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, 20056
OR
		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____
OR
		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report

Commission file number: 1-14090

Eni SpA
(Exact Namename of Registrant as Specifiedspecified in Its Charter)its charter)

Republic of Italy
(Jurisdiction of Incorporation or Organization)

Piazzale Enrico Mattei 1, 00144 Rome, Italy
(Address of Principal Executive Offices)principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act:Act.

None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:Act
.
None.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark whetherif the Registrantregistrant is a well knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act:Act.

If this report is an annual or transition report, indicate by check mark whetherif the Registrantregistrant is nornot required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:1934.

Note - Checking the box above will not relieve any registrant required to the file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:days.

Indicate by check mark whetherif the Registrantregistrant is a large accelerated filer, an accelerated filer, or a non accelerated filer. See definition of "Accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act:Act. (Check one):

Indicate by check mark which financial statement Item the Registrantregistrant has elected to follow:follow.

If this is an annual report, indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):.

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

TABLE OF CONTENTS

Certain Defined Terms

Presentation of Financial and Other Information

Statements Regarding Competitive Position

Glossary

Conversion Table

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Certain disclosures contained herein including, without limitation, information appearing in "Item 4 – Information on the Company", and in particular "Item 4 – Exploration & Production", "Item 5 – Operating and Financial Review and Prospects" and "Item 11 – Qualitative and Quantitative Disclosures about Market Risk" contain forward-looking statements regarding future events and the future results of Eni that are based on current expectations, estimates, forecasts, and projections about the industries in which Eni operates and the beliefs and assumptions of the management of Eni. Eni may also make forward-looking statements in other written materials, including other documents filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). In addition, Eni’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. In particular, among other statements, certain statements with regard to management objectives, trends in results of operations, margins, costs, return on capital, risk management and competition are forward looking in nature. Words such as ‘expects’, ‘anticipates’, ‘targets’, ‘goals’, ‘projects’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’’seeks’, ‘estimates’, variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Therefore, Eni’s actual results may differ materially and adversely from those expressed or implied in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled "Risk Factors" and elsewhere. Any forward-looking statements made by or on behalf of Eni speak only as of the date they are made. Eni does not undertake to update forward-looking statements to reflect any changes in Eni’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any further disclosures Eni may make in documents it files with the SEC.

CERTAIN DEFINED TERMS

In this Form 20-F, the term "Eni", the "Group", or the "Company" refers to the parent company Eni SpA and its consolidated subsidiaries and, unless the context otherwise requires, their respective predecessor companies. All references to "Italy" or the "State" are references to the Republic of Italy, all references to the "Government" are references to the government of the Republic of Italy. For definitions of certain oil and gas terms used herein and certain conversions, see "Certain Oil and Gas Terms""Glossary" and "Conversion Table".

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The Consolidated Financial Statements of Eni, included in this annual report, have been prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB) and adopted by the European Commission following the procedure contained in Article 6 of the EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002. Until December 31, 2004, Eni prepared its Consolidated Financial Statements and other interim financial information (including quarterly and semi-annual data) in accordance with Italian GAAP. IFRS require adopting companies to restate only one year of past financial statements. Pursuant to SEC Release 33-8567, "First-time Application of International Financial Reporting Standards", Eni is not required to include in this annual report financial statements for any earlier periods.
Accordingly this annual report includes financial informationinformations prepared in accordance with IFRS as of and for the twothree years ended December 31, 2004, 2005 and 2005.2006.

IFRS, under which Eni’s Consolidated Financial Statements have been prepared, differ in certain significant respects from U.S. GAAP. For information on the differences between IFRS and U.S. GAAP as they relate to Eni, see Notes 33, 3436, 37 and 3538 to Eni’s Consolidated Financial Statements included herein.

Unless otherwise indicated, any reference herein to "Consolidated Financial Statements" is to the Consolidated Financial Statements of Eni (including the Notes thereto) included herein.

Unless otherwise specified or the context otherwise requires, references herein to "dollars", "$", "U.S. dollars", "USD" and "U.S. $" are to the currency of the United States and references to "euro", "EUR" and "€" are to the currency of the European Monetary Union.

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STATEMENTS REGARDING COMPETITIVE POSITION

Statements made in "Item 4 – Information on the Company", referring to Eni’s competitive position are based on the company’s belief, and in some cases rely on a range of sources, including investment analysts’ reports, independent market studies and Eni’s internal assessment of market share based on publicly available information about the financial results and performance of market participants. Market share estimates contained in this document are based on management estimates unless otherwise indicated.

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GLOSSARY

A glossary of oil and gas terms is available on Eni’s web page at the address www.eni.it. Below is a selection of the most frequently used terms.

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ABBREVIATIONS

CONVERSION TABLE

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PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

NOT APPLICABLE

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

NOT APPLICABLE

Item 3. KEY INFORMATION

Selected Financial Information

The Consolidated Financial Statements of Eni have been prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB) and adopted by the European Commission following the procedure contained in Article 6 of the EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002. Until December 31, 2004, Eni prepared its Consolidated Financial Statements and other interim financial information (including quarterly and semi-annual data) in accordance with Italian GAAP. IFRS requirerequired adopting companies to restate only one year of past financial statements.statements prepared under previous GAAP. Pursuant to SEC Release 33-8567, "First-time"First-time Application of International Financial Reporting Standards"Standards", Eni is not required to include in this annual report IFRS selected financial statementsinformation for any earlier periods. Accordingly the tables below show Eni selected historical financial data prepared in accordance with IFRS as of and for the years ended December 31, 2004, 2005 and 20052006 and in accordance with U.S. GAAP for the five yearfive-year period ended December 31, 2005.2006. The selected historical financial data for the years ended December 31, 2004, 2005 and 2006 are derived from Eni’s Consolidated Financial Statements included herein. IFRS, under which Eni’s Consolidated Financial Statements have been prepared, differ in certain significant respects from U.S. GAAP. For information on the differences between IFRS and U.S. GAAP as they relate to the Eni, see Notes 33, 3436, 37 and 3538 to the Eni’s Consolidated Financial Statements.

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Selected Operating Information

The table below sets forth selected operating information with respect to Eni’s proved reserves, developed and undeveloped, of crude oil (including condensates and natural gas liquids) and natural gas, as well as other data as of and for the years ended December 31, 2001, 2002, 2003, 2004, 2005.2005, 2006. Data on proved reserves, production of oil and natural gas and hydrocarbon production sold includes Eni’s share of reserves and production of affiliates and joint ventures accounted for under the equity or cost method of accounting.

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Exchange Rates

The following table sets forth, for the periods indicated, certain information regarding the Noon Buying Rate in U.S. dollars per euro, rounded to the second decimal (Source: The Federal Reserve Board).

Fluctuations in the exchange rate between the euro and the dollar affect the dollar equivalent of the euro price of the Shares on the Telematico and the dollar price of the ADSsADRs on the NYSE. Exchange rate fluctuations also affect the dollar amounts received by owners of ADSsADRs upon conversion by the Depository of cash dividends paid in euro on the underlying Shares. The Noon Buying Rate on June 12, 20062007 was $1.26$1.33 per euro 1.00.

Risk Factors

Competition

There is strong competition worldwide, both within the oil industry and with other industries, in supplyingto supply energy to the industrial, commercial and residential energy markets.

In the Exploration & Production business, Eni encounters competition from other international oil companies for obtaining exploration and development rights, particularly outside Italy. The current trend of the industry towards a reduction of the number of operators via takeovers or mergers might lead to possibly stronger competition from operators with greater financial resources and a wider portfolio of development projects.

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 Italian market to competition, limitations to the size of gas companies relative to the market and third party access to transport infrastructure. In addition, Legislative Decree No. 164/2000 grants the Italian Authority for Electricity and Gas certain regulatory powers in the matters of natural gas pricing and access to infrastructure, among others. In its electricity business, Eni competes with other producers from Italy or outside Italy which sell electricity on the Italian market.

Eni faces competition from several international oil companies in all areas of its refinery and refined product marketing businesses. operations:

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Risks associated with the exploration and production of oil and natural gas

The exploration and production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks and opportunities.risks. 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 interventionconditions imposed by governments throughout the world in matters such as the award of exploration and production interests, the imposition of specific drilling and other work obligations, environmental protection measures, control over the development and abandonment of fields and installations, and restrictions on production. The oil and gas industry is subject to the payment of royalties and excise duties,income taxes, which tend to be higher than those payable in respect of many other commercial activities.

Exploratory drilling efforts may not be successful

Drilling for oil and gas involves numerous risks including the risk of dry holes or failure to find commercial quantities of hydrocarbons. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be unsuccessful as a result of a variety of factors, including among others, unexpected drilling conditions, pressure or irregularities in formations, equipment failures or fires, blow-outs and various forms of accidents, marine risks such as collisions and other adverse weather conditions and shortages or delays in the delivery of equipment. Exploring or drilling in offshore areas, in particular in deep water, is generally more complex and riskier than in onshore areas; so it is exploratory activity in remote areas or in challenging environmental conditions such as those in the case of the Caspian Region or Alaska.

Failure
Failures in the activity of exploration offor oil and natural gas could have an adverse impact on Eni’s future results of operations and financial condition. Because of the percentage of Eni’s capital plans devoted to higher risk exploratory projects, it is likely that Eni will continue to experience significant exploration and dry hole expenses. In particular Eni plans to explore for oil and gas offshore, often in deep water or at deep drilling depths, where operations are more difficult and costly than on land or at shallower depths and in shallower waters. Deep water operations generally require a significant amount of time between a discovery and the time that Eni can produce and market the oil or gas, increasing both the operational and financial risks associated with these activities. In addition, lack of necessary equipmentsessential equipment such as a shortage of deep water rigs could further delay operations, thus increasing both operational and financial risks.

In addition, failure in finding additional commercial reserves could dampen future production of oil and natural gas which is highly dependent on the rate of success of exploratory activity.

Development projects bear significant operational risks which may adversely affect actual returns on such projects

Eni is involved in numerous development projects for the production of hydrocarbon reserves, principally offshore. Eni’s future results of operations rely upon its ability to develop and operate major projects as planned. Key factors that may affect the economics of those projects include:

•		the outcome of negotiations with co-venturers, governments, suppliers, customers or others (including, for example, Eni’s ability to negotiate favorable long-term contracts with customers, the development of reliable spot markets that may be necessary to support the development of particular production projects, or commercial arrangements for pipelines and related equipment to transport and market hydrocarbons);
•		timely issuance of permits and licenses by governmentalgovernment agencies;
•		the ability to design development projects as to prevent the occurrence of technical difficulties including inconvenience;
•		delays in manufacturing and delivery of critical equipment, and, or shortages in the availability of such equipment;
•		risks associated with the use of new technologies;technologies and the inability to develop advanced technologies to maximize the recoverability rate of hydrocarbons or gain access to previously inaccessible reservoirs;
•		changes in operating conditions and costs, including costs of third party equipment or services such as drilling rigs and shipping;
•		the actual performance of the reservoir and natural field decline;
•		the availability of third party equipment or services; and
•		the ability and time necessary to realizebuild suitable transport infrastructures to export production towards final markets.

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Furthermore, deep water and other hostile environments, where the majority of Eni’s planned and existing development projects are located, can exacerbate these problems. Delays and differences between estimated and actual timing of critical events may adversely affect the completion and start-upstart up of production from such projects and, consequently, the actual returns on such projects. Finally, developing and market hydrocarbons reserves typically requires several years after a discovery is made. This is because a development project involves an array of complex and lengthy activities, including appraising a discovery in order to evaluate its commerciality, sanctioning a development project and building and commissioning related facilities. As a consequence, rates of return of such long-lead-time projects are exposed to the volatility of oil and gas prices which may be substantially lower with respect to prices assumed when the investment decision was actually made, leading to lower rates of return.

Inability in replacing oil and natural gas reserves could adversely impact results of operations and earningsfinancial condition

Eni’s results of operations and earningsfinancial condition are substantially dependent on ourits ability to develop and sell oil and natural gas. Unless we arethe Company is able to replace produced oil and natural gas, ourits reserves will decline. Future oil and gas production are dependent on the company’s ability to access new reserves through new discoveries, application of improved techniques, success in development activity, negotiation with countries and other owners of known reserves and acquisitions. An inability to replace reserves could adversely impact future production and hence future results of operations.operations and financial condition.

Lifting and development costs are increasingtrending up and this could reduce profit per BOE forin the oil industryExploration & Production segment

Profit marginsProfits per BOE in the oil industryExploration & Production segment are being affected by a steady rising trend in lifting and development costs as a result of the following:industry-wide operating factors: (i) the increasingly high percentage of complex development projects (such as those in deep and ultra deep waters and in harsh environments) which bear higher lifting and development costs as compared to development projects in traditional environments; (ii) inflationary pressure affectingcontinuing increases in the purchase prices of raw materials and services in connection to the worldwidewith sector-specific inflation and a global economic recovery; and (iii) lackan increasingly severe shortage of specialized resources (such as engineers and other valuable technicians) and critical equipment (such as drilling rigs) especially in remote areas. Eni’s management expects this rising trend ofin lifting and development costs to continue, in the medium term and this could leadmedium-term leading to a reduction in our profit margins per BOE. If the Company is not able to compensate for lower unit profits with increased production volumes, its results of operations and financial condition will be negatively impacted.

Changes in crude oil and natural gas prices may adversely affect Eni’s results of operations

The exploration and production of oil and gas is a commodity business with a history of price volatility. The single largest variable that affects the company’s results of operations and financial condition is crude oil prices. Except with respect to single transactions, Eni does not hedge its exposure to price changes. As a consequence, Eni’s profitability depends heavily on crude oil and natural gas prices.
Crude oil and natural gas prices are subject to international supply and demand and other factors that are beyond Eni’s control. OPEC member countries control, production ofincluding among other things:

(i)		the control on production exerted by OPEC member countries which cover a significant portion of the worldwide supply of oil and can exercise substantial influence on price levels;
(ii)		global geopolitical and economic developments, including sanctions imposed on certain oil-producing countries on the basis of resolutions of the United Nations or bilateral sanctions;
(iii)		global and regional dynamics of demand and supply of oil and gas;
(iv)		prices and availability of alternative sources of energy;
(v)		governmental and intergovernmental regulations, including the implementation of national or international laws or regulations intended to limit greenhouse gas emissions, which could impact the prices of hydrocarbons; and
(vi)		success in developing new technology.

All these factors can exercise substantial influence on its price levels. International geopolitical tensions and political developments, including sanctions imposed on certain oil-producing countries on the basis of resolutions of the United Nations, can also affect world supply and prices of oil. Such factors can also affect the prices of natural gas because natural gas prices are typically tied to the prices of certain crudescrude and refined petroleum products. Lower crude oil prices could have an adverse impact on Eni’s results of operations.
operations and financial condition. Furthermore, lower oil and gas prices over prolonged periods may also reduce the rates of return of development projects either planned or being implemented, leading the Company to reschedule, postpone or cancel development projects. In addition, lower prices also affect liquidity, entailing lower resources to finance expansion projects, further dampening our ability to grow future production and revenues.

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Uncertainties in Estimates of Oil and Natural Gas Reserves

Numerous uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The accuracy of proved reserve estimates depends on a number of factors, assumptions and variables, among which the most important are the following:

•		the quality of available geological, technical and economic data and their interpretation and judgement;judgment;
•		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 estimates which may require substantial upward or downward revisions;
•		changes in oil and natural gas prices which could have an effect on the quantities of Eni’s proved reserves because the estimates of reserves are based on prices and costs at the date when such estimates are made. In particular the reserves estimates are subject to revision as prices fluctuate due to the cost recovery feature under certain Production Sharing Agreements (PSAs); and
•		the actual production performance of Eni’s reservoirs.

Many of these factors, assumptions and variables involved in estimating proved reserves are beyond Eni’s 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 proved reserves would indicate lower future production volumes which could adversely impact Eni’s results of operations and financial condition.

Oil and gas activity may be subject to increasingly high levels of income taxes, production taxes and royalties

Eni operates in different countries in the world and any of these countries could modify their tax laws, regarding both income taxes and other kind of taxes, in ways that would adversely affect Eni’s results leadingof operations and its financial condition.
Adverse changes in tax regimes of each jurisdiction in which Eni operates may occur anytime, regardless of the level of stability of the political and legislative framework in each of our countries of operations. In addition, in the long-term, the marginal tax rate in the oil and gas industry tends to change in correlation with the price of crude oil which could make it difficult for Eni to translate higher oil prices into increased depreciation, depletion and amortization charges and/or impairment charges, which would reduce earnings and shareholders’ equity.
net profit.

Political Considerations

A substantial portion of our oil and gas reserves and gas supplies are located in politically, socially and economically unstable countries where we are exposed to material disruptions to our operations

Substantial portions of Eni’s hydrocarbon reserves are located in countries outside the EU and North America, some of which may be politically or economically less stable than EU or North American countries. At December 31, 2005,2006, approximately 73%70% of Eni’s proved hydrocarbon reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supply comes from countries outside the EU and North America. In 2005,2006, approximately 60% of Eni’s supplies of natural gas came from such countries. See "Item 4 – Gas & Power – Natural Gas Supplies". Adverse political, social and economic developments in any such producing country may affect Eni’s ability to continue operating in that country, either temporarily or permanently, and affect Eni’s ability to access oil and gas reserves. In operating in politically unstable countriesParticularly Eni faces risks in connection with the following: (i) lack of well-established and reliable legal systems;systems and uncertainties surrounding enforcement of contractual rights; (ii) other politicalunfavorable developments andin laws and regulations (such asleading for example to expropriation or forced divestiture of assets and unilateral cancellation or modification of contract terms), for examplecontractual terms. A case in April 2006,point is the expropriation of Eni’s titles and mineral assets relating to an important oil field were transferred toin Venezuela which occurred in 2006, following the Venezuelan state oil company following its unilateral cancellation of the contract regulating oil activities in this field by the field;Venezuelan state oil company; (iii) restrictions on exploration, production, imports and exports; (iv) tax or royalty increases (including retroactive claims); and (v) civil and social unrest leading to sabotages, acts of violence and incidents, for example, in the first quarter of 2006 certain episodes of civilsocial unrest in Nigeria which caused disruptions at certain Eni oil producing facilities.facilities, reducing our production in this Country by approximately 1.7% from the previous year. These episodes have been recurring in the first months of 2007. See "Item 4 – Exploration & Production – Oil and Natural Gas Reserves"; and "Item 5 – Recent Developments". While the occurrence of these events is unpredictable, it is possible that they can have a material adverse impact on Eni’s results of operations and financial condition.

Our activities in Iran could lead to sanctions under relevant U.S. legislation

In August 1996, the United States adopted the Iran and Libya Sanctions Act (the "Sanctions Act") with the objective of denying Iran and Libya the ability to support acts of international terrorism and fund the development or acquisition of weapons of mass destruction. On April 23, 2004 the President of the United States terminated the application ofIn September 2006, the Sanctions Act to Libya, with the remaining economic sanctions against Libya lifted on September 23, 2004. The Sanctionswas amended and extended until December 2011.

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This Act stillnow applies only to Iran and authorizes the President of the United States to impose sanctions from a six-sanction menu under certain circumstances against any person, including any foreign company, making investments in Iran, thus contributing directly and significantly to the enhancement of Iran’s ability to develop its hydrocarbons resources. The Sanctions Act is scheduledresources, or against any persons that knowingly contribute to expire on August 5, 2006.certain military programs of Iran. Eni does not believe that enforcementcannot predict interpretations of, or the implementation policy of the Sanctions Act against it would have a material adverse effect on its financial conditionU.S. Government under, ISA with respect to Eni’s current or results of operations. However,future activities in Iran or other areas. It is possible that in future years Eni’s activities in Iran may be sanctioned under relevant U.S. legislation. Adding to Eni’s risks arising from this matter, a bill to amend and extend the extra-territorial reach of the economic sanctions imposed by the United States with respect to Iran has been passed by the U.S. House of Representatives and may lead to the passage of new laws in this area. Iran continues to be designated by the U.S. State Department as a State sponsoring terrorism. For a description of Eni’s operations in Iran and Libya see "Item 4 – Information on the Company – Exploration and& Production – North Africa and Rest of World".

Cyclicality of the Petrochemical Industry

The petrochemical industry is subject to cyclical fluctuations in demand, with consequent effects on prices and profitability exacerbated by the highly competitive environment of the industry. Eni’s petrochemicals operations, which are located mainly in Italy, have been in the past and may be adversely affected in the future be adversely affected by worldwide excess installed production capacity, as well as by economic slowdowns in many industrialized countries. The dislocation of petrochemical activities to geographic areas like the Far East and oil producing countries which provide long-term competitive advantages has weakened the competitiveness of petrochemicals operations in industrialized countries, including Eni’s petrochemical operations. 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.

Liberalization of the Italian Natural Gas Market

Legislative Decree No. 164/2000 opened completelyto competition the Italian natural gas selling market starting on January 1, 2003. This means that all customers in Italy are free to choose their supplier of natural gas. The decree, among other things, introduced rules which have a significant impact on Eni’s activity, as the company is present in all the phases of the natural gas chain, in particular:

•		until December 31, 2010, antitrust thresholds are in place for gas operators will be calculated as a percentage share of national consumption as follows: (i) effective January 1, 2002, 75% for imported or domestically produced natural gas volumesno single operator can input into the national transport network and destined to sales; this percentage is to decreaseimported or domestically produced gas volumes higher than 75% of final consumption, decreasing by 2 percentage points per year until it reaches 61% in 2009; and (ii) effective January 1, 2003, no single operator can market more than 50% for salesof volumes sold to final customers. Compliance with these ceilings is verified annuallyon a yearly base by comparing the allowed average percentage on a three year basis for volumes input or sold to the average percentage obtained by each operator in the same three yearthree-year period. Allowed percentages are calculated net of losses (in the case of sales) and volumes of natural gas consumed in own operations. In accordance with Article 19, paragraph 4 of Legislative Decree No. 164/2000 the volumes of natural gas consumed in own operationsBased on a bill passed 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 networkupper house, Eni expects these antitrust thresholds to be soldrenewed once they have expired in Italy;2010;
•		transport of natural gas by means of high pressure trunklines, storage of natural gas, LNG facilities and distribution of natural gas in urban centers by means of low pressure networks are activities of public relevance and criteria for determining tariffs of those activities are set by the Authority for Electricity and Gas; and
•		third parties are allowed to access natural gas infrastructure – which comprises, among other things, high pressure trunklines, low pressure networks and storage sites – according to certain conditions set by the Authority for Electricity and Gas.

The new regulatory regime has the effect of limiting the size and profitability of Eni’s natural gas business in Italy.

Eni’sEni has been experiencing significant pressure on its natural gas marginmargins¹ since the inception of the liberalization process in Italy may decrease permanently compared to historical levelsItaly. In addition, unfavorable trends in Italian demand and supply of gas could add further pressure.

In order to meetSince the expected growthinception of the liberalization process in the Italian natural gas market, over the medium and long-term, Eni entered into long-term purchase contracts with producing countries that currently have a residual average term of approximately 15 years. Existing contracts, whichhas been experiencing rising competition in general contain take-or-pay clauses, will ensure total delivery of approximately 67.3 BCM/y ofits natural gas (Russia 28.5, Algeria 21.5,business entailing lower selling margins on gas due to the Netherlands 9.8, Norway 6 and Nigeria 1.5)entry of new competitors into the market. Certain competitors of Eni’s are supplied by 2008. The above quantities are basedthe Company itself, generally on the annual contract quantitybasis of the relevant contract. The average annual minimum quantity that Eni is committed to purchase under its take-or-pay obligations is approximately 85% of said quantities.long-term contracts. In fact in order to comply with the above mentioned regulatory thresholds relating to volumes input into the national transport network and sales volumes in Italy, Eni signed multi-year contracts with third party importers in Italy and started implementing a strategysold part of increasing naturalits gas sales in the rest of Europe in order to sell outside Italy natural gas volumes availableavailability under its take-or paytake-or-pay supply contracts exceeding mandatory thresholds. In prior years Eni sold the majority of its natural gas availabilityto third parties importing said volumes to and marketing them on the Italian market. This change inFor more information on Eni’s take-or-pay contracts, see "Item 4 – Gas & Power – Natural gas purchases".

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(1)

For a definition of margin see "Glossary".

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Over both the sale mix is structuralmedium and is adversely affecting Eni’s results of operations. Further,the long-term, management expects Eni’sEni selling margins on natural gas in Italy to comeremain under pressure in future years due to the entry into the market of new competitors, including the impact of the build-up of Eni’s supplies to the above mentioned competitors and possibly new competitors entering the Italian importers.market also in light of ongoing or planned upgrading of import infrastructure to Italy. In fact, Eni is currently implementing its plans to upgrade its natural gas import infrastructure from Algeria and Russia to Italy to achieve an increase of 13 BCM per year in transport capacity, with expected start up in 2008 reaching full operation in 2009. Further 3 BCM per year of new import capacity will be achieved by upgrading the GreenStream gasline from Libya with expected start up in 2010, reaching full operation in 2011. A large portion of this expected additional capacity has been or is planned to be awarded to third parties. In addition, certain operators in the Italian natural gas market have publicly announced plans to develop new import infrastructure to Italy. In particular, Eni expects that a new LNG terminal with an 8 BCM per year capacity will commence operations by 2009 thus adding new import capacity to the Italian market. Over the long-term, management believes that should the pace of demand growth not match the expected increase in supplies to the Italian natural gas market, Eni’s selling margins on gas could face a further increase in competitive pressure which would negatively affect Eni’s results of operations and financial conditions.

Eni growth prospects in Italy are limited by regulation

Due to the antitrust threshold on direct sales in Italy, management expects Eni’s natural gas sales in Italy to increase at a rate that cannot exceed the growth rate of natural gas demand in Italy. Management believes this development might have a material adverse impact on Eni’s results of operations.

If Eni fails to grow natural gas sales in Europe as planned, Eni may be unable to fulfill its minimum take obligations under take-or-pay purchase contracts and this could adversely impact results of operations and financial condition.

Over the medium term,medium-term, Eni plans to increase its natural gas sales in Europe also to absorb its natural gas availability under take-or-pay contracts. Should Eni fail to increase natural gas sales in Europe as planned, Eni may be unable to sell all thesome volumes of natural gas purchased under take-or-pay contracts might remain unsold, and this could adversely impact Eni’s results of operations.operations and financial condition.

Due to the regulated access to natural gas transport infrastructure in Italy, 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 the natural gas volumes which Eni is committed to purchase under take-or-pay contract obligationsobligations.

Over the next few years, Eni plans to import certain volumes of natural gas using the highest purchase flexibility as provided for by its take-or-pay purchase contracts. Eni also assumes that it will be entitled to the necessary transport capacity on the Italian transport infrastructure. However, Eni planning assumptions are inconsistent with current rules regulating the access to Italian transport infrastructure as provided for by the Network Code drafted under Decision No. 137 of July 17, 2002 of the Authority for Electricity and Gas. Such rules established certain priority criteria for the entitlement to transport capacity of natural gas at points where the Italian transport infrastructure connects with international transport networks (the so-called entry points to the Italian transport system). In particular current rules establish that take-or-pay contracts entered into before 1998, as in the case of Eni, have the right to a priority in the entitlement to available transport capacity equal to average daily contractual volumes. There is therefore no guaranteed access priority for Eni’s contracted volumes exceeding average daily contractual volumes. In fact, take-or-pay contracts entered into by Eni before 1998 envisage Eni’s right to offtakeoff take daily volumes larger than the average daily contractual volume; this contractual flexibility provided by the difference between the maximum daily volume Eni is allowed to purchase and the average daily contractual volume is used when demand peaks, usually during the winter. In the event of congestion at entry points, natural gas volumes not receiving priority are entitled to available transport capacity in proportion with requests from operators. Eni considers Decision No. 137/2002 to be inconsistent with the overall rationale of the European natural gas legislative framework, especially with reference to Directive 98/30/CE and Legislative Decree No. 164/2000, and is challenging Decision No. 137/2002 before the competent administrative courts. See "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power". However, Eni cannot rule out a negative outcome in this matter. Accordingly, management believes that Eni’s results of operations could be adversely affected should market conditions and/or regulatory constraints prevent Eni from selling its whole availability of natural gas purchased to fulfill take-or pay contract obligations (i.e.,(e.g. in case a congestion occurs at the entry points of the Italian transport infrastructure whichinfrastructure. Eni would force Enibe forced to offtakeoff take a smaller volume of gas than the minimum contractual off take). See "Item 5 – Management Expectations of Operations".

The Italian Government, Parliament and regulatory authorities in Italy and in Europe may take further steps to improveboost competition in the Italian natural gas market and such regulatory developments may adversely affect Eni’s results of operationsoperations.

Eni cannot predict future developmentsInstitutional and political forces are urging a higher degree of competition in the regulation of the Italian natural gas market. Also an institutional debate is ongoing in Italy regarding the liberalization of the natural gas market and this may produce significant developments on this matter. A brief description follows of certain recently enacted laws and certain proceedings before the Authority for Electricity and Gas and the Italian Antitrust Authority in order to allow investors to gain some insight of the complexity of this matter. For a full discussion of laws and procedures described herein see "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power ".Power".

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In 2003, Law No. 290 was enacted which prohibits Eni from holding an interest higher than 20% in undertakings owning natural gas transport infrastructure in Italy (Eni currently holds a 50.07%50.04% interest in Snam Rete Gas, which owns and manages approximately 97% of the Italian natural gas transport infrastructure). The Italian Budget Law for 2007 establishes that the provisions to implement Law No. 290/2003 will be enacted through a decree from the Italian Prime Minister. The term for the disposal envisaged by Law No. 290/2003, which was initially fixed at December 31, 2008, will be redetermined in 24 months after the effective date of said decree from the Italian Prime Minister. Currently, Eni is unable to predict that date.

On the basis of the findings of a joint inquiry conducted from 2003 through June 2004 on the Italian natural gas market, the Authority for Electricity and Gas and the Italian Antitrust Authority (the "Antitrust Authority") acknowledged that the overall level of competition of the Italian natural gas market is unsatisfactory due to the dominant position held by Eni in many phases of the natural gas chain. According to both the Authority for Electricity and Gas and the Antitrust Authority, the vertical integration of Eni in the supply, transport and storage of gas has restricted the development of competition in Italy notwithstanding the antitrust ceilings introduced by Legislative Decree No. 164/2000. It was further stated that the price of natural gas in Italy (in particular for the industrial sector) is higher than in other European countries.

In October 2005,November 2006, the Authority for Electricity and Gas startedconcluded an inquiry concerning the competitive behavior of operators selling natural gas to residential and commercial customers with the aim of defining measures to improve competition. The outcomes of this inquiry was that the retailing market for natural gas in Italy lacks a sufficient degree of competition due to current commercial practices and the existence of both entry and exit barriers. The Authority plans to implement measures to improve competition in this market.

In FebruaryMay 2007, the European Commission commenced anti-trust proceedings against Eni based on information obtained during inspections carried out in 2006 at the Antitrust Authority closed an inquiry concerning Eni’s competitive behavior concluding thatheadquarters of Eni abused its dominant position with regardand of certain Eni subsidiaries. These proceedings against Eni are intended to its decisionverify the possible existence of any business conducts breaching European competition rules and preventing access to suspendthe Italian natural gas wholesale market by booking a planmajority share of transport capacity of certain international gas lines, thus limiting third party access to those infrastructures, and delaying or annulling certain plans for the upgrading of the import pipeline from Algeria and to unilaterally cancel certain contracts to sell the relevantinternational transport capacity to third parties. Contracts were signed early in 2003 and the relevant upgrade is expected to become effective in 2007. The Antitrust Authority fined Eni by an amount of euro 290 million.

On May 5, 2006, the European Commission started an inquiry in order to verify an alleged abuse of dominant position on the part of Eni in violation of Article 82 of the EEC Treaty and Article 54 of the CES Agreement in the activities of international gas transport and wholesale and retail supply of gas.infrastructure.

Management believes the institutional debate on the degree of competition in the Italian natural gas market and the regulatory activity to be areas of attention for management and cannot exclude negative impacts deriving from developments on these matters on Eni’s financial condition orand results of operations in future years deriving from developments on these matters.

Eni believes an oversupply of natural gas is likely to occur in the long-term (beyond 2009)

Eni plans to upgrade its natural gas import infrastructure from Algeria and Russia to Italy, with expected start-up in 2008 and late 2008/2009, respectively. Taking into account the build-up of supplies of natural gas from Libya through the Greeenstream gasline and of Eni’s fourth long term take-or-pay purchase contract from Russia, an additional import capacity of 883 BCF/y is expected to be available for the Italian natural gas market starting in 2009. A large portion of this expected import capacity has been or is planned to be awarded to third parties. In addition, certain operators in the Italian natural gas market have publicly announced plans to develop LNG terminals in Italy. Eni expects at least one new LNG terminal with a 283 BCF/y capacity to start operations by 2009 thus adding new import capacity to the Italian market. Management believes the pace of demand growth in the Italian natural gas market may not meet the expected increase in supplies of natural gas market starting in 2009 and beyond. If this projections materialize, a decrease in natural gas margins is likely to occur.years.

Decisions of the Authority for Electricity and Gas in the matter of natural gas tariffs may diminish Eni’s ability to determine the price at which it sells natural gas to customers

On the basis of certain legislative provisions, the Authority for Electricity and Gas ("the Authority") holds a general monitoring power on pricing in the natural gas market in Italy and the power to establish selling tariffs in thefor supply of natural gas to residential and commercial segmentsusers taking into account, among other things, the public interest goal of containing the inflationary pressure due to a rise in energy costs. The decisions of the Authority for Electricity and Gas on these matters may limit the ability of Eni to pass an increase in the cost of fuelsthe imported gas on to the final consumers of natural gas. In particular with Decision No. 248/following numerous decisions and a lengthy administrative procedure started in 2004 and finalized in March 2007, the Authority finally established a new indexation mechanism for Electricityupdating the raw material cost component in supplies to residential and Gas established,commercial users consuming less than 200,000 CM/y, establishing, among other things: (i) that an increase in the international price of Brent crude oil is only partially transferred on to residential and commercial users of natural gas in case international prices of Brent crude oil exceed the 35 dollars per barrel threshold; and (ii) that Italian natural gas importers – including Eni – must renegotiate supply contracts to wholesalers in order to take account of the reduction of the price of natural gas sold to residential and commercial users. A proceeding has commenced betweenWhile the final outcome of the Authority’s decision on Eni’s accounts was lighter than the initial setup proposed by the Authority for Electricity and Gas and Eni, which appealed Decision No. 248/2004 to an administrative court.

Eni’s management expects a negative outcome of this matter.new indexation mechanism, in future years management cannot exclude the possibility that the Authority could implement similar measures that may negatively affect Eni has accrued a material provision in its 2005 Consolidated Financial Statements in order to reflect the risks associated with this matter. In 2006 management expects Eni’s results of operations to be adversely impacted by a material amount in light ofand financial condition. For more information on this issue (particularly the high Brent crude oil prices, in the event DecisionAuthority’s Decisions No. 248/2004, is implemented in its original form. See134/2006 and 79/2007) see "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power" and "Item 5 – Financial Review and Prospects".

Environmental, Health and Safety Regulation

Eni may incur material operating costs and liabilities in relation to compliance with applicable environmental, regulationshealth and future environmental developmentssafety regulations

Eni is subject to numerous EU, international, national, regional and local environmental, health and safety laws and regulations concerning its oil and gas operations, products and other activities, including legislation that implements international conventions or protocols.activities. In particular, these laws and regulations require the acquisition of a permit before drilling for hydrocarbons may commence, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with exploration, drilling and production activities, limit or prohibit drilling activities onin certain protected areas, provide for measures to be taken to protect the safety of the workplace and health of communities involved by the company’s activities, and impose criminal or civil liabilities for pollution resulting from oil, natural gas, refining and petrochemical operations.

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These laws and regulations may also restrict emissions and discharges to surface and subsurface water resulting from the operation of natural gas processing plants, petrochemicals plants, refineries, pipeline systems and other facilities that Eni owns. In addition, Eni’s operations are subject to laws and regulations relating to the production, handling, transportation, storage, disposal and treatment of waste materials. Environmental, health and safety laws and regulations have a substantial impact on Eni’s operations. Some riskRisks of environmental, health and safety costs and liabilities isare inherent in certainmany of Eni’s operations and products, of Eni, and there can be no assuranceare risks that material costsexpenses and liabilities will notmay be incurred.incurred in relation to compliance with environmental, health and safety laws and regulations.

Eni’s results of operations and financial condition are exposed to risks deriving from future contaminations or the ascertain of as yet unknown contaminations, enactment of stricter environmental rules and regulations in the many jurisdictions in which Eni operates, or the arising of litigation with third parties.

Although management, considering theremedial actions already taken withperformed the existing insurance policies to cover environmental risks and the provision for risks accrued, does not currently expect any material adverse effect on Eni’s Consolidated Financial Statementsconsolidated financial statements as a result of the environmental impact of its operations and compliance with suchapplicable environmental laws and regulations, there are risks that Eni may incur significant costs and liabilities in future years due to: (i) the chance of as yet unknown contamination; (ii) future developments in environmental, regulation;health and safety regulation, particularly implementation of measures decided at both international and country level to reduce or limit greenhouse gas emissions; (iii) the results of on-going surveys or surveys to be carried out on the environmental status of Eni’s industrial sites as required by the applicable regulations on contamined site; and other possible effects deriving from the implementation of Decree No. 471/1999 of the Ministry of Environment; (iv) the possible effects deriving from the implementation of certain enacted regulations such as the ones deriving from Decree No. 367 of the Ministry of Environment published in January 8, 2004, regarding the fixing of new quality standards for aquatic environment in relation to dangerous substances, and those deriving from the application of European directive 2004/35/EC concerning environmental responsibility for prevention and reclamation of environmental damage; and (v) 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.

Legal Proceedings

Eni is a party to a number of civil actions and administrative proceedings arising in the ordinary course of business. Although Eni’s management does not currently expect a material adverse effect on Eni’s financial positioncondition and results of operations on the basis of information available to date and taking account of existing provisions, Eni’s management cannot rule out that in future years Eni may incur material losses in connection with pending legal proceedings due to: (i) uncertainty regarding the outcome of each proceeding; (ii) the occurrence of new developments that management could not take into consideration when evaluating the likely outcome of each proceeding in order to accrue the risk provisions as of the date of the latest financial statements; (iii) the emergence of new evidence and information; and (iv) errors in the estimate of probable future losses.

Risks deriving from changesrelated to Changes in oil pricesthe Price of Oil, Natural Gas, Refined Products and in natural gas, refined and petrochemical products prices and marginsChemicals

Operating results in certain of Eni’s businesses, particularly the Exploration & Production, Refining & Marketing, Gas & Power and PetrochemicalPetrochemicals 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.

Eni’s results of operations are affected by changes in international oil prices

Overall, lower oil prices have a net adverse impact on Eni’s results of operations. The effect of lower oil prices on Eni’s average realizations of oil prices is generally immediate. However Eni’s average realization for oil differs from the price of marker crude Brent due primarily to the circumstance that Eni’s production slate, which also includes 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).

The favorable impact of higher oil prices on Eni’s results of operations may be offset by the different trends of margins in Eni’s downstream businesses

AThe impact of changes in crude oil prices on Eni’s downstream businesses, including the Gas & Power, the Refining & Marketing and the Petrochemicals businesses, depends upon the speed at which the prices of gas and products adjust to reflect these changes. Wholesale margins in the Gas & Power business are substantially independent from fluctuations in crude oil prices as purchase and selling prices of natural gas are contractually indexed to prices of crude oil and certain refined products according to similar pricing schemes. On the contrary, in the Refining & Marketing and Petrochemicals businesses a time lag exists between movements in oil prices and movements in the prices and margins of natural gas and refined and petrochemicalfinished products. In particular, trends of natural gas margins in Eni’s natural gas business tend to mitigate the impact of changes in oil prices on Eni’s operating results due to different movements in prices of certain energy parameters to which natural gas purchase and sale prices are contractually indexed in different proportions and as measured over different reference periods.

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Eni’s results of operations are affected by changes in European refining margins

The results of operations of Eni’s Refining & Marketing segment are substantially affected by changes in European refining margins which reflect changes in relative prices of crude oil and refined products. Generally, a time lag exists between changes in oil prices and movements in refined products prices.as outlined above.

Eni’s results of operations are affected by changes in petrochemical margins

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 in the short-term. Prolonged weakness of the European economy as well as Eni’s own structural weaknesses have prevented Eni’s Petrochemical segment from returning to profitability in recent years due to the inability to transfer increases of oil-based feedstocks into selling prices. Due to industry conditions and weak economic growth in Europe, management does not expect any significant and durable improvement in Petrochemicals segment profitability over the foreseeable future.
near term.

Risks from Acquisitions

In addition to its plans for organic growth, Eni constantly monitors the oil and gas market in search of opportunities to acquire individual assets or corporations as a way to grow. Acquisitions normally entail an execution risk – the risk that the acquirer will not be able to effectively integrate the purchased assets so as to achieve expected synergies. In addition, in the current high oil price environment, acquisitions can entail a financial risk – the risk of not being able to recover the purchase costs of acquired assets, in case a prolonged decline in the market prices of oil and natural gas occurs and no hedging transaction is put in place. We also incur unanticipated costs or assume unexpected liabilities and losses in connection with companies or assets we acquire. If the integration and financial risks connected to acquisitions materialize our financial performance may be adversely affected.

Exchange Rates

Movements in the exchange rate of the euro against the U.S. dollar can have a material impact on Eni’s results of operations. Prices of oil, natural gas and refined products generally are denominated in, or linked to, U.S. dollars, while a significant portion of Eni’s expenses are denominated in euro.euros. Similarly, prices of Eni’s petrochemical products are generally denominated in, or linked to, the euro, whereas expenses in the Petrochemicals segment are denominated both in euroeuros and U.S. dollars. Accordingly a depreciation of the U.S. dollar versusagainst the euro generally has an adverse impact on Eni results of operations.
operations and financial condition because it reduces booked revenues by an amount greater than the decrease in dollar-denominated expenses.

Risks deriving from Eni’s Exposure to Weather in ItalyConditions and Seasonality Factors

Significant changes in weather conditions in Italy and in the rest of Europe 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 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.
Furthermore, extreme weather phenomena can result in material disruption to our operations, particularly to offshore production of oil and natural gas.

Interest Rates

Interest on 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 financial expense in respect to its financialfinance debt.

Critical Accounting Estimates

The preparation of financial statements entails accounting estimates that are characterized by a high degree of uncertainty, complexity and judgment. Although these critical accounting estimates are thoroughly applied and underlying amounts are fairly determined, management cannot rule out that actual outcomes may differ from such estimates, due to, among other things, the following factors: uncertainty, lack or limited availability of information; the availability of new informative elements, variations in economic conditions such as prices, significant factors (e.g., removal technologies and costs) and the final outcome of legal, environmental or regulatory proceedings. See "Item 5 – Critical Accounting Estimates".

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Item 4. INFORMATION ON THE COMPANY

History and Development of the Company

Eni SpA with its consolidated subsidiaries is engaged in the oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. Eni has operations in about 70 countries and 72,25873,572 employees as of December 31, 2005.2006.

Eni, the former Ente Nazionale Idrocarburi, a public law agency, established by Law No. 136 of February 10, 1953, was transformed into a joint stock company by Law Decree No. 333 published in the Official Gazette of the Republic of Italy No. 162 of July 11, 1992 (converted into law on August 8, 1992, by Law No. 359, published in the Official Gazette of the Republic of Italy No. 190 of August 13, 1992). The Shareholders’ Meeting of August 7, 1992 resolved that the company be called Eni SpA. Eni is registered at the Companies Register of Rome, register tax identification number 00484960588, R.E.A. Rome No. 756453. Eni is expected to remain in existence until December 31, 2100; its duration can however be extended by resolution of the shareholders.

Eni’s registered head office is located at Piazzale Enrico Mattei 1, Rome, Italy (telephone number: +39-0659821). Eni branches are located in:

•		San Donato Milanese (Milan), Via Emilia, 1; and
•		San Donato Milanese (Milan), Piazza Ezio Vanoni, 1.

Internet address: www.eni.it.

The name of the agent of Eni in the United States is Viscusi Enzo, 666 Fifth Ave., New York, NY 1010310103.

Eni’s principal segments of operations and subsidiaries are described below.

Eni conducts its exploration and production activities through its Exploration & Production Division and certain operating subsidiaries. Eni’s exploration, development and production activities commenced in 1926, when Agip SpA was established by the Italian Government with a mandate to explore for and develop oil and natural gas. Agip SpA was merged into Eni SpA effective as of January 1, 1997 to become Eni’s Exploration & Production Division.

Eni is engaged in exploration and production of hydrocarbons in Italy, North Africa, West Africa, the North Sea, the Gulf of Mexico, Australia, South America and areas with great development potential such as the Caspian Sea, the Middle and Far East, India and Alaska. In 2005,2006, Eni’s hydrocarbon production available for sale averaged 1,6931,720 KBOE/d and, at December 31, 2005,2006, Eni’s estimated proved reserves totalled 6,837totaled 6,436 mmBOE with a life index of 10.810.0 years. In 2005,2006, Eni’s Exploration & Production segment hadreported net sales from operations (including intersegmentinter-segment sales) of euro 22,47727,173 million and operating profit of euro 12,57415,580 million.

Eni conducts its natural gas and electricity generation activities through its Gas & Power Division and certain operating subsidiaries. Eni’s natural gas supply, transmission and distribution activities commenced in the 1940s with the commercial sale of natural gas to industrial users in Northern Italy. In past years, Eni conducted its natural gas operations through the subsidiary Snam SpA. Snam SpA was merged into Eni SpA effective as of February 1, 2002 to become Eni’s Gas & Power Division. In 2005,2006, Eni’s sales of natural gas to third parties totalled 52.47totaled 50.94 BCM in Italy and 23.4427.93 BCM in the rest of Europe; Eni’s share of natural gas volumes sold by its affiliates totalled 8.53totaled 7.65 BCM (of which 7.85 billion6.88 BCM was sold in the rest of Europe). Natural gas volumes consumed in operations by Eni and Eni’s subsidiaries – mainly in electricity generation, refining and petrochemicals operations – totalled 5.54totaled 6.13 BCM. Natural gas sales in Italy include: (i) sales to wholesalers, mainly local companies selling natural gas to residential and commercial customers, and to large industrial and thermoelectric customers whichwho are supplied by a high and medium pressure pipeline network; and (ii) sales to residential and commercial customers which are supplied by a low pressure pipeline network. Eni’s high and medium pressure gas pipeline network for natural gas transport is about 30,700-kilometer30,890-kilometer long in Italy, while outside Italy Eni holds transmission rights on approximately 5,000 kilometers of high pressure pipelines. Eni’s natural gas transport network in Italy is owned and managed by Snam Rete Gas SpA. Snam Rete Gas is listed on the Italian Stock Exchange, Eni’s share being 50.07%50.04%. Snam Rete Gas transports natural gas on behalf of Eni and third parties ("shippers"); in 20052006 its transported volumes were 85.1087.99 BCM, of which 30.22 billion30.9 BCM were on behalf of third parties. Eni, through its 100% subsidiary Italgas and other subsidiaries, is engaged in natural gas distribution activity in Italy serving 1,2821,317 municipalities through a low pressure network consisting of approximately 48,00048,700 kilometers of pipelines as of December 31, 2005.

2006.
Eni conducts its electricity generation activities through its wholly-owned subsidiary EniPower SpA, which owns and manages Eni’s power stations ofin Livorno, Taranto, Mantova, Ravenna, Brindisi, and Ferrera Erbognone and Ferrara with a total installed capacity of approximately 4.5 gigawatt4.9 GW as of December 31, 2005.2006. In 2005,2006, sold production of electricity totalled 22.77 terawatthours.totaled 24.82 TWh. 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 segments.

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In 2005,2006, Eni’s Gas & Power segment hadreported net sales from operations (including intersegmentinter-segment sales) of euro 22,96928,368 million and operating profit of euro 3,3213,802 million.

Eni conducts its refining and marketing activities through the Refining & Marketing Division and certain operating subsidiaries. Activities commenced in the 1930s, when Eni initiated the development of the industrial and retail markets for refined products in Italy. In past years, Eni conducted its refining and marketing operations through the subsidiary AgipPetroli SpA. AgipPetroli SpA was merged into Eni SpA effective December 31, 2002 to become Eni’s Refining & Marketing Division. Eni’s refining and marketing activities are located primarily in Italy and in the rest of Europe. In 2005,2006, Eni’s retailing market share for refined products in Italy through its Agip-branded network of service stations was 29.7%29.3%. In 2005, Eni divested its wholly-owned subsidiary Italiana Petroli which is engaged in the retail marketing of refined products through a network consisting primarily of leased service stations, under the IP brand. In 2005,2006, sales of refined products totalled 51.63 million tonnes,totaled 51.13 mmtonnes, of which 30.29 million29.90 mmtonnes were in Italy. The balanced refining capacity of Eni’s wholly-owned refineries totalled 524totaled 534 KBBL/d as of December 31, 2005.2006. In 2005,2006, Eni’s Refining & Marketing segment hadreported net sales from operations (including intersegmentinter-segment sales) of euro 33,73238,210 million and operating profit of euro 1,857319 million.

Eni’s petrochemicalpetrochemicals activities commenced in the 1950s, when it began production of basic petrochemicals at its Ravenna industrial complex. Through Polimeri Europa SpA and its subsidiaries, Eni operates in olefins and aromatics, basic intermediate products, chlorine derivatives, polyethylene, polystyrenes, and elastomers. Eni’s petrochemical operations are concentrated in Italy and in Western Europe. In 2005,2006, Eni sold 5.4 million tonnes5.3 mmtonnes of petrochemical products. In 2005,2006, Eni’s Petrochemicals segment hadreported net sales from operations (including intersegmentinter-segment sales) of euro 6,2556,823 million and an operating profit of euro 202172 million.

Eni’s oilfield services, construction and engineering activities commenced in the late 1950s. ThroughIn 2006 Eni SpA divested its 100% stake in Snamprogetti to Saipem SpA (a 43% owned subsidiary). Through Saipem and its subsidiaries, including Snamprogetti, Eni operates in offshore construction, in particular fixed platform installation, subsea pipe laying and floating production systems.systems and onshore construction. Through Snamprogetti SpA (a wholly owned subsidiary)Saipem and its subsidiaries Eni is a provider ofalso provides offshore and onshore drilling services and engineering and project management services to the oil and gas, refining and petrochemical industries. In 2005,2006, Eni’s Oilfield Services,Engineering & Construction and Engineering segment hadreported net sales from operations (including intersegment sales) of euro 5,7336,979 million and operating profit of euro 307505 million.

A list of subsidiaries of Eni is included as an exhibit to this Annual Report on Form 20-F.

Strategy

Eni plans to deploy a strategy of organicprofitable growth over both the medium and the long-term, which is intended to sustain the group’s business over the long-term.

In the Exploration & Production activities, Eni plans to grow production of oil and natural gascreate long-term shareholder’s value particularly through organic growth, targeting a production level of more than 2 mmBOE/d in 2009, which corresponds to a compound average growth rate of approximately 4% under certain trading environment assumptions (See "Item 5 – Management Expectations of Operations"). Eni plans to reach said production target by leveraging in particular on the contribution of recently completed large development projects and projects in the development phase in Angola, Libya, Nigeria, Egypt, Iran, Algeria and Kazakhstan. Management will continue to evaluate opportunities to increase production through the purchase of corporations or individual assets. Eni intends to pay special attention to reserve replacement in order to ensure the medium to long-term sustainability of its business. Eni intends to optimize its portfolio of development properties by focusing on areas where its presence is established, seeking for new opportunities and divesting marginal assets. Eni intends to develop its LNG business also through the purchase of interests in liquefaction plants in order to better exploit its natural gas reserves in North and West Africa. In exploration activities Eni intends to renew its portfolio of properties focusing on such areas where management believes a high mineral potential exists, on assets in areas where its presence is established (in particular Egypt, Nigeria, the United States, Italy and Norway) and to start exploration in newly acquired areas (in particular Alaska, Libya and India).

In the Gas & Power activities, Eni plans to grow natural gas sales in the rest of Europe and to develop its presence in the LNG business in order to compensate for lower growth opportunities on the domestic market due to the limits imposed on operators by the sector regulation and increasingly intense competition. In Italy, Eni plans to comply with regulatory limits on direct sales and input volumes to the national transport network by optimizing allocation of supplies between direct sales in Italy and in the rest of Europe and by using natural gas at its own electricity generation plants and, at the same time, leveraging on the expected consumption growth. In the medium term, management expects its natural gas sales in Italy to decline from the 58 BCM level recorded in 2005 as a consequence of increasing competition from third parties. Eni plans to implement a more attractive commercial offer than Eni’s competitors’ on the basis of the quality of services, pricing formulas including different indexation schemes to suit various customers’ purchasing profile and the integration of supply of gas and electricity. Management plans to grow natural gas sales on European markets by leveraging on the availability of Eni’s equity gas and on a diversified portfolio of supply contracts, an extensive gas pipeline network, which allows for the supply of natural gas from several sources, and long standing relationships with producing countries. Eni intends to strengthen its presence in markets where its presence is already established – such as the Iberian Peninsula, Germany and Turkey – and to develop sales in markets with significant growth and profitability prospects (in particular France and the United Kingdom).

In the Refining & Marketing activities, Eni intends to maximize returns from its existing assets. In the refining activity Eni plans to invest in new primary distillation capacity and in new conversion capacity to make its refining system flexible enough to obtain a higher yield of middle distillates and to achieve a greater vertical integration with its upstream activities. In marketing Eni aims to improve its competitive position in Italy and to increase sales in selected neighboring countries in the Rest of Europe.

Eni’s oilfield services construction and engineering activities play an essential role in contributing to technological innovations and in the implementation of world-scale projects thus supporting Eni’s growth process in the oil & gas business.

In technological research and innovation activities Eni plans to implement a relevant capital expenditure programme to develop such technologies that management believes may ensure competitive advantages in the long-term and promote sustainable growth. Eni plans to continue developing existing programmes on clean fuels, sulphur and greenhouse gas management as well as projects such as the upgrading of heavy crudes (EST), high pressure gas transmission (TAP) and Gas to Liquids (GTL).

dividend distributions. In pursuing this strategy Eni plans a capital expenditure programmeprogram amounting to euro 35.244.6 billion over the next four years. Eni plans to finance this capital expenditure programmeprogram by using the cash flows provided by operating activities. Over the next four yearfour-year period, the Company expects to distribute to its shareholders a flowan amount of dividends in line with the current level of 2005 under certain assumptionsin real terms (See "Item 8 – Dividends"). Eni aims to allocate cash flow in excess of capital expenditure and dividend requirements to continue its programme of share buy-back while at the same time maintaining a strong balance sheet. See "Item 5 – Management Expectations of Operations".

In its Exploration & Production activities, Eni plans to grow production of oil and natural gas through organic growth and by leveraging on the contribution of recently acquired assets in the Gulf of Mexico and onshore Congo, targeting a compound average production growth rate of approximately 4% over the 2007-2010 period, subject to certain market assumptions (See "Item 5 – Management Expectations of Operations"). Organic production growth will be driven mainly by the development of new projects located in the key producing basins of North and West Africa and the Caspian region, and the contribution of long-life fields located mainly in Kazakhstan, Libya, Algeria, Norway, Italy and Egypt. Management will continue to evaluate opportunities to increase production through acquisitions. In addition, Eni intends to pay special attention to reserve replacement in order to secure the medium to long-term sustainability of its business. In the next four-year period, management expects additions to reserves to fully replace produced reserves, assuming a Brent crude oil price of 40 U.S. dollar per barrel in 2010.

In its Gas & Power activities, Eni plans to grow natural gas sales in the rest of Europe and safeguard its leading position in Italy, effectively manage regulated business and the power generation business, and expand LNG sales. In Europe, Eni intends to strengthen its presence in markets where its presence is already established – such as the Iberian Peninsula, Germany and Turkey – and to increase sales in markets with significant growth and profitability prospects (in particular, France and the United Kingdom). To achieve its growth strategy, Eni will leverage on its assets, including gas availability – both equity and purchased under long-term supply contracts – access to infrastructure, its important regasification capacity, long-standing relationships with natural gas producing countries, a large customer base, and market knowledge.

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In Italy, Eni plans to implement a more attractive commercial offer than Eni’s competitors on the basis of the quality of services, pricing formulas including different indexation schemes to suit various customers’ purchasing profiles, and the integration of supply of gas and electricity ("dual offer"), targeting mainly the middle and retail markets. Management expects that the dual offer will achieve important synergies from the integration of processes of client development and management.
By 2010, Eni plans to sell some 105 BCM worldwide, with international sales expected to grow by 10% per year on average.

In its Refining & Marketing activities, Eni intends to improve profitability. In its refining activities, Eni plans: (i) to increase the conversion capacity of its refineries in order to obtain a higher yield of middle distillates; (ii) to enhance the flexibility of its refineries in order to process low-quality crude that is typically discounted in the market-place; and (iii) to reduce operating costs. In marketing, Eni intends to strengthen its leadership position in the Italian retail market by improving the qualitative standards of the Italian network and implementing customer-focused marketing initiatives and effective differentiation of pricing, and to increase sales in selected neighboring countries in the rest of Europe.

In its oilfield services construction and engineering activities, Eni aims at capturing opportunities arising from a growing market, acquiring large projects in complex areas and supporting expenditure plans of the other Eni’s business segments. In order to achieve this, management plans to implement an important expenditure program intended to upgrade its fleet of vessels and rigs.

In technological research and innovation activities, Eni plans to implement an important capital expenditure program to develop such technologies that management believes may ensure competitive advantages in the long-term. Eni plans to continue developing existing programmes on reducing costs to find and recover hydrocarbons, developing clean fuels, upgrading heavy crudes (in particular the EST project), monetizing natural gas through projects such as the high pressure gas transmission (TAP) and Gas to Liquids (GTL) projects, and protecting the environment.

KeyResults and Portfolio Developments

The most significant events that occurred during 20052006 and to date in 20062007 were the following:

•		In 2005,2006, hydrocarbon production available for sale averaged 1,6931,720 mmBOE/d, a 6.7%1.6% increase compared to year 2004.2005. Eni’s net proved reserves of oil and natural gas were 6.846.44 BBOE (55%(54% crude and condensates), down 381401 mmBOE from 2004 due to an estimated 478 mmBOE adverse impact related to lower entitlements2005. The unilateral cancellation of the service contract for the Dación oilfield by the Venezuelan state oil company PDVSA effective April 1, 2006 resulted in certain PSAs and buy-back contracts due to higher oil prices (58.21 dollar per barrel at year end 2005 as compared to 40.47 at year end 2004).a decrease in Eni’s proved reserves of 170 mmBBL. In 2006 Eni’s proved reserves replacement ratio was 40%38%; as of December 31, 2006, the average reservereserves life index was 10.8stood at 10.0 years (12.1 in 2004)(10.8 as at December 31, 2005).
•		In May 2005, the new setup of the consortium operating the North Caspian Sea PSA was defined. As a result of the transaction, Eni’s operatorship interest in the Kashagan project increased from 16.67% to 18.52%. Eni plans a capital expenditure programme amounting to $29 billion in order to develop the field reserve. Management is currently reviewing this amount in order to take account of the depreciation of the U.S. dollar versus the euro and rising trends in the cost of certain production factors (such as materials and oilfield services). The development of the project is advancing as planned: first oil is expected by the end of 2008 and the production plateau is targeted at over 1.2 mmBBL/d.
•		As part of its strategy of expansion in areas with high mineral potential, Eni enhanced its portfolio of mineral rights via acquisition of exploration permits and production licenses located in Libya, India, Alaska, Brazil, Nigeria, Australia, Pakistan and the Gulf of Mexico for a total acreage of 67,000 square kilometers (44,000 net to Eni, of these 93% as operator).
•		In Angola oil production increased approximately 50% from the level of 2004 reflecting mainly certain significant start-ups: phase B of the development of the fields discovered in the Kizomba offshore area in Block 15 (Eni’s interest 20%) and the North Sanha and Bomboco oil, condensate and LPG fields in Block 0 former Cabinda (Eni’s interest 9.8%).
•		As part of the Western Libyan Gas Project (Eni’s interest 50%), in August 2005 the offshore Bahr Essalam field was started-up, less than a year after the start-up of the onshore Wafa field. Peak production of the two fields is expected in 2006, at 256,000 BOE/d (128,000 net to Eni). When fully operational in 2006 volumes produced and carried to Italy via the Greenstream pipeline will be 8 BCM/y of natural gas (4 billion net to Eni) already booked under long term supply contracts with operators.
•		Natural gas sales (91.15(97.48 BCM) were up 8.8%3.5% due to increased demand for power generation in Italy and to the acquisitionaddition of new customers combined with growth in markets in the rest of Europe as a result of the expansion strategy pursued by Eni.
•		The agreement signed byIn 2006, Eni Amorim Energia and Rede Eléctrica Nacional – shareholders of Galp with 33.34, 13.312 and 18.30%, respectively – confers stabilityinvested euro 1,348 million in exploratory activities, up 106% from 2005, carrying out a large exploration campaign leading to the shareholding structurecompletion of 68 exploratory wells (35.9% net to Eni) with a commercial rate of success of 43% (49% net to Eni). A further 26 wells were in progress as of the Portuguese energy companyyear-end. Eni enhanced its exploration portfolio by acquiring assets in core areas such as North Africa, West Africa, Brazil, Norway and sets the stage for future developments aimed at enhancing Eni’s investment. The Portuguese Government is expected to sell part of its Galp holding through a public offer before the end of 2006.
•		As part of its strategy of international expansion in LNG, Eni purchased 6 BCM/y for 20 years of the regasification capacity of the Cameron terminal on the coast of Louisiana in the USA with start-up planned for 2008-2009. This will allow Eni access to markets in the United States, for part of its natural gas reservesand in North Africanew high-potential basins such as Mali, Mozambique and Nigeria.
•		Eni continues its development in power generation aimed at reaching 5.5 gigawatt of installed capacityEast Timor. New acreage covers 152,000 square kilometers (99% operated by 2009; at year end 2005 installed capacity was 4.5 gigawatt. The new combined cycle power plants will absorb over 6 BCM/y of natural gas from Eni’s portfolio of supplies.Eni).
•		In 2005November 2006, Eni divested its total interestand Gazprom signed a broad strategic agreement which strengthens a long-term partnership between the two companies. Key features of this deal are the extension of the duration of Gazprom gas supply contracts to Eni until 2035, further strengthening Eni’s supply portfolio, and the intention of the two partners to pursue joint initiatives in Italiana Petroli SpA, which distributes fuelsthe upstream sector in Italy through a lease concession network under the IP brand.and outside Russia.
•		OnIn April 2007, Eni agreed to acquire interests in exploration and production activities owned by Dominion Resources in the Gulf of Mexico for a total cash consideration of U.S. $4,757 million. Following this deal, Eni expects a 75,000 BOE/d additional oil and gas production in the period 2007-2010 on average, starting from July 1, 20062007. Eni will retain operatorship of most of the Venezuelan State oilexploration and production assets acquired.
•		In April 2007, as part of the liquidation procedure of the Russian company Petróleos de Venezuela SA (PDVSA) unilaterally cancelledYukos, Eni in partnership with Enel (60% Eni, 40% Enel) was awarded 100% of OAO Arctic Gas Co, ZAO Urengoil Inc and OAO Neftegaztechnologia which own large hydrocarbon reserves, mostly gas reserves. Eni also acquired 20% of OAO Gazprom Neft. Cash consideration for this transaction amounted to U.S. $5 billion net to Eni. Gazprom has an option to acquire a 51% interest in these three acquired companies and the service contract regulatingentire 20% interest in OAO Gazprom Neft, as this deal is part of Eni’s strategic alliance with Gazprom signed in November 2006.

In February 2007, Eni agreed to acquire interests in exploration and production onshore activities operated by Maurel & Prom in Congo for a cash consideration of U.S. $1,434 million. Additional hydrocarbon production of approximately 28,000 BOE/d is expected in 2010. This transaction was finalized at the end of May 2007.

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•		In April 2007, Eni agreed to purchase 102 retail fuel stations from ExxonMobil Central Europe located in Czechia, Slovakia and Hungary and related additional marketing activities.
•		In April 2007, Eni acquired an additional interest in the Dación oilNikaitchuq field wherein Alaska thus achieving a 100% interest.
•		In April 2007, Eni acted as contractorsigned a Memorandum of Understanding with Sonangol for the acquisition of a 13.6% interest in the Angola LNG Ltd Consortium (A-LNG) committed to build an LNG plant with a 100% working interest. Accordingly, starting on the same day, operations at the Dación oil field have been runcapacity of 5 mmtonnes.
•		In May 2007, Eni agreed to purchase a 16.11% interest held by PDVSA which took over Eni DaciónConocoPhillips Central and Eastern Europe Holdings BV Eni’s wholly-owned subsidiary that had been operating the field until that date. In 2005 and in the first quarter of 2006, oil productionCeska Rafinerska Co. When this transaction is finalized, Eni will increase its stake in this refinery from the Dación field averaged approximately 60 KBBL/d. Management expects Eni’s proved reserves of hydrocarbons16.3% to be reduced by an amount of approximately 175 mmBBL32.4%, corresponding to Eni’s net proved reservesa refinery capacity of the Dación field as of December 31, 2005 as a consequence of the loss of Eni’s title to the field.2.6 mmtonnes/y.

In 2006, capital expenditure amounted to euro 7.8 billion, of which 89.6% related to the Exploration & Production, Gas & Power and Refining & Marketing segments, and was primarily related to: (i) the development of oil and gas reserves (euro 3,629 million) in particular in Kazakhstan, Angola, Egypt and Italy, exploration projects (euro 1,348 million) particularly in Angola, Egypt, Norway, Nigeria, the Gulf of Mexico and Italy, including the acquisition of 152,000 square kilometers of new acreage (99% operated by Eni); (ii) upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 785 million); (iii) the ongoing construction of combined cycle power plants (euro 229 million); (iv) projects aimed at improving flexibility and yields of refineries (euro 376 million), including the start up of construction of a new hydrocracking unit at the Sannazzaro refinery, and upgrading the refined product distribution network in Italy and in the rest of Europe (euro 223 million); and (v) the construction of a new FPSO unit and upgrading of the fleet and logistic centers in the Engineering & Construction Division (euro 591 million).

In 2005, capital expenditure amounted to euro 7.4 billion, of which 91% related to the Exploration & Production, Gas & Power and Refining & Marketing segments, and was primarily related to: (i) the development of oil and gas reserves (euro 3,952 million) in particular in Kazakhstan, Libya, Angola, Italy and Egypt, exploration projects (euro 656 million) and the purchase of proved and unproved property (euro 301 million); (ii) upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 825 million); (iii) the continuation of construction of combined cycle power plants (euro 239 million); (iv) actions for improving flexibility and yields of refineries, including the completion of construction of the tar gasification plant at the Sannazzaro refinery, and the upgrade of the refined product distribution network in Italy and in the rest of Europe (overall euro 656 million); and (v) upgrading of vessels and other equipment and facilities in Kazakhstan and West Africa in the Oilfield services and construction business (euro 346 million).

In 2005 capital expenditure decreased by euro 85 billion over 2004, or 1.1%, due to a euro 299 billion reduction, or 20.6%, in the Gas & Power business due principally to the completion of the Greenstream underwater pipeline project and the nearing to completion of the power generation development plan.

In 2004, capital expenditure amounted to euro 7.5 billion (of which 94% related to the Exploration & Production, Gas & Power and Refining & Marketing segments) and concerned: (i) development of hydrocarbon fields (euro 4,369 million) in particular in Libya, Iran, Angola, Italy, Kazakhstan, Egypt, Nigeria and Norway, and exploration (euro 499 million); (ii) upgrading of Eni’s natural gas transmission and distribution network in Italy (euro 721 million); (iii) the construction of the tar gasification plant at the Sannazzaro refinery, actions on refineries for the adjustment of automotive fuel characteristics to new European specifications and the upgrade of the refined product distribution network in Italy and in the rest of Europe (for a total of euro 669 million); and (iv) the continuation of construction of electricity generation plants (euro 451 million) and the completion of the GreenstreamGreenStream underwater pipeline project (euro 159 million).

BUSINESS OVERVIEW

Exploration & Production

Eni operates in the exploration and production of hydrocarbons in Italy, North Africa, West Africa, the North Sea, the Gulf of Mexico, Australia and South America. It also operates in areas such as the Caspian Sea, the Middle and Far East, India and Alaska where management believes a great mineral potential exists. In 2005,2006, Eni produced 1,6931,720 KBOE/d; as of December 31, 2005,2006, Eni’s proved reserves totalled 6,837totaled 6,436 mmBOE. Eni plans to grow production of oil and natural gas through organic growth targeting a production leveland leveraging the contribution of more than 2 mmBOE/drecently acquired assets in 2009 which corresponds tothe Gulf of Mexico and onshore Congo, targeting a compound average production growth rate of approximately 4% over the 2007-2010 period, under certain trading environment assumptions (See "Item 5 – Management Expectations of Operations"). Eni plans to reach said production targetOrganic growth will be driven by leveragingthe development of new projects located mainly in particular onthe key producing basins of North and West Africa and the Caspian region, and the contribution of recently completed great development projectslong-life fields, including Kazakhstan, Libya, Algeria, Norway, Italy and projects in the development phase in Angola, Libya, Nigeria, Egypt, Iran, Algeria and Kazakhstan.Egypt. Management will continue to evaluate opportunities to increase production through the purchase of corporations or individual assets. Eni intends to pay special attention to reserve replacement in order to guarantee the medium tomedium-to long-term sustainability of its business. Management expects additions to reserve to fully replace produced reserves under certain trading environment assumptions (See "Item 5 – Management Expectations of Operations"). Eni intends to optimize its portfolio of development properties by focusing on areas where its presence is established, seeking for new opportunities and divesting marginal assets. Eni also intends to develop its LNG business also through the purchase of interests in liquefaction plants in order to better exploit its natural gas reserves in North and West Africa.

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In exploration activities Eni intends to renew its portfolio of properties focusing onconcentrate resources in such core areas where management believes a high mineral potential exists, assetsavailability of production facilities and existing competencies will enable Eni to readily put in production the reserves that are eventually discovered, reducing the time to market and achieving synergies. Approximately 70% of planned capital expenditure will be directed to such core areas where its presence is already established (in particular(located mainly in Egypt, Nigeria, the United States, Libya, Italy and Norway) andAngola). Further resources will be deployed to start explorationascertain reserves in newlyrecently acquired areas (in particular Alaska, LibyaMozambique, East Timor and India)Mali). Eni expects to purchase new exploration permits and to divest or exit marginal or non strategic ones.

Eni plans to improve its performance by searching for operating solutions with lower operating costs and synergies.

In order to carry out these strategies, Eni intends to invest approximately euro 30.6 billion on exploration initiatives and reserve development over the next four-year period.

Oil and Natural Gas Reserves

Eni continues to exercisehas always exercised rigorous control over the booking of proved reserves. The Reserve Department of the Exploration & Production segment, reporting directly to the General Manager, is entrusted with the task of keepingcontinuously updating the Company’s guidelines concerning reserve classification criteria ("criteria") constantly updatedevaluations and of monitoring theirthe periodic process of estimate. The criteriaquantification process. Company guidelines follow Regulation S-X ruleRule 4-10 of the Securities and Exchange Commission (SEC) as well as, on specific issues not regulated by rules, the consolidated practice recognized by qualified reference institutions. The current criteria applied by EniCompany guidelines have been examinedreviewed by DeGolyer and MacNaughton (D&M), an independent oilpetroleum engineers company, which confirmed that they are complianthas certified their compliance with theapplicable SEC rules. D&M has also stated that the criteriacompany guidelines regulate situations for which the SEC rules are less precise, providing a reasonable interpretation in line with the generally accepted practices in international markets. When participating in exploration and production activities operated by other entities Eni also estimates its proved reserves on the basis of the mentioned criteria also when it participatesabove guidelines.

The process for evaluating reserves involves: (i) business unit managers (geographic units) and Local Reserve Evaluators (LRE), who perform the evaluation and classification of reserves including estimates of production profiles, capital expenditure, operating costs and costs related to asset retirement obligations; (ii) geographic area managers at head offices checking evaluations carried out by business unit managers; and (iii) the Reserve Department, which provides independent reviews of the fairness and correctness of classifications carried out by business units and aggregates worldwide reserve data and calculates equity volumes. Moreover, the Reserve Department has the responsibilities to ensure the periodic certification process of reserves, to perform economic evaluation of reserves and to continuously update the Company guidelines on reserves evaluation and classification. All personnel involved in explorationthe process of reserve evaluation are knowledgeable on SEC rules and production activities operated by other entities.guidelines for proved reserves classification and have professional abilities adequate to the complexity of the task, express their judgment independently and are respectful of professional ethics.

Beginning in 1991 Eni has requestedretained qualified independent petroleum engineering companies to carry out an independent evaluation² of its proved reserves on a rotationrotating basis. In particular, in 20052006 a total of 1.641.4 BBOE of proved reserves, or about 24%21% of Eni’s total proved reserves at December 31, 2005,2006, have been evaluated. The results of this independent evaluation confirmed Eni’s evaluations, as they did in past years. In the 2003-2005 three year2004-2006 three-year period independent evaluations concerned 84%76% of Eni’s total proved reserves; in particular evaluations concerned all the new development projects, including Kashagan, and most large-sized mature fields.

Eni’s proved reserves of oil and natural gas at December 31, 2005 totalled 6,8372006 totaled 6,436 mmBOE (oil and condensates 3,7733,481 mmBBL; natural gas 17,59116,965 BCF) representing a decrease of 381401 mmBOE, or 5.3%5.9%, from December 31, 2004.2005. The reserve replacement ratio was 40%38% in 2005;2006; the average reserve replacement ratio for the last three years was 89%55%. The average reserve life index is 10.810.0 years (12.1 at December 31, 2004)2006 (10.8 at December 31, 2005). The reserve replacement ratio was calculated dividing additions to proved reserves for year 2005 by total production, each as derived from the tables of changes in proved reserves prepared in accordance with SFAS No. 69 presented in Note 3538 to the Consolidated Financial Statements. The Reserve Replacement Ratio is a measure used by management to indicate the extent to which production is replaced by proved oil and gas reserves booked according with the Securities Exchange Commission (SEC) criteria under Rule 4-10 of Regulation S-X. Management considers the reserve replacement ratio to be a keyan important measure of the ability of the company to sustain its growth prospects. However, thethis ratio measures past performanceperformances and cannot be usedis not an indicator of future production because the ultimate development and production of reserves is subject to forecasta number of risks and uncertainties. These include the abilityrisks associated with the successful completion of management to replace produced reservelarge-scale projects, including addressing ongoing regulatory issues and completion of infrastructure, as well as changes in future years.oil and gas prices, political risks and geological and other environmental risks.

Addition_______________

(2)

From 1991 to 2002 DeGolyer and MacNaughton, from 2003 also Ryder Scott.

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Additions to proved reserves booked in 20052006 were 253417 mmBOE derived from :from: (i) extensions and discoveries (156(161 mmBOE), in particular in Nigeria, Norway,Kazakhstan, Algeria, Egypt, Trinidad & Tobago and Libya; (ii) improved recovery (105 mmBOE), in particular in Egypt, Angola, Algeria, Kazakhstan and Algeria; (ii)Nigeria; (iii) revisions of previous estimates (down 98(up 151 mmBOE) related to lower entitlement in certain Production Sharing Agreements (PSAs)³ and buy-back contracts due to higher oil prices recorded mainlyupward revisions registered in Kazakhstan, AngolaLibya and Libya; (iii) improved recovery (89 mmBOE),Egypt, offset in particularpart by downward revisions in Algeria, AngolaNigeria and Kazakhstan; and (iv) purchase of proved property (106 mmBOE) in Kazakhstan, Australia, Italy and Angola.Ecuador. The increase offset in part the decline related to production for the year (634(646 mmBOE) and the unilateral cancellation of the service contract for the Dación oilfield by the Venezuelan state oil company PDVSA (170 mmBBL). Due to risks inherent in the exploration and production business, a degree of uncertainty still exists as to whether these additions will actually be produced. See "Item 3 – Risks associated with exploration and production of oil and natural gasgas" and – Uncertainties"Uncertainties in estimates of oil and natural gas reserves.reserves".

Proved developed reserves at December 31, 20052006 amounted to 4,3064,059 mmBOE (2,350(2,144 mmBBL of oil and condensates and 11,22910,997 BCF of natural gas), representing 63% of total estimated proved reserves (60%(63% and 58%60% at December 31, 20042005 and 2003,2004, respectively).

Proved reservesVolumes of oil and natural gas applicable to long-term supply agreements with foreign governments in mineral assets where Eni is operator represented approximately 11% of all proved reserves at December 31, 2005 (10% at December 31, 2004; 8% at December 31, 2003).

With effective date April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the service contract governing activities at the Dación oil field where Eni acted as a contractor, holding a 100% working interest. As a consequence, starting on the same day, operations at the Dación oil field are conducted by PDVSA which replaced Eni Dación BV, Eni’s wholly-owned subsidiary that had been operating the field until that date.

Eni believes that it is entitled to a market value compensation for the expropriation of the Dación field. On these basis, Eni is available to reach an agreement with the Venezuelan authorities. In case an amicable settlement is not possible, Eni will take any other action in order to protect its interest in Venezuela. Based on internal and external independent evaluation, Eni is confident that a fair market compensation will not be lower than the book value of the Dación related assets. Accordingly, management decided not to impair the book value of Eni’s Dación assets. In 2005 and in the first quarter 2006, the Dación field production rate was about 60 KBBL/d. Management expects Eni’s proved reserves of hydrocarbons to be reduced by an amount of approximately 175 mmBBL corresponding to Eni’s net proved reserves of the Dación fieldtotaled 583 mmBOE as of December 31, 20052006 (604 mmBOE as a consequence of December 31, 2005). Said volumes are not included in reserves volumes shown in the loss of Eni’s title to the field.table herein.

The table below sets forth a geographical breakdown of Eni’s proved reserves and proved developed reserves of hydrocarbons, on a barrel of oil equivalent basis, for the periods indicated.

Proved reserves

Eni’s proved reserves of hydrocarbons by geographic area

	Year ended December 31,

	2001		2002		2003		2004		2005

	2002		2003		2004		2005		2006

(mmBOE)

Italy		1,315		1,199		996		890		868		1,199		996		890		868		805
North Africa		2,122		2,033		2,024		2,117		2,026		2,033		2,024		2,117		2,026		2,018
West Africa		1,136		1,287		1,324		1,357		1,279		1,287		1,324		1,357		1,279		1,122
North Sea		879		825		912		807		758		825		912		807		758		682
Rest of the World		1,477		1,686		2,016		2,047		1,865		1,686		2,016		2,047		1,865		1,773
Total consolidated subsidiaries		6,929		7,030		7,272		7,218		6,796		7,030		7,272		7,218		6,796		6,400
Unconsolidated entities										41								41		36
		6,929		7,030		7,272		7,218		6,837		7,030		7,272		7,218		6,837		6,436

Eni’s proved reserves of oil by geographic area

	Year ended December 31,

	2001		2002		2003		2004		2005

	2002		2003		2004		2005		2006

(mmBBL)

Italy		309		255		252		225		228		255		252		225		228		215
North Africa		1,171		1,072		1,080		993		961		1,072		1,080		993		961		982
West Africa		976		1,022		1,038		1,056		936		1,022		1,038		1,056		936		786
North Sea		552		498		529		450		433		498		529		450		433		386
Rest of the World		940		936		1,239		1,284		1,190		936		1,239		1,284		1,190		1,088
Total consolidated subsidiaries		3,948		3,783		4,138		4,008		3,748		3,783		4,138		4,008		3,748		3,457
Unconsolidated entities										25								25		24
		3,948		3,783		4,138		4,008		3,773		3,783		4,138		4,008		3,773		3,481

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Eni’s proved reserves of natural gas by geographic area

	Year ended December 31,

	2001		2002		2003		2004		2005

	2002		2003		2004		2005		2006

(BCF)

Italy		5,640		5,295		4,166		3,818		3,676		5,295		4,166		3,818		3,676		3,391
North Africa		5,509		5,563		5,467		6,453		6,117		5,563		5,467		6,453		6,117		5,946
West Africa		925		1,533		1,656		1,729		1,965		1,533		1,656		1,729		1,965		1,927
North Sea		1,892		1,899		2,223		2,051		1,864		1,899		2,223		2,051		1,864		1,697
Rest of the World		3,106		4,339		4,496		4,384		3,879		4,339		4,496		4,384		3,879		3,936
Total consolidated subsidiaries		17,072		18,629		18,008		18,435		17,501		18,629		18,008		18,435		17,501		16,897
Unconsolidated entities										90								90		68
		17,072		18,629		18,008		18,435		17,591		18,629		18,008		18,435		17,591		16,965

Eni’s proved developed reserves of hydrocarbons by geographic area

	Year ended December 31,

	2001		2002		2003		2004		2005

	2002		2003		2004		2005		2006

(mmBOE)

Italy		825		774		702		671		620		774		702		671		620		562
North Africa		875		797		806		961		1,230		797		806		961		1,230		1,242
West Africa		640		703		710		749		793		703		710		749		793		798
North Sea		773		724		822		707		611		724		822		707		611		571
Rest of the World		654		705		1,190		1,212		1,021		705		1,190		1,212		1,021		859
Total consolidated subsidiaries		3,767		3,703		4,230		4,300		4,275		3,703		4,230		4,300		4,275		4,032
Unconsolidated entities										31								31		27
		3,767		3,703		4,230		4,300		4,306		3,703		4,230		4,300		4,306		4,059

Eni’s proved developed reserves of oil by geographic area

	Year ended December 31,

	2001		2002		2003		2004		2005

	2002		2003		2004		2005		2006

(mmBBL)

Italy		171		168		173		174		149		168		173		174		149		136
North Africa		685		610		640		655		697		610		640		655		697		713
West Africa		539		554		560		588		568		554		560		588		568		546
North Sea		476		426		464		386		353		426		464		386		353		329
Rest of the World		443		483		610		668		564		483		610		668		564		402
Total consolidated subsidiaries		2,314		2,241		2,447		2,471		2,331		2,241		2,447		2,471		2,331		2,126
Unconsolidated entities										19								19		18
		2,314		2,241		2,447		2,471		2,350		2,241		2,447		2,471		2,350		2,144

Eni’s proved developed reserves of natural gas by geographic area

	Year ended December 31,

	2001		2002		2003		2004		2005

	2002		2003		2004		2005		2006

(BCF)

Italy		3,665		3,397		2,966		2,850		2,704		3,397		2,966		2,850		2,704		2,449
North Africa		1,103		1,084		962		1,760		3,060		1,084		962		1,760		3,060		3,042
West Africa		584		863		866		924		1,289		863		866		924		1,289		1,447
North Sea		1,721		1,727		2,075		1,845		1,484		1,727		2,075		1,845		1,484		1,395
Rest of the World		1,221		1,283		3,355		3,122		2,622		1,283		3,355		3,122		2,622		2,616
Total consolidated subsidiaries		8,294		8,354		10,224		10,501		11,159		8,354		10,224		10,501		11,159		10,949
Unconsolidated entities										70								70		48
		8,294		8,354		10,224		10,501		11,229		8,354		10,224		10,501		11,229		10,997

19

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Mineral Right Portfolio and Exploration Activity

As of December 31, 2005,2006, Eni’s portfolio of mineral rights consisted of 1,041⁴1,029 exclusive or shared rights for exploration and development in 3436 countries on five continents, for a total net acreage of 266,002⁵385,219 square kilometers (234,180(266,002 at December 31, 2004)2005). Of these, 55,09848,273 square kilometers concerned production and development (41,997(55,098 at December 31, 2004)2005). Outside Italy net acreage increased by 41,403120,775 square kilometers due to the acquisition of assets after international bid procedures in Libya,Angola, Australia, Brazil, Congo, Egypt, India,Morocco, Nigeria, Norway, Pakistan Angola, Algeria,and the United States, and Ireland and purchases of mineral assets in Nigeria, Alaska and Australia. These increases were offset in part by releases in Italy, Brazil, Congo, Morocco and Tunisia and divestments of assetsas well as in the British sectionnew countries/areas of the North Sea.Mali, Mozambique and East Timor. In Italy, net acreage declined by 9,5821,557 square kilometers due to releases.

A total of 5268 new exploratory wells were drilled (21.85(35.9 of which represented Eni’s share on the basis of its working interest in relevant properties), as compared to 6652 exploratory wells completed in 2004 (29.52005 (21.8 of which represented Eni’s share). Overall success rate was 39.3%43% in 2005,2006, as compared to 52.1%39.3% in 2004;2005; the success rate of Eni’s share of exploratory wells was 47.4%49% in 2005,2006, as compared to 57.3%47.4% in 2004.
2005. In 2004, 66 exploratory wells were completed (29.5 of which represented Eni’s share), with an overall success rate of 52.1% (the success rate of Eni’s share of exploratory wells was 57.3%).

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 20052006 oil and natural gas production available for sale averaged 1,6931,720 KBOE/d (oil and condensates 1,1111,079 KBBL/d; natural gas 3,3443,679 mmCF/d) increasing by 10727 KBOE/d compared to 2004,2005, up 6.7%1.6%, due to: (i)despite the impact of the production increases registered mainlyloss in Libya, Angola, Iran, Algeria, Egyptthe Dación oil field in Venezuela (down 46 KBOE/d) and Kazakhstan; and (ii) the start-up of fields in Angola and Libya. These increases were partly offset by: (i) an estimated 32 KBOE adverse entitlement impacteffects (down 21 KBOE/d) in PSAs and buy-back contracts relateddue to higher international oil prices; (ii)prices. Libya, Egypt, Nigeria, Australia and Croatia were the main growth areas in natural gas, while oil production increased in Angola and Libya. Declines in production were attributable to mature field declines and disruptions in mature fields mainly inNigeria due to social unrest. Production outside Italy and the United Kingdom; and (iii) the effectcovered 87% of the divestment of proved property carried outtotal (85% in 2004 (16 KBOE) and of hurricanes in the Gulf of Mexico (10 KBOE). The share of production outside Italy was 85% (82.6% in 2004)2005).

Production of oil and condensates (1,111(1,079 KBBL/d) increased by 77 KBBL/d compared to 2004, up 7.4%, due to increases registeredmainly in: (i) Angola due to fullthe production of the Hungo and Chocalho fields within phase A of the development of the Kizomba area in Block 15 and the start-up oframp-up at the Kissanje and Dikanza fields within phasein Phase B of the same projectdevelopment of Kizomba in Block 15 (Eni’s interest 20%) and the start-up of the Sanha-Bomboco fieldsNorth Sanha/Bomboco in area B of Block 0 (Eni’s interest 9.8%), as well as the start up of the Benguela/Belize/Lobito/Tomboco fields in Block 14 (Eni’s interest 20%); and (ii) Libya, due to the ramp-up of the Bahr Essalam offshore field (Eni’s interest 50%) as part of the Western Libyan Gas Project and the el Feel field (Eni’s interest 23.3%). Production decreased in Venezuela, Nigeria, despite obtaining full production at the WafaBonga field and the start-up of the Bahr Essalam fieldin OML 118 permit (Eni’s interest 50%); (iii) Iran, due to full production at the South Pars field Phases 4-5 (Eni operator with a 60% interest) and production increases at the Dorood (Eni’s interest 45%12.5%) and Darquain fields (Eni operator with a 60% interest); (iv) Algeria, due to full production at the Rod and satellite fields (Eni operator with a 63.96% interest); (v) Kazakhstan, in the Karachaganak field (Eni co-operator with a 32.5% interest) due to increased exports from Novorossiysk terminal on the Russian coast of the Black Sea; and (vi) Italy due to increasedtechnical problems occurred at the FPSO unit in the Aquila field and to production in Val d’Agri resulting from full production of the fourth treatment train of the oil center. These increases were partly offset by declines of mature fields, in particular in the United Kingdom, and by the effect of the divestment of assets carried out in 2004.fields.

Production of natural gas available for sale (3,344(3,679 mmCF/d) increased by 173 mmCF/d compared to 2004, up 5.5%, due to increases registeredmainly in: (i) Libya, due to the reaching of full production at the Wafa field and the start-up of the Bahr Essalam offshore field (Eni’s interest 50%); (ii) Egypt, due to the start-upfor full production/start up of the Barboni, fieldBaltim North and Anshuga fields and the increase in the number of production wells at the el Temsah 4 platform in the offshore of the Nile Delta;Delta and increased supplies to the Damietta liquefaction plant (Eni’s interest 40%); (iii) KazakhstanNigeria, due to increased supplies to the Bonny LNG plant (Eni’s interest 10.4%) related to the start up of trains 4 and Pakistan.5; (iv) Australia, due to the start up of supplies to the Darwin liquefaction plant linked to the Bayu Undan liquid and gas field (Eni’s interest 12.04%); and (v) Croatia, due to the start up of the Ika, Ida and Ivana C-K fields (Eni’s interest 50%) in the Adriatic offshore. These increases were partly offset in part by declinesa decline registered in Italy resulting from the production decline of mature fields, in particular in Italy, the effect of the divestment of assets effected in 2004 and of the hurricanes in the Gulf of Mexico.fields.

Hydrocarbon production sold totalled 614.9amounted to 625.1 mmBOE. AboutApproximately 68% of oil and condensate production sold (402.6(391.1 mmBBL) was deliveredultimately sold to Eni’s Refining & Marketing segment (70% in 2004). About 44%segment; 40% of natural gas production sold (1,219(1,343 BCF) was deliveredultimately sold to Eni’s Gas & Power segment (40% in 2004).segment.

20

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The tables below set forth Eni’s production of oil and condensates and natural gas for the periods indicated.

	Year ended December 31,

	2001		2002		2003		2004		2005

	2002		2003		2004		2005		2006

(KBBL/d)

Production of oil and condensates (1) (2)
Italy		69		86		84		80		86
North Africa		228		252		250		261		308
West Africa		219		222		236		285		310
North Sea		204		213		235		203		179
Rest of the World		137		148		176		205		228
Total		857		921		981		1,034		1,111

	Year ended December 31,

	2001		2002		2003		2004		2005

(mmCF/d)

Natural gas production available for sale (1) (2) (3)
Production of oil and condensates (1)
Italy		1,313		1,260		1,181		1,067		972		86		84		80		86		79
North Africa		497		560		559		619		900		252		250		261		308		329
West Africa		82		87		128		143		151		222		236		285		310		322
North Sea		450		516		596		560		563		213		235		203		179		178
Rest of the World		485		592		710		782		758		148		176		205		228		171
Total		2,827		3,015		3,174		3,171		3,344		921		981		1,034		1,111		1,079

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(1)		Production information set forth above differs from production as reported in the reserve tables in Note 35 to the Consolidated Financial Statements - Supplemental oil and gas information (unaudited), because yearly production presented in such reserve tables is based on estimates made 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 proved reserves for each period.
(2)		Data includes Eni’Eni’s share of production of affiliates and joint ventures accounted for under the equity or costmethod of accounting.

	Year ended December 31,

	2002		2003		2004		2005		2006

(mmCF/d)

Natural gas production available for sale (1) (2)
Italy		1,260		1,181		1,067		972		883
North Africa		560		559		619		900		1,187
West Africa		87		128		143		151		232
North Sea		516		596		560		563		557
Rest of the World		592		710		782		758		820
Total		3,015		3,174		3,171		3,344		3,679

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(1)		Data includes Eni’s share of production of affiliates and joint ventures accounted for under the equity method of accounting.
(3)(2)		Natural gasIt excludes production volumes of natural gas consumed in operations are excluded. The effect was 94,operations. Said volumes were 132, 151, 220, 250 and 250286 mmCF/d in 2001, 2002, 2003, 2004, 2005 and 2005,2006, respectively.

Volumes of oil and natural gas purchased under long termlong-term supply contracts with foreign governments or similar authoritiesentities in properties where Eni acts as producer totalledtotaled 57 KBOE/d and 20.5 KBOE/d in 2006 and 2.92005, respectively.

Portfolio Developments

In February 2007, Eni acquired certain onshore exploration and production assets operated by Maurel & Prom, entailing a cash consideration of U.S. $1,434 million. This transaction includes the producing fields of M’Boundi (48.6%) and Kouakouala A (66.7%), and the exploration permit Le Kouilou (50%). Such assets were subject to a pre-emption right in favor of Burren Energy, partner of Maurel & Prom. Subsequently, Eni and Burren Energy reached an agreement providing for Burren Energy’s waiver of the exercise of its pre-emption right and Eni’s sale to Burren Energy of a 5.5% interest in the M’Boundi concession and a 2% stake in the Le Kouilou exploration permit under the same economic terms as the acquisition from Maurel & Prom, entailing cash proceeds of $154 million. Eni retains the operatorship and participating interests of 43.1% and 48% in the M’Boundi concession and Le Kouilou exploration permit, respectively. This operation was finalized at the end of May 2007 following approval by the relevant Congolese authorities. Eni expects an additional production of approximately 28 KBOE/d in 20052010.

On April 2, 2007, Eni and 2004, respectively (2003 amounts were immaterial)Sonangol signed a Memorandum of Understanding for the acquisition of a 13.6% stake in Angola LNG Ltd Consortium (A-LNG). This company is responsible for the construction of an LNG plant in Soyo, 300 km North of Luanda, with a yearly capacity of 5 mmtonnes. The project has been approved by the Angolan Government and Parliament. The LNG will be directed to the United States market and will be delivered to the re-gasification plant of Pascagoula, in the Gulf of Mexico, in which Eni, following this agreement, will acquire re-gasification capacity of 5 BCM/y.

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On April 4, 2007, Eni, through the partnership in EniNeftegaz (60% Eni, 40% Enel SpA) acquired Lot 2 in the Yukos liquidation procedure for a total price of U.S. $5.83 billion (Eni’s share being $5 billion). Lot 2 includes: 100% of OAO Arctic Gas Co, 100% of ZAO Urengoil Inc and 100% of OAO Neftegaztechnologia. These three companies own 5 gas and condensate fields and parts of other fields in the Yamal Nenets (YNAO) region, a large gas producing region. Management believes these three companies to have significant oil and gas resources. Eni and Enel have offered Gazprom an option to acquire a 51% interest in these companies within two years. In the event that Gazprom exercises its call option, the assets will be operated through a joint venture between Eni and Gazprom, which will have access to Eni’s technologies. Lot 2 also includes various minor assets that will be sold or liquidated and 20% of OAO Gazprom Neft which will be wholly owned by Eni. Eni offered Gazprom an option to acquire this 20% interest in OAO Gazprom Neft within two years, at a total price of $3.7 billion, in addition to financial expenses related to the acquisition. These agreements are an additional step in implementing the strategic partnership between Eni and Gazprom signed in November 2006, under which the two companies established an alliance to develop upstream, midstream and downstream energy projects inside and outside of Russia.

On April 11, 2007, Eni acquired 70% and the operatorship of the Nikaitchuq field, located on-offshore in the North Slope of Alaska. Eni, which already owned a 30% stake in the field, now retains the 100% working interest. Nikaitchuq would be the first development project operated by Eni in Alaska. Successful appraisal drilling has been completed. Plans for a phased development are currently being evaluated with the target of sanctioning the project by year end, and first oil by the end of 2009. The Nikaitchuq project comprises the drilling of approximately 80 wells, out of which 32 are located onshore and the remaining from an offshore artificial island. All wells will then be tied back to a production facility located at Oliktok Point, which is expected to reach an output of 40 KBOE/d.

On April 30, 2007 Eni agreed to acquire the Gulf of Mexico upstream activity of Dominion Resources at the price of U.S. $4,757 million including exploration assets for U.S. $680 million. The transaction includes production, development and exploration assets located in deepwater Gulf of Mexico. Starting from the second half of 2007 until 2010, production from the acquired assets is expected to average approximately 75 KBOE/d. In addition, Eni will enhance its portfolio in the Gulf of Mexico thanks to new leases with significant exploration potential; approximately 60% of these leases are operated. The transaction is subject to government approvals, expiration of certain preferential purchase rights which apply to a small portion of the acquired assets (less than 5% of total reserves), and to other customary conditions precedent. Closing is expected on July 2, 2007.

22

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The table below sets forth certain information and operating data regarding Eni’s principal oil and natural gas interests for the year endedas of December 31, 2005.2006.

Principal oil and natural gas interests at December 31, 20052006

Commencement of operations

Number of interests

Gross exploration and development acreage (1)

Net exploration and development acreage (1)

Net development acreage (1)

Type of fields

Number of producing fields

Number of other fields

Italy		1926		180		31,048		24,053		12,700		Onshore/Offshore		83		79
North Africa
Algeria		1981		37		14,352		3,792		860		Onshore/Offshore		23		15
Egypt		1954		56		34,918		22,644		4,180		Onshore/Offshore		35		28
Libya		1959		15		44,955		37,703		15,466		Onshore/Offshore		11		7
Tunisia		1961		11		6,464		2,317		1,601		Onshore/Offshore		9		6
				119		100,689		66,456		22,107				78		56
West Africa
Angola		1980		53		15,234		2,310		715		Offshore		36		32
Congo		1968		20		9,855		4,224		880		Offshore		16		8
Nigeria		1962		49		46,075		8,922		6,539		Onshore/Offshore		119		69
				122		71,164		15,456		8,134				171		109
North Sea
Norway		1965		51		26,601		8,814		128		Offshore		14		13
The United Kingdom		1964		84		6,504		1,506		652		Offshore		29		15
				135		33,105		10,320		780				43		28
Rest of World
Australia		2001		15		31,948		22,349		3,299		Offshore		2		1
Brazil		1999		2		2,203		2,057				Offshore
China		1983		4		866		181		103		Offshore		8		4
Croatia		1996		3		6,056		3,029		988		Offshore		2		6
Ecuador		1988		1		2,000		2,000		2,000		Onshore		1		1
India		2005		2		14,445		5,698				Onshore/Offshore
Indonesia		2001		12		31,419		15,859		984		Onshore/Offshore		7		8
Iran		1957		4		1,456		820		820		Onshore/Offshore		4
Kazakhstan		1995		6		4,934		959		488		Onshore/Offshore		1		5
Pakistan		2000		14		21,876		11,692		615		Onshore/Offshore		6		1
Saudi Arabia		2004		1		51,687		25,844				Onshore
Trinidad & Tobago		1970		1		382		66		66		Offshore		3		2
The United States		1968		389		7,890		3,569		389		Onshore/Offshore		17		8
Venezuela		1998		4		1,701		867		511		Onshore/Offshore		5		2
				458		178,863		94,990		10,263				56		38
Other				9		6,276		1,279		1,114		Offshore				1
Other countries with only exploration activity				18		89,056		53,448				Onshore/Offshore
Outside Italy				861		479,153		241,949		42,398				348		232
Total				1,041		510,201		266,002		55,098				431		311

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Italy		1926		171		28,508		22,496		12,743		Onshore/Offshore		90		89
North Africa
Algeria		1981		36		12,739		3,456		861		Onshore		26		12
Egypt		1954		53		23,214		13,901		2,401		Onshore/Offshore		37		30
Libya		1959		17		39,569		34,113		12,783		Onshore/Offshore		11		15
Tunisia		1961		14		6,464		2,274		1,223		Onshore/Offshore		13		4
				120		81,986		53,744		17,268				87		61
West Africa
Angola		1980		49		18,776		3,275		1,099		Offshore		39		30
Congo		1968		20		9,797		4,169		880		Offshore		17		7
Nigeria		1962		49		43,215		7,356		5,715		Onshore/Offshore		122		23
				118		71,788		14,800		7,694				178		60
North Sea
Norway		1965		47		18,851		7,077		123		Offshore		9		6
The United Kingdom		1964		75		5,860		1,328		688		Offshore		33		13
				122		24,711		8,405		811				42		19
Rest of world
Australia		2001		13		24,143		19,910		2,279		Offshore		2		1
Brazil		1999		3		2,948		2,802				Offshore
China		1983		4		866		181		103		Offshore		9		4
Croatia		1996		3		6,056		3,028		987		Offshore		5		5
Ecuador		1988		1		2,000		2,000		2,000		Onshore		1		1
East Timor		2006		5		12,224		12,224				Offshore
India		2005		2		14,445		5,698				Onshore/Offshore
Indonesia		2001		13		28,438		16,301		656		Onshore/Offshore		7		8
Iran		1957		4		1,456		820		820		Onshore/Offshore		4
Kazakhstan		1995		6		4,934		960		489		Onshore/Offshore		1		5
Pakistan		2000		18		29,790		20,965		615		Onshore/Offshore		6		1
Saudi Arabia		2004		1		51,687		25,844				Onshore
Trinidad & Tobago		1970		1		382		66		66		Offshore		3		2
United States		1968		391		7,803		3,758		560		Onshore/Offshore		20		5
Venezuela		1998		4		1,958		790		66		Offshore				1
				469		189,130		115,347		8,641				58		33
Other				9		6,311		1,240		1,116		Offshore				1
Other countries with only exploration activity				20		299,705		169,187				Onshore/Offshore
Outside Italy				858		673,631		362,723		35,530				365		174
Total				1,029		702,139		385,219		48,273				455		263

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(1)

Square kilometers.

Eni’s principal regions of operations are described below. In the discussion that follows references to hydrocarbon production are to be intended to be hydrocarbon production available for sale.

Italy

In 2005, Eni’s hydrocarbon productionEni has been operating in Italy totalled 256since 1926. In 2006 Eni’s oil and gas production amounted to 233 KBOE/d and represented 15% ofd. Eni’s total production. Eni’s exploration and development interestsactivities in Italy are concentrated in the Adriatic Sea, the Central Southern Apennines, Sicilymainland and the Sicilian offshore Sicily and the Po Valley. Natural gasEni’s exploration and development activities in Italy are regulated by concession contracts.

The Adriatic Sea represents Eni’s main production availablearea in Italy, accounting for sale averaged 972 mmCF/d and represented approximately 67%49% of Eni’s hydrocarbondomestic production in 2006. Production is composed mainly of natural gas. Main operated fields are Barbara (177 mmCF/d net to Eni), Angela-Angelina (71 mmCF/d), Porto Garibaldi (71 mmCF/d) and Cervia (57 mmCF/d).

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Eni is operator of the Val d’Agri concession (Eni’s interest 60.77%) in Basilicata Region, Southern Italy, resulting from the unitization of the Volturino and Grumento Nova concessions made in late 2005. Production is supplied from the Monte Alpi, Monte Enoc and Cerro Falcone fields through 22 production wells of the 36 foreseen by the sanctioned development plan and is supported by the Viggiano oil center, containing 6 trains with a treatment capacity of 104 KBBL/d of oil and 99 mmCF/d of natural gas. Oil produced is delivered to Eni’s refinery in Taranto via a 136-kilometer long pipeline. In 2006 the Val d’Agri concession produced 104 KBOE/d (68 net to Eni), corresponding to 29% of Eni’s production in Italy.

Eni is operator of 13 production concessions onshore and offshore Sicily. Its main fields are Gela, Ragusa, Giaurone, Fiumetto and Prezioso, which in 2006 accounted for 6% of Eni’s production in Italy. Eni’s principal natural gas fields are locatedIn the second half of 2006, the Samperi well was started up with full production of approximately 2,871 CF/d to be reached in the Adriatic Sea (Barbara, Angela/Angelina, Porto Garibaldi/Agostino, Cervia/Arianna, Porto Corsini, Regina and Bonaccia, which collectively accounted for 50% of Eni’s natural gas production in Italy in 2005) and in the Ionian Sea (Luna, which accounted for 9.2%).

Production of oil in Italy averaged 86 KBBL/d. Eni’s three major oil fields, Val d’Agri in Southern Italy, Villafortuna in the Po Valley and Gela in Sicily, represented 82% of Eni’s total oil production in Italy in 2005. Other oil fields are Aquila in the Adriatic offshore of Southern Italy, Rospo in the Adriatic Sea, Prezioso and Vega offshore Southern Sicily, and Giaurone and Ragusa in Sicily.

Exploration activities onshore yielded positive results with the Mezzocolle 1 well (Eni’s interest 100%) containing natural gas in the Imola permit in the central Apennines, with the Longanesi 1 well containing natural gas in the Po Plain (Eni’s interest 100%) and with Argo-1 well (Eni’s interest 60%) testing an offshore gas accumulation in the Sicily Channel.2007.

In the Val d’Agri the expected production peak of 73 KBOE/d net to Eni was reached as planned. Oil production derives from the first 19 wells drilled of the 38 foreseen by the development plan.

Production maintenance actions were performed on the offshore Annabella, Armida, Barbara, Garibaldi gas fields and the Rospo oilfield through the drilling of infilling wells and sidetrack activities, increasing production by about 75 mmCF/d.

During 20052006 development activities concerned:concerned in particular: (i) continuation of the development plan of the onshore Candela and Miglianico fields and the completion of the development of the Naide field; (ii) continuation of drilling and connection of development wells in the Val d’Agri; (iii) the optimization of producingproduction from mature fields by means of sidetracking and infilling (the Annabella, Armida, Barbara, Garibaldioperations (Barbara A/H, Daria, Basil and Anemone for gas and Rospo for oil); and (ii) continuation of drilling and upgrading of producing facilities in the Val d’Agri.

The main ongoing development project is Miglianico, located onshore in the Abruzzi Region, Central Italy. Production is expected to start in the second half of 2008. This project provides for the construction of facilities intended to treat production volumes of oil, to be delivered to logistic structures of the Refining & Marketing Division, and to desulfurize production volumes of gas to be input into the Italian natural gas transportation network.

Development of gas fields is nearing completion at: (i) Tea, Arnica, Lavanda in the Adriatic offshore where start up of production is expected in 2007 after a production platform and the Rospo oilfield); (iv) construction of an additional sealine for the optimal management of the fields connected to the Fano terminal;linkage facilities were installed in 2006; (ii) Candela, where start up is expected in 2007; and (v) the beginning of the development phase of the Annamaria field.

As part of the development of onshore(iii) certain gas fields in Sicily the following projects are in an advanced phase: (i) in theSicily: Pizzo Tamburino, field, the first well is scheduled for the second half of 20062007 with expected production of approximately 6 mmCF/d; in 2007 according to the actual production1,000 BOE/d, and recovery of the first well a second oneadditional reserves of Fiumetto concession, where start up is expected to be drilled; (ii) in the Fiumetto field, an infilling well is expected to start production in the first half of 2007 with an expected peak flow of approximately 7 mmCF/d; and (iii) in the Samperi field, start-up is expected in the second half of 2006 peaking at approximately 7 mmCF/600 BOE/d.

In December 2005 Eni acquiredThe main gas discoveries for euro 90 million (including net financial debt transferredthe year were made in: (a) the onshore San Potito concession, in Emilia the Longanesi 1 well, at a depth of euro 17 million)2,540 meters; (b) the offshore of Sicily (GR.13.AG permit, Argo 1 well, Eni’s interest 60%) at a 90% interestdepth between 1,350 and 1,520 meters; (c) the Adriatic Sea (AR.95.EA permit, Benedetta 1 well) at a depth of 2,090 meters which yielded 145 KCM/d of gas in Sarcis SpA holdingtest production; and (d) the onshore permits/concessions in Sicily.of Sicily (San Teodoro permit, Borgo Giuliano 1 well) at a depth of about 2,000 meters.

North Africa

Eni’s operations in North Africa are conducted in Algeria, Egypt, Libya and Tunisia. In 2005,2006, North Africa accounted for 27%31% of Eni’s total worldwide production of hydrocarbons.

Algeria Eni has been present in Algeria since 1981. In 2005,2006, Eni’s oil production averaged 8688 KBBL/d. The principal oil producing fields operated by EniOperating activities accounting for 53% of Eni’s production in Algeria are located in the Bir Rebaa area in the South-Eastern desert and include the following exploration and production blocks: (a) Blocks 401a, 403 a/d (Eni’s interest 100%); (b) Blocks 401a/402a (Eni’s interest 55%); (c) Block 403 403a(Eni’s interest 50%); (d) Blocks 212 (Eni’s interest 22.38%) and 403d (Eni’s share between 50%-100%), which accounted for approximately 52% of Eni’s production in 2005 in Algeria. Other interests held by Eni are HBN, HBNS, HBNSE and satellites208 (Eni’s interest 12.25%); and Ourhoud (Eni’s interest 4.59%), which in 2005 accounted for approximately 48% of Eni’s production in Algeria.

Exploration activities yielded positive results in permits P 404 in area C(e) exploration Blocks 404a (Eni’s interest 25%), near the HBNE field, with the SFSW-3 appraisal well on the Sif Fatima discovery and P 403 c/e (Eni’s interest 33.33%) with. Exploration and production activities in Algeria are regulated by Production Sharing Agreements (PSA) and concession contracts.

Production in the ZNNW-1Block 403 a/d is supplied mainly by the HBN and ROM and satellite fields. Blocks 403 a/d accounted for approximately 41% of Eni’s production in Algeria in 2006. The main project underway is ROM/ZEA Integrated Development for the production of reserves ascertained by the recent appraisal well. In both permitsactivity conducted in the presencearea, leading to a revaluation of hydrocarbons was confirmedthe resources of this area. Current production is collected at a depthROM’s Central Production Facility and delivered to the treatment center in Bir Rebaa North in Block 403. The project provides for the upgrade of about 3,000 meters.

In Block P 403a/d (Eni’s interest 50%) the NFW ROM-6 discovery wellproduction facilities and the ROM North-1 appraisal well were drilledinjection into the field of water and gas currently flared at a depth of about 3,400 meters and confirmed the extension of the new oil levels in the ROM field. The ROM integrated development project entails production from these new levels also through the reinjection ofsatellite center. As a result, flared gas produced in the nearby BRN field, reducing gas flaringis expected to be reduced by nearlyapproximately 90%. Management expects production of the ROM field, as required by applicable Algerian laws. Production is expected to peak at 16 KBOE/21 KBBL/d (12 net to EniEni) in 2009.2010.

Daily production from the Blocks 401a/402a is supplied mainly by the ROD and satellite fields and accounted for approximately 27% of Eni’s production in Algeria in 2006. Infilling activities are being performed on producing fields in order to maintain the current production plateau. The drilling of a further 6 wells (4 production and 2 water injection wells) is planned for the recovery of recently ascertained reserves.

The main fields in Block 403 are BRN, BRW and BRSW and the block accounted for approximately 13% of Eni’s production in Algeria in 2006. In June 2007, the BRN field permit expired. The field was producing 3 KBOE/d.

Block 208 is located South of Bir Rebaa. The el Merk Synergy plan for the development of this block in conjunction with the development of adjoining blocks (212 and 405a and 404, operated by other companies) is the main project underway in Algeria. In Block 208 the EKT, EMK, EMN and EME oil and gas fields, discovered between 1993 and 1998, are in the development phase in block 208 (Eni’s interest 12.25%). expected to be developed.

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The developmentworking plan provides for the drilling of 142145 wells that are expected to be linked to a Central Production Facility with a treatment capacity of 150 KBBL/d of oil and approximately 1 BCF/d of associated wet gas for the extraction of liquids (approximately 50 KBBL/d) and the constructionsubsequent gas cycling (reinjection in the field). Marketing of associated gas is envisaged 8 years after the production start up. Production is expected to start in 2010, peaking at 141 KBOE/d (18 net to Eni) in the same year. About 85% of basic engineering was completed in 2006.

The main discoveries for the year were: (a) in onshore Block 403a the appraisal wells ROM N2 and N3 found oil at a depth of about 3,300 meters; and (b) in onshore Block 404a, the BBKS-1 discovery well showed the presence of oil at a depth of 3,160 meters which yielded 700 BBL/d in test production; the appraisal well BBKSE-1 showed the presence of oil at a depth of about 3,200 meters and confirmed the eastward extension of the BBKS structure.

Algeria is currently reviewing the fiscal regime applicable to foreign oil companies. With regard to the legislative text already enacted, fiscal terms applicable to existing PSAs to which foreign oil companies are parties have not been modified. Nevertheless, Sonatrach, the state oil company, is currently bearing higher taxation on behalf of foreign oil companies. On this basis, Sonatrach intends to renegotiate the economic terms of certain PSAs to which Eni or other Eni co-venture partners are party. According to Sonatrach, renegotiation of contractual terms is necessary in order to restore the initial economics of such contracts. At present, management is not able to foresee the final outcome of such renegotiations. In addition, the Algerian parliament with the Decree No. 06-440 of December 2, 2006 enacted the procedure, the application framework and the calculation methodology of a central facilitywindfall tax levied to foreign oil companies as approved by the Government. Effective August 1, 2006, said windfall tax applies to the extent that oil prices exceed $30 per barrel and foresees rates ranging from 5 to 50% depending on the share of production to which a foreign company is entitled and the contractual scheme in force with Sonatrach. In 2006, the application of such tax entailed higher current taxation and a deferred tax charge for a total impact on Eni of euro 328 million.

In the production of stabilized oil, condensates and LNG. Managementmedium-term, management expects production of this fieldin Algeria to commence in 2008, peaking at 13increase reflecting ongoing development activities, targeting a 100 KBOE/d net to Eni inlevel by 2010.

Egypt Eni has been present in Egypt since 1954. In 2005,2006, Eni’s share of production in this country amounting to 207221 KBOE/d accounted for 12%13% of Eni’s total annual hydrocarbon production.

In 2005, oil and condensate production averaged 90 KBBL/d net to Eni and came mainly from Eni’s main producing activities are located in the Eni operated Belayim and Ashrafi fieldsconcession (Eni’s interest 100%) located in the Gulf of Suez which contains oil and Melehia in the Western Desert, which covered 74% of Eni’s crude oil production in Egypt.

In 2005, natural gas production available for sale averaged 671 mmCF/d net to Eni. The main natural gas producing interests operated by Eni are concentrated in the Nile Delta: onshore the Abu Madi and el Qar’a interestscondensates and in the Mediterranean offshore, the North Port Said (former Port Fouad)Fouad, Eni’s interest 100%), Baltim (Eni operator with a 50% interest), Ras el Barr (Eni’s interest 50%) and el Temsah interests. Production(Eni operator with a 50% interest), predominantly gas concessions located offshore in the Nile Delta. In 2006 production from these concessions covered nearly allaccounted for 90% of Eni’s production in Egypt. Exploration and production activities in Egypt are regulated by concession contracts and PSAs.

Development activities are underway in the offshore area of the Nile Delta: (i) in the North Port Said concession (Eni’s interest 100%), the Anshuga gas field was linked to the production facilities of the nearby Nouras field by means of a sea line, starting production in October 2006. Production is expected to peak at 17.3 mmCF/d net to Eni. This and other ongoing development activities aim at maintaining the current gas production level of 406 mmCF/d net to Eni; (ii) in the Ras el Barr concession (Eni’s interest 50%), engineering activities are underway for the development of gas reserves in the offshore Taurt field. This project provides for the drilling of seven wells which are expected to be linked to existing onshore treatment facilities. Production is expected to start in 2008. A second development step of the Ha’py field was completed. Ongoing development activities aim at maintaining the current gas production level of 168 mmCF/d net to Eni; and (iii) in the el Temsah concession (Eni operator with a 50% interest), gas and condensates production started at the Temsah NW 2 platform. Main projects include the development of reserves at the Denise field and its satellites through existing facilities at Denise A installed on the TNW 2 platform. Ongoing development activities aim at reaching a peak production of 137 KBOE/d (41 net to Eni) in 2008.

As part of the expansion plan of the Damietta LNG plant, Eni and its partners signed a framework agreement in June 2006 for doubling the capacity of the Damietta liquefaction plant by means of the construction of a second train with a treatment capacity of 268 BCF/y of gas corresponding to approximately 5 mmtonnes/y of LNG for a twenty-year period starting in 2010. This project is expected to support the ramp-up of Eni’s natural gas production in Egypt.the Nile Delta, targeting supplies of 88 BCF/y. Eni is currently supplying 53 BCF/y to the first train for a twenty-year period.

Exploration yielded positive results inMain discoveries for the following concessions: (i) Ashrafiyear were in: (a) offshore Abu Rudeis permit (Eni’s interest 50%100%) in the GulfAbu Rudeis Marine 4 discovery well showing the presence of Suez with the drilling of the NFW Ashrafi 1X well that found hydrocarbons at a depth of about 1,700 meters; (ii) Belayim Land (Eni’s interest 50%) with the drilling of NFW BLSW-1 well that found gasliquids at a depth of over 3,000 meters; (iii) Belayim Marinethe well was linked to existing production facilities; (b) onshore West Razzak permit (Eni’s interest 50%80%) in, the GulfAghar SW-1X discovery well showed the presence of Suez with the drilling of the BMNW-4 outpost well which allowed to report mineralizedhigh quality liquids at various levels at a depth between 1,800 and 2,300 meters; (c) offshore West Baltim permit (Eni’s interest 100%), the Meret 1 and 2 discovery wells showed the presence of aboutnatural gas and condensates at various levels at depth between 1,500 and over 3,000 meters. Thismeters; (d) offshore Thekah permit (Eni’s interest 50%), the Thekah North 1 discovery well showed the presence of natural gas at a depth between 1,350 and 1,650 meters; the well was linked to the existing production facilities; and (iv)(e) onshore Meleiha permit (Eni’s interest 56%) the Lotus North Port Said (Eni operator with a 50% interest) with1-X discovery well showed the drillingpresence of the PFM-D-1 well which found gas and condensatesoil at a depth of about 5,000 meters.

Development activities are underway in concessionsover 2,000 meters and has started to produce. The Nada Ne 1-X discovery well showed the presence of oil and natural gas at a depth of 1,900 meters in the offshore of the Nile Delta: (i) North Port Said (Eni’s interest 50%) where the Barboni gas platformsame area and has started production in May 2005 at an initial level of about 35 mmCF/d while work continued for the expansion of the el Gamil terminal where in 2005 natural gas production net to Eni increased from 388 to 459 mmCF/d; and (ii) el Temsah (Eni operator with a 25% interest) where in August 2005 gas and liquid production started at the Temsah 4 platform. produce.

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In the second quarter of 2006medium-term, management expects to increase Eni’s production of gas and condensates is expected to start from platform Temsah NW. Peak production at 41 KBOE/d net to Eni is expected in 2008.

In January 2005 the LNG production plant at Damietta was started-up. The plant (Eni’s interest 40%) has a treatment capacity of 247 BCF/y. Eni plans to supply 106 BCF/y of its natural gas production volumes in Egypt to this plant in the next 20 years. A second liquefaction train is planned to be installed at the plant with the same capacity of the first train. Eni plans to supply its production gas to this line as agreed in an intent protocol signed with the Egyptian Government in March 2005.

In January 2005 the NGL plant in Port Said was started-up. The plant (Eni’s interest 33%) has a treatment capacity of 1,095 mmCF/approximately 250 KBOE/d of natural gas and annual production of 330,000 tonnes of propane, 280,000 tonnes of LPG and 1.2 mmBBL of condensates.

In the medium term management plans to increase Eni’s hydrocarbon production in Egypt leveraging on thereflecting ongoing development of natural gas reserves, in existing areas. This increase isdespite expected to be offset in part by production decline of certain mature oil fields.

Libya Eni started operations in Libya in 1959. In 2005, Eni’ s share of production in this country amounting to 158 KBOE/d accounted for approximately 9% of2006 Eni’s total annual hydrocarbon production.

In 2005 Eni’s hydrocarbonoil and gas production averaged 158213 KBOE/d, the portion of which 76%liquids was oil. The main oil, condensates and gas fields operated by Eni are Wafa onshore in permit NC-169 A and Bahr Essalam located in the NC-41 permit65%. Production activity is carried out in the Mediterranean offshore northfacing Tripoli and in the Libyan Desert. The main production blocks in which Eni holds interests are: (i) Block NC169A onshore (Eni’s interest 50%) and Block NC41 offshore (Eni’s interest 30% for oil and 50% for gas); (ii) Block NC174 onshore (Eni’s interest 33.3%, for development phase); and (iii) onshore concessions 82 and 100 (Eni’s interest 50%). Eni also holds a 50% interest for development phase, in the Block NC118 where, after a declaration of Tripoli started upcommercial discovery, it is developing the A-NC118 field. In the exploration phase, Eni is operator of four onshore blocks in September 2004the Muzurk basin (161/1, 161/2 & 4, 176/3) and August 2005, respectively,in the Kufra area (186/1, 2, 3 & 4). Eni’s exploration and production activities in Libya are regulated by concessions and PSAs.

Block NC169 located onshore in the Western Libyan Desert near the Algerian borderline includes the liquids and gas Wafa field; Block NC41 located off Libya's Northern Mediterranean coastline includes the liquids and gas Bahr Essalam field. These two fields have been developed as part of the upstream-midstream integrated Western Libyan Gas Project (Eni’s interest 50%). Production from the two fields is treated(WLGP) aimed also at the Mellitah plant under completion on the Libyan coast. Naturalexporting natural gas is carried to ItalyEurope through the underwater GreenstreamGreenStream pipeline. In 2005 the two fields produced 74 KBOE/d. Total peak production at 128 KBOE/d net to Eni is expected in 2006. When fully operational in 2006 the gasline isvolumes delivered through this pipeline were 240 BCF and are expected to transport and exporttarget 283 BCF (equal approximately to Italy a total volumean average of 283 BCF/y (141 BCF/y net to Eni). This volume will be entirely sold777 mmCF/d) when operations are fully on line. Said volumes are supplied to third parties on the Italian natural gas market under long termlong-term contracts. In additionFurther 71 BCF/y are expectedBCF of gas will be delivered to be soldthe Libyan market. Production from these two fields is supported by the Mellitah plant on the Libyan market. In 2005, volumes transported to Italy through this gasline amounted to approximately to 163 BCFcoast, made up of three trains for the year.treatment of gas volumes from Bahr Essalam. Gas volumes produced at Wafa are treated at Wafa facilities. Mellitah also includes facilities for the compression of natural gas that is delivered to Sicily, as well as facilities for the storage and loading of oil and LPG. Block NC41 also includes the Bouri oil field. As part of development activities in the Bouri Est Area, four producing subsea wells were successfully drilled and linked to the existing facilities. In 2006 the field yielded 55 KBBL/d (16 net to Eni).

Other significantBlock NC174 is located in the Southwestern Libyan desert about 800 kilometers from of Tripoli. Daily production is provided by the el Feel field. In 2006 the field yielded 124 KBBL/d (24 net to Eni) treated at the field’s facilities and then delivered via pipeline to the Mellitah plant for storage and loading. This field has already reached the planned production peak of 150 KBBL/d (35 net to Eni).

Concessions 82 and 100 are located in the Eastern Central Libyan desert. Oil production is provided by the Bu Attifel oil field as well as by minor fields are: (i) Bu-Attifelin concession 82. In 2006 they yielded 58 KBBL/d net to Eni. Development activities concerned the drilling of some infilling wells.

Main discoveries for the year were in: (a) offshore Block NC 41, the T1 discovery well showed the presence of oil at a depth of 2,800 meters; and (b) onshore concession 82-10 (Eni’s interest 50%) onshore in, the central-eastern desert and Bouri (Eni’s interest 30%) inKK4-82/ST3 discovery well showed the Mediterranean offshore facing Tripoli which accounted for 43%presence of oil at a depth of 5,000 meters.

In the medium-term, management expects to increase Eni’s production in Libya in 2005; and (ii) Elephant inowing to the NC-174expected ramp up of new structures near the Western Libyan Gas Project fields, despite mature field production declines.

Mali In November 2006, Eni purchased five onshore permit in the south-western desert (Eni’s interest 23.33%) which in 2005 produced 9 KBBL/d net to Eni.

In October 2005 following an international bid procedure Eni obtained an exploration license as operator of four onshore blocks with a total acreage of 18,220 square kilometers, located in the Murzuk basin (161/1, 161/2&4, 176/3) and in the Kufra area (186/1, 2, 3, 4).

Exploration yielded positive results in offshore block NC-41licenses (Eni operator with a 50% interest) from Baraka Mali Operations Ltd and Baraka Mali Ventures Ltd, covering a gross acreage of approximately 193,200 square kilometers (96,600 net to Eni). Blocks are located in the central part of the Taodueni Basin at the border with Algeria, a completely unexplored and high potential basin according to recent studies. The life span of this exploration license was fixed at four years. In March 2007, this operation was approved by the drilling of well NFW T1-NC41 which foundMalian Authorities.

Tunisia Eni has been present in Tunisia since 1961. Its main producing interests are in the el Borma oil field and in the oil and gas Hammouda and Oued Zar fields, operated by Eni with a 50% interest. In 2006 Eni produced 14 KBOE/day.

Main discoveries for the year were in: (a) Larish concession (Eni’s interest 50%), the Larish SE-1 well found oil at a depth of 2,770about 3,000 meters and yielded 4.6 KBBL/dwas linked to existing production facilities; (b) Adam concession (Eni operator with a 25% interest), the Karma-1 well showed an oil formation at a depth of crude3,617 meters, which confirmed it as a high potential basin; and (c) in Bordj el Kadra concession (Eni operator with a 50% interest), the Nakhil-1 discovery well showed the presence of high quality oil and 13 mmCF/dat a depth of gas in test production.approximately 4,000 meters.

In the NC-174 permit (Eni’s interest 23.33%) about 800 kilometers south of Tripolimedium-term production is expected to increase above 20 KBOE/d with the developmentstart up of the Elephant oil field continued. In October 2005 the new 725-kilometer long pipeline linking it to the Mellitah plant started operations. The upgrading of the Mellitah plant will be completed in the first half of 2006. Management expects production of this field to peak at 150 KBBL/d (35 KBBL/d net to Eni) in the second half of 2006.offshore fields Maamoura and Baraka.

In the medium term, management expects to increase significantly Eni’s production in Libya from the 158 KBOE/d level of 2005 benefiting from the expected achievement of full production at the Western Libya Gas Project and at Elephant fields.26

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West Africa

Eni’s operations in West Africa are conducted in Angola, Congo and Nigeria. In 2005,2006, West Africa accounted for 20%21% of Eni’s total worldwide production of hydrocarbons.

Angola Eni has been present in Angola since 1980. In 20052006 Eni’s oil production averaged 122151 KBOE/d. Eni’s activities are concentrated in the conventional and deep offshore.

The main blocks in which Eni holds an interest are: (i) Block 0 in Cabinda (Eni’s interest 9.8%) West of the Angolan coast; (ii) Block 14 (Eni’s interest 20%) in the deep offshore West of Block 0; and (iii) Block 15 (Eni’s interest 20%) in the deep offshore of the Congo basin. Eni also holds interests in other minor concessions, in particular in some areas of Block 3 (with interests varying from 12 to 15%). In the exploration phase, Eni holds interests in the 14K/A IMI Unit Area and in Block 3/05-A with an 11.5% and a 12% interest, respectively. In May 2006, following an international bid procedure, Eni was awarded the role of operator in the exploration license of offshore Block 15/06 (Eni’s interest 35%). This Block covers a gross acreage of approximately 3,000 square kilometers. The exploration plan envisages drilling of eight wells during a five-year period and an option for extending the license period over a further three-year period and the drilling of three additional wells. In November 2006, Eni signed the relevant Production Sharing Contract (PSC) with the State oil company Sonangol. Exploration and production activities in Angola are regulated by concessions and PSAs.

On April 2, 2007 Eni and Sonangol signed a Memorandum of Understanding for the acquisition of a 13.6% stake in Angola LNG Ltd Consortium (A-LNG). This company is responsible for the construction of an LNG plant in Soyo, 300 km North Luanda, with a yearly capacity of 5 mmtonnes. This project has been approved by the Angolan Government and Parliament. It envisages the development of 7,770 BCF of gas, the production of 128 mmtonnes of LNG, 104 mmBBL of condensate and 257 mmBBL of LPG along a 28-year period. The LNG is planned to be re-gasified at the Pascagoula plant on the coast of the Gulf of Mexico for delivery to the United States market. Following this agreement, Eni plans to acquire a share of the re-gasification capacity of this plant corresponding to 177 BCF/y.

In 2006, production started at Benguela/Belize and Lobito/Tomboco fields in Block 14 (Eni’s interest 20%), in January and June, respectively. Joint development of these fields was carried out by installing a compliant piled tower provided with treatment facilities for Benguela/Belize and an underwater connection to this tower for Lobito/Tomboco. Production is expected to peak at 158 KBBL/d and accounted for 11%(20 net to Eni) in 2009 upon completion of Eni’s total annualthe drilling program.

Development of the Banzala oil production.

Eni’s main oil producing fields are locatedfield in Block 0 in Cabinda (Eni’s interest 9.8%), Block 14 (Eni’s interest 20%) moved forward with the installation of a production platform and drilling of producing and water injection wells. Production is expected to start in the first quarter of 2007 and to peak at 27 KBBL/d (3 net to Eni) in 2009.

An intense campaign to develop reserves in Block 15 (Eni’s interest 20%).

The main is underway: (i) in March 2006, development of the Mondo and Saxi/Batuque oil fields started as part of Phase C of the development of reserves in Block 0 are Takula, Nemba and Malongo. Inthe Kizomba deep offshore area. A common development strategy is expected to be deployed in both projects, envisaging the installation of an FPSO vessel. Production is expected to start in the first halfquarter and in second quarter of 2005 production started at the North Sanha/Bomboco oil, condensate and LPG offshore fields. LPG is produced through an FPSO (Floating Production Storage Offloading) unit, the largest in its class in the world. At Sanha a complex for the reinjection of gas into the fields has been built aiming at reducing gas flaring by 50%. In 2005 production from this block (38 KBBL/d) accounted for approximately 31% of Eni’s production in Angola.2008, respectively. Peak production of oil, condensate and LPG is expected at 100 KBBL/d (10 KBBL/d net to Eni) in 2007. The main field in the deep waters of Block 14 is Kuito which in 2005 produced approximately 58 KBBL/d (10 KBBL/d net to Eni).

In Block 15 the Hungo and Chocalho fields started-up in August 2004, and the Kissanje and Dikanza fields, started-up in July 2005 within phase A and B of the development of the Kizomba area, are now in production. Both fields are developed by means of an FPSO unit. Peak production of phase B at 250 KBBL/d (47 KBBL/d net to Eni) was reached in late 2005. Peak production of phase A at 250 KBBL/d (43 KBBL/d(18 net to Eni) is expected in 2006 and will be kept at the same level by means of additional production from marginal fields. Another relevant fieldboth projects in Block 15 is Xikomba. In 2005 production from Block 15 (70 KBBL/d) accounted for approximately 56% of Eni’s production in Angola. Development is underway at: (i) Mondo field with expected start up in 2007 and expected capital expenditure net to Eni amounting to approximately $360 million;2009; and (ii) at Saxi-Batuque fields with expected start up in 2008 and expected capital expenditure net to Eni amounting to approximately $380 million.

The project is underway for theDecember 2006, development of the Benguela, Belize, LobitoMarimba oil field started with the drilling of producing wells which will be connected to existing facilities in Kizomba A. Peak production is expected in 2008 at 39 KBOE/d (7 net to Eni).

Development activities at the Landana and Tomboco oilfieldsTombua oil fields in Block 14 offshore (Eni’s interest 20%) progressed with the drilling of producing wells, one of which has already been started up in June 2006. A few production wells, one of which was started up in June 2006 shall be linked to existing facilities at Benguele/Belize-Lobito/Tomboco. Peak production at 130 KBBL/d (22 net to Eni) is expected in 2010.

Main discoveries for the year were: (a) the development concessions deriving from former Block 15 (Eni’s interest 20%), the Tchihumba 2 appraisal well confirmed the presence of oil at a depth between 300of about 3,000 meters; (b) Block 14K/A IMI unit (Eni’s interest 11.5%), where the Lianzi discovery was made, appraisal activities conducted in the area confirmed the presence of hydrocarbon layers at a depth over 3,000 meters; and 500 meters in(c) offshore Block 14 (Eni’s interest 20%). The project provides for, the drilling of 50 wells and the installation of a compliant tower with production facilities for Benguela/Belize. The first oil was produced in January 2006. Lobito and Tomboco are planned to be developed by means of underwater completion and to be connected to the compliant tower of Benguela/Belize with start-up scheduled in the second half of 2006. Management expects production from these four fields to peak at 188 KBBL/d (32 KBBL/d net to Eni) in 2008. Total capital expenditure net to Eni is expected to amount to approximately $460 million.

Offshore exploration activities were successful in the following areas: (i) Block 0, former Cabinda (Eni’s interest 9.8%) with the NFW 70-5XLucapa 1 discovery well that found hydrocarbons at a depth of 2,335 meters and yielded 2 KBBL/d of crude oil and natural gas in test production; (ii) Block 14K/A-IMI (Eni’s share 10%) with the drilling of the Lianzi-2ST and Lianzi-2OH appraisal wells on the Lianzi discovery which showed the presence of natural gas and crude oil layers at a depth of more than 3,000 meters; and (iii) Block 15 (Eni’s interest 20%) with the Batuque-3 appraisal well on the Batuque discovery which confirmed the presence of hydrocarbons at a depth of about 2,0001,200 meters.

In May 2006, Eni acquired the operatorship (Eni’s interest 35%) of a new exploration area in Block 15.

In the medium term,medium-term, management expects to increase Eni’s production to approximately 200160 KBBL/d benefitingreflecting contributions from ongoing development projects, despite the expected achievementproduction decline of full production of fields started-up in 2005 and the contribution of new development projects.mature fields.

Congo Eni has been present in Congo since 1968 and its activities are concentrated in the conventional and deep offshore facing Pointe Noire. In 2006 production in 2005 was 67averaged 65 KBOE/d.

Eni is the second largest international oil producer, with oil fields operated by Eni accounting for 28% of Congo’s total oil production in 2005 (65 KBBL/d net to Eni). Eni, mainly comprised of oil production. Exploration and production activities in Congo are regulated by PSA.

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Eni’s principal oil producing interests operated in Congo are located in the offshore facing Pointe Noire: the Zatchi Foukanda, Mwafi and Djambala fields (Eni’s interest 65%), the and Loango field (Eni’s interest 50%) fields and the Kitina fieldBlocks Marine VI (Eni’s interest 65%) and VII (Eni’s interest 35.75%) operated by Eni accounted for approximately 59% of Eni’s production in Congo in 2005.. Eni holds a 35% interest in the Pointe Noire Grand FondFonde and Pex permits. Eni also holds interests in the two deep offshore blocks Mer Très Profonde Nord (Eni operator with a 40% interest) and Mer Très Profonde Sud (Eni’s interest 30%), and in the Block Marine X (Eni operator with a 90% interest).

In May 2006 Eni signed a Protocole d’accord aimed at exploiting the gas mineral potential of the Marine XII permit for feeding a high yield power station. In April 2007 the Assignment Agreement for the exploration license Marine XII has attributed Eni the role of operator with a 90% interest.

In February 2007 Eni concluded an agreement with the Indian company ONGC Videsh whereby exploration interests in India and Congo were exchanged. Following this transaction Eni acquired a 34% interest in block MN-DWN-2002/1 with high mineral potential in the Indian offshore at a water depth of 2,000 meters with a total acreage of 10,000 square kilometers and will give to its partner a 20% interest in the Mer Très Profonde Nord permit (Eni operator with a 40% interest) offshore Congo.

In June 2006, the offshore Litanzi field in the Pex permit started production, peaking at 4 KBOE/d (1.4 net to Eni). Development activities at the Awa Palouku and Ikalou-Ikalou Sud field are underway. Production is expected to start in 2008 peaking at 12 KBOE/d net to Eni in 2009.

Exploration yielded positive results in the Mer Très Profonde Sud permit with the Aurige Nord Marine discovery that yielded approximately 5 KBOE/d in test production.

In the medium-term, management expects to increase Eni’s production to approximately 100 KBBL/d due to the contribution from recently acquired assets.

Nigeria Eni has been present in Nigeria since 1962.1962 and its activities are concentrated in the onshore and offshore of the Niger Delta. In 2005,2006, Eni’s hydrocarbonoil and gas production averaged 149147 KBOE/d and accounted for 9% of Eni’s hydrocarbon production.

Eni’s principal producing fieldsd. In the development/production phase Eni is operator in Nigeria are located in: (i) four4 onshore blocks (OMLOil Mining Leases (OMLs) 60, 61, 62 and 63) in the Niger Delta63 (Eni’s interest 20%), which and in 2005 accounted for 35% of Eni’s production in Nigeria; (ii) the offshore OML 125 block (Eni’s interest 50.19%), where the Abo field is located which produced over 14 KBBL/d net to Eni in 2005. The development of other levels of the Abo field are expected to reach a production peak of 38 KBBL/d (15 KBBL/d net to Eni) in 2007;OMLs 120-121 (Eni’s interest 40%) and (iii) the offshore OML 119 block, operated through118 (Eni’s interest 12.5%) offshore. It also holds a service contract wherefor the Okonooffshore OMLs 119 and Okpoho116. Through the SPDC oil fields are located, which produced 55 KBBL/d (19 KBBL/d net to Eni) in 2005.

joint venture, Eni also holds a 5% interest in the 31 onshore blocks and a 12.86% interest in 5 conventional offshore blocks. In the 5exploration phase Eni is operator of the offshore blocksOil Prospecting License (OPL) 244 (Eni’s interest 60%), OML 134 (former OPL 211 - Eni’s interest 50.19%) and OML 135 (former OPL 219 - Eni’s interest 12.5%) and the onshore OPL 282 (Eni’s interest 90%).

In March 2007, Eni obtained the role of NASE, the largest oil joint ventureoperator with a 48% interest in the country. In 2005onshore OPL 135. The exploration plan envisages research for and development of oil and natural gas reserves in the proximity of existing facilities at the Kwale/Okpai power station where Eni is operator.

Exploration and production of this joint venture net to Eni accounted for about 34% of Eni’s productionactivities in Nigeria.Nigeria are regulated by service contracts and PSCs.

In November 2005 the BongaThe Forcados/Yokri oil fieldand gas fields (Eni’s interest 12.5%5%), situated are currently under development offshore and onshore in the OML 118 permit offshore Nigeria in waters of a depth between 950 and 1,150 meters, was started up.Niger Delta. Development is achieved by means of an FPSO vessel connected to 17 producing wells (9 already drilled). Production is expected to peakbe completed in 2007 as a part of an integrated project aiming at 200 KBBL/d (23 KBBL/d netproviding natural gas supplies to Eni) in 2006.

In September 2005 Eni acquired as operator the OML 120 and OML 121 development licenses from Nigerian companies.Bonny liquefaction plant. Offshore production facilities have been installed. The concessions, whereonshore project provides for the Oyo field was discovered, are located approximately 70 kilometers offshore the western coastupgrading of the Niger Delta in Nigeria. Two exploration wells are going to be drilled in 2006.

Exploration yielded positive results inOkri and North/South Bank flowstations and the offshore OML 125 block (Eni operator withconstruction of a 50.2% interest) with the drilling of the Abo 8 appraisal well that found oil layers at a depth of 2,142 meters and in the offshore OPL 219 block (Eni’s interest 12.5%) with the drilling of the Bolia 3X appraisal well that found oil levels at a depth of over 3,000 meters.gas compressor plant.

Eni holds a 10.4% interest in Nigeria LNG Ltd which manages the liquefaction plant located on Bonny Island, in the Eastern part of the Niger Delta, with a treatment capacity of approximately 812 BCF/y of naturalfeed gas corresponding to a production of 17 million tonnes/mmtonnes/y of LNG alongon 5 trains. A sixth train is under construction with over 2.2 million tonnes/a treatment capacity of 4.1 mmtonnes/y, expected to start operations by the end 2007. Engineering activities of a seventh train are underway. When fully operational, this plant is expected to have a capacity of 30 mmtonnes/y of LPG and 1.1 million tonnes/y of condensates on five trains. The fourth train was started up in late 2005 and the fifth in January 2006. The fourth train and the fifth train are expectedLNG corresponding to reach full production in 2007. Nigeria LNG’s partners have planned a further capacity expansion toabout 1,448 BCF/y corresponding to a production of 30 million tonnes of LNG by means of the installation of two more trains (one already under construction) with start-up expected between 2007 and 2011. Eni expects its share of capital expenditure for the planned capacity expansion to amount to $1.2 billion; this expenditure is expected to be completely financed by cash generated from the plant operations.

feed gas. Natural gas supplies to the plant (first six trains) will be provided under a gas supply agreement with a 20 year termterm. Production volumes will come from production of the NASESPDC joint venture (Eni’s interest 5%) and of Blocks OMLOMLs 60, 61, 62 and 61 (Eni operator with a 20% interest).63. When fully operational, in 2008 theysupplies will supplytotal approximately 3.5 BCF/3,461 mmCF/d (0.27 BCF/d(268 net to Eni, corresponding to approximately 47,000 BBL/d)46 KBOE). Capital expenditure net to EniLNG production is sold under long-term contracts and exported by the Bonny Gas transport fleet, wholly owned by the Nigeria LNG Co. This fleet is composed of 18 tanker ships and will be upgraded with 5 new units for the development activitytransport of production from train 6.

Front end engineering activities to build a new LNG plant at Brass, with liquefaction capacity of 10 mmtonnes/y on two trains, are underway. Project sanction is expected in 2008, with start up expected in 2011. Approximately 50% of feed gas to this plant is expected to amount to approximately $560 million.be secured from developing certain nearby fields.

In April 2005, the Okpai power station (independent power plant, Eni’s interest 20%) started operations, with a generation capacity of 480 megawatt on two gas and one steam turbines. The power station is fed with gas from the nearby Kwale fields in permit OML 60 (Eni operator with a 20% interest), which will supply 71 mmCF/d of natural gas when the power station is fully operational. The project is part of Eni’s and the Nigerian government’s plan to reduce CO₂ emissions28

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Several successful appraisal wells were drilled in the atmosphere.year: (a) in OML 118 offshore block (Eni’s interest 12.5%) with the Bonga North 2 well, drilled at a depth of 3,560 meters; (b) in OML 120 offshore block (Eni’s interest 40%) with the Oyo 2 Dir well, drilled at a depth of 1,700 meters; (c) in OPL 219 block (Eni’s interest 12.5%), with the Bolia 4 well drilled at a depth of 3,600 meters; and (d) in the OML 28 (Eni’s interest 5%) with the Kolo Creek 39 well.

In the medium term,medium-term, management expects to increase significantly Eni’s production in Nigeria to approximately 200 KBBL/KBOE/d leveraging onreflecting particularly the development of natural gas reserves, in particular in order to ensure supplies to the Bonny plant, and the contribution of fields started-up recently, as in the case of Bonga, and of new development projects.reserves.

North Sea

Eni’s operations in the North Sea area are conducted in Norway and the United Kingdom. In 2005,2006, the North Sea accounted for 16% of Eni’s total worldwide production of hydrocarbons.

Norway Eni has been operating in Norway since 1964. In 20041965. Eni’s hydrocarbonactivities are conducted in the Norwegian Sea, in the Norwegian section of the North Sea and in the Barents Sea. Eni’s production averaged 136in Norway amounted to 138 KBOE/d. Eni’s principald in 2006.

Eni holds interests in 4 production licenses in the Norwegian section of the North Sea. The main producing interests are thefield is Ekofisk field (Eni’s interest 12.39%) in PL018 containing mainly oil, which in 2006 accounted for 37% of Eni’s production in Norway. In 2006 initiatives were executed to support and optimize production, in particular two further stretches of pipes were laid that will start operations in 2007.

Eni holds interests in 6 production areas in the North Sea, and theNorwegian Sea. The main producing fields are Aasgard (Eni’s interest 14.82%), Kristin (Eni’s interest 8.25%), Heidrun (Eni’s interest 5.12%), Mikkel (both with a(Eni’s interest 14.9% interest)) and Norne (Eni’s interest 6.9%) fields in the Norwegian Sea which together accounted for 90%63% of Eni’s production in NorwayNorway. Drilling program of Kristin field is ongoing and, after this intervention, production is expected to reach 218 KBOE/d (18 net to Eni) in 2005.2007.

Currently Eni is only performing exploration activities in the Barents Sea. Operations in this area are focused on the appraisal of the mineral potential of the large Goliath discovery made in 2000 at a water depth of 370 meters in PL 229 aimed at its commercial development.

In November 2005 production started atFebruary 2006, following an international bid procedure, Eni was awarded offshore Block 6607/11-122D (Eni’s interest 20%) in the Kristin oilHalten Terrace basin, near the Marulk discovery which is operated by Eni with 20% interest.

In March 2006, following an international bid procedure, Eni was awarded offshore Blocks 7124/6, 7125/4 and 7125/5 in the Prospecting License 393 (Eni’s interest 30%), covering a gross acreage of 525 square kilometers, in the Barents Sea. Exploration plans envisage the drilling of a well in the first three years of the license.

In September 2006, Eni purchased further interests in two exploration licenses off the coast of Norway: (i) in the Prospecting License 221 (Eni’s interest 30%) where the Victoria gas discovery is located, representing a technological challenge due to the high pressure and high temperature conditions of the reservoir; and (ii) in the Prospecting License 264 (Eni’s interest 40%) where the Hvitveis gas discovery is located.

In January 2007, following an international bid procedure, Eni was awarded offshore Block 6506/9-6507/7 (Eni’s interest 30%).

Ongoing development activities are focused primarily on hydrocarbon bearing structures located near the Kristin field (Eni’s interest 8.25%) located in. Development of the PL134 permit in the Haltenbanken area about 200 kilometers off the coast in the Norwegian Sea. Oil production is treated on a semi-submersible platform with a capacity of 125 KBBL/d. ProductionTyrihans field (Eni’s interest 6.23%) is expected to peak at 218 KBOE/d (18 KBOE/d net to Eni) in 2007. In the same permit the Tofte formation discovered with the first producing well on Kristin will be developed. Theprofitable through synergies with the Kristin production facilities. In July, the development plan was sanctioned; relevant contracts for building infrastructure and production facilities will allow a viable development of the nearby Tyrihans field (Eni’s interest 7.9%),are being awarded. Production is expected to start-upstart in 2009, in coincidence with the expected production decline of Kristin.Kristin which will make spare capacity available to process production from Tyrihans.

In November 2005Main discoveries for the Svale and Stær oil fieldsyear were: (a) in the PL128 permitProspecting License 229 (Eni operator with a 65% interest), three appraisal wells of the Goliath discovery confirmed the presence of hydrocarbons at a depth between 1,000 and 1,850 meters; (b) in the Prospecting License 128 (Eni’s interest 11.5%) were started up, exploiting synergies with the nearby Norne production facilities. Production is expected to peak, a gas formation was discovered at 56 KBBL/d (6 KBBL/d net to Eni) in 2006.

The exploration activities yielded positive resultsa depth of 3,000 meters; and (c) in the Barents Sea with the second appraisal Goliath South well on the Goliath oil and gas discovery. Management expects the Goliath South well may results in the discovery of additional hydrocarbon reserves either from the expected reservoir or from deeper layers. Goliath is located in Block PL 229Prospecting License 134 (Eni’s interest 65%30%)., an appraisal well of the Morvin discovery confirmed the presence of oil at a depth between 4,600 and 4,900 meters.

The United Kingdom Eni has been present in the United Kingdom since 1964. Eni’s activities are carried out in the British section of the North Sea, in the Irish Sea and in some areas East and West of the Shetland Islands. In 20052006 Eni’s net production of hydrocarbons averaged 141137 KBOE/d.

Eni’s principal producing interests Exploration and production activities in the United Kingdom are Elgin/Franklin (Eni’s interest 21.87%), MacCulloch (Eni’s interest 40%), fields locatedregulated by concession contracts.

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Eni holds interests in 12 production areas in the Liverpool Bay (Eni’s interest 53.9%British section of the North Sea. The main fields are Elgin/Franklin (21.87%), the J-Block (33%), the Flotta Catchment Area (20%), Andrew (16.2%) and J-Block (Eni’s interest 33%Farragon (30%). In 2005 these fields which in 2006 accounted for 77%57% of Eni’s production in the United Kingdom.

Exploration yielded positive results In March 2006, production started at the offshore gas and condensate Glenelg field (Eni’s interest 8%), developed by means of the facilities of the nearby Elgin/Franklin production platform. Glenelg 2006 production has been 12 KBOE/d (1 net to Eni). Other actions in the year concerned optimization of producing fields, in particular MacCulloch, Elgin/Franklin and J-Block through the drilling of additional wells and work over actions for supporting production levels.

Eni holds interests in 5 production blocks in the Liverpool Bay area (Eni’s interest 53.9%) in the Eastern section of the Irish Sea. Main fields are Douglas, Hamilton and Lennox, which in 2006 accounted for 25% of Eni’s production in this country.

Eni holds interests in 6 production permits located East of the Shetland Islands. Main fields are Ninian (Eni’s interest 12.94%) and Magnus (Eni’s interest 5%) which in 2006 accounted for 4% of Eni’s production in the United Kingdom. In 2006 maintenance and optimization actions were performed with the upgrade of the Ninian facility and the drilling of additional wells on Magnus.

The main project underway concerns the development of the reserves in the Blane field in Block 30/3a (Eni’s interest 18%). This project contemplates the drilling of 3 sub sea wells (2 production and 1 water injection) and a linkage to existing treatment facilities. Associated gas will be reinjected in the nearby Ula field reservoir. Start up is expected in the third quarter of 2007 with an initial flow of 12 KBOE/d (2.2 net to Eni).

Main discoveries for the year were in: (a) the P/233011 permit in blocks 15/25aBlock 30/06a (Eni’s interest 12%33%) in the central section of the North Sea, with the NWF 15/25°-DDwhere an appraisal well was drilled at a depth between 4,500 and 5,100 meters confirming the presence of over 2,000 metershydrocarbons; and flowed about 4 KBBL/d of high quality oil and natural gas(b) the P/672 permit in test production.

Development activities concerned: (i) the start-up of the Farragon fieldBlock 30/02c (Eni’s interest 30%7%); and (ii) linkage of the gas and condensate Glenelg (Eni’s interest 8%) and West Franklin (Eni’s interest 21.87%) fields to the Elgin Franklin production platform.

In July 2005 Eni divested some exploration assets located in the central section of the North Sea, as partwhere a discovery of its strategya natural gas and condensate bearing layer was made at a depth of asset portfolio rationalization.

In November 20055,000 meters; this well has been linked to the British government announced a draft law to increase corporate income taxes by levying a supplementary charge increase of 10 percentage points (from 10 to 20%). In the event this draft law is enacted, management estimates an adverse 1.2 percentage points impact on Eni Group’s tax rate in 2006 as compared to 2005. Approximately halfproduction facilities of the expected increase will relate to a provision for deferred taxation. Given the expected production decline of the area for the decline of mature fields, the adverse impact of higher rates of taxes in the United Kingdom will diminish with time.nearby Jade field (Eni’s interest 7%).

Rest of the World

In 2005,2006, Eni’s operations in the rest of the world accounted for 21%18% of its total worldwide production of hydrocarbons.

In Brazil in January 2006 following an international bid procedure held in October 2005 Eni acquired the operatorship of a six year exploration license in Block BM Cal-14, covering an area of about 745 square kilometers in the deep waters of the Camamu-Almada basin, about 1,300 kilometers north of Rio de Janeiro. In March 2005 the exploration license of Block BM-C-3 (Eni’s interest 40%) was converted into an evaluation area. The test phase of the Peroba discovery well containing oil is scheduled within 2006. Exploration yielded positive results in Block BM-S-4 (Eni’s interest 100%) with the drilling of the NFW Belmonte-1A well which found natural gas at a depth of over 5,000 meters. The relevant authorities allowed a third exploration period for this block which will last two years and provides for the drilling of one well.

In China offshore exploration activity yielded positive results in Block 16/19 (Eni’s interest 33%) in the South China Sea about 180 kilometers south east of Hong Kong with the drilling of the HZ25-4-1 well (Eni’s interest 100%), which found hydrocarbons at a depth between 2,200 and 3,800 meters and flowed about 5 KBBL/d of oil in test production. The HZ25-4 field will be started up by means of the production facilities existing in the area. In Block 16/19 the HZ25-3-2 appraisal well confirmed the extension of the reserves of the HZ25-3 oil field.

In India in July 2005, Eni was awarded the right to conduct exploration activities as operator in Blocks 8 and D-6, following an international bid tender. Block 8 (Eni’s interest 34%) is located onshore in Rajasthan in the northwest of India, and extends for 1,335 square kilometers. Block D-6 (Eni’s interest 40%) is located deep water in the Indian Ocean, some 130 kilometers east of the Andaman Islands, and covers an area of 13,110 square kilometers. This contract marks the beginning of Eni’s upstream activities in India. In September 2005 Eni and the Indian Oil & Natural Gas Corporation signed a memorandum of understanding establishing mutual cooperation between the companies aimed at finding new exploration and production opportunities. In particular, the companies will exchange information on a range of deep offshore exploration projects in India and in other countries, with an option to exchange equity interests in selected upstream and midstream projects.

In Mozambique in March 2006, following an international bid tender, Eni obtained the exploration license for Area 4, located in the deep offshore of the Rovuma Basin 2,000 kilometers north of Maputo. The block covers an area of 17,646 square kilometers in an unexplored geological basin with great mineral potential according to surveys performed.

In Turkey in September 2005 an agreement has been reached with the Turkish Group Calik concerning feasibility study for the realization of a new oil pipeline from the Black Sea Turkish coast east of Samsun (Unye) to Ceyhan, on the Turkish Mediterranean coast. The new oil transportation infrastructure will include: (i) a new loading terminal in Samsun; (ii) a 550-kilometer long pipeline with design capacity of 1.5 million barrels of oil per day; and (iii) oil storage facilities to be built in the existing terminal in Ceyhan. The construction of a pipeline represents a faster, environmentally safer and more economic alternative to the transportation of oil by ship through the Turkish Straits of the Bosphorus and Dardanelles.

Australia Eni has been present in Australia since 2000.2001. In 20052006 Eni’s hydrocarbonnet production of oil and natural gas averaged 2126 KBOE/d mainly of oil.

d. Activities are focused on fields located in conventional offshore. The main production blocks in which Eni holds interests are WA-25-L (Eni operator with a 65% interest) and JPDA 03-13 (Eni’s interest 12.04%), after unitization with JPDA/02-12. Eni is operator with a 65%100% interest ofin permits WA-279 P and WA-313-P in the offshore Woollybutt oil field, which in 2005 accounted for 51% of Eni’s production in Australia.

Eni holds a 12.04% interest in the liquids and gas Bayu Undan field where liquid production was started-up in 2004. Production of natural gas currently under development will be treated at the Darwin liquefaction plant which has a capacity of 3.5 million tonnes/y. In January 2006 the first shipment of LNG was made to the Japanese market. A production peak of 160 KBOE/d from this field (18 KBOE/d net to Eni) is expected in 2008.

Offshore exploration was successful in: (i) Block AC/P-21 (Eni’s interest 40%) with the NFW Vesta-1 well that located oil and gas at a depth of over 3,300 meters; (ii) Block WA-25-L (Eni’s interest 65%) with the Woollybutt-4 appraisal well which confirmed the presence of oil in the western extension of Wollybutt-3 at a depth of over 2,000 meters; and (iii) Block WA-208 P (Eni’s interest 18.66%) with the NFW Hurricane-1 well that identified natural gas at a depth of over 3,000 meters.

In December 2005 Eni purchased further interests and reached 100% in permits WA 279-P and WA 313-P in the Bonaparte offshore basin, off the northern coast of Australia where the Blacktip and Penguin fields are located. Total capital expenditure net toIn the exploration phase Eni is expected to amount to approximately $325 million. In the same basin Eni purchasedoperator with a 39%67% interest of BlockWA-328-P and with a 100% interest of blocks TP-22, WA-280-P and WA-326-P. Exploration and production activities in Australia are regulated by concessions, while in the WA 34-R permit where the Rubiconcooperation zone between East Timor and Prometeus fieldsAustralia (JPDA) they are located.regulated by PSAs.

In December 2005 EniJune 2006, development started at the offshore Blacktip gas and liquids field (Eni’s interest 100%) located in the WA-279-P Block at a water depth of 50 meters in the Bonaparte basin, South of the Australian coast. This project envisages the installation of a production platform approximately 100 kilometers from the mainland and construction of an onshore treatment plant with a capacity of 46 BCF/y. Start up is expected in January 2009. Under a 25-year agreement signed Heads of Agreement with the Darwin Power and& Water Utility Company for the supply ofCo, a total amount of 20 BCM706 BCF of natural gas is expected to be supplied with an option for further volume increases.

In February 2006, the first shipment of LNG was delivered to two Japanese operators from the Blacktip field forDarwin liquefaction plant with a 25 year period starting in January 2009.

Croatia Eni, throughcapacity of 3.5 mmtonnes/y of LNG (equivalent to approximately 173 BCF/y of natural gas). This plant is linked by means of a 50/50 joint venture with INA, the national Croatian company, operates the Ivana natural gas field, located 40 kilometers West of Pola in the Adriatic offshore in approximately 40 meter deep waters. The field is operated through a main production platform, called Ivana A, and three satellite platforms, Ivana B, D and E.

As part of the development plan of the natural gas discoveries in the area between the end of 2005 and the beginning of 2006 the Ika, Ida, Ivana C and K fields were started up. Production from these fields is sent to the Ivana K platform and from this platform through a 57-kilometer500-kilometer long pipeline to the Garibaldi K platform. A 43-kilometer long pipeline is under construction to reachBayu Undan gas and condensates field located at a water depth of 80 meters in permits JPDA 03-12 and JPDA 03-13 within the Croatian coast near Pula. Two fields, Katarinacooperation zone between Australia and Annamaria, are under development and are expected to start-upEast Timor (Eni’s interest 12.04%).

Exploration yielded positive results in late 2006 and early 2009, respectively.the offshore Block WA-25-L with the Woollybutt-5 appraisal well confirmed the presence of oil at a depth of 2,865 meters.

In the medium term,medium-term, management expects to increase Eni’s production tothrough ongoing development activities.

Brazil In January 2006, following an international bid procedure, Eni was awarded a six-year exploration license in Block BM Cal-14, acting as operator. Gross acreage extends over approximately 7 KBOE/d benefiting from700 square kilometers in the fulldeep waters of the Camamu-Almada basin.

In November 2006, following an international bid, Eni was awarded offshore Block S-M-857 (Eni’s interest 100%), covering a gross acreage of 700 square kilometers, in the deep waters of the Santos basin. Formal assignation of this block has not yet been completed.

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Croatia Eni has been present in Croatia since 1999. In 2006 Eni’s net production of natural gas averaged 64 mmCF/d. Activities are deployed in the new fields.Adriatic offshore facing the city of Pula. Exploration and production activities in Croatia are regulated by PSA.

Ivana C/K platforms and Ika and Ida fields started production as part of the development of the natural gas reserves of the Ivana concession (Eni’s interest 50%). Production from these fields is gathered at the Ivana K platform from which is sent to the Garibaldi K platform to be sold on the Italian market, through a 67-kilometer long pipeline. Production from these four fields is currently flowing at 152 mmCF/d (49 net to Eni). At the end of 2006, production at the Katarina field started by means of two platforms linked to existing transport facilities.

In the offshore Ivana concession the Ana 1 and Vesna 1 discovery wells identified the presence of natural gas at a depth between 650 and 1,200 meters.

East Timor In May 2006 following an international bid procedure Eni was awarded the operatorship of five exploration licenses (Eni’s interest 100%) covering contract areas A, B, C, E and H with a gross acreage of about 12,224 square kilometers located in the deep offshore between the Timor island and the international cooperation zone between East Timor and Australia. Relevant Production Sharing contracts were signed.

India Following an international bid procedure Eni obtained an exploration license as operator in Block RJ-ONN-2003/1 (Eni’s interest 34%) and Block AN-DWN-2003/2 (Eni’s interest 40%) located in onshore in Rajasthan in the North-West of India and in the Indian Ocean, near the Andaman Islands, respectively. The exploration program for Block RJ-ONN-2003/1 provides for the drilling of 4 wells in the first 4 years of the license. Any hydrocarbons discovered will be sold locally. The exploration program for Block AN-DWN-2003/2 provides for the drilling of 3 wells in the first 4 years of the license. The development of any reserves found provides for the installation of an FPSO unit for liquid production and of facilities for gas treatment.

In February 2007 Eni concluded an agreement with a partner whereby interests in India and Congo were exchanged. Following this transaction Eni acquired a 34% interest in block MN-DWN-2002/1 with high mineral potential in the Indian offshore at a water depth of 2,000 meters with a total acreage of 10,000 square kilometers and will give to its partner a 20% interest in the Mer Très Profonde Nord permit (Eni operator with a 40% interest) offshore Congo.

IndonesiaEni has been present in Indonesia since 2000. In 2005 hydrocarbonEni’s production netin 2006 amounted to Eni averaged 2219 KBOE/d. Eni’s producing interests are locatedProduction is concentrated in the Western offshore and onshore areaof Borneo and offshore Sumatra. Exploration and production activities in East Kalimantan (Borneo)Indonesia are regulated by PSA.

Production consists mainly of gas and derives from the Sanga Sanga PSApermit (Eni’s interest 37.81%) operated by Virginia Indonesia Co, in which Eni holds a 50% interest. This area produces mainly natural gas (about 80%). 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. Activities are underway for mitigating the natural decline of production by means of infilling wells.

OffshoreEni holds interest in 11 exploration activity yielded positive results in the Bukat block (Eniblocks, 6 as operator with a 41.25% interest)interests ranging from 20% to 100%. An exploration campaign is underway in the Tarakan basin offshore Borneo with theBorneo. In May 2007, Eni successfully completed drilling of appraisal wells on the Aster oil discovery madeTulip 1 explorative well (Eni’s interest 100%), located in 2004. The Aster 2 and 3 wells confirmedwater depths of up to 800 meters Northeast of Kalimantan Island. This well revealed the presence of additional reserves of high quality hydrocarbonssignificant oil and gas deposits.

In the exploration potentialsame area, Eni (operator with a 66.25% interest) and a partner have also successfully completed an appraisal test of the basin. In 2006Aster field, previously discovered by the two companies. The test has shown oil flowing at a maximum rate of over 5 KBBL/d. Eni plans to submit a development plan for the Aster field and 2007 further appraisal activities are scheduled in order to reachstart appraising the Tulip discovery. Eni will also assess potential synergies that might support a definitionjoint development of the field’s development plan.two discoveries.

IranEni has been present in Iran since 1957. In 2005 liquid2006 production net to Eni averaged 35 KBBL/29 KBOE/d. Eni’s activities are concentrated in the offshore of the Persian Gulf and onshore. Exploration and production activities in Iran are regulated by buy-back contracts.

The main producing oil fields operated by Eni under buy-back contracts are: (i)are South Pars phases 4 and 5 (Eni operator with a(Eni’s interest 60% interest, the remaining 40% interest being held by Iranian partners)) in the offshore of the Persian Gulf. These phases were started upGulf and Darquain (Eni’s interest 60%) located onshore which accounted for 89% of Eni’s production in 2004. AtIran in 2006. In 2006 the beginning of 2005 theonshore gas treatment plant as part of the development project of the fieldSouth Pars was completed. In 2005,completed with a current production of 609 BCF/y of natural gas, reached a rate equivalent1 mmtonnes/y of LPG and 30 mmBBL/y of condensates. Production platforms are linked to the 706 BCF/y production plateau;Assaluyeh treatment center by means of two 105-kilometer long pipelines. Eni also holds interests in the field produced also one million tonnes/y of propaneDorood (45%) and butane and 108 KBBL/d of condensates (33 KBBL/d of condensates net to Eni) through separation from natural gas. Eni’s share of condensates is destined to coverBalal (45%) oil fields.

The development costs incurred by Eni and to remunerate capital employed by Eni; and (ii) the Darquain oil field (Eni operator with a 60% interest, the remaining 40% interest being held by Iranian partners) located onshore approximately 50 kilometers north-east of Abadan. On this fieldactivities in 2006 concerned the second development phase is underwayof the Darquain field mainly related to the drilling of additional wells, the increase of the existing treatment capacity and aimsthe injection of gas in the field. These actions aim at increasing production from the present 50 KBBL/d to over 160 KBBL/d (14 KBBL/d net to Eni) through the increase of the existing treatment capacity, the drilling of new producing wells and the injection of gas. These two fields account for 85% of Eni’s production in Iran..

Eni also holds interests in the Dorood (45%) and Balal (45%) oil fields in the offshore of the Persian Gulf located respectively near the Kharg island and about 100 kilometers south-west of the Lavan island. The development of Dorood is expected to be completed at the end of 2006 with a peak production of 50 KBBL/d.31

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Kazakhstan Eni has been present in Kazakhstan since 1992. Eni is co-operator with British Gas with a 32.5% interest of the Karachaganak oil, gas and condensate field. In 2005 production from this field (net to Eni) averaged 64 KBBL/d of liquids and 207 mmCF/d of natural gas. Most of the liquids produced are exported to Western markets through the Caspian Pipeline Consortium pipeline (Eni’s interest 2%). This pipeline is connected to the Novorossiysk terminal on the Russian coast of the Black Sea. In 2005 exports amounted to 42.5 KBBL/d net to Eni, corresponding to 41.7% of oil and gas produced by the field net to Eni. The rest of liquid production is exported and sold, as unstabilized condensates, on the Russian and Kazakh markets. The development plan of the field provides for the production of additional liquid and gas reserves by means of a gas treatment plant and the drilling of production wells.

