borne and to be borne for the cleanup and reclamation of sites, currently quantified at euro 129 million. This proceeding concerns the same matter and damage claim as the proceedings commenced by the Delegated Commissioner for Environmental Emergency in the Calabria Region and the Calabria Region against Syndial in 2003 and 2004, respectively. |
(iv) | Summon for alleged environmental damage caused by DDT pollution in the Lake Maggiore. A proceeding is pending before the Court of Turin by which the Minister of the Environment summoned Syndial SpA and requested environmental damage for euro 3,237 million as well as the additional expenditures needed for the reclamation and remediation of the site in relation to alleged DDT pollution at Lake Maggiore allegedly caused by the Pieve Vergonte plant. An independent consultant estimated the environmental damage and related reclamation expenditures to amount to euro 1,273 million. This estimate has been filed with the court. Syndial opposed this estimate. Parties are waiting for a final determination by the court. The Italian Ministry enacted a ministerial decree providing for the: (i)upgrading of a hydraulic barrier to protect the site; and (ii) presentation of a project for the |
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environmental remediation of Lake Maggiore. The administrative court of Piemonte rejected Syndial’s opposition against the outlined environmental measures requested by the Ministry of the Environment. Syndial expects to repeal this decision. |
(v) | Action commenced by the Municipality of Carrara for the remediation and reestablishment of previous environmental conditions at the Avenza site and payment of environmental damage. The Municipality of Carrara commenced an action before the Court of Genova requesting Syndial SpA to remediate and restore previous environmental conditions at the Avenza site and the payment of certain environmental damage which cannot be cleaned up as well as further damages of various types (e.g. damage to the natural beauty of this site). This request is related to an accident that occurred in 1984, as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), at the time owner of the site, carried out safety and remediation works. The Ministry of the Environment joined the action and requested environmental damage payment – from a minimum of euro 53.5 million to a maximum of euro 93.3 million – to be broken down among the various companies that ran the plant in the past. Syndial summoned Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA, who ran the plant in previous years, in order to be guaranteed. A report produced by an independent expert charged by the judge was filed with the Court. The findings of this report quantify the residual environmental damage at euro 15 million. With a sentence of March 2008, the Court of Genova rejected all claims made by the Municipality of Carrara. | |
(vi) | Ministry for the Environment Augusta harbor. The Italian Ministry for the Environment with various administrative acts ordered companies running plants in the petrochemical site of Priolo to perform safety and environmental remediation works in the Augusta harbor. Companies involved include Eni subsidiaries Polimeri Europa and Syndial. Pollution has been detected in this area primarily due to a high mercury concentration which is allegedly attributed to the industrial activity of the Priolo petrochemical site. Polimeri Europa opposed said administrative actions, objecting in particular to the way in which remediation works have been designed and information on concentration of pollutants has been gathered. The Regional Administrative Court of Catania with its decision of July 2007 annulled the decision made by the Service Conference of the Ministry of the Environment concerning Priolo and the Augusta harbor. The Ministry and the municipalities of Augusta and Melilli filed a claim with an Administrative Court of the Sicily Region which accepted the claim. In January 2008 the Regional Court of Catania accepted two further claims on this matter, while the decision of the Administrative Court of Lazio is still pending. |
2. Other judicial or arbitration proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
(i) | Serfactoring: disposal of receivables. In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA and which is controlled by Eni SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment on the due date. Following payment by Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidator of Agrifactoring commenced proceedings in 1991 against Serfactoring to recover such payments (equal to euro 182 million) made to Serfactoring based on the claim that the foregoing guarantee became invalid when Federconsorzi was itself placed in liquidation. Agricoltura and Terni Industrie Chimiche brought counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent. The amount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004; the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be determined following the decision. Agrifactoring appealed this partial decision, requesting in particular the annulment of the first step judgment, the reimbursement of euro 180 million from Serfactoring along with the rejection of all its claims and the payment of all proceeding expenses. The judge of the Court of Rome, responsible for the determination of the amount of damages to be paid to Serfactoring and Agricoltura, decided on May 18, 2005 to suspend this determination until the publication of the decision of the court hearing the appeals. On argument, Serfactoring and Syndial requested that the final decision Court return the case to its original court. The Court of Cassation accepted the appeal and the return of the case to its original court. |
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ENI SPA
(i) | Fintermica. Fintermica presented a claim against Eni concerning the management of the Jacorossi joint venture with reference to an alleged abuse of key roles played by Eni SpA in the joint venture, thus damaging the other partner’s interest and the alleged dilatory behavior of Syndial in selling its interest in the joint venture to Fintermica. The parties decided to commence arbitration on the matter. The examining phase is ongoing and an independent assessment of this matter is being executed. |
SNAMPROGETTI SPA
(i) | CEPAV Uno and CEPAV Due. Eni holds interests in the CEPAV Uno (50.36%) and CEPAV Due (52%) consortia that in 1991 signed two contracts with TAV SpA for the construction of two railway tracks for high speed/high capacity trains from Milan to Bologna (under construction) and from Milan to Verona (in the design phase). With regard to the project for the construction of the line from Milan to Bologna, an Addendum to the contract between CEPAV Uno and TAV was signed on June 27, 2003, redefining certain terms and conditions of the contract. Subsequently, the CEPAV Uno consortium requested a time extension for the completion of works and a claim amounting to euro 800 million. CEPAV Uno and TAV failed to solve this dispute amicably. CEPAV Uno opened an arbitration procedure as provided for under terms of the contract on April 27, 2006. With regard to the project for the construction of a high-speed railway from Milan to Verona, in December 2004, CEPAV Due presented the final project, prepared in accordance with Law No. 443/2001 on the basis of the preliminary project approved by an Italian governmental authority (CIPE). As concerns the arbitration procedure requested by CEPAV Due against TAV for the recognition of costs incurred by the Consortium in the 1991-2000 ten-year period plus suffered damage, in January 2007, the arbitration committee determined the Consortium’s right to recover the costs incurred in connection with the design activities performed. A technical independent survey is underway to assess the amount of compensation to be awarded to the Consortium as requested by the arbitration committee. TAV appealed the arbitration committee’s determination. In April 2007, the Consortium filed with the second instance court of Rome an appeal against Law Decree No. 7 of December 31, 2007 revoking the concessions awarded to TAV which resulted in the annulment of arrangements signed between TAV and the Consortium to build the high-speed railway section from Milan to Verona. The European Court of Justice was requested to judge on this matter. In the meantime, TAV decided to not request the reimbursement of advances paid to the Consortium. |
3. Antitrust, EU Proceedings, Actions of the Authority for Electricity and Gas and of Other Regulatory Authorities
3.1 Antitrust
ENI SPA
(i) | Abuse of dominant position of Snam alleged by the Italian Antitrust Authority. In March 1999, the Italian Antitrust Authority concluded its investigation started in 1997 and: (i) found that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam for euro 2 million; and (iii) ordered a review of the practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Authority did not appeal this decision. The decision on the merit of this dispute is still pending before the same Administrative Court. |
(ii) | Formal assessment commenced by the Commission of the European Communities for the evaluation of alleged participation to activities limiting competition in the field of paraffin. On April 28, 2005, the Commission of the European Communities commenced a formal assessment to evaluate the alleged participation of Eni and its subsidiaries in activities limiting competition in the field of paraffin. The alleged violation of competition is for: (i) the determination of and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. After, the Commission requested information on Eni’s activities in the field of paraffin and certain documentation acquired by the Commission during an inspection. Eni filed the requested information. This proceeding is at the preliminary investigation stage following the communication of a statement of objections by the European Commission. Eni accrued a provision against this proceeding. The final hearing was held in December 2007. |
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(iii) | Ascertainment by the European Commission of the level of competition in the European natural gas market. As part of its activities to ascertain the level of competition in the European natural gas market, with Decision No. C(2006)1920/1 of May 5, 2006, the European Commission informed Eni on May 16, 2006 that Eni and its subsidiaries were subject to an investigation under Article 20, paragraph 4 of the European Regulation No. 1/2003 of the Council in order to verify the possible existence of any business activities breaching European rules in terms of competition and intention to prevent access to the Italian natural gas wholesale market and to subdivide the market among a few operators in the activity of supply and transport of natural gas. Officials from the European Commission conducted inspections at the headquarters of Eni and of certain Eni subsidiaries and collected documents. Similar actions have been performed by the Commission also against the main operators in natural gas in Germany, France, Austria and Belgium. In April 2007, the European Commission made known its decision to start a further stage of inquiry, and stated that elements collected so far induced in the Commission the suspicion that Eni adopted behaviors leading to "capacity hoarding and strategic underinvestment in the transmission system leading to the foreclosure of competitors and harm to competition and customers in one or more supply markets in Italy". In the same document, the Commission states that "It is important to note that the initiation of proceedings does not imply that the Commission has conclusive proof of an infringement. It only signifies that the Commission will conduct an in-depth investigation of the case as a matter of priority". | |
(iv) | TTPC. In April 2006, Eni filed a claim before the Regional Administrative Court of Lazio against the decision of the Italian Antitrust Authority of February 15, 2006 stating that Eni’s behavior pertaining to implementations of plans for the upgrading of the TTPC pipeline for importing natural gas from Algeria represented an abuse of dominant position under Article 82 of the European Treaty and fined Eni. The initial fine amounted to euro 390 million and was reduced to euro 290 million in consideration of Eni’s commitment to perform actions favoring competition including the upgrade of the gasline. Eni accrued a provision with respect to this proceeding. With a decision filed on November 29, 2006, the Regional Administrative Court of Lazio partially accepted Eni’s claim, annulling such part of the Authority’s decision where the fine was quantified. Eni is waiting for the filing of the motivations of the Court decision to ascertain the impact of said decision. Pending this development, the payment of the fine has been voluntarily suspended. In 2007, the Regional Administrative Court of Lazio accepted in part Eni’s claim and cancelled the quantification of the fine based on the Antitrust Authority’s inadequate evaluation of the circumstances presented by Eni. Eni filed an appeal with the Council of State, as did the Antitrust Authority and TTPC. Pending the final outcome, Eni awaits for the determination of the amount of the fine to be paid. |
POLIMERI EUROPA SPA AND SYNDIAL SPA
(i) | Inquiries in relation to alleged anti-competitive agreements in the area of elastomers. In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the field of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. At present, proceedings are pending before the European Commission regarding the CR and NBR products. In March 2007, the Commission sent to Eni, Polimeri Europa and Syndial a statement of objections, thus opening the second phase of this proceeding. In December 2007, the European Commission dismissed Syndial’s position on CR and imposed on Eni and Polimeri a fine amounting to euro 132.160 million. The two companies have filed an appeal with the EU Court of First Instance against this decision and, at the same time, paid the fine in March 2008. Investigations relating to other elastomers products resulted in the ascertainment of Eni having infringed European competition laws in the field of synthetic rubber production (BR and ESBR). On November 29, 2006, the Commission fined Eni and its subsidiary Polimeri Europa for an amount of euro 272.25 million. Eni and its subsidiary filed claims against this decision before the European Court of First Instance in February 2007. The Commission filed a counterappeal. Pending the outcome, Polimeri Europa presented a bank guarantee for euro 200 million and paid the residual amount of the fine. In August 2007, Eni submitted a request for a negative ascertainment with the Court of Milan aimed at proving the non-existence of alleged damages suffered by tire manufacturers. With regard to NBR, an inquiry is underway also in the U.S., where class actions have also been commenced. On the federal level, the class action was abandoned by the plaintiffs. However, the federal judge has yet to acknowledge this abandonment. With regard to other products under investigation in the U.S., settlements were reached with both relevant U.S. antitrust authorities and the plaintiffs acting through a class action. Eni recorded a provision for these matters. |
3.2 Regulation
(i) | Inquiry of the Italian Authority for Electricity and Gas regarding information to clients about the right to pay amounts due for natural gas sales in installments. With Decision No. 228/2007, the |
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Italian Authority for Electricity and Gas commenced a formal inquiry regarding information to clients about the right to pay amounts due for the natural gas sales in installments in order to possibly put a stop to the alleged infringement of the clients’ rights and to impose a fine. In April 2008, the Authority concluded its inquiry and fined the Company by euro 3.2 million. | ||
(ii) | Toscana Energia Clienti SpA. Eni’s subsidiary Toscana Energia Clienti started an action against a customer regarding alleged lack of measurement of gas consumption due to inability to access a measurement facility at the customer’s site, also in connection with the application of Resolution No. 229/2001 of the Italian Authority for Electricity and Gas. This customer has annual consumption in excess of 5,000 CM. The defendant has filed a counter-claim in relation to this proceeding. This proceeding is in a preliminary stage. |
DISTRIBUDORA DE GAS CUYANA SA
Formal investigation of the agency entrusted with the regulations for the natural gas market in Argentina. Enargas started a formal investigation on some operators, among them Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. In April 2004 the company filed a defensive memorandum. On April 28, 2006, the company formally requested the acquisition of documents from Enargas in order to have access to the documents on which the allegations are based.
4. Tax Proceedings
ENI SPA
ICI Pineto. With a formal assessment presented by the Municipality of Pineto (Teramo) in December 1999, Eni SpA has been accused of not having paid a municipal tax on real estate for the period from 1993 to 1998 on four oil platforms located in the Adriatic Sea which constitute territorial waters in front of the coast of Pineto. Eni was requested to pay a total of approximately euro 17 million including interest and a fine. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application as requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. However, the Court overturned both judgments, declaring that a municipality can consider requesting a tax on real estate in the sea facing its territory and with the decision of February 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the matters of the proceeding. On February 22, 2007 the Commission held the hearing, and the filing of the judgment is pending. On December 28, 2005, the Municipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested from Eni is euro 24 million including interest and penalties. Eni filed a claim against this request which was accepted by the first degree judge with a decision of December 4, 2007.
AGIP KARACHAGANAK BV
Claims concerning unpaid taxes and relevant payment of interest and penalties. In July 2004, the relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of the tax audits performed for fiscal years 2000 to 2003. Claims by the Kazakh authorities concern unpaid taxes for a total of $43 million, net to Eni, and the anticipated offsetting of value added tax (VAT) credits for $140 million, net to Eni, as well as the payment of interest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the original amounts were reduced to $26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding the residual matters. Eni recorded a provision for this matter.
AGIP KCO NV
In December 2007 the Kazakh tax authority filed a notice of tax assessment for fiscal years 2004 to 2006 to Agip KCO, operator of the Kashagan contract. Allegedly unpaid taxes, including interest and penalties, amount to approximately $235 million net to Eni and relate to unpaid amounts and inapplicable deductions on value added tax and the default in applying certain withholding taxes on payments to foreign suppliers. The same notice also informs
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the companies which are parties to the Kashagan contract that further assessments are pending on undeductible costs for $188 million net to Eni and higher taxable income of Kazakh organizations for $48 million net to Eni. The company filed an appeal. Eni recorded a provision on this matters.
5. Court Inquiries
(i) | EniPower. In June 2004, the Milan Public Prosecutor commenced inquiries into contracts awarded by Eni’s subsidiary EniPower and on supplies from other companies to EniPower. These inquiries were widely covered by the media. It emerged that illicit payments were made by EniPower suppliers to a manager of EniPower who was immediately dismissed. The Court presented EniPower (commissioning entity) and Snamprogetti (contractor of engineering and procurement services) with notices of process in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In its meeting of August 10, 2004, Eni’s Board of Directors examined the aforementioned situation and Eni’s CEO approved the creation of a task force in charge of verifying the compliance with Group procedures regarding the terms and conditions for the signing of supply contracts by EniPower and Snamprogetti and the subsequent execution of works. The Board also advised divisions and departments of Eni to cooperate fully in every respect with the Court. From the inquiries performed, no default in the organization emerged, nor deficiency in internal control systems. External experts have performed inquiries with regard to certain specific aspects. In accordance with its transparency and firmness guidelines, Eni will take the necessary steps in acting as plaintiff in the expected legal action in order to recover any damage that could have been caused to Eni by the illicit behavior of its suppliers and of their and Eni employees. In the meantime, preliminary investigations have found that both EniPower and Snamprogetti are not to be considered defendants in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In August 2007, Eni was notified that the Public Prosecutor requested the dismissal of EniPower SpA and Snamprogetti SpA, while the proceeding continues against former employees of these companies and employees and managers of the suppliers under the provisions of Legislative Decree No. 231/2001. Eni SpA, EniPower and Snamprogetti presented themselves as plaintiffs in the preliminary hearing. | |
(ii) | Trading. An investigation is pending regarding two former Eni managers who were allegedly bribed by third parties to favor the closing of certain transactions with two oil product trading companies. Within such investigation, on March 10, 2005, the public prosecutor of Rome notified Eni of two judicial measures for the seizure of documentation concerning Eni’s transactions with the said companies. Eni is acting as plaintiff in this proceeding. In spite of the fact that the Public Prosecutor filed a request for dismissing this proceeding, the judge for preliminary investigations ordered to start the penal action. | |
(iii) | TSKJ Consortium Investigations of the SEC and other Authorities. The U.S. Securities and Exchange Commission (SEC) is currently investigating alleged improper payments made by the TSKJ consortium to certain public officials in relation to the construction of natural gas liquefaction facilities at Bonny Island in Nigeria. The TSKJ consortium is formed by Eni’s subsidiary Snamprogetti (Eni’s interest being 43.41%) with a 25% interest and, for the remaining part, by subsidiaries of Halliburton/KBR, Technip and JGC. Eni and its subsidiary Snamprogetti adhered to a request for voluntary collaboration notified by the SEC in June 2004. The SEC request aimed at obtaining information regarding the TSKJ consortium. Eni and Snamprogetti also adhered to other requests for voluntary collaboration made by other authorities which are currently investigating this matter. |
(iv) | Gas Metering. On May 28, 2007, a seizure order (in respect to certain documentation) was served upon Eni and other Group companies as part of a proceeding brought by the Public Prosecutor at the Courts of Milan. The order was also served upon five top managers of the Group companies in addition to third party companies and their top managers. The investigation alleges behavior which breaches Italian criminal law, starting from 2003, regarding the use of instruments for measuring gas, the related payments of excise duties and the billing of clients as well as relations with the Supervisory Authorities. The allegation regards, interalia, the offense contemplated by Legislative Decree of June 8, 2001, No. 231, which establishes the liability of the legal entity for crimes committed by its employee in the interests of such legal entity, or to its advantage. Accordingly, notice of the commencement of investigations was served upon Eni Group companies (Eni, Snam Rete Gas and Italgas) as well as third party companies. The Group companies are cooperating with the Supervising Authorities in the investigations. |
(v) | Agip KCO NV. In November 2007, the public prosecutor of Kazakhstan informed Agip KCO of the start of an inquiry for an alleged fraud in the award of a contract to the Overseas International Constructors GmbH in 2005. |
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6. Settled Proceedings
ENI SPA
Inquiry of the Italian Authority for Electricity and Gas regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006. With Decision No. 37 of February 23, 2006, the Italian Authority for Electricity and Gas commenced an inquiry on the activities of natural gas selling companies, including Eni, in order to potentially impose a fine or an administrative sanction regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006. For the 2004-2005 thermal year and for the period from October 1, 2005 to December 31, 2005, the Authority for Electricity and Gas supposed that given the weather of the period, the use of modulation storage capacity was featured by a higher volume of off takes with respect to the volume which would have been necessary to satisfy the commercial requirements for which the storage company entitled Eni to a priority in the conferral of storage capacity. According to the Authority for Electricity and Gas, such situation was in contrast with applicable regulation. With Decision No. 281/2006 of December 6, 2006, the Authority for Electricity and Gas closed said inquiry and fined Eni by euro 90 million of which euro 45 million pertaining to thermal year 2004-2005 and euro 45 million to thermal year 2005-2006 as a consequence of Eni having violated regulation in force pertaining to the priorities in the conferral of storage capacity. Eni settled the matter pertaining to thermal year 2004-2005 by paying a fractional amount of the fine imposed in accordance with Law No. 689/1981 and filed an appeal before the Regional Administrative Court of Lombardy requesting the annulment of the fine pertaining to thermal year 2005-2006. On June 19, 2007, the Regional Administrative Court of Lombardy ruled in favor of Eni and annulled that section of Decision No. 281/2006 of the Authority for Electricity and Gas imposing a fine on Eni for thermal year 2005-2006. Among other things, the Court’s ruling established that the elements collected by the Authority to fine Eni were lacking a sufficient degree of proof. The terms for appealing this decision on part of the Authority expired. Consequently this proceeding closed without any further liability for the Company. Unutilized provisions that were accrued for this proceeding in 2006 were reversed in 2007.
Inquiry of the Italian Antitrust Authority in relation to collusive mechanisms for the pricing of automotive fuels distributed on the retail market. With Decision of January 18, 2007, the Italian Antitrust Authority opened an inquiry to ascertain the existence of a possible agreement limit competition in the field of pricing of automotive fuels distributed on the retail market in Italy in violation of Article 81 of the EC Treaty. This inquiry concerns eight oil companies, including Eni. According to the Authority, said companies would have been putting in place collusive mechanisms intended to influence the pricing of automotive fuels distributed on the retail market by way of a continuing exchange of informative flows since 2004. In April 2007, Eni filed with the Italian Antitrust Authority a proposal of initiatives, based on certain rules established by the same Authority, enabling companies to reach the closure of a proceeding without sanctions or fines when they present counteractive measures designed to eliminate an infringing behavior. In December 2007, the Antitrust Authority approved the initiatives proposed by Eni and decided to close the inquiry without ascertaining any violation and imposing any fine. In particular, Eni is engaged in initiatives designed to contain and possibly reduce the retail prices of fuels in the hyper-self selling mode until they are in line with European averages. It also committed itself to pursue agreements with large chain stores.
STOCCAGGI GAS ITALIA SPA
Tariffs. With Decision No. 26 of February 27, 2002, the Italian Authority for Electricity and Gas determined tariff criteria for modulation, mineral and strategic storage services for the period from April 1, 2002 to March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stoccaggi Gas Italia SpA (Stogit) filed its proposal of tariff for modulation, mineral and strategic storage for the first regulated period. With Decision No. 49 of March 26, 2002, the Authority for Electricity and Gas repealed Stogit’s proposal and defined tariffs for the first regulated period. Stogit applied the tariff determined by the two decisions, but filed an appeal against both decisions with the Regional Administrative Court of Lombardy requesting their cancellation. With a decision dated September 29, 2003, that court rejected the appeal presented by Stogit. Stogit filed an appeal to the Council of State against the sentence, which was rejected by the Council of State on January 6, 2006.
POLIMERI EUROPA SPA
Violation of environmental regulations on waste management. Before the Court of Venice by the Province of Venice. The province requested compensation for environmental damages, not quantified, causedGela a criminal action took place relating to the lagoonalleged violation of Veniceenvironmental regulations on waste management concerning the ACN plant and the disposal of FOK residue deriving from the steam cracking process. Defendants were found guilty and a damage payment in first instance to an environmental association acting as plaintiff was required to be made. The amount of said damage payment is immaterial. The sentence was passed to the Civil Court for the quantification of any further damage and claim. Eni appealed this sentence and was acquitted by the Porto Marghera plants, which were already the subject of two previous proceedings against employees and managers. In a related action, European Vinyls Corporation Italia presented an action for recourse against EniChem and Ambiente. The requests for damage of the Province of Venice and that of EVC Italia to EniChem and Ambiente have not been quantified. The final judgment is pending.
On January 16, 2003 the Court of Siracusa issued personal cautionary measures against some employeesAppeal of EniChem SpA and Polimeri Europa SpA. They are accused of illicit management relating to the production, disposal and treatment of liquid and solid waste materials and of obtaining illicit income. Polimeri Europa and EniChem, will act as plaintiffs. The collection of evidence effected before the hearing starts in Court has been concluded and preliminary investigations have ended with the confirmation of accusations. During the inquiries traces of mercury were found in the sea. The Public Prosecutor of Siracusa started an inquiryCaltanissetta for ascertaining the conditions of sediments and marine fauna in the bay of Augusta. According to the plaintiffs, mercury would have been spilled into the sea and poisoned the marine fauna and therefore resulted in fetal malformations and abortions due to the consumption of contaminated seafood fished in this area. The chlorine soda plant, built in the late 50s was conferred to Syndial in 1989 when the Enimont joint venture was formed. It was therefore easy to prove that Eni holds no responsibility for the crimes it was accused of. On March 15, 2006 the judge for preliminary investigations decided the dismissalnon-existence of the case against Syndial employees.crime.
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RAFFINERIA DI GELA SPA
Soil and sea pollution. In 1999, the Presidentpublic prosecutor of Gela commenced an investigation in order to ascertain alleged soil and sea pollution caused by the Regional Councildischarge of Calabria,pollutants by Eni’s Gela refinery. Three environmental organizations are acting as Delegated Commissioner for Environmental Emergency in the Calabria Region, started an action against EniChem SpA related to environmental damages for approximately euro 129 millionplaintiffs and to financial and non-financial damageshave requested damage payment for euro 250 million (plus interest and compensation) allegedly caused by Pertusola Sud SpA (merged into EniChem) in the area551 million. With a Decision of Crotone. On June 6, 2003 EniChem appeared before the court and requested the rejection of the damages and, as counterclaim, the payment of the total costs for the remediation works already underway. The Province of Crotone entered the proceeding, claiming environmental damages for euro 300 million. Technical aspects concerning the role of the delegated commissioner make it necessary to decide on this aspect. Syndial was notified on October 21, 2004 of the request of the Calabria Region to appear beforeFebruary 20, 2007, the Court of Milan in order to obtain a preliminary damage payment, in anticipation of the expiration of the special officeGela dismissed these allegations.
SYNDIAL SPA
Summon for managing emergency events in Calabria. The Region requested payments for over euro 800 million.
On February 28, 2006 the Council of Ministers, the Ministry for the Environment and the Delegated Commissioner for environmental emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan in order to obtain the ascertainment, quantification and payment of damage (in the form of pollution of land, air and water and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the municipality of Crotone and in surrounding municipalities. The local authorities request the ascertainment of Syndial’s responsibility as concerns expenses borne and to be borne for the cleanup and reclamation of sites, currently quantified at euro 129 million. This proceeding concerns the same company and damages as indicated in the previous paragraph.
pollution of soil of Paderno Dugnano.In March 2004, Sitindustrie SpA, which in 1996 purchased a plant in Paderno Dugnano from Enirisorse (now merged into Syndial SpA), summoned Syndial SpA before the Court of Milan, requesting to establish the responsibility of Syndial SpASpA’s responsibility in the alleged pollution of soilssoil around the plant and to require it to pay environmental damagesdamage necessary for remediation. Syndial opposedThe Tribunal of Milan rejected the claim basedplaintiff’s request with a sentence released on an absenceJune 10, 2006. The deadline to appeal the Tribunal sentence expired on November 1, 2007.
ENI SPA
Notification to Eni Petroleum Co Inc of a subpoena by the Department of Justice of the rightUnited States of actionAmerica - Antitrust Division and request of information and documents relating to activities in the field of wax and of a deposition. On April 28, 2005, the Department of Justice of the plaintiff.United States of America - Antitrust Division, notified Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005 and a deposition on the same date. The judge hasCompany informed the department that it does not yet decided on Syndial’s opposition.produce nor import wax in the United States of America.
In October 2004, Sitindustrie SpA started an analogous proceeding against Syndial concerning the plant for the manufacture of products in copper and copper alloy at Pieve Vergonte.
In May 2003 the MinisterDecree of the Environment summoned Syndial SpA before the Court of Turin and requested environmental damages for euro 2,396 million in relation to alleged DDT pollution in the Lake Maggiore caused by the Pieve Vergonte plant. On March 1, 2006 the State Lawyer in an attempt to settle the case proposed that Syndial pay 10% of the requested damage corresponding to euro 239 million. This attempt to settle failed.
The municipality of Carrara started an action at the Court of Genova requesting to Syndial SpA the remediation and reestablishment of the previous environmental conditions at the Avenza site and the payment of environmental damage. This request is related to an accident that occurred in 1984, as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), at the time owner of the site, had carried out safety and remediation works. The Ministry of the Environment joined the action and requested the environmental damage payment – from a minimum of euro 53.5 million to a maximum of euro 78.5 million – to be broken down among the various companies that managed the plant in the past. Previous managers include Syndial, called into the action as a guarantor, Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA. The judge requested an expert report to be prepared in order to ascertain what damage has been remediated and what remains to be cleaned up after the interventions started by Agricoltura and continued by EniChem/Syndial. The expert report quantifies the damage still to be remediated in euro 15 million.
Tax Proceedings
ENI SPA
Lombardy Region.With a decree dated December 6, 2000, the LombardiaLombardy Region decided that natural gas used for electricity generation is subject to an additional regional excise tax in relation to which Snam SpA (merged into Eni SpA in 2002) should substitute for the tax authorities in its collection from customers. Given interpretive uncertainties, the same decree provides the terms within which distributing companies are expected to pay this excise tax without paying any penalty. Snam SpA and the other distributing companies of Eni believe that natural gas used for electricity generation is not subject to this additional excise tax. For this reason, an official interpretation was requested from the Ministry of Finance and Economy. With a decisionDecision of May 29, 2001, the Ministry confirmed that this additional excise tax cannot be applied. The Region decided not to revoke its decree and Snam took appropriate legal action. On the basis of action carried out by Snam, the Council of State decided on March 18, 2002 that the jurisdiction of the Administrative courtCourt did not apply to this case. In case the Region should request payment, Eni will challenge this request in the relevant Court. The LombardiaLombardy Region decided with regionalRegional Law No. 27/2001 that no additional tax is due from January 1, 2002 onwards, but still requested the payment of the additional taxes due before that date.
With a formal assessment presented by the municipality of Pineto (Teramo) Eni SpA has been accused of not having paid a municipal tax on real estate The action for the period from 1993 to 1998 on four oil platforms located inrecognition of such taxes bears a five-year term. Consequently, the Adriatic Sea territorial waters in frontexercise of the coast of Pineto. Enisuch action has been requested to pay a total of approximately euro 17 million also including interest and a fine for lacking declaration. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the application of the tax at requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. But the Court of Cassation cancelled both judgments declaring that a municipality can consider requesting a tax on real estate also in the sea facing its territory and with a decision of February 21, 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the other reason opposed by Eni. On December 28, 2005 the municipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested to Eni is of euro 24 million. Eni filed a claim against this request.expired.
AGIP KARACHAGANAK BVIn July 2004 relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of the tax audits performed for fiscal years 2000 to 2003. Claims by the Kazakh authorities concern unpaid taxes for a total of $43 million, net to Eni, and the anticipated offsetting of VAT credits for $140 million, net to Eni, as well as the payment of interest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the original amounts were reduced to $26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding residual matters. Eni recorded a specific provision for this matter.
SNAM RETE GAS SPA
Environmental tax of Sicilia Region upon the owners of primary pipelines.With Regional Law No. 2 of March 26, 2002, the Sicilia Region introduced an environmental tax upon the owners of primary pipelines in Sicily (i.e.(e.g. pipelines operating at a maximum pressure of over 24 bar). The tax was payable as of April 2002. In order to protect its interests, Snam Rete Gas filedpaid eight installments for a claim with the European Commission, aimed at opening a proceeding against the Italian Governmenttotal of euro 86.1 million and the Tax Commission of Palermo. The Authority for Electricity and Gas, although acknowledging that the tax burden is an operating cost for the transport activity, subjected inclusion of the environment taxsuspended payments in tariffs to the final ruling on its legitimacy by relevant authorities. With the ruling of December 20, 2002, the Court judged the tax at variance with European rules. In December 2002 Snam Rete Gas suspended payments based on the above Court ruling. Payments effected until November 2002 totaled euro 86.1 million. In January 2003 the Sicilia Region presented an appeal to the Council of State against the rulinga decision of the Regional Administrative Court of Lombardia forLombardy. At the part that statessame time, Snam Rete Gas promoted all actions required to protect its interests with Italian and European Authorities. On June 21, 2007, the varianceEuropean Court of Justice declared the regional law with European rules. On December 16, 2003, the European Commission judged the tax instituted by the Republic of Italy, through the Sicilia Region, to be in contrast withcontrary to European rules and withto the cooperation agreement between the European Economic Community and the Peoples’ Democratic Republic of Algeria; the European Commission also stated that such environmental tax is in contrast with the common customs tariff because it modifies the equality of customs expenses on commoditiesAlgeria, under which certain products (including natural gas) imported from third countries andthis country could create a deviation in tradenot be subjected to customs or other duties. Following this ruling, the Sicilia Region cancelled the law introducing the tax with such countries and a distortion in access and competition rules. The Commission with its opinion presented on July 7, 2004 formally requested Italy to cancel the tax. The Italian Government must conform within two months from the receptionRegional Law No. 15 of the opinion. As it did not conform, on December 20, 2004 the European Commission passed the case to the Court of Justice requesting a ruling.August 21, 2007. With a decision dated January 5, 2004, and confirmed on March 4, 2005 byvarious the Regional Tax Commission and the Provincial Tax Commission of Palermo declared the environmental tax of the Sicilia Region illegitimate because it is in contrast withcontrary to European rules and therefore accepted Snam Rete Gas’s claim for the repayment of the first installment of euro 10.8 million, already paid in April 2002 to the Sicilia Region. On May 4, 2004, the Sicilia Region repaid the first installment. As for the seven remaining installments paid after April 2002 (euro 75.3 million) the Provincial Tax Commission of Palermo with decision of January 5, 2005 confirmed the illegitimacy of the tax condemningcondemned the Region to repay the amounts paid and interestcashed amounts. In its budget law for 2008, the Region accrued tothe necessary provisions for repaying Snam Rete Gas. The SiciliaOn February 17, 2007 the Region presented recourse to the Regional Tax Commission at Palermo, a hearing has been scheduled for April 5, 2006. On November 3, 2003, the Sicilia Region, following the procedure presented byand Snam Rete Gas concerningsigned an agreement that provides for the yearly liquidationrepayment in six annual installments starting from the first quarter of the tax for 2002, requested liquidation of tax, fines and interest (euro 14.2 million) relating to the unpaid December 2002 installment.2008. On December 30, 2003March 1, 2008 Snam Rete Gas filed a claim with request of suspension of payment as a result of the liquidation notice received from the Sicilia Region with the Provincial Tax Commission of Palermo, that, on June 25, 2004 accepted Snam Rete Gas’s claim and decided the cancellation of the liquidation notice served by the Sicilia Region, confirmed by the Regional Tax Commission on March 7, 2005. In any case Snam Rete Gas will not have to pay the tax: if the tax is considered illegitimate in other Courts of law, the company will have the right to the restitution of the money. If, to the contrary, the tax is considered legitimate by the other Courts, the Authority for Electricity and Gas will include the tax (Decision No. 146/2002 and No. 71/2003) in tariff with automatic and retroactive effects.
Other judicial or arbitration proceedings
SYNDIAL SPA (FORMER ENICHEM SPA) - SERFACTORING SPAIn 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA which is controlled by Eni SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment at the due date. Following payment by Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidator of Agrifactoring commenced proceedings in 1991 against Serfactoring to recover such payments (equal to euro 182 million) made to Serfactoring based on the claim that the foregoing guarantee became invalid when Federconsorzi was itself placed in liquidation. Agricoltura and Terni Industrie Chimiche brought counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent. The amount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004: the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be determined following the decision. Agrifactoring appealed against this partial decision, requesting in particular the annulment of the first step judgement, the reimbursement of the euro 180 million amount from Serfactoring along with the rejection of all its claims and the payment of all expense of the proceeding. The appeal pending was set to be discussed in a hearing set for March 16, 2007 but was rescheduled for October 27, 2006 upon request of Agrifactoring. The judge of the Court of Rome, responsible for the determination of the amount of damages to be paid to Serfactoring and Agricoltura decided on May 18, 2005 to suspend this determination until the publication of the decision of the Court of Appeals, in accordance with Article 295 of the Code of civil procedure. Against this suspension Serfactoring and Syndial requested to the Court of Cassation the cancellation of the suspension and the return of the case to its original court.payment.
SYNDIAL SPA (FORMER ENICHEM SPA)In 2002, EniChem SpA was summoned by ICR Intermedi Chimici di Ravenna Srl before the Court of Milan in relation to a breach of a preliminary agreement for the purchase of an industrial area in Ravenna. ICR requested payment of compensatory damages for approximately euro 46 million, of which euro 3 million are compensatory damages and euro 43 million are for loss of profits. During 2004 the preliminary inquiry was completed. With a judgment of October 11, 2005 the Court rejected ICR’s request and order that ICR pay all expenses. ICR filed a claim against this decision.F-71
Antitrust, EU Proceedings, actions of the Authority for Electricity and Gas and of other regulatory Authorities
ENI SPAIn March 1999, the Antitrust Authority concluded its investigation started in 1997 and: (i) verified that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation
(i) | Inquiry of the Italian Antitrust Authority on jet fuel. With a Decision of December 9, 2004, the Italian Antitrust Authority commenced an inquiry on the distribution of jet fuel against six oil companies operating in Italy, including Eni and certain entities jointly controlled by said oil companies engaged in the storing and loading jet fuel in the Rome Fiumicino, Milan Linate and Milan Malpensa airports. The inquiry intends to ascertain the existence of alleged restrictions to competition as said oil companies would agree to divide among themselves the supplies to airlines. On December 22, 2005, the Authority notified the preliminary results of the inquiry concerning: (i) information flows to said oil companies related to the functioning of the jointly-controlled entities engaging in the storage and uploading of jet fuel; (ii) barriers to the entrance of new competitors in the capital of such entities operating the activities of storing and loading; and (iii) the price of jet fuel which is deemed to be higher than on other European markets. On June 20, 2006, the Authority notified the final decision of this proceeding to Eni and fined Eni by an amount of euro 117 million. The Authority fined other oil companies involved in this matter. Eni filed an opposition against this decision before an administrative court and suspended the payment of this fine. On January 29, 2007, the Regional Administrative Court of Lazio accepted only partially the opposition made by Eni and annulled part of the decision of the Authority. In particular, a measure providing for the involved oil companies to cease their joint participation in the capital of the entities operating the activities of storing and loading jet fuel was annulled. Eni accrued a provision with respect to this proceeding. As a consequence of this decision, Eni paid a fine amounting to euro 117 million. Eni also decided to appoint independent directors in the boards of those joint ventures, replacing Eni managers acting as board members. Eni filed an appeal against this decision before an higher administrative court requesting for its rejection or a reduction of the fine. | |
(ii) | Inquiry commenced by the Italian Antitrust Authority concerning an alleged abuse of dominant position in the use of the total continuous regasification capacity of GNL. On November 18, 2005, the Italian Antitrust Authority notified Eni and its subsidiary GNL Italia of the opening of an inquiry, in accordance with Article 14 of Law No. 287/1990, concerning an alleged abuse of dominant position in the assignment and use of the total continuous regasification capacity of the Panigaglia terminal (owned by GNL Italia) during thermal years 2002-2003 and 2003-2004, as already reported by an inquiry of the Italian Authority for Electricity and Gas on the same matter. The Authority for Electricity and Gas concluded its inquiry by signaling the fact to the Antitrust Authority. In a later communication Eni was informed that the inquiry has been extended also to thermal year 2004-2005 and to Snam Rete Gas which is the parent company of GNL Italia SpA. On September 25, 2006, the Antitrust Authority sent Eni the findings of its inquiry. Eni then presented the Antitrust Authority certain commitments based on Article 14-ter of Law No. 287/1990. On November 23, 2006, the Antitrust Authority resolved to publish such commitments effective the following day. On March 9, 2007, the Antitrust Authority resolved to accept Eni’s commitments and to close the inquiry without charging or fining Eni. Eni is committed to perform a gas release amounting to 4 BCM in a two-year period, starting on October 1, 2007. Eni is implementing its obligations under the gas release agreement and providing timely information to the Antitrust Authority on this activity. | |
(iii) | Alleged intentional poisoning (Priolo). In March 2002, the public prosecutor of Siracusa commenced an investigation concerning the activity of the refinery of Priolo to ascertain whether infiltrations of refinery products into the deep water-bearing stratum used for human consumption purposes in the Priolo area had occurred. In September 2007, the judge for the preliminary investigation filed a request to dismiss this proceeding. |
Other risks and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam euro 2 million; and (iii) ordered a review of these practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Antitrust Authority did not appeal this decision. The decision on this dispute is still pending.
