Risk Factors

~~Competition~~Competition; Risks Deriving from the Influence of Italian Regulations on Certain Eni Business Segments

There is strong competition worldwide, both within the oil industry and with other industries, in supplying energy to the industrial, commercial and residential energy markets. A number of ~~Eni’s~~Eni's competitors have merged or may have the intention to merge and so lead to possibly stronger competition from competitors with greater financial resources. In its Exploration & Production business, particularly outside Italy, Eni encounters competition from other major international oil companies for obtaining exploration and development rights. In its natural gas business, Eni encounters increasingly strong competition from both national and international natural gas suppliers, also following the impact of the liberalization of the Italian natural gas market introduced by Legislative Decree No. 164/2000 which provides for, among other things, the opening of the entire Italian market to competition by 2003, limits to the size of gas companies relative to the market and third parties access to transport infrastructure. In its electricity business, Eni competes with other producers from Italy or outside Italy which sell electricity on the Italian open market. In addition, an uncertain regulatory framework and delays in the authorization process for the construction of new power plants on the part of public administrations prevent operators, ~~amongst which~~including Eni, from fully deploying their growth plans in the electricity business according to ~~scheduled time.~~schedule. Eni faces competition from several major international oil companies in its refinery and refined product marketing businesses. In the retail market, Eni competes with third parties both in Italy and outside Italy (including major international oil companies, companies owned by oil producing nations and local operators) to obtain concessions to establish and operate service stations. Once established, ~~Eni’s~~Eni's service stations compete primarily on the basis of services and availability of non-petroleum products. In Italy plans for the upgrading and efficiency improvement of athe national service station network can advance only in accordance with the evolution of the regulatory framework, which lags behind that of other major European countries. Eni also faces significant competition from certain international operators in the oilfield services, ~~contracting~~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 ~~drilling plants etc.) and price.~~for offshore construction).

Cyclicality of Petrochemical ~~Industry~~Industry; Regional and Competitive Risks for Eni Petrochemical Activities

The petrochemical industry is subject to cyclical fluctuations in ~~supply and~~ demand, with consequent effects on prices and profitability exacerbated by the highly competitive environment of the industry. ~~Eni’s~~Eni's petrochemicals operations, which are located mainly in ~~Italy with certain plants located also outside~~ Italy, have been in the past and may in the future be adversely affected by worldwide excess installed production capacity, as well as by economic slowdowns in many industrialized countries. The dislocation of petrochemical activities to geographical areas like the Far East and oil producing countries which ~~provides~~provide long term competitive advantages has weakened the competitiveness of petrochemicals operations in industrialized countries, ~~amongst which Eni’s~~including Eni's own petrochemical operations. ~~Petrochemicals~~Petrochemical operations in industrialized countries are also less competitive than those located in the above-mentioned areas due to stricter regulatory frameworks and growing environmental concerns which prevail in industrialized countries.

Political and Economic Considerations

The production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks and opportunities. It is subject to natural hazards and other uncertainties including those relating to the physical characteristics of oil or natural gas fields.

The production of oil and natural gas is highly regulated and is subject to intervention 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. In addition, the oil and gas industry is subject to the payment of royalties and excise duties, which tend to be higher than those payable in respect of many other commercial activities.

Crude oil prices are subject to international supply and demand and other factors that are beyond ~~Eni’s~~Eni's control. OPEC member countries control production of a significant portion of the worldwide supply of oil and can exercise substantial influence over 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 such prices are typically tied to the prices of certain refined petroleum products. ~~Higher~~Lower crude oil prices have ~~a favourable~~an adverse impact on ~~Eni’s~~Eni's results of ~~operations and lower crude oil gives an adverse impact.~~

operations.

Substantial portions of ~~Eni’s~~Eni's hydrocarbons 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, ~~2002,~~2003, approximately ~~69%~~70% of ~~Eni’s~~Eni's proved hydrocarbons reserves were located in such countries. See ~~«Item~~“Item 4 ~~— Exploration~~—Exploration & ~~Production —~~ Production—Oil and Natural Gas ~~Reserves»~~Reserves”. Similarly, a substantial portion of ~~Eni’s~~Eni's natural gas supply comes from countries outside the EU and North ~~America.~~America . In ~~2002,~~2003, approximately ~~29%~~28% of ~~Eni’s~~Eni's domestic supply of natural gas came from such countries. See ~~«Item~~“Item 4 ~~— Gas~~—Gas & ~~Power —~~ Power—Natural Gas ~~Supplies»~~Supplies”. In August 1996, the United States adopted the Iran and Libya Sanctions Act (the ~~«Sanctions Act»~~“Sanctions Act”). The Sanctions Act requires the President of the United States to impose ~~certain enumerated~~at least two sanctions from a six–sanction menu under certain circumstances onagainst companies which engage in trade with or investment activities in ~~Libya.~~Libya and Iran. The Sanctions Act is expected to expire on August 5, 2006. Under the Sanctions Act, sanctions against Libya are expected to be applied until the President of the United States decides that Libya has complied with UN resolutions No. 731 of 1992 and No. 883 of 1993. Recent signs of a new Libyan attitude to the solution of existing controversies have led the UN to suspend Resolutions No. 731 and 883. ~~Eni cannot predict interpretations~~Recently also the United States have been changing their attitudes towards Lybia as witnessed by the lifting of ~~or the implementation policy of~~Lybian economic sanctions administered by the U.S. ~~Government with respect to the Sanctions Act. However,~~Treasury Department's Office of Foreign Assets Control on April 23, 2004. Eni does not believe that the Sanctions Act will have a material adverse effect on its financial condition or results of operations. For a description of ~~Eni’s~~Eni's operations in Libya and Iran see ~~«Item~~“Item 4 — Information on the ~~Company —~~ Company—Exploration and ~~Production —~~Production— North Africa and Rest of the World.»”

Liberalization of the Italian Natural Gas Market

Legislative Decree n. 164 dated May 23, 2000 introduced rules for the liberalization of the Italian natural gas market which ~~management believes will~~ have a significant impact on ~~Eni’s~~Eni's activity, as the company is present in all the phases of the natural gas chain. The decree, among other things, establishes:

opening of the entire market to competition by 2003; this means that all customers in Italy are free to chose their supplier of natural gas since the start of the year;
until December 31, 2010 antitrust thresholds for operators calculated as a percentage share of national consumption set as follows: (i) effective January 1, 2002, 75% for imported or domestically produced natural gas volumes input in the national transport network and destined to sales; this percentage is to decrease by 2 percentage points per year until it reaches 61% in 2009; (ii) effective January 1, 2003, 50% for sales to final customers. These ceilings are calculated on a three-year base net of losses (in the case of sales) and volumes of natural gas consumed in own operations. In accordance with article 19, line 4 of Legislative Decree No. 164/2000 the volumes of natural gas consumed in own operations by a company or its subsidiaries are excluded from the calculation of ceilings for sales to end customers and for volumes input into the Italian network to be sold in Italy;
the Authority for Electricity and Gas determines criteria for transport, dispatching, storage, use of LNG terminals and tariffs for natural gas for distribution by means of local networks; and
third parties are allowed to access infrastructure according to set conditions.

Eni's natural gas margin⁽¹⁾ in Italy may decrease permanently compared to historical levels

_______________

(1)	•	~~opening~~For a definition of ~~the entire market to competition by 2003;~~margin in this ~~means that by then all customers are free to chose their supplier of natural gas;~~

	•	until December 31, 2010 antitrust thresholds to operators calculated as a percentage share of national consumption set as follows: (i) effective January 1, 2002 75% for imported or domestically produced natural gas volumes input in the national transport network and destined to sales; this percentage is to decrease by 2 percentage points per year until it reaches 61% in 2009; (ii) effective January 1, 2003 50% for sales to final customers. These ceilings are calculated on a three-year base net of losses (in the case of sales) and own consumption;

	•	~~the Authority for Electricity and Gas determines criteria for transport, dispatching, storage, use of LNG terminals and tariffs for natural gas for distribution by means of local networks;~~

	•	~~third parties are allowed to access infrastructure according to set conditions.~~document, see "Glossary".

        In order to meet the medium and long-term demand of natural gas, and in particular of the Italian market, Eni entered into long-term purchase contracts with producing countries that currently have a residual average term of approximately 17 years. Existing contracts, which in general contain take-or-pay clauses, will ensure a total of about
66 67.3 billion cubic meters of natural gas per year ~~(Russia~~( Russia 28.5, Algeria 21.5, Netherlands 10, Norway 6 and ~~Norway 6)~~Nigeria 1.5) by 2008. The above quantities are based on the annual contract quantity of the relevant contract. The average annual minimum quantity is approximately 85% of said quantities. In order to comply with the above mentioned regulatory thresholds relating to volumes input to the national transport network, Eni signed multi-annual contracts with third party importers to sell natural gas volumes exceeding said thresholds outside of the Italian territory; in prior years these volumes were imported into Italy and sold to Italian consumers by Eni. This change in the sale mix is structural and ~~will~~ adversely ~~affect Eni’s~~affects Eni's results of operations. Further, management expects ~~Eni’s~~Eni's margins on natural gas in Italy to come under pressure in future years due to the entry into the market of new competitors including the above mentioned third parties which purchase natural gas from Eni outside the Italian territory and resell it to Italian customers. ~~Finally due~~

        Eni growth prospects in Italy are limited by regulation
         Due to the antitrust threshold on direct sales in Italy , management expects ~~Eni’s~~Eni's natural gas sales in Italy to increase at a rate that cannot exceed the growth rate of natural gas demand in ~~Italy.~~Italy . Management believes all these developments might have a material adverse impact on ~~Eni’s~~Eni's results of operations.

        Eni may not be able to sell in Italy all the natural gas volumes it planned to import and, as a consequence, it may be unable to sell all natural gas volumes which Eni is committed to purchase under take-or-pay contract obligations
        To date ~~Eni’s~~Eni's natural gas supply contracts have ~~not~~ entailed the application of take-or-pay ~~clauses.~~clauses only once in year 2003; the relevant cash outlay following the application of the pay clause on that circumstance was not material. See “Item 5 - Management expectations of operations”. Natural gas imports for the next few years have been ~~programmed~~planned based on the highest flexibility allowed by ~~longterm~~long term supply contracts, assuming that access capacity to the Italian network will be available in accordance with said flexibility. However, this assumption may be inconsistent with the current network code as established by the Authority for Electricity and Gas with decision No. 137 of July 17, 2002 , in implementation of article 24, line 5 of Legislative Decree No. 164/2000. Decision No. 137 established priority criteria for the entitlement of transmission capacity at entry points from international networks into the domestic network. Entitlement periods can last no longer than five years. In particular it recognises priority access to take-or-pay contracts entered into before 1998, within the limit of the average daily contractual quantity. There is therefore no guaranteed access priority for the whole contractual flexibility. In fact, take-or-pay contracts entered into by Eni before 1998 envisage ~~Eni’s~~Eni's right to withdraw daily amounts larger than the average daily contractual amount; this contractual flexibility provided by the difference between the maximum daily amount Eni is entitled to and the average contractual daily amount is used in particular in winter. In the event of congestion at entry points, natural gas volumes not receiving a priority are assigned available transmission capacity on a pro-rata basis. Decision No. 137 establishes a transitional regime according to which for thermal year ~~2002-2003~~2003-2004 access priority is granted also for ~~two thirds~~one third of the difference between maximum contractual daily amounts and average daily amounts. ~~For the thermal year 2003-2004, priority will be granted for only one third of that difference.~~ On November 6, 2002 Eni filed a claim with the Regional Administrative Court of Lombardia requesting the annulment of decision ~~No.137/~~No. 137/2002 as Eni considers this decision ~~non consistent~~inconsistent with the overall rationale of the European natural gas framework, especially with reference to Directive 98/30/CE and Legislative Decree No. 164/~~2000.~~2000, which key provisions have been reaffirmed by the recently enacted Directive 2003/55/CE. See “Item 4 – Regulation – Natural Gas”. In case of an unfavourable outcome of this matter, management believes that ~~Eni’s~~Eni's results of operations could be negatively affected should market conditions prevent Eni from selling its whole availability of natural gas under take-or pay contract obligations. See ~~»Item~~“Item 5—Management Expectations of ~~Operations»~~Operations”.

        Eni may be required to upgrade the infrastructure for natural gas import creating an oversupply of natural gas in the long term (beyond 2007)
        On November 21, 2002 the Italian Antitrust Authority concluded ~~the~~an inquiry started on request of Blugas SpA concerning ~~Eni’s~~Eni's alleged violation of competition ~~rules, and acquitted Eni for the specific case of Blugas (deriving from the fact that in the spring-summer of 2001 Eni partially accepted Blugas’s request to access the network) but~~rules. The Antitrust Authority judged that Eni had ~~abused of commanding position~~violated these rules for having given, with the aim of respecting binding market thresholds, priority access to Italian purchasers with which Eni had entered supply contracts with volumes bought ~~out~~outside of Italy and supplied at entry points into the Italian network. The Antitrust Authority considers that these contracts infringe the rationale of article 19 of Legislative Decree No. 164/2000 which defines the limits for volumes to be input by a single operator into the national network. ~~Given this infringing behavior and the lack of clarity of Italian regulations and Eni’s availability to increase the transmission capacity of gaslines outside Italy, the~~The Antitrust Authority imposed on Eni a symbolic fine amounting to euro 1,000 and requested Eni to submit «a“a report indicating measures to be taken to eliminate infringing ~~behaviors~~behaviours with specific attention to the upgrading of the transmission network or equivalent ~~actions»~~actions”. On February 19, 2004, Eni filed this report in which the company stated its commitment to increasing the level of competition in the national gas market, particularly through the upgrading of natural gas import pipelines from Austria and Tunisia on the condition that construction of new LNG terminals in Italy would not be commenced by third parties in the same time frame. With a decision of March 18, 2004, notified on March ~~6, 2003.~~26, 2004 , the Authority for Electricity and Gas started an infraction procedure against Eni having considered that the measures planned by Eni are not adequate to remove the infringing behaviour. According to Eni the construction of new LNG terminals would be a sufficient upgrading of the Italian natural gas infrastructure system in order to meet the expected growth in Italian natural gas demand over the long term (beyond 2007) while at the same time ensuring a sound level of market opening. In order to comply with the requests included in the Antitrust Authority's decision of November 21, 2002, Eni submitted to the Authority on June 18, 2004, a proposal entailing the sale to third parties of 2.3 billion cubic meters oer year of natural gas starting in 2004 through 2008 (for a total of 9.2 billion cubic meters of natural gas in this four-year period) before such natural gas enters the national transmission network, in accordance with a pro-rata mechanism. In its decision on June 24,2004, the Authority judged this proposal as adequate, if implemented, to the end the effects of the violation of competition rules hoghlighted in the November 21, 2002 decision. In its June 24, 2004 decision the Authority also extended to October 7, 2004 the deadline for closing the infraction procedure in order to allow Eni to implement its proposal. In the event of a negative outcome of this infraction procedure, should Eni be obliged to upgrade the import infrastructure from Austria and Tunisia in addition to the planned LNG terminal construction by third parties, this could led to a situation of oversupply of natural gas on the domestic market, which in turn would cause further pressure on Eni's natural gas margins. This situation is expected to occur presumably in 2008-2010 when this additional transport capacity should come on stream. On February 5, 2003 Eni filed a claim with the Regional Administrative Court of Lazio in Rome requesting the annulment of the ~~measures~~ruling taken by the Antitrust Authority.

The Italian Government, Parliament and regulatory authorities may take further steps to improve competition in the Italian natural gas market and such regulatory developments may adversely affect Eni' s results of operations
        Eni cannot predict the final outcome onof this matter and future developments in the more general institutional debate ongoing on the liberalization of the natural gas market in Italy as confirmed by the joint official inquiry regarding the Italian gas market started in March 2003 by the Authority for electricity and gas and the Antitrust Authority with the aim of acquiring elements and information useful to define actions to improve competition. On June 19, 2004, the findings of this inquiry were made publicly available. According to both Authorities, 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. Specifically, the Authorities state that the vertical integration of Eni in the supply and transport of gas has restricted the development of competition in Italy notwithstanding the antitrust ceilings introduced with Law 164/2000. It is further stated that the overall price of natural gas in Italy (in particular for the industrial sector) is higher than in other European countries. Accordingly, both authorities identified possible measures which in their opinion could enhance the level of competition in the natural gas market, among which the most important are: (i) the construction of new infrastructure for the import of natural gas; (ii) the creation of an independent transmission system operator (TSO) that owns and operates both the national high pressure transport grid and the storage of gas; and (iii) a framework for the assignment to third parties of natural gas volumes or natural gas contracts relating to Eni’s take-or-pay long term natural gas supply contracts. Management believes ~~this is~~the institutional debate on the degree of competition in the Italian natural gas market to be an area of ~~concern~~attention and cannot exclude negative impacts on ~~Eni’ s~~Eni’s financial condition or results of operations in future ~~years.~~years deriving from the developments of this matter. In particular, the implementation of any of the above measures designed to improve competition in the Italian natural gas market in the future may have a material adverse effect on Eni’s financial condition or results of operations.

Environmental Regulation
Together with other companies in the industries in which it operates, Eni is subject to numerous EU, national, regional and local environmental laws and regulations concerning its oil and gas operations, products and other 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 into the environment 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 ~~petrochemicals~~petrochemical operations. These laws and regulations may also restrict ~~air~~ 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~~Eni's operations are subject to laws and regulations relating to the generation, handling, transportation, storage, disposal and treatment of waste materials. Environmental laws and regulations have a substantial impact on ~~Eni’s~~Eni's operations. Some 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 ~~Eni,~~management, considering the
actions already taken, the insurance policies to cover environmental risks and the ~~provisions~~provision for risks accrued, does not currently expect any material adverse effect upon ~~its results of operations and~~Eni's consolidated financial ~~position~~statements as a result of its compliance with such laws and regulations, there can be no assurance that ~~this~~there will not be ~~the case~~a material adverse impact on Eni's consolidated financial statements due to: (i) the possibility of as yet unknown contamination; (ii) the results of the on-going surveys and the other possible effects of statements required by Decree No. 471/991999 of the Ministry of ~~Environment (which implements Legislative Decree No. 22/97, the “Ronchi Decree”);~~Environment; (iii) the possible effect of future environmental legislation and ~~rules;~~rules, including Decree No. 367 of the Ministry of Environment, published on January 8, 2004, fixing new quality standards for aquatic environment and dangerous substances. This decree modifies completely the actual set of rules, because of the imposition of qualitative standards that can be reached only through considerable investments; (iv) the effect of possible technological changes relating to future remediation; ~~and~~ (v) the possibility of litigation and the difficulty of determining ~~Eni’s~~Eni's liability, if any, as against other potentially responsible parties with respect to such litigation and the possible insurance recoveries.

        Risks deriving from changes in oil prices and in natural gas, refined and petrochemical products prices and margins ~~(1)~~
        Operating results in certain of ~~Eni’s~~Eni's businesses, particularly the Exploration & Production, Refining & Marketing, Gas & Power and Petrochemical segments are affected by changes in the price of oil and by their impact on prices and margins of natural gas and refined and petrochemical products. Overall, ~~higher~~lower oil prices have a net ~~positive~~adverse impact on ~~Eni’s~~Eni's results of operations. The effect of ~~higher~~lower oil prices on ~~Eni’s~~Eni's average ~~realized price~~realizations of oil is generally immediate. However ~~Eni’s~~Eni's average ~~realized price~~realizations for oil differs from the price of marker crude Brent due primarily to the circumstance that ~~Eni’s~~Eni's production slate, including also heavy crudes, has a lower API gravity compared with Brent crude (when processed the latter allows for higher yields of valuable products compared to heavy crudes, hence higher market price). ~~In addition changes in relative prices of Brent crude oil and heavy crudes cause changes in the results of operations of Eni’s Exploration & Production segment from one year to the year.~~
        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, ~~the prices under~~trends of natural gas purchase and sale contracts, which generally are for multiyear terms, are typically updated automatically by reference to the market prices of certain refined products and oil during a prior period, and thereforemargins in Eni primary distribution business tend to mitigate the impact of changes in oil prices on ~~Eni’s~~Eni's operating ~~results. However, since Eni’s~~results due to different movements in prices of certain energy parameters to which natural gas purchase and sale ~~contracts~~prices are contractually indexed ~~to different refined products and types of oil,~~ in different proportions and as measured over different reference periods, and are denominated in different currencies, Eni’s unit margins for natural gas may be significantly affected in the short term by variations in refined product and oil prices and exchange rates.periods. In secondary distribution of natural gas, despite the ~~passage of~~fact that all customers ~~from non~~are eligible ~~to eligible from~~since January 1, 2003, the Authority for Electricity and Gas still establishes reference sale prices for non eligibile customers in order to allow for a gradual and regular transition to a free market, in accordance with the provisions of a Decree of the President of the Council of Ministers of October 31, 2002. In this segment, sale prices can be affected by Government regulations aimed at fighting inflation that limit the ability to transfer natural gas purchase costs onto the final sale price.

The results of operations of ~~Eni’s~~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, a time lag exists between changes in oil prices and movements in refined products prices. ~~In recent years the latter factor has more markedly influenced the trends in refining margins.~~
        ~~Eni’s~~Eni's petrochemical products margins are affected by trends in demand and changes in oil prices which influence changes in cost of petroleum-based feedstock. Generally, an increase in oil price determines a decrease in petrochemical products margins on the short term. Prolonged weakness of ~~international~~the European economy as well as ~~Eni’s~~Eni's own structural weaknesses have prevented ~~Eni’s~~Eni's Petrochemical segment from returning to profitability in recent ~~years.~~years due to the inability to transfer increases of oil-based feedstocks onto to selling prices. Due to industry conditions and weak economic growth in Europe, management does not expect any significant improvement in petrochemicals segment profitability over the foreseeable future.

        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 is denominated in euro. Similarly, prices of Eni's petrochemical products generally are denominated in, or linked to, euro, whereas expenses in the Petrochemicals segment are denominated both in euro and U.S. dollars. Accordingly a depreciation of the U.S. dollar versus the euro generally has an adverse impact on Eni results of operations.

Weather in Italy and ~~Seasonality.~~Seasonality
        Significant changes in weather conditions in Italy from year to year may cause variations in 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, may be affected by such variations in weather conditions. In addition, ~~Eni’s~~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.

~~Exchange Rates.~~Interest 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 is denominated in euro. Similarly, prices of Eni’s petrochemical products generally are denominated in, or linked to, euro, whereas expenses in the Petrochemicals segment are denominated both in euro and U.S. dollars. Accordingly an appreciation of the U.S. dollar versus the euro generally has a positive effect on Eni results of operations, and vice-versa.
~~Interest Rates.~~
Interest on ~~Eni’s~~Eni's financial 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~~Eni's financial expense in respect of its ~~net borrowings, which amounted to euro 11,141 million at December 31, 2002.~~financial debt.

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 ~~any~~proved reserve ~~estimate is~~estimates depends on a ~~function~~number of factors, assumptions and variables, among which the most important are the following:
- the quality of available geological, technical and economic data and ~~engineering and geological~~their interpretation and ~~judgement. Results~~judgement;
- - 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 production after the date of the ~~estimate~~estimates may require substantial upward ~~and~~or downward ~~revision. In addition~~revisions;
- - changes in oil and natural gas prices could have an effect on the quantities of ~~Eni’s~~Eni's proved reserves because the estimates of reserves are based on prices and costs at the date when such estimates are ~~made.~~made . In ~~addition~~particular the reserves estimates are subject to revision as prices fluctuate due to the cost recovery feature under certain Production Sharing Agreements (PSA).; and
- - the production performance of Eni reservoirs.

Many of these factors, assumptions and variables involved in estimating reserves are beyond Eni control and may prove to be incorrect over time. Accordingly, the estimated reserves could be materially different from the quantities of oil and natural gas that ultimately will be recovered. Additionally, any downward revision in Eni’s estimated quantities of reserves could have adverse consequences on Eni’s financial results, such as increased depreciation, depletion and amortization charges and/or impairment charges, which would reduce earnings and shareholders' equity.

Critical accounting estimates

The preparation of financial statements entails accounting estimates that are characterized by a high degree of uncertainty, complexity and judgement. Notwithstanding these critical accounting estimates are thoroughly applied and underlying amounts are fairly determined, management cannot rule out that in future years such estimates might be wrong 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”.

Table of Contents
Item 4. INFORMATION ON THE COMPANY
Table of Contents
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 ~~80,655~~76,521 employees as of December 31, ~~2002.~~2003.
        Eni, the former Ente Nazionale Idrocarburi, a public law agency, established by Law 136 of February 10, 1953, was transformed into a joint stock company by Law Decree 333 ~~of July 11, 1992~~ 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 359, published in the Official Gazette of the Republic of Italy no. 190 of August 13, 1992). The ~~shareholders’ meeting~~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, VAT number 00905811006, 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;~~
• ~~San Donato Milanese (Milan), Piazza Ezio Vanoni, 1;~~
• ~~Gela (Sicily), Strada Provinciale, 82.~~
San Donato Milanese (Milan), Via Emilia, 1;
San Donato Milanese (Milan), Piazza Ezio Vanoni, 1; and
Gela (Sicily), Strada Statale 117 bis, Entrada Ponte Olivo, 93012 Gela.
        Internet address:www.eni.it
        ~~Internet address: www.eni.it~~Eni’s agent in the United States is Viscusi Enzo, 666 Fifth Ave., New York, NY 10103.
        Eni’s principal segments of operations and subsidiaries are described below.
        Agip SpA was merged into Eni SpA effective as of January 1, 1997 to become Eni’s Exploration & Production division. 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 was formed by the Government with a mandate to explore for and develop oil and natural gas. Exploration ~~& Production~~and production operations are ~~principally~~ conducted in Italy, Croatia, North Africa, West Africa, the North Sea, ~~and~~ the Gulf of ~~Mexico; it also operates in areas such as Latin America, Australia,~~Mexico, the Middle and Far East, ~~and~~ the Caspian Sea, ~~where Eni has recently entered.~~Australia and Latin America. In ~~2002,~~2003, Eni produced ~~1,449,000 BOE/~~1,536 KBOE/d of hydrocarbons and, at December 31, ~~2002,~~2003, it had estimated proved reserves of ~~7,030~~7,272 mmBOE with a life index of ~~13.2~~12.7 years. In ~~2002,~~2003, Eni’s Exploration & Production segment had net sales from operations (including intersegment sales) of euro ~~12,877~~12,746 million and operating income of euro ~~5,175~~5,746 million.
        Snam SpA was merged into Eni SpA effective as of February 1, 2002 to become Eni’s Gas & Power division. Eni now conducts its natural gas and electricity generation activities through its Gas & Power division and certain operating subsidiaries. Eni natural gas supply, transmission and distribution activities commenced in the 1940s with the commercial sale of natural gas to industrial users in Northern Italy. In ~~2002,~~2003, Eni’s primary distribution sales of natural gas ~~totaled 52.56~~to third parties totalled 50.93 billion cubic meters in Italy and ~~8.2~~14.15 billion cubic meters in ~~Europe.~~Europe; natural gas volumes consumed by Eni and Eni’s subsidiaries – mainly in electricity generation, refining and petrochemicals operations - totalled 1.90 billion cubic meters. Primary distribution sales include sales to wholesalers, mainly local distribution companies, and large industrial and thermoelectric users which are supplied by a high and medium pressure gas pipeline network. Eni’s high and medium pressure gas pipeline network for primary distribution is about ~~30,000-kilometres~~30,000 kilometres long in Italy, while outside Italy Eni holds transmission rights on ~~over 3,700~~approximately 3,800 kilometers of high pressure pipelines. ~~Effective on July 1, 2001~~ Eni’s natural gas transport network in Italy ~~was conferred to~~is owned and managed by Snam Rete Gas SpA. ~~In December 2001 shares representing 40.24% of~~ Snam Rete Gas ~~capital were sold through an initial public offering with proceeds of euro 2.2 billion.~~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»~~(“shippers”); in ~~2002~~2003 its transported volumes were ~~73.7~~76.37 billion cubic meters, of which 1924.63 billion were on behalf of third parties. Eni operates ~~directly~~ in retail distribution (“secondary distribution”) of natural gas which includes almost exclusively sales made by local distribution companies to commercial and residential users through a low pressure ~~gas~~ pipeline ~~network.~~networks. Eni operates in secondary distribution in Italy through Italgas—the largest local distribution company in Italy—of wholly owned by Eni following the tender offer successfully closed in January ~~2003 and the subsequent squeeze-out of remaining minority shareholders.~~2003. Eni ~~also~~ operates in secondary distribution activities outside Italy in Hungary through
Tigaz, in Argentina through Distribuidora de Gas Cuyana and in Slovenia through Adriaplin. In ~~2002,~~2003, Eni’s secondary distribution sales were ~~7.84~~8.40 billion cubic meters in Italy and ~~3.79~~4.44 billion cubic meters ~~outside Italy. Eni’s secondary distribution network in Italy is over 46,000-kilometres long and over 30,000-kilometres long~~ outside Italy.
        Eni conducts its electricity generation activities through its wholly-owned subsidiary Enipower SpA, which owns and manages Eni’s power stations of Livorno, Taranto, Mantova, Ravenna, Brindisi and ~~Brindisi~~Ferrera Erbognone with a total installed capacity of ~~1,000~~approximately 1,930 megawatts ~~and~~as of December 31, 2003. In 2003, annual production of electricity sold ~~of about 5,000 gigawatthour.~~totalled 5.55 terawatthour. Eni owns other minor power stations located in Eni’s petrochemical plants and refineries whose production is mainly for internal consumption. The accounts of these power stations are reported within Eni’s Refining & Marketing and Petrochemicals ~~segment.~~segments.
        In ~~2002,~~2003, Eni’s Gas & Power segment had net sales from operations (including intersegment sales) of euro ~~15,297~~16,068 million and operating income of euro ~~3,244~~3,627 million.
        AgipPetroli SpA was merged into Eni SpA effective January 1, 2003 to become Eni’s Refining & Marketing division. Eni now 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. Eni’s refining and marketing activities are located primarily in Italy, Europe and Latin America. Eni has a 36.6% market share in the ~~largest~~ retail market ~~share~~ of refined products ~~retail~~ in ~~Italy, equal to 37.5% of such market;~~Italy; its brands are Agip and IP. In ~~2002,~~2003, sales of refined products totaled 5249.91 million tons, of which 3330.58 million were in Italy. ~~Eni’s total processing~~The balanced refining capacity of Eni’s wholly-owned refineries amounted to ~~504,000 barrels per day~~504 KBBL/d at December 31, ~~2002.~~2003. In ~~2002,~~2003, Eni’s Refining & Marketing division had net sales from operations (including intersegment sales) of euro ~~21,546~~22,148 million and operating income of euro ~~321~~583 million.
        Eni’s petrochemical activities commenced in the 1950s, when it began production of basic petrochemicals at its Ravenna industrial complex. Through Polimeri Europa SpA and ~~EniChem SpA (now Syndial SpA) and their~~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 ~~2002,~~2003, Eni sold ~~6.3~~5.3 million tons of petrochemical products. In ~~2002,~~2003, Eni’s Petrochemicals segment had net sales from operations (including intersegment sales) of euro ~~4,781~~4,487 million and an operating loss of euro ~~347~~176 million.
        Eni’s oilfield services, construction and engineering activities commenced in the late 1950s. Through Saipem SpA (a 43% owned subsidiary) and its subsidiaries, Eni operates in offshore construction, in particular fixed platform installation, subsea pipe laying and floating production systems. Eni owns and operates a fleet of world class marine service vessels, able to drill wells 10,000 meters deep in water depths in excess of ~~up to~~ 3,000 meters and to lay pipelines up to 60 inches in diameter in water depths up to ~~2,150~~3,000 meters. Through Snamprogetti SpA (a wholly owned subsidiary) and its subsidiaries Eni is a provider of engineering and project management services to the oil and gas, refining petrochemical industries. In ~~2002,~~2003, Eni’s Oilfield Services, Construction and Engineering segment had net sales from operations (including intersegment sales) of euro ~~4,546~~6,306 million and operating income of euro ~~298~~311 million.
        A list of subsidiaries of Eni is included as an exhibit to this Form 20-F.
Strategy
        Eni ~~intends~~plans to ~~maintain~~pursue strong hydrocarbon production growth by developing ~~existing projects~~on internal lines and continuing its program of rationalisation of its ~~mineral~~ asset portfolio aimed at increasing its value by focusing on strategic areas with sound growth potential and ~~exiting~~leaving marginal ones. Management plans to dedicate major efforts to reserve replacement in order to support long-term growth.
In its natural gas ~~activities~~and power generation business, Eni ~~intends~~plans to increase natural gas sales inon European markets and to maintain ~~sale levels~~natural gas volumes sold in Italy byat present levels leveraging on expected natural gas demand growth, ~~an effective marketing policy~~the development of integrated gas-electricity supply and the ~~development~~completion in time of the plan of expansion of power generation capacity in its industrial ~~plants.~~sites.
        In ~~the downstream oil segment~~its refining and marketing of petroleum products business, Eni ~~intends~~plans to ~~reposition its activities by completing~~complete the upgrading of its distribution network in Italy and ~~developing~~to develop its presence in selected areas in Europe where it can leverage on operating synergies and a well established brand. In refining Eni plans to pursue high levels of efficiency and flexibility and to develop high quality fuels anticipating the environmental requirements of European regulations.
        In its oilfield services, construction and engineering ~~activities,~~business, Eni ~~intends~~plans to concentrate its presence in the strategic ~~segments of: (i)~~segment of large projects for the development of offshore hydrocarbon ~~reserves; (ii)~~reserves and construction of industrial ~~complexes~~plants and infrastructure based on the application of technologies for hydrocarbon production treatment and ~~transmission as well as the upgrading of~~transport and for natural gas and heavy ~~crudes.~~crudes upgrading.

     ~~At the same time,~~ Eni ~~intends~~plans to reduce capital employed in non core businesses and to ~~integrate~~pursue the integration of its core ~~activities~~businesses in order to support international growth by means of integrated projects and to improve its competitive positioning. ~~Management~~Eni plans to ~~continue improving~~improve operational efficiency ~~levels working on cost structure~~ and ~~capital expenditure processes.~~effectiveness.
        ~~Strong attention will be devoted~~Eni plans to ~~R&D, which management believe to be the key factor for the future development of the oil industry. Eni intends to~~ increase ~~financial~~ resources dedicated to ~~this activity; in addition, management intends~~research and development activity and to focus resources on ~~those strategic~~selected projects ~~through~~ which in management’s view can earn Eni ~~believes to achieve~~ competitive advantages in the medium to ~~long term.~~long-term, in particular in the areas of exploration and recovery of hydrocarbons and of upgrading of heavy crudes and natural gas.
        Eni ~~intends~~plans to ~~pursue~~make capital expenditure amounting to euro 25.5 billion in the next four-year period to sustain its growth ~~strategy by implementing a four-year~~strategy. Approximately 90% of this capital expenditure ~~plan of euro 23 billion, about 80% of which~~is planned in the Exploration & Production, ~~and~~ Gas & Power and Refining & Marketing segments. Management ~~expects~~believes that in the next four-year period cash flow from operations is sufficient to ~~satisfy~~cover financial requirements related to ~~new~~planned capital expenditure and the payment of dividends, assuming an average Brent price of 16 dollars/barrel in the 2004-2007 period in real terms (base year 2000) and ~~the share buy-back program, while~~a dollar/euro exchange rate at ~~the same time leaving enough resources to finance additional growth options in core activities.~~parity.
~~Recent~~Key developments
        The most significant events ~~in the development of Eni~~that occurred during ~~2002~~2003 and to date in ~~2003~~2004 were the following:
• Within its strategy of commercial policy integration and development of its natural gas segment also at international level, on November 25, 2002 Eni launched a public tender offer on all Italgas SpA ordinary shares outstanding not owned directly or indirectly by Eni, corresponding to approximately 56% of Italgas’ share capital. Eni offered a price of euro 13 per share, to be fully paid in cash. The public offering successfully closed on January 27, 2003 and Italgas shares were withdrawn from listing on the Italian Stock Exchange effective on February 7, 2003. Following the squeeze-out of the remaining minority shareholders, Eni now owns 100% of the share capital of Italgas. Total consideration paid pursuant to the tender offer amounted to approximately euro 2.5 billion;
• In March 2003 Eni completed the purchase of the Norwegian oil company Fortum Petroleum AS, which in 2002 produced 39 KBOE/d and held proved reserves of 159 mmBOE as of December 31, 2002. Total consideration plus financial debt acquired amounted to U.S. dollar 975 million. Management expects this acquisition to increase Eni’s hydrocarbon production in Norway in 2003 by approximately 40% from current level (94 KBOE/d)In 2003, hydrocarbon production reached 1.54 mmBOE/d, a 6% increase over year 2002. Eni’s proved reserves of hydrocarbons at December 31, 2003 reached 7,272 mmBOE, increasing by 242 mmBOE over 2002. The increase in proved reserves allowed Eni to replace 142% of production; this average was 118% without taking into account the effect of purchases and sales of property. The average reserve life index is 12.7 years (13.2 in 2002);
• Eni is pursuing a program for the rationalization of its portfolio of mineral assets aimed at concentrating its activities in areas with significant growth potential where Eni is the operator: in 2002 Eni sold 16 interests in fields in the North Sea, Italy and Qatar, as well as exploration permits and other assets; total proceeds amounted to euro 390 million. At the same time Eni acquired interests in operated or partially held assets in Kazakhstan, the United Kingdom, Norway and Australia for a total consideration of euro 317 million;
• Within the North Caspian Sea PSA (of which Eni is single operator with a 16.67% interest) the importance of the Kashagan oil field discovery in the Kazakh offshore of the Caspian Sea was confirmed by the appraisal activities performed and underway in the area. According to the management, this field represents the most important discovery in the oil industry of the past thirty years;
• In Libya, within the development (of which Eni is operator with a 50% interest) of the natural gas, oil and condensates fields of Wafa in the NC-169 A onshore permit and of Bahr Essalam (former structure C) in the NC-41 offshore permit, EPIC/EPC contracts were awarded for the construction of hydrocarbon treatment plants, an offshore production platform and relevant infrastructure. Management expects production to start in 2004 at Wafa and in 2005 at Bahr Essalam. Natural gas produced from both fields is planned to be transmitted to Italy trough an underwater pipeline linking Mellitah on the Libyan coast to Gela in Sicily. Management expects the laying of the pipeline to start in the second half of 2003 and transport operations to start in 2005. Natural gas volumes are projected to reach 8 billion cubic meters per year (Eni’s share is 4 billion). Such volumes have already been booked by operators in the natural gas sector under long-term supply contracts. Eni’s share of the total capital expenditure for the whole project amounts to euro 3.8 billion; of which 3.2 billion for the upstream phase;
In March 2003 Eni purchased the entire capital of the Norwegian oil company Fortum Petroleum AS, which in 2002 produced 39 KBOE/d and held proved reserves of 159 mmBOE as of December 31, 2002. Total consideration plus financial debt acquired amounted to U.S. dollar 975 million. This transaction is part of Eni’s strategy of upstream growth by strengthening its presence in key areas and increasing interests in already held assets in order to generate operational synergies;
In Libya, development is underway of the natural gas, oil and condensates fields of Wafa in the NC-169 A onshore permit and of Bahr Essalam in the NC-41 offshore permit. Eni’s interest in the project is 50%. Management expects production to start in late 2004 at Wafa and in 2005 at Bahr Essalam. Natural gas produced from both fields is planned to be transmitted to Italy through an underwater pipeline linking Mellitah on the Libyan coast to Gela in Sicily. The laying of the pipeline started in the second half of 2003. Management expects transport of natural gas volumes to start in late 2004, in line with the start of production at Wafa. Natural gas volumes are projected to reach 8 billion cubic meters per year (4 billion being Eni’s share). Such volumes have already been booked by operators in the natural gas sector under long-term supply contracts. Eni’s share of the planned capital expenditure for the whole project amounts to euro 3.7 billion; of which 3.1 billion for the upstream phase;
In Angola, in offshore Block 15 (Eni’s interest 20%) development of the oil fields discovered in the Kizomba area is ongoing. This project is going to be carried out in phases. The first one, under completion, concerns the development of the Hungo and Chocalho fields; management expects production to start in the second half of 2004. The second phase, concerning the development of the Kissanje and Dikanza fields, is expected to start up production in 2006. Eni’s share of planned capital expenditure for the two phases amounts to approximately U.S. dollar 1.3 billion;
In Angola, in Block 14 (Eni’s interest 20%) engineering and construction works are underway for the development of the Benguela /Belize/Lobito/Tomboco fields (BBLT) expected to start-up in 2006;
• In Angola, in Block 15 (Eni’s interest 20%) development is ongoing of the oil fields discovered in the Kizomba area. This project is going to be carried out in phases. The first one, under completion, concerns the development of the Hungo and Chocalho fields; management expects production to start in 2004. For the purposes of the second phase, concerning the development of the Kissanje and Dikanza fields expected to start up in 2005, in January 2003 an FPSO vessel with a 250,000 KBBL/d treatment capacity and storage capacity of 2 million barrels was commissioned. Eni’s share of capital expenditure for the two phases amounts to U.S. dollar 1.29 billion;
• Eni and EnBW (Energie Baden-Württemberg AG, a German operator in electricity) acquired through a 50/50 German joint venture (EnBW-Eni Verwaltungsgesellschaft mbH) a 97.81% interest in GVS (Gasversorgung Süddeutschland GmbH), a regional operator in natural gas distribution in Germany GVS transports and sells approximately 7 billion cubic meters per year. The joint venture partners financed the transaction through a capital increase of about euro 178 million (Eni share is euro 89 million) as well as recourse to financial markets. The acquisition of GVS marks Eni’s entrance in a large natural gas market;
• Within its strategy of international expansion of gas activities, on March 14, 2003 Eni reached a final agreement with Spanish company Unión Fenosa SA for the purchase of a 50% interest in its subsidiary Unión Fenosa Gas. This transaction will be completed after the granting of authorizations by the relevant antitrust authorities; management expects Eni to pay euro 440 million as consideration. The transaction when finalised represents an important step in Eni’s strategy of international expansion and will strengthen Eni’s presence in the Spanish natural gas market, which management believes to have growth prospects and where Eni intends to increase its market share;
• The Blue Stream underwater pipeline linking Russia to Turkey through the Black Sea for the transportation of natural gas from Russia to the Turkish market was completed by the end of 2002. Commercial operations started in February 2003; management plans to supply the Turkish market with a maximum amount of 16 billion cubic meters of natural gas per year (Eni’s share is 8 billion cubic meters);
• Eni transferred its Priolo Refinery in Sicily to a newly established company in which Eni holds a minority stake (20%). Management plans to reduce progressively Eni’ refinery intake for its own account, targeting a reduction of 7.5 million tonnes per year by year 2006. Accordingly this transaction represents an important step in Eni’s strategy of downsizing its refining system, aimed at better balancing its own production with demand and at increasing supply flexibility;
• Eni continued its program for the restructuring of its distribution network in Italy, aimed at reaching European standards in terms of average throughput and services to customers. In 2002, Eni sold 246 service stations, closed down 549 service stations and upgraded its main network by building and purchasing about 150 owned and leased service stations. Average throughput in Italy increased by 3.9%. In 2003, management plans to sell further 330 service stations following agreements already finalized;
• Eni, through its subsidiary Saipem, purchased 100% of share capital of Bouygues Offshore through a public tender offer. Saipem offered a price of euro 60.08 per share, to be fully paid in cash. Total consideration amounted to euro 906 million (net of cash acquired for euro 100 million). The combination of Saipem’s construction capabilities supported by technologically advanced vessels and Bouygues Offshore’s engineering and project management expertise will strengthen Eni’s competitive position in the segment of large EPIC projects for the development of hydrocarbon fields.
In February 2004, under the North Caspian Sea PSA (Eni is operator with a 16.67% interest), the development plan of the Kashagan oil field located in the Kazakh section of the Caspian Sea was approved by the relevant Kazakh Authorities. The approved development plan consists of multiple phases; management expects production to start in 2008. Total planned capital expenditure is estimated at U.S. dollar 29 billion, Eni’s share being in the range of U.S. dollar 5 billion;
In March 2004, in Saudi Arabia, an exploration licence for the extraction of natural gas in the so called C area covering about 52,000 square kilometres in the Rub al Khali basin at the border with Qatar and the United Arab Emirates was awarded to a consortium formed by Eni with an international oil company and Saudi Aramco (Eni operator with a 50% interest);
Within its strategy of international expansion in natural gas, in July 2003 Eni purchased a 50% stake of Unión Fenosa Gas, engaged in the energy field in Spain; the relevant consideration amounted to euro 442 million. In February 2003, Eni started supplies of natural gas produced in Russia and transported via the Blue Stream pipeline to the Turkish company Botas, marking the entry of Eni in this market. Natural gas volumes sold totalled approximately 1.3 billion cubic meters (0.633 billion being Eni’s share);
In April 2004 Eni signed an agreement with the Portuguese Government for the reorganization of Galp Energia (Eni’s interest 33.34%) within the restructuring process of the Portuguese energy sector. Under the agreement Eni concentrates its activities in the natural gas sector through a 49% interest in Gas de Portugal (indirectly owned through Galp Energia) and exits the segment of refining and marketing of refined products in Portugal. Gas de Portugal will be managed jointly with Electricidade de Portugal, the other shareholder with a 51% interest; the natural gas transmission network owned by Gas de Portugal will be sold to a state-owned Portuguese company. The finalization of the agreement is subject to authorization from relevant antitrust authorities. When finalized, this transaction will provide Eni cash proceeds of euro 667 million;
Within its strategy of commercial policy integration and development of its natural gas segment also at an international level, on November 25, 2002 Eni launched a public tender offer on all Italgas SpA ordinary shares outstanding not owned directly or indirectly by Eni, corresponding to approximately 56% of Italgas’ share capital. Eni offered a price of euro 13 per share, to be fully paid in cash. The tender offer successfully closed on January 27, 2003 and Italgas shares were withdrawn from listing on the Italian Stock Exchange effective on February 7, 2003. Following the squeeze-out of the remaining minority shareholders, Eni now owns 100% of the share capital of Italgas. Total consideration paid pursuant to the tender offer amounted to approximately euro 2.5 billion.
In 2003, Eni invested approximately euro 13.1 billion in new capital expenditure and investments. Capital expenditure amounted to 8.8 billion, of which 93% related to the Exploration & Production, Gas & Power and Refining & Marketing segments, and concerned in particular: (i) the development of hydrocarbon fields (euro 5,016 million) in Libya, Iran, Angola, Nigeria, Italy, Egypt and Kazakhstan; (ii) exploration (euro 635 million); (iii) upgrade and maintenance of Eni’s natural gas transport and distribution networks in Italy (euro 726 million); (iv) the construction of power stations (euro 542 million); (v) the construction of the Greenstream gasline (euro 460 million) that will carry natural gas from Libyan fields to Sicily; (vi) refinery upgrade, upgrade of the fuel distribution network in Italy and outside Italy and the purchase of service stations in Europe (for a total of euro 730 million). Investments (including net borrowings acquired) amounted to euro 4.3 billion and concerned primarily the Italgas tender offer (euro 2,569 million), the purchase of 100% of Fortum Petroleum (euro 909 million), the purchase of 50% of Unión Fenosa Gas (euro 442 million), as well as the purchase of majority stakes in natural gas distribution companies in Hungary (euro 68 million). In 2003 new capital expenditure and investments increased by approximately euro 3.7 billion with respect to year 2002, or 39%, due mainly to a euro 2.9 billion increase in investments and to a euro 0.6 billion increase in capital expenditure for the development of hydrocarbon reserves.
        In 2002, Eni invested about euro 89.4 billion in new capital expenditure and ~~financial~~ investments. Capital expenditure (euro ~~6.6~~8 billion) referred principally to the development of ~~hydrocarbons~~hydrocarbon reserves and exploration expenditure, the development and upgrade of Eni’s natural gas transport ~~system,~~and distribution networks, the expansion of power generation capacity, the maintenance of refineries as well as the upgrading of Eni’s network of service ~~stations. Financial investments~~stations in Italy and Europe. Investments (euro 1.4 ~~billion)~~billion including net borrowings acquired) referred in particular to the acquisition of 100% of Bouygues Offshore. In 2002 new capital expenditure and investments decreased by approximately euro 1.9 billion with respect to year 2001, or 17%, due mainly to a euro 3.3 billion decrease in investments, partly offset by a euro 1 billion increase in capital expenditure for the development of hydrocarbon reserves and a euro 0.2 billion increase in the capital expenditure for the purchase of proved and unproved property.
        In 2001 Eni invested about euro 11.3 billion in new capital expenditure and ~~financial~~ investments. Capital expenditures (euro 6.6 billion) referred principally to the development of hydrocarbons reserves and exploration expenditure, the development and upgrade of Eni’s natural gas transport ~~system,~~and distribution networks, the maintenance of refineries and petrochemicals plants as well as the upgrading of Eni’s network of service ~~stations. Financial investments~~stations in Italy and Europe. Investments (euro 4.7 billion, including net borrowings) referred in particular to the completion of the acquisition of Lasmo for a total of euro ~~4,128~~4.128 million (including net borrowings for about euro 970 million)
and the purchase of 50% of Polimeri Europa — the remaining 50% already owned by Eni — (euro 204 million). Main divestment occurred in 2001 concerned: (i) 40.24% of share capital of Snam Rete Gas, a company indirectly wholly-owned by Eni, through means of an initial public offering and a private placement to foreign professional and institutional investors. The offering price was set at euro 2.8 per ~~share with.~~share. Total ~~consideration~~proceeds from the offering amounted to euro 2.2 billion in cash; (ii) 100% of share capital of Immobiliare Metanopoli, ~~a wholly owned Eni’s subsidiary,~~ as well as Eni’s other ~~Eni’s~~ real estate for total ~~consideration~~proceeds of euro 754 million in cash; (iii) the polyurethane business to Dow Chemical for ~~a consideration~~proceeds of euro 428 million, of which euro 128 million inwas cash, euro 204 million corresponding to a 50% interest in Polimeri Europa (of which Eni already owns 50%) and euro 96 million of royalty rights for the use of Dow proprietary technology.
     ~~In 2000, Eni invested about euro 9.8 billion in new capital expenditures and financial investments. Capital expenditure in 2000 (euro 5.4 billion) referred principally to the development~~Table of hydrocarbon reserves, exploration expenditure, the acquisition of proved and unproved reserves of hydrocarbons, the development and upgrade of Eni’s natural gas transport system, the maintenance of refineries and petrochemicals plants as well as the upgrading of Eni’s network of service stations. Financial investments (euro 4.4 billion, including net borrowings) referred in particular to the purchase of 28% of the share capital of Lasmo Plc as a result of a Public Offering launched by Eni on December 31, 2000 (euro 1,225 million), the acquisition of British-Borneo for euro 1,263 million (847 are net borrowings) and of 33.34% of Galp (euro 964 million).Contents
BUSINESS OVERVIEW
Table of Contents
Exploration & Production
        Eni ~~operates~~is engaged in the exploration and production of hydrocarbons in Italy, Croatia, North Africa, West Africa, the North Sea, ~~and~~ the Gulf of ~~Mexico. It also operates in areas with great development potential such as Latin America, Australia,~~Mexico, the Middle and Far East, ~~and~~ the Caspian ~~Sea.~~
     ~~In 2002, Eni’s Exploration & Production segment had net sales from operations (including intersegment sales) of euro 12,877 million~~Sea, Australia and ~~operating income of euro 5,175 million.~~Latin America.
        Eni is pursuing ~~an aggressive production~~a growth strategy aimed at achieving a daily production target ~~in excess~~ of ~~1.8 million boe~~approximately 1.9 mmBOE by ~~2006,~~2007, which corresponds to an annual ~~increase~~average growth rate of ~~approximately 6%~~5% over the next four years. Management plans to increase production by developing in areas where Eni has a consolidated presence and through the start-up of important projects in Libya, ~~the deep offshore of West Africa,~~Angola, Nigeria, Iran and Kazakhstan. Eni intends to continue the rationalization of its asset portfolio, started after the purchase of British-Borneo Plc and Lasmo Plc, in order to increase its value by focusing on strategic areas with the highest growth potential and exiting marginal areas with limited growth prospects. Management plans to concentrate exploration expenditure in areas with high mineral potential, capable of providing the highest returns. ~~In 2002, beside the successful continuation of exploration activities in the Caspian Sea, Eni made discoveries in Italy, Egypt, Angola and Nigeria. Eni will continue~~Management plans to improve ~~its~~business performance by searching for operating solutions aimed at reducing operating costs and increasing synergies.
Oil and Natural Gas Reserves
Proved oil and gas reserves are the estimated quantities of crude oil (including condensate and natural gas liquids) and natural gas which on the basis of geological and engineering data will be able to be recovered with reasonable certainty 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 escalations based upon future conditions.
Eni has always held direct control over the booking of proved reserves. The Reserve Department of the Exploration & Production Division, reporting directly to the General Manager, is entrusted with the task of keeping reserve classification criteria (“criteria”) constantly updated and of monitoring their periodic quantification process. The criteria follow the United States regulations issued through the Financial Accounting Standard Board and the Securities and Exchange Commission (“SEC”) as well as, on specific issues not regulated by norms, the consolidated practice recognized by qualified reference institutions. The current criteria applied by Eni have been examined by DeGolyer and MacNaughton (D&M), an independent petroleum engineering company, which confirmed that such criteria are compliant with the SEC principles. D&M also stated that the criteria regulate situations for which the SEC rules are less precise, providing a reasonable interpretation in line with the SEC standards and the generally accepted practices in international markets. Eni quantifies its reserves on the basis of the mentioned criteria also when it participates in exploration and production activities operated by other entities.
From 1991 Eni has requested qualified independent petroleum engineering companies¹to carry out an independent evaluation of its proved reserves on a rotative basis. In particular, in 2003 a total of 2.4 billion BOE of proved reserves, or about 33% of Eni’s total reserves at December 31, 2003, have been evaluated. The results of this independent evaluation confirmed Eni’s evaluations, as prior evaluations did in past years.
Eni’s proved reserves of hydrocarbons at December 31, ~~2002 totaled 7,030~~2003 reached 7,272 mmBOE (oil and condensates ~~3,783~~4,138 mmBBL; natural gas ~~18,629~~18,008 BCF), increasing by ~~101 million boe~~242 mmBOE over ~~2001,~~2002, due to: (i) new discoveries and extensions ~~(338~~(355 mmBOE), in particular in ~~Nigeria,~~ Kazakhstan, ~~Australia~~Libya, Angola, Algeria, Venezuela and Italy; (ii) upward revisions of previous estimates ~~(337~~(287 mmBOE), in particular in Kazakhstan, Nigeria, Algeria, Norway and Angola, ~~and Nigeria;~~offset in part by downward revisions in Italy; (iii) acquisitions ~~(39~~(162 mmBOE), in particular ~~interests in fields in the British and Norwegian sections~~ of the ~~North Sea and Australia;~~Norwegian company Fortum Petroleum; (iv) improved recovery ~~(15~~(31 mmBOE) in particular in ~~Algeria.~~Congo, Algeria and Egypt. Increases in proved reserves were offset in part by production for the year (570 mmBOE) and the sale of interests in fields in ~~Italy, Qatar and~~ the British section of the North Sea ~~(96~~(23 mmBOE). The increase in proved reserves allowed to replace ~~119%~~142% of production; this average was ~~129%~~118% without taking into account the effect of ~~rationalizations.~~purchase and sale of property. The average reserve life index ~~is 13.2~~was 12.7 years ~~(13.7~~(13.2 in ~~2001)~~2002).
     ~~Proved~~Estimated proved developed reserves at December 31, ~~2002,~~2003, amounted to ~~3,703~~4,230 mmBOE ~~(2,241~~(2,447 mmBBL of oil and condensates and ~~8,354~~10,224 BCF of natural gas) representing ~~53%~~58% of total estimated proved reserves ~~(54%~~(53% and ~~50%~~54% at December 31, ~~2001~~2002 and ~~2000,~~2001, respectively).
Estimated proved reserves of hydrocarbons applicable to long-term supply agreements with foreign governments or authorities in which Eni acts as producer represent approximately 8% of total estimated proved reserves as of December 31, 2003.
_____________________
¹From 1991 to 2002 DeGolyer and MacNaughton, from 2003 also Ryder Scott.
The table below sets forth a geographical breakdown of Eni’s estimated proved reserves of hydrocarbons, on a barrel of oil equivalent basis, for the periods indicated.

Year ended December 31,

1998 1999 (1) 2000 2001 2002

(mmBOE)
Italy 1,574 1,477 1,389 1,315 1,199
North Africa 1,686 1,849 1,929 2,122 2,033
West Africa 910 1,067 1,093 1,136 1,287
North Sea 666 646 700 879 825
Rest of World 419 495 897 1,477 1,686

Total 5,255 5,534 6,008 6,929 7,030

Year ended December 31,
1999 (1) 2000 2001 2002 2003
(mmBOE)
Italy 1,477 1,389 1,315 1,199 996
North Africa 1,849 1,929 2,122 2,033 2,024
West Africa 1,067 1,093 1,136 1,287 1,324
North Sea 646 700 879 825 912
Rest of World 495 897 1,477 1,686 2,016
    Total 5,534 6,008 6,929 7,030 7,272
_____________________
(1)
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. ~~Without this specific provision in its PSAs, Eni would otherwise be entitled to the sale proceeds of this portion of oil and gas production withheld.~~ Starting in 1999, in order to be consistent with international practices, Eni began classifying the tax oil withheld directly by its joint-venture partners which are State-owned entities as an increase of revenues and income taxes (in prior years such taxes were settled against revenues with respect to such Agreements). This had the effect of increasing revenues and income taxes by euro 203 million in 1999, as well as oil and gas reserves. Prior year amounts have not been reclassified since the effect of this change on net income is not significant. The application of this new presentation resulted in an increase of 46,000 boe/day (41,000 barrels/day of oil; 29 mmCF/d of natural gas) in hydrocarbon production and of 398 million boe in proved reserves (222 million barrels of oil; 1,021 BCF of natural gas) in 1999.
        For additional information regarding Eni’s estimated proved reserves and proved developed reserves of crude oil and natural gas, see Note 29 to Eni’s consolidated financial statements “Additional financial statement disclosures required by U.S. GAAP and the ~~unaudited supplemental~~SEC - Supplemental oil and gas information ~~on pages F-66 to F-73.~~for the exploration and production activities - Oil and natural gas reserves (unaudited)”.
~~Exploration~~Mineral right portfolio and ~~Development~~exploration activity
        As of December 31, ~~2002,~~2003, Eni’s portfolio of mineral rights consisted of ~~1,161~~1,053 exclusive or shared rights for exploration and development in 3736 countries on five continents, for a total net acreage of ~~281,682~~242,635 square kilometers ~~(317,283~~(281,682 at December 31, ~~2001)~~2002). Of these, ~~41,578~~43,879 square kilometers concerned production and development ~~(41,841~~(41,580 at December 31, ~~2001)~~2002). ~~Net~~Outside Italy net acreage decreased ~~in Italy~~ by ~~5,333 square kilometers, due to releases, and outside Italy by 30,268~~35,296 square kilometers due to releases, in particular in ~~Brazil, Pakistan,~~ Egypt, China, Australia and Algeria and ~~Guyana, and sales of mineral rights~~by 3,751 square kilometers in ~~Italy and Qatar.~~Italy. Increases were registered in ~~Australia,~~ Norway ~~and Indonesia.~~due to the purchase of Fortum Petroleum.
        A total of ~~120~~105 new exploratory wells were drilled ~~(52~~(43 of which represented Eni’s share), as compared to ~~110~~120 exploratory wells completed in ~~2001 (47~~2002 (52 of which represented Eni’s share).
Overall success rate was ~~38.6%~~46.7% (38.6% in 2002); the success rate of Eni’s share of exploratory wells was 45.7% (39.1% ~~of which represented Eni’s share) as compared to 36.5% (31.3% of which represented Eni’s share)~~ in ~~2001.~~2002).
Capital expenditure
        Exploration expenditure amounted to euro 902 million, of which 93% outside Italy, with a 19.2% increase over 2001. Outside Italy exploration concerned mainly the United States, Kazakhstan, Egypt, Angola, RussiaSee “Item 5 – Liquidity and ~~Brazil; in Italy mainly the deep waters of the Sicily Channel and areas in central-southern Italy.~~
capital resources – Capital expenditure for the purchase of mineral rights (euro 317 million) concerned primarily the purchase of: (i) a 2.39% interest in the North Caspian Sea PSA, where the Kashagan field is located (Eni is the single operator with a 16.67% interest in the PSA after the purchase) in Kazakhstan; (ii) a 5.6% interest in the Bayu Undan field (Eni’s interest 12.32% after the purchase) in Australia; (iii) an 11.3% interest in the T- Block fields (Eni is operator with an 88.7% share after the purchase) in the British section of the North Sea;
~~(iv) a 7.9% interest in the Mikkel field in Norway; (v) an 8.9% interest in the Liverpool Bay fields (Eni’s interest is 53.9% after the purchase) in the Irish Sea.~~
     Expenditure for development and capital goods totaled euro 4,396 million, of which 89% outside Italy, an increase of 27.3% over 2001. Development expenditure outside Italy concerned fields in Nigeria, Iran, Libya, Kazakhstan, Angola, Venezuela and the United Kingdom. Development expenditure in Italy referred in particular to the continuation of construction of plant and infrastructure in the Val d’Agri. Total capital expenditure in 2002 amounted to euro 5,615 million, increasing by ~~euro 1,339 million over 2001, up 31.3%~~segment”.
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 ~~2002~~2003 hydrocarbon production ~~amounted to 1,449 KBOE/~~totalled 1,536 mmBOE/d (oil and condensates ~~921~~981 KBBL/d; natural gas ~~3,015~~3,174 mmCF/d), increasing by 9687 KBOE/d over ~~2001,~~2002, up ~~7.1%~~6%, ~~despite the 26 KBOE/d effect of production cuts decided by OPEC and the 8 KBOE/d effect of the rationalization of Eni’s mineral rights portfolio. The production increase was~~ due to: (i) ~~start-up~~the purchase of Fortum Petroleum; (ii) start-ups of fields mainly in Australia, Algeria, Pakistan, Iran, Nigeria, the United States and Angola; (iii) production growth recorded in Nigeria, ~~Iran, Trinidad & Tobago~~Kazakhstan and ~~Pakistan; (ii)~~Venezuela; (iv) the cancellation of production ~~increases recorded mainly in Algeria, Kazakhstan, the United States, Egypt, Norway, the United Kingdom, Italy and Congo.~~cuts imposed by OPEC. These increases were ~~partly~~ offset byin part by: (i) the ~~production~~ decline of mature ~~gas fields~~fields; (ii) lower entitlements in ~~Italy. The share~~Production Sharing Agreements due to higher international oil prices²; and (iii) the effect of the sale of mineral assets in 2002.
______________________
²In PSAs production, ~~outside Italy reached 78.5% (77.5%~~calculated at reference prices, allows both the recovery of costs incurred “Cost Oil“ and a remuneration “Profit Oil“ assigned in ~~2001).~~
part to the producing country and in part to the oil company. An increase in international oil prices entails lower entitlements of hydrocarbons produced to the mentioned components; the opposite occurs in case of a decline in prices.
        ~~Daily production~~Production of oil and condensates ~~(921~~(981 KBBL/d) increased by 6460 KBBL/d, up ~~7.5%~~6.5%, due to increases registered outside Italy ~~(up 80 KBBL/d)~~ in particular in: (i) Norway, due to the purchase of Fortum Petroleum; (ii) Nigeria, in particular for the start-up of the Abo field (Eni operator with a 50.19% interest); (iii) Australia for the start-up of the Woollybutt field (Eni operator with a 65% interest); (iv) Algeria, due to the start-up of the ~~HBNSE/BKNE/RBK fields~~Ourhoud (Eni’s interest ~~12.25%~~4.59%) and ROM Est (Eni operator with a 50% interest) fields; (v) Iran for the ~~reaching~~start-up of ~~full production~~the Balal (Eni’s interest 45%) and Darquain (Eni operator with a 60% interest) fields; (vi) Venezuela at the ~~HBN~~Dación field ~~(Eni’s interest 34.63%)~~(Eni operator with a 100% interest); ~~(ii)~~and (vii) Kazakhstan, ~~due to the fact that in the third quarter of 2001 production~~ at the Karachaganak field (co-operated by Eni with a 32.5% interest) ~~was suspended~~, and in Italy at the Val d’Agri fields. These increases were partly offset by declines registered in Angola due to ~~a fiscal dispute between Russia~~the maintenance standstill of the Kuito field (Eni’s interest 20%), by declines of mature fields in Congo and ~~Kazakhstan; (iii) Congo~~Egypt and by the effect of the sale of assets in 2002.
        Natural gas production available for sale (3,174 mmCF/d) increased by 159 mmCF/d, up 5.3%, due mainly to increases registered outside Italy, in particular in: (i) Pakistan due to the start-up of the ~~Foukanda and Mwafi fields~~Bhit (Eni is operator with a ~~65%~~40% interest) ~~in the second half of 2001; (iv) the United Kingdom, due to the full operation of the Elgin/Franklin fields~~and Sawan (Eni’s interest ~~21.87%~~23.7%)~~. In Italy production increased by 17 KBBL/d due to~~ fields as well as the reaching of full ~~operation~~production at the Miano (Eni’s interest 15.16%) and Zamzama (Eni’s interest 17.75%) fields; (ii) Norway, due to the purchase of Fortum Petroleum; (iii) Trinidad & Tobago for the ~~Monte Alpi pipeline which transports oil produced~~reaching of full production of fields in Block NMCA-1 (Eni’s interest 17.31%); (iv) Nigeria for the ~~Val d’Agri fields to Eni’s refinery~~increase in ~~Taranto. These increases were partly offset by a 33 KBBL/d reduction outside Italy due mainly to production cuts decided by OPEC.~~
     ~~Production of~~ natural gas ~~(3,015 mmCF/d) increased by 188 mmCF/d, up 6.7%, due to increases registered outside Italy (up 241 mmCF/d), in particular in Egypt,~~volumes treated at the ~~United States (in connection with the start-up of the King Kong/Yosemite field — Eni’s~~Bonny plant (Eni’s interest ~~50%~~10.4%)~~, Kazakhstan (due to the reasons mentioned above), the United Kingdom and Norway.~~. These increases were offset in part by the ~~production~~ decline of mature fields, ~~(down 53 mmCF/d)~~in particular in Italy ~~in particular~~and the ~~Porto Garibaldi/Agostino and Luna fields.~~United States.
        Hydrocarbon production sold amounted to ~~523.1 million boe.~~556.2 mmBOE. The ~~5.8 million boe decrease~~4.3 mmBOE difference over production was due essentially to a temporary increase in technical stocks related to sale processes and lower withdrawals with respect to entitlements outside Italy (3.4 million boe) and to production volumes of natural gas input to storage (1.8 million boe). About 75% of oil and condensate production sold (333.4 million barrels) was transferred to the Refining & Marketing division (68% in 2001). About 44% of natural gas production sold (30.68 billion cubic meters) was transferred to the Gas & Power division (47% in 2001).Italy.
        The tables below set forth Eni’s ~~production(1)~~production⁽¹⁾ of oil and condensates and natural gas for the periods indicated.
~~Production of oil and condensates~~

Year ended December 31,

�� 1998 1999 2000 2001 2002

(KBBL/d)
Crude Oil and Condensates (2)
Italy 100 88 76 69 86
North Africa 213 221 227 228 252
West Africa 194 202 213 219 222
North Sea 112 116 124 204 213
Rest of the World 34 47 108 137 148
   Total 653 674 748 857 921
~~Natural gas production available for sale~~

Year ended December 31,

1998 1999 2000 2001 2002

(mmCF/d)
Natural Gas (2) (3)
Italy 1,648 1,511 1,438 1,313 1,260
North Africa 132 278 454 497 560
West Africa 14 21 67 82 87
North Sea 254 222 258 450 516
Rest of the World 128 177 276 485 592
   Total 2,176 2,209 2,493 2,827 3,015
Year ended December 31,
1999 2000 2001 2002 2003
Production of oil and condensates (KBBL/d)
Crude Oil and Condensates (2)
Italy 88 76 69 86 84
North Africa 221 227 228 252 250
West Africa 202 213 219 222 236
North Sea 116 124 204 213 235
Rest of the World 47 108 137 148 176
    Total 674 748 857 921 981

Year ended December 31,
1999 2000 2001 2002 2003
Natural gas production available for sale (mmCF/d)
Natural Gas (2) (3)
Italy 1,511 1,438 1,313 1,260 1,181
North Africa 278 454 497 560 559
West Africa 21 67 82 87 128
North Sea 222 258 450 516 596
Rest of the World 177 276 485 592 710
    Total 2,209 2,493 2,827 3,015 3,174
___________________
(1)
Production information set forth above differs from production as reported in the reserve tables in Note 29 to the Consolidated Financial Statements — Supplemental oil and gas information (unaudited) because yearly production presented in such reserve tables is based on estimates taken in November of each year and the information above sets forth actual production during the year. Furthermore, Eni’s production of natural gas reported in such reserve tables includes, in addition to sold production, production volumes of natural gas consumed in operations. Natural gas produced and reinjected into storage fields in Italy remains part of Eni’s reserves for each period.
(2)
For 1999 data see note 1 on page ~~13.~~23.
(3)
Natural gas production volumes consumed in operations ~~in countries where an alternative market exists is excluded from production.~~are excluded. The effect was of 94, ~~mmCF/d~~132 and ~~132~~151 mmCF/d in 2001, 2002 and ~~2002,~~2003, respectively.
~~Storage~~
     Eni’s storage system in Italy is made up of a number of depleted fields used for the purposes of supply modulation in accordance with seasonal swings in demand (natural gas is stored in the summer and used in the winter), strategic reserve and mineral storage to ensure supply and to support domestic production. The present storage system is made up of 9 fields, 8 of which are located in northern Italy (one of them is not yet operational) and one in central Italy, on the basis of nine storage concessions vested by the Minister of Productive Activities.
     As provided for by article 21 of Legislative Decree No. 164/2000, which imposed the separation of storage activities from natural gas production and sale activities, on October 31, 2001 Eni SpA and Snam SpA contributed their storage business units to Stoccaggi Gas Italia SpA, a company established for this purpose in November 2000 and wholly owned by Eni SpA. This contribution concerned, among other assets, 749 BCF of natural gas, of which 378 BCF of so called working gas, that can be withdrawn without prejudice to general field performance, and 371 BCF representing the so called cushion gas necessary for allowing working gas volumes to be withdrawn.
     On February 27, 2002 the Italian Authority for Electricity and Gas (the «Authority») issued decision No. 26 containing the criteria for the determination of tariffs of natural gas storage for the first regulated period (from April 1, 2002 to March 31, 2006) and, retroactively, from June 21, 2000. With reference to these criteria, on March 18, 2002 Stoccaggi Gas Italia presented its suggested tariffs for supply modulation, mineral and strategic storage services for the first regulatory period. The Authority rejected Stoccaggi Gas Italia’s
proposal and, in order to enact its decision No. 26, set storage tariffs for the thermal year 2002-2003 with its decision No. 49 of March 26, 2002. Stoccaggi Gas Italia currently applies the tariffs set by the Authority, and appealed both Authority decisions against the Regional Administrative Court of Lombardia in order to seek their repeal. The proceeding is still pending.
     In 2002, following optimization measures on existing fields that increased capacity by 13% (from 6.3 to 7.1 billion cubic meters), higher storage volumes have been made available for modulation services.
        The table below sets forth certain information and operating data regarding Eni’s principal oil and natural gas interests at and for the year ended December 31, ~~2002.~~

% of Eni’s
Number Number Total Oil
Number of of Production Production and
Commencement of Net producing other of of Natural Gas
of operations interests acreage(1) Type of fields fields fields(2) Crude Oil(3) Natural Gas(4) Production

Italy
1926 280 43,961 Onshore/Offshore 97 85 86 1,260 21.5
North Africa

Algeria 1981 27 6,527 Onshore 13 15 65 — 4.5
Egypt 1954 38 28,305 Onshore/Offshore 34 24 97 547 13.2
Libya 1959 7 21,268 Onshore/Offshore 8 10 79 — 5.5
Tunisia 1961 11 3,451 Onshore/Offshore 7 5 11 13 1.0
83 59,551 62 54 252 560 24.1
West Africa

Angola 1980 37 4,157 Offshore 34 32 62 — 4.3
Congo 1968 17 7,507 Offshore 16 8 75 — 5.2
Gabon 1981 4 11,297 Offshore 1 — 2 — 0.1
Nigeria 1962 55 8,385 Onshore/Offshore 118 130 83 87 6.8
113 31,346 169 170 222 87 16.4
North Sea

Norway 1964 30 2,768 Offshore 8 10 74 108 6.3
The Netherlands 2001 1 22 Offshore 2 — — 9 0.1
United Kingdom 1964 81 3,445 Offshore 46 25 139 399 14.4
112 6,235 56 35 213 516 20.8
Rest of World

China 1983 4 7,327 Onshore/Offshore 6 6 10 — 0.7
Croatia 1996 2 3,018 Offshore 1 6 — 32 0.3
Ecuador 1988 1 2,000 Onshore 1 1 22 — 1.5
Indonesia 2001 9 15,187 Onshore/Offshore 8 9 5 191 2.6
Iran 1957 4 423 Onshore/Offshore 1 3 3 — 0.2
Kazakhstan 1995 2 1,030 Onshore/Offshore 1 1 32 147 4.0
Pakistan 2000 11 8,193 Onshore 3 4 — 40 0.5
Qatar (5) 1992 — — — — — 5 — 0.3
Trinidad & Tobago 1970 2 621 Offshore 1 3 — 13 0.1
United States 1968 488 3,196 Offshore 15 5 29 169 4.0
2003.

% of Eni’s
Number Number Total Oil
Number of of Production Production and
Commencement of Net producing other of of Natural Gas
of operations interests acreage(1) Type of fields fields fields(2) Crude Oil(3) Natural Gas(4) Production

Venezuela 1998 2 630 Onshore/Offshore 6 1 42 — 2.9
525 41,625 43 39 148 592 17.3
Other countries with only exploration activity 48 98,964 — 6 — — —
Outside Italy 881 237,721 330 304 835 1,755 78.5

Total 1,161 281,682 427 389 921 3,015 100.0

Commencement
of operations Number
of
interests Net exploration (1)
and development
acreage Net
development
acreage Type of
fields Number
of
producing
fields Number
of other
fields
Italy 1926 261 40,210 15,118 Onshore/Offshore 94 82
North Africa
Algeria 1981 29 3,226 760 Onshore 14 14
Egypt 1954 38 12,849 1,969 Onshore/Offshore 34 24
Libya 1959 7 21,268 8,053 Onshore/Offshore 9 9
Tunisia 1961 11 3,784 1,888 Onshore/Offshore 8 5
85 41,127 12,670    65 52
West Africa
Angola 1980 38 2,223 432 Offshore 32 39
Congo 1968 17 7,507 741 Offshore 16 8
Gabon 1981 4 20,344 43 Offshore 1 0
Nigeria 1962 55 7,770 4,878 Onshore/Offshore 115 130
114 37,844 6,094    164 177
North Sea
Norway 1965 44 4,239 316 Offshore 12 13
Netherlands 2001 1 47 47 Offshore 2 0
United Kingdom 1964 61 2,379 1,076 Offshore 40 19
106 6,665 1,439    54 32
Rest of World
Australia 2001 13 19,275 1,643 Offshore 1 2
China 1983 3 241 85 Offshore 6 6
Croatia 1996 2 3,018 878 Offshore 1 7
Ecuador 1988 1 2,000 2,000 Onshore 1 1
Indonesia 2001 10 12,360 984 Onshore/Offshore 8 8
Iran 1957 4 423 423 Onshore/Offshore 3 1
Kazakhstan 1995 2 1,030 106 Onshore/Offshore 1 1
Pakistan 2000 12 8,089 598 Onshore 5 2
Trinidad & Tobago 1970 1 66 66 Offshore 3 2
United States 1968 408 2,502 489 Onshore/Offshore 15 4
Venezuela 1998 3 713 131 Onshore/Offshore 5 2
459 49,717 7,403    49 36
Other    1,156 1,156 2
Other countries with only 28 65,916
exploration activity
792 202,425 28,762    5
Outside Italy

Total 1,053 242,635 43,880    426 382

(1)
Square kilometers.
~~(2)~~ ~~Includes non producing fields.~~
~~(3)~~ ~~KBBL/d Includes condensates and natural gas liquids.~~
~~(4)~~ ~~mmCF/d.~~
~~(5)~~ ~~Assets in Qatar were sold effective from May 2002.~~
        Eni’s principal regions of operations are described below.
        Italy
In ~~2002,~~2003, Eni’s hydrocarbon production in Italy totaled ~~311,000 boe/day~~300 KBOE/d and represented ~~21.5%~~19% of Eni’s total production. Eni’s exploration and development interests in Italy are concentrated in the Po Valley, the Adriatic Sea, the Central Southern Apennines, Sicily and the Sicilian offshore.
     Production of oil in Italy totaled 86 KBBL/d. Eni’s three major fields, Val d’Agri in Southern Italy, Villafortuna in the Po Valley and Aquila in the southern Adriatic offshore, represented 72% of Eni’s total production in Italy. In particular, the Val d’Agri fields increased production from 12,000 barrels/day in 2001 to 37,000 in 2002, with a share of total production increasing from 18.6% in 2001 to 42.6% in 2002, due to the entry into full service of the Monte Alpi pipeline which carries oil from the Viggiano oil center to Eni’s Taranto refinery. Other oil fields are Rospo in the Adriatic Sea, Vega offshore southern Sicily, Gela and Ragusa in Sicily.
Natural gas production totaled ~~1,26 mmCF/d~~1,181 mmcf/day and represented approximately ~~73%~~72% of Eni’s hydrocarbon production in Italy. Eni’s principal natural gas fields are located in the Adriatic Sea (Barbara, Porto Garibaldi/Agostino, Angela/Angelina, Cervia/Arianna and ~~Bonaccia~~Porto Corsini Mare Ovest which collectively accounted for ~~47%~~43.5% of Eni’s natural gas production in ~~Italy)~~Italy in 2003) and in the Ionian Sea (Luna, which accounted for ~~8.6%~~8.2%). In ~~2002~~early 2005 the Tea, Arnica and Lavanda gas wells, located 60 kilometers off the Adriatic coast are expected to start production at the final level of 25.78 mmcf/day (about 29 mmcf/day) net to Eni.
Production of oil in Italy totaled 84 KBBL/d. Eni’s three major fields, Val d’Agri in Southern Italy, Villafortuna in the Po Valley and Aquila in the southern Adriatic offshore, represented 73.6% of Eni’s total oil production in Italy in 2003. Other oil fields are Rospo in the Adriatic Sea, Vega offshore ~~the Calipso gas field started production with an output of approximately 4,000 boe/day.~~southern Sicily, Gela and Ragusa in Sicily. In Val d’Agri development activities continued.
        ~~Within its asset rationalization program, Eni sold its 25%~~Exploration activities yielded positive results with the natural gas wells: (i) Annamaria 2, completed in January in Concession A.C14.AG (Eni’s interest 90%) in the ~~Gorgoglione concession~~Adriatic offshore; (ii) Elettra 2, drilled in ~~Basilicata,~~April in permit BR250 AG (Eni’s interest 100%) in the Adriatic offshore; (iii) Panda W-1 drilled in the offshore of Sicily off the coast of Agrigento where the ~~Tempa Rossa~~Panda 1 gas well had been drilled in 2002 (Eni operator with a 37.5% interest); (iv) Capparuccia 1, drilled in August on the Ponzano di Fermo permit (Eni’s interest 100%) onshore in Central Italy.
        The development of the Tea, Arnica and Lavanda gas wells, located 60 kilometers off the Adriatic coast started. First production is expected in early 2005.
        The development of the Miglianico oil field is ~~located. The achievement of full~~underway; production ofis expected to start in early 2006. Within the development project for the Val d’Agri fields, the fourth treatment train and the ~~development~~drilling of further 11 producing wells, to be added to the ~~recent oil discoveries at Miglianico~~existing 27 (15 in production) are underway. In 2003 production net to Eni amounted to 55 KBOE/d of which 2,500 derive from the ~~central Apennines~~long production test of Cerro Falcone and ~~of the Panda gas well in the deep offshore of Sicily will partly offset declines of mature gas fields.~~Monte Enoc.
        ~~The achievement~~Within the portfolio rationalization process, in May 2004 Eni sold its 100% interest in Stargas SpA to Gas Plus for approximately euro 140 million. Stargas is a newly-established company, to which certain Italian properties were transferred that included: (i) 42 natural gas and condensate production concessions and 3 exploration permits, located mainly in central-southern Italy; (ii) gas transmission and treatment infrastructure; and (iii) real estate and certain investments. In 2003 Stargas production amounted to about 5 KBOE/d, consisting mainly of full production of the Val d’Agri fields and the development of the recent oil discoveries at Miglianico in the central Apennines and of the Panda gas well in the deep offshore of Sicily will partly offset declines of mature gas fields.natural gas.
        With regards to the Alto Adriatico Project, in 2003 proved natural gas reserves of certain fields offshore the Adriatic Sea were written off in connection with article no. 26 Law 179/2002, which ~~contemplated~~prohibits exploration and production of hydrocarbons in this section of the ~~joint development~~Adriatic Sea. Despite the fact that concessions have not been withdrawn, Eni was aware that the draft law on energy that is under discussion at the Parliament no longer requires the institution of ~~15 offshore~~a specific commission on this issue as had been previously requested by the Parliamentary Commission to collect further information on the mentioned prohibition of exploration and production.
        On May 11, 2004, certain Eni natural gas fields ~~with proved reserves~~located offshore the Adriatic coastline between the regions of ~~953 BCF, on December 3, 1999, the Ministry~~Veneto and Emilia Romagna were placed under preliminary seizure following a decision of the ~~Environment, in agreement with~~Court of Rovigo as part of an investigation concerning a subsidence phenomenon allegedly caused by the ~~Veneto Region, issued a decree prohibiting the~~activity of exploration and production of ~~liquid or gaseous hydrocarbons in an area within 12 nautical miles from~~hydrocarbons. Currently these fields produce approximately 16.8 mmCF/d. On June 10, 2004 the coastline. The decree defined also the conditions for granting authorizations to exploit fields located beyond 12 nautical miles, from the test phase until the final exploitation phase. After the issue of this decree,seizure was lifted on all but one minor field. Certain other Eni natural gas ~~reserves were reduced by~~fields in the ~~amount~~same area are still under seizure following a Court decision of ~~proved~~
~~reserves~~February 5, 2003 relating to the same issue. Before the seizure, the latter fields ~~within the set limit (191 BCF), and the relevant assets were written off (21 million euro). Eni filed an extraordinary claim with the President~~produced approximately 13.4 mmCF/d. The overall economic impact of ~~the Italian Republic against~~ this ~~decree. The claim was rejected. Currently the Italian Parliament~~matter is ~~discussing a new law providing for the establishment of a technical Commission assessing exploitation feasability.~~not material. See “Item 18 – Financial Statements – Note 23 – Legal Proceedings”.
        North Africa
        Eni’s operations in North Africa are conducted in Algeria, Egypt, Libya and Tunisia. In ~~2002,~~2003, North Africa accounted for ~~24,1%~~22% of Eni’s total worldwide production of hydrocarbons.
    ~~Algeria.~~    Algeria. Eni has been present in Algeria since 1981. ~~Its~~Eni’s principal oil producing fields are located in the Bir Rebaa area (Eni’s interest 49%) in the south-eastern desert. In 2003 oil production started at: (i) the ROM Est field (Eni operator with a 50% interest) west of Bir Rebaa with production amounting to 1.5 KBBL/d net to Eni; (ii) the second and third treatment train of the three planned at the unitized Ourhoud field (Eni’s interest 4.59%) south-west of Bir Rebaa. In 2003 this field produced 7 KBBL/d net to Eni. The Rod and satellites field (Eni operator with a 63.96% interest) is under development near Bir Rebaa with production expected in the third quarter of 2004.
        Three new oil discoveries were made in Block 404 (Eni’s interest 25%) in the south-eastern desert ~~where Eni is~~near the border with Tunisia, with the HBNE-1 (drilled 5 kilometers from the Hassi Berkine field), SFSW-1 and Bkne-Aac-A wells. These exploration wells, drilled at depths of 3,250 to 3,400 meters yielded between 3 and 4 KBBL/d in test production.
        In the Zamoul el Kbar permit (Eni operator with a ~~49% interest. Production from these fields accounted for approximately 27%~~100% interest) the REC 2-H appraisal well showed the presence of ~~Algeria’s annual~~hydrocarbons at a depth of about 3,000 meters and yielded over 8 KBBL/d. In October 2003 the saleability of this field’s production ~~in 2002.~~was declared.
        In ~~2002 oil~~the second half of 2003 the ROME field (Eni operator with a 50% interest) started production ~~reached full levels~~ at the ~~Hassi Berkine (HBN)~~initial level of about 3 KBBL/d.
        Authorization is pending for the expansion of the treatment center of the ROM field that will allow to increase capacity from 7 to over 23 KBBL/d and also for the installation of a gas treatment and compression unit and a gasline for the transfer of gas to the Bir Rebaa center.
        The Ourhoud project (Eni’s interest ~~is 34.63%~~4.59%) was completed and provides for the ~~fourth~~development of the oil ~~treatment line~~field in ~~the~~Blocks 404, 405 and 406 over 300 kilometers south-east of Hassi ~~Berkine South oil center (HBNS, Eni’s interest is 12.25%) has started operations. These events allowed to increase Eni’s production by 29,000 barrels/day.~~
     According to management’s industrial plans, the expected start-up in late 2004 of production from the ROD and satellite fields (Eni’s share is 55%) and higher production from the HBN and HBNS fields will generate an increase in daily oil productionMessaoud. In 2003 this field produced 174 KBBL/ds/day (7 KBBL/d net to ~~Eni from the present level of 65,000 barrels/day to over 100,000 by 2006.~~Eni).
        ~~Egypt.~~Egypt. Eni has been present in Egypt since ~~1954 and is the leading international operator. In 2002, fields operated~~1954.
        The main oil producing interests held by Eni accounted for 34% of Egypt’s total annual hydrocarbon production, which amounted to 410,000 boe/day (173,000 boe net to Eni). In 2002, oil and condensate production amounted to 97,000 barrels/day net to Eni and came mainly fromare the ~~Eni operated~~ Belayim and Ashrafi fields in the Gulf of Suez and ~~from~~ the Melehia field located in the Western Desert.
        In ~~2002,~~2003, natural gas ~~daily~~ production amounted to ~~547 mmCF~~95 KBOE/d net to Eni. The main natural gas producing interests operated by Eni are concentrated in the Nile Delta, onshore the Abu Madi and Elel Qar’a ~~onshore~~ fields, and ~~the El Temsah, Port Fouad, Darfeel and Baltim offshore fields. In 2002 the Akhen field was started up.~~
     ~~Eni successfully drilled the new exploration well Tennin 1 in the East Delta Deep Marine permit (Eni is operator with a 50% interest)~~ in the Mediterranean offshore, ~~before~~the el Temsah, North Port Said (the former Port Fouad), Darfeel and Baltim fields. In early 2004 the Nouras field in the North Port Said concession was started up with initial production of 40.6 mmcf/day net to Eni. Development activities are ongoing for the North Port Said, Baltim and el Temsah fields.
        In Egypt exploration activity takes place in 10 exploration permits in 35 production concessions. The major exploration areas in geomineral terms are: (i) gas and condensates in the North Sinai, the Nile Delta and the Mediterranean offshore; and (ii) oil in the Suez Gulf and the Western Desert.
        Eni was assigned two exploration permits as operator: Ras el Ush and South Ferain located in the Gulf of Suez (Eni’s interests 75 and 70%, respectively). Exploration plans provide for the drilling of three wells in both permits.
        As a consequence of the Bid Round 2002, Blocks 24 and 26 Offshore Mediterranean were assigned to Eni, while Block 10 Western Desert was assigned to Eni following the Bid Round 2003. The latter bid needs to be approved by the Egyptian Parliament, which will confirm the conferral of licences to Eni.
        In 2003 over 150 workover actions were performed on the wells of the Belayim Marine and Belayim Land fields (Eni’s interest 50%) located in the Sinai Peninsula.
        In this area four new exploration wells (BM-75, Belayim Land Bay North-1, Sinai South-1 and Sinai NW-1) were drilled. The first three wells found hydrocarbons and were linked to existing production facilities.
        Development activities are ongoing in the natural gas fields located in the following concessions: (i) North Port Said (former Port Fouad, Eni’s interest 50%) located offshore about ~~80-kilometer~~40 kilometers north of ~~Damietta. The well was drilled~~Port Said at a water depth of ~~approximately 300 meters, reaching a total depth of over 2,000 meters encountering a gas sand interval of about 60~~20 to 90 meters. ~~In test production the well yielded over 23 mmCF/d. A pre-feasibility study is underway~~The project provides for the development of the ~~field. Management believes that~~Nouras field and the extension of the el Gamil terminal. Through this ~~discovery is important both for~~work daily production increased by 14.4 mmcf net to Eni; (ii) Baltim (Eni’s interest 25%) located offshore north of the ~~size~~Nile Delta about 10 to 45 kilometers off the coast. The project includes the installation of ~~its reserves~~a platform on Baltim North, the drilling of 4 development wells, the completion of a fifth already drilled well and ~~for~~ the ~~possibility~~laying of a gasline. These facilities are expected to ~~send its~~start production ~~to the Unión Fenosa Gas liquefaction plant under construction at Damietta (See Item 4 — Gas & Power — Development projects).~~
     ~~According to management’s industrial plans,~~ in ~~the medium term the increase~~2005 in ~~gas production, while offsetting the natural decline of mature oil producing fields, will allow~~order to maintain the ~~present~~contract production level of 211.89 mmcf/day (37 KBOE/d); (iii) Temsah (Eni operator with a 25% interest) located between the Nile Delta and Port Said about ~~190,000 boe/~~60 kilometers off the coast. The project includes the installation of a production platform with 8 wells, 4 of these already drilled, which will be linked to the existing Temsah North West platform. These facilities are expected to start production at the end of 2004 in order to maintain the contract production level of approximately 480 mmcf/day.
        ~~Libya.~~Libya. Eni started operations in Libya in ~~1959 and is the leading international operator, with oil fields operated by Eni accounting for approximately 14% of Libya’s annual oil production.~~1959. Eni’s principal producing interests are located in two areas: onshore in the central-eastern desert in the Bu-Attifel field, where Eni is operator with a 50% interest, and offshore Tripoli in the Bouri field, where Eni is operator with a 30% interest.
        ~~With a 50% interest Eni is operator in the~~The joint development of the natural gas, oil and ~~condensates fields~~condensate field of Wafa, located in ~~onshore~~ permit ~~NC-169 A located 520 kilometers~~NC-169A about 520-kilometers south west of Tripoli, and Bahr Essalam, located in the NC-41 offshore permit, 110-kilometer north of Tripoli is underway. Eni’s interest in the ~~Mediterranean offshore located 110 kilometers north~~project is 50%.
        Within the onshore development (Wafa) 25 wells were drilled (17 gas and 8 oil wells) of ~~Tripoli.~~
     ~~Contracts were awarded for~~the 30 designed, while the workover of the 8 existing wells (5 gas and 3 oil wells) was completed; the construction of ~~centers for hydrocarbon~~facilities and the laying of pipelines linking the wells with the Mellitah treatment ~~near Wafa and Mellitah~~plant on the Libyan coast anare underway. Within the offshore ~~production~~development (Bahr Essalam), the Sabratha platform and its infrastructure, as well as the Mellitah plant, are under construction. In August the laying of the 520-kilometer long pipeline for exporting the production ~~and transport infrastructure including~~from the two wells to Italy commenced (see Gas & Power - Development initiatives, below). The Wafa field is expected to start production in the fourth quarter of 2004 at an ~~underwater~~initial level of 54 KBOE/d net to Eni. The Bahr Essalam field is expected to start production ~~system for a total value~~in June 2005 at an initial level of ~~euro 4.2 billion, of which 2.4 are Eni’s share.~~61 KBOE/d net to Eni. Full production from the two fields (128 net to Eni) is expected in 2006.
        ~~Development is ongoing~~Early production was started in January 2004 at the Elephant oil field in the NC-174 onshore permit ~~where Eni is operator with a 33.34% interest. Production is expected to start in~~(Eni’s interest 33.33%). In the first half of 2004 ~~and~~initial production is expected to ~~peak at 150,000 barrels/day (35,000~~amount to 40 KBBL/d (9 KBBL/d to Eni). Full production will be provided by 29 wells. Peak production is expected to be reached in early 2007 with 150 KBBL/d (32 KBBL/d net to Eni) ~~in 2007.~~
     According to management’s plans, the start-up of fields under development will lead to an increase in daily hydrocarbon production from the present level of 79,000 boe to approximately 260,000 in 2006..
        ~~Tunisia.~~Tunisia. Eni has been present in Tunisia since 1961; its main producing interests are in the Elel Borma oil field and in the oil and gas Hammouda and Oued Zar fields, operated by Eni ~~which owns~~with a 50% ~~interest therein.~~
     ~~A new oil discovery was made with~~interest. In 2003 the Baraka South East 1 exploration well in the Tunisian offshore approximately 100-kilometers south-east of Tunis. The well was drilled in waters approximately 90 meters deep and reached a depth of over 2,300 meters. It yielded about 5,000 barrels/day of high quality oil in test production. This is the highest flow rate ever reached with a vertical well in the Tunisian offshore. Development studies are ongoing. In the onshore Borj el Kadra concessionAdam field (Eni is operator with a ~~50%~~35% interest) started production.
Morocco. Following the acquisition of Lasmo, Eni has been present in ~~southern Tunisia~~Morocco since 2001 and holds a ~~new oil discovery was obtained by the Adam 1 well, which is expected to start production~~40% interest in the ~~second half of 2003.~~
     ~~According to management’s plans,~~Ras Tafelney atlantic offshore block, in partnership with a US independent company holding the ~~next four years hydrocarbon production in Tunisia is expected to decline slightly from the present level of 14,000 boe/day.~~
remaining 60% interest.
        West Africa
        Eni’s operations in West Africa are conducted mainly in Angola, Congo ~~Gabon~~ and Nigeria. In ~~2002,~~2003, West Africa accounted for ~~16.4%~~17% of Eni’s total worldwide production of hydrocarbons.
        ~~Angola.~~Angola. Eni has been present in Angola since 1980. ~~In 2002, Eni’s oil production amounted to 62,000 barrels/day.~~ Eni’s main oil producing interests are located in Block 0, former Cabinda (Eni’s interest 9.8%), Block 14 (Eni’s interest 20%) and Block 15 (Eni’s interest 20%). The main oil fields in Block 0 are the Takula, Nemba and Malongo ~~fields located in Block 0 (Eni’s interest is 9.8%) and the Kuito field in the deep~~fields.
        In offshore Block 14 (Eni’s interest is 20%)~~. Eni planned to develop~~ the ~~Benguela-Belize~~Negage-2 appraisal well was drilled 10 kilometers from the Negage-1 discovery well and ~~Lobito-Tomboco~~identified an oil ~~fields~~and gas bearing column. In Block 15 (Eni’s interest 20%) four new oil discoveries were made: (i) Bavuca-1, which yielded 2 KBBL/d in test production; (ii) Kakocha-1, which yielded over 4 KBBL/d in test production; (iii) Tchihumba-1 which yielded over 5 KBBL/d in test production; and (iv) Clochas-1, which yielded about 2 KBBL/d in test production. Three successful appraisal wells were drilled on preceding discoveries: Saxi-2, Batuque-2 and Mondo 3/A (each yielded over 5 KBBL/d).
        In the deep waters of Block 14 ~~as well as~~ the ~~Sanha condensate~~Kuito oil field ~~in Block 0 (Cabinda B).~~
     ~~Eni participates with a 20% interest in~~is producing, while engineering and construction works are underway for the ~~deep offshore Block 15, where~~ development of ~~oil~~the of Benguela/Belize and Lobito/Tomboco fields ~~discovered~~expected to start-up in 2006; peak production is targeted at 40 KBBL/d net to Eni in 2007.
        Development activities of the A and B phases continued in the Kizomba area ~~has started. The fields under development are~~situated in Block 15 aimed at starting production at the Hungo and Chocalho ~~(Kizomba A)~~fields. Production is expected to start in the second half of 2004. Peak production of 39 KBBL/d net to Eni is expected in 2006. In phase B, concerning the development and start-up of production of the Kissanje and Dikanza ~~(Kizomba B); also~~fields, four EPC contracts were awarded for the ~~Xicomba field~~completion of the project. Production start-up is ~~under development.~~
scheduled for 2006. In Block 14 two offshore oil discoveries were made. The Gabela 1 well drilled at a water depth of over 320 meters, penetrating a 25-meter interval of oil-bearing porous rock yielded over 1,000 barrels of oil per day in test production. Geologic and engineering studies are planned in order to define the field’s reserves and the development scenario. The Negage 1 well drilled at a water depth of 1,444 meters encountering a 30 meter thick layer of oily sands at the depth of 2,990 meters yielded over 8,600 barrels/day during test production. The Tombua 3 well was also drilled with its sidetracks, all of which showed presence of hydrocarbons, maximum production was over 10,500 barrels of oil/day.
     ~~In Block 15, a new oil discovery was made. The Reco-Reco 1 well drilled at a depth of 3,798 meters yielded about 3,000 barrels/day in test production. Still~~November 2003 in Block 15 the ~~Mondo 2 and Mavacola 2 wells were drilled. Mondo 2, drilled~~Xikomba oil field was started-up at ~~a water depth of 748 meters allowed to discover a 93 meter thick layer of mineral rich sandstones at a depth of 2,200 meters.~~
     ~~According to management’s plans, the start-up of fields under development will allow to double Eni’s 2002~~an initial production level ~~from Angola’s operations (62,000 barrels/day)~~of 15 KBBL/d net to Eni during the production period. Recently in Block 15 the development of Mondo field has also been approved with start-up expected in 2007.
        In Block 0 (former Cabinda B, Eni’s interest 9.8%) development continued of the North Sanha and Bomboco fields containing oil, condensates and LPG. Gas cycling on North Sanha will be provided by ~~2006.~~the associated gas produced in areas B and C of Block 0, thus reducing gas flaring by 50%. Production is expected to start between the autumn of 2004 and the beginning of 2005, with a peak production of 100 KBBL/d (10,000 net to Eni) in 2007.
        ~~Congo.~~Congo. Eni has been present in Congo since ~~1968 and is Congo’s second largest international oil producer, with oil fields operated by Eni accounting for approximately 35% of Congo’s total oil production in 2002.~~1968. Eni’s principal oil producing interests operated in Congo are located in the deep offshore facing Pointe Noire: the Kitina (Eni’s interest ~~is 37.75%~~35.75%), Foukanda, Mwafi, Zatchi and Djambala (Eni’s interest 65%) each) and Loango (Eni’s interest is 50%) ~~fields located in the deep offshore facing Pointe Noire.~~fields. Other fields are the Pointe Noire Grand Fond ~~fields~~ (Eni’s interest is 35%). In ~~2002, full production was reached at the Foukanda and Mwafi fields, which accounted for 20% of Eni’s production~~Congo Eni owns significant interests in ~~Congo. The new thermoelectric power station at Djeno was inaugurated. The plant has a 25 megawatt capacity and~~two deep water exploration blocks, Mer Très Profonde Nord, where Eni is ~~located near the hydrocarbon treatment terminal. It is fired with associated gas from~~
the offshore fields of Foukanda, Kitina and Djambala. The project, which entails an investment of dollar 32 million (16 million is Eni’s share) was completed in 13 months by Eni and Chevron Texaco. It represents the first example of use and exploitation of associated gas otherwise flared in Congo.
     ~~In Block Marine X, operated by Eni~~operator with a ~~90%~~100% interest, ~~two appraisal wells were drilled, Awa Marine 2~~ and ~~Paloukou~~Mer Très Profonde Sud ~~Marine 5. In the Loango concession, a seismic and reprocessing campaign was performed aimed at better evaluating the field’s potential and its nearby structures.~~
     ~~According to management’s plans, in the next four years production from Eni’s operations is expected to decline slightly from the present level of 75 KBBL/d.~~(Eni’s interest 30%).
        ~~Nigeria.~~Gabon. In March 2003, Eni signed a sale and purchase agreement to divest its assets in Gabon for approximately US dollar 29 million. Divested assets include an interest in the offshore oil field Limande, which produced approximately 2 KBBL/d net to Eni in 2003, and certain exploration permits. This deal is subject to approval from relevant Authorities.
Nigeria. Eni has been present in Nigeria since 1962. ~~The fields operated by Eni accounted for approximately 8% of Nigeria’s oil production in 2002.~~ Eni’s principal producing interests ~~in Nigeria~~ are in four onshore ~~Blocks~~blocks (OML 60, 61, 62 and 63) in the Niger Delta ~~where it acts as operator with a~~(Eni’s interest 20%Operator), in 43 onshore NASE non-operated blocks in the Niger Delta (Eni’s interest 5%), in the deep offshore OML 125 block (Eni’s interest 50.19% Operator), and in ~~the offshore~~ OML 116 ~~Block~~block (former OPL 472 Agbara) and OML 119 block (former OPL 91), where it holds a 100% interest operated through service contracts.
        Three discoveries were made in onshore production areas: (i) in the OML 63 permit (Eni operator with a 20% interest) with the Sengana River 1 Dir well; (ii) in the OML 11 permit (Eni’s interest 5%) with the Bonny North 2 well; and (iii) in the OML 41 permit (Eni’s interest 5%) with the Ovhor 1 Dir DNFW well. The three discovery wells have been prepared for the connection with existing production facilities.
        In ~~December 2001,~~April 2003 oil production started at the ~~Okono~~Abo Central level of the Abo field (Eni operator with a 50.19% interest), located in the OML 125 production concession in the Nigerian offshore at a water depth ranging between 500 and 800 meters. First oil was produced 19 months after the approval of the project. In the fourth quarter of 2003 production reached 25 KBBL/d (12 KBBL net to Eni) while in a later development phase it is targeted at 45 KBBL/d (19,000 net to Eni). Abo is the first oil field that starts production in ~~Block~~Nigerian deep waters.
        Within the development of the Okono and Okpoho oil fields in the offshore OML 119 permit (Eni operator with a 100% interest), in January 2004 the FPSO Mystras was installed on the Okono field. The vessel has a treatment capacity of 80 KBBL/d and ~~in 2003~~a storage capacity of 1 mmBBL and replaced the FPSO Jamestown (with a 22 KBBL/d treatment capacity). Five of the six planned development wells were completed at the Okpoho field, whose production is expected to start in the ~~Okpoho oil field in the same Block. In 2006~~first half of 2004. Peak production offrom the two fields is expected ~~to peak~~in 2004 at ~~16,000 barrels/day~~28 KBBL/d net to Eni. ~~In April 2003, production started at the Abo Central offshore oil field located in Block OPL 316, operated by Eni with a 50.19% interest.~~
        The Bonga oil field located in ~~Block~~block OML 118, where Eni holds a 12.5% interest, is ~~currently being developed; production is expected to start in 2004.~~under development.
        ~~Eni also has a~~In the NASE joint venture (Eni’s interest 5% ~~interest in Nase,~~), the largest oil joint venture in the country relating to ~~hydrocarbon production from~~ 43 onshore ~~blocks.~~blocks, the major development projects underway are Cawthorne Channel and Forcados/Yokri with expected start-up between the first half of 2004 and 2005.
        ~~Eni holds~~In August a ~~10.4% share~~total of 30 development wells in the ~~Nigeria LNG Company, a consortium managing~~EA field (Eni’s interest 12.86%) in the ~~Bonny liquefaction plant for~~north-western area of the ~~treatment and export of LNG. The plant is made up of three treatment trains (the third one~~Niger Delta offshore started ~~operating in November 2002)~~production, with a total ~~capacity~~yield in 2003 of ~~402.5 BCF/year LNG. In 2002, the contracts~~74 boe and a peak of 135 KBBL/d (7,000 net to Eni).
        Development initiatives are ongoing for ~~the fourth and fifth treatment trains were awarded and these will increase the plant’s overall capacity~~guaranteeing natural gas supplies to ~~769.8 BCF/year. Work will be completed between the end of 2005 and early 2006. Eni’s share of gas~~Nigeria LNG Co Bonny’s liquefaction plant (Eni’s interest 10.4%). Gas reserves net to Eni committed to the liquefaction plant ~~amounts~~(five trains) amount to ~~1,553.6~~1,331 BCF.
        In October 2003 a joint venture was established between three international oil companies (Eni’s interest 17%) and the Nigerian national company NNPC for the construction of a new natural gas liquefaction plant near the Brass terminal on the Niger Delta. The agreement provides for the beginning of the basic engineering phase for the construction of two treatment trains with a capacity of about 5 million tonnes/year of LNG each (equivalent to 247.2 BCF of natural gas) before the end of 2004. Gas will be provided by fields operated by Eni and another international oil company. The final decision will be made at the end of 2004 after the completion of preliminary studies.
        The Okpai power station (Eni’s interest 20%) is expected to start-up in the second half of 2004, with a generation capacity of 480 megawatt on two turbogenerators. The power station will be fed with gas from the Kwale fields in Block OML 60.
        In Nigeria deep water Eni is operator in three exploration blocks, OPL 244 (Eni’s interest 90%), OPL 211 and OML 125 (Eni’s interest in both is 50.19%). In addition Eni holds a 12.5% interest in two other deep water blocks, OML 118 deep offshore permit two appraisal wells were successfully drilled in the Bonga SW oil field at a water depth of about 1,300 meters that allowed for the start of the pre-feasibility study for the development of the field. The Bonga SW 2 well yielded 4,200 barrels/day up to a maximum of 11,000 barrels/day in test production. In theand OPL 316 deep offshore permit while continuing the drilling of the ABO 4 development well, new deep levels were discovered. The feasibility study is underway, production from these new deep levels will entail synergies with the ABO field.
     In December 2002 the EA field in the OML 79 permit (Eni’s interest 12.86%) started production at a rate of 40,000 boe/day (5,000 net to Eni). In the OML 63 onshore permit (Eni is operator with a 20% interest) the Obama Deep appraisal well, drilled at a depth of over 5,300 meters, met a level mineralized mainly with liquid hydrocarbons. The well yielded 4,170 barrels/day in test production and was completed and linked to the existing Pirigbene facilities.
     According to management’s plans, the reaching of full production at deep offshore Abo and Bonga fields and the increase in liquefied natural gas volumes treated at Bonny’s plant will lead to an increase in Eni’s production from Nigeria’s operations from the present level of 98,000 boe/day to over 180,000 boe/day by 2006.219.
        ~~Mauritania.~~Mauritania. Eni holds a 35% interest in the area covered by A and B PSAs (Blocks 3, 4 and 5) in the deep offshore of Mauritania at a water depth from 200 to 2,600 meters. ~~Within this area,~~In the first quarter of 2004 Eni ~~completed~~divested its interests in Mauritania for approximately U.S. dollar 83 million, following the ~~appraisal campaign for the Chinguetti discovery (Eni’s interest is 35%) with the drilling of two appraisal wells~~sale and ~~a new hydrocarbon discovery was also made with the Banda 1 exploration well.~~purchase agreement signed in December 2003, effective 13 January 2004.
        North Sea
        Eni’s operations in the North Sea area are conducted in Norway and the United Kingdom. In ~~2002,~~2003, the North Sea accounted for ~~20.8%~~22% of Eni’s total worldwide production of hydrocarbons.
        ~~Norway.~~Norway. Eni has ~~operated~~been operating in Norway since 1964. Eni’s principal producing interests ~~in the North Sea~~ are ~~located in~~ the Ekofisk field (12.39% interest) in the North Sea and the Aasgard (14.9%), Norne (6.9%) and Heidrun (5.12%) fields in the Norwegian Sea in the Aasgard (7.9% interest) and Norne (6.9% interest) fields. In 2002, production of the Ekofisk, Aasgard and Norne fields accounted for 57% and 43% respectively of Eni’s production in Norway (62 and 38% in 2001).Sea.
        In March 2003 Eni ~~concluded the purchase of~~purchased Fortum Petroleum ~~the Norwegian~~AS, a subsidiary of the Finnish company Fortum Oy. The acquisition entailed a total investment of dollar 975 million ~~(of which dollar 256 million were paid for its net equity and~~(including dollar 719 million for its net borrowings assumed).
The assets of Fortum ~~Petroleum’s main assets~~Petroleum (now Eni Norge AS) are located in the Norwegian section of the North ~~Sea. In~~Sea, in particular they consist of interests in the Aasgard (7%), in this field Eni already holds a 7.9% interest), Brage (12.26%) and Heidrun (5.12%) producing fields and also in ~~the~~ Mikkel (7%, in this field ~~(7% in addition to Eni’s preexisting~~Eni already holds a 7.9% ~~interest in the same field)~~interest) presently under development and Goliath ~~field~~ (15% ~~in addition to Eni’s preexisting 25% interest in the same field). The Mikkel field is currently being developed, while the Goliath field, which is~~, operated by Eni ~~has not been developed yet.~~with a 65% interest after the purchase of a further 25% interest from a partner in the development consortium) still to be developed. In addition, Fortum Petroleum holds interests in important gas transmission infrastructures such as Haltenpipe (5%), Heidrun Gas Export (5.12%) and Aasgard Transport (5%) linking the Aasgard and Heidrun fields to the Norwegian coast. The company also holds an interest in Franpipe (1.29%) and the related Dunkerque terminal (0.84%) in France and in Europipe II (3.66%) for natural gas transmission to the German coast.
At the end of 2002 Fortum Petroleum had proved reserves ~~of approximately~~amounting to 159 ~~million boe, half~~mmBOE (half of which ~~were~~consists of natural ~~gas.~~gas). In ~~2002~~2003 its ~~daily~~ production amounted to ~~39,000 boe;~~44 KBOE/d and allowed Eni’s hydrocarbon production in ~~2003, production is targeted~~Norway to increase by over ~~40,000 boe/day.~~40%. This transaction is part of Eni’s ~~growth~~ strategy ~~in the~~of upstream ~~sector~~growth by strengthening its presence in key areas and increasing interests in already held assets in order to generate operational synergies. ~~According to management’s plans,~~
        Within its portfolio rationalization strategy Eni sold its interest in the ~~purchase~~PL 239 permit (Eni operator with a 40% interest) and purchased a 20% interest in the PL 264 permit and a 7.9% interest in the Tyrihans field in the Norwegian section of ~~Fortum Petroleum and start-ups of fields under~~the North Sea, whose development will ~~increase~~start in 2004 with production start-up expected in 2007.
        In March exploration licences were awarded in permits 34/12 and 35/10 (Eni’s interest 60%) and in permit 31/4 East of Brage (Eni’s interest 12.26%).
        In October the Mikkel field (Eni’s interest 14.9%) started production. The development of this field was obtained by drilling 4 production wells and installing 2 submarine templates. In 2003 this field produced 2 KBOE/d net to Eni, its production peak, with 8 KBOE net to Eni, expected in 2004.
        Development is underway at the Kristin gas and oil field (Eni’s interest 9%) located in the Haltenbanken area in the Norwegian Sea where the Norne and Aasgard field are already in production. Production from Kristin is expected in October 2005.
        Eni is operator with interests ranging from 20% to 100% in 4 licences in the ~~present level~~Norwegian section of ~~92,000 boe/day~~the North Sea and holds interests varying from 11% to ~~a peak~~50% in 11 licences. In the Barents Sea Eni is operator of ~~over 140,000 boe/day~~the PL 201 and PL 229 licences (with interests of 67 and 65% respectively). In the latter licence the Goliath field was discovered in ~~2006.~~2001. In the Norwegian Sea Eni is operator of Block PL 256 (Eni’s interest 55%) where in 2003 the Sklinna gas and condensate discovery was made. Other discoveries were made in the PL 264 permit (Eni’s interest 20%) with the Hvitveis well, with reserves still to be defined and in the PL 128 permit (Eni’s interest 11.5%) with the Lerke well containing oil.
        Eni holds interests in various exploration licences in the conventional offshore of Norway and in particular is operator of 7 permits with interests ranging from 30% to 65%, while in the other 32 exploration permits it holds interests ranging from 5% to 30%. In the PL0443 permit (Eni’s interest 9.13%) in the North Sea the Tommeliten Alpha oil and gas field was discovered.
United ~~Kingdom.~~ Kingdom. Eni has been present in the United Kingdom since 1964. The ~~main~~principal producing interests operated by Eni in the United Kingdom are located in the ~~operated~~ B-Block (average interest ~~of 60%~~70%) and in the T-Block ~~(which~~(Eni’s interest 88.74%) which contains the Thelma, Tiffany and Tony ~~fields), where Eni increased its interest from 77.48% to 88.78% following a purchase.~~fields. Other important fields are those located in the Liverpool Bay ~~(Hamilton, Lennox~~(Eni’s interest 53.9%) and ~~Douglas), where Eni increased its interest from 45 to 53.9% after a purchase and the~~ J-Block (33%), ~~Hewett (27.35%~~Elgin/Franklin (21.87%), ~~Ninian (12.94%~~Flotta Catchment (20%), ~~Magnus (5%), Thames (23.3%), McCulloch~~MacCulloch (40%) and Andrew (16.21%). Within the rationalization process of Eni’s asset portfolio following the purchase of British-Borneo and Lasmo, interests were sold in 11 marginal fields, as well as in other minor assets, such as transmission infrastructure, terminals and exploration licenses.
        ~~According to management’s plans, production from United Kingdom operations is expected to decline~~In May 2003 a new hydrocarbon discovery was made in Block 29/5B (Eni’s interest 21.87%) located in the ~~next four years from~~Central Graben area in the ~~present level~~British section of ~~208,000 boe/~~the North Sea, about 240 kilometers east of Aberdeen. The 29/5B-F7 exploration well, drilled in a water depth of 93 meters at a total depth of 6,074 meters, yielded one million cubic meters/day ~~due~~of natural gas in test production (equivalent to about 6 KBOE/d) and 2 KBBL/d of condensates. The well will be linked to the ~~average maturity~~production facilities of the nearby Franklin field located in the same block.
        As part of its portfolio rationalization strategy, in 2003 Eni sold its interests in certain gas fields, among which the interests held in the Cook, Janice, Columba and Ross fields, in the British section of the North Sea and defined the sale of its interest in the Markham and JC3 gas fields located in the southern part of the North Sea with a total production of about 13 KBOE/d net to Eni for approximately pound sterling 135 million
        Eni holds interests in various exploration licences in the deep offshore, in particular, Eni is operator in 7 licences off the coast of Scotland with interests varying from 17 to 100%.
        Eni holds various exploration licences with interests ranging from 5 to 35%. In the Gas Basin, in Block 48/10a (Eni’s interest 11.11%) the gas and condensate Annabella field was discovered. In the North Sea, in Block 211/12a&7a (Eni’s interest 5%) the Ritchie Channel oil field was discovered and was linked to the Magnus field. In the Central Graben area. In Block 30/2C (Eni’s interest 7%) the Jade NE gas field was discovered. In the Viking Graben area in Block 16/28 (Eni operator with a 50% interest) the Farragon field was discovered near the Andrew producing ~~fields.~~field (Eni’s interest 16.2%).
        ~~Ireland.~~ Ireland. Eni holds 3 exploration permits in the Atlantic offshore of Ireland at water depths ranging from 1,000 to 2,000 meters: permits 7/97 and 1/99 operated by Eni with a 100% interest and permit 2/94 (Eni’s interest 40%) where the Dooish well was successfully drilled at a water depth of 1,484 meters. Eni holds 3 exploration permits in the Atlantic offshore of Ireland at water depths ranging from 1,000 to 2,000 meters: permits 7/97 and 1/99 operated by Eni with a 100% interest and permit 2/94 (Eni’s interest 40%) where the 12/2-17(Dooish re-entry) well confirmed the Dooish discovery of 2002.
        Rest of the World
        In ~~2002,~~2003, Eni’s operations in the rest of the world accounted for ~~17.3%~~20% of its total worldwide production of hydrocarbons.
InSaudi Arabiain March 2004 Eni, as operator of a consortium with an international oil company and Saudi Aramco, was awarded an exploration licence (Eni interest being 50%) for exploration, development and production of natural gas in the C area covering approximately 52,000 square kilometers in the Rub al Khali basin at the border with Qatar and the United Arab Emirates. The project provides for geophysical surveys and the drilling of 4 exploration wells. The gas discovered will be sold to the domestic market for power generation, water desalinisation and as a feedstock to petrochemical plants. Condensates and LPG extracted from the gas will be exported to international markets. This project marks Eni’s return to upstream activities in a country where it had operated in the early 1970s.
        InAustralia, Eni acquired two exploration permits WA-326-P, operated by Eni with a 100% interest, and WA-328-P, operated by Eni with a 66.7% interest. Eni will perform seismic surveys for 1,215 kilometers in the first permit and for 3,015 kilometers in the second permit. Eni was also awarded the WA-25-L production licence (where Eni is operator with a 65% interest) where the Woollybutt offshore oil field is located. ~~Production~~In April 2003 production at this field started. This field, located off the north western coast of Australia at a water depth of about 100 meters, was developed via subsea wells linked through flowlines to an FPSO vessel with a storage capacity of 600 KBBL. Production in 2003 peaked at 42 KBBL/d.
        In Block WA-279-P, located in the Bonaparte Gulf, about 100 kilometers off the northern coast of Australia, where the gas field Blacktip was discovered, Eni purchased a 16.5% interest, thus bringing its total interest to 46.15%.
        In the offshore A cooperation zone between Australia and East Timor (ZOCA), 500 kilometers north-west of the northern coast of Australia, the construction, laying and commissioning of platforms and facilities for the Bayu Undan gas and condensate field (Eni’s interest 12.04%) were completed. Production started in ~~April 2003.~~February 2004.
Eni holds interests in 11 exploration licenses in the north-western offshore, and is operator in three of these. Two of the latter are located north of Perth (WA-326-P, Eni’s interest 100% and WA-328-P, Eni’s interest 67%), the third licence (WA-25-L) includes the Woollybutt field (Eni’s interest 65%).
        InAzerbaijan, ~~in January 2002~~ Eni ~~signed with the national company Socar a sale and purchase agreement for the purchase of~~holds a 5% interest in the project for the construction of the Baku-Tblisi-Ceyhan pipeline. ~~At present Eni’s interest concerns only the detailed engineering phase.~~ The project envisages the construction of a 1,740-kilometer long pipeline for the transportation of oil from the Caspian Sea area to the Mediterranean by linking
Baku to the Turkish port of Ceyhan through Georgia. The pipeline transport capacity is projected to be of one million ~~barrels/day.~~BBL/d. Construction work started in September 2002. Total financial requirement for the construction of this infrastructure is estimated to be US dollar 3.6 billion, Eni’s share being US dollar 180 million. According to management’s plans, the pipeline is expected to start operating in 2005. In the Shakh Deniz Block (Eni’s interest 5%), an area of approximately 860 square kilometers, exploration contributed to the definition of the extension of the natural gas and condensates field. The development project for this field was approved and is ~~in the starting phase~~underway after the conclusion of agreements with the national company of Georgia Socar and the Turkish company Botas for the sale of natural gas produced.
        ~~Brazil.~~Brazil. Eni holds interests in 4 exploration licenses (with shares from 20 to 100%) in two of which the second exploration phase has already started.
        ~~China.~~Croatia   Eni has been present in China since 1983; it holds an exploration permit in the Qaidam basin, in the central western part of China where it signed a PSA with the national company CNPC, relating to a 7,000 square kilometer area.
~~Croatia.~~. Eni through a 50/50 joint venture with Ina, the State-owned Croatian company, operates the Ivana natural gas field, located in the Adriatic offshore. The field is operated through a main production platform, called Ivana A, installed in 1999, and three satellite platforms, Ivana B, D and E, installed between 2000 and 2001. ~~In 2002 the~~The development ~~plan~~ of other fields discovered in the area —– Ika, Ida, Annamaria and Marica ~~— was approved. Their development will entail the drilling~~– is underway. Start-up of 18 directional wells, the construction and installation of 9 platforms at a water depth of 60 meters and the laying of underwater sealines for a total length of 120 kilometers. Total capital expenditure in the project is about euro 320 million. In April 2003 contracts for the construction of the first production platform were awarded. According to management’s plans, start-up of these ~~four~~ fields is expected in ~~late 2004 and when fully operational~~the second half of 2004. The development of these fields will allow to increase production net to Eni ~~from the present level of 5,000 boe/day to over 10,000 boe/day~~ by ~~2005. In the same concession a new gas discovery was made with the Katarina 2 well.~~7 KBOE/d by 2007.
        ~~Ecuador.~~Ecuador. The Villano oil field, operated by Eni with a 100% interest, is Eni’s first hydrocarbon producing field in Latin America. ~~In 2002, this~~A revamping plan of field ~~produced 31,000 barrels/day (22,000 net to Eni). This production level~~is underway providing for the drilling of new producing wells. Production is expected to ~~increase~~peak at about 25 KBBL/d net to Eni in ~~the next four years. Construction of the OCP pipeline (Eni interest is 7.51%) is underway. This new pipeline will add to the existent SOTE pipeline increasing transport capacity in Ecuador.~~2006.
        ~~Indonesia.~~Indonesia. Eni is present in Indonesia following the acquisition of Lasmo since 2001. Its producing interests are located in the onshore area in east Kalimantan, regulated by the Sanga Sanga PSA (Eni’s interest is 38%) operated by Virginia Indonesia Company (VICO) in which Eni holds a 50% interest. This area produces mainly natural gas (about 80% of area’s total production). 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. ~~Five wells were drilled~~
        Eni’s exploration activities in Indonesia focus on the deep offshore of East Kalimantan. Eni holds interests in 7 exploration permits (Ganal, Rapak, Popodi, Papalang, Muara Bakau, Ambalat and Bukat), in three of these as operator (Muara Bakau, Ambalat and Bukat) located in the ~~fields~~Kutei and Tarakan oil basins.
        In the Ganal permit about 70 kilometers from the east coast of ~~Ranggas, Gandang and Gendalo, in~~ the ~~Rapak and Ganal area (Eni interest is 20%) in~~Kalimantan island, the ~~offshore east~~Gehem-2 discovery was made, confirming the extension of ~~Kalimantan. Three wells were drilled in the Ranggas oil and gas field, the R4 well flowed at a daily rate of more than 8,000 barrels of oil. The 2A well, drilled in~~ the gas and condensates ~~field of Gandang,~~
~~confirmed~~bearing strata already identified by the ~~extension of~~previous well Gehem-1 and identified a new oil bearing area. Further discovery was made with the ~~field. In~~Ranggas S-1 well. Development plans are being studied for the ~~gas~~Ganal and condensates field of Gendalo, the G3 well, flowed at a daily rate of about 35,3 mmCF/d of gas and about 2,000 barrels/day of condensates. According to management’s industrial plans, Eni’s daily hydrocarbon production in the next four years is expected to remain at the present average level of 38,000 boe.Rapak discoveries.
        InIran~~in 2002~~, Eni has been present since 1957. Its main producing oil fields are Darquain (Eni is operator with a 60% interest), Balal (45%) and Dorood (45%). In 2003 Eni’s oil production amounted to 9 KBBL/d.
        In October 2003 the ~~Dorood~~Darquain oil field ~~(Eni’s interest is 38.25%)~~(Eni operator with a 60% interest) located onshore about 50 kilometers north east of Abadan started production. ~~This is Eni’s first producing asset in this country. Located in~~The second development phase provides for the ~~offshore~~drilling of 19 additional wells and the expansion of the ~~Persian Gulf,~~oil center capacity to 165 KBBL/d as well as the ~~field produced 3,000 barrels/day~~expansion of gas injection capacity. A production peak at 22 KBBL/d net to Eni is expected in ~~2002 and~~2007.
        Balal was started up in January 2003. In August 2003 title to operations was transferred to the national company NIOC as provided for by the buy-back agreement. In 2003 production was 29 KBBL/d (about 5 KBBL/d net to Eni), doubling initial production level.
        In 2003 the development of the Dorood field continued. Production (about 4 KBBL/d in 2003) is expected to peak at ~~14,000 barrels~~approximately 10 KBBL/d net to Eni in ~~2004 due to~~2005.
        In 2000 Eni entered a buy-back contract with the ~~expected start-up of 8 new producing wells in addition to the existing two.~~
     ~~Within~~National Iranian Oil Company (NIOC) for the development of ~~phases~~Phases 4 and 5 of the South Pars gas and condensate field, an eastern extension of the North Field (Qatar), the largest natural gas field in the ~~Persian Gulf (Eni is operator with a 60% interest), a dollar 1.2 billion contract for~~world in the ~~construction of four natural gas treatment plants with an overall capacity of 1,98 BCF/d of natural gas was awarded. Construction~~offshore of the ~~plants is expected to be completed by 2005. Production is expected to start~~Persian Gulf. The project, in ~~2004.~~which Eni is operator with a 60% interest, involves the construction of two offshore platforms in waters of a depth of around 70 meters, the drilling of 24 production wells and the construction of two gas pipelines, each approximately 105-kilometers long, to connect the platforms to the onshore ~~Darquain oil field, located about 50 kilometer north east~~gas center to be built at Assaluyeh. The gas center will have a treatment capacity of ~~Abadan. Drilling~~706.3 BCF/year and ~~infrastructure construction are~~will be able to produce 1.68 BCF/day of natural gas, one million tonnes/year of LPG and 80 KBBL/d of condensates. Construction work is underway for completing the platforms and building the treatment plant, as well as drilling of development wells. Production is expected to start in ~~order to start-up production in late 2003. In January 2003,~~ the ~~Balal field started production with an expected daily production~~second half of 2004 at the initial level of about ~~6,000 barrels in 2003.~~8 KBOE/d net to Eni
        ~~Kazakhstan.~~Kazakhstan. Eni has been present in Kazakhstan since 1992. Eni is ~~co-operator~~operator with British Gas of the Karachaganak project (Eni’s interest 32.5%) in a consortium composed of four international oil companies. The development of the natural gas and condensate field ~~with British Gas~~is organized by stages, in accordance with a ~~32.5% interest.~~Final Production Sharing Agreement. In ~~2002, production~~July, 2003 the second phase was completed, which concerned in particular: (i) the completion of ~~oil~~a condensate treatment plant (Karachaganak Processing Complex - KPC) with a 150 KBBL/d capacity, and a compression station for the injection of part of the sour gas produced (233.1 BCF/year) in the reservoir at pressures of about 500 atmospheres; (ii) the laying of a 635-kilometer long pipeline with a 24 inch diameter linking the Karachaganak field to Atyrau, point of connection with the Caspian Pipeline Consortium pipeline in which Eni holds a 2% participation and transportation rights up to 65 KBBL/d. The start-up of the KPC required the optimization of process parameters for the stabilization and removal of mercaptans from condensates as well as remedial works on auxiliary systems. In the meantime the unit 3 of Karachaganak continued to produce and transport gas and condensates ~~from this field amounted~~ to ~~32,000 barrels/day (net to Eni), production of natural gas amounted to 148 mmCF/d (net to Eni)~~the Orenburg (Russia) plant (about 280 KBOE/d). ~~The second development phase of this field, which is currently underway, is aimed at increasing daily production of liquids to 220,000 barrels/day (64,000 net to Eni)~~Remedial works were performed and the plant was started up. On June 10, 2004 the first oil lifting was completed in ~~2004. The subsequent development phase of~~ the ~~field will concern expansion of natural gas sales.~~Novorossiysk Terminal through the CPC pipeline.
        Eni is ~~single~~ operator of the North Caspian Sea PSA (Eni’s interest 16.67%) in joint venture with six other international oil companies. In May 2003, the partners in the ~~Kazakh offshore, where the Kashagan field is located. A consortium currently comprised of six international oil companies, amongst which Eni, is responsible~~project, except for ~~conducting exploration~~one, exercised their pre-emptive rights and ~~development activities in the contractual area. Eni’s interest in the PSA is going to become 20.372% from an original 14.28% interest. The increase in Eni’s interest will follow the closing of two~~signed a Sale and Purchase ~~Agreements under which~~Agreement in order to purchase pro-rata the ~~consortium partners acquired a proportional share of the interests of BP and Statoil and subsequently~~interest of British Gas that ~~left~~has the intention to exit the project. This agreement is subject to the signature of an amendment to the PSA by the Kazakh authorities. Eni’s share in the project ~~in 2001 and 2003, respectively.~~will increase from 16.67% to 20.372% once the deal is completed.
        The ~~contractual~~ area under contract is made up of 11 blocks covering a total of over 5,500 square kilometers at a water depth of 2 to 10 meters. ~~This project, due~~Due to the ~~mineral~~exploration potential of ~~existing structures~~the North Caspian area and to the operating and technological challenges it poses ~~resulting from the~~(i.e. shallow waters which are ~~frozen~~covered by ice for about six months a ~~year,~~year), this project represents an extremely important industrial feat in the oil industry. Eni intends to apply the most advanced technologies and ~~operational solutions~~methods in order to provide maximum environmental protection to the North Caspian area. ~~Management plans~~In this area, in July 2000 the ~~exploration campaign to last six years and to encompass~~Kashagan field was discovered, which management believes is the ~~drilling of 6 exploration wells and the collection of seismic data. Six wells have been already drilled, the first two, KE-1 and KW-1 about 40 kilometers from one another, discovered a large reservoir~~most important oil discovery in the ~~Kashagan structure, approximately 75 kilometers~~
~~south-east of Atyrau. The appraisal wells KE-2, KE-3, KE-4 and KE-5 confirmed~~world in the ~~importance of the discovery. Three wells are currently being drilled, Kashagan South West 1 and Aktote 1 (exploration wells) and K-6 (appraisal well).~~past thirty years. On June 30, 2002 the Eni-led consortium and the Kazakh authorities declared the ~~commercial discovery~~commerciality of ~~this~~the Kashagan field. At the end of 2002 the consortium ~~filed the Kashagan~~presented a development plan for the field. On February 25, 2004 the development plan for Kashagan was approved, concurrently with a Supplemental Agreement to the PSA. The development plan consists of multiple phases and envisages a production start up in 2008, at a level of 75 KBBL/d, to be increased to a 450 KBBL/d at the end of the first phase. Target production is expected at 1.2 mmBBL/d. Total planned capital expenditure for the development of the field is estimated at US dollar 29 billion, Eni’s share being in the range of US dollar 5 billion. This capital expenditure does not include estimated expenditure for the construction of transportation infrastructure to export the production volumes to international markets. Currently the consortium is studying several options, including the one which envisages the construction of the relevant infrastructure to link the planned Kashagan processing plant with the ~~Kazakh authorities. The front-end engineering for the first development phase is currently underway.~~Baku-Tiblisi-Cehyan pipeline.
        In ~~a block near~~March 2003, the testing phase of the third and the fourth appraisal wells (KE-4 and KE-5) was completed. In April, drilling of the fifth appraisal well (KE-6) commenced. At the end of 2003, after the completion of the drilling phase, the first production test was performed. Two commitment exploration wells (Kashagan South West-1 and Aktote-1), spudded in April and May 2003, were successfully drilled. The Kashagan ~~field within~~South West-1 well, drilled at the ~~same contractual area and under the same PSA, a new oil discovery was made in the Kalamkas structure. The Kalamkas-1 exploration well was drilled to a~~total depth of ~~2,360~~5,875 meters, discovered hydrocarbons and yielded over ~~2,300 barrels/day~~2 KBBL/d in test production. ~~Drilling~~The Aktote-1 well, drilled at a total depth of 4,267 meters, found hydrocarbons and yielded about 1.5 KBBL/d in test production. At the beginning of the winter work on the sixth and last commitment well Kairan-1, commenced in July, was ~~performed~~suspended and is due to be resumed in ~~very shallow and extremely environmentally sensitive waters.~~the spring of 2004.
        In May 2003, the Kazakh authorities approved the appraisal plan of the Kalamkas structure, where in 2002 oil was discovered with the Kalamkas-1 exploration well. 3D seismic surveys were completed at the end of October 2003.
United ~~States.~~States. Eni has been present in the United States since 1966 and holds ~~several~~various mineral ~~rights~~interests in the Gulf of Mexico. Eni’s main producing fields (Eni’s interest 100%) are located ~~offshore~~ in the Grand Isle 102, Green Canyon 254-297 (where the Allegheny field is ~~located, Eni’s interest is 100%)~~located) and Ewing Bank 921/964-5 (where the Morpeth field is ~~located, Eni’s interest is 100%)~~located) concessions; other fields in which Eni holds interests are located in the Garden Banks 602/646 ~~(where the Macaroni field is located, Eni’s~~(Eni’s interest is 34%), Mississippi Canyon 890-1/934-5 ~~(where the Europa field is located, Eni’s~~(Eni’s interest is 32%) and Mississippi Canyon 194-5/150-1 ~~(where the Cognac field is located, Eni’s~~(Eni’s interest is 16.5%) concessions.
        In November 2003 production started at the oil and gas Medusa field (Eni’s interest 25%) at an initial level of 2 KBOE/d. Production is expected to peak at 9 KBOE/d in 2004.
        Eni is operator in the development of the K2 oil field in the Green Canyon 562-3 concession (Eni’s interest 18.17%), in the offshore of the Gulf of Mexico; the first and second appraisal wells (K2-2 and K2-3) of field K2 were drilled in January and May showed an extension and depth larger than expected. Production is expected to start-up in early 2005 with production peaking at 5 KBOE/d in 2007
Eni holds ~~a 25% interest~~various exploration licences, in particular as operator with interests varying from 30% to 100% in 4 exploration licences in the East Breaks concession, 5 in the Garden Banks concession, 20 in the Green Canyon concession and 18 in the Mississippi Canyon ~~538-9/582-3 concession where~~concession. A wide exploration campaign is ongoing. In 2003 a new oil discovery was made with the ~~Medusa oil~~St. Malo well in Block WR 678 (Eni’s interest 1.25%).
Venezuela. Eni has been present in Venezuela since 1998 and ~~gas field~~ is ~~under development. Start-up is expected in 2003~~operator with ~~production peaking at 9,000 boe/day net to Eni by 2004.~~
     ~~Eni holds~~ a ~~50%~~100% interest ~~in the Atwater Valley 63-4 concession where the appraisal phase~~ of the ~~Champlain oil field is ongoing and development is being studied.~~
     In the Green Canyon 472-3/516 Block (Eni’s interest is 50%), production started at the King Kong/Yosemite natural gas fields only thirteen months after the decision to develop these fields and eight months after the discovery of Yosemite, reaching a peak of 145 mmCF/d (69.6 mmCF/d net to Eni). The development of these two fields, operated by Eni, was obtained by drilling at a water depth of 1,170 meters three subsea wells tied back to the Allegheny platform (Eni’s interest 100%) located at a 25-kilometer distance. Expenditure net to Eni amounts to approximately dollar 90 million. In Green Canyon Block 562-3, the delimitation well K2 (operated by Eni with an 18.17% interest) was successfully drilled. Production is expected to start in 2004.
     ~~According to management’s plans, the development of recently discovered fields will increase hydrocarbon production from the present level of 58 KBOE/d to a peak of over 70 KBOE/d in 2005.~~
~~Venezuela.~~~~Eni is the operator with 100% of the Dacion~~Dación oil field regulated by a service contract with a 20 year term. In ~~2002~~2003 production from this field amounted to 4254 KBBL/d net to Eni. In addition Eni holds a 26% interest in the Corocoro oil field located in the West Paria Gulf at the mouth of the Orinoco river. The field’s
development project ~~started~~approved in April ~~2002~~2003 will proceed by phases and ~~will progress through different phases. This field is expected~~expects to reach a daily production of 1415 KBBL/d net to Eni in the first phase.
        Eni holds interests in two exploration licences: Gulf of Paria East (GOPE, Eni’s interest 30%) and Gulf of Paria West (GOPW, Eni’s interest 40%) both in conventional waters. In the first one the Delfin well was drilled and found heavy oil. In the second one the Tiburon well is being drilled.
        ~~Pakistan.~~Pakistan. Eni has been present in Pakistan since 2000. Eni’s main natural gas producing ~~field is Kadanwari (Eni’s interest is 18.42%) and Miano (Eni’s interest is 15.16%), the latter started production in 2002 at a level of 17.4 mmCF/d net to Eni. In January 2003 the~~fields are Bhit ~~field~~ (operated by Eni with a 40% interest) was started up. According to management’s plans, in 2003 it will reach a production level of 272.6 mmCF/d (110.2 mmCF/d net to Eni) to be sold in Pakistan. Other natural gas fields are under development:, Kadanwari (Eni��s interest 18.42%), Zamzama ~~(Eni’s interest is 17.75%~~(17.75%), Sawan (23.68%) and ~~Sawan (Eni’s interest is 23.7%~~Miano (15.16%). ~~Government authorized the development of the Zamzana natural gas field The development project is well underway and startup is expected in the fourth quarter of 2003.~~
        In ~~August 2002,~~Kirthar Foldbelt Eni ~~signed a production contract agreement with a five-year term relating to the Khirtart Foldbelt area, within~~is operator in the Manchar ~~exploration license (Eni is~~and Gorakh permits (the latter obtained in April 2003). In 2003 the ~~operator with a 55% interest). The Khirtart Foldbelt area covers an area of 2,435 square kilometers.~~
ZZ-North-1 and ZZ-East-1 wells in the Zamzama block containing natural gas were linked to existing production facilities. In the Middle Indus Basin Eni ~~obtained a 33.33% interest~~is present in the SWMubarak (Eni’s interest 38%), Gambat (31.58%), South West Miano ~~(II) concession for a three-year term. Such concession covers an~~2 (33.3%) and Latif (33.3%) blocks obtained in October 2003. In 2003 in this area ~~of 1,238 square kilometers.~~two gas discoveries were made: Kadanwari-14 in the Kadanwari production block and Rehmat-2 in the Mubarak block (Eni’s interest 38%)
        ~~According~~In January 2004, the Bhit gas field started production. The field is located 180-kilometers north of Karachi. In 2003 it produced 104.4mmCF/day net to ~~management’s plan,~~Eni.
        In the Sawan block (Eni’s interest 23.68%) in June 2003 production of the natural gas treatment plant started earlier than planned in the first development phase. In September also Phase 2 was completed which included the drilling of 3 wells. Full production is expected for 2005 at about 75.4 mmCF/day net to ~~increase in the next four years from the present level of 40.6 mmCF/d to over 232 mmCF/d in 2004.~~Eni.
        InRussia, Eni is the operator with a 50% interest of the Severo Astrakhansky license, covering an area of 1,800 square kilometers situated at the mouth of the Volga river, on the edges of the great pre-Caspian sedimentary basin. The area is crossed by the Caspian Pipeline Consortium oil pipeline, which started operations in 2002. Eni ~~intends~~is evaluating the results of the well Severo Astrakhan 1.
Storage
Natural gas storage activities are performed by Stoccaggi Gas Italia SpA (Stogit) to ~~continue exploration~~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 provided for the separation of storage from other activities in the ~~area.~~field of natural gas.
~~Natural Gas~~Storage services are provided by Stogit to its customers through eight storage fields located in Italy, based on ten storage concessions3 vested by the Ministry of Productive Activities.
     ~~Snam SpA was merged into Eni SpA effective as~~With 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 first regulated period, starting on April 1, 2002 until March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stogit filed its proposal of tariffs for modulation, upstream and strategic storage for the first regulated period. With decision No. 49 of March 26, 2002 the Authority repealed Stogit’s proposal and defined tariffs for the first regulated period. Stogit filed an appeal against both Authority decisions with the Regional Administrative Court of Lombardia requesting their cancellation. The Regional Administrative Court of Lombardia repealed Stogit’s appeal with decision of September 29, 2003. Stogit appealed to ~~become Eni’s~~ the Council of State against this decision on February 3, 2004. Pending the proceeding, Stogit is currently applying the tariffs set by the Authority.
Stogit continued the reorganization of its activities, optimizing processes and resources in order to increase efficiency of services rendered in accordance with regulations imposed on it and to expand the range of services rendered. From the beginning of its operations Stogit markedly increased the number of customers served and the share of revenues from third parties: from a nearly negligible amount, these accounted for 35% of total revenues in 2003.
Storage
2001 2002 2003

Available capacity
Modulation and mineral (billion cubic meters) 6.3 7.1 7.1
Share utilized by Eni (%) 89 66 53
Strategic (billion cubic meters) 5.1 5.1 5.1

Modulation and upstream storage customers (no.) 4 14 24
__________________________
³Two of these are not yet operational.