As partsingle operator of the North Caspian Sea PSA with a participating interest equal to 18.52%. Such contract regulates activity in the relevant contractual area where the Kashagan field is located, on March 31, 2005 Eni (operator) and the other memberswas discovered in year 2000. Management believes this field to contain large amount of the consortium, except for one, purchased British Gas’s interest (16.67%) in proportional shares, according to the option exercised in May 2003, and sold half of this newly acquired interest to the national Kazakh company Kazmunaygaz (KMG), a new partner in the PSA with an 8.335% interest. Following these two transactions (the sale to KMG was closed in May 2005), Eni increased its interest from 16.67% to 18.52% and continues acting as operator. The outlay for this transaction amounted to $200 million.hydrocarbons. The development plan of this field was sanctioned in February 2004, entailing a three-phase development scheme which includes partial gas re-injection in the Kashagan field, presented atreservoir to support the recovery factor of the oil.

The first development phase is progressing and is leveraging on the use of the most advanced techniques in order to cope with high pressures in the reservoir, high concentrations of hydrogen sulfide in the hydrocarbons and harsh environmental conditions in the offshore of the Caspian Sea. By the end of 20022006, the total amount of contracts awarded stood at $10.6 billion. Drilling and approvedcompletion activities of development wells have been progressing from the two artificial islands already built and where three rigs, two of which being of the most advanced class, are installed. Three development wells were completed in February 2004, mainly foresees: (i) production start-up2006 yielding high productivity rates during the test phase.

Production start up is currently scheduled for the third quarter of 2010, as compared to the previous forecast indicating a start up in 20082008. This re-scheduling is also due to studies performed by the Operator aimed at an initial levelidentifying measures to enhance operability and safety standards of 75 KBBL/d. Management plans production levelthe facilities. These studies, which were completed by year-end, have confirmed the original development concept and identified scope for enhancement to increasethe design of the offshore facilities. These enhancements will be included in the development plan and implemented. The capital expenditures necessary to 450 KBBL/darrive at the end300 KBBL/d production target for this phase of the project, are estimated to be $19 billion. The increase over the approved budget of $10.3 billion (real terms 2007) is driven by: (i) the cost pressure the oil industry is facing worldwide (i.e. the cost escalation of materials and service and the negative impact of changes to the exchange rate); (ii) an original underestimation of the costs to conduct offshore operations in the North Caspian Sea due to the absence of a reliable benchmark for a frontier project having the complexity, the technical challenges and the environmental constraints of Kashagan; and (iii) the enhancements to the original layout of the offshore facilities. The high productivity tested on the first phasethree development wells, as well as other data gathered since the beginning of development and to reachthe project, justify expectations for a full field production plateau of 1.21.5 mmBBL/d, atrepresenting a 25% increase above the end of the field development; (ii) total capital expenditure estimated at $29 billion ($5.4 billion being Eni’s share). Such capital expenditure plan is currently under revision in order to take into account depreciation of the U.S. dollar versus the euro and the rising trendsoriginal plateau as presented in the costs of certain production factors (such as materials and oilfield services). sanctioned development plan.

The capital expenditures indicated above mentioned amount doesdo not include the capital expenditurecosts related to the infrastructures needed for exporting the construction of the infrastructure for exporting production to international markets, for which various options are under scrutiny by the consortium. These include: (i) the use of existing infrastructure, such as the Caspian Pipeline Consortium pipeline (Eni’s interest 2%) and the Atyrau-Samara pipeline; and (ii) the layingconstruction of a pipelinenew transportation system. In this respect, it is worth mentioning the project aimed at building a line connecting the onshore Bolashak production center with the Baku-Tbilisi-Cehyan pipeline (BTC,(where Eni’s holds an interest of 5%). This new system includes corresponding to the layingright to transport 50 KBBL/d) and the construction of a 750-kilometer long pipeline to bypass the Turkish Straits of the Bosphorus and Dardanelles, enabling the delivery of the oil produced in the Caspian region into the Ceyhan commercial hub on the Mediterranean coast (see Turkey below).

Evaluation activities of the discoveries made in the contract area of the North Caspian Sea PSA made some good progress. A first appraisal well on the Kairan discovery was successfully drilled. Drilling of a second appraisal well on the Kalamkas discovery yielded results that underline the good productivity of the reservoir and indicate that the size of the discovery is larger than previously estimated.

At the Karachaganak field (Eni co-operator with a 42 inch diameter from Bolashak32.5% participating interest), the good well productivity and the high plant performance allowed to Kurykproduce an average of 64 KBBL/d of liquids (of which some 44.3 KBBL/d were transported to the Western markets via the CPC pipeline and the Atyrau-Samara) and sell approximately 78 BCF/y of natural gas, net to Eni, for a reception terminal ontotal of 103 KBOE/d, net to Eni.

The main activities carried out in 2006 were: (i) the other sidesanction of an expansion in the Caspian Sea nearprocessing capacity (a fourth train) which will enable to increase the starting pointvolumes of stabilized liquids exported to Western markets; and (ii) the BTC pipeline.continuation of those activities (mainly drilling of additional wells) which are necessary to maintain the production plateau.

At December 31, 2005, the total amount of contracts awarded for theStudies are ongoing to implement a further development of the field was over $8.8 billion for the completion of the first phase of the field’s development plan (TranchesKarachaganak field, Phase 3, aimed at producing additional volumes of gas and associated liquids. In this context, on June 1, 2007, the Karachaganak Petroleum Operating BV (KPO) and 2)KazRosGaz, a joint company established by KazMunaiGaz and Gazprom, signed a gas sale contract. According to the terms of this agreement, which includes the drilling of development wells, the construction of infrastructure and facilities for offshore production (drilling, treatment and reinjection of sour gas for maximizing the oil yield) and onshore treatment plants. The most advanced techniques are goingis subject to be applied in the constructionapprovals of the planned infrastructureKarachaganak Shareholders, the consortium will deliver, from 2012, about 16 BCM/y (565 BCF/y) of raw gas to the Orenburg plant, in Russia, where it will be further processed and facilities in order to cope with high pressures insweetened. This agreement creates the field andconditions for the presencestart up of hydrogen sulphide.Phase 3 of the project.

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In the medium term, management expects to increasemedium-term, Eni’s production in Kazakhstan fromis expected to increase due to the current levelcontribution of 100 KBOE/d leveraging on the development of naturalincremental gas reservesvolumes produced at Karachaganak and the start-upstart up of Kashagan.

Mozambique In March 2006, following an international bid tender, Eni obtained the exploration license for Area 4, located in the deep offshore of the Rovum Basin 2,000 kilometers North of Maputo. The block covers an area of 17,646 square kilometers in an unexplored geological basin which we believe has significant mineral potential, according to surveys performed.

Pakistan Eni has been present in Pakistan since 2000. In 20052006 production net to Eni averaged 4850 KBOE/d, mainly of natural gas. Thed. Eni’s main natural gas producing fields operated by Enipermits are Bhit (Eni’s interest(Eni operator wit a 40% interest), Sawan (23.68%) and Kadanwari (Eni’s interest 18.42%Zamzama (17.75%), which in 20052006 accounted for 43%86% of Eni’s production in Pakistan.

In February 2006 following an international bid procedure, Eni also holds interestswas awarded the operatorship of four exploration licenses relating to Block Rjar/Mithi - zone I and Thar/Umarkot - zone III. These blocks are located in the Sawan (23.68%), Zamzama (17.75%)East Sindh near the border with India and Miano (15.16%) fields.cover a gross area of about 9,900 square kilometers.

In March 2006, an expansion plan of the Bhit and Badhra operated permits was sanctioned, envisaging the construction of a third train for increasing treatment capacity of the Bhit plant also enabling to process Badhra field gas production. In the first quarterZamzama field construction of 2005a new treatment plant is underway.

Up to June 2007, three gas discoveries were made in: (i) the Rehmat fieldexploration permit Gambat (Eni’s interest 30%) was started-up.with the Tajial 1 exploration well, at a depth of 3,845 meters; (ii) the production permit Kadanwari (Eni operator with a 18.42% interest) with the Kadanwari 18 well, at a depth of 3,400 meters in a rock formation independent from the main field; and (iii) the Latif field (Eni’s interst 33.3%) with the Latif 1 exploration well, at a depth of 3,520 meters. Eni plans to develop these discoveries leveraging on the existing facilities in place.

Saudi ArabiaEni has been present in Saudi Arabia since 2004. Ongoing activities concern exploration of the C area in order to discover and develop gas reserves. This license covering 51,687 square kilometers (25,844 net to Eni) is operatorlocated in the Gorakh permit (Eni’s interest 92.5%)Rub al Khali basin at the border with Qatar and the United Arab Emirates. The exploration plan provides for the drilling of 4 wells in Kirthar Foldbet areafive years. In case of a commercial discovery, the contract will last 25 years with a possible extension to a maximum of 40 years. Any gas discovered will be sold locally for power generation and holds an interestas feedstock for petrochemical plants. Condensates and NGL will be sold on international markets. Drilling of the first commitment well is underway.

Turkey The construction license for the Samsun-Ceyhan pipeline was granted to the Turkish company Çalik Enerji, partner of Eni in other permitsthis initiative with a 50% stake in June 2006. The pipeline, the engineering activities of which started in second half of 2006, will allow to bypass the Turkish Straits of Bosphorus and Dardanelles, thus enabling the oil produced in the Middle Indus Basin.

Eni purchasedCaspian region to be delivered to the Indus MCeyhan commercial hub, located on the Mediterranean coast, in a more efficient and Indus N exploration permits in the offshore of the Indus Deltaenvironmentally friendly fashion. This new infrastructure, with a total arealength of 5,000 square kilometers. In February 2006 Eni purchased the permits Rajar, Mithi, Thar and Umarkot in the East Sindh area.550 kilometers, will have an initial transportation capacity equal to 1 mmBBL/d of oil, expandable up to 1.5 mmBBL/d.

United States Eni has been present in the United States since 19661966. In 2006 Eni’s oil production averaged 32 KBOE/d. Activities are performed in the conventional and holds various mineral interestsdeep offshore in the Gulf of Mexico and onshore and offshore Alaska. In 2005 Eni’s hydrocarbonExploration and production averaged 33 KBOE/d and was obtainedactivities in the United States are regulated by concessions.

Eni holds interests in 24 production blocks in the Gulf of Mexico. The main producing fields operated by Eni are Allegheny (Eni operator with an 86% interest), Medusa (Eni’s interest 22%), Europa (Eni’s interest 28%), King Kong (Eni operator with a 49% interest), East Breaks (Eni operator with an 84% interest) and Morphet (Eni operator with an 84% interest). These fields accounted for 81% of Eni’s 2006 production in the country. In 2006 the Allegheny South (Eni’s interest 100%) and King KongNorth Black Widow (Eni’s interest 25.19%) fields have been started-up.

Eni’s activities in Alaska are currently in the exploration and development phase. In November 2006, Eni started an exploration campaign in the onshore Rock Flour area (Eni’s interest 100%). The approved plan provides for the drilling of three wells.

In March 2006, following an international bid procedure, Eni was awarded 11 exploration blocks near Rock Flour.

Eni signed an agreement with a partner for a swap of interests in 64 exploration blocks (Eni’s interest 60%) located in the Beaufort Sea, offshore North Alaska. Based on this agreement, Eni is entitled to 140 exploration blocks (50% of which operated). Exploration plans provide for 3D seismic surveys and drilling of an exploration well by 2010.

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In January 2006, the development plan of the offshore Oooguruk field in the Beaufort Sea started. Production is expected to start at the end of 2007 with production peaking at 17 KBOE/d (over 5 net to Eni) in 2010. Drilling activities are underway in Nikaitchuq field (Eni’s interest 100%), located in the Beaufort Sea.

Main discoveries for the year were: (a) in Mississippi Canyon Block 546 (Eni’s interest 50%). Another relevant field is Medusa, the Longhorn appraisal well confirmed the presence of natural gas at a depth of about 3,900 meters; and (b) in Mississippi Canyon Block 502 (Eni’s interest 25%100%). These fields accounted for 71%, the Longhorn North discovery well showed the presence of Eni’snatural gas at a depth of 3,400 meters. A feasibility study to develop this discovery is underway.

Management expects production in 2005.

In May 2005 the K2 oil field (Eni operator of the development phase with an 18.17% interest) was started-up. The field’s development includes two additional subsea wells linkedUnited States to grow significantly from current levels due to the nearby Marco Polo platform, operated by a partner. A peak productioncontribution of 38 KBOE/d (7 KBOE/d net to Eni) is expected in 2007.

Eni purchased 22 exploration blocksrecently acquired assets in the Gulf of Mexico following its participation to the 194 (March 2005) and 196 (August 2005) Lease Sale.

In Alaska in August 2005, Eni purchased from the U.S. independent company Armstrong Oil & Gas 104 exploration blocks onshore in the North Slope and offshore in the Beaufort Sea. The blocks, with a total acreage of 1,409 (1,111 net to Eni) square kilometers, include two fields in the pre-development phase holding estimated 170 mmBBL of oil of reserves.

Production for 2005 was adversely impacted by shutdowns of certain facilities as a consequence of the hurricane season. Management expects residual hurricane-related impact in 2006. See the paragraph "Production" above and "Item 5 – Recent Developments".ongoing development activities.

Venezuela Eni has been present in Venezuela since 1998. In 2005 daily production averaged 61 KBBL/d net to Eni and came from the Dación oil field. See the paragraph "Oil and natural gas reserves" above.

The development of the Corocoro oil field (Eni’s interest 26%) in the West Paria Gulf is in progress. The plan provides for a phased development depending on the results from wells and reaction of the field to water and gas reinjection. Production is expected to start in 2008 with a peak of about 70 KBBL/d (17 KBBL/d net to Eni) in 2009.

In January 2006, following an international bid procedure, Eni was awarded a thirty year long exploration license for the Cardon IV Block exploration license(Eni’s interest 50%) in joint venture with anotheran international oil companycompany. This Block is part of the Rafael Urdaneta project for the development of natural gas reserves in an area of about 30,000 square kilometers in the Gulf of Venezuela.

With effective date April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the Operating Service Agreement (OSA) governing activities at the Dación oil field where Eni acted as a contractor, holding a 100% working interest. As a consequence, starting on the same day, operations at the Dación oil field are conducted by PDVSA. Eni proposed to PDVSA to agree on terms in order to recover the fair value of its Dación assets. In the lack of any agreement between the parties, in November 2006, Eni commenced an arbitration proceeding before an International Centre for Settlement of Investment Disputes (ICSID) Tribunal (i.e. a tribunal acting under the auspices of the ICSID Convention and being competent pursuant to the Netherlands-Venezuela bilateral investments treaty) to claim its rights. Despite this action, Eni would continue to consider a negotiated solution with PDVSA to obtain a fair compensation for its assets. Based on the opinion of its legal consultants, Eni believes to be entitled to a compensation for such expropriation in an amount equal to the market value of the OSA before the expropriation took place. The market value of the OSA depends upon its expected profits. In accordance with established international practice, Eni has calculated the OSA’s market value using the discounted cash flow method, based on Eni’s interest in the expected future hydrocarbon production and associated capital expenditures and operating costs, and applying to the projected cash flow a discount rate reflecting Eni’s cost of capital as well as the specific risk of concerned activities. Independent evaluations carried out by a primary petroleum consulting firm fully support Eni’s internal evaluation. The estimated net present value of Eni’s interest in the Dación field, as calculated by Eni, would not be lower than the net book value of the Dación assets which consequently have not been impaired. In accordance with the ICSID Convention, a judgment by the ICSID Tribunal awarding compensation to Eni would be binding upon the parties and immediately enforceable as if it were a final judgment of a court of each of the States that have ratified the ICSID Convention. The ICSID Convention was ratified in 143 States. Accordingly, if Venezuela fails to comply with the award and to pay the compensation, Eni could take steps to enforce the award against commercial assets of the Venezuelan Government almost anywhere those may be located (subject to national law provisions on sovereign immunity). In 2005 and in the first quarter of 2006, oil production from the Dación field averaged approximately 60 KBBL/d and booked reserves at December 31, 2005 amounted to 175 mmBBL.

On February 26, 2007, the President of Venezuela enacted a decree providing for the transformation of certain strategic partnerships operating in the petroleum region of Orinoco (Faja) and certain agreements to conduct risk shared exploration activities into a regime of "empresa mixta" within six months from publication of said decree. Under the new regime, a company incorporated under the law of Venezuela is expected to be entitled to relevant mineral rights and to conduct petroleum operations. A stake of at least 60% in the capital of such company is expected to be held by an affiliate of PDVSA, preferably Corporación Venezuelana de Petróleo. Such decree could impact Eni’s activities in Venezuela, as Eni’s subsidiary Eni Venezuela BV holds a 26% stake in a joint venture in the Gulf of Paria West Block, located in the Orinoco delta. This joint venture is currently developing the Corocoro field with expected start up in 2007.

Capital Expenditure

See "Item 5 – Liquidity and Capital Resources – Capital Expenditure by Segment".

Storage

Natural gas storage activities are performed by Stoccaggi Gas Italia SpA (Stogit) to which such activity was conferred on October 31, 2001 by Eni SpA and Snam SpA, in compliance with Article 21 of Legislative Decree No. 164 of May 23, 2000, which provided for the separation of storage from other activities in the field of natural gas.

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Storage services are provided by Stogit through eight storage fields located in Italy, based on ten storage concessions⁶³ vested by the Ministry of Productive Activities.

In 2005 Stogit increased2006, the share of storage capacity used by third parties up to 56% (53% in 2004)was 46%. 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,parties; the latter, accounted for 44% of total revenues in 2005.from an insignificant value, passed to 42%.

Storage			2002		2003		2004		2005

Available capacity:
- modulation and mineral		(BCM)		7.1		7.1		7.5		7.5
. share utilized by Eni		(%)		66		53		47		44
- strategic		(BCM)		5.1		5.1		5.1		5.1
Total customers		(No.)		20		30		39		44
. modulation and upstream storage customers		(No.)		14		24		29		35

Storage	2002		2003		2004		2005		2006

Available capacity:
- modulation and mineral		(BCM)		7.1		7.1		7.5		7.5		8.4
. share utilized by Eni		(%)		66		53		47		44		54
- strategic		(BCM)		5.1		5.1		5.1		5.1		5.1
Total customers		(No.)		20		30		39		44		38
. modulation and upstream storage customers		(No.)		14		24		29		35		38

Gas & Power

Eni Gas & Power segment is engaged in all phases of the gas business: supply, transport, distribution and marketing, resulting in a fully integrated business ofmodel. A significant installed power generation capacity enables Eni to extract further value from gas, diversifying its commercial outlets.

Eni’s strategy in its Gas & Power segment is to increase natural gas supply, transport and sale mainly in Italy andsales in the rest of Europe. Eni is also engagedmain European markets, safeguard its domestic natural gas business, and effectively manage regulated businesses (transport and distribution activities in Italy).

Management expects European natural gas demand to increase steadily in the businessfuture, resulting in a cumulative increase of electricity generation, which is conductedaround 45% by 2020 (2.4% per annum). This trend, coupled with an expected decline in Italy.

EniEurope’s gas production due to mature field declines, will make Europe increasingly reliant on gas imports to fulfil its gas needs. Against this backdrop, management plans to grow natural gas sales in the rest of Europe and to develop its presence in the LNG business in order to compensate for lower growth opportunities on the domestic market due to the limits imposed on operators by the sector regulation and increasingly intense competition. In Italy, Eni plans to comply with regulatory limits on direct sales and input volumes to the national transport network through an optimal allocation of supplies between direct sales in Italy and in the rest of Europe and by using natural gas at its own electricity generation plants and, at the same time, leveraging on the expected consumption growth. In the medium term, management expects natural gas sales in Italy to decline from the 58 BCM level recorded in 2005 as a consequence of increasing competition from third parties. Eni plans to implement a more attractive commercial offer than Eni’s competitors’ on the basis of the quality of services, pricing formulas, including different indexation schemes to suit various customer’s purchasing profile, and the integration of supply of gas and electricity. Management plans to grow natural gas sales on the European market leveraging on Eni’s gas availability ofunder long-term supply contracts and equity gas, access to infrastructure, long-term relationships with key producing countries, market knowledge and a diversifiedwide portfolio of supply contracts, an extensive gas pipeline network, which allows for the supply of natural gas from several sources, and long standing relationships with producing countries.clients. Eni intends to strengthen its presence in markets where its presence is already established – such as the Iberian Peninsula, Germany and Turkey – and to develop sales in markets with significant growth and profitability prospects (in particular France and the United Kingdom).

In Italy, in an increasingly competitive market, Eni intends to safeguard selling margins and sales volumes by leveraging on the expected growth of gas demand, maximizing the value of the gas chain by focusing in particular on the most profitable clients, deploying a commercial offer tailored on client needs in terms of pricing and quality of services, and boosted by the expected development of the combined offer of gas and electricity ("dual offer").

In the medium-term, Eni plans to increase worldwide sales targeting a volume of 105 BCM by 2010, corresponding to a 2.5% average growth rate over the 2007-2010 four-year period.

Eni also intends to accelerate the developmentincrease efficiency and effectiveness of its LNG business on a global scale through the acquisition of interests in assets covering the whole LNG chain (in particular regasification terminals) and also to monetize its natural gas reserves in West and North Africa,operations, particularly in the Far East.regulated business and to develop marketing of LNG aiming also at monetizing equity reserves.

The matters regarding future natural gas demand and sales target discussed in this section and elsewhere here in are forward-looking statements that involve risks and uncertainties that could cause the actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties relating to future natural gas demand include changes in underlying economic factors, changes in regulation, population growth or shrinkage, changes in the relative mix of demand for natural gas and its principal competing fuels, and unexpected developments in the markets for natural gas and its principal competing fuels.

Demand for Natural Gas in Italy

In 2005,2006 natural gas demand in Italy totalled 86totaled 84.4 BCM (increasing by over 7% over 2004)(down 2.2 % from 2005). In 2005,2006, about 18%13% of natural gas requirements were met through domestic production, (including natural gas volumes offtaken from storage), while imports covered 82%87%. Eni expects natural gas consumption in Italy to reach about 95 BCM in 2010, corresponding to anincrease with a compound annualaverage growth rate of about 2%.

Most2.5% over the next ten years, hitting approximately 106 BCM in 2015, mainly driven by an increased use in power generation, the demand growth of this increasewhich is expected to outpace demand growth in other sectors, such as large industrial users, residential space heating in households and services, commercial and small businesses needs. Expected increased consumption in the electricity generation because ofsector derives from the significant advantages of the use of natural gas in firing combined cycle plants as compared to other fuels, due to its lower investment cost, higher yields and reduced polluting emissions as compared to other fuels. Demand is expected also to increase from residential and commercial users, due to the increased useemissions.

_______________

(3)

Two of these are not yet operational.

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Supply of natural gas in residential space heating, in households and services, in large tertiary firms and as vehicle fuel.

Natural Gas Purchases

In 2005,2006 Eni’s Gas & Power segment purchased 82.5689.27 BCM of natural gas, with a 6.476.71 BCM increase over 2004, up 8.5%, in line with the increase in sales and related to higher2005, or 8.1%. Natural gas volumes purchased outside Italy (7.04(79.06 BCM), offset represented 89% of total purchases made by fully consolidated subsidiaries (87% in part by lower production2005) with a 7.23 BCM increase from 2005 (up 10.1%).

Major increases in purchased volumes suppliedregarded: (i) Libya, reflecting higher volumes of gas from Libyan fields delivered to Italy via the GreenStream gasline (up 2.79 BCM); (ii) the Netherlands (up 1.99 BCM); (iii) volumes purchased in Italy (0.57Russia to be sold on the Turkish market (up 1.21 BCM); and (iv) purchases of LNG (up 1.01 BCM). NaturalIn addition, supplies from Croatia increased (up 0.43 BCM) due to the ramp-up of new production from Eni-operated natural gas volumes supplied outside Italy (71.83 BCM) represented 87% of total supplies (85%fields in 2004).the Adriatic offshore.

Outside Italy increasesMain declines concerned purchases from Libya (3.29Algeria (down 0.74 BCM) and extra Europe supplies. Volumes purchased in Italy from Algeria (0.72both Eni’s Exploration & Production segment and third parties (10.21 BCM). Imports of LNG destined to Italy increased declined by 0.180.52 BCM, down 4.8%, from 2005 due to the partial resumptiona production decline of supplies from Sonatrach after the accident occurred in early 2004 at the Skikda liquefaction plant in Nigeria.Eni’s natural gas fields.

In 2005, a total2006, natural gas volumes input to the storage deposits owned by Stoccaggi Gas in Italy and Gaz de France in the French territory and in Austria were 3.01 BCM, compared to net offtakes of 0.84 BCM of natural gas were withdrawn from the storage sites of Stoccaggi Gas Italia SpA (Eni’s interest 100%) as compared to 0.93 BCM in 2004.2005.

The table below sets forth Eni’s purchases of natural gas by source for the periods indicated.

Natural gas supplies		2001		2002		2003		2004		2005

Natural gas supplies	2002		2003		2004		2005		2006

(BCM)

Italy		14.62			12.67			12.16			11.30			10.73			12.67			12.16			11.30			10.73			10.21
Russia for Italy		19.51			18.62			18.92			20.62			21.03			18.62			18.92			20.62			21.03			21.30
Russia for Turkey								0.63			1.60			2.47						0.63			1.60			2.47			3.68
Algeria		18.39			16.35			16.53			18.86			19.58			16.35			16.53			18.86			19.58			18.84
the Netherlands		7.00			7.55			7.41			8.45			8.29			7.55			7.41			8.45			8.29			10.28
Norway		1.10			4.83			5.44			5.74			5.78			4.83			5.44			5.74			5.78			5.92
Hungary																	3.05			3.56			3.56			3.63			3.28
Libya																							0.55			3.84			6.63
Croatia					0.31			0.65			0.35			0.43			0.31			0.65			0.35			0.43			0.86
the United Kingdom					1.48			1.98			1.76			2.28			1.48			1.98			1.76			2.28			2.50
Hungary		3.11			3.05			3.56			3.57			3.63
Libya											0.55			3.84
Algeria (LNG)		1.79			1.92			1.98			1.27			1.45			1.92			1.98			1.27			1.45			1.58
Others (LNG)					0.30			0.72			0.70			0.69			0.3			0.72			0.70			0.69			1.57
Other supplies		0.03			0.03			0.04			0.12			1.18
Others outside Europe		0.96			0.96			1.14			1.20			1.18
Other supplies Europe																	0.03			0.04			0.12			1.18			1.85
Outside Europe																	0.96			1.14			1.21			1.18			0.77
Outside Italy		51.89			55.40			59.00			64.79			71.83			55.40			59.00			64.79			71.83			79.06
Total supplies		66.51			68.07			71.16			76.09			82.56			68.07			71.16			76.09			82.56			89.27
Withdrawals from (inputs to) storage		0.13			(1.43	)		0.84			0.93			0.84
Withdrawals from (input to) storage																	(1.43	)		0.84			0.93			0.84			(3.01	)
Network losses and measurement differences		(0.92	)		(0.50	)		(0.61	)		(0.53	)		(0.78	)		(0.50	)		(0.61	)		(0.53	)		(0.78	)		(0.50	)
Available for sale		65.72			66.14			71.39			76.49			82.62
Available for sale of Eni’s own companies																	66.14			71.39			76.49			82.62			85.76
Available for sale of Eni’s affiliates																	2.40			6.94			5.84			7.08			7.65
Total available for sale																	68.54			78.33			82.33			89.70			93.41

In order to meet the medium and long-term demand for natural gas, in particular ofin the Italian market, Eni entered into long-term purchase contracts with producing countries that currently have acountries. Following the strategic agreement with Gazprom signed on November 14, 2006, effective from February 1, 2007 (see below), Eni extended the duration of its gas supply contracts with Gazprom until 2035, bringing the residual average termlife of its supply portfolio to approximately 1523 years. Existing contracts, which in general contain take-or-pay clauses, will ensure a total of about 67.3approximately 62.4 BCM/y of natural gas (Russia 28.5,23.5, Algeria 21.5, the Netherlands 9.8, Norway 6 and Nigeria LNG 1.5)1.6) of natural gas by 2008. The average annual minimum quantity (take-or-pay) is approximately 85% of said quantities.2010. Despite the fact that management plans to sell outside Italy thean increasing volumesportion of natural gas availablevolumes purchased under Eni’s take-or-paysaid contracts will be sold outside Italy, management believes that in the expected development oflong-term unfavorable trends in the Italian demand and supply offor natural gas, inalso due to the medium and long-termpossible implementation of all publicly announced plans for the construction of new supply infrastructure, and the evolution of the Italian regulations for the natural gas sector, represent risk factors to the fulfillment of Eni’s obligations in this segment represent a risk element in the management ofconnection with its take-or-pay supply contracts. See "Item 3 – Risk Factors" and "Item 5 – Contractual Obligations".

In 20052006 Eni withdrewpurchases under its take-or-pay contracts were about 3.88 BCM more than its minimum offtake obligation. See "Item 5 – Recent Developments and Management Expectationsoff-take obligation, this figure refers to off-take in respect of Operations"contractual year (October to end of September, rather than January to end of December, for a sizeable part of Eni Gas & Power long-term supply contracts).

In 200336

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Agreement between Eni and Gazexport (Gazprom)Gazprom

On November 14, 2006, Eni and Gazprom signed an agreement under which Eni has the right to sell the gas it purchases from Gazexport (Gazprom) in countries other than Italy.a broad strategic agreement. This agreement entailssets up an international alliance enabling the cancellationtwo companies to launch joint projects in the mid and downstream gas, in the upstream and technological cooperation. This agreement is a major step towards the security of the so called territory destination clause. Gazexport (Gazprom), in turn, can sell its gasenergy supply to other Italian operators. The European Commission approved this transaction and requested Eni to assume additional obligations favoring competition, in particular: (i) Eni should make volumes of natural gas purchased from Gazexport (Gazprom) available outside Italy; and (ii) Eni shall promote the upgrading of the TAG gasline (from Austria into Italy) with deadlines consistent with the decision of third parties to build LNG terminals in Italy.

(i)

Midstream and downstream gas The duration of Russian gas supply contracts to Eni is extended until 2035, confirming that Eni is presently the world’s single largest customer of Gazprom. Through this agreement, starting from 2007, Gazprom is expected to sell increasing volumes of gas directly in the Italian market, building up to some 3 BCM in 2010 and to maintain such level in subsequent years for the duration of said long-term supply contract. Volumes expected to be sold by Gazprom will be subtracted from volumes supplied to Eni under the fourth long-term supply contract. In 2007, Eni expects to reduce its supplies from Gazprom by 1 BCM, and Gazprom to sell approximately 1 BCM under this scheme.

(ii)		Upstream Eni and Gazprom have identified major projects (companies and assets) in Russia and outside Russia that will be jointly pursued by the two partners. Eni and Gazprom have agreed to work with each other on an exclusive basis on these projects, which are expected to be finalized by the end of 2007.
(iii)		Technological cooperation and development Eni and Gazprom will sign specific agreements in the following areas:

		-		long-distance gas transportation. In this sector Eni and Snam Rete Gas will provide their know-how and expertise, including proprietary transport technology TAP (high pressure transmission) for the development of Russia’s gas transportation system;
		-		evelopment of LNG projects for the global gas market.

Marketing

Natural Gas Sales in Italy and Europefor the Year

In 2005 natural2006 Eni’s worldwide gas sales (91.15(97.48 BCM, including own consumption, and Eni’s share of sales of affiliates) increased by 7.34affiliates and upstream sales) were up 3.27 BCM over 2004, up 8.8%from 2005, or approximately 4%, due mainly toreflecting higher sales in the rest of Europe (up 3.15 BCM)4.9 BCM, up approximately 16%), in the Italian markethigher supplies of natural gas (up 2.390.59 BCM, or 4.8%10.6%) and natural gas suppliesto Eni’s wholly-owned subsidiary EniPower for power generation, at EniPower’s power stations (up 1.84offset in part by lower sales by fully consolidated subsidiaries in Italy (down 1.53 BCM, or 49.7%2.9%).

In an increasingly competitive market, natural gas sales to third partiesof fully consolidated subsidiaries in Italy (52.47(50.94 BCM) increaseddeclined by 2.391.53 BCM over 2004, down 4.8%from 2005, due mainly to lower sales in the fourth quarter in connection with mild weather conditions.

The Italian market includes three groups of clients: industrial, residential and power generation users; they are further grouped as follows: (i) large industrial clients and power generation utilities directly linked to the national and the regional natural gas transport networks; (ii) the retail market which is composed of residential and commercial clients (households, commercial users, hospital, schools, etc.), reflecting an increaseand small businesses located in urban centers supplied by wholesalers through low pressure distribution networks; and (iii) wholesalers, mainly local selling companies and distributors of natural gas for automotive use purchasing natural gas to sell it to final clients.

In 2006, major declines were registered in the power generation segment (down 0.93 BCM), in sales to end users, also due to a cold winter, primarily relating to power generation (up 1.68 BCM or 10.6%), industries (up 0.68 BCM or 5.5%)wholesalers (down 0.51 BCM) and the residential and commercial segment (up 0.44 BCM or 6%)users (down 0.4 BCM). These increasesdeclines were offset in part by lowerhigher sales to wholesalers (down 1.82the industrial sector (up 0.26 BCM).

Own consumption⁴ was 6.13 BCM, up 0.59 BCM or 13.1%) related to the so called gas release carried out in accordance with certain decisions of the Antitrust Authority. See "Regulation of the Italian Hydrocarbon Industry – Gas & Power – Inquiries by Italian and European Antitrust Authorities – Sales contracts outside Italy" below.

Natural gas sales in the rest of Europe (23.44 BCM) increased by 1.9 BCM (up 8.8%) due to increases registered in: (i) supplies to the Turkish market via the Blue Stream gasline (up 0.86 BCM); (ii) sales under long-term supply contracts to importers to Italy (up 0.57 BCM), also due to reaching full supplies from Eni’s Libyan fields; (iii) France, related to the increase in supplies to industrial customers and to wholesalers (up 0.5 BCM); and (iv) Germany and Austria related to increased supplies (up 0.3 BCM) to Eni’s affiliate GVS (Eni’s interest 50%) and other operators.

Own consumption⁷ was 5.54 BCM, up 1.84 BCM from 2004, or 49.7%10.6%, reflecting primarily higher supplies to EniPower due to the coming on streamonstream of new generation capacity, primarilycapacity.

In 2006 natural gas sales of fully consolidated subsidiaries in the rest of Europe increased by 4.49 BCM to 27.93, or 19.2%, reflecting a growth in: (i) sales under long-term supply contracts to Italian importers (up 2.57 BCM) for the progressive reaching of full supplies from the Libyan fields operated by Eni; (ii) sales to EniPower (4.41the Turkish market (up 1.22 BCM); (iii) sales to Germany and Austria (up 0.84 BCM), mainly due to Polimeri Europa (0.35higher volumes to industrial operators and wholesalers; and (iv) sales to France (up 0.42 BCM) relating to higher volumes to industrial operators. These increases were partly offset by a decrease in sales to Hungary (down 0.29 BCM) and to Eni’s Refining & Marketing segment (0.27Northern Europe (down 0.1 BCM).

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(4)

In accordance with Article 19, paragraph 4 of Legislative Decree No. 164/2000, the volumes of natural gas consumed in operations by a company or its subsidiaries are excluded from the calculation of ceilings for sales to end customers and from volumes input into the Italian network to be sold in Italy.

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Sales of natural gas by Eni’s affiliates (netin the rest of Europe, net to Eni and net of Eni’s supplies)supplies, amounted to 8.536.88 BCM, increasing by 1.21up 0.4 BCM, over 2004, up 16.5%,with Unión Fenosa Gas posting the major increase, and concerned: (i) GVS (Eni’s interest 50%) with 3.392.94 BCM; (ii) Galp Energia (Eni’s interest 33.34%) with 1.56 BCM; (iii) Unión Fenosa Gas (Eni’s interest 50%) with 1.522.17 BCM; and (iv) volumes of natural gas (1.45 BCM) treated at the Nigeria LNG Ltd liquefaction plant(iii) Galp Energia (Eni’s interest 10.4%33.34%) with 1.65 BCM.

Unión Fenosa Gas sold also 0.45 BCM on international markets, in Nigeria, sold by Nigeria LNG Ltd to U.S.particular Japan (0.27 BCM) and European markets.South Korea (0.09 BCM), as new market opportunities were captured.

The table below sets forth Eni’s sales of natural gas by principal market for the periods indicated.

Natural gas sales		2001		2002		2003		2004		2005

Natural gas sales	2002		2003		2004		2005		2006

(BCM)

Italy		56.74		50.43		50.86		50.08		52.47
Wholesalers		21.09		17.02		15.36		13.87		12.05
Gas release								0.54		1.95
End customers		35.65		33.41		35.50		35.67		38.47
Industrial users		18.53		14.43		13.17		12.39		13.07
Thermoelectric users		12.21		12.48		15.03		15.92		17.60
Residential		4.91		6.50		7.30		7.36		7.80
Rest of Europe		6.05		12.77		17.54		21.54		23.44
Outside Europe		0.93		0.92		1.09		1.17		1.17
Total sales to third parties		63.72		64.12		69.49		72.79		77.08
Own consumption		2.00		2.02		1.90		3.70		5.54
Total sales to third parties and own consumption		65.72		66.14		71.39		76.49		82.62
Sales of natural gas of Eni’s affiliates (net to Eni)		1.38		2.40		6.94		7.32		8.53
Europe		0.93		1.93		6.23		6.60		7.85
Outside Europe		0.45		0.47		0.71		0.72		0.68
Total sales of natural gas		67.10		68.54		78.33		83.81		91.15

Italy (*)		50.43		50.86		50.08		52.47		50.94
Wholesalers (distribution companies)		17.02		15.36		13.87		12.05		11.54
Gas release						0.54		1.95		2.00
End customers		33.41		35.50		35.67		38.47		37.40
Industries		14.43		13.17		12.39		13.07		13.33
Power generation		12.48		15.03		15.92		17.6		16.67
Residential		6.50		7.30		7.36		7.80		7.40
Own consumption (*)		2.02		1.90		3.70		5.54		6.13
Rest of Europe (*)		12.77		17.54		21.54		23.44		27.93
Outside Europe		0.92		1.09		1.17		1.17		0.76
Total sales to third parties and own consumption		66.14		71.39		76.49		82.62		85.76
Sales of natural gas of Eni’s affiliates (net to Eni)		2.40		6.94		5.84		7.08		7.65
Italy (*)								0.07		0.02
Rest of Europe (*)		1.93		6.23		5.30		6.47		6.88
Outside Europe		0.47		0.71		0.54		0.54		0.75
Total sales and own consumption of G&P		68.54		78.33		82.33		89.70		93.41
Upstream in Europe (a)		4.49		5.03		4.70		4.51		4.07
Worldwide natural gas sales		73.03		83.36		87.03		94.21		97.48
Natural gas sales in Europe		71.64		81.56		85.32		92.50		95.97
G&P in Europe (*)		67.15		76.53		80.62		87.99		91.90
Upstream in Europe (a)		4.49		5.03		4.70		4.51		4.07

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(*)		Market sectors denoted with an asterisk are included within "G&P in Europe".
(a)		Does not include Eni’s share of sales made by Nigeria LNG (Eni’s share 10.4%) in Europe amounting to 1.30, 1.31 and 1.55 BCM in 2004, 2005 and 2006, respectively.

The Italian Natural Gas MarketPlanned Actions and Sales Target

In the medium-term Eni plans to grow its sales volumes of natural gas in European markets in order to compensate for lower growth opportunities on its domestic market due to sector-specific regulation imposing limits to the size of Italian gas operators. In order to achieve its growth targets, Eni will leverage on its strengths represented by gas availability both as equity gas and under long-term purchase contracts, operational flexibility ensured by the access to a wide-reaching transport network, regasification terminals and logistic assets, a large portfolio of clients and market knowledge.

(i) Italy

In the medium-term management will attain compliance with market limits imposed by sector-specific regulation, in terms of both volumes intake into the national network and sales volumes, through an optimal allocation of Eni’s gas availability between sales in Italy and in the rest of Europe, and the use of gas in Eni’s power generation plants, leveraging also on the expected increase in domestic demand. Eni targets sales volumes of at least 50 BCM in 2010. This target takes account of the expected increase in competitive pressure due to new supplies coming on stream on the Italian gas market in view of the implementation of ongoing upgrading plans of the import infrastructure to Italy.

In order to support sales in Italy, Eni intends to implement a marketing policy more focused on value creation for its clients than in previous years, leveraging on its established know-how on pricing, personalization of services, and brand awareness. In future years, Eni’s marketing effort will be supported by developing an integrated offer of gas and electricity ("dual offer"), targeting mainly the middle and retail markets. The dual offer is expected to achieve significant synergies from the integration of processes to acquire and manage clients.

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Eni will devote particular attention to retain clients and increase their number in the retail market. At the end of 2006 Eni had 6.5 million of retailing clients, mainly located in the most important urban centers in Italy. Eni intends to strengthen customer loyalty in this market segment through value creation in terms of excellence of the service offered and the development of the dual offer. At the same time, Eni expects to preserve its selling margins by means of reducing the cost to serve leveraging on the rationalization of its contact channels, streamlining administrative processes and exploiting economies of scale.

In addition Eni plans to support sales to the Italian retail market leveraging on the development of regional alliances with local partners as in the case of the project described below.

Toscana project

On January 24, 2006, Eni, Italgas (Eni’s interest 100%) and the local authorities partners of Fiorentina Gas SpA (Eni’s interest 51.03%) and Toscana Gas SpA (Eni’s interest 46.1%) signed a framework agreement for developing an alliance in the field of natural gas distribution and sale in the Toscana Region.

As a part of the agreement, Toscana Energia SpA (Eni’s interest 48.72%) was established upon contribution in-kind of the partners’ stakes in the distribution companies Fiorentina Gas and Toscana Gas. The local authorities partners of Toscana Energia SpA hold the responsibility for strategic decisions and control, while Eni maintains operating and management responsibilities, being the industrial partner of the initiative. In addition, this agreement provides for Fiorentina Gas Clienti SpA (Eni’s interest 100%) to be merged into Toscana Gas Clienti SpA (Eni’s interest 46.1%, Tuscan municipalities 53.9%), resulting in the establishment of a regional selling company under Eni’s control (79.22%), re-named Toscana Energia Clienti and boasting 600,000 clients and sale volumes of 1.1 BCM/y in 147 Tuscan municipalities. The Italian Antitrust Authority authorized this transaction on July 20, 2006. The merger deed was defined on February 22, 2007, effective from March 1, 2007.

(ii) European Markets

France Eni sells natural gas to industrial clients and wholesalers. In 2006, Eni started direct sales of natural gas in the French market with a new branch in Paris. New industrial and wholesaler clients were acquired; sales for the year hit the 1 BCM level. Supplies to the French company EDF ramped up, in execution of the long-term supply contract signed in July 2005.

Eni is pursuing an aggressive marketing policy to gain market share, in particular in the segment of small businesses which presents good profitability and development perspectives. In the medium-term, Eni expects to increase its current 1.1 BCM sales level at a 47% annual average growth rate, compared to an expected 3% average growth rate of market consumption, targeting volumes of approximately 5 BCM in 2010, equal to a 9% market share.

Germany Eni is present on the German natural gas market through its affiliate GVS (Gasversorgung Süddeutschland GmbH - Eni 50%) which sold approximately 6.4 BCM in 2006, and with a direct commercial structure. In the medium-term, Eni plans to significantly increase its sales to the business segment, leveraging on the pursuit of new opportunities arising from the ongoing liberalization process and new marketing initiatives. In 2006, Eni began to supply the German company Wingas under a long-term contract, envisaging 1.2 BCM/y of natural gas. The gas is made updelivered at Eynatten at the German-Belgian border. The medium-term objective is to sell more than 7.5 BCM in 2010, equal to a 7% market share.

Iberian Peninsula

Management expects gas demand growth in the Iberian Peninsula to outpace the average European demand growth.

Portugal Eni operates on the Portuguese market through its affiliate Galp Energia (Eni’s interest 33.34%) which sold approximately 5 BCM in 2006 (1.65 BCM being Eni’s share). In the medium-term, Galp’s sales are expected to grow at an 8% average rate, targeting 6.3 BCM (2.1 Eni’s share) in 2010.

On March 29, 2006, an eight-year agreement among Galp partners became effective addressing the joint management of three main segments: residentialthe company. Galp partners include Eni, Amorim Energia (a privately held Portuguese company in which Sonangol, the national oil company of Angola, holds a minority stake), Rede Electrica Nacional (REN), and commercial, industrialCaixa Geral de Depositos (a primary Portuguese financial institution). On September 26, 2006, in accordance with the agreement, Galp’s regulated activities comprising a high pressure network, storage sites and thermoelectric. Customers can be divided into three groups: (i) high consumptiona regasification terminal located in Sines were spun off and divested to REN. REN divested its shareholding in Galp to Amorim Energia, effective on October 18, 2006. On October 24, 2006, the Portuguese State divested part of its stake in Galp through an IPO. At the same time, Galp shares were registered on the national Portuguese stock exchange. The shareholders of Galp post-IPO are: Eni (33.34%), Amorim Energia (33.34%), the Portuguese State (7.00%), Iberdrola (4%), Caixa (1%) and Setgas (0.04%); floating shares represent 21.28% of the share capital.

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Spain Eni operates in the Spanish gas market through Unión Fenosa Gas (Eni’s interest 50%) engaged in natural gas supply and sale to final users directly linkedand to power generation utilities. In 2006 gas sales of Unión Fenosa Gas in Europe amounted to 4.34 BCM (2.17 BCM Eni’s share). Unión Fenosa Gas is engaged in LNG through an 80% interest in the Damietta liquefaction plant, on the Egyptian coast (see below), and through a 7.36% interest in a liquefaction plant in Oman, completed in 2005; in addition, it holds interests in the Sagunto (Valencia) and el Ferrol (Galicia) regasification plants, with a 42.5% (21.25% Eni’s interest) and 18.9% interest (9.45% Eni’s interest), respectively.

Eni targets to increase its sales in the Iberian Peninsula from the current 5.2 BCM level to approximately 8.5 BCM by 2010 (13% average growth rate), as a result of an increase in both sales of Unión Fenosa Gas and in direct sales, in particular to the nationalSpanish power generation segment supplied mainly by LNG from Nigeria.

UK/Northern Europe Eni through North Sea Gas & Power unit of its subsidiary Eni UK Ltd sells equity gas produced at Eni’s fields in the North Sea and regionaloperates in the main continental natural gas high pressure networks (industrieshubs (NBP, Zeebrugge, TTF). Eni plans to grow volumes sold on the UK/North European markets from the current 2.64 BCM level to approximately 8 BCM by 2010, with a 32% average annual growth rate. In particular, a significant increase is expected in spot sales on the Zeebrugge hub (from 0.2 BCM in 2006 to 4.2 BCM in 2010). In the UK, gas sales through North Sea Gas &Power are expected to grow from 2.5 BCM in 2006 to 3.8 BCM in 2010, equal to a 3% market share.

Turkey Eni and power stations); (ii) customers ofGazprom market jointly natural gas to the residential and commercial sector such as residential and commercial users, hospitals, schools, public utilities, small enterprises located in urban centers supplied by wholesalers through low pressure networks; and (iii) wholesalers (mainly local selling companies and distributorsTurkish company Botas under a long-term contract. Volumes of natural gas are supplied via the Blue Stream transport system (see below), that links the Russian coast (Dzhubga) to the Turkish coast (Samsun) crossing the Black Sea. In 2006 Eni’s share of sales volumes amounted to 3.68 BCM. Leveraging on the expected demand growth in Turkey and existing spare capacity in this pipeline, Eni plans to increase sales up to 6.4 BCM by 2010, equal to an 18% market share. The full transport capacity of this pipeline of 16 BCM/y is expected to be saturated in 2010.

Infrastructure

Eni owns a wide, integrated network of infrastructures for automotive use) purchasingtransporting, delivering and storing natural gas in Europe which enables Eni to sell itconnect major natural gas producing areas (North Africa, Russia and the North Sea) to European markets. In Italy, Eni owns almost all the national transport network and a significant portion of local distribution networks for the delivery of natural gas to residential and commercial customers.users. Availability of regasification capacity in Italy and the Iberian Peninsula and storage sites guarantees a high level of operating flexibility. In order to increase the diversification and reliability of supplies and to cope with expected European demand growth, Eni defined an important plan for upgrading its import infrastructure from Russia, Algeria and Libya, its regasification capacity and its national transport and distribution networks. This plan envisages a capital expenditure of approximately euro 5.8 billion to be deployed in the next four-year period.

International Transport Activities

In 2005,order to import natural gas to Italy, Eni owns transportation rights on an international high pressure network of pipelines extending for approximately 4,300 kilometers. These lines are connected with Eni’s natural gas sales to wholesalers amounted to 12.05 BCM (down 13.1% over 2004).transport system in Italy. A description of the main pipelines is provided below:

•		The TAG pipeline importing natural gas from Russia is 1,140-kilometer long and is composed of three lines, each about 380-kilometer long, with a transport of 31 BCM/y following completion of an upgrading project started a few years ago to enable the build-up of Eni’s fourth import contract from Russia. This pipeline has three compression stations and transports natural gas from Russia across Austria from Baumgarten, the delivery point at the border of Austria and Slovakia, to Tarvisio, entry point into the Italian natural gas transport system. This pipeline is currently undergoing an upgrading plan to boost transport capacity by an additional 6.5 BCM/y to 44 BCM/y, starting operations in October 2008. Capital expenditure is estimated at about euro 253 million (94% covered by Eni). A 3.2 BCM portion of this upgrade has been assigned to third parties importing natural gas into Italy in February 2006. Procedures have been started for the assignment of this upgrade to third parties.
•		The TTPC pipeline importing natural gas from Algeria is 742-kilometer long and is composed of two lines, each 371-kilometer long, with a transport capacity of 27 BCM/y and three compression stations. This pipeline 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. This pipeline is currently undergoing an upgrading plan to boost transport capacity by an additional 6.5 BCM/y to 33.5 BCM/y, of these 3.2 BCM are expected to entry operations in April 2008 and 3.3 BCM in October 2008. Capital expenditure is estimated at euro 450 million. The first portion of this transport upgrade (3.3 BCM) has been assigned to third parties importing natural gas to Italy. The procedure for the assignation of the second portion of this upgrading has finalized in February 2007. The transport capacity of the downstream TMPC pipeline is already adequate to handle the upgrade of the TTPC.

In 2005, natural gas consumption40

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•		The TMPC pipeline importing natural gas from Algeria is 775-kilometer long and is composed of five lines each 155-kilometer long with a transport capacity of 33.5 BCM/y. This pipeline crosses underwater the Sicily Channel from Cap Bon to Mazara del Vallo in Sicily, the entry point into the Italian natural gas transport system.
•		The TENP pipeline importing natural gas from the Netherlands is 1,000-kilometer long (two 500-kilometer long lines) with a transport capacity of 15.5 BCM/y and four compression stations. It transports natural gas from the Netherlands through Germany, from the German-Dutch border of Bocholtz to Wallbach at the German-Swiss border.

•		The Transitgas pipeline importing natural gas from the Netherlands and Norway is 291-kilometer long, with one compression station. It 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 transport capacity of 20 BCM/y. A 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 the Norwegian gas.
•		The GreenStream pipeline importing natural gas from Libya is 550-kilometer long on a single line. This pipeline has a transport capacity of 8 BCM/y and crosses underwater the Mediterranean Sea from Mellitah to Gela in Sicily, the entry point into the Italian natural gas transport system. The pipeline started operations in October 2004 and transports gas volumes produced by the Libyan fields of Wafa and Bahr Essalam operated by Eni (with a 50% interest). In 2006 this pipeline transported 7.7 BCM (Eni share’s is 50%), of which 6.6 BCM is sold to Italian importers under long-term supply contracts with a 24-year term, targeting full supplies of 8 BCM/y. The delivery point is Gela in Sicily the Gas & Power segment purchased a 50% share of this volumes from Eni’s Exploration & Production segment and the remaining 50% share from the Libyan partner National Oil Company under a long-term supply contract with a 24 year-term. The remaining 1.1 BCM of natural gas were purchased by the Gas & Power segment on a spot basis. Said volumes available from the Libyan field production could not be absorbed by the local market. Production plateau volumes are expected in 2007 at 10 BCM/y, of which 8 BCM/y will be sold to those Italian third party importers under long-term supply contracts and remaining 2 BCM/y are expected to be sold on the Libyan market by the two partners. An upgrade of the pipeline’s transport capacity from 8 to 11 BCM is planned with an estimated expenditure of approximately euro 80 million. This new capacity will be available from 2011 and will enable Eni to monetize further volumes of natural gas reserves located in Libya through the sale on the Italian market.

Eni holds a 50% interest in the Italian industrial segment amounted to approximately 21.8 BCM (approximately 25% of total final consumption), with a 2.3% decrease from 2004. In 2005, Eni’s sales of natural gas to industrial users amounted to 13.07 BCM (up 5.5% over 2004).

In 2005, natural gas consumption inBlue Stream underwater pipeline linking the Italian thermoelectric segment amounted to approximately 33 BCM (approximately 38% of total demand), with an approximately 14% increase over 2004. In 2005, Eni’s sales of natural gas to thermoelectric users amounted to 17.60 BCM (up 10.6% over 2004).

Natural gas consumption in the residential and commercial segment amounted to over 30 BCM (35% of total demand), with a 6.9% increase from 2004 dueRussian coast to the effectTurkish coast of weather conditions.the Black Sea. Through this pipeline, Eni manages directly over 5 million residential customerstransports gas volumes purchased in Russia to be sold on the Turkish market. This pipeline is totally 774-kilometer long with two lines and in 2005 Eni’s saleshas a transport capacity of 16 BCM/y. Eni expects to this segment amountedreach full volumes supplies to 7.8 BCM (up 6% from 2004).
the Turkish market by 2010. The pipeline includes a compression station at Dzhubga on the Russian coast of the Black Sea, made up of six turbocompressors and six measurement lines as well as an internally fired power plant.

Transmission, Dispatching and Regasification ActivitiesItalian Transport Network

Transmission, dispatching and regasification activities in Italy are carried out byEni, through Snam Rete Gas, a company listed on the Italian Stock Exchange, (inin which Eni holds a 50.07% interest). Eni’s primary transmission50.04% interest, owns the major part of the Italian natural gas transport network was conferred to Snam Rete Gasas well as the only regasification terminal operating in July 2001 in implementation ofItaly. Under Legislative Decree No. 164/2000 concerning the opening up of the natural gas market in Italy, transport activities are regulated by the Authority for Electricity and Gas which determines the methods for calculating tariffs and fixing the return on capital employed.

Eni’s Italian natural gas market, which provides for the separation of transmission, dispatching and regasification activities from all other activities in the natural gas segment. This Decree also establishes that transport activity qualifies as a public concern activity and consequently is regulated.

The Italian natural gas transmission system is made up of a national pipeline network and a regional pipeline network for a total length of 33,00030,889 kilometers of which 30,712 kilometers are owned by Eni.as follows:

The Italian national transmission network is made up

(i)		the national transport network portion extends for approximately 8,497 kilometers and consists of high pressure trunklines mainly with a large diameter, which carry natural gas from the entry points to the system – import lines, storage sites and main Italian natural gas fields – to the linking points with the regional transport network. The national network also includes some interregional lines reaching important markets; and
(ii)		the regional transport network portion extends for approximately 22,410 kilometers and consists of smaller lines enabling the delivery of natural gas to large industrial complexes, power stations and local distribution companies of the various local areas served.

In 2006 Eni’s network increased by 177 kilometers due to some changes to existing lines of national network (87 kilometers) and extensions of the regional transmission network. The national network includes also some interregional lines reaching important markets.(90 kilometers).

The regional transmission network is made up of the remaining lines and allows the transmission of natural gas to industries, power stations and local distribution companies of the various local areas served.41

At December 31, 2005 the national pipeline network owned by Eni extended for 8,392 kilometers.

Underground pipelines have a maximum diameter of 48 inches and carry natural gas at pressures of 24 to 75 bars. The underwater pipeline crossing the Messina Strait has a diameter of 20 to 26 inches and carries natural gas at a pressure equal to or higher than 115 bars.

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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 48/42-inch diameter, each approximately 1,500-kilometer long, including the smaller pipe that crosses underwater the Messina Strait, which links Mazara del Vallo (on the Southern coast of Sicily) to Minerbio (near Bologna). This pipeline is undergoing an upgrade with the laying of a third line with 48 inch diameter that is 290-kilometer328-kilometer long (of these 241272 are already operating). Transport capacity at the Mazara del Vallo entry point is approximately 8386 mmCM/d;

for natural gas imported from Libya:

-

a 36-inch line, 67-kilometer long linking Gela, the entry point of the GreenstreamGreenStream underwater pipeline into the national network near Enna along the import pipeline from Algeria. Transport capacity at the Gela entry point is approximately 2630 mmCM/d;

for natural gas imported from Russia:

-

two lines with 42/36/34-inch 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 is being upgraded by the laying of a third 264-kilometer long line with diameter from 48 to 56 inches; 214232 kilometers were already operating at the end of 2005,2006, from Tarvisio to Zimella (Verona). The pipeline transport capacity at the Tarvisio entry point amounts to approximately 99101 mmCM/d plus the transport capacity available at the Gorizia entry point of approximately 5 mmCM/d;

for natural gas imported from the Netherlands and Norway:

-

two lines, with a 48/34-inch48-inch diameter, 301-kilometer177-kilometer long extending from the Italian border at Passo Gries (Verbania), point of connection with the Swiss network, to the node of Mortara, in the Po Valley. The pipeline transmissiontransport capacity amounts to 63 mmCM/d;

for natural gas coming from the Panigaglia LNG terminal:

-

one line, with a 30-inch diameter, 170-kilometer long linking the Panigaglia terminal to the national network near Parma. The pipeline transport capacity at the Panigaglia entry point amounts to 13 mmCM/d.

In 2005 Eni’s national network increased by 196 kilometers due to the upgrade of the trunklines for gas imported from Russia and Algeria.

Eni’s regional transmission network is made up of pipes with smaller diameter than the national lines for a total length of 22,320 kilometers. These pipes carry natural gas at pressures between 5 and 12 bars, between 12 and 24 bars and between 24 and 75 bars. In 2005, Eni’s regional network decreased by 29 kilometers despite the entry into service of new lines.

Eni’s system is completed by: (i) 1110 compressor stations with a total power of 683 megawatt; and758 MW; (ii) 5 marine terminals linking underwater pipelines with the on-land network at Mazara del Vallo, Messina and Gela in Sicily and Favazzina and Palmi in Calabria for the Greenstream pipeline.

TheGreenStream pipeline; and (iii) a control room of the dispatching system is located in San Donato Milanese, andwhich oversees and monitors the whole transmission network in cooperation with peripheral units. In 2005 this system obtained2006 the ISO 9001-2000 certification.certification was confirmed. Peripheral units are represented by eight districts that monitormonitoring the transmission network through 6055 centers that guarantee operation, maintenance and control of the whole system. Each unit is responsible for operations in accordance with technical specifications and applicable laws and regulations.

In addition to the international pipeline transmission system, natural gas also enters Eni’s system through the Panigaglia (Liguria) LNG terminal, which receives LNG carried by tanker ships. This terminal is currently the only one in Italy and at its maximum capacity can input 3.5 BCM/y into the transmission network. In 2005, volumes of LNG regasified amounted to the equivalent of approximately 2.49 BCM of natural gas.

In 2005 a total of 85.1 BCM of natural gas were input into the national network, of 64% of which was owned by Eni.

In the next four years Eni plans to carry out capital expenditure of approximately euro 3.54.2 billion aimed at the upgrade of its transport network in view of the expected increase in import capacity (in particular from Russia and Algeria).

In 2006 a total of 87.99 BCM of natural gas were input into the national network, 65% of which was owned by Eni.

Natural gas transported in Italy (1)		2001		2002		2003		2004		2005

Gas volumes transported (a)	2002		2003		2004		2005		2006

(BCM)

Eni		58.17		54.56		51.74		52.15		54.88		54.56		51.74		52.15		54.88		57.09
Third parties		11.41		19.11		24.63		28.26		30.22
On behalf of third parties												19.84		24.63		28.26		30.22		30.90
Enel		6.28		8.28		9.18		9.25		9.90		8.28		9.18		9.25		9.90		9.67
Edison Gas		2.98		4.61		7.49		8.00		7.78		5.34		7.49		8.00		7.78		8.80
Other		2.15		6.22		7.96		11.01		12.54
Others												6.22		7.96		11.01		12.54		12.43
Total		69.58		74.40		76.37		80.41		85.10		74.40		76.37		80.41		85.1		87.99

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(1)(a)		Include volumes inputamounts destined to domestic storage.

The Italian natural gas system is supplied for about 82% with imported gas, transmitted to Italy through a network of international high pressure pipelines for a total of over 4,300 kilometers; in which Eni owns transportation rights, in particular:

•		the TAG pipeline, a 1,018-kilometer long made up of two lines, each about 380-kilometer long and a third line 258-kilometer long, with a transit capacity of 81.3 mmCM/d 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 in the Italian natural gas transport system. Eni plans to upgrade this pipeline. See "Development Projects" below;
•		the Transitgas pipeline, a 291-kilometer long 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 61 mmCM/d. 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 TTPC pipeline, a 742-kilometer long pipeline, made up of two lines each 371-kilometer long with a transit capacity of 81.2 mmCM/d 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 TMPC pipeline for the import of Algerian gas, which is 775-kilometer long, made up of five lines, each 155-kilometer long with a transit capacity of 101 mmCM/d, which crosses underwater the Sicily Channel from Cap Bon to Mazara del Vallo in Sicily, the point of entry into the Italian natural gas transport system; and
•		the Greenstream pipeline for the import of Libyan gas, a 520-kilometer long, with a transit capacity of 24.4 mmCM/d which crosses underwater the Mediterranean Sea from Mellitah to Gela in Sicily, the point of entry into the Italian natural gas transport system. The pipeline, in which Eni has a 75% interest (the remaining 25% share being held by the National Oil Company), started operations in October 2004 and by 2006 is expected to transport 8 BCM/y already booked under long-term contracts with Italian operators. In the long term, Eni plans to upgrade the transport capacity of this gasline from 8 to 11 BCM/y, starting in 2010 with an expected capital expenditure of euro 80 million.

Eni holds a 50% interest in the Blue Stream underwater pipeline linking the Russian and Turkish coast of the Black Sea. When fully operational, this 774-kilometer long pipeline with a transmission capacity of 49 mmCM/d, is expected to transport 16 BCM/y in 2010 (Eni’s share 8 billion) of Russian natural gas to be sold on the Turkish market (see "Development Projects" below). At the end of 2005 the first section of the Dzhubga compression station on the Russian coast of the Black Sea started operations. It is made up of three turbocompressors and three turbogenerators that will allow to increase the volumes of gas transported.

Distribution Activity

Distribution involves the delivery of natural gas to residential and commercial usersconsumers in urban centers through low pressure networks. Eni, through its 100% subsidiary Italgas and other subsidiaries, is engaged in the distribution activity in Italy serving 1,2821,317 municipalities through a low pressure network consisting of over 48,000approximately 49,000 kilometers of pipelines supplying 5.85.6 million customers at December 31, 2005.customers.

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Under Legislative Decree No. 164/2000 concerning the opening up of the natural gas market in Italy, defines distribution asactivities are regulated by the Authority for Electricity and Gas which determines the methods for calculating tariffs and fixing the return on capital employed. This makes distribution a public service which is subject to regulation and itslow risk business capable of delivering stable performance in the long period. The management of networks is entrusted to natural gas companies by local governmentsAuthorities exclusively under bid procedures. Concessions existing at the coming into force of theLegislative Decree No. 164/2000 and awarded with a bid procedure expire on December 31, 2012; all other concessionsconcession expire on December 31, 2007 (with an optional three yearthree-year extension under certain conditions). Eni intends to optimize its concession portfolio maintaining its current size in caseterms of public interest)end users served by focusing on development initiatives in core areas and promoting local alliances aimed at supporting sale activities on retail markets.

Regasification - LNG

Eni intends to strengthen its integrated LNG business on a global scale, aiming at further diversifying its supply sources, improving operational flexibility, and monetizing its large equity gas reserves. In particular, the development of regasification capacity is aimed at reinforcing and diversifying Eni natural gas supply portfolio. Eni’s main assets in LNG are:

Italy Eni owns the only regasification terminal operating in Italy at Panigaglia (Liguria). See "Regulation ofAt full capacity, this terminal can input 3.5 BCM/y into the Italian Hydrocarbon Industry Gas & Power" below.

Development Projects

Eni is engaged in various development projects concerning the saletransport network. In 2006 a total of 3.13 BCM of natural gas in European markets andwere input in the LNG business in order to strengthen its market share in area where its presence is already established (Iberian Peninsula, Germany, Turkey) and to develop sales in markets with interesting growth and profitability prospects (in particular France and the United Kingdom).national network, of these 48% were owned by Eni. Eni plans to build a new regasification terminal located off the Adriatic coast (with a 50% interest) and to increase the flexibilitycapacity of its operationsthe Panigaglia plant. These two projects are expected to upgrade the import capacity to Italy by upgrading its logistical assets.

In these European markets Eni can leverage on the availability of equity gas8 and a diversified portfolio of supply contracts, an extensive gas pipeline network, which allows4.5 BCM/y, respectively, when fully operational. The planned start up is expected by 2013 and 2014, respectively. The capital expenditure earmarked for the supplyoffshore regasification projects amounts to approximately euro 800 million (of these euro 400 million for the 50% interest in the offshore regasification plant and euro 359 million for Panigaglia).

Egypt Eni, through its interest in Unión Fenosa Gas, owns a 40% stake in the Damietta liquefaction plant producing approximately 5 mmtonnes/y of LNG equal to a feedstock of 7.6 BCM/y of natural gas. In June 2006, the partners of the project agreed on terms and conditions for doubling the plant capacity by means of building another treatment train. Expected capital expenditure amounts to approximately $1.5 billion with start up expected between 2010 and 2011. In order to market its share of natural gas, from several sources, and long standing relationships with producing countries. Eni intends also to develop its presence in the LNG business which provides interesting growth prospects, leveraging on the valuebuild two gas tanker ships with a capacity of its assets, on its participation in liquefaction projects aimed at exploiting its natural gas reserves (mainly in North and West Africa, the Far East and Australia) and on the purchase of interests in regasification terminals located in strategic consumption markets (such as the United States, the United Kingdom and the Far East).

Germany Eni has been present on the German natural gas market since late 2002 through GVS Gasversorgung Süddeutschland GmbH) in which it holds a 50% interest. Through a 1,863-kilometer long gas pipeline network (of these 1,750 are owned and 113 are managed) it transports and markets about 7 BCM/y of gas to local distribution companies serving about 750 municipalities in the South-Western areas of the country.

In January 2005 Eni agreed a 14 year contract, starting in 2006, for the supply of 1.2 BCM/y of natural gas to the German company Wingas. The gas will be delivered at Eynatten at the German-Belgian border. In the medium term, Eni plans to increase its natural gas sales from the 4.2 BCM level recorded in 2005.

Iberian Peninsula

Portugal Eni operates on the Portuguese market through Galp Energia (Eni’s interest 33.34%). On December 29, 2005, Eni, Amorim Energia (a privately held Portuguese company in which Sonangol, the national oil company of Angola, holds a minority stake) and Rede Electrica Nacional (REN) entered an eight year long shareholders agreement for the joint management of Galp Energia (Galp). The agreement came in force on March 29, 2006 after the occurrence of all the suspensive conditions, among which: (i) the authorization of the European Commission issued on March 24, 2006; (ii) the purchase on March 28, 2006 of a 1% stake in Galp by Caixa (a primary Portuguese financial institution) which also entered the shareholder agreement of December 2005; and (iii) the change in the powers of the Portuguese State in Galp (golden share) resulting from the approval by Galp’s Shareholders’ Meeting held on March 29, 2006 of new by-laws consistent with the agreement between Eni, Amorim Energia, REN and Caixa. At the present date shareholders of Galp are: Eni (33.34%), the Portuguese State (17.711%), Parpublica (12.293%), REN (18.30%), Amorim Energia (13.312%), Iberdrola (4%), Caixa Geral de Depositos (1%), Setgas (0.044%).

Key guidelines of the agreement are as follows: (i) the establishment of a new set of corporate governance rules setting, among others, percentages of share capital voting rights necessary to make relevant decisions; (ii) an industrial plan targeting the achievement of a leading market position in natural gas, refining and petroleum products marketing in the Iberian Peninsula, an increase in the weight of upstream activities in Galp’s asset portfolio and access to the Portuguese electricity sector; (iii) placement of part of the stake held by the Portuguese State in Galp through an initial public offering by year end of 2006; (iv) spin-off of certain regulated asset of Galp (natural gas transport network, storage sites and the Sines LNG regasification plant) ideally by the end of 2006; those assets are agreed to be sold to REN; (v) transfer of REN’s stake in Galp to Amorim Energia within an 18 month period from the effective date of the agreement; and (vi) a five year lock in period.

This agreement replaces the pre-existing agreement between Eni and the Portuguese State.

In 2005 Galp sold about 1.56 BCM of gas to approximately 820,000 customers and managed a high, medium and low pressure network covering about 11,700 kilometers. The assets of Galp include among other things two import infrastructures: the Transmaghreb pipeline and the Sines LNG regasification plant. Following the entry into force of the new agreement, these transport and regasification infrastructures are expected to be spun off.155 KCM each.

Spain Eni operates onIn April 2006, the Spanish market through the Unión Fenosa Gas group (Eni’s interest 50%, the remaining 50% being held by Unión Fenosa SA), which is active in natural gas supply and sales to final users and to power generation companies. In 2005 natural gas sales of Unión Fenosa Gas amounted to 1.52 BCM. Unión Fenosa Gas is active in LNG through an 80% interest in a liquefactionSagunto regasification plant with a capacity of over 76.7 BCM/y located at Damietta on the Egyptian coast, that started operations in January 2005, andnear Valencia. Eni through Unión Fenosa Gas holds a 7.36%21.25% interest in this plant. At present, Eni’s share of regasification capacity amounts to 1.6 BCM/y of gas. An upgrading plan has been sanctioned targeting a liquefaction plant under construction0.8 BCM/y capacity increase by 2009.
Relevant works started in Oman, completed in 2005. In addition, itthe second half of 2006. Eni through Unión Fenosa Gas also holds an 18.9% and a 42.5%9.5% interest in the Elel Ferrol and Sagunto regasification plantsplant, located in Galicia, under construction managed by the Reganosa and Saggas companies. The Sagunto plant is expected to start operations between 2006 and 2007.

In the medium term, Eni plans to increase its natural gas sales from the 5.3 BCM level recorded in 2005.

Turkey 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 (Dzhubga) to the Turkish (Samsun) coast of the Black Sea. In November 2005 the first section of the compressor station at Dzhubga on the Russian coast of the Black Sea started operating. This station is made up of three turbocompressors and three turbogenerators and will allow to increase volumes transported. 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. In 2005 volumes transported and sold in Turkey amounted to 5.14 BCM of natural gas (50% of which were Eni’s share) corresponding to an 18% market share. Volumes transported and marketed will increase progressively in future years and are targeted to about 16 BCM/y (8 billion net to Eni) in 2010.

France In July 2005 Eni signed a long term agreement with French company EDF for the supply of 860 mmCM/y of natural gas starting in October 2006.

Upgrading of the international transport network Eni has defined a program for the upgrade of transport gaslines from Algeria and Russia. Eni plans to increase the transport capacity of the TTPC gasline from Algeria by 6.5 BCM/y, with a 3.2 BCM starting on April 1, 2008 and an additional 3.3 BCM increase starting on October 1, 2008 with an expected expenditure of euro 345 million. A corresponding capacity on the TMPC downstream gasline is already available. The first section of the upgrade was assigned to third parties in November 2005.

Eni plans to upgrade the transport capacity of the TAG gasline from Russia by 6.5 BCM/y with a 3.2 BCM increase starting on October 1, 2008 and an additional 3.3 BCM increase starting on April 1, 2009 with an expected expenditure of euro 275 million. The first section of the upgrade was assigned to third parties in February 2006. In addition, the upgrade related to the build-up of the fourth import contract from Russia is nearly completed (up 4 BCM from 2007).

Considering also the full capacity from 2006 of the Greenstream gasline from Libya (8 BCM/y) and the upgrade underway of the TAG gasline in the light of the build-up of the fourth import contract from Russia (up 4 BCM/y from 2007), from 2009 a total of about 25 BCM/y of new import capacity are expected be available for the Italian market. Except for the 4 BCM/y of the Russian contract, 14.4 BCM of this new capacity have already been sold to third parties and a further 6.6 BCM/y are expected to be sold under open bidding procedures.

Libya Eni’s Gas & Power segment purchase 80% of the natural gas production of the Libyan natural gas producing field of Wafa and Bahr Essalam operated by Eni (with a 50% interest). The share of production belonging to the Libyan partner National Oil Company is purchased under a long term supply contract with a 24 year term. When the two fields achieve full production in 2006, production plateau volume are expected to be 10 BCM/y of which 8 BCM/y will be purchased by Eni’s Gas & Power segment and imported to Italy via the Greeenstream gasline. These volumes are sold to Italian third party importers under long term supply contracts with a 24 year term and delivery point at Gela in Sicily. The remaining 2 BCM/y natural gas availability from production is expected to be sold on the Libyan marketcompleted by the two partners.
first half of 2007, targeting a treatment capacity of approximately 3.6 BCM/y, 0.4 BCM/y being Eni’s share.

LNGUSA

Eni is a party in various initiatives in the area of LNG. What follows is a description of the major initiatives.

United States On August 1, 2005, Eni signed an agreement with the U.S. company Cameron LNG LLC (belongingentitled to the Sempra Energy group) to purchase a share of the regasificationinitial planned capacity of the Cameron liquefied natural gasregasification terminal under construction in Louisiana, and expected to be completed instart operations by 2008-2009. The share of regasification capacity purchased amounts to 6 BCM/y for a period of 20 years, which corresponds to aboutcapacity represents approximately 40% of the overall initial capacity of the terminalplant (15.5 BCM/y). This transaction will enable Eni to sell part of its natural gas reserves from North African and Nigerian fields in the United States.

Egypt
In January 2005,order to provide supplies to this plant, in February 2007 Eni signed an agreement with Nigeria LNG Ltd, which operates the firstBonny LNG shipment was madeplant in Nigeria, to purchase, over a twenty-year period, 1.375 mmtonnes/y of LNG, equivalent to 2 BCM/y of gas, deriving from the Damiettaupgrade of the Bonny liquefaction plant (Eni’s interest 40% through its 50% interest in Unión Fenosa Gas) that is targeted(7 trains) expected for 2012. Negotiations are also progressing with Brass LNG Ltd for the purchase of 1.42 mmtonnes/y of LNG equivalent to produce about 71.96 BCM/y. The partnersy of gas. Eni signed a Memorandum of Understanding with Sonangol to acquire a 13.6% participation in the Angola LNG project (Unión Fenosa Gas, the Egyptian company EGAS and oil producers Eni and BP) have planned an expansion5 BCM/y of the plant consistingcapacity in the construction of a second train with the same capacity of the first one with expected capital expenditure amountingPascagoula regasification terminal to approximately $1.5 billion and start-upbe constructed in 2009. Mississippi.

Eni will supply about 3 BCM/y of naturalalso have the right to have its equity gas to the first train for twenty years. Further volumes will be supplied to the second train under an intent protocol signed in March 2005 with the Egyptian Government.

Spain Eni holds a 9.5%Angola liquefied, shipped and a 21.25% interest in the El Ferrol and Sagunto regasification plants under construction and expected to start operations between 2006 and 2007. Eni’s share of regasification capacity amounts to 1.8 BCM/y.

Other Developments

Agreement between Eni and Gazprom/Gazexport

In October 2005 Eni and Gazprom agreed to promote a new set of agreements aimedregasified at widening their cooperation agreeing also to cease a previous agreement signed in May 2005. Negotiations are underway.

Sale of the water business

In March 2005, after receiving the authorization of the Italian Antitrust Authority, Italgas divested its majority interest (67.05%) in Società Azionaria per la Condotta di Acque Potabili to Amga SpA and Smat SpAPascagoula by Angola LNG for a cash consideration of euro 85 million (euro 15.57 per share). In May 2005, after receiving the authorization of the Italian Antitrust Authority, Italgas divested its 100% interest in Acquedotto Vesuviano SpAquantity equivalent to Gori SpA for a cash consideration of euro 20 million. The above transactions are part of Eni’s strategy of concentrating its resources in its core natural gas business.0.94 BCM/y.

Purchase of Siciliana Gas

In May 2006 Eni purchased a 50% interest of Siciliana Gas SpA for a cash outlay of euro 98 million. The Italian Antitrust Authority approved the transaction on February 1, 2006. With this purchase Eni becomes the sole owner of Siciliana Gas SpA and through this company also of 100% of Siciliana Gas Vendite SpA. Siciliana Gas SpA has been operating in Sicily since 1979 and holds the rights for the distribution of gas to 76 Sicilian municipalities, including Agrigento, Enna, Trapani and Gela (of these 70 concessions are operating) through a 2,600-kilometer long network and with 186 employees. It owns Siciliana Gas Vendite SpA operating in the sale of natural gas to end users with approximately 215,000 customers and sales volumes of about 190 mmCM/y and 50 employees.

Toscana Energia SpA

On January 24, 2006, Eni, Italgas and the local authorities partners of Fiorentina Gas SpA and Toscana Gas SpA signed a framework agreement for developing an alliance in the area of natural gas distribution and sale. As part of the agreement, the partners incorporated Toscana Energia SpA (Eni’s interest 48.7% the remaining 51.3% interest being held by municipalities and local banks) to which they contributed in kind their interests in Fiorentina Gas and Toscana Gas. These two companies operate in natural gas distribution to 97 municipalities through a 7,900-kilometer long network serving 1.6 million customers. They will be merged in Toscana Energia within two years under the framework agreement. The local authority partners will play a role of strategic guidance and control, while Italgas is the industrial partner and has operating and management responsibilities. The agreement provides also for the establishment of a regional sales company (600,000 customers, 1.1 BCM sold in 147 Tuscan municipalities) under Eni’s control, through the merger of Toscana Gas Clienti SpA (Eni’s interest 46.1% through Italgas) and Fiorentina Gas Clienti SpA (Eni’s interest 100%).

Electricity Generation

Eni, through EniPower, is one of the major operators in electricity generation on the Italian market. Operating since 2000, EniPower owns power stations located at Eni’s sites in Brindisi, Ferrera Erbognone, Livorno, Mantova, Ravenna, Ferrara and Taranto with installed capacity in operation of approximately 4.5 gigawatt4.9 GW at December 31, 2005 (3.3 gigawatt2006 (4.5 GW in 2004)2005).

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Starting in 2007, the marketing of electricity conducted by EniPower until 2006 is being conducted by the department responsible for natural gas marketing. Under this project, the Gas & Power Division is expected to conduct directly the electricity marketing activity previously conducted by EniPower, starting in 2007. This scheme will allow the integrated management of marketing activities of gas and electricity and the development of a joint-offer of natural gas and electricity to customers. Plans for developing the dual offer will leverage on the opening of the Italian electricity market effective on July 1, 2007.

In 2005,2006, Eni sold 27.56 terawatthours31.03 TWh of electricity, of which about 22.7724.82 TWh were produced by EniPower, corresponding to over 5%9.2% of the Italian market, and 10.66 million tonnes10.287 mmtonnes of steam. Approximately 57%55% of sales were directed to end users, 28% to the Electricity Exchange, 8% to GRTN/Terna (under CIP 6/92 contracts and imbalances in input) and 7%9% to wholesalers. All the steam produced was sold to end users.

Eni is completing a plan for expanding its electricity generation capacity, targeting in 20092010 an installed capacity of 5.5 gigawattGW with production amounting to 30 terawatthours from 2008,31 TWh when fully operational, corresponding approximately to over 10%8.4% of electricity generated in Italy at that date. Planned expenditure amounts to euro 2.4 billion, of which euro 1.82 billion is already expensed.

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 Authority for Electricity and Gas as a production mode that entails priority on the national dispatching network and the exemption from the purchase of "green certificates"⁸⁵.

EniNew installed generation capacity uses the combined cycle gas turbine fired technology (CCGT), ensuring a high level of efficiency and low environmental impact. In particular, management estimates that with the samefor a given amount of energy (electricity and heat) produced, EniPower power stations will reducethe use of the CCGT technology on a production of 31 TWh reduces emissions of carbon dioxide by approximately 11 million tonnes,mmtonnes, as compared to emissions caused byusing conventional power stations.generation technology.

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 in 2008,2010, consumption of natural gas of Eni’s plants is expected to reach over 6 BCM/y, supplied by Eni.

Power Generation
			2003		2004		2005

Purchases
Natural gas		(mmCM)		940		2,617		4,384
Other fuels		(thousand tonnes of oil equivalent)		847		695		563
Sales
Electricity production sold		(terawatthour)		5.55		13.85		22.77
Electricity trading		(terawatthour)		3.10		3.10		4.79
Steam		(thousand tonnes)		9,303		10,040		10,660

Power Generation	2003		2004		2005		2006

Purchases
Natural gas		(mmCM)		940		2,617		4,384		4,775
Other fuels		(KTOE)		847		784		659		616
- including cracking steam						89		96		136
Sales
Electricity production sold		(TWh)		5.55		13.85		22.77		24.82
Electricity trading		(TWh)		3.10		3.10		4.79		6.21
Steam		(ktonnes)		9,303		10,040		10,660		10,287

 

The development plan has been completed at all sites except for Ferrara (Eni’s interest 51%), where in partnership with Swiss company EGL AG, construction is underway of two new 390 megawattMW combined cycle units whichis underway. These new units will bringincrease installed capacity to 840 megawattMW with startupstart up expected in 2007.the first quarter of 2008. Moreover, Eni plans the installation of a new 240 MW combined cycle unit located in Taranto (current capacity 75 MW) with expected start up in 2010.

Ferrera Erbognone On May 14, 2004 the combined cycle power station was inaugurated, the first one in Italy after the opening up of the electric market. This power station has an installed capacity of approximately 1,030 megawattMW articulated in three combined cycle units, two of them with an approximately 390 megawattMW capacity are fired with natural gas, the third one with approximately 250 megawattMW capacity is fired in part with natural gas and complemented with refinery gas obtained from the gasification of tar from visbreaking from Eni’s nearby Sannazzaro de’ Burgondi refinery.

Ravenna Two new combined cycle 390 megawattMW units started operations in 2004. Added to the existing 190 megawatt,MW, the power station’s installed capacity reached approximately 970 megawatt.MW.

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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 imported or produced from non renewable sources exceeding 100 GW. Calculations are made on total amounts net of co-generation and own consumption. This obligation can be met also by purchasing volumes or rights from other producers employing renewable sources (the so-called green certificates) to cover all or part of such 2% share. Legislative Decree No. 387/2003 established that from 2004 to 2006 the minimum amount of electricity from renewable sources to be input in the grid in the following year be increased by 0.35% per year. The Minister of Productive Activities, with decrees issued in consent with the Minister of the Environment, will define further increases for the 2007-2009 and 2010-2012 periods.

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Brindisi Three new combined cycle 390 megawattMW units, two of which started operations in 2005, the last is expected to startstarted operation in the second half of 2006. When fully operational the power station will have a total capacity of approximately 1,320 megawatt,MW, including already existing amounts. The completion of the power station is expected between the end of 2005 and the second quarter of 2006.

Mantova Two new combined cycle 390 megawattMW units started operations in 2005 with full operation in early 2006. The power station will have a total installed capacity to approximately 840 megawatt.MW. This power station will provide steam for heating purposes delivered to Mantova’s urban network through a remote heating system.heat exchanger.

Ferrara EniPower owns 51% of the share capital of Società EniPower Ferrara (SEF) in partnership with EGL Swiss. SEF started the construction of two new combined cycle units with a capacity of 390 megawatt each which will bring total installed capacity at Ferrara to 840 megawatt. Operations are expected to start in 2007. In 2004, some 80 megawatt of capacity were purchased.

Capital Expenditure

See "Item 5 – Liquidity and Capital Resources – Capital Expenditure by Segment".

 

Refining & Marketing

Eni is engagedleader in refining and the sale of refined products, mainly in Italy and the rest of Europe.

In the refining business Eni plans to strengthen the competitive positioning of its refining system by increasing the primary refining capacity and conversion capacity and implementing actions to improve flexibility of refineries. Eni’s objectives are optimization of processed feedstocks, adjustment of the slate of refined products to the evolution of demand and strengthening of the degree of integration with Eni’s upstream activities. Eni’s strategy in its refining business is based on the following assumptions regarding trends in demand and the trading environment: (i) an expected worldwide decline in gasoline consumption in favor of diesel fuel, in connection with the expected evolution of the car fleet towards an increasingly high spread of diesel engine cars; (ii) the progressive substitution of fuel oil with natural gas in Italy; (iii) a further increase in worldwide differential between light and heavy crudes that favors high conversion capacity refineries; and (iv) the implementation of European fuel specifications as concerns quality standards of fuels.

In the marketing of refined products in Italy and holds important market shares in some European countries. Eni’s refining and marketing operations are efficiently integrated so as to achieve cost efficiencies and deliver good returns on capital employed. The integration with upstream operations represents a further competitive advantage. Eni’s key medium-term objective in its downstream oil business is to enhance profitability. The strategic guidelines to attain this objective are the following:

•		to enhance Eni’s refining system by means of a focused investment program;
•		to improve profitability and qualitative standards of the Italian retail network;
•		to grow retail sales in selected markets in the rest of Europe; and
•		to pursue higher levels of operational efficiency.

In the next four years, management plans to implement these strategies by deploying a capital expenditure program of approximately euro 4.3 billion. This capital expenditure is expected to be focused mainly on refinery upgrading. Planned actions are intended to boost refinery conversion rate and flexibility in order to produce higher-value products and to process low-quality crude that is typically discounted in the market-place, and to lower operating costs. Management expects to strengthen integration with Eni’s upstream operations. An important portion of this capital expenditure will be directed to retail networks upgrading in Italy and in the rest of Europe. In addition, in order to increase profitability of retail operations, Eni plans to strengthen its competitive positioningimplement customer-focused marketing initiatives, including effective pricing differentiation and an improved premium-products offer, and to pursue operating efficiencies. In retail activities in Italy by restructuring and upgrading its distribution network and implementing an innovative marketing strategy, the key elements of which are expected to be an offer of high quality fuels and differentiated promotional initiatives intended to support customer loyalty. In the rest of Europe, Eni intends to develop or strengthen its market share in certain geographic areas where it can obtain logistical and operating synergies and exploit its Agip brand. Eni plans to grow sales volumes buying, leasing and building well equipped and high throughput services stations and by launching marketing campaigns aimed at consolidating the perception of the Agip brandselectively develop its presence in target markets.European markets, leveraging on synergies deriving from proximity to Eni’s production and logistic facilities.

The matters regarding future plans discussed in this section and elsewhere herein are forward-looking statements that involve risks and uncertainties that could cause the actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties include difficulties in obtaining approvals from relevant Antitrust Authorities and developments in the relevant market.

Supply and Trading

In 2005,2006, a total of 66.48 million tonnes65.70 mmtonnes of oil were purchased (67.05(66.48 mmtonnes in 2004)2005), of which 37.30 million tonnes36.81 mmtonnes were purchased from Eni’s Exploration & Production segment,⁹, 14.85 million tonnes 18.16 mmtonnes were purchased under long-term contracts with producing countries and 14.33 million tonnes10.73 mmtonnes were purchased on the spot market. Some 24%21% of oil purchased came from West Africa, 19%21% from North Africa, 17%18% from countries of the former Soviet Union, 16%14% from the Middle East, 14% from the North Sea, 7% from Italy and 3%5% from other areas. Some 31.07 million tonnes30.66 mmtonnes were resold, representing an increase of 1.32 million tonnes over 2004, up 4.1%.traded, down 1.3% from 2005. In addition, 3.58 million tonnes3.18 mmtonnes of intermediate products were purchased (3.10(3.58 mmtonnes in 2004)2005) to be used as feedstocksfeedstock in conversion plants and 16.21 million tonnes16 mmtonnes of refined products (18.8(16.21 mmtonnes in 2004)2005) were purchased to be sold on markets outside Italy (11.48 mmtonnes) and on the Italian market (4.52 mmtonnes) as a complement to our own production on the Italian market (4.97 million tonnes) and on markets outside Italy (11.24 million tonnes).
production.

Refining

Eni is engaged in the refining businessowns five refineries in Italy and owns interests in refineries located in Italy, Germany and the Czech Republic with a total refining capacity (balanced with conversion capacity) of approximately 35 million tonnes35.5 mmtonnes (equal to 701710 KBBL/d) and a conversion index of which 30.2 million tonnes57%. Eni’s wholly owned refineries in Italy have a balanced capacity is located in Italy.of 26.7 mmtonnes (equal to 534 KBBL/d), with a 58.9% conversion rate.

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Eni’s refining system in Italy is made up of five wholly owned refineries and a 50% interest in the Milazzo refinery in Sicily. Eni plans to upgrade its refining system with a capital expenditure for the next four years amounting to approximately euro 2.4 billion (including logistics activities). Main

In the medium-term, management expects the refining environment to be featured by the following trends: (i) global imbalances in the availability of products among macro geographic areas; (ii) a low adequacy of existing refining assets to process heavy and non conventional feedstock against a backdrop of persisting high spreads between light/sweet and heavy/sour crude qualities; (iii) an imbalance of existing refining assets towards higher yields in gasoline and fuel oil in contrast with rising demand for middle distillates; and (iv) increasingly tight environmental and product quality regulations which make the upgrading of existing refining assets a critical issue.

Against this backdrop, Eni plans to enhance the profitability of its refining business, capturing opportunities arising from current market trends by implementing a large investment program of approximately euro 3 billion in the next four years. The main planned actions planned are: (i) anto increase of primary processing and conversion capacity, alsotargeting a complexity index⁶ higher than 57%, in lightview of an expected increasedboosting middle distillate yields, including petrochemical feedstock, and extracting value from equity crude, the availability of equity oilwhich is expected to increase in the Mediterranean area;basin over the medium-term; (ii) an improvement ofto improve refinery flexibility in order to optimize processed feedstock and capture market opportunities arising from an expected increasing availability of heavy/sour crude which can be purchased at a discount in the marketplace; (iii) to achieve high-quality products responsive to expected demand trends and the evolution of product specifications provided for by increasingly tight European standards in term of emissions and environmental preservation; (iv) to strengthen integration with the aimupstream and petrochemical operations; and (v) to enhance operational efficiency of optimizing feedstock processing; and (iii) the production of fuelsrefineries, targeting in line with demand and in compliance with European environmental standards. Eni also aims at achievingparticular a higher degreelevel of vertical integration with Eni’s upstream and downstream activities, increasing intake processing of equity crudes and feedstock volumes transferred to petrochemicals activities.energy efficiency.

The table below sets forth certain statistics regarding Eni’s refineries at December 31, 2005.2006.

		Location		Ownership Interest		Conversion Equivalent (1)		Balanced Primary Distillation Capacity (2)
Wholly-owned refineries:
Sannazzaro		Lombardy		100.0%		42.5		160,000
Gela		Sicily		100.0%		140.1		100,000
Taranto		Apulia		100.0%		71.6		90,000
Livorno		Tuscany		100.0%		11.4		84,000
Porto Marghera		Veneto		100.0%		22.8		70,000
						59.2		504,000
Partly-owned refineries:
Milazzo		Sicily		50.0%		69.6		80,000
Ingolstadt/Vohburg/Neustadt		Germany		20.0%		32.6		52,000
Schwedt		Germany		8.0%		41.8		19,000
Kralupy/Litvinov		Czech Rep.		16.3%		28.8		26,000
						49.7		177,000
Total Eni						56.7		681,000

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		Location		Ownership interest		Conversion equivalent (1)		Balanced primary distillation capacity (2)
Wholly-owned refineries:
Sannazzaro		Lombardy		100%		46.2		170,000
Gela		Sicily		100%		143.5		100,000
Taranto		Apulia		100%		61.1		110,000
Livorno		Tuscany		100%		11.4		84,000
Porto Marghera		Veneto		100%		22.8		70,000
						58.9		534,000
Partly-owned refineries:
Milazzo		Sicily		50%		72.3		80,000
Ingolstadt/Vohburg/Neustadt		Germany		20%		32.6		52,000
Schwedt		Germany		8.3%		41.8		19,000
Kralupy/Litvinov		Czech Rep.		16.33%		28.8		26,000
						50.9		177,000
Total Eni						57.0		711,000

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(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 has an operational and strategic setup adequate to maximizing return on assets and monetizing its geographic location with respect to end markets and integration with other Eni business segments.

Italy

Eni’s refining system in Italy is composed of five wholly owned refineries and a 50% interest in the Milazzo refinery in Sicily. Each of Eni’s refineries in Italy has operating and strategic features that aim at maximizing the value associated to the asset structure, the geographic positioning with respect to markets and the integration with Eni’s other activities.

Sannazzaro, with a balanced primary refining capacity of 160170 KBBL/d and an equivalent conversion index of 42.5%46.2% is one of the most efficient refineries in Europe. Located in the South-West of the Po Valley, at the confluence of the rivers Po and Ticino, it supplies mainly markets in north-westernNorth-Western Italy and Switzerland. The high degree of flexibility of this refinery allows it to process a wide range of oil from Russia, Africa and Asia,oils, such as CPC Blend crude oil from the Caspian Sea carried through the CPC pipeline, the Bonga crude from Nigeria 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 Genova terminal with French speakingFrench-speaking Switzerland.

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For a definition, see "Glossary".

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This refinery contains two primary distillation plants and a vacuum unit.

The conversion plants are: Conversion is obtained through a fluid catalytic cracker (FCC)(FCC⁷), an HDCK middle distillate conversion unit and a visbreaking thermal conversion unit, twounit. Two catalytic reforming plants, an isomerization plant, an alchilationalkylation plant, an MTBE plant and three desulphurizationdesulfurization plants for middle distillates and one for naphtha from cracking.cracking complete the production cycle. In 2005 works continued for2006, Eni completed a gasification facility using the completion of the tar (heavyheavy residue from visbreaking) gasification plant that willvisbreaking (tar) to produce syngas that will be used to firefeed the nearby EniPower power station at Ferrera Erbognone. In the medium term

Eni plans to upgrade this refinery. In particular, in the conversion capacity of this refinery; planned actions include:next four years, Eni plans to build: (i) construction of a newhigh pressure hydrocracking unit with a capacity of 28,000 BBL/28 KBBL/d, which will allowable to produce over 1 mmtonnes/y of high quality middle distillates, in particular diesel fuel with low sulfur content and kerosene. Start up is planned at 2008 end; and (ii) a PDA deasphalting unit with a 28 KBBL/d capacity for the production of one million tonnes/ydeasphalted oil (without asphaltene and metals) from visbreaking and vacuum unit residues to be used as feedstock for the FCC unit. Further residues will be used as feedstock for the tar gasification plant. The deasphalting plant will enable Eni to increase the refinery’s flexibility thanks to the processing of a higher amount of high sulfur content crude, thus increasing the yield of valuable products (diesel fuel). Start up is planned in 2008.

Eni is currently evaluating the building of a plant employing Eni Slurry Technology (see "Innovative technologies", below) with a 23 KBBL/d capacity for the processing of extra heavy crudes and tar sands producing higher quality products, in particular diesel fuel, with low sulphur content; and (ii) constructionreducing the yield of a new deasphalting unit with a capacity of 18,000 BBL/d for the separation of vacuum residues of asphaltenes with the aim of obtaining additional feedstocks for the cracking plant. Works are expectedfuel oil to be completed by 2008. Capital expenditure for this project is expected to amount to euro 400 million.zero.

Gela, with a balanced primary refining capacity of 100 KBBL/d and an equivalent conversion index of 140.1%143.5% represents an upstream integrated pole with the production of heavy crudes obtained from nearby Eni fields offshore and onshore Sicily, while downstream it is integrated with Eni’s nearby petrochemical plants. Located on the Southern coast of Sicily, it manufactures fuels for automotive use and residential heating purposes, as well as petrochemical feedstocks. Its high conversion level allows it to minimize the yield of fuel oil and semi-finished products.

Besides its primary distillation plants, this refinery contains the following plants: an FCC unit with advanced technologygo-finer for the conversionupgrading of low grade feedstocks and two coking plants for the vacuum conversion of heavy residues. All these plants are integrated in order to process heavy residues and feedstocks and manufacture valuable products. This refineryIt also contains two reforming units, an alchilationalkilation unit, an MTBE unit and plants for desulphurizationdesulfurization of gasoilgas oil and naphtha from cracking. The power plant of this refinery also contains modern residue and exhaust fume treatment plants which allow the complex to comply with the most exacting environmental standards.

An upgrade of the Gela refinery will be implemented by means of an upgrade of topping capacity to enable higher intakes (approximately 1 mmtonnes/y) and of feedstock flexibility.

In addition, actions to improve energy efficiency, renewal of facilities for gasoline production, and the upgrade of utilities and the logistic reorganization of the site are planned.

Taranto, with a balanced primary refining capacity of 110 KBBL/d and an equivalent conversion index of 60.5%61.1%, can process a wide range of crudes and semi-finished products with great operational flexibility.

It mainly produces fuels for automotive use and residential heating purposes for the South-EasternSouthern Italian markets. Besides its primary distillation plants, this refinery contains a flash vacuum unit, two plants for the desulphurizationdesulfurization of middle distillates, a reforming unit, an isomerization unit and conversionsconversion plants such as: a two-stage thermal conversion plant (visbreaking/thermal cracking) and an RHU conversion plant, that allows to convert high sulphursulfur content residues into valuable products and cracking feedstocks. It processes most of the oil produced in Eni’s Val d’Agri fields carried to Taranto through the Monte Alpi pipeline; in 2005pipeline (in 2006 a total of 3.1 million tonnes3.157 mmtonnes of this oil were processed. In the medium-term processed).

Eni plans a relevantto develop and upgrade of this refinery by means ofas well. In particular, two projects for increasing primary refining and conversion capacity with an expected expenditure of euro 800 million. The first project entails constructionare planned: (i) the building of a new 17,000 BBL/high pressure hydrocracking unit with a 17 KBBL/d capacity hydrocracking plant with a new associatedand the revamping of the hydrogen unit for the manufacture ofproduction unit; these assets will allow to produce approximately 0.6 million tonnes/mmtonnes/y of high quality diesel fuel. Works are expected to be completed by 2008. The second project entailsgasoil when fully operational in 2008; and (ii) the construction of: (i)building of a new topping plantunit with a 4 mmtonnes/y capacity of 4 million tonnes/y withand an associated vacuum unit with a capacity of 2.5 million tonnes/y; (ii)mmtonnes/y capacity. Eni also plans to build a new plantunit for the desulphurizationdesulfurization of middle distillates with a 2.3 mmtonnes/y capacity, in addition to utilities and logistic facilities (see "Logistics", below), in particular a pipeline for transporting virgin naphtha to Eni petrochemical plant at Brindisi. The objective is to expand the consumption area covered by the refinery to Campania. Start up is expected in 2009-2010.

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Conversion plant where vacuum feedstock undergoes cracking at high pressure and moderate temperature thus producing mostly high quality gasoline. This kind of plant guarantees high operating flexibility to the refinery.

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This development and upgrading plan will enable Eni to better employ national and Caspian equity crude and give more flexibility to this refinery, optimizing the use of 2.3 million tonnes/y;the conversion plants and (iii) ancillary units and utilities with other logistical assets. Works are expectedincreasing throughput from 6 to be completed by 2009.10 mmtonnes/y (100-180 KBBL/d).

Livorno, with a balanced primary refining capacity of 84 KBBL/d and an equivalent conversion index of 11.4%, manufactures mainly gasolines, fuel oil for bunkering, specialty products and lubricant bases. Besides its primary distillation plants, this refinery contains a vacuum unit, a reformer unit, an isomerization plant, two desulphurizationdesulfurization units for middle distillates and two lubricant manufacturing lines. Its pipeline links with the local harbor and with the Florence storage sites allow the Livorno facility to operate with great efficiency as concerns reception,by means of two pipelines optimizing intake, handling and distribution of products.

Porto Marghera, with a balanced primary refining capacity of 70 KBBL/d and an equivalent conversion index of 22.8%, producessupplies mainly gasolines and other light products for the supply of markets in North-EasternNorth-eastern Italy, Austria, Slovenia and, to a lesser extent, Croatia. Besides its primary distillation plants with vacuum plants, this refinery contains a reformer plant, an isomerization plant, two gasoil desulphurizationdesulfurization units and a two-stage thermal conversion plantplants (visbreaking/thermal cracking) for increasing yields of valuable products.

The plant upgrading project, subject to the extension of the refining license, concerns the construction of a new hydrocracker with a 24 KBBL/d capacity and upgrades of utilities. The objective is to increase intake (up 1.4 mmtonnes/y, to approximately 5.5 mmtonnes when fully operational), the improvement of flexibility in processed feedstocks, the increase in middle distillates produced (up 0.7 mmtonnes) in an area characterized by structural diesel fuel deficit, and higher energy efficiency.

Rest of Europe

In Germany Eni holds an 8.3% interest in the Schwedt refinery and a 20% interest in Bayernoil, an integrated industrial pole includingthat includes the Ingolstadt, Vohburg and Neustadt refineries. Eni’s refining capacity in Germany amounts to approximately 70 KBBL/d. Eni’s share of the production of the three integrated refineries and of the Schwedt refinery is mainly used to supply Eni’s distribution network in Bavaria and Eastern Germany. Eni plans to restructure the Bayernoil refining pole, by building a new hydrocracker with a capacity of approximately 2 mmtonnes/y, revamping other assets (in particular a reformer and a hydrofiner) and shutting-down a topping unit.

Eni holds a 16.33% interest in Ceska Rafinerska which owns and manages two refineries, Kralupy and Litvinov, in the Czech Republic. Eni’s overall balanced conversionshare of refining capacity from this refinery amounts to 27 KBBL/d.

d (corresponding to approximately 1.3 mmtonnes/y). In May 2007, Eni is evaluatingagreed to purchase a restructuring of the Bayernoil refinery pole16.11% interest held by ConocoPhillips Central and the purchase of interests in strategically located refineries aimed at supporting growth in its distribution activitiesEastern Europe Holdings BV in the restCeska Rafinerska Co. When this transaction is finalized, Eni will increase its stake in this refinery from 16.3% to 32.4%, corresponding to a refinery capacity of Europe.

On March 2, 2005 Eni sold to Erg SpA its 28% interest in Erg Raffinerie Mediterranee SpA and Erg Nuove Centrali SpA, anticipating the maturity (November 2006) of Eni’s put option, provided for by the agreement for the restructuring of the Priolo site signed on October 1, 2002. In order to guarantee the continuity of existing supply contracts of oil-based feedstocks to Polimeri Europa, Eni’s processing contract for about 2 million tonnes/y of crude oil retains validity until December 31, 2006 at the conditions (yields and payments) reflecting the current setup of the refinery.2.6 mmtonnes/y.

The table below sets forth Eni’s petroleum products availability figures for the periods indicated.

Petroleum products availability		2001		2002		2003		2004		2005

Petroleum products availability	2002		2003		2004		2005		2006

(million tonnes)(mmtonnes)

Italy
Products processed in wholly-owned refineries		32.24			30.09			25.09			26.75			27.34
Products processed for third parties		(1.45	)		(1.88	)		(1.72	)		(1.50	)		(1.70	)
Products processed in non owned refineries		5.92			6.27			8.43			8.10			8.58
Refinery throughputs at wholly-owned refineries																	30.09			25.09			26.75			27.34			27.17
Refinery throughputs on account of third parties																	(1.88	)		(1.72	)		(1.50	)		(1.70	)		(1.53	)
Refinery throughputs at third party refineries																	6.27			8.43			8.10			8.58			7.71
Products consumed and lost		(1.95	)		(1.91	)		(1.64	)		(1.64	)		(1.87	)		(1.91	)		(1.64	)		(1.64	)		(1.87	)		(1.45	)
Products available		34.76			32.57			30.16			31.71			32.35			32.57			30.16			31.71			32.35			31.90
Purchases of finished products and change in inventories		5.19			6.27			5.86			5.07			4.85			6.27			5.86			5.07			4.85			4.45
Finished products transferred to foreign cycle		(4.96	)		(5.56	)		(5.19	)		(5.03	)		(5.82	)		(5.56	)		(5.19	)		(5.03	)		(5.82	)		(5.35	)
Consumption for power production					(1.74	)		(1.07	)		(1.06	)		(1.09	)		(1.74	)		(1.07	)		(1.06	)		(1.09	)		(1.10	)
Sales		34.99			31.54			29.76			30.69			30.29			31.54			29.76			30.69			30.29			29.90
Outside Italy
Products available		3.02			2.98			3.36			4.04			4.33			2.98			3.36			4.04			4.33			4.37
Purchases and change in inventories		10.27			12.16			12.12			13.78			11.19			12.16			12.12			13.78			11.19			11.51
Finished products transferred from Italian cycle		4.96			5.56			5.19			5.03			5.82			5.56			5.19			5.03			5.82			5.35
Sales		18.25			20.70			20.67			22.85			21.34			20.70			20.67			22.85			21.34			21.23
Sales in Italy and outside Italy		53.24			52.24			50.43			53.54			51.63			52.24			50.43			53.54			51.63			51.13

In 2005 refining2006, refinery throughputs on own account in Italy and outside Italy were 38.79 million tonnes, up 1.10 million tonnes38.04 mmtonnes, down 0.75 mmtonnes from 2004,2005, or 2.9%1.9%, dueowing to higher processing at Eni’s wholly-owned refineries of Taranto, Livorno and Sannazzaro also as a result of fewer maintenance standstills. These increases were offset in part by the impact of the maintenance standstill of the Porto Marghera refinery and lower processing at the Gela refinery following the damage caused by a sea storm to the docking infrastructure in December 2004. Processingthroughputs on third party refineries increased, especiallyas a consequence of an accident that occurred at the Priolo (third party) refinery and a maintenance standstill at the Milazzo refinery (Eni’s interest 50%).

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Refining throughputs on own account were stable. In particular, refining throughputs increased at the Venice, Gela and Taranto refineries and decreased at the Sannazzaro refinery due to a maintenance standstill of the catalytic cracking unit and the visbreaking unit, and at the Livorno refinery due to general maintenance activity. In April, a new unit for heavy residue gasification started operating at the Sannazzaro refinery.

Total throughputs on wholly ownedwholly-owned refineries (27.34 million tonnes) increased 0.59 million tonnes(27.17 mmtonnes) decreased 0.17 mmtonnes from 2004, or 2.2%, with full2005, down 0.6%; balanced capacity utilization. About 32.3% of allrefineries was fully utilized. Approximately 35.9% of volumes of processed oil processed came fromwere supplied by Eni’s Exploration & Production segment (33%(32.3% in 2004).
2005), representing a three percentage point increase from 2005. Incremental volumes of some 1.1 mmtonnes of equity oil processed related to higher supplies of heavy oil from Nigeria (due to the start up of the Bonga field) and from Sicily, against a reduction of supplies of the Libyan Bu-Attifel oil processed at Priolo.

Logistics

Eni is engaged in storage and transport of petroleum products in Italy. Its logistical integrated logistics infrastructure consists of 12 directly managed storage sites and a network of petroleum product pipelines.

Eni holds interests in five companiesjoint entities established by partnering the major Italian operators in the oil businessoperators. These are located in Vado Ligure-GenovaLigure - Genova (Petrolig), Arquata Scrivia (Sigemi), Venice (Petroven), Ravenna (Petra) and Trieste (DCT) aimedand aim at reducing logistic costs and increasing efficiency and providing integrated services to customers.efficiency.

ForEni operates in the transport of oil and refined productsproducts: (i) on land Eni also ownsthrough a pipeline network integrated byof leased and owned pipelines extending over 3,210 kilometers of these 1,513(1,513 kilometers are wholly owned. Transportowned by sea of crudesEni); and refined products takes place(ii) by sea through spot and long-term lease contracts of tanker ships. For the secondary distribution of refined products to retail and wholesale markets, Eni owns a fleet of tanker trucks and manages third-party owned vehicles.

Eni also holds a 65% interest in Costiero Gas Livorno, a company that operates an underground storage facility in Livorno with the capacity to store 45,000 CM of propane.

In the medium-term, Eni intendsmanagement plans to upgradeenhance the integrationrelationship between its logistic and refining operations by implementing an integrated logistic model ("hub" model) designed to centralize handling of its logistics system with its refining system.product flows on a single platform enabling real time monitoring. This new setup is expected to deliver significant cost savings and efficiency improvements. In the next four years, Eni plans to upgrade logistical assetsinvest approximately euro 0.6 billion directed in orderparticular to the implementation of the Taranto logistic project intended to support the refinery’s development of the Taranto refinery. In particular Eni is evaluating the construction ofplan: a new diesel fuel and gasoline storage site for gasoils and gasolineswill be built in Campania and of three pipelines will be laid, two of which two linkingwill link the refinery to the new storage site and the other one forwill transport virgin naphtha to Eni’s petrochemical complex in Brindisi. The objective of this plan is to eliminate the transport of virgin naphtharefined products by sea to the Eni’s Brindisi petrochemical complex. Eni intends also to optimize its logistics system by rationalizing its structures in Lazio, the Po Valley and the Naples area.
Naples.

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.

Oil products sales in Italy and outside Italy		2001		2002		2003		2004		2005

Oil products sales in Italy and outside Italy	2002		2003		2004		2005		2006

(million tonnes)(mmtonnes)

Italy
Retail sales		11.64		11.14		10.99		10.93		10.05		11.14		10.99		10.93		10.05		8.66
Wholesale sales		11.24		10.64		10.35		10.70		10.48		10.64		10.35		10.70		10.48		10.06
		22.88		21.78		21.34		21.63		20.53		21.78		21.34		21.63		20.53		18.72
Petrochemicals		4.23		3.82		2.79		3.05		3.07		3.82		2.79		3.05		3.07		2.61
Other sales (1)		7.88		5.94		5.63		6.01		6.69		5.94		5.63		6.01		6.69		8.57
Sales in Italy		34.99		31.54		29.76		30.69		30.29		31.54		29.76		30.69		30.29		29.90
Outside Italy
Retail sales rest of Europe		2.47		2.57		3.02		3.47		3.67		2.57		3.02		3.47		3.67		3.82
Retail sales Africa and Brazil		1.71		1.44		1.18		0.57				1.44		1.18		0.57
		4.18		4.01		4.20		4.04		3.67		4.01		4.20		4.04		3.67		3.82
Wholesale sales		5.55		5.65		6.01		5.30		4.50		5.65		6.01		5.30		4.50		4.60
		9.73		9.66		10.21		9.34		8.17		9.66		10.21		9.34		8.17		8.42
Other sales (1)		8.52		11.04		10.46		13.51		13.17		11.04		10.46		13.51		13.17		12.81
Sales outside Italy		18.25		20.70		20.67		22.85		21.34		20.70		20.67		22.85		21.34		21.23
		53.24		52.24		50.43		53.54		51.63		52.24		50.43		53.54		51.63		51.13

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(1)		Includes bunkering, consumption for power production (until 2001) and sales to oil companies. From 2002, also includes also sales of MTBE.

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In 20052006, sales volumes of refined products (51.63 million tonnes)(51.13 mmtonnes) were down 1.91 million tonnes over 2004,500 ktonnes from 2005, or 6.2%1%, mainly due to lower wholesale volumes (down 320 ktonnes) as a consequence of mild weather conditions in the divestmentlast part of activities in Brazil carried out in August 2004the year adversely affecting heating products sales. In addition, lower volumes were supplied to the petrochemical sector (down 1.51 million tonnes), lower sales volumes460 ktonnes) owing to oil companies and traders outside Italy (down 305,000 tonnes), declining wholesale sales volumes in Italy (220,000 tonnes) and lower sales on the Agip branded network (130,000 tonnes) related to lower domestic consumption.technical accident that occurred at the Priolo refinery. These declines were offset in part by higher sales to oil companies and traders and by a growth in retail and wholesale sales in the rest of Europe (357,000 tonnes) due to the implementation of Eni’s development strategy.

Following the approval of the Italian Antitrust Authority granted on August 25, 2005, on September 6, 2005 Eni divested 100% of the share capital of Italiana Petroli ("IP") to api - anonima petroli italiana SpA for euro 190 million. IP is engaged in the retail marketing of refined products through a lease concession network of approximately 2,900 units, under the IP brand. As part of the sale transaction, the parties signed: (i) a five year fuel supply agreement under which IP will purchase from Eni agreed amounts of fuel each year; and (ii) an 18 month long agreement for the supply of lubricants and fuel transport services from storage sites to service stations. Consequently the impact on sales of the divestment of IP was marginal since the lower volumes sold on the retail market were substantially offset by the volumes supplied to the divested company under the contracts in force.

Retail Marketing

Retail sales in Italy

Sales of refined products on retail markets in Italy in 2005 (10.05 million tonnes) were down 0.88 million tonnes from 2004, or 8.1%, reflecting primarily the divestment of IP. Sales volumes on the Agip branded network (8.76 million tonnes)in Italy and outside Italy (up 60 ktonnes).

The impact of the Italiana Petroli (IP) divestment, effective September 1, 2005 (1.3 mmtonnes), was partly offset by supply of fuels to the same company under a five-year contract signed concurrently with the divestment.

In retail distribution Eni intends to enhance its leadership in the Italian retail market, improving outlets and service quality standards and targeting a strong product differentiation and customer-oriented promotional initiatives.

In the rest of Europe, Eni will selectively grow its market share, targeting a strengthening of its competitive position in selected markets, leveraging on synergies achievable thanks to the geographic location of its production and logistic assets and on strong brand awareness.

Retail Sales in Italy

Retail volumes of refined products marketed on the Italian network (8.66 mmtonnes) were down 130,000 tonnes,1.39 mmtonnes from 2005, or 1.5%13.8% mainly due to the IP divestment as outlined above. Retail volumes marketed on the Agip branded network (8.66 mmtonnes) decreased of some 90 ktonnes, down 1%, due mainly to a higher competitive pressure. This decline in domestic consumption (down 1.9%) in particular ofessentially concerned gasoline and LPG, whose effects were offset in part by an improved performance.BluDiesel, following a pattern aligned with national consumption trends. Market share of the Agip branded network was up 0.2down 0.4 percentage points from 29.529.7% to 29.7%. Average29.3% in 2006; average throughput in terms of gasoline and diesel fuel of the Agip network was substantially unchanged at 2,509,000 liters (down 0.7%2,463 kliters, down 1.8% from 2004).2005.

At December 31, 2005,2006, Eni’s retail distribution network in Italy consisted of 4,3494,356 service stations, 2,895 lessseven more than at December 31, 2004 (7,2442005 (4,349 units), resulting from the opening of new service station), due to the divestment of IP (2,915 service stations). Excluding the effect of IP’s sale, the Agip branded network increased by 20 units from December 31, 2004 as a result ofstations (20 units) and the positive balance of acquisitions/releases of lease concessions (27(11 units), the opening of 12 new service stations and an increase in highway service stations (two service stations) offset in part by the closureclosing of 21 less efficient service stations.stations with low throughput (21 units) and the release of 3 service stations under highway concessions.

Retail volumes of BluDiesel – a high performance and low environmental impact diesel fuel – amounted to about 726 ktonnes (840 mmliters), down 14.8% from 2005, mainly due to an increasingly high sensitivity of consumers to retail prices of fuels in light of their escalation that pushed prices to historical peaks. At year-end, virtually all Agip branded service stations marketed BluDiesel (about 4,061 equal to 93%).

Retail volumes of BluSuper – a high performance and low environmental impact gasoline – amounted to about 98 ktonnes (114 mmliters), down 9% from 2005, showing a trend similar to the one of BluDiesel. At year-end, service stations marketing BluSuper totaled 2,316 (1,719 at December 31, 2005) corresponding to approximately 53% of Eni’s network.

In 2006, Eni continued its Do-It-Yourself campaign which allows participating customers to obtain discounts or gifts (under agreements with Vodafone and Coop) in proportion to volumes of fuel purchased at self-service outlets, charged on an electronic card. Further bonuses are offered to the most faithful customers. At year-end, the number of active cards was approximately 3.9 million; turnover on cards increased by 3% from 2005. Volumes of fuel marketed under this initiative represented some 39% of total volumes marketed on the Agip branded outlets joining the campaign, and some 31% of overall volumes marketed on the Agip network. In March 2007, Eni launched its new You&Agip promotional initiative designed to boost customer loyalty to the Agip brand. The main features of this initiative are: (i) its time span which is longer than usual initiatives of this kind (until December 31, 2009); and (ii) the freedom of customers on how to accumulate points and when to spend them. Furthermore, the list of prizes will be kept constantly updated thanks to the high numbers of partners joining the initiative. Points can be accumulated not only by buying fuels, but also by buying all the other services and wares sold at Eni’s outlets.

Eni plansintends to strengthen its competitive positioning in Italy by restructuring and upgrading its distribution network and implementing an innovative marketing, the key elements of which are expected to be an offer of high quality fuels and differentiated promotional initiatives intended to support customer loyalty.

In 2005 sales volumes of BluDiesel – a high performance diesel fuel virtually sulphur free that improves engine performance – on the Agip branded network amounted to nearly 1 billion liters, a decline of about 13% from 2004 due mainly to the increasingly high sensitivity of consumers to the price of fuels in light of the increase in prices in the year. At 2005 year end service stations selling BluDiesel were over 4,000 (about 3,900 at 2004 year end) corresponding to approximately 92% of Eni’s Agip branded network.

In 2004, Eni started to sell theintroducing new BluSuper gasoline, which guarantees better engine performance and efficiency and reduces polluting emissions, due to its high antidetonating power resulting from a higher octane number (98 as compared to 95 of ordinary gasolines) and its lack of sulfur. BluSuper complements BluDiesel, sold since 2002, and is part of Eni’s strategy to improve the quality of its fuels, anticipating their compliance with EU regulations (mandatory from 2009) and targeting its offer to customers’ requirements, leveraging on Eni’s integrated refining-logistics-distribution system. In 2005 sales volumes of BluSuper amounted to 150 million liters. At 2005 year end Agip branded service stations selling BluSuper were 1,719 (about 1,000 at 2004 year end) corresponding to approximately 39% of Eni’s network.

In January 2006 Eni started to sell "Ad-Blue^®", a water solution containing urea for technologically advanced heavy duty vehicles. This additive, compatible with the new characteristics of most trucks built in Europe reacts with exhaust gases thus reducing emissions and consumption and improving engine performance.

In 2005, Eni continued its Do-It-Yourself campaign which allowed customers accessing self-service outlets provided with an electronic card to obtain price discounts or gifts in proportion to the total amount of purchased fuel, plus a bonus for the most loyal customers and long-distance drivers. At year end the number of cards distributed exceeded 3.8 million; turnover on cards increased by 9% from 2004. The amount of fuel purchased with these cards was about 37% of all fuel sold on Agip branded service stations.

Eni also continued its AgipMaxi promotional initiative addressed to truck drivers who purchase diesel fuel at the approximately 800 Agip branded service stations participating in the program. Active fidelity cards were over 38,000.

The improvement in the quality of service to customers led to a further expansion of the automation process of the domestic network. At December 31, 2005 nearly all Agip branded service stations were provided with a corporate credit card system.

In 2005, Eni continued the development of the European Multicard Routex paying card addressed to professional transport (transporters and car fleets) with sales of 1.414 billion liters (up 3.4% over 2004), while the number of customers provided with this card increased by about 5,000 to 50,000 users at year end. Multicard is used internationally and is part of the international Routex consortium, made up of four oil companies.

Eni continued the development of its non-oil retail activities aimed at promoting the development of its networkoutlet formats in line with European standards such as the diffusion of self-service facilities, high-tech car care systems,quality and services, increasing premium products sales and differentiating promotional offers in order to customersretain the various segments of clients. Management expects also to boost the profitability of its retail operations in particular 1,000Italy by developing the offer on non-oil products by means of building convenience stores, cafés and fast food outlets as well asand other innovative commercial outlets. To this end Eni owns master franchisor rights with exclusive rights for the oil sector for some international brandsA strong focus will be devoted to pursue high levels of the restaurant and catering sector.

In 2005, a total of 80 new affiliates were added to the AgipCafè^® branded outlets launched in 2003, and by year end 287 franchises were active, while 10 new convenience stores under the "SpazioAgip" brand name were opened, thus reaching a total of 19 locations. Also 45 new car-wash facilities were opened at Agip branded service stations, thus reaching a total of 685 units.operating efficiency. In the next four years, Eni intendsplans to continueinvest approximately euro 0.75 billion in the developmentupgrading of its non oil activitiesnetwork, targeting to build and acquire new service stations, upgrade/restructure existing ones, and to adequate them to applicable environmental standards and regulations. By 2010, Eni expects to provide 70%have a retail network composed of its Agip branded network with these structures by 2009 (50% in 2005).

Retail sales outside Italy

At December 31, 2005, Eni’s retail distribution network outside Italy was represented byapproximately 4,360 service stations locatedwith an average throughput of approximately 2.7 Bliters per station. Marketed volumes are expected to grow by an approximately 1.8% on average over the next four years.

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Retail Sales in the Rest of Europe

In recent years, Eni’s strategy in the rest of Europe focused on selectively growing its market share, by means of acquisition of assets in European areas with interesting profitability perspectives, mainly in South-CentralCentral-Eastern Europe (in particular Southern Germany, Spain, South-Western France, Austria, Switzerland, the Czech Republic and Hungary, and consisted of 1,933 service stations, 37 more than at December 31, 2004, dueHungary) in particular to the acquisition of lease concessions in Spain,South-Eastern France and Germany. Throughput per service station averaged 2,427,000 liters, up 1.4% from 2004. Salesthe Iberian Peninsula. In pursuing such growth, Eni has been able to reap synergies in these areas facilitated by their proximity to Eni’s production and logistic facilities.

Over the last five years, retail volumes of refined products totalled 3.67 million tonnes, representing an increasemarketed in the rest of 0.20 million tonnes over 2004,Europe have grown more than 50% (equal to a compound average growth rate of 9%). In 2006, retail sales were 3.82 mmtonnes, up 5.8%150 ktonnes from 2005, or 4.1%, reflecting higher sales mainlyparticularly in Germany, Spain and Austria due to the Czech Republic.ramp-up of new stations purchased or built with higher throughput than the average level of Eni’s network, while a few less efficient outlets were dismissed. Volume growth was driven primarily by increased sales of diesel fuel and LPG, while gasoline volumes declined.

At December 31, 2006, Eni’s retail distribution network in the rest of Europe consisted of 1,938 units, an increase of five units from December 31, 2005. The network’s evolution was as follows: (i) 31 service stations were acquired in Austria and France; (ii) 24 new outlets were opened in Spain and Austria; (iii) 46 low throughput service stations were closed in Spain and France; and (iv) a negative balance of acquisitions/releases of lease concessions (down four units) was recorded, with negative changes in Portugal and Germany, positive ones in France and Spain. Average throughput (2,486 kliters) was up 2.4%.

In the next four-year period, Eni intendsexpects to develop or strengthen its market shareincrease marketed volumes by approximately 3.9% per year on average. Growth in certain geographic areas where it can obtain logistical and operating synergies and exploit its Agip brand. Eni plans to grow salesmarketed volumes buying,will be achieved through acquisitions, leasing and building well equippedconstruction of new service stations with high quality standards, automation and high throughput, services stations and by launchingalso leveraging on marketing campaigns aimed at consolidating the perception ofenhancing the Agip brand in targetperception on markets.

Non oil activities outside Italy are performed under the "CiaoAgip" brand name in 1,120 By 2010 Eni plans to have a network of approximately 2,180 service stations with an average throughput of these 330 are in Germany and 163 in France, representing 58% of the whole Agip branded network outside Italy (97% when calculating the percentage on all owned service stations).
2.6 Bliters.

Wholesale Marketing and Other Sales

Eni sells gasolinesmarkets gasoline and other fuels on wholesale markets, including diesel fuel for automotive use and for heating purposes, fuels for agricultural vehicles and for vessels, gasolinesgasoline and fuel oil. Major customers are wholesalers, the agricultural andusers, manufacturing industries, public utilities and transports. Agricultural customers and fishing fleets are supplied directly at 60 agricultural centers and 90 owned or leased marine fuel outlets.

Eni provides its customers with its experienceexpertise in the area of fuels with a wide range of products that cover all market requirements. Along with traditional products provided with the high quality Eni standard, there is also an innovative low environmental impact line, which includes AdvanceDiesel and Biodiesel (with very low content of hydrogen sulfide, particulates and carbon dioxide) especially targeted for heavy duty public and private transports.

Customer care and product distribution is providedsupported by a very widespread commercial and logistical organization present all over Italy and articulated in local salesmarketing offices aided byand a network of agents sales persons and concessionaires.

In 2006, volumes marketed on wholesale markets in Italy, which excludes the Avio and Bunker businesses, were 8.22 mmtonnes down 610 ktonnes from 2005, or 7%, due mainly to a decline in domestic consumption related to mild weather conditions in the fourth quarter of the year.

Sales volumes on wholesale markets outside Italy were 4.27 mmtonnes, up approximately 100 ktonnes from 2005, or 2.6%, reflecting mainly higher sales in Germany and Spain.

Eni also sellsmarkets jet fuel directly at 38 airports, of which 27 are in Italy, andItaly. In 2006, these sales amounted to 2.18 mmtonnes (of which 1.84 mmtonnes were sold in Italy) up approximately 200 ktonnes. Eni is active also in the international market of bunkering, marketing marine fuel (bunkering) directly atin 38 ports, of which 23 are in Italy.

Sales on wholesale markets In 2006 marine fuel sales were 1.9 mmtonnes (1.24 in Italy (10.48 million tonnes) were down 0.22 million tonnes from 2004, or 2.1%, mainly due to a decline in domestic consumption and lower sales of fuel oil to the power generation segment, due to the progressive substitution of fuel oil with natural gas as feedstock for power plants.

Sales on wholesale markets outside Italy (4.50 million tonnes) declined by 0.80 million tonnes, or 15.1%, due mainly to lower LPG sales resulting from the divestment of activities in Brazil, offset in part by higher sales in the rest of Europe, in particular in Central-Eastern Europe, while they declined in Germany and Spain.Italy) increasing 100 ktonnes.

Other sales (22.93 million tonnes) increased by 0.36 million tonnes, or 1.6%, due mainlywere 22.09 mmtonnes of which 19.48 mmtonnes referred to higher sales in Italy related to supplies to IP (up 650,000 tonnes) offset in part by lower sales to oil companies and traders, outside Italy (down 305,000 tonnes).
and 2.61 mmtonnes supplies to the petrochemical sector.

Other Businesses

LPG

In Italy Eni is engagedthe market leader in theLPG production, distributionmarketing and sale of LPG. In 2005 Eniwith 589 ktonnes sold 649,000 tonnes of LPG for heating and automotive use (under the Agip brand and wholesale), with a 19% equal to an 18% market share. An additional 400,000 tonnesAdditional 350 ktonnes of LPG were soldmarketed through other channels mainly to oil companies and traders.

LPG activities in Italy derive theirare supported by direct production, availability from 11 bottling plants and a number of owned storage sites in addition to products from five Italian refineries and from imports receivedimported at the three coastal storage sites located in Livorno, Naples and Ravenna. Product availability and customer requirements are met also with 10 other owned plants/storage sites in Italy and 45 contracts for bottling and storage with third party facilities. Eni’s LPG sales network is organized over six sale areas with 3 direct sales offices, 21 agencies and 24 concessionaires. Products are sold also to over 150,000 customers owning small tanks, while the sale network of LPG bottles includes over 11,000 outlets. In the past few years LPG pipelines were developed and over 13,000 customers are served through direct links with 95 storage facilities.

Outside Italy Eni is also present in Ecuador with a 36.4% market share in 2005.51

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Lubricants

Eni operates eight8 (owned and co-owned) blending plants, in Italy, Europe, North and South America, Africa and the Far East.

In Italy Eni isEast which manufacture finished and fatty lubricants. With a market leader in lubricants with the manufacturing of base oils and with awide range of products includingcomposed of over 650 different blends.blends, Eni masters international state-of-the-art know-how for the formulation of products for vehicles (engine oil, special fluids and transmission oils) and industries (lubricants for hydraulic systems, industrial machinery and metal processing).

In Italy Eni is a leader in the manufacture and sale of lubricant bases. Base oils are manufactured primarily at Eni’sits refinery in Livorno. Eni also owns two facilitiesone facility for the production of additives and solvents. solvents in Robassomero.

In 2005,2006, retail and wholesale sales in Italy amounted to 133,000 tonnes136 ktonnes with a 23.9%24.9% market share. Eni also sold approximately 5,000 tonnes4 ktonnes of special products (white oils, transformer oil and anti-freeze fluids).

Outside Italy sales amounted to approximately 139,000 tonnes,102 ktonnes, of these about 50% were registered in Europe (mainly Germany, the Netherlands and Spain).

Oxygenates

Eni, through its subsidiary Ecofuel (Eni’s interest 100%), sells about 2 million tonnes/mmtonnes/y of oxygenates, mainly MTBE (9% of world demand) and methanol. About 67% of products are manufactured in Eni’s plants in Ravenna, Venezuela (in joint venture with Pequiven) and Saudi Arabia (in joint venture with Sabic), while the remaining 33% is bought from third parties. In Venezuela, Eni plans to convert its MTBE plants to the manufacture of isoethane, due to the environmental problems posed by MTBE.

Capital Expenditure

See "Item 5 – Liquidity and Capital Resources – Capital Expenditure by Segment".

 

Petrochemicals

Eni operates in the businesses of olefins and aromatics, basic and intermediate products, chlorine derivatives, polystyrene, elastomers and polyethylene. Its major production sites are located in Italy and Western Europe.

In 20052006, sales of petrochemical products (5,376,000 tonnes) were up 189,000 tonnes, or 3.6%(5,276 ktonnes) decreased by 100 ktonnes from 2004, reflecting primarily higher sales of intermediates (up 13%2005, down 1.9%. The main factors for the decline concerned: (i) basic petrochemicals (down 4.6%), olefins (up 8.8%) and aromatics (up 6%) relateddue to positive demand, higherlower product availability andas a consequence of the fact that intermediate sales, in particular acetone and phenol, declined inoutage of the first quarter of 2004 following a standstillPriolo cracker due to an accident occurred at the Porto Torres dock.nearby refinery; (ii) elastomers (down 2.3%), due to a slow recovery of the Ferrara and Ravenna plant performance after maintenance activities carried out in the first half of the year; and (iii) intermediates (down 10.4%), due to weak demand. These increasesnegatives were offset in part by a decline in: (i)increased sales of polyethylene (up 3.2%) and aromatics (in particular, xylenes up 4.8%), reflecting good market conditions.

Production (7,072 ktonnes) declined by 209 ktonnes from 2005, down 2.9%, in particular in elastomers, (down 4.5%) related mainlypolyethylene and basic petrochemicals, where lower production due to the standstill of the polychloroprene rubberPriolo cracker was offset in part by higher production at the Porto Marghera, Sarroch and Dunkerque plants. Styrene production also increased, reflecting poor performance in 2005 from plant in Champagnier, France; (ii) styrene (down 2.6%) related to standstillsoutages and shutdowns; and (iii) polyethylenes (down 2.3%) due to weak demand for LDPE and LLDPE.technical issues.

At December 31, 2005, Eni’s sales network covered 17 countries, with Italy accounting for 51% of sales, the rest of Europe for 44% and the rest of the world for 5% (54%, 40% and 6%, respectively in 2004).

Production (7,282,000 tonnes) was up 164,000 tonnes from 2004, or 2.3%, in particular in basic petrochemicals. Nominal production capacity declined 1.8% from 2004 due mainly to revisionswas in line with 2005. Rising nominal capacity in a few crackers was offset in part by the outage of the nominal capacity of the GelaPriolo cracker and the shutdown of the DMC and ABS plants in Ravenna. The averagerelated plants. Average plant utilization rate calculated on nominal capacity was up 3declined by 2 percentage points from 75.278.4% to 78.476.4%, mainly due mainly to fewer maintenance standstills.lower production volumes.

About 35.8%Approximately 35.2% of total production was directed to Eni’s own productionproductions cycle (36.7%(35.8% in 2004)2005). Oil-based feedstocksfeedstock supplied by Eni’s Refining & Marketing segmentDivision covered 23%10% of requirements (22%(23% in 2004)2005).

Prices of Eni’s main petrochemical products increased on average by 12%; all business areas posted increases. The most relevant increases were registered in: (i) olefins (up 16.5%), in particular ethylene and propylene; (ii) aromatics (up 19.6%), in particular xylenes; (iii) polyethylene (up 12%) with increases in all products; (iv) styrenes (up 8.2%), in particular styrene and polystyrenes; and (v) elastomers (up 4.2%), in particular BR and TPR rubbers.

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The table below sets forth Eni’s main petrochemical products availability for the periods indicated.

	Year ended December 31,

	2001		2002 (1)		2003 (1)		2004		2005

	2002		2003		2004		2005		2006

(thousand tonnes)(ktonnes)

Basic petrochemicals		6,119			4,304			4,013			4,236			4,450
Styrene and elastomers		1,537			1,538			1,635			1,606			1,523
Polyethylene		84			1,274			1,259			1,276			1,309
Polyurethane		91
		7,831			7,116			6,907			7,118			7,282
Internal consumption		(3,185	)		(2,607	)		(2,651	)		(2,616	)		(2,606	)
Purchases and change in inventories		588			984			1,010			685			700
Total products		5,233			5,493			5,266			5,187			5,376

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Basic petrochemicals		4,304			4,013			4,236			4,450			4,275
Styrene and elastomers		1,538			1,635			1,606			1,523			1,545
Polyethylene		1,274			1,259			1,276			1,309			1,252
		7,116			6,907			7,118			7,282			7,072
Internal consumption		(2,607	)		(2,651	)		(2,616	)		(2,606	)		(2,488	)
Purchases and change in inventories		984			1,010			685			700			692
Total products		5,493			5,266			5,187			5,376			5,276

(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. Data for years preceding 2002 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,

	2001		2002 (1)		2003 (1)		2004		2005

	2002		2003		2004		2005		2006

(thousand tonnes)(ktonnes)

Basic petrochemicals		3,928		2,894		2,704		2,766		3,022
Styrene and elastomers		1,138		1,151		1,171		1,038		1,003
Polyethylene		84		1,448		1,391		1,383		1,351
Polyurethane		83
Total sales		5,233		5,493		5,266		5,187		5,376

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(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. Data for years preceding 2002 have not been reclassified.

Basic petrochemicals		2,894		2,704		2,766		3,022		2,882
Styrene and elastomers		1,151		1,171		1,038		1,003		1,000
Polyethylene		1,448		1,391		1,383		1,351		1,394
Total sales		5,493		5,266		5,187		5,376		5,276

 

Basic petrochemicals

Sales of basic petrochemicals (3,022,000 tonnes) increasedof 2,882 ktonnes declined by 256,000 tonnes256 ktonnes from 2004, up 9.3%2005, down 4.6%, mainly due to increasesthe outage of the Priolo cracker. Declines were registered in all basic chemicals businesses.

In olefins (down 1.5%), intermediates (down 10.4%) and benzene (down 23%). Increasing sales in xylene (up 8.8%4.8%) sales ofand ethylene (up 10.7%), propylene (up 5.8%3.2%) and butadiene (up 33.6%) increased due to high demand from the Far East. In aromatics (up 6%) sales of the most remunerative products (paraxylene up 13.5% and metaxylene up 35.1%) increased supported by a particularly lively market. In intermediates (up 13%) phenol sales increased 16.7% and acetone sales increased 11.1% related to a positive trend in demand and the fact that in the first quarter of 2004 sales declined due to a standstill for an accidentreflected higher product availability at the Porto Torres dock.other plants.

Basic petrochemical production (4,450,000 tonnes) increased(4,275 ktonnes) decreased by 214,000 tonnes from 2004 (up 5.1%) due to increases registered in all businesses (olefins up 3.8%, aromatics up 8.4%, intermediates up 7%)175 ktonnes, down 3.9%.

Increased olefin Lower production derived mainlyresulting from the Brindisi (up 19.9%), Dunkirk (up 12%) and Priolo (up 8.1%) crackers. Declines concerned Gela (down 26.7%) where only one linecracker outage was active andoffset in part by higher production at the Porto Marghera (down 13.2%) due to a planned maintenance standstill.and Dunkerque.

Styrene and elastomers

Styrene sales (581,000 tonnes) decreased(587 ktonnes) were slightly higher from 2005 (up 1.1%). Increasing sales in styrene reflected higher production availability. Declines were registered in compact polystyrene (down 1.5%) due to a lack of feedstock owing to the outage of the Priolo cracker and in ABS/SAN due to the outage of the EniPower power station with a negative impact on the Mantova plant.

Elastomers sales (413 ktonnes) increased by 16,000 tonnes1.2% from 2004, down 2.6%, due mainly to lower ABS/SAN availability (down 23.6%) related to2005 excluding the impact of the shutdown of the RavennaChampagnier plant in April 2005 and lower availabilitythe second half of 2005. Increases concerned all products, with the exception of BR rubbers (down 8%) due to a maintenance standstill of the Ravenna Neocis plant.

Styrene production (1,088 ktonnes) increased by 3.8% reflecting mainly technical accidents caused by power cutoffsissues and a maintenance standstill that occurred at the Mantova plant in the last quarter of 2005. This decline was offset in part by the 2.8% increase in expandable polystyrene sales pushed by the strong increase in demand especially in Eastern Europe, in particular for increased consumption in the segment of thermal insulation and industrial packaging.

Elastomer sales (422,000 tonnes)production (457 ktonnes) decreased by 19,000 tonnes from 2004, down 4.5%, due mainly to1.3% excluding the standstillimpact of the shutdown of the Champagnier plant, (polychloroprene rubbers) and the decline in SBR (down 12.7%) and TPR (down 2.5%) rubber due to a declineweak demand in demand related to the crisis in the shoe manufacturing industry. These declines were offset in part by an increase in sales of EPR rubber (up 19.6%BR (down 8.5%) and latex (up 7.5%SBR (down 3.6%), due to lively demand.

rubbers. Production volumes of styrene (1,048,000 tonnes) declined by 70,000 tonnes from 2004, due mainly to plant shutdowns and standstills.

Elastomers production (475,000 tonnes) decreased by 13,000 tonnes or 2.5%, due to plant standstills and a declining demand for SBR rubber (down 4.8%) and BR (down 4.2%), while demand for EPR rubber (up 13.7%) and latex (up 11%)other rubbers increased in line with the increasetrends in demand.

Polyethylene

Sales of polyethylene (1,351,000 tonnes) decreasedPolyethylene sales (1,394 ktonnes) were up 43 ktonnes or 3.2%, from 2005, reflecting positive market conditions for LLPDE (up 9.3%) and HPDE (up 1.5%). These increases were offset by 32,000 tonnes from 2004, down 2.3%, due to a decline in demand for all products, in particular LDPEEVA (down 3.4%3.7%) and LLDPE (down 1.9%), also due increasing competition from imported products.to certain technical issues at the Oberhausen plant.

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Production (1,309,000 tonnes) increased(1,252 ktonnes) declined by 33,000 tonnes57 ktonnes, or 2.6%4.4%, due mainly to increases in LLDPE (up 8%), due to the flexibility atstandstill of the Brindisi plant that produced mainly LLDPE in its high pressure line, while HDPE production declined (down 6%).
Priolo cracker and related plants.

Capital Expenditure

See "Item 5 – Liquidity and Capital Resources – Capital Expenditure by Segment".

 

Oilfield ServicesEngineering & Construction and Engineering

Eni operates in engineering, oilfield services and construction both offshore and onshore through Saipem, a company listed on the Italian Stock Exchange (Eni’s interest 43%), operating in offshore and onshore drilling and construction and LNG.

Eni, through its subsidiary Snamprogetti (100% Eni), is engaged in engineering and contracting. Saipem boasts solid competitive positions in the area of plants for hydrocarbon production, treatment and transport, for the liquefaction and treatment of natural gas, for the conversion of heavy residues from conventional and non conventional crudes, for the chemical industry, for power generation, infrastructure and environmental protection.

Orders acquired in 2005 amountedrelevant markets thanks to euro 8,188 million. Approximately 89% of new orders acquired were represented by work to be performed outside Italy, and 11% by work originated by Eni companies. Order backlog was euro 9,964 million at December 31, 2005 (euro 8,521 million at December 31, 2004). Projects to be carried out outside Italy represented 88% of the total order backlog, while orders from Eni companies amounted to 7% of the total.

On February 24, 2006, Saipem agreed to purchase the entire share capital of Snamprogetti owned by Eni SpA. The transaction was closed on March 27, 2006. The integration of the companies will boost their role in the development of Eni’s oil & gas core business.

Orders acquired and order backlog
			2003		2004		2005

Orders acquired		(million euro)		5,876		5,784		8,188
Oilfield Services Construction				4,298		4,387		4,735
Engineering				1,578		1,397		3,453
Originated by Eni companies		(%)		11		14		11
To be carried out outside Italy		(%)		91		90		89
Order backlog		(million euro)		9,405		8,521		9,964
Oilfield Services Construction				5,225		5,306		5,513
Engineering				4,180		3,215		4,451
Originated by Eni companies		(%)		10		8		7
To be carried out outside Italy		(%)		81		84		88

Oilfield Services and Construction

Saipem intends to consolidate its competitive positioning in the segment of large offshore projects for the development of hydrocarbon fields and the construction of large export infrastructure by leveraging on its technological and operational skills, engineering and project management capabilities and ability to operate in complex environments.environments, owing also to the integration with Snamprogetti. Leveraging on these assets, Saipem plans to address key success factors of the market represented by the ability to evaluate risks in the bidding phase, technological innovation, ability to manage efficiently the execution of projects by delocalizing support activities to low cost areasstrengths and enhancing local contents by employing local resourcesrising demand for drilling equipment and creating decentralized logistical bases.

oilfield services, Saipem intends to carry out the following fundamental strategies: (i) gain market share in the field of large offshore and onshore projects for the development of hydrocarbon fields; (ii) develop its presence and enterin the strategic segmentsfield of gas monetization of natural gas (GTL, LNG) and heavy crude upgrading, of heavy crudes by developing the required skills and resources mainly in the engineering and project management phases. It also plans to expand in the leased FPSO business andincluding expansion in floating LNG treatment systems for liquefaction and regasification of LNG.

Saipem intends toLNG; (iii) intensify efficiency improvement actions in all its activities, in particular by reducing supply and execution costs while maintaining a high utilization rate of equipment and improving its flexible structure in order to reduce the impact of possible negative cycles.cycles; and (iv) support Eni’s investment plans.

The most significantOrders acquired in 2006 amounted to euro 11,172 million. Approximately 91% of new orders won in 2005 in oilfield servicesacquired were represented by work to be performed outside Italy, and construction were:

In the Offshore construction area: in West Africa: two turnkey contracts were awarded: (i) the first one for Total Upstream Nigeria for the installation and operation of underwater, umbilical and riser pipelines; and the construction of an unloading terminal, a mooring system for the FPSO vessel and the laying of a pipeline. Works will24% by work originated by Eni companies. Order backlog was euro 13,191 million at December 31, 2006 (euro 10,122 million at December 31, 2005). Projects to be carried out byoutside Italy represented 90% of the Saibos FDS and total order backlog, while orders from Eni companies amounted to 20% of the total.

			2004		2005		2006

Orders acquired		(million euro)		5,784		8,395		11,172
Offshore construction				2,867		3,096		3,681
Onshore construction				2,535		4,720		4,923
Offshore drilling				107		367		2,230
Onshore drilling				275		212		338
Originated by Eni companies		(%)		14		11		24
To be carried out outside Italy		(%)		90		90		91
Order backlog		(million euro)		8,521		10,122		13,191
Offshore construction				3,420		3,721		4,283
Onshore construction				4,488		5,721		6,285
Offshore drilling				317		382		2,247
Onshore drilling				296		298		376
Originated by Eni companies		(%)		8		7		20
To be carried out outside Italy		(%)		84		88		90

Business areas

Offshore construction

Saipem 3000 vessels; and (ii) the second one for Esso Exploration Angola Ltd for the engineering, procurement, construction and installation of subsea lines for the Marimba field development in Block 15; in Indonesia: two turnkey contracts for BP Berau Ltd for the construction of two platforms and the related underwater pipelines linking the Tangguh field with the gas liquefaction plant onshore; and in Thailand: a turn key contract for Thai Oil Public Company Ltd for the construction of unloading facilities to supply oil to a refinery in Sri Rachais well positioned in the Gulfmarket of Siam. Works will be performed in 2007, and the installation will be carried out by Castoro 8 vessel.

In the Leased FPSO area a contract for Petrobas for the conversion of an oil tanker into the new Vitoria FPSO vessel with a production capacity of 100,000 BBL/d and a storage capacity of 1,600,000 BBL for the development of the Golfinho 2 field offshore Brazil at a depth of 1,400 meters.

In the Offshore drilling area two contracts were acquired. The first one for Total Exploration and Production Angola, involving the deep water drillship Saipem 10000 for activities to be performed on the Rosa field for two years plus the option of a further two years. The second one for Burrullus Gas Company involves the renewal of contract for the semi-submersible Scarabeo 6 for three months in Egypt.

In the Liquefied Natural Gas area two contracts were awarded: (i) the first one, in association with Technip and Zachry, for the engineering and procurement of tanks for an LNG regassification terminal on the Quintana island in Texas; and (ii) the second one, in consortium with the Mexican company Gutsa, for the construction of infrastructure for the mooring and dry-docking of tankers at the Costa Azul in Mexico.

In the Onshore construction area two turnkey contracts were acquired: (i) the first one for Saudi Aramco to convert the existing East-West pipeline from oil to gas transport. It includes also fabrication, construction, installation and commissioning of new sections of East-West line and related facilities. Works will be performed in early 2008; and (ii) the second one for Sonatrach-Sonelgaz for the engineering, procurement and construction of a gas-fired power station.

In the Onshore drilling a contract for the North Caspian Sea consortium for drilling activities in Block D of the Kashagan field utilizing two drillings rigs owned by the client. Activities will be performed for five years.

Business areas

OFFSHORE CONSTRUCTION
Saipem is able to execute large, complex projects for the development of offshore hydrocarbon fields by integratingleveraging on its technical and operational skills, supported by a technologically advancedworld-class fleet, and the ability to operate in complex environments, withand engineering and project management capabilities acquired on the market (among which Bouygues Offshore, Moss Maritime, Petromarine, Idpe). The services thatover recent years. Saipem can currently provideintends to enhance its customers can cover the main market segments such as: (i) floating production units (FPU); (ii) underwater developments; (iii) fixed platforms; and (iv) pipelines. Management expects the demand for these services to increase in particular in the FPU and underwater development areas, due to the increased share of deep water development projects. Key areas are West Africa, Asia Pacific, and Latin America.

Saipem operates in the area of deep offshore hydrocarbon field development by means of the constructionstrengthening its EPIC oriented business model and installationits relationships with major oil companies and NOCs. Higher levels of FPUs. Among FPUs, FPSO vessels offer the main interesting market prospects dueprofitability are expected to their storage capacity, which allowsbe achieved through outsourcing certain engineering and building activities to develop fields remote from transport infrastructure,low cost centers. Investments will be focused on constantly upgrading and improving technical characteristics and capabilities of Saipem’s world-class fleet, and to their versatility, which allows at the end of the useful life of a field to relocate vessels on other fields thus expanding their useful life.

Saipem is engaged in the segment of underwater development in the deep offshore, which includes laying of small diameter pipes, umbilical lines, risers and other sub sea structures thanks to the design ability of its engineering structures and the installation capacity of its vessels. Saipem is also engaged in the segment of design, procurement and installation of fixed platforms, in particular in the segment of ultra heavy lifting, thanks to the technical features of its vessels. Saipem is able to execute the laying of large diameter long distance subsea pipelines and transport infrastructure both in conventional and deep offshore.build local construction centers.

Its offshore construction 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, a semi-submersible vessel with dynamic positioning system, with 14,000 tonnes14 ktonnes of lift capacity (the highest of this kind in the world), capable to lay pipelines using the J-lay technique to the maximum depth of 3,000 meters.

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This vessel has been used to lay the Blue Stream pipeline in the waters of the Black Sea at the record depth of 2,150 meters; (ii) the Saibos FDS for the development of underwater fields in dynamic positioning, provided with cranes lifting up to 600 tonnes and a system for j-layJ-lay pipe laying to a depth of 2,000 meters; (iii) the Castoro 6 semi-submersible vessel, capable of laying pipes in waters up to 1,000 meters deep; (iv) the Saipem 3000 multifunction vessel for the development of hydrocarbon fields, derived from the transformation of the Maxita that can lay rigid and flexible pipes and is provided with cranes capable of lifting over 2,000 tonnes;2 ktonnes; and (v) the Semac semisubmersiblesemi-submersible vessel used for large diameter underwater pipe laying. The fleet also includes also remotely operated vehicles (ROV), highly sophisticated and advanced underwater robots capable of performing complex interventions in deep waters.

OFFSHORE DRILLING
In February 2007, a contract for the construction of a new pipe layer has been signed. The unit, with a carrying capacity of 25 ktonnes and a lifting capacity of 600 tonnes by means of crane, will be manufactured in China.

The most significant orders won in 2006 in Offshore construction were: (i) a contract for the conversion of an oil tanker into an FPSO unit with production capacity of 1.8 mmBBL for the development of the offshore Gimboa field in Angola for Sonangol P&P; an EPIC contract for Burullus Gas Co for the construction of underwater systems for the development of eight new wells within the expansion plan of the Scarab/Saffron and Simian fields offshore in the Nile Delta; an EPIC contract for CNR International Ltd for the construction of three wellhead towers, a support platform, and interconnecting pipelines and umbilicals within the development of the offshore Olowi field in Gabon.

Onshore construction

Saipem operates in the construction of plants for hydrocarbon production (separation, stabilization, collection of hydrocarbons, pumping stations, water injection) and treatment (removal and recovery of sulfur dioxide and carbon dioxide, fractioning of gaseous liquids, recovery of condensates) and in the installation of large onshore transport systems (pipelines, compression stations, terminals). Saipem intends to capture opportunities arising from expected increasing demand from oil majors, by leveraging on its solid competitive position and integration with Snamprogetti engineering capabilities.

The main operation areas are Africa and the Middle East. Saipem also boasts an established presence in remote areas such as the Caspian Sea and Far East Russia, leveraging on its ability to operate in hostile environments, managing complex projects and enhancing local content, in addition to providing on land services complementing offshore activities (key factor in projects in areas such as the Caspian Sea).

The most significant orders won in 2006 in Onshore construction were: (i) an EPC contract for Saudi Aramco for the construction of four trains for gas and crude separation with a total capacity of 1.2 mmBBL/d and production facilities within the development of the onshore Khursaniyah field in Saudi Arabia; (ii) an EPC contract for Shell Petroleum Development Co of Nigeria for the laying of pipelines, flowlines and composite fiber optic and high voltage electrical cables within the development Gbaran project. The contract was won in consortium with Desicon Engineering Ltd; and (iii) an EPC contract for Canaport LNG for the construction of a regasification terminal, inclusive of auxiliary facilities for gas offloading, pumping, vaporization and transmission, in addition to two storage tanks. The contract was won in consortium with the Canadian company SNC - - Lavalin.

Offshore drilling

Saipem provides offshore drilling services to oil companies mainly in key areas such as West Africa, the North Sea and the Mediterranean Sea, it operatesSea. It boasts significant market positions in the most complex segments of deep and ultra deep offshore. Management expects demand forultra-deep offshore drilling services to increase steeply in the short to medium-term according to the exploration plans announced by the major oil companies. Management expects unit tariffs to be supported by a shortage of supply. West Africa is confirmed as one of the most attractive areas. Saipem can seize these market opportunities by leveraging on the outstanding technical features of its equipment. drilling platforms and vessels, capable of drilling holes at a maximum depth of 9,200 meters. Demand for drilling services is expected to increase in future years reflecting exploratory and development plans of oil majors, leading to a substantial rise in tariffs due to current equipment shortage. In view of this, Saipem is planning to build a new drilling rig capable of reaching a 10,000 meter drilling depth.

Its offshore drilling fleet consists of 10 vessels properly equipped for its primary operations and some drilling plants installed on board of fixed offshore platforms. One of its most important offshore drilling vessels is the Saipem 10000, designed to explore and develop hydrocarbon reservoirs operating in excess of 3,000 meters water depth in full dynamic positioning. The ship has a storage capacity of 140,000 BBL and 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 $300 million. The vessel is operating in ultra deep waters (over 1,000 meters) in West Africa.

Other relevant vessels are Scarabeo 5 and 7, third and fourth generation semi-submersible rigs able to operate at depths of 1,900 and 1,200 meters of water, respectively.

LEASED/SALE FPSO
Saipem provides to oil companies servicesThe most significant contracts awarded in Offshore drilling during the period include: (i) a 16-month long contract for the development of offshore hydrocarbon fields by leasing its FPSO vessels. Following acquisitions carried out in recent years (in particular Moss Maritime and Bouygues Offshore), Saipem significantly strengthened its design skills. The leasing of an FPSO represents an alternative to direct expenditure for oil companies. West Africa and Latin America are the markets with the highest expected growth rates due to the number of development projects announced or started-up by oil companies. Saipem’s main vessels are: (i) FPSO Firenze, a tanker ship which, after its conversion into a floating production and storage vessel, has been installed in Eni’s Aquila field, in the Adriatic Sea, where it operates at a depth of 850 meters; and (ii) FPSO Mystras that has been installed since January 2004 in the Okono and Okpoho oil fields operated by Eni with a 100% interest in the deep offshore of Nigeria. Saipem intends to expand its market share in this business and plans to upgrade its offer by adopting the new generic FPSO vessels, designed and equipped in direct cooperation with the client in order to identify standard features that make the vessel easily employable in more than one development project according to the client’s portfolio of fields. In this light, Saipem is building its new Vitoria unit that will be operating on the Golfinho 2 field in the offshore of Brazil.

ONSHORE CONSTRUCTION
Saipem operates in the construction of plants for hydrocarbon production (separation, stabilization, collection of hydrocarbons, pumping stations, water injection) and treatment (removal and recovery of sulphur dioxide and carbon dioxide, fractioning of gaseous liquids, recovery of condensates) and in the installation of large onshore transport systems (pipelines, compression stations, terminals). The demand for this kind of services from the oil industry is expected to increase in the medium-term, in particular long distance pipelines represent oneuse of the favorite systemssemi-submersible drilling platform Scarabeo 7 in Nigeria for linking production areas with their end markets, despiteExxonMobil; (ii) a 49-month long contract for the increasing competition from other transport modes (LNG, GTL). The main operation areas are Africause of the semi-submersible drilling platform Scarabeo 5 in Norway for Statoil; and (iii) a 27-month long contract for the Middle East. Saipem also boasts a consolidated presenceuse of the semi-submersible drilling platform Scarabeo 3 in remote areas such as the Caspian Sea and Far East Russia, leveraging on its ability in operating in hostile environments, managing complex projects and enhancing local content, in addition to providing on land services complementing offshore activities (key factor in projects in areas such as the Caspian Sea). Saipem intends to consolidate its competitive positioning in the strategic segment of monetization of natural gas (GTL, LNG) and upgrading of heavy crudes by upgrading and acquiring the skills and resources necessary in the engineering and project management phases, which are key factors in this segment characterized by large EPC contracts. The acquisition of Snamprogetti is a key step in this direction.Nigeria for Addax Petroleum.

ONSHORE DRILLING
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Onshore drilling

Saipem operates in this area as main contractor for the major international oil companies performingexecuting its activity mainly in Saudi Arabia, North Africa and Peru, where it can leverage on its knowledge of markets, long-term relations with customers and integration with other business areas. Saipem also boasts a long standing presence in remote areas (such as the Caspian Sea) based on its operating skills and ability to operate in hostile environments. Onshore drilling is conducted through 23 drilling platforms and 15 workover plants that can drill to 10,000-meter depths in high pressure and high temperature environments.

LNG
Saipem operatesThe most significant orders won in the LNG segment following its purchase of Bouygues Offshore and Moss Maritime which contributed their experience2006 in the LNG chain, complementary to the onshore and offshore transport of natural gas. The markets offering the highest potential are Asia, Europe and the Americas. Services provided by Saipem include:Onshore drilling were: (i) the onshore segment which, according to management, shows interesting growth prospects, where Saipem is engagedfirst one for PDVSA the charter of a rig in the design and construction of regasification terminals, storage tanks and in the design of gas tanker ships. Saipem also intends to acquire skills and critical mass in liquefaction;Venezuela for five years; and (ii) the offshore segment, that includes FSRU (Floating Storage Regasification Units) and FNLG (Floating Liquefaction plantssecond one for Natural Gas) integrated systems which, according to management, show interesting growth prospects inEniRepsa, the medium-term due to their lower environmental impact and greater flexibility as compared to other systems. Saipem intends to develop its presence in this segment.

MAINTENANCE, MODIFICATION & OPERATION
Saipem is also present in the MMO business which complements the company’s activities and provide interesting growth prospects for the increasing tendency of oil companies to outsource these services (both routine work and upgrading/revamping) and for the development of remote areas for hydrocarbon production. Saipem is capable of seizing the opportunities provided by this segment by leveraging on its specialized know-how also as project manager, on its resources and network of logistical bases.

Engineering

Snamprogetti intends to consolidate its competitive positioning in the market of high complexity onshore projects, mainly in the strategic segments of oil and gas, natural gas monetization (GTL, LNG) and ethylene. In order to attain this objective, Snamprogetti intends to focus on the role of the main contractor, leveraging on its skills in terms of project management capabilities, a wide and integrated array of services provided and availability and continuing development of proprietary technologies.

Snamprogetti intends to expand the supply of qualified services in the phases of front end loading of projects (feasibility studies, conceptual, basic and front end engineering and project management) mainly to major clients and as a support to Eni’s investment plans.

It plans also to intensify actions for improving operational efficiency and flexibility also through the rationalization of its operating structure, full utilization rates of low cost engineering and fabrication centers, the optimization of procurement, the adoption of the most stringent international best practices in terms of working tools and methods and the hiring of highly qualified resources.

Snamprogetti intends to continue enhancing its proprietary portfolio of technologies by means of support activities to the development on an industrial scale of technologies in strategic areas, such as the conversion of heavy crudes and high pressure transmission of natural gas, and the development of know-how in the field of the manufacture of high quality fuels and in the area of natural gas monetization (GTL, syngas, methanol, ammonia, urea).

In 2005, the engineering order backlog increased by euro 1,236 million due in particular to the recovery ongoing in reference markets, in particular the following contracts were awarded: (i) an EPIC contract for Abu Dhabi Gas Industries (GASCO) for the constructioncharter of a single line plant with a treatment capacity of 24,400 tonnes/y of LNG at the Ruwais complex in the United Arab Emirates. Works include also the construction of storage facilities, new port infrastructure and the provision of ancillary services; (ii) the Escravos GTL project in Nigeria, in joint venture with U.S. company KBR for Chevron for the construction of a 34,000 BBL/d plant for the production of diesel fuel, naphtha and LPG; and (iii) the Hawiyah GTC projectrig in Saudi Arabia, for Saudi Aramco fordue to perform the constructiondrilling of four wells, plus the option of a natural gas treatmentfurther two wells. The duration of this contract is estimated at approximately two years.

Capital Expenditure

See "Item 5 – Liquidity and compression plant with a capacity of 31,000 BBL/d.

Business areas

PLANTS
Oil & Gas Snamprogetti is engaged in the execution of complex and technologically advanced projects in the area of plants for hydrocarbon production, natural gas treatment and monetization (LNG; recovery and fractioning of natural gas liquids). Based on the capital expenditure plans announcedCapital Resources – Capital Expenditure by oil companies, Snamprogetti expects a growth in the demand for services in these areas. In particular the segment of transport and treatment of natural gas seems the most dynamic due to the progressive globalization of demand and supply of natural gas. Snamprogetti intends to consolidate its know-how in natural gas treatment by means of acquiring and developing needed competence in particular in the business of liquefaction. Significant capital expenditures for expanding liquefaction and regasification capacity of about 130 million tonnes/y of LNG (equivalent to 180 BCM/y) are expected in the next four years.

Refining Snamprogetti is engaged in the segment of conventional plants (grass root refineries and refining units) and in the segment of plants for the hydroconversion and hydrotreatment of heavy residues and distillates. Snamprogetti intends to seize the growth opportunities of the business of plants for heavy residue conversion and production of clean fuels. Growth in this business is supported by the wider availability of heavy crudes and by the increasingly stringent environmental requirements on emissions established worldwide. At Eni’s Taranto refinery the first demonstration plant with 1,200 BBL/d capacity based on the Eni Slurry Technology is nearing completion. This technology has a high strategic value and aims at meeting the increasing demand for upgrading of heavy crudes and non conventional crudes (tar sands) and for conversion of refining residues (see: "Innovative Technologies" below)Segment".

Chemical complexes Snamprogetti is engaged in the area of plants for the conversion of natural gas (syngas, GTL, hydrogen, ammonia, methanol and urea) and gas-to-chemicals (ethylene and ethane derivatives). Snamprogetti plans to grow in the strategic segment of conversion of natural gas to liquids (GTL) for the manufacture of high value added products (LPG, diesel fuel and virgin naphtha); in this segment, where syngas is a critical element, Snamprogetti owns a proprietary technology through its subsidiary Haldor Topsøe. Snamprogetti holds a sound position in the design and construction of plants for the production of nitrogen-based fertilizers and high-octane additives for gasoline (MTBE, ETBE, TAME and iso-octene/iso-octane), based on proprietary technologies. Snamprogetti intends to strengthen its competitive position in the segment of world scale plants for ammonia and urea production, demand for which is supported by increasing consumption in Asia, with capital expenditure in new capacity concentrated in areas where gas has a competitive price (Middle East, Africa, Latin America). Snamprogetti intends to seize the opportunities for the construction of plants for the manufacture of world scale ethylene in particular in areas where feedstocks have a low price (especially the Middle East). Snamprogetti intends to seize this opportunity leveraging on its skills.

Energy Snamprogetti is active in the design and construction of combined cycle power stations also fired with refinery residues (IGCC - Integrated Gasification Combined Cycle). Snamprogetti intends to make use of the relevant know-how it acquired in the construction of EniPower power stations searching for new projects in Italy and outside Italy.

FIELD UPSTREAM FACILITIES AND PIPELINES
Snamprogetti is engaged in the design and construction of pipelines for the transport of hydrocarbons, collection networks and upstream plants (construction of primary separation plants, gas and water injection systems, compression and pumping stations), the demand for which is expected to grow. Snamprogetti is developing new advanced technologies for high pressure transport of natural gas aimed at the monetization of reserves located in remote areas (see: "Innovative Technologies" below).

INFRASTRUCTURE
Snamprogetti is active in the field of design and construction of great infrastructure in Italy. In particular it is working at the completion of the high speed/high capacity train tracks from Milan to Bologna.

AQUATER - ENVIRONMENTAL ACTIVITIES
Snamprogetti, through its Aquater - Environmental Activities division, is active in the field of projects for environmental remediation and reclamation, protection of the soil and integrated water systems in the framework of the optimization of compatibility of industrial development and environmental protection. The division provides a wide range of engineering services for the soil, the environment and natural resources and is active both as a consultant and as a main contractor in the area of environmental remediation, reclaiming of plants, waste management, water purification and civil works.

CEPAV UNO AND CEPAV DUE
Snamprogetti holds interests in the CEPAV Uno (50.36%) and CEPAV Due (52%) consortia that in 1991 signed two contracts with TAV SpA for the construction of the tracks for high speed/high capacity trains from Milan to Bologna (under construction) and from Milan to Verona (in the design phase).

As part of the project for the construction of the tracks from Milan to Bologna, an addendum to the contract between CEPAV Uno and TAV SpA was signed on June 27, 2003, redefining certain terms and conditions of the contract. In 2005, the consortium CEPAV Uno requested a time extension for the completion of works and an additional payment amounting to approximately euro 800 million. CEPAV Uno and TAV failed to solve this dispute amicably, and on April 27, 2006, CEPAV Uno notified TAV of a request for arbitration, as provided under the terms of the contract.