With a decision of December 9, 2004, the Italian Antitrust Authority started an inquiry on the distribution of jet fuel against six Italian companies, including Eni and some of its subsidiaries, that store and load jet fuel in the Rome Fiumicino, Milan Linate and Milan Malpensa airports. The inquiry intends to ascertain the existence of alleged limitations to competition as oil companies would agree to divide among themselves the supplies to airlines. On December 22, 2005, the Authority notified the preliminary results of the inquiry concerning: (i) information flows to oil companies related to the functioning of shared storage and uploading companies; (ii) barriers to the entrance of new competitors; and (iii) the price of jet fuel is higher than on other European markets. On June 20, 2006, the Antitrust notified Eni the final decision of this proceeding and fined Eni by an amount of euro 117 million. The Antitrust fined other oil companies involved in the matter. Eni is evaluating this decision in order to file a claim against it decision before an administrative court.
On April 28, 2005 the Commission of the European Communities started a formal assessment to evaluate the alleged participation of Eni and its subsidiaries to activities limiting competition in the field of paraffin. The alleged violation of competition would have consisted in: (i) the determination of and increase in prices; (ii) the subdivision of customers; (iii) exchange of trade secrets, such as production capacity and sales volumes. On November 3, the Commission requested information on Eni’s activities in the field of paraffins. On November 29, 2005 Eni filed the requested information. On April 21, 2006 the Antitrust Authority requested information on the processing of raw paraffin, which Eni supplied in a letter dated May 25, 2006.
The Department of Justice of the United States of America - Antitrust Division, notified Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005. The Company informed the department that it does not produce nor import wax in the United States of America.
POLIMERI EUROPA SPA AND SYNDIAL SPAcommitmentsIn December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the area of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. The first product under scrutiny was EP(D)M: the European Commission submitted to inspection the manufacturing companies of that product, among which Polimeri Europa SpA and Syndial and requested information from those two companies and to their controlling company, Eni SpA. After the inquiries the Commission decided to open a procedure for violation of competition laws and notified Eni, Polimeri Europa and Syndial the relevant charges to that effect on March 8, 2005. At a hearing held on July 27, 2005 the two companies presented memoranda and confirmed their position. The parties await for a decision of the Commission.
EP(D)M manufacture is also under scrutiny in the United States, where the Department of Justice of San Francisco requested information and documents to Polimeri Europa Americas Inc, a U.S. subsidiary of Polimeri Europa and to its deputy chairman and sales manager. Class actions were filed claiming damages in relation to the alleged violation. In July 2005 Syndial signed a settlement agreement for the civil class action which entails the payment of approximately dollar 3.2 million, approved by the federal court.
The investigation was also extended to the following products: NBR, CR, BR, SSBR and SBR.
The European Commission started an investigation regarding BR, SBR, SSBR. On January 26, 2005 the Commission dropped the charges in relation to SSBR, while for the other two products the Commission started an infraction procedure by notifying Eni, Polimeri Europa and Syndial the relevant charges. The companies presented a written memorandum and the Commission decided to open an inquiry, as a consequence of which the Commission sent a new description of the charges. The companies are preparing a new memorandum.
With regard to NBR an inquiry is underway in Europe and the USA, where class actions also have been started. The class action at federal level was abandoned by the plaintiffs. The federal judge acknowledged this abandonment.
With regard to CR, as part of an investigation carried out in the USA, Syndial entered into a plea agreement with the Department of Justice pursuant to which Syndial would agree to pay a fine of U.S. dollar 9 million, while the Department of Justice would agree that it will not bring further criminal charges against Syndial or against its affiliate companies. On June 27, 2005 the plea agreement was approved. For CR the civil class action was closed with a settlement agreement approved by the federal judge on July 8, 2005 whereby the company will pay dollar 5 million. The European Commission requested Eni, Polimeri Europa and Syndial to provide information about CR. The two companies decided to cooperate with the Commission.
Eni recorded a provision for these matters.
STOCCAGGI GAS ITALIA SPAWith Decision No. 26 of February 27, 2002, the Authority for Electricity and Gas determined tariff criteria for modulation, mineral and strategic storage services for the period starting on April 1, 2002 until March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stoccaggi Gas Italia SpA (Stogit) filed its proposal of tariff for modulation, mineral and strategic storage for the first regulated period. With Decision No. 49 of March 26, 2002, the Authority for Electricity and Gas repealed Stogit’s proposal and defined tariffs for the first regulated period. Stogit applied the tariff determined by the two decisions, but filed an appeal against both decisions with the Regional Administrative Court of Lombardia requesting their cancellation. With a decision dated September 29, 2003, that Court rejected the appeal presented by Stogit. Stogit filed an appeal to the Council of State against the sentence which was rejected by the Council of State on January 6, 2006.
DISTRIBUIDORA DE GAS CUYANA SAThe agency entrusted with the regulations for the natural gas market in Argentina ("Enargas") started a formal investigation on some operators, among these Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company has applied improperly calculated conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. On April 27, 2004, Distribuidora de Gas Cuyana presented a defense memorandum to Enargas, without prejudice to any possible appeal. On April 28, 2006, the Company filed a formal request for examining the documents used as evidence of the alleged violation.
Settled Legal Proceedings
In August 2005, the internal revenue service of Venezuela served to Eni Dación BV four formal assessment on income taxes for the years 2001 to 2004 that, by excluding the deductibility of certain costs: (i) annul the losses recorded for the periods amounting to a total of bolivar 910 billion (corresponding to $425 million); (ii) determine for the same periods a taxable income amounting to a total of bolivar 115 billion (corresponding to $54 million); and (iii) request a tax amounting to bolivar 52 billion (corresponding to $24 million) determined by applying a 50% tax rate rather than the 34% rate applied to other companies performing activities analogous to those of Eni Dación BV. In particular it excluded the deductibility of: (i) interest charges due to other Eni Group companies that provided loans denominated in U.S. dollars; and (ii) exchange rate losses recorded in the Financial Statements and related to such loans resulting from the devaluation of the Venezuelan currency. The formal assessments served have a preliminary nature and do not request immediate payment nor do they specify the amount of a fine (from 10 to 250%) and of interest (average rate for the period approximately 23%). Eni Dación filed a claim for the cancellation of the assessment. In the 2005 accounts, Eni recorded a specific provision for this matter. In April 2006 the appeal was rejected and the final tax assessment was issued. The final tax assessment: (i) substantially confirmed the preliminary assessments, although reducing the originally assessed income tax liability to bolivar 39 billion ($18 million); and (ii) imposed fines and late payment interests of bolivar 109 billion ($51 million). Eni Dación BV presented a further administrative appeal before the expiration of the time limit for filing a judicial tax appeal, thereby obtaining a reduction of the overall amount from bolivar 148 billion ($69 million) to bolivar 52 billion ($24 million) including taxes in the amount of bolivar 12.5 billion ($6 million) and fines and late payment interest in the amount of bolivar 39.5 billion ($18 million). In order to avoid further charges deriving from the increase of the corresponding fines and late payment interest, Eni Dación BV paid the newly assessed amount in May 2006, thereby reaching a settlement. Consistently, Eni Dación BV filed an integrative income tax return for year 2005, considering the new tax bases for years 2001 to 2004, and paid accordingly bolivar 128 billion ($60 million) of income taxes and bolivar 4.4 billion ($2 million) of fines and late payment interest.
During 2003, the Customs District of Taranto sent 147 formal assessments and amendments to bills of entry for finished products and goods and semi finished products produced by Eni’s Taranto refinery in 2000, 2001 and 2002 to Eni SpA, as the successor entity of AgipPetroli SpA following its merger into Eni. The notification regards about euro 24 million of customs duties not paid by the company because the imported products were not yet finished goods, but were destined to processing, for which ordinary customs tariffs allow exemption. The formal assessment did not contain the determination of any administrative penalties provided for by customs rules. The penalty can be from one to ten times the amount of taxes not paid. The notification was based on the fact that the company did not have the administrative authorization to utilize the customs exemption. The company, believing it acted properly pursuant to Circular 20/D/2003, started a proceeding for an administrative resolution, according to the customs rules. The company asked the Regional Director of Customs of Puglia for the annulment of the received assessments as a measure of self-protection. With a decision of November 26, 2004 the Regional Director accepted Eni’s appeal and ended the litigation by canceling the 147 formal assessments. On March 12, 2004 the Comando Nucleo Regionale Polizia Tributaria Puglia notified a verbal action of observation to the company. In this action there is an alleged offense of smuggling and falsification of accounts for the same imports, already subjected to the previous assessments of the Customs District of Taranto and other occurrences between January 1999 and February 2003. The verbal action made by a Fiscal Officer, sent to the Public Prosecutor in the Court of Taranto, reclaims the omitted payment of customs for about euro 26 million. The notification was based on the same lack of administrative authorization, already contested by the Customs District of Taranto, that was concluded in favor of Eni by the Regional Director. On January 26, 2006 the judge for preliminary investigation of the Court of Taranto dismissed the accusations and closed the assessment.
In 1997, Grifil SpA summoned AgipPetroli SpA (merged into Eni SpA in 2002) before the Court of La Spezia. Grifil requested payment for the remediation of a polluted land parcel part of the La Spezia refinery (which was closed in 1985), sold to it in 1996 by Italiana Petroli SpA later merged into AgipPetroli SpA. The claims for these damages amount to euro 103 million. At the end of 2002 Grifil and AgipPetroli reached an agreement under the terms of which AgipPetroli had to pay half of the clean-up costs, the total amount of which was set by an independent appraisal at euro 19 million, with AgipPetroli’s share corresponding to a maximum of euro 9.5 million, Grifil in turn had the obligation to remediate the polluted soil and to renounce any claims against Eni. Grifil did not fulfill its obligations to remediate the polluted soil; however, maintaining the possibility of precautionary requests and claims against Grifil, Eni decided to remediate the polluted soil with the assistance of a company interested in developing the parcel of land that agreed to pay 13% of the remediation costs. The first action promoted by Grifil before the Court of La Spezia remained pending. On January 7, 2004 the Municipality of La Spezia put Eni in possession of the area and from that date Eni started remediation works paying the relevant costs on its own. Eni requested the conservative seizure of Grifil’s land parcel, up to a maximum value of euro 19 million. With two administrative measures, on December 2, 2003 and January 13, 2004 respectively, the Court of Genova declared the right of Eni legitimate, based on the sale contract stipulated between Italiana Petroli and Grifil, to claim the payment of all clean-up expenses that Eni will incur as Grifil did not fulfill its obligation. The judge closed the inquiry phase and stated that the judgment can be brought to an end. As for the value attributable to the conservative seizure of Grifil’s land parcel (up to a value of euro 19 million), the Court requested Eni to file the contracts for the remediation work with the court, in which the amounts paid are recognized. The contract with an international company specializing in remediation was signed on April 15, 2004 and immediately presented to the Court. In order to preserve Grifil’s asset as a way to recover its credit versus Grifil, Eni, which is paying for the remediation works, also filed an ordinary revocation of title, so that, while waiting for the Court’s ruling, Grifil will not be able to sell the land parcel to third parties. On September 6, 2005 Eni and Immobiliare Helios SpA (that acquired all of Grifil’s share capital) reached a settlement that: (i) concluded all disputes outstanding with Grifil and constitutes a waiver to any possible future claim directly or indirectly related to the sale of the land parcel; (ii) passed to the acquirer all residual expense to be incurred for the reclamation of the land parcel with the explicit approval of the municipality of La Spezia; (iii) provided for Eni to pay to the new owner of Grifil a lump sum of euro 15.1 million that will be paid when the new owner provides confirmation of works performed for the reclamation; the sum is covered by provisions in the risk reserve.
In 1997, an action was commenced before the Court of Venice concerning the criminal charges brought by the Venice public prosecutor for alleged mismanagement of the Porto Marghera plant starting in the 1970s until 1995 and for the alleged pollution and health damage resulting therefrom. Defendants included certain employees of Eni which has been managing the Porto Marghera plant since the beginning of the eighties. On November 2, 2001, the Court of Venice acquitted all defendants. The appeal against the decision was presented by the public prosecutor, the State Attorney on behalf of the Ministry of Environment and the Council of Ministers, 5 public entities, 12 associations and other entities and 48 individual persons. On December 15, 2004 the Venice Court of Appeals confirmed the preceding judgment, changing only some marginal parts. As concerns some defendants, the Court of Appeals decided not to proceed due to the statute of limitations for some crimes, while it confirmed the preceding judgment for the other matters. On May 19, 2006, the Court of final instance, before which plaintiffs appealed the decision of the Court of Appeals, acquitted all defendants stating that pollution and mismanagement of the plant occurred before the eighties and consequently Eni and its employees could not be deemed responsible for that. In January 2006 Eni settled this matter with the Council of Ministers and the Ministry for the Environment paying an amount of euro 40 million. Under terms of the settlement, the latter will abstain from the recourse to the Court of final instance and will not act on any other environmental damage concerning the management of Porto Marghera until the date of the settlement. Eni had already recorded a provision for this matter which was sufficient to cover the amount of the settlement.
Other commitments and risks not included in the balance sheet
Commitments regarding long-term natural gas supply contracts stipulated by Eni, which contain take-or-pay clauses, are included in "Operating Review - Gas & Power" in the Report of the Directors in the Consolidated Financial Statement, which is considered an integral part of these Notes.
Parent company guarantees given relatingamounted to euro 11,110 million (euro 4,911 million at December 31, 2006) were issued in connection with certain contractual commitments for hydrocarbon exploration and production activities, quantified on the basis of the capital expenditures to be made, amountincurred. The increase of euro 6,199 million primarily related to commitments that Agip Caspian Sea BV in Kazakhstan had entered into for euro 5,052 million (euro 3,192 million at December 31, 2004).
With effective date April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the service contract governing activities at the Dación oil field where Eni acted as a contractor, holding a 100% working interest. As a consequence, starting on the same day, operations at the Dación oil field are conducted by PDVSA which replaced Eni Dación BV, Eni’s wholly-owned subsidiary that had been operating the field until that date.
Eni believes that it is entitled to a market value compensation for the expropriation of the Dación field. On these basis, Eni is available to reach an agreement with the Venezuelan authorities. In case an amicable settlement is not possible, Eni will take any other action in order to protect its interest in Venezuela. Based on internal and external independent evaluation, Eni is confident that a fair market compensation will not be lower than the book value of the Dación related assets. Accordingly, management decided not to impair the book value of Eni’s Dación assets. In 2005 and in the first quarter 2006, the Dación field production rate was about 60 KBBL/d. Management expects Eni’s proved reserves of hydrocarbons to be reduced by an amount of approximately 175 mmBBL corresponding to Eni’s net proved reserves of the Dación field as of December 31, 2005 as a consequence of the loss of Eni’s title to the field.5,605 million.
Under the convention signed on October 15, 20011991 by Treno Alta Velocità - TAV SpA and CEPAV (Consorzio Eni per l’Alta Velocità) Due, Eni committed to guarantee the execution of design and construction of the works assigned to the CEPAV Consortium (to which it is a party) and guaranteed to TAV the correct and timely execution of all obligations indicated in the convention in a subsequent integration deed and in any further addendum or change or integration to the same. The regulation of CEPAV Due contains the same obligations and guarantees contained in the CEPAV Uno agreement.Agreement.
F-72
A guarantee for euro 282 million to Cameron LNG provided on behalf ofcommitment entered into by Eni USA Gas Marketing Llc (Eni’s interest 100%)on behalf of Cameron LNG for thefulfilling certain obligations in connection with a regasification contract entered intosigned on August 1, 2005. This guaranteecommitment is subject to a suspension clause and will come ininto force when the regasification service starts in a period included between October 1, 2008 and June 30, 2009.2009 for an estimated total consideration of euro 226 million.
Non-quantifiableA commitment entered into by Eni USA Gas Marketing Llc on behalf of Gulf LNG Energy for the acquisition of unused regasification capacity (5.78 bcm/y) over a twenty-year period (2011-2031) for an estimated total consideration as high as $1,400 million equal to euro 951 million.
A commitment entered into by Eni USA Gas Marketing Llc on behalf of Angola LNG Supply Service for the acquisition of regasified gas at the Pascagoula plant in the United States that will come into force when the regasification service starts in a period included between 2011-2031.
Eni is liable for certain non-quantifiable risks related to contractual assurances given to acquirorsacquirers of certain of Eni’s assets, including businesses and investments, against certain unforeseeablecontingent liabilities attributable toderiving from tax, state welfaresocial security contributions, environmental issues and environmentalother matters applicable to periods during which such investmentsassets were ownedoperated by Eni. Eni believes such matters will not have a material adverse effect on its Consolidated Financial Statements.the Company’s results of operations and liquidity.
Environmental Regulations
Together with other companiesAssets under concession arrangements
Eni operates under concession arrangements mainly in the industriesExploration & Production segment and in some activities of the Gas & Power segment and the Refining & Marketing segment. In the Exploration & Production segment contractual clauses governing mineral concessions, licenses and exploration permits regulate the access of Eni to hydrocarbon reserves. Such clauses can differ in each country. In particular, mineral concessions, licenses and permits are granted by the legal owners and, generally, entered into with government entities, State oil companies and, in some legal contexts, private owners. As a compensation for mineral concessions, Eni pays royalties and taxes in accordance with local tax legislation. Eni sustains all the operation risks and costs related to the production and development activities and it is entitled to the productions realized. In Product Sharing Agreement and in buy-back contracts, realized productions are defined on the basis of contractual agreements drawn up with State oil companies which hold the concessions. Such contractual agreements regulate the recover of costs incurred for the exploration, development and operating activities (cost oil) and give entitlement to the own portion of the realized productions (profit oil). With reference to natural gas storage in Italy, the activity is conducted on the basis of concessions with a duration that does not exceed a twenty year duration and it operates, Eni is subjectgranted by the Ministry of Productive Activities to numerous EU, national, regionalpersons that are consistent with legislation requirements and that can demonstrate to be able to conduct a storage program that meets the public interest in accordance with the laws. In the Gas & Power segment the gas distribution activity is primarily conducted on the basis of concessions granted by local environmental lawspublic entities. At the expiry date of the concession, a compensation is paid, defined by using criteria of business appraisal, to the outgoing operator following the sale of its own gas distribution network. Service tariffs for distribution are defined on the basis of a method established by the Authority for Electricity and regulations concerning its oil and gas operations, productsGas. Legislative Decree No. 164/2000 provides the grant of distribution service exclusively by tender, with a maximum length of 12 years. In the Refining & Marketing segment several service stations and other auxiliary assets of the distribution service are located in the motorway areas and they are granted by the motorway concession operators following a public tender for the sub-concession of the supplying of oil products distribution service and other auxiliary services. Such assets are amortized over the length of the concession (generally, 5 years for Italy). In exchange of the granting of the services described above, Eni provides to the motorway companies fixed and variable royalties on the basis of quantities sold. At the end of the concession period, all non-removable assets are transferred to the grantor of the concession.
Environmental regulations
Risks associated with the footprint of Eni’s activities including legislation that implements international conventions or protocols. In particular, these laws and regulations require the acquisition of a permit before drilling for hydrocarbons may commence, restrict the types, quantities and concentration of various substances that can be released intoon the environment, health and safety are described in connection with exploration, drilling and production activities, limit or prohibit drilling activities on certain protected areas, and impose criminal or civil liabilities for pollution resulting from oil, natural gas, refining and petrochemical operations. These laws and regulations may also restrict emissions and discharges to surface and subsurface water resulting from the operation of natural gas processing plants, petrochemicals plants, refineries, pipeline systems and other facilities that Eni owns. In addition, Eni’s operations are subject to laws and regulations relating torisk section above, under the generation, handling, transportation, storage, disposal and treatment of waste materials. Environmental laws and regulations have a substantial impact on Eni’s operations. Someparagraph “Operational risks”. Regarding the environmental risk, of environmental costs and liabilities is inherent in particular operations and products of Eni, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs and liabilities will not be incurred. Although management considering the actions already taken with the insurance policies to cover environmental risks and the provision for risks accrued, does not currently expect any material adverse effect upon Eni’s Consolidated Financial Statements as a resultconsolidated financial statements, taking account of its complianceongoing remedial actions, existing insurance policies to cover environmental risks and the environmental risk provision accrued in the consolidated financial statements. However, management believes that it is possible that Eni may incur material losses and liabilities in future years in connection with such laws and regulations, there can be no assurance that there will not be a material adverse impact on Eni’s Consolidated Financial Statementsenvironmental matters due to: (i) the possibility of as yet unknown contamination; (ii) the results of the on-goingongoing surveys and the other possible effects of statements required by Decree No. 471/1999 of the Ministry of Environment; (iii) the possible effect of futurenew developments in environmental legislation and rules, such as: (a) the decree of the Ministry of Environment No. 367 published on January 8, 2004, that regards the fixing of new quality standards for aquatic environment and dangerous substances and Legislative Decree No. 59/2005 concerning the integrated environmental authorization (IPPC), (b) the application of European directive 2004/35/EC concerning environmental responsibility for prevention and reclamation of environmental damage, referred to in paragraph 439 of the single article of Law No. 266/2005 (budget law for 2006), (c) a legislative decree to be issued in implementation of Law No. 308 of December 15, 2004 that delegated to the Government the restructuring of regulations concerning waste disposal and reclamation of polluted areas, protection of waters from pollution and management of water resources, payment of environmental damage, procedures for the evaluation of environmental impact and for the strategic environmental impact as well as protection from emission into the atmosphere within 18 months. The draft law approved by the Council of Ministers on February 10, 2006 is currently being examined by the President of the Republic. The also implements European directive 2000/60/EC that established a European action framework for the protection of waters;regulation; (iv) the effect of possible technological changes relating to future remediation; and (v) the
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possibility of litigation and the difficulty of determining Eni’s liability, if any, as against other potentially responsible parties with respect to such litigation and the possible insurance recoveries.
Emission trading
Law No. 316 of December 30, 2004 converted Law
Legislative Decree No. 237/2004 implementing European directive216 of April 4, 2006 implemented the Emission Trading Directive 2003/87/EC which established a systemconcerning greenhouse gas emissions and Directive 2004/101/EC concerning the use of carbon credits deriving from projects for emission trading. From January 1, 2005 thisthe reduction of emissions based on the flexible mechanisms devised by the Kyoto Protocol. This European emission trading scheme has been in force since January 1, 2005, and on this matter, on February 24, 2006, the Ministry of the Environment published a decree defining emission permits for the 2005-2007 period. In particular, Eni was assigned permits corresponding to 65.265.6 million tonnes of carbon dioxide (of which 22.4 for 2005, 21.422.4 for 2006 and 21.420.8 for 2007). In 2005 in addition to approximately 11.7 million of permits assigned with respect to new plants in the three-year period 2005-2007. Following the realization of projects for the reduction of emissions, in particular related to the cogeneration of electricity and steam through high efficiency combined cycles in refineries and petrochemical sites, emissions of carbon dioxide from Eni’s plants were lower than permits assigned.
assigned in 2007. In 2007 emissions of carbon dioxide amounted to approximately 24 millions of tonnes.
Subsequent events
The main significant events that occurred after the balance sheet date are as follows:
25
29 Revenues
The following is a summary of the main components of "Revenues". MoreFor more information about changes in revenues, is included in the "Financial review" of the "Report of the Directors"see “Item 5 – Operating and Financial Review and Prospects”.
Net sales from operations were as follows:
(million euro) | 2004 | 2005 | ||
Net sales from operations | 57,413 | 73,679 | ||||
Change in contract work in progress | 132 | 49 | ||||
57,545 | 73,728 |
(million euro) | 2005 | 2006 | 2007 | |||
Net sales from operations | 73,679 | 85,957 | 87,103 | ||||||
Change in contract work in progress | 49 | 148 | 153 | ||||||
73,728 | 86,105 | 87,256 |
Net sales from operations were net of the following items:
(million euro) | 2004 | 2005 | ||
Excise tax | 14,060 | 14,140 | ||||
Exchanges of oil sales (excluding excise tax) | 1,735 | 2,487 | ||||
Exchanges of other products | 86 | 108 | ||||
Services billed to joint venture partners | 1,175 | 1,331 | ||||
Sales to service station managers for sales billed to holders of credit card | 1,122 | 1,326 | ||||
18,178 | 19,392 |
(million euro) | 2005 | 2006 | 2007 | |||
Excise taxes | 14,140 | 13,762 | 13,292 | ||||||
Exchanges of oil sales (excluding excise taxes) | 2,487 | 2,750 | 2,728 | ||||||
Services billed to joint venture partners | 1,331 | 1,385 | 1,554 | ||||||
Sales to service station managers for sales billed to holders of credit card | 1,326 | 1,453 | 1,480 | ||||||
Exchanges of other products | 108 | 127 | 121 | ||||||
19,392 | 19,477 | 19,175 |
Net sales from operations by industrybusiness segment and geographic area of destination are presented in Note 31.35 - Information by business segment and geographic financial information.
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Other income and revenues
Other income and revenues were as follows:
(million euro) | 2005 | 2006 | 2007 | |||
Contract penalties and other trade revenues | 114 | 61 | 181 | ||||||
Lease and rental income | 102 | 98 | 95 | ||||||
Compensation for damages | 89 | 40 | 87 | ||||||
Gains from sale of assets | 71 | 100 | 66 | ||||||
Other proceeds (*) | 422 | 484 | 398 | ||||||
798 | 783 | 827 |
(million euro) | 2004 | 2005 | ||
Contract penalties and other trade revenues | 43 | 114 | ||||
Lease and rental income | 93 | 102 | ||||
Compensation for damages | 87 | 89 | ||||
Gains from sale of assets | 407 | 71 | ||||
Other proceeds (*) | 747 | 422 | ||||
1,377 | 798 |
(*) | Each individual amount included herein does not exceed euro 25 million. |
Other income of 2004 included differentials on commodity derivatives for euro 61 million.
26
30 Operating expenses
The following is a summary of the main components of "Operating expenses". MoreFor more information about changes in operating expenses, is included in the "Financial review" of the "Report of the Directors"see “Item 5 – Operating and Financial Review and Prospects”.
Purchases, services and other
Purchases, services and other included the following:
(million euro) | 2004 | 2005 | ||
Production costs-raw, ancillary and consumable materials and goods | 27,010 | 35,318 | ||||
Production costs-services | 9,148 | 9,405 | ||||
Operating leases and other | 1,609 | 1,929 | ||||
Net provisions for contingencies | 553 | 1,643 | ||||
Other expenses | 1,066 | 1,100 | ||||
39,386 | 49,395 |
less: | ||||||
- capitalized direct costs associated with self-constructed assets | (1,039 | ) | (828 | ) | ||
38,347 | 48,567 |
(million euro) | 2005 | 2006 | 2007 | |||
Production costs - raw, ancillary and consumable materials and goods | 35,318 | 44,661 | 44,884 | ||||||
Production costs - services | 9,405 | 10,015 | 10,828 | ||||||
Operating leases and other | 1,929 | 1,903 | 2,276 | ||||||
Net provisions for contingencies | 1,643 | 767 | 591 | ||||||
Other expenses | 1,100 | 1,089 | 1,095 | ||||||
49,395 | 58,435 | 59,674 | |||||||
less: | |||||||||
- capitalized direct costs associated with self-constructed assets - tangible assets | (704 | ) | (809 | ) | (1,357 | ) | |||
- capitalized direct costs associated with self-constructed assets - intangible assets | (124 | ) | (136 | ) | (138 | ) | |||
48,567 | 57,490 | 58,179 |
Production costs-servicescosts - services include brokerage include fees for euro 37 million (euro 24 million (euro 26and euro 39 million at December 31, 2004)in 2005 and 2006, respectively).
Costs forincurred in connection with research and development thatactivity recognized in profit and loss amounted to euro 189 million (euro 202 million and euro 219 million in 2005 and 2006, respectively) as they do not meet the requirements to be capitalized amount tocapitalized.
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The item "Operating leases and other" included operating leases for euro 2021,081 million (euro 210777 million and euro 860 million in 2004).
Operating leases2005 and other include2006, respectively) and royalties on hydrocarbons extracted for euro 772 million (euro 965 million (euro 741and euro 823 million in 2004)2005 and 2006, respectively). Future minimum lease payments expected to be paid under non-cancelable operating leases were as follows:
(million euro) | 2005 | 2006 | 2007 | |||
To be paid within 1 year | 363 | 594 | 588 | ||||||
Between 2 and 5 years | 799 | 1,474 | 1,401 | ||||||
Beyond 5 years | 418 | 762 | 942 | ||||||
1,580 | 2,830 | 2,931 |
Operating leases primarily concerned time charter and long-term rentals of vessels, lands, service stations and office buildings. Such leases did not include renewal options. There are no significant restrictions provided by these operating leases which limit the ability of Eni to pay dividends, use assets or to take on new borrowings.
ProvisionsIncrease of provisions for contingencies are net of deductions not correspondingreversal of unutilized provisions amounted to cash expenditureseuro 591 million (euro 1,643 million and concerneuro 767 million in particular provisions for2005 and 2006, respectively) and mainly regarded environmental risks for euro 327 million (euro 515 million (euro 145and euro 248 million in 2004)2005 and 2006, respectively), provisions for contract penalties and disputeslegal or administrative proceedings for euro 79 million (euro 336 million (euro 23and euro 149 million 2004)in 2005 and 2006, respectively), provisions for the revision of selling pricesand marketing initiatives awarding prizes to clients for euro 32159 million (euro 50 million and loss adjustments and actuarial provisions for euro 82 million (euro 1344 million in 2004)2005 and 2006, respectively). More information is included in Note 22 - Provisions for contingencies.
Payroll and related costs
Payroll and related costs were as follows:
(million euro) | 2004 | 2005 | ||
Wages and salaries | 2,402 | 2,484 | ||||
Social security contributions | 658 | 662 | ||||
Cost related to defined benefit plans | 118 | 126 | ||||
Other costs | 218 | 255 | ||||
3,396 | 3,527 | |||||
less: | ||||||
- capitalized direct costs associated with self-constructed assets | (151 | ) | (176 | ) | ||
3,245 | 3,351 |
(million euro) | 2005 | 2006 | 2007 | |||
Wages and salaries | 2,484 | 2,630 | 2,906 | ||||||
Social security contributions | 662 | 691 | 690 | ||||||
Cost related to defined benefits plans and defined contributions plans | 126 | 230 | 161 | ||||||
Other costs | 255 | 305 | 275 | ||||||
3,527 | 3,856 | 4,032 | |||||||
less: | |||||||||
- capitalized direct costs associated with self-constructed assets - tangible assets | (143 | ) | (161 | ) | (184 | ) | |||
- capitalized direct costs associated with self-constructed assets - intangible assets | (33 | ) | (45 | ) | (48 | ) | |||
3,351 | 3,650 | 3,800 |
CostProvisions for post-retirement benefits of euro 161 million included a gain deriving from the curtailment of the provisions accrued by Italian companies for employee termination indemnities ("TFR") following the changes introduced by the Italian Budget Law for 2007 and related to defined benefit plansdecrees (euro 83 million). More information is presentedincluded in Note 20.23 - Provisions for employee benefits.
Stock
Average number of employees
The average number and break-down of employees by category of Eni’s subsidiaries were as follows:
(number) | 2005 | 2006 | 2007 | |||
Senior managers | 1,754 | 1,676 | 1,594 | ||||||
Junior managers | 10,747 | 11,142 | 11,816 | ||||||
Employees | 34,457 | 34,671 | 35,725 | ||||||
Workers | 24,345 | 25,426 | 25,582 | ||||||
71,303 | 72,915 | 74,717 |
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The average number of employees was calculated as the average between the number of employees at the beginning and end of the period. The average number of senior managers included managers employed and operating in foreign countries, whose position is comparable to a senior manager status.
Stock-based compensation
Stock grant
With the aim of improving
Stock-based compensation schemes are designed to improve motivation and loyalty of the managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code1412 through the, by linking of compensation to the attainment of preset individual and corporate objectives, making management participate in corporate risk and motivating them towards the creation of shareholder value and increasing at the same time their contribution to the management of the Company, Eni offers its ownvalue.
Stock grants
Stock grants schemes provide for granting treasury shares purchased along its buy-back program (treasury shares) for no consideration to those managers of Eni who have achieved corporate and individual objectives. AssignmentsThe Company used this scheme for the 2003, 2004 and 2005 years. Grants vest within 45 days after the end of the third year from the date of the offer.engagement.
At December 31, 2005, 3,127,2002007, 902,800 grants were outstanding for assigning an equal number of ordinarytreasury shares with a nominal value of euro 1 were outstanding and concernedper share. These grants regarded the 2003 stock grant plan for a total of 1,018,4002,500 shares with a fair value of euro 11.20 per share, the 2004 stock grant plan for a total of 912,4001,700 shares with a fair value of euro 14.57 per share and the 2005 stock grant plan for a total of 1,196,400898,600 shares with a fair value of euro 20.08 per share.
Changes in the 2003, 20042005, 2006 and 20052007 stock grant plans consisted of the following (regarding stock grants, no exercise prices are provided for):following:
2003 | 2004 | 2005 | ||||
2005 | 2006 | 2007 | ||||
Number of shares | Number of shares | Market price (a)(euro) | Number of shares | Market price (a)(euro) |
|
| ||||||||||
Stock grants as of January 1 | 3,551,900 | 15.150 | 3,635,050 | 15.101 | 3,112,200 | 18.461 | 3,112,200 | 18.461 | 3,127,200 | 23.460 | 1,873,600 | 25.520 | ||||||||||||||||||||||||
New rights granted | 1,206,000 | 13.764 | 1,035,600 | 17.035 | 1,303,400 | 21.336 | 1,303,400 | 21.336 | ||||||||||||||||||||||||||||
Rights exercised in the period | (1,122,150 | ) | 13.751 | (1,552,9100 | ) | 16.766 | (1,273,500 | ) | 23.097 | (1,273,500 | ) | 23.097 | (1,236,400 | ) | 23.933 | (966,000 | ) | 24.652 | ||||||||||||||||||
Rights cancelled in the period | (700 | ) | 13.604 | (6,350 | ) | 16.618 | (14,900 | ) | 22.390 | (14,900 | ) | 22.390 | (17,200 | ) | 23.338 | (4,800 | ) | 26.972 | ||||||||||||||||||
Stock grants outstanding as of December 31, | 3,635,050 | 15.101 | 3,112,200 | 18.461 | 3,127,200 | 23.460 | ||||||||||||||||||||||||||||||
of which exercisable at December 31, | - | - | - | - | 38,700 | 23.460 | ||||||||||||||||||||||||||||||
Stock grants outstanding as of December 31 | 3,127,200 | 23.460 | 1,873,600 | 25.520 | 902,800 | 25.120 | ||||||||||||||||||||||||||||||
of which exercisable at December 31 | 38,700 | 23.460 | 156,700 | 25.520 | 68,100 | 25.120 |
(a) | Market price relating to new rights granted, rights exercised in the period and rights cancelled in the period corresponds to the average market value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of the |
Stock option
With the aim of improving motivationoptions
2002-2004 and loyalty of the managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code2005 plans15 that hold significant positions of managerial responsibility or that are considered as strategic managers for the Group, Eni approved stock compensation plans that provide the assignment for no consideration of purchase rights of Eni treasury shares (options).
Stock options providesplans provide the right for the assignee to purchase of treasury share inshares with a 1 to 1 ratio after the end of the third year from the date of the grant with(vesting period) and for a maximum period of five years. The strike price calculated aswas determined to be the arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding assignmentthe grant date or, (starting from 2003), if greater, as2003 onwards, the average costcarrying amount of treasury shares registered inas of the day preceding assignment. Strike pricethe assignment, if greater.
2006-2008 plan
The 2006-2008 stock option plan has introduced a performance condition for the 2005 stock option grant was euro 22.512. Stock option granteesexercise of the options. At the end of each three-year period (vesting period) from the assignment, the Board of Directors determines the percentage of exercisable options, from 0 to 100, in relation to the Total Shareholders’ Return (TSR) of Eni’s shares as benchmarked against the TSR delivered by a panel of the six largest international oil companies for market capitalization. Options can obtain advances bybe exercised for a maximum period of three years. The strike price is calculated as the Group financial company forarithmetic average of official prices registered on the paymentMercato Telematico Azionario in the month preceding assignment.
The arithmetic average of such prices, weighted with the number of shares acquired on condition that the grantees contemporaneously underwrite an irrevocable warrant of saleassigned, amounts to the above-mentioned financial company, regarding the shares acquired.euro 23.119 and euro 27.451 per share for 2006 and 2007, respectively.
At December 31, 2005 a total of 13,379,6002007, 17,699,625 options have been grantedwere outstanding for the purchase of 13,379,60017,699,625 ordinary shares with a nominal valueshares.
(12) | Did not include listed subsidiaries, which have their own stock grant plans. |
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The break-down of euro 1 of Eni SpA. Options refer tooutstanding options was the following:
At December 31, 20052007 the weighted-average remaining contractual life of the options outstandingplans at December 2002, 2003, 2004, 2005, 2006 and 20052007 was 2 years and 7 months, 3 years and 7 months, 4 years and 7 months, 5 years and 7 months, 64 years and 7 months and 75 years and 7 months, respectively.