Table of Contents
Gas & Power ~~division.~~
        Eni ~~now conducts its~~is engaged in the business of natural gas supply, transport, distribution and ~~electricity generation activities through its Gas & Power division and its subsidiaries. In 2002, Eni’s primary distribution natural gas sales totaled 52.56 billion cubic meters~~sale in Italy and ~~8.2 billion cubic meters~~ in Europe. Primary distribution sales include sales to wholesalers, mainly local distribution companies, and large industrial and thermoelectric users which are supplied by a high and medium pressure gas pipeline network. Eni’s high and medium pressure gas pipeline network for primary distribution is about 30,000-kilometres long in Italy, while outside Italy Eni holds transport rights on over 3,700 kilometersthe rest of high pressure pipelines. Effective on July 1, 2001 Eni’s natural gas transport network in Italy was contributed to Snam Rete Gas SpA. In December 2001 shares representing 40.24% of the company’s capital were sold through a public offering with proceeds of euro 2.2 billion. Snam Rete Gas transports natural gas on behalf of Eni and third parties («shippers»); in 2002 transported volumes were 73.7 billion cubic meters,
~~of which 19 billion on behalf of third parties.~~Europe. Eni is also ~~active~~engaged in ~~retail distribution (“secondary distribution”)~~the business of natural gas, which includes almost exclusively sales made by local distribution companies to commercial and residential users through a low pressure gas pipeline network. Eni operates in secondary distribution in Italy through Italgas — the largest local natural gas distribution company in Italy —electricity generation which is ~~a wholly-owned subsidiary of Eni following the public tender offer successfully closed~~conducted in January 2003. Eni also operates in secondary distribution outside Italy: in Hungary through Tigaz, in Argentina through Distribuidora de Gas Cuyana and in Slovenia through Adriaplin. In 2002, Eni’s secondary distribution sales were 7.84 billion cubic meters in Italy and 3.79 billion cubic meters outside Italy. ~~Eni’s secondary distribution network in Italy is over 46,000-kilometres long and over 30,000-kilometres long outside Italy.~~
     Eni conducts its electricity generation activities through Enipower SpA which owns and manages Eni’s power stations of Livorno, Taranto, Mantova, Ravenna and Brindisi with a total installed capacity of 1,000 megawatts and annual production sold of about 5,000 gigawatthour. Eni owns other minor power stations located in Eni’s petrochemical plants and refineries whose production is mainly for internal consumption. The accounts of these power stations are reported within Eni’s Refining and Marketing and Petrochemicals segment.
     ~~In 2002, Eni’s Gas & Power segment had net sales from operations (including intersegment sales) of euro 15,297 million and operating income of euro 3,244 million.~~
~~Strategy~~
        Eni is pursuing the development of international sales in order to compensate the lower growth ~~opportunities~~of sales in the domestic market, ~~which are~~ due to the limits imposed toon operators by the applicable regulations. In Italy, Eni intends to maintain sales volumes within the regulatory limits ~~permitted by the applicable regulation~~ through the optimal allocation of supplies between direct sales in Italy and ~~sales to operators~~ in the ~~natural gas sector as well as~~rest of Europe and by using natural gas at its own electricity generation plants and, at the same time, leveraging on the expected demand growth, in particular for electricity generation. ~~Eni’s~~Management is committed to develop an effective commercial ~~policy will aim at customer satisfaction~~ by means of ~~an efficient management of~~market segmentation, the ~~customer portfolio, high flexibility in offers to customers and enhancement and~~ integration of ~~services provided.~~natural gas and electricity commercial offer and the customization of services.
        ~~Outside Italy management~~Management plans to develop Eni’s presence in certain European gas markets, in particular in countries ~~with~~which management believes to have interesting growth and profitability prospects (Iberian Peninsula, Turkey, Germany) where Eni can make optimal use of its diversified portfolio of supply contracts and its extensive gas pipeline network which allows the supply of natural gas from several sources. ~~In 2002~~ Eni completed its entry into those markets by means of acquisitions and construction of ~~infrastructure;~~infrastructure and in 2003 ~~Eni~~it started the operational and commercial phase of this plant. Eni also intends to ~~search for market opportunities in order to sell the natural gas it produces in certain European areas and to~~ expand its presence in LNG ~~activities. Based on signed contracts and finalized transactions, Eni expects~~activities in order to increase ~~significantly sales~~the value of its proved natural gas ~~outside Italy by 2006.~~reserves in West and North Africa and in the Far East. Eni ~~will also~~plans to intensify its cost reduction actions especially in transport activities and in secondary distribution activities in Italy.
        The matters regarding future natural gas demand and sales ~~target~~targets 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 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 Italy
        ~~With consumption amounting~~In 2003 demand for natural gas in Italy amounted to about 7077 billion cubic meters ~~in 2002 (decreasing slightly~~(increasing by 9.4% over ~~2001), Italy is the third European market for natural gas after Great Britain and Germany.~~
     ~~In 2002, about~~2002). About 20% of natural gas requirements were met through domestic production (including natural gas volumes withdrawn from storage), while imports covered 80% ~~of demand.~~
     In the next decade world consumption of natural gas is expected to increase, due to the continuous improvement in technologies applicable to all phases of natural gas production, the higher environmental compatibility of natural gas as compared to other hydrocarbons, expected demographic, economic and social developments and the steady increase in natural gas reserves. According to management’s own estimatees, Europe represents one of the areas with the highest development rate and the average increase is expected to be 2% per year..
        According to ~~management’s~~Eni’s own ~~estimatees~~forecasts natural gas demand in Italy ~~is expected to increase at higher rates than the European average and than the overall demand for energy in Italy. According to management’s own estimatees consumption~~ is expected to reach about 90 billion cubic meters in 2010, corresponding to an annual average increase of ~~over 3%~~about 2.5%. The share of natural gas on total domestic energy requirements is expected to reach nearly ~~40% in 2010.~~37% as compared to the present 33%.
        Management believes that most of this increase will concern natural gas used in electricity generation, because of the significant advantages of the use of natural gas in combined cycle ~~generation~~ plants, thanks to its lower investment cost, higher yields and reduced polluting emissions as compared to other fuels. Demand is expected to increase also from residential and commercial users, due to the further expansion of the natural gas distribution network in ~~southern~~Southern Italy and the increased use of natural gas ~~for~~in residential space heating in households and ~~services.~~services, in large tertiary firms and as vehicle fuel. Many of the factors that may influence future trends in natural gas demand in coming years are, however, outside of management’s control; among these there are trends in the price of natural gas compared to other fuels, the development of the electricity sector, the economic growth, climate fluctuations, environmental laws and the continuing availability of natural gas imported from foreign countries. If the growth of the Italian natural gas market were to be lower than management’s expectations, Eni’s results of operations may not benefit from expected increase in volumes.
Natural Gas Purchases
        About 80% of the natural gas requirements of Eni’s Natural Gas segment are met by imports (mainly from Algeria, Russia, the Netherlands and ~~the Netherlands)~~Norway) under long-term supply contracts, and the balance by purchases of gas produced in Italy by Eni’s Exploration & Production ~~division.~~segment. In ~~2002,~~2003, Eni’s Gas & Power ~~division supplied 62.33~~segment purchased 66.42 billion cubic meters of natural gas in ~~line~~primary distribution, with ~~2001.~~a 2.39 billion cubic meters increase over 2002, up 3.7%. Volumes of natural gas from domestic production (12.12 billion cubic meters) accounted for ~~20%~~18% of total supplies ~~(23.3%~~(20.2% in ~~2001)~~2002) with a decrease of approximately 20.55 billion cubic meters over ~~2001.~~2002, down 4.3%.
        Natural gas volumes supplied outside Italy (54.30 billion cubic meters) represented ~~79.7%~~82% of total supplies ~~(76.6%~~(80% in ~~2001)~~2002) with an increase of ~~1.87~~2.94 billion cubic meters, ~~over 2001,~~ up ~~3.9%~~5.7%, concerning essentially purchases destined to trading (1.17 billion cubic meters), in particular ~~due to higher~~of gas produced by Eni in the United Kingdom, purchases from Norway ~~(3.73~~(0.61 billion cubic meters), from Russia (0.3 billion cubic meters, following the reaching of full operation of the supply contract signed in 1996) and ~~the Netherlands (0.55~~Croatia (0.34 billion cubic meters). ~~This~~The increase in LNG purchased from “Others” is ~~due~~related to ~~purchase contracts signed in 1997~~the supply contract with Norwegian and Dutch suppliers (targeting approximately 6 and 4 billion cubic meters/year, respectively) becoming operational in October 2001. Contracts with Norwegian suppliers became fully operational in 2002, while those with Dutch suppliers will reach full operation in 2003. These increases were offset in part by a decrease in supplies from Algeria (2.04 billion cubic meters) and Russia (0.89 billion cubic meters).Iberdrola.
        ~~Eni is a party to import contracts with an average residual duration of about 17 years which generally include take or pay provisions and will provide~~In 2003 a total of ~~approximately 66~~0.84 billion cubic meters of natural gas ~~per year (28.5 from Russia, 21.5 from Algeria, 10~~were withdrawn from the ~~Netherlands, 6 from Norway) from 2008. Overall natural gas volumes under existing contracts amount to approximately 1,118~~storage sites of Stoccaggi Gas Italian SpA (in 2002 a total of 1.43 billion cubic ~~meters.~~meters was input to storage).
        The table below sets forth Eni’s purchases of natural gas by source for the periods indicated.

Year ended December 31,

1998 1999 2000 2001 2002

(billions of cubic meters)
Italy 17.72 16.16 13.64 14.62 12.67
Algeria 16.83 20.40 21.56 18.39 16.35
Algeria (LNG) 1.99 2.06 2.01 1.79 1.92
Russia 16.69 19.09 21.03 19.51 18.62
The Netherlands 3.02 2.87 6.09 7.00 7.55
Norway 1.10 4.83
Qatar (LNG) 0.24
Other 0.15
Primary distribution 56.25 60.58 64.33 62.41 62.33
Year ended December 31,
1999 2000 2001 2002 2003
(billions of cubic meters)
Italy 16.16 13.64 14.62 12.67 12.12
Algeria 20.40 21.56 18.39 16.35 16.53
Algeria (LNG) 2.06 2.01 1.79 1.92 1.98
Russia 19.09 21.03 19.51 18.62 18.92
The Netherlands 2.87 6.09 7.00 7.55 7.41
Norway 1.10 4.83 5.44
Croatia 0.31 0.65
Purchases for trading and other 1.48 2.65
Other (LNG) 0.30 0.72
    Primary distribution (1) 60.58 64.33 62.41 64.03 66.42
Withdrawals (inputs) from (to) storage 60.58 (2.43) 0.13 (1.43) 0.84
Internal consumption (0.34) (0.65) (0.58) (0.14) (0.24)
    Available volumes for primary distribution 60.24 61.25 61.96 62.46 67.02
    Available volumes for secondary distribution
        outside Italy 2.67 3.48 3.91 3.79 4.44
62.91 64.73 65.87 66.25 71.46
(1)
From 2003 the Gas & Power segment manages trading activities of purchased natural gas, mainly in the North Sea, which were formerly performed by the Exploration & Production segment. In order to allow a homogeneous comparison natural gas volumes purchased and sold in 2002 were increased by 1.70 billion cubic meters.
        In order to cover medium and long term demand for natural gas, in particular on the Italian market, Eni is a party in multiannual import contracts with the main operators of producing countries with an average residual duration of about 17 years. Existing contracts, which contain take-or-pay clauses, will provide a total of approximately 67.3 billion cubic meters of natural gas per year (28.5 from Russia, 21.5 from Algeria, 9.8 from the Netherlands, 6 from Norway and 1.5 from Nigeria) from 2008. Minimum contract volumes (take-or-pay) represent an average of 85% of volumes contracted.
        In 2003 due to a growth of the natural gas market in Italy lower than planned and to an increase of the volumes of natural gas imported into Italy by third parties, Eni’s offtake was lower than the minimum contracted volumes. Eni has paid its suppliers a cash outlay of euro 6 million providing to Eni the right, exercisable within 10 years, to withdraw about 540 million cubic meters of gas after payment of the residual portion of price and after having met the minimum offtake requirements applicable in each year. Management expects to recover the sum paid with volumes withdrawn already in 2004, provided that the natural gas market grows according to management’s expectations. See also “Item 3 – Risk Factors” for a description of the impact of the liberalization of the Italian natural gas market on Eni’s take-or-pay contracts for the purchase of natural gas.

Withdrawals (inputs) from (to) storage 56.25 60.58 (2.43 ) 0.13 (1.43 )
Internal consumption (0.56 ) (0.34 ) (0.65 ) (0.58 ) (0.14 )
Available volumes for primary distribution 55.69 60.24 61.25 61.96 60.76
        In 2003 Eni and Gazexport (Gazprom) signed an agreement which provided for Eni 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. This agreement was filed for approval to the European Commission, which concluded its examination of the contract, started when Eni and Gazexport (Gazprom) agreed on the destination clause. The Commission 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.
Natural Gas Sales in Italy and Europe
        a) Primary Distribution
        Natural gas sales ~~relating to~~in primary distribution ~~totaled 60.76~~(65.12 billion cubic meters) increased by 4.68 billion cubic meters inover 2002, with a decrease of 1.20 billion cubic meters, down 1.9%, over 2001, due to lower sales in Italy (6.33 billion cubic meters, down 10.7%), offset in part by higher sales in Europe (5.13 billion cubic meters, up ~~167.1%)~~7.7%.
     In a increasingly competitive market, the decrease in natural gas sales in Italy was essentially due to a decline in sales to wholesalers (5.69 billion cubic meters, down 18.5% as compared to 2001) following the progressive alignment to ceilings set by Legislative Decree No. 164/2000, the concentration process ongoing in this segment and the mild weather of November and December 2002. Also sales to industrial customers declined (0.92 billion cubic meters, down 6.0% as compared to 2001) due to the weak economic situation and the interruption of interruptible supplies due to cold weather in early 2002. These declines were offset in part by increased sales to thermoelectric customers (0.28 billion cubic meters, up 2.2%) due to new supplies to power stations, whose effects were offset in part by lower sales following interruptions of supplies to customers with interruptible contracts.
     The increase in sales in Europe was due to the progressive coming on line of long-term supply contracts with operators of the natural gas market (Plurigas, Edison, Dalmine and Cir Energia) and the start of LNG supplies to the Spanish electric company Iberdrola (0.37 billion cubic meters) through a 15-year supplying contract of 1.2 billion cubic meters/year of LNG.
        The table below sets forth Eni’s sales of natural gas by principal market for the periods indicated.

1998 1999 2000 2001 2002

(billion cubic meters)
Wholesalers 29.49 30.85 30.26 30.83 25.14
End users 26.15 29.34 29.66 28.06 27.42
— industrial users 15.66 16.33 16.79 15.25 14.33
— thermoelectric users 10.47 13.01 12.87 12.81 13.09
Italy
55.64 60.19 59.92 58.89 52.56
Europe
0.05 0.05 1.33 3.07 8.20
Year Ended December 31,

1999 2000 2001 2002 2003

(billions of cubic meters)

Wholesalers 30.85 30.26 30.83 25.14 24.07
Industrial users 16.33 16.79 15.25 12.92 11.83
Thermoelectric users 13.01 12.87 12.81 12.48 15.03
Italy 60.19 59.92 58.89 50.54 50.93
Rest of Europe 0.05 1.33 3.07 9.90 14.15

Sales in primary distribution 60.24 61.25 61.96 60.44 65.12

Sales in secondary distribution outside Italy 2.67 3.48 3.91 3.79 4.44

62.91 64.73 65.87 64.23 69.56
    Volumes consumed by Eni 2.02 1.90
    Total 62.91 64.73 65.87 66.25 71.46

        Natural gas sales in Italy (50.93 billion cubic meters) increased by 0.39 billion cubic meters, up 0.8%, due to higher sales to the thermoelectric segment (up 2.55 billion cubic meters) and a colder weather whose effects were offset in part by lower sales to industries (down 1.09 billion cubic meters) and wholesalers (down 1.07 billion cubic meters) due to competitive pressures.


1998 1999 2000 2001 2002

(billion cubic meters)
Sales in primary distribution 55.69 60.24 61.25 61.96 60.76
Sales in secondary distribution outside Italy 2.73 2.67 3.48 3.91 3.79
58.42 62.91 64.73 65.87 64.55
Sales in the rest of Europe (14.15 billion cubic meters) increased by 4.25 billion cubic meters, up 42.9% due mainly to: (i) the progressive coming on line of long-term supply contracts with operators of the natural gas market (1.54 billion cubic meters); (ii) the start-up of marketing activities in Northern Europe (1.22 billion cubic meters); (iii) the start of LNG supplies to the Spanish electric company Iberdrola (0.70 billion cubic meters) in the second half of 2002 and of supplies to the Turkish market via the Blue Stream gasline in February 2003 (0.63 billion cubic meters).
        The Italian natural gas market is made up of three main segments: residential and commercial, industrial and thermoelectric. Customers can be divided into two groups: final users directly consuming natural gas and wholesalers (mainly local distribution companies) purchasing natural gas to sell it to ~~other customers.~~final customers (mainly small industries and residential and commercial users). According to the types of distribution, natural gas sales are divided into: (i) large distribution (primary distribution) which includes sales to wholesalers ~~mainly local distribution companies,~~ and large ~~customers, mainly industrial~~customers; and ~~thermoelectric customers;~~ (ii) local distribution (secondary distribution) represented almost exclusively by sales made by local distribution companies to commercial and residential ~~customers.~~customers, the tertiary sector and small industries located in urban areas, receiving natural gas from low pressure networks. From January 1, 2003 with the complete opening of the natural gas market, ~~pursuant to~~as per Legislative Decree No. 164/2000, all customers are allowed to purchase natural gas at any source and to enter ~~into~~ contracts with ~~transport~~transmission companies ~~operating in~~on the national network and with distribution companies ~~operating in~~on local networks for the ~~transport~~transmission to the delivery points.
        In ~~2002~~2003 wholesalers, including local distribution companies and automotive natural gas sellers, sold ~~approximately 31.8~~over 34 billion cubic meters to final users ~~(45%~~(44% of total natural gas consumption), with ~~a 3% decline~~an 8% increase over 2001. The market of local distribution companies includes residential and commercial users, large distribution and small enterprises located in urban areas, whose supplies are provided through low pressure urban pipeline networks.2002. In Italy about 700 local distribution companies operate in over 5,700 municipalities with more than 16 million customers. These municipalities account for approximately 89% of total population in Italy. In 2002,2003, Eni’s natural gas sales to ~~local distribution companies and through these to residential and commercial users~~wholesalers amounted to ~~25.1~~24.1 billion cubic meters.
     ~~In 2002 natural gas consumption by final users of primary distribution totaled 38.6 billion cubic meters (55% of total natural gas consumption), a 1.3% increase over 2001.~~        Natural gas consumption in the industrial segment ~~of primary distribution~~(linked to the national and regional networks) amounted to over 16 billion cubic meters (22% of total consumption), with a ~~1.2% decrease~~1% increase over ~~2001.~~2002. In ~~2002,~~2003, Eni’s sales of natural gas to industrial users amounted to ~~14.3~~about 13 billion cubic ~~meters.~~meters (including volumes consumed in operations).
        Natural gas consumption in the thermoelectric segment ~~of primary distribution~~ amounted to ~~22.6~~over 26 billion cubic meters ~~(32%~~(34% of total consumption), with a ~~3.4%~~17% increase over ~~2001.~~2002. This segment includes electricity producers and distributors (Enel ~~SpA~~ and some municipal utilities) and industrial producers of electricity. In ~~2002,~~2003, Eni’s sales of natural gas to thermoelectric users amounted to ~~13.1~~15.7 billion cubic ~~meters.~~
meters (including volumes consumed in operations).
        Eni reorganized its activities by creating six new branches in Italy in order to react promptly and efficiently to market requirements, while paying increasing attention to customers’ needs and applying the home working model to all its sales personnel. The new marketing strategy is aimed at customer satisfaction, through the setting of a new commercial offer tailored to customers ~~needs always in line with the rules and regulations introduced by Legislative Decree No. 164/2000.~~needs. In particular the customized commercial offer includes a range of elements: from the standard to the modular profile which supplies an optimal mix of options, such as, for example, various price formulas and types of indexes aimed at controlling price volatility, availability of services and technical assistance. At present Eni provides its industrial customers with a wide range of high value added technical services on the use of natural gas in particular in co-generation and climatization. The main services provided in co-generation include: (i) studies on co-generation and technical testing of the solutions suggested in case of construction or upgrade of a co-generation plant; (ii) combustion analysis and energy control of existing plants for evaluating their proper use and efficiency; (iii) tests of compliance with safety regulations, environmental impact. A toll-free telephone line is available and in the Gas & Power section of Eni’s web site an area is dedicated to natural gas along with a mail box. Eni also started projects aimed at providing new services and is offering them in innovative ways in particular as concerns direct relations to customers.
        Eni’s new commercial efforts were coupled with intense personnel training activity aimed at developing the new skills required by the market, at reinforcing direct relations with customers and supporting commercial units.
        b) Secondary Distribution
        Eni, through its 100% subsidiary Italgas, is the Italian leader in the retail sale of natural gas to residential and commercial users ~~as well as small enterprises.~~with 5.8 million customers in 2003 (about a third of the market). In ~~2002,~~2003, Eni’s retail sales ~~of natural gas in secondary distribution~~ in Italy ~~(7.84 billion cubic meters) decreased by 0.28~~amounted to 8.4 billion cubic meters ~~down 3.5% as compared to 2001, due mainly to mild weather, whose effects were offset in part by~~(approximately 25% of the ~~approximately 119,000 units increase in the number of customers served (5.68 million as of December 31, 2002)~~retail market). ~~Through Italgas~~ Eni owns a low pressure urban network in Italy consisting of ~~over 46,000~~46,780 kilometers of pipelines at December 31, ~~2002,~~2003, and serving ~~1,197~~1,228 municipalities, ~~(1,186 at December 31, 2001), among which~~including Rome, Naples, ~~Turin,~~Venice, Florence and ~~Venice with 5.68 million clients.~~Turin (the latter through an affiliate).
        ~~Within its strategy of rationalization~~Sales activities and ~~development of its natural gas segment also at international level and~~customer management are performed by Italgas Più SpA, established in ~~line with plans previously announced, Eni’s Board of Directors in its meeting of November 25,~~ 2002 ~~decided to launch a public tender offer on all~~by Italgas SpA ~~ordinary shares outstanding not owned directly or indirectly by Eni, corresponding to approximately 56%~~in implementation of Italgas’ capital. Eni offered a unit price of euro 13 per share, to be fully paid in cash and including a 25.7% premium over the weighted average of the last month is price for Italgas publicly traded shares and a 19.1% premium on the official price of the business day preceding the day of the announcement of the offer.
     The offer closed on January 27, 2003 with the purchase of 189,340,323 shares corresponding to 97.189% of the shares subject to the offer (194,817,383) and 54.326% of Italgas SpA’s share capital, represented by 348,523,506 shares. Payment of the price of shares tendered (euro 2,461 million) was effected on February 6, 2003. Italgas shares were withdrawn from Telematico on February 7, 2003.
     Eni now owns a total of 342,546,446 Italgas shares, representing 98.285% of share capital. As the conditions provided for by article 111 of Legislative Decree No. 58 of February 24, 1998 met, with notice published on February 4, 2003, Eni declared its willingness to squeeze-out the minority share holders that did not tender their shares. Eni’s purchase right was exercised on March 25, 2003 without residual offering at the price of euro 13 set by an expert named by the President of the Court of Torino. Eni’s outlay is expected to amount to approximately euro 78 million.
     ~~In order to implement~~ the regulations contained in Legislative Decree No. 164/2000, ~~Eni effected~~which provided for the separation of retail sales from ~~its~~all other activities in secondary distribution of natural gas; ~~in particular Italgas SpA established Italgas Più SpA to which it contributed sales activities~~the new company was conferred the relevant business and ~~customer management services. Italgas Più~~ is now present on the market with a new and wider supply of services; in particular:
—
a post-counter service for extraordinary and planned maintenance interventions on autonomous household heating systems, offered in two forms: ~~«Assistenza~~“Assistenza Italgas Più»” concerning the planned maintenance of heaters fired with any fuel that need to be periodically monitored and subjected to combustion analysis and ~~«Pronto Assistenza»~~“Pronto Assistenza” concerning fast interventions of skilled technicians for repairing damages or checking heaters and other parts of the heating plant;

—
a service of energy management addressed mainly to public administrations, condominiums, the tertiary sector and industrial enterprises supplying heat instead of just natural gas, design of heating systems and consultancy services. This service provides immediate solutions to problems of management, design and upgrade of plants and frees customers from technical and organizational tasks as wells as from responsibilities and administrative tasks.

        Italgas Più also improved its marketing channels by adding to the traditional access point other specific channels:
—
an integrated toll-free call center system (located in Turin, Rome, Florence, Naples, Chiavari) which customers can access for any information concerning services provided: payment of bills, information on consumption, requests for service and all related matters;

—
a network of franchisors made up of 94 ~~«shops»~~“shops” with flexible opening hours available to customers for any request concerning services provided. Italgas Più targets include the establishment of 460 franchised shops by 2005.
        The interactive web site www.italgaspiu.it represents a true online shop where customers can find all information concerning services provided, check their accounts, simulate consumption, change personal data and organize payments through their bank account.
        This business will be developed by entering new areas and promoting new services such as air conditioning and co-generation for small enterprises, in order to foster new forms of consumption.

     Within its strategy of alliances with municipalities and with companies managing multiservices for local governments, Eni acquired, in partnership with Acea SpA, a 46.2% interest in Ages SpA, the municipal utilities company operating in Pisa. Eni’s expenditure amounted to euro 42 million.
Outside Italy Eni is present in natural gas secondary distribution in:
—
Hungary through Tigaz ~~(Eni’s share 27.59%)~~(controlled by Eni with a 50% interest), the largest regional gas distribution company in the ~~country, reaching 855 urban centers through a network of about 21,000 kilometers of pipelines, and serving about 1 million customers. In 2002, Tigaz sold 2.8 billion cubic meters of natural gas.~~country. In 2003 Tigaz ~~finalized the purchase for~~consolidated its market share by purchasing a majority stake in three natural gas distribution companies: Mol-Gàz (now Tigaz 2), Zsàmbèrkgàz and Turulgàz operating in north-central Hungary (see below). In 2003, natural gas sales in Hungary amounted to 3.3 billion cubic meters. In 2003 customers supplied were approximately ~~euro 80~~1.1 million ~~of 4 distribution companies active~~ in ~~the central-northern areas of Hungary supplying~~1,120 municipalities through an ~~aggregate of 150,000 customers and distributing 400 million cubic meters of natural gas;~~about 24,000-kilometer long network;

—
Argentina, through Distribuidora de Gas Cuyana SA (Eni’s ~~share 20.05%~~interest 45.6%), which operates in the urban area of Mendoza, serving about ~~360,000~~371,000 customers through a network of about ~~8,900~~9,000 kilometers of pipelines. In ~~2002,~~2003, it handled ~~1.6~~1.8 billion cubic meters of natural gas; about ~~0.9 were~~1 billion was sold to end users, while the rest was transported on behalf of third parties;

—
Slovenia, through Adriaplin Doo (Eni’s ~~share 22.42%~~interest 51%), which distributes natural gas to about ~~7,000~~8,000 customers in 1517 urban centers through a network of about ~~332~~363 kilometers of pipelines. In ~~2002,~~2003, it sold 3037 million cubic meters.
Transmission, Dispatching and Regasification Assets
        Transmission, dispatching and regasification activities in Italy are carried out by Snam Rete Gas SpA, a company listed on the Italian Stock Exchange and in which Eni holds a ~~59.76% interest.~~50.07% interest, down from the 59.124% interest held by Eni as of December 31, 2003 as a result of the sale of a 9.054% stake that occurred at the end of March 2004.
        Eni’s primary transmission network was ~~transfered~~transferred to Snam Rete Gas in July 2001 pursuant to Legislative Decree No. 164/2000 concerning the Italian natural gas market, which provided for the legal separation of transmission and dispatching activities from all other activities in the natural gas segment, exclusive of the storage that, in any case, has to be subjected to accounting and management separation.
        Following the enactment of Law Decree No. 239/2003 (protection against black-outs), converted with amendments into Law No. 290/2003, which prohibits companies operating in the natural gas and electricity industries to hold stakes higher than 20% in the share capital of companies owning and managing national networks for the transmission of natural gas and electricity from July 1, 2007, Eni will have to sell further stakes of Snam Rete Gas share capital until it reaches the 20% maximum interest allowed. Management believes this disposition process will not entail particular risks with regard to the ability of Eni to realize the fair value of further stakes of Snam Rete Gas share capital given the available time to complete the disposition and the profitability of Snam Rete Gas.
The Italian natural gas transmission system is made up of a national network and a regional transmission network, as defined by the Decree of the Ministry of Industry (now the Ministry of Productive Activities) of December 22, 2000, which implements Legislative Decree 164/2000. These networks include pipelines, for a total length of about ~~31,200~~31,220 kilometers, of which ~~29,795~~30,120 kilometers are owned by Eni. The national network is composed 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 national natural gas fields—to the linking points with the regional transmission network. The national network also includes some interregional lines reaching important local markets.

The regional transmission network is composed of the remaining lines and allows the transmission of natural gas to industrial user, power stations and local distribution companies of the various local areas served.
        At December 31, ~~2002~~2003 the national pipeline network owned by Eni extended for ~~7,943~~7,993 kilometers. Underground pipelines have a maximum diameter⁴ of 48 inches and carry natural gas at ~~a pressure~~pressures of 24 to 75 bars. ~~Underwater pipelines (the only one is the~~The underwater pipeline crossing the Messina ~~Strait) have~~Strait has a diameter of 20 to 26 inches and ~~carry~~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:
• ~~for natural gas imported from Algeria:~~
~~two lines with a 48/42-inch(1)~~
for natural gas imported from Algeria: two lines with a 48/42-inch diameter⁴, each approximately 1,500-kilometer long, including the smaller pipes that cross underwater the Messina strait, which link Mazara del Vallo (on the Southern coast of Sicily) to Minerbio (near Bologna). These lines are linked to the import pipelines that carry natural gas from Algeria through the Sicily Channel. The pipeline transmission capacity amounts to approximately 87 million cubic meters/day;
⁴
The diameter of lines varies according to the ~~import pipelines that carry natural gas from Algeria through the Sicily Channel. The pipeline transmission capacity amounts~~route’s carrying requirements or according to ~~approximately 87 million cubic meters/day;~~
• ~~for natural gas imported from Russia:~~
three lines with 48/42/36/34-inch(1) diameters extending for a total length of approximately 900 kilometers that are linked to the Austrian network in Tarvisio and cross the Po Valley reaching Sergnano (near Cremona) and Minerbio. The pipeline transmission capacity amounts to 84.4 million cubic meters/day;
• ~~for natural gas imported from the Netherlands and Norway:~~
two 177-kilometer long lines, with a 48-inch diameter, extending from the Italian border at Passo Gries (Verbania), the point of connection with the Swiss network, to the node of Mortara, in the Po Valley. The pipeline transmission capacity amounts to 60.7 million cubic meters/day.their different construction or upgrading date.
for natural gas imported from Russia: three lines with 48/42/36/34-inch diameter extending for a total length of approximately 900 kilometers that are linked to the Austrian network in Tarvisio and cross the Po Valley reaching Sergnano (near Cremona) and Minerbio. The pipeline transmission capacity amounts to 84.4 million cubic meters/day; and
for natural gas imported from the Netherlands and Norway: two 177-kilometer long lines, with a 48-inch diameter, extending from the Italian border at Passo Gries (Verbania), the point of connection with the Swiss network, to the node of Mortara, in the Po Valley. The pipeline transmission capacity amounts to 60.7 million cubic meters/day.
        ~~As compared to 2001, in 2002~~In 2003 Eni’s national network increased by ~~47 kilometers.~~50 kilometers due to the entry into service of lines: (i) from Istrana to Camisano (37 kilometers); (ii) from Bernalda to Brindisi (7 kilometers); (iii) from Malborghetto to Bordano (6 kilometers). The national transmission network will be upgraded by means of:
—
the laying of a third line with a 48-inch diameter over 264 kilometers (124 of which already operational as of December 2002) from Tarvisio (Udine) to Zimella (Verona) on the pipeline carrying natural gas imported from Russia and the upgrade of the Malborghetto station. Works are expected to be completed by 2007;

—
the laying of a pipeline (66-kilometer long with a 36-inch diameter) from Gela to Enna (point of connection with the pipeline importing gas from Algeria) to allow the transmission of natural gas from Libya (up to 24 million cubic meters/day). This pipeline is expected to start operations in 2004; and

—
the laying a 70-kilometer long pipeline with a 30-inch diameter (39 already operating in 2002) from Pontremoli to Parma, with completion expected in 2004, to upgrade the connection of the Panigaglia LNG terminal with the national network and local markets.
        Eni’s regional transmission network is composed of pipes with diameter smaller than the national lines’ one and extends for a total length of ~~21,852~~22,127 kilometers. These pipes carry natural gas at pressures lower than 5 bars, between 5 and 24 bars and between 24 and 75 bars.
        ~~As compared to 2001, in 2002~~In 2003, Eni’s regional network increased by ~~141~~275 kilometers due to the ~~construction~~entry into service of the ~~Bolzano-Bressanone and Maenza-Vitinia pipelines~~Sannicola-Ugento-Tricase pipeline in Southern Italy, of the connection with the EniPower Ferrera-Erbognone power station and of various connections to end users.
        Eni’s system is completed by: (i) 11 compressor stations with a total power of about 620 megawatts. In 2002, within the upgrading of import lines from Northern Europe, the Masera (Verbania) compression station was completed with the installation of 3 compressor units; and (ii) 4 marine terminals linking underwater pipelines with the on-land network at Mazara del Vallo and Messina in Sicily and Favazzina and Palmi in Calabria.
        Eni’s dispatching system is located in San Donato Milanese and oversees and monitors the whole transmission network in cooperation with local units. Peripheral units are represented by 8 districts that monitor the transmission network through 7469 centers that guarantee operation, maintenance and control of the whole system. Each unit is responsible for ~~operation~~operations in accordance with technical specifications and applicable laws and regulations. ~~Two~~With the aim of rationalizing maintenance activities in 2003 various interventions were performed: (i) extension of remote control/remote monitoring by installing 74 new remote control units (valves, reduction plants and network terminals) which allow to reduce the time necessary for interventions aimed at restoring normal functioning and at increasing safety and reliability of operations; (ii) rationalization of local units and reduction of their number from 74 to 69; (iii) the entry into service on 90% of all maintenance units of a new IT ~~projects are underway: New dispatching~~system for the optimization of monitoring and ~~Operating management~~periodic supervision; (iv) extension of ~~infrastructure, both aimed at upgrading information~~new remote diagnostic systems of gas compressor units that allow for a constant monitoring of the system’s efficiency and ~~equipment supporting dispatching, beside optimizing operations~~for the optimization of costs and ~~maintenance of transmission infrastructure.~~intervention times.
        In addition to the international pipeline transmission system, natural gas enters Eni’s system through the Panigaglia (Liguria) regasification plant, which receives LNG carried by tanker ships. This terminal is the only one of its kind in Italy, and has a maximum ~~it can~~ input of approximately 3.5 billion cubic meters/year into the transmission network. LNG is downloaded from tanker ships and stored, then vaporized in a regasification plant composed of cryogenic pumps and submerged flame vaporizers. When it has recovered the gaseous state, natural gas is input in the transmission network. This terminal also regasifies LNG bought by ~~Enel in Nigeria.~~Enel. In ~~2002,~~2003, volumes of LNG regasified amounted to the equivalent of approximately ~~3.57~~3.5 billion cubic meters of natural gas. Upgrading of this terminal is underway by means of an enhancement of the boil-off gas recovery system.
In ~~2002,~~2003 Eni transported ~~73.67~~76.37 billion cubic meters of natural gas ~~on its primary transmission network~~ in Italy, ~~(69.58 in 2001),~~an increase of ~~which 54.56~~1.97 billion cubic meters ~~were on behalf of Eni’s primary distribution. This corresponds to an increase of 4.09 billion cubic meters,~~over 2002, up ~~5.9% over 2001,~~2.65%, mainly due to increased volumes ~~transported on behalf of third parties (7.70 billion cubic meters, up 67.5%),~~input by Edison Gas, offset in part by the decline in volumes transported on behalf of Eni’s primary distribution ~~(3.61~~(2.82 billion cubic meters).
        In 2003 Eni LNG terminal in Panigaglia regasified 3.46 billion cubic meters of natural gas discharging 123 tanker ships (117 in 2002).
Natural gas volumes transported

(billion cubic meters) 1999 2000 2001 2002 2003
Italy⁽¹⁾
On behalf of Eni's primary distribution 59.67 63.73 58.17 54.56 51.74
On behalf of third parties 6.90 9.45 11.41 19.84 24.63
Enel 4.50 6.27 6.28 8.28 9.18
Edison Gas 1.52 2.10 2.98 5.34 7.49
Others 0.88 1.08 2.15 6.22 7.96
66.57 73.18 69.58 74.40 76.37

(1)
Include amounts destined to domestic storage.
    ��   The Italian natural gas system is supplied for about 80% with imported gas, received by Eni outside Italy and transmitted to Italy through a network of international high pressure pipelines for a total of ~~over 3,700~~about 3,800 kilometers; in which Eni owns transportation rights, in particular:
•
the 924-kilometer long TENP pipeline (composed of a 500-kilometer long simple line and a 424-kilometer long doubling line) with transit capacity of 40.8 million cubic meters/day and four compression stations, transports natural gas from the Netherlands through Germany, from the German-Dutch border of Bocholtz to Wallbach at the German-Swiss border;
• the 291-kilometer long Transitgas pipeline, with one compression station, which transports natural gas from the Netherlands and from Norway crossing Switzerland with its 165-kilometer long main line and a 71-kilometer long doubling line, from Wallbach where it joins the TENP pipeline to Passo Gries at the Italian border. It has a transit capacity of 60.6 million cubic meters/day. A new 55-kilometer long line from Rodersdorf at the French-Swiss border to Lostorf, an interconnection point with the line coming from Wallbach was built for the transport of Norwegian gas;
• the 1,018-kilometer long TAG pipeline composed of two lines, each about 380-kilometer long and a third line 258-kilometer long, with a transit capacity of 81.2 million cubic meters/day and three compression stations, which transports natural gas from Russia across Austria from Baumgarten, the delivery point at the border of Austria and Slovakia, to Tarvisio, point of entry into Italy;
• the 742-kilometer long TTPC pipeline, composed of two lines each 371-kilometer long with a transit capacity of 78.2 million cubic meters/day and three compression stations, which transports natural gas from Algeria 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 775-kilometer long TMPC pipeline for the import of Algerian gas, composed of five lines each 155-kilometer long with a transit capacity of 100.8 million cubic meters/day, which crosses underwater the Sicily Channel from Cap Bon to Mazara del Vallo in Sicily, the point of entry into Italy.
     ~~Various development projects~~ of a 500-kilometer long simple line and a 424- kilometer long doubling line) with transit capacity of 40.8 million cubic meters/day and four compression stations, transports natural gas from the ~~national~~Netherlands through Germany, from the German-Dutch border of Bocholtz to Wallbach at the German-Swiss border. In 2003 the upgrading of this pipeline was completed with the entry into service of 44 kilometers of doubling line and ~~international network are currently under way:~~
• the upgrade of the TAG pipeline through the completion of a third line 376-kilometer long in Austria (of which 258 kilometers have already been laid). This project will increase transit capacity by 25.1 million cubic meters/day, of which 13.3 are already operational;
• a pre-feasibility study is underway for the upgrade of the TTPC import system from Algeria with an increase in compression capacity. When the project is completed, the pipeline transit capacity will be equal to that of the TMPC pipeline;
• before the end of 2003 the upgrade of the TENP-Transitgas pipeline will be completed with the starting of operations of a further 44-kilometer doubling line with a 3.7 million cubic meters/day increase in transit capacity.
a 3.7 million cubic meters/day increase in transit capacity;
the 291-kilometer long Transitgas pipeline, with one compression station, which transports natural gas from the Netherlands and from Norway crossing Switzerland with its 165-kilometer long main line and a 71-kilometer long doubling line, from Wallbach where it joins the TENP pipeline to Passo Gries at the Italian border. It has a transit capacity of 60.6 million cubic meters/day. A new 55-kilometer long line from Rodersdorf at the French-Swiss border to Lostorf, an interconnection point with the line coming from Wallbach was built for the transport of Norwegian gas;
the 1,018-kilometer long TAG pipeline composed of two lines, each about 380-kilometer long and a third line 258-kilometer long, with a transit capacity of 81.2 million cubic meters/day and three compression stations, which transports natural gas from Russia across Austria from Baumgarten, the delivery point at the border of Austria and Slovakia, to Tarvisio, point of entry into Italy. This pipeline is being upgraded with the laying of a third 380-kilometer long line (258 already operating);
the 742-kilometer long TTPC pipeline, composed of two lines each 371-kilometers long with a transit capacity of 78.2 million cubic meters/day and three compression stations, which transports natural gas from Algeria 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 775-kilometer long TMPC pipeline for the import of Algerian gas, composed of five lines each 155-kilometer long with a transit capacity of 100.8 million cubic meters/day, which crosses underwater the Sicily Channel from Cap Bon to Mazara del Vallo in Sicily, the point of entry into Italy.
        In ~~the second half of~~August 2003 works ~~are going to start~~started for the laying of the Greenstream pipeline, an underwater ~~540-kilometer~~520-kilometer long ~~pipe~~pipeline with a 32-inch diameter for the transport of natural gas from Mellitah in Libya to Gela in
Sicily for the transmission of ~~Libyan~~ natural gas from ~~the Wafa and Bahr Essalam~~Libyan fields ~~(operated by Eni with a 50% interest), laid~~(targeted at ~~a maximum depth of 1,160 meters with a transit capacity of 24.4 million cubic meters/day, capable of carrying~~ 8 billion cubic meters/year, of which 4 billion is Eni’s ~~share. The Greenstream will be connected to~~share, with a transmission capacity of 24.4 million cubic meters/day, and laid at a maximum depth of 1,130 meters by the ~~Gela-Enna pipeline on Eni’s national network.~~Saipem Castoro 6 vessel. This project is scheduled to be completed by ~~the start of 2005~~September 30, 2004 with an expenditure of dollar 953 million, corresponding to euro 0.8 billion ~~(0.6~~(dollar 715 million corresponding to euro 0.6 billion is Eni’s share). including the link to the national network.
        ~~At the end of 2002~~Eni and Gazprom hold equal shares in Blue Stream Pipeline Company BV, which operates the Blue Stream ~~underwater pipeline started operating. This 774-kilometer long (on two lines) pipeline with a transit capacity of 48.7 million cubic meters/day, linking~~transport system, that links the Russian ~~and~~(Beregovaya) to the Turkish (Samsun) coast of the Black ~~Sea,~~Sea. The gasline transports natural gas produced in Russia which is sold jointly by Eni and Gazprom in Turkey to the Turkish company Botas under a long-term contract. Supplies to Botas started in February 2003, by year-end Botas had withdrawn approximately 1.3 billion cubic meters of natural gas (of which 633 million were Eni’s share). Volumes transported and marketed will ~~transport approximately~~increase progressively in future years and are targeted to about 16 billion cubic meters ~~(Eni’s share 8 billion) of natural gas~~per year (8 billion net to ~~be sold on the Turkish market.~~Eni) in 2010.
Development Projects
        Portugal. In April 2004 Eni ~~holds~~signed an agreement with the Portuguese Government for the reorganization of Galp Energia (Eni’s interest 33.34%) within the restructuring process of the Portuguese energy sector. Under the agreement Eni concentrates its activities in the natural gas sector through a ~~33.34%~~49% interest in Gas de Portugal (indirectly owned through Galp Energia) and exits the segment of refining and marketing of refined products in Portugal. Gas de Portugal will be managed jointly with Electricidade de Portugal, the other shareholder with a 51% interest; the natural gas transmission network owned by Gas de Portugal will be sold to a state-owned Portuguese company. The finalization of the Eni sale of its stake in Galp Energia ~~(«Galp»),~~and Eni purchase of a 49% stake in Gas de Portugal to a state-owned Portuguese ~~energy~~ company ~~operating~~is subject to authorization from the European antitrust authority; in ~~primary and secondary distribution~~a second stage the sale of ~~natural gas and in downstream oil. This investment (made in 2000) is part~~regulated assets owned by Gas de Portugal will be submitted to the Portuguese antitrust authority. When finalized, this transaction will provide Eni net cash proceeds of Eni’s strategy of international growth in markets with interesting growth prospects, such as the Iberian market. Galp’s interest in two import infrastructures, the Transmaghreb pipeline and the Sines LNG terminal, expected to start operations in lateeuro 667 million. In 2003 ~~provides Eni with a basis to access the Iberian market. In 2002~~ Galp ~~through its subsidiaries in the field of natural gas,~~ sold about ~~3.3~~3.8 billion cubic meters of natural gas to about 600,000 customers through a network of high, medium and low pressure pipelines ~~approximately~~about 9,000-kilometer long. Galp’s assets include interest in two import infrastructures, the Transmaghreb pipeline and the Sines LNG terminal, that started operations in the fourth quarter of 2003, which provide Eni ~~signed an agreement~~ with a basis to access the Portuguese government providing for the postponement of the IPO of Galp Energia to December 31, 2003, thus postponing also to June 30, 2004 the related six-month period available to Eni to exercise its option to purchase a proportional number of Galp Energia shares (12.9% of its share capital) if the IPO should not take place before December 31, 2003.Iberian market.
        ~~Spain.~~Spain ~~Eni operates in Spain through España Comercializadora de Gas SAU with~~After obtaining the ~~aim of seizing opportunities in~~relevant authorizations from European antitrust authorities and the Spanish natural gas market. The company will supply gas to large customers at the border and to eligible customers requesting regasification and transmission of natural gas volumes to their consumption sites in Spain. In April 2002Government, Eni ~~started its supplies of about 1.2 billion cubic meters per year of natural gas to Iberdrola, a primary operator in electricity in Spain. The contract has a 15-year term.~~
     ~~Within its strategy of international expansion of gas activities on March 14, 2003 Eni reached a final agreement with Spanish company Unión Fenosa SA for~~finalized the purchase of a 50% interest in ~~its subsidiary~~ Unión Fenosa ~~Gas. This~~Gas, the remaining 50% being held by Unión Fenosa SA, with an outlay of euro 442 million including accessory costs. The transaction ~~will be~~was achieved through a capital increase of Unión Fenosa Gas ~~for~~of euro 16 million (corresponding to 50% of its share capital after the ~~increase to be entirely financed~~increase) fully paid by ~~Eni)~~Eni with a ~~premium~~surcharge of euro ~~424 million, bringing Eni’s total consideration to euro 440 million after the granting of authorizations by the relevant antitrust authority.~~
425 million. Unión Fenosa Gas is active in natural gas supply and sale to final users and to power generation companies. It holds a 25-year supply contract, with an option for a 25 year extension, involving 4 billion cubic meters ~~of natural gas~~ per year with the Egyptian Natural Gas Holding Company (EGAS) ~~and~~. It is ~~building~~active in LNG through a liquefaction plant with a capacity of over 7 billion cubic meters per year under construction near Damietta, on the Egyptian ~~coast. In May 2002 Unión Fenosa Gas signed~~coast and through an ~~agreement with the Government of Oman to develop~~8% interest in a ~~joint venture in the gas sector, including the participation in the construction of a new~~ liquefaction plant under construction in Oman, which is expected to start operations ~~from~~in 2006. ~~From then onwards, a contract will guarantee 2.2 billion cubic meters per year for a 20-year period.~~ In addition, ~~Unión Fenosa Gas has two LNG Time-Charters contracted for 25 years and~~it holds a 19% and a ~~45%~~50% interest in the Reganosa and Sagunto regasification plants ~~respectively, which will~~under construction, expected to start operations in 2005.
     Management believes that Unión Fenosa Gas will benefit from the liberalisation of the Spanish gas market, which, according to management’s own estimatees, is expected to increase by an average of over 10% per year in the next five years to reach 42 billion cubic meters by 2010. The company targets a 13% market share while also developing on international markets; in particular it plans to sell approximately 2.5 billion cubic meters/year to Unión Fenosa SA’s combined cycle power plants.
        Blue Stream. Eni and Gazprom hold equal shares in Blue Stream Pipeline Company BV, which operates the Blue Stream transport system that links the Russian coast (at Beregovaya) to the Turkish coast (at SamSun) of the Black Sea for the transport of natural gas produced in Russia to be sold by Eni and Gazprom in Turkey to the Turkish company Botas under a contract expiring in 2026. The overall project costed about dollar 2.4 billion and is comprised of two parallel underwater lines, each 380-kilometer long and a compressor station at Beregovaya on the Russian coast of the Black ~~Sea. Laying, which reached a record depth~~Sea under completion. Supplies of ~~2,150 meters, was completed~~natural gas to the Turkish national company Botas started in February ~~2002 for~~2003. In 2003 Botas withdrew approximately 1.3 billion cubic meters of natural gas (of which 633 million were Eni’s share). According to management’s plans, volumes transported and marketed are expected to increase progressively in future years and are targeted to about 16 billion cubic meters per year (8 billion net to Eni) in 2010. The construction of the ~~first line and in June 2002 for the second line; the compressor~~Beregovaya compression station is expected to be completed in the second half of 2003. The system was ready for operation by December 30, 2002. Commercial operations started in February 2003. Volumes transported and sold are expected to increase progressively from 2003 onwards to reach 16 billion cubic meters (8 billion net to Eni).2004.
        Germany. Eni ~~and EnBW (Energie Baden-Württemberg AG,~~is present on the ~~third~~ German ~~operator~~natural gas market since late 2002 through GVS (Gasversorgung Süddeutschland GmbH) in ~~electricity)~~which it acquired ~~through a 50/50 German joint venture (EnBW-Eni Verwaltungsgesellschaft mbH)~~ a 97.81% interest in joint venture with the German electricity operator EnBW. GVS ~~(Gasversorgung Süddeutschland GmbH),~~is the fourth operator in the German gas market. The remaining 2.19% interest is the object of a put option open to minority shareholders, which can be exercised before September 30, 2004 at the same price conditions of the purchase. The EnBW-Eni joint venture also acquired a 47.57% interest in EBS, a company in which GVS holds a 51% interest. EBS owns interests in companies in the area of natural gas distribution and co-generation. GVSmarket where it transports and markets about ~~7.4~~7 billion cubic meters of gas per year to local distribution companies serving about 750 municipalities in the south-western areas of the country through an approximately 1,880-kilometer long gas pipeline network. ~~In 2001-2002(1) it generated revenues~~Through GVS and the development of direct sales, Eni expects to sell about ~~euro 1.5~~4 billion ~~and net income~~cubic meters/year, of ~~about euro 59 million. On December 17, 2002 the European~~
~~Commission authorized the purchase~~which 3.4 billion cubic meters of ~~GVS by Eni-EnBW provided that the parties accept to terminate in advance of maturity the long-term supply contracts entered by local~~ natural gas ~~distributors and GVS; this right will also be granted~~through GVS, corresponding to ~~any EnBW subsidiaries. In summary, Eni and EnBW are expected to deploy their best efforts so that GVS offers a withdrawal right to its customers (which they can exercise one time only~~4% of German consumption in one of two contract years of their choice — 2004 or 2006 for the contracts expiring in 2008 and 2005 or 2007 for contracts expiring in 2015). The closing of the GVS purchase took place on December 27, 2002 for a total amount of euro 704 million paid by the joint venture. The partners financed the transaction through a capital increase of about euro 178 million (euro 89 million net to Eni); for the remaining part EnBW-Eni made recourse to financial markets. With this interest in GVS, Eni enters a large natural gas market.2007.
        Greece.Eni holds a 49% interest in the natural gas secondary distribution companies ~~(EPA) of Thessaloniki (about one~~EPA Thessalonica and ~~a half million inhabitants) and Thessaly (about 500,000 inhabitants).~~EPA Thessaly. The two companies hold a 30-year ~~concession~~licence for natural gas distribution to residential and commercial users ~~and enterprises consuming up to 10 million cubic meters per year,~~ as well as the right to use distribution networks. The two companies, whose operations are managed by Eni, ~~will manage the companies’ operations and will have an option on further offers of shares. Both companies started to extend~~are extending the distribution network in their ~~areas.~~areas covering about 2 million inhabitants. Natural gas sales of the two companies are ~~expected to exceed~~targeted at 800 million cubic meters of natural gas per ~~year and reach 375,000 customers served by 2005.~~
~~Brazil.~~Eni is engaged in natural gas distribution in Brazil through its 88.79% owned subsidiary Gas Brasiliano Distribuidora, which holds a concession for natural gas distribution in the north-western area of the Brazilian State of São Paulo. Work is underway for the construction of a distribution network.year.
        Hungary.In ~~January~~July 2003, Tigaz (a subsidiary in which Eni holds a 50% interest) ~~further strengthened its position~~purchased a majority stake in ~~the~~three natural gas distribution ~~market by purchasing~~companies (Mol-Gàz (now Tigaz 2), Zsàmbèrkgàz and Turulgàz) from the Hungarian national company MOL ~~a majority stake in four distribution companies (Mol-Gàz, Zsàmbèrkgàz, Gerecsegàz and Turulgàz) active in the central-northern areas of Hungary~~ for approximately euro 8068 million. These companies supply an aggregate of approximately 150,000 customers distributing ~~a total~~ 400 million cubic ~~meters~~meters/year of natural gas to 407 ~~municipalities. The purchase~~municipalities in the central-eastern areas of ~~these interests will be finalized after the authorizations by relevant authorities.~~Hungary.
        Within its strategy of concentration in its core business and rationalization of other businesses, in September Eni sold its marine transport business to Carbofin Energia Trasporti for euro 52 million.
Electricity Generation
        Eni, ~~operates~~through its subsidiary EniPower, is engaged in ~~power~~the electricity generation ~~and electricity sale through~~business on the Italian market. Operating since 2000, EniPower ~~which~~ owns ~~five~~ power stations ~~with total installed capacity amounting to approximately 1,000 megawatts~~ located at Eni’s ~~refineries~~sites in Brindisi, Ferrera Erbognone, Livorno, Mantova, Ravenna and Taranto ~~and~~with installed capacity in operation of approximately 1.9 gigawatts at its petrochemical plants in Brindisi, Mantova and Ravenna. In 2002 electricity sales amounted to 6,748 gigawatthour (of these 5,004 were produced electricity), corresponding to 2.1% of all volumes input in the Italian network, also 9.3 million tonnes of steam were sold.December 31, 2003.
        Eni intends to develop its electricity generation capacity and sales by exploiting the advantages provided by the integration of natural gas and electricity, ~~production,~~targeting in ~~order to reach by~~ 2006 an installed capacity of ~~6,000 megawatts,~~5.3 gigawatts, corresponding about 11% of electricity generation planned in Italy at that date. Planned expenditure amounts to ~~a consumption~~euro 2.3 billion, of ~~about 7 billion cubic meter/year of natural gas.~~this 1.2 already expensed. This objective will be pursued by building new capacity at Eni’s industrial ~~sites,~~sites. In particular work is underway at Ferrera Erbognone, Brindisi, Ravenna, and Mantova with total installed capacity of about 3.8 gigawatts (including the units started in ~~particular 12 combined cycle gas fired generators will be installed~~2003 at ~~Brindisi, Mantova, Ravenna,~~ Ferrera Erbognone and ~~Ferrara,~~Ravenna each with a capacity of 0.39 gigawatt) while ~~3 more groups~~authorizations are ~~going~~awaited for the new units (0.8 gigawatt) to be installed at ~~other sites.~~Ferrara. High efficiency, low environmental impact, 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 mode has been acknowledged by the ~~Italian~~ Authority for Electricity and Gas as a production mode that ~~will be given~~entails priority on the national dispatching network and ~~will be exempted~~the exemption from the purchase of ~~«green certificates» (1)~~“green certificates”⁵. Eni estimates that EniPower power stations will allow to reduce total emissions of carbon dioxide to be reduced by 8%, with negligible amounts of particulate and sulphur oxides as well as very low emissions of nitric oxides as compared to emissions caused by electricity generation in Italy in 2000. EniPower intends to become a cost leader in the Italian electricity industry thanks to the high technology content and optimal size of the plants it is building. When fully operational, consumption of natural gas of Eni’s plants will reach about 6-7 billion cubic meters/year, supplied by Eni.
⁵
Article 11 of Legislative Decree No. 79/1999 concerning the opening up of the Italian electricity market obliges importers and producers of electricity from non renewable sources to input into the national electricity system a share of electricity produced from renewable sources set at 2% of electricity produced from non renewable sources exceeding 100 gigawatt. 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. This obligation applies to import or production of electricity net of, among others, co-generation and volumes consumed in questions.
        In 2003, electricity production sold amounted to 5.55 terawatthour, of which approximately 27% was sold to Eni segments, with an increase of 0.55 terawatthour over 2002, up 11%, due essentially to the ~~following projects started: (i) construction works~~start-up of the first generating unit at the Ferrera Erbognone plant. Eni sold 3.10 terawatthour of purchased electricity to eligible customers, with an increase of 1.36 terawatthour, due to an increase in customers served. Sales of steam amounted to 9,303,000 tonnes, in line with 2002.
Power Generation

   2001 2002 2003
Purchases
Natural gas (million cubic meters) 784 819 940
Other fuels (thousand tonnes of oil equivalent) 936 885 847
Sales
Electricity production sold (terawatthour) 4.99 5.00 5.55
Electricity trading (terawatthour) 1.56 1.74 3.10
Steam (thousand tonnes) 10,025 9,302 9,303
        In 2003 work for the construction of new power stations at Brindisi and Mantova started, while power stations are under construction in Ferrera Erbognone and Ravenna .
Ferrera Erbognone. This power station will have an installed capacity of 1,030 megawatts articulated in three combined cycle units and will be able to produce about 7 billion kilowatthour/year and steam for industrial use. In October 2003 electricity generation started at the first 390 megawatt unit of the three planned; commercial production started in the first quarter of 2004. In February 2004 electricity generation started at the second 390 megawatt unit; according to management’s plans, the 250 megawatt unit is expected to start-up in the spring of 2004, with commercial production of these two units set for the second half of the year. The two 390 megawatt units are fired with natural gas, while the third 250 megawatt unit will be fired in part with natural gas and complemented with refinery gas obtained from gasification of tar from visbreaking from the nearby Sannazzaro de’ Burgondi refinery (see Operating Review — Oilfield services, construction and engineering).
        According to management’s plans, the integration of the new power station with the refinery will allow to obtain: (i) a reduction of 650,000 tonnes/year in the production of fuel oil that will be destined to gasification; (ii) a decrease in transport costs due to lower use of tanker trucks and trains (estimated at 20,000 and 4,000 units/year, respectively); (iii) the option to refine different types of oil, with subsequent cost savings.
Ravenna.Work is underway for the installation of two new combined cycle 390 megawatt units, fired with natural gas, that will bring the power station’s installed capacity to approximately 970 megawatts. On November 14, 2003, the power station was fired for the first time at its first unit; management expects commercial production from both units to start in the second half of 2004.
Brindisi. In April work started for the construction of a new combined cycle power station ~~at Ferrera Erbognone (Pavia) that will have a~~with installed capacity of ~~approximately 1,030 megawatt and~~1,170 megawatts, that is going to be Eni’s largest power station. Total capacity will beamount to 1,320 megawatts. The new power station, fired ~~mainly~~ with natural gas. When fully operational it will produce about 6.8 billion kilowatthour/year. Expected expenditure amounts to euro 550 million. The first 390 megawatt group is scheduled to start operating in late 2003; (ii) construction works for 2 new gas, ~~fired combined cycle groups for a total capacity of 780 megawatts at the Ravenna power station. The power station will reach a total capacity of over 970 megawatts~~includes three units and when fully operational will produce ~~about 6.4~~approximately 7.4 billion kilowatthour/~~year. The expected expenditure amounts~~year and steam for industrial use. According to ~~about euro 380 million. Completion and start-up~~management’s plans, the completion of the first unit ~~are scheduled by late 2003; (iii)~~is expected in ~~December 2002 construction works~~the spring of 2005; according to management’s plans commercial production from the first two units is expected in the second half of 2005; while for 2the third one in the first quarter of 2006.
Mantova. Work started for the installation of two new combined cycle 390 megawatt units, fired with natural gas, that will bring the power station’s installed capacity to approximately 840 megawatts. Commercial production from both units is expected in the first and second half of 2005 respectively. Studies are underway for ~~a total capacity of 780 megawatts at the Mantova~~linking this power station ~~which will reach~~to Mantova’s urban network through a ~~total capacity~~remote heating system.
   Capital expenditure
        See “Item 5 – Liquidity and capital resources – Capital expenditure by segment”.
Table of ~~836 megawatts and when fully operational will produce 5.3 billion kilowatthour/year. Expected expenditure amounts to euro 430 million.~~
     In 2002, sales of electricity amounted to 5,004 gigawatthour, of which 27% to other Eni segments. Sales of steam amounted to 9,302 million tons. Through EniPower Trading, Eni sold 1,744 gigawatthour of purchased electricity to eligible customers.Contents
Refining & Marketing
        ~~AgipPetroli SpA was merged into~~ Eni ~~SpA effective January 1, 2003 to become Eni’s Refining & Marketing division. Eni now conducts its~~is engaged in the refining and ~~marketing activities through~~sale of refined products mainly in Italy, the ~~Refining & Marketing division and its subsidiaries. Eni operates primarily in Italy,~~rest of Europe and Latin America.
        In the refining business management plans interventions for rationalizing refining capacity by balancing production and demand and increasing refinery efficiency and flexibility. These are expected to increase conversion rates from the 60% average of the 2000-2003 period to 64% by 2007. Eni ~~has~~also intends to adjust the ~~largest retail~~characteristics of its refined products to the evolution of fuel specifications in Europe focusing on fuels dedicated to specific market ~~share~~segments by leveraging on its integrated refining-logistics-distribution system.
        In the logistics business management plans to increase flexibility in ~~Italy,~~order to allow the distribution of different high quality fuels and reducing costs by means of joint ventures with ~~a 37.5% market share; its brands are Agip~~qualified partners.
        In the distribution and ~~IP. In 2002, sales~~marketing of refined products ~~totaled 52 million tons, of which 33 million in Italy. Eni’s total processing capacity of wholly-owned refineries amounted to 504,000~~
barrels per day at December 31, 2002. In 2002, Eni’s Refining & Marketing division had net sales from operations (including intersegment sales) of euro 21,546 million and operating income of euro 321 million.
     ~~Eni is implementing a rebalancing of its retail distribution activities in Italy and outside Italy and intends~~business management plans to continue the ~~upgrading~~process of ~~its retail network~~requalification and strategic repositioning of the distribution network: in Italy by ~~selling and closing marginal~~focusing on Agip branded service ~~stations and developing the stronger part of its network (service~~ stations with high throughput and high non oil ~~potential) and its non oil retail activities.~~potential; in the rest of Europe by developing in selected areas. Eni’s objective in Italy is to reach European standards in terms of average throughput, services to customers and automation. ~~Outside Italy~~In the rest of Europe Eni intends to strengthen its position in selected areas, in ~~Europe~~particular eastern Spain, southern France and Germany where it can obtain logistical and operating synergies and exploit ~~its~~the well-known ~~brand name. Eni also intends~~Agip brand. Management plans to increase ~~the flexibility of its refining system aimed at optimizing its supply system~~market shares in European target areas by buying modern and ~~improving product quality, in line with the expected trends of demand for fuels.~~well equipped services stations.
        Eni ~~will~~plans to intensify its efforts for efficiency improvements in all its business lines.
        The matters regarding future ~~rationalization~~ 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 ~~2002,~~2003, a total of ~~59.50~~63.4 million tonnes of oil were purchased ~~(58.51~~(59.5 in ~~2001)~~2002), of which ~~34.04~~33.6 million tonnes from Eni’s Exploration & Production segment, ~~17.06~~17.6 million tonnes under long-term contracts with producing countries, and ~~8.40~~12.2 million tonnes on the spot market. Some ~~25%~~20% of oil purchased came from North Africa, ~~24%~~25% from West Africa, ~~17%~~19% from the North Sea, ~~12%~~11% from the Middle East, 10% from countries of the former Soviet Union, 8%7% from Italy and 4%8% from other areas. Some ~~27.26~~31.3 million tonnes were resold, representing an increase of ~~4.56~~4.0 million tonnes over 2002, up ~~20.1%, over 2001.~~15%. In addition, ~~5.06~~3.43 million tonnes of intermediate products were purchased ~~(4.18~~(5.06 in ~~2001)~~2002) to be used as feedstocks in conversion plants and ~~16.57~~16.20 million tonnes of refined products ~~(15.23~~(16.57 in ~~2001) were~~2002) sold ~~on markets outside Italy (10.16 million tonnes) and~~ as a complement to own production on the Italian market ~~(6.41~~(5.24 million tonnes) and on markets outside Italy (10.96 million tonnes).
Refining
        Eni is engaged in refining activities in Italy and owns interests in refineries in Germany and the Czech Republic with a total refining capacity (balanced with conversion capacity) of 34 million tonnes (equal to 681 KBBL/d) at December 31, 2003, with 29.2 million tonnes capacity in Italy.
        Eni’s refining system in Italy is ~~composed~~made up of five wholly owned refineries and a 50% and 28% interest in the Milazzo ~~refinery~~and Priolo refineries in ~~Sicily.~~Sicily, respectively. At December 31, ~~2002,~~2003, Eni’s wholly owned refineries in Italy had a balanced capacity of ~~504,000 barrels/day~~25.2 million tonnes (equal to 504 KBBL/d) and a conversion capacity of ~~about~~over 16.3 million tonnes, with a ~~58.5%~~58.8% conversion equivalent ~~rate, one of the highest in Europe.~~rate.
     Within Eni’s strategy of downsizing its refining system, aimed at better balancing its own production with demand, Eni and Erg SpA conferred the Priolo (owned by Eni) and Melilli (owned by Erg) refineries in Sicily, as well as their related power stations to the newly established company Erg Raffinerie Mediterranee Srl (Eni’s interest 28%). Eni and Erg hold put and call options respectively on Eni’s interest expiring in 2006 at a set price. This operation includes a four-year processing contract under which Erg Raffinerie Mediterranee will process about 2 million tonnes/year of crudes on account of Eni and will provide to Eni refined products obtained therefrom at a set price. Following this agreement, Eni’s processing on its own account is targeted to decline by about 7.5 million tonnes in 2006.
     Eni is currently implementing a program for increasing refinery performance aimed at: (i) reducing operating costs through energy saving, more flexible operating structures and optimization of maintenance; and (ii) increasing the conversion index from the present 58.5% to over 60% by 2006, in order to improve product mix in line with the expected trends in fuel consumption.
        The table below sets forth certain statistics regarding Eni’s refineries at December 31, ~~2002.~~

Balanced
Primary
Ownership Conversion Distillation
Location Interest Equivalent (1) Capacity (2)

Wholly-owned refineries:
Sannazzaro Lombardy 100.0 % 42.0 160,000
Gela Sicily 100.0 % 138.5 100,000
Taranto Apulia 100.0 % 70.8 90,000
Livorno Tuscany 100.0 % 11.4 84,000
Porto Marghera Veneto 100.0 % 22.8 70,000
Total wholly-owned refineries 58.5 504,000
Partly-owned refineries:
Milazzo Sicily 50.0 % 69.6 80,000
Ingolstadt/Vohburg/Neustadt Germany 20.0 % 30.0 52,000
Schwedt Germany 8.0 % 33.0 18,000
Total partly-owned refineries 40.9 150,000
Total Eni 48,7 654,000
2003.
Location Ownership
Interest Conversion
Equivalent(1) Balanced Primary Distillation Capacity(2)

Wholly-owned refineries:
    Sannazzaro Lombardy 100.0% 42.0 160,000
    Gela Sicily 100.0% 139.3 100,000
    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

        Total wholly-owned refineries    58.8 504,000
Partly-owned refineries:
    Milazzo Sicily 50.0% 69.6 80,000
    Ingolstadt/Vohburg/Neustadt Germany 20.0% 30.0 52,000
    Schwedt Germany 8.0% 33.0 18,000
    Kralupy/Litvinov Czech Rep. 16.33% 28.8 26,500

        Total partly-owned refineries    38.3 176,800

        Total Eni    42.1 680,800

________________________
(1)
Stated in fluid catalytic cracking equivalent/topping (% by weight), based on 100% of balanced primary distillation capacity.
(2)
Barrels per calendar day. Based on percentage equity interest ownership in the refinery, not on actual utilization of balanced primary distillation capacity.
        Each of Eni’s Italian refineries is specialized based on its logistical configuration, geographic location and integration with other Eni business segments.
        Sannazzaro,with a balanced primary conversion capacity of ~~160,000 barrels/day,~~160 KBBL/d , is one of the most modern and efficient refineries in Europe. Located in the south-west of the Po Valley, at the confluence of the rivers Po and Tessin, it produces mainly gasolines and other light products for the supply of markets in Northwestern Italy, Austria, Switzerland and Bavaria. Beside its primary distillation plants, this refinery contains two catalytic reforming plants used to increase the octane number of gasolines, an isomerization plant and three desulfurization plants, which allow a high degree of flexibility of production related to market and environmental conditions. The conversion plants are: a fluid catalytic cracker (FCC), a HDCK middle distillate conversion, and a visbreaking thermal conversion. This refinery processes mainly oil from Russia and Africa incoming at the nearby Genoa harbor and oil from Eni’s nearby Villafortuna field. From a logistical standpoint this refinery is located along the route of the Central Europe Pipeline, which links the Genoa terminal with the French-speaking part of Switzerland and Bavaria. In ~~2002~~2003 expenditure was dedicated to the upgrade of diesel fuel manufacture in line with new European regulations in force from 2005 and to the construction of a ~~turbo expander was installed,~~new tar (heavy residue from visbreaking) gasification plant that ~~reduced energy consumption.~~will produce syngas from fuel oil and will be used to fire the nearby EniPower power station.
        Gela,with a balanced primary refining capacity of ~~100,000 barrels/day,~~100 KBBL/d, represents an upstream integrated pole with the production of heavy crudes obtained from nearby Eni fields offshore 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 minimize the yield of fuel oil and semi-finished products. Beside its primary distillation plants, this refinery contains conversions plants such as a FCC and two coking plants. All these plants are integrated in order to process heavy residues and manufacture valuable products. Besides its primary distillation plants, this refinery contains the following plants: an FCC reactor with advanced technology and two coking plants for the conversion of low grade feedstocks and vacuum conversion of heavy residues. All these plants are integrated in order to process heavy residues and manufacture valuable products. This refinery also contains modern residue and exhaust fume treatment plants which allow the refinery to reduce the environmental impact of its operations. Oil and oil products are handled on land and by sea.

In November 2003, the refinery was shut down as a consequence of a decree of the Court for preliminary investigation of Gela in order to allow the Court and the public prosecutor of Gela to evaluate the conditions of the refinery’s storage tanks and the risks of spillover of refined products. The refinery resumed its activity in January 2004. See “Item 18 – Financial Statements – Note No. 23 Legal Proceedings”. This standstill had a negative impact on the operating income of the Refining & Marketing segment. See “Item 5 – Results of operations- Operating Income”.
        Taranto,with a balanced primary conversion capacity of ~~90,000 barrels/day,~~90 KBBL/d, can process a wide range of crudes and semi-finished products with great operational flexibility. It mainly produces fuel for automotive use and residential heating purposes for the southeastern Italian markets. Beside its primary distillation plants, this refinery contains desulfurization plants, and conversions plants such as: a two-stage thermal conversion plant (visbreaking/thermal cracking) and an RHU conversion plant, one of the most advanced plants in the world with high yield of valuable products and low environmental impact. The plant is provided with a column for amminic washing of the gas deriving from the RHU process, which extends its useful life. ~~This plant~~It processes most of the oil produced in Eni’s Val d’Agri fields carried to Taranto through the Monte Alpi ~~pipeline which started operations~~pipeline; in ~~late 2001.~~2003 a total of 2.1 million tonnes of this oil were processed. In 2003 the topping unit was upgraded in order to respond to the increasing availability of oil from the Val d’Agri fields.
        Livorno,with a balanced primary refining capacity of ~~84,000 barrels/day,~~84 KBBL/d, manufactures gasolines, specialty products and lubricant bases. Besides its primary distillation plants, this refinery contains two gasoline treatment plants, an isomerization plant and an octanization plant for the manufacture of highly environmental friendly gasolines, as well as a technologically advanced solvex cycle for lubricant manufacture. Its pipeline links with the local harbor and with the Florence storage sites allow the Livorno facility to operate with great efficiency with respect to reception, handling and distribution of products. In 2003 plants were upgraded for the manufacture of higher viscosity lubricants and the desulfurization of gasoil provided for by the new 2005 specifications.
        Porto Marghera,with a balanced primary conversion capacity of ~~70,000 barrels/day,~~70 KBBL/d, produces mainly gasolines and other light products for the supply of markets in northeastern Italy, Austria, Slovenia and Croatia. Beside its primary distillation plants, this refinery contains a gasoline treatment plant, octanization plants and one two-stage thermal conversion plant (visbreaking/thermal cracking) in order to increase yields of valuable products and comply with applicable environmental requirements. At year end the desulfurization plant was upgraded in order to comply with the new 2005 specifications.
~~Milazzo~~(        In addition Eni holds a ~~joint venture~~28% stake in ~~equal shares between~~Erg Raffinerie Mediterranee Srl which was established in October 2002. Eni contributed to the new established company its refinery of Priolo in exchange for a 28% interest in the company. Eni and ~~Kuwait Petroleum Italia) has~~Erg hold put and call options respectively on Eni’s interest expiring in 2006 at a ~~balanced primary refining capacity~~set price. Eni and Erg signed a four-year processing contract under which Erg Raffinerie Mediterranee will process about 2.2 million tonnes/year of ~~160,000 barrels/day~~crudes on account of Eni and contains two primary distillation plants, one naphtha treatment plant, one gasoil treatment plant and an octanization plant for the manufacture of environmentally friendly gasolines. The refinery contains also three conversion plants: one high capacity FCC for gasoline manufacture,will provide to Eni refined products obtained therefrom at a HDCK middle distillate conversion plant for gasoil manufacturing and one conversion plant for heavy residues with hydrogen (LC finer) which allows manufacturing of environmentally friendly products. This refinery also has two docks which allow the mooring of vessels with a maximum dead weight of 104,000 and 420,000 tons respectively.set price. Following this agreement, Eni’s processing on its own account is targeted to decline by about 7.5 million tonnes by 2006.
        In Germany Eni holds an 8.3% interest in the Schwedt refinery and a 20% interest in Bayernoil, an integrated industrial pole including the Ingolstadt, Vohburg and Neustadt refineries. Eni’s refining capacity in Germany amounts to approximately ~~70,000 barrels per day.~~70 KBBL/d. Eni’s share of production of the three integrated refineries of Bayernoil and of the Schwedt refinery is mainly used to supply Eni’s distribution network in Bavaria and eastern Germany.

Eni holds a 16.33% interest in Ceska Rafinerska (CRC) which owns and manages two refineries, Kralupy and Litvinov, in the Czech ~~Republic, Kralupy and Litvinov, with a total refining capacity of about 8 million tonnes/year.~~Republic. In 2002 the CRC partners approved a plan under which the refinery ~~will supply services to~~provides a service of oil processing ~~services to~~on account of its partners in proportion to their respective interests. This plan ~~will be operational~~started up in the second half of 2003. ~~Previously CRC partners purchased refined products from the refinery in proportion to their respective interests.~~ Under ~~the~~this new ~~plan CRC partners, amongst which Eni, will earn the refining margin relating to oil processed on their own account since the second half of 2003.~~arrangement Eni’s overall balanced conversion capacity increased by 27 KBBL/d over 2002.
     Within its strategy of selective development outside Italy, which provides for Eni’s disengagement from marginal areas, in January 2002 Eni sold its 50% share in the Indeni refinery located at Ndola in Zambia.
        The table below sets forth Eni’s petroleum products availability figures for the periods indicated.

1998 1999 2000 2001 2002

(millions of tons)
Italy

Products processed in wholly-owned refineries 34.05 32.00 32.93 32.24 30.09
Products processed for third parties (3.24 ) (2.78 ) (3.41 ) (1.45 ) (1.88 )
Products processed in non owned refineries 7.90 8.08 8.41 5.92 6.27
Products consumed and lost (1.94 ) (2.07 ) (2.11 ) (1.95 ) (1.91 )
Products available 36.77 35.23 35.82 34.76 32.57
Purchases of finished products and change in inventories 5.74 5.45 4.30 5.19 6.06
Finished products transferred to foreign cycle (6.51 ) (5.23 ) (4.58 ) (4.96 ) 5.56
Products sold 36.00 35.45 35.54 34.99 33.07
Outside Italy

Products available 3.33 3.08 3.07 3.02 2.98
Purchases and change in inventories 8.35 8.06 10.27 10.27 10.41
Finished products transferred to Italian cycle 6.51 5.23 4.58 4.96 5.56
Products sold 18.19 16.37 17.92 18.25 18.95
Sales in Italy and outside Italy 54.19 51.82 53.46 53.24 52.02
1999 2000 2001 2002 2003

(millions of tons)
Italy
Products processed in wholly-owned refineries 32.00 32.93 32.24 30.09 25.09
Products processed for third parties (2.78) (3.41) (1.45) (1.88) (1.72)
Products processed in non owned refineries 8.08 8.41 5.92 6.27 8.43
Products consumed and lost (2.07) (2.11) (1.95) (1.91) (1.64)

Products available 35.23 35.82 34.76 32.57 30.16

Purchases of finished products and change in inventories 5.45 4.30 5.19 6.06 5.61
Finished products transferred to foreign cycle (5.23) (4.58) (4.96) (5.56) (5.19)

Products sold 35.45 35.54 34.99 33.07 30.58

Outside Italy
Products available 3.08 3.07 3.02 2.98 3.36
Purchases and change in inventories 8.06 10.27 10.27 10.41 10.78
Finished products transferred to Italian cycle 5.23 4.58 4.96 5.56 5.19

Products sold 16.37 17.92 18.25 18.95 19.33

Sales in Italy and outside Italy 51.82 53.46 53.24 52.02 49.91

        In 2003, refinery intake processing on Eni’s own account in Italy and outside Italy (35.43 million tonnes) declined by 2.30 million tonnes, down 6%, due mainly to a decline in refining capacity related to the finalization in October 2002 of agreements on the contribution of the Priolo refinery in exchange for a 28% stake in the newly-established Erg Raffinerie Mediterranee Srl (a reduction of 7.5 million tonnes in refinery intake is expected in 2006) see above. Lower processing due to standstills at the Gela refinery (in the third quarter strikes in the service businesses of the Gela area and in the fourth quarter the seizure of tanks ordered by the local Court – see Note 23 to the consolidated financial statements “Legal Proceedings — Environment”) and at Sannazzaro were offset by increased processing at the Taranto, Venezia and Milazzo refineries.
        Total intake processing (on own account and for third parties) on wholly owned refineries amounted to 25.09 million tonnes (30.09 in 2002). The overall balanced capacity utilization rate of wholly owned refineries was 100% (99% in 2002). About 32.9% of all oil processed came from Eni’s Exploration & Production division (37.4% in 2002).
Logistics
        Eni is engaged in the ~~leading transporter~~logistics of petroleum products in ~~Italy. Its logistical~~Italy and Europe.
        The storage infrastructure is made up of 12 directly managed storage sites all over Italy and of interests in five companies established by the major Italian operators in Vado Ligure-Genova (Petrolig), Arquata Scrivia (Sigemi), Venice (Petroven), Ravenna (Petra) and Trieste (DCT) aimed at reducing costs, increasing efficiency and developing innovative integrated ~~infrastructure consists~~services to customers. Sigemi manages storage and handling of semi-finished and refined products by means of pipelines between Arquata and Ferrera.
        For the transport of oil and refined products on land Eni makes use of owns storage facilities, pumping stations and a pipeline network, integrated by leased pipelines. Eni’s pipeline network in Europe extends over 3,173 kilometers, of these 1,476 are wholly owned.
        Eni’s logistic system also makes use of a ~~network~~leased fleet of ~~petroleum product pipelines, 2,413-kilometer long (of which Eni owns 1,476 kilometers). Included in this system is~~tanker ships and tanker trucks for the ~~Val d’Agri pipeline (which started operating in 2001) that links~~distribution of refined products on the ~~Viggiano oil center to the Taranto refinery over 136 kilometers.~~retail and wholesale markets.
        Eni also owns ~~storage facilities, tanker ships and~~ a ~~large fleet of tanker trucks (some of which wholly owned by Eni). Eni intends to sell its tanker ship fleet made up of four vessels. In October 2002 it published~~65% interest in Costiero Gas Livorno, a ~~tender offer and is currently expecting the completion of the due diligence phase from possible purchasers.~~
     ~~Eni also~~company that operates ~~and owns~~ an underground storage facility in Livorno with the capacity to store 45,000 cubic meters of propane.
     From 2000, three joint ventures with Italian oil companies are operating wich provide services of handling and storage of refined products and bunkering to their partners with the aim of reducing costs, increasing efficiency and developing innovative integrated services to customers.
Distribution and Marketing
        Eni markets a wide range of refined petroleum products, primarily in Italy, through an extensive direct sales network, franchises and other distribution systems. The table below sets forth Eni’s sales of refined products by distribution channel for the periods indicated.

1998 1999 2000 2001 2002

(millions of tons)
Retail marketing 12.02 11.85 11.57 11.64 11.14
Wholesale marketing 11.73 11.42 11.10 11.24 10.64
23.75 23.27 22.67 22.88 21.78
Petrochemicals 5.75 5.38 4.93 4.23 3.82
Other sales(1) 6.50 6.80 7.94 7.88 7.47
Sales in Italy
36.00 35.45 35.54 34.99 33.07
Retail sales rest of Europe 2.35 2.36 2.35 2.47 2.57
Retail sales Africa and Brazil 1.11 1.54 1.43 1.71 1.44
3.46 3.91 3.78 4.18 4.01
Wholesale marketing 6.20 6.40 5.46 5.55 5.65
9.66 10.31 9.24 9.73 9.66
Other sales(1) 8.53 6.06 8.68 8.52 9.29
Sales outside Italy
18.19 16.37 17.92 18.25 18.95
54.19 51.82 53.46 53.24 52.02
1999 2000 2001 2002 2003

(millions of tons)
Retail marketing 11.85 11.57 11.64 11.14 10.99
Wholesale marketing 11.42 11.10 11.24 10.64 10.35

23.27 22.67 22.88 21.78 21.34

Petrochemicals 5.38 4.93 4.23 3.82 2.79
Other sales(1) 6.80 7.94 7.88 7.47 6.45

Sales in Italy 35.45 35.54 34.99 33.07 30.58

Retail sales rest of Europe 2.36 2.35 2.47 2.57 3.02
Retail sales Africa and Brazil 1.54 1.43 1.71 1.44 1.18

3.91 3.78 4.18 4.01 4.20
Wholesale marketing 6.40 5.46 5.55 5.65 6.01

10.31 9.24 9.73 9.66 10.21
Other sales(1) 6.06 8.68 8.52 9.29 9.12

Sales outside Italy 16.37 17.92 18.25 18.95 19.33
51.82 53.46 53.24 52.02 49.91

___________________
(1)
Includes bunkering, consumption for power production and sales to oil companies.
        In ~~2002,~~2003, sales of refined products ~~(52.02~~(49.91 million ~~tons)~~tonnes) decreased by ~~1.22~~2.11 million ~~tons,~~tonnes, down ~~2.3%~~4.1%, mainly due to lower sales in Italy to the petrochemical segment, to oil companies and traders, also related to lower availability as a consequence of the conferral of the Priolo refinery, the standstills of the Gela refinery and lower sales of fuel oil due mainly to ~~sales and closures of service stations~~a decline in ~~Italy (641 units) within the network streamlining process,~~demand related to the ~~sale~~progressive substitution of ~~Eni’s distribution network~~fuel oil with natural gas in ~~Nigeria and to the streamlining of the distribution network in Brazil.~~power stations.
Retail Marketing
        Italy.At December 31, ~~2002,~~2003, Eni’s retail distribution network ~~in Italy~~ consisted of ~~7,710~~7,290 service stations (60% of which ~~approximately 61%~~ under the ~~«Agip» brand name~~Agip brand), a 420 unit decrease over December 31, 2002, due to the sale of 281 service stations, the closure of 66 marginal stations and ~~39% under~~ the ~~«IP» brand name.~~negative balance of acquisitions and expirations of lease contracts (104 units), whose effects were offset in part by the purchase/construction of 31 new service stations. Eni ~~continues~~is implementing the ~~requalification~~upgrading process of its ~~(owned and leased) Italian~~ retail network ~~by selling and closing down service stations that do not meet Eni’s target standards and~~in Italy by developing ~~the stronger part of~~ its Agip-branded core network (stations with high throughput and high non oil retail potential)., while the process of closing down marginal service stations is in its final phase. Eni’s objective is to reach European standards in terms of throughput, ~~and~~ services provided to customers and automation. ~~The development and upgrade of large service stations will allow to better exploit~~
        In this context the ~~changes that are going to be introduced in Italian regulations, such as non oil sales and longer opening hours. Within this requalification project the new~~newly established IP company ~~was established to which all~~(operational since May 2002) consolidated its activity. The IP network consists of mainly leased service stations ~~were transferred (approximately 3,000 service stations), all of which~~devoted to satisfying local markets, with ~~lower~~an average throughput of 900,000 liters
        In 2003 Eni continued its “high fidelity” campaign which allows customers accessing self-service outlets provided with an electronic card to obtain price discounts as a function of the total amount of purchased fuel. The number of cards distributed exceeded 3.5 million (2.5 in 2002). The amount of fuel purchased with the card was about 25% of all fuel sold on Agip branded service stations.
        In 2003 the acceleration of the renewal process of the car fleet in Italy in favour of diesel engines determined an increase in the share of diesel fuel on total fuel sold (from 44% in 2002 to nearly 50% in 2003). In this context the market confirmed the success of Eni BluDiesel, a new diesel fuel with low environmental impact, sold in Agip branded service stations from the end of 2002. This environmentally advanced product was introduced into the market earlier than required under regulations imposed by the European ~~standard.~~Union and was appreciated by motorists because it increases efficiency, reduces consumption and leaves the engine cleaner than traditional diesel fuel. A total of 850 million liters of BluDiesel were sold, corresponding to 16% of total diesel fuel volumes sold on the Agip branded network on ordinary roads and highways and to 5.2% of all diesel fuel sales on the Italian market. At the end of 2003 about 3,700 Agip branded service stations were selling BluDiesel (about 1,500 at December 31, 2002), corresponding to about 85% of the Agip network.
        In ~~2002, the total number of Eni’s~~July 2003 on IP branded service stations ~~decreased by 641 units, following the closing down~~sales of ~~549 stations and the sale~~Plus 98 started. This new high quality gasoline with better performance in terms of ~~246 stations, offset~~efficiency was sold in ~~part by the opening of 51 new~~800 service stations ~~and~~(27% of the ~~positive balance of acquisitions and expirations of lease contracts (103 units). Eni also agreed to the sale of 330~~IP network) at December 31, 2003.
        Agip branded service stations ~~to be finalized~~are located mainly on highways and other high traffic roads in Italy.
        Within the process of upgrading its service station network by promoting customized services in 2003 ~~within swap transactions~~Eni built: (i) three service stations dedicated to heavy transport, so called “Agip Truck Points”, strategically located on ~~European markets.~~highways with the highest lorry traffic and provided with wide parking space, dedicated runways, and personal services active 24 hours a day. In these service stations lorries can be washed and convenience stores are equipped with internet services; (ii) the first “Agip Multienergy” service station where all kinds of fuel are on sale (including also LPG and methane) which obtains part of the energy necessary for servicing from solar panels installed on its roof.
        The «Do-it-yourself» policy supported by the «High fidelity» campaign continued its very successful course and was extended to more Agip-branded service stations (approximately 64% of the Agip-branded network). Eni’s average throughput increased by 3.9% over 2001, from 1,643,000 liters to 1,707,000 liters. Market share was 37.5% (39.7%improvement in ~~2001). The aim to improve~~ the quality of service to customers led to a further expansion of the automation process of the domestic network. At December 31, ~~2002 approximately 76% of Eni’s service stations and 94% of Agip-branded~~2003 nearly all Agip branded service stations were provided with a corporate credit card system ~~(60%~~(94% in ~~2001)~~2002).
     In line with the intent of improving the quality of products and services, Eni started selling in its Agip-branded service stations in Italy a new diesel fuel with low environmental impact named BluDiesel, containing only 10 parts per million of sulphur (10 mg/kg) and allowing for cleaner injection and protection of the fuel burning system in cars, better combustion and faster start-up even at low temperatures, anticipating by seven years the European regulations on this issue. The BluDiesel campaign gives greater value to the potential of Eni’s integrated system (refining, logistics and distribution) selling in a traditionally undifferentiated market a well identifiable and branded product, aimed at meeting the requirements of consumers that pay more attention to the environment and greater care to their cars. Sales of BluDiesel started in November 2002 and by year-end 1,500 service stations were selling the new product which was well accepted by customers all over Italy. BluDiesel sales amounted to 35,000 tonnes in 2002. On the ordinary service stations network where BluDiesel is sold, average sales amounted to 20-25% and peaked in some instances at 50% of total gasoil sales.
        Eni continued the development of its non oil retail activities (retailing and catering) aimed at promoting the development of its network in line with European standards, such as the diffusion of self-service and innovative commercial outlets. To this end Eni ~~owns: (i) 50% of Finifast, a restaurant and catering company with a strong presence in highway outlets, which~~ owns ~~a 20-year license for the Fini trademark; (ii)~~ master franchisor rights with exclusive rights for the oil sector for some international brands of the restaurant and catering sector.
        In particular in 2003 the ~~next~~new Agip Cafè outlets were launched, and by year end 104 franchises were opened, while 8 new Pans & Co outlets were opened and convenience stores were reorganized under the new “SpazioAgip” brand name. Eni intends to ~~10 years Eni plans~~continue the development of its non oil activities and expects to ~~open 4-500 food outlets (200~~provide 66% of its Agip branded network with these structures in the next four ~~years)~~years.
        In 2003 Eni continued the development of its Multicard paying card which covered 1.25 billion liters (up 7.2% over 2002), while the number of customers provided with ~~high visibility.~~this card increased from about 41,000 to 42,000. Multicard is used also by international truck fleets and is part of the international Routex consortium.
        In ~~2002, a total~~2003 sales of ~~69 food outlets were opened under own brands (Agip Cafè~~refined products on retail markets amounted to 11 million tonnes, average throughput to 1,813,000 liters and ~~RistorAgip) and also under the following trademarks: Fini, McDonalds and Pans & Co. The program provides also for more~~market share was 36.6% (37.5% in 2002). In particular sales of Agip branded service stations amounted to ~~be equipped~~8.99 million tonnes with ~~car wash facilities and convenience stores.~~
     ~~Retail sales (11.14 million tons) decreased by 500,000 tonnes, down 4.3%, due mainly to sales and closures~~an average throughput of 2,418,000 liters. Market share of Agip branded service stations ~~(641 units) within~~increased by 0.6 percentage points (from 29.4 in 2002 to 30% in 2003) also due to the ~~network streamlining process.~~success of BluDiesel.
        Outside ~~Italy.~~Italy. As of December 31, ~~2002,~~2003, Eni’s retail distribution network outside Italy consisted of ~~3.052~~3,357 service stations, ~~located mainly~~of which there were 1,813 in the rest of Europe and 1,544 in Brazil. Retail sales in the rest of Europe amounted to 3 million tonnes with an average throughput of 2,378,000 liters. Eni intends to ~~increase~~develop its ~~market share~~presence in selected ~~areas~~markets in Europe where it can leverage on logistical and operational synergies and on its well established brand name. In ~~2002~~this context it ~~acquired 61~~purchased 410 service stations, of these 164 in ~~France with a total throughput of about 150 million liter/year~~Spain, 221 in Germany and 4025 in France. Non oil activities outside Italy are performed under the “CiaoAgip” brand name on 1,025 service stations, ~~in central-eastern Europe (in particular 23 service stations in the Czech Republic, 11 in Hungary and 6 in Slovakia) with a total throughput~~ of ~~about 71 million liters/year. Still~~these 342 are in 2002, Eni purchased additional 313 service stations: in particular two agreements were signed with respect to the Spanish market: (i) under the first one, in 2002, Eni bought 92 service stations, with a total throughput of 300 million liters/year, and a storage site with a capacity of about 50 million liters located on the Spanish Mediterranean coast; (ii) under the second one, in 2003, Eni purchased 130 service stations with total throughput of about 320 million liters/year and a storage site with a capacity of about 56 million liters, located in Gijon in northern Spain. A third agreement concerned 91 service stations in central Europe (56 in southern Germany and 35162 in ~~central-eastern France) with a total throughput of 273 million liters/year.~~France.
     ~~As final step of its strategy of exiting the African market, Eni finalized the sale of its distribution network in Nigeria (242 service stations) and Zambia (20 service stations).~~
     Galp (in which Eni has a 33.34% interest), through its subsidiary Petrogal, is a leader in refining, distribution and sale of refined products in Portugal. Petrogal owns two refineries with a total capacity of 15.2 million tons/year and a sale network made up of 965 service stations (1,082 in 2001) with a 45.6% market share (46.7% in 2001) and average throughput of 2.75 million liters (2.52 in 2001). Petrogal holds also a 42.9% market share in LPG (44.6% in 2001). Galp controls 93% of the Portuguese logistics assets. In Spain Galp has a network of 162 service stations (189 in 2001).
        Retail sales in the rest of Europe amounted to ~~2.57~~3.02 million tonnes and increased by ~~100,000~~450,000 tonnes, up ~~4.0% over 2001,~~18%, due to the purchase of service stations in France, ~~(following~~the Czech Republic, Hungary and Slovakia, following agreements signed in ~~2001 with TotalFinaElf)~~2002, and in ~~central-eastern Europe.~~France, Spain and Germany, following agreements signed in 2003. Retail sales in ~~Africa~~Brazil and ~~Brazil (1.44 million tonnes)~~Africa declined by ~~270,000~~260,000 tonnes, down ~~15.8% over 2001,~~18%, due mainly to the ~~sale~~completion of ~~Eni’s distribution network in Nigeria~~the exit from the African continent and to the effects of the streamlining of the distribution network in Brazil.
Wholesale Marketing and Other Sales
        Eni sells gasoline, gasoil, fuel oil, lubricants, petroleum coke and LPG both directly to large customers and through independent distributors on various wholesale markets. Major customers are the agricultural and manufacturing industries, public utilities and transport companies. Eni also sells jet fuel directly at 38 airports, of which 27 are in Italy, and marine fuel (bunkering) directly at 38 ports, of which 23 are in Italy. In addition, it sells virgin naphtha and fuel oil to Eni’s Petrochemical ~~segment.~~segment and to other petrochemical operators in Italy. Enel is the single largest customer of Eni’s Refining & Marketing division, purchasing approximately 9% of its total refined products requirements from ~~Eni and accounting for approximately 6% of Eni’s total revenues from wholesale sales in Italy in 2002.~~Eni.
        Sales on wholesale markets in Italy ~~(10.64~~(10.35 million ~~tons)~~tonnes) decreased by ~~600,000~~290,000 tonnes ~~down 5.3%,~~over 2002, due mainly to lower sales of ~~gasoil~~fuel oil, resulting from the decrease in demand from the thermoelectric sector, related to the progressive substitution of fuel oil with natural gas as fuel for ~~heating purposes.~~power stations. Market share ~~decreased~~increased by ~~1.7~~0.2 percentage points from ~~25.6 in 2001~~23.9 to ~~23.9% in 2002 due to the higher share of sales of fuel oil to the thermoelectric segment in domestic consumption; Eni’s sales to this segment were not material.~~24.1%.
        Eni concluded the reorganization of its wholesale activities by concentrating all businesses into one company (Atriplex SpA) that integrates in one central and peripheral commercial structure the segments of large and small retailers and consumers. The business was transferred as of January 1, 2003.
        Sales to ~~Eni’s Petrochemical segment~~petrochemical companies in Italy ~~(3.82~~(2.79 million tonnes) ~~decreased~~declined by ~~410,000~~1.03 million tonnes, down ~~9.7%,~~27% due mainly to lower availability of ~~specific~~products resulting from refinery ~~products (transfer~~processing (as a consequence of the conferral of the Priolo refinery and the standstills atof the Gela refinery)~~, while~~; other sales ~~(7.47~~(6.45 million tonnes) ~~decreased~~declined by ~~410,000~~1.02 million tonnes, down ~~5.2%.~~14%, due to lower sales to other oil companies and traders.
        Outside Italy, wholesale sales ~~(5.65~~(6.01 million tonnes) increased by ~~100,000 tonnes. Other sales (9.29 million tonnes) increased by 770,000~~360,000 tonnes, up ~~9%,~~6% due mainly to higher sales ~~to oil companies.~~in Germany and Spain. Other sales (9.12 million tonnes) decreased by 170,000 tonnes, down 2%.
Other ~~Activities~~Businesses
        Eni manufactures MTBE, a gasoline additive, through its production plant located in Ravenna, Italy (with a capacity of 120,000 tons/year), and through plants operated by joint ventures in Venezuela and Saudi Arabia. Eni is also a producer of methanol through a plant operated in a joint venture in Venezuela. Additionally Eni produces and markets specialty products such as solvents, paraffins, sulfur and aromatics.
LPG
        Eni is a leader in Italy in the production, distribution and marketing of ~~LPG with a~~LPG. In 2003 it sold 710,000 tonnes on retail and wholesale ~~market share of 20.9%~~markets (777,000 tonnes in ~~2002, while~~2002) with a 19.4% market share in 2003. Additional 335,000 tonnes were sold to third parties.
LPG activities in Italy derive their products from seven Italian refineries and from imports received at the three coast storage sites located in Livorno, Naples and Ravenna. Product availability and customer requirements are met also with other 12 owned plants/storage sites in Italy and 45 contracts for ~~automotive use was 23.8%. Eni~~bottling and storage with third parties’ facilities. Eni’s LPG sales network is organized over seven sale areas with 19 direct sales offices, 15 agencies and 30 concessionaires. Products are sold also ~~has~~to 140,000 customers owning small tanks, while the sale network of LPG bottles includes over 12,000 outlets. In the past few years LPG pipelines were developed and over 12,000 customers are served through direct links with 95 storage facilities.
        Outside Italy, wholesale sales amounted to 1.72 million tonnes with a ~~significant presence~~decrease of 60,000 tonnes, down 3%, due to lower consumption. Market share in Brazil was 21.4% (21.3% in 2002), and in Ecuador ~~with market shares of 21.3% and 37.5% respectively.~~
     ~~Eni’s main activities~~it was 37.4% (37.5% in ~~Brazil concern the direct sale~~2002). In 2003 Eni sold 1,346,000 tonnes of LPG ~~to commercial and industrial users as well as the sale of bottled LPG, mainly employed~~ in ~~household use.~~Brazil. There Eni owns ~~28 LPG storage~~25 bottling facilities and ~~28 bottling facilities with a~~26 storage facilities. Its sales network ~~composed of~~includes over 5,000 vendors. Besides bottled LPG, Eni also sells LPG directly to over 16,000 customers, provided with tanks of varying sizes under gratuitous loans. In the near future capital expenditure will be aimed at expanding and upgrading its bottle manufacturing activities (Brazilian laws allow bottlers to handle only their own branded bottles), installing new LPG tanks and modernizing bottling facilities.outlets.
Lubricants
        Eni operates 1312 (owned and co-owned) blending plants, in Italy, Europe, North and South America, Africa and the Far East.
        In Italy Eni is a market leader ~~in Italy~~ in lubricants with the manufacturing of base oils, primarily at its refinery in Livorno, and in marketing. Eni owns a 33.33% share in facilities in Italy for the reprocessing of used oils ~~for the manufacture of base oils~~ and ~~greases, it also owns~~ two facilities for the production of additives and solvents.
        In ~~2002,~~2003 Eni started a renewal of its lubricant lines in Italy and launched new or renewed products in a new wholly recyclable PET packaging, manufactured at the Livorno plant. The new line, the first in the world in this material, is the outcome of in-house research and of the application of proprietary technologies aimed at protecting the environment and improving product quality.
        In 2003, retail and wholesale ~~markets~~ sales in Italy amounted to ~~154,00~~150,000 tonnes with a ~~26.7%~~
25.8% market share. Outside Italy sales amounted to approximately ~~130,000~~160,000 tonnes, of these about ~~42%~~49% were registered in Europe (mainly Germany, Netherlands and Spain) and ~~34%~~51% in the Americas (Brazil, United States and ~~the United States)~~Argentina).
        Oxygenates
        Eni, through its affiliate Ecofuel, sells about 2 million tonnes of MTBE (11% of world demand) and methanol. About 70% of products are manufactured in Eni’s plants in Ravenna, Venezuela (in joint venture with Pequiven) and Saudi Arabia (in joint venture with Sabic), the remaining 30% is bought and resold.
        Capital expenditure
        See “Item 5 – Liquidity and capital resources – Capital expenditure by segment”.
Table of Contents
Petrochemicals
        Eni operates in the businesses of olefins and aromatics, basic intermediate products, chlorine derivatives, polystyrene, elastomers and polyethylene. Its major production sites are located in Italy and in Western Europe.
        Effective from January 1, 2002 Eni transferred its Strategic Chemicals businesses owned by Enichem SpA to Polimeri Europa Srl which (both wholly-owned subsidiaries of Eni). These businesses includes EniChem’s core activities in olefins and aromatics, intermediate products, styrene and elastomers produced in Italy in Brindisi, Sarroch, Ferrara, Gela, Mantova, Porto Marghera, Priolo, Ravenna and Settimo Milanese. Also the research centers of Ferrara, Mantova, Porto Marghera, Ravenna and Novara were transferred, as well as the interests in industrial and commercial companies in Italy and outside Italy and about 6,100 employees. Certain plants were not transferred. Assets transferred had a net value of euro 432 million (determined by an independent expert named by the court). At the same time Polimeri Europa Srl (now Polimeri Europa SpA), which produces and sells mainly basic petrochemicals and polyethylene, increased its capital (fully paid in by Enichem SpA), for a nominal value of euro 359 million and additional-paid-in capital of euro 73 million. The transaction was entirely inter-company and for purposes of legal re-organization only. Accordingly, there was no effect on the consolidated financial statements. Despite the fact that Eni owned 100% of Polimeri Europa Srl from April 2001, it continued to account for this company under the equity method, in light of the fact that it intended to sell it in 2002, after the transfer of the above mentioned assets. This treatment is consistent with Eni’s principles of consolidation. When the financial statements for the year 2001 were approved by Eni’s Board of Directors, negotiations for a possible sale were underway. During 2002 these negotiations failed and Eni began to consolidate Polimeri Europa SpA.
     The persistence of negative market conditions and the structural problems of petrochemicals worldwide, related to overcapacity, made the need for restructuring Eni’s petrochemical activities compelling. In November 2002 Eni started procedures for selling its elastomer business which produces thermoplastic rubber, specialty rubber and latices in Ravenna and Ferrara in Italy, Hythe and Grangemouth in the United Kingdom, Champagnier in France and Baytown in the United States with a total of 1,895 employees. In 2002 the elastomer division generated revenues of euro 581 million and sales of 422,000 tonnes. The due diligence phase is underway. In 2002 Eni shut down the Porto Torres soda-chlorine plant and the Porto Marghera acetylene plant.
     ~~In 2002~~2003 the demand for petrochemical products was affected by the slowdown of ~~worldwide~~the European economy and by the crisis of Asian markets in the second quarter, whose effects were ~~partly offset~~enhanced by the ~~build-up~~chronic excess production capacity of ~~stocks by end users. Margins~~this industry and the competitive pressure of manufacturers from the Middle East and South East Asia, who benefit from lower production costs as compared to European manufacturers. In this context the margins of petrochemical products, ~~declined significantly over 2001,~~ in particular ~~for olefins and elastomers,~~polymers, declined over 2002, due to the increase in monomer costs that could not be totally transferred onto sale prices due to a ~~decrease~~weak demand and competitive pressures. Forecasts for 2004 indicate a modest recovery in ~~selling~~demand, but the strong competitivity of the sector will keep prices ~~(down 8.1% on average) higher than~~under pressure, even if a modest decline is expected in the ~~decline in prices~~cost in euro of oil-based ~~feedstocks (down 1.2% on average). Indications~~feedstocks. See "Glossary" for a definition of ~~a return~~margin.
        Within its restructuring process, in the light of the persistent weak conditions of the trading environment, Eni intends to ~~profitability~~continue the restructuring process of its petrochemical activities with the objective of reducing the number of its industrial plants and sites and increasing efficiency. In this context in 2003 ~~are affected by~~Eni defined the ~~high risk~~sale of ~~further increases~~the Baytown (Houston, Texas) plant to Lee Chang Yung Chemical Industry Corp. (LCY) for dollar 41 million. The Baytown plant has been operating since 1993 with a production capacity of 50,000 tonnes/year of styrenic block co-polymers, thermoplastic rubber used in ~~oil-based feedstocks prices due to geo-political tensions~~modified asphalt, decking systems, insulation systems, adhesives and ~~uncertainties on~~footwear. In 2004 a plan is underway for the ~~future recovery~~final standstill of ~~world economy.~~
     ~~The prices of Eni’s principal petrochemical products decreased on average by 8.1%;~~certain plants (the Porto Marghera butadiene plant, the ~~main declines concerned polyethylene (down 13%,~~polybutadiene cis, compound line ABS and dimethylcarbonate plants in ~~particular HDPE) and elastomers (down 9%, in particular BR and SBR general purpose rubbers)~~Ravenna).
        Sales of petrochemical products ~~(6,307,000~~(5,266,000 tonnes) ~~increased~~decreased by ~~1,074~~227,000 tonnes ~~up 20.5%~~over 2002, down 4.1%, due ~~mainly~~ to ~~the entry into scope~~a generally weak demand and lower product availability related to standstills of ~~consolidation of Polimeri Europa~~plants for maintenance and ~~to the building up of stocks~~accidental causes. Production (6,907,000 tonnes) declined by ~~end users in the first half of 2002, in particular of polyethylene and styrenic polymers. Sales of intermediate products increased significantly.~~
     ~~Production (9,575,000 tonnes) increased by 1,745~~209,000 tonnes, ~~up 22.3%. The increase in production of core business activities due also to the consolidation of Polimeri Europa was offset by the decline in chlorine~~
~~production, determined by the shutting~~ down ~~of the soda-chlorine Porto Torres plant and by the sale of the polyurethane business (effective from May 2001)~~2.9%.
        Total nominal production capacity ~~declined~~increased by ~~1%,~~1 percentage point, due to ~~the shutting down of the Porto Torres soda-chlorine plant and sale of the polyurethane business.~~increases in polymer manufacturing plants outside Italy. The average capacity utilization rate calculated on nominal capacity ~~was substantially stable (72.1%~~declined by 3 percentage points (from 74.3 to 71.3%)., due to a weak demand and to standstills of plants for maintenance and accidental causes.
        About ~~42%~~39% of total production was directed to Eni’s own production ~~cycle.~~cycle (37% in 2002). Oil-based feedstocks supplied by Eni’s Refining & Marketing ~~division~~segment covered ~~52%~~30% of requirements, ~~in 2002.~~a decline over 2002 due to the contribution of the Priolo refinery to Erg Raffinerie Mediterranee Srl (Eni’s interest 28%) effective from October 2002 and the standstills of the Gela refinery (see Operating Review — Refining & Marketing — Refining, above).
        The table below sets forth Eni’s main petrochemical products availability for the periods indicated.

Year ended December 31,

1998 1999 2000 2001 2002

(thousands of metric tons)
Basic petrochemicals 6,305 6,354 6,475 6,119 6,634
Styrene and elastomers 1,629 1,584 1,693 1,537 1,565
Polyethylene 109 109 108 84 1,376
Polyurethane 247 252 255 91
8,291 8,298 8,532 7,830 9,575
Internal consuption (3,740 ) (3,634 ) (3,674 ) (3,185 ) (3,979 )
Purchases and change in inventories 981 957 757 588 711
Total products 5,532 5,622 5,616 5,233 6,307
Year ended December 31,

1999 2000 2001 2002 2003

(thousands of metric tons)
Basic petrochemicals 6,354 6,475 6,119 4,304 4,014
Styrene and elastomers 1,584 1,693 1,537 1,538 1,635
Polyethylene 109 108 84 1,274 1,259
Polyurethane 252 255 91

8,298 8,532 7,830 7,116 6,907

Internal consumption (3,634) (3,674) (3,185) (2,607) (2,651)
Purchases and change in inventories 957 757 588 984 1.010

    Total products 5,622 5,616 5,233 5,439 5,266

___________________
(1)
As compared to 2002, in 2003 Eni's activities have been grouped differently: Syndial (former EniChem) was included in the "Other activities" segment, which includes all Eni companies not included in specific segments. In order to allow for a comparability with prior year, data for 2002 have been reclassified accordingly; prior year data have not been reclassified.
        The table below sets forth Eni’s sales of main petrochemical products by volume for the periods indicated.
Year ended December 31,

1999 2000 2001 2002 2003

(thousands of metric tons)
Basic petrochemicals 4,029 4,002 3,928 2,894 2,704
Styrene and elastomers 1,241 1,253 1,138 1,151 1,171
Polyethylene 115 107 84 1,448 1,391
Polyurethane 236 253 83

    Total sales 5,622 5,616 5,233 5,493 5,266

___________________
(1)
As compared to 2002, in 2003 Eni's activities have been grouped differently: Syndial (former EniChem) was included in the "Other activities" segment, which includes all Eni companies not included in specific segments. In order to allow for a comparability with prior year, data for 2002 have been reclassified accordingly; prior year data have not been reclassified.
Basic petrochemicals
        In 2003 sales of basic petrochemicals (2,704,000 tonnes) decreased by 190,000 tonnes with respect to 2002, down 6.6%, due essentially to the decline registered in olefins (down 14%, with ethylene down 21% and butadiene down 23%) due to a decline in the demand for downstream products, in particular polyethylene and to lower product availability in particular at the Gela cracker, due to the lack of refinery products registered in the second half of the year, at Dunkerque, due to a standstill related to disputes with workers’ unions, and at Priolo, due to a longer than expected maintenance standstill. Aromatics sales decreased by 7.6% (in particular benzene was down 13.4%). These declines were offset in part by higher intermediate sales (up 17.2%) due to new markets in Asia and the Far East which allowed to absorb higher production available.
Basic petrochemical production (4,013,000 tonnes) declined by 291,000 tonnes over 2002 (down 6.8%) due to declines in olefins (down 8.5%, in particular ethylene) and aromatics (down 7.6%). Production of intermediates increased by 4.4%.
Styrene and elastomers
        In 2003 styrene and elastomer sales (1,171,000 tonnes) increased by 20,000 tonnes with respect to 2002, up 1.7%. The increase in styrenes (up 2%) was due to increased polystyrene sales (in particular expandable polystyrene was up 9%) pushed by increasing consumption especially in Eastern Europe in the segment of thermal insulation and industrial packaging. ABS sales declined (down 4%) due to competitive pressures and weak demand. The increase in elastomers (up 1.5%) was due to increased sales of SBR rubber (up 10%) and polybutadiene rubber (up 4%) pushed by the recovery in the tire manufacture segment. Polychloroprene rubber sales declined (down 6%), due to a weak dollar and over capacity in Asia.
        Production (1,635,000 tonnes) increased by 97,000 tonnes over 2002, up 6.3%. Styrenes increased by 7.2%, in particular styrol, while elastomers increased by 4.2% with increases between 8 and 11% in particular in SBR and polybutadiene rubbers, as compared to a 10% decline in polychloroprene rubber.
Polyethylene

Year ended December 31,

1998 1999 2000 2001 2002

(thousands of metric tons)
Basic petrochemicals 3,984 4,029 4,002 3,928 3,681
Styrene and elastomers 1,207 1,241 1,253 1,138 1,178
Polyethylene 106 115 107 84 1,448
Polyurethane 235 236 253 83
Total sales 5,532 5,622 5,616 5,233 6,307
        In 2003 sales of polyethylene (1,391,000 tonnes) decreased by 57,000 tonnes with respect to 2002, down 3.9%, due to a decline in demand that affected all products (declining between 2 and 8%) with the exception of EVA (up 22%) and to lower products availability especially at the end of the year due to the maintenance standstill of the Priolo cracker and the standstill of the cracker and polyethylene plant at Gela related to the standstill of the nearby refinery.
        Production (1,259,000 tonnes) decreased by 15,000 tonnes, down 1.2%.
      Capital expenditure
        See “Item 5 – Liquidity and capital resources – Capital expenditure by segment”.
Table of Contents
Oilfield Services Construction and Engineering
        Through Saipem SpA, a 43% owned subsidiary, Eni engages in the laying of underwater pipelines and installation of offshore platforms and FPSO Systems, in onshore construction (pipelaying and plant erection) and onshore and offshore drilling. Through Snamprogetti SpA, a 100% owned subsidiary, Eni is an international operator in engineering and contracting services, in particular for the oil and gas, chemical and petrochemical industries. In ~~2002,~~2003, Eni’soilfield services and construction activities were positively affected by the upward trend of oil companies’ demand for services which ~~determined an increase~~concerned all its businesses. In the Offshore construction area, the more dynamic businesses were large diameter pipes in ~~activity levels~~Asia and ~~in unit margins~~the field development business in the ~~offshore~~deep waters of West Africa, where a strong growth in the demand for underwater development and laying of small diameter pipes was registered.
        In 2003, Eni’soilfield services and construction activities were positively affected by the upward trend of oil companies’ demand for services which concerned all its businesses. In the Offshore construction area, the more dynamic businesses were large diameter pipes in Asia and ~~offshore drilling activities. The~~ the field development business in the deep waters of West Africa, where a strong growth in the demand for underwater development and laying of small diameter pipes was registered. In Onshore construction, activities in the upstream business were particularly dynamic in Kazakhstan, the Middle East and Africa. In the midstream business the markets with the most promising growth prospects were Central Africa, Russia and the Far East due to the need to develop new infrastructure for the transmission of hydrocarbons to consumer countries.
        Inengineering ~~activity too registered good signs of recovery in~~and contracting demand improved in particular in the area of upstream plants for hydrocarbon ~~treatment, which shows interesting growth prospects~~treatment. In this business the Middle East was the fastest growing area. Good market opportunities were registered also in Latin America, Africa, Russia and ~~where Eni has strong skills~~Caucasus countries (Kazakhstan and ~~technical know-how.~~
Azerbaijan) due to an increase in production capacity. Also the natural gas business was growing. Some plants for the liquefaction of natural gas are under construction in the Middle East, Africa, Asia, Latin America and Australia, while regasification terminals are under construction in Europe. In the refining business, capital expenditure was driven by the need to curb plant emissions, to improve safety and to respect more stringent quality specifications for fuels (especially as concerns sulphur content). In the area of chemicals (covering over 60% of capital expenditure of the petrochemical market) domestic demand in developing countries (China and India) was increasing as well as capacity for cracking and ethylene in the areas were raw materials cost less (Middle East). Capital expenditure in nitrous fertilizer plants (ammonia-urea) was at a standstill in the expectation of the coming onstream of new production capacity in the Middle East. This will lead to an adjustment of markets for these products.
        In ~~2002~~2003 orders acquired (euro ~~7,852~~5,876 million) ~~increased~~decreased by euro ~~4,136~~1,976 million over 2001, up 111%, due to the good trend of marketing activities and orders acquired following the purchase of Bouygues Offshore (euro 1,119 million). About 96% of new orders acquired was represented by work to be carried out outside Italy, and 12% by work originated by Eni companies. In light of the explain in the year,2002. Eni’s order backlog ~~reached~~was euro ~~10,065~~9,405 million at December 31, ~~2002,~~2003, with ~~an increase~~a decrease of euro ~~3,128 million, up 45% as compared to December 31, 2001. Projects outside Italy represented 78% of the total order backlog, while orders from Eni companies amounted to 13% of the total.~~660 million.
Orders acquired and order backlog

(million euro) 2001 2002 2003
Orders acquired 3,716 7,852 5,876
Oilfield Services Construction 2,186 5,454 4,298
Engineering 1,530 2,398 1,578
Originated by Eni companies (%) 15 12 11
To be carried out outside Italy (%) 92 96 91