At the end of 2005, CEPAV Uno Consortium had completed works corresponding to 71% of the total contractual price in line with the contractual obligations.

As concerns the Milan-Verona portion, in December 2004 CEPAV Due presented the final project, prepared in accordance with Law No. 443/2001 on the basis of the preliminary project approved by an Italian governmental authority (CIPE).

The final project was due to be examined by TAV for final approval. CEPAV Due started an arbitration procedure against TAV for the recognition of damage related to TAV’s belated completion of its tasks. A final decision is expected late in 2006.

 

Other Activitiesactivities

Eni’s other activities are organized as follows:

•		the "Other Activities" aggregate of subsidiaries, including"Other activities" include only Syndial SpA (former EniChem), which manages certain decommissioningruns minor petrochemical activities and reclamation and decommissioning activities relatingpertaining to certain shut down industrial sites ofbusinesses which Eni and certain other Eni subsidiaries (such as, among others, Sieco, Tecnomare, EniTecnologie, Eni Corporate University and AGI) engageddivested in diversified activities (mainly services to Eni business segments, such as real estate services, general purposes services, corporate research, training); andpast years.
•		the "Corporate"Corporate and financial companies", including Eni Corporate and certainsome of Eni’s subsidiaries engaged in treasury services,and other services. Eni Corporate is the department of parent company Eni SpA performing Group strategic planning, human resources management, finance, administration, information technology, legal affairs, international affairs and corporate research and development functions. Through Enifin SpA, Società Finanziamenti Idrocarburi-SofidIdrocarburi - Sofid SpA, Eni International BV and Eni International BV,Insurance Ltd, Eni carries out lending, factoring, leasing and insurance activities, principally on an intercompany basis. It also encompasses Eni Corporate University, AGI and other subsidiaries engaged in diversified activities (mainly services to Eni business segments, such as real estate services, general purposes services, corporate research and training). Enifin was incorporated into the parent company Eni SpA effective January 1, 2007.

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.

 

Research and Development

InEni’s commitment to technological research and innovation activities Eni plansunderscores a fundamental belief that technology is key to implement a capital expenditure programme in the 2006-2009 four year plan in order to develop such technologies that management believes may ensureincrease our competitive advantages inadvantage over the long-term and to promote sustainable growth. Future global challenges require ingenuity and commitment: from the environmental and climate issues to the increasingly difficult access to hydrocarbon reserves large, but mainly controlled by producing countries; from the identification of relevant discontinuities in the production of energy from renewable sources to the optimization of production processes up to the resolution of problems existing in countries where Eni plans to continue developing existing programmes on clean fuels, sulphurhas been present for a long time or where it recently entered.

Eni is conducting research aimed primarily at reducing the costs of finding and greenhouserecovering hydrocarbons, upgrading heavy oils, monetizing stranded gas management as well as projects such asand protecting the upgrading of heavy crudes (EST), high pressure gas transmission (TAP) and Gas to Liquids (GTL).

In 2005, Eni’s costs incurred for research and development amounted to euro 204 million, of these 32% were incurred by Eni’s research department, 25% by the Exploration & Production segment, 24% by the Petrochemical segment and 13% by the Refining & Marketing segment. At December 31, 2005, a total of 1,420 persons were employed in research and development activities. In 2004, Eni’s costs incurred for research and development amounted to euro 257 million, of which 39% were incurred by Eni’s research department, 21% by the Exploration & Production segment, 21% by the Petrochemical segment and 12% by the Refining & Marketing segment. At December 31, 2004, approximately 1,470 persons were employed in research and development activities (1,400 at December 31, 2003).

Inenvironment. Over the next four years Eni plansintends to invest approximately euro 11.5 billion balancing resources between projects aimed at reaching short-term objectives for business units with group-wide projects aimed at strengthening medium to long-term business sustainability. In particular thesupport its research and development (R&D) strategy. More specifically, Eni’s main focus of Eni’s R&D lines are: (i) reserve replacement and reduction of mineral risk; (ii) production from non conventional hydrocarbon reserves and optimal management of reserves with high hydrogen sulfide and sulfur content; (iii) expansion in the natural gas market and utilization of associated gas and gas located in remote areas; (iv) improvement of quality and performance of fuels in light of the evolution of engines to increasingly perfected and efficient systems with lower impact on air quality; (v) fields regard:

•		reserve replacement and reduction of mineral risk;
•		production and monetization of non-conventional hydrocarbon reserves and optimal management of reserves with high hydrogen sulfide and sulfur content;
•		delivering more gas to market, monetizing associated gas and stranded gas;
•		improvement of fuel quality and performance in light of the evolution of engines to increasingly perfected and efficient systems with lower impact on the environment; and

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efficient use of fossil fuels through an improvement in refining yields and an optimal use of each fuel entailing a lower environmental impact.

With regard to environmental protection, Eni intends to develop the "Along with reduced environmental impact;Petroleum" program aimed at identifying and (vi) mitigationdeveloping research projects on the most advanced aspects of large scale use of renewable energy sources and energy efficiency. In particular, Eni expects to focus on the fields of greenhouse effect mitigation through thebio-fuels, photovoltaics, solar energy, hydrogen production from renewable sources as well as carbon dioxide capture and geological sequestrationsequestration.

In 2006 Eni invested euro 222 million (euro 204 million in 2005), of carbon dioxide.these 39% were directed to the Exploration & Production segment, 32% to the Refining & Marketing segment, 22% to the Petrochemicals segment and 7% to the Engineering & Construction segment.

FollowsAt December 31, 2006, a descriptiontotal of Eni’s key1,160 persons were employed in research and development projects.activities. In 2006 a total of 39 applications for patents were filed.

INNOVATIVE TECHNOLOGIES FOR SUBSOIL SURVEY
In order to prepare a geological modelA description of fields as near as possible to reality aimed at the simulation and monitoring of fields, main technologies under development or currently applied is provided below.

ADVANCED DRILLING SYSTEMS AND WELL TESTING
Eni developed significant industrial applications of highly innovative technologies. The main objective of these technologies is the reduction of mineral risk and the optimization of processes for extracting and recovering hydrocarbons.

In the area of seismic imaging, the further developments of the proprietary "3D Common Reflection Surface (CRS) Stack" technology found various industrial applications with much higher efficiency than conventional techniques. New depth imaging techniques based on proprietary algorithms can generate depth images with such high resolution that they allow a very precise physical characterization of reservoirs. A new 3D resistivity modeling interpretive technique has been developed for the petrophysical measurement of wells (electrical logs), especially suited for the identification of complex mineralization situations, such as thin strata of sand and clay. Initial field applications proved that this new approach contributes to the production of more accurate estimates of reserves in place.

DRILLING OF "ADVANCED WELLS"
Eni developed and applied at industrial level a series of innovative technologies that allowenabling to drill highly complex wells with greater operating efficiency. In particular, lean profile drilling,

The "Geosteering" project 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 and in environmental impact as it reduces the use of products for mud and cement and the resulting waste by about 30-40%.

Wells obtainedjoint venture with this technique are high quality and low risk. The technique 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 application underway 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°).

INNOVATIVE TECHNOLOGIES FOR THE TREATMENT OF LIQUIDS
In the field of transmission and treatment of hydrocarbons Eni developed and 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 oils from layer waters which allows to reduce the residual concentration of hydrocarbons in water to less than 10 ppm, starting from an initial content of over 1,000 ppm. The system is based on 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 projectShell aims at optimizing new design centrifugal systems for the separation of 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 contexts such as 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 infrastructure, thus significantly reducing technical costs for the development of fields. Infield applicationstechnologies capable of multiphase pumpingproviding geological information on not yet drilled layers (around the scalpel up to the surface) while drilling.

In 2006, various downhole prototypes have been recently installed offshoremade and onshore in the United Kingdom and Tunisia with other partnerssecond half of the year the technology was tested in ordera well. Testing is expected to obtain a higher recoverycontinue until the first half of hydrocarbons.2007.

MANAGEMENT OF HYDROGEN SULFIDEReferring to drilling activities, some new technologies have been tested:

•		Extreme Lean Profile, development of "slim" well techniques applicable to narrow wells;
•		Eni Circulation Device, avoids the danger of "keep of the bars" during the drilling activity;
•		Light Drill Pipe, based on the use of aluminum bars in strongly deviated wells; and
•		Zero Emission Well Testing, a field evaluation methodology by fluid injection (with no emissions) based on know-how and Eni’s software, as opposed to conventional pre-production tests.

NUMERIC AND SULFURHIGH RESOLUTION GEOPHYSICAL PROSPECTING TECHNIQUES
The Research & Development project forof the optimal management of reserves with high content of hydrogen sulfide and sulfur started in 2003 is continuing. The project aimed at developing innovative technologies and/or advanced processes"Steam 3D" oil system simulator, able to managerepresent the disposal and possible exploitationevolution of high amountscomplex geological structures over time, has been completed. Development continues on the proprietary CRS technology (3D Common Reflection Surface Stack) which aims to allow prospecting in areas characterized by low seismic response.

First application of sour gas and sulfur that are co-produced with hydrocarbons, while respecting safety and the environment. In particular innovative processes for the separation of hydrogen sulfide and its conversion into plain sulfur and the storage and/or use of this sulfur are in the development phase. In parallel innovative processes are being studied for the reinjection of hydrogen sulfide into the field and its monitoring.following technologies has been done:

•		CSEM (Controlled Source ElectroMagnetic), which enables Eni to collect data prior to drilling with regard to the presence of hydrocarbons, reducing exploration risk and increasing the reliability of reservoir measurements through electric resistivity of the seabed;
•		"Multipoint Statistic" and "Process Oriented Modeling" which help identify and locate producible reserves in a specific reservoir;
•		"Integrated Asset Modeling", which optimizes the development and the production of a field through the integration of oilfield models and onshore facilities;
•		First application of a proprietary technology specifically aimed at "tight reservoirs" which assists in foreseeing the productivity increase achievable through operations on induced fractures.

SULFUR MANAGEMENT
In 2006 the integrated research program calledSulfur and H₂S and sulphur management in Exploration & ProductionE&P operations will be completed. The program was aimed at identifying innovative solutions forrelated to the treatmenthandling of very sour gas. In particular significant progress was achieved in an innovative technology forgas with high H₂S bulk removal and in a newcontent has been completed. An innovative proprietary system called Concrete Wall for the massive storage of sulphur.

ENI SLURRY TECHNOLOGY
EST issulfur and a processbulk removal technology of catalytic hydroconversion inH₂S have been developed. In 2007 demonstration facilities for the slurry phase that allows to convert asphaltenes (the hard fractionhandling and storage of heavy crudes) totally, thus reducing to zero the production of solid and fluid residues usually deriving from the refining of non conventional oil.

It is a flexible technology that satisfies the needs of upstream and downstream oil and can be adapted to various kinds of feedstockssulfur are expected to be converted, to different capacities and plants. Among its products are naphtha, kerosene, diesel fuel.

The development of this technology was started at the beginning of the 80s and the decision to test it industrially made possible in 2001 the building of a commercial demonstration plantdeveloped along with a 1,200 BBL/d capacity at Eni’s Taranto refinery completedstudy regarding the behavior of materials in 2005. It is currently being run for reaching the validation of the technology.

This will provide Eni with an important competitive lever for a more economic use of the full barrel of crude with lower environmental impact.

NATURAL GAS TRANSPORT – THE TAP PROJECT
Among the reliable technologies for making the transmission via pipeline of relevant amounts of natural gas from production areas to consuming markets economically viable (gas to market), the TAP (high pressure transport) project will contribute to developing the most advanced long distance, high capacity, highvery acidic environments and under extreme 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 BCM/y;
(iii)		pressure equal to or higher than 15 Mpa; and
(iv)		use of high and very high grade steel (e.g. X100).

The TAP technology is expected to allow a decrease in the consumption of natural gas used in compressor stations from 7.5% to 3% of transported volumes.temperature conditions.

The project was started in 2002 with a wide range of design, engineering and construction activities and in 2005 two infrastructures for the validation of its assumptions were completed.

The first one is a 10-kilometer long pilot segment in X 80 steel with 48" diameter from Enna to Montalbano integrated in the Snam Rete Gas network that allowed to test and validate the industrial application of the concepts.

The second infrastructure consists of two pilot pipes, with a 48-inch diameter in high resistance X100 steel installed in Perdasdefogu in Sardinia. It was started up in September 2005 under pressures of 140 bar. Testing is expected to last 20 months and will simulate the actual behavior of an industrial infrastructure for a period equivalent to 20 years.

In 2006 management believes that the first technology manual and FEED developed for a hypothetical trunkline in X100 steel with a 48" diameter linking Central Asia to Europe (for a length of 3,500 kilometers) will be available. A further development of this project will be the construction and operation of a commercial line in X100 steel a few-kilometer long.

CONVERSION OF GAS TO LIQUIDS – GTL PROJECT(GTL)
ThisThe conversion of gas to liquids is a key technology for the use of natural gas on a large scale for the production of high quality motor fuels, in particular diesel fuel, and therefore it receives special attention by all oil majors due to its primary strategic value.

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In 2006 in 2005 ledcooperation with IFP/Axens, Eni completed the technology handbook for this proprietary technology for the conversion of gas to liquids via Fischer-Tropsch synthesis and the preparationbasic engineering of the first basic design package for ana 37 KBBL/d industrial unit.

In 2006 Eni2007 some issues will continue its development activitybe addressed regarding the risks of the transition to the subsequent industrial scale:

•		mechanic validation on the maximum industrial scale of the catalyst for the FT synthesis;
•		validation by qualified builders of the mechanic design of the reactor to be applied to the maximum industrial scale; and
•		tweak of a water treatment scheme produced in the synthesis process.

CONVERSION OF HEAVY CRUDE AND FRACTIONS INTO LIGHT PRODUCTS
Testing continued at the Sannazzaro pilotTaranto demonstration plant consolidating the Fischer-Tropsch synthesis and optimizing its integrationof Eni’s proprietary technology EST, a process of catalytic hydroconversion in the slurry phase of non conventional crude, extra heavy crude and refining residues that allows the refinery to convert asphaltenes (the hard fraction of heavy crude) totally into naphtha, kerosene, diesel fuel. In particular, a four-month test period has been carried out using a residue from a Canadian tar sand, confirming expected conversion yields and performance stability. In 2007 Eni plans to complete the collection of information for designing and building its first two phasesindustrial plant.

SCT-CPO PROJECT (SHORT CONTACT TIME - CATALYTIC PARTIAL OXIDATION)
At the Milazzo research center the SCT-CPO (partial catalytic oxidation with short contact time of liquid and gaseous hydrocarbons) technology has been validated on the pilot scale for producing hydrogen at competitive costs, also in ordermedium to definesmall sized plants with higher flexibility as compared to refinery feedstocks. In 2007 Eni plans to complete the optimal sizecollection of information for designing and building its first industrial plant.

NATURAL GAS HIGH PRESSURE TRANSPORT (TAP)
The goal of the GTL module alongTAP project is to develop Long Distance - High Capacity - High Pressure - High Grade technology with the following features:

•		transportation on distances greater than 3,000 kilometers;
•		20-30 BCM of natural gas conveyable per year;
•		pressure equal to or greater than 15 MPa; and
•		use of high and very high grade steel.

This technology allows Eni to greatly reduce natural gas consumption for the operation of compressor stations. In 2006 testing continued on two existing infrastructures:

•		a 10-km (6-mile) long, high-resistance X80, steel line integrated in the Snam Rete Gas system; and
•		two pilot high-resistance X100 steel lines (a total length of 750 meters) able to support fluctuating pressure in a range of 135 to 150 bar.

After completing the pressure test on these two pilot lines, a crack propagation test has been scheduled for one of the two.

In 2006 the first version of the Technology Handbook has been published and a hypothetical 3,400-kilometer long gas pipeline in X100 steel has been designed connecting Karachaganak oilfield (Western Kazakhstan) with Central Europe.

ENVIRONMENTAL PROTECTION
Development of technological solutions aimed at minimizing the environmental impact of exploration, refining and utilization of hydrocarbons continued throughout 2006.

The opportunity to test the conversion of CO₂ in energy vectors via biofixation on a demonstrative scale will be evaluated in 2007.

Main activities carried out or undertaken in 2006 include the following:

•		Green Diesel - the project aims at the production of biodiesel in refineries by means of a new process of hydrocracking of vegetable oils developed in collaboration with an international partner;
•		Ensolvex - the project is aimed at the further industrial application of the process for reclaiming soils polluted by organic substances; and
•		EWMS (Early Warning Monitoring System) - the activity consist in the application of research findings of an advanced control and remote monitoring project.

GHG PROJECT (GREENHOUSE GASES)
Work continued on the integrated Greenhouse Gases research program, aimed at verifying the industrial feasibility of the geological sequestration of CO₂ in depleted fields and salty aquifers. The technical feasibility study of the geological sequestration of CO₂ has been completed and in 2007, Eni expects to start testing in the field.

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REFORMULATION OF FUELS AND LUBRICANTS
Eni continued its basic design package.

INNOVATIVE FUELS: CLEAN DIESEL FUEL PROGRAM
In its effortprogram to improve the qualityits "Blue" fuel line of its fuels, in 2002 Eniproducts (BluDiesel and BluSuper). It also started to sella new virtually sulphur free (less than 10 ppm) products (first BluDiesel and since 2004 BluSuper) anticipating their compliance with EU regulations mandatory beginning in 2009.

With a longer term objective Eni started aphase of its clean diesel fuel program that aimsaiming at identifying the optimal formula for a diesel fuel with high performance and low particulate emissions using as benchmark GTL Fischer-Tropsch gasoil.diesel oil (obtained from the conversion of natural gas into liquids - GTL project). Research activities will be conducted on the design of refining facilities for producing this product.

ENVIRONMENTAL PROTECTION
InA process of hydro-dearomatization of certain refining feedstock with a high content of aromatics (e.g. the arealight cycle oil produced by fluid catalytic crackers) is being developed. A double-function, proprietary catalyst has been developed able to reduce hydrogen consumption and certain by-products. The project is progressing on a pilot scale.

Monitoring on the mock-up distribution of environmental protection,the "ADBlue" in the Agip corner sale, at Assago Ovest (Milan) continued. The ADBlue (water solution with urea at 32.5%) can be used to remove nitrogen oxide (NO_x) from exhaust gas of Diesel commercial motors with catalytic disposal for the cooperationselective reduction of partners from industries and academia, Eni is developingNO_x (Selective Catalytic Reactor).

BIO FUEL AND HEAVY CRUDE CONVERSION: DEAL WITH PETROBRAS
As part of the development of technologies for reducingfuel quality enhancement and the environmental impactconversion of offshoreheavy crude and onshore E&P and refining operations.fractions into light products, in March 2007 Eni signed an agreement with Petrobras, the world’s leading company in the large-scale production of bio-ethanol. The two partners will combine their proprietary technologies to jointly develop projects for the production of bio-fuels in other countries.

In this areaaddition, they will study joint projects to assess the following projects are worth mentioning:application of the Eni Slurry Technology (EST) in Brazil in the framework of a broader partnership involving both upstream and downstream joint initiatives.

•		GHG Program The integrated Green House Gases (GHG) research program aims at verifying the industrial feasibility of the geological sequestration of carbon dioxide in depleted fields and salty aquifers.
•		The Early Warning Monitoring System (EWMS) project, for real time recording of the physical and chemical profiles of Eni’s productive activities and of their environmental context through a single computerized platform.
•		The Hydrogen Project aiming at developing a portfolio of technologies for producing hydrogen at competitive costs, also in medium to small sized plants.

 

Insurance

Eni constantly assesses its exposure for the Italian and foreign activities that are mainly covered through the Oil Insurance Limited ("OIL"), a mutual insurance and reinsurance company that provides to its members a broad coverage tailored to the specific requirements of oil and energy companies. Eni makes use of a captive insurance company that covers the risks and implements Eni’s Worldwide Insurance Program re-insured with 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 Eni to define a constant level of risk retention and, conversely, the amount of risk to be transferred to the market.

The level of insurance maintained by Eni is generally appropriate for the risks of its businesses.

 

Environmental Matters

Environmental Regulation

Eni’s operations, products and services areEni is subject to numerous EU, international, national, regional and local environmental, health and safety laws and regulations concerning its oil and gas operations, products and other activities, including legislation that implements international conventions or protocols. In particular, these laws and regulations require that an environmental impact assessment is performedthe acquisition of a permit before drilling for new operations,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, provide for measures to be taken to protect the safety of the workplace and health of communities affected by the company’s activities, and impose criminal or civil liabilities for pollution resulting from oil, natural gas, refining and petrochemical operations. These laws and regulations may also restrict emissions and discharges to surface and subsurface water resulting from the operation of natural gas processing plants, petrochemicals plants, refineries, pipeline systems and other facilities that Eni owns. In addition, Eni’s operations are subject to laws and setregulations relating to the rules for the generation,production, handling, transportation, storage, disposal and treatment of waste materials.

Environmental laws and regulations have a substantial impact on Eni’s operations. Some risksrisk of environmental costs and liabilities areis inherent in particularcertain operations and products of Eni, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs and liabilities will not be incurred.

Although management, considering the actions already taken with the insurance policies to cover environmental risks and the provision for risks accrued, does not currently expect any material adverse effect upon Eni’s Consolidated Financial Statements as a 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 Consolidated Financial Statements due to: (i) the possibility of as yet unknown contamination of industrial sites; (ii) the results of the ongoing surveys and the other possible effects of statements required by Decree No. 471/1999 of the Ministry of Environment concerning the remediation of contaminated sites; (iii) the possible effect of new environmental legislation and rules, such as: (a) the decree of the Ministry of Environment No. 367 published on January 8, 2004, that regards the fixing of new quality standards for aquatic environment and dangerous substances and Legislative Decree No. 59/2005 concerning the integrated environmental authorization (IPPC), (b) the application of European directive 2004/35/EC concerning environmental responsibility for prevention and reclamation of environmental damage, referred to in paragraph 439 of the single Article of Law No. 266/2005 (budget law for 2006), and (c) a legislative decree to be issued in implementation of Law No. 308 of December 15, 2004 that delegated to the Government the restructuring of regulations concerning waste disposal and reclamation of polluted areas, protection of waters from pollution and management of water resources, payment of environmental damage, procedures for the evaluation of environmental impact and for the strategic environmental impact as well as protection from emission into the atmosphere within 18 months. The Decree n. 152/2006 was approved by the Council of Ministers on February 10, 2006 has been in force since April 29, and it is now under examination by the new Government. The decree also implements European directive 2000/60/EC that established a European action framework for the protection of waters; (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.

A brief description of major environmental laws impacting on Eni’s activity follows.

Decree No. 471/1999 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 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 remediate 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 remediation. This decree became operational with Decree No. 471/1999 of the Ministry of the Environment, which also defined: (i) limits for the contamination of soils and underground waters; (ii) general guidelines for remediation and environmental recovery of polluted areas; and (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, willfully 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. 471/1999 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 388/2000 changed the regulations concerning the remediation of polluted sites, easing the discipline of crimes related to events prior to Legislative Decree No. 22/1997 and imposing the remediation of sites where industrial activity is ongoing. However, the remediation is to be carried out provided that it does not involve a significant disruption in operations; remediation costs can be amortized in ten years.

The new Decree No. 152/2006 concerning"Environmental legislation" based on the overall revisionLaw No. 308/2004 "Government Delegated law for the reorganization, coordination and integration of previous environmental laws, supercedes Decree 471/1999legislation on the environment and measures of direct application" was published in particular, it envisages that risk assessment be performed in order to define the extentGazzetta Ufficiale No. 88 of the required remediation. At this early stage it is not possible to assess the impact of the new lawApril 14, 2006 and came into force on Eni’s activities, but it is expected that, in general, the introduction of risk assessment could reduce the extent of the remediation projects.April 29, 2006.

In accordance with European guidelines, the protection from water pollution was strengthened with Legislative Decree No. 152/1999 as completed by Decree No. 258/2000 and by Decree No. 367 of the Ministry of Environment. Decree No. 258/2000 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 by 2008. All discharges require preventive authorization, to be renewed every four years, and must lie below the thresholds set by Regions. 59

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The Decree No. 152/2006 has also renovatedreformulated the whole Italian environmental law with the major focus on the environmental impact assessment, strategic environmental assessment, soil protection, water protection, waste management and remediation for contaminated sites, air protection and reduction of emissions into the atmosphere and environmental liability. This Consolidated Act on the Environment introduces important changes and revisions of the previous environmental laws in the field. The most important revisions for Eni’s activities concern waste management, remediation for polluted sites, water legislation,protection and environmental liability.

The fourth part of Decree No. 152/2006 relating waste management and remediation of polluted sites introduces a new waste, by aligning itproducts and safety measures (for operational sites) definition, modifies the notion of discharge, soil and rock excavations, responsibility range of willful owner, temporary deposit (for hazardous and non hazardous products, with or without quantitative limits). Also a new approach to site contaminations is implemented based on risk analysis determining the less restrictive EU water directive. To dateneed for remediation and defining specific site objectives and their extent.

These provisions are under review following a proposed decree already approved by the State-Regions Conference, providing for the limits approach for the sites where reclamation and remediation activities have begun under the previous regulatory framework (Decree No. 471/1999). This modification backed by the State-Regions Conference could result in an increase in future environmental expenses that Eni cannot evaluate the possible impactexpects to incur for site remediation and reclamation.

The third part of the applicationDecree No. 152/2006 regulates water protection, modifying the previous legislation and implementing the Water Framework Directive (2000/60/CE, so called WFD). The objective of this section of the Decree No. 152/2006 is to enact the requirements of the WFD and to guarantee the achievement of certain water quality objectives by 2015 as foreseen by the WFD. In order to achieve this target, all the water bodies must comply with specified fixed quality standards by December 31, 2008 ensuring the achievement on an intermediate water quality objective in view of the 2015 deadline. The legislator introduces a new law. definition of the discharge according to which every direct discharge to soil, subsoil and groundwater containing pollutants is prohibited. All discharges of industrial waste water to superficial waters must comply with defined limits and must be previously authorized. The authorization must be renovated every four years and requested one year in advance.

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. Moreover, there is the risk of mandatory closure for industrial plants, in case a request for the authorization of discharge of dangerous substances is filed with a public administration with no response within a set deadline (up to six months).

Law 372/1999 will gradually enter into force. This law, which is relatedThe sixth part of the Decree No. 152/2006 concerns the overall regulation of the environmental liability and implements the Directive 2004/35/CE. The Decree introduces a new definition of environmental damage and indicates specified cases of its application. According to the European legislation the environmental damage is any significant and measurable deterioration, direct or indirect, of the natural resources or of its utility. The principal objective is prevention and remediation of environmental damage and restoration to the previous condition. The eventual impact on Eni’s activities might be significant in the case of the recognized responsibility for environmental damage. In this situation, Eni could be obliged to remediate to the previous condition or provide compensation.

Directive 96/61/CE (IPPC -CE: the purpose of the Integrated Pollution Prevention and Control), envisages thatControl (IPPC) is to ensure a high level of protection of the environment taken as a whole, covering emissions into air, water and land, generation of waste, use of raw materials, energy efficiency, noise, prevention of accidents, and restoration of the site upon closure. According to this Directive, operators of industrial installations, will apply forcovered by Annex I of the IPPC Directive, are required to obtain an integrated authorization concerning emissions, wastes(environmental permit) from the authorities in the EU countries. New installations, and water discharges. The calendarexisting installations which are subject to "substantial changes", have been required to meet the requirements of the IPPC Directive since October 30, 1999. Other existing installations must be brought into compliance by October 30, 2007. This is the key deadline for the requestfull implementation of the integrated authorization has recently been defined. Many of Eni’s plants – refineries, chemical plants, power stations – will have to apply forDirective.

On May 7, 2005, Italian Legislative Decree No. 59/2005 (Gazzetta Ufficiale No. 93 - April 22, 2005) entered into force in complete accordance with the authorizationEuropean Directive (IPPC), abrogating definitively the Legislative Decree No. 372/1999. In compliance with the calendars published by the year end. All thecompetent authority, local and/or National, all Eni installations are getting ready to requestunder the IPPC authorization, which willDirective, have a five year duration,presented the requested authorizations in general,accordance with the format and eight years for installations registered according to EMAS regulation. In order to secure the extended authorization, some Eni installations have obtained or arecriteria published in the process of obtaining the EMAS registration.DEC February 7, 2007.

As of the year 2003, accordingAccording to the IPPC Directive, the Member States of the EU had to communicate their national values of emissions into the atmosphere, wastes produced and managed and, finally, discharges into water of somecertain compounds specified in the annexes of the directive relativerelated to EPER (European Pollutant Emission Register). The Directive applies to several Eni plants sounder the Eni divisions and/or companies which own these plantsDirective have reported their data to the authority in charge of preparing the Italian national communication.

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Regulation No. CE/166: in January 2006 EU Regulation No. 166the EC was issued concerning the Pollutant Releases and Transfers Register (PRTR), which areis an extensionsextension of the previous EPER registers and deals with all the emissions and transfers of 91 pollutants to air, water, soil and soil.transfer off-site of hazardous and non hazardous wastes. Recently the European Commission has been published in GUEE May 16, 2007 (2007/C 110/01) the definitive replacement of the EPER Register by the European Pollutant Release and Transfer Register (E-PRTR).

The PRTR registers will be operational in the year 2009, with respect to 2007 emissions.environmental data. To comply with the obligations, Eni is considering the use ofimplementing a group-wideGroup wide Integrated Environmental Information System.System, able to gather, manage and report all the pollutants requested by PRTR Regulations.

For a description of the impact of Law No. 316 of December 30, 2004 (Emission trading) on Eni’s business, see below in "Implementation of the Kyoto Protocol".

HSE Activity for the yearYear

In an operating context requiring companies,Eni is committed to continuously improve its model for HSE Integrated Management System and its HSE culture to challenge the best in particular those inclass among the competitors, to meet the evolving sustainability requirements for the energy sector, to meet strict environmental sustainability requirementsindustry and to reduce risks, Eni’s Health Safety Environment (HSE) activities are increasingly orientedminimize the risk associated with all its activities. This commitment produced a significant renewal of the HSE Corporate organization in 2005 and consequently the related processes have been subjected to a campaign of assessment and improvement; this has led first to the applicationreengineering of the Company guidelines on health, safety, environment and certification of rigorous HSE management systems, in an effort to constantly improve their performance through specific projects aimed at meeting the main challenges of sustainability of Eni’s operating sectors.

At the end of 2003, Eni issued a management system model (MSG) based on a yearly cycle including planning, implementation, control, review of results and definition of new objectives. In 2005 business units continued implementing this management system along with an audit program aiming at checking its functioning in Eni’s business segments and at identifying any measures for its improvement.public safety.

In 2005,2006 Eni’s business units continued to obtain certificationcertifications of their management systems and operating units according to the most stringent international standards. As of December 31, 2005,2006, the total number of certifications obtained was 155 (133185 (155 in 2004)2005), of which 8290 certifications metaccording to the ISO 14001 standard and 6 certifications according to the EMAS standard. EMAS is the Environmental Management and Audit Scheme recognized by the European Union.

EnvironmentIn 2005,2006, Eni incurred a total expenditure of euro 1,0661,160 million for the protection of environment, up 33%7% from 2004.2005. Current environmental expenditure amounted to euro 690 millionrepresented approximately 66% of the whole expenditure and related mainly to the intense programcosts incurred with respect to remediation and reclamation of site remediation startedcertain industrial sites divested in the past, few years.mainly in Italy. Capitalized environmental expenditure amounted to euro 375 million and related mainly to soil and subsoil protection, water management and soil and subsoil protection.air emissions.

Safety Eni is strongly committed to adopting a preventive approach to safety in order to reduce the occurrenceconsiders of accidents and their consequences. Operations are managed with a special focus oncapital importance the safety of its workers and contractors, of the people living in the area where its industrial activities are located and local communities. In line with international best practice, safety, prevention and work hygiene include:of its assets, whether producing now or in the future. Its strategy has been based on:

(i)•		identificationthe dissemination of dangers, evaluationa safety culture within its organization; and reduction of risks related to the deployment of work activities;
(ii)•		development and implementationminimization of monitoring measures; and
(iii)		investigation and analysis of accidents and near missesexposure to risk in order to learn from them and increase the ability to prevent and mitigate risks.all production activities.

In 2005, expenditureThe most important instruments for safety onimplementing this strategy are: the workplace amounted to euro 391 million, 57% of which were for current expenditureclose contact with the remaining part being capitalized. Eni organizations in the field by dedicated assessments and the continuous upgrade of the safety system, technical guidelines and procedures, to meet the evolving international standards.

As of December 2006 a total of forty-eight international subsidiaries have been assessed in twenty-one countries, thirteen of them twice in a three year cycle. These assessments in the field are one of the most important sources for all the improvement of the safety system.

From both the field assessments and the safety data analysis and benchmarking the most important safety technical guideline in year 2006 has been generated; it is the technical guideline on vehicles driving in non-EU countries, where for the first time instruments like risk assessments and dedicated management system have been used in this field.

In 2005, the2006, safety indicators improved from 2005. The injury frequency rate measured aswas 3.07, down 3%, and the numberinjury severity rate was 0.09, down 10% from 2005. Costs incurred to boost the safety levels of injuries per million hours worked by Eni’s employees was approximately 3.17, declining from the 2004 level of 4.47.operations and to comply with applicable rules and regulations were euro 394 million.

Health Activities for the protection of health aim at improving general work conditions and are developed according to three main principles: (i) protection of employees’ health; (ii) prevention of accidents and professional diseases; and (iii) promotion of healthier behaviors and life styles in workplaces.

In 2005 approximately euro 40 million was invested in the protection of health.

In Italy, health surveillance is performed in each operating unit through a network of health centers and by means of medical examinations, controls and monitoring campaigns for the major physical, chemical and biological risk agents. The health of employees outside Italy is protected likewise, in many cases integrating the typical activities of medicine on the workplace and first aid with the activities dedicated to primary health care extended also to family members and in many cases also to local communities.

•		protection of employees’ health;
•		prevention of accidents and professional diseases; and
•		promotion of healthier behaviors and life styles in workplaces.

Eni has a network of 339 own307 health care centers located in its main operating areas, of these 241217 centers are outside Italy and are managed by expatriate and local staff (322(415 doctors and 384 nurses)442 paramedics). A set of international agreements with the best local and international health centers ensuresguarantees efficient service and timely reactions to emergencies.

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In 20052006, Eni boosted its E-medicine program aimed at increasing the quality of health care provided to employees and to health operators in Italywithin and outside Italy, that integrates computerized technologies and advanced telecommunication systems. The program includes three projects:

(i)		health card, on line access to health data of employees by means of an electronic card provided first to groups of employees outside Italy, that will be progressively extended to all employees;
(ii)		telemedicine, a project oriented mainly to health care outside Italy, but open also to Italian industrial sites, based on contacts with highly qualified health centers worldwide and capable of providing real time consultation. This project is operating in Congo and Nigeria and in 2005 has been extended to four sites in Libya; and
(iii)		e-learning, this project provides access to continuous training programs in the field of health to Eni’s health operators in Italy and outside Italy by means of remote learning devices.

In Italy, Eni started a program of prevention for its employees, both through information campaigns and by means of screening procedures and direct actions accessed on a voluntary basis. The areas concerned are:In the area of prevention of infective diseases, Eni continued its campaign for vaccination against flu that is widely followed by employees.

(i)		prevention of cancer;
(ii)		prevention of cardiovascular diseases; and
(iii)		prevention of certain infective diseases.

Outside Italy, Eni promoted specific information campaigns for the protection of its employees, their families and local communities, such as those for the prevention of malaria (in Nigeria and Azerbaijan)Nigeria) and the prevention of HIV transmission (in Nigeria and Congo).

For employees hired in Italy and working outside Italy, Eni has a specific program that includes training on the specific health risks they might encounter in each country and information on how to cope with them.

Eni also entered an agreement with International SOS that provides qualified health services throughout the world, as well as repatriation in case of serious emergency situations.

In 2006 Eni incurred a total expense of euro 48 million to protect the health of its employees.

Implementation of the Kyoto Protocol

On February 16, 2005 the Kyoto Protocol entered into force and with it the commitments of the Annex I Parties which have ratified the protocol,Protocol, including the EU and Italy. According to Law No. 120/2002, Italy committed itself to reduce GHGgreenhouse gas (GHG) emissions by 6.5% in the period 2008-2012, as compared to 1990 values. Reductions can be achieved both through internal measures and through a series of instruments supplementary to internal measures. These are the so-called flexible mechanisms, which allow an enterprisea Party to carry out projects in developing countries (CDM - Clean Development Mechanism) and in industrial countries with transition economies (JI - Joint Implementation) in order to obtain emissions credits and to purchase Assigned Amount Units (AAUs) from other Annex I countries, that have a surplus of these Kyoto units (IET - International Emission Trading).

Italy, as an EU Member State, is participating in the EU Emission Trading Scheme, regulated up by the Directive 2003/87/EC, which established on January 1, 2005 the largest carbon market in the world.world, setting up a system for emission trading targeted to industrial installations with high carbon dioxide emissions.

TheAs foreseen by the Directive, Italy has issued two National Action Plan forAllocation Plans covering the reduction of greenhouse gas emissions 2003-2010, setsperiods 2005-2007 and 2008-2012, which set out the allowances assigned to each sector and installation. Eni has cooperated with the Italian authorities responsible for the preparation of the National Allocation Plan and it is also active in the utilization of the Kyoto Flexible Mechanisms. In fact, due to its presence in about 70 countries, Eni is an elective partner for carrying out CDM and JI projects thus contributing to the Italian program of greenhouse gas emissions reduction. In December 2003 during the Conference of Parties to the Kyoto Protocol – COP9 – Eni and the Ministry of the Environment signed a Voluntary Agreement for using flexible mechanisms, promoting CDM and JI and contributing to the sustainable development of host countries.

Law No. 316216 of December 30, 2004 which converts Law Decree No. 237/2004April 4, 2006 has implemented at national level the European directive 2003/87/EC which establishes a system for emission trading targeted to industrial installations with high carbon dioxide emissions. From January 1, 2005, this European emission trading scheme has been in force and on this matter on February 24, 2006 the Ministry of the Environment published a decree assigning the EU allowances for the 2005-2007 period to each industrial installation included in the scheme.EC. In the first period of commitment (2005-2007), emissions not covered by corresponding allowances are subject to a fine amounting to euro 40/tonne of carbon dioxide. All companies are expected to identify and carry out projects for emission reduction.reductions. Eni participate toparticipates in the ETS scheme with 6158 plants in Italy and two2 outside Italy, which collectively represent about a third of all greenhouse gas emissions generated by Eni’s plants worldwide. Eni was assigned, for the existing installations, allowances equal to 65.2 million tonnes65.6 mmtonnes of carbon dioxide (of which 22.4 for 2005, 21.422.4 for 2006 and 21.420.8 for 2007). New EUMoreover, further allowances are expectedwill be issued for new entrants especiallyduring the period 2005-2007 (12.8 mmtonnes of carbon dioxide). Following the implementation of projects for the reduction of emissions, in power generation. In 2005,particular related to the cogeneration of electricity and steam through high efficiency combined cycles in refineries and petrochemical sites, emissions of carbon dioxide from Eni’s plants were lower than permits entitled.entitled in both 2006 and 2005.

In order to play an active role in the ETS Eni:

(i)		prepared a methodological and organizational protocol for the accounting of greenhouse gasgases emissions;
(ii)		implemented a database for a precise evaluation of emissions;
(iii)		evaluated the compliance of existing monitoring and reporting systems in plants in order to identify improvement requirements; and
(iv)		defined a system for balancing emissions from individual plants and business units in order to guarantee the payback of emission rights due.

Eni is also upgrading its ongoing program for the reduction of energy consumption and related CO₂ emissions.

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A significant reduction potential can be derived from production 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 sustainable development while reducing greenhouse gas emissions. The validation of such projects as Clean Development MechanismCDM and JI will provide emission credits and facilitate the achievement of the Italian reduction target, as set by the Kyoto Protocol. Eni already carried out Zero Gas Flaring projects in Nigeria and Congo while others are underway. In 2004 Eni preparedNovember 2006 the documentation required forNigerian Kwale-Okpai project has been registered as a CDM project. It regarded the Kwale-Okpaiconstruction of a combined cycle power station, in Nigeria to qualify as a Clean Development Mechanism project, the power stationwhich utilizes the associated gas to oil production formerly flared. Moreover, 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.

The best solutions for compliance with the Kyoto Protocol are the use of low emission energy sources and the adoption of highly efficient technologies. To address the greenhouse gas challenge, Eni completed in 2004performed a detailed analysis for defining its strategy to respond to climate change and to participate in the European emissions trading system, identifying a number of projects for energy saving and emission reductionreductions from its plants.

To ensure comprehensive, transparent and accurate accounting for GHG emissions, which is consistent over time, Eni introduced a protocol for the accounting and reporting of greenhouse gas emissions (GHG Accounting and Reporting Protocol), 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.

For safer and more accurate management of GHG emissions and with a view to supporting accounting, Eni provided all its divisions and business units with a dedicated database, in order to gather and report GHG emissions according to the Protocol and to ensure completeness, accuracy, transparency and consistency of GHG accounting as required by certification of these emissions, Eni decided to implement a commercial database to facilitate evaluation of emissions in compliance with the methodologies laid down in its own GHG Accounting and Reporting Protocol.

Eni introduced a complete, accurate and transparent protocol for 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.needs.

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 GreenstreamGreenStream 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 perspectivethe medium-term, 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. In the long-term, Eni is actively engaged in the political process regarding future emission reduction regulations. In particular, Eni is involved in bioenergy and biofuels.

Regulation of Eni'sEni’s Businesses

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.

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 of the Italian Hydrocarbons Industry" and "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.

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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 sharingIn Product Sharing Agreement (PSAs), entitlements to production volumes are defined on the basis of contractual agreements (PSAs) entered intodrawn up with state oil companies which hold the concessions. Such contractual agreements regulate the recover of costs incurred for the exploration, development and operating activities (cost oil) and give entitlement to 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 shareportion of the production remaining after royalties, if any.volumes exceeding volumes destined to cover costs incurred (profit oil).

A similar scheme to PSAs applies to Service and "Buy-Back" contracts.

In general, Eni is required to pay income tax on income generated from production activities (whether under a license or production sharing agreement). The taxes imposed upon oil and gas production profits and activities may be substantially higher than those imposed on other businesses.

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.

Exploration & Production

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").

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 natural gas; (iv) the establishment of a system for the updating of natural gas retail prices; and (v) the establishment of a royalty reduction program. Law No. 481 of November 14, 1995 (the "Authority Law"), provided for the establishment of a new regulatory body, known as the Autorità per l’Energia Elettrica e il Gas (the "Authority for Electricity and Gas"), a 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 for Electricity and Gas is mainly responsible for the public service of natural gas distribution through urban networks.

Legislative Decree No. 164/2000 ("Decree No. 164"), which enacted the European Directive on Natural Gas 98/30/CE into Italian legislation, 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" below.

Legislative Decree No. 32 of February 11, 1998 ("Decree No. 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" below.

Legislative Decree No. 443 of October 29, 1999 ("Decree No. 443") modified Legislative Decree No. 112 of March 31, 1998 ("Decree No. 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 explorationExploration permits and production of hydrocarbons in the Italian offshore, as well as natural gas storage in fields, while administrative decisions concerning exploration and production of hydrocarbons on the Italian mainland are made by the State in agreement with Regions.

Exploration and Production

Exploration Permits and Production Concessionsconcessions 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 Productive Activities (formerly Ministry of Industry).through competitive auctions. The initial duration of an exploration permit is six years, with the possibility of obtaining two three yearthree-year extensions and an additional one yearone-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 yeara ten-year extension and an additional five year extensionsfive-year extension until the field depletes.

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"), 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. Legislative Decree No. 625/1996 (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).

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 (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 Productive Activities. The initial duration of a concession is 20 years, with the possibility for operators of obtaining at most two ten yearten-year extensions if they complied with the storage programs and other obligations deriving from said concession as per Law No. 239/2004. 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. 625,625/1996, 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 located in thea predetermined area (the so called Exclusive Area.Area). Decree No. 625 eliminated this exclusive right, while granting Eni the right to obtain upon application the storage concessions effective from January 1, 1997 that would preserve the rights vested with Eni during the regime of exclusivity (based on current storage activities or certain statutory conditions). Eni obtained the ten storage concessions which it had applied for.

Legislative Decree No. 164/2000 ("Decree No. 164"), which enacted the European Directive on Natural Gas 98/30/CE into Italian legislation, regulates the Italian natural gas market. Prior to the implementation of Decree No. 164, the Italian natural gas market lacked a legislative framework.

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)in vertically integrated enterprises, storage is to be carried out by a separate company not operating in other gas activities (such as Stoccaggi Gas Italia SpA) or by companies whichengaged only engage in transmissiontransport and dispatching activities, provided the accounts of these two activities are clearly separated from the accounts of storage.

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Existing storage concessions are subject to the Decree. Their original term was confirmed and includes relevant production concessions; (iii)(ii) 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)(iii) 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)(iv) modulation storage costs are charged to shippers which have to provide modulation services adequate to the requirements of their final customers; (vi)(v) storage tariffs criteria are determined by the Authority for Electricity and Gas in order to ensure a properpreset return on capital employed, taking into account the typical risk inherent in upstream activities,this activity, as well as volumes stored for ensuring peak supplies and provides incentivesthe need to incentive capital expenditure for upgrading the upgrading of thestorage system; (vii) in the transitional period until the publication of the Authority’s decision, storage companies determine and publish their own tariffs; and (viii)(vi) the Authority for Electricity and Gas has to establishestablishes the criteria and priority of access most storage operators have to include in their own storage codes.

In compliance with the provisions of Article 21 of Decree No. 164/2000, on October 21, 2001 all storage activities carried out within the Eni Group were conferred to Stoccaggi Gas Italia SpA ("Stogit"), which holds ten storage concessions.

In implementation of Decree No. 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 than those expected by the Authority for Electricity and Gas in its periodic statements concerning the determination of modulation obligations for seasonal consumption peaks.

With Decision No. 26 dated February 27, 2002, the Authority for Electricity and Gas determined tariff criteria for natural gas storage for the first regulated period (from April 1, 2002 to March 31, 2006) 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, upstream and strategic storage services for the first regulatory period. The Authority for Electricity and Gas rejected Stoccaggi Gas Italia proposal and set storage tariffs for the first regulatory period with Decision No. 49 of March 26, 2002. In 2002, Stoccaggi Gas Italia appealed against both decisions to the Regional Administrative Court of Lombardia in order to obtain their 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 for Electricity and Gas.

On March 3, 2006, the Authority for Electricity and Gas with DecisionResolution No. 50/2006 published the criteria for determining storage tariffs for the second regulated period. This decision changes the regulation in force in the firsta regulated period introducing maximum allowed revenues affecting the capacity component (space and flow) and confirming the price cap mechanism for the commodity component. It also establishes a single national tariff. The decision confirms the mechanisms for the evaluation of net capital employed already defined for the first regulated period; the return on capital employed is reduced from 8.33% to 7.1% (pre-tax). Based on the new tariff regime and keeping into account that all the capacity available in 2006 is considered in the calculation of tariffs, revenues expected in the thermal yearstarting from April 1, 2006 toand ending on March 31, 2007 amount2010.

According to about euro 280 million, decreasing 20% fromthis Resolution, the previous thermal year. The decision contains alsostorage company calculates revenues for the determination of unit tariffs for storage services by adding the following cost elements:

(i)		a return on the capital employed by the storage company equal to 7.1% (8.33% in the first regulated period);
(ii)		depreciation and amortization charges; and
(iii)		operating costs.

In the years following the first year of the newly regulated period, reference revenues are updated to take account of variations of capital employed and the impact of the indexation of depreciation charges and operating costs to consumer price inflation lowered by a preset rate of productivity recovery.

Storage tariffs are articulated as follows:

(i)		a unit fee for the use of space;
(ii)		a unit fee for the use of injection capacity;
(iii)		a unit fee for the use of off-take capacity;
(iv)		a unit fee for gas volumes handling; and
(v)		a unit fee to remunerate gas availability to enable gas operators to fulfill their strategic storage obligations.

Applicable regulation provides for incentives to capital expenditure for the development ofintended to develop and upgrade storage capacity by recognizing an additional rate of return of 4% on the basic rate for 8 years forto capital expenditure increasing capacity and for 16 years for the development ofprojects aiming at developing new storage sites. Decision No. 56 of March 16, 2006 approved Stogit’s tariff proposalsdeposits and increasing existing capacity. Such incentives are applicable for 2006-2007 thermal year.a sixteen-year period and an eight-year period, respectively.

With DecisionResolution No. 119/2005,220/2006, the Italian Authority for Electricity and Gas regulates waysapproved the storage code proposed by Stoccaggi Gas Italia on the basis of the framework and criteria established by Resolution No. 119/2005 ("Adoption of guarantees for the supply of modulation, mineral and strategicfree access to natural gas storage services, on partduties of subjects operating storage companies, as well as the service for the operating balancing of transport companiesactivities and provides a basic schemerules for the preparation of companies’a storage code").

This code disciplines access to and provision of storage services during normal operational conditions, regulates procedures for conferring storage capacities, fulfillment of obligations concerning operating programming and fees to be charged to customers. The code has been in force since November 1, 2006.

The storage company offers services according to an access priority established by the Italian Authority for Electricity and Gas as follows:

(i)		mandatory services, including modulation storage, mineral storage, and strategic storage services; and
(ii)		services for operating needs of transport companies, including hourly modulation.

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The modulation storage service is finalized to satisfy modulation needs of natural gas users in terms of peak consumption and daily or seasonal trends in consumption. Final clients consuming less than 200,000 CM on an annual basis are entitled to a priority when satisfying their modulation requirements. To that end, the storage company makes available its capacity for space, injection and off-take on an annual basis in accordance with its storage code.

By February 1 of each year, theThe mineral storage companyservice is finalized to publish on its internet site: (i) its plantallow natural gas producers to perform their activity under optimal operating and maintenance program for the following thermal year (the thermal year for storage starts on April 1 and ends on March 31 of the following year); (ii) its upgrading and divestment plan as authorizedconditions, according to criteria determined by the Ministry of Productive Activities; and (iii)Economic Development.

The strategic storage service is destined to satisfy certain obligations of natural gas importers from countries not belonging to the EU in accordance with Article 3 of Legislative Decree No. 164/2000. The relevant storage capacity available for each of the services provided.

As concerns the modulation and mineral storage services, in its storage code the company defines a program for the injection phase and the offtake phase, indicating the optimization criteria and flexibility margins provideddedicated to users. The offtake phase takes place between November 1 and March 31, the injection phase between April 1 and October 31. The volumes of gas offtaken by the user cannot be higher than the volumes injected or the volumes the customer is entitled to.

The capacity destined to mineral and strategic storagethis service is determined by the Ministry for Productive Activities. As concerns strategic storage, the company makes available the volumes of natural gas in storage it owned resulting from its closing balance at December 31, 2001. For any additional volumes that can contribute to the reaching of the thresholds set by the Ministry, the price is suggested by the storage company and set with a bid procedure. The user can request only storage capacity and inject own natural gas volumes.Economic Development.

Storage capacity is assigned by the storage company for periods no longer than a thermal year by MarchApril 1, of each year. The first requests to be met are those for strategic storage and for the operating balancing of the system. The residual capacity available and the maximum daily offtakeoff-take capacity is assigned according to the following order of priority to: (i) holders of production concessions requesting mineral storage services; (ii) entities deploying natural gas sale activities who are obliged to provide a modulation service of their supply to their customers according to Article 18, paragraphs 2 and 3 of Legislative Decree No. 164/2000, for maximum volumes corresponding to a seasonal demand peak with average temperatures, on the terms and conditions established by a procedure to be issued by the Authority for Electricity and Gas; (iii) to the entities mentioned in (ii) above only for those additional maximum volumes related to a seasonal demand peak in case of certain low temperatures measured on a 20 year20-year period, under the terms and conditions of the procedure mentioned in (ii) above; and (iv) the entities requesting access for services different from the ones mentioned above. A procedure to be issued by the Authority for Electricity and Gas will establish the criteria for assigning capacity when the requests mentioned in (iv) above exceed availability.

During the storage thermal year, the company makes new assignations when new capacity becomes available. Users are allowed to sell to each other volumes of gas injected or capacity assigned. Users are requested to transmit to the storage company one week in advance of the next, programs for injection or offtake,off-take, within the limit of assigned capacity, confirming each day the bookings for the following day.

The DecisionFees deriving from balancing activities and restoration of strategic volumes off-taken are regulated by certain prescriptions from the Italian Authority for Electricity and Gas providing for repartition of such fees among customers of storage services until the 2005-2006 thermal year. Resolution No. 50/2006 also regulates the charges for balancing and replenishing storage for the first regulated period, while for calculating the tariffs related to balancing and replenishing in the second regulated period the Authority is expected to publish achanged such regime by establishing that such fees cover revenues deriving from new decision.

If the user offtakes a peak daily amount higher than the assigned amount, without replenishing by purchasing, the storage company applies, for each month to the maximum difference between peak daily capacity actually used and peak daily capacity entitled, a variable charge depending on the volumes of gas in storage on the day of the offtake and the number of days of exceeding use.investment.

If the volumes input to storage are higher than the capacity assigned or the input capacity utilized is higher than that conferred than and the user does not purchase additional capacity or sell excess natural gas volumes within 15 days from receiving information on its position, the storage company will:shall: (i) apply to the maximum exceeding volume or the maximum input capacity utilized in a month a variable balancing charge depending on the length of the infringing period or the month of injection;in which the capacity overuse has occurred; and (ii) sell, on behalf of the user that has not yet done it, the volume of gas injected exceeding the assigned capacity in the day or days of the thermal year of storage in which working gas reached its maximum amount, if the transport company reduced the volumes planned by users of transport at one or more interconnection points at the border and the same transport users also hold storage capacity.

If the user employs an off-take capacity higher than the assigned capacity, the storage company applies, for each month to the maximum difference between peak daily capacity actually used and peak daily capacity entitled, a charge depending on the number of days of exceeding use.

If the volumes of gas offtakenoff-taken by a user are higher than those held in storage and the user fails to replenish by means of a purchase, charges are applied that relate to replenishment of offtakeoff-take from strategic storage, which include: (i) in case of offtakes allowed by the Ministry of Productive Activities, the replenishment of the first volumes input to storage right after the offtake and theincluding payment by the user of a charge applied to the maximum accumulated volumevolumes of offtakenoff-taken gas, net of an income proportional to volumes replenished, as determinedaccording to different amounts based on the circumstance that the off-take was authorized or not by the Authority, as well as the paymentMinistry of balancing charges without penalty; and (ii) in case of non authorized offtake, the income recognized to the user for replenishment is reduced by a fixed amount. Proceeds from the replenishment of strategic reserves are subdivided proportionally among users in charge of strategic storage services, except for the proceeds from the replenishment of gas offtaken without authorization that are proportionally distributed to all users. Proceeds to the storage company from the application of balancing charges are proportionally distributed to users.Productive Activities.

With Decision No. 21 of January 31, 2006, the Authority for Electricity and Gas increased these charges by different amounts with respect to authorized and unauthorized offtakes. On the basis of these provisions, Eni may incur material charges for storage services in case of unauthorized offtakesoff-takes from the strategic reserve. Eni appealed against this decision.

With DecisionResolution No. 266/2005 the Authority for electricityElectricity and gasGas started an inquiry leading to a possible administrative sanction (fine under Law No. 481/1995) alleging that Stogit’s behavior does not conform with the discipline contained in DecisionResolution No. 119/2005 concerning access to and provision of storage services.

On the use of storage capacity conferred in 2004/2005 and 2005/2006 With Decision No. 37 of February 23, 2006, the Authority for Electricity and Gas started an inquiry on a few natural gas selling companies, among which Eni, with reference to the use of storage capacity in years 2004-2005 and 2005-2006. For the 2004-2005 thermal year and for the period from October 1, 2005 to December 31, 2005 the Authority for Electricity and Gas deemed improper the use of modulation storage capacity. In fact the Authority for Electricity and Gas judged offtakes to be higher than the volumes considered necessary to satisfy the requirements for which the storage company was awarded priority given the weather of the period.

Eni also held natural gas for strategic reserve purposes in its storage business, as established by Decree No. 164. The strategic reserves of gas are defined as "stock destined to meet situations of deficit/decrease of supply or crisis of the gas system". The Ministry of Productive Activitiesthe Economic Development determines quantities and usage criteria of such reserves. As of December 31, 20052006 Eni held approximately 180 BCF of strategic reserves of natural gas (180 BCF at year end 2004)2005).

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Gas & Power

Natural gas market in Italy

The European Directive on Natural Gas was implemented into Italian legislation through Legislative Decree No. 164 of May 23, 2000 ("Decree No. 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) starting in 2003 all customers are eligible customers (with access to the natural gas system and free to choose their supplier of natural gas); (ii) from January 1, 2003 to December 31, 2010 no single operator is allowed to hold a market share higher than 50% of domestic sales to final customers. In addition, no single 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%. Compliance with these ceilings is verified annually by comparing the allowed average percentage on a three yearthree-year basis for volumes input or sold to the average percentage obtained by each operator in the same three yearthree-year period. Allowed percentages are calculated net of losses (in the case of sales) and volumes of natural gas consumed in own operations. In accordance with Article 19, paragraph 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; (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 EU must secure a certain availability of strategic storage. Such constraints 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) natural gas transport and dispatching activities have to be carried out by a separate company that is not allowed to carry out any other activity in the natural gas field, with the only exception of storage, for which, however, accounting and operating separation is envisaged. Also distribution, which includes the transport of natural gas by means of local gas pipeline networks for delivery to customers, has 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. 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 for Electricity and Gas. Third parties are allowed to access transport infrastructure, storage sites, LNG terminals and distribution networks on a regulated basis. 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 on the basis of criteria set by the Authority for Electricity and Gas.

In particular 20052006 closes the second three yearthird three-year regulated period for natural gas volumes input in the domestic transmission network (for which the allowed average percentage is 71%69% of domestic consumption of natural gas) and the first three yearsecond three-year regulated period for sales volumes (for which the allowed average percentage is 50% of gas sales). Eni’s presence on the Italian market complied with said limit.limits.

Law No. 239 of August 23, 2004 on the restructuring of the energy sector in Italy

This law provides for:

•		a derogation to third party access granted to companies that make direct or indirect investments for the construction of new infrastructure or the upgrading of existing ones such as: (i) interconnections between EU Member States and national networks; (ii) interconnections between non-EU States and national networks for importing natural gas to Italy; (iii) LNG terminals in Italy; and (iv) underground storage facilities in Italy. Investing companies can obtain priority on the conferral of new capacity for a portion of not less than 80% of the new capacity installed and for a period of at least 20 years.years;
•		Paragraphparagraph 34 of the single article prohibits undertakings active in the field of natural gas and electricity with a concession for local public services or for the management of networks (excluding all sale activities) from operating in a competitive market for post-counter services, in the areas where they hold the concession for the duration of the concession, including through subsidiaries or affiliates.affiliates;
•		Paragraphparagraph 51 cancels paragraph 5 of Article 16 of Legislative Decree No. 164/2000, which obliged distribution companies to ascertain the safety of plants which do not only supply gas to productive units and safety of post-counter services.services; and
•		Paragraphparagraph 69 provides the authentic interpretation of the rule introduced by Legislative Decree No. 164/2000 concerning the transitional regime of concessions for natural gas distribution activities in urban centers existing at June 21, 2000, which allows for an anticipated repayment of the distribution service, despite being provided through a bid procedure rather than direct entitlements. This law changes the provisions defined by Legislative Decree No. 164/2000 by: (i) extending to December 31, 2007, the transitional period for the continuation of existing concessions, with a possible extension of one further year when public interest is considered important by local authorities; and (ii) canceling the adding up of possible extensions, as provided for by Legislative Decree No. 164/2000, in case of certain conditions (business restructuring, size parameters, shareholding composition). The end of concessions awarded on the basis of a bid procedure remains set at December 31, 2012.

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Law Decree No. 239/2003 and Budget Laws for 2006 and 2007

Law Decree No. 239/2003, converted with amendments into Law No. 290/2003, 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.electricity. The term by which companies must comply with this provision is December 31, 2008 as established by the Budget Law for 2006. The Italian Budget Law for 2007 establishes that the provisions to implement Law No. 266/2005 (budget law290/2003 will be enacted through a decree from the Italian Prime Minister. The term for 2006) extended this deadline from July 1, 2007 tothe disposal envisaged by Law No. 290/2003, which was initially fixed at December 31, 2008. At December 31, 20052008, will be redetermined in 24 months after the effective date of said decree from the Italian Prime Minister. Currently, Eni held a 50.05% interest in Snam Rete Gas. Following this provision, Eni will haveis unable to sell part of its stake in Snam Rete Gas – until it reaches the 20% maximum interest allowed within the end of 2008.predict that date.

OnIn addition, on March 23, 2006 a LawPresidential Decree of the President of the Council of Ministers defined criteria and modesmethods for the divestment of the interest held by Eni in Snam Rete Gas SpA, introducing the special powers of the Ministry of Economy and Finance provided for by the regulations on the divestment of interests held by the Italian Government ("golden share") in the by-lawsBy-laws of this company.

Natural gas emergency procedure On December 12, 2005, the Minister of Productive Activities updated the emergency procedure to cope with a natural gas shortage in the event of unfavorable climatic events. In particular the new established procedure set the following sequence of activities:

•		an increase of gas availability (maximization of natural gas importation);
•		activation of the interruption of customers with interruptible contracts;
•		interruption of supplies to "dual-fuel" plants;
•		further actions to reduce natural gas consumption of "dual-fuel" plants; and
•		further initiatives to reduce natural gas consumption.

In order to manage the natural gas emergency during the 2005-2006 winter opened on December 19, 2005, the following provisions were adopted:

•		Resolution No. 10/2006: the Authority introduced an auction mechanism to activate an interruption temporary system of the gas natural supply;
•		Ministerial Decree of January 24, 2006: the Ministry of Productive Activities reduced emissions limits to the power generation plant up till March 31, in favor of the use of oil; and
•		Ministerial Decree of January 25, 2006: the Ministry of Productive Activities reduced from 1 to 28 of February the allowed limits of temperature in the residential buildings.

The Ministry of Productive Activities declared the end of the emergency procedure on March 22, 2006.

Natural Gas prices

Prices of natural gas sold to industrial and thermoelectric customers as well as to wholesalers are freely established among buyers and sellers following the liberalization of the natural gas sector introduced by Decree No. 164. 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 reducingNotwithstanding this, 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. The Authority for Electricity and Gas holds a power of surveillance on this matter (see below) under Law No. 481/1995 (establishing the Authority for Electricity and Gas) and Legislative Decree No. 164/2000. See below for a discussion of natural gas prices of sales of natural gas to residential and commercial customers which were not eligible customers until December 31, 2002.

The Presidential Decree of the President of the Council of Ministers ofdated October 31, 2002 conferred to the Authority for Electricity and Gas, also after the opening up of markets set at January 1, 2003 for customers who were not-eligible customers until December 31, 2002, the powers to: (i) define, calculate and update and gas selling prices also after the opening up of markets set at January 1, 2003 for customers who were not-eligible customers until December 31, 2002; (ii) define methods for updating selling prices with reference to variable costs that minimize the impact of inflation; 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 selling prices to the various groups of users. Consistently with this decree, the Authority for Electricity and Gas: (i) with Decision No. 195 of November 29, 2002 changed the methods for periodically updating selling prices for natural gas in connection with changes in international prices of crude oil and refined products. 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%; and (ii) with DecisionResolution No. 207 of December 12, 2002, it decided that companies selling natural gas through local networks have to maintain the conditions applied to non-eligible customers until December 31, 2002 until the customer accepts a new contract offer. In addition, the Authority for Electricity and Gas decided that these companies can propose their own new contract offers and the tariffs determined according to the criteria established by the Authority for Electricity and Gas, 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 GazetteGazzetta Ufficiale of their region or autonomous province).

Changes introduced to the indexation mechanism of the raw material component in supplies to residential customers by the Authority for Electricity and Gas: Resolutions No. 248/2004; 134/2006 and 79/2007

With DecisionResolution No. 79/2007 the Italian Authority for Electricity and Gas, after concluding a consultation procedure with gas operators also taking account of the annulment of its Resolution No. 248/2004 due to formal flaws by the Administrative justice bodies, redefined the tariffs for the period January 1, 2005-March 31, 2007 and established a new indexation mechanism for the raw material cost component in natural gas supplies to customers consuming less than 200,000 CM/y (mainly residential and commercial customers located in urban centers), organizing in a single measure all its resolutions on this matter. In particular with this Resolution the Authority: (i) confirmed the indexation mechanism for the raw material cost component contained in Resolution No. 248/2004 and the changes introduced to this mechanism by Resolution No. 134/2006 starting on July 1, 2006 (see below for a full description of said resolutions); (ii) waiving this provision, it reviewed the updating of the raw material cost component for 2005 reaching incremental values equal to those deriving from the application of the indexation criteria of Resolution No. 195/2002; this cancels the negative impact of Resolution No. 248/2004 on Eni’s 2005 accounts; and (iii) decided that selling companies, only for wholesale purchase/sale contracts entered after January 1, 2005 and valid in the January, 1 2006-June 30, 2006 period, offer their customers new contractual conditions consistent with the new indexation mechanism before June 4, 2007, and inform the Authority, before June 29, 2007, together with their wholesaler that they have complied with this requirement.

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Selling companies complying with this requirement will be entitled to 50% of the difference between the updating of the raw material cost component under the new mechanism and the more favorable one under Resolution No. 195/2002 applied to volumes consumed by customers under the 200,000 CM/y threshold. On the basis of this Resolution in the first quarter of 2007, Eni reversed part of the reserves accrued in Eni’s accounts for 2005 and 2006 with respect to the estimated impact of Resolution No. 248/2004. See "Item 5 – Recent Developments".

The mechanism initially implemented by the Authority for Electricity and Gas with Resolution No. 248 of December 29, 2004, the Authority for Electricity and Gashad changed the indexing mechanism concerning the raw material component in tariffs paid by end customers thatconsuming less than 200,000 CM/y, who were non-eligible customers until December 31, 2002 according to DecisionResolution No. 195/2002. The decision introduced the following changes: (i) establishment of a cap set at 75% for the changes in the raw material component if Brent prices fall outside the 20-35 dollar/barrel$/BBL range; (ii) change of the relative weight of the three products making up the reference index of energy prices whose variations – when higher or lower than 5% as compared to the same index in the preceding period – determine the adjustment of raw material costs; (iii) substitution of one of the three products included in the index (a pool of crudes) with Brent crude; and (iv) reduction in the value of the variable wholesale component of the selling price by 0.26 euro 0.26 cents per cubic meter/CM. Eni accrued provisions in orderits 2005 financial statements and in the accounts of the first half of 2006 with respect to foster the negotiationestimated impact of prices consistent with average European prices inResolution No. 248.

Resolution No. 248 was opposed by several Italian natural gas import contracts starting from October 2005. Decisionoperators, among which Eni, who claimed its legitimacy against the administrative tribunal. In the meantime the administrative proceeding on Resolution No. 248/2004 obligeswas running its course, effective July 1, 2006 the Authority implemented Resolution No. 134/2006, which modified Resolution No. 248/2004 as follows: (i) it established a cap set at 75% for the changes in the raw material component if Brent crude prices fall below 20 $/BBL or inside the 35-60 $/BBL range and at 95% if Brent crude prices are higher than 60 $/BBL (in Resolution No. 248/2004 the price cap was set at 75% for the change in the raw material component if Brent crude prices fell below 20 $/BBL or exceeded 35 $/BBL); and (ii) it changed from 5% to 2.5% the limit to variations in the index of energy prices which trigger the adjustment of raw material costs. In addition, it confirmed the obligation already envisaged by Resolution No. 248/2004 on charge of Italian suppliers to wholesalers to renegotiate supply contracts in light of the price revision introduced by same decision in supply contracts between wholesalers and end users. This decision also states that the Authority may review these clauses in the light of import contracts. Eni provided the AuthorityThe changes introduced by Resolution No. 134/2006 apply for a two-year period with the termsoption of its import contracts that may lead the Authority to reconsider its decision, as Eni isa one of the largest importers to Italy.

In May-October 2005 the Regional Administrative Court of Lombardy, based on claims of Eni and other operators, annulled Decision No. 248/2004. In March 2006, the Council of State annulled theyear extension following a decision of the Regional Administrative Court of Lombardy in the case of a single operator and, at the same time, postponedAuthority.

According to the plenary meeting of the Council of State the case of an association ofResolution No. 134/2006, starting on October 1, 2006, natural gas wholesalers and local selling companies taking into account a possible procedural flaw. Furthermore,shall offer pricing terms consistent with the Council of State postponed its decision on the appeal proposeddetermination and updating mechanisms established by the Authority against the decision of the Regional Administrative Court of Lombardy in favor of Eni after the decision of the plenary meeting of the Council of State on said procedural issues (expected to occur late in 2006).

In December 2005 the Authority for Electricity and Gas implemented Decisiononly to household customers consuming less than 200,000 CM/y.

Eni started applying the indexation mechanism provided for by Resolution No. 248 for the first quarter 134/2006 through Decision No. 298/2005. The Regional Administrative Court of Lombardia initially suspended Decision No. 298/2005 based on claims of Eni and other operators. Then the same Court cancelled the suspension it had initially granted. Therefore Decision No. 298/2005 is now fully effective. On March 28, 2006, the Authority for Electricity and Gas issued Decision No. 63/2006 which updates tariffs for the April-June 2006 quarter, in application of Decision No. 248/2004. Eni appealed also this decision for the reasons stated above.

Eni’s management expects a negative outcome of this matter. In fact Eni accrued a material provision in its 2005 Consolidated Financial Statements in orderaccounts from the second half of 2006 onwards. In addition, Eni began to reflectrenegotiate the risks associatedterms of supply contracts with this matter. In 2006 management expects Eni’s results of operation to be adversely impacted by a material amount in light of the high Brent crude oil prices, in the event Decision 248/2004 is implemented in its original form. Actually Eni’s results of operations for the first quarter 2006 were negatively affected by this matter. See "Item 3 – Risk Factors" and "Item 5 – Results of Operations and Recent Developments".

With Decision No. 65/2006, the Authority started a consultation with operators to redefine mechanisms for the updating of the raw material component in natural gas prices to households and established provisions concerning partial adjustments for finalwholesale customers related to differences between Decision No. 248/2004 and the previous Decision No. 195/2002. Consistently with the appeal against Decision No. 248/2004, Eni appealed also against Decision No. 65/2006 with the Regional Administrative Court of Lombardia. The Authority, in the consultation document published on May 17, 2006, proposed the followings: (i) while confirming a quarterly basis mechanism for the updating of the raw material component in natural gas price formulas, with a five percentage points of invariance threshold as provided for by DecisionResolution No. 195/2002,134/2006. On the basis of Resolution No. 134/2006, management assessed that the provision accrued in 2005 financial statements, with respect to the estimated impact of Resolution No. 248/2004 for that year, was partially redundant, and as a monthly updating mechanism is proposedresult such provision was partially reversed in 2006 accounts.

Finally the Council of State annulled Resolution No. 248/2004 for formal flaws, acknowledging at the recognition of purchase costs borne by operators with an half percentage point invariance threshold; (ii)same time that the establishment of a compensatory fund which will redistribute among operatorsAuthority was legitimate in changing pricing mechanisms in the differences between natural gas prices recognized to end customers and the raw material costs incurred by operators; and (iii) the fixation of a range of $35-60 per barrel of Brent crude oil to which selling companies apply the 75% cap, limiting the ability to pass increases in the purchase cost onto final customers. Beyond $60, increases in the purchase cost are proposed to be transferred to end customers with a 90-95% cap for a maximum two year transition period. In additionsector. On this basis, the Authority confirmed the obligation of suppliers to wholesalers to renegotiate supply contracts taking account of the new price mechanism introduced by Decisionenacted Resolution No. 248/2004. Management expects the proposed changes to partially mitigate the impact of Decision No. 248/2004,79/2007 as they do not enable Eni to fully recover the purchase cost of natural gas in selling prices.discussed above.

Inquiry of the Authority for Electricity and Gas on import purchase prices

With DecisionResolution No. 107/2005 the Authority for Electricity and Gas started a formal inquiry under Law No. 481/1995 against Eni and other gas importers alleging their failure to comply with the Authority information requirements contained in its DecisionResolution No. 188/2004 of October 27, 2004, by which it required natural gas importers, among which Eni, to give information concerning: (i) dates and supplier for each supply contract for the import of natural gas; (ii) FOB purchase prices; (iii) price updating formulas; and (iv) volumes supplied and FOB purchase average prices on a monthly basis for each supplying contract relating to the period October 2002-September 2004. Under Law No. 481/1995, the Authority for Electricity and Gas can impose a fine on Eni. Eni appealed this decision with the Regional Administrative Court of LombardiaLombardy that on March 22, 2005 cancelled the obligation for Eni to communicate dates and supplier for each contract and FOB purchase prices. Accordingly, Eni initially gave the Authority for Electricity and Gas only part of the information required. On April 6, 2006 a final hearing was held in front of the Authority Eni confirmed its position that it has provided adequate information, but with the intention of full collaboration it provided the data concerning average monthly fobFOB prices for the October 2002-September 2004 period.

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With Resolution No. 226/2006 of October 21, 2006, the Italian Authority for Electricity and Gas closed a formal inquiry against Eni that commenced with Resolution No. 107/2005, stating that Eni allegedly failed to comply with an obligation to deliver certain pieces of information regarding Eni’s natural gas import contracts to the Authority. As a result, the Authority fined Eni euro 10 million. In spite of the circumstance that Eni spontaneously delivered the requested pieces of information, the Authority objected to the fact that Eni delayed the fulfillment of its obligation to deliver said information, resulting in a behavior which breaches the rules requiring the establishment of information flows intended to allow the Authority to perform its tasks. Eni filed a claim against the Authority’s decision before the Regional Administrative Court of Lombardy. Eni recorded a provision for this proceeding in its 2006 accounts.

Inquiry of the Authority for Electricity and Gas on behaviors of operators selling natural gas to end customers

With DecisionResolution No. 225235/2006 of October 28, 2005,November 6, 2006, the Italian Authority for Electricity and Gas closed the inquiry that started an inquiryin October 2005 (with Resolution No. 225) on the behaviorscommercial behavior of companies selling natural gas to end customers aimedlocated in urban centers (residential, services, commercial activities and small enterprises) aiming at acquiring new customers or re-acquiring customers transferred to other sellers,sellers. The inquiry was conducted with particular reference to hurdles posed by companies to customers wishing to leave one distributor or to the entry of competitors on the market. The inquiry aims at identifying any measuremarket from January 1, 2005 to October 20, 2006. In its final report, enclosed to the Resolution No. 235/2006 the Authority should take in this area and is expected to close before July 31, 2006.

Inquiries byconfirmed the Italian and European Antitrust Authorities

Sale contracts outside Italy With a decisionexistence of November 21, 2002,certain critical points about the Antitrust Authority judged that Eni had violated competition rules by entering in 2001 into contracts outside Italy with other operators importing into Italy the supplied volumes and thus limiting third party access to natural gas transport infrastructure. The Antitrust Authority considered 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 single operators into the national network. With the same decision and taken into account 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 "implement measures to eliminate infringing behaviors with specific attention to the upgrading of the transmission network or equivalent actions".

On June 18, 2004, Eni submitted to the Antitrust Authority a proposal entailing the sale to third parties of a total of 9.2 BCM of natural gas in the four-thermal year period starting in October 1, 2004 through September 30, 2008, corresponding to 2.3 BCM for each thermal year, before such natural gas enters the national transmission network at Tarvisio. With a decision of June 24, 2004, the Antitrust Authority judged this proposal adequate to end the effects of the violationreal level of competition rules highlighted inwithin this market segment and proposed different options to complete and adjust the November 21, 2002 decision. With the decision of October 7, 2004 that closed the above mentioned procedure, the Antitrust Authority acknowledged that Eni had taken proper measures for executing the decision of November 21, 2002 by signing gas release contracts. However, it fined Eni euro 4.5 million alleging that Eni had complied belatedly with the Antitrust Authority’s indications. On December 6, 2004, Eni filed a claim with the Regional Administrative Court of Lazio against this decision requesting the annulment of the fine that was however recorded in Eni’s accounts. In May 2005 the Regional Administrative Court repealed this claim. Eni paid the fine imposed on it by the Antitrust Authority. In June 2006, the appeal proposed by Eni before the Council of State against the decision of the Regional Administrative Court was rejected. A claim filed by Eni with the Regional Administrative Court of Lazio against the decision of November 21, 2002 is still pending.

Inquiry of the Authority on the upgrade of the TTPC Pipeline - Appeal to the Regional Administrative Court for Lazio On February 15, 2006, the Antitrust Authority informed Eni of the closing of an inquiry started in February 2005 to ascertain an alleged abuse of dominant position. The events leading to the opening of the procedure relate to behaviors of Trans Tunisian Pipeline Co Ltd (TTPC), wholly owned by Eni, concerning its decision to consider expired certain ship-or-pay contracts signed on March 31, 2003 by TTPC with four shippers, who had been assigned new transport capacity on TTPC’s pipeline, due to the non occurrence of certain suspensive clauses. Therefore TTPC decided to not proceed to the planned upgrade of the pipeline by 2007.

In January 2006 Eni submitted to the Antitrust Authority a proposal containing the actions it intends to performregulatory framework in order to favor competition on the Italian natural gas market and mitigate the effects if its alleged abuse of dominant position, concerning in particular the upgrade of the TTPC pipeline in Tunisia for the import of natural gas to Italy from Algeria: 3.2 BCM/y from April 1, 2008 and further 3.3 BCM/y from October 1, 2008.overcome acknowledged deficiencies.

With a decision notified on February 15, 2006 the Antitrust Authority stated that Eni’s behavior through its subsidiary TTPC represented an abuse of dominant position under Article 82 of the European Treaty. It therefore fined Eni. The original fine amounted to euro 390 million and was reduced to euro 290 million in consideration of Eni’s commitment to perform actions favoring competition as mentioned above. Eni appealed against this decision with the Regional Administrative Court of Lazio. The hearing is scheduled on July 12, 2006. See above "Gas & Power – Development Projects".

Eni SpA - GNL Italia SpA On November 18, 2005 the Antitrust Authority notified Eni and its subsidiary GNL Italia the opening of an inquiry, in accordance with Article 14 of Law No. 287/1990, concerning an alleged abuse of dominant position in the assignment and use of the total continuous regasification capacity of the Panigaglia terminal (owned by GNL Italia) in thermal years 2002-2003 and 2003-2004, as evidenced by an inquiry of the Authority for Electricity and Gas which referred Eni to the Antitrust Authority. In a later communication the company was informed that the inquiry has been extended also to thermal year 2004-2005 and to Snam Rete Gas which is the parent company of GNL Italia SpA. The inquiry is due to be closed on October 31, 2006.

Inquiry of the European Commission

On May 5, 200611, 2007 the European Commission started an inquiryhas decided to open anti-trust proceedings against Eni based on information obtained during inspections carried out in order2006 at the headquarters of Eni and in certain Eni’s subsidiaries. These proceedings against Eni intend to verify an alleged abusethe possible existence of dominant position on the part of Eni in violation of Article 82 of the EEC Treaty and Article 54 of the CES Agreementany business conducts breaching European competition rules in the activitiesform of internationalpreventing access to the Italian natural gas wholesale market and to subdivide the market among few operators in the activity of supply and transport and wholesale and retail supply of natural gas.

According to
Particularly, the European Commission alleged that Eni might havehave: (i) adopted commercial practices that constitute barriers to access to the Italian market for the wholesale supply of natural gas in particular taking account Eniby way of its long-term purchase contracts. In addition Eni also entered long-term transport contracts which award Eniand by subdividing the market among few operators; and (ii) engaged a majority share of the transport capacity of the certain international gaslines and, as a consequence, Eni might have prevented others to access infrastructure.

In addition according togas lines, preventing third parties from accessing said infrastructures. Furthermore, the European Commission alleged that Eni might have delayed or annulled certain plans for the upgrading of the international transport infrastructure, despite the significant demand for access by third parties. This behavior would have favored natural gas commercial supplies downstreamThese suspected practices constitute possible infringements of transport activities thus allowing Eni to keep its dominant position inArticle 82 of the marketEC Treaty. The initiation of wholesale sales.

Lastly, based on information held byproceedings does not imply that the Commission Eni might have subdividedhas conclusive proof of an infringement. The Commission will conduct an in-depth investigation of the market with other companies operating in the supply and/or transportcase as a matter of natural gas, in particular by limiting the use of rights of accesspriority. There is no strict deadline to entry and exit points of gas pipelines, in particular TENP and TAG.

Officials from the European Commission conducted inspections at headquarters of Eni and of certain Eni’s subsidiaries and collected documents.

complete inquiries into anticompetitive conduct.
If the existence of the alleged anti-competitive practices iswill be confirmed, the European Commission could fine Eni. At present, management is not able to assess the impact on Eni’s results of operations and financial condition that may arise from an unfavorable outcome of this matter.

Transport

Transport tariffsWith DecisionResolution No. 120 of May 30, 2001, the Authority for Electricity and Gas published the criteria which transport companies have to apply in determining natural gas transport and dispatching tariffs on national and regional transportation networks, for the first regulatory period made up of four thermal yearyears (each thermal year begins on October 1 of each calendar year and ends on September 30), as provided for by Decree No. 164/2000. Tariffs are subject to approval by the same Authority, which ensures their compliance with preset criteria. This tariff system substituted precedingprevious agreements between Eni and customers of any category.all categories. Within the first quarter of each calendar year, transport companies submit the tariff proposal to the Authority for Electricity and Gas which in turn approves or rejects the proposal of transport companies.who grants approval.

Criteria established by the Authority for Electricity and Gas provide forset a cap on revenues from transport and dispatching activity ("allowed revenues") which is adjusted annually; thosethe criteria also provide fordefine 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 revaluatingreevaluating 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 for Electricity and Gas was 7.94% (pre-tax), for the first regulatory period. 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.

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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. 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 incurred. In addition, those capital expenditures give rise to a six year fixed increase in allowed commodity revenues. At the end of the first regulatory period, all transport cost components were recalculated and 50% of higher cost reductions with respect to established efficiency improvements were recognized to transport companies and 50% were 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 nodes with regional networks (divided into 17 zones) and on a charge for the capacity used at regional level, providing for discounts to those outgoing the network at less than 15 kilometers from the interconnection point between regional and national networks. A further charge (commodity charge) is related to the amounts of gas transported plus an annual fixed charge varying according to the delivery points. This tariff system regulated the four-thermal year period starting October 1, 2001 and ending on September 30, 2005.

With the DecisionResolution No. 166/2005, the Authority for Electricity and Gas revised the outlined tariff regime for the second regulatory period (October 1, 2005-September 30, 2008). The new tariff structure confirms the breakdown of the tariff into two components: capacity and commodity in a ratio of 70 to 30 and the entry-exit model for the determination of the capacity component on the national pipeline network, already present in the previous tariff regime established by DecisionResolution No. 120/2001. The major new elements of the new regime are the following: (i) a reduction of the rate of return of capital employed in transport activities from 7.94% to 6.7% (pre-tax); (ii) a new set of incentives for new capital expenditure. In the previous regime, the return on upgrade and capacity expansion expenditure was 7.47% for one year only included in the calculation of the capacity component of the transport tariff and 4.98% for 6 years in the calculation of the commodity component. The new tariff structure provides an additional rate of return depending on the type of expenditure on the return rate recognized for capital employed: from a minimum of 1% for safety measures that do not increase transport capacity, applied for 5 years, to a maximum of 3% for expenditure that increases capacity at entry points into the national network, applied for 15 years. The additional return is part of the determination of the maximum allowed revenues in the calculation of the capacity component of the tariff and therefore is not influenced by changes in volumes transported; (iii) the updating by means of a price cap mechanism of the allowed revenues the transport undertaking is entitled to and the annual recalculation of the portion of allowed revenues relating to costs incurred for capital expenditure. This price cap mechanism applies to operating costs and amortization charges (previously it applied to all the allowed revenues). The annual rate of recovery of productivity was confirmed at 2%; this is used to reduce the effect of changes in the consumer price index on the updating of the preceding year’s allowed revenues; instead the preset annual rate of change of productivity recovery for the updating of the commodity component of the tariff was reduced from 4.5% to 3.5% of; and (iv) confirmation of the tariff reduction for start-upsstart ups (construction/upgrade of combined cycle plants for electricity generation) and for off take in low season periods (from May 1 to October 31) already contained in Decisions No. 5/2005 and 6/2005 which updated the previous tariff regime. The companies active in the field of gas transport submit their tariff proposals to the Authority who grants approval, within the first quarter of each calendar year.

Network code With DecisionResolution No. 75 of July 1, 2003, the Authority for Electricity and Gas approved Snam Rete Gas Network Code, which defines rules and regulations for the operation and management of the transmission network. The Network Code, in accordance with Legislative Decree No. 164/2000, is based on the criteria set by the Authority for Electricity and Gas with DecisionResolution No. 137/2002, aimed at guaranteeing equal access to all customers, maximum impartiality and neutrality in transport and dispatching activities. The Network Code regulates entitlement of transport capacity, obligations of transporter and customer and the procedures through which customers can sell capacity to other users. Transport capacity at entry points in the national gasline network (point of interconnection with import gaslines)gas lines) is assigned on an annual basis and can last up to five thermal years. Entities eligible to be assigned transport capacity on a multi-year basis are those having multi-year import contracts within the limit of their daily average contract volumes. Priority criteria envisage that available capacity is assigned first to parties in multi-year import contracts containing take-or-pay clauses signed before August 10, 1998 (date of coming in force of European Directive 98/30/CE). ItIf requests for capacity in a given thermal year are 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 multi-year import contracts are entitled to annual capacity conferrals corresponding to maximum daily contract volumes and the difference between maximum daily contract volumes and average daily contract volumes, respectively. Available transport capacity is assigned first to parties in annual import contracts and parties in multi-year import contracts. If requests for capacity in a given thermal are higher than available capacity, a pro-rata mechanism is applied in compliance with the aforementioned priority.

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Eni filed a claim against this decision with the Regional Administrative Court of Lombardia, thatLombardy, which was partially accepted with a decision of December 2004. The Authority filed a claim against this decision with the Council of State and informed Eni on February 19, 2005. This proceeding is still pending.

New taxTax criteria for the determination of amortizations for companies operating in transport and distribution of natural gas The criteria for the determination of the annual share of amortizations of natural gas transport and distribution assets deductible in the determination of income taxes have been changed starting in 2005 onwards by Law Decree No. 203 of September 30, 2005, converted into Law No. 248 of December 2, 2005 and Law No. 266 of December 23, 2005 (budget law for 2006). Due to these changes, the share of amortizations that was previously calculated based on rates set by a decreeDecree of the Minister of Finance of December 31, 1988, is now determined by dividing the relevant asset gross book value in accordance with the useful lives determined by the Authority for Electricity and Gas and reducing the amount obtained after tax by 20%. The alignment of the fiscal lives of natural gas transport and distribution assets to their useful lives entails the anticipation of the payment of income taxes given the postponement of the deductibility of amortization without impacting on net profit of companies involved (mainly Snam Rete Gas and Italgas), except for the financial charges related to this cash anticipation.

Regulation (EC) No. 1775/2005 On November 3, 2005 Regulation (EC) No. 1775/2005 concerning conditions for accessing international natural gas transport networks was published. The Regulation establishes non discriminatory access rules and will be effective starting on July 1, 2006. The Regulation will be directly applicable in each Member State and national regulatory authorities will be responsible for its enactment.

Preliminary investigation on the management and operation of the Panigaglia LNG regasification terminalThe Authority for Electricity and Gas with Decision No. 204 of November 18, 2004, started a preliminary investigation on the management and operation of Eni’s Panigaglia LNG regasification terminal and on LNG supplies to the Italian market in the thermal years from 2001 to 2004 in order to ascertain any behavior infringing the rules of equal access and equal conditions and neutrality in providing the regasification services.

Adoption of guarantees for free access to LNG regasification services and rules for the regasification codeWith DecisionResolution No. 167 of August 1, 2005, the Authority for Electricity and Gas published the criteria for access to LNG regasification services. The Decision also defines criteria for the allocation of regasification capacity. In particular it establishes that take-or-pay contracts entered into before 1998, as in the case of Eni, are assigned a priority access limited to the minimum amount of volumes that have been regasified in the period starting from thermal year 2001-2002. Eni filed a claim against this decision with the Regional Administrative Court of Lombardia.Lombardy.

Regasification tariffsTariffs for both the continuous and spot regasification services are based on treated volumes of LNG, number of discharges carried out and energy associated to volumes input in the national transport network. Tariffs for the spot service are 30% lower than those for continuous service.

Distribution

Distribution is the activity of delivering natural gas to residential and commercial customers of urban centers through low pressure networks. Distribution is considered a public service operated in concession and is regulated on the basis of Law Decree No. 164/2000.

Distribution tariffs With DecisionResolution No. 237 dated December 28, 2000 as amended, the Authority for Electricity and Gas determined tariff criteria for natural gas distribution activity for the first regulated period ending on September 30, 2004. Tariffs are determined so that annual revenues from natural gas distribution activity cover operating costs and the remuneration of capital employed and are adjusted yearly according to the price cap method based on parameters and formulas determined by the Authority for Electricity and Gas. Capital employed is determined by applying a parameter-based method or, alternatively, a method of revalued historical cost for those companies that published audited financial statements starting with the fiscal year ended before January 1, 1991 (which include Italgas). With DecisionResolution No. 170 of September 29, 2004 the Authority for Electricity and Gas defined gas distribution tariffs for the second regulated period from October 1, 2004 to September 20, 2008, setting at 7.5% the rate of return on capital employed of distribution companies, as compared to the 8.8% rate set for the preceding regulated period. The rate of productivity recovery – one of the components of the annual adjustment mechanism of tariffs – was set at 5% of operating expenses and amortization charges (as compared to the 3% rate applied to total expenses and charges in the preceding regulated period). With DecisionResolution No. 122 of June 21, 2005, the Authority integrated and changed DecisionResolution No. 170/2004, defining a new determination mechanism for distribution tariffs that takes account of capital expenditure incurred by distributing companies.

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Distribution network code With DecisionResolution No. 138/2004 the Authority for Electricity and Gas defined a set of rules to ensure free access to the distribution networks and neutrality of the distribution service, as well as criteria for the definition of distribution network codes.

With DecisionResolution No. 108/2006 the Authority for Electricity and Gas approved the Gas Distribution Master Code which will be used as a standard contract between distribution companies and shippers (natural gas selling companies). Within three months from its publication, distribution companies are due to issue their own gas distribution code adopting either the Gas Distribution Master Code or the scheme provided for by the DecisionResolution No. 138/2004.

Refining and Marketing of Petroleum Products

Refining 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. Management expects no material delays in obtaining relevant concessions for the upgrading of the Sannazzaro and Taranto refineries as planned in the medium term.medium-term.

Service Stationsstations 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 Decreedecree 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. 112/1998 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, in the 1998-2000 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 Productive 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 Decreedecree was issued on October 31, 2001 and established the criteria for the closing down of incompatible stations, the approval of the plan, the renewal of the network, the opening up of new stations and the regulations of the operations of service stations on matters such as automation, working hours and non oil activities.

Petroleum Product Pricesproduct 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 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" on economic relations between operators in this area. To date, this regulation has had no significant impact on Eni’s operations.

With Decision of January 18, 2007, the Italian Antitrust Authority opened an inquiry to ascertain the existence of a possible agreement limit competition in the field of pricing of automotive fuels distributed on the retail market in Italy in violation of Article 81 of the EC Treaty. This inquiry concerns eight oil companies, among which Eni. According to the Authority, said companies would have been putting in place collusive mechanisms intended to influence the pricing of automotive fuels distributed on the retail market by way of a continuing exchange of informative flows since 2004.

With a recommendation approved at its meeting of January 18, 2007 and submitted to the Government and the Regions, the Italian Antitrust Authority requested the elimination of local constraints to the opening up of the fuel distribution outlets aimed at increasing competition and reducing retail prices.

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Specifically, the Authority urged the following measures in order to enhance the level of competition in the sector of retail marketing of fuels: (i) the development of the marketing of fuels by large retailers (supermarkets, large chain-stores, etc.); (ii) the elimination of administrative constraints to the opening of new service stations; (iii) a liberalization of opening hours; and (iv) transparency for consumers, identifying any useful tools for proper information on actual prices imposed by operators in each outlet. Currently, Eni is unable to forecast a time frame for this matter. Implementation of any of these suggested measures could enhance the level of competition in the retail marketing of fuels, leading to a reduction in retail margins for all operators.

Compulsory Stocksstocks According to Legislative Decree of January 31, 2001, No. 22 ("Decree 22/2001") enacting European Directive No. 98/1993 (which regulates the obligation of member states to keep a minimum amount of stocks of crude oil and/or petroleum products) compulsory stocks, must be at least equal to the quantities required by 90 days of consumption of the Italian market (net of oil products obtained by domestically produced oil). In order to satisfy the agreement with the International Energy Agency (Law No. 883/1977), Decree 22/2001 increased the level of compulsory stocks to reach at least 90 days of net import, including a 10% deduction for minimum operational requirements. Decree 22/2001 states that compulsory stocks are determined each year by a decree of the Minister of Productive Activities based on domestic consumption data of the previous year, defining also the amounts to be held by each oil company on a site-by-site basis.

Decree No. 32 of February 11, 1998 established an entity responsible for the maintenance and management of this compulsory stock 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 has been created on June 14, 2001; its by-lawsBy-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 Agency’s members.

At December 31, 20052006 Eni owned 7.2 million tonnes8.6 mmtonnes of oil products inventories, of which 4.8 million tonnes5.4 mmtonnes as "compulsory stocks", 1.0 million tonnes1 mmtonnes related to operating inventories in refineries and depots (including 0.2 million tonnesmmtonnes of oil products contained in facilities and pipelines), 1.1 million tonnes0.7 mmtonnes related to oil products contained in ships and 0.3 million tonnesmmtonnes related to specialty products.

Eni’s compulsory stocks (at December 31, 2005)2006) were held in term of crude oil (27%(31%), light and medium distillates (44%(45%), fuel oil (22%(19%) and other products (7%(5%) and they were located throughout the Italian territory both in refineries (75%(73%) and in storage sites (25%(27%).

 

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" and "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"). Article 81 prohibits collusion among competitors that may affect trade among member states and that has 70 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; and
•		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; and (iv) find that Articles 81 and 82 of the Treaty are not applicable to an agreement for reasons of Community public interest.

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Eni is also subject to the competition rules established by the Agreement on the European Economic Area (the "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"). 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.

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 & Production" above for a description of Eni’s reserves and sources of crude oil and natural gas.

 

Organizational Structure

Eni SpA is the parent company of the Eni groupGroup companies. As of December 31, 2005,2006, there were 257 fully consolidated subsidiaries, 94 subsidiaries accounted for under either the equity method or the cost method and 176 affiliates accounted for under either the equity method or the cost method. The significant subsidiaries, associated undertakings and joint ventures of the Eni Group controlled directly or indirectly by Eni at December 31, 20052006 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
Stoccaggi Gas Italia SpA		Italy		100
Eni Oil Algeria Ltd		the NetherlandsUnited Kingdom		100
Eni Angola Exploration BV		the Netherlands		100
Agip Caspian Sea BV		the Netherlands		100
Eni Congo SA		the Netherlands		100
Eni Dación BV		the Netherlands		100
Lasmo Sanga Sanga Ltd		Bermuda		100
Eni Iran BV		the Netherlands		100
Agip Karachaganak BV		the Netherlands		100
Eni Lasmo Plc		the United Kingdom		100
Eni LNS Ltd		the United Kingdom		100
Eni North Africa BV		the Netherlands		100
Agip Oil Ecuador BV		the Netherlands		100
Eni Petroleum Co Inc		USA		100
Eni UK Ltd		the United Kingdom		100
Ieoc Production BV		the Netherlands		100
NAOC Nigerian Agip Oil Co Ltd		Nigeria		100
Eni Norge A/S		Norway		100
Gas & Power
Snam Rete Gas SpA		Italy		50
Società Italiana per il Gas pA		Italy		100
Distribuidora de Gas Cuyana SA		Argentina		46
Gas Brasiliano Distribuidora SA		Brazil		100
Greenstream BV		the Netherlands		75
Inversora de Gas Cuyana SA		Argentina		76

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Company/Undertaking		Country of Incorporation		%
Tigáz Rt Tiszántúli Gázszolgáltátó Részvénytársaság		Hungary		50
EniPower SpA		Italy		100
Refining & Marketing
AgipFuel SpA		Italy		100
Ecofuel SpA		Italy		100
Eni Portugal Investment SpA		Italy		100
Agip Deutschland GmbH		Germany		100
Agip España SA		Spain		100
Agip Française SAFrance Sarl		France		100
American Agip Co Inc		USA		100
Petrochemicals
Polimeri Europa SpA		Italy		100
Dunastyr Polystyrene Manufacturing Co Ltd		Hungary		100
Polimeri Europa Benelux SA		Belgium		100
Polimeri Europa Elastomères France SA		France		100
Polimeri Europa UK Ltd		the United Kingdom		100
Oilfield ServicesEngineering & Construction and Engineering
Saipem SpA		Italy		43
Snamprogetti SpA		Italy		100
CEPAV (Consorzio Eni per l’Alta Velocità) Uno		Italy		50
Saipem SA		France		43
Other Activitiesactivities
Syndial SpA - Attività Diversificate	Italy	100
EniTecnologie SpA	Italy		100
Sieco SpA	Italy	100
Tecnomare - Società per lo Sviluppo delle Tecnologie Marine SpA	Italy	57
Corporate and financial companies
Eni International BV		the Netherlands		100
Eni Coordination Center SA		Belgium		100
Società Finanziaria Eni SpA - Enifin		Italy		100
Società Finanziamenti Idrocarburi - Sofid-SpASofid SpA		Italy		100
EniServizi SpA		Italy		100

 

Item 4A. UNRESOLVED STAFF COMMENTS

None.

 

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.

Executive Summary

Eni recorded areported net profit of euro 8.89.2 billion in 2005,2006, the highest in the Company’s history, representing an increase of 24.5% over 2004.4.9% from 2005. Operating profit in 20052006 amounted to euro 16.819.3 billion, up 35.7%14.9% from 20042005 reflecting higher operating profit reported by the Exploration & Production, the Gas & Power and the Engineering & Construction segments due to volume growth and performance improvements in Eni’s main businesses combined with a favorable trading environment characterized by strong gains both inhigher crude oil and natural gas prices and increased natural gas selling margins. In addition, lower restructuring charges were recorded in the Other activities segment. These gains were partly offset by a reduced operating profit recorded by the Refining & Marketing segment due to a decline in refining margins.margins and the impact of lower year-end prices on the evaluation of inventories of refined products under the weighted-average cost method of accounting. This method of accounting for inventories of oil, gas and products implies a high degree of volatility in Eni’s results of operation in particular for the Refining & Marketing segment as inventory evaluation is based on current market prices.

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On the basis of the results achieved, Eni’s management proposed at the Annual General Shareholder Meeting to distribute a dividend of euro 1.11.25 per share, of which euro 0.450.60 was already paid as an interim dividend in October 2005.2006. This dividend is 22%13.6% higher than in 20042005 (euro 0.901.10 per share) and was approved by the Annual General Shareholder Meeting on May 25, 2006.24, 2007.

In Exploration & Production, Eni continued to build onimplement its established position in somestrategy of the world’s fastest-growing producing nations of oil and natural gas. Eni’s daily production ofgrowing oil and natural gas production leveraging on the development of existing assets. Eni’s production for the year (on an available for sale basis) increased by 6.7% over 20041.6% from 2005 to 1,693 KBOE. 1,720 KBOE/d. This result was affected by:

(i)		a sizeable loss of production at the Venezuelan Dación oilfield (down 46 KBBL/d) due to the unilateral cancellation of the service contract relating to activities at this field by the Venezuelan state oil company PDVSA effective April 1, 2006;
(ii)		lower entitlements in certain Production Sharing Agreements (PSAs) and buy-back contracts (down 21 KBOE/d) due to higher oil and gas prices. Under such contracts, Eni is entitled to fixed monetary amounts to recover the expenses incurred for the development of the relevant properties and as a consequence of higher oil prices, the volumes entitled necessary to cover the same amount of expenses are lower; and
(iii)		disruptions in Nigeria due to social unrest.

Exploration & Production’s results for 2006 were bosted also by increased realized prices for oil and gas, partly offset by higher operating costs and higher depreciation and amortization charges.

Net proved reserves of oil and natural gas were 6,8376,436 mmBOE at year end 2005 (55%2006 (54% crude and condensates), down 381401 mmBOE from 2004 due principally to an adverse entitlement impact in certain production sharing agreements and buy-back contracts as a result2005. The unilateral cancellation of higher oil prices which reduced Eni’s entitlement to volumes of oil and natural gas to recover costs incurred by Enithe service contract for the developmentDación oilfield by the Venezuelan state oil company PDVSA determined a decrease in Eni’s proved reserves of certain oil fields. The reserve170 mmBBL. In 2006 Eni’s proved reserves replacement ratio was 40%. The38% (40% in 2005); as of year-end the reserves life index was 10 years of remaining production at year end 2005 was 10.8 years (12.1 yearsthe current rate (10.8 as at December 31, 2004)2005).

Eni increased its interestProduction start up of the Kashagan oilfield project (Eni is the operator and has a 18.52% interest) is currently scheduled for the third quarter of 2010 as compared to an initial forecast indicating a start up in 2008, due to the need to execute certain measures intended to enhance the overall level of safety and operability of offshore facilities. These enhancements coupled with sector-specific inflation and underestimation of costs to conduct offshore operations in shallow/ultra shallow waters where the Kashagan field is located resulted in a significant increase in the expected expenditures to implement phase one of the Kashagan project (Kazakhstan)project. At present, the estimated expenditures to reach the 300 KBBL/d production target envisaged by phase one stand at $19 billion, as compared to a budget of $10.3 billion in real terms 2007 as approved by the consortium partners and the relevant Kazakh authorities in 2004. Based on the high level of productivity yielded by the first three development wells drilled to date, management currently expects a full field production plateau of 1.5 mmBBL/d, representing a 25% increase from 16.67% to 18.52%. Management believes Kashagan to bethe original target envisaged by the approved development plan.

In 2006, Eni invested euro 1,348 million in exploratory activities, up 106% from 2005, conducting a very important project forextensive exploration campaign leading to the future growthcompletion of Eni’s production68 exploratory wells (35.9 net to Eni) with a commercial rate of oil and natural gas. The developmentsuccess of 43% (49% net to Eni). A further 26 wells were in progress as of the project, of whichyear-end. Eni is the sole operator, is on track, with 40% of work completed, and management plans to achieve first oil production by end-2008. Management is currently reviewing the planned $29 billion capital expenditure for the development of this large field in order to take account of changing market conditions.

Eni added toenhanced its exploration portfolio with the acquisition ofby acquiring assets in core areas such as Libya,Angola, Alaska, Brazil, Congo, Egypt, Nigeria, and Angola where Eni’s presence is already established,Norway, Pakistan, the Gulf of Mexico, and in new high-potential basins such as AlaskaMali, Mozambique and India.East Timor.

In Gas & Power, Eni continued to leverage on its assets consisting ofconsolidated and integrated position in Europe based on access to infrastructure, availability of gas – both from owned facilitiesits hydrocarbon production and from long termlong-term purchase contracts – and large customer base, to increase natural gas sales in European gas markets.

Overall gas sales in 2005 totalled 91.152006 totaled 97.48 BCM, up 8.8%approximately 4% from 2004.2005. This growth has beenwas driven by European gas sales and by larger volumes sold in Italy:mainly by:

•		gasa growth in sales across Europe (31.29 BCM) rose 11.2% as compared to 2004, driven also by the build upin a number of the Greenstream project;target European markets (up approximately 16% in particular in Turkey, Germany/Austria and France); and
•		Italianthe build-up of supplies from Libyan-operated gas sales (58.01 BCM, including own consumption) increased by 8% from 2004, mainly driven by gas consumption in our power business, and gas sales in South America were stable at 2 BCM.fields.

These positives were partly offset by a 3% decrease in sales in Italy due to the effect of competition and the mild weather conditions which characterized the fourth quarter of the year. The Gas & Power results for the year were also boosted by: (i) a favorable trading environment for gas selling margins; and (ii) a favorable development in the Italian regulatory framework, deriving from a softer impact of the tariff regime implemented by the Authority for Electricity and Gas with Resolution No. 248/2004 as modified by Resolution No. 134/2006 enacted on July 1, 2006.

Electricity sales (22.8volumes (24.82 TWh) increased by 64% in volume terms9% from 20042005 as a result of the start-upramp-up of two power unitsnew production capacity at the Brindisi and the Mantova plants, which increases were offset in part by the shut-down of the Ravenna power plant and the first unit of the Brindisi plant, as well as full commercial operation at the Ravenna and Ferrera Erbognone plants.due to ordinary maintenance activity.

In Refining & Marketing, Eni is seeking to increase return from its assets by upgrading its refineries in order to achieve higher yields of higher-value products, meet future product quality requirements, process low-quality crude and reduce operating costs. Eni is also pursuing the strengthening of its retail network of service stations in Italy and in selected European countries.

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The Refining & Marketing results for the year were affected by a weak refining system, increasing integration with Exploration & Production activitiesmargin environment, higher downtime of Eni’s refineries due to planned maintenance activity, the impact of lower year-end prices for oil and strengthening its competitive position in marketing.

In 2005, Eni completedproducts on inventory evaluation, and the constructionappreciation of the Sannazzaro gasification plant andeuro against the disposal of its wholly-owned subsidiary Italiana Petroli which operates in the retail market in Italy.dollar. Overall retail sales in Europe under the Agip brand in 20052006 amounted to 16 billion liters,12.48 mmtonnes, of which 11.3 billion liters8.66 mmtonnes were in Italy. Retail sales increased 0.6% from 2004 reflecting higher salesItaly, substantially in certain markets of Central Europe and in Spain.line with 2005.

In Engineering & Construction Saipem was awarded important contractssegment reported higher operating profit against the backdrop of favorable trends in complex environments such as Kashagan in Kazakhstan and Sakhalin in Russia. Snamprogetti significantly increased its backlog, closing 2005 with strong financial results.the demand for oilfield services.

Capital expenditure totalled 7.4totaled euro 7.8 billion in 2005, in line with 2004; 91%2006, up 5.7% from 2005; approximately 90% of capital expenditure was carried out in oil and gas activities. The principal projects for the year were:

•		the development of oil and natural gas reserves (euro 3.95 billion), mainly3,629 million) in particular in Kazakhstan, Libya, Angola, Egypt and Italy as well asand exploration activities (euro 6561,348 million) particularly in Angola, Egypt, Norway, Nigeria, the Gulf of Mexico and Italy, including also the acquisition of proved and unproved property reserves (euro 301 million,152,000 square kilometers of which euro 161 million was for the acquisition of an additional 1.85% share in the consortium developing Kashagan)new acreage (99% operated by Eni);
•		expansion and improvementsthe upgrades of theEni’s natural gas transportationtransport and distribution networknetworks in Italy (euro 825785 million);
•		ongoing power generationthe construction programmeof a new FPSO unit and upgrades of the fleet and logistic centers in the Engineering & Construction segment (euro 239591 million); and
•		upgrading of our Italian refining and logistics system to enhanceprojects aimed at improving flexibility and increase the yields of light products and middle distillates,refineries (euro 376 million), including completionthe start up of the heavy residue gasification plantconstruction of a new hydrocracking unit at the Sannazzaro refinery, and improvementupgrades of the retailrefined product distribution network both in Italy and in the rest of Europe (euro 656223 million);
•		ongoing construction of combined cycle power plants (euro 229 million); and
•		actions for environmental protection and for complying with safety and environmental regulations in the Petrochemical segment (euro 99 million).

 

Margin¹⁰⁸

Margin: Thethe 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.

Trading Environment

		2003		2004		2005

Average price of Brent dated crude oil (1)		28.84		38.22		54.38
Average price in euro of Brent dated crude oil (2)		25.50		30.72		43.71
Average EUR/USD exchange rate (3)		1.131		1.244		1.244
Average European refining margin (4)		2.65		4.35		5.78
EURIBOR – three month euro rate % (3)		2.3		2.1		2.2

		2004		2005		2006

Average price of Brent dated crude oil in U.S. dollars (1)		38.22		54.38		65.14
Average price of Brent dated crude oil in euro (2)		30.72		43.71		51.86
Average EUR/USD exchange rate (3)		1.244		1.244		1.256
Average European refining margin in U.S. dollars (4)		4.35		5.78		3.79
Euribor - three month euro rate % (3)		2.1		2.2		3.1

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(1)		In U.S. dollarsPrice per barrel. Source: Platt’s Oilgram.
(2)		Price per barrel. Source: Eni’s calculations.calculations based on Platt’s Oilgram data for Brent prices and the EUR/USD exchange rate reported by the European Central Bank (ECB).
(3)		Source: European Central Bank.ECB.
(4)		In U.S. dollarsPrice 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

In 2006 the trading environment was generally favorable in 2005 with prices ofcharacterized by higher average Brent crude oil increasingprices (up 19.8% from 2005) and higher selling margins on natural gas and on petrochemical products. These positives were partially offset by approximately 42%a decline in refining margins (margin on Brent was down 34.4%) which was mitigated by Eni’s refinery capacity to process heavy crudes which are discounted as compared to 2004. the Brent crude market benchmark, thus resulting in a higher profitability of the heavy barrel.

_______________

(8)

This definition applies to the term margin whenever used in Item 5.

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Natural gas demand in Italy increaseddecreased by approximately seventwo percentage points over 2004 driven by strong growthfrom 2005: in fact 2006 was a normal year based on average temperatures recorded in the electricity generation. Natural gas margins in Italy decreased in 2005coldest months of the year (first and fourth quarters) as compared to 2004 due to competitive pressurelower than average temperatures in the domestic natural gas market, offset in part by favorable trends in pricessame months of certain refined products to which natural gas sale and purchase prices are contractually indexed2005, resulting in a higher increaselower consumption of selling prices as compared to supply costs when comparing 2005 to 2004. In 2005, refining margins increased sharply due to strong demand for refined products, especiallyheating gas in Asia, a shortage of fuels meeting required European specifications due to lags in the upgrading certain refineries and imbalances in the availability of products in different areas of the world. Petrochemical product margins declined in 2005 as compared to 2004, essentially due to the higher cost of oil-based feedstocks not being completely reflected in to selling prices.
2006.

Key consolidated financial dataConsolidated Financial Data

(million euro)					2004		2005

Net sales from operations				57,545		73,728
Operating profit				12,399		16,827
Net profit				7,059		8,788
Net cash provided by operating activities				12,500		14,936
Capital expenditure				7,499		7,414
Investments				316		146
Shareholders’ equity including minority interest				35,540		39,217
Net borrowings (1)				10,443		10,475
Net profit per share		(euro per share)		1.87		2.34
Dividend per share		(euro per share)		0.90		1.10
Net borrowings to total shareholders’ equity ratio including minority interests (leverage) (1)				0.36		0.33

		2004		2005		2006

(million euro)

Net sales from operations				57,545		73,728		86,105
Operating profit				12,399		16,827		19,327
Net profit pertaining to Eni				7,059		8,788		9,217
Net cash provided by operating activities				12,500		14,936		17,001
Capital expenditure				7,499		7,414		7,833
Shareholders’ equity including minority interest at year end				35,540		39,217		41,199
Net borrowings at year end (1)				10,443		10,475		6,767
Net profit pertaining to Eni per share		(euro per share)		1.87		2.34		2.49
Dividend per share		(euro per share)		0.90		1.10		1.25
Net borrowings to total shareholders’ equity ratio including minority interests (leverage) (1)				0.29		0.27		0.16

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(1)		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.

The adoption

Basis of IFRSPresentation

The Consolidated Financial Statements of Eni have been prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB) and adopted by the European Commission following the procedure contained in Article 6 of the EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002. The IFRS adopted by Eni differ in certain limited respects from the IFRS sanctioned by the IASB. Until December 31, 2004, Eni prepared its Consolidated Financial Statements and other interim financial information (including quarterly and semi-annual data) in accordance with Italian GAAP. IFRS require adopting companies to restate only one year of past financial statements. Pursuant to SEC Release 33-8567, "First-time Application of International Financial Reporting Standards", Eni is not required to include in this annual report financial statements for any earlier periods. Accordingly this annual report includes financial information prepared in accordance with IFRS as of and for the two years ended December 31, 2004 and 2005. For hydrocarbon exploration and production, accounting policies generally applied by the oil industry have been adopted, with particular reference to amortization according to the Unit-Of-ProductionUnit Of Production (UOP) method, buy-back contracts and Production Sharing Agreements. The Consolidated Financial Statements have been prepared by applying the cost method except for items that under IFRS must be recognized at fair value as described in the Notes to the Consolidated Financial Statements under the heading "Evaluation Criteria".

The general principle that should be applied on first-time adoption ofIn adopting IFRS, is that standards in force atEni elected to rely upon the transition date (January 1, 2004) should be applied retrospectively. However,following exemptions as permitted under IFRS 1 "First-time Adoption of International Financial Reporting Standards" (IFRS 1) contains a number of exemptions that companies are permitted to apply. Eni has taken the following main exemptions::

•		no retroactive restatement of business combinations that occurred before January 1, 2004. As a result of this exemption, goodwill was not restated to take into account amortization charges recorded in previous periods before the adoption of IFRS; and
•		the election of January 1, 2005 as the transition date for the first application of IAS 32 and IAS 39, related to the evaluation of financial instruments at fair value, including derivatives. As permitted under IFRS 1, Eni has not restated comparative information.information for the year 2004 which consequently are not comparable with 2005 and 2006 with respect to this matter. In the Consolidated Financial Statements for the year ended December 31, 2005 and 2006, the impact of recording certain derivative financial instruments at fair value as is required by IAS 39, was a euro 386 million charge and a euro 383 million gain recognized in the profit and loss account. For further information see "Consolidated Financial Statements – Effects of the adoption of IFRS and Evaluation Criteria".account, respectively.

The IFRS under which Eni’s Consolidated Financial Statements have been prepared differ in certain limited respects from the IFRS adopted by the IASB, the effect of such differences on the Consolidated Financial Statements is not material.

Critical Accounting Estimates

The preparation of these consolidated financial statementsConsolidated Financial Statements in accordance with IFRS requires Managementmanagement to apply accounting methods and policiesmake estimates that are based on difficultcomplex or subjective judgments estimates based onwhich rely upon past experience and assumptions determined to be reasonable and realistic based onconsidering the related circumstances.information available at the date of the estimate. 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. KeyThe main areas whereaffected by estimates are applied include the determination of oil and gas proved reserves and proved developed reserves, accounting for exploratory drilling costs under U.S. GAAP, impairment of fixed assets, intangible assets and goodwill, asset retirement obligations, business combinations, recognition of environmental liabilities and recognition of revenues in the oilfield services construction and engineering businesses. Actual results may differ from these estimates given the uncertainty surrounding the assumptions and conditions upon which the estimates are based.

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Summarized below are the critical 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 conditions may significantly affect future results.

Oil and Gas Activities

Engineering estimates of the Company’s oil and gas reserves are inherently uncertain. 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. Although there are authoritative guidelines regarding the engineering criteria that have tomust be met before estimated oil and gas reserves can be designated as "proved", the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment.

Reserves in a fieldField reserves will only be categorized as proved when all the criteria for attribution of proved status have been met, including an internally imposed requirement for project sanction that occurs when a final investment decision is made.met. At the point of sanction,this stage, all booked reserves will be categorized as proved undeveloped. Volumes will subsequently be recategorized from proved undeveloped to proved developed as a consequence of development activity. The first proved developed bookings will occur at the point of first oil or gas production. Major development projects typically take one to four years from the time of initial booking to the start of production. Adjustments may be made to booked reserves due to production, reservoir performance, commercial factors, acquisition and divestment activity and additional reservoir development activity.

Eni reassesses its estimate of proved reserves on an annual basis.periodically. The estimated proved reserves of oil and natural gas may be subject to future revision and upward and downward revision may be made to the initial booking of reserves due to production, reservoir performance, commercial factors, acquisition and divestment activity and additional reservoir development activity. In particular, changes in oil and natural gas prices could impact the amount of Eni’s proved reserves as regards the initial estimate and, in the case of Production Sharing Agreements and buy-back contracts, the share of production and reserves to which Eni is entitled to.entitled. Accordingly, the estimated reserves could be materially different from the quantities of oil and natural gas that ultimately will be recovered.

Oil and natural gas reserves have a direct impact on certain amounts reported in the financial statements.Financial Statements. 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 frombased on the ratio between the amount of hydrocarbons extracted in the yearquarter and proved developed reserves existing at the year end of the quarter increased by the amounts extracted during the year.quarter. Assuming all other variables are held constant, an increase in estimated proved developed reserves decreases depreciation, depletion and amortization expense. On the contrary,Conversely, a decrease in estimated proved developed reserves increases depreciation, depletion and amortization expense. Also,In addition, estimated proved reserves are used to calculate future cash flows from oil and gas properties, which serve as an indicator in determining whether an impairment of a property impairment is to be carried out or not. The larger the volumesvolume of estimated reserves, the less likelylower is the likelihood that the property is to be impaired. See "Item 3 – Risk Factors – Uncertainties in Estimates of Oil and Natural Gas Reserves".

Accounting for Suspended Well Costs under U.S. GAAP

Under U.S. GAAP costs for exploratory wells are initially capitalized pending the determination of whether the well has found proved reserves. If proved reserves are found, the capitalized costs of drilling the well are reclassified to tangible assets and amortized on a UOP basis. If proved reserves are not found, the capitalized costs of drilling the well are charged to expense. However, successful exploratory efforts are, in many cases, not declared to be proved until after an extensive and lengthy evaluation period has been completed. These issues were addressed by the FASB staff in its FSP FAS 19-1, published in April 2005, amending FAS 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies". Under the provisions of FSP FAS 19-1, companies in the oil and gas industry are allowed to continue capitalization of an exploratory well after the completion of drilling when: (a) the well has found a sufficient quantity of reserves to justify completion as a producing well; and (b) the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if an enterprise obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well would be assumed to be impaired, and its costs, net of any salvage value, would be charged to expense. Determination of whether an exploratory well should remain capitalized after completion of drilling requires a high degree of judgment on the part of management in assessing whether the Company is making sufficient progress assessing the reserves and the economic and operating viability of a given project. The company evaluates the progress made on the basis of regular project reviews which take account of the following factors: (i) costs are being incurred to assess the reserves and their potential development; (ii) existence (or active negotiations) of sales contracts with customers for oil and natural gas; and (iii) existence of firm plans, established timetables or contractual commitments, which may include seismic testing and drilling of additional exploratory wells. As of December 31, 2005,2006, an amount of euro 403392 million remain capitalized relating to approximately 3025 exploratory wells for which drilling activities have been completed for more than one year, of this capitalized amount euro 5985 million (or 810 wells) relates to projects progressing towards completion of development activities, and the remaining euro 344307 million (or 2215 wells) relates to projects for which additional exploratory activity is underway or firmly planned. See Note 3538 to the Consolidated Financial Statements.

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Impairment of Assets

Eni assesses its fixedtangible assets and intangible assets, including goodwill, for possible impairment if there are events or changes in circumstances that indicate that the carrying values of the assets are not recoverable. Such indicators include changes in the Group’s business plans, changes in commodity prices leading to unprofitable performance and, for oil and gas properties, significant downward revisions of estimated proved reserve quantities. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, production profiles and the outlook for global or regional market supply-and-demandsupply and demand conditions for crude oil, natural gas, commodity chemicals and refined products.

Technically, theThe amount of an impairment chargeloss is determined by comparing the book value of an asset with its recoverable amount. The recoverable amount is the greater of fair value net of disposal costs and value in use. The estimated value in use is usually based on the present values of expected future cash flows using assumptions commensurate with the risks involved in the asset group.net of disposal costs. The expected future cash flows used for impairment reviews are based on judgmental assessments of future production volumes, prices and costs, considering available information at the date of review and are discounted by using a rate related to the activity involved.

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, 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 abouton: future commodity prices, lifting and development costs, field decline rates, market demand and supply, economic regulatory climates and other factors.

Under both IFRSGoodwill and U.S. GAAP, goodwill isother intangible assets with indefinite useful life are not amortized but like indefinitive lived intangible assets, is tested for impairmentare reviewed at least annually. Under IFRSannually to determine whether their carrying amount is recoverable and in any case, when trigger events arise that would lead the assessmentCompany to assume the value of an asset is impaired. In particular, goodwill impairment is based on the determination of the fair value of each cash generating unitsunit to which goodwill can be attributed on a reasonable and consistent basis. A cash generating unit is a group of assets that generates cash inflows that are largely independent of the cash inflows from other groups of assets.smallest aggregate on which the Company, directly or indirectly, evaluates the return on capital expenditures. If the fair value of a cash generating unit is lower than the carrying amount, goodwill attributed to that cash generating unit is impaired up to that difference,difference; if the carrying amount of goodwill is less than the amount of impairment, assets of the cash generating unit are impaired on a pro-rata basis for the residual difference.

Asset Retirement Obligations

Obligations related to the removal of tangible equipment and to the restoration of land or seabeds require significant estimates in calculating the amount of the obligation and determining the amount required to be recorded in the Consolidated Financial Statements.consolidated financial statements. Estimating the future asset removal costs is difficult and requires management to make estimates and judgments becausedue to the fact that most of the removal obligations arewill come to term many years into the future and contracts and regulations are often unclear as to what constitutes removal. Asset removal technologies and costs are constantly changing, as well as political, environmental, safety and public relations considerations. The subjectivity of these estimates is also increased by the accounting method used that requires entities to record the fair value of a liability for an asset retirement obligations in the period when it is incurred (typically, at the time, the asset is installed at the productionsproduction location). When.When liabilities are initially recorded, the related fixed assets are increased by an equal corresponding amount. The liabilities are increased with the passage of time (interest accretion) and any change of the estimates following the modification of the future cash flows and the discount rate is adopted. The recognized asset retirement obligations are based upon future retirement cost estimates and incorporate many assumptions such asas: expected recoverable quantities of crude oil and natural gas, abandonment time, to abandonment, future inflation rates and the risk-free rate of interest adjusted for the Company’s credit costs.

Business Combinations

Accounting for the acquisition of a business requires the allocation of the purchase price to the variousmost assets and liabilities of the acquired business atbased on their fair value. Any positive residual difference between the allocated amount and the purchase price is recognized as "Goodwill". Negative residual differences are charged against the profit and loss account. Management uses all available information to make these fair value determinations and, for major business acquisitions, typically engages an outsideindependent appraisal firm to assist in the fair value determination of the acquired long-lived assets.
assets and liabilities.

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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 regulations concerning its oil and gas operations, productions and other activities, including legislation that implements international conventions or protocols. Environmental costs are recognized when it becomes probable that a liability has been incurred and the amount can be reasonably estimated.

Although management, considering the actions already taken,performed, the existing insurance policies to cover environmental risks and provision for risks accrued, does not expect any material adverse effectimpact on Eni’s consolidated results of operations and financial position as a result of such laws and regulations, there can be no assurance that there will not be a material adverse impact on Eni’s consolidated results of operations and financial position 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. 471/1999 of the Ministry of Environment concerning the remediation of contaminated sites; (iii) the possible effect of future environmental legislation and 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 and those that may derive from the legislative decree that the Italian Government will have to enact in order to implement Directive 2000/60/EC creating a framework for joint European action in the area of water; (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 possibility of a yet unknown contamination;
•		the results of the ongoing surveys and other possible effects of statements as required by the applicable regulations concerning the remediation of contaminated sites;
•		the possible effect of future environmental legislation and rules;
•		the effect of possible technological changes relating to future remediation; and
•		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.

Employees post-retirement benefitsPost Retirement Benefits

EmployeesDefined benefit plans and other long-term benefits (such as pension payments, life insurance payments, medical assistance after retirement, etc.) are evaluated with reference to uncertain events and based upon actuarial assumptions including among others discount rates, expected rates of return on any plan assets, expected rates of salary increases, medical cost trend rates, estimated retirement dates, mortality rates. These assumptions are reviewed annually and may change from year to year impacting future results of operations.

The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows:

•		discount and inflation rates reflect the rates at which the benefits could be effectively settled, taking into account the duration o fof the obligation. Indications used in selecting the discount rate include rates of annuity contracts and rates of return on high-qualityhigh quality fixed-income investments (such as government bonds). The inflation rates reflect market conditions observed country by country;
•		salary increase assumptions (when relevant) are determined by each entity. They reflect an estimate of the actual future salary levels of the individual employees involved,are determined including an estimate of future changes attributed to general price levels (consistent with inflation rate assumptions), productivity, seniority promotion and other factors;promotion;
•		healthcare cost trend assumptions (when relevant) reflect an estimate of the actual future changes in the cost of the healthcare related benefits provided to the plan participants and are based on past and current healthcare cost trends including healthcare inflation, changes in healthcare utilization and changes in health status of the participants;
•		demographic assumptions such as mortality, disability and turnover reflect the best estimate of these future events for the individual employees involved, based principally on available actuarial data; and
•		determination of expected rates of return on assets is made through compound averaging. For each plan, there are taken into account the distribution of investments among bonds, equities and cash and their specific average expected rate of return is taken into account. Differences between expected and actual costs and between the expected rates ofreturn and the actual return on bonds, equitiesplan assets routinely occur and cash. A weighted-average rate is then calculated.are called actuarial gains and losses.

Differences between projected and actual costs and between the projected return and the actual return on plan assets routinely occur and are called actuarial gains and losses.

The unrecognized actuarial losses of pension benefits as at December 31, 2005 were euro 144 million compared to euro 41 million in 2004. The euro 103 million increase from 2004 reflected primarily changes in assumptions used to account for pensions and other post-retirement benefits mainly related to the decrease in discount rates (4.0% in 2005 compared with 4.5% in 2004). Pension accounting principles require that such actuarial losses be deferred and amortized over future periods. Eni applies the corridor method to amortize its actuarial losses and gains. This method amortizes on a pro-rata basis the net cumulative actuarial gains and losses, unrecognized at the end of the previous reporting period, that exceed 10% of the greater of (i) the present value of the defined benefit obligation and (ii) the fair value of plan assets, over the average expected remaining working lives of the employees participating in the plan.

In 2005, Eni recognizedAdditionally, obligations for other long-term benefits are determined by adopting actuarial assumptions; the effect of changes in actuarial assumptions or a charge of euro 126 million (euro 118 million in 2004)change in the profit and loss account in connection with its obligations for employee post-retirement benefits.

See Note 20characteristics of the Consolidated Financial Statements for further information about employees post-retirement benefits.
benefit are taken to profit or loss in their entirety.

Contingencies

In addition to accruing the estimated costs for environmental liabilities, asset retirement obligationobligations, and environmental liabilities,employee benefits, Eni accrues for all contingencies that are both probable and estimable. These other contingencies are primarily related to employee benefits, litigation and tax issues. Determining appropriate amounts for accrual is a complex estimation process that includes subjective judgments.

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Revenue recognitionRecognition in the Oilfield Services,Engineering & Construction and Engineering segmentSegment

Revenue recognition in the Oilfield Services,Engineering & Construction and Engineering business segment is based on the stage of completion of a contract as measured on the cost-to-cost basis applied to contractual revenues. Use of the stage of completion method requires estimates of future gross profit on a contract by contract basis. The future gross profit represents the profit remaining after deducingdeducting costs attributable to the contract from revenues provided for in the contract. The estimate of future gross profit is based on a complex estimation process that includes identification of risks related to the geographical region, market conditionconditions in that region and any assessment that it is necessary to estimate with sufficient precision the total future costs as well as the expected timetable. VariationRequests for additional payments, deriving from a change in the scope of the work, are included in the total amount of revenues when it is probable that the customer will approve the variation and the related amount; claims deriving for instance from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that theythe counterpart will result in additional revenue.accept them.

 

Results of Operations

Overview of the Profit and lossLoss Account for TwoThree Years endedEnded December 31, 2004, 2005 and 2006

The table below sets forth a summary of Eni’s profit and loss account for the periods indicated. All line items included in the table below are derived from the Consolidated Financial Statements prepared in accordance with IFRS.

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Net sales from operations		57,545			73,728
Other income and revenues (1)		1,377			798
Total revenues		58,922			74,526
Operating expenses		(41,592	)		(51,918	)
Depreciation, amortization and writedowns		(4,931	)		(5,781	)
Operating profit		12,399			16,827
Net financial expense		(156	)		(366	)
Net income from investments		820			914
Profit before income taxes		13,063			17,375
Income taxes		(5,522	)		(8,128	)
Net profit		7,541			9,247
Pertaining to:
- Eni		7,059			8,788
- minority interest		482			459

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Net sales from operations		57,545			73,728			86,105
Other income and revenues (1)		1,377			798			783
Total revenues		58,922			74,526			86,888
Operating expenses		(41,592	)		(51,918	)		(61,140	)
Depreciation, amortization and impairments		(4,931	)		(5,781	)		(6,421	)
OPERATING PROFIT		12,399			16,827			19,327
Financial income (expense)		(156	)		(366	)		161
Income (expense) from investments		820			914			903
PROFIT BEFORE INCOME TAXES		13,063			17,375			20,391
Income taxes		(5,522	)		(8,128	)		(10,568	)
NET PROFIT		7,541			9,247			9,823
Pertaining to:
- Eni		7,059			8,788			9,217
- minority interest		482			459			606

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(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.

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,

			2004		2005

Operating expenses		72.3%		70.4%
Depreciation, amortization and writedowns		8.6%		7.8%
Operating profit		21.5%		22.8%

		2004		2005		2006

(%)

Operating expenses		72.3		70.4		71.0
Depreciation, amortization and impairments		8.6		7.8		7.5
OPERATING PROFIT		21.5		22.8		22.4

2006 compared to 2005. Net profit pertaining to Eni in 2006 was euro 9,217 million with a euro 429 million increase from 2005 (up 4.9%) reflecting an increase in operating profit (up euro 2,500 million) recorded in particular in the Exploration & Production segment, in respect to higher realized hydrocarbon prices in dollars (oil up 22.4% and natural gas up 17.8%) combined with increased production volumes sold (up 10.2 mmBOE), which were offset in part by higher operating costs and amortization charges, and increased exploration expenses. Operating profit increased also in the Gas & Power and Engineering & Construction segments (up euro 481 and euro 198 million, respectively) and lower restructuring charges were recognized in the Other activities segment (up euro 312 million).

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These increases were offset in part by a decrease in the operating profit of the Refining & Marketing segment (down euro 1,538 million) due to the circumstance that in 2005 an inventory holding gain of euro 1,064 million was recorded in connection with the impact of rising international prices of oil and refined products on the inventory evaluation according to the weighted-average cost method of inventory accounting, as compared to a euro 215 million inventory holding loss reported in 2006 as a result of a reversal in the trend of refined product and oil prices. Inventory holding gains or losses represent the difference between the cost of sales of the volumes sold during the period calculated using the cost of supplies incurred during the same period and the cost of sales calculated using the weighted-average cost method.

The effect of the increase in operating profit on net profit was offset in part by higher income taxes (up euro 2,440 million) reflecting the increase in Group tax rate, which rose from 46.8% to 51.8% mainly in the Exploration & Production segment due to:

•		the circumstance that a windfall tax on upstream earnings was enacted in Algeria effective as from August 1, 2006 (with a negative impact of euro 328 million); and
•		the circumstance that an increase in the supplemental tax rate applicable to profit before taxes earned by operations in the North Sea was enacted by the British Government effective as from January 1, 2006 (with a negative impact of euro 198 million).

2005 compared to 2004 2004.Net profit pertaining to Eni in 2005 was euro 8,788 million with a euro 1,729 million increase over 2004 (up 24.5%) reflecting primarily an increase in operating profit (up euro 4,428 million) recorded particularly in the Exploration & Production segment, in respect to higher oil and natural gas prices in dollars (Brent up 42.3%) and higher sales volumes of oil and natural gas (up 38.3 mmBOE, or 6.7%). These positives were offset in part by higher environmental provisions (euro 532 million), a provision to the risk reserve concerning the fine imposed on February 15, 2006 by the Antitrust Authority and the estimated impact of the application of Decision No. 248/2004 of the Authority for Electricity and Gas affecting natural gas prices to residential customers and wholesalers (euro 225 million) in force from January 1, 2005 and the recording in 2004 of net gains on the sale of assets by the Exploration & Production segment (euro 320 million).

The effect of the increase in operating profit on net profit was offset in part by higher income taxes (up euro 2,606 million).

Discontinued operationsOperations

Discontinued operations under both IFRS and U.S. GAAP in 2006, 2005 and 2004 were immaterial.

Analysis of the line itemsLine Items of the profitProfit and loss account:Loss Account

Revenue recognition

Revenues from sales of products and services rendered are recognized upon transfer of risks and advantages associated with the property or upon settlement of the transaction. In particular, revenues are recognized:

•		for crude oil, generally upon shipment;
•		for natural gas, when the natural gas is delivered to the customer;
•		for petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales are generally recognized upon shipment; and
•		for petrochemical products and other products, generally upon shipment.

Revenues are recognized upon shipment when, at that date, the risks of loss are transferred to the acquirer.

Revenues from the sale of crude oil and natural gas produced in properties in which Eni has an interest together with other producers are recognized on the basis of Eni’s working interest in those properties (entitlement method). Differences between Eni’s net working interest volume and actual production volumes are recognized at current prices at period-end.

Income related to partially rendered services is recognized with respect to the accrued revenues, if it is possible to reasonably determine the state of completion and there are no relevant uncertainties concerning the amounts and the existence of the revenue and related costs; otherwise it is recognized within the limits of the recoverable costs incurred.

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The revenues accrued in the period related to construction contracts are recognized on the basis of contractual revenues by reference to the stage of completion of a contract measured on the cost-to-cost basis. Additional revenues, deriving from a change in the scope of the work, are included in the total amount of revenues when it is probable that the customer will approve the variation and the relevant amount; claims deriving for instance from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that the counterpartcounterparts will accept them.

Revenues are stated net of returns, discounts, rebates and bonuses, as well as directly related taxation. Exchanges of goods and services with similar nature and value do not give rise to revenues and costs as they do not represent sale transactions.

a) Total Revenues

Net sales from operations

Eni’s total revenues were euro 86,888, euro 74,526 and euro 58,922 million in 2006, 2005 and 2004, respectively. Total revenues consist of net sales from operations and other income and revenues. Eni’s net sales from operations amounted to euro 86,105, euro 73,728 and euro 57,545 million in 2006, 2005 and 2004, respectively, and its other income and revenues totalledtotaled euro 783, euro 798 and euro 1,377 million, respectively, in these periods.

Net sales from operations

The table below sets forth, for the periods indicated, the net sales from operations generated by each of Eni’s business segments including intersegmentinter-segment sales, together with consolidated net sales from operations.

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Exploration & Production		15,346			22,477			15,346			22,531			27,173
Gas & Power		17,302			22,969			17,302			22,969			28,368
Refining & Marketing		26,089			33,732			26,089			33,732			38,210
Petrochemicals		5,331			6,255			5,331			6,255			6,823
Oilfield Services Construction and Engineering		5,696			5,733
Engineering & Construction								5,696			5,733			6,979
Other activities		1,279			1,358			1,279			863			823
Corporate and financial companies		851			977			851			1,239			1,174
Consolidation adjustment (1)		(14,349	)		(19,773	)		(14,349	)		(19,594	)		(23,445	)
		57,545			73,728
								57,545			73,728			86,105

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(1)		IntersegmentInter-segment 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 intersegmentinter-segment sales are recorded by the Exploration & Production segment. See Note 3132 to the Consolidated Financial Statements for a breakdown of intersegmentinter-segment sales by segment for the two reported years.
		From January 1, 2006 Eni’s subsidiaries operating in diversified sectors (such as real estate services, R&D and training services) are reported within "Corporate and financial companies" with the exception of Tecnomare which is reported in the Exploration & Production segment (previously all these diversified activities were reported within "Other activities"). The "Other activities" item includes only Syndial SpA, a subsidiary which runs minor petrochemical activities and reclamation and decommissioning activities pertaining to certain businesses which Eni exited in past years. In order to allow for comparison, 2005 data has been reclassified accordingly; 2004 data has not been reclassified because the effect of this regrouping is immaterial.

2006 compared to 2005. Eni’s net sales from operations for 2006 were euro 86,105 million, up euro 12,377 million from 2005, or 16.8%, primarily reflecting higher product prices in all of Eni’s main operating segments, higher volumes sold of hydrocarbons and natural gas and higher activity levels in the Engineering & Construction segment, offset in part by the negative impact of the appreciation of the euro versus the dollar (up 1%).

Revenues generated by the Exploration & Production segment were euro 27,173 million, up euro 4,642 million, or 20.6%, primarily reflecting higher realizations in dollars (oil up 22.4%, natural gas up 17.8%) and higher oil and gas production sold (up 10.2 mmBOE). These positives were partially offset by the appreciation of the euro over the dollar.

Revenues generated by the Gas & Power segment were euro 28,368 million, up euro 5,399 million, or 23.5%, primarily reflecting increased natural gas prices related in particular to a favorable trading environment, higher natural gas volumes sold (up 3.14 BCM, or 3.8%) and higher electricity production sold (up 2.05 TWh, or 9%).

Revenues generated by the Refining & Marketing segment were euro 38,210 million, up euro 4,478 million, or 13.3%, primarily reflecting higher international prices for oil and refined products.

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Revenues generated by the Petrochemicals segment were euro 6,823 million, up euro 568 million, or 9.1%, primarily reflecting an increase in average selling prices.

Revenues generated by the Engineering & Construction segment were euro 6,979 million, up euro 1,246 million, or 21.7%, primarily reflecting higher activity levels in the Offshore and Onshore construction businesses and a higher utilization rate of vessels and higher tariffs in the Offshore Drilling area.

2005 compared to 20042004. Eni’s net sales from operations for 2005 totalledtotaled euro 73,728 million, with an increase of euro 16,183 million over 2004, up 28.1%, due principally to higher oil prices (denominated in dollars), higher refined product and petrochemical prices and higher volumes sold in Eni’s main operating segments.

Revenues generated by the Exploration & Production segment (euro 22,47722,531 million) increased by euro 7,1317,185 million in 2005, up 46.5%46.8%, due principally to higher oil prices realized (oil up 41.3%, natural gas up 15.6%15.5%) combined with increased hydrocarbon production volumes sold (38.3(38.4 mmBOE, or 6.7%).

Revenues generated by the Gas & Power segment (euro 22,969 million) increased by euro 5,667 million in 2005, up 32.8%, due principally to higher natural gas prices and the increase of volumes sold of natural gas (4.29 BCM, or 5.9%), and electricity (up 8.92 terawatthours,TWh, or 64.4%).

Revenues generated by the Refining & Marketing segment (euro 33,732 million) increased by euro 7,643 million in 2005, up 29.3%, principally due to higher international prices for oil and refined products, the effects of which were offset in part by lower volumes sold on Italian retail and wholesale markets (down 1.1 million tonnes)mmtonnes), the effect of the sale of LPG and refined product distribution activities in Brazil in August 2004 and lower trading activities (down 1.3 million tonnes)mmtonnes).

Revenues generated by the Petrochemical segment (euro 6,255 million) increased by euro 924 million in 2005, up 17.3%, due mainly to a 12% increase in the average selling prices of products and a 3.6% increase in sales volumes.

Revenues from the Oilfield Services,Engineering & Construction and Engineering segment (euro 5,7735,733 million) increased by euro 37 million in 2005, up 0.6%, reflecting mainly higher utilization rates of vessels and drilling rigs and a higher volume of orders fulfilled.

Revenues of Corporate and financial companies (euro 9771,239 million) increased by euro 126388 million in 2005, up 14.8%45.6%, which essentially consists of invoices for services provided to other group segments. In 2005, Corporate started supplying certain central services amounting to euro 76 million to a merged subsidiary, Italgas Più belonging to the Gas & Power segment. Other increases in revenues were essentially related to IT services (euro 27 million) and general services such as activities related to real estate rentals and maintenance, fleet of cars, company’s aircrafts, and other activities (euro 21 million).

Other income and revenues

2006 compared to 2005. Other income and revenues (euro 783 million) were substantially stable compared to 2005 (down of euro 15 million).

2005 compared to 20042004. Other income and revenues (euro 798 million) declined by euro 579 million in 2005, down 42%, due mainly to lower gains on asset divestment in relation to the fact that in 2004 gains on the sale of mineral assets were recorded by the Exploration & Production segment for euro 373 million, and the fact that starting in 2005 derivative contracts on commodities were accounted for under IFRS No. 32 and 39, under which gains or losses on derivative financial contracts used to manage exposure to fluctuations in commodity prices are accounted for as financial income.

b) Operating Expenses

The table below sets forth the components of Eni’s operating expenses for the periods indicated.

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Purchases, services and other		38,347		48,567		38,347		48,567		57,490
Payroll and related costs		3,245		3,351		3,245		3,351		3,650
Operating expenses		41,592		51,918		41,592		51,918		61,140

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2006 compared to 2005. Operating expenses for 2006 (euro 61,140 million) were up euro 9,222 million from 2005, or 17.8%, reflecting primarily: (i) higher prices for oil-based and petrochemical feed-stocks and for natural gas, affected also by higher charges related to the climatic emergency of the first quarter of 2006; (ii) higher operating costs in the Exploration & Production segment, reflecting mainly the higher share of development projects in complex environments and sector-specific inflation; (iii) higher costs for refinery maintenance; and (iv) a risk provision of euro 239 million related mainly to fines imposed by certain antitrust and regulatory authorities. These negative factors were offset in part by the impact of the appreciation of the euro over the dollar.

Payroll and related costs (euro 3,650 million) were up euro 299 million, or 8.9%, reflecting primarily higher redundancy incentives (up euro 99 million), ordinary wage trends and higher average workforce outside Italy, in particular in the Engineering & Construction segment, partly offset by a reduction in average workforce in Italy.

2005 compared to 20042004. Operating expenses (euro 51,918 million) increased by euro 10,326 million in 2005 compared to 2004, up 24.8%, due mainly to: (i) higher prices for oil-based and petrochemical feedstocksfeed stocks and for natural gas; (ii) higher environmental provisions (euro 532 million), recorded in particular in the Other activities and the Refining & Marketing segment in connection with reclamation and remediation activities of certain industrial plants related to businesses exited by Eni in past years and environmental liabilities relating to refineries and the distribution network in Italy; (iii) an increase in provisions relating to the fine imposed on February 15, 2006 by the Antitrust Authority and the estimated impact of the application of Decision No. 248/2004 of the Authority for Electricity and Gas from January 1, 2005 (euro 515 million); (iv) a euro 87 million increase in insurance charges deriving from the extra premium due for 2005 and for the next five years (assuming normal accident rates) related to the participationinterest of Eni in Oil Insurance Ltd. These higher insurance charges reflect the exceptionally high rate of accidents in the two yeartwo-year period 2004-2005; and (v) increases in provisions relating to certain legal proceedings and contractual obligations (euro 58 million). These increases were partially offset by the sale of activities in Brazil in August 2004.

Payroll and related costs (euro 3,351 million) were up euro 106 million in 2005, or 3.3%, reflecting primarily an increase in unit labor cost in Italy, offset in part by a decline in the average number of employees in Italy and the effect of the sale of refined product distribution activities in Brazil.

c) Depreciation, Amortization and WritedownsImpairments

The table below sets forth a breakdown of depreciation, amortization and writedownsimpairments by business segment for the periods indicated.

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Exploration & Production (1)		3,047			3,944
Gas & Power		637			684
Refining & Marketing		465			462
Petrochemicals		114			118
Oilfield Services Construction and Engineering		184			176
Other activities		45			31
Corporate and financial companies		106			98
Unrealized profit in inventory (2)					(4	)
Total of depreciation and amortization		4,598			5,509
Writedowns		333			272
Depreciation, amortization and writedowns		4,931			5,781

Exploration & Production (1)		3,047			3,945			4,646
Gas & Power		637			684			687
Refining & Marketing		465			462			434
Petrochemicals		114			118			124
Engineering & Construction		184			176			195
Other activities		45			16			6
Corporate and financial companies		106			112			70
Impact of inter-segment profits elimination (2)					(4	)		(9	)
Total depreciation and amortization		4,598			5,509			6,153
Impairments		333			272			268
		4,931			5,781			6,421

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(1)		Exploration expenditures of euro 1,075, euro 618 and euro 564 million are included in these amounts relative to the years 2006, 2005 and 2004, respectively.
(2)		Unrealized profit in inventoryThis item concerned intersegmentmainly intra-group sales of goods, services and services.capital assets recorded at period end in the equity of the purchasing business segment.

2006 compared to 2005. In 2006 depreciation and amortization charges (euro 6,153 million) increased by euro 644 million, or 11.7%, from 2005 mainly in the Exploration & Production segment (euro 701 million) reflecting primarily higher exploration expenditure and increased development costs incurred for developing new fields and maintaining production levels in mature fields combined with the effects of higher production levels.

Impairments (euro 268 million) concerned mainly mineral assets in the Exploration & Production segment (euro 129 million), intangible assets in the Gas & Power segment and tangible assets in the Petrochemical segment. No impairments were recognized in connection with the unilateral cancellation by the Venezuelan state oil company PDVSA of the service contract regulating mineral activities at the Dación oilfield in Venezuela as management expects to fully recover the book value of Eni’s assets relating to this field. For a full description of this matter see "Item 4 – Exploration & Production – Venezuela".

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2005 compared to 20042004. Depreciation, amortization and writedownimpairment charges (euro 5,781 million) increased by euro 850 million in 2005 compared to 2004, up 17.2%. Depreciation and amortization charges (euro 5,509 million) were up euro 911 million, or 19.8%, from 2004 to 2005 mainly in the Exploration & Production segment (up euro 897898 million) reflecting primarily: (i) higher development costs for new fields and increased costs incurred to maintain production levels in certain mature fields; (ii) the impact on amortization charges of the revision of previous estimates of asset retirement and removal costs relating to certain fields located in the UK, Norway, Kazakhstan; (iii) the impact of oil prices on amortization in PSAs and buy-back contracts; (iv) higher production; and (v) higher exploration costs (up euro 5054 million). In the Gas & Power segment amortization charges increased by euro 47 million due to the coming on stream of the Greenstream gaslineGreenStream pipeline and new power generation capacity.

WritedownsImpairments (euro 272 million) concerned mainly Exploration & Production (euro 156 million), Other activities (euro 75 million) and PetrochemicalPetrochemicals (euro 29 million) segments.

d) Operating Profit by Segment

The table below sets forth Eni’s operating profit by business segment for the periods indicated.

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Exploration & Production		8,185			12,574			8,185			12,592			15,580
Gas & Power		3,428			3,321			3,428			3,321			3,802
Refining & Marketing		1,081			1,857			1,080			1,857			319
Petrochemicals		320			202			320			202			172
Oilfield Services Construction and Engineering		203			307
Engineering & Construction								203			307			505
Other activities		(395	)		(902	)		(395	)		(934	)		(622	)
Corporate and financial companies		(363	)		(391	)		(363	)		(377	)		(296	)
Unrealized profit in inventory		(59	)		(141	)
Operating profit		12,399			16,827
Impact of inter-segment profits elimination (1)								(59	)		(141	)		(133	)

Operating profit

12,399

16,827

19,327

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(1)

This item concerned mainly intra-group sales of goods, services and capital assets recorded at period end in the equity of the purchasing business segment.

The table below sets forth, for each of Eni’s principal business segments, operating profit as a percentage of such segment’s net sales from operations (including intersegmentinter-segment sales) for the periods indicated.

	Year ended December 31,

			2004		2005

Exploration & Production		53.3%		55.9%
Gas & Power		19.8%		14.5%
Refining & Marketing		4.1%		5.5%
Petrochemicals		6.0%		3.2%
Oilfield Services Construction and Engineering		3.6%		5.4%

		2004		2005		2006

(%)

Exploration & Production		53.3		55.9		57.3
Gas & Power		19.8		14.5		13.4
Refining & Marketing		4.1		5.5		0.8
Petrochemicals		6.0		3.2		2.5
Engineering & Construction		3.6		5.4		7.2

Group

21.5

22.8

22.4

Exploration & ProductionProduction. Operating profit in 2006 amounted to euro 15,580 million, up euro 2,988 million from 2005, or 23.7%, reflecting higher realizations in dollars (oil up 22.4%, natural gas up 17.8%) combined with higher production volumes sold (up 10.2 mmBOE or 1.7%), partly offset by: (i) increased production costs and amortization charges related in particular to higher cost incurred in developing new fields and maintaining production levels at mature fields and sector-specific inflation; (ii) increased exploration expenses (euro 457 million, including exchange rate differences); and (iii) the negative net impact of the appreciation of the euro over the dollar (approximately euro 155 million), as a decrease in revenues due to exchange rate differences was only partly offset by a decrease in operating costs and amortization charges.

Operating profit in 2005 amounted to euro 12,57412,592 million, a euro 4,3894,407 million increase compared to 2004, up 53.65%53.8%, due to: (i) higher oil and gas prices (oil prices up 41.3% in dollars, natural gas prices up 15.6% in dollars); (ii) higher production volumes sold (up 38.338.4 mmBOE, or 6.7%); and (iii) lower asset impairment charges (euro 40 million). These positive factors were offset in part by: (i) higher operating costs and amortization charges; (ii) net gains on divestments recorded in 2004 (euro 320 million); and (iii) higher insurance charges.

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Gas & PowerPower. Operating profit in 2006 amounted to euro 3,802 million, a euro 481 million increase compared to 2005, up 14.5%, reflecting: (i) higher selling margins on natural gas against the backdrop of a favorable trading environment; (ii) a lower impact of the tariff regime implemented by the Authority for Electricity and Gas with Resolution No. 248/2004 as modified by Resolution No. 134/2006 enacted on July 1, 2006. Resolution No. 134/2006 mitigated the impact of the indexation mechanism provided for by Resolution No. 248/2004, and, additionally, established that the impact of Resolution No. 248 on 2005 be split among gas supplier and wholesaler in case the former renegotiated gas supply contracts based on the terms of Resolution No. 248/2004. As a consequence of this, Eni partly reversed a provision accrued in 2005 financial statements with respect to Resolution No. 248 having fulfilled the renegotiation obligation set forth by Resolution No. 134/2006 (see Item 4 – Regulation of Natural Gas); and (iii) a growth in natural gas sales by consolidated subsidiaries (up 3.14 BCM, or 3.8%), in volumes transported outside Italy due to the coming on line of volumes transported through the GreenStream pipeline from Libya, and in electricity production sold (up 2.05 TWh, or 9%). Furthermore, the comparison of the operating result for the year to last year’s result benefits from the circumstance that in 2005 a provision pertaining to a fine imposed by the Italian Antitrust Authority was accrued for euro 290 million, partly offset by the circumstance that in 2006 a provision to the risk reserve regarding mainly certain fines imposed by the Authority for Electricity and Gas, and higher asset impairments environmental charges and provisions for redundancy incentives were recorded (for a cumulative amount euro 147 million).

These positives were partly offset by: (i) a lower operating result from transportation activities in Italy due to the tariff regime enacted by the Authority for Electricity and Gas with Resolution No. 166/2005 resulting in lower transport tariff and a lower operating result from retail distribution activities due to lower volumes; and (ii) higher purchase costs incurred in the first quarter of the year, owing to a climatic emergency.

Operating profit in 2005 amounted to euro 3,321 million, a euro 107 million decrease compared to 2004, down 3.1%, due mainly to: (i) a provision increase relating to the fine imposed on February 15, 2006 by the Antitrust Authority (euro 290 million) and the estimated impact of the application of Decision No. 248/2004 of the Authority for Electricity and Gas from January 1, 2005 affecting natural gas prices to residential customer and wholesalers (euro 225 million); (ii) weaker realized margins on natural gas sales related to competitive pressure offset in part by favorable trends in prices of certain refined products to which natural gas sale and purchase prices are contractually indexed resulting in a higher increase of selling prices as compared to supply costs when comparing 2005 to 2004; and (iii) other provision increases (euro 46 million). These negative factors were offset in part by: (i) increased natural gas sales volumes (up 6.13 BCM including own consumption, or 8%) and higher natural gas volumes distributed; (ii) a higher operating profit in natural gas transport activities outside Italy; and (iii) a higher operating profit of power generation activities which almost doubled to euro 138 million in 2005, up euro 77 million, reflecting primarily an increase in sold production of electricity (8.92 terawatthours,TWh, up 64.4%), offset in part by a decline in realized margins related to unfavorable trends in prices of certain refined products to which electricity selling prices and purchase prices of fuels (in particular natural gas) are contractually indexed resulting in a higher increase of supply costs as compared to selling prices when comparing 2005 to 2004.

Refining & MarketingMarketing. Operating profit in 2006 amounted to euro 319 million, a euro 1,538 million decrease compared to 2005, down 82.8%, due essentially to: (i) the circumstance that in 2005 an inventory holding gain of euro 1,064 million was recorded in connection with the impact of rising international prices of oil and refined products on the inventory evaluation according to the weighted-average cost method of inventory accounting, as compared to a euro 215 million inventory holding loss reported in 2006 as a result of a reversal in the trend of refined product and oil prices. Inventory holding gains or losses represent the difference between the cost of sales of the volumes sold during the period calculated using the cost of supplies incurred during the same period and the cost of sales calculated using the weighted-average cost method; (ii) lower realized refining margins reflecting an unfavorable trading environment and the appreciation of the euro versus the dollar, combined with the impact of longer refinery standstills due to planned maintenance, partly offset by the higher profitability of processed crude; (iii) a decline in the operating performance of Italian marketing activities due to lower volumes sold which were negatively affected by the mild weather conditions registered in the fourth quarter and the divestment of Italiana Petroli carried out in September 2005; (iv) environmental provisions (euro 111 million); (v) a fine imposed by the Italian Antitrust Authority (euro 109 million); and (vi) provisions for redundancy incentives (euro 47 million).

On the positive side, marketing activities in the rest of Europe recorded improved results reflecting higher retail margins and higher volumes sold.

Operating profit in 2005 amounted to euro 1,857 million, a euro 777 million increase compared to 2004, up 71.9%, due essentially to: (i) an inventory holding gain of euro 671 million resulting from the evaluation of inventories under the weighted-average cost method of inventory accounting in connection with rising international prices of oil and refined products. Inventory holding gains or losses represent the difference between the cost of sales calculated using the average cost of supplies incurred during the period and the cost of sales calculated using the weighted-average method. During 2005 the cost of sales as determined under the weighted-average method was euro 1,064 million lower than a cost of sales assuming a cost based on the current cost of supplies in 2005 (euro 393 million lower in 2004); (ii) higher realized margins in refining (the margin on Brent was up 1.43 dollars/barrel,$/BBL, or 32.9%) combined with higher volumes processed and an improvement in the mix of refined products obtained, the effect of which was offset in part by the impact of the standstill of the Gela refinery in the first part of 2005 owing to the damage caused by a seastormsea storm in December 2004; (iii) higher operating profit in distribution activities in Italy; and (iv) an increase in operating results of refining and marketing activities in the rest of Europe related to a favorable trend of the trading environment for refining and to increased retailing sales in particular in Germany, Spain and the Czech Republic, due to the purchase/construction of service stations. These positive factors were offset in part by a euro 185 million increase in operating expenses related in particular to higher environmental provisions and higher insurance costs and the effect of the sale of Agip do Brasil (euro 28 million) in August 2004.

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PetrochemicalsPetrochemicals. Operating profit in 2006 amounted to euro 172 million, a euro 30 million decrease compared to 2005, down 14.9%, due to: (i) lower selling margins recorded mainly in the first half of the year. This decline affected all businesses with the exception of polyethylene, owing to increases in the cost of oil-based feed-stocks not transferred to selling prices; and (ii) higher asset impairments (euro 21 million), higher redundancy incentives (euro 15 million) and a risk provisions related to a fine imposed by the European Antitrust Authority (euro 13 million). Results for the year were also negatively impacted by the accident occurred at the Priolo refinery in April resulting in lower product availability.

Operating profit in 2005 amounted to euro 202 million, a euro 118 million decrease compared to 2004, down 36.9%, due mainly to: (i) higher operating expenses (euro 92 million) recorded in connection with the restructuring of the Champagnier plant in view of its shutdown, provisions for litigation and higher insurance costs; and (ii) lower product margins in basic petrochemicals reflecting higher oil-based feedstock purchase costs not fully recovered in selling prices, partly offset by higher margins in elastomers and polyethylene. These negative factors were offset in part by higher sales volumes (up 3.6%) and lower operating costs related to efficiency actions.

Oilfield Services ConstructionEngineering & Construction. Operating profit in 2006 amounted to euro 505 million, a euro 198 million increase compared to 2005, up 64.5%. This increase was recorded in particular in the following business areas: (i) Offshore, due to a higher activity level in the Caspian region and EngineeringNigeria; (ii) Offshore Drilling, due to higher tariffs for the Scarabeo 3 and Scarabeo 5 semi-submersible platforms and higher activity levels of the Perro Negro 5 jack-up and Scarabeo 4 semi-submersible platform; and (iii) Onshore due to higher activity related essentially to the start up of some large projects acquired in 2005.

Operating profit in 2005 amounted to euro 307 million, a euro 104 million increase compared to 2004, up 51.2%. The oilfield services and construction business reported an operating profit of euro 306 million, up euro 37 million, or 13.8%, achieved in the following areas: (i) offshore construction area, reflecting higher profitability of certain projects completed in North Africa; (ii) onshore drilling area, reflecting higher activity levels; and (iii) offshore drilling area, reflecting tariff increases for the submersible platform Scarabeo 6, higher utilization of the submersible platform Scarabeo 4 and of the jack-up Perro Negro 5. Such gains were partially offset by higher costs on projects in progress in the LNG area and the fact that for 2004 the Leased FPSO area recorded income relating essentially to a contract for the recovery of oil spilled from the Prestige tanker not recorded in 2005.

The engineering business reported an operating profit of euro 1 million, an increase of euro 67 million over 2004, arising from the higher profitability of certain contracts in addition to the share of earnings from certain projects acquired in early 2005.

Other activitiesactivities. These activities includeIn 2006 and 2005 this reporting segment included only the results of operations of Eni’s subsidiary Syndial which manages certain decommissioningruns minor petrochemical activities and reclamation and decommissioning activities relatingpertaining to certain shut down industrial sitesbusinesses which Eni exited in past years. In 2004, this reporting segment also included the results of Eni, and other Enioperations of certain diversified subsidiaries (such as, among others, Sieco, Tecnomare, EniTecnologie, Eni Corporate University and AGI) engaged in diversified activities (mainlyrunning general services to Eni business segments). Eni’s businesses. Starting in 2006, said subsidiaries have been reallocated in Eni’s other reporting segments. Data for the year 2005 have been restated; previous year data have not been restated due to the circumstance that operating results of these subsidiaries were immaterial.

The Other activities reported an operating loss of euro 902622 million for 2006, improving by euro 312 million, or 33.4% compared to the loss recorded in 2005 (euro 934 million), due mainly to lower environmental charges, lower provisions for risks and lower asset impairments (for a cumulative positive effect of euro 395 million). This was partly offset by the recording of a charge related to a fine imposed by the European Antitrust Authority (euro 62 million).

The Other activities reported an operating loss of euro 934 million for 2005, higher by euro 507539 million, or 128%136.5% compared to the loss recorded in 2004, due essentially to a euro 504 million increase in Syndial’s operating loss relating to: (i) higher provisions for environmental liabilities of euro 328 million reflecting primarily to the clean up of the Porto Marghera site and the settlement agreed with certain Italian authorities for the environmental damages and remediation of the same site, the reclamation of areas belonging to the Mantova plant and the dismantling of inactive plants and tanks in the Porto Torres site; (ii) provisions for contractual risks (euro 71 million) essentially related to the inability to fulfill certain contractual obligations in connection with product supply and litigations (euro 40 million); and (iii) higher asset impairments (up euro 56 million from euro 19 million to euro 75 million); impairments in 2005 related in particular to the Scarlino and Porto Torres plants, up euro 44 million and euro 19 million, respectively.

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Corporate and financial companiescompanies.These activities include results of operation of the headquarter of the parent company Eni SpA, and of Eni’s subsidiaries engaged in treasury services. These activitiesservices and of other Eni’s subsidiaries, such as, among others, EniServizi, Eni Corporate University and AGI.

The aggregate Corporate and financial companies reported an operating loss of euro 391296 million, lower by euro 81 million, or 21.5% compared to the loss recorded in 2005 (euro 377 million), due essentially to lower operating costs and lower risk provisions.

The aggregate Corporate and financial companies reported an operating loss of euro 377 million for 2005, down euro 2814 million, or 7.7%3.9% from 2004, due essentially to an increase in IT costs, up euro 48 million, arising from higher activity levels, and institutional communication costs, up euro 7 million. These negative factors were partly offset by lower environmentalrisk provisions.

e) Net Financial ExpenseIncome

The table below sets forth a breakdown of Eni’s net financial expense for the periods indicated:

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Exchange gain (loss), net					169
Interest and other financial income		2			74
Income from securities		31			36
Interest and other financial expense		(254	)		(309	)
Accretion of asset retirement obligation		(109	)		(109	)
Income (expense) on derivative financial instruments		34			(386	)
(Increase)/decrease in risk reserve provision		(62	)
less:
Interest capitalized		202			159
		(156	)		(366	)

Income (expense) on derivatives		34			(386	)		383
Exchange differences, net					169			(152	)
Interest income from banks		59			60			194
Financial expense on short and long-term debt		(413	)		(420	)		(462	)
Financial expense due to the passage of time		(109	)		(109	)		(116	)
Other financial income and expense, net		71			161			198
		(358	)		(525	)		45
Financial expense capitalized		202			159			116
		(156	)		(366	)		161

2006 compared to 2005. Net financial income (euro 161 million) was up euro 527 million from 2005 when net financial expenses of euro 366 million were recorded. The increase reflected: (i) gains arising from the fair value evaluation of financial derivative instruments recorded in the profit and loss account instead of being recognized on the balance sheet in connection with related assets, liabilities and commitments because Eni’s financial derivative instruments do not meet the formal criteria to be assessed as hedging instruments under IFRS. These gains were partially offset by the impact of exchange rates differences which were recorded in connection with certain assets or liabilities (said exchange rate differences reversed from a net gain of euro 169 million in 2005 to a net loss of euro 152 million in 2006); and (ii) higher interest income deriving from a higher average availability of cash and cash equivalents offset in part by the impact of higher interest rates on dollar loans (Libor up 1.7 percentage points) and on euro loans (Euribor up 0.9 percentage points).

2005 compared to 20042004. Net financial expense (euro 366 million) was up euro 210 million from 2004, or 135%, due to charges pertaining to changes in the fair value of derivative financial contracts and to higher interest rate charges on dollar loans (relating to an increase in LIBORLibor of 2 percentage points), the effects of which were offset in part by a decrease in average net borrowings¹¹⁹ and the fact that in 2004 a euro 62 million increase in the risk reserve provision was recorded in connection with assignment of a financing receivable to the acquirer of a divested affiliate of Eni which is expected to be unable to repay such receivable on the basis of management estimates.

f) Net Income from Investments

2006 compared to 2005. Net income from investments in 2006 was euro 903 million and concerned primarily: (i) Eni’s share of profit of affiliates accounted for under the equity method (euro 795 million), in particular affiliates in the Gas & Power and Refining & Marketing segments. The equity result recorded by Eni on its affiliate Galp Energia SGPS SA reflected a gain recorded by Galp in its statutory accounts on the sale of certain regulated assets in the natural gas business to Rede Eléctrica Nacional in Portugal. Eni’s share of the gain was euro 73 million; (ii) dividends received by affiliates accounted for at cost (euro 98 million, of which euro 56 million related to Nigeria LNG); and (iii) net gains on disposal (euro 18 million).

_______________

(9)

Excluding loans directed to specific capital expenditure projects in the Exploration & Production and Gas & Power segments, whose financial charges are recognized as an increase of the relevant capital goods.

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The euro 11 million decrease in net income from investments from 2005 was due essentially to lower gains related in particular to the recording in 2005 of the gain on the divestment of Italiana Petroli SpA (euro 132 million), whose effects were offset in part by improved results of operations of affiliates in the Gas & Power segment, in particular Unión Fenosa Gas SA and Blue Stream Pipeline Co BV and higher dividends distributed by Nigeria LNG.