Changes in the 2003, 2004 and 2005of stock option plans in 2005, 2006 and 2007 consisted of the following:
2003 | 2004 | 2005 | ||||
2005 | 2006 | 2007 | ||||
Number of shares | Weighted average (euro) | Number of shares | Weighted average | Market price(a) (euro) | Number | Weighted average |
|
| ||||||||||||
Options as of January 1 | 3,518,500 | 15.216 | 8,162,000 | 14.367 | 11,789,000 | 15.111 | 11,789,000 | 15.111 | 18.461 | 13,379,600 | 17.705 | 23.460 | 15,290,400 | 21.022 | 25.520 | ||||||||||||||||||||||||
New options granted | 4,703,000 | 13.743 | 3,993,500 | 16.576 | 4,818,500 | 22.512 | 4,818,500 | 22.512 | 22.512 | 7,050,000 | 23.119 | 23.119 | 6,128,500 | 27.451 | 27.447 | ||||||||||||||||||||||||
Options exercised in the period | (354,000 | ) | 14.511 | (3,106,400 | ) | 15.364 | (3,106,400 | ) | 15.364 | 22.485 | (4,943,200 | ) | 15.111 | 23.511 | (3,028,200 | ) | 16.906 | 25.338 | |||||||||||||||||||||
Options cancelled in the period | (59,500 | ) | 15.216 | (12,500 | ) | 14.45 | (121,500 | ) | 16.530 | (121,500 | ) | 16.530 | 23.100 | (196,000 | ) | 19.119 | 23.797 | (691,075 | ) | 24.346 | 24.790 | ||||||||||||||||||
Options outstanding as of December 31, | 8,162,000 | 14.367 | 11,789,000 | 15.111 | 13,379,600 | 17.705 | |||||||||||||||||||||||||||||||||
of which exercisable at December 31, | 73,000 | 14.802 | 1,540,600 | 16.104 | |||||||||||||||||||||||||||||||||||
Options outstanding as of December 31 | 13,379,600 | 17.705 | 23.460 | 15,290,400 | 21.022 | 25.520 | 17,699,625 | 23.822 | 25.120 | ||||||||||||||||||||||||||||||
of which exercisable at December 31 | 1,540,600 | 16.104 | 23.460 | 1,622,900 | 16.190 | 25.520 | 2,292,125 | 18.440 | 25.120 |
(a) | Market price relating to new rights granted, rights exercised in the period and rights cancelled in the period corresponds to the average market value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of the Board of Directors resolution regarding the stock grants assignment; (ii) the date in which the emission/transfer of the shares granted was recorded in the grantee’s securities account; and (iii) the date in which the unilateral termination of employment for rights was cancelled), weighted with the number of shares. Market price of stock at the beginning and end of the year is the price recorded at December 31. |
The fair value of stock options granted during the years 2002, 2003, 2004 and 2005 was euro 5.39, euro 1.50, euro 2.01, euro 3.33 per share respectively. For 2006 and 2007 the weighted average was euro 2.89 and euro 3.33 for2.98 per share, respectively, andrespectively. The fair value was calculateddetermined by applying the Black-Scholes method using the following assumptions:
|
|
|
| |||||
Risk-free interest rate | (%) | 3.5 | 3.16 | 3.21 | 2.51 | |||||||||||||
Expected life | (year) | 8 | 8 | 8 | 8 | |||||||||||||
Expected volatility | (%) | 43 | 22 | 19 | 21 | |||||||||||||
Expected dividends | (%) | 4.5 | 5.35 | 4.5 | 3.98 |
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||
Risk-free interest rate | (%) | 3.5 | 3.2 | 3.2 | 2.5 | 4.0 | 4.7 | |||||||
Expected life | (years) | 8 | 8 | 8 | 8 | 6 | 6 | |||||||
Expected volatility | (%) | 43.0 | 22.0 | 19.0 | 21.0 | 16.8 | 16.3 | |||||||
Expected dividends | (%) | 4.5 | 5.4 | 4.5 | 4.0 | 5.3 | 4.9 | |||||||
Costs of the year related to stock grant and stock option plans amountamounted to euro 27 million (euro 35 million (euro 18and euro 20 million at December 31, 2004)in 2005 and 2006, respectively).
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Compensation of key management personnel
Compensation of persons responsible offor key positions in planning, direction and control functions of Eni Group, companies, including executive and non-executive officers, general managers and managers with strategic responsibility (key management personnel) amountedmanagement) amount to euro 14 and euro 15 million, euro 23 million and euro 25 million for 20042005, 2006 and 2005,2007 respectively, and consisted of the following:
(million euro) | 2004 | 2005 | ||
Wages and salaries | 12 | 11 | ||||
Post-employment benefits | 1 | 1 | ||||
Indemnities due upon termination of employment | 1 | |||||
Stock grant/option | 1 | 2 | ||||
14 | 15 |
(million euro) | 2005 | 2006 | 2007 | |||
Wages and salaries | 11 | 16 | 17 | ||||||
Post-employment benefits | 1 | 1 | 1 | ||||||
Other long-term benefits | 3 | 3 | |||||||
Indemnities due upon termination of employment | 1 | ||||||||
Stock grant/option | 2 | 3 | 4 | ||||||
15 | 23 | 25 |
Compensation of Directors and Statutory Auditors and General Managers
Compensation of Directors Statutory Auditors and General Managers amountamounted to euro 4.519.2 million, euro 8.7 million and euro 19.28.9 million in 2004for 2005, 2006 and 2005,2007, respectively. Compensation of Statutory Auditors amounted to euro 0.6880.785, euro 0.686 million and euro 0.7850.678 million in 20042005, 2006 and 2005,2007, respectively.
Compensation of Directors, Statutory Auditors and General Managers includeincluded emoluments and all other retributive and social security compensations due for the function of managerdirectors or statutory auditor assumed inby Eni SpA or in other companies included in the scope of consolidation, that arerepresenting a cost for Eni.
The average number of employees of the companies included in the scope of consolidation by type was as follows:
(units) | 2004 | 2005 | ||
Senior managers | 1,746 | 1,754 | ||||||||||
Junior managers | 10,449 | 10,747 | ||||||||||
Employees | 35,393 | 34,457 | ||||||||||
Workers | 25,623 | 24,345 | ||||||||||
73,211 | 71,303 |
The average number of employers is calculated as half of the total of the number of employees at the beginning and at the end of the period. The average number of senior managers includes managers employed and operating in foreign countries, whose position is comparable to a senior manager status.
Depreciation, depletion, amortization and impairments
Depreciation, depletion, amortization and impairments charges consisted of the following:
(million euro) | 2004 | 2005 | ||
Depreciation and amortization: | ||||||||||||
- tangible assets | 3,670 | 4,576 | ||||||||||
- intangible assets | 931 | 936 | ||||||||||
4,601 | 5,512 | |||||||||||
Impairments: | ||||||||||||
- tangible assets | 329 | 264 | ||||||||||
- intangible assets | 4 | 8 | ||||||||||
333 | 272 | |||||||||||
less: | ||||||||||||
- direct costs associated with self-constructed assets | (3 | ) | (3 | ) | ||||||||
4,931 | 5,781 |
(million euro) | 2005 | 2006 | 2007 | |||
Depreciation, depletion and amortization: | |||||||||
- tangible assets | 4,576 | 4,821 | 5,031 | ||||||
- intangible assets | 936 | 1,335 | 2,000 | ||||||
5,512 | 6,156 | 7,031 | |||||||
Impairments: | |||||||||
- tangible assets | 264 | 231 | 145 | ||||||
- intangible assets | 8 | 54 | 62 | ||||||
272 | 285 | 207 | |||||||
less: | |||||||||
- direct costs associated with self-constructed assets | (17 | ) | |||||||
- capitalized direct costs associated with self-constructed assets - tangible assets | (2 | ) | (2 | ) | (2 | ) | |||
- capitalized direct costs associated with self-constructed assets - intangible assets | (1 | ) | (1 | ) | |||||
5,781 | 6,421 | 7,236 |
27 Financial
F-79
31 Finance income (expense)
Financial
Finance income (expense) consisted of the following:
(million euro) | 2005 | 2006 | 2007 | |||
Income from equity instruments | 188 | ||||||||
Capitalized finance expense | 159 | 116 | 180 | ||||||
Net income from financing receivables | 95 | 130 | 112 | ||||||
Net income from securities | 36 | 51 | 39 | ||||||
Interest on tax credits | 17 | 17 | 31 | ||||||
Gain (loss) on derivative financial instruments | (386 | ) | 383 | 26 | |||||
Exchange differences, net | 169 | (152 | ) | (51 | ) | ||||
Net interest due to banks | (38 | ) | 79 | (80 | ) | ||||
Net interest due to other financial institutions | (56 | ) | (101 | ) | (129 | ) | |||
Finance expense due to passage of time (accretion discount) (a) | (109 | ) | (116 | ) | (186 | ) | |||
Interest and other finance expense on ordinary bonds | (265 | ) | (247 | ) | (258 | ) | |||
Other finance income (expense), net | 12 | 1 | 45 | ||||||
(366 | ) | 161 | (83 | ) |
(million euro) | 2004 | 2005 | ||
Exchange differences, net | 169 | |||||||||||
Financial expense capitalized | 202 | 159 | ||||||||||
Income from financial receivables | 95 | 95 | ||||||||||
Net income from securities | 31 | 36 | ||||||||||
Interest on tax credits | 17 | 17 | ||||||||||
Net interest due to banks | (110 | ) | (38 | ) | ||||||||
Financial expense due to the passage of time (1) | (109 | ) | (109 | ) | ||||||||
Interest and other financial expense on ordinary bonds | (247 | ) | (265 | ) | ||||||||
Income (expense) on derivatives | 34 | (386 | ) | |||||||||
Other financial expense, net | (69 | ) | (44 | ) | ||||||||
(156 | ) | (366 | ) |
The item |
The decrease in income (expense)fair value gain (loss) on derivative financial instruments consisted of the following:
(million euro) | 2005 | 2006 | 2007 | |||
Derivatives on exchange rate | (85 | ) | 313 | 120 | |||||
Derivatives on interest rate | (138 | ) | 61 | 35 | |||||
Derivatives on commodities | (163 | ) | 9 | (129 | ) | ||||
(386 | ) | 383 | 26 |
Net gain from derivatives of euro 42026 million is(euro 386 million of net loss and euro 383 million of net gain in 2005 and 2006, respectively) was primarily due to the application from January 1, 2005 of IAS 39 which requires that derivatives be stated at fair value and the effects charged torecognition in the profit and loss account instead of being connected with the economic effects of the hedged transactions as recordedchange in 2004. Suchfair value of derivatives in fact, do not meet the conditions required by IFRS tothat cannot be qualified as hedging instruments. Also the increase in net exchange differences of euro 169 million is primarily dueinstruments under IFRS. In fact, since these derivatives are entered for amounts corresponding to the applicationnet exposure to exchange rate risk, interest rate risk or commodity risk, they cannot be referred to specific trade or financing transactions. The lack of IAS 39, becausethese formal requirements in order to assess these derivatives as hedging instruments under IFRS provides also the effectrecognition in profit or loss of thenegative exchange translation at period end ofdifferences on assets and liabilities denominated in currencies other than functional currency, is not compensatedas these translation effects cannot be offset by changes in fair value of derivative contracts.
Losses on commodity derivatives amounted to euro 129 million, of which euro 52 million related to the ineffective portion of the negative change in fair value of cash flow hedging derivatives entered into by the effectExploration & Production segment in order to hedge the exposure to variability in future cash flows expected in the 2008-2011 period deriving from marketing an amount of Eni’s hydrocarbon proved reserves equal to 2% of proved reserves as of December 31, 2006 in connection with the acquisition in 2007 of production, development and exploration upstream properties onshore Congo from the French company. Maurel & Prom and in the Gulf of Mexico from the U.S. company Dominion Resources. Further information is given in Note 20 - Other current liabilities and Note 25 - Other non-current liabilities.
Income from equity instruments of euro 188 million regarded the valuation at fair value of the translation at period end of20% interest in OAO Gazprom Neft and the commitmentsrelated call option granted by Eni to Gazprom (more information is included in Note 2 - Other financial assets held for derivatives contracts.
trading or available for sale).
28F-80
32 Income (expense) from investments
Effects
Share of investments accounted for using the equity method
Effectsprofit (loss) of equity-accounted investments accounted for using the equity method
Share of profit (loss) of equity-accounted investments consisted of the following:
(million euro) | 2004 | 2005 | ||
Gains from investments accounted for using the equity method | 401 | 770 | ||||||||||
Losses from investments accounted for using the equity method | (69 | ) | (33 | ) | ||||||||
332 | 737 |
(million euro) | 2005 | 2006 | 2007 | |||
Share of profit of equity-accounted investments | 770 | 887 | 906 | ||||||
Share of loss of equity-accounted investments | (33 | ) | (36 | ) | (135 | ) | |||
Decreases (increases) in the provision for losses on investments | (56 | ) | 2 | ||||||
737 | 795 | 773 |
More information about gains and lossesis provided in Note 12 - Equity-accounted investments.
Other gain (loss) from investments accounted for using the equity method is presented in Note 10.
Other income (expense) from investments
Other income (expense)gain (loss) from investments consisted of the following:
(million euro) | 2004 | 2005 | ||
Gains on disposals | 130 | 179 | ||||||||||
Dividends | 72 | 33 | ||||||||||
Losses on disposals | (1 | ) | (8 | ) | ||||||||
Other income (expense), net | 287 | (27 | ) | |||||||||
488 | 177 |
(million euro) | 2005 | 2006 | 2007 | |||
Gains on disposals | 179 | 25 | 301 | ||||||
Dividends | 33 | 98 | 170 | ||||||
Losses on disposals | (8 | ) | (7 | ) | (1 | ) | |||
Other income (expense), net | (27 | ) | (8 | ) | |||||
177 | 108 | 470 |
The gainsGains on disposals of euro 179301 million concernprimarily related to the sale of 100%Haldor Topsøe AS (euro 265 million) and Camom SA (euro 25 million). Gains on disposals for 2006 of euro 25 million primarily related to the share capitalsale of Fiorentina Gas SpA and Toscana Gas SpA (euro 16 million).
Gains on disposal for 2005 of euro 179 million primarily related to the sale of Italiana Petroli SpA (euro 132 million). Dividends of euro 170 million primarily related to Nigeria LNG Ltd (euro 131 million) and 2.33% of Nuovo Pignone Holding SpASaudi European Petrochemical Co - IBN ZAHR (euro 2419 million). Other net income from investments concern the gain recorded in the Consolidated Financial Statements due to the sale of 9.054% of the share capital of Snam Rete Gas SpA to Mediobanca SpA (euro 308 million).
29
33 Income tax expense
Income tax expense consisted of the following:
(million euro) | 2004 | 2005 | ||
Current taxes: | ||||||||||||
- Italian subsidiaries | 1,098 | 1,872 | ||||||||||
- foreign subsidiaries of the Exploration & Production segment | 3,116 | 5,116 | ||||||||||
- foreign subsidiaries | 278 | 373 | ||||||||||
4,492 | 7,361 | |||||||||||
Less: | ||||||||||||
- tax credits on dividend distributions not offset with current tax payment | (39 | ) | (34 | ) | ||||||||
4,453 | 7,327 | |||||||||||
Net deferred taxes: | ||||||||||||
- Italian subsidiaries | 843 | 334 | ||||||||||
- foreign subsidiaries of the Exploration & Production segment | 215 | 464 | ||||||||||
- foreign subsidiaries | 11 | 3 | ||||||||||
1,069 | 801 | |||||||||||
5,522 | 8,128 |
(million euro) | 2005 | 2006 | 2007 | |||
Current taxes: | |||||||||
- Italian subsidiaries | 1,872 | 2,007 | 2,380 | ||||||
- foreign subsidiaries of the Exploration & Production segment | 5,116 | 6,740 | 6,695 | ||||||
- foreign subsidiaries | 373 | 529 | 482 | ||||||
7,361 | 9,276 | 9,557 | |||||||
less: | |||||||||
- tax credits on dividend distributions not offset with current tax payment | (34 | ) | |||||||
7,327 | 9,276 | 9,557 | |||||||
Net deferred taxes: | |||||||||
- Italian subsidiaries | 334 | 230 | (582 | ) | |||||
- foreign subsidiaries of the Exploration & Production segment | 464 | 1,095 | 246 | ||||||
- foreign subsidiaries | 3 | (33 | ) | (2 | ) | ||||
801 | 1,292 | (338 | ) | ||||||
8,128 | 10,568 | 9,219 |
F-81
Current income taxes of the year relate toeuro 2,380 million were in respect of Italian companiessubsidiaries for euro 1,872 million and concern Ires for euro 1,489(euro 1,964 million) and Irap for euro 359 million,(euro 346 million) and of foreign companies for euro 24 million.taxes (euro 70 million).
The effective tax rate is 46.8% (42.3%was 46% (46.8% and 51.8% in the 2004)2005 and 2006, respectively) compared with a statutory tax rate of 38.1% (38.2%37.9% (38.1% and 37.9% in the 2004),2005 and 2006, respectively) and calculated by applying a 33% tax rate (Ires) to profit before income taxes and 4.25% tax rate (Irap) to the net value of production as provided for by Italian laws. Statutory tax rates of Ires and Irap that were reduced to 27.5% and 3.9%, respectively are effective from January 1, 2008.
The difference between the statutory and effective tax rate was due to the following factors:
(%) | 2004 | 2005 | ||
Statutory tax rate | 38.2 | 38.1 | ||||||||||
Items increasing (decreasing) statutory tax rate: | ||||||||||||
- higher foreign subsidiaries tax rate | 5.2 | 8.8 | ||||||||||
- permanent differences | (0.7 | ) | 0.8 | |||||||||
- other | (0.4 | ) | (0.9 | ) | ||||||||
4.1 | 8.7 | |||||||||||
42.3 | 46.8 |
(%) | 2005 | 2006 | 2007 | |||
Statutory tax rate | 38.1 | 37.9 | 37.9 | ||||||
Items increasing (decreasing) statutory tax rate: | |||||||||
- higher foreign subsidiaries tax rate | 8.8 | 13.6 | 10.2 | ||||||
- changes in Italian statutory tax rate and adjustment of tax base of amortizable assets for Italian subsidiaries | (2.0 | ) | |||||||
- permanent differences and other adjustments | (0.1 | ) | 0.3 | (0.1 | ) | ||||
8.7 | 13.9 | 8.1 | |||||||
46.8 | 51.8 | 46.0 |
Permanent differences in 2004 mainly concernIn 2007 the gain recordedincrease in the Consolidated Financial Statements duetax rate of foreign subsidiaries primarily related to a 15 percentage points increase in the Exploration & Production segment (12.7% and 17.2% in 2005 and 2006, respectively). In 2006 the increase in the tax rate of foreign subsidiaries relating the Exploration & Production segment (4.5 percentage points) mainly derived from the application of a windfall tax introduced by the Algerian government with effect starting from August 1, 2006 (1.6 percentage points) and a supplemental tax rate introduced by the government of the United Kingdom relating to the sale of 9.054%North Sea productions with effect starting from January 1, 2006 (1 percentage point).
The adjustment to deferred tax assets and liabilities for Italian subsidiaries were recognized in connection with certain amendments to the Italian tax regime enacted by the 2008 Budget Law. These included an option regarding the increase of the share capitaltax bases of Snam Rete Gas SpA (0.7%)certain tangible and other assets to Mediobanca SpA. Permanenttheir carrying amounts (euro 773 million) by paying a special tax (euro 325 million) and a lower statutory tax rate (Ires from 33% to 27.5%, Irap from 4.25% to 3.9%, euro 54 million) effective January 1, 2008.
In 2006 and 2005 permanent differences mainly arose from certain charges that are not deductible because taken in 2005 mainly concernedconnection with risk provisions arising from proceedings against the undeductibility from taxable income of the addition in provisions for contingencies following the fine imposed on February 15, 2006 by theItalian Antitrust Authority on Eni SpA (0.6%)and other regulatory Authorities (0.4 and 0.6 percentage points, respectively).
30
F-82
34 Earnings per share
Basic earnings per ordinary share isare calculated by dividing "Net profit" ofnet profit for the year attributable to Eni’s shareholders by the weighted-averageweighted average number of ordinary shares issued and outstanding during the year, excluding treasury shares.
The average number of ordinary shares outstanding used for the calculation of the basic earnings per share outstanding at December 31, 2005, 2006 and 2007, was 3,771,692,5843,758,519,603, 3,698,201,896 and 3,758,519,603 in 2004 and 2005,3,668,305,807 respectively.
Diluted earnings per share is calculated by dividing "Net profit" ofnet profit for the year attributable to Eni’s shareholders by the weighted-averageweighted average number of shares fully-diluted which includes issued and outstanding shares during the year, excluding treasury shares and including shares that could be issued potentially.
At December 31, 2004 and 2005,the number of shares that could be issued potentially concern essentially shares granted under stock grant and stock option plan. in connection with stock-based compensation plans.
The average number of shares outstandingfully diluted used forin the calculation of the diluted earnings per share was 3,774,953,7103,763,375,140, 3,701,262,557 and 3,763,375,140 in 20043,669,172,762 for the years ending December 31, 2005, 2006 and 2005,2007 respectively.
Reconciliation of the average number of shares outstanding used for the calculation of thefor both basic and diluted earning per share iswas as follows:
2005 | 2006 | 2007 | ||||
Average number of shares used for the calculation of the basic earnings per share | 3,758,519,603 | 3,698,201,896 | 3,668,305,807 | |||||
Number of potential shares following stock grant plans | 2,268,265 | 1,070,676 | 302,092 | |||||
Number of potential shares following stock options plans | 2,587,272 | 1,989,985 | 564,863 | |||||
Average number of shares used for the calculation of the diluted earnings per share | 3,763,375,140 | 3,701,262,557 | 3,669,172,762 | |||||
Eni’s net profit | (million euro) | 8,788 | 9,217 | 10,011 | ||||
Basic earning per share | (euro per share) | 2.34 | 2.49 | 2.73 | ||||
Diluted earning per share | (euro per share) | 2.34 | 2.49 | 2.73 |
|
| |||||
Average number of shares used for the calculation of the basic earnings per share | 3,771,692,584 | 3,758,519,603 | ||||
Number of potential shares following stock grant plans | 1,953,518 | 2,268,265 | ||||
Number of potential shares following stock options plans | 1,307,608 | 2,587,272 | ||||
Average number of shares used for the calculation of the diluted earnings per share | 3,774,953,710 | 3,763,375,140 | ||||
Eni’s net profit | (million euro) | 7,059 | 8,788 | |||
Basic earning per share | (euro per share) | 1.87 | 2.34 | |||
Diluted earning per share | (euro per share) | 1.87 | 2.34 |
31
F-83
35 Information by industry segment and geographic financial information
Information by industry segment13
(million euro) | Exploration & Production | Gas & Power | Refining & Marketing | Petrochemicals |
| Other activities | Corporate and financial companies | Elimination | Total | |||||||||
2004 | |||||||||||||||||||||||||||
Net sales from operations (a) | 15,346 | 17,302 | 26,089 | 5,331 | 5,696 | 1,279 | 851 | ||||||||||||||||||||
Less: intersegment sales | (10,216 | ) | (493 | ) | (753 | ) | (499 | ) | (903 | ) | (754 | ) | (731 | ) | |||||||||||||
Net sales to customers | 5,130 | 16,809 | 25,336 | 4,832 | 4,793 | 525 | 120 | 57,545 | |||||||||||||||||||
Operating profit | 8,185 | 3,428 | 1,080 | 320 | 203 | (395 | ) | (363 | ) | (59 | ) | 12,399 | |||||||||||||||
Provisions for contingencies | 2 | 53 | 309 | 3 | 20 | 16 | 150 | 553 | |||||||||||||||||||
Depreciation, amortization and writedowns | 3,335 | 644 | 476 | 116 | 184 | 70 | 106 | 4,931 | |||||||||||||||||||
Effects of investments accounted for using the equity method | 7 | 164 | 89 | (4 | ) | 117 | (41 | ) | 332 | ||||||||||||||||||
Identifiable assets (b) | 23,866 | 19,852 | 9,118 | 2,821 | 4,706 | 708 | 1,182 | 62,253 | |||||||||||||||||||
Investments accounted for using the equity method | 273 | 1,773 | 745 | 5 | 328 | 30 | 2 | 3,156 | |||||||||||||||||||
Identifiable liabilities (c) | 4,798 | 3,394 | 3,848 | 621 | 2,825 | 1,976 | 1,589 | 19,051 | |||||||||||||||||||
Capital expenditures | 4,853 | 1,451 | 693 | 148 | 186 | 49 | 119 | 7,499 | |||||||||||||||||||
2005 | |||||||||||||||||||||||||||
Net sales from operations (a) | 22,477 | 22,969 | 33,732 | 6,255 | 5,733 | 1,358 | 977 | ||||||||||||||||||||
Less: intersegment sales | (14,761 | ) | (572 | ) | (1,092 | ) | (683 | ) | (925 | ) | (905 | ) | (835 | ) | |||||||||||||
Net sales to customers | 7,716 | 22,397 | 32,640 | 5,572 | 4,808 | 453 | 142 | 73,728 | |||||||||||||||||||
Operating profit | 12,574 | 3,321 | 1,857 | 202 | 307 | (902 | ) | (391 | ) | (141 | ) | 16,827 | |||||||||||||||
Provisions for contingencies | 50 | 703 | 420 | 47 | 32 | 287 | 104 | 1,643 | |||||||||||||||||||
Depreciation, amortization and writedowns | 4,100 | 685 | 467 | 147 | 180 | 106 | 100 | (4 | ) | 5,781 | |||||||||||||||||
Effects of investments accounted for using the equity method | 14 | 359 | 221 | 3 | 140 | 737 | |||||||||||||||||||||
Identifiable assets (b) | 28,982 | 21,928 | 11,787 | 2,905 | 5,248 | 612 | 1,377 | (534 | ) | 72,305 | |||||||||||||||||
Investments accountedfor using the equity method | 292 | 2,155 | 936 | 19 | 457 | 31 | 3,890 | ||||||||||||||||||||
Identifiable liabilities (c) | 6,762 | 5,097 | 4,542 | 702 | 3,204 | 2,249 | 1,975 | 24,531 | |||||||||||||||||||
Capital expenditures | 4,964 | 1,152 | 656 | 112 | 349 | 69 | 112 | 7,414 |
2005 | |||||||||||||||||||||||||||
Net sales from operations (a) | 22,531 | 22,969 | 33,732 | 6,255 | 5,733 | 863 | 1,239 | ||||||||||||||||||||
Less: intersegment sales | (14,761 | ) | (572 | ) | (1,092 | ) | (683 | ) | (925 | ) | (546 | ) | (1,015 | ) | |||||||||||||
Net sales to customers | 7,770 | 22,397 | 32,640 | 5,572 | 4,808 | 317 | 224 | 73,728 | |||||||||||||||||||
Operating profit | 12,592 | 3,321 | 1,857 | 202 | 307 | (934 | ) | (377 | ) | (141 | ) | 16,827 | |||||||||||||||
Provisions for contingencies | 50 | 703 | 420 | 47 | 32 | 284 | 107 | 1,643 | |||||||||||||||||||
Depreciation, amortization and writedowns | 4,101 | 685 | 467 | 147 | 180 | 91 | 114 | (4 | ) | 5,781 | |||||||||||||||||
Share of profit (loss) of equity-accounted investments | 14 | 359 | 221 | 3 | 140 | 737 | |||||||||||||||||||||
Identifiable assets (b) | 29,010 | 21,928 | 11,787 | 2,905 | 5,248 | 438 | 1,523 | (534 | ) | 72,305 | |||||||||||||||||
Unallocated assets | 11,545 | ||||||||||||||||||||||||||
Equity-accounted investments | 292 | 2,155 | 936 | 19 | 457 | 31 | 3,890 | ||||||||||||||||||||
Identifiable liabilities (c) | 6,785 | 5,097 | 4,542 | 702 | 3,204 | 2,070 | 2,131 | 24,531 | |||||||||||||||||||
Unallocated liabilities | 20,102 | ||||||||||||||||||||||||||
Capital expenditures | 4,965 | 1,152 | 656 | 112 | 349 | 48 | 132 | 7,414 | |||||||||||||||||||
2006 | |||||||||||||||||||||||||||
Net sales from operations (a) | 27,173 | 28,368 | 38,210 | 6,823 | 6,979 | 823 | 1,174 | ||||||||||||||||||||
Less: intersegment sales | (18,445 | ) | (751 | ) | (1,300 | ) | (667 | ) | (771 | ) | (520 | ) | (991 | ) | |||||||||||||
Net sales to customers | 8,728 | 27,617 | 36,910 | 6,156 | 6,208 | 303 | 183 | 86,105 | |||||||||||||||||||
Operating profit | 15,580 | 3,802 | 319 | 172 | 505 | (622 | ) | (296 | ) | (133 | ) | 19,327 | |||||||||||||||
Provisions for contingencies | 153 | 197 | 264 | 30 | (13 | ) | 236 | (100 | ) | 767 | |||||||||||||||||
Depreciation, amortization and writedowns | 4,776 | 738 | 447 | 174 | 196 | 28 | 71 | (9 | ) | 6,421 | |||||||||||||||||
Share of profit (loss) of equity-accounted investments | 28 | 509 | 194 | 2 | 66 | (4 | ) | 795 | |||||||||||||||||||
Identifiable assets (b) | 29,720 | 23,500 | 11,359 | 2,984 | 6,362 | 344 | 1,023 | (666 | ) | 74,626 | |||||||||||||||||
Unallocated assets | 13,686 | ||||||||||||||||||||||||||
Investments accounted for using the equity method | 258 | 2,214 | 874 | 11 | 483 | 46 | 3,886 | ||||||||||||||||||||
Identifiable liabilities (c) | 9,119 | 5,284 | 4,712 | 806 | 3,869 | 1,940 | 1,619 | 27,349 | |||||||||||||||||||
Unallocated liabilities | 19,764 | ||||||||||||||||||||||||||
Capital expenditures | 5,203 | 1,174 | 645 | 99 | 591 | 72 | 88 | (39 | ) | 7,833 |
2007 | |||||||||||||||||||||||||||
Net sales from operations (a) | 27,278 | 27,633 | 36,401 | 6,934 | 8,678 | 205 | 1,313 | ||||||||||||||||||||
Less: intersegment sales | (16,475 | ) | (760 | ) | (1,276 | ) | (363 | ) | (1,182 | ) | (31 | ) | (1,099 | ) | |||||||||||||
Net sales to customers | 10,803 | 26,873 | 35,125 | 6,571 | 7,496 | 174 | 214 | 87,256 | |||||||||||||||||||
Operating profit | 13,788 | 4,127 | 729 | 74 | 837 | (444 | ) | (217 | ) | (26 | ) | 18,868 | |||||||||||||||
Provisions for contingencies | 5 | 37 | 256 | 15 | 11 | 264 | 3 | 591 | |||||||||||||||||||
Depreciation, amortization and writedowns | 5,626 | 687 | 491 | 116 | 248 | 10 | 68 | (10 | ) | 7,236 | |||||||||||||||||
Share of profit (loss) of equity-accounted investments | 23 | 449 | 216 | 79 | 6 | 773 | |||||||||||||||||||||
Identifiable assets (b) | 33,435 | 24,530 | 13,767 | 3,427 | 8,017 | 275 | 854 | (692 | ) | 83,613 | |||||||||||||||||
Unallocated assets | 17,847 | ||||||||||||||||||||||||||
Equity-accounted investments | 1,926 | 2,152 | 1,267 | 15 | 230 | 49 | 5,639 | ||||||||||||||||||||
Identifiable liabilities (c) | 11,480 | 5,390 | 5,420 | 939 | 4,349 | 1,827 | 1,380 | 30,785 | |||||||||||||||||||
Unallocated liabilities | 27,808 | ||||||||||||||||||||||||||
Capital expenditures | 6,625 | 1,366 | 979 | 145 | 1,410 | 59 | 108 | (99 | ) | 10,593 |
(a) | Before elimination of intersegment sales. | |
(b) | Includes assets directly | |
(c) | Includes liabilities directly |
Intersegment
(13) | Operating profit (loss) by industry segment for 2005 has been reclassified on the basis of the new subdivision within segments. This reclassification concerns the Exploration & Production, Other activities and Corporate and financial companies segments. |
F-84
Inter-segment sales arewere conducted on an arm’s length basis.
Geographic financial information
Assets and investments by geographic area of origin
(million euro) | Italy | Other EU | Rest of Europe | Americas | Asia | Africa | Other areas | Total | ||||||||||
2004 | |||||||||||||||||||||||||||||||||||||||||||
Identifiable assets (a) | 33,812 | 9,096 | 2,598 | 2,011 | 4,499 | 9,942 | 295 | 62,253 | |||||||||||||||||||||||||||||||||||
Capital expenditures | 2,655 | 337 | 387 | 357 | 1,066 | 2,622 | 75 | 7,499 | |||||||||||||||||||||||||||||||||||
2005 | |||||||||||||||||||||||||||||||||||||||||||
Identifiable assets (a) | 38,229 | 8,768 | 3,085 | 2,670 | 5,864 | 13,445 | 244 | 72,305 | 38,229 | 8,768 | 3,085 | 2,670 | 5,864 | 13,445 | 244 | 72,305 | |||||||||||||||||||||||||||
Capital expenditures | 2,442 | 545 | 415 | 507 | 1,181 | 2,233 | 91 | 7,414 | 2,442 | 545 | 415 | 507 | 1,181 | 2,233 | 91 | 7,414 | |||||||||||||||||||||||||||
2006 | |||||||||||||||||||||||||||||||||||||||||||
Identifiable assets (a) | 37,339 | 10,037 | 3,200 | 2,987 | 6,341 | 14,190 | 532 | 74,626 | |||||||||||||||||||||||||||||||||||
Capital expenditures | 2,529 | 713 | 436 | 572 | 1,032 | 2,419 | 132 | 7,833 | |||||||||||||||||||||||||||||||||||
2007 | |||||||||||||||||||||||||||||||||||||||||||
Identifiable assets (a) | 39,742 | 11,071 | 3,917 | 6,260 | 6,733 | 15,368 | 522 | 83,613 | |||||||||||||||||||||||||||||||||||
Capital expenditures | 3,246 | 1,246 | 469 | 1,004 | 1,253 | 3,152 | 223 | 10,593 | |||||||||||||||||||||||||||||||||||
(a) | Includes assets directly related to the generation of operating profit. | |
Sales from operations by geographic area of destination
(million euro) | 2004 | 2005 | ||
Italy | 27,100 | 32,846 | ||||||||||
Other European Union | 13,095 | 19,601 | ||||||||||
Rest of Europe | 3,769 | 5,123 | ||||||||||
Americas | 5,790 | 6,103 | ||||||||||
Asia | 3,088 | 4,399 | ||||||||||
Africa | 4,148 | 5,259 | ||||||||||
Other areas | 555 | 397 | ||||||||||
57,545 | 73,728 |
(million euro) | 2005 | 2006 | 2007 | |||
Italy | 32,846 | 36,343 | 37,346 | ||||||
Other European Union | 19,601 | 23,949 | 23,074 | ||||||
Rest of Europe | 5,123 | 6,975 | 5,507 | ||||||
Americas | 6,103 | 6,250 | 6,447 | ||||||
Asia | 4,399 | 5,595 | 5,840 | ||||||
Africa | 5,259 | 5,949 | 8,010 | ||||||
Other areas | 397 | 1,044 | 1,032 | ||||||
73,728 | 86,105 | 87,256 |
3236 Transactions with related parties
In the ordinary course of its business Eni enters into transactions concerning the exchange of goods, provision of services and financing with joint ventures, affiliated companies and non-consolidated subsidiaries as well as with entities directly and indirectly owned or controlled by the Government. All such transactions are mainly conducted on an arm’s length basis in the intereston behalf of Eni companies.
The following is a description of trade and financing transactions with related parties. Relevant transactions carried out with entities controlled by the Italian government are only those with Enel, the Italian National Electric Company.