Order backlog, as of December 31, 6,937 10,065 9,405
Oilfield Services Construction 2,853 5,158 5,225
Engineering 4,084 4,907 4,180
Originated by Eni companies (%) 11 13 10
To be carried out outside Italy (%) 65 78 81
Oilfield Services and Construction
        Through Saipem (a listed company of which Eni currently owns approximately 43% of the ordinary shares, with the balance publicly held), Eni engages in the laying of underwater pipelines and the installation of offshore platforms and FPSO Systems, onshore construction (pipelaying and plant erection) and onshore and offshore drilling. Saipem owns a world-class fleet of technologically advanced vessels.
        Eni intends to ~~develop~~consolidate its competitive ~~position~~positioning in the segment of large ~~EPIC (Engineering, Procurement, Installation, Commissioning)~~EPIC/EPC projects for the development of offshore and deep offshore hydrocarbon fields by ~~leveraging on the strengthening of its role of global contractor following the purchase of Bouygues Offshore and of~~integrating its technological and operational skills with engineering and project management capabilities acquired on the market (among which Bouygues Offshore, Moss Maritime, Petromarine, Idpe). Success in these projects requires an increase in the ~~area of floating production systems. In particular~~ability to evaluate risks, to be a global contractor coordinating project units and central management.
        Eni intends to increase its operating and technical know-how in ~~floating oil production~~the gas-to-market segment, which includes projects for the construction of offshore and onshore natural gas transmission systems, natural gas regasification and inconversion plants. In particular Eni will focus on LNG floating production systems that integrate production, storage, transport and regasification of natural gas.
        Offshore construction remains the key business with the highest expected growth rates. Eni intends to ~~increase the relative importance of offshore construction and floating production systems expanding its presence in key areas~~develop in the ~~Middle East,~~area of leased FPSO for which West Africa is the ~~Caspian Sea and South East Asia, strengthening its position in the areas~~region with the most ~~promising growth prospects (currently, West Africa).~~
interesting opportunities. In the field of drilling Eni intends to focus on strategic geographical areas adopting long-term commercial policies that ensure high use of facilities also in case of ~~low~~ economic ~~activity.~~downturn. In the onshore construction sector, Eni will focus on complex projects for the construction of hydrocarbon treatment plants and long distance natural gas transmission infrastructure.
        Eni intends to intensify efficiency improvements in all its activities, by reducing supply and execution costs while maintaining a flexible structure in order to dampen the ~~management~~impact of ~~working capital.~~possible negative cycles.
        Among the most significant orders won in ~~2002~~2003 are:
In the Offshore construction area: in West Africa: (i) a ~~turnkey~~ contract for ~~dollar 662 million for Esso Exploration & Production Nigeria Ltd,~~the construction of facilities in the Kizomba B Project related to ~~a floating production, storage and offloading (FPSO) system for~~ the development of the ~~Erha field~~Kissanje and Dikanza fields in the deep offshore ~~Nigeria.~~of Angola (Block 15). The ~~project~~contract awarded by Exxon Exploration Angola includes engineering, procurement, construction ~~towing~~ and ~~commissioning~~installation of pipes and SURF facilities (Subsea Umbilical Risers Flowlines) connecting the underwater wells to an FPSO vessel developing the fields at water depths of approximately 1,100 meters. In addition Eni will carry out the installation of mooring systems for the FPSO unit. An FDS (Field Development Ship) will perform the installation between the third quarter of 2004 and the third quarter of 2005; (ii) in a consortium with other operators a contract for the extension of the ~~FPSO, consisting~~Amenam field facilities, 60 kilometers offshore Bonny for Elf Petroleum Nigeria Ltd. The contractual scope of a 285-meter long, 63-meter wide and 32-meter high hull and 24,000 tonnes of production modules. The vessel will have a storage capacity of 2.2 million barrels and an initial production capacity of 165,000 barrels/day. The FPSO is scheduled to arrive on the Erha field in June 2005, in line with planned start-up in late 2005; (ii) a turnkey contract, awarded by Mobil Producing Nigeria Unlimited for dollar 345 million for the development of the Yoho and Awawa offshore fields which includes project management,work comprises engineering, procurement, construction ~~transportation~~ and installation ~~hook up~~of a platform and ~~commissioning of one production platform, underwater pipeline laying and the installation of other facilities.~~a mooring system. The Castoro 8 vessel will ~~install~~carry out the ~~platform and lay the pipelines~~installation phase between late ~~2003~~2004 and ~~early~~the end of 2005; (iii) a contract for the Nigerian National Petroleum Corporation/Mobil Producing Nigeria Unlimited joint venture, for the East Area Additional Oil Recovery Project which includes engineering, procurement, construction and installation of three platforms for a total weight of approximately 3,500 tonnes and the laying of approximately 160 kilometers of underwater pipelines. The offshore installation phase will be carried out mainly by the Castoro 8 vessel between the end of 2004 ~~whereas~~and the ~~Saipem 7000 vessel will install the deck during the second~~first half of ~~2004.~~2005; (iv) in a consortium with other operators a turnkey contract for the construction of the topsides of an FPSO unit for the Dalia oil field in the deep offshore of Angola for TotalFinaElf E&P Angola. The ~~project~~contract includes engineering, procurement, fabrication and assembling of the production system. The contract is expected to be completed by the ~~end~~third quarter of ~~2004; (iii)~~2006; in Russia: a contract including engineering, procurement, construction and installation of a system of pipes that will link the ~~EPSC2 turnkey~~Lunskoye and Piltun-Astokhskoye platforms to the Russian island of Sakhalin for Sakhalin Energy Investment. The works will be carried out by the Castoro 2 and Semac 1 vessels in the third quarter of 2004 and of 2005; in the Caspian Sea: a contract for ~~phase 4 of~~AIOC (Azerbaijan International Operating Company) for the ~~Peciko Project for TotalFinaElf for euro 149 million. The contract includes engineering, procurement,~~ transport and installation of ~~two~~the East Azeri and West Azeri platforms and ~~six sealines, offshore east Kalimantan~~of a pre-drilling template (a support structure for a drilling platform) within Phase 2 of the development of the Azeri-Chirag-Gunashili field, located in ~~Indonesia. Marine activities~~the Azeri waters of the Caspian Sea. These works will integrate those performed ~~by Castoro 2~~in Phase 1 and ~~Maxita~~ are ~~expected~~due to be completed by ~~July 2004; (iv) a~~the summer of 2006; in Australia: an EPIC contract for ~~euro 63 million~~Conoco Phillips Pipeline Australia Pty Li for ~~Shell~~installation engineering, transport, installation and relevant activities for the ~~Goldeneye Project~~Bayu Undan-Darwin Pipeline.
In the Onshore construction area in Russia: a turnkey contract awarded to a consortium led by Saipem and including Starstroi, LUKoil-Neftegazstroy and Amec Spie Capag for the construction of an onshore oil and gas pipeline system on the Russian island of Sakhalin in the ~~North~~Ohostk Sea ~~comprising~~facing eastern Siberia for Sakhalin Energy Investment. The contract covers engineering procurement and construction (EPC) of an 800-kilometer long twin pipeline system connecting the ~~laying~~Piltun-Astokhskoye and Lunskoye offshore fields, located north-west of ~~two sealines by Castoro 6; (v)~~Sakhalin to a gas and oil export terminal located in ~~joint venture with~~ the ~~Nigerian company Pelfaco a contract for the supply~~southern part of the ~~Okpoho platform for the development~~island. The completion of ~~the Okpoho field offshore Nigeria operated by Eni with a 100% interest. The contract (euro 53 million) includes engineering, procurement, construction and start-up activities.~~
• In the Offshore drilling area: a contract with Statoil for a three-year lease of the Scarabeo 5 platform in the North Sea. The contract (dollar 160 million) includes the option of a 16-month extension.
• In the Onshore construction area: (i) a turnkey contract for the construction of an oil treatment plant in the Rhourde Ouled Dejmaa (ROD) field in Algeria with a capacity of 80,000 barrels/day for Sonatrach/BHP for dollar 129 million representive Eni’s share. The contract provides for the engineering, procurement and construction of the treatment plant and its auxiliary installations (a network of pipelines and some storage sites) and the provision of services for the operation of the plant; (ii) a contract with the Nigerian company NAOC for the upgrade of the gas plant at Obiafu/Obrikom and the construction of a flow station near the Irri field in Nigeria. The contract provides for the engineering, procurement and construction of the plant for an amount of dollar 72 million.
     At December 31, 2002, the order backlog of Saipem amounted to euro 5,158 million (compared with euro 2,853 million at December 31, 2001), of which approximately 96% related to projects outside Italy and approximately 12% related to orders from Eni group companies.
     ~~On July 9, 2002, Saipem completed the acquisition of Bouygues Construction’s 50.8% interest in Bouygues Offshore after receiving the approval of the European Antitrust Authority. Bouygues Offshore~~activities is ~~a French company leader~~expected in the ~~field~~second half of 2006.
        In April 2003, after obtaining authorizations from the Indian Authorities, Eni finalized the purchase of IDPE (International Development Process and Engineering), an Indian engineering company located in Chennai, in the Tamil Nadu state, for a total of approximately dollar 3 million. IDPE, a company employing 210 engineers, provides a variety of engineering services for ~~the~~ oil ~~industry. The cash offer price was euro 60.08 per share. Following approvals from the French~~ and ~~USA market authorities~~gas projects, namely basic and detailed engineering, procurement services, construction supervision and commissioning assistance. This acquisition allows Saipem ~~launched a tender offer for the remaining shares held by the public at the same price paid~~ to ~~Bouygues~~further strengthen its engineering capabilities.
Business areas
Offshore Construction for its majority interest. This tender offer on the French market was completed on September 6, 2002 with the purchase of a further 46% interest in Bouygues Offshore (thus bringing Eni’s total amount of voting rights to 96.8%). On September 23, 2002, Saipem performed a repurchase offer followed by a squeeze-out of the minority shareholders. Such procedures were closed on October 30 and Bouygues Offshore shares were withdrawn from the Paris and New York Stock Exchanges. At the end of these procedures Saipem owned 100% of the voting rights and 98.8% of the share capital, the remaining 1.2% being represented by treasury shares held by Bouygues Offshore for its stock option plans. The total cost of this transaction was euro 906 million (net of cash acquired for euro 100 million).
        ~~The combination of Saipem’s construction capabilities supported by technologically advanced vessels and Bouygues Offshore’s engineering and project management expertise creates an operator able~~Eni intends to ~~compete in the market of turnkey projects to the oil industry. With this acquisition Saipem strengthens~~consolidate its competitive positioning in the ~~provision~~segment of large EPIC/EPC projects for the development of offshore and deep offshore hydrocarbon fields by integrating its technological and operational skills with engineering and project management ~~engineering,~~capabilities acquired on the market (among which Bouygues Offshore, Moss Maritime, Petromarine, Idpe). The demand for these services is expected to increase, given the objective constraints to the expansion of hydrocarbon reserves in conventional environments. The development of deep offshore fields in the future will be performed more and more frequently by means of floating hydrocarbon production systems, among which FPSOs are the most important due to their storage capacity which allows to develop fields remote from transmission infrastructure and to their versatility which allows to relocate vessels on nearby fields thus expanding their useful life. On the other hand the demand for fixed platforms for the development of offshore fields is slowly declining. Eni intends to increase its know-how in both floating oil production and storage systems and in LNG floating production systems that integrate production, storage, transport and regasification of natural gas.
        Eni is engaged in the segment for the design, procurement and installation of fixed platforms, in particular in the segment of ultra heavy lifting, thanks to the technical features of its vessels. It is also engaged in the laying of subsea pipelines and large diameter transmission infrastructure both in conventional and deep offshore.
        Its offshore construction ~~services~~fleet is made up of 25 vessels and 45 robotized vehicles able to perform advanced subsea operations. Among its major vessels are: (i) Saipem 7000, semi-submersible vessel with dynamic positioning system, with 14,000 tonnes of lift capacity (the highest in the world), capable to lay pipelines in ultra-deep waters 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 Castoro 6 semi-submersible vessel, capable of laying pipes in waters up to 1,000 meters deep; (iii) the Saipem 3000 multifunction vessel for the development of hydrocarbon fields, with a particular focus on challenging projects in remote areas, deep-water environments and gas-related projects. The new group will be a truly worldwide contractor, with strong local presence in strategic and emerging areas such as West Africa,derived from the former Soviet Union, Central Asia, North Africa, Middle East and South East Asia. Bouygues Offshore has a sound competitive position in the market of services for onshore and offshore oil and gas production facilities. Other activities include maintenance services, construction of port facilities, and LNG supply. Bouygues Offshore’s main geographic areas of activity are Europe and Africa. The company employs approximately 2,500 engineers.
     In 2002 Eni purchased: (i) a 50% interest in European Marine Contractors (EMC), operating in the laying of large diameter subsea pipelines in the North Sea, in which it already held a 50% interest. Eni’s outlay amounted to euro 122 million. With this acquisition Eni obtains full availability of EMC vessels, among which the semisubmersible drilling rigs Castoro 6 and Semac and consolidates its capability in the field of large diameter pipelaying in deep waters: (ii) the whole share capital of SaiClo Luxembourg for euro 23 million, ownertransformation of the Maxita, ~~multipurpose vessel~~provided with a crane capable of lifting over 2,000 tonnes, it is capable of laying flexible and umbilical lines and mooring systems in deep waters with the “reel”, “J” and “S” laying techniques; (iv) the Semac semi-submersible vessel used for large diameter underwater pipe laying; (v) the Saibos FDS for the development of underwater fields in dynamic positioning, provided with cranes lifting up to 600 tonnes and a system for vertical pipe laying to a depth of 2,000 meters.
Offshore Drilling
        Eni provides offshore drilling services to oil companies all over the world and holds relevant market shares in key areas such as West Africa, the Middle East, North Africa and South America (Peru). Its offshore drilling fleet consists of 10 advanced vessels properly equipped for its primary operations and some drilling plants installed on board of fixed offshore platforms. The technical features of its vessels allow Eni to keep significant market positions in the most complex areas of deep and ultra deep waters. One of its most important offshore drilling vessels is the Saipem 10000, designed to explore and develop hydrocarbon reservoirs down to 10,000 meters operating in excess of 3,000 meters of water depth in full dynamic positioning. The ship has a storage capacity of 140 KBBL and can 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 dollar 300 million. The vessel will is operating, also on account of Eni, in ultra deep waters (over 1,000 meters) in West Africa and Brazil.
        Other relevant vessels are Scarabeo 5 and 7, fourth generation semi-submersible rigs able to operate at depths of 1,900 and 1,200 meters of water respectively, and to drill wells at maximum depths of 8,000 meters.
Leased FPSO
        Eni provides to oil companies services for the development of offshore hydrocarbon fields by leasing its fleet of FPSO vessels. The leasing of an FPSO represents an alternative to direct expenditure for oil companies. West Africa is the market with the highest expected growth rates due to the number of development projects announced or started-up by oil companies. Eni’s main vessels are: (i) FPSO Firenze, which, after its conversion into a floating production and storage vessel, has been installed in Eni’s Aquila field, in the Adriatic Sea, and operates at a depth of 850 meters; (ii) FPSO Jamestown, also converted to a floating production and storage vessel, that was installed in the oil fields of Okono and Okpoho operated by Eni with a 100% interest in the deep offshore of Nigeria; (iii) FPSO Mystras, which will substitute the Jamestown in the mentioned fields.
Onshore Construction
        Eni operates in the construction of hydrocarbon treatment plants (separation, stabilization, collection of liquids and treatment of natural gas) and in the installation of large onshore transmission systems (pipelines, pumping and compression stations, terminals). Its main operation areas in the production/transmission area (upstream/midstream) are Central Asia, Africa and the Middle East. Eni intends to consolidate its competitive positioning in this segment by exploiting in particular the opportunities provided by frontier areas, characterized by the lack of infrastructure, where it can leverage on its ability to operate in difficult areas and to manage complex projects. Eni is also capable of providing onshore services complementary to offshore operations, which represents a competitive advantage for the development of projects in areas such as the Caspian Sea.
Onshore Drilling
        Eni operates in this area as main contractor for the major international oil companies.
        Onshore drilling is conducted through 47 facilities located in Italy, Saudi Arabia, North Africa, Nigeria, Kazakhstan, Venezuela and Russia. Some of these facilities can drill to 10,000-meter depths in high pressure and high temperature environments. Eni intends to focus its activities in areas where it has been present for a long time and to search opportunities in areas with proved development prospects such as Central Asia, the Middle East and Russia.
        In onshore drilling Eni developed extremely advanced technologies with a high degree of automation, which allow it to exploit the opportunities provided by the emergence of new logistically demanding remote areas lacking infrastructure that require the ability to operate in extreme environmental conditions.
LNG
        Eni operates in the LNG market following its purchase of Bouygues Offshore which contributed its competence in the area of liquefaction (in particular tanks) and regasification, complementary to the onshore and offshore transmission of natural gas. The markets offering the highest potential are the United States and Europe.
      Engineering
        Eni, through Snamprogetti, is engaged in engineering and contracting, in the area of plants for hydrocarbon production, refining, treatment and enhancement of natural gas, fertilizers and petrochemicals, pipeline transport systems, electricity generation and infrastructure.
     Its firm standing on international markets as global contractor for complex projects is ensured by various competitive advantages deriving from its long track record in international contracting, its ability to supply integrated packages and turn-key projects, a flexible organizational structure and a continuous development of advanced proprietary technologies. The services offered cover the whole cycle of investments: consulting, feasibility studies, project financing assistance, basic and executive engineering, project management, procurement, supervision and direction of operations, testing and first operation of plant, personnel training.
        In over forty years of activity, Eni has operated in more than 100 countries, building 70 industrial ~~grass-root~~grassroot complexes, over 1,300 plants (refineries, chemical and petrochemical plants, infrastructure, offshore rigs, marine terminals) and engineering 66,000 kilometers of onshore (for 45,000 kilometers of these it also carried out construction works) and 12,000 kilometers of offshore pipelines, including deep waters and hostile environments.
        Eni intends to consolidate its competitive positioning in the market segment of turn key complex projects requiring a wide and integrated range of services, flexible organization and a continuous development of new technologies. It will therefore stress its role of global contractor based on its distinctive operating skills, the level of services provided and advanced proprietary technologies. It will focus its activity on market segments characterized by high opportunities deriving from expected growth rates ~~and by the development of important technologies in strategic areas~~ such as hydrocarbon production ~~treatment~~ and transmission as well as upgrading of natural gas ~~(conversion~~(treatment, conversion and liquefaction) and of heavy crudes. Projects will be selected in such a way as to guarantee a good balance of profitability and risk profiles. Eni intends to pursue a balance between turn-key contracts and special services (such as conceptual, basic, FEED and PMC) ~~as well as the participation in relevant projects.~~. It will also intensify actions for improving efficiency and operating ~~flexibility.~~flexibility also through the development of low cost engineering centers, the simplification of corporate structure and the hiring of highly qualified resources.
        Among the most significant orders won in 2003 are:
in the Middle East: (i) a turnkey contract for the upgrade of the oil production plants of the Bu-Hasa field, 200 kilometers south west of Abu Dhabi (UAE) for ADCO. The project provides for the construction of a GOSP plant (oil, gas and water separation) with a total capacity of 730 KBBL/d including the installation of 4 three-phase separators for 120 KBBL/d, a reinjection system for 150 million cubic meters/day and 120 KBBL/d of water. The plant, expected to be completed in late 2006, is part of the program for increasing production capacity of the Emirate up to 3 mmBBL/d; (ii) in joint venture with the Japanese companies Chiyoda and Mitsui & Co Ltd, a contract for the development of the Ras Laffan project – al Khaleej Gas Project Phase 1 – in Qatar for Exxon Mobil. The project aims at recovering LPG and natural gasoline and includes a complex for the separation, recovery and treatment of natural gas with a capacity of 21 million cubic meters/day. The plant will be completed before the end of 2005 and is part of the program of natural gas production from the enormous offshore natural gas reserves of Qatar; (iii) for Saudi Aramco, a turnkey contract for the upgrading of the Yanbu refinery in Saudi Arabia. The project provides for the construction of catalytic reforming and isomerization plants for the manufacture of lead free gasoline, with a production capacity of 40,000 and 150 KBBL/d respectively. The plants are expected to be completed at the end of 2005 and will allow Saudi Aramco to produce fuels in line with the Government plan for improving air quality;
in Italy: a gasification complex for Eni’s refinery at Sannazzaro de’Burgondi for the conversion of tar (heavy residue from visbreaker) into syngas, which will feed Eni’s 250 megawatt power station at Ferrera Erbognone (see Gas & Power — Electricity Generation, above). Hydrogen also will be recovered and used for upgrading refinery products;
in North Africa: an EPC turnkey contract for the construction of a plant for the treatment of gas and the stabilisation of condensates from the offshore Bahr Essalam field at Mellitah, on the Libyan coast for AgipGas BV. The plant, which will have three trains with a total capacity of 6.6 billion cubic meters/year, will include sweetening, dehydration, SRU (sulphur recovery unit) and fractioning of LNG, storage and utilities. This plant and its offsite facilities are integrated with the gas treatment units related to the production of the onshore Wafa field.
Business areas
Plants
Oil & Gas. Eni is engaged in the segment of plants for hydrocarbon production, natural gas treatment and upgrading, in particular recovery and fractioning of natural gas liquids (NGL) and natural gas liquefaction. Based on the capital expenditure plans announced by oil companies, Eni expects a strong growth in the demand for services from the upstream industry.
Refining. Eni is engaged in the segment of engineering for primary distillation, reforming, fluid catalytic cracking (FCC) plants and also in the segment of hydroconversion of residues and heavy distillates plants. Eni is developing a new strategically relevant technology called EST (Eni Slurry Technology) aimed at meeting the growing demand for upgrading heavy crudes and converting and using refining residues (See below). Eni is also present in the market for the design and construction of plants for electricity generation in combined cycle from refining residues (IGCC — Integrated Gasification Combined Cycle).
Chemical Complex. Eni is engaged in the area of plants for the manufacture of synthetic gases (syngas, hydrogen and methanol) and gas-to-chemicals (ethylene and ethane derivatives) and holds a leading position in the design and construction of plants for the production of nitrogen-based fertilizers and oxygenated additives for gasoline, based on proprietary technologies. Eni intends to consolidate its competitive position through the continuous improvement in technologies and know-how in natural gas upgrading.
Energy and the Environment. Eni is active in the design and construction of combined cycle power stations. In 2003 combined cycle units were started-up for a total capacity of 1,200 megawatts at EniPower’s Ravenna and Ferrera Erbognone power stations. In the field of waste disposal Eni built 10 facilities for the incineration of industrial, noxious and solid urban waste. In particular, Eni holds a new proprietary technology for the total abatement of noxious elements present in fumes from combustion.
Field upstream facilities and pipelines
        Eni is engaged in the segment of design and construction of pipelines for the transmission of hydrocarbons, for 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. Eni has new advanced technologies for the construction of high pressure pipelines in deep waters for long distance transmission of large volumes of natural gas and intends to strengthen its competitive positioning in this area by leveraging its know-how and expertise.
Infrastructure
        Eni is active in the field of design and construction of great infrastructure in Italy. The Italian market for great infrastructure shows interesting prospects after the approval of a 10-year plan for the construction of large infrastructure by the Italian Government. The types of works, their size, the introduction of simpler and faster authorization procedures, the modes of implementation of projects based on their critical variables (time, cost, quality) and the acknowledgement of the role of general contractors are the elements on which Eni bases its efforts to win orders in this area.
        In 1991, Eni’s Oilfield Services and Engineering segment, through its interest in Cepav Uno and Cepav Due consortia, signed two conventions with TAV SpA ~~(«TAV»~~(“TAV”) to participate in the construction of the high speed railway from Milan to Bologna and from Milan to Verona. Eni holds a majority stake in both Cepav Uno (Eni’s interest 50.36%), in charge of building the track from Milan to Bologna (currently under construction) and Cepav Due (Eni’s interest 52%), in charge of building the track from Milan to Verona (for which arbitration is under way against TAV due to the withdrawal of the concession previously awarded to TAV itself from Ferrovie dello Stato).
     ~~Among~~ Within the ~~most significant orders won~~project for the construction of the tracks for high speed/high capacity trains from Milan to Bologna an addendum to the contract between Cepav Uno (in which Eni holds a 50.36% interest) and TAV SpA was signed in ~~2002 are:~~
• in the Oil & Gas and Refining area: (i) in joint venture in equal shares with Technip-Coflexip, Kellog Brown & Root and JGC, a turnkey contract for the expansion of the Bonny liquefaction plant in Nigeria for Nigeria LNG. The «NLNGplus» project has a value of over dollar 1.7 billion (25% is Eni’s share) and provides for the construction of the fourth and fifth LNG production trains with a capacity of approximately 5.2 billion cubic meters/year each. The trains will produce also 1.1 million tonnes/year of LPG and 0.4 million tonnes/year of condensates. When the two trains are completed in 2005, the Bonny plant will process 75 million cubic meters of natural gas/day with a total production of 21.8 billion cubic meters/year of LNG and 2.3 million tonnes/year of LPG; (ii) a turnkey contract for the design, procurement and construction of an industrial complex near Qatif, about 30 kilometers from Dhahran in Saudi Arabia for Saudi Aramco. The complex includes two plants for the separation of oil from gas (GOSP) and units for natural gas treatment, oil stabilization and power generation with a treatment capacity of 800,000 barrels/day. The work is expected to be completed in 31 months; (iii) in joint venture with the Japanese companies Chiyoda and Mitsui & Co Ltd, a turnkey contract to build the fourth production line of liquefied natural gas at the Ras Laffan complex for Ras Laffan Liquefied Gas Company in Qatar that will produce approximately 4.7 million tonnes/year of LNG. The plant will be completed before the end of 2005. The contract includes engineering, procurement and construction. The Ras Laffan complex produces 6.6 million tonnes/year of liquefied gas in two production lines. Snamprogetti is working also on the design and construction of the third line, with a capacity of 4.7 million tonnes/year under a contract won in 2001;
• in the Chemicals and fertilizers area: a contract to build a fertilizer complex in Oman. The project has a value of dollar 770 million (50% is Eni’s share) and will be carried out through a 50/50 joint venture with Technip-Coflexip for Oman-India Fertilizer Company (OMIFCO) and will be the world’s largest grass-roots fertilizer complex. It will consist of two 1,750 tonnes/day ammonia plants and two 2,530 tonnes/day urea plants. The contract includes engineering, design, materials, construction
management, start-up supervision and training of OMIFCO personnel. All these plants will use proprietary technologies of Snamprogetti and its affiliate Haldor Topsøe, a Danish company (in which Eni holds a 50% interest) operating in the provision of engineering services and the manufacture and sale of catalysts for the chemical, petrochemical and refining industries.
     ~~At December 31, 2002,~~June. Major changes concern the ~~order backlog~~continuation of ~~Snamprogetti amounted~~works, the division of works into five functional stages that are expected to ~~4,907 million euro (compared with 4,084 million euro at December 31, 2001),~~be completed between the spring of ~~which approximately 35%~~2006 and late 2008, a lump sum payment related to ~~projects outside Italy.~~the new 30 changes and the payment of further charges to the consortium. Works completed at the end of 2003 correspond to 40% of the total with an aggregate value of production of euro 1,912 million (of which euro 842 million was expended in 2003).
~~Libya project~~        Capital expenditure
        ~~In Libya, within the joint development plan~~See “Item 5 – Liquidity and capital resources – Capital expenditure by segment”.
Table of ~~the oil, gas and condensates fields of Wafa and Bahz Essalam operated by Eni with a 50% interest (the other partner being the Libyan national company NOC), Eni companies were awarded five contracts:~~
• in a consortium with Hyundai Heavy Industries, a turnkey contract for the construction and installation of the Sabratha production platform, offshore western Libya, about 100 kilometer north of Tripoli, within the development of the offshore Structure C fields in permit NC-41. The total value of the contract is estimated at euro 620 million, of which Saipem’s share is euro 420 million and includes project management, engineering, procurement, fabrication, transportation and installation, hook-up and commissioning, start-up and six month of operational assistance. The platform will be installed during the first half of 2004 at a water depth of 190 meters using the Saipem 7000 vessel;
• a turnkey contract to a consortium led by Snamprogetti (other partners being ABB Lumus and Hyundai Engineering and Construction) for the construction of a grass-root treatment plant for gas, crudes and liquid hydrocarbons from the Libyan offshore at Mellitah. The total value of the contract is euro 700 million. The consortium will provide engineering, procurement and construction of the plant that will have a capacity of 6.66 billion cubic meters/year. Work is expected to be completed in 29 months;
• the third contract to Saipem with a value of approximately euro 400 million, includes project management, engineering, procurement, fabrication, transport and installation of two pipelines linking the Sabratha offshore platform to Mellitah on the Libyan coast, in addition to fabrication and installation of auxiliary facilities. The project will be carried out by the Castoro 6 vessel during the first half of 2004 and is expected to be completed in the spring of 2005;
• a fourth contract awarded to Bouygues Offshore in joint venture with Doris Engineering for euro 133 million includes design, construction and installation of an underwater production system at a water depth of 190 meters;
• a fifth contract for approximately euro 285 million was awarded to Saipem and involves the laying of the Green Stream pipeline linking Mellitah on the Libyan coast about 80-kilometer west of Tripoli to Gela in Sicily. The 540-kilometer long pipeline with a 32-inch diameter will be laid at a maximum water depth of 1,160 meters. Pipelaying activities will be carried out during the second half of 2003 by the vessel Castoro 6. The project is scheduled to be completed in June 2004.
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Other Activities
        Eni SpA engages in strategic planning, human resources management, finance, administration, legal affairs, international affairs and corporate research and development functions for the Company. Through Enifin SpA, Societa Finanziamenti Idrocarburi-Sofid SpA and Eni International BV, Eni carries out lending, factoring, leasing and insurance activities, principally on an intercompany basis. Eni also engages in information technology, communications, technology research and other activities.
        Starting from January 2003 Eni’s non-core activities have been reorganized as follows:
Syndial (former EniChem) was included in the ~~«Other Activities»~~“Other Activities” segment, which includes all Eni companies not included in specific segments (such as, among others, EniData, Sieco, Tecnomare, EniTecnologie, Eni Corporate University, AGI);
the new ~~«Corporate~~“Corporate and financial ~~companies»~~companies” segment was created, which includes Eni Corporate, Eni Servizi Amministrativi and the financial companies formerly included in the ~~«Other Activities»~~“Other Activities” segment.
        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.
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Research and Development
        Eni conducts research and development activities within each of its principal operating subsidiaries and through EniTecnologie SpA, which is responsible for corporate research and development. Eni’s research and development expenses amounted to euro 234 million, euro 203 million and euro 175 million in 2000, 2001 and 2002, respectively. In year 2002, 1,390 employees were involved in research and development activities. During the year, 50 applications for patents were filed in Italy (65 in 2001).
     ~~Eni’s activity aims at extending the boundaries of knowledge and promoting~~promotes technological excellence, based on the exchange of experience, expertise and know-how, ~~in the belief that technological excellence is an~~as essential ~~factor~~factors in competition and economic and industrial sustainability. ~~To this end~~
        In 2003 Eni ~~is constantly striving~~consolidated the new model of technological innovation that was outlined in 2002 with the aim of supporting growth and continuing expansion. This entails the integration of R&D skills with industrial applications, focusing innovation efforts on strategic processes capable of generating long-term competitive advantages and advanced performance systems.
        Eni continued the reorganization of its R&D structures by proceeding with the merger of Eurosolare SpA, a company operating in the area of photovoltaic technologies, into EniTecnologie SpA. A similar operation was started with the R&D department of the Exploration & Production division.
        Eni also continued the implementation of its human resources plan, aimed at adjusting available resources and capabilities with the requirements of projects and businesses. An activity of optimization of management processes for technological innovation was started.
        In 2003, Eni invested euro 238 million in research and development (euro 175 million and 203 million in 2002 and 2001, respectively). At December 31, 2003, approximately 1,400 persons were involved in research and development activities (1,390 and 1,500 as of ~~technologies, services~~December 31, 2002 and ~~products with a distinctively innovative character.~~2001, respectively).
        In 2002 Eni reviewed the role of research and development in the light of the following guidelines: (i) to increase resources devoted to upstream issues; (ii) to allocate more resources to the development of prototypes; (iii) to support qualified laboratory research in order to direct it to long-term radical innovation.
        In accordance with these guidelines, the major turning points achieved ~~in 2002~~ have been: (i) the implementation of a new model of innovation which integrates activities aimed at incremental improvement managed by business units with the long-term innovative projects managed by Eni corporate functions by means of a coordination center and the allocation of costs directly to corporate functions for the most innovative projects; (ii) a reorganization of R&D structures aimed at integrating all homogeneous skills and knowledge centers, including the laboratories of the Refining & Marketing division and of Snamprogetti.
        Eni is aware of the key role innovative technologies play in the future development of the hydrocarbon industry. It therefore intends to integrate R&D expertise and its industrial application, focusing on innovative strategic projects capable of creating competitive advantages. Research projects are going to be selected according to a strict evaluation of their return; ongoing projects are going to be monitored in light of the maximization of the value of Eni’s project portfolio. In the ~~course~~next four years Eni intends to significantly increase the resources it deploys in R&D and will focus on lines that can respond to expected market trends in the long to medium term; and in particular on: (i) reduction of ~~2002, many~~mineral risk; (ii) enhanced recovery of hydrocarbons; (iii) optimal management of reserves with high acid gas content (e.g. sulphur); (iv) upgrading of heavy and ultra heavy crudes; (v) high pressure transmission of natural gas; (vi) conversion of natural gas to liquids in order to give value to associated gas or natural gas produced in remote locations; (vii) manufacture of high quality fuels and alternative fuels with better engine and environmental performance; (viii) hydrogen as energy vector.
        Eni intends to search global alliances in order to participate in research projects that have a longer horizon than the four-year plan. Below is a brief description of the main techniques applied or under development.
Hydrocarbon exploration and production
Innovative technologies ~~were implemented at~~for subsoil survey.In order to prepare a geological model of fields as near as possible to reality and therefore to reduce exploration risks and uncertainties related to fields, Eni developed significant industrial applications of highly innovative technologies. In particular, the ~~industrial level~~so called CRS Stack (Common Reflection Surface Stack) is able to process seismic imaging and to obtain information on the “velocity model” with significantly higher results than conventional technologies. This allowed to improve the final seismic image of the Elephant field in Libya. Significant developments derived also from the development and/or application of advanced technologies for modelling and monitoring fields: innovative technologies for studying fractured fields, cross-well seismics, 4D time lapse seismics to monitor the ~~first time:~~behaviour of producing fields over time.
     ~~In the Exploration & Production division, an innovative technology (Level 6 Junction) was~~Drilling of "avanced wells".Eni developed and applied at industrial level a series of technologies that allow Eni to drill highly complex wells with greater operating efficiency. “Lean profile” drilling, developed and patented by Eni, is applied in deep vertical and deviated wells especially in high pressure and high temperature environments allowing a reduction in time and costs as well as the final environmental impact as it reduces the volume of rock handled. Wells obtained with this technique are high quality and low risk. It basically consists in reducing to a minimum the tolerance between the diameter of wells and their lining columns while keeping the production casing unchanged. The verticality and direction of the hole are guaranteed by innovative tools such as “Vertitrack” (formerly SDD, straight-hole drilling device) and “Autotrack”, developed and applied by Eni in cooperation with Baker-Hughes. Lean drilling was successfully applied both in Italy (Val d’Agri, Trecate) and outside Italy (Tunisia, Algeria, Egypt and Russia) and entailed significant benefits such as higher safety and higher savings of costs and time. The ultra deep HP/HT well recently drilled in ~~Nigeria that~~Russia represents a world record for this technology with its 6,826 meters of total depth and the use of a 13"3/8 casing at 4,016 meters lowered in a 14"3/4 hole. The application in Val d’Agri is a record lean drilling in highly deviated wells (a 13"3/8 casing in a 14"3/4 hole with inclination up to 60°).
        In deep water drilling Eni’s innovative proprietary technology is the dual casing running which allows ~~to divide~~for simultaneous drilling of the first two superficial holes of a deep water well, the simultaneous lowering of the superficial casings and the cementing. The application of this technology allows for a significant reduction in time and costs and a perfect verticality of the two casings and the well ~~in a number~~head.
Innovative technologies for the treatment of ~~branches while maintaining safety requirements~~liquids.In the field of transmission and ~~reducing operating costs and impact on the ground (Prime flow).~~
     ~~Another innovative method was~~treatment of hydrocarbons Eni developed and ~~applied. It does not require invasive inspections~~applied innovative technologies with particular attention to multi-phase fluids (water, oil and/or gas) in order to optimize production and reduce its environmental impact. In particular, Eni successfully tested at its Cavone oil center a pilot plant for the removal of ~~pipes, but~~oil from layer waters which allows it to reduce the residual concentration of hydrocarbons in water to less than 10 ppm, starting from an initial content of 1,000 ppm. The system is based on ~~indirect measurements~~the use of adsorbing polymers capable first to capture oil particles and then to release them favoring their coalescence and making them easier to separate. The system is currently being engineered in order to make it useable on platforms. Another ongoing project aims at optimizing new design centrifugal systems for the separation of ~~locating any obstructions,~~water from oil and for the confirmation of innovative technologies for removing soluble organic compounds.
        Also in the field of multiphase pumping Eni is applying innovative technologies as an alternative to traditional production systems in marginal fields, fields located in frontier areas or difficult areas such as ~~waxes~~deep waters. The multiphase technology becomes extremely useful, in terms of economic benefits, in offshore applications where the possibility to transport production from the wells over long distances allows to transfer processing activities on existing facilities and ~~asphaltenic deposits, within flowlines.~~
     In the Refining & Marketing division, marketing of the new formula gasoil «BluDiesel» started and certification was obtained from a major German car manufacturer for an innovative «fuel economy» lubricant.
     ~~In Petrochemicals, improved performance polymers were developed such as linear polyethylene for extensible films and thermoplastic elastomers~~infrastructure, thus significantly reducing technical costs for the ~~compound area. A new competitive process~~development of fields. Infield applications of multiphase pumping have been recently installed offshore and onshore in the United Kingdom and Tunisia with other partners in order to obtain a higher recovery of hydrocarbons.
Management of hydrogen sulphide and sulphur.In 2003 Eni started an important R&D project for the ~~manufacture~~optimal management of ~~ethylbenzene was developed~~reserves with high content of hydrogen sulphide and ~~tested as well as a new catalyst~~sulphur. The project aimed at developing innovative technologies and/or advanced processes able to manage the disposal and possible exploitation of high amounts of acid gas and sulphur that are produced with hydrocarbons, while respecting safety and the environment. In particular the study concerns innovative processes for the ~~manufacture~~separation of ~~linear polyethylene.~~
     ~~Many technologies reached an advanced development stage.~~
     Inhydrogen sulphide and its conversion into plain sulphur and the ~~Exploration & Production segment, initial applications~~storage and/or use of this sulphur. At the same time, other innovative processes are ~~underway based on original proprietary techniques of CRSS, a new method~~being studied for the ~~elaboration~~reinjection of ~~geophysical data, that allows a more accurate definition of subsoil imaging. A new integrated IT application named SCREAM was developed which allows for~~hydrogen sulphide into the ~~search of analogue situations in carbonated reservoirs, in existing database or reporting with a very fast access to geomineral data~~field and information with significant reductions of the time necessary to start production. The corporate research function is developing, among other things, technologies to reduce the density of drilling fluids by means of hollow glass micro spheres and to stop water infiltration by means of the RPM (Relative Permeability Modifier) polymer.its monitoring.
     In the Gas & Power division, the experimenting phase is nearly completed for the «Synthesis of waxes by means of Fischer Tropsch» technology used in a pilot plant built at Eni’s Sannazzaro refinery. Use in a pilot plant confirmed the performance of the new partial catalytic oxidation technology for the production of synthetic gas or hydrogen.
     ~~At the Taranto refinery construction started of the~~
Eni Slurry Technology
        Eni Slurry Technology (EST) ~~demonstration unit with~~is a ~~1,200 barrels/day capacity~~strategically relevant technique that is being developed for meeting the growing need for the upgrading of heavy ~~oils.~~
     ~~Various improvements were introduced in~~crudes and non conventional crudes (asphalt sands) and for the ~~designing~~transformation and ~~laying~~enhancement of ~~pipelines,~~refining residues. EST is a hydrogenating treatment technique which acts on heavy residues from extra-heavy crudes with ~~specific reference~~high content of polluting substances (sulphur, metals, nitrogen compounds and with high Conradson Carbon Residue — CCR). The strategic interest of upgrading heavy crudes derives from the need felt by the oil industry: (i) to enhance relevant reserves of heavy crudes thus increasing proved reserves without recourse to new exploration expenditure; (ii) to requalify the productive structure of most refineries by turning refining residues into valuable products without building additional capacity; (iii) to reduce the environmental impact of refining by eliminating fuel oil which is turned into valuable products and indirectly contributing to the increase in natural gas demand and to the reduction of carbon dioxide emissions. At present this technology is characterized by: (i) feedstock flexibility; (ii) high quality of finished products; (iii) total conversion of processing residues; (iv) no production of fuel oil and coke. Within the development and the pre-marketing phases, a Commercial Demonstration Plant (CDP) with a 1.2 KBBL/d capacity is nearing completion at Eni’s Taranto refinery and is expected to start operations at the end of 2004.
Transmission: TAP Project
        The TAP Project (High Pressure Transmission) aims at developing reliable technologies for making the transmission via pipeline of relevant amounts of natural gas from production areas to the most promising markets economically viable (gas-to-market). This project was started in May 2003 and is expected to last for three years. Activity is aimed at developing the most advanced long distance, high capacity, high pressure and high grade solutions with relevant targets related to: (i) distances over 3,000 kilometers; (ii) natural gas volumes to be transported of about 20-30 billion cubic meters/year; (iii) pressure equal to or higher than 15 Mpa and (iv) use of high and very high grade ~~(X-80 e X-100)~~ steel (e.g. X100). The project phases are: (i) evaluation of the viability of alternative solutions in frontier initiatives; (ii) technological upgrading within the Eni Group and by participating in international R&D projects; (iii) technical-economic evaluation of transport along strategic routes and comparison with LNG solutions; (iv) construction of a portion of a 10-kilometer long pipeline type DN 1200 in X80 steel along an Italian transport route; (v) construction of a portion of pipe DN 1200 in X100 steel operated under high pressure in a testing area in order to ~~advanced telecollection systems~~evaluate the various design, construction and operation options over time.
Conversion of natural gas into liquids
        At Eni’s Sannazzaro refinery a pilot plant for the ~~definition~~conversion of ~~routes~~syngas to a mixture of paraffin hydrocarbons (wax) is operating. The aim of the project is to exploit the enormous volumes of natural gas that are not extracted because too far from end markets and of volumes of natural gas associated to oil for which the only option is reinjection into wells, that could negatively affect liquid production. The conversion of gas allows to manufacture of high quality refined products such as naphtha, kerosene and diesel fuel, totally sulphur and aromatic free. This plant produces 20 BBL/d of wax by means of an advanced technology (Fischer-Tropsch) studied in cooperation with the Institut Français du Pétrole (IFP) and EniTecnologie (100% Eni). The project was started in 1996 and allowed for the filing of 44 patents. Along with the completion of the second test phase in the pilot plant (to be completed by the autumn of 2004), which will consolidate the process book of the hydrocarbon synthesis section, the feasibility study for the commercial developments of the project is underway.
        Eni and IFP are also cooperating to the development of a specific hydrocracking process for the conversion of wax into liquid hydrocarbons with maximization of yields of middle distillates (diesel fuel and kerosene).
Innovative fuels: Plus 98
        In July 2003 on IP branded service stations, sales of Plus 98 started. This new high quality gasoline with better performance in terms of efficiency than conventional gasoline has the following major advantages: (i) an octane number (over 98) three points higher than conventional gasoline, which allows a more regular burning, thus optimizing the process of transformation of available energy into mechanical energy; (ii) easier vaporization, i.e. the fuel’s ability to turn from liquid into vapour, which allows Plus 98 to mix faster with air and produce faster combustion, thus increasing the engine’s response; (iii) detergent power: Plus 98 contains a special additive that prevents the formation of deposits in the engine feeding system, in particular in valves, allowing the engine to maintain its performance over time.
        With Plus 98 Eni confirms its constant attention for the quality of its fuels and the optimization of ~~deep water operations (drilling, field development).~~engine performance and its protection.
Hydrogen and Syngas System
        InThe first phase of the ~~Refining & Marketing division, work continued~~Hydrogen and Syngas System research program was completed in 2003. The project aimed at increasing the utilization rate and the environmental sustainability of fossil energy sources and, based on the ~~quality improvement~~indications emerged, a new project was started for the industrial development of ~~fuels, gasoline, gasoils and lubricants, fuels for special use in turbines and oil drilling operations.~~
     ~~Work~~a new kind of multi-fuel reforming based on ~~environmental issues continued, focused~~catalytic oxidation with low contact time (SCT-CPO) of various kinds of hydrocarbon feedstocks, in particular onlow value and marginal feedstocks produced in refineries with high content of polyaromatic and sulphur compounds. If this project is successful, it will be possible to meet the demand for hydrogen required for the hydrotreatment units manufacturing clean fuels at a reasonable cost. This technology will be tested in a pilot plant that will be built at the Centro Ricerche Sud in Milazzo in the spring of 2005.
Technologies for the development of hydrogen as energy vector
        Eni’s interest in this field is aimed at the creation of a portfolio of technologies that may be employed in the production of hydrogen as energy vector from various primary energy sources, also in light of the reduction of ~~polluting~~ emissions ~~by means~~ of greenhouse gases. Eni confirmed its strategic partnership with Haldor Topsøe, in which it holds a 50% interest. Haldor Topsøe is a Danish company operating in the ~~optimization~~provision of ~~the vehicle/fuel ratio~~technologies and the ~~reclaiming~~manufacture and sale of ~~industrial sites~~catalysts for the chemical, petrochemical and refining industries and in the technologies for the manufacture of hydrogen and synthetic gas. It owns production facilities in Denmark and the United States and operates worldwide employing proprietary technologies, among which the one considered most advanced for “gas to liquids” applications in natural gas reforming plants. Haldor Topsøe is also ~~with biological techniques.~~
     ~~Major research areas~~active in ~~2002 were:~~the fuel cell business.
~~Reduction~~Table of ~~exploration and development costs~~Contents
~~Geosciences~~
~~High resolution prospecting techniques~~
~~Field simulation models~~
~~Field productivity enhancement methods~~
~~Advanced drilling systems~~
~~Production in hostile environments~~
~~Performance and product differentiation~~
~~Advanced process control~~
~~Innovative polymerization catalysis~~
~~Feedstocks enhancement~~
~~Long distance gaslines~~
~~Conversion of gas into liquid products~~
~~Conversion of heavy crudes into light products~~
~~Environmental protection~~
~~Hydrogen~~
~~New formulas for fuels and lubricants~~
~~«Clean» catalytic processes~~
~~Air quality monitoring~~
~~Reclaiming of polluted soil~~
Insurance
        Eni constantly ~~assess~~assesses its exposure for the Italian and foreign activities that are mainly covered through the Oil Insurance Limited ~~(«OIL»~~(“OIL”), a mutual insurance and reinsurance company that provides to its members a broad coverage tailored to the specific requirements of ~~oil/~~oil and energy companies. Eni makes use of a captive insurance company that covers the risks and implements Eni’s Worldwide Insurance Program ~~placed~~re-insured with ~~high-quality~~high quality securities in order to integrate the terms and conditions of the OIL coverage.
        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 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.
Table of Contents
Environmental Matters
Environmental regulation
        Together with other companies in the ~~businesses~~industries in which it operates, Eni is subject to numerous EU, national, regional and local environmental laws and regulations concerning its oil and gas operations, products and other 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 into the environment 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 ~~petrochemicals~~petrochemical operations. These laws and regulations may also restrict ~~air~~ 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 to the generation, handling, transportation, storage, disposal and treatment of waste materials.
        Environmental laws and regulations have a substantial impact on Eni’s operations. Some 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 ~~results of operations and~~consolidated financial ~~position~~statements as a result of its compliance with such laws and regulations, there can be no assurance that there will not be a material adverse impact on Eni’s ~~results of operations and~~consolidated financial ~~position~~statements due to: (i) the possibility of as yet unknown contamination; (ii) the results of the on-going surveys and the other possible effects of statements required by Decree No. 471/991999 of the Ministry of ~~Environment;~~Environment concerning the remediation of contaminated sites; (iii) the possible effect of future environmental legislation and ~~rules;~~rules, like the Decree No. 367 of the Ministry of Environment, published on January 8, 2004, that introduces new quality standards for aquatic environment and dangerous substances. This Decree modifies completely the actual set of rules, because of the imposition of qualitative standards, that can be reached only through considerable investments; (iv) the effect of possible technological changes relating to future remediation; and (v) the 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.
        The recently enacted environmental legislation includes improvements of previous laws on operations, safety and waste waters, as well as regulations on waste disposal and remediation or shutdown of industrial sites. Eni is evaluating actions (such as voluntary agreements) and investments to comply efficiently with new regulations. In accordance with European guidelines, the protection from water pollution was strengthened with Legislative Decree No. 152/99 as completed by Decree No. 258/00, which provide for an integrated protection of water resources by extending control from each discharge place to all the effects of accumulation and interactions of various discharges into one single water course and set quality objectives to be reached within 2008. All discharges require preventive authorization, to be renewed every four years, and must lie below the thresholds set by Regions. Legislative Decree No. 152/99 sets the term of June 2002 for the upgrade of existing discharges to the new rules.
     To date Eni cannot evaluate the possible impact of the application of Decree No. 152/99, however there can be no assurance that there will not be a material adverse impact on Eni’s operations due to measures adopted by local authorities whenever the quality of a certain water source does not comply with set standards due to the industrial activity of all plants located above that water source. Legislative Decree No. 258 states that production water discharges from oil activities performed in the sea shall be progressively substituted by injection or reinjection in deep geological strata. Previously such production water discharges were treated as waste disposal. Eni expects that capital expenditure necessary to provide offshore wells with reinjection facilities will be paid off by lower operating expenses with respect to waste disposal costs.
Management of waste, toxic waste, packaging and packaging waste is regulated by Legislative Decree No. 22 of February 5, 1997 which refers to three European Directives (91/156/CEE, 91/689/CEE and 94/62/CE) and ~~provided~~provides incentives to clean technologies and recycling and reuse of waste. This decree prohibits the uncontrolled disposal of waste underground and in the water and obliges polluting entities to reclaim polluted areas. Whenever it is not possible to identify one person or entity responsible for existing pollution, the owner of the polluted area is expected to pay for its reclamation. This decree became operational with decree No. 471/99 of the Ministry of the Environment, which also ~~defined~~defined: (i) limits for the contamination of soils and underground ~~waters, the~~waters; (ii) general guidelines for reclaiming and environmental recovery of polluted areas, and ~~the~~(iii) criteria for the identification of polluted areas of national interest. For the storage of toxic waste, the decree favors techniques avoiding transport of waste and their on-site treatment. Whoever causes, wilfully or accidentally, pollution of an area or actual danger of pollution is expected to react within 48
hours according to the procedure set by the decree. At present Eni is not yet able to evaluate the possible future consequences deriving from the completion of on-going surveys and other possible effects of the application of Decree No. 471/99 of the Ministry of Environment; however there can be no assurance there will not be a material adverse impact on Eni’s results of operations and financial position from the application of that decree. Law 388/00 changed the regulations concerning the reclamation of polluted sites, easing the discipline of crimes related to events prior to Legislative Decree No. 22/97 and imposing the reclamation of sites where industrial activity is ongoing. However, the reclamation is to be carried out provided that it does not involve a significant disruption in operations; reclamation costs can be amortized in ten years.
        In accordance with European guidelines, the ~~next~~protection from water pollution was strengthened with Legislative Decree No. 152/99 as completed by Decree No. 258/00 and by decree No. 367 of the Ministry of Environment. Decree No. 258/00 provides for an integrated protection of water resources by extending control from each discharge place to all the effects of accumulation and interactions of various discharges into one single water course and set quality objectives to be reached within 2008. All discharges require preventive authorization, to be renewed every four years, and must lie below the thresholds set by Regions. To date Eni cannot evaluate the possible impact of the application of Decree No. 152/99 as completed by decree No. 367 of the Ministry of Environment. However, there can be no assurance that there will not be a material adverse impact on Eni’s operations due to measures adopted by local authorities whenever the quality of a certain water source does not comply with set standards due to the industrial activity of all plants located above that water source.
        Law 372/99 will gradually enter into force. This law, which is related to the European Directive 96/61/CE (IPPC — Integrated Pollution Prevention and Control), envisages that industrial installations will apply for an integrated authorization concerning emissions, wastes and water discharges. Before ~~June 20, 2002~~April 2005 the competent ~~authority is expected to define a schedule for~~authorities should have completed the ~~filing~~process of ~~requests for~~the IPPC authorization. Many of Eni’s plants — refineries, chemical plants, power stations — will have to comply with this ~~law but~~law. All the Eni ~~expects no adverse impact on its operations, since~~installations are getting ready to request and obtain the IPPC authorization, ~~intends~~which will have a 5 years duration, in general, and 8 years for installations registered according to ~~integrate and make compatible authorizations which now~~EMAS regulation. In order to secure the extended authorization, some Eni installations have or are ~~given separately.~~in the process of obtaining the EMAS registration.
        InAs of the year 2003, according to the IPPC Directive, the Member States ~~must~~had to communicate their 2001 national values of emissions into the atmosphere, wastes produced and managed and, finally, discharges into water of some compounds specified in the annexes of the directive relative to EPER (European Pollutant Emission Register). The Directive applies to several Eni plants, so the Eni divisions and/or companies which own these plants, ~~are going to report~~have reported their data to the authority in charge of preparing the Italian national communication.
     To meet future environmental obligations, Eni is engaged in a continuing program to develop effective measures for the protection of the environment. This program includes research and capital expenditures related to reducing sulphur levels in heavy fuel oils and diesel fuel, reducing benzene and sulphur content in gasoline, improving the quality of emissions and effluents from Eni’s refineries and petrochemical plants, developing and installing monitoring systems at Eni’s facilities and developing environmental impact assessments for major projects.HSE activity
     During 2002 the Kyoto Protocol has been ratified by the EU and also by Italy, with Law 120/2002. After the Italian Government ratified the Kyoto Protocol, Eni actively participated in the definition of the National Action Plan for the reduction of greenhouse gas emissions. Eni companies are engaged in a comprehensive plan aimed at:(i) improving and adopting an advanced protocol for greenhouse gas emissions accounting and certification; (ii) defining a portfolio of projects for emission reduction in its own installations and a portfolio of ongoing and new projects consistent with the Flexible Mechanisms of the Kyoto Protocol (Clean Development Mechanism and Joint Implementation); (iii) participating to international emission trading markets (EU is finalizing a directive for the introduction of an emission trading scheme, by the year 2005; (iv) preparing a medium-long term strategy for the sustainable management of greenhouse gases.
     A recent important development in the Italian environmental legal system is the draft law for the restructuring of all environmental legislation. The draft law has been firstly proposed at the end of 2001 and is now being re-examined by the Italian Parliament after the adoption of some amendments. The main target is to better coordinate and integrate various environmental laws, in view of a more complete harmonization with EU legislation. It is difficult to predict now the overall impact on Eni operations, but certainly the present Italian environmental legislation in some cases is stricter than the EU counterpart.
In order to more effectively respond to and anticipate the increasing complexity of the international and national environmental legislation, to better adapt to the international context where it operates and to increase its effectiveness in the implementation of its Corporate HSE Guidelines, during 2002 Eni created the HSE Corporate Department, with the following tasks: (i) elaborating a plan consistent with Eni’s policies and guidelines; (ii) defining a HSE management system model, to be used as reference by all business units; (iii) responding to the increasing challenges of sustainability by means of the design and the implementation of a sustainable energy system.
The completion of the restructuring of Eni by divisions entailed a review of the organization of the Health Safety Environment (HSE) management with the aim of harmonizing systems and procedures. In ~~2002,~~keeping with its established HSE guidelines, Eni set up a model management system which identifies the basic requirements for a homogeneous HSE management of the various business areas, independent of the kind of activities performed or the geopolitical context in which they operate. The model is oriented to continuous improvement and is based on a management cycle including planning, implementation, control and any corrective actions, the review of established objectives and the definition of new ones. An HSE Evaluation System was also set up which includes an audit protocol aimed at checking the existence, completeness, functioning and homogeneity of management systems in the various business areas and, in particular, their consistency with the corporation’s management model.
In 2003 business units started adjusting their management system to the corporate model. Meanwhile Eni’s business units continued to obtain certification of their management systems under the most stringent international standards, in particular those units most exposed to HSE risks. The total certifications (ISO 14000, OHSAS, EMAS, ISM, etc.) obtained in 2003 were 110, of which 20 in the Exploration & Production division, 21 in the Gas & Power division, 30 in the Refining & Marketing division, 15 in the Petrochemical segment, 11 in the Oilfield Services and Engineering segment and 13 in the sector “Other activities”. Business units continued to control compliance of operations with HSE policies and procedures. In 2003, a total of 2,089 HSE and quality audits were performed by internal and independent auditors. Training played a relevant role in the management of safety and environmental issues, with a total of 281,539 hours of HSE training provided to 72,223 participants in 2003.
In 2003, Eni’s estimated operating and capital expenditures in health, safety and environment amounted to euro ~~887~~926 million. Environmental expenditures amounted to euro ~~590~~605 million, of which euro 5162 million related to air emissions, euro 7986 million to water, euro 88128 million to waste and euro ~~147~~205 million to ~~soil.~~soil and environmental restoration. In addition to operating and capital expenditures, Eni also creates provisions for future environmental remediation. Expenditures against such provisions are normally incurred in subsequent periods and are not included in
environmental operating expenditure. Provisions for environmental remediation are made when a clean-up is probable and the amount reasonably determinable. Generally, their timing coincides with the commitment to a formal plan of action or, if earlier, on divestment or closure of inactive sites. In addition, Eni makes provisions against costs expected to be incurred with respect to the abandonment of hydrocarbon-producing assets. In ~~2002,~~2003, Eni accrued euro 184 million to the site restoration and abandonment reserve. See ~~‘‘Note~~“Note 13 to the consolidated financial statements —– Reserves for contingencies and other deferred non-current tax ~~liabilities’’~~liabilities” for more details regarding environmental and site restoration and abandonment reserves.
     ~~In 2002, the equivalent of about 1,373 full time employees were employed by the Group in the area of health, safety and environment.~~
     The total certifications (ISO 14000, OHSAS, EMAS, ISM, etc.) obtained in 2002 were 85, of which 7 in the Exploration & Production division, 18 in the Gas & Power division, 24 in the Refining & Marketing division, 22 in the Petrochemical segment and 14 in the Oilfield Services and Engineering segment. To ensure operating efficiency of health, safety and environment management systems, 501 internal auditors were available in 2002.
     ~~Training played a relevant role in the management of safety and environmental issues, with a total of 279,466 hours of HSE training provided to 68,155 participants in 2002.~~
In the area of health Eni employs a system of constant monitoring, increasing the frequency of checks where risks are higher. In ~~2002,~~2003, a total of ~~34,086~~101,231 medical ~~examinations~~check-ups and ~~215,418 medical~~335,619 lab tests were performed in the whole Eni Group.
     ~~Regarding~~ With regard to Safety, in ~~2002~~2003 both ~~accidents~~injury rates ~~(frequency and seriousness)~~ showed a marked improvement compared with the values of the previous year. In particular, the injury frequency index (obtained by dividing the number of injuries with more than one day of absence by millions of hours worked) was 3.71 and the severity rate (defined as the ratio of work days lost through injury per thousand hours worked) was 0.09.
Regarding environmental issues, in ~~2002 greenhouse gas («GHGs») emissions from flaring (representing 37% of Eni total GHGs emissions) decreased by 4,7% compared with~~2003 the ~~values of the previous year.~~
     Pursuing the creation of a sustainable energy system, in 2002 Eni further developed action plans for the reduction of greenhouse gas emissions and the mitigation of the possible impact of climate changes. In this perspective Eni continued its programs for the development of natural gas in Italy and abroad by means of technologically advanced projects such as Blue Stream (a gas pipeline from Russia to Turkey) and Greenstream (a gas pipeline which allows to increase the Italian imports of natural gas). Outside Italy Eni is also implementing a «Zero Gas Flaring Program», with the development of projects in Nigeria and Congo (construction of new high efficiency combined cycle power plants for the exploitation of associated gas, coming from the near oilfields).
     ~~Furthermore, in~~key performance indicators either remained stable or were improved. Since 2002 Eni Refining & Marketing division launched a new product: BluDiesel, a virtually sulphur free diesel fuel which anticipates environmental regulations and ensures better engine performance. This product is currently sold in 1,500 service stations with average sales amounting to ~~20-25 %~~20-25% of total gasoil sales and in some cases peaking at 50%.
To meet future environmental obligations, Eni is engaged in a continuing program to develop effective measures for the protection of the environment. This program includes research and capital expenditures related to reducing sulphur levels in heavy fuel oils and diesel fuel, reducing benzene and sulphur content in gasoline, improving the quality of emissions and effluents from Eni’s refineries and petrochemical plants, developing and installing monitoring systems at Eni’s facilities and developing environmental impact assessments for major projects.
Further information on objectives and environmental performances of Eni Group companies are included in Eni’s 2003 Report on Health, Safety and the Environment.
Implementation of the Kyoto Protocol

        During 2002 the Kyoto Protocol has been ratified by the EU and also by Italy, with Law N. 120/2002. According to this law, Italy committed itself to reduce greenhouse gas emissions by 6.5% in the period 2008-2012 as compared to 1990 values. Reductions can be achieved both through internal measures and through the so-called flexible mechanisms, which allow to carry out projects in less developed countries (CDM — Clean Development Mechanism) and in industrial countries with transition economies (JI — Joint Implementation) in order to obtain declines in emissions that are equivalent to domestic declines.
        The National Action Plan for the reduction of greenhouse gas emissions 2003-2010, which is now being formulated, provided for the recourse to flexible mechanisms in order to meet the objectives set by the Kyoto Protocol. Eni, thanks to its presence in 70 countries, is an elective partner for carrying out CDM and JI projects thus contributing to the Italian program of greenhouse gas reduction. In December 2003 in Milan the conference of parties to the Kyoto Protocol – COP9 – was held. On that occasion Eni and the Ministry for the Environment signed a voluntary agreement for using flexible mechanisms and promoting CDMs and JIs and contributing to the sustainable development of host countries.
        A significant reduction potential derives from extracting activities outside Italy, that in some cases, given the lack of local market outlets, require the flaring of natural gas associated to oil production. The elimination of flaring and the use of associated gas for the development of local economies allow to achieve sustainable development while reducing greenhouse gas. The validation of such projects as CDM and JI will provide emission credits and facilitate the meeting of the Italian gas emission target. Eni already carried out Zero Gas Flaring projects in Nigeria and Congo while others are underway. Eni endorsed the Global Gas Flaring Reduction Initiative of the World Bank in order to fight for the elimination of obstacles to the completion of gas flaring reduction projects.
        Other relevant initiatives related to the Kyoto Protocol concern the introduction of the European scheme of emission trading in 2005. Most of Eni’s industrial sites are included in this scheme and will be assigned a ceiling of emissions according to a National Allocation Plan. In the first period emissions exceeding the set ceilings will be subject to a fine amounting to euro 40 for each tonne of carbon dioxide. All companies are going to identify and carry out projects for emission reduction.
        Eni introduced a complete, accurate and transparent protocol for the accounting and reporting of greenhouse gas emissions, which is an essential requirement for emission certification. Indeed, accurate reporting will support the strategic management of risks and opportunities related to greenhouse gases, the definition of objectives and the evaluation of progress.
        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 Greenstream pipeline from Libya to Sicily. Increased gas availability in Italy will lead to a further expansion of the gas-power integration through high efficiency combined cycles with much lower carbon dioxide emissions than coal and liquid fuels.
        In a medium term perspective work is underway on the separation of carbon dioxide and its permanent storage in geologic reservoirs, a part of the CO₂ Capture Project, an international R&D program carried out in conjunction with other oil companies.
Table of Contents
Regulation of Eni’s businesses
Regulation of exploration and production activities
        Eni’s exploration and production activities are conducted in many different countries and are therefore subject to a broad range of legislation and regulations. These cover virtually all aspects of exploration and production activities, including matters such as license acquisition, production rates, royalties, pricing, environmental protection, export, taxes and foreign exchange. The terms and conditions of the leases, licenses and contracts under which these oil and gas interests are held vary from country to country. These leases, licenses and contracts are generally granted by or entered into with a government entity or state company and are sometimes entered into with private property owners. These arrangements usually take the form of licenses or production sharing agreements. See ~~«Regulation~~“Regulation of the Italian Hydrocarbons ~~industry»~~industry” and ~~«Environmental Matters»~~“Environmental Matters” for a description of the specific aspects of the Italian regulation and of environmental regulation concerning Eni’s exploration and production activities.

        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 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.
        Production sharing agreements (PSAs) entered into with a government entity or state company generally obligate Eni to provide all the financing and bear the risk of exploration and production activities in exchange for a share of the production remaining after royalties, if any.
        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.
Regulation of the Italian Hydrocarbons Industry
Overview
        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.
        The Italian hydrocarbons industry is regulated by a combination of constitutional provisions, statutes, governmental decrees and other regulations that have been enacted and modified from time to time, including legislation enacted to implement EU requirements (collectively, the ~~«Hydrocarbons Laws»~~“Hydrocarbons Laws”).
        In the early 1990s, the Government commenced the gradual liberalization of the Italian hydrocarbons industry by implementing legislation that provided for, among other things, (i) the elimination of price controls on petroleum products, (ii) the abolition of Eni’s right of first refusal with respect to the purchase of natural gas produced offshore Italy, (iii) the implementation of a partial third-party access system for the transportation of domestic natural gas, (iv) the establishment of a system for the updating of on natural gas retail prices and (v) the establishment of a royalty reduction program. Law No. 481 of November 14, 1995 (the ~~«Authority Law»~~“Authority Law”), provided for the establishment of a new regulatory body, known as theAutorità per l’Energia Elettrica e il Gas~~(the «Authority»~~ (the “Authority”), the Italian Public body charged with, among other things, regulatory supervision of electricity activities and natural gas distribution in order to guarantee the promotion of competition and efficiency while providing for an adequate level of service quality. As the latter is concerned, the Authority is mainly responsible for the public service of natural gas distribution through urban networks.
        Decree No. 164, which enacted into Italian Legislation European Directive on Natural Gas 98/30/CE, regulates the Italian natural gas market. Prior to the implementation of Decree No. 164, the Italian natural gas market lacked a legislative framework. See ~~«—Natural Gas»~~"--Natural Gas".
        Legislative Decree No. 32 of February 11, 1998 («(“Decree No. ~~32»~~32”) as amended by Legislative Decree
No. 346 of September 8, 1999 and Law Decree No. 383 of October 29, 1999, significantly changed Italian regulation of service stations. In particular, the Decree replaced the process of concessions granted by the Ministry of Industry, regional and local authorities with a license granted by city authorities. See «—“—Refining and Marketing of Petroleum ~~Products»~~Products”.
        Legislative Decree No. 443 of October 29, 1999 («(“Decree No. ~~443)~~443”) modified Legislative Decree No. 112 of March 31, 1998 («(“Decree No. ~~112»~~112”) which attributed to Regions many responsibilities in the field of energy and specifically in the sector of hydrocarbons. Decree No. 443 attributes to the State administrative decisions
concerning exploration and production of hydrocarbons in the Italian offshore as well as natural gas storage in fields, whilst administrative decisions concerning exploration and production of hydrocarbons on the Italian mainland are made by the Government in agreement with Regions.
Exploration and Production ~~of Hydrocarbons~~
        Exploration Permits and Production Concessions. Pursuant to the Hydrocarbons Laws, all hydrocarbons existing in their natural condition in strata in Italy or beneath its territorial waters (including its continental shelf) are the property of the State. Exploration activities require an exploration permit, while production activities require a production concession, in each case granted by the Ministry of Industry. The initial duration of an exploration permit is six years, with the possibility of obtaining two three-year extensions and an additional ~~one-year~~one year extension to complete activities underway. Upon each of the three-year extensions, 25% of the area under exploration must be relinquished to the State. The initial duration of a production concession is 20 years, with the possibility of obtaining one ten-year extension and additional five-year extensions.
        Royalties. The Hydrocarbons Laws require the payment of royalties for hydrocarbon production. Royalties are equal to 7% and 4%, respectively, for onshore and offshore production of oil and 7% for both onshore and offshore production of natural gas.
        Preferential Rights. Until December 31, 1996, Eni was entitled to a number of preferential rights, including, among other things, the exclusive right to explore for and exploit, without permit or concession, hydrocarbon deposits in the Exclusive Area.
        In 1994, the EU enacted a licensing directive (the ~~«Licensing Directive»~~“Licensing Directive”), which required member states to enact legislation eliminating, by December 31, 1996, all laws that provided exclusive rights to a single entity in a specific geographic area. Decree No. 625, which was adopted to implement the Licensing Directive, eliminated the exclusivity of Eni’s rights in the Exclusive Area. Decree No. 625 allows Eni to obtain upon application exploration permits and production concessions having effect from January 1, 1997 that would preserve such rights as have vested under the regime of exclusivity (based on the activities that have been carried out or are currently underway). ~~As of December 31, 2002, Eni held 100 exploration permits and 180 production concessions for a total net acreage of 43,961 square kilometers and 9 storage concessions.~~
        Gas & Power
Natural ~~Gas~~gas market in Italy
~~Legislative Decree No. 164 of May 23, 2000 for the Implementation of the~~The European Directive on Natural Gas ~~98/30/CE.~~  ~~The European Directive on natural gas~~ was implemented into Italian legislation through Legislative Decree No. 164 of May 23, 2000 («(“Decree No. ~~164»~~164”), effective from June 21, 2000. As concerns natural gas activities carried out by Eni the most relevant aspects of the decree are as follows: (i) ~~it defines until December 31, 2002~~starting in 2003 all customers are eligible customers (with access to the natural gas system) to be: final customers consuming more than 200,000 cubic meters per year; wholesalers and all distributing companies; electricity producers and co-generators; consortia consuming more than 200,000 cubic meters per year provided each partner consumes more than 50,000 cubic meters per year. Starting in 2003 all customers are eligible customers;; (ii) from January 1, 2003 to December 31, 2010 no single ~~operators~~operator is allowed to hold a market share higher than 50% of domestic sales to final customers. In addition, no single ~~operators~~operator is allowed to supply more than 75% of all natural gas volumes introduced in the domestic transmission network by 2002, decreasing by 2 percentage points per year until it reaches 61%. The two ceilings are calculated net of losses (in the case of sales) and own consumption. A three-year average mechanism is used to evaluate whether volumes introduced in the domestic transmission network or sold to final customers are above set ceilings. Those ceilings are considered exceeded if at the end of the first three-year period, the average of volumes introduced in the domestic transmission network or sold to final customers is higher than the allowed average for that period. In subsequent years, the three-year average is calculated on data of the most recent three years; (iii) imports from the European Union are free, while natural gas imported from outside the European Union is subject to an authorization of the Ministry of Productive Activities. Subjects importing from countries outside the E.U. must secure a certain availability of strategic storage. Such constraints ~~applies~~apply also to the import contracts entered into before the coming into effect of Decree No. 164, these contracts are automatically
considered authorized since this date; (iv) ~~from January 1, 2002,~~ natural gas transport and dispatching activities are to be carried out by a separate company that is not allowed to carry out any other activity in the natural gas ~~field. By~~field, with the ~~same date~~only exception of storage, for which, however, accounting and operating separation is envisaged. Also distribution, which includes the ~~management~~transport of natural gas by means of local gas pipeline networks for delivery to customers, is to be carried out by a separate company which may not perform other gas related activities. Sale activity to final customers is compatible only with import, export and production activities and is subject to an authorization from the Ministry of Productive ~~Activities).~~Activities. Concessions for the distribution of natural gas will be assigned only through an auction procedure; and (v) tariff criteria and return on capital employed for transport, dispatching, storage, use of LNG terminals and distribution are determined by the Authority. Third parties are allowed to access transport infrastructure on the basis of criteria set by the Authority. As provided for by the decree, a Network Code containing norms and regulations for the operation of and access to infrastructure was prepared by ~~operators. Approval is still pending before~~operators on the basis of criteria set by the Authority.
Based on 2002 and 2003 data and management ‘s forecasts, Eni expects to be compliant with both ceilings in the first three-year period.
Natural gas market in Europe
Directive 2003/55/CE
On August 4, 2003, the European Directive 2003/55/CE of the European Parliament and the European Council came into force. It contains common regulations for the internal market of natural gas and repeals Directive 98/30/CE. Member States are to include the directive into their laws by July ~~17, 2002,~~1, 2004.
The most relevant aspects of the ~~Italian Authority for Electricity and Gas adopted~~directive are the following:
– member States must designate an operator for transmission, distribution and storage systems of natural gas and LNG;

–
where the transmission system operator is part of a vertically integrated undertaking, it shall be independent at least in terms of its legal form, organization and decision making from other activities not relating to transmission. These rules shall not create an obligation to separate the ownership of assets of the transmission system from the vertically integrated undertaking. Unbundling of transmission and distribution from other activities in the field of natural gas was already set in Legislative Decree No. 164/2000, but the Directive provides also for a “functional separation”; i.e. those persons responsible for the management of the transmission system operator may not participate in company structures of the integrated natural gas undertaking responsible, directly or indirectly, for the day-to-day operation of the production, distribution and supply of natural gas;

–
member States shall ensure the implementation of a system of third party access to the transmission and distribution system, LNG facilities, storage facilities and upstream pipeline networks; access to the system is regulated; negotiated access is provided only for storage facilities as an alternative option to regulated access;

–
natural gas undertakings may refuse access to the system: (i) on the basis of lack of capacity; (ii) where the access to the system would prevent them from carrying out their public service obligations; (iii) on the basis of serious economic and financial difficulties with take-or-pay contracts. In the latter case, undertakings can apply for a derogation. Member States or the designated competent authority may decide to grant a derogation, and shall notify the Commission without delay of their decision. When deciding on the derogations, the Member State, or the designated competent authority shall take into account, in particular, the following criteria: (i) the seriousness of the economic and financial difficulties encountered by natural gas undertakings and transmission undertakings or eligible customers; and (ii) the extent to which, when accepting the take-or-pay commitments in question, the undertaking could reasonably have foreseen, that serious difficulties were likely to arise. Serious difficulties shall in any case be deemed not to exist: (i) when the sales of natural gas do not fall below the level of minimum offtake guarantees; (ii) in so far as the relevant gas purchase take-or-pay contract can be adapted; and (iii) when the natural gas undertaking is able to find alternative outlets;

–
application of the rules concerning derogation from third party access. In particular, article 22 provides for an exemption from the general criteria of third party access in the case of major new gas infrastructures and of significant increases of capacity in existing infrastructures. This exemption, aimed at favoring investments in new capacity, will be granted on a case by case basis;

–
opening up of the market: the deadlines for the recognition of eligible customers are longer than those specified in Legislative Decree No. 164/2000, which extended this definition from January 1, 2003 to all customers and are the following: July 1, 2004 for all non-household customers and July 1, 2007 for all customers.
Eni does not expect any major impact on its ~~Decision No. 137 concerning «guarantees regarding the free access of operators to~~activity in the natural gas ~~transmission network and rules for~~business deriving from the ~~preparation of network codes», in~~ implementation of ~~article 24, subsection 5~~Directive 2003/55/CE into the Italian body of laws.
Primary distribution
Prices. Natural gas prices are freely established among buyers and sellers following the liberalization of the natural gas sector introduced by Decree No. 164. ~~Decision No. 137 established priority criteria for~~Eni applies a multi-choice price structure to its individual customers or groups of customers who are able to choose among various forms of price indexation. This price structure aims at reducing the entitlement of transmission capacity at entry points from international networks into the domestic network. Entitlement periods can last no longer than five years. In particular it recognizes priority access to take-or-pay contracts entered into before 1998, within the limitimpact of the ~~average daily contractual quantity. There is therefore no guaranteed access priority for~~volatility of raw material prices due to fluctuations in the ~~whole contractual flexibility. In fact, take-or-pay contracts entered~~prices of energy parameters and in exchange rates by ~~Eni before 1998 envisage Eni’s right, in its quality~~introducing mechanisms that minimize commodity risks. The Authority holds a power of ~~purchaser, to withdraw daily amounts larger than~~surveillance on this matter.
Procedure against the average daily contractual amount; this contractual flexibility provided by the difference between the maximum daily amount Eni is entitled to and the average contractual daily amount is used in particular in winter. In the event of congestion at entry points, natural gas volumes not receiving a priority are assigned available transmission capacity on a pro-rata basis. Decision No. 137 establishes a transitional regime according to which for thermal year 2002-2003 access priority is granted also to two thirds of the difference between maximum contractual daily amounts and average daily amounts. For thermal year 2003-2004, priority will be granted to only one third of that difference.Antitrust Authority. On ~~November 6, 2002~~February 5, 2003, Eni filed a claim with the Regional Administrative Court of ~~Lombardia~~Lazio in Rome requesting the annulment of ~~decision No. 137/2002 as Eni considers this decision non consistent with~~ the ~~overall European legislative framework, especially with reference to Directive 98/30/CE and Legislative Decree No. 164/2000.~~
     Onmeasures taken by the Antitrust Authority, on November 21, 2002, ~~the Italian antitrust authority concluded the inquiry started on request of Blugas SpA~~ concerning Eni’s alleged violation of competition rules ~~acquitted Eni for~~as a result of an investigation commenced at the ~~specific claims brought by~~request of Blugas ~~(deriving from the fact that in the spring-summer of 2001 Eni partially accepted Blugas’s request to access the network) but~~SpA. The Authority judged that Eni had ~~abused~~violated access rules by entering in 2001 into contracts outside Italy with other operators that have imported into Italy the volumes of commanding position for having given, with the aim of respecting binding market thresholds, priority access to Italian purchasers with which Eni had entered supply contracts with volumes bought out of Italy supplied at entry points into the Italian network.natural gas exchanged. The Antitrust Authority considers that these contracts infringe the rationale of article 19 of Legislative Decree No. ~~164~~164/2000 which defines the limits for natural gas volumes to be input by a single ~~operator~~operators into the national network. Given this infringing ~~behavior and~~behaviour, the lack of clarity of Italian regulations and Eni’s availability to increase the transmission capacity of gaslines outside Italy, the Antitrust Authority imposed on Eni a symbolic fine amounting to euro 1,000 and requested Eni to submit «a“a report indicating measures to be taken to eliminate infringing ~~behaviors~~behaviours with specific attention to the upgrading of the transmission network or equivalent ~~actions»~~actions”. On February 19, 2004, Eni filed this report ~~on March 6, 2003. On February 5, 2003 Eni filed a claim with~~in which the ~~Regional Administrative Court~~company stated its commitment to increase the level of ~~Lazio~~competition in ~~Rome requesting~~ the ~~annulment of~~national gas market, particularly the ~~measures taken by the Authority.~~
     ~~In order to meet the medium and long-term demand~~upgrading of natural gas import pipelines TAG (Austria) and TTPC (Tunisia), on the condition that construction of LNG terminals would not be commenced in ~~particular~~Italy by third parties. With a decision of March 18, 2004, notified on March 26, 2004, the Antitrust Authority considered the measures suggested by Eni in its February 19 report to be not sufficient and therefore set a specific default procedure. On April 26, 2004, Eni suggested integrations to the measures previously proposed and the Authority started a market test to obtain suggestions by other operators on this issue. After the completion of the ~~Italian~~ market test and various meetings with the Authority, on June 18, 2004 Eni ~~entered into long-term purchase contracts~~presented to the Authority a proposal through which to comply with ~~operators~~the requests included in ~~producing countries that have a residual average term~~the Authority’s decision of ~~approximately 17 years. Existing contracts, which in general contain take-or-pay clauses, will ensure~~November 21, 2002. The proposal entails the sale of a total of ~~about 66~~9.2 billion cubic meters of natural gas ~~per~~at a set price starting in 2004 through 2008 (2.3 billion cubic meters for each year ~~(Russia 28.5, Algeria 21.5, Netherlands 10~~of the four-year period) to be supplied at Tarvisio at the border with Austria (before entering the national transmission network) to be assigned on a pro-rata mechanism. In its decision of June 24, 2004, the Authority judged this proposal adequate to interrupt the effects of the infringing behaviour highlighted in the November 21, 2002 decision. In its June 24, 2004 decision the Authority also extended to October 7, 2004 the deadline for closing the procedure in order to allow Eni to prove the implementation of its proposal.
Joint official inquiry of the Authority for electricity and ~~Norway 6) by 2008. The above quantities are based~~gas and the Antitrust Authority. On June 19, 2004 the Authority for electricity and gas and the Antitrust Authority published their findings on the ~~annual contract quantity~~basis of a joint official inquiry regarding the Italian gas market started in March 2003 by with the aim of acquiring elements and information useful to define actions to improve competition. According to both Authorities, the overall level of competition of the ~~relevant contract. The average annual minimum quantity~~Italian natural gas market is ~~approximately~~unsatisfactory due to the ~~85%~~dominant position held by Eni in many phases of ~~said quantities. To date~~the natural gas chain. Specifically, the Authorities state that the vertical integration of Eni in the supply and transport of gas has restricted the development of competition in Italy notwithstanding the antitrust ceilings introduced with Law 164/2000. It is further stated that the overall price of natural gas in Italy (in particular for the industrial sector) is higher that in other European countries. Accordingly, both authorities identified possible measures which in their opinion could enhance the level of competition in the natural gas market, among which the most important are: (i) the construction of new infrastructure for the import of natural gas; (ii) the creation of an independent transmission system operator (TSO) that owns and operates both the national high pressure transport grid and the storage of gas; and (iii) a framework for the assignment to third parties of natural gas volumes or natural gas contracts relating to Eni’s take-or-pay long term natural gas supply ~~contracts~~contracts. Management believes the institutional debate on the degree of competition in the Italian natural gas market to be an area of attention and cannot exclude negative impacts on Eni’s financial condition or results of operations in future years deriving from the developments of this matter. In particular, the implementation of any of the above measures designed to improve competition in the Italian natural gas market in the future may have a material adverse effect on Eni’s financial condition or results of operations.
Secondary distribution
        With decision No. 237 dated December 28, 2000, the Authority determined tariff criteria for natural gas distribution and supply to non eligible customers as provided for by Decree No. 164. This tariff reform separates distribution from sale activities and links tariffs to costs borne in order to provide safe and efficient services. Tariffs are determined so that annual revenues from natural gas distribution and supply activities to non eligible customers do not ~~entailed~~exceed the threshold on distribution and sale revenues determined in order to cover operating costs and the remuneration of capital employed and are adjusted according to the price cap method based on parameters and formulas determined by the Authority. From July 2001 tariffs (previously based on type of use—cooking, heating, small enterprises) have been progressively substituted by tariffs varying according to consumption levels and costs. According to Authority decision No. 195/02 dated November 29, 2002 every three months the portion of the tariff which relates to the cost of natural gas is adjusted to international oil, home heating oil and low sulfur fuel oil prices as measured over a nine-month period. With decision No. 87 of July 31, 2003, the Authority for Electricity and Gas changed this tariff regime by also introducing the method of revaluated historical cost for the determination of capital employed for those companies that published audited financial statements starting with fiscal year ended before January 1, 1991 (which includes Italgas), as an alternative to the parameter-based method defined in decision No. 237/2000.
        The Decree of the President of the Council of Ministers of October 31, 2002, conferred to the Authority the powers to: (i) define, calculate and update electricity and gas tariffs also after the opening up of markets to eligible customers with consumption under 200,000 standard cubic meters, in order to ensure a regular and gradual access to the free market by final users that are non eligible customers as well as eligible customers who opt for this regime; (ii) define methods for updating tariffs with reference to variable costs that minimize the impact of inflation by providing for updating schedules adequate to the objective of reducing the effects of energy prices on inflation, but safeguarding the functioning of energy producing companies and the competitiveness of the producing system; and (iii) define criteria for allocating the costs deriving from social support measures, in order to reduce the aggregate net cost of interventions as much as possible and to ensure neutrality in the application of ~~take-or-pay clauses. Natural~~tariffs to the various groups of users. Consistently with this decree, the Authority: (i) with Decision No. 195 of November 29, 2002 changed the methods for periodically updating the tariff components of electricity and natural gas ~~imports~~related to the changes in international prices of fuels and raw materials. Such changes concern the schedules update process (from every two months to every three), and the duration of the reference period for the ~~next few years have been programmed based on the highest flexibility allowed by such contracts, assuming that access capacity~~calculation of changes in average international prices as compared to the ~~Italian network will be available in accordance~~application quarter (from the preceding six months to the preceding nine months). The invariance threshold, beyond which tariffs are updated, remained at 5%.; and (ii) with ~~said flexibility. However this assumption may be inconsistent with~~Decision No. 207 of December 12, 2002, it decided that companies selling natural gas through local networks can maintain the ~~current network code (as~~conditions applied to non eligible customers at December 31, 2002 until the customer accepts a new contract offer. In addition, the Authority decided that these companies can propose their own new contract offers determined according to the criteria established by the ~~authority with decision No. 137), also taking into account the claims filed by Eni and other operators.~~
     ~~Based~~Authority, adequately advertising them before March 31, 2003 (such offers must be published on the ~~best estimates currently available despite regulatory uncertainties, Eni does~~companies web page, on at least one newspaper of general circulation and on the Official Gazette of their region or autonomous province). The Authority with Decision No. 138 of December 4, 2003, modified by Decision No.27/2004, established the criteria for the determination of conditions of natural gas supply to end customers and distribution tariffs, applicable from January 1, 2004.
        This decision introduces two provisions intended for end customer who were non eligible customers before January 1, 2003 and to end customers that have not ~~consider it necessary~~exercised their capacity to ~~accrue~~enter contracts:

–
a reduction in the supply price, by means of a discount in tariff of about 50% of the average reductions registered in the wholesale market starting in 2002 for what concerns the cost of raw materials, net of the storage and transmission components, and 100% of reductions in transmission and storage tariffs registered in tariff adjustments for thermal years 2002-2003 and 2003-2004 and

–
a compensation in favour of distribution areas with high unit costs by means of a discount on the distribution cost covering component. The discount is financed by a slight increase in the variable part of the distribution tariff applied to all distribution areas. This compensation is administered by a governmental agency until September 30, 2006.
        The Decision No. 138/2003 sets at July 31, 2005 the date before which the Authority will control the degree of competition on the market of end customers, in order to decide any cancellation or change of the obligation imposed upon companies selling natural gas by article 1 of Decision No. 207/2002 (entailing the application of the same conditions applied until the customer accepts a ~~contingency reserve for any possible penalty payment related~~new contract offer to ~~take-or-pay clauses in supply contracts.~~all end customers who at December 31, 2002 were not eligible customers and to those that were eligible customers but did not chose to sign new contracts).
Transport
        Transport ~~and distribution tariffs.~~tariffs. With ~~decision~~Decision No. 120 of May 30, 2001, the Authority published the criteria which transport companies have to apply in determining natural gas transport and dispatching tariffs on national and regional transportation networks, as provided for by Decree No. 164. Tariffs are subject to approval by the same Authority, which ensures their compliance with preset criteria. Such tariffs are applicable to eligible customers as defined by Decree No. 164 (approximately 11,000 entities, of which 3,200 are industries and thermoelectric power stations linked to high pressure lines), the so called «shippers».criteria.. The new tariff system substituted preceding agreements between Eni and customers of any category. The new tariff system is in force for the first regulatory period including four thermal years and starting on October 1, 2001 (the ~~so called thermal year~~“thermal year” goes from October 1 to September 30). ~~This regime also applies retroactively to the period June 21, 2000 to September 30, 2001.~~ At the beginning of each ~~the annual~~calendar year transport companies submit the tariff proposal to the Authority ~~wich~~which in turn approves or rejects the proposal of transport companies.
        Criteria established by the Authority provide for a cap on revenues from transport and dispatching activity («(“allowed ~~revenues»~~revenues”) which is adjusted annually; those criteria also provide for a separate treatment of revenues on existing assets and on new capital expenditure on expansions and extension of infrastructure. In the first thermal year allowed revenues are calculated as the sum of: (i) operating costs including storage and modulation costs; (ii) amortization and depreciation of transport assets; and (iii) return on net capital employed. Net capital employed is calculated by revaluating historic costs of transport infrastructure (pipelines, compressor stations and other support equipment) on the basis of certain inflationary indexes; resulting amounts are adjusted to take into account the residual useful life of assets (pipelines are estimated to have a useful life of 40 years) and also subtracting State grants. The application of this methodology implies an estimated value of Eni’s transport assets of approximately euro 9.6 billion. This, however, is a valuation for regulatory purposes and should not be read as an indication of the market value of Snam Rete Gas. The rate of return on capital employed set by the Authority is 7.94% (pre-tax). Once established, allowed revenues for the first year are divided into two components: (i) capacity revenues equal to 70% of allowed revenues which are the maximum amount of revenues collectable from the sale of transport capacity to customers; and (ii) commodity revenues equal to 30% of allowed revenues which are the maximum amount of revenues collectable from transported volumes. Starting from the second year these two components are adjusted on a yearly basis to take into account inflation and certain reduction factors (set at 2% and 4.5% for capacity revenues and commodity revenues, respectively); commodity revenues are also adjusted to transported volumes of the current regulatory period. The 2% reduction factor on capacity revenues provides scope for improving results of operations of the transport company if cost reductions exceed the set amount, whereas the 4.5% reduction factor on commodity revenues provides scope for improving results of operations of the transport company if transported volumes grow more than the reduction factor. Allowed revenues can also be increased to reflect costs associated with exceptional events, quality improvement in service and efficient utilization of resources; ~~this~~these increases have yet to be established by the Authority. New capital expenditure in extension and expansion enable transport companies to increase the capacity revenue by a stated percentage in the regulatory period following the period in which new capital expenditure is made. In addition, those capital expenditures give rise to a 6 year fixed increase in allowed commodity revenues. This tariff system will be in force for four years (first regulatory period). At the end of the first regulatory period, all transport cost components will be recalculated and 50% of higher cost reductions with respect to established efficiency improvements will be recognized to transport companies and 50% will be transferred to customers. Once the allowed revenues are established, transport companies define individual tariffs to clients which are based on a charge for the capacity used at the entry location (border, fields, storage sites) and the capacity used at interconnection joint nodes with regional networks (divided into 15 zones) and on a charge for the capacity used at regional level, providing for discounts to those entering the network at less than 15 kilometers from the interconnection point. A further charge (commodity charge) is related to the amounts of gas transported plus an annual fixed charge varying according to the delivery points.
        With ~~decision~~Decision No. ~~237 dated December 28, 2000,~~71 of June 26, 2003 the Authority ~~determined tariff criteria~~approved the tariffs for natural gas ~~distribution~~transmission on the Italian network for thermal year 2003-2004, that came into force on October 1, 2003.
Network code With Decision No. 75 of July 1, 2003, the Authority for electricity and ~~supply to non eligible customers as provided~~gas approved Snam Rete Gas Network Code, which defines rules and regulations for bythe operation and management of the transmission network. The Network Code, in accordance with Legislative Decree No. ~~164. This tariff reform~~
~~separates distribution from sale activities~~164/2000, is based on the criteria set by the Authority with decision No. 137/2002, aimed at guaranteeing equal access to all customers, maximum impartiality and ~~links tariffs to costs~~neutrality in ~~order to provide safe~~transport and ~~efficient services. Tariffs are determined so that annual revenues from natural gas distribution~~dispatching activities. The Network Code regulates the allocation of transmission capacity, obligations of transporter and ~~supply activities to non eligible customers do not exceed the threshold on distribution and sale revenues determined in order to cover operating costs~~customer and the ~~remuneration~~procedures through which customers can sell capacity to other users. The allocation of ~~capital employed~~transport capacity at entry points in the national gasline network (point of interconnection with import gaslines) can be annual or can last up to five thermal years. Entities eligible to request multiannual allocation are parties in multiannual import contracts within the limit of their daily average contract volumes, increased (for thermal year 2003-2004) by a third of the difference with maximum daily contract volumes. Available capacity is allocated to parties in multiannual import contracts containing take or pay clauses signed before August 10, 1998 (date of coming in force of European Directive 98/30/CE), with priority over other customers; if in a thermal year requests for capacity happen to be higher than available capacity, a pro-rata mechanism is applied in compliance with the aforementioned priority.
        Parties in annual or shorter import contracts and parties in multiannual import contracts are ~~adjusted according~~eligible to request annual capacity allocation within the ~~price cap method based~~limit of maximum daily contract volumes and the difference between maximum daily contract volumes and average daily contract volumes, respectively. Available transport capacity is allocated to parties in annual import contracts and parties in multiannual import contracts with priority; if in a thermal year requests for capacity happens to be higher than available capacity, a pro-rata mechanism is applied in compliance with the aforementioned priority.
        The Network Code introduces into the Italian system the concept of “virtual exchange point”, where network users can make sale and purchase transactions daily. This telematic market (hub), which started to operate on ~~parameters and formulas determined by~~October 1, 2003, is operating on the ~~Authority. Provisional tariffs were defined~~Snam Rete Gas internet site. From that date Snam Rete Gas manages a secondary market for the first six months of 2001. From July 2001 current tariffs (varying according to type of use—cooking, heating, small enterprises) have been progressively substituted by tariffs varying according to consumption levels and costs. Every three months the portion of the tariff which relates to the costexchange of natural gas based on specific procedures that consist in: (i) a computerized platform that allows users to sell and exchange transmission capacity for natural gas input into the national network; (ii) a contract template for accessing the computerized platform; (iii) technical rules for accessing the platform. With decision No. 22 of March 19, 2004, the Authority defined the development phases of the natural gas exchange and asked Eni to prepare an implementation plan for the new rules, that entail changes and extension of the present computerized management system. With the new rules the Authority aims at allowing that: sale and exchange can take place in the same day when the need is ~~adjusted~~felt to ~~international oil, home heating oil~~ sell or purchase natural gas volumes (until now this was possible only with bookings filed 24 hours in advance);and ~~low sulphur fuel oil~~(ii) sale and exchange of capacity at the entry points to the national network are regulated for a minimum duration of one day (at present this was possible only for one month). The Authority’s aim is to create a centralized market based on an official reference price formed within the exchange rather than on prices agreed bilaterally by operators, an automatic meeting point of demand and supply managed independently. See“Item 3 ’– Risk Factors” for a description of the risks associated with Eni natural gas take-or-pay purchase contracts deriving from the implications of the network code rules.
Law Decree No. 239/2003 (protection against black-outs). Law Decree No. 239/2003, converted with amendments into Law No. 290/2003, contained among other things new provisions for the construction of generation plants and terminals for the regasification of liquefied natural gas, as ~~measured~~well as simplified procedures for the authorization of plants for electricity generation, electric mains, pipelines and gaslines. The Decree also prohibits companies operating in the natural gas and electricity industries to hold stakes higher than 20% in the share capital of companies owning and managing national networks for the transmission of natural gas and electricity from July 1, 2007. Following this provision, Eni will have to sell part of its stake in Snam Rete Gas – in which it holds a 50.07% stake – until it reaches the 20% maximum interest allowed. For a discussion of the expected impact of this sale, see "Gas & Power - Transmission, Dispatching and Regasification Assets" above.
Regional Law No. 2 of March 26, 2002. Under Regional Law of March 26, 2002, the Sicilia Region introduced an environmental tax upon the owners of primary pipelines in Sicilia (i.e. 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 filed a ~~nine-month period.~~claim with the European Commission, aimed at opening a proceeding against the Italian Government and with 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 its inclusion in tariffs to the final ruling on its legitimacy by relevant authorities. Therefore, for the 2002-2003 thermal year with decision No.146/2002 and for the 2003-2004 thermal year with decision No. 71/2003 the Authority published two sets of tariffs: one, in force, that does not take into account the tax, and the second one including it, that will be automatically applied with retroactive effect should the tax be judged legitimate. On ~~June 13, 2001,~~September 10, 2002, Snam Rete Gas filed a claim with the Regional Administrative Court of Lombardia ~~accepted~~requesting the ~~claim~~immediate application of tariff including the ~~Association~~tax. With the ruling of ~~natural gas distribution companies against~~December 20, 2002, the ~~parameters used by~~court judged the ~~Authority in determining~~tax at variance with European rules and therefore did not accept Snam Rete Gas’s claim. In December 2002, Snam Rete Gas suspended payments based on authoritative opinion of legal counsel and the ~~cost of capital employed in order~~Court ruling Payments effected until November 2002 totaled euro 86.1 million. In January 2003 the Sicilia Region presented an appeal to ~~quantify the revenue cap of said companies. As the Authority filed a claim with~~ the Council of State against the Regional Court’s decision, Eni applied the criteria suggested by the Authority to the determination of revenues of natural gas distribution and supply activity in its 2001 financial statements. With decision No. 122/2002, the Authority for Electricity and Gas changed the tariff regime for natural gas distribution and supply to eligible customers which had been defined in decision No. 237. Decision No. 122, which takes into account the decisionruling of the Regional Administrative Court of Lombardia ~~introduced the method of revaluated historical cost~~ for the ~~determination~~part that states the variance of ~~capital employed~~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 with European rules and with 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 commodities imported from third countries and could create a deviation in trade with these countries and a distortion in access and competition rules. The Commission requested the Italian Government to present its observations about the argument. With a decision dated January 5, 2004, the Provincial Tax Commission of Palermo declared the environmental tax of the Sicilia Region illegitimate because it is in contrast with European rules and therefore accepted Snam Rete Gas’s claim for ~~those companies that are provided with audited~~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 instalment to Snam Rete Gas. On April 2, 2004 the Sicilia Region presented recourse to the Regional Tax Commission at Palermo. Snam Rete Gas started the necessary actions to obtain reimbursement of fixed tax payments already paid in April 2002 (euro 75,3 million). The Tax Commission of Palermo has yet to render its decision. In any case, Snam Rete Gas will not suffer any adverse financial ~~statements starting~~consequences from the ~~year closing before January 1, 1991, (such as Italgas), as an alternative~~outcome of this dispute: if the tax is considered illegitimate in the court of law, the company will have the right to the ~~parameters defined~~restitution of the amounts already paid; whereas, in case the tax is confirmed, Decisions No. 146/2002 and 71/2003 of the Authority already provide for its automatic inclusion in gas tariffs with retroactive effect.
        Electricity generation
        The regulatory framework of electricity generation is contained in Legislative Decree No. 79 of March 16, 1999, which incorporates European Directive 96/92/CE and contains in particular the definition of rules necessary for the electricity market (the so called electric exchange) and for the improvement of the safety of the national electric system.
        New market rules approved with a minister Decree of December 19, 2003 and dispatching rules introduced by Decision No. 168/2003 of the Authority provide for the following:

–
gradual introduction of the electricity exchange from April 1, 2004 and

–
in case of congestion, application of a system of local offers.
        Until the entry into force of the electricity exchange, a transitional system of offers of sale (STOVE) was introduced by decision No. 237/2000. In its financial statement for year 2002 Eni applied this new revised tariff regime which resulted in higher tariff for Eni’s secondary distribution with respect to 2001. See Item 5 «Operating financial review and prospects—Results of operations—Operating income—Gas & Power».
     ~~Law Decree No. 193 of September 4, 2002,~~67/2003 in force from ~~September 5, 2002,~~July 1, 2003 for the supply of electricity to customers on the regulated market.
        After recent black-outs a few measures were taken to increase safety and ~~converted into~~functioning of the electricity sector and to promote the construction of interconnection lines with other countries.
        Legislative Decree No. 379 of December 19, 2003, introduces the remuneration of electricity generation capacity in order to guarantee that domestic demand is met with the required reserve margins. The remuneration mechanisms will be defined in 2004. For that year remuneration will be effected by subdividing among the eligible producers the present tariff revenues destined to reserve charges.
        Law No. ~~238/2002,~~57 of March 5, 2001, stated that after 90 days from the sale by Enel of at least 15,000 megawatts of production capacity, any customer with consumption higher than 100,000 kilowatthour in the preceding year becomes an eligible customer. Thus from April 29, 2003, the annual consumption required to access the free market became much lower than the preceding limit of 9 million kilowatthour. The free market then went from about 35% to about 47% of total sales and, if Draft Law A.S.2421 presently under discussion at the Parliament is approved, the eligibility limit will be further lowered to 50,000 kilowatthour.
        On January 30, 2004, the Authority disseminated a consultation document on the monitoring of the electric market and the control of market power. This document suggests, among other things, prevented any increases in natural gas distribution tariffs to customers consuming less than 200,000 cubic meters/year and in electricity tariffs to eligible customers until November 30, 2002. Decree No. 193, while confirming tariffs in force before August 2002, prohibited the ~~application~~definition of ~~tariff increases set by~~indices that the Authority will use to monitor the market and of transitional measures for ~~Electricity~~2004 influencing the formation of prices (definition of a ceiling price and Gas for the September-October 2002 period and suspended increases foreseen for the November-December period. As concerns the September-October period in particular, the Authority had confirmed the current tariff for natural gas distribution. On October 31, 2002, the Council of Ministers indicated to the Authority further criteria for the determination of tariffs. Based on this Decree, the Authority will: (i) define, calculate and update electricity and gas tariffs also after the opening up of markets to eligible customers with consumption under 200,000 standard cubic meters, in order to ensure a regular and gradual access to the free market of final users that are non eligible customers as well as eligible customers who opt for this regime; (ii) define methods for updating tariffs with reference to variable costs that minimize the impact of inflation by providing for updating schedules adequate to the objective of reducing the effects of energy prices on inflation, but safeguarding the functioning of energy producing companies and the competitivity of the producing system; (iii) define criteria for allocating the costs deriving from social support measures, in order to reduce the aggregate net cost of interventions as much as possible and to ensure neutrality in the application of tariffs to the various groups of users. Consistently with this decree, the Authority: (i) with Decision No. 195 of November 29, 2002 changed the methods for periodically updating the tariff components of electricity and natural gas related to the changes in international prices of fuels and raw materials. Such changes concern the schedules update process (from every two months to every three), and the duration of the reference period for the calculation of changes in average international prices as compared to the application quarter (from the preceding six months to the preceding nine months). The invariance threshold, beyond which tariffs are updated, remained at 5%. These changes caused the confirmation of tariffs defined in July until December 2002; (ii) with Decision No. 207 of December 12, 2002, it decided that companies selling natural gas through local networks can maintain the conditions applied to non eligible customers at December 31, 2002. In addition, the Authority decided that these companies can propose their own new contract offers and offers determined according to the criteria established by the Authority adequately advertising them before March 31, 2003 (such offers must be published on the companies web page, on at least one newspaper of general circulation and on the Official Gazette of their region or autonomous province)bid cap).
        S~~Natural Gas Prices.Before the coming into force of Decree No. 164, the price~~torage of natural gas charged by Eni for primary sales, as well as the terms of supply, were generally determined through arm’s-length negotiations with associations representing major categories of customers, such as industrial companies
(Confindustria and Confapi), industrial electricity producers (Unapace), electricity producers and distributors (Federelettrica) and local distribution companies (ANCI, Federgasacqua and Gasit) as well as with Enel, the former Italian national electricity utility, directly. Once established, contractual terms, including the pricing provisions, were applied uniformly to buyers in each category. Prices were generally updated by means of indexation to certain parameters (such as the price of oil and certain refined products). These contracts were also subject to supervision of the Government. This framework has been changed by the liberalization of the natural gas sector introduced by Decree No. 164 and the unbundling of the several segments of the natural gas industry which highlights the revenues and costs of each segment. Eni plans to re-formulate its commercial offer by applying a multi-choice price structure to individual customers or groups of customers who will be able to choose among various forms of price indexation. This new price structure is offered to customers at the expiration of existing contracts and aims at reducing the impact of the volatility of raw material prices due to fluctuations in the prices of energy parameters and in exchange rates by introducing mechanisms that minimize commodity risks.
~~Storage of natural gas.~~        The right to store natural gas in depleted fields in Italy is exercised pursuant to concessions granted by the Ministry of Productive ~~Activities (the former~~Activites (formerly Ministry of Industry). Before Decree No. 164 came into force, only entities already holding a concession to exploit a hydrocarbon deposit were entitled to receive a concession to store natural gas, which is granted by the Ministry of ~~Industry (now the Ministry of~~ Productive ~~Activities).~~Activities. The initial duration of a concession is 20 years, with the possibility of obtaining ten-year extensions. After the expiration of a concession, new storage or production concessions on the same field may be granted through competitive auctions. Pursuant to Decree No. 625, unused storage capacity can be made available to third parties, subject to the approval of the Ministry, on a negotiated basis. Until December 31, 1996, Eni had the exclusive right to store natural gas in depleted fields in the Exclusive Area. Decree No. 625 eliminated this exclusive right, while granting Eni the right to obtain upon application storage concessions ~~having effect~~effective from January 1, 1997 that would preserve ~~such~~the rights ~~as had~~ vested with Eni during the regime of exclusivity (based on current storage activities or certain statutory conditions). Eni obtained the ~~nine~~ten storage concessions which it had applied for. ~~In 1999, Eni applied for another concession.~~
        The most important aspects of Decree No. 164 concerning production and storage activities performed by Eni are the following: (i) it favors the development of domestic natural gas reserves; (ii) ~~effective January 1, 2002,~~ storage ~~can~~are to be carried out by a separate company ~~non~~not operating in other gas activities (such as Stoccaggi Gas Italia SpA) or by companies which only engage in transmission and dispatching, provided the accounts of these two activities are clearly separated from the accounts of storage. Existing storage concessions are subject to the Decree. Their original term was confirmed and includes relevant production concessions: (iii) the need for strategic storage in Italy is defined explicitly; the burden of strategic storage is imposed upon companies importing from non-EU countries, which have to provide a strategic storage capacity in Italy corresponding to 10% of the amount of natural gas imported each year; (iv) holders of storage concessions are required to provide storage capacity for domestic production, for strategic use and for modulation to eligible users without discriminations, where technically and economically viable; (v) modulation storage costs are charged to shippers which have to provide modulation services adequate to the requirements of final customers; (vi) storage tariffs criteria are determined by the Authority in order to ensure a proper return on capital employed, taking into account the typical risk inherent in upstream activities as well as volumes stored for ensuring peak supplies and provides incentives to capital expenditure for the upgrading of the system; ~~and~~ (vii) in the transitional period until the publication of the Authority’s decision, storage companies determine and publish their own tariffs, and (viii) the Authority has to establish the criteria and priority of access most storage operators have to include in their storage codes.
        In compliance with the provisions of article 21 of Decree No. 164/2000, on October 21, 2001 all storage activities carried out ~~with~~within the Eni Group were conferred to Stoccaggi Gas Italia SpA,which holds ten storage concessions.
        With decision No. 26 dated February 27, 2002, the Authority determined tariff criteria for natural gas storage for the first regulated period (from April 1, 2002 to March 31, 2006). The Authority determined criteria on the basis of the costs of the service, plus a weighted average pre-tax rate of return of 8.33%. Tariffs are adjusted through a price cap mechanism that takes into account inflation and a productivity recovery of 2.75% per year. The tariff structure for modulation consists of two fixed elements, one based on the annual capacity used (space occupied in the reservoir) and one based on maximum output capacity demand for one day in the year, as well as a variable element calculated on the basis of the quantities entering and leaving the field. On the basis of these criteria on March 18, 2002, Stoccaggi Gas Italia SpA
presented its suggested tariffs for cyclical modulation, ~~mineral~~upstream and strategic storage services for the first regulatory period. The Authority rejected Stoccaggi Gas Italia proposal and set storage tariffs for ~~thermal year 2002-2003~~the first regulatory period with decision No. 49 of March 26, 2002. ~~Tariffs set by the Authority are 50% lower than those applied by Eni.~~ In 2002, Stoccaggi Gas Italia ~~SpA~~ appealed against both Authority decisions to the Regional Administrative Court of Lombardia in order to obtain their ~~repeal.~~cancellation . The Regional Administrative Court of Lombardia repealed Stoccaggi Gas Italia’s appeal with decision of September 29, 2003. Stoccaggi Gas Italia appealed to the Council of State against this decision on February 3, 2004. Pending the proceeding, Stoccaggi Gas Italia is currently applying the tariffs set by the Authority.
        Decree No. 625, as amended by Decree 164, provides for the holders of storage concessions to keep storage capacity available for ~~mineral,~~upstream, strategic and modulation storage functions for the national natural gas system.
        In implementation of Decree 164, the Decree of the Minister of Productive Activities of September 26, 2001 defined the criteria for the determination and use of strategic storage. The utilization of natural gas volumes held under strategic storage becomes mandatory in case of interruption or reduction of imports from non-EU countries due to technical and unpredictable causes, in case of emergency on the national gas network, in case of winters colder ~~winters~~ than those expected by the Authority in its periodic statements concerning the determination of modulation obligations for seasonal consumption peaks.
        On March 14, 2002, the Authority issued a consultation document containing criteria relating to the storage code that storage companies have to propose. The consultation document, among other things, suggests: (i) a preference order in assigning storage capacity which favours natural gas transport companies, natural gas distribution companies as defined by Decree No. 164 ~~art.~~article 18, eligible customers and other natural gas companies of members States of the European Union and ~~non members;~~non-members; (ii) mechanisms to assign scarce storage capacity (competitive bid, pro quota or first come first served); and (iii) contents of the storage code, among which access criteria to storage services and criteria of utilization of storage service.
        ~~Regional Law No. 2 of March 26, 2002.~~Under Regional Law No. 2 of March 26, 2002, the Sicilia Region introduced an environmental tax on owners of primary pipelines (operating at a maximum pressure of over 24 bar) in Sicily. The purpose of the tax is «to finance investments aimed at reducing and preventing potential environmental damage caused by pipelines containing natural gas». The tax for 2002, based on the volume of the gas pipelines, has been fixed at a rate of euro 153 per cubic meter for pipelines on public land and euro 137.70 per cubic meter for pipelines on private land. The tax is payable from April 2002 and the amount due by Snam Rete Gas SpA for 2002 totaled approximately euro 97 million. The amount of the tax can be changed by the Region with special ruling before December 31 of each year. Otherwise the tax is automatically adjusted according to the official rate of inflation as published by ISTAT.
     In order to protect its interests, Snam Rete Gas: (i) on July 30, 2002, filed a claim with the European Commission commencing a proceeding against the Italian Government, which may lead to a suspension of the regional law pending a final ruling; (ii) notified the Sicilia Region of its request for reimbursement of taxes paid, as a first step to the furthering of the dispute and warned the Sicilia Region not to make use of those sums pending final rulings; (iii) on October 18, 2002, as circumstances materialized constituting tacit rejection of the request for reimbursement of the tax paid, filed a claim with the Tax Commission of Palermo aimed at obtaining a definitive and rapid decision against the legitimacy of the tax.
     The Authority, although acknowledging that the tax burden is an operating cost for the transmission activity, subjected its inclusion in tariffs to the final ruling on its legitimacy by relevant authorities. Therefore, with decision No. 146/2002 a the Authority published two sets of tariffs: one, in force, that does not take into account the tax and a second one including it, that will be automatically applied with retroactive effect should the tax a be judged legitimate.
     In September 2002 Snam Rete Gas filed a claim with the Regional Administrative Court of Lombardia requesting the immediate application of tariffs including the tax. With ruling of December 20, 2002, the Court judged the tax at variance with European rules and therefore did not accept Snam Rete Gas’s claim. In December 2002, Snam Rete Gas suspended payments of the tax based on authoritative legal advise and said Court ruling. Payments effected until November 2002 totaled euro 86.4 million.
     In January 2003 the Sicilia Region presented an appeal to the Council of State against the ruling of the Regional Administrative Court of Lombardia for the part that states the variance of the regional law with European rules. For cautionary reasons, Snam Rete Gas did not record the recovery of costs incurred in its
~~accounts, taking into account the uncertainties on the future evolution of this dispute and the time necessary to reach a final judgement.~~
Refining and Marketing of Petroleum Products
        R~~Refining.~~efining. Under Decree No. 112, companies that seek to establish refining operations in Italy or to expand the capacity of existing refining operations must obtain an operating concession from the relevant Region, while companies that seek to build or operate new plants that do not increase refining capacity must obtain an authorization from the relevant Region.
        Service ~~Stations.~~Stations. Decree No. 32 of February 11, 1998, as amended by Legislative Decree No. 348 of September 8, 1999 and Law Decree No. 383 of October 29, 1999, significantly changed Italian regulation of service stations. The Decree replaces the system of concessions granted by the Ministry of Industry, regional and local authorities with an authorization granted by city authorities. Legislative Decree No. 112/98 confers the power to grant concessions for the construction and operation of service stations on highways to Regions. Decree No. 32 also requires that contracts between license holders and service station operators have a duration of not less than six years and be drafted in accordance with arrangements agreed by the relevant trade group of license holders and the union representatives for the service station operators. Decree No. 32 also provides for: (i) the testing of compatibility of existing service stations with local planning and environmental regulations and with those concerning traffic safety to be performed by city authorities; (ii) upon the closure of at least 7,000 service stations, the option to extend by 50% the opening hours (currently 52 hours per week) and a generally increased flexibility in scheduling opening hours; (iii) simplification of regulations concerning the sale of non-oil products and the permission to perform simple maintenance and repair operations at service stations; (iv) establishment of a fund for the restructuring of the sales network, in part financed through a contribution, ~~of lire 4 per liter of fuel sold (lire 3 paid by licence holders and lire 1 paid by operators of service stations)~~ in the 1998-2000 ~~period;~~period. In 2002 the fund received new financings: the decree of the Minister of Productive Activities of August 7, 2003, implementing Law No. 237 of December 12, 2002, defined the amount of euro 0.0003 and euro 0.0001 for each liter of automotive fuel (gasoline, diesel fuel and LPG) sold in 2002 in the ordinary distribution network to be paid by authorization holders and service station managers, respectively. The latest payment date was set at December 31, 2003; (v) the opening up of the logistics segment by permitting third party access to unused storage capacity for petroleum products; and (vi) measures designed to increase competition on the market for LPG for residential, industrial and agricultural users. With the goal of renewing the Italian distribution network, Law no 57/2001 provides that the Ministry ~~of Industry (now Ministry~~ for Productive ~~Activities)~~Activities is to prepare guidelines for the modernization of the network, and the Regions shall follow those guidelines in the preparation of regional plans. The Decree was issued on October 31, 2001 and established the criteria for the closing down of incompatible stations, ~~for~~ the approval of the plan, ~~for~~ the renewal of the network, the opening up of new ~~ones~~stations and ~~will regulate~~the regulations of the operations of service stations on matters such as automation, working hours and non oil activities.
        Petroleum Product ~~Prices.~~Prices. Petroleum product prices were completely deregulated in May 1994 and are now freely established by operators. Oil and gas companies periodically report their recommended prices to the Ministry of Productive Activities and service station operators, and such recommendations are considered by service station operators in establishing retail prices for petroleum products. With Ministerial Decree dated February 16, 2000, an entity was established that supports the Ministry of ~~Industry~~Productive Activities in monitoring trends in domestic and international prices of oil and oil products. Furthermore, in order to avoid initiatives inhibiting competition, Law No. 57/2001 provides the compliance with EU Regulation No. 2790/1999 concerning ~~«vertical agreements»~~“vertical agreements” on economic relations between operators in this area. Management believes that these developments will not have any significant impact on Eni’s operations.
        Compulsory ~~Stocks.~~Stocks. Compulsory stocks imposed by the Ministry of Productive Activity, in line with the European Directive 98/1993, must be at ~~their minimum level~~least equal to the quantities required by 90 days of consumption (net of oil products obtained by domestically produced oil).
In order to satisfy the agreement with the International Energy Agency (Law No. 883/~~1997)~~1977), the ~~Minister of Productive Activity with~~Legislative Decree of January 31, 2001, No. 22 (implementing EU directive 98/93/CE which regulates the obligation of member states to keep a minimum amount of stocks of crude oil and/or petroleum products) increased the level of compulsory stocks by 10% (this level is to be reached in four years). ~~The impact~~Legislative Decree No. 22/2001 states that compulsory stocks are determined each year by a decree of the ~~Decree on Eni’s compulsory stocks is~~Minister of ~~approximately 700 thousands tons,~~Productive Activities, defining also the coefficients necessary to determine the breakdown of ~~which 170 thousands tons in 2002.~~amounts among the subjects required to keep the stocks.
        Decree No. 32 of February 11, 1998 established an entity responsible for the maintenance and management of this compulsory reserve whose main tasks are to: (i) distribute stocks on the national territory according to available storage sites and consumption levels; (ii) meet the demand for refined products in case
of crisis; (iii) guarantee storage volumes to operators; and (iv) record demand for refined products in the various areas of Italy. The ~~agency is not yet operational.~~Agency has been created on June 14, 2001; its by-laws had been approved with a Ministerial Decree of January 29, 2001 and its operating regulation has been approved on May 20, 2003 by the general meeting of the genecy’s members. The Minister of Productive Activities with a decree dated January 7, 2003, defined the parameters for determining the available capacity of storage and transmission of mineral oils.
In ~~2002~~2003 Eni owned on average ~~7.2~~7.1 million tons of oil products inventories, of which 5.1 ~~millions~~million relating to ~~«compulsory stocks»~~“compulsory stocks” as required by Italian law. The balance is composed of oil products which cannot be used to meet compulsory stock requirements; in particular ~~0.9~~0.7 million tons ~~relate~~related to operating inventories (oil products contained in facilities and pipelines), ~~0.7 millions relate~~1 million related to oil products contained in ships and ~~0.5 millions relate~~0.3 million related to specialty products.
        Eni’s compulsory stocks are in general composed of oil ~~(35%~~(34%), distillates ~~(45%~~(61%) and fuel oil ~~(20%~~(5%). They are located throughout the Italian territory in both refineries (75%) and storage sites (25%).
        Eni also held natural gas for strategic ~~reserves purposed~~reserve purposes in its storage business, as established by ~~the~~ Legislative Decree No. 164 of May 23, 2000. The strategic reserves of ~~strategic~~ gas are defined as ~~«stock~~“stock destined to ~~substitute~~meet situations of deficit/decrease of supply or crisis of the gas ~~system»~~system”. The Ministry of Productive Activities determines quantities and usage criteria of such reserves. As of December 31, ~~2002~~2003 Eni held approximately 180 billion standard cubic feet of strategic reserves of natural gas.
        Competition
        Like all Italian companies, Eni is subject to Italian and EU competition rules. EU competition rules are set forth in Articles 81 and 82 of the Treaty of Rome as amended by the Treaty of Amsterdam dated October 2, 1997 and entered into force on May 1, 1999 («(“Article ~~81»~~81” and ~~«Article 82»~~“Article 82”, respectively being the result of the new denomination of former Articles 85 and 86) and EU Merger Control Regulation No. 4064 of 1989 («(“EU Regulation ~~4064»~~4064”). Article 81 prohibits collusion among competitors that may affect trade among member states and that has the object or effect of restricting competition within the EU. Article 82 prohibits any abuse of a dominant position within a substantial part of the EU that may affect trade among member states. EU Regulation 4064 sets certain limits for cross-border transactions, above which enforcement authority rests with the European Commission and below which enforcement is carried out by national competition authorities, such as the Antitrust Authority in the case of Italy. On May 1, 2004, a new regulation of the European Council came into force (No. 1/2003) which substitutes regulation No. 17/1962 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty. In order to simplify the procedures required of undertakings in case of concentration, the new regulation substitutes the obligation to inform the Commission with a declaration that such concentration does not infringe the Treaty. In addition, the burden of proving an infringement of Article 81(1) or of Article 82 of the Treaty shall rest on the party or the authority alleging the infringement. The undertaking or association of undertakings claiming the benefit of Article 81(3) of the Treaty shall bear the burden of proving that the conditions of that paragraph are fulfilled. The regulation defines the functions of Authorities guaranteeing competition in Member States and the powers of the Commission and of national courts. The competition authorities of the Member States shall have the power to apply Articles 81 and 82 of the Treaty in individual cases. For this purpose, acting on their own initiative or on a complaint, they may take the following decisions:
–
requiring that an infringement be brought to an end,

–
ordering interim measures,

–
accepting commitments,

–
imposing fines, periodic penalty payments or any other penalty provided for in their national law.

National courts shall have the power to apply Articles 81 and 82 of the Treaty. Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 or of Article 82 of the Treaty, it may: (i) require the undertakings and associations of undertakings concerned to bring such infringement to an end; (ii) order interim measures; (iii) make commitments offered by undertakings to meet the concerns expressed to them by the Commission binding on the undertakings; (iv) find that Article 81 and 82 of the Treaty are not applicable to an agreement for reasons of Community public interest.
Eni is also subject to the competition rules established by the Agreement on the European Economic Area (the ~~«EEA Agreement»~~“EEA Agreement”), which are analogous to the competition rules of the Treaty of Rome and apply to competition in the European Economic Area (which consists of the EU and Norway, Iceland and Liechtenstein). These competition rules are enforced by the European Commission and the European Free Trade Area Surveillance Authority.
        In addition, Eni’s activities are subject to Law No. 287 of October 10, 1990 (the ~~«Antitrust Law»~~“Antitrust Law”). In accordance with the EU competition rules, the Antitrust Law prohibits collusion among competitors that restricts competition within Italy and prohibits any abuse of a dominant position within the Italian market or a significant part thereof. However, the Antitrust Authority may exempt for a limited period agreements among companies that otherwise would be prohibited by the Antitrust Law if such agreements have the effect of improving market conditions and ultimately result in a benefit for consumers. The Antitrust Authority has intervened on the basis of the Antitrust Law in several instances, particularly in order to prohibit the imposition of discriminatory tariffs in the telecommunications, railway and air transport sectors, among others. ~~In addition, the Antitrust Authority has undertaken investigations regarding the activities~~
Table of ~~certain oil and gas companies, including Eni. See «Note 21 to the Consolidated Financial Statements—Legal Proceedings—Antitrust Proceedings.»~~Contents
Property, Plant and Equipment
        Eni has freehold and leasehold interests in real estate in numerous countries throughout the world, but no one individual property is material to Eni as a whole. See ~~«Exploration~~“Exploration & ~~Production»~~Production” above for a description of Eni’s reserves and sources of crude oil and natural gas.
Table of Contents
Organizational Structure
        The significant ~~subsidiary and~~subsidiaries, associated undertakings and joint ventures of the Eni Group controlled directly or indirectly by Eni at December 31, ~~2002~~2003 and included in the scope of consolidation as well as Eni’s percentage of equity capital or joint venture interest (rounded to the nearest whole number) are set forth in the table below. The principal country of operation is generally indicated by the company’s country of incorporation or by its name.
Company/Undertaking Country of Incorporation %
Exploration & Production
~~Agip~~Eni Algeria Production BV Netherlands 100
~~Agip~~Eni Angola Production BV Netherlands 100
Agip Azerbaijan BV Netherlands 100
Agip Caspian Sea BV Netherlands 100
~~Agip~~Eni Congo SA Netherlands 100
~~Agip~~Eni Exploration BV Netherlands 100
~~Agip~~Eni Iran BV Netherlands 100
Agip Karachaganak BV Netherlands 100
Eni Lasmo Plc United Kingdom 100
~~Agip~~Eni North Africa BV Netherlands 100
~~Agip North Sea Ltd~~Eni ANS Ltd. United Kingdom 100
Agip Oil Ecuador BV Netherlands 100
~~Agip~~Eni Petroleum Co ~~Inc~~Inc. USA 100
~~Agip (UK) Ltd~~Eni UK Ltd. United Kingdom 100
~~Brithish-Borneo Oil & Gas Plc~~Eni AOG Ltd. United Kingdom 100
Ieoc Production BV Netherlands 100
Lukagip NV Netherlands 50
~~Naoc —~~ Nigerian Agip Oil Co ~~Ltd~~Ltd. Nigeria 100
~~Norsk Agip~~Eni Norge A/S Norway 100
~~100~~
Gas & Power
Greenstream SpA Italy ~~100~~ 75
Snam Rete Gas SpA Italy 60 50⁽¹⁾
Società Italiana per il Gas pA Italy 44 100
Adriaplin Doo Slovenia 22 51
Distribuidora de Gas Cuyana SA Argentina 20 46
Gas Brasiliano Distribuidora SA Brazil 89 100
Inversora de Gas Cuyana SA Argentina 33 76
Tigaz Rt Tiszantuli Gazszolgaltato Rèszvenytàrsasàg ~~Hungary~~Ungheria 28 50
EniPower SpA Italy 100
~~100~~
⁽¹⁾As of April 1, 2004

Refining & Marketing
~~AgipGas~~AgipRete SpA Italy 100
~~Atriplex Srl~~Agipfuel SpA Italy 100
Ecofuel SpA Italy 100
Eni Portugal Investment SpA Italy 100
~~Company/Undertaking~~ ~~Country of Incorporation~~ %
Agip Deutschland AG GmbH Germany 100
Agip Do Brasil SA Brazil 100
Agip Ecuador SA Ecuador 100
Agip Espana SA Spain 100
Agip Française SA France 100
American Agip Co ~~Inc~~ Inc. USA 100
Italiana Petroli SpA Italy 100

Petrochemicals
~~EniChem SpA (now Syndial SpA)~~ ~~Italy~~ ~~100~~
Polimeri Europa SpA Italy 100
Dunastyr Polystyrene Manufacturing Company ~~Ltd~~ Ltd. Hungary 100
Polimeri Europa Americas Inc USA 100
Polimeri Europa Benelux SA Belgium 100
~~EniChem Deutschland GmbH~~ ~~Germany~~ ~~100~~
Polimeri Europa Elastomères France SA France 100
Polimeri Europa France Snc France 100
Polimeru Europa Handelsgesellschaft mbH Germany 100
Polimeri Europa UK ~~Ltd~~ Ltd. United Kingdom 100
Oilfield Services Construction and Engineering
Saipem SpA Italy 43
Snamprogetti SpA Italy 100
Consorzio Eni per l’Alta Velocità —- Cepav Uno Italy 50
European Marine Contractors ~~Ltd~~ Ltd. United Kingdom 75
Saipem SA France 43    43

Other Activities
Syndial SpA Italy 100
EniData SpA Italy 100
EniTecnologie SpA Italy 100
Sieco SpA Italy 91
Tecnomare SpA Italy 57

Corporate and financial companies
Eni International BV Netherlands 100
Eni Coordination Center SA Belgium 100
Società Finanziaria Eni SpA—Enifin Italy 100
Società Finanziamenti Idrocarburi —- Sofid-Spa Italy 100
~~EniData SpA~~ ~~Italy~~ ~~100~~
~~EniTecnologie SpA~~ ~~Italy~~ ~~100~~
~~Eurosolare SpA~~ ~~Italy~~ ~~100~~
~~Sieco SpA~~ ~~Italy~~ 91
~~Tecnomare SpA~~ ~~Italy~~ 57
~~Eni International BV~~ ~~Netherlands~~ ~~100~~
~~Eni Coordination Center SA~~ ~~Belgium~~ ~~100~~

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Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
        The information in this item should be read together with the Key Information presented in Item 3 and the Consolidated Financial Statements and related Notes thereto included in Item 18.
Table of Contents
        Executive Summary
        In 2003 Eni’s net income amounted to euro 5.6 billion with an increase of nearly euro one billion over 2002 (up 21.6%). Operating income increased by euro 1,015 million, or 11.9%. Despite significant capital expenditures and investments of euro 13.1 billion (up 38.7% over 2002), leverage¹ was 0.48 (0.39 in 2002). The ~~Consolidated Financial Statements~~trends in the principal market indicators contributed to the improved results; however, the effects of the average increase in oil prices (Brent was up 3.9 dollars/barrel) and of the higher average European refining margins (up 1.9 dollars/barrel) were partly offset by the almost 20% slide of the dollar against the euro (the average Brent price in euro declined by 3.4%).
        The year 2003 was marked by the war in Iraq, while the effects of uncertainties relating to the war were already visible in 2002. In 2003 the price of oil peaked to above 35 dollars/barrel. The progressive weakening of the dollar created concern in Europe for its effects on the competitivity of exports and growth, adding a further element of volatility to the economic and energy scenario. In the context of such tension and uncertainty, Eni succeeded in meeting its growth targets.
        In the Exploration & Production segment, hydrocarbon production amounted to 1,562 KBOE/d, with a 90 KBOE/d increase, up 6.1% over 2002. Proved hydrocarbon reserves at December 31, 2003 amounted to 7,272 mmBOE, increasing by 242 mmBOE over 2002. The reserve life index at December 31, 2003 was 12.7 years (13.2 in 2002). The most important new reserves booked in 2003 concerned the Kashagan structure in the Kazakh offshore, which confirms the relevant mineral potential of the area operated by Eni, Block 15 (Eni’s interest 20%) in the deep waters of Angola, the North Sea, the Gulf of Mexico, Indonesia and the ~~related Notes thereto have been prepared~~Algerian desert.
        In the Gas & Power segment, sales of natural gas in ~~accordance~~primary distribution amounted to 65.1 billion cubic meters, with ~~Italian GAAP, which differ~~a 4.7 billion cubic meters increase over 2002 (up 7.7%). In power generation, the first 390 megawatt unit of the Ferrera Erbognone power station began production at the end of the 2003.
        In the Refining & Marketing segment, Eni continued the upgrading process of its refining system. In retail marketing Eni continued the requalification and strategic repositioning of its distribution network aimed at seizing the opportunities deriving from changes in ~~certain respects from generally accepted accounting principles applied~~consumers’ preferences. In retail markets in the ~~United States. For~~rest of Europe, Eni’s selective development showed its first results with increasing sales and a ~~summary~~consolidation of ~~the~~market share in target areas.

Capital expenditure amounted to euro 8.8 billion and investments to 4.3 billion. The most relevant expenditures concerned large projects relating to long-term growth and the sustainability of Eni’s businesses. Investments concerned primarily the Italgas tender offer (euro 2.6 billion), the purchase of Fortum Petroleum, an upstream company operating in Norway (euro 0.9 billion), and the purchase of 50% of Union Fenosa Gas (euro 0.4 billion).
~~significant differences~~Margin(²)
        Margin: The difference between ~~Italian accounting principles~~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 petrochemicals products). Margin trends reflect the trading environment and are, to a certain extent, a gauge of industry profitability.

___________________________
1
For a discussion of leverage and a reconciliation with the most directly comparable GAAP financial measure, see “Liquidity and capital resources – Financial conditions below”.
2
This definition applies to the term margin whenever used in this section.
Trading environment Year ended December 31,
2001
2002
2003
Average price of Brent dated crude oil⁽¹⁾ 24.46 24.98 28.84
Average price in euro of Brent dated crude oil 27.30 26.41 25.50
Average EUR/USD exchange rate⁽²⁾ 0.896 0.946 1.131
Average European refining margin⁽³⁾ 1.97 0.80 2.65
EURIBOR—three-month euro rate % 4.3 3.3 2.3

(1)
In U.S. dollars per barrel. Source: Platt’s Oilgram.
(2)
Source: European Central Bank.
(3)
In U.S. dollars per barrel. FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platt’s Oilgram data.
        Eni’s results of operations and the year-to-year comparability of its financial results are affected by a number of external factors which exist in the industry environment, including changes in oil, natural gas and refined products prices, industry-wide movements in refining and petrochemical margins and fluctuations in exchange rates and interest rates. Changes in weather conditions from year to year can influence demand for natural gas and some petroleum products, thus affecting results of operations of the natural gas business and, to a lesser extent, of the refining and marketing business. See ‘‘Item 3. Risk Factors.’’ The trading environment was mixed in 2003. The favourable impact of higher hydrocarbon prices and refining margins over 2002 was offset by the depreciation of the U.S. ~~GAAP that are relevant~~dollar versus the euro. Actual oil prices when expressed in euro terms declined slightly over 2002. Natural gas demand in Italy increased by approximately nine percent point over 2002 driven by strong growth in the thermoelectric segment. Natural gas margins in Italy improved due to ~~Eni, see «—Summary of Differences Between Italian accounting principles and U.S. GAAP» and Notes 28, 29 and 30~~favourable trading conditions, related in particular to the ~~Consolidated Financial Statements. Note 30~~impact of the U.S. dollar depreciation versus the euro, whose effects were partly offset by increasing competitive pressure in the domestic natural gas market and by the change in sale mix due to compliance with regulatory thresholds provided for by Legislative Decree no. 164/2000 (see “Item 3 - Risk Factors”). In 2003 refining margins rebounded sharply to more normal industry levels as compared to the ~~Consolidated Financial Statements provides~~particularly depressed levels registered in year 2002 which reflected a weak demand for refined products due to weak worldwide economic conditions. Margins on distribution of refined products in Europe benefited from higher levels of efficiency of distribution networks. Petrochemical product margins suffered from the weak economic environment in Europe and overcapacity and came under pressure as increase in the purchase costs of certain ~~additional disclosures required under U.S. GAAP.~~monomers could not be transferred entirely onto final prices of polymers.
Key consolidated financial data
(million euro) 2001 2002 2003
Net sales from operations 49,272 47,922 51,487
Operating income 10,313 8,502 9,517
Net income 7,751 4,593 5,585
Net cash provided by operating activities 8,084 10,578 10,827
Capital expenditure 6,606 8,048 8,802
Investments⁽¹⁾ 4,664 1,366 4,255
Shareholders’ equity including minority interest 29,189 28,351 28,318
Net borrowings⁽²⁾ 9,888 11,141 13,543
Net income per share (euro per share) 1.98 1.20 1.48
Dividend per share (euro per share) 0.750 0.750 0.750
Net borrowings to total shareholders’ equity
ratio including minority interests (leverage)⁽²⁾ 0.35 0.39 0.48

(1)
This item refers mainly to the acquisition of net equity of other companies and acquired net borrowings. In 2003 it includes also the outlay for the tender offer for Italgas shares (euro 2,569 million).
(2)
For a discussion of the usefulness of and a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures see “Liquidity and capital resources – Financial conditions” below.
Table of Contents
Critical Accounting ~~Policies~~Estimates
        The consolidated financial statements of Eni and the related Notes have been prepared in accordance with Eni Group accounting policies which are in accordance with accounting principles prescribed by Italian law and supplemented by the accounting principles issued by the Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri (C.N.D.C.R.) or, in the absence thereof and if applicable, the International Accounting Standards ~~Committee (I.A.S.C.~~Board (I.A.S.B.). In the absence of indications in said principles, specific criteria for hydrocarbon exploration and production applied internationally have been followed (collectively ~~«Italian GAAP»~~“Italian GAAP”).
        Italian GAAP ~~differ~~vary in certain significant respects from generally accepted accounting principles applied in the United ~~States («~~States. For a summary of the significant differences between Italian accounting principles and U.S. ~~GAAP»); a description~~GAAP that are relevant to Eni, see “Summary of Differences Between Italian accounting principles and U.S. GAAP” below and Notes No. 27, 28 and 29 to the Consolidated Financial Statements. Note No. 29 to the Consolidated Financial Statements provides certain additional disclosures required under U.S. GAAP.
        The preparation of these ~~differences is set forth~~financial statements requires management to apply accounting methods and policies that are based on difficult or subjective judgments, estimates based on past experience and assumptions determined to be reasonable and realistic based on the related circumstances. The application of these estimates and assumptions affects the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates given the uncertainty surrounding the assumptions and conditions upon which the estimates are based. We have summarized below our accounting estimates that require the more subjective judgment of our management. Such assumptions or estimates regard the effects of matters that are inherently uncertain and for which changes in ~~Note 28 to Financial Statements.~~
     ~~Accounting~~conditions may significantly affect the results reported in the consolidated financial statements. In particular, the accounting methods and policies based on these assumptions and estimates affect the recognition of assets and liabilities in the balance sheet and revenues and expenses onin the income ~~statement. The accounting methods used can affect~~statement, as well as net income, stockholders equity and various financial ~~statement~~statements ratios. However ~~Eni’s~~cash flows and liquidity are not affected by such accounting policies ~~generally do not change cash flows or liquidity.~~and estimates.
Oil and Gas Activities
        Costs associated with the acquisition of mineral rights, including reserves purchased in connection with such acquisition, are capitalized. Mineral rights can also include exploration permits, among other items. Mineral rights are amortized on a straight-line basis over the expected period of benefit. Capitalized costs associated with proved reserves are amortized on a Unit-of-Production (UOP) basis, while capitalized acquisition costs related to all other reserves are not amortized until classified as proved. ~~Capitalised~~Capitalized costs related to abandoned drilling programs are expensed.
        Costs associated with exploratory activities for oil and gas producing properties ~~incurred to obtain information in order to characterize fields (such as acquisition of seismic data from third parties, test wells and geophysical surveys)~~ are expensed as incurred for financial reporting purposes.
        Costs incurred in development activities (acquisition of concessions, drilling of wells and their completion before production, as well as plant and equipment necessary for production, etc.) are capitalized and amortized on a UOP basis. Costs related to unsuccessful developmental wells are expensed immediately as loss on disposal.
        Eni regularly accrues costs expected to be incurred with respect to eventual well abandonment, including costs associated with site restoration, on a UOP basis.
        Engineering estimates of the Company’s oil and gas reserves are inherently uncertain; the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgement. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as ~~«proved»~~“proved”. Proved reserves are the estimated volumes of crude oil, natural gas and gas condensates, liquids and associated substances which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved reserves include: (i) developed proved reserves: amounts of hydrocarbons that are expected to be retrieved through existing wells, facilities and operating methods; (ii) non developed proved reserves: amounts of hydrocarbons that are expected to be retrieved following new drilling and facilities. Proved reserves do not include probable or possible reserves.
See also “Item 3 – Risk factors – Uncertainties in estimates of oil and natural gas reserves”.
        Results of drilling, testing and production after the date of the estimate may require substantial upward and downward revision. In addition changes in oil and natural gas prices could have an effect on the value of Eni’s proved reserves. Accordingly, the estimated reserves could be materially different from the quantities of oil and natural gas that ultimately will be recorded.
        Despite the inherent imprecision in these engineering estimates, estimated proved reserves are used in determining depreciation and depletion expenses and impairment expense. Depreciation rates on oil and gas assets using the UOP basis are determined from the ratio between the amount of hydrocarbons extracted in the year and proved developed reserves existing at the year-end increased by the amounts extracted during the year. Therefore, assuming all other variables are held constant, an increase in estimated proved reserves decreases depreciation, depletion and amortization expense. On the contrary, a decrease in estimated proved reserves increases depreciation, depletion and amortization expense. The UOP rate is then applied to the costs capitalized.
        Also, estimated proved reserves are ~~often~~ used to calculate future cash flows from oil and gas operations properties, which serve as an indicator in determining whether a property impairment is ~~impaired~~to be carried out or not. The larger the volumes of estimated reserves, the less likely the property is impaired.
Impairment of Assets
        Fixed assets are written down whenever events and changes in circumstances indicate that the carrying amount may not be recoverable. Eni calculates the writedown as the difference between the expected accumulated discounted cash flow and the book value of the asset. According to Italian GAAP, when the circumstances causing an impairment cease to exist, Eni reverses previously recorded impairment charges net of depreciation.
        For oil and natural gas properties, the expected future cash flows are estimated based on developed and non developed proved reserves including, among other elements, the cost for closure and abandonment of wells, 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 about future commodity prices, lifting and development costs, field decline rates, market demand and supply, economic regulatory climates and other factors.
Asset Retirement Obligations
        Eni has significant obligations to remove tangible equipment and restore land or seabed ~~at the end of operations.~~once operations are terminated. Removal and restoration obligations are primarily associated with plugging and abandoning wells and removal and disposal of offshore oil and gas platforms around the world. The estimated undiscounted costs, net of salvage value, of dismantling and removing these facilities are accrued over the productive life of the asset. Estimating the future asset removal costs is difficult and requires management to make estimates and judgements because most of the removal obligations are many years in the future and contracts and regulations often have vague descriptions of what constitutes removal. Asset removal technologies and costs are constantly changing, as well as political, environmental, safety and public relations considerations. Future changes in asset removal technologies and costs as well as political, environmental, safety and public relation considerations could have a material impact of financial statements.
        Business Acquisitions
Accounting for the acquisition of a business requires the allocation of the purchase price to various assets and liabilities of the acquired business. For most assets and liabilities, purchase price allocation is accomplished by recording the asset or liability at its estimated fair value. The most difficult estimations of individual fair values are those involving property, plant and equipment and identifiable intangible assets. We use all available information to make these fair value determinations and, for major business acquisitions, typically engage an outside appraisal firm to assist in the fair value determination of the acquired long-lived assets.
        Goodwill
Eni capitalizes goodwill and amortizes it over its useful economic life, which is not to exceed 20 years from the date of acquisition. The assessment of useful economic life involves management making judgments and assumptions over the nature of the acquired business, the economic environment in which it operates, and the period of time over which the value of the business is expected to exceed the value of assets. Different assumptions and judgments may lead to a different amortization charge being recognized in income during the period.
Environmental Liabilities
        Together with other companies in the industries in which it operates, Eni is subject to numerous EU, national, regional and local environmental laws and ~~registrations~~regulations concerning its oil and gas operations, productions and other activities, including ~~legislations~~legislation that implements international conventions or protocols. See also “Item 4 – Environmental Matters”.
        Environmental expenditures are made in order to prevent, reduce, repair or control the environmental impact
of production activities. Reserves for environmental contingencies are established when it becomes probable or certain that a liability has been incurred and the amount can be reasonably estimated.
        Although management, considering the actions already taken, the insurance policies to cover environmental risks and provision for risks accrued, does not expect any material adverse effect upon Eni’s results of operations and financial position as a result of its compliance with such laws and regulations, there can be no assurance that there will not be a material adverse impact on Eni’s results of operations and financial position due to: (i) the possibility of as yet unknown contamination; (ii) the results of ~~the~~ ongoing surveys; (iii) the possible effect of future environmental legislations and rules; (iv) the effect of possible technological changes relating to future remediation; and (v) the possibility of litigation and the difficulty in determining Eni’s liabilities, if any, as against other potentially responsible parties with respect to such litigation and the possible insurance recoveries.
Contingencies
        In addition to accruing the estimated costs for asset retirement obligation and environmental liabilities, Eni accrues for all probable and estimable contingencies. These other contingencies are primarily related to litigation and tax issues. Determining appropriate amounts for accrual is a complex estimation process that includes subjective judgements. Eni reviews these contingencies on at least a quarterly basis to determine if new accruals need to be recorded or if adjustments to existing accruals need to be made.
~~Margin (1)~~        Recent accounting pronouncements
     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 petrochemicals products). Margin trends reflect the trading environment and are, to a certain extent, a gauge of industry profitability.
~~Background and Recent Developments~~
     Eni’s results of operations and the period-to-period comparability of its financial results are affected by a number of external factors which exist in the industry environment, including changes in oil, natural gas and refined products prices, industry-wide movements in refining and petrochemical margins and fluctuations in exchange rates and interest rates. Changes in weather conditions from year to year can influence demand for natural gas and some petroleum products, thus affecting results of operations of the natural gas segment and, to a lesser extent, of the refining and marketing segment.        See “Item 3. Risk Factors.” The trading environment was mixed in 2002. Hydrocarbon prices were weak in the first half of the year; then they began to increase due to geopolitical worries. Refining margins were weak all year round due to sluggish demand for refined products. Margins on distribution of refined products in Europe benefited from higher levels of efficiency of distribution networks. Natural gas demand in Italy was affected by unfavorable climatic conditions especially in the fourth quarter of 2002 and by slow economic activity. Margins on natural gas primary distribution in Italy were affected by increasing competitive pressure in the domestic natural gas market and by the change in sale mix due to compliance with regulatory thresholds provided for by Legislative Decree no. 164/2000 (See «Item 3. Risk Factors»). Petrochemical product margins suffered from the weak economic environment and overcapacity and came under pressure as decreases in selling prices were sharper than those in the prices of oil-based feedstocks.
     In the first quarter of 2003 oil prices continued their upward trends with the spot price for Brent, a benchmark crude oil, above the key level of 30 dollar/barrel due to geopolitical developments. Refining margins rebounded sharply due to higher demand for refined products as a consequence of geopolitical factors, a colder winter in North America and Europe as well as low inventory levels. Natural gas margins were higher due mainlyNote 29 to the ~~different trends in the reference parameters~~Consolidated Financial Statements for ~~the determination~~information about recent accounting pronouncements.
Table of ~~natural gas purchase and selling prices (related also to different contractual intervals). Petrochemicals margins improved~~
~~slightly over the first quarter of 2002 but did not show any signs of a sustained recovery. The euro appreciated markedly against the dollar.~~
     Eni’s net income for the first quarter of 2003 increased by 45.2% over the first quarter of 2002, due in particular to an increase in international oil prices (prices realized on oil were up 55.4%; on natural gas 36.6%) and in refining margins (Brent margin was up 3.60 dollar/barrel), these effects were reduced by the appreciation of the euro over the dollar (up 22.5%), higher margins on natural gas distribution and cost reductions. The increase in net income was also determined by the recording of net extraordinary income related to the settlement of a dispute concerning the EniMont joint venture with Edison SpA and the decline in the share of net income attributed to minorities resulting from the acquisition by way of tender offer of the majority of outstanding Italgas shares. These positive factors were partly offset by higher income taxes, due mainly to higher income before income taxes.
     ~~Eni’s operating income for the first quarter of 2003 increased by 23.4% over the first quarter of 2002, mainly due to increases recorded by:~~
• ~~the Exploration & Production segment (up 34.8%) related essentially to higher international oil prices, whose effect was partly offset by the appreciation of the euro over the dollar;~~
• the Gas & Power segment (up 7.2%) related essentially to higher margins and volumes sold in primary and secondary distribution of natural gas, whose effect was offset in part by a change in the sales and supply mix in primary distribution;
• the Refining & Marketing segment (up 88.7%) essentially due to an especially favorable refining scenario, whose effects were offset in part by: (i) lower profitability of lubricant bases, kerosene and petrochemical feedstocks related to lower demand, as well as lower profitability of semi-finished products; (ii) the effect of plant maintenance standstills that did not allow to take full advantage of the favorable refining scenario; (iii) the appreciation of the euro over the dollar.
     ~~In the first quarter of 2003, streamlining and efficiency improvement continued and allowed cost savings, which offset almost entirely salary increases and the effects of inflation.~~
     Eni’s net sales from operations for the first quarter of 2003 increased by 13% over the first quarter of 2002, due mainly to an increase in international oil prices, in natural gas and main downstream product prices and to the effect of the consolidation of Bouygues Offshore in the Oilfield Services and Engineering segment, the effects of which were reduced by the appreciation of the euro over the dollar.
     Net borrowings at March 31, 2003 increased over December 31, 2002. See «Glossary» for a definition of net borrowings. Increased financial requirements for capital expenditure and investments and the buy-back of Eni’s shares were covered for the most part by the cash flows generated from operating activities. The positive effect of the appreciation of the euro over the dollar contributed to the decline in net borrowings.
     In the first quarter of 2003 hydrocarbon production increased by approximately 4% as compared to the first quarter of 2002, due to: (i) production of Fortum Petroleum, purchased in the first quarter of 2003; (ii) start-ups of new fields mainly in Iran, Trinidad & Tobago, Egypt, the United States, and Pakistan; (iii) production increases mainly in Nigeria and Kazakhstan; (iv) the effect of the cancellation of production cuts by OPEC. These increases were partly offset by: (i) lower entitlements in PSA’s due to the increase in oil prices; (ii) the effect of production standstills in Venezuela due to a national strike; (iii) declines in mature fields.
     ~~Natural gas sales in primary distribution in Italy and Europe increased 6.3% as compared to the first quarter of 2002, due to higher sales in Europe, offset in part by lower sales in Italy.~~
     In the April-May 2003 two-month period the spot price of Brent crude declined with respect to the first quarter and was also slightly below the level achieved in the same period of 2002. This factor is expected to adversly affect results of operations of Eni’s Exploration & Production segment in 2003. Refining margins declined somewhat with respect to the first quarter but were well above the level of the second quarter 2002. Petrochemical margins improved slightly over the first quarter; however based on economic and industry conditions management does not expect any significant improvement in the near future. The euro continued to
appreciate against the dollar due to the process of adjustment of structural imbalances of U.S. economy; management expects this movement in exchange rates to characterize the rest of 2003 and to adversely impact Eni’s results of operations in 2003.
     ~~The table below sets forth certain indicators of some of these external factors for the periods indicated:~~Contents

Three months Two months
Year ended December 31, ended March 31, April-May,

2000 2001 2002 2002 2003 2002 2003

Average price of Brent dated crude oil(1) 28.39 24.46 24.98 21.14 31.51 25.50 25.29
Average European refining margin(2) 3.99 1.97 0.80 0.21 3.81 0.56 2.33
Average EUR/USD Exchange rate(3) 0.924 0.896 0.946 0.876 1,073 0.901 1.121
EURIBOR—three-month euro rate % 4.4 4.3 3.3 3.3 2.7 3.4 2.6
~~(1)~~ ~~In U.S. dollars per barrel. Source: Platt’s Oilgram.~~
~~(2)~~ ~~In U.S. dollars per barrel. FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platt’s Oilgram data.~~
~~(3)~~ ~~Source: European Central Bank.~~
     ~~The most relevant recent developments occurred after December 31, 2002 are the following:~~
• on January 27, 2003 the public tender offer on shares of Società Italiana per il gas pA («Italgas») was successfully closed. The tender offer, which was launched on November 25, 2002, concerned all Italgas SpA ordinary shares outstanding not owned directly or indirectly by Eni, corresponding to approximately 56% of share capital. Eni offered a price of euro 13 per share, to be fully paid in cash. Following the squeeze-out of the remaining minority shareholders, Eni now owns 100% of share capital of Italgas. Total consideration amounted to approximately euro 2.5 billion;
• on March 4, 2003 Eni completed the purchase of the Norwegian oil company Fortum Petroleum AS, which in 2002 produced 39,000 boepd and held proved reserves of hydrocarbons of 159 million boe as of December 31, 2002. Total financial requirements for this purchase amounted to dollar 975 million (of which a cash consideration of dollar 256 million and net borrowings acquired of dollar 719 million);
• on March 6, 2003 Eni and EniChem SpA (now Syndial SpA) accepted the settlement proposal presented by Edison SpA for the closing of an arbitration proceeding initiated by Eni and EniChem SpA in 1992 in relation to guarantees given by Montedison SpA and its subsidiaries in connection with the establishment of a joint venture in the petrochemicals sector between Eni and Montedison. Edison SpA recognized euro 200 million to Enichem to be paid in four instalments of euro 50 million each.
• on April 16, 2003 Eni launched a fixed rate bond issue for a notional amount of euro 1.5 billion. The transaction was placed in the international Eurobond market. The bond has a 10 year maturity and pays a fixed annual coupon of 4.625%. The reoffer price is 99.862 which implied, at the moment of pricing, a spread of 28 basis points over the 10 year mid swap rate. The new security will be listed on the Luxembourg Stock Exchange.
Principles of Consolidation
        For a description of Eni’s principles of consolidation see Notes to the Consolidated Financial Statements—Note 2 ~~«Principles~~“Principles of ~~consolidation»~~consolidation”.
Table of Contents
Results of Operations
Three Years ended December 31, ~~2002~~2003
        The table below sets forth a summary of Eni’s income statement for the periods indicated.

Year ended December 31,

2000 2001 2002

(millions E)
Net sales from operations 47,938 48,925 47,922
Other income and revenues(1) 905 921 1,080
Total revenues 48,843 49,846 49,002
Operating expenses (34,228 ) (34,679 ) (34,996 )
Depreciation, amortization and writedowns (3,843 ) (4,771 ) (5,504 )
Operating income 10,772 10,396 8,502
Net financial income (expense) 64 (259 ) (167 )
Net income (expense) from investments 33 (216 ) 43
Income before extraordinary income and income taxes 10,869 9,921 8,378
Net extraordinary income (expense)(2) (512 ) 1,837 (29 )
Income before income taxes 10,357 11,758 8,349
Income taxes (4,335 ) (3,530 ) (3,127 )
Income before minority interest 6,022 8,228 5,222
Minority interest (251 ) (477 ) (629 )
Net income 5,771 7,751 4,593
All line-items included in the table below are derived from consolidated financial statements prepared in accordance with Italian GAAP.
        Year ended December 31,

2001 2002 2003

(million €)
Net sales from operations 48,925 47,922 51,487
Other income and revenues⁽¹⁾ 921 1,080 913

   Total revenues 49,846 49,002 52,400
Operating expenses (34,679) (34,996)
Depreciation, amortization and writedowns (4,771) (5,504) (5,151)

   Operating income 10,396 8,502 9,517

Net financial income (expense) (259) (167) (154)
Net income (expense) from investments (216) 43 (17)
   Income before extraordinary income and income taxes 9,921 8,378 9,346
Net extraordinary income (expense)⁽²⁾ 1,837 (29) 49

   Income before income taxes 11,758 8,349 9,395
Income taxes (3,530) (3,127) (3,241)

   Income before minority interest 8,228 5,222 6,154
Minority interest (477) (629) (569)

   Net income 7,751 4,593 5,585

(1)
Includes, among other things, contract penalties, income from contract cancellations, gains on disposal of mineral rights and other fixed assets, compensation for damages and indemnities and other income.
(2)
Gross of income tax.
        The table below sets forth certain income statement items as a percentage of net sales from operations for the periods indicated.

Year ended December 31,

2000 2001 2002

Operating expenses 71.4 % 70.9 % 66.6 %
Depreciation, amortization and writedowns 8.0 % 9.8 % 11.5 %
Operating income 22.5 % 21.2 % 17.7 %
Year ended December 31,

2001 2002 2003

Operating expenses 70.9% 73.0% 73.3%
Depreciation, amortization and writedowns 9.8% 11.5% 10.0%
Operating income 21.2% 17.7% 18.5%
        Revenues from sales of products are recognized upon transfer of title. In particular, revenues are recognized:
1) ~~for natural gas, when the natural gas leaves Eni’s distribution network and is delivered to the customer;~~
2) ~~for crude oil, generally upon shipment;~~
3) ~~for petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales are generally recognized upon shipment from Eni’s plants; and,~~
4) ~~for chemicals, generally upon shipment.~~
1) for natural gas, when the natural gas leaves Eni’s distribution network and is delivered to the customer;
2) for crude oil, generally upon shipment;
3) for petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales are generally recognized upon shipment from Eni’s plants; and,
4) for chemicals, generally upon shipment.
In all instances where revenue is recognized upon shipment, all risk of loss is transferred to the buyer upon shipment.
Revenues from natural gas and crude oil production from properties in which Eni has an interest together with other producers are recognized based on actual quantities produced and sold on Eni’s behalf (sales method). Differences between Eni’s net working interest volume and actual production volumes are not significant.
Revenues related to ~~long-term~~long term construction contracts are recognized using the percentage-of-completion method measured on the cost-to-cost basis. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident.
Revenues related to amounts in excess of the original contract price due to the incurrence of unanticipated additional costs (i.e. Eni claims against third parties), are recognized when it is probable that the claim will result in additional contract revenue and the amount of the claim can be reasonably estimated.
Costs are recognized when the related goods and services are sold, consumed or allocated, or when their future useful lives cannot be determined.
Eni is a party to certain Production Sharing Agreements ~~(PSAs)~~ whereby ~~Eni’s~~ taxes are settled by ~~its joint-venture~~joint venture partners which are state-owned ~~entities. A portion~~entities in the name and on behalf of Eni out of reserves produced. The Company records such income taxes owed by Eni but paid on its behalf in revenues and income tax expense.
2003 compared to 2002.Eni’s ~~share~~net income in 2003 was euro 5,585 million, with a increase of euro 992 million over 2002, up 21.6, due essentially to a positive operating performance (up euro 1,015 million) related to an increase in hydrocarbon production sold and in natural gas volumes sold, higher international oil prices (Brent up 15.5%) and ~~gas production is withheld and sold~~refining margins in dollars, whose effects were offset in part by the ~~state-owned entities, with proceeds being remitted~~19.6% decline of the dollar over the euro, which had an estimated negative impact on operating income of euro 1,100 million. The increase in net income was also caused by: (i) a reduction in minority interest in net income resulting from the tender offer for Italgas shares (euro 124 million); (ii) higher net extraordinary income (euro 78 million), related in particular to the ~~state in satisfaction~~effect of ~~Eni’s PSA-related tax liabilities. Without this specific provision in its PSAs, Eni would otherwise be entitled~~the settlement of a dispute with Edison SpA concerning the Enimont joint venture (euro 200 million). These positive factors were partly offset by higher income taxes (euro 114 million).
        In 2003, streamlining and efficiency improvement continued and allowed cost savings amounting to ~~the sale proceeds of this portion of oil and gas production withheld.~~about euro 590 million (on a constant exchange rate basis).
        2002 compared to ~~2001~~2001.. Eni’s a net income in 2002 was euro 4,593 million, with a decrease of euro 3,158 million over 2001, down 40.7%, due to: (i) a euro 1,894 million decrease in operating income (down 18.2%) related in particular to lower refining margins (Brent down 59.4%) and lower natural gas realization prices, a change in the supply/sale mix and lower volumes sold in natural gas primary distribution, as well as higher asset impairment; these negative factors were offset in part by higher international oil prices and improved oil production mix (overall oil realization prices were up 5.2%), increased hydrocarbon production sold (up 4.7%) and lower costs; (ii) lower net extraordinary income (euro 1,766 million) due to lower gains on disposal of assets (down euro 3,216 million), the effects of which were offset in part by lower restructuring charges, in particular in Petrochemicals. These negative changes were partly offset by lower income taxes (euro 402 million), due in particular to a decrease in income before income taxes and lower net financial expense (euro 128 million).
     Rationalization and improved efficiency actions led to cost savings amounting to euro 523 million, offsetting almost entirely the effect of salary increases and inflation, as well as increases related to higher activity levels and acquisitions. Cost savings achieved in the 1999-2002 period amounted to approximately euro 1.7 billion, or 50%        Analysis of the ~~euro 3.4 billion target set for 2006.~~
     ~~Return on average capital employed «ROACE» was 13.7% (24% in 2001 which included the effects~~line items of the ~~significant gains on disposal recorded). See «Glossary» for a definition of ROACE.~~income statement:
~~2001 compared with 2000.~~Eni’s consolidated financial statements at December 31, 2001 showed a record net income of euro 7,751 million, with an increase of euro 1,980 million over 2000, up 34.3%, mainly due to: (i) an euro 2,349 million increase in net extraordinary income related to higher gains on disposals (euro 3,387 million) generated in particular by the offering of 40.24% of the share capital of Snam Rete Gas SpA, the sale of part of Eni’s real estate portfolio and of the Polyurethane business in the Petrochemical segment, offset in part by an euro 1,038 million increase in extraordinary expense due to higher restructuring charges, in particular in the Petrochemical segment; (ii) lower income taxes (euro 805 million) mainly related to the effects of the voluntary revaluation of assets as per Law 342/2000 carried out by some of Eni’s subsidiaries in 2000. These positive factors were offset in part by: (i) an euro 376 million decrease in operating income (down 3.5%) due in particular to the decline in oil prices; (ii) the negative change amounting to euro 323 million in the balance of financial income/expense due to higher net borrowings; (iii) the negative change amounting to euro 249 million in the balance of income/loss on investments due mainly to higher losses recorded by subsidiaries and (iv) the share of profits of Snam Rete Gas attributed to minorities following the offering (euro 232 million).
     Cost reduction and efficiency improvement actions allowed savings amounting to euro 475 million (including Lasmo), offsetting almost completely salary increases, inflation and the effect of the appreciation of the dollar over the euro. Savings obtained in 2001 brought total savings in the 1999-2001 period to euro 1,199 million, or 40% of the euro 3 billion target set for 2005 of which 0.6 billion related to the planned divestment of the petrochemical segment.
     ~~ROACE increased significantly to 24% (21.5% in 2001).~~
     The table below shows significant non-recurring items in order to allow a better understanding of trading performance for years 2000, 2001 and 2002 as was affected by significant impairments, net extraordinary income or expense, change in fiscal regulations and other charges or credits.

2000 2001 2002

(million E)
Asset impairment (55 ) (100 ) (542 )
Environmental tax of the Sicilia Region (86 )
(Costs) revenues of previous years 61
Gains on disposals 92
(Devaluation) revaluations of stocks 80 (69 ) 40
Other (22 )
Effect on operating income
25 (169 ) (457 )
of which:
— Exploration & Production (88 ) (253 )
— Gas & Power (5 ) (3 ) (129 )
— Refining & Marketing (45 ) 22 9
— Petrochemicals 79 (100 ) (78 )
— Other segments (4 ) (6 )
Non-recurring expense on investments (82 ) (36 )
Net extraordinary income (expense) (512 ) 1,737 (29 )
Non-recurring items before taxes
(487 ) 1,486 (522 )
Adjustment of reserve for deferred tax liabilities due to changes in UK tax regime (215 )
Release of reserve for anticipated amortization (ex art. 4 of Law 448/2001) 95
Taxes (estimated) 508 508 312
— related to non-recurring items in operating income 19 32 245
— related to other non-recurring items 489 476 67
Minority interest (54 )
Non-recurring items after taxes
(33 ) 1,994 (330 )
        a) Revenues
        Eni’s total revenues were euro 52,400, 49,002 ~~49,846~~ and ~~48,843~~49,846 million in 2003, 2002 ~~2001~~ and ~~2000,~~2001, respectively. Total revenues consist of net sales from operations and other income and revenues. Eni’s net sales from operations amounted to euro 51,487, 47,922 ~~48,925~~ and ~~47,938~~48,925 million in 2003, 2002 ~~2001~~ and ~~2000,~~2001, respectively, and its other income and revenues totalled euro 913, 1,080, ~~921~~ and ~~905 million,~~921, respectively, in these periods.
        The table below sets forth, for the periods indicated, the net sales from operations generated by each of Eni’s business segments including intersegment sales, together with consolidated net sales from operations.