2005 compared to 20042004. In 2005 net income from investment was euro 914 million and concerned primarily: (i) Eni’s share of income of affiliates accounted for under the equity method (euro 737 million), in particular affiliates in the Gas & Power (euro 358 million) and Refining & Marketing (euro 221 million) segments; (ii) gains on disposal (euro 179 million) relating in particular to the sale of 100% of IP (euro 132 million) and a 2.33% stake in Nuovo Pignone Holding SpA (euro 24 million); and (iii) dividends received by affiliates accounted for under the cost method (euro 33 million).

The euro 94 million increase in net income from investments was due essentially to improved results of operations of affiliates in the Gas & Power segment, in particular Galp Energia SGPS SA (Eni’s interest 33.34%), Unión Fenosa Gas SA (Eni’s interest 50%) and Blue Stream Pipeline Co BV (Eni’s interest 50%) as well as the fact that in 2004 a euro 41 million impairment was recorded in connection with the divestment of Eni’s 35% interest in Albacom. These increases were offset in part by lower gains on disposal (euro 257 million) related to the fact that in 2004 the gain on the sale of 9.054% of the share capital of Snam Rete Gas, 100% of Agip do Brasil SA and other minor assets were recorded for a total of euro 437 million, as compared to the euro 179 million gain recorded in 2005.

g) Taxes

2006 compared to 2005. Income taxes were euro 10,568 million, up euro 2,440 million from 2005, or 30%, and reflected primarily higher profit before taxes (euro 3,016 million) and a 5 percentage point increase (from 46.8 to 51.8%) in the Group effective tax rate, calculated as the ratio of income taxes to net profit before taxes. This increase in the Group tax rate reflected mainly: (i) the enactment of a windfall tax on upstream earnings in Algeria effective as from August 1, 2006 (with an overall impact of euro 328 million, of which euro 149 million pertaining to taxation for the period and euro 179 million pertaining to the deferred tax impact); (ii) an increase in the supplemental tax rate implemented by the British Government, applicable to profit before taxes earned by operations in the North Sea, effective as from the beginning of the year, affecting both current taxation and deferred tax (with an overall impact of euro 198 million, of which euro 107 million pertaining to taxation for the period and euro 91 million pertaining to the deferred tax impact); and (iii) a provision for the settlement of a tax claim in Venezuela (with an overall impact of euro 77 million).

2005 compared to 20042004. Income taxes were euro 8,128 million, up euro 2,606 million from 2004, or 47.2%, and reflected primarily higher incomeprofit before taxes (euro 4,312 million). The Group’s effective tax rate increased 4.5 percentage points to 46.8% (42.3% in 2004). There were three factors behind this increase. First, the higher share of profit before income taxes earned by subsidiaries in the Exploration & Production segment operating in countries where the statutory tax rate is higher than the Group tax rate. Second, profit for the year was adversely impacted by higher non-deductible charges pertaining to increases in risk reserve provision, relating mainly to a fine imposed by the Italian Antitrust Authority. The third factor was a lower share of non-taxable income pertaining in particular to lower gains on disposals of shareholdings in consolidated subsidiaries and of investments recorded under the item "Net Income from Investments" (see above).

h) Minority Interest

2006 compared to 2005. Minority interest was euro 606 million, up euro 147 million from 2005, or 32.0%, and concerned primarily Snam Rete Gas SpA (euro 287 million) and Saipem SpA (euro 303 million). This increase in minority interest mainly reflected the improvement in Saipem’s results of operations.

2005 compared to 20042004. Minority interestsinterest was euro 459 million and concerned primarily Eni’s interest in Snam Rete Gas SpA (euro 321 million) and Saipem SpA (euro 115 million).

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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,

			2004		2005

		2004		2005		2006

(million euro)

Net profit		7,541			9,247
Adjustments to reconcile to cash generated from operating profit before changes in working capital:
• Amortization and depreciation and other non-monetary items		5,092			6,518
• Net gains on disposals of assets		(793	)		(220	)
• Dividends, interest, and income taxes and other changes		5,740			8,471
Net cash generated from operating profit before changes in working capital		17,580			24,016
Changes in working capital related to operations		(909	)		(2,422	)
Dividends received, taxes paid, interest (paid) received during the year		(4,171	)		(6,658	)
Net cash provided by operating activities		12,500			14,936
Capital expenditure		(7,499	)		(7,414	)
Investments (1)		(316	)		(127	)
Disposals		1,547			542
Other cash flow related to capital expenditure, investments and divestments		308			184
Changes in short and long-term financial debt		(3,743	)		(540	)
Dividends paid and changes in minority interests and reserves		(3,175	)		(7,284	)
Effect of change in consolidation scope and exchange differences		(55	)		33
Change in cash and cash equivalent for the year		(433	)		330
Cash and cash equivalent at the beginning of the year		1,436			1,003
Cash and cash equivalent at year end		1,003			1,333

Net profit		7,541			9,247			9,823
Adjustments to reconcile to cash generated from operating profit before changes in working capital:
- amortization and depreciation and other non monetary items		5,092			6,518			5,753
- net gains on disposal of assets		(793	)		(220	)		(59	)
- dividends, interest, income taxes and other changes		5,740			8,471			10,435
Net cash generated from operating profit before changes in working capital		17,580			24,016			25,952
Changes in working capital related to operations		(909	)		(2,422	)		(1,024	)
Dividends received, taxes paid, interest (paid) received during the year		(4,171	)		(6,658	)		(7,927	)
Net cash provided by operating activities		12,500			14,936			17,001
Capital expenditure		(7,499	)		(7,414	)		(7,833	)
Investments (1)		(316	)		(127	)		(95	)
Disposals		1,547			542			328
Other cash flow related to capital expenditure, investments and divestments including securities and financing receivables not related to operations		308			184			577
Changes in short and long-term financial debt		(3,743	)		(540	)		(682	)
Dividends paid and changes in minority interests and reserves		(3,175	)		(7,284	)		(6,443	)
Effect of changes in consolidation and exchange differences		(55	)		33			(201	)
Change in cash and cash equivalent for the year		(433	)		330			2,652
Cash and cash equivalent at the beginning of the year		1,436			1,003			1,333
Cash and cash equivalent at year end		1,003			1,333			3,985

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(1)		This item refers mainly to the acquisition of equity of other companies.

The table below sets forth the principal components of Eni’s change in net borrowings ⁽²⁾ for the periods indicated.

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Net cash provided by operating activities		12,500			14,936
Capital expenditure		(7,499	)		(7,414	)
Investments		(316	)		(127	)
Disposals		1,547			542
Other cash flow related to capital expenditure, investments and divestments		97			293
Net borrowings (2) of acquired companies					(19	)
Net borrowings (2) of divested companies		190			21
Exchange differences on net borrowings and other changes		(64	)		(980	)
Dividends paid and changes in minority interests and reserves		(3,175	)		(7,284	)
Change in net borrowings (2)		3,280			(32	)
Net borrowings (2) at the beginning of the year		7,163			10,443
Net borrowings (2) at year end		10,443			10,475

Net cash provided by operating activities		12,500			14,936			17,001
Capital expenditure		(7,499	)		(7,414	)		(7,833	)
Investments		(316	)		(127	)		(95	)
Disposals		1,547			542			328
Other cash flow related to capital expenditure, investments and divestments		97			293			361
Net borrowings (2) of acquired companies					(19	)
Net borrowings (2) of divested companies		190			21			1
Exchange differences on net borrowings and other changes		(64	)		(980	)		388
Dividends paid and changes in minority interests and reserves		(3,175	)		(7,284	)		(6,443	)
Change in net borrowings (2)		3,280			(32	)		3,708
Net borrowings (2) at the beginning of the year		13,723			10,443			10,475
Net borrowings (2) at year end		10,443			10,475			6,767

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(2)		Net borrowings is a non-GAAP financial measure. For a discussion of the usefulness of net borrowings and its reconciliation with the most directly comparable GAAP financial measures see "Financial Condition" below.

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Analysis of Certain Components of Eni’s Change in Net Borrowings:

a) Net Cash generated from Operating Profit before Changes in Working Capital

CashNet cash generated from operating profit before changes in working capital totalledtotaled euro 25,952 million in 2006 and euro 24,016 million in 2005 and euro 17,580 million in 2004.2005. The euro 6,4361,936 million increase from 20042005 reflected primarily increased results of operations.

Net profit for 2006 was adjusted to take into account amortization and depreciation and other non-monetary items (euro 5,753 million), which concerned primarily depreciation and amortization of tangible and intangible assets (euro 6,153 million), non-monetary charges relating to environmental and risk provisions, impairments of fixed assets and investments (euro 268 million) primarily resulting from the impairment of proved and unproved property in the Exploration & Production segment (euro 129 million). Adjustments to net profit also included income taxes and interest expense (euro 10,435 million).

In 2005, net profit has beenwas adjusted to take into account amortization and depreciation and other non-monetary items (euro 6,518 million), which concerned primarily depreciation and amortization of tangible and intangible assets (euro 5,509 million), impairments of fixed assets and investments (euro 272 million) primarily resulting from the impairment of proved and unproved property in the Exploration & Production segment (euro 156 million) and a euro 6375 million impairment charge in the Other Activities segment relatedactivities segment. Adjustments to certain shutdown plants and to the Porto Torres petrochemical complex, andnet profit also included income taxes and interest expense (euro 8,471 million).

In 2004 net profit has been adjusted to take into account amortization and depreciation and other non-monetary items (euro 5,092 million), which concerned primarily depreciation and amortization of tangible and intangible assets (euro 4,598 million), impairments of fixed assets and investments (euro 333 million) related in particular to the impairment of proved and unproved property in the Exploration & Production segment (euro 287 million), and income taxes and interest expense (euro 5,740 million).

b) Changes in Working Capital Relatedrelated to Operations

NetIn 2006, the increase in net working capital (euro 1,024 million) was mainly due to: (i) a euro 1,952 million increase in trade accounts receivable essentially related to operationsa growth in sales volumes of oil and natural gas; and (ii) an increase of inventories (euro 953 million) in connection with the evaluation of inventories of refined products under the weighted-average cost method of accounting. This increase was euro 2,422 millionpartly offset by an increase in 2005 and euro 909 million in 2004.trade accounts payable (euro 2,146 million).

In 2005, the increase in net working capital (euro 2,422 million) was mainly due to a euro 3,5764,413 million increase in trade accounts receivable due essentially to the impact of increased international oil and refined product prices, growth in sales volumes of oil and natural gas and currency translation effects. This increase related in particular to the Gas & Power (up euro 1,671 million), Refining & Marketing (up euro 1,010 million) and the Exploration & Production (up euro 806 million) segments. This increase was partly offset by an increase in the euro value of trade accounts payable (euro 2,3333,030 million) resulting from the same reasons as the increase in trade accounts receivable.

c) Dividends received, taxesTaxes paid, interestInterest (paid) received during the yearYear

Dividends, interest and taxes paid (which is net of amounts received) totalledtotaled euro 7,927 million in 2006 and euro 6,658 million in 2005 and euro 4,171 million in 2004 and concerned primarily the payment of income taxes (euro 8,876 million in 2006 and euro 6,619 million in 2005 and euro 4,199 million in 2004)2005).

d) Capital Expenditure and Investing Activities

Capital expenditure totalledtotaled euro 7,833 million in 2006 and euro 7,414 million in 20052005.

In 2006, 90% of capital expenditure related to the Exploration & Production (euro 5,203 million), Gas & Power (euro 1,174 million) and euro 7,499 million in 2004. Refining & Marketing (euro 645 million) segments.

In 2005, 91% of capital expenditure related to the Exploration & Production (euro 4,9644,965 million), Gas & Power (euro 1,152 million) and Refining & Marketing (euro 656 million) segments. In 2004, 93% of capital expenditure related to the Exploration & Production (euro 4,853 million), Gas & Power (euro 1,451 million) and Refining & Marketing (euro 693 million) segments.

For a discussion of capital expenditure by business segment and a description of changes from one year to another see below "Capital Expenditure by Segment".

Investments (including net borrowings acquired) totalledtotaled euro 95 million in 2006 and euro 146 million in 2005 and 316 million in 2004.
2005.

e) Disposals

Disposals (including net debt discharged) totalledtotaled euro 329 million in 2006 and euro 563 million in 20052005.

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In 2006, disposals (euro 329 million, including net borrowing) concerned primarily: (i) the Exploration & Production segment (euro 229 million) related in particular to disposal of mineral assets and euro 1,730 million in 2004.other minor assets; (ii) the Gas & Power segment, related to the divestment of 13.5% of the share capital of EniPower Mantova (euro 17 million) and other minor assets; and (iii) the Refining & Marketing segment related to the divestment of minor assets (euro 25 million).

In 2005, disposals (euro 563 million, including net borrowing) concerned primarily: (i) the Gas & Power segment, related to the divestment of Eni’s majority interest (67.05%) in Società Azionaria per la Condotta di Acque Potabili (euro 85 million) and 100% of the share capital of in Acquedotto Vesuviano SpA (euro 20 million); and (ii) the Refining & Marketing segment related to the divestment of 100% of the share capital of IP (euro 190 million) and 28% of the share capital of Erg Raffinerie Mediterranee Srl (euro 97 million).

In 2004, disposals (euro 1,828 million, including net borrowing discharged of euro 279 million) concerned primarily: (i) the Gas & Power segment (euro 676 million), related to the sale of shares representing 9.054% of the share capital of Snam Rete Gas SpA to Mediobanca SpA (euro 650 million) and the disposal of other assets (euro 26 million); (ii) the Exploration & Production segment (euro 492 million) related in particular to the program of rationalization of mineral assets (euro 459 million) and disposal of other minor assets (euro 33 million); (iii) the Refining & Marketing segment (euro 412 million) related to the divestment of the 100% interest in Agip do Brasil SA, a company active in distribution and marketing of refined products and LPG (euro 365 million), the sale of service stations (euro 16 million) and disposal of other minor assets (euro 31 million); (iv) the Other Activities and Corporate and financial companies segments (euro 101 million) related to the sale of the waste disposal business in Ravenna (euro 49 million), the sale of a 2.33% stake in Nuovo Pignone Holding SpA (euro 28 million) and disposal of other minor assets (euro 24 million); and (v) the Petrochemical segment (euro 41 million) related in particular to the sale of the elastomer Baytown plant (euro 31 million) and disposal of other minor assets (euro 10 million).

f) Dividends Paidpaid and Changes in Minority Interests and Reserves

In 2006, dividends paid and changes in minority interests and reserves (euro 6,443 million) related mainly to the dividend distribution to Eni shareholders for euro 4,610 million (of which euro 2,400 million related to the balance for the fiscal year 2005¹⁰ and euro 2,210 million¹¹ as an interim dividend for fiscal year 2006) and the distribution of dividend to minority interest by Snam Rete Gas SpA and Saipem SpA (euro 207 million) and other consolidated subsidiaries (euro 15 million) and the buy-back program (for euro 1,241 million by Eni SpA and for euro 477 million by Snam Rete Gas SpA and Saipem SpA).

In 2005, dividends paid and changes in minority interests and reserves (euro 7,2787,284 million) related mainly to the dividend distribution for fiscal year 2004 of euro 3,384 million¹² and the payment of an interim dividend of euro 1,686 million¹³ carried out by Eni SpA, the payment of dividends by Snam Rete Gas SpA (euro 1,171 million¹³ of which euro 976 million was paid as an extraordinary dividend) and other consolidated subsidiaries (euro 9 million) and the buy-back program (euro 1,034 million).

In 2004, dividends paid and changes in minority interest and reserves (euro 3,175 million) related mainly to the payment of dividends for fiscal year 2003 by Eni SpA for a total amount of euro 2,828 million¹⁴ and other consolidated subsidiaries (euro 248 million).

Financial Condition

Eni evaluates its financial condition by reference to "net borrowings", which is 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 IFRS less: cash, cash equivalents and certain very liquid investments not related to operations including, among others, non-operating financing receivables and securities not related to operations. Non-operating financing receivables consistsconsist mainly of amounts due to Eni’s financing subsidiariesEni 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 bonds and corporate securities.securities from financing institutions.

Management believes that net borrowings is a useful measure of Eni’s financial condition as it provides an indication of the soundness of Eni’s capital structure and of how Eni’s operating assets are financed. In addition, management utilizes the ratio of net borrowings to total shareholders’ equity including minority interest (leverage) to evaluate Eni’s financial 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 internally-generated funds vs. funds from third parties. The measure calculated in accordance with IFRS that is most directly comparable to net borrowings is total debt (short-term and long-term debt). The most directly comparable measure, derived from IFRS reported amounts, to leverage is the ratio of total debt to shareholders’ equity (including minority interest). Eni’s presentation and calculation of net borrowings and leverage may not be comparable to that of other companies.

_______________

(10)		The unit dividend resolved by the Shareholders’ Meeting for fiscal year 2005 was euro 1.10 per share of which euro 0.65 per share was paid as balance in June 2006 and euro 0.45 as an interim dividend in October 2005. The balance per ADR was $1.64 as converted at the Noon Buying Rate of 1 euro = 1.2582 U.S. dollars at the payment date of June 22, 2006.
(11)		Corresponding to euro 0.60 per share, or $1.52 per ADR converted at the Noon Buying Rate of 1 euro = 1.2669 U.S. dollars as at the payment date of October 26, 2006.
(12)		Corresponding to euro 0.90 per share, or $2.17 per ADR converted at the Noon Buying Rate of 1 euro = 1.2054 U.S. dollars as at the payment date of June 23, 2005.
(13)		Corresponding to euro 0.45 per share, or $1.09 per ADR converted at the Noon Buying Rate of 1 euro = 1.2148 U.S. dollars as at the payment date of October 27, 2005.

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The tables below set forth the calculations of net borrowings and leverage for the periods indicated and their reconciliation to the most directly comparable GAAP measure.

	Year endedAs of December 31,

	2004		2005

		2004		2005		2006

Short-term

Long-term

Total

Short-term

Long-term

Total

Short-term

Long-term

Total

(million euro)

Total debt (short-term and long-term debt)		5,077			7,607			12,684			5,345			7,653			12,998
Cash and cash equivalent		(1,003	)					(1,003	)		(1,333	)					(1,333	)
Securities not related to operations		(792	)		(1	)		(793	)		(903	)		(28	)		(931	)
Non operating financing receivables		(11	)		(240	)		(251	)		(12	)		(247	)		(259	)
Other, net		(194	)					(194	)
Net Borrowings		3,077			7,366			10,443			3,097			7,378			10,475

Total debt (short-term and long-term debt)		5,077			7,607			12,684			5,345			7,653			12,998			4,290			7,409			11,699
Cash and cash equivalent		(1,003	)					(1,003	)		(1,333	)					(1,333	)		(3,985	)					(3,985	)
Securities not related to operations		(792	)		(1	)		(793	)		(903	)		(28	)		(931	)		(552	)					(552	)
Non operating financing receivables		(11	)		(240	)		(251	)		(12	)		(247	)		(259	)		(143	)		(252	)		(395	)
Other, net		(194	)					(194	)
Net borrowings		3,077			7,366			10,443			3,097			7,378			10,475			(390	)		7,157			6,767

 

	As of December 31,

			2004		2005

Shareholders’ equity including minority interests as per Eni’s Consolidated Financial Statements prepared in accordance with IFRS (million euro)		35,540			39,217
Ratio of total debt to total shareholders’ equity including minority interests		0.36			0.33
Less: ratio of cash, cash equivalent and certain liquid investments not related to operations to total shareholders’ equity including minority interests		(0.07	)		(0.06	)
Ratio of net borrowing to total shareholders’ equity including minority interests (leverage)		0.29			0.27

		2004		2005		2006

Shareholders’ equity including minority interests as per Eni’s Consolidated Financial Statements prepared in accordance with IFRS		(million euro)		35,540			39,217			41,199
Ratio of total debt to total shareholders’ equity including minority interests				0.36			0.33			0.28
Less: ratio of cash, cash equivalent and certain liquid investments not related to operations to total shareholders’ equity including minority interests				(0.07	)		(0.06	)		(0.12	)
Ratio of net borrowing to total shareholders’ equity including minority interests (leverage)				0.29			0.27			0.16

In 2006, net borrowings amounted to euro 6,767 million, a euro 3,708 million decrease over 2005. Total debt of euro 11,699 million consisted of euro 4,290 million short-term debt (including the portion of long-term debt due within twelve months equal to euro 890 million) and euro 7,409 million of long-term debt.

Total debt included bonds for euro 5,097 million (including accrued interest and discount on issuance). Bonds maturing in the next 18 months amounted to euro 787 million (including accrued interest and discount). Bonds issued in 2006 amounted to euro 219 million (including accrued interest and discount). Total debt was denominated in the following currencies: euro (74%), U.S. dollar (12%), pound sterling (11%) and 3% in other currencies.

In 2005, net borrowings amounted to euro 10,475 million, a euro 32 million increase over 2004. Total debt of euro 12,998 million consisted of euro 5,345 million short-term debt (including the portion of long-term debt due within twelve months equal to euro 733 million) and euro 7,653 million of long-term debt.

Total debt included bonds for euro 5,339 million (including accrued interest and discount)discount on issuance). Bonds maturing in the next 18 months amounted to euro 436 million (including accrued interest and discount). Bonds issued in 2005 amounted to euro 441 million (including accrued interest and discount). Total debt was denominated in the following currencies: euro (72%), U.S. dollar (16%), pound sterling (8%) and 4% in other currencies.

In 2004, net borrowings amounted to euro 10,443 million. Total debt amounted to euro 12,684 million, of which euro 5,077 million of short-term debt (including the portion of long-term debt due within twelve months for euro 927 million) and euro 7,607 million of long-term debt. Bonds amounted to euro 5,331 million. Total debt was denominated in the following currencies: euro (63%), U.S. dollar (24%), pound sterling (10%) and 3% in other currencies.

Short-term Debt

As of December 31, 2006, short-term debt of euro 3,400 million (excluding the portion of long-term debt due within twelve months) decreased by euro 1,212 million over 2005. The weighted average interest rate of Eni’s short-term debt was 2.8% and 3.9% for the years ended December 31, 2005 and 2006, respectively.

As of December 31, 2006, Eni maintained committed and uncommitted unused lines of credit for euro 5,896 and euro 6,523 million, respectively (euro 5,855 million and euro 4,783 million, respectively, at December 31, 2005 and euro 5,304 million and euro 7,771 million, respectively, at December 31, 2004). These agreements provide for interest charges based on prevailing market conditions. Commission fees on unused lines of credit are not significant.

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As of December 31, 2005, short-term debt of euro 4,612 million (excluding the portion of long-term debt due within twelve months) increased by euro 462 million over 2004. The weighted average interest rate of Eni’s short-term debt was 2.5% and 2.8% for the years ended December 31, 2004 and 2005, respectively.

As of December 31, 2005, Eni maintained committed and uncommitted unused lines of credit for euro 5,855 and euro 4,783 million, respectively (euro 5,304 million and euro 7,771 million, respectively, at December 31, 2004). These agreements provide for interest charges based on prevailing market conditions. Commission fees on unused lines of credit are not significant.

Long-term Debt

As of December 31, 2006, long-term debt of euro 8,299 million decreased by euro 87 million over 2005.

Eni entered into financing arrangements with the European Investment Bank, relating to a bank debt that requires it to maintain certain financial ratios generally based on Eni’s consolidated financial statements or of a rating not inferior to A- (S&P) and A3 (Moodys). At December 31, 2005 and December 31, 2006, the amount of short and long-term debt subject to restrictive covenants was euro 1,258 million and euro 1,131 million, respectively (euro 1,104 million as of December 31, 2004). In addition, Saipem SpA entered into financing arrangements with banks for euro 75 million (euro 275 million and euro 300 million at December 31, 2005 and 2004, respectively), that require it to maintain certain financial ratios generally based on Saipem’s Consolidated Financial Statements. Eni and Saipem are in compliance with the covenants contained in these financing arrangements. Bonds for euro 5,097 million concern bonds issued within the Euro Medium Term Notes Program for a total of euro 4,424 million and other bonds for a total of euro 673 million.

As of December 31, 2005, long-term debt of euro 8,386 million decreased by euro 148 million over 2004.

Eni entered into financing arrangements with the European Investment Bank, relating to bank debt that requires maintenance of certain financial ratios generally based on Eni’s Consolidated Financial Statements or of a rating not inferior to A- (S&P) and A3 (Moodys). The amount of this financing arrangement subject to said restrictive covenants was euro 1,104 million and euro 1,258 million, as of December 31, 2004 and 2005, respectively. In 2005, those covenants primarily concern Eni’s financing arrangements (euro 1,235 million, as of December 31, 2005, of which euro 110 million as comprised a portion of long-term debt due within twelve months). Eni was in compliance with said covenants. Also Saipem SpA entered into financing arrangements with banks for euro 275 million (euro 300 million as of December 31, 2004), that require maintenance of certain financial ratios generally based on Saipem’s consolidated financial condition and results of operations. Saipem was in compliance with said covenants.

As of December 31, 2005, bonds of euro 5,339 million included bonds issued under the Medium Term Notes Program for a total of euro 4,365 million and other bonds for a total of euro 974 million.

As of December 31, 2004 bonds of euro 5,331 million included bonds issued under the Medium Term Notes Program for a total of euro 4,296 million and other bonds for a total of euro 1,039 million.

The weighted average interest rate on Eni’s long-term debt (including current maturities) at December 31, 20052006 was approximately 4.5% (4.2%4.8% (4.5% at December 31, 2004)2005).

Capital Expenditure by Segment

The table below sets forth a breakdown, by segment, of capital expenditure.

	Year ended December 31,

			2004		2005

		2004		2005		2006

(million euro)

Exploration & Production		4,853		4,964
Gas & Power		1,451		1,152
Refining & Marketing		693		656
Petrochemicals		148		112
Oilfield Services Construction and Engineering		186		349
Other activities		49		69
Corporate and financial companies		119		112
Total		7,499		7,414

Exploration & Production		4,853			4,965			5,203
Gas & Power		1,451			1,152			1,174
Refining & Marketing		693			656			645
Petrochemicals		148			112			99
Engineering & Construction		186			349			591
Other activities		49			48			72
Corporate and financial companies		119			132			88
Impact of inter-segment profits elimination								(39	)
		7,499			7,414			7,833

Exploration & Production. In 2006, capital expenditure of the Exploration & Production segment amounted to euro5,203 million, representing an increase of euro238 million, or 4.8%, from 2005 due to the increase in exploration expenditure in particular in Egypt and Nigeria. These effects were offset in part by lower development expenditure resulting essentially from the completion of relevant projects in Libya, Nigeria and the circumstance that in 2005 an additional 1.85% interest in the Kashagan project was purchased with an outlay of euro169 million. Capital expenditure for 2006 concerned mainly development expenditure (euro3,629 million, compared to euro3,952 million in 2005) directed mainly outside Italy (euro3,226 million), in particular in Kazakhstan, Angola and Egypt. Development expenditure in Italy (euro403 million) concerned in particular the continuation of drilling development wells, the completion of work for plant and infrastructure in Val d’Agri and sidetrack and infilling actions in mature areas. Exploration expenditure amounted to euro1,348 million (euro656 million in 2005), of which about 90% was directed outside Italy. Outside Italy exploration concerned in particular the following countries: Angola, Egypt, Norway, Nigeria and the Gulf of Mexico. In Italy exploration concerned essentially the offshore Sicily, the Po Valley and the Adriatic Sea.

In 2005, capital expenditure of the Exploration & Production segment amounted to euro 4,9644,965 million, representing an increase of euro 111112 million, or 2.3%, from 2004 due primarily to higher unit development costs in connection with a higher rate of development activity for new fields in complex environments and in mature areas, and higher costs of certain productive factors (e.g. tariffs of drilling rigs). Capital expenditure for 2005 concerned mainly development expenditure (euro 3,952 million, compared to euro 4,310 million in 2004) directed mainly outside Italy (euro 3,541 million), in particular in Kazakhstan, Libya, Angola and Egypt.

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Development expenditure in Italy (euro 411 million) concerned in particular the completion of work for plant and infrastructure in Val d’Agri and sidetrack and infilling actions in mature areas. Exploration expenditure amounted to euro 656 million (euro 499 million in 2004), of which about 96%94% was directed outside Italy. Outside Italy exploration concerned in particular the following countries: Norway, Egypt, the United States, Brazil and Indonesia. In Italy exploration concerned essentially Northern Italy.

Expenditure for the purchase of proved and unproved property amounted to euro 301 million and concerned the acquisition of: (i) a further 1.85% stake in the Kashagan project for dollar 200 million; (ii) 104 exploration blocks and two fields in pre-development phase in Northern Alaska; (iii) a 40% stake in the OML 120 and OML 121 concessions under development in the Nigerian offshore; and (iv) a 50% interest in WA-313-P and a 53.8% interest in WA-280-P permits in Australia. Capital expenditure for capital goods amounted to euro 55 million.

Gas & Power.In 2004,2006, capital expenditure in the ExplorationGas & ProductionPower segment amounted tototaled euro 4,8531,174 million and largely concernedrelated essentially to: (i) development expenditure mainly directed outside Italy (euro 3,991 million): in particular in Libya (the Wafa and Bahr Essalam project), Iran (the South Pars project, phases 4 and 5), Angola (fields in Block 15), Kazakhstan, Egypt, Nigeria and Norway. Development expenditureupgrades of Eni’s transport network in Italy (euro 378627 million) concerned in particular; (ii) the continuation of the drilling program and work for plant and infrastructure in Val d’Agri and sidetrack and infilling activities in mature areas. About 90%construction of exploration expenditurecombined cycle power plants (euro 499229 million) was directed outside Italy. Outside Italy exploration concerned, in particular the following countries: Egypt, the United States, Nigeria, Norway, IndonesiaFerrara and Kazakhstan. InBrindisi sites; and (iii) development and upgrades of Eni’s natural gas distribution network in Italy exploration was focused onshore in Sicily and Central Italy. A further euro 17 million (Eni’s share) was expensed by affiliates for exploration projects in Saudi Arabia, Russia and Spain.(euro 158 million).

In 2005, capital expenditure in the Gas & Power segment totalledtotaled euro 1,152 million and related in particular to: (i) development and improvementupgrades of Eni’s transmissiontransport network in Italy (euro 643 million); (ii) the continuation of the construction of combined cycle power plants (euro 239 million); (iii) development and improvementupgrades of Eni’s distribution network in Italy (euro 182 million); and (iv) development of Eni’s transport network outside Italy (euro 48 million). As compared to 2004, capital expenditure declined by euro 299 million, down 20.6%, due essentially to the completion of the Greenstream gaslineGreenStream pipeline in 2004 and of the power generation development plan.

Refining & Marketing.In 2004,2006, capital expenditure in the GasRefining & PowerMarketing segment totalledamounted to euro 1,451645 million and related mainly to:concerned: (i) developmentrefining, supply and improvementlogistics (euro 376 million) in Italy, aiming at improving flexibility and yields for refineries, in particular the start up of Eni’s natural gas transportationconstruction of a new hydrocracking unit at the Sannazzaro refinery; (ii) upgrades and restructuring of the retail network in Italy (euro 553125 million); (ii) the continuation, including construction of new outlets; and (iii) upgrades of the construction of combined cycle power plants (euro 451 million) in particular at Brindisi, Ferrara, Ferrera Erbognone, Mantova and Ravenna; (iii) development and improvement of Eni’s natural gas distributionretail network in Italythe rest of Europe (euro 16898 million);, including purchase and (iv) the completionrealization of the Greenstream gasline (euro 159 million) that started operations in October 2004.new outlets, and, to a lesser extent, restructuring of existing ones.

In 2005, capital expenditure in the Refining & Marketing segment amounted to euro 656 million and concerned: (i) refining and logistics (euro 349 million), in particular plant efficiency and flexibility improvement actions including the completion of the tar gasification plant at the Sannazzaro refinery; (ii) the upgrade of the distribution network and the construction of new service stations in Italy (euro 154 million); and (iii) the upgrade of the distribution network and to a lesser extent the purchase of service stations in the rest of Europe (euro 71 million). As compared to 2004, capital expenditure declined by euro 37 million, or 5.3%, due essentially to the completion of the plant in Sannazzaro.

Petrochemicals. In 2004,2006, capital expenditure in the Refining & MarketingPetrochemicals segment amounted to euro 69399 million and concerned essentially: (i) refining and logistics (euro 420 million), in particular the construction of the tar gasificationefforts in upkeep (euro 32 million), improving plant at the Sannazzaro refinery, efficiency improvement actions and adjustment of automotive fuel characteristics to new European specifications; (ii) the upgrade of the refined product distribution network in Italystreamlining (euro 16432 million);, environmental protection, safety and (iii) the upgrade of the refined product distribution networkenvironmental regulation compliance (euro 23 million) and the purchase of service stations in the rest of Europeextraordinary and periodic maintenance (euro 6912 million).

In 2005, capital expenditure in the Petrochemicals segment amounted to euro 112 million and concerned in particular actions for extraordinary (euro 37 million) and periodical (euro 27 million) improvement, actions for environmental protection and for complying with safety and environmental regulations (euro 25 million) and improving the efficiency of plants (euro 23 million).

Engineering & Construction.In 2004,2006, capital expenditure in the PetrochemicalsEngineering & Construction segment amounted to euro 148 million,(euro 591 million) concerned: (i) the conversion of the Margaux tanker ship into an FPSO vessel that will operate in Brazil on the Golfinho 2 field; (ii) development and concernedupgrading of equipment; and (iii) construction and installation of facilities in particular actions for improving the efficiencyonshore phase of plants (euro 58 million) and actions for environmental protection and for complying with safety and environmental regulations (euro 41 million).the Kashagan project in Kazakhstan.

In 2005, capital expenditure in the Oilfield Services,Engineering & Construction and Engineering segment amounted to euro 349 million, up 87.6% from 2004, and concerned mainly oilfield services and construction (euro 346 million), in particular: (i) improvement and upgrade of equipment; (ii) vessels and logistical support means for specific contracts, in particular Kashagan; (iii) upgrade of operating structures in Kazakhstan and West Africa; and (iv) the purchase of the Margaux tanker ship and the beginning of its conversion into an FPSO unit that will operate in Brazil on the Golfinho field.

In 2004, capital expenditure in the Oilfield Services, Construction and Engineering segment amounted to euro 186 million and concerned mainly: (i) the construction and upgrade of logistical support means in Kazakhstan, Angola and Nigeria; (ii) the completion of interventions on the semi-submersible platforms Scarabeo 3 and Scarabeo 4, on the Perro Negro 3 jack-up and on the Castoro 8 pipelaying vessel; and (iii) the purchase of plant and equipment required for the Sakhalin project in Russia.98

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Recent Developments

The table below sets forth certain indicators of the trading environment for the periods indicated:

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

	2005		2006		2005		2006

Average price of Brent dated crude oil (1)		47.50		61.75		50.19		70.09
Average price in euro of Brent dated crude oil		36.23		51.37		39.15		55.98
Average EUR/USD Exchange rate (2)		1.311		1.202		1.282		1.252
Average European refining margin (3)		4.26		2.95		6.92		5.11
EURIBOR – three month euro rate %		2.1		2.6		2.1		2.8

		2006		2007		2006		2007

Average price of Brent dated crude oil in U.S. dollars (1)		61.75		57.75		70.09		67.37
Average price of Brent dated crude oil in euro (2)		51.37		44.08		55.98		49.87
Average EUR/USD exchange rate (3)		1.202		1.310		1.252		1.351
Average European refining margin in U.S. dollars (4)		2.95		3.06		5.11		7.57
Euribor - three month euro rate % (3)		2.6		3.8		2.8		4.0

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(1)		In U.S. dollarsPrice per barrel. Source: Platt’s Oilgram.
(2)		Price per barrel. Source: Eni’s calculations based on Platt’s Oilgram data for Brent prices and the EUR/USD exchange rate reported by the European Central Bank.Bank (ECB).
(3)		In U.S. dollarsSource: ECB.
(4)		Price per barrel. FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platt’s Oilgram data.

Eni’s resultsResults of operationsOperations for the first quarter 2006First Quarter 2007

Net profit for the first quarter of 2006 increased by 21.6%2007 was down 13.0% over the first quarter of 2005, reflecting higher2006, essentially due to a decline in operating profit (up 25.7%(down 8.8%), as result of a decline in the operating profit of the Exploration & Production segment, partially offset by a positive performance delivered by Eni’s downstream and the Engineering & Construction businesses. This reduction in net profit was also due to higher Group effective tax rate, up 4.1% (from 42.6net financial expenses mainly owing to 46.7%). The increase inlosses on the effective tax rate was due principally to a higher sharefair value evaluation of profit before income taxes earned by subsidiaries in the Exploration & Production division operating in countries where the statutory tax rate is higher than the average tax rate for the Group.certain financial derivative instruments.

Eni’s results benefited fromwere affected by a favorablenegative trading environment with a higherlower Brent crude oil price (up 30%(down 6.5%) and a depreciationan appreciation of the euro versus the dollar (down 8.3%(up 9.0%). These positive factors were partially offset by decliningfavorable trends in energy and exchange rate parameters used in determining purchase and selling prices of natural gas, an increase in refining margins (down 30.8%on the Brent crude marker (up 3.7%), lower petrochemical products margins and declining sellinghigher sales margins on natural gas as a consequence of the new regulatory regime established by the Italian Authority for Electricity and Gas. In the subsequent months of April and May, the trend in the euro versus U.S. dollar exchange rate reversed with the euro appreciating considerably versus the dollar. Should this trend of appreciation continue for the rest of the year, Eni’s results of operation will be adversely impacted as compared to the first quarter of 2006.petrochemical products.

The increasedecline in Eni’s operating profit for the first quarter 20062007 was largely attributable to a reduced operating profit reported by the Exploration & Production division (up 67.6%segment (down 27.3%) due to higherthe negative impact of the appreciation of the euro against the U.S. dollar, lower production volumes sold (down 5.9%), lower oil prices (oil up 33.4% in dollars (oil down 3.3%, natural gas up 24.4% in dollars) combined with increased production volumes sold (up 7.8%1.3%), and to the favorable impact of the depreciation of the euro versus the U.S. dollar, offset in part by higher operating costs and amortization charges.exploration expenses.

These increases wereThis decline was partly offset by lowera higher operating profit in:

•		the Gas & Power division (down 23%segment (up 36.9%) due primarily to a decreasean increase in natural gas selling margins asmainly owing to a consequencefavorable trading environment reflecting in particular the effect of the newappreciation of euro versus dollar exchange rate and a favorable evolution of the regulatory regime establishedframework in Italy. This reflected the enactment of Resolution No. 79/2007 by the Italian Authority for Electricity and Gas with Decision No. 248/2004 affecting natural gas pricesimplementing a new setup of the indexation mechanism of the raw material cost component in supplies to residential customers and wholesalers combined with higher purchasing costs.commercial users related to the period from January 1, 2005 to June 30, 2006. Following this, Eni has partially or totally reversed provisions accrued in the accounts for 2005 and the first half of 2006. See "Item 4 – Regulation – Gas & Power – Natural gas prices". On the positive side, sales ofThese positives were partly offset by lower natural gas were up 1.87sales (down 2.87 BCM, or 7.2%10.4%), impacted by lower European gas demand due to the unusually mild weather conditions registered in the first quarter 2007. Lower gas demand negatively affected the operating performance of transport activities in Italy and volumes distributed on low pressure networks. Sales volumes of electricity production sold was up 1.44 terawatthours,decreased by 0.12 TWh, or 28.9%. Transported natural gas volumes outside Italy were also higher reflecting the coming-on-line of volumes transported through the Greenstream pipeline from Libya;1.6%;
•		the Petrochemical division (down 75.3%Petrochemicals segment (up 195%) affected bydue mainly to higher selling margins, principally the significantly higher cost of oil-based feedstocks not completely transferredcracker margin and to selling prices;a lower extent the aromatics business; and
•		the Refining & Marketing division (down 67%) due primarily to declining refining margins (margins on Brent were down 1.31 dollars/barrel, or 30.8%), the effect of longer maintenance outages of refineries and higher environmental provisions (euro 21 million). These factors were offset in part by the impact of the appreciation of the dollar over the euro.

the Engineering & Construction segment (up 126%) reflecting a better operating performance in all business areas, in particular in the Offshore and Onshore construction areas due to higher activity levels and margins.

Eni’s net sales from operations (revenues) for the first quarter of 2006 increase by 35.2%2007 were down 7.1% from the first quarter of 2005,2006, primarily reflecting higher realized prices and higher sales volumes in virtually all of Eni’s operating segments. Also contributing was the favorable impact of the depreciationappreciation of the euro versus the dollar.dollar and the decline in oil prices, as well as lower sold production of hydrocarbons and natural gas sales. These negative factors were offset in part by higher activity levels in the Engineering & Construction segment and higher gas prices.

The appreciation of the euro over other currencies, in particular the U.S. dollar (at March 31, 20062007 the EUR/USD exchange rate was up 2.5%1.1% over December 31, 2005)2006) resulted in decrease in the book value of net capital employed, in nettotal assets, Eni shareholders’ equity and in net borrowings at 2005as compared with 2006 year end.

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Net borrowings at March 31, 20062007 declined by 39.9%43.1% from December 31, 2005,2006, due to cash inflow provided by operating activities, and was also influenced by seasonality factors, cash from asset divestments and currency translation effects. These inflows were offset in part by financial requirements for capital expenditure and investments and the repurchase of own shares.

Shareholders’ equity including minority interest at March 31, 2007 increased as compared with December 31, 2006 reflecting net profit for the period which was partly offset by exchange rate differences and a loss taken to reserve arising from the fair value evaluation of certain financial derivative instruments hedging commodity risks (cash flow hedges). The Group entered into such transactions in order to hedge cash flow expected in the 2008-2011 period from the sale of approximately 2% of Eni’s proved hydrocarbon reserves as of 2006 year-end in connection with its purchase of proved and unproved oil and gas property onshore in Congo and in the Gulf of Mexico (see "Portfolio Developments" below). In light of this, Eni put in place certain forward sale contracts at a fixed price and call and put options with the same date of exercise. These options can be exercised if crude oil market prices are higher or lower compared with contractual prices. This treatment did not apply to the time value component arising from market price fluctuations within the range provided by these call and put options which was recognized in the profit and loss account under the item net financial expenses resulting in a significant loss for the quarter.

In the first quarter of 20062007 hydrocarbon production increaseddecreased by approximately 7%5.1% as compared to the first quarter of 2005.2006. This increasereduction was drivendue primarily to the unilateral cancellation of the Dación field service contract by organic growththe Venezuelan state company PDVSA with effect from April 1, 2006 (down 60 KBOE/d) and social unrest in Libya, AngolaNigeria. Factoring in these effects, oil and Egypt. Production for the quarter was adversely impacted by: (i) an estimated 29 KBOE/d reduction due to lower entitlements in certain PSAs and buy-back contracts; (ii) field declines in mature areas, mainly in natural gas production level was in Italy;line with the first quarter 2006. Production increases were achieved mainly in Libya, Kazakhstan and (iii) residual hurricane impacts on production in the Gulf of Mexico offsetting mature field declines in Italy and outages and disruptions in Nigeria due to social unrest.facility shutdowns.

Natural gas sales (included gas consumed by Eni and Eni’s share of sales of its affiliates) increased by 5.8%were down 9.8% as compared to the first quarter of 2005. Electricity production sold increased2006. This decline was impacted by 28.98% as comparedlower seasonal gas sales due to the first quarter of 2005.
an unusually mild winter.

Cancellation of the Dación oil field contract on part of the Venezuelan State Oil CompanyPortfolio Developments

With effective date April 1, 2006,In February 2007, Eni acquired certain onshore exploration and production assets in Congo operated by the Venezuelan State oilFrench company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the service contract governing activitiesMaurel & Prom, for a cash consideration of $1,434 million. This transaction was finalized at the Dación oil field whereend of May 2007. For further details on this transaction see "Item 4 – Exploration & Production".

On April 4, 2007 Eni, acted asthrough the partnership in EniNeftegaz (60% Eni, 40% Enel SpA) acquired Lot 2 in the Yukos liquidation procedure. Total cash consideration for this transaction amounted to $5.83 billion (Eni’s share being $5 billion). This lot also included a contractor, holding a 100% working interest. As a consequence, starting20% stake in OAO GazpromNeft which was purchased only by Eni. For further details on this transaction see "Item 4 – Exploration & Production".

On April 30, 2007 Eni agreed to acquire certain upstream properties of Dominion Resources located in the same day, operationsGulf of Mexico at the Dación oil field are conducted by PDVSA which replaced Eni Dación BV, Eni’s wholly-owned subsidiary that had been operating the field until that date.

Eni believes that itagreed price of $4,757 million including exploration assets for $680 million. Closing is entitled to a market value compensation for the expropriation of the Dación field. On these basis, Eni is available to reach an agreement with the Venezuelan authorities. In case an amicable settlement is not possible, Eni will take any other action in order to protect its interest in Venezuela. Basedexpected on internal and external independent evaluation, Eni is confident that a fair market compensation will not be lower than the book value of the Dación related assets. Accordingly, management decided not to impair the book value of Eni’s Dación assets. In 2005 and in the first quarter 2006, the Dación field production rate was about 60 KBBL/d. Management expects Eni’s proved reserves of hydrocarbons to be reduced by an amount of approximately 175 mmBBL corresponding to Eni’s net proved reserves of the Dación field as of December 31, 2005 as a consequence of the loss of Eni’s title to the field.July 2, 2007. For further details on this transaction see "Item 4 – Exploration & Production".

 

Management Expectations of Operations

The following are the forecasts for Eni’s keymain production and sales metrics in 2006:2007.

Eni’s management expects:

•		production of liquidsoil and natural gas isto remain at the same level as 2006 (in 2006 oil and gas production averaged 1.72 mmBOE/d). Additional production expected to increase from the 1,693 KBOE/d level of 2005. Management plans to increase production mainly in Libya, Angola and Egypt due to full production from fields that commenced production in the second half of 2005. These increases will be partly offset by natural field declines, residual hurricane impacts on productionthe year from acquired properties in the Gulf of Mexico and outagesCongo, and disruptionsthe expected build-up in gas production in Libya are expected to enable Eni to recover the first quarter decline in production due to escalating social unrest in Nigeria due to social unrest and the impactloss of the unilateral cancellation by the Venezuelan national oil company PDVSA of the service contract for the Dación oil field effective from April 1, 2006. Despite the adverse impact of the unforeseen eventsoilfield in Venezuela and Nigeria, production growth rate for the year is expected to be 3% assuming an average Brent crude oil price of 54.5 dollars per barrel in 2006.Venezuela. Management believes this growth ratethe acquisitions in the Gulf of Mexico, Congo and Alaska to be consistent withincrease Eni’s planned average growth rate offrom 3% to 4% for its oil and natural gas production in the four yearfour-year period 2006-2009;2007-2010 (for further details on these acquisitions, see "Item 4 – Exploration & Production – Portfolio Developments");
•		sales volumes of natural gas are expected to increase by 1% over 2006 (actual sales volumes in 2006 were 97.48 BCM), recovering from an approximately 2% from10% decline in the 91.15 BCM levelfirst quarter of 2005.2007 as a result of unusually mild weather conditions. This sales forecast is based on the assumption of normal temperatures in the fourth quarter of the year in Italy and other European markets. Management plans to increase natural gas sales volumes in certain target markets in the Rest of Europe, mainly in Turkey, Germanythe Iberian Peninsula, the North of Europe, France and Spain;Germany/Austria markets. In Italy management expects Eni’s sales volumes to recover part of the decline registered in the first quarter due to expected moderate growth in Italian demand particularly in the thermoelectric sector in the remaining part of the year;
•		sold productionsales volumes of electricity is expected to increase by approximately 15%slightly from the 22.77 terawatthours level of 2005. Management plans to increase sold production of electricity thanks to the ramp-up of new production capacity at the Brindisi and Mantova sites; lower production is expected at the Ravenna and Ferrera Erbognone plants due to planned maintenance;2006 (actual volumes in 2006 were 31.03 TWh);

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•		refining throughputs on Eni’s account are expected to declinedecrease slightly from 2005,2006 (actual throughputs in 2006 were 38.04 mmtonnes) due mainly to planned maintenancethe expiration of a processing contract at the Sannazzaro,Priolo refinery owned by a third party late in 2006, to be offset by higher throughputs expected at the Gela, Livorno and Taranto refineries. Otherwise Eni’s refineries are expected to run at full capacity;refineries; and
•		retail sales of refined products on the Agip branded networkto increase slightly from 2006 (actual volumes sold in Italy2006 were 12.48 mmtonnes). Increases are expected to remain stable at 8.8 million tonnes; according to management’s planson both the impact of the expected decline in domestic consumption is projected to be offset by a higher network performance. In the rest of Europe management plans to increase sales from the 3.7 million tonnes level of 2005 despite the expected stagnation in consumption; in particular higher sales are expected in Spain, FranceItalian and Central Eastern Europe alsoEuropean markets due to the construction/entry into service of new outlets, also following the acquisition of service stations.stations in target markets.

In 2006,2007, capital expenditure on exploration and capital projects is expected to amount to approximately euro 9.710.5 billion, representing a 31%34% increase from 2005.over 2006. Approximately 91%86% of this capital expenditure programme is plannedexpected to be deployed in Eni’sthe Exploration & Production, Gas & Power and Refining & Marketing business segments;segments. Furthermore, acquisitions of assets and interests amounting to euro 9.4 billion are forecast in the main increases areyear, mainly related to: (i) the already closed transactions for the purchase of ex-Yukos assets and oil assets in Congo; and (ii) the other transactions whose closing is expected by the end of the year, including the purchase of upstream assets in exploration projects, the developmentGulf of Mexico, and refining and marketing assets in the Central-Eastern Europe. Should Gazprom exercise its call options to purchase a 20% interest in OAO Gazprom Neft and a 51% interest in ex-Yukos gas assets from Eni, net cash outflows used in investing activities will decrease to euro 16.4 billion. On the basis of the expected cash outflows for this capital expenditure and acquisition program, and shareholders’ remuneration, also assuming a 55 $/BBL scenario for the Brent crude oil, and natural gas reserves, upgradingEni foresees a leverage ranging from 0.3 to 0.4 by the end of natural gas transport and import infrastructure and upgradingthe year, depending on the exercise of refineries.the above mentioned call options by Gazprom.

Overall, in the next four yearfour-year period management plans to invest approximately euro 35.244.6 billion in newon exploration and capital expenditure;projects; approximately 69%66%, 12%15% and 10% of this new capital expenditure is planned to be madedeployed in the Exploration & Production, Gas & Power and Refining & Marketing segments, respectively. KeyThe main planned projects are as follows: (i) development of reserves of hydrocarbons mainly in Kazakhstan, Egypt, Angola, Nigeria, Libya, Italy and Egypt;Norway; (ii) exploration projects mainly in selected areas;Egypt, Nigeria, United States, Libya and Italy; (iii) increase of Eni’s import capacity of natural gas from Algeria and Russia to Italy and upgrading of the Italian natural gas transport and distribution networks; (iv) interventionscapital projects aimed at upgrading primary distillation capacity and conversion capacity and the degree of flexibility of Eni’s refining system; and (v) upgrading and development of Eni’s Italian and European networks of service stations for the marketing of petroleum products.products; and (vi) upgrading of the fleet and logistic centers in the Engineering & Construction segment.

In order to evaluate the profitability of individual capital expenditure projects, management uses a long-term reference oil price of 30 dollars per barrel.40 $/BBL in real term. The internal rate of return of each project is compared to the relevant hurdle rate, differentiated by business segment and country of operation. These hurdle rates are calculated taking into account: (i) Eni’s weighted average cost of capital which is differentiated for each business segment; (ii) a country risk premium which reflects the riskiness of each country of operation in terms of macroeconomic, business and socialsocio-political current conditions and outlook; and (iii) a premium for the business risk.

In the next four yearfour-year period management plans to pay to shareholders yearly dividends on the same level as in line with the euro 1.12006 in real terms. For fiscal year 2006, Eni will pay a dividend per share paid to shareholders for fiscal year 2005,of euro 1.25, of which euro 0.450.60 per share was paid in October 20052006 as an interim dividend with the balance of euro 0.65 per share to be paid late in June 2006.2007. Total cash outlay for the 2006 dividend is expected at euro 4.14.6 billion (including the euro 1.72.21 billion already paid in October 2005)2006). In future years, management expects to continue paying interim dividends for each fiscal year, with the balance for the full year dividend paid in the following year. See "Item 8 – Dividend Policy" for more details on Eni’s dividend policy and the uncertainties and constraints to which it is subject.

Management plans to cover financial requirementsneeds for capital expenditure and dividends by means of net cash flows provided by operating activities. Management expects crude oil prices to remain high and volatile in the next two years assumingyears. For the purpose of planning investments and liquidity management, management assumes a level of 54.555 $/BBL for 2007 and 45 dollars per barrel for 2006 and 2007, respectively;2008; then in the following years management expectsassumes crude oil prices to stabilize until settling on the long termlong-term level of 30 dollars per barrel. Management's planned40 $/BBL in real terms. Management’s target ofto achieve an oil and natural gasaverage production level of 2 mmBOE/d in 2009, implying an average growth rate of 4% in the 2006-2009 four year2007-2010 four-year period assumedis based on the assumption of a Brent crude oil price of $32 per barrel40 $/BBL in 2009,2010, which forms the basis for management’s estimate of production entitlements under which management has used to estimate entitlements to production in certain PSAs and buy-back contracts. InFor planning the 2006-2009 four year2007-2010 four-year period management expectsassumes an average exchange rate of approximately 1.301.27 U.S. dollars per euro.

Management expects to maintain a stable financial structure. Within said limit, management also expects to allocate cash in excess of financial needs for capital expenditure and dividends to its program of share repurchase. See the paragraph "Financial condition" above, for a discussion of how Eni’s management assessassesses Eni’s financial structure.

Discussion of certain business trends expected for 2006 and beyond

Decision No. 248/2004In the Authority for Electricity and Gas established, among other things: (i) that an increase in the international price of Brent crude oil may only be partially transferred on to residential and commercial users of natural gas in case international prices of Brent crude oil exceed the 35 dollars per barrel threshold; and (ii) that Italian natural gas importers – includingnext four years, Eni – must renegotiate supply contracts to wholesalers in order to take account of the reduction of the price of natural gas sold to residential and commercial users. A proceeding has commenced between the Authority for Electricity and Gas and Eni, which appealed this decision to an administrative court. Management believes a negative outcome of this matter to be likely. Accordingly, in 2006, management expects Eni’s natural gas selling margins to be adversely impacted by a material amount in light of the high Brent crude oil prices.

In addition, Eni is experiencing some pricing pressure in its core natural gas business in Italy to face increasing competitive pressure as a consequenceresult of: (i) an expected increase in gas supplies to the Italian market following based on ongoing plans to upgrade import infrastructures; and (ii) the need on the part of increasing competition and the needEni to comply with the mandatory ceilings provided for by the Italian regulatory systemregulation by selling natural gas volumes available under take-or-pay purchase contracts to certain Italian natural gas importers who resell those volumes on the Italian natural gas market (see "Item 4 – Regulation of the Italian Natural Gas Market" and "Item 3 – Risk Factors").

However, As a result of this competitive pressure, management expects declining natural gas selling margins to be offset almost completely by the planned growth in natural gasEni’s sales in European markets and in supplies for the production of electricity, cost savings deriving from planned efficiency improvement actions and higher volumes of natural gas transport outside Italy.

In the medium term, taking into account the mandatory ceilings provided for by the Italian regulatory system for natural gas operators and the possibility of further regulatory constraints, developments in the supply and demand of natural gas in Italy could pose some risks to Eni’s ability to fulfill its contractual obligations under take-or-pay contracts for the purchase of natural gas. In addition, management expects natural gas sales in Italy to decline from the 5857 BCM level of 2005 dueachieved in 2006 to increased competition. Management plansapproximately 50 BCM in 2010 and lower wholesale selling margins.

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However, management expects to manage Eni’s growing portion of natural gas purchased under take-or-pay contracts which cannot be soldimplement actions to offset these negative factors by: (i) preserving its selling margins in the retail and middle markets in Italy leveraging on client-retention through an improved commercial offer and cost efficiencies in terms of a reduction in costs to compensate forserve clients. In particular, the expected decline in natural gas sales in Italy by means of: (i) a better commercialramp-up of the dual offer based on the integration of Eni marketing policy in natural gas and electricity generation businesses, aiming at customer satisfaction;will enable Eni to reap economies of scale and synergies by rationalizing marketing-related processes (e.g. administrative processes, including billing); (ii) increasing sales in European natural gas markets where Eni’s presence is established, as a result of supply contracts already signed, expected demand growth and marketing efforts directed to expandat expanding Eni’s market shares in relevant areas;areas, and developing sales on spot markets; and (iii) developing Eni’s presence in recently entered markets; (iv) exploiting the growing importance of natural gas spot markets (the so called continental hubs for natural gas); and (v) developing the business of LNG.

For a discussion of certain risks relating to the impact of the evolution of Italian regulation of the natural gas sector on Eni’s take-or-pay contracts see "Item 3 – Risk Factors – Liberalization of the Italian Natural Gas Market".

In 2006,2007 management expects the Group effective tax ratetax-rate to increasedecline slightly from the 46.8%51.8% level recorded in 2005. The2006 to approximately 50%. This expected increasechange in the Group effective tax ratetax-rate will be driven principally by an expected increase in the increasingGas & Power share of the Group profit before income taxes, which is expectedin light of the fact that the Gas & Power segment has a tax-rate close to be earned by subsidiariesthe Group statutory tax-rate for Italian tax purposes of approximately 37%. The tax-rate in the Exploration & Production division operating in countries wheresegment is expected to remain above the statutory50% level due also to the full-year adoption of the Algerian windfall tax rate is higher than the average tax rate for the Group. In addition, a further rise in Eni’s Groupon upstream earnings effective tax rate is likely in light of a proposed fiscal reform impacting profits of corporations in the United Kingdom. See "Item 4 – Exploration & Production – North Sea".August 1, 2006.

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 has entered into certain off-balance sheet arrangements, including guarantees, commitments and risks, as described in Note 2425 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 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 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 Eni’s business purposes, Eni is not dependent on these arrangements to maintain its liquidity and 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 affiliated companies, mainly relating to guarantees for loans, lines of credit and performance under contracts. In addition, Eni has provided guarantees on the behalf of consolidated companies, primarily relating to performance under contracts. These arrangements are described in Note 2425 to the Consolidated Financial Statements.

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Contractual Obligations

The following table summarizes the principal financial obligations which are described in Item"Item 18 – Financial Statements – Note 14, 18Notes 19, 20, 25 and 24.27".

	Total		2006		2007		2008		2009		2010		Thereafter

Expected payments by period under contractual obligations and commercial commitments	Total		2007		2008		2009		2010		2011		Thereafter

(million euro)

Long-term Debt		8,386		733		1,339		661		524		1,370		3,759
Short-term Debt		4,612		4,612
Sub total		12,998		5,345		1,339		661		524		1,370		3,759
Operating leases relating to real estate rental in Italy		663		89		91		88		83		70		242
Other Commitments (off balance sheet):
Take-or-pay		119,444		11,527		10,970		9,559		8,620		7,697		71,071
Ship-or-pay		6,094		338		361		372		373		374		4,276
Others		296		116		13		13		13		13		128
of which:
- Purchase of investments		103		103
- Memorandum of intent relating Val d’Agri		193		13		13		13		13		13		128

Total debt		11,699		4,290		1,191		603		1,325		397		3,893
Long-term debt		8,299		890		1,191		603		1,325		397		3,893
Short-term debt		3,400		3,400
Interest payments on debt		2,511		521		346		310		254		194		886
Noncancelable operating lease obligations (1)		2,830		594		501		411		330		232		762
Asset retirement obligations (2)		7,866		49		44		36		89		73		7,575
Purchase obligations		174,390		11,770		10,802		9,717		8,917		8,523		124,661
Take-or-pay (3)		169,524		11,406		10,428		9,341		8,543		8,148		121,658
Ship-or-pay (3)		4,866		364		374		376		374		375		3,003
Other commitments		181		13		13		13		13		13		116
of which:
- Memorandum of intent relating Val d’Agri		181		13		13		13		13		13		116
TOTAL		199,447		17,237		12,897		11,090		10,928		9,432		137,893

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(1)		Minimum commitments for operating leases, shown on an undiscounted basis, regard mainly time charter and long-term rentals, drilling and storage equipment and vessels, lands, service stations and office buildings. Such leases do not include renewal options. There are no significant restrictions following operating leases imposed to Eni for dividend distribution, availability of assets and possibility to get into additional debt.
(2)		The estimated costs of upstream asset retirement obligations, primarily asset removal costs at the completion date, shown on an undiscounted basis.
(3)		Take-or-pay and ship-or-pay obligations are noncancelable, long-term contractual obligations to secure access to supply and transport of natural gas, shown on an undiscounted basis.These obligations were calculated by applying the forecasted prices of energy or services included in the long-term and medium-term market scenarios used by Eni for planning purposes to minimum take and minimum ship quantities. Management expects amounts due under Eni take-or-pay and ship-or-pay contractual obligations in years subsequent to year 2011 will be roughly in line with the average amounts expected to be paid in the 2007-2011 period. See "Item 4 – Gas & Power – Natural Gas Purchases" and "Item 3 – Risk Factors – Liberalization of the Italian Natural Gas Market" for a discussion of the nature and importance of Eni's take-or-pay contracts and the related risks from the evolving regulatory environment that could negatively impact Eni’s results.

"Other commitments" relating to natural gas take-or-pay and ship-or-pay contracts were calculated by applying the forecasted prices of energy or services included in the long and medium term market scenarios used by Eni for planning purposes to minimum take and minimum ship quantities. Management expects amounts due under Eni take-or-pay and ship-or-pay contractual obligations in years subsequent to year 2010 will be roughly in line with the average amounts expected to be paid in the 2006-2010 period. See "Item 4 – Gas & Power – Natural Gas Purchases" and "Item 3 – Risk Factors – Liberalization of the Italian Natural Gas Market" for a discussion of the nature and importance of Eni’s take-or-pay contracts and the related risks from the evolving regulatory environment that could negatively impact Eni’s results.

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 long-term debt ratings of AA and Aa2, assigned respectively by Standard & Poor’s and Moody’s. The Group has access to a wide range of funding at competitive rates through the capital markets and banks. Thebanks and coordinates relationships with banks, borrowing requirements, foreign exchange requirements and cash management centrally.

At present, the Group believes it has access to sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements.

Effective management of the liquidity risk has the objective of ensuring the availability of adequate funding to meet short-term requirements and due obligations as well as the objective of ensuring a sufficient level of flexibility in order to fund the development plans of the Group’s businesses. This implies the adoption of a strategy to pursue an adequate structure of borrowing facilities (particularly the availability of committed borrowings facilities) and the maintenance of cash reserves.

Working Capital

Management believes that, taking into account unutilized marketcredit facilities, Eni’s credit rating and access to capital markets, Eni has sufficient working capital for its foreseeable requirements.

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. Eni’s financial companies followThe monitoring activity of credit risk exposure is performed at the Group level according to set guidelines approved by Eni’s treasury departmentand measurement techniques. In particular credit risk exposure to large clients and multi-business clients is monitored at the Group level on the choicebasis of score cards quantifying risk levels. Eni’s guidelines define the characteristics of persons eligible to be counterparty of Eni in derivative contracts and cash management transactions. Eni constantly updates a list of eligible persons that includes highly credit-rated counterparties in their use of financial and commodity instruments, including derivatives.institutions. Eni has not experienced material nonperformancenon-performance by any counterparty. As of December 31, 2005 and December 31, 2006, Eni has no significant concentrations ofat credit risk.

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HedgingMarket Risk

The most important currencies forIn the normal course of its operations, Eni are the euro and the U.S. dollar. See "Item 3 – Risk Factors – Exchange Rates". Eni’s hedging policy is exposed to minimize foreign exchange rate exposure through a policy of matching assets and liabilities where appropriate. Eni also enters into certain derivative financial contracts to hedge existing receivables and payables, including deposits and borrowings denominated in currencies other than the currency used in the relevant financial statements.

Eni enters into various types of derivative financial contracts (primarily interest rate swaps, forward rate agreements and interest rate collars) to manage its interest rate risk, to lower its funding costs and diversify its sources of funding and to minimize interest rate exposures arisingmarket risks deriving from mismatches between assets and liabilities.

Eni enters into certain derivative financial contracts and commodity hedging contracts for the purpose of reducing its exposure to changesfluctuations in commodity prices and changes in connection with specific transactions, including, to a limited extent, to mitigate the effects of petroleum price fluctuations.euro vs. other currencies exchange rates, particularly the U.S. dollar, and in interest rates. For an in-depth analysis of market risks exposure and policies used by Eni to manage its exposure to market risk see "Item 11 – QuantitativeQualitative and QualitativeQuantitative Disclosures About Market Risk".

Research and Development

For a description of Eni’s research and development operations in 2005,2006, see "Item 4 – Research and Development".

 

 

Summary of Significant Differences Between Italian GAAPbetween IFRS and U.S. GAAP

Eni’s Consolidated Financial Statements have been prepared in accordance with IFRS issued by the IASB as adopted by the EU, which differs in certain respects from U.S. GAAP. The significant differences between IFRS and U.S. GAAP, as applied to Eni’s Consolidated Financial Statements, are: A) consolidation policy; B) exploration & production activities; C) asset impairment and subsequent asset write-up; D) deferred tax assets and liabilities; E) intangible assets; and F)E) accounting for inventory evaluation. See Note 3336 to the Consolidated Financial Statements for a more detailed discussion of the significant differences between IFRS and U.S. GAAP that affect Eni’s Consolidated Financial Statements, and Note 3437 to the Consolidated Financial Statements for a reconciliation of net profit and shareholders’ equity between IFRS and U.S. GAAP.

Consolidated operating profit under U.S. GAAP was euro 19,345 million, euro 15,528 million and euro 11,739 million in 2006, 2005 and 2004, respectively, compared with consolidated operating profit under IFRS of euro 19,327 million, euro 16,827 million and euro 12,399 million for the same years. The significant reconciling items are as follows: (i) Saipem SpA, including its subsidiaries, accounted for under the equity method for U.S. GAAP purposes, but fully consolidated under IFRS; 50-50 owned joint ventures and other entities in which Eni’s ownership equals that of other partners are accounted for under the equity method accounting for both IFRS and U.S. GAAP; (ii) the capitalization of certain oil and natural gas exploration and development costs that were fully or differently amortized in the same period under IFRS; and (iii) the impact of the different accounting method for determining the cost of inventory on hand (last-in-first-out method of accounting under U.S. GAAP versus average cost method of accounting under IFRS). See Note 3437 to the Consolidated Financial Statements for a breakdown of operating profit by segment under U.S. GAAP for the years 2006, 2005 and 2004.

Consolidated net profit under U.S. GAAP was euro 10,005 million, euro 7,583 million and euro 6,401 million in 2006, 2005 and 2004, respectively, compared with consolidated net profit under IFRS of euro 9,217 million, euro 8,788 million and euro 7,059 million for the same years. In addition to the effects discussed above, the reconciliation of consolidated net profit to U.S. GAAP was affected in all years presented by the tax effect of reconciling items and the differences in deferred income tax treatment of distributable reserves.

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Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

The Board of Directors of Eni SpA currently in office consists of nine members. The table below sets forth the names of the nine 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 27, 2005 for a three year period; it will therefore expire at the date of the General Shareholders’ Meeting approving Eni’s financial statements for the financialfiscal year 2007.

Name		Position		Year first appointed to Board of Directors		Age
Roberto Poli		Chairman		2002		69
Paolo Scaroni		CEO		2005		61
Alberto Clô		Director		1999		60
Renzo Costi		Director		1996		70
Dario Fruscio		Director		2002		70
Marco Pinto		Director		2005		45
Marco Reboa		Director		2005		52
Mario Resca		Director		2002		62
Pierluigi Scibetta		Director		2005		46

Name		Position		Year First Appointed to Board of Directors		Age

Roberto Poli		Chairman		2002		68
Paolo Scaroni		CEO		2005		60
Alberto Clô		Director		1999		59
Renzo Costi		Director		1996		69
Dario Fruscio		Director		2002		69
Marco Pinto		Director		2005		44
Marco Reboa		Director		2005		51
Mario Resca		Director		2002		61
Pierluigi Scibetta		Director		2005		45

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 majoritycontrolling shareholder, according to Italian law, as confirmed by Decision No. 466/1993 of the Corte Costituzionale (Constitutional Court), the Corte 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 Luigi SchiavelloLucio Todaro Marescotti (alternate Angelo Antonio Parente).

On the basis of Eni’s By-LawsBy-laws as amended on April 13, 2005, the Minister of Economy and Finance in agreement with the Minister of Productive ActivitiesEconomic Development may appoint another member of the Board of Directors, with no voting rights.

On June 1, 2005,The table below sets forth the new Boardcomposition of Directors delegated toEni’s senior management, including the Chairman, Roberto Poli, powers for researching and promoting integrated projects and strategic international agreements, and appointed Paolo Scaroni Managing DirectorCEO who is also General Manager of the parent company Eni SpA, and CEO of Eni Group, confirming the powers already delegated to the previous CEO.

On December 14, 2005, the Board of Directors of Eni appointed Domenico Dispenza as General Manager of the Gas & Power Division with those powers as defined by the Board from January 1, 2006. Mr. Dispenza may be removed by the Board of Directors of Eni without cause. Mr. Dispenza replaced Mr. Sgubini, who reached the mandatory retirement age.

The table below sets forth Eni SpA’s, General Manager, the executive officers and the General Managers of Eni’s three divisions, and those senior managers who attended on a permanent basis the meetings of Eni’s steering committee. This table indicates their positions within Eni, the year they were appointed to such positions, their total years of service at Eni and their ages. General Managers are appointed by the Board of Directors, upon proposal of the CEO in agreement with the Chairman. The executive officersother members of EniEni’s senior management are appointed by the CEO of Eni and may be removed without cause.

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Name		Management Position		Year First Appointed to Current Position		Total Number of Year of Service at Eni		Age
Paolo Scaroni		General Manager of Eni		2005		1		60
Stefano Cao		General Manager for the Exploration & Production Division		2000		30		55
Domenico Dispenza		General Manager for the Gas & Power Division		2005		32		60
Angelo Taraborrelli		General Manager for the Refining & Marketing Division		2004		33		58
Marco Mangiagalli		Chief Financial Officer		2006		27		56
Massimo Mantovani		The Group Senior Vice President for Legal Affairs		2006		13		43
Stefano Lucchini		The Group Senior Vice President for Public Affairs and Communication		2005		1		44
Leonardo Maugeri		The Group Senior Vice President for Strategies and International Relations		2000		11		41
Amedeo Santucci		The Group Senior Vice President for Supply Operations		2005		26		61
Salvatore Sardo		The Group Senior Vice President for Human Resources		2005		1		54
Roberto Ulissi		The Group Senior Vice President for Corporate Affairs and Governance		2006		0		44

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Name		Management position		Year first appointed to current position		Total number of year of service at Eni		Age

Paolo Scaroni		CEO and General Manager of Eni		2005		2		61
Stefano Cao		General Manager of the Exploration & Production Division		2000		31		56
Domenico Dispenza		General Manager of the Gas & Power Division		2005		33		61
Angelo Taraborrelli		General Manager of the Refining & Marketing Division		2004		34		59
Marco Mangiagalli		Chief Financial Officer		2006		28		57
Massimo Mantovani		The Group Senior Vice President for Legal Affairs		2006		14		44
Stefano Lucchini		The Group Senior Vice President for Public Affairs and Communication		2005		2		45
Leonardo Maugeri		The Group Senior Vice President for Strategies and Development		2000		12		42
Salvatore Sardo		The Group Senior Vice President for Human Resources & Business Services		2005		2		55
Roberto Ulissi		The Group Senior Vice President for Corporate Affairs and Governance		2006		1		45
Raffaella Leone		Executive Assistant to the CEO		2005		2		45

The biographies of Eni’s directors and executive officerssenior managers are set out below.

Roberto Poli was appointed Chairman of Eni SpA onin May 30, 2002. He is Chairman of the Board of Directorscurrently President of Poli e Associati SpA, a major consulting firm in the area offor corporate finance, business mergers, and acquisitions and business restructuring.reorganizations. From 1966 to 1998 he was Professor of Business Finance at the Università Cattolica of Milan. He is a Memberpartner of the Board of Directors ofa leading firm for corporate finance and legal affairs. He is a non-executive director in important companies such as Fininvest SpA, Mondadori SpA, Merloni Termosanitari SpA and G.D. SpA and general partnerSpA. He has been an advisor for extraordinary finance operations for some of Brafin S.A.P.A.the most important companies in Italy. He has also been Chairman of Rizzoli-Corriere della Sera SpA and Publitalia SpA.

Paolo Scaroni graduatedwas appointed CEO of Eni SpA in June 2005. He obtained an economics degree from the UniversitàMilan’s Bocconi University in Milan1969 and obtained a masters degree in business administrationan MBA from Columbia UniversityBusiness School in New York. After working1973. For a year following business school, he was an associate at McKinsey & Co. From 1973 until 1985, he held a series of positions with Saint Gobain, culminating with his appointment as consultant with McKinsey, in 1973 he joinedPresident of the Saint Gobain Group, where he held various managing positions in Italy and outside Italy, until in 1976flat glass division. In 1985, Paolo Scaroni became CEO of Techint. During his time at Techint, he was appointed general manageralso Vice President of the "Vetro piano" division in Paris with the responsibility of managing all of Saint Gobain’s international activities. From 1985 to 1996 worked with Techint where he was appointed vice-presidentFalck and managing director, following the privatizationexecutive Vice President of SIV, Italimpiantia joint venture between Techint and Dalmine.Pilkington Plc. He joined Pilkington in 1996 and was group CEO until 2002 was managing director of the group’s head company in Great Britain.May 2002. From May 2002 to June 2005 he was managing director and general managerCEO of Enel. At present, Mr.Enel, Italy’s leading electricity utility. Paolo Scaroni is a directormember of the Board of "Il Sole 24 Ore", of Assicurazioni Generali SpA and Marzotto, a member of the managing committee of Confindustria and chairman of Unindustria Venezia in Italy, while outside ItalyTeatro alla Scala. He is chairman of the Board of Directors of Alliance UniChem, a member of the Supervisory Board of ABN AMRO and aBank NV (Amsterdam), member of the Board of Overseers of Columbia University’s Business School.School (New York) and member of the Board of Veolia Environment (Paris). He was Chairman of Alliance Unichem Plc (UK) from 2005 to July 2006.

Alberto Clô graduated in Political Science. He is a professor of Industrial Economy at the University of Bologna and was Minister of Industry and Minister of Foreign Trade ad interim in 1995 and 1996. During the Italian presidency of the European Union he was chairman of the Council of Ministers of Industry and Energy of the European Union. In 1996 he was awarded the title of Cavaliere di Gran Croce al Merito of the Republic of Italy. HeCurrently he is a Member of the Board of Directorsnon-executive director of ASM Brescia SpA, De Longhi SpA, Italcementi SpA and Società Autostrade SpA. He is also President of the Scientific Committeehas been an independent director of Eni Corporate University.SpA since May 1999.

Renzo Costi is an attorneya lawyer and consultant. He served as a magistrate from 1964 to 1968 and1968. He is currently professorProfessor of commercial lawCompany Law at the University of Bologna. He was founder, and is currently is co-director,co-editor, of the magazines "Giurisprudenza Commerciale", "Banca Impresa e Società" and "Banca, Borsa e titoli di credito". He is a member of the Board of Directors of Editrice Il Mulino SpA. He has been an independent director of Eni SpA since May 1996.

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Dario Fruscio is a chartered accountant, public auditor and consultant; he is currently Professor of EconomyEconomics and Management at the University of Pavia and has taught at the Accademia Nazionale della Guardia di Finanza of Bergamo. He ishas been Chairman of Italia Turismo SpA and a membersince May 2004. He has been an independent director of the Board of Sviluppo Italia SpA.Eni SpA since 2002.

Marco Pinto has a degree in law from the University La Sapienza, Rome. He is a magistrate and notary andpublic notary. As a magistrate he has previously held various positions at Regional Administrative Courtsas a civil and the Council of State. He is a professor and dean of the department for economic sciences at the Scuola Superiore dell’economia e delle finanze.administrative judge. Since 1994December 2004 he has been a legal counsel and headProfessor of the legislative officeHigher School of Economics and Finance. In 1994 he held the position of Legal Counsel and Head of Legislative Department of the Ministry of EconomyForeign Trade and the Ministry of Economics and Finance. From December 2004 to April 2005 he was head of the technical secretariatstaff of the vice-presidentVice President of the Council of Ministers. Since June 2005 he has been Deputy Head of the staff of the Minister of Economics and Finance. He has been a non-executive director of Eni SpA since May 2005.

Marco Reboa has a degree in Business Administration from the Bocconi University, Milan. He is a chartered accountant and public auditor. He is a professorProfessor of law at the Libero Istituto Universitario Carlo Cattaneo in Castellanza and author of essays on corporate governance, economic evaluation and financial statements.legal issues. He is the editor of "Rivista dei Dottori Commercialisti" and is a professional advisor in Milan. He is a member of the Board of Directors of Seat PG SpA, Interpump SpA, IMMSI SpA and Intesa Private Banking.Banking SpA. He is a statutory auditorChairman of Autogrillthe Board of Statutory Auditors of Luxottica Group SpA. He has been an independent director of Eni SpA and Galbani SpA.since May 2005.

Mario Resca has a degree in economics from the Bocconi University, Milan. He is Chairman and Managing Director of McDonald’s Italia SpA and Chairman of Italia Zuccheri SpA (formerly Eridania SpA), of the American Chamber of Commerce in Italy and of Confimprese, National Board member of U.P.A. (Union of Associated Advertising Operators),(the Italian Advertisers’ Association) and Confimprese. He is non-executive Director of Mondadori SpA andSpA. As a Member ofgraduate he worked for the Board of liquidators of Cirio Del Monte Group under special management. He is also chairman of the RMCH foundation for children. In 2002 was awarded the title of Cavaliere del Lavoro. After working for Chase Manhattan bank,Bank. In 1974 he was appointed director of Biondi Finanziaria (Fiat Group), and from 1976 to 1991 he was a partner atof Egon Zehnder,Zehnder. In this period the was appointed director of LancomeLancôme Italia and a director of certain companies ofbelonging to the RCS-CorriereRizzoli-Corriere della Sera Group and Versace Group. He is chairmanalso served as Chairman of Finanziaria Sambonet SpA, Kenwood Italia SpA and was a founding memberpartner of Eric Salmon and& Partners. He has been an independent director of Eni SpA since 2002.

Pierluigi Scibetta is a graduate in economics from the University La Sapienza, Rome. He is a chartered accountant and auditor and has been appointed director and auditor of variousa number of public bodies and companies. In 2003 he was appointed director of the Istituto Superiore per la previdenzaPrevidenza e la sicurezzaSicurezza sul lavoro andLavoro - ISPESL (the State Agency for Employee Safety), of the Gestore del Mercato Elettrico SpA.SpA and of the Ente per le Nuove Tecnologie, l’Energia e l’Ambiente - ENEA (the State Agency for Technologies, Energy and Environment). In 2004, he was appointed director of Nucleco SpA. He is a professor of Energy EngineeringEnvironmental Economics at the University of Perugia. He has been an independent director of Eni SpA since May 2005.

Stefano Cao graduated in Mechanical Engineering. He joined the Eni Group in 1976 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. In 2007 he has been appointed independent director of Telecom SpA.

Domenico Dispenza is an engineergraduated in Aeronautical Sciences and obtained a Master’s Degree in Advanced Technologies. He joined Snam’s study department in 1974. He served in various managing positions in Eni groupGroup companies engaged in natural gas activities. In 2004 he was elected Chairman of Snam Rete Gas SpA and in 2006 he was appointed General Manager of Eni’s Gas & Power Division.

Angelo Taraborrelli graduated in law and joined the Eni groupGroup in 1973 as an expert in analysis evaluation and control of investments in the oil market. After the merger of AgipPetroli with Eni he was appointed Deputy Chief Operating Officer of Eni’s Refining & Marketing Division for Marketing Operations and on April 14, 2004 he became General Manager of Eni’s Refining & Marketing Division replacing Gilberto Callera who retired.Division.

Marco Mangiagalli worked for the Barclays Group and other Italian merchant banks before joining the Eni Group in 1979. He is a member of the Board of Directors of various Eni companies. He is responsible for Eni’s administration, financial reporting and accounting, planning and control, and treasury operations.

Massimo Mantovani is an attorney at law and worked as a legal counsel for international activities before joining Snam’s legal office in 1993. He was responsible for legal affairs at Eni’s Gas & Power Division until he was appointed Eni’s Senior Vice President for legal affairs in 2005.

Stefano Lucchini graduated in economics and joined the study department of Montedison. After a period in the United States, where he was assistant to the Chairman of the Energy and Commerce Commission of the U.S. Congress, he was head of communications at Montedison USA. In 1993 he returned to Italy and was head of the investor relations department for the Ferruzzi and Montedison Group. He was then Director for external relations at Enel and later at Confindustria and Banca Intesa. He joined Eni as DirectorSenior Vice President for communicationspublic affairs and communication in 2005. He is also a professor at the High School for Journalism of the Università Cattolica in Milan.

Massimo Mantovani is an attorney at law and worked as a legal counsel for international activities before joining Snam’s legal office in 1993. He was responsible for legal affairs at Eni’s Gas & Power Division until he was appointed Eni’s Senior vice president for legal affairs in 2005, replacing Carlo Grande who retired.107

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Leonardo Maugeri, after extensive academic experience acquired in Italy and abroad, 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.

Amedeo Santucci, graduated in engineering, joined the Group in 1979 and served various positions in the areas of maintenance and procurement. He was Chairman of Eurosolare.

Salvatore Sardo graduated in economics and started his career as an auditor for Coopers & Lybrand. He later joined Telecom Italia where, after the privatization of the company, he was responsible for administration and control. He was Chairman of Pagine Gialle from 1998 to 2001 and returned to Telecom Italia as manager of the group’s real estate and general services. From 2003 he was procurement and security manager at Enel until 2005 when he joined Eni. He replaced Renato Roffi who retired.Eni to become Senior Vice President for Human Resources & Business Services.

Roberto Ulissi is an attorney at law. After some years at the Banca d’Italia as a in-house legal counsel he was transferred tobecame Director General of the Ministry of Economy and Finance, as an expert in legal and banking matters for the privatization of state-owned industrial companies. He then became Director Generalhead of the Ministry, head of thelegal affairs, banking and financial markets department. He was Director of State-owned companies, such as Telecom Italia, Ferrovie dello Stato, Alitalia, Fincantieri, and Government representative in the Bank of Italy’s governing council. He was member of several national and European committees as a representative of the Italian Ministry of Economy. He was contract Professor of banking law in Italian Universities department. He was appointed Senior Vice President for corporate affairs and governance of Eni on May 12, 2006.

Raffaella Leone worked for Techint SpA, Pilkington Plc and Enel SpA before joining Eni in 2005. She is Vice President of Eni Foundation and member of the Board of Fondazione Eni Enrico Mattei, as well as member of the Board of other Eni companies.

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.By-laws. Eni SpA’s Board of Statutory Auditors is electedwere appointed by the shareholders meeting, who also appoints the Chairman of the Board. Eni SpA’s by-lawsBy-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 wereEni. Each current member was appointed by the Ordinary Shareholders’ Meeting held on May 27, 2005 for a three year period; therefore this Board of Statutory Auditorsperiod, which will expire at the date of the General Shareholders’ Meeting approving Eni’s financial statements for the financialfiscal year 2007. For a description of the duties of the Board of Statutory Auditors see below.

Name		Position		Year First Appointedfirst appointed to Board of Statutory Auditors
Paolo Andrea Colombo		Chairman		2002
Filippo Duodo		Auditor		1998
Edoardo Grisolia		Auditor		2005
Riccardo Perotta		Auditor		1999
Giorgio Silva		Auditor		1999
Francesco Bilotti		Alternate Auditor		2005
Massimo Gentile		Alternate Auditor		20062005

External Auditors

As provided for by Italian law, external auditors must be a chartered company and are appointed by the Shareholders’ Meeting. Eni’s external auditors, PricewaterhouseCoopers SpA, were appointed by the Ordinary Shareholders’ Meeting of June 1,for two consecutive three-year terms, in 2001 for a three year term ending withand 2004 respectively, the Shareholders’ Meeting approving financial statements for 2003. Eni’s Shareholders’ Meeting of May 28, 2004 confirmed the appointment of PricewaterhouseCoopers SpA for a further three year periodlatter ending with the Shareholders’ Meeting approving financial statements for 2006.

On May 24, 2007 Eni’s Shareholders’ Meeting confirmed the extension of the audit engagement of PricewaterhouseCoopers SpA for the three financial years ending December 31, 2007, 2008 and 2009 in accordance with Italian law.

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Board Practices

Appropriate Conduct

Due to the diverse circumstances in which Eni operates, the Board of Directors has deemed it appropriate to provide a clear definition of the 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 fair competition, with honesty, integrity, correctness and in good faith, respecting the legitimate interests of 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 behaviorsBehavior contrary to such principles.principles cannot be justified by any advantages to Eni. These values are stated in a "Code of Conduct" whose observance by employees is evaluated by the Board of Directors, based on the annual report of the Guarantor for the Code of Conduct. The Code of Conduct is published on Eni’s internet site (www.eni.it).

In its meeting of January 20, 2000, Eni’s Board of Directors resolved to adopt the Self-disciplineCorporate Governance Code of Listed Companies (the "Code") and, pursuant to a thorough review ofissued by Borsa Italiana (the Italian authority for the matter, underscored hownational stock exchange) Eni’s organizational model is essentially in line with the principles expounded in thethis Italian Code, as well as with related recommendations issued by Consob.Consob, the Italian capital markets regulator.

In its meeting of December 13, 2006, the Board of Directors decided to conform to the Code of Conduct for Italian listed companies, as issued by Borsa Italiana in March 2006 ("Borsa Italiana Code") by implementing the Eni Code. The Eni Code is based on the Borsa Italiana Code and adapts certain recommendations of the Borsa Italiana Code to the specific circumstances of Eni. Particularly, the Code takes into consideration the fact that Eni is a parent company, is not controlled by any other company and – in the light of the recent provisions of the companies law reform – is not subject to direction and co-ordination by any Italian or foreign entity (company or body). Principles expounded in the Borsa Italiana Code have been adjusted to avoid misunderstanding among Eni’s shareholders and stakeholders.

Similarly, Eni’s By-laws currently in force foresee a traditional administration and control model (removing the possibility to adopt a one-tier or a two-tier model of management and control system as foreseen in the Borsa Italiana Code), the separation of the positions held by the Chairman and the CEO (making the appointment of a lead independent director unnecessary), and specific rules on the appointment and composition of the Board of Directors and of the Board of Statutory Auditors.

Finally, the Eni Code establishes certain principles that enhance the level of governance suggested by the Borsa Italiana Code; in particular:

•		the directors have adopted a guideline which takes into consideration the interests of all stakeholders when pursuing the objective of creating value for the Company’s shareholders;
•		the minimum frequency of the information to be supplied to the Board of Directors by the directors to whom the Board of Directors has delegated powers has been reduced to two months as compared with the minimum three-month period envisaged by the Borsa Italiana Code;
•		the Board’s self-evaluation can be performed with the support of a specialized external consultant, to ensure its objectiveness;
•		directors and auditors shall hold their positions only as long as they are deemed to be able to devote the necessary time to diligently perform their duties;
•		the number of members of Board committees shall be lower than the majority of Board members in order not to interfere with the Board’s decision-making process;
•		the Internal Control Committee’s opinion on corporate rules has been introduced, ensuring that all transactions carried out with related parties and those in which a director has an interest, are performed in a transparent way and according to the criteria of substantial and procedural fairness;
•		the proposal of appointment of the manager delegated to internal control to the Board of Directors is drafted by the CEO, in agreement with the Chairman; and
•		at least two members of the Internal Control Committee must have adequate experience in accounting and finance (the Borsa Italiana Code foresees only one member with these skills).

In accordance with the requirements of Borsa Italiana SpA, in particular the "Guidelines for the preparationBorsa Italiana Code of the yearly report on corporate governance" of February 12, 2003,March 14, 2006, Eni’s corporate governance system is described below. 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 March 2004.

The Board of Directors: Competencies, Delegate Powers and Composition

Eni’s organizational structure follows the traditional model of Italian companies in which management is exclusively entrusted to the Board of Directors, which is the central element of Eni’s corporate governance system.

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Monitoring functions are entrusted to the Board of Statutory Auditors and the audit of the financial statements is entrusted to the external auditors appointed by the Shareholders’ Meeting.

The Board of Directors delegated specific powers to the Chairman and Managing Director,CEO, who are the representatives of the companyCompany in accordance with Article 25 of Eni’s by-laws.By-laws. On June 1, 2005, the Board of Directors entrusted the Chairman with powers to conduct strategic international relations, pursuant to Article 23.1 of Eni’s By-laws. At the same meeting, the Board appointed Mr. Paolo Scaroni as CEO and delegated all necessary powers for the administration of the Company to him, with the exception of those powers that cannot be delegated in accordance with current legislation (Article 2381 of the Italian Civil Code) and those retained by the Board of Directors (as described below).

In accordance with internationally accepted principles of corporate governance, the Board of Directors established committees with consulting and proposing functions.

Competencies

In its meetings ofon June 1, and October 11, 2005 and December 13, 2006 in addition to exclusive competencies entrusted to it by Article 2381 of the Civil Code, the Board of Directors has reservedretained the following tasks:powers, in addition to those that cannot be delegated under applicable laws:

1.		to define corporate governance rules forestablishes the Company and Group companies, includingCorporate Governance system and rules. In particular, after consulting the appointment, definitionInternal Control Committee, the Board approves the rules that ensure the substantial and procedural transparency and correctness of functionsthe transactions carried out with related parties and regulationsthose in which a director holds an interest, on his behalf or on behalf of third parties. The Board Committees;adopts a procedure for the management and disclosure to third parties of documents and information concerning the Company, having special regard to price sensitive information;
2.		to define guidelines for the internal control system, based on indications provided by the relevant Board Committee,establishes among its members one or more committees with proposing and to monitor the effectivenessconsulting functions, appoints their members, establishes their responsibilities, determines their compensation and modes of managing main corporate risks;approves their regulations;
3.		to examineappoints and approverevokes the main features of corporate and Group organization, checking the effectivenesspowers of the organizationChief Executive Officer and administration setup prepared by the CEO;Chairman; establishes the terms, limits and operating methods of the exercise of such powers and determines the compensation related to the powers, on the basis of proposals from the Compensation Committee and after consulting the Board of Statutory Auditors. The Board may issue instructions to the Chief Executive Officer and the Chairman and reserve to itself any operations that pertain to its powers;
4.		to determine – on proposalestablishes the guidelines of the CEO – strategic guidelinesorganizational, administrative and objectives ataccounting structure of the Company, of the most important controlled subsidiaries and Group level;of the Group; evaluates the adequacy of the organizational, administrative and accounting structure set up by the Chief Executive Officer in particular with regard to the management of conflicts of interest;
5.		establishes, in particular, based on the recommendations of the Internal Control Committee, the guidelines of the internal control system, in order to examineensure the identification, measurement, management and approve multi-annual strategic, industrial and financial plans atmonitoring of the main risks faced by the Company and Group level;its subsidiaries. Evaluates the adequacy, effectiveness and effective functioning of the internal control system managed by the Chief Executive Officer on an annual basis;
6.		establishes, based on the recommendation of the Chief Executive Officer, Company and Group strategies and objectives, including sustainability policies. Examines and approves the Company’s and Group’s strategic, operational and financial plans and the strategic agreements to examinebe signed by the Company;
7.		examines and approve yearlyapproves annual budgets for Eni’s Divisions and the Company, as well as the Group’s consolidated budget;
8.		evaluates and approves interim quarterly and half-yearly reports, as per current regulations. Evaluates and approves the sustainability report, submitted also to the Shareholders’ Meeting;
9.		receives from Directors with delegated powers, at every Board meeting or at least every two months, reports informing the Board of Divisions,activities carried out in exercising the powers attributed as well as updates on activities carried out by the Group and on atypical or unusual transactions or transactions with related parties that were not previously submitted to the evaluation and approval of the Board;
10.		receives half-year updates on the Board Committees’ activities;
11.		evaluates the general performance of the Company and the consolidated Group, budget;
7.		to evaluate and approve quarterly accounts and related disclosures and any other period accounts and related disclosures provided for byon the law and to compare quarterly resultsbasis of information received from Board members with planned results;
8.		to evaluate the general trends in operationspowers, with specificparticular attention to possiblesituations of conflicts of interest;
9.		to examineinterest and approve strategically relevant agreements;
10.		to receive from Directors entrustedcompares results achieved – as contained in the annual report and interim financial statements, as per current regulations – 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;budget;
12.		to attribute, modifyevaluates 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 Board 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 CEO and in agreement with the Chairman;
15.		to decide major sale and purchase transactions ofapproves any transaction executed by the Company and its subsidiaries that have a significant economic, patrimonial and/or financial impact, with particular attention to providesituations in which Board members hold an interest on their own behalf or on behalf of third parties, and to related parties transactions. The Board ensures the principle of operational autonomy with specific regard to the listed companies of the Eni Group.
		Transactions with a pre-emptive evaluation of those concerning Group companies, in particular:significant economic, patrimonial and/or financial impact include the following:

a)

acquisition and sale of shares, companies, branches of companies, and purchase transactions, as well as conferral of real estate, investments, companies of amountsproperties, capital contributions in kind, mergers and de-mergers exceeding euro 50 million;million, notwithstanding Article 23.2 of the By-laws;

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		b)		capital expenditure projects amounting to overinvestments in fixed assets exceeding euro 100 million, such capital expenditure projects deemed to entailor less if of particular strategic impact and risks for the Group, and importance or particularly risky;
		c)		any portfolio and exploration initiatives ofand portfolio operations in the Exploration & Production segmentE&P sector in new areas;
		c)		the provision of loans from Eni or its subsidiaries to third parties;
		d)		the provision from Enisale and purchase of personalgoods and real guarantees to third parties in the interest of Eni or its subsidiaries of amountsservices other than investments, for an amount exceeding euro 50 million;1 billion or a duration exceeding twenty years;
		e)		the provision of loans from Eni or its subsidiariesfinancing to affiliates, as well as of real and personal guarantees on their bonds ofnon-controlled companies: (i) for amounts exceeding euro 50 million and,or, (ii) in any case, if the amount is not proportionalproportionate to the stake held in the affiliate; andinterest held;
		f)		purchaseissuing by the Company of personal and sale agreementsreal guarantees to non-controlled companies: (i) for goods and services not intended as capital expenditure of amounts exceeding euro 1 billion200 million, if in the interest of the Company or of Eni subsidiaries, or (ii) in any case, if the guarantees are issued in the interest of non-controlled companies and the amount is not proportionate to the interest held. In order to issue the guarantees indicated in section (i) of a duration longer than 20 years;letter f), if the amount is between euro 100 million and euro 200 million, the Board confers powers to the Chief Executive Officer and the Chairman, to be exercised jointly in case of urgency;

13.		appoints and revokes, on recommendation of the Chief Executive Officer and in agreement with the Chairman, the General Managers of Divisions and attributes powers to them;
14.		appoints and revokes, on recommendation of the Chief Executive Officer and in agreement with the Chairman, and with the approval of the Board of Statutory Auditors, the Manager charged with preparing the Company’s financial reports as per Legislative Decree No. 58/1998 delegating to him adequate powers and resources;
15.		appoints and revokes, on recommendation of the Chief Executive Officer and in agreement with the Chairman, after consulting the Internal Control Committee, the person in charge of internal control and determines his/her compensation in line with the Company’s remuneration policies;
16.		to examine and decide any proposalensures a person is identified as responsible for handling the relationships with the Shareholders;
17.		establishes, on the basis of the CEO concerningproposals received from the Compensation Committee, the criteria for top management compensation and implements the stock incentive plans approved by the Shareholders’ Meeting;
18.		examines and decides on proposals submitted by the Chief Executive Officer with respect to voting powers and to the appointment of members of the Boardmanagement and control bodies of Directors andthe most important controlled subsidiaries. With specific regard to the shareholders’ meetings of listed companies of the Eni Group, the Board ensures the observance of Statutory Auditors of major subsidiaries; andthe Corporate Governance Rules regarding the shareholders’ meetings;
17.19.		to formulate allprepares the proposals of decisions to be presentedsubmitted to the Shareholders’ Meeting.Meetings; and
20.		examines and resolves on other matters that the Chief Executive Officer deems appropriate to submit to the Board because of their importance and sensitivity.

Pursuant to Article 23.2 of the By-laws, the Board resolves on: mergers by incorporation and proportional demergers of at least 90% directly owned subsidiaries; establishment and winding up of branches; amendments to the By-laws in order to comply with applicable legislation.

In accordance with Article 27 of Eni’s by-laws,By-laws, the Chairman of the Board chairs Shareholders’ Meetings convenes and chairs Board of Directors’ meetings and oversees the implementation of decisions made by the Board of Directors.it.

In accordance with Article 23, paragraph 3 of Eni’s by-laws,By-laws, the Chairman and the CEO report timely to the Board of Statutory Auditors, at least quarterly and at each Board meeting, on activities performed by and major transactions of Eni and its subsidiaries.

Appointment

In accordance with Article 17 of Eni’s By-laws, the Board of Directors is composed of 3 to 9 members. The Ordinary Shareholders’ Meeting determines the number of Directors within said limits. As per Article 6, paragraph 2, letter d) of Eni’s By-laws the Minister for Economy and Finance, in agreement with the Minister of Economic Development, may appoint one member of the Board without voting rights. The Minister for Economy and Finance chose not to appoint such member.

According to Law No. 474 issued on July 30, 1994, Article 17 of the by-laws states that shareholders representing at least 1% of voting shares, alone or together with other shareholders, and the Board of Directors have the right to present lists for the appointment of directors. Each shareholder can present or participate in presenting only one list. Each shareholder can express its vote to only one list.

Companies controlling a shareholder and companies controlled by the same entity are forbidden from presenting or otherwise concurring to the presentation of additional lists and voting for them. Lists are to be filed at Eni’s headquarters at least ten days before the date set for the Shareholders’ Meeting on first call (20 days in case of the Board of Directors presenting a list) and published in national newspapers. The independent candidates shall be expressly indicated in each list. Lists must include statements in which each candidate attests the possession of the honorability and independence requirements as provided for by the applicable legislation and Eni’s By-laws. A professional curriculum of each candidate is recommended.

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Directors’ independence and duties

Legislative Decree No. 58 of February 24, 1998 (TUF), as amended by Legislative Decree No. 303 of December 29, 2006 states that at least two members in a Board composed by more than seven members must possess the independence requirements provided for Statutory Auditors of listed companies.

Article 17.3 of Eni’s By-laws states that at least three Board members shall have the independence requirement, in case the Board is made up by more than five members. This rule actually increases the number of independent directors in Eni’s Board. Eni’s Code foresees further independence requirements, in line with the ones provided by the Borsa Italiana Code.

On February 22, 2007, Eni’s Board of Directors, in accordance with the provisions of Eni’s By-laws and Code, determined that six out of its nine members are independent, specifically: non-executive Directors Alberto Clô, Renzo Costi, Dario Fruscio, Marco Reboa, Mario Resca and Pierluigi Scibetta. Renzo Costi was confirmed to be independent notwithstanding his permanence as board member for a period longer than nine years, due to the fact that he has been nominated by minority shareholders (specifically institutional investors) and has demonstrated ethical and professional qualities and independence when expressing his opinion during this period.

The Board of Statutory Auditors verified the proper application of criteria and procedures adopted by the Board to evaluate the independence of its members.

In accordance with the TUF, implemented in Article 17.3 of Eni’s By-laws, the Directors and General Managers of listed companies shall possess the honorability requirements prescribed for statutory auditors.

On February 22, 2007, the Board of Directors verified that all its members possess the honorability requirements.

In accordance with Article 17.3 of Eni’s By-laws, should the independence and honorability requirements be impaired or cease or if situations of ineligibility or incompatibility have arisen, the Board removes said members and provides for his substitution or invites him to remove the situation of incompatibility within the terms set by the board itself, if this last condition is not met, the Director will be removed from office. The Directors shall communicate to the Company whether the above mentioned requirements have been impaired or have ceased or situations of ineligibility or incompatibility have arisen.

In its meeting of December 13, 2006, the Board of Directors expressed its opinion on the matter of the admissible number of positions held by Directors in other companies, as required by Eni’s Self-discipline Code:

•		an executive Director should not hold: (i) the position of executive director in any other Italian or foreign listed company, or in any finance, banking or insurance company or any company with a net equity exceeding euro 10 billion; and (ii) the position of non-executive director or statutory auditor (or member of any other advisory committee) in more than three of said companies; and
•		a non-executive Director, should not hold further positions than the one held in Eni, as: (i) executive director in more than one of the companies mentioned above and non-executive director or statutory auditor (or member of any other control body) in more than three of the mentioned companies, or as (ii) non-executive director or statutory auditor in more than six of the mentioned companies.

All the positions held in Eni’s subsidiaries are excluded for the purposes described above.

In case a Director exceeds said limits in terms of positions held, he should timely inform the Board, who shall judge the situation taking into account the interest of the Company and call upon the interested director to make a decision on the matter.

On the basis of available information, Eni’s Directors comply with these limits on the number of positions held in other companies.

In accordance with the TUF and with Article 23.3 of Eni’s By-laws, the Directors shall timely inform the Board of Statutory Auditors on transactions in which they have an interest.

In accordance with Article 2391 of the Italian Civil Code, Directors inform other Directors and the Board of Statutory Auditors of any interest they may have, directly or on behalf of third parties, in any transaction of Eni.

AppointmentDuring each Board of Directors’ meeting, the Chairman expressly asks the Directors to declare any of their potential interest in transactions on the agenda.

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The Eni Code, in accordance with Article 17 of Eni’s by-laws, as amendedthe Borsa Italiana Code, foresees the adoption, by the Board on April 13, 2005, the Board of Directors, of measures ensuring that transactions in which a director has an interest, directly or on behalf of third parties, and all transactions carried out with related parties, are performed in a transparent way and meet criteria of substantial and procedural fairness.

Preparation of a procedure regarding transactions with related parties is made upunderway; however its finalization is stalling due to the circumstance that Italian listed companies are awaiting the emission on part of 3 to 9 members. The Shareholders’ Meeting determines the numberConsob of Directors within said limits. As percertain guidelines as provided for by Article 6, paragraph 2, letter d) of Eni’s by-laws the Minister for Economy and Finance, in agreement with the Minister of Productive Activities, may appoint one member2391-bis of the Board without voting right in additionCivil Code. Pending the emission of such guidelines transactions with related parties are submitted to those appointed by the Shareholders’ Meeting. The Minister for Economy and Finance chose not to appoint a member at this time.

The appointment of the Board of Directors, calls for a list vote. Only shareholders who, alone or with others represent at least 1% of voting shares at an ordinary meeting haveeven though their amounts are lower than the right to present lists for the appointment of directors, as well as the Board of Directors. Each shareholder can present or participate in presenting only one list. Companies controlling a shareholder and joint controlled companies cannot present, nor participate in presenting other lists, meaning by controlled companies the companies described in Article 2359, paragraph 1 of the Civil Code. The lists must be deposited at Eni’s headquarters at least ten days before the datemateriality threshold set for the Shareholders’ Meeting on first call (20 days in case of the Board of Directors presenting a list) and published on national newspapers and must include a resume of each candidate.

On June 1, 2005, Eni’s Board of Directors, in accordance with the provisions of the Code, evaluated the statements presented by Board members and established that the Chairman and non executive Board members Alberto Clô, Renzo Costi, Dario Fruscio, Marco Pinto, Marco Reboa, Mario Resca, and Pierluigi Scibetta are independent as they do not have any economic relationship with Eni and Eni Group companies, with the CEO and with the Ministry of Economy and Finance, Eni’s major shareholder, such astransactions to bias their autonomous judgment nor are they close relatives of the CEO. Director Marco Pinto is an employee of the Ministry for Economy and Finance. The CEO of Eni is an employee of Eni and holds the position of General Manager of the parent company Eni SpA.

On March 30, 2006, the Board verified that its members were independent on the basis of their own statements and that they possess the honorability required by articles 147 ter and 147 quinquies of Legislative Decree No. 58 of February 24, 1998 and included in Law No. 262 of December 28, 2005 ("law for the protection of savings") and acknowledged that its members continued being independent as verified on June 1, 2005 and possessing the honorability required by Law.

Eni’s by-laws were amended by Eni’s Extraordinary Shareholders’ Meeting held on May 25, 2006 in order to reflect the provisions of Law No. 262/2005. Amendments made on that occasion established that Eni’s Board members must have honorability and independence requirements as requiredbe approved by the norms in force for the Statutory Auditors (see below). At least one Board member, if the Board members are no more than five, or at least three Board members if they are more than five, shall meet the independence requirement. The Board of Directors evaluates periodically the independence and the honorability of its members. If these requirements are not met by a Director and, if the minimum number of independent Board members set by these by-laws is not met, the Board of Directors removes a Board member who does not meet the independence requirement and resolves to appoint a substitute Director. At the date of the Meeting, Eni’s Board was already compliant with the honorability and independence requirements of its members as prescribed by applicable laws.

In addition Eni’s by-laws, as amended on May 25, 2006, established that the General Managers appointed by the Board must possess the same honorability requirements as the members of the Board, in order to make the appointment effective. The General Managers not meeting such requirement shall be removed.

Eni’s by-laws do not indicate a specific frequency of meetings. In 2005 the Board of Directors met 21 times (18 in 2004) for an average length of four hours per meeting. The public is informed of: (i) the dates of meetings convened for the approval of interim results; (ii) the dates of general Shareholders’ Meetings; and (iii) the dates when the amount of interim dividends and final dividends are announced and related payment dates.Board.

Functioning

TheIn its meeting of June 1, 2005, the Board of Directors defined the rules for the calling of its meetings; in particular, the Chairman convenes Board meetings and, in concertagreement with the CEO, defines agenda items. Notice is sent to the Directors, Statutory Auditors and the Magistrate of the Court of Accounts, 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-lawsBy-laws allow meetings to be held by video or teleconference, provided that all participants can be identified and are allowed to participate in real time. The meeting is deemed held in the location where the Chairman and Secretary are present.teleconference.

Board members, Statutory Auditors and the Magistrate of the Court of Accounts receive in advance adequate and thorough information on all issues subject to Board evaluation and resolutions, except for urgent cases and those for whichwhen confidentiality is deemed necessary.

During meetings directorsDirectors can meet managers of Eni and its subsidiaries in order to obtain information on specific matters of the features and the organization of their businesses.agenda items.

In 2005 on2006, the Board held 16 meetings with an average 88%attendance rate of Board members participated in Board meetings. On average 85% of independent non executive Board members.
. The agendas for these meetings included, among others, the followings issues:

i)		Group strategy and the industrial plan for the four-year period 2007-2010;
ii)		2006 budget;
iii)		review of quarterly accounts for the first, second and third quarter of 2006, and of preliminary full year results for 2005;
iv)		approval of 2005 consolidated financial statements and 2006 semi-annual consolidated accounts;
v)		approval of an interim dividend pertaining to fiscal year 2006 and of the full-year dividend proposal for 2005 to be submitted to the Annual General Shareholders’ Meeting;
vi)		evaluation of the independence of the Directors and evaluation of Board practices;
vii)		adoption of the Code of Conduct for listed companies, as issued by Borsa Italiana in March 2006 (Borsa Italiana Code) and implementation of the necessary provisions to the Eni Code in order to align it with the recommendations of the Borsa Italiana Code;
viii)		approval of a new incentive scheme for Group top managers and senior and middle managers and approval of the stock-based incentive plan for the three-year period 2006-2008; and
ix)		approval of the most significant transactions of the parent company and of Group companies in the year.

Board Committees

In order to carry out itsThe Board has instituted three committees with proposal and advisory functions. Their composition, tasks more effectively,and functioning are defined by the Board of Directors has instituted three advisory Committees:in respect of the criteria established by the Eni Code. They are: a) the Internal Control Committee, andb) the Compensation Committee and c) the International Oil Committee. These Committees are composed almost exclusively of independent non-executive Board members, except for Marco Pinto, a member of both committees, and the International Oil Committee in which the CEO also participates.Directors.

In the meeting of June 1, 2005 membershipThe composition of the Board’s Committees wasis as follows:

Internal Control Committee: Marco Reboa (Chairman)(Chairman, independent), Alberto Clô (independent), Renzo Costi Marco Pinto(independent) and Pierluigi Scibetta.Scibetta (independent).

Compensation Committee: Mario Resca (Chairman)(Chairman, independent), Renzo Costi (independent), Marco Pinto (non-executive) and Pierluigi Scibetta.Scibetta (independent).

International Oil Committee:Alberto Clô (Chairman)(Chairman, independent), Paolo Scaroni (CEO), Dario Fruscio (independent) and Marco Reboa and Paolo Scaroni.(independent).

The Code, in line with the Borsa Italiana Code, suggests the creation of a "Nominating Committee" in companies with shares held widely by the public, especially when the. The Board notices that shareholders find it difficult to prepare proposals for appointments. This committeeof Directors has not been formed in considerationthis Committee due to the significant presence of the Italian State in Eni’s shareholding characteristics of Eni and of the fact that Directors are appointed on the basis of candidate lists submitted by shareholders or by the Board of Directors.(see "Item 7 – Major Shareholders").

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Internal Control Committee

The Internal Control Committee establishedis in charge of putting forward proposals and providing advisory functions on general management issues to the Board of Directors. The Committee consists of three to four non-executive directors, the majority of whom must meet the independence requirements set out in the By-laws. Where such members are included in the Board of Directors, at least two members of the Committee shall be adequately experienced in accounting and financial matters as per the assessment made by the Board of Directors in 1994, holds functionsat the time of supervision, counsel and proposaltheir appointment.

The Committee shall:

a)		assess, jointly with the head of the office in charge of drawing up corporate accounting documents and the external auditors the appropriate implementation of accounting principles and their homogeneity with a view to drawing up the consolidated financial statements;
b)		upon the CEO’s request, issue opinions on specific matters related to the identification of the main business risks as well as to planning, implementing, and managing the internal control system;
c)		evaluate the audit plan prepared by the Internal Audit Manager and the activity reports that the latter shall draw up at least quarterly;
d)		carry out such additional tasks as are committed to it by the Board of Directors, and in particular issue opinions on the rules relating to substantive and procedural transparency and fairness of the operations with related parties as well as of the operations in which a director has a vested interest whether on his own or on behalf of third parties;
e)		report to the Board, at least every six months, on the occasion of approving the financial statement and the half year report, on its activities and the adequacy of the internal control system;
f)		issue an opinion on the proposals to the Board for appointment and removal of the Internal Audit Manager as put forward by the Chief Executive Officer in agreement with the Chairman as well as on the proposals concerning the Internal Audit Manager’s salary in line with corporate policies; and
g)		assess the findings from the internal audit reports, the communications from the Board of Statutory Auditors and the individual members thereof, the reports and management letters by external auditors, the annual report by the Guarantor for the Code of Practice, the reports of the Watch Structure, and the enquiries and reviews carried out by third parties.

Additionally, the area of monitoring general management issues.

In its meeting of June 1, 2005, the Board appointed Marco Reboa as chairman of this Committee.

In its meeting of June 29, 2005 the Board approved its new charter (available on Eni’s internet site) in order to modify its role in accordance with the Board’s resolution of March 22, 2005 that appointedCommittee shall assist the Board of Statutory Auditors to perform the functions attributed by the Sarbanes-Oxley Act and SEC rules to audit committees of U.S. issuers, within the limits set by Italian legislation, from June 1, 2005.Directors with a view to:

•		set out the main principles for the internal control system so as to appropriately identify and adequately evaluate, manage, and monitor the main risks related to the Company and its subsidiaries, by laying down the compatibility criteria between said risks and sound corporate management; and
•		assess, at least annually, the adequacy, effectiveness, and actual operations of the internal control system.

In the course of 20052006, the Internal Control Committee convened 14 times,held 15 meetings, with an average participationattendance rate of 87% of its members,80%, and has accomplishedreviewed the following: (i) reviewed the 2006 audit programsplan prepared by Eni, SpA’sSaipem and Group companies’Snam Rete Gas internal audit functions and their progress; (ii) reviewedfindings and evaluated results of Eni SpA’s and Group companies’from Eni’s internal auditing procedures;interventions; (iii) monitoredinitiatives undertaken and effects of measures applied in order to eliminate the actions taken and their effects aimed at eliminatingweaknesses highlighted by Eni’s Internal Audit department; (iv) the deficiencies identified by audit reports; (iv) examinedessential features of the results2005 financial statements, making suggestions intended to improve the level of audit procedures applied to the framework agreement between Eni and Gazprom/Gazexport of June 16, 2005; (v) metdisclosure through meetings with top level representatives of administrative functions inof the main Eni subsidiaries, chairmen of boards of statutory auditors and responsible partners responsible forfrom external audit companies to examinecompanies; (v) Eni’s 2006 draft Half Year Report; (vi) the essential features of"Recommendations on the internal accounting control system" presented on 2004 financial statements with specific reference to extraordinary transactions and relations among functions entrusted with controlling functions at Eni SpA and its subsidiaries; (vi) met the partners responsible of Eni’s external auditors for an analysis of Eni’s 2005 Half Year Report; (vii) examined the conditions necessary to avail itself of the exemption from the Sarbanes-Oxley Act and the relevant regulations concerning the Audit Committee; (viii) reviewed the committee’s charter; (ix) examined the report presented by an internal the Watch Structure; (x) examined the reports prepared in accordance with audit document No. 260 concerning the communication of facts and events on auditing activities to those responsible for governance; (xi) monitored the appointment of additional functions to Eni’s external auditors and companies belonging to the network of the external auditors, expressing its opinion; (xii) reviewedaudit company; (vii) the situationexternal audit company reports on "Facts and circumstances of appointments conferredinterest in 2004 by Eni and its consolidated subsidiaries and affiliates to external auditors registered with Consob and related subjects; (xiii) reviewedthe governance activity"; (viii) the situation of appointments of external auditors of main group companies, the relevant accountsrecognition of costs incurred and the opinionsobservations contained in the reports of external auditors pertaining to the financial statements of Eni’s Italian subsidiaries; (xiv) examined(ix) the proposal to integrate the task of Eni’s external auditors, to also include the certification of Eni’s internal control system, under Section 404 of the Sarbanes-Oxley Act (SOA) for fiscal year 2006, and the proposal extending the task of the external auditor currently in charge to audit the financial statements of Group companies and to certify the Group internal control system over financial reporting as well as all other admissible tasks for the 2007-2009 period; (x) the report on the implementation of SOA activities; (xi) the report presented by the Watch Structure established as required by Legislative Decree No. 231/2001; (xii) the general aspects of rules on recommendations received by Eni, which also include confidential or anonymous recommendations, issued also in respect of the Sarbanes-Oxley Act, and the periodic reports concerning the received recommendations; (xiii) the new organizational structure and the tasks of Eni Internal Audit function; (xiv) the reorganization of the internal audit functionsGroup supply activities; (xv) issues on hydrocarbon reserves and relevant classification criteria, also including accounting issues; (xvi) appointments of consultants and legal counselors supporting the Company on legal matters for the 2005-2006 two year period; (xvii) antitrust procedures and the recognition of the relevant provisions to the risk reserve; (xviii) the reports on additional information submitted to the SEC and accounting treatment of the merger of Enifin with specific focusthe parent company Eni; and (xix) the report on operating audits;Eni administrative and (xv) examinedaccounting organization to be submitted to the information flows toBoard of Directors.

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The Internal Audit Manager is the secretary of the Committee. In its meeting of March 16, 2007, the Board of Directors, as proposed by the CEO, in agreement with the Chairman and after asking the Internal Control Committee fromfor its opinion, entrusted the various functions of Eni and its subsidiariesInternal Audit Manager as well as from external auditors.manager delegated for the internal control.

Compensation Committee

The Compensation Committee, established by the Board of Directors in 1996, is entrusted with advisingproposing tasks in respect of the Board:

•		presenting proposals for the remuneration of the Chairman and CEO, regarding the various forms of compensation and benefits;
•		presenting proposals for remuneration of members of the committees of Directors established within the Board; and
•		examining the indications of the CEO and presenting proposals for: (i) annual and long-term incentive plans, including equity-based plans; (ii) general criteria for the compensation of the managers with strategic responsibilities; and (iii) company objectives and results of performance plans, related to the determination of the variable part of the remuneration of executive directors and the implementation of incentive plans.

The Committee is composed of four Directors, the majority of them being non-executive independent directors. The Committee reports to the Board in relation to the compensation of the Chairman and CEO as well as of the Board Committee members; examining the indications of the CEO and presenting proposals on: (i) equity based incentive plans; (ii) criteria for the compensation of top managers of the Group; and (iii) objectives and results evaluation of performance and incentive plans.

Directors on activities performed at least twice a year. In its meeting of June 29, 2005 the Board approved its new regulation (available on Eni’s internet site) and appointed Mario Resca as Chairman.

In 2005,2006, the Compensation Committee met 7 timesheld 9 meetings, with an average participationattendance rate of 96% of its members,, and accomplished the following: (i) reviewedverified functions and tasks of the Committee, defined by the new regulation approved by the Board of Directors in June 2005 (available on Eni’s website), in accordance with the national and international corporate governance principles, confirming their substantial alignment with international and national standards; (ii) examined the objectives of the 2006 performance and incentive plan and appraised 2005 Group Incentive Plan and the performance of 2004; (ii) drafted a proposalresults, to be submitted to the Board of Directors for approval; (iii) examined the revised long-term incentive system for managers, and drafted a proposal based on which the Board of Directors requested the Shareholders’ Meeting’s approval of the 2006-2008 stock option plan and the authorization to use treasury shares for servicing the stock option plan; (iv) examined the issue of the insurance against professional risks included in agreements for Eni managers, extended to Directors and Statutory Auditors, as approved by the Board of Directors in its meeting of March 30, 2006, and the issue of the insurance against managerial risks, on which the Shareholders’ Meeting’s approval has been requested; (v) examined the Chairman variable compensation and drafted a proposal for determining the variable part of the remuneration of the Chairman and CEO based on 2004 performance; (iii) drafted a proposal based on which the Board of Directors requested the Shareholders’ Meeting2005 performance to authorize it to use treasury shares for servicing stock option and stock grant plans for 2005 (see "Stock compensation" above); (iv) drafted a proposalbe submitted to the Board of Directors concerning compensation related to the termination of employment of Eni’s former Managing Director Vittorio Mincato; (v)Directors; (vi) examined the compensation to be paid to Eni’s new CEO Paolo Scaroni, employed by Eni withbenchmarks for top management remuneration, the functioncriteria of General Manager,the annual remuneration policy, as well as the implementation of incentive plans for the year and in the long-term in order to draft a proposal to submit to the Board of Directors; and (vi)(vii) examined the benchmarks for top management remunerationcompensation to be attributed to the Directors, related to functions and reviewed the criteriaactivities performed in their role as members of the remuneration policy for Group managers, as well asCommittees established by the stock option and stock grant plansBoard, in order to draft a proposal approved by the Board of Directors’ meeting of July 27, 2006; and (viii) examined the impact of the new stock-based incentive scheme on CEO compensation, and drafted an integration proposal in order to submitmaintain the incentive level established in 2005, to be submitted to the Board of Directors.Directors (see "Stock options and other share-based compensation").

International Oil Committee

The International Oil Committee established by the Board of Directors in 2002, is entrusted with the monitoring of trends in oil markets and the study of their aspects.

In its meeting of June 1, 2005, the Board approved its new regulation (available on Eni’s internet site) and appointed Alberto Clô as Chairman of the Committee.

In 20052006 the International Oil Committee met 3five times with a 100%75% participation of its members.

The meetings concerned: (i) a plan of activities aimed at analyzing thefirst meeting concerned trends and conditions of the oil and gas industry; (ii) an in-depth analysisindustry, as well as the key variables of China in terms of market prospects and effects on competition in the oil industry; and (iii) an analysis of the structure and dynamics of oil and gas markets on which to base the energy scenarios for Eni’s four-year strategic plan. The other meetings concerned the analysis of worldwide energy market prospects to 2020, to identify the main issues and challenges to be addressed in Eni Master Plan – a key document in the planning process defining Eni industrial strategies. In particular, the meetings dealt with: (i) worldwide energy consumption trends to 2020 – discussed in two meetings – aimed at identifying fundamentals, underlying assumptions and possible uncertainties in consumption trends in the most important world areas; (ii) a survey of the supply of natural gas in the world; and (iii) a survey of the worldwide oil supply, highlighting hydrocarbons and infrastructure development trends, in relation to the industrial and market trends in the next 15 years.

Board of Statutory Auditors

The Board of Statutory Auditors, in accordance with Article 149 of Legislative Decree No. 58/1998, monitors: (i) the respect of laws and of Eni’s memorandum of association; (ii) the respect of the principles of proper administration; (iii) the adequacy of the Company’scompany’s organizational structure, for the parts concerning administration and accounting,covered by the Board’s responsibility, of its internal controlscontrol system and administration and accounting systems as well as itsthe reliability of the latter in presenting information properly; andfairly representing the management of the company; (iv) the adequacy of regulations imposedinstructions conveyed by the parent company to its subsidiaries according to Article 114, paragraph 2 of the above mentioned decree. The law ondecree; and (v) the protectionactual implementation of savings also entrustedcorporate governance rules foreseen by the codes of conduct prepared by market regulators and the associations the company belongs to, that the company publicly declares to respect.

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In accordance with the Eni Code, in line with the Borsa Italiana Code, the Board of Statutory Auditors monitors the independence of the external auditing firm, verifying both the compliance with the monitoringprovisions of applicable laws and regulations governing the matter, and the nature and extent of services other than the accounting control provided to Eni by the auditing firm and the entities belonging to its network. According to the TUF (as amended by Legislative Decree No. 303/2006), the Board of Statutory Auditors drafts a proposal regarding the appointment of the proper implementation of corporate governance rules envisaged byexternal auditors and their fee to be submitted to the codes of conduct published by the Italian stock exchange and the associations the Company belongs to and with which the Company has declared its intention to comply.Shareholders’ Meeting for approval.

The Board of Directors in its meeting of March 22, 2005, in accordance with SEC Rule 10A-(c)10A-3(c)(3) for foreign companies listed on the New York Stock Exchange, selectedelected the Board of Statutory Auditors to fulfilfulfill the role attributed toof the audit committee of ain U.S. companycompanies under the Sarbanes-Oxley Act and other applicable laws,SEC rules, within the limits set by the Italian legislation from June 1, 2005. On June 15, 2005, the Board of Statutory Auditors approved the regulationsregulation for carrying out the functions attributed to the audit committee under U.S. laws. This regulation is published on Eni’s internet site. website.

The key functions performed by the Board of Statutory Auditors acting as an audit committee as provided for by SEC rules are as follows:

•		evaluating the proposals presented by the external auditors for their appointment and making its recommendation to the Board of Directors about the proposal for the appointment or the retention of the external auditor to be submitted to the Shareholders’ Meeting;
•		performing the activities of oversight of the work of the external auditor engaged for the audit or performing other audit, review or attest services;
•		making recommendations to the Board of Directors on the resolution of disagreements between management and the auditor regarding financial reporting;
•		approving the procedures for: (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters;
•		approving the procedures for the pre-approval of admissible non-audit services, analytically identified, and examine the information on the execution of the authorized services;
•		evaluating any request to have recourse to the external auditor engaged for the audit for admissible non audit services and expresses its opinion to the Board of Directors;
•		examining the periodical communications from the external auditor relating to: (a) all critical accounting policies and practices to be used; (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management officials of the Company, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the external auditor; and (c) other material written communication between the external auditor and the management;
•		examining complaints received by the CEO and the CFO concerning any significant deficiency in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and any material weakness in internal controls; and
•		examining complaints received by the CEO and the CFO concerning any fraud that involves management or other employees who have a significant role in the issuer’s internal controls.

The Board can engage external advisors or other experts to the extent it determines necessary to carry out its duties. The Board is provided with the funds it deems necessary for payment of compensation to independent advisors or other experts and of ordinary administrative expenses involved by the execution of the Board’s duties.

The Board of Statutory Auditors comprisesis comprised of five auditors and two substitutealternate auditors, appointed by the Shareholders’ Meeting for a three yearthree-year term.

On May 27, 2005, Eni’s Shareholders’ Meeting appointed the following statutory auditors for three yearsa three-year period and however until the Shareholders’ Meeting approving financial statements for fiscal year 2007: Paolo Andrea Colombo (Chairman), Filippo Duodo, Edoardo Grisolia, Riccardo Perotta and Giorgio Silva. Francesco Bilotti and Massimo Gentile are alternate auditors. A curriculum of these auditors is published on Eni’s internet site.website. The same Meeting also determined the yearly compensation forof the Chairman of the Board of Statutory Auditors and each Auditor amounting to euro 115,000 and euro 80,000 respectively.

Paolo Andrea Colombo, Filippo Duodo, Edoardo Grisolia and Francesco Bilotti were candidates in the list presented by the Ministry of Economy and Finance; Riccardo Perotta, Giorgio Silva and Massimo Gentile were candidates in the list presented by institutional investors coordinated by Fineco Asset Management SpA.

Statutory Auditors are appointed in accordance with Eni’s by-lawsBy-laws with a list vote; at least two auditors and one substitute are chosen from minority candidates. According to Article 28.2 of Eni’s By-laws, as revised by the Shareholders’ Meeting of May 25, 2006, to implement the provision of Law No. 262 of December 28, 2005 (law on the protection of savings), the Shareholders’ Meeting elects Chairman of the Board isof Statutory Auditors a member elected from a list other than the first candidateone obtaining the majority of the list that received the highest number of votes. Auditors are autonomous and independent even from the shareholders who elected them. The lists of candidates include declarations made by the candidates on the possession of independence and expertise requirements prescribed by applicable regulation and a professional resume of each candidate, and are depositedmust be filed at the Company’scompany’s headquarters at least 10 days before the date of the Shareholders’ Meeting on first call and are published onin national newspapers.

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In accordance with the TUF, Statutory Auditors have to possess the specific requirements of independence and the professional and honorability requirements as prescribed by a regulation of the Minister of Justice. As also reported in the Code, the Statutory Auditors shall act with autonomy and independence also vis-à-vis the shareholders who elected them. As for professional qualifications of the candidates, Article 28 of Eni’s by-laws, consistentBy-laws, in line with the provisions contained in thesaid Decree of the Minister of Justice, No. 162 of March 30, 2000, statesforesees that at least two auditors and one substitute auditor are chosen among chartered auditors and must have performed auditing activities forthe professional requirements can also be acquired with at least three years and that auditors not meeting these requirements must be chosen among those provided with the level of professionalism described in Decree No. 162/2000. For the purposes of said Decree, the by-laws define as related subjects commercialprofessional experience or by teaching business law, corporate economybusiness administration and finance, as well as at least a three year experience in a managerial position in geological or engineering and geology.businesses. Eni’s auditors are all chartered auditors.

Article 28 of Eni’s by-lawsBy-laws also prohibits the appointment as statutory auditor of personsmembers of administration and control bodies in other companies within the limits set by Consob regulation. If said limits are violated, the relevant Statutory Auditor shall resign from one or more of his offices.

In its meeting of March 16, 2007, the Board of Statutory Auditors verified that are statutory auditors orall its members comply with the independence criteria prescribed by the rules of the Eni Code intended to ensure the Statutory Auditors’ possession of required independence after their appointment, also based on the criteria defined by the Code for the members of the supervisory board or membersBoard of the control committee of at least five companies listed in regulated markets that are not subsidiaries of Eni SpA. At least two effective Auditors are empowered to convene the Shareholders’ Meetings and at least one effective Auditor is empowered to convene the Board meetings.Directors.

Statutory auditorsAuditors receive in advance of meetingsinformation on all issues on the agenda of the Board of Directors adequateat the same time as the Directors. In line with the provisions of the Eni Code, an Auditor who has an interest, either own or on behalf of third parties, in a certain transaction of the issuer, shall inform the Board of Directors and thorough information on all issues subject to Board evaluation and resolutions.

Eni’s by-laws allow meetings to be held by teleconference.the other Auditors.

In 20052006, the Board met 2220 times with an average participation of 83%88% of its members.

In 2005,2006, Eni’s external auditorsExternal Auditors met with Eni statutory auditorsStatutory Auditors in order to discuss: (i) critical accounting policies and practices applied for the purpose of a proper representation of Eni’s results of operations and financial condition; (ii) alternative accounting treatments provided for by generally accepted accounting principles concerning material items discussed with management, including ramifications of the use of, the impact deriving from the application of said alternative disclosures and treatments and relevant information, as well as the treatments preferred by external auditors; and (iii) the contents of any other material written communication between external auditors, and management.

For a description of the special powers of the State, see "Item 10 – Memorandum and Articles of Association – Limitations on Voting and Shareholdings – Special Powers of the State" below.

Significant differencesDifferences in corporate governance practicesCorporate Governance Practices as per Section 303A.11 of the New York Stock Exchange Listed Company Manual

Corporate governance standards followed by Italian listed companies are set forth in the Civil Code and in the Legislative Decree No. 58 of February 24, 1998, "Single text containing the provisions concerning financial intermediation" (Testo unico delle disposizioni in materia di intermediazione finanziaria, the "TUF"), as well as by the Self-discipline Code of listed companies (the "Code") issued by the Committee for corporate governance of listed companies. As discussed below, Italian corporate governance standards differ in certain aspects from NYSE standards.

The civil code and the TUF assign specific binding and irrevocable powers and responsibilities to company’s corporate bodies. The Code, based on this regulatory framework, provides recommendations on corporate governance intended to reflect generally accepted best practices. Although these recommendations are not binding, Borsa Italiana SpA requests listed companies to publish an Annual Report on corporate governance which contains, besides a general description of the corporate governance system adopted, also any recommendation that was not followed and the reasons for this choice. Eni adopted the Code.

above, Eni’s organizational structure follows the traditional Italian model of companies which provides for two main separate corporate bodies, the Board of Directors and the Board of Statutory Auditors to whom are respectively entrusted management and monitoring duties. duties are respectively entrusted.

This model differs from the U.S. unitary model which provides for the Board of Directors as the sole corporate body responsible for management and through anfor audit committee established within the same Board for monitoring.

Below is a description of the most significant differences between corporate governance practices followed by U.S. domestic companies under the NYSE standards and those followed by Eni.

INDEPENDENT DIRECTORS
NYSE Standardsstandards Under NYSE standards listed U.S. companies’ Boards must have a majority of independent directors. A director qualifies as independent when the Board affirmatively determines that such director does not have a material relationship with the listed company (and its subsidiaries), either directly, or indirectly. In particular, a director may not be deemed independent if he/she or an immediate family member has a certain specific relationship with the issuer, its auditors or companies that have material business relationships with the issuer (e.g. he/she is an employee of the issuer or a partner of the auditor). In addition, a director cannot be considered independent in the three yearthree-year "cooling-off" period following the termination of any relationship that compromised a director’s independence.

Eni Standardsstandards In Italy, the Borsa Italiana Code recommends that the Board of Directors includes an adequate number of independent non-executive directors "inin the sense that they: a)they do not entertain,maintain, nor have recently maintained, directly or indirectly, or on behalf of third parties, nor have recently entertainedany business relationships with the company, its subsidiaries,issuer or persons linked to the executive directors or the shareholder or groupissuer, of shareholders who controls the company ofsuch a significance ableas to influence their autonomous judgement; b) neither own, directly or indirectly or on behalf of third parties, a quantity of shares enabling them to control the company or exercise a considerable influence over it nor participate in shareholders’ agreements to control the company; and c) are not immediate family members of executive directors of the company or of persons in the situations referred to in points a) and b)". judgement.

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The directors’ independence of directors isshall be periodically reviewedassessed by the Board of Directors.

The results of the assessments of the Board shall be communicated to the market.

The Board of Directors taking into accountshall evaluate the informationindependence of its non-executive members having regard more to the contents than to the form and keeping in mind that a director usually does not appear independent in the following events, to be considered merely as an example and not limited to:

a)		if he/she controls, directly or indirectly, the issuer also through subsidiaries, trustees or through a third party, or is able to exercise over the issuer dominant influence, or participates in a shareholders’ agreement through which one or more persons may exercise a control or considerable influence over the issuer;
b)		if he/she is, or has been in the preceding three fiscal years, a relevant representative of the issuer, of a subsidiary having strategic relevance or of a company under common control with the issuer, or of a company or entity controlling the issuer or able to exercise over the same a considerable influence, also jointly with others through a shareholders’ agreement;
c)		if he/she has, or had in the preceding fiscal year, directly or indirectly (e.g. through subsidiaries or companies of which he/she is a significant representative, or in the capacity of partner of a professional firm or of a consulting company) a significant commercial, financial or professional relationship:

		-		with the issuer, one of its subsidiaries, or any of its significant representatives;
		-		with a subject who, jointly with others through a shareholders’ agreement, controls the issuer, or – in case of a company or an entity – with the relevant significant representatives;
		-		or is, or has been in the preceding three fiscal years, an employee of the above-mentioned subjects;

d)		if he/she receives, or has received in the preceding three fiscal years, from the issuer or a subsidiary or holding company of the issuer, a significant additional remuneration compared to the "fixed" remuneration of non-executive director of the issuer, including the participation in incentive plans linked to the company’s performance, including stock option plans;
e)		if he/she was a director of the issuer for more than nine years in the last twelve years;
f)		if he/she is vested with the office of executive director in another company in which an executive director of the issuer holds the office of director;
g)		if he/she is shareholder or quotaholder or director of a legal entity belonging to the same network as the company appointed for the accounting audit of the issuer; and
h)		if he/she is a close relative of a person who is in any of the positions listed in the above paragraphs.

The Eni Code foresees further independence requirements, in line with the ones provided by the directors themselves. The Code also recommends that to evaluate independence "in the caseBorsa Italiana Code. In its meeting of earlier business dealings, reference should be made to the previous financial year and for work relationships and functions of executive director, to the three preceding financial years".

The Code provides for a qualitative evaluation, that considers the whole of the relationships held, in order to check as the case may be if the existing relationships between the issuer and the director are such to impair the director’s independence.

In 2005,February 22, 2007, Eni’s Board of Directors judged that the Chairman andsix out of eight of its non-executive members comply with the independence standards, as provided forset by the Eni Code. Non-executive Director Marco Pinto is an employee of the Ministry of Economy and Finance.

MEETINGS OF NON EXECUTIVE DIRECTORS
NYSE Standardsstandards Non-executive directors, including those who are not independent, must meet at regularly scheduled executive sessions without management. In addition, if the group of non-executive directors includes directors who are not independent, independent directors should meet separately at least once a year.

Eni Standardsstandards Neither Eni’s non-executive directorsDirectors nor Eni’s independent directorsDirectors must meet separately, under the Code’s corporate governance rules.

AUDIT COMMITTEE
NYSE Standardsstandards Listed U.S. companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Securities Exchange Act of 1934 and that complies with the further provisions of the Sarbanes-Oxley Act and of Section 303A.07 of the NYSE Listed Company Manual.

Eni Standardsstandards In its meeting of March 22, 2005, Eni’s Board of Directors, making use of the exemption provided by Rule 10A-3 for non-U.S. private issuers, has identified the Board of Statutory Auditors as the body that, starting from June 1, 2005, is performing the functions required by the SEC rules and the Sarbanes-Oxley Act to be performed by the audit committees of non-U.S. companies listed on the NYSE (see paragraph "Board of Statutory Auditors" earlier). Under Section 303A.07 of the NYSE listed Company Manual audit committees of U.S. companies have further functions and responsibilities which are not mandatory for non-U.S. private issuers and which therefore are not included in the list of functions shown in the paragraph referenced above.

NOMINATING/CORPORATE GOVERNANCE COMMITTEE
NYSE standardsU.S. listed companies must have a nominating/corporate governance committee (or equivalent body) composed entirely of independent directors that are entrusted, among others, with the responsibility to identify individuals qualified to become board members and to select or recommend director nominees for submission to the Shareholders’ Meeting, as well as to develop and recommend to the Board of Directors a set of corporate governance guidelines.

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Eni Standardsstandards This provision is not applicable to non-U.S. private issuers. The Code allows listed companies to have within the Board of Directors a committee for directors’ nominees proposals, above all when the Board of Directors detects difficulties in the shareholders’ submission of nominees proposals, as could happen in publicly-ownedpublicly owned companies. Eni has not set up a nominating committee, considering the nature of its shareholding as well as the circumstance that, under Eni by-laws,Eni’s By-laws, directors are appointed by the Shareholders’ Meeting based on lists presented by shareholders or by the Board of Directors.

Compensation

Board members’ compensation isemoluments are determined by the Shareholders’ Meeting, while remuneration levelsthe emoluments of the Chairman and CEO, in relation to the powers entrusted to them, are determined by the Board of Directors, and based on proposals of the Compensation Committee and after consultation with the Board of Statutory Auditors.

Key elementMain elements of the compensation of the Chairman, the CEO, the other Board members of the Board and of Eni’s three General Managers are outlined as follows.

CHAIRMAN
The compensation of the Chairman of the Board of Directors has been resolved by Eni’s Shareholders’ Meeting ofon May 27, 2005 and it includes:

a)		a feefixed salary of euro 265,000 and reimbursement of out of pocket expenses; and
b)		a variable emolument which amount up to a maximum of euro 80,000 to be paidis determined in accordance with Eni’s positioning among the eightperformance of Eni shares in the reference year as compared with the performance of the seven largest international oil companies for market capitalization, in termstaking account of total returnthe dividend paid. This emolument amounts to shareholderseuro 80,000 or euro 40,000, depending on whether the performance of Eni shares is rated first or second, or third or fourth in the previous year.reference year, respectively. No bonus is paid in case Eni scores a position lower than the fourth one. In 2006 Eni rated third and it was paid an emolument of euro 40,000.

With respect to the powers delegated to the Chairman, the Board of Directors determined further compensation, as follows:

a)		a feeyearly fixed salary of euro 500,000; and
b)		a yearly performance bonus based on the achievements of specific company’s objectives determined in the same way as for the CEO (see below). In 2006, based on 2005 Eni’s results, a variable amount dependent on reaching the objectives identified by the Board of Directors on proposalequal to 125% of the Compensation Committee.target level was determined, within an interval ranging from 85% to 130% of said target level. The target level of such variable amount is 50%60% of the fixed amount under a) above.above and the 2006 bonus paid was euro 375,000.

Compensation of the Chairman also includes an insurance against death or permanent inability caused by injury or sickness in the exercise of his duties or under certain other circumstances as stipulated collectively for all managers of Italian companies producing goods and services. In particular, a specific insurance policy has been underwritten which guarantees euro 500,000 to survivors with an annual charge for Eni of euro 8,000.

In 2005 the Chairman received a total compensation amounting to euro 871,000.15,000.

CEO
Compensation for Paolo Scaronithe CEO has been resolved by the Board of Directors of Eni in connection with his position both as Chief Executive Officer ("CEO")CEO and as General Manager of the parent company Eni SpA. He was appointed to both positions on June 1, 2005.

As General Manager of Eni SpA, his terms of employment are regulated by the "Contratto collettivo nazionale di lavoro per i dirigenti di aziende produttrici di beni e servizi" (the Italian national collective contract for managers of manufacturing companies), as well as by any internal agreement stipulated by the representatives of managers and Eni SpA. He may be appointed as board member of Eni’s subsidiaries and affiliates; compensation as provided for by Article No. 2389 of the Italian Civil Code deriving from such appointments is to be repaid to Eni as it is included in his remuneration under section a) below.

Compensation includes the following:following items:

a)		a yearly fixed amount of euro 1,430,000, of whichincluding a salary of euro 1,000,000 for the services as General Manager and a feean emolument of euro 430,000 for the services as CEO. In 2005, the amount received by Mr. Scaroni was of euro 840,000 relating to the period June 1-December 31;CEO;
b)		a variable amount dependentyearly performance bonus based on reaching the objectives identifiedachievement of specific company objectives. This bonus is determined based on the achievement of Eni’s target as approved by the Board of Directors on proposal of the Compensation Committee.Committee and defined consistently with the targets of the strategic plan and yearly budget. In 2005 said targets include a set level of cash flow from operations (with a 40% weight), profitability (30%) and divisional operating performance (30%). Results achieved have been assessed assuming a constant trading environment and have been verified by the Compensation Committee and approved by the Board of Directors. The maximum of such variable amount is 100% of the fixed amount under a) above. This incentive will be paidIn 2006 the bonus of euro 834,000 was determined on the actual period of office from 2006 onwards;June 1, 2005;

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c)

yearly assignment of grants to receive Eni stocks for no considerationa long-term incentive plan under a new incentive scheme as approved in the 2006-2008 period, vesting after three years from the assignment, dependent on reaching the objectives identifiedMarch 2006, by the Board of Directors on proposal ofas proposed by the Compensation Committee. TheThis new scheme provides for: (i) a deferred monetary bonus, linked to the achievement of certain Company's financial performance annual targets, replacing a previous stock grant plan; and (ii) a stock option plan focused on the achievement of certain targets in terms of performance of the Eni share (see below for a description of Eni’s long-term incentive schemes). Under this plan the CEO receives:

		i)		a yearly assignment of a deferred monetary bonus in the period 2006-2008, at target level of such amount of stock grant is 50%55% of the fixed amount under a) above. This incentive is effective starting from 2006. For details ofIn 2006 the basic deferred bonus that will be paid after three years in connection with Eni stock grant plan, see below;EBITDA annual results was euro 786,500; and
d)		ii)		a yearly assignment of stock options in the period 2005-2007 period for a facialface value corresponding to 11 times the fixed amounts under section a) above for the 2005-2007 period. Options are assigned at an exercise price corresponding to the market value at the date of assignment (average of the market prices of the preceding month) and can be exercised beginning from three years after the assignment and within the following five years.above. In 2005,2006, a total of 699,000681,000 options were assigned atwith a vesting period of three years and an exercise price of euro 22.509. For details23.1 corresponding to the arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding award. The 2006 assignment also includes a deferred bonus linked to the market performance of Eni stock option plan, see below;shares and corresponding to 96,000 options with a strike price of euro 23.1 and a vesting period of three years; this bonus was determined by the Board of Director on proposal of the Compensation Committee in order to maintain the incentive level established in 2005;

e)d)		severance payment as regulated by Italian laws, which consists in yearly accruals to the reserve for employee benefits that will be paid by the company to the employee when employment ceases. Each annual accrual corresponds to the yearly remuneration received as General Manager (fixed and variable amounts and stock grants assigned) divided by 13.5. These amounts are revaluated yearly at a fixed rate of 1.5% plus the 75% of the yearly official consumer price index increase;
f)e)		as an integration to the severance payment described above, should the employment contract of Mr. Scaroni as General Manager of Eni SpA be terminated upon expiry of the term of his office as CEO or upon earlier termination of such office, he will be entitled to receive a lump sum of euro 7 million, which is also intended as waiver to any obligation related to advance notice of termination. This integration will not be paid if the termination of office meets the requirement of due cause as per Article No. 2119 of the Italian Civil Code, in case of death and in case of resignation from office other than as the result of a reduction in the powers currently attributed to the CEO. Upon termination of employment Eni will also pay an amount corresponding to the social security payments and severance payment accruals as applied to the fixed amount and to 50% of the variable part of the compensation received as CEO. To this end Eni accrues a yearly provision of euro 204,737.93;
g)f)		competition clause: the CEO agrees not to be engaged, on his own account and directly, in any business that may be in competition with the businesses of Eni, as per its by-laws,By-laws, in Italy, Europe and North America for a year after termination of office. In consideration for this agreement, Eni will pay a fee corresponding to the yearly fixed amounts under a) section above. As a consequence of any breach of this clause, the CEO would loose the right to such fee or should reimburse any amount already paid, and shall pay to Eni damages in an amount agreed among the parties to correspond to twice such non-competition fee;
h)g)		the pension scheme corresponds to the scheme applied to Eni managers and provided by INPS (the Italian state social security entity) to all Italian workers. In addition, the CEO is included in an additional pension scheme under the form of an Eni groupGroup pension fund agreed collectively by Eni and Eni managers which provides an integration, in the form of a lump sum payment or a perpetuity, to the pension paid by the State. This integration is proportional to contributions to the fund made by both the manager and the Company in equal amounts. The integration is assigned to the manager when eligible for the payment of the pension from the State, provided that a minimum time period has elapsed according to the fundFund by-laws. An agreement signed on March 20, 2006, established that the Company’s and the manager’s payment to this Fund amounts to 3.5% of the total salary of the CEO as General Manager (i.e., the aggregate of the fixed amount, theand variable amount and the stock grants up to a maximum of euro 200,000);
i)h)		like all other Eni managers, Mr. Scaroni is entitled to participate in a health insurance Fundfund financed by Eni managers and Eni which provides reimbursement of certain medical expenses on the basis of rules and parameters as provided for by the Fund’s by-laws; and
j)i)		insurance against death or permanent inability caused by injury or disease in the exercise of his duties or under certain other circumstances as stipulated collectively for all managers of Italian manufacturing companies. In particular a specific insurance policy has been underwritten on behalf of Mr. Scaroni which guarantees euro 7.5 million to survivors in case of death, however determined, with an annual charge for Eni of euro 62,000.

MEMBERS OF THE BOARD OF DIRECTORS
The compensation of members of the Board of Directors has been determined by Eni’s Shareholders’ Meeting of May 27, 2005 and includes:

a)		a feefixed emolument of euro 115,000 and reimbursement of out of pocket expenses; and
b)		a variable amount up to a maximum of euro 20,000 to be paidemolument determined in accordance with Eni’s positioning among the eightperformance of Eni shares in the reference year as compared with the performance of the seven largest international oil companies for market capitalization, in termstaking account of total return to shareholdersthe dividend paid. Said emolument amounts euro 20,000 or euro 10,000 depending on whether the performance of Eni shares is rated first or second, or third or fourth in the previous year.reference year, respectively. In 2006 Eni rated third and it was paid an emolument of euro 10,000.

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The Board of Directors in the meeting of July 27, 2006, as proposed by the Compensation Committee and advised by the Board of Statutory Auditors, determined an additional element of remuneration for the Board members holding positions in Board’s committees, with the exclusion of the Chairman and CEO. Said fee amounts to euro 30,000, and euro 20,000 for the position of chairman of a committee and of member of a committee, respectively. This amount decreases to euro 27,000 and euro 18,000 in case a member holds positions in more than one committee.

GENERAL MANAGERS
The terms of employment of the General Managers of Eni’s Divisions are regulated by the "Contratto collettivo nazionale di lavoro per i dirigenti di aziende produttrici di beni e servizi" (the Italian national collective contract for managers of companies producing goods and services), as well as by any internal agreement stipulated by the representatives of managers and Eni SpA. The General Managers of Divisions may be appointed as members of the Board of Directors of Eni subsidiaries and affiliates; compensation deriving from such appointments as provided for by articleArticle No. 2389 of the Italian Civil Code is to be repaid to Eni as it is included in their remuneration under section a) below.

Their remuneration includes:

a)		a base salary, reviewed on July 1 of each yeardefined considering the position held and their specific responsibilities, taking into account the consistency ofcompensation level adopted by domestic and worldwide companies (in oil and gas, industrial and service sectors) and aligning it on a yearly base considering individual performance over time as well as certain market benchmarks;and career progression;
b)		a performance bonus paid yearly, cash incentivebased on the achievement of upspecific financial, operational and strategic targets and of individual performance goals pertaining to approximatelyeach business. The variable part paid in 2006 was determined based on the achievement of each business area’s targets for 2005 and defined consistently with the targets of the strategic plan and yearly budget. The target level of such variable amount is 60% of the salary dependent upon objectives identified for each business area;base salary;
c)		a long-term incentive plan under a new incentive scheme as approved in March 2006, by the Board of Directors as proposed by the Compensation Committee. This new scheme applies to the 2006-2008 three-year period and provides for: (i) a deferred monetary bonus, linked to the achievement of certain business growth and operating efficiency goals and certain Company's financial performance annual targets, replacing a previous stock grant plan; and (ii) a stock option incentive focused on the achievement of certain targets in terms of performance of the Eni share (see below for a description of Eni’s long-term incentive schemes). Under this plan the three General Managers receive:

		i)		a yearly assignment of grants to receive Eni stock for no consideration, vesting after three years from the assignment, dependent upon achieving the objectives identified by the Board of Directors based upon the proposal of the Compensation Committee. Thea deferred monetary bonus at target level of such amount of stock grant is 35%40% of the base salary. For detailsIn 2006, based on 2005 Eni results, the basic deferred bonus awarded was equal to 130% of Eni stock option plan, see below;the target level, within an interval ranging from 70% to 130%; and
d)		ii)		a yearly assignment of stock options in the 2005-2007 period for a facialface value corresponding to 24.5 times the base salary. Options are assigned at an exercise price corresponding to the market value at the date of assignment (average of the market prices of the preceding month) and can be exercised beginning three years after the assignment and within the following five years. Options assigned in 20052006 had a vesting period of three years and an exercise price of euro 22.509. For details23.1 corresponding to the arithmetic average of Eni stock option plan, see below;official prices registered on the Mercato Telematico Azionario in the month preceding the award;

e)d)		severance payment as regulated by Italian laws, which consists in yearly accruals to the reserve for employee benefit that will be paid by the company to the employee when employment ceases. Each annual accrual corresponds to the yearly remuneration received as general manager divided by 13.5. These amounts are revaluated yearly at the rate of 1.5% plus the 75% of the official yearly consumer price index increase;
f)e)		the pension scheme corresponds to the scheme applied to Eni managers and provided by INPS to all Italian workers. In addition, the General Managers are included in the additional pension scheme of Eni managers which provides an integration to the public pension. For further details see section h)g) of the description of compensation of the CEO;
g)f)		like all other Eni managers, they are entitled to participate in a health insurance Fund financed by Eni managers and Eni which provides reimbursement of certain medical expenses on the basis of rules and parameters as provided for by the Fund’s by-laws. For further details see section i)h) of the description of compensation of the CEO; and
h)g)		insurance against death or permanent inability caused by injury or disease in the exercise of his duties or under certain other circumstances as stipulated collectively for all managers of Italian manufacturing companies.

With the expectionexception of the CEO as described above, none of the Directors of Eni has service contracts with the company or any of its subsidiaries providing for benefits upon termination of employment.

Pursuant to Article 78Remuneration earned for 2006 by members of Consob Decision No. 11971 of May 14, 1999, compensationthe Board of Directors, including the CEO and the Chairman, the three General Managers and Eni’s senior managers attending on a permanent basis the meetings of the Steering Committee of Eni (total amount) is reported in the table below. Emoluments earned by the Statutory Auditors of Eni and general managersare also included.

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Follows a description of Eni’s divisions, who held the position in 2005 including for a fractioneach column of the year, are reported in the table below.

Pursuant to Consob decisions:following table:

•		"Compensation in respect of positions heldEmoluments for service at Eni SpA" arecomprise fixed fees to non-executive and executive Directors for their office as Board member, and the Statutory Auditors, the amount of which is set by the Shareholders’ Meeting and the remuneration ofshareholders. Fixed fees to the Chairman and the CEO for the powers delegated to them by the Board are also reported, the amount of which is determinedset by the Board of Directors, in agreementbased on proposals of the Compensation Committee and after consultation with the Board of Statutory Auditors, in accordance with Article 2389, paragraph 3Auditors. Furthermore, fixed fees to Directors attending the Committees formed by the Board of the Italian civil code;Directors are included within this column;
•		"Non cash benefits" refercomprise amounts referring to all fringe benefits, including insurance policies;
•		"Bonuses and other incentives" includescomprise: (i) the variable partperformance bonus awarded in the year to Directors and the Chairman based on the share performance of Eni; (ii) the performance bonus awarded in the year to both the Chairman and the CEO in connection with the power delegated to them by the Board, based on the achievement of specific company objectives; and (iii) the performance bonus awarded in the year to the CEO, in his quality as General Managers of the Chairman’s compensationparent company, the three General Managers of Eni’s divisions and Eni’s senior managers based on the variable partachievement of the salary of the CEOspecific financial, operational and strategic targets and of the general managers of Eni’s divisions; andindividual performance goals pertaining to each business or functional unit;
•		"Other compensation" includeSalaries and other elements" report base salaries paid to the salary ofCEO, the previous and the current managing director and of the general managersGeneral Mangers of Eni’s divisions in additionand senior managers, and indemnities paid upon termination of the employment contract. Referring to compensations due in respect ofthe Statutory Auditors, fees paid for positions held on the BoardsBoard of Statutory Auditors in Eni’s subsidiaries. Indemnities paid upon terminationsubsidiaries are also included.reported.

The following table contains details of compensation of directors, statutory auditors and general managers.

Name

Position

Term of office

Expiry date of the position (1)

CompensationEmoluments for service at Eni SpA

Non-cash benefits

BonusesBonus and other incentives (2)

Other compensationsSalaries and other elements

Total

		(thousand euro)euro thousand)

Board of Directors
Roberto Poli		Chairman			01.01-12.31			05.30.08		831		8		40						879
Vittorio Mincato		CEO			01.01-05.27					230				1,386	(3)		9,649	(4)		11,265
Paolo Scaroni		CEO			06.01-12.31	(5)		05.30.08		252		62					588			902
Mario Giuseppe Cattaneo		Director			01.01-05.27					57				10						67
Alberto Clô		Director			01.01-12.31			05.30.08		123				10						133
Renzo Costi		Director			01.01-12.31			05.30.08		122				10						132
Dario Fruscio		Director			01.01-12.31			05.30.08		117				10						127
Guglielmo Moscato		Director			01.01-05.27					59				10						69
Mario Resca		Director			01.01-12.31			05.30.08		121				10						131
Marco Pinto		Director			05.28-12.31			05.30.08		68										68
Marco Reboa		Director			05.28-12.31			05.30.08		68										68
Pierluigi Scibetta		Director			05.28-12.31			05.30.08		68										68
Board of Statutory Auditors (6)
Andrea Monorchio		Chairman			01.01-05.27					51										51
Paolo Andrea Colombo		Chairman	(7)		01.01-12.31			05.30.08		107							67			174
Luigi Biscozzi		Auditor			01.01-05.27					38							51			89
Filippo Duodo		Auditor			01.01-12.31			05.30.08		91							55			146
Edoardo Grisolia (8)		Auditor			05.28-12.31			05.30.08		48										48
Riccardo Perotta		Auditor			01.01-12.31			05.30.08		92							59			151
Giorgio Silva		Auditor			05.28-12.31			05.30.08		48							13			61
General Managers
Stefano Cao		E&P Div.			01.01-12.31									397			797			1,194
Luciano Sgubini		G&P Div.			01.01-12.31									311			2,286	(9)		2,597
Angelo Taraborrelli		R&M Div.			01.01-12.31									229			566			795
										2,591		70		2,423			14,131			19,215

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Board of Directors
Roberto Poli		Chairman		01.01-12.31		05.30.08		765		15		415						1,195
Paolo Scaroni		CEO		01.01-12.31		05.30.08		430		62		834	(3)		1,014			2,340
Alberto Clô		Director		01.01-12.31		05.30.08		134				10						144
Renzo Costi		Director		01.01-12.31		05.30.08		130				10						140
Dario Fruscio		Director		01.01-12.31		05.30.08		124				10						134
Marco Pinto		Director		01.01-12.31		05.30.08		130				10						140
Mario Resca		Director		01.01-12.31		05.30.08		128				10						138
Marco Reboa		Director		01.01-12.31		05.30.08		134				10						144
Pierluigi Scibetta		Director		01.01-12.31		05.30.08		130				10						140
Board of Statutory Auditors
Paolo Andrea Colombo		Chairman		01.01-12.31		05.30.08		115							89	(4)		204
Filippo Duodo		Auditor		01.01-12.31		05.30.08		80							55	(5)		135
Edoardo Grisolia (6)		Auditor		01.01-12.31		05.30.08		80										80
Riccardo Perotta		Auditor		01.01-12.31		05.30.08		80							63	(7)		143
Giorgio Silva		Auditor		01.01-12.31		05.30.08		80							44	(8)		124
General Managers
Stefano Cao		E&P Div.		01.01-12.31								643			966			1,609
Domenico Dispenza		G&P Div.		01.01-12.31								386			669			1,055
Angelo Taraborrelli		R&M Div.		01.01-12.31								400			645			1,045

2,540

77

2,748

3,545

8,910

Senior managers (9)

1,932

7,846

(10)

9,778

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(1)		The term of position ends with the Meeting approving financial statements for the year ending December 31, 2007.
(2)		Based on performance achieved in 2004.2005.
(3)		Based on performance achieved in 2004 and pro rata performanceAmount accrued related to the first five month period of duration of the task from June 1 to December 31, 2005.
(4)		In addition to salary also includes indemnities paid upon termination and furtherIncludes the compensation determined byobtained as Chairman of the Board of Directors.Statutory Auditors of Saipem and EniServizi.
(5)		Appointed as director on May 28, 2005.
(6)		The "Other Compensation" amounts refer toIncludes the compensation obtained as chairman or as auditorStatutory Auditor in Snamprogetti SpA, Chairman of subsidiaries.the Board of Statutory Auditors of CEPAV Uno and CEPAV Due.
(7)		Appointed as Chairman on May 28, 2005. Previously Auditor.
(8)(6)		Compensation for the service is paid to the Ministry of Economy and Finance.
(7)		Includes the compensation obtained as Chairman of the Board of Statutory Auditors of Snam Rete Gas and as Statutory Auditor in Enifin SpA.
(8)		Includes the compensation obtained as Statutory Auditor in Snamprogetti SpA and as Chairman of the Board of Statutory Auditors of TSKJ Italia Srl.
(9)		In addition to salary alsoManagers, who during the year with the CEO and the General Managers of Eni divisions, have been member of the Eni Directors Committee (nine managers).
(10)		Also includes indemnities paid upon termination.termination of employment contract.

122

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For the year ended December 31, 2005,2006, the aggregateoverall compensation paid to or on behalf of the executive officerspersons responsible of key positions in planning, direction and control functions of Eni SpA wasGroup companies, including executive and non-executive directors, General Managers and Eni’s senior managers amounted to euro 20.06 million.23 million for 2006. The foregoingbreak-down is as follows:

	2006
	(million euro)

Fees and salaries		16
Post employment benefits		1
Other long-term benefits		3
Fair value stock grants/options		3
		23

The above amounts include salaries, fees for attending meetings, lump-sum amounts paid in lieu of expense reimbursements, stock options, stock grants and other deferred incentive bonuses, health and pension contributions and amounts accrued to the reserve for employee termination indemnities, which is used to pay severance pay as required by Italian law to employees upon termination of employment. The members of the Board of Directors in their capacity as such are not entitled to receive such severance pay. At December 31, 2005,2006, 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 three general managers and with respect to Eni’s senior managers was euro 2,534 thousand. The break-down of this amount is presented in the executive officerstable below:

Name	(thousand euro)

Paolo Scaroni		CEO and General Manager of Eni		150
Stefano Cao		General Manager of the E&P Division		618
Domenico Dispenza		General Manager of the G&P Division		386
Angelo Taraborrelli		General Manager of the R&M Division		372
Senior Managers (1)				1,008

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(1)

No. 7 managers.

Long-term Incentive Schemes

In March 2006, the Board of Directors approved a new long-term incentive scheme for the managers of Eni and its subsidiaries (excluding listed subsidiaries), as proposed by the Compensation Committee. This new scheme is intended to motivate more effectively and retain managers, linking incentives to targets and performance achieved in a tighter way than previous incentives schemes. This new incentive scheme applies to the 2006-2008 three year period and is composed of a deferred bonus, linked to the achievement of certain business growth and operating efficiency goals, and stock option awards based on the achievement of certain targets of total shareholder return. This scheme has a structure intended to balance monetary and stock-based components of the remuneration, as well as to link economic and operating performance to share performance in the long-term.

Deferred bonus

This leg of the long-term incentive scheme envisages a basic bonus paid after three years according to a variable amount equal to a percentage ranging from 0 to 170% of the amount established for the target performance in relation to the performances achieved in a three-year period as approved by the Board of Directors. Performances are measured in terms of achievement of certain Company's financial performance targets preset for the 2006-2008 period, as assessed by comparing actual results with set targets under a constant trading environment for each year.

123

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The following table sets out the basic bonus awarded in the year 2006 to the CEO and to the General Managers of Eni’s Divisions, and the total amount awarded to Eni’s senior managers.

Name	Deferred bonus awarded
	(thousand euro)

Paolo Scaroni		CEO and General Manager of Eni		787
Stefano Cao		General Manager of the E&P Division		468
Domenico Dispenza		General Manager of the G&P Division		328
Angelo Taraborrelli		General Manager of the R&M Division		307
Senior managers (1)				1,293

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(1)

No. 6 managers.

Stock Options

Eni offers managers of Eni SpA and its subsidiaries as defined in the Article 2359 of the Civil Code holding positions of significant responsibility in the achievement of profitability or strategic targets, the opportunity to acquire a shareholding in the company as an element of remuneration through the award of options for purchasing Eni treasury shares.

On May 25, 2006, the Sharehoders’ Meeting approved the 2006-2008 stock option plan and authorized the Board of Directors to make available a maximum amount of 30 million treasury shares (equal to 0.749% of the share capital) for this stock option plan. This stock option plan foresees three annual awards. Unlike previous schemes, the 2006-2008 stock option plan introduced a performance condition upon which options can be exercised. At the end of each vesting period with a three-year duration, the Board of Directors determines the number of exercisable options, in a percentage ranging from 0% to 100% of the total amount awarded for each year of the plan, depending on the performance of Eni shares as compared to that achieved by a panel of major international oil companies in terms of capitalization. On July 27, 2006, the Board of Directors approved: (i) the award pertaining to 2006 within the three-year period covered by the plan; (ii) its regulation; and (iii) the criteria to be followed in the identification of managers eligible to options award. The Board of Directors delegated to the CEO the task to identify eligible managers by the end of each year covered by the plan. Under this plan, 7,050,000 options were awarded pertaining to 2006 with a strike price of euro 23.119. Stock option plans provide the grantees the right to purchase treasury shares in a 1 to 1 ratio after three years from the award, with a strike price calculated as the arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding award or, if greater, as the average carrying cost of treasury shares held by Eni as of the date preceding the award.

At December 31, 2006, a total of 15,290,400 options were outstanding for the purchase of an equal amount of ordinary Eni shares nominal value euro 1, carrying an average strike price of euro 21.022.

The weighted-average remaining contractual life of options outstanding at December 31, 2003, 2004, 2005 and 2006 was 4.6 years, 5.6 years, 6.6 years and 5.6 years, respectively.

The following is a summary of stock option activity for the years 2005 and 2006:

	2005		2006

	Number of shares		Weighted average exercise price (euro)		Market price (a) (euro)		Number of shares		Weighted average exercise price (euro)		Market price (a) (euro)

Options as of January 1		11,789,000			15.111			18.461			13,379,600			17.705			23.460
New options granted		4,818,500			22.512			22.512			7,050,000			23.119			23.119
Options exercised in the period		(3,106,400	)		15.364			22.485			(4,943,200	)		15.111			23.511
Options cancelled in the period		(121,500	)		16.530			23.100			(196,000	)		19.119			23.797
Options outstanding as of December 31		13,379,600			17.705			23.460			15,290,400			21.022			25.520
of which exercisable at December 31		1,540,600			16.104			23.460			1,622,900			16.190			25.520

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(a)

Market price relating to new rights assigned, rights exercised in the period and rights cancelled in the period corresponds to the average market value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of assignment; (ii) the date of the recording in the securities account of the managers to whom the options have been assigned; and (iii) the date of the unilateral termination of employment for rights canceled). Market price of shares referring to options as of the beginning and the end of the year, is the price recorded at December 31.

124

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The fair value of stock options granted during the years ended December 31, 2003, 2004, 2005 and 2006 of euro 3.36 million.1.50, euro 2.01, euro 3.33 and euro 2.89, respectively, was calculated applying the Black-Scholes method and using the following assumptions:

			2003		2004		2005		2006

Risk-free interest rate		(%)		3.16		3.21		2.51		4.00
Expected life		(year)		8		8		8		6
Expected volatility		(%)		22.0		19.0		21.0		16.8
Expected dividends		(%)		5.35		4.5		3.98		5.26

The following table presents the amount of stock options awarded to Eni’s CEO, the three General Managers and Eni’s senior managers attending on a permanent basis the meetings of the Eni steering committee.