F-85
Trade and other transactions
Trade and other transactions forin the year 2004 consisted of the following:
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Joint ventures and affiliated companies | ||||||||||||||||||||||||
Albacom SpA | 8 | 14 | 3 | 35 | 8 | |||||||||||||||||||
ASG Scarl | 51 | 88 | 33 | 203 | 1 | 7 | ||||||||||||||||||
Azienda Energia e Servizi Torino SpA | 1 | 18 | 68 | 3 | ||||||||||||||||||||
Bayernoil Raffineriegesellschaft mbH | 39 | 2 | 791 | 1 | ||||||||||||||||||||
Bernhard Rosa Inh. Ingeborg Plochinger GmbH | 10 | 108 | ||||||||||||||||||||||
Blue Stream Pipeline Co BV | 43 | 10 | 121 | 5 | ||||||||||||||||||||
Bronberger & Kessler und Gilg & Schweiger GmbH | 13 | 141 | ||||||||||||||||||||||
Cam Petroli Srl | 1 | 6 | ||||||||||||||||||||||
CEPAV (Consorzio Eni per l’Alta velocità) Uno | 167 | 165 | 4,894 | 531 | ||||||||||||||||||||
Eni Oil Co Ltd | 4 | 163 | 53 | |||||||||||||||||||||
Erg Raffinerie Mediterranee SpA | 30 | 30 | 100 | 1,043 | 10 | 412 | 9 | |||||||||||||||||
Gruppo Distribuzione Petroli Srl | 16 | 45 | ||||||||||||||||||||||
Karachaganak Petroleum Operating BV | 21 | 12 | 104 | 42 | ||||||||||||||||||||
Modena Scarl | 6 | 37 | 43 | 134 | 1 | |||||||||||||||||||
Petrobel Belayim Petroleum Co | 83 | 240 | ||||||||||||||||||||||
Promgas SpA | 27 | 23 | 230 | 259 | ||||||||||||||||||||
Raffineria di Milazzo ScpA | 6 | 4 | 245 | 62 | ||||||||||||||||||||
Rodano Consortile Scarl | 3 | 22 | 1 | 79 | 1 | |||||||||||||||||||
Siciliana Gas Vendite SpA | 9 | 36 | ||||||||||||||||||||||
Supermetanol CA | 24 | 79 | 10 | |||||||||||||||||||||
Super Octanos CA | 55 | 212 | 11 | 1 | ||||||||||||||||||||
Trans Austria Gasleitung GmbH | 15 | 167 | 3 | |||||||||||||||||||||
Trans Europa Naturgas Pipeline GmbH | 9 | 51 | ||||||||||||||||||||||
Transitgas AG | 2 | 59 | ||||||||||||||||||||||
Unión Fenosa Gas Comercializadora SA | 7 | |||||||||||||||||||||||
Unión Fenosa Gas SA | 111 | 1 | ||||||||||||||||||||||
Other (*) | 84 | 74 | 109 | 23 | 108 | 56 | 18 | |||||||||||||||||
500 | 887 | 5,191 | 100 | 1,592 | 2,489 | 1,134 | 630 | |||||||||||||||||
Unconsolidated subsidiaries | ||||||||||||||||||||||||
Agip Kazakhstan North Caspian Operating Co NV | 2 | 1 | 14 | 9 | ||||||||||||||||||||
Eni BTC Ltd | 143 | |||||||||||||||||||||||
Eni Gas BV | 30 | 40 | 17 | 5 | 1 | |||||||||||||||||||
Eni Middle East BV | 367 | |||||||||||||||||||||||
Transmediterranean Pipeline Co Ltd | 1 | 1 | 90 | |||||||||||||||||||||
Other (*) | 30 | 4 | 10 | 4 | 8 | 2 | 11 | |||||||||||||||||
63 | 45 | 537 | 5 | 117 | 2 | 21 | ||||||||||||||||||
563 | 932 | 5,728 | 100 | 1,597 | 2,606 | 1,136 | 651 | |||||||||||||||||
Entities owned or controlledby the Government | ||||||||||||||||||||||||
Enel | 234 | 3 | 2 | 20 | 1,287 | 350 | ||||||||||||||||||
797 | 935 | 5,728 | 100 | 1,599 | 2,626 | 2,423 | 1,001 |
Trade and other transactions for the year 2005 consisted of the following:
(million euro) | Dec. 31, 2005 | 2005 | ||
Costs | Revenues | ||
Name | Receivables | Payables | Guarantees | Goods | Services | Goods | Services | |||||||
Joint ventures and affiliated companies | |||||||||||||||||||||||||||||||||||
Joint ventures and affiliates | |||||||||||||||||||||||||||||||||||
ASG Scarl | 13 | 66 | 72 | 173 | 6 | 13 | 66 | 72 | 173 | 6 | |||||||||||||||||||||||||
Azienda Energia e Servizi Torino SpA | 2 | 24 | 56 | 2 | 2 | 24 | 56 | 2 | |||||||||||||||||||||||||||
Bayernoil Raffineriegesellschaft mbH | 49 | 1 | 814 | ||||||||||||||||||||||||||||||||
Bernhard Rosa Inh. Ingeborg Plochinger GmbH | 10 | 172 | |||||||||||||||||||||||||||||||||
Bayernoil Raffineriegesellshaft mbH | 49 | 1 | 814 | ||||||||||||||||||||||||||||||||
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH | 10 | 172 | |||||||||||||||||||||||||||||||||
Blue Stream Pipeline Co BV | 45 | 12 | 177 | 4 | 45 | 12 | 177 | 4 | |||||||||||||||||||||||||||
Bronberger & Kessler und Gilg & Schweiger GmbH | 12 | 207 | |||||||||||||||||||||||||||||||||
Bronberger & Kessler Und Gilg & Schweiger GmbH | 12 | 207 | |||||||||||||||||||||||||||||||||
Cam Petroli Srl | 85 | 593 | 85 | 593 | |||||||||||||||||||||||||||||||
CEPAV (Consorzio Eni per l’Alta Velocità) Uno | 105 | 107 | 4,894 | 411 | 105 | 107 | 4,894 | 411 | |||||||||||||||||||||||||||
Eni Gas BV | 16 | 149 | 47 | ||||||||||||||||||||||||||||||||
Eni Oil Co Ltd | 84 | 50 | 84 | 50 | |||||||||||||||||||||||||||||||
Fox Energy Srl | 22 | 4 | 240 | ||||||||||||||||||||||||||||||||
Fox Energy SpA | 22 | 4 | 240 | ||||||||||||||||||||||||||||||||
Gruppo Distribuzione Petroli Srl | 22 | 89 | 22 | 89 | |||||||||||||||||||||||||||||||
Karachaganak Petroleum Operating BV | 13 | 46 | 6 | 99 | 4 | 13 | 46 | 6 | 99 | 4 | |||||||||||||||||||||||||
Mellitah Gas BV (ex Eni Gas BV) | 16 | 149 | 47 | ||||||||||||||||||||||||||||||||
Mangrove Gas Netherlands BV | 55 | 55 | |||||||||||||||||||||||||||||||||
Modena Scarl | 2 | 12 | 61 | 56 | 1 | 1 | 2 | 12 | 61 | 56 | 1 | 1 | |||||||||||||||||||||||
Petrobel Belayim Petroleum Co | 138 | 248 | 138 | 248 | |||||||||||||||||||||||||||||||
Promgas SpA | 44 | 45 | 307 | 355 | 44 | 45 | 307 | 355 | |||||||||||||||||||||||||||
Raffineria di Milazzo ScpA | 10 | 10 | 204 | 94 | 10 | 10 | 204 | 94 | |||||||||||||||||||||||||||
Rodano Consortile Scarl | 2 | 20 | 80 | 2 | 2 | 20 | 80 | 2 | |||||||||||||||||||||||||||
RPCO Enterprise Ltd | 55 | ||||||||||||||||||||||||||||||||||
Siciliana Gas Vendite SpA | 13 | 48 | |||||||||||||||||||||||||||||||||
RPCO Enterprises Ltd | 55 | ||||||||||||||||||||||||||||||||||
Supermetanol CA | 8 | 65 | 8 | 65 | |||||||||||||||||||||||||||||||
Super Octanos CA | 1 | 14 | 265 | 1 | 14 | 265 | |||||||||||||||||||||||||||||
Toscana Gas Clienti SpA | 46 | 118 | |||||||||||||||||||||||||||||||||
Toscana Energia Clienti SpA | 46 | 118 | |||||||||||||||||||||||||||||||||
Trans Austria Gasleitung GmbH | 43 | 55 | 43 | 143 | 47 | 43 | 55 | 43 | 143 | 47 | |||||||||||||||||||||||||
Trans Europa Naturgas Pipeline GmbH | 2 | 44 | |||||||||||||||||||||||||||||||||
Transitgas AG | 7 | 64 | 7 | 64 | |||||||||||||||||||||||||||||||
Transmediterranean Pipeline Co Ltd | 4 | 88 | 1 | 4 | 88 | 1 | |||||||||||||||||||||||||||||
Unión Fenosa Gas Comercializadora SA | 4 | 36 | 37 | ||||||||||||||||||||||||||||||||
Unión Fenosa Gas SA | 4 | 4 | 62 | 79 | 16 | 2 | 4 | 4 | 62 | 79 | 16 | 2 | |||||||||||||||||||||||
Other (*) | 84 | 84 | 112 | 33 | 113 | 62 | 67 | 101 | 86 | 112 | 69 | 157 | 147 | 67 | |||||||||||||||||||||
598 | 940 | 5,312 | 838 | 2,456 | 2,032 | 547 | 598 | 940 | 5,312 | 838 | 2,456 | 2,032 | 547 | ||||||||||||||||||||||
Unconsolidated subsidiaries | |||||||||||||||||||||||||||||||||||
Unconsolidated entities controlled by Eni | |||||||||||||||||||||||||||||||||||
Agip Kazakhstan North Caspian Operating Co NV | 4 | 152 | 5 | 19 | 28 | 4 | 152 | 5 | 19 | 28 | |||||||||||||||||||||||||
Eni BTC Ltd | 165 | 165 | |||||||||||||||||||||||||||||||||
Other (*) | 44 | 48 | 8 | 1 | 31 | 15 | 9 | 44 | 48 | 8 | 1 | 31 | 15 | 9 | |||||||||||||||||||||
48 | 200 | 173 | 6 | 50 | 15 | 37 | 48 | 200 | 173 | 6 | 50 | 15 | 37 | ||||||||||||||||||||||
646 | 1,140 | 5,485 | 844 | 2,506 | 2,047 | 584 | 646 | 1,140 | 5,485 | 844 | 2,506 | 2,047 | 584 | ||||||||||||||||||||||
Entities owned or controlled by the Government | |||||||||||||||||||||||||||||||||||
Alitalia | 20 | 276 | |||||||||||||||||||||||||||||||||
Enel | 187 | 5 | 12 | 10 | 1,180 | 333 | 187 | 5 | 12 | 10 | 1,180 | 333 | |||||||||||||||||||||||
Other (*) | 20 | 19 | 57 | 103 | 12 | ||||||||||||||||||||||||||||||
833 | 1,145 | 5,485 | 856 | 2,516 | 3,227 | 917 | 227 | 24 | 12 | 67 | 1,559 | 345 | |||||||||||||||||||||||
873 | 1,164 | 5,485 | 856 | 2,573 | 3,606 | 929 | |||||||||||||||||||||||||||||
(*) | Each individual amount included herein does not exceed euro 50 million. |
F-86
Engineering, constructionTrade and maintenance services were acquired on an arm’s length basis fromother transactions for the Cosmi Holding Group, related to Eni through a memberyear 2006 consisted of the Board of Directors, for a total of approximately euro 28 million and euro 18 million in 2004 and 2005, respectively.following:
Most significant transactions concern:
Transactions with Enel concern the sale and transportation of natural gas, the sale of fuel oil and the sale and purchase of electricity; transactions are mainly conducted on an arm’s length basis.
Financing transactions
Financing transactions in 2004 were as follows:
(million euro) | Dec. 31, |
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Name | Receivables |
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Joint ventures and affiliates | ||||||||||||||
ASG Scarl | 7 | 40 | 80 | 88 | 1 | 1 | ||||||||
Azienda Energia e Servizi Torino SpA | 1 | 22 | 64 | 1 | 1 | |||||||||
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH | 10 | 96 | ||||||||||||
Blue Stream Pipeline Co BV | 34 | 19 | 193 | 1 | ||||||||||
Bronberger & Kessler Und Gilg & Schweiger GmbH | 11 | 113 | ||||||||||||
Cam Petroli Srl | 103 | 310 | ||||||||||||
CEPAV (Consorzio Eni per l’Alta Velocità) Uno | 87 | 87 | 5,654 | 16 | 2 | 304 | ||||||||
Charville - Consultores e Serviços Lda | 7 | 85 | 4 | 11 | ||||||||||
Eni Oil Co Ltd | 5 | 96 | 59 | |||||||||||
Fox Energy SpA | 35 | 125 | ||||||||||||
Gasversorgung Süddeutschland GmbH | 14 | 1 | 123 | 19 | ||||||||||
Gruppo Distribuzione Petroli Srl | 19 | 54 | ||||||||||||
Karachaganak Petroleum Operating BV | 23 | 70 | 29 | 129 | 7 | |||||||||
Mangrove Gas Netherlands BV | 1 | 52 | ||||||||||||
Mellitah Gas BV (ex Eni Gas BV) | 28 | 90 | 7 | 72 | 8 | 2 | ||||||||
Petrobel Belayim Petroleum Co | 3 | 181 | ||||||||||||
Promgas SpA | 44 | 39 | 375 | 419 | ||||||||||
Raffineria di Milazzo ScpA | 9 | 12 | 237 | 109 | ||||||||||
Rodano Consortile Scarl | 3 | 14 | 54 | 1 | ||||||||||
RPCO Enterprises Ltd | 13 | 104 | 12 | |||||||||||
Supermetanol CA | 13 | 91 | ||||||||||||
Super Octanos CA | 13 | 257 | ||||||||||||
Trans Austria Gasleitung GmbH | 7 | 78 | 53 | 138 | 56 | |||||||||
Transitgas AG | 8 | 64 | ||||||||||||
Transmediterranean Pipeline Co Ltd | 7 | 80 | ||||||||||||
Unión Fenosa Gas SA | 1 | 7 | 61 | 93 | 7 | |||||||||
Other (*) | 72 | 169 | 168 | 75 | 188 | 119 | 66 | |||||||
533 | 788 | 6,204 | 996 | 1,557 | 1,482 | 481 | ||||||||
Unconsolidated entities controlled by Eni | ||||||||||||||
Agip Kazakhstan North Caspian Operating Co NV | 27 | 132 | 18 | 16 | 57 | |||||||||
Eni BTC Ltd | 185 | |||||||||||||
Eni Timor Leste SpA | 102 | |||||||||||||
Other (*) | 20 | 30 | 8 | 1 | 4 | 8 | 4 | |||||||
47 | 162 | 295 | 19 | 20 | 8 | 61 | ||||||||
580 | 950 | 6,499 | 1,015 | 1,577 | 1,490 | 542 | ||||||||
Entities owned or controlled by the Government | ||||||||||||||
Alitalia | 12 | 354 | ||||||||||||
Enel | 162 | 42 | 47 | 33 | 1,068 | 383 | ||||||||
Other (*) | 42 | 29 | 4 | 44 | 136 | 1 | ||||||||
216 | 71 | 51 | 77 | 1,558 | 384 | |||||||||
796 | 1,021 | 6,499 | 1,066 | 1,654 | 3,048 | 926 | ||||||||
Joint ventures and affiliated companies | |||||||||||||||
Albacom SpA | 22 | 88 | |||||||||||||
Blue Stream Pipeline Co BV | 2 | 768 | 29 | ||||||||||||
EnBW - Eni Verwaltungsgesellschaft mbH | 250 | ||||||||||||||
Raffineria di Milazzo ScpA | 107 | ||||||||||||||
Spanish Egyptian Gas Co SAE | 404 | 9 | |||||||||||||
Trans Austria Gasleitung GmbH | 389 | 9 | |||||||||||||
Transmediterranean Pipeline Co Ltd | 197 | 9 | |||||||||||||
Other (*) | 52 | 91 | 55 | 9 | 11 | ||||||||||
660 | 93 | 1,672 | 9 | 67 | |||||||||||
Unconsolidated subsidiaries | |||||||||||||||
Other (*) | 71 | 54 | 2 | 4 | 2 | ||||||||||
71 | 54 | 2 | 4 | 2 | |||||||||||
731 | 147 | 1,674 | 13 | 69 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
F-87
Trade and other transactions in 2007 consisted of the following:
(million euro) | Dec. 31, 2007 | 2007 | ||
Costs | Revenues | ||
Name | Receivables | Payables | Guarantees | Goods | Services | Goods | Services | |||||||
Joint ventures and affiliates | ||||||||||||||
ASG Scarl | 6 | 43 | 121 | 108 | 3 | |||||||||
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH | 11 | 86 | ||||||||||||
Blue Stream Pipeline Co BV | 19 | 183 | 1 | |||||||||||
Bronberger & Kessler und Gill & Schweiger GmbH | 18 | 106 | ||||||||||||
CEPAV (Consorzio Eni per l’Alta Velocità) Uno | 84 | 70 | 5,870 | 263 | ||||||||||
CEPAV (Consorzio Eni per l’Alta Velocità) Due | 1 | 1 | 64 | 1 | 1 | |||||||||
Eni Oil Co Ltd | 7 | 60 | 141 | 1 | ||||||||||
Fox Energy Srl | 49 | 139 | ||||||||||||
Gasversorgung Süddeutschland GmbH | 54 | 195 | 4 | |||||||||||
Gruppo Distribuzione Petroli Srl | 26 | 50 | ||||||||||||
Karachaganak Petroleum Operating BV | 43 | 102 | 24 | 301 | 7 | |||||||||
Mellitah Gas BV | 10 | 137 | 105 | 1 | 6 | |||||||||
OOO "EniNeftegaz" | 215 | 1 | ||||||||||||
Petrobel Belayim Petroleum Co | 60 | 211 | ||||||||||||
Raffineria di Milazzo ScpA | 17 | 21 | 245 | 118 | 5 | |||||||||
Supermetanol CA | 11 | 78 | 1 | |||||||||||
Super Octanos CA | 18 | 201 | 1 | |||||||||||
Trans Austria Gasleitung GmbH | 6 | 80 | 43 | 147 | 47 | |||||||||
Transitgas AG | 8 | 64 | ||||||||||||
Transmediterranean Pipeline Co Ltd | 6 | 70 | 1 | |||||||||||
Unión Fenosa Gas SA | 1 | 61 | 193 | |||||||||||
Other (*) | 120 | 127 | 56 | 76 | 374 | 122 | 118 | |||||||
687 | 744 | 6,172 | 422 | 1,950 | 1,011 | 459 | ||||||||
Unconsolidated entities controlled by Eni | ||||||||||||||
Agip Kazakhstan North Caspian Operating Co NV | 49 | 111 | 11 | 534 | 52 | |||||||||
Eni BTC Ltd | 138 | 1 | ||||||||||||
Other (*) | 23 | 8 | 11 | 2 | 18 | 5 | 18 | |||||||
72 | 119 | 149 | 13 | 552 | 5 | 71 | ||||||||
759 | 863 | 6,321 | 435 | 2,502 | 1,016 | 530 | ||||||||
Entities owned or controlled by the Government | ||||||||||||||
Alitalia | 4 | 363 | 1 | |||||||||||
Enel | 384 | 8 | 245 | 894 | 408 | |||||||||
GSE - Gestore Servizi Elettrici | 124 | 63 | 239 | 37 | 870 | 7 | ||||||||
Terna SpA | 19 | 69 | 106 | 105 | 31 | |||||||||
Other (*) | 45 | 79 | 19 | 89 | 75 | 3 | ||||||||
576 | 219 | 364 | 476 | 2,202 | 450 | |||||||||
1,335 | 1,082 | 6,321 | 799 | 2,978 | 3,218 | 980 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
Certain engineering, construction and maintenance services were acquired from the Cosmi Holding Group, related to Eni through a member of the Board of Directors. Relevant transactions which were executed on an arm's length basis amounted to approximately euro 18 million, euro 13 million and euro 18 million in 2005, 2006 and 2007, respectively.
Most significant transactions concerned:
F-88
Financing transactions
Financing transactions in 2005 were as follows:
(million euro) | Dec. 31, 2005 | 2005 | ||
Name | Receivables | Payables | Guarantees | Charges | Gains | |||||
Joint ventures and affiliates | ||||||||||
Blue Stream Pipeline Co BV | 15 | 887 | ||||||||
Raffineria di Milazzo ScpA | 72 | |||||||||
Spanish Egyptian Gas Co SAE | 360 | |||||||||
Trans Austria Gasleitung GmbH | 386 | 12 | ||||||||
Transmediterranean Pipeline Co Ltd | 190 | 11 | ||||||||
Other (*) | 74 | 125 | 81 | 27 | 47 | |||||
650 | 140 | 1,400 | 27 | 70 | ||||||
Unconsolidated entities controlled by Eni | ||||||||||
Other (*) | 79 | 30 | 34 | 1 | 2 | |||||
79 | 30 | 34 | 1 | 2 | ||||||
729 | 170 | 1,434 | 28 | 72 | ||||||
Joint ventures and affiliated companies | |||||||||||||||
Blue Stream Pipeline Co BV | 15 | 887 | |||||||||||||
Raffineria di Milazzo ScpA | 72 | ||||||||||||||
Spanish Egyptian Gas Co SAE | 360 | ||||||||||||||
Trans Austria Gasleitung GmbH | 386 | 12 | |||||||||||||
Transmediterranean Pipeline Co Ltd | 190 | 11 | |||||||||||||
Other (*) | 74 | 125 | 81 | 27 | 47 | ||||||||||
650 | 140 | 1,400 | 27 | 70 | |||||||||||
Unconsolidated subsidiaries | |||||||||||||||
Other (*) | 79 | 30 | 34 | 1 | 2 | ||||||||||
79 | 30 | 34 | 1 | 2 | |||||||||||
729 | 170 | 1,434 | 28 | 72 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
F-89
Most significantFinancing transactions in 2005 included:
33 Adjustment of the Consolidated Financial Statements to U.S. GAAP
As its shares are listed on the New York Stock Exchange, Eni files an Annual Report (Form 20-F) with the Securities and Exchange Commission (SEC). The following information is necessary to reconcile the Italian consolidated annual report for the 2005 to generally accepted accounting principles in the United States (U.S. GAAP).
Summary of significant differences between IFRS and U.S. GAAP
Eni’s financial statements at December 31, 2005 have been prepared in accordance with International Financial Reporting Standards (IFRS)16 adopted by the European Commission, which differ in certain respects from U.S. GAAP. A description of the significant differences and their effects on net profit and shareholders’ equity is set forth in the following notes17. Compared with the Italian accounting principles applied until December 31, 2004 the differences between IFRS and U.S. GAAP are considerably fewer.
A) Consolidation policy
Eni’s consolidation policy is described under "Principles of consolidation" in Note 12 to the Consolidated Financial Statements. In particular, under IFRS, the Consolidated Financial Statements include also companies in which Eni holds less than 50% of the voting rights, but over which it exercises control in shareholders’ meetings.
Under U.S. GAAP, investments of less than 50% are accounted for by applying the equity method. Saipem SpA (43.26%), and its subsidiaries which are controlled by Eni without holding the majority of voting rights have been consolidated under the equity method for U.S. GAAP purposes.
B) Exploration & production activities
Exploration
Under IFRS, the internationally specific criteria have been applied for hydrocarbons exploration and production activities. In particular, exploration costs, including successful exploratory wells, are recorded2006 were as intangible assets and are amortized in full in the period incurred (i.e. expensed as incurred for financial reporting purposes). Costs for the acquisition of exploration permits are capitalized and amortized over the expected period of benefit.follows:
Under U.S. GAAP, costs relating to exploratory wells are initially capitalized as "incomplete wells and other" until it is determined if commercial quantities of reserves have been discovered ("successful efforts method"). That determination is made after completion of drilling the well, and the capitalized costs are either charged to expense or reclassified as part of Eni’s proved mineral interests. Costs of exploratory wells that have found commercially producible quantities of reserves that cannot be classified as proved remain capitalized after the completion of drilling if: (i) such wells have found a sufficient quantity of reserves to justify completion as a producing wells; (ii) the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if an enterprise obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well is assumed to be impaired, and its costs, net of any salvage value, are charged to expense. Capitalized well costs related to proved properties are amortized over proved developed reserves on the basis of units of production. Other exploration costs, including geological and geophysical surveys, are expensed when incurred.
Development
Development costs are those costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing oil and gas. Costs to operate and maintain wells and field equipment are expensed as incurred.
Under IFRS, costs of unsuccessful development wells are expensed immediately. Costs of successful development wells are capitalized and amortized on the basis of units of production.
Under U.S. GAAP, costs of productive wells and development dry holes, both tangible and intangible, are capitalized and amortized on UOP method.
C) Valuation of assets and subsequent revaluation
Both IFRS and U.S. GAAP require that assets which are impaired be written down to their fair value, with the exception of the following aspects.
Under IFRS, in order to determine whether an impairment exists, the book value of an asset in question is compared with its recoverable amount which is represented by the greater of fair value, net of disposal costs and value in use, which is calculated by discounting estimated cash flows arising from the use of the asset and its sale at the end of its useful life. Impairment charges of assets different from goodwill are reversed when the situation giving rise to an impairment ceases to exist.
Under U.S. GAAP, the recoverability of the value of an asset used in the production process is first checked by comparing the carrying amount with the sum of undiscounted cash flows expected from use of the asset and its disposal at the end of its useful life. Only if the result of this first check is negative does the entity write the asset down using discounted future cash flows. Under U.S. GAAP reversals of impairment charges are not permitted.
D) Deferred tax assets and liabilities
Under IFRS, taxes payable relating to certain potential distributions from shareholders’ equity or upon liquidation of a company are accrued only to the extent such distributions are planned.
Under U.S. GAAP, deferred tax liabilities are recognized regardless of expected distribution of dividends or the disposal of investments. However, U.S. GAAP does not require the accrual of deferred taxes when the investment is a foreign subsidiary and there is sufficient evidence that profits will remain permanently invested in the entity.
The adjustments included in Note 34 include the recognition of deferred taxes on undistributed earnings of subsidiaries and deferred taxes on acquired temporary differences. The adjustments also include the deferred tax effect of U.S. GAAP adjustments.
The adjustment relating to the results of 2005 includes the impact of the circumstance that starting on January 1, 2005, the Company recorded for U.S. GAAP purposes the tax effects of temporary differences of activities conducted under the terms of certain Production Sharing Agreements where the company’s income tax liability is paid out of Eni’s share of oil and gas production. The effect of recording did not have a material effect on the Company’s results of operations.
E) Intangible assets
Under U.S. GAAP intangible assets include the recording, separately from goodwill, of assets acquired in or following business combinations arising from legal or contractual rights regardless of their ability to be transferred and of other assets owned by the entity that can be transferred individually or together with other assets and liabilities. If such intangible assets have definite lives they are amortized by the straight line method over their useful lives.
IFRS are consistent with U.S. GAAP. However, considering that in the first application of IFRS, Eni has decided not to restate business combinations, the value of the intangible assets described is recorded in the item "Goodwill".
Both under U.S. GAAP and IFRS, goodwill and intangible assets with an indefinite useful life are not amortized; these assets are subject to a yearly evaluation in order to define the relevant impairment if needed. Such accounting principles have been adopted starting from January 1, 2002 for U.S. GAAP and January 1, 2004 for IFRS. The adjustments for the reconciliation of the shareholders equity included in Note 34 concern the reversal of the amortization of goodwill for the years 2002 and 2003.
F) Valuation of Inventories
Under U.S. GAAP, crude oil, petroleum products and natural gas inventories are calculated using the LIFO method.
Under IFRS the LIFO method is not permitted.
34 Reconciliation of net profit and shareholders’ equity determined under IFRS to U.S. GAAP
The following is a summary of the significant adjustments to net profit for 2004 and 2005 and to shareholders’ equity as of December 31, 2004 and as of December 31, 2005 that would be required if U.S. GAAP had been applied instead of IFRS in the Consolidated Financial Statements.
(million euro) | 2004 | 2005 | ||
Net profit according to the financial statements prepared under IFRS | 7,059 | 8,788 | ||||
Items increasing (decreasing) reported net profit: | ||||||
A. effect of the differences related to companies consolidated under IFRS but carried at equity method under U.S. GAAP | (1 | ) | ||||
B. successful-efforts accounting | (82 | ) | 47 | |||
C. elimination of assets impairments and revaluations | 5 | |||||
D. deferred income taxes | (21 | ) | (279 | ) | ||
E. assets associated to the acquisition of a company (portfolio of clients) | (5 | ) | (5 | ) | ||
F. valuation of inventories | (316 | ) | (956 | ) | ||
Effect of the difference between IFRS and U.S. GAAP on investments accounted for using the equity method | 34 | 12 | ||||
Other adjustments (a) | (280 | ) | (3 | ) | ||
Effect of U.S. GAAP adjustments on minority interest (b) | 8 | (21 | ) | |||
Net adjustment | (658 | ) | (1,205 | ) | ||
Net profit in accordance with U.S. GAAP | 6,401 | 7,583 | ||||
Basic profit per share (c) | 1.70 | 2.02 | ||||
Diluted profit per share (c) | 1.70 | 2.01 | ||||
Basic profit per ADS (based on two shares per ADS) (c) | 3.39 | 4.03 | ||||
Diluted profit per ADS (based on two shares per ADS) (c) | 3.39 | 4.03 |
(million euro) | Dec. 31, |
| ||
Name | Receivables | Payables | Guarantees | Charges | Gains | |||||
Joint ventures and affiliates | ||||||||||
Blue Stream Pipeline Co BV | 3 | 794 | 4 | 26 | ||||||
Raffineria di Milazzo ScpA | 57 | |||||||||
Spanish Egyptian Gas Co SAE | 323 | 6 | ||||||||
Trans Austria Gasleitung GmbH | 41 | |||||||||
Transmediterranean Pipeline Co Ltd | 147 | 11 | ||||||||
Other (*) | 88 | 81 | 39 | 13 | 11 | |||||
276 | 84 | 1,213 | 17 | 54 | ||||||
Unconsolidated entities controlled by Eni | ||||||||||
Other (*) | 95 | 25 | 2 | 1 | 4 | |||||
95 | 25 | 2 | 1 | 4 | ||||||
371 | 109 | 1,215 | 18 | 58 |
Shareholders’ equity according to the financial statements prepared under IFRS | 32,374 | 36,868 | ||||
Items increasing (decreasing) reported shareholders’ equity (a): | ||||||
A. effect of the differences related to companies consolidated under IFRS but carried at equity method under U.S. GAAP | 61 | 37 | ||||
B. successful-efforts accounting | 2,072 | 2,504 | ||||
C. elimination of assets impairments and revaluations | 231 | 230 | ||||
D. deferred income taxes | (2,982 | ) | (3,415 | ) | ||
E. goodwill | 846 | 811 | ||||
F. assets associated with the acquisition of a company (portfolio of clients) | (11 | ) | (16 | ) | ||
G. valuation of inventories | (1,080 | ) | (2,036 | ) | ||
Effect of the difference between IFRS and U.S. GAAP on investments accounted for using the equity method | 269 | 173 | ||||
Other adjustments | (137 | ) | ||||
Effect of U.S. GAAP adjustments on minority interest (b) | 6 | (31 | ) | |||
Net adjustment | (725 | ) | (1,743 | ) | ||
Shareholders’ equity in accordance with U.S. GAAP | 31,649 | 35,125 |
The consolidated balance sheets, if determined under U.S. GAAP would have beenFinancing transactions in 2007 were as follows:
(million euro) | Dec. 31, |
| ||
Name | Receivables | Payables | Guarantees | Charges | Gains | |||||
Joint ventures and affiliates | ||||||||||
Blue Stream Pipeline Co BV | 1 | 711 | 20 | |||||||
Raffineria di Milazzo ScpA | 60 | |||||||||
Trans Austria Gasleitung GmbH | 65 | 3 | ||||||||
Transmediterranean Pipeline Co Ltd | 97 | 9 | ||||||||
Other (*) | 108 | 120 | 52 | 19 | 11 | |||||
270 | 121 | 823 | 19 | 43 | ||||||
Unconsolidated entities controlled by Eni | ||||||||||
Other (*) | 114 | 26 | 1 | 1 | 6 | |||||
114 | 26 | 1 | 1 | 6 | ||||||
Entities owned or controlled by the Government | ||||||||||
Other (*) | 39 | 49 | ||||||||
39 | 49 | |||||||||
384 | 147 | 824 | 59 | 98 |
ASSETS | ||||||
Current assets | ||||||
Cash and cash equivalent | 988 | 1,121 | ||||
Other financial assets for trading or available for sale | 1,475 | 1,484 | ||||
Trade and other receivables | 13,268 | 17,971 | ||||
Inventories | 2,273 | 1,929 | ||||
Income tax receivables | 636 | 575 | ||||
Other current assets | 494 | 387 | ||||
Total current assets | 19,134 | 23,467 | ||||
Non-current assets | ||||||
Property, plant and equipment | 39,652 | 43,868 | ||||
Inventories - compulsory stock | 662 | 1,462 | ||||
Intangible assets | 5,125 | 5,244 | ||||
Investments accounted for using the equity method | 3,892 | 4,589 | ||||
Other investments | 439 | 416 | ||||
Other financial assets | 2,015 | 1,105 | ||||
Deferred tax assets | 1,159 | 1,847 | ||||
Other non-current assets | 276 | 979 | ||||
Total non-current assets | 53,220 | 59,510 | ||||
TOTAL ASSETS | 72,354 | 82,977 | ||||
LIABILITIES AND EQUITY | ||||||
Current liabilities | ||||||
Current financial liabilities | 4,474 | 4,916 | ||||
Current portion of long-term debt | 935 | 809 | ||||
Trade and other payables | 9,392 | 11,552 | ||||
Taxes payable | 2,423 | 3,296 | ||||
Other current liabilities | 594 | 648 | ||||
Total current liabilities | 17,818 | 21,221 | ||||
Non-current liabilities | ||||||
Long-term debt | 7,288 | 7,229 | ||||
Provisions for contingencies | 5,720 | 7,615 | ||||
Provisions for employee benefits | 746 | 939 | ||||
Deferred tax liabilities | 6,367 | 8,370 | ||||
Other non-current liabilities | 461 | 1,015 | ||||
Total non-current liabilities | 20,582 | 25,168 | ||||
TOTAL LIABILITIES | 38,400 | 46,389 | ||||
SHAREHOLDERS’ EQUITY | ||||||
Minority interests | 2,305 | 1,463 | ||||
Eni shareholders’ equity: | ||||||
Share capital: 4,005,358,876 fully paid shares nominal value euro 1 each (4,004,424,476 shares at December 31, 2004) | 4,004 | 4,005 | ||||
Other reserves | 24,473 | 27,753 | ||||
Net profit | 6,401 | 7,583 | ||||
Treasury shares | (3,229 | ) | (4,216 | ) | ||
Eni shareholders’ equity | 31,649 | 35,125 | ||||
Total shareholders’ equity | 33,954 | 36,588 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 72,354 | 82,977 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
Most significant transactions in 2007 included:
Fixed assets determined under U.S. GAAPF-90
Impact of transactions and positions with related parties on the balance sheet, net profit and cash flows
The impact of transactions and positions with related parties on the balance sheet, net profit and cash flows consisted of the following:
Dec. 31, | Dec. 31, | Dec. 31, 2007 | ||||
Fixed assets, gross: | ||||||
- Exploration & Production | 39,584 | 47,882 | ||||
- Gas & Power | 20,106 | 21,514 | ||||
- Refining & Marketing | 8,568 | 9,059 | ||||
- Petrochemicals | 3,793 | 3,923 | ||||
- Oilfield Services Construction and Engineering | 110 | 72 | ||||
- Other activities | 1,511 | 1,413 | ||||
- Corporate and financial companies | 191 | 212 | ||||
- Elimination of intra-group profits | (88 | ) | ||||
73,863 | 83,987 | |||||
Accumulated depreciation and amortization: | ||||||
- Exploration & Production | 18,155 | 22,786 | ||||
- Gas & Power | 6,896 | 7,754 | ||||
- Refining & Marketing | 5,214 | 5,503 | ||||
- Petrochemicals | 2,564 | 2,715 | ||||
- Oilfield Services Construction and Engineering | 69 | 56 | ||||
- Other activities | 1,229 | 1,221 | ||||
- Corporate and financial companies | 84 | 88 | ||||
- Elimination of intra-group profits | (4 | ) | ||||
34,211 | 40,119 | |||||
Fixed assets, net: | ||||||
- Exploration & Production | 21,429 | 25,096 | ||||
- Gas & Power | 13,210 | 13,760 | ||||
- Refining & Marketing | 3,354 | 3,556 | ||||
- Petrochemicals | 1,229 | 1,208 | ||||
- Oilfield Services Construction and Engineering | 41 | 16 | ||||
- Other activities | 282 | 192 | ||||
- Corporate and financial companies | 107 | 124 | ||||
- Elimination of intra-group profits | (84 | ) | ||||
39,652 | 43,868 |
With regard to the profit and loss account, operating profit (loss) by industry segment and profit before income taxes, as determined under U.S. GAAP, would have been as follows:
(million euro) | 2004 | 2005 | ||
Operating profit (loss) by industry segment | ||||||
Exploration & Production | 7,946 | 12,672 | ||||
Gas & Power | 3,371 | 3,237 | ||||
Refining & Marketing | 811 | 881 | ||||
Petrochemicals | 281 | 202 | ||||
Oilfield Services Construction and Engineering | (52 | ) | 1 | |||
Other activities | (364 | ) | (935 | ) | ||
Corporate and financial companies | (254 | ) | (389 | ) | ||
Elimination of intra-group profits | (141 | ) | ||||
11,739 | 15,528 | |||||
Net profit before income taxes | 12,324 | 16,281 |
35 Additional financial statement disclosures required by U.S. GAAP and the SEC
Charges related to asset retirement obligations (SFAS 143)
Changes in asset retirement obligations during the year were:
(million euro) | 2004 | 2005 | ||
Asset retirement obligations as of January 1 | 1,950 | 1,959 | ||||
New obligations incurred during the year | 193 | 311 | ||||
Accretion discount | 80 | 106 | ||||
Revisions of previous estimates | 40 | 277 | ||||
Spending on existing obligations | (32 | ) | (107 | ) | ||
Property dispositions | (234 | ) | ||||
Foreign currency translation | (36 | ) | 110 | |||
Other adjustments | (2 | ) | (10 | ) | ||
Asset retirement obligations as of December 31 | 1,959 | 2,646 |
Revisions of previous estimates were made in connection with higher estimated costs for the retirement and removal of assets pertaining to certain fields located mainly in United Kingdom, Norway and Kazakhstan.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations – An Interpretation of FASB Statement No. 143" (FIN 47), which was effective for the company on December 31, 2005. In adopting FIN 47, the company did not recognize any additional liabilities for conditional retirement obligations.
Income taxes
The following information is presented according to Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". Domestic and foreign components of pre-tax income were as follows:
(million euro) | 2004 | 2005 | ||
Domestic | 5,468 | 4,727 | ||||||||||
Foreign | 6,856 | 11,554 | ||||||||||
12,324 | 16,281 |
The provisions for income taxes were as follows:
(million euro) | 2004 | 2005 | ||
Current | 4,470 | 7,217 | ||||||||||
Deferred | 1,112 | 1,116 | ||||||||||
5,582 | 8,333 | |||||||||||
Domestic | 2,197 | 2,066 | ||||||||||
Foreign | 3,385 | 6,267 |
The reconciliation of the income tax provision calculated under Italian tax regulation by applying a 33% rate (Ires - national corporate income tax) to pre-tax income and a 4.25% rate (Irap - regional income tax) to net value of production, to the provision for income taxes recorded on a U.S. GAAP basis in the consolidated statements of income is as follows:
(million euro) | 2004 | 2005 | ||
Income before tax in accordance with U.S. GAAP | 12,324 | 16,281 | ||||
Italian statutory tax rate (state and local) | 38.3 | 37.9 | ||||
Expected income tax provision in accordance with U.S. GAAP at Italian statutory tax rate | 4,714 | 6,176 | ||||
Effect of items increasing (decreasing) the Italian statutory tax rate: | ||||||
- taxation of foreign operations at rates different from Italian statutory tax rate | 835 | 1,946 | ||||
- taxes on distributable reserves | 446 | 252 | ||||
- permanent differences | (143 | ) | 131 | |||
- devaluation/revaluation of deferred tax assets | (218 | ) | (52 | ) | ||
- benefits deriving from the application of favorable tax laws | (8 | ) | (11 | ) | ||
- other | (44 | ) | (109 | ) | ||
5,582 | 8,333 |
Income taxes in accordance with U.S GAAP
Net deferred tax liabilities
The tax effects of significant temporary differences causing the tax liabilities were as follows:
(million euro) |
|
| ||
Related parties | Impact % |
Deferred tax liabilities: | ||||||
- accelerated depreciation | 4,672 | 6,006 | ||||
- distributable reserves subject to taxes in case of distribution | 2,970 | 3,212 | ||||
- excess cost paid for the acquisition of consolidated investments | 1,033 | 485 | ||||
- successful-efforts method accounting | 467 | 690 | ||||
- capitalization of interest expense | 246 | 245 | ||||
- provisions for uncollectible receivables | 137 | 84 | ||||
- release of excess contingency provisions | 83 | 50 | ||||
- gains taxable in the future | 46 | 34 | ||||
- other (a) | 378 | 1,151 | ||||
10,032 | 11,957 | |||||
Deferred tax assets: | ||||||
- accruals for doubtful accounts and contingencies | (2,045 | ) | (1,949 | ) | ||
- revaluation of assets in accordance with Law 342/2000 and 448/2001 | (2,000 | ) | (1,186 | ) | ||
- tax loss carryforwards | (1,072 | ) | (510 | ) | ||
- undeductible expense on investments | (472 | ) | (237 | ) | ||
- losses on investments and subsidiaries in excess of currently allowable tax deductions | (225 | ) | (135 | ) | ||
- undeductible depreciation and amortization of assets | (432 | ) | (904 | ) | ||
- other (a) | (599 | ) | (1,062 | ) | ||
(6,845 | ) | (5,983 | ) | |||
Less: | ||||||
- valuation allowance | 2,021 | 549 | ||||
(4,824 | ) | (5,434 | ) | |||
Net deferred tax liabilities | 5,208 | 6,523 |
Total | ||
The valuation allowance relates to deferred tax assets of euro 549 million (euro 2,021 million at December 31, 2004) of consolidated companies whose expected future fiscal profits are not considered sufficient for the utilization of these assets.
Tax loss carryforwards
The difference in gross tax loss carryforwards between IFRS and U.S. GAAP relates to the companies which are consolidated under IFRS (see Note 21), but excluded from consolidation according to U.S. GAAP.
Investments
At December 31, 2004 and 2005, investments accounted for under the equity method of euro 3,892 million and euro 4,589 million, respectively, included shares of Saipem SpA, which is publicly listed on the Italian Stock Exchange. The following information includes its fair value:
Impact % |
|
|
|
| ||||
December 31, 2004 | ||||||||||||
Saipem SpA | 189,423,307 | 43.29 | 8.864 | 1,679 | ||||||||
December 31, 2005 | ||||||||||||
Saipem SpA | 189,423,307 | 43.26 | 13.793 | 2,613 |
In 2004 and 2005, Saipem SpA was included in the consolidation under IFRS, while, under U.S. GAAP, it is valued under the equity method. Information about Saipem SpA and its subsidiaries, representing a 100% share of the companies, is as follows:
|
| |||
Total assets | 5,137 | 5,968 | ||
- current | 2,514 | 3,101 | ||
- non current | 2,623 | 2,867 | ||
Total liabilities | 3,592 | 4,325 | ||
- current | 2,941 | 3,633 | ||
- non current | 651 | 692 |
(million euro) | 2004 | 2005 | ||
Net sales from operations | 4,306 | 4,528 | ||||||||||
Operating profit | 328 | 365 | ||||||||||
Net profit | 235 | 255 |
Concentrations and certain significant estimates
The following information is presented according to Statement of Position 94-6 "Disclosures of Certain Significant Risks and Uncertainties".