Year ended December 31,

2000 2001 2002

(millions E)
Exploration & Production 12,308 13,960 12,877
Gas & Power 14,427 16,098 15,297
Refining & Marketing 25,462 22,083 21,546
Petrochemicals 6,018 4,761 4,781
Oilfield Services and Engineering 2,146 3,114 4,546
Other activities 608 695 897
Elimination of intersegment sales(1) (13,031 ) (11,786 ) (12,022 )
Consolidated net sales from operations 47,938 48,925 47,922
Year ended December 31,

2001 2002 2003

(million €)
Exploration & Production 13,960 12,877 12,746
Gas & Power 16,098 15,297 16,068
Refining & Marketing 22,083 21,546 22,148
Petrochemicals 4,761 4,516 4,487
Oilfield Services Construction and Engineering 3,114 4,546 6,306
Other activities 695 1,555 1,302
Corporate and financial companies    457 638
Consolidation adjustment(1) (11,786) (12,872) (12,208)

48,925 47,922 51,487

(1)
Intersegment sales are included in net sales from operations in order to give a more meaningful indication as to the volume of the activities to which sales from operations by segment may be related. The most substantial intersegment sales are recorded by the Exploration & Production segment. See Note 24 to the Consolidated Financial Statements for a breakdown of intersegment sales by segment for the three ~~years ended December 31.~~reported years.
(2)
As compared to 2002, in 2003 Eni’s activities have been grouped by segment differently:
- Syndial (former EniChem) has been now included in the “Other activities” segment, which includes all Eni companies not included in specific segments (such as, among others, EniData, Sieco, Tecnomare, EniTecnologie, Eni Corporate University, AGI);
- the new “Corporate and financial companies” segment has been created, which includes Eni Corporate, Sofid and the financial companies formerly included in the “Other Activities” segment.
Data for 2002 have been reclassified for comparability. Prior year data have not been reclassified as it is impracticable to restate segment information for earlier period.
2003 compared with 2002.Eni’s net sales from operations for 2003 amounted to a record euro 51,487 million record level, with an increase of euro 3,565 million over 2002, up 7.4%, due mainly to increased hydrocarbon production sold and increased natural gas volumes sold, as well as higher activity levels in the Oilfield Services, Construction and Engineering segment. This increase was due also to higher prices of products in all Eni segments, largely offset by the appreciation of the euro over the dollar, which had an impact of about euro 1.9 billion.
        Revenues generated by the Exploration & Production segment (euro 12,746 million) declined by euro 131 million, down 1%, due essentially to the appreciation of the euro over the dollar, lower storage tariffs (see Operating Income) and the transfer of the natural gas trading contracts (1.70 billion cubic meters in 2002) to the Gas & Power segment with effect from January 1, 2003. These negative factors were partially offset by higher hydrocarbon production sold (32.9 mmBOE, up 6.3%) and higher prices in dollars realized on hydrocarbons (oil up 16.6%, natural gas up 15.8%).
        Revenues generated by the Gas & Power segment (euro 16,068 million) increased by euro 771 million, up 5%, due essentially to: (i) increased natural gas volumes sold in primary distribution (4.68 billion cubic meters, up 7.7%; of which 1.5 billion cubic meters related to the contracts managed in 2002 by the Exploration & Production segment); (ii) higher average prices for natural gas, related to the trends of certain oil-based parameters to which natural gas prices are indexed, offset in part by the declines related to the appreciation of the euro over the dollar and to contract renewals (in particular with wholesalers). These positive factors were partially offset by the change in the sales mix related to the higher share of sales in the rest of Europe due to the ceilings on Italian sales imposed by Legislative Decree No. 164/2000.
        Revenues generated by the Refining & Marketing segment (euro 22,148 million) increased by euro 602 million, up 2.8%, essentially due to higher international prices for refined products (prices of gasoline and diesel fuel were up 18.9% and 24.4%, respectively) and to higher resales of oil (4.0 million tonnes, up 15%), these effects were offset in part by the appreciation of the euro over the dollar, by a decline in sales to petrochemical industries and other sales in Italy (a total of 2.05 million tonnes), also due to lower product availability related to the contribution of the Priolo refinery to Erg Raffinerie Mediterranee Srl in October 2002 and the standstills of the Gela refinery and lower wholesale sales (0.29 million tonnes, in particular of fuel oil).
        Revenues generated by the Petrochemical segment (euro 4,487 million) decreased by euro 29 million, down 0.6%, due mainly to lower volumes sold (down 4.1%), partially offset by the 4.8% increase in the average selling prices of products (in particular in basic petrochemicals).
        Revenues from the Oilfield Services, Construction and Engineering segment (euro 6,306 million) increased by euro 1,760 million, up 38.7%, due to increased activity levels, also related to the purchase in July 2002 of Bouygues Offshore (now Saipem SA) in theoilfield services and constructionarea.
        Revenues generated by the Other activities segment (euro 1,302 million) decreased by euro 253 million, down 16.3% due mainly to the decline registered at Syndial as a consequence of closure/sale of businesses.
        Revenues generated by Corporate and financial companies (euro 638 million) increased by euro 181 million, up 39.6%, due essentially to the invoicing of expenses to other Eni segments following the centralization of IT, telecom, personnel management and goods and service purchase activities by Eni Corporate.
        2002 compared with ~~2001~~2001.. Eni’s net sales from operations (revenues) for 2002 amounted to euro 47,922 million, declining by euro 1,003 million, down 2.1% over 2001, due mainly to lower natural gas realization prices and lower prices for the main downstream products, the change in the sale mix and lower volumes sold in natural gas primary distribution, as well as the effects of the appreciation of the euro against the U.S. dollar. These negative effects were offset in part by an increase in international oil prices and improved oil production mix, higher hydrocarbon production sold and higher activity levels in the Oilfield Services Construction and Engineering segment.
        Revenues generated by the Exploration & Production segment (euro 12,877 million) declined by euro 1,083 million, down 7.8%, due essentially to lower natural gas realization prices (down 11.1%), the appreciation of the euro over the dollar (up 5.6%) and lower volumes of purchased hydrocarbons marketed (down 51 ~~million boe)~~mmBOE) due mainly to the transfer of the natural gas trading activity to the Gas & Power division. These negative factors were partially offset by higher international oil prices and improved oil production mix (overall oil realization prices were up 5.2%) and higher hydrocarbon production sold (23.4 ~~million boe,~~mmBOE, up 4.7%).
        Revenues generated by the Gas & Power segment (euro 15,297 million) declined by euro 801 million, down 5%, due essentially to lower prices for natural gas, the effects of which were partially offset by the transfer of the natural gas trading activity from the Exploration & Production division.
        Revenues generated by the Refining & Marketing segment (euro 21,546 million) declined by euro 537 million, down 2.4%, essentially due to lower prices for refined products (the retail prices of gasoline and diesel fuel were down 5.9% and 8.7%, respectively) and to reduced sales volumes on both the retail and wholesale market in Italy (overall 1.1 million tonnes, down 4.8%), due to the effect of closures/sales of service stations and lower gasoil sales on wholesale markets.
        Revenues generated by the Petrochemical segment (euro ~~4,781~~4,516 million) ~~increased~~decreased by euro 20245 million, ~~up 0.4%~~down 5.1%, due mainly to ~~the consolidation of Polimeri Europa, whose effect were almost entirely offset by~~ an 8.1% fall in the average selling prices of ~~products.~~products and the transfer of certain plants to the Other activities segment. These negative factors were partly offset by the entry into scope of consolidation of Polimeri Europa.
        Revenues from the Oilfield Services Construction and Engineering segment (euro 4,546 million) increased by euro 1,432 million, up 46%, due to increased activity levels also in connection with the purchase of Bouygues Offshore.
     Revenues generated by the other activities segment (euro 897 million) increased by euro 202 million, up 29.1% due mainly to higher insurance premiums received by Padana Assicurazioni and by increased activity levels at Sieco, a company performing general services for Eni Group companies.
~~2001 compared with 2000.~~Eni’s net sales from operations (revenues) amounted to euro 48,925 million, representing an euro 987 million increase over 2000, up 2.1%, due mainly to higher prices of natural gas, higher hydrocarbon production sold, the appreciation of the dollar over the euro and higher activity levels in the Oilfield Services and Engineering segment. These positive factors were offset in part by the decline in international oil prices and in the prices of the main downstream products, as well as in volumes of petrochemical products sold.
     Net sales from operations generated by the Exploration and Production segment (euro 13,960 million) increased by euro 1,652 million, up 13.4%, due mainly to: (i) an increase in hydrocarbon production sold (72 million boe, up 17%) mainly related to the acquisition of Lasmo; (ii) the appreciation of the dollar over the euro; (iii) higher prices realized by Eni on natural gas (up 2%); (iv) increased resales of purchased hydrocarbons (39 million boe). These positive factors were offset in part by lower selling prices realized by Eni on oil (down 16%).
     Net sales from operations generated by the Gas & Power segment (euro 16,098 million) increased by euro 1,671 million, up 11.6%, mainly due to higher natural gas prices as well as higher sales in the electricity generation activity due mainly to the fact that in 2001 Eni in addition to selling internally produced electricity
~~began to sell traded electricity mainly to industrial customers for use in their business. Higher electricity prices also increased net sales from operations.~~
     Net sales from operations generated by the Refining and Marketing segment (euro 22,083 million) decreased by euro 3,379 million, down 13.3%, due to the decline in prices in euro of refined products (in Italy retail diesel fuel and gasoline decreased by 9.1 and 8.2% respectively) and lower resales of purchased crudes (3.6 million tons).
     Net sales from operations generated by the Petrochemical segment (euro 4,761 million) decreased by euro 1,257 million, down 20.9%, due to a 13.9% decrease in average selling prices of products and a 6.8% decrease in volumes sold, due in part to the sale of the Polyurethane business.
     Net sales from operations generated by the Oilfield Services and Engineering segment (euro 3,114 million) increased by euro 968 million, up 45.1%, due to increased activities in particular in oilfield services.
     Net sales from operations generated in the Oilfield Services and Engineering segment (euro 2,146 million) decreased by euro 842 million, down 28.2%, essentially due to decreased activities, particularly in Chemicals and fertilizers, Onshore and offshore construction activities.
        b) Operating Expenses
        The table below sets forth the components of Eni’s operating expenses for the periods indicated.
Year ended December 31,

2001 2002 2003

(million €)
Purchases, services and other 31,828 31,893 34,566
Payroll and related costs 2,851 3,103 3,166

   Operating expenses 34,679 34,996 37,732
        2003 compared with 2002.Operating expenses (euro 37,732 million) increased by euro 2,736 million over 2002, up 7.8% due mainly to: (i) higher natural gas volumes purchased by primary distribution; (ii) higher supply costs in dollars of natural gas and oil-based and petrochemical feedstocks, whose effects were offset in part by the depreciation of the dollar over the euro; (iii) higher activity levels in the Oilfield Service, Construction and Engineering segment, also related to the purchase of Bouygues Offshore. These negative factors were offset in part by the effect of the conversion of financial statements denominated in currencies other than the euro and streamlining and efficiency improvement measures.

Year ended December 31,

2000 2001 2002

(millions E)
Purchases, services and other 31,442 31,828 31,893
Payroll and related costs 2,786 2,851 3,103
Operating expenses 34,228 34,679 34,996
        Payroll and related costs (euro 3,166 million) increased by euro 63 million, up 2%, mainly due to an approximately 2.7% increase in unit labor cost in Italy and higher activity levels in the Oilfield Services, Construction and Engineering segment related to the purchase of Bouygues Offshore. These effects were offset in part by an approximately 1,800 decline in the average number of employees in Italy, resulting from the streamlining initiatives undertaken and from the sale of businesses, and the effect of the conversion of financial statements denominated in currencies other than the euro.
        An expense of euro 6 million related to stock grants and options granted in 2003 to managers of Eni, Saipem SpA and Snam Rete Gas SpA was included in payroll costs. The cost of granted options was determined based on their fair value (see “Notes to the consolidated Financial Statements - Note no. 2 - Summary of significant accounting and reporting policies - - Change in accounting principles”). The difference between the book value and the fair value of shares issued in the stock grant plan resulted in a euro 3 million devaluation of treasury shares allocated to the stock grant plan. This devaluation was recognized as a loss on investments.
2002 compared with ~~2001~~2001.. Operating expenses (euro 34,996 million) increased by euro 317 million, or 0.9% over 2001 due to salary increases and inflation as well as increases due to higher activity levels, acquisitions and the consolidation of Polimeri ~~Europa, this~~Europa. This was partly offset by lower supply costs for natural gas, cost reductions resulting from streamlining and increased efficiency and the effect of the appreciation of the euro over the dollar.
        Payroll and related costs (euro 3,103 million) increased by euro 252 million, up 8.8%, mainly due to the consolidation of Polimeri Europa and Saipem SA (the new name of Bouygues Offshore) in the Oilfield Services and Engineering segment and an approximately 3.8% increase in unit labor cost in Italy. These factors were offset in part by an approximately 2,400 decline in the average number of employees in Italy resulting from the streamlining initiatives undertaken.
~~2001 compared with 2000.~~Operating expenses in 2001 (euro 34,679 million) increased by euro 451 million over 2000, up 1.3%, due primarily to: (i) increased purchase costs of natural gas; (ii) the inclusion of Lasmo in the scope of consolidation; (iii) increased activity levels in the Oilfield Services and Engineering segment; (iv) higher resales of purchased hydrocarbons (13 million boe); (v) the appreciation of the dollar over the euro. Such increases were offset in part by: (i) lower international prices of oil-based raw materials and petrochemical feedstocks; (ii) lower production in the Petrochemical segment (702,000 tons, down 8.2%) due in part to the sale of the Polyurethane business; (iii) lower costs due to streamlining and efficiency improvement actions which offset almost entirely salary increases, the effects of inflation and the appreciation of the dollar over the euro.
     Payroll and related costs (euro 2,851 million) increased by euro 65 million, up 2.3%, due essentially to the consolidation of Lasmo, the effect of new hiring on a temporary base in Oilfield Services and Engineering
segment, as a result of increased activity levels, and the 2.6% increase in unit labor costs in Italy. These factors were offset in part by a decline in Eni’s average workforce in Italy by approximately 2,800 employees related to streamlining.
        c) Depreciation, Amortization and Writedowns
        The table below sets forth a breakdown of depreciation, amortization and writedowns by business segment for the periods indicated.

Year ended December 31,

2000 2001 2002

(millions E)
Exploration & Production(1) 2,364 3,163 3,552
Gas & Power 474 500 417
Refining & Marketing 502 508 490
Petrochemicals 273 251 161
Oilfield Services and Engineering 144 203 267
Other activities 31 46 75
Total of depreciation and amortization 3,788 4,671 4,962
Writedowns 55 100 542
Depreciation, amortization and writedowns 3,843 4,771 5,504
Year ended December 31,

2001 2002 2003

(million €)
Exploration & Production⁽¹⁾ 3,163 3,552 3,133
Gas & Power 500 417 533
Refining & Marketing 508 490 493
Petrochemicals 251 125 125
Oilfield Services Construction and Engineering 203 267 271
Other activities 46 51 54
Corporate and financial companies 60 101

Total of depreciation and amortization 4,671 4,962 4,710
Writedowns 100 542 441

Depreciation, amortization and writedowns 4,771 5,504 5,151

⁽¹⁾
Exploration expenditures of euro ~~744,~~ 757, 865 and ~~865~~632 million are included in these amounts relative to the years ~~2000,~~ 2001 2002 and ~~2002,~~2003, respectively.
2003 compared with 2002.Depreciation, amortization and writedown charges (euro 5,151 million) decreased by euro 353 million over 2002, down 6.4%. Depreciation and amortization charges (euro 4,710 million) declined by euro 252 million due the decline registered in particular in the Exploration & Production segment (euro 419 million) related to the effect of the appreciation of the euro over the dollar in the conversion of financial statements of subsidiaries denominated in currencies other than the euro and lower exploration costs (euro 145 million on a constant exchange rate basis), offset in part by higher development amortization charges related to higher production (euro 245 million). This decline was offset in part by the increases registered in: (i) the Gas & Power segment (euro 116 million) due mainly to the writedown of the difference between the purchase cost of Italgas shares acquired in a tender offer and the underlying net book value (euro 91 million); (ii) the Corporate and financial companies segment (euro 41 million) due essentially to the recognition in the income statement of the cost of the Eni Slurry Technology project (euro 45 million in 2003, euro 12 million in 2002). Depreciation and amortization charges in the Refining & Marketing segment were substantially unchanged: the effects of the contribution of the Priolo refinery in October 2002 (See “Item 4 – Refining”) were offset by the coming onstream of new capital expenditure in the upgrade of Eni’s distribution network and the purchase of service stations in the rest of Europe and higher depreciation and amortization charges on highway service stations due to the adjustment of their useful lives to the residual life of concessions. Writedowns (euro 441 million) declined by euro 101 million and concerned essentially the impairment of assets: (i) in the Exploration & Production segment (euro 227 million) in particular in the United Kingdom, Pakistan and the United States; (ii) in the Petrochemical segment (euro 122 million) ; (iii) in the Other activities segment (euro 57 million); (iv) in the natural gas distribution business in Brazil (euro 30 million). The amortization of the difference between the purchase price and the net book value of recently purchased companies (Italgas, Bouygues Offshore and Lasmo) non allocated to assets/liabilities amounted to euro 102 million. Including also the amortization of the goodwill of purchased companies accounted for under the equity method (euro 119 million in the aggregate, including in particular Galp Energia, GVS and Unión Fenosa Gas) recognized in the income statement under the item balance of net income and expense from investments, the overall effect of goodwill amortization amounted to euro 221 million.
2002 compared with ~~2001~~2001.. Depreciation, amortization and writedown charges (euro 5,504 million) increased by euro 733 million, up 15.4% over 2001, mainly due to the increases in the Exploration & Production segment, resulting from increased production and higher exploration activity, and higher asset impairment (euro 442 million). Asset impairment concerned in particular mineral assets in the Exploration & Production segment (euro 332 million), petrochemical plants (euro 105 million) and natural gas distribution assets in Brazil and Argentina (euro 93 million).
~~2001 compared with 2000.~~~~Depreciation, amortization and writedown charges (euro 4,771 million) increased~~d) Operating Income by ~~euro 928 million over 2000, up 24.1%, in particular in the Exploration and Production~~ segment ~~principally due to the inclusion of Lasmo in the scope of consolidation (euro 810 million).~~
~~Operating Income~~
The table below sets forth Eni’s operating income by business segment for the periods indicated.

Year ended December 31,

2000 2001 2002

(millions E)
Exploration & Production 6,603 5,984 5,175
Gas & Power 3,178 3,672 3,244
Refining & Marketing 986 985 321
Petrochemicals 4 (332 ) (347 )
Oilfield Services and Engineering 144 255 298
Other activities (143 ) (168 ) (189 )
Operating income 10,772 10,396 8,502
Year ended December 31,

2001 2002 2003

(million €)
Exploration & Production 5,984 5,175 5,746
Gas & Power 3,672 3,244 3,627
Refining & Marketing 985 321 583
Petrochemicals (332) (126) (176)
Oilfield Services Construction and Engineering 255 298 311
Other activities (201) (279)
Corporate and financial companies (168) (209) (295)

Operating income 10,396 8,502 9,517

~~2002 compared with 2001~~.  Eni’s operating income (euro 8,502 million) decreased by euro 1,894 or 18.2% over 2001 as a result of lower refining margins (Brent down 59.4%) and lower natural gas realization prices, a change in the supply/sale mix and lower volumes sold in natural gas primary distribution, as well as higher asset impairment; these negative factors were offset in part by higher international oil prices and improved oil production mix (overall oil realization prices were up 5.2%), increased hydrocarbon production sold (up 4.7%) and lower costs.
~~2001 compared with 2000.~~  ~~Eni’s operating income (euro 10,396 million) decreased by euro 376 million over 2000, down 3.5% due to:~~
     — a decrease in operating income generated by the Exploration & Production segment (euro 619 million, down 9.4%), due to the decline in selling prices realized by Eni on oil (down 16%), whose effects were offset in part by the contribution of the acquisition of Lasmo (euro 275 million), increased natural gas production sold in Italy (30.24 BCF million boe, up 6.1%), higher selling prices realized by Eni on natural gas (up 2%), the appreciation of the dollar over the euro (up 3%) and lower operating expenses;
     — an euro 332 million operating loss registered by the Petrochemical segment compared to the operating income of euro 4 million generated in 2000, due mainly to a decline in product margins (down 14%) and volumes sold (down 6.8%).
     ~~These decreases were offset in part by:~~
     — an increase in operating income generated by the Gas & Power segment (euro 494 million, up 15.5%), due mainly to higher margins on primary distribution, a decrease in costs, as well as higher volumes sold in Italy and outside Italy in secondary distribution, whose effects were offset in part by a change in the sale mix of products sold in primary distribution and lower margins in secondary distribution;
     — ~~an increase in operating income of the Oilfield Services and Engineering segment (euro 111 million, up 77.1%), resulting from the positive trend of the oilfield services activity;~~
        The table below sets forth, for each of Eni’s principal business segments, operating income as a percentage of such segment’s net sales from operations (including intersegment sales) for the periods indicated.

Year ended December 31,

2000 2001 2002
Exploration & Production 53.6 % 42.9 % 40.2 %
Gas & Power 22.0 % 22.8 % 21.2 %
Refining & Marketing 3.9 % 4.5 % 1.5 %
Petrochemicals 0.1 % (7.0 %) (7.3 %)
Oilfield Services and Engineering 6.7 % 8.2 % 6.6 %
Year ended December 31,

2001 2002 2003

Exploration & Production 42.9% 40.2% 45.1%
Gas & Power 22.8% 21.2% 22.6%
Refining & Marketing 4.5% 1.5% 2.6%
Petrochemicals (7.0%) (2.8%) (3.9)%
Oilfield Services Construction and Engineering 8.2% 6.6% 4.9%
Exploration & Production.Operating income in 2003 amounted to euro 5,746 million increasing by euro 571 million over 2002, up 11%, due mainly to: (i) an increase in average realization prices in dollars (oil up 16.6%; natural gas up 15.8%); (ii) increased hydrocarbon production sold (32.9 mmBOE, up 6.3%); (iii) lower exploration costs (euro 145 million, assuming no variations in exchange rates) and lower asset writedowns (euro 105 million); (iv) lower costs related to synergies obtained, streamlining and efficiency improvement actions. These positive factors were offset in part by: (i) the appreciation of the euro over the dollar; (ii) the effect of the application of tariffs imposed by the Authority for electricity and gas with decisions No. 26/2002 and No. 49/2002 for storage services rendered to the Gas & Power segment (in 2002 pending the outcome of Eni’s claim, services were paid according to earlier tariffs – see “Item 4 – Exploration & Production – Storage activities”); (iii) the fact that in 2002 gains on the sale of assets were recorded for euro 92 million as part of Eni’s portfolio streamlining program.
        Operating income in 2002 totaled euro 5,175 million, representing a euro 809 million decrease over 2001, down 13.5%, due mainly to: (i) lower natural gas realization prices (down 11.1%); (ii) higher mineral asset impairment (euro 244 million) in particular in the North Sea and in the Gulf of Mexico; (iii) the effect of the appreciation of the euro over the dollar (up 5.6%); (iv) a decrease in storage and modulation tariffs due to the effects of decision No. 49/2002 of the Authority for Electricity and Gas (euro 144 million); and (v) higher exploration costs (euro 94 million). These negative factors were offset in part by: (i) higher international oil prices and improved oil production mix (overall oil realization prices were up 5.2%); (ii) increased hydrocarbon production sold (23.4 ~~million boe,~~mmBOE, up 4.7%); (iii) gains on disposal of assets (euro 92 million); and (iv) cost reductions related to synergies deriving from the integration of purchased companies and streamlining (euro 154 million).
Gas & Power. Operating income in ~~2001 totaled~~2003 amounted to euro ~~5,984~~3,627 million, ~~a decrease of~~increasing by euro ~~619~~383 million over ~~2000, down 9.4%~~2002, up 11.8%, due mainly to: (i) ~~lower selling prices realized~~increased volumes sold in primary (4.68 billion cubic meters, up 7.7%) and secondary distribution outside Italy (0.65 billion cubic meters, up 17.2%), whose effects were offset in part by ~~Eni~~a change in the sales mix due to a higher share of sales in Europe related to the compliance with the ceilings1 set on ~~oil (down 16%); (ii) lower oil production sold~~
sales in Italy ~~(3.5~~by Legislative Decree No. 164/2000; (ii) higher margins in primary distribution, essentially related to the improved price environment due to the appreciation of the euro over the dollar, whose effects were offset in part by the renewal of contracts, and higher margins in secondary distribution; (iii) the fact that in 2002 a euro 40 million ~~barrels, down 12.5%) and outside Italy (4 million barrels, down 1.7%, excluding Lasmo’s contribution); (iii)~~expense was recorded as a balance of the payment of an environmental tax levied by the Sicilia Region (euro 86 million; in December 2002 Eni suspended the payments; see Note 23 to the Consolidated Financial Statements– Legal Proceedings) as well as writedowns of assets in secondary distribution in Argentina (euro 8828 million). and a euro 74 million income relating to tariff adjustments for 2001 resulting from decision No. 122/2002 of the Authority for electricity and gas in secondary distribution; (iv) lower writedowns (euro 35 million) in natural gas distribution activities in Brazil; (v) lower costs related to streamlining and efficiency improvement actions. These ~~negative~~positive factors were offset in part by: (i) the ~~contribution of Lasmo which generated an operating income of euro 275 million; net sales from operations and operating income before the amortization~~writedown of the difference between the purchase cost of ~~purchase price over~~Italgas shares acquired in a tender offer and the underlying net ~~equity amounted to euro 1,586 and euro 553 million, respectively;~~book value (euro 91 million); (ii) ~~increased natural gas production sold in Italy (30.24 BCF million boe, up 6.1%)~~lower income related to ~~higher withdrawals from storage;~~the reversal of risk reserves (euro 67 million); (iii) ~~higher prices realized~~the decline in the operating income generated by ~~Eni on natural gas (up 2%); (iv)~~electricity generation activities (euro 19 million) due essentially to start-up costs, the ~~appreciation~~planned maintenance standstill of the ~~dollar over~~Taranto plant and the ~~euro; (v) cost reductions (approximately euro 137~~writedown of transmission lines at Ravenna and Gela (euro 4 million) ~~related to synergies deriving from~~. The increase in operating income generated by the ~~integration~~start-up of ~~purchased companies,~~ the ~~rationalization~~first 390 megawatt unit at the Ferrera Erbognone power station was offset by the change in sales mix and higher costs of ~~exploration expenditure and streamlining.~~fuels.
~~Gas & Power.~~        Operating income in 2002 amounted to euro 3,244 million, a euro 428 million decrease over 2001, down 11.7%, due mainly to: (i) a decline in results of primary distribution related to a change in the sales mix with higher share of sales in Europe due to ceilings set by Legislative Decree No. 164/2000, a change in the supply mix and lower sales (1.20 billion cubic meters, down 1.9%); (ii) asset impairment in the distribution of natural gas in Brazil and Argentina (euro 93 million) due to lower profitability prospects; (iii) the payment of the environmental tax established by the Sicilia Region with Regional Law No. 21 of March 26, 2002 (euro 86 million); and (iv) lower results in the power generation activity resulting from lower sale margins mainly due to the expiration of tax incentives on certain sale contracts for the Livorno and Taranto power stations. These negative factors were offset in part by the positive effect of the application of decision No. 122/022 of the Authority for Electricity and Gas (euro 74 million related to 2001) and lower costs (euro 58 million) related to efficiency improvement actions, in particular in transport activities in Italy, which were partly offset by salary increases and inflation.
Refining and Marketing. Operating income in ~~2001~~2003 amounted to euro ~~3,672~~583 million, ~~with an~~a euro 262 million increase ~~of euro 494 million,~~over 2002, up ~~15.5% over 2000,~~81.6%, due essentially to: (i) ~~higher~~improved results in refining activities related mainly to a recovery in refining margins ~~on natural gas sold~~(Brent margin was up 1.9 dollars/barrel), whose effects were offset in ~~primary distribution, related to~~part by the appreciation of the ~~dollar~~euro over the ~~euro~~dollar; (ii) higher operating results in marketing in Italy and to the ~~pricing~~rest of ~~natural gas, as sales prices are linked to an index which moved favourably compared to~~Europe; (iii) lower costs resulting from streamlining and efficiency improvement actions; (iv) the ~~cost of supplies, especially in the first half of 2001. See also «Item 4—Information on the company. Regulation~~release of the ~~Italian Hydrocarbon Industry. Natural Gas»; (ii) lower costs (approximately euro 56 million)~~LIFO reserve related to ~~streamlining and disposals which~~withdrawals from stocks (euro 37 million), whose effects were ~~partly~~ offset in part by ~~salary increases and inflation; (iii) increased volumes sold~~the fact that in ~~secondary distribution in Italy (0.21 billion cubic meters, up 2.7%) and outside Italy (0.43 billion cubic meters, up 12.4%).~~2002 stocks were revaluated for euro 13 million. These positive factors were offset in part by: (i) a ~~change~~decline in operating results in marketing activities in Brazil related to lower margins on LPG; (ii) lower processing related to standstills at the Taranto and Sannazzaro refineries that prevented the company to take full advantage of an improved refining scenario in the sales mix in primary distribution, related to the higher share of volumes sold in Europe for resale in Italy which bear a lower margin than direct sales in Italy; (ii) lower margins in secondary distribution related to the new tariff regime imposed by the Authority for Electricityfirst quarter, and ~~Gas with decision No. 237 of December 28, 2001. See also «Item 4—Information on the company. Regulation~~ of the ~~Italian Hydrocarbon Industry. Natural Gas». Operating income for electricity activities~~Gela refinery, offset only in ~~2001 amounted to euro 66 million, an euro 38 million increase, up 135.7%, due mainly to~~part by higher ~~margins on electricity sales, in particular~~processing at the Milazzo, Venice and Taranto refineries in the ~~fourth quarter, resulting from~~second half of the ~~positive trend in fuel prices. The increase in electricity and steam production sold and margins on trading activities (operational since January 2001) also contributed to~~year; (iii) the ~~increase in operating income.~~recording of higher charges for environmental risks (euro 25 million).
~~Refining and Marketing.~~        Operating income in 2002 amounted to euro 321 million, a euro 664 million decrease over 2001, down 67.4%, due mainly to: (i) a sharp decline in refining margins reflecting the unfavorable trading environment (Brent margin was down 59.4%), related to weak demand, a reduction in ~~Fob/Cif~~FOB/CIF differentials on products that reduced the advantage of refineries based near end markets, and the appreciation of the euro over the dollar; (ii) lower margins on oxygenates (MTBE and methanol) related essentially to lower international prices of products; (iii) the fact that in 2001 the positive effect of a decrease in stocks (valued at Lifo) was recorded for euro 36 million as compared to a revaluation of euro 13 million in 2002; (iv) lower volumes sold in wholesale markets in Italy due to a weak economic situation. These negative factors were offset in part by (i) lower costs (euro 60 million) related to streamlining and disposals, offset in part by salary increases and inflation, (ii) higher retail margins in Europe, and (iii) efficiency improvement, offset in part by lower retail sales in Italy due to the the network restructuring process.
     ~~Operating income for 2001~~Petrochemicals.In 2003 operating losses amounted to euro ~~985~~176 million, ~~substantially similar to 2000 levels,~~an increase of euro 50 million over 2002, up 39.7%, due to: (i) ~~higher selling margins on European retail markets and higher LPG margins;~~lower volumes sold (down 4.1%), in particular in basic petrochemicals; (ii) lower ~~provisions~~product margins, in particular in polymers, related to an increase in the ~~environmental risk reserve (euro 95 million),~~cost of monomers that could not be transferred to sale prices due to a weak demand and strong competitive pressure; (iii) the fact that in ~~year 2000 a significant charge was recorded~~2002 inventories were revaluated for euro 23 million in ~~connection~~relation with ~~the rationalization process of the Italian network; (iii) lower costs (approximately euro 100 million) related to streamlining that substantially offset salary increases, inflation and the~~
~~appreciation of the dollar over the euro; (iv) lower writedowns of assets (euro 36 million); (v) a profit relating to withdrawals from inventories (euro 36 million).~~increased sale prices. These ~~positive~~negative factors ~~were offset by a decline in refining results due to a price environment less positive than the exceptionally favorable scenario of 2000, whose effects~~ were offset in part by ~~higher margins for~~lower asset writedowns and lower costs related to streamlining and efficiency improvement actions.
³The ceiling on sales to end customers is 50%; the ~~refineries located~~ceiling on ~~continental~~volumes input into the Italian network to be sold in Italy ~~(resulting from increased CIF/ FOB differentials), higher processing yields related also to the higher profitability of crudes supplied, and the appreciation of the dollar over the euro.~~
is 73%.
~~Petrochemicals.~~        Operating losses in 2002 amounted to euro ~~347~~126 million, ~~an increase~~a decrease of euro 15206 million over 2001, ~~up 4.5%~~or 62%, due mainly to: (i) ~~a decline in margins, especially in~~ the ~~first quarter~~transfer of ~~2002, related~~certain loss-making plants to ~~lower selling prices of products (on average down 8.1%), as compared to a slower decline in prices in euro of oil-based feedstocks (on average down 1.2%), and~~the Other Activities segment; (ii) ~~assets impairments (euro 105 million). These negative factors were offset in part by: (i)~~ lower depreciation and amortization charges (euro 90 million) following plant writedowns recorded in 2001; ~~(ii)~~(iii) the fact that in 2001 the impact of price decreases on the evaluation of stocks had been negative for euro 100 million (in 2002 this impact was positive for euro 27 million); ~~(iii)~~(iv) lower costs related to streamlining and disposals (euro 70 million), offset in part by salary increases and ~~inflation; (iv)~~inflation. These positive factors were offset in part by: (i) a ~~3.3% increase~~decline in ~~volumes sold on a comparable basis.~~
     ~~In 2001~~margins, especially in the ~~Petrochemical segment recorded an operating loss amounting~~first quarter of 2002, related to ~~euro 332 million,~~lower selling prices of products (on average down 8%), as compared to an operating income of euro 4 million generated in 2000. This euro 336 million decline was due to: (i) the negative impact of the decline in prices on the evaluation of stocks (euro 100 million as compared to the positive effect of euro 80 million of 2000); (ii) lower product margins (down in average 14%) due to a ~~decline in selling prices, only partly offset by the~~slower decline in prices in euro of oil-based ~~feedstocks; (iii) a 6.8% decline~~feedstocks (on average down 1.2%), and (ii) assets impairments (euro 105 million).
Oilfield Services Construction and Engineering.Operating income in ~~volumes sold~~2003 totaled euro 311 million, of which euro 304 million related to ~~declining demand, lower product availability~~oilfield services and construction, with a euro 13 million increase over 2002, up 4.4%.
Operating income of oilfield services and construction increased slightly over 2002 (euro 2 million). The positive factors contributing to this increase were: (i) the ~~sale~~increased contribution of Bouygues Offshore, purchased in July 2002 (euro 83 million after the writedown of euro 21 million of the ~~Polyurethane business.~~difference between purchase price and net equity); (ii) an increase in activity levels in the Offshore construction area due to the start-up of relevant contracts in Libya (laying of the Greenstream gasline and development of the Bahr Essalam field) and in Nigeria (development of the Erha and Yoho B fields); (iii) higher profitability of some contracts in the Onshore construction area. These ~~negative~~positive factors were offset in part byby: (i) the completion in 2002 of the Blue Stream contract; (ii) lower ~~costs~~results in the Offshore drilling area as a consequence of work performed on the Scarabeo 5 and 7 vessels and the limited use of the Scarabeo 6 vessel.
Engineeringactivities recorded an operating income amounting to euro 7 million as compared to an operating loss of euro 4 million in 2002. The euro 11 million improvement was related to ~~streamlining and divestments (approximately~~higher activity levels. Including in operating income the results of activities operated in joint venture, which are recorded as income from investments, operating income in 2003 amounted to euro ~~92 million), only partially offset by salary increases and inflation and by lower recurring environmental charges.~~34 million (euro 23 million in 2002).
~~Oilfield Services and Engineering.~~        Operating income in 2002 totaled euro 298 million, of which euro 302 million related to oilfield services, with a euro 43 million increase over 2001, up 16.9%. Oilfield services recorded an increase in operating income of euro 46 million due to the contribution of the Blue Stream and Karachaganak projects and to the results obtained by increased activities in West Africa, Saudi Arabia and the Far East, as well as to the contribution of Bouygues Offshore (euro 35 million before the allocation of euro 21 million for the amortization of the difference between purchase price and net equity non attributable to fixed assets). These positive factors were offset in part by the lower profitability of some contracts in the Offshore drilling area. Engineering activities recorded an operating loss of euro 4 million, with a euro 3 million decline, due primarily to higher provisions to the reserve for risks and contingencies on contracts nearing completion (euro 18 million) and the negative outcome of a transaction (euro 8 million), offset in part by increased turnover for 2002, in particular related to the contract for the construction of the Milan-Bologna high speed train tracks. Note that income earned from joint venture projects is accounted for as income on investments in Eni’s income statement. Operating income calculated with the inclusion of this income amounted to euro 23 million (euro 11 million in 2001 in comparable terms).
     ~~Operating income~~Other activitiesStarting in ~~2001 amounted to~~2003, this segment comprises results of operations of certain non-core petrochemicals plants and of certain Eni’s subsidiaries engaged in the information technology, real estate, research and development and human resources training businesses. In 2003 this segment recorded operating losses of euro ~~255~~279 million with ana euro ~~111~~78 million increase over ~~2000, up 77.1%. Operating income~~2002, due in particular to higher losses of ~~oilfield services amounted to euro 256 million, with an increase of euro 115 million, up 81.6%~~Syndial SpA (euro 102 million), ~~due~~related essentially to the ~~contribution~~sale of industrial services at Brindisi, Ferrara, Priolo and Ottana and to the shutdown of the ~~Blue Stream contract, an increased use~~caprolactam plant at Porto Marghera and the acrylonitril plants at Assemini and Gela. Management expects the positive effects of the ~~Scarabeo 7~~divestments and ~~Saipem 10000 vessels, the recovery~~closures to be recognized in 2004 lower costs of ~~demand~~staff and ~~higher profitability of orders~~operating structure.
Corporate and financial companiesStarting in the Onshore construction area, the effects of which were offset in part by higher depreciation and amortization charges related to the entry into service of new vessels and investments concerning ongoing projects. Engineering activities recorded an operating break-even as compared to the income of euro 3 million generated in 2000. This decline is mainly due to the prudential provision to the reserve for contingencies on nearly completed projects in the Chemicals and fertilizers area, offset in part by the proceeds recorded after the payment of insurance damage, improvements in the Field upstream facilities and pipelines and Energy areas and the contribution of the contract for the construction of the high capacity/high velocity train tracks from Milan to Bologna. The results obtained from the completion of joint venture projects (euro 22 million in 2001 and euro 16 million in 2000) are recorded under investments.
~~Other Activities.~~   ~~This area includes~~2003, this segment comprises Eni’s corporate and financial overhead costs as well as the operating results of the insurance business. In 2003, this segment recorded operating losses of euro 295 million, increasing by euro 86 million over 2002, up 41.1%, due essentially to the recording in the income statement of the costs of the Eni Slurry Technology project (EST project – see “Item 4 –Research and Development”) and higher amortization and depreciation charges related to the purchase of software licences (overall euro 45 million) and the centralization of IT, telecom, personnel management and goods and service ~~businesses (administration, technical services and IT), in addition~~purchase activities, expenses that are only partially invoiced by Eni Corporate to ~~those~~Eni business segments. In 2002, this segment recorded operating losses of ~~EniTecnologie SpA, Eurosolare SpA and Tecnomare SpA. Operating losses amounted to~~ euro ~~189 million (euro 168 million in year 2001).~~209 million.
        e ) Net Financial Expense
        The table below sets forth a breakdown of Eni’s net financial (expense) income for the periods indicated:
Year ended December 31,

2001 2002 2003

(million €)
Net financial expense (433) (259) (270)
Income on operating financing receivables and tax credits 184 122 116
Foreign exchange difference, net (10) (30) 0

(259) (167) (154)

2003 compared with 2002.Net financial expense (euro 154 million) decreased by euro 13 million over 2002, down 7.8%, due in particular to lower interest rates on European markets (Euribor down one percentage point) and on international markets (Libor down 0.6 percentage points) as well as the effect of exchange rates on the conversion of financial statements of subsidiaries denominated in currencies other than the euro and lower negative exchange differences (euro 30 million). These positive factors were offset in part by an increase of approximately euro 3.8 billion in average net borrowings.

Year ended December 31,

2000 2001 2002

(millions E)
Net financial expense (302 ) (433 ) (259 )
Income on receivables related to operations and tax credits 201 184 122
Exchange difference, net 165 (10 ) (30 )
64 (259 ) (167 )
        2002 compared with 2001.Net financial expense (euro 167 million) decreased by euro 92 million over 2001, due mainly to lower interest rates (three-month Euribor down 1 percentage point) and lower average net borrowings for about euro 950 million.
        ~~2001~~f) Net Expense from Investments
2003 compared with ~~2000.~~2002. Net ~~financial~~ expense ~~totaled~~on investments amounted to euro ~~259~~17 million ~~as compared to net financial~~(net income of euro 6443 million in ~~2000. The~~2002) and represented the balance of expense of euro ~~323~~278 million ~~negative change is due~~and income of euro 261 million. Expense concerned essentially, Eni’s share of losses of subsidiaries accounted for with the equity method and Eni’s share in losses of subsidiaries accounted for at cost, relating in particular to ~~higher financial charges~~Albacom SpA (euro ~~131~~128 million), Galp Energia SGPS SA (euro 29 million resulting from the writedown of euro 107 million of the difference between purchase cost and net equity the effects of which were offset in part by Eni’ s share of Galp results from operations), Blue Stream Pipeline Co BV (euro 25 million: Eni expects to recover this loss in future years on the basis of the agreements entered into with the shippesr, and other subsidiaries in the Exploration & Production (euro 61 million) and Oilfield Services, Construction and Engineering (euro 4 million) segments. Income concerned essentially: (i) Eni’s share of income of subsidiaries accounted for with the equity method (euro 180 million), in particular in the Gas & Power (euro 108 million), Oilfield Services, Construction and Engineering (euro 41 million) and Refining & Marketing segments (euro 28 million); (ii) dividends received by subsidiaries accounted for at cost (euro 22 million); (iii) gains from disposal (euro 39 million) essentially related to ~~an increase~~the sale of Eni’s 20% stake in ~~average net borrowings of approximately euro 3,400 million, as well as to the fact that~~Inca International SpA and 50% in year 2000 an euro 99 million exchange rate income was recorded on dividend payment to Eni SpA from a foreign subsidiary due to the fact that a different exchange rate was applied to net income and reservesEpoxital Srl in the ~~years they were first recorded with respect to the exchange rate of the year in which they were distributed.~~
~~Net Income from Investments~~Other activities segment (overall euro 36 million).
        2002 compared with 2001.Net income from investments amounted to euro 43 million (net expense of euro 216 million in 2001) and represented the balance of income of euro 288 million and expense of euro 245 million. Income from investments concerned mainly: (i) Eni’s share of income on investments accounted for with the equity method (euro 184 million) in particular in the Gas & Power (euro 98 million), Oilfield Services and Engineering (euro 38 million) and Refining & Marketing (euro 40 million) segments; (ii) gains on disposal (euro 55 million) essentially on the disposal of a 10% interest in Qatar Petrochemical Co in the Petrochemical segment (euro 52 million); (iii) dividends from investments accounted for at cost (euro 32 million).
        Expense on investments (euro 247 million) concerned: (i) Eni’s share of losses on investments accounted for with the equity method and at cost (euro 209 million), in particular Galp Energia SGPS SA (euro 85 million related to the amortization of the euro 107 million difference between purchase price and net equity); Albacom SpA (euro 37 million) and Inversora de Gas del Centro SA and Distribuidora de Gas del Centro SA (euro 36 million), minor interests in the Exploration & Production (euro 24 million), Oilfield Services Construction and Engineering (euro 8 million) and other segments (euro 25 million); (ii) losses on disposal of assets (euro 24 million, of which 20 related to the sale of Eni’s 7% interest in Blu SpA).
        The positive change of euro 259 million in the balance of gains and losses on investments as compared to 2001 was due mainly to the circumstance that in 2001 a euro 209 million loss was recorded on Polimeri Europa, which in 2001 was accounted for under the equity method, as well as a lower loss recorded on Galp Energia SGPS SA (euro 59 million).
        ~~2001 compared with 2000.~~ ~~Net expense on investments amounted to euro 216 million (as compared to a net income of euro 33 million in 2000) and represented the balance between euro 491 million expense on~~
investments and euro 275 million income on investments. Expense on investments was primarily due to Eni’s share of losses on investments accounted for under the equity method under the cost method (euro 486 million) and related to Polimeri Europa Srl (euro 209 million, including non recurring items for euro 100 million), Galp Energia SGPS SA (euro 144 million, including goodwill amortization for euro 107 million and non recurring items for euro 82 million), Blu SpA (euro 57 million) and Albacom SpA (euro 42 million).
     Income from investments (euro 275 million) was mainly related to: (i) Eni’s share of income on investments accounted for under the equity method (euro 158 million) relating in particular to the Natural Gas segment (euro 81 million), the Refining and Marketing segment (euro 43 million), and the Oilfield Service and Engineering segment (euro 21 million); (ii) gains on disposals (euro 76 million) related mainly to the sale of 15% of Saras SpA-Raffinerie Sarde (euro 38 million) and 4.7% of Nuovo Pignone Holding SpA (euro 36 million); (iii) dividends paid by affiliates accounted for under the cost method (euro 40 million).
     The euro 249 million negative change was mainly related to the euro 209 million losses of Polimeri Europa Srl (as compared to a net income of euro 35 million in 2000) and higher losses of Galp Energia SGPS SA (euro 99 million), whose effects were partially offset by increased gains on disposals (euro 35 million) and lower losses of Albacom SpA (euro 39 million).
g) Net Extraordinary Expense
        The table below sets forth Eni’s extraordinary income and extraordinary expense for the periods ~~indicated:~~indicated. All line-items included in the following table are derived from consolidated financial statements prepared in accordance with Italian GAAP.
Year ended December 31,

2001 2002 2003

(million €)
Gains on disposals 3,473 257 290
   Gain on the offering of Snam Rete Gas 2,453
   Gain on the sale of real estate 751
Other extraordinary income 173 112 273

      Extraordinary income 3,646 369 563

Restructuring costs:
   Provisions for risks (885) (157) (248)
   Writedowns of fixed assets (607) (55) (66)
   Cost of redundancy incentives (237) (114) (116)

      Total restructuring costs (1,729) (326) (430)
Other extraordinary expense (80) (72) (84)

      Extraordinary expense (1,809) (398) (514)

Net extraordinary income (expense) 1,837 (29) 49

2003 net extraordinary income. Net extraordinary income amounted to euro 49 million (net expense of euro 29 million in 2002) and represented the balance of extraordinary income of euro 563 million and extraordinary expense of euro 514 million. Income concerned essentially: (i) gains on disposals from the sale of service stations and real estate in the Refining & Marketing segment (euro 237 million) and the sale of the marine tanker activities and real estate in the Gas & Power segment (euro 52 million); (ii) the settlement paid by Edison SpA in relation with the Enimont dispute (euro 200 million); (iii) the release of redundant risk reserves (euro 47 million, of which euro 38 million in the Other activities segment, concerning disposals, restructuring and future expense). Expense concerned essentially: (i) provisions for risks and contingencies of euro 248 million, in particular charges related to compliance with environmental laws and regulations in the Other activities (euro 82 million) and Refining & Marketing segments (euro 51 million) and costs expected to be incurred for the decommissioning of inactive sites in the Other activities segment (euro 48 million); (ii) redundancy incentives of euro 116 million in particular in the Petrochemicals, Refining & Marketing, Oilfield Services, Construction and Engineering and Gas & Power segments; (iii) writedowns and losses (euro 66 million) related in particular to the expiry of certain highway concessions for service stations (euro 35 million) and the writedown of the Baytown (USA) elastomer plant in the Petrochemical segment (euro 11 million).

Year ended December 31,

2000 2001 2002

(millions E)
Gains on disposals 86 3,473 257
Gain on the offering of Snam Rete Gas 2,453
Gain on the sale of real estate 751
Other extraordinary income 146 173 112
Extraordinary income 232 3,646 369
Restructuring costs:
Provisions for risks (182 ) (885 ) (157 )
Writedowns of fixed assets (34 ) (607 ) (55 )
Cost of redundancy incentives (202 ) (237 ) (114 )
Total restructuring costs (418 ) (1,729 ) (326 )
Other extraordinary expense (326 ) (80 ) (72 )
Extraordinary expense (744 ) (1,809 ) (398 )
Net extraordinary income (expense) (512 ) 1,837 (29 )
        2002 net extraordinary ~~expense~~expense.. Gains on disposals (euro 257 million) related to the sale of investments, businesses and fixed assets as a result of restructuring activities. In particular they concerned: (i) in the Refining & Marketing segment, the sale of service stations in Italy to Tamoil, TotalFinaElf and others (euro 127 million), the sale of Agip Nigeria Ltd and other minor interests in Africa (euro 87 million) and the sale of logistic assets, small businesses and minor assets (euro 11 million); and (ii) in the Gas & Power segment, the sale of real estate (euro 21 million).
        Other extraordinary income of euro 112 million concerned the reversal of redundant funds, settlements of disputes and recovery of receivables in the Petrochemicals (euro 72 million), Gas & Power (euro 23 million), Refining & Marketing (euro 13 million) and other segments (euro 6 million).

Provisions for risks and contingencies of euro 157 million related mainly the reserve for environmental risks and expense related to streamlining and disposals in the Refining & Marketing (euro 79 million) and Petrochemical (euro 71 million) segments.
        Redundancy incentives of euro 114 million concerned primarily the Petrochemical segment (euro 34 million), the Gas & Power division (euro 28 million), the Refining & Marketing division (euro 26 million), the Oilfield Services Construction and Engineering segment (euro 14 million) and the Exploration & Production division (euro 9 million).
        Writedowns and losses for euro 55 million concerned essentially assets in the Petrochemical segment (euro 23 million) and a euro 22 million loss related to the conferral of the Priolo refinery and of its power station to Erg Raffinerie Mediterranee Srl, in which Eni holds a 28% interest after the conferral.
        Other extraordinary expense (euro 72 million) concerned essentially the Refining & Marketing division (euro 49 million) mainly related to restructuring and expense of previous years.
~~2001 net extraordinary income.~~Gains on disposals (euro 3,473 million) related to the sale of investments, businesses and fixed assets as a result of restructuring activities. In particular, gains on disposal were primarily due to: (i) the public offering of 40.24% of the share capital of Snam Rete Gas (euro 2,453 million); this gain derives from the difference between proceeds from the sale of Snam Rete Gas shares and the corresponding stake of consolidated equity, which does not include the voluntary revaluation of assets, performed by Snam SpA in 2000 as per Law 342/2000, which is eliminated in accordance with Italian GAAP; (ii) the sale of Eni’s interest in Immobiliare Metanopoli (euro 348 million) and other real estate (euro 403 million) within Eni’s real estate divestment program; (iii) the sale of the Polyurethane business in the Petrochemical segment (euro 211 million).
     Other extraordinary income of euro 173 million relates primarily to the release of the reserve for contingencies of euro 112 million which AgipPetroli had accrued in fiscal 2000 on the basis of a ruling by the Antitrust Authority, No. 8353 of June 8, 2000, for alleged horizontal cartel with other oil companies. This ruling was appealed by the company and definitively annulled by the Council of State on July 20, 2001 with decision No. 359/2001. Accordingly, the accrual was reversed.
     Provisions for risks of euro 885 million related to closing downs, disposals and environmental remediation on plants still in operation as of December 31, 2001 in the Petrochemical segment (euro 616 million, of which euro 240 million related primarily to environmental remediation efforts at plants that management has specifically identified to close down in the next two-three years and euro 376 million related to environmental compliance provisions on all operating plants made in application of Law 471/99), and to environmental remediation on de-industrialized areas in the Petrochemical (euro 91 million), Refining & Marketing (euro 77 million) and Gas & Power (euro 44 million) segments.
     Writedowns for euro 607 million concerned primarily the writedown of fixed assets and investments in the Petrochemical segment (euro 574 million) in order to align the book value of assets to both the results of the impairment test made on the basis of estimated future cash flows in a declining market scenario for petrochemical products margins and also to the result of an asset valuation made by a court-appointed expert in connection with the transfer of same to Polimeri Europa on January 1, 2002. These write-downs relate primarily to olefins and aromatics plants, phenol plants and various other petrochemicals assets.
     Redundancy incentives of euro 237 million concerned primarily the Exploration and Production segment (euro 101 million), the Gas & Power segment (euro 44 million), the Refining & Marketing segment (euro 42 million), the Petrochemical segment (euro 39 million).
     Other extraordinary expenses (euro 326 million) concern mainly the provision to a reserve of euro 112 million relating to a fine imposed by the Antitrust Authority on AgipPetroli SpA for the breach of art. 2 of Law 287/90 related to alleged cartel agreements with other oil companies, tax loss carryforwards relating to Agip Angola Production BV (euro 90 million) and the additional tariff on natural gas transmission (euro 72 million) paid to Tenp, as mentioned among other extraordinary income, and expenses for litigations (euro 40 million).
        See Note 27 to the Consolidated Financial Statements for a discussion of the different criteria used under Italian GAAP and U.S. GAAP for determining extraordinary items.
        h) Taxes
        Under Italian tax law in force until December 31, 2003, Eni, like all other Italian groups, is unable to offset fully income earned by certain subsidiaries ~~with~~against losses recognized by other subsidiaries because each legal entity must pay income tax on the basis of the results recorded by it rather than on the basis of consolidated financial results.
        2003 compared with 2002. Income taxes (euro 3,241 million) increased by euro 114 million over 2002, due to a euro 1,046 million increase in income before taxes, to the expiry/reduction of certain tax incentives and lower benefits related to the release of the reserve for anticipated amortization. These negative factors were offset in part by: (i) the effect of the revaluation of assets, provided for by the Italian budget law for 2004, which had a positive balance of euro 414 million net of a tax charge of euro 412 million as a result of the application of a special rate provided for by such budget law instead of the statutory tax rate otherwise applicable; (ii) the recording of deferred tax assets related to the temporary difference between the recorded value of assets of Stoccaggi Gas Italia SpA and their value for tax purposes, following the adjustment made by the company in May 2003 (euro 287 million)1; (iii) the fact that in 2002 the reserve for deferred taxes was increased in relation to the 10 percentage point increase in corporate taxes for oil companies in the United Kingdom (from 30 to 40%) with a euro 215 million effect; (iv) a 2 percentage point reduction in corporate tax (Irpeg) in Italy.
        In 2003 the effective tax rate was 34.5% compared with a statutory tax rate of 39.9%, calculated by applying a 34% tax rate (Irpeg) to income before taxes and a 4.25% tax rate (Irap) to the net value of production as provided for by Italian laws. The 5.4 percentage points difference between the statutory and the effective tax rate is due to the following factors: i) a 12.5 percentage points reduction due to the effects of the application of favourable tax laws (particularly, the aforementioned Italian budget law for 2004 and Law No. 448 of December 28, 2001; and ii) a 7.4 percentage points increase due to the higher rate of taxes applicable to the income before income taxes of certain foreign subsidiaries.
        Eni expects its effective tax rate in 2004 to be higher than the one recorded in 2003 due to the expiration of the aforementioned effects of those favourable tax laws.
2002 compared with ~~2001~~2001..   Income taxes (euro 3,127 million) decreased by euro 402 million over 2001, due mainly to a decline in income before taxes and the positive effect (euro 95 million) of the release of the reserve for anticipated amortization as per Law 448/2001, offset in part by the adjustment of the reserve for deferred tax liabilities due to a 10 percentage point increase in corporate taxes (from 30 to 40%) of oil companies in the United Kingdom (euro 215 million).
        The 7.5 percentage ~~points~~point increase in tax rate compared to 2001 (from 30 to 37.5%) was due mainly to the fact that the gains on the placement of 40.24% of Snam Rete Gas in 2001 were recorded net of substitute tax paid.
        The 4.6 percentage point difference between effective tax rate (37.5%) and statutory tax rate (42.1%) was due to: (i) for 54.9 percentage points to the effect of the application of a favorable tax regime as provided for by certain Italian tax laws (such as the law on dual income tax, Law 383/2001, which provides for fiscal incentives to new investments, and Law 448/2001); (ii) the effect of a revaluation of assets in 2000 as per Law 342/2000 for 4.7 percentage points. These effects were partially offset by the higher rate of taxes of foreign subsidiaries (2.7 percentage points), the circumstance that certain expenses were not tax deductible (0.8 percentage points) and other ~~factors (2.4~~minor causes (1.5 percentage points).
⁴According to Law No. 448 of December 28, 2001, companies receiving contributions-in-kind of assets are allowed to align the taxable value of these assets to the higher book value by paying a tax calculated at the 9% special rate provided for by the law instead of the 34% statutory tax rate applied to the difference between the two values. Stoccaggi Gas Italia SpA, which in 2001 received a contribution-in-kind of natural gas storage assets from Eni SpA and Snam SpA, applied this law. Therefore in Eni’s consolidated financial statements a temporary difference between taxable values and book values of these assets was recognized, which led to the recognition of the euro 287 million deferred tax asset (net of the special rate tax of euro 154 million).
(2.7 percentage points), the circumstance that certain expenses were not tax deductible (0.8 percentage points) and other minor causes (1.5 percentage points).
        Income taxes of foreign subsidiaries in the Exploration & Production division amounted to euro 2,093 million, representing a euro 28 million decrease over 2001 reflecting lower income before taxes of foreign subsidiaries with relatively higher tax rates and the recording of anticipated taxes on tax loss carryforwards of Agip Petroleum Co Inc and Agip Exploration & Production Ltd, partially offset by the adjustment of the reserve for deferred tax liabilities of oil companies in the United Kingdom (euro 215 million).
        ~~2001~~i) Minority Interest
2003 compared with ~~2000.~~   2002~~Income taxes~~Minority interest (euro ~~3,530~~569 million) ~~decreased by~~concerned in particular Snam Rete Gas SpA (euro 427 million) and Saipem SpA (euro 112 million). The euro ~~805~~60 million decline over ~~2000,~~2002 was due ~~to: (i)~~essentially to the effect of the ~~application in 2000 of the voluntary revaluation of assets as per Law 342/2000; (ii) a higher taxable income at the reduced 19% rate as provided~~tender offer for ~~by Legislative Decree No. 466/97 related to dual income tax; (iii) a decrease in Irpeg rate (from 37 to 36%)~~Italgas shares (euro 124 million). ~~These positive factors were offset in part by increased tax rates of foreign subsidiaries.~~
     Effective tax rate was 30% as compared with a statutory tax rate of 40.9%. This 10.9 percentage point difference was due to: (i) permanent timing differences for 7.6 percentage points, of which 7.2 related to the gain recorded in Eni’s consolidated financial statements following the offering of 40.24% of the share capital of Snam Rete Gas; this gain is not subject to income taxes due to the fact the substitute tax paid on a 19% basis in application of Law 342/2000 was recorded by increasing Eni consolidated accounts of the book value of assets transferred to Snam Rete Gas, consequently affecting the measure of the gain. Substitute taxes will be charged to Eni consolidated income statements in line with the amortization process of relevant assets; (ii) the effect of the application in 2000 of the voluntary revaluation of assets as per Law 342/2000 for 4.6 percentage points; (iii) for 2.3 percentage points the effect of the application of a favourable tax regime as provided for by certain Italian tax laws (for example the law on dual income tax, Law 383/2001 which provides for fiscal incentives to new investments, and substitute taxes allowed on gains on disposals); (iv) for 1.4 percentage points for other reasons. These effects were partially offset by the higher rate of taxes on some foreign subsidiaries (5.0 percentage points).
     Income taxes of foreign subsidiaries in the Exploration & Production segment amounted to euro 2,028 million, representing a euro 84 million increase over 2000 reflecting the acquisition of Lasmo partially offset by lower oil prices.
~~Minority Interest~~
        2002 compared with 2001.Minority interest (euro 629 million) increased by euro 161 million over 2001, due mainly to the placement of 40.24% of Snam Rete Gas in late 2001 and higher net income earned by Saipem SpA.
~~2001 compared with 2000.~~~~Minority interests (euro 477 million) increased by euro 226 million over 2000, due in particular to the share~~Table of ~~profits of Snam Rete Gas SpA attributed to minorities and higher net income earned by Saipem SpA, partially offset by lower net income earned by Italgas SpA.~~Contents
Liquidity and Capital Resources
    The table below sets forth the principal components of Eni's change in cash and cash equivalent for the periods indicated.
Year ended December 31,

2001 2002 2003

(million €)
Net income before minority interest 8,228 5,222 6,154
    Adjustments to reconcile to cash generated from operating income before changes in working capital:
    •    Amortization and depreciation and other non-monetary items 4,942 5,682 5,493
    •    Net gains on disposals of assets (170) (152) (35)
    •    Dividends, interest, extraordinary income (expense) and income taxes 2,038 3,305 3,268

Net cash generated from operating income before changes in working capital 15,038 14,057 14,880
Changes in working capital related to operations (197) (510) (465)
Dividends received, taxes paid, interest and extraordinary income/expense
    (paid) received during the year (6,695) (2,969) (3,588)

    Net cash provided by operating activities 8,146 10,578 10,827
Capital expenditures (6,577) (8,048) (8,802)
Investments⁽¹⁾ (3,082) (1,315) (985)
Disposals 2,114 935 650
Other cash flow related to capital expenditure, investments and divestments 991 (101) 1,079
Changes in short and long-term financial debt (534) 3,736 1,629
Dividends paid and changes in minority interests and reserves (950) (3,846) (5,933)
Effect of change in consolidation scope and exchange differences 38 (64) (107)

    Change in cash and cash equivalent for the year 146 1,875 (1,642)

    Cash and cash equivalent at the beginning of the year 1,244 1,390 3,265
    Cash and cash equivalent at year end 1,390 3,265 1,623

(1) This item refers mainly to the acquisition of net equity of other companies.
    The table below sets forth the principal components of ~~Eni’s cash flow~~Eni's change in net borrowings⁽²⁾ for the periods indicated.

Year ended December 31,

2000 2001 2002

(millions E)
Net income before minority interest 6,022 8,228 5,222

Adjustments to reconcile to cash generated from operating income before changes in working capital:

• Amortization and depreciation and other non-monetary items 4,307 4,942 5,682
• Net gains on disposals of assets (82 ) (170 ) (152 )
• Dividends, interest, extraordinary income (expense) and income taxes 4,990 2,038 3,305
Net cash generated from operating income before changes in working capital 15,237 15,038 14,057
Changes in working capital related to operations (1,592 ) (197 ) (510 )
Dividends received, taxes paid, interest and extraordinary income/expense (paid) received during the year (3,062 ) (6,695 ) (2,969 )
Net cash provided by operating activities 10,583 8,146 10,578
Capital expenditures (5,431 ) (6,577 ) (8,048 )
Investments (3,483 ) (3,082 ) (1,315 )
Disposals 277 2,114 935
Other cash flow related to capital expenditure, investments and divestments (69 ) (88 ) (319 )

Free cash flow(1)
1,877 513 1,831
Dispositions (acquisitions) of highly liquid investments 111 994 (1,171 )
Changes in short and long-term financial debt 121 (534 ) 3,736
Dividends paid and changes in minority interests and reserves (2,118 ) (950 ) (3,846 )
Effect of change in consolidation scope and exchange differences 41 38 (64 )
Net cash flow for the year 32 61 486
     ~~The table below sets forth changes in Eni’s net borrowings for the periods indicated.~~

Year ended December 31,

2000 2001 2002

(millions E)
Free cash flow(1)
1,877 513 1,831
Net borrowings of acquired companies (901 ) (1,582 ) (51 )
Net borrowings of divested companies 20 185 39
Exchange differences on net borrowings and other changes (353 ) (312 ) 990
Dividends paid and changes in minority interests and reserves (2,118 ) (950 ) (3,846 )
Change in net borrowings (1,475 ) (2,146 ) (1,037 )

Year ended December 31,

2001 2002 2003

(million €)
Net income before minority interest 8,228 5,222 6,154
    Adjustments to reconcile to cash generated from operating income before changes in working capital:
    •     Amortization and depreciation and other non-monetary items 4,942 5,682 5,493
    •     Net gains on disposals of assets (170) (152) (35)
    •     Dividends, interest, extraordinary income (expense) and income taxes 2,038 3,305 3,268

Net cash generated from operating income before changes in working capital 15,038 14,057 14,880
Changes in working capital related to operations (197) (510) (465)
Dividends received, taxes paid, interest and extraordinary income/expense
(paid) received during the year (6,695) (2,969) (3,588)

Net cash provided by operating activities 8,146 10,578 10,827
Capital expenditures (6,577) (8,048) (8802)
Investments (3,082) (1,315) (985)
Disposals 2,114 935 650
Other cash flow related to capital expenditure, investments and divestments (88) (319) 1,110
Net borrowings⁽²⁾of acquired companies (1,582) (267) (692)
Net borrowings⁽²⁾of divested companies 185 39 1
Exchange differences on net borrowings and other changes (312) 990 1,422
Dividends paid and changes in minority interests and reserves (950) (3,846) (5,933)

Change in net borrowings⁽²⁾ (2,146) (1,253) (2,402)

Net borrowings⁽²⁾ at the beginning of the year 7,742 9,888 11,141
Net borrowings⁽²⁾ at year end 9,888 11,141 13,543
~~(1)~~(2) ~~Consists~~Net borrowings is a non-GAAP financial measure. For a discussion of the ~~sum~~usefulness of ~~(i)~~ net ~~cash provided by operating activities, (ii) capital expenditures, (iii)~~borrowings and its reconciliation with the most directly comparable GAAP financial ~~investments (iv) disposals, (v) other investments and divestments.~~measures see ”Financial conditions” below.
        Analysis of certain components of Eni’s change in net borrowings:
a) Cash generated from operating income before changes in working capital
        Cash generated from operating income before changes in working capital totaled euro ~~14,057 million, 15,038~~14,880 million and euro ~~15,237~~14,057 million and 15,038 million in 2003, 2002 and 2001, respectively.
        In 2003 income before minority interests has been adjusted to take into account depreciation, amortization and ~~2000, respectively.~~other non-cash items (euro 5,493 million). Adjustments concerned primarily depreciation and amortization of tangible and intangible assets (euro 4,710 million) and writedowns of fixed assets and investments (euro 507 million)
        In 2002, income before minority interests has been adjusted to take into account depreciation, amortization and other non-cash items (euro 5,682 million). Adjustments concerned primarily depreciation and amortization of tangible and intangible assets (euro 4,962 million) and writedowns of fixed assets and investments (euro 597 million).
     In 2001, income before minority interests has been adjusted to take into account depreciation, amortization and other non-cash items (euro 4,942 million). Adjustments concerned primarily depreciation and amortization of tangible and intangible assets (euro 4,671 million), writedowns of fixed assets and investments (euro 571 million) and a decrease in the reserve for contingencies (euro 323 million) relating primarily to the reversal (euro 200 million) made in the Gas & Power segment of the provision recorded in year 2000 in connection with Decision No. 193/1999 of the Authority for Electricity and Gas relating to the price of natural gas, as well as to the reversal of the loss adjustment and actuarial reserve made by Eni’s insurance subsidiaries (euro 79 million).
        b) Changes in working capital related to operations
        Net working capital related to operations increased by euro 465 million, by euro 510 million and by euro 197 million in 2003, 2002 and 2001, respectively.
        In 2003, the increase in net working capital (euro 465 million) was mainly due to a euro 682 million increase in trade accounts receivable due essentially to: (i) increased volumes of natural gas and oil products sold and the fact that the payment deadlines of certain relevant natural gas supply invoices (approximately euro 230 million) matured in the first days of 2004; (ii) higher activity levels in the Oilfield Services, Construction and Engineering segment. This factor was partly offset by an increase in the euro ~~1,592 million in 2002, 2001 and 2000, respectively.~~value of trade accounts payable
        In 2002, the increase in net working capital (euro 510 million) was mainly due to the anticipated payment of certain excise taxes due for year 2002, partly offset by decrease in trade accounts payable.
     In 2001, the increase in net working capital (euro 197 million) was mainly due to the decrease in trade accounts payable and other (euro 420 million) reflecting the deferral to year 2001 of the payment of excise taxes due for year 2000, partly offset by a decrease in inventories (euro 179 million) due to withdrawals from inventories in particular of oil and refined products in the Refining & Marketing segment.
        c) Dividends, interest, taxes and extraordinary expense
        Dividends, interest, taxes and extraordinary expense paid (which is net of amounts received) totaled euro 3,588 million, 2,969 million and euro 6,695 million in 2003, 2002 and ~~euro 3,062 in 2002,~~ 2001, respectively.
        In 2003, dividends received, interest, extraordinary income (expense) and ~~2000, respectively.~~income taxes paid (euro 3,588 million) concerned primarily the payment of income taxes.
        In 2002, dividends received, interest, extraordinary income (expense) and income taxes paid (euro 2,969 million) concerned primarily the payment of income taxes. In 2001, dividends received, interest, extraordinary income (expense) and income taxes paid (euro 6,695 million) concerned primarily the payment of income taxes for euro 6,189 million, of which euro 2,166 million relating to the payment of the substitute tax due on the voluntary revaluation of assets as per Law 342/2000 carried out by some of Eni’s subsidiaries in year 2000.
        d) Capital expenditures and Investing Activities
        Capital expenditures totaled euro 8,802 million, 8,048 million and euro 6,577 million in 2003, 2002 and 2001, respectively. The euro ~~5,431~~754 million increase from 2003 to 2002 was due mainly to the euro 445 million increase in the the Gas & Power segment, to the euro 180 million in ~~2002, 2001~~the Refining & Marketing segment, 66 million in the Exploration & Production segment and ~~2000, respectively.~~45 million in Oilfield Service Construction and Engineering segment, partly offset by decreases in all other Eni segments
        The euro 1,471 million increase from 2002 to 2001 was due mainly to the euro ~~1,399~~1,339 million increase in the Exploration & Production segment and to the euro 250 million in the Gas & Power segment, partly offset by decreases in all Eni other segments.The euro 1,146 million increase from 2000 to 2001 was due mainly to the euro 737 million increase in the Exploration & Production segment and to the euro 271 million in the Gas & Power segment.segments.
        Investments (including net borrowings acquired) totaled euro 1,677 million, euro 1,366 million, and euro 4,664 million in 2003, 2002 and ~~euro 4,384 million in 2002,~~ 2001, ~~and 2000,~~ respectively. In 2003 investments concerned primarily the purchase of 100% of Fortum Petroleum (euro 909 million), of 50% of Unión Fenosa Gas (euro 442 million), as well as the purchase of majority stakes in natural gas distribution companies in Hungary (euro 68 million).
In 2002 investments ~~(euro 1,366 million)~~ related in particular to the purchase of French company Bouygues Offshore (euro 906 million, net of assets acquired of euro 100 million) and of other companies (euro 149 million) in the Oilfield services segment and the purchase of 97.81% of GVS in joint venture with German company EnBW in the Gas & Power segment. The joint venture paid for the purchase (euro 704 million) by increasing the share capital for euro 178 million (Eni’s share was euro 89 million) and raising finance debt for the remaining part. In 2001, investments (euro 4,664 million) referred in particular to the completion of the acquisition of Lasmo for euro 4,128 million (including net borrowings for about euro 970 million, total investment for this operation amounted to euro 5,353 million including euro 1,225 million paid in 2000), the purchase of 50% of Polimeri Europa — the remaining 50% already owned by Eni — (euro 204 million), the share capital increase related to the two telecoms affiliates Albacom SpA (euro 53 million) and Blu SpA (euro 26 million), the purchase of three engineering companies (for a total of euro 69 million) in the oilfield services activity and the purchase of an interest in a company engaged in the marketing of refined products in Brazil (euro 34 million). In its cash-flow statement, Eni classifies as financial investments the cash used for corporate acquisitions.
        e) Disposals
Disposals (including net debt discharged) totaled euro 651 million, euro 974 million and euro 2,299 million in 2003, 2002 and ~~euro 297 million in 2002,~~ 2001, ~~and 2000,~~ respectively. Disposals in 2003 (euro 651 million) concerned essentially: (i) the Refining & Marketing segment (euro 293 million) essentially related to the sale of service stations in Italy (euro 216 million) and real estate and other minor assets (euro 77 million); (ii) the Exploration & Production segment (euro 140 million), mainly related to the sale of interests in hydrocarbon fields in the North Sea within the rationalization process of its mineral right portfolio; (iii) the Other Activities segment (euro 95 million) related in particular to the sale of 20% of Inca International SpA and 50% of Epoxital (overall euro 44 million), the liquidation of Conserv Inc (euro 25 million) and the sale of real estate and minor assets (euro 26 million); (iv) the Gas & Power segment (euro 86 million) related to the sale of the marine tanker business (euro 52 million) and of real estate and minor assets (euro 34 million).
        In 2002 disposals (euro 974 million) concerned essentially: (i) the Exploration & Production segment (euro 436 million) mainly relating to the rationalization of Eni’s mineral asset portfolio; (ii) the Refining & Marketing segment (euro 322 million) relating to the sale of service stations in Italy (euro 160 million), the sale of Agip (Nigeria) Ltd and other minor assets in Africa (euro 76 million) and logistical assets and other minor assets (euro 86 million); (iii) the Petrochemical segment (euro 105 million) of which euro 81 million related to the sale Eni’s 10% interest in Qatar Petrochemical Co; (iv) the Gas & Power segment (euro 59 million) of which 17 million related to the sale of the water business of Fiorentina Gas SpA. In 2001, disposals (euro 2,299 million, including net debt discharged of euro 185 million) concerned: (i) the sale of the entire interest in Immobiliare Metanopoli and of part of Eni’s real estate (for a total of about euro 1,400 million, of which euro 60 million of transferred net debt); (ii) the sale of the Polyurethane business in the Petrochemical segment (euro 428 million); (iii) the sale of the 15% interest in Saras SpA-Raffinerie Sarde (euro 59 million); (iv) the sale of the 4.7% interest in Nuovo Pignone Holding SpA (euro 46 million).
        ~~Dispositions (acquisitions) of highly liquid investments~~
     ~~The table below sets forth the principal movements of the cash flow from dispositions (acquisitions) of highly liquid investments.~~

Year ended December 31

2000 2001 2002

(millions E)
Financing investments:
— securities (2,648 ) (291 ) (4 )
— financing receivables (222 ) (8 ) (1,455 )
(2,870 ) (299 ) (1,459 )

Year ended December 31

2000 2001 2002

(millions E)
Disposals of financing investments:
— investments 8
— securities 2,951 758 205
— financing receivables 22 535 83
2,981 1,293 288
Net cash flows 111 994 (1,171 )
f) Dividends paid and changes in minority interests and reserves
        In 2003, dividends paid and changes in minority interest and reserves (euro 5,933 million) related to the tender offer on Italgas shares (euro 2,569 million), the payment of dividends for fiscal year 2002 by Eni SpA for a total amount of euro 2,833 million (corresponding to euro 0.750 per share or U.S. dollar 4,29 per ADS converted at the Noon Buying Rate of the payment date: 1 euro = 1.1429 U.S. dollar), the purchase of 23,94 million Eni shares within the share buy-back program (euro 329 million) and the payment of dividends by Snam Rete Gas SpA (euro 126 million), Saipem SpA (euro 36 million) and other consolidated subsidiaries (euro 16 million).
        In 2002, dividends paid and changes in minority interest and reserves (euro 3,846 million) ~~concerned~~related mainly to the payment of 2001 dividends for the fiscal year ~~2001~~ by Eni SpA for a total amount of euro 2,876 million ~~corresponding~~(corresponding to euro 0.750 per share or U.S. dollar 3.71 per ADS ~~(converted~~converted at the Noon ~~buying rate~~Buying Rate of the payment date 1 euro = 0.9885 U.S. dollar), the purchase of 52.26 million Eni shares within the share buy-back program (euro 770 million), and the payment of dividends to Eni SpA by Snam Rete Gas SpA (euro 74 million), Italgas SpA (euro 37 million) and Saipem SpA (euro 32 million).
     ~~In 2001, dividends paid and changes in minority interests and reserves (euro 950 million) consisted primarily~~
Table of the distribution of dividends for fiscal year 2000 by Eni SpA for a total amount of euro 1,664 million corresponding to euro 0.424 per share or U.S. dollar 1.81 per ADS (converted at the Noon buying rate of the payment date), as well as the purchase of 109,999,326 own shares for euro 1,494 million (at an average price per share of euro 13.58). These outflows were partly offset by the euro 2,202 million inflow generated by the offering of 40.24% of the share capital of Snam Rete Gas.Contents
        ~~Net borrowings~~Financial condition
        Eni evaluates its financial condition by reference to ~~«net borrowings»~~“net borrowings”, which itis a non-GAAP financial measure. Eni calculates net borrowings as total finance debt (short-term and long-term debt) derived from its consolidated financial statements prepared in accordance with Italian GAAP less: cash, ~~and~~ cash equivalent and certain very liquid investments not related to operations including among others, non-operating financing receivables and securities not related to ~~operations, non-operating~~operations. Non operating financing receivables consists of amounts due to Eni’s financing subsidiaries from banks and other ~~items, net. In 2002,~~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.
        Management believes that net borrowings ~~amounted to euro 11,141 million,~~is a ~~euro 1,037 million increase over December 31, 2001. Debt~~very useful measure of Eni’s financial condition as it provides an indication of the soundness of Eni capital structure and ~~bonds increased by euro 2,872 million; cash and cash equivalent increased by euro 1,875 million due to~~of how well-financed Eni assets are. In addition, management utilizes the ~~fact that Eni made a deposit~~ratio of ~~euro 1,447 million for the public tender offer of Italgas SpA shares. In 2001,~~ net borrowings ~~amounted~~ to ~~euro 9,888 million, an increase~~total shareholders’equity including minority interest (leverage) to evaluate Eni’s finance structure, to analyze whether the ratio between finance debt and shareholders’ equity is well balanced according to industry standards and to track management’s short-term and medium-term targets. Management constantly monitors trends in net borrowings and trends in leverage in order to optimize the use of ~~euro 2,146 million over December 31, 2000. In 2001, cash~~internally-generated funds vs. funds from third parties. The measure calculated in accordance with Italian GAAP that is most directly comparable to net borrowings is total debt (short term and ~~cash equivalent~~long term debt). The measure calculated in accordance with Italian GAAP that is most directly comparable to leverage is the ratio of finance debt to shareholders’ equity (including minority interest). Eni’s presentation and ~~accounts receivable financing~~calculation of net borrowings and ~~securities decreased by euro 642 million (from euro 3,302 million in 2000~~leverage may not be comparable to ~~euro 2,660 million). Debts and bonds were consequently increased by euro 1,504 million. Cash and cash equivalent are denominated principally in euro and U.S. dollars.~~that of other companies.
        The table below sets forth the calculations of net borrowings for the periods ~~indicated.~~

Year ended December 31,

2001 2002

Short- Long- Short- Long-
term term Total term term Total

(millions E)
Short-term and long-term debt 6,464 6,084 12,548 8,870 6,550 15,420
Cash and cash equivalent (1,390 ) (1,390 ) (3,265 ) (3,265 )
Securities not related to operations (929 ) (312 ) (1,241 ) (719 ) (290 ) (1,009 )
Non operating financing receivables 0 0 (2 ) (2 )
Other, net (29 ) (29 ) (3 ) (3 )
4,116 5,772 9,888 4,881 6,260 11,141
indicated and its reconciliation to the most directly comparable GAAP measure.
Year ended December 31,

2002 2003

Short-term Long-term Total Short-term Long-term Total

(million €)
Finance debt (Short-term and long-term debt) 8,870 6,550 15,420 7,918 8,336 16,254
Cash and cash equivalent (3,265)    (3,265) (1,623)    (1.623)
Securities not related to operations (719) (290) (1,009) (781) (2) (783)
Non operating financing receivables (2)    (2)    (240) (240)
Other, net (3)    (3) (65)    (65)

Net Borrowings 4,881 6,260 11,141 5,449 8,094 13,543
     ~~Short-term~~The measure calculated in accordance with Italian GAAP that is most directly comparable to net borrowings is finance debt (short-term and long-term debt)
The measure calculated in accordance with Italian GAAP that is most directly comparable to leverage is the ratio of finance debt ~~outstanding at December 31, 2002,~~to total shareholders’ equity (including minority interest). A quantitative reconciliations of these measures is set forth below:
Shareholders’equity including minority interests as per Eni’s consolidated financial
statements prepared in accordance with Italian GAAP 20,351 28,318

Ratio of finance debt to total shareholders’ equity including minority interests 0.54 0.57

Less: ratio of cash, cash equivalent and certain very liquid investments not related to operations to total shareholders’ equity including minority interests (0.15) (0.09)

Ratio of net borrowings to total shareholders’ equity including minority interests (leverage) 0.39 0.48
In 2003, net borrowings amounted to euro ~~15,420~~13,543 million, a euro 2,402 million increase over December 31, 2002. Debts and bonds amounted to euro 16,254 million, of which ~~8,870~~7,918 were short-term (including the ~~share~~portion of long-term ~~debts~~debt due within twelve months for euro ~~980~~490 million) and ~~6,550~~8,336 were medium and long-term. ~~Euro 5,152~~In particular bonds amounted to euro 4,793 million ~~of Eni’s long-term debt outstanding~~(euro 3,518 million at December 31, ~~2002 is scheduled~~2002).
        Short-term and long-term debt of euro 16,254 million was denominated 60% in euro, 32% in US dollars, 4% in pound sterling and 4% in other currencies.
Short-term debt
        Short-term debt of euro 7,428 million decreased by euro 462 million. Such decrease was primarily due to ~~mature after~~the exchange rate differences related to the conversion of financial statements prepared in currency other than euro (euro 963 million).This decrease was partially offset by the new borrowings (euro 470 million). The average interest rate of Eni’s short-term debt was 2.82% and 2.13% for the years ended December 31, ~~2004. Of~~2002 and 2003, respectively.
In 1999 Eni SpA opened a revolving line of credit for euro 568 million, which is due to expire in 2004 and provides for the ~~total debt~~maintainance of some financial ratios generally based on Eni SpA financial statements. Eni is in compliance with the covenants contained in its financing arrangements. At December 31, 2003 the line of credit was unused (completely used at December 31, ~~2002,~~2002). On December 31, 2003 Eni maintained committed and uncommitted unused short-term lines of credit with various domestic and foreign banks for euro ~~8,563~~4,647 and 4,799 million, respectively (euro 1,207 million and euro 7,272 million, respectively, at December 31, 2002). These agreements provide for interest charges based on prevailing market conditions. Commission fees on unused lines of credit are not significant.
Long-term debt
Long-term debt of euro 8,826 million increased by euro 1,296 million in 2003. Such increase was primarily due to the difference between new debt and reimbursements (euro 1,253 million) and to the change in the scope of consolidation (euro 688 million, of which euro 685 million related to the purchase of Fortum Petroleum AS, now Eni Norge AS). The increase was partially offset by the effect of exchange rate differences on the translation of financial statements prepared in currency other than euro (euro 560 million). The balance of payments and new proceeds of liabilities of euro 1,253 million includes a new bond issued pursuant to Eni’s Medium Term Notes Program for euro 2,400 million, of which euro 1,500 million was ~~denominated~~issued by Eni SpA.
Eni entered into certain financing arrangements relating to bank debt that requires maintenance of certain financial ratios generally based on Eni SpA financial statements and Eni consolidated financial statements. At December 31, 2002 and 2003, the amount of long-term debt subject to restrictive covenants was euro 424 million and euro 793 million, respectively. Eni is in compliance with the covenants contained in its financing arrangements.
Ordinary bonds of euro 4,793 million concern primarily notes issued by Eni in its Euro Medium Term Notes program for a total of euro 3,703 million and ~~6,857 million in~~ other ~~currencies (principally U.S. dollar).~~ordinary bonds for a total of euro 1,090 million.
        The weighted average interest rate on Eni’s long-term debt (including current maturities) at December 31, ~~2002~~2003 was approximately ~~5.48%~~4.13%.
     ~~Short-term and~~
At December 31, 2003 Eni did not maintain committed unused long-term ~~debt outstanding~~lines of credit (euro 364 million at December 31, ~~2001, amounted to euro 12,548 million, consisting~~2002 which expired in 2003). These agreements provide for interest charges based on prevailing market conditions. Commission fees on unused lines of ~~short-term~~credit are not significant.
Certain debt, ~~(including bonds and~~in the ~~current portion of long-term debt)~~amount of euro ~~6,464~~409 million and ~~long-term debt of~~ euro ~~6,084 million. Euro 4,368~~332 million ~~of Eni’s long-term debt outstanding~~ at December 31, ~~2001,~~2002 and 2003, respectively, is ~~scheduled to mature after December 31, 2003. Of~~guaranteed by mortgages and liens on the ~~total debt at December 31, 2001, euro 4,731 million was denominated in euro~~fixed assets of consolidated companies and ~~euro 7,817 million was denominated in other currencies (principally U.S. dollars). The weighted average interest rate~~by pledges on Eni’s long-term debt (including current maturities) at December 31, 2001, was approximately 5.33%. The increase in long-term debt of euro 1,615 million, relates primarily to the change in the scope of consolidation (euro 1,683 million of which euro 1,846 million related to Lasmo Plc)marketable securities and exchange rate differences deriving from the translation into euro of financial statements denominated in other currencies (euro 326 million). This increase was offset in part by the net change in debt assumed and repaid in the year (euro 394 million).
     ~~The amount of debt subject to restrictive covenants was not material.~~
     ~~Eni financial arrangements generally include customary cross default provisions.~~fixed deposits.
        Capital expenditures by segment
        The table below sets forth a breakdown, by segment, of capital expenditures.

Year ended December 31,

2000 2001 2002

(millions E)
Exploration & Production 3,539 4,276 5,615
Gas & Power 794 1,065 1,315
Refining & Marketing 533 496 550
Petrochemicals 265 361 249
Oilfield Services and Engineering 245 304 233
Other activities 55 75 86
Total 5,431 6,577 8,048
Year ended December 31,

2001 2002 2003

(million €)
Exploration & Production 4,276 5,615 5,681
Gas & Power 1,065 1,315 1,760
Refining & Marketing 496 550 730
Petrochemicals 361 145 141
Oilfield Services Construction and Engineering 304 233 278
Other activities 75 119 71
Corporate and financial companies 71 141

   Total 6,577 8,048 8,802

In 2003, capital expenditure in the Exploration & Production segment amounted to euro 5,681 million, increasing by euro 66 million over 2002, up 1.2%.
Exploration expenditure amounted to euro 635 million, of which 91% outside Italy. Outside Italy exploration concerned mainly Kazakhstan, Egypt, Norway, the United States, Nigeria and Angola; in Italy mainly the offshore of the Ionian and Adriatic Sea, the deep waters of the Sicily Channel and onshore areas in central-southern Italy and Sicily.
Expenditure for development and capital goods totaled euro 5,015 million of which 91% was outside Italy. Development expenditure outside Italy concerned fields in Libya, Iran, Angola, Nigeria, Egypt and Kazakhstan. Development expenditure in Italy referred in particular to the continuation of construction of plant and infrastructure in the Val d’Agri.
        In 2002, capital expenditure in the Exploration & Production segment amounted to euro 5,615 million, increasing by euro 1,339 million over 2001, up 31.3%. Exploration expenditure amounted to euro 902 million, of which 93% was outside Italy, with a 19.2% increase over 2001. Outside Italy exploration concerned mainly the United States, Kazakhstan, Egypt, Angola, Russia and Brazil; in Italy mainly the deep waters of the Sicily Channel and areas in central-southern Italy. ~~Investment in the~~The purchase of proved and unproved property (euro 317 million) concerned primarily the purchase of: (i) a 2.39% interest in the North Caspian Sea PSA, where the Kashagan field is located (Eni is single operator with a 16.67% interest after the purchase) in Kazakhstan; (ii) a 5.6% interest in the Bayu Undan field (Eni’s interest 12.32% after the purchase) in Australia; (iii) an 11.3% interest in the T-Block fields (Eni is operator with an 88.7% share after the purchase) in the British section of the North Sea; (iv) a 7.9% interest in the Mikkel field in Norway; (v) an 8.9% interest in the Liverpool Bay fields (Eni’s interest 53.9% after the purchase) in the Irish Sea. Expenditure for development and capital goods totaled euro 4,396 million of which 89% outside Italy, increasing by 27.3% over 2001. Development expenditure outside Italy concerned fields in Nigeria, Iran, Libya, Kazakhstan, Angola, Venezuela and the United Kingdom. Development expenditure in Italy referred in particular to the continuation of construction of plant and infrastructure in the Val d’Agri.
In ~~the Exploration & Production segment,~~2003, capital expenditure in ~~2001, amounted to~~the Gas & Power segment totaled euro ~~4,276~~1,760 million, increasing by euro ~~737~~445 million over ~~2000,~~2002, up ~~20.8%. Exploration expenditure amounted~~33.8%, and related mainly to: (i) the program for building combined cycle power stations (euro 542 million), in particular the Ferrera Erbognone, Brindisi and Mantova power stations; (ii) the construction of the Greenstream pipeline (euro 460 million) for the transmission of natural gas from Libyan fields to ~~euro 757 million (euro 811 million in 2000),~~Sicily; (iii) development and maintenance of ~~which 89% was directed outside Italy, representing a 6.7% decrease over 2000. Expenditure~~Eni’s primary gas transmission network in Italy (euro ~~80 million as compared to euro 156 million in 2000) concerned primarily areas in Northern Italy~~434 million); (iv) extension and maintenance of the Southern Apennines. Outside Italy, exploration expenditure amounted to euro 677 million (euro 655 million in 2000) and concerned mainly core areas in North Africa (in particular Algeria and Egypt), West Africa (Nigeria, Congo and Angola), the North Sea (Norway), Latin America and the Caspian Sea and recently acquired areas (those of Lasmo and British-Borneo and the United States). Expenditure for the purchase of proved and unproved property amounted to euro 67 million (euro 416 million in 2000), of which euro 34 million related to the purchase of a 30% interest in the T-Block fields in the North Sea, in which Eni already held a 47.48% interest, allowing to increase daily production for the year by 3,000 boe. Other expenditure concerned mainly the acquisition of proved and unproved propertysecondary natural gas transmission network in Italy (euro 13292 million) ~~and the acquisition of a 35% interest in the Woollybutt field in Australia (euro 13 million)~~.
     Expenditure for development and capital goods totaled euro 3,452 million (euro 2.312 million in 2000) of which 83% outside Italy, increasing by 49.3% over 2000. Development expenditure in Italy amounted to euro 600 million and referred in particular to the continuation of construction of plant and infrastructure in the Val d’Agri. Development expenditure outside Italy, amounting to euro 2,852 million, concerned mainly fields in Kazakhstan, Nigeria, Congo, the United States, Egypt, Angola and the United Kingdom. Development expenditure on Lasmo’s fields amounted to euro 649 million.
        In 2002 capital expenditure in the Gas & Power segment amounted to euro 1,315 million, increasing by euro 250 million over 2001, up 23.5%, and related to: (i) development and maintenance of Eni’s primary and secondary natural gas transmission network in Italy (euro 606 million); (ii) the program for expanding power generation capacity (euro 426 million), in particular the Ferrera Erbognone and Ravenna power stations; (iii) the construction of the Greenstream pipeline (euro 236 million) transporting natural gas from Libyan fields in Wafa and Bahr Essalam operated by Eni to Sicily.
In ~~2001~~2003, capital expenditure in the ~~Gas~~Refining & ~~Power~~Marketing segment ~~capital expenditure totaled~~amounted to euro ~~1,065~~730 million, increasing by euro ~~271~~180 million over ~~2000,~~2002, up ~~34.1%~~32.7%, ~~relating~~and concerned: (i) refining and logistics (euro 291 million) aimed in particular ~~to: (i)~~at maintaining plant efficiency and measures taken to comply with health, safety and environmental standards and regulations; (ii) distribution of refined products in the Italian network (euro 177 million) in particular for the restructuring, upgrade, construction and purchase of new service stations (euro 95 million) and measures taken to comply with safety, health and environmental standards and regulations (euro 15 million); (iii) activities outside Italy (euro 248 million) concerning primarily the purchase of service stations in Germany, Spain and France; (iv) LPG (euro 11 million) and IT (euro 3 million). Total expenditure on compliance with regulations on health, safety and the environment amounted to euro 79 million (11% of the import system from Russia (euro 103 million); (ii) development and maintenance of Eni’s primary transmission and distribution network in Italy (euro 406 million); (iii) development and expansion of urban networks in Italy (euro 233 million); (iii) the commencement of the development plan of generation capacity by about 3,800 megawatts through the installation of 10 gas fired combined cycle generation plants, nine with a 390 megawatt capacity and one with a 250 megawatt capacity at the Ferrera Erbognone (near Sannazzaro), Ravenna, Mantova and Brindisi plants. All these plants will be fired with natural gas, except the 250 megawatt group to be installed at AgipPetroli refinery in Sannazzaro, fired in part with the syngas produced with refining residues.total).
        In 2002 capital expenditure in the Refining & Marketing segment amounted to euro 550 million, increasing by euro 54 million, up 10.7%, over 2001 and concerned: (i) refining and logistics in Italy (euro 203 million, of which 44 in logistics) aimed in particular at maintaining plant efficiency and measures taken to comply with health, safety and environmental standards and regulations; (ii) distribution of refined products in the Italian network (euro 168 million) in particular for the reorganization, upgrade and construction of new service stations (euro 96 million) and measures taken to comply with safety, health and environmental standards and regulations (euro 16 million); (iii) activities outside Italy (euro 109 million) representing 19% of the total capital expenditure and concerning primarily the purchase of service stations in France (euro 29 million) and the maintenance of the LPG distribution network in Brazil (euro 26 million). Total expenditure on compliance with regulations on health, safety and the environment amounted to euro 87 million (16% of the total).
        In ~~2001~~2003, capital expenditure in the ~~Refining & Marketing~~Petrochemicals segment ~~capital expenditure~~ amounted to euro ~~496~~141 million, ~~decreasing by~~with a decrease of euro 374 million over 2002, down ~~6.9%, over 2000~~2.8% and ~~concerned: (i) refining and logistics~~concerned in ~~Italy (euro 143 million, of which 37 in logistics) aimed at maintaining plant efficiency and measures taken to comply~~particular actions for complying with ~~health,~~ safety and environmental ~~standards and regulations; (ii) distribution of refined products in the Italian network~~regulations (euro ~~131 million) in particular for the reorganization, upgrade and construction of new service stations (euro 104~~65 million) and ~~measures taken to comply with safety, health and environmental standards and regulations (euro 20 million); (iii) outside Italy activities (euro 145 million) representing 29.2%~~actions for improving the efficiency of the ~~total~~Priolo and ~~concerning primarily the purchase of service stations in France and Slovakia and the upgrade of the LPG~~
~~distribution network in Brazil~~Porto Marghera crackers (euro 3127 million)~~. Expenditure on compliance with regulations on health, safety and the environment amounted to euro 76 million (15.3% of the total)~~.
        In 2002 capital expenditure in the Petrochemicals segment amounted to euro ~~249~~145 million with a decrease of euro 112 million, down 31% over 2001 due mainly to the fact that in 2001 Eni purchased (euro 108 million) the gasphase licence from Union Carbide in the Polimeri Europa Brindisi plant. Capital expenditure concernedand in particular actions for complying with safety and environmental regulations (euro 135 million)~~, actions for the improvement of reliability and safety of plants.~~.
        In ~~2001~~2003, capital expenditure in the ~~Petrochemicals~~Oilfield services and Engineering segment ~~capital expenditure~~ amounted to euro ~~361~~278 million, ~~with an increase of~~increasing by euro 9645 million over ~~2000,~~2002, up ~~36.2%~~19.3%. Capital expenditure in oilfield services and ~~concerned mainly efficiency maintenance actions and safety and environmental regulations. Other actions concerned~~construction (euro 261 million) concerned: (i) the ~~automation~~completion of the ~~cracker and~~Mystras FPSO that will operate on the Okono/Opkoho fields in Nigeria; (ii) the completion of the conversion of Maxita into the new Saipem 3000 field development ship; (iii) the completion of the upgrade of the ~~cumene-phenol plant~~semisubmersible drilling platform Scarabeo 7 in ~~Porto Torres,~~order to adjust it to a new plants for the production of CO/hydrogen in Porto Marghera and thermoplastic rubber in Ravenna. Capital expenditure in intangible assets concerned mainly the purchase from Union Carbide of the rights to use the license for the gas phase at the Brindisi plant (euro 108 million).contract.
        In 2002 capital expenditure in the Oilfield services and Engineering segment amounted to euro 233 million, decreasing by euro 71 million over 2001, down 23.4%, and concerned mainly: (i) the initial conversion phase of Maxita aimed at increasing its flexibility and efficiency and seizing the opportunities of a strongly developing market (the vessel will retain its ability to lay flexible, umbilical lines and mooring systems in deep waters, and will also be provided with equipment for ~~«reel»~~“reel”, ~~«J»~~“J” and ~~«S»~~“S” laying); (ii) the conversion of the Mystras tanker ship purchased in 2001 into an FPSO system; (iii) upgrade actions of the 5820 package plant employed in the Libyan offshore; (iv) the preparation of the drilling plants operating in Saudi Arabia for Aramco in 2002 and the purchase of equipment to be employed in Astrakhan (Russia).
Table of Contents
Recent developments
        Eni has previsiously published its first quarter results for 2004.
        In ~~2001~~the first quarter of 2004 oil prices continued their upward trends with the spot price for Brent, a benchmark crude oil, above the key level of 30 dollar/barrel due to geopolitical developments and strong demand for refined products in the ~~Oilfield Services~~United States and ~~Engineering~~China. Refining margins fell with respect to the high level recorded in the first quarter 2003. The euro appreciated markedly against the dollar.
        In the April-May 2004 two-month period the spot price of Brent crude climbed to historical highs backed by strong demand and geopolitical developments. Also refining margins hit historical level due to strong demand for gasoline. Petrochemical margins improved slightly over the first quarter; however, based on economic and industry conditions, management does not expect any significant improvement in the near future. The euro continued to appreciate against the dollar due to the process of adjustment of structural imbalances of U.S. economy; management expects this movement in exchange rates to characterize the rest of 2004 and to adversely impact Eni's results of operations in 2004.
        The table below sets forth certain indicators of some of these external factors for the periods indicated:
Three months ended March 31, Two months April-May,
2003 2004 2003 2004

Average price of Brent dated crude oil(1) 31.51 31.95 25.29 35.53
Average price in euro of Brent dated crude oil 29.37 25.56 22.56 29.63
Average EUR/USD Exchange rate(2) 1.073 1.250 1.121 1.199
Average European refining margin(3) 3.81 2.21 2.33 5.59
EURIBOR—three-month euro rate % 2.7 2.1 2.6 2.1
________________
(1)
In U.S. dollars per barrel. Source: Platt’s Oilgram.
(2)
Source: European Central Bank.
(3)
In U.S. dollars per barrel. FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platt’s Oilgram data.
        Eni’s net income for the first quarter 2004 increased by 6.9% over the first quarter of 2003 due principally to: (i) higher net extraordinary income, related in particular to the recognition of a material gain on the sale of shares representing 9.054% of the share capital of Snam Rete Gas SpA; (ii) an increase in volumes sold in particular in the Exploration & Production and Gas & Power segments. As the price in dollars of Brent remained approximately on the same levels of the first quarter of 2003 (up 1.4%), these positive factors were partly offset by the negative impact of the 16.5% depreciation of the dollar over the euro on operating income. Eni’s operating income for the first quarter of 2004 decreased by 4.8% over the first quarter of 2003, due in particular to the decline registered in the:
Exploration & Production segment (down 9.6%) related essentially to the depreciation of the dollar over the euro and higher writedowns of mineral assets, the effects of which were offset in part by higher hydrocarbon production sold, lower exploration costs and gains on the sale of mineral assets;
Refining & Marketing segment (down 12%) due mainly to the depreciation of the dollar over the euro. These declines were offset in part by an increase in operating income recorded by the Gas & Power segment related essentially to a growth in volumes sold of natural gas (up 7.2%) and electricity (almost doubled), whose effects were offset by lower commercial margins.
        Eni’s net sales from operations (revenues) for the first quarter of 2004 increased by 2.4% over the first quarter of 2003 due essentially to higher volumes sold in Eni’s main operating segments, the effects of which were partially offset by the negative impact of the 16.5% depreciation of the dollar over the euro on operating income.
        The depreciation of the euro over other currencies, in particular the US dollar (as of March 31, 2004 the EUR/USD exchange rate was down 3.2% over December 31, 2003) determined with respect to 2003 year-end an increase in the book value of net capital employed, of net equity and of net borrowings.
        Net borrowings as of March 31, 2004 declined by 16.7% over December 31, 2003, due to: (i) cash flow generated by operating activities, influenced also by seasonality effects; and (ii) the divestment of assets in the Exploration & Production and Petrochemical segments. These positive factors were offset in part by financial requirements for capital expenditure ~~amounted~~and investment and the effects of changes in consolidation and of the conversion of financial statements of subsidiaries denominated in currencies other than the euro.
        In the first quarter of 2004 hydrocarbon production increased by 8.7% as compared to ~~euro 304 million, increasing~~the first quarter of 2003, due to: (i) production increases mainly in Venezuela, Nigeria, Pakistan, Egypt and Kazakhstan; (ii) the start-up of new fields mainly in Australia, Angola, Pakistan, Nigeria and Norway. These increases were partly offset by ~~euro 59 million over 2000, up 24.1%,~~declines in mature fields mainly in Italy, the United Kingdom and ~~concerned mainly: (i)~~ the ~~upgrade~~United States and the effect of ~~equipment employed~~the divestment of assets in the ~~Blue Stream project, both offshore~~United Kingdom in 2003. The share of production outside Italy was 82.9% (79.3% in 2003).
        Natural gas sales (included gas consumed by Eni) increased by 7.2% as compared to the first quarter of 2003, due to higher sales in the rest of Europe.
        Electricity production sold increased by 99.2% as compared to the first quarter of 2003, due essentially to the start-up of the first and ~~onshore; (ii)~~second 390 megawatt generating units at the Ferrera Erbognone plant (in October 2003 and in February 2004, respectively) and in March 2004 of the first 390 megawatt generation unit at Ravenna.
The most relevant recent developments occurred after December 31, 2003 are the following:
at the end of March 2004, Eni sold 9.054% of the share capital of Snam Rete Gas SpA, recognizing a material gain on disposal and material proceeds. Proceeds will be recognized in the cash flow for the second quarter of 2004;
in April 2004 Eni signed an agreement with the Portuguese Government for the reorganization of Galp Energia (Eni’s interest 33.34%). See “Item 4 – Gas & Power – Development project”.
In February 2004, under the North Caspian Sea PSA (Eni is operator with a 16.67% interest), the development plan of the Kashagan oil field located in the Kazakh section of the Caspian Sea was approved by the relevant Kazakh Authorities. The approved development plan consists of multiple phases; management expects production to start in 2008. Total planned capital expenditure is estimated at U.S. dollar 29 billion, being Eni’s share in the range of U.S. dollar 5 billion. See “Item 4 – Exploration and Production – Kazakhstan”
Eni Shareholders’ Meeting of May 28, 2004 resolved to extend, until November 30, 2005 the Eni share buy-back program initiated in 2000, which provides for the purchase of ~~equipment~~a maximum of 400 million Eni shares for an amount not higher than euro 5.4 billion. On the ~~Onshore construction area for the development~~same occasion, Eni shareholders’ meeting amended Eni by–laws, which have filed herein as exhibit.
Table of the Karachaganak oil field; (iii) the completion of a new vessel for developing underwater fields (Field Development Ship) provided with dynamic positioning, a crane for lifting up to 600 tons, and a vertical pipe laying system reaching water depths of up to 2,000 meters; (iv) the upgrade of onshore drilling plants for work in Saudi Arabia and Kazakhstan.Contents
Management Expectations of Operations
     ~~The~~According to management’s own forecast, trends in ~~2003~~2004 of the ~~principal factors~~key variables of the trading environment that influence Eni’s results of operations are indicated below:
• worldwide demand for oil is expected to increase slightly over 2002 (up 1.2%), at a lower pace than the trend registered in the Nineties due to uncertainties that affect the recovery of world economy. According to Eni’s forecasts, the price of Brent crude in 2003 is expected to reach an average of 26 dollars/barrel (up 4% over 2002) reflecting the approximately 32 dollar/barrel price registered in the first quarter and assuming that prices remain at approximately 24 dollar/barrel for the rest of the year;
• the euro has strongly appreciated against the U.S. dollar in both the first and second quarter of 2003. Should this trend continue in the second half of the year, Eni’s results of operations will be negatively affected;
• assuming normal temperatures in the rest of 2003, management expects demand for natural gas in Italy to increase by over 5% compared to 2002, due to increased consumption for the production of electricity;
• management expects refining margins in 2003 to reach higher levels than the particularly low levels of 2002. Margins in the rest of the year, however, are expected to be lower than that registered in the first
worldwide demand for oil is expected to increase by more than 1% over 2003 due to the recovery of world economy propelled by the USA, China and Japan;
Eni’s forecast on oil prices in 2004 indicates an average price for Brent crude above 32 dollars/barrel, up 11% with respect to 2003 (28.84 dollars/barrel). This forecast assumes the stabilization of demand in the second part of the year and increased supply on part of both OPEC and non-OPEC countries;
in 2004 the euro is expected to continue its appreciation over the dollar, due to the adjustment process of the USA current account deficit, the effects of which are offset in part by the different growth rates in the USA and the euro area. Eni forecasts an average euro/dollar exchange rate of about 1.25 dollars per euro, a 10% increase as compared to the average exchange rate of 2003 (1 euro = 1.131 US dollar);
the demand for natural gas in Italy, assuming normal temperatures, is expected to remain at 2003 levels (about 77 billion cubic meters). Management expects an increase in consumption of natural gas in electricity production due to the start-up of new generation capacity to be offset by a decline in consumption of natural gas in the industrial sector as a result of weak industrial activity;
refining margins in Europe are expected to remain at the average levels registered in the second half of 2003. The trend of margins will be supported by the expected increase in demand for gasolines in the USA and medium distillates in Asia.
quarter due to the persistence of uncertainties on world economic recovery and the end of the phenomena that favored the positive trend of the first quarter (international tension, an extremely cold winter in the Northern hemisphere).
The following are ~~Eni’s~~management’s forecasts for ~~the~~Eni’s key production and sales ~~performance~~metrics in 2004:
daily production of ~~its main activities~~hydrocarbons (1.56 mmBOE/day in ~~2003:~~2003), net of the effect of the rationalization of the portfolio of mineral assets is forecasted to grow in line with the planned average growth rate for the 2003-2007 period (approximately 5% per year). Eni expects that increases in 2004 will be achieved through production growth and start-ups outside Italy in areas where Eni’s presence is well established (Nigeria, Kazakhstan, Angola, Algeria and Libya) and more recently acquired ones (Iran, Pakistan, Venezuela and Australia);
• management expects daily production of hydrocarbons, before the effect of the rationalization of the portfolio of mineral assets, to grow over 2002, in line with planned production growth for the 2002-2006 period (management plans a compounded average growth rate of approximately 6% over the 2002-2006 four-year period);
• management expects volumes of natural gas sold in primary distribution in Italy and Europe to increase by approximately 4% over 2002. Volumes transported on behalf of third parties in Italy are expected to increase by about 25%;
• ~~electricity production sold is forecasted at approximately 5.4 terawatthour, increasing by 8% over 2002;~~
• management expects total refinery processing intake on wholly owned refineries in Italy and outside Italy to decline by approximately 4% due to the progressive completion of agreements concerning the sale of the Priolo refinery (a decline targeted to 7.5 million tonnes). The utilization rate of available capacity in ownedvolumes of natural gas sold in primary distribution in Italy and the rest of Europe (including volumes of natural gas consumed by Eni) are expected to increase by about 5% (67.02 billion cubic meters in 2003); volumes transported on behalf of third parties in Italy are expected to increase by about 9% (24.63 billion cubic meters in 2003) as a result of the forecasted trends of demand and the increase of volumes supplied to Italian importers who resell these volumes to Italian customers;
electricity production sold is expected to increase by 100% (5.55 terawatthour in 2003) due to the coming on-stream of new generation capacity (1.4 gigawatt) in particular at the Ferrera Erbognone and Ravenna sites (total generation capacity was 1.9 gigawatt in 2003);
total refinery processing intake on own account is expected to increase by about 3% (31.80 million tonnes in 2003) and wholly-owned refineries are expected to continue running at full capacity;
sales of refined products on retail markets in Italy and the rest of Europe are expected to increase by about 3% (14.01 million tonnes in 2003); average throughput is expected to increase both in Italy (1,813,000 liters in 2003) and in the rest of Europe (2,378,000 liters in 2003).
In 2004 capital expenditure is expected ~~to increase over 2002 (to 99%);~~
• management expects sales of refined products on retail markets to increase in the rest of Europe due to the completion of agreements for the purchase of service stations in Spain, France and Germany (for a total of 313 stations); this change will be offset in part by the expected decline in Italy, due to the downsizing process.
     ~~In 2003 management expects capital expenditure~~ to amount to approximately euro 8 billion; about ~~euro 8.8 billion; over 90%~~92% of ~~this~~ capital expenditure will be made in the Exploration & Production, Gas & Power and Refining & Marketing segments. ~~Management expects to finance these capital expenditure~~The major projects concerned are: (i) in the Exploration & Production segment, the development of fields in Libya, Iran, Italy, Angola and Kazakhstan (Kashagan and Karachaganak) as well as exploration; (ii) in the Gas & Power segment, upgrade and maintenance of Eni’s primary and secondary natural gas transmission network, as well as continuation of power station construction; (iii) in the Refining & Marketing segment, the construction of a gasification plant for the production of synthesis gas from heavy fraction deriving from crude processing at the Sannazzaro refinery and the maintenance and upgrade of the fuel distribution network.
        Overall in the next four year period management plans to invest approximately euro 25.5 billion in new capital expenditure; over 90% of this new capital expenditure is planned be made in the Exploration & Production, Gas & Power and Refining & Marketing segments. Key planned project are as follows: (i) the development of proved reserves of hydrocarbons in Kazakhstan, Lybia, Iran, Angola and Italy; (ii) exploration in selected areas; (iii) the upgrading of the Italian natural gas transport and distribution networks; (iv) the completion of the construction of new electricity generation capacity in Eni’s industrial sites of Brindisi, Ferrera Erbognone, Mantova, Ravenna and Ferrara; (v) interventions aimed at increasing the efficiency and the flexibility of Eni refining system; (vi) the upgrading of Eni Italian and European networks of service stations for the marketing of petroleum products.
In the near term, management plans to cover financial requirements related to this new capital expenditure and also to the payment of dividends by means of funds generated from operations. According to management‘s estimates funds generated from operations under a mid-cycle scenario for oil prices are sufficient to cover the above mentioned financial requirements without the need to increase finance debt. The above mid-cycle scenario is based on the following key assumptions: (i) the price of key marker crude Brent is assumed at an average of 16 dollar/barrel in ~~connection~~real terms, baseline year 2000; and (ii) the US dollar -- euro exchange rate is assumed at parity. Management uses these assumptions to evaluate the profitability of individual capital expenditure projects. Management would expect over time to change these assumptions if the current levels of oil prices and the US dollar euro exchange rate persist for an extended period of time. Management targets a leverage of 0.40 at the end of year 2007. In the next four-year period management plans to pay dividends in line with dividends paid in 2001-2003 period (approximately euro 2.8 billion per year). See “Item 8 – Dividend Policy”.
        Eni is experiencing some pricing pressure in its core natural gas business in Italy as a consequence of the opening of the domestic natural gas market and the need to sell volumes of natural gas purchased under take-or-pay contracts to certain Italian natural gas operators in order to comply with the ~~public tender offer on Italgas shares, amounting to approximately euro 2.5 billion, and~~mandatory ceilings provided for by the ~~purchase~~Italian regulatory system (See “Item 4 – Regulation of the ~~Norwegian oil company Fortum Petroleum AS, amounting~~Italian natural gas market” and “Item 3 – Risk factors”). Management expects Eni’s operating profit in year 2004 to ~~approximately dollar 975 million, through cash flow~~be affected by this trend in its natural gas business. However management believes these negative factors to be offset almost completely by the expected growth in natural gas sales in other European markets and in electricity production sold, the expected benefits following the integration of Eni marketing policy in natural gas and electricity generation businesses, cost savings associated from ~~operations~~planned efficiency improvement actions and ~~an increase~~higher tariffs in ~~finance debt under existing committed borrowings facilities. See «Background and Recent Developments» for more details concerning these two transactions.~~
     Innatural gas transport outside Italy.In order to meet the medium and long-term demand of natural gas in particular of the Italian market, Eni entered into long-term purchase contracts with producing countries that have a residual average term of approximately 17 years. Existing contracts, which in general contain take-or-pay clauses, will ensure a total of about 6667.3 billion cubic meters of natural gas per year ~~(Russia 28.5, Algeria 21.5, Netherlands 10 and Norway 6)~~ by 2008. The above quantities are based on the annual contract quantity of the relevant contract. The average annual minimum quantity is approximately the 85% of said quantities. In order to comply with the above mentioned regulatory thresholds relating to volumes input to the national transport network, Eni signed multi-annual contracts with third party importers to sell naturalSee “Item 4 – Gas & Power – Natural gas volumes exceeding said threshold limits outside the Italian territory; in prior years these volumes were imported into Italy and sold to Italian consumers by Eni. This change in the sale mix is structural and will adversely affect Eni’s results of operations. Further, management expects Eni’s margins on natural gas in Italy to come under pressure in future years due to the entry into the market of new competitors including the above mentioned third parties which purchase natural gas from Eni outside the Italian territory and resell it to Italian customers. Finally due to the antitrust threshold on direct sales in Italy, management expects Eni’s natural gas sales in Italy to increase at no more than the same rate as overall natural gas demand in Italy. Management believes all these developments might have a material adverse impact on Eni’s results of operations. However management believes that planned increase of natural gas sales outside Italy and cost reduction measures will mitigate the above mentioned adverse impact.
purchases”. Until year 2002 Eni’s natural gas supply contracts have not entailed the application of take-or-pay clauses. ~~Due~~In 2003 due to a growth of the natural gas market in Italy ~~in the year 2003~~ lower than ~~previously expected~~planned and to an increase ~~in the same year~~ of the volumes of natural gas imported into Italy by third parties, Eni’s offtake was lower than the minimum contracted volumes. Eni has recognized its suppliers a cash advance of euro 6 million providing to Eni the right, exercisable within 10 years, to withdraw about 540 million cubic meters of gas after payment of the residual portion of price and after having met the minimum offtake requirements applicable in ~~2003 may fall below its annual minimum quantity (TOP) by approximately 1 billion cubic meters. However, Eni~~each year. Management expects to ~~be able under its make up contractual provisions to offtake such gas~~recover the sum paid with volumes withdrawn already in ~~the following two contractual years~~2004, provided that the natural gas market grows according to management’s expectations.
        The expectations described above are subject to risks, uncertainties and assumptions associated with the oil and gas industry, and economic, monetary and political developments in Italy and globally that are difficult to predict. There are a number of factors that could cause actual results and developments to differ materially, including, but not limited to, crude oil and natural gas prices; demand for oil and gas in Italy and other markets; developments in electricity generation; price fluctuations; drilling and production results; refining margins and marketing margins; currency exchange rates; general economic conditions; political and economic policies and climates in countries and regions where Eni operates; regulatory developments; the risk of doing business in developing countries; governmental approvals; global political events and actions, including war, terrorism and sanctions; project delays; material differences from reserves estimates; inability to find and develop reserves; technological development; technical difficulties; market competition; the actions of field partners, including the inability of joint venture partners to fund their share of operating or developments activities; industrial actions by workers; environmental risks, including adverse weather and natural disasters; and other changes to business conditions.
Off-Balance Sheet Arrangements
        Eni ~~maintains committed~~has entered into certain off-balance sheet arrangements, including derivative financial instruments, guarantees and ~~uncommitted undrawn short term borrowing facilities~~other commitments, as described in Note 23 to the Consolidated Financial Statements. Eni's principal financial obligations, including commitments under take-or-pay or ship-or-pay clauses, are described under "Contractual Obligations" below. See the Glossary for ~~euro 1,207~~a definition of take-or-pay or ship-or-pay clauses.
        Off-balance sheet arrangements comprise those arrangements that may potentially impact Eni’s liquidity, capital resources and ~~7,272 million~~results of operations, even though such arrangements are not recorded as liabilities under generally accepted accounting principles. Although off-balance sheet arrangements serve a variety of ~~December 31, 2002, respectively (euro 1,632~~Eni’s business purposes, Eni is not dependent on these arrangements to maintain its liquidity and ~~6,625 million, respectively, at December 31, 2001)~~capital resources; nor is management aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on the company’s financial condition, results of operations, liquidity or capital resources.
        Eni has provided various forms of guarantees on behalf of unconsolidated subsidiaries and ~~committed undrawn long-term borrowings facilities~~affiliated companies, mainly relating to guarantees for euro 364 million expiring in 2003 (euro 510 million at December 31, 2001, of which euro 406 million expiring in 2002) with various domestic and foreign banks. These agreements provide for interest charges based on prevailing market conditions. Commission fees on undrawnloans, lines of credit ~~are not significant.~~
     ~~Management believes that, taking into account unutilized market facilities,~~and performance under contracts. In addition, Eni has ~~sufficient working capital for foreseeable requirements.~~provided guarantees on the behalf of consolidated companies, primarily relating to performance under contracts. These arrangements are described in Note 23 to the Consolidated Financial Statements.
~~Commitment and Financial~~        Contractual Obligations
        The following table summarizes the principal financial obligations which are described in Item 18— Financial Statements—Note 11 and 23.

Total 2003 2004 2005 2006 2007 Thereafter

(millions E)
Long term borrowings 7,530 980 1,398 1,367 885 686 2,214
Short term borrowings 7,890 7,890
15,420 8,870 1,398 1,367 885 686 2,214
Operating leases relating to real estate rental in Italy (1) 368 56 56 54 53 52 97
Other committments (off balance sheet):
Take or pay 81,004 6,025 5,169 4,608 4,488 4,461 56,253
Ship or pay 12,270 520 610 610 610 620 9,300
Others (2) 607 233 51 43 43 43 194
— Memorandum of intent relating to Porto Marghera 223 30 30 30 30 30 73
— Memorandum of intent relating to Val D’Agri 206 25 21 13 13 13 121
607 233 51 43 43 43 194
~~(1)~~ ~~— The amounts of rental outside Italy were not material.~~
~~(2)~~ ~~— Purchase of Government Bonds from employees (in balance sheet as per U.S. GAAP) 178 178~~
Total 2004 2005 2006 2007 2008 Thereafter
(million €)
Long Term Debt 8,826 490 1,948 1,177 974 194 4,043
Short Term Debt 7,428 7,428
sub total 16,254 7,918 1,948 1,177 974 194 4,043
Operating leases relating to real estate rental in Italy 821 75 77 78 80 81 430
Other Committments(off balance sheet):
      Take-or-pay 74,189 5,141 4,540 4,370 4,412 4,514 51,212
      Ship-or-pay 10,000 500 490 490 510 520 7,490
      Others(1) 547
(1)-Purchase of Goverment Bond from employees (in balance sheet as per US GAAP) 181 181
-Memorandum of intent relating Marghera 149 30 30 30 30 29 0
-Memorandum of intent relating Val D'agri 217 32 13 13 13 13 133
547 243 43 43 43 42 133
        ~~Other commitments~~“Other commitments” relating to natural gas ~~«take or pay»~~take-or-pay and ~~«ship or pay»~~ship-or-pay contracts were calculated by applying the forecasted prices of energy or services in the medium term scenario used in Eni’s four-year plan to minimum take or minimum ship quantities. Management expects amounts due under Eni take-or-pay and ship-or-pay contractual obligations in years subsequent to year 2008 to be roughly in line with the average amounts expected to be paid in the 2004-2008 period.
        Liquidity Risk
        Eni’s financial operations are managed according to a centralized model where financial subsidiaries have specific roles and assignments. Eni’s Treasury Department coordinates and controls all activities, defines objectives and constraints in terms of financial structure, programs and risk management.
        Liquidity risk is the risk that suitable sources of funding for the Group’s business activities may not be available. The Group has access to a wide range of funding at competitive rates through the capital markets and banks. The Group believes it has access to sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements. At December 31, 2002, Eni maintains committed and uncommitted unused short term borrowing facilities for euro 1,207 and 7,272 million, respectively (euro 1,632 and 6,625 million, respectively, at December 31, 2001) and committed unused long-term borrowings facilities for euro 364 million expiring in 2003 (euro 510 million at December 31, 2001, of which euro 406 million expiring in 2002) with various domestic and foreign banks. These agreements provide
~~for interest charges based on prevailing market conditions. Commission fees on unused lines of credit are not significant.~~See “Net borrowings” above.
        Credit risk
        Credit risk is the potential exposure of the Group to loss in the event of non-performance by a counterparty. The credit risk arising from the Group’s normal commercial operations is controlled by individual operating units within Group-approved guidelines. In addition, as a result of its use of financial and commodity instruments, including derivatives, to manage market risk, Eni has credit exposures through its dealings in the financial and specialized oil and gas markets. Eni controls the related credit risk by entering into contracts only with highly credit-rated counterparties and through credit approvals, limits and monitoring procedures, and does not usually require collateral or other security. Counterparty credit validation, independent of the dealers, is undertaken before contractual commitment. Eni has not experienced material non-performance by any counterparty.
        Hedging
        The most important currencies for Eni are the euro and the U.S. dollar. See ~~«Item~~“Item 3—Risk Factors—Exchange ~~Rates»~~Rates”. Eni’s hedging policy is to minimize foreign exchange rate exposure through a policy of matching assets and liabilities where appropriate. Eni also uses forward exchange contracts to hedge existing receivables and payables, including deposits and borrowings denominated in currencies other than the currency used in the relevant financial statements. At December 31, ~~2002,~~2003, the notional amount of forward exchange contracts was euro 6,165 million (euro 7,611 million as of December 31,2002) and the notional amount of purchased options was euro 550 million (euro 348 ~~million.~~million as of December 31,2002). Eni does not enter into derivative transactions on a speculative basis.
     ~~Where appropriate,~~        Eni enters into commodity hedging contracts for the purpose of reducing its exposure to changes in commodity prices in connection with specific transactions, including, to a limited extent, to mitigate the effects of petroleum price fluctuations. At December 31, ~~2002,~~2003, Eni maintained for this purpose open derivative commodity contracts, the amounts of which were not material.
        ~~The Company also~~Eni enters into various types of interest rate contracts (primarily interest rate swaps, forward rate agreements and interest rate ~~collars,~~collars) to manage its interest rate risk, to lower its funding costs and diversify its sources of funding and to ~~alter~~minimize interest rate exposures arising from mismatches between assets and liabilities. At December 31, ~~2002,~~2003, the notional amount of interest rate contracts was euro ~~5,555~~5,764 million, of which euro ~~5,206~~5,690 million (euro 5,555 million as of December 31,2002) related to swaps ~~euro 220 million related to forward rate agreements~~ and euro ~~129~~74 million related to collars. See Note 24 to the Consolidated Financial Statements.
        Research and Development
        For a description of Eni’s research and development operations in 2002, see ~~«Item~~“Item 4 —Research and ~~Development»~~Development”.

Table of Contents
Summary of Significant Differences Between Italian GAAP and U.S. GAAP
        Eni’s ~~Consolidated Financial Statements~~financial statements have been prepared in accordance with Italian GAAP, which ~~differ~~differs in certain ~~material~~ respects from U.S. GAAP. The ~~principal~~significant differences between Italian GAAP and U.S. GAAP, as applied to Eni’s ~~Consolidated Financial Statements, are (i)~~financial statements, are: A) consolidation ~~policy, (ii) accounting for exploratory wells,~~policy; B) exploration ~~permits and developmental expenditure of oil and natural gas activities, (iii) goodwill amortization, (iv)~~& production activities; C) valuation of assets and subsequent ~~revaluation, (v)~~revaluation; D) monetary revaluation of ~~assets, (vi) financing costs, (vii) marketable securities; (viii)~~assets; E) deferred tax assets ~~liabilities, (ix)~~and liabilities; F) depreciation of fixed assets; G) intangible assets; H) capitalized interest ~~expense, (x) derivatives, (xi) classification of revenues,~~expense; I) derivatives; J) stock compensation; K) stock issuance costs; L) marketable securities; M) costs related to site restoration and abandonment; N) treasury shares; O) extraordinary income and ~~extraordinary expense items, (xii) sale~~expense; P) sales of ~~Government bonds, (xiii)~~government bonds; Q) reclassification of ~~inventory, (xiv) stock compensation, (xv) treasury shares, (xvi) depreciation rates.~~inventory; R) comprehensive income; S) earnings per share; T) guarantees; U) liabilities for redundancies. See Note 27 to the ~~Consolidated Financial Statements~~financial statements for a more detailed discussion of the significant differences between Italian GAAP and U.S. GAAP that affect Eni’s
~~Consolidated Financial Statements,~~ financial statements, and Note 28 to the ~~Consolidated Financial Statements~~financial statements for a reconciliation of net income and shareholders’ equity between Italian GAAP and U.S. GAAP.
        Consolidated operating income reconciled to U.S. GAAP was euro ~~7,656~~9,215 million, euro ~~8,642~~7,861 million and euro ~~9,662~~8,853 million in 2003, 2002 ~~2001~~ and ~~2000,~~2001, respectively, compared with consolidated operating income under Italian GAAP of euro 9,517 million, 8,502 million ~~10,396 million~~ and ~~10,772~~10,396 million in those same years. The ~~principal~~significant effects on operating income by segment that arise from a reconciliation to U.S. GAAP are as follows: (i) in 2002 and 2001, for the Oilfield Services and Engineering and Gas & Power segments the accounting for Saipem SpA and Italgas SpA, including their subsidiaries, under the equity method for U.S. GAAP purposes, while the same entities are consolidated for Italian accounting principles purposes; in 2003, for the Oilfield Services and Engineering segment the accounting for Saipem SpA, including its subsidiaries, under the equity method for U.S. GAAP purposes, while the same entities are consolidated for Italian accounting principles purposes; (ii) for the Exploration & Production segment, the recapitalization of certain oil and natural gas exploration and development costs that were fully or differently amortized in the same period under Italian accounting ~~principles, (ii) for all segments the elimination of goodwill amortization,~~principles; (iii) for all ~~segments, the reclassification~~segment, effect of ~~restructuring costs into operating expense as required by U.S. GAAP,~~asset impairments and revaluations; (iv) for all segments, ~~the reclassification~~effect of certain income and gains and other expenses, which would normally be considered as net sales from operations and operating expenses, respectively under Italian accounting principles, into other non operating income or expense for purposes of U.S. GAAP, (v) for all segments, depreciation of monetary revaluation of ~~assets and~~assets; (v) for Gas & Power segments, effect of use of different rates of ~~depreciation,~~depreciation; (vi) for all segment, the elimination of goodwill amortization; (vii) for Gas & Power segments, differences in fair value assigned to assets acquired in the purchase of a business; (viii) for all segments, the recapitalization of interest on debt that was incurred in order to bring qualified assets to their intended use and was expensed in the year ~~incurred~~incurred; (ix) for all segment, the effect of stock grants and ~~(vii)~~options awarded to employees; (x) for all segment, the effect of stock issuance costs; (xi) in 2003, for the Exploration & Production segment, the effect related to site restoration and abandonment liabilities; (xii) in 2002, for the Other activities segment, the effect related to reserves for contingencies; in 2003, for the Oilfield Services and Engineering and ~~Gas & Power~~Other activities segments, the ~~accounting~~effect related to reserves for ~~Saipem Spa and Società Italiana per il Gas pA, including their subsidiaries, under~~contingencies; (xiii) for all segments, the ~~equity method for~~reclassification of restructuring costs into operating expense as required by U.S. GAAP purposes, while the same entities are consolidated for Italian accounting principles purposes, (viii) in 2000, 2001 and 2002 by the effect of stock grants awarded to employees which, under Italian accounting principles, are treated as reclassification from retained earnings to capital stock for the par value of the stock issued, while under U.S. GAAP are treated as compensation expense (See Note 29 and 30 to the Consolidated Financial Statements);GAAP. See Note 27 to the ~~Consolidated Financial Statements~~financial statements for the ~~«Summary~~“Summary of Differences Between Italian and U.S. ~~GAAP~~GAAP” and Note 28 for a breakdown of operating income by segment under U.S. GAAP for the years ~~1999~~2001 through ~~2001.~~2003.
        ~~Consolidated net~~Net income reconciled to U.S. GAAP was euro 6,296 million, euro 5,292 million ~~euro~~and 6,317 million in 2003, 2002 and ~~5,758 million in 2002,~~ 2001, ~~and 2000,~~ respectively, compared with consolidated net income under Italian accounting principles of euro 5,585 million, euro 4,593 million ~~euro~~and 7,751 ~~million and 5,771~~ million in those same years. In addition to the effects discussed above, the reconciliation of consolidated net income to U.S. GAAP was affected (i) in 2001, by adjustment of gains on disposals due to the elimination of monetary revaluation ~~adjustment of gains on disposals due to elimination of reversal of impairment charges~~ and adjustment of gains on the sale of ~~an interest~~interests in a consolidated subsidiary (Snam Rete Gas); (ii) in 2002 and ~~(ii) taxes~~2003, by the effect of the differences related to companies carried on ~~distributable reserve.~~the equity method; (iii) in 2001, 2002 and 2003 by the effect of deferred income taxes; (iv) ) in 2001, 2002 and 2003 by the effect of derivative contracts.
Table of Contents
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Table of Contents
Directors and Senior Management
        The Board of Directors of Eni SpA’s currently in office consists of eight members. The table below sets forth the names of the eight members of the Board of Directors, their positions, the year when each was initially appointed as a Director and their ages. This Board of Directors was appointed by the Ordinary Shareholders’ Meeting held on May 30, 2002 for a three-year ~~period.~~

Year First Appointed
to Board of
Name Position Directors Age

Roberto Poli Chairman 2002 65
Vittorio Mincato Managing Director and CEO 1998 67
Mario Giuseppe Cattaneo Director 1998 73
Alberto Clô Director 1999 56
Umberto Colombo Director 1998 76
Renzo Costi Director 1996 66
Dario Fruscio Director 2002 66
Guglielmo Antonio Claudio Moscato Director 2002 67
Mario Resca Director 2002 58
period; it will therefore expire at the date of the General Shareholders’ Meeting approving Eni’s financial statements for the financial year 2004.
Name Position Year First Appointed
to Board of Directors Age
Roberto Poli Chairman 2002 66
Vittorio Mincato Managing Director and CEO 1998 68
Mario Giuseppe Cattaneo Director 1998 74
Alberto Clô Director 1999 57
Renzo Costi Director 1996 67
Dario Fruscio Director 2002 67
Guglielmo Antonio Claudio Moscato Director 2002 68
Mario Resca Director 2002 59
        While it remains a significant shareholder, the Ministry of Economy and Finance intends to continue to participate in the nomination and election of Eni’s Board of Directors in order to protect its investment as a shareholder. During whatever period the Ministry of Economy and Finance remains a majority shareholder, according to Italian law, as confirmed by Decision No. 466/1993 of theCorte Costituzionale(Constitutional Court), theCorte dei Conti(Court of Accounts) has the right and duty to exercise a role as financial controller of Eni’s operations in order to protect the interest of the State as a shareholder. In order for the Court of Accounts to exercise such control, a representative of the Court of Accounts attends the meetings of the Board of Directors and the Board of Statutory Auditors of Eni without the right to vote and Eni has the obligation to send to the Court of Accounts its financial statements together with the reports of the Board of Directors, the Board of Statutory Auditors and its external auditors. The representative of the Court of Accounts who attends the meetings of the Board of Directors and Board of Statutory Auditors of Eni is ~~Michael Sciascia who replaced Nicola Soria, who died on April 17, 2003.~~
Luigi Schiavello (alternate Angelo Antonio Parente). On the occasion of Eni’s Ordinary Shareholders’ Meeting held on May 30, 2002 which appointed the current Board of Directors, the Minister of Economy and Finance decided not to exercise its power to appoint a member of the Board. Therefore the number of members of the Board was set at eight versus the preceding nine-member Board. The Board will expire at the date of the General Shareholders’ Meeting approving Eni’s financial statements for the financial year 2004.
        On June 5, 2002 the new Board of Directors delegated to the Chairman, Roberto Poli, powers for researching and promoting integrated projects and strategic international agreements, and appointed Vittorio Mincato Managing Director and CEO, confirming the powers already delegated to him by the previous Board of Directors.
In 2003 the Board of Directors reviewed Eni’s corporate governance system and on September 17 defined the Board of Directors’ exclusive competencies and the Managing Director’s powers. On November 14, 2000 the Board of Directors of Eni appointed Stefano Cao as General Manager of the Exploration & Production division with those powers as determined by the Board on the same date. Mr. Cao may be removed by the Board of Directors of Eni without cause.
        On January 30, 2001 the Board of Directors of Eni appointed Luciano Sgubini as General Manager of the Gas & Power division with those powers as defined by the Board on the same date. Mr. Sgubini may be removed by the Board of Directors of Eni without cause.
        On ~~December 19, 2002 (effective from January 1, 2003)~~April 14, 2004 the Board of Directors of Eni appointed ~~Gilberto Callera~~Angelo Taraborrelli as General Manager of the Refining & Marketing division with those powers as defined by the Board on the same date. Mr. ~~Callera~~Taraborrelli may be removed by the Board of Directors of Eni without cause. Mr. Taraborrelli replaced Mr.Callera, who has reached the retirement age
The table below sets forth Eni SpA’s executive officers and the General Managers of Eni’s three divisions, their positions within Eni, the year they were appointed to such positions, their total years of service at Eni and their ages. The executive officers of Eni are appointed by the Managing Director of Eni and may be removed without cause.

Year First Total Number
Appointed to of Years of
Name Management Position Current Position Service at Eni Age

Stefano Cao General Manager for the Exploration
& Production division 2000 27 52
Luciano Sgubini General Manager for the Gas & Power
division 2001 35 63
Gilberto Callera General Manager for the Refining &
Marketing division 2002 28 64
Carlo Grande The Group Senior Vice President for
Legal Affairs 1986 25 62
Roberto Jaquinto The Group Senior Vice President for
Administration 1992 41 61
Marco Mangiagalli The Group Senior Vice President for
Finance 1993 25 54
Leonardo Maugeri The Group Senior Vice President for Strategies and International Relations 2000 9 39
Renato Roffi The Group Senior Vice President for
Human Resources 2000 32 56
Vittorio Giacomelli The Group Senior Vice President for
Supply Operations 2001 35 63
Eugenio Palmieri The Group Senior Vice President for Public Affairs and Communication 2001 12 56
Luigi Patron Chief Technology Officer 2001 43 63
Fabrizio D’Adda The Group Senior Vice President for Health Safety and the Environment(1) 2002 34 61
Name Management Position Year First
Appointed to
Current Position Total Number
of Year of
Service at Eni Age
Stefano Cao General Manager for the Exploration
& Production division 2000 27 53

Luciano Sgubini General Manager for the Gas & Power
division 2001 35 64

Angelo Taraborrelli General Manager for the Refining &
Marketing division 2004 31 56

Fabrizio D’Adda The Group Senior Vice President for
Health Safety and the Environment 2002 34 62

Vittorio Giacomelli The Group Senior Vice President for
Supply Operations 2001 35 64

Carlo Grande The Group Senior Vice President for
Legal Affairs 1986 25 63

Roberto Jaquinto The Group Senior Vice President for
Administration 1992 41 62

Marco Mangiagalli The Group Senior Vice President for
Finance 1993 25 55

Leonardo Maugeri The Group Senior Vice President for
Strategies and International Relations 2000 9 40

Eugenio Palmieri The Group Senior Vice President for
Public Affairs and Communication 2001 12 57

Luigi Patron Chief Technology Officer 2001 43 64

Renato Roffi The Group Senior Vice President for
Human Resources 2000 32 57
~~(1)~~ ~~Appointed on July 26, 2002.~~
The biographies of Eni’s directors and executive officers are set out below.
        Roberto Poli was appointed Chairman of Eni SpA on May 30, 2002. Recently he has founded and is currently President of Morelli ~~& Partners~~&Partners SpA, a consulting firm for corporate finance, mergers, acquisitions and reorganisations. He is also President of Prof. Roberto Poli e Associati SpA. From 1966 to 1998 he was Professor of Business Finance at the Università Cattolica of Milan. He is Member of the Board of Directors of Fininvest SpA, Mondadori SpA, Merloni Termosanitari SpA, G.D. SpA and general partner of Brafin S.A.P.A.
        Vittorio Mincato was appointed Chief Executive Officer of Eni SpA on November 19, 1998. He was confirmed for a three-year term (2002-2005) by the Board meeting held on June 5, 2002. This appointment capped an over 40-year-career with the Eni group. He is currently a Member of the Management Board and of the Executive Committee of Confindustria (the General Confederation of Italian Industry) where he is Director in charge of the Centre of Studies. He is a Member of the General Confederation of Management Committee of Assonime, the Association of Italian Public Limited Companies and of CNEL (National
Committee for Economy and Labour). He is Member of the Board of Directors of ~~«Fondazione~~“Fondazione Teatro alla ~~Scala»~~Scala”. On July 14, 2003 the Milan Polytechnic Institute awarded him the honorary degree in Management Engineering.
        Mario Giuseppe Cattaneo is a chartered accountant, public auditor and Professor of Corporate Finance at the School of Business of Milan’s Università Cattolica del Sacro Cuore. He is currently President of C.B.I. Factor SpA, Member of the Board of Directors of Otis SpA, Unicredito Italiano SpA, ~~Unicredit~~UnicreditBanca Audit SpA, Luxottica Group SpA and Banca Lombarda SpA and Vice President of Euromobiliare Fondi ~~SpA.~~SpA and Euromobiliare Alternative Investments SGR SpA
        Alberto Clô was Minister of Industry and Minister of Foreign Trade ad interim in 1995 and 1996. Since 1997 he has been President of the Scientific Committee of the Scuola Enrico Mattei. He is Member of the Board of Directors of GTP Holding SpA, ~~Finmeccanica SpA,~~ Sagat SpA and Chairman of Aeroporto G. Marconi di Bologna SpA. He is also President of the Scientific Committee of Eni Corporate University and in 2003 he was appointed Director of ASM Brescia SpA and Società Autostrade SpA.
        Renzo Costi is an attorney and a consultant. He served as magistrate from 1964-68 and is currently Professor of commercial law at the University of Bologna. He was founder, and currently is co-director, of the magazines ~~«Giurisprudenza Commerciale»~~“Giurisprudenza Commerciale”, ~~«Banca~~“Banca Impresa e Società»” and ~~«Banca,~~“Banca, Borsa e titoli di ~~credito»~~credito”. He is member of the Board of Directors of Editrice Il Mulino SpA.
        Dario Fruscio is a chartered accountant, public auditor and consultant; he is currently Professor of Economy and Management at the University of Pavia and taught at the Accademia Nazionale della Guardia di Finanza of Bergamo.
        Guglielmo Antonio Claudio Moscato was President of Eni SpA from 1996 to 1999. He is currently President of the Fondazione Eni Enrico ~~Mattei and member of the Board of Directors of Trevi Fin SpA.~~Mattei.
        Mario Resca is Chairman and Managing Director of McDonald’s Italia SpA and Chairman of Italia Zuccheri SpA (formerly Eridania SpA), National Board member of U.P.A. (Union of Associated Advertising Operators), Chairman of Confimprese and Director of Mondadori ~~SpA.~~SpA and Member of the Board of liquidators of Cirio Del Monte Group in extraordinary administration.
        Stefano Cao joined the Eni group as a technical engineer active mainly in offshore construction. He then became general manager, managing director and chairman of Saipem SpA, and is at present General Manager of Eni’s Exploration & Production division.
        Luciano Sgubini, mining engineer, was involved in hydrocarbon production activities of Agip SpA. He served various positions in the Eni group such as Vice President of Agip SpA, Chairman and CEO of Saipem SpA and Chairman of Snam SpA until he became General Manager of Eni’s Gas & Power division. He is a member of the Board of Directors of many Eni group companies.
        ~~Gilberto Callera, a chemical engineer,~~Angelo Taraborrelli, graduated in law, joined the group as expert in analysis evaluation and control of investments in the oil market. After the merger of AgipPetroli with Eni ~~group in 1975. He~~he was ~~Chairman~~appointed Deputy Chief Operating Officer of ~~Agip Petroli~~Eni SpA ~~until~~Refining & Marketing division for Marketing Operations and on April 14, 2004 he became General Manager of Eni’s Refining & Marketing ~~division.~~division.Carlo Grande, attorney at law, joined the Eni group in 1977 and has served as senior vice president for legal affairs since 1986. He is ~~also Vice President~~a member of the ~~Italian Oil Industry Union and Vice President~~Board of ~~the Industry Union~~Directors of ~~Rome.~~various Eni companies.
        Carlo Grande, attorney at law, joined the Eni group in 1977 and has served as senior vice president for legal affairs since 1986. He is a member of the Board of Directors of various Eni companies.
        Roberto Jaquinto, a registered auditor, joined the Eni group in 1962 and served in various administrative management positions, until he became senior vice president for administration and responsible for Eni financial reporting and accounting. He is a member of the Board of Directors of many Eni group companies.
        Marco Mangiagalli worked for the Barclays Group and other Italian merchant banks before joining the Eni group. He is a member of the Board of Directors of various Eni companies. He is responsible, among other things, for Eni’s treasury operations.
        Leonardo Maugeri, after extensive academic experience acquired also outside Italy, joined the Eni group in 1994, holding various positions mainly as counsel for strategic decisions. He is a member of the executive council of Censis and of the Commission on international relations at Confindustria.