	CEO and General Manager ofEni		General Manager E&P Division		General Manager G&P Division		General Manager R&M Division		Senior managers (1)
	Paolo Scaroni		Stefano Cao		Domenico Dispenza (2)		Angelo Taraborrelli

Options outstanding at the beginning of the period:
- number of options				699,000		201,500		43,000	269,500	(3)	123,000		686,500
- average exercise price		(euro)		22.509		17.920		14.171	3.988		18.308		18.208
- average maturity in months				91		82		64	85		83		79
Options granted during the period:
- number of options				681,000	(4)	175,500		122,500	-		115,000		552,500
- average exercise price		(euro)		23.100		23.100		23.100	-		23.100		23.100
- average maturity in months				72		72		72	-		72		72
Options exercised at the end of the period:
- number of options				-		62,500		28,500	-		-		312,500
- average exercise price		(euro)		-		13.743		13.743	-		-		16.478
- average market price at date of exercise		(euro)		-		23.341		24.095	-		-		23.256
Options outstanding at the end of the period:
- number of options				1,380,000		314,500		137,000	269,500		238,000		926,500
- average exercise price		(euro)		22.801		21.641		22.244	3.988		20.624		21.709
- average maturity in months				73		70		65	73		68		69

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(1)		No. 9 managers.
(2)		Appointed on January 1, 2006.
(3)		Options on Snam Rete Gas’ shares: assigned by the company to Domenico Dispenza who held the position of Chairman of Snam Rete Gas until December 23, 2005.
(4)		The assignment to the CEO has been integrated by a monetary incentive linked to the market performance of Eni share, to be paid after a three-year period and corresponding to 96,000 options with a strike price of euro 23.100 and a vesting period of three years.

Stock compensationGrants

Stock grants

With the aim of improving motivation and loyalty of the managers of Eni managersSpA and its subsidiaries as defined in Article 2359 of the Civil Code through the linking of compensation to the attainment of preset individual and corporate objectives, making management participate in corporate risk and motivating them towards the creation of shareholder value and increasing at the same time their contribution to the management of the Company, beginning in 2003 Eni has offeredimplemented a stock grant scheme envisaging the offering of its own shares purchased under its buy-backbuy back program (treasury shares) for no consideration to those managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code¹⁵who have achievedachieve corporate and individual objectives.

Assignments vest Said scheme applied to the three-year period 2003-2005. Assignment vested within 45 days after the end of the third year from the date of the offer. This incentive scheme was dropped in 2006.

Under this stock grant plan, on December 31, 20052006, a total of 3,127,2001,873,600 grants were outstanding for the assignment of an equal amount of treasury shares (equal to 0.08%0.05% of current capital stock) subdividedpertaining to 2003, 2004 and 2005 assignments as follows: (i) a total of 1,018,4002,500 grants (fair value euro 11.20 per share) related to 2003; (ii) a total of 912,400798,700 grants (fair value euro 14.57 per share) related to 2004; and (iii) a total of 1,196,4001,072,400 grants (fair value euro 20.08 per share) related to 2005.

Stock options125

Eni offers to managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code¹⁶ who hold positions of significant responsibility for achieving profitability or strategic targets, the opportunity to acquire a shareholding in the Company as an element of remuneration through the assignment of options for the purchase of Eni’s treasury shares.

Options provide grantees with the right to purchase Eni shares on a 1 to 1 ratio after three years from the date of the grant and upon a five year vesting period, at a price corresponding to the higher of the arithmetic average of official prices recorded on the Mercato Telematico Azionario in the month preceding the date of the grant and the average cost of the treasury shares as of the day prior to the assignment (strike price). Strike price for the 2005 assignment was euro 22.512 per share.

Grantees are able to make use of an advance from a Group finance company to purchase shares, on condition that at the same time they sign an irrevocable order for selling the shares through the finance company. Proceeds from the sale must then be used to repay the advance.

At December 31, 2005 there were 13,379,600 outstanding options, carrying an average strike price of euro 17.705 per share.

The weighted-average remaining contractual life of options outstanding at December 31, 2003, 2004 and 2005 was 5.6 years, 6.6 years and 7.6 years, respectively. All stock options granted are considered fixed.

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The following is a summary of stock optiongrant activity for the years 2003, 20042005 and 2005:2006:

	2003		2004		2005

		2005		2006

Number of shares

Weighted average exerciseMarket price in euro (a) (euro)

Number of shares

Weighted average exerciseMarket price in euro (a) (euro)

Number of shares

Weighted average exercise price (a) (euro)

Options as of January 1		3,518,500			15.216			8,162,000			14.367			11,789,000			15.111
New options granted		4,703,000			13.743			3,993,500			16.576			4,818,500			22.512
Options exercised in the period								(354,000	)		14.511			(3,106,400	)		15.364
Options cancelled in the period		(59,500	)		15.216			(12,500	)		14.450			(121,500	)		16.530
Options outstanding as of December 31		8,162,000			14.367			11,789,000			15.111			13,379,600			17.705
of which exercisable at December 31		73,000			14.802			-			-			1,540,600			16.104

Stock grants as of January 1		3,112,200			18.461			3,127,200			23.460
New rights granted		1,303,400			21.336			-			-
Rights exercised in the period		(1,273,500	)		23.097			(1,236,400	)		23.933
Rights cancelled in the period		(14,900	)		22.390			(17,200	)		23.338
Stock grants outstanding as of December 31		3,127,200			23.460			1,873,600			25.520
of which exercisable at December 31		38,700			23.460			156,700			25.520

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(a)		Below quotedMarket price relating to new rights granted, rights exercised in the period and rights cancelled in the period corresponds to the average market price.value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of the resolution of the Board of Directors regarding stock grants assignment; (ii) the date of the recording in the grantee’s securities account of the emission/transfer of the shares granted; and (iii) the date of the unilateral termination of employment for rights canceled). Market price of stock grants at the beginning and the end of the year, is the price recorded at December 31.

The fair valuefollowing table presents the amount of stock options granted duringgrants awarded to Eni’s CEO, General Managers and Eni’s senior managers attending on a permanent basis the years ended December 31, 2003, 2004 and 2005meetings of euro 1.50, euro 2.01 and euro 3.33, respectively, was calculated applying the Black-Scholes method and using the following assumptions:Eni steering committee.

Fair value of stock options		2003		2004		2005

Risk-free interest rate		(%)		3.16		3.21		2.51
Expected life		(year)		8		8		8
Expected volatility		(%)		22		19		21
Expected dividends		(%)		5.35		4.5		3.98

Stock grant for Eni’s CEO and general managers	Grants outstanding at beginning of the period		Grants assigned exercised during the period		Grants exercised during the period		Grants outstanding at end of the period

Name

Number of grants

Average maturity in months

Number of grants

Average maturity in months

Number of grants

Average market price at date of exercise (euro)

Number of grants

Average maturity in months

Vittorio Mincato (1)	CEO		104,800		19		40,200		38		145,000		19.951		-		-
Stefano Cao	General Manager of the E&P Division		40,500		20		16,000		38		12,800		23.785		43,700		21
Luciano Sgubini	General Manager of the G&P Division		40,500		20		16,000		38		56,500		22.784		-		-
Angelo Taraborrelli	General Manager of the R&M Division		17,500		20		16,000		38		5,400		23.785		28,100		24

Paolo Scaroni CEO and General Manager of Eni		-			-		-		-		-			-
Stefano Cao General Manager of the E&P Division		43,700			21		14,700		24.117		29,000			15
Domenico Dispenza (1)		12,100			14		6,300		24.117		5,800			8
General Manager of the G&P Division		53,900	(2)		25		-				53,900	(2)		13
Angelo Taraborrelli General Manager of the R&M Division		28,100			24		6,300		24.117		21,800			17
Senior managers (3)		111,400			21		60,500		23.478		50,900			15

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(1)		Retired on May 27, 2005.

Stock options for Eni’s CEO and general managers	CEO (1)		CEO (2)		General Manager for the E&P Division		General Manager for the G&P Division		General Manager for the R&M Division
	Paolo Scaroni		Vittorio Mincato		Stefano Cao		Luciano Sgubini		Angelo Taraborrelli

Options outstanding at the beginning of the period:
- number of options				-		499,000		182,000		170,000		96,500
- average exercise price		(euro)		-		15.090		15.185		15.086		15.379
- average maturity in months				-		67		79		79		81
Options granted during the period:
- number of options				699,000		-		75,500		60,500		50,000
- average exercise price		(euro)		22.509		-		22.509		22.509		22.509
- average maturity in months				96		-		96		96		96
Options exercised at the end of period:
- number of options				-		499,000		56,000		230,500		23,500
- average exercise price		(euro)		-		15.090		15.216		17.035		15.216
- average market price at date of exercise		(euro)		-		19.980		22.784		22.964		22.784
Options outstanding at the end of the period:
- number of options				699,000		-		201,500		-		123,000
- average exercise price		(euro)		22.509		-		17.920		-		18.308
- average maturity in months				91		-		82		-		83

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(1)		Appointed on JuneJanuary 1, 2005.2006.
(2)		Retired on May 27,Snam Rete Gas’ shares. These grants have been assigned by Snam Rete Gas to Domenico Dispenza who held the Snam Rete Gas’ Chairman position till December 23, 2005.

The table below sets forth the amount and maturity of stock options granted to Eni’s executive officers in 2005:

	Options granted in the year (3)		Options held at year end
			No. 5 managers.

Number of options			1,350,000		2,329,500
Average exercise price	(euro)		22.509		19.217
Maturity	(days)		1,096		707
Expiration	(days)		2,923		2,498
Weighted average exercise price for options existing as of December 31, 2005	(euro)		15.231

The information in the table above is current as of June 5, 2006. No additional options have been granted from December 31, 2005 to that date. Eni issues only ordinary shares. For further information on Eni’s stock compensation see Note 26 to the Consolidated Financial Statements.

Investor relations and information processing

In concert with the launch of its privatization process, Eni adopted a communication policy, confirmed by the Code of Conduct, aimed at promoting an ongoing dialogue with institutional investors, shareholders and the markets to ensure systematic dissemination of exhaustive complete, transparent, selective and prompt information on its activities, with the sole limitation imposed by the confidential nature of certain information. Information made available to investors, markets and the press is provided in the form of press releases, regular meetings with institutional investors and the financial community and the press, in addition to general documentation released and regularlyconstantly updated on Eni’s internet site. Investorwebsite. Relations with individual investors, institutional investors, shareholders and shareholder relationsthe press are handled by specialdedicated Eni functions.departments.

Relations with investors and financial analysts are held by the Investor Relations office.manager. Information is available on Eni’s web sitewebsite and can be requested fromby sending an email to investor.relations@eni.it.

Relations with the press are held by the Relations with the press unit.

manager. Relations with shareholders are held by the Corporate Secretary office. Information is available on Eni’s web sitewebsite and can be requested fromby sending an email to segreteriasocietaria.azionisti@eni.it andor calling the toll-free number 800940924 (Outside800.940.924 (outside Italy 80011223456)800.11.22.3456).

Information regarding periodic reports and major events/transactions isare promptly releasedmade available to the public, and are also through the internet site. published on Eni’s website.

A specific section of Eni’s site contains all press releases, procedures concerning corporate governance, presentations provided in meetings with the press and financial analysts, notices to shareholders and bond holders and information concerning shareholders’ and bond holders’ meetings, including proceeds thereof. Documents available to the public free of charge are mailed on request.request free of charge.

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Handling of company information

On February 28, 2006, Eni’s Board of Directors updated the "Procedure for the disclosure of information to the market concerning Group activities" approved on December 18, 2002 and published on Eni’s internet site.website. The procedure acknowledges Consob guidelines and the "Guidelines for information to the market" issued in June 2002 by the Ref Forum on company information and those included in the laws implementing the European Directivedirective on market abuse, defines the requirements for disclosure to the public of price sensitive events (materiality, clarity, homogeneity, information symmetry, consistency and timeliness) and the information flows for acquiring data from Group companies and providing adequate and timely information to the Board and the market on price sensitive events. It also contains sanctions applied in case of violation of its rules in accordance with the crimes identified and sanctioned by the new law on the protection of savings.

Eni’s Code of Conduct defines confidentiality duties upheld by Group employees relating to the treatment of sensitive information.

Directors and Auditors ensure the confidentiality of documents and information acquired during their tasks and respect the procedure defined by Eni for the treatment of information and for the disclosure of information to the market.

Internal dealingRegister of the persons having access to privileged information

On February 28, 2006, the Board of Directors approved a procedure concerning the creation and updating of a register of persons with a right to access privileged information at Eni, as provided for by Article 115115-bis of Legislative Decree No. 58 of February 24, 1998 which states that "listed issuing companies and the subjects who have a control relation with them, or acting in their name, must establish and regularly update a register of the persons that, due to their professional activity or functions performed have access to information as described in Article 114 (privileged information)".1998. The procedure implementing Consob Decision No. 11971/1999, as amended, defines:on listed issuing companies, states: (i) terms and procedures for the recording and possible cancellation of the persons that, due to their professional activity or functions performed on behalf of Eni, have access to privileged information; and (ii) terms and procedures of information of said persons of their recording or cancellation and relevant reasons. The procedure became effective onis in force from April 1, 2006.

In2006 and was updated on September 29, 2006 to take into account the same meetingConsob position expressed on March 28, 2006. The procedure is published on Eni’s website.

Internal dealing

On February 28, 2006, the Board of Directors approved the "Internal dealing procedure" for the identification of relevant persons and the communication of transactions involving financial instruments issued by Eni SpA and its listed subsidiaries made by these persons, which substitutes the Internal Dealing Code approved by the Board on December 18, 2002.

The procedure implements the provisions of Article 114, paragraph 7 of Legislative Decree No. 58 of February 24, 1998 which states that "subjects performing administration, control or management activities for a1998. Eni’s procedure, implementing Consob Decision on listed issuer and managers having regular access to privileged information as per paragraph 1 and having the power to make operating decisions that can affect the development and future situation of the issuer and whoever holds shares corresponding to at least 10% of the company’s share capital and any other person controlling the issuer are obliged to inform Consob and the market of any transaction involving financial instruments issued by the issuer, also when performed by others on their behalf." This communication is due also by spouses not legally separated, children, parents, relatives living with the subject and in the other cases indicated by Consob in implementation of Directive 2004/72/CE of the European Commission. Eni’s procedure:issuing companies: (i) identifies relevant persons; (ii) defines the transactions involving financial instruments issued by Eni SpA; and (iii) determines the terms and conditions for the disclosure to the public of such information; and (iv) reports the sanctions introduced by the law for the case of non compliance.information. The procedure states that became effectivemanagers having regular access to privileged information, during specific periods of the year (blocking periods), are not allowed to buy or sell shares. The procedure went into effect on April 1, 2006, and was updated on September 29, 2006 to take into account the Consob position expressed on March 28, 2006. The procedure is published on Eni’s internet site.website.

 

Employees

At December 31, 2005,2006, Eni’s employees numbered 72,25873,572 representing an increase of 1,9101,314 employees from December 31, 2004,2005, or 2.7%1.8%, reflecting a 2,4791,741 increase in employees hired and working outside Italy and a 569427 decline in employees hired in Italy. Eni seeks to maintain constructive relationships with the labor unions.

Employees hired in Italy were 40,192 (55.6%39,765 (54% of all Group employees), of. Of these, 37,49336,881 were working in Italy, 2,4802,697 outside Italy and 219187 on board of vessels. As compared to 2004, the 569vessels, with a 427 unit decline in employees wasfrom 2005; of these 41 persons left the group due mainly to changes in consolidation (723 employees, due to the divestment of the water business, IP and technical services at Porto Marghera) offset in part by the positive balance of persons leaving their job and new hirings and net transfers from unconsolidated subsidiaries.consolidation.

The process of improvement in the quality mix of employees continued in 20052006 with the hiring of 2,0992,208 persons, of which 727 were hired722 with open-end contracts. A total of 1,3721,486 persons were hired with this type of contract and with apprenticeship contracts, most of them with university qualifications (800(824 persons of which 509532 are engineers) and 533632 persons with a high school diploma. During the year 2,0272,599 persons left their job at Eni, of these 1,4381,960 had an open-end contract and 589639 a fixed-term contract.

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Employees hired and working outside Italy at December 31, 2005 were 32,066 (44.4%33,807 (46% of all Group employees), with ana 1,741 persons increase of 2,479 persons due to the positive balance of new hiringshires with open-endfixed-term contracts and persons leaving their job in Saipem and Snamprogetti (2,639(1,853 employees) and the negative balance (160(112 persons) of persons leaving the job and new hiringshires with open-end contracts in the rest of the Group.

Employees at year end	2003		2004		2005

Employees at year end		2004		2005		2006

(units)

Exploration & Production		7,492		7,477		7,491		7,477		8,030		8,366
Gas & Power		12,982		12,843		12,324		12,843		12,324		12,074
Refining & Marketing		13,277		9,224		8,894		9,224		8,894		9,437
Petrochemicals		7,050		6,565		6,462		6,565		6,462		6,025
Oilfield Services Construction and Engineering		25,583		25,819		28,684
Engineering & Construction								25,819		28,684		30,902
Other activities		6,380		4,983		4,638		4,983		2,636		2,219
Corporate and financial companies		2,657		3,437		3,765		3,437		5,228		4,579
								70,348		72,258		73,572
		75,421		70,348		72,258

The table below sets forth Eni’s employees at December 31, 2003, 2004, 2005 and 20052006 in Italy and outside Italy:

		2003		2004		2005
		(units)

Exploration & Production	Italy		4,555		4,539		4,510
	Outside Italy		2,937		2,938		2,981
			7,492		7,477		7,491
Gas & Power	Italy		10,302		10,216		9,733
	Outside Italy		2,680		2,627		2,591
			12,982		12,843		12,324
Refining & Marketing	Italy		6,882		6,879		6,680
	Outside Italy		6,395		2,345		2,214
			13,277		9,224		8,894
Petrochemicals	Italy		5,585		5,237		5,164
	Outside Italy		1,465		1,328		1,298
			7,050		6,565		6,462
Oilfield Services Construction and Engineering	Italy		5,314		5,580		5,799
	Outside Italy		20,269		20,239		22,885
			25,583		25,819		28,684
Other activities	Italy		6,367		4,959		4,616
	Outside Italy		13		24		22
			6,380		4,983		4,638
Corporate and financial companies	Italy		2,577		3,351		3,683
	Outside Italy		80		86		82
			2,657		3,437		3,765
Total	Italy		41,582		40,761		40,185
Total	Outside Italy		33,839		29,587		32,073
			75,421		70,348		72,258
of which senior managers			1,733		1,764		1,748

Employees at year end		2004		2005		2006

(units)

Exploration & Production		Italy		4,539		5,027		5,273
		Outside Italy		2,938		3,003		3,063
				7,477		8,030		8,336
Gas & Power		Italy		10,216		9,733		9,602
		Outside Italy		2,627		2,591		2,472
				12,843		12,324		12,074
Refining & Marketing		Italy		6,879		6,680		7,196
		Outside Italy		2,345		2,214		2,241
				9,224		8,894		9,437
Petrochemicals		Italy		5,237		5,164		4,948
		Outside Italy		1,328		1,298		1,077
				6,565		6,462		6,025
Engineering & Construction		Italy		5,580		5,799		6,164
		Outside Italy		20,239		22,885		24,738
				25,819		28,684		30,902
Other activities		Italy		4,959		2,636		2,219
		Outside Italy		24		0		0
				4,983		2,636		2,219
Corporate and financial companies		Italy		3,351		5,153		4,363
		Outside Italy		86		75		216
				3,437		5,228		4,579
Total		Italy		40,761		40,192		39,765
Total		Outside Italy		29,587		32,066		33,807
				70,348		72,258		73,572
of which senior managers				1,764		1,748		1,604

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Share Ownership

As of April 30, 2006,2007, the totalcumulative number of shares owned by the Eni’s directors, statutory auditors and executive officers of Eni SpA as a Groupsenior managers, including the three General Managers, was 202,078327,465 equal to approximately 0.005%0.0082% of Eni’s share capital outstanding atas of the same data. In this time frame, no further options to purchase Eni shares were granted by the Company to those persons as compared to grants existing as of December 31, 2005.2006 (see tables in the section "Stock Option Plans"). Eni issues only ordinary shares, each bearing one-vote right; therefore shares held by Eni SpA directors, statutory auditors and executive officersthose persons have no different voting rights. The break-down of share ownership for each of those persons is provided below.

Name	Position	Number of shares owned

Board of Directors
Roberto Poli		Chairman		-
Paolo Scaroni		CEO and General Manager of Eni		12,299
Alberto Clô		Director		-
Renzo Costi		Director		1,116
Dario Fruscio		Director		3,000
Marco Pinto		Director		-
Marco Reboa		Director		-
Mario Resca		Director		-
Pierluigi Scibetta		Director		-
General Managers
Stefano Cao		General Manager of the E&P Division		83,660
Domenico Dispenza		General Manager of the G&P Division		93,915
Angelo Taraborrelli		General Manager of the R&M Division		35,800
Board of Statutory Auditors				3,850
Senior managers				93,825

 

 

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

As of May 25, 2006,23, 2007, the Ministry of Economy and Finance and Cassa Depositi e Prestiti SpA and Gruppo Banca Intesa were the only persons known by Eni to own more than 2% of any class of Eni SpA’s voting securities. At such date, the total amount of Eni SpA’s voting securities owned by these shareholders was:

 

Title of Class		Number of Shares Owned		Percent of Class
Ministry of Economy and Finance		813,443,277		20.31%
Cassa Depositi e Prestiti		400,288,338		10.00%
Banca Intesa		97,522,352		2.44%

Title of class		Number of shares owned		Percent of class
Ministry of Economy and Finance		813,443,277		20.31%
Cassa Depositi e Prestiti		400,288,338		10.00%

The Ministry of Economy and Finance, in agreement with the Ministry of Productive Activities,Economic Development, retains certain special powers over Eni. See "Item 10.10 – Additional Information – Memorandum and Articles of Association – Limitations on Voting and Shareholdings – Special Powers of the State". For a discussion of the Eni share buy-back program see "Item 16E – Purchases of equity securitiesEquity Securities by the issuerIssuer and affiliated purchasers"Affiliated Purchasers". As of June 10, 2005May 31, 2007 there were 15,700,02451,346,859 ADRs, each representing fivetwo Eni ordinary shares outstanding on the New York Stock Exchange, corresponding to 1.96%2.56% of Eni’s share capital. See "Item 9 – The Offer and the Listing".

 

Related Party Transactions

In the ordinary course of its business, Eni enters into transactions concerning the exchange of goods, provision of services and financing with non consolidated subsidiaries and affiliates as well other companies owned or controlled by the Italian Government. All such transactions are conducted on an arm’s length basis and in the interest of Eni companies.

Amounts and types of trade and financial transactions with related parties and their impact on consolidated earnings and cash flow, and on the Group’s assets and financial condition are describedreported in Note 2633 to the Consolidated Financial Statements.

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Item 8. FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

See Item 18 – 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 account of the existing risk provisions, Eni believes that the foregoing will not have an adverse effect on Eni’s Consolidated Financial Statements.

Following is a description of the most significant proceedings currently pending; unless otherwise indicated below, no provisions have been made for these legal proceedings as Eni believes that negative outcomes are not probable or because the amount of the provision can not be estimated reliably.

Environment

Criminal proceedings

ENI SPA
Eni SpA
Subsidence.In 1999, the public prosecutor of Gela started an investigation in order to ascertain alleged soil and sea pollution caused by the discharge of pollutants by Eni’s Gela refinery. In November 2002, "Italia Nostra" and the association "Amici della Terra" filed civil claims related to this proceeding and requested the payment of damage claims for a total of euro 15,050 million. In July 2003, the relevant Court decided for the transmission of the inquiries to the public prosecutor, recognizing a violation of Article 440 of the penal code (water and food substances corruption). Three environmental organizations act as plaintiffs and requested damage payment for euro 551 million. Two of these organizations are also acting against the Gela refinery.

In 2000, the public prosecutor of Gela started an investigation on alleged prohibited emissions from the refinery of Gela, which are purported to have had negative effects on the health of a number of citizens of Gela, and on a lack of declaration of such emissions in violation of Presidential Decree No. 203 of 1988. The investigation ended with an action for events that have occurred since 1997. The Municipality of Gela, the Province of Caltanissetta and others filed civil claims in this proceeding and requested the payment of compensatory damages for a total of euro 878 million. The judgment of first degree before the Court of Gela is pending.

In 2002, the public prosecutor of Gela started an investigation in order to ascertain alleged pollution caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (former EniChem SpA) and Raffineria di Gela SpA. Some local public entities, environmental NGOs and landowners are acting as plaintiffs. On January 17, 2005, a second inquiry phase aimed at ascertaining which sort of emissions had eventually produced the alleged pollution caused by the refinery of Gela, was completed. On February 3, 2006, the notice of the conclusion of preliminary investigations was filed conclusion of the preliminary inquiry.

In June 2002, in connection with a fire in the refinery of Gela, a criminal investigation began concerning arson, environmental crimes and crimes against natural heritage. On May 12, 2004 the first hearing was held.

In 2002, the public prosecutor of Gela started a penal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. The investigation concerns the environmental rules about the pollution of water and soil and illegal disposal of liquid and solid waste materials. On November 7, 2003 the judge for preliminary investigations accepted to continue the inquiries as requested by the public prosecutor to ascertain the state of the refinery’s storage tanks and the presence of infiltrations of refinery products into the deep water-bearing stratum, due to a breakage in some tanks. With a decision of November 3, 2003, the Court for preliminary investigation, in agreement with a request of the public prosecutor of Gela, ordered the preventive seizure of 92 storage tanks, later reopened except for nine tanks that remained under seizure but do not prevent full operations at the refinery. The report filed by experts of the public prosecutor is currently under review.

In March 2002 the public prosecutor of Siracusa started an investigation concerning the activity of the refinery of Priolo for intentional pollution of water used for human consumption and requested a technical opinion, not yet concluded, to ascertain alleged infiltrations of refinery products into the deep water-bearing stratum used for human consumption purposes in the Priolo area. The proceeding is still in the preliminary investigation phase. A qualified company has been given the task to verify the cause, the origin and the extension of the alleged infiltration. For protective purposes, actions have been taken to: (i) create safety measures and clean-up all of the polluted area; (ii) reallocate wells for drinking water in an area farther from and higher than the industrial site; and (iii) install a purification system for drinkable water. With a decision of June 1, 2004 the seizure was lifted on the storage tanks that had been seized on April 17, 2003, except for five storage tanks that are still under seizure. The report of experts has been filed and its findings can be opposed to defendants.

In relation to the investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration on May 21, 2004,and extraction activities, following the decision of the Court of Rovigo, the Nucleo Operativo Ecologico dei Carabinieri of Venice placed under preliminary seizure the Naomi/Pandora field and producing platform in 2002 and the Dosso degli Angeli Angela/Angelina - Ravenna Mare Sud fields and the related wells and platforms. On June 10, 2004 the Court responded to the claim filed by Eni and lifted the seizure of the Angela/Angelina - Ravenna Mare Sud fields and related wells and platforms. On March 10, 2005, the Court of Cassation confirmed this decision. On February 5, 2003, a seizure had already been applied to the Naomi/Pandora platform, the Naomi 4 Dir, Naomi 2 Dir and 3 Dir - Pandora 2 Dir wells, and the underwater pipeline for the transportation of gas to the Casalborsetti facility.field in 2004. Eni believes it has always acted in full compliance with existing laws under the required authorizations. Taking into account of the observations of the consultants of the Court of Rovigo on which the Public Prosecutorpublic prosecutor based his case, Eni constituted an independent and interdisciplinary scientific commission, chaired by Prof. Enzo Boschi, professor of seismology at the Università degli Studi di Bologna and chairman of the Istituto nazionale di geofisica e vulcanologia, composed of prominent and highly qualified international experts of subsidence caused by hydrocarbon exploration and extraction activities, 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. TheThis commission produced a study which denies the possibility for any risk for human health and for damage to the environment. It also states that no example is known anywhere in the world of accidents that caused harm to the public safety caused by subsidence induced by hydrocarbon production. The study also shows that Eni employs the most advanced techniques for the monitoring, measuring and control of the soil. On May 11, 2006This proceeding is in the Court of Rovigo accepted as plaintiffs thefirst level hearing stage. The Veneto Region, the Ente Parco della Provincia del Po, the Province of Ferrara, Province, the Venice Province the city of Venice, the cityCity of Venice, the City of Comacchio, the Province of Rovigo Province and two private entities.entities have been acting as plaintiffs. Eni was accepted as a defendant. The Court of Rovigo rejected the accusation of environmental disaster and therefore transferred the proceedingdefendant in order to claim its own civil responsibilities before the Court of Adria, whereRovigo.

Alleged damage. In 2002, the first hearing haspublic prosecutor of Gela started a criminal investigation in order to ascertain alleged damage caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (former EniChem SpA) and Raffineria di Gela SpA.

Negligent fire in the refinery of Gela. In June 2002, in connection with a fire at the refinery of Gela, a criminal investigation began concerning negligent fire, environmental crimes and crimes against natural beauty. First degree proceedings ended with an acquittal sentence.

Investigation of the quality of ground water in the area of the refinery of Gela. In 2002, the public prosecutor of Gela started a criminal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. Eni is charged of having breached environmental rules concerning the pollution of water and soil and of illegal disposal of liquid and solid waste materials.

Intentional poisoning (Priolo). In March 2002, the public prosecutor of Siracusa started an investigation concerning the activity of the refinery of Priolo in order to ascertain whether infiltrations of refinery products into the deep water-bearing stratum used for human consumption purposes in the Priolo area had occurred. The Court entrusted a company specialized in such field with the task of verifying the cause, origin and extension of the alleged infiltration. For protective purposes, remedial actions have been scheduledtaken in order to: (i) create safety measures and clean-up of the polluted area; (ii) reallocate wells for October 31, 2006.drinking water in an area farther from and higher than the industrial site; and (iii) install a purification system for drinkable water. These actions are moving towards completion.

EniPower SpANegligent fire (Priolo). The public prosecutor of Siracusa started an investigation against certain Eni managers who were previously in charge of conducting operations at Priolo refinery (Eni divested this asset in 2002) in order to ascertain whether they acted with negligence in connection with a fire that occurred at the Priolo plants on April 30 and May 1-2, 2006. After preliminary investigations the public prosecutor requested the opening of a proceeding against the mentioned managers for negligent behavior.

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ENIPOWER SPA
Unauthorized waste management activities.In autumn 2004 the Public Prosecutorpublic prosecutor of Rovigo started an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to the samples of the soil used induring the construction of the new EniPower’sEniPower power station in Mantova. EniPowerFollowing a preliminary hearing, the prosecutor requested the closingCEO of EniPower and the managing director of the investigation.Mantova plant at the time of the alleged crime to stand trial.

Polimeri Europa SpAAir emissions. The Prosecutor of Mantova started an investigation against two managers of the Mantova plant in connection with air emissions by the new power plant.

POLIMERI EUROPA SPA
Violation of environmental regulations on waste management.Before the Court of Gela onea criminal action took place relating to the alleged violation on part of Eni of environmental regulations on waste management concerning the ACN plant and the disposal of FOK residue deriving from the steam cracking process. The defendant wasDefendants were found guilty and a damage payment in first instance was required to be made to an environmental association acting as plaintiff.plaintiff was required to be made. The amount of said damage payment is immaterial. The sentence was passed to the civil courtCivil Court for the quantification of any further damage and claim. Eni appealed the Court’s decision.sentence.

RAFFINERIA DI GELA SPA
Syndial SpA (Former EniChem SpA)
Soil and sea pollution.In 1992,1999, the Ministrypublic prosecutor of Environment summoned EniChem SpAGela started an investigation in order to ascertain alleged soil and Montecatini SpA before the Court of Brescia. The Ministry requested, primarily, to require environmental remediation for the allegedsea pollution caused by the Mantova plant from 1976 until 1990,discharge of pollutants by Eni’s Gela refinery. Three environmental organizations are acting as plaintiffs and provisionally, in case there was no possibility to remediate, require them to pay environmental damages. The amount is going to be determined duringhave requested damage payment for euro 551 million. With a Decision of February 20, 2007, the proceeding, but it will not be lower than euro 136 million, or determinedCourt of Gela dismissed these allegations.

SYNDIAL SPA (FORMER ENICHEM SPA)
Criminal action started by the judge as compensatory liquidation. EniChem acquired the Mantova plant in June 1989, as partpublic prosecutor of the Enimont deal. Edison SpA must hold Eni harmless or pay compensatory damage for any damage caused to third parties by plant operations before Montedison’s sale, even if the damage occurred later. Edison agreed on a settlement that quantified damage to be paid covering also Syndial. The proceeding continues for the alleged damage in the 1989-1990 period.

Brindisi.In 2000, the Public Prosecutorpublic prosecutor of Brindisi started a criminal action against 68 persons who are employees or former employees of companies that owned and managed plants for the manufacture of dichloroethane, vinyl chloride monomer and vinyl polychloride from the early 1960s to date, some of which were managed by EniChem from 1983 to 1993. At the end of the preliminary investigation, phase, the Public Prosecutorpublic prosecutor asked for the dismissal of the case in respect of the employees and the managers of EniChem. Plaintiffs presented oppositions whileand the prosecutor confirmed his request for dismissal of the case.case, rejecting such oppositions.

Civil and administrative proceedings

Pollution caused by the activity of the Mantova plant. In 1992, the Ministry of Environment summoned EniChem SpA and Montecatini SpA before the Court of Brescia. The Ministry requested, primarily, environmental remediation for the alleged pollution caused by the activity of the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, the payment of environmental damages. EniChem acquired the Mantova plant in June 1989, as part of the Enimont deal. Parties agreed upon that Edison SpA would hold Eni harmless or pay compensatory damage for any damage caused to third parties by plant operations before Montedison’s sale, even if damage would manifests itself later. Parties agreed on a settlement by which Edison quantified the damage to be paid that also covers Syndial. The proceeding continues for the settlement of alleged damage pertaining to the residual 1989-1990 period.

Summon before the Court of Venice for environmental damages caused to the lagoon of Venice by the Porto Marghera plants.On December 18,13, 2002, EniChem SpA, jointly with Ambiente SpA (now merged ininto Syndial SpA) and European Vinyls Corporation Italia SpA, was summoned before the Court of Venice by the Province of Venice. The province requested compensation for environmental damages that were not quantified, caused to the lagoon of Venice by the Porto Marghera plants, which were already the subject of two previous criminal proceedings against employees and managers.managers of the defendants. In a related action, European Vinyls Corporation Italia presented an action for recourse against EniChem and Ambiente. The requestsAt the same time, Ineos Italia presented an action for damagerecourse against Syndial, as successor of Ambiente. Parties are waiting for the decision on the instances of the Provincepreliminary investigation.

Claim of Venice and that of EVC Italia to EniChem and Ambiente have not been quantified. The final judgment is pending.

On January 16, 2003 the Court of Siracusa issued personal cautionary measures against some employees of EniChem SpA and Polimeri Europa SpA. They are accused of illicit management relating to the production, disposal and treatment of liquid and solid waste materials and of obtaining illicit income. Polimeri Europa and EniChem, will act as plaintiffs. The collection of evidence effected before the hearing starts in Court has been concluded and preliminary investigations have ended with the confirmation of accusations. During the inquiries traces of mercury were foundenvironmental damages, caused by industrial activities in the sea. The Public Prosecutorarea of Siracusa started an inquiry for ascertainingCrotone, commenced by the conditions of sediments and marine fauna in the bay of Augusta. According to the plaintiffs, mercury would have been spilled into the sea and poisoned the marine fauna and therefore resulted in fetal malformations and abortions due to the consumption of contaminated seafood fished in this area. The chlorine soda plant, built in the late 50s was conferred to Syndial in 1989 when the Enimont joint venture was formed. It was therefore easy to prove that Eni holds no responsibility for the crimes it was accused of. On March 15, 2006 the judge for preliminary investigations decided the dismissalPresident of the case against Syndial employees.

Regional Council of Calabria.On April 14, 2003, the President of the Regional Council of Calabria, as Delegated Commissioner for Environmental Emergency in the Calabria Region, started an action against EniChem SpA related to environmental damages for approximately euro 129 million and to financial and non-financial damages for euro 250 million (plus interest and compensation) in connection with loss of income and damage to property allegedly caused by Pertusola Sud SpA activities (merged into EniChem) in the area of Crotone. On June 6, 2003 EniChem appeared beforeIn addition, the court and requested the rejection of the damages and, as counterclaim, the payment of the total costs for the remediation works already underway. The Province of Crotone entered the proceeding,is acting as plaintiff, claiming environmental damages for euro 300 million. Technical aspects concerning the role of the delegated commissioner make it necessaryThe judge has yet to decide on this aspect. Syndial was notified on October 21, 2004the legitimacy of the request ofDelegated Commissioner for Environmental Emergency in the Calabria Region to appearact on behalf of the Calabria Region.

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On October 21, 2004, Syndial was convened before the Court of Milan in orderby the Calabria Region which is seeking to obtain a preliminarycondemnation of Syndial for a damage payment, in anticipationshould the office of the expiration ofDelegated Commissioner for Environmental Emergency in the special office for managing emergency events in Calabria.Calabria Region cease during this proceeding. The Calabria Region requested payments for overdamage payment amounting to euro 800 million.

On February 28,million as already requested by the Delegated Commissioner for environmental emergency in the Calabria Region in the proceeding started in 2003. This new proceeding is in the preliminary investigation stage.
In 2006, the Council of Ministers, the Ministry for the Environment and the Delegated Commissioner for environmental emergencyEnvironmental Emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan in order to obtain the ascertainment, quantification and payment of damage (in the form of pollution of land, air and water pollution and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the municipalityMunicipality of Crotone and in surrounding municipalities. The local authorities requestrequested the ascertainment of Syndial’s responsibility as concerns expenses borne and to be borne for the cleanup and reclamation of sites, currently quantified at euro 129 million. This proceeding concerns the same companymatter and damagesdamage claim as indicatedthe proceedings started by the Delegated Commissioner for Environmental Emergency in the previous paragraph.Calabria Region and the Calabria Region against Syndial in 2003 and 2004, respectively. The State Attorney quantified the damage payment in a total of euro 1,920 million.

In March 2004, Sitindustrie SpA, whichSummon for environmental damage caused by DDT pollution in 1996 purchased a plant in Paderno Dugnano from Enirisorse (now merged into Syndial SpA), summoned Syndial SpAthe Lake Maggiore. A proceeding is pending before the Court of Milan, requesting to establish the responsibility of Syndial SpA in the alleged pollution of soils around the plant and to require it to pay environmental damages necessary for remediation. Syndial opposed the claim based on an absence of the right of action of the plaintiff. The judge has not yet decided on Syndial’s opposition.

In October 2004, Sitindustrie SpA started an analogous proceeding against Syndial concerning the plant for the manufacture of products in copper and copper alloy at Pieve Vergonte.

In May 2003Turin by which the Minister of the Environment summoned Syndial SpA before the Court of Turin and requested environmental damagesdamage for euro 2,396 million in relation to alleged DDT pollution in theat Lake Maggiore caused by the Pieve Vergonte plant. On March 1, 2006, the State Lawyer in an attempt to settle the case proposed that Syndial to pay 10% of the requested damagethis claim corresponding to euro 239 million. This settlement attempt failed. The Italian Ministry enacted a ministerial decree providing for the: (i) upgrading of a hydraulic barrier to settle failed.protect the site; and (ii) presentation of a project for the environmental remediation of Lake Maggiore. Syndial opposed this decree before an Administrative Court.

Action started by the Municipality of Carrara for the remediation and reestablishment of previous environmental conditions at the Avenza site and payment of the environmental damage.The municipalityMunicipality of Carrara started an action atbefore the Court of Genova requesting to Syndial SpA the remediationto remediate and reestablishment of thereestablish previous environmental conditions at the Avenza site and the payment of certain environmental damage.damage which cannot be cleaned up plus further damage of various types (i.e. damage to the natural beauty of this site). This request is related to an accident that occurred in 1984, as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), at the time owner of the site, had carried out safety and remediation works. The Ministry of the Environment joined the action and requested the environmental damage payment – from a minimum of euro 53.5 million to a maximum of euro 78.593.3 million – to be broken down among the various companies that managedran the plant in the past. Previous managers includeIn fact, Syndial called into the action as a guarantor,summoned Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA. The judge requested an expert report to be preparedSpA, who ran the plant in previous years, in order to ascertain whatbe guaranteed. A report made by an independent expert charged by the Judge was filed with the Court. The findings of this report quantify the residual environmental damage at euro 15 million. A final decision on this proceeding is pending.

Ministry for the Environment - Augusta harbor. The Italian Ministry for the Environment with various administrative acts ordered companies running plants in the petrochemical site of Priolo to perform safety and environmental remediation works in the Augusta harbor. Companies involved include Eni subsidiaries Polimeri Europa and Syndial. Pollution has been remediateddetected in this area primarily due to a high mercury concentration which is allegedly attributed to the industrial activity of the Priolo petrochemical site. Polimeri Europa opposed said administrative acts, objecting in particular the way by which remediation works have been designed and what remainsinformation on concentration of pollutants has been gathered.

Other judicial or arbitration proceedings

ENI SPA
Fintermica presented a claim towards Eni concerning the management of the Jacorossi joint venture with reference to be cleaned up afteran alleged abuse of key roles played by Eni SpA in the interventions startedjoint venture thus damaging the other partner’s interest and the alleged dilatory behavior of Syndial in selling its interest in the joint venture to Fintermica. The parties decided to start an arbitration on the matter.

SYNDIAL SPA (FORMER ENICHEM SPA) - SERFACTORING SPA
Serfactoring: disposal of receivables. In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA which is controlled by Eni SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and continuedTerni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment on the due date. Following payment by EniChem/Syndial. Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidator of Agrifactoring commenced proceedings in 1991 against Serfactoring to recover such payments (equal to euro 182 million) made to Serfactoring based on the claim that the foregoing guarantee became invalid when Federconsorzi was itself placed in liquidation. Agricoltura and Terni Industrie Chimiche brought counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent.

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The expert report quantifiesamount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the damage stilloriginal receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004; the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be remediateddetermined following the decision. Agrifactoring appealed this partial decision, requesting in particular the annulment of the first step judgment, the reimbursement of euro 180 million from Serfactoring along with the rejection of all its claims and the payment of all proceeding expenses. The pending appeal was sent to the Judging Council for the filing of evidence. The judge of the Court of Rome, responsible for the determination of the amount of damages to be paid to Serfactoring and Agricoltura decided on May 18, 2005 to suspend this determination until the publication of the decision of the Court of Appeals. On argument, Serfactoring and Syndial requested that the Court of Cassation cancel the suspension and return the case to its original court.

Breach of a preliminary agreement for the purchase of an industrial area in Ravenna. In 2002, EniChem SpA was summoned by ICR Intermedi Chimici di Ravenna Srl before the Court of Milan in relation to a breach of a preliminary agreement for the purchase of an industrial area in Ravenna. ICR requested payment of compensatory damage for approximately euro 46 million, of which euro 3 million are compensatory damage and euro 43 million are for loss of income. With a sentence of October 11, 2005, the Court rejected ICR’s request and ordered that ICR pay all proceeding expenses. ICR filed a claim against this decision, reducing its original claim to euro 8 million. A final decision is pending.

Antitrust, EU Proceedings, Actions of the Authority for Electricity and Gas and of Other Regulatory Authorities

Antitrust

ENI SPA
Abuse of dominant position of Snam verified by the Italian Antitrust Authority. In March 1999, the Italian Antitrust Authority concluded its investigation started in 1997 and: (i) verified that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam euro 2 million; and (iii) ordered a review of these practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Authority did not appeal this decision. The decision on the merit of this dispute is still pending before the same Administrative Court.

Inquiry of the Italian Antitrust Authority on jet fuel. With a Decision of December 9, 2004, the Italian Antitrust Authority commenced an inquiry on the distribution of jet fuel against six oil companies operating in Italy, including Eni and certain entities jointly controlled by said oil companies engaged in the storing and loading jet fuel in the Rome Fiumicino, Milan Linate and Milan Malpensa airports. The inquiry intends to ascertain the existence of alleged restrictions to competition as said oil companies would agree to divide among themselves the supplies to airlines. On December 22, 2005, the Authority notified the preliminary results of the inquiry concerning: (i) information flows to said oil companies related to the functioning of the jointly-controlled entities engaging in the storage and uploading of jet fuel; (ii) barriers to the entrance of new competitors in the capital of such entities operating the activities of storing and loading; and (iii) the price of jet fuel which is deemed to be higher than on other European markets. On June 20, 2006, the Authority notified the final decision of this proceeding to Eni and fined Eni by an amount of euro 117 million. The Authority fined other oil companies involved in this matter. Eni filed an opposition against this decision before an administrative court and suspended the payment of this fine. On January 29, 2007, the Regional Administrative Court of Lazio accepted only partially the opposition made by Eni and annulled part of the decision of the Authority. In particular, a measure providing for the involved oil companies to cease their joint participation in the capital of the entities operating the activities of storing and loading jet fuel was annulled. Eni accrued a provision with respect to this proceeding. As a consequence of this decision, Eni paid a fine amounting to euro 117 million. Eni decided to appoint independent directors in the boards of directors of joint ventures instead of Eni managers.

Formal assessment started by the Commission of the European Communities for the evaluation of alleged participation to activities limiting competition in the field of paraffin. On April 28, 2005, the Commission of the European Communities started a formal assessment to evaluate the alleged participation of Eni and its subsidiaries to activities limiting competition in the field of paraffin. The alleged violation of competition would have consisted in: (i) the determination of and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. After, the Commission requested information on Eni’s activities in the field of paraffins and certain documentation acquired by the Commission during an inspection. Eni filed the requested information.

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Notification to Eni Petroleum Co Inc of a subpoena by the Department of Justice of the United States of America - Antitrust Division and request of information and documents relating to activities in the field of wax and of a deposition. On April 28, 2005, the Department of Justice of the United States of America - Antitrust Division, notified Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005 and a deposition on the same date. The Company informed the department that it does not produce nor import wax in the United States of America.

Inquiry started by the Italian Antitrust Authority concerning an alleged abuse of dominant position in the use of the total continuous regasification capacity of GNL. On November 18, 2005, the Italian Antitrust Authority notified Eni and its subsidiary GNL Italia the opening of an inquiry, in accordance with Article 14 of Law No. 287/1990, concerning an alleged abuse of dominant position in the assignment and use of the total continuous regasification capacity of the Panigaglia terminal (owned by GNL Italia) during thermal years 2002-2003 and 2003-2004, as already reported by an inquiry of the Italian Authority for Electricity and Gas on the same matter as the inquiry of the Antitrust Authority. The Authority for Electricity and Gas closed its inquiry by signaling the fact to the Antitrust Authority. In a later communication Eni was informed that the inquiry has been extended also to thermal year 2004-2005 and to Snam Rete Gas which is the parent company of GNL Italia SpA. On September 25, 2006, the Antitrust Authority sent Eni the findings of its inquiry. After, Eni presented the Antitrust Authority certain commitments based on Article 14-ter of Law No. 287/1990. On November 23, 2006, the Antitrust Authority resolved to publish such commitments effective the following day. On March 6, 2007, the Antitrust Authority resolved to accept Eni’s commitments and to close the inquiry without recognizing any charge to Eni and imposing any fine whatsoever. Eni is committed to perform a gas release amounting to 4 BCM in a two-year period, starting on October 1, 2007. Eni is implementing its obligations under the gas release agreement, while providing timely information on it to the Antitrust Authority.

Ascertainment by the European Commission of the level of competition in the European natural gas market. As part of its activities to ascertain the level of competition in the European natural gas market, with Decision No. C(2006)1920/1 of May 5, 2006, the European Commission informed Eni on May 16, 2006 that Eni and its subsidiaries were subject to an inquiry under Article 20, paragraph 4 of the European Regulation No. 1/2003 of the Council in order to verify the possible existence of any business conducts breaching European rules in terms of competition and intended to prevent access to the Italian natural gas wholesale market and to subdivide the market among few operators in the activity of supply and transport of natural gas. Officials from the European Commission conducted inspections at headquarters of Eni and of certain Eni subsidiaries and collected documents. Similar actions have been performed by the Commission also against the main operators in natural gas in Germany, France, Austria and Belgium. In April 2007, the European Commission made known its decision to start a further stage of inquiry, as elements collected so far induced the suspicion that Eni adopted behaviors leading to "capacity hoarding and strategic underinvestment in the transmission system leading to the foreclosure of competitors and harm for competition and customers in one or more supply markets in Italy". In the same documents, the Commission states that "It is important to note that the initiation of proceedings does not imply that the Commission has conclusive proof of an infringement. It only signifies that the Commission will conduct an in-depth investigation of the case as a matter of priority".

TTPC. In April 2006, Eni filed a claim before the Regional Administrative Court of Lazio against the decision of the Italian Antitrust Authority of February 15, 2006 stating that Eni’s behavior pertaining to implementations of plans for the upgrading of the TTPC pipeline for importing natural gas from Algeria represented an abuse of dominant position under Article 82 of the European Treaty and fined Eni. The initial fine amounted to euro 390 million and was reduced to euro 290 million in consideration of Eni’s commitment to perform actions favoring competition among which the upgrading of said gasline. Eni accrued a provision with respect to this proceeding. With a decision filed on November 29, 2006, the Regional Administrative Court of Lazio partially accepted Eni’s claim, annulling such part of the Authority’s decision where the fine was quantified. Eni is waiting for the filing of the motivations of the Court decision to ascertain the impact of said decision. Pending this development, the payment of the fine has been voluntarily suspended. In 2007, the Regional Administrative Court of Lazio accepted in part Eni’s claim and cancelled the quantification of the fine based on the Antitrust Authority’s inadequate evaluation of the circumstances presented by Eni. Eni intends to file an appeal with the Council of State. Pending the final outcome, Eni awaits for the determination of the amount of the fine.

Inquiry of the Italian Antitrust Authority in relation to collusive mechanisms for the pricing of automotive fuels distributed on the retail market. With Decision of January 18, 2007, the Italian Antitrust Authority opened an inquiry to ascertain the existence of a possible agreement limit competition in the field of pricing of automotive fuels distributed on the retail market in Italy in violation of Article 81 of the EC Treaty. This inquiry concerns eight oil companies, among which Eni. According to the Authority, said companies would have been putting in place collusive mechanisms intended to influence the pricing of automotive fuels distributed on the retail market by way of a continuing exchange of informative flows since 2004. In April 2007, Eni filed with the Italian Antitrust Authority a proposal of initiatives, based on a decision of the same Authority that allows companies to reach the closure of a proceeding without sanctions or fines when they present counteractive measures.

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POLIMERI EUROPA SPA AND SYNDIAL SPA
Inquiries in relation to alleged anti-competitive agreements in the area of elastomers. In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the area of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. The first product under scrutiny was EP(D)M: the European Commission submitted to inspection the manufacturing companies of that product, among which Polimeri Europa SpA and Syndial and requested information from those two companies and to their parent company, Eni SpA. After the inquiries the Commission decided to open a procedure for violation of competition laws and notified Eni, Polimeri Europa and Syndial the relevant charges to that effect on March 8, 2005. At a hearing held on July 27, 2005 the two companies presented memoranda and confirmed their position. Eni and its subsidiaries are waiting for a decision on part of the European Commission. EP(D)M manufacture is also under scrutiny in the United States, where the Department of Justice of San Francisco requested information and documents to Polimeri Europa Americas Inc, a U.S. subsidiary of Polimeri Europa and to its deputy chairman and sales manager. Class actions were filed claiming damages in relation to the alleged violation. On July 2005, Syndial signed a settlement agreement for the civil class action which entails the payment of approximately $3.2 million, approved by the federal court. The investigation was also extended to the following products: NBR, CR, BR, SSBR and SBR. The European Commission started an investigation regarding BR, SBR, SSBR. On January 26, 2005, the European Commission dropped the charges in relation to SSBR. Investigations regarding BR, SBR and EPDM led to the notification of relevant charges. A hearing took place before the European Commission. On July 26, 2006, the European Commission notified the dismissal of the EPDM matter to Eni. Regarding the other two products BR and SBR, on November 29, 2006, the Commission fined a number of European operators, among which Eni, an amount of euro 519 million based on the charge of having established a trust in the field of synthetic rubber production. Eni and its subsidiary Polimeri Europa were fined by an overall amount of euro 272.25 million. Eni and its subsidiary have prepared claims against this decision before the first instance European Court in February 2007. Pending the outcome, Polimeri Europa presented a bank guarantee for euro 200 million and paid the residual amount of the fine.
As concerns CR, Syndial and Polimeri Europa requested leniency, as provided for by EU laws, by providing information useful in the investigation. This request has not yet been accepted by the European Union. In March 2007, the Commission sent to Eni, Polimeri Europa and Syndial a statement of objections, thus opening the second phase of the proceeding for the alleged infringements from 1993 to 2002. Eni responded with a memorandum that repeated its request for leniency. A final hearing before the Commission is pending.
With regard to NBR, an inquiry is underway in Europe and the U.S., where class actions have also been started. On the federal level, the class action was abandoned by the plaintiffs. The federal judge has yet to acknowledge this abandonment. With regard to CR, as part of an investigation carried out in the U.S., Syndial entered into a plea agreement with the Department of Justice pursuant to which Syndial would agree to pay a fine of $9 million, while the Department of Justice would agree that it will not bring further criminal charges against Syndial or against its affiliated companies. On June 27, 2005 the plea agreement was approved. As regards CR, the civil class action was closed with a settlement agreement approved by the federal judge on July 8, 2005 whereby the company will pay $5 million.
Eni recorded a provision for these matters.

Regulation

Inquiry of the Italian Authority for Electricity and Gas regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006. With Decision No. 37 of February 23, 2006, the Italian Authority for Electricity and Gas commenced an inquiry on a few natural gas selling companies, among which Eni, in order to possibly impose a fine or an administrative sanction regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006. For the 2004-2005 thermal year and for the period from October 1, 2005 to December 31, 2005, the Authority for Electricity and Gas supposed that given the weather of the period, the use of modulation storage capacity was featured by a higher volume of off takes with respect to the volume which would have been necessary to satisfy the commercial requirements for which the storage company entitled Eni to a priority in the conferral of storage capacity. According to the Authority for Electricity and Gas, such situation was in contrast with applicable regulation. Eni presented an articulated and documented memoranda to claim the thesis of the Authority for Electricity and Gas regarding the alleged non compliance of Eni behavior with regulation in force, also taking account of the circumstances under which excess off takes occurred and the subsequent authorization of the Ministry for Economic Development to use the strategic storage for the thermal year 2004-2005. With Decision No. 281/2006 of December 6, 2006, the Authority for Electricity and Gas closed said inquiry and fined Eni by euro 90 million of which euro 45 million pertaining to the thermal year 2004-2005 and euro 45 million to the thermal year 2005-2006 as a consequence of Eni having violated regulation in force pertaining to the priorities in the conferral of storage capacity.

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Eni paid the amount of this fine pertaining to the thermal year 2004-2005 in accordance to a reduced form as provided by Law No. 689/1981 and filed an appeal against Decision No. 281/2006 of the Authority for Electricity and Gas before the Regional Administrative Court of Lombardy requesting the Tribunal: (i) for the first thermal year, to ascertain whether Eni is legitimate to pay in a reduced form or, in case Eni is not legitimate to do so, to annul the fine; and (ii) for the second thermal year, to annul the fine. Eni accrued a provision for this proceeding.

DISTRIBUIDORA DE GAS CUYANA SA
Formal investigation of the agency entrusted with the regulations for the natural gas market in Argentina ("Enargas"). The agency entrusted with the regulations for the natural gas market in Argentina ("Enargas") started a formal investigation on some operators, among these Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied calculated conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. Expert evaluations are being performed.

Tax Proceedings

Eni SpAENI SPA
With a decree dated December 6, 2000, the LombardiaLombardy Region decided that natural gas used for electricity generation is subject to an additional regional excise tax in relation to which Snam SpA (merged into Eni SpA in 2002) should substitute for the tax authorities in its collection from customers. Given interpretive uncertainties, the same decree provides the terms within which distributing companies are expected to pay this excise tax without paying any penalty. Snam SpA and the other distributing companies of Eni believe that natural gas used for electricity generation is not subject to this additional excise tax. For this reason, an official interpretation was requested from the Ministry of Finance and Economy. With a decisionDecision of May 29, 2001, the Ministry confirmed that this additional excise tax cannot be applied. The Region decided not to revoke its decree and Snam took appropriate legal action. On the basis of action carried out by Snam, the Council of State decided on March 18, 2002 that the jurisdiction of the Administrative courtCourt did not apply to this case. In case the Region should request payment, Eni will challenge this request in the relevant Court. The LombardiaLombardy Region decided with regionalRegional Law No. 27/2001 that no additional tax is due from January 1, 2002 onwards, but still requested the payment of the additional taxes due before that date. The action for the recognition of such taxes bears a five-year term. Consequently, the exercise of such action expires on July 16, 2007.

With a formal assessment presented by the municipalityMunicipality of Pineto (Teramo), Eni SpA has been accused of not having paid a municipal tax on real estate for the period from 1993 to 1998 on four oil platforms located in the Adriatic Sea territorial waters in front of the coast of Pineto. Eni has beenwas requested to pay a total of approximately euro 17 million also including interest and a fine for lacking payment and tax declaration. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application of the tax atas requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. But the Court of Cassation cancelled both judgments declaring that a municipality can consider requesting a tax on real estate also in the sea facing its territory and with a decisionDecision of February 21, 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the other reasonreasons opposed by Eni. On December 28, 2005, the municipalityMunicipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested tofrom Eni is of euro 24 million. Eni filed a claim against this request.

SNAM RETE GAS SPA
Agip Karachaganak BV
In July 2004, relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operatorEnvironmental tax of Sicilia Region upon the Karachaganak contract, respectively, on the final outcomeowners of the tax audits performed for fiscal years 2000 to 2003. Claims by the Kazakh authorities concern unpaid taxes for a total of $43 million, net to Eni, and the anticipated offsetting of VAT credits for $140 million, net to Eni, as well as the payment of interest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the original amounts were reduced to $26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding residual matters. Eni recorded a specific provision for this matter.

Snam Rete Gas SpA
primary pipelines. With Regional Law No. 2 of March 26, 2002, the Sicilia Region introduced an environmental tax upon the owners of primary pipelines in Sicily (i.e. 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. With the ruling of December 20, 2002, the Court judged the tax at variance with European rules. In December 2002, Snam Rete Gas suspended payments based on the above Court ruling. Payments effected until November 2002 totalledtotaled euro 86.1 million. In January 2003, the Sicilia Region presentedfiled an appeal towith the Council of State against the ruling of the Regional Administrative Court of LombardiaLombardy 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 withcontrary to European rules and withto the cooperation agreement between the European Economic Community and the Peoples’ Democratic Republic of Algeria; the European Commission also stated that such environmental tax is in contrast with the common customs tariff because it modifies the equality of customs expenses on commodities imported from third countries and could create a deviation in trade with such countries and a distortion in access and competition rules. The Commission with its opinion presented on July 7, 2004 formally requested Italy to cancel the tax.

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The Italian Government mustwas ordered to conform within two months from the receptionreceipt of the opinion. As it did not conform, on December 20, 2004 the European Commission passed the case to the Court of Justice requesting a ruling. Should the European Court of Justice rule in favor of Eni, this proceeding would come to an end and the Sicilia Region would be obliged to refund all installments paid. With a decisionDecision dated January 5, 2004, and confirmed on March 4, 2005 by the Regional Tax Commission, the Provincial Tax Commission of Palermo declared the environmental tax of the Sicilia Region illegitimate because it is in contrast withcontrary to European rules and therefore accepted Snam Rete Gas’s claim for the repayment of the first installment of euro 10.8 million, already paid in April 2002 to the Sicilia Region.Region in April 2002. On May 4, 2004, the Sicilia Region repaid the first installment. As for the seven remaining installments paid after April 2002 (euro 75.3 million), the Provincial Tax Commission of Palermo with decisionDecision of January 5, 2005 confirmed the illegitimacy of the tax condemning the Region to repay the cashed amounts paid and accrued interest accrued to Snam Rete Gas. TheAgainst the decision the Sicilia Region presented recourse to the Regional Tax Commission at Palermo, a hearing has been scheduled for April 5, 2006. On November 3, 2003,in 2005. In the Sicilia Region, following the procedure presented by Snam Rete Gas concerning the yearly liquidationfirst half of the tax for 2002, requested liquidation of tax, fines and interest (euro 14.2 million) relating to the unpaid December 2002 installment. On December 30, 2003 Snam Rete Gas filed a claim with request of suspension of payment as a result of the liquidation notice received from the Sicilia Region with the Provincial Tax Commission of Palermo, that, on June 25, 2004 accepted Snam Rete Gas’s claim and decided the cancellation of the liquidation notice served by the Sicilia Region, confirmed by2007 the Regional Tax Commission confirmed the illegitimacy of the environmental tax.

AGIP KARACHAGANAK BV
Claims concerning unpaid taxes and relevant payment of interest and penalties. In July 2004, relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on March 7, 2005. In any case Snam Rete Gas will not have to pay the tax: iffinal outcome of the tax is considered illegitimate in other Courts of law, the company will have the rightaudits performed for fiscal years 2000 to the restitution of the money. If, to the contrary, the tax is considered legitimate2003. Claims by the other Courts, the AuthorityKazakh authorities concern unpaid taxes for Electricity and Gas will include the tax (Decision No. 146/2002 and No. 71/2003) in tariff with automatic and retroactive effects.

Other judicial or arbitration proceedings

Syndial SpA (former EniChem SpA) - Serfactoring SpA
In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA which is controlled bytotal of $43 million, net to Eni, SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment at the due date. Following payment by Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidatoranticipated offsetting of Agrifactoring commenced proceedings in 1991 against SerfactoringVAT credits for $140 million, net 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 SpAEni, as agent. The amount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004: the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be determined following the decision. Agrifactoring appealed against this partial decision, requesting in particular the annulment of the first step judgement, the reimbursement of the euro 180 million amount from Serfactoring along with the rejection of all its claims andwell as the payment of all expenseinterest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the proceeding. The appeal pending was setoriginal amounts were reduced to be discussed$26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding residual matters. Eni recorded a provision for this matter.

Settled Proceedings

RAFFINERIA DI GELA SPA
With a sentence released in a hearing set for March 16, 2007 but was rescheduled for October 27,July 2006, upon request of Agrifactoring. The judge of the Court of Rome, responsible forGela ascertained that certain alleged crimes pertaining to the determinationemissions of the amountrefinery had become extinct due to the statute of damageslimitations. In relation to be paid to Serfactoring and Agricoltura decided on May 18, 2005 to suspend this determination until the publication of the decision ofsuch alleged crimes, the Court of Appeals, in accordance with Article 295Gela summoned the legal representatives of the Codecompany for events that have occurred since 1997. The Municipality of civil procedure. AgainstGela, the Province of Caltanissetta and others acted as plaintiff in this suspension Serfactoring and Syndial requested toproceeding, requesting the Court of Cassation the cancellation of the suspension and the return of the case to its original court.

Syndial SpA (former EniChem SpA)
In 2002, EniChem SpA was summoned by ICR Intermedi Chimici di Ravenna Srl before the Court of Milan in relation to a breach of a preliminary agreement for the purchase of an industrial area in Ravenna. ICR requested payment of compensatory damages for approximatelya total of euro 46 million,878 million.

SYNDIAL SPA
Personal cautionary measures against some employees of which euro 3 million are compensatory damages and euro 43 million are for loss of profits. During 2004 the preliminary inquiry was completed. With a judgment of October 11, 2005Priolo plant issued by the Court rejected ICR’s request and order that ICR pay all expenses. ICR filed a claimof Siracusa concerning illicit management relating to waste activities. On January 16, 2003, the Court of Siracusa issued personal cautionary measures against this decision.

Antitrust, EU Proceedings, Actionsseveral employees of the Authority for ElectricityPriolo plant owned by EniChem SpA and Gas and of Other Regulatory Authorities

EniPolimeri Europa SpA,
In March 1999, the Antitrust Authority concluded its investigation started in 1997 and: (i) verified that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas within judicial investigations pertaining to an illicit management relating to the transportationproduction, disposal and distribution tariffs appliedtreatment of liquid and solid waste materials resulting in an illicit income from the savings arising from the non compliance with rules regulating waste activities. Polimeri Europa and EniChem acted as plaintiffs. Findings of the preliminary investigations were notified to third partiesinvolved persons, confirming accusations. During the preliminary investigations, traces of mercury were found in the sea. The public prosecutor of Siracusa started an inquiry for ascertaining the conditions of sediments and marine fauna in the bay of Augusta. According to the prosecutor, mercury was spilled into the sea and poisoned the marine fauna and therefore resulted in fetal malformations and abortions due to the consumption of contaminated seafood fished in this area. The chlorine soda plant, built in the late 1950s was contributed in-kind to Syndial in 1989 when the Enimont joint venture was formed. It was therefore proved that Eni’s employees held no responsibility for the crimes of which they were charged. On March 15, 2006, the judge for preliminary investigations decided the dismissal of the case against Syndial employees, accepting the request made by the prosecutor.

SYNDIAL SPA (FORMER ENICHEM SPA)
In 1997, an action was commenced before the Court of Venice concerning the criminal charges brought by the Venice public prosecutor for alleged mismanagement of the Porto Marghera plant starting in the 1970s until 1995 and for the alleged pollution and health damage resulting there from. Defendants included certain employees of Eni which have managed the Porto Marghera plant since the beginning of the eighties. On November 2, 2001, the Court of Venice acquitted all defendants. The appeal against the decision was presented by the public prosecutor, the state attorney on behalf of the Ministry of Environment and the accessCouncil of third partiesMinisters, five public entities, 12 associations and other entities and 48 individual persons. On December 15, 2004 the Venice Court of Appeals confirmed the preceding judgment, changing only some marginal parts. As concerns some defendants, the Venice Court of Appeals decided not to infrastructure; (ii) fined Snam euro 2 million; and (iii) ordered a reviewproceed due to the statute of these practices relating to such abuses. Snam believeslimitations for some crimes, while it has complied with existing legislation andconfirmed the preceding judgment for the other matters. On May 19, 2006, the Court of Final Instance, before which plaintiffs appealed the decision of the Venice Court of Appeals, acquitted all defendants stating that pollution and mismanagement of the plant occurred before the 1980s and consequently Eni and its employees could not be deemed responsible. In January 2006, Eni settled this matter with the Regional Administrative CourtCouncil of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991Ministers and the European Directive 98/30/EC, this Court grantedMinistry for the suspension of the decision. The Antitrust Authority did not appeal this decision. The decision on this dispute is still pending.

With a decision of December 9, 2004, the Italian Antitrust Authority started an inquiry on the distribution of jet fuel against six Italian companies, including Eni and some of its subsidiaries, that store and load jet fuel in the Rome Fiumicino, Milan Linate and Milan Malpensa airports. The inquiry intends to ascertain the existence of alleged limitations to competition as oil companies would agree to divide among themselves the supplies to airlines. On December 22, 2005, the Authority notified the preliminary results of the inquiry concerning: (i) information flows to oil companies related to the functioning of shared storage and uploading companies; (ii) barriers to the entrance of new competitors; and (iii) the price of jet fuel is higher than on other European markets. On June 20, 2006, the Antitrust notified Eni the final decision of this proceeding and fined Eni byEnvironment paying an amount of euro 11740 million. The Antitrust fined other oil companies involved in the matter. Eni is evaluating this decision in order to file a claim against it decision before an administrative court.

On April 28, 2005 the Commission137

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Under terms of the European Communities started a formal assessmentsettlement, the latter will abstain from recourse to evaluate the alleged participationCourt of EniFinal Instance and its subsidiaries to activities limiting competition inwill not act on any other environmental damage concerning the fieldmanagement of paraffin. The alleged violation of competition would have consisted in: (i)Porto Marghera until the determination of and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. On November 3, the Commission requested information on Eni’s activities in the field of paraffins. On November 29, 2005 Eni filed the requested information. On April 21, 2006 the Antitrust Authority requested information on the processing of raw paraffin, which Eni supplied in a letter dated May 25, 2006.

The Department of Justicedate of the United States of America - Antitrust Division, notifiedsettlement. Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005. The Company informed the department that it does not produce nor import wax in the United States of America.

Polimeri Europa SpA and Syndial SpA
In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the area of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. The first product under scrutiny was EP(D)M: the European Commission submitted to inspection the manufacturing companies of that product, among which Polimeri Europa SpA and Syndial and requested information from those two companies and to their controlling company, Eni SpA. After the inquiries the Commission decided to open a procedure for violation of competition laws and notified Eni, Polimeri Europa and Syndial the relevant charges to that effect on March 8, 2005. At a hearing held on July 27, 2005 the two companies presented memoranda and confirmed their position. The parties await for a decision of the Commission.

EP(D)M manufacture is also under scrutiny in the United States, where the Department of Justice of San Francisco requested information and documents to Polimeri Europa Americas Inc, a U.S. subsidiary of Polimeri Europa and to its deputy chairman and sales manager. Class actions were filed claiming damages in relation to the alleged violation. In July 2005 Syndial signed a settlement agreement for the civil class action which entails the payment of approximately $3.2 million, approved by the federal court.

The investigation was also extended to the following products: NBR, CR, BR, SSBR and SBR.

The European Commission started an investigation regarding BR, SBR, SSBR. On January 26, 2005 the Commission dropped the charges in relation to SSBR, while for the other two products the Commission started an infraction procedure by notifying Eni, Polimeri Europa and Syndial the relevant charges. The companies presented a written memorandum and the Commission decided to open an inquiry, as a consequence of which the Commission sent a new description of the charges. The companies are preparing a new memorandum.

With regard to NBR an inquiry is underway in Europe and the USA, where class actions also have been started. The class action at federal level was abandoned by the plaintiffs. The federal judge acknowledged this abandonment.

With regard to CR, as part of an investigation carried out in the USA, Syndial entered into a plea agreement with the Department of Justice pursuant to which Syndial would agree to pay a fine of $9 million, while the Department of Justice would agree that it will not bring further criminal charges against Syndial or against its affiliate companies. On June 27, 2005 the plea agreement was approved. For CR the civil class action was closed with a settlement agreement approved by the federal judge on July 8, 2005 whereby the company will pay $5 million. The European Commission requested Eni, Polimeri Europa and Syndial to provide information about CR. The two companies decided to cooperate with the Commission.

Enialready recorded a provision for these matters.this matter which was sufficient to cover the amount of the settlement.

Stoccaggi Gas Italia SpAENI DACIÓN BV
With Decision No. 26In August 2005, the internal revenue service of February 27, 2002,Venezuela served four formal assessment on income taxes to Eni Dación BV for the Authorityyears 2001 to 2004 that, by excluding the deductibility of certain costs: (i) annul the losses recorded for Electricitythe periods amounting to a total of bolivar 910 billion (corresponding to $425 million); (ii) determine for the same periods a taxable income amounting to a total of bolivar 115 billion (corresponding to $54 million); and Gas(iii) request a tax amounting to bolivar 52 billion (corresponding to $24 million) determined tariff criteria for modulation, mineralby applying a 50% tax rate rather than the 34% rate applied to other companies performing activities analogous to those of Eni Dación BV. In particular, it excluded the deductibility of: (i) interest charges due to other Eni Group companies that provided loans denominated in U.S. dollars; and strategic storage services(ii) exchange rate losses recorded in the financial statements and related to such loans resulting from the devaluation of the Venezuelan currency. The formal assessments served have a preliminary nature and do not request immediate payment nor do they specify the amount of a fine (from 10 to 250%) and of interest (average rate for the period starting on April 1, 2002 until March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stoccaggi Gas Italia SpA (Stogit)approximately 23%). Eni Dación filed its proposal of tariff for modulation, mineral and strategic storagea claim for the first regulated period. With Decision No. 49cancellation of March 26, 2002, the Authorityassessment. In the 2005 accounts, Eni recorded a specific provision for Electricitythis matter. In April 2006, the appeal was rejected and Gas repealed Stogit’s proposalthe final tax assessment was issued. The final tax assessment: (i) substantially confirmed the preliminary assessments, although reducing the originally assessed income tax liability to bolivar 39 billion ($18 million); and defined tariffs(ii) imposed fines and late payment interests of bolivar 109 billion ($51 million). Eni Dación BV presented a further administrative appeal before the expiration of the time limit for filing a judicial tax appeal, thereby obtaining a reduction of the first regulated period. Stogit appliedoverall amount from bolivar 148 billion ($69 million) to bolivar 52 billion ($24 million) including taxes in the tariff determined byamount of bolivar 12.5 billion ($6 million) and fines and late payment interest in the two decisions, butamount of bolivar 39.5 billion ($18 million). In order to avoid further charges deriving from the increase of the corresponding fines and late payment interest, Eni Dación BV paid the newly assessed amount in May 2006, thereby reaching a settlement. Consistently, Eni Dación BV filed an appeal against both decisions withintegrative income tax return for year 2005, considering the Regional Administrative Courtnew tax bases for years 2001 to 2004, and paid accordingly bolivar 128 billion ($60 million) of Lombardia requesting their cancellation. With a decision dated September 29, 2003, that Court rejected the appeal presented by Stogit. Stogit filed an appeal to the Councilincome taxes and bolivar 4.4 billion ($2 million) of State against the sentence which was rejected by the Council of State on January 6, 2006.fines and late payment interest.

Distribuidora de Gas Cuyana SA
The agency entrusted with the regulations for the natural gas market in Argentina ("Enargas") started a formal investigation on some operators, among these Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company has applied improperly calculated conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. On April 27, 2004, Distribuidora de Gas Cuyana presented a defense memorandum to Enargas, without prejudice to any possible appeal. On April 28, 2006, the Company filed a formal request for examining the documents used as evidence of the alleged violation.

Court inquiriesInquiries

The Milan Public Prosecutor is inquiring into contracts awarded by Eni’s subsidiary EniPower and on supplies from other companies to EniPower. The media have provided wide coverage ofhas widely covered these inquiries. It emerged that illicit payments have beenwere made by EniPower suppliers to a manager of EniPower who has beenwas immediately dismissed. The Court presented EniPower (commissioning entity) and Snamprogetti (contractor of engineering and procurement services) with notices of process in accordance with existing laws regulating administrative responsibility of companies (Legislative Decree No. 231/2001). In its meeting of August 10, 2004, Eni’s Board of Directors examined the above mentioned situation mentioned above and Eni’s CEO approved the creation by Eni’s CEO of a task force in charge of verifying the compliance with Group procedures regarding the terms and conditions for the signing of supply contracts by EniPower and Snamprogetti and the subsequent execution of works. The Board also advised divisions and departments of Eni to fully cooperate in every respect with the Court. From the inquiries performed, that have not yet covered all relationships with contractors and suppliers, no default in the organization andemerged, nor deficiencies in internal controls emerged. For somecontrol systems. External experts have performed inquiries with regard to certain specific aspects inquiries have been performed by external experts.aspects. In accordance with its transparency and firmness guidelines, Eni will take the necessary steps forin acting as plaintiff in the expected legal action in order to recover any damage that might derivecould have been caused to Eni by the illicit behavior of its suppliers and of their and Eni’sEni employees. In the meantime, preliminary investigations have found that both EniPower and Snamprogetti are not to be considered defendants in accordance with existing laws regulating administrative responsibility of companies (Legislative Decree No. 231/2001).

Within anAn investigation onis pending regarding two former Eni managers who were allegedly bribed by third parties in order to favor the Public Prosecutorclosing of Rome on March 10, 2005 notified Eni of the seizure of papers concerning Eni’s relationscertain transactions with two oil product trading companies.
Within such investigation, on March 10, 2005, the public prosecutor of Rome notified Eni two judicial measures for the seizure of documentation concerning Eni’s transactions with said companies. Eni is acting as plaintiff in this proceeding. Due to lack of evidence supporting this charge in a trial, the Public Prosecutor filed a request for dismissing this proceeding.

TSKJ Consortium - Investigations of SEC and other Authorities

In June 2004 theThe U.S. Securities and Exchange Commission (SEC) notified Eni a request of collaboration on a voluntary basis, which Eni promptly carried out, in order to obtain information regardingis currently investigating alleged improper payments made by the TSKJ consortium to certain public officials in relation to the construction of natural gas liquefaction facilities at Bonny Island in Nigeria. The TSKJ consortium is formed by Eni’s subsidiary Snamprogetti (Eni 100%) with a 25% interest and, for the remaining part, by subsidiaries of Halliburton/KBR, Technip and JGC. Eni and its subsidiary Snamprogetti adhered to a request for voluntary collaboration notified by the SEC in June 2004. The investigations ofSEC request aimed at obtaining information regarding the Commission concern alleged improper payments. Other AuthoritiesTSKJ consortium. Eni and Snamprogetti also adhered to other requests for voluntary collaboration made by other authorities which are currently investigating this matter. Eni is currently providing its own information to the Commission and to other authorities.

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Settled ProceedingsGas Metering

Tax Proceedings
In August 2005,On May 28, 2007, a seizure order (in respect to certain documentation) was served upon Eni and other Group companies as part of a proceeding brought by the internal revenue servicePublic Prosecutor at the Courts of VenezuelaMilan. The order was also served upon five top managers of the Group companies in addition to Eni Dación BV four formal assessment on income taxesthird party companies and their top managers. The investigation alleges behavior which breaches Italian criminal law, starting from 2003, regarding the use of instruments for measuring gas, the yearsrelated payments of excise duties and the billing of clients as well as relations with the Supervisory Authorities. The allegation regards, inter alia, the offence contemplated by Legislative Decree of June 8, 2001, No. 231, which establishes the liability of the legal entity for crimes committed by its employee in the interests of such legal entity, or to 2004 that, by excludingits advantage. Accordingly, notice of the deductibilitystart of certain costs: (i) annul the losses recorded for the periods amounting to a total of bolivar 910 billion (corresponding to $425 million); (ii) determine for the same periods a taxable income amounting to a total of bolivar 115 billion (corresponding to $54 million); and (iii) request a tax amounting to bolivar 52 billion (corresponding to $24 million) determined by applying a 50% tax rate rather than the 34% rate applied to other companies performing activities analogous to those of Eni Dación BV. In particular it excluded the deductibility of: (i) interest charges due to otherinvestigations was served upon Eni Group companies that provided loans denominated in U.S. dollars;(Eni, Snam Rete Gas and (ii) exchange rate losses recordedItalgas) as well as third party companies. The Group companies are cooperating with the Authorities in the financial statements and related to such loans resulting from the devaluation of the Venezuelan currency. The formal assessments served have a preliminary nature and do not request immediate payment nor do they specify the amount of a fine (from 10 to 250%) and of interest (average rate for the period approximately 23%). Eni Dación filed a claim for the cancellation of the assessment. In the 2005 accounts, Eni recorded a specific provision for this matter. In April 2006 the appeal was rejected and the final tax assessment was issued. The final tax assessment: (i) substantially confirmed the preliminary assessments, although reducing the originally assessed income tax liability to bolivar 39 billion ($18 million); and (ii) imposed fines and late payment interests of bolivar 109 billion ($51 million). Eni Dación BV presented a further administrative appeal before the expiration of the time limit for filing a judicial tax appeal, thereby obtaining a reduction of the overall amount from bolivar 148 billion ($69 million) to bolivar 52 billion ($24 million) including taxes in the amount of bolivar 12.5 billion ($6 million) and fines and late payment interest in the amount of bolivar 39.5 billion ($18 million). In order to avoid further charges deriving from the increase of the corresponding fines and late payment interest, Eni Dación BV paid the newly assessed amount in May 2006, thereby reaching a settlement. Consistently, Eni Dación BV filed an integrative income tax return for year 2005, considering the new tax bases for years 2001 to 2004, and paid accordingly bolivar 128 billion ($60 million) of income taxes and bolivar 4.4 billion ($2 million) of fines and late payment interest.investigations.

During 2003, the Customs District of Taranto sent 147 formal assessments and amendments to bills of entry for finished products and goods and semi finished products produced by Eni’s Taranto refinery in 2000, 2001 and 2002 to Eni SpA, as the successor entity of AgipPetroli SpA following its merger into Eni. The notification regards about euro 24 million of customs duties not paid by the company because the imported products were not yet finished goods, but were destined to processing, for which ordinary customs tariffs allow exemption. The formal assessment did not contain the determination of any administrative penalties provided for by customs rules. The penalty can be from one to ten times the amount of taxes not paid. The notification was based on the fact that the company did not have the administrative authorization to utilize the customs exemption. The company, believing it acted properly pursuant to Circular 20/D/2003, started a proceeding for an administrative resolution, according to the customs rules. The company asked the Regional Director of Customs of Puglia for the annulment of the received assessments as a measure of self-protection. With a decision of November 26, 2004 the Regional Director accepted Eni’s appeal and ended the litigation by canceling the 147 formal assessments. On March 12, 2004 the Comando Nucleo Regionale Polizia Tributaria Puglia notified a verbal action of observation to the company. In this action there is an alleged offense of smuggling and falsification of accounts for the same imports, already subjected to the previous assessments of the Customs District of Taranto and other occurrences between January 1999 and February 2003. The verbal action made by a Fiscal Officer, sent to the Public Prosecutor in the Court of Taranto, reclaims the omitted payment of customs for about euro 26 million. The notification was based on the same lack of administrative authorization, already contested by the Customs District of Taranto, that was concluded in favor of Eni by the Regional Director. On January 26, 2006 the judge for preliminary investigation of the Court of Taranto dismissed the accusations and closed the assessment.

Legal Proceedings
In 1997, Grifil SpA summoned AgipPetroli SpA (merged into Eni SpA in 2002) before the Court of La Spezia. Grifil requested payment for the remediation of a polluted land parcel part of the La Spezia refinery (which was closed in 1985), sold to it in 1996 by Italiana Petroli SpA later merged into AgipPetroli SpA. The claims for these damages amount to euro 103 million. At the end of 2002 Grifil and AgipPetroli reached an agreement under the terms of which AgipPetroli had to pay half of the clean-up costs, the total amount of which was set by an independent appraisal at euro 19 million, with AgipPetroli’s share corresponding to a maximum of euro 9.5 million, Grifil in turn had the obligation to remediate the polluted soil and to renounce any claims against Eni. Grifil did not fulfill its obligations to remediate the polluted soil; however, maintaining the possibility of precautionary requests and claims against Grifil, Eni decided to remediate the polluted soil with the assistance of a company interested in developing the parcel of land that agreed to pay 13% of the remediation costs. The first action promoted by Grifil before the Court of La Spezia remained pending. On January 7, 2004 the Municipality of La Spezia put Eni in possession of the area and from that date Eni started remediation works paying the relevant costs on its own. Eni requested the conservative seizure of Grifil’s land parcel, up to a maximum value of euro 19 million. With two administrative measures, on December 2, 2003 and January 13, 2004 respectively, the Court of Genova declared the right of Eni legitimate, based on the sale contract stipulated between Italiana Petroli and Grifil, to claim the payment of all clean-up expenses that Eni will incur as Grifil did not fulfill its obligation. The judge closed the inquiry phase and stated that the judgment can be brought to an end. As for the value attributable to the conservative seizure of Grifil’s land parcel (up to a value of euro 19 million), the Court requested Eni to file the contracts for the remediation work with the court, in which the amounts paid are recognized. The contract with an international company specializing in remediation was signed on April 15, 2004 and immediately presented to the Court. In order to preserve Grifil’s asset as a way to recover its credit versus Grifil, Eni, which is paying for the remediation works, also filed an ordinary revocation of title, so that, while waiting for the Court’s ruling, Grifil will not be able to sell the land parcel to third parties. On September 6, 2005 Eni and Immobiliare Helios SpA (that acquired all of Grifil’s share capital) reached a settlement that: (i) concluded all disputes outstanding with Grifil and constitutes a waiver to any possible future claim directly or indirectly related to the sale of the land parcel; (ii) passed to the acquirer all residual expense to be incurred for the reclamation of the land parcel with the explicit approval of the municipality of La Spezia; and (iii) provided for Eni to pay to the new owner of Grifil a lump sum of euro 15.1 million that will be paid when the new owner provides confirmation of works performed for the reclamation; the sum is covered by provisions in the risk reserve.

In 1997, an action was commenced before the Court of Venice concerning the criminal charges brought by the Venice public prosecutor for alleged mismanagement of the Porto Marghera plant starting in the 1970s until 1995 and for the alleged pollution and health damage resulting therefrom. Defendants included certain employees of Eni which has been managing the Porto Marghera plant since the beginning of the eighties. On November 2, 2001, the Court of Venice acquitted all defendants. The appeal against the decision was presented by the public prosecutor, the State Attorney on behalf of the Ministry of Environment and the Council of Ministers, 5 public entities, 12 associations and other entities and 48 individual persons. On December 15, 2004 the Venice Court of Appeals confirmed the preceding judgment, changing only some marginal parts. As concerns some defendants, the Court of Appeals decided not to proceed due to the statute of limitations for some crimes, while it confirmed the preceding judgment for the other matters. On May 19, 2006, the Court of final instance, before which plaintiffs appealed the decision of the Court of Appeals, acquitted all defendants stating that pollution and mismanagement of the plant occurred before the eighties and consequently Eni and its employees could not be deemed responsible for that. In January 2006 Eni settled this matter with the Council of Ministers and the Ministry for the Environment paying an amount of euro 40 million. Under terms of the settlement, the latter will abstain from the recourse to the Court of final instance and will not act on any other environmental damage concerning the management of Porto Marghera until the date of the settlement. Eni had already recorded a provision for this matter which was sufficient to cover the amount of the settlement.

Dividends

Eni’s dividend policy in future periods and the sustainability and the amount of future dividends over the next four yearfour-year period will depend upon a number of factors including the increase in earnings and in cash flow provided by operating activities, a sound balance sheet structure, capital expenditure and development plans, and the "Risk Factors" set out in Item 3. Eni SpA’s net profit and, therefore, the amounts available for payment of dividends therefromtherefore will also depend on the level of dividends received from Eni’s subsidiaries. However, subject to such factors, the Board of Directors expects to recommend to future meetings of shareholders to maintain a flow of dividends in line with the level of 2005 for the next four year period.four-year period management plans to pay to shareholders yearly dividends on the same level as in 2006 in real terms. On May 25, 2006,24, 2007, Eni’s general shareholders’ meeting approved a dividend, of euro 1.10 per share for fiscal year 2005 as proposed by Eni’s Board2006, of Directors. This dividend (ofeuro 1.25 per share, of which euro 0.450.60 per share was already paid in October 2006 as an interim dividend with the balance of euro 0.65 per share to be paid late in June 2007. Total cash outlay for the 2006 dividend is expected at euro 4.6 billion (including the euro 2.21 billion already paid in October 2005) represented an increase of 22% with respect to the dividend paid for fiscal year 2004 (euro 0.90 per share); the ratio of aggregate dividends payments to consolidated net profit (pay-out) for year 2004 stands at 47%2006). Eni plansIn future years, management expects to continue paying interim dividends for each fiscal year, with the balance for the full year dividend paid in future years.the following year.

 

Significant Changes

See "Item 5 – Recent Developments" for a discussion of Eni’s results of operations in the first quarter of 20062007 and other material developments that occurred after December 31, 2005.2006.

 

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 on the Blue Chip segment of the Mercato Telematico Azionario or MTA ("Telematico"), the Italian screen-based dealer market, which is the principal trading market for shares in Italy. The Blue Chip segment of Telematico includes shares of the companies whose market capitalization amounts to more than euro 1,000 million. American Depositary SharesReceipts ("ADSs"ADRs"), each representing two shares, are listed on the New York Stock Exchange. The ratio has changed from one ADSADR per five Shares to one ADSADR per two Shares, effective January 10, 2006.

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The table below sets forth the reported high and low reference prices of Shares on Telematico and of ADSsADRs on the New York Stock Exchange, respectively. Due to the ratio change, the historical prices of ADSsADRs have been adjusted by an adjustment factor of 2.5. See "Item 3 – Key Information – Exchange Rates" regarding applicable exchange rates during the periods indicated below.

	Telematico		New York Stock Exchange

	High		Low		High		Low

(euro per Share)share)

(U.S. $ per ADS)ADR)

2001		15.598		11.564		27.880		21.000		15.598		11.564		27.880		21.000
2002		17.145		12.938		32.844		24.360		17.145		12.938		32.844		24.360
2003		15.746		11.881		37.992		26.460		15.746		11.881		37.992		26.460
2004		18.748		14.723		50.580		36.940		18.748		14.723		50.580		36.940
2005		24.960		17.930		60.540		47.400		24.960		17.930		60.540		47.400
2004
First quarter		16.640		14.723		40.536		36.940
Second quarter		17.980		16.319		43.364		38.924
Third quarter		18.584		16.272		45.804		39.608
Fourth quarter		18.748		17.651		50.580		44.244
2006										25.730		21.820		67.690		54.650
2005
First quarter		20.480		17.930		54.288		47.400		20.480		17.930		54.288		47.400
Second quarter		22.070		19.270		54084		49.004		22.070		19.270		54.084		49.004
Third quarter		24.960		21.430		60.540		51.320		24.960		21.430		60.540		51.320
Fourth quarter		24.770		21.640		59.020		51.628		24.770		21.640		59.020		51.628
2006
First quarter		24.880		23.050		60.650		55.170		24.880		23.050		60.650		55.170
January 2006		24.880		23.710		60.650		57.640
February 2006		24.860		23.840		59.510		56.550
March 2006		23.770		23.050		58.130		55.170
April 2006		24.810		23.370		61.320		57.050
May 2006		24.570		22.500		62.630		58.680
June 2006 (through June 5, 2006)		23.600		23.340		60.780		60.280
Second quarter										24.810		21.820		62.630		54.650
Third quarter										24.430		22.590		62.900		57.080
Fourth quarter										25.730		23.050		67.690		58.400
2007
First quarter										25.720		22.760		66.720		60.220
January 2007										25.720		24.340		66.720		62.900
February 2007										24.940		23.170		64.920		61.230
March 2007										24.360		22.760		64.890		60.220
April 2007										24.770		24.130		67.450		64.710
May 2007										26.580		24.450		71.250		65.680

JPMorgan Chase Bank, N.A. (the "Depositary") functions as depositary bank issuing American Depositary Receipts ("ADRs")ADRs pursuant to the Deposit Agreement among Eni, the Depositary and the beneficial owners ("Beneficial Owners") and registered holders from time to time of ADRs issued thereunder.

At June 5, 2006May 31, 2007 there were 45,497,40151,346,859 ADRs outstanding, representing 90,994,802102,693,718 ordinary shares, or 2.27%2.56% of all Eni’s shares outstanding, held by 6573 holders of record (including Thethe Depository Trust Company) in the United States of America, 6271 of which are U.S. residents. Since certain of such ADRs are held by nominees, the number of holders may not be representative of the number of Beneficial Owners in the United States or elsewhere.

The Shares are included in the S&P/MIB, the new primary Italian stock exchange index that measures the performance of the 40 leading companies in leading industries listed on the markets organized and managed by Borsa Italiana SpA ("Borsa Italiana"). The constituents of the S&P/MIB are selected according to the following criteria: sectorialsector representation, market capitalization of free-float shares and liquidity. Since September 20, 2004 S&P/MIB is the principal indicator used to track the performance of the Italian stock market, and is the basis for future and option contracts traded in the Italian Derivatives Market ("IDEM") managed by Borsa Italiana. TheEni’s Shares are the second largest component of the S&P/MIB, after the shares of Unicredito Italiano SpA, with a weighting of approximately 16.5%14.3%, as established by Standard & Poor’s and Borsa Italiana after reviewing the composition of the S&P/MIB on May 19, 2006.21, 2007. In addition, future and option contracts on the Shares are traded on IDEM and securitised derivatives based on the Shares are traded on the Italian Securitised Derivatives Market ("SeDeX"). IDEM facilitates the trading of future and option contracts on index and shares issued by companies that meet certain required capitalization and liquidity thresholds. SeDeX is the Borsa Italiana electronic regulated market where it is possible to trade securitised derivatives (covered warrants and certificates).

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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, the 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. Since March 28, 2000, a three-day rolling cash settlement has been applied to all trades of equity securities in Italy, instead of the previous five-day settlement.

 

Markets

Telematico is organized and administered by Borsa Italiana 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 has issued rules governing the organization and the administration of the markets it regulates, which are Telematico (shares, convertible bonds, pre-emptive rights, warrants, ETFs and Funds), Mercato MTAX (high growth companies), After Hours, Mercato Expandi (small companies), IDEM (index and stock derivatives market), SeDeX (covered warrants and certificates), MOT (bond markets)market), as well as the admission to listing on and trading on these markets.

If the opening price of a security (established each trading day prior to the commencement of continuous trading based on bids received) differs by more than 10% (or such other amount established by Borsa Italiana) from the previous day’s reference price, trading in that security will not be permitted until Borsa Italiana authorizes the trading. The reference price is calculated for each security as a weighted average of the last 10% of volumes traded in a single day. If in the course of a trading day the price of a security fluctuates by more than 5% from the last reported sale price (or 10% from the opening price), trading in that security will be automatically suspended for a certain period of time. In the event of such a suspension, effect is not given to trades agreed but not confirmed before the suspension.

Effective 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. The regulations and measures of general application adopted by the Bank of Italy and Consob are published in the Gazzetta Ufficiale.

 

Item 10. ADDITIONAL INFORMATION

Memorandum and Articles of Association

The full text of the memorandum and articles of association of Eni as amended by Eni’s Extraordinary Shareholders’ Meeting held on May 25, 2006,24, 2007, is attached as an exhibit to this annual report. See Exhibit 1."Exhibit 1".

Eni is incorporated under the name "Eni SpA" resulting from the transformation of Ente Nazionale Idrocarburi, a public law agency, established by Law No. 136 of February 10, 1953. The company objects arepurpose is the direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the field of hydrocarbons and natural vapors, such as exploration and development of hydrocarbon fields, construction and operation of pipelines for transporting the same, processing, transformation, storage, utilization and trade of hydrocarbons and natural vapors, all in compliance with concessions required by law.

The companyCompany also has the objectpurpose of direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the fields of chemicals, nuclear fuels, geothermy and renewable energy sources, in the sector of engineering and construction of industrial plants, in the mining sector, in the metallurgy sector, in the textile machinery sector, in the water sector, including derivation, drinking water, purification, distribution and reuse of waters; in the sector of environmental protection and treatment and disposal of waste, as well as in every other business activity that is instrumental, supplemental or complementary with the aforementioned activities.

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The companyCompany also has the objectpurpose of managing the technical and financial co-ordination of subsidiaries and affiliated companies as well as providing financial assistance on their behalf.

The companyCompany may perform any operations necessary or useful for the achievement of the company objects;its purpose; by way of example, it may initiate operations involving real estate, moveable goods, trade and commerce, industry, finance and banking asset and liability operations, as well as any action that is in any way connected with the company objectspurpose with the exception of public fund raising and the performance of investment services as regulated by Decree No. 58 of February 24, 1998.

The companyCompany may take shareholdings and interests in other companies or businesses with objects similar, comparable or complementary to its own or those of companies in which it has holdings, either in Italy or abroad, and it may provide real and or personal bonds for its own and others’ obligations, especially guarantees.

Directors

The Board of Directors is invested with the fullest powers for ordinary and extraordinary management of the company and, in particular, the Board has the power to perform all acts it deems advisable for the implementation and achievement of the company objects,Company purpose, except for the acts that the law or Eni’s by-lawsBy-laws reserve to the Shareholders’ Meeting.

For a complete description of the powers of the Board, the Managing DirectorCEO and the Chairman, appointments, role of the Board and rules and procedures of the meetings of the Board see "Item 6 – Board Practices".

The Board of Directors and the Managing Director report timely, at least every three months and however in the Board of Directors meetings, to the Board of Statutory Auditors on the activities and on the most relevant operations regarding the operational, economic and financial management of the company and its subsidiaries: in particular the Board of Directors and the Managing Director report to the Board of Statutory Auditors on operations entailing potential conflicts of interest. Article 2391 of the Italian Civil Code applies in the case of interests of the Directors.

The Chairman and the members of the Board are remunerated in an amount established by the ordinary Shareholders’ Meeting. Said resolution, once taken, will remain valid for subsequent business years until the Shareholders’ Meeting decides otherwise.

There are no provisions as to retirement based on age-limit requirements, or requirement of share ownership for a director’s qualification in Eni’s by-laws.
By-laws.

Limitations on Voting and Shareholdings

General

There are no limitations imposed by Italian law or by the by-lawsBy-laws of Eni SpA on the rights of non-residents of Italy or foreign persons to hold or vote the shares other than the limitations described below (which are equally applicable to residents and non-residents of Italy).

The by-laws provide thatAccording to Article 6.1 under Eni’s By-laws, no person, in any capacity, may own shares amounting to more than 3% of Eni SpA’s voting share capital. Such maximum limit is calculated taking into account the aggregate shareholding of a controlling entity, whether an individual or a legal entity (each a "person"); its directly or indirectly controlled entities, as well as entities controlled by the same controlling entity; affiliated entities, as well as relatives within the second degree by blood or marriage (except for a legally separated spouse). Affiliation exists as set forth in applicable Italian legislation, as well as between entities that, directly or indirectly, through controlled entities (other than those managing investment funds) are bound, even with third parties, by agreements relating to the exercise of voting rights or the transfer of shares or interests in third-party companies or other agreements relating to third-party companies as specified by applicable Italian legislation if such agreements relate to at least 10% of the voting share capital of a listed company or 20% of the voting share capital of a non-listed company. For purposes of calculating the 3% limit, shares held through a fiduciary nominee or intermediary are taken into account.

Any voting rights attributable to shares held or controlled in excess of such 3% limit cannot be exercised, and the voting rights of each entity to whom such limit on shareholding applies are reduced proportionately, unless otherwise jointly disposed of in advance by the parties involved. In the event that shares held or controlled in excess of the maximum limit are voted, any shareholders’ resolution adopted pursuant to such a vote may be challenged if the majority required to approve such resolution would not have been reached without the vote of the Sharesshares exceeding such maximum limit. Shares not entitled to be voted are nevertheless counted for the purpose of determining the quorum at a shareholders’ meeting.

Under the provisions of Law No. 602 of November 27, 1996, the 3% limit does not apply to shareholdings in Eni SpA held by the Ministry of Economy and Finance;Finance, state-owned entities controlled by other entities or by the State. The 3% limit does not apply, in the event that such limit is exceeded as a result of the acquisitions of shares pursuant to a mandatory tender offer (offerta pubblica di acquisto totalitaria) or a preventative tender offer, (offerta pubblica di acquisto preventiva), each as provided for by Decree No. 58,TUF, regardless of whether a majority of the voting rights is acquired thereby. The approval of the Ministers as described below in "– Special Powers of the State" is however requested for Sharesshares acquired pursuant to tender offers.

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For other limitations that may affect voting rights, see "– Reporting Requirements and Restrictions on Acquisitions of Shares".

Special Powers of the State

Under Italian laws the State, acting through the Minister of Economy and Finance in agreement with the Minister of Productive Activities (together with the Minister of Economy and Finance, theEconomic Development (the "Ministers"), holds certain special powers in connection with any transfer of a controlling interest in certain State-owned companies operating in public service sectors, including Eni SpA. The law places no limit on the duration of such special powers. Such powers are to be exercised in accordance with EU principles. Specific guidelines have been introduced by the Decree of the President of the Council of Ministers (DPCM), dated 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 No. 488, dated December 23, 1999, such guidelines have been confirmed by the DPCM dated June 10, 2004.

Pursuant to the DPCM of April 1, 2005, on April 13, 2005, the Eni’s Board of Directors modified the Eni’s by-lawsBy-laws in order to apply the provisions of Law No. 350 of December 24, 2003 (2004 budget law), which modified Article 2 of Law Decree No. 332 of May 31, 1994, as modified and converted into Law No. 474 of July 30, 1994, regarding the Special Powers of the State. Eni’s by-lawsBy-laws acknowledge in Article 6.2 that the Special Powers of the State are as follows:

a)		opposition with respect to the acquisition of material shareholdings by entities affected by the shareholding limit as set forth in Article 3 of Law Decree No. 332 of May 31, 1994, converted with amendments into Law No. 474 of July 30, 1994, which – as per Decree issued by the Minister of Treasury on October 16, 1995 – include those representing at least 3% of share capital with the right to vote at the ordinary Shareholders’ Meeting. Any opposition is required to be expressed within ten days as of the date of the notice to be filed by the Board of Directors at the time a request is made for registration in the Shareholders’ Register if the Minister considers that such an acquisition may prejudice the vital interests of the Italian State. Until the ten-day period has expired, the voting rights or any rights other than the economic rights connected with the shares representing a material shareholding may not be exercised. If the opposition power is exercised on the basis that prejudice may be caused by the operation to the vital interests of the Italian State, the transferee may not exercise the voting rights or any rights other than the economic rights connected with the shares representing a material shareholding and must sell said shares within one year. If the shareholder fails to comply, the law court, upon request of the Minister of Economy and Finance, will order the sale of the shares representing a material shareholding according to the procedures set forth in Article 2359-ter of the Civil Code. The act through which the opposition power is exercised may be appealed by the transferee before the Regional Administrative Court of Lazio within sixty days as of its issue;
b)		opposition with respect to the subscription of shareholders’ pacts or agreements as per Article 122 of Legislative Decree No. 58 of February 24, 1998, involving – as per Decree issued by the Minister of Treasury on October 16, 1995 – at least 3% of the share capital with the right to vote at ordinary Shareholders’ Meetings. In order to allow the exercise of the above mentioned opposition power, Consob notifies the Minister of Economy and Finance of the relevant pacts or agreements communicated to it pursuant to the aforementioned Article 122 of Legislative Decree No. 58 of February 24, 1998. The opposition power may be exercised within ten days as of the date of the notice by Consob. Until the ten-day period has expired, the voting rights or any rights other than the economic rights connected with the shares held by the shareholders who have subscribed the above mentioned pacts or agreements may not be exercised. If the opposition power is exercised on the basis that prejudice may be caused by said pacts or agreements to the vital interests of the Italian State, the shareholders pacts or agreements shall be null and void. If in the shareholders’ meetings the shareholders who have signed shareholders’ pacts or agreements behave as if those pacts or agreements disciplined by Article 122 of Legislative Decree No. 58 of February 24, 1998 were still in effect, the resolutions approved with their vote, if determining for the approval, may be sued. The act through which the opposition power is exercised may be sued by the shareholders who joined the above mentioned pacts or agreements before the Regional Administrative Court of Lazio within sixty days as of its issue;
c)		veto power with respect to resolutions to dissolve the company, to transfer the business, to merge, to demerge, to transfer the company’s registered office abroad, to change the company objects and to amend the by-lawsBy-laws canceling or modifying the powers indicated in this Article. The act through which the veto power is exercised shall be duly motivated in consideration of the prejudice the related resolution may cause to the vital interests of the Italian State and may be sued by the dissenting shareholders before the Regional Administrative Court of Lazio within sixty days as of its issue; and
d)		appointment of one Board member with no voting rights. Should such appointed Director lapse, the Minister of Economy and Finance in agreement with the Minister of Productive ActivitiesEconomic Development will appoint his substitute.

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With a decision published on May 23, 2000, the European Court of Justice declared that Italy, in granting the Minister of Economy and Finance "special powers" and introducing them in the by-lawsBy-laws of some privatized companies, violated the obligations imposed by Articles 43 (former Article 52, right of establishment), 49 (former 59, free provision of services) and 56 (former 73b, free movement of capitals) of the European Treaty.

In accordance with past decisions, the Court analyzed Italian legislation in force at the expiration of the terms defined in the European Commission'sCommission’s informed opinion, therefore it did not take into account DPCM of May 4, 1999, Article 66 of Law No. 488/1999 and DPCM of June 10, 2004 and Law No. 350 of December 24, 2003 which included provisions limiting those "special powers" of the Minister of Economy and Finance.Finance and the Minister of the Economic Development. These are currently being analyzed by the European Commission.

Furthermore Law No. 266 of December 23, 2005 (the Budget Law)Law for year 2006) in Article 1 paragraphs from 381 to 384, in order to favor the process of privatization and the diffusion of investments in companies also held by the State, introduced the option to include in the by-lawsBy-laws of companies formerly owned by the State, as in the case of Eni SpA, regulations against takeovers, which in particular provide for the issue of shares, also at nominal value, and similar shareholding certificates bearing the right to vote at ordinary and extraordinary Shareholders’ Meetings in favor of one or more shareholders identified in terms of the number of shares held. The introduction of these norms, which are subject to approval by the EU, will cause the cancellation of the above mentioned special powers3% limit to shareholdings in the voting share capital of the State containedEni SpA as provided in Article 6.26.1 of Eni’s by-laws.By-laws.

Minority Protection Provisionsprotection provisions

Under Italian laws, the by-lawsBy-laws of companies, such as Eni SpA, that impose a maximum limit on the number of shares that may be held by any shareholder must provide for the election of directors and statutory auditors through the voto di lista (voting list) system, to ensure that minority shareholders of a company are represented on its board of directors and board of statutory auditors. Accordingly, Eni’s by-lawsBy-laws require that the members of the Board of Directors and the Board of Statutory Auditors of Eni SpA not directly appointed by the Ministers (see "– Special Powers of the State") be elected on the basis of candidate lists presented either by the Board of Directors or by one or more shareholders (including the Minister of Economy and Finance) representing in the aggregate at least 1% of the share capital of Eni SpA having the right to vote at ordinary shareholders’ meetings. Such candidate lists must be deposited at the registered office of Eni SpA and published in at least three Italian newspapers having general circulation in Italy (two of which must be business dailies). Publication of the candidate list presented by the Board of Directors shall occur at least 20 days before the first call (as defined below) of the Shareholders’ Meeting. Such term is reduced to 10 days in the case of candidate lists proposed by shareholders. Each shareholder may present or participate in the presentation of only one candidate list and each candidate may appear on only one list.

Under Eni’s by-laws,By-laws, the election of the members of the Board of Directors will proceed as follows:

According to Article 17.3 of the By-laws, as amended by the Shareholders’ Meeting held on May 24, 2007, Board members are elected in the following manner:

a)		seven-tenthsseven tenths of the members to be elected will be drawn out from the candidate list that receives the majority of votes expressed by the shareholdersShareholders in the numerical order in which they appear on the list, rounded off in the event of a fractional number to the next lower number;
b)		the remaining Board members will be drawn out from the other candidate lists; said lists shall not be linked in any way, even indirectly, to the shareholders who have presented or voted the list that has obtained the highest number of votes; to this purpose the votes obtained by each candidate list will be divided by one or two 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 given in which they appear in each list.the lists themselves. Quotients thus assigned to candidates of said lists will be set in one decreasing numerical order. Those who obtain the highest quotients will be elected. In the event that more than one candidate obtains the same quotient, the candidate elected will be the one of the list that has not hitherto had a Board member elected or that has elected the least number of Board members. In the event that none of the lists has yet elected a Board member or that all of them have elected the same number of Board members, the candidate from all such lists who has obtained the largest number of votes will be elected. In the event of equal list votes and equal quotient, a new vote will be taken by the entire Shareholders’ Meeting and the candidate elected will be the one who obtains a simple majority of the votes;
c)		if through the procedure described above the minimum number of independent Directors set by these By-laws is not elected, the quotient is calculated according to letter b) above in order to be assigned to the candidates present in each list; the independent candidates not yet drawn from the lists pursuant to letters a) and b) above, who have got the highest quotients will be elected in order to meet the provision of the By-laws on the number of the independent Directors. The Directors so appointed will replace the non independent Directors to whom the lowest quotients have been assigned. If the number of independent candidates is lower than the minimum limit set by the By-laws, the shareholders’ meeting will make a resolution with the majorities prescribed by the law to substitute the not independent candidates who have the lowest quotients; and

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d)

to appoint Board members for any reason not covered by the terms of the aforementioned procedure, the Shareholders’ Meeting will make a resolution with the majorities prescribed by the law in order to assure that the Board composition complies with the current legislation and the By-laws.

The electionvote by list procedure shall apply only in case of membersappointment of the entire Board of Statutory Auditors is governed by the same rules, except that the Board of Directors may not present a candidate list to the Board of Statutory Auditors, and that, pursuant to Decree No. 58, Eni’s by-laws provides that, in the event of a Board of Statutory Auditors formed by more than three Auditors, at least two of them be appointed by minority shareholders.Directors.

The Extraordinary Shareholders’ Meeting held on May 28, 2004 approved an amendment to Article 17.3 of the by-lawsBy-laws according to which companies that are controlling entities or under common control, as defined by Article 2359, first Paragraph,paragraph, of the Civil Code, or companies controlled by the same entity of the company presenting a list shall not present nor take part in the presentation of another candidate list.

Several provisions of Italian legislation are intended to increase the protection of minority shareholders. In particular: (i) shareholders’ meetings must be called also upon request of holders of at least 10% of the outstanding Shares (the Board of Directors, however, may refuse to call the meeting when conflicting with the company’s interests) (Article 2367 c.c.)Civil Code); (ii) the attendance quorum required for a valid shareholder meeting at an extraordinary shareholders’ meetingExtraordinary Meeting is more than 50% of the outstanding shares on first call, while on second call the attendance quorum is more than 1/3 of the Shares outstanding and on third call the attendance quorum is more than 1/5 of the shares outstanding. On first, second and third call, resolutions may be passed with the approvalapproved by a majority of at least two-thirds2/3 of the sharesShares represented at the meeting, on the first, second or third callShareholders’ Meeting (Articles 2368-2369 c.c.) by the majority, one-third and one-fifth of the outstanding share capital, respectively;Civil Code); (iii) shareholders’ actions against the Board of Directors and the Statutory Auditors. Official Receivers and the Managing DirectorAuditors may be initiated by shareholders holding at least 5%2.5% of the outstanding shares (Article 2393 bis c.c.)(Articles 2393-bis and 2407 Civil Code); (iv) the actions for which a single shareholder may sue the directors for individual damages (Article 2394-bis c.c.); and (v) collective shareholders’ complaints2395 Civil Code) or complain to the Board of Statutory Auditors may be promotedabout directors’ misconduct; if the complaint is filed by shareholders representing at least 2% of the share capital of a listed company, the Statutory Auditors are required to investigate with no delay and report to the shareholders’ meeting (Article 2408 Civil Code); and (v) shareholders holding at least 5% of the outstanding share may report to the Court directors’ serious misconduct. The Court may order the inspection of the management, adopt interim measures and replace directors with a judicial Commissioner (Article 2409 c.c.)Civil Code). The company’s by-lawsBy-laws may further lower the thresholds in (iii), (iv) and (v) and increase the voting quorums under (ii). Effective from July 1, 1998, accounting control functions are under

Law of December 28, 2005, the exclusive competenceso called "Legge sulla tutela del Risparmio" (protection of company’s independent auditors, and the company’s Board of Statutory Auditors no longer carries out such functions.

Further protectionsavings), contains further protections to Italian minority shareholders was introduced by Law of January 12, 2006, the so called "Legge Risparmio", that provided for among others the followings:listed companies; in particular, said law:

•		sets new independence and honorability requirements for directors of listed companies;
•		introduces the list vote for the election of directors asdirectors. The law states that shareholders may present lists of candidates to the office of director if they hold a protectionparticipation in the share capital of minority shareholders and delegates tothe issuer not higher than one fortieth of its share capital or the different entity set by Consob, the Italian financial markets regulator, in consideration of the market capitalization, the free float and the shareholdings of the listed company;
•		delegates to Consob the power to regulate the appointment of a statutory auditor by minority shareholders. The lawConsob states that shareholders representing at least 2.5%may present lists of candidates to the office of Statutory Auditor if they hold a participation in the share capital can present a list;of the issuer not smaller than 0.5% and not higher than 4.5% of its share capital; for each issuer the entity of said shareholding shall be determined in consideration of the entity of the free float and the shareholdings of the listed company;
•		delegates to Consob the determination of the limits to the number of memberships of boards of directors and boards of statutory auditors that directors andstatutory auditors of listed companies can hold in other listed companies;
•		states that the chairman of the Board of Statutory Auditors must be elected among the candidates presented by minority lists; and
•		introduces the function of athe "Manager responsible for the preparation of financial reporting documents" to be appointed in accordance with rules set out in a company’s by-laws, subject to a prior advice on part of the Board of Statutory Auditors. The "Manager responsible for the preparation of financial reporting documents": (i) must possess the professional requirements set by the By-laws; (ii) defines accounting and administrative procedures and controls for the preparation of the consolidated financial statements, the parent company’s financial statements and any other financial reporting information prepared and disclosed; (iii) declares the coherence between accounting items, accounting books and acts and financial information disclosed to the financial market and investors; and (iv) certificates the adequacy and the effective application of accounting rules and procedures during the period of preparation of the consolidated financial statements, the parent company’s financial statements and the semi-annual accounts. This certification is set forth in a specific report attached to the annual and semi-annual financial reports according to a format established by Consob.

Companies must amend their own by-laws within twelve months from the entry into force of the law. Certain provisions of this law were already reflected into Eni’s by-laws; certain other provisions have beenBy-laws or were incorporated into Eni’s by-laws effective May 25, 2006By-laws by Eni’s Extraordinary Shareholders Meeting.Meeting on May 25, 2006. The provisions of this law regarding the presentation, deposit and publication of list of candidates for the office of director or statutory auditor do not apply to Eni as, for the Company, the matter is disciplined by the special legislation contained in Law No. 474 issued on July 30, 1994, regarding the so called "privatized companies".

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Legislative Decree No. 303/2006 introduced changes to this law on protection of savings; in particular:

•		at least one Board member, if their number is not higher than seven, or two Board members, if their number is higher than seven, shall have the independence requirements set forth by the current legislation and the By-laws. If these requirements elapse the Board member will be removed (Article 147-ter);
•		the professional requirements of the "Manager responsible for the preparation of financial reporting documents" (Article 154-bis).

Eni’s By-laws was already in compliance with the above mentioned provisions regarding the appointment of directors and statutory auditors and the qualification of the directors. In particular, Eni By-laws sets at three the number of independent Directors if the Directors are more than five.

On May 24, 2007 Eni’s Extraordinary Shareholders Meeting resolved to modify Eni’s By-laws to provide that the Manager responsible for the preparation of financial reporting documents be knowledgeable in accounting and administration matters, in particular this person be chosen among people who, for at least three years, have exercised:

a)		administration or control activities or managerial tasks in companies listed on regulated stock exchanges in Italy or other European Union countries or other countries member of OECD with a share capital not less than two million euro, or
b)		audit activities in the companies mentioned in letter a) above, or
c)		professional activities or teaching activities in universities in the financial or accounting sectors, or
d)		managerial functions in public or private bodies in the financial, accounting, or control sectors.

Reporting Requirementsrequirements and Restrictionsrestrictions on Acquisitionsacquisitions of Sharesshares

Under Consob Regulation, any direct or indirect participation in excess of 2%, 5%, 7.5%, 10% and subsequent multiples of 5% in the voting shares of a listed company must be notified to such company and to Consob, within five open market days from the effectiveness of the transaction triggering such obligation to notify.

The obligation to notify also applies to any direct or indirect participation owned through ADSs.ADRs.

For listed companies, whose by-lawsBy-laws impose a maximum limit on the number of shares that may be held by any shareholder, Consob is entitled to fix different relevant thresholds by decree.

Further, the reduction of the foregoing interest below the relevant thresholds must be notified within the same terms.

Shares held in excess of any such threshold cannot be voted in the event the above notices have not been provided. Any resolution in violation of such limitation can be voided if challenged in court by shareholders and Consob, if the resolution would have not bebeen adopted without the consent of the shares in question.

The relevant thresholds noted above shall be calculated including: (i) shares registered in the name of the relevant reporting person whose underlying voting rights are attributed to third parties, and viceversa; and (ii) shares held through third parties and shares whose voting rights are attributable to such third parties, excluding shares registered in the name of, or endorsed to, fiduciaries, as well as shares whose voting rights are attributed to intermediaries for purposes of the management of mutual or individual savings.

Furthermore, calculation of 5%, 10%, 25%, 50% and 75% thresholds shall also take into account shares outstanding which the relevant reporting person is entitled to purchase or to sell directly or through third parties. Shares to be purchased through the exercise of conversion rights or warrants shall be calculated only in the event the acquisition can take place within a sixty days period.

In the event the same relevant participation is directly or indirectly held by two or more entities, then the obligation to notify may be satisfied by one of such person, provided that completeness of information is guaranteed.

Any participation exceeding 10% of the voting capital of an unlisted company, including any foreign company, owned by a listed company must be notified to such non-listed company within seven days from reaching such threshold. Similarly, the non-listed company must be notified about any subsequent reduction of such participation below the 10% threshold.

Listed companies are also required to notify Consob of their participation exceeding 10% of the voting share capital of non-listed companies owned at the end of the first six months and of the full year. Such notification is due within 30 days from the date of approval of the Annual Report and the Report on the First Six Months, respectively.

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In the event the same relevant participation is directly or indirectly held by two or more entities, then the obligation to notify may be satisfied by one of such entities, provided that completeness of information is guaranteed.

The 10% threshold shall be calculated including: (i) shares registered in the name of the relevant listed company, even if voting rights are attributable to third parties; (ii) shares whose voting rights are attributable to the relevant listed company, in the event such voting rights entitle such party to exercise a dominant or material influence at the ordinary shareholder’s meeting; and (iii) shares registered in the name of third parties and shares whose voting rights are attributable to third parties.

In addition to the rules of Article 2359 bis2359-bis of the Italian civil code, governing the acquisition of shares of the parent company by a controlled subsidiary, Decree No. 58/1998 regulates additional cross-ownership matters as follows.

Cross-ownership between listed and non-listed companies may not exceed 2% of the shares of the listed company or 10% of the shares of the non-listed company. For calculating these ownership thresholds, the rules for calculations of interests in listed and non-listed companies apply.

The company ultimately exceeding the 2% or 10% interest in a listed or unlisted company respectively may not exercise the voting rights on the shares held in excess of such thresholds; such shares must be sold within 12 months.

If anyone holds an interest exceeding 2% of the share capital of a listed company, such listed company or any entity controlling such listed company may not acquire an interest exceeding 2% of the share capital of a listed company controlled by said holder. If the foregoing limit is exceeded, the holder who last exceeded the foregoing limit or both the holders, if it is not possible to ascertain which holder exceeded such limit last, may not exercise the voting right related to the shares exceeding the foregoing limit. Such limits are not applicable in case of a tender offer for acquiring at least 60% of the ordinary shares of a listed company. For a description of the limitation on cross-ownership between a company and its subsidiaries, see "Purchase by Eni SpA of its Own Shares".

Under Decree No. 58, any agreement, in whatever form, intended to regulate the exercise of voting rights in a listed company or in the companies controlling a listed company, together with any of its subsequent amendments, renewal or termination, must be: (i) notified to Consob, within five days from its execution; (ii) disclosed to the public through the publication, in summary form, in one Italian newspaper having general circulation, within ten days from its execution; and (iii) deposited in the Companies’ Register of the place where such listed company has its registered office within 15 days from its execution.

The same requirements also apply to agreements, in whatever form, that: (a) impose an obligation of prior consultation for the exercise of voting rights in a listed company and in its controlling companies; (b) contain undertakings limiting the transferability of shares and other securities granting rights for the acquisition or subscription of shares; (c) provide for the acquisition of the shares and securities; and (d) contemplate or cause the exercise, also in association with other persons, of dominant influence over the listed company that issued the shares and its controlled entities.

In the event the obligations set out above are not completely satisfied, then the agreement is ineffective and the voting rights connected to the relevant shares may not be exercised. In case of violation of such limitation imposed on the voting rights, a resolution can be challenged if such resolution would have not been approved without the vote of such shares.

If the parties have agreed upon the duration of the agreement, such duration cannot exceed three years. In absence of agreement, each party to the agreement can withdraw from such an agreement by giving a six month notice.

In accordance with Law No. 287 of October 10, 1990, any acquisition of sole or joint control over a company that would create or strengthen a dominant position in the domestic market in a manner that eliminates or significantly reduces competition is prohibited. However, if the acquiring party and the company to be acquired operate in more than one EU member state and together exceed certain revenue thresholds, the antitrust approval of the acquisition falls within the exclusive jurisdiction of the European Commission.

Shareholders’ Meetingsmeetings

Shareholders’ meetings are convened through a notice to be published on the Italian Official Gazette or the following newspapers: "Il Sole 24 Ore", "Corriere della Sera" and "Financial Times", according to the By-laws and in compliance with the rules in force regulating the exercise of the vote by mail.

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Registered shareholders are entitled to attend and vote at ordinary and extraordinary shareholders’ meetings. Each holder is entitled to cast one vote for each share held. Votes may be cast personally, by proxy or by mail, in accordance with applicable regulations. Meetings are called by Eni SpA’s Board of Directors when required or deemed necessary, or on request of shareholders representing at least 10% of outstanding shares, who must provide an agenda of the matters to be discussed to the Chairman of the Board of Directors. Meetings may also be called, by the Board of Statutory Auditors or by two auditors, provided that such call has been notified in advance. Shareholders representing at least one fortieth of Eni share capital, both on an individual and a cumulative basis, may ask, within five days as of the date of publication of the shareholders’ meeting notice, to add other items in the agenda. The request shall contain the matters to be proposed to the shareholders’ meeting. Said faculty may not be exercised on the matters upon which, pursuant to the applicable legislation, the shareholders’ meeting resolves on the basis of a proposal of the Board of Directors or on the basis of a project or report of the Board. The integrations accepted by the Board shall be published at least ten days before the shareholders’ meeting date, through a notice to be published as indicated above.

Ordinary Shareholders’ Meetings must be convened at least once a year.year within 180 days after the end of the fiscal year of the parent company Eni SpA. The notice convening the meeting is to be published at least 30 days before the date fixed for the meeting. At these ordinary meetings, shareholders approve the financial statements, resolve upon dividend distribution, if any, when necessary, may appoint Directors, Statutory Auditors and when necessary, the external auditors, determine their remuneration and vote on the liability of Directors and Statutory Auditors and approve Shareholders’ Meeting regulation. Under current legislation, the reports and proposals of the Board of Directors to the Ordinary Shareholders’ Meeting for any item on the agenda of the meeting and the financial statements to be submitted to the shareholders’ approval, shall be deposited at the shareholders’ disposal at the Company’s registered office and at Borsa Italiana.

Extraordinary meetings of shareholders may be called to pass upon proposed amendments to the by-laws,By-laws, capital increases, mergers, consolidations, demerger, issuance of debentures, appointment of liquidators and similar extraordinary actions. The notice of a Shareholders’ Meeting generally specifies two meeting dates ("calls") and because Eni SpA is listed such notice may specify three calls for Extraordinary Shareholders’ Meetings.

The attendance quorum required for a valid shareholder action at an ordinary meeting on first call is 50% or more of the outstanding shares, while on second call there is no attendance quorum requirement. At a duly called ordinary meeting, in both first and second calls, resolutions may be approved by a simple majority of the shares represented at the meeting.

The attendance quorum required for a valid shareholder meeting at an Extraordinary Meeting is more than 50% of the outstanding shares on first call, while on second call the attendance quorum is more than 1/3 of the Shares outstanding and on third call the attendance quorum is more than 1/5 of the shares outstanding. On first, second and third call, resolutions may be approved by a majority of 2/3 of the Shares represented at the Shareholders’ Meeting.

The financial statements of Eni SpA are submitted for approval to the annual shareholders’ meeting, which must be convened within 180 days after the end of the financial year. Shareholders are informed of all meetings to be held by publication of a notice in the Gazzetta Ufficiale and in at least one Italian newspaper of general circulation at least 30 days before the date fixed for the meeting. Under current legislation, the reports and proposals of the Board of Directors to the Shareholders’ Meeting for any item on the agenda of the meeting and the financial statements to be submitted to the shareholders’ approval, shall be deposited at the shareholders’ disposal at the Company’s registered office and at Borsa Italiana.

Admission to the meeting is granted to shareholders who requesteddeliver the notification of attendance pursuant to Article 34 of Consob Deliberation No. 11768 of December 23, 1998,communication issued by financial intermediaries under applicable laws at least fivetwo business days prior to the date of the meeting on first call. The Extraordinary Shareholders’ Meeting, held on May 28, 2004, approved the amendment of Article 13 of the by-laws according to which the term is reduced to two days. For a description of the procedures to be followed by Beneficial Owners of ADRs to attend shareholders’ meetings and exercise voting rights with respect to underlying Shares, see "Description of American Depositary Receipts –- Voting of Deposited Securities". Beneficial Owners of Shares held with Monte Titoli need only to instruct the relevant banks associated with Monte Titoli which holdholds their accounts to procure admission tickets and proxy forms.

The Extraordinary Shareholders’ Meeting held on May 28, 2004, approved the amendment to Article 23 of the by-lawsBy-laws according to which the Board of Director is allowed to resolve: (i) the merger and demerger of at least 90% directly owned subsidiaries; (ii) the establishment and winding up of branches; and (iii) the amendment to the by-lawsBy-laws to adequate its provisions to the current legislation.

Pursuant to Legislative Decree No. 213 dated June 24, 1998, Eni SpA’s shares have been "dematerialized" (the shares are not longer incorporated in a certificate). Therefore for the exercise of the rights connected to outstanding Shares not yet dematerialized, Shareholders must first deliver such shares to a financial intermediary associated with Monte Titoli.

Shareholders may appoint proxies by completing the form attached to the admission ticket. Directors, Statutory Auditors, auditors and employees of Eni SpA or of controlled companies, and the External Auditors of Eni SpA, banks and Monte Titoli may not be appointed proxies. Any one proxy may not represent more than 200 shareholders of Eni SpA. A proxy may be appointed for a single meeting, including the first, second and third call thereof unless the proxy is general or given to a company, association, foundation, other entities or institutions to an employee. The by-lawsBy-laws of Eni SpA provide for voting by mail. There are no limitations arising under Italian law or the by-lawsBy-laws of 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.

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Rules relating to proxies are established by Decree No. 58 and the related Consob Regulation No. 11971 dated May 14, 1999. Accordingly whereby: (i) proxies may be solicited, collected or exercised by banks, investment firms and shareholders’ associations; (ii) proxies may be granted only in respect of shareholders’ meetings that have been called; and (iii) proxies may be limited to voting on particular proposals. Decree No. 58 also allows companies to implement vote by mail procedures and establishes new regulations relating to, among other things, takeovers, cross-shareholdings, shareholders’ agreements and saving shares.procedures.

Meetings of Eni’s shareholders are conducted according to the "Eni SpA’s Shareholders’ Meeting Regulation" as approved by the Ordinary Shareholders’ Meeting of Eni on December 4, 1998 and amended by the Ordinary Shareholders’ Meeting held on May 28, 2004 in order to adequate the provisionprovisions to the new rules contentcontained in the Civil Code for the participation to the Shareholders’ Meetings.

Subscription Rightsrights

New shares may be issued pursuant to a resolution of shareholders at an extraordinary meeting. Under the Italian law, shareholders have a preemptive right to subscribe for new issues of shares and debentures convertible into shares in proportion to their respective shareholdings. Subject to certain conditions, principally designated to prevent dilution of the rights of shareholders, this right may be waived or limited by resolution taken by an extraordinary Shareholders’ Meetingshareholders’ meeting by the affirmative vote of more than 50% of the shares outstanding. Such percentage applies to all calls of the meeting.

Liquidation Rightsrights

Under the Italian law, subject to the satisfaction of the claims of all other creditors, shareholders are entitled to athe distribution of the remaining liquidated assets of Eni SpA in proportion to the nominal value of their shares. Holders of savings shares and preferred shares, if foreseen by the by-laws,By-laws, in the event such shares are issued by Eni SpA, are entitled to a preferred right to distribution from liquidation up to their nominal value. Thereafter, if there are surplus assets, ordinary shareholders rank equally in the distribution of such assets. Shares rank pari passu among ordinary shareholders in a liquidation.

 

Material Contracts

None.

 

Documents on Display

It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at 100 F Street, NE, Room 1580, Washington, DC 20549 and at the SEC’s other public reference rooms in New York City and Chicago. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The SEC filings are also available to the public from commercial document retrieval services and in the website maintained by the SEC at www.sec.gov. It is also possible to read and copy documents referred to in this annual report on Form 20-F at the New York Stock Exchange, 20 Broad Street, 17^th floor, New York.

 

Exchange Controls

There are no exchange controls in Italy. Residents and non-residents of Italy may effect any investments, divestments and other transactions that entail a transfer of assets to or from Italy, subject only to the reporting, record-keeping and disclosure requirements described below. In particular, residents of Italy may hold foreign currency and foreign securities of any kind, within and outside Italy, while non-residents may invest in Italian securities without restriction and may export from Italy cash, instruments of credit or payment and securities, whether in foreign currency or euro, representing interest, dividends, other asset distributions and the proceeds of dispositions.

Updated reporting and record-keeping requirements are contained in recentthe Italian legislation which implements an EU directive regarding the free movement of capital. Such legislation requires that transfers into or out of Italy of cash or securities in excess of euro 12.5 thousand be reported in writing to the Ufficio Italiano Cambi (the Italian Exchange Office) by residents or non-residents that effect such transfers directly, or by banks, securities dealers or Poste Italiane SpA (Italian Mail) that effect such transactions on their behalf. In addition, banks, securities dealers or Poste Italiane SpA effecting such transactions on behalf of residents or non-residents of Italy are required to maintain records of such transactions for five years, which records may be inspected at any time by Italian tax and judicial authorities.

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Non-compliance with these reporting and record-keeping requirements may result in administrative fines or, in the case of false reporting and in certain cases of incomplete reporting, criminal penalties. The Ufficio Italiano Cambi will maintain reports for a period of ten years and may use them, directly or through other government offices, to police money laundering, tax evasion and any other crime or violation.

 

Taxation

The information set forth below is a summary only, and Italian, the United States and other tax laws may change from time to time. Holders of shares and ADSsADRs should consult with their professional advisors as to the tax consequences of their ownership and disposition of the shares and ADRs, including, in particular, the effect of tax laws of any other jurisdiction.

Italian Taxation

The following is a summary of the material Italian tax consequences of the ownership and disposition of shares or ADRs as at the date hereof and does not purport to be a complete analysis of all potential tax effects relevant to the ownership or disposition of shares or ADRs.

Income tax

Dividends received by Italian resident individuals in relation to participationsinterest exceeding 2% of the voting rights or 5% of the share capital ("substantial participations"interest") are included in the taxable income subject to personal income tax to the extent of 40% of their amount. Personal income tax applies at progressive rates ranging from 23% to 43% plus local surtaxes. Dividends received by Italian resident individuals in relation to non-substantial participationsinterest not related to the conduct of a business are subject to a substitute tax of 12.5% withheld at the source by the dividend paying agent. This being the case, the dividend is not to be included in the individual’s tax return. If the non-substantial participations areinterest is related to the conduct of a business, dividends received are included in the taxable business income to the extent of 40% of their amount.

Dividends received by Italian pension funds are included in the overall result of the pension funds subject to aan 11% substitute tax. Dividends received by Italian collective investment funds are included in the overall result of the collective investment funds subject to a 12.5% substitute tax. Dividends received by Italian real estate investment funds are not subject to tax in the hands of the real estate investment funds. Entities exempt from IRES (company income tax) are subject to the substitute tax at the rate of 27%.

Dividend paid to non-Italian residents are subject to the same substitute tax levied at source by the dividend paying agent at the rate of 27%, provided that the participations areinterest is not connected to an Italian permanent establishment. Up to four-ninths of the substitute tax withheld might be recovered by the non-resident shareholder from the Italian Tax Authorities upon provision of evidence of full payment of income tax on such dividend in his/her country of residence in an amount at least equal to the total refund claimed.

The substitute tax may be reduced under the tax treaty in force between Italy and the country of residence of the Beneficial Owner of the dividend. Italy has executed income tax treaties with approximately 70 foreign countries, including all EU member states, Argentina, Australia, Brazil, Canada, Japan, New Zealand, Norway, Switzerland, the United States and some countries in Africa, the Middle East and the Far East. Generally speaking, it should be noted that tax treaties are not applicable where the holder is a tax-exempt entity or, with few exceptions, a partnership or a trust.

In order to obtain the treaty benefit (reduced substitute tax rate) at the same time of payment, the Beneficial Owner must file an application to the dividend paying agent chosen by the Depositary stating the existence of the conditions for the applicability of the treaty benefit, together with a certification issued by the foreign Tax Authorities stating that the shareholder is a resident of that country for treaty purposes.

Under the tax treaty between the United States and Italy, dividends derived and beneficially owned by a U.S. resident who holds less than 10% of the Company’s shares are subject to an Italian withholding or substitute tax at a reduced rate of 15%, provided that the participations areinterest is not effectively connected with a permanent establishment in Italy through which the U.S. resident carries on a business or a fixed establishment in Italy through which such U.S. resident performs independent personal services (for further details please refer to the relevant provisions set forth in 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%.

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Based on the certification procedure required by the Italian Tax Authorities, to benefit from the direct application of the 15% substitute tax the U.S. shareholder must provide the dividend paying agent with a certificate obtained from the U.S. Internal Revenue Service (the "IRS") with respect to each dividend payment. The request for that certificate must include a statement, signed under penalties for perjury, to the effect that the shareholder is a U.S. resident individual or corporation, and does not maintain a permanent establishment in Italy, and must set forth other required information. The normal time for processing requests for certification by the IRS is normally about six to eight weeks.

Where the Beneficial Owner has not provided the above mentioned documentation, the dividend paying agent will deduct from the gross amount of the dividend the substitute tax at the statutory rate of 27%. The U.S. recipient will then be entitled to claim from the Italian Tax Authorities the difference ("treaty refund") between the domestic rate and the treaty one by filing specific forms (certificate) with the Italian Tax Authorities.

According to the Italian tax law as reflected in the Deposit Agreement, the Company is not involved: (i) in withholding amounts due by holders of ADSsADRs to relevant taxing authorities in connection with any distributions relating to ADSs;ADRs; or (ii) in the procedures through which certain holders of ADSsADRs may obtain tax rebates, credits, refunds or other similar benefits. Pursuant to the Deposit Agreement, the custodian and the Depositary have undertaken to use reasonable efforts to make and maintain arrangements to enable persons that are considered the United States residents for purposes of applicable law to receive any rebates or tax credits (pursuant to treaty or otherwise) relating to distributions on the ADSsADRs to which such persons are entitled 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 ADSsADRs to which such holders are entitled and to provide, at least annually, a written notice, in a form previously agreed to by the Company, to the holders of ADSsADRs of any necessary actions to be undertaken by such Holders.

Transfer tax

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 authorized intermediaries (provided that certain conditions are met); and
•		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.below;
•		Euroeuro 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.SIM; and
•		Euroeuro 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 Taxgains tax

This paragraph applies with respect to capital gains out of the scope of a business activity carried out in Italy.

Gains realized by Italian resident individuals upon the sale of substantial participations areinterest is included in the taxable base subject to personal income tax to the extent of 40% of their amount, while gains realized upon the sale of non substantial participations areinterest is subject to a substitute tax at a 12.5% rate.

For gains deriving from the sale of non substantial participations,interest, two different systems may be applied at the option of the shareholder as an alternative to the filing of the tax return:

•		the so-called "administered savings" tax regime (risparmio amministrato), based on which intermediaries acting as shares depositaries shall apply a substitute tax (12.5%) on each gain, on a cash basis. If the sale of shares generated a loss, said loss may be carried forward up to the fourth following year; and
•		the so-called "portfolio management" tax regime (risparmio gestito) which is applicable when the shares form part of a portfolio managed by an Italian asset management company. The accrued net profit of the portfolio is subject to a 12.5% substitute tax to be applied by the portfolio.

Gains realized by non residentsnon-residents from non substantial participationsinterest in listed companies are deemed not to be realized in Italy and consequently are not subject to the capital gains tax.

On the contrary, gains realized by non-residents from substantial participationsinterest even in listed companies are deemed to be realized in Italy and consequently they are subject to the capital gains tax.

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However double taxation treaties may eliminate the capital gains tax. Under the income tax convention between the United States and Italy, a U.S. resident will not be subject to the capital gains tax unless the shares or ADRs form part of the business property of a permanent establishment of the holder in Italy or pertain to a fixed establishment available to a shareholder in Italy for the purposes of performing independent personal services. U.S. residents who sell shares may be required to produce appropriate documentation establishing that the above-mentioned conditions of non-taxability pursuant to the convention have been satisfied.

Inheritance and Gift Taxgift tax

No inheritancePursuant to Law Decree No. 262 of October 3, 2006, converted with amendments by Law No. 286 of November 24, 2006 effective from November 29, 2006, and Law No. 296 of December 27, 2006, the transfers of any valuable assets (including shares) as a result of death or donation (or other transfers for no consideration) and the creation of liens on such assets for a specific purpose are taxed as follows:

a)		4 per cent: if the transfer is made to spouses and direct descendants or ancestors; in this case, the transfer is subject to tax on the value exceeding euro 1,000,000 (per beneficiary);
b)		6 per cent: if the transfer if made to brothers and sisters; in this case, the transfer is subject to the tax on the value exceeding euro 100,000 (per beneficiary);
c)		6 per cent: if the transfer is made to relatives up to the fourth degree, to persons related by direct affinity as well as to persons related by collateral affinity up to the third degree; and
d)		8 per cent: in all other cases.

If the transfer is made in favor of persons with severe disabilities, the tax applies in Italy to the transfer of shares or ADRs by reason of death. Transfer of shares or ADRs, even if held outside Italy, by reason of donation are subject to the ordinary Italian transfer tax on the value of the gift exceeding euro 180,759.91, only if the donee1,500,000. Moreover, an anti-avoidance rule is not the spouse, a direct descendant or a relative up to the fourth degreeprovided for by Law No. 383 of the donor. However, tax applies in the fixed amount of euro 129.11.

An anti avoidance rule applies toOctober 18, 2001 for any gift of assets (such as(including shares) which, if sold for consideration, would give rise to capital gaingains subject to a substitute tax as per(imposta sostitutiva) provided for by Decree No. 461 of November 21, 1997. In particular, if the donee sells the shares for consideration within five years from the receipt thereof as a gift, the donee is required to pay a relevant substitute tax will apply on the capital gain determinedgains as if the gift had never been given.
taken place.

United States Taxation

The following is a summary of certain U.S. federal income tax consequences to U.S. Holders (as defined below) of the ownership and disposition of Shares or ADSs.ADRs. This summary is addressed to U.S. Holders that hold Shares or ADSsADRs as capital assets, and does not purport to address all material tax consequences of the ownership of Shares or ADSs.ADRs. The summary does not deal with special classes of investors, such as tax-exempt entities, dealers in securities, traders in securities that elect to mark to market, certain insurance companies, broker-dealers, investors liable for alternative minimum tax, investors that actually or constructively own 10% or more of Eni SpA’s Shares, investors that hold Shares or ADSsADRs as part of a straddle or a hedging or conversion transaction and investors whose "functional currency" is not the U.S. dollar.

This summary is based on the tax laws of the United States (including the Internal Revenue Code of 1986, as amended, (the "Code") its legislative history, existing and proposed regulations thereunder, published rulings and court decisions) as in effect on the date hereof, and which are subject to change (or changes in interpretation), possibly with retroactive effect. The summary is based in part on representations of the Depositary and assumes that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. U.S. Holders should consult their own tax advisors to determine the U.S. federal, state and local and foreign tax consequences to them of the ownership and disposition of Shares or ADSs.ADRs.

As used in this section, the term "U.S. Holder" means a beneficial owner of Shares or ADSsADRs who or that is: (i) a citizen or resident of the United States; (ii) a domestic corporation; (iii) an estate the income of which is subject to the United States federal income tax without regard to its source; or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.

The discussion does not address any aspects of the United States taxation other than federal income taxation. In particular, U.S. Holders are urged to confirm their eligibility for benefits under the income tax convention between the United States and Italy with their advisors and to discuss with their advisors any possible consequences of their failure to qualify for such benefits.

In general, and taking into account the earlier assumptions, for the United States federal income tax purposes, U.S. Holders who own ADRs evidencing ADSsADRs will be treated as owners of the underlying Shares. Exchanges of Shares for ADRs and ADRs for shares generally will not be subject to the United States federal income tax.

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Dividends

Distributions paid on the shares generally will be treated as dividends for U.S. federal income tax purposes to the extent paid out of Eni SpA’s current or accumulated earnings and profits as determined for U.S. federal income tax purposes, but will not be eligible for the dividends received-deduction generally allowed to corporations. To the extent that a distribution exceeds Eni SpA’s earnings and profits, it will be treated, first, as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in the shares or ADSs,ADRs, and thereafter as capital gain. A U.S. Holder will be subject to U.S. federal taxation, on the date of actual or constructive receipt by the U.S. Holder (in the case of Shares) or by the Depositary (in the case of ADSs)ADRs) with respect to the gross amount of any dividends, including any Italian tax withheld therefrom, without regard to whether any portion of such tax may be refunded to the U.S. Holder by the Italian tax authorities. If you are a non-corporate U.S. Holder, dividends paid to you in taxable years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the Shares or ADSsADRs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the shares or ADSsADRs generally will be qualified dividend income. The amount of the dividend distribution that you must include in your income as a U.S. Holder will be the U.S. dollar value of the euro payments made, determined at the spot euro/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.

Subject to certain conditions and limitations, Italian tax withheld from dividends will be treated as a foreign income tax eligible for credit against the U.S. Holder’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. To the extent a refund of the tax withheld is available to a U.S. Holder under Italian law or under the income tax convention, the amount of tax withheld that is refundable will not be eligible for credit against your United States federal income tax liability. See "Italian Taxation – Income Tax" above, for the procedures for obtaining a tax refund. Dividends paid on the Shares will be treated as income from sources outside the United States. Dividend paid in taxable years beginning before January 1, 2007 generally will be of "passive" or "financial services" income, and dividends paid in taxable years beginning after December 31, 2006 will, depending on your circumstances, be "passive" or "general" income which, in either case, is treated separately from other types of income for purpose of computing the foreign tax credit allowable to you.

Sale or Exchangeexchange of Sharesshares

In general, a U.S. Holder will recognize gain or loss for U.S. federal income tax purposes on the sale or exchange of Shares or ADSsADRs equal to the difference between the U.S. Holder’s adjusted basis in the shares or ADSsADRs (determined in U.S. dollars), as the case may be, and the amount realized on the sale or exchange (or if the amount realized is denominated in a foreign currency its U.S. dollar equivalent, determined at the spot rate on the date of disposition). Generally, such gain or loss will be treated as capital gain or loss if the Shares or ADSsADRs are held as capital assets and will be a long-term capital gain or loss if the shares or ADSsADRs have been held for more than one year on the date of such sale or exchange. Long-term capital gain of a non-corporate U.S. Holder that is recognized in taxable years beginning before January 1, 2011 is generally subject to a maximum tax rate of 15%. In addition, any such gain or loss realized by a U.S. Holder generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes.

 

Item 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the possibility that changes in currency exchange rates, interest rates or oil, natural gas, petroleum products and electricity prices will adversely affect the value of the group’s financial assets, liabilities or expected future cash flows. Eni has developed policies aimed at managing the market risk inherent in its activities and, in accordance with these policies, the group enters into various transactions using derivative financial and commodity instruments (derivatives). In managing these risks, Eni follows a set of guidelines and procedures based on a framework envisaging centralization of Group treasury activities in two captive finance companies operating in the Italian and international financial markets. In particular, the finance company operating on the domestic market (Enifin) has historically managed all the transactions concerning currencies and derivative financial contracts. The commodity risk is managed at the business unit level, while Enifin has managed the negotiation of hedging derivatives. From January 1, 2007, the tasks previously undertaken by Enifin have been performed by Eni SpA following the amalgamation of Enifin. The framework defined by Eni’s guidelines prescribes that measurement and control of the market risk are to be performed based on maximum acceptable levels of risk exposure defined in accordance with value-at-risk techniques. These techniques make a statistical assessment of the market risk, i.e. potential gain or loss in fair values.

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Calculation and measurement techniques for interest rate and foreign exchange risks followed by Eni are in accordance with established banking standards (such standards are established by the Basel Committee). However, management believes that the tolerable level of risk adopted by Eni Group companies is more conservative than that recommended by the Basel Committee for financial institutions.

As outlined above, Eni uses derivatives to minimize market risks related to changes in interest rates and exchange rates and to manage exposure to commodity price fluctuations. Derivatives are contracts whose value is derived from one or more underlying financial instruments, indices or prices that are defined in the contract. The group also trades derivatives in conjunction with these risk management activities. Eni does not enter into derivative transactions on a speculative basis.

All derivative activity, whether for risk management or trading, is carried out by specialist teams that have the appropriate skills, experience and supervision. Eni’s Board of Directors has defined a policy that requires the Treasury Department of Eni SpA to determine the maximum level of foreign exchange rate and interest rate risks that can be assumed by Eni’s companies responsible for treasury operations. Such policy also defines the eligible counterparties in derivative transactions. Eni’s Treasury Department is responsible for monitoring compliance with Eni’s policy and the correlation between the indicators adopted for both measuring the tolerable risk level and composition of the portfolios and market conditions.

As far as interest rate and foreign exchange rate risks are concerned, calculation and measurement techniques followed by Eni’s finance companies are in accordance with established banking standards (such standards are established by the Basel Committee). However, the tolerable level of risk adopted by Eni’s subsidiaries is more conservative than the recommended one. Eni’s guidelines for the management of commodity risk contain maximum limits to the price risk deriving from trading activities.

According to International Accounting Standard No. 39 "Financial instruments: recognition and measurement" (IAS 39), derivatives are classified as hedging instruments when the relationship between the derivative and the subject of the hedge is formally documented and the effectiveness of the hedge is high and is checked periodically. When derivatives constitute a fair value hedge, the group’sGroup’s exposure to the market risk created byin the derivativeasset or liability is offset by the opposite exposure arising from the asset or liability.derivative. When derivatesderivatives are designated as a part of a cash flow hedge, changes in the fair value of the derivatesderivatives are initially stated in net equity and then recognized in the profit and loss account consistent with economic effects economic produced by the hedged transaction. Derivatives that do not meet the conditions required by IAS 39 qualify as derivatives held for trading purposes and are accounted for at fair value, with change in fair value recorded in the profit and loss account.

Nature and classification of derivative financial instruments held by Eni as of December 31, 20052006 and related fair value at the same date are set out in the table below.

		YearsYear ended December 31, 20052006

		Fair value asset		Contractual or notional amounts		Fair value liability		Contractual or notional amounts

(euro million)million euro)

Fair value of non-hedging derivates
Fair value of non-hedging derivatives (1)
Exchange rate		73		3,681		214		8,743		183		6,944		32		1,618
Interest rate		14		1,281		101		5,145		66		3,393		30		2,122
Commodities		30		405		63		417		320		1,113		333		1,565
		117		5,367		378		14,305		569		11,450		395		5,305
Fair value of cash flow-hedging derivates
Fair value of cash flow-hedging derivatives
Exchange rate		0		5		5		42
Interest rate
Commodities		32		171						37		418		40		406
		32		176		5		42		37		418		40		406

---

(1)

Non hedging derivatives refer to derivate instruments which do not meet the formal criteria to apply hedge accounting under IFRS.

Sensitivity analysisAnalysis

The Company has estimated its market risk exposure using sensitivity analysis. Market risk exposure has been defined as the change in fair value of derivative financial and commodity instruments and other financial instruments assuming a hypothetical 10 percent adverse change in market prices or rates. The interest rate used for periods shorter than one year is LIBOR/EURIBOR.Libor/Euribor. The Company has applied the sensitivity analysis to derivative financial and commodity instruments and other financial instruments that are exposed to interest rate, foreign exchange rate and commodities price risk. Actual changes in market prices or rates may differ from hypothetical changes.

The table below presents the potential impact on the fair value of the current financial instruments as of December 31, 2005,2006, of an increase or a decrease of 10% in the market interest rate yield curvesrates in each of the relevant currencies.

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(euro million)	As of December 31, 2005 ——————————————————— 2006

Assets/Liabilities	Notional value/ Carrying amount assets		Notional value/ Carrying amount liabilities		Fair value assets		Fair value liabilities		Change in fair value with a 10% interest rate increase		Change in fair value with a 10% interest rate decrease

Interest rate
Financial instruments		233			1,499			236			1,698			38			(54	)
Derivative financial instruments		1,281			5,145			14			101			47			(48	)
- of which      interest rate swap		1,281			5,145			14			101			47			(48	)
		1,514			6,644			250			1,799			85			(102	)
Exchange rate
Financial instruments		197			120			235			120			13			(12	)
Derivative financial instruments		3,686			8,785			73			218			164			(202	)
- of which      interest currency swap		1,277			2,316			58			73			170			(175	)
currency swap		2,378			6,370			15			139			(15	)		(15	)
other		31			99						6			9			(12	)
		3,883			8,905			308			338			177			(214	)

(million euro)

Interest rate
Financial instruments		250			3,203			249			3,353			85			(98	)
Derivative financial instruments		3,393			2,122			66			30			45			(47	)
- of which interest rate swap		3,393			2,122			66			30			45			(47	)
		3,643			5,325			315			3,383			130			(145	)
Exchange rate
Financial instruments		329			145			313			146			46			(45	)
Derivative financial instruments		6,944			1,618			183			32			438			(441	)
- of which interest currency swap		1,400			1,291			137			11			128			(132	)
currency swap		5,502			257			46			19			313			(314	)
others		42			70						2			(3	)		5
		7,273			1,763			496			178			484			(486	)
Commodities
Derivative financial instruments		1,113			1,565			320			333			25			(23	)
- of which over the counter		262			635			35			35			30			(30	)
others		851			930			285			285			(5	)		7
		1,113			1,565			320			333			25			(23	)

As of the same date,

	As of December 31, 2005

Assets/Liabilities	Notional value/ Carrying amount assets		Notional value/ Carrying amount liabilities		Fair value assets		Fair value liabilities		Change in fair value with a 10% interest rate increase		Change in fair value with a 10% interest rate decrease

(million euro)

Interest rate
Financial instruments		233			1,499			236			1,698			38			(54	)
Derivative financial instruments		1,281			5,145			14			101			47			(48	)
- of which interest rate swap		1,281			5,145			14			101			47			(48	)
		1,514			6,644			250			1,799			85			(102	)
Exchange rate
Financial instruments		197			120			235			120			13			(12	)
Derivative financial instruments		3,686			8,785			73			218			164			(202	)
- of which interest currency swap		1,277			2,316			58			73			170			(175	)
currency swap		2,378			6,370			15			139			(15	)		(15	)
other		31			99						6			9			(12	)
		3,883			8,905			308			338			177			(214	)

In 2005, Eni’s exposure to commodity market risk arising from derivative instruments was immaterial.

Currency risk Fluctuations in exchange rates can have significant effects on the group’sGroup’s reported profit. The effects of most exchange rate fluctuations are absorbed in business operating results through changing cost-competitiveness, changes in the price of certain products via indexation to international parameters quoted in U.S. dollars, lags in market adjustment to movements in rates and conversion differences accounted for on specific transactions.transactions (i.e. the time lag existing between the recording of costs and revenues denominated in currencies other than the functional currency and the actual time of the relevant monetary transaction). For this reason, the total effect of exchange rate fluctuations is not identifiable separately in the group’sGroup’s reported profit, nor is the whole exchange rate risk entirely covered. In addition to the euro, which the currency adopted for financial reporting purposes, the main underlying economic currency of the group’sGroup’s cash flows is the U.S. dollar. This is because Eni’s major products are priced internationally in U.S. dollars or linked to certain products priced in U.S. dollars. Generally speaking, an appreciation of the U.S. dollar versus the euro generally has a positive impact on Eni’s results of operations, and vice versa. Eni’s foreign exchange management policy is to minimize economic and significant transactional exposures arising from movements of the euro against the U.S. dollar. The groupGroup co-ordinates the handling of foreign exchange risks centrally, by netting off naturally occurring opposite exposures wherever possible to reduce the risks, and then dealinghedging net positions using derivatives (such as currency swaps, forwards and options).

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Such derivatives are recognized at fair value on the basis of market prices provided from specialized sources. Value-at-risk deriving from currency exposure is measured daily on the basis of a variance/covariance model, with any material residual foreign exchange risks.a 99% confidence level and a 20-day holding period. The transaction currency risk on certain strategic holdings is deemed to be immaterial.

Interest rate risk The groupGroup is exposed to interest rate risk on short- and long-term floating rate instruments and as a result of the refinancing of fixed rate finance debt. Eni’s policy foresees to incurenvisages the incurrence of long-term debt at a floatingfixed rate or at a fixedfloating rate, depending on opportunities at the time of issuance with regardsregard to the level of interest rates, in euros or in U.S. dollars according to general corporate purposesrequirements (to optimize level of liquidity, to optimize revenue from investments considering existing interest yield curves, and to minimize the cost of borrowing).

The groupGroup is exposed predominantly to Euribor (Euro Interbank Offered Rate) and U.S. dollar LIBORLibor (London Inter-Bank Offer Rate) interest rates as borrowings are mainly denominated in euro or U.S. dollars. ToVariations in interest rates affect the market value of financial assets and liabilities of the company and the level of finance charges. Eni uses interest rate derivatives such as interest rate swaps and interest cross currency swaps to effectively manage the balance between fixed and floating rate debt,debt. Such derivatives are recognized at fair value on the group enters intobasis of market prices provided from specialized sources. Value-at-risk deriving from interest rate exposure is measured daily on the basis of a variance/covariance model, with a 99% confidence level and cross-currency swaps in which the group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed notional principal amount. The proportion of floating rate debt at December 31, 2005 was 83% of total finance debt outstanding.a 20-day holding period.

Commodity risk Eni’s results of operations are exposed to fluctuations in prices of crude oil, petroleum prices, natural gas and electricity. Changes in commodity prices are absorbed by the Group’s business units. A decrease in oil prices generally has a negative impact on Eni’s results of operations and vice versa. Eni also bears commodity risks in connection with certain trading activities. Eni’s guidelines prescribe that the exposure to risk from fluctuations in commodity prices is to be managed in such a way as to support the effectiveness of operations, and to pursue set objectives for industrial margins. Risk exposure within trading activities is defined within maximum levels of value-at-risk attributed to each business unit, with the central function usesmanaging hedging requests. Eni’s trading functions use financial and commodity derivatives as part of the associated trading of crude oil, refined products, electricity and related instruments to manage certain of the group’sGroup’s exposures to price fluctuations. For this purpose, Eni uses derivatives traded on the organized markets of ICE and NYMEX (futures and options) and derivatives traded over-the-counter (swaps, forwards and contracts for differences, with the underlying commodities being crude oil, refined products or electricity). Such derivatives are recognized at fair value on the basis of market prices provided from specialized sources or, absent market prices, on the basis of estimates provided by brokers or other suitable evaluation techniques. Value-at-risk deriving from commodity exposure is measured daily on the basis of a historical simulation technique, with a 99% confidence level and a one-day holding period.
Strategic risk exposure – i.e. the impact on the Group’s businesses resulting from changes in commodities prices – is monitored in terms of value-at-risk, albeit not hedged on a systematic basis. From time to time, the Group may enter into hedging transactions based on existing assets to mitigate the Group’s overall exposure to commodity risk in view of potential acquisitions of new oil reserves as part of our ordinary asset portfolio management or other strategic initiatives. For example, Eni hedged reserves in anticipation of its acquisition of certain oil producing assets and proved and unproved property onshore in the Congo in February 2007 and offshore Gulf of Mexico in April 2007 (see "Item 4 – Exploration & Production – Portfolio developments"). Consistent with this policy, at the beginning of 2007, Eni entered into certain financial derivatives transactions in order to hedge expected cash flow from a portion of its expected future oil production out of equity reserves, based on present trading environment conditions (for more details on these transactions see "Item 5 – Operating and Financial Review and Prospects – Recent Developments – Results for the first quarter 2007"). The production volumes covered by these hedging transactions are expected to be sold in the 2008-2011 period and represent a cumulative amount corresponding to approximately 2% of Eni’s proved hydrocarbon reserves as of 2006 year-end.

 

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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PART II

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

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

None.

Item 15. CONTROLS AND PROCEDURES

Disclosure controls and procedures

In designing and evaluating the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the Company’s management, including the principal executive officerChief Executive Officer and principal financial officer,the Chief Financial Officer, recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management necessarily was required to apply its judgementjudgment in evaluating the cost-benefitcost benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

It should be noted that Enithe Company has investments in certain unconsolidated entities. As Enithe Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily more limited than those it maintains with respect to its consolidated subsidiaries.

The Company’s management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-14(c) under the Exchange Act Rule 13a-14(c) as of the end of the period covered by this Annual Report on Form 20-F. Based on that evaluation, the principal executive officer and principal financial officer have concluded that these disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective at thecan only provide reasonable assurance level.with respect to financial statement preparation and presentation. Also, the effectiveness of an internal control system may change over time.

The Internal Control Committee assists the Board of Directors in setting out the main principles for the internal control system so as to appropriately identify and adequately evaluate, manage, and monitor the main risks related to the Company and its subsidiaries, by laying down the compatibility criteria between said risks and sound corporate management. In addition this Committee assesses, at least annually, the adequacy, effectiveness, and actual operations of the internal control system.

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of its internal control over financial reporting based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on the results of this evaluation, the Group’s management concluded that its internal control over financial reporting was effective as of December 31, 2006.

The Company management’s assessment of the effectiveness of its internal control over financial reporting as of December 31, 2006, has been audited by PricewaterhouseCoopers SpA, an independent registered public accounting firm, as stated in its report that is included on page F-2 of this Annual Report on Form 20-F.

Changes in Internal Control over Financial Reporting

There have not been changes in the Company’s internal control over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Item 16A. Board of Statutory Auditors Financial Expert

Eni’s Board of Statutory Auditors has determined that four members of Eni’s Board of Statutory Auditors, qualify as "audit committee financial expert", as defined in Item 16A of Form 20-F. These four members are: Paolo Andrea Colombo, who is the Chairman of the Board, and Filippo Duodo, Riccardo Perotta and Giorgio Silva. All members are independent.

 

 

Item 16B. Code of Ethics

Eni adopted a code of ethics that applies to 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 at www.eni.it, under the section Publications - Corporate Responsibility - Code of Practice. A copy of this code of ethics is included as an exhibit to this annual report.

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.

 

Item 16C. Principal Accountant Fees and Services

PricewaterhouseCoopers SpA has served as Eni independent public auditor for fiscal year 2003 and as Eni principal independent public auditor for fiscal years 2004, 2005 and 2005,2006 for which audited Consolidated Financial Statements appear in this annual reportAnnual Report on Form 20-F.

The following table shows total fees paid by Eni and our subsidiaries for services provided by Eni public auditor PricewaterhouseCoopers and its member firms, with respect to the previous two years:years indicated:

	For the yearYear ended December 31,

(thousand euro)	2004		2005

Audit fees	9,344			12,591
Audit-related fees	136			190
Tax fees	344			246
All other fees	54			38
Total	9,878			13,065

		2004		2005		2006

(thousand euro)

Audit fees		9,344		12,591		22,240
Audit-related fees		136		190		166
Tax fees		344		246		303
All other fees		54		38		6
Total		9,878		13,065		22,715

Audit Fees principally include fees billedprofessional services rendered by the principal accountant for the standard audit work that needs to be performed each year in order to issue an opinion onof the Consolidated Financial Statements of Eni. It also includes other audit services which are thoseregistrant’s annual financial statements or services that onlyare normally provided by the external auditor reasonably can provide, such as comfort letter/consent letter, certification services, assistanceaccountant in connection with statutory and revision of documents filed with the SEC.regulatory filings or engagements.

Audit Related Fees include fees billed for other assurance and related services provided by auditors, but not restricted to those that can only reasonably be provided by the external auditor signing the audit report,principal accountant that are reasonably related to the performance of the audit or review of the company’sregistrant’s financial statements suchand are not reported as Audit Fees in this Item. The fees disclosed in this category mainly include audits of pension and benefit plans, merger and acquisition due diligence, audit and consultancy services rendered in connection with acquisition deals, checks on internal control systems over financial reporting, certification services not provided for by law and regulations and consultations concerning financial accounting and reporting standards.

Tax Fees include professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. The fees disclosed in this category mainly include fees billed for the assistance with compliance and reporting of income and value added taxes, assistance with assessment of new or changing tax regimes, tax consultancy in connection with merger and acquisition deals, services rendered in connection with tax refunds, assistance rendered on occasion of tax inspections and in connection with tax claims and recourses and assistance with assessing relevant rules, regulations and facts going into Eni correspondence with tax authorities.

All Other Fees include products and services provided by the principal accountant, other than the services reported in Audit Fees, Audit-Related Fees and Tax Fees of this Item and consists primarily of fees billed for consultancy services related to IT and secretarial services that are permissible under applicable rules and regulations and consist primarily of consultancy services related to IT and secretarial services.regulations.

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Pre-approval Policiespolicies and Proceduresprocedures of the Internal Control Committee

The Board of Statutory Auditors informed allhas adopted a pre-approval policy for audit and non-audit services that set forth the procedures and the conditions pursuant to which services proposed to be performed by the principal auditors may be pre-approved. Such policy is applied to entities within the Eni Group companies that they cannot request Eni’s external auditorswhich are either controlled or jointly-controlled (directly or indirectly) by Eni SpA. According to performthis policy, permissible services other than audits, services related to audits, and towithin the company’s capital markets transactions. This restriction applies to our principal external auditor and to other external auditors performing audit services relating to 5% or more of Eni’s consolidated revenues or total assets. Services strictly related to audit services and to the company’s capital markets transactions have been listedcategory are pre-approved by the Board of Statutory Auditors.

Audit services and services strictly related to audit services and to the company’s capital markets transactions have been identified as permissible and have been pre-approved by the The Board of Statutory Auditors, which also informed all Group companies that pre-approval by the Boardapproval is required on a case by case basis for any other service requestedthose requests regarding: (i) audit-related services; and (ii) non-audit services to be performed by the external auditors including those non-audit services which are permissible under applicable rules and regulations. In such cases, the Company’s internal audit department is charged with performing an initial assessment of each request to be submitted to the Board of Statutory Auditors for approval. The internal audit department periodically reports to Eni’s Board of Statutory Auditors on the status of both pre-approved services and services approved on a case-by-case basis rendered by the external auditors.

During 2005,2006, no audit-related fees, tax fees or other non-audit fees were approved by the Board of Statutory Auditors pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i) (c) of Rule 2-01 of Regulation S-X.

 

Item 16D. Exemptions from the Listing Standards for Audit Committees

Making use of the exemption provided by Rule 10A-(c)10A-3(c)(3) for non-U.S. private issuers, Eni has identified the Board of Statutory Auditors as the body that, starting from June 1, 2005, is performing the functions required by the SEC rules and the Sarbanes-Oxley Act to be performed by the audit committees of non-U.S. companies listed on the NYSE (see "Item 6 – Board of Statutory Auditors" above).