Nature of operations
Eni is an integrated energy company operating in the oil and gas, electricity generation, petrochemicals and oilfield services and engineering industries.
EXPLORATION & PRODUCTION: through Exploration & Production Division and subsidiaries, Eni engages in hydrocarbon exploration and production in Italy, North Africa (Algeria, Egypt, Libya and Tunisia), West Africa (Angola, Congo and Nigeria), the North Sea (Norway and the United Kingdom), Latin America (Venezuela), the former Soviet Union countries (mainly Kazakhstan), the United States (Gulf of Mexico and Alaska) and Asia (mainly Saudi Arabia, China, India, Indonesia, Iran and Pakistan). In 2005 approximately 68% of oil production sold was supplied to Eni’s Refining & Marketing segment and approximately 29% of natural gas production sold was supplied to Eni’s Gas & Power segment.
Eni owns a storage system, made up by eight depleted fields, which is used for the modulation of supply in accordance with seasonal swings in demand (natural gas is stored in the summer and used in the winter), as strategic reserve to ensure supply and to support domestic production through mineral storage. Storage assets are owned by Stoccaggi Gas Italia (Eni 100%), a company constituted in accordance with Law Decree No. 164 of May 23, 2000 that introduced laws for the liberalization of the Italian natural gas market.
GAS & POWER: Eni is engaged in the supply, transmission and sale of natural gas in Italy and outside Italy through its Gas & Power Division, which was constituted by the incorporation of Snam SpA into Eni SpA in 2002, and through certain subsidiaries. Approximately 87% of total purchases are purchased from foreign sources (primarily Algeria, Russia, The Netherlands and Norway) under long-term contracts, which contain take-or-pay provisions, and transported to Italy through a network of over 4,300 kilometers international pipelines of which Eni owns the transmission rights. The remaining purchases in Italy are obtained principally from domestic gas produced by Eni’s Exploration & Production segment. Through an approximately 30,700-kilometer long network (corresponding to 96% of the Italian domestic natural gas network), Eni supplies natural gas to residential and commercial users (civil market), industrial users and the thermoelectric segment. Snam Rete Gas (Eni 50.05%), that was constituted in accordance with Law Decree No. 164/2000, owns the pipelines network used by Eni. Snam Rete Gas, a company listed on the Italian stock exchange, engages in natural gas transportation activities also for other operators of the segment. Following the merging of Italgas Più, Eni supply natural gas directly to approximately 5 million customers in the residential and commercial segment. Through Italgas (Eni 100%), Eni is engaged in domestic distribution of natural gas in Italy through an approximately 48,000-kilometer long network.
Eni is engaged in distribution and sale of natural gas to residential and commercial customers outside Italy, in Argentina through Distribuidora de Gas Cuyana, in Hungary through Tigáz and in Slovenia through Adriaplin doo.
Legislative Decree No. 164 of May 23, 2000 introduced laws for the liberalization of the Italian natural gas market with great impact on Eni’s activities, as the company is present in all the phases of the natural gas chain. The most important aspects of the decree are the following:
Eni through EniPower SpA (Eni 100%) and subsidiaries is engaged managing Eni’s electricity business at the power plants located in the Ferrera Erbognone, Ravenna, Livorno, Taranto, Mantova, Brindisi and Ferrara industrial sites with installed capacity of 4.5 gigawatt and a production sold of 22.77 terawatthours. The demand for gas and fuel oils of EniPower’s stations is met by Eni supplies.
REFINING & MARKETING: Eni, through its Refining & Marketing Division, which was constituted by the incorporation of AgipPetroli SpA in Eni SpA in 2002 and certain subsidiaries, engages in petroleum refining and marketing activities primarily in Italy and Europe. Eni is the largest refiner of petroleum products in Italy in terms of overall refining capacity. Approximately 56% of crude oil sold is purchased from Eni’s Exploration & Production segment, the rest is purchased from producing countries pursuant to purchase contracts (22%) and in international spot markets (22%), while the remainder is obtained. Approximately 58% of the purchased crude oil is refined. 32% of oil refined derives from the production of Eni’s Exploration & Production segment.
PETROCHEMICALS: through Polimeri Europa SpA and subsidiaries (Eni 100%), Eni engages in manufacturing of olefins, aromatics, intermediate products, styrene and elastomers. Eni’s petrochemicals production is concentrated in Italy, the other operations being primarily in Western Europe. Approximately 23% of the oil-based feedstock requirements used by petrochemical plants are supplied by Eni’s Refining & Marketing segment.
OILFIELD SERVICES CONSTRUCTION AND ENGINEERING: through Saipem SpA (Eni 43%), a company listed on the Italian stock exchange, and its subsidiaries, Eni is engaged in construction and drilling services to customers in the oil and gas industries. Through Snamprogetti SpA (Eni 100%) and subsidiaries, Eni is a leading provider of engineering and project management services to customers in the oil and gas and petrochemical industries. At December 31, 2005 approximately 7% of the order backlog of Eni’s Oilfield Services, Construction and Engineering segment related to orders from Eni Group companies.
Disclosure in accordance with SFAS No. 107
In accordance with FAS No. 107, fair value of Eni’s long-term debt (including the current portion) amounted to euro 8,384 million and euro 8,437 million at December 31, 2005 and 2004, respectively.
Accounting for Suspended Well Costs
Refer to Note 33 "Adjustment of the Consolidated Financial Statements to U.S. GAAP" under the caption "B) Exploration & Production activities" for a discussion of the company’s accounting policy for the cost of exploratory wells.
Effective January 1, 2005 Eni adopted Position FAS 19-1 (FSP 19-1), "Accounting for Suspended Well Costs." FSP 19-1 amended Statement of Financial Accounting Standards No. 19 (FAS 19), "Financial Accounting and Reporting by Oil and Gas Producing Companies". Under this provision companies in the oil and gas industry are allowed to continue capitalization of an exploratory well after the completion of drilling when: (a) the well has found a sufficient quantity of reserves to justify completion as a producing well; and (b) the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if an enterprise obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well would be assumed to be impaired, and its costs, net of any salvage value, would be charged to expense. FSP FAS 19-1 provided a number of indicators needing to be present to demonstrate sufficient progress was being made in assessing the reserves and economic viability of the project. Among these indicators are: (i) costs are being incurred to assess the reserves and their potential development; (ii) existence (or active negotiations) of sales contracts with customers for oil and natural gas; and (iii) existence of firm plans, established timetables or contractual commitments, which may include seismic testing and drilling of additional exploratory wells.
The disclosures and discussion below address those suggested in FSP FAS 19-1.
The following table reflects the net changes in capitalized exploratory well costs during 2005 and 2004, and does not include amounts that were capitalized and subsequently expensed in the same period. Capitalized exploratory well costs for fiscal years ending December 31, 2005 and 2004, are presented based on the Company’s previous accounting policy.
(million euro) | 2005 | 2004 | ||
Beginning balance at January 1 | 513 | 570 | ||||
Addition pending determination of proved reserves | 128 | 185 | ||||
Amount previously capitalized expended during the year | (96 | ) | (54 | ) | ||
Reclassification to wells, facilities and equipment basedon the determination of proved reserves | (67 | ) | (72 | ) | ||
Others reduction (*) | (1 | ) | (79 | ) | ||
Foreign exchange changes | 74 | (37 | ) | |||
Ending Balance at December 31 | 551 | 513 |
The following table provides an aging of capitalized exploratory well costs, based on the date the drilling was completed, and the number of net wells for which exploratory costs have been capitalized for the period:
2005 | 2004 | ||
|
|
|
| ||||
< 1 year | 148 | 9.35 | 156 | 11.14 | ||||
1 to 3 years | 323 | 24.09 | 319 | 27.55 | ||||
3 to 8 years | 80 | 5.53 | 39 | 3.80 | ||||
551 | 38.97 | 513 | 42.49 |
Trade and other receivables | 17,902 | 1,344 | 7.51 | 18,799 | 1,027 | 5.46 | 20,676 | 1,616 | 7.82 | |||||||||
Other current assets | 369 | 855 | 4 | 0.47 | 1,080 | |||||||||||||
Other non-current financial assets | 1,050 | 258 | 24.57 | 805 | 136 | 16.89 | 923 | 87 | 9.43 | |||||||||
Other non-current assets | 995 | 994 | 1,110 | 16 | 1.44 | |||||||||||||
Current financial liabilities | 4,612 | 152 | 3.30 | 3,400 | 92 | 2.71 | 7,763 | 131 | 1.69 | |||||||||
Trade and other payables | 13,095 | 1,164 | 8.89 | 15,995 | 961 | 6.01 | 17,116 | 1,021 | 5.97 | |||||||||
Other liabilities | 613 | 634 | 4 | 0.63 | 1,556 | 4 | 0.26 | |||||||||||
Long-term debt and current portion of long-term debt | 8,386 | 18 | 0.21 | 8,299 | 17 | 0.20 | 12,067 | 16 | 0.13 | |||||||||
Other non-current liabilities | 897 | 418 | 56 | 13.40 | 2,031 | 57 | 2.81 |
The following table provides, based on the date the drilling was completed, the capitalized costs and the related net well number at year end 2005 and 2004 divided by category of projects of exploratory activity.
2005 | 2004 | ||
|
|
|
| ||||
Project with wells drilled in the past 12 months | 148 | 9.35 | 156 | 11.14 | ||||
Project with recent or planned exploratory activity | 344 | 21.21 | 283 | 21.94 | ||||
Project with exploration activities already underwayor firmly planned: | ||||||||
- future exploration drilling | 159 | 9.37 | 148 | 10.29 | ||||
- other exploratory activities | 185 | 11.84 | 135 | 11.65 | ||||
Project with completed exploratory activity | 59 | 8.41 | 75 | 9.41 | ||||
Project progressing towards commercialization/sanctioning | 45 | 6.22 | 61 | 8.32 | ||||
Project waiting finalization of development facilities | 14 | 2.19 | 14 | 1.09 | ||||
Total/Number of wells at the year end | 551 | 38.97 | 513 | 42.49 |
The impact of transactions with related parties on the profit and loss accounts consisted of the following:
2005 | 2006 | 2007 | ||||
(million euro) | Total | Related parties | Impact % | Total | Related parties | Impact % | Total | Related parties | Impact % | |||||||||
Net sales from operations | 73,728 | 4,535 | 6.15 | 86,105 | 3,974 | 4.62 | 87,256 | 4,198 | 4.81 | |||||||||
Purchases, services and other | 48,567 | 3,429 | 7.06 | 57,490 | 2,720 | 4.73 | 58,179 | 3,777 | 6.49 | |||||||||
Financial income | 3,131 | 72 | 2.30 | 4,132 | 58 | 1.40 | 4,600 | 98 | 2.13 | |||||||||
Financial expense | 3,497 | 28 | 0.80 | 3,971 | 18 | 0.45 | 4,683 | 59 | 1.26 |
AtTransactions with related parties concerned the endordinary course of 2005Eni’s business and were mainly conducted on an arm’s length basis.
Main cash flows with related parties were as follows:
(million euro) | 2005 | 2006 | 2007 | |||
Revenues and other income | 4,535 | 3,974 | 4,198 | ||||||
Costs and other expenses | (3,429 | ) | (2,720 | ) | (3,777 | ) | |||
Net change in trade and other receivables and liabilities | (221 | ) | 162 | (492 | ) | ||||
Dividends and net interests | 345 | 790 | 620 | ||||||
Net cash provided from operating activities | 1,230 | 2,206 | 549 | ||||||
Capital expenditures in tangible and intangible assets | (474 | ) | (733 | ) | (779 | ) | |||
Investments | (30 | ) | (20 | ) | 8 | ||||
Change in accounts payable in relation to investments | 342 | (276 | ) | (8 | ) | ||||
Change in financial receivables | 2 | 343 | (43 | ) | |||||
Net cash used in investing activities | (160 | ) | (686 | ) | (822 | ) | |||
Change in financial liabilities | 23 | (57 | ) | 20 | |||||
Net cash used in financing activities | 23 | (57 | ) | 20 | |||||
Total financial flows to related parties | 1,093 | 1,463 | (253 | ) |
F-91
The impact of cash flows with related parties consisted of the following:
2005 | 2006 | 2007 | ||||
(million euro) | Total | Related parties | Impact % | Total | Related parties | Impact % | Total | Related parties | Impact % | |||||||||
Cash provided from operating activities | 14,936 | 1,230 | 8.24 | 17,001 | 2,206 | 12.98 | 15,517 | 549 | 3.54 | ||||||||||||||||||
Cash used in investing activities | (6,815 | ) | (160 | ) | 2.35 | (7,051 | ) | (686 | ) | 9.73 | (20,097 | ) | (822 | ) | 4.09 | ||||||||||||
Cash used in financing activities | (7,824 | ) | 23 | (7,097 | ) | (57 | ) | 0.80 | 2,909 | 20 | 0.69 |
37 Significant non-recurring events and operations
Non-recurring income (charges) consisted of the following:
(million euro) | 2005 | 2006 | 2007 | |||
Curtailment of post-retirement benefits for Italian employees | 83 | ||||||||
Risk provisions for proceedings against Antitrust authorities | (290 | ) | (184 | ) | (130 | ) | |||
Risk provisions for proceedings against the Italian Authority for Electricity and Gas | (55 | ) | 39 | ||||||
(290 | ) | (239 | ) | (8 | ) |
Non-recurring income related to a gain deriving from the curtailment of the provisions accrued by Italian companies for employee termination indemnities (“TFR”) following the changes introduced by Italian Budget Law for 2007 and related decrees (euro 83 million), more information is provided in the Note 23 - Provisions for employee benefits.
Non recurring charges concerned risk provisions related to ongoing antitrust proceedings against the European Antitrust authorities (euro 130 million) in the fields of paraffin and elastomers. The euro 55139 million of exploratory suspended costs, approximately euro 148 milliongain relating to proceeding before the Italian Authority for Electricity and Gas mainly related to the 9.35 net wellsannulment of a fine imposed in 2006 for which the drillingallegedly improper use of storage capacity in the Italian natural gas sector (euro 45 million).
In 2006 a risk provision was completedmade in one year or less. Ofconnection with a proceeding against the remaining euro 403 million, relatedItalian Antitrust authority regarding the field of supplies of jet fuel (euro 109 million). In addition a risk provision was made for an inquiry before the European Antitrust authorities in the field of elastomers (euro 75 million). In 2006 certain fines were imposed by the Authority for Electricity and Gas regarding an inquiry relating to the 29.62 net wells suspended for more than oneuse of storage capacity in thermal year since2006-2007 (euro 45 million) and an inquiry relating to an information requirement on natural gas supplying prices (euro 10 million).
In 2005 a risk provision was made in connection with a proceeding against the completionItalian Antitrust authority relating to an abuse of drilling, 85% was associated with projects for which exploration activitydominant position in the natural gas sector.
More information on these proceedings is still ongoing.included in Note 28 - Guarantees, commitments and risks - Legal Proceedings.
Subsequent events38 Positions or transactions deriving from atypical and/or unusual operations
In 2005, 2006 and in 2007 no transactions deriving from atypical and/or unusual operations were reported.
The main significant events that occurred after the balance sheet date are as follows:F-92
Supplemental39 Supplementary oil and gas information (unaudited)
The following information pursuant to “International Financial Reporting Standards” (IFRS) is presented in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures“Disclosures about Oil & Gas Producing Activities"Activities”. Amounts related to minority interestsinterest are not significant.
Capitalized costs
Capitalized costs represent the total expenditures for proved and unproved mineral interests and related support equipment and facilities utilized in oil and gas exploration and production activities, together with related accumulated depreciation, depletion and amortization. Capitalized costs by geographical area consisted of the following:
(million euro) | Italy | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
December 31, 2006 | ||||||||||||||||||||||||
Proved mineral interests | 10,267 | 8,273 | 8,004 | 8,333 | 1,570 | 6,447 | 42,894 | 427 | ||||||||||||||||
Unproved mineral interests | 33 | 143 | 402 | 382 | 39 | 964 | 1,963 | 35 | ||||||||||||||||
Support equipment and facilities | 276 | 1,238 | 451 | 33 | 37 | 60 | 2,095 | 8 | ||||||||||||||||
Incomplete wells and other | 582 | 399 | 612 | 110 | 1,342 | 564 | 3,609 | 31 | ||||||||||||||||
Gross capitalized costs | 11,158 | 10,053 | 9,469 | 8,858 | 2,988 | 8,035 | 50,561 | 501 | ||||||||||||||||
Accumulated depreciation, depletion and amortization | (6,958 | ) | (4,738 | ) | (5,231 | ) | (5,185 | ) | (413 | ) | (4,387 | ) | (26,912 | ) | (300 | ) | ||||||||
Net capitalized costs (a) (b) | 4,200 | 5,315 | 4,238 | 3,673 | 2,575 | 3,648 | 23,649 | 201 | ||||||||||||||||
December 31, 2007 | ||||||||||||||||||||||||
Proved mineral interests | 10,571 | 8,118 | 8,506 | 8,672 | 1,447 | 7,718 | 45,032 | 790 | ||||||||||||||||
Unproved mineral interests | 32 | 120 | 1,030 | 330 | 35 | 2,582 | 4,129 | 1,089 | ||||||||||||||||
Support equipment and facilities | 279 | 1,125 | 443 | 16 | 41 | 59 | 1,963 | 10 | ||||||||||||||||
Incomplete wells and other | 726 | 562 | 1,078 | 75 | 1,852 | 808 | 5,101 | 112 | ||||||||||||||||
Gross capitalized costs | 11,608 | 9,925 | 11,057 | 9,093 | 3,375 | 11,167 | 56,225 | 2,001 | ||||||||||||||||
Accumulated depreciation, depletion and amortization | (7,440 | ) | (4,960 | ) | (5,340 | ) | (5,670 | ) | (445 | ) | (4,909 | ) | (28,764 | ) | (345 | ) | ||||||||
Net capitalized costs (a) (b) | 4,168 | 4,965 | 5,717 | 3,423 | 2,930 | 6,258 | 27,461 | 1,656 |
At December 31, 2004 | ||||||||||||||||||
Proved mineral interests (a) | 9,056 | 7,192 | 6,288 | 7,198 | 7,698 | 37,432 | ||||||||||||
Unproved mineral interests | 272 | 70 | 561 | 1,103 | 2,006 | |||||||||||||
Support equipment and facilities | 252 | 1,056 | 209 | 33 | 75 | 1,625 | ||||||||||||
Incomplete wells and other | 662 | 468 | 1,038 | 397 | 882 | 3,447 | ||||||||||||
Gross Capitalized Costs | 9,970 | 8,988 | 7,605 | 8,189 | 9,758 | 44,510 | ||||||||||||
Accumulated depreciation, depletion and amortization | (6,416 | ) | (3,887 | ) | (3,907 | ) | (3,733 | ) | (3,252 | ) | (21,195 | ) | ||||||
Net Capitalized Costs | 3,554 | 5,101 | 3,698 | 4,456 | 6,506 | 23,315 | ||||||||||||
At December 31, 2005 | ||||||||||||||||||
Proved mineral interests (a) | 9,756 | 9,321 | 8,733 | 8,350 | 9,463 | 45,623 | ||||||||||||
Unproved mineral interests | 33 | 197 | 134 | 413 | 1,265 | 2,042 | ||||||||||||
Support equipment and facilities | 253 | 1,385 | 272 | 33 | 93 | 2,036 | ||||||||||||
Incomplete wells and other | 657 | 638 | 728 | 221 | 1,895 | 4,139 | ||||||||||||
Gross Capitalized Costs | 10,699 | 11,541 | 9,867 | 9,017 | 12,716 | 53,840 | ||||||||||||
Accumulated depreciation, depletion and amortization | (6,888 | ) | (5,113 | ) | (5,193 | ) | (4,619 | ) | (4,697 | ) | (26,510 | ) | ||||||
Net Capitalized Costs consolidated | 3,811 | 6,428 | 4,674 | 4,398 | 8,019 | 27,330 | ||||||||||||
Net Capitalized Costs affiliates and joint ventures (b) | 13 | 66 | 157 | 236 | ||||||||||||||
Net Capitalized Costs | 3,811 | 6,441 | 4,740 | 4,398 | 8,176 | 27,566 |
(a) | ||
(b) | ||
(1) | Eni’s capitalized costs of the Kashagan field were determined based on Eni share of 18.52%. | |
(2) | The amounts of joint ventures and affiliates as at December 31, 2007 included 60% of the |
CostF-93
Costs incurred
Costs incurred represent amounts both capitalized and expensed in connection with oil and gas producing activities. Costs incurred by geographical area consisted of the following:
(million euro) | Italy | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
2005 | ||||||||||||||||||||||||
Proved property acquisitions | 19 | 16 | 88 | 11 | 134 | |||||||||||||||||||
Unproved property acquisitions | 13 | 44 | 42 | 57 | 156 | |||||||||||||||||||
Exploration | 45 | 153 | 75 | 127 | 15 | 249 | 664 | 18 | ||||||||||||||||
Development (a) | 644 | 960 | 910 | 522 | 646 | 745 | 4,427 | 31 | ||||||||||||||||
Total costs incurred | 721 | 1,113 | 1,045 | 649 | 791 | 1,062 | 5,381 | 49 | ||||||||||||||||
2006 | ||||||||||||||||||||||||
Proved property acquisitions | 139 | 10 | 149 | |||||||||||||||||||||
Unproved property acquisitions | 3 | 3 | ||||||||||||||||||||||
Exploration | 128 | 270 | 471 | 174 | 25 | 280 | 1,348 | 26 | ||||||||||||||||
Development (a) | 1,120 | 892 | 956 | 478 | 595 | 766 | 4,807 | 31 | ||||||||||||||||
Total costs incurred | 1,387 | 1,172 | 1,427 | 652 | 620 | 1,049 | 6,307 | 57 | ||||||||||||||||
2007 | ||||||||||||||||||||||||
Proved property acquisitions (b1) | 11 | 451 | 1,395 | 1,857 | 187 | |||||||||||||||||||
Unproved property acquisitions (b2) | 510 | 1,417 | 1,927 | 1,086 | ||||||||||||||||||||
Exploration (b3) | 104 | 380 | 298 | 193 | 36 | 1,181 | 2,192 | 42 | ||||||||||||||||
Development (a) (b4) | 320 | 1,047 | 1,425 | 518 | 744 | 1,185 | 5,239 | 156 | ||||||||||||||||
Total costs incurred | 424 | 1,438 | 2,684 | 711 | 780 | 5,178 | 11,215 | 1,471 |
Year ended December 31, 2003 | ||||||||||||||||||
Proved property acquisitions | 308 | 8 | 316 | |||||||||||||||
Unproved property acquisitions | 125 | 6 | 131 | |||||||||||||||
Exploration | 67 | 80 | 138 | 125 | 243 | 653 | ||||||||||||
Development (a) | 449 | 1,106 | 1,268 | 286 | 1,454 | 4,563 | ||||||||||||
Total costs incurred (b) | 516 | 1,186 | 1,406 | 844 | 1,711 | 5,663 | ||||||||||||
Year ended December 31, 2004 | ||||||||||||||||||
Exploration | 64 | 104 | 71 | 66 | 194 | 499 | ||||||||||||
Development (a) | 431 | 965 | 881 | 391 | 1,407 | 4,075 | ||||||||||||
Total costs incurred | 495 | 1,069 | 952 | 457 | 1,601 | 4,574 | ||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||
Proved property acquisitions | 19 | 16 | 99 | 134 | ||||||||||||||
Unproved property acquisitions | 13 | 44 | 99 | 156 | ||||||||||||||
Exploration | 45 | 153 | 75 | 127 | 264 | 664 | ||||||||||||
Development (a) | 644 | 960 | 909 | 528 | 1,396 | 4,437 | ||||||||||||
Total costs incurred consolidated | 721 | 1,113 | 1,044 | 655 | 1,858 | 5,391 | ||||||||||||
Total costs incurred affiliates and joint ventures (c) | 2 | 22 | 25 | 49 | ||||||||||||||
Total costs incurred | 721 | 1,115 | 1,066 | 655 | 1,883 | 5,440 |
(a) | ||
(b2) | Included business combinations in West Africa amounting to euro 510 million, euro 1,334 million in Rest of World and euro 1,086 million in joint ventures and affiliates. | |
(b3) | Included business combinations in West Africa amounting to euro 59 million and euro 474 million in Rest of World. | |
(b4) | Included business combinations in West Africa amounting to euro 10 million, euro 345 million in Rest of World and euro 101 million in joint ventures and affiliates. | |
(1) | Eni’s costs | |
Results of operations from oil and gas producing activities
Results of operations from oil and gas producing activities, including gas storage services used to modulate the seasonal variation of demand, represent only those revenues and expenses directly associated towith such activities, including operating overheads. These amounts do not include any allocation of interest expense or general corporate overhead and, therefore, are not necessarily indicative of the contributions to consolidated net earnings of Eni. Related income taxes are computed by applying the local income tax rates to the pre-tax income from producing activities. Eni is a party to certain Production Sharing Agreements (PSAs), whereby a portion of Eni’s share of oil and gas production is withheld and sold by its joint venture partners which are state-owned entities, with proceeds being remitted to the state in satisfaction of Eni’s PSA related tax liabilities. Revenue and income taxes include such taxes owed by Eni but paid by state-owned entities out of Eni’s share of oil and gas production.
F-94
Results of operations from oil and gas producing activities by geographical area consisted of the following:
(million euro) | Italy | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
Year ended December 31, 2003 | ||||||||||||||||||
Revenues: | ||||||||||||||||||
- sales to affiliates | 2,609 | 1,469 | 1,946 | 1,913 | 345 | 8,282 | ||||||||||||
- sales to unaffiliated entities | 153 | 1,188 | 164 | 822 | 1,595 | 3,922 | ||||||||||||
Total revenues | 2,762 | 2,657 | 2,110 | 2,735 | 1,940 | 12,204 | ||||||||||||
Operations costs | (222 | ) | (316 | ) | (283 | ) | (446 | ) | (235 | ) | (1,502 | ) | ||||||
Production taxes | (136 | ) | (97 | ) | (235 | ) | (11 | ) | (79 | ) | (558 | ) | ||||||
Exploration expenses | (89 | ) | (70 | ) | (113 | ) | (96 | ) | (276 | ) | (644 | ) | ||||||
DD&A and Provision for abandonment (a) | (458 | ) | (420 | ) | (377 | ) | (759 | ) | (734 | ) | (2,748 | ) | ||||||
Other income and (expenses) | (170 | ) | (264 | ) | (121 | ) | 14 | (289 | ) | (830 | ) | |||||||
Accretion discount (SFAS 143) | (37 | ) | (5 | ) | (14 | ) | (42 | ) | (4 | ) | (102 | ) | ||||||
Pretax income from producing activities | 1,650 | 1,485 | 967 | 1,395 | 323 | 5,820 | ||||||||||||
Estimated income taxes | (629 | ) | (788 | ) | (617 | ) | (750 | ) | (111 | ) | (2,895 | ) | ||||||
Results of operations from E&P activities | 1,021 | 697 | 350 | 645 | 212 | 2,925 | ||||||||||||
Year ended December 31, 2004 | ||||||||||||||||||
Revenues: | ||||||||||||||||||
- sales to affiliates | 2,633 | 1,868 | 2,762 | 2,083 | 508 | 9,854 | ||||||||||||
- sales to unaffiliated entities | 148 | 1,364 | 306 | 709 | 2,086 | 4,613 | ||||||||||||
Total revenues | 2,781 | 3,232 | 3,068 | 2,792 | 2,594 | 14,467 | ||||||||||||
Operations costs | (223 | ) | (292 | ) | (322 | ) | (405 | ) | (289 | ) | (1,531 | ) | ||||||
Production taxes | (118 | ) | (91 | ) | (379 | ) | (13 | ) | (163 | ) | (764 | ) | ||||||
Exploration expenses | (57 | ) | (47 | ) | (71 | ) | (93 | ) | (155 | ) | (423 | ) | ||||||
DD & A and Provision for abandonment (a) | (489 | ) | (437 | ) | (482 | ) | (687 | ) | (849 | ) | (2,944 | ) | ||||||
Other income and (expenses) | (98 | ) | (368 | ) | (216 | ) | 97 | (208 | ) | (793 | ) | |||||||
Accretion discount (SFAS 143) | (37 | ) | (5 | ) | (17 | ) | (15 | ) | (6 | ) | (80 | ) | ||||||
Pretax income from producing activities | 1,759 | 1,992 | 1,581 | 1,676 | 924 | 7,932 | ||||||||||||
Estimated income taxes | (632 | ) | (994 | ) | (945 | ) | (948 | ) | (305 | ) | (3,824 | ) | ||||||
Results of operations from E&P activities | 1,127 | 998 | 636 | 728 | 619 | 4,108 | ||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||
Revenues: | ||||||||||||||||||
- sales to affiliates | 3,133 | 2,813 | 4,252 | 2,707 | 828 | 13,733 | ||||||||||||
- sales to unaffiliated entities | 161 | 2,579 | 394 | 889 | 2,883 | 6,906 | ||||||||||||
Total revenues | 3,294 | 5,392 | 4,646 | 3,596 | 3,711 | 20,639 | ||||||||||||
Operations costs | (261 | ) | (390 | ) | (363 | ) | (417 | ) | (338 | ) | (1,769 | ) | ||||||
Production taxes | (157 | ) | (98 | ) | (513 | ) | (15 | ) | (207 | ) | (990 | ) | ||||||
Exploration expenses | (32 | ) | (59 | ) | (38 | ) | (125 | ) | (181 | ) | (435 | ) | ||||||
DD&A and Provision for abandonment (a) | (512 | ) | (711 | ) | (632 | ) | (710 | ) | (1,007 | ) | (3,572 | ) | ||||||
Other income and (expenses) | (205 | ) | (400 | ) | (176 | ) | 55 | (251 | ) | (977 | ) | |||||||
Accretion discount (SFAS 143) | (45 | ) | (9 | ) | (15 | ) | (31 | ) | (6 | ) | (106 | ) | ||||||
Pretax income from producing activities | 2,082 | 3,725 | 2,909 | 2,353 | 1,721 | 12,790 | ||||||||||||
Estimated income taxes | (762 | ) | (2,197 | ) | (1,818 | ) | (1,386 | ) | (580 | ) | (6,743 | ) | ||||||
Results of operations from E&P activities consolidated | 1,320 | 1,528 | 1,091 | 967 | 1,141 | 6,047 | ||||||||||||
Results of operations from E&P activities, affiliates and joint ventures (b) | 6 | (19 | ) | (13 | ) | |||||||||||||
Total results of operations from E&P activities | 1,320 | 1,528 | 1,097 | 967 | 1,122 | 6,034 |
Average sale prices and production costs per unit of production
2005 | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Sales to consolidated entities | 3,133 | 2,813 | 4,252 | 2,707 | 209 | 619 | 13,733 | |||||||||||||||||
Sales to third parties | 161 | 2,579 | 394 | 889 | 586 | 2,297 | 6,906 | 106 | ||||||||||||||||
Total revenues | 3,294 | 5,392 | 4,646 | 3,596 | 795 | 2,916 | 20,639 | 106 | ||||||||||||||||
Operations costs | (261 | ) | (390 | ) | (363 | ) | (417 | ) | (123 | ) | (215 | ) | (1,769 | ) | (16 | ) | ||||||||
Production taxes | (157 | ) | (98 | ) | (513 | ) | (15 | ) | (207 | ) | (990 | ) | (3 | ) | ||||||||||
Exploration expenses | (38 | ) | (137 | ) | (74 | ) | (158 | ) | (15 | ) | (196 | ) | (618 | ) | (32 | ) | ||||||||
D.D. & A. and provision for abandonment (a) | (512 | ) | (634 | ) | (598 | ) | (668 | ) | (90 | ) | (929 | ) | (3,431 | ) | (50 | ) | ||||||||
Other income and (expenses) | (224 | ) | (463 | ) | (201 | ) | 17 | (53 | ) | (216 | ) | (1,140 | ) | 10 | ||||||||||
Pretax income from producing activities | 2,102 | 3,670 | 2,897 | 2,355 | 514 | 1,153 | 12,691 | 15 | ||||||||||||||||
Income taxes | (780 | ) | (1,976 | ) | (1,717 | ) | (1,387 | ) | (195 | ) | (321 | ) | (6,376 | ) | (25 | ) | ||||||||
Results of operations from E&P activities (b) | 1,322 | 1,694 | 1,180 | 968 | 319 | 832 | 6,315 | (10 | ) | |||||||||||||||
2006 | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Sales to consolidated entities | 3,601 | 4,185 | 4,817 | 3,295 | 261 | 712 | 16,871 | |||||||||||||||||
Sales to third parties | 184 | 3,012 | 967 | 983 | 721 | 1,873 | 7,740 | 120 | ||||||||||||||||
Total revenues | 3,785 | 7,197 | 5,784 | 4,278 | 982 | 2,585 | 24,611 | 120 | ||||||||||||||||
Operations costs | (249 | ) | (496 | ) | (475 | ) | (481 | ) | (147 | ) | (191 | ) | (2,039 | ) | (18 | ) | ||||||||
Production taxes | (181 | ) | (95 | ) | (475 | ) | (82 | ) | (833 | ) | (3 | ) | ||||||||||||
Exploration expenses | (137 | ) | (273 | ) | (186 | ) | (160 | ) | (25 | ) | (293 | ) | (1,074 | ) | (26 | ) | ||||||||
D.D. & A. and provision for abandonment (a) | (457 | ) | (795 | ) | (737 | ) | (684 | ) | (80 | ) | (895 | ) | (3,648 | ) | (43 | ) | ||||||||
Other income and (expenses) | (315 | ) | (569 | ) | (190 | ) | 57 | (89 | ) | (283 | ) | (1,389 | ) | 8 | ||||||||||
Pretax income from producing activities | 2,446 | 4,969 | 3,721 | 3,010 | 641 | 841 | 15,628 | 38 | ||||||||||||||||
Income taxes | (909 | ) | (2,980 | ) | (2,133 | ) | (1,840 | ) | (223 | ) | (381 | ) | (8,466 | ) | (31 | ) | ||||||||
Total results of operations from E&P activities (b) | 1,537 | 1,989 | 1,588 | 1,170 | 418 | 460 | 7,162 | 7 | ||||||||||||||||
2007 | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Sales to consolidated entities | 3,171 | 3,000 | 4,439 | 3,125 | 296 | 512 | 14,543 | |||||||||||||||||
Sales to third parties | 163 | 4,793 | 693 | 755 | 833 | 2,260 | 9,497 | 176 | ||||||||||||||||
Total revenues | 3,334 | 7,793 | 5,132 | 3,880 | 1,129 | 2,772 | 24,040 | 176 | ||||||||||||||||
Operations costs | (248 | ) | (542 | ) | (499 | ) | (579 | ) | (142 | ) | (271 | ) | (2,281 | ) | (27 | ) | ||||||||
Production taxes | (188 | ) | (91 | ) | (473 | ) | (28 | ) | (780 | ) | (6 | ) | ||||||||||||
Exploration expenses | (108 | ) | (385 | ) | (291 | ) | (193 | ) | (36 | ) | (764 | ) | (1,777 | ) | (42 | ) | ||||||||
D.D. & A. and provision for abandonment (a) | (499 | ) | (768 | ) | (685 | ) | (729 | ) | (76 | ) | (989 | ) | (3,746 | ) | (51 | ) | ||||||||
Other income and (expenses) | (283 | ) | (627 | ) | (297 | ) | (45 | ) | (72 | ) | (243 | ) | (1,567 | ) | (18 | ) | ||||||||
Pretax income from producing activities | 2,008 | 5,380 | 2,887 | 2,334 | 803 | 477 | 13,889 | 32 | ||||||||||||||||
Income taxes | (746 | ) | (3,102 | ) | (1,820 | ) | (1,419 | ) | (284 | ) | (241 | ) | (7,612 | ) | (49 | ) | ||||||||
Results of operations from E&P activities (b) | 1,262 | 2,278 | 1,067 | 915 | 519 | 236 | 6,277 | (17) |
|
|
|
|
|
| |||||||||||
(a) | Included asset impairments amounting to euro 130 million in 2005, euro 156 million in 2006 and euro 91 million in 2007. | |
(b) | The “Successful Effort Method” application would have led to an increase of result of operations of euro 21 million in 2005, euro 220 million in 2006 and euro 438 million in 2007 for the consolidated companies and of euro 1 million in 2005, euro 15 million in 2006 and euro 26 million in 2007 for joint ventures and affiliates. |
2003 | |||||||||||||
Average sale prices | |||||||||||||
Oil and condensates, per BBL | ($) | 24.24 | 27.14 | 27.60 | 28.37 | 21.53 | 26.29 | ||||||
Natural gas, per KCF | 4.65 | 2.86 | 0.53 | 3.11 | 3.18 | 3.56 | |||||||
Average production costs, per BOE (1) | 3.77 | 3.70 | 6.21 | 4.19 | 3.26 | 4.16 | |||||||
2004 | |||||||||||||
Average sale prices | |||||||||||||
Oil and condensates, per BBL | ($) | 30.98 | 35.66 | 36.32 | 36.92 | 30.79 | 34.76 | ||||||
Natural gas, per KCF | 5.33 | 2.92 | 0.60 | 3.87 | 3.29 | 3.89 | |||||||
Average production costs, per BOE (1) | 4.35 | 3.53 | 7.70 | 4.73 | 4.50 | 4.92 | |||||||
2005 | |||||||||||||
Average sale prices | |||||||||||||
Oil and condensates, per BBL | ($) | 45.46 | 50.26 | 51.58 | 51.96 | 44.39 | 49.32 | ||||||
Natural gas, per KCF | 6.29 | 3.35 | 0.79 | 5.27 | 3.71 | 4.49 | |||||||
Average production costs, per BOE (1) | 5.58 | 3.66 | 8.90 | 5.32 | 5.59 | 5.59 |
(1) | Eni’s costs incurred of the Kashagan field were determined based on Eni share of 18.52%. | |
(2) | The amounts of joint ventures and affiliates for 2007 included 60% of the three Russian companies former Yukos purchased in 2007, for which Gazprom has a call option of 51%. |
F-95
Average sale prices and production costs per unit of production
(million euro) | Italy | North Africa | West Africa | North Sea | Caspian Area | Rest of World | Total | ||||||
2005 | ||||||||||||||||
Average sales prices | ||||||||||||||||
Oil and condensates, per BBL | ($) | 45.50 | 50.11 | 51.45 | 51.68 | 41.78 | 44.50 | 49.09 | ||||||||
Natural gas, per KCF | 6.32 | 3.37 | 0.79 | 5.26 | 0.35 | 4.97 | 4.49 | |||||||||
Average production costs, per BOE | 5.58 | 3.66 | 8.90 | 5.32 | 4.21 | 5.60 | 5.59 | |||||||||
2006 | ||||||||||||||||
Average sales prices | ||||||||||||||||
Oil and condensates, per BBL | ($) | 55.22 | 60.99 | 61.55 | 62.18 | 53.18 | 57.15 | 60.09 | ||||||||
Natural gas, per KCF | 8.23 | 4.17 | 1.05 | 6.89 | 0.39 | 5.09 | 5.29 | |||||||||
Average production costs, per BOE | 6.36 | 3.87 | 9.02 | 6.03 | 5.02 | 4.52 | 5.79 | |||||||||
2007 | ||||||||||||||||
Average sales prices | ||||||||||||||||
Oil and condensates, per BBL | ($) | 62.47 | 67.86 | 69.77 | 69.40 | 59.34 | 68.63 | 67.70 | ||||||||
Natural gas, per KCF | 8.58 | 4.60 | 1.21 | 6.53 | 0.41 | 5.53 | 5.42 | |||||||||
Average production costs, per BOE | 7.89 | 4.22 | 11.53 | 8.56 | 4.90 | 5.33 | 6.90 |
Oil and natural gas reserves
Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under technical, contractual, economic and operating conditions existing at the time. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not onof escalations based upon future conditions.