Renato Roffi joined the Eni Group in 1971 and held various positions in Eni’s subsidiaries until he became the Group’s senior vice president for human resources in 2000. He is a member of the Board of Directors of various Eni companies and Vice Chairman of ASIEP (the Italian association of energy and petroleum companies).
        Vittorio Giacomelli, a chemical engineer, started his career in Germany, joined the Eni group in 1968 and held various positions in Eni’s subsidiaries until he became the Group’s senior vice president for procurement.
        Eugenio Palmieri qualified as journalist in 1971 and worked as correspondent for ~~«Il~~“Il Sole ~~24-Ore»~~24-Ore”, ~~«Il Tempo»~~“Il Tempo”, ~~«La Stampa»~~“La Stampa”. In 1991 he was appointed Head of Press Office and later also supervisor of External Relations. In May 1995 he was appointed Managing Editor of Agi News Agency, a subsidiary of Eni and the second largest Italian newswire.
        Luigi Patron is Chief Technology Officer of Eni and Chairman of Snamprogetti SpA, the engineering company of the Eni Group. Mr. Patron’s industrial career started with Montefibre SpA at Porto Marghera. In 1991, he became Chairman of Montefibre SpA and Chairman of ~~Enichem~~EniChem Fibre SpA. From June 1993 to May 1996, Mr. Patron was Managing Director of EniChem SpA.
        Fabrizio D’Adda, mining engineer, joined the Eni group in 1968. He held various positions such as Vice President of Snamprogetti SpA, Chairman of Saipem SpA, Chairman of Enichem SpA and Chairman of Polimeri Europa SpA. He is a member of the Board of Directors and of the Executive Committee of Cefic and President of the Financial Committee of Cefic. He is also a member of the Executive Committee of Confindustria.
Auditors
Statutory Auditors
        The Italian legislation requires Italian listed corporations to have a board of statutory auditors composed of independent experts in accounting matters and in matters specified in such corporations’ by-laws. Eni SpA’s Board of Statutory Auditors is elected by the shareholders meeting, with the exception of the Chairman thereof, who is appointed by the Ministry of Economy and Finance. See ~~«Item~~“Item 10. Additional Information—Memorandum and Articles of Association—Limitations on Voting and Shareholdings—Special Powers of the ~~State»~~State”. Eni SpA’s by-laws currently provide that the Board of Statutory Auditors consists of five effective statutory auditors and two alternate auditors (each of them automatically substitutes an effective auditor who resigns or is otherwise unable to serve as an auditor elected in the same list).
        The following table sets forth the names, positions and year of appointment of the members of the Board of Statutory Auditors of Eni, who were elected on May 30, ~~2002.~~
2002.For a description of the duties of the Board of Statutory Auditors see below.
Name Position Year First Appointed

to Board of Statutory
~~Name~~ ~~Position~~
Auditors
Andrea Monorchio
Chairman 1995
Luigi Biscozzi
Auditor 1999
Paolo Andrea Colombo
Auditor 2002
Filippo Duodo
Auditor 1998
Riccardo Perotta
Auditor 1999
Fernando Carpentieri
Alternate Auditor 1995
Giorgio Silva ~~Chairman~~
~~Auditor~~
~~Auditor~~
~~Auditor~~
~~Auditor~~
~~Alternate Auditor~~
Alternate Auditor ~~1995~~ 1999 ~~2002 1998 1999 1995 1999~~
External Auditors
        ~~The~~As provided for by Italian laws, external auditors must be a chartered company and are appointed by the Shareholders’ Meeting. Eni’s external auditors, PricewaterhouseCoopers SpA, were appointed by the Shareholders’ Meeting ~~held on~~of June 1, 2001 ~~resolved to appoint~~for a three-year term ending with the Meeting approving financial statements for 2003. Eni’s Shareholders’ Meeting of May 28, 2004 confirmed the appointment of PricewaterhouseCoopers SpA ~~as principal external auditors~~ for a further three year period ending with the ~~three-year period 2001-2003~~Meeting approving financial statements for ~~both consolidated and non consolidated accounts.~~2006.
Table of Contents
Compensation
        See Note 29 to the consolidated financial statements for a description of stock grant and stock option plans.
        Pursuant to Consob Decision No. 11971 of May 14, 1999, as amended, compensation of Directors of Eni, statutory auditors and general managers of Eni’s divisions is reported in the table below, which includes all the persons who held a position in ~~2002,~~2003, also for a fraction of the year.
• ~~The column «Compensation for positions held at Eni SpA»~~The column “Compensation for positions held at Eni SpA” includes compensation decided by the shareholders’ meeting and compensation of the Chairman and the Managing Director set by the Board of Directors, in agreement with the Board of Statutory Auditors, pursuant to article 2389, subsection 2 of the Italian Civil Code;
• ~~the column «Non monetary benefits» indicates all fringe benefits, including insurance policies;~~
• ~~the column «Bonuses and other incentives» indicates the variable part of the compensation of the chairman, the Managing Director and General Managers of Eni’s divisions;~~
• ~~the column «Other compensation» indicates the salary of the Managing Director and of the General Managers (employees of Eni), as well as the compensation for positions held in other Eni companies.~~

Compensation Bonuses
for Non cash and other Other
Name Position position benefits incentives compensation Total

(thousand E)
Board of Directors
Gros-Pietro Gian Maria Chairman 302 3 289 594
Poli Roberto Chairman 297 297
Mincato Vittorio Managing Director 283 604 935 1.822
Cattaneo Mario Giuseppe Director 74 74
Clô Alberto Director 75 75
Colombo Umberto Director 27 27
Costi Renzo Director 75 75
De Paoli Luigi Director 27 27
Fruscio Dario Director 46 46
Moscato Guglielmo Director 48 48
Resca Mario Director 48 48
Sapelli Giulio Marcello Director 27 27
Siniscalco Domenico (1) Director

Board of Statutory Auditors
Monorchio Andrea (2) Chairman 60 60
Biscozzi Luigi Effective Auditor 78 48 (3) 126
Colombo Paolo Andrea Effective Auditor 49 10 (4) 59
Duodo Filippo Effective Auditor 71 48 (5) 119
Perotta Riccardo Effective Auditor 76 20 (6) 96
Sica Mario Effective Auditor 21 34 (7) 55

General Manager E&P division
Cao Stefano 248 533 781
General Manager G&P division
Sgubini Luciano 272 555 827

1.684 3 1.413 2.183 5.283

the column “Non monetary benefits” indicates all fringe benefits, including insurance policies;
the column “Bonuses and other incentives” indicates the variable part of the compensation of the chairman, the Managing Director and General Managers of Eni’s divisions;
the column “Other compensation” indicates the salary of the Managing Director and of the General Managers (employees of Eni), as well as the compensation for positions held in other Eni companies.
Name Position Compensation
for
position Non cash
benefits Bonuses
and other
incentives Other
compensation Total
(thousand €)

Board of Directors
Poli Roberto Chairman 520 9 227    756
Mincato Vittorio Managing Director 490    788 927     2,205
Cattaneo Mario Giuseppe Director 85    20    105
Clô Alberto Director 85    20    105
Costi Renzo Director 83    20    103
Fruscio Dario Director 87    20    107
Moscato Guglielmo Director 88    20    108
Resca Mario Director 86    20    106

Board of Statutory Auditors
Monorchio Andrea Chairman 112       112
Biscozzi Luigi Effective Auditor 94    46⁽¹⁾ 140
Colombo Paolo Andrea Effective Auditor 94    23⁽²⁾ 117
Duodo Filippo Effective Auditor 86    47⁽³⁾ 133
Perotta Riccardo Effective Auditor 93    20 ⁽⁴⁾ 113

General Manager E&P division
Cao Stefano    262 576     838

General Manager G&P division
Sgubini Luciano    267 573     840

General Manager R&M division
Callera Gilberto    351 469     820

2,003 9 2,015 2,681     6,708
________________________
(1) ~~Compensation for this position is paid to the Ministry of Economy and Finance (euro 26,000).~~
~~(2)~~ ~~Compensation concerns the July 1-December 31, 2002 period, prior to this compensation for this position is paid to the Ministry of Economy and Finance (euro 46,000).~~
~~(3)~~
Includes compensation for the position of effective Statutory Auditor of ~~Enichem~~Syndial SpA (former EniChem SpA) and Polimeri Europa SpA.
~~(4)~~(2)
Includes compensation for the position of Director of Saipem SpA from ~~January 1~~May 2 to ~~May~~December 31, ~~2002.~~2003.
~~(5)~~(3)
Includes compensation for the position of effective Statutory Auditor of Snamprogetti SpA and Chairman of the Board of Statutory
Auditors of Consorzio Eni per l’Alta Velocità —– Cepav Uno.
~~(6)~~(4)
Includes compensation for the position of effective Statutory Auditor of Enifin SpA.
~~(7)~~ ~~Includes compensation for the position of Chairman of the Board of Statutory Auditors of Snam SpA fro January 1 to February 1, 2002 and of Snam Rete Gas SpA.~~
        For the year ended December 31, ~~2002,~~2003, the aggregate compensation paid to or on behalf of the executive officers of Eni SpA was euro ~~6.06~~7.80 million. The foregoing amounts include salaries, fees for attending meetings, lump-sum amounts paid in lieu of expense reimbursements, stock option, stock grant and health and pension contributions. The foregoing amounts do not include 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, ~~2002,~~2003, the total amount accrued to the reserve for employee termination indemnities with respect to members of the Board of Directors who were also employees of Eni, with respect to ~~two~~three General Managers and with respect to the executive officers of Eni SpA was euro ~~3.35~~4.19 million.

        The table below sets forth the amount and maturity of stock options granted to Eni’s Chief Executive Officer, General Managers and executive officers in 2003:
Options granted in the year Options held at year end
753,500 1,418,500
Number of options

Average exercise price (euro) 13,743 14,434

Maturity (days) 1,096 772
Expiration (days) 2,834 2,551

Weighted average exercise price for
options existing as of December 31, 2002 (euro) 15,216

Exercise price for options granted in 2003 (euro) 13,743
The information in the table above is current to June 14, 2004. No additional options have been granted from December 31, 2003 to that date. Eni issues only ordinary shares. For further information on Eni’s stock compensation see “Note 29 to the Consolidated Financial Statements”.
Table of Contents
Board practices
Appropriate conduct
        ~~In September 2002,~~Due to the ~~German investment company DWS (Deutsche Bank Group)~~complex scenario in ~~cooperation with~~which Eni operates, the ~~consulting company Déminor updated its ratings~~Board of Directors has deemed it appropriate to provide a clear definition of the ~~degree~~value system that Eni recognizes, accepts and upholds and the responsibilities that Eni assumes within its group and externally in order to ensure that all Group activities are conducted in compliance with laws, in a context of ~~application~~fair competition, with honesty, integrity, correctness and in good faith, respecting the legitimate interests of ~~corporate governance~~shareholders, employees, suppliers, customers, commercial and financial partners and the communities where Eni operates. All those working for Eni, without exception or distinction, are committed to observing these principles within their function and responsibility and to make others observe them. The belief of working for the advantage of Eni cannot be a justification for behaviours contrary to such principles. These values are stated in ~~50 European companies with~~a “Code of Conduct” whose observance by employees is evaluated by the ~~highest stock market capitalization included~~Board of Directors. The Code of Conduct is published in ~~the Eurostoxx50 index. Eni ranked fifth in Europe (eleventh in 2001) and first in Italy, same as in 2001.~~Eni’s internet site (www.eni.it).
        In its meeting of January 20, 2000 Eni’s Board of Directors resolved to adopt the Self-discipline Code of Listed Companies (the ~~«Code»~~“Code”) ~~adopted on Borsa Italiana SpA, the Italian Stock Exchange. On that occasion, the Board —~~and, pursuant to a thorough review of the matter, — underscored how Eni’s organizational model is essentially in line with the principles expounded in the Code, as well as with related recommendations issued by Consob.
        In accordance with the request of Borsa Italiana SpA, in particular the ~~«Guidelines~~“Guidelines for the preparation of the yearly report on corporate ~~governance»~~governance” of February 12, ~~2003. Information~~2003, follows information on Eni’s corporate governance ~~systems is set out below.~~system. In preparing this report account has been taken also of the “Guide to the preparation of the report on corporate governance” published by Assonime and Emittenti Titoli SpA in February 2004.
The Board of Directors: competencies, delegate powers and composition
        ~~The~~Eni’s organizational structure follows the traditional model of companies in which management is exclusively entrusted to the Board of Directors, which is the central element of Eni’s corporate governance system. ~~Its responsibilities include~~Monitoring functions are entrusted to the ~~definition, application~~Board of Statutory Auditors and ~~updating~~accounting control is entrusted to external auditors appointed by the Shareholders’ Meeting.
        The Board of Directors delegated specific powers to the Chairman and Managing Director, who are the representatives of the company according to article 25 of Eni’s by-laws.
        In accordance with the internationally accepted principles of corporate governance, ~~rules~~the Board of Directors established committees with consulting and proposing functions.
        In 2003 the ~~determination~~Board of ~~strategic guidelines at the Company and Group level. In~~Directors thoroughly reviewed Eni’s corporate governance system; in addition to exclusive competencies entrusted to it by ~~article~~art. 2381 of the Civil Code, the Board ~~makes decisions~~has reserved the following tasks:
        1. to define corporate governance rules for the Company and Group companies, including the appointment, definition of functions and regulations of Board Committees;
        2. to define guidelines for the internal control system, based on indications provided by the relevant Board Committee, and monitor the effectiveness and modes of managing main corporation risks;
        3. to examine and approve the main features of corporate and Group organization, checking the effectiveness of the organization and administration setup prepared by the Managing Director;
        4. to determine – on proposal of the Managing Director – strategic guidelines and objectives at the Company and Group level;
        5. to examine and approve multi-annual strategic, industrial and financial plans at the Company and Group level;
        6. to examine and approve yearly budgets of Divisions, of the Company and the consolidated Group budget;
        7. to evaluate and approve quarterly accounts and related ~~to: (i) resolutions~~disclosure and any other period accounts and related disclosure provided for by the law and to ~~be adopted~~compare quarterly results with planned results;
        8. to evaluate the general trends in ~~Shareholder’s meetings~~operations with specific attention to possible conflicts of ~~main subsidiaries; (ii) approval~~interest;
        9. to examine and approve strategically relevant agreements;
        10. to receive from Directors entrusted with specific powers timely reports describing the activities performed under such powers and the most relevant transactions, according to a specific previously agreed definition, and any atypical or unusual relations and transactions with related parties;
        11. to receive from Board Committees periodic reports on activities performed, according to previously agreed definitions and timetables;
        12. to attribute, modify and revoke powers to Directors, defining their limits and modes of execution, determining the compensation related to such powers, after consultation with the Board of Statutory Auditors. To deliver guidelines to empowered Directors and to recall to itself transactions included in the delegated power;
        13. to approve, based on the indications of the relevant Committee, the adoption and implementation of share incentive plans and to define the compensation criteria of top managers;
        14. to appoint, revoke and delegate powers to general managers, on proposal of the Managing Director and in agreement with the Chairman;
        15. to decide major sale and purchase transactions of the Company and to provide a pre-emptive evaluation of those concerning Group companies, in particular:
            a) sale and purchase transactions as well as conferral of real estate, investments, ~~businesses for~~companies of amounts exceeding euro 2650 million,
            b) capital expenditure in tangible and intangible assets with great significance for the Group in terms of strategic impact and risks, and however all those of amounts exceeding euro 100 million, as ~~proposed by~~well as any initiatives of the Exploration &Production Division in new areas,
            c) the provision of loans from Eni or its subsidiaries to third parties,
            d) the provision from Eni of personal or real guarantees to third parties in the interest of Eni or its subsidiaries of an amount exceeding euro 50 million,
            e) the provision of loans from Eni or its subsidiaries to affiliates as well as of real and personal guarantees on their bonds of amounts exceeding euro 50 million and, in any case, if the amount is not proportional to the stake held in the affiliate;
        16. to examine and decide any proposal of the Managing Director concerning voting and ~~examination~~appointment of members of the ~~instructions provided~~Board of Directors and the Board of Statutory Auditors of major subsidiaries;
        17. to ~~Group companies on these matters for their performance~~formulate all the proposals of ~~such transactions.~~
decisions to be presented to the Shareholders’ Meeting.
        The Board entrusted the Chairman with powers to conduct strategic international relations and the Managing Director with all managing powers except those that cannot be delegated and those reserved to the Board.
        In accordance with article 27 of Eni’s by-laws, the Chairman chairs Shareholders’ Meetings, convenes and chairs Board of Directors meetings and oversees the implementation of decisions made by ~~applicable law.~~it.
        In accordance with article 23 of Eni’s by-laws, the Chairman and the Managing Director report timely to the Board of Statutory Auditors, at least quarterly and at each Board meeting, on activities performed and major transactions of Eni and its subsidiaries, in particular on those entailing possible conflict of interest.
        In accordance with article 17 of Eni’s by-laws, the Board of Directors is composed of 3 to 9 members. The present Board of Directors is made up by 8 members elected by the Shareholders’ Meeting of May 30, 2002 for a three-year term, their mandate expires with the Meeting convened to examine financial statements as of December 31, 2004. In the Meeting of May 30, 2002 the Economy and Finance Minister chose not to appoint one member of the Board, in agreement with the Minister of Productive Activities, as per article 6 of Eni’s by-laws. The appointment of the Board of Directors ~~is regulated~~(except for the Director appointed by ~~article 17 of Eni’s by-laws, which~~the Economy and Finance Minister) calls for a list vote in order to ensure presence of representatives of minority equity interests on the Board of Directors. The lists ~~of candidates~~must be deposited at Eni’s headquarters at least ten days before the date set for the Shareholders’ Meeting in first call, published on newspapers with national distribution and include a resume of each candidate.
        Board members must comply with the honorability and independence requirements provided for by applicable regulations, as well as ~~possess~~ the professionalism and experience required for performing their duties with efficacy and efficiency, to which they are expected to dedicate adequate time and ~~resources with efficacy and efficiency.~~
     On December 18, 2002, Eni’s Board of Directors, in accordance with the provisions of the Code evaluated the statements presented by Board members and established that non-executive Board members meet the independence requirements of the Code as they do not have any economic relationship with Eni and Eni Group companies, the Managing Director and Eni’s major shareholder such as to bias their autonomous judgment and are not close relatives of the Managing Director.
     Eni’s by-laws do not indicate a specific frequency of meetings. In 2002 the Board of Directors met 13 times. In the first half of 2003 the Board is expected to meet seven times. The public is informed of the dates of meetings convened for the approval of periodic reports as provided for by applicable laws.
     The Board of Directors defined the rules for the calling of its meetings. In particular, the Chairman convenes Board of Directors meetings, and, in concert with the Managing Director, defines agenda items. Notice is sent by mail, fax or e-mail within five days of the meeting’s date, at least 24 hours in advance in case of urgency. Eni’s by-laws allow meetings held by teleconference. Board members receive in advance adequate and thorough information on all issues subject to Board evaluation and resolutions. In 2002 on average 91% of Board members and 93% of independent non executive Board members participated to Board meetings.
     Board member compensation is determined by the Shareholders’ Meeting, while remuneration levels of the Chairman and Managing Director are determined by the Board of Directors, based on proposals of the Compensation Committee and after consultation with the Board of Statutory Auditors. In line with Consob provisions, the Report of Directors included in Eni SpA statutory financial statements indicates: (i) compensation paid to Board members, Statutory Auditors and General Managers; (ii) subscription rights for Eni shares assigned within three years for no consideration (stock grant) and stock options attributed to the Managing Director (Eni employee) and to General Managers; (iii) number of shares of Eni SpA and of Eni companies held by Board members, Statutory Auditors and General Managers.
     ~~Information as per (i), (ii) and (iii) above are included in the notes to Eni SpA’s financial statements.~~
     On May 30, 2002 the Shareholders’ Meeting determined the annual compensation of the Chairman (euro 250,000 per year) and of Board members (euro 68,000 per year). It also determined a variable compensation up to a maximum of euro 80,000 per year for the Chairman and euro 20,000 per year for each Board member to be paid in accordance with Eni’s positioning as compared to such other seven major international oil companies selected based on market capitalization in terms of total return to shareholders in the reference year. The variable portion of compensation is paid to the Chairman in the amount of euro 80,000 or euro 40,000 and to each Board member in the amount of euro 20,000 or euro 10,000, respectively, if Eni’s return to shareholders is rated first or second, or third or fourth in the rating of return to shareholders of the seven major oil companies. If Eni ranks below fifth no variable compensation is paid. In addition, Board members receive euro 1,000 for the participation to each meeting of the Board and of Board committees, along with any expense incurred for performing their duties.
     With reference to the powers delegated to the Chairman and Managing Director, the Board of Directors determined a compensation composed of a fixed and a variable part. The variable part of the compensation of Chairman and Managing Director, as well as the variable part of the compensation of Eni’s top management (General Managers of divisions and managers holding positions directly reporting to the Chairman and the Managing Director) is related to the achievement of specific economic and operating objectives (profitability, efficiency, strategic projects) and share price objectives (price of Eni shares, comparative total return to shareholders). With reference to Eni’s performance in 2001, 47% of the remuneration of the Chairman and of the Managing Director and 41% of that of the top management was variable. The variable part of
compensation includes, beside the monetary component, Eni’s stock grant plans (see specific information on stock options and stock grants in the Report of Directors included in Eni SpA’s statutory financial statements).resources.
Board committees
        In order to carry out its tasks more effectively, the Board of Directors has instituted three ~~committees:~~advisory Committees: the ~~Audit~~Internal Control Committee and ~~the~~ Compensation Committee, which ~~are~~were formed exclusively by independent (in accordance with standards currently applicable to Eni as a foreign private issuer), non-executive Board members in 2003, and the Oil & Gas ~~Committee.~~Committee in which also the Managing Director participates. Board members do not receive additional compensation for performing their functions in Board committees.
        The ~~Audit~~Committees are formed as follows:
        Internal Control Committee ~~is composed of~~: Mario Giuseppe Cattaneo (Chairman), Alberto Clô, Renzo Costi and Guglielmo Antonio Claudio ~~Moscato; the~~Moscato.
        Compensation Committee ~~is composed of~~: Mario Resca (Chairman), Mario Giuseppe Cattaneo, substituted in February 2004 by Roberto Poli, and Renzo ~~Costi and Mario Resca; the~~Costi.
        Oil & Gas Committee ~~is composed of~~: Alberto Clô, Dario Fruscio, Vittorio Mincato and Guglielmo Antonio Claudio Moscato.
        The Code suggests the creation of a “Committee for appointment proposals” in the companies with shares held widely by the public, especially when the Board ~~members do~~notices that shareholders find it difficult to prepare proposals for appointments. This committee has not ~~receive additional compensation for performing their functions~~been formed because, as ~~members of Board committees.~~mentioned above, candidate lists are usually accompanied by the candidates’ curricula.
        ~~Audit~~Internal Control Committee
        The ~~Audit~~Internal Control Committee, ~~based on the decision adopted~~established by the Board of Directors in 1994, based on the decisions adopted by the Board on October 18, 2000 and November 7, 2003, holds functions of supervision, counsel and proposal in the area of monitoring general management issues.
        In the meeting of November 7, 2003 the Board approved the Committee’s regulation and specified its functions (the regulation is available on Eni’s internet site). In its meeting of November 28, 2003 the Board appointed Mario Giuseppe Cattaneo as Chairman of the Internal Control Committee.
In the course of ~~2002~~2003 the ~~Audit~~Internal Control Committee convened 11 times, with an average participation of 86% of its members, and ~~in the January 1 to March 27, 2003 period convened 5 times. In 2002, the Audit Committee~~ has accomplished the following: (i) reviewed the audit programs prepared by Eni SpA’s and Group companies’ internal audit functions; (ii) reviewed and evaluated results of Eni SpA’s and Group companies’ internal auditing procedures; (iii) met with top level representatives of administrative functions in the main subsidiaries, chairmen of boards of statutory auditors and partners ~~of external auditors~~ responsible for ~~auditing group~~external audit companies to examine the essential features of ~~fiscal year 2001 and~~ 2002 financial statements with specific reference to extraordinary transactions, transactions with related parties and relations among functions entrusted with controls inat Eni SpA and its subsidiaries; (iv) monitored the development of the operational model of the internal audit function; (v) ~~examined and expressed its opinion on the option of appointing to additional services companies belonging to the network of the external auditors; (vi)~~ met with the Group’s ~~primary~~main external auditor in order to discuss the ~~issues emerged during the audits performed, with particular reference~~requirements of new U.S. legislation, including that relating to the ~~application~~function of ~~accounting standards~~auditors; (vi) reviewed its regulation in order to adjust it to the preparation of Eni’s financial statements under U.S. GAAP; (vii) examined and monitored the activities devised by Eni for the compliance with rules introduced by Legislative Decrees 231/2001 and 61/2002; (viii) examined the system devised for the control of primary projects; (ix) examined the“July 2002 revised ~~edition~~edition” of the Self-discipline Code of ~~Self-Discipline presented by~~ the Committee for ~~corporate governance~~Corporate Governance of listed companies and in ~~July 2002 and expressed its opinion; (x)~~light of the provisions of the Sarbanes-Oxley Act; (vii) reviewed the ~~status~~situation of appointments of external auditors of main group companies, the relevant accounts and the opinions contained in the reports of external auditors of Eni’s Italian subsidiaries; ~~(xi) met with the Group’s external auditor in order to discuss~~(viii) examined the issues related to the ~~Sarbanes-Oxley Act, presenting its decisions concerning~~option of appointing to additional functions companies belonging to the ~~review~~network of the ~~Committee’s~~external auditors, expressing its opinion; (ix) defined the additional functions that can be requested to ~~be made~~the external auditors; (x) examined and monitored the activities devised by Eni for the compliance with rules introduced by Legislative Decree No. 231/2001 as amended; (xi) extended the scope of work of the Group’s main external auditor to listed subsidiaries and analyzed the operating modes of the bidding process for the conferral of the function of external auditors for the 2004-2006 period.
        In 2003, Eni’s external auditors met with Eni Internal Control Committee 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; (iii) the contents of any other material written communication between external auditors, and management.
        In January 2004, the Committee examined the results of the bid and expressed to the Board its favourable opinion for the appointment of ~~Directors.~~PricewaterhouseCoopers SpA as external auditor for 2004-2006 financial statements.
        Compensation Committee
        The Compensation Committee, established by the Board of Directors in 1996, proposes incentive schemes for managers and the yearly remuneration of the Chairman and Managing Director to the Board of Directors and overviews the criteria used in determining compensation of the Group’s top management.
        In ~~2002,~~2003, the Committee met three times, with an average participation of 90% of its members, and accomplished the following: (i) reviewed the objectives of the ~~2002~~2003 Group Performance and Incentive Plan and the results of the ~~2001 Group Incentive Plan,~~2002 plan, with ~~particular~~ reference to the ~~proposed capital increase~~proposal to ~~offer free~~the Shareholders’ Meeting to authorize the Board of Directors to use treasury shares for the 2003-2005 Stock Grant Plan (see Incentive plans for Eni managers with Eni stock in Note No. 29 to ~~managers;~~Eni's Financial Statements below); (ii) ~~presented a proposal concerning~~examined the assignation schemes of the stock option and stock grant plans for 2003 to be approved by the Board of Directors; (iii) examined the results of 2002 in order to determine the fixed and variable remuneration of Directors and the proposal concerning the variable part of the remuneration of the Chairman and ~~the~~ Managing Director; (iii) presented a proposal for the new 2002-2004 Stock Option Plan for managers in positions directly affecting results or in strategic positions (see «Incentive plans for Eni managers with Eni stock» in «Other Information» below); (iv) reviewed the guidelines and criteria of the remuneration policy for Group managers.

In the meeting of February 26, 2004 the Board approved the Committee’s regulation and specified its functions (the regulation is available on Eni’s internet site). In the same meeting the Board appointed Mario Resca as Chairman of the Compensation Committee.
        Oil & Gas Committee
        The Oil & Gas Committee, established by the Board of Directors in 2002, is entrusted with the monitoring ~~and studying~~of trends in oil ~~markets.~~markets and the study of their aspects.
        In ~~2002~~2003 the Oil & Gas Committee ~~which was created~~met three times, with an average participation of 95% of its members, and examined: (i) the issue “Hydrocarbons in the Caspian basin: problems and perspectives” with particular attention to the various options related to the transmission of hydrocarbons from Eni’s production sites in Kazakhstan. To this end market aspects, economic and geopolitical issues were examined for each transportation route. Further study is ongoing on ~~June 5, 2002, met two times~~this matter; (ii) the issue “Eni’s growth options by external lines”. The international oil scenario and ~~examined~~ the ~~scenario~~behaviour of Eni’s main competitors were analyzed in terms of growth, portfolio and efficiency policies in order to base Eni’s strategic considerations on international growth opportunities in the ~~major external indicators (such as Brent price, refining margins, exchange rates, etc.) on which Eni’s 2003-2006 four year plan is based.~~short, medium and long-term.
        Board of Statutory Auditors
        The Board of Statutory Auditors, in accordance with article 149 of Legislative Decree No. 58/1998, monitors the ~~compliance with applicable~~respect of laws, of Eni’s ~~by-laws,~~memorandum of association, of the principles of proper administration, ~~and~~ the adequacy of the company’s organizational structure for the parts concerning administration and accounting, internal controls and Eni’s administration and accounting systems, as well as its reliability in presenting information ~~properly.~~properly and the adequacy of regulations imposed to subsidiaries according to article 114, line 2 of the mentioned decree.
        The Board of Statutory Auditors comprises five ~~effective~~ auditors and two ~~alternate~~substitute auditors, all appointed by the Shareholders’ Meeting of May 30, 2002 for a three-year term, their mandate expires with the ~~exception~~Meeting convened to examine financial statements as of ~~the~~December 31, 2004. The Chairman ~~who~~ was appointed on May 29, 2002 with decree of the Minister of Economy and Finance in consultation with the Minister for Productive Activities, in accordance with article 6 of Eni’s by-laws. The Board of Statutory Auditors is appointed ~~for a three-year term and its mandate expires~~in accordance with ~~the Meeting convened to examine financial statements as of December 31, 2004. Articles~~articles 17 and 28 of Eni’s by-laws, which call for a list vote in order to ensure presence of representatives of minority equity interests on the Board of Statutory Auditors. Auditors are autonomous and independent even from the shareholders who elected ~~them (article 14.1 of the Code).~~them. The lists of candidates include a resume of each ~~candidate.~~
     ~~The Board of Statutory Auditors is composed~~candidate and are deposited at the company’s headquarters at least 10 days before the date of the ~~Chairman, Andrea Monorchio, four auditors, Luigi Biscozzi, Paolo Andrea Colombo, Filippo Duodo~~Shareholders’ Meeting in first call and Riccardo Perotta, and two substitute auditors, Fernando Carpentieri and Giorgio Silva. Eni’s by-laws allow meetings held by teleconference. Statutory auditors receive in advance adequate and thorough informationare published on ~~all issues subject to Board evaluation and resolutions.~~national newspapers.
        On December 19, 2001 Eni’s ~~shareholders’ meeting~~Shareholders’ Meeting modified ~~article~~art. 28 of Eni’s by-laws in order to include the provisions contained in the Decree of the Minister of Justice No. 162 of March 30, 2000, concerning the honorability and professional requirements of auditors of listed companies. ~~The~~Eni’s by-laws state that at least two auditors and one ~~alternate~~substitute auditor are chosen among chartered auditors and must have performed auditing activities for at least three years ~~prior to their appointment. Auditors~~and that auditors not provided with these requirements must be chosen among those ~~meeting~~provided with the ~~requirements~~level of professionalism described in Decree No. 162/2000. For the purposes of said Decree, the by-laws define as related subjects commercial law, corporate economy and finance, engineering and geology. Eni’s ~~current statutory~~ auditors are all chartered auditors.
~~Special powers~~        The Board of Statutory Auditors is made up of the ~~State—golden share~~
     ~~Pursuant to article 2, subsection 1~~Chairman, Andrea Monorchio, four auditors, Luigi Biscozzi, Paolo Andrea Colombo, Filippo Duodo and Riccardo Perotta, and two substitute auditors, Fernando Carpentieri and Giorgio Silva. The resumes of ~~Law Decree No. 332~~auditors are published in Eni’s web site. Paolo Andrea Colombo, Filippo Duodo and Fernando Carpentieri were candidates in the list of ~~May 31, 1994, modified and converted into Law No. 474 of July 30, 1994, article 6, 2 of Eni’s by-laws attributes to~~ the ~~Minister~~Ministry of Economy and ~~Finance,~~Finance; Luigi Biscozzi, Riccardo Perotta and Giorgio Silva were candidates in ~~agreement~~the list presented by institutional investors coordinated by Arca SGR SpA.
        Statutory auditors receive in advance adequate and thorough information on all issues subject to Board evaluation and resolutions. Eni’s by-laws allow meetings held by teleconference.
        On May 30, 2002 the Shareholders’ Meeting determined the compensation for the Chairman of the Board of Statutory Auditors and each Auditor amounting to euro 87,000 and euro 58,000 respectively and euro 1,000 for the presence to each meeting, as well as payment of reasonable attendance expenses.
        As provided for by Italian laws, external auditors must be a chartered company and are appointed by the Shareholders’ Meeting. Eni’s external auditors, PricewaterhouseCoopers SpA, were appointed by the Shareholders’ Meeting of June 1, 2001 for a three-year term ending with the ~~Minister~~Meeting approving financial statements for ~~Productive Activities, the following special powers: (a) approval or disapproval~~2003.
Special Powers of the acquisition of material interests representing at least 3% of the share capital of Eni SpA having the right to vote at ordinary shareholders’ meetings; (b) approval or disapproval of shareholders’ agreements or other arrangements (as defined by article 122 of Legislative Decree No. 58 of February 24, 1998) involving 3% or more of the share capital of Eni SpA having the right to vote at ordinary shareholders’ meetings; (c) veto power with respect to shareholders’ resolutions to dissolve Eni SpA, to causeState
        For a ~~transfer, merger or demerger, of Eni SpA to transfer its registered office outside Italy, to change the corporate purposes or to amend or modify any~~description of the special powers ~~described in this section; (d) appointment of a Board member and an auditor. The Italian Government made use~~ of the ~~powers~~
~~described under (a) in order to allow a merchant bank to own shares~~State, see “Item 10 – Memorandum and Articles of ~~Eni SpA to be resold~~Association – Limitations on ~~the market following an IPO but it never made use~~Voting and Shareholdings – Special Powers of the ~~powers described under (b) and (c). The exercise of these special powers is regulated by the above mentioned law and by a regulation published by the Council of Ministers on February 11, 2000.~~State” below.
        Investor relations and information processing
        In concert with the launch of its privatization process, Eni adopted a communication policy aimed at promoting an ongoing dialogue with institutional investors, shareholders and the markets to ensure systematic ~~and prompt~~ dissemination of exhaustive 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 constantly ~~regularly~~updated on Eni’s internet site and ~~internet~~ sites of the Group’s main companies. 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 to the investor.relations@eni.it mailbox.
        Relations with the press are held by the manager heading 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 to the segreteriasocietaria.azionisti@eni.it mailbox and the toll-free number 800940924.
Information regarding ~~periodic~~period reports and major ~~operations~~events/transactions as well as procedures concerning corporate governance is promptly released to the public, also through ~~publication on~~ the ~~Group’s~~ internet site. A specific section of Eni’s ~~internet~~ site contains all press releases, 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 ~~free~~ on ~~charge upon~~ request. ~~Available to shareholders are also a mailbox (segreteriasocietaria.azionisti@eni.it) and a toll-free telephone number (800940924) for requesting information and documents.~~
        Eni is aware that financial information plays a crucial role in the functioning of capital markets and in the creation and maintenance of satisfying relationships between the company and its increasingly wide area of stakeholders. Eni is also aware that investors’ trust in listed companies is one of the essential elements for the functioning of global economy. Investors must be able to rely on the absolute moral integrity of persons responsible of key positions in companies and on ~~the~~their respect of corporate codes of conduct, procedures and rules. Eni’s commitment to provide investors and markets with truthful, complete, transparent, timely and selective financial information is confirmed by its Code of Conduct, that identifies the fundamental values for the deployment of its activities in the completeness and transparency of financial information, the formal and substantial legitimacy of behaviour of its employees at any organizational level and the clarity and truthfulness of its accounting, in accordance with laws and regulations in force.
        On December 18, 2002, Eni’s Board of Directors approved a ~~«Procedure~~“Procedure for the disclosure of information to the market concerning Group ~~activities»~~activities” published on Eni’s internet site. The procedure acknowledges Consob guidelines and the ~~«Guidelines~~“Guidelines for information to the ~~market»~~market” issued in June 2002 by the ~~Company Information~~Ref Forum on company information, 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.
        Eni’s Code of Conduct ~~also~~ defines confidentiality duties upheld by Group employees ~~with respect~~relating to the treatment of sensitive information.
        Internal dealing
        In compliance with the provisions contained in the Rules of the markets organised and managed by Borsa Italiana SpA ~~as amended~~(the Italian Stock Exchange) and in the text modified by Consob with Resolution 13655 of July 9, 2002, on December 18, 2002 Eni’s Board of Directors has approved the Code of Conduct for Internal Dealing (published on Eni’s internet site) concerning transactions involving financial instruments issued by Eni SpA and its listed subsidiaries. This Code, in force from January 1, 2003, contains the provisions that govern public disclosure obligations and limitations regarding ~~the above~~ transactions ~~executed on behalf of~~involving financial instruments issued by Eni and by its listed subsidiaries executed on their own behalf by relevant
persons. Relevant persons have been identified to be: (i) Board members and ~~statutory and external~~ auditors of Eni, the Magistrate of the Court of Accounts ~~responsible for supervising Eni’s accounts;~~delegate inspector; (ii) the managers directly reporting to the Chairman and the Managing Director of Eni and the managers directly reporting to the aforementioned first line of managers.
        According to the Code, the market has to be informed at the end of each calendar quarter about the operations carried out by relevant persons if their amount in each calendar quarter exceeds euro 35,000 (the limit set by the Rules of the Italian Stock Exchange is euro 50,000) while the market has to be informed without delay of transactions if their amount exceeds ~~euro~~ 175,000 in each six-month calendar period (the limit set by the Rules of the Italian Stock Exchange is euro 250,000).
        The stock options exercise in connection with stock option plans and the sale of shares acquired in connection with stock option and stock grant plans are to be taken into account with reference to the above mentioned limits.
        The Code on Internal Dealing prevents relevant persons from carrying out transactions on the financial instruments issued by Eni SpA and its listed subsidiaries in the fifteen working days preceding the meetings of the Board of Directors of Eni SpA convened to review the financial statements and the preliminary results as well as, if not ~~discussed~~announced in ~~such meetings,~~the previous cases, the meeting of the Board resolving on the dividend proposal to the Shareholders’ Meeting. This prohibition does not apply to the option exercise ~~of stock options~~ in connection with stock option and stock grant plans, provided that shares ~~acquired pursuant to such exchange~~ are not sold in said periods.
Table of Contents
Employees
        At December 31, ~~2002,~~2003, Eni’s employees were ~~80,655~~76,521 with ~~an increase~~a decrease of ~~9,707~~4,134 employees (down 5.1% over ~~December 31, 2001 (up 13.7%)~~2002), ~~as a result~~ of ~~the 10,403~~which 1,447 persons ~~increase outside Italy (up 39.2%) offset in part by the 1,610 persons decrease~~ in Italy (down ~~1.6%~~3.3%) and 2,687 persons outside Italy (down 7.3%).
Employees hired in Italy were ~~43,682 (54%~~42,235 (55.2% of all Group employees), of ~~which 41,211~~these 39,863 were working in Italy, ~~2,103~~2,178 outside Italy and ~~368~~194 on board of vessels. As compared to ~~2001,~~2002, the ~~696~~1,447 unit decline in employees ~~hired~~was due to changes in ~~Italy was due~~consolidation (105) and to the balance of persons leaving their job and new hiring ~~(1,308) offset in part by the inclusion in consolidation of Polimeri Europa.~~
     The process of efficiency improvement continued with the dismissal of 3,447 persons, of these 2,932 had an open-end contract and 515 a fixed-term contract, and with the hiring of 2,139 employees, of which 936 persons with a fixed-term contract and 1,203 with open-end contracts. Among the newly hired person 599 persons had university qualifications (356 are engineers) and 487 persons had a high school degree, working in operating jobs in order to improve the qualitative mix of production units.(1,342).
        Employees hired and working outside Italy at December 31, ~~2002~~2003 were ~~36,973 (46%~~34,286 (44.8% of all Group employees), with a ~~10,403~~2,687 persons ~~increase~~decrease mainly due ~~mainly~~ to the ~~acquisition~~negative balance (down 2,952 persons with fixed-term contracts) of ~~Saipem SA (formerly Bouygues Offshore)~~persons leaving the job (Saipem in Kazakhstan) and new hiring (Snamprogetti), offset only in part by the ~~consolidation~~purchase of ~~foreign subsidiaries of Polimeri Europa and the hiring of personnel on fixed-term contracts for Saipem in Kazakhstan.~~
     ~~At December 31, 2002, Eni’s employees were 80,655 an increase of 9,707 employees over December 31, 2001, up 13.7%~~Mol-Gaz (265 employees).

Employees at year end 2000 2001 2002

(units)
Exploration & Production 7,741 7,533 7,715
Gas & Power 16,100 14,286 13,317
Refining & Marketing 16,130 15,172 13,757
        The process of efficiency improvement and search for new skills and know-how continued in 2003 with a total of 3,397 persons dismissed, of these 2,622 had an open-end contract and 775 a fixed-term contract, and 2,055 persons hired, of which 772 persons with a fixed-term contract and 1,283 with open-end contracts, which confirms Eni’s commitment to a stable workforce. Most of new employees, that represented 2.7% of total employees, had university qualifications (678 persons of which 405 are engineers) and 562 persons had a high school degree, thus improving the qualitative mix of production units.
Employees at year end 2001 2002 2003
(units)
Exploration & Production 7,533 7,715 7,718
Gas & Power 14,286 13,317 12,982
Refining & Marketing 15,172 13,757 13,277
Petrochemicals 11,022 11,691 7,050
Oilfield Services Construction and Engineering 18,632 29,091 26,457
Other activities 4,303 5,084 8,044
70,948 80,655 76,521

Employees at year end 2000 2001 2002

(units)
Petrochemicals 12,857 11,022 11,691
Engineering and Oilfield Services 13,217 18,632 29,091
Other activities 3,924 4,303 5,084

69,969 70,948 80,655

        The table below sets forth Eni’s employees at December 31, 2002 in Italy and outside Italy:

2000 2001 2002

(units)
Exploration & Production Italy 5,014 4,495 4,617
Outside Italy 2,727 3,038 3,098

7,741 7,533 7,715
Gas & Power Italy 13,175 11,704 10,852
Outside Italy 2,925 2,582 2,465

Refining & Marketing Italy 16,100 9,760 14,286 8,638 13,317 7,332
Outside Italy 6,370 6,534 6,425

16,130 15,172 13,757
Petrochemicals Italy 11,573 9,952 10,172
Outside Italy 1,284 1,070 1,519

12,857 11,022 11,691
Oilfield Services and Engineering
Oilfield Services Italy 2,326 2,279 2,255
Outside Italy 7,560 12,881 22,770

9,886 15,160 25,025
Engineering Italy 3,001 3,055 3,433
Outside Italy 330 417 633

3,331 3,472 4,066
Other activities Italy 3,841 4,255 5,021
Outside Italy 83 48 63

3,924 4,303 5,084

Total Italy 48,690 44,378 43,682
Total Outside Italy 21,279 26,570 36,973

69,969 70,948 80,655

of which senior managers 1,683 1,438 1,537
2001 2002 2003
(units)
Exploration & Production Italy 4,495 4,617 4,555
Outside Italy 3,038 3,098 3,163
7,533 7,715 7,718
Gas & Power Italy 11,704 10,852 10,302
Outside Italy 2,582 2,465 2,680
14,286 13,317 12982
Refining & Marketing Italy 8,638 7,332 6,882
Outside Italy 6,534 6,425 6,395
15,172 13,757 13,277
Petrochemicals Italy 9,952 10,172 5,585
Outside Italy 1,070 1,519 1,465
11,022 11,691 7,050
Oilfield Services Construction and Engineering
Oilfield Services Italy 2,279 2,255 2,423
Outside Italy 12,881 22,770 18,910
15,160 25,025 21,333
Engineering Italy 3,055 3,433 3.544
Outside Italy 417 633 1,580
3,472 4,066 5,124
Other activities Italy 4,255 5,021 8,944
Outside Italy 48 63 63
4,303 5,084 9,007
Total Italy 44,378 43,682 42,235
Total Outside Italy 26,570 36,973 34,286
70,948 80,655 76,251
of which senior managers 1,438 1,537 1,733
Table of Contents
Share Ownership
        At April 30, ~~2003,~~2004, the total number of ~~Shares~~shares owned by the directors, statutory auditors and executive officers of Eni SpA as a group was ~~215,484,~~292,024 equal to approximately ~~0.005%~~0.007% of Eni’s share capital outstanding at December 31, ~~2002.~~
2004. Eni issues only ordinary shares, each bearing one-vote right; therefore shares held by Eni SpA directors statutory auditors and executive officers have no different voting rights.
Table of Contents
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Table of Contents
~~Major Shareholders~~
     At April 30, 2003, the Ministry of Economy and Finance was the only person known by Eni to own more than 5% of any class of Eni SpA’s voting securities. At such date, the total amount of Eni SpA’s voting securities owned by the Ministry was:

Number
of Shares Percent of
Title of Class Owned Class

Ordinary Shares 1,213,731,615 30.33 %
     The Ministry of Economy and Finance, in agreement with the Ministry of Productive Activities, retains certain special powers over Eni. See «Item 6. Directors, Senior Managers and Employees—Board Practices—Board Committees—Special Powers of the ~~State—Golden Share» and «Item 10. Additional Information—Memorandum and Articles of Association— Limitations on Voting and Shareholdings—Special Powers of the State».~~State
~~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 are described in Note 27 to the Financial Statements.~~
~~Item 8. FINANCIAL INFORMATION~~
~~Consolidated Statements and Other Financial Information~~
     ~~See Item 18—Financial Statements.~~
~~Disclosure of Legal Proceedings~~
        For a description of ~~legal proceedings~~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.
Investor relations and information processing
        In concert with the launch of its privatization process, Eni adopted a communication policy aimed at promoting an ongoing dialogue with institutional investors, shareholders and the markets to ensure systematic dissemination of exhaustive 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 ~~which~~the form of press releases, regular meetings with institutional investors and the financial community and the press, in addition to general documentation released and constantly updated on Eni’s internet site and sites of the Group’s main companies. 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 to the investor.relations@eni.it mailbox.
        Relations with the press are held by the manager heading 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 to the segreteriasocietaria.azionisti@eni.it mailbox and the toll-free number 800940924.
        Information regarding period reports and major events/transactions as well as procedures concerning corporate governance is promptly released to the public, also through the internet site. A specific section of Eni’s site contains all press releases, 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.
        Eni is ~~involved~~aware that financial information plays a crucial role in the functioning of capital markets and ~~which may affect~~in the creation and maintenance of satisfying relationships between the company and its increasingly wide area of stakeholders. Eni is also aware that investors’ trust in listed companies is one of the essential elements for the functioning of global economy. Investors must be able to rely on the absolute moral integrity of persons responsible of key positions in companies and on their respect of corporate codes of conduct, procedures and rules. Eni’s commitment to provide investors and markets with truthful, complete, transparent, timely and selective financial ~~position or results~~information is confirmed by its Code of ~~operations see Note 23~~Conduct, that identifies the fundamental values for the deployment of its activities in the completeness and transparency of financial information, the formal and substantial legitimacy of behaviour of its employees at any organizational level and the clarity and truthfulness of its accounting, in accordance with laws and regulations in force.
        On December 18, 2002, Eni’s Board of Directors approved a “Procedure for the disclosure of information to the ~~Financial Statements. Below is a description~~market concerning Group activities” 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, defines the requirements for disclosure to the public of ~~previously reported litigation that has been disposed~~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.
        Eni’s Code of Conduct defines confidentiality duties upheld by Group employees relating to the treatment of sensitive information.
Internal dealing
        In compliance with the provisions contained in the ~~course~~Rules of ~~2002.~~the markets organised and managed by Borsa Italiana SpA (the Italian Stock Exchange) and in the text modified by Consob with Resolution 13655 of July 9, 2002, on December 18, 2002 Eni’s Board of Directors has approved the Code of Conduct for Internal Dealing (published on Eni’s internet site) concerning transactions involving financial instruments issued by Eni SpA and its listed subsidiaries. This Code, in force from January 1, 2003, contains the provisions that govern public disclosure obligations and limitations regarding transactions involving financial instruments issued by Eni and by its listed subsidiaries executed on their own behalf by relevant persons. Relevant persons have been identified to be: (i) Board members and auditors of Eni, the Magistrate of the Court of Accounts delegate inspector; (ii) the managers directly reporting to the Chairman and the Managing Director of Eni and the managers directly reporting to the aforementioned first line of managers.
        ~~On August 28, 2000, Enirisorse SpA (in liquidation) now Singea SpA (in liquidation)~~According to the Code, the market has to be informed at the end of each calendar quarter about the operations carried out by relevant persons if their amount in each calendar quarter exceeds euro 35,000 (the limit set by the Rules of the Italian Stock Exchange is euro 50,000) while the market has to be informed without delay of transactions if their amount exceeds 175,000 in each six-month calendar period (the limit set by the Rules of the Italian Stock Exchange is euro 250,000).
        The stock options exercise in connection with stock option plans and ~~Zincocalabra SpA signed an agreement for~~ the sale of ~~the whole share capital of Pertusola SudSpA (in liquidation), now merged~~shares acquired in ~~Singea SpA in liquidation. This agreement was filed~~connection with the European Commission within the procedure for monitoring the liquidation of Singea’s assets in the non ferrous metallurgy business, as per decision 98/212/CE of April 16, 1997. With a letter dated September 26, 2000, the Commission requested information from the Italian Government in orderstock option and stock grant plans are to ~~appraise the compatibility of this agreement~~be taken into account with said decision. On February 13, 2001, the Commission informed the Italian Government that it started the procedure as per article 88 of the Union Treaty for alleged state aid in favor of Pertusola Sud. This procedure has been started in the context ofreference to the above mentioned ~~decision for~~limits.
        The Code on Internal Dealing prevents relevant persons from carrying out transactions on the ~~following reasons: (i) aid given to Pertusola Sud in relation to the Commission’s decision could have been given unlawfully; (ii) funds provided to Pertusola Sud in liquidation~~financial instruments issued by Singea could be considered as state aid, and in this case are not compatible with the European single market concept; (iii) funds that Singea should provide to Pertusola Sud for environmental charges may represent state aid , and if this is the case they are not compatible with the single market concept. On April 4, 2001, the Italian Government presented its report to the Commission informing that Zincocalabra SpA was no longer interested in an investment that seemed to require quite a long time to be completed due to this procedure. In May 2001 The Commission started a proceeding against the Italian Government, which in turn sent to Singea the Commission’s report in order to reply. In October 2001 the Italian Government presented its observations to the Commission. With a decision of the Commission dated November 13, 2002 the proceeding was dismissed.
     In August 2000, the Ministry of Finance of Kazakhstan sent Agip Karachaganak a formal assessment claiming that the company understated its income for 1998 and 1999 by euro 52 million. The amount relates to the non deductibility of overhead costs considered as cost recovery and to a different criterion for the deduction of some other costs. In the first half of 2001 Eni signed a protocol with Kazakh tax authorities which reduces the disputed amount to euro 11 million. Legal proceedings related to Eni’s counterclaim are however pending. No reserve has been set aside in Eni’s consolidated financial statements for 2002, as the amount in question is not material.
     On March 6, 2003 Eni and EniChem SpA accepted the settlement proposal presented by Edison SpA for the closing of an arbitration proceeding initiated by Eni and EniChem SpA in 1992 in relation to guarantees given by Montedison SpA and its listed subsidiaries in ~~connection with~~ the ~~establishment~~fifteen working days preceding the meetings of Enimont. With this settlement Edison SpA accepted to pay EniChem euro 200 million to be paid in four instalments of euro 50 million each, the first one paid on March 6, 2003 and the remaining to be paid each following year with interests accrued; this delayed payment is supported by bank guarantees payable on first request. This settlement concerns expense paid or accrued by EniChem SpA in previous years. It does not include EniChem’s claim to be indemnified by Edison SpA for any expense related to damage made to third parties by the operation of plants and facilities before Montedison’s conferral, even if occurred later. These are environmental damages claimed by the State and related to the Mantova site and any damage that could be claimed by the State and/or other third parties as alleged consequence of specific environmental damage situations in the Brindisi and Priolo sites. The settlement of any dispute is entrusted to ordinary courts. In the first quarter of 2003 the settlement determined extraordinary income of euro 200 million.
~~Dividends~~
     Eni’s dividend policy in future periods, and the amount of future dividends, will depend upon a number of factors including, but not limited to, Eni’s capital expenditure and development plans, level of profitability and ratio of debt to equity and the «Risk Factors» set out in Item 3. However, consistent with such factors, the Board of Directors expects to recommend to future meetings of shareholders a progressive increase in dividend pay-out in line with the dividend policy followed by other major oil and gas companies traded on international equity markets. Eni SpA’s net income and, therefore, the amounts available for payment of dividends therefrom will also depend on the level of dividends received from Eni’s subsidiaries. In 2002, the euro 0.75 dividend per share proposed by Eni’s Board of Directors for fiscal year 2002 maintained the level of the 2001
~~dividend while increasing the pay-out ratio to 62%. This dividend proposal was approved by the general shareholders’ meeting on May 30, 2003.~~
~~Significant Changes~~
     ~~See «Item 5—Background and Recent Developments» for a discussion of Eni’s results of operations in the first quarter of 2003. No significant change occurred after March 31, 2003.~~
~~Item 9. THE OFFER AND THE LISTING~~
~~Offer and Listing Details~~
     ~~The ordinary shares~~ of Eni SpA ~~nominal value euro 1.00 each (the «Shares»), are traded~~convened to review the financial statements and the preliminary results as well as, if not announced in the previous cases, the meeting of the Board resolving on the ~~Blue Chip segment~~dividend proposal to the Shareholders’ Meeting. This prohibition does not apply to the option exercise in connection with stock option and stock grant plans, provided that shares are not sold in said periods.
Table of ~~the~~~~Mercato Telematico Azionario~~or~~MTA~~(«Telematico»), the Italian screen-based dealer market, which is the principal trading market for Italian shares. The Blue Chips segment of Telematico includes shares of the companies whose market capitalization amounts to more than euro 800 million. American Depository Shares («ADSs»), each representing five Shares, are listed on the New York Stock Exchange.Contents
Employees
        At December 31, 2003, Eni’s employees were 76,521 with a decrease of 4,134 employees (down 5.1% over 2002), of which 1,447 persons in Italy (down 3.3%) and 2,687 persons outside Italy (down 7.3%). Employees hired in Italy were 42,235 (55.2% of all Group employees), of these 39,863 were working in Italy, 2,178 outside Italy and 194 on board of vessels. As compared to 2002, the 1,447 unit decline in employees was due to changes in consolidation (105) and to the balance of persons leaving their job and new hiring (1,342).
        Employees hired and working outside Italy at December 31, 2003 were 34,286 (44.8% of all Group employees), with a 2,687 persons decrease mainly due to the negative balance (down 2,952 persons with fixed-term contracts) of persons leaving the job (Saipem in Kazakhstan) and new hiring (Snamprogetti), offset only in part by the purchase of Mol-Gaz (265 employees).
        The process of efficiency improvement and search for new skills and know-how continued in 2003 with a total of 3,397 persons dismissed, of these 2,622 had an open-end contract and 775 a fixed-term contract, and 2,055 persons hired, of which 772 persons with a fixed-term contract and 1,283 with open-end contracts, which confirms Eni’s commitment to a stable workforce. Most of new employees, that represented 2.7% of total employees, had university qualifications (678 persons of which 405 are engineers) and 562 persons had a high school degree, thus improving the qualitative mix of production units.
Employees at year end 2001 2002 2003
(units)
Exploration & Production 7,533 7,715 7,718
Gas & Power 14,286 13,317 12,982
Refining & Marketing 15,172 13,757 13,277
Petrochemicals 11,022 11,691 7,050
Oilfield Services Construction and Engineering 18,632 29,091 26,457
Other activities 4,303 5,084 8,044
70,948 80,655 76,521
        The table below sets forth ~~the reported high~~Eni’s employees at December 31, 2002 in Italy and ~~low reference prices~~outside Italy:
2001 2002 2003
(units)
Exploration & Production Italy 4,495 4,617 4,555
Outside Italy 3,038 3,098 3,163
7,533 7,715 7,718
Gas & Power Italy 11,704 10,852 10,302
Outside Italy 2,582 2,465 2,680
14,286 13,317 12982
Refining & Marketing Italy 8,638 7,332 6,882
Outside Italy 6,534 6,425 6,395
15,172 13,757 13,277
Petrochemicals Italy 9,952 10,172 5,585
Outside Italy 1,070 1,519 1,465
11,022 11,691 7,050
Oilfield Services Construction and Engineering
Oilfield Services Italy 2,279 2,255 2,423
Outside Italy 12,881 22,770 18,910
15,160 25,025 21,333
Engineering Italy 3,055 3,433 3.544
Outside Italy 417 633 1,580
3,472 4,066 5,124
Other activities Italy 4,255 5,021 8,944
Outside Italy 48 63 63
4,303 5,084 9,007
Total Italy 44,378 43,682 42,235
Total Outside Italy 26,570 36,973 34,286
70,948 80,655 76,251
of which senior managers 1,438 1,537 1,733
Table of Shares on Telematico and of ADSs on the New York Stock Exchange, respectively. See «Item 3—Key Information—Exchange Rates» regarding applicable exchange rates during the periods indicated below.Contents
New York
Telematico Stock Exchange

High Low High Low

(euro per Share) (US$per ADS)
1998 13.799 9.195 73.500 50.500
1999 12.608 10.184 69.000 52.375
2000 14.496 9.536 64.875 46.562
2001 15.598 11.564 69.700 52.500
2002 17.145 12.938 82.110 60.900

2001

First quarter 14.778 13.266 67.730 60.420
Second quarter 15.598 14.414 69.700 61.700
Third quarter 14.807 11.564 67.740 52.500
Fourth quarter 14.732 12.701 66.200 56.550

2002

First quarter 16.856 13.536 74.150 60.900
Second quarter 17.145 15.428 80.000 71.550
Third quarter 16.775 12.938 82.110 64.060
Fourth quarter 15.289 13.256 78.700 65.550

2003

First quarter 15.746 11.881 82.080 66.150
December 2002 15.289 14.026 78.700 70.720
January 2003 15.746 13.093 82.080 70.640
February 2003 14.185 13.244 75.600 71.500
March 2003 13.480 11.881 73.950 66.150
April 2003 13.654 12.490 73.800 68.100
May 2003 13.831 12.878 81.240 70.800
June 2003 (through June 16, 2003) 14.284 13.723 84.850 80.400
     Morgan Guaranty Trust Company of New York (the «Depositary») functions as Eni’s depositary bank issuing American Depositary Receipts («ADRs») pursuant to the Deposit Agreement among Eni, the depositary and the beneficial owners («Beneficial Owners») and registered holders form time to time of ADRs issued thereunder.Share Ownership
        At ~~June 16, 2003 there were 1,287,711 ADRs~~April 30, 2004, the total number of shares owned by the directors, statutory auditors and executive officers of Eni SpA as a group was 292,024 equal to approximately 0.007% of Eni’s share capital outstanding at December 31, 2004. Eni issues only ordinary shares, each bearing one-vote right; therefore shares held by ~~38 holders~~Eni SpA directors statutory auditors and executive officers have no different voting rights.
Table of record (including The Depository Trust Company) in the United States of America, 37 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 MIB 30, the index of the 30 largest companies by capitalization and initially listed on Telematico. The MIB 30 is the principal indicator used to track the performance of the Italian stock market, and is the basis for the FIB 30 index of future contracts, as well as the MIBO 30 option contracts traded in the Italian Derivatives Market («IDEM»). The Shares are the largest component of the MIB 30, with a weighting of approximately 15.1%, as established by Borsa Italiana SpA («Borsa Italiana») after its review of the composition of the MIB 30 on March 24, 2003. In addition, options on the Shares are traded on IDEM. IDEM facilitates the trading of call and put options on securities issued by Italian companies that meet certain required capitalization and liquidity thresholds.
     Since January 14, 2002 the rule on the minimum lot of shares for transactions on the Telematico has been eliminated. 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 shares have been also trading on a special market, named After Hours trading market or TAH («After Hours»), after the closure of the day time of Telematico under special rules.Contents
~~Markets~~
     ~~Telematico is organized and administered by Borsa Italiana 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~~, 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 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, Borsa Italiana and has issued rules governing the organization and the administration of the markets it regulates, which are Telematico, Nuovo Mercato (high growth companies), After Hours, Mercato Ristretto (over-the-counter), IDEM (index and stock derivatives market), MIF (interest rate derivatives market), MOT and Euro Mot (bond markets), MCW (covered warrants) and MPR (traditional options on equities), as well as the admission to listing on and trading in these markets. Since March 28, 2000, a three-day rolling cash settlement has been applied to all trades of equity security in Italy, instead of the preceding five-day settlement.
     Any person, through an authorized intermediary, may purchase or sell listed securities following (i) in the case of sales, deposit of the securities or 100% of their value in cash, and (ii) in the case of purchases, deposit of 100% of their value in cash. No «closing price» is reported for the electronic trading system, but an «official price» calculated for each security as a weighted average of all trades effected during the trading day and a «reference price» calculated for each security on the basis of a closing bid or, when such closing bid does not reach 10% of volumes traded during the day, as a weighted average of the last 10% of the trades effected during such day, are reported daily.
     If the opening price of a security (established each trading day prior to the commencement of 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 Borsa Italiana authorizes the trading. 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 previous day’s reference 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 July 1, 1998, the Italian financial markets are primarily regulated by Legislative Decree No. 58 of February 24, 1998 («Decree No. 58»), which consolidated the previous regulation primarily by restating the provisions 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 of the public by~~~~società di intermediazione mobiliare~~(securities dealing firms or «SIMs»), which are authorized intermediaries, authorized banks and certain types of finance companies. 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 and the Bank of Italy.
Item ~~10. ADDITIONAL INFORMATION~~7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
~~Memorandum and Articles~~Table of ~~Association~~Contents
     Eni is incorporated under the name «Eni SpA» resulting from the transformation of Ente Nazionale Idrocarburi, a public law agency, established by Law 136 of February 10, 1953. 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 compliance with concessions required 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 Decree No. 58.
     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.
~~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, except for the acts that the law or Eni’s by-laws reserve to the shareholders’ meeting.~~
     For a complete description of the powers of the Board, the Managing Director 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 conflicts of interest.
     On May 30, 2002, Eni’s ordinary Shareholders’ Meeting resolved to delegate authority to the Board of Directors, pursuant to Article 2420-ter of the Civil Code, to issue bonds, included bonds convertible into shares issued by Eni SpA controlled subsidiaries and/or warrant bonds to purchase or subscribe shares of Eni SpA controlled subsidiaries, up to the amount equivalent to euro 4 billion for a five-year period commencing on May 30, 2002, in one or more times and in one or more tranches. The Board of Directors is empowered to adopt any act, including but not limited to the fixing of yield, duration and terms of the issues.
     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.~~
~~Limitations on Voting and Shareholdings~~
~~General~~
     There are no limitations imposed by Italian law or by the by-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 that 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 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 Shares 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; 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, 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 Shares 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
        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.
Investor relations and information processing
        In concert with the launch of its privatization process, Eni adopted a communication policy aimed at promoting an ongoing dialogue with institutional investors, shareholders and the markets to ensure systematic dissemination of exhaustive 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 constantly updated on Eni’s internet site and sites of the Group’s main companies. 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 to the investor.relations@eni.it mailbox.
        Relations with the press are held by the manager heading 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 to the segreteriasocietaria.azionisti@eni.it mailbox and the toll-free number 800940924.
        Information regarding period reports and major events/transactions as well as procedures concerning corporate governance is promptly released to the public, also through the internet site. A specific section of Eni’s site contains all press releases, 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.
        Eni is aware that financial information plays a crucial role in the functioning of capital markets and in the creation and maintenance of satisfying relationships between the company and its increasingly wide area of stakeholders. Eni is also aware that investors’ trust in listed companies is one of the essential elements for the functioning of global economy. Investors must be able to rely on the absolute moral integrity of persons responsible of key positions in companies and on their respect of corporate codes of conduct, procedures and rules. Eni’s commitment to provide investors and markets with truthful, complete, transparent, timely and selective financial information is confirmed by its Code of Conduct, that identifies the fundamental values for the deployment of its activities in the completeness and transparency of financial information, the formal and substantial legitimacy of behaviour of its employees at any organizational level and the clarity and truthfulness of its accounting, in accordance with laws and regulations in force.
        On December 18, 2002, Eni’s Board of Directors approved a “Procedure for the disclosure of information to the market concerning Group activities” 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, 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.
        Eni’s Code of Conduct defines confidentiality duties upheld by Group employees relating to the treatment of sensitive information.
Internal dealing
        In compliance with the provisions contained in the Rules of the markets organised and managed by Borsa Italiana SpA (the Italian Stock Exchange) and in the text modified by Consob with Resolution 13655 of July 9, 2002, on December 18, 2002 Eni’s Board of Directors has approved the Code of Conduct for Internal Dealing (published on Eni’s internet site) concerning transactions involving financial instruments issued by Eni SpA and its listed subsidiaries. This Code, in force from January 1, 2003, contains the provisions that govern public disclosure obligations and limitations regarding transactions involving financial instruments issued by Eni and by its listed subsidiaries executed on their own behalf by relevant persons. Relevant persons have been identified to be: (i) Board members and auditors of Eni, the Magistrate of the Court of Accounts delegate inspector; (ii) the managers directly reporting to the Chairman and the Managing Director of Eni and the managers directly reporting to the aforementioned first line of managers.
        According to the Code, the market has to be informed at the end of each calendar quarter about the operations carried out by relevant persons if their amount in each calendar quarter exceeds euro 35,000 (the limit set by the Rules of the Italian Stock Exchange is euro 50,000) while the market has to be informed without delay of transactions if their amount exceeds 175,000 in each six-month calendar period (the limit set by the Rules of the Italian Stock Exchange is euro 250,000).
        The stock options exercise in connection with stock option plans and the sale of shares acquired in connection with stock option and stock grant plans are to be taken into account with reference to the above mentioned limits.
        The Code on Internal Dealing prevents relevant persons from carrying out transactions on the financial instruments issued by Eni SpA and its listed subsidiaries in the fifteen working days preceding the meetings of the Board of Directors of Eni SpA convened to review the financial statements and the preliminary results as well as, if not announced in the previous cases, the meeting of the Board resolving on the dividend proposal to the Shareholders’ Meeting. This prohibition does not apply to the option exercise in connection with stock option and stock grant plans, provided that shares are not sold in said periods.
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Employees
        At December 31, 2003, Eni’s employees were 76,521 with a decrease of 4,134 employees (down 5.1% over 2002), of which 1,447 persons in Italy (down 3.3%) and 2,687 persons outside Italy (down 7.3%). Employees hired in Italy were 42,235 (55.2% of all Group employees), of these 39,863 were working in Italy, 2,178 outside Italy and 194 on board of vessels. As compared to 2002, the 1,447 unit decline in employees was due to changes in consolidation (105) and to the balance of persons leaving their job and new hiring (1,342).
        Employees hired and working outside Italy at December 31, 2003 were 34,286 (44.8% of all Group employees), with a 2,687 persons decrease mainly due to the negative balance (down 2,952 persons with fixed-term contracts) of persons leaving the job (Saipem in Kazakhstan) and new hiring (Snamprogetti), offset only in part by the purchase of Mol-Gaz (265 employees).
        The process of efficiency improvement and search for new skills and know-how continued in 2003 with a total of 3,397 persons dismissed, of these 2,622 had an open-end contract and 775 a fixed-term contract, and 2,055 persons hired, of which 772 persons with a fixed-term contract and 1,283 with open-end contracts, which confirms Eni’s commitment to a stable workforce. Most of new employees, that represented 2.7% of total employees, had university qualifications (678 persons of which 405 are engineers) and 562 persons had a high school degree, thus improving the qualitative mix of production units.
Employees at year end 2001 2002 2003
(units)
Exploration & Production 7,533 7,715 7,718
Gas & Power 14,286 13,317 12,982
Refining & Marketing 15,172 13,757 13,277
Petrochemicals 11,022 11,691 7,050
Oilfield Services Construction and Engineering 18,632 29,091 26,457
Other activities 4,303 5,084 8,044
70,948 80,655 76,521
        The table below sets forth Eni’s employees at December 31, 2002 in Italy and outside Italy:
2001 2002 2003
(units)
Exploration & Production Italy 4,495 4,617 4,555
Outside Italy 3,038 3,098 3,163
7,533 7,715 7,718
Gas & Power Italy 11,704 10,852 10,302
Outside Italy 2,582 2,465 2,680
14,286 13,317 12982
Refining & Marketing Italy 8,638 7,332 6,882
Outside Italy 6,534 6,425 6,395
15,172 13,757 13,277
Petrochemicals Italy 9,952 10,172 5,585
Outside Italy 1,070 1,519 1,465
11,022 11,691 7,050
Oilfield Services Construction and Engineering
Oilfield Services Italy 2,279 2,255 2,423
Outside Italy 12,881 22,770 18,910
15,160 25,025 21,333
Engineering Italy 3,055 3,433 3.544
Outside Italy 417 633 1,580
3,472 4,066 5,124
Other activities Italy 4,255 5,021 8,944
Outside Italy 48 63 63
4,303 5,084 9,007
Total Italy 44,378 43,682 42,235
Total Outside Italy 26,570 36,973 34,286
70,948 80,655 76,251
of which senior managers 1,438 1,537 1,733
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Share Ownership
        At April 30, 2004, the total number of shares owned by the directors, statutory auditors and executive officers of Eni SpA as a group was 292,024 equal to approximately 0.007% of Eni’s share capital outstanding at December 31, 2004. Eni issues only ordinary shares, each bearing one-vote right; therefore shares held by Eni SpA directors statutory auditors and executive officers have no different voting rights.
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Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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Major Shareholders
        As of March 31, 2004, the Ministry of Economy and Finance, the Cassa Depositi e Prestiti SpA and Gruppo Intesa were the only persons known by Eni to own more than 2% of any class of Eni SpA’s voting securities. On December 12, 2003, the Ministry of Economy and Finance transferred the title to 400,288,338 shares of Eni to the Cassa Depositi e Prestiti SpA, a State wholly-owned entity. 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 20.32%
Cassa Depositi e Prestiti 400,288,338 10.00%
Eni SpA 231,297,836 5.78%
Gruppo Intesa 86,548,464 2.16%
        The Ministry of Economy and Finance, in agreement with the Ministry of Productive Activities, retains certain special powers over Eni. See “Item 10. Additional Information— Memorandum and Articles of Association— Limitations on Voting and Shareholdings—Special Powers of the State”. Following the continuation of its share buy-back program, as of May 27, 2004 Eni held 232,365,688 treasury shares, corresponding to 5.80% of Eni share capital. For a discussion of Eni share bay-back program see “Item 10 – Additional Information –Purchase by Eni SpA of its own shares”.
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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 are described in Note 27 to the Financial Statements.
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Item 8. FINANCIAL INFORMATION
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Consolidated Statements and Other Financial Information
        See Item 18—Financial Statements.
Disclosure of Legal Proceedings
        For a description of legal proceedings in which Eni is involved and which may affect Eni’s financial position or results of operations see Note 23 to the Financial Statements.
Dividends
        Eni’s dividend policy in future periods, and the amount of future dividends, will depend upon a number of factors including, but not limited to, Eni’s capital expenditure and development plans, level of profitability and leverage¹ and the “Risk Factors” set out in Item 3. Eni SpA’s net income and, therefore, the amounts available for payment of dividends therefrom will also depend on the level of dividends received from Eni’s subsidiaries. However, consistent with such factors, the Board of Directors expects to recommend to future meetings of shareholders to maintain the dividend level set in year 2001 (euro 0.75 per share) in the next four-year plan. In year 2001 Eni consolidated net income reached its highest level in Eni history due also to extraordinary gains on disposals. In 2003, the euro 0.75 dividend per share proposed by Eni’s Board of Directors for fiscal year 2003 maintained the same level of the dividend for fiscal year 2001; the ratio of dividends to consolidated net income (pay-out) was 51%. This dividend proposal was approved by the general shareholders’ meeting on May 28, 2004.
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Significant Changes
        See “Item 5—Recent Developments” for a discussion of Eni’s results of operations in the first quarter of 2004 and other material developments that occurred after December 31, 2003.
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Item 9. THE OFFER AND THE LISTING
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Offer and Listing Details
        The ordinary shares of Eni SpA, nominal value euro 1.00 each (the “Shares”), are traded on the Blue Chip segment of theMercato Telematico Azionario or MTA(“Telematico”), the Italian screen-based dealer market, which is the principal trading market for shares in Italy. The Blue Chips segment of Telematico includes shares of the companies whose market capitalization amounts to more than euro 800 million. American Depository Shares (“ADSs”), each representing five Shares, are listed on the New York Stock Exchange.
        The table below sets forth the reported high and low reference prices of Shares on Telematico and of ADSs on the New York Stock Exchange, respectively. See “Item 3—Key Information—Exchange Rates” regarding applicable exchange rates during the periods indicated below.
Telematico New York
Stock Exchange
High Low High Low
(euro per Share) (US$ per ADS)
1999 12.608 10.184 69.000 52.375
2000 14.496 9.536 64.875 46.562
2001 15.598 11.564 69.700 52.500
2002 17.145 12.938 82.110 60.900
2003 15.746 11.881 94.980 66.150
2002
First quarter 16.856 13.536 74.150 60.900
Second quarter 17.145 15.428 80.000 71.550
Third quarter 16.775 12.938 82.110 64.060
Fourth quarter 15.289 13.256 78.700 65.550
2003
First quarter 15.746 11.881 82.080 66.150
Second quarter 14.284 12.490 84.850 68.100
Third quarter 14.104 12.819 78.860 73.130
Fourth Quarter 15.163 13.423 94.980 78.540
December 2003 15.163 14.240 94.980 86.860
2004
First quarter 16.640 14.723 101.340 92.350
January 2004 15.466 14.723 98.550 92.350
February 2004 15.856 14.870 98.980 93.520
March 2004 16.640 15.762 101.340 96.000
April 2004 17.378 16.418 104.710 100.730
May 2004 17.385 16.320 106.150 97.310
June 2004 (through June 14, 2004) 17.270 16.760 105.510 102.510
        Source: Reuters
        Morgan Guaranty Trust Company of New York (the “Depositary”) functions as Eni’s depositary bank issuing American Depositary Receipts (“ADRs”) pursuant to the Deposit Agreement among Eni, the depositary and the beneficial owners (“Beneficial Owners”) and registered holders form time to time of ADRs issued thereunder.
        At June 14, 2004 there were 6,265,167 ADRs outstanding, representing 31,310,835 shares, or 0.008% of all Eni's shares outstanding, held by 43 holders of record (including The Depository Trust Company) in the United States of America, 40 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 MIB 30, the index of the 30 largest companies by capitalization and initially listed on Telematico. The MIB 30 is the principal indicator used to track the performance of the Italian stock market, and is the basis for the FIB 30 index of future contracts, as well as the MIBO 30 option contracts traded in the Italian Derivatives Market (“IDEM”). The Shares are the largest component of the MIB 30, with a weighting of approximately 17.3%, as established by Borsa Italiana SpA (“Borsa Italiana”) after its review of the composition of the MIB 30 on April 19, 2004. In addition, options on the Shares are traded on IDEM. IDEM facilitates the trading of call and put options on shares issued by companies that meet certain required capitalization and liquidity thresholds.
        Since January 14, 2002 the rule on the minimum lot of shares for transactions on the Telematico has been eliminated. 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 shares have been also trading on a special market, named After Hours trading market or TAH (“After Hours”), after the closure of the day time of Telematico under special rules.
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Markets
        Telematico is organized and administered by Borsa Italiana subject to the supervision and control of theCommissione Nazionale per le Società e la Borsa(the National Commission for Companies and the Stock Exchange or “Consob”), the public authority charged, inter alia, 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 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, Borsa Italiana and has issued rules governing the organization and the administration of the markets it regulates, which are Telematico, Nuovo Mercato (high growth companies), After Hours, Mercato Expandi (small companies), IDEM (index and stock derivatives market), MTF (ETF and Funds), MOT and Euro MOT (bond markets), SeDeX (covered warrants and certificates) as well as the admission to listing on and trading on these markets. Since March 28, 2000, a three-day rolling cash settlement has been applied to all trades of equity security in Italy, instead of the preceding five-day settlement.
        If the opening price of a security (established each trading day prior to the commencement of trading based on bids received) differs by more than 10% (or such other amount established by Borsa Italiana) from the opening price, trading in that security will not be permitted until Borsa Italiana authorizes the trading. 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 previous day’s reference 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 July 1, 1998, the Italian financial markets are primarily regulated by Legislative Decree No. 58 of February 24, 1998 (“Decree No. 58”), which consolidated the previous regulation primarily by restating the provisions 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 of the public bysocietà di intermediazione mobiliare(securities dealing firms or “SIMs”), which are authorized intermediaries, authorized banks and certain types of finance companies. 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 and the Bank of Italy.
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Item 10. ADDITIONAL INFORMATION
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Memorandum and Articles of Association
        Eni is incorporated under the name “Eni SpA” resulting from the transformation of Ente Nazionale Idrocarburi, a public law agency, established by Law 136 of February 10, 1953. 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 compliance with concessions required 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 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.
      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, except for the acts that the law or Eni’s by-laws reserve to the shareholders’ meeting.
        For a complete description of the powers of the Board, the Managing Director 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.
        On May 30, 2002, Eni’s ordinary Shareholders’ Meeting resolved to delegate authority to the Board of Directors, pursuant to Article 2420-ter of the Civil Code, to issue bonds, included bonds convertible into shares issued by Eni SpA controlled subsidiaries and/or warrant bonds to purchase or subscribe shares of Eni SpA controlled subsidiaries, up to the amount equivalent to euro 4 billion for a five-year period commencing on May 30, 2002, in one or more times and in one or more tranches. The Board of Directors is empowered to adopt any act, including but not limited to the fixing of yield, duration and terms of the issues. . The Extraordinary Shareholders’ Meeting held on May 28, 2004, cancelled this delegation of authority, pursuant to the new version of the Italian Civil Code in force as of January 1, 2004, that confers authority to issue bonds directly to the Board.
        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.
      Limitations on Voting and Shareholdings
      General
        There are no limitations imposed by Italian law or by the by-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 that 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 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 Shares 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; 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, 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 Shares 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, the ~~«Ministers»~~“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 the Decree of the President of the Council of Ministers (DPCM), May 4, 1999, which sets forth the conditions in which the Ministers can exercise their special veto over a company’s strategic decisions. According to article 66 of Law 488, dated December 23, 1999, such guidelines have been confirmed by the DPCM dated February 11, 2000.
        ~~The~~Eni’s by-laws in article 6.2, which applies article 2, line 1 of Law Decree No. 332 of May 31, 1994, modified and converted into Law No. 474 of July 30, 1994, acknowledge that the Ministers possess the following special powers:
• ~~Approval of Material Acquisitions of Shares.~~The Ministers have the authority to approve or disapprove the acquisition of «material interests» in the share capital of Eni SpA, defined as interests representing at least 3% of the share capital having the right to vote at an ordinary shareholders’ meeting. See «—General». Approval or disapproval must be given within 60 days from the date of the notice to be filed by the Board of Directors at the time a request is made for registration in the register of shareholders by such a purchaser of a material interest. Until the approval is granted or the 60-day period has expired without the approval having been granted, the purchaser may not exercise the voting rights or any rights other than economic rights pertaining to the Shares constituting the material interest. In the event the approval is denied by the Ministers or the 60-day period has expired without the approval having been granted, the purchaser must sell the Shares constituting the material interest within one year. In the event of failure to comply with such requirement, the Ministry of Economy and Finance shall petition the courts to order the forced sale of the shares constituting such a material interest. With reference to the ADR program established in respect of the shares, the Ministers approved the acquisition of 3% or more of the voting share capital of Eni SpA by the Depositary, considering the Depositary the record holder and not the Beneficial Owner of Shares, represented by ADSs and evidenced by ADRs. Each of the holders and Beneficial Owners of ADSs are subject to the 3% limit.
• ~~Approval of Material Shareholders’ Agreements.~~The Ministers have the authority to approve or disapprove shareholders’ agreements or other arrangements involving 3% or more of the share capital of Eni SpA having the right to vote at an ordinary shareholders’ meeting. Such approval or disapproval must be given within 60 days from the date of the notice to be provided to the Minister of Economy and Finance by Consob following to the notifications of shareholders’ agreements or other arrangements to Consob. Until such approval is granted or the 60-day period has expired without the approval having been granted, the shareholders participating in such agreement or other arrangement may not exercise the voting rights or any rights other than economic rights pertaining to the Shares subject to such agreement or other arrangement. In the event the approval is denied by the Ministers or the 60-day period has expired without the approval having been granted, the agreement is ineffective. In accordance with Italian laws, if the conduct of shareholders during a shareholders’ meeting supports an inference that there exists among such shareholders a shareholders’ agreement or other arrangement to be notified to Consob and such agreement or other arrangement has not been notified, then any resolutions adopted at such meeting with the decisive vote of such shareholders may be challenged and voided.
Approval of Material Acquisitions of Shares.The Ministers have the authority to approve or disapprove the acquisition of "material interests" in the share capital of Eni SpA, defined as interests representing at least 3% of the share capital having the right to vote at an ordinary shareholders' meeting. See "--General". Approval or disapproval must be given within 60 days from the date of the notice to be filed by the Board of Directors at the time a request is made for registration in the register of shareholders by such a purchaser of a material interest. Until the approval is granted or the 60-day period has expired without the approval having been granted, the purchaser may not exercise the voting rights or any rights other than economic rights pertaining to the Shares constituting the material interest. In the event the approval is denied by the Ministers or the 60-day period has expired without the approval having been granted, the purchaser must sell the Shares constituting the material interest within one year. In the event of failure to comply with such requirement, the Ministry of Economy and Finance shall petition the courts to order the forced sale of the shares constituting such a material interest. With reference to the ADR program established in respect of the shares, the Ministers approved the acquisition of 3% or more of the voting share capital of Eni SpA by the Depositary, considering the Depositary the record holder and not the Beneficial Owner of Shares, represented by ADSs and evidenced by ADRs. Each of the holders and Beneficial Owners of ADSs are subject to the 3% limit. The Minister of Economy exercised these powers only once in order to allow a merchant bank to own shares of Eni SpA to be resold on the market following an IPO.
Approval of Material Shareholders' Agreements.The Ministers have the authority to approve or disapprove shareholders' agreements or other arrangements involving 3% or more of the share capital of Eni SpA having the right to vote at an ordinary shareholders' meeting. Such approval or disapproval must be given within 60 days from the date of the notice to be provided to the Minister of Economy and Finance by Consob following to the notifications of shareholders' agreements or other arrangements to Consob. Until such approval is granted or the 60-day period has expired without the approval having been granted, the shareholders participating in such agreement or other arrangement may not exercise the voting rights or any rights other than economic rights pertaining to the Shares subject to such agreement or other arrangement. In the event the approval is denied by the Ministers or the 60-day period has expired without the approval having been granted, the agreement is ineffective. In accordance with Italian laws, if the conduct of shareholders during a shareholders' meeting supports an inference that there exists among such shareholders a shareholders' agreement or other arrangement to be notified to Consob and such agreement or other arrangement has not been notified, then any resolutions adopted at such meeting with the decisive vote of such shareholders may be challenged and voided.
Board of Directors and Board of Statutory Auditors' Members.The Ministers have the power to appoint one Director to the Board of Directors and the Chairman of the Board of Statutory Auditors. At Eni's Ordinary Shareholders' Meeting held on May 30, 2002 which, among other things, appointed the new Board of Directors, the Ministers decided not to exercise their power to appoint a member of the Board. Therefore the number of members of the Board was set at eight versus the preceding nine-member Board.
Veto Power over Major Changes.The Ministers have veto power with respect to shareholders' resolutions to dissolve Eni SpA, to cause a transfer, merger or demerger of Eni SpA, to transfer the registered office of Eni SpA outside Italy, to change the corporate purposes or to amend or modify any of the special powers described in this section.

• ~~Board of Directors and Board of Statutory Auditors’ Members.~~The Ministers have the power to appoint one Director to the Board of Directors and the Chairman of the Board of Statutory Auditors. At Eni’s Ordinary Shareholders’ Meeting held on May 30, 2002 which, among other things, appointed the new Board of Directors, the Ministers decided not to exercise their power to appoint a member of the Board. Therefore the number of members of the Board was set at eight versus the preceding nine-member Board.
• ~~Veto Power over Major Changes.~~The Ministers have veto power with respect to shareholders’ resolutions to dissolve Eni SpA, to cause a transfer, merger or demerger of Eni SpA, to transfer the registered office of Eni SpA outside Italy, to change the corporate purposes or to amend or modify any of the special powers described in this section.
Article 4 of Law No. 350/2003 (2004 budget law), lines 227 to 231, introduced changes to Law No. 474 of July 30, 1994 concerning the exercise of special powers by the Government in “companies directly or indirectly controlled by the State operating in the fields of defence, transports, telecommunications, energy sources and other public services” (the so called golden share). Line 231 states: “The by-laws of companies conferring special powers to the State shall be amended according to the provisions of lines 227 to 230". This amendment is subject to the issue of specific decrees by the President of the Council of Ministers concerning the identification of companies: (i) “in whose by-laws before any deed is approved that determines the loss of control, a new clause needs to be introduced with decision of an extraordinary Shareholders’ Meeting attributing to the Minister of Economy and Finance the title to exercise one or more special powers in consultation with the Minister for Productive Activities” (line 227); (ii) “from whose by-laws a decision of an extraordinary Shareholders’ Meeting must cancel any clause attributing one or more special powers to the Minister of Economy and Finance” (line 229). Furthermore, always with decree of the President of the Council of Ministers to be issued within 90 days from the entry into force of the budget law, (iii) “the criteria must be identified for exercising special powers, limiting their use only to the case of prejudice to the interests of the State” (line 230).
        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»~~“special powers” and introducing them in the by-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 Commissions’s informed opinion, therefore it did not take into account DPCM of May 4, 1999, article 66 of Law No. 488/99 and DPCM of February 11, 2000 which included provisions limiting those ~~«special powers»~~“special powers” of the Minister of Economy and Finance. These are currently being analyzed by the European Commission.
Minority Protection Provisions
        Under Italian laws, the by-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 thevoto di lista~~(voting~~ (voting list) system, to ensure that minority shareholders of a company are represented on its board of directors and board of statutory auditors. Accordingly, Eni’s by-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»~~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.
        Under Eni’s by-laws, the election of the members of the Board of Directors will proceed as follows:
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; to this purpose the votes obtained by each candidate list will be divided by one or two or three 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 numerical order in which they appear in each list. 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.
        The election of members of the 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.
        The Extraordinary Shareholders’ Meeting held on May 28, 2004 approved an amendment to article 17.3 of the by-laws according to which companies that are controlling entities or under common control, as defined by Article 2359, first Paragraph, of the Civil Code, or compnaies 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 ~~Decree No. 58~~Italian legislation are intended to increase the protection of minority shareholders. In particular, (i) shareholders’ meetings must be called also on 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) (art. 2367 c.c.); (ii) at an extraordinary shareholders’ meeting resolutions are passed with the approval of at least ~~two- thirds~~twothirds of the shares represented at the meeting, whether on first, second or third ~~call;~~call (Art. 2368-2369 c.c.) at least the majority, one third and one fifth of the share capital; (iii) shareholders’ actions against the Board of Directors, the Statutory ~~Auditors~~Auditors. Official Receivers and the Managing Director may be promoted by shareholders holding at least 5% of the outstanding shares ~~registered in~~(Art. 2393bis); (iv) the ~~Company’s Register of Shareholders since, at least, the last six months;~~actions that a single shareholder may sue (art. 2394-bis) and ~~(iv)~~(v) collective shareholders’ complaints to the Board of Statutory Auditors may be promoted by shareholders holding at least 2%5% of the outstanding ~~shares.~~share (art. 2409 c.c.). The company’s by-laws may further lower the thresholds in (iii) and ~~(iv)~~(v) and increase the voting quorums under (ii). ~~In addition, Decree No. 58 modifies the responsibilities of Statutory Auditors.~~ Effective from July 1, 1998, accounting control functions are under the exclusive competence of company’s independent auditors, and the company’s Board of Statutory Auditors no longer carries out such functions.
Reporting Requirements and Restrictions on Acquisitions of Shares
        Under ~~Italian securities laws and~~ 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.
        For listed companies, whose by-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 violation of such limitation can be voided if challenged in court by shareholders and Consob, if the resolution would have not be 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; 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 obligation to notify may be satisfied by one of such person, provided that completeness of information is guaranteed.
        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 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 bis of the Italian civil code, governing the acquisition of shares of the parent company by a controlled subsidiary, Decree No. 58/98 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~~“Purchase by Eni SpA of its Own ~~Shares»~~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 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’ Meetings
        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, ~~(i)~~ by the Board of Statutory Auditors or ~~(ii)~~ by two Auditors, provided that such call has been notified in advance.
        Ordinary shareholders’ meetings must be convened at least once a year. At these ordinary meetings, shareholders approve the financial statements, resolve upon dividend distribution, if any, may appoint Directors, Statutory Auditors and, ~~Statutory~~when necessary, the External Auditors, determine their remuneration and vote on the liability of Directors and Statutory Auditors and ~~any business submitted by the Directors.~~approve shareholders’ meeting regulation. Extraordinary meetings of shareholders may be called to pass upon proposed amendments to the 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»~~(“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 ~~six months~~180 days after the end of the financial year. Shareholders are informed of all meetings to be held by publication of a notice in theGazzetta Ufficialeand 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. ~~For a description on new regulations regarding extraordinary shareholders’ meeting under Decree No. 58, see «—Minority Protection Provisions».~~
        Admission to the meeting is granted to shareholders who requested the notification of attendance pursuant to article 34 of Consob Deliberation No. 11768 of December 23, 1998, at least five 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~~“Description of American Depositary Receipts—Voting of Deposited ~~Securities»~~Securities”. Beneficial Owners of Shares held with Monte Titoli need only to instruct the relevant banks associated with Monte Titoli which hold 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; (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»~~“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, ~~as well as 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.~~thereof unless the proxy is general or given to a company, association, foundation, other entities or institutions to an employee.. The by-laws of Eni SpA provide for voting by mail. There are no limitations arising under
Italian law or the by-laws of 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.
        Meetings of Eni’s shareholders are conducted according to the ~~«Eni~~“Eni SpA’s Shareholders’ Meeting ~~Regulation»~~Regulation” as approved by the Ordinary Shareholders’ Meeting of Eni on December 4, ~~1998.~~1998 and amended by the Ordinary Shareholders’ Meeting held on May 28, 2004 in order to adeguate the provision to the new rules content in the Civil Code for the participation to the Shareholders’ Meetings.
Subscription Rights
        New shares may be issued pursuant to a resolution of shareholders at an extraordinary meeting. Under 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’ meeting by the affirmative vote of more than 50% of the shares outstanding. Such percentage applies to all calls of the meeting.
Liquidation Rights
        Under Italian law, subject to the satisfaction of the claims of all other creditors, shareholders are entitled to a 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, 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 rankpari passuamong ordinary shareholders in a liquidation.
Purchase by Eni SpA of its ~~Own~~Treasury Shares
        Pursuant to Italian law, a company may purchase its ~~own~~1own shares only pursuant to a prior authorization by a shareholders’ meeting, and must pay for such shares only out of distributable earnings and distributable reserves as reflected in the most recent financial statements approved by a shareholders’ meeting. The nominal value of shares so purchased, including shares held by subsidiaries, may not exceed 10% of such company’s share capital. Shares purchased in excess of such 10% limit must be resold within one year from the date of their purchase. Identical limitations apply to purchases of shares of a company by its subsidiaries. In order to increase shareholders’ value, Eni’s Ordinary Shareholders’ Meeting held on May ~~30, 2003~~28, 2004 authorised the continuation of the share buy-back program ~~for a period of 18 months from such date~~until November 30, 2005 and up to 400 million ordinary shares, nominal value euro 1 each, for a total amount not exceeding 5.4 billion euro. The 400 million shares and the 5.4 billion thresholds take into account the number and amount of Eni shares purchased from the beginning of the buy-back program until May ~~29, 2003.~~27, 2004. At that date, Eni owned ~~224.2~~232.4 million shares, equal to approximately ~~5.60%~~5.80% of Eni’s share capital, for a total amount of euro ~~3,082~~3,196.5 million (corresponding to an average purchase price of euro 13.75 per share). The shares are to be purchased on the Telematico at a price no lower than their nominal value and no higher than 5% over the reference price recorded on the business day preceding each purchase.
        The following table summarizes the status of treasury shares held by Eni as of December 31, ~~2002:~~

Numbers Average Share
of shares price Total price capital
Period million euro million euro %

2000 44.4 12.92 574 1.11
2001 110.0 13.58 1,494 2.75
2002 52.2 14.74 770 1.30
As of December 31, 2002 206.6 13.74 2,838 5.16
2003:
Period Numbers
of shares
million Average
price
euro Total price
million euro Share capital
%
2000 44.4 12.92 574 1.11
2001 110.0 13.58 1,494 2.75
2002 52.2 14.74 770 1.30
2003 23.9 13.76 329 0.60
As of December 31, 2003 230.5 13.74 3,167 5.76
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Material ~~Contracts~~contracts
      None.
     ~~None.~~
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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 recent 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 10 thousand be reported in writing to theUfficio Italiano Cambi~~(the~~ (the Italian Exchange Office) by residents or non-residents that effect such transfers directly, or by banks, securities dealers orPoste Italiane SpA~~(Italian~~ (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.
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Taxation
        The information set forth below is a summary only, and Italian, United States and other tax laws may change from time to time. Holders of shares and ADSs 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
        ~~The~~Dividends received by Italian ~~tax system entitles domestic shareholders~~resident individuals in relation to ~~benefit from a dividend tax credit equal to 56.25%~~participations exceeding 2% of the ~~gross amount~~voting rights or 5% of the dividends received. Pursuant to the reduction of income tax rate from 36% to 34% coming into force from January 1, 2003, pursuant to Law No. 289/2002, the tax credit will be equal to 51.51% of the gross amount of the dividend received with respect to distributions deliberated as from January 1, 2002.
     ~~Both dividends and their related tax credit~~share capital (“substantial participations”) are included in the taxable income ~~and~~subject to personal income tax to the ~~latter reduces the~~extent of 40% of their amount. Personal income tax ~~due~~applies at ~~the shareholder’s level.~~
     ~~The other topics of the tax regime may be summarised as follows:~~
~~in principle, the dividend tax credit may not exceed the amount of taxes paid at the distributing company level;~~
in order to permit the transfer to the shareholder of some tax incentives, avoiding at the same time possible distortions deriving from the enjoyment of a full dividend tax credit at shareholder level, a dual basket system has been introduced;
the distributing company must keep, in its tax return, formal record of the tax effectively paid— basket A— and of taxes deemed only virtually levied—basket B. This latter refers to taxes which, although never paid, are considered under the new Italian provisions as having been paid for special cases;
the distributing company is required to reduce the amounts recorded for both baskets, upon dividend distribution, even if the recipient is not entitled to take advantage from the dividend tax credit (i.e., foreign shareholders);
~~dividends derived from basket B entitles a shareholder to a limited dividend tax credit that cannot be claimed for refund and/or carried forward.~~
     ~~Resident~~progressive rates ranging from 23% to 45% plus local surtaxes. Dividends received by Italian resident individuals ~~owning less than 2% of the outstanding shares~~in relation to non-substantial participations not related to the conduct of a business ~~may elect for~~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 are related to the conduct of a business, dividends received are included in the taxable business income to the extent of 40% of their amount.
        ~~The same substitute tax is withheld when dividend is paid to~~Dividends received by Italian pension funds ~~and~~are included in the overall result of the pension funds subject to ~~certain~~a 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 ~~IRPEG~~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 are not connected to an Italian permanent establishment. Up to four-ninths of the substitute tax withheld might be recovered by athe non-resident shareholder from the Italian Tax Authorities upon provision of evidence of full payment of income tax on such dividend in ~~his~~his/her country of residence in an amount at least equal to the total refund claimed.
        ~~Such~~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 are 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 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 the15% substitute tax the U.S. shareholder must ~~obtain~~provide the dividend paying agent with a certificate obtained from the U.S. Internal Revenue Service (the ~~«IRS»~~“IRS”) ~~a certificate~~ 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.
        ~~As an alternative to~~Where the direct application of the treaty benefit at the same time of payment, the foreign shareholder may provide for the filing of specific forms (certificate) with the Italian Tax Authorities, in order to obtain a refund of taxes withheld in excess of the withholding tax rate as provided for by the Treaty.
     It should be specified that Italy has concluded income tax treaties with approximately 60 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. For further details please refer to the relevant provisions set forth in the Italy-U.S. Tax Treaty.
     Under the income tax convention between the United States and Italy, dividends derived and beneficially owned by a U.S. resident who holds less than 10% of Eni SpA’s shares are subject to an Italian withholding or substitute tax at a reduced rate of 15%, provided that the dividends are 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 resident performs independent personal services.
     ~~In the absence of such conditions, or where the mentioned documentation~~Beneficial Owner has not ~~been~~ provided by the ~~Beneficial Owner,~~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»~~refund”) between the domestic rate and the treaty ~~one.~~one by filing specific forms (certificate) with the Italian Tax Authorities.
        ~~With respect~~According to ~~any dividend declared by~~ the ~~Company on or after July 1, 1998, pursuant to a change in~~ Italian tax law as reflected in the Deposit Agreement, the Company ~~will no longer be~~is not involved (i) in withholding amounts due by holders of ADSs to relevant taxing authorities in connection with any distributions relating to ADSs or (ii) in the procedures through which certain holders of ADSs 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 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 ADSs to which such persons are entitled. 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 of otherwise) relating to distributions on the ADSs 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 ADSs of any necessary actions to be undertaken by such Holders.
Transfer tax
     ~~As of January 1, 1998, Legislative Decree No. 435/97 has changed the previous rule introducing both new exemptions and new rates.~~
        In general terms, no Italian transfer tax is payable in the following cases:
• ~~contracts executed on regulated financial markets;~~
• ~~contracts concerning shares of non-listed companies, executed between non-resident persons and banks or other authorised intermediaries (provided that certain conditions are met);~~
• ~~contracts concerning listed shares even if not executed on regulated financial markets, between non-resident persons and banks or other authorized intermediaries or investment funds.~~
contracts executed on regulated financial markets;
contracts concerning shares of non-listed companies, executed between non-resident persons and banks or other authorised intermediaries (provided that certain conditions are met);
contracts concerning listed shares even if not executed on regulated financial markets, between non-resident persons and banks or other authorized intermediaries or investment funds.
        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:
• Euro 0.072 for euro 51.65 (or fraction thereof) of the price at which the Shares or ADRs are transferred, when the transfer occurs directly between the contracting parties or through intermediaries other than those listed below.
• Euro 0.025 for euro 51.65 (or fraction thereof) of the price at which the Shares or ADRs are transferred, when the transfer occurs between private individuals and a bank or between private individuals through an intermediary, such as an exchange agent, a bank, a stock broker, or a SIM.
• ~~Euro 0.0061 for euro 51.65 (or fraction thereof) of the price at which the Shares or ADRs are transferred, when the transfer occurs between banks, exchange agents or SIMs.~~
Euro 0.072 for euro 51.65 (or fraction thereof) of the price at which the Shares or ADRs are transferred, when the transfer occurs directly between the contracting parties or through intermediaries other than those listed below.
Euro 0.025 for euro 51.65 (or fraction thereof) of the price at which the Shares or ADRs are transferred, when the transfer occurs between private individuals and a bank or between private individuals through an intermediary, such as an exchange agent, a bank, a stock broker, or a SIM.
Euro 0.0061 for euro 51.65 (or fraction thereof) of the price at which the Shares or ADRs are transferred, when the transfer occurs between banks, exchange agents or SIMs.
Capital Gains Tax
        This paragraph applies with respect to capital gains out of the scope of a business activity carried out in Italy.
Gains ~~deriving from~~realized by Italian resident individuals upon the sale of substantial participations ~~exceeding 2% of~~are included in the ~~voting rights or 5% of the share capital i.e. «substantial participations» are~~taxable base subject to ~~a 27% substitute~~personal income tax to the extent of 40% of their amount, while ~~other~~ gains realized upon the sale of non substantial participations are subject to a substitute tax at a 12.5% rate.
        For gains deriving from the sale of non substantial participations, 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 ~~«indirectly managed investment» system~~“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 ~~«directly managed investment» system~~“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 residents from non substantial participations 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 participations 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 ~~Tax~~Tax.
        ~~Pursuant~~No inheritance tax applies in Italy to ~~Law No. 383 of October 18, 2001, Italian inheritance and gift tax on~~the transfer of shares or ADRs by reason of ~~death or donation has been abolished with respect to successions opened and to gifts made from October 25, 2001.~~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 180.759,91 euro, only if the donee is not the spouse, a direct descendant or a relative up to the fourth degree of the donor. However, tax applies in the fixed amount of 129.11 euro.
        An anti avoidance rule ~~has been provided by Law 383 for~~applies to gift of assets (such as shares) which, if sold for consideration, would give rise to capital gain subject to substitute tax as per 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 gift, the substitute tax will apply on the capital gain determined as if the gift had never been given.
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 ADRs. This summary is addressed to U.S. Holders that hold Shares or ADSs as capital assets, and does not purport to address all material tax consequences of the ownership of Shares or ADSs. 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 ADSs as part of a straddle or a hedging or conversion transaction and investors whose ~~«functional currency»~~“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»~~“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.
        As used in this section, the term ~~«U.S. Holder»~~“U.S. Holder” means a beneficial owner of Shares or ADSs 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 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 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 ADSs will be treated as owners of the underlying Shares. Exchanges of Shares for ~~ADRs,~~ADSs, and ~~ADRs~~ADSs for shares, generally will not be subject to 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, and thereafter as a taxable gain on the sale or exchange of shares or ADSs. 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) 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 noncorporate U.S. Holder, dividends paid to you ~~after December 31, 2002 and~~ before January 1, 2009 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the Shares or ADSs for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. The U.S. Internal Revenue Service has announced that it will permit taxpayers to apply a proposed legislative change to the holding period requirement described in the preceding sentence as if such change were already effective. This legislative “technical correction” would change the minimum required holding period, retroactive to January 1, 2003, to more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Dividends we pay with respect to the shares or ADSs will be qualified dividend income. The amount of any dividend ~~(or treaty payment)~~ paid in lire will equal the U.S. dollar value of the lire received, calculated by reference to the exchange rate in effect on the date the distribution is includible in income, regardless of whether the lire are converted into U.S. dollars and U.S. Holders may recognize foreign currency gain or loss upon the disposition of such lire measured by the differences between such U.S. dollar value and the amount realized on such disposition. Such gain or loss will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income.
        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~~“Italian Taxation—Income Tax,»” above, for the procedures for obtaining a tax refund. For the purposes of computing the foreign tax credit, dividends paid on the Shares will be treated as income from sources outside the United States, but generally will be grouped separately, together with other items of ~~«passive»~~“passive” or ~~«financial services»~~“financial services” income.
Sale or Exchange of Shares
        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 ADSs equal to the difference between the U.S. Holder’s adjusted basis in the shares or ADSs (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 ADSs are held as capital assets and will be a long-term capital gain or loss if the shares or ADSs 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 on or after May 6, 2003 and before January 1, 2009 is generally subject to a maximum tax rate of 15% in respect of property held for more than one year. 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.
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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 450 Fifth Street, NW, 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.~~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, 17^th floor, New York.
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Item 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES OF MARKET RISK
        Eni operates internationally in the oil and natural gas, electricity generation, petrochemicals and oilfield services and engineering industries and is subject to exposure to market risks from changes in interest rates, foreign exchange rates and commodity prices.
        Derivative financial instruments are utilized by Eni to reduce these risks, as explained below.
        Eni’s treasury activities are managed primarily by two captive finance companies, operating in the Italian and international financial markets. Eni’s operating subsidiaries are required to reduce foreign exchange rate risk to a minimum level by coordinating their operations with such finance companies.
Eni SpA’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 ~~derivatives~~derivative transactions. 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 SpA’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 does not enter into derivative transactions on a speculative basis.
        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. Fair value was determined using dealer quotes or appropriate pricing models. 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.
The results of the sensitivity analysis are summarized below.
Actual changes in market prices or rates may differ from hypothetical changes. Overall Eni does not expect cash flows associated with derivative financial instruments for the next five years to be material to its results of operations or financial condition.
        For a comprehensive disclosure of market risk see Note 23 to the Consolidated Financial Statements.
  Foreign Exchange Risks
        Eni’s operations are denominated in various foreign currencies and consequently Eni is exposed to exchange rate fluctuations that have an impact on its cash flows and financing activities. The Company’s exposure to foreign currency rates exists primarily with U.S. dollars versus euro.
        Eni enters into various types of foreign exchange contracts in managing its foreign exchange risk. The notional amount of these contracts is ~~shown~~indicated in ~~Note 23 to~~ the ~~Consolidated Financial Statements.~~following table:
(million euro) Dec.31, 2002 Dec.31, 2003
Notional amount Notional amount
Forward exchange contracts 7,611 6,165
Purchased options 348 550
7,959 6,715
        Eni uses ~~«forward~~“forward exchange ~~contracts»~~contracts” primarily to hedge existing receivables and payables, including deposits and borrowings denominated in ~~foreign~~ currencies other than euro, and uses ~~«currency options»~~“currency options” to hedge expenses denominated in foreign currencies. Currency options, ~~purchased~~traded in the over-the-counter market for a premium, provide Eni with the right to buy or sell an agreed amount of currency at a specified exchange rate at the end of a specified ~~period normally two years.~~period.
        Based on the results of the sensitivity analysis, Eni’s estimated foreign currency market risk exposure related to net income as of December 31, ~~2002,~~2003, was euro ~~121~~57 million (euro ~~191~~121 million at December 31, ~~2001)~~2002). The sensitivity analysis excluded receivables, debt and securities which have a high degree of inverse correlation with the financial derivative instruments used to hedge them; these derivative instruments are not, however, material.
   Interest Rate Risk
        Debt and the existence of mismatches between assets and liabilities earning or paying fixed interests expose Eni to the risk of interest rate fluctuations.
Eni enters into various types of interest rate contracts in managing its interest rate risk. The notional amount of these contracts is ~~shown~~indicated in ~~Note 23 to~~ the ~~Consolidated Financial Statements.~~following table:
(million euro) Dec.31, 2002 Dec.31, 2003
Notional amount Notional amount
Interest rate swaps 5,206 5,690
Interest rate collars 129 74
Forward rate agreements 220
5,555 5,764
        Eni enters into interest rate derivatives, particularly ~~«interest~~“interest rate ~~swaps»~~swaps”, to alter interest rate exposures arising from mismatches between assets and liabilities, to lower funding costs and to diversify sources of funding. Under interest rate swaps, Eni agrees with other parties to exchange, at specified intervals, the difference between interest amount calculated by reference to an agreed notional principal amount and agreed fixed or floating interest rates.
        Eni ~~also~~ uses ~~«interest~~“interest rate ~~collars»~~collars” to manage its interest rate risk. An interest rate collar is a combination of options that enables a predetermined interest rate band to be locked in. Eni also uses primarily zero-cost collars that do not require payment of an option premium. «Forward rate agreements» are generally used by Eni to offset changes in the rates of short and long-term floating-rate debt. Forward rate agreements settle in cash at a specified future date based on the differential between agreed interest rates applied to a notional amount.
Based on the results of the sensitivity analysis, Eni’s estimated interest market risk exposure related to net income as of December 31, ~~2002~~2003 was euro 7290 million (euro 972 million at December 31, ~~2001)~~2002).
   Commodity Price Risk
        Eni enters into commodity-based derivative contracts to minimize the commodities price volatility in order to conform costs to revenues.
        ~~Commodity-based~~In natural gas trading activity, Eni uses exchange traded crude oil forward contracts with the aim of hedging the risk related to natural gas at fixed prices under supply contracts. The purchase price of such hedging instruments is determined on the basis of a price basket with an indexation to the petroleum products in the international markets.
        In refining and marketing activities of petroleum products, Eni uses derivative instruments with the aim of reducing the risk of industrial and marketing activities related to the uncertainty of the market prices. In particular, Eni uses derivatives instruments to avoid that changes in the conditions of supply and trade markets could worsen in the expected income in the period between the purchase of crude oil, the refining and the trade of finished products.
        The expiration date of contracts, with some not material exceptions, is less than 1 year.The table below summarizes trade derivative contracts ~~are primarily used by the Refining~~at December 31, 2002 and ~~Marketing segment and consist of future contracts and over-the-counter market swaps related to crude oil and petroleum products.~~2003.
Dec. 31, 2002 Dec. 31, 2003

   Buy Sell Buy Sell
Crudes (barrels) 1,924,390 890,000 6,629,544 1,146,000
Oil products (tonnes) 16,992 66,500 159,849 381,200
Oil products (gallons)    112,560    104,580
     Futures contracts have little credit risk because they take place in regulated markets. Swap agreements do not contain margin requirements and are subject to the creditworthiness of counterparties, which are primarily major financial institutions.
     ~~As shown in Note 23 to the Consolidated Financial Statements the amounts of derivative commodity contracts is not material.~~        Eni’s commodity market risk exposure as of December 31, ~~2000,~~2003 is ~~also~~ not ~~material.~~
material (not material at December 31, 2002 as well).
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Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
        Not applicable.

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PART II

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Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
        None.
     ~~None.~~
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Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
        None.
     ~~None.~~
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Item 15. CONTROLS AND PROCEDURES
        ~~Under~~In designing and evaluating the ~~supervision~~Company’s disclosure controls and ~~with the participation of~~procedures, the Company’s management, including the ~~Company’s Chief Executive Officer~~principal executive officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) within 90 days of the filing date of this annual report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
     ~~In designing and evaluating our disclosure controls and procedures, our management, including the Chief Executive Officer and Chief Financial Officer,~~principal 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 ~~our~~the Company’s management necessarily was required to apply its judgement in evaluating the cost-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 Eni has investments in certain unconsolidated entities. As Eni 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 Exchange Act Rule 13a-14(c) as of the end of the period covered by this 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 at the reasonable assurance level.
        There ~~were no significant~~have not been changes in the Company’s internal ~~controls~~control over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or ~~in other factors that could significantly~~are reasonably likely to materially affect, the Company’s internal ~~controls subsequent to the date~~control over financial reporting.
Table of ~~their most recent evaluation.~~Contents
Item ~~16. [RESERVED]~~16A. Audit Committee Financial Expert
        Eni’s board of directors has determined that a member of Eni’s Internal Control Committee, Mr. Mario Giuseppe Cattaneo, qualifies as an “audit committee financial expert”, as defined in Item 16A of Form 20-F.
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Item 16B. Code of Ethics
        Eni adopted a code of ethics that applies to all Eni’s employees including Eni’s principal executive officer, principal financial officer and principal accounting officer. Eni published its code of ethics on Eni’s website. It is accessible atwww.eni.it, under the section Publications - Corporate Responsibility - Code of Practice.
        Eni’s code of ethic contains ethical guidelines, describes corporate values and required 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.
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Item 16C Principal Accountant Fees and Services
        PricewaterhouseCoopers SpA has served as Eni independent public auditor for each of the fiscal years in the three-year period ended December 31, 2003, for which audited consolidated financial statements appear in this annual report on Form 20-F.
        The following table showstotal fees paid by Eni and our subsidiaries for services provided by Eni public auditor PricewaterhouseCoopers and its member firms, with respect to the previous two years:
For the year ended December 31,
(thousands of euro) 2003 2002
Audit fees 7,177 7,066
Audit-related fees 296 750
Tax fees 695 828
All other fees 71 1,709
Total 8,179 10,353
        Audit Fees principally include fees billed for the standard audit work that needs to be performed each year in order to issue an opinion 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.
        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, that are reasonably related to the performance of the audit or review of the company’s financial statements such as 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 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.
        Other Fees include fees billed for services that are permissible under applicable rules and regulations and consist primarily of consultancy services related to IT and risk management.
Pre-approval Policies and Procedures of the Internal Control Committee
        The Internal Control Committee informed all Group companies that they cannot request Eni’s external auditors to perform services other than audits, services related to audits, and to 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 auditservices and to the company’s capital markets transactions have been listed by the Internal Control Committee.
        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 Internal Control Committee, which also informed all Group companies that pre-approval by the Committee is required for any other service requested to be performed by the external auditors, including those non-audit services which are permissible under applicable rules and regulations.
Table of Contents
Item 16D Exemptions from the Listing Standards for Audit Committees
        Not applicable.
Table of Contents
Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
        Not applicable.
Table of Contents
PART III

Table of Contents
Item 17. FINANCIAL STATEMENTS
    Not applicable.
Table of Contents
Item 18. FINANCIAL STATEMENTS
    See pages F-1 through ~~F-79.~~F-14

(a) Index to Financial Statements:

Page

Report of Independent Auditors F-1 ~~F-1~~

~~Report of Independent Auditors (Arthur Andersen SpA for year 2000)~~ ~~F-2~~
Other Auditors’ Reports on the consolidated financial statements of certain major subsidiaries of Eni SpA (separate financial statements not included herein) F-2 ~~F-3~~

Consolidated Balance Sheets at December 31, ~~2001~~2002 and ~~2002~~2003 F-15 ~~F-8~~

Consolidated Statements of Income for the years ended December 31, ~~2000,~~ 2001, 2002 and ~~2002~~2003 F-16 ~~F-9~~

Consolidated Statements of Cash Flows for the years ended December 31, ~~2000,~~ 2001, 2002 and ~~2002~~2003 F-10 ~~F-10~~

Supplemental Information for the years ended December 31, ~~2000,~~ 2001, 2002 and ~~2002~~ 2003 F-12

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, ~~2000,~~ 2001, 2002 and ~~2002~~2003 F-13 ~~F-13~~

Notes to the Consolidated Financial Statements F-14

Table of Contents
Item 19. EXHIBITS
1. ~~By-laws as amended as of May 30, 2002~~
7. ~~Calculation of ROACE~~
8. ~~List of subsidiaries~~
    1.    By-laws as amended as of May 28, 2004
    ~~10.1 Other Auditors’ Reports on the financial statements~~8.    List of ~~certain other~~ subsidiaries ~~of Eni SpA (separate financial statements not included herein)~~
~~SIGNATURES~~
    ~~Pursuant~~Certifications:
    12.1.    Certification pursuant to ~~the requirements of Section 12~~Rule 13a-14(a) of the Securities Exchange Act
    12.2.    Certification pursuant to Rule 13a-14(a) of ~~1934,~~ the Securities Exchange Act
    13.1.    Certification furnished pursuant to Rule 13a-14(b) of the Securities Exchange Act (such certificate 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.)
    13.2.    Certification furnished pursuant to Rule 13a-14(b) of the Securities Exchange Act (such certificate 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.)
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: June ~~30, 2003~~
25, 2004

Eni SpA

~~Eni SpA~~
/s/ FABRIZIO COSCO
Fabrizio Cosco
Title: Deputy Company Secretary
Exhibit 1
Eni S.p.A. By-laws
Part I - Establishment - Name - Registered Office and Duration of the Company
ARTICLE 1
1.1 "Eni S.p.A." resulting from the transformation of Ente Nazionale Idrocarburi, a public law agency, established by Law 136 of February 10, 1953, is regulated by these by-laws.
ARTICLE 2
2.1 The registered head office of the company is located in Rome, Italy. Eni S.p.A. branches are located: two in San Donato Milanese (MI) and one in Gela (CL).
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
4.1The 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 4,002,936,826.00 (four billion two million nine hundred and thirty-six thousand eight hundred and twenty-six comma zero zero) represented by 4,002,936,826 (four billion two million nine hundred and thirty-six thousand eight hundred and twenty-six) shares of ordinary stock with a nominal value of euro 1.00 (one comma zero zero) 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.
5.4 The Board of Directors in execution of the delegation of authority resolved pursuant to Article 2443 of the Civil Code by the Shareholders' Meeting held on June 6, 2000 approved in the Meetings held on June 21, 2000 and June 7, 2001 to increase the company capital up to euro 3,500,000 (three million five hundred thousand). Therefore the Board resolved to issue up to 3,500,000 (three million five hundred thousand) ordinary shares nominal value euro 1 (one) each, bearing regular coupon, by using the Reserve for the issue of shares pursuant to Article 2349 of the Civil Code for a corresponding amount. The shares have been assigned pursuant to Article 2349 of the Civil Code to managers employed by the company and its subsidiaries controlled directly or indirectly by Eni S.p.A. pursuant to Article 2359 of the Civil Code who have achieved the pre-set annual corporate and individual targets. In the two-year period concerned by the Plan the total figure of the commitments of share offerings was 1,428,550 in the year 2000 and 1,851,750 in the year 2001 for a total amount of 3,280,300 shares. Eni share capital will be increased up to the amount corresponding to the shares subscribed until the term of December 31, 2004.
5.5 Pursuant to Article 2443 of the Civil Code, the Board of Directors is delegated to increase the company share capital, for no consideration and within December 31, 2002, in one or more times, pursuant to Article 2349 of the Civil Code, up to euro 1,500,000 (one million five hundred thousand). The Board may therefore issue up to 1,500,000 (one million five hundred thousand) ordinary shares nominal value 1 (one) euro each, bearing regular coupon, by using the Reserve for the issue of shares pursuant to Article 2349 of the Civil Code for a corresponding amount. The shares to be issued will be assigned pursuant to Article 2349 of the Civil Code to managers employed by the company and its subsidiaries controlled directly or indirectly by Eni S.p.A. pursuant to Article 2359 of the Civil Code, listed subsidiaries excepted, who have achieved the pre-set 2001 individual targets. The shares will be offered for subscription for no consideration within a month from the expiration of a three-year term commencing as of the date of the communication of the commitment of the offer to the assignee. The company capital will be increased up to the amount corresponding to the shares subscribed until the term of June 30, 2006.
The Board of Directors is empowered to adopt any act to define terms and conditions for the execution of the share capital increase, including but not limited to the approval of the "Regulations of the 2002 Plan of Assignation of Eni S.p.A. shares to be issued pursuant to Article 2349 of the Civil Code".
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 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, the Minister of Treasury, Budget and Economic Planning in agreement with the Minister of Industry, Trade and Crafts, retains the following special powers sanctioned in the forms envisaged by the aforementioned Law 474 of 1994:
a) approval to be expressly granted on 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 are meant those representing 3 per cent of share capital with the right to vote at the ordinary shareholders' meeting. Approval must be granted within sixty days of the date of notice which must be filed by the Board of Directors at the time request is made for registration in the Shareholders' book. Until approval is granted and, in any case, after expiration of the term, the transferee can not exercise voting rights and, in any case, non economic rights connected with the shares that represent a material shareholding. In the event that approval is denied or the term expires without such approval, the transferee must sell said shares within one year. Failing to comply, the law courts, at the request of the Minister of Treasury, Budget and Economic Planning, will order the sale of shares that represent a material shareholding according to the procedures as per Article 2359-ter of the Civil Code;
b) approval to be expressly granted as condition for the validity of Shareholders' or other agreements as per Article 122 of Legislative Decree No. 58 of February 24, 1998, involving 3 per cent or more of the share capital with the right to vote at ordinary shareholders' meetings. Until approval of such Shareholders' or other agreement is granted and, in any case, after expiration of the term, the Shareholders participating in such agreement can not exercise voting rights and, in any case, non economic rights connected with the shares. The power of approval must be exercised within sixty days of the date when CONSOB notifies the Ministry of Treasury, Budget and Economic Planning of pertinent pacts and agreements as per the aforementioned Article 122 of Legislative Decree No. 58 of February 24, 1998. In the event such approval is denied or the term expires without such approval, such agreements are ineffective;
c) veto power with respect to resolutions to dissolve the company, to transfer the business, to merge, to demerge or to transfer the company's registered office abroad, to change the company objects and to amend the by-laws cancelling or modifying the powers as per letters a), b), c) and d) of this Article;
d) appointment of one member to the Board of Directors and one member to the Board of Statutory Auditors. Should such appointed Director or Auditor lapse, the Minister of Treasury, Budget and Economic Planning in agreement with the Minister of Industry, Trade and Crafts, will appoint his corresponding replacement.
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 vice-versa. Conversion operations are performed at the Shareholder's expense.
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' Meeting
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, according to the current legislation and in compliance with the rules in force regulating the exercise of the vote by mail.
13.2 Admission to the shareholders’ meeting is subject to the delivery, also for registered shares, of the certification issued by financial intermediaries at least two days before the date of the shareholders’ meeting on first call.
ARTICLE 14
14.1 Each Shareholder entitled to attend the Meeting may also be represented in compliance with the law by a person appointed by written proxy. Incorporated entities and companies may attend the Meeting by way of a person appointed by written proxy. In order to simplify collection of proxies issued by Shareholders who are employees of the company or its subsidiaries and members of Shareholders associations incorporated under and managed pursuant to current legislation regulating proxies collection, notice boards for communications and rooms to allow proxies collection are made available to said associations according to terms and conditions agreed from time to time by the company with the associations representatives.
14.2 The Chairman of the Meeting has to assure the regularity of written proxies and, in general, the right to attend the Meeting.
14.3 The right to vote may also be exercised by mail according to the laws and regulations in force concerning this matter.
14. Eni S.p.A. shareholders' meetings are disciplined by Eni S.p.A.'s shareholders' meeting Regulation approved by the ordinary shareholders' meeting.
ARTICLE 15
15.1 The Meeting is chaired by the Chairman of the Board of Directors, or in the event of absence or impediment, by the Managing Director; in absence of both, by another person, duly delegated by the Board of Directors, failing which the Meeting may elect its own Chairman.
15.2 The Chairman of the Meeting is assisted by a Secretary, who need not be a Shareholder, to be designated by the Shareholders present, and may appoint one or more scrutineers.
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 Meeting taken in compliance with the law and these bylaws are binding for all Shareholders even if absent or dissenting.
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.
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 members, except for the one appointed pursuant to Article 6.2, letter d) of these by-laws, are appointed by the shareholders' meeting on the basis of lists presented by Shareholders and by the Board of Directors, in such lists the candidates must be listed in numerical order. Should the retiring Board of Directors present its own candidate list, it must be deposited at the company's registered office and published in at least three Italian newspapers of general circulation, two of them business dailies, at least twenty days before the date set for the first call of the shareholders' meeting. Candidate lists presented by Shareholders must be deposited at the company registered office and published as indicated in the foregoing at least ten days before the date set for the first call of the shareholders' meeting.
Each Shareholder may present or take part in the presenting of only one candidate list and each candidate may appear in one list only or he will be ineligible.
Companies that are controlling entities or are under common control, as defined by Article 2359, first Paragraph, of the Civil Code, by the same entity of the company presenting a list shall not present nor take part in the presentation of another candidate list. Each candidate may appear in one list only or he will be ineligible.
Only those Shareholders who, alone or together with other Shareholders, represent at least 1 per cent of voting share capital at the ordinary shareholders' meeting may present candidate lists. In order to demonstrate the title on the number of shares necessary to present candidate lists, the Shareholders must present and/or deliver to the company registered office a copy of the certification issued by the authorised financial intermediaries that are depositaries of their shares at least five days prior to the date set for the first call of the shareholders' meeting.
Together with each list, within the aforementioned time limits, statements must be presented in which each candidate accepts his nomination and attests, in his own responsibility, that he possesses the requisites required by the norms in force for the corresponding appointments and that causes for his ineligibility and incompatibility are non existing.
Each person entitled to vote may vote for a candidate list only.
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; 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) 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.
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.
ARTICLE 18
18.1 If the shareholders' meeting has not appointed a Chairman, the Board will elect one of its members.
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 Managing Director 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 Meeting is considered duly held in the place where the Chairman and the Secretary are present.
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 Meeting.
ARTICLE 21
21.1 A majority of members of the Board must be present for a Board meeting to be valid.
21.2 Resolutions are taken with a majority vote of those present; should votes be equal, the person who chairs the Meeting has a casting vote.
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 Meeting and by the Secretary.
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 bylaws 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 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 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 in compliance with the limits set forth in Article 2381 of the Civil Code; in addition the Board of Directors may delegate powers to the Chairman for researching and promoting integrated projects and strategic international agreements. The Board of Directors may at any time withdraw the delegations of powers hereon; if the Board of Directors withdraws powers delegated to the Managing Director, a new Managing Director is simultaneously appointed.
The Board of Directors, upon proposal of the Chairman and in agreement with the Managing Director, may confer powers for single acts or categories of acts on other members of the Board of Directors. The Chairman and the Managing Director, in compliance with the limits of their delegations, may delegate and empower company employees or persons not belonging to the company to represent the company for single acts or specific categories of acts. Further, on proposal of the Managing Director and in agreement with the Chairman, the Board of Directors may also appoint one or more General Managers and determines the powers to be conferred to them.
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 Managing Director.
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 shareholders' meeting pursuant to Article 15.1;
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.
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 other than Eni S.p.A. subsidiaries may not be appointed Statutory Auditor; if elected, they will lapse.
28.2 The effective Auditors, except for the one appointed pursuant to Article 6.2 letter d) of these by-laws, and the alternate Auditors are appointed by the shareholders' meeting on the basis of lists presented by the Shareholders; in such lists candidates are listed in numerical order. For the presentation, deposit and publication of candidate lists the procedures set forth in Article 17.3 apply.
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 at least three years.
Two effective Auditors and one alternate Auditor will be drawn in such order from the list with 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.
To appoint effective or alternate Auditors for any reason not elected according to the terms of the aforementioned procedure, the shareholders' meeting will make a resolution with the majorities prescribed by the law.
The chairmanship of the Board of Statutory Auditors will go to the Auditor appointed pursuant to Article 6.2, letter d) of these by-laws. 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 pursuant to Article 17.3, letter b) of the by-laws; should the Chairman of the Board of the Statutory Auditors be replaced, Article 6.2, letter d) of these by-laws shall apply.
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' meeting and the Board of Directors, too.
Part VII - Financial Statements and Profits
ARTICLE 29
29.1 The business year ends on December 31 every year.
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 In the event the company is wound up, the shareholders' meeting will decide the manner of liquidation, appoint one or more liquidators and determine their powers and remuneration.
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 Treasury, Budget and Economic Planning 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.
Eni S.p.A.'s Shareholders' Meeting Regulation ("The Regulation")
Article 1 - Application
1. Ordinary and Extraordinary shareholders' meetings (the "Meetings" or the "Meeting") of Eni S.p.A. ("Eni"), a company incorporated under the Italian law with Registred Office in Rome, Piazzale Enrico Mattei, No. 1, are held pursuant to the norms set forth by this Regulation.
2. The Regulation approved by the Ordinary shareholders' meeting held on December 4, 1998, is at the Shareholders' disposal at the Company Registred Office and in the locations of the shareholders' meeting.
Article 2 - Participation to the Meetings
1. Attendance to the meetings is disciplined by the provisions of the current legislation, Eni by-laws and the Notice of the shareholders' meeting (the "Notice").
2. Subject to a request to be delivered to Eni Corporate Secretary (the "Secretary") according to the provisions set forth in the Notice at least two days before the relevant Meeting, and subject to the consent of the Chairman of the Meeting (the "Chairman"), financial analysts, experts, journalists and representatives of Eni Independent Auditors (the "Analysts") are allowed to attend the Meeting.
3. If deemed useful by the Chairman for the correct course of the Meeting, also in relation to the items in the Agenda, employees of the Company and its subsidiaries (the "Employees") may attend the Meeting.
Article 3 - Control of the Conditions Allowing Participation to the Meetings
1. Procedures for identification of persons wishing to attend the Meeting and controls of powers entitling their participation take place at the same location of the Meeting and begin an hour before the Meeting itself.
2. In order to simplify the aforementioned controls, those who intend to participate to the Meeting as legal or voluntary representatives of Shareholders and as Analysts, are requested to deliver to the Secretary the deeds entitling them to participate to the Meeting according to the provisions set forth in the Notice two days before the date of the Meeting.
Article 4 - Admittance to the Meeting
1. Subject to the execution of the identification and control procedures set forth in Article 3, paragraph 1, of the Regulation, persons are entitled to enter the Meeting room. As soon as the identification procedures are completed, each Shareholder or his representative (the "Shareholders" or the "Shareholder"), Employees and Analysts is given a badge to be worn until they leave the Meeting.
2. Shareholders wishing to leave the Meeting must contact the Meeting staff.
3. Unless otherwise provided by the Chairman, and notwithstanding the provisions applicable pursuant to Article 5 of the Regulation, the use of recorders, cameras and similar instruments is not allowed in the location of the Meeting.
Article 5 - Constitution and Opening of the Meeting
1. minutes of the Meeting are written down by a secretary, not necessarily chosen among Shareholders, if a Notary public is not appointed. The secretary is appointed by the Shareholders upon proposal of the Chairman. The secretary or the Notary may use reliable staff and recording instruments.
2. The Chairman may appoint one or more scrutineers, not necessarily chosen among Shareholders, and a Chairmanship Office (the "Office").
3. In order to assure order in the Meeting, the Chairman may apply to clerks recognisable through specific badges.
4. Pursuant to Article 14 of the by-laws, the Chairman, also through the scrutineers and the Office, controls the regularity of proxies and the right to attend the Meeting.
5. If the majority of capital necessary for the Meeting to start is not reached, the Chairman adjourns the Meeting to the next call, at least an hour after the time set in the Notice for the beginning of the Meeting.
6. Once the regular constitution has been ascertained, the Chairman opens the Meeting.
Article 6 - Interruption and Adjournment of the Meeting
1. If not otherwise resolved, the Meeting takes place in a single day. With the exclusion of Article 7, paragraph 4, of the Regulation, if necessary and if the Meeting does not vote against the proposal, the Chairman may interrupt the Meeting for periods no longer than two hours.
2. Notwithstanding Article 2374 of the Civil Code, the Meeting may resolve, with the majority of the share capital represented, the adjournment of the Meeting specifying the new location, day and hour. The term after which the adjournment may take place is set considering the cause of the interruption and cannot be longer than thirty days.
Article 7 - Discussion
1. The Chairman illustrates the items in the Agenda also through Directors, Auditors and Employees. The order of the items in the Agenda may be modified through a resolution of the shareholders' meeting voted by the majority of the share capital represented in the Meeting.
2. The Chairman directs the Meeting and guarantees fairness in the discussion and the right to intervene of Shareholders. In view of the foregoing, at the beginning of the Meeting, the Chairman sets the maximum duration of each intervention that may not ordinarily exceed fifteen minutes. The Chairman may: (i) invite to finish interventions if longer than the term set by the Chairman or not pertinent to the items in the Agenda; (ii) avoid clear excesses of Shareholders, also interrupting their interventions; (iii) and in extreme circumstances order that the Shareholder causing such situations leaves the Meeting until the discussion on the item in the Agenda ends.
3. The request of discussion on each item in the Agenda may be presented to the Office from the beginning of the Meeting and until the Chairman opens the discussion on the relevant item. If not otherwise resolved, persons entitled are invited to speak following the order of reservation of their requests. Each Shareholder may intervene only once on each item in the Agenda.
4. If not otherwise resolved, the Chairman, also through Directors, Auditors and Employees, answers to Shareholders at the end of all interventions on each item in the Agenda. In order to answer to the questions, the Chairman may interrupt the Meeting for no longer than two hours. At the end of the answers, the Chairman declares the end of discussion. Shareholders may not reply to the answers received. After the end of the discussion, only brief declarations of vote are allowed.
Article 8 - Voting Procedures
1. The Chairman resolves whether the voting procedures on each item in the Agenda will take place after the discussion on one item only or after the discussion on more than one item.
2. Before the beginning of the voting procedures, upon resolution of the Chairman, Shareholders who have not taken part to the discussion pursuant to Article 7, paragraph 3, of the Regulation are re-admitted to the Meeting.
3. The vote is open.
4. The Chairman regulates the voting procedures and may set a term for the exercise of the voting right. At the end of the voting procedures, the polls take place. Once the poll is over, the Chairman, also through the secretary or the Notary, declares the results to the Meeting.
5. Votes expressed differently from the way set by the Chairman are considered void.
6. Shareholders who vote against or who abstain on a proposal on an item in the Agenda shall give their name to the staff in charge. Once the voting rights have been exercised on each item in the Agenda, the Chairman declares the end of the Meeting.
Article 9 - General Provisions
1. For matters not expressly regulated by this Regulation, the norms of the Civil Code and specific laws concerning these matters and the by-laws will apply.
~~CERTIFICATION~~EXHIBIT 8
I.List of Eni's subsidiary for year 2003
Subsidiary Country of Incorporation Eni's interest (%)
Exploration & Production
Società Petrolifera Italiana SpA Italy 99.96
Stargas Italia SpA Italy 99.96
Stoccaggi Gas Italia SpA Italy 100.00
Agip Caspian Sea BV Netherlands 100.00
Agip Energy and Natural Nigeria 100.00
Resources (Nigeria) Ltd
Agip Karachaganak BV(in liquidation) Netherlands 100.00
Agip Mauritania BV Netherlands 100.00
Agip Oil Ecuador BV Netherlands 100.00
Eni A E P Ltd United Kingdom 100.00
(ex Agip Exploration
& Production Ltd)
Eni Algeria Exploration BV Netherlands 100.00.
(ex Agip Algeria Exploration BV)
Eni Algeria Ltd Sàrl Luxembourg 100.00
(ex Monument Resources
International Ltd Sàrl)
Eni Algeria Production BV Netherlands 100.00
(ex Agip Algeria Production BV)
Eni Ambalat Ltd United Kingdom 100.00
(ex Lasmo (Ambalat) Ltd)
Eni America Ltd USA 100.00
(ex Lasmo America Ltd)
Eni Angola Exploration BV Netherlands 100.00
(ex Agip Angola Exploration BV)
Eni Angola Production BV Netherlands 100.00
(ex Agip Angola Production BV)
Eni ANS Ltd United Kingdom 100.00
(ex Agip North Sea Ltd)
Eni AOG Ltd United Kingdom 100.00
(ex Agip Oil & Gas Ltd)
Eni AUL Ltd USA 100.00
(ex Lasmo (AUL) Ltd)
Eni Australia BV Netherlands 100.00
(ex Agip Australia BV)
Eni Australia Ltd United Kingdom 100.00
(ex Agip Australia Ltd)
Eni BBH Ltd United Kingdom 100.00
(ex Agip (BBH) Ltd)
Eni BBI Ltd United Kingdom 100.00
(ex Agip (BBI) Ltd)
Eni BB Ltd United Kingdom 100.00
(ex Agip (BB) Ltd)
Eni BBOH Ltd United Kingdom 100.00
(ex Agip (BBOH) Ltd)
Eni BB Petroleum Inc USA 100.00
Eni BB Pipeline Llc USA 100.00
(ex British-Borneo Pipeline Llc)
Eni Birch Ltd United Kingdom 100.00
(ex Agip Birch Ltd)
Eni Brupex Ltd United Kingdom 100.00
(ex Brupex Ltd)
Eni Bukat Ltd United Kingdom 100.00
(ex Lasmo (Bukat) Ltd)
Eni China BV Netherlands 100.00
(ex Agip China BV)
Eni Congo SA Congo 100.00
(ex Agip Congo SA)
Eni Croatia BV Netherlands 100.00
(ex Agip Croatia BV)
Eni Dación BV Netherlands 100.00
(ex Lasmo Venezuela BV)
Eni Deepwater Llc USA 100.00
(ex British-Borneo Deepwater Llc)
Eni Denmark BV Netherlands 100.00
(ex Agip Denmark BV)
Eni DMF Ltd United Kingdom 100.00
(ex Lasmo (DMF) Ltd)
Eni Elgin/Franklin Ltd United Kingdom 100.00
(ex Agip Elgin/Franklin Ltd)
Eni Energy BV Netherlands 100.00
(ex Agip Energy BV)
Eni Energy Ltd United Kingdom 100.00
(ex Monument Energy Ltd)
Eni Exploration BV Netherlands 100.00
(ex Agip Exploration BV)
Eni Finance Inc USA 100.00
(ex Lasmo Finance Inc)
Eni Forties Ltd United Kingdom 100.00
(ex Agip Forties Ltd)
Eni Gabon SA Gabon 99.97
(ex Agip Gabon SA)
Eni Ganal Ltd United Kingdom 100.00
(ex Lasmo (Ganal) Ltd)
Eni Grand Maghreb BV Netherlands 100.00
(ex Lasmo Grand Maghreb BV)
Eni Guibsen Exploration BV Netherlands 100.00
(ex Agip Guibsen Exploration BV)
Eni Indonesia Ltd United Kingdom 100.00
(ex Lasmo (Indonesia) Ltd)
Eni International Exploration Ltd United Kingdom 100.00
(ex Lasmo (International
Exploration) Ltd) United Kingdom
Eni International Ltd United Kingdom 100.00
(ex Lasmo International Ltd)
Eni International NA NV Sàrl Luxembourg 100.00
(ex Agip International (NA) NV)
Eni Investments Plc United Kingdom 100.00
(ex Agip Investments Plc)
Eni Iran BV Netherlands 100.00
(ex Agip Iran BV)
Eni Ireland BV Netherlands 100.00
(ex Agip Ireland BV)
Eni Jpda 03-13 Ltd United Kingdom 100.00
(ex Agip Australia 91-13 Ltd)
Eni Krueng Mane Ltd United Kingdom 100.00
(ex Lasmo Krueng Mane Ltd)
Eni Lasmo Plc United Kingdom 100.00
(ex Lasmo Plc)
Eni Linv Ltd United Kingdom 100.00
(ex Lasmo Investments Ltd)
Eni Liverpool Bay Ltd United Kingdom 100.00
(ex Monument (Liverpool Bay)
Petroleum Ltd)
Eni LNS Ltd United Kingdom 100.00
(ex Lasmo North Sea Plc)
Eni Malacca Ltd United Kingdom 100.00
(ex Lasmo Malacca Ltd)
Eni Malagot Ltd United Kingdom 100.00
(ex Lasmo (Malagot) Ltd)
Eni Marketing Inc USA 100.00
(ex British-Borneo Marketing Inc)
Eni Mep Ltd United Kingdom 100.00
(ex Monument Exploration
& Production Ltd)
Eni Methodplan Ltd United Kingdom 100.00
(ex Methodplan Ltd)
Eni MHH Ltd United Kingdom 100.00
(ex Monument Hydrocarbon
Holdings Plc)
Eni Middle East Ltd United Kingdom 100.00
(ex Lasmo Exploration
(Middle East) Ltd)
Eni Mitre Ltd United Kingdom 99.99
(ex Monument Petroleum Mitre Ltd)
Eni MOG Ltd United Kingdom 100.00
(ex Monument Oil & Gas Plc)
Eni Morocco BV (ex Lasmo Netherlands 100.00
Overseas Nederland (II) BV)
Eni Muara Bakau BV Netherlands 100.00
Eni Nederland BV Netherlands 100.00
(ex Lasmo Nederland BV)
Eni Neptune Ltd United Kingdom 100.00
(ex Neptune Oil Ltd)
Eni Nimex Ltd United Kingdom 100.00
(ex Nimex Resources Ltd)
Eni Norge AS Norway 100.00
(ex Norsk Agip AS)
Eni North Africa BV Netherlands 100.00
(ex Agip North Africa BV)
Eni Oil Algeria Ltd United Kingdom 100.00
(ex Lasmo Oil (Algeria) Ltd)
Eni Oil do Brasil SA Brazil 100.00
(ex Agip Oil do Brasil SA)
Eni Oil & Gas Inc USA 100.00
(ex Lasmo Oil & Gas Inc)
Eni Oil Holdings BV Netherlands 100.00
(ex Lasmo Holdings BV)
Eni Oil US Llc USA 100.00
(ex Agip Oil US Llc)
Eni Overseas Holdings Ltd United Kingdom 100.00
(ex Lasmo Overseas Holding Ltd)
Eni Pakistan Ltd United Kingdom 100.00
(ex Lasmo Oil Pakistan Ltd)
Eni Pakistan M Ltd Sàrl Luxembourg 100.00
(ex Lasmo (MP) Ltd Sarl)
Eni Papalang Ltd United Kingdom 100.00
(ex Agip Papalang Ltd)
Eni Petroleum BV Netherlands 100.00
(ex Agip Petroleum BV)
Eni Petroleum Co Inc USA 100.00
(ex Agip Petroleum Co Inc)
Eni Petroleum Exploration Co Inc USA 100.00
(ex Agip Petroleum Exploration Co Inc)
Eni Popodi Ltd United Kingdom 100.00
(ex Agip Popodi Ltd)
Eni Rapak Ltd United Kingdom 100.00
(ex Lasmo Rapak Ltd)
Eni Resources Ltd United Kingdom 100.00
(ex Monument Resources Ltd)
Eni Securities Ltd United Kingdom 100.00
(ex Lasmo Securities Ltd)
Eni Sesulu Ltd United Kingdom 100.00
(ex Lasmo Sesulu Ltd)
Eni TNS Holdings Ltd United Kingdom 100.00
(ex Lasmo (TNS) Holdings Ltd)
Eni TNS Ltd United Kingdom 100.00
(ex Lasmo (TNS) Ltd)
Eni Trading BV Netherlands 100.00
(ex Agip Trading BV)
Eni Trading Ltd United Kingdom 100.00
(ex Lasmo Trading Ltd)
Eni Trinidad and Tobago Netherlands 100.00
Exploration BV
(ex Agip Trinidad and Tobago
Exploration BV)
Eni Trinidad and Tobago Ltd Trinidad 100.00
(ex Agip Trinidad and Tobago Ltd)
Eni TTO Ltd United Kingdom 100.00
(ex Lasmo (TTO) Plc)
Eni Tunisia Bek BV Netherlands 100.00
(ex Lasmo Tunisia BV)
Eni Tunisia BV Netherlands 100.00
(ex Agip Tunisia BV)
Eni UFL Ltd United Kingdom 100.00
(ex Lasmo (UFAIL) Ltd)
Eni UHL Ltd United Kingdom 100.00
(ex Lasmo (UHL) Ltd)
Eni UKCS Ltd United Kingdom 100.00
(ex Agip (UKCS) Ltd)
Eni UK Ltd United Kingdom 100.00
(ex Agip (UK) Ltd)
Eni ULT Ltd United Kingdom 100.00
(ex Lasmo (ULT) Plc)
Eni ULX Ltd United Kingdom 100.00
(ex Lasmo (ULX) Ltd)
Eni USA Inc USA 100.00
(ex Lasmo (USA) Inc)
Eni US Operating Co Inc USA 100.00
Eni Venezuela BV Netherlands 100.00
(ex Agip Venezuela BV)
Eni Ventures Plc United Kingdom 100.00
(ex Agip Ventures Plc)
Ieoc Exploration BV Netherlands 100.00
Ieoc Production BV Netherlands 100.00
Lasmo (Cumi-Cumi) Ltd United Kingdom 100.00
Lasmo Grand Maghreb Ltd United Kingdom 100.00
Lasmo Insurance Ltd United Kingdom 100.00
Lasmo Oil Development Canada 100.00
(Canada) Ltd
Lasmo Sanga Sanga Ltd Bermuda 100.00
Lasmo (UPET) Inc Canada 100.00
Lasmo (WP) Inc USA 100.00
Lukagip Midstream BV Netherlands 50.00
Lukagip NV Netherlands 50.00
Nigerian Agip Exploration Ltd Nigeria 100.00
Nigerian Agip Oil Co Ltd Nigeria 100.00
Pennant Insurance Co Ltd Bermuda 100.00
Secab Niugini Pty Ltd Papua Nuova Guinea 100.00
Gas & Power
Acquedotto di Savona SpA Italy 67.04
Acquedotto Vesuviano SpA Italy 99.99
Compagnia Napoletana Italy 99.68
di Illuminazione e Scaldamento
col Gas SpA
Energia Sicilia Srl Italy 99.99
Eni Acqua Campania SpA Italy 49.04
EniPower SpA Italy 100.00
EniPower Trading SpA Italy 100.00
EniPower Trasmissione SpA Italy 100.00
Fiorentina Gas Clienti SpA Italy 99.99
Fiorentina Gas SpA Italy 51.03
GNL Italia SpA Italy 59.12
Greenstream SpA Italy 75.00
Italgas Hellas SpA Italy 99.99
Italgas Più SpA Italy 99.99
LNG Shipping SpA Italy 100.00
Napoletana Gas Clienti SpA Italy 99.68
Partecipazioni Industriali SpA Italy 99.99
Slim Sicilia SpA Italy 99.99
Snam Rete Gas SpA Italy 59.12
Società Azionaria per la Italy 67.04
Condotta di Acque Potabili
Società EniPower Ferrara Srl Italy 51.00
Società Italiana per il gas pA Italy 99.99
Adriaplin Doo Slovenia 50.99
Distribuidora de Gas Cuyana SA Argentina 45.59
Eni Gas & Power LNG Australia BV Netherlands 100.00
Eni Gas Trading Europe BV Netherlands 100.00
(ex Lasmo Overseas
Nederland (VII) BV)
Eni G & P Trading BV Netherlands 100.00
Gas Brasiliano Distribuidora SA Brazil 99.99
Greenstream BV Netherlands 75.00
Inversora de Gas Cuyana SA Argentina 75.99
Scogat - Société pour la Construction Tunisia 100.00
du Gazoduc Transtunisien SA
Sergaz - Société de Service Tunisia 66.67
du Gazoduc Transtunisien SA
Tigaz Rt Tiszantuli Hungary 49.99
Tigaz 2 Földgás Elosztó és Hungary 44.65
Trans Tunisian Pipeline Co Ltd United Kingdom 100.00
Refining & Marketing
AgipFuel SpA Italy 100.00
(ex Atriplex Srl)
AgipRete SpA Italy 100.00
(ex Reful Srl)
Big Bon Distribuzione SpA Italy 100.00
Costiero Gas Livorno SpA Italy 65.00
Ecofuel SpA Italy 100.00
Eni Portugal Investment SpA Italy 100.00
Intermode Trasporti Logistica Italy 100.00
Integrata SpA(ex Atriplex
Servizi Logistici e Trasporti Srl)
Italiana Petroli SpA Italy 100.00
(ex Italiana Petroli Srl)
Petrolig Srl Italy 70.00
Petroven Srl Italy 68.00
Praoil Oleodotti Italiani SpA Italy 100.00
Raffineria di Gela SpA Italy 100.00
(ex Raffineria di Gela Srl)
Agip Austria GmbH Austria 100.00
(ex Agip Austria Aktiengesellschaft)
Agip Benelux BV Netherlands 100.00
Agip Bratislava Sro Slovakia 100.00
Agip Ceska Republika Sro Czech Republic 100.00
(ex Agip Ceska Republika Sro)
Agip Deutschland GmbH Germany 100.00
(ex Agip Deutschland AG)
Agip do Brasil SA Brazil 100.00
Agip Ecuador SA Ecuador 100.00
Agip España SA Spain 100.00
Agip Hungaria Rt Hungary 99.41
Agip Lubricantes SA Argentina 99.99
Agip Lubricants (Pty) Ltd South Africa 100.00
Agip Pannonia Kft Hungary 99.41
Agip Portugal - Combustiveis SA Portugal 100.00
Agip Romania SA Romania 99.97
Agip Schmiertechnik GmbH Germany 100.00
Agip Slovenija Doo Slovenia 100.00
Agip Slovensko Sro Slovakia 100.00
Agip (Suisse) SA Switzerland 99.99
American Agip Co Inc USA 100.00
Esain SA Ecuador 100.00
SDCL - Société de Distribution France 100.00
de Carburants et Lubrifiants SA
Petrochemicals
Polimeri Europa SpA Italy 100.00
Dunastyr Polystyrene Hungary 100.00
Manufacturing Co Ltd
Polimeri Europa Americas Inc USA 100.00
Polimeri Europa Benelux SA Belgium 100.00
Polimeri Europa Distribution France 99.99
France SAS
Polimeri Europa Switzerland 100.00
Distribution SA
Polimeri Europa Elastomères France 99.99
France SA
Polimeri Europa France Snc France 100.00
Polimeri Europa GmbH Germany 100.00
Polimeri Europa Germany 100.00
Handelsgesellschaft mbH
(ex EniChem Deutschland GmbH)
Polimeri Europa Ibérica SA Spain 100.00
Polimeri Europa Pacific Ltd China 99.99
Polimeri Europa UK Ltd United Kingdom 100.00
Oilfield Services Construction and Engineering
Oilfield Services and Construction
Saipem SpA Italy 43.00
Bos Italia Srl Italy 43.00
Energy Maintenance Services SpA Italy 71.50
Intermare Sarda SpA Italy 43.00
Rosbos Scrl Italy 21.50
Saipem Energy International SpA Italy 43.00
Sonsub SpA Italy 43.00
Boscongo SA South Africa 42.99
(ex Bouygues Offshore Congo SA)
Bos Corp. Inc USA 43.00
Bos Shelf Ltd. Society Azerbaijan 21.50
Bouygues Offshore Ltd United Kingdom 43.00
Bouygues Offshore - UIE Ltd United Kingdom 43.00
Camom Gesellschaft Germany 43.09
fur Instandhaltung
und Montagen GmbH
Camom SA France 43.00
Canalisations. Tuyauteries France 42.99
Soudées SA
Conception Maintenance France 42.97
Petrochimique de l’Ouest
Csmi Snc France 43.00
Dalia Floater Angola Snc France 11.92
Delong Hersent - Estudos. Portugal 43.00
Construções Maritimas
e Participações. Unipessoal Lda
Doris USA Inc USA 21.50
EMC Netherlands BV Netherlands 43.00
Entreprise Nouvelle Marcellin SA France 43.00
Er Sai Caspian Contractor Llc Kazakhstan 21.50
ERS - Equipment Rental Netherlands 43.00
& Services BV
Eurig GmbH & Co Kg Germany 21.50
European Marine Contractors Llc USA 75.06
European Marine Contractors Ltd United Kingdom 75.06
European Marine Investments Ltd United Kingdom 94.30
FPSO Firenze Produçao de
Petrolio Lda Portugal 21.50
FPSO Mystras (Nigeria) Ltd Nigeria 21.50
FPSO Mystras Produçao de
Petroleo Lda Portugal 21.50
Global Petroprojects Switzerland 43.00
Services AG SA Ltd
Guangdong Contractor Snc France 25.80
Hazira Cryogenic Engineering India 23.59
& Construction Management
Private Ltd
Hazira Marine Engineering India 43.00
& Construction Management
Private Ltd
Katran-k Ltd Liability Co Moscow 21.50
International Development India 43.00
Lipardiz Construçao de Estruturas
Maritimas Lda Portugal 21.50
Process and Engineering Ltd
Moss Maritime AS Norway 43.00
Moss Maritime Inc USA 43.00
Moss Offshore AS Norway 43.00
Nigerian Services Nigeria 43.00
& Supply Co Ltd
Offshore Design Engineering Ltd United Kingdom 43.00
Petrex SA Peru 43.00
Petro-Marine/BCI USA 43.00
Engineering Inc
Petromar Lda Angola 30.10
PT Bouygues Offshore Indonesia 43.00
Indonesia Ll
PT Saipem Indonesia Indonesia 43.00
PT Sofresid Indonesia Ll Indonesia 43.00
Saibos Akogep Snc France 30.10
Saibos Construções Portugal 43.00
Maritimas Lda
Saibos Fze Dubai 43.00
Saibos SAS France 43.00
(ex Saibos (Services) SAS)
Saipar Drilling Co BV Netherlands 21.50
Saipem Aban Drilling Co
Private Ltd India 21.50
Saipem Algerie SA Algeria 42.98
(ex Bos-Sofresid-Algerie SpA)
Saipem Asia Sdn Bhd Malaysia 43.00
Saipem Contracting (Nigeria) Ltd Nigeria 41.71
Saipem do Brasil Serviçõs Brazil 43.00
de Petroleo Ltda
(ex Saipem do Brasil Ltda)
Saipem Energy International Ltd United Kingdom 43.00
Saipem Holding France SAS France 43.00
Saipem Inc USA 43.00
Saipem International BV Netherlands 43.00
Saipem Luxembourg SA Luxembourg 43.00
Saipem (Malaysia) Sdn Bhd Malaysia 17.20
Saipem Mediterranean Croatia 43.00
Services Llc
Saipem (Nigeria) Ltd Nigeria 38.45
Saipem - Perfurações Portugal 43.00
e Construções Petroliferas
America do Sul Lda
Saipem (Portugal) Comércio Portugal 43.00
Maritimo. Sociedade Unipessoal Lda
Saipem (Portugal) - Gestão Portugal 43.00
de Participações SGPS
Sociedade Unipessoal SA
Saipem SA France 43.00
Saipem Singapore Pte Ltd Singapore 43.00
(ex Bouygues Offshore
Singapore Private Ltd)
Saipem UK Ltd United Kingdom 55.83
SAIR Costrucoes Mecanicas
de Estruturas Maritimas Lda Portugal 36.98
Sas Port de Tanger SpA France 43.00
Semplificata (Francia)
Saudi Arabian Saipem Ltd Saudi Arabia 25.80
SB Construction and Maritime Netherlands 43.00
Services BV
Services et Equipements France 42.89
Gaziers et Petroliers SA
Servicios de Costruçiones
Caucedos Sarl Rep. Dominicana 21.37
Société de Construction France 42.89
d’Oleoducs Snc
Société d’Etudes d’Oleoducs Snc France 43.00
Société Nouvelle Technigaz SA France 42.98
Société pour la Realisation du Port
de Tanger Mediterranée Snc Marocco 14.38
Sofresid Aquitaine SA France 42.80
(in liquidation)
Sofresid Engineering SA France 42.99
(ex Sofresid Ouest SA)
Sofresid Group SA France 43.00
Sofresid Nord Snc France 43.00
(in liquidation)
Sofresid Provence Snc France 43.00
(in liquidation)
Sofresid SA France 43.00
Sonsub A/S Norway 43.00
Sonsub Inc USA 43.00
Sonsub International Pty Ltd Australia 43.00
Sonsub Ltd United Kingdom 43.00
Star Gulf Free Zone Co United Arab Emirates 43.00
Starstroi Ltd Liability Co Fed. Russia 21.50
Stts Snc France 25.80
Studeurop SA France 42.99
TBE Ltd Egypt 30.08
Tss Dalia Snc France 11.82
Upstream Contructors
International Fzco United Arab Emirates 21.50
Engineering
Snamprogetti SpA Italy 100.00
Aquater SpA Italy 100.00
ASG Scarl Italy 55.34
Consorsio Eni per l’Alta Velocità
Consorzio Snamprogetti Abb Lg
Chemicals Italy 50.00
Modena Scarl Italy 59.33
Rodano Consortile Scarl Italy 53.57
Snamprogetti Services SpA Italy 100.00
Snamprogetti Sud SpA Italy 100.00
Sp – Tkp Fertilizer Srl Italy 50.00
Andromeda Consultoria Tecnica Brazil 100.00
e Representações Ltda
CMS&A Wll Qatar 20.00
Rpco Enterprises Lts Cipro 50.00
Snamprogetti France Sàrl France 100.00
Snamprogetti Ltd United Kingdom 99.99
Snamprogetti Lummus Gas Ltd Malta 99.00
Snamprogetti Management Switzerland 99.99
Services SA
Snamprogetti Netherlands BV Netherlands 100.00
Snamprogetti Saudi Arabia Ltd Saudi Arabia 74.99
Snamprogetti USA Inc USA 99.99
Spf – Tkp Omifpro Snc France 50.00
Other Activities
Agenzia Giornalistica Italia SpA Italy 100.00
Ambiente SpA Italy 99.99
Eni Corporate University SpA Italy 100.00
EniData SpA Italy 99.99
EniTecnologie SpA Italy 100.00
Ing. Luigi Conti Vecchi SpA Italy 99.99
Servizi Aerei SpA Italy 100.00
Servizi Turistici Grantour SpA Italy 100.00
Sieco SpA Italy 90.87
Syndial SpA - Attività Italy 99.99
Diversificate(ex EniChem SpA) 57.15
Tecnomare SpA Italy
Corporate and financial companies
Società Finanziaria Eni SpA Enifin Italy 100.00
Padana Assicurazioni SpA Italy 99.73
Serleasing SpA Italy 99.61
Società Finanziamenti Italy 99.61
Idrocarburi - Sofid - SpA
Sofidsim - Società Italy 99.61
di Intermediazione Mobiliare SpA
Eni Coordination Center SA Belgium 100.00
Eni International Bank Ltd Bahamas 100.00
Eni International BV Netherlands 100.00
Certifications as separate documents filed as exhibits
EXHIBIT 12.1
Certification
I, Vittorio Mincato, certify that:
1. I have reviewed this annual report on Form 20-F ~~(the «annual report»)~~ of Eni ~~SpA, a company incorporated under the laws of Italy;~~SpA;

2. Based on my knowledge, this ~~annual~~ 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 ~~annual~~ report;

3. Based on my knowledge, the financial statements, and other financial information included in this ~~annual~~ report, fairly present in all material respects the financial condition, results of operations and cash flows of the ~~registrant~~company as of, and for, the periods presented in this ~~annual~~ report;

4. The ~~registrant’s~~company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules ~~13a-14~~13a-15(e) and ~~15d-14)~~15d-15(e)) for the ~~registrant~~company and have:
a) (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 ~~registrant,~~company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this ~~annual~~ report is being prepared;

b) (b) Evaluated the effectiveness of the ~~registrant’s~~company’s disclosure controls and procedures ~~as of a date within 90 days prior to the filing date of this annual report (the «Evaluation Date»);~~ and
c) ~~Presented~~ presented in this ~~annual~~ report our conclusions about the effectiveness of the disclosure controls and procedures, ~~based on our evaluation~~ as of the ~~Evaluation Date;~~end of the period covered by this report based on such evaluation; and
(c) 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 ~~registrant’s~~company’s other certifying ~~officers~~officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the ~~registrant’s~~company’s auditors and the audit committee of ~~registrant’s~~the company’s board of directors (or persons performing the equivalent functions):
a) (a) All significant deficiencies and material weaknesses in the design or operation of internal ~~controls~~control over financial reporting which ~~could~~are reasonably likely to adversely affect the ~~registrant’s~~company’s ability to record, process, summarize and report financial ~~data and have identified for the registrant’s auditors any material weaknesses in internal controls;~~information; and

b) (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the ~~registrant’s~~company’s internal ~~controls; and~~control over financial reporting.