 

 

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

The following tables present purchases of own shares by Eni from the beginning of the program through May 31, 200623, 2007 ⁽¹⁾:

Period		Number of shares (million)		Average price (euro per share)		Total cost (million euro)		Share capital %

2000 (Since September 1)		44.38			12.92		574		1.11
2000 (since September 1)												44.38			12.92			574			1.11
2001		110.00			13.58		1,494		2.75			110.00			13.58			1,494			2.75
2002		52.26			14.74		771		1.30			52.26			14.74			771			1.30
2003		23.95			13.76		329		0.60			23.94			13.76			329			0.60
2004		4.23			16.60		70		0.10			4.23			16.60			70			0.10
2005		47.06			21.97		1,034		1.18			47.06			21.97			1,034			1.18
2006, through May 31, 2006		25.02			23.74		594		0.62
Total purchased as of May 31, 2006		306.90			15.85		4,866		7.66
2006												53.13			23.35			1,241			1.33
2007, through May 23, 2007												11.18			24.06			269			0.28
Total purchased as of May 23, 2007												346.18			16.70			5,782			8.64
minus:
- stock option exercised and shares grantedpursuant to stock option and stock grant plans for the 2003-2005 three year period		(5.01	)
		301.89							7.54
- stock option exercised and shares granted pursuant to stock option and stock grant plans												(11.08	)
Total shares held in treasury												335.10									8.37

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	Total number of shares purchased		Average price paid per share (euro)		Total number of shares purchased, as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs.(2)

At December 31, 2004		234,812,701		13.79		234,812,701				165,605,112
January 2005		560,260		18.17		235,372,961				165,044,852
February 2005		854,920		19.06		236,227,881				164,193,332
March 2005		1,297,742		19.92		237,525,623				162,901,290
April 2005		3,764,013		19.49		241,289,636				159,137,277
May 2005		4,030,350		19.80		245,319,986				155,307,627
June 2005		1,041,403		21.23		246,361,389				154,802,124
July 2005		57,200		21.46		246,418,589				154,812,924
August 2005		494,349		23.53		246,912,938				156,116,575
September 2005		33,900		24.57		246,946,838				156,496,575
October 2005		20,875,450		22.37		267,822,288				135,746,725
November 2005		7,974,000		22.82		275,796,288				127,864,925
December 2005		6,081,000		23.62		281,877,288				121,986,025
January 2006		4,539,921		24.23		286,417,209				117,874,304
February 2006		2,449,000		24.17		288,866,209				115,478,004
March 2006		6,163,400		23.35		295,029,609				109,420,304
April 2006		3,629,000		24.17		298,658,609				106,045,904
May 2006		8,246,033		23.43		306,904,642		(3)		98,105,871

At December 31, 2005		281,877,288		23.62		281,877,288		121,986,025
January 2006		4,539,921		24.23		286,417,209		117,874,304
February 2006		2,449,000		24.17		288,866,209		115,478,004
March 2006		6,163,400		23.35		295,029,609		109,420,304
April 2006		3,629,000		24.17		298,658,609		106,045,904
May 2006		8,246,033		23.43		306,904,642		98,105,871
June 2006		16,942,000		22.64		323,846,642		81,356,171
July 2006		2,374,000		23.23		326,220,642		79,586,471
August 2006		0		0.00		326,220,642		80,019,221
September 2006		4,456,047		23.01		330,676,689		76,718,374
October 2006		1,605,500		23.67		332,282,189		77,104,624
November 2006		1,671,700		24.65		333,953,889		75,876,724
December 2006		1,048,890		24.96		335,002,779		75,040,134
January 2007		2,172,700		24.71		337,175,479		73,246,534
February 2007		2,241,350		24.08		339,416,829		71,090,284
March 2007		4,103,431		23.26		343,520,260		67,174,803
April 2007		1,739,600		24.43		345,259,860		65,528,803
May 2007 (through May 23, 2007)		926,650		25.32		346,186,510		64,905,753

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(1)		Since May 2000, Eni’s Ordinary Shareholders’ Meeting authorized Eni’s Board of Directors to carry out a program for the repurchase of its own shares within set limits taking account also of Italian law restrictions which relate to the obligation of the Company to purchase its own shares paying for such shares only out of distributable earnings and distributable reserves as reflected in the most recent financial statements approved by a shareholders’ meeting. In subsequent years, Eni’s Ordinary Shareholders’ Meeting re-authorized the Board to continue this program for the repurchase of its own shares and increased the amount of cash to be spent on it. 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 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.
(2)		Based on the authorized purchase ceiling, deducting the total number of shares purchased and adding back the total number of stock options exercised by and shares granted to Eni’s managers pursuant to stock option and stock grant plans for the 2003-2005 three year period.plans.
(3)		On May 25, 200624, 2007 Eni’s Ordinary Shareholders’ Meeting authorized the continuation of the program for the repurchase of its own shares for a further 18 month period and up to 400 million ordinary shares, nominal value euro 1 each, corresponding approximately to 10% of Eni’s share capital, for an aggregate amount not exceeding euro 7.4 billion. The 400 million shares and the euro 7.4 billion thresholds take into account the number and amount of Eni shares purchased from the beginningheld in treasury of the program until May 24, 2006.23, 2007. As of May 24, 2006,23, 2007, Eni purchased approximately 304.94346.2 million own shares equal to approximately 7.61% of Eni’s share capital, for an aggregate amounta total cost of euro 4,8205,782 million (corresponding to(at an average purchase pricecost of euro 15.8116.701 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. At the same date, and taking account of shares granted to Eni’s managers pursuant to stock option and stock grant plans, Eni held 300.13335.1 million own shares corresponding to 7.49%8.37% of Eni’s share capital.

160

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PART III

Item 17. FINANCIAL STATEMENTS

Not applicable.

Item 18. FINANCIAL STATEMENTS

Index to Financial Statements:

		Page
Report of Independent Registered Public Accounting Firm		F-1
Balance Sheets at December 31, 2006 and 2005		F-3
Profit and loss account for the years ended December 31, 2006, 2005 and 2004		F-4
Statements of changes in shareholder’s equity for the years ended December 31, 2006, 2005 and 2004		F-5
Statements of cash flow for the years ended December 31, 2006, 2005 and 2004		F-8
Supplemental cash flow information for the years ended December 31, 2006, 2005 and 2004		F-10
Notes to the Consolidated Financial Statements		F-24

 

Report of Independent Registered Public Accounting Firm

Balance Sheets at December 31, 2004 and 2005

Profit and loss account at December 31, 2004 and 2005

Statement of changes in shareholder’s equity for the years ended December 31, 2004 and 2005

Statements of cash flows for the years ended December 31, 2004 and 2005

Supplemental cash flows information for the years ended December 31, 2004 and 2005

Notes to the Consolidated Financial Statements

 

Item 19. EXHIBITS

1. By-laws as amended as of May 25, 200624, 2007

8. List of subsidiaries

11. Code of Ethics

Certifications:

12.1. Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act

12.2. Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act

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)

161

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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 21, 200620, 2007

 

 

 

 

 

 

 

Eni SpA

/s/FABRIZIO COSCO

Fabrizio Cosco

Title: Deputy Company Secretary

 

162

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
of Eni SpASpA:

We have completed an integrated audit of Eni SpA’s 2006 consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 and audits of its 2005 and 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated balance sheets and the related consolidated profit and loss account,accounts, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows and of changes in shareholder's equity present fairly, in all material respects, the financial position of Eni SpA and its subsidiaries (the "Company") at December 31, 2005,2006, and 2004,December 31, 2005, and the results of their operations and their cash flows for each of the twothree years in the period ended December 31, 2005,2006, in accordanceconformity with International Financial Reporting Standards as adopted inby the European Union. 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 of these statements in accordance with the standards of the 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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

International Financial Reporting Standard as adopted by the European Union vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Notes 33, 3436, 37 and 3538 of the financial statements.

As discussedInternal control over financial reporting

Also, in Notes 2, 4, 6 and 17our opinion, management’s assessment, included in Management’s Annual Report on Internal Controls over Financial Reporting appearing in Item 15 of this Form 20-F, that the Company maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the financial statements, as a result of adopting IAS 32 and IAS 39Treadway Commission (COSO), is fairly stated, in all material respects, based on January 1, 2005,those criteria. Furthermore, in our opinion, the Company changedmaintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the COSO.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its method of accounting for financial instruments.

PricewaterhouseCoopers SpA

Rome, June 21, 2006

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Effectsassessment of the adoptioneffectiveness of IFRS¹

Starting in 2005 companies with securities listedinternal control over financial reporting. Our responsibility is to express opinions on a regulated stock market of a Member Statemanagement’s assessment and on the effectiveness of the European Union are required to prepare their Consolidated Financial StatementsCompany’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in accordance with the international accounting principles (IFRS) approved by the European Commission.

At January 1, 2004, datestandards of the first applicationPublic Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the new accounting principles, which corresponds with the first period to be compared, Eni must present a balance sheet which:

• reports alldesign and only the assetsoperating effectiveness of internal control, and liabilities accounted under the new accounting principles;
• accounts the assets and liabilitiesperforming such other procedures as if the new accounting principles had always been applied (retrospective method); and
• reclassifies the items indicated under different principles instead of IFRS.

The effect of the adjustments of the initial balance of assets and liabilities to the new accounting principles has been accounted with a corresponding entry to shareholders’ equity, taking account of the relevant fiscal effects to be recognized as deferred tax liabilities or deferred tax assets.

In application of IFRS 1, the following is the indication of: (i) balance sheet at December 31, 2004 restated under IFRS; (ii) profit and loss account of 2004 restated under IFRS; (iii) the reconciliation between shareholders’ equity, including minority interest, of 2003 and 2004 reported under Italian GAAP and shareholders’ equity under IFRS; (iv) the reconciliation between net profit of the Group at December 31, 2004 reported under Italian GAAP and net profit under IFRS.

The international accounting principles are reportedwe consider necessary in the section "Principlescircumstances. We believe that our audit provides a reasonable basis for our opinion.

F-1

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of consolidation". The main options provided under IFRS 1 and adopted in the first time application of IFRS concern the non-reopening of the business combinationsfinancial reporting and the designation of January 1, 2005, as the date of the first application of IAS 32 and 39, concerning the valuationpreparation of financial instruments, including derivatives.

Inclusion of Saipem in consolidation

As regards to the information reported in the reports of the year 2005, the following restatements and reconciliations have been modified to include the recent guidelines of the International Accounting Standards Board (IASB), relating to the conception of "de facto" control and providing the inclusion in the scope of the consolidation of the Saipem SpA and its subsidiaries.

Saipem SpA, in which Eni held a 43.26% share of voting stock as of December 31, 2005, was excluded from consolidation due to a restrictive interpretation of the provisions of IAS 27 Consolidated Financial Statements and Accountingstatements for Investments in Subsidiaries, according to which full consolidation is admissible only if the parent company holds the majority of voting rights exercisable in ordinary shareholders’ meetings, or failing this, when there exists an agreement among shareholders or other situations that give to the parent company the power to appoint the majority of the Board of Directors. Under this interpretation Saipem SpA, despite being controlled by Eniexternal purposes in accordance with article 2359, paragraph 2generally accepted accounting standards and principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Italian Civil Code, was accounted for under the equity method.

IASB is reviewing the requirements of IAS 27; in October 2005, IASB Update published a statement indicating that the concept of control as defined by IAS 27 included the situation as described by article 2359, paragraph 2assets of the Italian Civil Code, despite the factcompany; (ii) provide reasonable assurance that the lacktransactions are recorded as necessary to permit preparation of precise indications allows also for a different interpretation of this standard. IASB declared its intention to provide more detailed indications on the exercise of control in its new version of IAS 27. In consideration of the intention expressed by IASB, Eni included Saipem SpA and its subsidiaries in consolidation under IFRS starting January 1, 2004, with the aim of giving an economic and financial state of the Group more consistent with its commercial situation.

Balance sheet at December 31, 2004
The following is the reconciliation to IFRS of Eni’s balance sheet calculatedstatements in accordance with Italian GAAP at December 31, 2004:generally accepted accounting standards and principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers SpA