Net proved reserves exclude royalties and interests owned by others.
Proved developed oil and gas reserves are proved reserves that can be estimated to be recovered through existing wells, with existing equipment and operating methods.
Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion.
Additional oil and gas reserves expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing by a pilot project or after the operation of an installed program has confirmed, through production response, that increased recovery will be achieved.
Eni’s proved reserves have been estimated on the basis of the applicable U.S. Securities & Exchange Commission regulation, Rule 4-10 of Regulation S-X and its interpretations and have been disclosed in accordance with Statement of Financial Accounting Standard No. 69. The estimates of proved reserves, developed and undeveloped for years ended December 31, 2002, 2003, 2004, 2005, 2006 and 20052007 are based on data prepared by Eni. Since 1991 Eni has requested qualified independent oil engineering companies to carry out an independent evaluation1814 of its proved reserves on a rotativerotation basis. Eni believes these independent evaluators to be experienced and qualified in the marketplace. In the preparation of their reports, these independent evaluators relied, without independent verification, upon information furnished by Eni with respect to property interest, production, current cost of operation and development, agreements relating to future operations and sale, prices and other factual information and data that were accepted as represented by the independent evaluators. This information was used by Eni in determining its proved reserves and included log, directional surveys, core and PVT analysis, maps, oil/gas/water monthly production/injection data of wells, reservoirs and fields; field studies, reservoir studies; engineers' comments relevant to field performance, reservoir performance, development programs, work programs etc.; budget data for each field, long range development plans, future capital and operating costs, actual prices received from hydrocarbon sales, instructions on future prices, and other pertinent information to calculate NPV for the fields required to undertake an independent evaluation. Accordingly, the work performed by the independent evaluators is an evaluation of Eni’s proved reserves carried out concurrently with the internal one. Notwithstanding the above, the circumstance that the independent evaluations achieved the same results as those of the Company for the vast majority of fields support management’s confidence that the company’s booked reserves meet the regulatory definition of proved reserves and are reasonably certain to be produced in the future. Additionally, for those fields
(14) | From 1991 to 2002 by DeGolyer and MacNaughton, from 2003 also by Ryder Scott Company. |
F-96
where a discrepancy arose, the Company has adopted the most conservative reserve estimate. In any case, those differences were not significant.
In particular a total of 1.64 billion boe2.4 BBOE of proved reserves, or about 24%37% of Eni’s total proved reserves at December 31, 2005,2007, have been evaluated. The results of this independent evaluation confirmed Eni’s evaluations, as in previous years. In the 2003-20052005-2007 three-year period, 84%67% of Eni’s total proved reserves were subject to independent evaluations. In the last three years, the most important Eni properties as at December 31, 2007 which were not subject to an independent evaluation were: Kashagan (Kazakhstan), Bayu Undan (Australia), Cerro Falcone and Monte Alpi-Monte Enoc (Italy).
Eni operates under Production Sharing Agreements, PSAs, in several of the foreign jurisdictions where it has oil and gas exploration and production activities. Reserves of oil and natural gas to which Eni is entitled under PSA arrangements are shown in accordance with Eni’s economic interest in the volumes of oil and natural gas estimated to be recoverable in future years. Such reserves include estimated quantities allocated to Eni for recovery of costs, income taxes owed by Eni but settled by its joint venture partners (which are state-owned entities) out of Eni’s share of production and Eni’s net equity share after cost recovery.
Proved oil and gas reserves associated with PSAs represented 46%48%, 51%53% and 48%46% of total proved reserves as of year end 2003, 2004year-end 2005, 2006 and 2005,2007, respectively, on an oil-equivalent basis.
A similar scheme toSimilar effects as PSAs appliesapply to Service and "Buy-Back"“Buy-Back” contracts; proved reserves associated with such contracts represented 3%2%, 3%2% and 2%1% of total proved reserves on an oil-equivalent basis as of year end 2003, 2004year-end 2005, 2006 and 2005,2007, respectively.
Oil and gas reserve quantities include: (i) oil and natural gas quantities in excess to cost recovery which the company has an obligation to purchase under certain PSAs with governments or authorities, whereby the company serves as producer of reserves. In accordance with SFAS 69, paragraph 13, reserve volumes associated with such oil and gas quantities represented 1.6%, 1.4%1.7%,1.1% and 1.7%1.8% of total proved reserves as of year end 2003, 2004year-end 2005, 2006 and 20052007, respectively, on an oil-equivalent basis; (ii) natural gas volumes of natural gas used for own consumption and (iii) volumes of natural gas held in certain EniEni’s storage fields in Italy. Proved reserves attributable to these fields include: (a) the residual natural gas volumes of the reservoirs and (b) natural gas volumes from other Eni fields input into these reservoirs in subsequent periods. Proved reserves do not include volumes owned by or acquired from third parties. Gas withdrawn from storage is produced and thereby detracted from proved reserves when sold.
Numerous uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgement.judgment. Results of drilling, testing and production after the date of the estimate may require substantial upward or downward revision. In addition, changes in oil and natural gas prices have an effect on the quantities of Eni’s proved reserves since estimates of reserves are based on prices and costs relativerelevant to the date when such estimates are made. Reserve estimates are also subject to revision as prices fluctuate due to the cost recovery feature under certain PSAs.
The following table presents yearly changes in estimated proved reserves, developed and undeveloped, of crude oil (including condensate and natural gas liquids) and natural gas for the years 2003, 20042005, 2006 and 2005.2007.
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Crude oil (including condensatescondensate and natural gas liquids)
(mmBBL)
Proved | Italy | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
Reserves at December 31, 2002 | 255 | 1,072 | 1,022 | 498 | 936 | 3,783 | ||||||||||||
Purchase of Minerals in Place | 86 | 86 | ||||||||||||||||
Revisions of Previous Estimates | 21 | 51 | 59 | 52 | 153 | 336 | ||||||||||||
Improved Recovery | 15 | 16 | 31 | |||||||||||||||
Extensions and Discoveries | 6 | 32 | 28 | 214 | 280 | |||||||||||||
Production | (30 | ) | (90 | ) | (87 | ) | (86 | ) | (64 | ) | (357 | ) | ||||||
Sales of Minerals in Place | (21 | ) | (21 | ) | ||||||||||||||
Reserves at December 31, 2003 | 252 | 1,080 | 1,038 | 529 | 1,239 | 4,138 | ||||||||||||
Revisions of Previous Estimates | (1 | ) | (22 | ) | 44 | 12 | (18 | ) | 15 | |||||||||
Improved Recovery | 11 | 48 | 4 | 63 | ||||||||||||||
Extensions and Discoveries | 4 | 20 | 34 | 4 | 144 | 206 | ||||||||||||
Production | (30 | ) | (94 | ) | (104 | ) | (74 | ) | (75 | ) | (377 | ) | ||||||
Sales of Minerals in Place | (2 | ) | (4 | ) | (25 | ) | (6 | ) | (37 | ) | ||||||||
Reserves at December 31, 2004 | 225 | 993 | 1,056 | 450 | 1,284 | 4,008 | ||||||||||||
Purchase of Minerals in Place | 2 | 6 | 47 | 55 | ||||||||||||||
Revisions of Previous Estimates | 33 | 36 | (47 | ) | 27 | (88 | ) | (39 | ) | |||||||||
Improved Recovery | 43 | 29 | 15 | 87 | ||||||||||||||
Extensions and Discoveries | 26 | 14 | 21 | 16 | 77 | |||||||||||||
Production | (32 | ) | (111 | ) | (113 | ) | (65 | ) | (83 | ) | (404 | ) | ||||||
Reclassification 2004 affiliates and joint ventures data | (26 | ) | (9 | ) | (1 | ) | (36 | ) | ||||||||||
Reserves at December 31, 2005 consolidated | 228 | 961 | 936 | 433 | 1,190 | 3,748 | ||||||||||||
Reserves at December 31, 2005 affiliates and joint ventures (a) | 18 | 6 | 1 | 25 | ||||||||||||||
Reserves at December 31, 2005 | 228 | 979 | 942 | 433 | 1,191 | 3,773 |
Reserves at December 31, 2004 | 225 | 967 | 1,047 | 450 | 799 | 484 | 3,972 | 36 | ||||||||||||||||
Purchase of Minerals in Place | 2 | 6 | 46 | 1 | 55 | |||||||||||||||||||
Revisions of Previous Estimates | 33 | 36 | (47 | ) | 27 | (73 | ) | (15 | ) | (39 | ) | (9 | ) | |||||||||||
Improved Recovery | 43 | 29 | 15 | 87 | ||||||||||||||||||||
Extensions and Discoveries | 26 | 14 | 21 | 14 | 2 | 77 | ||||||||||||||||||
Production | (32 | ) | (111 | ) | (113 | ) | (65 | ) | (23 | ) | (60 | ) | (404 | ) | (2 | ) | ||||||||
Sales of Minerals in Place | ||||||||||||||||||||||||
Reserves at December 31, 2005 | 228 | 961 | 936 | 433 | 778 | 412 | 3,748 | 25 | ||||||||||||||||
Purchase of Minerals in Place | ||||||||||||||||||||||||
Revisions of Previous Estimates (a) | 15 | 61 | (85 | ) | 20 | 72 | (19 | ) | 64 | 1 | ||||||||||||||
Improved Recovery | 49 | 41 | 14 | 104 | 1 | |||||||||||||||||||
Extensions and Discoveries | 30 | 11 | 52 | 10 | 103 | |||||||||||||||||||
Production | (28 | ) | (119 | ) | (117 | ) | (65 | ) | (23 | ) | (38 | ) | (390 | ) | (3 | ) | ||||||||
Sales of Minerals in Place (b) | (2 | ) | (170 | ) | (172 | ) | ||||||||||||||||||
Reserves at December 31, 2006 | 215 | 982 | 786 | 386 | 893 | 195 | 3,457 | 24 | ||||||||||||||||
Purchase of Minerals in Place | 32 | 54 | 86 | 101 | ||||||||||||||||||||
Revisions of Previous Estimates | 28 | (35 | ) | (26 | ) | 14 | (114 | ) | (31 | ) | (164 | ) | 20 | |||||||||||
Improved Recovery | 9 | 12 | 1 | 22 | 1 | |||||||||||||||||||
Extensions and Discoveries | 43 | 22 | 1 | 29 | 95 | 1 | ||||||||||||||||||
Production | (28 | ) | (121 | ) | (101 | ) | (57 | ) | (26 | ) | (36 | ) | (369 | ) | (5 | ) | ||||||||
Sales of Minerals in Place | ||||||||||||||||||||||||
Reserves at December 31, 2007 | 215 | 878 | 725 | 345 | 753 | 211 | 3,127 | 142 |
(mmBBL)
Proved | Italy | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
Reserves at December 31, 2004 | 174 | 655 | 588 | 386 | 323 | 345 | 2,471 | |||||||||||||||||
Reserves at December 31, 2005 | 149 | 697 | 568 | 353 | 266 | 298 | 2,331 | 19 | ||||||||||||||||
Reserves at December 31, 2006 | 136 | 713 | 546 | 329 | 262 | 140 | 2,126 | 18 | ||||||||||||||||
Reserves at December 31, 2007 | 133 | 649 | 511 | 299 | 219 | 142 | 1,953 | 26 |
Reserves at December 31, 2002 | 168 | 610 | 554 | 426 | 483 | 2,241 | ||||||||||||
Reserves at December 31, 2003 | 173 | 640 | 560 | 464 | 610 | 2,447 | ||||||||||||
Reserves at December 31, 2004 | 174 | 655 | 588 | 386 | 668 | 2,471 | ||||||||||||
Reserves at December 31, 2005 consolidated | 149 | 697 | 568 | 353 | 564 | 2,331 | ||||||||||||
Reserves at December 31, 2005 affiliates and joint ventures (a) | 15 | 3 | 1 | 19 | ||||||||||||||
Reserves at December 31, 2005 | 149 | 712 | 571 | 353 | 565 | 2,350 |
(a) | ||
(b) | Included 170 mmBBL related to |
(1) | Eni’s proved reserves of the Kashagan field were determined based on Eni share of 18.52%. | |
(2) | Reserves of joint ventures |
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Natural gas
(BCF)
Proved | Italy(a) | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
Reserves at December 31, 2002 | 5,295 | 5,563 | 1,533 | 1,899 | 4,339 | 18,629 | ||||||||||||
Purchase of Minerals in Place | 10 | 425 | 8 | 443 | ||||||||||||||
Revisions of Previous Estimates | (768 | ) | (123 | ) | 172 | 139 | 325 | (255 | ) | |||||||||
Extensions and Discoveries | 84 | 242 | 100 | 426 | ||||||||||||||
Production | (455 | ) | (215 | ) | (49 | ) | (229 | ) | (276 | ) | (1,224 | ) | ||||||
Sales | (11 | ) | (11 | ) | ||||||||||||||
Reserves at December 31, 2003 | 4,166 | 5,467 | 1,656 | 2,223 | 4,496 | 18,008 | ||||||||||||
Revisions of Previous Estimates | 105 | 814 | 129 | 75 | 84 | 1,207 | ||||||||||||
Improved Recovery | 10 | 10 | ||||||||||||||||
Extensions and Discoveries | 29 | 420 | 38 | 222 | 709 | |||||||||||||
Production | (409 | ) | (247 | ) | (66 | ) | (220 | ) | (303 | ) | (1,245 | ) | ||||||
Sales | (73 | ) | (1 | ) | (65 | ) | (115 | ) | (254 | ) | ||||||||
Reserves at December 31, 2004 | 3,818 | 6,453 | 1,729 | 2,051 | 4,384 | 18,435 | ||||||||||||
Purchase of Minerals in Place | 63 | 8 | 222 | 293 | ||||||||||||||
Revisions of Previous Estimates | 159 | (6 | ) | (9 | ) | (18 | ) | (368 | ) | (242 | ) | |||||||
Improved Recovery | 11 | 11 | ||||||||||||||||
Extensions and Discoveries | 1 | 37 | 309 | 50 | 56 | 453 | ||||||||||||
Production | (365 | ) | (357 | ) | (70 | ) | (219 | ) | (281 | ) | (1,292 | ) | ||||||
Reclassification 2004 affiliates and joint ventures data | (21 | ) | (2 | ) | (134 | ) | (157 | ) | ||||||||||
Reserves at December 31, 2005 consolidated | 3,676 | 6,117 | 1,965 | 1,864 | 3,879 | 17,501 | ||||||||||||
Reserves at December 31, 2005 affiliates and joint ventures (b) | 15 | 2 | 73 | 90 | ||||||||||||||
Reserves at December 31, 2005 | 3,676 | 6,132 | 1,967 | 1,864 | 3,952 | 17,591 |
Reserves at December 31, 2004 | 3,818 | 6,432 | 1,727 | 2,051 | 2,124 | 2,126 | 18,278 | 157 | ||||||||||||||||
Purchase of Minerals in Place | 63 | 8 | 14 | 208 | 293 | |||||||||||||||||||
Revisions of Previous Estimates | 159 | (6 | ) | (9 | ) | (18 | ) | (284 | ) | (84 | ) | (242 | ) | (47 | ) | |||||||||
Improved Recovery | 11 | 11 | ||||||||||||||||||||||
Extensions and Discoveries | 1 | 37 | 309 | 50 | 56 | 453 | (20 | ) | ||||||||||||||||
Production | (365 | ) | (357 | ) | (70 | ) | (219 | ) | (80 | ) | (201 | ) | (1,292 | ) | ||||||||||
Sales of Minerals in Place | ||||||||||||||||||||||||
Reserves at December 31, 2005 | 3,676 | 6,117 | 1,965 | 1,864 | 1,774 | 2,105 | 17,501 | 90 | ||||||||||||||||
Purchase of Minerals in Place | 4 | 4 | ||||||||||||||||||||||
Revisions of Previous Estimates | 36 | 154 | 31 | 53 | 183 | 47 | 504 | (7 | ) | |||||||||||||||
Improved Recovery | ||||||||||||||||||||||||
Extensions and Discoveries | 19 | 146 | 34 | 1 | 132 | 332 | ||||||||||||||||||
Production | (340 | ) | (471 | ) | (103 | ) | (218 | ) | (83 | ) | (222 | ) | (1,437 | ) | (15 | ) | ||||||||
Sales of Minerals in Place | (7 | ) | (7 | ) | ||||||||||||||||||||
Reserves at December 31, 2006 | 3,391 | 5,946 | 1,927 | 1,697 | 1,874 | 2,062 | 16,897 | 68 | ||||||||||||||||
Purchase of Minerals in Place | 5 | 395 | 400 | 2,963 | ||||||||||||||||||||
Revisions of Previous Estimates | (53 | ) | 250 | 74 | 67 | (222 | ) | 6 | 122 | 5 | ||||||||||||||
Improved Recovery | 3 | 3 | ||||||||||||||||||||||
Extensions and Discoveries | 4 | 89 | 213 | 7 | 205 | 89 | 607 | |||||||||||||||||
Production | (285 | ) | (534 | ) | (97 | ) | (216 | ) | (87 | ) | (261 | ) | (1,480 | ) | (14 | ) | ||||||||
Sales of Minerals in Place | ||||||||||||||||||||||||
Reserves at December 31, 2007 | 3,057 | 5,751 | 2,122 | 1,558 | 1,770 | 2,291 | 16,549 | 3,022 |
(BCF)
Proved | Italy | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
Reserves at December 31, 2004 | 2,850 | 1,760 | 924 | 1,845 | 1,998 | 1,124 | 10,501 | |||||||||||||||||
Reserves at December 31, 2005 | 2,704 | 3,060 | 1,289 | 1,484 | 1,618 | 1,004 | 11,159 | 70 | ||||||||||||||||
Reserves at December 31, 2006 | 2,449 | 3,042 | 1,447 | 1,395 | 1,511 | 1,105 | 10,949 | 48 | ||||||||||||||||
Reserves at December 31, 2007 | 2,304 | 3,065 | 1,469 | 1,293 | 1,580 | 1,256 | 10,967 | 428 |
Reserves at December 31, 2002 | 3,397 | 1,084 | 863 | 1,727 | 1,283 | 8,354 | ||||||||||||
Reserves at December 31, 2003 | 2,966 | 962 | 866 | 2,075 | 3,355 | 10,224 | ||||||||||||
Reserves at December 31, 2004 | 2,850 | 1,760 | 924 | 1,845 | 3,122 | 10,501 | ||||||||||||
Reserves at December 31, 2005 consolidated | 2,704 | 3,060 | 1,289 | 1,484 | 2,622 | 11,159 | ||||||||||||
Reserves at December 31, 2005 affiliates and joint ventures (b) | 12 | 2 | 56 | 70 | ||||||||||||||
Reserves at December 31, 2005 | 2,704 | 3,072 | 1,291 | 1,484 | 2,678 | 11,229 |
(a) | Including approximately |
(2) | Reserves of joint ventures |
Standardized measure of discounted future net cash flows
Estimated future cash inflows represent the revenues that would be received from production and are determined by applying year endyear-end prices of oil and gas to the estimated future production of proved reserves. Year-end prices in 2005 were $58.205 per barrel of oil. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved reserves at the end of the year. Neither the effects of price and cost escalations nor expected future changes in technology and operating practices have been considered.
The standardized measure is calculated as the excess of future cash inflows from proved reserves less future costs of producing and developing the reserves, future income taxes and a yearly 10% discount factor.
Future cash flows as of December 31, 2003, 20042005, 2006 and 20052007 include annual revenue payments fromamounts that Eni’s Gas & Power segment and other transport and distribution gas companies which represent paymentspay for modulationstorage services, required to support market demand delivery capability. Such capability is provided through utilization of gas withdrawn from producing fields and injected into depleted gas fields as storage.flexibility needs.
Future production costs include the estimated expenditures related to the production of proved reserves plus any production taxes without consideration of future inflation. Future development costs include the estimated costs of drilling development wells and installation of production facilities, plus the net costs associated with dismantlement and abandonment of wells and facilities, under the assumption that year endyear-end costs continue without considering future inflation. Future income taxes were calculated in accordance with the tax laws of the countries in which Eni operates.
The standardized measure of discounted future net cash flows, related to the preceding proved oil and gas reserves, is calculated in accordance with the requirements of Statement of Financial Accounting Standard No. 69. The standardized measure does not purport to reflect realizable values or fair market value of Eni’s proved reserves.
F-99
An estimate of fair value would also take into account, among other things, the expected recovery of reserves in excess of proved reserves, anticipated changes in future prices and costs and a discount factor representative of the risks inherent in producing oil and gas.
The standardized measure of discounted future net cash flows by geographical area consisted of the following:
(million euro) | Italy | North Africa | West Africa | North Sea | Caspian Area (1) | Rest of World | Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||
At December 31, 2005 | ||||||||||||||||||||||||
Future cash inflows | 36,203 | 66,100 | 45,952 | 30,835 | 30,339 | 20,251 | 229,680 | 1,055 | ||||||||||||||||
Future production costs | (4,609 | ) | (10,030 | ) | (9,604 | ) | (5,632 | ) | (3,848 | ) | (2,551 | ) | (36,274 | ) | (226 | ) | ||||||||
Future development and abandonment costs | (2,936 | ) | (3,960 | ) | (2,594 | ) | (1,774 | ) | (2,562 | ) | (1,497 | ) | (15,323 | ) | (89 | ) | ||||||||
Future income tax | (9,890 | ) | (22,744 | ) | (21,056 | ) | (15,225 | ) | (6,973 | ) | (5,124 | ) | (81,012 | ) | (187 | ) | ||||||||
Future net cash flows | 18,768 | 29,366 | 12,698 | 8,204 | 16,956 | 11,079 | 97,071 | 553 | ||||||||||||||||
10% discount factor | (7,643 | ) | (12,095 | ) | (4,122 | ) | (2,155 | ) | (11,934 | ) | (3,771 | ) | (41,720 | ) | (182 | ) | ||||||||
Standardized measure of discounted future net cash flows | 11,125 | 17,271 | 8,576 | 6,049 | 5,022 | 7,308 | 55,351 | 371 | ||||||||||||||||
At December 31, 2006 | ||||||||||||||||||||||||
Future cash inflows | 43,495 | 64,381 | 34,935 | 24,821 | 33,825 | 14,766 | 216,223 | 1,038 | ||||||||||||||||
Future production costs | (6,086 | ) | (9,707 | ) | (8,028 | ) | (6,426 | ) | (4,162 | ) | (1,753 | ) | (36,162 | ) | (224 | ) | ||||||||
Future development and abandonment costs | (6,739 | ) | (5,383 | ) | (2,865 | ) | (2,265 | ) | (3,103 | ) | (1,473 | ) | (21,828 | ) | (79 | ) | ||||||||
Future income tax | (10,838 | ) | (24,639 | ) | (14,141 | ) | (10,901 | ) | (7,649 | ) | (3,824 | ) | (71,992 | ) | (227 | ) | ||||||||
Future net cash flows | 19,832 | 24,652 | 9,901 | 5,229 | 18,911 | 7,716 | 86,241 | 508 | ||||||||||||||||
10% discount factor | (11,493 | ) | (10,631 | ) | (2,994 | ) | (1,392 | ) | (13,878 | ) | (2,626 | ) | (43,014 | ) | (154 | ) | ||||||||
Standardized measure of discounted future net cash flows | 8,339 | 14,021 | 6,907 | 3,837 | 5,033 | 5,090 | 43,227 | 354 | ||||||||||||||||
At December 31, 2007 | ||||||||||||||||||||||||
Future cash inflows | 47,243 | 73,456 | 48,283 | 29,610 | 42,710 | 20,359 | 261,661 | 7,135 | ||||||||||||||||
Future production costs | (5,926 | ) | (11,754 | ) | (9,875 | ) | (6,670 | ) | (4,997 | ) | (2,782 | ) | (42,004 | ) | (1,249 | ) | ||||||||
Future development and abandonment costs | (7,218 | ) | (4,643 | ) | (3,013 | ) | (2,461 | ) | (3,374 | ) | (2,459 | ) | (23,168 | ) | (1,721 | ) | ||||||||
Future income tax | (10,778 | ) | (29,083 | ) | (23,083 | ) | (14,375 | ) | (9,977 | ) | (5,397 | ) | (92,693 | ) | (2,009 | ) | ||||||||
Future net cash flows | 23,321 | 27,976 | 12,312 | 6,104 | 24,362 | 9,721 | 103,796 | 2,156 | ||||||||||||||||
10% discount factor | (13,262 | ) | (11,143 | ) | (3,953 | ) | (1,600 | ) | (17,480 | ) | (3,356 | ) | (50,794 | ) | (1,265 | ) | ||||||||
Standardized measure of discounted future net cash flows | 10,059 | 16,833 | 8,359 | 4,504 | 6,882 | 6,365 | 53,002 | 891 |
At December 31, 2003 | ||||||||||||||||||
Future cash inflows | 24,641 | 36,484 | 25,074 | 19,590 | 28,505 | 134,294 | ||||||||||||
Future production costs | (3,879 | ) | (7,868 | ) | (5,847 | ) | (5,458 | ) | (4,763 | ) | (27,815 | ) | ||||||
Future development and abandonment costs | (2,080 | ) | (3,762 | ) | (2,005 | ) | (1,084 | ) | (2,575 | ) | (11,506 | ) | ||||||
Future net inflow before income tax | 18,682 | 24,854 | 17,222 | 13,048 | 21,167 | 94,973 | ||||||||||||
Future income tax | (6,113 | ) | (10,296 | ) | (8,979 | ) | (7,614 | ) | (6,073 | ) | (39,075 | ) | ||||||
Future net cash flows | 12,569 | 14,558 | 8,243 | 5,434 | 15,094 | 55,898 | ||||||||||||
10% discount factor | (5,056 | ) | (6,646 | ) | (3,130 | ) | (1,872 | ) | (7,930 | ) | (24,634 | ) | ||||||
Standardized measure of discounted future net cash flows | 7,513 | 7,912 | 5,113 | 3,562 | 7,164 | 31,264 | ||||||||||||
At December 31, 2004 | ||||||||||||||||||
Future cash inflows | 28,582 | 40,373 | 28,395 | 20,435 | 32,619 | 150,404 | ||||||||||||
Future production costs | (3,635 | ) | (7,237 | ) | (6,664 | ) | (5,082 | ) | (4,858 | ) | (27,476 | ) | ||||||
Future development and abandonment costs | (2,210 | ) | (4,073 | ) | (1,873 | ) | (1,419 | ) | (2,873 | ) | (12,448 | ) | ||||||
Future net inflow before income tax | 22,737 | 29,063 | 19,858 | 13,934 | 24,888 | 110,480 | ||||||||||||
Future income tax | (7,599 | ) | (11,487 | ) | (10,949 | ) | (8,824 | ) | (6,736 | ) | (45,595 | ) | ||||||
Future net cash flows | 15,138 | 17,576 | 8,909 | 5,110 | 18,152 | 64,885 | ||||||||||||
10% discount factor | (6,006 | ) | (7,592 | ) | (3,267 | ) | (1,350 | ) | (9,412 | ) | (27,627 | ) | ||||||
Standardized measure of discounted future net cash flows | 9,132 | 9,984 | 5,642 | 3,760 | 8,740 | 37,258 | ||||||||||||
At December 31, 2005 | ||||||||||||||||||
Future cash inflows | 36,203 | 66,100 | 45,952 | 30,835 | 50,590 | 229,680 | ||||||||||||
Future production costs | (4,609 | ) | (10,030 | ) | (9,604 | ) | (5,632 | ) | (6,399 | ) | (36,274 | ) | ||||||
Future development and abandonment costs | (2,936 | ) | (3,960 | ) | (2,594 | ) | (1,774 | ) | (4,059 | ) | (15,323 | ) | ||||||
Future net inflow before income tax | 28,658 | 52,110 | 33,754 | 23,429 | 40,132 | 178,083 | ||||||||||||
Future income tax | (9,890 | ) | (22,744 | ) | (21,056 | ) | (15,225 | ) | (12,097 | ) | (81,012 | ) | ||||||
Future net cash flows | 18,768 | 29,366 | 12,698 | 8,204 | 28,035 | 97,071 | ||||||||||||
10% discount factor | (7,643 | ) | (12,095 | ) | (4,122 | ) | (2,155 | ) | (15,705 | ) | (41,720 | ) | ||||||
Standardized measure of discounted future net cash flows | 11,125 | 17,271 | 8,576 | 6,049 | 12,330 | 55,351 | ||||||||||||
Standardized measure of discounted future net cash flows affiliates and joint ventures (a) | 130 | 127 | 114 | 371 | ||||||||||||||
Standardized measure of discounted future net cash flows | 11,125 | 17,401 | 8,703 | 6,049 | 12,444 | 55,722 |
(2) | The amounts of joint ventures |
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Changes in standardized measure of discounted future net cash flows
The following table reflects the changes
Changes in standardized measure of discounted future net cash flows for the years 2003, 20042005, 2006 and 2005.2007.