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: June ~~30, 2003~~
25, 2004
/s/VITTORIO MINCATO
Vittorio Mincato
Title: Managing Director and Chief Executive Officer
~~CERTIFICATION~~EXHIBIT 12.2
Certification
I, Roberto Jaquinto, certify that:
1. I have reviewed this annual report on Form 20-F ~~(the «annual report»)~~ of Eni ~~SpA, a company incorporated under the laws of Italy;~~SpA;

2. Based on my knowledge, this ~~annual~~ 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 ~~annual~~ report;

3. Based on my knowledge, the financial statements, and other financial information included in this ~~annual~~ report, fairly present in all material respects the financial condition, results of operations and cash flows of the ~~registrant~~company as of, and for, the periods presented in this ~~annual~~ report;

4. The ~~registrant’s~~company’s other certifying ~~officers~~officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules ~~13a-14~~13a-15(e) and ~~15d-14)~~15d-15(e)) for the ~~registrant~~company and have:
a) (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 ~~registrant,~~company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this ~~annual~~ report is being prepared;

b) (b) Evaluated the effectiveness of the ~~registrant’s~~company’s disclosure controls and procedures ~~as of a date within 90 days prior to the filing date of this annual report (the «Evaluation Date»);~~ and
c) ~~Presented~~ presented in this ~~annual~~ report our conclusions about the effectiveness of the disclosure controls and procedures, ~~based on our evaluation~~ as of the ~~Evaluation Date;~~end of the period covered by this report based on such evaluation; and
(c) 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 ~~registrant’s~~company’s other certifying ~~officers~~officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the ~~registrant’s~~company’s auditors and the audit committee of ~~registrant’s~~the company’s board of directors (or persons performing the equivalent functions):
a) (a) All significant deficiencies and material weaknesses in the design or operation of internal ~~controls~~control over financial reporting which ~~could~~are reasonably likely to adversely affect the ~~registrant’s~~company’s ability to record, process, summarize and report financial ~~data and have identified for the registrant’s auditors any material weaknesses in internal controls;~~information; and

b) (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the ~~registrant’s~~company’s internal ~~controls; and~~control over financial reporting.
6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: June ~~30, 2003~~
25, 2004
/s/ROBERTO JAQUINTO
~~Roberto Jaquinto~~
ROBERTO JAQUINTO
Title: The ~~Group Senior Vice President for Administration~~GROUP SENIOR VICE PRESIDENT For ADMINISTRATION
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, 2003 (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: June 25, 2004
/s/VITTORIO MINCATO
Vittorio Mincato
Title: Managing Director and 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.
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:
the Annual Report on Form 20-F of the Company for the year ended December 31, 2003 (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: June 25, 2004
/s/ROBERTO JAQUINTO
ROBERTO JAQUINTO
Title: The GROUP SENIOR VICE PRESIDENT For ADMINISTRATION
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.
REPORT OF INDEPENDENT ~~AUDITORS~~REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
of Eni ~~SpA~~S.p.A.
We have audited the accompanying consolidated balance sheets of Eni ~~SpA~~S.p.A. and its subsidiaries as of December 31, ~~2002~~2003 and ~~2001,~~2002, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years ~~then~~in the period ended December 31, 2003, all expressed in euro. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of ~~Snam Rete Gas SpA (60% owned), Italgas — Società Italiana per il Gas pA (44% owned), Saipem SpA (43% owned) and Eni Portugal Investment SpA (100% owned)~~certain subsidiaries, which statements, in the aggregate, reflect total assets of 2124 and 2021 percent of the related consolidated totals as of December 31, ~~2002~~2003 and ~~2001,~~2002, respectively, and total revenues of 15, 13 and 11 percent of the related consolidated totals for the years ended December 31, 2003, 2002 and 2001, respectively. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for ~~Snam Rete Gas SpA, Italgas — Società Italiana per il Gas pA, Saipem SpA and Eni Portugal Investment SpA,~~those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with ~~auditing~~the standards ~~generally accepted in~~of the ~~United States of America.~~Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eni ~~SpA~~S.p.A. and its subsidiaries at December 31, ~~2002~~2003 and ~~2001,~~2002, and the results of their operations and their cash flows for each of the three years ~~then~~in the period ended December 31, 2003, in conformity with the Italian law governing consolidated financial statements and generally accepted accounting principles in Italy.
     The consolidated statements of income, of cash flows and of changes in shareholders’ equity of Eni SpA and its subsidiaries for the year ended December 31, 2000, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those consolidated statements in their report dated April 6, 2001.
The accounting principles referred to above vary in certain significant respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of consolidated net income expressed in euro for the years ended December 31, 2002 and 2001, and the determination of consolidated shareholders’ equity also expressed in euro at December 31, 2002 and 2001,Information relating to the ~~extent summarized~~nature and effect of such differences is presented in Note 28 to the consolidated financial statements.

PricewaterhouseCoopers ~~SpA~~S.p.A.
Rome, April ~~29, 2003~~26, 2004
Table of Contents
~~THE FOLLOWING~~INDEPENDENT AUDITOR'S REPORT ~~IS A COPY OF A REPORT PREVIOUSLY ISSUED BY~~
~~ARTHUR ANDERSEN SpA AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN SpA~~Italian statutory consolidated financial statements
~~REPORT OF INDEPENDENT AUDITORS~~
To the ~~Shareholders~~ Stockholders
of
~~Eni SpA:~~ Saipem S.p.A.
We have audited the ~~accompanying~~Italian statutory consolidated balance sheets of ~~Eni SpA (an Italian corporation)~~Saipem S.p.A. and subsidiaries (the ~~«Company»~~"Group") as of December 31, ~~1999~~2003, and ~~2000,~~2002, and the related consolidated statements of income, changes in ~~shareholders’~~shareholders' equity and cash flows for ~~each of~~ the years in the three-year period ended December 31, ~~2000,~~2003, expressed in ~~million~~millions of Euro. These financial statements (not presented separately herein) are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on these financial statements ~~based on our audits. We did not audit the financial statements~~ of certain subsidiaries, ~~prepared in accordance with generally accepted accounting principles in Italy, and~~ which reflect total assets of ~~15% and 19%~~4% as of December 31, ~~1999~~2003 and ~~2000, respectively,~~2002 and revenues of ~~11%, 11%~~7% and 9%13% of the related consolidated totals for each of the years ended December 31, 1998, 1999 and 2000, respectively, of the consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of other auditors.
     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit included examining, on a test basis, evidence supporting the amounts (including the conversion of the financial statements of the subsidiaries referred to above to generally accepted accounting principles in the United States) and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.
     In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eni SpA and subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in Italy.
     The accounting practices of the Company used in preparing the accompanying financial statements conform with accounting principles generally accepted in Italy, but do not conform with accounting principles generally accepted in the United States. A description of these differences and a reconciliation of net income and shareholders’ equity to U.S. generally accepted accounting principles are set forth in Notes 28, 29 and 30 of the Notes to the Consolidated Financial Statements.
~~Rome, Italy,~~
~~April 6, 2001~~
~~Arthur Andersen SpA~~
~~REPORT OF INDEPENDENT AUDITORS~~
~~To the Shareholders of~~
~~Snam Rete Gas SpA~~
     ~~We have audited the balance sheets of Snam Rete Gas SpA (an Italian corporation) as of December 31, 2001~~2003 and 2002 and the related statements of income, changes in shareholders’ equity and cash flows for each for the two periods then ended, expressed in euro (which financial statements are not included herein). Snam Rete Gas SpA, incorporated on November 15, 2000 and operating since July 1, 2001, date of the contribution by Snam SpA (now Eni SpA Divisione Gas & Power) of the business related to natural gas transportation, dispatching and regasification services, has ended its first financial period on December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
     In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of Snam Rete Gas SpA as of December 31, 2001 and 2002, and the results of their operations, and their cash flows for each of the two periods then ended and in conformity with generally accepted accounting principles in Italy.
     In the current and past periods the Company has made certain provisions, essentially related to depreciation exceeding that computed on the basis of useful life of tangible assets, exclusively for tax purposes. The effects originating from this accounting treatment are described in the explanatory notes.
~~Milan, Italy~~
~~March 28, 2003~~
~~Deloitte & Touche Italia SpA~~
~~(A former member firm of Andersen Worldwide.~~
~~Deloitte & Touche Italia SpA has entered into an~~
~~agreement to associate with Deloitte & Touche SpA)~~
~~Piergiulio Bizioli~~
~~Partner~~
~~INDEPENDENT AUDITORS’ REPORT~~
~~Italian statutory consolidated financial statements~~
~~To the Stockholders~~
~~of Italgas — Società Italiana per il Gas p.A.~~
     We have audited the Italian statutory consolidated balance sheet of Italgas — Società Italiana per il Gas pA and subsidiaries (the «Group») as of December 31, 2002 and 2001, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2002. These financial statements (not presented separately herein) are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain subsidiaries which statements represent assets constituting respectively 16% and 19% of the consolidated assets as of December 31, 2002 and 2001.respectively. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these subsidiaries is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the Italian statutory consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ~~Italgas — Società Italiana per il Gas pA~~Saipem S.p.A. and subsidiaries as of December 31, ~~2002~~2003, the consolidated financial position of Saipem S.p.A. and ~~2001,~~subsidiaries as of December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the years in the ~~two-year~~three-year period ended ~~December 31, 2002, in conformity with the accounting principles governing the presentation of the consolidated statutory financial statements in Italy.~~
~~Turin, Italy~~
~~April 3, 2003~~
~~Reconta Ernst Young SpA~~
~~REPORT OF INDEPENDENT AUDITORS~~
~~To the Shareholders of~~
~~Saipem SpA~~
     ~~We have audited the consolidated balance sheets of Saipem SpA (an Italian corporation) (the «company»)~~operations and ~~subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of income, changes in shareholder’s equity and~~their cash flows for each of the years in the three-year period ended December 31, ~~2000, expressed~~2003, in ~~Euro~~conformity with general accepted accounting principles in Italy.
April 6, 2004

/s/ Reconta Ernst & Young

Milan, Italy
INDEPENDENT AUDITORS’ REPORT
Italian statutory financial statements
To the Stockholders
of Italgas – Società Italiana per il Gas p.A.
We have audited the Italian statutory balance sheet of Italgas – Società Italiana per il Gas p.A. as of December 31, 2003, and the related statement of income, changes in shareholders’ equity and cash flows for the year then ended. These financial statements (not presented separately herein)~~. These financial statements~~ are the responsibility of the ~~company’s~~Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain subsidiaries which ~~reflect~~represent 12% of total assets ~~of 9% and 10%~~ as of December 31, ~~1999 and 2000, respectively, and revenues of 16%, 23% and 18% for the years ended December 31, 1998, 1999 and 2000, respectively, of the consolidated totals.~~2003. Those ~~financial~~ statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for ~~those entities,~~these subsidiaries, is based solely on the reports of the ~~other~~others auditors.
We conducted our ~~audits~~audit in accordance with auditing standards generally accepted ~~in Italy which are consistent with those~~ in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ~~consolidated~~ financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall ~~consolidated~~ financial ~~statement~~statements presentation. We believe that our ~~audits~~audit and the reports of ~~the other~~others auditors provide a reasonable basis for our opinion.
In our opinion, based on our ~~audits~~audit and on the reports of ~~the~~ other auditors, the ~~consolidated~~Italian statutory financial statements referred to above present fairly, in all material respects, the financial position of ~~Saipem SpA and subsidiaries~~Italgas – Società Italiana per il Gas p.A. as of December 31, ~~1999 and 2000, and~~2003, the ~~results~~result of ~~their~~its operations and ~~their~~its cash flows for ~~each of~~ the ~~years in the three-year period~~year ended, ~~December 31, 2000~~ in conformity with generally accepted accounting principles in Italy.
~~Milan,~~Turin, Italy

/s/ Reconta Ernst & Young S.p.A.

April ~~11, 2001~~6, 2004
~~KPMG SpA~~
INDEPENDENT ~~AUDITORS’~~AUDITOR'S REPORT
Italian statutory consolidated financial statements
To the Stockholders
~~Saipem SpA~~of Italgas-Società Italiana per il Gas p.A.
We have audited the Italian statutory consolidated balance ~~sheets~~sheet of ~~Saipem SpA~~of Italgas-Società Italiana per il Gas p.A. and subsidiaries (the ~~«Group»~~"Group") as of December 31, 2002 and 2001, and the related consolidated ~~statements~~statement of income, changes in shareholders' equity and ~~retained earnings~~cash flows for each of the years in the two-year period ended December 31, 2002. These financial statements (not presented separately herein) are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain subsidiaries which statements represent assets constituting respectively 4%16% and ~~13%~~19% of the consolidated assets ~~and net sales~~ as of December 31, 2002 and ~~for the year then ended.~~2001. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the Italian statutory consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ~~Saipem SpA~~Italgas-Società Italiana per il Gas p.A. and subsidiaries as of December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2002, in conformity with the accounting principles governing the presentation of consolidated statutory financial statements in Italy.
~~Milan,~~Turin, Italy
~~April 4, 2003~~

/s/ Reconta Ernst & Young ~~SpA~~S.p.A.

April 3, 2003
INDEPENDENT AUDITORS’ REPORT
Slovenian statutory financial statements
To the Stockholders
of ADRIAPLIN d.o.o.
We have audited the Slovenian statutory balance sheet of ADRIAPLIN d.o.o. as of December 31, 2003, and the related statements of income for the year ended December 31, 2003. These financial statements (not presented separately herein) are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing and with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Slovenian statutory financial statements referred to above present fairly, in all material respects, the financial position of ADRIAPLIN d.o.o. as of December 31, 2003, and the result of its operations for the year ended December 31, 2003, in conformity with generally accepted accounting principles in Slovenia.
Ljubljana, Slovenia

March 12, 2004

Ernst & Young
INDEPENDENT AUDITOR'S REPORT
Italian statutory financial statements
To the Stockholders
of Compagnia Napoletana di Illuminazione e Scaldamento Col Gas S.p.A.
We have audited the Italian statutory balance sheet of Compagnia Napoletana di Illuminazione e Scaldamento Col Gas S.p.A. as of December 31, 2003, and the related statement of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements (not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Italian statutory financial statements referred to above present fairly, in all material respects, the financial position of Compagnia Napoletana di Illuminazione e Scaldamento Col Gas S.p.A. as of December 31, 2003, the result of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in Italy.
Naples, Italy

/s/ Reconta Ernst & Young S.p.A.

March 31, 2004
REPORT OF ~~THE~~ INDEPENDENT AUDITORS
To the ~~Shareholders~~stockholders of
Eni Portugal Investment ~~SpA~~S.p.A.
1.
1.
We have audited the balance sheets of Eni Portugal Investment ~~SpA~~S.p.A. (an Italian corporation) as of December 31, ~~2001~~2002 and ~~2002,~~2003, and the related consolidated statements of income, changes in ~~stockholders’~~shareholders' equity and cash flows for each of the ~~two~~ periods ~~then~~in the three-year period ended December 31, 2003 expressed in ~~euro~~Euro (which financial statements are not included herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

2.
2.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

3.
3.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of Eni Portugal Investment ~~SpA~~S.p.A. as of December 31, ~~2001~~2002 and ~~2002,~~2003 and the results of their operations and their cash flows for each of the ~~two~~ periods ~~then~~in the three-year period ended December 31, 2003, in conformity with generally accepted accounting principles in Italy.
/s/ Deloitte Touche
Rome, Italy

May ~~8, 2003~~7, 2004
INDEPENDENT AUDITOR'S REPORT
Italian statutory financial statements
~~Deloitte~~To the Stockholders
of Fiorentinagas S.p.A.
We have audited the Italian statutory balance sheet of Fiorentinagas S.p.A. as of December 31, 2003, and the related statement of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements (not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Italian statutory financial statements referred to above present fairly, in all material respects, the financial position of Fiorentinagas S.p.A. as of December 31, 2003, the result of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in Italy.
Florence, Italy

/s/ Reconta Ernst & ~~Touche Italia SpA~~Young S.p.A.

April 8, 2004
INDEPENDENT AUDITOR'S REPORT
Italian statutory financial statements
~~(A former member firm of Andersen Worldwide.~~
~~Deloitte & Touche Italia SpA has entered into an~~
~~agreement to associate with Deloitte & Touche SpA)~~
~~Gabriele Rosa~~
~~Partner~~
To the Stockholders
of Fiorentinagas Clienti S.p.A.
We have audited the Italian statutory balance sheet of Fiorentinagas Clienti S.p.A. as of December 31, 2003, and the related statement of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements (not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Italian statutory financial statements referred to above present fairly, in all material respects, the financial position of Fiorentinagas Clienti S.p.A. as of December 31, 2003, the result of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in Italy.
Florence, Italy

/s/ Reconta Ernst & Young S.p.A.

April 8, 2004
INDEPENDENT AUDITOR'S REPORT
Italian statutory financial statements
To the Stockholders
of Italgas Più S.p.A.
We have audited the Italian statutory balance sheet of Italgas Più S.p.A. as of December 31, 2003, and the related statement of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements (not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Italian statutory financial statements referred to above present fairly, in all material respects, the financial position of Italgas Più S.p.A. as of December 31, 2003, the result of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in Italy.
Turin, Italy

/s/ Reconta Ernst & Young S.p.A.

April 5, 2004
~~BALANCE SHEETS~~INDEPENDENT AUDITORS’ REPORT
~~(Amounts stated~~Hungarian statutory financial statements
To the Stockholders
of Mol-Gáz Kereskedelmi Kft.
We have audited the Hungarian statutory balance sheet of Mol-Gáz Kereskedelmi Kft. as of December 31, 2003, which shows a balance total of 000HUF 15,553,956 and a loss of the year of 000HUF 208,007, and the related statement of income for the year ended December 31, 2003. These financial statements (not presented separately herein) are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in ~~million~~ accordance with the Hungarian statutory auditing standards and the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Hungarian statutory financial statements referred to above present fairly, in all material respects, the financial position of Mol-Gáz Kereskedelmi Kft. as of December 31, 2003, and the result of its operations for the year ended December 31, 2003, in conformity with generally accepted accounting principles in Hungary.
Without qualifying our opinion, we draw the attention of the shareholders to the fact that the accompanying annual financial statements for 2003 indicate a significant operating loss and loss for the year and that current liabilities and accrued expenses & deferred income exceed current assets and prepaid expenses & accrued income by THUF 4,190,487. In order to ensure the Company's ability to continue operations on a going concern basis, the Company has developed a plan as set out on page 65 of the notes to the financial statements. The validity of this basis depends on TIGÁZ Rt continuing its support by providing adequate funds or on other third party financing arrangements becoming available. In the absence of such support, there is a significant risk that the Company will not be able to continue operating on a going concern basis. The accompanying financial statements have been drawn up based on the going concern assumption and do not contain the effects of adjustments which may become necessary should this assumption become invalid.
/s/ Ernst & Young Kft.
Budapest, Hungary
February 13, 2004
€INDEPENDENT AUDITOR'S REPORT
Italian statutory financial statements
To the Stockholders
of Napoletanagas Clienti S.p.A.
We have audited the Italian statutory balance sheet of Napoletanagas Clienti S.p.A. as of December 31, 2003, and the related statement of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements (not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Italian statutory financial statements referred to above present fairly, in all material respects, the financial position of Napoletanagas Clienti S.p.A. as of December 31, 2003, the result of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in Italy.
Naples, Italy

/s/ Reconta Ernst & Young S.p.A.

March 31, 2004
REPORT OF INDEPENDENT AUDITORS
To the stockholders of
Snam Rete Gas S.p.A.
We have audited the consolidated balance sheets of Snam Rete Gas S.p.A. (an Italian corporation) and its subsidiary (the “Company”) as of December 31, 2002 and 2003, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the periods in the three-year period ended December 31, 2003 expressed in euro (which consolidated financial statements are not enclosed herein). Snam Rate Gas S.p.A. and its subsidiary GNL Italia S.p.A., incorporated respectively on November 15, 2000 and on July 27, 2001 and operating since the contribution by Snam S.p.A. (now Eni S.p.A. – Divisione Gas & Power), of the business related to natural gas transportation, dispatching, and regasification services, have ended the first financial period on December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We concluded our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Snam Rete Gas S.p.A. and subsidiary as of December 31, 2002 and 2003 and the results of their operations and their cash flows for each of the periods in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in Italy.
/s/ Deloitte Touche
Milan, Italy

April 5, 2004
INDEPENDENT AUDITOR'S REPORT
Italian statutory consolidated financial statements
To the Stockholders
of Società Azionaria per la Condotta di Acque Potabili p.A. ("Acque Potabili S.p.A.")

Note Dec. 31, 2001 Dec. 31, 2002

€ €
ASSETS

Current assets:
Cash and cash equivalents 1,390 3,265
Marketable securities 3 1,365 1,208
Receivables, net 4 13,654 13,530
Inventories, net: 5

Crude oil, natural gas and petroleum products
1,638 1,821

Chemical products
497 622

Work in progress on long-term contracts
267 184

Other
411 573
Total inventories 2,813 3,200
Accrued interest and other 444 573
Total current assets 19,666 21,776
Non-current assets:
Fixed assets, net of accumulated depreciation, amortization and writedowns 6 33,314 33,693
Receivables, net 4 2,678 2,500
Investments 7 3,012 2,779
Intangible assets 8 2,843 3,175
Other 9 1,223 1,885
Total non-current assets 43,070 44,032
Total assets 62,736 65,808
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Short-term debt 11 5,231 7,890
Current portion of long-term debt 11 1,233 980
Trade accounts payable 4,974 5,537
Advances 1,035 1,457
Taxes payable 10 2,355 1,791
Accrued expenses and other 3,624 3,937
Total current liabilities 18,452 21,592
Non-current liabilities:
Long-term debt 11 6,084 6,550
Reserve for employee termination indemnities 465 507
Reserves for contingencies 12 5,340 5,522
Deferred and other non-current income tax liabilities 12 2,621 2,611
Accrued expenses and other 585 675
Total non-current liabilities 15,095 15,865
Total liabilities 33,547 37,457
Minority interests 1,706 2,094
Shareholders’ equity: 13
Capital stock 4,001,814,026 fully paid shares nominal value 1 euro each (4,001,259,476 shares at December 31, 2001) 4,001 4,002
Reserves 17,799 20,500
Treasury shares (2,068 ) (2,838 )
Net income for the year 7,751 4,593
Total shareholders’ equity 27,483 26,257
Total liabilities and shareholders’ equity 62,736 65,808
We have audited the Italian statutory consolidated balance sheet of Acque Potabili S.p.A. and subsidiaries as of December 31, 2003, and the related consolidated statement of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements (not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Italian statutory consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Acque Potabili S.p.A. and subsidiaries as of December 31, 2003, the consolidated result of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles in Italy.
Tuin, Italy

/s/ Reconta Ernst & Young S.p.A.

April 6, 2004
INDEPENDENT AUDITORS’ REPORT
Hungarian statutory financial statements
To the Stockholders
of Tigaz Rt.
We have audited the Hungarian statutory balance sheet of Tigaz Rt. as of December 31, 2003, which shows a balance total of 000HUF 80,414,801 and a profit after dividend for the year of 000HUF 1,790,826, and the related statement of income for the year ended December 31, 2003. These financial statements (not presented separately herein) are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the Hungarian statutory auditing standards and the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the Hungarian statutory financial statements referred to above present fairly, in all material respects, the financial position of Tigaz Rt. as of December 31, 2003, the result of its operations for the year ended December 31, 2003, in conformity with generally accepted accounting principles in Hungary.
/s/ Ernst & Young Kft
Budapest, Hungary
March 18, 2004
Table of Contents
balance sheets
(Amounts stated in million euro) Note Dec. 31, 2002 Dec. 31, 2003
ASSETS
Current assets:
Cash and cash equivalent:    3,265 1,623
Marketable securities 3 1,208 1,277
Receivables, net 4 13,530 13,802
Inventories, net: 5
Crude oil, natural gas and petroleum products    1,821 1,652
Chemical products    622 636
Work in progress on long-term contracts    184 434
Other    573 571
Total inventories    3,200 3,293
Accrued interest and other    573 533
Total current assets    21,776 20,528
Non-current assets:
Fixed assets, net of accumulated depreciation,
amortization and writedowns 6 33,693 36,360
Receivables, net 4 2,500 1,395
Investments 7 2,779 3,160
Intangible assets 8 3,175 3,610
Other 9 1,885 2,283
Total non-current assets    44,032 46,808
TOTAL ASSETS    65,808 67,336
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt 11 7,890 7,428
Current portion of long-term debt 11 980 490
Trade accounts payable    5,537 5,887
Advances    1,457 1,551
Taxes payable 10 1,791 2,183
Accrued expenses and other    3,937 3,841
Total current liabilities    21,592 21,380
Non-current liabilities:
Long-term debt 11 6,550 8,336
Reserve for employee termination indemnities    507 555
Reserves for contingencies 12 5,522 5,708
Deferred and other non-current income tax liabilities 12 2,611 2,442
Accrued expenses and other    675 597
Total non-current liabilities    15,865 17,638
TOTAL LIABILITIES    37,457 39,018
Minority interests    2,094 1,622
Shareholders’ equity: 13
Capital stock 4,002,922,176 fully paid shares nominal value 1 euro each
(4,001,814,026 shares at December 31, 2002)    4,002 4,003
Reserves    20,500 20,272
Treasury shares    (2,838) (3,164)
Net income for the year    4,593 5,585
Total shareholders’ equity    26,257 26,696
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY    65,808 67,336
(The accompanying notes are an integral part of these consolidated financial statements)
Table of Contents
statements of income
(Amounts stated in million euro, except per Share and per ADS data) Note 2001 2002 2003
Revenues:
Net sales from operations 14 48,925 47,922 51,487
Other income and revenues    921 1,080 913
Total revenues    49,846 49,002 52,400
Operating expenses:
Purchases, services and other 15 31,828 31,893 34,566
Payroll and related costs 16 2,851 3,103 3,166
Depreciation, amortization and writedowns 17 4,771 5,504 5,151
Operating income    10,396 8,502 9,517
Interest and other income (expense):
Financial expense and exchange differences, net 18 (259) (167) (154)
Other income (expense) from investments 19 (216) 43 (17)
Total interest and other income (expense)    (475) (124) (171)
Income before extraordinary income (expense)
and income taxes    9,921 8,378 9,346
Extraordinary income (expense)^(a) 20 1,837 (29) 49
Income before income taxes    11,758 8,349 9,395
Income taxes 21 (3,530) (3,127) (3,241)
Income before minority interest    8,228 5,222 6,154
Minority interest in net income    (477) (629) (569)
Net income    7,751 4,593 5,585

Earnings per Share (based on the weighted-average number of shares outstanding for each period) 22 1.98 1.20 1.48
Earnings per ADS (based on five shares per ADS)    9.91 6.00 7.39

(a)
Before income taxes.
(The accompanying notes are an integral part of these consolidated financial statements)
Table of Contents
statements of cash flows
(Amounts stated in million euro) 2001 2002 2003

Cash flows from operating activities
Net income 7,751 4,593 5,585
Minority interest in net income 477 629 569
Depreciation and amortization 4,671 4,962 4,710
Writedowns, net 571 591 586
Net change in other reserves (323) 96 144
Net change in the reserve for employee termination indemnities 23 33 53
Gain on disposal of assets, net (170) (152) (35)
Dividend income (40) (32) (22)
Interest income (493) (322) (197)
Interest expense 811 568 574
Unrealized exchange differences 67 (65) (279)
Extraordinary expense (income), net (1,837) 29 (49)
Income taxes 3,530 3,127 3,241
Cash generated from operating income before changes in working capital 15,038 14,057 14,880
(Increase) decrease:
- inventories 179 (209) (162)
- accounts receivable (21) (925) (622)
- accrued interest and other current assets (89) 88 66
- trade and other accounts payable (420) 555 451
- accrued expenses and other 154 (19) (198)
Cash from operations 14,841 13,547 14,415
Dividends received 129 147 189
Interest received 455 164 234
Interest paid (790) (579) (432)
Net extraordinary expense paid (300) (162) (50)
Income taxes paid (6,189) (2,539) (3,529)
Net cash provided from operating activities 8,146 10,578 10,827
Cash flows from investing activities
Investments:
- intangible assets (1,304) (1,205) (959)
- fixed assets (5,273) (6,843) (7,843)
- new consolidated subsidiaries and businesses (2,662) (1,043) (283)
- investments (420) (272) (702)
- securities (441) (61) (103)
- financing receivables (684) (661) (1,095)
- change in accounts payable in relation to investments
and capitalized depreciation (160) 193 207
(10,944) (9,892) (10,778)
Disposals:
- intangible assets 8 77 49
- fixed assets 882 475 177
- consolidated subsidiaries and businesses 1,084 270 338
- investments 140 113 86
- securities 978 194 301
- financing receivables 1,333 234 1,758
- change in accounts receivable in relation to disposals (35) 11
4,390 1,363 2,720
Net cash used in investing activities (6,554) (8,529) (8,058)
Cash flows from financing activities
Proceeds from long-term debt 636 2,145 3,118
Payments of long-term debt (1,311) (503) (485)
Additions to (reductions of) short-term debt 141 2,094 (1,004)
(534) 3,736 1,629
Payments to (by) minority shareholders 1,337 62 13
Sale (purchase) of additional interests in subsidiaries 943 (103) (2,606)
Dividends to minority shareholders (1,736) (3,035) (3,011)
Other (1,494) (770) (329)
Net cash used in financing activities (1,484) (110) (4,304)
Effect of change in consolidation area 25 57 (9)
Effect of exchange rate differences 13 (121) (98)
Net cash flow for the year 146 1,875 (1,642)
Cash and cash equivalent at beginning of the year 1,244 1,390 3,265
Cash and cash equivalent at end of the year 1,390 3,265 1,623
(The accompanying notes are an integral part of these consolidated financial statements)
Table of Contents
~~STATEMENTS OF INCOME~~
~~(Amounts stated~~statements of changes in ~~million~~ €shareholders’ equity ~~except per Share and per ADS data)~~

Note 2000 2001 2002

€ € €
Revenues:
Net sales from operations 14 47,938 48,925 47,922
Other income and revenues 905 921 1,080
Total revenues 48,843 49,846 49,002
Operating expenses:
Purchases, services and other 15 31,442 31,828 31,893
Payroll and related costs 16 2,786 2,851 3,103
Depreciation, amortization and writedowns 17 3,843 4,771 5,504
Operating income 10,772 10,396 8,502
Interest and other income (expense):
Financial income (expense) and exchange differences, net 18 64 (259 ) (167 )
Other income (expense) from investments 19 33 (216 ) 43
Total interest and other income (expense) 97 (475 ) (124 )
Income before extraordinary income (expense) and income taxes 10,869 9,921 8,378
Extraordinary income (expense) (a) 20 (512 ) 1,837 (29 )
Income before income taxes 10,357 11,758 8,349
Income taxes 21 (4,335 ) (3,530 ) (3,127 )
Income before minority interest 6,022 8,228 5,222
Minority interest in net income (251 ) (477 ) (629 )
Net income 5,771 7,751 4,593
Earnings per Share (based on the weighted-average number of shares outstanding for each period) (b) 22 1.44 1.98 1.20
Earnings per ADS (based on five Shares per ADS) (b) 7.22 9.91 6.00
~~(a)~~ ~~Before income taxes.~~
~~(b)~~ ~~Amount in euro.~~
(Amounts stated in million euro) Share capital Legal reserve of Eni SpA Reserve for treasury shares Reserve mergers from Distributable reserve of Eni SpA Former Agip SpA reserves reconstituted State grants Consolidation reserves Reserve for shares granted to employees article 2349 civil code Reserve article 13 Law Decree 124/1993 Cumulative translation adjustment reserve Loans serviced by the Government Treasury shares Retained earnings Net income for the year Total
Balance at December 31, 2000 4,133 827 3,400    1,856 103 58 6 2    911 4 (574) 5,904 5,771 22,401

Dividend distribution
(euro 0.212 per Share)                                           (1,664) (1,664)
Allocation of 2000 net income             1,658          1             2,448 (4,107)
Shares repurchased                                     (1,494)       (1,494)
Conversion of the share capital
from italian lire to euro (132) 132
Unallocated lower cost of investments
carried on under equity method                      25                      25
                  4             (4)
Exchange differences arising
on the translation of foreign
currency financial statements                               451             451
Other changes                                        13    13
Net income for the year                                           7,751 7,751
Balance at December 31, 2001 4,001 959 3,400    3,514 103 62 31 3    1,362    (2,068) 8,365 7,751 27,483
Dividend distribution
(euro 0.75 per Share)             (757)                            (2,119) (2,876)
Allocation of 2001 net income             3                         5,629 (5,632)
Increase of reserve for shares
granted to employees
article 2349 civil code             (2)          2
Authorization to repurchase shares       2,000    (2,000)
Reserve from mergers          1,390                1          (1,391)
Shares repurchased                                     (770)       (770)
Shares issued under stock grant plan 1                      (1)
Exchange differences arising
on the translation of foreign
currency financial statements                               (2,125)             (2,125)
Other changes                                        (48)    (48)
Net income for the year                                           4,593 4,593
Balance at December 31, 2002 4,002 959 5,400 1,390 758 103 62 31 4 1 (763)    (2,838) 12,555 4,593 26,257
Dividend distribution
(euro 0.75 per Share)                                           (2,833) (2,833)
Allocation of 2002 net income             789                         971 (1,760)
Shares repurchased                                     (329)       (329)
Reduction in value of stock grant       (3)    3                      3
Shares issued under stock grant plan 1                      (1)
Reclassification          (1,390) 1,500                         (110)
Exchange differences arising
on the translation of foreign
currency financial statements                               (1,845)             (1,845)
Exchange differences arising
on the distribution of dividends
and other changes                               103       (245)    (142)
Net income for the year                                           5,585 5,585
Balance at December 31, 2003 4,003 959 5,397    3,050 103 62 31 3 1 (2,505)    (3,164) 13,171 5,585 26,696
(The accompanying notes are an integral part of these consolidated financial statements)
Table of Contents
Notes to the Consolidated Financial Statements
~~STATEMENTS OF CASH FLOWS~~
~~(Amounts stated in million~~ €)

2000 2001 2002

€ € €
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 5,771 7,751 4,593
Minority interest in net income 251 477 629
Depreciation and amortization 3,788 4,671 4,962
Writedowns (revaluations), net 130 571 591
Net change in other reserves 344 (323 ) 96
Net change in the reserve for employee termination indemnities 45 23 33
Loss (gain) on disposal of assets, net (82 ) (170 ) (152 )
Dividend income (44 ) (40 ) (32 )
Interest income (535 ) (493 ) (322 )
Interest expense 674 811 568
Unrealized exchange differences 48 67 (65 )
Extraordinary expense (income), net 512 (1,837 ) 29
Income taxes 4,335 3,530 3,127
Cash generated from operating income before changes in working capital 15,237 15,038 14,057
(Increase) decrease:
— inventories (523 ) 179 (209 )
— accounts receivable (2,025 ) (21 ) (925 )
— accrued interest and other current assets (33 ) (89 ) 88
— trade and other accounts payable 932 (420 ) 555
— accrued expenses and other 57 154 (19 )
Cash from operations 13,645 14,841 13,547
Dividends received 154 129 147
Interest received 491 455 164
Interest paid (613 ) (790 ) (579 )
Net extraordinary expense paid (177 ) (300 ) (162 )
Income taxes paid (2,917 ) (6,189 ) (2,539 )
Net cash provided from operating activities 10,583 8,146 10,578
CASH FLOWS FROM INVESTING ACTIVITIES
Investments:
— intangible assets (1,090 ) (1,304 ) (1,205 )
— fixed assets (4,341 ) (5,273 ) (6,843 )
— new consolidated subsidiaries and businesses (596 ) (2,662 ) (1,043 )
— investments (2,887 ) (420 ) (272 )
— securities (2,774 ) (441 ) (61 )
— financing receivables (900 ) (684 ) (661 )
— change in accounts payable in relation to investments and depreciation capitalized 46 (160 ) 193
(12,542 ) (10,944 ) (9,892 )
~~(The accompanying notes are an integral part of these consolidated financial statements)~~
~~STATEMENTS OF CASH FLOWS—(Continued)~~
~~(Amounts stated in million~~ €)

2000 2001 2002

€ € €
Disposals:
— intangible assets 14 8 77
— fixed assets 149 882 475
— consolidated subsidiaries and businesses 94 1,084 270
— investments 28 140 113
— securities 2,970 978 194
— financing receivables 670 1,333 234
— change in accounts receivable in relation to disposals 22 (35 )
3,947 4,390 1,363
      Net cash used in investing activities (8,595 ) (6,554 ) (8,529 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 3,184 636 2,145
Payments of long-term debt (3,254 ) (1,311 ) (503 )
Additions to (reductions of) short-term debt 191 141 2,094
121 (534 ) 3,736
Payments to (by) minority shareholders (5 ) 1,337 62
Sale (purchase) of additional interests in subsidiaries (20 ) 943 (103 )
Dividends to minority shareholders (1,519 ) (1,736 ) (3,035 )
Other (574 ) (1,494 ) (770 )
      Net cash used in financing activities (1,997 ) (1,484 ) (110 )
Effect of change in consolidation area 2 25 57
Effect of exchange differences 39 13 (121 )
Net cash flows for the year 32 146 1,875
Cash and cash equivalents at beginning of the year 1,212 1,244 1,390
Cash and cash equivalents at end of the year 1,244 1,390 3,265
~~(The accompanying notes are an integral part of these consolidated financial statements)~~
~~SUPPLEMENTAL INFORMATION~~
~~(Amounts stated in million~~ €)

2000 2001 2002

€ € €
Effect of investments in new consolidated subsidiaries and businesses

Non-current assets 1,978 7,262 1,245
Current assets 103 504 697
Net borrowings (888 ) (1,054 ) 125
Other liabilities (413 ) (2,307 ) (844 )
Net effect of investments
780 4,405 1,223
Transferred from equity investment (36 ) (1,215 ) (4 )
Minority interest and reserves (135 )
Purchase price
609 3,190 1,219
less: cash acquired (13 ) (528 ) (176 )
Cash from investments in consolidated subsidiaries
596 2,662 1,043
Effect of disposal of consolidated subsidiaries and businesses

Non-current assets 27 1,068 153
Current assets 57 185 53
Net borrowings (14 ) (184 ) (16 )
Other liabilities (40 ) (562 ) (85 )
Net effect of disposal
30 507 105
Gain (loss) on disposal 70 597 194
Minority interest and reserves (19 ) (6 )
Selling price
100 1,085 293
less: cash conferred (6 ) (1 ) (23 )
Cash flow on disposal
94 1,084 270
~~(The accompanying notes are an integral part of these consolidated financial statements)~~
~~STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~
~~(Amounts stated in million E)~~

Former
Legal Reserve for Reserve Distributable Agip SpA
Share reserve of treasury from reserve of reserves State Consolidation
capital Eni SpA shares mergers Eni SpA reconstituted grants reserves

Balance at December 31, 1999
4,133 278 1,265 103 65 6
Dividends distribution (euro 0,181 per Share)
Allocation of 1999 net income 112 590
Increase in share capital —
State grants 4
Adjustment to legal reserve to one-fifth of share capital 437
Authorization to repurchase of shares 3,400 (11 )
Shares repurchased
Exchange differences arising on the translation of foreign currency financial statements
Other changes
Net income for the year
Balance at December 31, 2000
4,133 827 3,400 1,855 103 58 6
Dividends distribution (euro 0.212 per Share)
Allocation of 2000 net income 1,658
Shares repurchased
Conversion of the share capital from italian lire to euro (132 ) 132
Excess of value of net assets over acquisition cost of equity investments 25
State grants 4
Exchange differences arising on the translation of foreign currency financial statements
Other changes
Net income for the year
Balance at December 31, 2001
4,001 959 3,400 3,513 103 62 31
Dividends distribution (euro 0.75 per Share) (757 )
Allocation of 2001 net income 3
Increase of reserve for shares granted to employees article 2349 civil code (2 )
Authorization to repurchase shares 2,000 (2,000 )
Reserve from mergers 1,390
Share repurchased
Share issued under stock grant plan 1
Exchange differences arising on the translation of foreign currency financial statements
Other changes
Net income for the year
Balance at December 31, 2002
4,002 959 5,400 1,390 757 103 62 31

~~[Additional columns below]~~
~~[Continued from above table, first column(s) repeated]~~

Reserve for
shares
granted to Reserve Loans Cumulative
employees article 13 serviced translation
article 2349 Law Decree Reserve by the adjustment Treasury Retained Net income
civil code 124/1993 Law 292/93 Government reserve shares earnings for the year Total

Balance at December 31, 1999
— 3,826 8 674 5,183 2,857 18,398
Dividends distribution (euro 0,181 per Share) (1,446 ) (1,446 )
Allocation of 1999 net income 2 707 (1,411 )
Increase in share capital —
State grants (4 )
Adjustment to legal reserve to one-fifth of share capital (437 )
Authorization to repurchase of shares (3,389 )
Shares repurchased (574 ) (574 )
Exchange differences arising on the translation of foreign currency financial statements 237 237
Other changes 15 15
Net income for the year 5,771 5,771
Balance at December 31, 2000
2 4 911 (574 ) 5,905 5,771 22,401
Dividends distribution (euro 0.212 per Share) (1,664 ) (1,664 )
Allocation of 2000 net income 1 2,448 (4,107 )
Shares repurchased (1,494 ) (1,494 )
Conversion of the share capital from italian lire to euro
Excess of value of net assets over acquisition cost of equity investments 25
State grants (4 )
Exchange differences arising on the translation of foreign currency financial statements 451 451
Other changes 13 13
Net income for the year 7,751 7,751
Balance at December 31, 2001
3 1,362 (2,068 ) 8,366 7,751 27,483
Dividends distribution (euro 0.75 per Share) (2,119 ) (2,876 )
Allocation of 2001 net income 5,629 (5,632 )
Increase of reserve for shares granted to employees article 2349 civil code 2
Authorization to repurchase shares
Reserve from mergers 1 (1,391 )
Share repurchased (770 ) (770 )
Share issued under stock grant plan (1 )
Exchange differences arising on the translation of foreign currency
financial statements (2,125 ) (2,125 )
Other changes (48 ) (48 )
Net income for the year 4,593 4,593
Balance at December 31, 2002
4 1 (763 ) (2,838 ) 12,556 4,593 26,257
~~(The accompanying notes are an integral part of these consolidated financial statements)~~
~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
1)1 General
Eni SpA and its subsidiaries ~~(«Eni»~~(“Eni”) together constitute a fully integrated company operating in the oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. Eni SpA is the successor entity to Ente Nazionale Idrocarburi, which was established in 1953 as public statutory body to act as Italy’s national oil and gas company. In July 1992, in connection with the privatization program of the Italian Government (the ~~«Government»~~“Government”), the public statutory body was converted into a joint stock company, with the Ministry of Economy and Finance (previously Ministry of Treasury, Budget and Economic Planning) of Italy as the sole shareholder. See ~~Note14 «Shareholders’ equity»~~Note 13 “Shareholders’ equity” for further information regarding share capital.
2)2 Summary of significant accounting and reporting policies
Basis of presentation

The consolidated financial statements of Eni have been prepared in accordance with Eni’s group accounting policies which are in accordance with principles prescribed by Italian law and supplemented by the accounting principles issued by the Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri or, in the absence thereof and if applicable, the International Accounting Standards ~~Board.~~Board (IASB). In the absence of indications in said principles, particularly related to the application of the Unit of Production and Production Sharing Agreement methods of accounting, specific criteria for hydrocarbons exploration and production applied internationally have been followed (collectively, ~~«Italian GAAP»~~“Italian GAAP”). Italian GAAP differ in certain respects from generally accepted accounting principles in the United States («(“U.S. ~~GAAP»~~GAAP”). A description of these differences and their effects on net income and shareholders’ equity is set forth in Notes 27 and 28. The financial statements have been reformatted from the original Italian statutory financial statement presentation and include certain additional disclosures in order to conform more closely to the form and content of financial statements required by the U.S. Securities and Exchange Commission (the ~~«SEC»~~“SEC”). Reclassifications concerned essentially a different aggregation of certain items that were distinguished between current and non-current, as well as the recording as a decrease in net borrowings of implicit interests and the reclassification as a decrease in net equity of treasury shares purchased, items that in the original Italian statutory financial statements are classified as current assets and fixed ~~assets, respectively.~~assets.
Principles of consolidation

The consolidated financial statements include the statutory accounts of Eni SpA and all Italian and foreign companies controlled by Eni SpA, directly or indirectly, either by holding the majority of the voting rights or sufficient votes to enable it to exercise control at ordinary shareholders’ meetings. The consolidated financial statements also include, on a proportional basis, the accounts of companies controlled jointly with other partners, except for joint ventures which are accounted for under the equity method. The effects of proportionate consolidation are not material. Insignificant subsidiaries, companies ~~held~~purchased exclusively for sale and companies in liquidation, if their exclusion does not result in a misrepresentation of the company’s financial condition and consolidated results, are not included in the scope of consolidation. The effects of these exclusions on the whole, are not material.
Companies excluded from consolidation are accounted for under the equity method or cost basis as described below under the heading Investments.
Investments

Investments in non-consolidated subsidiaries excluded from the consolidation process and in companies where Eni SpA has a 20% to 50% investment, if material, are accounted for using the equity method. Other investments are recorded at cost, adjusted for permanent impairment in value.
Sales of stakes in consolidated subsidiaries

Gains or losses on sales of stakes in consolidated subsidiaries are recorded in the income statement for the amount corresponding to the difference between proceeds from the sale and the divested stake of net equity.
Fiscally driven entries and intercompany transactions

The statutory financial statements reflect certain tax-driven entries. The effects of the tax-driven entries and all intercompany balances and transactions have been eliminated in consolidation.
Foreign currency translation

Assets and liabilities of foreign consolidated companies have been translated at exchange rates ruling at year-end. Equity accounts of foreign consolidated companies are translated using the historic exchange rates. Income statement accounts of foreign consolidated companies are translated at the average rates for the ~~period.~~period (source: Ufficio Italiano Cambi). Related translation adjustments are reported as a component of shareholders’ equity. Financial
statements of foreign subsidiaries which are translated into euro are denominated in their functional currencies.

Monetary assets and liabilities ~~which are~~ denominated in currencies other than the functional currency are translated into euro using the prevailing rate at the balance sheet date. All differences are recognized in earnings in the period.
Accounting principles
Cash and cash equivalents

Eni considers cash and cash equivalents to be its cash on hand and on deposit with banks and short-term ~~investments~~investment with original maturities of 90 days or less.
Marketable securities

Marketable securities are stated at the lower of purchase cost or market value and are usually available for sale.
Inventories

Inventories, except for those relating to contract work in progress, are stated at the lower of cost or market value. The cost of inventories of hydrocarbon (crude oil, condensates and natural gas) and petroleum products, representing ~~58%~~57%, and ~~57%~~50% of Eni’s inventories at December 31, ~~2001~~2002 and ~~2002,~~2003, respectively, is substantially determined by the last-in, first-out (LIFO) method; the cost of inventories of the Petrochemicals segment, representing ~~18% and~~ 19% of Eni’s inventories at December 31, ~~2001~~2002 and ~~2002, respectively,~~2003, is generally determined by the average cost method.

Contract work in progress, representing 9%6% and 6%13% of inventories at December 31, ~~2001~~2002 and ~~2002,~~2003, respectively, is recorded using the percentage-of-completion ~~method.~~method measured on the cost-to-cost basis. Payments received in advance of construction are subtracted from inventories and any excess of such advances over the value of work performed is recorded as a liability. Contract work in progress not yet invoiced, whose payment is agreed in a foreign currency, is ~~recorded at~~translated in euro using the current exchange rates at ~~year-end.~~year-end and the effects are recorded in the income statement. Future losses ~~that~~related to a contracts whose future costs exceed ~~the~~future revenues, ~~earned~~ are accrued for ~~when~~as soon as the company becomes aware of such ~~losses will occur.~~
losses.
The remaining inventories are determined, generally, by the average cost method.
Fixed assets

Fixed assets are stated at cost as adjusted by revaluations in accordance with various Italian laws; revaluations are included in consolidated shareholders’ equity. Eni capitalizes interest on debt incurred in connection with specific projects. Cash requirements in excess of such debts are satisfied primarily through funds generated and contributed in the period of construction.

Investment grants from Government agencies are recorded in a contra asset account when authorized, if all the required conditions have been ~~met.Such~~met. Such grants are amortized over the useful life of the assets.
Depreciation of fixed assets, except those related to exploration and production activities, is computed on the revalued cost, using the straight-line method by applying depreciation rates that are based on the estimated remaining useful lives of the fixed assets.
Depreciation rates used are as follows:
%
Buildings 3 - 10
Plant and machinery:
- pipelines, distribution networks and related plant and machinery 2 - 5
- other plant and machinery 4 - 25
Industrial and commercial equipment 10 - 25
Fixed assets are written down whenever events and changes in circumstances indicate that the carrying amount may not be recoverable. Eni calculates the writedown as the difference between the expected accumulated discounted cash flow and the book value of the asset.

When the circumstances causing impairment cease to exist, Eni reverses previously recorded impairment charges net of depreciation.

Renewals and improvements which extend asset lives are capitalized; maintenance and ordinary repairs are expensed as incurred.
Intangible assets

Intangible assets are stated at cost, including interest on debt incurred in connection with specific projects as indicated previously for fixed assets.

Goodwill is recorded as an asset when purchase consideration exceeds the fair value of assets and liabilities acquired ~~for consideration~~ and is amortized at constant rates in the periods of use, provided it is no longer than 20 years from the year of recording.

Other intangible assets, except for those related to exploration and production activities, are amortized over the period of expected benefit. Intangibles are written down whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Eni calculates the writedowns as the difference between the expected accumulated discounted cash flow and the book value of the intangible assets. When the circumstances causing impairment cease to exist, Eni reverses previously recorded impairment charges net of amortization. However, goodwill and capitalized organizational costs are not revalued.
Exploration and ~~Development~~production activities
Acquisition of mineral rights

Costs associated with the acquisition of mineral rights, including reserves purchased in connection with such acquisition, are capitalized. Mineral rights can also include exploration permits, among other items. Mineral rights are amortized on a straight-line basis over the expected period of benefit. Capitalized costs associated with proved reserves are amortized on a Unit-of-Production ~~(«UOP»)~~(UOP) basis, while capitalized costs related to all other reserves are not amortized until classified as proved. Capitalized costs related to ~~abandoned~~abandon drilling programs are expensed.
Exploration

Costs associated with exploratory activities for oil and gas producing properties incurred to obtain information in order to characterize fields (such as acquisition of seismic data from third parties, test wells and geophysical surveys) are recorded as intangible assets and amortized in full in the period incurred (i.e. expensed as incurred for financial reporting purposes).
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 and are capitalized and amortized on a UOP basis. Costs related to unsuccessful developmental wells are expensed immediately as loss on disposal.

Writedowns and revaluations of development costs are made on the same basis as those for fixed assets.
Production

Production costs are costs to operate and maintain wells and field equipment and are expensed as incurred.
Abandonment

Eni regularly accrues costs expected to be incurred with respect to eventual well abandonment, including costs associated with site restoration, on a unit of production basis.
Reserve for employee termination indemnities and other employee benefits

Eni’s employees are eligible, immediately upon termination, for severance pay pursuant to Italian law. Eni accrues a reserve for such employee termination liabilities over the period of employment. The amount accrued at each balance sheet date reflects the aggregate liability for all eligible employees if terminated, net of applicable advances.

In addition, Eni makes contributions to certain employee associations that provide medical and various other employee benefits to current employees. These plans are not administered by Eni and contributions are determined in accordance with the ~~provisions of~~agreements negotiated ~~contracts~~ with trade unions. Eni expenses the contributions to the associations in the periods in which they are made. ~~Such amounts are not significant.~~

Eni’s pension obligations relate only to operations outside Italy and are not significant.
Treasury shares

Treasury shares acquired as long-term investments are recorded at cost written-down for impairments in value as a reduction of shareholders’ equity. When the reasons for the impairment cease to exist, treasury shares can be revalued up to the original cost basis. Treasury shares acquired following the group incentive plans are recorded at the lower of purchase price or fair value for stock grants and at the lower of purchase price or strike price for stock options. Treasury shares acquired following the outstanding incentive plans are recorded at the lower of purchase price or market value.
Recognition of revenues and costs

Revenues from sales of products are recognized upon transfer of title. In particular, revenues are recognized:
1) ~~for natural gas, when the natural gas leaves Eni’s distribution network and is delivered to the customer;~~
2) ~~for crude oil, generally upon shipment;~~
3) ~~for petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales are generally recognized upon shipment from Eni’s plants; and,~~
4) 1) for natural gas, when the natural gas leaves Eni’s distribution network and is delivered to the customer;
2) for crude oil, generally upon shipment;
3) for petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales are generally recognized upon shipment from Eni’s plants; and,
4) for chemicals, generally upon shipment.
In all instances where revenue is recognized upon shipment, all risk of loss has transferred to the buyer upon shipment.
Revenues from natural gas and crude oil production from properties in which Eni has an interest together with other producers are recognized based on actual quantities produced and sold on Eni’s behalf (sales method). Differences between Eni’s net working interest volume and actual production volumes are not significant.
Revenues related to ~~long-term~~long term construction contracts are recognized using the percentage-of-completion method measured on the cost-to-cost basis. Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident.
Revenues related to amounts in excess of the original contract price due to the incurrence of unanticipated additional costs (i.e. Eni claims against third parties), are recognized when it is probable that the claim will result in additional contract revenue and the amount of the claim can be reasonably estimated.
Costs are recognized when the related goods and services are sold, consumed or allocated, or when their future useful lives cannot be determined.
Eni is party to certain Production Sharing Agreements whereby taxes are settled by joint venture partners which are state-owned entities in the name and on behalf of Eni out of reserves produced. The Company records such income taxes owed by Eni but paid on its behalf in revenues and income tax expense.
Income taxes

Deferred tax assets or liabilities are recognized for differences between the financial reporting and tax bases of assets and liabilities. Deferred tax liabilities are not recognized if ultimate payment is not deemed probable. Deferred tax assets are recognized when there is a reasonable expectation of their realization. Deferred tax liabilities are recorded in the ~~«Non-current~~“Non-current income tax ~~liabilities»~~liabilities” account, while deferred tax assets are recorded in ~~«Other»~~“Other” (non-current assets). Deferred tax assets are offset against deferred tax liabilities if they relate to the same tax paying entity.
Derivatives

With respect to interest rate, foreign exchange and price risks, Eni enters into derivative transactions to hedge specific transactions as well as net interest rate and foreign currency positions. See Note 23 for a description of Eni’s overall strategy and description of financial instruments utilized to mitigate market risk.

The interest differentials to be received or paid on interest rate swaps, as well as interest differentials on interest rate collars, are charged to the income statement on an accrual basis. The interest differentials on forward rate agreements are recognized at the date of settlement of the contract and charged to the income statement on an accrual basis over the period hedged. Such interest rate differentials are recorded in ~~«Accrued~~“Accrued interest and other current ~~assets»~~assets” or ~~«Accrued~~“Accrued expenses and ~~other»~~other” (current liabilities) as applicable until recognized in the income statement as ~~«Financial~~“Financial expense and exchange differences ~~net»~~net”.

Foreign exchange hedge derivatives ~~(swaps, futures, options, etc.)~~ are valued at the spot rate at year-end and the related gains and losses are recorded in income as exchange gain and loss. Derivatives on future commitments are not valued at the exchange rate at the year-end, but they are considered to exclude any deferred losses. Premiums or discounts are accrued over the life of the contract and classified as exchange differences. With reference to options, the premiums paid are recorded as ~~«Marketable securities»~~“Marketable securities” or ~~«Other assets»~~“Other assets”, depending on the maturity of the contract.
Premiums are written down depending on the maturity of the contract if the strike price is fair and, if it is not fair, the option is valued with the same criteria for securities.
The gains on price risk hedge derivatives ~~(interest rate swaps, futures and swaps)~~ are recorded in income to the extent of writedowns of hedged assets; losses are recorded in income if necessary to adjust the hedged assets to the value attributed to itthem by the derivative when they are ~~incurred,~~accrued, consistent with the evaluation of the hedged assets. The gains and losses are classified consistently with the classification of the sale of the hedged asset.
Research and development costs
Research and development costs are generally expensed as incurred.
For the years ended December 31, 2001, 2002 and 2003, total research and development costs were euro 203 million, euro 175 million and euro 238 million, respectively, and euro 13 million, euro 11 million and euro 52 million as capitalized costs.
Environmental expenditures

Environmental expenditures are made in order to prevent, reduce, repair or control the environmental impact of production activities. Environmental expenditures that improve or extend the useful lives and increase the production capacity or safety of fixed assets are capitalized in the appropriate fixed asset accounts. Ongoing environmental compliance costs are expensed as incurred. Reserves for environmental contingencies are established when it becomes probable or certain that a liability has been incurred and the amount can be reasonably estimated.
Restructuring costs

The costs of redundancy incentives are accrued when a workforce reduction program is defined and the conditions precedent for its implementation have been satisfied. ~~Such charges are recorded as extraordinary items.~~ Restructuring charges also include the costs of closures of facilities and asset impairments. Such charges are recorded as extraordinary items.
~~Research and development costs~~
     ~~Research and development costs are generally expensed as incurred.~~
     ~~For the years ended December 31, 2000, 2001 and 2002, total research and development costs were euro 234 million, euro 203 million and euro 175 million, respectively.~~
Statements of cash flows

The cash flow statements are prepared in accordance with International Accounting Standards, using the indirect method.

Unless otherwise indicated, all monetary amounts in the financial statements and in these notes are presented in millions of euro or millions of US dollars, except share, per share, ADS and per ADS data.
~~Reclassification~~Changes in accounting principles
Beginning with 2002, Eni changed the accounting for stock-based compensation plans for managers of ~~financial statements~~Eni with stock grants and stock options granted during 2002 and 2003.
In the past, as stock grants were considered part of the overall compensation paid to employees, at the grant date only the social security contributions as well as the relevant portion of termination indemnity expected to be borne by Eni at the date of exercise of the option were recorded as an expense in the statement of income. The issue of new shares was recognized in the balance sheet accounts at the issue date. Eni did not have stock grant plans which allowed for the assignment of treasury shares.
Relative to the stock option plans, at the grant date, no compensation expense was recognized in the financial statements. At the exercise date, the issue of new shares or the allocation of treasury shares was recognized in the balance sheet accounts, with no effect on the statement of income.
Starting ~~from 2002~~in 2003, stock grant and stock options granted to Group managers are being recognized as compensation expense, as these amounts represent employee compensation.
The cost of stock-based compensation is measured by the fair value of the award at the grant date and is recognized as an expense over the vesting period¹. The cost of related social security contributions and termination indemnity related to stock grant plans are also recognized as an expense over the vesting period.
The fair value of stock grants is determined as the market value of the shares at the grant date, less the present value of dividends expected to be declared during the vesting period. The fair value of stock grants for 2003 was euro 11.1954, 6.0185 and 2.8503 per share for Eni, Saipem and Snam Rete Gas respectively. The fair value of stock options is represented by the value of the option determined by applying the Black-Scholes model, which takes into account the conditions for the exercise of the options, the present value of shares and the expected volatility and the risk-free interest rate. The fair value of stock options for 2003 was euro 1.5045, 1.1928 and 0.4206 per share for Eni, Saipem and Snam Rete Gas, respectively.
The cost of stock grants made with the use of treasury shares and the related social security contributions and termination indemnity, are recognized as a charge to the item ~~«Cash» has been renamed «Cash~~“Reserve for risks and ~~cash equivalents»,~~ contingencies - Other”and ~~includes cash and, in addition, marketable securities and current financing receivables with original maturities~~the cost of ~~less than 90 days. Accordingly, marketable securities and current financing receivables~~stock options is recognized as a charge to the item “Disposable reserves”.
Treasury shares purchased for the ~~year 2001 have been reclassified~~purpose of servicing stock-based compensation are recorded in the balance sheet item “Marketable securities” and valued at the lower of the purchase price and the fair value of the stock grants, or, in the case of stock options, at the lower of purchase price and exercise price of the options.
Overall, the fair value of stock grants and stock options assigned to Eni Group managers in 2003 amounted to euro 33 million, as follows:
(million euro) Eni Saipem Snam Rete Gas Total
Fair value of stock grants and stock options 21 4 1 26
Social security contributions and employee termination indemnities 6 1 7
27 5 1 33
The cost recognized in the income statement, determined on a pro rata basis over the vesting period, amounted to euro 6 million, to which the writedowns of cost to fair value of treasury shares servicing stock grant plans of euro 3 million must be added. With reference to the deferred fiscal deductibility of the charges recognized in the income statement, deferred tax assets were recorded for euro ~~11 and 74 million, respectively.~~4 million.
3)3 Marketable securities

Marketable securities consist of the following:

Net value at Net value at
Dec. 31, 2001 Dec. 31, 2002

Investments 3
Other securities:
— Italian treasury bonds 1,035 907
— other 327 301
1,362 1,208
1,365 1,208
(million euro) Net value Net value
at Dec. 31,2002 at Dec. 31,2003
Investments 13
Other securities:
- Italian treasury bonds 907 963
- other 301 301
1,208 1,264
1,208 1,277
     ~~Other securities~~Investments of euro ~~1,208~~13 million ~~decreased by euro 154 million primarily due to divestments by Eni~~concern the shares of Saipem SpA ~~(euro 135 million).~~ which were purchased for their stock option and stock grant plans.
On December 31, ~~2002~~2003, the due dates of other securities iswere the following:

Net value at Net value at
Dec. 31, 2001 Dec. 31, 2002

within 12 months 208 141
within 5 years 965 882
beyond 5 years 189 185
1,362 1,208
¹For stock grants, the period between the grant date and the date of assignation of shares; for stock options, the period between the grant date and the date in which the option can be exercised.
(million euro) Net value Net value
at Dec. 31,2002 at Dec. 31,2003
within 12 months 141 119
within 5 years 882 942
beyond 5 years 185 203
1,208 1,264
Securities for euro ~~489~~483 million are considered coverage of technical reserves of Padana Assicurazioni SpA (euro ~~436~~489 million at December 31, ~~2001)~~2002).
4)4 Receivables

Receivables by type and due date consist of the following:
(million euro) Dec. 31, 2002 Dec. 31, 2003
Current Non-current Total Current Non-current Total
Trade:
- customers 8,656 161 8,817 9,243 233 9,476
- other 273 273 296 296
8,929 161 9,090 9,539 233 9,772
Financing 1,340 1,286 2,626 551 1,098 1,649
Other 3,261 1,053 4,314 3,712 64 3,776
13,530 2,500 16,030 13,802 1,395 15,197

Dec. 31, 2001 Dec. 31, 2002
Current Non-current Total Current Non-current Total

(million E)
Trade:
— customers 8,589 90 8,679 8,656 161 8,817
— other 560 560 273 273
9,149 90 9,239 8,929 161 9,090
Financing 1,221 1,638 2,859 1,340 1,286 2,626
Other 3,284 950 4,234 3,261 1,053 4,314
13,654 2,678 16,332 13,530 2,500 16,030
     ~~«Trade»~~“Trade” receivables of euro ~~9,090 decreased~~9,772 million increased by euro ~~149~~682 million. This ~~decrease~~increase relates primarily to the ~~effect of exchange rate differences on the translation of financial statements prepared in foreign currencies~~Gas & Power (euro ~~228~~361 million) and Refining & Marketing (euro 307 million).
     ~~«Financing»~~
“Financing” receivables of euro ~~2,626~~1,649 million ~~are comprised almost entirely~~include loans made for operating purposes for euro 1,409 million (euro 2,624 million at December 31, 2002). The decrease of loans made for operating purposes of euro ~~2,624~~1,215 million ~~(euro 2,859 million at December 31, 2001 included only~~is primarily due to the collection of the loans made ~~for operating purposes). Loans made to affiliates are granted primarily by the Exploration & Production segment~~on behalf of affiliated companies, Transitgas AG (euro ~~686~~655 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 264 million), Transmediterranean Pipeline Co Ltd (euro 33 million) and ~~Gas & Power segment (euro 1,744 million). The euro 233 million decrease relates primarily~~ to ~~the effect of~~ exchange rate differences onof euro 312 million due to the translation of financial statements prepared in ~~foreign~~ currencies ~~(euro 424 million) and~~other than euro. Such decrease was partially offset by the concession of new loans, in particular to ~~the consolidation of Polimeri Europa~~Albacom SpA (euro ~~216~~54 million)~~; this decrease is offset in part by a loan made to an affiliated company, EnBW Eni Verwaltungsgesellschaft mbH, for the acquisition of Gasversorgung Süddeutschland GmbH (euro 264 million)~~.

Repayment of ~~financing~~such receivables of euro 3832 million (euro ~~267~~38 million at December 31, ~~2001)~~2002) is contingent upon the outcome of financed activities, while a portion of the loans may be converted into capital.
     ~~«Other»~~
“Other” receivables ~~of euro 4,234 and 4,314 as at December 31, 2001 and 2002, respectively,~~ consist of the following:

Dec. 31, 2001 Dec. 31, 2002

Accounts receivable from:
— Italian tax authorities related to:
• income tax credits 1,435 973
• value added tax (VAT) 212 383
• interest on tax credits 276 317
• other 50 113
— joint venture operating partners in exploration and production 602 758
— foreign tax authorities 176 314
— insurance companies 296 276
— Italian governmental entities 160 202
— receivables from affiliates 67 27
Prepayments for services 95 174
Other receivables 865 777
4,234 4,314
(million euro) Dec.31, 2002 Dec.31, 2003
Accounts receivable from:
- Italian tax authorities related to:
   • income tax credits 973 1,024
   • interest on tax credits 317 337
   • value added tax (VAT) 383 149
   • other 113 97
- joint venture operators in exploration and production 758 532
- insurance companies 276 278
- foreign tax authorities 314 232
- Italian governmental entities 202 198
- receivables from affiliates and unconsolidated subsidiaries 27 77
Prepayments for services 174 150
Other receivables 777 702
4,314 3,776
     Accounts receivable from Italian tax authorities for tax credits do not include tax credits generated in 1988, and applicable interest, for which Eni companies have filed formal appeals (mainly Eni SpA for euro 104 million and euro 107 million at December 31, 2001 and 2002, respectively). These receivables have been written-off pending the final outcome of the appeal. The decrease in income tax credits of euro 462 million is directly attributable to the use of such credits to offset current tax liabilities.
The interest rate applicable to tax credits has been ~~2.5%~~1.375% for each six month period from ~~January~~July 1, ~~1997.~~
2003 (2.5% in the first half of 2003).
Approximately ~~45%~~56.5% of Eni’s non-current receivables at December 31, ~~2002~~2003 were denominated in currencies other than the euro ~~(53%~~(45% at December 31, ~~2000)~~2002).

Eni did not have any significant concentration of credit risk as of December 31, ~~2001~~2002 and ~~2002.~~
2003.
The above amounts are net of the allowance for doubtful accounts, which amounts to euro 730 million, 875 million ~~1,277 million~~ and ~~928~~1,277 million at December 31, 2003, 2002 ~~2001~~ and ~~2000,~~2001, respectively. The evolution of the allowance in the past three years is as follows:

Amount
at the
beginning Other Year-end
of the year Additions Deductions changes amount

(million €)
Dec. 31, 2000 929 69 (82 ) 12 928
Dec. 31, 2001 928 90 (77 ) 336 1,277
Dec. 31, 2002 1,277 111 (106 ) (407 ) 875
Balance Additions Deductions Other Year-end
at the beginning changes amount
(million euro) of the year
December 31, 2001 928 90 (77) 336 1,277
December 31, 2002 1,277 111 (106) (407) 875
December 31, 2003 875 129 (44) (230) 730
Other changes for the year ended December 31, ~~2002~~2003 of euro ~~407~~230 million ~~related~~relate primarily to the elimination of a portion of the allowance for doubtful accounts (euro 107 million) and the corresponding receivables from Italian tax Authorities, which was accrued by ~~Enichem in relation to receivables from previously unconsolidated investments, as a result~~Eni SpA following the decision of the ~~mergers~~Constitutional Court that has rejected the ruling on legitimacy advanced by the Court of ~~these same investments, which are Bormia~~Cassazione, accepting the appeal of Tax Authorities against the reimbursement asked by Eni SpA ~~(in liquidation) (euro 203 million), Pertusola Sud SpA (in liquidation) and Mineraria Campiano SpA (in liquidation) (the latter two amounting to euro 177 million), into Enichem SpA.~~of income taxes for the year 1988.
5)5 Inventories

Dec. 31, 2001 Dec. 31, 2002

Crude oil, Work in Crude oil, Work in
gas and progress gas and progress
petroleum Chemical long-term petroleum Chemical long-term
products products contracts Other Total products products contracts Other Total

(million €)
Raw and auxiliary materials and consumables 719 147 405 1,271 460 187 372 1,019
Products being processed and semi-finished products 57 18 2 77 64 17 4 85
Work in progress on long-term contracts 152 152 184 184
Finished products and goods 862 332 4 1,198 1,293 418 87 1,798
Advances 115 115 4 110 114
1,638 497 267 411 2,813 1,821 622 184 573 3,200
(million euro) Dec. 31, 2002
Dec. 31, 2003
Crude oil, gas and petroleum products Chemical products Work in progress long-term contracts Other Total Crude oil, gas and petroleum products Chemical products Work in progress long-term contracts Other Total
Raw and auxiliary materials and consumables 460 187    372 1,019 409 205 418 1,032
Products being processed and semi finished products 64 17    4 85 66 15 6 87
Work in progress long-term contracts       184 184 433 433
Finished products and goods 1,293 418    87 1,798 1,170 416 41 1,627
Advances 4       110 114 7 1 106 114
1,821 622 184 573 3,200 1,652 636 434 571 3,293
Oil and petroleum products inventories of euro ~~595~~682 million represent certain minimum quantities (“compulsory stock”) required by law (euro ~~548~~595 million at December 31, ~~2001)~~2002) and natural gas inventories of euro 39 million represent strategic stock (the same amount at December 31, ~~2001)~~2002), ~~both «compulsory stock».~~
     ~~Natural~~while natural gas inventories valued at euro ~~571~~465 million are used to satisfy peak demand (euro ~~401~~571 million at December 31, ~~2001)~~2002).

The excess of market value over the book value of crude oil, petroleum products and purchased natural gas at year-end iswas euro ~~1,375~~1,247 million (euro ~~781~~1,375 million at December 31, ~~2001)~~2002). ~~The euro 594 million increase is primarily due to the recovery in international oil prices.~~

The above amounts are net of the valuation allowance amounting to euro 107 million, 108 million ~~159 million~~ and ~~106~~159 million at December 31, 2003, 2002 ~~2001~~ and ~~2000,~~2001, respectively. The evolution of ~~the~~ allowance in the past three years is as follows:

Amount
at the
beginning Other Year-end
of the year Additions Deductions changes amount

(million €)
Dec. 31, 2000 93 28 (6 ) (9 ) 106
Dec. 31, 2001 106 61 (1 ) (7 ) 159
Dec. 31, 2002 159 47 (60 ) (38 ) 108
Balance Additions Deductions Other Year-end
at the beginning changes amount
(million euro) of the year
December 31, 2001 106 61 (1) (7) 159
December 31, 2002 159 47 (60) (38) 108
December 31, 2003 108 25 (17) (9) 107
6)6 Fixed assets

Accumulated
Change Exchange depreciation and
Net value at in scope of rate Other Net value at writedowns at
Dec. 31, 2001 Additions Depreciation Writedowns consolidation differences changes Dec. 31, 2002 Dec. 31, 2002

(million €)
Buildings 1,796 63 (91 ) (19 ) 112 (33 ) (67 ) 1,761 1,543
Plant and machinery 23,996 1,822 (3,242 ) (195 ) 592 (1,689 ) 2,781 24,065 35,733
Industrial and commercial equipment 481 124 (120 ) (1 ) 6 (52 ) 3 441 1,194
Other assets 232 79 (90 ) (1 ) 24 (13 ) 47 278 781
Fixed assets in progress and advances 6,809 4,755 (254 ) 30 (823 ) (3,369 ) 7,148 449
33,314 6,843 (3,543 ) (470 ) 764 (2,610 ) (605 ) 33,693 39,700
(million euro) Net value at Dec. 31, 2002 Investments Depreciation Writedown Change in scope of consolidation Exchange rate differences Other changes Net value at Dec. 31, 2003 Reserve amortization writedown at Dec. 31, 2003
Buildings 1,761 137 (129) (18) 2 (27) 69 1,795 1,684
Plant and machinery 24,065 2,800 (3,106) (262) 761 (2,053) 3,012 25,217 36,275
Industrial and commercial equipment 441 97 (122) (1) 139 (29) (3) 522 1,209
Other assets 278 82 (90) (12) 33 291 734
Fixed assets in progress and advances 7,148 4,727    (155) 232 (1,023) (2,394) 8,535 476
33,693 7,843 (3,447) (436) 1,134 (3,144) 717 36,360 40,378
Capital expenditures of euro 7,843 million (euro 6,843 million ~~(euro 5,273 million~~ in ~~2001)~~2002) primarily relate to the Exploration & Production segment (euro ~~4,675~~5,033 million), Gas & Power segment (euro ~~1,185~~1,655 million), Refining & Marketing segment (euro ~~476~~652 million)~~. Additional information on capital expenditures is included in~~ and Oilfield Services, Construction and Engineering segment (euro 264 million, of which euro 249 million related to the ~~«Operating Review» of the «Report of the Directors»~~construction and drilling activity).
     ~~Depreciation rates used are as follows:~~
~~(%)~~
~~Buildings~~ ~~3-10~~
~~Plant and machinery:~~
~~— pipelines, distribution networks and related plant and machinery~~ ~~2-5~~
~~— other plant and machinery~~ ~~4-25~~
~~Industrial and commercial equipment~~ ~~10-25~~

Writedowns of euro ~~470~~436 million concern primarily the Exploration & Production segment (euro ~~332~~227 million) ~~and the Petrochemical segment (euro 128 million).~~
     Writedowns in the Exploration & Production segment relate primarily to the results of impairment tests performed on proved and unproved properties mainly in fields in the North Sea, Venezuela and The Gulf of Mexico due to revisions in estimates of reserves, while writedowns in, the Petrochemicals segment ~~relate primarily~~(euro 133 million) and Syndial SpA (euro 63 million).
Exchange rate differences due to the ~~results~~translation of ~~impairment tests performed on fixed assets~~financial statements prepared in ~~elastomer production plants mainly in Europe in light of expected decreases in future returns on sales of elastomer products.~~
currencies other than euro amount to euro 3,144 million related to companies whose functional currency is the US dollar (euro 2,522 million).
The changes in scope of consolidation of euro 1,134 million concern the purchase of Fortum Petroleum AS (now Eni Norge AS) (euro 1,077 million).
Other changes for euro 717 million related primarily to the attribution to fixed assets of a portion of the difference between purchase price and the corresponding equity acquired from third parties following the Public Offering for Italgas SpA shares (euro 1,057 million); such increase was partially offset by the sale of businesses and assets (euro 315 million) primarily related to the purchases and sales of companies during the year as well as to the consolidation of previously unconsolidated investments. The euro 764 million amount concerns in particular the consolidation of Polimeri Europa SpA and its subsidiariesExploration & Production segment (euro ~~540~~133 million) and ~~the purchase of Bouygues Offshore SA~~Refining & Marketing segment (euro ~~183~~107 million).
     ~~On July 9, 2002, Eni, through its subsidiary Saipem SpA, purchased a 50.8% interest in the French company Bouygues Offshore from its parent company Bouygues Construction. Subsequently Eni launched a~~
public tender offer for the remaining shares held by the public which were traded in the French and U.S. markets at the same cash price of 60.08 euro per share paid to Bouygues Construction for its majority interest. The purchase price paid for the acquisition of 100% of Bouygues amounted to euro 1,006 million. In conjunction with the purchase price allocation, Eni recorded goodwill of euro 820 million.
     Other changes of euro 605 million related in particular to: (i) the divestment of assets in the amount of euro 401 million, which comprised primarily Eni’s interests in certain hydrocarbons fields located mainly in the North Sea, Italy and Qatar in accordance with the Company’s strategy of rationalization of its portfolio of mineral assets. Eni received cash consideration of euro 390 million and recorded a net gain of euro 92 million; and (ii) the divestment of certain businesses in the amount of euro 226 million, the most significant of which relates to the conferral of Eni’s Priolo refinery in Sicily to the newly established Erg Raffinerie Mediterranee. Assets with a net value of euro 100 million were conferred in exchange of a stake of 28% in Erg Raffinerie Mediterranee. Eni and Erg hold put and call options at a set price expiring in 2006 on Eni’s 28% stake. See also Note No. 23 Commitments and contingencies — Other commitments.

Monetary revaluations included in the gross and net value of fixed assets, amount to euro ~~1,179~~1,084 and 6482 million, respectively (euro ~~1,295~~1,179 million and ~~112~~euro 64 million respectively at December 31, ~~2001)~~2002).

At December 31, ~~2002~~2003 fixed assets have been pledged for euro ~~489~~486 million primarily as collateral on debt incurred by Eni (euro ~~240~~489 million at December 31, ~~2001). The euro 249 million increase relates primarily to the consolidation of Polimeri Europa SpA (euro 219 million)~~2002).
Fixed assets by segment

Dec. 31, 2001 Dec. 31, 2002

Fixed assets, gross:
— Exploration & Production 38,667 38,534
— Gas & Power 15,867 16,467
— Refining & Marketing 9,083 8,172
— Petrochemicals 4,458 6,438
— Oilfield Services and Engineering 2,805 3,447
— Other activities 241 335
71,121 73,393
Accumulated depreciation, amortization and writedowns:
— Exploration & Production 17,939 18,672
— Gas & Power 9,269 9,276
— Refining & Marketing 5,751 5,075
— Petrochemicals 3,369 4,784
— Oilfield Services and Engineering 1,338 1,689
— Other activities 141 204
37,807 39,700
Fixed assets, net:
— Exploration & Production 20,728 19,862
— Gas & Power 6,598 7,191
— Refining & Marketing 3,332 3,097
— Petrochemicals 1,089 1,654
— Oilfield Services and Engineering 1,467 1,758
— Other activities 100 131
33,314 33,693
(million euro) Dec. 31, 2002 Dec. 31, 2003
Fixed assets, gross:
- Exploration & Production 38,534 38,811
- Gas & Power 16,467 18,926
- Refining & Marketing 8,172 8,652
- Petrochemicals 4,169 4,266
- Oilfield Services Construction and Engineering 3,447 3,531
- Other activities 2,472 2,403
- Corporate and financial companies 132 149
73,393 76,738
Accumulated depreciation, amortization and writedowns:
- Exploration & Production 18,672 18,473
- Gas & Power 9,276 9,426
- Refining & Marketing 5,075 5,482
- Petrochemicals 2,884 3,085
- Oilfield Services Construction and Engineering 1,689 1,790
- Other activities 2,054 2,065
- Corporate and financial companies 50 57
39,700 40,378
Fixed assets, net:
- Exploration & Production 19,862 20,338
- Gas & Power 7,191 9,500
- Refining & Marketing 3,097 3,170
- Petrochemicals 1,285 1,181
- Oilfield Services Construction and Engineering 1,758 1,741
- Other activities 418 338
- Corporate and financial companies 82 92
33,693 36,360
Fixed assets by segment relating to the 2002 were reclassified on the basis of the new division of activities. In particular, “Other activities” included the information of Syndial SpA and its subsidiaries, previously included in the “Petrochemicals” segment. The information relating to the new segment “Corporate and financial companies” was re-classified from “Other activities”.
7)7 Investments

Acquisitions Change Exchange Reserve for
Net value at and Increase Reduction in scope of rate Other Net value at contingencies at
Dec. 31, 2001 subscriptions in value in value consolidation differences changes Dec. 31, 2002 Dec. 31, 2002

(million €)
Investments in unconsolidated subsidiaries 526 15 30 (45 ) (257 ) (21 ) (1 ) 247 480
Investments in affiliates 2,096 231 148 (248 ) 8 (145 ) 150 2,240 602
Investments in other companies 390 7 6 (22 ) 1 (40 ) (50 ) 292 40
3,012 253 184 (315 ) (248 ) (206 ) 99 2,779 1,122
(million euro) Net value Acquisitions Increase Reduction Exchange Other Net value Reserve for
at Dec. 31, and in value in value rate changes at Dec. 31, contingencies
2002 subscriptions differences 2003 at Dec. 31,
Investments in unconsolidated 2003
subsidiaries 247 72 25 (36) (31) 8 285 552
Investments in affiliates 2,240 537 162 (335) (89) 47 2,562 773
Investments in other companies 292 81 2 (26) (51) 15 313 61
2,779 690 189 (397) (171) 70 3,160 1,386
Acquisitions and subscriptions offor euro ~~253~~690 million ~~related~~concerned mainly ~~to: (i)~~ the ~~contribution~~subscriptions of capital ~~to EnBW Eni Verwaltungsgesellschaft mbH~~increase of Unión Fenosa Gas SA (euro 97442 million), ~~to Albacom SpA (euro 44 million) and to~~of United Gas Derivatives Co (UGDC) (euro 2075 million)~~; (ii) the purchase~~, of ~~46.2%~~Darwin LNG Pty Ltd (euro 43 million), of ~~the share capital of Ages Pisa SpA~~Discovery Producer Services (euro 4938 million).
     ~~On December 27, 2002~~ and Eni and EnBW (Energie Baden-Württemberg AG, the third largest German operator in the electricity market) acquired through a 50/50 German joint venture (EnBW-Eni Verwaltungsgesellschaft mbH) a 97.81% interest in GVS (Gasversorgung Süddeutschland GmbH), an operator in the German gas market. Financial requirements of this transaction on part of the two joint-venture partners amounted to euro 704 million. The two joint-venture partners financed the transaction through a capital contribution of euro 178 millionBTC Ltd (euro ~~89 million net to Eni); for the remaining part the joint-venture raised finance debt.~~
33 million).
Increases and reductions in value include Eni’s portion of equity earnings or losses on investments accounted for under the equity method and changes in the value of investments accounted for under the cost ~~method.~~criteria. Specifically, the increase of euro ~~184~~189 million relates primarily to Trans Austria Gasleitung GmbH (euro ~~34 million), TSKJ — Serviços de Engenharia Lda (euro 24~~35 million), Transmediterranean Pipeline Co Ltd (euro 2321 million), ~~Superoctanos CA~~TSKJ - Serviços de Engenharia Lda (euro 1820 million) and Azienda Energia e Servizi SpA (euro 1520 million); reductions offor euro ~~315~~397 million ~~include~~concern primarily Albacom SpA (euro 115 million), Galp Energia SGPS SA (euro 8529 million), ~~Albacom SpA~~Blue Stream Pipeline Co BV (euro ~~37 million), Distribuidora de Gas del Centro SA (euro 34~~25 million) and also the decrease in the carrying value of companies valued under the equity method for the receipt of dividends (euro ~~106~~167 million).
     ~~Changes in the scope of consolidation relate to the exclusion of Polimeri Europa SpA from investments following its consolidation (euro 257 million).~~

Other changes offor euro 9970 million relate primarily to the ~~acquisition of 28% of Erg Raffinerie Mediterranee Srl in consideration for the transfer of Eni’s refinery in Priolo, Sicily (euro 100 million) and~~attribution to ~~the conversion~~investments of a ~~receivable~~portion of the difference between purchase price and the corresponding equity acquired from ~~Raffineria di Milazzo ScpA into a capital contribution~~third parties following Public Offering on Italgas SpA shares (euro 36104 million)~~; this~~. Such increase is partially offset by the sale of ~~Qatar Petrochemical Co Ltd~~investments (euro 2926 million) ~~and Blu SpA (euro 25 million)~~.
The net value of euro3,160 million consists of the following companies:

Dec. 31, 2001 Dec. 31, 2002

Net value Eni's interest Accounting method Net value Eni's interest Accounting method

(million €)
Unconsolidated subsidiaries:
—Polimeri Europa SpA 257 100.00 equity method
— Transmediterranean Pipeline Co Ltd 103 50.00 equity method 83 50.00 equity method
— Conserv Inc 25 100.00 cost 25 100.00 cost
— Other (*) 141 139
526 247
Affiliates:
— Galp Energia SGPS SA 755 33.34 equity method 659 33.34 equity method
— Blue Stream Pipeline Co BV 214 50.00 equity method 178 50.00 equity method
— Eteria Parohis Aeriou Thessaloniki SA 151 49.00 equity method 151 49.00 equity method
— Raffineria di Milazzo ScpA 82 50.00 equity method 121 50.00 equity method
— Albacom SpA 108 35.17 equity method 115 35.00 equity method
— Erg Raffinerie Mediterranee Srl 100 28.00 cost
— Superoctanos CA 90 49.00 equity method 93 49.00 equity method
— Azienda Energia e Servizi SpA 80 49.00 equity method 92 49.00 equity method
— EnBW Eni Verwaltungsgesellschaft mbH 89 50.00 equity method
— Fertilizantes Nitrogenados de Oriente CEC 81 20.00 equity method 66 20.00 equity method
— Supermetanol CA 76 34.51 equity method 66 35.19 equity method
— Trans Austria Gasleitung GmbH (**) 19 89,00 equity method 55 89.00 equity method
— Ages Pisa SpA 49 46.18 equity method
— Haldor Topsøe AS 48 50.00 equity method 43 50.00 equity method
— Eteria Parohis Aeriou Thessalia SA 39 49.00 equity method 39 49.00 equity method
— Siciliana Gas SpA 32 50.00 equity method 38 50.00 equity method
— Transitgas AG 33 46.00 equity method 34 46.00 equity method
— Carson Development General Partenership 45 50.00 cost 34 50.00 cost
— Distribuidora de Gas del Centro SA 68 31.35 equity method 12 31.35 equity method
— Other (*) 175 206
2,096 2,240
Other companies:
— Nigeria Lng Ltd 129 10.40 cost 111 10.40 cost
— Ceska Rafinerska AS 42 16.33 cost 39 16.33 cost
— Interconnector (UK) Ltd 30 5.02 cost 30 5.00 cost
— Discovery Producer Services Llc 37 16.67 cost 16 16.67 cost
— Qatar Petrochemical Ltd 29 10.00 cost
— Blu SpA 23 7.00 cost
— Other (*) 100 96
390 292
3,012 2,779
(million euro) Dec. 31, 2002 Dec. 31, 2003

Net value Eni’s Accounting Net value Eni’s Accounting
interest method interest method
Unconsolidated subsidiaries:
- Transmediterranean Pipeline Co Ltd 83 50.00 equity method 65 50.00 equity method
- Eni BTC Ltd    52 100.00 equity method
- Conserv Inc 25 100.00 cost
- Other^(*) 139    168
247    285
Affiliates:
- Galp Energia SGPS SA 659 33.34 equity method 602 33.34 equity method
- Unión Fenosa Gas SA    416 50.00 equity method
- Azienda Energia e Servizi SpA 92 49.00 equity method 168 49.00 equity method
- Eteria Parohis Aeriou Thessaloniki SA 151 49.00 equity method 151 49.00 equity method
- Raffineria di Milazzo ScpA 121 50.00 equity method 131 50.00 equity method
- Blue Stream Pipeline Co BV 178 50.00 equity method 125 50.00 equity method
- Erg Raffinerie Mediterranee Srl^(a) 100 28.00 cost 100 28.00 cost
- EnBW - Eni Verwaltungsgesellschaft mbH 89 50.00 equity method 94 50.00 equity method
- United Gas Derivatives Co (UGDC) 19 33.33 equity method 82 33.33 equity method
- Superoctanos CA 93 49.00 equity method 80 49.00 equity method
- Fertilizantes Nitrogenados de Oriente CEC 66 20.00 equity method 66 20.00 equity method
- Supermetanol CA 66 35.19 equity method 59 35.19 equity method
- Trans Austria Gasleitung GmbH^(b) 55 89.00 equity method 58 89.00 equity method
- Ages Pisa SpA 49 46.18 equity method 49 46.07 equity method
- Siciliana Gas SpA 38 50.00 equity method 47 50.00 equity method
- Eteria Parohis Aeriou Thessalia SA 39 49.00 equity method 39 49.00 equity method
- Haldor Topsøe AS 43 50.00 equity method 37 50.00 equity method
- Distribuidora de Gas del Centro SA 12 31.35 equity method 36 31.35 equity method
- Transitgas AG 34 46.00 equity method 32 45.99 equity method
- Albacom SpA 115 35.00 equity method
- Carson Development General Partnership 34 50.00 cost
- Other 187    190
2,240    2,562
Other companies
- Nigeria Lng Ltd 111 10.40 cost 92 10.40 cost
- Darwin LNG Pty Ltd    39 12.04 cost
- Ceska Rafinerska AS 39 16.33 cost 33 16.33 cost
- Discovery Producer Services Llc 16 16.67 cost 28 16.67 cost
- Interconnector (UK) Ltd 30 5.00 cost 25 5.00 cost
- Other^(*) 96    96
292    313
2,779    3,160
(*) ~~(*)~~ Each individual amount included herein does not exceed euro 25 million.
(a) To the company was granted a call option for the purchase with a fixed contract price (see Note 23).
(b) ~~(**)~~ The company is a joint venture.
The net value of investments in unconsolidated subsidiaries and affiliates ~~does not~~ include ~~significant~~the differences between purchase price and Eni’s equity in the investments ~~with the exception~~ of ~~the difference related~~euro 602 million. Such differences relate primarily to Unión Fenosa Gas SA (euro 195 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 187 million), Galp Energia SGPS SA ~~which Eni has attributed to goodwill~~ (euro ~~320 million~~107 million) and ~~214 million at December 31, 2001 and 2002, respectively)~~Azienda Energia e Servizi SpA (euro 74 million).
The following are the amounts, according to Eni’s interest, from the last available financial statements of unconsolidated subsidiaries and affiliates:

Unconsolidated
subsidiaries Affiliates

(million €)
Total assets 1,245 7,198
Total liabilities 1,126 5,203
Net sales from operations 218 6,489
Operating income 40 239
Net income 36 88
     ~~Data above do not include consolidation adjustments.~~
amounts
(million euro) Dec. 31, 2002 Dec. 31, 2003
Unconsolidated Affiliates Unconsolidated Affiliates
subsidiaries subsidiaries
Total assets 1,245 6,996 1,340 8,232
Total liabilities 1,126 5,009 1,132 5,735
Net sales 218 4,212 140 4,658
Operating income 40 239 5 278
Net income 36 88 (3) 123
The reserve for losses related to investments, included in the reserve for contingencies (Note 12) ~~relates to~~concerns the following companies:

Dec. 31, 2001 Dec. 31, 2002

(million €)
Industria Siciliana Acido Fosforico — ISAF SpA (in liquidation) 28 30
Snamprotechint - Serviços e Gestão de Projectos Lda 21
Agip Middle East BV 18 16
Fosfotec Srl (in liquidation) 9 8
Bormia SpA (in liquidation) 160
Pertusola Sud SpA (in liquidation) 131
Mineraria Campiano SpA (in liquidation) 17
Other companies 21 31
384 106
     Bormia SpA (in liquidation) is now merged into EniChem SpA, Pertusola Sud SpA (in liquidation) and Mineraria Campiano SpA (in liquidation) were merged into Singea SpA (in liquidation) which was itself merged into EniChem SpA.
(million euro) Dec. 31, 2002 Dec. 31, 2003
Industria Siciliana Acido Fosforico - ISAF SpA (in liquidation) 30 39
Consorzio SET Sviluppo Elettrico Trecate 15
Agip Middle East BV 16 14
Albacom SpA 13
Caspian Pipeline Consortium R - Closed Joint Stock Company 9 13
Lasmo Petroleum Development BV 13 10
Fosfotec Srl (in liquidation) 8 8
Snamprotechint - Serviços e Gestão de Projectos Lda 21
Other companies 9 9
106 121
8)8 Intangible assets

Accumulated
Changes Exchange amortization and
Net value at in scope of rate Other Net value at writedowns at
Dec. 31, 2001 Investments Amortization consolidation differences changes Dec. 31, 2002 Dec. 31, 2002

(million €)
Organizational and financing costs 39 3 (12 ) (1 ) 29 60
Costs for research and development 510 914 (1,066 ) (58 ) 3 303 666
Industrial patent right and intellectual property rights 88 37 (91 ) 1 114 149 552
Concessions, licences, trademarks and similar items 411 37 (118 ) 4 (50 ) 750 1,034 1,097
Goodwill 543 10 (74 ) 845 (87 ) 70 1,307 240
Intangible assets in progress and advances 128 181 1 (175 ) 135 5
Other intangible assets 1,124 23 (62 ) 5 (93 ) (779 ) 218 427
2,843 1.205 (1,423 ) 856 (289 ) (17 ) 3,175 3,047
(million euro) Net value Investments Amortization Changes Exchange Other Net value Reserve
at Dec. 31, in scope rate changes at Dec. 31, amortization
2002    of consolidation differences 2003 writedown
at Dec. 31, 2003

Organizational and financing costs 29 2 (11) (1) 1 20 63
Costs for research and development 303 685 (818) 30 (37) 4 167 680
Industrial patent right and intellectual property rights 149 68 (126) 71 162 687
Concessions, licences, trademarks and similar items 1,034 38 (121) 2 (19) 934 1,266
Goodwill 1,307 28 (141) 4 (29) 813 1,982 333
Intangible assets in progress and advances 135 117    (119) 133 5
Other intangible assets 218 21 (49) (1) 23 212 474
3,175 959 (1,266) 34 (66) 774 3,610 3,508
Organizational and financing costs of euro 2920 million ~~relate to~~concern costs for extraordinary corporate operations, costs for setting up or expanding production activities and costs for share capital increases.
Costs for research and development offor euro ~~303~~167 million ~~relate~~concern mainly to the purchase of mineral rights (euro ~~301~~158 million). This item also includes exploration ~~expenditure~~expenditures amortized in the year offor euro 632 million (euro 865 million ~~(euro 757 million~~ in ~~2001)~~2002).

Concessions, licenses, trademarks and similar items offor euro ~~1,034~~934 million ~~relate~~concern primarily to the transmission rights for natural gas imported from Algeria (euro ~~754~~709 million), concessions for mineral exploration (euro ~~132 million), a concession for natural gas distribution in the Brazilian state of Sao Paulo (euro 31~~102 million) and know-how relating to new projects (euro 3041 million). ~~Other changes~~
Goodwill for euro 1,982 million concerns primarily the Gas & Power segment (euro 832 million, of which euro ~~750~~813 million ~~relate~~relates to the ~~reclassification from other intangible assets of~~Public Offering for the ~~transmission rights for natural gas imported from Algeria (euro 802 million).~~
     ~~Goodwill of euro 1,307 million relates primarily to~~Italgas SpA shares), the Oilfield Services, Construction and Engineering segment (euro ~~880~~825 million, of which euro ~~823~~788 million relates to ~~Saipem~~the purchase of Bouygues Offshore SA, ~~former Bouygues Offshore~~now Saipem SA), the Exploration & Production segment (euro ~~250~~213 million relates to ~~Lasmo)~~the purchase of Lasmo Plc, now Eni Lasmo Plc), the Refining & Marketing segment (euro 93109 million of which euro 6555 million relates to ~~Agip Distribuidora SA, former~~ Companhia ~~Sao~~São Paulo de Petròleo SA, now merged ~~into~~in Agip do Brasil SA). Other changes of euro 813 relate primarily to the attribution to goodwill of the remaining portion of the difference between purchase price and the ~~Gas & Power segment~~corresponding equity acquired from third parties following the Public Offering on Italgas SpA shares (euro ~~77 million, of which euro 58 million relates to Italgas SpA)~~798 million).

Other intangible assets of euro ~~218~~212 million ~~relate~~concern primarily to royalties for the use of licenses by Polimeri Europa SpA (euro 9894 million) and investments on assets of third parties (euro 8415 million).
Changes in goodwill for the years indicated by segment are as follows:
Initial
balance Capital
Expenditure Depreciation
Amor.charges Change in
Consolidation Exchange
difference
conversion Other
changes Final
balance Reserve
for amort.
preciation
Dec. 31, 2002
Exploration & Production 288 (20)    (18) 250 39
Gas & Power 40 (2)    (15) 54 77 30
Refining & Marketing 147 9 (18) 2 (57) 10 93 119
Oilfield Services Construction and Engineering 64 (32) 843 3 2 880 45
Other segments 4 1 (2)    4 7 7
543 10 (74) 845 (87) 70 1,307 240
Dec. 31,2003
Exploration & Production 250 (18)    (19) 213 54
Gas & Power 77 2 (45) 4 (4) 798 832 49
Refining & Marketing 93 26 (21)    1 10 109 124
Oilfield Services Construction and Engineering 880 (55)    (7) 7 825 97
Other segments 7 (2)    (2) 3 9
1,307 28 (141) 4 (29) 813 1,982 333
9)9 Other non-current assets
Other non-current assets consist of the following:

Dec. 31, 2001 Dec. 31, 2002

(million €)
Securities held as long-term assets:
— Italian treasury bonds 21 21
— other securities 312 290
Other 114 117
Deferred tax assets 776 1,457
1,223 1,885
(million euro) Dec. 31, 2002 Dec. 31, 2003
Securities held as long-term assets:
- Italian treasury bonds 21 22
- other securities 290 1
Other 117 93
Deferred tax assets 1,457 2,167
1,885 2,283
Securities held as long-term assets are carried at cost, adjusted for permanent impairment, and represent mainly security deposits from customers ~~euro~~(euro 21 million, ~~(the~~the same amount atas of December 31, ~~2001)~~2002).
Other securities ~~(euro 290 million)~~for euro 1 million decreased by euro 22289 million due mainly to the ~~effect~~cancellation of ~~exchange rate differences on~~ the ~~translation~~securities held by Eni Lasmo Plc as guarantee of ~~financial statements prepared in foreign currencies~~a debt issue (euro 21288 million).
; this guarantee was substituted by a fixed deposit recorded under non-current receivables for euro 234 million.
Deferred tax assets are described in Note ~~13 «Reserves~~12 “Reserves for contingencies and other deferred non-current tax ~~liabilities»~~liabilities”.
~~10)~~10 Taxes payable
Taxes payable include the following:
Dec. 31, 2001 Dec. 31, 2002

(million €)
Customs and excise duties 693 406
Income taxes payable 912 810
Other 750 575
2,355 1,791
(million euro) Dec. 31, 2002 Dec. 31, 2003
Customs and excise duties 406 273
Income taxes payable 810 1,262
Other 575 648
1,791 2,183
Taxes payable of euro ~~1,791~~2,183 million ~~decreased~~increased by euro ~~564~~392 million ~~due~~following the increase of Income taxes payable (euro 452 million) primarily related to substitute taxes due: (i) for the revaluation of assets, provided for by the italian budget law for 2004, and carried out within the limits of adjustments made in accordance with tax laws (euro 362 million); (ii) for the adjustment made by Stoccaggi Gas Italia SpA under Law No. 448/2001 of the taxable value of the assets conferred in 2001 from Eni SpA and Snam SpA to the ~~implementation of a new system of payment of~~higher book value (euro 124 million). Such increase has been partially offset by the decrease in taxes payables for customs and excise ~~taxes, which has advanced the required payment date of excise on products that are put on the market in the second half of December~~duties (euro ~~404~~133 million) ~~from January to the end of December.~~.
~~11)~~11 Debt
Short-term debt

Eni’s short-term debt is ~~comprised~~composed of the following:

Dec. 31, 2001 Dec. 31, 2002

(million €)
Due to:
— banks 1,972 4,583
— other financing institutions 25 16
— commercial paper 3,032 3,128
— unconsolidated subsidiaries 52 68
— affiliates 150 95
5,231 7,890
(million euro) Dec. 31, 2002 Dec. 31, 2003
Due to:
- banks 4,583 3,633
- other financing institutions 16 151
- commercial paper 3,128 3,510
- unconsolidated subsidiaries 68 65
- affiliates 95 69
7,890 7,428
Short-term debt by currency is as follows:

Dec. 31, 2001 Dec. 31, 2002

(million €)
Euro 1,314 4,155
U.S. dollar 2,197 1,674
British pound 1,271 1,674
Swiss franc 170 117
Norwegian kroner 30 101
Other 249 169
5,231 7,890
(million euro) Dec. 31, 2002 Dec. 31, 2003
Euro 4,155 3,628
US dollar 1,674 3,218
Norwegian kroner 101 278
British pound 1,674 84
Swiss franc 117 21
Other 169 199
7,890 7,428
The average interest rate of Eni’s short-term debt was ~~4.45%~~2.82% and ~~3.82%~~2.13% for the years ended December 31, ~~2001~~2002 and ~~2002,~~2003, respectively.

Short-term debt of euro ~~7,890~~7,428 million ~~increased~~decreased by euro ~~2,659~~462 million. ~~The increase relates~~Such decrease was primarily due to the ~~Public Offering~~exchange rate differences related to the translation of ~~Italgas shares, which required a time deposit of~~financial statement prepared in currency other than euro ~~1,447 million, such increase has been~~(euro 963 million). This decrease was partially offset by the ~~effect~~new borrowings (euro 470 million).
In 1999 Eni SpA opened a revolving line of ~~exchange rate differences~~credit for euro 568 million, which is due to expire in 2004 and provides for the maintaining of some financial ratios generally based on Eni’s statutory financial statement. Eni is in compliance with the ~~translation~~covenants contained in its financing arrangements. At December 31, 2003 the line of ~~financial statements prepared in foreign currencies (euro 694 million)~~credit was unused (completely used at December 31, 2002).

On December 31, ~~2002~~2003 Eni ~~maintains~~maintained committed and uncommitted unused lines of credit with various domestic and foreign banks for euro ~~1,207~~4,647 and ~~7,272~~4,799 million, respectively (euro ~~1,632~~1,207 million and ~~6,625~~euro 7,272 million, respectively, at December 31, ~~2001)~~2002). These agreements provide for interest charges based on prevailing market conditions. Commission fees on unused lines of credit are not significant.
Long-term debt

Eni’s long-term debt, including current maturities, as of December 31, ~~2001~~2002 and ~~2002,~~2003, and the related maturity schedules are as follows:

Current
Type of debt Dec. 31 maturity Long-term maturity
instrument Maturity range 2001 2002 2003 2004 2005 2006 2007 After Total

(million €)
Due to banks:
— ordinary loans 2002-2017 2,800 3,028 682 717 733 378 262 256 2,346
— interest rate assisted loans 2002-2008 296 251 30 82 83 42 6 8 221
— exchange rate assisted loans 2002-2006 14 40 35 2 1 2 5
— ordinary export credit 2002-2006 14 8 3 3 1 1 5
— other financings 2002-2006 121 311 2 306 1 2 309
3,245 3,638 752 1,110 819 425 268 264 2,886
Ordinary bonds 2003-2027 3,222 3,169 196 203 508 437 394 1,431 2,973
Others 2002-2019 850 723 32 85 40 23 24 519 691
7,317 7,530 980 1,398 1,367 885 686 2,214 6,550
(million euro) Dec. 31 Current
maturity Long-term maturity

Type of debt instrument Maturity range 2002 2003 2004 2005 2006 2007 2008 After Total
Due to banks:
- ordinary loans 2004-2017 3,028 2,722 297 961 573 258 33 600 2,425
- interest rate assisted loans 2004-2013 251 137 72 39 14 4 3 5 65
- exchange rate assisted loans 2004-2006 40 5 2 1 2 3
- insured facility export credit 2004-2006 8 4 2 1 1 2
- other financings 2004-2010 311 350 39 63 228 2 18 350
3,638 3,218 373 1,041 653 490 38 623 2,845
Notes of credit 2004-2007 33 33 33
Ordinary bonds 2004-2027 3,158 4,793 79 801 473 417 125 2,898 4,714
Other financing institutions 2004-2019 734 782 38 106 51 34 31 522 744
7,530 8,826 490 1,948 1,177 974 194 4,043 8,336
Long-term debt of euro 8,826 million increased by euro 1,296 million. Such increase was primarily due to the difference between the payments and the new proceeds of liabilities (euro 1,253 million) and to the change in the scope of consolidation (euro 688 million, of which euro 685 million related to the purchase of Fortum Petroleum AS, now Eni Norge AS). The increase was partially offset by the effect of exchange rate differences on the translation of financial statements prepared in currency other than euro (euro 560 million). The balance of payments and new proceeds of liabilities of euro 1,253 million includes a new bond issued within the Medium Term Notes Program for euro 2,400 million, of which euro 1,500 million was issued by Eni SpA.
Eni entered into a financing arrangement, relating to bank debt that requires ~~the~~ maintenance of certain financial ratios generally based on ~~Eni SpA’s~~Eni’s statutory and consolidated financial statements. At December 31, ~~2001~~2002 and ~~2002,~~2003, the amount of ~~short and long-term debt~~debts subject to restrictive covenants was euro ~~563~~424 million and euro ~~992~~793 million, respectively. Eni is in compliance with the covenants contained in its financing arrangements.

The exchange rate assisted loans offor euro 405 million relate to borrowings from European organizations, such as the European Investment Bank, for the purpose of economic development whereby the Italian Government partially absorbs foreign exchange gains and losses related to such loans.

Ordinary bonds of euro ~~3,169~~4,793 million ~~relate~~concern primarily to notes issued by Eni ~~under~~in its Euro Medium Term Notes program for a total of euro ~~1,561~~3,703 million ~~(of which euro 500 million have a fixed rate of 6.125%~~ and ~~mature in 2010 euro 1,061 million have fixed and variable rates and mature before 2010), seven series of notes issued by Lasmo~~other ordinary bonds for a total of euro ~~1,453 million with~~1,090 million.
Ordinary bonds, including the issuing entity, the expiration dates and the interest rates, by currency, are as follows:
Amount Value Maturity % rate
(million euro) from to from to
Issuing entity
Euro Medium Term Notes:
- Eni SpA 1,500 Euro 2013 4.625
- Eni Coordination Center SA 647 Euro 2005 2015 variable
- Eni SpA 500 Euro 2010 6.125
- Eni Coordination Center SA 309 US dollar 2004 2007 variable
- Eni Coordination Center SA 283 British pound 2010 2019 4.850 5.000
- Enifin SpA 100 Euro 2005 variable
- Eni Coordination Center SA 91 Swiss franc 2005 2007 variable
- Eni Coordination Center SA 82 US dollar 2005 2013 4.650 6.820
- Eni Coordination Center SA 72 Euro 2008 4.000 5.050
- Eni Coordination Center SA 51 Swiss franc 2006 1.750
- Eni Coordination Center SA 37 Japanese yen 2008 0.810
- Enifin SpA 31 Euro 2005 3.350
3,703
Other bonds:
- Eni USA Inc 317 US dollar 2027 7.300
- Eni USA Inc 237 US dollar 2006 7.500
- Eni Lasmo Plc (*) 213 British pound 2009 10.375
- Eni USA Inc 158 US dollar 2007 6.750
- Enifin SpA 129 Euro 2005 variable
- Eni Investment Plc 20 British pound 2005 variable
- Eni Finance Inc 16 US dollar 2005 10.300
1,090
4,793
(*) The bond is guaranteed by a fixed rates from 6.7% to 10.375% and maturities between 2003 and 2027, and an Enifin SpA loan 1997-2005 with variable rate interest amounting to euro 129 million. Eni SpA bonds 1993-2003 with variable rate amounting to euro 516 million have been paid in advance on December 1, 2002.deposit recorded under non-current receivables (euro 234 million).
Long-term debt, including current maturities and average interest rates, by currency, is as follows:

Average Average
Dec. 31, 2001 interest rate Dec. 31, 2002 interest rate

(million €) (million €)
Euro 3,417 5.7 4,408 4.6
U.S. dollar 3,510 4.8 2,614 6.8
British pound 280 9.2 257 10.7
Japanese yen 104 0.65 93 1.3
Other 6 7.8 158 2.3
7,317 7,530
Dec. 31, 2002 Average Dec. 31, 2003 Average
(million euro) interest rate (million euro) interest rate
Euro 4,408 4.60 6,235 3.56
US dollar 2,614 6.80 1,855 5.67
British pound 257 10.70 517 6.47
Japanese yen 93 1.30 40 0.65
Other 158 2.30 179 2.21
7,530 8,826
     OnAt December 31, ~~2002~~2003 Eni ~~maintains~~did not maintain committed unused long-term lines of credit ~~with various domestic and foreign banks of euro~~(euro 364 ~~million expiring in 2003 (euro 510~~ million at December 31, ~~2001, of~~2002 which ~~euro 406 million expiring~~expired in ~~2002)~~2003). These agreements provide for interest charges based on prevailing market conditions. Commission fees on unused lines of credit are not significant.

In the normal course of business, Eni utilizes various derivative contracts to reduce risks arising from interest rate and foreign currency exchange rate fluctuations, both for long and short-term debt. See Note 23 for a more detailed discussion.

Certain debt, in the amount of euro ~~115~~409 million and euro ~~409~~332 million at December 31, ~~2001~~2002 and ~~2002,~~2003, respectively, is guaranteed by mortgages and liens on the fixed assets of consolidated companies and by pledges on marketable ~~securities.~~
     ~~Eni’s debt arrangements generally include customary cross-default provisions.~~
securities and fixed deposits.
~~12)~~12 Reserves for contingencies and other deferred non-current tax liabilities

Amount at
the beginning Other Year-end
of the year Additions Deductions changes amount

(million E)
December 31, 2001

Employee retirement and similar obligations 76 13 (6 ) 3 86
Other reserves for contingencies:
— site restoration and abandonment 1,698 125 (74 ) 214 1,963
— environmental risks 542 262 (158 ) 208 854
— loss adjustments and actuarial reserves for Eni’s insurance companies 604 103 (182 ) 10 535
— restructuring or decommissioning of production facilities 126 581 (24 ) 140 823
— reserve for contract penalties and disputes 344 41 (233 ) 61 213
— losses related to investments 566 51 (34 ) (199 ) 384
— other (*) 393 193 (146 ) 42 482
4,273 1,356 (851 ) 476 5,254
Non-current income tax liabilities:
— deferred taxation 982 737 (1,083 ) 1,731 2,367
— other tax reserves 371 35 (147 ) (5 ) 254
1,353 772 (1,230 ) 1,726 2,621
5,702 2,141 (2,087 ) 2,205 7,961
December 31, 2002

Employee retirement and similar obligations 86 15 (9 ) 36 128
Other reserves for contingencies:
— site restoration and abandonment 1,963 184 (86 ) (81 ) 1,980
— environmental risks 854 101 (171 ) 824 1,608
— loss adjustments and actuarial reserves for Eni’s insurance companies 535 63 (5 ) 593
— restructuring or decommissioning of production facilities 823 10 (529 ) 304
— contract penalties and disputes reserve 213 29 (36 ) 5 211
— losses related to investments 384 11 (75 ) (214 ) 106
— other (*) 482 329 (214 ) (5 ) 592
5,254 727 (582 ) (5 ) 5,394
Non-current income tax liabilities:
— deferred taxation 2,367 318 (301 ) 2 2,386
— other tax reserves 254 8 (3 ) (34 ) 225
2,621 326 (304 ) (32 ) 2,611
7,961 1,068 (895 ) (1 ) 8,133
(million euro) Amount at the beginning of the year Additions Deductlon Other
changer Year-end amount
December 31, 2002
Employee retirement and similar obligations 86 15 (9) 36 128
Other reserves for contingencies:
- site restoration and abandonment 1,963 184 (86) (81) 1,980
- environmental risks 854 101 (171) 824 1,608
- loss adjustments and actuarial reserves for Eni’s insurance company 535 63    (5) 593
- restructuring or decommissioning of production facilities 823 10    (529) 304
- contract penalties and disputes reserve 213 29 (36) 5 211
- losses related to investments 384 11 (75) (214) 106
- reserve for redundancy incentives 32 29 (12) (7) 42
- other (*) 450 300 (202) 2 550
5,254 727 (582) (5) 5,394
Non-current income tax liabilities:
- deferred taxation 2,367 318 (301) 2 2,386
- other tax reserves 254 8 (3) (34) 225
2,621 326 (304) (32) 2,611
7,961 1,068 (895) (1) 8,133
December 31, 2003
Employee retirement and similar obligations 128 31 (12) 28 175
Other reserves for contingencies:
- site restoration and abandonment 1,980 173 (51) (62) 2,040
- environmental risks 1,608 97 (143) 69 1,631
- loss ad justments and actuarial reserves for Eni’s insurance company 593 16 (21) 11 599
- restructuring or decommissioning of production facilities 304 50 (61) (75) 218
- contract penalties and disputes reserve 211 18 (50) 2 181
- losses related to investments 106 55 (24) (16) 121
- reserve for redundancy incentives 42 39 (33) 17 65
- other (*) 550 272 (92) (52) 678
5,394 720 (475) (106) 5,533
Non-current income tax liabilities:
- deferred taxation 2,386 802 (1,276) 348 2,260
- other tax reserves 225 24 (73) 6 182
2,611 826 (1,349) 354 2,442
8,133 1,577 (1,836) 276 8,150
(*) Each individual amount included herein does not exceed euro 50 million.
~~(*) Each individual amount included herein does not exceed euro 50 million.~~
     ~~Deductions~~At December 31, 2003 deductions in reserves of euro 475 million not corresponding to cash expenditures amounted to euro 129 million. The most significant deductions in 2003 primarily relate to: (i) a reversal of the items “Loss adjustment and actuarial reserve” (euro 21 million) due to overestimates made by Padana Assicurazioni SpA of insurance payments to third parties; (ii) a reversal of the item “Contract penalties and disputes reserve” (euro 19 million) due to the fact that previously Eni had accrued for the payment of contractual penalties related to the transmission and storage of natural gas. Following the issuing of a network code and a better interpretation of the tariff regime established by the Authority for Electricity and Gas, such penalties are no longer due. Other deductions not corresponding to cash expenditures relate to various immaterial items.
At December 31, 2002 deductions in reserves of euro 582 million not corresponding to cash expenditures amounted to euro 106 ~~million and euro 98 million for the years ended December 31, 2002 and 2001, respectively.~~million. The most significant deductions in 2002 primarily relate to a reversal of the item ~~«Contract~~“Contract penalties and disputes ~~reserve»~~reserve” (euro 31 million) due to: (i) the fact that previously Eni had accrued for the estimated selling price of natural gas which was
supplied in accordance with the terms of existing contracts under renegotiation. When the contracts with clients were ultimately finalized the actual price was higher than expected, and consequently the excess accrual reversed; and (ii) the fact that previously Eni had accrued for the estimated impact of a new tariff regime for natural gas transported on behalf of third parties. When the new tariff regime was ultimately finalized the actual impact was lower than expected, and consequently the excess accrual reversed. Other deductions not corresponding to cash expenditures relate to various immaterial items.

The most significant deductions in reserves not corresponding to cash expenditures in 2001 related to a reversal of the items «loss adjustments and actuarial reserves» (euro 22 million), due to overestimates of insurance payments to third parties, and «losses related to investments» (euro 10 million), due to the fact that Eni had previously impaired an investment which was subsequently sold at a premium on its carrying value post impairment.
     ~~The «Site~~“Site restoration and ~~abandonment»~~abandonment” reserve of euro ~~1,980~~2,040 million represents primarily the estimated costs for well-plugging, abandonment and site restoration ~~of euro 1,917 million.~~(euro 2,006 million). Other changes offor euro 8162 million ~~relate~~concern primarily to exchange rate loss from the translation of financial statements denominated in currencies other than the euro (euro 92128 million). The total estimated future site restoration and abandonment costs for Eni’s worldwide oil and gas properties aggregated approximately euro 2,700 million ~~and euro 2,800 million~~ at December 31, ~~2002 and 2001, respectively.~~
2003 (the same amount as of December 31, 2002).
The ~~«Environmental risks»~~“Environmental risks” reserve of euro ~~1,608~~1,631 million represents, primarily, the estimated costs of remediation in accordance with existing laws and regulations, of active production facilities ~~in the Petrochemicals segment~~for Syndial SpA (euro ~~1,320~~1,329 million) ~~and~~, the Refining & Marketing segment (euro ~~241~~176 million) and the Gas & Power segment (euro 67 million). Additions for euro ~~101~~97 million relate primarily to the ~~Petrochemical (euro 68 million),~~ Refining & Marketing (euro 1872 million) and Gas & Power (euro 1518 million) segments. Other changes offor euro ~~824~~69 million ~~are comprised~~relate in particular ofto the reclassification of a portion of ~~the reserve for «Restructuring~~restructuring or decommissioning of production ~~facilities» which relates specifically to environmental clean-up~~facilities of ~~EniChem~~Syndial SpA (euro ~~450~~59 million) ~~and the merger of Bormia SpA (in liquidation), previously not consolidated, into EniChem SpA (euro 363 million)~~.

The ~~reserve for «Loss adjustments~~“Loss adjustment and actuarial reserves for Eni’s insurance ~~companies»~~companies” reserve of euro ~~593~~599 million represents the liabilities accrued for claims on insurance policies underwritten by Eni’s captive insurance company.

The ~~«Restructuring~~“Restructuring or decommissioning of production ~~facilities»~~facilities” reserve of euro ~~304~~218 million mainly represents the estimated costs related to divestments and facilities closures ~~in the Petrochemicals segment~~of Syndial SpA (euro ~~273~~192 million). Other changes offor euro ~~529~~75 million relate in particular to the reclassification of the ~~Environmental risks~~“Environmental risks” reserve (euro 59 million) and to the “Reserve for redundancy incentives” (euro 15 million) of ~~EniChem SpA (euro 450 million).~~
Syndial SpA.
Contingent liabilities are included primarily under the caption ~~«Contract~~“Contract penalties and disputes ~~reserve»~~reserve”. The ~~balances~~balance of euro ~~211 million and of euro 213~~181 million at December 31, ~~2002 and 2001, respectively are~~2003 is comprised of numerous matters of differing natures. Accruals have been based on Eni’s best estimate of the expected probable liability.
The ~~«Reserve~~“Reserve for losses on ~~investments»~~investments” of euro ~~106~~121 million represents losses on investments incurred to date in excess of their carrying ~~value (see Note 7 Investments~~value.
The “Reserve for ~~further details)~~redundancy incentives” of euro 65 million represents the liabilities primarily for the Petrochemicals segment (euro 28 million), the Refining & Marketing segment (euro 15 million) and ~~decreased by euro 278 million following the merger of Bormia SpA (in liquidation) into EniChem~~Syndial SpA (euro ~~160~~10 million),. Other changes for euro 17 million concern primarily the reclassification from the “Restructuring or decommissioning of ~~Pertusola Sud SpA (in liquidation) and Mineraria Campiano SpA (in liquidation) into Singea SpA (in liquidation), now merged with EniChem~~production facilities” reserve of Syndial SpA (euro ~~148~~15 million).
With respect to the foregoing liabilities, Eni does not expect any material, reasonably possible, additional loss beyond those amounts accrued above.
     ~~«Deferred income~~
“Net Deferred tax ~~liabilities net»~~liabilities” of euro ~~2,386~~2,260 million (euro ~~2,367~~2,386 million at December 31, ~~2001)~~2002) have already been ~~netted with~~reduced by deferred tax assets for which Eni possesses the legal right of offset. Deductions for euro 1,276 million refer to utilizations following the revaluations of assets by applying the tax laws included in the budget Law of 2004 (euro 760 million). Other changes for euro 348 million concern primarily the fiscal effect due to the adjustment to fair value of fixed assets of Italgas SpA and its subsidiaries following the Public Offering (euro 207 million), the change in the scope of consolidation following the purchase of Fortum Petroleum AS (now Eni Norge AS) (euro 145 million) and the set-off, for each company, of tax assets and deferred tax liabilities (euro 274 million). Such increase has been partially offset by net exchange rate differences due to the translation of financial statements prepared in currencies other than euro (euro 254 million). A description follows of net deferred tax liabilities, determined by subtracting from the reserve for taxes the deferred income tax assets that may not be offset and are included in the item ~~«Other~~“Other non-current ~~assets»~~assets”.

Net deferred income tax liabilities

Dec. 31, 2001 Dec. 31, 2002

Deferred income taxes 4,064 4,224
Deferred tax assets that may be offset (1,697 ) (1,838 )
2,367 2,386
Deferred tax assets that may not be offset (776 ) (1,457 )
1,591 929
(million euro) Dec. 31, 2002 Dec. 31, 2003
Deferred income taxes 4,224 4,032
Deferred tax assets may be offset (1,838) (1,772)
2,386 2,260
Deferred tax assets may not be offset (1,457) (2,167)
929 93
The most significant temporary differences giving rise to the net deferred tax liabilities are as follows:

Dec. 31, 2001 Dec. 31, 2002

Deferred tax liabilities:
— anticipated and accelerated depreciation 2,954 3,133
— differences between purchase cost and net book value of acquired consolidated companies 591 457
— reserve for uncollectible receivables 127 134
— excess provision for contingencies according to fiscal law 88 104
— distributable reserves subject to taxes 105 94
— gains taxable in the future 76 92
— other 123 210
4,064 4,224
Deferred tax assets:
— accruals for doubtful accounts and reserve for contingencies (1,919 ) (1,909 )
— tax loss carryforwards (1,132 ) (1,539 )
— assets revaluations as per Law 342/2000 (1,136 ) (939 )
— investments revaluation in accordance with Law 292/93 and allocation of the merger difference arising from the merger of Agip SpA into Eni SpA (892 ) (843 )
— losses on investments and subsidiaries in excess of currently allowable tax deductions (236 ) (565 )
— future deductible amortization (355 ) (387 )
— writeoffs of fixed assets, intangible assets and or inventories deductible in the future (269 ) (337 )
— other (347 ) (457 )
(6,286 ) (6,976 )
Less:
Valuation allowance 3,813 3,681
(2,473 ) (3,295 )
Net deferred tax liabilities 1,591 929
(million euro) Dec. 31, 2002 Dec. 31, 2003
Deferred tax liabilities:
- anticipated and accelerated depreciation 3,133 3,132
- differences between purchase cost and net book value of acquired consolidated companies 457 448
- reserve for uncollectable receivables 134 150
- reserves for accelerated contingencies 104 89
- gains taxable in the future 92 62
- distributable reserves subject to taxes 94 21
- other 210 130
4,224 4,032
Deferred tax assets:
- accruals for doubtful accounts and reserve for contingencies (1,909) (1,869)
- tax loss carryforwards (1,539) (1,403)
- investments revaluation in accordance with Law 292/1993 and the allocation of the merger difference arising from the merger of Agip SpA into Eni SpA (843) (818)
- assets revaluation as per Law 342/2000 (939) (760)
- losses of investments and subsidiaries in excess of currently allowable tax deductions (565) (644)
- assets revaluation as per Law 448/2001    (424)
- writeoffs of tangible, intangible assets and or inventories deductable in the future (337) (355)
- future deductable amortization (387) (272)
- other (457) (724)
(6,976) (7,269)
Less:
Valuation allowance 3,681 3,330
(3,295) (3,939)
Net deferred tax liabilities 929 93
The valuation allowance for deferred tax assets (euro ~~3,813~~3,681 and ~~3,681~~3,330 million for the years ending December 31, ~~2001~~2002 and ~~2002~~2003 respectively) mainly relates to consolidated companies with accumulated fiscal losses which are not expected to be recovered against future fiscal profits and to temporary differences which the company does not expect will be ~~utilized~~
utilized.