June 20, 2007 F-2 BALANCE SHEETS (million euro) Dec. 31, 2005 Dec. 31, 2006 Note Total amount   Italian GAAP 2004of which with related parties   Exclusion of joint ventureTotal amount   Pro-forma Adjustments IFRSof which with related parties           ASSETS                                     Current assets                                     Cash and cash equivalent         1,264     (261 )   1,003           1,003   Other financial assets for trading or available for sale         1,292     (4 )   1,288     (22 )   1,266   Trade and other receivables         13,715     (95 )   13,620     114     13,734   Inventories         2,658     (135 )   2,523     324     2,847   Income tax receivables         702     (28 )   674           674   Other current assets         629     (1 )   628     (40 )   588   Total current assets         20,260     (524 )   19,736     376     20,112   Non-current assets                                     Property, plant and equipment         37,616     (293 )   37,323     3,263     40,586   Inventories - compulsory stock         662           662     724     1,386   Intangible assets         3,190           3,190     123     3,313   Investments accounted for using the equity method         2,753     313     3,066     90     3,156   Other investments         529           529           529   Other financial assets         932     4     936           936   Deferred tax assets         2,203           2,203     (376 )   1,827   Other non-current assets         967     (17 )   950     58     1,008   Total non-current assets         48,852     7     48,859     3,882     52,741   TOTAL ASSETS         69,112     (517 )   68,595     4,258     72,853   LIABILITIES AND SHAREHOLDERS’ EQUITY                                     Current liabilities                                     Current financial liabilities         4,115     35     4,150           4,150   Current portion of long-term debt         936     (9 )   927           927   Trade and other payables         11,008     (469 )   10,539     (6 )   10,533   Taxes payable         2,514     (16 )   2,498           2,498   Other current liabilities         517     (12 )   505           505   Total current liabilities         19,090     (471 )   18,619     (6 )   18,613   Non-current liabilities                                     Long-term debt         7,674     17     7,691     (84 )   7,607   Provisions for contingencies         6,107     (4 )   6,103     (367 )   5,736   Provisions for employee benefits         820     (5 )   815     167     982   Deferred tax liabilities         2,533     (59 )   2,474     1,474     3,948   Other non-current liabilities         422     5     427           427   Total non-current liabilities         17,556     (46 )   17,510     1,190     18,700   TOTAL LIABILITIES         36,646     (517 )   36,129     1,184     37,313   SHAREHOLDERS’ EQUITY                                     Minority interests         2,128           2,128     1,038     3,166   Eni shareholders’ equity         30,338  (1)         30,338     2,036     32,374   TOTAL SHAREHOLDERS’ EQUITY         32,466           32,466     3,074     35,540   TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY         69,112     (517 )   68,595     4,258     72,853   ASSETS                             Current assets                             Cash and cash equivalent   (1)   1,333           3,985         Other financial assets held for tradingor available for sale   (2)   1,368           972         Trade and other receivables   (3)   17,902     1,344     18,799     1,027   Inventories   (4)   3,563           4,752         Current tax assets   (5)   697           658         Other current assets   (6)   369           855         Total current assets       25,232           30,021         Non-current assets                             Property, plant and equipment   (7)   45,013           44,312         Other assets   (8)               629         Inventories - Compulsory stock   (9)   2,194           1,827         Intangible assets   (10)   3,194           3,753         Investments accounted for using the equity method   (11)   3,890           3,886         Other investments   (11)   421           360         Other financial assets   (12)   1,050     258     805     136   Deferred tax assets   (13)   1,861           1,725         Other non-current receivables   (14)   995           994         Total non-current assets       58,618           58,291         TOTAL ASSETS       83,850           88,312         LIABILITIES AND SHAREHOLDERS’ EQUITY                             Current liabilities                             Short-term financial liabilities   (15)   4,612     152     3,400     92   Current portion of long-term debt   (19)   733           890         Trade and other payables   (16)   13,095     1,164     15,995     961   Taxes payable   (17)   3,430           2,830         Other current liabilities   (18)   613           634         Total current liabilities       22,483           23,749         Non-current liabilities                             Long-term debt   (19)   7,653           7,409         Provisions for contingencies   (20)   7,679           8,614         Provisions for employee benefits   (21)   1,031           1,071         Deferred tax liabilities   (22)   4,890           5,852         Other non-current liabilities   (23)   897           418     56   Total non-current liabilities       22,150           23,364         TOTAL LIABILITIES       44,633           47,113         SHAREHOLDERS’ EQUITY   (24)                         Minority interests       2,349           2,170         Shareholders’ equity:                             Share capital: 4,005,358,876 fully paid shares with nominal value euro 1 each (same amount as of December 31, 2005)       4,005           4,005         Share premium                             Other reserves       10,910           6,013         Retained earnings       17,381           25,168         Net profit       8,788           9,217         Treasury shares       (4,216 )         (5,374 )       Total Eni shareholders’ equity       36,868           39,029         TOTAL SHAREHOLDERS’ EQUITY       39,217           41,199         TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY       83,850           88,312           (1)   Net of treasury shares in portfolio at the date for euro 3,229 million (IFRS require that treasury shares be deducted from shareholders’ equity). F-3 Profit and loss account at December 31, 2004PROFIT AND LOSS ACCOUNT The following is the reconciliation to IFRS of Eni’s profit and loss account for the year ended December 31, 2004:(million euro)       2004   2005   2006           (million euro)   2004Note   Exclusion of joint ventureTotal amount   Restatement of extraordinary itemsTotal amount   Pro-formaof which with related parties   AdjustmentsTotal amount   IFRSof which with related parties             Net sales from operations   58,382     (916 )         57,466     79     57,545   Other income and revenues   1,298     (12 )   79     1,365     12     1,377   Purchases, services and other   (39,092 )   679     (623 )   (39,036 )   689     (38,347 ) Payroll and related costs   (3,264 )   64     (54 )   (3,254 )   9     (3,245 ) Depreciation, amortization and impairments   (4,861 )   72     (18 )   (4,807 )   (124 )   (4,931 ) Operating profit   12,463     (113 )   (616 )   11,734     665     12,399   Financial expense, net   (95 )   (6 )         (101 )   (55 )   (156 ) Other income (expense) from investments   229     81     608     918     (98 )   820   Profit before extraordinary items and income taxes   12,597     (38 )   (8 )   12,551     512     13,063   Extraordinary items   (56 )         56                     Profit before income taxes   12,541     (38 )   48     12,551     512     13,063   Income taxes   (4,653 )   38     (48 )   (4,663 )   (859 )   (5,522 ) Profit before minority interest   7,888                 7,888     (347 )   7,541   Minority interest in net profit   (614 )               (614 )   132     (482 ) Net profit   7,274                 7,274     (215 )   7,059   Reconciliation of shareholders’ equity at December 31, 2003 The following is the reconciliation of shareholders’ equity as at December 31, 2003, including minority interest, determined under Italian GAAP to IFRS: (million euro) Items (*)               2003 Shareholders’ equity   28,318   1.   Different useful lives of gas pipelines, compression stations, distribution networks and other assets   1,570   2.   Different recognition of deferred tax   1,233   3.   Application of the weighted-average cost method instead of LIFO in inventory valuation   479   4.   Different criteria of capitalization of financial charges   394   5.   Different recognition of the provisions for contingencies   269   6.   Effect of the capitalization of estimated costs for asset retirement obligations   152   7.   Underlifting   61   8.   Write-off of the difference between nominal and present value of deferred taxation in business combinations   (514 ) 9.   Adjustment of tangible and intangible assets   (189 ) 10.   Employee benefits   (92 ) 11.   Effects on investments accounted for under the equity method   (43 )     Other net adjustments   (121 )     Net changes   3,199       Shareholders’ equity under IFRS   31,517   REVENUES   (26)                               Net sales from operations       57,545     73,728     4,535     86,105     3,974   Other income and revenues       1,377     798           783         Total revenues       58,922     74,526           86,888         OPERATING EXPENSES   (27)                               Purchases, services and other       38,347     48,567     3,429     57,490     2,720   - of which are significant non-recurring events and operations   (34)   5     290           239         Payroll and related costs       3,245     3,351           3,650         Depreciation, amortization and impairments       4,931     5,781           6,421         OPERATING PROFIT       12,399     16,827           19,327         FINANCIAL INCOME (EXPENSE)   (28)                               Financial income       2,589     3,131     72     4,132     58   Financial expense       (2,745 )   (3,497 )         (3,971 )               (156 )   (366 )         161         Income (expense) from investments   (29)                               Effects of investments accounted for using the equity method       332     737           795         Other income (expense) from investments       488     177           108                 820     914           903         PROFIT BEFORE INCOME TAXES       13,063     17,375           20,391         Income taxes   (30)   (5,522 )   (8,128 )         (10,568 )       Net profit       7,541     9,247           9,823         Pertaining to:                                   - Eni       7,059     8,788           9,217         - minority interest   (24)   482     459           606                 7,541     9,247           9,823         Earnings per share pertaining to Eni (euro per share)   (31)                               - basic       1.87     2.34           2.49         - diluted       1.87     2.34           2.49           (*)   Each number refers to the illustration provided in the next paragraph “Description of main changes”. Reconciliation of shareholders’ equity at December 31, 2004 The following is the reconciliation of shareholders’ equity as at December 31, 2004, including minority interest, determined under Italian GAAP to IFRS: (million euro) Items(*)       2004 Shareholders’ equity   32,466   1.   Different useful lives of gas pipelines, compression stations, distribution networks and other assets   1,501   2.   Different recognition of deferred tax   563   3.   Application of the weighted-average cost method instead of LIFO in inventory valuation   677   4.   Different criteria of capitalization of financial charges   393   5.   Different recognition of the provisions for contingencies   295   6.   Effect of the capitalization of estimated costs for asset retirement obligations   215   7.   Underlifting   87   8.   Write-off of the difference between nominal and present value of deferred taxation in business combinations   (470 ) 9.   Adjustment of tangible and intangible assets   (130 ) 10.   Employee benefits   (81 ) 11.   Effects on investments accounted for under the equity method   79   12.2   Amortization of goodwill   102       Other net adjustments   (157 )     Net changes   3,074       Shareholders’ equity under IFRS   35,540   (*) Each number refers to the illustration provided in the next paragraph “Description of main changes”. Reconciliation of consolidated net profit at December 31, 2004 The following is the reconciliation of net profit for the year ended December 31, 2004 from Italian GAAP to IFRS: (million euro) Items(*)     2004 consolidated net profit under Italian GAAP   7,274   1.   Different useful lives of gas pipelines, compression stations, distribution networks and other assets   (70 ) 2.   Different recognition of deferred tax   (671 ) 3.   Application of the weighted-average cost method instead of LIFO in inventory valuation   199   4.   Different criteria of capitalization of financial charges   (3 ) 5.   Different recognition of the provisions for contingencies   31   6.   Effect of the capitalization of estimated costs for asset retirement obligations   63   7.   Underlifting   33   8.   Write-off of the difference between nominal and present value of deferred taxation in business combinations   38   9.   Adjustment of tangible and intangible assets   39   10.   Employee benefits   8   11.   Effects on investments accounted for under the equity method   126   12.   Other changes in 2004 results under IFRS   (109 ) 12.1   Adjustment on gain from sale of a 9.054% interest in Snam Rete Gas   (211 ) 12.2   Amortization of goodwill   102       Other net adjustments   (31 )     Effect of IFRS adjustment on minority interest (1)   132       Net changes   (215 )     Shareholders’ equity under IFRS   7,059   (*) Each number refers to the illustration provided in the next paragraph “Description of main changes”. (1) This adjustment derives from the attribution of their share of IFRS adjustments to minority interest. Description of main changes The following is a description of the main changes introduced in the balance sheet of Eni for 2003, whose effects are reflected in the profit and loss account and balance sheet for the 2004 and in the balance sheet at December 31, 2004. 1. Different useful lives of gas pipelines, compression stations, distribution networks and other assets This change concerns essentially the natural gas transport pipelines, compression stations and distribution networks that until 1999 were depreciated in accordance with Italian practice applying rates established by tax authorities (10%, 10% and 8%, respectively) both in statutory and Consolidated Financial Statements. In Consolidated Financial Statements prepared in accordance with U.S. GAAP, these assets were depreciated at a 4% rate, based on the international estimate of a 25-year long useful life. The useful life of gas pipelines, compression stations and distribution networks was changed in 2000 following a determination of tariffs for natural gas sale by the Italian Authority for Electricity and Gas which set the useful life of gas pipelines at 40 years, that of compression stations at 25 years and that of distribution networks at 50 years. Therefore, considering this change as a revision of previous estimates, starting in 2000 the value of these assets, net of amortization provisions at December 31, 1999, was depreciated based on their residual useful life both under Italian and U.S. GAAP. For the first application of IFRS, the adoption of the retrospective method implies the adoption of the new principles as if they had always been applied using the best information available at each time frame. Therefore, the book value of gas pipelines, compression stations and distribution networks, at January 1, 2004 was restated by using until 1999 the internationally accepted rate of 25 years; from 2000 onwards the residual value was depreciated according to the useful lives estimated by the Authority for Electricity and Gas. Consistent with this approach, the book value of tanker ships at January 1, 2004 was restated due to the revision of their useful life using until 2001 the internationally accepted rate of 20 years; from 2002 onwards their residual value was depreciated according to an estimated useful life of 30 years defined after their conferral from Snam SpA to LNG Shipping SpA. Under Italian GAAP the book value of complex assets is divided according to various tax categories on the basis of the depreciation rate tables contained in a Decree of the Ministry of Economy and Finance. Under IFRS the components of a complex asset that have different useful lives are recorded separately in order to be depreciated according to their useful life; land parcels, which cannot be depreciated, are recorded separately even when they are bought along with buildings. The restatement determined an increase in fixed assets of euro 2,563 million with a corresponding entry to shareholders’ equity (euro 1,570 million) and to deferred tax liabilities (euro 993 million). The adoption of IFRS resulted in a decrease in 2004 results of euro 70 million. 2. Different recognition of deferred tax Changes in shareholders’ equity of euro 1.233 were determined in particular by the following causes. 2.1 Recognition of deferred tax assets on the revaluation of assets (Law 342/2000) Under Italian GAAP deferred tax assets are recorded if recoverable with "reasonable certainty". Under IFRS deferred tax assets are recorded if their recovery is more likely than not. In 2000 Snam SpA, now merged into Eni SpA, revalued its assets as permitted by Law 342/2000 aligning their book value to their fair value. On this revaluation of depreciable assets Eni paid a special rate tax (19% instead of the statutory 34% rate), thus recording a deferred tax asset. Eni’s transport assets were conferred in 2001 to Snam Rete Gas SpA. The revaluation carried out had no impact on Eni’s Consolidated Financial Statements; but a temporary difference arose between the taxable value and the book value which led, in accordance with Italian GAAP, to the recognition of a provision for deferred tax assets that amounted to euro 629 million at December 31, 2003, corresponding to 19%2 of depreciation estimated in the 2004-2007 plan on the deductible timing difference. Under IFRS, deferred taxes has been recognized on the entire timing difference at the current statutory tax rate (37.25%). The application of this principle resulted in an increase in deferred tax assets of euro 828 million with a corresponding entry to shareholders’ equity. The adoption of IFRS resulted in a decrease in 2004 results of euro 266 million, following the "reversal" of taxes related to accelerated depreciations3. 2.2 Recognition of deferred tax assets on Stogit’s inventories In 2003 Stoccaggi Gas Italia SpA ("Stogit"), applying Law 448/2001, realigned the fiscal value to the higher book value of assets received upon contribution in kind. In the Consolidated Financial Statements these assets were stated at their book value, this resulted in a timing difference over the fiscal values from which a deferred tax asset of euro 287 million was recognized in the Consolidated Financial Statements. A portion of the timing difference concerns the inventories of natural gas; however, in Eni’s 2003 Consolidated Financial Statements the deferred tax asset related to the timing difference on natural gas inventories was not recognized on the assumption that its recoverability was not reasonably certain at the end of the concession, if not renewed. The application of IFRS resulted in the recognition of deferred tax assets of euro 259 million, with a corresponding entry to shareholder’s equity. In Eni’s 2004 Consolidated Financial Statements the deferred tax assets were recognized on the temporary difference related to inventories because Law 239/2001 (so called Marzano Law) permitted to set the year of recovery4; such effect resulted on equivalent decrease in the 2004 result. 2.3 Other effects of the different recognition of deferred tax assets The application of the "more likely than not" criterion rather than that of the "reasonable certainty" of recoverability of other deductible temporary differences resulted in the recognition of deferred tax assets of euro 146 million with a corresponding entry to shareholders’ equity. Such deferred taxes were recognized in Eni’s 2004 Consolidated Financial Statements following the fulfillment of the conditions for their recognition; such effect resulted in an equivalent decrease in the 2004 result. 3. Application of the weighted-average cost method instead of LIFO Under Italian GAAP the cost of inventories may be determined with the weighted-average cost method or with the FIFO or LIFO methods. Until January 1, 2004 Eni applied the LIFO method, in its evaluation of crude oil, natural gas and oil products inventories applied on an annual basis. IFRS do not allow the use of the LIFO method; they allow the FIFO method and the weighted-average cost. The application of the weighted-average cost on a three-month basis in the evaluation of crude oil, natural gas and refined products inventories resulted in an increase in the value of inventories of euro 764 million5 with a corresponding entry to shareholders’ equity (euro 479 million) and to deferred tax liabilities (euro 285 million). With the application of the LIFO method, changes in oil and refined products prices had no impact on the evaluation of inventories, which was affected only by declines in volumes. With the adoption of the weighted-average cost, changes in oil and refined products prices have a direct effect on the recognition of profit or loss on stock deriving from the difference between the current cost of products sold and the cost deriving from the application of the weighted-average cost method. The adoption of IFRS resulted an increase in the 2004 results of euro 199 million, due to higher oil and gas prices. 4. Different criteria of capitalization of financial charges Under Italian GAAP financial charges are capitalized when incurred within the amount not financed by internally-generated funds or contribution by third parties. Under IFRS, when a relevant time interval is necessary until the capital asset is ready for use, finance charges can be capitalized as an increase of the asset book value for the amount of financial charges that could have been saved if capital expenditures had not been made. The application of this principle resulted in an increase in the book value of fixed assets of euro 615 million with a corresponding entry to shareholders’ equity (euro 394 million) and to deferred tax liabilities (euro 221 million). The adoption of IFRS resulted in a decrease in 2004 results of euro 3 million (the effect of higher amortization was partially offset by the increase of financial charges capitalized). 5. Different recognition of the provisions for contingencies Under Italian GAAP the provisions for contingencies concern costs and charges of a determined nature, whose existence is certain or probable, but whose amounts or occurrence are not determinable at the period end. The provisions for contingencies are stated on an undiscounted basis. Under IFRS a provision is made only if there is a current obligation considered "probable" as a consequence of events occurred before period end deriving from legal or contractual obligations or from behaviors or announcements of the company that determine valid expectations in third parties (implicit obligations), provided that the amount of the liability can be reasonably determined. When the financial effect of time is significant and the date of the expense to clear the relevant obligation can be reasonably determined, the estimated cost is discounted on the basis of the risk-free rate of interest and adjusted for the Company’s credit cost. As for the provision for redundancy incentives, IFRS require the preparation of a detailed formalized restructuring plan, indicating at least the activities, locations, categories and approximate number of employees affected by the restructuring. The plan must have commenced or be properly communicated to the parties involved before period end, generating the expectation that the company will carry out the plan. As for provision for catastrophic risks, Padana Assicurazioni SpA, in application of rules imposed by the Minister of Industry on June 15, 1984, makes integrative provisions for the risk of earthquakes, seaquakes, volcanic eruptions and similar events. These integrative provisions are not allowed by IFRS in absence of a current obligation. No provision is made for periodic maintenance under IFRS. These costs are capitalized when incurred as a separate component of the asset and are depreciated according to their useful lives, as they do not represent a current obligation. As a consequence of the absence of a current obligation, the application of this principle resulted in a reversal of the provisions for contingencies of euro 327 million with a corresponding entry to shareholders’ equity (euro 269 million), to deferred tax liabilities (euro 36 million) and to a decrease in other assets (euro 22 million) referred to the portion of re-insured risks. The adoption of IFRS resulted in an increase in 2004 results of euro 31 million. 6. Effect of the capitalization of costs for asset retirement obligations Under Italian GAAP, site restoration and abandonment costs are allocated annually in a specific provision so that the ratio of the allocations made and the amount of estimated costs equals the percentage of depreciation of the relevant asset. In particular in the Exploration & Production segment, the costs estimated to be incurred at the end of production activities for the site abandonment and restoration are accrued so that the ratio of the provision and the amount of estimated costs correspond to the ratio of cumulative production at period end and proved developed reserves at period end plus cumulative production. Under IFRS, estimated site restoration and abandonment costs are recorded in a specific provision with a corresponding entry to the relevant asset; when the financial effect of time is relevant, the estimated cost is recorded considering the present value of the costs to be incurred calculated using a rate representative of the Company’s credit cost. The cost assigned to the different relevant components of the asset is recognized in the profit and loss account through the amortization process. The provision, and consequently the assets’ book value, is periodically adjusted to reflect the changes in the estimates of the costs, of the timing and of the discount rate. The application of this principle resulted in an increase in fixed assets of euro 254 million, in shareholders’ equity of euro 152 million and in deferred tax liabilities of euro 158 million, and a decrease in the provisions for site abandonment and restoration of euro 56 million. The adoption of IFRS resulted in an increase in 2004 results of euro 63 million. 7. Underlifting In the Exploration & Production segment joint venture agreements regulate, among other things, the right of each partner to withdraw its own share of production volumes available in the period. Higher production volumes withdrawn as compared to net working interest volume determine the recognition of a credit by a partner who has withdrawn lower production volumes as compared to its net working interest volume. Under Italian GAAP, this credit is evaluated on the basis of production costs; under IFRS it is evaluated at current prices at period end. The application of this principle resulted in an increase in other assets of euro 78 million with a corresponding entry to shareholders’ equity (euro 61 million) and to deferred tax liabilities (euro 17 million). The adoption of IFRS resulted in an increase in 2004 results of euro 33 million. 8. Write-off of the difference between nominal and present value of deferred taxation in business combinations Under Italian GAAP the difference between the present value of deferred taxes included in the determination of the fair value of net assets acquired as part of a business combination and related deferred tax liabilities recognized at nominal value ("difference") is recognized under the item accrued assets. Under IFRS this difference is recognized under "Goodwill"; however, in the event of the first application goodwill can be adjusted only in case of specific circumstances that do not occur in this case. This difference is therefore written off because it cannot be considered an asset under IFRS. The application of this principle resulted in a decrease in shareholders’ equity of euro 514 million with a corresponding entry to deferred tax assets. The adoption of IFRS resulted in an increase in 2004 results of euro 38 million. 9. Adjustment of tangible and intangible assets The decrease in shareholders’ equity of euro 189 million related in particular to the following aspects. 9.1 Intangible assets Under Italian GAAP costs for extraordinary company transactions, costs for the start-up or expansion of production activities and costs for the establishment of a company or for issuance of capital stock can be capitalized. IFRS require these costs to be charged against the profit and loss account, except for establishment and issuance of capital stock of the parent company that are recognized as a decrease in shareholders’ equity net of the relevant fiscal effect. Under Italian GAAP costs for software development can be capitalized under certain circumstances. IFRS pose more stringent conditions for their capitalization. The application of these principles resulted in the write-off of intangible assets for euro 114 million with a corresponding entry to a decrease in shareholders’ equity (euro 81 million) and the recognition of deferred tax assets (euro 33 million). The adoption of IFRS resulted in an increase in 2004 results of euro 33 million. 9.2 Revaluation of assets Under Italian GAAP revaluation of tangible assets is allowed under specific law provisions within the limit of their recovery value. IFRS prohibit this kind of tangible asset revaluation. The application of this principle resulted in a decrease in tangible assets of euro 75 million with a corresponding entry to a decrease in shareholders’ equity (euro 54 million) and the recognition of deferred tax assets (euro 21 million). The decrease in fixed assets takes into account the restatement of gains/losses on disposal on the basis of the historical cost and the recalculation of amortization until December 31, 2003. The adoption of IFRS resulted in an increase in 2004 results of euro 5 million. 9.3 Pre-development costs Under Italian GAAP costs related to preliminary studies, researches and surveys aimed at testing different options for development of hydrocarbon fields are recognized under tangible assets. Under IFRS these costs are considered exploration costs and are expensed when incurred. The application of this principle resulted in the write-off of capitalized pre-development costs for euro 71 million with a corresponding entry to a decrease in shareholders’ equity (euro 54 million) and the recognition of deferred tax liabilities (euro 17 million). The adoption of IFRS resulted in an increase in 2004 of euro 1 million. 10. Employee benefits Under Italian GAAP employee termination benefits are accrued during the period of employment of employees, in accordance with the law and applicable collective labor contracts. Under IFRS employee termination benefits (e.g. pension payments, life insurance payments, medical assistance after retirement, etc.) are defined on the basis of post employment benefit plans that due to their mechanisms feature defined contributions plans or defined benefit plans. In the first case, the company’s obligation consists in making payments to the state or to a trust or a fund. Plans with defined benefits are pension, insurance or healthcare plans which provide for the company’s obligation, also in the form of implicit obligation (see the above mentioned item 5), to provide non formalized benefits to its former employees6. The related discounted charges, determined with actuarial assumptions7, are accrued annually on the basis of the employment periods required for the granting of such benefits. The application of this principle resulted in a decrease in shareholders’ equity of euro 92 million, the recognition of deferred tax assets (euro 54 million) with a corresponding entry to an increase in the provisions for contingencies of euro 146 million, referred in particular to charges for medical assistance granted upon termination and to pension plans outside Italy. The adoption of IFRS resulted in an increase in 2004 of euro 8 million. 11. Effects on investments accounted for under the equity method Joint ventures and affiliates are accounted for under the equity method. The application of IFRS to the initial balance at January 1, 2004 of assets and liabilities of these companies resulted in a decrease in investments of euro 43 million with a corresponding entry to shareholders’ equity. The adoption of IFRS resulted in an increase in 2004 of euro 126 million, essentially related to the elimination of the amortization of goodwill (see Note 12.2 below). 12. Other changes in 2004 result under IFRS The decrease in 2004 results of euro 109 million related in particular to the following. 12.1 Adjustment on gain from sale of a 9.054% interest in Snam Rete Gas Due to the application of IFRS, net shareholders’ equity to be compared with the sale price for determining the gain on the sale of a 9.054% interest in Snam Rete Gas SpA carried out in 2004 increased by euro 2,335 million related essentially to an increase in the book value of natural gas pipelines (see item 1) and deferred tax assets (see item 2.1). The adoption of IFRS resulted in a decrease in 2004 results of euro 211 million. 12.2 Amortization of goodwill Under Italian GAAP goodwill is amortized on a straight-line basis in the periods of its expected utilization, provided it is no longer than five years; in case of specific conditions related to the kind of company the goodwill relates to, goodwill can be amortized for a longer period not exceeding 20 years. Under IFRS goodwill cannot be amortized, but it is subject to a yearly evaluation in order to define the relevant impairment, if needed. The adoption of IFRS resulted in an increase in 2004 of euro 102 million. Balance sheet (million euro) Note Dec. 31, 2004 Dec. 31, 2005       ASSETS                   Current assets                   Cash and cash equivalent   1     1,003     1,333   Other financial assets for trading or available for sale   2     1,266     1,368   Trade and other receivables   3     13,734     17,902   Inventories   4     2,847     3,563   Income tax receivables   5     674     697   Other current assets   6     588     369   Total current assets         20,112     25,232   Non-current assets                   Property, plant and equipment   7     40,586     45,013   Inventories - compulsory stock   8     1,386     2,194   Intangible assets   9     3,313     3,194   Investments accounted for using the equity method   10     3,156     3,890   Other investments   10     529     421   Other financial assets   11     936     1,050   Deferred tax assets   12     1,827     1,861   Other non-current assets   13     1,008     995   Total non-current assets         52,741     58,618   TOTAL ASSETS         72,853     83,850   LIABILITIES AND SHAREHOLDERS’ EQUITY                   Current liabilities                   Current financial liabilities   14     4,150     4,612   Current portion of long-term debt   18     927     733   Trade and other payables   15     10,533     13,095   Taxes payable   16     2,498     3,430   Other current liabilities   17     505     613   Total current liabilities         18,613     22,483   Non-current liabilities                   Long-term debt   18     7,607     7,653   Provisions for contingencies   19     5,736     7,679   Provisions for employee benefits   20     982     1,031   Deferred tax liabilities   21     3,948     4,890   Other non-current liabilities   22     427     897   Total non-current liabilities         18,700     22,150   TOTAL LIABILITIES         37,313     44,633   SHAREHOLDERS’ EQUITY   23               Minority interests         3,166     2,349   Eni shareholders’ equity:                   Share capital: 4,005,358,876 fully paid shares nominal value euro 1 each (4,004,424,476 shares at December 31, 2004)         4,004     4,005   Share premium                   Other reserves         9,629     10,910   Retained earnings         14,911     17,381   Net profit         7,059     8,788   Treasury shares         (3,229 )   (4,216 ) Total Eni shareholders’ equity         32,374     36,868   TOTAL SHAREHOLDERS’ EQUITY         35,540     39,217   TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY         72,853     83,850   F-4 Profit and loss accountSTATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (million euro)   Note   2004   2005         REVENUES   25               Net sales from operations         57,545     73,728   Other income and revenues         1,377     798   TOTAL REVENUES         58,922     74,526   Operating expenses   26               Purchases, services and other         38,347     48,567   Payroll and related costs         3,245     3,351   Depreciation, amortization and impairments         4,931     5,781   Operating profit         12,399     16,827   Financial income (expense)   27               Financial income         2,589     3,131   Financial expense         (2,745 )   (3,497 )           (156 )   (366 ) Income (expense) from investments   28               Effects of investments accounted for using the equity method         332     737   Other income (expense) from investments         488     177             820     914   Profit before income taxes         13,063     17,375   Income taxes   29     (5,522 )   (8,128 ) Net profit         7,541     9,247   Pertaining to:                   - Eni         7,059     8,788   - minority interest         482     459             7,541     9,247   Earnings per share pertaining to Eni (euro per share)   30               - basic         1.87     2.34   - diluted         1.87     2.34   Statement of changes in shareholders’ equity(million euro)   Eni shareholders’ equity       (million euro)   Share capital   Legal reserve of Eni SpA   Reserve for treasury shares   Other reserves   Cumulative translation adjustment reserve   Treasury shares   Retained earnings   Interim dividend   Net profit for the period   Total   Minority interests   Total shareholders’ equity                           Balance at December 31, 2003   4,003     959     5,397     3,200     (2,505 )   (3,164 )   13,221           5,585     26,696     1,622     28,318                                                                             Changes in accounting principles                                       2,234                 2,234     965     3,199   Annulment of exchanges differences                           2,505           (2,505 )                               Adjusted balance at January 1, 2004   4,003     959     5,397     3,200           (3,164 )   12,950           5,585     28,930     2,587     31,517   Net profit for the year                                                   7,059     7,059     482     7,541   Net income (expense) recognized directly in equity                                                                         Exchange differences from translation of financial statements denominated in currencies other than euro                           (750 )                           (750 )   1     (749 )                             (750 )                           (750 )   1 ��   (749 ) Total (expense) income for the period                           (750 )                     7,059     6,309     483     6,792   Transactions with shareholders                                                                         Dividend distribution of Eni SpA (euro 0.75 per share)                                                   (2,828 )   (2,828 )         (2,828 ) Dividend distribution of other companies                                                               (248 )   (248 ) Allocation of 2003 net profit                     22                 2,735           (2,757 )                   Shares repurchased (Note 23)                                 (70 )                     (70 )         (70 ) Shares issued under stock grant plans   1                 (1 )                                                 Treasury shares sold under incentive plans for Eni managers               (5 )   5           5                       5           5       1           (5 )   26           (65 )   2,735           (5,585 )   (2,893 )   (248 )   (3,141 ) Other changes in shareholders’ equity                                                                         Cost of stock option                     3                                   3           3   Former Italgas SpA reserves reconstituted                     (43 )               43                                 Reserves from merger of EniData SpA                     4                 (4 )                               Reclassification                     775                 (775 )                               Sale of 9.054% of Snam Rete Gas SpA share capital                                                         326     326         Exchange differences arising on the distribution of dividends and other changes                           63           (38 )               25     18     43                         739     63           (774 )               28     344     372   Balance at December 31, 2004 (Note 23)   4,004     959     5,392     3,965     (687 )   (3,229 )   14,911           7,059     32,374     3,166     35,540                                                                             Changes in accounting principles (IAS 32 and 39) (Notes 2-4-6-17)                     13                 (40 )               (27 )   12     (15 ) Adjusted balance at January 1, 2005   4,004     959     5,392     3,978     (687 )   (3,229 )   14,871           7,059     32,347     3,178     35,525   Net profit for the year                                                   8,788     8,788     459     9,247   Net income (expense) recognized directly in equity                                                                         Variation of the fair value of financial assets for trading (Note 2)                     6                                   6           6   Variation of the fair value of cash flow hedge derivative contracts (Notes 6-17)                     16                                   16           16   Exchange differences from translation of financial statements denominated in currencies other than euro                           1,497                             1,497     15     1,512                         22     1,497                             1,519     15     1,534   Total (expense) income for the period                     22     1,497                       8,788     10,307     474     10,781   Transactions with shareholders                                                                         Dividend distribution of Eni SpA (euro 0.90 per share) (Note 23)                                                   (3,384 )   (3,384 )         (3,384 ) Interim dividend (euro 0.45 per share) (Note 23)                                             (1,686 )         (1,686 )         (1,686 ) Dividend distribution of other companies                                                               (1,218 )   (1,218 ) Allocation of 2004 net profit                     1,300                 2,375           (3,675 )                   Shares repurchased (Note 23)                                 (1,034 )                     (1,034 )         (1,034 ) Shares issued under stock grant plans   1                 (1 )                                                 Treasury shares sold under incentive plans for Eni managers               (47 )   47           47                       47           47       1           (47 )   1,346           (987 )   2,375     (1,686 )   (7,059 )   (6,057 )   (1,218 )   (7,275 ) Other changes in shareholders’ equity                                                                         Cost of stock option                     5                                   5           5   Sale of consolidated companies                                                               (40 )   (40 ) Exchange differences arising on the distribution of dividends and other changes                           131           135                 266     (45 )   221                         5     131           135                 271     (85 )   186   Balance at December 31, 2005   4,005     959     5,345     5,351     941     (4,216 )   17,381     (1,686 )   8,788     36,868     2,349     39,217   Balance at January 1, 2004   4,003     959     5,397     3,200           (3,164 )   12,950           5,585     28,930     2,587     31,517   Net profit for the year                                                   7,059     7,059     482     7,541   Net income (expense) recognized directly in equity                                                                         Exchange differences from translation of financial statements denominated in currencies other than euro                           (750 )                           (750 )   1     (749 )                             (750 )                           (750 )   1     (749 ) Total (expense) income for the period                           (750 )                     7,059     6,309     483     6,792   Transactions with shareholders                                                                         Dividend distribution of Eni SpA (euro 0.75 per share)                                                   (2,828 )   (2,828 )         (2,828 ) Dividend distribution of other companies                                                               (248 )   (248 ) Allocation of 2003 net profit                     22                 2,735           (2,757 )                   Shares repurchased                                 (70 )                     (70 )         (70 ) Shares issued under stock grant plans   1                 (1 )                                                 Treasury shares sold under incentive plans for Eni managers               (5 )   5           5                       5           5       1           (5 )   26           (65 )   2,735           (5,585 )   (2,893 )   (248 )   (3,141 ) Other changes in shareholders’ equity                                                                         Cost of stock option                     3                                   3           3   Former Italgas SpA reserves reconstituted                     (43 )               43                                 Reserves from merger of EniData SpA                     4                 (4 )                               Reclassification                     775                 (775 )                               Sale of 9.054% of Snam Rete Gas SpA share capital                                                               326     326   Exchange differences arising on the distribution of dividends and other changes                           63           (38 )               25     18     43                         739     63           (774 )               28     344     372   Balance at December 31, 2004   4,004     959     5,392     3,965     (687 )   (3,229 )   14,911           7,059     32,374     3,166     35,540   F-5 Statement of cash flowsSTATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYcontinued (million euro) (million euro)           2004   2005           Cash flow from operating activities             Net profit   7,541     9,247   Depreciation and amortization   4,598     5,509   Writedowns (revaluations), net   27     (288 ) Net change in provisions for contingencies   418     1,279   Net change in the provisions for employee benefits   49     18   Gain on disposal of assets, net   (793 )   (220 ) Dividend income   (72 )   (33 ) Interest income   (198 )   (214 ) Interest expense   567     654   Exchange differences   (79 )   (64 ) Current and deferred income taxes   5,522     8,128   Cash generated from operating profit before changes in working capital   17,580     24,016   (Increase) decrease:             - inventories   (355 )   (1,402 ) - accounts receivable   (1,241 )   (4,413 ) - other assets   43     351   - trade and other accounts payable   727     3,030   - other liabilities   (83 )   12   Cash from operations   16,671     21,594   Dividends received   394     366   Interest received   167     214   Interest paid   (533 )   (619 ) Income taxes paid   (4,199 )   (6,619 ) Net cash provided from operating activities   12,500     14,936   Cash flow from investing activities             Investments:   (714 )   (856 ) - intangible assets   (6,785 )   (6,558 ) - tangible assets         (73 ) - consolidated subsidiaries and businesses   (316 )   (54 ) - investments   (675 )   (464 ) - securities   (470 )   (683 ) - financing receivables             - change in accounts payable and receivable in relation to investments and capitalized depreciation   (13 )   149   Cash flow from investments   (8,973 )   (8,539 ) Disposals:             - intangible assets   13     13   - tangible assets   279     99   - consolidated subsidiaries and businesses   538     252   - investments   61     178   - securities   659     369   - financing receivables   808     804   - change in accounts receivable in relation to disposals   (1 )   9   Cash flow from disposals   2,357     1,724   Net cash used in investing activities   (6,616 )   (6,815 ) Eni shareholders’ equity Share capital Legal reserve of Eni SpA Reserve for treasury shares Other reserves Cumulative translation adjustment reserve Treasury shares Retained earnings Interim dividend Net profit for the period Total Minority interests Total shareholders’ equity Balance at December 31, 2004   4,004     959     5,392     3,965     (687 )   (3,229 )   14,911           7,059     32,374     3,166     35,540   Changes in accounting principles (IAS 32 and 39)                     13                 (40 )               (27 )   12     (15 ) Adjusted balanceat January 1, 2005   4,004     959     5,392     3,978     (687 )   (3,229 )   14,871           7,059     32,347     3,178     35,525   Net profit for the year (Note 24)                                                   8,788     8,788     459     9,247   Net income (expense) directly recognized in equity                                                                         Change in the fair value of financial assets held for sale (Note 24)                     6                                   6           6   Change in the fair value of cash flow hedge derivative (Note 24)                     16                                   16           16   Exchange differences from translation of financial statements denominated in currencies other than euro                           1,497                             1,497     15     1,512                         22     1,497                             1,519     15     1,534   Total (expense) income of the year                     22     1,497                       8,788     10,307     474     10,781   Transactions with shareholders                                                                         Dividend distribution of Eni SpA (euro 0.90 per share)                                                   (3,384 )   (3,384 )         (3,384 ) Interim dividend (euro 0.45 per share)                                             (1,686 )         (1,686 )         (1,686 ) Dividend distribution of other companies                                                               (1,218 )   (1,218 ) Allocation of 2004 residual net profit                     1,300                 2,375           (3,675 )                   Shares repurchased                                 (1,034 )                     (1,034 )         (1,034 ) Shares issued under stock grant plans   1                 (1 )                                                 Treasury shares sold under incentive plans for Eni managers               (47 )   47           47                       47           47       1           (47 )   1,346           (987 )   2,375     (1,686 )   (7,059 )   (6,057 )   (1,218 )   (7,275 ) Other changes in shareholders’ equity                                                                         Cost related to stock options                     5                                   5           5   Sale of consolidated companies                                                               (40 )   (40 ) Exchange differences arising on the distribution of dividends and other changes                           131           135                 266     (45 )   221                         5     131           135                 271     (85 )   186   Balance at December 31, 2005 (Note 24)   4,005     959     5,345     5,351     941     (4,216 )   17,381     (1,686 )   8,788     36,868     2,349     39,217   F-6 (million euro)           2004   2005           Proceeds from long-term debt               1,229     2,755   Payments of long-term debt               (797 )   (2,978 ) Reductions of short-term debt               (4,175 )   (317 )                 (3,743 )   (540 ) Capital contributions/payments by/to minority shareholders               1     24   Sale (acquisition) of additional interests in subsidiaries               621     (33 ) Dividends to minority shareholders               (3,076 )   (6,288 ) Shares repurchased               (65 )   (987 ) Net cash used in financing activities               (6,262 )   (7,824 ) Effect of change in consolidation area               12     (38 ) Effect of exchange differences               (67 )   71   Net cash flow for the period               (433 )   330   Cash and cash equivalent at beginning of the year               1,436     1,003   Cash and cash equivalent at end of the year               1,003     1,333   STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY continued (million euro) Eni shareholders’ equity Share capital Legal reserve of Eni SpA Reserve for treasury shares Other reserves Cumulative translation adjustment reserve Treasury shares Retained earnings Interim dividend Net profit for the period Total Minority interests Total shareholders’ equity Balance at December 31, 2005 (Note 24)   4,005     959     5,345     5,351     941     (4,216 )   17,381     (1,686 )   8,788     36,868     2,349     39,217   Net profit of the year (Note 24)                                                   9,217     9,217     606     9,823   Net income (expense) directly recognized in equity                                                                         Change in the fair value of financial assets held for sale (Note 24)                     (13 )                                 (13 )         (13 ) Change in the fair value of cash flow hedge derivative (Note 24)                     (15 )                                 (15 )         (15 ) Exchange differences from translation of financial statements denominated in currencies other than euro                           (1,266 )                           (1,266 )   (29 )   (1,295 )                       (28 )   (1,266 )                           (1,294 )   (29 )   (1,323 ) Total (expense) income of the year                     (28 )   (1,266 )                     9,217     7,923     577     8,500   Transactions with shareholders                                                                         Dividend distribution of Eni SpA (euro 0.65 per share in settlement of 2005) interim dividend of euro 0.45 per share) (Note 24)                                             1,686     (4,086 )   (2,400 )         (2,400 ) Dividend distribution of Eni SpA (euro 0.60 per share) (Note 24)                                             (2,210 )         (2,210 )         (2,210 ) Dividend distribution of other companies                                                               (222 )   (222 ) Payments by minority shareholders                                                               22     22   Allocation of 2005 net profit                                       4,702           (4,702 )                   Authorization to shares repurchase (Note 24)               2,000                       (2,000 )                               Shares repurchased (Note 24)                                 (1,241 )                     (1,241 )         (1,241 ) Treasury shares sold under incentive plans for Eni managers (Note 24)               (85 )   54           85     21                 75           75   Difference between the book value and strike price of stock options exercised by Eni managers                                       7                 7           7                   1,915     54           (1,156 )   2,730     (524 )   (8,788 )   (5,769 )   (200 )   (5,969 ) Other changes in shareholders’ equity                                                                         Sale to Saipem Projects SpA of Snamprogetti SpA                     247                                   247     (247 )       Net effect related to the purchase of treasury shares by Saipem SpA and Snam Rete Gas SpA                                                               (306 )   (306 ) Purchase and sale to third parties of consolidated companies                                                               (5 )   (5 ) Cost related to stock options                                       14                 14           14   Reclassification of reserves of Eni SpA               2     (5,224 )         (2 )   5,224                                 Exchange differences arising on the distribution of dividends and other changes                           (73 )         (181 )               (254 )   2     (252 )                 2     (4,977 )   (73 )   (2 )   5,057                 7     (556 )   (549 ) Balance at December 31, 2006 (Note 24)   4,005     959     7,262     400     (398 )   (5,374 )   25,168     (2,210 )   9,217     39,029     2,170     41,199   F-7 STATEMENT OF CASH FLOWS (million euro)     Note   2004   2005   2006           Net profit of the year       7,541     9,247     9,823   Depreciation and amortization   (27)   4,598     5,509     6,153   Revaluations, net       27     (288 )   (386 ) Net change in provisions for contingencies       418     1,279     (86 ) Net change in the provisions for employee benefits       49     18     72   Gain on disposal of assets, net       (793 )   (220 )   (59 ) Dividend income   (29)   (72 )   (33 )   (98 ) Interest income       (198 )   (214 )   (387 ) Interest expense       567     654     346   Exchange differences       (79 )   (64 )   6   Income taxes   (30)   5,522     8,128     10,568   Cash generated from operating profit before changes in working capital       17,580     24,016     25,952   (Increase) decrease:                       - inventories       (355 )   (1,402 )   (953 ) - trade and other receivables       (1,241 )   (4,413 )   (1,952 ) - other assets       43     351     (315 ) - trade and other payables       727     3,030     2,146   - other liabilities       (83 )   12     50   Cash from operations       16,671     21,594     24,928   Dividends received       394     366     848   Interest received       167     214     395   Interest paid       (533 )   (619 )   (294 ) Income taxes paid       (4,199 )   (6,619 )   (8,876 ) Net cash provided from operating activities       12,500     14,936     17,001   - of which with related parties   (33)         1,230     2,206   Investments:                       - tangible assets   (7)   (6,785 )   (6,558 )   (6,138 ) - intangible assets   (10)   (714 )   (856 )   (1,695 ) - consolidated subsidiaries and businesses             (73 )   (46 ) - investments   (11)   (316 )   (54 )   (42 ) - securities       (675 )   (464 )   (49 ) - financing receivables       (470 )   (683 )   (516 ) - change in payables and receivables in relation to investments and capitalized depreciation       (13 )   149     (26 ) Cash flow from investments       (8,973 )   (8,539 )   (8,512 ) Disposals:                       - tangible assets       279     99     237   - intangible assets       13     13     12   - consolidated subsidiaries and businesses       538     252     8   - investments       61     178     36   - securities       659     369     382   - financing receivables       808     804     794   - change in payables and receivables in relationto disposals       (1 )   9     (8 ) Cash flow from disposals       2,357     1,724     1,461   Net cash used in investing activities       (6,616 )   (6,815 )   (7,051 ) - of which with related parties   (33)         (160 )   (686 ) F-8 STATEMENT OF CASH FLOWS continued (million euro)     Note   2004   2005   2006           Proceeds from long-term debt       1,229     2,755     2,888   Payments of long-term debt       (797 )   (2,978 )   (2,621 ) Reductions of short-term debt       (4,175 )   (317 )   (949 )         (3,743 )   (540 )   (682 ) Net capital contributions by minority shareholders       1     24     22   Net acquisition of treasury shares different from Eni SpA       (10 )   (30 )   (477 ) Acquisition of additional interests in consolidated subsidiaries       (25 )   (3 )   (7 ) Sale of additional interests in consolidated subsidiaries       656           35   Dividends paid:       (3,076 )   (6,288 )   (4,832 )      Eni’s shareholders       2,828     5,070     4,610        Minority interests       248     1,218     222   Net purchase of treasury shares       (65 )   (987 )   (1,156 ) Net cash used in financing activities       (6,262 )   (7,824 )   (7,097 ) - of which with related parties   (33)         23     (57 ) Changes in cash and cash equivalents not related to inflows/outflows from operating, investing or financing activities:                       Effect of change in consolidation (inclusion/exclusion of significant/insignificant subsidiaries)       12     (38 )   (4 ) Effect of exchange differences on cash and cash equivalents       (67 )   71     (197 ) Net cash flow for the period   (1)   (433 )   330     2,652   Cash and cash equivalent at beginning of the year   (1)   1,436     1,003     1,333   Cash and cash equivalent at end of the year       1,003     1,333     3,985   F-9 SUPPLEMENTAL CASH FLOWSFLOW INFORMATION (million euro) (million euro)           2004   2005           Effect of investment of consolidated subsidiaries and businesses             Non-current assets         122   Net borrowings         (19 ) Current and non-current liabilities         (22 ) Net effect of investment         81   Fair value of the participations held before the acquisition of control         (8 ) Purchase price         73   Cash flow on investment         73   Effect of disposal of consolidated subsidiaries and businesses             Current assets   261     204   Non-current assets   285     189   Net borrowings   (138 )   42   Current and non-current liabilities   (167 )   (217 ) Exchange rate differences realized following disposal   45         Net effect of disposal   286     218   Gain on disposal   304     140   Minority interest         (43 ) Selling price   590     315   less:             Cash and cash equivalent   (52 )   (63 ) Cash flow on disposal   538     252       2004   2005   2006         Effect of investment of companies included in consolidation and businesses                   Current assets               68   Non-current assets         122     130   Net borrowings         (19 )   53   Current and non-current liabilities         (22 )   (92 ) Net effect of investments         81     159   Sale of unconsolidated subsidiaries               (60 ) Fair value of the participations held before the acquisition of control         (8 )       Purchase price         73     99   less:                   Cash and cash equivalent               (53 ) Cash flow on investments         73     46   Effect of disposal of consolidated subsidiaries and businesses                   Current assets   261     204     9   Non-current assets   285     189     1   Net borrowings   (138 )   42     (1 ) Current and non-current liabilities   (167 )   (217 )   (4 ) Exchange rate differences realized following disposal   45               Net effect of disposals   286     218     5   Gain on disposal   304     140     3   Minority interest         (43 )       Selling price   590     315     8   less:                   Cash and cash equivalent   (52 )   (63 )       Cash flow on disposals   538     252     8   Transactions that did not produce cash flows In 20052006 the Group contributed assets and liabilities of a business with a carrying amount of euro 18121 million in exchange for equity investment in the companies to which those businesses were contributed. Acquisition of equity investments in exchange of businesses contribution: (million euro)   2005   2006       Effect of business contributions             Current assets   2     23   Non-current assets   17     213   Net borrowings         (44 ) Long-term and short-term liabilities   (1 )   (53 ) Net effect of contributions   18     139   Minority interest         (36 ) Gain on contribution         18   Acquisition of investments   18     121   F-10 The Consolidated Financial Statements were approved by Eni’s Board of Directors on March 30, 2006.31, 2007. Basis of presentation In application of EC Regulation 1606/2002 approved by the European Parliament and Council on July 19, 2002, starting from 2005 companies with securities listed on a regulated stock market of a Member State of the European Union are required to prepare their Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS), as approved by the European Commission. The Consolidated Financial Statements of Eni have been prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB) and adopted by the European Commission following the procedure contained in articleArticle 6 of the EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002.2002 and in accordance with Article 9 of Legislative Decree No. 38/2005. For hydrocarbon exploration and production, accounting policies followed at an international level have been applied, with particular reference to amortization according to the Unit Of ProductionUnit-Of-Production method (UOP), buy-back contracts and Production Sharing Agreements. The IFRS under which Eni’s Consolidated Financial Statements have been prepared differ in certain limited respects from the IFRS adopted by the IASB, the effect of such differences on the Consolidated Financial Statements is not material. The Consolidated Financial Statements have been prepared by applying the cost method except for items that under IFRS must be recognized at fair value as described in the evaluation criteria. The Consolidated Financial Statements include the statutory accounts of Eni SpA and of all Italian and foreign companies in which Eni SpA holds the right to directly or indirectly exercise control, determine financial and management decisions and obtain economic and financial benefits. Insignificant subsidiaries are not included in the scope of consolidation. A subsidiary is considered insignificant when it does not exceed two of these limits: (i) total assets or liabilities: euro 3,125 thousand; (ii) total revenues: euro 6,250 thousand; and (iii) average number of employees: 50 units. Moreover, companies for which the consolidation does not produce significant economic and financial effects are not included in the scope of consolidation. Such companies generally represent subsidiaries that work on account of other companies as the sole operator in the management of upstream oil contracts; these companies are financed on a proportional basis according to budgets approved, by the companies involved in the project, to which the company periodically reports costs and receipts deriving from the contract. Costs and revenues and other operating data (production, reserves, etc.) of the project, as well as the obligations arising from the project, are recognized proportionally in the financial statementsFinancial Statements of the companies involved. The effects of these exclusions are not material81. Subsidiaries excluded from consolidation, joint ventures, affiliated companiesassociates and other interests are accounted for as described below under the headingitem "Financial fixed assets". Financial statementsStatements of consolidated companies are audited by auditing companies that examine and certify the information required to be disclosed when preparing the consolidated financial statement.statements. Considering their materiality, amountsAmounts in the notes to these financial statements are stated in millions of euro. Principles of consolidation Interests in companies included in the scope of consolidation Assets and liabilities, expense and income related to fully consolidated companies are wholly incorporated into the Consolidated Financial Statements; the book value of these interests is eliminated against the corresponding fraction of the shareholders’ equity of the companies owned, attributing to each item of the balance sheet the current value at the date of acquisition of control. Any positive residual difference as regardregards to the acquisition cost is recognized as "Goodwill". Negative residual differences are charged against the profit and loss account. Any positive residual difference between cost for the acquisition of the share that exceed the control (minorities acquisition) and corresponding fraction of shareholders’ equity acquired is recognized as "Goodwill". Gains or losses on the sale of shares in consolidated subsidiaries are recorded in the profit and loss account for the amount corresponding to the difference between proceeds from the sale and the divested portion of net equity sold. Fractions of shareholders’ equity and of net profit of minority interest are recognized under specific items in the profit and loss account.Financial Statements. Minority interest is determined based on the current value attributed to assets and liabilities at the date of the acquisition of control, excluding any related goodwill. _______________ (1) According to the requirements of the framework of international accounting standards, information is material if its omission or misstatement could influence the economic decisions that users make on the basis of the financial statements. F-11 Inter-company transactions Income deriving from inter-company transactions unrealized towards third parties is eliminated. Receivables, payables, revenues and costs, guarantees, commitments and risks among consolidated companies are eliminated as well. Inter-company losses are not eliminated, since they reflect an actual decrease in the value of divested assets. Foreign currency translation Financial statementsStatements of consolidated companies denominated in currencies other than the euro are converted into euro applying exchange rates prevailing at the year end to assets and liabilities, the historical exchange rates to equity accounts and the average rates for the period to profit and loss account (source: Ufficio Italiano Cambi). Exchange rate differences from the conversion deriving from the application of different exchange rates for assets and liabilities, shareholders’ equity and profit and loss account are recognized under the item "Other reserves" within shareholders’ equity for the portion relating to the Group and under the item "Minority interest" for the portion related to minority shareholders. The exchange rate differences reserve is charged to the profit and loss account when the investments are sold or the capital employed is repaid. Financial statementsStatements of foreign subsidiaries which are translated into euro are denominated in the functional currencies of the country where the enterprise operates. The U.S. dollar is the prevalent functional currency for the enterprises that do not adopt euro. Evaluation criteria The most significant evaluation criteria used for the preparation of the Consolidated Financial Statements are shown below. Current assets Financial assets held for trading and financial assets available for sale are stated at fair value and thevalue; economic effects are charged to the profit and loss account item "Financial Income (Expense)income (expense)" and under shareholders’ equity within "Other reserves". In the last case, changes in fair value recognized under shareholders’ equity are charged to the profit and loss account when they are impaired or realized. The fair value of financial instruments is represented by market quotations or, in their absence, by the value resulting from the adoption of suitable financial valuation models which take into account all the factors adopted by the market operators and the prices obtained in similar actual transactions in the market. When the conditions for the purchase or sale of financial assets provide for the settlement of the transaction and the delivery of the assets within a given number of days determined by entities controlling the market or by agreements (e.g. purchase of securities on regulated markets), the transaction is entered at the date of settlement. Receivables are stated at their amortized cost (see belowitem "Financial fixed assets") below). Transferred financial assets are eliminated when the transaction, together with the cash flows deriving from it, lead to the substantial transfer of all risks and benefits associated to the property. Inventories, excluding contract work in progress and including compulsory stocks, are stated at the lower of purchase or production cost and marketnet realizable value represented by the proceeds the company expects to collect from the sale of the inventories in the normal course of business. The cost for inventories of hydrocarbons (crude oil, condensates and natural gas) and petroleum products is determined by applying the weighted-average cost method on a three-month basis; the cost for inventories of the Petrochemical segment is determined by applying the weighted-average cost on an annual basis. Contract work in progress is recorded on the basis of contractual considerations by reference to the stage of completion of a contract measured on a cost-to-cost basis. Advances are deducted from inventories within the limits of contractual considerations; any excess of such advances over the value of the work performed is recorded as a liability. Losses related to construction contracts are accrued for as soon asonce the company becomes aware of such losses. Contract work in progress not yet invoiced, whose payment is agreed in a foreign currency, is translated to euro using the current exchange rates at year end and effects are reflected in the profit and loss account. F-12 Hedging instruments are described in the section "Derivative Instruments"instruments". Non-current assets Property, plant and equipment92 Tangible assets, including investment properties, are recognized using the cost model and stated at their purchase or production cost including ancillarysundry costs which can be directly attributed to them as are required to make the asset readyavailable for use. In addition, when a substantial amount of time is required to make the asset readyavailable for use, the purchase price or production cost includes the financial expenses incurred that would have theoretically been saved hadif the investment had not been made. In the case of current obligations for the dismantling and removal of assets and the reclamation of sites, the carrying value includes, with a corresponding entry to a specific provision, the estimated (discounted) costs to be borne at the moment the asset is retired. Revisions of estimates for these provisions, for the passage of time and for changes in the discount rate are recognized under "Provisions for contingencies". The company recognizes material provisions for the retirement of assets in the Exploration & Production business. No significant asset retirement obligations associated with any legal obligations to retire refining, marketing and transportation (downstream) and chemical long-lived assets generally are recognized, as indeterminate settlement dates for the asset retirements prevented estimation of the fair value of the associated asset retirement obligation. 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. No revaluation is made even in application of specific laws. Assets carried under financial leasing or concerning arrangements that does not take the legal form of a financial lease but produce a substantive transfer of risks and rewards of ownership, are recognized at fair value, net of taxes due from the lessor or, if lower, at the amount of future minimum lease payments, and are included within the tangible assets, with a corresponding entry to the financial payable to the lessor, and depreciated using the criteria detailed below. When the renewal is not reasonably certain, assets carried under financial leasing are depreciated over the period of the lease if shorter than the useful life of the asset. Renewals, improvements and transformations which extend asset lives are capitalized. Tangible assets are depreciated systematically using a straight-line method over the duration of their useful life taken as an estimatefrom the moment they are recognized which coincides with the date when they begin or should begin to be used. When tangible assets are composed of the period for which the assets will be used by the company. When the tangible asset comprises more than one significant element with different useful lives, each component is depreciated separately. The depreciable amount is recognized as the depreciation is carried out for each component. Thecarrying amount to be depreciated is represented by the book value reduced by the presumable net realizableof any salvage value at the end of the assets useful life, if itsuch value is significant and can be reasonably determined. Land is not depreciated, even if bought togetherwhen purchased in bulk with a building. Tangible assets held for salessale are not depreciated but are valued at the lower of the book value and fair value less costs of disposal. Assets that can be used free of charge are depreciated over the shorter term of the duration of the concession and the useful life of the asset. Renewals, improvements and transformations which extend asset lives are capitalized. The costs for the substitution of identifiable components in complex assets are capitalized and depreciated over their useful life; the residual book value of the component that has been substituted is charged to the profit and loss account. Ordinary maintenance and repair costs are expensed when incurred. When events occur that lead to a presumable reduction in the bookThe carrying value of tangible assets is reviewed for impairment whenever events or changes in circumstances indicate that their recoverability is checked by comparing theircarrying value may not be recoverable. The review consists in a comparison between the book value withand the realizable value, represented byestimated recoverable value. The recoverable amount of an asset is the greater of its fair value less costs of disposalto sell and replacement cost.its value in use. In the absence of a binding sales agreement, fair value is estimated on the basis of market values, of recent transactions, or of the best available information that shows the proceeds that the company could reasonably expect to collect from the disposal of the asset. Replacement costValue in use is determined by discounting the expected cash flows deriving from the use of the asset and, if significant and reasonably determinable, the cash flows deriving from its disposal at the end of its useful life, net of disposal costs. Cash flows are determined on the basis of reasonable and documented assumptions that represent the best estimate of the future economic conditions during the remainingresidual useful life of the asset, giving more importance to independent assumptions. The discountingDiscounting is carried out at a rate that takes into account the implicit risk in the sectors where the entity operates. Valuation is carried out for each single asset or, if the realizable value of a single asset cannot be determined, for the smallest identifiable group of assets that generates independent cash inflows from their continuous use, the so called cash"cash generating unit. unit". _______________ (2) Recognition and evaluation criteria of exploration and production activities are described in the section "Exploration and production activities" below. F-13 When the reasons for their impairment cease to exist, Eni reverses previously recorded impairment charges and records as income of an asset revaluation in the profit and loss account for the relevant year. This asset revaluation is the lower of the fair value and the book value increased by the amount of previously incurred impairments net of related amortization that would have been made hadif the impairment had not been made. Intangible assets Intangible assets include assets which lack identifiable physical qualities, that are identifiable, controlled by the company and able to produce future economic benefits, and goodwill acquired in business combinations. An asset is classified as intangible when the management is able to distinguish itsit clearly from goodwill. This condition is normally met when: (i) the intangible asset can be traced back to a legal or contractual right, or (ii) the asset is separable, i.e. can be sold, transferred, licensed, rented or exchanged, either individually or as an integral part of other assets. An entity controls an asset if it has the power to obtain the future economic benefits flowing fromcash inflows generated by the underlying resourceasset and to restrict the access of others to those benefits.cash flows. Intangible assets are stated at cost as determined withby the criteria used for tangible assets. No revaluation is made even in application of specific laws. Intangible assets with a defined useful life are amortized systematically over the duration of their useful life takenestimated as an estimate of the period forover which the assets will be used by the company; the recoverability of their book value is checked usingverified in accordance with the criteria described in the section "Tangible Assets"assets". Goodwill and other intangible assets with an indefinite useful life are not amortized. The recoverability of their carrying value is checked at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. With reference to goodwill, this checkGoodwill is performedreviewed for impairment at the level of the smallest aggregate on which the company, directly or indirectly, evaluates the return on those capital projects to which goodwill relates. When the capital expenditurecarrying amount of the cash generating unit, including goodwill attributed thereto, exceeds the cash generating unit’s recoverable amount, the difference is recognized as impairment and it is primarily charged against goodwill up to its amount; any amount in excess is charged on a pro-rata basis against the book value of the assets that included said goodwill.form the cash generating unit. Impairment charges against goodwill mayare not be revalued. Negative goodwill is recognized in the profit and loss account. Costs of technological development activities are capitalized when: (i) the cost attributable to the intangible asset can be reasonably determined; (ii) there is the intention, the availability of funding and the technical capacity to make the asset available for use or sale; and (iii) it can be showndemonstrated that the asset is able to producegenerate future economic benefits.cash inflows. Exploration and production activities103 Acquisition of mineral rights Costs associated with the acquisition of mineral rights are capitalized in connection with the assets acquired (exploratory(such as exploratory potential, probable and possible reserves and proved reserves). When the acquisition is related to a set of exploratory potential and reserves, the cost is allocated to the different assets acquired on the basis of the value of the relevant discounted cash flow.flows. Expenditure for the exploratory potential, represented by the costs for the acquisition of the exploration permits and for the extension of existing permits, is recognized under "Intangible assets" and is amortized on a straight-line basis over the period of the exploration as contractually established. If the exploration is abandoned, the residual expenditure is charged to the profit and loss account. Acquisition costs for proved reserves and for possible and probable reserves are recognized under "Intangible assets" or "Tangible assets" depending onin the nature of the underlyingbalance sheet as assets. Costs associated with proved reserves are amortized on a Unit Of Production (UOP)UOP basis, as detailed in the section "Development", considering both developed and undeveloped reserves. Expenditures associated with possible and probable reserves are not amortized until classified as proved reserves; in case of a negative result, the costs are charged to the profit and loss account. _______________ (3) International accounting principles do not establish specific criteria for hydrocarbon exploration and production activities. Eni continues to use existing accounting policies for exploration and evaluation assets previously applied before the introduction of IFRS 6 "Exploration for and evaluation of mineral resources". F-14 Exploration Costs associated with exploratory activities for oil and gas producing properties incurred both before and after the acquisition of mineral rights (such as acquisition of seismic data from third parties, test wells and geophysical surveys) are capitalized, to reflect their nature of investment and amortized in full when incurred. Development Development costs are those costs incurred to obtain access to proved reserves and to provide facilities for extracting, gathering and storing oil and gas andgas. They are then capitalized and amortized generally on a UOP basis, as their useful life is closely related to the availability of feasible reserves. This method provides for residual costs at the end of each quarter to be amortized through a rate representing the ratio between the volumes extracted during the periodquarter and the proved developed reserves existing at the end of the period,quarter, increased by the volumes extracted during the period.quarter. This method is applied with reference to the smallest aggregate representing a direct correlation between investment and proved developed reserves. Costs related to unsuccessful development wells or damaged wells are expensed immediately as losslosses on disposal. Impairments and reversal of impairments of development costs are made on the same basis as those for tangible assets. Production Production costs are those costs incurred to operate and maintain wells and field equipment and are expensed as incurred. Production sharing agreements and buy-back contracts Revenues and provisionsoil and gas reserves related to Production Sharing Agreements and buy-back contracts are settled on the basis of contractual clauses related to the repayment of costs incurred following the exploration, development and operating activities (cost oil) and to the relevant amount of realized productions (profit oil). Retirement Costs expected to be incurred with respect to the retirement of thea well, including costs associated with removal of production facilities, dismantlement and site restoration, are capitalized and amortized on a UOP basis, consistent with the policy described under Tangible assets."Tangible assets". Grants Grants related to assets are recorded in a contra asset account when authorized, if all the required conditions have been met and as a reduction of purchase price or production cost of the relevant assets.related assets when there is reasonable assurance that all the required conditions attached to them, agreed upon with governmental entities, have been met. Grants of the yearnot related to capital expenditure are recognized in the profit and loss account. Financial fixed assets Investments Investments in subsidiaries excluded from consolidation, joint ventures and affiliatesassociates are accounted for using the equity method. If it does not result in a misrepresentation of the company’s financial condition and consolidated results, subsidiaries, joint ventures and affiliatesassociates excluded from consolidation may be accounted for at cost, adjusted for permanent impairment of value.losses. When the reasons for their impairment cease to exist, investments accounted for at cost are revalued within the limit of the impairment made and their effects are charged to the profit and loss account item "Other income (expense) from investments". Other investments are recognized at their fair value and their effects are included in shareholders’ equity under "Other reserves".; this reserve is charged to the profit and loss account when it is impaired or realized. When fair value cannot be reasonably ascertained, investments are accounted for at cost, adjusted for permanent impairment of value;losses; impairment of valuelosses may not be revalued. The risk deriving from losses exceeding shareholders’ equity is recognized in a specific provision to the extent the parent company is required to fulfill legal or implicit obligations towards the subsidiary or to cover its losses. F-15 Receivables and financial assets to be held to maturity Receivables and financial assets that must be held to maturity are stated at cost represented by the fair value of the initial exchanged amount adjusted to take into account direct external costs related to the transaction (e.g. fees of agents or consultants, etc.). The initial carrying value is then corrected to take into account capital repayments, devaluations and amortization of the difference between the reimbursement value and the initial carrying value; amortization is carried out on the basis of the effective internal rate of return represented by the rate that equalizes, at the moment of the initial revaluation, the current value of expected cash flows to the initial carrying value (so-called amortized cost method). Any impairment is recognized by comparing the carrying value with the present value of the expected cash flows discounted at the effective interest rate defined at the initial recognition. The economic effects of the valuation according to the amortized cost method are charged as "Financial income (expense)". Financial liabilities Debt is carried at amortized cost (see item "Financial fixed assets" above). Provisions for contingencies Provisions for contingencies concern risks and charges of a definite nature and whose existence is certain or probable but for which at year end the amount or date of occurrence remains uncertain. Provisions are made when: (i) there is a current obligation, either legal or implicit, deriving from a past event; (ii) it is probable that the fulfillment of that obligation will result in an outflow of resources embodying economic benefits; and (iii) the amount of the obligation can be reliably estimated. Provisions are stated at the value that represents the best estimate of the amount that the company would reasonably pay to fulfillfulfil the obligation or to transfer it to third parties at year end. When the financial effect of time is significant and the payment date of the obligations can be reasonably estimated, the provisions are discounted back at the company’s average rate of indebtedness. The increase in the provision due to the passing of time is charged to the profit and loss account in the item "Financial Income (Expense)income (expense)". When the liability regards a tangible asset (e.g. site restoration and abandonment), the provision is stated with a corresponding entry to the asset to which it refers; profit and loss account charge is made with the amortization process. The costsCosts that the company expects to bear in order to carry out restructuring plans are recognized in the year in which the company formally defines the plan and the interested parties have developed the reasonable expectation that the restructuring will happen. The provisionsProvisions are periodically updated to show the variations of estimates of costs, production times and actuarial rates; the estimated revisions to the provisions are recognized in the same profit and loss account item that had previously held the provision, or, when the liability regards tangible assets (i.e. site restoration and abandonment) with a corresponding entry to the assets to which they refer. In the Notes to the Consolidated Financial Statements the following potential liabilities are described: (i) possible, but not probable obligations deriving from past events, whose existence will be confirmed only when one or more future events beyond the company’s control occur; and (ii) current obligations deriving from past events whose amount cannot be reasonably estimated or whose fulfillment will probably be not expensive.result in an outflow of resources embodying economic benefits. Employee post-employment benefits Post employmentPost-employment benefit plans are defined on the basis of plans, even if not formalized ones,including those unformalized, that due to their mechanisms featureterms defined contributions plans or defined benefit plans.benefits. In the first case, the company’s obligation, consisting inwhich consists of making payments to the State or to a trust or a fund, is determined on the basis of contributions due. F-16 The liabilities related to defined benefit plans114, net of any plan assets, are determined on the basis of actuarial assumptions125 and charged to the relevant year consistently withon accrual basis during the employment period required to obtain the benefits; the evaluation of liabilities is made by independent actuaries. The actuarial gains and losses of defined benefit plans, deriving from a change in the actuarial assumptions used or from a change in the conditions of the plan, are charged to the profit and loss account, proportionally through the residual average working life of the employees participating to the plan, in the limits of the share of the discounted profit/loss not charged beforehand, that exceeds the greater of 10% of the fair value of liabilities and 10% of the fair value of the plan assets (corridor method). Obligations for long-term benefits are determined by adopting actuarial assumptions; the effect of changes in actuarial assumptions or a change in the characteristics of the benefit are taken to profit or loss in their entirety. Treasury shares Treasury shares are recorded at cost and as a reduction of shareholders’ equity. Gains following subsequent sales are recorded as an increase in shareholders’ equity. Revenues and costs Revenues from sales of products and services rendered are recognized upon transfer of risks and advantagesrewards associated with the property or upon settlement of the transaction. In particular, revenues are recognized: •   for crude oil, generally upon shipment; •   for natural gas, when the natural gas is delivered to the customer; •   for petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales are generally recognized upon shipment; •   for petrochemical products and other products, generally upon shipment. Revenues are recognized upon shipment when, at that date, the risks of loss are transferred to the acquirer. Revenues from the sale of crude oil and natural gas produced in properties in which Eni has an interest together with other producers are recognized on the basis of Eni’s working interest in those properties (entitlement method). Differences between Eni’s net working interest volume and actual production volumes are recognized at current prices at period end. Income related to partially rendered services are recognized with respect to the accrued revenues, if it is possible to reasonably determine the statestage of completion and there are no relevant uncertainties concerning the amounts and the existence of the revenue and related costs; otherwise it is recognized within the limits of the recoverable costs incurred. The revenuesRevenues accrued in the period related to construction contracts are recognized on the basis of contractual revenues bywith reference to the stage of completion of a contract measured on the cost-to-cost basis. The requestsRequests of additional revenues, deriving from a change in the scope of the work, are included in the total amount of revenues when it is probable that the customer will approve the variation and the relevantrelated amount; claims deriving for instance from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that the counterpart will accept them. Revenues are stated net of returns, discounts, rebates and bonuses, as well as directly related taxation. Exchanges of goods and services with similar nature and value do not give rise to revenues and costs as they do not represent sale transactions. Costs are recognized when the related goods and services are sold, consumed or allocated, or when their future useful lives cannot be determined. Costs related to the amount of emissions, determined on the basis of the average prices of the main European markets at the end of the period, are reported in relation to the amount of the carbon dioxide emissions that exceed the amount assigned; revenues are related to the amount of emissions are reported when are recognized following the sale. Operating lease payments are recognized in the profit and loss account overbased on the length of the contract.contract duration. _______________ (4) Given the uncertainties related to their payment date, employee termination indemnities are considered as a defined benefit plan. (5) Actuarial assumptions relate to, inter alia, the following variables: (i) future salary levels; (ii) the mortality rate of employees; (iii) personnel turnover; (iv) the percentage of plan participants with dependents who are eligible to receive benefits (e.g. spouses and dependent children); (v) for medical plans, the frequency of claims and future medical costs; and (vi) interest rates. F-17 Labor costs include stock grants and stock options granted to managers, consistent with their actual remunerative nature. The cost is determined based on the fair value of the rights awarded to the employee;employee at the date of the award and it is not subject to subsequent adjustments; the portion relevant to the yearon an accrual basis is calculated pro rata over the period to which the incentive refers (vesting periodperiod)136). The fair value of stock grants is represented by the current value of the shares at the date of the award, reduced by the current value of the expected dividends in the vesting period. The fair value of stock options is the value of the option calculated with the Black-Scholes methodappropriate valuation techniques that takestake into account the exercise conditions, current price of the shares, expected volatility and the risk-free interest rate. The fair value of the stock grants and stock options is shown as a contra-entry to "Other reserves". The costs for the acquisition of new knowledge or discoveries, the study of products or alternative processes, new techniques or models, the planning and construction of prototypes or, in any case, costs borne for other scientific research activities or technological development, which do not satisfy conditions for the recognition in the balance sheet, are generally considered current costs and expensed as incurred. Accounting to Buy/Sellfor buy/sell contracts In January and February 2005, the Securities and Exchange Commission ("SEC") issued comment letters to Eni and other companies in the oil and gas industry requesting disclosure of information related to the accounting for buy/sell contracts. Eni routinely enters into buy/sell contracts, principally in the downstream business in Italy, associated mainly with refined products. For refined products, buy/sell arrangements are used to support the company’s refined products marketing activity, which includes the production, purchase and sale of refined products in order to fulfill the company’s marketing needs and supply agreements to customer locations and specifications. Eni accounts for buy/sell transactions in the consolidated income statement on a net basis, regardless of whether terms of the buy/sell agreements were established jointly, in a single contract, or separately, in individual contracts that are entered into concurrently or in contemplation of one another with a single counterparty. This accounting is consistent with the most recent guidance of the SEC staff who considers that the accounting for buy/sell contracts should be shown net on the income statement. The topic iswas under deliberation by the Emerging Issues Task Force (EITF) of the FASB as Issue No. 04-13, "Accounting for Purchases and Sales Inventory with the Same Counterparty." At its September 2005 meeting, the EITF reached consensus that two or more legally separate exchange transactions with the same counterparty, including buy/sell transactions, should be combined and considered as a single arrangement when the transactions were entered into "in contemplation" of one another. EITF 04-13 was ratified by the FASB in September 2005 and is effective for new arrangements, or modifications or renewals of existing arrangements, entered into beginning on or after April 1, 2006, which will bewas the effective date for the company’s adoption of this standard. Upon adoption, the company will reportreported the net effect of buy/sell transactions on its Consolidated Statement of Income as "Purchased crude oil and products" instead of reporting the revenues associated with these arrangements as "Sales and other operating revenues" and the costs as "Purchased crude oil and products." While this issue was under deliberation, the SEC staff directed Eni and other oil companies in a comment letter to disclose on the face of the income statement the amounts associated with buy/sell contracts and to discuss in a footnote to the financial statementsFinancial Statements the basis for the underlying accounting. In Eni’s consolidated income statement, "Net sales from operations" and "Purchases, services and other" for the December 31, 2004, 2005 and 20052006 were netted of euro 1,821 million, and euro 2,595 million, euro 2,877 million respectively, for the above described buy/sell contracts. Exchange rate differences Revenues and costs concerning transactions in currencies other than functional currency are stated at the exchange rate on the date that the transaction is completed. Monetary assets and liabilities in currencies other than functional currency are converted by applying the year end exchange rate and the effect is stated in the profit and loss account. Non-monetary assets and liabilities in currencies other than functional currency valued at cost are stated at the initial exchange rate; when they are evaluated at recoverable value or realizable value, the exchange rate applied is that of the day of recognition. _______________ (6) For stock grants, the period between the date of the award and the date of assignation of stock; for stock options, period between the date of the award and the date on which the option can be exercised. F-18 Dividends Dividends are recognized at the date of the general shareholders’ meeting in which they were declared, except when the sale of shares before the ex-dividend date is certain. Income taxes Current income taxes are determined on the basis of estimated taxable income; the estimated liability is recognized in the item "Income tax liabilities". Current tax assets and liabilities are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets or liabilities are provided on temporary differences arising between the carrying amounts of the assets and liabilities in the financial statementsFinancial Statements and their tax bases. Deferred tax assets are recognized when their realization is considered probable. Deferred tax assets and liabilities are recorded under non-current assets and liabilities and are offset at a single entity level if related to offsettable taxes. The balance of the offset, if positive, is recognized in the item "Deferred tax assets" and; if negative, in the item "Deferred tax liabilities". When the results of transactions are recognized directly in the shareholders’ equity, current taxes, deferred tax assets and liabilities are also charged to the shareholders’ equity. Derivatives Derivatives, including embedded derivatives which are separated from the host contract, are assets and liabilities recognized at their fair value.value which is estimated by using the criteria described in the section "Current assets". Derivatives are classified as hedging instruments when the relationship between the derivative and the subject of the hedge is formally documented and the effectiveness of the hedge is high and is checked periodically. When hedging instruments cover the risk of variation of the fair value of the hedged item (fair value hedge;hedge, e.g. hedging of the variability on the fair value of fixed interest rate assets/liabilities), the derivatives are stated at fair value and the effects charged to the profit and loss account; consistently the hedgedaccount. Hedged items are consistently adjusted to reflect the variability of fair value associated with the hedged risk. When derivatives hedge the cash flow variation risk of the hedged item (cash flow hedge;hedge, e.g. hedging the variability on the cash flows of assets/liabilities as a result of the fluctuations of exchange rate), changes in the fair value of the derivatives, considered effective, are initially stated in net equity and then recognized in the profit and loss account consistentconsistently with the economic effects produced by the hedged transaction. The changechanges in the fair value of derivatives that do not meet the conditions required to qualify as hedging instruments are shown in the profit and loss account. Financial statements Assets and liabilities of the balance sheet are classified as current and non-current. Items of the profit and loss account are presented by nature. Statements of changes in shareholders’ equity present profit and loss for the year and other changes of the shareholders’ equity. Statements of cash flows are presented using the indirect method, whereby net profit is adjusted for the effects of transactions of a non-cash nature. Changes in accounting principles Since 2006, Eni applies: (i) the requirements of IFRIC 4 "Determining whether an arrangement contains a lease" that provides guidance for determining whether arrangements that do not take the legal form of a lease but which convey rights to use assets in return for a payment or series of payments should be treated as a lease; (ii) the amendments to IAS 39 "Financial instruments: recognition and measurement" that are related to: (a) the possibility to qualify as hedging instruments, in relation to cash flow hedge operations on exchange rate risk relating to inter-company transactions expected and with a high probability, on condition that these transactions are denominated in a functional currency other than the currency of the entity that carries out the operation and the exposure to the exchange rate risk has a potential effect on consolidated profit and loss account; F-19 (b) the recognition and measurement of financial guarantees that are recorded when they are issued as a liability valued at market value and then, in relation to the execution risk, at the greater of the best estimate of the charge to be sustained to fulfil the obligation and the initial amount reduced by premiums collected; and (iii) the requirements of IFRIC 5 "Rights to interests arising from decommissioning, restoration and environmental funds" that provide guidance for determining the recognition and measurement for the contribution to funds established to finance decommissioning that have the following features: (a) the assets are held and administered by a separate legal entity; and (b) contributor’s right to access the assets of the fund is restricted. The contributor recognizes its obligation to pay separately decommissioning costs as a liability and its interest in the fund. In the case that the interest means having control, having joint control or significant influence over the fund, the entity contributor must recognize the interest in the fund as an investment in a subsidiary, associate or joint ventures. The adoption of these principles did not generate a material effect. Use of accounting estimates The preparation of these Consolidated Financial Statementsconsolidated financial statements under IFRS requires Managementmanagement to applymake accounting methods and policiesestimates that are based on difficultcomplex or subjective judgments, estimates based on past experience and assumptions determined to be reasonable and realistic based onconsidering the related circumstances.information available at the date of the estimate. 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. KeyThe main areas whereaffected by estimates are applied include the determination of oil and gas proved reserves and proved developed reserves, accounting for exploratory drilling costs under U.S. GAAP, impairment of fixed assets, intangible assets and goodwill, asset retirement obligations, business combinations, recognition of environmental liabilities and recognition of revenues in the oilfield services construction and engineering businesses. Actual results may differ from these estimates given the uncertainty surrounding the assumptions and conditions upon which the estimates are based. Summarized below are the critical 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 conditions may significantly affect future results. Oil and gas activities Engineering estimates of the Company’s oil and gas reserves are inherently uncertain. 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. Although there are authoritative guidelines regarding the engineering criteria that have tomust be met before estimated oil and gas reserves can be designated as "proved", the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. Reserves in a fieldField reserves will only be categorized as proved when all the criteria for attribution of proved status have been met, including an internally imposed requirement for project sanction that occurs when a final investment decision is made.met. At the point of sanction,this stage, all booked reserves will be categorized as proved undeveloped. Volumes will subsequently be recategorized from proved undeveloped to proved developed as a consequence of development activity. The first proved developed bookings will occur at the point of first oil or gas production. Major development projects typically take one to four years from the time of initial booking to the start of production. Adjustments may be made to booked reserves due to production, reservoir performance, commercial factors, acquisition and divestment activity and additional reservoir development activity. Eni reassesses its estimate of proved reserves on an annual basis.periodically. The estimated proved reserves of oil and natural gas may be subject to future revision and upward and downward revision may be madeinitial revisions to the initial booking of reserves due to production, reservoir performance, commercial factors, acquisition and divestment activity and additional reservoir development activity. In particular, changes in oil and natural gas prices could impact the amount of Eni’s proved reserves as regards the initial estimate and, in the case of Production Sharing Agreements and buy-back contracts, the share of production and reserves to which Eni is entitled to.entitled. Accordingly, the estimated reserves could be materially different from the quantities of oil and natural gas that ultimately will be recovered. Oil and natural gas reserves have a direct impact on certain amounts reported in the financial statements.Financial Statements. 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 yearquarter and proved developed reserves existing at the year end of the quarter increased by the amounts extracted during the year. quarter. F-20 Assuming all other variables are held constant, an increase in estimated proved developed reserves decreases depreciation, depletion and amortization expense. On the contrary, a decrease in estimated proved developed reserves increases depreciation, depletion and amortization expense. Also,In addition, estimated proved reserves are used to calculate future cash flows from oil and gas properties, which serve as an indicator in determining whether aor not property impairment is to be carried out or not.out. The larger the volumes of estimated reserves, the less likely the property is to be impaired. See "Item 3 – Risk Factors – Uncertainties in Estimates of Oil and Natural Gas Reserves". Accounting for Suspended Well Costssuspended well costs under U.S. GAAP Under U.S. GAAP costs for exploratory wells are initially capitalized pending the determination of whether the well has found proved reserves. If proved reserves are found, the capitalized costs of drilling the well are reclassified to tangible assets and amortized on a UOP basis. If proved reserves are not found, the capitalized costs of drilling the well are charged to expense. However, successful exploratory efforts are, in many cases, not declared to be proved until after an extensive and lengthy evaluation period has been completed. These issues were addressed by the FASB staff in its FSP FAS 19-1, published in April 2005, amending FAS 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies". Under the provisions of FSP FAS 19-1, companies in the oil and gas industry are allowed to continue capitalization of an exploratory well after the completion of drilling when: (a) the well has found a sufficient quantity of reserves to justify completion as a producing well; and (b) the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if an enterprise obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well would be assumed to be impaired, and its costs, net of any salvage value, would be charged to expense. Determination of whether an exploratory well should remain capitalized after completion of drilling requires a high degree of judgment on the part of management in assessing whether the Company is making sufficient progress assessing the reserves and the economic and operating viability of a given project. The companyCompany evaluates the progress made on the basis of regular project reviews which take account of the following factors: (i) costs are being incurred to assess the reserves and their potential development; (ii) existence (or active negotiations) of sales contracts with customers for oil and natural gas; and (iii) existence of firm plans, established timetables or contractual commitments, which may include seismic testing and drilling of additional exploratory wells. As of December 31, 2005,2006, an amount of euro 403392 million remainremains capitalized relating to approximately 3025 exploratory wells for which drilling activities have been completed for more than one year, of this capitalized amount euro 5985 million (or 810 wells) relates to projects progressing towards completion of development activities, and the remaining euro 344307 million (or 2210 wells) relates to projects for which additional exploratory activity is underway or firmly planned. See Note 3538 to the Consolidated Financial Statements. Impairment of Assets assets Eni assesses its fixedtangible assets and intangible assets, including goodwill, for possible impairment if there are events or changes in circumstances that indicate the carrying values of the assets are not recoverable. Such indicators include changes in the Group’s business plans, changes in commodity prices leading to unprofitable performance and, for oil and gas properties, significant downward revisions of estimated proved reserve quantities. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, production profiles and the outlook for global or regional market supply-and-demandsupply and demand conditions for crude oil, natural gas, commodity chemicals and refined products. Technically, theThe amount of an impairment chargeloss is determined by comparing the book value of an asset with its recoverable amount. The recoverable amount is the greater of fair value net of disposal costs and value in use. The estimated value in use is usually based on the present values of expected future cash flows using assumptions commensurate with the risks involved in the asset group.net of disposal costs. The expected future cash flows used for impairment reviews are based on judgmental assessments of future production volumes, prices and costs, considering available information at the date of review and are discounted by using a rate related to the activity involved. 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, 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 abouton: future commodity prices, lifting and development costs, field decline rates, market demand and supply, economic regulatory climates and other factors. Under both IFRSGoodwill and U.S. GAAP, goodwill isother intangible assets with indefinite useful life are not amortized but like indefinitive lived intangible assets, is tested for impairmentthey are checked at least annually. Under IFRSannually to determine whether its carrying amount is recoverable and in any case, when trigger events arise that would lead the assessmententity to assume the value of an asset is impaired. In particular, goodwill impairment is based on the determination of the fair value of each cash generating unitsunit to which goodwill can be attributed on a reasonable and consistent basis. F-21 A cash generating unit is a group of assets that generates cash inflows that are largely independent of the cash inflows from other groups of assets.smallest aggregate on which the company, directly or indirectly, evaluates the return on the capital expenditure. If the fair value of a cash generating unit is lower than the carrying amount, goodwill attributed to that cash generating unit is impaired up to that difference,difference; if the carrying amount of goodwill is less than the amount of impairment, assets of the cash generating unit are impaired on a pro-rata basis for the residual difference. Asset Retirement Obligation retirement obligations Obligations related to the removal of tangible equipment and to the restoration of land or seabeds require significant estimates in calculating the amount of the obligation and determining the amount required to be recorded in the Consolidated Financial Statements. Estimating the future asset removal costs is difficult and requires management to make estimates and judgments becausedue to the fact that most of the removal obligations arewill come to term many years into the future and contracts and regulations are often unclear as to what constitutes removal. Asset removal technologies and costs are constantly changing, as well as political, environmental, safety and public relations considerations. The subjectivity of these estimates is also increased by the accounting method used that requires entities to record the fair value of a liability for an asset retirement obligations in the period when it is incurred (typically, at the time, the asset is installed at the productionsproduction location). When liabilities are initially recorded, the related fixed assets are increased by an equal corresponding amount. The liabilities are increased with the passage of time (interest accretion) and any change of the estimates following the modification of the future cash flows and the discount rate is adopted. The recognized asset retirement obligations are based upon future retirement cost estimates and incorporate many assumptions such asas: expected recoverable quantities of crude oil and natural gas, abandonment time, to abandonment, future inflation rates and the risk-free rate of interest adjusted for the Company’s credit costs. Business Combinations combinations Accounting for the acquisition of a business requires the allocation of the purchase price to the variousmost assets and liabilities of the acquired business at fair value. Any positive residual difference is recognized as "Goodwill". Negative residual differences are charged against the profit and loss account. Management uses all available information to make these fair value determinations and, for major business acquisitions, typically engages an outsideindependent appraisal firm to assist in the fair value determination of the acquired long-lived assets.assets and liabilities. Environmental Liabilities 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 regulations concerning its oil and gas operations, productions and other activities, including legislation that implements international conventions or protocols. Environmental costs are recognized when it becomes probable 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 on Eni’s consolidated results of operations and financial position as a result of such laws and regulations, there can be no assurance that there will not be a material adverse impact on Eni’s consolidated results of operations and financial position due to: (i) the possibility of asa yet unknown contamination; (ii) the results of the on-goingongoing surveys and the other possible effects of statements required by Decree No. 471/1999 of the Ministry of Environment concerning the remediation of contaminated sites; (iii) the possible effect of future environmental legislation and 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 and those that may derive from the legislative decree that the Italian Government will have to enact in order to implement Directive 2000/60/EC creating a framework for joint European action in the area of water;rules; (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. EmployeesEmployee post-retirement benefits Defined benefit plans and post-retirementother long-term benefits Employees benefits (such as pension payments, life insurance payments, medical assistance after retirement, etc.) are evaluated with reference to uncertain events and based upon actuarial assumptions including among others discount rates, expected rates of return on any plan assets, expected rates of salary increases, medical cost trend rates, estimated retirement dates, mortality rates. These assumptions are reviewed annually and may change from year to year impacting future results of operations. The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows: (i) discount and inflation rates reflect the rates at which benefits could be effectively settled, taking into account the duration of the obligation. Indications used in selecting the discount rate include rates of annuity contracts and rates of return on high quality fixed-income investments (such as government bonds). • discount and inflation rates reflect the rates at which the benefits could be effectively settled, taking into account the duration of the obligation. Indications used in selecting the discount rate include rates of annuity contracts and rates of return on high-quality fixed-income investments (such as government bonds). The inflation rates reflect market conditions observed country by country; • salary increase assumptions (when relevant) are determined by each entity. They reflect an estimate of the actual future salary levels of the individual employees involved, including future changes attributed to general price levels (consistent with inflation rate assumptions), productivity, seniority, promotion and other factors; • healthcare cost trend assumptions (when relevant) reflect an estimate of the actual future changes in the cost of the healthcare related benefits provided to the plan participants and are based on past and current healthcare cost trends including healthcare inflation, changes in healthcare utilization, and changes in health status of the participants; • demographic assumptions such as mortality, disability and turnover reflect the best estimate of these future events for the individual employees involved, based principally on available actuarial data; and • determination of expected rates of return on assets is made through compound averaging. For each plan, there are taken into account the distribution of investments among bonds, equities and cash and the expected rates of return on bonds, equities and cash. A weighted-average rate is then calculated. F-22 The inflation rates reflect market conditions observed country by country; (ii) the future salary levels of the individual employees are determined including an estimate of future changes attributed to general price levels (consistent with inflation rate assumptions), productivity, seniority and promotion; (iii) healthcare cost trend assumptions reflect an estimate of the actual future changes in the cost of the healthcare related benefits provided to the plan participants and are based on past and current healthcare cost trends including healthcare inflation, changes in healthcare utilization and changes in health status of the participants; (iv) demographic assumptions such as mortality, disability and turnover reflect the best estimate of these future events for the individual employees involved, based principally on available actuarial data; and (v) determination of expected rates of return on assets is made through compound averaging. For each plan, the distribution of investments among bonds, equities and cash and their specific average expected rate of return is taken into account. Differences between projectedexpected and actual costs and between the projectedexpected return and the actual return on plan assets routinely occur and are called actuarial gains and losses. The unrecognized actuarial losses of pension benefits as at December 31, 2005 were euro 144 million compared to euro 41 million in 2004. The euro 103 million increase from 2004 reflected primarily changes in assumptions used to account for pensions and other post-retirement benefits mainly related to the decrease in discount rates (4.0% in 2005 compared whit 4.5% in 2004). Pension accounting principles require that such actuarial losses be deferred and amortized over future periods. Eni applies the corridor method to amortize its actuarial losses and gains. This method amortizes on a pro-rata basis the net cumulative actuarial gains and losses, unrecognized at the end of the previous reporting period, that exceed 10% of the greater ofof: (i) the present value of the defined benefit obligationobligation; and (ii) the fair value of plan assets, over the average expected remaining working lives of the employees participating in the plan. In 2005, Eni recognizedAdditionally, obligations for other long-term benefits are determined by adopting actuarial assumptions; the effect of changes in actuarial assumptions or a charge of euro 126 million (euro 118 million in 2004)change in the profit and loss account in connection with its obligations for employee post-retirement benefits. See Note 20characteristics of the Consolidated Financial Statements for further information about employees post-retirement benefits.benefit are taken to profit or loss in their entirety. Contingencies In addition to accruing the estimated costs for environmental liabilities, asset retirement obligation and environmental liabilities,employees benefits, Eni accrues for all contingencies that are both probable and estimable. These other contingencies are primarily related to employee benefits, litigation and tax issues. Determining appropriate amounts for accrual is a complex estimation process that includes subjective judgments. Revenue recognition in the Oilfield Services,Engineering & Construction and Engineering segment Revenue recognition in the Oilfield Services,Engineering & Construction and Engineering business segment is based on the stage of completion of a contract as measured on the cost-to-cost basis applied to contractual revenues. Use of the stage of completion method requires estimates of future gross profit on a contract by contract basis. The future gross profit represents the profit remaining after deducing costs attributable to the contract from revenues provided for in the contract. The estimate of future gross profit is based on a complex estimation process, that includes identification of risks related to the geographical region, market condition in that region and any assessment that it is necessary to estimate with sufficient precision the total future costs as well as the expected timetable. VariationRequests of additional incomes, deriving from a change in the scope of the work, are included in the total amount of revenues when it is probable that the customer will approve the variation and the related amount; claims deriving for instance from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that theythe counterpart will result in additional revenue.accept them. Recent accounting principles With the regulationsRegulation No. 1910/2005, 2106/2005 and 108/2006 issued between November 2005 andon January 11, 2006 the European Commission approved some modifications and integrations to the international accounting standards. In particular the main modifications/integrations concern the following standards: IAS 19 "Employee benefits" Amendments to IAS 19 essentially concern the approval of the option related to the recognition in the period when they incur of the total amount of actuarial gains and losses with a corresponding entry to a specific reserve in shareholders’ equity. IAS 39 "Financial instruments: recognition and measurement" In relation to cash flow hedge operations on exchange rate risk, IAS 39 has been integrated with the aim of qualifying as hedging instruments the intercompany transactions expected and with an high probability, on condition that: (i) these transactions are denominated in a functional currency other than the currency of the entity that carries out the operation; and (ii) the exposure to the exchange rate risk determines some effects in consolidated profit and loss account. Amendments to IAS 39 also concerned the recognition and measurement of financial guarantees. In particular, financial guarantees are recorded when they are issued, as liability valued at the market value and, then, in relation to the execution risk, at the greater between: (i) the best estimate of the charge to be sustained to fulfill the obligation; and (ii) the initial amount reduced of premiums collected. IFRS 7 "Financial instruments: disclosures" and IAS 1, presentation of financial statements . IFRS 7 establishes the disclosures to be given aboutregarding financial instruments and the about the exposure and management of financial risks. The requirements of IFRS 7 include some disclosures currently contained in IAS 32 "Financial instruments: exposures and additional disclosures". Also by the amendment of IAS 1, it is requested to give disclosure of objectives, policies and processes for managing capital. IFRIC 4 "Determining whether an arrangement contains a lease" Requirements of IFRIC 4 provide guidance for determining whether arrangements that do not take the legal form of a lease but which convey rights to use assets in return for a payment or series of payments should be treated as a lease for accounting purposes. In particular, for determining whether an arrangement is, or contains a lease, an entity should consider the purposes of the operation and verify if the arrangement: (i) provides, explicitly or implicitly, the use of an asset (or a group of assets) and the fulfillment of the arrangement depends upon such specific assets; or (ii) transfers the right to use such assets. IFRIC 5 "Rights to interests arising from decommissioning, restoration and environmental funds" Requirements of IFRIC 5 provide guidance for determining the recognition and measurement for the contribution to decommissioning, restoration and environmental rehabilitation funds that have the following features: (i) the assets are held or administered by a separate legal entity; and (ii) contributor’s right to access the assets of the fund is restricted. The contributor recognises its obligation to pay decommissioning costs as a liability and its interest in the fund separately. In the case that the interest means having control, having joint control or significant influence over the fund, the entity contributor must recognize the interest in the fund as an investment in a subsidiary, associate, or a jointly controlled. Modifications and integrations to international accounting principles will be effective starting from IFRS 7 went into effect on January 1, 2006 and from January 31, 2007 for IFRS 7.2007. Eni is presently is analyzing the statements and, at the moment, cannot determine if their adoption of the standard will have a significant effect on Eni’s consolidated financial position or operating results.Consolidated Financial Statements. F-23 Table of Contents Notes to the Consolidated Financial Statements Current activities 1 Cash and cash equivalent Cash and cash equivalent of euro 1,3333,985 million (euro 1,0031,333 million at December 31, 2004)2005) include financing receivables originally due within 90 days for euro 122240 million (euro 167122 million at December 31, 2004)2005) and includeconsist of deposits with financial institutions with a notice greater than 48 hours and securities available for sale with a maturity date within 90 days. hours. 2 Other financial assets held for trading or available for sale Other financial assets held for trading or available for sale of euro 1,368972 million (euro 1,2661,368 million at December 31, 2004) consisted2005) consist of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Listed Italian treasury bonds   980     1,088   Listed securities issued by Italian and foreign merchant banks   255     243   Not quoted securities   31     37       1,266     1,368   Securities held for operating purposes             Listed Italian treasury bonds   361     329   Listed securities issued by Italian and foreign merchant banks   92     80   Non-quoted securities   12     11       465     420   Securities held for non-operating purposes             Listed Italian treasury bonds   727     508   Listed securities issued by Italian and foreign merchant banks   151     40   Non-quoted securities   25     4       903     552       1,368     972   Securities of euro 1,368972 million (euro 1,2661,368 million at December 31, 2004)2005) are available for sale. The decrease of euro 396 million primarily concerns sales made by the financial company Enifin SpA (euro 303 million) and the effect of the sale of Sofid Sim SpA (euro 90 million). At December 31, 20042005 and December 31, 20052006 Eni did not own financial assets held for trading. ValuationThe effects of the valuation at fair value determined an increase forof securities consist of the following: (million euro) Dec. 31, 2005 Increase Realization to the profit and loss account Dec. 31, 2006 Fair value   27     2     (21 )   8   Deferred tax liabilities   8           (6 )   2   Other reserves of shareholders’ equity   19     2     (15 )   6   The realization of the fair value to the profit and loss account of euro 821 million recorded with a corresponding entry toand of the shareholders’ equity (euro 6 million) andrelated deferred tax liabilities (euro 2 million). At January 1, 2005 the first application of IAS 32 and 39 determined an increase of euro 196 million with a corresponding entry toconcern the shareholders’ equity (euro 13 million) and to deferred tax liabilities (euro 6 million). expiring of securities of Padana Assicurazioni SpA. Securities held for operating purposes of euro 465420 million (euro 474465 million at December 31, 2004) are made for operating purposes and2005) concern coverage securities of technical reserves of Padana Assicurazioni SpA for euro 453417 million (euro 474453 million at December 31, 2004)2005). F-24 3 Trade and other receivables Trade and other receivables of euro 17,90218,799 million (euro 13,73417,902 million at December 31, 2004) consisted2005) consist of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Trade receivables   10,525     14,101   Financing receivables   521     492   Other receivables   2,688     3,309       13,734     17,902   Trade receivables   14,101     15,230   Financing receivables:             - for operating purposes - short-term   480     242   - for operating purposes - current portion of long-term receivables         4   - for non-operating purposes   12     143       492     389   Other receivables:             - from disposals   60     100   - other   3,249     3,080       3,309     3,180       17,902     18,799   Receivables are recorded net of the allowance for doubtful accountsimpairment losses of euro 891874 million (euro 755891 million at December 31, 2004)2005): (million euro)   Value at Dec. 31, 20042005   Additions   Deductions   Other changes   Value at Dec. 31, 20052006             Trade receivables         570     119     (22 )   (24 )   643   Other receivables         185     123     (10 )   (50 )   248             755     242     (32 )   (74 )   891   Trade receivables   643     129     (77 )   (108 )   587   Other receivables   248     78     (7 )   (32 )   287       891     207     (84 )   (140 )   874   Trade receivables of euro 14,10115,230 million increased by euro 3,576 million in 2005 as compared to 2004.1,129 million. This increase primarily relates primarily to the Exploration & Production segment (euro 1,391 million) and the Engineering & Construction segment (euro 832 million); such increase was partially offset by the decrease of the Refining & Marketing segment (euro 302 million) and the Gas & Power segment (euro 1,671 million), Refining & Marketing (euro 1,010292 million) and Exploration & Production (euro 806 million) and concernincludes the exchange rate differences due to the translation of financial statements prepared in currencies other than euro for euro 216263 million. Trade receivables concerninclude advances paid as a guarantee of contract work in progress for euro 10170 million (euro 95101 million at December 31, 2004)2005). Financing receivables of euro 492 million (euro 521 million) concern receivables made for operating purposes forof euro 480246 million (euro 510480 million at December 31, 2004) and2005) concern concessions, primarily, to consolidatedunconsolidated subsidiaries, joint ventures and affiliates. The decrease of euro 234 million primarily concern the repayment of funding given to Trans Austria Gasleitung GmbH (euro 292 million). "Other"Other receivables of euro 3,3093,180 million (euro 2,6883,309 million at December 31, 2004) consisted2005) consist of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Accounts receivable from:             - joint venture operators in exploration and production   784     1,123   - insurance companies   322     539   - Italian governmental entities   216     228       1,322     1,890   Receivables relating to factoring activities   347     324   Prepayments for services   204     259   Other receivables   815     836       2,688     3,309   Accounts receivable from:             - joint venture operators in exploration and production   1,123     1,376   - Italian governmental entities   228     266   - insurance companies   539     223       1,890     1,865   Receivables relating to factoring operations   324     191   Prepayments for services   259     440   Other receivables   836     684       3,309     3,180   Receivables relating to factoring activitiesoperations for euro 324191 million (euro 347324 million at December 31, 2004)2005) relate to Serfactoring SpA and essentially concern essentially advances for factoring activitiesoperations with recourse and receivables for factoring activitiesoperations without recourse. Receivables with related parties are described in Note 32. 33 - Transactions with related parties. F-25 4 Inventories Inventories of euro 3,5634,752 million (euro 2,8473,563 million at December 31, 2004) consisted2005) consist of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       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   210   217       645   1,072   436   258       682   1,376 Products being processed and semi finished products   59   18       1   78   43   20       8   71 Work in progress long-term contracts           418       418           353       353 Finished products and goods   1,222   572       20   1,814   2,063   536       62   2,661 Advances           181       181   1       287   3   291     1,491   807   599   666   3,563   2,543   814   640   755   4,752 Inventories are net of the valuation allowance of euro 92 million (euro 93 million at December 31, 2005): (million euro) Value at Dec. 31, 2005 Additions Deductions Other changes Value at Dec. 31, 2006 93 19 (14 ) (6 ) 92 Work in progress long-term contracts of euro 353 million (euro 418 million at December 31, 2005) are net of the payments received corresponding to contractual amount of the work performed of euro 5,237 million (euro 5,180 million at December 31, 2005). 5 Current tax assets Current tax assets of euro 658 million (euro 697 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Italian tax   422     394   Foreign tax   275     264       697     658   Current tax assets of euro 658 million (euro 697 million at December 31, 2005) concern value added tax credits for euro 303 million (euro 406 million at December 31, 2005), income tax receivables of euro 116 million (euro 127 million at December 31, 2005) and excise taxes customs duties natural gas and customs expenses for euro 86 million (euro 60 million at December 31, 2005). F-26 6 Other assets Other assets of euro 855 million (euro 369 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Fair value of non-hedging derivatives   117     569   Fair value of cash flow hedge derivatives   32     37   Fair value of fair value hedge derivatives         1   Other assets   220     248       369     855   Fair value of non hedging derivative contracts of euro 569 million (euro 117 million at December 31, 2005) consists of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Fair value Commitments Fair value Commitments Non-hedging derivatives on exchange rate                   Interest Currency Swap   58   1,277   137   1,400   Currency swap   15   2,378   46   5,502   Other       26       42       73   3,681   183   6,944   Non-hedging derivatives on interest rate                   Interest Rate Swap   14   1,281   66   3,393       14   1,281   66   3,393   Non-hedging derivatives on commodities                   Over the counter   21   394   35   262   Other   9   11   285   851       30   405   320   1,113       117   5,367   569   11,450   Fair value of cash flow hedge derivative contracts of euro 37 million concerns commitments for euro 421 million and relates to future sales of crude oil of the Exploration & Production segment. Cash flow hedge derivative contracts at December 31, 2005 relating to the purchase of electricity expired during the 2006 with effect to the profit and loss account. Information about the risk of hedged items and to the hedging policy is included in Note 25 - Guarantees, commitments and risks - Risk management. F-27 Non-current activities 7 Property, plant and equipment Tangible assets of euro 44,312 million (euro 45,013 million at December 31, 2005) consist of the following: (million euro) Net value at the beginning of the year Investments Depreciations Impairments Exchange rate differences Other changes Net value at the end of the year Gross value at the end of the year Provisions for amortization and impairments Dec. 31, 2005                                                       Land   197     5           (4 )         175     373     421     48   Buildings   1,578     41     (108 )   (8 )   12     (62 )   1,453     3,152     1,699   Plant and machinery   30,849     2,443     (4,240 )   (192 )   1,827     5,881     36,568     77,806     41,238   Industrial and commercial equipment   422     113     (126 )         10     (47 )   372     1,623     1,251   Other assets   329     65     (102 )         12     14     318     1,182     864   Tangible assets in progress and advances   7,211     3,891           (60 )   590     (5,703 )   5,929     6,526     597       40,586     6,558     (4,576 )   (264 )   2,451     258     45,013     90,710     45,697   Dec. 31, 2006                                                       Land   373     16           (3 )         57     443     483     40   Buildings   1,453     81     (113 )   (12 )   (5 )   38     1,442     3,236     1,794   Plant and machinery   36,568     1,858     (4,510 )   (197 )   (1,586 )   3,240     35,373     79,873     44,500   Industrial and commercial equipment   372     130     (120 )         (6 )   50     426     1,659     1,233   Other assets   318     82     (78 )   (1 )   (9 )   16     328     1,382     1,054   Tangible assets in progress and advances   5,929     3,971           (18 )   (364 )   (3,218 )   6,300     6,822     522       45,013     6,138     (4,821 )   (231 )   (1,970 )   183     44,312     93,455     49,143   Capital expenditures of euro 6,138 million (euro 6,558 million at December 31, 2005) primarily relate to the Exploration & Production segment (euro 3,678 million), the Gas & Power segment (euro 1,051 million), the Refining & Marketing segment (euro 632 million) and to the Engineering & Construction segment (euro 584 million). Capital expenditures include financial expenses for euro 116 million (euro 159 million at December 31, 2005) and are essentially related to the Exploration & Production segment (euro 70 million), the Gas & Power segment (euro 24 million) and the Refining & Marketing segment (euro 19 million). The interest rate used for the capitalization of finance expense was between 3.3% and 5.4% (2.2% and 6.1% at December 31, 2005). The depreciation rates used are as follows: (%)         Buildings   2 - 10 Plant and machinery   2 - 10 Industrial and commercial equipment   4 - 33 Other assets   6 - 33 Exchange rate differences due to the translation of financial statements prepared in currencies other than euro of euro 1,970 million relate to companies whose functional currency is the U.S. dollar (euro 1,913 million). Impairments of euro 231 million concern primarily mineral assets of the Exploration & Production segment (euro 129 million) and petrochemical assets of the Petrochemical segment (euro 65 million) and of Syndial SpA (euro 22 million). The recoverable amount considered in determining the impairment was calculated by discounting the future cash flows using discount rates included between 7.6% and 11.2%. Other changes of euro 183 million primarily concern the initial recognition and reviews to the estimate of dismantling and restoration of sites for euro 1,157 million essentially related to the Exploration & Production segment (euro 1,153 million). This increase was partially offset by the reclassification to "Other assets" of tangible assets related to the service contract governing mineral activities in the Dación area and owned by the Venezuelan controlled branch Eni Dación BV for euro 629 million, the sale of tangible assets for euro 197 million, of which euro 158 million relating to mineral assets of the Exploration & Production segment and the change in scope of consolidation of euro 66 million essentially following the sale of Fiorentina Gas SpA (euro 157 million) and the acquisition of Siciliana Gas SpA (euro 91 million). F-28 The gross carrying amount of fully depreciated property, plant and equipment that is still in use amount to euro 12,187 million and primarily concerns refineries and oil deposits of the Refining & Marketing segment (euro 4,507 million), the gas transportation network of Snam Rete Gas SpA (euro 3,486 million), and petrochemical plants of the Petrochemical segment (euro 1,911 million) and Syndial SpA (euro 1,682 million). At December 31, 2005, tangible assets were pledged for euro 54 million primarily as collateral on debt incurred by Eni (euro 475 million at December 31, 2005). The decrease of euro 421 million essentially concerns the extinguishment of the guarantees given (euro 418 million). Government grants recorded as decrease of property, plant and equipment amount to euro 1,067 million (euro 965 million at December 31, 2005). Assets acquired under financial lease amount to euro 89 million and concern for euro 39 million FPSO ships used by the Exploration & Production segment as support of oil production and treatment activities and for euro 36 million a drilling platform of the Engineering & Construction segment. Property, plant and equipment by segment (million euro) Dec. 31, 2005 Dec. 31, 2006 Property, plant and equipment, gross:             - Exploration & Production   49,129     49,002   - Gas & Power   21,517     22,277   - Refining & Marketing   9,420     11,273   - Petrochemicals   4,402     4,380   - Engineering & Construction   3,878     4,363   - Other activities   1,999     1,967   - Corporate and financial companies   453     321   - Elimination of intra-group profits   (88 )   (128 )     90,710     93,455   Accumulated depreciation, amortization and writedowns:             - Exploration & Production   24,644     26,000   - Gas & Power   7,757     8,210   - Refining & Marketing   5,864     7,482   - Petrochemicals   3,263     3,308   - Engineering & Construction   2,031     2,138   - Other activities   1,882     1,874   - Corporate and financial companies   260     145   - Elimination of intra-group profits   (4 )   (14 )     45,697     49,143   Property, plant and equipment, net:             - Exploration & Production   24,485     23,002   - Gas & Power   13,760     14,067   - Refining & Marketing   3,556     3,791   - Petrochemicals   1,139     1,072   - Engineering & Construction   1,847     2,225   - Other activities   117     93   - Corporate and financial companies   193     176   - Elimination of intra-group profits   (84 )   (114 )     45,013     44,312   8 Other assets Other assets of euro 629 million concern the tangible assets related to the service contract governing mineral activities in the Dación area and owned by the Venezuelan controlled branch Eni Dación BV. Additional information is included in Note 25 - Guarantees, commitments and risks - Other risks and commitments. F-29 9 Inventories - compulsory stock Inventories - compulsory stocks of euro 1,827 million (euro 2,194 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Crude oil and petroleum products   2,037   1,670 Natural gas   157   157     2,194   1,827 Compulsory stocks are primarily held by Italian companies (euro 2,057 and euro 1,688 million at December 31, 2005 and at December 31, 2006, respectively) and represent certain minimum quantities required by Italian law. 10 Intangible assets Intangible assets of euro 3,753 million (euro 3,194 million at December 31, 2005) consist of the following: (million euro) Net value at the beginning of the year Investments Amortization Other changes Net value at the end of the year Gross value at the end of the year Provisions for amortization and writedowns Dec. 31, 2005                                           Intangible assets with a definite life                                           Costs for research of mineral resources   107     699     (683 )   41     164     1,059     895   Industrial patent rights and intellectual property rights   174     37     (122 )   48     137     1,056     919   Concessions, licenses, trademarks and similar items   816     31     (101 )         746     2,205     1,459   Intangible assets in progress and advances   59     74           (57 )   76     81     5   Other intangible assets   224     13     (30 )   (50 )   157     470     313       1,380     854     (936 )   (18 )   1,280     4,871     3,591   Intangible assets with a indefinite life                                           Goodwill   1,933     2           (21 )   1,914                   3,313     856     (936 )   (39 )   3,194               Dec. 31, 2006                                           Intangible assets with a definite life                                           Costs for research of mineral resources   164     1,337     (1,102 )   10     409     1,290     881   Industrial patent rights and intellectual property rights   137     31     (97 )   41     112     1,113     1,001   Concessions, licenses, trademarks and similar items   746     168     (110 )   52     856     2,417     1,561   Intangible assets in progress and advances   76     146           (71 )   151     156     5   Other intangible assets   157     13     (26 )   (3 )   141     457     316       1,280     1,695     (1,335 )   29     1,669     5,433     3,764   Intangible assets with a indefinite life                                           Goodwill   1,914                 170     2,084                   3,194     1,695     (1,335 )   199     3,753               Costs for research of mineral resources for euro 409 million concern the purchase of mineral rights (euro 404 million). This item also includes exploration expenditures amortized in full in the period incurred for euro 1,028 million (euro 565 million at December 31, 2005). Concessions, licenses, trademarks and similar items for euro 856 million primarily concern the transmission rights for natural gas imported from Algeria (euro 572 million) and concessions for mineral exploration (euro 223 million). F-30 Other intangible assets with a definite life of euro 141 million include royalties for the use of licenses by Polimeri Europa SpA (euro 81 million) and the estimated expenditures for social projects to be incurred following contractual commitments with the Basilicata Region related to mineral development programs in Val d’Agri (euro 26 million). The depreciation rates used are as follows: (%)         Costs for research of mineral resources   10 - 33 Industrial patent rights and intellectual property rights   20 - 33 Concessions, licenses, trademarks and similar items   7 - 33 Other intangible assets   4 - 25 The gross carrying amount of fully depreciated intangible assets still in use amounts to euro 767 million. Other changes of intangible assets with a definite life of euro 29 million include negative exchange rate differences due to the translation of financial statements prepared in currencies other than euro of euro 28 million. Goodwill for euro 2,084 million concerns essentially the Engineering & Construction segment (euro 828 million, of which euro 805 million relates to the purchase of Bouygues Offshore SA, now Saipem SA), the Gas & Power segment (euro 982 million, of which euro 757 million relates to the public offering of Italgas SpA shares in 2003), the Exploration & Production segment (euro 225 million, of which euro 220 million relates to the purchase of Lasmo Plc, now Eni Lasmo Plc) and the Refining & Marketing segment (euro 46 million). In order to determine the recoverable amount, goodwill related to the acquisition of Bouygues Offshore SA and Italgas SpA has been allocated to the following cash generating units: (million euro) Dec. 31, 2006 Bouygues Offshore SA Offshore constructions 403 Onshore constructions 165 LNG 159 MMO - Maintenance Modification and Operation 78 805 Italgas SpA Domestic gas market 706 Foreign gas market 51 757 The recoverable amount of cash generating units is determined based on expected cash flows estimated using the market assumptions of Eni’s 2007-2010 Strategic Plan and discounted at rates included between 4.7% and 14.3%. For the years not included in the strategic market assumptions, Eni has used an incremental rate included between 0% and 2%. Key assumptions are based on past experience and take into account the current level of interest rates. Other changes related to goodwill of euro 170 million concern the allocation to goodwill of the difference between the price paid by Snam Rete Gas SpA and Saipem SpA for the purchase of treasury shares and the corresponding portion of shareholders’ equity acquired following the increase of Eni’s interest (euro 171 million) and the change in scope of consolidation related to the acquisition of 50% of Siciliana Gas SpA (euro 23 million). Such increase was partially offset by the decrease of the impairment of goodwill allocated to Tigáz Zrt following the acquisition by Italgas SpA (euro 46 million). The impairment of goodwill allocated to Tigáz Zrt was made following the application of the new Hungarian tariff regime, in force from 2006, and was determined on the basis of the new estimate of future cash flows, discounted by using a rate of 6.3%. F-31 11 Investments Investments accounted for using the equity method Investments accounted for using the equity method of euro 3,886 million (euro 3,890 million at December 31, 2005) consist of the following: (million euro) Value at the beginning of the year Acquisitions and subscriptions Gain from the valuation of investments accounted for using the equity method Loss from the valuation of investments accounted for using the equity method Deduction for dividends Exchange rate differences Other changes Value at the end of the year Dec. 31, 2005                                                 Investments in unconsolidated subsidiaries   109     30     6     (2 )   (3 )   10     (4 )   146   Investments in joint ventures   1,946     12     375     (27 )   (202 )   98     182     2,384   Investments in affiliates   1,101     6     389     (4 )   (96 )   34     (70 )   1,360       3,156     48     770     (33 )   (301 )   142     108     3,890   Dec. 31, 2006                                                 Investments in unconsolidated subsidiaries   146     4     15     (8 )   (8 )   (6 )   1     144   Investments in joint ventures   2,322     33     516     (26 )   (302 )   (79 )   42     2,506   Investments in affiliates   1,422     1     356     (2 )   (440 )   (31 )   (70 )   1,236       3,890     38     887     (36 )   (750 )   (116 )   (27 )   3,886   Acquisitions and subscriptions for euro 38 million concern mainly the subscriptions of capital increase of Enirepsa Gas Ltd (euro 23 million) and Saipem Triune Engineering Private Ltd (euro 8 million). Gains from the valuation of investments using the equity method of euro 887 million primarily relate to Galp Energia SGPS SA (euro 250 million), Unión Fenosa Gas SA (euro 181 million), EnBW Eni Verwaltungsgesellschaft mbH (euro 64 million), Blue Stream Pipeline Co BV (euro 44 million), Supermetanol CA (euro 43 million), United Gas Derivatives Co (euro 39 million), Trans Austria Gasleitung GmbH (euro 36 million), Lipardiz - Construção de Estruturas Maritimas Lda (euro 31 million) and Gaztransport et Technigaz SAS (euro 28 million). Losses from the valuation of investments using the equity method of euro 36 million primarily relate to Enirepsa Ltd (euro 21 million). Deduction following the distribution of dividends of euro 750 million primarily relates to Galp Energia SGPS SA (euro 364 million), Unión Fenosa Gas SA (euro 128 million), Trans Austria Gasleitung GmbH (euro 43 million), United Gas Derivatives Co (euro 33 million) and Supermetanol CA (euro 32 million). Other changes of euro 27 million concern the inclusion in the scope of consolidation of Siciliana Gas SpA following the acquisition of the further 50% from ESPI - Ente Siciliano per la Promozione Industriale (in liquidation) (euro 60 million) and, as an increase, the contribution of Fiorentina Gas SpA in Toscana Energia SpA (euro 67 million). F-32 The net carrying value of euro 3,886 million (euro 3,890 million at December 31, 2005) consists of the following companies: (million euro) Dec. 31, 2005 Dec. 31, 2006 Net value Eni’s interest % Net value Eni’s interest % Unconsolidated subsidiaries:                 - Eni Btc Ltd   55   100.00   46   100.00 - Others (*)   91       98         146       144     Joint ventures:                 - Unión Fenosa Gas SA   459   50.00   503   50.00 - Blue Stream Pipeline Co BV   280   50.00   293   50.00 - EnBW - Eni Verwaltungsgesellschaft mbH   168   50.00   234   50.00 - Raffineria di Milazzo ScpA   172   50.00   171   50.00 - Azienda Energia e Servizi Torino SpA   165   49.00   165   49.00 - Eteria Parohis Aeriou Thessalonikis AE   152   49.00   157   49.00 - Toscana Energia SpA           111   48.72 - Super Octanos CA   113   49.00   97   49.00 - Lipardiz - Construção de Estruturas Maritimas Lda   66   50.00   97   50.00 - Supermetanol CA   88   34.51   90   34.51 - Trans Austria Gasleitung GmbH   88   89.00   81   89.00 - Haldor Topsøe AS   62   50.00   71   50.00 - Unimar Llc   84   50.00   70   50.00 - FPSO Mystras - Produção de Petroleo Lda   73   50.00   63   50.00 - Transmediterranean Pipeline Co Ltd   63   50.00   50   50.00 - Eteria Parohis Aeriou Thessalias AE   39   49.00   46   49.00 - Saibos Akogep Snc   38   70.00   38   70.00 - Transitgas AG   32   46.00   31   46.00 - CMS&A Wll   31   20.00   27   20.00 - Siciliana Gas SpA   60   50.00         - Toscana Gas SpA   55   46.10         - Others (*)   96       111         2,384       2,506     Affiliates:                 - Galp Energia SGPS SA   896   33.34   782   33.34 - United Gas Derivatives Co   128   33.33   117   33.33 - Fertlizantes Nitrogenados de Oriente CEC   92   20.00   88   20.00 - ACAM Gas SpA   45   49.00   45   49.00 - Distribuidora de Gas del Centro SA   41   31.35   37   31.35 - Gaztransport et Technigaz SAS   20   30.00   29   30.00 - Others (*)   138       138         1,360       1,236         3,890       3,886     (*) Each individual amount included herein does not exceed euro 25 million. The net value of investments in unconsolidated subsidiaries, joint ventures and affiliates includes the differences between purchase price and Eni’s equity in investments of euro 576 million. Such differences relate to Unión Fenosa Gas SA (euro 195 million), EnBW Eni Verwaltungsgesellschaft mbH (euro 178 million), Galp Energia SGPS SA (euro 107 million) and Azienda Energia e Servizi Torino SpA (euro 69 million). Provisions for losses related to investments accounted for using the equity method of euro 154 million, included in the provisions for contingencies, relate primarily to Polimeri Europa Elastomères France SA (euro 50 million), Charville - Consultores e Serviços Lda (euro 37 million), Industria Siciliana Acido Fosforico - ISAF (in liquidation) (euro 31 million) and Geopromtrans Llc (euro 19 million). F-33 Other investments Other investments of euro 360 million (euro 421 million at December 31, 2005) consist of the following: (million euro) Net value at the beginning of the year Acquisition and subscriptions Exchange rate differences Other changes Net value at the end of the year Gross value at the end of the year Accumulated impairment charges Dec. 31, 2005                                           Investments in unconsolidated subsidiaries   78     1           (38 )   41     68     27   Investments in affiliates   107                 (98 )   9     9         Other investments   344     23     41     (37 )   371     375     4       529     24     41     (173 )   421     452     31   Dec. 31, 2006                                           Investments in unconsolidated subsidiaries   41                 (20 )   21     49     28   Investments in affiliates   9                       9     10     1   Other investments   371     4     (31 )   (14 )   330     332     2       421     4     (31 )   (34 )   360     391     31   Investments in unconsolidated subsidiaries and affiliates are valued at cost net of impairment losses. Other investments, for which fair value cannot be reliably determined are recognized at cost and adjusted for impairment losses. The net carrying amount of other investments of euro 360 million (euro 421 million at December 31, 2005) concerns the following companies: (million euro) Dec. 31, 2005 Dec. 31, 2006 Net value Eni’s interest % Net value Eni’s interest % Unconsolidated subsidiaries (*)   41       21     Affiliates   9       9     Other investments:                 - Darwin LNG Pty Ltd   126   12.04   108   12.04 - Nigeria LNG Ltd   100   10.40   90   10.40 - Ceska Rafinerska AS   35   16.33   31   16.33 - Others (*)   110       101         371       330         421       360     (*) Each individual amount included herein does not exceed euro 25 million. Provisions for losses related to other investments of euro 30 million (euro 64 million at December 31, 2005), included in the provisions for contingencies, relate primarily to Caspian Pipeline Consortium R - Closed Joint Stock Co (euro 27 million) as follows: (million euro) Dec. 31, 2005 Dec. 31, 2006 Industria Siciliana Acido Fosforico - ISAF SpA (in liquidation) (*)   35     Caspian Pipeline Consortium R - Closed Joint Stock Co   21   27 Other investments   8   3     64   30 (*) Starting from 2006 ISAF SpA has been accounted for using the equity method. F-34 Other information about investments The following are the amounts, according to Eni’s interest, from the last available Financial Statements of unconsolidated subsidiaries, joint ventures and affiliates: (million euro) Dec. 31, 2005 Dec. 31, 2006 Unconsolidated subsidiaries Joint ventures Affiliates Unconsolidated subsidiaries Joint ventures Affiliates Total assets   1,404     7,423     2,763     1,315     7,906     2,998   Total liabilities   1,263     5,161     1,295     1,182     5,466     1,753   Net sales from operations   63     4,617     1,560     71     5,536     4,905   Operating profit   (1 )   609     176     (1 )   790     454   Net profit   (2 )   328     371     3     465     351   Total assets and total liabilities relating to unconsolidated companies of euro 1,315 and euro 1,182 million (euro 1,404 and euro 1,263 million at December 31, 2005) concern for euro 900 and euro 900 million (euro 1,004 and euro 1,004 million at December 31, 2005) companies for which the consolidation does not produce significant effects. 12 Other financial assets Other financial receivables of euro 805 million (euro 1,050 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Financial receivables:         - for operating purposes   754   532 - for non-operating purposes   247   252     1,001   784 Securities:         - for operating purposes   21   21 - for non-operating purposes   28         49   21     1,050   805 Financial receivables are presented net of the allowance of impairment losses of euro 24 million (euro 25 million at December 31, 2005). Operating financial receivables of euro 532 million (euro 754 million at December 31, 2005) primarily concern loans made by the Exploration & Production segment (euro 372 million) and Gas & Power segment (euro 81 million). The decrease of euro 222 million concerns exchange rate differences due to the translation of financial statements prepared in currencies other than euro for euro 61 million. Non-operating financial receivables of euro 252 million (euro 247 million at December 31, 2005) concern a fixed deposit for euro 246 million held by Eni Lasmo Plc as a guarantee of a debt issue (euro 241 million at December 31, 2005). Receivables in currency other than euro amount to euro 693 million (euro 845 million at December 31, 2005). Receivables due beyond five years amount to euro 396 million (euro 625 million at December 31, 2005). Securities of euro 21 million (euro 49 million at December 31, 2005) are considered held-to-maturity investments and concern securities issued by the Italian Government (euro 22 million at December 31, 2005). Securities have a maturity within five years. The valuation at the fair value of other financial assets did not have any significant effect. F-35 13 Deferred tax assets Deferred tax assets of euro 1,725 million (euro 1,861 million at December 31, 2005) are presented net of deferred tax liabilities for which Eni possesses the legal right of offset for euro 4,028 million (euro 3,347 million at December 31, 2005). (million euro) Value at Dec. 31, 2005 Additions Deductions Exchange rate differences Other changes Value at Dec. 31, 2006 1,861 1,299 (1,036 ) (169 ) (230 ) 1,725 Other changes of euro 230 million primarily concern the offset, for each company, of deferred tax assets with deferred tax liabilities (euro 318 million). Deferred tax assets are described in Note 22 - Deferred tax liabilities. 14 Other non-current receivables Other non-current receivables of euro 994 million (euro 995 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Tax receivables from:         - Italian tax authorities           . income tax credits   508   501   . interest on tax credits   309   322   . value added tax (VAT)   37   37   . other   7   13     861   873 - foreign tax authorities   44   30     905   903 Other receivables:         - in relation to disposals   39   2 - others   40   83     79   85 Other non-current receivables   11   6     995   994 Current liabilities 15 Current financial liabilities Current financial liabilities of euro 3,400 million (euro 4,612 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Banks   3,894   3,178 Financial liabilities represented by commercial papers   60     Other financial institutions   658   222     4,612   3,400 F-36 The decrease of current financial liabilities of euro 1,212 million is primarily due to the balance of payments and new proceeds of liabilities (euro 802 million) and to the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 473 million). Current financial liabilities by currency consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Euro   4,029   3,119 U.S. dollar   323   161 Other currencies   260   120     4,612   3,400 In the fiscal year 2006, the weighted average interest rate of the short-term debts amounts to 3.9% (2.8% in the fiscal year 2005). At December 31, 2006 Eni has unused committed and uncommitted borrowing facilities amounting respectively to euro 5,896 million and euro 6,523 million (euro 5,855 million and euro 4,783 million at December 31, 2005). Interest rates under these contracts reflect market conditions and the charges for non-use are not material. 16 Trade and other payables Trade and other payables of euro 15,995 million (euro 13,095 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Trade payables   8,170   10,528 Advances   1,184   1,362 Other payables:         - in relation to investments   698   1,166 - others   3,043   2,939     3,741   4,105     13,095   15,995 Trade payables of euro 10,528 million increased by euro 2,358 million. Such increase primarily concerns the Exploration & Production segment (euro 1,353 million), the Engineering & Construction segment (euro 424 million), Refining & Marketing segment (euro 262 million) and Gas & Power segment (euro 194 million) and includes exchange rate differences related to the translation of financial statements prepared in currencies other than euro for euro 181 million. Advances of euro 1,362 million (euro 1,184 million at December 31, 2005) concern payments received in excess of the value of the work in progress performed for euro 884 million (euro 550 million at December 31, 2005), advances on contract work in progress for euro 197 million (euro 309 million at December 31, 2005) and other advances for euro 281 million (euro 325 million at December 31, 2005). Advances on contract work in progress concern the Engineering & Construction segment. F-37 Other payables of euro 4,105 million (euro 3,741 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Payables due to:         - joint venture operators in exploration and production activities   1,264   1,146 - suppliers in relation to investments   951   923 - social security entities   229   339 - employees   314   336 - non-financial governmental entities   313   274     3,071   3,018 Cautionary deposit   6   2 Other payables   664   1,085     3,741   4,105 Payables with related parties are described in Note 33 - Transactions with related parties. 17 Taxes payable Taxes payable of euro 2,830 million (euro 3,430 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Income taxes payable   1,742   1,640 Customs and excise duties   896   683 Other   792   507     3,430   2,830 Taxes payable of euro 1,640 million (euro 1,742 million at December 31, 2005) concern Italian companies for euro 158 million and foreign companies for euro 1,482 million (euro 234 million and euro 1,508 million at December 31, 2005, respectively). The decrease of euro 102 million includes exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 70 million). 18 Other current liabilities Other current liabilities of euro 634 million (euro 613 million at December 31, 2005) consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Fair value of non-hedging derivatives   378   395 Fair value of cash flow hedge derivatives   5   40 Other liabilities   230   199     613   634 F-38 Fair value of non-hedging derivative contracts of euro 395 million (euro 378 million at December 31, 2005) consists of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Fair value Commitments Fair value Commitments Non-hedging derivatives on exchange rate                 Currency Swap   139   6,370   11   1,291 Interest Currency Swap   73   2,316   19   257 Other   2   57   2   70     214   8,743   32   1,618 Non-hedging derivatives on interest rate                 Interest Rate Swap   101   5,145   30   2,122     101   5,145   30   2,122 Non-hedging derivatives on commodities                 Over the counter   21   323   52   635 Other   42   94   281   930     63   417   333   1,565     378   14,305   395   5,305 Fair value of cash flow hedge derivatives of euro 40 million concerns commitments of euro 529 million related to future sales of crude oil by the Exploration & Production segment. Cash flow hedge derivatives on exchange rate at December 31, 2005 were closed in 2006 with the effects charged to the profit and loss account. Information concerning the hedged risks and the hedging policies is shown at Note 25 - Guarantees, commitments and risks - Risk management. Non-current liabilities 19 Long-term debt and current portion of long-term debt Long-term debt and the current portion of long-term debt, including the related expiration dates, are as follows: (million euro)   December 31, Long-term maturity Crude oil, gas and petroleum productsType of debt instrument   Chemical productsMaturity range   Work in progress long-term contracts2005   Other2006   TotalCurrent maturity 2007   Crude oil, gas and petroleum products2008   Chemical products2009   Work in progress long-term contracts2010   Other2011 After   Total                       Raw and auxiliary materials and consumables   303     199           394     896     210     217           645     1,072   Products being processed and semi finished products   37     19           2     58     59     18           1     78   Work in progress long-term contracts               399           399                 418           418   Finished products and goods   891     482           37     1,410     1,222     572           20     1,814   Advances               84           84                 181           181       1,231     700     483     433     2,847     1,491     807     599     666     3,563   Inventories were net of the valuation allowance of euro 93 million (euro 129 million at December 31, 2004): Banks:                                         - ordinary loans   2007-2019   2,174   2,298   127   310   448   348   88   977   2,171 - interested rate assigned loans   2007-2013   45   13   4   3   2   2   1   1   9 - other financings   2006   3                                         2,222   2,311   131   313   450   350   89   978   2,180 Ordinary bonds   2007-2027   5,339   5,097   685   475   127   946   179   2,685   4,412 Other financing institutions   2007-2019   825   891   74   403   26   29   129   230   817         8,386   8,299   890   1,191   603   1,325   397   3,893   7,409 (million euro) Value at Dec. 31, 2004 Additions Deductions Other changes Value at Dec. 31, 2005 129 19 (82 ) 27 93 Work in progress long-term contracts of euro 418 million (euro 399 million at December 31, 2004) are net of the payments received in advance of euro 5,180 million (euro 5,156 million at December 31, 2004). At January 1, 2005, the date of the first application of IAS 32 and 39, inventories for work in progress long-term contracts were restated by excluding from the valuation the effects related to derivatives that do not meet the conditions required to qualify as hedging instruments. The exclusion of the effects related to derivatives resulted in a decrease for work in progress long-term contracts of euro 38 million with a corresponding entry to the shareholders’ equity (euro 24 million) and to deferred tax assets (euro 14 million). 5 Income tax receivables Income tax receivables of euro 697 million (euro 674 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Italian tax authorities               466     422   Foreign tax authorities               208     275                   674     697   Income tax receivables of euro 697 million (euro 674 million at December 31, 2004) concern value added tax credits for euro 406 million (euro 459 million at December 31, 2004) and excise taxes customs duties natural gas and customs expenses for euro 60 million (euro 29 million at December 31, 2004). 6 Other assets Other assets of euro 369 million (euro 588 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Fair value of non-hedging derivatives                     117   Fair value of cash flow hedge derivatives                     32   Other assets               588     220                   588     369   At January 1, 2005 the first application of IAS 32 and 39 resulted in the accounting at the fair value of derivatives that do not meet the conditions required to qualify as hedging instruments for an amount, net of differentials on derivative contracts (Italian GAAP), of euro 76 million with a corresponding entry to the shareholders’ equity (euro 32 million) and to deferred tax liabilities (euro 44 million). At as January 1, 2005, fair value of non hedging derivative contracts of euro 117 million consisted of the following: (million euro) Fair value Commitments Non-hedging derivatives on exchange rate         Interest Currency Swap   58   1,277 Currency Swap   15   2,378 Outright       9 Options       17     73   3,681 Non-hedging derivatives on interest rate         Interest Rate Swap   14   1,281     14   1,281 Non-hedging derivatives on commodities         Over the counter   21   394 Other   9   11     30   405     117   5,367 Commitments concerning non-hedging derivatives amounted to euro 5,367 million and concern commitments on exchange rate for euro 3,681 million (fair value of euro 73 million), on interest rate for euro 1,281 million (fair value of euro 14 million) and on commodities for euro 405 million (fair value of euro 30 million). Commitments concerning cash flow hedge derivatives amounted to euro 176 million and concern for euro 171 million hedging derivatives contracts related to the purchase of electricity. Other assets of euro 220 million (euro 588 million at December 31, 2004) include accrued income and prepaid expenses for anticipated provision of service of euro 49 million (euro 91 million at December 31, 2004), for rentals and fees of euro 16 million (euro 22 million at December 31, 2004) and for premiums due to insurance companies euro 12 million (euro 18 million at December 31, 2004). At December 31, 2004 other assets include differentials on derivative contracts for euro 316 million, of which euro 242 million related to financing receivables and liabilities. Non-current activities 7 Fixed assets Fixed assets of euro 45,013 million (euro 40,586 million at December 31, 2004) consisted of the following: (million euro) Net value at the beginning of the year Investments Depreciation Impairment Exchange rate differences Other changes Net value at the end of the year Gross value at the end of the year Provisions for amortization and writedown                     Dec. 31, 2004                                                       Land   1,185     7           (8 )         (987 )   197     274     77   Buildings   608     45     (97 )   (4 )   5     1,021     1,578     3,159     1,581   Plant and machinery   28,246     2,878     (3,349 )   (149 )   (769 )   3,992     30,849     66,312     35,463   Industrial and commercial equipment   517     159     (120 )   (1 )   (6 )   (127 )   422     1,622     1,200   Other assets   286     91     (104 )   (1 )   (7 )   64     329     1,149     820   Fixed assets in progress and advances   8,501     3,605           (166 )   (305 )   (4,424 )   7,211     7,762     551       39,343     6,785     (3,670 )   (329 )   (1,082 )   (461 )   40,586     80,278     39,692   Dec. 31, 2005                                                       Land   197     5           (4 )         175     373     421     48   Buildings   1,578     41     (108 )   (8 )   12     (62 )   1,453     3,152     1,699   Plant and machinery   30,849     2,443     (4,240 )   (192 )   1,827     5,881     36,568     77,806     41,238   Industrial and commercial equipment   422     113     (126 )         10     (47 )   372     1,623     1,251   Other assets   329     65     (102 )         12     14     318     1,182     864   Fixed assets in progress and advances   7,211     3,891           (60 )   590     (5,703 )   5,929     6,526     597       40,586     6,558     (4,576 )   (264 )   2,451     258     45,013     90,710     45,697   Capital expenditures of euro 6,558 million (euro 6,785 million at December 31, 2004) primarily relate to the Exploration & Production segment (euro 4,269 million), Gas & Power segment (euro 1,079 million), Refining & Marketing segment (euro 642 million) and Oilfield Services, Construction and Engineering segment (euro 343 million, of which euro 340 million related to construction and drilling activity). Capital expenditures include financial expense for euro 159 million essentially relating to the Exploration & Production segment (euro 97 million), Refining & Marketing segment (euro 31 million) and Gas & Power segment (euro 29 million). The interest rate used for the capitalization of finance expense was between 2.2% and 6.1%. Depreciation rates used, with the exclusion of tangible assets depreciated on a UOP basis, were as follows: (%)                   Buildings         2   - 10   Plant and machinery         2   - 10   Industrial and commercial equipment         4   - 33   Other assets         6   - 33   Exchange rate differences due to the translation of financial statements prepared in currencies other than euro of euro 2,451 million relate to companies whose functional currency is the U.S. dollar (euro 2,300 million). Impairments of euro 264 million concern primarily mineral assets of the Exploration & Production segment (euro 156 million) and petrochemical assets of Syndial SpA (euro 75 million). The recoverable amount considered in determining the impairment was calculated by discounting the future cash flows using a rate included between 6.5% and 9.8%. Other changes of euro 258 million include the initial recognition and the reviews to the estimate of dismantling and restoration of sites for euro 576 million essentially related to the Exploration & Production segment (euro 562 million); this increase was partially offset by the change in scope of consolidation of euro 122 million following essentially the sale of Società Azionaria per la Condotta di Acque Potabili SpA (euro 82 million), Acquedotto Vesuviano SpA (euro 20 million) and Acquedotto di Savona SpA (euro 20 million) and the sale of businesses and the elimination of fixed assets of euro 97 million primarily related to the Exploration & Production segment (euro 37 million). The gross carrying amount of fully depreciated property, plant and equipment that is still in use amount to euro 11,076 million and primarily concerned the gasline network of Snam Rete Gas SpA (euro 3,692 million), refineries and oil deposits of Refining & Marketing segment (euro 2,639 million) and petrochemical plants of Polimeri Europa SpA (euro 1,901 million) and Syndial SpA (euro 1,598 million). Government grants recorded as decrease of property, plant and equipment amount to euro 965 million (euro 910 million at December 31, 2004). At December 31, 2005 fixed assets have been pledged for euro 475 million primarily as collateral on debt incurred by Eni (euro 482 million at December 31, 2004). Assets acquired under financial lease amount to euro 134 million and concern euro 72 million for FPSO ships used by the Exploration & Production segment as support of oil production and treatment activities. Fixed assets by segment (million euro) Dec. 31, 2004 Dec. 31, 2005   Fixed assets, gross:             - Exploration & Production   40,322     49,120   - Gas & Power   20,680     21,517   - Refining & Marketing   8,947     9,420   - Petrochemicals   4,311     4,402   - Oilfield Services Construction and Engineering   3,524     3,878   - Other activities   2,300     2,248   - Corporate and financial companies   194     213   - Elimination of intra-group profits         (88 )     80,278     90,710   Accumulated depreciation, amortization and writedowns:             - Exploration & Production   19,561     24,640   - Gas & Power   7,445     7,757   - Refining & Marketing   5,586     5,864   - Petrochemicals   3,130     3,263   - Oilfield Services Construction and Engineering   1,878     2,031   - Other activities   2,007     2,054   - Corporate and financial companies   85     92   - Elimination of intra-group profits         (4 )     39,692     45,697   Fixed assets, net:             - Exploration & Production   20,761     24,480   - Gas & Power   13,235     13,760   - Refining & Marketing   3,361     3,556   - Petrochemicals   1,181     1,139   - Oilfield Services Construction and Engineering   1,646     1,847   - Other activities   293     194   - Corporate and financial companies   109     121   - Elimination of intra-group profits         (84 )     40,586     45,013   8 Inventories - compulsory stock Inventories - compulsory stocks of euro 2,194 million (euro 1,386 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Crude oil and petroleum products   1,229     2,037   Natural gas   157     157       1,386     2,194   Compulsory stocks, are primarily held by Italian companies (euro 1,286 and euro 2,057 million at December 31, 2004 and at December 31, 2005, respectively) and represent certain minimum quantities required by Italian law. 9 Intangible assets Intangible assets of euro 3,194 million (euro 3,313 million at December 31, 2004) consisted of the following: (million euro) Net value at the beginning of the year Investments Amortization Other changes Net value at the end of the year Gross value at the end of the year Provisions for amortization and writedown Dec. 31, 2004                                           Intangible assets with a definite life                                           Costs for research and development   167     549     (634 )   25     107     843     736   Industrial patent rights and intellectual property rights   162     60     (137 )   89     174     977     803   Concessions, licenses, trademarks and similar items   934     10     (106 )   (22 )   816     2,154     1,338   Intangible assets in progress and advances   133     71           (145 )   59     64     5   Other intangible assets   203     11     (54 )   64     224     549     325       1,599     701     (931 )   11     1,380     4,587     3,207   Intangible assets with a indefinite life                                           Goodwill   1,982     13           (62 )   1,933                   3,581     714     (931 )   (51 )   3,313               Dec. 31, 2005                                           Intangible assets with a definite life                                           Costs for research and development   107     699     (683 )   41     164     1,059     895   Industrial patent rights and intellectual property rights   174     37     (122 )   48     137     1,056     919   Concessions, licenses, trademarks and similar items   816     31     (101 )         746     2,205     1,459   Intangible assets in progress and advances   59     74           (57 )   76     81     5   Other intangible assets   224     13     (30 )   (50 )   157     470     313       1,380     854     (936 )   (18 )   1,280     4,871     3,591   Intangible assets with a indefinite life                                           Goodwill   1,933     2           (21 )   1,914                   3,313     856     (936 )   (39 )   3,194               Costs for research and development for euro 164 million mainly concern the purchase of mineral rights (euro 157 million). This item also includes exploration expenditures amortized in the year 2005 for euro 565 million (euro 491 million in the year 2004). Concessions, licenses, trademarks and similar items for euro 746 million primarily concern the transmission rights for natural gas imported from Algeria (euro 618 million) and concessions for mineral exploration (euro 67 million). Other intangible assets with a definite life of euro 157 million include royalties for the use of licenses by Polimeri Europa SpA (euro 86 million) and the estimated expenditures for social projects to be incurred following contractual commitments with the Basilicata Region related to mineral development programs in Val d’Agri (euro 32 million). Depreciation rates used are as follows: (%)                   Costs for research and development         10   - 33   Industrial patent rights and intellectual property rights         20   - 33   Concessions, licenses, trademarks and similar items         7   - 33   Other intangible assets         4   - 25   The gross carrying amount of fully depreciated intangible assets that is still in use amount to euro 10,340 million and primarily concern costs for mineral research of Exploration & Production segment (euro 9,748 million). Goodwill for euro 1,914 million concerns primarily the Oilfield Services, Construction and Engineering segment (euro 823 million, of which euro 805 million relates to the purchase of Bouygues Offshore SA, now Saipem SA), the Gas & Power segment (euro 817 million, of which euro 803 million relates to the Public Offering for Italgas SpA shares during 2003), the Exploration & Production segment (euro 220 million, of which euro 215 million relates to the purchase of Lasmo Plc, now Eni Lasmo Plc) and the Refining & Marketing segment (euro 51 million). In order to determine the recoverable amount, goodwill related to the acquisition of Bouygues Offshore SA and Italgas SpA has been allocated to the following cash generating units: (million euro) Dec. 31, 2005 Bouygues Offshore SA Offshore constructions 403 Onshore constructions 165 LNG 159 MMO - Maintenance Modification and Operation 78 805 Italgas SpA Domestic gas market 706 Foreign gas market 97 803 The recoverable amount of cash generating units is determined based on expected cash flow estimated by using the strategic market assumptions of Eni’s 2006-2009 plan and discounted by using a rate included between 5.6% and 7.7%. For the years not included in the strategic, Eni has used an incremental rate included between 0% and 2%. Key assumptions are based on past experience and take into account the current level of interest rate. Other changes of euro 39 million primarily relate to the sale of Società Azionaria per la Condotta di Acque Potabili SpA (euro 18 million) and Acquedotto Vesuviano SpA (euro 3 million). 10 Investments Investments accounted for using the equity method Investments accounted for using the equity method of euro 3,890 million (euro 3,156 million at December 31, 2004) consisted of the following: (million euro) Value of the beginning of the year Acquisitions and subscriptions Gain from the valuation of investments accounted for using the equity method Loss from the valuation of investments accounted for using the equity method Deduction for dividends Exchange rate differences Other changes Value of the end of the year Dec. 31, 2004                                                 Investments in unconsolidated subsidiaries   106     11     6     (6 )         (4 )   (4 )   109   Investments in joint ventures   1,851     119     215     (6 )   (276 )   (47 )   90     1,946   Investments in affiliates   947     119     180     (57 )   (71 )   (19 )   2     1,101       2,904     249     401     (69 )   (347 )   (70 )   88     3,156   Dec. 31, 2005                                                 Investments in unconsolidated subsidiaries   109     30     6     (2 )   (3 )   10     (4 )   146   Investments in joint ventures   1,946     12     375     (27 )   (202 )   98     120     2,322   Investments in affiliates   1,101     6     389     (4 )   (96 )   34     (8 )   1,422       3,156     48     770     (33 )   (301 )   142     108     3,890   Acquisitions and subscriptions for euro 48 million concerned mainly the subscriptions of capital increase of Servizi Porto Marghera Scrl (euro 17 million), Enirepsa Gas Ltd (euro 12 million) and Lasmo Petroleum Development BV (euro 10 million) and the acquisition of Acam Clienti SpA by Eni SpA (euro 6 million). Gains from the valuation of investments using the equity method of euro 770 million primarily relate to Galp Energia SGPS SA (euro 280 million), Trans Austria Gasleitung GmbH (euro 54 million), Lipardiz Construçao de Estruturas Maritimas Lda (euro 46 million), Unión Fenosa Gas SA (euro 44 million) and Blue Stream Pipeline Co BV (euro 30 million). Losses from the valuation of investments using the equity method of euro 33 million primarily relate to Geopromtrans Llc (euro 11 million) and Enirepsa Gas Ltd (euro 11 million). Deduction following the distribution of dividends of euro 301 million primarily relates to Galp Energia SGPS SA (euro 56 million), Trans Europa Naturgas Pipeline GmbH (euro 29 million) and Trans Austria Gasleitung GmbH (euro 28 million) and Supermetanol CA (euro 28 million). The net carrying value of euro 3,890 million (euro 3,156 million at December 31, 2004) consisted of the following companies: (million euro) Dec. 31, 2004 Dec. 31, 2005 Net value Eni’s interest Net value Eni’s interest Unconsolidated subsidiaries:                         - Eni Btc Ltd   48     100.00     55     100.00   - Others (*)   61           91             109           146         Joint ventures:                         - Unión Fenosa Gas SA   404     50.00     459     50.00   - Blue Stream Pipeline Co BV   116     50.00     280     50.00   - Raffineria di Milazzo ScpA   168     50.00     172     50.00   - EnBW - Eni Verwaltungsgesellschaft mbH   150     50.00     168     50.00   - Azienda Energia e Servizi Torino SpA   171     49.00     165     49.00   - Eteria Parohis Aeriou Thessalonikis AE   151     49.00     152     49.00   - Super Octanos CA   82     49.00     113     49.00   - Trans Austria Gasleitung GmbH   60     89.00     88     89.00   - Supermetanol CA   59     34.51     88     35.20   - Unimar Llc   97     50.00     84     50.00   - FPSO Mystras - Produção de Petroleo Lda   75     50.00     73     50.00   - Lipardiz Construção de Estruturas Maritimas Lda   20     50.00     66     50.00   - Transmediterranean Pipeline Co Ltd   57     50.00     63     50.00   - Siciliana Gas SpA   52     50.00     60     50.00   - Toscana Gas SpA   56     46.10     55     46.10   - Eteria Parohis Aeriou Thessalias EA   41     49.00     39     49.00   - Transitgas AG   32     46.00     32     46.00   - CMS&A Wll   15     20.00     31     20.00   - Others (*)   140           134             1,946           2,322         Affiliates:                         - Galp Energia SGPS SA   670     33.34     896     33.34   - United Gas Derivatives Co (UGDG)   97     33.33     128     33.33   - Fertilizantes Nitrogenados de Oriente CEC   75     20.00     92     20.00   - Haldor Topsøe AS   39     50.00     62     50.00   - Acam Gas SpA   44     49.00     45     49.00   - Distribuidora de Gas del Centro SA   37     31.35     41     31.35   - Termica Milazzo Srl   27     40.00     21     40.00   - Others (*)   112           137             1,101           1,422             3,156           3,890         (*) Each individual amount included herein does not exceed euro 25 million. The net value of investments in unconsolidated subsidiaries and affiliates include the differences between purchase price and Eni’s equity in the investments of euro 553 million. Such differences relate to Unión Fenosa Gas SA (euro 195 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 180 million), Galp Energia SGPS SA (euro 107 million) and Azienda Energia e Servizi Torino SpA (euro 71 million). Provisions for losses related to investments of euro 21 million (euro 30 million at December 31, 2004), included in the provisions for contingencies, relate essentially to Geopromtrans Llc (euro 19 million). Other investments Other investments of euro 421 million (euro 529 million at December 31, 2004) consisted of the following: (million euro) Net value at the beginning of the year Acquisitions and subscriptions Sales Exchange rate differences Other changes Net value at the end of the year Gross value at the end of the year Accumulated impairment charges Dec. 31, 2004                                                 Unconsolidated subsidiaries   79                       (1 )   78     86     8   Affiliates   106     2                 (1 )   107     117     10   Other investments   316     65     (18 )   (20 )   1     344     398     54       501     67     (18 )   (20 )   (1 )   529     601     72   Dec. 31, 2005                                                 Unconsolidated subsidiaries   78     1                 (38 )   41     68     27   Affiliates   107           (100 )         2     9     9         Other investments   344     23     (30 )   41     (7 )   371     375     4       529     24     (130 )   41     (43 )   421     452     31   Other investments related to unconsolidated subsidiaries and affiliates are valued at cost adjusted for impairment. Investments in other companies are essentially valued at cost adjusted for impairment, because the fair value cannot be reliably determined. Acquisitions and subscriptions for euro 24 million essentially concern the subscriptions to the capital increase of Darwin LNG Pty Ltd (euro 22 million). Sales of euro 130 million essentially relate to the sale of Erg Raffinerie Mediterranee SpA (euro 100 million) and Discovery Producer Services Llc (euro 20 million). The net carrying amount of Other investments of euro 421 million (euro 529 million at December 31, 2004) concerned the following companies: (million euro) Dec. 31, 2004 Dec. 31, 2005 Net value Eni’s interest Net value Eni’s interest Unconsolidated subsidiaries (*)   78           41         Affiliates:                         - Erg Raffinerie Mediterranee SpA   100     28.00               - Others (*)   7           9             107           9         Other investments:                         - Darwin LNG Pty Ltd   89     12.04     126     12.04   - Nigeria LNG Ltd   86     10.40     100     10.40   - Ceska Rafinerska AS   30     16.33     35     16.33   - Discovery Producer Services Llc   19     16.67               - Interconnector (UK) Ltd   23     4.62     27     5.00   - Others (*)   97           83             344           371             529           421         (*) Each individual amount included herein does not exceed euro 25 million. The provisions for losses related to investments of euro 64 million (euro 61 million at December 31, 2004), included in the provisions for contingencies, concerned the following companies: (million euro) Dec. 31, 2004 Dec. 31, 2005 Industria Siciliana Acido Fosforico - ISAF SpA (in liquidation)   39     35   Caspian Pipeline Consortium R - Closed Joint Stock Co   16     21   Other investments   6     8       61     64   The following are the amounts, according to Eni’s interest, from the last available financial statements of unconsolidated subsidiaries, joint ventures and affiliates: (million euro) Dec. 31, 2004 Dec. 31, 2005 Unconsolidated subsidiaries Joint ventures Affiliates Unconsolidated subsidiaries Joint ventures Affiliates Total assets   1,341     6,699     3,603     1,404     7,423     2,763   Total liabilities   1,227     4,755     2,530     1,263     5,161     1,295   Net sales from operations   63     4,361     4,250     63     4,617     1,560   Operating profit   (4 )   318     115     (1 )   609     176   Net profit   (1 )   172     38     (2 )   328     371   Total assets and total liabilities relating to unconsolidated companies of euro 1,404 and euro 1,263 million (euro 1,341 and euro 1,227 million at December 31, 2004) concern for euro 1,004 and euro 1,004 (euro 935 and euro 935 million at December 31, 2004) companies for which the consolidation does not produce significant effects. 11 Other financial assets Other financial receivables of euro 1,050 million (euro 936 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Financial receivables   913     1,001   Securities   23     49       936     1,050   Financial receivables are presented net of an impairment charge of euro 25 million (euro 21 million at December 31, 2004). Financial receivables of euro 1,001 million (euro 913 million at December 31, 2004) concern receivables made for operating purposes for euro 754 million (euro 673 million at December 31, 2004) and non-operating financial receivables for euro 247 million (euro 240 million at December 31, 2004), of which euro 241 million related to a fixed deposit held by Eni Lasmo Plc as a guarantee of a debt issue (euro 234 million at December 31, 2004). Financial receivables made for operating purposes primarily concern the Gas & Power segment (euro 499 million) and the Exploration & Production segment (euro 170 million). The increase in financial receivables made for operating purposes of euro 81 million primarily concern the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 96 million). Receivables in currency other than euro amount to euro 845 million (euro 712 million at December 31, 2004). Receivables due beyond 5 years amount to euro 625 million (euro 402 million at December 31, 2004). Securities of euro 49 million are considered held-to-maturity investments and concern securities issued by the Italian Government for euro 22 million and securities issued by Italian and foreign financial entities for euro 27 million. At January 1, 2005, the date of the first application of IAS 32 and 39, securities for euro 50 million were reclassified as held-to-maturity. Securities for euro 21 million concern securities made for operating purposes (euro 22 million at December 31, 2004). The valuation at the fair value of other financial assets did not have any significant effect. 12 Deferred tax assets Deferred tax assets of euro 1,861 million (euro 1,827 million at December 31, 2004) are net of deferred tax liabilities for which Eni possesses the legal right of offset of euro 3,347 million (euro 2,346 million at December 31, 2004). (million euro) Value at Dec. 31, 2004 Additions Deductions Exchange rate differences Other changes Value at Dec. 31, 2005 1,827 1,778 (927 ) 158 (975 ) 1,861 Other changes of euro 975 million primarily concern the set-off, for each company, of deferred tax assets with deferred tax liabilities (euro 1,035 million). Such decrease has been partially offset by provisions to the reserves of the shareholders’ equity following the first application of IAS 32 and 39 (euro 60 million). Deferred tax assets are described in Note 21. 13 Other non-current assets Other non-current assets of euro 995 million (euro 1,008 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Accounts receivable from:             - Italian tax authorities               . income tax credits   506     508     . interest on tax credits   294     309     . value added tax (VAT)   55     37     . other   8     7       863     861   - foreign tax authorities   49     44       912     905   Other receivables   32     79   Other non-current assets   64     11       1,008     995   Current liabilities 14 Current financial liabilities Current financial liabilities of euro 4,612 million (euro 4,150 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Banks   2,189     3,894   Financial liabilities represented by commercial papers   1,540     60   Other financing institutions   421     658       4,150     4,612   The increase of current financial liabilities of euro 462 million is primarily due to the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 595 million). Such increase has been partially offset by the balance of payments and new proceeds of liabilities (euro 144 million). Short-term debt by currency was as follows: (million euro) Dec. 31, 2004 Dec. 31, 2005 Euro   2,393     4,029   U.S. Dollar   1,329     323   British Pound   253     4   Other currencies   175     256       4,150     4,612   The weighted average interest rate of Eni’s short-term debt was 2.5% and 2.8% for the years ended December 31, 2004 and 2005, respectively. On December 31, 2005 Eni maintained committed and uncommitted unused lines of credit for euro 5,855 and euro 4,783 million, respectively (euro 5,304 million and euro 7,771 million, respectively, at December 31, 2004). These agreements provide for interest charges based on prevailing market conditions. Commission fees on unused lines of credit are not significant. 15 Trade and other payables Trade and other payables of euro 13,095 million (euro 10,533 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Trade payables   5,837     8,170   Advances   1,211     1,184   Other payables   3,485     3,741       10,533     13,095   Trade payables of euro 8,170 million increased by euro 2,333 million in 2005 as compared to 2004. Such increase primarily concerns the Gas & Power segment (euro 969 million), Refining & Marketing segment (euro 577 million) and Exploration & Production segment (euro 334 million) and includes the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 137 million). Advances of euro 1,184 million (euro 1,211 million at December 31, 2004) concern payments received in excess of the value of the work in progress performed for euro 550 million (euro 554 million at December 31, 2004), advances on contract work in progress for euro 309 million (euro 47 million at December 31, 2004) and other advances for euro 325 million (euro 610 million December 31, 2004). Advances on contract work in progress of euro 859 million (euro 601 million at December 31, 2004) concern the Oilfield Services, Construction and Engineering segment. Other payables of euro 3,741 million (euro 3,485 million at December 31, 2004) included the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Payables due to:             - joint venture operators in exploration and production   655     1,264   - suppliers in relation to investments   996     951   - employees   264     314   - Italian governmental entities   240     313   - social security entities   232     229       2,387     3,071   Cautionary deposit   20     6   Other payables   1,078     664       3,485     3,741   Payables with related parties are described in Note 32. 16 Taxes payable Taxes payable of euro 3,430 million (euro 2,498 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Income taxes payable   1,200     1,742   Customs and excise duties   793     896   Other   505     792       2,498     3,430   Taxes payable of euro 1,742 million increased by euro 542 million. The increase resulted primarily from foreign companies for euro 622 million following the increase of profit before income taxes and the exchange rate differences related to the translation of financial statements prepared in currencies other than euro (euro 73 million); such increase was partially offset by the decrease of the income taxes of Italian companies (euro 80 million). 17 Other current liabilities Other current liabilities of euro 613 million (euro 505 million at December 31, 2004) consisted of the following: (million euro) Dec. 31, 2004 Dec. 31, 2005 Fair value of non-hedging derivatives         378   Fair value of cash flow hedge derivatives         5   Other liabilities   505     230       505     613   At January 1, 2005, the first application of IAS 32 and 39, resulted in the accounting at the fair value of derivatives that do not meet the conditions required to qualify as hedging instruments for an amount, net of differentials on derivative contracts, of euro 82 million with a corresponding entry to the shareholders’ equity (euro 36 million) and to deferred tax assets (euro 46 million). Fair value of non-hedging derivative contracts of euro 378 million consisted of the following: (million euro) Fair value Commitments Non-hedging derivatives on exchange rate         Currency Swap   139   6,370 Interest Currency Swap   73   2,316 Other   2   57     214   8,743 Non-hedging derivatives on interest rate         Interest Rate Swap   101   5,145     101   5,145 Non-hedging derivatives on commodities         Options   23   17 Over the counter   21   323 Future   5   67 Other   14   10     63   417     378   14,305 Commitments concerning cash flow hedge derivatives amounted to euro 42 million and concerned commitments on exchange rate derivatives. At December 31, 2004 other liabilities of euro 505 million included differentials on derivative contracts for euro 141 million, of which euro 46 million related to financing receivables and liabilities. Non-current liabilities 18 Long-term debt and current portion of long-term debt Long-term debt and the current portion of long-term debt, including the relevant expiration dates, were as follows: (million euro) December 31, Long-term maturity Type of debt instrument   Maturity range   2004   2005   Current maturity 2006   2007   2008   2009   2010   After   Total                       Banks:                                         - ordinary loans   2006-2017   2,166   2,174   261   493   150   272   248   750   1,913 - interest rate assisted loans   2006-2013   101   45   32   4   3   2   2   2   13 - other financings   2006   9   3   3                         Ordinary bonds   2006-2027   5,331   5,339   391   705   471   126   939   2,707   4,948 Other financing institutions   2006-2019   927   825   46   137   37   124   181   300   779         8,534   8,386   733   1,339   661   524   1,370   3,759   7,653 Long-term debt of euro 8,386 million including the current portion of long-term debt of euro 8,299 million (euro 8,386 million at December 31, 2005) decreased by euro 14887 million. Such decrease is primarily due to the balance of payments and new proceeds of liabilities (euro 376 million)of euro 7 million and to the effect of exchange rate differences on the translation of financial statements prepared in currencies other than euro and exchange rate differences on the alignment to the year end exchange rate of debts denominated in currencies other than functional currency (euro 309 million)for a total of euro 124 million. F-39 Other financing institutions of euro 891 million included euro 56 million of finance lease transactions. The residual debt, represented by the sum of discounted future lease payments applying the effective interest rate, interests and the total of future lease payments, including the related expiration dates, are as increase, to the effect of exchange rate differences on the translation of financial statements prepared in currencies other than euro (euro 478 million).follows: (million euro) Maturity range Within 12 months Between one and five years After five years Total Residual debt   14   33   9   56 Interests   7   11   7   25 Undiscounted value of future lease payments   21   44   16   81 Eni entered into financing arrangements with the European Investment Bank, relating to bank debt that requires maintenance of certain financial ratios generally based on Eni’s Consolidated Financial StatementsorStatements or of a rating not inferior to A -A- (S&P) and A3 (Moodys)(Moody’s). At December 31, 20042005 and 2005,December 31, 2006, the amount of short and long-term debt subject to restrictive covenants was euro 1,1041,258 million and euro 1,2581,131 million, respectively. Furthermore, Saipem SpA entered into financing arrangements with banks for euro 75 million (euro 275 million (euro 300 million)at December 31, 2005), that require maintenance of certain financial ratios generally based on Saipem’s Consolidated Financial Statements. Eni and Saipem are in compliance with the covenants contained in its financing arrangements. Bonds of euro 5,3395,097 million concern bonds issued within the Euro Medium Term Notes Program for a total of euro 4,3654,424 million and other bonds for a total of euro 974673 million. Bonds as of at December 31, 2005,2006, including the issuing entity, the expiration dates and the interest rates, by currency, wereare as follows:   Amount   Discount on bond issue and accrued expense   Total   Value   Maturity   % rate             (million euro)                 from   to   from   to   Issuing entity                                   Euro Medium Term Notes:                                   - Eni SpA   1,500   42     1,542   Euro       2013       4.625 - Eni Coordination Center SA   1,027   19     1,046   British pound   2007   2019   4.875   5.250 - Eni Coordination Center SA   520   5     525   Euro   2007   2015   variable     - Eni SpA   500   16     516   Euro       2010       6.125 - Eni Coordination Center SA   277   5     282   Euro   2008   2024   2.876   5.050 - Eni Coordination Center SA   193   4     197   U.S. dollar   2013   2015   4.450   4.800 - Eni Coordination Center SA   167         167   Japanese yen   2008   2021   0.810   2.320 - Eni Coordination Center SA   103         103   U.S. dollar   2007   2013   variable     - Eni Coordination Center SA   32         32   Swiss franc       2010       2.043 - Eni Coordination Center SA   14         14   Swiss franc       2007   variable         4,333   91     4,424                     Other bonds:                                   - Eni USA Inc   304   3     307   U.S. dollar       2027       7.300 - Eni Lasmo Plc (*)   224   (11 )   213   British pound       2009       10.375 - Eni USA Inc   152   1     153   U.S. dollar       2007       6.750     680   (7 )   673                         5,013   84     5,097                     Issuing entity                                                 Euro Medium Term Notes:                                                 - Eni SpA   1,500     41     1,541     Euro           2013           4.625   - Eni Coordination Center SA   876     (2 )   874     British pound     2007     2019     4.875     5.250   - Eni Coordination Center SA   516     5     521     Euro     2007     2015     variable         - Eni SpA   500     16     516     Euro           2010           6.125   - Eni Coordination Center SA   274     5     279     Euro     2008     2024     2.876     5.050   - Eni Coordination Center SA   216     3     219     U.S. dollar     2013     2015     4.450     4.800   - Eni Coordination Center SA   161     4     165     U.S. dollar     2006     2007     variable         - Eni Coordination Center SA   152           152     Japanese yen     2008     2021     0.810     2.320   - Eni Coordination Center SA   83     1     84     Swiss franc     2006     2010     1.750     2.043   - Eni Coordination Center SA   14           14     Swiss franc           2007     variable             4,292     73     4,365                                 Other bonds:                                                 - Eni USA Inc   339     2     341     U.S. dollar           2027           7.300   - Eni USA Inc   254     1     255     U.S. dollar           2006           7.500   - Eni Lasmo Plc (*)   219     (11 )   208     British pound           2009           10.375   - Eni USA Inc   170           170     U.S. dollar           2007           6.750       982     (8 )   974                                     5,274     65     5,339                                       (*)   The bond is guaranteed by a fixed deposit recorded under non-current financial assets (euro 241246 million). Bonds due within 18 months amount to euro 435787 million and concern Eni USA Inc (euro 255 million) and Eni Coordination Center SA (euro 180634 million) and Eni USA Inc (euro 153 million). During 2005In 2006, Eni issued bonds for euro 441219 million through Eni Coordination Center SA. F-40 Long-term debt and the current portion of long-term debt, including the weighted average interest rates, by currency, wasare as follows:     Dec. 31, 20042005 (million euro)   % Average rate   Dec. 31, 20052006 (million euro)   % Average rate           Euro   5,704     3.3     5,344     3.6   U.S. dollar   1,476     6.4     1,709     7.0   British pound   1,082     6.1     1,082     5.3   Japanese yen   96     1.4     153     1.4   Swiss franc   146     1.1     98     2.6   Other currencies   30     8.7                   8,534           8,386         Euro   5,344   3.6   5,566   4.0 U.S. dollar   1,709   7.0   1,261   7.8 British pound   1,082   5.3   1,259   5.9 Japanese yen   153   1.4   167   1.4 Swiss franc   98   2.6   46   2.0     8,386       8,299     OnAt December 31, 20052006 Eni maintainedhas unused committed unused lines of credit forlong-term borrowing facilities amounting to euro 1,070520 million (euro 7101,070 million at December 31, 2004)2005). These agreements provideInterest rates upon these contracts are at market conditions and the charges for interest charges based on prevailing market conditions. Commission fees on unused lines of creditnon-use are not significant. Financial liabilities for euro 251 million are guaranteed by mortgages and liens on fixed assets of consolidated companies and by pledges on securities and fixed deposits (euro 274 million at December 31, 2004).material. Fair value of long-term debt, including the current portion of long-term debt, amounts to euro 8,7328,415 million (euro 8,7488,732 million at December 31, 2004)2005) and consistedconsists of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Banks   2,276   2,222 Ordinary bonds   5,509   5,633 Other financing institutions   963   877     8,748   8,732 Ordinary bonds   5,633   5,239 Banks   2,222   2,311 Other financing institutions   877   865     8,732   8,415 Fair value was calculated by discounting the future cash flows using rates between 2.8%3.6% and 5% (2.4%5.6% (2.8% and 5.2%5.0% at December 31, 2004)2005). 19 Provisions Financial liabilities for contingencies Provisions for contingencieseuro 231 million are guaranteed by mortgages and liens on tangible assets of euro 7,679 millionconsolidated companies and by pledges on securities and fixed deposits (euro 5,736251 million at December 31, 2004) consisted2005). Net borrowings, as defined in the "Financial Review" in the "Report of the Directors", consist of the following: (million euro)   Value at Dec. 31, 20042005   AdditionsDec. 31, 2006 Current   DeductionsNon current   Other changesTotal   Value at Dec. 31, 2005Current Non current Total             Provisions for site restoration and abandonment   1,967     694     (108 )   95     2,648   Provisions for environmental risks   1,649     522     (157 )   89     2,103   Loss adjustments and actuarial provisions for Eni’s insurance companies   573     100     (18 )   52     707   Provisions for contract penalties and disputes   208     359     (36 )   3     534   Provisions for revision of selling prices         321                 321   Provisions for taxes   235     87     (38 )   25     309   Provisions for restructuring or decommissioning of production facilities   214     94     (113 )         195   Provisions for OIL insurance   91     36                 127   Provisions for losses related to investments   91     24     (3 )   (27 )   85   Provisions for onerous contracts         71     (6 )   15     80   Provisions for prize promotion   63     52     (57 )   (6 )   52   Other (*)   645     264     (173 )   (218 )   518       5,736     2,624     (709 )   28     7,679   A. Cash   1,211           1,211     3,745           3,745   B. Cash equivalent   122           122     240           240   C. Securities held-to-maturity and available for sale   903     28     931     552           552   D. Liquidity (A+B+C)   2,236     28     2,264     4,537           4,537   E. Financial Receivables   12     247     259     143     252     395   F. Short-term financial liabilities towards banks   3,894           3,894     3,178           3,178   G. Long-term financial liabilities towards banks   296     1,926     2,222     131     2,180     2,311   H. Bonds   391     4,948     5,339     685     4,412     5,097   I. Short-term financial liabilities towards related parties   222           222     92           92   L. Long-term financial liabilities towards related parties         18     18           16     16   M. Other short-term financial liabilities   496           496     130           130   N. Other long-term financial liabilities   46     761     807     74     801     875   O. Total borrowings (F+G+H+I+L+M+N)   5,345     7,653     12,998     4,290     7,409     11,699   P. Net borrowings (O-D-E)   3,097     7,378     10,475     (390 )   7,157     6,767   Securities held-to-maturity and available for sale of euro 552 million (euro 931 million at December 31, 2005) are held for non-operating purposes. The item does not include securities held-to-maturity and available for sale, held for operating purposes, of euro 441 million (euro 486 million at December 31, 2005) which are primarily made up of securities covering the technical reserves of Padana Assicurazioni SpA for euro 417 million (euro 453 million at December 31, 2005). F-41 Financial receivables of euro 395 million (euro 259 million at December 31, 2005) are held for non-operating purposes. The item does not include financial receivables held for operating purposes of euro 246 million (euro 480 million at December 31, 2005), of which euro 241 million (euro 475 million at December 31, 2005) granted to unconsolidated subsidiaries, joint ventures and affiliates primarily for the implementation of certain capital projects. Non current financial receivables of euro 252 million (euro 247 million at December 31, 2005) concern for euro 246 million a fixed deposit held by Eni Lasmo Plc as a guarantee of a debt issue (euro 241 million at December 31, 2005). 20 Provisions for contingencies Provisions for contingencies of euro 8,614 million (euro 7,679 million at December 31, 2005) consist of the following: (million euro) Value at Dec. 31, 2005 Additions Deductions Other changes Value at Dec. 31, 2006 Provisions for site restoration and abandonment   2,648     1,345     (188 )   (81 )   3,724   Provisions for environmental risks   2,103     272     (430 )   (40 )   1,905   Provisions for contract penalties and disputes   534     174     (62 )   8     654   Loss adjustments and actuarial provisions for Eni’s insurance companies   707     8     (127 )   (23 )   565   Provisions for taxes   309     48     (98 )   (38 )   221   Provisions for losses related to investments   85     65     (9 )   43     184   Provisions for revision of selling prices   321     104     (253 )         172   Provisions for restructuring or decommissioning   195     35     (73 )         157   Provisions for OIL insurance   127           (19 )         108   Provisions for onerous contracts   80     55     (35 )         100   Provisions for prize promotion   52     44     (46 )         50   Other (*)   518     518     (177 )   (85 )   774       7,679     2,668     (1,517 )   (216 )   8,614         (*)   Each individual amount included herein does not exceed euro 50 million. Provisions for site restoration and abandonment of euro 2,6483,724 million represent primarily the estimated costs for well-plugging, abandonment and site restoration (euro 2,6133,664 million). The provisions of the yearincrease of euro 6941,345 million include theincludes amounts recorded on initial recognition and the reviewschanges to the estimateestimates of dismantling and restoration of sites recognized as a balancing entry to the asset to which they refersrefer (euro 5921,240 million) and financial expense due to the passage of time charged to the profit and loss account (euro 102105 million); the. The discount raterates used is includedrange between 3%4.0% and 5.4%5.9%. Other changes of euro 9581 million include exchange rate differences on the translation of financial statements prepared in currencies other than euro (euro 109 million). for euro 102 million. Provisions for environmental risks of euro 2,1031,905 million represent, primarily, the estimated costs of remediation in accordance with existing laws and regulations, of active production facilities for Syndial SpA (euro 1,4451,295 million), the Refining & Marketing segment (euro 405346 million), the Corporate and financial companies aggregate,segment, relating to guarantees issued in relation to properties sold (euro 122117 million) and the Gas & Power segment (euro 6178 million). Provisions in 20052006 of euro 522272 million primarily concernrelated to Syndial SpA (euro 125 million) and the Refining & Marketing segment (euro 28279 million), and include additions due to the passage of time for euro 8 million. Deductions of euro 430 million primarily concern Syndial SpA (euro 170225 million) and the CorporateRefining & Marketing segment (euro 146 million) and financial companies aggregateinclude deductions not corresponding to cash expenditures for euro 16 million. F-42 Provisions for contract penalties and disputes of euro 654 million primarily include charges expected on contract penalties and general disputes. These provisions are stated on the basis of Eni’s best estimate of the expected probable liability. Provisions in 2006 for euro 174 million primarily related to Syndial SpA (euro 5080 million) and the Gas & Power segment (euro 63 million). Deductions of euro 62 million include deductions not corresponding to cash expenditures for euro 25 million. Loss adjustments and actuarial provisions for Eni’s insurance companies of euro 707565 million represent the liabilities accrued for claims on insurance policies underwritten by Eni’s captive insurance company.Padana Assicurazioni SpA. Deductions of euro 18127 million concern deductions not corresponding to cash expenditures aswith regards to the reported accidents. Provisions for contract penalties and disputestaxes of euro 534221 million are based on Eni’s best estimateprimarily include charges for unsettled tax claims to uncertain applications of the expected probable liability. Provisionstax regulation for foreign companies of the year for euro 359 million primarily concern the fine imposed on February 15, 2006 by the Antitrust Authority on EniExploration & Production segment (euro 290176 million). DeductionsThe decrease of euro 3698 million concernconcerns deductions not corresponding to cash expenditures for euro 2332 million. Other changes of euro 38 million include the exchange rate differences on the translation of financial statements prepared in currencies other than euro for euro 25 million. Provisions for losses on investments of euro 184 million represent losses incurred to date in excess of the carrying value of investments (see Note 11 - Investments). Provisions for the revision of selling prices of euro 321172 million primarily concern the provision for the estimated adverse impact of the application of Decision 248/2004 by the Italian Authority for Electricity and Gas from January 1, 2005 affecting the parameters for the upgrading of the raw material component in price formulas for end users (euro 225 million). Provisions for taxes of euro 309 million primarily include charges for unsettled tax claims to uncertain application of the tax regulation for foreign companies of the Exploration & Production segment (euro 268139 million). Deductions of euro 38253 million concern deductions not corresponding to cash expenditures for euro 30 million.141 million primarily related to the adoption of the new tariffs’ regime introduced by Decision 134/2006 by the Italian Authority for Electricity and Gas (euro 139 million). Provisions for restructuring or decommissioning of production facilities of euro 195157 million mainly represent the estimated costs related to divestments and facilities closures of the Refining & Marketing segment (euro 156124 million). Deductions of euro 11373 million concern deductions not corresponding to cash expenditures for euro 2817 million. Provisions for OIL insurance of euro 127108 million include the provisions related to the increase of charges that will be paid inwithin the next 5 years, period, due by Eni for participation in the mutual insurance of Oil Insurance Ltd, following to the greaterincreased number of accidents that occurred in 2004 and 2005. Provisions for losses on investments of euro 85 million represent losses incurred to date in excess of the carrying value of investments (see Note 10). Provisions for onerous contracts of euro 80100 million essentially concern Syndial SpA and relate to contracts for which the termination or execution costs exceed the related benefits arising from that contract. Provisions for prize promotion of euro 5250 million includeconcern the provisions of the Refining & Marketing segment in relation to promotions directed towards the attainment of an increase on sales volumes on the Agip branded network and intended for station operators, for truckers and motorists that perform the fuel fill-up at the "Isole Fai da Te". DeductionsUtilization of other provisions of euro 173 million include deductions not corresponding to cash expenditures for euro 53177 million includes utilization of excess provisions for euro 85 million, of which euro 2720 million concern over estimated provisions for long-term construction contracts. Other changes of euro 28 million include exchange differences due to the translation of financial statements prepared in currencies other than euro of euro 159 million; such increase has been partially offset by reclassifications essentially to social projects and financial receivables (euro 140 million). 2021 Provisions for employee benefits Provisions for employee benefits of Eni Group concern indemnities upon termination of employment, pension plans with benefits measured in considerationeuro 1,071 million (euro 1,031 million at December 31, 2005) consist of the employee’s year compensation preceding the retirement and other benefits.following: (million euro) Dec. 31, 2005 Dec. 31, 2006 TFR   577   608 Pensions plans   318   268 Supplementary medical reserve for Eni managers (FISDE)   99   100 Other benefits   37   95     1,031   1,071 Provisions for indemnities upon termination of employment essentially concern the provisions accrued by Italian companies for employee termination indemnities ("TFR"), regulated by articleArticle 2120 of the Italian Civil Code. The indemnity is paid out as capital and is determined by the total of the provisions set aside, calculated in consideration of the employee’s compensation during the service period, and revalued until the retirement. Provisions to TFR, considered for the determination of liabilities and costs, are net of the amounts paid to pension funds. F-43 Effective from January 1, 2007 the Budget Law for 2007 and related decrees introduce material changes to the TFR regulation; these changes include the possibility for employees to choose the allocation of their TFR entitlement between a pension fund or having it remain in the company (in which case the company will transfer the future TFR obligation to INPS, the Italian state social security entity). At present there are uncertainties in interpretation regarding the recent changes in regulations. Furthermore, there is additional uncertainty arising from the revised regulations in respect to actuarial calculations on already accrued TFR provision since it is currently not possible to predict employees’ choices regarding their allocation of the TFR entitlement (employees’ choice shall be made before June 30, 2007). As a result, no changes have been made to the TFR obligation recorded at December 31, 2006 in light of new regulation. Pension funds concern defined benefit plans of foreign companies located, primarily, in the United Kingdom, Nigeria and Germany. Benefits consist of a return on capital determined on the basis of the length of service and the compensation paid in the last year of service or an average annual compensation paid in a determined period preceding the retirement. Other benefits essentially concern theThe supplementary medical reserve for Eni managers (FISDE) and jubilee awards. Liability and costs related to FISDE areis calculated on the basis of the contributions paid by the company for the retired managers. Other benefits primarily concern Jubilee awards and a deferred monetary incentive plan relating to management’s future performances. Jubilee awards are benefits due followinga seriority bonus which, in the Italian companies, is paid out in kind after the attainment of a minimumpreset period of service and, regardingat the company. The deferred monetary incentive plan for Eni managers envisages a monetary amount to be paid in 2009 under variable proportions to those managers who attain individual targets. The amount accrued in 2006 was determined based on the Italian companies, they consist of a remuneration in kind.Company’s expected future performance. F-44 The value of employee benefits, for the periods indicated consistedestimated by applying actuarial techniques, consists of the following: (million euro) Foreign pension plans       TFR Gross liability Plan assets FISDE Other benefits Total 2005                                     Current value of benefit liabilities and plan assets at beginning of year   577     576     (257 )   106     32     1,034   Current cost   59     18           2     3     82   Interest cost   25     30           5     1     61   Expected return on plan assets               (16 )               (16 ) Employees contributions         1     (46 )               (45 ) Actuarial gains/losses   47     66     (24 )   (11 )   5     83   Benefits paid   (49 )   (19 )   11     (6 )   (4 )   (67 ) Amendments         3                       3   Curtailments or settlements   (6 )   (5 )                     (11 ) Exchange rate differences and other changes   87     (27 )               60         Current value of benefit liabilities and plan assets at end of year   653     757     (359 )   96     37     1,184   2006                                     Current value of benefit liabilities and plan assets at beginning of year   653     757     (359 )   96     37     1,184   Current cost   99     18           2     48     167   Interest cost   22     28           3     6     59   Expected return on plan assets               (24 )               (24 ) Employees contributions         (3 )   (88 )               (91 ) Actuarial gains/losses   (67 )   (2 )   (3 )   (5 )   6     (71 ) Benefits paid   (94 )   (16 )   12     (5 )   (2 )   (105 ) Amendments         2                       2   Curtailments and settlements         (7 )   6                 (1 ) Exchange rate differences and other changes   1     (6 )   16                 11   Current value of benefit liabilities and plan assets at end of year   614     771     (440 )   91     95     1,131   Gross liability for employee benefits of foreign pension plans of euro 771 million (euro 757 million at December 31, 2005) includes liabilities of joint ventures operating in exploration and production activities for euro 130 million and euro 112 million at December 31, 2005 and 2006, respectively; a receivable was recorded against such liability. Funds for other benefits of euro 95 million (euro 37 million at December 31, 2005) concern primarily Jubilee awards for euro 44 million (euro 29 million at December 31, 2005) and the deferred monetary incentive plan for euro 37 million. Changes in plan assets and benefit obligations related to provisions for employee benefits consist of the following: TFR Foreign pension plans FISDE Other benefits (million euro)   TFRDec. 31, 2005   Gross liabilityDec. 31, 2006   Plan assetsDec. 31, 2005   Net liabilityDec. 31, 2006   Other benefitsDec. 31, 2005   TotalDec. 31, 2006 Dec. 31, 2005 Dec. 31, 2006               Dec. 31, 2004                                     Current value of benefit obligation at beginning of year   521     483     (224 )   259     130     910   Current cost   54     17           17     3     74   Interest cost   25     25           25     6     56   Expected return on plan assets               (14 )   (14 )         (14 ) Contributions paid         1     (21 )   (20 )         (20 ) Actuarial gains/losses   29     46     (7 )   39     8     76   Benefits paid   (52 )   (18 )   11     (7 )   (9 )   (68 ) Amendments         11           11           11   Exchange rate differences and other changes         11     (2 )   9           9   Current value of benefit obligation at end of year   577     576     (257 )   319     138     1.034   Dec. 31, 2005                                     Current value of benefit obligation at beginning of year   577     576     (257 )   319     138     1.034   Current cost   59     18           18     5     82   Interest cost   25     30           30     6     61   Expected return on plan assets               (16 )   (16 )         (16 ) Contributions paid         1     (46 )   (45 )         (45 ) Actuarial gains/losses   47     66     (24 )   42     (6 )   83   Benefits paid   (49 )   (19 )   11     (8 )   (10 )   (67 ) Amendments         3           3           3   Economic effect of curtailment or settlement of the plan   (6 )   (5 )         (5 )         (11 ) Exchange rate differences and other changes         87     (27 )   60           60   Current value of benefit obligation at end of year   653     757     (359 )   398     133     1,184   Current value of benefit obligations with plan assets at end of year               757     771                           Current value of plan assets               (359 )   (440 )                         Net current value of benefit obligations with plan assets               398     331                           Current value of benefit obligations without plan assets at end of year   653     614                 96     91     37     95   Actuarial gains/losses not recognized   (76 )   (6 )   (71 )   (63 )   3     9               Past service cost not recognized               (9 )                               Net liabilities recognized in provisions for employee benefits   577     608     318     268     99     100     37     95   Gross liability relating foreign pension plans of euro 757 million (euro 576 million at December 31, 2004) includes pension plans with no plan assetsF-45 Costs for euro 180 million (euro 166 million at December 31, 2004). Current value of benefit obligation of foreign pension plans includes liabilities of joint ventures operatingemployee benefits recognized in exploration and production activities. Current valuethe income statement consist of the obligation relating other benefits of euro 133 million (euro 138 million at December 31, 2004) concern primarily FISDE for euro 96 million and jubilee awards for euro 29 million (euro 106 million and euro 26 million at December 31, 2004, respectively).following: Reconciliation of net liabilities for benefits recorded in the balance sheets was as follows: (million euro)   TFR   Foreign pension plans   Other benefitsFISDE   Other benefits Total 2005                               Current cost   59     18     2     3     82   Interest cost   25     30     5     1     61   Expected return on plan assets         (16 )               (16 ) Amortization of actuarial gains/losses               6     6         Effect of curtailments and settlements   (6 )   (5 )               (11 ) Other costs         3           1     4       78     30     7     11     126   2006                               Current cost   99     18     2     48     167   Interest cost   22     28     3     6     59   Expected return on plan assets             (24 )               (24 ) Amortization of actuarial gains/losses   2     21           5     28   Effect of curtailments and settlements           (1 )                      (1 ) Other costs   1                       1       124     42     5     59     230   The main actuarial assumptions used in the evaluation of benefit obligations at end of year and in the estimate of costs for employee benefits expected for 2007 consist of the following: (%) TFR Foreign pension plans FISDE Other benefits           Dec. 31, 2004                         Current value of the benefit obligation   577     319     138     1,034   Actuarial gains/losses not recognized   (18 )   (16 )   (7 )   (41 ) Past service cost not recognized         (11 )         (11 ) Provisions for employee benefits   559     292     131     982   Dec. 31, 2005                         Current value of the benefit obligation   653     398     133     1,184   Actuarial gains/losses not recognized   (76 )   (71 )   3     (144 ) Past service cost not recognized         (9 )         (9 ) Provisions for employee benefits   577     318     136     1,031   Fund for employee benefits of foreign pensions plan of euro 318 million (euro 292 million at December 31, 2004) includes liabilities of joint ventures operating in exploration and production activities for euro 95 million and euro 130 million at December 31, 2004 and 2005, respectively; a receivable was recorded against such liability. Fund for other benefits of euro 136 million (euro 131 million at December 31, 2004) concern primarily FISDE for euro 99 million and jubilee awards for euro 29 million (euro 99 million and euro 26 million at December 31, 2004, respectively). Costs for employee benefits recorded in the profit and loss account consisted of the following: 2005                 Discount rate   4.0   4.5-7.3   4.3   4.5-4.7 Expected return rate on plan assets       7.2         Rate of compensation increase   2.7-4.5   3.0-5.8       3.5 Rate of price inflation   2.0   2.0-4.9   2.0   2.3-2.4 2006                 Discount rate   4.3   3.0-13.0   4.5   4.0-4.3 Expected return rate on plan assets       3.5-13.0         Rate of compensation increase   2.7-4.0   2.0-12.0       2.7-4.5 Rate of price inflation   2.0   1.0-10.0   2.0   2.0-2.5 (million euro) TFR Foreign pension plans Other benefits Total           2004                         Current cost   54     17     3     74   Interest cost   25     25     6     56   Expected return rate on plan assets         (14 )         (14 ) Amortization of past service cost         1           1   Amortization of actuarial gains/losses               1     1   Total cost   79     29     10     118   2005                         Current cost   59     18     5     82   Interest cost   25     30     6     61   Expected return rate on plan assets         (16 )         (16 ) Amortization of past service cost         3     1     4   Amortization of actuarial gains/losses               6     6   Economic effect of curtailment or settlement of the plan   (6 )   (4 )   (1 )   (11 ) Total cost   78     31     17     126   Costs for other benefits of euro 17 million (euro 10 million at December 31, 2004) concern FISDE for euro 7 million and jubilee awards for euro 7 million (euro 6 million and euro 3 million at December 31, 2004, respectively)With regards to Italian plans were used demographic tables prepared by Ragioneria Generale dello Stato (RG48). Expected return rate by plan assets has been determined by making reference to the ratings expressed in regulated markets. Principal actuarial assumptions used for the valuation of employee benefits consistedForeign plan assets consist of the following: (%) TFR Foreign pension plans Other benefits 2004 Principal actuarial assumptions Discount rate 4.5 6.0-7.9 4.0-5.0 Rate of compensation increase 2.7-4.5 3.0-6.8 Expected return rate on plan assets 7.0 Rate of price inflation 2.3 2.0-4.6 2.0-2.3 2005 Principal actuarial assumptions Discount rate 4.0 4.5-7.3 4.5-4.7 Rate of compensation increase 2.7-4.5 3.0-5.8 3.5 Expected return rate on plan assets 7.2 Rate of price inflation 2.0 2.0-4.9 2.3-2.4 Foreign plan assets consisted of the following: (%)   Plan assets   Expected return       Dec. 31, 2005             Securities   50.2     7.4   Bonds   35.0     4.9   Investment property   1.7     8.1   Other   13.1     10.5   Total   100.0         Dec. 31, 2006 Securities 18.6 5.4-7.6 Bonds 60.3 2.6-9.4 Real estate 0.9 5-13 Other 20.2 2-13 100.0 21The effective return of the plan assets amounts to euro 27 million (euro 40 million at December 31, 2005). F-46 With reference to medical plans, the effects deriving from a 1% change of the actuarial assumptions of medical costs consist of the following: (million euro) 1% Increase 1% Decrease Impact on the current costs and interest costs   6   4 Impact on net benefit obligation   103   83 The amount of the contributions expected to be paid to the defined contribution plans for 2007 amounts to euro 68 million. The analysis of changes of the net actuarial liability with regard to the previous fiscal year deriving from the non-correspondence of the actuarial assumptions adopted in the previous fiscal year with the effective values recorded at the closing of the current fiscal year consists of the following: (million euro) TFR Foreign pension plans FISDE Other benefits 2005                         Impact on net benefit obligation   47     59     (11 )       Impact on plan assets         24               2006                         Impact on net benefit obligation   (19 )   13     (4 )   4   Impact on plan assets         3               22 Deferred tax liabilities Deferred tax liabilities of euro 4,8905,852 million (euro 3,9484,890 million at December 31, 2004)2005) are net of deferred tax assets for which Eni possesses the legal right of offset. (million euro) Value at Dec. 31, 20042005   Additions   Deductions   Exchange rate differences   Other changes   Value at Dec. 31, 20052006               3,948 2,136 (484 ) 331 (1,041 )   4,890   Other changes of euro 1,041 million primarily concern the set-off, for each company, of tax assets and deferred tax liabilities (euro 1,035 million). Such change has been partially offset by provisions to the reserves of the shareholders’ equity following the first application of IAS 32 and 39 (euro 50 million) and valuation at fair value of financial instruments (euro 2 million). Deferred tax liabilities consisted of the following: 2,231 (million euro)676 ) (379 ) (214 )   Dec. 31, 20045,852   Dec. 31, 2005 Deferred income taxes   6,002     8,237   Deferred income taxes available to be offset   (2,054 )   (3,347 )     3,948     4,890   Deferred income taxes not available to be offset   (1,827 )   (1,861 ) Net deferred tax liabilities   2,121     3,029   The most significant temporary differences giving rise to net deferred tax liabilities were as follows: (million euro) Value at Dec. 31, 2004 Additions Deductions Exchange rate differences Other changes Value at Dec. 31, 2005             Deferred tax liabilities:                                     - accelerated tax depreciation on fixed assets   3,885     1,378     (235 )   274     553     5,855   - application of the weighted average cost method in evaluation of inventories   300     351     (2 )               649   - site restoration and abandonment (fixed assets)   104     234     (35 )   8     38     349   - capitalized interest expense   219     12     (12 )         26     245   - other   1,494     161     (200 )   49     (365 )   1,139       6,002     2,136     (484 )   331     252     8,237   Deferred tax assets:                                     - assets revaluation as per Law 342/2000 and 448/2001   (1,177 )         79           2     (1,038 ) - site restoration and abandonment (provisions for contingencies)   (870 )   (355 )   130     (37 )   94     (1,096 ) - non deductible amortization   (324 )   (401 )   178     (77 )   (244 )   (868 ) - accruals for doubtful accounts and provisions for contingencies   (513 )   (487 )   159           2     (839 ) - tax loss carryforwards   (102 )   (59 )   58     (15 )   (42 )   (160 ) - other   (895 )   (476 )   323     (29 )   (130 )   (1,207 )     (3,881 )   (1,778 )   927     (158 )   (318 )   (5,208 ) Net deferred tax liabilities   2,121     358     443     173     (66 )   3,029   Other changes of euro 214 million include the set-off, for each company, of deferred tax assets and deferred tax liabilities for euro 318 million. Deferred tax liabilities consist of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Deferred income taxes   8,237     9,880   Deferred income taxes available for offset   (3,347 )   (4,028 )     4,890     5,852   Deferred income taxes not available for offset   (1,861 )   (1,725 )     3,029     4,127   F-47 The most significant temporary differences giving rise to net deferred tax liabilities are as follows: (million euro) Value at Dec. 31, 2005 Additions Deductions Exchange rate differences Other changes Value at Dec. 31, 2006 Deferred tax liabilities:                                     - accelerated tax depreciation   5,855     1,412     (414 )   (330 )   328     6,851   - application of the weighted average cost method in evaluation of inventories   649     28     (108 )         80     649   - site restoration and abandonment (tangible and intangible assets)   349     130     (36 )   (18 )   258     683   - capitalized interest expense   245     2     (20 )         5     232   - other   1,139     659     (98 )   (40 )   (195 )   1,465       8,237     2,231     (676 )   (388 )   476     9,880   Deferred tax assets:                                     - assets revaluation as per Law No. 342/2000 and No. 448/2001   (1,096 )         78           1     (1,017 ) - site restoration and abandonment (provisions for contingencies)   (1,038 )   (190 )   38     41     (347 )   (1,496 ) - depreciation and amortization   (868 )   (125 )   201     85     (37 )   (744 ) - accruals for impairment losses and provisions for contingencies   (839 )   (329 )   244     1     (77 )   (1,000 ) - tax loss carry forwards   (160 )   (10 )   96     10     (19 )   (83 ) - other   (1,207 )   (645 )   379     35     25     (1,413 )     (5,208 )   (1,299 )   1,036     172     (454 )   (5,753 ) Net deferred tax liabilities   3,029     932     360     (216 )   22     4,127   Deferred tax assets are recognized to the extent that expected future fiscal profits are considered sufficient for the utilization of these assets. No deferred tax liabilities have been recognized in relation to the reserves of consolidated subsidiaries because such reserves are not expected to be distributed (euro 269 million). Under the Italian fiscal laws, tax losses can be carried forward in the five subsequent periods, excepting losses suffered in the first three periods of life of the company that they can be carried forward without limit. Tax losses of foreign companies can be carrycarried forward on average for more than five periods and for a considerable part they can be carried forward without limit. Tax recover correspondrecovery corresponds to a tax rate of 33% for Italian companies and to an average tax rate of 30%29.8% for foreign companies. Tax losses amount to euro 1,8181,579 million and can be used in the following periods: (million euro)   Italian companies   Foreign companies       2006         10   2007         7   2008   11     66   2009   8     43   2010         46   Over 2010         234   Without limit         1,393       19     1,799   2007   4   17 2008   14   19 2009   13   13 2010       15 2011       37 Over 2011       53 Without limit   13   1,381     44   1,535 Tax losses for which is expected the utilization amount to euro 547278 million and essentially concern foreign companies (euro 536252 million); the relevantrelated deferred tax assets amount to euro 16083 million of whichand concern for euro 15875 million concern foreign companies. No deferred tax liabilities have been recognized in relation to the reserves of consolidated subsidiaries because such reserves are not expected to be distributed (euro 160 million). 22F-48 23 Other non-current liabilities Other non-current liabilities of euro 897418 million (euro 427897 million at December 31, 2004) consisted2005) consist of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Income tax liabilities   23         Other payables   204     767   Other liabilities   200     130       427     897   Payables related to capital expenditures   597   26 Other payables   170   207 Other liabilities   130   185     897   418 Other payables of euro 767 million (euro 204 million at December 31, 2004) concern payables related to capital expenditures for euro 597 million. Other liabilities at December 31, 2004 of euro 200 million include the fair value of fixed interest rate financial liabilities of Lasmo Plc (now Eni Lasmo Plc) for euro 2 million. 2324 Shareholders’ equity Minority interest Minority interest in net profit and shareholders’ equity relate to the following consolidated subsidiaries: (million euro)   Net profit   Shareholders’ equity           2005   2006   Dec. 31, 2005   Dec. 31, 2006           Snam Rete Gas SpA   321   287   1,158   1,004 Saipem SpA   115   303   915   879 Tigáz Tiszántúli Gázszolgáltató Részvénytársaság   6       82   79 Others   17   16   194   208     459   606   2,349   2,170 2004 2005 Dec. 31, 2004 Dec. 31, 2005           Snam Rete Gas SpA   331     321     2,025     1,158   Saipem SpA   133     115     846     915   Tigáz Tiszántúli Gázszolgáltató Részvénytársaság   4     6     78     82   Others   14     17     217     194       482     459     3,166     2,349   The decrease in the shareholders’ equity of Snam Rete Gas SpA of euro 867 million concern the distribution of an extraordinary dividend of which euro 1,171 million was paid to minority interest. Eni shareholders’ equity (million euro)   Value at Dec. 31, 20042005   Value at Dec. 31, 20052006       Share capital   4,004     4,005   Legal reserve   959     959   Cumulative translation adjustment reserve   (687 )   941   Reserve for treasury shares   5,392     5,345   Treasury shares   (3,229 )   (4,216 ) Other reserves   3,965     5,351   Retained earnings   14,911     17,381   Net profit for the period   7,059     8,788   Interim dividend         (1,686 )     32,374     36,868   Share capital   4,005     4,005   Legal reserve   959     959   Reserve for treasury shares   5,345     7,262   Treasury shares   (4,216 )   (5,374 ) Cumulative translation adjustment reserve   941     (398 ) Other reserves   5,351     400   Retained earnings   17,381     25,168   Net profit for the period   8,788     9,217   Interim dividend   (1,686 )   (2,210 )     36,868     39,029   Share capital At December 31, 20052006 Eni SpA had 4,005,358,876 shares (nominal value euro 1 each) fully paid-up (4,004,424,476 shares at(the same amount as of December 31, 2004)2005). The increase concerns the issuing under the stock grant plan of 934,400 shares with a nominal value of euro 1 each subscribed by managers following the expiration of the plan issued in 2002 (883,300 shares) and the agreed termination of employment (51,100 shares). On May 27, 200525, 2006 Eni’s ShareholdersShareholders’ Meeting decided a dividend distribution of euro 0.900.65 per share, with the exclusion of treasury shares.shares held at the ex-dividend date, in full settlement of the 2005 dividend of euro 0.45 per share. The cash dividendbalance was made available for payment on June 23, 200522, 2006 and the ex-dividend date was June 20, 2005.19, 2006. Legal reserve The legal reserve of Eni SpA represents earnings restricted from the payment of dividends pursuant to Article 2430 of the Italian Civil Code. F-49 Cumulative translation adjustmentexchange differences reserve The cumulative translation adjustment reserve represents exchange differences due to the translation of financial statements prepared in currencies other than euro. Reserve for treasury shares The reserve for treasury shares of euro 5,345 million (euro 5,392 million at December 31, 2004) contains earningsrepresents the reserve destined to purchase shares in accordance with the decisions of Eni’s Shareholders’ Meetings. The decreaseamount of euro 477,262 million concern(euro 5,345 million at December 31, 2005) includes treasury shares purchased. The increase of euro 1,917 million primarily concerns reclassification of euro 2,000 million following Eni’s Shareholders Meeting decision on May 25, 2006 and, as a decrease, the sale and the grant of treasury shares to the Group managers following the stock option and stock grant plans.grants plan for euro 85 million. Treasury shares purchased Treasury shares purchased amount to euro 4,2165,374 million (euro 3,2294,216 million at December 31, 2004)2005) and consist of 278,013,975324,959,866 ordinary shares at a nominal value of euro 1 owned by Eni SpA (234,394,888(278,013,975 ordinary shares at a nominal value of euro 1 at December 31, 2004)2005). Treasury shares of euro 237839 million (euro 286237 million at December 31, 2004)2005), are represented by 17,428,30040,114,000 shares (21,006,600(17,428,300 shares at December 31, 2004)2005) and are destined to 2002-2004the 2002-2005 and 20052006-2008 stock option plans (14,004,500(38,240,400 shares) and the 2003-2005 stock grant plans (3,423,800plan (1,873,600 shares). The decreaseincrease of 3,578,30022,685,700 shares consistedconsists of the following: (million euro)   Stock option   Stock grant   Total         Number of shares at December 31, 2004   14,574,000     6,432,600     21,006,600   - reclassifications (*)   2,658,400     (2,658,400 )           17,232,400     3,774,200     21,006,600   - rights exercised   (3,106,400 )   (339,100 )   (3,445,500 ) - rights cancelled   (121,500 )   (11,300 )   (132,800 )     (3,227,900 )   (350,400 )   (3,578,300 ) Number of shares at December 31, 2005   14,004,500     3,423,800     17,428,300   Number of shares at December 31, 2005   14,004,500     3,423,800     17,428,300   Rights granted for 2006-2008 stock option plan   30,000,000           30,000,000   Rights not granted for 2003-2005 stock grant plans and 2002-2005 stock option plan   (624,900 )   (296,600 )   (921,500 ) Rights exercised   (4,943,200 )   (1,236,400 )   (6,179,600 ) Rights cancelled   (196,000 )   (17,200 )   (213,200 ) Number of shares at December 31, 2006   38,240,400     1,873,600     40,114,000       (*)   The reclassifications have been decided in accordance with the decision of Eni’s Shareholders’ Meeting of May 27, 2005. At December 31, 20052006, options and grants outstanding were 13,379,60015,290,400 shares and 3,127,2001,873,600 shares, respectively. Options refer to the 2002 stock plan for 903,100238,000 shares with an exercise price of euro 15.216 per share, to the 2003 stock plan for 4,106,500779,900 shares with an exercise price of euro 13.743 per share, to the 2004 stock plan for 3,659,0003,108,500 shares with an exercise price of euro 16.576 per share, and to the 2005 stock plan for 4,711,0004,184,000 shares with an exercise price of euro 22.512 per share and to the 2006 stock plan for 6,980,000 shares with an weighted average exercise price of euro 23.119 per share. Information about commitments related to stock grant and stock option plans is included in Note 27 - Operating expenses. Other reserves Other reserves of euro 5,351400 million (euro 3,9655,351 million at December 31, 2004)2005) refer to a reserve constituted following the sale by Eni distributableSpA of Snamprogetti SpA to Saipem Projects SpA for euro 247 million, to Eni SpA’s equity reserve for euro 5,219146 million (euro 3,896 million at December 31, 2004) and for euro 357 million to the reserve for the valuation at fair value of securities available for sale and cash flow hedge derivatives. The increasedecrease of Eni distribuitable reserveother reserves essentially refers to the reclassification of euro 1,3234,951 million primarily concern the destination of the residual income for 2004from Eni distributable reserve to retained earnings (euro 1,3005,224 million), in accordance with the decisions of Eni’s Shareholders’ Meetings of May 27, 2005. . F-50 The valuation at fair value of securities available for sale and cash flow hedge derivatives consists of the following: (million euro)   Securities available for sale   Cash flow hedge derivatives   Total         (million euro)   Gross reserve   Deferred tax liabilities   Net reserve   Gross reserve   Deferred tax liabilities   Net reserve   Gross reserve   Deferred tax liabilities   Net reserve                     Reserve as of January 1, 2005   19     (6 )   13                       19     (6 )   13   Changes of the year   8     (2 )   6     27     (11 )   16     35     (13 )   22   Reserve as of December 1, 2005   27     (8 )   19     27     (11 )   16     54     (19 )   35   Reserve as of January 1, 2005   19     (6 )   13                       19     (6 )   13   Changes of the year   8     (2 )   6     27     (11 )   16     35     (13 )   22   Reserve as of December 1, 2005   27     (8 )   19     27     (11 )   16     54     (19 )   35   Changes of the year   2           2     1           1     3           3   Amount recognized in the profit and loss account   (21 )   6     (15 )   (27 )   11     (16 )   (48 )   17     (31 ) Reserve as of December 31, 2006   8     (2 )   6     1           1     9     (2 )   7   Interim dividend Interim dividend of euro 1,6862,210 million concernedconcerns the interim dividend for the year 20052006 for euro 0.450.60 per share, with the exclusion of treasury shares, as decided by Eni’s Shareholders’ Meetingsthe Board of Directors in accordance with articleArticle 2433-bis, paragraph 5 of the Italian Civil Code; the dividend was paidmade available for payment on October 27, 2005.26, 2006. Distributable reserves At December 31, 20052006 Eni shareholders’ equity included distributable reserves for approximately euro 36,00032,000 million, a portion of which is subjected to taxation upon distribution. Deferred tax liabilities have been recorded in relation to the reserves expected to be distributed (euro 3240 million). Reconciliation of statutory net profit and shareholders’ equity of the parent company Eni SpA to consolidated net profit and shareholders’ equity (million euro)   Net profit   Shareholders’ equity           2005   2006   Dec. 31, 2005   Dec. 31, 2006           As recorded in Eni SpA’s Financial Statements (Italian GAAP)   6,042     5,821     26,872     26,935   Difference between the equity value of individual accounts of consolidated subsidiaries with respect to the corresponding book value in the statutory accounts of the parent company   2,718     3,823     13,701     16,136   Consolidation adjustments:                         - difference between purchase cost and underlying book value of net equity   (44 )   (52 )   1,902     1,138   - elimination of tax adjustments and compliance with group accounting policies   863     627     (1,528 )   (1,435 ) - elimination of unrealized intercompany profits   (40 )   (237 )   (2,677 )   (2,907 ) - deferred taxation   (313 )   (195 )   849     1,244   - other adjustments   21     36     98     88       9,247     9,823     39,217     41,199   Minority interest   (459 )   (606 )   (2,349 )   (2,170 ) As recorded in Consolidated Financial Statements (IFRS)   8,788     9,217     36,868     39,029   2004 2005 Dec. 31, 2004 Dec. 31, 2005           As recorded in Eni SpA’s financial statements (Italian GAAP)   4,684     5,288     29,433     29,656   Treasury shares               (3,229 )   (4,216 ) Difference between the equity value and result of consolidated companies and the equity value and result of consolidated companies as accounted for in Eni SpA financial statements   4,444     2,718     9,470     13,483   Consolidation adjustments:                         - difference between cost and underlying value of equity   (112 )   (44 )   2,592     2,558   - elimination of tax adjustments and compliance with accounting policies   (2,197 )   1,617     (244 )   313   - elimination of unrealized intercompany profits   (235 )   (40 )   (2,498 )   (2,677 ) - deferred taxation   612     (313 )   (133 )   2   - other adjustments   345     21     149     98       7,541     9,247     35,540     39,217   Minority interest   (482 )   (459 )   (3,166 )   (2,349 ) As recorded in Consolidated Financial Statements (IFRS)   7,059     8,788     32,374     36,868   F-51 2425 Guarantees, commitments and risks Guarantees Guarantees of euro 12,86214,384 million (euro 12,66712,862 million at December 31, 2004)2005) consisted of the following: (million euro)   Dec. 31, 2004   Dec. 31, 2005 Dec. 31, 2006       (million euro)   Unsecured guarantees   Other guarantees   Secured guarantees   Total   Unsecured guarantees   Other guarantees   Secured guarantees   Total Unsecured guarantees Other guarantees Secured guarantees Total                   Consolidated companies       3,228       3,228       5,839       5,839 Unconsolidated subsidiaries   7   532       539   4   203       207 Affiliated companies and Joint Ventures   4,901   1,922   40   6,863   4,900   1,772   40   6,712 Others   70   169       239   64   40       104     4,978   5,851   40   10,869   4,968   7,854   40   12,862 Consolidated companies       5,026       5,026       5,839       5,839       6,539       6,539 Unconsolidated subsidiaries   7   532       539   4   203       207   3   294       297 Affiliated companies and joint ventures   4,901   1,922   40   6,863   4,900   1,772   40   6,712   5,682   1,735       7,417 Others   70   169       239   64   40       104   79   52       131     4,978   7,649   40   12,667   4,968   7,854   40   12,862   5,764   8,620       14,384 Guarantees given on behalf of consolidated companies of euro 5,8396,539 million (euro 5,0265,839 million at December 31, 2004)2005) consist primarily of: (i) guarantees given to third parties relating to bid bonds and performance bonds for euro 3,0573,467 million (euro 2,9293,057 million at December 31, 2004)2005), of which euro 2,3972,726 million related to the Oilfield ServicesEngineering & Construction and Engineering segment (euro 2,2962,397 million at December 31, 2004);2005). The increase of euro 410 million primarily concerns the raise of the order book and the start of new works of the Engineering & Construction segment; (ii) VAT recoverable from tax authorities for euro 1,3861,393 million (euro 1,1561,386 million at December 31, 2004)2005); and (iii) insurance risk for euro 298246 million reinsured by Eni (euro 396298 million at December 31, 2004)2005). At December 31, 20052006 the underlying commitment covered by such guarantees was euro 5,4916,160 million (euro 4,8185,491 million at December 31, 2004)2005). Unsecured guarantees other guarantees and securedother guarantees given on behalf of unconsolidated subsidiaries of euro 207297 million (euro 539207 million at December 31, 2004) consisted2005) consist of unsecured guarantees, and letters of patronage and other guarantees given to commissioning entities relating to bid bonds and performance bonds for euro 165288 million (euro 144165 million at December 31, 2004). The decrease of euro 332 million essentially concerned the reclassification to consolidated subsidiaries of the guarantees given on behalf of Eni Middle East BV (euro 367 million at December 31, 2004)2005). At December 31, 2005,2006, the underlying commitment covered by such guarantees was euro 145204 million (euro 467145 million at December 31, 2004)2005). Unsecured guarantees, other guarantees and secured guarantees given on behalf of joint ventures and affiliated companies of euro 6,7127,417 million (euro 6,8636,712 million at December 31, 2004)2005) primarily concerned:concern: (i) a guarantee of euro 5,654 million (euro 4,894 million (the same amount as ofat December 31, 2004)2005) given by Eni SpA to Treno Alta Velocità - TAV - SpA for the proper and timely completion of a project relating to the Milano-BolognaMilan-Bologna train link by the Consorzio Eni per l’Alta Velocità - Cepav Uno (Eni 50.4%);CEPAV Uno; consortium members, excluding unconsolidated subsidiaries, gave Eni liability of surety letters and bank guarantees amounting to 10% of their respective portion of the work; and (ii) unsecured guarantees, letters of patronage and other guarantees given to banks in relation to loans and lines of credit received for euro 1,3601,214 million (euro 1,6331,360 million at December 31, 2004)2005), of which euro 844756 million related to a contract released by Snam SpA (now merged into Eni SpA) on behalf of Blue Stream Pipeline Co BV (Eni 50%) to a consortium of international financing institutions (euro 731844 million at December 31, 2004)2005). The decrease of euro 273 million primarily concerned the extinguishing of a guarantee of euro 250 million given on behalf of EnBW - Eni Verwaltungsgesellschaft mbH (Eni 50%) and Albacom SpA (euro 88 million), partially offset by the increase of the guarantee given on behalf of Blue Stream Pipeline Co BV (euro 113 million); (iii) unsecured guarantees, letters of patronage and other given to commissioning entities relating to bid bonds and performance bonds for euro 274 million (euro 118 million at December 31, 2004). The increase of euro 156 million essentially regarded guarantees on behalf of the Oilfield Services Construction and Engineering segment; (iv) performance guarantees of euro 62 million given on behalf of Unión Fenosa SA and Unión Fenosa Gas SA (Eni 50%) in relation to contractual commitments related to the results of operations of subsidiaries of Unión Fenosa Gas SA (euro 111 million at December 31, 2004); and (v) secured guarantees of euro 40 million (the same amount as of December 31, 2004), relate to mortgages, liens and privileges granted to banks in connection with loans. At December 31, 2005,2006, the underlying commitment covered by such guarantees was euro 2,9382,470 million (euro 3,5002,938 million at December 31, 2004)2005). Other guarantees given on behalf of third parties of euro 104131 million (euro 239104 million at December 31, 2004)2005) consist primarily of guarantees given by Eni SpA to banks and other financing institutions in relation to loans and lines of credit for euro 9287 million on behalf of minor investments or companies sold (euro 16092 million at December 31, 2004)2005). At December 31, 20052006 the underlying commitment covered by such guarantees was euro 75121 million (euro 10375 million at December 31, 2004)2005). Commitments and contingencies Commitments and contingencies of euro 1,6551,545 million (euro 1,6201,655 million at December 31, 2004) consisted2005) consist of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Commitments             Purchase of assets   200     219   Sale of assets   124         Other   319     220       643     439   Risks   977     1,216       1,620     1,655   Commitments         Purchase of assets   219   9 Other   220   207     439   216 Risks   1,216   1,329     1,655   1,545 F-52 Obligations for purchases and sales of assets of euro 2199 million (euro 324 million at December 31, 2004) concern securities fordecreased by euro 116 million (euro 183 million at December 31, 2004) and investments for euro 103 million (euro 141 million at December 31, 2004). Obligations relating to marketable securities concern210 million. Such decrease was due to: (i) the extinguishment of the placement on the market of securities managed by Sofid Sim SpA. This company sold Italian Government bonds to investors primarily employees, and simultaneously entered into interest rate swaps with such investors wherein it received the rate of interest on such Italian Government bonds and paid a floating rate of interest linked to Euribor. Such investors could sell their securities back to Sofid Sim SpA at any time at par value plus related interest with the simultaneous cancellation of the related swaps. Against the commitment related to interest rate swaps Sofid Sim SpA entered into derivatives for which Sofid Sim SpA receives a variable rate more profitable than the one renown by the shareholders.(euro 116 million). The operation ended on January 1, 2006 following the expiry of the government bonds. The decrease in obligations related to investments of euro 38 million primarily concerns the exercise by Erg SpA of a call option for the purchase of a 28% shares of Erg Raffinerie Mediterranee SpA (euro 100 million)bonds; and the expiry of obligations for purchases and sales of the shares of Nuovo Pignone SpA following the sale of the investment (euro 31 million); such decrease was partially offset by the obligation assumed by Eni SpA related(ii) to the acquisition from ESPI - Ente Siciliano per la Promozione Industriale (in liquidation) of 50% of the capital share of Siciliana Gas SpA and 1 share of Siciliana Gas Vendite SpA (euro 98 million). Other commitments of euro 220207 million (euro 319220 million at December 31, 2004)2005) are essentially related to a memorandum of intent signed with the Basilicata Region, whereby Eni has agreed to invest, also on account of Shell Italia E&P SpA, euro 193181 million in the future in connection with Eni’s development plan of oil fields in Val d’Agri (euro 206193 million at December 31, 2004)2005). The agreements between Syndial SpA and various government entities, employee and trade groups whereby Syndial SpA, in order to further develop the chemical segment and protect the environment with respect to the Porto Marghera plant Risks of euro 901,329 million (euro 1,216 million at December 31, 2004, expired following the subscription of a new agreement that determined a specific provision. Risks of euro 1,216 million (euro 977 million at December 31, 2004)2005) primarily concern potential risks associated with the value of assets of third parties under the custody of Eni for euro 794918 million (euro 551794 million at December 31, 2004)2005) and contractual assurances given to acquirorsacquirers of certain investments and businesses of Eni for euro 402393 million (euro 406402 million at December 31, 2004)2005). Management of risksRisk management Foreword The main risks identified and managed by Eni wereare the following: (i)   market risks deriving from the exposure to the fluctuations of interest rates, of exchange rates between the euro and the U.S. dollar and the other currencies used by the Company,company, as wellswell as the volatility of commodity prices; (ii)   the credit risk deriving from the possible default of a counterparty; (iii)   the liquidity risk deriving from the lackrisk that suitable sources of financial resources to face short time commitments;funding for the Group’s business activities may not be available; (iv) country risk in oil & gas activities; (v)   the operation risk deriving from the occurrence of accidents, malfunctioning, failures with damage to persons and the environment affecting operating and financial results; and (v) country risk in oil & gas activities.results. Market risk Market risks includerisk is the possibility that changes in currency exchange rate risk,rates, interest rate riskrates or oil, natural gas and commodity risk.power prices will adversely affect the value of the group’s financial assets, liabilities or expected future cash flows. Their management follows a set of guidelines and procedures that concentrate the treasury function in two captive finance companies operating in the Italian and international financial markets. In particular, the financialfinance company operating on the domestic market (Enifin) manages all the transactions concerning currency exchangecurrencies and derivatives. Thederivative financial contracts. Commodity risk of commodity prices is managed by each business unit while Enifin manages the negotiation of hedging derivatives. Starting on January 1, 2007, this task is being performed by Eni SpA following the incorporation of Enifin. In order to minimize market riskrisks related to changes in interest rates and exchange rates and to manage exposure to commodity prices fluctuations, Eni enters into various transactions using derivative financial and commodity hedginginstruments (derivatives). Derivatives are contracts forwhose value is derived from one or more underlying financial instrument, index or price that are defined in the purpose of reducing its exposure to market risk.contract. The Group also trades derivatives in conjunction with these risk management activities. Eni does not enter into derivative transactions on a speculative basis. Eni’s Board of Directors hasThe control framework defined a policy that requires the Treasury Department of Eni SpA to determine the maximum level of foreign exchange rate and interest rate risks that can be assumed by Eni’s finance companies. Such policy also defines the eligible counterparties in derivative transactions. Eni’s Treasury Department is responsible for monitoring compliance with Eni’s policy, as well as the correlation between the indicators adopted for measuringguidelines prescribes that measurement and control of the tolerablemarket risk are to be performed on the basis of maximum acceptable levels of risk exposure defined in accordance with value-at-risk techniques. These techniques make a statistical assessment of the market risk, i.e. potential gain or loss in fair values. Eni’s guidelines prescribe that Eni’s subsidiaries use such market risk exposure policies as to minimize market risk. Tolerable market risk exposure is set at the Group level within the portfoliocentral finance department which pools all risk positions of financial instruments and market conditions. Eni’s operating subsidiaries are required to reduce foreign exchange rate risk to a minimum level by coordinating their operations with such finance companies. As far as interest rate and foreign exchange rate risks are concerned, the calculationGroup. Calculation and measurement techniques followed by Eni’s finance companiesEni are in accordance with established banking standards (such standards are established by the Basel Committee). However, the tolerable level of risk adopted by such companiesEni is more conservative than that defined by the Basel Committee.recommended one. F-53 Eni’s guidelines forprescribe that the managementexposure to risk from fluctuations in commodity prices is to be managed in a way as to maximize the value of commoditythe Group oil and gas production and sales volumes and to pursue set objectives of industrial margins. Risk exposure within trading activities is defined within maximum levels of value-at-risk attributed at each business unit, with the central function managing hedging request. Strategic risk contain maximum limits to the price risk deriving from trading activities. Directionsexposure is monitored in this area are entrusted toterms of value-at-risk, albeit being not hedged in a commodity risk assessment team, while the treasury department controls the respect of said limits and the development and updating of methodologies followed.systematic way. Exchange rate risk Exchange rate risk derives from the fact that Eni’s operations are conducted in currencies other than the euro (in particular the U.S. dollar) and bywith the time lag existing between the recording of costs and revenues denominated in currencies other than the functional currency and their realizationthe actual time of the relevant monetary transaction (transaction exchange rate risk). AnGenerally speaking, an appreciation of the U.S. dollar versus the euro generally has a positive impact on Eni’s results of operations.operations, and vice versa. Effective management of exchange rate risk is performed at the Group level, within the central finance department which matches contrarian positions of the Group operating subsidiaries and hedges net positions using derivatives (such as currency swaps, forwards and options). Such derivatives are recognized at fair value on the basis of market prices provided from specialized sources. Value-at-risk deriving from currency exposure is measured daily on the basis of a variance/covariance model, with a 99% confidence level and a 20-day holding period. The transaction currency risk on certain strategic holdings is deemed to be immaterial. Interest rate risk Variations in interest rates affect the market value of financial assets and liabilities of the company and its net borrowings.the level of financial changes. Eni uses interest rate derivatives; such interest rate swaps and interest cross currency swaps are used to effectively manage the balance between fixed and floating rate debt. Such derivatives are recognized at fair value on the basis of market prices provided from specialized sources. Value-at-risk deriving from interest rate exposure is measured daily on the basis of a variance/covariance model, with a 99% confidence level and a 20-day holding period. Commodity risk Eni’s results of operations are affected by changes in the prices of products and services sold.commodities. A decrease in oil, gas and product prices generally has a negative impact on Eni’s results of operations, and vice versa. In order to hedge commodity risk, Eni uses derivatives traded on the organized markets of ICE and NYMEX (futures and options) and derivatives traded over-the-counter (swaps, forwards and contracts for differences, with the underlying commodities being crude oil, refined products or electricity). Such derivatives are recognized at fair value on the basis of market prices provided from specialized sources or absent market prices, on the basis of estimates provided by brokers or suitable evaluation techniques. Value-at-risk deriving from commodity exposure is measured daily on the basis of a historical simulation technique, with a 95% confidence level and a one-day holding period. 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. Eni’s financial companies followThe monitoring activity of credit risk exposure is performed at the Group level according to set guidelines approved by Eni’s treasury departmentand measurement techniques. In particular credit risk exposure to large clients and multi-business clients is monitored at the Group level on the choicebasis of score cards quantifying risk levels. Eni’s guidelines define the characteristics of persons eligible to be counterparty of Eni in derivative contracts and cash management transactions. Eni constantly updates a list of eligible persons that includes highly credit-rated counterparties in their use of financial and commodity instruments, including derivatives.institutions. Eni has not experienced material non-performance by any counterparty. As of December 31, 2005 and December 31, 2006, Eni hadhas no significant concentrations ofat credit risk. Liquidity risk Liquidity risk is the risk that suitable sources of funding for the Group’s business activities may not be available. The Group has long-term debt ratings of AA and Aa2, assigned respectively by Standard & Poor’s and Moody’s. The Group has access to a wide range of funding at competitive rates through the capital markets and banks. Thebanks and coordinates relationships with banks, borrowing requirements, foreign exchange requirements and cash management centrally. At present, the Group believes it has access to sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements. Effective management of the liquidity risk has the objective of ensuring the availability of adequate funding to meet short-term requirements and due obligations as well as the objective of ensuring a sufficient level of flexibility in order to fund the development plans of the Group’s businesses. This implies the adoption of a strategy to pursue an adequate structure of borrowing facilities (particularly the availability of committed borrowings facilities) and the maintenance of cash reserves. F-54 Country risk Substantial portions of 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, 2006, approximately 70% of Eni’s proved hydrocarbons reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supplies comes from countries outside the EU and North America. In 2006, approximately 60% of Eni’s domestic supply of natural gas came from such countries. Negative developments in the economic and political framework of these countries can temporarily or permanently compromise Eni’s ability to operate economically and to gain access to oil and natural gas reserves. Eni constantly monitors the political, social and economic risk of the approximately 60 countries where it has invested or intends to invest with special attention to the evaluation of upstream investments. Country risks are mitigated by means of appropriate guidelines for risk management that Eni defined in its procedure for project risk assessment and management. Operation risksrisk Eni’s activities present industrial and environmental risks and are therefore subject to extensive government regulations concerning environmental protection and industrial security in most countries. For example, in Europe, Eni operates industrial plants such as refineries and petrochemical complexes that meet the criteria of the European Union Seveso II directive for classification as high risk sites. The broad scope of Eni’s activities involves a wide range of operational risks such as those of explosion, fire or leakage of toxic products, and production of non biodegradable waste. All these events could possibly damage or even destroy wells as well as relatedplants, facilities, equipment and other property, cause injury or even death to persons or cause environmental damage. In addition, since exploration and production activities may take place on sites that are ecologically sensitive (tropical forest, marine environment, etc.), each site requires a specific approach to minimize the impact on the related ecosystem, biodiversity and human health. Eni adopted the most stringent standardsguidelines for the evaluation and management of industrialhealth, safety and environmental (HSE) risks, complyingwith the objective of protecting Eni’s employees, contractors and clients, the populations involved in its activity, the environment and being in compliance with local and international rules and standards. Business units evaluate through specific proceduresregulations. Eni’s guidelines prescribe the related industrialadoption of international best practices in setting internal principles, standards and environmentalsolutions. An ongoing process for identifying, evaluating and managing HSE risks is at the heart of HSE operations in addition to taking account the regulatory requirementseach phase of the countries where these activitiesbusiness activity and is performed through the adoption of procedures tailored to the peculiarities of each business and industrial site. HSE risks are located. Since 2003, Eni has introduced a modeleffectively managed through an integrated management system designed along the principles set in Eni’s Model of management system,HSE operations. This is a general procedure to be applied in all its operating sites, based on an annual cycle of planning, implementation, control, review of results and definition of new objectives. The model is directed towards the prevention of risks theand a systematic monitoring and control of HSE performance in a continuous improvement cycle that is also subject also to audits by internal and independent experts. At December 31, 2005 six system audits had been performed and four are planned for 2006. Any environmental emergency is managed by business units locally with their own organization under preset reaction plans to foreseeable events aimed at limiting damage and at activating adequate responses. Eni has two emergency rooms (at(in Milan and Rome) providedfurnished with real time monitoring systems for the collection of data on georeferenced maps for all Eni sites and logistics worldwide. Meteorological equipment is in place to assess dimension, temporal development and other consequences of certain catastrophic events and to enable a real-time planning of first-aid interventions to help mitigate consequences. In addition to its own emergency teams, Eni entered agreements with international agenciesagreements in order to maximize its ability to react in all its operating sites. At year end 2005 Eni employed over 2,000 full time equivalent employees in HSE activities, prevention of environmental risk, safety and health. Country risk Substantial portions of Eni’s hydrocarbon reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American countries. At December 31, 2005, approximately 73% of Eni’s proved hydrocarbon reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supply comes from countries outside the EU and North America. In 2005, approximately 60% of Eni’s domestic supply of natural gas came from such countries. Negative developments in the economic and political framework of these countries can compromise temporarily or permanently Eni’s ability to operate economically and to have access to said reserves. Eni monitors constantly the political, social and economic risk of the approximately 100 countries where it invested or intends to invest with special attention to the evaluation of upstream investments. Country risks are mitigated by means of appropriate guidelines for risk management that Eni defined in its procedure for project risk assessment and management. Legal proceedingsProceedings 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 account of the existing risk provisions into account, Eni believes that the foregoing will not have an adversea material effect on Eni’s Consolidated Financial Statements. FollowingThe following is a description of the most significant proceedings currently pending; unless otherwise indicated below, no provisions have been made for these legal proceedings as Eni believes that negative outcomes are not probable or because the amount of the provision can not be estimated reliably. F-55 1. Environment 1.1 Criminal proceedings ENI SPA (i) Subsidence. In relation to the investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration and extraction activities, following the decision of the Court of Rovigo, the Nucleo Operativo Ecologico dei Carabinieri of Venice placed under preliminary seizure the Naomi/Pandora field and producing platform in 2002 and the Dosso degli Angeli field in 2004. Eni believes it has always acted in full compliance with existing laws under the required authorizations. Taking into account 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 and extraction activities, with the aim of verifying the size and 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. This commission produced a study which denies the possibility of any risk to human health or damage to the environment. It also states that no example is known anywhere in the world of accidents that caused harm to the public safety caused by subsidence induced by hydrocarbon production. The study also shows that Eni employs the most advanced techniques for the monitoring, measuring and control of the soil. This proceeding is in the first level hearing stage. The Veneto Region, the Ente Parco della Provincia del Po, the Province of Ferrara, the Province of Venice, the City of Venice, the City of Comacchio, the Province of Rovigo and two private entities have been acting as plaintiffs. Eni was accepted as a defendant in order to claim its own civil responsibilities before the Court of Rovigo. (ii) Alleged damage. In 2002, the public prosecutor of Gela started a criminal investigation in order to ascertain alleged damage caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (former EniChem SpA) and Raffineria di Gela SpA. (iii) Negligent fire in the refinery of Gela. In June 2002, in connection with a fire at the refinery of Gela, a criminal investigation began concerning negligent fire, environmental crimes and crimes against natural beauty. First degree proceedings ended with an acquittal sentence. (iv) Investigation of the quality of ground water in the area of the refinery of Gela. In 2002, the public prosecutor of Gela started a criminal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. Eni is charged with having breached environmental rules concerning the pollution of water and soil and of illegal disposal of liquid and solid waste materials. (v) Intentional poisoning (Priolo). In March 2002, the public prosecutor of Siracusa started an investigation concerning the activity of the refinery of Priolo in order to ascertain whether infiltrations of refinery products into the deep water-bearing stratum used for human consumption purposes in the Priolo area had occurred. The Court entrusted a company specialized in such field with the task of verifying the cause, origin and extension of the alleged infiltration. For protective purposes, remedial actions have been taken in order to: (i) create safety measures and clean-up of the polluted area; (ii) reallocate wells for drinking water in an area farther from and higher than the industrial site; and (iii) install a purification system for drinkable water. These actions are moving towards completion. (vi) Negligent fire (Priolo). The public prosecutor of Siracusa started an investigation against certain Eni managers who were previously in charge of conducting operations at Priolo refinery (Eni divested this asset in 2002) in order to ascertain whether they acted with negligence in connection with a fire that occurred at the Priolo plants on April 30 and May 1-2, 2006. After preliminary investigations the public prosecutor requested the opening of a proceeding against the mentioned managers for negligent behavior. ENIPOWER SPA (i) Unauthorized waste management activities. In 2004 the public prosecutor of Rovigo started an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to the samples of soil used during the construction of the new EniPower power station in Mantova. Following a preliminary hearing, the prosecutor requested the CEO of EniPower and the managing director of the Mantova plant at the time of the alleged crime to stand trial. (ii) Air emissions. The Prosecutor of Mantova started an investigation against two managers of the Mantova plant in connection with air emissions by the new power plant. POLIMERI EUROPA SPA Violation of environmental regulations on waste management. Before the Court of Gela a criminal action took place relating to the alleged violation of environmental regulations on waste management concerning the ACN plant and the disposal of FOK residue deriving from the steam cracking process. Eni and the other defendants were found guilty and a damage payment was required to be made to the environmental association acting as plaintiff was required to be made. The amount of said damage payment is immaterial. The sentence was passed to the Civil Court for the quantification of any further damage and claim. Eni has appealed the Court’s sentence and the appeal is ongoing. F-56 RAFFINERIA DI GELA SPA Soil and sea pollution.In 1999, the public prosecutor of Gela started an investigation in order to ascertain alleged soil and sea pollution caused by the discharge of pollutants by Eni’s Gela refinery. In November 2002, "Italia Nostra" and the association "Amici della Terra" filed civil claims related to this proceeding and requested the payment of damage claims for a total of euro 15,050 million. In July 2003, the relevant Court decided for the transmission of the inquiries to the public prosecutor, recognizing a violation of Article 440 of the penal code (water and food substances corruption). Three environmental organizations actare acting as plaintiffs and have requested damage payment for euro 551 million. TwoWith a Decision of February 20, 2007, the Court of Gela dismissed these organizations are also acting againstallegations. SYNDIAL SPA (FORMER ENICHEM SPA) Criminal action started by the Gela refinery. public prosecutor of Brindisi.In 2000, the public prosecutor of Gela started an investigation on alleged prohibited emissions from the refinery of Gela, which are purported to have had negative effects on the health of a number of citizens of Gela, and on a lack of declaration of such emissions in violation of Presidential Decree No. 203 of 1988. The investigation ended with an action for events that have occurred since 1997. The Municipality of Gela, the Province of Caltanissetta and others filed civil claims in this proceeding and requested the payment of compensatory damages for a total of euro 878 million. The judgment of first degree before the Court of Gela is pending. In 2002, the public prosecutor of Gela started an investigation in order to ascertain alleged pollution caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (former EniChem SpA) and Raffineria di Gela SpA. Some local public entities, environmental NGOs and landowners are acting as plaintiffs. On January 17, 2005, a second inquiry phase aimed at ascertaining which sort of emissions had eventually produced the alleged pollution caused by the refinery of Gela, was completed. On February 3, 2006 the notice of the conclusion of preliminary investigations was filed conclusion of the preliminary inquiry. In June 2002, in connection with a fire in the refinery of Gela, a criminal investigation began concerning arson, environmental crimes and crimes against natural heritage. On May 12, 2004 the first hearing was held. In 2002, the public prosecutor of Gela started a penal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. The investigation concerns the environmental rules about the pollution of water and soil and illegal disposal of liquid and solid waste materials. On November 7, 2003 the judge for preliminary investigations accepted to continue the inquiries as requested by the public prosecutor to ascertain the state of the refinery’s storage tanks and the presence of infiltrations of refinery products into the deep water-bearing stratum, due to a breakage in some tanks. With a decision of November 3, 2003, the Court for preliminary investigation, in agreement with a request of the public prosecutor of Gela, ordered the preventive seizure of 92 storage tanks, later reopened except for nine tanks that remained under seizure but do not prevent full operations at the refinery. The report filed by experts of the public prosecutor is currently under review. In March 2002 the public prosecutor of Siracusa started an investigation concerning the activity of the refinery of Priolo for intentional pollution of water used for human consumption and requested a technical opinion, not yet concluded, to ascertain alleged infiltrations of refinery products into the deep water-bearing stratum used for human consumption purposes in the Priolo area. The proceeding is still in the preliminary investigation phase. A qualified company has been given the task to verify the cause, the origin and the extension of the alleged infiltration. For protective purposes, actions have been taken to: (i) create safety measures and clean-up all of the polluted area; (ii) reallocate wells for drinking water in an area farther from and higher than the industrial site; and (iii) install a purification system for drinkable water. With a decision of June 1, 2004 the seizure was lifted on the storage tanks that had been seized on April 17, 2003, except for five storage tanks that are still under seizure. The report of experts has been filed and its findings can be opposed to defendants. In relation to the investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration, on May 21, 2004, following the decision of the Court of Rovigo, the Nucleo Operativo Ecologico dei Carabinieri of Venice placed under preliminary seizure the Dosso degli Angeli, Angela/Angelina - Ravenna Mare Sud fields and the related wells and platforms. On June 10, 2004 the Court responded to the claim filed by Eni and lifted the seizure of the Angela/Angelina - Ravenna Mare Sud fields and related wells and platforms. On March 10, 2005, the Court of Cassation confirmed this decision. On February 5, 2003, a seizure had already been applied to the Naomi/Pandora platform, the Naomi 4 Dir, Naomi 2 Dir and 3 Dir - Pandora 2 Dir wells, and the underwater pipeline for the transportation of gas to the Casalborsetti facility. Eni believes it has always acted in full compliance with existing laws under the required authorizations. Taking account of the observations of the consultants of the Court of Rovigo on which the Public Prosecutor based his case, Eni constituted an independent and interdisciplinary scientific commission, chaired by Prof. Enzo Boschi, professor of seismology at the Università degli Studi di Bologna and chairman of the Istituto nazionale di geofisica e vulcanologia, composed of prominent and highly qualified international experts of subsidence caused by hydrocarbon exploration, with the aim of verifying the size and the effects and any appropriate actions to reduce or to neutralize any subsidence phenomenon in the Ravenna and North Adriatic area both on land and in the sea. The commission produced a study which denies the possibility for any risk for human health and for damage to the environment. It also states that no example is known anywhere in the world of accidents that caused harm to the public safety caused by subsidence induced by hydrocarbon production. The study also shows that Eni employs the most advanced techniques for the monitoring, measuring and control of the soil. On May 11, 2006 the Court of Rovigo accepted as plaintiffs the Veneto Region, the Ente Parco della Provincia del Po, the Ferrara Province, the Venice Province, the city of Venice, the city of Comacchio, the Rovigo Province and two private entities. Eni was accepted as a defendant. The Court of Rovigo rejected the accusation of environmental disaster and therefore transferred the proceeding to the Court of Adria, where the first hearing has been scheduled for October 31, 2006. ENIPOWER SPA In autumn 2004 the Public Prosecutor of Rovigo started an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to samples of the soil used in the construction of the new EniPower’s power station in Mantova. EniPower requested the closing of the investigation. POLIMERI EUROPA SPA Before the Court of Gela one criminal action took place relation to the alleged violation on part of Eni of environmental regulations on waste management concerning the ACN plant and the disposal of FOK residue deriving from the steam cracking process. The defendant was found guilty and a damage payment in first instance was recognized to an environmental association acting as plaintiff. The sentence was passed to the civil court for the quantification of any further damage and claim. Eni appealed the Court’s decision. SYNDIAL SPA (FORMER ENICHEM SPA) In 1992, the Ministry of Environment summoned EniChem SpA and Montecatini SpA before the Court of Brescia. The Ministry requested, primarily, to require environmental remediation for the alleged pollution caused by the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, require them to pay environmental damages. The amount is going to be determined during the proceeding, but it will not be lower than euro 136 million, or determined by the judge as compensatory liquidation. EniChem acquired the Mantova plant in June 1989, as part of the Enimont deal. Edison SpA must hold Eni harmless or pay compensatory damage for any damage caused to third parties by plant operations before Montedison’s sale, even if the damage occurred later. Edison agreed on a settlement that quantified damage to be paid covering also Syndial. The proceeding continues for the alleged damage in the 1989-1990 period. In 2000, the Public Prosecutor of Brindisi started a criminal action against 68 persons who are employees or former employees of companies that owned and managed plants for the manufacture of dichloroethane, vinyl chloride monomer and vinyl polychloride from the early 1960s to date, some of which were managed by EniChem from 1983 to 1993. At the end of the preliminary investigation, phase, the Public Prosecutorpublic prosecutor asked for the dismissal of the case in respect of the employees and the managers of EniChem. Plaintiffs presented oppositions whileand the prosecutor confirmed his request for dismissal of the case.case, rejecting such oppositions. On December 18, 2002 EniChem SpA, jointly with Ambiente SpA (now merged in Syndial SpA)1.2 Civil and administrative proceedings (i) Pollution caused by the activity of the Mantova plant. In 1992, the Ministry of Environment summoned EniChem SpA and Montecatini SpA before the Court of Brescia. The Ministry requested, primarily, environmental remediation for the alleged pollution caused by the activity of the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, the payment of environmental damages. EniChem acquired the Mantova plant in June 1989, as part of the Enimont deal. The parties agreed upon that Edison SpA would hold Eni harmless or pay compensatory damage for any damage caused to third parties by plant operations before Montedison’s sale, even if damage would manifest itself later. Parties agreed on a settlement by which Edison quantified the damage to be paid that also covers Syndial. The proceeding continues for the settlement of alleged damage pertaining to the residual 1989-1990 period. (ii) Summon before the Court of Venice for environmental damages caused to the lagoon of Venice by the Porto Marghera plants. On December 13, 2002, EniChem SpA, jointly with Ambiente SpA (now merged into Syndial SpA) and European Vinyls Corporation Italia SpA, was summoned before the Court of Venice by the Province of Venice. The province requested compensation for environmental damages that were not quantified, caused to the lagoon of Venice by the Porto Marghera plants, which were already the subject of two previous criminal proceedings against employees and managers of the defendants. In a related action, European Vinyls Corporation Italia presented an action for recourse against EniChem and Ambiente. At the same time, Ineos Italia presented an action for recourse against Syndial, as successor of Ambiente. Parties are waiting for the decision on the instances of the preliminary investigation. (iii) Claim of environmental damages, caused by industrial activities in the area of Crotone, commenced by the President of the Regional Council of Calabria. On April 14, 2003, the President of the Regional Council of Calabria, as Delegated Commissioner for Environmental Emergency in the Calabria Region, started an action against EniChem SpA related to environmental damages for approximately euro 129 million and damages for euro 250 million (plus interest and compensation) in connection with loss of income and damage to property allegedly caused by Pertusola Sud SpA activities (merged into EniChem) in the area of Crotone. In addition, the Province of Crotone is acting as plaintiff, claiming environmental damages of euro 300 million. The judge has yet to decide on the legitimacy of the Delegated Commissioner for Environmental Emergency in the Calabria Region to act on behalf of the Calabria Region. On October 21, 2004, Syndial was convened before the Court of Milan by the Calabria Region which is seeking to obtain a condemnation of Syndial for a damage payment, should the office of the Delegated Commissioner for Environmental Emergency in the Calabria Region cease during this proceeding. The Calabria Region requested a damage payment amounting to euro 800 million as already requested by the Delegated Commissioner for environmental emergency in the Calabria Region in the proceeding started in 2003. This new proceeding is in the preliminary investigation stage, and will only proceed if the above action ceases. In 2006, the Council of Ministers, Ministry for the Environment and Delegated Commissioner for environmental emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan in order to obtain the ascertainment, quantification and payment of damage (in the form of land, air and water pollution and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the Municipality of Crotone and in surrounding municipalities. The local authorities requested the ascertainment of Syndial’s responsibility as concerns expenses borne and to be borne for the cleanup and reclamation of sites, currently quantified at euro 129 million. This proceeding concerns the same matter and damage claim as the proceedings started by the Delegated Commissioner for environmental emergency in the Calabria Region and the Calabria Region against Syndial in 2003 and 2004, respectively. The State Attorney quantified the damage payment in a total of euro 1,920 million. F-57 (iv) Summon for environmental damage caused by DDT pollution in the Lake Maggiore. A proceeding is pending before the Court of Turin by which the Minister of the Environment summoned Syndial SpA and requested environmental damage for euro 2,396 million in relation to alleged DDT pollution at Lake Maggiore caused by the Pieve Vergonte plant. On March 1, 2006, the State Lawyer in an attempt to settle the case proposed that Syndial would pay 10% of this claim corresponding to euro 239 million. This settlement attempt failed. The Italian Ministry enacted a ministerial decree providing for the: (i) upgrading of a hydraulic barrier to protect the site; and (ii) presentation of a project for the environmental remediation of Lake Maggiore. Syndial opposed this decree before an Administrative Court. (v) Action started by the Municipality of Carrara for the remediation and reestablishment of previous environmental conditions at the Avenza site and payment of the environmental damage. The Municipality of Carrara started an action before the Court of Genova requesting Syndial SpA to remediate and reestablish previous environmental conditions at the Avenza site and for payment for certain environmental damage which cannot be cleaned up plus further damage of various genre (i.e. damage to the natural beauty of this site). This request is related to an accident that occurred in 1984, as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), at the time owner of the site, carried out safety and remediation works. The Ministry of the Environment joined the action and requested environmental damage payment – from a minimum of euro 53.5 million to a maximum of euro 93.3 million – to be broken down among the various companies that ran the plant in the past. In fact, Syndial summoned Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA, who ran the plant in previous years, in order to be guaranteed. A report made by an independent expert charged by the Judge was filed with the Court. The findings of this report quantify the residual environmental damage at euro 15 million. A final decision on this proceeding is pending. (vi) Ministry for the Environment - Augusta harbor. The Italian Ministry for the Environment with various administrative acts ordered companies running plants in the petrochemical site of Priolo to perform safety and environmental remediation works in the Augusta harbor. Companies involved include Eni subsidiaries Polimeri Europa and Syndial. Pollution has been detected in this area primarily due to a high mercury concentration which is allegedly attributed to the industrial activity of the Priolo petrochemical site. Polimeri Europa opposed said administrative acts, objecting in particular to the way in which remediation works have been designed and information on concentration of pollutants has been gathered. 