(million euro) | 2003 | 2004 | 2005 | |||
Beginning of year | 34,480 | 31,264 | 37,258 | |||||||||
Reclassification 2004 affiliates and joint ventures data | (357 | ) | ||||||||||
Beginning of year consolidated | 34,480 | 31,264 | 36,901 | |||||||||
Increase (Decrease): | ||||||||||||
- sales, net of production costs | (10,144 | ) | (12,172 | ) | (17,880 | ) | ||||||
- net changes in sales and transfer prices, net of production costs | (1,050 | ) | 13,031 | 33,372 | ||||||||
- extensions, discoveries and improved recovery, net of future production and development costs | 1,855 | 2,806 | 3,527 | |||||||||
- changes in estimated future development and abandonment costs | (3,576 | ) | (3,437 | ) | (3,654 | ) | ||||||
- development costs incurred during the period that reduced future development costs | 4,864 | 4,229 | 3,865 | |||||||||
- revisions of quantity estimates | 2,348 | 1,658 | 47 | |||||||||
- accretion of discount | 5,585 | 5,328 | 6,573 | |||||||||
- net change in income taxes | 105 | (4,805 | ) | (17,327 | ) | |||||||
- purchase of reserves in-place | 1,488 | 977 | ||||||||||
- sale of reserves in-place | (222 | ) | (727 | ) | ||||||||
- changes in production rates and other (a) | (4,469 | ) | 83 | 8,950 | ||||||||
Net increase (decrease) | (3,216 | ) | 5,994 | 18,450 | ||||||||
End of year consolidated | 31,264 | 37,258 | 55,351 | |||||||||
End of year affiliates and joint ventures (b) | 371 | |||||||||||
End of year | 31,264 | 37,258 | 55,722 |
(million euro) | 2005 | 2006 | 2007 | |||
Beginning of year for consolidated subsidiaries | 36,901 | 55,351 | 43,227 | ||||||
Increase (decrease): | |||||||||
- sales, net of production costs | (17,880 | ) | (21,739 | ) | (20,979 | ) | |||
- net changes in sales and transfer prices, net of production costs | 33,372 | 4,097 | 34,999 | ||||||
- extensions, discoveries and improved recovery, net of future production and development costs | 3,527 | 3,629 | 3,982 | ||||||
- changes in estimated future development and abandonment costs | (3,654 | ) | (6,964 | ) | (4,000 | ) | |||
- development costs incurred during the period that reduced future development costs | 3,865 | 3,558 | 4,682 | ||||||
- revisions of quantity estimates | 47 | 383 | (2,995 | ) | |||||
- accretion of discount | 6,573 | 9,489 | 7,968 | ||||||
- net change in income taxes | (17,327 | ) | 3,060 | (17,916 | ) | ||||
- purchase of reserves in-place | 977 | 10 | 3,521 | ||||||
- sale of reserves in-place | (1,252 | ) | |||||||
- changes in production rates (timing) and other | 8,950 | (6,395 | ) | 513 | |||||
Net increase (decrease) | 18,450 | (12,124 | ) | 9,775 | |||||
Standardized measure of discounted future net cash flows for consolidated subsidiaries | 55,351 | 43,227 | 53,002 | ||||||
Standardized measure of discounted future net cash flows for joint ventures and affiliates | 371 | 354 | 891 |
F-101
EXHIBIT 1
Exhibit 1
Eni S.p.A.SpA By-laws
Part I - Establishment - Name - Registered Office and Duration of the Company
ARTICLE 1
1.1 | "Eni |
ARTICLE 2
2.1 | The registered head office of the company is located in Rome, Italy and the company’s two branches in San Donato Milanese (MI). | |
2.2 | Main representative offices, affiliates and branches may be established and/or wound up in Italy or abroad in compliance with the law. |
ARTICLE 3
3.1 | The company is expected to exist until December 31, 2100. Its duration may be extended one or more times by resolution of the shareholders’ meeting. |
Part II - Company Objects
ARTICLE 4
4.1 | The company objects are the direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the field of hydrocarbons and natural vapours, such as exploration and development of hydrocarbon fields, construction and operation of pipelines for transporting the same, processing, transformation, storage, utilisation and trade of hydrocarbons and natural vapours, all in respect of concessions provided by law. The company also has the object of direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the fields of chemicals, nuclear fuels, geothermy and renewable energy sources, in the sector of engineering and construction of industrial plants, in the mining sector, in the metallurgy sector, in the textile machinery sector, in the water sector, including derivation, drinking water, purification, distribution and reuse of waters; in the sector of environmental protection and treatment and disposal of waste, as well as in every other business activity that is instrumental, supplemental or complementary with the aforementioned activities. The company also has the object of managing the technical and financial co-ordination of subsidiaries and affiliated companies as well as providing financial assistance on their behalf. The company may perform any operations necessary or useful for the achievement of the company objects; by way of example, it may initiate operations involving real estate, moveable goods, trade and commerce, industry, finance and banking asset and liability operations, as well as any action that is in any way connected with the company objects with the exception of public fund raising and the performance of investment services as regulated by Legislative Decree No. 58 of February 24, 1998. The company may take shareholdings and interests in other companies or businesses with objects similar, comparable or complementary to its own or those of companies in which it has holdings, either in Italy or abroad, and it may provide real and or personal bonds for its own and others’ obligations, especially guarantees. |
Part III - Capital - Shareholdings - Bonds
ARTICLE 5
5.1 | The company capital is euro 4,005,358,876.00 (four billion five million three hundred and fifty-eight thousand eight hundred and seventy-six) represented by 4,005,358,876 (four billion five million three hundred and fifty-eight thousand eight hundred and seventy-six) shares of ordinary stock with a nominal value of euro 1 (one) each. | |
5.2 | Shares may not be split up and each share is entitled to one vote. | |
5.3 | The fact of being a Shareholder in itself constitutes approval of these by-laws. |
ARTICLE 6
6.1 | Pursuant to Article 3 of Law Decree 332 of May 31, 1994, converted with amendments into Law 474 of July 30, 1994, no one, in any capacity, may own company shares that entail a holding of more than 3 per cent of voting share capital. Such maximum shareholding limit is calculated by taking into account the aggregate shareholding held by the controlling entity, either a physical or legal person or company; its directly or indirectly controlled entities, as |
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well as entities controlled by the same controlling entity; affiliated entities as well as people related to the second degree by blood or marriage, also in the case of a legally separated spouse. Control exists, with reference also to entities other than companies, in the cases envisaged by Article 2359, paragraphs 1 and 2 of the Civil Code. Affiliation exists in the case set forth in Article 2359, paragraph 3, of the Civil Code as well as between entities that directly or indirectly, by way of subsidiaries, other than those managing investment funds, are bound, even with third parties, in agreements regarding the exercise of voting rights or the transfer of shares or portions of third companies or, in any event, in agreements or pacts as per Article 122 of Legislative Decree No. 58 of February 24, 1998 regarding third party companies if said agreements or pacts concern at least 10 per cent of the voting capital, if they are listed companies, or 20 per cent if they are unlisted companies. The aforementioned shareholding limit (3 per cent) is calculated by taking into account shares held by any fiduciary nominee or intermediary. Any voting rights attributable to voting capital held or controlled in excess of the maximum limit indicated in the foregoing cannot be exercised and the voting rights of each entity to whom such limit on shareholding applies are reduced in proportion, unless otherwise jointly provided in advance by the parties involved. In the event that shares exceeding this limit are voted, any Shareholders’ resolution adopted pursuant to such a vote may be challenged pursuant to Article 2377 of the Civil Code, if the required majority had not been reached without the votes exceeding the aforementioned maximum limit. Shares not entitled to vote are included in the determination of the quorum at shareholders’ meetings. | ||
6.2 | Pursuant to Article 2, paragraph 1 of Law Decree 332 of May 31, 1994, converted with amendments into Law 474 of July 30, 1994, as modified by Article 4, |
a) | opposition with respect to the acquisition of material shareholdings by entities affected by the shareholding limit as set forth in Article 3 of Law Decree 332 of May 31, 1994, converted with amendments into Law 474 of July 30, 1994, by which – as per Decree issued by the Minister of Treasury on October 16, 1995 – are meant those representing at least 3% of share capital with the right to vote at the ordinary shareholders’ meeting. The opposition is expressed within ten days of the date of the notice to be filed by the Board of Directors at the time request is made for registration in the Shareholders’ Register if the Minister considers that such an acquisition may prejudice the vital interests of the Italian State. Until the ten-day term is not lapsed, the voting rights and the non-asset linked rights connected with the shares representing a material shareholding may not be exercised. If the opposition power is exercised, through a duly motivated act in connection with the prejudice that may be caused by the operation to the vital interests of the Italian State, the transferee may not exercise the voting rights and the other non-asset linked rights connected with the shares representing a material shareholding and must sell said shares within one year. Failing to comply, the law court, upon request of the Minister of Economy and Finance, will order the sale of the shares representing a material shareholding according to the procedures set forth in Article 2359-ter of the Civil Code. The act through which the opposition power is exercised may be sued by the transferee before the Regional Administrative Court of Latium within sixty days as of its issue; | |||
b) | opposition with respect to the subscription of Shareholders’ pacts or agreements as per Article 122 of Legislative Decree No. 58 of February 24, 1998, involving – as per Decree issued by the Minister of Treasury on October 16, 1995 – at least 3% of the share capital with the right to vote at ordinary shareholders’ meetings. In order to allow the exercise of the above mentioned opposition power, Consob notifies the Minister of Economy and Finance of the relevant pacts or agreements communicated to it pursuant to the aforementioned Article 122 of Legislative Decree No. 58 of February 24, 1998. The opposition power may be exercised within ten days as of the date of the notice by Consob. Until the ten-day term is not lapsed, the voting right and the other non-asset linked rights connected with the shares held by the shareholders who have subscribed the above mentioned pacts or agreements may not be exercised. If the opposition power is exercised through the issue of an act that shall be duly motivated in consideration of the prejudice that may be caused by said pacts or agreements to the vital interests of the Italian State, the shareholders pacts or agreements shall be null and void. If in the shareholders’ meetings the shareholders who have signed shareholders’ pacts or agreements behave as if those pacts or agreements disciplined by Article 122 of Legislative Decree No. 58 of February 24, 1998 were still in effect, the resolutions approved with their vote, if determining for the approval, may be sued. The act through which the opposition power is exercised may be sued by the shareholders who joined the above mentioned pacts or agreements before the Regional Administrative Court of Latium within sixty days as of its issue; | |||
c) | veto power with respect to resolutions to dissolve the company, to transfer the business, to merge, to demerge, to transfer the company’s registered office abroad, to change the company objects and to amend the by-laws cancelling or modifying the powers indicated in this Article. The act through which the veto power is exercised shall be duly motivated in consideration of the prejudice the related resolution may cause to the vital interests of the Italian State and may be sued by the dissenting Shareholders before the Regional Administrative Court of Latium within sixty days as of its issue; |
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d) | appointment of one Board member with no voting rights. Should such appointed Director lapse, the Minister of Economy and Finance in agreement with the Minister of |
ARTICLE 7
7.1 | When shares are fully paid, and if the law so allows, they may be issued to the bearer. Bearer shares may be converted into registered shares and |
ARTICLE 8
8.1 | In the event, and for whatever reason, a share belongs to more than one person, the rights relating to said share may not be exercised by other than one person or by a proxy for all co-owners. |
ARTICLE 9
9.1 | The shareholders’ meeting may resolve to increase the company capital and establish terms, conditions and means thereof. | |
9.2 | The shareholders’ meeting may resolve to increase the company capital by issuing shares, including shares of different classes, to be assigned for no consideration pursuant to Article 2349 of the Civil Code. |
ARTICLE 10
10.1 | Payments on shares are requested by the Board of Directors in one or more times. | |
10.2 | Shareholders who are late in payment are charged an interest calculated at the official discount rate established by the Bank of Italy besides the provisions envisaged in Article 2344 of the Civil Code. |
ARTICLE 11
11.1 | The company may issue bonds, including convertibles and warrant bonds in compliance with the law. |
Part IV - Shareholders’
Meetingmeeting
ARTICLE 12
12.1 | Ordinary and extraordinary shareholders’ meetings are usually held at the company registered office unless otherwise resolved by the Board of Directors, provided however they are held in Italy. | |
12.2 | Ordinary shareholders’ meetings must be called at least once a year to approve the financial statements, within 180 days of the end of the business year, as the Company approves the Group Financial Statements. |
ARTICLE 13
13.1 | Shareholders’ meetings are convened through a notice to be published on the Italian Official Gazette or the following newspapers: "Il Sole 24 Ore", "Corriere della Sera" and The Shareholders that, severally or jointly, represent at least one fortieth of Eni share capital, may ask, within five days as of the date of publication of the | |
13.2 | Admission to the shareholders’ meeting is subject to the delivery, also for registered shares, of the |
ARTICLE 14
14.1 | Each Shareholder entitled to attend the | |
14.2 | The Chairman of the | |
14.3 | The right to vote may also be exercised by mail according to the laws and regulations in force concerning this matter. | |
14.4 | Eni |
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ARTICLE 15
15.1 | The | |
15.2 | The Chairman of the |
ARTICLE 16
16.1 | The ordinary shareholders’ meeting decides on all the matters for which it is legally entitled and authorises the transfer of the business. | |
16.2 | Resolutions either at ordinary or extraordinary meetings, either on first, second or third call, must be taken with the majority required by the law in each case. | |
16.3 | Resolutions of the | |
16.4 | The minutes of ordinary meetings must be signed by the Chairman and the Secretary. | |
16.5 | The minutes of extraordinary meetings must be drawn up by a notary public. |
Part V - The Board of Directors
ARTICLE 17
17.1 | The company is managed by a Board of Directors consisting of no fewer than three and no more than nine members. The shareholders’ meeting determines the number within these limits. The Minister of Economy and Finance in agreement with the Minister of | |
17.2 | The Board of Directors is appointed for a period of up to three financial years; this term lapses on the date of the shareholders’ meeting convened to approve the financial statements of the last year of their office. They may be reappointed. | |
17.3 | The Board |
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Board members will be elected in the following manner: |
a) | seven tenths of the members to be elected will be drawn out from the candidate list that receives the majority of votes expressed by the Shareholders in the numerical order in which they appear on the list, rounded off in the event of a fractional number to the next lower number; | |||
b) | the remaining Board members will be drawn out from the other candidate lists; said lists shall not be linked in any way, neither indirectly, to the shareholders who have presented or voted the list that has obtained the highest number of votes; to this purpose the votes obtained by each candidate list will be divided by one or two depending on the number of the members to be elected. The quotients thus obtained will be assigned progressively to candidates of each said list in the order given in the lists themselves. Quotients thus assigned to candidates of said lists will be set in one decreasing numerical order. Those who obtain the highest quotients will be elected. In the event that more than one candidate obtains the same quotient, the candidate elected will be the one of the list that has not hitherto had a Board member elected or that has elected the least number of Board members. In the event that none of the lists has yet elected a Board member or that all of them have elected the same number of Board members, the candidate from all such lists who has obtained the largest number of votes will be elected. In the event of equal list votes and equal quotient, a new vote will be taken by the entire shareholders’ meeting and the candidate elected will be the one who obtains a simple majority of the votes; | |||
c) | if through the procedure described above the minimum number of independent Directors set by these by-laws is not elected, the quotient is calculated according to letter b) above in order to be assigned to the candidates present in each list; the independent candidates not yet drawn from the lists pursuant to letters a) and b) above, who have got the highest quotients will be elected in order to meet the provision of the by-laws on the number of the independent Directors. The Directors so appointed will replace the non independent Directors to whom the lowest quotients have been assigned. If the number of independent candidates is lower than the minimum limit set by the by-laws, the shareholders’ meeting will make a resolution with the majorities prescribed by the law to substitute the not independent candidates who have got the lowest quotients; | |||
d) | to appoint Board members for any reason not covered by the terms of the aforementioned procedure, the shareholders’ meeting will make a resolution with the majorities prescribed by the |
The vote by list procedure shall apply only in case of appointment of the entire Board of Directors. | ||
17.4 | The shareholders’ meeting may, even during the Board’s term of office, change the number of members of the Board of Directors, always within the limits set forth in paragraph 17.1 above, and make the relating appointments. Board members so elected will expire at the same time as the rest of the Board. | |
17.5 | If during the term of office one or more members leave the Board, action will be taken in compliance with Article 2386 of the Civil Code with exception of the Board member appointed pursuant to Article 6.2 letter d) of these by-laws. If a majority of members leaves the Board, the whole Board will be considered lapsed and the Board must promptly call a shareholders’ meeting to appoint a new Board. | |
17.6 | The Board may establish Board Committees that shall have advisory and consulting tasks on specific items. |
ARTICLE 18
18.1 | If the shareholders’ meeting has not appointed a Chairman, the Board will elect one of its members. The Director appointed pursuant to Article 6, second | |
18.2 | The Board, at the Chairman’s proposal, appoints a Secretary, who need not belong to the company. |
ARTICLE 19
19.1 | The Board meets in the place indicated in the notice whenever the Chairman or, in case of absence or impediment, the Chief Executive Officer deems necessary, or when written application has been made by the majority of the members. The Board of Directors may be convened also pursuant to Article 28.4 of the by-laws. The Board of Directors’ meetings may be held by video or teleconference if each of the participants to the meetings may be identified and if each is allowed to follow the discussion and take part to it in real time. If said conditions are met, the | |
19.2 | Usually notice is given at least five days in advance. In cases of urgency notice may be sent earlier. The Board of Directors decides on how to convene its meetings. | |
19.3 | The Board of Directors must likewise be convened when so requested by at least two Board members or by one member if the Board consists of three members to decide on a specific matter considered of particular importance, pertaining to management, matter to be indicated in the request. |
ARTICLE 20
20.1 | The Chairman of the Board or, in his absence, the oldest Board member in attendance chairs the |
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ARTICLE 21
21.1 | A majority of members of the Board having a voting right must be present for a Board meeting to be valid. | |
21.2 | Resolutions are taken with the majority of votes of the Board members having a voting right present; should votes be equal, the person who chairs the |
ARTICLE 22
22.1 | Resolutions of the Board are entered in the minutes, which are recorded in a book kept for that purpose pursuant to the law, and said minutes are signed by the Chairman of the | |
22.2 | Copies of the minutes are bona fide if they are signed by the Chairman or the person acting for him and countersigned by the Secretary. |
ARTICLE 23
23.1 | The Board of Directors is invested with the fullest powers for ordinary and extraordinary management of the company and, in particular, the Board has the power to perform all acts it deems advisable for the implementation and achievement of the company objects, except for the acts that the law or these by-laws reserve for the shareholders’ meeting. | |
23.2 | The Board of Directors is allowed to resolve on the following matters: |
- | the merger and the demerger of at least 90% directly owned subsidiaries; | |||
- | the establishment and winding up of branches; | |||
- | the amendment to the by-laws in order to comply with the current legislation. |
23.3 | The Board of Directors and the Chief Executive Officer report timely, at least every three months and however in the Board of Directors meetings, to the Board of Statutory Auditors on the activities and on the most relevant operations regarding the operational, economic and financial management of the company and its subsidiaries; in particular the Board of Directors and the Chief Executive Officer report to the Board of Statutory Auditors on operations entailing an interest on their behalf or on behalf of third parties. |
ARTICLE 24
24.1 | The Board of Directors delegates its powers to one of its members with the exception of the Director appointed pursuant to Article 6, second | |
The Manager responsible for the preparation of financial reporting documents is chosen among people who, for at least three years, have exercised: |
a) | administration or control activities or directive tasks in companies listed on regulated stock exchanges in Italy or other European Union countries or other countries member of OECD with a share capital not less than two million euro or | |||
b) | audit activities in the companies mentioned in letter a) above, or | |||
c) | professional activities or teaching activities in universities in the financial or accounting sectors, or | |||
d) | managerial functions in public or private bodies in the financial, accounting, or control sectors. |
The Board of Directors assures that the Manager responsible for the preparation of financial reporting documents is given adequate powers and means to execute his or her tasks and to respect the administrative and accounting procedures. |
ARTICLE 25
25.1 | Legal representation towards any judicial or administrative authority and towards third parties, together with the company signature, are vested either onto the Chairman or the Chief Executive Officer. |
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ARTICLE 26
26.1 | The Chairman and the members of the Board are remunerated in an amount established by the ordinary shareholders’ meeting. Said resolution, once taken, will remain valid for subsequent business years until the shareholders’ meeting decides otherwise. |
ARTICLE 27
27.1 | The Chairman: |
a) | represents the company according to the provisions of Article 25.1; | |||
b) | chairs the | |||
c) | convenes and chairs meetings of the Board of Directors pursuant to Articles 19.1 and 20.1; | |||
d) | ascertains whether Board resolutions have been implemented; | |||
e) | exercises the powers delegated to him by the Board of Directors pursuant to Article 24.1 of these by-laws. |
Part VI - Board of Statutory Auditors
ARTICLE 28
28.1 | The Board of Statutory Auditors consists of five effective members and two alternate members. The Auditors shall have the professional and honour requirements set forth by the Ministerial Decree No. 162, dated March 30, 2000 issued by the Ministry of Justice. Pursuant to the aforementioned Ministerial Decree, the matters strictly connected to those of interest of the Company are: companies law, business economics and corporate finance. Pursuant to said Ministerial Decree, the sectors strictly connected with those of interest of the Company are the engineering and geological sectors. Until those provisions do not come in force, those who are already appointed effective auditor or supervisory board member or audit committee member in at least five companies with securities listed on regulated securities markets otherthan Eni | |
28.2 | The For the presentation, deposit and publication of candidate lists the procedures set forth in Article 17.3 shall Lists shall be divided into two sections: the first one for the candidates to be appointed effective Auditors and the second one for the candidates to be appointed alternate Auditors. At least the first candidate of each section shall be chartered accountant and have exercised audit activities for not less than three years. Three effective Auditors and one alternate Auditor will be drawn from the list that obtains the majority of votes. The other two effective Auditors and the other alternate Auditor will be appointed pursuant to Article 17.3, letter b) of the by-laws. The procedure described in this last Article shall be applied to each section of the lists involved separately. The shareholders’ meeting appoints the Chairman of the Board of Statutory Auditors among the effective Auditors appointed according to Article 17.3 letter b) of these by-laws. To appoint effective or alternate Auditors for any reason not elected according to the terms of the aforementioned procedure, the shareholders’ meeting will resolve with the majorities prescribed by the law. The vote by list procedure shall apply only in case of appointment of the entire Board of Statutory Auditors. Should an effective Auditor drawn out from the candidate list that receives the majority of votes expressed by the Shareholders be replaced, he will be succeeded by the alternate Auditor drawn out from the same candidate list; should an effective Auditor drawn out from the other candidate list be replaced, he will be substituted | |
28.3 | Retiring Auditors may be reelected. | |
28.4 | Subject to a previous communication to the Chairman of the Board of Directors, the Board of Statutory Auditors is empowered to convene the shareholders’ meeting and the Board of Directors. At least two effective Auditors are empowered to convene the shareholders’ meetings and at least one effective Auditor is empowered to convene the Board meetings. The Board of Statutory Auditors’ meetings may be held by video or teleconference if each of the participants to the meetings may be identified and if each is allowed to follow the discussion and take part to it in real time. If said conditions are met, the Meeting is considered duly held in the place where the Chairman and the Secretary are present. |
Part VII - Financial Statements and Profits
ARTICLE 29
29.1 | The business year ends on December 31 every year. |
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29.2 | At the end of each business year, the Board of Directors sees to the preparation of the company financial statements in conformity with the law. | |
29.3 | The Board of Directors may, during the course of the business year, pay interim dividends to the Shareholders. |
ARTICLE 30
30.1 | Dividends not collected within five years of the day on which they are payable will be prescribed in favour of the company and allocated to reserves. |
Part VIII - Winding Up and Liquidation of the Company
ARTICLE 31
31.1 |
Part IX - General Provisions
ARTICLE 32
32.1 | For matters not expressly regulated by these by-laws, the norms of the Civil Code and specific laws concerning these matters will apply. | |
32.2 | The Ministry of Economy and Finance may retain his shareholding in the company share capital in excess of the limit set forth in Article 6.1 of these by-laws and will not be subject to the provisions of said Article 6.1 for the period set by the law. |
ARTICLE 33
33.1 | The company retains all assets and liabilities held before its transformation by the public law agency Ente Nazionale Idrocarburi. |
Exibit 8
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EXHIBIT 8
List of Eni's fully consolidatedEni’s subsidiaries for year 20052007
Subsidiary | Country of Incorporation |
| ||
EXPLORATION & PRODUCTION | ||||
Eni Angola SpA | Italy | 100.00 | ||
Eni East Africa SpA | Italy | 100.00 | ||
Eni Mediterranea Idrocarburi SpA | Italy | 100.00 | ||
Eni Timor Leste SpA | Italy | 100.00 | ||
Ieoc SpA | Italy | 100.00 | ||
Società Oleodotti Meridionali - SOM SpA | Italy | 70.00 | ||
Società Petrolifera Italiana SpA | Italy | 99.96 | ||
Stoccaggi Gas Italia SpA - Stogit SpA | Italy | 100.00 | ||
Tecnomare - Società per lo Sviluppo delle Tecnologie Marine SpA | Italy | 100.00 | ||
Agip Caspian Sea BV | 100.00 | |||
Agip Energy and Natural Resources (Nigeria) Ltd | 100.00 | |||
Agip Karachaganak BV | 100.00 | |||
Agip Oil Ecuador BV | 100.00 | |||
Eni | 100.00 | |||
Eni Algeria Exploration BV | 100.00 | |||
Eni Algeria Ltd Sà | 100.00 | |||
Eni Algeria Production BV | 100.00 | |||
Eni Ambalat Ltd | 100.00 | |||
Eni America Ltd | 0.07 | |||
Eni Angola Exploration BV | 100.00 | |||
Eni Angola Production BV | 100.00 | |||
Eni Australia BV | 100.00 | |||
Eni Australia Ltd | 100.00 | |||
Eni BB Petroleum Inc | ||||
100.00 | ||||
Eni Bukat Ltd | 100.00 | |||
Eni Bulungan BV | 100.00 | |||
Eni China BV | 100.00 | |||
Eni Congo Holding BV | 100.00 | |||
Eni Congo SA | 99.99 | |||
Eni Croatia BV | 100.00 | |||
Eni Dación BV | ||||
100.00 | ||||
Eni Denmark BV | 100.00 | |||
Eni Elgin/Franklin Ltd | ||||
100.00 | ||||
Eni Energy Ltd (in liquidation) | 100.00 | |||
Eni Energy Russia BV | Netherlands | 100.00 | ||
Eni Ganal Ltd | 100.00 | |||
Eni Gas & Power LNG | Netherlands | 100.00 | ||
Eni Grand Maghreb BV | 100.00 | |||
Eni | 100.00 | |||
Eni Indonesia Ltd | 100.00 | |||
Eni International NA NV Sàrl | 100.00 | |||
Eni Investments Plc | 100.00 | |||
Eni Iran BV | 100.00 | |||
Eni Ireland BV | 100.00 | |||
Eni JPDA 03-13 Ltd | 100.00 | |||
Eni JPDA 06-105 Pty Ltd | Australia | 100.00 | ||
Eni Krueng Mane Ltd | 100.00 | |||
Eni Lasmo Plc | 99.99 | |||
Eni LNS Ltd | 100.00 | |||
Eni Mali BV | Netherlands | 100.00 | ||
Eni Marketing Inc | ||||
100.00 | ||||
Eni MHH Ltd (in liquidation) | 100.00 | |||
Eni Middle East BV | 100.00 | |||
Eni Middle East Ltd | 100.00 |
E-9
Eni MOG Ltd (in liquidation) | 100.00 | |||
Eni Morocco BV | Netherlands | 100.00 | ||
Eni Muara Bakau BV | 100.00 | |||
Eni Norge AS | 100.00 | |||
Eni North Africa BV | 100.00 | |||
Eni Oil Algeria Ltd | 100.00 | |||
Eni Oil do Brasil SA | Brazil | 100.00 | ||
Eni Oil & Gas Inc | ||||
100.00 | ||||
Eni Oil Holdings BV | 100.00 | |||
Eni Pakistan Ltd | 100.00 | |||
Eni Pakistan (M) Ltd Sàrl | 100.00 | |||
Eni Papalang Ltd | 100.00 | |||
Eni Petroleum Co Inc | 100.00 | |||
Eni Petroleum | 100.00 | |||
Eni PetroRussia BV | Netherlands | 100.00 | ||
Eni Popodi Ltd | 100.00 | |||
Eni Rapak Ltd | 100.00 | |||
Eni Resources Ltd (in liquidation) | ||||
100.00 | ||||
Eni Securities Ltd | 100.00 | |||
Eni TNS Ltd | 100.00 | |||
Eni Trading BV | 100.00 | |||
Eni Transportation Ltd | UK | 100.00 | ||
Eni Trinidad and Tobago Exploration BV | Netherlands | 100.00 | ||
Eni Trinidad and Tobago Ltd | 100.00 | |||
Eni TTO Ltd | 100.00 | |||
Eni Tunisia BEK BV | 100.00 | |||
Eni Tunisia BV | 100.00 | |||
Eni UFL Ltd (in liquidation) | 100.00 | |||
Eni UHL Ltd | 100.00 | |||
Eni UKCS Ltd | 100.00 | |||
Eni UK Holding Plc | UK | 100.00 | ||
Eni UK Ltd | 100.00 | |||
Eni ULT Ltd | 100.00 | |||
Eni ULX Ltd | 100.00 | |||
Eni USA Gas Marketing Llc | USA | 100.00 | ||
Eni USA Inc | 100.00 | |||
Eni | 100.00 | |||
Eni Venezuela BV | ||||
100.00 | ||||
Ieoc Exploration BV | 100.00 | |||
Ieoc Production BV | ||||
100.00 | ||||
Lasmo Sanga Sanga Ltd | 100.00 | |||
Nigerian Agip Exploration Ltd | 100.00 | |||
Nigerian Agip Oil Co Ltd | 100.00 | |||
100.00 | ||||
Acqua Campania SpA | ||||
Compagnia Napoletana di Illuminazione e Scaldamento col Gas SpA | 99.69 | |||
100.00 | ||||
Eni | 100.00 | |||
EniPower SpA | ||||
100.00 | ||||
EniPower Trasmissione SpA | ||||
100.00 | ||||
GNL Italia SpA | ||||
LNG Shipping SpA | 100.00 | |||
100.00 | ||||
Snam Rete Gas SpA | 55.59 | |||
Società EniPower Ferrara Srl | 51.00 | |||
Società Italiana per il Gas pA | 100.00 | |||
Toscana Energia Clienti SpA | Italy | 79.22 | ||
Adriaplin Podjetje za distribucijo zemeljskegaplina doo Ljubljana | Slovenia | 51.00 |
E-10
Distribuidora de Gas Cuyana SA | Argentina | 45.60 | ||
Eni Gas & Power GmbH | Germany | 100.00 | ||
Eni Gas Transport International SA (ex Eni Gas & Power CH SA) | Switzerland | 100.00 | ||
Eni G&P France BV | Netherlands | 100.00 | ||
Eni G&P Trading BV | Netherlands | 100.00 | ||
Gas Brasiliano Distribuidora SA | Netherlands | 100.00 | ||
GreenStream BV | Netherlands | 75.00 | ||
Inversora de Gas Cuyana SA | Argentina | 76.00 | ||
Société de Service du Gazoduc Transtunisien SA - Sergaz SA | 66.67 | |||
Société pour la Construction du Gazoduc Transtunisien SA - Scogat SA | 100.00 | |||
Tigáz-Dso Földgázelosztó kft | Hungary | 50.08 | ||
Tigáz Tiszántúli Gázszolgáltató Zártkörûen Mûködõ Részvénytársaság | 50.08 | |||
Trans Tunisian Pipeline Co Ltd | 100.00 | |||
REFINING & MARKETING | ||||
AgipFuel Nord SpA (ex CAM Petroli Srl) | Italy | |||
100.00 | ||||
Italy | 100.00 | |||
Agip Rete SpA | Italy | 100.00 | ||
Costiero Gas Livorno SpA | Italy | 65.00 | ||
Ecofuel SpA | Italy | 100.00 | ||
Eni Trading & Shipping SpA | Italy | 100.00 | ||
Petrolig Srl | Italy | 70.00 | ||
Petroven Srl | Italy | 68.00 | ||
Praoil Oleodotti Italiani SpA | Italy | 100.00 | ||
Raffineria di Gela SpA | Italy | 100.00 | ||
Agip Austria GmbH | Austria | 75.00 | ||
Agip Benelux BV | Netherlands | 100.00 | ||
Agip Ceská Republika Sro | Czech Republic | 100.00 | ||
Agip Deutschland GmbH | Germany | 100.00 | ||
Agip Ecuador SA | Ecuador | 100.00 | ||
Agip España SA | Spain | 100.00 | ||
Agip France Sàrl | France | 100.00 | ||
Agip Hungaria Zrt | Hungary | 99.40 | ||
Agip Lubricantes SA | Argentina | 100.00 | ||
Agip Oil Ceská Republika Sro | Czech Republic | 100.00 | ||
Agip Oil Slovensko Spol Sro | Slovakia | 100.00 | ||
Agip Olaj Magyarország Kft | Hungary | 100.00 | ||
Agip Portugal Combustiveis SA | Portugal | 100.00 | ||
Agip Romania Srl | Romania | 100.00 | ||
Agip Schmiertechnik GmbH | Germany | 100.00 | ||
Agip Slovenija doo | Slovenia | 100.00 | ||
Agip Slovensko Spol Sro | Slovakia | 100.00 | ||
Agip Suisse SA | Switzerland | 100.00 | ||
American Agip Co Inc | 100.00 | |||
100.00 | ||||
Italy | 100.00 | |||
Dunastyr Polisztirolgyártó Zártkoruen Mukodo Részvénytársaság | Hungary | 100.00 | ||
Polimeri Europa Benelux SA | Belgium | 100.00 | ||
Polimeri Europa France SAS | France | 100.00 | ||
Polimeri Europa GmbH | Germany | 100.00 | ||
Polimeri Europa Ibérica SA | Spain | 100.00 | ||
Polimeri Europa UK Ltd | UK | 100.00 |
E-11
ENGINEERING & CONSTRUCTION | ||||
Saipem SpA | Italy | 43.42 | ||
Energy Maintenance Services SpA | Italy | 43.42 | ||
Engineering & Management Services SpA | Italy | 43.42 | ||
Intermare Sarda SpA | Italy | 43.42 | ||
Saipem Energy International SpA | Italy | 43.42 | ||
Saipem FPSO SpA | Italy | 43.42 | ||
Saipem Projects SpA | Italy | 43.42 | ||
Snamprogetti SpA | Italy | 43.42 | ||
Snamprogetti Sud SpA | Italy | 43.42 | ||
Andromeda Consultoria Tecnica e Representações Ltda | Brazil | 43.42 | ||
BOSCONGO SA | 43.42 | |||
BOS Investment Ltd | ||||
BOS - UIE Ltd | ||||
Delong Hersent - Estudos, Construções Maritimas e Participações, Unipessoal Lda | ||||
Entreprise Nouvelle Marcellin SA | 43.42 | |||
ER SAI Caspian Contractor Llc | 43.42 | |||
ERS - Equipment Rental & Services BV | 21.71 | |||
European Marine Contractors Ltd | 43.42 | |||
European Marine Investments Ltd | 43.42 | |||
European Maritime Commerce BV | 43.42 | |||
Frigstad Discoverer Invest Ltd | British Virgin Islands | 43.42 | ||
Frigstad Discoverer Invest (S) Pte Ltd | Singapore | 43.42 | ||
Global Petroprojects Services AG | 43.42 | |||
Hazira Cryogenic Engineering & Construction Management Private Ltd | 23.83 | |||
Hazira Marine Engineering & Construction Management Private Ltd | ||||
Katran-K Llc | 43.42 | |||
Moss Arctic Offshore AS | 43.42 | |||
Moss Maritime AS | 43.42 | |||
Moss Maritime Inc | 43.42 | |||
Moss Offshore AS | ||||
North Caspian Service Co | Kazakhstan | 43.42 | ||
Petrex SA | 43.42 | |||
Petromar Lda | 30.40 | |||
PT Saipem Indonesia | ||||
Saibos Construções Maritimas | ||||
Saigut SA De Cv | 43.42 | |||
Saimexicana SA De Cv | 43.42 | |||
Saipem America Inc | 43.42 | |||
Saipem Asia Sdn Bhd | 43.42 | |||
Saipem Contracting Algerie SpA | 43.42 | |||
Saipem Contracting (Nigeria) Ltd | 42.53 | |||
Saipem do Brasil Serviçõs de Petroleo Ltda | ||||
Saipem Holding France SAS | 43.42 | |||
Saipem India Project Services Ltd | 43.42 | |||
Saipem International BV | 43.42 | |||
Saipem Logistics Services Ltd | Nigeria | 43.42 | ||
Saipem Luxembourg SA | 43.42 | |||
Saipem (Malaysia) Sdn Bhd | 17.97 | |||
Saipem Mediteran Usluge doo | 43.42 | |||
Saipem Misr for Petroleum Services SAE | Egypt | 43.42 | ||
Saipem (Nigeria) Ltd | 38.83 | |||
Saipem | 43.42 | |||
Saipem (Portugal) | 43.42 | |||
Saipem (Portugal) - Gestão de Participações SGPS Sociedade Unipessoal SA | 43.42 | |||
Saipem SA | 43.42 | |||
Saipem Services México SA De Cv | 43.42 | |||
Saipem Services SA | 43.42 | |||
Saipem Singapore Pte Ltd | ||||
E-12
Saipem UK Ltd | ||||
SAS Port de Tanger | 43.42 | |||
Saudi Arabian Saipem Ltd | ||||
Services et Equipements Gaziers et Petroliers SA | 43.42 | |||
Snamprogetti Canada Inc | Canada | 43.42 | ||
Snamprogetti France Sàrl | France | 43.42 | ||
Snamprogetti Ltd | UK | 43.42 | ||
Snamprogetti Lummus Gas Ltd | Malta | 42.99 | ||
Snamprogetti Management Services SA | Switzerland | 43.42 | ||
Snamprogetti Netherlands BV | Netherlands | 43.42 | ||
Snamprogetti Romania Srl | Romania | 43.42 | ||
Snamprogetti Saudi Arabia Ltd | Saudi Arabia | 43.42 | ||
Snamprogetti USA Inc | USA | 43.42 | ||
Société de Construction d’Oleoducs Snc | ||||
Sofresid Engineering SA | 43.42 | |||
Sofresid SA | 43.42 | |||
Sonsub AS | 43.42 | |||
Sonsub International Pty Ltd | 43.42 | |||
Sonsub Ltd (in liquidation) (ex Sonsub Ltd) | 43.42 | |||
Star Gulf | ||||
Varisal - Serviços De Consultadoria e Marketing Lda | Portugal | 21.71 | ||
OTHER ACTIVITIES | ||||
Italy | 100.00 | |||
Ing. Luigi Conti Vecchi SpA | Italy | 100.00 | ||
CORPORATE AND FINANCIAL COMPANIES | ||||
Agenzia Giornalistica Italia SpA | 100.00 | |||
Eni Corporate University SpA | 100.00 | |||
100.00 | ||||
Padana Assicurazioni SpA | 99.72 | |||
Serfactoring SpA | 48.81 | |||
Servizi Aerei SpA | Italy | 100.00 | ||
Società Finanziamenti Idrocarburi - Sofid - SpA | 99.61 | |||
100.00 | ||||
Eni Insurance Ltd | Ireland | 100.00 | ||
Eni International Bank Ltd (in liquidation) (ex Eni International Bank Ltd) | Bahamas | 100.00 | ||
Eni International BV | Netherlands | 100.00 | ||
Eni International Resources Ltd | UK | 100.00 |
Exhibit
E-13
EXHIBIT 11
Code of Ethics
Approved by the Board of Directors of Eni SpA on October 21, 1998 and on July 31, 2003 (Addendum)March 14, 2008
The English text is a translation of the Italian official "Code of Ethics"
For any conflict or discrepancies between the two texts the Italian text shall prevail
TABLE OF CONTENTS
Addendum
Foreword
I. GENERAL PRINCIPLES: SUSTAINABILITY AND CORPORATE RESPONSIBILITY
II. BEHAVIOUR RULES AND RELATIONS WITH STAKEHOLDERS
1. General PrinciplesEthics, transparency, fairness, professionalism
2. Relations with shareholders and with the Market
2.1. Value for shareholders, efficiency, transparency
2.2. Self-Regulatory Code
2.3. Company information
2.4. Privileged information
2.5. Media
3. Relations with institutions, associations, local communities
3.1. Authorities and Public Institutions
3.2. Political organizations and trade unions
3.3. Development of local Communities
3.4. Promotion of "non profit" activities
4. Relations with customers and suppliers
4.1. Customers and consumers
4.2. Suppliers and external collaborators
5. Eni’s management, employees, collaborators
5.1. Development and protection of Human Resources
5.2. Knowledge Management
5.3. Corporate security
5.4. Harassment or mobbing in the workplace
5.5. Abuse of alcohol or drugs and no smoking
1.1 To whomIII. TOOLS FOR IMPLEMENTING THE CODE OF ETHICS
1. System of internal control
1.1. Conflicts of interest
1.2. Transparency of accounting records
2. Health, safety, environment and public safety protection
3. Research, innovation and intellectual property protection
4. Confidentiality
4.1. Protection of business secret
4.2. Protection of privacy
4.3. Membership in associations, participation in initiatives, events or external meetings
IV. CODE OF ETHICS SCOPE OF APPLICATION AND REFERENCE STRUCTURES
1. Obligation to know the Code applies
1.2 Duties of Eni
1.3 Duties of Employees
1.4 Additional Duties of Managers
1.5 Applicabilityand to report any possible violation thereof
2. Reference structures and supervision
2.1. Guarantor of the Code to Third Parties
1.6 Reference, Implementation and Control Functions (Guarantors)
1.7of Ethics
2.2. Code Promotion Team
3. Code review
4. Contractual Valuevalue of the Code
2. Business ConductE-14
FOREWORD
2.1 Relations with Customers
2.2 Relations with Suppliers
3. Transparency of Accounting and Internal Controls
3.1 Accounting Records
3.2 Internal Controls
4. Personnel Policies
4.1 Human Resources
4.2 Harassment in the Workplace
4.3 Abuse of Alcohol or Drugs
4.4 Smoking
5. Health, Safety and the Environment
6. Confidentiality
7. External Relations
7.1 Relations with Public Institutions
7.2 Relations with Political Organizations and Trade Unions
7.3 Relations with the Media
7.4 Presentation of Eni Objectives, Activities, Results and Points of View
7.5 "Non Profit" Initiatives
ADDENDUM
In conducting its activities as an international company, Eni refers to the protection of human and labor rights, of safety and the environment, as well as to the system of values and principles concerning transparency and integrity, energy efficiency and sustainable development, as outlined by international institutions and conventions.
In this respect Eni reaffirms its commitment to operate within the framework of the United Nations Universal Declaration of Human Rights, the Fundamental Conventions of the ILO – International Labour Organization – and the OECD Guidelines on Multinational Enterprises, with particular reference to the areas concerning the protection of labor rights, freedom of association, the rejection of all forms of discrimination, forced and child labor, corruption, the safeguarding of dignity, health and safety at the workplace, the respect for natural biodiversities and the protection of the environment.
Moreover, Eni is committed to actively contribute to promoting the quality of life and the socio-economic development of the communities where the Group operates and to the development of their human resources and capabilities, while conducting its business activities in internal and external markets according to standards that are compatible with fair commercial practice.
All of Eni's activities are carried out in the awareness of the Social Responsibility that the Group has towards all of its stakeholders (employees, shareholders, customers, suppliers, communities, commercial and financial partners, institutions, industry associations, trade unions…), in the belief that the capacity for dialogue and interaction with civil society constitutes an important asset for the company.
Therefore, Eni is committed to spreading an awareness of its values and principles both within and outside the Group and to implementing adequate control procedures.
FOREWORD
Eni1 is an internationally oriented industrial group which, because of its size and the importance of its activities, plays a significant role in the marketplace and in the economic development and welfare of the communities where it is present.
individuals who work or collaborate with Eni operates in many institutional, economic, political, social and cultural environments in constant and rapid development. Eni’s activities must be performed in full respect of the law, in fair competition, with honesty, integrity and good faith, with due respect for the legitimate interests of its customers, employees, shareholders, commercial and financial partners and the communities where it is present. All those who work in Eni are, without any distinction or exception whatsoever, committed to respecting these principles in performing their roles and responsibilities and to making sure that others respect them. The conviction that one is acting in favor or to the advantage of Eni can never, in any way, justify acts or behavior that conflict with these principles.
Due to theThe complexity of the situations in which Eni operates, it is importantthe challenges of sustainable development and the need to take into consideration the interests of all people having a legitimate interest in the corporate business ("Stakeholders"), strengthen the importance to clearly define clearly the values that Eni accepts, acknowledges and shares as well as the responsibilities assumed by Eni inside and outside Eni itself. it assumes, contributing to a better future for everybody.
For this reason the presentnew Eni’s Code of Practice (hereinafter called the "Code"Ethics ("Code" or "Code of Ethics") has been produced. Respect ofdevised.
Compliance with the Code by every Eni employeeEni’s directors, statutory auditors, management and employees as well as by all those who operate in Italy and abroad for achieving Eni’s objectives ("Eni’s People"), each within their own functions and responsibilities, is of paramount importance – also pursuant to legal and contractual provisions governing the relationship with Eni – for the good functioning,Eni’s efficiency, reliability and reputation, of Eni; all of which are all crucial factors for its success.success and for improving the social situation in which Eni operates.
Apart from fulfilling their general duties of loyalty, fairness and the performance of their labor contract in good faith, all Eni employees must refrain from acts that compete with Eni and they must respect company rules and comply with the Code; which compliance is also required under existing laws.2
Each employee is expected to have full knowledge of the Code and to contribute actively to its implementation and to report any shortcomings. Eni undertakes to facilitate and promote knowledge of the Code among its employeesEni’s People and the other Stakeholders, and to accept their constructive contribution to the Code’s principles and contents. Any behavior violatingEni undertakes to take into consideration any suggestions and remarks of Stakeholders, with the letter andobjective of confirming or integrating the spirit of the Code will be punished according to the rules herein defined.Code.
Eni will checkcarefully checks for compliance with the Code by providing suitable information, prevention and control instrumentstools and it shall ensureensuring transparency in all operationstransactions and conductbehaviours by taking corrective measures if and as required.
The Watch Structure of each Eni company performs the functions of guarantor of the Code shall beof Ethics ("Guarantor").
The Code is brought to the attention of every person or body having business relations with Eni.
(1) | In the present Code "Eni" or "Group" mean Eni SpA and its subsidiaries as defined in Article 2359 of the Italian Civil Code as well as other subsidiaries as defined in Article 26 of Legislative Decree No. 127 of April 9, 1991. | |
E-15
I. GENERAL PRINCIPLES: SUSTAINABILITY AND CORPORATE RESPONSIBILITY
1. GENERAL PRINCIPLES
1.1 To whomCompliance with the code applies
Morallaw, regulations, statutory provisions, self-regulatory codes, ethical integrity and fairness, is a constant commitment and duty for any person working for Eniof all Eni’s People, and characterizes the conduct of itsEni’s entire organization.
The rules
Eni’s business and corporate activities has to be carried out in a transparent, honest and fair way, in good faith, and in full compliance with competition protection rules.
Eni undertakes to maintain and strengthen a governance system in line with international best practice standards, able to deal with the complex situations in which Eni operates, and with the challenges to face for sustainable development.
Systematic methods for involving Stakeholders are adopted, fostering dialogue on sustainability and corporate responsibility.
In conducting both its activities as an international company and those with its partners, Eni stands up for the protection and promotion of human rights – inalienable and fundamental prerogatives of human beings and basis for the establishment of societies founded on principles of equality, solidarity, repudiation of war, and for the protection of civil and political rights, of social, economic and cultural rights and the so-called third generation rights (selfdetermination right, right to peace, right to development and protection of the Code are applicableenvironment).
Any form of discrimination, corruption, forced or child labor is rejected. Particular attention is paid to eachthe acknowledgement and everysafeguarding of the dignity, freedom and equality of human beings, to protection of labor and of the freedom of trade union association, of health, safety, the environment and biodiversity, as well as the set of values and principles concerning transparency, energy efficiency and sustainable development, in accordance with International Institutions and Conventions.