Tax loss carryforwards

Under Italian tax regulations, losses may be carried forward for up to five ~~years;~~years, with the exception of the losses suffered in the first three periods, for which is allowed to have a no expiration date. For non-Italian tax loss carryforwards, the period generally ranges ~~from~~an average of up to 5 ~~to 15~~ years, with a significant portion having no expiration date. Tax loss carryforwards reverse at a rate of ~~34%~~33% for Italian companies and an average rate of ~~36%~~43% for foreign companies.
Gross tax loss carryforwards of euro ~~4,395~~4,054 million expire as follows:

Domestic Foreign

2003 282 8
2004 630 27
2005 45 30
2006 565 73
2007 1,022 29
over 2007 557
without expiration 1,127
2,544 1,851
(million euro) Domestic Foreign
2004 605 5
2005 38 30
2006 549 82
2007 1,017 26
2008 289 40
over 2008 328
without expiration 5 1,040
2,503 1,551
Tax loss carryforwards expected to be utilized amount to euro ~~1,054~~829 million and relate primarily to foreign companies (euro ~~876~~661 million). The tax effect of such tax loss ~~carryforwards~~carryforward is euro ~~383~~342 million.

Other tax reserves include estimated charges of euro ~~225~~182 million for unsettled tax ~~claims.~~claims related to uncertain application of the tax regulation for the foreign companies of the Exploration & Production segment. All tax years prior to ~~1996~~1998 have been settled, for direct taxes, with Italian tax authorities, by Eni SpA and most of its Italian subsidiaries. The situation for foreign companies is more complex, however all tax years have been primarily settled between 1996 and ~~2001.~~2002.
~~13) Shareholders’~~13 Shareholders' equity
Share capital
     On June 1, 2001 the General Shareholders’ Meeting approved the conversion of Eni’s share capital from lira into euro and the grouping of shares where for two shares with nominal value 0.5 euro each shareholder receives one share nominal value 1 euro, and cancelling the sole remaining share.
Eni SpA had ~~4,001,814,026~~4,002,922,176 shares (nominal value euro 1 each) fully paid-up as of December 31, ~~2002,~~2003 (4,001,814,026 at December 31, 2002), of which: ~~2,581,444,850~~2,558,622,108 shares, corresponding to ~~64.51%~~63.92% are publicly ~~(1)~~ held, ~~1,213,731,615,~~813,443,277, corresponding to ~~30.33%~~20.32% are held by the Ministry of Economy and Finance, ~~and 206,637,561,~~400,288,338 shares, corresponding to ~~5.16%~~10% are held by Cassa depositi e prestiti SpA and 230,568,453, corresponding to 5.76% are held by Eni ~~SpA (4,001,259,476 shares at~~SpA. On December ~~31, 2001, of which 2,633,147,035, corresponding to 65.81% are publicly held,1,213,731,615, corresponding to 30.33% are held by~~12, 2003 the Ministry of Economy and Finance ~~and 154,380,826, corresponding~~sold to ~~3.86% are held~~Cassa depositi e prestiti SpA 400,288,338 shares with possession from January 1, 2004.
During 2003 1,108,150 shares subscribed by ~~Eni SpA). The increase of 554,550 shares nominal value 1 euro results from the issuance of shares~~managers have been issued under the stock grant ~~plan.~~plan following the expiration of the plan issued in 2000 (1,035,750 shares) and the agreed termination of employment (72,400).
Reserves

The legal reserve of Eni SpA represents earnings restricted from the payment of dividends pursuant to the Italian Civil Code (the ~~«Civil Code»~~“Civil Code”). Under the Civil Code, with respect to income of any year, an amount equal to 5% of the net income of Eni SpA, as recorded in Eni ~~SpA’s~~SpA's statutory financial statements for such year, must be set aside until the cumulative legal reserve is equal to one-fifth of the nominal value of Eni ~~SpA’s~~SpA's issued and outstanding share capital. Such dividend restriction also applies to each Italian subsidiary of Eni.

The ~~«Reserve~~“Reserve for the issue of shares in accordance with art. 2349 of the Italian Civil ~~Code»~~Code” contains earnings destined to increase share capital under the ~~stock grant plan. On~~incentive plans. At December 31, ~~2002~~2003 the number of
shares to assign for no consideration is ~~3,559,850~~2,451,000 shares nominal value 1 euro ~~(3,079,500~~(3,559,850 shares at December 31, ~~2001)~~2002).

Reserves include amounts received from the Ministry of Economy and Finance to reimburse Eni SpA for principal and interest payments on loans obtained and bonds issued in prior years, which under laws 730/~~83,~~1983, 749/851985 and 41/~~86,~~1986, were obligations of the Government.
     ~~Other changes of euro 48 million include the adjustment to realized gains on intercompany transaction between consolidated companies in which Eni’s percentage equity interest differs.~~

Exchange rate differences due to the translation of financial statements prepared in ~~foreign~~ currencies other than euro amounted to euro ~~2,125~~1,742 million, of which euro ~~1,700~~1,200 million related to companies whose functional currency is the ~~U.S.~~US dollar.

As provided by Italian law, dividends may be paid by Eni SpA only out of retained earnings plus distributable reserves and statutory net income for the current year net of the amount to be allocated to the legal reserve in the subsequent year.

Approximately euro ~~21,900~~22,500 million was unrestricted as to payment of dividends at December 31, ~~2002,~~2003, a portion of which is subject to taxation upon distribution. Deferred tax liabilities offor euro 9421 million have been recorded in relation to the reserves expected to be distributed.
Treasury shares
Treasury shares amount to euro ~~2,838~~3,164 million (euro ~~2,068~~2,838 million at December 31, ~~2001)~~2002) and consist of ~~206,637,561~~230,627,953 ordinary shares nominal value 1 euro owned by Eni SpA ~~(154,380,826~~(206,637,561 ordinary shares nominal value euro 1 as of December 31, ~~2001)~~2002). Such shares ~~are valued at cost and~~ have been repurchased to increase ~~shareholder’s~~shareholder's value and in application of the incentive plans for Eni managers, in accordance with the ~~decision~~decisions of ~~Eni’s~~Eni's shareholders ~~meetings of June 6, 2000, June 1, 2001 and May 30, 2002.~~meetings.
Reconciliation of statutory net income and ~~shareholders’~~shareholders' equity to consolidated net income and ~~shareholders’~~shareholders' equity

The statutory financial statements of subsidiaries reflect certain tax-driven entries. In addition, Eni ~~SpA’s~~SpA's statutory financial statements do not reflect the consolidation of subsidiary companies.

Adjustments are made in consolidating the statutory accounts of Eni SpA and subsidiary companies to reflect the consolidation principles described in Note 2.2, Summary of significant accounting and reporting policies. In addition, adjustments are made to eliminate the effects of certain tax-driven entries applied by subsidiary companies in their respective statutory accounts.

The reconciliation of net income and ~~shareholders’~~shareholders' equity as reported in Eni ~~SpA’s~~SpA's statutory financial statements to those reported in the consolidated financial statements is as follows:

Net income Shareholders' equity

2000 2001 2002 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2002

(million E)
As recorded in Eni SpA’s financial statements 3,426 2,250 3,880 14,785 15,375 26,498
Loans serviced by the Government 4
Treasury shares (574 ) (2,068 ) (2,838 )
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 390 2,990 1,049 15,712 18,741 7,118
Consolidation adjustments:
— difference between cost and underlying value of equity (22 ) (49 ) (83 ) 203 459 1,131
(million euro) Net income Shareholders' equity

2001 2002 2003 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2003
As recorded in Eni SpA's financial statements 2,250 3,880 2,850 15,375 26,498 27,566
Treasury shares (2,068) (2,838) (3,164)
Difference between the carrying value of investments and the equity value of companies before consolidated adjustments 2,990 1,049 2,118 18,741 7,118 4,413
Consolidation adjustments:
- difference between cost and underlying value of equity (49) (83) (169) 459 1,131 2,873
- elimination of tax adjustments and compliance with accounting policies 420 1,261 1,453 (1,945) (1,218) (1,432)
- elimination of unrealized intercompany profits (130) (1,024) 132 (1,493) (2,777) (2,409)
- deferred taxation 258 120 (138) (127) 120 117
- other adjustments 2,489 19 (92) 247 317 354
8,228 5,222 6,154 29,189 28,351 28,318
Minority interest (477) (629) (569) (1,706) (2,094) (1,622)
As recorded in consolidated financial statements 7,751 4,593 5,585 27,483 26,257 26,696

Net income Shareholders' equity

2000 2001 2002 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2002

(million E)
— elimination of tax adjustments and compliance with accounting policies 1,846 420 1,261 (4,378 ) (1,945 ) (1,218 )
— elimination of unrealized intercompany (profits) losses (72 ) (130 ) (1,024 ) (437 ) (1,493 ) (2,777 )
— deferred taxation 313 258 120 (1,241 ) (127 ) 120
— other adjustments 141 2,489 19 (1 ) 247 317
6,022 8,228 5,222 24,073 29,189 28,351
Minority interest (251 ) (477 ) (629 ) (1,672 ) (1,706 ) (2,094 )
As recorded in consolidated financial statements 5,771 7,751 4,593 22,401 27,483 26,257
Other ~~adjustments~~adjustment related to income of 2001 include euro 2,352 million related to the realized gain in the consolidated financial statements for the public offering of 40.24% of the share capital of Snam Rete Gas SpA.
~~14)~~14 Net sales from operations
Net sales from operations are as follows:

2000 2001 2002

(million E)
Gross sales from operations 62,985 63,094 61,500
Change in contract work in progress (1,054 ) 88 1,127
Less:
— excise tax (13,126 ) (13,068 ) (13,139 )
— services billed to joint venture partners (867 ) (1,189 ) (1,566 )
47,938 48,925 47,922
(million euro) 2001 2002 2003
Gross sales from operations 63,094 61,500 65,362
Change in contract work in progress 88 1,127 1,150
Less:
- excise tax (13,068) (13,139) (13,520)
- services billed to joint venture partners (1,189) (1,566) (1,505)
Total 48,925 47,922 51,487
~~15)~~15 Purchases, services and other
Purchases, services and other include the following:

2000 2001 2002

(million E)
Production costs-raw, ancillary and consumable materials and goods 23,691 23,711 22,658
Production costs-services 6,513 7,507 8,614
Lease, rental and royalty expenses 1,203 1,242 1,454
Other expenses 1,518 1,302 1,575
32,925 33,762 34,301
Less:
— services billed to joint venture partners (867 ) (1,189 ) (1,566 )
— capitalized direct costs associated with self-constructed assets (616 ) (745 ) (842 )
31,442 31,828 31,893
(million euro) 2001 2002 2003
Production costs-raw, ancillary and consumable materials and goods 23,711 22,658 24,087
Production costs-services 7,507 8,614 10,431
Lease, rental and royalty expenses 1,242 1,454 1,407
Other expenses 1,302 1,575 1,433
33,762 34,301 37,358
less:
- services billed to joint venture partners (1,189) (1,566) (1,505)
- capitalized direct costs associated with self-constructed assets (745) (842) (1,277)
- personnel seconded (10)
31,828 31,893 34,566
Lease, rentals and royalty ~~expense~~expenses include royalties on hydrocarbons extracted offor euro ~~552~~517 million, ~~517~~508 and ~~508~~538 in ~~2000,~~ 2001, 2002 and ~~2002,~~2003 respectively.
~~16)~~16 Payroll and related costs
Payroll and related costs are analyzed as follows:

2000 2001 2002

(million E)
Wages and salaries 2,175 2,271 2,441
Social security contributions 627 602 650
Employee termination indemnities 117 114 121
Pensions and similar obligations 11 12 15
Other costs 57 83 119
2,987 3,082 3,346
Less:
— revenues related to personnel costs (40 ) (51 ) (53 )
— capitalized direct costs associated with self-constructed assets (161 ) (180 ) (190 )
2,786 2,851 3,103
(million euro) 2001 2002 2003
Wages and salaries 2,271 2,441 2,412
Social security contributions 602 650 693
Employee termination indemnities 114 121 126
Pensions and similar obligations 12 15 31
Other costs 83 119 91
3,082 3,346 3,353
Plus:
- personnel seconded       10
Less:
- revenues related to personnel costs (51) (53) (36)
- capitalized direct costs associated with self-constructed assets (180) (190) (161)
2,851 3,103 3,166
~~17)~~17 Depreciation, amortization and writedowns
Depreciation, amortization and writedowns consist of the following:

2000 2001 2002

(million E)
Depreciation and amortization:
— intangible assets 1,122 1,370 1,423
— fixed assets 2,678 3,310 3,543
3,800 4,680 4,966
Writedowns:
— intangible assets 95
— fixed assets 55 100 447
55 100 542
Less:
— direct costs associated with self-constructed assets (12 ) (9 ) (4 )
3,843 4,771 5,504
(million euro) 2001 2002 2003
Depreciation and amortization:
- intangible assets 1,370 1,423 1,266
- fixed assets 3,310 3,543 3,447
4,680 4,966 4,713
Writedowns:
- intangible assets 95 30
- fixed assets 100 447 411
100 542 441
4,780 5,508 5,154
Less:
- direct costs associated with self-constructed assets (9) (4) (3)
4,771 5,504 5,151
~~18)~~18 Financial income (expense) and exchange differences, net
Financial expense and exchange differences, net, consist of the following:

2000 2001 2002

(million E)
Interest and other financial income 501 539 513
Gains on securities 116 95 44
Interest and other financial expense (791 ) (932 ) (737 )
Exchange differences, net 165 (10 ) (30 )

2000 2001 2002

(million E)
Less:
— interest capitalized 73 49 43
64 (259 ) (167 )
(million euro) 2001 2002 2003
Interest and other financial income 539 513 436
Securities gains 95 44 34
Interest and other financial expense (932) (737) (710)
Exchange differences, net (10) (30)
Less:
- interest capitalized 49 43 86
(259) (167) (154)
~~19)~~19 Other income (expense) from investments
Other income (expense) from investments consists of the following:

2000 2001 2002

(million E)
Gains on disposals 19 76 55
Dividends 44 40 32
Income from equity investments 137 151 178
Other revaluation of investments 10 7 6
Writedown of investments (178 ) (491 ) (245 )
Other 1 1 17
33 (216 ) 43
(million euro) 2001 2002 2003
Gains on disposals 76 55 39
Dividends 40 32 22
Income from equity investments 151 178 180
Other revaluation of investments 7 6 9
Writedown of investments (491) (245) (233)
Other 1 17 (34)
(216) 43 (17)
~~20)~~20 Extraordinary income (expense)
Extraordinary income (expense) consists of the following:

2000 2001 2002

(million E)
Extraordinary income

Gains on disposals 86 3,473 257
Other extraordinary income 146 173 112
232 3,646 369
Extraordinary expense

Restructuring cost:
— provisions for risks (182 ) (885 ) (157 )
— cost of redundancy incentives (202 ) (237 ) (114 )
— writedowns and losses on disposals of fixed assets (34 ) (607 ) (55 )
(418 ) (1,729 ) (326 )
Other extraordinary expenses (326 ) (80 ) (72 )
(744 ) (1,809 ) (398 )
(512 ) 1,837 (29 )
(million euro) 2001 2002 2003
Extraordinary income
Gains on disposals 3,473 257 290
Other extraordinary income 173 112 273
3,646 369 563
Extraordinary expense
Restructuring cost:
- provisions for risks (885) (157) (248)
- cost of redundancy incentives (237) (114) (116)
- asset writedowns and losses on disposals (607) (55) (66)
Total restructuring cost (1,729) (326) (430)
Other extraordinary expenses (80) (72) (84)
(1,809) (398) (514)
1,837 (29) 49
2003 Extraordinary items
Gains on disposals relate to sale of investments, businesses and fixed assets as a result of restructuring activities. In particular disposal gains of euro 290 million are primarily due to the sale of service stations and land in the Refining & Marketing segment (euro 237 million) and the sale of fixed assets and the sea transport activity in the Gas & Power segment (euro 52 million).
Other extraordinary income of euro 273 million relate primarily to the compensation paid by Edison SpA to Syndial SpA in relation to the Enimont’s legal proceeding (euro 200 million) and the release of reserves for excess provision and the definition of legal proceedings (euro 47 million, of which euro 38 million relating to Syndial SpA).
Provisions for risks of euro 248 million relate primarily to charges for environmental remediation of Syndial SpA (euro 82 million) and the Refining & Marketing segment (euro 51 million) and to future operating costs of inactive sites in Syndial SpA (euro 48 million).
Redundancy incentives of euro 116 million concern primarily the Petrochemicals segment (euro 37 million), Refining & Marketing segment (euro 32 million), Gas & Power segment (euro 15 million) and the Oilfield Services, Construction and Engineering segments (euro 15 million).
Writedowns and losses of euro 66 million include the loss of concession for service stations on Autostrade (euro 35 million) and the writedown of plants in the Petrochemicals segment (euro 11 million).

2002 Extraordinary items

Gains on disposals relate to sales of investments, businesses and fixed assets as a result of restructuring activities. In particular disposal gains of euro 257 million are primarily due to: (i) the sale of service stations in the Refining & Marketing segment in Italy (euro 127 million); (ii) the sale of the share capital of Agip Nigeria Ltd (euro 87 million); (iii) the sale of fixed assets (euro 28 million, of which euro 21 million related to the Gas & Power segment); (iv) the sale of consolidated businesses (euro 15 million).

Other extraordinary income of euro 112 million relates primarily to the release of excess reserves, the conclusion of legal proceedings and the collection of receivables previously reserved for essentially in the Petrochemicals (euro 72 million), Gas & Power (euro 23 million) and Refining & Marketing (euro 13 million) segments.

Provisions for risks of euro 157 million relate primarily to environmental restoration and to charges for restructuring and divestments in the Refining & Marketing (euro 79 million) and Petrochemicals (euro 71 million) segments.

Redundancy incentives of euro 114 million concern primarily the Petrochemicals segment (euro 34 million), Gas & Power segment (euro 27 million), Refining & Marketing segment (euro 25 million) and the Oilfield Services, Construction and Engineering segments (euro 14 million).

Writedowns and losses of euro 55 million include the writedown of fixed assets in the Petrochemical segment (euro 23 million), the loss on the sale of the Priolo refinery to Erg Raffinerie Mediterranee Srl (euro 22 million) and the loss on the disposal of consolidated businesses and fixed assets (euro 10 million, of which euro 9 million relate to the Gas & Power segment).

2001 Extraordinary items

Gains on disposals relate to sale of investments, businesses and fixed assets as a result of restructuring activities. In particular, disposal gains of euro 3,473 million are primarily the result of: (i) the public offering of 40.24% of the share capital of Snam Rete Gas (euro 2,453 million); (ii) the sale of the share capital of Immobiliare Metanopoli (euro 348 million) and other real estate (euro 406 million) within Eni’s real estate divestment program; (iii) the sale of the Polyurethane Division (euro 211 million).

Between November 26 and 30, 2001, Snam Rete Gas, a company indirectly wholly-owned by Eni, completed an initial public offering of its shares of stock in Italy relating to 171 million shares. Contemporaneously, the company completed a private placement to foreign professional and institutional investors, including those of the United States for 513 million shares. The global offering amounted to 684 million shares, corresponding to 35% of Eni’s investment in Snam Rete Gas. Subsequently, the Joint Lead Managers exercised their green shoe option for an additional 102.6 million shares, increasing the total share capital of Snam Rete Gas sold to 40.24%. The offering price was set at euro 2.8 per share with a 3% premium on the Regulatory Asset Base set by the Authority for Electricity and Gas and a 12% premium on the company’s net equity (share capital and premium-price reserve). Total proceeds from the offering amounted to euro 2,202 million in cash and a net gain of euro 2,453 million was recognized. The gain results from the fact that the amount of Snam Rete Gas’s equity as per Eni’s consolidated financial statements was a negative euro 624 million (of which euro 251 million corresponding to 40.24% of the equity sold), due to the elimination in consolidation of a previous asset revaluation made in accordance with Italian Law 342/2000.

On April 30, 2001, following the authorization from the relevant European antitrust authorities, Eni sold its polyurethane business to Dow Chemical for consideration of euro 428 million, of which euro 128 million in cash, euro 204 million corresponding to a 50% interest in Polimeri Europa (of which Eni already owns 50%) and euro 96 million of royalty rights for the use of Dow proprietary technology. Eni recognized a gain on this transaction of euro 211 million.

The disposal of Immobiliare Metanopoli and real estate resulted in cash consideration of euro 1,374 million.

Other extraordinary income of euro 173 million relates primarily to the release of the reserve for contingencies of euro 112 million which AgipPetroli had accrued in fiscal 2000 on the basis of a ruling by the Antitrust Authority, No. 8353 of June 8, 2000, for alleged horizontal cartel with other oil companies. This ruling was appealed by the company and definitively annulled by the Council of State on July 20, 2001 with sentence No. 359/2001. Accordingly, the accrual was reversed.

Provisions for risks of euro 885 million related to closingdowns, disposals and environmental remediation on plants still in operation as of December 31, 2001 in the Petrochemical segment (euro 616 million, of which euro 240 million related primarily to environmental remediation efforts at plants that management has specifically identified to close down in the next two-three years and euro 376 million related to environmental compliance provisions on all operating plants made in application of Law 471/~~99)~~1999), and to environmental remediation on de-industrialized areas in the Petrochemical (euro 91 million), Refining & Marketing (euro 77 million) and Gas & Power (euro 44 million) segments.

Writedowns of euro 607 million related primarily to the writedown of fixed assets and investments in the Petrochemical segment (euro 574 million) in order to align the book value of assets to the results of the impairment test made on the basis of estimated future cash flows in a declining market scenario for petrochemical products margins and also to the asset evaluation made by a court-appointed expert in
connection with the transfer to Polimeri Europa on January 1, 2002. These ~~write-downs~~writedowns relate primarily to olefins and aromatics plants, phenol plants and various other petrochemicals assets.
~~21)~~21 Income tax expense

2000 2001 2002

(million E)
Current taxes:
— Italian subsidiaries 3,584 1,093 1,451
— Foreign subsidiaries operating in the Exploration & Production segment 1,944 2,028 2,040
— Other foreign subsidiaries 40 175 163
5,568 3,296 3,654
Less:
— Tax credits on distribution of dividends not used to offset current tax liability (2 ) (1 )
5,566 3,295 3,654
Deferred taxes:
— Italian subsidiaries (1,478 ) 158 (542 )
— Foreign subsidiaries operating in the Exploration & Production segment 247 93 53
— Other foreign subsidiaries (16 ) (38 )
(1,231 ) 235 (527 )
4,335 3,530 3,127
(million euro) 2001 2002 2003
Current taxes:
- Italian subsidiaries 1,093 1,451 1,583
- foreign subsidiaries operating in the Exploration & Production segment 2,028 2,040 2,296
- other foreign subsidiaries 175 163 201
3,296 3,654 4,080
Less:
- Tax credits on dividends distribution not offset with current tax payment (1)
3,295 3,654 4,080
Deferred taxes:
- Italian subsidiaries 158 (542) (904)
- foreign subsidiaries operating in the Exploration & Production segment 93 53 67
- other foreign subsidiaries (16) (38) (2)
235 (527) (839)
3,530 3,127 3,241
Income taxes ~~due~~payable of euro 1,583 million relate to Irpeg (National income tax) for euro ~~1,156~~1.347 million and Irap (Regional income tax) for euro ~~252~~224 million and foreign income taxes of euro 4312 million.

The effective tax rate is ~~37.5%~~34.5% compared with a statutory tax rate of ~~42.1%~~39.9%, calculated by applying a ~~36%~~34% tax rate (Irpeg) to income before taxes and 4.25% tax rate (Irap) to the net value of production as provided for by Italian laws.

The difference between the statutory and effective tax rate is due to the following factors:

2000 2001 2002

(%)
Statutory tax rate 42.7 40.9 42.1
Higher (lower) foreign subsidiaries’ tax rate 2.5 5.0 2.7
Permanent differences 0.5 (7.6 ) 0.8
Effect of the application of Law No. 342/2000 (4.9 ) (4.6 ) (4.7 )
Effects of tax credits (0.3 ) (2.3 ) (4.9 )
Other 1.4 (1.4 ) 1.5
(0.8 ) (10.9 ) (4.6 )
Effective tax rate 41.9 30.0 37.5
(%) 2001 2002 2003
Statutory tax rate 40.9 42.1 39.9
Items increasing (decreasing) statutory tax rate:
- higher foreign subsidiaries tax rate 5.0 2.7 7.4
- permanent differences (7.6) 0.8 (0.2)
- tax benefit due to the application of favorable tax laws (2.3) (4.9) (1.4)
- effect of the application of Law No. 448/2001       (3.1)
- effect of the application of Law No. 342/2000 (4.6) (4.7) (3.6)
- effect of the budget Law 2004       (4.4)
Other (1.4) 1.5 (0.1)
(10.9) (4.6) (5.4)
Effective tax rate 30.0 37.5 34.5
The tax benefit due to the application of law No. 448/2001 relates to Stoccaggi Gas Italia SpA that aligned the tax basis of the assets received in 2001 by Eni SpA and Snam SpA to the conferral value by paying a substitute tax of 9%. Tax benefits on revaluation of assets are due to the application of the budget Law for 2004 that allows companies to revalue the assets within certain limits made in accordance with tax laws by paying a substitute tax of 19%. Permanent ~~timing~~ differences in ~~year~~ 2001 concern mainly the gain recorded in the consolidated financial statements due to the public offering of 40.24% of the share capital of Snam Rete Gas SpA (7.2%).
~~22)~~22 Earnings per share
     ~~Earnings per share («EPS») for the year 2000 have been restated to reflect the conversion of the share capital from Italian lire to euro.~~
Earnings per share is calculated by dividing ~~net income~~“Net income” by the weighted-average number of shares issued and outstanding during the year, excluding treasury shares.

In order to compare earnings per share in the years presented, the number of shares issued through stock grants made in ~~2001~~2002 and ~~2002~~2003 has been added to the number of shares outstanding in ~~previous years.~~the year 2001 and 2002. Based on this criterion, the number of shares outstanding was ~~3,995,126,901, 3,910,798,299 and 3,825,837,521,~~3,911,906,449, 3,826,945,671and 3,778,436,257 in the year ~~2000,~~ 2001, 2002 and ~~2002,~~2003, respectively.

The dilutive effect of potential ordinary shares, in the ~~form~~term of stock options and stock grants, when converted into ordinary shares on earnings per share is not material. At present, ~~only stock grants not yet vested are considered in the calculation of diluted EPS as~~ the effect of stock options to be exercised on ~~EPS~~earnings per share at December 31, ~~2002~~2003 is ~~anti-dilutive. The exercise price of outstanding stock options (euro 15.216) is higher than the quoted stock market value of Eni’s stock at December 31, 2002 (euro 14.509).~~not dilutive.
~~23)~~23 Commitments and contingencies
Derivative financial instruments

Eni operates internationally in the oil and natural gas, electricity generation, petrochemicals and oilfield services and engineering industries and is subject to exposure to market risks from changes in interest rates, foreign exchange rates and commodity prices.

Derivative financial instruments are utilized by Eni to reduce these risks, as explained below.

Eni’s treasury activities are managed primarily by two captive finance companies operating in the Italian and international financial markets. Eni’s operating subsidiaries are required to reduce foreign exchange rate risk to a minimum level by coordinating their operations with such finance companies.

Eni SpA’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. 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 SpA’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 does not enter into derivative transactions on a speculative basis.
(a) Notional amounts and credit exposures of derivatives

The notional value of a derivative is the contractual amount on the basis of which the differentials are exchanged; this amount can be expressed either on a value basis or on a physical quantities basis (such as barrels, tonnes, etc.). The amounts expressed in foreign currency are converted into euro applying the exchange rate at year-end.

The notional amounts of derivatives summarized in the sections that follow do not represent amounts exchanged by the parties and, thus, are not a measure of the credit exposure of Eni. The amounts exchanged are calculated on the basis of the notional amounts and the other terms of the derivatives, which relate to interest rates, exchange rates and commodity prices. Therefore, the credit exposure of interest rate, foreign exchange and commodity contracts is represented by the fair value of contracts with a positive fair value at year-end, reduced by the effects of master netting agreements. Eni SpA’s Board of Directors has approved policies which provide guidelines related to the criteria of eligible counterparties in derivative transactions and permissible financing investments, including purchases of securities. Although Eni is exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, it does not expect any counterparties to fail to meet their obligations given the high credit standings of such counterparties.
(b) Interest rate risk management
Eni enters into various types of interest rate contracts in managing its interest rate risk, as indicated in the following table:

Dec. 31, 2001 Dec. 31, 2002
Notional amount Notional amount

Interest rate swaps 3,208 5,206
Forward rate agreements 168 220
Interest rate collars 134 129
3,510 5,555
(million euro) Dec.31, 2002 Dec.31, 2003
Notional amount Notional amount
Interest rate swaps 5,206 5,690
Interest rate collars 129 74
Forward rate agreements 220
5,555 5,764
Eni enters into interest rate derivatives, particularly interest rate swaps ~~(«IRS»~~(“IRS”), to alter interest rate exposures arising from mismatches between assets and liabilities, to lower funding costs and to diversify sources of funding. Under interest rate swaps, Eni agrees with other parties to exchange, at specified intervals, the difference between interest amounts calculated by reference to an agreed notional principal amount and agreed fixed or floating interest rates. The euro ~~1,998~~484 million increase in IRS is primarily due to Enifin’s transactions in order to hedge financial payables granted to Snam Rete Gas SpA (euro 343 million) and to EniPower SpA (euro 300 million); this decrease has been partially offset by the repayments of the year of contracts used to hedge financial ~~receivables and payables of~~liabilities by Eni ~~Coordination Center SA.~~
Lasmo Plc (euro 271 million).
The following table indicates the types of interest rate swaps used and their weighted-average interest rates and maturities. Average variable rates are based on rates at year-end and may change significantly, affecting future cash flows.

The comparison between ~~the~~ weighted-average receive rate and ~~the~~ weighted-average pay rate does not represent the result of derivatives: such result is calculated on the basis of the underlying hedged operation.

Dec. 31, 2001 Dec. 31, 2002

Receive-fixed/Pay-floating swaps-notional amount (million euro) 1,202 1,201
— weighted average receive rate 6.99 % 6.42 %
— weighted average pay rate 3.50 % 2.77 %
— weighted average maturity (years) 3.93 3.74
Receive-floating/Pay-floating swaps-notional amount (million euro) 813 1,802
— weighted average receive rate 4.17 % 3.32 %
— weighted average pay rate 4.21 % 3.95 %
— weighted average maturity (years) 4.13 4.49
Pay-fixed/Receive-floating swaps-notional amount (million euro) 1,193 2,203
— weighted average pay rate 4.84 % 4.73 %
— weighted average receive rate 3.31 % 2.43 %
— weighted average maturity (years) 2.97 6.15
Dec. 31, 2002 Dec. 31, 2003
Receive-fixed/Pay-floating swaps-notional amount (million euro) 1,201 867
- weighted average receive rate (%) 6.42 6.03
- weighted average pay rate (%) 2.77 2.26
- weighted average maturity (years) 3.74 2.97
Receive-floating/Pay-floating swaps-notional amount (million euro) 1,802 1,941
- weighted average receive rate (%) 3.32 2.25
- weighted average pay rate (%) 3.95 2.91
- weighted average maturity (years) 4.49 3.38
Pay-fixed/Receive-floating swaps-notional amount (million euro) 2,203 2,882
- weighted average pay rate (%) 4.73 4.31
- weighted average receive rate (%) 2.43 1.77
- weighted average maturity (years) 6.15 6.64
     ~~Forward rate agreements are generally used by~~ Eni to offset changes in the rates of short floating-rate debt. Forward rate agreements settle in cash at a specified future date based on the differential between agreed interest rates applied to a notional amount. Forward contracts at year-end are related to contracts whereby Eni pays a fixed rate for euro 220 million (received a fix rate for euro 5 million and paid a fix rate for euro 163 million at December 31, 2001). These contracts have terms of less than one year. Gains and losses estimated at December 31, 2002, are not material.
     ~~Eni also~~ uses interest rate collars to manage its interest rate risk. An interest rate collar is a combination of options that enable a predetermined interest rate band to be locked in. Eni also uses zero-cost collars that do not require payment of an option premium. Interest rate collar contracts at year-end have terms of up to five years.
(c) Foreign exchange risk management

Eni enters into various types of foreign exchange contracts in managing its foreign exchange risk, as indicated in the following table:

Dec. 31, 2001 Dec. 31, 2002
Notional amount Notional amount

Forward exchange contracts 5,172 7,611
Purchased options 538 348
5,710 7,959
(million euro) Dec.31, 2002 Dec.31, 2003
Notional amount Notional amount
Forward exchange contracts 7,611 6,165
Purchased options 348 550
7,959 6,715
Eni uses forward exchange contracts primarily to hedge existing receivables and payables, including deposits and borrowings denominated in ~~foreign currencies.~~currency other than euro. Some of the contracts involve the exchange of currencies other than the local currency, according to the needs of foreign consolidated subsidiaries. Both buy and sell amounts of such contracts are indicated at the notional value. The term of forward exchange contracts is normally not longer than one year. The decrease of euro ~~2,439~~1,446 million ~~increase~~ in forward exchange contracts is primarily due to the expiring of the contracts related to Enifin SpA’s transactions in order to hedge financial short-term payables (expressed in British pound ~~sterling~~ and changed in ~~U.S.~~US dollar) of Eni Coordination Center ~~SA.~~
SA (euro 1,612 million).
Eni ~~also~~generally uses a combination of currency options that enable a predetermined risk rate band, related to ~~hedge~~ expenses denominated in ~~foreign currencies.~~currency other than euro, to be locked in. Currency options, purchased in the over-the-counter market for a premium, provide Eni with the right to buy or sell an agreed amount of currency at a specified exchange rate at the end of a specified ~~period, normally two years.~~
period.
The table below summarizes, by major currency, the contractual amounts of Eni’s forward exchange and option contracts.

Dec. 31, 2001 Dec. 31, 2002

Buy Sell Buy Sell

(million E)
U.S. dollar 1,429 2,480 1,290 3,515
Pound sterling 776 177 2,225 92
Swiss franc 4 434 32 392
Japanese yen 124 27 183 50
Norwegian kroner 39 95 68 37
Euro 73 2 43 12
Other 4 46 9 11
2,449 3,261 3,850 4,109
(million euro) Dec. 31, 2002 Dec. 31, 2003

Buy Sell Buy Sell
US dollar 1,290 3,515 1,019 2,955
British pound 2,225 92 1,432 342
Norwegian kroner 68 37 140 299
Euro 43 12 100 126
Swiss franc 32 392 177 1
Japanese yen 183 50 99 11
Other 9 11 3 11
3,850 4,109 2,970 3,745
(d) Commodity price risk management

Exchange traded crude oil and petroleum product ~~futures contracts and over-the-counter market swaps~~derivative instruments are ~~primarily~~ used ~~by the Refining & Marketing segment~~ to minimize the commodity price volatility. ~~Futures~~
In natural gas trading activity, Eni uses exchange traded crude oil forward contracts ~~have little credit~~with the aim of hedging the risk ~~because they take place in regulated markets. Swap agreements do not contain margin requirements and are subject~~related to natural gas at fixed prices under supply contracts. The purchase price of such hedging instruments is determined on the basis of a price basket with an indexation to the ~~creditworthiness~~petroleum products in the international markets.
In refining and marketing activities of ~~counterparties, which are principally major financial institutions. At~~petroleum products, Eni uses derivative instruments with the aim of reducing the risk of industrial and marketing activities related to the uncertainty of the market prices. In particular, Eni uses derivatives instruments to avoid that changes in the conditions of supply and trade markets could worsen in the expected income in the period between the purchase of crude oil, the refining and the trade of finished products.
The expiration date of contracts, with some not material exceptions, is less than 1 year.
The table below summarizes trade derivative contracts at December 31, ~~2001~~2002 and ~~2002 the notional amounts of open contracts are not material.~~2003.
(million euro) Dec. 31, 2002 Dec. 31, 2003

Buy Sell Buy Sell
Crudes (barrels) 1,924,390 890,000 6,629,544 1,146,000
Oil products (tonnes) 16,992 66,500 159,849 381,200
Oil products (gallons) 112,560 104,580
(e) Sales of government bonds

Eni sold Italian Government bonds to investors, primarily employees, and simultaneously entered into interest rate swaps with such investors wherein Eni receives the rate of interest on such Italian Government bonds and pays a floating rate of interest linked to ~~the~~ Euribor (Europe Interbank Offered Rate). Such investors may sell their securities back to Eni at any time for par value plus related interest with the
simultaneous cancellation of the related swaps. Eni also entered into an interest rate swap with a financial institution wherein it receives a floating rate which is considered more favorable for its floating rate commitment to its investors. At December 31, ~~2001~~2002 and ~~2002,~~2003, euro ~~150~~178 million and euro ~~178~~181 million, respectively, worth of such securities remained in the hands of employees. For accounting purposes, this transaction was treated as a sale of the bonds with gains recognized ~~currently~~ in current income.
~~Guarantees~~
Guarantees
Guarantees have been given by Eni to third parties. At December 31, ~~2001~~2002 and ~~2002,~~2003, these guarantees were as follows:

At Dec. 31, 2001 At Dec. 31, 2002

Unsecured Other Secured Unsecured Other Secured
guarantees guarantees guarantees Total guarantees guarantees guarantees Total

(million E)
Unconsolidated subsidiaries 126 277 403 117 640 757
Affiliated companies 65 1,220 78 1,363 55 1,020 77 1,152
Consolidated companies 4,800 5,287 85 10,172 4,800 5,506 10,306
Others 18 220 238 9 202 211
5,009 7,004 163 12,176 4,981 7,368 77 12,426
(million euro) At Dec. 31, 2002 At Dec. 31, 2003

Unsecured Other Secured Total Unsecured Other Secured Total
guarantees guarantees guarantees guarantees guarantees guarantees
Unconsolidated subsidiaries 117 640 757 7 302 309
Affiliated companies 55 1,020 77 1,152 30 1,419 77 1,526
Consolidated companies 4,800 5,506 10,306 4,894 6,090 10,984
Others 9 202 211 464 464
4,981 7,368 77 12,426 4,931 8,275 77 13,283
     ~~Guarantees~~Unsecured guarantees, other guarantees and secured guarantees given on behalf of unconsolidated subsidiaries and affiliated companies of euro ~~1,832~~1,835 million (euro ~~1,688~~1,909 million as of December 31, ~~2001)~~2002) consist primarily of: (i) unsecured guarantees and letters of patronage given to banks in relation to loans and lines of credit received for euro ~~1,028~~1,235 million (euro ~~1,495~~1,028 million at December 31, ~~2001)~~2002), of which euro ~~826~~686 million related to a contract released by Snam SpA (now merged ~~into~~in Eni SpA) on behalf of Blue Stream Pipeline Co BV to a consortium of financing institutions (euro ~~983~~826 million as of December 31, ~~2001)~~2002). The increase of euro ~~467~~207 million ~~decrease~~ regards essentially ~~guarantees~~a new guarantee given on behalf of ~~unconsolidated subsidiaries that are now consolidated or reclassified to consolidated companies~~EnBW - Eni Verwaltungsgesellschaft mbH (euro ~~306~~275 million) ~~and to~~. Such increase was partially offset by the exchange rate differences of unsecured guarantees given on behalf of Blue Stream Pipeline Co BV (euro ~~157~~140 million); (ii) ~~unsecured guarantees given to third parties in relation to the construction of a hydrocarbon treatment plant in Libya (euro 412 million); (iii)~~ unsecured guarantees and letters of patronage given to customers in relation to contractual performance and bid bonds offor euro ~~324~~242 million (euro 68324 million as of December 31, ~~2001)~~2002). The ~~increase~~decrease of euro ~~256~~82 million regards primarily the partial extinguishment of unsecured guarantees given to third parties in order to cover the construction of an oil pipeline in Azerbaijan (euro ~~206~~62 million); (iii) unsecured guarantees given to third parties in relation to the construction of a hydrocarbon treatment plant in Libya for euro 160 million (euro 412 million at December 31, 2002). The decrease of euro 252 million regards primarily the partial extinguishment of guarantees (euro 220 million) and the exchange rate differences (euro 32 million); (iv) performance guarantees given in the period (euro 104 million) on behalf of Unión Fenosa SA and Unión Fenosa Gas SA (50% Eni). These guarantees were given in relation to contractual commitments related to the results of operations of Unión Fenosa Gas SA; (v) secured guarantees of euro 77 million, relate to mortgages, liens and privileges granted to banks in connection with loans to affiliated and consolidated companies (the same amount as of December 31, 2002). As of December 31, ~~2002~~2003, the underlying commitment covered by such guarantees was euro ~~1,661~~1,698 million (euro ~~998~~1,738 million as of December 31, ~~2001)~~2002).

Guarantees given on behalf of consolidated companies of euro ~~10,306~~10,984 million (euro ~~10,087~~10,306 million as of December 31, ~~2001)~~2002) consist primarily of: (i) a guarantee of euro 4,894 million (euro 4,800 ~~million (the same~~ as ~~in 2001)~~of December 2002) given by Eni SpA to Treno Alta Velocità —- TAV — SpA for the proper and timely completion of a project relating to the Milano-Bologna train link by the Consorzio Cepav Uno; ~~in exchange~~ consortium members ~~issued to~~gave Eni liability of surety letters and bank guarantees amounting to 10% of their respective portion of the work; (ii) guarantees given to third parties relating to bid bonds and performance bonds offor euro ~~1,853~~2,841 million (euro ~~1,450~~1,853 million as of December 31, ~~2001)~~2002). The increase of euro ~~403~~988 million regards primarily the ~~consolidation~~Oilfield Services, Construction and Engineering segment (euro 755 million) and new guarantees given on behalf of ~~Bouygues Offshore SA,~~Eni Gas & Power LNG Australia BV in relation to the construction of a gas pipeline (euro 165 million); (iii) hydrocarbon development activities for euro ~~360 million;~~1,186 million (euro 1,139 million as of December 31, 2002); (iv) VAT recoverable from tax authorities for euro 1,113 million (euro 1,062 million as of December 31, 2002); (v) insurance risk offor euro ~~1,049~~379 million reinsured by Eni (euro ~~1,248~~1,049 million as of December 31, ~~2001); the~~2002). The decrease of euro ~~199~~670 million regards essentially the ~~effect~~non-renewal of ~~exchange rate differences on~~ the translation of financial statements prepared in foreign currencies into euro 181 million). Hydrocarbon development activities of euro 1,139 million (euro 1,375 million as of December 31, 2001); VAT recoverable from tax authorities of euro 1,062 million (euro 764 million as of December 31, 2001).previous guarantees. The underlying commitment covered by such guarantees was euro 7,930 million as of December 31, 2003 (euro 8,795 million as of December 31, ~~2002~~2002).
Other guarantees given to third parties for euro 464 million (euro ~~8,613~~211 million as of December 31, ~~2001).~~
     ~~Secured~~2002) regard essentially guarantees given by Eni on behalf of ~~euro 77 million, relate to pledges of securities given~~subsidiaries. In particular, Eni gave to banks and other financing institutions on the behalf of Spanish Egyptian Gas Co SAE, a company controlled by Unión Fenosa Gas SA, (euro 238 million) and performance guarantees given on the behalf of Unión Fenosa SA and its subsidiaries in ~~connection with loans~~relation to ~~affiliated and consolidated companies~~contractual commitments related to the results of operations of subsidiaries of Unión Fenosa Gas SA (euro ~~163 million as of December 31, 2001). As of December 31, 2002 the underlying obligation covered by such guarantees was euro 77 million (euro 107 million as of December 31, 2001)~~101 million).
~~Other commitments~~
     ~~Other commitments and potential risks consist primarily of:~~
Other commitments
Other commitments and potential risks consist primarily of:
— - Obligations for purchases and sales of ~~fixed assets~~investments of euro ~~146~~3,596 million and euro ~~3,596~~174 million as of December 31, ~~2001~~2002 and ~~2002,~~2003, respectively. Obligations regard primarily the concession of a call option for the purchase by Erg SpA of a 28% share of Erg Raffinerie Mediterranee Srl for euro 100 million (the same amount as of December 31, 2002). The euro ~~3,450~~3,422 million ~~increase~~decrease is primarily related to: (i) the conclusion of the Public Offering of Italgas shares ~~and the following buy-out transaction~~ (euro 2,550 million); (ii) the extinguishment of commitments to ~~Union~~Unión Fenosa SA for the acquisition of the 50% of ~~Union~~Unión Fenosa Gas SA through athe increase of share capital ~~contribution~~(euro 440 million); (iii) the extinguishment of ~~euro 440 million; (iii) obligation~~obligations for the purchase of 100% of the Norwegian company Fortum Petroleum AS (now Eni Norge AS) (euro 400 ~~million); (iv) obligation related to a call option for the purchase by ERG SpA of a 28% share of Erg Raffinerie Mediterranee Srl (euro 100~~ million).
— - Commitments of euro ~~441~~379 million (euro ~~508~~441 million as of December 31, ~~2001)~~2002) primarily related to: (i) a memorandum of intent signed with the Basilicata Region whereby Eni has agreed to invest, also on account of Enterprise SpA, euro 217 million in the future in connection with Eni’s development plan of oil fields in Val d’Agri (euro 206 million as of December 31, 2002); (ii) agreements ~~related to~~for the area of Porto Marghera between ~~EniChem~~Syndial SpA and various government entities, employee and trade groups whereby ~~EniChem~~Syndial has committed to invest approximately euro ~~223~~149 million (euro ~~272~~223 million as of December 31, ~~2001)~~2002) in order to further develop the chemical segment and protect the environment with respect to the Porto Marghera ~~plant; (ii) a memorandum~~plant.
- Risks of ~~intent signed with the Basilicata Region whereby Eni has agreed to invest in the future, also on behalf of Enterprise SpA,~~ euro ~~206~~902 million ~~in connection with Eni’s development plan of oil fields in Val d’Agri~~ (euro ~~222~~1,015 million as of December 31, ~~2001).~~
— ~~Risks of euro 1,015 million (euro 905 million as of December 31, 2001)~~2002) are primarily associated with: (i) potential risks associated with the value of assets of third parties in Eni’s custody of euro 431 million (euro 159 million as of December 31, 2001). The euro 272 million increase regards primarily the increase in volumes of natural gas stored by Stoccaggi Gas Italia SpA (euro 262 million); (ii) contractual assurances given to acquirors of certain investments and businesses of Eni offor euro ~~393~~400 million (euro ~~508~~393 million as of December 31, ~~2001)~~2002); (ii) potential risks associated with the value of assets of third parties under the custody of Eni for euro ~~115~~317 million (euro 431 million as of December 31, 2002). The euro 114 million decrease ~~concerns absolved obligations,~~regards primarily the decrease in ~~particular obligations of Singea~~natural gas volumes stored by Stoccaggi Gas Italia SpA ~~(in liquidation), now merged into EniChem SpA, for the transfer of the integrated centre of Porto Vesme and San Gavino~~ (euro 9678 million); (iii) environmental damages offor euro 137 million (the same amount as of December 31, 2002); (iv) tax proceedings for euro 18 million (euro ~~136~~44 million as of December 31, ~~2001); (iv) tax proceedings of euro 44 million (euro 48 million as of December 31, 2001)~~2002).
— - Obligations for certain long-term gas supply ~~or ship~~ agreements entered into by Eni. Such agreements, which contain take-or-pay ~~or ship-or-pay provisions.~~provisions, are included in Item 4 - Description of the Company - Gas & Power and Item 5 - Contractual obligations, which is considered an integral part of these Notes.
— - Non-quantifiable risks related to contractual assurances given to acquirors of investments against certain unforeseeable liabilities attributable to tax, state welfare contributions and environmental matters applicable to periods during which such investments were owned by Eni. Eni believes such matters will not have a material adverse effect on its consolidated financial statements.
Legal proceedings

Eni is a party to a number of civil actions and administrative proceedings arising in the ordinary course of business. Based on information available to date, and taking ~~into~~ account of the existing ~~provisions,~~risk reserves, Eni believes that ~~these matters~~the foregoing will not have ~~a material~~an adverse effect on Eni’s consolidated financial statements.
The following is a summary of significant legal matters in which Eni is ~~involved. Unless otherwise indicated,~~involved; except for some different indications, no provisions have been made for ~~the following~~legal proceedings as Eni believes that losses are not probable.
Judicial or ~~Arbitration Proceedings~~arbitration proceedings
Syndial SpA (former EniChem SpA) - Serfactoring SpA
In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by the former Serfi SpA now Sofid SpA, which is controlled by Eni SpA. The claim relates to an amount receivable of euro 182 million ~~of receivables~~ for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA (in liquidation) now merged into EniChem SpA) and Terni Industrie Chimiche SpA (merged into Agricoltura SpA (in liquidation), that has been merged into EniChem SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect ~~payment of the receivables.~~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 4640 million following partial payment of the original receivables by the liquidator of Federconsorzi and various other offsets. In January 2000, the technical opinion requested by Agrifactoring was completed. According to this opinion, the balance of the account between Agrifactoring and Federconsorzi, for which Agrifactoring is claiming payment of euro 182 million, amounts to approximately euro 40 million. Judgment on thesesetoffs. These proceedings, which have all been joined, ~~is currently still pending.~~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 favour of Agricoltura, to be determined following the decision. Agrifactoring appealed against this decision, and the first hearing of this proceeding has been scheduled for July 15, 2004. Agrifactoring requested the cancellation of the decision and the acceptation of all the requests it presented in the first degree. In particular, after a renewal of the expert evaluation of the case, Agrifactoring requested the payment of damages for about euro 180 million from Serfactoring along with the payment of all expense. For the parts of the question that have not yet been settled, the judge of the Court of Rome has not yet taken its decision and allowed the parties to present memoranda.
Eni SpA - Syndial SpA (former EniChem SpA)
In 1992, Eni SpA and EniChem SpA initiated an arbitration proceeding against Montedison SpA and its subsidiaries in relation to guarantees given by them in connection with the formation of Enimont SpA, a joint venture between EniChem and Montedison. On March 6, 2003 Eni, EniChem and Edison SpA, the successor of Montedison, agreed to settle the pending arbitration proceeding. Under the terms of this agreement Edison accepted to pay EniChem euro 200 million to be paid in four installments of euro 50 million each, the first one paid on March 6, 2003 and the remaining to be paid each following year with interest accrued; this delayed payment is supported by bank guarantees payable on first request (the residual amount of the receivable was transferred to a factoring company in 2003 with no request vs. Eni). This settlement concerns expenses paid or accrued by EniChem in previous years. It does not relate to EniChem’s claim to be indemnified by Edison for any expense related to damage caused to third parties by the operation of plants and facilities before Montedison’s contribution in kind, even if claims for such damages occurred later. These expenses may be incurred by Eni in connection with environmental damages claimed by the State and related to the Mantova site and any damage that could be claimed by the State and/or other parties arising out of alleged of specific environmental damage in the Brindisi and Priolo sites. The settlement of any dispute is within the jurisdiction of ordinary courts.
Syndial SpA (former EniChem SpA)
In 2002, EniChem 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 a 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.
Snamprogetti SpA
In December 2002, Snamprogetti SpA made a request for an arbitration proceeding against Fertilizantes Nitrogenados de Venezuela – Fertinitro CEC – to the International Chamber of Commerce of Paris. Snamprogetti asked: (i) the issue of the Final Acceptance Certificate of the plant in Jose, Venezuela, and in return, the Stand-by Letter of Credit it provided to Fertinitro; (ii) the payment of three installments each of approximately dollar 22 million, for the concession of licences for the use of Fertinitro technologies; (iii) a decision regarding the 164 claims made by Fertinitro and, particularly, an assessment of work in guarantee imputable to Snamprogetti and its amount; (iv) the counterclaim for damages and costs suffered by Snamprogetti as a result of the behaviour of Fertinitro. Fertinitro requested, as counterclaim, the payment of an undetermined amount, not inferior to dollars 50 million (plus interest accrued on claims) for alleged breach of contract. Snamprogetti made a provision to risk reserves with regards to this legal proceeding.
Tax Proceedings
Eni SpA
Agip SpA ~~(now merged~~(merged into Eni ~~SpA)~~SpA in 1997) received four formal assessments from the Italian tax authorities that claimed that its income in 1989, 1990, 1991 and 1992 had been understated for income tax purposes. These assessments concern an alleged global understated amount of euro 196 million, determined by ~~making~~marking downward and upward adjustments to the prices of certain petroleum products that Agip sold to or bought from other Eni companies. All these assessments were judged as unfounded by the Provincial Tax Commission of Milan. The ~~appeal~~appeals of the tax authorities ~~against the first three assessments was~~were rejected by the Regional Tax Commission of ~~Milan.~~Milan or were given up by the Italian tax authorities. The decision of the appeal proceedings, because of the termination of the appeals or because of the decision of the tax authorities ~~against~~not to continue, must be considered final without expense for the ~~fourth~~company. With a decision ~~related to 1992, has not yet been discussed. In December 2000~~dated May 7, 2001 the ~~tax authorities notified Eni SpA~~Provincial Tax Commission of aMilan revoked the formal assessment against Agip SpA concerning income understatement infor 1994, for an improper use of ~~euro 20 million tax~~ loss carryforwards. The ~~Provincial Tax Commission of Milan accepted Eni’s challenges against this assessment with decision issued on May 7, 2001. On June 26, 2002 the~~Italian tax authorities appealed the decision to the Regional Tax ~~Commission.~~Commission, which reviewed the case on May 19, 2004. During the discussion the tax authorities, considering the outcome favourable to Eni of the 1992 assessment, acknowledged the proper behaviour of Agip. Eni is waiting for the final ruling that is necessary to close the issue.
With a decree dated December 6, 2000 the Region of Lombardia ~~Region~~ decided that natural gas used for electricity generation is subject to an additional regional excise tax in relation to which Snam SpA ~~(now merged into~~(merged in to Eni ~~SpA)~~SpA in 2002) will ~~withhold~~substitute the ~~appropriate amount~~tax authorities in its ~~collections~~collection from ~~customers, for future payment to the tax authorities.~~customers. Given interpretive uncertainties, ~~in interpretation,~~ the same decree provides the terms within which ~~distribution~~distributing companies are expected to pay this excise tax without paying any penalty. Snam SpA and the other ~~distribution~~distributing companies of Eni believe that natural gas used for electricity generation is not subject to this additional excise ~~tax and therefore appealed~~tax. For this ~~decree to the relevant jurisdictional bodies. With respect to this matter~~reason, an official interpretation ~~was~~has been requested ~~from~~to the Ministry of ~~Economy~~Finance and ~~Finance.~~Economy. With ~~its~~
a decision of May 29, 2001, the Ministry confirmed that ~~the~~this additional excise tax cannot be applied. ~~However, the~~The Region decided not to revoke its decree and ~~consequently~~ 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 ~~Court is~~court did not ~~entitled~~apply to ~~express judgment on~~ this ~~issue. Therefore, if~~case. In case the Region should request payment, ~~Snam~~Eni will challenge this request in the relevant Court. ~~At a later date the~~The Lombardia Region decided with regional ~~law~~Law 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. The period of foreclosure for the formal assessment of the payment is up until five years, so it is possible that payment will be requested until December 31, 2006.
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 the Eni refinery of Taranto in 2000, 2001 and 2002 to Eni SpA, as the successor entity of AgipPetroli SpA following its merger into Eni. The notification regards 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 the customs tariff allows exemption. The formal assessment does not contain the determination of any administrative penalties forecasted by customs rules. The penalty can be from one to ten times the amount of taxes not paid. The notification is based on the fact that the company does not have the administrative authorization to utilize the customs exemption. Although the Customs Agency, with the Circular 20/D/2003 dated April 16, 2003, considered the customs declaration presented and accepted by the Customs Agency equivalent to the administrative authorization (a procedure followed by AgipPetroli SpA for years), the Customs District of Taranto requested to be presented with a specific authorization to utilize the exemption, given in November 2002. With another decree on February 24, 2003 the same District revoked the authorization given in November 2002. Eni presented an appeal to the Administrative Court of Puglia, still pending, and on June 11, 2003 obtained the suspension of the revocation of the District’s action. 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. The company is still waiting for a decision of the Regional Director, that, if it is negative, will be appealed against the corresponding tax jurisdiction. On March 12, 2004 the Comando Nucleo Regionale Polizia Tributaria of Puglia notified a verbal action of observation to the company. In this action there is an alleged offence 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 euro 26 million. For the offence of smuggling, there is a penalty from two to ten times the amount of tax not paid. The notification is based on the same lack of administrative authorization, already contested by the Customs District of Taranto and to the storage of imported products together with ones obtained by the refinery (Eni believes this so-called “promiscuity of storage”is allowed by the Circular 20/D/2003 of the Customs Agency).
~~Environment~~Snam Rete Gas SpA
    With Regional Law of March 26, 2002, the Sicilia Region introduced an environmental tax upon the owners of primary pipelines in Sicilia (i.e. 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 filed a claim with the European Commission, aimed at opening a proceeding against the Italian Government 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 tax in tariffs to the final ruling on its legitimacy by relevant authorities. Therefore, for the 2002-2003 thermal year with decision No.146/2002 and for the 2003-2004 thermal year with decision No. 71/2003, the Authority published two sets of tariffs: one, in force, that does not take into account the tax, and the second one including it, that will be automatically applied with retroactive effect should the tax be judged legitimate. On September 10, 2002, Snam Rete Gas filed a claim with the Regional Administrative Court of Lombardia requesting the immediate application of tariffs including the tax. With the ruling of December 20, 2002, the court judged the tax at variance with European rules and therefore did not accept Snam Rete Gas’s claim. In December 2002, Snam Rete Gas suspended payments based on authoritative opinion of legal counsel and the above Court ruling Payments effected until November 2002 totaled euro 86.4 million. In January 2003 the Sicilia Region presented an appeal to the Council of State against the ruling of the Regional Administrative Court of Lombardia for the part that states the variance of 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 with European rules and with 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 commodities imported from third countries and could create a deviation in trade such countries and a distortion in access and competition rules. The Commission requested the Italian Government to present its observations about the argument. With a decision dated January 5, 2004, the Provincial Tax Commission of Palermo declared the environmental tax of the Sicilia Region illegitimate because it is in contrast with 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 instalment. On April 2, 2004 the Sicilia Region presented recourse to the Regional Tax Commission at Palermo. Snam Rete Gas started the necessary actions to obtain reimbursement of fixed tax payments already paid in April 2002 (euro 75,3 million). The Tax Commission of Palermo has yet to render its decision. A hearing for the discussion of this claim has been set at October 2, 2004. In any case Snam Rete Gas will not have to suffer any adverse financial consequence from the outcome of this dispute: if the tax is considered illegitimate in the court of law, the company will have the right to the restitution of the amounts already paid; whereas, in case the tax is confirmed, Decisions No. 146/2002 and 71/2003 of the Authority already provide for automatic adjustment of natural gas tarffs to account for this tax with retroactive effect.
Environment
Eni SpA
In 1997, Grifil SpA summoned AgipPetroli SpA (merged in Eni SpA in 2002) before the Court of La Spezia. Grifil requested the payment for the remediation of a polluted land parcel part of the La Spezia refinery (which was closed in 1985), and sold to it in 1996 by Italiana Petroli SpA, later merged in 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, which were set by an independent appraisal to euro 19 million, 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 execute this 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 combined aid (for 13% of the costs) of a company interested in developing the parcel of land. The first action promoted by Grifil before the Court of La Spezia is still 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. Eni obtained 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 legitimate the right of Eni, based on the contract stipulated between Italiana Petroli and Grifil, to claim the payment of all pollution expenses that Eni will incur as Grifil did not fulfill its responsibilities. As for the value attributable to the conservative seizure of Grifil’ s land parcel (up to a value of euro 19 million), the Court specified that Eni must file the contracts for the remediation work with the court, in which the amounts paid are recognized. The contract with an international company specialized in remediation was signed on April 15, 2004 and immediately presented to the Court. After further sutdies of the land parcel, this company informed Eni that the remediation works are expected to cost significantly more than previously estimated. Eni is evaluating this new event.
In 1999, the public prosecutor of Gela started an investigation concerning the activity of the of Refinery of Gela in order to ascertain alleged soil and sea pollution caused by the discharge of pollutants by the refinery. In November 2002, “Italia Nostra” and the association “Amici della Terra” filed civil claims within 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). The public prosecutor arranged a preliminary hearing for November 26, 2004 with the charge of article 440 of the penal code.
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 emission in violation of Presidential Decree No. 203 of 1998. The investigation brought an action for events registered from 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 still pending.
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 disposed a technical opinion, not yet concluded, to ascertain an alleged possibility of infiltrations of refinery oil 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. In consideration of the complexity of the investigation, a qualified company has been given the task to verify the cause, the origin and the extension of the infiltration. For protective purposes, actions have been taken to: (i) create safety measures and clean-up all of the polluted area; (ii) reallocate water wells in an area more distant from 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.
In June 2002, in connection with a fire in the refinery of Gela, a penal investigation began concerning arson, environmental crimes and crimes against the enviroments; on May 12, 2004 the first hearing was held for an immediate decision.
In 2002, the public prosecutor of Gela started a penal investigation concerning the refinery of Gela to ascertain the quality of deep water in the area of the refinery. On October 27, 2003 the prosecutor asked to ascertain the state of the refinery’s storage tanks and if there are possible infiltrations of refinery oil products into the deep water-bearing stratum, due to leakage from some tanks. The investigation concerns the environmental rules about the pollution of water and soil and illegal treatment of liquid and solid waste materials. With a previous decree dated November 3, 2003, the Court for preliminary investigation, in agreement with a request of the public prosecutor of Gela, had already ordered the preventive seizure of 92 storage tanks. The decree stopped the activity of the refinery of Gela in November 17, 2003 following the inquiry phase and many investigations, inspections and analyses were conducted by experts appointed by the judge for the preliminary investigation. These experts declared no reasonable loss of products from storage tanks. Afterward, 42 storage tanks were reopened in January 16, 2004 and this allowed to restart the activity of the refinery on January 19, 2004. With a decision of June 7, 2004, 23 more tanks were reopened. Only 27 tanks are still under seizure.
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 field and related wells and platforms.
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 production to the Casalborsetti facility.
Eni believes to have 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, 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 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. The hearing is set on November 4, 2004.
Polimeri Europa SpA
In 2002, the public prosecutor of Gela started an investigation in order to ascertain alleged pollution caused by emissions of the refinery of Gela, owned by Polimeri Europa SpA, Syndial SpA (former EniChem SpA) and Raffineria di Gela SpA. An inquiry phase was closed on July 2, 2003. Some local public entities, environmental NGOs and landowners will act as injured party. At the end of 2003, a second inquiry phase commenced to ascertain which sort of emissions had eventually produced the alleged pollution caused by the refinery of Gela. In 2002, the public prosecutor of Gela started a criminal action, which is at the moment in the inquiry phase, in order to ascertain alleged illegally discharged effluents produced by the Gela plant.
On March 5, 2003 a criminal action started before the Court of Gela in relation to an alleged illicit treatment of FOK oil produced by the ethylene plant in Gela’s refinery. The case will be discussed in December 2003. WWF Italia, Italia Nostra and Associazione Amici della terra acted as civil parties. For this proceeding the first two associations requested environmental damages of euro 50 million each and the third association requested euro 500 million.
Syndial SpA (former EniChem SpA)
In 1992, the ~~Minister~~Ministry of Environment ~~filed an action against~~summoned EniChem SpA and ~~other parties to recover between euro 135 million and euro 870 million in damages relating to the discharge of effluents by the Mantua plant. This plant was owned by a former subsidiary of Montedison~~Montecatini SpA ~~that was conferred to Enimont SpA in connection with the formation of the Enimont joint venture. In September 1999, the State attorney requested that all the parties be condemned by~~before the Court of ~~Brescia~~Brescia. The Ministry requested, primarily, to ~~pay compensatory damages resulting~~condemn them to environmental remediation for the alleged pollution caused by Mantova’s plant from 1976 until 1990, and provisionally, in case there is no possibility to remediate, to condemn them to the payment of environmental damages. The amount is going to be determined during the proceeding, ofbut it will not ~~less than~~be inferior to euro ~~135 million.~~136 million, or determined by the judge as compensatory liquidation. EniChem acquired Mantova’s plant in June 1989, while it was being operated by Enimont.
     AnIn 1997, an action was ~~started in 1997~~commenced before the Court of Venice concerning the criminal charges brought by the Venice public prosecutor ~~against 28 persons, including 12 former and current managers of subsidiaries of Eni(1),~~ for alleged mismanagement of the Porto Marghera plant starting in the 1970s until 1995 and for the alleged pollution and health damage resulting therefrom. In most cases such charges relate to a period in time when the plant was managed by companies not owned by Eni. With reference to the 25 ~~year~~years period examined in the proceeding (1971-1995) EniChem managed the CVM-PVC plant from 1987 to 1993, while land parcels and other plants were managed by EniChem only from 1990 onwards. The inclusion of Eni SpA (together with EniChem SpA, Montedison SpA and Montefibre SpA) as defendant for environmental ~~damage~~damages and crimes related to injuries and death of persons that had worked near the Porto Marghera petrochemical plant is based on the fact that Eni SpA is a shareholder of companies operating in Porto Marghera, rather than on Eni’s participation in managing such companies. Plaintiffs ~~are both institutions~~ (Italian Government, Veneto Region, Venice Province, three municipalities and ~~some municipalities) and~~other 69 ~~persons and entities.~~persons) formulated their counterclaims for damages in the hearing at the end of June 2001. Plaintiffs did not specify which damages were effectively caused by the alleged crime; they submitted to the Court the decision about the division of the damages between the defendants. Damage payments were requested for an amount of euro 511 million plus compensatory liquidation of environmental damage, and, provisionally, for a total amount of euro ~~511 million, but a request of euro~~ 2,035 million ~~was presented~~ in case the judge should not identify evidence for the entire damage claimed for each specific case. The ~~state attorney~~State Attorney estimated the cost of environmental remediation into be euro 36,952 million and the illicit profit of defendants ofto be euro 5,970 million. Damage payment has been requested jointly of all defendants. Only for the environmental ~~damage~~damages did the State Attorney request individual ~~payment of~~payments from each defendant that would be found ~~guilty.~~guilty based on their respective liability as determined by the Court. Another ~~party which was~~defendant entered into a ~~principal defendant together with Eni has reached an~~settlement agreement ~~with the plaintiff~~ agreeing to a payment of ~~approximately~~about euro 260 million. ~~Subsequently, on~~On November 2, 2001 the Court of Venice acquitted all defendants. ~~On May 3, 2002~~The appeal against the ~~judgment~~decision was ~~deposited.~~presented by the public prosecutor, the State Attorney of the Ministry of Environment and the Council of Ministers, 5 public entities, 12 associations and other entities and 48 persons. Damage amounts are the same as requested in the first instance with the exception of the State Attorney which accepted the payment agreed with one of the defendants and, consequently, requested the payment for environmental damages only to EniChem. The damage payments requested are: (i) requested by public entities: euro 98 million; (ii) requested by persons: euro 14 million; (iii) requested by associations and other entities: euro 4 million (Legambiente Nazionale presented a claim for damages against a civil Court). The total damage payment, requested jointly of all defendants with the exclusion of the requests of the State Attorney, amounts to euro 116 million. The State ~~attorney has proposed appeal, but~~Attorney confirmed the ~~date~~requests of the first instance only against the defendants EniChem and Eni and against the same entities with respect to their own liabilities. The total damage payment amounts to euro 46,997 million or euro 42,928 million depending to the criteria applied for the ~~debate has not been fixed.~~estimate of environmental damages. Eni has made a provision to risk reserve for this ~~matter.~~legal proceeding.
     In 1999, the public prosecutor of Gela started an investigation against a former manager of the Gela refinery in order to ascertain alleged soil and sea pollution caused by the discharge of effluents by the refinery. On November 2002, «Italia Nostra», and «Friends of the Earth», two environmental NGOs, filed civil claims within this proceeding and requested the payment of compensatory damage from AgipPetroli SpA (now merged into Eni SpA) for a total of euro 15,050 million. The judge for preliminary investigations rejected the public prosecutors’ request to extend the deadline for further investigations, as the related request has been untimely filed. As a result, only the evidence arising from the investigations completed within the original deadline will be admitted.
In 2000, the public prosecutor of Brindisi ~~commenced~~started a criminal action against 68 persons who are employees or former employees of various companies that owned and managed plants for the manufacture of dichloroethane, vinyl chloride monomer and vinyl polychloride from the early 1960s to ~~date. Among the defendants, 20 are former employees or former directors of~~date, managed by EniChem ~~SpA’s subsidiaries that managed these plants~~ from 1983 to 1993. ~~The~~At the end of preliminary ~~stage of the proceeding is closed with a request by~~investigation the public prosecutor asked the dismissal of ~~dismissal for EniChem’s employees.~~the case in respect of the employees and the managers of EniChem. The judge for preliminary ~~investigations still~~investigation has ~~to decide on the dismissal.~~not yet given his opinion.
     In 2000, the public prosecutor of Gela started an investigation on prohibited emissions from AgipPetroli SpA’s refinery (now merged into Eni SpA) (as per art. 674 of the Criminal Code), which are purported to have had negative effects on the health of a number of citizens of Gela,On December 18, 2002 EniChem SpA, jointly with Ambiente SpA and on AgipPetroli’s lack of declaration of such emissions in violation of Presidential Decree No. 203 of 1998. The investigation brought an action against some former managers of the refinery for events registered from 1997. The Municipality of
~~Gela, the Province of Caltanissetta and others filed civil claims in this proceeding and requested the payment of compensatory damage from AgipPetroli for a total of euro 878 million.~~
     Under Regional Law No. 2 of March 26, 2002, the Sicilia Region introduced an environmental tax on owners of primary pipelines (operating at a maximum pressure of over 24 bar) in Sicily. The purpose of the tax is «to finance investments aimed at reducing and preventing potential environmental damage caused by pipelines containing natural gas». The tax for 2002, based on the volume of the gas pipelines, has been fixed at a rate of euro 153 per cubic meter for pipelines on public land and euro 137.70 per cubic meter for pipelines on private land. The tax is payable from April 2002 and the amount due by Snam Rete GasEuropean Vinyls Corporation Italia SpA, ~~for 2002 totaled approximately euro 97 million. The amount of the tax can be changed by the Region with special ruling~~was summoned before ~~December 31 of each year. Otherwise the tax is deemed to remain the same plus the official rate of inflation as published by ISTAT.~~
     In order to protect its interests, Snam Rete Gas: (i) on July 30, 2002, filed a claim with the European Commission aimed at opening a proceeding against the Italian Government, with the further option that the European Commission after the first inquiry phase, can request the Court of ~~Justice~~Venice by the province of Venice. The province requested environmental damages, not quantified, caused to ~~suspend~~ the ~~application~~lagoon of Venice by Porto Marghera’s plants, which were already the subject of two previous proceedings. Subordinately to the ascertainment of the ~~regional law with an urgent ruling; (ii) notified the Sicilia Region its request for reimbursement of taxes paid, as a first step to the furthering~~illegitimacy of the dispute and warned the Sicilia Region not to make use of those sums expecting final rulings; (iii) on October 18, 2002, as circumstances materialized constituting tacit rejection of the request for reimbursement, filed a claim with the Tax Commission of Palermo aimed at obtaining a definitive and rapid decision ascertaining the legitimacy of the tax.
     The Authority for Electricity and Gas, although acknowledging that the tax burden is an operating cost for the transmission activity, subjected its inclusion in tariffs to the final ruling on its legitimacy by relevant authorities. Therefore, with decision No. 146/2002 the Authority published two sets of tariffs: one, in force, that does not take into account the tax and the second one including it, that will be automatically applied with retroactive effect should the tax be judged legitimate.
     In September 2002 Snam Rete Gas filed a claim with the Regional Administrative Court of Lombardia requesting the immediate application of tariffs including the tax. With ruling of December 20, 2002, the Court judged the tax at variance withrequests, European rules and therefore did not accept Snam Rete Gas’s claim. In December 2002, Snam Rete Gas suspended payments based on authoritative legal counsel and of said Court ruling. Payments affected until November 2002 totaled euro 86.4 million.
     ~~In January 2003 the Sicilia Region~~Vinyls Corporation Italia presented an ~~appeal to the Council of State~~action for recourse against the ruling of the Regional Administrative Court of Lombardia for the part that states the variance of the regional law with European rules. For cautionary reasons, Snam Rete Gas did not record the recovery of costs borne in its accounts, taking into account the uncertainties on the future evolution of this disputeEniChem and ~~the time necessary to reach a final judgment.~~Ambiente.
On January 16, 2003 the ~~court~~Court of Siracusa ~~ordered the imprisonment of 7~~issued personal cautionary measures against some employees of ~~Enichem~~EniChem SpA and Polimeri Europa ~~SpA and house arrest for another 10 employees of the same companies. Those persons~~SpA. They are accused of ~~criminal association in the~~illicit mismanagement relating to the production, disposal and treatment of liquid and solid waste materials and obtaining an illicit ~~income~~income. Polimeri Europa and EniChem, as injured party, named their defense attorney. The proceeding is still in ~~violation of Decree No. 417/1999 (which implemented~~ the ~~Ronchi Decree)~~preliminary investigation.
On April 14, 2003 the President of the ~~Ministry~~Regional Council of ~~Environment~~Calabria, as Delegated Commissioner for Environmental Emergency in the Calabria Region, started an action against EniChem SpA related to environmental damages for euro 129 million and ~~article 416~~to financial and non-financial damages for euro 250 million (plus interest and compensation) allegedly caused by Pertusola Sud SpA (now merged in EniChem) in the area of Crotone. On June 6, 2003 EniChem appeared before the court and requested the rejection of the ~~penal code. In September 2001~~damages and, as counterclaim, the ~~Public Prosecutor of Siracusa started an inquiry to investigate the mismanagement~~payment of the ~~(liquid~~total costs for the reclaims started earlier. Recently, the Province of Crotone entered the proceeding, claiming environmental damages for euro 300 million.
In March 2004, Sitindustrie SpA, that in 1996 purchased the Paderno Dugnano’s plant from Enirisorse (now merged in Syndial SpA), summoned Syndial SpA before the Administrative Court of Milano, requesting to define the responsibility of Syndial SpA in the alleged pollution of soils around the plant and ~~solid) waste materials in Enichem’s plant~~to condemn it to pay necessary environmental damages of ~~Priolo,~~reclaiming action. The legal proceeding is based on articles 2050 and 2043 of the ~~inquiry involves also~~Civil Code.
In May 2003 the ~~chlorine soda plant. On February 6, 2003~~Minister of environment summoned Syndial SpA before the Court of ~~Reviews decided~~Turin and requested environmental damages for euro 2,396 million in relation to ~~transform~~alleged DDT pollution in the ~~imprisonments into house arrest and cancelled the detention of the other employees subject to the investigation.~~lake Maggiore caused by Pieve Vergonte’s plant.
Antitrust, EU Proceedings, and actions of the Authority for Electricity and Gas
Eni SpA
In March 1999, the Antitrust Authority concluded its investigation started in 1997 and: (i) verified that Snam SpA ~~(now merged into~~(merged in Eni ~~SpA)~~SpA in 2002) abused its dominant position in the market for the transportation and distribution of natural ~~gas;~~gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam ~~SpA~~ euro 2 ~~million~~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. On May 26, 1999, stating that these decisions are against ~~law~~Law No. 9/1991 and
the European Directive 98/30/CE, ~~that~~this Court granted the suspension of the decision. The Antitrust Authority did not appeal ~~against the suspension.~~this decision. The ~~decision~~definition of ~~the merits of the~~this dispute is still pending.
     ~~On November 21, 2002~~With a decision presented on June 5, 2001, the Italian Antitrust Authority ~~concluded~~started an inquiry against AgipPetroli SpA, Atriplex SpA (now AgipFuel SpA) and other companies for alleged limitations to competition within the ~~investigation which was commenced on~~tenders offered by public transportation companies in the ~~request~~urban areas of ~~Blugas SpA concerning Eni’s alleged violation of competition rules,~~Naples, Turin and ~~acquitted Eni~~Milan for the ~~specific case~~supply of ~~Blugas (in light~~gasoline for automotive use in the period 1996-2000. On March 4, 2003 the Authority’s decision was notified. It has verified violations for all companies involved and has fined AgipPetroli and Atriplex euro 118,000. In May 2003, Eni appealed against the decision before the Regional Administrative Court of Lazio.. The two Azienda di Trasporto of Milan and Turin (public transportation companies) requested a payment of damages to the companies involved as the consequence of the ~~fact that~~infringements ascertained by the Authority. Such request, which has been contested, was quantified only by the Azienda di Trasporto of Milan in euro 7 million. With a decision of May 21, 2004, the ~~spring-summer~~Regional Administrative Court of ~~2001 Eni partially accepted Blugas’s request to access~~Lazio rejected the ~~network) but decided that Eni had violated access rules by giving priority access to Italian purchasers with which Eni had entered into supply contracts; Eni supplies volumes~~Eni’s appeal against the decision of natural gas to those purchasers at the entry points into the Italian network. The Antitrust Authority considers that these contracts infringe the rationale of article 19 of Legislative Decree No. 164/2000 which provides for limitations on the volumes to be input by any single operator into the national network. Given this infringing behavior and the lack of clarity of Italian regulations and Eni’s availability to increase the transmission capacity of gas lines outside Italy, the Antitrust Authority ~~imposed on Eni a symbolic fine amounting to euro 1,000~~ and ~~requested Eni to submit «a report indicating measures to be taken to eliminate infringing behaviors with specific attention to~~declared the ~~upgrading~~requests of the ~~transmission network or equivalent actions». Eni filed this report on March 6, 2003.~~ transportation companies inadmissible.
On February 5, 2003, Eni filed a claim with the Regional Administrative Court of Lazio in Rome requesting the annulment of the measures taken by the ~~Authority.~~
Antitrust Authority, on November 21, 2002, concerning Eni’s alleged violation of competition rules as a result of an investigation commenced on the request of Blugas SpA. The Authority judged that Eni had violated access rules by entering in 2001 into contracts outside Italy with other operators that have imported into Italy the volumes of natural gas exchanged. The Antitrust Authority considers that these contracts infringe the rationale of article 19 of Legislative Decree No. 164/2000 which defines the limits for natural gas volumes to be input by single operators into the national network. Given this infringing behaviour, the lack of clarity of Italian regulations and Eni’s availability to increase the transmission capacity of gaslines outside Italy, the Antitrust Authority imposed on Eni a symbolic fine amounting to euro 1,000 and requested Eni to submit “a report indicating measures to be taken to eliminate infringing behaviours with specific attention to the upgrading of the transmission network or equivalent actions”. On February 19, 2004, Eni filed this report in which the company stated its commitment to increase the level of competition in the national gas market, particularly the upgrading of natural gas import pipelines TAG (Austria) and TTPC (Tunisia), on the condition that construction of LNG terminals would not be commenced in Italy by third parties. With a decision of March 18, 2004, notified on March 26, 2004, the Antitrust Authority considered the measures suggested by Eni in its February 19 report to be not sufficient and therefore set a specific default procedure. On April 26, 2004, Eni suggested integrations and the Authority started a market test to obtain suggestions by other operators on this issue. After the completion of the market test and various meetings with the Authority, on June 18, 2004 Eni presented to the Authority a proposal through which to comply with the requests included in the Authority’s decision of November 21, 2002. The proposal entails the sale of a total of 9.2 billion cubic meters of natural gas at a set price starting in 2004 through 2008 (2.3 billion cubic meters for each year of the four-year period) to be supplied at Tarvisio at the border with Austria (before entering the national transmission network) to be assigned on a pro-rata mechanism. In its decision of June ~~5, 2001~~24, 2004, the Authority judged this proposal adequate to interrupt the effects of the infringing behaviour highlighted in the November 21, 2002 decision. In its June 24, 2004 decision the Authority also extended to October 7, 2004 the deadline for closing the procedure in order to allow Eni to prove the implementation of its proposal.
Polimeri Europa SpA
On December 12 and 13, 2002, UE officers submitted to inspection Polimeri Europa SpA with the aim of acquiring documents about the EPDM business of its Styrene and Elastomers division in relation to alleged agreements of limitations to competition between producers and suppliers of EPDM. On December 12, 2002, two other legal actions were notified in the United States: with the first one, the Antitrust ~~Authority started an inquiry against AgipPetroli SpA, Atriplex SpA~~Jury of California summoned the deputy chairman and ~~other companies for alleged limitations~~sales manager of ~~competition within the tenders offered by public transportation companies~~Polimeri Europa Americas Inc, in ~~the urban areas of Naples, Turin and Milan for the supply of gas oil for automotive use in the period 1996-2000. This proceeding intends~~relation to ~~ascertain if~~ the alleged agreements ~~could be~~of limitation to competition in EPD segment; with the ~~expression of a more general arrangement among companies for dividing among themselves~~second some documents related to investigations about the ~~mentioned fuel supplies. The Authority has postponed the closing date~~limitations of the ~~proceeding~~competition were requested from ~~October 11, 2002 to~~Polimeri Europa Americas Inc. In USA antitrust preliminary investigation started on business CR and NBR of the Styrene and Elastomers division and Polimeri Europa Americas Inc and Polimeri Europa SpA were summoned as defendants for damages (class action) caused by the following products: NBR, CR and EPDM. The European Union started an investigation regarding NBR, EPDM, e-SBR, , s-SBR and BR products.
Stoccaggi Gas Italia SpA
With decision No. 26 of February ~~24, 2003. On December 10,~~27, 2002, the ~~parties had their last hearing.~~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 ~~4, 2003~~18, 2002 Stoccaggi Gas Italia SpA (Stogit) filed its proposal of tariff for modulation, mineral and strategic storage for the ~~Authority’s~~first regulated period. With decision ~~has been presented, that has confermed violations~~No. 49 of March 26, 2002, the Authority repealed Stogit’s proposal and defined tariff for ~~all companies involved and has fined AgipPetroli and Atriplex euro 118,000. In May 2003, Eni appealed~~ the ~~decision~~first regulated period. Stogit filed an appeal against both Authority decisions with the Regional Administrative Court of ~~Lazio.~~Lombardia requesting their cancellation. With a decision dated September 29, 2003, that Court rejected the appeal presented by Stogit. On February 3, 2004, Stogit presented an appeal to the Council of State against the sentence of first instance. Stogit applied the tariff determined by the Authority.
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. Non-quantifiable risks related to contractual assurances given to acquirors of investments against certain unforeseeable liabilities attributable to tax, state welfare contributions and environmental matters applicable to periods during which such investments were owned by Eni. Eni believes such matters will not have a material adverse effect on its consolidated financial statements.
Environmental Regulations

Together with other companies in the industries in which it operates, Eni is subject to numerous EU, national, regional and local environmental laws and regulations concerning its oil and gas operations, products and other 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 into the environment 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 ~~air emission~~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 to the generation, handling, transportation, storage, disposal and treatment of waste materials. Environmental laws and regulations have a substantial impact on Eni’s operations. Some 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 ~~Eni,~~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 ~~on its~~upon Eni’s consolidated financial statements as a result of its compliance with such laws and regulations, there can be no assurance that ~~this~~there will not be ~~the case~~a material adverse impact on Eni’s consolidated financial statements due to: (i) the possibility of as yet unknown contamination; (ii) the results of the on-going ~~characterizations~~surveys and the other possible effects of ~~decree~~statements required by Decree No. 471/991999 of the Ministry of ~~Environment;~~environment; (iii) the possible effect of future environmental legislation and ~~rules;~~rules, like the decree No. 367 of the Ministry of environment published in January 8, 2004, that regards the fixing of new quality standards for aquatic environment and dangerous substances. The decree modifies completely the actual set of rules, because of the imposition of qualitative levels, that can be reached only through considerable investments; (iv) the effect of possible technological changes relating to future remediation; (v) the 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.
~~24)~~24 Segment information
Segment information is presented in accordance with the ~~revised~~ IAS ~~14.~~14-revised. Intersegment sales are conducted on an arm’s length basis.
Information by industry segment
Segment information relating to the 2002 were reclassified on the basis of the new division of activities. In particular, “Other activities” included the information of Syndial SpA and its subsidiaries, previously included in the “Petrochemicals” segment. The information relating to the new segment “Corporate and financial companies” was re-classified from “Other activities”. Relating to the 2001, only the information relating to the new segment “Corporate and financial companies” was reclassified because Syndial SpA conferred its Strategic Chemicals business to Polimeri Europa SpA with effect from January 1, 2002.
Information by industry segment

Exploration Gas Refining Oilfield Other
& & & Services and activities
Production Power Marketing Petrochemicals Engineering (a) Total

(million E)
2000

Net sales from operations (b) 12,308 14,427 25,462 6,018 2,146 608
Less: intersegment sales (9,384 ) (713 ) (1,549 ) (570 ) (384 ) (431 )
Net sales to customers 2,924 13,714 23,913 5,448 1,762 177 47,938
Operating income 6,603 3,178 986 4 144 (143 ) 10,772
Identifiable assets (c) 15,170 12,927 8,257 3,559 2,890 867 43,670
Unallocated assets 12,693
Identifiable liabilities (d) 4,408 2,954 4,048 1,223 1,854 1,018 15,505
Unallocated liabilities 16,785
Capital expenditures 3,539 794 533 265 245 55 5,431
Depreciation, amortization and writedowns (2,364 ) (479 ) (547 ) (274 ) (148 ) (31 ) (3,843 )
Interest income 89 36 36 24 18 332 535
Interest expense (140 ) (92 ) (37 ) (9 ) (28 ) (368 ) (674 )
2001

Net sales from operations (b) 13,960 16,098 22,083 4,761 3,114 695
Less: intersegment sales (8,430 ) (668 ) (1,202 ) (471 ) (509 ) (506 )
Net sales to customers 5,530 15,430 20,881 4,290 2,605 189 48,925
Operating income 5,984 3,672 985 (332 ) 255 (168 ) 10,396
Identifiable assets (c) 24,261 12,860 7,420 2,488 3,136 789 50,954
Unallocated assets 11,782
Identifiable liabilities (d) 5,098 3,037 3,345 1,312 1,927 1,145 15,864
Unallocated liabilities 17,683
Capital expenditures 4,276 1,065 496 361 304 75 6,577
Depreciation, amortization and writedowns (3,251 ) (503 ) (517 ) (251 ) (203 ) (46 ) (4,771 )
Interest income 75 32 37 23 10 316 493
Interest expense (272 ) (74 ) (33 ) (6 ) (17 ) (409 ) (811 )
2002

Net sales from operations (b) 12,877 15,297 21,546 4,781 4,546 897
Less: intersegment sales (8,795 ) (623 ) (1,037 ) (406 ) (479 ) (682 )
Net sales to customers 4,082 14,674 20,509 4,375 4,067 215 47,922
Operating income 5,175 3,244 320 (347 ) 298 (188 ) 8,502
Identifiable assets (c) 23,686 12,482 7,634 3,580 5,026 469 52,877
Unallocated assets 12,931
Identifiable liabilities (d) 4,764 2,969 2,861 2,714 2,741 1,025 17,074
Unallocated liabilities 20,383
Capital expenditures 5,615 1,313 545 249 232 94 8,048
Depreciation, amortization and writedowns (3,884 ) (512 ) (494 ) (266 ) (267 ) (81 ) (5,504 )
Interest income 59 14 64 5 7 173 322
Interest expense (185 ) (37 ) (26 ) (13 ) (10 ) (297 ) (568 )
(million euro) Exploration & Production Gas & Power Refining & Marketing Petrochemicals Oilfield Services Construction and Engineering Other activities Corporate and financial companies Total
2001
Net sales from operations^(a) 13,960 16,098 22,083 4,761 3,114 476 245
Less: intersegment sales (8,430) (668) (1,202) (471) (509) (387) (145)
Net sales to customers 5,530 15,430 20,881 4,290 2,605 89 100 48,925
Operating income 5,984 3,672 985 (332) 255 22 (190) 10,396
Identifiable assets^(b) 24,261 12,860 7,420 2,488 3,136 174 615 50,954
Unallocated assets                   11,782
Identifiable liabilities^(c) 5,098 3,037 3,345 1,312 1,927 323 822 15,864
Unallocated liabilities                   17,683
Capital expenditures 4,276 1,065 496 361 304 24 51 6,577
Depreciation, amortization and writedowns (3,251) (503) (517) (251) (203) (16) (30) (4,771)
Interest income 75 32 37 23 10    316 493
Interest expense (272) (74) (33) (6) (17)    (409) (811)
2002
Net sales from operations^(a) 12,877 15,297 21,546 4,516 4,546 705 457
Less: intersegment sales (8,795) (623) (1,037) (746) (479) (5) (337)
Net sales to customers 4,082 14,674 20,509 3,770 4,067 700 120 47,922
Operating income 5,175 3,244 320 (126) 298 (199) (210) 8,502
Identifiable assets^(b) 23,686 12,482 7,634 2,821 5,026 909 319 52,877
Unallocated assets                   12,931
Identifiable liabilities^(c) 4,764 2,969 2,861 631 2,741 2,264 844 17,074
Unallocated liabilities                   20,383
Capital expenditures 5,615 1,313 545 145 232 121 77 8,048
Depreciation, amortization and writedowns (3,884) (512) (494) (231) (267) (56) (60) (5,504)
Interest income 59 14 64 2 7 38 138 322
Interest expense (185) (37) (26) (11) (10) (3) (296) (568)
2003
Net sales from operations^(a) 12,746 16,067 22,148 4,487 6,306 1,302 638
Less: intersegment sales (8,468) (450) (621) (438) (897) (853) (480)
Net sales to customers 4,278 15,617 21,527 4,049 5,409 449 158 51,487
Operating income 5,746 3,627 583 (176) 311 (279) (295) 9,517
Identifiable assets^(b) 23,433 15,824 8,025 2,523 5,361 864 606 56,636
Unallocated assets                   10,700
Identifiable liabilities^(c) 4,629 3,007 2,835 612 3,463 2,183 940 17,669
Unallocated liabilities                   21,349
Capital expenditures 5,682 1,760 730 141 277 71 141 8,802
Depreciation, amortization and writedowns (3,360) (567) (494) (248) (271) (110) (101) (5,151)
Interest income 37 7 18 1 21 3 110 197
Interest expense (141) (20) (16) (7) (14) (2) (374) (574)

(a) ~~Other activities include Eni-Corporate financial data which is not significant.~~
~~(b)~~ Before elimination of intersegment sales.
~~(c)~~ (b) Includes assets directly related to the generation of operating income.
~~(d)~~ (c) Includes liabilities directly related to the generation of operating income.
Geographic financial information
Assets and Investments by geographic area of origin

Other Rest of Other
Italy EU Europe Africa Americas Asia Areas Total

(million E)
2000

Identifiable assets (a) 24,554 4,851 2,177 6,651 3,859 1,570 8 43,670
Investments in fixed and intangible assets 2,206 439 283 1,186 753 562 2 5,431
2001

Identifiable assets (a) 23,513 7,546 2,721 8,653 4,552 3,958 11 50,954
Investments in fixed and intangible assets 2,407 595 249 1,405 923 923 75 6,577
2002

Identifiable assets (a) 24,524 6,806 3,863 9,122 3,432 4,385 745 52,877
Investments in fixed and intangible assets 2,396 546 305 2,497 721 1,333 250 8,048
Italy Other Rest of Africa Americas Asia Other Total
(million euro) EU Europe areas
2001
Identifiable assets^(a) 23,513 7,546 2,721 8,653 4,552 3,958 11 50,954
Investments in fixed and intangible assets 2,407 595 249 1,405 923 923 75 6,577
2002
Identifiable assets^(a) 24,524 6,806 3,863 9,122 3,432 4,385 745 52,877
Investments in fixed and intangible assets 2,396 546 305 2,497 721 1,333 250 8,048
2003
Identifiable assets^(a) 27,355 6,690 4,005 10,509 2,921 4,801 355 56,636
Investments in fixed and intangible assets 2,708 1,035 334 3,026 369 795 535 8,802

(a) Includes assets directly related to the generation of operating income.
Sales from operations by geographic area of destination

2000 2001 2002

(million E)
Italy 27,184 27,244 23,797
Other European Union 6,944 8,226 8,450
Rest of Europe 2,711 3,136 4,712
Africa 2,083 2,180 2,478
Americas 6,034 6,169 5,317
Asia 2,959 1,949 3,154
Other areas 23 21 14
47,938 48,925 47,922
(million euro) 2001 2002 2003
Italy 27,244 23,797 25,491
Other European Union 8,226 8,450 9,995
Rest of Europe 3,136 4,712 4,093
Africa 2,180 2,478 5,854
Americas 6,169 5,317 2,778
Asia 1,949 3,154 3,245
Other areas 21 14 31
48,925 47,922 51,487
~~25)~~25 Fair value of financial instruments
     In the normal course of its business, Eni utilizes various types of financial instruments. These instruments include recorded assets and liabilities, as well as items that principally involve off-balance sheet risk. Information about the fair value of Eni’s financial instruments is presented below.
In the normal course of its business, Eni utilizes various types of financial instruments. These instruments include recorded assets and liabilities, as well as items that principally involve off-balance sheet risk. Information about the fair value of Eni’s financial instruments is presented below.
— - Marketable securities: the fair values of marketable securities are based upon market value.
— - Non-current investments carried at cost: such investments are not publicly traded and do not have quoted market prices. An estimate of fair value has not been made because the amount of the investment is not significant and the estimation of fair value would require incurring excessive costs.
— - Current investments: such investments are publicly traded and their fair value is represented by their ~~quoted~~ market price.
— - Non-current receivables: the fair values of non-current receivables are estimated based on the discounted value of future cash flows expected to be paid, considering rates of interest which Eni could earn on similar credit. The differences between the carrying and market values of non-current receivables at December 31, 2001 and 2002, excluding tax credits with Italian tax authorities, were not ~~significant and are not included below.~~significant. In relation to tax credits, the interest rate, which has been 1.375% for each six month period from July 1, 2003 (2.5% ~~on a six-month basis)~~in the first half of 2003), is aligned with the average market rate trend.
— - Current receivables: the ~~fair~~carrying values of current receivables ~~are not included below because they are approximated by~~approximate their ~~carrying values.~~fair value considering the short period that incurs between the concession and their expiration date.
— - Bonds payable, current portion of long-term debt and long-term debt: the fair values of bonds payable and long-term debt, including current maturities, are estimated based on the discounted value of future cash ~~flow analyses.~~flows.
— - Short-term debt: the carrying value of short-term debt approximates fair value because of the short period of time between the origination and maturity of the borrowings.
- Non-current payables: the fair values of non-current payables are estimated based on the discounted ~~value of future cash flows. The differences between the carrying and market values of non-current payables at December 31, 2001 and 2002, were not significant and are not included below.~~
Dec. 31, 2002 Dec. 31, 2001

Carrying Fair Carrying Fair
Value Value Value Value

(million E)
Marketable securities and current investments 1,709 1,736 1,530 1,549
Bonds and long-term debt, including current maturities (1) 7,317 7,641 7,530 8,002
~~(1)~~ ~~The carrying value is increased by the market~~ value of future cash flows. The differences between the ~~acquired interest rate financial debts which are recorded under «Accrued expenses~~carrying and ~~deferred income»~~market values of ~~balance sheet liabilities~~non-current payables at December 31, 2002 and ~~it is decreased by implicit interest under «Accrued expenses and deferred income» of balance sheet assets.~~2003 were not significant.

Dec. 31, 2002 Dec. 31, 2003

Carrying Fair Carrying Fair
(million euro) Value Value Value Value
Marketable securities and current investments 1,519 1,538 1,300 1,317
Bonds and long-term debt, including current maturities 7,530 8,002 8,826 9,099

— - Derivative financial instruments: the fair value of derivatives generally reflects the estimated amounts that Eni would pay or receive to terminate the contracts at the reporting date, thereby taking into account the current unrealized gains or losses of open contracts. Dealer quotes or appropriate pricing models have been used to estimate the fair value offor Eni’s derivatives. The carrying value, compared with the fair value, represents the amount of interest rate and exchange rate differentials recognized but not yet paid at year-end. For foreign exchange derivatives related to monetary assets and liabilities, the carrying value also represents the adjustment using current exchange rates at year-end. The difference between carrying value and fair value is therefore not significant.

Dec. 31, 2001 Dec. 31, 2002

Carrying Fair Carrying Fair
Value Value Value Value

(million E)
Interest rate derivatives:
— assets 9 91 12 101
— liabilities (27 ) (33 ) (18 ) (129 )
Foreign exchange derivatives:
— assets 208 53 333 244
— liabilities (87 ) (56 ) (298 ) (74 )

Dec. 31, 2002 Dec. 31, 2003

Carrying Fair Carrying Fair
(million euro) Value Value Value Value
Interest rate derivatives:
- assets 12 101 22 72
- liabilities (18) (129) (17) (117)
Foreign exchange derivatives:
- assets 333 244 175 289
- liabilities (298) (74) (104) (71)
~~26)~~26 Transactions with related parties
     ~~In accordance with~~
According to rules issued by Consob, the Italian Stock Exchange Commission on February 20, 1997 No. 97001574 and subsequent amendments, the following is a description of 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 affiliated companies and non-consolidated subsidiaries as well as with entities owned or controlled by the Government. All such transactions are conducted in the interest of Eni companies.

Relevant transactions ~~effected~~carried out with entities controlled by the Italian government are only those with Enel, the Italian National Electric Utility.

The following is a description of trade and financing transactions with related ~~parties.~~parties for the years 2003, 2002 and 2001.
2003 Trade and other transactions

Dec. 31, 2000 2000

Costs Revenues

Name Receivables Payables Guarantees Commitments Goods Services Guarantees Services

(million E)
Affiliated companies

Polimeri Europa Srl 99 91 204 1 797 227
Sares SpA Raffinerie Sarde 42 106 277 146 425 24
Blue                      Stream                      Pipeline Company BV 71 84 623 198
Bayernoil Raffineriegesellschaft mbH 30 576
Petrobel Belayim Petroleum Co 16 148 296
Promgas SpA 15 21 152 150
Raffineria di Milazzo ScpA 28 18 164 70 24
Superoctanos CA 8 14 230 6
Agip Oil Company Ltd 4 53 154
Serfactoring SpA 1 169 1
Inca International SpA 12 5 79 6
Gruppo Distribuzione Petroli Srl 17 1 72
Supermetanol Ca 5 53 12
Transitgas AG 1 11 13
Other 145 100 55 6 37 243 360 70
459 790 683 6 953 1,594 1,959 562
Non consolidated subsidiaries

Enirisorsa SpA (in liquidation) 1 7 522
Transmediterranean Pipeline Co Ltd 9 145 1
Agricoltura SpA (in liquidation) 4 1 30 5 3

Dec. 31, 2000 2000

Costs Revenues

Name Receivables Payables Guarantees Commitments Goods Services Guarantees Services

(million E)
Other (*) 68 62 140 3 58 46 17
73 79 692 3 203 51 21
Entities owned or controlled by the Government
532 869 1,375 6 956 1,797 2,010 583
Enel SpA 334 9 22 11 1,517 509
866 878 1,375 6 978 1,808 3,527 1,092
(million euro) 31.12.2003 2003

Costs Revenues
Name Receivables Payables Guarantees Commitments Goods Services Goods Services
Affiliated companies
Agip Oil Co Ltd 19 47 61 1
Albacom SpA 11 31 3 33 1 8
Azienda Energia e Servizi SpA 3 30 74 2
Bayernoil Raffineriegesellschaft mbH 36 2 713 1
Bernhard Rosa Inh. Ingeborg Plochinger GmbH 9 41 96
Blue Stream Pipeline Co BV 51 63 43
Bronberger & Kessler Handelsgesellschaft U.
Gilg & Schweiger GmbH & Co Kg 13 67 135
Erg Raffinerie Mediterranee Srl 14 28 100 567 92 210
Gruppo Distribuzione Petroli Srl 14 73
Karachaganak Petroleum Operating BV 46 50 53 183
Petrobel Belayim Petroleum Co 78 138
Promgas SpA 21 22 230 250
Raffineria di Milazzo ScpA 3 3 161 58
Serfactoring SpA 128
Supermetanol CA 12 59 9
Superoctanos CA 2 20 142 11
Trans Austria Gasleitung GmbH 5 171
Trans Europa Naturgas Pipeline GmbH 3 10 38
Transitgas AG 6 55
Unión Fenosa Gas SA 104
Other (*) 36 44 117 15 66 63 18
245 550 221 100 1,018 1,846 887 255
Non consolidated subsidiaries
Eni BTC Ltd 120
Eni Gas BV 91 191 160 2
Transmediterranean Pipeline Co Ltd 104
Other (*) 37 48 22 4 43 8 30
128 239 302 4 149 8 30
373 789 523 100 1,022 1,995 895 285
Entities owned or controlled by the Government
Enel 261 2 31 1,465 341
634 791 523 100 1,022 2,026 2,360 626

(*) ~~(*)~~ Each individual amount included herein does not exceed euro 50 million.

Dec. 31, 2001 2001

Costs Revenues

Name Receivables Payables Guarantees Commitments Goods Services Guarantees Services

(million E)
Affiliated companies

Blue Stream Pipeline Company BV 146 84 471
Bayernoil Raffineriegesellschaft mbH 15 27 612 1
Promgas SpA 21 21 267 302
Petrobel Belayim Petroleum Co 21 116 296
Raffineria di Milazzo ScpA 7 6 151 57
Superoctanos CA 9 7 191 1 1
Agip Oil Company Ltd 16 47 130
Trans Austria Gasleitung GmbH 89 118 34
Serfactoring SpA 1 142
Bronberger & Kessler Handelsgesellschaft U Gilg & Schweiger GmbH & Co Kg 8 92
Bernhard Rosa Inh Ingeborg Plochinger GmbH 7 85
Gruppo Distribuzione Petroli Srl 17 68
Inca International SpA 6 53 9
Saccne Rete Srl 4 2 53
Supermetanol CA 2 50 1
Transitgas AG 2 17 25
Other (*) 134 29 31 63 166 154 29
503 616 31 571 1,417 865 511
Non consolidated subsidiaries

Polimeri Europa Srl 47 19 185 1 677 92
Transmediterranean Pipeline Co Ltd 10 142
Hotel Assets Ltd 51
Other (*) 77 138 111 9 44 59 4
124 167 162 194 187 736 961
627 783 193 765 1,604 1,601 607

Dec. 31, 2001 2001

Costs Revenues

Name Receivables Payables Guarantees Commitments Goods Services Guarantees Services

(million E)
Entities owned or controlled by the Government

Enel SpA 70 9 20 23 1.512 226
697 792 193 785 1,627 3,113 833

Engineering, construction and maintenance services were acquired from the Cosmi Holding Group, related to Eni through a member of the Board of Directors, for a total of approximately euro 18 million and 29 million in 2002 and 2003, respectively. Most significant transactions concern:
- specialized services in upstream activities to Petrobel Belayim Petroleum Co, Karachaganak Petroleum Operating BV, Eni Oil Co Ltd and Eni Gas BV; services are invoiced on the basis of incurred costs; exclusively with Karachaganak Petroleum Operating BV, the providing of services by Eni’s construction and drilling activity, and with Eni Gas BV, the unsecured guarantees in relation to the construction of a hydrocarbon treatment plant in Libya and receivables and payables for investment activities;
- communication services, data transmission and concessions of optical fibres with Albacom SpA;
- transportation and distribution activities with Azienda Energia e Servizi SpA;
- sale of petrochemical products, supply of crude oil refining activities and fuel additive purchase from Bronberger & Kessler Handelsgesellschaft U. Gilg & Schweiger GmbH Co Kg, Bernhard Rosa Inh. Ingeborg Plochinger GmbH, Gruppo Distribuzione Petroli Srl, Bayernoil Raffineriegesellschaft GmbH and Superoctanos CA;
- acquisition of natural gas transport services outside Italy from Blue Stream Pipeline Co BV and services for the completion of a pipeline between Turkey and the Russian Federation;
- acquisition of refining services from Raffineria di Milazzo ScpA and Erg Raffinerie Mediterranee Srl on the basis of incurred costs for Raffineria di Milazzo ScpA, and general conditions applied to third parties for Erg Raffinerie Mediterranee Srl; the concession to Erg SpA of an option for the purchase of the 28% of Erg Raffinerie Mediterranee Srl;
- sale and purchase of natural gas outside Italy with Promgas SpA;
- factoring activities with Serfactoring SpA;
- acquisition of natural gas transport services outside Italy from Trans Austria Gasleitung GmbH, Transitgas AG and Trans Europa Naturgas Pipeline GmbH, transactions are regulated on general conditions applied to third parties;
- performance guarantees given on behalf of Unión Fenosa Gas SA in relation to contractual commitments related to the results of operations;
- guarantees given in relation to the construction of an oil pipeline on behalf of Eni BTC Ltd;
- acquisition of natural gas transport services outside Italy from Transmediterranean Pipeline Co Ltd; transactions are regulated on the basis of tariffs, which permit the recovery of operating expenses and capital employed.
Transactions with Enel concern the sale and transportation of natural gas, sale of fuel oil and sale and purchase of electricity.
2003 Financing transactions
(million euro) Dec. 31, 2003 2003

Name Receivables Payables Guarantees Charges Gains
Affiliated companies
Albacom SpA 54 88 13
Blue Stream Pipeline Co BV 4 725 26
EnBW - Eni Verwaltungsgesellschaft mbH 275 4
Raffineria di Milazzo ScpA 113
Serfactoring SpA 50 1
Trans Austria Gasleitung GmbH 399 14
Other (*) 50 65 104 3 6
553 69 1,305 16 51
Non consolidated subsidiaries
Transmediterranean Pipeline Co Ltd 241 11
Other (*) 90 65 7 18 2
331 65 7 18 13
884 134 1,312 34 64

(*) Each individual amount included herein does not exceed euro 50 million.

Dec. 31, 2002 2002

Costs Revenues

Name Receivables Payables Guarantees Goods Services Goods Services

(million E)
Affiliated companies

Bayernoil Raffineriegesellschaft mbH 28 652 1
Promgas SpA 23 25 212 227
Erg Raffinerie Mediterranee Srl 27 30 14 137 69
Petrobel Belayim Petroleum Co 86 164
Raffineria di Milazzo ScpA 6 6 159 55 1
Superoctanos CA 4 18 181
Trans Austria Gasleitung GmbH 12 176
Bronberger & Kessler Handelsgesellschaft U. Gilg & Schweiger GmbH & Co Kg 10 60 117
Albacom SpA 22 12 2 53 1 8
Serfactoring SpA 2 94
Bernhard Rosa Inh. Ingeborg Plochinger GmbH 8 35 84
Azienda Energia e Servizi SpA 2 22 55 2 2
Gruppo Distribuzione Petroli Srl 16 66
Karachaganak Petroleum Operating BV 40 13 52 214
Transitgas AG 7 56
Trans Europa Naturgas Pipeline GmbH 9 43
Blue Stream Pipeline Company BV 50 489
Agip Oil Company Ltd 27 12 83
Other (*) 32 67 147 55 57 105 14
269 441 147 464 1,782 727 728
Non consolidated subsidiaries

AgipGas BV 13 94 412 3
Agip (Btc) 206
Transmediterranean Pipeline Co Ltd 6 1 122
Other (*) 26 18 39 7 35 8 32
45 113 657 7 160 8 32
314 554 804 471 1,942 735 760
Entities owned or controlled by the Government

Enel Group 42 5 76 1,475 308
356 559 804 471 2,018 2,210 1,068

Most significant transactions concern:
- lendings and guarantees to Albacom SpA and Serfactoring SpA;
- bank debt guarantees to Blue Stream Pipeline Co BV, EnBW - Eni Verwaltungsgesellschaft mbH and Raffineria di Milazzo ScpA;
- the financing of the Austrian section of the gasline from the Russian Federation to Italy and the construction of natural gas transmission facilities and transport services with Trans Austria Gasleitung GmbH and Transmediterranean Pipeline Co Ltd.
During the year, business has been conferred by/to unconsolidated subsidiaries and affiliates for non significant amounts.
2002 Trade and other transactions
(million euro) 31.12.2002 2002

Costs Revenues
Name Receivables Payables Guarantees Goods Services Goods Services
Affiliated companies
Bayernoil Raffineriegesellschaft mbH 28 652 1
Promgas SpA 23 25 212 227
Erg Raffinerie Mediterranee Srl 27 30 14 137 69
Petrobel Belayim Petroleum Co 86 164
Raffineria di Milazzo ScpA 6 6 159 55 1
Superoctanos CA 4 18 181
Trans Austria Gasleitung GmbH 12 176
Bronberger & Kessler Handelsgesellschaft
U. Gilg & Schweiger GmbH & Co Kg 10 60 117
Albacom SpA 22 12 2 53 1 8
Serfactoring SpA 2 94
Bernhard Rosa Inh. Ingeborg Plochinger GmbH 8 35 84
Azienda Energia e Servizi SpA 2 22 55 2 2
Gruppo Distribuzione Petroli Srl 16 66
Karachaganak Petroleum Operating BV 40 13 52 214
Transitgas AG 7 56
Trans Europa Naturgas Pipeline GmbH 9 43
Blue Stream Pipeline Co BV 50 489
Agip Oil Co Ltd 27 12 83
Other (*) 32 67 147 55 57 105 14
269 441 147 464 1,782 727 728
Non consolidated subsidiaries
AgipGas BV 13 94 412 3
Agip (Btc) 206
Transmediterranean Pipeline Co Ltd 6 1 122
Other (*) 26 18 39 7 35 8 32
45 113 657 7 160 8 32
314 554 804 471 1,942 735 760
Entities owned or controlled by the Government
Enel 42 5 76 1,475 308
356 559 804 471 2,018 2,210 1,068

(*) Each individual amount included herein does not exceed euro 50 million.
~~Financing transactions~~

Dec. 31, 2000 2000

Name Receivables Payables Guarantees Charges Gains

(million E)
Affiliated companies

Blue Stream Pipeline Company BV 931 8
Transitgas AG 493 16
Polimeri Europa Srl 259 60 18
Supermetanol CA 20 129 2
Superoctanos CA 4 126
Raffineria di Milazzo SpA 11 66
Serfactoring SpA 70 1 1
Bayernoil Raffineriegesellschaft mbH 13 1
Other (*) 46 66 17 1 2
916 66 1,329 2 48
Non consolidated subsidiaries

Transmediterranean Pipeline Co Ltd 431 152 41
Agricoltura SpA (in liquidation) 215 9
Enirisorse (in liquidation) 19 34 44 1 1
Other (*) 53 60 23 16 4
503 309 219 26 46
1,419 375 1,548 28 94

Dec. 31, 2001 2001

Name Receivables Payables Guarantees Charges Gains

(million E)
Affiliated companies

Blue Stream Pipeline Company BV 49 983 1 21
Transitgas AG 608 19
Trans Austria Gasleitung GmbH 469 2
Superoctanos CA 3 130
Supermetanol CA 16 134 1
Serfactoring SpA 77 21 1
Raffineria di Milazzo ScpA 21 66
Bayernoil Raffineriegesellschaft mbH 1
Other (*) 56 80 19 7 3
1,250 150 1,332 8 48
Non consolidated subsidiaries

Transmediterranean Pipeline Co Ltd 429 113 32
Polimeri Europa Srl 306 120 17
Other (*) 59 52 8 4 2
794 52 241 4 51
2,044 202 1,573 12 99

Engineering, construction and maintenance services were acquired from the Cosmi Holding Group, related to Eni through a member of the Board of Directors for a total of approximately euro 18 million in 2002. The most significant transactions related to:
- ~~(*) Each individual amount included herein does not exceed euro 50 million.~~

Dec. 31, 2002 2002

Name Receivables Payables Guarantees Charges Gains

(million E)
Affiliated companies

Blue Stream Pipeline Company BV 15 874 30
Transitgas AG 655 10
Trans Austria Gasleitung GmbH 448 15
EnBW — Eni Verwaltungsgesellschaft mbH 264
Serfactoring SpA 46 2
Superoctanos CA 2 40
Bayernoil Raffineriegesellschaft mbH 24
Other (*) 72 80 91 9 7
1,511 95 1,005 9 64
Non consolidated subsidiaries

Transmediterranean Pipeline Co Ltd 326 95 18
Agip (Btc) 27
Other (*) 47 68 5 7 2
400 68 100 7 20
1,911 163 1,105 16 84
     In 2000, trade transactions with Polimeri Europa related to the sale of basic petrochemical products and engineering services, financing transactions related to conditioned financing for operations, while guarantees were provided to banks in relation to loans. Transactions with Saras Raffinerie Sarde, Bayernoil Raffineriegesellschaft and raffineria di Milazzo related to the refining of crude oil, and only with Saras Raffinerie Sarde and Raffineria di Milazzo the sale of crude oil, the purchase of petroleum products and engineering services, and guarantees given on behalf of Raffineria di Milazzo to banks in relation to loans. Trade and financial transactions with Blue Stream Pipeline Company related to the construction of a pipeline between Turkey and the Russian Federation. Transactions with Petrobel Belayim Petroleum and Agip Oil Company related to services for exploration and production. Trade transactions with Promgas concern the sale of natural gas. Transactions with Superoctanos and Supermetanol concern the purchase of fuel additives and guarantees provided to banks in relation to lendings. Trade transactions with Inca International concern the sale of petrochemical products. Transactions with Serfactoring concern factoring activities and financing. Transactions with Gruppo Distribuzione Petroli concern sales of petroleum products. Receivables with Transitgas relate to the financing of the doubling of the Italy/Netherlands pipeline in the Swiss section and transport services.
     Guarantees given by Enirisorse (in liquidation) relate to the commitments given to acquirors of divested activities. Transactions with Transmediterranean Pipeline related to financings and guarantees given to banks in relation to loans and lines of credit for the construction of natural gas transmission facilities and transport services. Borrowings to Agricoltura (in liquidation) and Enirisorse (in liquidation) related to temporary cash deposits with Eni’s financing subsidiaries.
     ~~Transactions with Enel related to the sale and transportation of natural gas, sale of fuel oil and sale and purchase of electricity.~~
     In 2001, trade and financial transactions with Blue Stream Pipeline Company related to the construction of a pipeline that will link the Russian Federation to Turkey. Transactions with Bayernoil Raffineriegessellschaft and Raffineria di Milazzo related to the refining of crude oil, and only with Raffineria di Milazzo the sale of crude oil, the purchase of petroleum products, and guarantees given on behalf of Raffineria di Milazzo to banks in relation to loans. Trade transactions with Promgas related to the sale of natural gas. Transactions with Petrobel Belayim Petroleum and Agip Oil Company concern services for exploration and production. Transactions with Superoctanos and Supermetanol related to the purchase of fuel additives and guarantees provided to banks in relation to lendings. Financial transactions with Trans Austria Gasleitung GmbH related to the financing of the Austrian section of the gasline from the Russian Federation to Italy as well as transmission of natural gas. Transactions with Serfactoring related to factoring activities and financing. Trade transactions with Bronberger & Kessler Handelsgesellschaft U. Gilg & Schweiger GmbH Co Kg, Bernhard Rosa Inh. Ingeborg Plochinger GmbH and Saccne Rete related to the sale of refined products on wholesale markets. Transactions with Gruppo Distribuzione Petroli related to sales of petroleum products. Trade transactions with Inca International related to the sale of petrochemical products. Receivables with Transitgas related to the financing of the doubling of the Italy/Netherlands pipeline in the Swiss section and natural gas transport services.
     Transactions with Transmediterranean Pipeline related to financings and guarantees given to banks in relation to loans and lines of credit for the construction of natural gas transmission facilities and transport services. Trade transactions with Polimeri Europa related to the sale of basic petrochemicals and electricity, financial transactions related to financings for operating activities and guarantees given to banks. Guarantees given to Hotel Assets Ltd related to tax payments.
     ~~Transactions with Enel related to the sale and transportation of natural gas, sale of fuel oil and sale and purchase of electricity.~~
~~2002 Trade transactions~~
     Engineering, construction and maintenance services were acquired from the Cosmi Holding Group, related to Eni through a member of the Board of Directors for a total of approximately euro 18 million in 2002.
     ~~The most significant transactions related to:~~
— ~~Acquisition~~acquisition of natural gas transport services outside Italy from Trans Austria Gasleitung GmbH, Transitgas AG, Trans Europa Naturgas Pipeline GmbH e Transmediterranean Pipeline Co Ltd, transactions are regulated on the basis of tariffs, which permit the recovery of operating expenses and employed ~~capital.~~capital;
- — ~~Sale~~sale of natural gas outside Italy with Promgas ~~SpA.~~SpA;
- — ~~Specialized~~specialized services in upstream activities to Petrobel Belayim Petroleum Co, Karachaganak Petroleum Operating BV, Agip Oil Co Ltd and AgipGas BV; services are invoiced on the basis of incurred costs; and exclusively with Karachaganak Petroleum Operating BV, services are provided by Eni’s oilfield services;
- — ~~Acquisition~~acquisition of refining services from Raffineria di Milazzo ScpA and Erg Raffinerie Mediterranee Srl on the basis of incurred costs for Raffineria di Milazzo ScpA, and general conditions applied to third parties for Erg Raffinerie Mediterranee ~~Srl.~~Srl;
- — ~~Sale~~sale of petrochemical products, supplying of crude oil refining activities and fuel additive purchases from Bronberger & Kessler Handelsgesellschaft U. Gilg & Schweiger GmbH Co Kg, Bernhard Rosa Inh. Ingeborg Plochinger GmbH, Gruppo Distribuzione Petroli Srl, Bayernoil Raffineriegesellschaft GmbH and Superoctanos ~~CA.~~CA;
- — ~~Communication~~communication services, data transmission and concessions of optical fibres with Albacom ~~SpA.~~SpA;
- — ~~The~~the construction of a pipeline between Turkey and the Russian Federation for Blue Stream Pipeline Co ~~BV.~~BV;
- — ~~Factoring~~factoring activities with Serfactoring ~~SpA.~~SpA;
- — ~~Transportation~~transportation and distribution activities with Azienda Energia e Servizi ~~SpA.~~SpA;
- — ~~Guarantees~~guarantees given in relation to the construction of an oil pipeline by Agip (Btc).
Transactions with Enel concern the sale and transportation of natural gas, sale of fuel oil and sale and purchase of electricity.
     ~~Transactions with Enel concern the sale and transportation of natural gas, sale of fuel oil and sale and purchase of electricity.~~
2002 Financing transactions
     ~~The most significant transactions related to:~~
(million euro) 31.12.2002 2002

Name Receivables Payables Guarantees Charges Gains
Affiliated companies
Blue Stream Pipeline Co BV 15 874 30
Transitgas AG 655 10
Trans Austria Gasleitung GmbH 448 15
EnBW - Eni Verwaltungsgesellschaft mbH 264
Serfactoring SpA 46 2
Superoctanos CA 2 40
Bayernoil Raffineriegesellschaft mbH 24
Other (*) 72 80 91 9 7
1,511 95 1,005 9 64
Non consolidated subsidiaries
Transmediterranean Pipeline Co Ltd 326 95 18
Agip (Btc) 27
Other (*) 47 68 5 7 2
400 68 100 7 20
1,911 163 1,105 16 84

(*) —Each individual amount included herein does not exceed euro 50 million.

The most significant transactions related to:
- ~~Guarantees~~guarantees provided to banks and related fees to Turkey, the financing of the doubling of the Italy/Netherlands pipeline in the Swiss section and the financing of the Austrian section of the gasline from the Russian Federation to Italy and the construction of natural gas transmission facilities and transport services with Blue Stream Pipeline Co BV, Transitgas AG, Trans Austria Gasleitung GmbH and Transmediterranean Pipeline Co ~~Ltd.~~Ltd;
- — ~~Concessions~~concessions of loans to ~~En-BW-Eni Verwaltungsegesellschaft~~EnBW - Eni Verwaltungsgesellschaft mbH for the acquisition of Gasversorgung Süddeutschland GmbH;
- — ~~Concessions~~concessions and guarantees provided to banks in relation to lendings to Serfactoring SpA, Bayernoil Raffineriegesellschaft mbH, Superoctanos CA and Agip (Btc).
2001 Trade and other transactions
(million euro) 31.12.2001 2001

Costs Revenues
Name Receivables Payables Guarantees Goods Services Goods Services
Affiliated companies
Blue Stream Pipeline Co BV 146 84 471
Bayernoil Raffineriegesellschaft mbH 15 27 612 1
Promgas SpA 21 21 267 302
Petrobel Belayim Petroleum Co 21 116 296
Raffineria di Milazzo ScpA 7 6 151 57
Superoctanos CA 9 7 191 1 1
Agip Oil Co Ltd 16 47 130
Trans Austria Gasleitung GmbH 89 118 34
Serfactoring SpA 1 142
Bronberger & Kessler Handelsgesellschaft
   U. Gilg & Schweiger GmbH & Co Kg 8 92
Bernhard Rosa Inh. Ingeborg Plochinger GmbH 7 85
Gruppo Distribuzione Petroli Srl 17 68
Inca International SpA 6 53 9
Saccne Rete Srl 4 2 53
Supermetanol CA 2 50 1
Transitgas AG 2 17 25
Other (*) 134 29 31 63 166 154 29
503 616 31 571 1,417 865 511
Non consolidated subsidiaries
Polimeri Europa Srl 47 19 185 1 677 92
Transmediterranean Pipeline Co Ltd 10 142
Hotel Assets Ltd 51
Other (*) 77 138 111 9 44 59 4
124 167 162 194 187 736 96
627 783 193 765 1,604 1,601 607
Entities owned or controlled by the Government
Enel 70 9 20 23 1,512 226
697 792 193 785 1,627 3,113 833

(*) Each individual amount included herein does not exceed euro 50 million.
2001 Financing transactions
(million euro) Dec. 31, 2003 2003

Name Receivables Payables Guarantees Charges Gains
Affiliated companies
Blue Stream Pipeline Co BV 49 983 1 21
Transitgas AG 608 19
Trans Austria Gasleitung GmbH 469 2
Superoctanos CA 3 130
Supermetanol CA 16 134 1
Serfactoring SpA 77 21 1
Raffineria di Milazzo ScpA 21 66
Bayernoil Raffineriegesellschaft mbH 1
Other (*) 56 80 19 7 3
1,250 150 1,332 8 48
Non consolidated subsidiaries
Transmediterranean Pipeline Co Ltd 429 113 32
Polimeri Europa Srl 306 120 17
Other (*) 59 52 8 4 2
794 52 241 4 51
2,044 202 1,573 12 99

(*) Each individual amount included herein does not exceed euro 50 million.
In 2001, trade and financial transactions with Blue Stream Pipeline Co BV related to the construction of a pipeline that will link the Russian Federation to Turkey. Transactions with Bayernoil Raffineriegesellschaft and Raffineria di Milazzo related to the refining of crude oil, and only with Raffineria di Milazzo the sale of crude oil, the purchase of petroleum products, and guarantees given on behalf of Raffineria di Milazzo to banks in relation to loans. Trade transactions with Promgas related to the sale of natural gas. Transactions with Petrobel Belayim Petroleum and Agip Oil Co Ltd concern services for exploration and production. Transactions with Superoctanos and Supermetanol related to the purchase of fuel additives and guarantees provided to banks in relation to lendings. Financial transactions with Trans Austria Gasleitung GmbH related to the financing of the Austrian section of the gasline from the Russian Federation to Italy as well as transmission of natural gas. Transactions with Serfactoring SpA related to factoring activities and financing. Trade transactions with Bronberger & Kessler Handelsgesellschaft U. Gilg & Schweiger GmbH Co Kg, Bernhard Rosa Inh. Ingeborg Plochinger GmbH and Saccne Rete related to the sale of refined products on wholesale markets. Transactions with Gruppo Distribuzione Petroli Srl related to sales of petroleum products. Trade transactions with Inca International related to the sale of petrochemical products. Receivables with Transitgas related to the financing of the doubling of the Italy/Netherlands pipeline in the Swiss section and natural gas transport services.
Transactions with Transmediterranean Pipeline Co Ltd related to financings and guarantees given to banks in relation to loans and lines of credit for the construction of natural gas transmission facilities and transport services. Trade transactions with Polimeri Europa related to the sale of basic petrochemicals and electricity, financial transactions related to financings for operating activities and guarantees given to banks. Guarantees given to Hotel Assets Ltd related to tax payments.
Transactions with Enel related to the sale and transportation of natural gas, sale of fuel oil and sale and purchase of electricity.
~~27)~~27 Summary of significant differences between Italian accounting principles and U.S. GAAP

Eni’s financial statements have been prepared in accordance with Italian GAAP, which differs in certain respects from U.S. GAAP. A description of the significant differences and their effects on net income and shareholders’ equity is set forth in the following notes. Those differences described below that are not included in the reconciliations of net income or ~~net~~shareholders’ equity (see ~~note~~Note 28), either had no effect, or their effect was not significant. See also ~~note 2)~~Note 2, Summary of significant accounting and reporting policies for additional information on the accounting principles that Eni follows.
A) Consolidation ~~Policy~~
policy
Eni’s consolidation policy is described ~~on page F-14~~ under “Principles of consolidation” of the ~~heading «Principles of Consolidation».~~Notes to the Consolidated Financial Statements. In particular, under Italian GAAP, 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 (43.0%), and ~~Società Italiana per il Gas pA (40.9%), including the~~its subsidiaries ~~of such entities~~ which are controlled by Eni without holding the majority of voting rights, have been consolidated under the equity method for U.S. GAAP purposes.
In addition, U.S GAAP also requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (“VIE”) to consolidate the entity. A VIE is an entity that meets any of the following criteria: (i) it has a total equity investment at risk that is not sufficient to finance its activities without additional subordinated financial support from other parties; (ii) the equity owners do not have the ability to make significant decisions about the entity’s activities through voting or similar rights; (iii) the equity owners do not have an obligation to absorb the entity’s expected losses, or (iv) the equity owners do not have the right to receive the entity’s expected residual returns. This difference in consolidation policies, as it was applied to entities created by Eni after January 31, 2003, did not result in any differences between U.S. GAAP and Italian GAAP.
B) Exploration ~~and Development~~& Production activities
Exploration

Under Italian GAAP, exploration costs, including successful exploratory wells, are recorded 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 ~~and for the extension of existing permits~~ are capitalized and amortized over the expected period of benefit.

Under U.S. GAAP, costs relating to exploratory wells are initially capitalized as ~~«incomplete~~“incomplete wells and ~~other»~~other” until it is determined if commercial quantities of reserves have been discovered («(“successful efforts ~~method»~~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. ~~Exploratory~~Costs of exploratory wells that have found commercially producible quantities of reserves that cannot be classified as proved remain capitalized if such wells have found sufficient quantities of reserves to justify their completion, and the Company has either firm plans to drill additional wells necessary to determine the existence of proved reserves or is awaiting regulatory approvals. Otherwise, exploratory well costs are generally expensed upon the earlier of determining that proved reserves have been not ~~been~~ found, or within one year of completing ~~drilling if such a determination cannot be made, unless the well is drilled in an area requiring a major capital expenditure before production could begin.~~drilling. 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, 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 Italian GAAP, ~~development~~ costs of unsuccessful development wells are expensed immediately. ~~Development costs~~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 ~~costs~~dry holes, both tangible and intangible, are ~~accounted for using~~capitalized and amortized on the ~~successful efforts method described above.~~unit-of-production method.
C) Valuation of ~~Assets~~assets and subsequent revaluation

Both Italian and U.S. GAAP require that assets which are impaired be written down to their fair value. However, under Italian GAAP, in order to determine whether an impairment exists, the book value of an asset in question is compared to the sum of the discounted cash flows expected to be generated by such asset. If the sum of such discounted cash flows is less than the carrying value of the asset, an impairment exists.

Under U.S. GAAP, SFAS ~~No.~~ 144 requires the performance of the same analysis using undiscounted cash flows.

In addition, under Italian GAAP impairment charges are reversed when the situation giving rise to an impairment ceases to exist.
Under U.S. GAAP reversals of impairment charges are not permitted.
D) Monetary revaluation of assets

Under Italian GAAP, certain assets have been revalued at various times in accordance with various Italian laws.

Under U.S. GAAP, such revaluations are not permitted.

The adjustments provided in Note ~~30 below~~28 include the effect of the recomputation of depreciation expense and of gains/(losses) ~~on disposals~~ on a historical cost basis, as well as the elimination of these revaluations and the related accumulated depreciation.
E) Deferred tax assets and liabilities

Under Italian GAAP deferred taxes are recorded if recoverable with reasonable certainty. 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. Any timing difference between purchase price and the tax ~~basis~~bases of an ~~individual~~ asset acquired does not result in the recording of an adjustment to the carrying value of such asset.

Under U.S. GAAP, deferred tax assets are recorded if their recovery is more likely than not. The potential taxes on equity reserves are considered deferred tax liabilities and are accrued accordingly. Deferred income taxes have not been provided on undistributed earnings of foreign subsidiaries as such earnings are expected to be permanently reinvested. In addition, under U.S. GAAP, in situations where the purchase price of ~~such~~ assets ~~purchased~~ is not equal to the tax ~~basis,~~bases, deferred taxes must be provided for such differences and recorded as part of the acquisition.
The adjustments included ~~below~~in the reconciliations to U.S. GAAP take into account the realizability of deferred tax assets, based on the more likely than not criteria rather than the certainty of their recovery, 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.
F) Depreciation
     ~~For~~ of fixed assets
Under Italian GAAP, ~~purposes,~~ until 1999, in accordance with Italian practice, depreciation of natural gas pipelines, natural gas distribution networks and related plant and machinery, was accounted for by applying rates on a straight-line basis established by Italian tax authorities on the basis of technical studies conducted for homogeneous industries.

Under U.S. GAAP, depreciation expense is recognized based on the estimated economic useful ~~life~~lives of the assets.
The publication of Legislative Decree No. 164 of May 23, 2000, which imposed the separation of transmission and distribution activities from other natural gas activities and set the criteria ~~set~~ for the determination of transport and distribution tariffs by the Authority for Electricity and Gas led companies operating in this segment to re-evaluate the useful lives of the assets. The useful lives calculated by Eni (40 years for pipelines and 50 for distribution networks) were confirmed by an independent appraisal and by the documents issued by the ~~Authority.~~Authority for Electricity and Gas. Therefore, from 2000 assets related to transmission and distribution activities are amortized, both under Italian GAAP and U.S. GAAP, based on these new useful lives.
G) ~~Amortization of intangible~~Intangible assets

Under Italian GAAP, goodwill is amortized on a straight-line basis in the utilization period, over a maximum period of twenty years. Other intangible assets are amortized systematically in relation to their residual useful life.

Under U.S. GAAP goodwill and ~~the~~ intangible assets with an indefinite useful life ~~cannot be~~are not amortized; these assets are subject to a yearly evaluation in order to define the relevant ~~writedown~~impairment if needed.
U.S. GAAP requires companies to capitalize, separately from goodwill, all identifiable intangible assets acquired as part of a business combination and amortize such assets over their useful lives.
Under Italian GAAP, such intangible assets are not recorded separately from goodwill.
H) Capitalized interest expense

Under Italian GAAP, Eni capitalizes interest expense only if certain conditions are met in the self-construction of assets.

Under U.S. GAAP, ~~actual~~ interest ~~costs incurred~~is capitalized to ~~bring qualified~~the extent a company has fixed assets ~~to their intended use, that theoretically could have been avoided if~~under construction during the ~~expenditures for the assets had not been made, must be capitalized.~~
reporting period and has outstanding interest bearing debt.
The adjustment to U.S. GAAP ~~under «Capitalized interest»~~for “Capitalized interest” included ~~below~~ represent the capitalization difference, based upon actual interest costs incurred during each period, as well as the subsequent depreciation effect of the additional capitalized ~~interest.~~interest under U.S. GAAP.
I) Derivatives

Under Italian GAAP, derivative ~~conctracts~~contracts are evaluated differently if they are used as hedging or as speculative instruments. Eni values derivatives that are used for hedging purposes, but that are not designated against specific transactions, according to the nature of the hedged assets. In particular, interest differences on derivatives hedging interest rates and premiums and discounts on exchange rate risk hedging contracts are recorded in the income statement over the term of the contracts. The currency component of exchange rate risk hedging is recorded in the income statement in the year in which the ~~hedged~~hedge asset/liability is first recorded. Profits on derivative contracts on price risks are ~~recored~~recorded in the income statement as offsetting the depreciation of the hedged asset. Losses are recorded when incurred. Derivative contracts used as speculative instruments are recorded at fair value and the related effects are recorded in the income statement.

Under U.S. GAAP, SFAS 133 ~~«Accounting~~“Accounting for Derivative Instruments and Hedging ~~Activities»~~Activities” establishes accounting and reporting for derivative instruments and hedging activities. In general SFAS 133 requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Eni adopted SFAS 133 for U.S. reporting purposes on January 1, 2001. Eni uses derivative instruments to manage the risk of fluctuations in commodity prices, interest rates and foreign ~~currencies~~currency (see ~~note 24 for information regarding the instruments)~~Note 23). SFAS 133 requires that
derivative instruments that hedge the variability of expected cash flow, the fair value of an ~~unduerlying,~~underlying, or ~~foreign currencies~~currency other than euro related to a specific risk are designated as a cash flow hedge, fair value hedge, or ~~fereign~~foreign currency hedge, respectively. Changes in the fair value of derivative instruments designated and effective as fair value hedges are recognized through earnings and changes in the fair value of cash flow hedges are recognized through equity as a component of other comprehensive income.

For U.S. GAAP purposes, onupon adoption of SFAS 133, the current U.S. GAAP hedging relationships for Eni’s existing derivative ~~instrument~~instruments were de-designated. The financial statement effect of this de-designation was not significant in 2001. Subsequent to adoption, movements in the fair value of ~~the~~ derivative instruments have been recorded as adjustments to U.S. GAAP net income as reflected in Note 28.
J) Stock ~~Compensation~~
compensation
Under Italian GAAP, stock grant and option plans issued and offered to employees beginning in 2003 by using treasury shares have been recorded as compensation expense on the basis of the fair value and are recognized under the pro rata temporis method over the vesting period. The accounting method adopted under Italian GAAP (see “Changes in accounting principles”) is consistent with the requirements of SFAF 123 with the exception that under U.S. GAAP the costs related to stock grants are recorded as contra accounts within the equity accounts and ~~options~~the treasury shares remain recorded at cost.
U.S. GAAP provides alternative methods for the transition of the accounting for stock-based compensation from the intrinsic value method to the fair value method. Eni has applied the fair value method to grants made, modified or settled on or after January 1, 2003. The impact of Eni’s 2003 net income was not materially different than under previous accounting standards. See Note 2, Summary of significant accounting and reporting policies for additional information.
Prior to January 1, 2003, under Italian GAAP, stock grant and option plans offered to employees for no consideration ~~are~~were recorded within the equity accounts when the shares ~~are~~were issued. In particular, stock grants made for no cash consideration ~~are~~were recorded at nominal value as a debit against athe specific equity ~~reserve, while~~reserve; shares issued after exercise of options ~~are~~were recorded as a capital increase for the nominal value and as an increase in the special reserve for the difference between amounts paid for exercising the options and the nominal value of issued shares. No compensation expense iswas recorded.
     ~~Under~~
Prior to January 1, 2003, under U.S. GAAP, stock ~~grants~~grant and ~~options~~option plans offered to employees ~~are~~were recorded as compensation expense for the excess of the market value over the exercise price of the stock on the measurement date. Such compensation expense iswas recorded over the period of benefit.
     ~~Eni has granted shares~~
Costs related to stock grant and ~~options only~~option plans offered to employees for no ~~consideration. The compensation costs related to these instruments~~consideration until December 31, 2002 have been included ~~below.~~
in the adjustment of net income under U.S. GAAP (see Note 28).
Eni does not give stock compensation in exchange ~~for~~of goods and services from non-employees.
K) ~~Financing~~Stock issuance costs

Under Italian GAAP, direct ~~financing~~ costs ~~related to~~for issuances of equity are capitalized by Eni in the account ~~«Intangible assets—~~“Intangible assets - organizational and financing ~~costs»~~costs” and amortized over their economic useful lives, not to exceed 5 years.

Under U.S. GAAP, ~~direct financing~~ costs associated with obtaining new capital by issuing common or preferred stock are considered as a reduction of the related ~~to issuances of equity are netted against related proceeds.~~proceeds and recorded as a net amount in equity.
L) Marketable securities

Under Italian GAAP, marketable securities are carried at the lower of purchase cost or market value.

Under U.S. GAAP, the accounting for investments in marketable securities uses a fair market value methodology. Eni’s marketable securities would be classified as available-for-sale with changes in market value recorded as comprehensive income which is a component of shareholders’ equity.
M) Costs related to site restoration and abandonment
Under Italian GAAP, costs related to site restoration and abandonment are evaluated annually on the basis of costs expected to be incurred for laws and regulations and contractual obligations.
Under Italian GAAP, Eni accrues its abandonment and restoration costs, estimated on an undiscounted basis, rateably over the productive lives of its assets using the units-of-production method.
Under US GAAP, SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligations (ARO) in the period when it is incurred (typically at the time the asset is installed at the productions location). When the liability is initially recorded, the capitalized costs of the related fixed assets will be increased by an equal corresponding amount. Over time, the liabilities are increased for the change in their present value each period, and the initial capitalized costs are depreciated over the useful lives of the related assets.
The recognized asset retirement obligations liability amounts are based upon future retirement cost estimates and incorporate many assumptions such as expected recoverable quantities of crude oil and natural gas, time to abandonment, future inflation rates and the risk-free rate of interest adjusted for the Company’s credit costs.
No significant legal obligations to retire refining, transportation, marketing (downstream) and chemical long-lived assets were generally recognized, as indeterminate settlement dates for the asset retirements prevented estimation of the fair value of the associated asset retirement obligations. The company performs periodic reviews of its downstream and chemical long-lived assets for any changes in facts and circumstances that might require recognition of a retirement obligation, either under U.S. GAAP or Italian GAAP.
N) Treasury shares

Under Italian GAAP, treasury shares, acquired as long-term investments, are recorded at cost adjusted for impairment. When the reasons for the impairment cease to exist, treasury shares are revalued.
Treasury shares purchased in relation to group incentive plans are carried at the lower of purchase cost or fair value for stock grants and at the lower of purchase cost or strike price for stock options. Treasury shares purchased in relation to incentive plans to be issued are carried at the lower of purchase cost or market value.
Under U.S. GAAP, all treasury shares are recorded at ~~cost regardless of their purpose. At December 31, 2000~~cost. Such difference did not generate significant differences between U.S. GAAP and ~~2001, such difference had no effect on net income and shareholders’ equity under U.S.~~Italian GAAP.
N)O) Extraordinary income and expense

All items recorded by Eni as extraordinary under Italian GAAP in the periods presented herein would not qualify as extraordinary under U.S. GAAP. Such items have been reclassified to the appropriate income statement captions as determined by U.S. GAAP, certain of which have been included in the determination of operating income by segment. In addition, under U.S. GAAP, extraordinary items are presented net of tax.
O)P) Sales of government bonds

Eni accounted for government bonds transferred primarily to employees at par value, with the repurchasing commitment at the same value, as sales of bonds, and recognized the related gains in current income. For U.S. GAAP purposes, the terms of these transactions would result in their treatment as financing transactions and consequently in a cash flow statement prepared under ~~U.S. GAAP~~U.S.GAAP, these cash flows would be included in financing activities. Under this method, the bonds would remain as assets and the proceeds from the ~~«sales»~~“sales” would be treated as financing obligations. Gains and losses from such sales are not significant.
P)Q) Reclassification of inventory
     ~~Eni compulsory~~
Compulsory stock relates primarily to ~~our~~the Italian operations. Under Italian law Eni is required to retain certain strategic quantities of natural gas and petroleum products («(“compulsory ~~stock»~~stock”) in its storage facilities at all times. Eni values natural gas and petroleum products held as compulsory stock as inventories that are subject to lower of cost or market valuations annually.