In this respect Eni employeeoperates within the reference framework of the United Nations Universal Declaration of Human Rights, the Fundamental Conventions of the ILO – International Labor Organization – and the OECD Guidelines on Multinational Enterprises.
All Eni’s People, without any distinction or exception whatsoever, respect the principles and to all those who work for the achievement of Eni’s objectives.
Eni’s management has to comply with the rulescontents of the Code in the presentation of projects, and in actions and investments aimed at increasing in the long-term the value of Eni assets, managerial capability, technology, the return on investment for shareholders, and the welfare of employees and the community at large.
Members of the Board of Directors must bear in mind the principles contained in the Code when determining corporate objectives.
Company managers must be the first to give concrete form to the values and principles contained in the Code, by assuming responsibility for them both inside and outside the Group, and by instilling trust, cohesion and a sense of team-work.
Eni employees shall not only respect existing applicable laws but they are also expected to adjust their actions and conduct so asbehaviours while performing their functions and according to conformtheir responsibilities, because compliance with the Code is fundamental for the quality of their working and professional performance. Relationships among Eni’s People, at all levels, must be characterized by honesty, fairness, cooperation, loyalty and mutual respect.
The belief that one is acting in favor or to the advantage of Eni can never, in any way, justify – not even in part – any behaviours that conflict with the principles objectives and commitments contemplated incontents of the Code.
The general conduct
II. BEHAVIOUR RULES AND RELATIONS WITH STAKEHOLDERS
1. ETHICS, TRANSPARENCY, FAIRNESS, PROFESSIONALISM
In conducting its business, Eni is inspired by and anycomplies with the principles of loyalty, fairness, transparency, efficiency and an open market, regardless of the importance level of the transaction in question.
Any action, operationtransaction and negotiation performed by Eni employeesand, generally, the conduct of Eni’s People in the performance of their duties shall beis inspired by the highest principles of fairness, completeness and transparency of information and legitimacy, both in form and substance, as well as in clarity and truthfulness inof all accounting matters, as per existing anddocuments, in compliance with the applicable laws in force and internal regulations.
Eni shall actively and fully cooperate with public Authorities, through its employees.
All in-house work shallEni’s activities have to be performed with the utmost care and professional skill. Each employee must bring adequateskill, with the duty to provide skills and expertise adequate to the tasktasks assigned, and alwaysto act in a way that shallcapable to protect Eni’s image and reputation.
Relationships between employees, Corporate objectives, as well as the proposal and implementation of projects, investments and actions, have to be aimed at all levels, must be characterized by fairness, cooperation, loyaltyimproving the company’s assets, management, technological and mutual respect.
In order to fully comply with the Code, each employee may refer not only to his or her superior but may also contact directly any internal body or office specifically designated for the purpose.
1.2 Duties of Eni
Through the establishment of specific internal bodies ("Guarantor" and "Committee for the Code of Practice"), Eni will:
1.3 Duties of employees
All employees are expected to know the regulations containedinformation level in the Codelong term, and the relevant rules governing activities performed in their respective functions.
Eni employees shall:
If, after notifying a supposed violation, an employee should deem that the issue has not been fully investigated or feels that he or she has been subject to retaliation, then the employee shall be entitled to make a complaint to the Committeeat creating value and welfare for the Code of Practice.
Employees are not allowed to conduct personal investigations, nor to exchange information, except to their superiors, the Guarantor or the Committee for the Code of Practice.
1.4 Additional duties of managers
Each manager shall:
1.5 Applicability of the code to third parties
In dealing with third parties, Eni employees shall:
1.6 Reference, implementation and control functions (guarantors)
Eni has established the function of "Guarantor of the Code of Practice" with the following proposes and once the office of the Guarantor has been established, all employees must be made aware of its purpose and of how they themselves can communicate directly with it (by telephone, fax, e-mail, etc.):
In performing its duties, the Guarantor will be aided by the relevant structures within Eni SpA.
Eni has established the Committee for the Code of Practice to carry out the following assignments:
Similar structures will be created in all Eni Group companies.
The Eni SpA Guarantor coordinates the activities of the Guarantors in subsidiaries. After review by the Board of Directors of the respective sector head companies, a copy of the yearly report concerning each sector shall be presented to the Eni SpA Guarantor. The Eni SpA Guarantor shall also receive a copy of the yearly report of directly controlled companies not included in any sector.
1.7 Contractual value of the code
Respect of the Code’s rules is an essential part of the contractual obligations of Eni employees as per Article 2104 of the Italian Civil Code.
Any violation of the Code’s rules may be considered as a violation of primary obligations under labor relations or of the rules of discipline, and can entail the consequences provided for by law, including termination of the work contract and reimbursement of damages arising from any violation therefrom.
2. BUSINESS CONDUCT
In conducting its business Eni is inspired by the principles of fairness, loyalty, transparency, efficiency and an open market.
Eni employees, and external collaborators whose actions may somehow be referred to Eni, must act correctly when conducting business in Eni’s interest and in their relations with the Public Administration, irrespective of the market conditions and the importance of the business under negotiation.
Stakeholders.
Bribes, illegitimate favors,favours, collusion, pressures, either direct or through third parties, requests offor personal benefits for oneself or others, either directly or through third parties, are prohibited.
Eni acknowledges and respects the right of employees to take part in investments, businesses and other kinds of activities, provided that these are not related to the activities that such employees perform in the interests of Eni and provided that such activities are permitted by law and are compatible with the duties of being employees of Eni.
Inprohibited without any event, Eni employees shall avoid any situation and activity where a conflict of interest may arise or which can interfere with their ability to make impartial decisions in the best interests of Eni and in full accordance with the Code. Any situation that may constitute or give rise to a conflict of interest shall be immediately reported to one’s superiors. In particular, all Eni employees shall avoid conflicts of interest between personal and family economic activities and their tasks within their company. By way of example, conflicts of interest are determined by the following situations:
exception.
It is prohibited to pay or offer, directly or indirectly, money and material benefits and other advantages of any kind to third parties, whether representatives of governments, public officers and public servants or private individuals,employees, in order to influence or remunerate the actions of their office. Courtesy objects,
Commercial courtesy, such as small presentsgifts or forms of hospitality, gifts, areis only allowed only when theits value of such objects is small and it does not compromise the integrity and reputation of the partnerseither party, and cannot be construed by an impartial observer as aimed at obtaining undue advantages. In any case, these expenses must always be authorized by the designated managers as per existing internal rules, and be accompanied by appropriate documentation.
Employees receiving presents
It is forbidden to accept money from individuals or companies that have or intend to have business relations with Eni. Anyone who receives proposals of gifts or special or hospitality treatment that cannot be directly related to normal courteous relations mustconsidered as commercial courtesy of small value, or requests therefore by third parties, shall reject them and immediately inform their superior, or the body they belong to, as well as the Guarantor.
Eni shall properly inform all third parties about the commitments and obligations provided for in the Code, require third parties to respect the principles of the facts.
External collaborators (including consultants, representatives, agents, brokers etc.) are requiredCode relevant to their activities and take proper internal actions and, if the matter is within its own competence, external actions in the event that any third party should fail to comply with the Code’s principles. To this purpose,Code.
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2. RELATIONS WITH SHAREHOLDERS AND WITH THE MARKET
2.1.Value for shareholders, efficiency, transparency
The internal structure of Eni and the relations with the parties directly and indirectly taking part in accordanceits activities are organized according to rules able to ensure management reliability and a fair balance between the management’s powers and the interests of shareholders and of the other Stakeholders in general as well as transparency and market traceability of management decisions and general corporate events which may considerably influence the market value of the financial instruments issued.
Within the framework of the initiatives aimed at maximizing the value for shareholders and at guaranteeing transparency of the management’s work, Eni defines, implements and progressively adjusts a coordinated and homogeneous set of behaviour rules concerning both its internal organizational structure and relations with shareholders and third parties, in compliance with the highest corporate governance standards at national and international level, based on the awareness that the company’s capacity to impose efficient and effective functioning rules upon itself is a fundamental tool for strengthening its reputation in terms of reliability and transparency as well as Stakeholders’ trust.
Eni deems it necessary that shareholders are enabled to participate in decisions which come within the limits of their responsibilities, employees shallcompetence and make sure that:informed choices. Therefore, Eni undertakes to ensure maximum transparency and timeliness of information communicated to shareholders and to the market – by means of the corporate internet site, too – in compliance with the laws and regulations applicable to listed companies. Moreover, Eni undertakes to keep in due consideration the legitimate remarks expressed by shareholders whenever they are entitled to do so.
2.2. Self-Regulatory Code
The main corporate governance rules of Eni are contained in the Self-Regulatory Code of Eni SpA, adopted in compliance with the Code promoted by Borsa Italiana SpA, which is referred to herein as far as applicable.
2.3. Company information
Eni ensures the correct management of company information, by means of suitable procedures for in-house management and communication to the outside.
2.4. Privileged information
All Eni’s People are required, while performing the tasks entrusted to them, to properly manage privileged information such as to know and comply with corporate procedures referring to market abuse. Insider trading and any behaviour that may promote insider trading are expressly forbidden. In any case, the remunerationpurchase or sale of shares of Eni or of companies outside Eni shall always be based on absolute and transparent fairness.
2.5. Media
Eni undertakes to provide outside parties with true, prompt, transparent and accurate information.
Relations with the media are exclusively dealt with by the departments and managers specifically appointed to do so; information to be paid shallsupplied to media representatives, as well as the undertaking to provide such information, have to be agreed upon beforehand by Eni’s People with the relevant Eni Corporate structure.
3. RELATIONS WITH INSTITUTIONS, ASSOCIATIONS, LOCAL COMMUNITIES
Eni encourages dialogue with Institutions and with organized associations of civil society in all the countries where it operates.
3.1. Authorities and Public Institutions
Eni, through its People, actively and fully cooperates with Authorities.
Eni’s People, as well as external collaborators whose actions may somehow be referred to Eni, must have behaviours towards the Public Administration characterized by fairness, transparency and traceability. These relations have to be exclusively commensuratedealt with by the departments and individuals specifically appointed to do so, in compliance with approved plans and corporate procedures.
The departments of the subsidiaries concerned shall coordinate with the servicesrelevant Eni Corporate structure for assessing the quality of the interventions to be renderedcarried out and describedfor the sharing, implementing and monitoring of their actions.
It is forbidden to make, induce or encourage false statements to Authorities.
3.2. Political organizations and trade unions
Eni does not make any direct or indirect contributions in whatever form to political parties, movements, committees, political organizations and trade unions, nor to their representatives and candidates, except those specifically contemplated by applicable laws and regulations.
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3.3. Development of local Communities
Eni is committed to actively contribute to promoting the quality of life, the socio-economic development of the communities where Eni operates and to the development of their human resources and capabilities, while conducting its business activities according to standards that are compatible with fair commercial practices.
Eni’s activities are carried out in the contractawareness of the social responsibility that Eni has towards all of its Stakeholders and payments shall be made onlyin particular the local communities in which it operates, in the belief that the capacity for dialogue and interaction with civil society constitutes an important asset for the company. Eni respects the cultural, economic and social rights of the local communities in which it operates and undertakes to contribute, as far as possible, to their exercise, with particular reference to the contract partnerright to adequate nutrition, drinking water, the highest achievable level of physical and withinmental health, decent dwellings, education, abstaining from actions that may hinder or prevent the country indicatedexercise of such rights.
Eni promotes transparency of the information addressed to local communities, with particular reference to the topics that they are most interested in. Forms of continuous and informed consultancy are either promoted, through the relevant Eni structures, in order to take into due consideration the legitimate expectations of local communities in conceiving and conducting corporate activities and in order to promote a proper redistribution of the profits deriving from such activities.
Eni, therefore, undertakes to promote the knowledge of its corporate values and principles, at every level of its organization, also through adequate control procedures, and to protect the rights of local communities, with particular reference to their culture, institutions, ties and life styles.
Within the framework of their respective responsibilities, Eni’s People are required to participate in the contract.definition of single initiatives in compliance with Eni’s policies and intervention programs, to implement them according to criteria of absolute transparency and support them as an integral part of Eni’s objectives.
3.4. Promotion of "non profit" activities
The philanthropic activity of Eni is in line with its vision and attention to sustainable development.
Therefore, Eni undertakes to foster and support, as well as to promote among its People, its "non profit" activities which demonstrate the company’s commitment to help meet the needs of those communities where it operates.
2.1 Relations with customers
4. RELATIONS WITH CUSTOMERS AND SUPPLIERS
4.1 Customers and consumers
Eni pursues its business success on markets by offering quality products and services under competitive conditions while respecting the rules protecting fair competition.
Eni knowsundertakes to respect the right of consumers not to receive products harmful to their health and physical integrity and to get complete information on the products offered to them.
Eni acknowledges that the esteem of those requesting products or services is of primary importance for success in business. Business policies are aimed at ensuring the quality of goods and services, safety and compliance with the precautionary principle. Therefore, Eni employeesEni’s People shall:
• | ||
• | ||
• | ||
2.2 Relations4.2. Suppliers and external collaborators
Eni undertakes to look for suppliers and external collaborators with suppliers
suitable professionalism and committed to sharing the principles and contents of the Code and promotes the establishment of long-lasting relations for the progressive improvement of performances while protecting and promoting the principles and contents of the Code.
In the case ofrelationships regarding tenders, procurement and, contracts forgenerally, the supply of goods and/or services and services, Eni employeesof external collaborations (including consultants, agents, etc.), Eni’s People shall:
• | secure the cooperation of suppliers and external collaborators in guaranteeing the continuous satisfaction of Eni’s customers and consumers, to an extent adequate to that legitimately expected by them, in terms of quality, costs and delivery | |
• | ||
• | ||
• | comply with, and demand compliance with, the conditions contained in contracts; | |
• | maintain a frank and open dialogue with suppliers and external collaborators in line with good commercial practice; | |
promptly inform |
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3. TRANSPARENCY OF ACCOUNTING AND INTERNAL CONTROLS
3.1 Accounting records
Accounting transparency is based on
The remuneration to be paid shall be exclusively proportionate to the services to be rendered and timely registereddescribed in the bookscontract and payments shall not be allowed to any party different from the contract party nor in a third Country different from the one of accounts.
For each transaction the proper supporting evidenceparties or where the contract has to be maintained in order to:
Each record shall reflect exactly what is shown by the supporting evidence. Each employee shall make sure, through accurate filing according to logical criteria, that the documentation can be easily traced.performed.
Eni employees who become aware
5. ENI’S MANAGEMENT, EMPLOYEES, COLLABORATORS
5.1. Development and protection of any omissions, misrepresentations, negligence in the accounting or in the documents on which accounting is based, shall bring the facts to the attention of his or her superior or to the Guarantor.
3.2 Internal controls
It is Eni’s policy to disseminate, at every level of its organization, a culture characterized by an awareness of the existence of controls and a control oriented mentality. A positive attitude towards control is to be achieved in order to increase its efficiency.
Internal controls are all those necessary or useful tools for addressing, managing and checking activities in the company; they aim at ensuring respect of corporate laws and procedures, protecting corporate assets, efficiently managing operations and providing precise and complete accounting information.
The responsibility for building an efficient internal control system rests on all levels of the organization; therefore all Eni employees, in their respective functions, are responsible for the definition and proper functioning of internal controls.
Within their areas of responsibility, managers shall be requested to become involved in the company’s system of internal controls and inform employees thereon. Each employee shall be held responsible for the corporate tangible and intangible assets relevant to his job. No employee can make, or let others make, improper use of assets and equipment belonging to Eni.
Internal Auditors and appointed external auditors shall have full access to all data, documents and information necessary to perform their audit activities.
4. PERSONNEL POLICIES
4.1 Human resources
Human resourcesResources
People are basic components in the company’s life. The dedication and professionalism of management and employees represent fundamental values and conditions for reachingachieving Eni’s objectives.
Eni is committed to developing the abilities and skills of each employeemanagement and employees so that his or hertheir energy and creativity can have full expression for the fulfillmentfulfilment of their potential.
potential in their working performance, such as to protect working conditions as regards both mental and physical health and dignity. Undue pressure or discomfort is not allowed, while appropriate working conditions promoting development of personality and professionalism are fostered.
Eni offersundertakes to offer, in full compliance with applicable legal and contractual provisions, equal opportunities to all its employees, making sure that each of them receives a fair statutory and wage treatment exclusively based on merit and expertise, without discrimination of any kind. AllCompetent departments therefore shall:
• | adopt in any situation criteria of merit and ability | |
• | select, hire, train, compensate and manage | |
• | create a working environment where personal characteristics or beliefs do not give rise to |
Eni considers the protection of working conditions and the protection of the mental and physical health of workers to be part of its entrepreneurial activity, while always respecting their moral personality and avoiding any undue pressures. To this end, any personal conduct considered to be offensive and liable to produce difficulties in relationships within the working environment will be given due consideration.
Eni expects all its employees,wishes that Eni’s People, at every level, to cooperate in maintaining a climate of reciprocalcommon respect for a person’s dignity, honorhonour and reputation. Eni shall do its best to prevent the emergence of attitudes that can be considered offensive.as offensive, discriminatory or abusive. In this regard, any behaviours outside the working place which are particularly offensive to public sensitivity are also deemed relevant.
In any case, any behaviours constituting physical or moral violence are forbidden without any exception.
5.2. Knowledge Management
Eni promotes culture and the initiatives aimed at disseminating knowledge within its structures, and at pointing out the values, principles, behaviours and contributions in terms of innovation of professional families in connection with the development of business activities and to the company’s sustainable growth.
Eni undertakes to offer tools for interaction among the members of professional families, working groups and communities of practice, as well as for coordination and access to know how, and shall promote initiatives for the growth, dissemination and systematization of knowledge relating to the core competences of its structures and aimed at defining a reference framework suitable for guaranteeing operating consistency.
All Eni’s People shall actively contribute to Knowledge Management as regards the activities that they are in charge of, in order to optimize the system for knowledge sharing and distribution among individuals.
4.2 Harassment5.3. Corporate security
Eni engages in the workplacestudy, development and implementation of strategies, policies and operational plans aimed at preventing and overcoming any intentional or non-intentional behaviour which may cause direct or indirect damage to Eni’s People and/or to the tangible and intangible resources of the company. Preventive and defensive measures, aimed at minimizing the need for an active response – always in proportion to the attack – to threats to people and assets, are favored.
All Eni’s People shall actively contribute to maintaining an optimal corporate security standard, abstaining from unlawful or dangerous behaviours, and reporting any possible activities carried out by third parties to the detriment of Eni’s assets or human resources to superiors or to the body they belong to, as well as to the relevant Eni Corporate structure.
In any case requiring particular attention to personal safety, it is compulsory to strictly follow the indications in this regard supplied by Eni, abstaining from behaviours which may endanger one’s own safety or the safety of others, promptly reporting any danger for one’s own safety, or the safety of third parties, to one’s superior.
5.4. Harassment or mobbing in the workplace
Eni supports any initiatives aimed at implementing working methods for the achievement of a better organization.
Eni demands that there shall be no harassment or mobbing behaviours in personal working relationships either inside or outside the company. Harassment is:Such behaviours are all forbidden, without exceptions, and are:
• | the creation of an intimidating, hostile, isolating or | |
• | unjustified interference in the work performed by others; | |
• | the placing of obstacles in the way of the work prospects and expectations of others merely for reasons of personal |
Eni does not tolerateE-19
Any form of violence or harassment, either sexual harassment by which it means:or harassment based on personal and cultural diversity, is forbidden. Such harassment is for instance:
• | ||
• | ||
• | proposing private interpersonal relations |
4.35.5. Abuse of alcohol or drugs
Eni demands that each employee and no smoking
All Eni’s People shall personally contribute to promoting and maintaining a good work environmentclimate of common respect in the workplace; particular attention is paid to respect of the feelings of others.
Eni will therefore consider individuals who:
who work under the effect of alcohol or drugs, or substances with similar effect, | ||
as being aware of the risk they bring to such environmental conditions, during the performance of their work activities and in the workplace.
workplace, as being aware of the risk they cause. Chronic addiction to such substances, when it affects work performance, shall be considered similar to the above mentioned events in terms of the contractual consequences.
consequences; Eni is committed to favor thefavour social action in this field as provided for by collective workemployment contracts.
It is forbidden to:
• | hold, consume, offer or give for whatever reason, drugs or substances with similar effect, at work and in the workplace; | |
• | smoke in the workplace. Eni supports voluntary initiatives addressed to People to help them quit smoking and, in identifying possible smoking areas, shall take into particular consideration the condition of those suffering physical discomfort from exposure to smoke in the workplace shared with smokers and requesting to be protected from "passive smoking" in their place of work. |
4.4 SmokingIII. TOOLS FOR IMPLEMENTING THE CODE OF ETHICS
Without prejudice1. SYSTEM OF INTERNAL CONTROL
Eni undertakes to promote and maintain an adequate system of internal control, i.e. all the necessary or useful tools for addressing, managing and checking activities in the company, aimed at ensuring compliance with corporate laws and procedures, at protecting corporate assets, efficiently managing activities and providing precise and complete accounting and financial information.
The responsibility for implementing an effective system of internal control is shared at every level of Eni’s organizational structure; therefore, all Eni’s People, according to their functions and responsibilities, shall define and actively participate in the correct functioning of the system of internal control.
Eni promotes the dissemination, at every level of its organization, of policies and procedures characterized by awareness of the existence of controls and by an informed and voluntary control oriented mentality; consequently, Eni’s management in the first place and all Eni’s People in any case shall contribute to and participate in Eni’s system of internal control and, with a positive attitude, involve its collaborators in this respect.
Each employee shall be held responsible for the corporate tangible and intangible assets relevant to his/her job. No employee can make, or let others make, improper use of assets and equipment belonging to Eni.
Any practices and attitudes linked to the general prohibition on smoking in workplaces where this is dangerous and where such prohibition is indicated, Eni, in its normal workplaces, will pay particular attentionperpetration or to the conditionparticipation in the perpetration of those suffering physical discomfortfrauds are forbidden without any exception.
Control and supervisory bodies, Eni Internal Audit department and appointed auditing companies shall have full access to all data, documents and information necessary to perform their own relevant activities.
1.1. Conflicts of interest
Eni acknowledges and respects the right of its People to take part in investments, business and other kinds of activities other than the activity performed in the interest of Eni, provided that such activities are permitted by law and are compatible with the obligations assumed towards Eni. The Self-Regulatory Code of Eni SpA governs any possible conflict of interest of directors and statutory auditors of Eni SpA.
Eni’s management and employees shall avoid and report any conflicts of interest between personal and family economic activities and their tasks within the company. In particular, everyone shall point out any specific situations and activities of economic or financial interest (owner or member) to them or, as far as they know, of economic or financial interest to relatives of theirs or relatives by marriage within the 2nd degree of kinship, or to persons actually living with them, also involving suppliers, customers, competitors, third parties, or the relevant controlling companies or subsidiaries, and shall point whether they perform corporate administration or control or management functions therein.
Moreover, conflicts of interest are determined by the following situations:
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In any case, Eni’s management and employees shall avoid any situation and activity where a conflict with the Company’s interests may arise, or which can interfere with their ability to make impartial decisions in the best interests of Eni and in full accordance with the principles and contents of the Code, or in general with their ability to fully comply with their functions and responsibilities. Any situation that may constitute or give rise to a conflict of interest shall be immediately reported to one’s superior within management, or to the body one belongs to, and to the Guarantor. Furthermore, the party concerned shall abstain from exposuretaking part in the operational/decision-making process, and the relevant superior within management, or the relevant body, shall:
• | identify the operational solutions suitable for ensuring, in the specific case, transparency and fairness of behaviours in the performance of activities; | |
• | transmit to the parties concerned – and for information to one’s superior, as well as to the Guarantor – the necessary written instructions; | |
• | file the received and transmitted documentation. |
1.2.Transparency of accounting records
Accounting transparency is grounded on the use of true, accurate and complete information which form the basis for the entries in the books of accounts. Each member of company bodies, of management or employee shall cooperate, within their own field of competence, in order to smokehave operational events properly and who requesttimely registered in the books of accounts.
It is forbidden to behave in a way that may adversely affect transparency and traceability of the information within financial statements.
For each transaction, the proper supporting evidence has to be protected from "passive smoke"maintained in order to allow:
• | easy and punctual accounting entries; | |
• | identification of different levels of responsibility, as well as of task distribution and segregation; | |
• | accurate representation of the transaction so as to avoid the probability of any material or interpretative error. |
Each record shall reflect exactly what is shown by the supporting evidence. All Eni’s People shall cause that the documentation can be easily traced and filed according to logical criteria.
Eni’s People who become aware of any omissions, forgery, negligence in accounting or in the documents on which accounting is based, shall bring the facts to the attention of their place of work.superior, or to the body they belong to, and to the Guarantor.
5.
2. HEALTH, SAFETY, ENVIRONMENT AND THE ENVIRONMENTPUBLIC SAFETY PROTECTION
In itsEni’s activities Eni is committed to contributing to the developmentshall be carried out in compliance with applicable worker health and welfaresafety, environmental and public safety protection agreements, international standards and laws, regulations, administrative practices and national policies of the communitiesCountries where it operates by pursuing the objective of ensuring the safety and health of its employees, external collaborators, customers and local communities that may be affected by Eni’s activities and to reducing the environmental impact of such activities.
operates.
Eni actively contributes as appropriate to the promotion of researchscientific and technological development aimed at protecting the environment and natural resources.
Eni’s industrial The operative management of such activities shall be performed in full accordance with all applicable laws on prevention and protection.
Operations shall be carried out according to advanced criteria for the protection of the environment and energy efficiency, with the aim of creating better working conditions and protecting the health and safety of employees.
Research and technological development must be aimed in particular at promotingemployees as well as the use of products and processes that are as environmental friendly as possible and characterized by an ever-greater attention being paid to the safety and health of employees.
Eni employees,environment.
Eni’s People shall, within their areas of responsibility, actively participate in the process of risk prevention andas well as environmental, public safety and health protection and safety, that is infor themselves, their own interestcolleagues and in the interest also of third parties.
3. RESEARCH, INNOVATION AND INTELLECTUAL PROPERTY PROTECTION
Eni promotes research and innovation activities by management and employees, within their functions and responsibilities. Any intellectual assets generated by such activities are an important and fundamental heritage of Eni.
Research and innovation focus in particular on the promotion of products, tools, processes and behaviours supporting energy efficiency, reduction of environmental impact, attention to health and safety of employees, of customers and of the local communities where Eni operates, and in general sustainability of business activities.
Eni’s People shall actively contribute, within their functions and responsibilities, to managing intellectual property in order to allow its development, protection and enhancement.
6.
4. CONFIDENTIALITY
4.1. Protection of business secret
Eni’s activities constantly require the constant acquisition, storage, handling,storing, processing, communication and diffusiondissemination of news,information, documents and other data relevant toregarding negotiations, administrative procedures,proceedings, financial transactions, and know-how (contracts, deeds, reports, notes, studies, drawings, photographs, software),pictures, software, etc.) that may not be disclosed to the
Eni’s data bases may contain, among other things, personal data protected accordingE-21
outside pursuant to privacy laws, some of which cannot be made known outside Eni under contractual obligations and some of which cannot be improperlyagreements, or whose inopportune or untimely disclosed on risk of harmfuldisclosure may be detrimental to corporate interest.
Without prejudice to the transparency of the activities carried out and to the information obligations imposed by the provisions in force, Eni’s interest.
EmployeesPeople shall guaranteeensure the confidentiality required by the circumstances for each piece of all information acquired in the performancenews they have got to know of because of their work.working function.
Any information, knowledge and data acquired or processed during one’s work or because of one’s tasks at Eni, belong to Eni and may not be used, communicated or disclosed without specific authorization of one’s superior within management in compliance with specific procedures.
4.2. Protection of privacy
Eni is committed to protecting information concerning its employeesPeople and third parties, whether generated or obtained inside Eni or in the conduct of Eni’s business, and to avoiding improper use of any such information.
Information, know-how
Eni intends to guarantee that processing of personal data within its structures respects fundamental rights and freedoms, as well as the dignity of the parties concerned, as contemplated by the legal provisions in force.
Personal data that are acquired andmust be processed by employees during their work at Eni or because of their responsibilities, all belong to Eni and cannot be used, communicated to others or disclosed without specific authorization of one’s superior.
Without prejudice to the prohibition to disclose information concerning the organization and methods of production or to use such information in a lawful and fair way and, in any case, the data collected and stored is only that couldwhich is necessary for certain, explicit and lawful purposes. Data shall be harmfulstored for a period of time no longer than necessary for the purposes of collection.
Eni undertakes moreover to Eni, each Eni employeeadopt suitable preventive safety measures for all databases storing and keeping personal data, in order to avoid any risks of destruction and losses or of unauthorized access or unallowed processing.
Eni’s People shall:
• | obtain and | |
• | obtain and | |
procedures, and store said data in a way that | ||
• |
4.3. Membership in associations, participation in initiatives, events or external meetings
Membership in associations, participation in initiatives, events or external meetings is supported by Eni if compatible with the working or professional activity provided. Membership and participation considered as such are:
• | membership in | |
• | ||
7. EXTERNAL RELATIONS
7.1 Relations with public institutions
Relations with Public Institutions that are aimed at the protection of Eni’s interests and related to the implementation of Eni’s programs, are to be maintained only by departments and persons specifically appointed to do so.
Specific departments in the Eni Group companies shall coordinate their work with Eni SpA’s Department for Relations with Institutions in Italy, and in the European Union, so as to have a prior evaluation of the quality of the actions to be taken for sharing, for implementation and for monitoring.
Small presents and courtesy gifts to representatives of Governments, public officers and civil servants are allowed provided that they are limited in value and do not compromise the integrity or good name of either party nor be construed by impartial observers as aimed at obtaining undue advantages. In any case this kind of expense must be authorized by the person indicated in the procedures and must always be duly documented.
7.2 Relations with political organizations and trade unions
Eni does not give any direct or indirect contributions in whatever form to political parties, organizations, committees or trade unions, nor to their representatives and candidates, except those specifically contemplated by applicable laws and regulations.
7.3 Relations with the media
Information provided to outside parties shall be truthful and transparent.
In its communications with the media, Eni shall be presented in an accurate and uniform way. Relations with the media shall be maintained only by departments and managers specifically appointed to do so and all communications shall be agreed upon beforehand with the Eni Unit responsible for Relations with the Media.
Eni employees may not give information to media representatives nor engage in providing any such information unless they are duly authorized by the relevant Eni departments.
Eni employees are never entitled to offer payments, gifts or other benefits aimed at influencing the professional activity of media representatives or that could reasonably be construed as an attempt to do so.
7.4 Presentation of Eni objectives, activities, results and points of view
Eni employees who are required to present information to the public concerning the objectives, activities, results and opinions of Eni on such occasions as:
• | participation |
must be authorized byIn this regard, Eni’s management and employees in charge of illustrating, or providing to the highest organizational authorityoutside data or news concerning Eni’s objectives, aims, results and points of view, shall not only comply with corporate procedures relating to market abuse, but also obtain the necessary authorization from their superior within their own departmentmanagement for all that relates to texts, lectures and the lines of action which they intend to make public;follow and they must alsothe texts as well as reports drawn up, such as to agree beforehand with Eni SpA’s Unit for Relationson contents with the Mediarelevant Eni Corporate structure.
IV. CODE OF ETHICS SCOPE OF APPLICATION AND REFERENCE STRUCTURES
The principles and contents of the Code apply to Eni’s People and activities.
Any listed subsidiaries and power & gas sector subsidiaries subject to unbundling shall receive the Code and adopt it, adjusting it – if necessary – to the characteristics of their company, consistently with their management independence.
The representatives indicated by Eni in the company bodies of partially owned companies, in consortia and in joint ventures shall promote the principles and contents of the Code within their own respective areas of competence.
Directors and management must be the first to give concrete form to the principles and contents of the Code, by assuming responsibility for them both towards the inside and the outside and by enhancing trust, cohesion and a sense of team-work, as well as providing a behaviour model for their collaborators in order to have them comply with the Code and make questions and suggestions on specific provisions.
To achieve full compliance with the Code, each of Eni’s People may even apply directly to the Guarantor.
1. OBLIGATION TO KNOW THE CODE AND TO REPORT ANY POSSIBLE VIOLATION THEREOF
Each of Eni’s People is expected to know the principles and contents of the Code as well as the reference procedures governing own functions and responsibilities.
Each of Eni’s People shall:
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• | carefully select, as long as within their field of competence, their collaborators, and have them fully comply with the Code; | |
• | require any third parties having relations with Eni to confirm that they know the Code; | |
• | immediately report to their superiors or the body they belong to, and to the Guarantor, any remarks of theirs or information supplied by Stakeholders concerning a possible violation or any request to violate the Code; reports of possible violations shall be sent in compliance with conditions provided for by the specific procedures established by the Board of Statutory Auditors and by the Watch Structure of Eni SpA; | |
• | cooperate with the Guarantor and with the relevant departments according to the applicable specific procedures in ascertaining any violations; | |
• | adopt prompt corrective measures whenever necessary, and in any case prevent any type of retaliation. |
Eni’s People are not allowed to conduct personal investigations, nor to exchange information, except to their superiors, or to the body that they belong to, and to the Guarantor. If, after notifying a supposed violation any of Eni’s People feels that he or she has been subject to retaliation, then he or she may directly apply to the Guarantor.
2. REFERENCE STRUCTURES AND SUPERVISION
Eni is committed to ensuring, even through the Guarantor’s appointment:
• | the widest dissemination of the principles and contents of the Code among Eni’s People and the other Stakeholders, providing any possible tools for understanding and clarifying the interpretation and the implementation of the Code, as well as for updating the Code as required to meet evolving civil sensibility and relevant laws; | |
• | the execution of checks on any notice of violation of the Code principles and contents or of reference procedures; an objective evaluation of the facts and, if necessary, the adoption of appropriate sanctions; that no one may suffer any retaliation whatsoever for having provided information regarding possible violations of the Code or of reference procedures. |
2.1. Guarantor of the Code of Ethics
The Code of Ethics is, among other things, a compulsory general principle of the Organizational, Management and Control Model adopted by Eni SpA according to the Italian provision on the actual content"administrative liability of their presentations.legal entities deriving from offences" contained in Legislative Decree No. 231 of June 8, 2001.
Eni SpA assigns the functions of Guarantor to the Watch Structure established pursuant to the above-mentioned Model. Each direct or indirect subsidiary, in Italy and abroad, entrusts the function of Guarantor to its own Watch Structure by formal deed of the relevant corporate body.
The Guarantor is entrusted with the task of:
• | promoting the implementation of the Code and the issue of reference procedures; reporting and proposing to the CEO of the company the useful initiatives for a greater dissemination and knowledge of the Code, also in order to prevent any recurrences of violations; | |
• | promoting specific communication and training programs for Eni’s management and employees; | |
• | investigating reports of any violation of the Code by initiating proper inquiry procedures; taking action at the request of Eni’s People in the event of receiving reports that violations of the Code have not been properly dealt with or in the event of being informed of any retaliation against Eni’s people for having reported violations; | |
• | notifying relevant structures of the results of investigations relevant to the adoption of possible penalties; informing the relevant line/area structures about the results of investigations relevant to the adoption of the necessary measures. |
Moreover, the Guarantor of Eni SpA submits to the Internal Control Committee and to the Board of Statutory Auditors as well as to the Chairman and to the Chief Executive Officer, which report about it to the Board of Directors, a six-monthly report on the implementation and possible need for updating the Code.
For the performance of its tasks, the Guarantor of Eni SpA avails itself of "Technical Secretariat of the Watch Structure 231 of Eni SpA" that reports thereto and is supported by the relevant Structures of Eni SpA. The Technical Secretariat is responsible for starting and maintaining an adequate reporting and communication flow to and from the Guarantors of subsidiaries.
Each information flow is to be sent to the following email address:
organismo_di_vigilanza@eni.it
2.2. Code Promotion Team
The Code is made available to Eni’s People in compliance with applicable standards, and is also available on the internet and intranet sites of Eni SpA and of subsidiaries.
In order to promote the knowledge and facilitate the implementation of the Code, a Code Promotion Team reporting to the Guarantor of Eni SpA has been established. The Team makes available within Eni all possible tools for understanding and clarifying the interpretation and the implementation of the Code.
The members of the Team are chosen by the Chief Executive Officer of Eni SpA upon proposal of the Guarantor of Eni SpA.
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3. CODE REVIEW
The Code review is approved by the Board of Directors of Eni SpA, upon proposal of the Chief Executive Officer with the agreement of the Chairman, after hearing the opinion of the Board of Statutory Auditors.
The proposal is made taking into consideration the Stakeholders’ evaluation with reference to the principles and contents of the Code, promoting active contribution and notification of possible deficiencies by Stakeholders themselves.
4. CONTRACTUAL VALUE OF THE CODE
Respect of the Code’s rules is an essential part of the contractual obligations of all Eni’s People pursuant to and in accordance with applicable law.
Any violation of the Code’s principles and contents may be considered as a violation of primary obligations under labour relations or of the rules of discipline and can entail the consequences provided for by law, including termination of the work contract and compensation for damages arising out of any violation.
7.5 "Non profit" initiatives
Eni supports "non profit" activities as evidence of its commitment to help meet the needs of those communities where it operates.
Within the framework their respective responsibilities, Eni employees shall participate in the definition of such single initiatives in full respect of Eni’s policies and programs, and they shall implement them according to criteria of absolute transparency and shall support them as an integral part of Eni’s objectives.
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Certifications as separate documents filed as exhibits
EXHIBIT 12.1
Certification
I, Paolo Scaroni, certify that:
1. | I have reviewed this annual report on Form 20-F of Eni SpA; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: JuneMay 21, 2006
2008
/s/PAOLO SCARONI |
Paolo Scaroni Title: Chief Executive Officer |
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EXHIBIT 12.2
Certification
I, Marco Mangiagalli, certify that:
1. | I have reviewed this annual report on Form 20-F of Eni SpA; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date:
JuneMay 21,20062008
/s/MARCO MANGIAGALLI |
Marco Mangiagalli Title: Chief Financial Officer |
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EXHIBIT 13.1
Certification Pursuant to 18 U.S.C. Section 1350
For purposes of 18 U.S.C. Section 1350, the undersigned officer of Eni SpA, a company incorporated under the laws of Italy (the "Company"), hereby certifies, to such officer’s knowledge, that:
(i) the Annual Report on Form 20-F of the Company for the year ended December 31,
20052007 (the "Report") fully complies with the requirements of section 13(a) or 15(d) as applicable, of the Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: JuneMay 21, 20062008
/s/PAOLO SCARONI |
Paolo Scaroni Title: Chief Executive Officer |
The foregoing certification is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act.
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EXHIBIT 13.2
Certification Pursuant to 18 U.S.C. Section 1350
For purposes of 18 U.S.C. Section 1350, the undersigned officer of Eni SpA, a company incorporated under the laws of Italy (the "Company"), hereby certifies, to such officer’s knowledge, that:
(i) the Annual Report on Form 20-F of the Company for the year ended December 31,
20052007 (the "Report") fully complies with the requirements of section 13(a) or 15(d) as applicable, of the Securities Exchange Act of 1934; and(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: JuneMay 21, 20062008
/s/MARCO MANGIAGALLI |
Marco Mangiagalli Title: Chief Financial Officer |
The foregoing certification is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act.
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Footnotes Item 1-15
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