Under U.S. GAAP, current assets, such as inventories, are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business, which for Eni is twelve months. As Eni’s compulsory stock is not expected to be sold or consumed within the next twelve months, compulsory stock amounts are recorded, for U.S. GAAP ~~balance sheet~~ purposes, in non-current assets under the caption Non-current Inventories (Compulsory Stock).
Q)R) Comprehensive Income

Under Italian GAAP, Comprehensive Income does not exist.

U.S. GAAP requires the reporting and display of comprehensive income and its components in accordance with Statement of Financial Standard No. 130, ~~«Reporting~~“Reporting Comprehensive ~~Income» («~~Income” (“SFAS ~~130»~~130”).
Components of other comprehensive income include variations in equity accounts not attributable to transactions already recorded in income or ~~transactions~~transaction with shareholders. The required information pursuant to SFAS 130 is presented in the reconciliation that follows. Deferred tax effects of exchange differences from the translation of functional currency financial statements have not been recorded as provided for by SFAS 109, which permits the exclusion of the calculation of taxes on equity reserves of foreign subsidiaries when the reserves are not expected to be released.
R)S) Earnings per share

Under Italian GAAP prior year earnings per share is recalculated each year to include in the weighted-average number of shares the number of shares issued through stock grants made in ~~2002.~~
2003.
Under U.S. GAAP prior year earnings per share is not adjusted for the exercise of stock grants in ~~2002.~~ 2003.
This difference did not ~~result in~~generate a ~~quantitative~~significant difference between U.S. GAAP and Italian GAAP.
Stock grant and option plans approved by Eni in 2003 are recorded with equivalent criteria both under Italian GAAP and U.S. GAAP. For this reason there are no differences in the calculation of earnings per share between U.S. GAAP and Italian GAAP.
~~28)~~T) Guarantees
Under Italian GAAP guarantees are recorded in other memorandum accounts; when it is probable or certain that a guarantee will produce a liability, its estimated amount is accrued in a specific reserve as a component of equity.
U.S. GAAP requires a company to recognize a liability for the obligations it has undertaken in issuing a guarantee. This liability is to be recorded at the inception of a guarantee and would be measured at fair value.
This difference did not generate a significant difference between U.S. GAAP and Italian GAAP.
U) Liabilities for redundancies
Under Italian GAAP, expected liabilities for redundancy incentives are accrued in “Reserves for contingencies - Other”, when a workforce reduction program is defined, the legislation is issued or, if necessary, agreements of negotiated contracts with trade unions are made and the liability can be reasonably estimated. Costs relating to closures of facilities are recorded when the liability is probable and it can be reasonably estimated.
Under U.S. GAAP, expected liabilities for involuntary redundancy incentives are expensed when the liability has been incurred and when it can be measured at fair value. The adjustment to U.S. GAAP represents redundancy costs recognized under Italian GAAP, which did not meet the U.S. GAAP criteria.
28 Reconciliations between net income and shareholders’ equity determined under Italian GAAP to U.S. GAAP

The following is a summary of the significant adjustments to net income for the years ended December 31, ~~2000,~~ 2001, 2002 and ~~2002~~2003 and to shareholders’ equity as of December 31, ~~2001~~2002 and ~~2002~~2003 that would be required if U.S. GAAP had been applied instead of Italian GAAP in the consolidated financial statements.
     ~~Also~~Reconciliation of net ~~comprehensive~~ income ~~is reported in accordance with Statement of Financial Accounting Standards No. 130 («SFAS 130»).~~

2000 2001 2002

(million E)
Net income according to the financial statements prepared under Italian GAAP
5,771 7,751 4,593
Items increasing (decreasing) reported net income:
A. Effect of the differences related to companies consolidated under Italian GAAP but carried at equity method   under U.S. GAAP (a) (33 ) (69 ) 56
A. Effect of the differences related to companies carried at equity method 106
B. Successful-efforts accounting 137 265 222
C. Asset impairments and revaluations (19 ) 17 71
D. Elimination of monetary revaluation 30 33 37
D. Adjustment of gains on disposals due to elimination of monetary revaluation 227
E. Deferred taxes (20 ) (499 ) (16 )
F. Use of different depreciation rates (120 ) (115 ) (67 )
G. Adjustment of amortization of goodwill (b) 29
H. Capitalized interest expense 15 (7 ) (33 )
I. Derivatives contracts 52 54
J. Stock grants and options awarded to employees (3 ) (22 ) (9 )
K. Adjustment of financing costs 6
— adjustment of gains on the sale of an interest in consolidated subsidiary (c) (1,385 )
— other changes 60
— effect of U.S. GAAP adjustments on minority interest (d) 69 183

Net adjustments
(13 ) (1,434 ) 699

Net income in accordance with U.S GAAP
5,758 6,317 5,292

Net income per share (based on the weighted-avarage number of ordinary shares outstanding for each period) (e)
1.44 1.62 1.38

Net income per ADS (based on five shares per ADS) (e)
7.21 8.08 6.92
(million euro) 2001 2002 2003
Net income according to the financial statements prepared under Italian GAAP 7,751 4,593 5,585
Items increasing (decreasing) reported net income:
A. effect of the differences related to companies consolidated under Italian GAAP but carried at equity method under U.S. GAAP^(a) (69) 56 44
A. effect of the differences related to companies carried on the equity method    106 107
B. successful-efforts accounting 265 222 23
C. asset impairments and revaluations 17 71 74
D. adjustment for the elimination of monetary revaluation 33 37 (30)
D. elimination of gains on sales related to monetary revaluation 227
E. deferred income taxes (499) (16) 286
F. use of different depreciation rates (115) (67) (179)
G. adjustment for the amortization of goodwill^(b)    29 94
G. differences in fair value assigned to assets acquired in the purchase of a business       (6)
H. capitalized interest expense (7) (33) 1
I. derivative contracts 52 54 (51)
J. stock grants and options awarded to employees (22) (9) (15)
K. stock issuance costs    6 8
M. effect related to site restoration and abandonment liabilities       (53)
U. effect related to reserves for contingencies    60 56
   - adjustments of gains on the sales of an interest in a consolidated subsidiary^(c) (1,385)
   - effect of U.S. GAAP adjustments on minority interest^(d) 69 183 154
Net adjustment (1,434) 699 513
Net income in accordance with U.S. GAAP before cumulative effect of change in accounting principles       6,098
Effect of the initial application of SFAS 143^(e)       198
Net income in accordance with U.S. GAAP 6,317 5,292 6,296
Net income per share before cumulative effect of change in accounting principles^(f)       1.61
Net income per share resulting from the cumulative effect of the initial application of SFAS 143^(f)       0.05
Net income per share including the cumulative effect of the initial application of SFAS 143^(f) 1.62 1.38 1.67
Net income per ADS (based on five shares per ADS)^(f) 8.08 6.92 8.33

(a) Adjustment includes the aggregate effect of all differences between Italian GAAP and U.S. GAAP related to ~~companies~~company fully consolidated under Italian GAAP but accounted for under the equity method under U.S. GAAP; specifically this refers to Saipem SpA and ~~Società Italiana per il Gas pA.~~
its subsidiaries for the year 2003 and to Italgas SpA and Saipem SpA and their subsidiaries for the years 2002 and 2001.
(b) Had SFAS 142 been adopted for ~~years 2000 and~~ 2001, its effects would have been to increase net income by euro ~~26 and~~ 44 million ~~respectively~~ and ~~to increase~~basic and diluted earnings per share by euro ~~0.01 in both years.~~
0.01.
(c) Adjustment made to determine the gain under U.S. GAAP on the sale of stock in Snam Rete Gas, due to the fact that Eni’s net equity in the subsidiary is different under ~~U.S.~~U.S . GAAP and Italian GAAP, mainly owing to differences in depreciation ~~rates~~rules of fixed assets as the depreciation rates applied under Italian GAAP were more accelerated than those applied under U.S. GAAP, as more fully described in Note 27 F. The carrying value of the sold portion of Eni’s investment in Snam Rete Gas (40.24%) under U.S. GAAP immediately prior to its sale was euro 1,134 million, thus resulting in a net gain on sale of euro 1,068 million on proceeds from sale of euro 2,202 million.
(d) Adjustment to account for minority interest portion of differences B through K,U, which include 100% ~~of the effect~~ of differences between Italian GAAP and U.S. GAAP on less than wholly-owned subsidiaries.
(e) Total effect for the years before January 1, 2003 net of income taxes for euro 207 million.
~~(e)~~ (f) Amounts in euro.
Discontinued operations
2001 2002 2003
Analysis of net income between:
continuing operations 6,288 5,308 6,322
discontinued operations 29 -16 -26
Net income (US GAAP) 6,317 5,292 6,296
In 2003, Eni decided to sell its exploration operations in Mauritania, its exploration and production interests in Gabon, and certain of its exploration and production fields in the North Sea and onshore fields in Italy, all of which were businesses within its Exploration & Production segment. These divestiture decisions were made as part of Eni’s strategic plan to rationalize non-core oil and gas properties, and the sales of these businesses were completed during 2004.
Also in 2003, Eni finalized its negotiations for the sale of its elastomers manufacturing business in Baytown, Texas, which was a business within its Petrochemicals segment. This divestiture decisions was made as part of Eni’s strategic plan to evaluate offers for certain of its elastomers operations, and the sale of this business was completed in January 2004.
Earnings or losses of these businesses, as well as any impairment determined as a result of the expected sales proceeds, are reported as discontinued operations for all years presented in Eni’s reconciliation of net income determined under Italian GAAP to U.S. GAAP.
Reconciliation of shareholders’ equity

Dec. 31, 2001 Dec. 31, 2002

Shareholders’ equity according to the financial statements prepared under Italian GAAP
27,483 26,257
Items increasing (decreasing) reported shareholders’ equity:
A. Effect of the differences related to companies consolidated under Italian GAAP but carried at equity method under U.S. GAAP (a) 55 131
A. Effect of the differences related to companies corried at equity method 106
B. Successful-efforts accounting 2,621 2,543
C. Assets impairments and revalutations (79 ) 28
D. Elimination of monetary revaluations (137 ) (115 )
E. Deferred taxes (3,420 ) (3,347 )
F. Use of different depreciation rates 2,477 2,409
G. Goodwill 29
H. Capitalized interest expense 686 648
I. Derivatives contracts 52 106
K. Financing costs (28 ) (20 )
L. Fair value of marketable securities 27 19
— other changes 60
— effect of U.S. GAAP adjustments on minority interest (b) (1,297 ) (1,118 )

Net adjustments
957 1,479

Shareholders’ equity in accordance with U.S. GAAP
28,440 27,736
(million euro) Dec. 31, 2002 Dec. 31, 2003
Shareholders’ equity according to the financial statements prepared under Italian GAAP 26,257 26,696
Items increasing (decreasing) reported shareholders’ equity:^(a)
A. effect of the differences between Italian GAAP and U.S. GAAP related to companies carried at equity method under U.S. GAAP^(b) 131 52
A. effect of the differences related to companies carried at equity method 106 213
B. successful-efforts accounting 2,543 2,253
C. assets impairments and revaluations (44) 35
D. elimination of monetary revaluation (43) (80)
E. deferred income taxes (3,347) (3,207)
F. use of different depreciation rates 2,409 2,551
G. goodwill 29 121
G. assets associated to the acquisition of a company (portfolio of clients)    (6)
H. capitalized interest expense 648 667
I. derivative contracts 106 61
K. stock issuance costs (20) (17)
L. fair value of marketable securities 19 17
M. site restoration and abandonment liabilities (SFAS 143)    441
U. reserves for contingencies 60 116
  - effect of U.S. GAAP adjustments on minority interest^(c) (1,118) (965)
Net adjustment 1,479 2,252
Shareholders’ equity in accordance with U.S. GAAP 27,736 28,948

(a) Items increasing (decreasing) reported shareholders’ equity of foreign companies are translated into euro at exchange rate prevailing the end of each period.
(b) Adjustment includes the aggregate effect of all differences between Italian GAAP and U.S. GAAP related to companies fully consolidated under Italian GAAP but accounted for under the equity method under U.S. GAAP; specifically this refers to Saipem ~~Società Italiana per il Gas pA.~~SpA and its subsidiaries for the year 2003 and to Italgas SpA and Saipem SpA and their subsidiaries companies for the years 2002 and 2001.
~~(b)~~ (c) Adjustment to account for minority interest portion of differences B through L,U, which include 100% ~~of effect~~ of differences between Italian GAAP and U.S. GAAP on less than wholly-owned subsidiaries.
Shareholders’ equity under U.S. GAAP includes other comprehensive income, ~~of euro 1,389 million, in positive, and,~~ in negative, of euro 744 million and euro 2,748 million as of December 31, ~~2001~~2002 and ~~2002,~~2003, respectively. Such other comprehensive income primarily relates to exchange rate differences resulting from the translation of financial statements of foreign companies (cumulative translation adjustment) and to the fair value of marketable securities gross of deferred income taxes. The decrease of the other comprehensive income of euro ~~2,133~~2,004 million regards essentially exchange rate differences due to the translation of financial statements prepared in ~~foreign currencies~~currency other than the euro (euro ~~2,125~~2,033 million; of which euro ~~1,700~~1,450 million related to companies whose functional currency is the ~~U.S. dollar.~~US dollar).
~~Comprehensive income~~Assets & Liabilities
(million euro) Dec. 31, 2002 Dec. 31, 2003
ASSETS
Current assets
Cash and cash equivalent 2,892 1,224
Marketable securities 1,390 1,462
Receivables, net 12,655 14,193
Inventories, net 2,376 2,266
Accrued interest and other 251 601
Total current assets 19,564 19,746
Non-current assets
Fixed assets, net of accumulated depreciation, amortization and writedowns 32,935 38,468
Non-current inventories (compulsory stock) 634 721
Receivables, net 2,863 1,602
Investments 3,900 4,010
Intangible assets 4,787 5,547
Other 1,439 1,901
Total non-current assets 46,558 52,249
TOTAL ASSETS 66,122 71,995
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term debt 8,216 7,470
Current portion of long-term debt 935 672
Trade accounts payable 4,720 5,146
Advances 947 798
Taxes payable 1,272 2,661
Accrued expenses and other 3,069 3,971
Total current liabilities 19,159 20,718
Non-current liabilities
Long-term debt 6,169 8,002
Reserve for employee termination indemnities 395 524
Reserves for contingencies 5,268 5,444
Deferred and other non-current income tax liabilities 5,441 5,943
Accrued expenses and other 521 594
Total non-current liabilities 17,794 20,507
TOTAL LIABILITIES 36,953 41,225
Minority interests 1,433 1,822
Shareholders’ equity
Capital stock 4,002,922,176 fully paid shares nominal value 1 euro each (4,001,814,026 fully paid shares at December 31, 2002) 4,002 4,003
Reserves 21,280 21,813
Treasury shares (2,838) (3,164)
Net income for the year 5,292 6,296
Total shareholders’ equity 27,736 28,948
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 66,122 71,995
     U.S. GAAP requires the reporting and display of comprehensive income and its components in accordance with Statement of Financial Standard No. 130, «Reporting Comprehensive Income» («SFAS 130»). Components of other comprehensive income include variations in equity accounts not attributable to transactions already recorded in income or transactions with shareholders. Deferred tax effects of exchange differences from the translation of functional currency financial statements have not been recorded as provided for by SFAS 109, which permits the exclusion of the calculation of taxes on equity reserves of foreign subsidiaries when the reserves are not expected to be released.

2000 2001 2002

(million E)
Net income in accordance with U.S. GAAP 5,758 6,317 5,292
Other comprehensive income for the period gross of income taxes:
— fair value of marketable securities 27 19
— exchange differences from translation of financial statements denominated in currency other than euro 331 439 (2,001 )
— exchange differences from translation in the period (94 ) 12 (124 )
237 478 (2,106 )
Net comprehensive income for the period according to U.S. GAAP 5,995 6,795 3,186
     ~~The consolidated balance sheets, if determined under U.S. GAAP would have been as follows:~~

Dec. 31, 2001 Dec. 31, 2002

ASSETS

Current assets:
Cash 1,120 2,892
Marketable securities 1,526 1,390
Accounts receivable trade, financing and other 12,836 12,655
Inventories 2,092 2,376
Accrued interest and other 333 251
Total current assets 17,907 19,564
Non-current assets:
Fixed assets, net 32,683 32,935
Non-current inventories (Compulsory stock) 587 634
Receivables 3,304 2,863
Investments 3,767 3,900
Intangible assets 5,459 4,787
Other 1,269 1,439
Total non-current assets 47,069 46,558
Total assets 64,976 66,122
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Short-term debt 5,259 8,216
Current portion of long-term debt 1,172 935
Trade accounts payable 4,391 4,720
Advances 814 947
Taxes payable 1,962 1,272
Accrued expenses and other 3,150 3,069
Total current liabilities 16,748 19,159
Non-current liabilities:
Long-term debt 5,948 6,169
Reserve for employee termination indemnities 365 395
Reserves for contingencies 5,196 5,268
Deferred and other non-current income tax liabilities 6,400 5,441
Accrued expenses and other 388 521
Total non-current liabilities 18,297 17,794
Total liabilities 35,045 36,953
Minority interests 1,491 1,433
Shareholders’ equity:
Capital stock 4,001,814,026 fully paid shares nominal value 1 euro each (4,001,259,476 fully paid shares at December 31, 2001) 4,001 4,002
Reserves 20,190 21,280
Treasury shares (2,068 ) (2,838 )
Net income for the year 6,317 5,292
Total shareholders’ equity 28,440 27,736
Total liabilities and shareholders’ equity 64,976 66,122
The fixed assets as determined under U.S. GAAP would have been as follows:

Dec. 31, 2001 Dec. 31, 2002

Fixed asset, gross:
— Exploration & Production 37,793 37,393
— Gas & Power 10,715 11,825
— Refining & Marketing 8,326 7,779
— Petrochemicals 3,606 5,237
— Oilfield Services and Engineering 80 100
— Other activities 229 323
60,749 62,657
Less accumulated depreciation, amortization and writedowns:
— Exploration & Production 16,750 17,044
— Gas & Power 3,643 4,184
— Refining & Marketing 4,970 4,654
— Petrochemicals 2,519 3,587
— Oilfield Services and Engineering 54 61
— Other activities 130 192
28,066 29,722
Fixed assets, net:
— Exploration & Production 21,043 20,349
— Gas & Power 7,072 7,641
— Refining & Marketing 3,356 3,125
— Petrochemicals 1,087 1,650
— Oilfield Services and Engineering 26 39
— Other activities 99 131
32,683 32,935
fixed assets
(million euro) Dec. 31, 2002 Dec. 31, 2003
Fixed asset, gross:
- Exploration & Production 37,393 38,851
- Gas & Power 11,825 18,974
- Refining & Marketing 7,779 8,479
- Petrochemicals 3,726 3,780
- Oilfield Services Construction and Engineering 100 108
- Other activities 1,706 1,567
- Corporate and financial companies 128 146
62,657 71,905
Less accumulated depreciation, amortization and writedowns:
- Exploration & Production 17,044 17,678
- Gas & Power 4,184 6,605
- Refining & Marketing 4,654 5,270
- Petrochemicals 2,445 2,522
- Oilfield Services Construction and Engineering 61 64
- Other activities 1,285 1,242
- Corporate and financial companies 49 56
29,722 33,437
Fixed assets, net:
- Exploration & Production 20,349 21,173
- Gas & Power 7,641 12,369
- Refining & Marketing 3,125 3,209
- Petrochemicals 1,281 1,258
- Oilfield Services Construction and Engineering 39 44
- Other activities 421 325
- Corporate and financial companies 79 90
32,935 38,468
Fixed assets by segment relating to 2002 were reclassified on the basis of the new division of activities. In particular, “Other activities” included the information of Syndial SpA and its subsidiaries, previously included in the “Petrochemicals” segment. The information relating to the new segment “Corporate and financial companies” was re-classified from “Other activities”.
With regard to the statements of income, operating income (loss) by industry segment and income before income taxes, as determined under U.S. GAAP, would have been as follows:

2000 2001 2002

(million E)
Operating income (loss) by industry segment:
Exploration & Production 6,728 6,208 5,494
Gas & Power 2,507 3,037 2,666
Refining & Marketing 860 872 303
Petrochemicals (92 ) (1,069 ) (344 )
Oilfield Services and Engineering (13 ) (10 ) (14 )
Other activities (171 ) (185 ) (244 )
9,819 8,853 7,861
Income before income taxes and extraordinary income (expense) 10,067 10,330 8,350
Operating income (loss) by industry segment
(million euro) 2001 2002 2003
Operating income (loss) by industry segment
Exploration & Production 6,208 5,494 5,661
Gas & Power 3,037 2,666 3,537
Refining & Marketing 872 303 617
Petrochemicals (1,069) (141) (97)
Oilfield Services Construction and Engineering (10) (14) 2
Other activities 17 (233) (190)
Corporate and financial companies (202) (214) (315)
8,853 7,861 9,215
Income before income taxes and the initial application of SFAS 143 10,330 8,350 9,274
Effect of the initial application of SFAS 143       405
Net income before income taxes       9,679
Certain gains and miscellaneous income, deriving primarily from rental income, gains on sales of fixed assets and royalties income have been classified within operating income beginning in the 2002 financial statements. Prior year amounts of euro ~~157 million and euro~~ 211 million for the ~~years~~year ended December 31,
~~2000 and~~ 2001, ~~respectively,~~ have been reclassified from the presentation made in the ~~prior~~2001 year accounts when such amounts were excluded from operating income.
Operating income (loss) by segment relating to the 2002 was reclassified on the basis of the new division of activities. In particular, “Other activities” included the information of Syndial SpA and its subsidiaries, previously included in the “Petrochemicals” segment. The information relating to the new segment “Corporate and financial companies” was re-classified from “Other activities”. For 2001, only the information relating to the new segment “Corporate and financial companies” was reclassified as Syndial SpA transferred its Strategic Chemicals business to Polimeri Europa SpA as of January 1, 2002.
~~29)~~29 Additional financial statement disclosures required by U.S. GAAP and the SEC
Stock compensation

With the aim of improving motivation and loyalty of ~~Eni~~its managers, Eni approved plans for the grant of Eni shares and stock options to Eni managers. ~~The relevant costs are recorded~~Until December 31, 2002, Eni adopted APB 25 and related interpretations in ~~income~~accounting for shares and options issued to employees in its reconciliation to U.S. ~~GAAP purposes.~~GAAP. The disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) and a description of Eni’s stock grant and stock option plans are included below. ~~As permitted under SFAS 123, Eni has adopted APB 25 and related interpretations~~The relevant costs are recorded in ~~accounting~~income for ~~shares and options issued~~U.S. GAAP purposes (Note 26). Costs of plans for 2003 have been determined according to ~~employees in its reconciliation~~Italian GAAP with criteria similar to ~~U.S. GAAP. The application~~those of SFAS ~~123 instead of APB 25 does not result in a significant difference.~~123.
Stock grant

With the aim of improving motivation and loyalty of Eni managers through the linking of compensation to the attainment of preset individual and corporate objectives, making management participate in corporate risk and motivating it towards the creation of shareholders’ value, increasing at the same time their contribution to the management of the Company, starting in 2000 Eni created stock grant plans offering shares for no consideration to those managers of Eni SpA and its subsidiaries as defined in art. 2359 of the Civil Code ~~(1)~~² who have achieved corporate and individual objectives. Shares vest within ~~one month~~45 days after the end of the third year from the date of the offer or, if earlier, within ~~one month after~~45 days after: (i) the agreed termination of ~~employment or~~employment; (ii) loss of control by Eni of the company of which the assignee is employee; (iii) sale to a company not controlled by Eni of the company of which the assignee is employee; (iv) death of the assignee. Stock rights may not be transferred by the assignee to other persons or entities, and their assignment is firm and irrevocable while they automatically expire in case the assignee decides to terminate employment at Eni within three years from the date the share rights were granted.

In application of the 2000-2001 Incentive Plan, Eni’s Shareholders’ Meeting of June 6, 2000 delegated to the Board of Directors, in accordance with art. 2443 of the Civil Code, the power to increase capital stock up to a maximum of euro 3.5 million (or about 0.0875% of current capital stock) by issuing 3.5 million shares, nominal value euro 1 per share for no consideration before July 31, 2001 by withdrawing from the ~~«Reserve~~“Reserve for the issue of shares in accordance with art. 2349 of the Civil ~~Code»~~Code”. On June 21, 2000 and June 7, 2001 the Board of Directors resolved to increase Eni’s share capital by issuing up to a maximum of 2 and 1.5 million ordinary shares respectively, to be offered for no consideration to those managers that achieved preset individual and corporate targets in 1999 and 2000.

In application of the 2002 Incentive Plan, Eni’s Shareholders’ Meeting of May 30, 2002 delegated to the Board of Directors, in accordance with art. 2443 of the Civil Code, the power to increase the capital stock up to a maximum of euro 1.5 million for no consideration (or about ~~0.0375%~~0.037% of current capital stock) before December 31, 2002 by issuing up to 1.5 million ordinary shares nominal value euro 1 per share, by withdrawing from the ~~«Reserve~~“Reserve for the issue of shares in accordance with art. 2349 of the Civil ~~Code»~~Code”. On July 2, 2002 the Board of Directors resolved to increase Eni’s share capital by issuing up to a maximum of 1.5 million ordinary shares to be offered for no consideration to those managers that achieved preset individual and corporate targets in 2001.

Eni’s Shareholders’ Meeting of May 30, 2003 authorized the Board of Directors to dispose of a maximum of 6.5 million treasury shares (corresponding to about 0.162% of Eni’s share capital) to assign for no consideration in the 2003-2005 three year period to managers of the Group who have achieved corporate preset targets and conferred to the Board of Directors the power to prepare the annual assignment plans. On June 19, 2003 the Board of Directors approved the Stock Grant Plan for 2003 that entails the assignment for no consideration of up to 1.5 million treasury shares (corresponding to about 0.037% of Eni’s share capital) to assignment those managers of the Group who have achieved in 2002 the individual preset targets.
Eni granted 4,317,500 shares of stock (equal to ~~0.1079%~~0.108% of current capital stock) subdivided as follows: (i) in 2000 a total of 1,428,550 shares (fair value of euro 10.38); (ii) in 2001 a total of 1,851,750 shares (fair value of euro 13.71); (iii) in 2002 a total of 1,037,200 shares (fair value of euro 15.96); (iv) in 2003 a total of 1,206,000 shares (fair value 11.20).
² Does not include listed subsidiaries, which have their own stock grant plans.
Stock Option Plans
2000-2001

The 2000-2001 Stock Option Plan provided for the exercise of options for the underwriting of Eni shares to be issued by means of the capital stock increase approved by Eni’s Shareholders’ Meeting of August 2, 2000, provided that the arithmetic average of Eni share prices recorded in July 2002 is equal to or higher than euro 16.8. In light of Eni’s share price trend in July 2002, options offered for the subscription of 14,369,500
Eni shares to 180 Eni Group managers at the price of euro 12.992 (the arithmetic average of official prices recorded on the Mercato Telematico Azionario in the month preceding the date of the Board’s resolution of September 26, 2000 to increase capital) are no longer exercisable and consequently were cancelled.
2002

Eni’s Shareholders’ Meeting of May 30, 2002 delegated to the Board of Directors the power to increase the capital stock up to a maximum of 15 million shares (or about 0.375% of current capital stock) for Eni’s 2002-2004 Stock Option Plan to be sold at an exercise price corresponding to the arithmetic average of official prices recorded on the Mercato Telematico Azionario in the month preceding the date of their granting to those managers of Eni SpA and its subsidiaries, as defined in art. 2359 of the Civil Code, who are in the positions that most contribute to the Group’s performance and are of strategic interest for the Group (314 persons).

On July 2, 2002 the Board of Directors approved the Stock Option Plan for 2002 which provides for the grant of options for the purchase of a maximum of 5 million of Eni shares. Grantees are provided the option to purchase Eni shares at the above mentioned exercise price after three years from the option grant. In case of agreed termination of employment or retirement or death, the grantee maintains the right to exercise vested options within six months from termination of employment, whereas residual unvested options expire. The sole exception is Eni SpA’s Managing Director who maintains the right to exercise options assigned to him until July 31, 2010. In case of termination decided by the assignee or by the company within three years from grant, all options expire. Option rights not exercised before July 31, 2010 expire.

At December 31, 2002, a total of 3,518,500 options were granted for the purchase of 3,518,500 shares at the price of euro 15.216 per share.
2003
On June 19, 2003, exercising the power conferred upon it by the Shareholders’ Meeting of May 30, 2002, the Board of Directors approved: (i) the Stock Option Plan for 2003 which provides for the granting of a maximum of 6 million options for the purchase of treasury shares (corresponding to 0.1499% of Eni’s share capital) in a 1 to 1 ratio; (ii) the criteria for the selection of managers that are to participate in the Plan; (iii) regulations for the Plan, and delegated to the Managing Director the selection of the grantees on the basis of such criteria, before December 31, 2003. Options provide to grantees the right to purchase Eni shares after three years from granting 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 option granting and the average prices of treasury shares in portfolio the day before the option granting. In case of: (i) the agreed termination of employment; (ii) the loss of control on the part of Eni of the company where the grantee is employed; (iii) the sale of the company or business unit where the grantee is employed to a company not controlled by Eni; (iv) the death of grantee, the grantee, or his successors, maintain the right to exercise vested options within six months from the event.
The weighted-average remaining contractual life of options outstanding at December 31, 2002 and 2003 is ~~7.5 years.~~6.6 and 7.6 years, respectively. All stock options granted ~~in 2002~~ are considered fixed.
The following is a summary of stock option activity for years ~~2000,~~ 2001, 2002 and ~~2002:~~

2000 2001 2002

Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price (E) Shares Price (E) Shares Price (E)

Options as of January 1 — — 14,369,500 12.992 12,032,000 12.992
New options granted 14,369,500 (1) 12.992 — — 3,518,500 (2) 15.216
Options exercised in the period — — — — — —
Options cancelled in the period — — �� (2,337,500 ) — (12,032,000 ) 12.992
Options outstanding as of December 31 14,369,500 12.992 12,032,000 12.992 3,518,500 15.216
Of which exercisable at December 31 — — — — 42,000 —
2003
2001 2002 2003

Number Weighted Number Weighted Number Weighted
of shares average of shares average of shares average
exercise    exercise    exercise
(euro) price^(a)    price^(a)    price^(a)
Options as of January 1 14,369,500 12.992 12,032,000 12.992 3,518,500 15.216
New options granted - - 3,518,500 15.216 4,703,000 13.743
Options exercised in the period - - - - - -
Options cancelled in the period (2,337,500) - (12,032,000) 12.992 (59,500) 15.216
Options outstanding as of December 31 12,032,000 12.992 3,518,500 15.216 8,162,000 14.367
of which exercisable at December 31 - - 42,000 15.216 73,000 14.802

~~(1)~~ ~~Above quoted market price.~~
~~(2)~~ (a) Below quoted market price.
The fair value of stock options granted during the years ended December 31, 2000, 2002 and ~~2002~~2003 of euro 1.54, 5.39 and ~~5.39~~1.50 respectively, were calculated applying the Black-Scholes method and using the following assumptions:

2000 2002

Risk-free interest rate 5 % 3.5 %
Expected life 4.85 years 8 years
Expected volatility 28 % 43 %
Expected dividends 3 % 4.5 %
2000 2002 2003
Risk-free interest rate (%) 5 3.5 3.16
Expected life (year) 4.85 8 8
Expected volatility (%) 28 43 22
Expected dividends (%) 3 4.5 5.35
The following is a summary of the effect of stock compensation, as required under ~~FAS~~SFAS 123:

For the year ended
December 31,
(million E except per share data)
2000 2001 2002

Net income as reported 5,758 6,317 5,292
Pro Forma fair value expense, net of APB 25 expense of euro (1), (7) million and 0 in 2000, 2001 and 2002, respectively 0 (3 ) (3 )
Pro Forma net income 5,758 6,314 5,289
Pro Forma Earnings per Share 1.44 1.61 1.38
(million euro except per share data) Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2003
Net income as reported 6,317 5,292 6,296
Pro-forma fair value expense, net of APB 25 expense of euro (7), 0 and 0 million in 2001, 2002 and 2003, respectively (3) (3) (6)
Pro-forma net income 6,314 5,289 6,290
Pro-forma earnings per share 1.61 1.38 1.66
Comprehensive income
U.S. GAAP requires the reporting and display of comprehensive income and its components in accordance with Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”). Components of other comprehensive income include variations in equity accounts not attributable to transactions already recorded in income or transactions with shareholders. Deferred tax effects of exchange differences from the translation of functional currency financial statements have not been recorded as provided for by SFAS 109, which permits the exclusion of the calculation of taxes on equity reserves of foreign subsidiaries when the reserves are not expected to be released.
(million euro) 2001 2002 2003
Net income in accordance with U.S. GAAP 6,317 5,292 6,296
Other comprehensive income (loss) for the period gross of income taxes
Fair value of marketable securities 27 19 (2)
Exchange differences from translation of financial statements denominated in currency other than euro 439 (2,001) (2,136)
Exchange differences from translation in the period and other changes 12 (124) 213
478 (2,106) (1,925)
Net comprehensive income for the period according to U.S. GAAP 6,795 3,186 4,371
Income taxes

The following information is presented according to Statement of Financial Accounting Standards No. 109 ~~«Accounting~~“Accounting for Income ~~Taxes»~~Taxes”.

Domestic and foreign components of pre-tax income are as follows:

2000 2001 2002

(million E)
Domestic 5,591 6,614 4,592
Foreign 4,476 3,716 3,758
10,067 10,330 8,350
(million euro) 2001 2002 2003
Domestic 6,614 4,592 5,307
Foreign 3,716 3,758 4,372
10,330 8,350 9,679
The provisions for income taxes are as follows:

2000 2001 2002

(million E)
Current 5,367 3,128 3,461
Deferred (1,054 ) 742 (602 )
4,313 3,870 2,859
(million euro) 2001 2002 2003
Current 3,128 3,461 4,009
Deferred 742 (602) (914)
3,870 2,859 3,095
The reconciliation of the income tax provision calculated under Italian tax regulation by applying a ~~36%~~34% rate (Irpeg) to pre-tax income and 4.25% (Irap) 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:

2000 2001 2002

(million E)
Income before income tax in accordance with U.S. GAAP 10,067 10,330 8,350
Italian statutory tax rate (state and local) 42.3 % 41.1% 41.4 %
Expected income tax provision in accordance with U.S. GAAP at Italian statutory tax rate 4,261 4,242 3,453
Effect of items increasing (decreasing) the Italian statutory tax rate:
— taxation of foreign operations at rates different from Italian statutory tax rate 378 609 194
— permanent differences 52 (394 ) 64
— devaluation/revaluation of deferred tax assets 29 15 (1 )
— taxes on distributable reserves (51 ) 169 (75 )
— effects of tax credits (52 ) (240 ) (420 )
— other 31 (156 ) (356 )
— net tax effects due to the applications of Law 342/2000 (335 ) (375 )
52 (372 ) (594 )
Income taxes in accordance with U.S. GAAP 4,313 3,870 2,859
     ~~Other changes of euro 356 million relate for euro 190 million to the effect~~reconciliation of the ~~adjustment to the newly enacted~~income tax ~~rate of 34%, instead of 36%.~~
(million euro) 2001 2002 2003
Income before income tax in accordance with U.S. GAAP 10,330 8,350 9,679
Italian statutory tax rate (state and local) (%) 41.1 41.4 39.5
Expected income tax provision in accordance with U.S. GAAP at Italian statutory tax rate 4,242 3,453 3,820
Effect of items increasing (decreasing) the Italian statutory tax rate:
- taxation of foreign operations at rates different from Italian statutory tax rate 609 194 318
- taxes on distributable reserves 169 (75) 121
- devaluation/revaluation of deferred tax assets 15 (1) (13)
- permanent differences (394) 64 (75)
- effects of tax credits (240) (420) (128)
- net tax effects due to the revaluation of assets (Financial Law 2004)       (417)
- net tax effects due to the applications of Law 448/2001       (497)
- net tax effects due to the applications of Law 342/2000 (375)
- other (156) (356) (34)
(372) (594) (725)
Income taxes in accordance with U.S. GAAP 3,870 2,859 3,095
Permanent differences ~~represent~~related to 2001represent mainly the gain recorded in the consolidated financial statements due to the public offering of 40.24% of the share capital of Snam Rete Gas SpA (euro 348 million).
Net deferred tax liabilities
Net deferred tax liabilities under U.S. GAAP, represented by net deferred taxes recorded under ~~«Reserve~~“Reserve for ~~taxes»~~taxes” (euro ~~5,248~~5,782 million), less deferred tax assets recorded under ~~«Other assets»~~“Other assets” (euro ~~1,188~~1,785 million) amounted to euro ~~4,060~~3,997 million (euro ~~4,889~~4,060 million as of December 31, ~~2001)~~2002).

The tax effects of significant temporary differences ~~which give rise to~~causing the ~~deferred~~ tax liabilities are as follows:

Dec. 31, 2001 Dec. 31, 2002

Deferred tax liabilities:
— accelerated depreciation 3,380 3,710
— distributable reserves subject to taxes in case of distribution 2,554 2,236
— excess cost paid for the acquisition of consolidated investments 1,381 847
— successful-efforts accounting 737 626
— capitalization of interest expense 322 248
— reserves for uncollectible receivables 127 134
— gains taxable in the future 69 82
— other 441 607
9,011 8,490
Deferred tax assets:
— revaluation of assets in accordance with Law 342/2000 (2,332 ) (1,840 )
— accruals for doubtful accounts and reserves for contingencies (1,873 ) (1,837 )
— tax loss carryforwards (1,116 ) (1,502 )
Net deferred tax liabilities
(million euro) Dec. 31, 2002 Dec. 31, 2003
Deferred taxes liabilities:
- accelerated depreciations 3,710 4,021
- distributable reserves subject to taxes in case of distribution 2,236 2,437
- excess cost paid for the acquisition of consolidated investments 847 1,245
- successful-efforts accounting 626 451
- capitalization of interest expense 248 250
- reserves for uncollectible receivables 134 150
- release of excess contingency reserves 104 89
- gains taxable in the future 82 62
- other 503 292
8,490 8,997
Deferred tax assets:
- accruals for doubtful accounts and contingencies (1,837) (1,858)
- revaluation of assets in accordance with Law 342/2000 (1,840) (1,474)
- tax loss carryforwards (1,502) (1,350)
- investments revaluation in accordance with Law 292/1993 and the allocation
of the merger difference arising from the merger of Agip SpA into Eni SpA (843) (818)
- losses of investments and subsidiaries in excess of currently allowable tax deductions (559) (644)
- revaluation of fixed assets with Law 448/2001 (628)
- writeoffs of assets deductable in the future (337) (326)
- future deductable amortization (383) (272)
- other (452) (773)
(7,753) (8,143)
Less:
- valuation allowance 3,323 3,143
(4,430) (5,000)
Net deferred tax liabilities 4,060 3,997

Dec. 31, 2001 Dec. 31, 2002

— revaluation of investments in accordance with Law 292/93 and the allocation of the merger difference arising from the merger of Agip SpA into Eni SpA (892 ) (843 )
— losses of investments and subsidiaries in excess of currently allowable tax deductions (220 ) (559 )
— future deductible amortization (353 ) (383 )
— writeoffs of assets deductible in the future (258 ) (337 )
— revaluation of fixed assets (31 ) (14 )
— other (306 ) (438 )
(7,381 ) (7,753 )
Less:
— valuation allowance 3,259 3,323
(4,122 ) (4,430 )
Net deferred tax liabilities 4,889 4,060
The valuation allowance relates to deferred tax assets of euro 3,143 million (euro ~~3,259 and~~ 3,323 million ~~for the years ending~~at December 31, ~~2001 and 2002 respectively)~~2002) 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 Italian GAAP and U.S. GAAP relates to the companies which are consolidated under Italian GAAP, but excluded from consolidation according to U.S. GAAP.
Acquisition of ~~Lasmo Plc~~Italgas SpA
     ~~On February 2, 2001,~~
Eni’s acquisition of an additional interest in Italgas during 2003 was a significant element in Eni’s strategy of expanding in the gas segment. Such strategy is based on management’s expectation for the natural gas segment in Italy and Europe. In addition, is is correlated with the Italian regulation following Legislative Decree No. 164/2000 (see “Concentrations and certain significant estimates - Gas & Power”). Eni’s strategy in the natural gas segment expects: (i) an increasing focalization on production, supply and commercialisation activities with a progressive reduction in the regulated activities; (ii) the valorization of Italian sales by the optimization of the portfolio of clients relating to the maximum dimensional level of the Legislative Decree No. 164/2000; (iii) the development in the European markets with an interesting prospective for the possibility of increase and profit (Iberian Peninsula, Turkey and Germany) by taking advantage of the integrated knowledge owned by Eni in the natural gas activities.
In January 2003, Eni completed the acquisition of an additional 56.04% of Italgas SpA (Italgas) for cash consideration of euro 2,569 million. At December 31, 2002, Eni owned 43.96% of Italgas, which was consolidated on a line-by-line basis under Italian GAAP, while it was accounted for under the ~~outstanding shares~~equity method under U.S. GAAP. Italgas was fully consolidated for U.S. GAAP purposes in 2003 as a result of ~~Lasmo Plc for approximately euro 4,381 million in cash plus euro 972 million in assumed liabilities. Prior to~~Eni’s acquisition of the additional interest.
Under U.S. GAAP the acquisition ~~Lasmo Plc was a UK based independent exploration and production company~~of Italgas has been accounted for in accordance with primary operations in the North Sea, Indonesia, Venezuela, Pakistan, Libya and Algeria. Lasmo was acquired to further strengthen the company’s position in two of its core geographic areas — North Africa and the North Sea — and also to gain entry into the Asian gas market, as well as to establish an operating presence in Venezuela.
SFAS 141. The ~~following table shows the calculation and allocation~~cost of the ~~purchase price of~~acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their ~~relative~~respective fair ~~values:~~values at the date of acquisition. Fair values were determined based on third party appraisals and management’s estimates.
U.S. GAAP goodwill in the amount of euro 941 million resulted from the purchase price allocation. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the Italgas SpA acquisition:
Acquisition of Italgas SpA
(million euro)
Cash paid for stock purchased ~~4,336~~ 2,569
~~Merger costs incurred~~ 45
~~4,381~~
~~Plus: fair value of net liabilities assumed:~~
~~Long-term debt~~ ~~972~~
~~Total purchase price for assets acquired~~ ~~5,353~~
Allocation of purchase price for assets ~~acquired:~~ acquired
~~— fixed and intangible~~Fixed assets ~~6,068~~ 2,163
Goodwill ~~— goodwill~~ ~~858~~
941
Investments ~~— deferred~~293
Portfolio of clients 112
Deferred tax ~~(1,448~~ )(562)
~~— other~~Other assets and liabilities ~~(125~~ )(378)
Total allocation of purchase price ~~5,353~~ 2,569
     The euro 1,448 million of deferred taxes recorded represent the deferred tax effect of the differences between the fair values assigned by Eni for financial reporting purposes to the assets and liabilities acquired and their tax bases. Goodwill as calculated under U.S. GAAPInvestments
At December 31, 2003, investments of euro ~~858~~4,015 million include Saipem SpA, which is ~~greater than goodwill as calculated under~~publicly listed on the Italian GAAP by euro 557 million, due primarily to provisions for restructuring costs, which are expensed as incurred under Italian GAAP, and undiscounted deferred taxes, which are discounted under Italian GAAP. The difference in amortization expense resulting from difference in goodwill is included in the adjustment for «Successful efforts accounting» in the reconciliation in Note 30.
     ~~The effects~~Stock Exchange. At December 31, 2002, investments of ~~the Lasmo acquisition on Eni consolidated results of operations is not significant.~~
~~Investments~~
     ~~Investments of euro 3,767 million and~~ euro 3,900 million ~~as of December 31, 2001 and 2002, respectively,~~ include shares of ~~Società Italiana per il Gas pA~~Italgas SpA and Saipem SpA, which are publicly listed on the Italian Stock Exchange.
The following information includes their fair value:

Eni's number Eni's Share Market
of shares interest price value

(%) (E) (million E)
December 31, 2002

Società Italiana per il Gas pA 153,236,124 43.97 12.96 1,986
Saipem SpA 189,423,307 43.00 6.35 1,203
3,189
December 31, 2001

Società Italiana per il Gas pA 142,538,826 40.90 10.53 1,501
Saipem SpA 189,206,919 43.00 5.49 1,039
2,540
Eni’s number Equity ratio Share price Market value
of shares (%) (euro) (milion euro)
December 31, 2002
Italgas SpA 153,236,124 43.97 12.96 1,986
Saipem SpA 189,423,307 43.00 6.35 1,203
      3,189
December 31, 2003
Saipem SpA 189,423,307 43.00 6.459 1,223
In 2003, Saipem SpA is included in the consolidation under Italian GAAP, ~~financial statements, Società Italiana per il Gas pA~~while, under U.S. GAAP, it is valued under the equity method. In 2002 Italgas SpA and Saipem SpA ~~are consolidated~~were included in the consolidation under Italian GAAP, while, under U.S. GAAP, they ~~are considered~~were valued under the equity ~~investees as shown in the reconciliations presented in Note 28. Summarized financial information~~method.
Information about these investments, ~~as determined under U.S. GAAP and~~ representing a 100% share of the companies, is ~~shown below:~~

Dec. 31, 2001 Dec. 31, 2002

Total assets 8,723 10,234
Total liabilities 5,730 6,886

Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2002

Net sales from operations 4,417 5,533 6,385
Operating income 591 714 835
Net income 326 227 587
as follows:
(million euro) Dec. 31, 2002 Dec. 31, 2003
Total assets 10,234 5,098
Total liabilities 6,886 3,584

(million euro) 2001 2002 2003
Net sales from operations 5,533 6,385 4,217
Operating income 714 835 358
Net income 227 587 254
Concentrations and certain significant estimates

The following information is presented according to Statement of Position 94-6 ~~«Disclosures~~“Disclosures of Certain Significant Risks and ~~Uncertainties»~~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:through Eni SpA’s Agip~~Production Division and subsidiaries, Eni engages in hydrocarbon exploration and production in Italy, North Africa (Algeria, Egypt, Libya and Tunisia), West Africa (Angola, Congo ~~Gabon~~ and Nigeria), the North Sea (Norway and the United Kingdom), Latin America (Venezuela and Ecuador), the former Soviet Union countries, mainly Kazakhstan, the United States (mainly in the Gulf of Mexico) and Asia (mainly Iran, Indonesia ~~Pakistan~~ and ~~China)~~Pakistan). In ~~2002~~2003 approximately 70% of oil production sold was supplied to Eni’s Refining & Marketing segment and approximately 40% of natural gas production sold was supplied to Eni’s Gas & Power segment.

Eni owns a storage system made up ofby a number of depleted fields 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 ~~reserves~~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 created following the incorporation of Snam SpA into Eni SpA in 2002, and through certain subsidiaries. Approximately 80% of total purchases for primary distribution 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 3,700 thousand kilometers of international pipelines for which Eni owns the transmission rights. The remaining purchases for primary distribution in Italy are obtained principally from domestic gas from Eni’s Exploration & Production segment. Through an approximately 30,000-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 59,76%), 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. Through Italgas, the largest retail gas distribution company in Italy, Eni engages in local gas distribution — retail supply and urban civil and commercial distribution. Eni owns 100% of Italgas following the conclusion of the public tender offer of Italgas shares. Eni also participates in local distribution outside Italy, in Argentina through Distribuidora de Gas Guyana, in Hungary through Tigaz 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 significant impact on Eni’s activities, as the company is present in all phases of the natural gas chain. The most important aspects of the decree are the following:
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 80% of total purchases for primary distribution 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 3,700 kilometers international pipelines of which Eni owns the transmission rights. The remaining purchases for primary distribution in Italy are obtained principally from domestic gas of Eni’s Exploration & Production segment. Through an approximately 30,000-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 59.12%), 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. Through Italgas (Eni 100%), the largest retail gas distribution company in Italy, Eni engages in local gas distribution segment – retail supply and urban civil and commercial distribution. Eni also participates in local distribution outside Italy, in Argentina through Distribuidora de Gas Guyana, in Hungary through Tigaz and Tigaz 2 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:
— - total free market ~~opening~~ after 2003;
— - until December 31, 2010 the imposition of thresholds ~~for~~to operators in relation to ~~the~~a percentage share of domestic consumption set as follows: (i) 75%, by 2002, for imported or domestically produced natural gas volumes introduced in the domestic transmission network. This percentage decreases by 2 percentage points per year until it reaches 61% in 2009; (ii) 50% from January 1, 2003 for sales to final customers. These ceilings are calculated ~~on a three-year basis~~ net of losses and own consumption;
— - tariffs for ~~transportation,~~transport, dispatching, storage, use of LNG terminals and local network distribution are set by ~~the~~ Authority for Electricity and Gas;
— - third parties ~~are~~will be allowed to access ~~infrastructure according to set conditions.~~the regulated transmission system.
     In order to meet the medium and long-term demand of natural gas of the Italian market, Eni entered into long-term purchase contracts with producing countries that have a residual average term of approximately 17 years. Existing contracts, which contain take-or-pay clauses, will ensure a total of about 66 billion cubic meters of natural gas per year (Russia 28.5, Algeria 21.5, Netherlands 10 and Norway 6) by 2008. The above quantities are based on the annual contract quantity of the relevant contract. The average annual minimum quantity is approximately 85% of said quantities. In order to comply with the above mentioned mandated thresholds relating to volumes input to the national transportation network, Eni signed multi-annual contracts with third party importers to sell natural gas volumes exceeding said threshold limits outside the Italian territory; in prior years these volumes were imported into Italy and sold to Italian consumers by Eni. This change in the sales mix is structural and will adversely affect Eni’s results of operations. Further, management expects Eni’s margins on natural gas in Italy to come under pressure in future years due to the
entry into the market of new competitors including the above mentioned third parties which purchase natural gas from Eni outside the Italian territory and resell it to Italian customers. Finally due to the antitrust threshold on direct sales in Italy, management expects Eni’s natural gas sales in Italy to increase at a rate which is no higher than the growth rate of natural gas demand in Italy. Management believes all these developments might have a material adverse impact on Eni’s results of operations. However management believes that the planned increase of natural gas sales outside Italy and cost reduction measures will mitigate the above mentioned adverse impact.
Eni through EniPower SpA (Eni 100%) and subsidiaries is engaged in ~~the~~ generation and sale of electricity with a capacity of ~~1,000~~1,930 megawatts through ~~its~~the power plants in Livorno, Taranto, Mantova, Ravenna, Brindisi and ~~Brindisi~~Ferrera Erbognone and a generation of about ~~5 thousand gigawatts/hour~~5.55 terawatthours and approximately 30% of this is used for internal consumption. ~~Enipower~~EniPower manages the electrical development opportunities. The demand for gas and fuel oils of EniPower’s stations is met by Eni supplies.
~~Refining~~REFINING & ~~Marketing:~~MARKETING:Eni, through its Refining & Marketing Division, which was constituted by the incorporation of AgipPetroli SpA ~~into~~in Eni SpA in 2002 and certain subsidiaries, engages in petroleum refining and marketing activities primarily in Italy, in Europe and South America. Eni is the largest refiner of petroleum products in Italy in terms of overall refining capacity. Approximately ~~40%~~50% of crude oil sold is purchased from producing countries pursuant to purchase contracts (28%) and in international spot markets ~~(12%~~(20%), while the remainder is obtained from Eni’s Exploration & Production segment. Approximately ~~45%~~50% of the purchased crude oil is traded.
~~Petrochemicals:~~PETROCHEMICALS:through Polimeri Europa SpA and subsidiaries (Eni 100%), ~~which own Eni’s principal petrochemical businesses, and EniChem SpA, which owns the residual petrochemical businesses,~~ 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 ~~50%~~30% of the oil-based feedstock requirements used by petrochemical plants are supplied by Eni’s Refining & Marketing segment.
~~Oilfield Services and Engineering:~~OILFIELD SERVICES CONTRRUCTION 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 ~~for~~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, ~~2002~~2003 approximately ~~13%~~10% of the order backlog of Eni’s Oilfield Services, Construction and Engineering segment related to orders from Eni Group companies.
Certain significant estimates

The preparation of the financial statements in conformity with Italian GAAP, along with the reconciliation to U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
~~Recent~~Changes in accounting ~~pronouncements~~
     ~~In June 2001 and in April and June 2002,~~principles
As of January 1, 2003, Eni SpA adopted the ~~Financial Accounting Standards Board («FASB») issued~~ Statement of Financial Accounting Standards No. 143 ~~«Accounting for Assets Retirement Obligations» («SFAS 143»)~~(SFAS 143), No. 145 «Rescission of FASB Statement No. 4, 44 and 64, amendment of FASB Statement No. 13 and technical corrections» («SFAS 145») and No. 146 «Accounting for cost associated with exit and disposal activities» («SFAS 146»).
     ~~SFAS 143 «Accounting~~“Accounting for Asset Retirement ~~Obligation» provides~~Obligations,” which applies to legal obligations associated with the ~~evaluation~~retirement and ~~recording criteria~~removal of long-lived assets. SFAS 143 requires entities to record the fair value of a liability for ~~liabilities arising from the disposal of tangible long-lived assets and associated~~an asset retirement ~~obligation be recognized~~obligations (ARO) in the period ~~in which~~when it is incurred ~~if estimable, concurrent with an increase in~~(typically at the time the asset is installed at the productions location). When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related ~~asset’s carrying value. The increase~~properties, plants and equipment. Over time, the liabilities are increased for the change in ~~the related asset’s carrying~~their present value ~~is amortised to income over its useful life. Upon initial adoption, a liability is recognized for existing asset retirement obligations~~each period, and the ~~associated asset retirement cost is~~initial capitalized ~~as an increase to~~costs will be depreciated over the ~~carrying value~~useful lives of the related assets. The recognized liability amounts are based upon future retirement cost estimates and ~~asset are~~incorporate many assumptions such as expected recoverable quantities of crude oil and natural gas, time to abandonment, future inflation rates and the risk-free rate of interest adjusted for ~~cumulative accretion~~the Company’s credit costs.
No significant legal obligations to retire refining, transportation, marketing (downstream) and ~~accumulated depreciation, respectively, from the time period when~~chemical long-lived assets generally were recognized, as indeterminate settlement dates for the asset retirements prevented estimation of the fair value of the associated ARO. The company performs periodic reviews of its downstream and chemical long-lived assets for any changes in facts and circumstances that might require recognition of a retirement ~~obligation would have originally been recognized had this statement been in effect to the date of adoption. Eni will adopt the standard beginning January, 2003.~~
     SFAS 145 supersedes SFAS 4 «Reporting gains and losses from extinguishment of debt», SFAS 44 «Accounting for intangible assets of motor carriers» and SFAS 64 «Extinguishment of debt made to satisfy sinking-fund requirements». This statement establishes that gains and losses due to the extinguishment of debts can be recorded under extraordinary items only in case they are neither non-usual nor non-recurring items. In addition the statement modifies the provisionobligation.
The primary impact of SFAS ~~13 «Accounting~~143 is to change the method of accruing for ~~leases», establishing that conversion of finance leases made after May 15, 2002, are recorded under~~upstream site restoration costs. Upstream costs were previously accrued ratably over the ~~provisions for leaseback; such change has no effect. The remaining provisions~~productive lives of the ~~statement are effective for all the fiscal quarters starting after May 15, 2002. Eni shall apply them beginning in 2003.~~
     SFAS 146 supersedes Emerging Issues Task Force («EITF») Issue No. 94-3 «Liability recognition for certain employee termination benefits and other cost to exit an activity (including certain costs incurred in a restructuring)» and provides the criteria for recognition and measurement of costs associated with exit or disposal activities, including restructuring, establishing that liabilities can be recorded only in the case of the existence of a present obligation for the company. At the beginning liabilities are recorded at their fair value. In following periods such value can be modified to take into consideration new estimates and changes related to time. This statement is effective for years starting after December 31, 2002. Eni shall apply it beginning in 2003.
     In November 2002, the FASB issued Interpretation No. 45 «Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others» («FIN 45»), which provides the recording criteria for guarantees issued or modified after December 31, 2002. Eni has adopted the disclosure provisions of this standard in its Financial Statements as of December 31, 2002.
     In January 2003, the FASB issued Interpretation No. 46 «Consolidation of Variable Interest Entities» («FIN 46»), which modifies Accounting Research Bulletin No. 51 «Consolidated Financial Statements» and provides standards for determining under what circumstances a variable interest entity should be consolidated. Variable interest entities are companies in which another has an ownership, a contractual or financial relation that changes with changes in the equity’s net asset value. The requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2002; the requirements apply to older entities that satisfies the provisions of FIN 46, in the first fiscal year or interim period beginning after June 15, 2003. Eni shall apply it beginning in 2004.
     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective prospectively for contracts entered into or modified after June 30, 2003 and prospectively for hedging relationships designated after June 30, 2003. Eni shall apply this SFAS starting in fiscal year 2003.
     In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity. The statement improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that these instruments be classified as liabilities in statements of financial position. This Statement is effective prospectively for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement shall be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. Eni shall apply this SFAS starting in fiscal year 2003.
     ~~Eni is presently evaluating these statements and cannot predict whether their application will have a material impact on Eni’s financial position or operating result.~~
~~International Accounting Standards~~
     In June 2002, the Council of Ministers of the European Union adopted a Regulation which will require the Group to prepare its primary consolidated financial statements in accordance with International Accounting Standards (IAS) beginning January 1, 2005, with restatement of prior periods presented. IAS differ in several respects from Italian and U.S. GAAP. In addition, significant revisions to IAS are currently being contemplated and other revisions may be adopted prior to January 1, 2005. The Group has not determined the effects of adopting IAS.
~~Subsequent events (unaudited)~~
     ~~The main subsequent events occurred are as follows:~~
• on January 27, 2003 the public tender offer on shares of Societa Italiana per il Gas pA («Italgas») successfully closed. The tender offer, which was launched on November 25, 2002, concerned all Italgas SpA ordinary shares outstanding not owned directly or indirectly by Eni, corresponding to approximately 56% of share capital. Eni offered a price of euro 13 per share, to be fully paid in cash. from. Following the squeeze-out of the remaining minority shareholders, Eni now owns 100% of share capital of Italgas. Total consideration amounted to approximately euro 2.5 billion;
• on March 4, 2003 Eni completed the purchase of the Norwegian oil company Fortum Petroleum AS, which in 2002 produced 39,000 boepd and held proved reserves of hydrocarbon of 159 million boe as of December 31, 2002. Total financial requirements for this purchase amounted to dollar 975 million (of which a cash consideration of dollar 256 million and net borrowings acquired of dollar 719 million);
• on March 6, 2003 Eni and EniChem SpA (now Syndial SpA) accepted the settlement proposal presented by Edison SpA for the closing of an arbitration proceeding initiated by Eni and EniChem SpA in 1992 in relation to guarantees given by Montedison SpA and its subsidiaries in connection with the establishment of a joint venture in the petrochemicals sector between Eni and Montedison. Edison SpA recognized euro 200 million to Enichem to be paid in four instalments of euro 50 million each.
• on April 16, 2003 Eni launched a fixed rate bond issue for a notional amount of euro 1.5 billion. The transaction was placed in the international Eurobond market. The bond has a 10 year maturity and pays a fixed annual coupon of 4.625%. The reoffer price is 99.862 which implied, at the moment of pricing, a spread of 28 basis points over the 10 year mid swap rate. The new security will be listed on the Luxembourg Stock Exchange.
~~Supplemental oil and gas information (unaudited)~~
     ~~The following information is presented~~assets in accordance with Statement of Financial Accounting Standards No. 19 (SFAS 19), “Financial Accounting and Reporting by Oil and Gas Producing Companies”.
The transition adjustment related to adopting SFAS 143 on January 1, 2003, was recognized as a cumulative effect of a change in accounting principle. The cumulative effect of adopting SFAS 143 increased net income by euro 198 million (after reduction of income taxes of euro 207 million). At the time of adoption, net fixed assets increased by euro 403 million, reserves for contingencies decreased by euro 2 million, and deferred and other non-current income tax liabilities increased by euro 207 million. Other than the cumulative effect net charge, the effect of SFAS 143 on net income in 2003 was an incremental charge of euro 53 million after tax, as compared to the result that would have been recorded under SFAS 19 accounting.
Changes in asset retirement obligations during the year were:

Changes in asset retirement obligations
(million euro) Pro-forma 2002^(a) 2003
Asset retirement obligations as of January 1 2,096 1,923
Accretion of discount 89 102
New obligations incurred during 2003 52
Spending on existing obligations (21)
Property dispositions (20)
Foreign currency translation (335) (155)
Revisions of previous estimates 32
Other adjustments 73 37
Asset retirement obligations as of December 31 1,923 1,950

(a) Pro-forma data as if SFAS 143 had been adopted on January 1, 2002. If adopted, income before cumulative effect of changes in accounting principles for 2002 would have been increased by euro 2 million and earnings per share would have been the same.
Recent accounting pronouncements
FIN 46 and FIN 46-R
In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities”. FIN 46 introduces a new concept of a variable interest entity (“VIE”). A VIE is an entity that meets any of the following criteria: (i) it has a total equity investment at risk that is not sufficient to finance its activities without additional subordinated financial support from other parties; (ii) the equity owners do not have the ability to make significant decisions about the entity's activities through voting or similar rights; (iii) the equity owners do not have an obligation to absorb the entity's expected losses, or (iv) the equity owners do not have the right to receive the entity's expected residual returns. FIN 46 is effective immediately for all new VIEs created after January 31, 2003. For VIEs created prior to February 1, 2003, FIN 46 will be effective for the company as of January 1, 2004. The disclosure requirements of FIN 46 are effective for our 2003 financial statements regardless of the date the VIE was created.
In December 2003 the Financial Accounting Standards Board issued FASB Interpretation No. 46-R, Consolidation of Variable Interest Entities Revised. FIN 46-R modifies the scope exceptions provided in FIN 46, specifically related to the entities that meet the revised definition of a business, or would result in the consolidation of a government entity. Early adoption of FIN 46-R related to entities created after January 31, 2003 is permitted.
The Company has decided not to early adopt FIN 46-R and has implemented the provisions of FIN 46 as it relates to any potential VIEs created after January 31, 2003. There were no impacts upon the initial adoption of the provisions of FIN 46 with respect to Eni entities created after January 31, 2003. For VIEs created prior to February 1, 2003, Eni shall apply the provisions of FIN 46 during fiscal year 2004, and Eni is in the process of reviewing its investment portfolio, including associated companies, as well as other arrangements to determine whether Eni is the primary beneficiary of any VIEs. Eni presently cannot predict whether or not the application of FIN 46 to VIEs created prior to February 1, 2003 will have a material impact on Eni's financial position or operating results.
Introduction of international accounting standards
As a consequence of the coming into force of European Regulation No. 1606/2002 of the European Parliament and European Council of July 19, 2002 (“Regulation”), starting in 2005 companies with securities listed on regulated markets of EU member states are required to prepare their consolidated financial statements in accordance with international accounting standards (“IAS”).
In order to comply with the requirements of this Regulation, from July 2002 Eni started its program for implementing IASs by creating study groups on specific issues, made up of Eni SpA and Eni Group companies employees, entrusted with the task to define a proposal for the revision of Group accounting rules, highlight the differences with current policies for Italian GAAP and U.S. GAAP and provide support to the analysis of the effects of the adoption of IAS on information systems. Study groups addressed the provisions of current IASs and the main changes contained in the draft review of International Accounting Standards.
In December a proposal for the review of Group accounting rules concerning the most significant items of financial statements was defined, which is currently under further scrutiny in consideration of recent IASB interpretations.
Within each Division/Sector-head company a manager has been entrusted with the responsibility to monitor the impact on operations, identify the necessary changes to administrative processes and information systems and share individual solutions identified with the rest of the Group. Eni also intends to carry out training sessions for disseminating information on the most relevant consequences of the application of international standards, on possible operating problems and for sharing the solutions agreed. The introduction of new standards is facilitated by the experience gained by Eni in the application of U.S. GAAP.
As compared to currently applied accounting rules, the innovative aspects are: (i) the recognition of charges to risk and contingency reserves on the basis of the present value of expected expenses when the passing of time (accretion) is relevant; (ii) the use of actuarial techniques for the evaluation of employee termination indemnities; (iii) the elimination of the Lifo criterion for the evaluation of inventories; (iv) the fact that, as in U.S. GAAP, goodwill is not amortized but tested for impairment at least annually, at the level of the smallest cash generating unit, by comparing book value and market value (draft standard on business combinations); (v) the adoption of fair value in the evaluation of investments in companies that are neither subsidiaries nor affiliates.
With specific reference to exploration and production activities, no discontinuity is evidenced with current criteria, as current IASs do not apply to recognition and evaluation criteria. In January 2004, IASB published a draft accounting standard “Exploration for and evaluation of mineral resources” which allows to maintain current criteria for recognizing and evaluating exploration costs (e.g. geological and geophysical studies; acquisition of exploration permits; exploration wells, etc.), including their recognition as assets (so called exploration and evaluation assets).
With reference to financial instruments, serious uncertainties exist on the recognition and evaluation criteria applicable from 2005. In particular, the European Commission, in its Regulation No. 1725 of September 29, 2003, did not adopt IAS 32 “Financial instruments: disclosure and presentation”, IAS 39 “Financial instruments: recognition and measurement” and their respective interpretations; the updated versions of these principles, issued in December 2003 by the IASB, are under review.
At the date of transition to the new standards, corresponding to the first period to be compared (in Eni's case January 1, 2004) accounts are prepared that: (i) recognize only all the assets and liabilities defined as such by the new standards and (ii) classify and evaluate assets and liabilities with the values that would have been determined if the new standards had been applied from the initial recognition. The effect of the adjustment of initial balances of assets and liabilities to the new standards is recognized under net equity.
The retroactive adoption of IAS may be subject to derogation if it causes costs higher than the benefits it produces in terms of information or to prohibitions if it entails a high degree of discretionary power in evaluation. Derogations and prohibitions are expressly stated in the EU regulation that also defines the applicable treatment.
Subsequent events
The main subsequent events occurred are as follows:
• at the end of March 2004, Eni sold 9.054% of the share capital of Snam Rete Gas SpA, recognizing a material gain on disposal and material proceeds. Proceeds will be recognized in the cash flow for the second quarter of 2004;
• in April 2004 Eni signed an agreement with the Portuguese Government for the reorganization of Galp Energia (Eni’s interest 33.34%). Under the agreement Eni concentrates its activities in the natural gas sector through a 49% interest in Gas de Portugal (indirectly owned through Galp Energia) and exits the segment of refining and marketing of refined products in Portugal. Gas de Portugal will be managed jointly with Electricidade de Portugal, the other shareholder with a 51% interest; the natural gas transmission network owned by Gas de Portugal will be sold to a state-owned Portuguese company. The finalization of Eni sale of stake in Galp Energia and its purchase of a 49% stake in Gas de Portugal is subject to authorization from the European antitrust authority; in a second stage the sale of regulated assets owned by Gas de Portugal will be submitted to the Portoguese antitrust authority. When finalized, this transaction will provide Eni net cash proceeds of euro 667 million. See “Item 4 - Information on the company - Gas & Power”.
• in February 2004, under the North Caspian Sea PSA (Eni is operator with a 16.67% interest), the development plan of the Kashagan oil field located in the Kazakh section of the Caspian Sea was approved by the relevant Kazakh Authorities. The approved development plan consists of multiple phases; management expects production to start in 2008. Total planned capital expenditure is estimated at U.S. dollar 29 billion, being Eni’s share in the range of U.S. dollar 5 billion.
Supplemental oil and gas information for the exploration and production activities (unaudited)
The following information is presented in accordance with the Statement of Financial Accounting Standards No. 69, ~~«Disclosures~~“Disclosures about Oil & Gas Producing ~~Activities»~~Activities”. Amounts related to minority interests are not significant.
~~Capitalized costs~~
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 ~~activity,~~activities, together with related accumulated depreciation, depletion and amortization.

North West North Rest of
Italy Africa Africa Sea World Total

(million E)
At December 31, 2001

Proved mineral interests 7,645 7,624 6,723 7,986 5,382 35,360
Unproved mineral interests 672 238 811 1,913 3,634
Support equipment and facilities 295 56 191 52 47 641
Incomplete wells and other 845 508 501 225 1,718 3,797
Gross Capitalized Costs
8,785 8,860 7,653 9,074 9,060 43,432
Accumulated depreciation, depletion and amortization (5,109 ) (4,333 ) (4,378 ) (3,612 ) (1,894 ) (19,326 )

North West North Rest of
Italy Africa Africa Sea World Total

(million E)
Net Capitalized Costs(a)
3,676 4,527 3,275 5,462 7,166 24,106
At December 31, 2002

Proved mineral interests 8,030 6,782 6,377 8,112 5,638 34,939
Unproved mineral interests 527 130 684 1,593 2,934
Support equipment and facilities 251 43 174 49 51 568
Incomplete wells and other 773 889 795 147 1,958 4,562
Gross Capitalized Costs
9,054 8,241 7,476 8,992 9,240 43,003
Accumulated depreciation, depletion and amortization (5,427 ) (4,090 ) (4,048 ) (4,192 ) (2,262 ) (20,019 )
Net Capitalized Costs(a)
3,627 4,151 3,428 4,800 6,978 22,984
Capitalized costs

(million euro) Italy North Africa West Africa North Sea Rest of World Total

At December 31, 2002
Proved mineral interests^(a) 8,030 6,782 6,377 8,112 5,638 34,939
Unproved mineral interests 527 130 684 1,593 2,934
Support equipment and facilities 251 43 174 49 51 568
Incomplete wells and other 773 889 795 147 1,958 4,562
Gross capitalized costs
9,054
8,241
7,476
8,992
9,240
43,003
Accumulated depreciation, depletion and amortization (5,427) (4,090) (4,048) (4,192) (2,262) (20,019)
Net capitalized costs
3,627
4,151
3,428
4,800
6,978
22,984
At December 31, 2003
Proved mineral interests^(a) 8,766 6,103 6,141 8,291 6,389 35,690
Unproved mineral interests 329 83 696 1,272 2,380
Support equipment and facilities 262 594 208 32 51 1,147
Incomplete wells and other 826 1,254 1,098 223 1,413 4,814
Gross capitalized costs
9,854
8,280
7,530
9,242
9,125
44,031
Accumulated depreciation, depletion and amortization (6,186) (3,799) (3,785) (4,252) (2,657) (20,679)
Net capitalized costs^(b)
3,668
4,481
3,745
4,990
6,468
23,352

(a) Includes capitalized costs for wells and facilities related to proved reserves.
(b) ~~Amounts do not include «non oil assets»~~Includes euro 385 million for the adoption of SFAS 143 “Accounting for asset retirement obligations”. The amount has been allocated to the following items:
Proved mineral interest euro 501,119 million ~~in 2001~~ and ~~73 million in 2002.~~Accumulated depreciation, depletion and amortization euro 734 million.
Cost incurred
Costs incurred represent amounts both capitalized and expensed ~~as incurred~~ in connection with oil and gas producing activities.

North West North Rest of
Italy Africa Africa Sea World Total

(million E)
Year ended December 31, 2000

Proved property acquisitions 8 32 443 880 1,363
Unproved property acquisitions 30 11 67 149 257
Exploration 155 151 174 86 326 892
Development (a) 567 415 372 346 617 2,317
Total costs incurred(b)
722 604 589 942 1,972 4,829
Year ended December 31, 2001

Proved property acquisitions (c1) 14 503 1,411 1,254 3,182
Unproved property acquisitions (c2) 438 495 704 1,637
Exploration (c3) 89 139 97 166 598 1,089
Development (a) 600 498 698 328 1,337 3,461
Total costs incurred(b)
703 1,578 795 2,400 3,893 9,369
Year ended December 31, 2002

Proved property acquisitions 104 24 128
Unproved property acquisitions 22 167 189
Exploration 69 116 203 84 430 902
Development (a) 440 724 986 316 1,622 4,088
Total costs incurred
509 840 1,189 526 2,243 5,307
(million euro) Italy North Africa West Africa North Sea Rest of World Total

Year ended December 31, 2001
Proved property acquisitions 14 503 1,411 1,254 3,182
Unproved property acquisitions 438 495 704 1,637
Exploration 89 139 97 166 598 1,089
Development 600 498 698 328 1,337 3,461
Total costs incurred^(a) 703 1,578 795 2,400 3,893 9,369
Year ended December 31, 2002
Proved property acquisitions 104 24 128
Unproved property acquisitions 22 167 189
Exploration 69 116 203 84 430 902
Development 440 724 986 316 1,622 4,088
Total costs incurred 509 840 1,189 526 2,243 5,307
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^(b) 449 1,106 1,268 286 1,454 4,563
Total costs incurred^(c) 516 1,186 1,406 844 1,711 5,663

(a) ~~Amounts include capitalized interest~~Includes costs for the acquisition of Lasmo Plc of euro 945,084 million, ~~in 2000, 71 million in 2001 and 57 million in 2002, and other fixed assets~~net of the related gross-up for deferred taxes (SFAS 109 “Accounting for Income taxes”) of euro 98974 million.
The amount has been allocated to the following items: (i) Proved property acquisitions euro 3,115 million, ~~in 2000, 48~~(ii) Unproved property acquisitions euro 1,637 million, ~~in 2001.~~

(iii) Exploration euro 332 million.
(b) Includes euro 84 million of costs capitalized during 2003 for assets retirement obligations pursuant to SFAS 143 “Accounting for asset retirement obligations”
(c)
~~The amounts exclude deferred income taxes~~
Includes costs for the acquisition of Fortum AS of euro ~~165~~434 million, ~~in 2000 (British Borneo Plc) and 974 in 2001 (Lasmo Plc)~~net of the related gross-up for deferred taxes (SFAS 109 “Accounting for Income taxes”) of euro 514 million.
The amount has been allocated to the ~~respective acquisitions.~~
~~(c1)~~ ~~Acquisition costs per geographic area related to the Lasmo acquisition of euro 3,115 million were for North Africa euro 503 million,~~ North Sea area as follows: (i) Proved property acquisitions euro ~~1,371~~308 million, ~~and Rest of World~~(ii) Unproved property acquisitions euro ~~1,241~~109 million,
(iii) Exploration euro 17 million.
~~(c2)~~ ~~Acquisition costs per geographic area related to the Lasmo acquisition of euro 1,637 million were for North Africa euro 438 million, North Sea euro 495 million and Rest of World euro 704 million.~~
~~(c3)~~ ~~Acquisition costs per geographic area related to the Lasmo acquisition of euro 332 million were for North Africa euro 13 million, North Sea euro 81 million and Rest of World euro 238 million.~~
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 ~~with Eni’s oil and gas production.~~to such activities. These amounts do not include any allocation of interest expense or corporate overhead or amortization of goodwill and, therefore, are not necessarily indicative of the contributions to consolidated net earnings of Eni. ~~Revenues and income tax expense include taxes owed by Eni but paid by government-owned entities on its behalf.~~ 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~~Eni's share of oil and gas production is withheld and sold by its ~~joint-venture~~joint venture partners which are state-owned entities, with proceeds being remitted to the state in
satisfaction of ~~Eni’s~~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~~Eni's share of oil and gas production. ~~Without this specific provision in its PSAs, Eni would otherwise be entitled to the sale proceeds of this portion of oil and gas production withheld.~~

North West North Rest of
Italy Africa Africa Sea World Total

(million E)
Year ended December 31, 2000

Revenues:
— sales to affiliates 3,336 1,748 2,114 1,205 531 8,934
— sales to unaffiliated entities 136 1,134 190 373 660 2,493
Total revenues
3,472 2,882 2,304 1,578 1,191 11,427
Production costs (399 ) (459 ) (517 ) (238 ) (125 ) (1,738 )
Exploration expenses (192 ) (84 ) (60 ) (45 ) (180 ) (561 )
D.D. & A (407 ) (393 ) (327 ) (358 ) (375 ) (1,860 )
Other income and (expenses), net (30 ) (196 ) (132 ) (55 ) (117 ) (530 )
Pretax income from producing activities
2,444 1,750 1,268 882 394 6,738
Related income taxes (986 ) (877 ) (678 ) (479 ) (78 ) (3,098 )
Results of operations from oil and gas producing activities
1,458 873 590 403 316 3,640
Year ended December 31, 2001

Revenues:
— sales to affiliates 3,160 1,440 1,807 1,265 322 7,994
— sales to unaffiliated entities 140 1,181 169 1,250 1,271 4,011
Total revenues
3,300 2,621 1,976 2,515 1,593 12,005
Production costs (479 ) (461 ) (477 ) (522 ) (306 ) (2,245 )
Exploration expenses (77 ) (104 ) (70 ) (51 ) (326 ) (628 )
D.D. & A (474 ) (417 ) (315 ) (704 ) (612 ) (2,522 )
Other income and (expenses), net (87 ) (129 ) (129 ) (79 ) (214 ) (638 )
Pretax income from producing activities(a)
2,183 1,510 985 1,159 135 5,972
Related income taxes (877 ) (605 ) (628 ) (672 ) (136 ) (2,918 )
Results of operations from oil and gas producing activities
1,306 905 357 487 (1 ) 3,054
Year ended December 31, 2002

Revenues:
— sales to affiliates 2,871 1,673 1,856 1,748 281 8,429
— sales to unaffiliated entities 253 1,226 186 695 1,414 3,774
Total revenues
3,124 2,899 2,042 2,443 1,695 12,203
Production costs (356 ) (462 ) (527 ) (510 ) (284 ) (2,139 )
Exploration expenses (80 ) (71 ) (116 ) (117 ) (294 ) (678 )

North West North Rest of
Italy Africa Africa Sea World Total

(million E)
D.D. & A. (b) (528 ) (532 ) (390 ) (863 ) (758 ) (3,071 )
Other income and (expenses), net (258 ) (186 ) (122 ) (47 ) (183 ) (796 )
Pretax income from producing activities(a)
1,902 1,648 887 906 176 5,519
Related income taxes (751 ) (852 ) (578 ) (445 ) (83 ) (2,709 )
Results of operations from oil and gas producing activities
1,151 796 309 461 93 2,810
Results of operations from oil and gas producing activities

(million euro) Italy North Africa West Africa North Sea Rest of World Total
Year ended December 31, 2001
Revenues:
- sales to affiliates 3,160 1,440 1,807 1,265 322 7,994
- sales to unaffiliated entities 140 1,181 169 1,250 1,271 4,011
Total revenues 3,300 2,621 1,976 2,515 1,593 12,005
Operations costs (327) (337) (221) (495) (270) (1,650)
Production taxes (152) (124) (256) (27) (36) (595)
Exploration expenses (77) (104) (70) (51) (326) (628)
D.D. & A. and abandonment expense (474) (417) (315) (704) (612) (2,522)
Other income and (expenses) (87) (129) (129) (79) (214) (638)
Pretax income from producing activities 2,183 1,510 985 1,159 135 5,972
Estimated income taxes (877) (605) (628) (672) (136) (2,918)
Results of operations from E&P activities 1,306 905 357 487 (1) 3,054
Year ended December 31, 2002
Revenues:
- sales to affiliates 2,871 1,673 1,856 1,748 281 8,429
- sales to unaffiliated entities 253 1,226 186 695 1,414 3,774
Total revenues 3,124 2,899 2,042 2,443 1,695 12,203
Operations costs (218) (352) (317) (490) (237) (1,614)
Production taxes (138) (110) (210) (20) (47) (525)
Exploration expenses (80) (71) (116) (117) (294) (678)
D.D. & A. and abandonment expense^(a) (528) (532) (390) (863) (758) (3,071)
Other income and (expenses) (258) (186) (122) (47) (183) (796)
Pretax income from producing activities 1,902 1,648 887 906 176 5,519
Estimated income taxes (751) (852) (578) (445) (83) (2,709)
Results of operations from E&P activities 1,151 796 309 461 93 2,810
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)
D.D. & A. and abandonment expense^(a) (458) (420) (377) (759) (734) (2,748)
Other income and (expenses) (170) (264) (121) 14 (289) (830)
Accretion expense (SFAS 143)^(b) (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

(a) Results of operations from oil and gas producing activities include revenues and costs related to the «gas storage and modulation» activity. These revenues are estimated according to Decisions No. 26/02 and No. 49/02 issued by the Authority for Electricity and Gas on February 27, 2002.
~~(b)~~ ~~It includes asset~~Includes assets impairments amounting to euro 227 ~~million.~~million in 2002 and euro 210 million in 2003.
(b) Represents the financial effect of the passage of time relating to Eni's future asset retirement obligations pursuant to SFAS 143 “Accounting for asset retirement obligations”.
Average sales prices and production costs per unit of production

North West North Rest of
Italy Africa Africa Sea World Total

2002

Average sales prices:
Oil and condensates, per BBL $ 22.39 $ 23.49 $ 23.62 $ 23.97 $ 18.90 $ 22.81
Natural gas, per kCF 3.73 2.83 0.42 2.46 2.90 3.08
Average production costs, per BOE (1) 2.97 3.44 5.75 4.37 2.94 3.83
2001

Average sales prices:
Oil and condensates, per BBL $ 19.78 $ 22.39 $ 22.34 $ 23.87 $ 17.86 $ 21.81
Natural gas, per kCF 4.06 2.80 0.51 2.60 3.24 3.39
Average production costs, per BOE (1) 2.87 3.65 5.10 4.45 3.50 3.85
2000

Average sales prices:
Oil and condensates, per BBL $ 24.51 $ 25.82 $ 27.05 $ 27.89 $ 22.64 $ 25.91
Natural gas, per kCF 3.98 3.16 0.41 2.42 2.09 2.11
Average production costs, per BOE (1) 2.63 3.82 5.79 3.64 2.04 3.61
Italy North Africa West Africa North Sea Rest of World Total

2003

Average sales 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

2002
Average sales prices:

Oil and condensates, per BBL $ 22.39 $ 23.49 $ 23.62 $ 23.97 $ 18.90 $ 22.81
Natural gas, per kCF 3.73 2.83 0.42 2.46 2.90 3.08
Average production costs, per BOE (1) 2.97 3.44 5.75 4.37 2.94 3.83

2001
Average sales prices:
Oil and condensates, per BBL $ 19.78 $ 22.39 $ 22.34 $ 23.87 $ 17.86 $ 21.81
Natural gas, per kCF 4.06 2.80 0.51 2.60 3.24 3.39
Average production costs, per BOE (1) 2.87 3.65 5.10 4.45 3.50 3.85

(1) Calculated net of volumes of natural gas consumed in operations. Natural gas was converted to oil-equivalent at 5,800 CF = 1 BBL for natural gas produced outside Italy and at 5,600 CF = 1 BBL for natural gas produced in ~~Italy.~~Italy .
Oil and natural gas reserves
Proved oil and gas reserves are the estimated quantities of crude oil, ~~(including condensate~~natural gas and natural gas ~~liquids) and natural gas~~liquids which ~~on the basis of~~ geological and engineering data ~~will be able~~demonstrate with reasonable certainty to be ~~recovered with reasonable certainty~~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 on escalations based upon future conditions. 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 ~~facilities~~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 ~~or proved undeveloped~~ 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.

The ~~definitions used for proved oil and gas reserves are~~estimates of Eni's reserve quantities have been prepared in accordance with ~~applicable U.S. Securities and Exchange Commission regulation.~~Statement of Financial Accounting Standard No. 69. The estimates of proved reserves, developed and undeveloped, at December 31, ~~1999,~~ 2000, 2001, 2002 and ~~2002~~2003 are based on ~~reports~~data prepared by Eni.

Eni operates under Production Sharing Agreements (PSAs) in several of the foreign jurisdictions where it has oil and gas exploration and production activities. In countries where Eni operates under PSAs, proved reserves are shown in accordance with Eni's economic interest (pursuant to PSA contract terms) in the oil and gas reserve quantities 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 represents 46% , 43% and 41% of total proved reserves as of year-end 2003, 2002 and 2001, respectively, on an oil-equivalent basis.
Proved reserves include the volume of natural gas used for own consumption and volumes of natural gas held in certain Eni storage fields in Italy . Proved reserves attributable to these fields include: (i) the residual natural gas volumes of the reservoirs; (ii) 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 it is sold to third parties.
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. Results of drilling, testing and production after the date of the estimate may require substantial upward and downward revision. In addition, changes in oil and natural gas prices could have an effect on the quantities of ~~Eni’s~~Eni's proved reserves because the estimates of reserves are based on prices and costs at the date when such estimates are made. ~~In addition the reserves~~Reserves estimates are also subject to revision as prices fluctuate due to the cost recovery feature under certain ~~Production Sharing Agreements (PSA). Accordingly, the estimated reserves could be materially different from the quantities of oil and natural gas that ultimately will be recovered.~~
     Eni operates under PSA in several of the foreign jurisdictions where it has oil and gas exploration and production activities. In countries where Eni operates under PSA’s, proved reserves are shown in accordance with Eni’s economic interest (pursuant to PSA contract terms) in the oil and gas reserve quantities 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.
     Estimated reserves include the volume of natural gas withdrawn from certain Eni Italian fields and contained in Eni’s gas storage reservoirs in Italy used for responding to variations in gas demand due to seasonality (gas is usually stored during summer months for use during winter months, when demand typically peaks).
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 ~~2000,~~ 2001, 2002 and ~~2002.~~2003.
Crude oil (Including Condensates and Natural Gas Liquids)

North West North Rest of
Proved oil Reserves Italy Africa Africa Sea World Total

(mm/BBL)
Reserves at December 31, 1999
328 1,071 900 417 421 3,137
Purchase of Minerals in Place 3 12 46 133 194
Revisions of Previous Estimates (13 ) 42 59 36 166 290
Improved Recovery 2 9 11
Extensions and Discoveries 9 6 32 1 17 65
Production (28 ) (84 ) (78 ) (45 ) (39 ) (274 )
Sales of Minerals in Place (1 ) (1 )
Reserves at December 31, 2000(1)
296 1,039 934 455 698 3,422
(1) Eni’s share of equity method investees’ proved oil reserves as at December 31, 2000 (Lasmo Plc)
131
Purchase of Minerals in Place 118 120 248 486
Revisions of Previous Estimates 29 79 91 37 20 256
Improved Recovery 11 16 6 33
Extensions and Discoveries 9 8 21 8 24 70
Production (25 ) (84 ) (81 ) (74 ) (50 ) (314 )
Sales of Minerals in Place (5 ) (5 )

North West North Rest of
Proved oil Reserves Italy Africa Africa Sea World Total

(mm/BBL)
Reserves at December 31, 2001
309 1,171 976 552 940 3,948
Purchase of Minerals in Place 13 12 25
Revisions of Previous Estimates 2 (31 ) 112 4 (33 ) 54
Improved Recovery 14 1 15
Extensions and Discoveries 11 10 14 18 104 157
Production (30 ) (92 ) (81 ) (77 ) (54 ) (334 )
Sales of Minerals in Place (37 ) (12 ) (33 ) (82 )
Reserves at December 31, 2002
255 1,072 1,022 498 936 3,783

North West North Rest of
Proved Developed Oil Reserves Italy Africa Africa Sea World Total

(mm/BBL)
Reserves at December 31, 1999 172 681 473 276 148 1,750
Reserves at December 31, 2000 (1) 144 650 487 303 189 1,773
Reserves at December 31, 2001 171 685 539 476 443 2,314
Reserves at December 31, 2002 168 610 554 426 483 2,241
(1) Eni’s share of equity method investees’ proved developed oil reserves as at December 31, 2000 (Lasmo Plc)
56
(million barrels) Italy North Africa West Africa North Sea Rest of World Total
Proved oil Reserves
Reserves at December 31, 2000⁽¹⁾ 296 1,039 934 455 698 3,422
(1) Eni's share of equity method investees' proved oil
reserves as at December 31, 2000 (Lasmo Plc)
Purchase of Minerals in Place 118 120 248 486
Revisions of Previous Estimates 29 79 91 37 20 256
Improved Recovery 11 16 6 33
Extensions and Discoveries 9 8 21 8 24 70
Production (25) (84) (81) (74) (50) (314)
Sales of Minerals in Place (5) (5)
Reserves at December 31, 2001 309 1,171 976 552 940 3,948
Purchase of Minerals in Place 13 12 25
Revisions of Previous Estimates 2 (31) 112 4 (33) 54
Improved Recovery 14 1 15
Extensions and Discoveries 11 10 14 18 104 157
Production (30) (92) (81) (77) (54) (334)
Sales of Minerals in Place (37) (12) (33) (82)
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

Proved Developed Oil Reserves
Reserves at December 31, 2000⁽¹⁾ 144 650 487 303 189 1,773
Reserves at December 31, 2001 171 685 539 476 443 2,314
Reserves at December 31, 2002 168 610 554 426 483 2,241
Reserves at December 31, 2003 173 640 560 464 610 2,447
(1) Eni's share of equity method investees' proved developed
oil reserves as at December 31, 2000 (Lasmo Plc) 56
Natural gas

Italy North West North Rest of
Proved Natural Gas Reserves (a) Africa Africa Sea World Total

(BCF)
Reserves at December 31, 1999
6,439 4,504 964 1,331 427 13,665
Purchase of Minerals in Place 195 150 345
Revisions of Previous Estimates 156 255 (19 ) (23 ) 379 748
Improved Recovery 2 2
Extensions and Discoveries 40 546 8 299 893
Production (510 ) (155 ) (23 ) (93 ) (100 ) (881 )
Reserves at December 31, 2000(1)
6,125 5,152 922 1,418 1,155 14,772
(1) Eni’s share of equity method investees’ proved natural gas reserves as at December 31, 2000 (Lasmo Plc)
501
Purchase of Minerals in Place 17 501 1,093 1,611
Revisions of Previous Estimates (37 ) 539 12 148 833 1,495
Improved Recovery, Extensions and Discoveries 66 1 18 4 202 291
Production (b) (531 ) (183 ) (27 ) (175 ) (177 ) (1,093 )
Sales (4 ) (4 )

Italy North West North Rest of
Proved Natural Gas Reserves (a) Africa Africa Sea World Total

(BCF)
Reserves at December 31, 2001
5,640 5,509 925 1,892 3,106 17,072
Purchase of Minerals in Place 87 87
Revisions of Previous Estimates 21 257 8 115 1,238 1,639
Improved Recovery, Extensions and Discoveries 105 9 636 74 223 1,047
Production (b) (456 ) (212 ) (36 ) (201 ) (228 ) (1,133 )
Sales (15 ) (68 ) (83 )
Reserves at December 31, 2002
5,295 5,563 1,533 1,899 4,339 18,629

Italy North West North Rest of
Proved Developed Natural Gas Reserves (a) Africa Africa Sea World Total

(BCF)
TotalReserves at December 31, 1999 4,201 668 653 811 311 6,644
Reserves at December 31, 2000 (1) 4,012 1,009 595 810 649 7,075
Reserves at December 31, 2001 3,665 1,103 584 1,721 1,221 8,294
Reserves at December 31, 2002 3,397 1,084 863 1,727 1,283 8,354
(1) Eni’s share of equity method investees’ proved developed natural gas reserves as at December 31, 2000 (Lasmo Plc)
329
(billion cubic feet) Italy^(a) North Africa West Africa North Sea Rest of World Total
Proved Natural Gas Reserves
Reserves at December 31, 2000⁽¹⁾ 6,125 5,152 922 1,418 1,155 14,772
(1) Eni's share of equity method investees' proved natural gas
reserves as at December 31, 2000 (Lasmo Plc) 501
Purchase of Minerals in Place 17 501 1,093 1,611
Revisions of Previous Estimates (37) 539 12 148 833 1,495
Extensions and Discoveries 66 1 18 4 202 291
Production (531) (183) (27) (175) (177) (1,093)
Sales (4) (4)
Reserves at December 31, 2001 5,640 5,509 925 1,892 3,106 17,072
Purchase of Minerals in Place 87 87
Revisions of Previous Estimates 21 257 8 115 1,238 1,639
Extensions and Discoveries 105 9 636 74 223 1,047
Production (456) (212) (36) (201) (228) (1,133)
Sales (15) (68) (83)
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
Proved Developed Natural Gas Reserves
Reserves at December 31, 2000⁽¹⁾ 4,012 1,009 595 810 649 7,075
Reserves at December 31, 2001 3,665 1,103 584 1,721 1,221 8,294
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
(1) Eni's share of equity method investees' proved developed
natural gas reserves as at December 31, 2000 (Lasmo Plc) 329

(a) Including approximately ~~756,~~ 783, 728, 779 and ~~779 BCF~~747 billions of cubic feet of natural gas held in storage at December 31, ~~1999,~~ 2000, 2001, 2002 and ~~2002~~2003 respectively.
~~(b)~~ ~~Including production volumes of natural gas consumed in operations (34 BCF and 48 BCF in 2001 and 2002, respectively).~~
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-end prices of oil and gas to the estimated future production of proved reserves. Future price changes are considered only to 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 ~~future pricing~~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, ~~2000,~~ 2001, 2002 and ~~2002~~2003 include annual revenue payments from ~~Eni’s~~Eni's Gas & Power segment and other transport and distribution gas companies which represent payments for ~~providing specified peak~~modulation services to support demand delivery capability. Such capability is provided through utilization ~~of: (i)~~of gas withdrawn from producing fields and injected into depleted gas fields as ~~storage; and to (ii) gas acquired.~~
storage.
Future production costs include the estimated expenditures related to the production of ~~the~~ 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, ~~assuming~~under the assumption that year-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~~Eni's proved reserves. 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.

North West North Rest of
Italy Africa Africa Sea World Total

(million E)
At December 31, 2000

Future cash inflows 50,505 39,551 22,057 16,761 17,778 146,652
Future production costs (6,310 ) (9,770 ) (5,875 ) (3,349 ) (2,999 ) (28,303 )
Future development and abandonment costs (2,310 ) (4,981 ) (2,708 ) (860 ) (2,504 ) (13,363 )
Future net inflow before income tax 41,885 24,800 13,474 12,552 12,275 104,986
Future income tax (15,627 ) (11,524 ) (7,938 ) (6,365 ) (2,835 ) (44,289 )
Future net cash flows 26,258 13,276 5,536 6,187 9,440 60,697
10% discount factor (12,203 ) (7,146 ) (2,370 ) (1,867 ) (4,410 ) (27,996 )
Standardized measure of discounted future net cash flows 14,055 6,130 3,166 4,320 5,030 32,701
Eni’s share of equity method investee’s standardized measure of discounted future net cash flows (Lasmo Plc) 1,058
At December 31, 2001

Future cash inflows (a) 32,310 37,780 20,154 17,444 20,715 128,403
Future production costs (5,344 ) (10,941 ) (5,779 ) (4,466 ) (5,073 ) (31,603 )
Future development and abandonment costs (2,577 ) (5,284 ) (3,194 ) (1,593 ) (2,607 ) (15,255 )
Future net inflow before income tax 24,389 21,555 11,181 11,385 13,035 81,545
Future income tax (8,918 ) (9,258 ) (6,374 ) (5,584 ) (3,119 ) (33,253 )
Future net cash flows 15,471 12,297 4,807 5,801 9,916 48,292
10% discount factor (6,925 ) (6,612 ) (1,992 ) (1,611 ) (4,381 ) (21,521 )
Standardized measure of discounted future net cash flows 8,546 5,685 2,815 4,190 5,535 26,771
At December 31, 2002

Future cash inflows (a) 32,809 41,797 29,242 19,645 26,500 149,993
Future production costs (4,367 ) (10,354 ) (6,795 ) (4,748 ) (4,310 ) (30,574 )
Future development and abandonment costs (2,755 ) (3,880 ) (2,706 ) (1,523 ) (2,459 ) (13,323 )
Future net inflow before income tax 25,687 27,563 19,741 13,374 19,731 106,096

North West North Rest of
Italy Africa Africa Sea World Total

(million E)
Future income tax (8,885 ) (12,164 ) (11,320 ) (7,598 ) (5,593 ) (45,560 )
Future net cash flows 16,802 15,399 8,421 5,776 14,138 60,536
10% discount factor (7,471 ) (7,411 ) (3,534 ) (1,577 ) (6,063 ) (26,056 )
Standardized measure of discounted future net cash flows 9,331 7,988 4,887 4,199 8,075 34,480
~~(a)~~ Standardized measure of discounted future net cash flows from oil and gas producing activities in Italy include revenues and costs related to the «gas storage and modulation» activity. These revenues and costs are estimated according to Decisions No. 26/02 and 49/02 issued by the Authority for Electricity and Gas on February 27 and March 26, 2002.
Cash flows
(million euro) Italy North Africa West Africa North Sea Rest of World Total
At December 31, 2001
Future cash inflows 32,310 37,780 20,154 17,444 20,715 128,403
Future production costs (5,344) (10,941) (5,779) (4,466) (5,073) (31,603)
Future development and abandonment costs (2,577) (5,284) (3,194) (1,593) (2,607) (15,255)
Future net inflow before income tax 24,389 21,555 11,181 11,385 13,035 81,545
Future income tax (8,918) (9,258) (6,374) (5,584) (3,119) (33,253)
Future net cash flows 15,471 12,297 4,807 5,801 9,916 48,292
10% discount factor (6,925) (6,612) (1,992) (1,611) (4,381) (21,521)
Standardized measure of discounted future net cash flows 8,546 5,685 2,815 4,190 5,535 26,771
At December 31, 2002
Future cash inflows 32,809 41,797 29,242 19,645 26,500 149,993
Future production costs (4,367) (10,354) (6,795) (4,748) (4,310) (30,574)
Future development and abandonment costs (2,755) (3,880) (2,706) (1,523) (2,459) (13,323)
Future net inflow before income tax 25,687 27,563 19,741 13,374 19,731 106,096
Future income tax (8,885) (12,164) (11,320) (7,598) (5,593) (45,560)
Future net cash flows 16,802 15,399 8,421 5,776 14,138 60,536
10% discount factor (7,471) (7,411) (3,534) (1,577) (6,063) (26,056)
Standardized measure of discounted future net cash flows 9,331 7,988 4,887 4,199 8,075 34,480
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
Changes in standardized measure of discounted future net cash flows
The following table reflects the changes in standardized measure of discounted future net cash flows for the years ~~2000,~~ 2001, ~~and 2002.~~

2000 2001 2002

(million E)
Beginning of year 22,753 32,701 26,771
Increase (Decrease):
— sales, net of production costs (9,689 ) (9,760 ) (10,064 )
— net changes in sales and transfer prices, net of production costs 11,889 (16,754 ) 18,936
— extensions, discoveries and improved recovery, net of future production and development costs 1,623 1,027 1,810
— changes in estimated future development and abandonment costs (1,061 ) (2,527 ) (2,697 )
— development costs incurred during the period that reduced future development costs 2,125 3,342 4,287
— revisions of quantity estimates 2,736 3,397 1,715
— accretion of discount 4,226 5,628 4,279
— net change in income taxes (4,102 ) 5,618 (9,318 )
— purchase of reserves in-place 3,052 4,443 387
— sale of reserves in-place (7 ) (34 ) (646 )
— changes in production rates (timing) and other (844 ) (310 ) (980 )
Net increase (decrease) 9,948 (5,930 ) 7,709
End of year 32,701 26,771 34,480
~~30) Other Audit Reports not included herein~~
     Eni, as a state owned company, was required by law to have each of its subsidiaries examined by independent auditors each year through 1992. Thereafter, Eni continued with the procedure as a matter of corporate policy. Eni has engaged a principal auditor for the Consolidated Group accounts.
     ~~The audit reports of the principal auditor and the audit reports of certain major subsidiaries (i.e. Snam Rete Gas SpA, 59.8% owned, audited by Deloitte & Touche Italia SpA in~~ 2002 and by Arthur Andersen in 2001; the Company was incorporated on November 15, 2000 and began its operations on July 1, 2001; Saipem SpA, 43.0% owned, audited by Reconta Ernst&Young SpA in 2002 and 2001 and by KPMG SpA in 2000; Società Italiana per il Gas pA, 40.9% owned as of December 31, 2002 and now 100% owned after the public tender offer, audited by Reconta Ernst&Young SpA in 2002 and 2001, Arthur Andersen SpA in 2000 and Eni Portugal Investments SpA audited by Deloitte and Touche Italia SpA in 2001 and 2002) are included herein.2003.
     For 2000, the other subsidiaries of Eni not audited by the principal auditor and whose audit reports are not included herein, are summarized below (none of these subsidiaries represented more than 4% of Eni’s consolidated assets at December 31, 2002 or 6% of Eni’s consolidated revenues for the year 2000). The list below includes the names of the auditors of Eni’s subsidiaries not audited by Eni’s principal auditor in 2000, including those audited by other auditors who are referred to in the reports of the auditors of Società Italiana per il Gas pA and Saipem SpA.
~~Name of subsidiary~~ ~~Audit firm~~
~~Società Petrolifera Italiana~~ ~~Grant Thornton~~
~~Somicem~~ ~~Mazars & Guerard~~
~~Sitep — Société Italo Tunisienne d’Exploration~~ ~~KPMG Rached Fourati & Pétrolière SA Co International~~
~~Acquedotto Vesuviano~~ ~~Consulaudit~~
~~Eni Acqua Campania~~ ~~HLB Ria & Partners~~
~~Fiorentina Gas~~ ~~Bompani Audit~~
~~Italgas Hellas~~ ~~Consulaudit~~
~~Distribuidora De Gas Cuyana SA~~ ~~Ernst & Young~~
~~Inversora De Gas Cuyana SA~~ ~~Ernst & Young~~
~~Trans Austria Gasline Finance Co Ltd~~ ~~Rawlinson & Hunter~~
~~Trans Tunisian Pipeline Co Ltd~~ ~~PricewaterhouseCoopers~~
~~EniPower~~ ~~PricewaterhouseCoopers~~
~~Agip Gas~~ ~~Consulaudit~~
~~Atriplex~~ ~~Consulaudit~~
~~Big Bon Distribuzione~~ ~~S.G.R.C.~~
~~Costiero Gas Livorno~~ ~~PricewaterhouseCoopers~~
~~Ecofuel~~ ~~Consulaudit~~
~~Eni Portugal Investment~~ ~~Deloitte & Touche Italia~~
~~Mixoil~~ ~~PricewaterhouseCoopers~~
~~Petrolig~~ ~~PricewaterhouseCoopers~~
~~Petroven~~ ~~Consulaudit~~
~~Praoil Oleodotti Italiani~~ ~~Reconta Ernst & Young~~
~~Agip Benelux BV~~ ~~Deloitte & Touche~~
~~Agip (Zambia) Ltd~~ ~~KPMG~~
~~Ambiente~~ ~~Consulaudit~~
~~Ing. Luigi Conti Vecchi~~ ~~HLB Ria & Partners~~
~~Intermare Sarda~~ ~~Bompani Audit~~
~~SASP Offshore Engineering~~ ~~Grant Thornton~~
~~Sonsub~~ ~~Deloitte & Touche~~
~~Aquater~~ ~~Consulaudit~~
~~Consorzio Eni Per L’Alta Velocità (Cepav Uno)~~ ~~Deloitte & Touche~~
~~Consorzio Snamprogetti Foster Wheeler~~ ~~Deloitte & Touche~~
~~Snamprogetti Sud~~ ~~Grant Thornton~~
~~EMC Netherlands BV~~ ~~Moret Ernst & Young~~
~~European Marine Contractors Ltd~~ ~~Ernst & Young~~
~~Saipem Aban Drilling Co Private Ltd~~ ~~PricewaterhouseCoopers~~
~~Name of subsidiary~~ ~~Audit firm~~
~~Saipem Argentina S.A.M.I.C. YF~~ ~~Henry M. Lisdero Y Asociados (E&Y)~~
~~Saudi Arabian Saipem Ltd~~ ~~Whinney Murray & Co (E&Y)~~
~~Snamprotechint Serv. e Gestao de Projectos Lda~~ ~~PricewaterhouseCoopers~~
~~Padana Assicurazioni~~ ~~PricewaterhouseCoopers~~
~~Agenzia Giornalistica Italia~~ ~~HLB Ria & Partners~~
~~EniComunicazione~~ ~~HLB Ria & Partners~~
~~EniData~~ ~~Serca~~
~~EniTecnologie~~ ~~Neutra~~
~~Eurosolare~~ ~~HLB Ria & Partners~~
~~Servizi Aerei~~ ~~Consulaudit~~
~~Servizi Turistici Grantour~~ ~~S.G.R.C.~~
~~Tecnomare~~ ~~Deloitte & Touche~~
~~Territorio e Impresa (ex EniSud)~~ ~~Horwath & Horwath Italia~~
~~Eni International Bank Ltd~~ ~~PricewaterhouseCoopers~~
Changes in standardized measure of discounted future net cash flows
(million euro) 2001 2002 2003
Beginning of year 32,701 26,771 34,480
Increase (Decrease):
- sales, net of production costs (9,760) (10,064) (10,144)
- net changes in sales and transfer prices, net of production costs (16,754) 18,936 (1,050)
- extensions, discoveries and improved recovery, net of future production and development costs 1,027 1,810 1,855
- changes in estimated future development and abandonment costs (2,527) (2,697) (3,576)
- development costs incurred during the period that reduced future development costs 3,342 4,287 4,864
- revisions of quantity estimates 3,397 1,715 2,348
- accretion of discount 5,628 4,279 5,585
- net change in income taxes 5,618 (9,318) 105
- purchase of reserves in-place 4,443 387 1,488
- sale of reserves in-place (34) (646) (222)
- changes in production rates (timing) and other (310) (980) (4,469)
Net increase (decrease) (5,930) 7,709 (3,216)
End of year 26,771 34,480 31,264

	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, 2003
	OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-14090

~~PART II~~
Item 13.		DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Item 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Item 15.	CONTROLS AND PROCEDURES
Item 16. ~~[RESERVED]~~
~~PART III~~
~~Item 17. FINANCIAL STATEMENTS~~
~~Item 18. FINANCIAL STATEMENTS~~
~~Item 19. EXHIBITS~~
~~Exhibit 1~~
~~Exhibit 7~~
~~Exhibit 8~~
~~Exhibit 10.1~~


		16 A	~~Page~~Audit Committee Financial Expert

~~Certain Defined Terms~~				i
~~Presentation of Financial and Other Information~~				i
~~Statements Regarding Competitive Position~~				i
~~Glossary~~				~~iii~~
~~Conversion Table~~				v
~~PART I~~16 B
~~Item 1.~~	~~IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS (*)~~			1
~~Item 2.~~	~~OFFER STATISTICS AND EXPECTED TIMETABLE (*)~~			1
~~Item 3.~~	~~KEY INFORMATION~~			1
	~~Selected Financial Information~~			1
	~~Selected Operating Information~~			3
	~~Exchange Rates~~			4
	~~Risk Factors~~			4
~~Item 4.~~	~~INFORMATION ON THE COMPANY~~			9
	~~History and Development of the Company~~			9
	~~Business Overview~~			12
	~~Exploration & Production~~			12
	~~Gas & Power~~			23
	~~Refining & Marketing~~			32
	~~Petrochemicals~~			39
	~~Oilfield Services and Engineering~~			41
	~~Other Activities~~			45
	~~Research and Development~~			45
	~~Insurance~~			47
	~~Environmental Matters~~			47
	~~Regulation of Eni’s businesses~~			49
	~~Property, Plant and Equipment~~			57
	~~Organizational Structure~~			58
~~Item 5.~~	~~OPERATING AND FINANCIAL REVIEW AND PROSPECTS~~			59
	~~Critical Accounting Policies~~			59
	~~Background and Recent Developments~~			61
	~~Principles of Consolidation~~			63


		~~Page~~Code of Ethics

	~~Results of Operations~~		64
	~~Liquidity and Capital Resources~~		75
	~~Management Expectations of Operations~~		80
	~~Summary of Significant Differences~~		83
	~~Between Italian GAAP and U.S. GAAP~~
~~Item 6.~~	~~DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES~~		84
	~~Directors and Senior Management Compensation~~		84
	~~Board Practices~~		89
	~~Employees~~		93
	~~Share Ownership~~		94
~~Item 7.~~	~~MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS~~		95
	~~Major Shareholders~~		95
	~~Related Party Transactions~~		95
~~Item 8.~~	~~FINANCIAL INFORMATION~~		95
	~~Consolidated Statements and Other Financial Information~~		95
	~~Significant Changes~~		96
~~Item 9.~~	~~THE OFFER AND THE LISTING~~		96
	~~Offer and Listing Details~~		96
	~~Markets~~		98
~~Item 10.~~	~~ADDITIONAL INFORMATION~~		98
	~~Memorandum and Articles of Association~~		98
	~~Material Contracts~~		~~105~~
	~~Exchange Controls~~		~~105~~
	~~Taxation~~		~~105~~
	~~Documents on Display~~		~~109~~
~~Item 11.~~	~~QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK~~		~~110~~
~~Item 12.~~	~~DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES~~		~~112~~

Item 17.		FINANCIAL STATEMENTS ( * )
Item ~~13.~~18.	~~DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES~~	~~112~~	FINANCIAL STATEMENTS ( ** )
Item ~~14.~~19.	~~MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS~~		EXHIBITS


Ordinary shares of euro 1 each		~~4,001,814,026~~4,002,922,176


		16 C	~~Page~~Principal Accountant Fees and Services
16 D			Exemptions from the Listing Standards for Audit Committees
~~PART II~~16 E	Purchases of Equity Securities by the Issuer and Affiliated Purchasers

		~~112~~
~~Item 15.~~	~~CONTROLS AND PROCEDURES~~	~~112~~
~~Item 16.~~	~~RESERVED~~	~~112~~
~~PART III~~
~~Item 17.~~	FINANCIAL STATEMENTS (( )	~~113~~
~~Item 18.~~	~~FINANCIAL STATEMENTS (**)~~	~~113~~
~~Item 19.~~	~~EXHIBITS~~	~~113~~

		~~(*)~~ Omitted pursuant to General Instructions for Form 20-F.

( ** )		~~(**)~~ The Registrant has responded to Item 18 in lieu of responding to Item 17.


*~~Financial Terms~~*
Leverage		It is a non-GAAP measure of a ~~company’s debt,~~company's financial condition, calculated as the ratio between net borrowings and ~~shareholders’~~shareholders' equity, including minority interests. For a discussion of the usefulness of this measure and its reconciliation with the most directly comparable GAAP measure, see “Item 5 – Financial condition”.

Net borrowings		Eni evaluates its financial condition by reference to ~~«net borrowings»~~“net borrowings”, which itis a non-GAAP measure. Eni calculates net borrowings as total finance debt less: cash, cash equivalents and ~~cash equivalent~~certain very liquid investments not related to operations, including among others non-operating financing receivables and securities not related to ~~operations, non-operating~~operations. Non operating financing receivables ~~and other items, net. Non-operating financing receivables consists~~consist of amounts due to ~~Eni’s~~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 the usefulness of this measure and its reconciliation with the most directly comparable GAAP measure, see “Item 5 – Financial condition”.

~~Roace~~		Return On Average Capital Employed, is the return on average capital invested, calculated as the ratio between: (i) net income before minority interests, plus net financial charges on net borrowings, on a post-tax basis using a deemed tax rate equal to the Italian statutory tax rate; and (ii) net average capital employed. Capital employed is defined as the sum of shareholders’ equity, minority interest and net borrowings. Expressed as a percentage.

*~~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~~year.

Barrel		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 ~~equal to 0.0061 in the case of gas produced outside Italy and 0.0063 in the case of gas produced in Italy due to their different calorific values.~~(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 mining activities and for this reason it acquires a right on 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 heavy fractions that can be processed in certain dedicated facilities of a refinery to obtain finished products.

Deep waters		Waters deeper than 200 meters.

Development		Drilling and other ~~post-exploration~~post - exploration activities aimed at the production of oil and gas.

EPC		Engineering, Procurement, Construction.


EPIC		Engineering, Procurement, Installation, Construction.

Exploration		Oil and natural gas exploration that includes land surveys, geological and geophysical studies, seismic data gathering and analysis and well drilling.

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.

FPSO		Floating Production Storage and Offloading System.

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 and consumed. One ton 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 petrochemicals products). Margin trends reflect the trading environment and are, to a certain extent, a gauge of industry profitability.

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 of demand.

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 different from the agreed ones 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»~~(“PSA”)		Contract in use in African, Middle Eastern, Far Eastern and Latin American countries, regulating relationships between States and oil companies with regards to the exploration and production of hydrocarbons. The mining concession is assigned to the national oil company jointly with the foreign oil company who has exclusive right to perform exploration, development and production activities and can enter into agreements with other local or international entities. In this type of contract the national oil company assigns to the international contractor the task of performing exploration and production with the ~~contractor’s~~contractor's equipment and financial resources. Exploration risks are borne by the contractor and production is divided into two portions: ~~«cost oil»~~“cost oil” is used to recover costs borne by the contractor ~~«profit oil»~~and “profit oil” is divided between contractor and national company according to variable schemes and represents the profit deriving from exploration and production. Further terms and conditions may vary from one country to the other.

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 changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Proved reserves include: (i) proved developed reserves: amounts of hydrocarbons that are expected to be retrieved through existing wells, facilities and operating methods; and (ii) non developed proved reserves: amounts of hydrocarbons that are expected to be retrieved following new drilling, facilities and operating methods. OnBased on these amounts the company has already defined a clear development expenditure program which is an expression of the ~~company’s determination.~~company's determination to develop existing reserves.

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.


~~BCF~~		~~= billion cubic feet~~
~~BOE~~		~~= barrel of oil equivalent~~
~~mm/BBL~~		~~= million barrels~~
~~KBBL/d~~		~~= thousand barrels per day~~
~~mmCF/d~~		~~= million cubic feet per day~~


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 the gas set in the contract also in case it is not collected by the purchaser. The purchaser has the option of collecting the gas paid 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 sector that are downstream of exploration and production activities.


1 acre	= 0.405 hectares
1 barrel	= 42 U.S. gallons
1 ~~barrel of oil equivalent~~BOE	= 1 barrel of crude oil	= 5,600 cubic feet of natural gas in ~~Italy(1)~~ Italy⁽¹⁾
	= 5,800 cubic feet of natural gas outside ~~Italy(1)~~Italy⁽¹⁾
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 0.0063 barrels of oil equivalent in ~~Italy(1)~~	Italy ⁽¹⁾
	= approximately 0.0061 barrels of oil equivalent outside ~~Italy(1)~~	Italy ⁽¹⁾
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)


	Years ended December 31,

	1998		1999		2000		2001		2002

	(million € except number of shares and per share and per ADS data)
CONSOLIDATED INCOME STATEMENT DATA
Amounts in accordance with Italian GAAP:
Net sales from operations (1)		28,341		31,008		47,938		48,925		47,922


	As of December 31,

	1998		1999		2000		2001		2002

	(million 5 except number of shares)
CONSOLIDATED BALANCE SHEET DATA
Amounts in accordance with Italian GAAP:
Total assets, net		41,336		46,197		56,363		62,736		65,808
Short-term and long-term debt		9,465		9,551		11,044		12,819		15,420
Capital stock issued		4,132		4,133		4,133		4,001		4,002
Amounts in accordance with U.S. GAAP:
Total assets, net		42,562		47,612		57,257		64,976		66,122
Short-term and long-term debt		9,367		9,389		10,810		12,379		15,320
Capital stock issued		4,132		4,133		4,133		4,001		4,002
Other Financial Information
Capital expenditure		5,152		5,483		5,431		6,577		8,048
Investments (including net borrowings of acquired companies)		413		114		4,384		4,664		1,366
Weighted average number outstanding of ordinary shares (shares million)		4,001		4,001		3,994		3,910		3,826
Dividend per share(E)		0.310		0.362		0.424		0.750		0.750
Dividend per ADS($) (8)		1.61		1.70		1.81		3.71		3.93

	As of December 31,

	1999	2000	2001	2002	2003

	(million € except number of shares and dividend information)
CONSOLIDATED BALANCE SHEET DATA
Amounts in accordance with Italian GAAP:
Total assets, net	46,197	56,363	62,736	65,808	67,336
Short-term and long-term debt	9,551	11,044	12,819	15,420	16,254
Capital stock issued	4,133	4,133	4,001	4,002	4,003
Amounts in accordance with U.S. GAAP:
Total assets, net	47,612	57,257	64,976	66,122	71,995
Short-term and long-term debt	9,389	10,810	12,379	15,320	16,144
Capital stock issued	4,133	4,133	4,001	4,002	4,003
Other Financial Information
Capital expenditure	5,483	5,431	6,577	8,048	8,802
Investments (including net borrowings of acquired companies) ⁽⁸⁾	114	4,384	4,664	1,366	4,255
Weighted average number of ordinary shares outstanding (shares million)	4,001	3,994	3,912	3,827	3,778
Dividend per share (€)	0.362	0.424	0.750	0.750	0.750
Dividend per ADS ($)	1.70	1.81	3.71	4.29	4.72

(1)		Eni is a party to certain Production Sharing Agreements (PSAs) whereby a portion of ~~Eni’s~~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~~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~~Eni's share of oil and gas production. ~~Without this specific provision in its PSAs, Eni would otherwise be entitled to the sale proceeds of this portion of oil and gas production withheld.~~ Starting in 1999, in order to be consistent with international practices, Eni began classifying the value of production equivalent to such taxes as revenues and the associated taxes in the appropriate income tax account. This had the effect of increasing revenues and income taxes by euro 203 million in 1999, as well as oil and gas reserves. Prior year amounts have not been reclassified since the effect of this change on net income is immaterial. See ~~«Item~~“Item 4—~~Information on the Company—~~Exploration & Production—Oil and Natural Gas Reserves—Note 1 on page ~~14»~~26”.

(2)	As compared to 2002, in 2003 Eni's activities have been grouped differently: Syndial (former EniChem) has now been included in the “Other activities” segment, which includes all Eni companies not included in specific segments (such as, among others, EniData, Sieco, Tecnomare, EniTecnologie, Eni Corporate University, AGI); the new “Corporate and financial companies” segment has been created, which includes Eni Corporate, Sofid and the financial companies formerly included in the “Other Activities” segment. In order to allow for comparability with the prior year, data for 2002 have been reclassified accordingly; data of years before 2002 have not been reclassified as it is impractible to restate segment information for earlier periods.

(3)	Legislative Decree No. 164 dated May 23, 2000 requires Eni to unbundle its transmission and distribution activities from other businesses in the Natural Gas segment. In connection with such decree, Eni arranged for an independent appraisal of its transmission and distribution assets which resulted in estimates of the useful lives of such assets (40 years for pipelines and 50 for distribution networks). Such useful lives have also been confirmed by various reports issued by the Italian Authority for Electricity and Gas.

		Effective January 1, 2000, assets related to transmission and distribution activities are now depreciated based on the useful lives established by the aforementioned appraisal and no longer on the basis of useful lives established by the Ministry of Economy and Finance based on technical studies conducted for homogeneous industries ~~(10~~(10% and 8% for pipelines and distribution networks, respectively). ~~This~~In 2001, this lower rate of depreciation resulted in an increase in operating income amounting to euro 663 million, an increase in income before minority interest amounting to euro 396 million and an increase in net income amounting to euro 312 million. Also note that effective from January 2002, the new Gas & Power division is responsible for ~~Eni’s~~Eni's natural gas and electricity generation activities. For comparability, results of operations and financial data of the Natural Gas and Electricity Generation segments, which were reported separately until year 2001, have been ~~aggregated.~~aggregated in the new Gas & Power segment.

~~(3)~~	(4)	Extraordinary income (expense) is as defined under Italian GAAP. These items would not qualify as extraordinary under U.S. GAAP. See Notes 27 and 28 to the Consolidated Financial Statements.

~~(4)~~		~~Net income for 1998 includes a deferred tax asset attributable to the effect of initial application of a new accounting standard related to income taxes amounting to euro 60 million.~~

(5)		Euro per Share or dollars per American Depositary Share (ADS), as the case may be. Eni ~~Shareholders’~~Shareholders' Meeting held on June 1, 2001 resolved to convert the nominal value of Eni Shares into euro by applying the fixed exchange rate of 1936.27 lire per euro; reduce the resulting nominal value of each share from euro 0.516 to euro 0.5; and group two shares of nominal value euro 0.5 into one share with nominal value of 1 euro. The conversion, due to EU requirements, was effective from June 18, ~~2001.~~2001 . Starting from the same date, each ADS represents five Eni Shares. Consequently, all earnings per Share and earnings per ADS amounts in this selected financial data corresponding to prior periods have been restated to reflect the 2 for 1 reverse stock split. Earnings per share is calculated by dividing net income by the weighted-average number of shares issued and outstanding during the year, excluding treasury shares. In order to compare earnings per share to previous years, the number of shares issued through stock grants made in 2000, 2001 and 2002 has been added to the number of shares outstanding in previous years. The dilutive effect of potential ordinary shares when converted into ~~ordinary~~ shares underlying the outstanding stock options on earnings per share is not material. ~~At present, only shares assigned for no consideration are considered, as the conditions have not yet been met for the stock options to be exercised.~~ See ~~«Note~~Note 29 to the Consolidated Financial Statements — Stock ~~Compensation».~~Compensation.

(6)	The financial statements are stated in euro. The translations of certain euro amounts into U.S. dollars are included solely for the convenience of the reader. The convenience translations should not be construed as representations that the euro amounts have been, could have been, or could in the future be, converted into US dollars at this or any other rate of exchange. Data per ADS, with the exception of dividend per ADS in the years 1999 to 2002, were translated at the Noon Buying Rate of December 31 for each year presented ($~~1.0485~~1.2597 = ~~E1.00~~€ 1.00 at December 31, ~~2002).~~2003 ). Dividend per ADS for the years 1999 through 2002 has been translated into U.S. dollars using for each year presented the Noon Buying Rate of the payment date. On June ~~20, 2003,~~11, 2004 , the Noon Buying Rate was U.S. dollars ~~1.1616~~1.2011 = euro 1.00.

~~(6)~~		For information concerning certain differences between Italian GAAP and U.S. GAAP as applied to the Consolidated Financial Statements included elsewhere herein, see Notes 27 and 28 to the Consolidated Financial Statements.

(7)		See Note 28 to the Consolidated Financial Statements for details of operating income under U.S. GAAP by business segment for the last three years.

(8)		~~Except~~This item refers mainly to the acquisition cost of net equity of other companies and includes also the net borrowings of companies acquired. In 2003, it includes also the outlay for ~~year 2002, data have been translated into U.S. dollars using~~the tender offer for ~~each year presented the noon buying rate~~Italgas shares (euro 2,569 million). For a discussion of ~~the payment date.~~net borrowings, see “Item 5 Financial conditions”.


		Year ended at December 31,

		1998		1999		2000		2001		2002

Proved reserves at period end of:
	oil (mm/BBL)		2,881		3,137		3,422		3,948		3,783
	natural gas (BCF)		13,515		13,665		14,772		17,072		18,629
Proved reserves of hydrocarbons in mm/BOE at period end (1)			5,255		5,534		6,008		6,929		7,030
Finding and development costs per barrel of oil equivalent (three-year average) (2)			5.16		5.43		5.35		6.28		6.78
Reserve replacement ratio (3) (three-year average)			183		174		173		226		204
Reserve life index (4)			13.4		14.0		14.0		13.7		13.2
Average daily production of:
	oil (KBBL/d)		653		674		748		857		921
	natural gas (mmCF/d) (5)		2,176		2,209		2,493		2,827		3,015
Average daily production of hydrocarbons in KBOE/d (5)			1,038		1,064		1,187		1,353		1,449
Oil and gas production costs per barrel of oil equivalent (6)			3.56		3.64		3.61		3.85		3.83
Profit per barrel of oil equivalent (7)			0.13		4.11		7.86		5.48		5.08
Natural gas sales of primary distribution in Italy (8)			55.69		60.24		59.92		58.89		52.56
Natural gas sales of primary distribution in Europe (8)			—		—		1.33		3.07		8.20
Third-party transport of natural gas in Italy (8)			6.07		6.90		9.45		11.41		19.11
Length of natural gas distribution network in Italy at period end (9)			28.7		29.0		29.1		29.6		29.8
Electricity production sold (10)							4,766		4,987		5,004
Refined products production (11)			40.10		38.31		38.89		37.78		35.55
Standard capacity of wholly-owned refineries (12)			664		664		664		664		504
Capacity utilization of wholly-owned refineries (13)			103		96		99		97		99
Service stations at period end (in Italy and outside Italy)			12,984		12,489		12,085		11,707		10,762

(1)		Includes approximately ~~782,~~ 756, 783, 728, 779 and ~~779~~747 BCF of natural gas held in storage in Italy at December 31, ~~1998,~~ 1999, 2000, 2001, 2002 and ~~2002~~2003 respectively. See ~~«Item 4.~~ “Item 4—Information on the ~~Company-Exploration~~Company—Exploration and ~~Production-Storage»~~Production—Storage”. For 1999 data see ~~«Item 4.~~ “Item 4—Information on the ~~Company-Exploration~~Company—Exploration & ~~Production-Oil~~Production—Oil and Natural Gas ~~reserves-Note~~reserves—Note 1 on page ~~14».~~
26.
(2)		Consists of (i) the sum of costs incurred in respect of (a) acquisitions of unproved property and (b) exploration and development activities, divided by (ii) the increase in proved reserves attributable to (a) revisions of previous estimates, (b) improved recovery and (c) extensions and discoveries, in each case prepared in accordance with SFAS 69. In 2001, 2002 and ~~2002,~~2003, excluding the purchase cost of unproved property of Lasmo (acquired in year 2001) and Fortum Petroleum (acquired in 2003), as well as cost incurred in connection with Iranian buy-back ~~contract~~contracts in ~~year~~ 2002 ~~the indicator is~~and 2003, finding and development costs (three-year average) were 5.33, 5.67 and ~~5.67~~6.53 USD/~~boe~~BOE respectively. See the unaudited supplemental oil and gas information in Note ~~No.~~ 29 to the Consolidated Financial Statements. Expressed in dollars.

(3)		Consists of (i) the increase in proved reserves attributable to (a) purchases of minerals in place, (b) revisions of previous estimates, (c) improved recovery and (d) extensions and discoveries, 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 Note ~~No.~~ 29 to the Consolidated Financial Statements. Expressed as a percentage.

(4)		Consists of proved reserves at year-end divided by production during the year as set forth in the reserve tables, in each case presented in accordance with SFAS 69. See the unaudited supplemental oil and gas information in Note ~~No.~~ 29 to the Consolidated Financial Statements. Expressed on a yearly basis.

(5)		Natural gas production volumes exclude gas consumed in operations (94, ~~mmCF/d~~132 and ~~132~~151 mmCF/d in 2001, 2002 and ~~2002,~~2003, respectively). See also ~~«Item 4.~~ “Item 4—Information on the ~~Company-Exploration~~Company—Exploration and ~~Production-Production-Note~~Production—Production—Notes 1 and 3 on page ~~16»~~27”.

(6)		Consists of production costs (costs incurred to operate and maintain wells and field equipment) prepared in accordance with SFAS 69 divided by actual production net of production volumes of natural gas consumed in operations. See the unaudited supplemental oil and gas information in Note ~~No.~~ 29 to the Consolidated Financial Statements. Expressed in dollars.

(7)		Results of operations from oil and gas producing activities, divided by actual sold production, in each case prepared in accordance with SFAS 69. See the unaudited supplemental oil and gas information in Note ~~No.~~ 29 to the Consolidated Financial Statements. for a calculation of results of operations from oil and gas producing activities. Expressed in dollars.

(8)		Expressed in Billions of cubic meters.

(9)		Expressed in Thousands of kilometers.

(10)		Expressed in Gigawatthour.

(11)		Expressed in Millions of tons.

(12)		~~Thousands barrels/day.~~
Expressed in KBBL/d.
(13)		Expressed in Production as a percentage of capacity taking into account scheduled plant shutdowns.

Refining & Marketing

Petrochemicals

Oilfield Services Construction and Engineering

Other Activities

Seasonality

Research and Development

Hydrocarbon exploration and production

Eni Slurry Technology

Transmission: TAP Project

Conversion of natural gas into liquids

Innovative fuels: Plus 98

Hydrogen and Syngas System

Technologies for the development of hydrogen as energy vector

Insurance

Environmental Matters

Regulation of Eni’s businesses

Regulation of the Italian Hydrocarbons Industry

Item 10. ADDITIONAL INFORMATION

Memorandum and Articles of Association

Material Contractscontracts

Exchange Controls

Taxation

Documents on Display

Item 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES OF MARKET RISK

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Item 15. CONTROLS AND PROCEDURES

Item 16B. Code of Ethics

Item 16C Principal Accountant Fees and Services

Item 16D Exemptions from the Listing Standards for Audit Committees

Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers

(14)		Expressed in Thousands of liters per day.

(15)		Expressed in Millions of tons.
For year 2003 and 2002 data see Note 2 in the preceding page.
(16)		The sum of the order backlog of Saipem SpA and Snamprogetti SpA, expressed in millions of euro.


							At
	High		Low		Average(1)		Period End

	U.S. dollars per euro
Year ended December 31
1998		1.06		1.22		1.11		1.17
1999		1.18		1.00		1.06		1.01
2000		1.03		0.83		0.92		0.94
2001		0.95		0.84		0.90		0.89
2002		1.05		0.86		0.95		1.05

			At
	High	Low	Period End

	U.S.dollars per euro

December 2003	1.2597	1.1956	1.2597
January 2004	1.2853	1.2389	1.2452
February 2004	1.2848	1.2426	1.2441
March 2004	1.2431	1.2088	1.2292
April 2004	1,2358	1,1802	1,1975
May 2004	1.2274	1.1801	1.2217
June 2004 (through June 11, 2004)	1.2320	1.2011	1.2011

	•		~~San Donato Milanese (Milan), Via Emilia, 1;~~

	•		~~San Donato Milanese (Milan), Piazza Ezio Vanoni, 1;~~

	•		~~Gela (Sicily), Strada Provinciale, 82.~~

	•		Within its strategy of commercial policy integration and development of its natural gas segment also at international level, on November 25, 2002 Eni launched a public tender offer on all Italgas SpA ordinary shares outstanding not owned directly or indirectly by Eni, corresponding to approximately 56% of Italgas’ share capital. Eni offered a price of euro 13 per share, to be fully paid in cash. The public offering successfully closed on January 27, 2003 and Italgas shares were withdrawn from listing on the Italian Stock Exchange effective on February 7, 2003. Following the squeeze-out of the remaining minority shareholders, Eni now owns 100% of the share capital of Italgas. Total consideration paid pursuant to the tender offer amounted to approximately euro 2.5 billion;

	•		In March 2003 Eni completed the purchase of the Norwegian oil company Fortum Petroleum AS, which in 2002 produced 39 KBOE/d and held proved reserves of 159 mmBOE as of December 31, 2002. Total consideration plus financial debt acquired amounted to U.S. dollar 975 million. Management expects this acquisition to increase Eni’s hydrocarbon production in Norway in 2003 by approximately 40% from current level (94 KBOE/d)In 2003, hydrocarbon production reached 1.54 mmBOE/d, a 6% increase over year 2002. Eni’s proved reserves of hydrocarbons at December 31, 2003 reached 7,272 mmBOE, increasing by 242 mmBOE over 2002. The increase in proved reserves allowed Eni to replace 142% of production; this average was 118% without taking into account the effect of purchases and sales of property. The average reserve life index is 12.7 years (13.2 in 2002);

	•		Eni is pursuing a program for the rationalization of its portfolio of mineral assets aimed at concentrating its activities in areas with significant growth potential where Eni is the operator: in 2002 Eni sold 16 interests in fields in the North Sea, Italy and Qatar, as well as exploration permits and other assets; total proceeds amounted to euro 390 million. At the same time Eni acquired interests in operated or partially held assets in Kazakhstan, the United Kingdom, Norway and Australia for a total consideration of euro 317 million;

	•		Within the North Caspian Sea PSA (of which Eni is single operator with a 16.67% interest) the importance of the Kashagan oil field discovery in the Kazakh offshore of the Caspian Sea was confirmed by the appraisal activities performed and underway in the area. According to the management, this field represents the most important discovery in the oil industry of the past thirty years;

	•		In Libya, within the development (of which Eni is operator with a 50% interest) of the natural gas, oil and condensates fields of Wafa in the NC-169 A onshore permit and of Bahr Essalam (former structure C) in the NC-41 offshore permit, EPIC/EPC contracts were awarded for the construction of hydrocarbon treatment plants, an offshore production platform and relevant infrastructure. Management expects production to start in 2004 at Wafa and in 2005 at Bahr Essalam. Natural gas produced from both fields is planned to be transmitted to Italy trough an underwater pipeline linking Mellitah on the Libyan coast to Gela in Sicily. Management expects the laying of the pipeline to start in the second half of 2003 and transport operations to start in 2005. Natural gas volumes are projected to reach 8 billion cubic meters per year (Eni’s share is 4 billion). Such volumes have already been booked by operators in the natural gas sector under long-term supply contracts. Eni’s share of the total capital expenditure for the whole project amounts to euro 3.8 billion; of which 3.2 billion for the upstream phase;

	•		In Angola, in Block 15 (Eni’s interest 20%) development is ongoing of the oil fields discovered in the Kizomba area. This project is going to be carried out in phases. The first one, under completion, concerns the development of the Hungo and Chocalho fields; management expects production to start in 2004. For the purposes of the second phase, concerning the development of the Kissanje and Dikanza fields expected to start up in 2005, in January 2003 an FPSO vessel with a 250,000 KBBL/d treatment capacity and storage capacity of 2 million barrels was commissioned. Eni’s share of capital expenditure for the two phases amounts to U.S. dollar 1.29 billion;

	•		Eni and EnBW (Energie Baden-Württemberg AG, a German operator in electricity) acquired through a 50/50 German joint venture (EnBW-Eni Verwaltungsgesellschaft mbH) a 97.81% interest in GVS (Gasversorgung Süddeutschland GmbH), a regional operator in natural gas distribution in Germany GVS transports and sells approximately 7 billion cubic meters per year. The joint venture partners financed the transaction through a capital increase of about euro 178 million (Eni share is euro 89 million) as well as recourse to financial markets. The acquisition of GVS marks Eni’s entrance in a large natural gas market;

	•		Within its strategy of international expansion of gas activities, on March 14, 2003 Eni reached a final agreement with Spanish company Unión Fenosa SA for the purchase of a 50% interest in its subsidiary Unión Fenosa Gas. This transaction will be completed after the granting of authorizations by the relevant antitrust authorities; management expects Eni to pay euro 440 million as consideration. The transaction when finalised represents an important step in Eni’s strategy of international expansion and will strengthen Eni’s presence in the Spanish natural gas market, which management believes to have growth prospects and where Eni intends to increase its market share;

	•		The Blue Stream underwater pipeline linking Russia to Turkey through the Black Sea for the transportation of natural gas from Russia to the Turkish market was completed by the end of 2002. Commercial operations started in February 2003; management plans to supply the Turkish market with a maximum amount of 16 billion cubic meters of natural gas per year (Eni’s share is 8 billion cubic meters);

	•		Eni transferred its Priolo Refinery in Sicily to a newly established company in which Eni holds a minority stake (20%). Management plans to reduce progressively Eni’ refinery intake for its own account, targeting a reduction of 7.5 million tonnes per year by year 2006. Accordingly this transaction represents an important step in Eni’s strategy of downsizing its refining system, aimed at better balancing its own production with demand and at increasing supply flexibility;

	•		Eni continued its program for the restructuring of its distribution network in Italy, aimed at reaching European standards in terms of average throughput and services to customers. In 2002, Eni sold 246 service stations, closed down 549 service stations and upgraded its main network by building and purchasing about 150 owned and leased service stations. Average throughput in Italy increased by 3.9%. In 2003, management plans to sell further 330 service stations following agreements already finalized;

	•		Eni, through its subsidiary Saipem, purchased 100% of share capital of Bouygues Offshore through a public tender offer. Saipem offered a price of euro 60.08 per share, to be fully paid in cash. Total consideration amounted to euro 906 million (net of cash acquired for euro 100 million). The combination of Saipem’s construction capabilities supported by technologically advanced vessels and Bouygues Offshore’s engineering and project management expertise will strengthen Eni’s competitive position in the segment of large EPIC projects for the development of hydrocarbon fields.


	Year ended December 31,

	1998		1999 (1)		2000		2001		2002

	(mmBOE)
Italy		1,574		1,477		1,389		1,315		1,199
North Africa		1,686		1,849		1,929		2,122		2,033
West Africa		910		1,067		1,093		1,136		1,287
North Sea		666		646		700		879		825
Rest of World		419		495		897		1,477		1,686

Total		5,255		5,534		6,008		6,929		7,030


	Year ended December 31,

��	1998		1999		2000		2001		2002

					(KBBL/d)
Crude Oil and Condensates (2)
Italy		100		88		76		69		86
North Africa		213		221		227		228		252
West Africa		194		202		213		219		222
North Sea		112		116		124		204		213
Rest of the World		34		47		108		137		148
Total		653		674		748		857		921

(1)		Production information set forth above differs from production as reported in the reserve tables in Note 29 to the Consolidated Financial Statements — Supplemental oil and gas information (unaudited) because yearly production presented in such reserve tables is based on estimates taken in November of each year and the information above sets forth actual production during the year. Furthermore, Eni’s production of natural gas reported in such reserve tables includes, in addition to sold production, production volumes of natural gas consumed in operations. Natural gas produced and reinjected into storage fields in Italy remains part of Eni’s reserves for each period.


																	% of Eni’s
									Number		Number						Total Oil
			Number						of		of		Production		Production		and
	Commencement		of		Net				producing		other		of		of		Natural Gas
	of operations		interests		acreage(1)		Type of fields		fields		fields(2)		Crude Oil(3)		Natural Gas(4)		Production

Italy		1926		280		43,961	Onshore/Offshore			97		85		86		1,260		21.5
North Africa
Algeria		1981		27		6,527	Onshore			13		15		65		—		4.5
Egypt		1954		38		28,305	Onshore/Offshore			34		24		97		547		13.2
Libya		1959		7		21,268	Onshore/Offshore			8		10		79		—		5.5
Tunisia		1961		11		3,451	Onshore/Offshore			7		5		11		13		1.0
				83		59,551				62		54		252		560		24.1
West Africa
Angola		1980		37		4,157	Offshore			34		32		62		—		4.3
Congo		1968		17		7,507	Offshore			16		8		75		—		5.2
Gabon		1981		4		11,297	Offshore			1		—		2		—		0.1
Nigeria		1962		55		8,385	Onshore/Offshore			118		130		83		87		6.8
				113		31,346				169		170		222		87		16.4
North Sea
Norway		1964		30		2,768	Offshore			8		10		74		108		6.3
The Netherlands		2001		1		22	Offshore			2		—		—		9		0.1
United Kingdom		1964		81		3,445	Offshore			46		25		139		399		14.4
				112		6,235				56		35		213		516		20.8
Rest of World
China		1983		4		7,327	Onshore/Offshore			6		6		10		—		0.7
Croatia		1996		2		3,018	Offshore			1		6		—		32		0.3
Ecuador		1988		1		2,000	Onshore			1		1		22		—		1.5
Indonesia		2001		9		15,187	Onshore/Offshore			8		9		5		191		2.6
Iran		1957		4		423	Onshore/Offshore			1		3		3		—		0.2
Kazakhstan		1995		2		1,030	Onshore/Offshore			1		1		32		147		4.0
Pakistan		2000		11		8,193	Onshore			3		4		—		40		0.5
Qatar (5)		1992		—		—		—		—		—		5		—		0.3
Trinidad & Tobago		1970		2		621	Offshore			1		3		—		13		0.1
United States		1968		488		3,196	Offshore			15		5		29		169		4.0