2. Other judicial or arbitration proceedings ENI SPA Fintermica presented a claim towards Eni concerning the Court of Venice by the Province of Venice. The province requested compensation for environmental damages, not quantified, caused to the lagoon of Venice by the Porto Marghera plants, which were already the subject of two previous proceedings against employees and managers. In a related action, European Vinyls Corporation Italia presented an action for recourse against EniChem and Ambiente. The requests for damagemanagement of the ProvinceJacorossi joint venture with reference to an alleged abuse of Venicekey roles played by Eni SpA in the joint venture thus damaging the other partner’s interest and the alleged dilatory behavior of Syndial in selling its interest in the joint venture to Fintermica. The parties decided to start an arbitration on the matter. SYNDIAL SPA (FORMER ENICHEM SPA) (i) Serfactoring: disposal of receivables. In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA which is controlled by Eni SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment on the due date. Following payment by Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidator of Agrifactoring commenced proceedings in 1991 against Serfactoring to recover such payments (equal to euro 182 million) made to Serfactoring based on the claim that the foregoing guarantee became invalid when Federconsorzi was itself placed in liquidation. Agricoltura and Terni Industrie Chimiche brought counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent. F-58 The amount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004; the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be determined following the decision. Agrifactoring appealed this partial decision, requesting in particular the annulment of the first step judgment, the reimbursement of euro 180 million from Serfactoring along with the rejection of all its claims and the payment of all proceeding expenses. The pending appeal was sent to the Judging Council for the filing of evidence. The judge of the Court of Rome, responsible for the determination of the amount of damages to be paid to Serfactoring and Agricoltura decided on May 18, 2005 to suspend this determination until the publication of the decision of the Court of Appeals. On argument, Serfactoring and Syndial requested that the Court of Cassation cancel the suspension and return the case to its original court. (ii) Breach of a preliminary agreement for the purchase of an industrial area in Ravenna. In 2002, EniChem SpA was summoned by ICR Intermedi Chimici di Ravenna Srl before the Court of Milan in relation to a breach of a preliminary agreement for the purchase of an industrial area in Ravenna. ICR requested payment of compensatory damage for approximately euro 46 million, of which euro 3 million are compensatory damage and euro 43 million are for loss of income. With a sentence of October 11, 2005, the Court rejected ICR’s request and ordered that ICR pay all proceeding expenses. ICR filed a claim against this decision, reducing its original claim to euro 8 million. A final decision is pending. 3. Antitrust, EU Proceedings, Actions of the Italian Authority for Electricity and Gas and of Other Regulatory Authorities 3.1 Antitrust ENI SPA (i) Abuse of dominant position of Snam verified by the Italian Antitrust Authority. In March 1999, the Italian Antitrust Authority concluded its investigation started in 1997 and: (i) verified that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam euro 2 million; and (iii) ordered a review of these practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Authority did not appeal this decision. The decision on the merit of this dispute is still pending before the same Administrative Court. (ii) Inquiry of the Italian Antitrust Authority on jet fuel. With a decision of December 9, 2004, the Italian Antitrust Authority commenced an inquiry on the distribution of jet fuel against six oil companies operating in Italy, including Eni and certain entities jointly controlled by said oil companies engaged in the storing and loading jet fuel in the Rome Fiumicino, Milan Linate and Milan Malpensa airports. The inquiry intends to ascertain the existence of alleged restrictions on competition as said oil companies would agree to divide among themselves the supplies to airlines. On December 22, 2005, the Authority notified the preliminary results of the inquiry concerning: (i) information flows to said oil companies related to the functioning of the jointly-controlled entities engaging in the storage and uploading of jet fuel; (ii) barriers to the entrance of new competitors in the capital of such entities operating the activities of storing and loading; and (iii) the price of jet fuel which is deemed to be higher than on other European markets. On June 20, 2006, the Authority notified the final decision of this proceeding to Eni and fined Eni by an amount of euro 117 million. The Authority fined other oil companies involved in this matter. Eni filed an opposition against this decision before an administrative court and suspended the payment of this fine. On January 29, 2007, the Regional Administrative Court of Lazio accepted in part the opposition made by Eni and annulled part of the decision of the Authority. In particular, a measure providing for the involved oil companies to cease their joint participation in the capital of the entities operating the activities of storing and loading jet fuel was annulled. Eni accrued a provision with respect to this proceeding. As a consequence of this decision, Eni paid a fine amounting to euro 117 million. Eni decided to appoint independent directors in the boards of directors of joint ventures instead of Eni managers. (iii) Formal assessment started by the Commission of the European Communities for the evaluation of alleged participation to activities limiting competition in the field of paraffin. On April 28, 2005, the Commission of the European Communities started a formal assessment to evaluate the alleged participation of Eni and its subsidiaries to activities limiting competition in the field of paraffin. The alleged violation of competition would have consisted in: (i) the determination of and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. The Commission has requested information on Eni’s activities in the field of paraffins and certain documentation acquired by the Commission during an inspection. Eni filed the requested information. F-59 (iv) Notification to Eni Petroleum Co Inc of a subpoena by the Department of Justice of the United States of America - Antitrust Division and request of information and documents relating to activities in the field of wax and of a deposition. On April 28, 2005, the Department of Justice of the United States of America - Antitrust Division, notified Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005 and a deposition on the same date. The Company informed the department that it does not produce nor import wax in the United States of America. (v) Inquiry started by the Italian Antitrust Authority concerning an alleged abuse of dominant position in the use of the total continuous regasification capacity of GNL. On November 18, 2005, the Italian Antitrust Authority notified Eni and its subsidiary GNL Italia of the opening of an inquiry, in accordance with Article 14 of Law No. 287/1990, concerning an alleged abuse of dominant position in the assignment and use of the total continuous regasification capacity of the Panigaglia terminal (owned by GNL Italia) during thermal years 2002-2003 and 2003-2004, as already reported by an inquiry of the Italian Authority for Electricity and Gas on the same matter as the inquiry of the Antitrust Authority. The Authority for Electricity and Gas closed its inquiry by signaling the fact to the Antitrust Authority. In a later communication Eni was informed that the inquiry has been extended also to thermal year 2004-2005 and to Snam Rete Gas which is the parent company of GNL Italia SpA. On September 25, 2006, the Antitrust Authority sent Eni the findings of its inquiry. After, Eni presented the Antitrust Authority certain commitments based on Article 14-ter of Law No. 287/1990. On November 23, 2006, the Antitrust Authority resolved to publish such commitments effective the following day. On March 6, 2007, the Antitrust Authority resolved to accept Eni’s commitments and to close the inquiry without recognizing any charge to Eni and imposing any fine whatsoever. Eni is committed to perform a gas release amounting to 4 billion cubic meters in a two-year period, starting on October 1, 2007. Eni is implementing its obligations under the gas release agreement, while providing timely information on it to the Antitrust Authority. (vi) Ascertainment by the European Commission of the level of competition in the European natural gas market. As part of its activities to ascertain the level of competition in the European natural gas market, with Decision No. C(2006)1920/1 of May 5, 2006, the European Commission informed Eni on May 16, 2006 that Eni and its subsidiaries were subject to an inquiry under Article 20, paragraph 4 of the European Regulation No. 1/2003 of the Council to verify the possible existence of any business conduct breaching European rules in terms of competition which was intended to prevent access to the Italian natural gas wholesale market and to subdivide the market among few operators in the activity of supply and transport of natural gas. Officials from the European Commission conducted inspections at the headquarters of Eni and of certain Eni subsidiaries and collected documents. Similar actions have also been performed by the Commission against the main operators in natural gas in Germany, France, Austria and Belgium. In April 2007, the European Commission made known its decision to start a further stage of inquiry, as elements collected so far induced the suspicion that Eni adopted behaviors leading to "capacity hoarding and strategic underinvestment in the transmission system leading to the foreclosure of competitors and harm for competition and customers in one or more supply markets in Italy". In the same documents, the Commission states that "It is important to note that the initiation of proceedings does not imply that the Commission has conclusive proof of an infringement. It only signifies that the Commission will conduct an in-depth investigation of the case as a matter of priority". (vii) TTPC. In April 2006, Eni filed a claim before the Regional Administrative Court of Lazio against the decision of the Italian Antitrust Authority of February 15, 2006 which stated that Eni’s behavior pertaining to implementations of plans for the upgrading of the TTPC pipeline for importing natural gas from Algeria represented an abuse of dominant position under Article 82 of the European Treaty and fined Eni. The initial fine amounted to euro 390 million and was reduced to euro 290 million in consideration of Eni’s commitment to perform actions favoring competition including the upgrading of said gasline. Eni accrued a provision with respect to this proceeding. With a decision filed on November 29, 2006, the Regional Administrative Court of Lazio partially accepted Eni’s claim, annulling such part of the Authority’s decision where the fine was quantified. Eni is waiting for the filing of the motivations of the Court decision to ascertain the impact of said decision. Pending this development, the payment of the fine has been voluntarily suspended. In 2007, the Regional Administrative Court of Lazio accepted in part Eni’s claim and cancelled the quantification of the fine based on the Antitrust Authority’s inadequate evaluation of the circumstances presented by Eni. Eni intends to file an appeal with the Council of State. Pending the final outcome, Eni awaits for the determination of the amount of the fine. (viii) Inquiry of the Italian Antitrust Authority in relation to collusive mechanisms for the pricing of automotive fuels distributed on the retail market. With decision of January 18, 2007, the Italian Antitrust Authority opened an inquiry to ascertain the existence of a possible agreement to limit competition in the field of pricing of automotive fuels distributed on the retail market in Italy in violation of Article 81 of the EC Treaty. This inquiry concerns eight oil companies, including Eni. According to the Authority, said companies would have been putting in place collusive mechanisms intended to influence the pricing of automotive fuels distributed on the retail market by way of a continuing exchange of informative flows since 2004. In April 2007, Eni filed with the Italian Antitrust Authority a proposal of initiatives, based on a decision of the same Authority that allows companies to reach the closure of a proceeding without sanctions or fines when they present counteractive measures. F-60 POLIMERI EUROPA SPA AND SYNDIAL SPA Inquiries in relation to alleged anti-competitive agreements in the area of elastomers. In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the area of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. The first product under scrutiny was EP(D)M: the European Commission submitted to inspection the manufacturing companies of that of EVC Italia to EniChem and Ambiente have not been quantified. The final judgment is pending. On January 16, 2003 the Court of Siracusa issued personal cautionary measures against some employees of EniChemproduct, including Polimeri Europa SpA and Polimeri EuropaSyndial, and requested information from those two companies and their parent company, Eni SpA. They are accusedAfter the inquiries the Commission decided to open a procedure for violation of illicit management relating to the production, disposalcompetition laws and treatment of liquid and solid waste materials and of obtaining illicit income.notified Eni, Polimeri Europa and EniChem, will act as plaintiffs.Syndial the relevant charges on March 8, 2005. At a hearing held on July 27, 2005 the two companies presented memoranda and confirmed of their position. Eni and its subsidiaries are waiting for a decision on part of the European Commission. EP(D)M manufacture is also under scrutiny in the United States, where the Department of Justice of San Francisco requested information and documents from Polimeri Europa Americas Inc, a U.S. subsidiary of Polimeri Europa, and its deputy chairman and sales manager. Class actions were filed claiming damages in relation to the alleged violation. In July 2005, Syndial signed a settlement agreement for the civil class action which entails the payment of approximately $3.2 million, approved by the federal court. The collectioninvestigation was also extended to the following products: NBR, CR, BR, SSBR and SBR. The European Commission started an investigation regarding BR, SBR, SSBR. On January 26, 2005, the European Commission dropped the charges in relation to SSBR. Investigations regarding BR, SBR and EPDM led to the notification of evidence effectedrelevant charges. A hearing took place before the hearing starts in Court has been concluded and preliminary investigations have ended with the confirmation of accusations. During the inquiries traces of mercury were found in the sea. The Public Prosecutor of Siracusa started an inquiry for ascertaining the conditions of sediments and marine fauna in the bay of Augusta. According to the plaintiffs, mercury would have been spilled into the sea and poisoned the marine fauna and therefore resulted in fetal malformations and abortions due to the consumption of contaminated seafood fished in this area. The chlorine soda plant, built in the late 50s was conferred to Syndial in 1989 when the Enimont joint venture was formed. It was therefore easy to prove that Eni holds no responsibility for the crimes it was accused of.European Commission. On March 15,July 26, 2006, the judge for preliminary investigations decidedEuropean Commission notified the dismissal of the caseEPDM matter to Eni. Regarding the other two products BR and SBR, on November 29, 2006, the Commission fined a number of European operators, among which Eni, an amount of euro 519 million based on the charge of having established a trust in the field of synthetic rubber production. Eni and its subsidiary Polimeri Europa were fined by an overall amount of euro 272.25 million. Eni and its subsidiary have prepared claims against this decision before the first instance European Court in February 2007. Pending the outcome, Polimeri Europa presented a bank guarantee for euro 200 million and paid the residual amount of the fine. As concerns CR, Syndial and Polimeri Europa requested leniency, as provided for by EU laws, by providing information useful in the investigation. This request has not yet been accepted by the European Union. In March 2007, the Commission sent to Eni, Polimeri Europa and Syndial a statement of objections, thus opening the second phase of the proceeding for the alleged infringements from 1993 to 2002. Eni responded with a memorandum that repeated its request for leniency. A final hearing before the Commission is pending. With regard to NBR, an inquiry is underway in Europe and the U.S., where class actions have also been started. On the federal level, the class action was abandoned by the plaintiffs. The federal judge has yet to acknowledge this abandonment. With regard to CR, as part of an investigation carried out in the U.S., Syndial entered into a plea agreement with the Department of Justice pursuant to which Syndial would agree to pay a fine of $9 million, while the Department of Justice would agree that it will not bring further criminal charges against Syndial employees.or against its affiliated companies. On June 27, 2005 the plea agreement was approved. As regards CR, the civil class action was closed with a settlement agreement approved by the federal judge on July 8, 2005 whereby the company will pay $5 million. On April 14, 2003 the PresidentEni recorded a provision for these matters. 3.2 Regulation Inquiry of the Regional CouncilItalian Authority for Electricity and Gas regarding the use of Calabria, as Delegated Commissionerstorage capacity conferred in years 2004-2005 and 2005-2006. With Decision No. 37 of February 23, 2006, the Italian Authority for Environmental Emergency in the Calabria Region, startedElectricity and Gas commenced an action against EniChem SpA related to environmental damages for approximately euro 129 million and to financial and non-financial damages for euro 250 million (plus interest and compensation) allegedly caused by Pertusola Sud SpA (merged into EniChem) in the area of Crotone. On June 6, 2003 EniChem appeared before the court and requested the rejection of the damages and, as counterclaim, the payment of the total costs for the remediation works already underway. The Province of Crotone entered the proceeding, claiming environmental damages for euro 300 million. Technical aspects concerning the role of the delegated commissioner make it necessary to decideinquiry on this aspect. Syndial was notified on October 21, 2004 of the request of the Calabria Region to appear before the Court of Milana few natural gas selling companies, among which Eni, in order to obtainpossibly impose a preliminary damage payment,fine or an administrative sanction regarding the use of storage capacity conferred in anticipationyears 2004-2005 and 2005-2006. F-61 For the 2004-2005 thermal year and for the period from October 1, 2005 to December 31, 2005, the Authority for Electricity and Gas supposed that given the weather of the expirationperiod, the use of modulation storage capacity was featured by a higher volume of off takes with respect to the volume which would have been necessary to satisfy the commercial requirements for which the storage company entitled Eni to a priority in the conferral of storage capacity. According to the Authority for Electricity and Gas, such situation was in contrast with the applicable regulation. Eni presented memoranda to challenge the thesis of the special officeAuthority for managing emergency eventsElectricity and Gas regarding the alleged non compliance of Eni behavior with regulation in Calabria. The Region requested payments for over euro 800 million. On February 28, 2006force, also taking account of the Councilcircumstances under which excess off takes occurred and the subsequent authorization of Ministers, the Ministry for Economic Development to use the Environment and the Delegated Commissioner for environmental emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan in order to obtain the ascertainment, quantification and payment of damage (in the form of pollution of land, air and water and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the municipality of Crotone and in surrounding municipalities. The local authorities request the ascertainment of Syndial’s responsibility as concerns expenses borne and to be bornestrategic storage for the cleanup and reclamationthermal year 2004-2005. With Decision No. 281/2006 of sites, currently quantified at euro 129 million. This proceeding concerns the same company and damages as indicated in the previous paragraph. In March 2004, Sitindustrie SpA, which in 1996 purchased a plant in Paderno Dugnano from Enirisorse (now merged into Syndial SpA), summoned Syndial SpA before the Court of Milan, requesting to establish the responsibility of Syndial SpA in the alleged pollution of soils around the plant and to require it to pay environmental damages necessary for remediation. Syndial opposed the claim based on an absence of the right of action of the plaintiff. The judge has not yet decided on Syndial’s opposition. In October 2004, Sitindustrie SpA started an analogous proceeding against Syndial concerning the plant for the manufacture of products in copper and copper alloy at Pieve Vergonte. In May 2003 the Minister of the Environment summoned Syndial SpA before the Court of Turin and requested environmental damages for euro 2,396 million in relation to alleged DDT pollution in the Lake Maggiore caused by the Pieve Vergonte plant. On March 1,December 6, 2006, the State Lawyer in an attemptAuthority for Electricity and Gas closed said inquiry and fined Eni by euro 90 million of which euro 45 million pertaining to settle the case proposed that Syndial pay 10% ofthermal year 2004-2005 and euro 45 million to the requested damage corresponding to euro 239 million. This attempt to settle failed. The municipality of Carrara started an action at the Court of Genova requesting to Syndial SpA the remediation and reestablishment of the previous environmental conditions at the Avenza site and the payment of environmental damage. This request is related to an accident that occurred in 1984,thermal year 2005-2006 as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), atEni having violated regulation in force pertaining to the time ownerpriorities in the conferral of storage capacity. Eni paid the amount of this fine pertaining to the thermal year 2004-2005 in accordance to a reduced form as provided by Law No. 689/1981 and filed an appeal against Decision No. 281/2006 of the site, had carried out safetyAuthority for Electricity and remediation works. The MinistryGas before the Regional Administrative Court of Lombardia requesting the Tribunal: (i) for the first thermal year, to ascertain whether Eni is legitimate to pay in a reduced form or, in case Eni is not legitimate to do so, to annul the fine; and (ii) for the second thermal year, to annul the fine. Eni accrued a provision for this proceeding. DISTRIBUIDORA DE GAS CUYANA SA Formal investigation of the Environment joinedagency entrusted with the actionregulations for the natural gas market in Argentina ("Enargas"). The agency entrusted with the regulation of the natural gas market in Argentina ("Enargas") started a formal investigation on some operators, among these Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied calculated conversion factors to volumes of natural gas invoiced to customers and requested the environmentalcompany to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment – from a minimum of euro 53.5 million to a maximum of euro 78.5 million – toand fines that may be broken down amongdecided after closing the various companies that managed the plant in the past. Previous managers include Syndial, called into the action as a guarantor, Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA. The judge requested an expert report to be prepared in order to ascertain what damage has been remediated and what remains to be cleaned up after the interventions started by Agricoltura and continued by EniChem/Syndial. The expert report quantifies the damage still to be remediated in euro 15 million.investigation. Expert evaluations are being performed. 4. Tax Proceedings ENI SPA With a decree dated December 6, 2000, the Lombardia Region decided that natural gas used for electricity generation is subject to an additional regional excise tax in relation to which Snam SpA (merged into Eni SpA in 2002) should substitute for the tax authorities in its collection from customers. Given interpretive uncertainties, the same decree provides the terms within which distributing companies are expected to pay this excise tax without paying any penalty. Snam SpA and the other distributing companies of Eni believe that natural gas used for electricity generation is not subject to this additional excise tax. For this reason, an official interpretation was requested from the Ministry of Finance and Economy. With a decision of May 29, 2001, the Ministry confirmed that this additional excise tax cannot be applied. The Region decided not to revoke its decree and Snam took appropriate legal action. On the basis of action carried out by Snam, the Council of State decided on March 18, 2002 that the jurisdiction of the Administrative courtCourt did not apply to this case. In case the Region should request payment, Eni will challenge this request in the relevant Court. The Lombardia Region decided with regionalRegional Law No. 27/2001 that no additional tax is due from January 1, 2002 onwards, but still requested the payment of the additional taxes due before that date. The action for the recognition of such taxes bears a five-year term. Consequently, the exercise of such action expires on July 16, 2007. With a formal assessment presented by the municipalityMunicipality of Pineto (Teramo), Eni SpA has been accused of not having paid a municipal tax on real estate for the period from 1993 to 1998 on four oil platforms located in the Adriatic Sea territorial waters in front of the coast of Pineto. Eni has beenwas requested to pay a total of approximately euro 17 million also including interest and a fine for lacking payment and tax declaration. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application of the tax atas requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. But the Court of Cassation cancelled both judgments declaring that a municipality can consider requesting a tax on real estate also in the sea facing its territory and with a decision of February 21, 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the other reason opposedclaims put forward by Eni. On December 28, 2005, the municipalityMunicipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested tofrom Eni is of euro 24 million. Eni filed a claim against this request. AGIP KARACHAGANAK BV In July 2004 relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of the tax audits performed for fiscal years 2000 to 2003. Claims by the Kazakh authorities concern unpaid taxes for a total of $43 million, net to Eni, and the anticipated offsetting of VAT credits for $140 million, net to Eni, as well as the payment of interest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the original amounts were reduced to $26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding residual matters. Eni recorded a specific provision for this matter.F-62 SNAM RETE GAS SPA Environmental tax of Sicilia Region upon the owners of primary pipelines.With Regional Law No. 2 of March 26, 2002, the Sicilia Region introduced an environmental tax upon the owners of primary pipelines in Sicily (i.e. 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. With the ruling of December 20, 2002, the Court judged the tax at variance with European rules. In December 2002, Snam Rete Gas suspended payments based on the above Court ruling. Payments effected until November 2002 totaled euro 86.1 million. In January 2003, the Sicilia Region presentedfiled an appeal towith 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 withcontrary to European rules and withto the cooperation agreement between the European Economic Community and the Peoples’ Democratic Republic of Algeria; the European Commission also stated that such environmental tax is in contrast with the common customs tariff because it modifies the equality of customs expenses on commodities imported from third countries and could create a deviation in trade with such countries and a distortion in access and competition rules. The Commission with its opinion presented on July 7, 2004 formally requested Italy to cancel the tax. The Italian Government mustwas ordered to conform within two months from the receptionreceipt of the opinion. As it did not conform, on December 20, 2004 the European Commission passed the case to the Court of Justice requesting a ruling. Should the European Court of Justice rule in favor of Eni, this proceeding would come to an end and the Sicilia Region would be obliged to refund all installments paid. With a decision dated January 5, 2004, and confirmed on March 4, 2005 by the Regional Tax Commission, the Provincial Tax Commission of Palermo declared the environmental tax of the Sicilia Region illegitimate because it is in contrast withcontrary to European rules and therefore accepted Snam Rete Gas’s claim for the repayment of the first installment of euro 10.8 million, already paid in April 2002 to the Sicilia Region.Region in April 2002. On May 4, 2004, the Sicilia Region repaid the first installment. As for the seven remaining installments paid after April 2002 (euro 75.3 million), the Provincial Tax Commission of Palermo with decision of January 5, 2005 confirmed the illegitimacy of the tax condemning the Region to repay the cashed amounts paid and accrued interest accrued to Snam Rete Gas. TheAgainst the decision the Sicilia Region presented recourse to the Regional Tax Commission at Palermo, a hearing has been scheduled for April 5, 2006. On November 3, 2003,in 2005. In the Sicilia Region, following the procedure presented by Snam Rete Gas concerning the yearly liquidationfirst half of the tax for 2002, requested liquidation of tax, fines and interest (euro 14.2 million) relating to the unpaid December 2002 installment. On December 30, 2003 Snam Rete Gas filed a claim with request of suspension of payment as a result of the liquidation notice received from the Sicilia Region with the Provincial Tax Commission of Palermo, that, on June 25, 2004 accepted Snam Rete Gas’s claim and decided the cancellation of the liquidation notice served by the Sicilia Region, confirmed by2007 the Regional Tax Commission on March 7, 2005. confirmed the illegitimacy of the environmental tax. AGIP KARACHAGANAK BV Claims concerning unpaid taxes and relevant payment of interest and penalties. In any case Snam Rete Gas will not have to payJuly 2004, relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the tax: ifKarachaganak contract, respectively, of the final outcome of the tax is considered illegitimate in other Courts of law, the company will have the rightaudits performed for fiscal years 2000 to the restitution of the money. If, to the contrary, the tax is considered legitimate2003. Claims by the other Courts, the AuthorityKazakh authorities concern unpaid taxes for Electricity and Gas will include the tax (Decision No. 146/2002 and No. 71/2003) in tariff with automatic and retroactive effects. Other judicial or arbitration proceedings SYNDIAL SPA (FORMER ENICHEM SPA) - SERFACTORING SPA In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA which is controlled bytotal of $43 million, net to Eni, SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment at the due date. Following payment by Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidatoranticipated offsetting of Agrifactoring commenced proceedings in 1991 against SerfactoringVAT credits for $140 million, net 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 SpAEni, as agent. The amount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004: the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be determined following the decision. Agrifactoring appealed against this partial decision, requesting in particular the annulment of the first step judgement, the reimbursement of the euro 180 million amount from Serfactoring along with the rejection of all its claims andwell as the payment of all expenseinterest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the proceeding. The appeal pending was setoriginal amounts were reduced to be discussed$26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding residual matters. Eni recorded a provision for this matter. 5. Settled Proceedings RAFFINERIA DI GELA SPA With a sentence released in a hearing set for March 16, 2007 but was rescheduled for October 27,July 2006, upon request of Agrifactoring. The judge of the Court of Rome, responsible forGela ascertained that certain alleged crimes pertaining to the determinationemissions of the amountrefinery had become extinct due to the statute of damageslimitations. In relation to be paid to Serfactoring and Agricoltura decided on May 18, 2005 to suspend this determination until the publication of the decision ofsuch alleged crimes, the Court of Appeals, in accordance with Article 295Gela summoned the legal representatives of the Codecompany for events that have occurred since 1997. The Municipality of civil procedure. AgainstGela, the Province of Caltanissetta and others acted as plaintiff in this suspension Serfactoring and Syndial requested toproceeding, requesting the Court of Cassation the cancellation of the suspension and the return of the case to its original court. SYNDIAL SPA (FORMER ENICHEM SPA) In 2002, EniChem SpA was summoned by ICR Intermedi Chimici di Ravenna Srl before the Court of Milan in relation to a breach of a preliminary agreement for the purchase of an industrial area in Ravenna. ICR requested payment of compensatory damages for approximatelya total of euro 46 million,878 million. F-63 SYNDIAL SPA Personal cautionary measures against some employees of which euro 3 million are compensatory damages and euro 43 million are for loss of profits. During 2004 the preliminary inquiry was completed. With a judgment of October 11, 2005Priolo plant issued by the Court rejected ICR’s request and order that ICR pay all expenses. ICR filed a claimof Siracusa concerning illicit management relating to waste activities. On January 16, 2003, the Court of Siracusa issued personal cautionary measures against this decision. Antitrust, EU Proceedings, actionsseveral employees of the Authority for ElectricityPriolo plant owned by EniChem SpA and Gas and of other regulatory Authorities ENI SPA In March 1999, the Antitrust Authority concluded its investigation started in 1997 and: (i) verified that SnamPolimeri Europa SpA, (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gaswithin judicial investigations pertaining to an illicit management relating to the transportationproduction, disposal and distribution tariffs appliedtreatment of liquid and solid waste materials resulting in an illicit income from the savings arising from the non compliance with rules regulating waste activities. Polimeri Europa and EniChem acted as plaintiffs. Findings of the preliminary investigations were notified to third partiesinvolved persons, confirming accusations. During the preliminary investigations, traces of mercury were found in the sea. The public prosecutor of Siracusa started an inquiry for ascertaining the conditions of sediments and marine fauna in the bay of Augusta. According to the prosecutor, mercury was spilled into the sea and poisoned the marine fauna and therefore resulted in fetal malformations and abortions due to the consumption of contaminated seafood fished in this area. The chlorine soda plant, built in the late 1950s was contributed in-kind to Syndial in 1989 when the Enimont joint venture was formed. It was therefore proved that Eni’s employees held no responsibility for the crimes of which they were charged. On March 15, 2006, the judge for preliminary investigations decided the dismissal of the case against Syndial employees, accepting the request made by the prosecutor. SYNDIAL SPA (FORMER ENICHEM SPA) In 1997, an action was commenced before the Court of Venice concerning the criminal charges brought by the Venice public prosecutor for alleged mismanagement of the Porto Marghera plant starting in the 1970s until 1995 and for the alleged pollution and health damage resulting there from. Defendants included certain employees of Eni which have managed the Porto Marghera plant since the beginning of the eighties. On November 2, 2001, the Court of Venice acquitted all defendants. The appeal against the decision was presented by the public prosecutor, the state attorney on behalf of the Ministry of Environment and the accessCouncil of third partiesMinisters, five public entities, 12 associations and other entities and 48 individual persons. On December 15, 2004, the Venice Court of Appeals confirmed the preceding judgment, changing only some marginal parts. As concerns some defendants, the Venice Court of Appeals decided not to infrastructure; (ii) fined Snam euro 2 million; and (iii) ordered a reviewproceed due to the statute of these practices relating to such abuses. Snam believeslimitations for some crimes, while it has complied with existing legislation andconfirmed the preceding judgment for the other matters. On May 19, 2006, the Court of Final Instance, before which plaintiffs appealed the decision of the Venice Court of Appeals, acquitted all defendants stating that pollution and mismanagement of the plant occurred before the 1980s and consequently Eni and its employees could not be deemed responsible. In January 2006, Eni settled this matter with the Regional Administrative CourtCouncil of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991Ministers and the European Directive 98/30/EC, this Court grantedMinistry for the suspension of the decision. The Antitrust Authority did not appeal this decision. The decision on this dispute is still pending. With a decision of December 9, 2004, the Italian Antitrust Authority started an inquiry on the distribution of jet fuel against six Italian companies, including Eni and some of its subsidiaries, that store and load jet fuel in the Rome Fiumicino, Milan Linate and Milan Malpensa airports. The inquiry intends to ascertain the existence of alleged limitations to competition as oil companies would agree to divide among themselves the supplies to airlines. On December 22, 2005, the Authority notified the preliminary results of the inquiry concerning: (i) information flows to oil companies related to the functioning of shared storage and uploading companies; (ii) barriers to the entrance of new competitors; and (iii) the price of jet fuel is higher than on other European markets. On June 20, 2006, the Antitrust notified Eni the final decision of this proceeding and fined Eni byEnvironment, paying an amount of euro 11740 million. The Antitrust fined other oil companies involved in the matter. Eni is evaluating this decision in order to file a claim against it decision before an administrative court. On April 28, 2005 the CommissionUnder terms of the European Communities started a formal assessmentsettlement, the latter will abstain from recourse to evaluate the alleged participationCourt of EniFinal Instance and its subsidiaries to activities limiting competition inwill not act on any other environmental damage concerning the fieldmanagement of paraffin. The alleged violation of competition would have consisted in: (i)Porto Marghera until the determination of and increase in prices; (ii) the subdivision of customers; (iii) exchange of trade secrets, such as production capacity and sales volumes. On November 3, the Commission requested information on Eni’s activities in the field of paraffins. On November 29, 2005 Eni filed the requested information. On April 21, 2006 the Antitrust Authority requested information on the processing of raw paraffin, which Eni supplied in a letter dated May 25, 2006. The Department of Justicedate of the United States of America - Antitrust Division, notifiedsettlement. Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005. The Company informed the department that it does not produce nor import wax in the United States of America. POLIMERI EUROPA SPA AND SYNDIAL SPA In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the area of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. The first product under scrutiny was EP(D)M: the European Commission submitted to inspection the manufacturing companies of that product, among which Polimeri Europa SpA and Syndial and requested information from those two companies and to their controlling company, Eni SpA. After the inquiries the Commission decided to open a procedure for violation of competition laws and notified Eni, Polimeri Europa and Syndial the relevant charges to that effect on March 8, 2005. At a hearing held on July 27, 2005 the two companies presented memoranda and confirmed their position. The parties await for a decision of the Commission. EP(D)M manufacture is also under scrutiny in the United States, where the Department of Justice of San Francisco requested information and documents to Polimeri Europa Americas Inc, a U.S. subsidiary of Polimeri Europa and to its deputy chairman and sales manager. Class actions were filed claiming damages in relation to the alleged violation. In July 2005 Syndial signed a settlement agreement for the civil class action which entails the payment of approximately dollar 3.2 million, approved by the federal court. The investigation was also extended to the following products: NBR, CR, BR, SSBR and SBR. The European Commission started an investigation regarding BR, SBR, SSBR. On January 26, 2005 the Commission dropped the charges in relation to SSBR, while for the other two products the Commission started an infraction procedure by notifying Eni, Polimeri Europa and Syndial the relevant charges. The companies presented a written memorandum and the Commission decided to open an inquiry, as a consequence of which the Commission sent a new description of the charges. The companies are preparing a new memorandum. With regard to NBR an inquiry is underway in Europe and the USA, where class actions also have been started. The class action at federal level was abandoned by the plaintiffs. The federal judge acknowledged this abandonment. With regard to CR, as part of an investigation carried out in the USA, Syndial entered into a plea agreement with the Department of Justice pursuant to which Syndial would agree to pay a fine of U.S. dollar 9 million, while the Department of Justice would agree that it will not bring further criminal charges against Syndial or against its affiliate companies. On June 27, 2005 the plea agreement was approved. For CR the civil class action was closed with a settlement agreement approved by the federal judge on July 8, 2005 whereby the company will pay dollar 5 million. The European Commission requested Eni, Polimeri Europa and Syndial to provide information about CR. The two companies decided to cooperate with the Commission. Enialready recorded a provision for these matters. STOCCAGGI GAS ITALIA SPA 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 period starting on April 1, 2002 until March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stoccaggi Gas Italia SpA (Stogit) filed its proposal of tariff for modulation, mineral and strategic storage for the first regulated period. With Decision No. 49 of March 26, 2002, the Authority for Electricity and Gas repealed Stogit’s proposal and defined tariffs for the first regulated period. Stogit applied the tariff determined by the two decisions, but filed an appeal against both decisions with the Regional Administrative Court of Lombardia requesting their cancellation. With a decision dated September 29, 2003, that Court rejected the appeal presented by Stogit. Stogit filed an appeal to the Council of State against the sentencethis matter which was rejected bysufficient to cover the Council of State on January 6, 2006. DISTRIBUIDORA DE GAS CUYANA SA The agency entrusted with the regulations for the natural gas market in Argentina ("Enargas") started a formal investigation on some operators, among these Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company has applied improperly calculated conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the dateamount of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. On April 27, 2004, Distribuidora de Gas Cuyana presented a defense memorandum to Enargas, without prejudice to any possible appeal. On April 28, 2006, the Company filed a formal request for examining the documents used as evidence of the alleged violation.settlement. Settled Legal ProceedingsENI DACIÓN BV In August 2005, the internal revenue service of Venezuela served four formal assessments of income taxes to Eni Dación BV four formal assessment on income taxes for the years 2001 to 2004 that,claiming, by excluding the deductibility of certain costs: (i) to annul the losses recorded for the periods amounting to a total of bolivar 910 billion (corresponding to $425 million); (ii) to determine for the same periods a taxable income amounting to a total of bolivar 115 billion (corresponding to $54 million); and (iii) to request a tax amounting to bolivar 52 billion (corresponding to $24 million) determined by applying a 50% tax rate rather than the 34% rate applied to other companies performing activities analogous to those of Eni Dación BV. In particular, it excluded the deductibility of: (i) interest charges due to other Eni Group companies that provided loans denominated in U.S. dollars; and (ii) exchange rate losses recorded in the Financial Statementsfinancial statements and related to such loans resulting from the devaluation of the Venezuelan currency. The formal assessments served have a preliminary nature and do not request immediate payment nor do they specify the amount of a fine (from 10 to 250%) and of interest (average rate for the period approximately 23%). Eni Dación filed a claim for the cancellation of the assessment. In the 2005 accounts, Eni recorded a specific provision for this matter. In April 2006, the appeal was rejected and the final tax assessment was issued. The final tax assessment: (i) substantially confirmed the preliminary assessments, although reducing the originally assessed income tax liability to bolivar 39 billion ($18 million); and (ii) imposed fines and late payment interests of bolivar 109 billion ($51 million). Eni Dación BV presented a further administrative appeal before the expiration of the time limit for filing a judicial tax appeal, thereby obtaining a reduction of the overall amount from bolivar 148 billion ($69 million) to bolivar 52 billion ($24 million) including taxes in the amount of bolivar 12.5 billion ($6 million) and fines and late payment interest in the amount of bolivar 39.5 billion ($18 million). In order to avoid further charges deriving from the increase of the corresponding fines and late payment interest, Eni Dación BV paid the newly assessed amount in May 2006, thereby reaching a settlement. Consistently, Eni Dación BV filed an integrative income tax return for year 2005, considering the new tax bases for years 2001 to 2004, and paid accordingly bolivar 128 billion ($60 million) of income taxes and bolivar 4.4 billion ($2 million) of fines and late payment interest. During 2003,F-64 Other risks and commitments (i) Commitments to purchase natural gas under take-or-pay contracts In order to meet the Customs Districtmedium and long-term demand of Taranto sent 147 formal assessments and amendmentsnatural gas, in particular in the Italian market, Eni entered into long-term purchase contracts with producing countries. Specifically, following the strategic agreement with Gazprom signed on November 14, 2006, effective from February 1, 2007, Eni extended the duration of its gas supply contracts with Gazprom until 2035, bringing the residual average life of its supply portfolio to billsapproximately 23 years. Existing contracts, which in general contain take-or-pay clauses, will ensure a total of entry for finished products and goods and semi finished products producedapproximately 62.4 BCM/y of natural gas by Eni’s Taranto refinery in 2000, 2001 and 2002 to Eni SpA, as the successor entity of AgipPetroli SpA following its merger into Eni. The notification regards about euro 24 million of customs duties not paid by the company because the imported products were not yet finished goods, but were destined to processing, for which ordinary customs tariffs allow exemption. The formal assessment did not contain the determination of any administrative penalties provided for by customs rules. The penalty can be from one to ten times the amount of taxes not paid. The notification was based on2010. Despite the fact that the company did not have the administrative authorization to utilize the customs exemption. The company, believing it acted properly pursuant to Circular 20/D/2003, started a proceeding for an administrative resolution, according to the customs rules. The company asked the Regional Directorincreasing portion of Customs of Puglia for the annulment of the received assessments as a measure of self-protection. With a decision of November 26, 2004 the Regional Director accepted Eni’s appeal and ended the litigation by canceling the 147 formal assessments. On March 12, 2004 the Comando Nucleo Regionale Polizia Tributaria Puglia notified a verbal action of observation to the company. In this action there is an alleged offense of smuggling and falsification of accounts for the same imports, already subjected to the previous assessments of the Customs District of Taranto and other occurrences between January 1999 and February 2003. The verbal action made by a Fiscal Officer, sent to the Public Prosecutornatural gas volumes purchased under such contracts has been sold outside Italy, management believes that in the Court of Taranto, reclaims the omitted payment of customs for about euro 26 million. The notification was based on the same lack of administrative authorization, already contested by the Customs District of Taranto, that was concluded in favor of Eni by the Regional Director. On January 26, 2006 the judge for preliminary investigation of the Court of Taranto dismissed the accusations and closed the assessment. In 1997, Grifil SpA summoned AgipPetroli SpA (merged into Eni SpA in 2002) before the Court of La Spezia. Grifil requested payment for the remediation of a polluted land parcel part of the La Spezia refinery (which was closed in 1985), sold to it in 1996 by Italiana Petroli SpA later merged into AgipPetroli SpA. The claims for these damages amount to euro 103 million. At the end of 2002 Grifil and AgipPetroli reached an agreement under the terms of which AgipPetroli had to pay half of the clean-up costs, the total amount of which was set by an independent appraisal at euro 19 million, with AgipPetroli’s share corresponding to a maximum of euro 9.5 million, Grifil in turn had the obligation to remediate the polluted soil and to renounce any claims against Eni. Grifil did not fulfill its obligations to remediate the polluted soil; however, maintaining the possibility of precautionary requests and claims against Grifil, Eni decided to remediate the polluted soil with the assistance of a company interested in developing the parcel of land that agreed to pay 13% of the remediation costs. The first action promoted by Grifil before the Court of La Spezia remained pending. On January 7, 2004 the Municipality of La Spezia put Eni in possession of the area and from that date Eni started remediation works paying the relevant costs on its own. Eni requested the conservative seizure of Grifil’s land parcel, up to a maximum value of euro 19 million. With two administrative measures, on December 2, 2003 and January 13, 2004 respectively, the Court of Genova declared the right of Eni legitimate, based on the sale contract stipulated between Italiana Petroli and Grifil, to claim the payment of all clean-up expenses that Eni will incur as Grifil did not fulfill its obligation. The judge closed the inquiry phase and stated that the judgment can be brought to an end. As for the value attributable to the conservative seizure of Grifil’s land parcel (up to a value of euro 19 million), the Court requested Eni to file the contracts for the remediation work with the court, in which the amounts paid are recognized. The contract with an international company specializing in remediation was signed on April 15, 2004 and immediately presented to the Court. In order to preserve Grifil’s asset as a way to recover its credit versus Grifil, Eni, which is paying for the remediation works, also filed an ordinary revocation of title, so that, while waiting for the Court’s ruling, Grifil will not be able to sell the land parcel to third parties. On September 6, 2005 Eni and Immobiliare Helios SpA (that acquired all of Grifil’s share capital) reached a settlement that: (i) concluded all disputes outstanding with Grifil and constitutes a waiver to any possible future claim directly or indirectly related to the sale of the land parcel; (ii) passed to the acquirer all residual expense to be incurred for the reclamation of the land parcel with the explicit approval of the municipality of La Spezia; (iii) provided for Eni to pay to the new owner of Grifil a lump sum of euro 15.1 million that will be paid when the new owner provides confirmation of works performed for the reclamation; the sum is covered by provisionslong-term, unfavorable trends in the risk reserve. In 1997, an action was commenced before the Court of Venice concerning the criminal charges brought by the Venice public prosecutorItalian demand and supply for alleged mismanagement of the Porto Marghera plant starting in the 1970s until 1995 and for the alleged pollution and health damage resulting therefrom. Defendants included certain employees of Eni which has been managing the Porto Marghera plant since the beginning of the eighties. On November 2, 2001, the Court of Venice acquitted all defendants. The appeal against the decision was presented by the public prosecutor, the State Attorney on behalf of the Ministry of Environment and the Council of Ministers, 5 public entities, 12 associations and other entities and 48 individual persons. On December 15, 2004 the Venice Court of Appeals confirmed the preceding judgment, changing only some marginal parts. As concerns some defendants, the Court of Appeals decided not to proceednatural gas, also due to the statutepossible implementation of limitations for some crimes, while it confirmed the preceding judgmentall publicly announced plans for the other matters. On May 19, 2006,construction of new supply infrastructure, and the Courtevolution of final instance, before which plaintiffs appealed the decisionItalian regulations of the Court of Appeals, acquitted all defendants stating that pollution and mismanagement of the plant occurred before the eighties and consequently Eni and its employees could not be deemed responsible for that. In January 2006 Eni settled this matter with the Council of Ministers and the Ministry for the Environment paying an amount of euro 40 million. Under terms of the settlement, the latter will abstain from the recoursenatural gas sector, represent risk factors to the Courtfulfillment of final instance and will not act on any other environmental damage concerning the management of Porto Marghera until the date of the settlement. Eni had already recorded a provision for this matter which was sufficient to cover the amount of the settlement. Other commitments and risks not includedEni’s obligations in the balance sheet Commitments regarding long-term natural gasconnection with its take-or-pay 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.contracts. Parent company guarantees given relating to contractual commitments for hydrocarbon exploration and production activities, quantified on the basis of the capital expenditures to be made, amount to euro 5,0524,911 million (euro 3,1925,052 million at December 31, 2004)2005). (ii) Unilateral termination by PDVSA of the Operating Service Agreement regulating mineral activities at the Dación oilfield in Venezuela With effective date April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the service contractOperating Service Agreement (OSA) governing activities at the Dación oil field where Eni acted as a contractor, holding a 100% working interest. As a consequence, starting on the same day, operations at the Dación oil field are conducted by PDVSA. Eni proposed to PDVSA which replaced Enito agree on terms in order to recover the fair value of its Dación BV, Eni’s wholly-owned subsidiary that had been operatingassets. In the field until that date. lack of any agreement between the parties, in November 2006, Eni commenced an arbitration proceeding before an International Centre for Settlement of Investment Disputes (ICSID) Tribunal (i.e. a tribunal acting under the auspices of the ICSID Convention and being competent pursuant to the Netherlands-Venezuela bilateral investments treaty) to claim its rights. Despite this action, Eni would continue to consider a negotiated solution with PDVSA to obtain a fair compensation for its assets. Based on the opinion of its legal consultants, Eni believes that it isto be entitled to a compensation for such expropriation in an amount equal to the market value compensation forof the OSA before the expropriation took place. The market value of the OSA depends upon its expected profits. In accordance with established international practice, Eni has calculated the OSA’s market value using the discounted cash flow method, based on Eni’s interest in the expected future hydrocarbon production and associated capital expenditures and operating costs, and applying to the projected cash flow a discount rate reflecting Eni’s cost of capital as well as the specific risk of concerned activities. Independent evaluations carried out by a primary petroleum consulting firm fully support Eni’s internal evaluation. The estimated net present value of Eni’s interest in the Dación field. On these basis,field, as calculated by Eni, is available to reach an agreement with the Venezuelan authorities. In case an amicable settlement is not possible, Eni will take any other action in order to protect its interest in Venezuela. Based on internal and external independent evaluation, Eni is confident that a fair market compensation willwould not be lower than the net book value of the Dación related assets. Accordingly, management decided notassets amounting to impair$829 million (equal to euro 629 million based on the book value of Eni’s Dación assets. In 2005 and in the first quarter 2006, the Dación field productionEUR/USD exchange rate was about 60 KBBL/d. Management expects Eni’s proved reserves of hydrocarbons to be reduced by an amount of approximately 175 mmBBL corresponding to Eni’s net proved reserves of the Dación field as of December 31, 20052006) which consequently have not been impaired. In accordance with the ICSID Convention, a judgment by the ICSID Tribunal awarding compensation to Eni would be binding upon the parties and immediately enforceable as if it were a consequencefinal judgment of a court of each of the lossStates that have ratified the ICSID Convention. The ICSID Convention was ratified in 143 States. Accordingly, if Venezuela fails to comply with the award and to pay the compensation, Eni could take steps to enforce the award against commercial assets of Eni’s titlethe Venezuelan Government almost anywhere those may be located (subject to national law provisions on sovereign immunity). In 2005 and 2006, oil production from the field.Dación field averaged approximately 60 KBBL/d and booked reserves at December 31, 2005 amounted to 175 mmBBL. (iii) Other risks and commitments Under the convention signed on October 15, 20011991 by TAV SpA and CEPAV Due, Eni committed to guarantee the execution of design and construction of the works assigned to the CEPAV Consortium (to which it is a party) and guaranteed to TAV the correct and timely execution of all obligations indicated in the convention in a subsequent integration deed and in any further addendum or change or integration to the same. The regulation of CEPAV Due contains the same obligations and guarantees contained in the CEPAV Uno agreement.Agreement. A guarantee for euro 282253 million to Cameron LNG was provided on behalf of Eni USA Gas Marketing Llc (Eni’s(Eni Petroleum Co Inc’s interest 100%) for the regasification contract entered into on August 1, 2005. This guarantee is subject to a suspension clause and will come ininto force when the regasification service starts in a period included between October 1, 2008 and June 30, 2009. F-65 Non-quantifiable risks related to contractual assurances given to acquirorsacquirers 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 RegulationsAssets under concession arrangements Eni operates under concession arrangements mainly in the Exploration & Production segment and in some activities of the Gas & Power segment and the Refining & Marketing segment. In the Exploration & Production segment contractual clauses governing mineral concessions, licenses and exploration permits regulate the access of Eni to hydrocarbon reserves. Such clauses can differ in each country. In particular, mineral concessions, licenses and permits are granted by the legal owners and, generally, entered into with government entities, State oil companies and, in some legal contexts, private owners. As a compensation for mineral concessions, Eni pays royalties and taxes in accordance with local tax legislation. Eni sustains all the operation risks and costs related to the production and development activities and it is entitled to the productions realized. In Product Sharing Agreement and in buy-back contracts, realized productions are defined on the basis of contractual agreements drawn up with State oil companies which hold the concessions. Such contractual agreements regulate the recover of costs incurred for the exploration, development and operating activities (cost oil) and give entitlement to the own portion of the realized productions (profit oil). With reference to natural gas storage in Italy, the activity is conducted on the basis of concessions with a duration that not exceed a twenty years length and it is granted by the Ministry of Productive Activities to subjects that are consistent with legislation requirements and that can demonstrate to be able to conduct a storage program that meets the public interest in accordance with the laws. In the Gas & Power segment the gas distribution activity is primarily conducted on the basis of concessions granted by local public entities. At the expiry date of the concession, it is provided a compensation, defined by using criteria of business appraisal, to the outgoing operator following the sale of its own gas distribution network. Service tariffs for distribution are defined on the basis of a method established by the Authority for Electricity and Gas. Legislative Decree No. 164/2000 provides the grant of distribution service exclusively by tender, with a maximum length of 12 years. In the Refining & Marketing segment several service stations and other auxiliary assets of the distribution service are located in the motorway areas and they are granted by the motorway concession operators following a public tender for the sub-concession of the supplying of oil products distribution service and other auxiliary services. Such assets are amortized over the length of the concession (generally, 5 years for Italy). In exchange of the granting of the services described above, Eni provides to the motorway companies fixed and variable royalties on the basis of quantities sold. At the end of the concession period, it is generally provided the uncharged devolution of non-removable assets. 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 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 Consolidated Financial Statementsconsolidated financial 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 Consolidated Financial Statementsconsolidated financial statements due to: (i) the possibility of as yet unknown contamination; (ii) the results of the on-goingongoing surveys and the other possible effects of statements required by Decree No. 471/1999 of the Ministry of Environment; (iii) the possible effect of future environmental legislation and rules, such as: (a) the decree of the Ministry of Environment No. 367 published on January 8, 2004, that regards the fixing of new quality standards for aquatic environment and dangerous substances and Legislative Decree No. 59/2005 concerning the integrated environmental authorization (IPPC), (b) the application of European directive 2004/35/EC concerning environmental responsibility for prevention and reclamation of environmental damage, referred to in paragraph 439 of the single article of Law No. 266/2005 (budget law for 2006), (c) a legislative decree to be issued in implementation of Law No. 308 of December 15, 2004 that delegated to the Government the restructuring of regulations concerning waste disposal and reclamation of polluted areas, protection of waters from pollution and management of water resources, payment of environmental damage, procedures for the evaluation of environmental impact and for the strategic environmental impact as well as protection from emission into the atmosphere within 18 months. The draft law approved by the Council of Ministers on February 10, 2006 is currently being examined by the President of the Republic. The also implements European directive 2000/60/EC that established a European action framework for the protection of waters;rules; (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. F-66 Emission trading Law No. 316 of December 30, 2004 converted Law Legislative Decree No. 237/2004 implementing European directive216 of April 4, 2006 implemented the Emission Trading Directive 2003/87/EC which established a systemconcerning greenhouse gas emissions and Directive 2004/101/EC concerning the use of carbon credits deriving from projects for emission trading. From January 1, 2005 thisthe reduction of emissions based on the flexible mechanisms devised by the Kyoto Protocol. This European emission trading scheme has been in force since January 1, 2005, and on this matter, on February 24, 2006, the Ministry of the Environment published a decree defining emission permits for the 2005-2007 period. In particular, Eni was assigned permits corresponding to 65.2 million tonnesmmtonnes of carbon dioxide (of which 22.4 for 2005, 21.4 for 2006 and 21.4 for 2007). In 2005Following the realization of projects for the reduction of emissions, in particular related to the cogeneration of electricity and steam through high efficiency combined cycles in refineries and petrochemical sites, emissions of carbon dioxide from Eni’s plants were lower than permits assigned. Subsequent eventsassigned in 2006. The main significant events that occurred after the balance sheet date are as follows: • On May 5, 2006 the European Commission started an inquiry in order to verify an alleged abuse of dominant position on the part of Eni in violation of article 82 of the EEC Treaty and article 54 of the CES Agreement in the activities of international gas transport and wholesale and retail supply of gas. According to the European Commission Eni might have adopted commercial practices that constitute barriers to access to the Italian market for the wholesale supply of natural gas, in particular taking account of Eni long-term purchase contracts. In addition Eni also entered into long-term transport contracts which award Eni a majority share of transport capacity of certain international gaslines and, as a consequence, Eni may have prevented others access to infrastructure. Officials from the European Commission have conducted inspections at Eni’s headquarters and of certain of Eni’s subsidiaries and collected documents. If the existence of the alleged anti-competitive practices is confirmed, the European Commission could fine Eni. • On May 25, 2006, Eni’s Annual General Shareholders Meeting approved a euro 2 billion increase in Eni’s ongoing share repurchase program.   2526 Revenues The following is a summary of the main components of "Revenues". More information about changes in revenues is included in the "Financial review" of the "Report of the Directors". Net sales from operations wereare as follows: (million euro)   2004   2005       Net sales from operations   57,413     73,679   Change in contract work in progress   132     49       57,545     73,728   (million euro)   2004   2005   2006         Net sales from operations   57,413   73,679   85,957 Change in contract work in progress   132   49   148     57,545   73,728   86,105 Net sales from operations wereare net of the following items: (million euro)   2004   2005       Excise tax   14,060     14,140   Exchanges of oil sales (excluding excise tax)   1,735     2,487   Exchanges of other products   86     108   Services billed to joint venture partners   1,175     1,331   Sales to service station managers for sales billed to holders of credit card   1,122     1,326       18,178     19,392   (million euro)   2004   2005   2006         Excise tax   14,060   14,140   13,762 Exchanges of oil sales (excluding excise tax)   1,735   2,487   2,750 Exchanges of other products   86   108   127 Sales to service station managers for sales billed to holders of credit card   1,175   1,326   1,453 Services billed to joint venture partners   1,122   1,331   1,385     18,178   19,392   19,477 Net sales from operations by industry segment and geographic area of destination are presented in Note 31.32 - Information by industry segment and geographic financial information. F-67 Other income and revenues Other income and revenues wereare as follows: (million euro)   2004   2005       Contract penalties and other trade revenues   43     114   Lease and rental income   93     102   Compensation for damages   87     89   Gains from sale of assets   407     71   Other proceeds (*)   747     422       1,377     798   (million euro)   2004   2005   2006         Gains from sale of assets   407   71   100 Lease and rental income   93   102   98 Contract penalties and other trade revenues   43   114   61 Compensation for damages   87   89   40 Other proceeds (*)   747   422   484     1,377   798   783       (*)   Each individual amount included herein does not exceed euro 25 million. Other income of 2004 included differentials on commodity derivatives for euro 61 million. 2627 Operating expenses The following is a summary of the main components of "Operating expenses". More information about changes in operating expenses is included in the "Financial review" of the "Report of the Directors". Purchases, services and other Purchases, services and other includedinclude the following: (million euro)   2004   2005       Production costs-raw, ancillary and consumable materials and goods   27,010     35,318   Production costs-services   9,148     9,405   Operating leases and other   1,609     1,929   Net provisions for contingencies   553     1,643   Other expenses   1,066     1,100       39,386     49,395   less:             - capitalized direct costs associated with self-constructed assets   (1,039 )   (828 )     38,347     48,567   (million euro)   2004   2005   2006         Production costs - raw, ancillary and consumable materials and goods   27,010     35,318     44,661   Production costs - services   9,148     9,405     10,015   Operating leases, royalties on hydrocarbon production and other items   1,609     1,929     1,903   Net provisions for contingencies   553     1,643     767   Other expenses   1,066     1,100     1,089       39,386     49,395     58,435   less:                   - capitalized direct costs associated with self-constructed assets - tangible assets   (901 )   (704 )   (809 ) - capitalized direct costs associated with self-constructed assets - intangible assets   (138 )   (12 )   (136 )     38,347     48,567     57,490   Production costs-servicescosts - services brokerage include fees for euro 39 million (euro 24 million (euro 26 million at December 31, 2004)in 2005). Costs for research and development that do not meet the requirements to be capitalized amount to euro 219 million (euro 202 million (euro 210 million in 2004)2005). OperatingThe item "Operating leases, royalties on hydrocarbons production and otherother" for euro 1,903 million (euro 1,929 million at December 31, 2005) include operating leases for euro 860 million (euro 777 million at December 31, 2005) and royalties on hydrocarbons extracted for euro 823 million (euro 965 million (euro 741 million in 2004)2005). Future minimum lease payments expected to be received under non-cancelable operating leases are as follows: (million euro)   2005   2006       Payable within         1 year   363   594 2 to 5 years   799   1,474 Thereafter   418   762     1,580   2,830 F-68 Operating leases at December 31, 2006 primarily concern time charter and long-term rentals, drilling and storage equipment and vessels, lands, non-cancelable service stations and office buildings. Such leases do not include renewal options. There are no significant restrictions following operating leases imposed to Eni for dividend distribution, availability of assets and possibility to get into additional debt. Provisions for contingencies are net of deductions not corresponding to cash expenditures of euro 767 million (euro 1,643 million at December 31, 2005) and concern in particular provisions for environmental risks for euro 248 million (euro 515 million (euro 145 million in 2004)the 2005), provisions for contract penalties and disputes for euro 149 million (euro 336 million (euro 23 million 2004)in the 2005), provisions for the revision of selling pricesonerous contracts for euro 32155 million (euro 71 million at December 31, 2005) and loss adjustments and actuarial provisions for prize promotion for euro 8244 million (euro 1350 million at December 31, 2005). More information is included in 2004).Note 20 - Provisions for contingencies. Payroll and related costs Payroll and related costs wereare as follows: (million euro)   2004   2005       Wages and salaries   2,402     2,484   Social security contributions   658     662   Cost related to defined benefit plans   118     126   Other costs   218     255       3,396     3,527   less:             - capitalized direct costs associated with self-constructed assets   (151 )   (176 )     3,245     3,351   (million euro)   2004   2005   2006         Wages and salaries   2,402     2,484     2,630   Social security contributions   658     662     691   Cost related to defined benefits plans and defined contributions plans   118     126     230   Other costs   218     255     305       3,396     3,527     3,856   less:                   - capitalized direct costs associated with self-constructed assets - tangible assets   (117 )   (143 )   (161 ) - capitalized direct costs associated with self-constructed assets - intangible assets   (34 )   (33 )   (45 )     3,245     3,351     3,650   CostCosts related to defined benefitbenefits plans is presentedare described in Note 20.21 - Provisions for employee benefits. The average number of employees of the companies included in the scope of consolidation by type was as follows: (million euro)   2004   2005   2006         Senior managers   1,746   1,754   1,676 Junior managers   10,449   10,747   11,142 Employees   35,393   34,457   34,671 Workers   25,623   24,345   25,426     73,211   71,303   72,915 The average number of employees is calculated as half of the total of the number of employees at the beginning and end of the period. The average number of senior managers includes managers employed and operating in foreign countries, whose position is comparable to a senior manager status. Stock compensation Stock grantgrants With the aim of improving motivation and loyalty of the managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code147 through the, linking of compensation to the attainment of preset individual and corporate objectives, making management participate in corporate risk and motivating them towards the creation of shareholder value and increasing at the same increasing time their contribution to the management of the Company, Eni offers its own shares purchased alongfor purchase through its buy-back program (treasury shares) for no consideration to those managers of Eni who have achieved corporate and individual objectives. Assignments vest within 45 days after the end of the third year from the date of the offer. _______________ (7) Does not include listed subsidiaries, which have their own stock grant plans. F-69 At December 31, 2005, 3,127,2002006, 1,873,600 of ordinary shares with a nominal value of euro 1 wereper share are outstanding and concernedconcern the 2003 stock grant plan for a total of 1,018,4002,500 shares with a fair value of euro 11.20 per share, the 2004 stock grant plan for a total of 912,400798,700 shares with a fair value of euro 14.57 per share and the 2005 stock grant plan for a total of 1,196,4001,072,400 shares with a fair value of euro 20.08 per share. Changes in the 2003, 2004 and 2005 stock grant plans consistedconsist of the following (regarding stock grants, no exercise prices are provided for):     2003   2004   2005         (euro)   2004   2005   2006         (euro) Number of shares Market price (a)   Number of shares   Market price(a)   Number of shares   Market price(a) Number of shares Market price(a)             Stock grants as of January 1   3,551,900   15.150   3,635,050   15.101   3,112,200   18.461     3,635,050   15.101   3,112,200   18.461   3,127,200   23.460   New rights granted   1,206,000   13.764   1,035,600   17.035   1,303,400   21.336     1,035,600   17.035   1,303,400   21.336           Rights exercised in the period   (1,122,150 )   13.751   (1,552,9100 )   16.766   (1,273,500 )   23.097     (1,552,100 )   16.766   (1,273,500 )   23.097   (1,236,400 )   23.933   Rights cancelled in the period   (700 )   13.604   (6,350 )   16.618   (14,900 )   22.390     (6,350 )   16.618   (14,900 )   22.390   (17,200 )   23.338   Stock grants outstanding as of December 31,   3,635,050   15.101   3,112,200   18.461   3,127,200   23.460   of which exercisable at December 31,   -   -   -   -   38,700   23.460   Stock grants outstanding as of December 31   3,112,200   18.461   3,127,200   23.460   1,873,600   25.520   of which exercisable at December 31   -   -   38,700   23.460   156,700   25.520         (a)   Market price relating to new rights granted, rights exercised in the period and rights cancelled in the period corresponds to the average market value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of the resolution of the Board of Directors resolution regarding the stock grants assignment; (ii) the date of the recording in the grantee’s securities account ofon which the emission/transfer of the shares granted;granted were recorded in the grantee’s securities account; and (iii) the date of the unilateral termination of employment for rights cancelled), weighted with the number of shares. Market price of stock grants at the beginning and at the end of the year is the price recorded at December 31. Stock optionoptions With the aim of improving motivation and loyalty of the managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code158 that hold significant positions of managerial responsibility or that are considered as strategic managers for the Group, Eni approved stock compensation plans that provide the assignment for no consideration of purchase rights of Eni treasury shares (options). 2002-2004 and 2005 plans Stock options provides the right for the purchase of treasury share inshares with a 1 to 1 ratio after the end of the third year from the date of the grant (vesting period) and for a maximum period of five years, with a strike price calculated as the arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding assignment or (starting from 2003), if greater, as the average cost of treasury shares registered in the day preceding assignment. Strike priceassignment strike price. 2006-2008 plan The 2006-2008 stock option plan introduces a performance condition for the 2005 stock optionexercise of the options. At the end of each three-year period (vesting period) from the assignment, the Board of Directors will determine a number of exercisable options, at a rate included between 0 and 100, in relation to the Total Shareholders’ Return (TSR) of Eni’s share compared to the TSR of the six largest international oil companies for capitalization. Options can be exercised after three years from the date of the grant was euro 22.512. Stock option grantees can obtain advances by(vesting period) and for a maximum period of three years, with a price calculated as the Group financial company forarithmetic average of official prices registered on the paymentMercato Telematico Azionario in the month preceding assignment (strike price). The arithmetic average of such prices, weighted with the number of shares acquired on condition that the grantees contemporaneously underwrite an irrevocable warrant of saleassigned, amounts to the above-mentioned financial company, regarding the shares acquired.euro 23.119 per share. At December 31, 2005 a total of 13,379,6002006, 15,290,400 options have been grantedwere offered for the purchase of 13,379,60015,290,400 ordinary shares withat a nominal value of euro 1 of Eni SpA. Options refer to the 2002 stock plan for 903,100238,000 shares with an exercise price of euro 15.216 per share, to the 2003 stock plan for 4,106,500779,900 shares with an exercise price of euro 13.743 per share, to the 2004 stock plan for 3,659,0003,108,500 shares with an exercise price of euro 16.576 per share, and to the 2005 stock plan for 4,711,0004,184,000 shares with an exercise price of euro 22.512 per share and to the 2006 stock plan for 6,980,000 shares with an exercise price of euro 23.119 per share. _______________ (8) Does not include listed subsidiaries, which have their own stock grant plans. F-70 At December 31, 20052006 the weighted-average remaining contractual life of the options outstandingplans at December 2002, 2003, 2004, 2005 and 2005 was2006 is 3 years and 7 months, 4 years and 7 months, 5 years and 7 months, 6 years and 7 months and 75 years and 7 months, respectively. Changes in the 2003, 2004 and 2005of stock option plans consistedin 2005 and 2006 consist of the following:     2003   2004   2005         (euro)   2004   2005   2006         (euro) Number of shares Weighted average exercise price   Number of shares   Weighted average exercise Market price (a)   Number of shares   Weighted average exercise Market price (a) Number of shares Weighted average Market price (a)               Options as of January 1   3,518,500     15.216     8,162,000     14.367     11,789,000     15.111   New options granted   4,703,000     13.743     3,993,500     16.576     4,818,500     22.512   Options exercised in the period               (354,000 )   14.511     (3,106,400 )   15.364   Options cancelled in the period   (59,500 )   15.216     (12,500 )   14.45     (121,500 )   16.530   Options outstanding as of December 31,   8,162,000     14.367     11,789,000     15.111     13,379,600     17.705   of which exercisable at December 31,   73,000     14.802                 1,540,600     16.104   The fair value of stock options granted during the years 2002, 2003, 2004 and 2005 was euro 5.39, euro 1.50, euro 2.01 and euro 3.33 for share, respectively, and was calculated applying the Black-Scholes method using the following assumptions:     2002   2003 2004 2005 Options as of January 1   8,162,000     14.367     15.101     11,789,000     15.111     18.461     13,379,600     17.705     23.460   New options granted   3,993,500     16.576     16.576     4,818,500     22.512     22.512     7,050,000     23.119     23.119   Options exercised in the period   (354,000 )   14.511     16.749     (3,106,400 )   15.364     22.485     (4,943,200 )   15.111     23.511   Options cancelled in the period   (12,500 )   14.450     16.745     (121,500 )   16.530     23.100     (196,000 )   19.119     23.797   Options outstanding as of December 31   11,789,000     15.111     18.461     13,379,600     17.705     23.460     15,290,400     21.022     25.520   of which exercisable at December 31                     1,540,600     16.104     23.460     1,622,900     16.190     25.520   Risk-free interest rate         (%)     3.5     3.16     3.21     2.51   Expected life         (year)     8     8     8     8   Expected volatility         (%)     43     22     19     21   Expected dividends         (%)     4.5     5.35     4.5     3.98   (a) Market price relating to new rights granted, rights exercised in the period and rights cancelled in the period corresponds to the average market value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of the Board of Directors resolution regarding the stock grants assignment; (ii) the date in which the emission/transfer of the shares granted was recorded in the grantee’s securities account; and (iii) the date in which the unilateral termination of employment for rights was cancelled), weighted with the number of shares. Market price of stock grants at the beginning and end of the year is the price recorded at December 31. The fair value of stock options granted during the years 2002, 2003, 2004, 2005 and 2006 was euro 5.39, euro 1.50, euro 2.01, euro 3.33 respectively, and the weighted average of euro 2.89 per share was calculated applying the following assumptions:     2002   2003   2004   2005   2006             Risk-free interest rate (%)   3.5   3.2   3.2   2.5   4.0 Expected life (years)   8   8   8   8   6 Expected volatility (%)   43   22   19   21   17 Expected dividends (%)   4.5   5.4   4.5   4.0   5.3 Costs of the year related to stock grant and stock option plans amountamounted to euro 3520 million (euro 1835 million at December 31, 2004)2005, which includes also costs accrued with respect to compensation of key managers related to certain Eni’s group companies, i.e. Saipem SpA and Snam Rete Gas SpA). Compensation of key management personnel Compensation of persons responsible offor key positions in planning, direction and control functions of Eni Group companies, including executive and non-executive officers, general managers and manager with strategic responsibility (key management personnel) amountedamount to euro 14 and euro 15 million and euro 23 million for 20042005 and 2005,2006, respectively, and consistedconsist of the following: (million euro)   2004   2005       Wages and salaries   12     11   Post-employment benefits   1     1   Indemnities due upon termination of employment         1   Stock grant/option   1     2       14     15   (million euro)   2005   2006       Wages and salaries   11   16 Post-employment benefits   1   1 Other long-term benefits       3 Indemnities due upon termination of employment   1     Stock grant/option   2   3     15   23 Compensation of Directors, Statutory Auditors and General Managers Compensation of Directors, Statutory Auditors and General Managers amount to euro 4.519.2 million and euro 19.28.7 million in 20042005 and 2005,2006, respectively. Compensation of Statutory Auditors amountedamount to euro 0.6880.785 and euro 0.7850.686 million in 20042005 and 2005,2006, respectively. Compensation of Directors, Statutory Auditors and General Managers include emoluments and all other retributive and social security compensations due for the function of manager or statutory auditor assumed inby Eni SpA or in other companies included in the scope of consolidation, that are a cost for Eni. The average number of employees of the companies included in the scope of consolidation by type was as follows:F-71 (units)   2004   2005       Senior managers               1,746     1,754   Junior managers               10,449     10,747   Employees               35,393     34,457   Workers               25,623     24,345                   73,211     71,303   The average number of employers is calculated as half of the total of the number of employees at the beginning and at the end of the period. The average number of senior managers includes managers employed and operating in foreign countries, whose position is comparable to a senior manager status. Depreciation, amortization and impairments Depreciation, amortization and impairments consistedconsist of the following: (million euro)   2004   2005       Depreciation and amortization:                         - tangible assets               3,670     4,576   - intangible assets               931     936                   4,601     5,512   Impairments:                         - tangible assets               329     264   - intangible assets               4     8                   333     272   less:                         - direct costs associated with self-constructed assets               (3 )   (3 )                 4,931     5,781   (million euro)   2004   2005   2006         Depreciation and amortization:                   - tangible assets   3,670     4,576     4,821   - intangible assets   931     936     1,335       4,601     5,512     6,156   Impairments:                   - tangible assets   329     264     231   - intangible assets   4     8     54       333     272     285   less:                   - direct costs associated with self-constructed assets               (17 ) - capitalized direct costs associated with self-constructed assets - tangible assets   (2 )   (2 )   (2 ) - capitalized direct costs associated with self-constructed assets - intangible assets   (1 )   (1 )   (1 )     4,931     5,781     6,421   27 28 Financial income (expense) Financial income (expense) consistedconsists of the following: (million euro)   2004   2005       Exchange differences, net                     169   Financial expense capitalized               202     159   Income from financial receivables               95     95   Net income from securities               31     36   Interest on tax credits               17     17   Net interest due to banks               (110 )   (38 ) Financial expense due to the passage of time (1)               (109 )   (109 ) Interest and other financial expense on ordinary bonds               (247 )   (265 ) Income (expense) on derivatives               34     (386 ) Other financial expense, net               (69 )   (44 )                 (156 )   (366 ) (million euro)   2004   2005   2006         Income (expense) on derivatives   34     (386 )   383   Net income from financial receivables   95     95     130   Financial expense capitalized   202     159     116   Net interest due to banks   (110 )   (38 )   79   Net income from securities   31     36     51   Interest on tax credits   17     17     17   Financial expense due to passage of time (a)   (109 )   (109 )   (116 ) Exchange differences, net         169     (152 ) Interest and other financial expense on ordinary bonds   (247 )   (265 )   (247 ) Other financial expense, net   (69 )   (44 )   (100 )     (156 )   (366 )   161         (1)(a)   The item concernedconcerns the increase ofin provisions for contingencies that are indicated at an actualized value in non-current liabilities. Gains (losses) on derivatives consist of the following: (million euro)   2005   2006       Derivatives on exchange rate   (85 )   313   Derivatives on interest rate   (138 )   61   Derivatives on commodities   (163 )   9       (386 )   383   F-72 The decreasevariation in income (expense)gains (losses) from derivatives of euro 420769 million is primarily due to the application from January 1, 2005 of IAS 39 which requires for Eni that derivatives be stated at fair value and the effects charged to the profit and loss account, instead of being connected with the economic effects of the hedged transactions as recorded in 2004.transactions. Such derivatives, in fact, do not meet the conditions required by IFRS to be qualified as hedging instruments. AlsoIn addition, the increasedecrease in net exchange differences of euro 169321 million is primarily due to the application of IAS 39, becausedue to the fact that the effect of the translation at period end of assets and liabilities denominated in currencies other than functional currency is not compensated by the effect of the translation at period end of the commitments for derivatives contracts. 28No derivative disclosure is furnished for the year 2004 as Eni elected January 1, 2005 as the transition date for the application of IAS 32 and IAS 39. 29 Income (expense) from investments Effects of investments accounted for using the equity method Effects of investments accounted for using the equity method consistedconsist of the following: (million euro)   2004   2005       Gains from investments accounted for using the equity method               401     770   Losses from investments accounted for using the equity method               (69 )   (33 )                 332     737   (million euro)   2004   2005   2006         Gains from investments accounted for using the equity method   401     770     887   Losses from investments accounted for using the equity method   (69 )   (33 )   (36 ) Provisions for losses               (56 )     332     737     795   More information about gains and losses from investments accounted for using the equity method is presented in Note 10.11 - Investments. Other income (expense) from investments Other income (expense) from investments consistedconsist of the following: (million euro)   2004   2005       Gains on disposals               130     179   Dividends               72     33   Losses on disposals               (1 )   (8 ) Other income (expense), net               287     (27 )                 488     177   (million euro)   2004   2005   2006         Dividends   72     33     98   Gains on disposals   130     179     25   Losses on disposals   (1 )   (8 )   (7 ) Other income (expense), net   287     (27 )   (8 )     488     177     108   The gainsDividends of euro 98 million primarily concern Nigeria LNG Ltd (euro 56 million). Gains on disposals of euro 25 million primarily concern the sale of Fiorentina Gas SpA and Toscana Gas SpA (euro 16 million). Gains on disposals relating to the year 2005 of euro 179 million concern the sale of 100% of the share capital of Italiana Petroli SpA (euro 132 million) and 2.33% of Nuovo Pignone Holding SpA (euro 24 million). Other net income from investments concern the gain recorded in the Consolidated Financial Statements due to the sale of 9.054% of the share capital of Snam Rete Gas SpA to Mediobanca SpA (euro 308 million). 29F-73 30 Income tax expense Income tax expense consistedconsist of the following: (million euro)   2004   2005       Current taxes:                         - Italian subsidiaries               1,098     1,872   - foreign subsidiaries of the Exploration & Production segment               3,116     5,116   - foreign subsidiaries               278     373                   4,492     7,361   Less:                         - tax credits on dividend distributions not offset with current tax payment               (39 )   (34 )                 4,453     7,327   Net deferred taxes:                         - Italian subsidiaries               843     334   - foreign subsidiaries of the Exploration & Production segment               215     464   - foreign subsidiaries               11     3                   1,069     801                   5,522     8,128   (million euro)   2004   2005   2006         Current taxes:                   - Italian subsidiaries.   1,098     1,872     2,007   - foreign subsidiaries of the Exploration & Production segment   3,116     5,116     6,740   - foreign subsidiaries.   278     373     529       4,492     7,361     9,276   less:                   - tax credits on dividend distributions not offset with current tax payment   (39 )   (34 )           4,453     7,327     9,276   Net deferred taxes:                   - Italian subsidiaries   843     334     230   - foreign subsidiaries of the Exploration & Production segment   215     464     1,095   - foreign subsidiaries   11     3     (33 )     1,069     801     1,292       5,522     8,128     10,568   Current taxes of the year relate to Italian companies for euro 1,8722,007 million and concern Ires for euro 1,4891,570 and Irap for euro 359374 million and foreign companiestaxes for euro 2463 million. The effective tax rate is 46.8% (42.3%was 51.8% (46.8% in the 2004)2005) compared with a statutory tax rate of 38.1% (38.2% in the 2004),37.9% calculated by applying a 33% tax rate (Ires) to profit before income taxes and 4.25% tax rate (Irap) to the net value of production as provided for by Italian laws. The difference between the statutory and effective tax rate wasis due to the following factors: (%)   2004   2005       Statutory tax rate               38.2     38.1   Items increasing (decreasing) statutory tax rate:                         - higher foreign subsidiaries tax rate               5.2     8.8   - permanent differences               (0.7 )   0.8   - other               (0.4 )   (0.9 )                 4.1     8.7                   42.3     46.8   (%)   2004   2005   2006         Statutory tax rate   38.2     38.1     37.9   Items increasing (decreasing) statutory tax rate:                   - higher foreign subsidiaries tax rate   5.2     8.8     13.6   - permanent differences   (0.7 )   0.8     0.2   - other   (0.4 )   (0.9 )   0.1       4.1     8.7     13.9       42.3     46.8     51.8   The increase of the tax rate for foreign subsidiaries of 4.8% essentially concerns the Exploration & Production segment (4.5%) and includes the effects deriving from the application of the windfall tax introduced by the Algerian government with effect starting from August 1, 2006 (1.6%), a supplemental tax rate introduced by the government of the United Kingdom relating to the North Sea productions with effect starting from January 1, 2006 (1.0%) and the increase and the different allocation by country of profit before income taxes (1.9%). Permanent differences in 20042006 mainly concern the gain recorded in the Consolidated Financial Statements duenon-deductibility from taxable income of costs relating to the sale of 9.054%actions of the share capital of Snam Rete Gas SpA (0.7%Italian Antitrust Authority (0.4%) to Mediobanca SpA. . Permanent differences in 2005 mainly concernedconcern the undeductibilitynon-deductibility from taxable income of the addition in provisions for contingencies following the fine imposed on February 15, 2006 by the Italian Antitrust Authority onto Eni SpA (0.6%). 30F-74 31 Earnings per share Basic earnings per share is calculated by dividing "Net profit" of the year by the weighted-average number of shares issued and outstanding during the year, excluding treasury shares. The average number of shares outstanding used for the calculation of the basic earnings per share was 3,771,692,5843,758,519,603 and 3,758,519,6033,698,201,896 in 20042005 and 2005,2006, respectively. Diluted earnings per share is calculated by dividing "Net profit" of the year by the weighted-average number of shares issued and outstanding during the year, excluding treasury shares, including shares that could be issued potentially. At December 31, 20042005 and 2005,December 31, 2006, shares that could be issued potentially concern essentially shares granted under stock grant and stock option plan.plans. The average number of shares outstanding used for the calculation of the diluted earnings per share was 3,774,953,7103,763,375,140 and 3,763,375,1403,701,262,557 in 20042005 and 2005,2006, respectively. Reconciliation of the average number of shares outstanding used for the calculation of the basic and diluted earning per share is as follows:      2004   2005   2006         Average number of shares used for the calculation of the basic earnings per share       3,771,692,584   3,758,519,603   3,698,201,896 Number of potential shares following stock grant plans       1,953,518   2,268,265   1,070,676 Number of potential shares following stock options plans       1,307,608   2,587,272   1,989,985 Average number of shares used for the calculation of the diluted earnings per share       3,774,953,710   3,763,375,140   3,701,262,557 Eni’s net profit   (million euro)   7,059   8,788   9,217 Basic earning per share   (euro per share)   1.87   2.34   2.49 Diluted earning per share   (euro per share)   1.87   2.34   2.49 Dec. 31, 2004 Dec. 31, 2005       Average number of shares used for the calculation of the basic earnings per share       3,771,692,584   3,758,519,603 Number of potential shares following stock grant plans       1,953,518   2,268,265 Number of potential shares following stock options plans       1,307,608   2,587,272 Average number of shares used for the calculation of the diluted earnings per share       3,774,953,710   3,763,375,140 Eni’s net profit   (million euro)   7,059   8,788 Basic earning per share   (euro per share)   1.87   2.34 Diluted earning per share   (euro per share)   1.87   2.34 F-75 3132 Information by industry segment and geographic financial information Information by industry segment9 Intersegment sales are conducted on an arm’s length basis. (million euro)   Exploration & Production   Gas & Power   Refining & Marketing   Petrochemicals   Oilfield ServicesEngineering & Construction and Engineering   Other activities   Corporate and financial companies   Elimination   Total                     2004                                                                             Net sales from operations (a)   15,346   17,302   26,089   5,331   5,696   1,279   851             15,346   17,302   26,089   5,331   5,696   1,279   851           Less: intersegment sales   (10,216 )   (493 )   (753 )   (499 )   (903 )   (754 )   (731 )             (10,216 )   (493 )   (753 )   (499 )   (903 )   (754 )   (731 )           Net sales to customers   5,130   16,809   25,336   4,832   4,793   525   120       57,545     5,130   16,809   25,336   4,832   4,793   525   120       57,545   Operating profit   8,185   3,428   1,080   320   203   (395 )   (363 )   (59 )   12,399     8,185   3,428   1,080   320   203   (395 )   (363 )   (59 )   12,399   Provisions for contingencies   2   53   309   3   20   16   150       553     2   53   309   3   20   16   150       553   Depreciation, amortization and writedowns   3,335   644   476   116   184   70   106       4,931     3,335   644   476   116   184   70   106       4,931   Effects of investments accounted for using the equity method   7   164   89   (4 )   117       (41 )       332     7   164   89   (4 )   117       (41 )       332   Identifiable assets (b)   23,866   19,852   9,118   2,821   4,706   708   1,182       62,253     23,866   19,852   9,118   2,821   4,706   708   1,182       62,253   Unallocated assets                                   10,600   Investments accounted for using the equity method   273   1,773   745   5   328   30   2       3,156     273   1,773   745   5   328   30   2       3,156   Identifiable liabilities (c)   4,798   3,394   3,848   621   2,825   1,976   1,589       19,051     4,798   3,394   3,848   621   2,825   1,976   1,589       19,051   Unallocated liabilities                                   18,262   Capital expenditures   4,853   1,451   693   148   186   49   119       7,499     4,853   1,451   693   148   186   49   119       7,499   2005                                                                             Net sales from operations (a)   22,477   22,969   33,732   6,255   5,733   1,358   977             22,531   22,969   33,732   6,255   5,733   863   1,239           Less: intersegment sales   (14,761 )   (572 )   (1,092 )   (683 )   (925 )   (905 )   (835 )             (14,761 )   (572 )   (1,092 )   (683 )   (925 )   (546 )   (1,015 )           Net sales to customers   7,716   22,397   32,640   5,572   4,808   453   142       73,728     7,770   22,397   32,640   5,572   4,808   317   224       73,728   Operating profit   12,574   3,321   1,857   202   307   (902 )   (391 )   (141 )   16,827     12,592   3,321   1,857   202   307   (934 )   (377 )   (141 )   16,827   Provisions for contingencies   50   703   420   47   32   287   104       1,643     50   703   420   47   32   284   107       1,643   Depreciation, amortization and writedowns   4,100   685   467   147   180   106   100   (4 )   5,781     4,101   685   467   147   180   91   114   (4 )   5,781   Effects of investments accounted for using the equity method   14   359   221   3   140               737     14   359   221   3   140               737   Identifiable assets (b)   28,982   21,928   11,787   2,905   5,248   612   1,377   (534 )   72,305     29,010   21,928   11,787   2,905   5,248   438   1,523   (534 )   72,305   Investments accountedfor using the equity method   292   2,155   936   19   457   31           3,890   Unallocated assets                                   11,545   Investments accounted for using the equity method   292   2,155   936   19   457   31           3,890   Identifiable liabilities (c)   6,762   5,097   4,542   702   3,204   2,249   1,975       24,531     6,785   5,097   4,542   702   3,204   2,070   2,131       24,531   Unallocated liabilities                                   20,102   Capital expenditures   4,964   1,152   656   112   349   69   112       7,414     4,965   1,152   656   112   349   48   132       7,414   2006                                       Net sales from operations (a)   27,173   28,368   38,210   6,823   6,979   823   1,174           Less: intersegment sales   (18,445 )   (751 )   (1,300 )   (667 )   (771 )   (520 )   (991 )           Net sales to customers   8,728   27,617   36,910   6,156   6,208   303   183       86,105   Operating profit   15,580   3,802   319   172   505   (622 )   (296 )   (133 )   19,327   Provisions for contingencies   153   197   264   30   (13 )   236   (100 )       767   Depreciation, amortization and writedowns   4,776   738   447   174   196   28   71   (9 )   6,421   Effects of investments accounted for using the equity method   28   509   194   2   66   (4 )           795   Identifiable assets (b)   29,720   23,500   11,359   2,984   6,362   344   1,023   (666 )   74,626   Unallocated assets                                   13,686   Investments accounted for using the equity method   258   2,214   874   11   483   46           3,886   Identifiable liabilities (c)   9,119   5,284   4,712   806   3,869   1,940   1,619       27,349   Unallocated liabilities                                   19,764   Capital expenditures   5,203   1,174   645   99   591   72   88   (39 )   7,833         (a)   Before elimination of intersegment sales. (b)   Includes assets directly related to the generation of operating profit. (c)   Includes liabilities directly related to the generation of operating profit. _______________ (9) Operating profit (loss) by industry segment for 2005 have been reclassified on the basis of the new subdivision within segments. This reclassification concerns the Exploration & Production, Other activities and Corporate and financial companies segments. Intersegment sales are conducted on an arm’s length basis.F-76 Geographic financial information Assets and investments by geographic area of origin (million euro)   Italy   Other EU   Rest of Europe   Americas   Asia   Africa   Other areas   Total     2004                                 Identifiable assets (a)   33,812   9,096   2,598   2,011   4,499   9,942   295   62,253 Capital expenditures   2,655   337   387   357   1,066   2,622   75   7,499 2005                                 Identifiable assets (a)   38,229   8,768   3,085   2,670   5,864   13,445   244   72,305 Capital expenditures   2,442   545   415   507   1,181   2,233   91   7,414 2006                                 Identifiable assets (a)   37,339   10,037   3,200   2,987   6,341   14,190   532   74,626 Capital expenditures   2,529   713   436   572   1,032   2,419   132   7,833 2004                                                       Identifiable assets (a)         33,812     9,096     2,598     2,011     4,499     9,942     295     62,253   Capital expenditures         2,655     337     387     357     1,066     2,622     75     7,499   2005                                                       Identifiable assets (a)         38,229     8,768     3,085     2,670     5,864     13,445     244     72,305   Capital expenditures         2,442     545     415     507     1,181     2,233     91     7,414         (a)   Includes assets directly related to the generation of operating profit. Sales from operations by geographic area of destination (million euro)   2004   2005       Italy               27,100     32,846   Other European Union               13,095     19,601   Rest of Europe               3,769     5,123   Americas               5,790     6,103   Asia               3,088     4,399   Africa               4,148     5,259   Other areas               555     397                   57,545     73,728   (million euro)   2004   2005   2006         Italy   27,100   32,846   36,343 Other European Union   13,095   19,601   23,949 Rest of Europe   3,769   5,123   6,975 Americas   5,790   6,103   6,250 Asia   3,088   4,399   5,595 Africa   4,148   5,259   5,949 Other areas   555   397   1,044     57,545   73,728   86,105   3233 Transactions with related parties In the ordinary course of its business, Eni enters into transactions concerning the exchange of goods, provision of services and financing with joint ventures, affiliated companies and non-consolidated subsidiaries as well as with entities directly and indirectly owned or controlled by the Government. All such transactions are mainly conducted on an arm’s length basis in the interest of Eni companies. The following is a description of trade and financing transactions with related parties. Relevant transactions carried out with entities controlled by the Italian government are only those with Enel, the Italian National Electric Company. F-77 Trade and other transactions Trade and other transactions forin the year 2004 consisted of the following: (million euro)   Dec. 31, 2004   2004         Costs   Revenues     Name   Receivables   Payables   Guarantees   Commitments   Goods   Services   Goods   Services                 Joint ventures and affiliated companies                                                                   Albacom SpA   8   14           3   35       8     8   14           3   35       8 ASG Scarl   51   88   33           203   1   7     51   88   33           203   1   7 Azienda Energia e Servizi Torino SpA   1   18               68       3     1   18               68       3 Bayernoil Raffineriegesellschaft mbH       39           2   791   1             39           2   791   1     Bernhard Rosa Inh. Ingeborg Plochinger GmbH   10                       108       Bernhard Rosa Inh. Ingeborg Plöchinger GmbH   10                       108     Blue Stream Pipeline Co BV   43   10               121       5     43   10               121       5 Bronberger & Kessler und Gilg & Schweiger GmbH   13                       141         13                       141     Cam Petroli Srl   1                       6         1                       6     CEPAV (Consorzio Eni per l’Alta velocità) Uno   167   165   4,894                   531   CEPAV (Consorzio Eni per l’Alta Velocità) Uno   167   165   4,894                   531 Eni Oil Co Ltd   4   163               53             4   163               53         Erg Raffinerie Mediterranee SpA   30   30       100   1,043   10   412   9     30   30       100   1,043   10   412   9 Gruppo Distribuzione Petroli Srl   16                       45         16                       45     Karachaganak Petroleum Operating BV   21   12               104       42     21   12               104       42 Modena Scarl   6   37   43           134       1     6   37   43           134       1 Petrobel Belayim Petroleum Co       83               240                 83               240         Promgas SpA   27   23           230       259         27   23           230       259     Raffineria di Milazzo ScpA   6   4               245   62         6   4               245   62     Rodano Consortile Scarl   3   22   1           79       1     3   22   1           79       1 Siciliana Gas Vendite SpA   9                       36         9                       36     Supermetanol CA       24           79   10                 24           79   10         Super Octanos CA       55           212   11       1         55           212   11       1 Trans Austria Gasleitung GmbH       15               167       3         15               167       3 Trans Europa Naturgas Pipeline GmbH       9               51                 9               51         Transitgas AG       2               59                 2               59         Unión Fenosa Gas Comercializadora SA                           7                                 7     Unión Fenosa Gas SA           111                   1             111                   1 Other (*)   84   74   109       23   108   56   18     84   74   109       23   108   56   18   500   887   5,191   100   1,592   2,489   1,134   630     500   887   5,191   100   1,592   2,489   1,134   630 Unconsolidated subsidiaries                                                                   Agip Kazakhstan North Caspian Operating Co NV   2               1   14       9   Agip Kazakhstan North                                 Caspian Operating Co NV   2               1   14       9 Eni BTC Ltd           143                                 143                     Eni Gas BV   30   40   17           5       1     30   40   17           5       1 Eni Middle East BV           367                                 367                     Transmediterranean Pipeline Co Ltd   1   1               90             1   1               90         Other (*)   30   4   10       4   8   2   11     30   4   10       4   8   2   11   63   45   537       5   117   2   21     63   45   537       5   117   2   21   563   932   5,728   100   1,597   2,606   1,136   651     563   932   5,728   100   1,597   2,606   1,136   651 Entities owned or controlledby the Government                                   Entities owned or controlled by the Government                                 Enel   234   3           2   20   1,287   350     234   3           2   20   1,287   350   797   935   5,728   100   1,599   2,626   2,423   1,001     797   935   5,728   100   1,599   2,626   2,423   1,001       (*)   Each individual amount included herein does not exceed euro 50 million. F-78 Trade and other transactions for the year 2005 consisted of the following: (million euro)   Dec. 31, 2005   2005         Costs   Revenues     Name   Receivables   Payables   Guarantees   Goods   Services   Goods   Services               Joint ventures and affiliated companies                                                           ASG Scarl   13   66   72       173       6     13   66   72       173       6 Azienda Energia e Servizi Torino SpA   2   24           56       2     2   24           56       2 Bayernoil Raffineriegesellschaft mbH       49   1       814                 49   1       814         Bernhard Rosa Inh. Ingeborg Plochinger GmbH   10                   172       Bernhard Rosa Inh. Ingeborg Plöchinger GmbH   10                   172     Blue Stream Pipeline Co BV   45   12           177       4     45   12           177       4 Bronberger & Kessler und Gilg & Schweiger GmbH   12                   207         12                   207     Cam Petroli Srl   85                   593         85                   593     CEPAV (Consorzio Eni per l’Alta Velocità) Uno   105   107   4,894               411     105   107   4,894               411 Eni Gas BV   16   149           47             16   149           47         Eni Oil Co Ltd       84           50                 84           50         Fox Energy Srl   22           4       240         22           4       240     Gruppo Distribuzione Petroli Srl   22                   89         22                   89     Karachaganak Petroleum Operating BV   13   46       6   99       4     13   46       6   99       4 Mangrove Gas Netherlands BV           55                             55                 Modena Scarl   2   12   61       56   1   1     2   12   61       56   1   1 Petrobel Belayim Petroleum Co       138           248                 138           248         Promgas SpA   44   45       307       355         44   45       307       355     Raffineria di Milazzo ScpA   10   10           204   94         10   10           204   94     Rodano Consortile Scarl   2   20           80       2     2   20           80       2 RPCO Enterprise Ltd           55                             55                 Siciliana Gas Vendite SpA   13                   48       Supermetanol CA       8       65                     8       65             Super Octanos CA   1   14       265                 1   14       265             Toscana Gas Clienti SpA   46                   118       Toscana Energia Clienti SpA   46                   118     Trans Austria Gasleitung GmbH   43   55       43   143       47     43   55       43   143       47 Trans Europa Naturgas Pipeline GmbH       2           44           Transitgas AG       7           64                 7           64         Transmediterranean Pipeline Co Ltd       4           88       1         4           88       1 Unión Fenosa Gas Comercializadora SA   4           36       37       Unión Fenosa Gas SA   4   4   62   79       16   2     4   4   62   79       16   2 Other (*)   84   84   112   33   113   62   67     101   86   112   69   157   147   67   598   940   5,312   838   2,456   2,032   547     598   940   5,312   838   2,456   2,032   547 Unconsolidated subsidiaries                                                           Agip Kazakhstan North Caspian Operating Co NV   4   152       5   19       28     4   152       5   19       28 Eni BTC Ltd           165                             165                 Other (*)   44   48   8   1   31   15   9     44   48   8   1   31   15   9   48   200   173   6   50   15   37     48   200   173   6   50   15   37   646   1,140   5,485   844   2,506   2,047   584     646   1,140   5,485   844   2,506   2,047   584 Entities owned or controlled by the Government                                                           Alitalia   20                   276     Enel   187   5       12   10   1,180   333     187   5       12   10   1,180   333 Other (*)   20   19           57   103   12   833   1,145   5,485   856   2,516   3,227   917     227   24       12   67   1,559   345   873   1,164   5,485    856   2,573   3,606   929       (*)   Each individual amount included herein does not exceed euro 50 million. F-79 Trade and other transactions in 2006 consisted of the following: (million euro) Dec. 31, 2006 2006 Costs Revenues Name Receivables Payables Guarantees Goods Services Goods Services Joint ventures and affiliated companies                             ASG Scarl   7   40   80       88   1   1 Azienda Energia e Servizi Torino SpA   1   22           64   1   1 Bernhard Rosa Inh. Ingeborg Plöchinger GmbH   10                   96     Blue Stream Pipeline Co BV   34   19           193       1 Bronberger & Kessler und Gilg & Schweiger GmbH   11                   113     Cam Petroli Srl   103                   310     CEPAV (Consorzio Eni per l’Alta Velocità) Uno   87   87   5,654   16   2       304 Charville - Consultores e Serviços Lda   7       85           4   11 Eni Gas BV   28   90       7   72   8   2 Eni Oil Co Ltd   5   96           59         Fox Energy SpA   35                   125     Gasversorgung Süddeutschland GmbH   14               1   123   19 Gruppo Distribuzione Petroli Srl   19                   54     Karachaganak Petroleum Operating BV   23   70       29   129       7 Mangrove Gas Netherlands BV       1   52                 Petrobel Belayim Petroleum Co       3           181         Promgas SpA   44   39       375       419     Raffineria di Milazzo ScpA   9   12           237   109     Rodano Consortile Scarl   3   14           54       1 RPCO Enterprises Ltd   13       104               12 Supermetanol CA       13       91             Super Octanos CA       13       257             Trans Austria Gasleitung GmbH   7   78       53   138       56 Transitgas AG       8           64         Transmediterranean Pipeline Co Ltd       7           80         Unión Fenosa Gas SA   1   7   61   93   7         Other (*)   72   169   168   75   188   119   66     533   788   6,204   996   1,557   1,482   481 Unconsolidated subsidiaries                             Agip Kazakhstan North Caspian Operating Co NV   27   132       18   16       57 Eni BTC Ltd           185                 Eni Timor Leste SpA           102                 Other (*)   20   30   8   1   4   8   4     47   162   295   19   20   8   61     580   950   6,499   1,015   1,577   1,490   542 Entities owned or controlled by the Government                             Alitalia   12                   354     Enel   162   42       47   33   1,068   383 Other (*)   42   29       4   44   136   1     216   71       51   77   1,558   384     796   1,021   6,499   1,066   1,654   3,048   926 (*) Each individual amount included herein does not exceed euro 50 million. Engineering, construction and maintenance services wereare acquired on an arm’s length basis from the Cosmi Holding Group, related to Eni through a member of the Board of Directors, for a total of approximately euro 2818 million and euro 1813 million in 20042005 and 2005,2006, respectively. Most significant transactions concern: •   provision of specialized services in upstream activities and payables for investment activities from Agip Kazakhstan North Caspian Operating Co NV, Eni Gas BV, Eni Oil Co Ltd, Eni Gas BV, Karachaganak Petroleum Operating BV and Petrobel Belayim Petroleum Co; services are invoiced on the basis of incurred costs; exclusively 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 and with Karachaganak Petroleum Operating Co BV and Agip Kazakhstan North Caspian Operating Co NV the provision of services from the Oilfield Services Construction and Engineering segment of Eni; •   communication services, data transmissiontransactions related to the planning and concessionsthe construction of optical fibersthe tracks for high speed/high capacity trains from Milan to Bologna with Albacom SpA; in 2005 the company was sold;ASG Scarl, CEPAV (Consorzio Eni per l’Alta Velocità) Uno, Modena Scarl and Rodano Consortile Scarl, and relevant guarantees; •   transportation and distribution activities with Azienda Energia e Servizi Torino SpA; •   sale of petrochemical products, supply of crude oil refining activities and fuel additive purchase from Bayernoil Raffineriegesellschaft mbH,products to Bernhard Rosa Inh. Ingeborg PlochingerPlöchinger GmbH, Bronberger & Kessler und Gilg & Schweiger GmbH, Cam Petroli Srl, Fox Energy SpA, Gruppo Distribuzione Petroli Srl Fox Energy Srl,and Raffineria di Milazzo ScpA on the basis of prices referred to the quotations on international markets of the main oil products, as they would be conducted on an arm’s length basis; F-80 • acquisition of petrochemical products from Supermetanol CA and Superoctanos CA;Super Octanos CA on the basis of prices referred to the quotations on international markets of the main oil products; •   acquisition of natural gas transport services outside Italy from Blue Stream Pipeline Co BV, Trans Austria Gasleitung GmbH and services from the Oilfield Services Construction and Engineering segment of Eni;Transitgas AG; •   acquisitionguarantees given in relation to the construction of refining services from Erg Raffinerie Mediterranee SpA and Raffineria di Milazzo ScpAan oil pipeline on the basisbehalf of general conditions applied to third parties for Erg Raffinerie Mediterranee SpA andEni BTC Ltd; • sale of incurred costs for Raffineria di Milazzo ScpA; in 2005 Erg Raffinerie Mediterranee SpA was sold;natural gas with Gasversorgung Süddeutschland GmbH e Toscana Gas Clienti SpA; •   guarantees given on behalf of Mangrove Gas Netherlands BV, RPCO Enterprises Ltd, Charville - Consultores e Serviços Lda and RPCO Enterprise LtdEni Timor Leste SpA relating to bid bonds and performance bonds; •   sale and acquisition of natural gas outside Italy with Promgas SpA; •   sale of natural gas with Siciliana Gas Vendite SpA e Toscana Gas Clienti SpA; • transactions related to the planning and the construction of the tracks for high speed/high capacity trains from Milan to Bologna with the Consorzio Eni per l’Alta Velocità - CEPAV Uno, ASG Scarl, Modena Scarl and Rodano Consortile Scarl, and relevant guarantees; • acquisition of natural gas transportrefining services outside Italy from Trans Austria Gasleitung GmbH, Trans Europa Naturgas Pipeline GmbH and Transitgas AG; transactions are regulatedRaffineria di Milazzo ScpA on the basis of compensation calculated following the same criteria used in third parties transactions; • performance guarantees given on behalf of Unión Fenosa Gas SA in relation to contractual commitmentscompensations related to the results of operations and sale and acquisition of natural outside Italy with Unión Fenosa Gas SA and Unión Fenosa Gas Comercializadora SA; • guarantees given in relation to the construction of an oil pipeline on behalf of Eni BTC Ltd; • guarantees given to Eni Middle East BV against the contractual commitments with the Government of the Kingdom of Saudi Arabia in 2004; in 2005 the company has been included in the scope of consolidation; andincurred costs; •   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.employed; • sale and acquisition of natural gas and performance guarantees given on behalf of Unión Fenosa Gas SA in relation to contractual commitments related to the results of operations; • sale of oil products with Alitalia; • sale and transportation of natural gas, the sale of fuel oil and the sale and purchase of electricity with Enel. Transactions with Enel concern the sale and transportation of natural gas, the sale of fuel oil and the sale and purchase of electricity; transactions are mainly conducted on an arm’s length basis. Financing transactions Financing transactions in 2004 were as follows: (million euro)   Dec. 31, 2004   2004       Name   Receivables   Payables   Guarantees   Charges   Gains           Joint ventures and affiliated companies                     Albacom SpA   22       88         Blue Stream Pipeline Co BV       2   768       29 EnBW - Eni Verwaltungsgesellschaft mbH           250         Raffineria di Milazzo ScpA           107         Spanish Egyptian Gas Co SAE           404       9 Trans Austria Gasleitung GmbH   389               9 Transmediterranean Pipeline Co Ltd   197               9 Other (*)   52   91   55   9   11     660   93   1,672   9   67 Unconsolidated subsidiaries                     Other (*)   71   54   2   4   2     71   54   2   4   2     731   147   1,674   13   69       (*)   Each individual amount included herein does not exceed euro 50 million. F-81 Financing transactions in 2005 were as follows: (million euro)   Dec. 31, 2005   2005       Name   Receivables   Payables   Guarantees   Charges   Gains           Joint ventures and affiliated companies                     Blue Stream Pipeline Co BV       15   887         Raffineria di Milazzo ScpA           72         Spanish Egyptian Gas Co SAE           360         Trans Austria Gasleitung GmbH   386               12 Transmediterranean Pipeline Co Ltd   190               11 Other (*)   74   125   81   27   47     650   140   1,400   27   70 Unconsolidated subsidiaries                     Other (*)   79   30   34   1   2     79   30   34   1   2     729   170   1,434   28   72       (*)   Each individual amount included herein does not exceed euro 50 million. Financing transactions in 2006 are as follows: (million euro) Dec. 31, 2006 2006 Name Receivables Payables Guarantees Charges Gains Joint ventures and affiliated companies                     Blue Stream Pipeline Co BV       3   794   4   26 Raffineria di Milazzo ScpA           57         Spanish Egyptian Gas Co SAE           323         Trans Austria Gasleitung GmbH   41               6 Transmediterranean Pipeline Co Ltd   147               11 Other (*)   88   81   39   13   11     276   84   1,213   17   54 Unconsolidated subsidiaries                     Other (*)   95   25   2   1   4     95   25   2   1   4     371   109   1,215   18   58 (*) Each individual amount included herein does not exceed euro 50 million. Most significant transactions in 20052006 included: • lendings and guarantees to Albacom SpA in 2004; in 2005 Albacom SpA has been sold to third parties; •   bank debt guaranteesguarantee given on behalf of Blue Stream Pipeline Co BV EnBW - Eni Verwaltungsgesellschaft mbH,and cash deposit at Eni’s financial companies; • bank debt guarantee given on behalf of Raffineria di Milazzo ScpA and Spanish Egyptian Gas Co SAE and the cash deposit at Eni’s financial companies; guarantee given on behalf of EnBW - Eni Verwaltungsgesellschaft mbH expired in 2005; andSAE; •   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. F-82 Impact of transactions and positions with related parties on the balance sheet, net profit and cash flows The impact of transactions and positions with related parties on the balance sheet, net profit and financial flows consists of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Total Related parties Impact % Total Related parties Impact % Trade and other receivables   17,902   1,344   7.51   18,799   1,027   5.46 Other current assets   369           855   4   0.47 Other non-current financial assets   1,050   258   24.57   805   136   16.89 Current financial liabilities   4,612   152   3.30   3,400   92   2.71 Trade and other payables   13,095   1,164   8.89   15,995   961   6.01 Other liabilities   613           634   4   0.63 Long-term debt and current portion of long-term debt   8,386   18   0.21   8,299   17   0.20 Other non-current liabilities   897           418   56   13.40 The impact of transactions with related parties on the profit and loss accounts consists of the following: (million euro) Dec. 31, 2005 Dec. 31, 2006 Total Related parties Impact % Total Related parties Impact % Net sales from operations   73,728   4,535   6.15   86,105   3,974   4.62 Purchases, services and other   48,567   3,429   7.06   57,490   2,720   4.73 Financial income   3,131   72   2.30   4,132   58   1.40 Financial expense   3,497   28   0.80   3,971   18   0.45 Transactions with related parties concern the ordinary course of Eni’s business and are mainly conducted on an arm’s length basis. Main cash flows with related parties are as follows: (million euro)   2005   2006       Revenues and other income   4,535     3,974   Costs and other expenses   (3,429 )   (2,720 ) Net change in trade and other receivables and liabilities   (221 )   162   Dividends and net interests   345     790   Net cash provided from operating activities   1,230     2,206   Capital expenditures in tangible and intangible assets   (474 )   (733 ) Investments   (30 )   (20 ) Change in accounts payable in relation to investments   342     (276 ) Change in financial receivables   2     343   Net cash used in investing activities   (160 )   (686 ) Change in financial liabilities   23     (57 ) Net cash used in financing activities   23     (57 ) Total financial flows to related parties   1,093     1,463   The impact of cash flows with related parties consists of the following: (million euro)   2005   2006       Total Related parties Impact % Total Related parties Impact % Cash provided from operating activities   14,936     1,230     8.24     17,001     2,206     12.98   Cash used in investing activities   (6,815 )   (160 )   2.35     (7,051 )   (686 )   9.73   Cash used in financing activities   (7,824 )   23     ..     (7,097 )   (57 )   0.80   F-83 34 Significant non recurring events and operations Non recurring charges consist of the following: (million euro)   2005   2006       Italian Antitrust fine   (290 )   (184 ) Italian Authority for Electricity and Gas fine         (55 )     (290 )   (239 ) The Italian Antitrust fine of 2006 consists of: (i) a fine imposed by the Italian Antitrust Authority following the proceeding on supplies of jet fuel (euro 109 million); and (ii) inquiries concerning alleged anti-competitive agreements in the area of elastomers (euro 75 million). The fine imposed by the Authority for Electricity and Gas concerns an inquiry relating to the use of storage capacity in thermal year 2005-2006 (euro 45 million) and an inquiry relating to an information requirement on natural gas supplying prices (euro 10 million). The antitrust fine for 2005 concerns a fine imposed by the Italian Antitrust Authority on February 15, 2006 relating to an abuse of dominant position following the behaviors of Trans Tunisian Pipeline Co Ltd (TTPC). More information is included in Note 25 - Guarantees, commitments and risks - Legal Proceedings - Antitrust - TTPC. Non recurring items were immaterial in 2004.   3335 Positions or transactions deriving from atypical and/or unusual operations In 2004, 2005 and in 2006 no positions or transactions deriving from atypical and/or unusual operations were reported. 36 Adjustment of the Consolidated Financial Statements to U.S. GAAP As its shares are listed on the New York Stock Exchange, Eni files an Annual Report (Form 20-F) with the Securities and Exchange Commission (SEC). The Annual Report (Form 20-F) includes the adjustment of the Consolidated Financial Statements to U.S. GAAP. The following information is necessary to reconcile the Italian consolidated annual report for the 20052006 to generally accepted accounting principles in the United States (U.S. GAAP). Summary of significant differences between IFRS and U.S. GAAP Eni’s financial statementsFinancial Statements at December 31, 20052006 have been prepared in accordance with International Financial Reporting Standards (IFRS)16 adopted by the European Commission, which differ in certain respectsaspects from U.S. GAAP. A description of the significant differences and their effects on net profit and shareholders’ equity is set forth in the following notes17. Compared with the Italian accounting principles applied until December 31, 2004 the differences between IFRS and U.S. GAAP are considerably fewer.notes. A) Consolidation policy Eni’s consolidation policy is described under "Principles of consolidation" in Note 12of the Notes to the Consolidated Financial Statements. In particular, under IFRS, the Consolidated Financial Statementsconsolidated 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. Under U.S. GAAP, Saipem SpA (43.26%), and its subsidiaries which are controlled byexcluded from consolidation and are accounted for under the equity method. Under IFRS, Eni exercises control of Saipem SpA also without holding the majority of voting rights have(43.54%) exercisable in shareholders’ meetings. During 2006 Saipem Projects SpA (100% Saipem SpA) acquired from Eni SpA 100% of Snamprogetti SpA that, as a result, has been consolidated under the equity methodexcluded from consolidation; for U.S. GAAP purposes.purposes the gain on this sale was recognized in profit and loss account. F-84 B) Exploration & production activities Exploration UnderConsistent with IFRS, the internationallyinternational specific criteria have been applied for hydrocarbons exploration and production activities. In particular, 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 wells and other" until it is determined if commercial quantities of reserves have been discovered ("successful efforts method"). That determination is made afterAfter completion of drilling and evaluation of the well, and the capitalized costs are either charged to expense or reclassified as part of Eni’s proved mineral interests. Costs of exploratory wells that have found commercially producible quantities of reserves that cannot be classified as proved remain capitalized after the completion of drilling if: (i) such wells have found a sufficient quantity of reserves to justify completion as a producing wells; and (ii) the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if an enterprise obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well is assumed to be impaired, and its costs, net of any salvage value, are charged to expense. Capitalized well costs related to proved properties are amortized over proved developed reserves on the basis of units of production. Other exploration costs, including geological and geophysical surveys, are expensed when incurred. Development Development costs are those costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing oil and gas. Costs to operate and maintain wells and field equipment are expensed as incurred. Under IFRS, costs of unsuccessful development wells are expensed immediately.immediately as loss on disposal. Costs of successful development wells are capitalized and amortized on the basis of units of production.using UOP. Under U.S. GAAP, costs of productive wells and development dry holes, both tangible and intangible, are capitalized and amortized onusing the UOP method. C) Valuation of assets and subsequent revaluation Both IFRS and U.S. GAAP require that recoverability of carrying value of tangible and intangible assets which are impaired be written down to their fair value,with a definite useful life is checked using similar criteria, with the exception of the following aspects. Under IFRS, in order to determine whether an impairment exists, the book value of an asset in question is compared with its recoverable amount which is represented by the greater of fair value, net of disposal costs and value in use which is calculated by discounting estimated cash flows arising from the use of the asset and its sale at the end of its useful life. Impairment chargeslosses of assets different from goodwill are reversed when the situation giving rise to an impairment ceases to exist. Under U.S. GAAP, the recoverability of the value of an asset used in the production process is first checked by comparing the carrying amount with the sum of undiscounted cash flows expected from use of the asset and its disposal at the end of its useful life. Only if the result of this first check is negative does the entity write the asset down using discounted future cash flows. Under U.S. GAAP reversals of impairment chargeslosses are not permitted. D) Deferred tax assets and liabilities Under IFRS, taxes payable relating to certain potential distributions from shareholders’ equityretained profits and other reserves or upon liquidation of a company are accrued only to the extent such distributions are planned. Under U.S. GAAP, deferred tax liabilities are recognized regardless of expected distribution of dividends or the disposal of investments. However, U.S. GAAP does not require the accrual of deferred taxes when the investment is a foreign subsidiary and there is sufficient evidence that profits will remain permanently invested in the entity. F-85 The adjustmentsadjustment included in Note 34 include37 - Reconciliation of net profit and shareholders’ equity determined under IFRS to U.S. GAAP, concerns the recognition of deferred taxes on undistributed earningsretained profits and other reserves regardless of subsidiariestheir expected distribution and deferred taxes on acquired temporary differences. Theare measured taking into account the exception provided for foreign subsidiaries. Tax adjustments also include thealso deferred tax effect ofassets and liabilities recognized on other adjustments to U.S. GAAP adjustments. The adjustment relating to the results of 2005 includes the impact of the circumstance that starting on January 1, 2005, the Company recorded for U.S. GAAP purposes the tax effects of temporary differences of activities conducted under the terms of certain Production Sharing Agreements where the company’s income tax liability is paid out of Eni’s share of oil and gas production. The effect of recording did not have a material effect on the Company’s results of operations.GAAP. E) Intangible assets Under U.S. GAAP, intangible assets include the recording, separately from goodwill, of assets acquired in or following business combinations arising from legal or contractual rights regardless of their ability to be transferred and of other assets owned by the entity that can be transferred individually or together with other assets and liabilities. If such intangible assets have definite lives they are amortized by the straight line method over their useful lives. IFRS are consistent with U.S. GAAP. However, considering that in the first application of IFRS, Eni has decided not to restate business combinations, the value of the intangible assets described is recorded in the item "Goodwill". Both under U.S. GAAP and IFRS, goodwill and intangible assets with an indefinite useful life are not amortized; the carrying amount of these assets are subject to a yearly evaluation in order to define the relevant impairment if needed.is reviewed annually for impairment. Such accounting principles have been adopted starting from January 1, 2002 for U.S. GAAP and January 1, 2004 for IFRS. The adjustments for the reconciliation of the shareholdersshareholders’ equity included in Note 3437 - Reconciliation of net profit and shareholders’ equity determined under IFRS to U.S. GAAP, concern the reversal of the amortization of goodwill for the years 2002 and 2003. F) Valuation of Inventories Under U.S. GAAP, crude oil, petroleum products and natural gas inventories are calculated using the LIFO method. Under IFRS the LIFO method is not permitted. 34G) Provisions for employee benefits Both under U.S. GAAP and IFRS liabilities related to defined benefit plans and long-term employee benefits are determined by adopting actuarial assumptions. The application of the corridor approach is allowed. Under the corridor approach the actuarial gains and losses of defined benefit plans, deriving from a change in the actuarial assumptions used or from a change in the conditions of the plan, are charged to the profit and loss account, proportionally through the residual average working life of the employees participating to the plan, in the limits of the share of the discounted profit/loss not charged beforehand, that exceeds the greater of 10% of liabilities and 10% of the fair value of the plan assets. Under IFRS, following the application of the corridor approach, the liability for employee benefits is recognized in the caption "Provisions for employee benefits" and excludes actuarial incomes and losses not charged to the profit and loss account. Plan assets are measured on the basis of their expected return. Under U.S. GAAP plan assets are measured on the basis of their effective return. The actuarial liability recognized in the balance sheet includes the total amount of incomes and losses deriving from changes in actuarial assumptions; changes of liabilities relating to actuarial incomes and losses not accounted in the profit and loss account are recognized, net of the related deferred tax effect with a corresponding entry to the item of the shareholders’ equity "Other comprehensive income"10. In the following periods, the actuarial incomes and losses "suspended" in other comprehensive income are recognized in the profit and loss account according to the corridor method. _______________ (10) The difference between IFRS and U.S. GAAP takes into consideration the adoption of SFAS 158 "Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R)" (SFAS); the effects of the adoption of SFAS 158 are described in the paragraph "Changes in accounting principles". F-86 37 Reconciliation of net profit and shareholders’ equity determined under IFRS to U.S. GAAP The following is a summary of the significant adjustments to net profit forof 2004, 2005 and 20052006 and to shareholders’ equity as of December 31, 20042005 and as of December 31, 20052006 that would be required if U.S. GAAP had been applied instead of IFRS in the Consolidated Financial Statements. (million euro)   2004   2005       Net profit according to the financial statements prepared under IFRS   7,059     8,788   Items increasing (decreasing) reported net profit:             A. effect of the differences related to companies consolidated under IFRS but carried at equity method under U.S. GAAP   (1 )       B. successful-efforts accounting   (82 )   47   C. elimination of assets impairments and revaluations   5         D. deferred income taxes   (21 )   (279 ) E. assets associated to the acquisition of a company (portfolio of clients)   (5 )   (5 ) F. valuation of inventories   (316 )   (956 ) Effect of the difference between IFRS and U.S. GAAP on investments accounted for using the equity method   34     12   Other adjustments (a)   (280 )   (3 ) Effect of U.S. GAAP adjustments on minority interest (b)   8     (21 ) Net adjustment   (658 )   (1,205 ) Net profit in accordance with U.S. GAAP   6,401     7,583   Basic profit per share (c)   1.70     2.02   Diluted profit per share (c)   1.70     2.01   Basic profit per ADS (based on two shares per ADS) (c)   3.39     4.03   Diluted profit per ADS (based on two shares per ADS) (c)   3.39     4.03   (million euro)   2004   2005   2006         Net profit pertaining to Eni according to the Financial Statements prepared under IFRS   7,059     8,788     9,217   Items increasing (decreasing) reported net profit:                   A. effect of the differences related to companies consolidated under IFRS but carried at equity method under U.S. GAAP   (1 )         (1 ) B. successful-efforts accounting   (82 )   47     359   C. elimination of asset impairments and revaluations   5           36   D. deferred income taxes   (21 )   (279 )   (120 ) E. assets associated to the acquisition of a company (portfolio of clients)   (5 )   (5 )   (5 ) F. valuation of inventories   (316 )   (956 )   267   Gain on disposal of Snamprogetti SpA to Saipem Projects SpA (*)               252   Effect of the difference between IFRS and U.S. GAAP on investments accounted for using the equity method   34     12     1   Other adjustments   (280 )   (3 )   (4 ) Effect of U.S. GAAP adjustments on minority interest (a)   8     (21 )   3   Net adjustment   (658 )   (1,205 )   788   Net profit in accordance with U.S. GAAP   6,401     7,583     10,005   Basic profit per share (b)   1.70     2.02     2.71   Diluted profit per share (b)   1.70     2.01     2.70   Basic profit per ADR (based on two shares per ADR) (b)   3.39     4.03     5.41   Diluted profit per ADR (based on two shares per ADR) (b)   3.39     4.03     5.41         (a)(*)   In 2004, other adjustments relate to other reconciling items between IFRS andFor U.S. GAAP mainlypurposes Eni SpA’s investment in respect of the accounting of the derivative financial instruments, which in 2004 were notSaipem SpA is accounted for under the fair value accounting method as permittedequity method. During the year Eni SpA sold Snamprogetti SpA to Saipem SpA which resulted in a gain on sale. A portion of this gain was recognized in net profit in accordance with U.S. GAAP equal to the portion of the gain derived from interests held in Saipem SpA by parties external to the Eni Group. Under IFRS Saipem SpA is fully consolidated and, therefore, no gain was recognized. An adjustment was made under IFRS first application exemptions.within equity to reflect the change in minority interests resulting from this transaction. (b)(a)   Adjustment to account for minority interest portion of differences A through F, which includeincludes 100% of differences between IFRS and U.S. GAAP on less than wholly-owned subsidiaries. (c)(b)   Amounts in euro. F-87 In 2004, other adjustments relate to other reconciling items between IFRS and U.S. GAAP mainly in respect of the accounting of the derivative financial instruments, which in 2004 were not accounted for under fair value accounting method as permitted under IFRS first application exemption. (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Shareholders’ equity according to the financial statements prepared under IFRS   32,374     36,868   Items increasing (decreasing) reported shareholders’ equity (a):             A. effect of the differences related to companies consolidated under IFRS but carried at equity method under U.S. GAAP   61     37   B. successful-efforts accounting   2,072     2,504   C. elimination of assets impairments and revaluations   231     230   D. deferred income taxes   (2,982 )   (3,415 ) E. goodwill   846     811   F. assets associated with the acquisition of a company (portfolio of clients)   (11 )   (16 ) G. valuation of inventories   (1,080 )   (2,036 ) Effect of the difference between IFRS and U.S. GAAP on investments accounted for using the equity method   269     173   Other adjustments   (137 )       Effect of U.S. GAAP adjustments on minority interest (b)   6     (31 ) Net adjustment   (725 )   (1,743 ) Shareholders’ equity in accordance with U.S. GAAP   31,649     35,125   Shareholders’ equity pertaining to Eni according to the Financial Statements prepared under IFRS   36,868     39,029   Items increasing (decreasing) reported shareholders’ equity (a)             A. effect of the differences related to companies consolidated under IFRS but carried at equity method under U.S. GAAP   37     33   B. successful-efforts accounting   2,504     2,672   C. elimination of assets impairments and revaluations   230     311   D. deferred income taxes   (3,415 )   (3,495 ) E. goodwill   811     786   E. assets associated with the acquisition of a company (portfolio of clients)   (16 )   (22 ) F. valuation of inventories   (2,036 )   (1,769 ) G. provisions for employees benefits         (32 ) Effect of the difference between IFRS and U.S. GAAP on investments accounted for using the equity method   173     169   Other adjustments         2   Effect of U.S. GAAP adjustments on minority interest (b)   (31 )   (28 ) Net adjustment   (1,743 )   (1,373 ) Shareholders’ equity in accordance with U.S. GAAP   35,125     37,656         (a)   Items increasing (decreasing) reported shareholders’ equity of foreign companies are translated into euro at the exchange rate prevailing at the end of each period. (b)   Adjustment to account for minority interest portion of differences A through G, which include 100% of differences between IFRS and U.S. GAAP on less than wholly-owned subsidiaries. F-88 The consolidated balance sheets, if determined under U.S. GAAP would have been as follows: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       ASSETS             Current assets             Cash and cash equivalent   988     1,121   Other financial assets for trading or available for sale   1,475     1,484   Trade and other receivables   13,268     17,971   Inventories   2,273     1,929   Income tax receivables   636     575   Other current assets   494     387   Total current assets   19,134     23,467   Non-current assets             Property, plant and equipment   39,652     43,868   Inventories - compulsory stock   662     1,462   Intangible assets   5,125     5,244   Investments accounted for using the equity method   3,892     4,589   Other investments   439     416   Other financial assets   2,015     1,105   Deferred tax assets   1,159     1,847   Other non-current assets   276     979   Total non-current assets   53,220     59,510   TOTAL ASSETS   72,354     82,977   LIABILITIES AND EQUITY             Current liabilities             Current financial liabilities   4,474     4,916   Current portion of long-term debt   935     809   Trade and other payables   9,392     11,552   Taxes payable   2,423     3,296   Other current liabilities   594     648   Total current liabilities   17,818     21,221   Non-current liabilities             Long-term debt   7,288     7,229   Provisions for contingencies   5,720     7,615   Provisions for employee benefits   746     939   Deferred tax liabilities   6,367     8,370   Other non-current liabilities   461     1,015   Total non-current liabilities   20,582     25,168   TOTAL LIABILITIES   38,400     46,389   SHAREHOLDERS’ EQUITY             Minority interests   2,305     1,463   Eni shareholders’ equity:             Share capital: 4,005,358,876 fully paid shares nominal value euro 1 each (4,004,424,476 shares at December 31, 2004)   4,004     4,005   Other reserves   24,473     27,753   Net profit   6,401     7,583   Treasury shares   (3,229 )   (4,216 ) Eni shareholders’ equity   31,649     35,125   Total shareholders’ equity   33,954     36,588   TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   72,354     82,977   ASSETS             Current asset             Cash and cash equivalent   1,121     3,685   Other financial assets for trading or available for sale   1,484     970   Trade and other receivables   17,971     18,568   Inventories   1,929     2,721   Current tax assets   575     447   Other current assets   387     877   Total current assets   23,467     27,268   Non-current assets             Property, plant and equipment   43,868     42,924   Other assets         629   Inventories - compulsory stock   1,462     1,273   Intangible assets   5,244     6,057   Investments accounted for using the equity method   4,589     4,305   Other investments   416     353   Other financial assets   1,105     860   Deferred tax assets   1,847     1,145   Other non-current receivables   979     992   Total non-current assets   59,510     58,538   TOTAL ASSETS   82,977     85,806   LIABILITIES AND SHAREHOLDERS’ EQUITY             Current liabilities             Current financial liabilities   4,916     4,032   Current portion of long-term debt   809     890   Trade and other payables   11,552     13,201   Taxes payable   3,296     2,671   Other current liabilities   648     720   Total current liabilities   21,221     21,514   Non-current liabilities             Long-term debt   7,229     6,646   Provisions for contingencies   7,615     8,553   Provisions for employee benefits   939     937   Deferred tax liabilities   8,370     8,762   Other non-current liabilities   1,015     417   Total non-current liabilities   25,168     25,315   TOTAL LIABILITIES   46,389     46,829   SHAREHOLDERS’ EQUITY             Minority interests   1,463     1,321   Eni shareholders’ equity:             Share capital: 4,005,358,876 fully paid shares nominal value euro 1 each (the same amount as of December 31, 2005)   4,005     4,005   Other reserves   27,753     29,020   Net profit   7,583     10,005   Treasury shares   (4,216 )   (5,374 ) Eni shareholders’ equity   35,125     37,656   Total shareholders’ equity   36,588     38,977   TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   82,977     85,806   F-89 Fixed assetsProperty, plant and equipment determined under U.S. GAAP consistedconsist of the following: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Fixed assets, gross:             - Exploration & Production   39,584     47,882   - Gas & Power   20,106     21,514   - Refining & Marketing   8,568     9,059   - Petrochemicals   3,793     3,923   - Oilfield Services Construction and Engineering   110     72   - Other activities   1,511     1,413   - Corporate and financial companies   191     212   - Elimination of intra-group profits         (88 )     73,863     83,987   Accumulated depreciation and amortization:             - Exploration & Production   18,155     22,786   - Gas & Power   6,896     7,754   - Refining & Marketing   5,214     5,503   - Petrochemicals   2,564     2,715   - Oilfield Services Construction and Engineering   69     56   - Other activities   1,229     1,221   - Corporate and financial companies   84     88   - Elimination of intra-group profits         (4 )     34,211     40,119   Fixed assets, net:             - Exploration & Production   21,429     25,096   - Gas & Power   13,210     13,760   - Refining & Marketing   3,354     3,556   - Petrochemicals   1,229     1,208   - Oilfield Services Construction and Engineering   41     16   - Other activities   282     192   - Corporate and financial companies   107     124   - Elimination of intra-group profits         (84 )     39,652     43,868   Property, plant and equipment, gross:             - Exploration & Production   47,891     47,852   - Gas & Power   21,514     22,304   - Refining & Marketing   9,059     10,939   - Petrochemicals   3,923     3,940   - Engineering & Construction   72         - Other activities   1,175     1,105   - Corporate and financial companies   441     321   - Elimination of intra-group profits   (88 )   (56 )     83,987     86,405   Accumulated depreciation and amortization:             - Exploration & Production   22,790     24,265   - Gas & Power   7,754     8,204   - Refining & Marketing   5,503     7,111   - Petrochemicals   2,715     2,751   - Engineering & Construction   56         - Other activities   1,060     1,012   - Corporate and financial companies   245     144   - Elimination of intra-group profits   (4 )   (6 )     40,119     43,481   Property, plant and equipment, net:             - Exploration & Production   25,101     23,587   - Gas & Power   13,760     14,100   - Refining & Marketing   3,556     3,828   - Petrochemicals   1,208     1,189   - Engineering & Construction   16         - Other activities   115     93   - Corporate and financial companies   196     177   - Elimination of intra-group profits   (84 )   (50 )     43,868     42,924   Property, plant and equipment by segment as at December 31, 2005 have been reclassified on the basis of the new subdivision within segments. These reclassification concern Exploration & Production, Other activities and Corporate and financial companies. With regard to the profit and loss account, operatingOperating profit (loss) by industry segment and profit before income taxes, as determined under U.S. GAAP, would have been as follows: (million euro)   2004   2005       Operating profit (loss) by industry segment             Exploration & Production   7,946     12,672   Gas & Power   3,371     3,237   Refining & Marketing   811     881   Petrochemicals   281     202   Oilfield Services Construction and Engineering   (52 )   1   Other activities   (364 )   (935 ) Corporate and financial companies   (254 )   (389 ) Elimination of intra-group profits         (141 )     11,739     15,528   Net profit before income taxes   12,324     16,281   (million euro)   2004   2005   2006         Operating profit (loss) by industry segment                   Exploration & Production   7,963     12,690     15,784   Gas & Power   3,371     3,237     3,681   Refining & Marketing   811     881     605   Petrochemicals   281     202     216   Engineering & Construction   (52 )   1         Other activities   (406 )   (967 )   (622 ) Corporate and financial companies   (229 )   (375 )   (296 ) Elimination of intra-group profits         (141 )   (23 )     11,739     15,528     19,345   Net profit before income taxes   12,324     16,281     20,784   Operating profit (loss) by industry segment for the periods 2004 and 2005 have been reclassified on the basis of the new subdivision within segments. These reclassification concern Exploration & Production, Other activities and Corporate and financial companies. 35F-90 38 Additional financial statement disclosures required by U.S. GAAP and the SEC Charges related to asset retirement obligations (SFAS 143) Changes in provisions for asset retirement obligations during the year were: (million euro)   2004   2005       Asset retirement obligations as of January 1   1,950     1,959   New obligations incurred during the year   193     311   Accretion discount   80     106   Revisions of previous estimates   40     277   Spending on existing obligations   (32 )   (107 ) Property dispositions   (234 )       Foreign currency translation   (36 )   110   Other adjustments   (2 )   (10 ) Asset retirement obligations as of December 31   1,959     2,646   (million euro)   2004   2005   2006         Provision for asset retirement obligations as of January 1   1,950     1,959     2,646   New obligations incurred during the year   193     311     12   Accretion discount   80     106     112   Revisions of previous estimates   40     277     1,229   Spending on existing obligations   (32 )   (107 )   (112 ) Property dispositions   (234 )             Foreign currency translation   (36 )   110     (101 ) Other adjustments   (2 )   (10 )   (16 ) Provision for asset retirement obligations as of December 31   1,959     2,646     3,770   Revisions of previous estimates were made in connection with higher estimated costs for the retirement and removal of assets pertaining to certain fields located mainly in United Kingdom, NorwayItaly, Libya and Kazakhstan.Norway. In March 2005, the FASB issued FASB Interpretationinterpretation No. 47, "Accounting"Accounting for Conditional Asset Retirement Obligations –- An Interpretationinterpretation of FASB Statement No. 143"143" (FIN 47),which was effective for the company on December 31, 2005. In adopting FIN 47, the company did not recognize any additional liabilities for conditional retirement obligations. Income taxes in accordance with U.S. GAAP The following information is presented according to Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". Domestic and foreign components of pre-tax income were as follows: (million euro)   2004   2005       Domestic               5,468     4,727   Foreign               6,856     11,554                   12,324     16,281   (million euro)   2004   2005   2006         Domestic   5,468   4,727   6,190 Foreign   6,856   11,554   14,594     12,324   16,281   20,784 The provisions for income taxes were as follows: (million euro)   2004   2005       Current               4,470     7,217   Deferred               1,112     1,116                   5,582     8,333   Domestic               2,197     2,066   Foreign               3,385     6,267   (million euro)   2004   2005   2006         Current   4,470   7,217   9,130 Deferred   1,112   1,116   1,354     5,582   8,333   10,484 F-91 The reconciliation of the income tax provisiontaxes calculated under Italian tax regulation by applying a 33% rate (Ires - national corporate income tax) to pre-tax income and a 4.25% rate (Irap - regional income tax) to net value of production as provided for by Italian laws, to the provision for income taxes recorded on a U.S. GAAP basis in the consolidated statements of income is as follows: (million euro)   2004   2005       Income before tax in accordance with U.S. GAAP   12,324     16,281   Italian statutory tax rate (state and local)   38.3     37.9   Expected income tax provision in accordance with U.S. GAAP at Italian statutory tax rate   4,714     6,176   Effect of items increasing (decreasing) the Italian statutory tax rate:             - taxation of foreign operations at rates different from Italian statutory tax rate   835     1,946   - taxes on distributable reserves   446     252   - permanent differences   (143 )   131   - devaluation/revaluation of deferred tax assets   (218 )   (52 ) - benefits deriving from the application of favorable tax laws   (8 )   (11 ) - other   (44 )   (109 )     5,582     8,333   Income taxes in accordance with U.S GAAP (million euro)   2004   2005   2006         Income before tax in accordance with U.S. GAAP   12,324     16,281     20,784   Italian statutory tax rate (state and local) (%)   38.3     37.9     37.6   Expected income tax provision in accordance with U.S. GAAP at Italian statutory tax rate   4,714     6,176     7,812   Effect of items increasing (decreasing) the Italian statutory tax rate:                   - increase (decrease) in tax effect of foreign operations   835     1,946     2,770   - taxes on distributable reserves   446     252     11   - permanent differences   (143 )   131     (75 ) - revaluation of deferred tax assets   (218 )   (52 )   (20 ) - benefits deriving from the application of favorable tax laws   (8 )   (11 )   (14 ) - other   (44 )   (109 )           5,582     8,333     10,484   Net deferred tax liabilities The tax effects ofmost significant temporary differences causing thegiving rise to net deferred tax liabilities were as follows: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Deferred tax liabilities:             - accelerated depreciation   4,672     6,006   - distributable reserves subject to taxes in case of distribution   2,970     3,212   - excess cost paid for the acquisition of consolidated investments   1,033     485   - successful-efforts method accounting   467     690   - capitalization of interest expense   246     245   - provisions for uncollectible receivables   137     84   - release of excess contingency provisions   83     50   - gains taxable in the future   46     34   - other (a)   378     1,151       10,032     11,957   Deferred tax assets:             - accruals for doubtful accounts and contingencies   (2,045 )   (1,949 ) - revaluation of assets in accordance with Law 342/2000 and 448/2001   (2,000 )   (1,186 ) - tax loss carryforwards   (1,072 )   (510 ) - undeductible expense on investments   (472 )   (237 ) - losses on investments and subsidiaries in excess of currently allowable tax deductions   (225 )   (135 ) - undeductible depreciation and amortization of assets   (432 )   (904 ) - other (a)   (599 )   (1,062 )     (6,845 )   (5,983 ) Less:             - valuation allowance   2,021     549       (4,824 )   (5,434 ) Net deferred tax liabilities   5,208     6,523   Deferred tax liabilities:             - accelerated depreciation   6,006     6,932   - distributable reserves subject to taxes in case of distribution   3,212     3,223   - asset retirement costs   376     724   - successful efforts method accounting   690     522   - excess cost paid for the acquisition of consolidated investments   485     431   - capitalization of interest expense   245     232   - provisions for uncollectible receivables   84     85   - provisions for contingencies   50     47   - gains taxable in the future   34     23   - other   775     805       11,957     13,024   Deferred tax assets:             - accruals for impairment losses on receivables and contingencies   (1,949 )   (2,555 ) - revaluation of assets in accordance with Law No. 342/2000 and No. 448/2001   (1,186 )   (1,028 ) - depreciation and amortization of assets   (904 )   (749 ) - tax losses carryforwards   (510 )   (337 ) - impairment losses on assets and inventories   (135 )   (120 ) - expense on investments   (237 )   (67 ) - other   (1,062 )   (927 )     (5,983 )   (5,783 ) Less:             - valuation allowance   549     376       (5,434 )   (5,407 ) Net deferred tax liabilities   6,523     7,617       (a)   Other deferred tax assets and liabilities items pertain in particular to temporary differences arising in connection with the recognition of asset removal obligations. The valuation allowance relates to deferred tax assets of euro 549376 million (euro 2,021549 million at December 31, 2004)2005) of consolidated companies whose expected future fiscal profits are not considered sufficient for the utilization of these assets. Tax loss carryforwards The difference in gross tax loss carryforwards between IFRS and U.S. GAAP relates to the companies which are consolidated under IFRS (see Note 21)22 - Deferred tax liabilities), but excluded from consolidation according to U.S. GAAP. Investments F-92 Investments At December 31, 20042005 and 2005,2006, investments accounted for under the equity method of euro 3,8924,589 million and euro 4,5894,305 million, respectively, included shares of Saipem SpA, which is publicly listed on the Italian Stock Exchange.stock exchange. The following information includes its fair value:     Eni’s numberNumber of Eni shares   Equity ratio (%)   Share price (euro)   Market value (million euro)           December 31, 2004                         Saipem SpA   189,423,307     43.29     8.864     1,679   December 31, 2005                         Saipem SpA   189,423,307     43.26     13.793     2,613   December 31, 2005                 Saipem SpA   189,423,307   43.26   13.79   2,613 December 31, 2006                 Saipem SpA   189,423,307   43.54   19.71   3,734 In 2004, 2005 and 2005,2006, Saipem SpA was included in the consolidation under IFRS, while, under U.S. GAAP, it is valued under the equity method. Information about Saipem SpA and its subsidiaries (as indicated in Saipem consolidated financial statements), that include Snamprogetti SpA acquired by Saipem in 2006 (see Note 36 - Reconciliation of net profit and shareholders’ equity determined under IFRS to U.S. GAAP - A), representing a 100% share of the companies, is as follows: (million euro)   Dec. 31, 20042005   Dec. 31, 20052006       Total assets   5,137   5,968 - current   2,514   3,101 - non current   2,623   2,867 Total liabilities   3,592   4,325 - current   2,941   3,633 - non current   651   692 Total assets:   5,968   9,531 - current   3,101   6,087 - non current   2,867   3,444 Total liabilities:   4,325   7,946 - current   3,633   6,664 - non current   692   1,282   (million euro)   2004   2005       Net sales from operations               4,306     4,528   Operating profit               328     365   Net profit               235     255   (million euro)   2004   2005   2006         Net sales from operations   4,306   4,528   7,517 Operating profit   328   365   599 Net profit   235   255   384 Concentrations and certain significant estimates The following information is presented according to Statement of Position 94-6 "Disclosures of Certain Significant Risks and Uncertainties". Nature of operations Eni is an integrated energy company operating in the oil and gas, electricity generation, petrochemicals and oilfield services and engineering industries. EXPLORATION & PRODUCTION: through its Exploration & Production Division and subsidiaries, Eni engages in hydrocarbon exploration and production in Italy, North Africa (Algeria, Egypt, Libya and Tunisia), West Africa (Angola, Congo and Nigeria), the North Sea (Norway and the United Kingdom), Latin America (Venezuela), the former Soviet Union countries (mainly Kazakhstan), the United States (Gulf of Mexico and Alaska) and Asia (mainly Saudi Arabia, China, India, Indonesia, Iran and Pakistan). In 2005 approximately 68% of oil production sold was supplied to Eni’s Refining & Marketing segment and approximately 29%40% of natural gas production sold was supplied to Eni’s Gas & Power segment. Eni owns a storage system, made up by eight depleted fields, which is used for the modulation of supply in accordance with seasonal swings in demand (natural gas is stored in the summer and used in the winter), as strategic reserve to ensure supply and to support domestic production through mineral storage. Storage assets are owned by Stoccaggi Gas Italia (Eni 100%), a company constituted in accordance with Law Decree No. 164 of May 23, 164/2000 that introduced laws for the liberalization of the Italian natural gas market. GAS & POWER: Eni is engaged in the supply, transmission and sale of natural gas in Italy and outside Italy through its Gas & Power Division, which was constituted by the incorporation of Snam SpA into Eni SpA in 2002, and through certain subsidiaries. Approximately 87%92% of total purchases are purchased from foreign sources (primarily Algeria, Russia, Thethe Netherlands and Norway) under long-term contracts, which contain take-or-pay provisions, and transported to Italy through a network of over 4,300 kilometers of international pipelines of which Eni owns the transmission rights. F-93 The remaining purchases in Italy are obtained principally from domestic gas produced by Eni’s Exploration & Production segment. Through an approximately 30,700-kilometer30,800-kilometer long network (corresponding approximately to 96% of the Italian domestic natural gas network), Eni supplies natural gas to residential and commercial users (civil market), industrial users and the thermoelectricpower generation segment. Snam Rete Gas (Eni 50.05%53.39%), 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,Stock Exchange, engages in natural gas transportation activities also for other operators of the segment. Following the merging of Italgas Più, Eni supplysupplies natural gas directly to approximately 5five million customers in the residential and commercial segment. Through Italgas (Eni 100%), Eni is engaged in domestic distribution of natural gas in Italy through an approximately 48,000-kilometer long network. Eni is engaged in distribution and sale of natural gas to residential and commercial customers outside Italy, in Argentina through Distribuidora de Gas Cuyana, in Hungary through Tigáz and in Slovenia through Adriaplin doo.Adriaplin. Legislative Decree No. 164 of May 23, 164/2000 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 after 2003; •   until December 31, 2010 the imposition of thresholds to operators in relation to a percentage share of domestic consumption set as follows: (i) 75%, by January 1, 2002, for imported or domestically produced natural gas volumes introduced in the domestic transmission network in order to sell it. This percentage decreases by 2two percentage points per year until it reaches 61% in 2009; and (ii) 50% from January 1, 2003 for sales to final customers. These ceilings are calculated net of own consumption and, in case of sales, also net of losses. In 20052006 Eni’s presence in the Italian natural gas market was in accordance with the above limitations; •   tariffs for transport infrastructure, storage, use of LNG terminals and distribution networks are set by the Authority for Electricity and Gas; and •   third parties are allowed to access natural gas infrastructure according to set conditions. Eni through EniPower SpA (Eni 100%) and subsidiaries is engaged in managing Eni’s electricity business at the power plants located in the Ferrera Erbognone, Ravenna, Livorno, Taranto, Mantova, Brindisi and Ferrara industrial sites with installed capacity of 4.5 gigawattgigawatts and a production sold of 22.7724.82 terawatthours. The demand for gas and fuel oils of EniPower’s stations is met by Eni supplies. REFINING & MARKETING: Eni, through its Refining & Marketing Division, which was constituted by the incorporation of AgipPetroli SpA in Eni SpA in 2002 and certain subsidiaries, engages in petroleum refining and marketing activities primarily in Italy and Europe. Eni is the largest refiner of petroleum products in Italy in terms of overall refining capacity. Approximately 56% of crude oil sold is purchased from Eni’s Exploration & Production segment, the rest is purchased from producing countries pursuant to purchase contracts (22%(28%) and in international spot markets (22%(16%), while the remainder is obtained.. Approximately 58% of the purchased crude oil is refined. 32%35.9% of oil refined derives from the production of Eni’s Exploration & Production segment. PETROCHEMICALS: through Polimeri Europa SpA and subsidiaries (Eni 100%), Eni engages in manufacturing of olefins, aromatics, intermediate products, styrene and elastomers. Eni’s petrochemicals production is concentrated in Italy, the other operations being primarily in Western Europe. Approximately 23% of the oil-based feedstock requirements used by petrochemical plants are supplied by Eni’s Refining & Marketing segment. OILFIELD SERVICES CONSTRUCTION AND ENGINEERING:ENGINEERING & CONSTRUCTION: through Saipem SpA (Eni 43%), a company listed on the Italian stock exchange,Stock Exchange, and its subsidiaries, Eni is engaged in construction and drilling services to customers in the oil and gas industries. Through Snamprogetti SpA (Eni 100%)industries and subsidiaries, Eni is a leading provider of engineering and project management services to customers in the oil and gas and petrochemical industries. At December 31, 2005 approximately 7%2006, 20% of the order backlog of Eni’s Oilfield Services, Construction and Engineering segment related to orders from Eni Group companies. Disclosure in accordance with SFAS No. 107 In accordance with FASSFAS No. 107, fair value of Eni’s long-term debt (including the current portion) amounted to euro 8,3847,652 million and euro 8,4378,384 million at December 31, 2006 and 2005, and 2004, respectively. F-94 Accounting for Suspended Well Costs Refer to Note 33 "Adjustment of the Consolidated Financial Statements to U.S. GAAP" under the caption "B) Exploration & Production activities" for a discussion of the company’s accounting policy for the cost of exploratory wells. suspended well costs Effective January 1, 2005 Eni adopted Position FAS 19-1 (FSP 19-1), "Accounting for Suspended Well Costs."Costs". FSP 19-1 amended Statement of Financial Accounting Standards No. 19 (FAS 19), "Financial Accounting and Reporting by Oil and Gas Producing Companies". Under this provision companies inFollowing adoption of FSP 19-1, Eni temporarily capitalized exploratory drilling costs pending determination of whether the oil and gas industrywell has found proved reserves if both of the following conditions are allowed to continue capitalization of an exploratory well after the completion of drilling when:met: (a) the well has found a sufficient quantity of reserves to justify, if appropriate, its completion as a producing well; and (b) the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is not met or if an enterprise obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well would be assumed to be impaired, and its costs, net of any salvage value, would be charged to expense. FSP FAS 19-1 provided a number of indicators needing to be present to demonstrate sufficient progress was being made in assessing the reserves and economic viability of the project. Among these indicators are: (i) costs are being incurred to assess the reserves and their potential development; (ii) existence (or active negotiations) of sales contracts with customers for oil and natural gas; and (iii) existence of firm plans, established timetables or contractual commitments, which may include seismic testing and drilling of additional exploratory wells. The disclosures and discussion below address those suggested in FSP FAS 19-1. The following table reflects the net changes in capitalized exploratory well costs during 2006, 2005 and 2004, and does not include amounts that were capitalized and subsequently expensed in the same period. Capitalized exploratory well costs for fiscal years ending December 31, 2005 and 2004, are presented based on the Company’s previous accounting policy.2004: (million euro)   2005   2004       Beginning balance at January 1   513     570   Addition pending determination of proved reserves   128     185   Amount previously capitalized expended during the year   (96 )   (54 ) Reclassification to wells, facilities and equipment basedon the determination of proved reserves   (67 )   (72 ) Others reduction (*)   (1 )   (79 ) Foreign exchange changes   74     (37 ) Ending Balance at December 31   551     513   (million euro)   2004   2005   2006         Capitalized exploratory well costs as at January 1   570     513     551   Addition pending determination of proved reserves   185     128     384   Amount previously capitalized expended during the year   (54 )   (96 )   (64 ) Reclassification to wells, facilities and equipment based on the determination of proved reserves   (72 )   (67 )   (45 ) Property dispositions   (79 )   (1 )   (3 ) Foreign exchange changes   (37 )   74     (71 ) Capitalized exploratory well costs as at December 31   513     551     752       (*)   Represents properties sales. The following table provides an aginganalysis of capitalized exploratory well costs based on the date the drilling was completed, and the number of net wells for which exploratory costs have been capitalized for the period:completed:   2005   2004         2004   2005   2006           euro million euro   No. of Net Wells Eni’s net wells(*)   euro million euro   No. of Net Wells Eni’s net wells(*) euro million No. of Eni’s net wells(*)         < 1 year   148   9.35   156   11.14 1 to 3 years   323   24.09   319   27.55 3 to 8 years   80   5.53   39   3.80     551   38.97   513   42.49 < 1 year   156   11.14   148   9.35   360   15.54 1 to 3 years   318   27.55   323   24.09   272   13.71 3 to 8 years   39   3.80   80   5.53   120   11.27     513   42.49   551   38.97   752   40.52       (*)   Net well is the sum of the fractional working interest owned in gross wells. F-95 The following table provides, based on the date the drilling was completed, the capitalized costs and the related net well number at year end 2006, 2005 and 2004 divided by category of projects of exploratory activity.activity:   2005   2004         2004   2005   2006           euro million euro   No. of Net Wells Eni’s net wells(*)   euro million euro   No. of Net Wells Eni’s net wells(*) euro million No. of Eni’s net wells(*)         Project with wells drilled in the past 12 months   148   9.35   156   11.14 Project with recent or planned exploratory activity   344   21.21   283   21.94 Project with exploration activities already underwayor firmly planned:                 - future exploration drilling   159   9.37   148   10.29 - other exploratory activities   185   11.84   135   11.65 Project with completed exploratory activity   59   8.41   75   9.41 Project progressing towards commercialization/sanctioning   45   6.22   61   8.32 Project waiting finalization of development facilities   14   2.19   14   1.09 Total/Number of wells at the year end   551   38.97   513   42.49 Project with wells drilled in the past 12 months   156   11.14   148   9.35   360   15.54 Project with recent or planned exploratory activity   283   21.94   344   21.21   307   15.18 Project with exploration activities already underway or firmly planned:                         - future exploration drilling   147   10.29   159   9.37   186   9.79 - other exploratory activities   135   11.65   185   11.84   121   5.39 Project with completed exploratory activity   75   9.41   59   8.41   85   9.80 Project progressing towards commercialization/sanctioning   61   8.32   45   6.22   63   7.00 Project waiting finalization of development facilities   14   1.09   14   2.19   22   2.80 Total/Number of wells at the year end   513   42.49   551   38.97   752   40.52       (*)   Net well is the sum of the fractional working interest owned in gross wells. At the end of 20052006 of the euro 551752 million of exploratory suspended costs, approximately euro 148360 million related to the 9.3515.54 Eni’s net wells for which the drilling was completed in one year or less. Of the remaining euro 403392 million, related to the 29.6224.98 Eni’s net wells suspended for more than one year since the completion of drilling, 85%78% was associated with projects for which exploration activity is still ongoing. Changes in accounting principles In September 2005, the Emerging Issues Task Force ("EITF") issued Issue No. 04-13 ("EITF 04-13"), "Accounting for Purchases and Sales of Inventory with the Same Counterparty". The EITF concluded that inventory purchases and sales transactions with the same counterparty should be combined for accounting purposes if they were entered into in contemplation of each other. The EITF provided indicators to be considered for purposes of determining whether such transactions are entered into in contemplation of each other. Guidance was also provided on the circumstances under which non-monetary exchanges of inventory within the same line of business should be recognized at fair value. EITF 04-13 became effective in reporting periods beginning after March 15, 2006. Eni adopted EITF 04-13 starting from April 1, 2006. The adoption of EITF 04-13 did not have material effect on Eni’s Consolidated Financial Statements according to U.S. GAAP. Effective January 1, 2006, the Company adopted SFAS No. 123-R, "Share-Based Payment" ("SFAS 123R"), using the modified prospective method. SFAS 123R establishes the accounting for equity instruments exchanged for employee services. Under SFAS 123R, share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employees’ requisite service period, generally the vesting period of the award. SFAS 123R also requires the related excess tax benefit received upon exercise of stock options or vesting of restricted stock, if any, to be reflected in the statement of cash flows as a financing activity rather than an operating activity. The adoption of this standard did not have material effect on Eni’s Consolidated Financial Statements according to U.S. GAAP. As of December 31, 2006, Eni applies SFAS 158 which requires that the provision for employees benefits equals the total actuarial liability and therefore includes the total amount of income and loss resulting from changes in actuarial assumptions. Actuarial income and loss not accounted in the profit and loss account are recognized, net of the related fiscal effect, with a corresponding entry to the item of the shareholders’ equity "Other comprehensive income". In the following periods, the actuarial profits and losses "suspended" in other comprehensive income are recognized in the profit and loss account according to the corridor method. F-96 The effect of the adoption of SFAS 158 consist in the following: (million euro) Net actuarial losses at December 31, 2005 128 Net actuarial losses recognized in 2006 profit and loss account (28 ) Change in net actuarial losses (65 ) Change in consolidation (3 ) Net actuarial losses at December 31, 2006 32 Actuarial losses expected to be recognized in profit and loss account during 2007 amount to euro 3 million. Recent accounting principles In June 2006, FASB issued Interpretation No. 48 "Accounting for uncertainty in income taxes" (FIN 48) that prescribes criteria for recognition and measurement of entity’s tax benefits ("tax positions") which present uncertainty regards of being realized. The requirements of FIN 48 prescribe that an entity shall recognize in financial statements defined tax positions only when is considered "more likely than not" that their positive effects will be realized. The value of the tax position that shall be recognized in financial statements is measured at the largest amount of benefit that is greater than 50% likely of being realized. Eventual differences between tax positions taken in a tax return and amounts recognized in the financial statements represent liabilities to be recognized in balance sheet. FIN 48 is effective starting from January 1, 2007. In September 2006, FASB issued Statement of Financial Accounting Standard No. 157 "Fair value measurement" (SFAS 157). SFAS 157 establishes a framework that applies when U.S. GAAP require fair value measurements of asset and liabilities. According to SFAS 157, fair value is measured mainly on the assumptions used by market participants rather than entity internal assumptions. The use of entity internal assumptions is allowed only for situations in which there are no information readily available on the market; therefore, in this circumstance, the entity adapts its internal assumptions to those used by market participants. SFAS 157 establishes a fair value "hierarchy" articulated on three level according to the different quality of input used in the measurement. SFAS 157 is effective starting from January 1, 2008. In February 2007, FASB issued Statement of Financial Accounting Standard No. 159 "The Fair Value option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115" (SFAS 159). SFAS 159, in order to permit consistent measurement of assets and liabilities connected, reducing volatility of financial results, provides the option to evaluate certain financial and non financial asset and liabilities at fair value (fair value option). The decision of apply fair value option is irrevocable. SFAS 159 is effective starting from January 1, 2008. Eni presently is analyzing the recent accounting principles and, at the moment, is not able to determine if their adoption will have a significant effect on Eni’s Consolidated Financial Statements according to U.S. GAAP. Subsequent events The main significant events that occurred after Under IFRS the subsequent event period is between the balance sheet date and the date the financial statements are authorized for issue. The financial statements were authorized for issue by Eni’s Board of Directors on March 29, 2007. Following the U.S. approach, the subsequent events period for the financial statements contained within Form 20-F extends, in practice, to the date Form 20-F is filed with the SEC. The following subsequent event information is provided following the U.S approach. On February 22, 2007 Eni agreed to acquire certain onshore exploration and production assets operated by Maurel & Prom, entailing a cash consideration of $1,434 million. This transaction includes the producing fields of M’Boundi (48.6%) and Kouakouala A (66.7%) and most of the interests in permit Le Kouilou (50%). Such assets were subject to a pre-emption right in favor of Burren Energy, partner of Maurel & Prom. Subsequently, Eni and Burren Energy reached an agreement providing for Burren Energy’s waiver of the exercise of its pre-emption right and Eni’s sale to this company of a 5.5% interest in the M’Boundi concession and a 2% stake in the Le Kouilou exploration permit under the same economic terms as follows:the acquisition from Maurel & Prom, entailing cash proceeds of $154 million. Eni retains the operatorship and participating interests of 43.1% and 48% in the M’Boundi concession and Le Kouilou exploration permit, respectively. This transaction was finalized at the end of May 2007. • With effective date April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the service contract governing activities at the Dación oil field where Eni acted as a contractor, holding a 100% working interest. As a consequence, starting on the same day, operations at the Dación oil field are conducted by PDVSA which replaced Eni Dación BV, Eni’s wholly-owned subsidiary that had been operating the field until that date. Eni believes that it is entitled to a market value compensation for the expropriation of the Dación field. On these basis, Eni is available to reach an agreement with the Venezuelan authorities. In case an amicable settlement is not possible, Eni will take any other action in order to protect its interest in Venezuela. Based on internal and external independent evaluation, Eni is confident that a fair market compensation will not be lower than the book value of the Dación related assets. Accordingly, management decided not to impair the book value of Eni’s Dación assets. In 2005 and in the first quarter 2006, the Dación field production rate was about 60 KBBL/d. Management expects Eni’s proved reserves of hydrocarbons to be reduced by an amount of approximately 175 mmBBL corresponding to Eni’s net proved reserves of the Dación field as of December 31, 2005 as a consequence of the loss of Eni’s title to the field. • On May 5, 2006 the European Commission started an inquiry in order to verify an alleged abuse of dominant position on the part of Eni in violation of article 82 of the EEC Treaty and article 54 of the CES Agreement in the activities of international gas transport and wholesale and retail supply of gas. According to the European Commission Eni might have adopted commercial practices that constitute barriers to access to the Italian market for the wholesale supply of natural gas, in particular taking account of Eni long-term purchase contracts. In addition Eni also entered into long-term transport contracts which award Eni a majority share of transport capacity of certain international gaslines and, as a consequence, Eni may have prevented others access to infrastructure. Officials from the European Commission have conducted inspections at Eni’s headquarters and of certain of Eni’s subsidiaries and collected documents. If the existence of the alleged anti-competitive practices is confirmed, the European Commission could fine Eni. F-97 On April 4, 2007 Eni, through the partnership in EniNeftegaz (60% Eni, 40% Enel SpA) acquired Lot 2 in the Yukos liquidation procedure for a total price of $5.83 billion (Eni’s share being U.S. $5 billion). Lot 2 includes: 100% of OAO Arctic Gas Co, 100% of ZAO Urengoil Inc and 100% of OAO Neftegaztechnologia. These three companies own 5 gas and condensate fields and parts of other fields in the Yamal Nenets (YNAO) region, large gas producing region. Management believes these three companies to have significant oil and gas resource. Eni and Enel have offered Gazprom an option to acquire a 51% interest in these companies within two years. In the event that Gazprom exercises its call option, the assets will be operated through a joint venture between Eni and Gazprom which will have access to Eni’s technologies. Lot 2 includes also various minor assets that will be sold or liquidated and 20% of OAO Gazprom Neft which will be wholly owned by Eni. Eni offered Gazprom an option to acquire a 20% interest in OAO Gazprom Neft within two years, at a total price of $3.7 billion, in addition to financial expenses related to the acquisition. These agreements are an additional step in implementing the strategic partnership between Eni and Gazprom signed in November 2006, under which the two companies established an alliance to develop upstream, midstream and downstream energy projects inside and outside of Russia. On April 30, 2007 Eni agreed to acquire the Gulf of Mexico upstream activity of Dominion Resources at the agreed price of $4,757 million including exploration assets for $680 million. The transaction includes production, development and exploration assets located in deepwater Gulf of Mexico. Starting from the second half of 2007 up to 2010, production from the acquired assets is expected to average approximately 75 KBOE/d. In addition, Eni will enhance its portfolio in the Gulf of Mexico thanks to new leases with significant exploration potential; approximately 60% of these leases are operated. The transaction is subject to government approvals, expiration of certain preferential purchase rights which apply to a small portion of the acquired assets and to other customary conditions precedent. Closing is expected on July 2, 2007. On May 25,11, 2007 the European Commission has decided to open anti-trust proceedings against Eni based on information obtained during inspections carried out in 2006 at headquarters of Eni and of certain Eni subsidiaries. These proceedings against Eni intend to verify the possible existence of any business conducts breaching European competition rules in the form of preventing access to the Italian natural gas wholesale market and to subdivide the market among few operators in the activity of supply and transport of natural gas. Particularly, the European Commission alleged that Eni might have: (i) adopted commercial practices that constitute barriers to access to the Italian market for the wholesale supply of natural gas, taking account Eni long-term purchase contracts, also by subdividing the market among few operators; and (ii) engaged a majority share of the transport capacity of certain international gaslines, preventing third parties from accessing said infrastructures. Furthermore, the European Commission alleged that Eni might have delayed or annulled certain plans for the upgrading of the international transport infrastructure, despite the significant demand for access by third parties. These suspected practices constitute possible infringements of Article 82 of the EC Treaty. The initiation of proceedings does not imply that the Commission has conclusive proof of an infringement. The Commission will conduct an in-depth investigation of the case as a matter of priority. There is no strict deadline to complete inquiries into anticompetitive conduct. If the existence of the alleged anti-competitive practices is confirmed, the European Commission could fine Eni. At present, management is not able to assess the potential impact on Eni’s Annual General Shareholders Meeting approvedresults of operations and financial condition deriving from an unfavorable outcome of this matter. On May 28, 2007, a euro 2 billion increaseseizure order (in respect to certain documentation) was served upon Eni and other Group companies as part of a proceeding brought by the Public Prosecutor at the Courts of Milan. The order was also served upon five top managers of the Group companies in addition to third party companies and their top managers. The investigation alleges behavior which breaches Italian criminal law,starting from 2003, regarding the use of instruments for measuring gas, the related payments of excise duties and the billing of clients as well as relations with the Supervisory Authorities. The allegation regard, inter alia, the offence contemplated by Legislative Decree of June 8, 2001, No. 231, which establishes the liability of the legal entity for crimes committed by its employee in the interests of such legal entity, or to its advantage. Accordingly, notice of the start of investigations was served upon Eni Group companies (Eni, Snam Rete Gas and Italgas) as well as third party companies. The Group companies are cooperating with the Authorities in the investigations. At present, management is not able to assess the potential impact on Eni’s ongoing share repurchase program. results of operations and financial condition deriving from an unfavorable outcome of this matter. Supplemental oil and gas information (unaudited) The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures about Oil & Gas Producing Activities". Amounts related to minority interests are not significant. The amounts disclosed thereof are prepared in accordance with U.S. GAAP. F-98 Capitalized costs Capitalized costs represent the total expenditures for proved and unproved mineral interests and related support equipment and facilities utilized in oil and gas exploration and production activities, together with related accumulated depreciation, depletion and amortization. Capitalized costs by geographical area consist of the following: (million euro) Italy   North Africa   West Africa   North Sea   Rest of World   Total consolidated subsidiaries Total joint venture and affiliates (a)               At December 31, 2004                                     Proved mineral interests (a)   9,056     7,192     6,288     7,198     7,698     37,432   Unproved mineral interests         272     70     561     1,103     2,006   Support equipment and facilities   252     1,056     209     33     75     1,625   Incomplete wells and other   662     468     1,038     397     882     3,447   Gross Capitalized Costs   9,970     8,988     7,605     8,189     9,758     44,510   Accumulated depreciation, depletion and amortization   (6,416 )   (3,887 )   (3,907 )   (3,733 )   (3,252 )   (21,195 ) Net Capitalized Costs   3,554     5,101     3,698     4,456     6,506     23,315   At December 31, 2005                                     Proved mineral interests (a)   9,756     9,321     8,733     8,350     9,463     45,623   Unproved mineral interests   33     197     134     413     1,265     2,042   Support equipment and facilities   253     1,385     272     33     93     2,036   Incomplete wells and other   657     638     728     221     1,895     4,139   Gross Capitalized Costs   10,699     11,541     9,867     9,017     12,716     53,840   Accumulated depreciation, depletion and amortization   (6,888 )   (5,113 )   (5,193 )   (4,619 )   (4,697 )   (26,510 ) Net Capitalized Costs consolidated   3,811     6,428     4,674     4,398     8,019     27,330   Net Capitalized Costs affiliates and joint ventures (b)         13     66           157     236   Net Capitalized Costs   3,811     6,441     4,740     4,398     8,176     27,566   Dec. 31, 2004                                           Proved mineral interests (b)   9,056     7,192     6,288     7,198     7,698     37,432         Unproved mineral interests         272     70     561     1,103     2,006         Support equipment and facilities   252     1,056     209     33     75     1,625         Incomplete wells and other   662     468     1,038     397     882     3,447         Gross capitalized costs   9,970     8,988     7,605     8,189     9,758     44,510         Accumulated depreciation, depletion and amortization   (6,416 )   (3,887 )   (3,907 )   (3,733 )   (3,252 )   (21,195 )       Net capitalized costs   3,554     5,101     3,698     4,456     6,506     23,315         Dec. 31, 2005                                           Proved mineral interests (b)   9,756     9,321     8,733     8,350     9,463     45,623     435   Unproved mineral interests   33     197     134     413     1,265     2,042     55   Support equipment and facilities   253     1,385     272     33     93     2,036     9   Incomplete wells and other   657     638     728     221     1,895     4,139     53   Gross capitalized costs   10,699     11,541     9,867     9,017     12,716     53,840     552   Accumulated depreciation, depletion and amortization   (6,888 )   (5,113 )   (5,193 )   (4,619 )   (4,697 )   (26,510 )   (316 ) Net capitalized costs   3,811     6,428     4,674     4,398     8,019     27,330     236   Dec. 31, 2006                                           Proved mineral interests (b)   10,780     9,335     8,476     8,790     9,424     46,805     436   Unproved mineral interests   33     132     385     460     1,106     2,116     35   Support equipment and facilities   287     1,238     451     33     98     2,107     8   Incomplete wells and other   655     599     812     300     2,248     4,614     51   Gross capitalized costs   11,755     11,304     10,124     9,583     12,876     55,642     530   Accumulated depreciation, depletion and amortization   (7,184 )   (5,403 )   (5,402 )   (5,345 )   (5,187 )   (28,521 )   (311 ) Net capitalized costs   4,571     5,901     4,722     4,238     7,689     27,121     219     (a) Includes capitalized costs for wells and facilities related to proved reserves. (b) Starting from 2005 data related to affiliates and joint ventures carried on the equity method are included. Cost incurred Costs incurred represent amounts both capitalized and expensed in connection with oil and gas producing activities. (million euro) Italy North Africa West Africa North Sea Rest of World Total             Year ended December 31, 2003                                     Proved property acquisitions                     308     8     316   Unproved property acquisitions                     125     6     131   Exploration   67     80     138     125     243     653   Development (a)   449     1,106     1,268     286     1,454     4,563   Total costs incurred (b)   516     1,186     1,406     844     1,711     5,663   Year ended December 31, 2004                                     Exploration   64     104     71     66     194     499   Development (a)   431     965     881     391     1,407     4,075   Total costs incurred   495     1,069     952     457     1,601     4,574   Year ended December 31, 2005                                     Proved property acquisitions   19           16           99     134   Unproved property acquisitions   13           44           99     156   Exploration   45     153     75     127     264     664   Development (a)   644     960     909     528     1,396     4,437   Total costs incurred consolidated   721     1,113     1,044     655     1,858     5,391   Total costs incurred affiliates and joint ventures (c)         2     22           25     49   Total costs incurred   721     1,115     1,066     655     1,883     5,440   (a) Starting from 2005 includes data related to joint venture and affiliates accounted under the equity method. (b) Includes capitalized costs for wells and facilities related to proved reserves. Costs incurred Costs incurred represent amounts both capitalized and expensed in connection with oil and gas producing activities. Costs incurred by geographical area consist of the following: (million euro) Italy North Africa West Africa North Sea Rest of World Total consolidated subsidiaries Total joint venture and affiliates (a) 2004                             Exploration   64   104   71   66   194   499     Development (b)   431   965   881   391   1,407   4,075     Total costs incurred   495   1,069   952   457   1,601   4,574     2005                             Proved property acquisitions   19       16       99   134     Unproved property acquisitions   13       44       99   156     Exploration   45   153   75   127   264   664   18 Development (b)   644   960   909   528   1,396   4,437   31 Total costs incurred   721   1,113   1,044   655   1,858   5,391   49 2006                             Proved property acquisitions   139   10               149     Unproved property acquisitions                   3   3     Exploration   128   270   471   174   305   1,348   26 Development (b)   1,120   893   963   538   1,365   4,879   31 Total costs incurred   1,387   1,173   1,434   712   1,673   6,379   57 (a) Starting from 2005 includes data related to joint venture and affiliates accounted under the equity method. (a)(b)   Includes for assets retirement obligations pursuant to SFAS 143 "Accounting for asset retirement obligations" of euro 84233 million of costs capitalized during 2003, euro 233 million for 2004, and euro 588 million for 2005. (b) Includes costs2005 and euro 1,241 million for acquisition of Fortum Petroleum AS (now Eni Norge AS) of euro 434 million, net of the related gross-up for deferred taxes of euro 514 million. The amount has been allocated to the North Sea area as follows: (i) Proved property acquisitions euro 308 million, (ii) Unproved property acquisitions euro 109 million, (iii) Exploration euro 17 million. (c) Starting from 2005 data related to affiliates and joint ventures carried on the equity method are included.2006. F-99 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 to such activities including operating overheads. These amounts do not include any allocation of interest expense or general corporate overhead and, therefore, are not necessarily indicative of the contributions to consolidated net earnings of Eni. Related income taxes are computed by applying the local income tax rates to the pre-tax income from producing activities. Eni is a party to certain Production Sharing Agreements (PSAs) whereby a portion of Eni’s share of oil and gas production is withheld and sold by its joint venture partners which are state-owned entities, with proceeds being remitted to the state in satisfaction of Eni’s PSA relatedPSA-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. Results of operations from oil and gas producing activities by geographical area consist of the following: (million euro) Italy   North Africa   West Africa   North Sea   Rest of World   Total consolidated subsidiaries Total joint venture and affiliates (a)               Year ended December 31, 2003                                     Revenues:                                     - sales to affiliates   2,609     1,469     1,946     1,913     345     8,282   - sales to unaffiliated entities   153     1,188     164     822     1,595     3,922   Total revenues   2,762     2,657     2,110     2,735     1,940     12,204   Operations costs   (222 )   (316 )   (283 )   (446 )   (235 )   (1,502 ) Production taxes   (136 )   (97 )   (235 )   (11 )   (79 )   (558 ) Exploration expenses   (89 )   (70 )   (113 )   (96 )   (276 )   (644 ) DD&A and Provision for abandonment (a)   (458 )   (420 )   (377 )   (759 )   (734 )   (2,748 ) Other income and (expenses)   (170 )   (264 )   (121 )   14     (289 )   (830 ) Accretion discount (SFAS 143)   (37 )   (5 )   (14 )   (42 )   (4 )   (102 ) Pretax income from producing activities   1,650     1,485     967     1,395     323     5,820   Estimated income taxes   (629 )   (788 )   (617 )   (750 )   (111 )   (2,895 ) Results of operations from E&P activities   1,021     697     350     645     212     2,925   Year ended December 31, 2004                                     Revenues:                                     - sales to affiliates   2,633     1,868     2,762     2,083     508     9,854   - sales to unaffiliated entities   148     1,364     306     709     2,086     4,613   Total revenues   2,781     3,232     3,068     2,792     2,594     14,467   Operations costs   (223 )   (292 )   (322 )   (405 )   (289 )   (1,531 ) Production taxes   (118 )   (91 )   (379 )   (13 )   (163 )   (764 ) Exploration expenses   (57 )   (47 )   (71 )   (93 )   (155 )   (423 ) DD & A and Provision for abandonment (a)   (489 )   (437 )   (482 )   (687 )   (849 )   (2,944 ) Other income and (expenses)   (98 )   (368 )   (216 )   97     (208 )   (793 ) Accretion discount (SFAS 143)   (37 )   (5 )   (17 )   (15 )   (6 )   (80 ) Pretax income from producing activities   1,759     1,992     1,581     1,676     924     7,932   Estimated income taxes   (632 )   (994 )   (945 )   (948 )   (305 )   (3,824 ) Results of operations from E&P activities   1,127     998     636     728     619     4,108   Year ended December 31, 2005                                     Revenues:                                     - sales to affiliates   3,133     2,813     4,252     2,707     828     13,733   - sales to unaffiliated entities   161     2,579     394     889     2,883     6,906   Total revenues   3,294     5,392     4,646     3,596     3,711     20,639   Operations costs   (261 )   (390 )   (363 )   (417 )   (338 )   (1,769 ) Production taxes   (157 )   (98 )   (513 )   (15 )   (207 )   (990 ) Exploration expenses   (32 )   (59 )   (38 )   (125 )   (181 )   (435 ) DD&A and Provision for abandonment (a)   (512 )   (711 )   (632 )   (710 )   (1,007 )   (3,572 ) Other income and (expenses)   (205 )   (400 )   (176 )   55     (251 )   (977 ) Accretion discount (SFAS 143)   (45 )   (9 )   (15 )   (31 )   (6 )   (106 ) Pretax income from producing activities   2,082     3,725     2,909     2,353     1,721     12,790   Estimated income taxes   (762 )   (2,197 )   (1,818 )   (1,386 )   (580 )   (6,743 ) Results of operations from E&P activities consolidated   1,320     1,528     1,091     967     1,141     6,047   Results of operations from E&P activities, affiliates and joint ventures (b)               6           (19 )   (13 ) Total results of operations from E&P activities   1,320     1,528     1,097     967     1,122     6,034   2004                                           Revenues                                           Sales to consolidated entities   2,633     1,868     2,762     2,083     508     9,854         Sales to third parties   148     1,364     306     709     2,086     4,613         Total revenues   2,781     3,232     3,068     2,792     2,594     14,467         Production costs   (223 )   (292 )   (322 )   (405 )   (289 )   (1,531 )       Production taxes   (118 )   (91 )   (379 )   (13 )   (163 )   (764 )       Exploration expenses   (57 )   (47 )   (71 )   (93 )   (155 )   (423 )       D.D. & A. and provision for abandonment (b)   (489 )   (437 )   (482 )   (687 )   (849 )   (2,944 )       Other income and (expenses)   (98 )   (368 )   (216 )   97     (208 )   (793 )       Accretion discount (SFAS 143)   (37 )   (5 )   (17 )   (15 )   (6 )   (80 )       Pretax income from producing activities   1,759     1,992     1,581     1,676     924     7,932         Income taxes   (632 )   (994 )   (945 )   (948 )   (305 )   (3,824 )       Results of operations from E&P activities   1,127     998     636     728     619     4,108         2005                                           Revenues                                           Sales to consolidated entities   3,133     2,813     4,252     2,707     828     13,733         Sales to third parties   161     2,579     394     889     2,883     6,906     106   Total revenues   3,294     5,392     4,646     3,596     3,711     20,639     106   Production costs   (261 )   (390 )   (363 )   (417 )   (338 )   (1,769 )   (16 ) Production taxes   (157 )   (98 )   (513 )   (15 )   (207 )   (990 )   (3 ) Exploration expenses   (32 )   (59 )   (38 )   (125 )   (181 )   (435 )   (30 ) D.D. & A. and provision for abandonment (b)   (512 )   (711 )   (632 )   (710 )   (1,007 )   (3,572 )   (58 ) Other income and (expenses)   (205 )   (400 )   (176 )   55     (251 )   (977 )   7   Accretion discount (SFAS 143)   (45 )   (9 )   (15 )   (31 )   (6 )   (106 )       Pretax income from producing activities   2,082     3,725     2,909     2,353     1,721     12,790     6   Income taxes   (762 )   (2,197 )   (1,818 )   (1,386 )   (580 )   (6,743 )   (19 ) Total results of operations from E&P activities   1,320     1,528     1,091     967     1,141     6,047     (13 ) 2006                                           Revenues                                           Sales to consolidated entities   3,601     4,185     4,817     3,295     973     16,871         Sales to third parties   184     3,012     967     983     2,594     7,740     120   Total revenues   3,785     7,197     5,784     4,278     3,567     24,611     120   Production costs   (249 )   (496 )   (475 )   (481 )   (338 )   (2,039 )   (18 ) Production taxes   (181 )   (95 )   (475 )         (82 )   (833 )   (3 ) Exploration expenses   (70 )   (101 )   (90 )   (100 )   (193 )   (554 )   (9 ) D.D. & A. and provision for abandonment (b)   (454 )   (869 )   (778 )   (755 )   (1,015 )   (3,871 )   (42 ) Other income and (expenses)   (287 )   (569 )   (195 )   44     (343 )   (1,350 )   7   Accretion discount (SFAS 143)   (34 )   (12 )   (12 )   (40 )   (14 )   (112 )       Pretax income from producing activities   2,510     5,055     3,759     2,946     1,582     15,852     55   Income taxes   (928 )   (2,979 )   (2,094 )   (1,821 )   (600 )   (8,422 )   (31 ) Results of operations from E&P activities   1,582     2,076     1,665     1,125     982     7,430     24     (a) Includes asset impairments amounting for euro 210 million for 2003, euro 300 million for 2004 and euro 147 million for 2005. (b) Starting from 2005 data related to affiliates and joint ventures carried on the equity method are included. Average sale prices and production costs per unit of production (million euro) Italy North Africa West Africa North Sea Rest of World Total             2003                           Average sale prices                           Oil and condensates, per BBL ($)   24.24   27.14   27.60   28.37   21.53   26.29 Natural gas, per KCF     4.65   2.86   0.53   3.11   3.18   3.56 Average production costs, per BOE (1)     3.77   3.70   6.21   4.19   3.26   4.16 2004                           Average sale prices                           Oil and condensates, per BBL ($)   30.98   35.66   36.32   36.92   30.79   34.76 Natural gas, per KCF     5.33   2.92   0.60   3.87   3.29   3.89 Average production costs, per BOE (1)     4.35   3.53   7.70   4.73   4.50   4.92 2005                           Average sale prices                           Oil and condensates, per BBL ($)   45.46   50.26   51.58   51.96   44.39   49.32 Natural gas, per KCF     6.29   3.35   0.79   5.27   3.71   4.49 Average production costs, per BOE (1)     5.58   3.66   8.90   5.32   5.59   5.59 (a) Starting from 2005 includes data related to joint venture and affiliates accounted under the equity method. (b) Includes assets impairments amounting for euro 300 million for 2004, euro 147 million for 2005 and euro 134 million for 2006. F-100 Average sale prices and production costs per unit of production (million euro) Italy North Africa West Africa North Sea Rest of World Total 2004                             Average sales prices                             Oil and condensates, per BBL   ($)   30.98   35.66   36.32   36.92   30.79   34.76 Natural gas, per KCF       5.33   2.92   0.6   3.87   3.29   3.89 Average production costs, per BOE (1)       4.35   3.53   7.70   4.73   4.50   4.92 2005                             Average sales prices                             Oil and condensates, per BBL   ($)   45.46   50.26   51.58   51.96   44.39   49.32 Natural gas, per KCF       6.29   3.35   0.79   5.27   3.71   4.49 Average production costs, per BOE (1)       5.58   3.66   8.90   5.32   5.21   5.59 2006                             Average sales prices                             Oil and condensates, per BBL   ($)   55.22   60.88   61.50   61.34   55.60   59.90 Natural gas, per KCF       8.23   4.16   1.02   6.87   3.85   5.29 Average production costs, per BOE (1)       6.36   3.87   9.02   6.03   4.68   5.79 Oil and natural gas reserves Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under technical, contractual, economic and operating conditions existing at the time. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Net proved reserves exclude royalties and interests owned by others. Proved developed oil and gas reserves are proved reserves that can be estimated to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion. Additional oil and gas reserves expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing by a pilot project or after the operation of an installed program has confirmed, through production response, that increased recovery will be achieved. Eni’s proved reserves have been estimated on the basis of the applicable U.S. Securities & Exchange Commission regulation,Regulation, Rule 4-10 of Regulation S-X and its interpretations and have been disclosed in accordance with Statement of Financial Accounting Standard No. 69. The estimates of proved reserves, developed and undeveloped for years ended December 31, 2002, 2003, 2004, 2005 and 20052006 are based on data prepared by Eni. Since 1991, Eni has requested qualified independent oil engineering companies to carry out an independent evaluation1811 of its proved reserves on a rotativerotational basis. In particular a total of 1.64 billion boe1.4 BBOE of proved reserves, or about 24%21% of Eni’s total proved reserves at December 31, 2005,2006, have been evaluated. The results of this independent evaluation confirmed Eni’s evaluations, as in previous years. In the 2003-20052004-2006 three-year period, 84%76% of Eni’s total proved reserves were subject to independent evaluations. Eni operates under PSAsProduction Sharing Agreements (PSAs), in several of the foreign jurisdictions where it has oil and gas exploration and production activities. Reserves of oil and natural gas to which Eni is entitled under PSA arrangements are shown in accordance with Eni’s economic interest in the volumes of oil and natural gas estimated to be recoverable in future years. Such reserves include estimated quantities allocated to Eni for recovery of costs, income taxes owed by Eni but settled by its joint venture partners (which are state-owned entities) out of Eni’s share of production and Eni’s net equity share after cost recovery. Proved oil and gas reserves associated with PSAs represented 46%51%, 51%48% and 48%53% of total proved reserves as of year end 2003,year-end 2004, 2005 and 2005,2006, respectively, on an oil-equivalent basis. _______________ (11) From 1991 to 2002, DeGolyer and MacNaughton; from 2003, also Ryder Scott. F-101 A similar scheme to PSAs applies to Service and "Buy-Back" contracts; proved reserves associated with such contracts represented 3%, 3%2% and 2% of total proved reserves on an oil-equivalent basis as of year end 2003,year-end 2004, 2005 and 2005,2006, respectively. Oil and gas reserve quantities include: (i) oil and natural gas quantities in excess to cost recovery which the company has an obligation to purchase under certain PSAs with governments or authorities whereby the company serves as producer of reserves. In accordance with SFAS No. 69, paragraph 13, reserve volumes associated with such oil and gas quantities represented 1.6%1.4%, 1.4%1.7% and 1.7%1.1% of total proved reserves as of year end 2003,year-end 2004, 2005 and 20052006 respectively, on an oil-equivalent basis; (ii) natural gas volumes of natural gas used for own consumptionconsumption; and (iii) volumes of natural gas held in certain Eni storage fields in Italy. Proved reserves attributable to these fields include: (a) the residual natural gas volumes of the reservoirsreservoirs; and (b) natural gas volumes from other Eni fields input into these reservoirs in subsequent periods. Proved reserves do not include volumes owned by or acquired from third parties. Gas withdrawn from storage is produced and thereby detracted from proved reserves when sold. Numerous uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgement.judgment. Results of drilling, testing and production after the date of the estimate may require substantial upward or downward revision. In addition, changes in oil and natural gas prices have an effect on the quantities of Eni’s proved reserves since estimates of reserves are based on prices and costs relative to the date when such estimates are made. Reserve estimates are also subject to revision as prices fluctuate due to the cost recovery feature under certain PSAs. The following table presents yearly changes by geographical area in estimated proved reserves, developed and undeveloped, of crude oil (including condensate and natural gas liquids) and natural gas for the years 2003, 2004, 2005 and 2005.2006. F-102 Crude oil (including condensates and natural gas liquids) (mmBBL) Proved Oil Reserves (mmBBL) Italy   North Africa   West Africa   North Sea   Rest of World   Total consolidated subsidiaries Total joint venture and affiliates (a)               Reserves at December 31, 2002   255     1,072     1,022     498     936     3,783   Purchase of Minerals in Place                     86           86   Revisions of Previous Estimates   21     51     59     52     153     336   Improved Recovery         15     16                 31   Extensions and Discoveries   6     32     28           214     280   Production   (30 )   (90 )   (87 )   (86 )   (64 )   (357 ) Sales of Minerals in Place                     (21 )         (21 ) Reserves at December 31, 2003   252     1,080     1,038     529     1,239     4,138   Revisions of Previous Estimates   (1 )   (22 )   44     12     (18 )   15   Improved Recovery         11     48     4           63   Extensions and Discoveries   4     20     34     4     144     206   Production   (30 )   (94 )   (104 )   (74 )   (75 )   (377 ) Sales of Minerals in Place         (2 )   (4 )   (25 )   (6 )   (37 ) Reserves at December 31, 2004   225     993     1,056     450     1,284     4,008   Purchase of Minerals in Place   2           6           47     55   Revisions of Previous Estimates   33     36     (47 )   27     (88 )   (39 ) Improved Recovery         43     29           15     87   Extensions and Discoveries         26     14     21     16     77   Production   (32 )   (111 )   (113 )   (65 )   (83 )   (404 ) Reclassification 2004 affiliates and joint ventures data         (26 )   (9 )         (1 )   (36 ) Reserves at December 31, 2005 consolidated   228     961     936     433     1,190     3,748   Reserves at December 31, 2005 affiliates and joint ventures (a)         18     6           1     25   Reserves at December 31, 2005   228     979     942     433     1,191     3,773   (mmBBL) Proved Oil Reserves                                           Reserves at December 31, 2003   252     1,080     1,038     529     1,239     4,138         Revisions of previous estimates   (1 )   (22 )   44     12     (18 )   15         Improved recovery         11     48     4           63         Extensions and discoveries   4     20     34     4     144     206         Production   (30 )   (94 )   (104 )   (74 )   (75 )   (377 )       Sales of minerals in place         (2 )   (4 )   (25 )   (6 )   (37 )       Reclassification 2004 joint ventures and affiliates         (26 )   (9 )         (1 )   (36 )   36   Reserves at December 31, 2004   225     967     1,047     450     1,283     3,972     36   Purchase of minerals in place   2           6           47     55         Revisions of previous estimates   33     36     (47 )   27     (88 )   (39 )   (9 ) Improved recovery         43     29           15     87         Extensions and discoveries         26     14     21     16     77         Production   (32 )   (111 )   (113 )   (65 )   (83 )   (404 )   (2 ) Sales of minerals in place                                           Reserves at December 31, 2005   228     961     936     433     1,190     3,748     25   Revisions of previous estimates (b)   15     61     (85 )   20     53     64     1   Improved recovery         49     41           14     104     1   Extensions and discoveries         30     11           62     103         Production   (28 )   (119 )   (117 )   (65 )   (61 )   (390 )   (3 ) Sales of minerals in place (c)                     (2 )   (170 )   (172 )       Reserves at December 31, 2006   215     982     786     386     1,088     3,457     24   Proved Developed Oil Reserves   Italy North Africa West Africa North Sea Rest of World Total             Reserves at December 31, 2002   168     610     554     426     483     2,241   Reserves at December 31, 2003   173     640     560     464     610     2,447   Reserves at December 31, 2004   174     655     588     386     668     2,471   Reserves at December 31, 2005 consolidated   149     697     568     353     564     2,331   Reserves at December 31, 2005 affiliates and joint ventures (a)         15     3           1     19   Reserves at December 31, 2005   149     712     571     353     565     2,350   (a) Starting from 2005 data related to affiliates and joint ventures carried on the equity method are included. Natural gas (BCF) Proved Natural Gas Reserves (mmBBL) Italy(a)   North Africa   West Africa   North Sea   Rest of World   Total consolidated subsidiaries Total joint venture and affiliates (a)               Reserves at December 31, 2002   5,295     5,563     1,533     1,899     4,339     18,629   Purchase of Minerals in Place   10                 425     8     443   Revisions of Previous Estimates   (768 )   (123 )   172     139     325     (255 ) Extensions and Discoveries   84     242                 100     426   Production   (455 )   (215 )   (49 )   (229 )   (276 )   (1,224 ) Sales                     (11 )         (11 ) Reserves at December 31, 2003   4,166     5,467     1,656     2,223     4,496     18,008   Revisions of Previous Estimates   105     814     129     75     84     1,207   Improved Recovery               10                 10   Extensions and Discoveries   29     420           38     222     709   Production   (409 )   (247 )   (66 )   (220 )   (303 )   (1,245 ) Sales   (73 )   (1 )         (65 )   (115 )   (254 ) Reserves at December 31, 2004   3,818     6,453     1,729     2,051     4,384     18,435   Purchase of Minerals in Place   63           8           222     293   Revisions of Previous Estimates   159     (6 )   (9 )   (18 )   (368 )   (242 ) Improved Recovery         11                       11   Extensions and Discoveries   1     37     309     50     56     453   Production   (365 )   (357 )   (70 )   (219 )   (281 )   (1,292 ) Reclassification 2004 affiliates and joint ventures data         (21 )   (2 )         (134 )   (157 ) Reserves at December 31, 2005 consolidated   3,676     6,117     1,965     1,864     3,879     17,501   Reserves at December 31, 2005 affiliates and joint ventures (b)         15     2           73     90   Reserves at December 31, 2005   3,676     6,132     1,967     1,864     3,952     17,591   (BCF) Proved Developed Oil Reserves                             Reserves at December 31, 2003   173   640   560   464   610   2,447     Reserves at December 31, 2004   174   655   588   386   668   2,471     Reserves at December 31, 2005   149   697   568   353   564   2,331   19 Reserves at December 31, 2006   136   713   546   329   402   2,126   18 Proved Developed Natural Gas Reserves   Italy (a) North Africa West Africa North Sea Rest of World Total             Reserves at December 31, 2002   3,397     1,084     863     1,727     1,283     8,354   Reserves at December 31, 2003   2,966     962     866     2,075     3,355     10,224   Reserves at December 31, 2004   2,850     1,760     924     1,845     3,122     10,501   Reserves at December 31, 2005 consolidated   2,704     3,060     1,289     1,484     2,622     11,159   Reserves at December 31, 2005 affiliates and joint ventures (b)         12     2           56     70   Reserves at December 31, 2005   2,704     3,072     1,291     1,484     2,678     11,229   (a) Starting from 2005 includes data related to joint venture and affiliates accounted under the equity method. (b) Includes the effect of Eni share redetermination in the Val d’Agri concession in Italy. (c) Includes 170 mmBBL related to unilateral termination of OSA by PDVSA for Dación field. F-103 Natural gas (BCF) Italy (a) North Africa West Africa North Sea Rest of World Total consolidated subsidiaries Total joint venture and affiliates (b) Proved Natural Gas Reserves                                           Reserves at December 31, 2003   4,166     5,467     1,656     2,223     4,496     18,008         Revisions of previous estimates   105     814     129     75     84     1,207         Improved recovery               10                 10         Extensions and discoveries   29     420           38     222     709         Production   (409 )   (247 )   (66 )   (220 )   (303 )   (1,245 )       Sales of minerals in place   (73 )   (1 )         (65 )   (115 )   (254 )       Reclassification 2004 joint ventures and affiliates         (21 )   (2 )         (134 )   (157 )   157   Reserves at December 31, 2004   3,818     6,432     1,727     2,051     4,250     18,278     157   Purchase of minerals in place   63           8           222     293         Revisions of previous estimates   159     (6 )   (9 )   (18 )   (368 )   (242 )   (47 ) Improved recovery         11                       11         Extensions and discoveries   1     37     309     50     56     453     (20 ) Production   (365 )   (357 )   (70 )   (219 )   (281 )   (1,292 )       Sales of minerals in place                                           Reserves at December 31, 2005   3,676     6,117     1,965     1,864     3,879     17,501     90   Purchase of minerals in place                     4           4         Revisions of previous estimates   36     154     31     53     230     504     (7 ) Extensions and discoveries   19     146     34     1     132     332         Production   (340 )   (471 )   (103 )   (218 )   (305 )   (1,437 )   (15 ) Sales of minerals in place                     (7 )         (7 )       Reserves at December 31, 2006   3,391     5,946     1,927     1,697     3,936     16,897     68   (BCF) Italy North Africa West Africa North Sea Rest of World Total consolidated subsidiaries Total joint venture and affiliates (b) Proved Developed Natural Gas Reserves                             Reserves at December 31, 2003   2,966   962   866   2,075   3,355   10,224     Reserves at December 31, 2004   2,850   1,760   924   1,845   3,122   10,501     Reserves at December 31, 2005   2,704   3,060   1,289   1,484   2,622   11,159   70 Reserves at December 31, 2006   2,449   3,042   1,447   1,395   2,616   10,949   48       (a)   Including approximately 779, 747, 737, 760 and 760754 BCF of natural gas held in storage at December 31, 2002, 2003, 2004, 2005 and 20052006 respectively. (b)   Starting from 2005 includes data related to joint venture and affiliates and joint ventures carried onaccounted under the equity method are included.method. Standardized measure of discounted future net cash flows Estimated future cash inflows represent the revenues that would be received from production andproved reserves are determined by applying year endyear-end prices of oil and gas to the estimated future productionyear-end quantities of provedthose reserves. Year-end prices in 2005 were $58.205 per barrel of oil. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved reserves at the end of the year. Neither the effects of price and cost escalations nor expected future changes in technology and operating practices have been considered. The standardized measure is calculated as the excess of future cash inflows from proved reserves less future costs of producing and developing the reserves, future income taxes and a yearly 10% discount factor. Future cash flows as of December 31, 2003, 2004, 2005 and 20052006 include annual revenue payments fromamounts that Eni’s Gas & Power segment and other transport and distribution gas companies which represent paymentscorrespond for modulationstorages services, required to support market demand delivery capability. Such capability is provided through utilization of gas withdrawn from producing fields and injected into depleted gas fields as storage.flexibility needs. Future production costs include the estimated expenditures related to the production of proved reserves plus any production taxes without consideration of future inflation. Future development costs include the estimated costs of drilling development wells and installation of production facilities, plus the net costs associated with dismantlement and abandonment of wells and facilities, under the assumption that year endyear-end costs continue without considering future inflation. Future income taxes were calculated in accordance with the tax laws of the countries in which Eni operates. The standardized measure of discounted future net cash flows, related to the preceding proved oil and gas reserves, is calculated in accordance with the requirements of Statement of Financial Accounting Standard No. 69. The standardized measure does not purport to reflect realizable values or fair market value of Eni’s proved reserves. 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. F-104 Standardized measure of discounted future net cash flows by geographical area consist of the following: (million euro) Italy   North Africa   West Africa   North Sea   Rest of World   Total consolidated subsidiaries Total joint venture and affiliates (a)               At December 31, 2003                                     Future cash inflows   24,641     36,484     25,074     19,590     28,505     134,294   Future production costs   (3,879 )   (7,868 )   (5,847 )   (5,458 )   (4,763 )   (27,815 ) Future development and abandonment costs   (2,080 )   (3,762 )   (2,005 )   (1,084 )   (2,575 )   (11,506 ) Future net inflow before income tax   18,682     24,854     17,222     13,048     21,167     94,973   Future income tax   (6,113 )   (10,296 )   (8,979 )   (7,614 )   (6,073 )   (39,075 ) Future net cash flows   12,569     14,558     8,243     5,434     15,094     55,898   10% discount factor   (5,056 )   (6,646 )   (3,130 )   (1,872 )   (7,930 )   (24,634 ) Standardized measure of discounted future net cash flows   7,513     7,912     5,113     3,562     7,164     31,264   At December 31, 2004                                     Future cash inflows   28,582     40,373     28,395     20,435     32,619     150,404   Future production costs   (3,635 )   (7,237 )   (6,664 )   (5,082 )   (4,858 )   (27,476 ) Future development and abandonment costs   (2,210 )   (4,073 )   (1,873 )   (1,419 )   (2,873 )   (12,448 ) Future net inflow before income tax   22,737     29,063     19,858     13,934     24,888     110,480   Future income tax   (7,599 )   (11,487 )   (10,949 )   (8,824 )   (6,736 )   (45,595 ) Future net cash flows   15,138     17,576     8,909     5,110     18,152     64,885   10% discount factor   (6,006 )   (7,592 )   (3,267 )   (1,350 )   (9,412 )   (27,627 ) Standardized measure of discounted future net cash flows   9,132     9,984     5,642     3,760     8,740     37,258   At December 31, 2005                                     Future cash inflows   36,203     66,100     45,952     30,835     50,590     229,680   Future production costs   (4,609 )   (10,030 )   (9,604 )   (5,632 )   (6,399 )   (36,274 ) Future development and abandonment costs   (2,936 )   (3,960 )   (2,594 )   (1,774 )   (4,059 )   (15,323 ) Future net inflow before income tax   28,658     52,110     33,754     23,429     40,132     178,083   Future income tax   (9,890 )   (22,744 )   (21,056 )   (15,225 )   (12,097 )   (81,012 ) Future net cash flows   18,768     29,366     12,698     8,204     28,035     97,071   10% discount factor   (7,643 )   (12,095 )   (4,122 )   (2,155 )   (15,705 )   (41,720 ) Standardized measure of discounted future net cash flows   11,125     17,271     8,576     6,049     12,330     55,351   Standardized measure of discounted future net cash flows affiliates and joint ventures (a)         130     127           114     371   Standardized measure of discounted future net cash flows   11,125     17,401     8,703     6,049     12,444     55,722   At December 31, 2004                                           Future cash inflows   28,582     40,373     28,395     20,435     32,619     150,404         Future production costs   (3,635 )   (7,237 )   (6,664 )   (5,082 )   (4,858 )   (27,476 )       Future development and abandonment costs   (2,210 )   (4,073 )   (1,873 )   (1,419 )   (2,873 )   (12,448 )       Future net inflow before income tax   22,737     29,063     19,858     13,934     24,888     110,480         Future income tax   (7,599 )   (11,487 )   (10,949 )   (8,824 )   (6,736 )   (45,595 )       Future net cash flows   15,138     17,576     8,909     5,110     18,152     64,885         10 % discount factor   (6,006 )   (7,592 )   (3,267 )   (1,350 )   (9,412 )   (27,627 )       Standardized measure of discounted future net cash flows   9,132     9,984     5,642     3,760     8,740     37,258         At December 31, 2005                                           Future cash inflows   36,203     66,100     45,952     30,835     50,590     229,680     1,055   Future production costs   (4,609 )   (10,030 )   (9,604 )   (5,632 )   (6,399 )   (36,274 )   (226 ) Future development and abandonment costs   (2,936 )   (3,960 )   (2,594 )   (1,774 )   (4,059 )   (15,323 )   (89 ) Future net inflow before income tax   28,658     52,110     33,754     23,429     40,132     178,083     740   Future income tax   (9,890 )   (22,744 )   (21,056 )   (15,225 )   (12,097 )   (81,012 )   (187 ) Future net cash flows   18,768     29,366     12,698     8,204     28,035     97,071     553   10 % discount factor   (7,643 )   (12,095 )   (4,122 )   (2,155 )   (15,705 )   (41,720 )   (182 ) Standardized measure of discounted future net cash flows   11,125     17,271     8,576     6,049     12,330     55,351     371   At December 31, 2006                                           Future cash inflows   43,495     64,381     34,935     24,821     48,591     216,223     1,038   Future production costs   (6,086 )   (9,707 )   (8,028 )   (6,426 )   (5,915 )   (36,162 )   (224 ) Future development and abandonment costs   (6,739 )   (5,383 )   (2,865 )   (2,265 )   (4,576 )   (21,828 )   (79 ) Future net inflow before income tax   30,670     49,291     24,042     16,130     38,100     158,233     735   Future income tax   (10,838 )   (24,639 )   (14,141 )   (10,901 )   (11,473 )   (71,992 )   (227 ) Future net cash flows   19,832     24,652     9,901     5,229     26,627     86,241     508   10 % discount factor   (11,493 )   (10,631 )   (2,994 )   (1,392 )   (16,504 )   (43,014 )   (154 ) Standardized measure of discounted future net cash flows   8,339     14,021     6,907     3,837     10,123     43,227     354         (a)   Starting from 2005 are included data related to joint venture and affiliates and joint ventures carried onaccounted under the equity method are included.method. F-105 Changes in standardized measure of discounted future net cash flows The following table reflects the changesChanges in standardized measure of discounted future net cash flows for the years 2003, 2004, 2005 and 2005.2006. (million euro)   2003   2004   2005         Beginning of year         34,480     31,264     37,258   Reclassification 2004 affiliates and joint ventures data                     (357 ) Beginning of year consolidated         34,480     31,264     36,901   Increase (Decrease):                         - sales, net of production costs         (10,144 )   (12,172 )   (17,880 ) - net changes in sales and transfer prices, net of production costs         (1,050 )   13,031     33,372   - extensions, discoveries and improved recovery, net of future production and development costs         1,855     2,806     3,527   - changes in estimated future development and abandonment costs         (3,576 )   (3,437 )   (3,654 ) - development costs incurred during the period that reduced future development costs         4,864     4,229     3,865   - revisions of quantity estimates         2,348     1,658     47   - accretion of discount         5,585     5,328     6,573   - net change in income taxes         105     (4,805 )   (17,327 ) - purchase of reserves in-place         1,488           977   - sale of reserves in-place         (222 )   (727 )       - changes in production rates and other (a)         (4,469 )   83     8,950   Net increase (decrease)         (3,216 )   5,994     18,450   End of year consolidated         31,264     37,258     55,351   End of year affiliates and joint ventures (b)                     371   End of year         31,264     37,258     55,722   (million euro)   2004   2005   2006         Beginning of year consolidated   31,264     36,901     55,351   Increase (decrease):                   - sales, net of production costs   (12,172 )   (17,880 )   (21,739 ) - net changes in sales and transfer prices, net of production costs   13,031     33,372     4,097   - extensions, discoveries and improved recovery, net of future production and development costs   2,806     3,527     3,629   - abandonment costs   (3,437 )   (3,654 )   (6,964 ) - future development costs   4,229     3,865     3,558   - revisions of quantity estimates   1,658     47     383   - accretion of discount   5,328     6,573     9,489   - net change in income taxes   (4,805 )   (17,327 )   3,060   - purchase of reserves in-place         977     10   - sale of reserves in-place   (727 )         (1,252 ) - changes in production rates (timing) and other (a)   83     8,950     (6,395 ) Net increase (decrease)   5,994     18,450     (12,124 ) Standardized measure of discounted future net cash flows consolidated   37,258     55,351     43,227         (a)   This item relates mainly to changes in production timing and foreign exchange effects. (b) Starting from 2005 data related to affiliates and joint ventures carried on the equity method are included. F-106 EXHIBIT 1 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 and the company’s two branches in San Donato Milanese (MI). 2.2   Main representative offices, affiliates and branches may be established and/or wound up in Italy or abroad in compliance with the law. ARTICLE 3 3.1   The company is expected to exist until December 31, 2100. Its duration may be extended one or more times by resolution of the shareholders’ meeting. Part II - Company Objects ARTICLE 4 4.1   The company objects are the direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the field of hydrocarbons and natural vapours, such as exploration and development of hydrocarbon fields, construction and operation of pipelines for transporting the same, processing, transformation, storage, utilisation and trade of hydrocarbons and natural vapours, all in respect of concessions provided by law. The company also has the object of direct and/or indirect management, by way of shareholdings in companies, agencies or businesses, of activities in the fields of chemicals, nuclear fuels, geothermy and renewable energy sources, in the sector of engineering and construction of industrial plants, in the mining sector, in the metallurgy sector, in the textile machinery sector, in the water sector, including derivation, drinking water, purification, distribution and reuse of waters; in the sector of environmental protection and treatment and disposal of waste, as well as in every other business activity that is instrumental, supplemental or complementary with the aforementioned activities. The company also has the object of managing the technical and financial co-ordination of subsidiaries and affiliated companies as well as providing financial assistance on their behalf. The company may perform any operations necessary or useful for the achievement of the company objects; by way of example, it may initiate operations involving real estate, moveable goods, trade and commerce, industry, finance and banking asset and liability operations, as well as any action that is in any way connected with the company objects with the exception of public fund raising and the performance of investment services as regulated by Legislative Decree No. 58 of February 24, 1998. The company may take shareholdings and interests in other companies or businesses with objects similar, comparable or complementary to its own or those of companies in which it has holdings, either in Italy or abroad, and it may provide real and or personal bonds for its own and others’ obligations, especially guarantees. Part III - Capital - Shareholdings - Bonds ARTICLE 5 5.1   The company capital is euro 4,005,358,876.00 (four billion five million three hundred and fifty-eight thousand eight hundred and seventy-six) represented by 4,005,358,876 (four billion five million three hundred and fifty-eight thousand eight hundred and seventy-six) shares of ordinary stock with a nominal value of euro 1 (one) each. 5.2   Shares may not be split up and each share is entitled to one vote. 5.3   The fact of being a Shareholder in itself constitutes approval of these by-laws. ARTICLE 6 6.1   Pursuant to Article 3 of Law Decree 332 of May 31, 1994, converted with amendments into Law 474 of July 30, 1994, no one, in any capacity, may own company shares that entail a holding of more than 3 per cent of voting share capital. Such maximum shareholding limit is calculated by taking into account the aggregate shareholding held by the controlling entity, either a physical or legal person or company; its directly or indirectly controlled entities, as 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. E-1 Control exists, with reference also to entities other than companies, in the cases envisaged by Article 2359, paragraphs 1 and 2 of the Civil Code. Affiliation exists in the case set forth in Article 2359, paragraph 3, of the Civil Code as well as between entities that directly or indirectly, by way of subsidiaries, other than those managing investment funds, are bound, even with third parties, in agreements regarding the exercise of voting rights or the transfer of shares or portions of third companies or, in any event, in agreements or pacts as per Article 122 of Legislative Decree No. 58 of February 24, 1998 regarding third party companies if said agreements or pacts concern at least 10 per cent of the voting capital, if they are listed companies, or 20 per cent if they are unlisted companies. The aforementioned shareholding limit (3 per cent) is calculated by taking into account shares held by any fiduciary nominee or intermediary. Any voting rights attributable to voting capital held or controlled in excess of the maximum limit indicated in the foregoing cannot be exercised and the voting rights of each entity to whom such limit on shareholding applies are reduced in proportion, unless otherwise jointly provided in advance by the parties involved. In the event that shares exceeding this limit are voted, any Shareholders’ resolution adopted pursuant to such a vote may be challenged pursuant to Article 2377 of the Civil Code, if the required majority had not been reached without the votes exceeding the aforementioned maximum limit. Shares not entitled to vote are included in the determination of the quorum at shareholders’ meetings. 6.2   Pursuant to Article 2, paragraph 1 of Law Decree 332 of May 31, 1994, converted with amendments into Law 474 of July 30, 1994, as modified by Article 4, Paragraphparagraph 227, of Law December 24, 2003 no.No. 350, the Minister of Economy and Finance retains the following special powers to be exercised in agreement with the Minister of Productive Activitiesthe Economic Development and according to the criteria contained in the Decree issued by the President of the Council of Ministers on June 10, 2004:     a)   opposition with respect to the acquisition of material shareholdings by entities affected by the shareholding limit as set forth in Article 3 of Law Decree 332 of May 31, 1994, converted with amendments into Law 474 of July 30, 1994, by which – as per Decree issued by the Minister of Treasury on October 16, 1995 – are meant those representing at least 3% of share capital with the right to vote at the ordinary shareholders’ meeting. The opposition is expressed within ten days of the date of the notice to be filed by the Board of Directors at the time request is made for registration in the Shareholders’ Register if the Minister considers that such an acquisition may prejudice the vital interests of the Italian State. Until the ten-day term is not lapsed, the voting rights and the non-asset linked rights connected with the shares representing a material shareholding may not be exercised. If the opposition power is exercised, through a duly motivated act in connection with the prejudice that may be caused by the operation to the vital interests of the Italian State, the transferee may not exercise the voting rights and the other non-asset linked rights connected with the shares representing a material shareholding and must sell said shares within one year. Failing to comply, the law court, upon request of the Minister of Economy and Finance, will order the sale of the shares representing a material shareholding according to the procedures set forth in Article 2359-ter of the Civil Code. The act through which the opposition power is exercised may be sued by the transferee before the Regional Administrative Court of Latium within sixty days as of its issue;     b)   opposition with respect to the subscription of Shareholders’ pacts or agreements as per Article 122 of Legislative Decree No. 58 of February 24, 1998, involving – as per Decree issued by the Minister of Treasury on October 16, 1995 – at least 3% of the share capital with the right to vote at ordinary shareholders’ meetings. In order to allow the exercise of the above mentioned opposition power, Consob notifies the Minister of Economy and Finance of the relevant pacts or agreements communicated to it pursuant to the aforementioned Article 122 of Legislative Decree No. 58 of February 24, 1998. The opposition power may be exercised within ten days as of the date of the notice by Consob. Until the ten-day term is not lapsed, the voting right and the other non-asset linked rights connected with the shares held by the shareholders who have subscribed the above mentioned pacts or agreements may not be exercised. If the opposition power is exercised through the issue of an act that shall be duly motivated in consideration of the prejudice that may be caused by said pacts or agreements to the vital interests of the Italian State, the shareholders pacts or agreements shall be null and void. If in the shareholders’ meetings the shareholders who have signed shareholders’ pacts or agreements behave as if those pacts or agreements disciplined by Article 122 of Legislative Decree No. 58 of February 24, 1998 were still in effect, the resolutions approved with their vote, if determining for the approval, may be sued. The act through which the opposition power is exercised may be sued by the shareholders who joined the above mentioned pacts or agreements before the Regional Administrative Court of Latium within sixty days as of its issue;     c)   veto power with respect to resolutions to dissolve the company, to transfer the business, to merge, to demerge, to transfer the company’s registered office abroad, to change the company objects and to amend the by-laws cancelling or modifying the powers indicated in this Article. The act through which the veto power is exercised shall be duly motivated in consideration of the prejudice the related resolution may cause to the vital interests of the Italian State and may be sued by the dissenting Shareholders before the Regional Administrative Court of Latium within sixty days as of its issue; E-2     d)   appointment of one Board member with no voting rights. Should such appointed Director lapse, the Minister of Economy and Finance in agreement with the Minister of Productive Activitiesthe Economic Development will appoint his substitute. 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 or the following newspapers: "Il Sole 24 Ore", "Corriere della Sera" and other newspapers with national circulation,"Financial Times", according to the current legislation and in compliance with the rules in force regulating the exercise of the vote by mail. The Shareholders that, severally or jointly, represent at least one fortieth of Eni share capital, may ask, within five days as of the date of publication of the Shareholders’ Meetingshareholders’ meeting notice, to add other items in the agenda. The request shall contain the matters to be proposed to the Shareholders’ Meeting.shareholders’ meeting. Said faculty may not be exercised on the matters upon which, pursuant to the applicable legislation, the Shareholders’ Meetingshareholders’ meeting resolves on the basis of a proposal of the Board of Directors or on the basis of a project or report of the Board. The integrations accepted by the Board shall be published at least ten days before the Shareholders’ Meetingshareholders’ meeting date, through a notice to be published as indicated above. 13.2   Admission to the shareholders’ meeting is subject to the delivery, also for registered shares, of the certificationcommunication issued by financial intermediaries at least two labour days before the date of the shareholders’ meeting on first call. ARTICLE 14 14.1   Each Shareholder entitled to attend the Meetingmeeting may also be represented in compliance with the law by a person appointed by written proxy. Incorporated entities and companies may attend the Meetingmeeting 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 Meetingmeeting has to assure the regularity of written proxies and, in general, the right to attend the Meeting.meeting. 14.3   The right to vote may also be exercised by mail according to the laws and regulations in force concerning this matter. 14.4   Eni S.p.A. shareholders’ meetings are disciplined by Eni S.p.A.’s shareholders’ meeting Regulation approved by the ordinary shareholders’ meeting. E-3 ARTICLE 15 15.1   The Meetingmeeting is chaired by the Chairman of the Board of Directors, or in the event of absence or impediment, by the Chief Executive Officer; in absence of both, by another person, duly delegated by the Board of Directors, failing which the Meetingmeeting may elect its own Chairman. 15.2   The Chairman of the Meetingmeeting 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 Meetingmeeting taken in compliance with the law and these by-laws 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. The Minister of Economy and Finance in agreement with the Minister of Productive Activitiesthe Economic Development may appoint another member, with no voting rights, pursuant to Article 6, second Paragraph,paragraph, letter d), of the by-laws. 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,of Directors, except for the onemember appointed pursuant to Article 6.2, letter d) of these by-laws, areis 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 officeand 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 eachvote only one candidate may appear in one list onlylist. Those who are controlling or he will be ineligible. Companies that are controllingcontrolled entities or are under common control, as defined by Article 2359, first Paragraph,93 of the Civil Code,Legislative Decree No. 58 issued on February 24, 1998, by the same entity of the companyshareholder presenting a list shall not present nor take part in the presentation of another candidate list.list, nor vote them, also through intermediaries or fiduciaries. 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 centof 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 withthe companycompany’s registered office a copy of the certificationcommunication 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 causes for his ineligibility and incompatibility are non existing and that he possesses the requirements, honorability and independence requirements required by the norms in force for the Statutory Auditors included. At least one Board member, if the Board members are no more than five, or at least three Board members if they the Board membersare more than five, shall have the independence requirement. The independent Board members take part, according to the provisionsrequirements set by the Board and by the Corporate Governance Codes issued by the companies that manage stock markets to which the Company adheres, to the Board Committees thatfor the Board of Statutory Auditors members of listed companies. The independent candidates shall be expressly indicated in each list. All candidates shall also have the honorability qualifications set forth by the applicable legislation. Together with the deposit of each list, in order to assure its validity, the following documents shall be deposited: (i) the curriculum of each candidate; (ii) statements of each candidate toaccept his nomination and attest, in his own responsibility, that causes for his ineligibility and incompatibility are non existing and that he possesses the aforementioned honorability and,if any, independence requirements. The Directors may establish. Said Board Committeesappointed shall communicate to the Company if they have advisorylost the above mentioned independence and consulting tasks on specific items. honorability requirements and if situations of ineligibility or incompatibility have arisen. The Board of Directors evaluates periodically the independence and the honorability of its members. members and if situations of ineligibility or incompatibility have arisen. If these the honorability or independencerequirements declared and set forth by the legislation in force are not present or elapse and,for a Board member or if the minimum numbersituations of independent Board members set by these by-laws is not met,ineligibility or incompatibility have arisen, the Board of Directors removes thesaid Board member without the independence requirement and resolves upon his substitution. Each person entitledsubstitution or invites him to vote may vote for a candidate list only. remove the situation of incompatibility within the term set by the Board itself; if this last condition is not met, the Director will be removed from office. E-4 Board members will be elected in the following manner:     a)   seven tenths of the members to be elected will be drawn out from the candidate list that receives the majority of votes expressed by the Shareholders in the numerical order in which they appear on the list, rounded off in the event of a fractional number to the next lower number;     b)   the remaining Board members will be drawn out from the other candidate lists; said lists shall not be linked in any way, neither indirectly, to the shareholders who have presented or voted the list that has obtained the highest number of votes; to this purpose the votes obtained by each candidate list will be divided by one or two depending on the number of the members to be elected. The quotients thus obtained will be assigned progressively to candidates of each said list in the order given in the lists themselves. Quotients thus assigned to candidates of said lists will be set in one decreasing numerical order. Those who obtain the highest quotients will be elected. In the event that more than one candidate obtains the same quotient, the candidate elected will be the one of the list that has not hitherto had a Board member elected or that has elected the least number of Board members. In the event that none of the lists has yet elected a Board member or that all of them have elected the same number of Board members, the candidate from all such lists who has obtained the largest number of votes will be elected. In the event of equal list votes and equal quotient, a new vote will be taken by the entire shareholders’ meeting and the candidate elected will be the one who obtains a simple majority of the votes;     c)   if through the procedure described above the minimum number of independent Directors set by these by-laws is not elected, the quotient is calculated according to letter b) above in order to be assigned to the candidates present in each list; the independent candidates not yet drawn from the lists pursuant to letters a) and b) above, who have got the highest quotients will be elected in order to meet the provision of the by-laws on the number of the independent Directors. The Directors so appointed will replace the non independent Directors to whom the lowest quotients have been assigned. If the number of independent candidates is lower than the minimum limit set by the by-laws, the shareholders’ meeting will make a resolution with the majorities prescribed by the law to substitute the not independent candidates who have got the lowest quotients; d) to appoint Board members for any reason not covered by the terms of the aforementioned procedure, the shareholders’ meeting will make a resolution with the majorities prescribed by the law.lawin order, however, to assure that the Board composition complies with the current legislation and the by-laws. The vote by list procedure shall apply only in case of appointment of the entire Board of Directors. 17.4   The shareholders’ meeting may, even during the Board’s term of office, change the number of members of the Board of Directors, always within the limits set forth in paragraph 17.1 above, and make the relating appointments. Board members so elected will expire at the same time as the rest of the Board. 17.5   If during the term of office one or more members leave the Board, action will be taken in compliance with Article 2386 of the Civil Code with exception of the Board member appointed pursuant to Article 6.2 letter d) of these by-laws. If a majority of members leaves the Board, the whole Board will be considered lapsed and the Board must promptly call a shareholders’ meeting to appoint a new Board. 17.6 The Board may establish Board Committees that shall have advisory and consulting tasks on specific items. ARTICLE 18 18.1   If the shareholders’ meeting has not appointed a Chairman, the Board will elect one of its members. The Director appointed pursuant to Article 6, second Paragraph,paragraph, letter d) of the by-laws cannot be appointed as Chairman. 18.2   The Board, at the Chairman’s proposal, appoints a Secretary, who need not belong to the company. ARTICLE 19 19.1   The Board meets in the place indicated in the notice whenever the Chairman or, in case of absence or impediment, the Chief Executive Officer deems necessary, or when written application has been made by the majority of the members. The Board of Directors may be convened also pursuant to Article 28.4 of the by-laws. The Board of Directors’ meetings may be held by video or teleconference if each of the participants to the meetings may be identified and if each is allowed to follow the discussion and take part to it in real time. If said conditions are met, the Meetingmeeting 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.meeting. E-5 ARTICLE 21 21.1   A majority of members of the Board having a voting right must be present for a Board meeting to be valid. 21.2   Resolutions are taken with the majority of votes of the Board members having a voting right present; should votes be equal, the person who chairs the Meetingmeeting 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 Meetingmeeting 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 by-laws reserve for the shareholders’ meeting. 23.2   The Board of Directors is allowed to resolve on the following matters:     - the merger and the demerger of at least 90% directly owned subsidiaries;     - the establishment and winding up of branches;     - the amendment to the by-laws in order to comply with the current legislation. 23.3   The Board of Directors and the Chief Executive Officer report timely, at least every three months and however in the Board of Directors meetings, to the Board of Statutory Auditors on the activities and on the most relevant operations regarding the operational, economic and financial management of the company and its subsidiaries; in particular the Board of Directors and the Chief Executive Officer report to the Board of Statutory Auditors on operations entailing an interest on their behalf or on behalf of third parties. ARTICLE 24 24.1   The Board of Directors delegates its powers to one of its members with the exception of the Director appointed pursuant to Article 6, second Paragraph,paragraph, letter d) of the by-laws, 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 Chief Executive Officer, a new Chief Executive Officer is simultaneously appointed. The Board of Directors, upon proposal of the Chairman and in agreement with the Chief Executive Officer, may confer powers for single acts or categories of acts to other members of the Board of Directors with the exception of the Director appointed pursuant to Article 6, second Paragraph,paragraph, letter d) of the by-laws. The Chairman and the Chief Executive Officer, 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, onupon proposal of the Chief Executive Officer 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. In order to make the appointment effective, the Board of Directors shall verify if the General Manager to be appointed has the honorability requirements set by the current legislation. The Board of Directors shall periodically verify said honorability requirements. The General Managers without said requirement shall be removed. On Upon proposal of the Chief Executive Officer presented and in agreement with the Chairman, the Board of Directors appoints the Manager responsible for the preparation of financial reporting documents and delegates powers and resources to him.documents. The appointment is subject to the favourable opinion of the Board of Statutory Auditors. The Manager responsible for the preparation of financial reporting documents is chosen among people who, for at least three years, have exercised: a) administration or control activities or directive tasks in companies listed on regulated stock exchanges in Italy or other European Union countries or other countries member of OECD with a share capital not less than two million euro or b) audit activities in the companies mentioned in letter a) above, or c) professional activities or teaching activities in universities in the financial or accounting sectors, or d) managerial functions in public or private bodies in the financial, accounting, or control sectors. The Board of Directors assures that the Manager responsible for the preparation of financial reporting documents is given adequate powers and means to execute his or her tasks and to respect the administrative and accounting procedures. ARTICLE 25 25.1   Legal representation towards any judicial or administrative authority and towards third parties, together with the company signature, are vested either onto the Chairman or the Chief Executive Officer. E-6 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'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 The Statutory Auditors may be appointed members of administration and control bodies in other companies within the limits set by Consob regulation. Until those provisions do not come in force, those who are already appointed effective auditor or supervisory board member or audit committee member in at least five companies with securities listed on regulated securities markets otherthan Eni S.p.A. subsidiaries may not be appointed Statutory Auditor; if elected, they will lapse. 28.2   The effectiveBoard of Statutory Auditors and the alternate Auditors areis 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 shall apply. apply and according to the rules set forth by Consob. Lists shall be divided into two sections: the first one for the candidates to be appointed effective Auditors and the second one for the candidates to be appointed alternate Auditors. At least the first candidate of each section shall be chartered accountant and have exercised audit activities for not less than three years. Three effective Auditors and one alternate Auditor will be drawn from the list that obtains the majority of votes. The other two effective Auditors and the other alternate Auditor will be appointed pursuant to Article 17.3, letter b) of the by-laws. The procedure described in this last Article shall be applied to each section of the lists involved separately. The shareholders’ meeting appoints the Chairman of the Board of Statutory Auditors among the effective Auditors appointed according to Article 17.3 letter b) of these by-laws. To appoint effective or alternate Auditors for any reason not elected according to the terms of the aforementioned procedure, the shareholders’ meeting will resolve with the majorities prescribed by the law. The vote by list procedure shall apply only in case of appointment of the entire Board of Statutory Auditors. Should an effective Auditor drawn out from the candidate list that receives the majority of votes expressed by the Shareholders be replaced, he will be succeeded by the alternate Auditor drawn out from the same candidate list; should an effective Auditor drawn out from the other candidate list be replaced, he will be substituted pursuant to Article 17.3, letter b) ofby the by-laws.Alternate Auditor drawn by those other lists. 28.3   Retiring Auditors may be reelected. 28.4   Subject to a previous communication to the Chairman of the Board of Directors, the Board of Statutory Auditors is empowered to convene the shareholders’ meeting and the Board of Directors. At least two effective Auditors are empowered to convene the shareholders’ meetings and at least one effective Auditor is empowered to convene the Board meetings. The Board of Statutory Auditors’ meetings may be held by video or teleconference if each of the participants to the meetings may be identified and if each is allowed to follow the discussion and take part to it in real time. If said conditions are met, the Meeting is considered duly held in the place where the Chairman and the Secretary are present. Part VII - Financial Statements and Profits ARTICLE 29 29.1   The business year ends on December 31 every year. E-7 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   IInIn 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 Economy and Finance may retain his shareholding in the company share capital in excess of the limit set forth in Article 6.1 of these by-laws and will not be subject to the provisions of said Article 6.1 for the period set by the law. ARTICLE 33 33.1   The company retains all assets and liabilities held before its transformation by the public law agency Ente Nazionale Idrocarburi.   .Table of Contents Exibit 8 E-8 EXHIBIT 8 List of Eni'sEni’s fully consolidated subsidiaries for year 20052006 Subsidiary   Country of Incorporation Eni'sEni’s interest (%)(1)                 Exploration & Production               Agip Caspian Sea BV   (the Netherlands) 100.00 Agip Energy and Natural Resources (Nigeria) Ltd   (Nigeria) 100.00 Agip Karachaganak BV   (the Netherlands) 100.00 Agip Oil Ecuador BV   (the Netherlands) 100.00 Eni A E P Ltd   (the United Kingdom) 100.00 Eni Algeria Exploration BV   (the Netherlands) 100.00 Eni Algeria Ltd Sàrrl   (Luxembourg) 100.00 Eni Algeria Production BV   (the Netherlands) 100.00 Eni Ambalat Ltd   (the United Kingdom) 100.00 Eni America Ltd   (USA) 100.00 Eni Angola Exploration BV   (the Netherlands) 100,00 Eni Angola Production BV   (the Netherlands) 100.00 Eni Australia BV   (the Netherlands) 100.00 Eni Australia Ltd   (the United Kingdom) 100.00 Eni BB Petroleum Inc   (USA) 100.00 Eni Birch Ltd (the United Kingdom) 100.00 Eni Bukat Ltd   (the United Kingdom) 100.00 Eni Bulungan BV   (the Netherlands) 100.00 Eni China BV   (the Netherlands) 100.00 Eni Congo Holding BV (ex Eni International BV)   (the Netherlands) 100.00 Eni Congo SA   (Congo) 100.00 Eni Croatia BV   (the Netherlands) 100.00 Eni Dación BV   (the Netherlands) 100.00 Eni Deepwater Llc (USA) 100.00 Eni Denmark BV   (the Netherlands) 100.00 Eni Elgin/Franklin Ltd   (the United Kingdom) 100.00 Eni Energy BV (the Netherlands) 100.00 Eni Energy Ltd (in liquidation)   (the United Kingdom) 100.00 Eni Ganal Ltd   (the United Kingdom) 100.00 Eni Gas & Power LNG (the Netherlands) 100.00 Eni Grand Maghreb BV   (the Netherlands) 100.00 Eni Guibsen Exploration BVIndia Ltd   (the Netherlands)United Kingdom) 100.00 Eni Indonesia Ltd   (the United Kingdom) 100.00 Eni International NA NV Sàrl   (Luxembourg) 100.00 Eni Investments Plc   (the United Kingdom) 100.00 Eni Iran BV   (the Netherlands) 100.00 Eni Ireland BV   (the Netherlands) 100.00 Eni JPDA 03-13 Ltd   (the United Kingdom) 100.00 Eni Krueng Mane Ltd   (the United Kingdom) 100.00 Eni Lasmo Plc   (the United Kingdom) 100.00 Eni LNS Ltd   (the United Kingdom) 100.00 Eni Marketing Inc   (USA) 100.00 Eni Mediterranea Idrocarburi SpA   (Italy) 100.00 Eni MEP Ltd (the United Kingdom) 100.00 Eni MHH Ltd (in liquidation)   (the United Kingdom) 100.00 Eni Middle East BV   (the Netherlands) 100.00 Eni Middle East Ltd   (the United Kingdom) 100.00 Eni MOG Ltd (in liquidation)   (the United Kingdom) 100.00 Eni Muara Bakau BV   (the Netherlands) 100.00 Eni Norge AS   (Norway) 100.00 Eni North Africa BV   (the Netherlands) 100.00 Eni Oil Algeria Ltd   (the United Kingdom) 100.00 Eni Oil & Gas Inc (USA) 100,00 Eni Oil do Brasil SA (Brazil) 100.00 Eni Oil Holdings BV (the Netherlands) 100.00 Eni Pakistan Ltd (the United Kingdom) 100.00 Eni Pakistan (M) Ltd Sàrl (Luxembourg) 100.00 Eni Papalang Ltd (the United Kingdom) 100.00 Eni Petroleum Co Inc (USA) 100.00 Eni Petroleum Exploration Co Inc (USA) 100.00 Eni Popodi Ltd (the United Kingdom) 100.00 Eni Rapak Ltd (the United Kingdom) 100.00 Eni Resources Ltd (in liquidation) (the United Kingdom) 100.00 Eni Russia BV (the Netherlands) 100.00 Eni Securities Ltd (the United Kingdom) 100.00 Eni TNS Ltd (the United Kingdom) 100.00 Eni Trading BV (the Netherlands) 100.00 Eni Trinidad and Tobago Ltd (Trinidad and Tobago) 100.00 Eni TTO Ltd (the United Kingdom) 100.00 Eni Tunisia BEK BV (the Netherlands) 100.00 Eni Tunisia BV (the Netherlands) 100.00 Eni UFL Ltd (in liquidation) (the United Kingdom) 100.00 Eni UHL Ltd (the United Kingdom) 100.00 Eni UKCS Ltd (the United Kingdom) 100.00 Eni UK Ltd (the United Kingdom) 100.00 Eni ULT Ltd (the United Kingdom) 100.00 Eni ULX Ltd (the United Kingdom) 100.00 Eni USA Inc (USA) 100.00 Eni U.S. Operating Co Inc (USA) 100.00 Eni Venezuela BV (the Netherlands) 100.00 Eni Ventures Plc (the United Kingdom) 100.00 Ieoc Exploration BV (the Netherlands) 100.00 Ieoc Production BV (the Netherlands) 100.00 Ieoc SpA (Italy) 100.00 Lasmo Sanga Sanga Ltd (Bermuda) 100.00 Nigerian Agip Exploration Ltd (Nigeria) 100.00 Nigerian Agip Oil Co Ltd (Nigeria) 100.00 S.A.R.C.I.S. - Società Azionaria Ricerche Coltivazione Idrocarburi Sicilia SpA (Italy) 100.00 Società Petrolifera Italiana SpA (Italy) 99.96 Stoccaggi Gas Italia SpA - Stogit SpA (Italy) 100.00 Gas & Power Acqua Campania SpA (ex Eni Acqua Campania SpA) (Italy) 49.05 Adriaplin Podjetje za distribucijo zemeljskega plina doo Ljubljana (Slovenia) 51.00 Compagnia Napoletana di Illuminazione e Scaldamento col Gas SpA (Italy) 99.69 Distribuidora de Gas Cuyana SA (Argentina) 45.60 Eni G&P Trading BV (the Netherlands) 100.00 Eni Gas & Power CH SA (Switzerland) 100.00 Eni Gas & Power Deutschland SpA (ex Italgas Rete SpA) (Italy) 100.00 Eni Gas & Power GmbH (Germany) 100.00 Eni Gas & Power LNG Australia BV (the Netherlands) 100.00 Eni Gas Trading Europe BV (the Netherlands) 100.00 EniPower SpA (Italy) 100.00 EniPower Trading SpA (Italy) 100.00 EniPower Trasmissione SpA (Italy) 100.00 Fiorentina Gas Clienti SpA (Italy) 100.00 Fiorentina Gas SpA (Italy) 51.03 Gas Brasiliano Distribuidora SA (Brazil) 100.00 GNL Italia SpA (Italy) 50.07 Greenstream BV (the Netherlands) 75.00 Inversora de Gas Cuyana SA (Argentina) 76.00 Italgas Hellas SpA (Italy) 100.00 LNG Shipping SpA (Italy) 100.00 Napoletana Gas Clienti SpA (Italy) 99.69 Partecipazioni Industriali SpA (Italy) 100.00 Snam Rete Gas SpA (Italy) 50.07 Società EniPower Ferrara Srl (Italy) 51.00 Società Italiana per il Gas pA (Italy) 100.00 Société de Service du Gazoduc Transtunisien SA - Sergaz SA (Tunisia) 66.67 Société pour la Construction du Gazoduc Transtunisien SA - Scogat SA (Tunisia) 100.00 Tigáz Tiszántúli Gázszolgáltató Zártkörûen Mûködõ Részvénytársaság (Hungary) 50.08 Trans Tunisian Pipeline Co Ltd (Channel Island) 100.00 Refining & Marketing Agip Austria GmbH (Austria) 100.00 Agip Benelux BV (the Netherlands) 100.00 Agip Ceská Republika Sro (Czech Republic) 100.00 Agip Deutschland GmbH (Germany) 100.00 Agip Ecuador SA (Ecuador) 100.00 Agip España SA (Spain) 100.00 Agip Française SA (France) 100.00 Agip Hungaria Részvénytársaság (Hungary) 99.41 Agip Lubricantes SA (Argentina) 100.00 Agip Lubricants (Pty) Ltd (South Africa) 100.00 Agip Pannónia Kereskedelmi 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 Spol Sro (Slovakia) 100.00 Agip Suisse SA (Switzerland) 100.00 AgipFuel SpA (Italy) 100.00 AgipRete SpA (Italy) 100.00 American Agip Co Inc (USA) 100.00 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 Esain SA (Ecuador) 100.00 Intermode Trasporti Logistica Integrata SpA (Italy) 100.00 Petrolig Srl (Italy) 70.00 Petroven Srl (Italy) 68.00 Praoil Oleodotti Italiani SpA (Italy) 100.00 Raffineria di Gela SpA (Italy) 100.00 Petrochemicals Dunastyr Polisztirolgyártó Zártkoruen Mukodo Részvénytársaság (ex Dunastyr Polisztirolgyártó Részvénytársaság Ltd) (Hungary) 100.00 Polimeri Europa Americas Inc (USA) 100.00 Polimeri Europa Benelux SA (Belgium) 100.00 Polimeri Europa Elastomères France SA (France) 100.00 Polimeri Europa France SAS (ex Polimeri Europa Distribution France SAS) (France) 100.00 Polimeri Europa GmbH (Germany) 100.00 Polimeri Europa Ibérica SA (Spain) 100.00 Polimeri Europa SpA (Italy) 100.00 Polimeri Europa UK Ltd (the United Kingdom) 100.00 Oilfield Services Construction and Engineering Oilfield Services and Construction BOSCONGO SA (Congo) 43.25 BOS Investment Ltd (the United Kingdom) 43.26 BOS Italia Srl (Italy) 43.26 BOS - UIE Ltd (the United Kingdom) 43.26 Camom Gesellschaft fur Instandhaltung und Montagen GmbH (Germany) 43.26 Camom SA (France) 43.26 Consorzio Saipem Energy International - Tecnomare (Italy) 52.71 Delong Hersent - Estudos, Construções Maritimas e Participações, Unipessoal Lda (Portugal) 43.26 Energy Maintenance Services SpA (Italy) 71.63 Entreprise Nouvelle Marcellin SA (France) 43.26 ER SAI Caspian Contractor Llc (Kazakhstan) 21.63 ERS - Equipment Rental & Services BV (the Netherlands) 43.26 European Marine Contractors Ltd (the United Kingdom) 43.26 European Marine Investments Ltd (the United Kingdom) 43.26 European Maritime Commerce BV (the Netherlands) 43.26 Global Petroprojects Services AG (ex Global Petroprojects Services AG SA Ltd) (Switzerland) 43.26 Hazira Cryogenic Engineering & Construction Management Private Ltd (India) 23.74 Hazira Marine Engineering & Construction Management Private Ltd (India) 43.26 Intermare Sarda SpA (Italy) 43.26 Katran-K Llc (Russia) 43.26 Moss Arctic Offshore AS (Norway) 43.26 Moss Maritime AS (Norway) 43.26 Moss Maritime Inc (USA) 43.26 Moss Offshore AS (Norway) 43.26 Nigerian Services & Supply Co Ltd (Nigeria) 43.26 Petrex SA (Peru) 43.26 Petromar Lda (Angola) 30.28 PT Saipem Indonesia (Indonesia) 43.26 PT Sofresid Engineering (ex PT Sofresid Indonesia Ll) (Indonesia) 43.26 Saibos Construções Maritimas Lda (Portugal) 43.26 Saibos Fze (United Arab Emirates) 43.26 Saibos SAS (France) 43.26 Saigut SA De Cv (Mexico) 34.61 Saimexicana SA De Cv (Mexico) 43.26 Saipem America Inc (ex Sonsub Inc) (USA) 43.26 Saipem Asia Sdn Bhd (Malaysia) 43.26 Saipem Contracting Algerie SpA (Algeria) 43.24 Saipem Contracting (Nigeria) Ltd (Nigeria) 42.37 Saipem do Brasil Serviçõs de Petroleo Ltda (Brazil) 43.26 Saipem Energy International SpA (Italy) 43.26 Saipem FPSO SpA (ex Sonsub SpA) (Italy) 43.26 Saipem Holding France SAS (France) 43.26 Saipem India Project Services Ltd (India) 43.26 Saipem International BV (the Netherlands) 43.26 Saipem Luxembourg SA (Luxembourg) 43.26 Saipem (Malaysia) Sdn Bhd (Malaysia) 17.56 Saipem Mediteran Usluge doo (Croatia) 43.26 Saipem (Nigeria) Ltd (Nigeria) 38.68 Saipem - Perfurações e Contruções Petroliferas America do Sul Lda (Portugal) 43.26 Saipem (Portugal) - Comércio Marítimo, Sociedade Unipessoal Lda (Portugal) 43.26 Saipem (Portugal) - Gestão de Participações SGPS Sociedade Unipessoal SA (Portugal) 43.26 Saipem SA (France) 43.26 Saipem Services México SA De Cv (Mexico) 43.26 Saipem Services SA (Belgium) 43.26 Saipem Singapore Pte Ltd (Singapore) 43.26 Saipem SpA (Italy) 43.26 Saipem UK Ltd (the United Kingdom) 43.26 SAIR Construções Mecanicas de Estruturas Maritimas Lda (Portugal) 37.20 SAS Port de Tanger (France) 43.26 Saudi Arabian Saipem Ltd (Saudi Arabia) 25.96 SB Construction and Maritime Services BV (the Netherlands) 43.26 Services et Equipements Gaziers et Petroliers SA (France) 43.16 Société de Construction d’Oleoducs Snc (France) 43.16 Société Nouvelle Technigaz SA (France) 43.25 Sofresid Engineering SA (France) 43.26 Sofresid SA (France) 43.26 Sonsub AS (Norway) 43.26 Sonsub International Pty Ltd (Australia) 43.26 Sonsub Ltd (the United Kingdom) 43.26 Star Gulf Free Zone Co (United Arab Emirates) 43.26 TBE Ltd (Egypt) 30.27 Engineering Andromeda Consultoria Tecnica e Representações Ltda (Brazil) 100.00 Engineering & Management Services SpA (ex Snamprogetti Services SpA) (Italy) 100.00 Snamprogetti Canada Inc (Canada) 100.00 Snamprogetti France Sàrl (France) 100.00 Snamprogetti Ltd (the United Kingdom) 99.99 Snamprogetti Lummus Gas Ltd (Malta) 99.00 Snamprogetti Management Services SA (Switzerland) 99.99 Snamprogetti Netherlands BV (the Netherland) 100.00 Snamprogetti Saudi Arabia Ltd (Saudi Arabia) 74.99 Snamprogetti SpA (Italy) 100.00 Snamprogetti Sud SpA (Italy) 100.00 Snamprogetti USA Inc (USA) 99.99 Other activities Agenzia Giornalistica Italia SpA (Italy) 100.00 Eni Corporate University SpA (Italy) 100.00 EniTecnologie SpA (Italy) 100.00 Ing. Luigi Conti Vecchi SpA (Italy) 100.00 Servizi Aerei SpA (Italy) 100.00 Sieco SpA (Italy) 100.00 Syndial SpA - Attività Diversificate (Italy) 100.00 Tecnomare - Società per lo Sviluppo delle Tecnologie Marine SpA (Italy) 62.16 Corporate and financial companies Eni Coordination Center SA (Belgium) 100.00 Eni International Bank Ltd (Bahamas) 100.00 Eni International BV (ex Eni Exploration BV) (the Netherlands) 100.00 Padana Assicurazioni SpA (Italy) 99.71 Serfactoring SpA (Italy) 48.81 Società Finanziamenti Idrocarburi - Sofid - SpA (Italy) 99.61 Società Finanziaria Eni SpA - Enifin (Italy) 100.00 Sofidsim - Società di Intermediazione Mobiliare SpA (Italy) 99.61 (1)   The percentage relates to Eni's share of net profit of the relevant subsidiary and coincides with the percentage of ownership interest both direct and indirect in the vast majority of cases. E-9 Eni Oil & Gas Inc (USA) 100,00 Eni Oil do Brasil SA (Brazil) 100.00 Eni Oil Holdings BV (the Netherlands) 100.00 Eni Pakistan Ltd (the United Kingdom) 100.00 Eni Pakistan (M) Ltd Sàrl (Luxembourg) 100.00 Eni Papalang Ltd (the United Kingdom) 100.00 Eni Petroleum Co Inc (USA) 100.00 Eni Petroleum US Llc (USA) 100.00 Eni Popodi Ltd (the United Kingdom) 100.00 Eni Rapak Ltd (the United Kingdom) 100.00 Eni Resources Ltd (in liquidation) (the United Kingdom) 100.00 Eni Russia BV (the Netherlands) 100.00 Eni Securities Ltd (the United Kingdom) 100.00 Eni TNS Ltd (the United Kingdom) 100.00 Eni Trading BV (the Netherlands) 100.00 Eni Trasportation Ltd (ex Eni Birch Ltd) (the United Kingdom) 100.00 Eni Trinidad and Tobago Exploration BV (the Netherlands) 100.00 Eni Trinidad and Tobago Ltd (Trinidad and Tobago) 100.00 Eni TTO Ltd (the United Kingdom) 100.00 Eni Tunisia BEK BV (the Netherlands) 100.00 Eni Tunisia BV (the Netherlands) 100.00 Eni UFL Ltd (in liquidation) (the United Kingdom) 100.00 Eni UHL Ltd (the United Kingdom) 100.00 Eni UKCS Ltd (the United Kingdom) 100.00 Eni UK Ltd (the United Kingdom) 100.00 Eni ULT Ltd (the United Kingdom) 100.00 Eni ULX Ltd (the United Kingdom) 100.00 Eni USA Gas Marketing Llc (USA) 100.00 Eni USA Inc (USA) 100.00 Eni US Operating Co Inc (USA) 100.00 Eni Venezuela BV (the Netherlands) 100.00 Eni Ventures Plc (the United Kingdom) 100.00 Ieoc Exploration BV (the Netherlands) 100.00 Ieoc Production BV (the Netherlands) 100.00 Ieoc SpA (Italy) 100.00 Lasmo Sanga Sanga Ltd (Bermuda) 100.00 Nigerian Agip Exploration Ltd (Nigeria) 100.00 Nigerian Agip Oil Co Ltd (Nigeria) 100.00 Società Oleodotti Meridionali - SOM SpA (Italy) 70.00 Società Petrolifera Italiana SpA (Italy) 99.96 Stoccaggi Gas Italia SpA - Stogit SpA (Italy) 100.00 Tecnomare - Società per lo Sviluppo delle Tecnologie Marine SpA (Italy) 71.53 OOO "EniNeftegaz" (Russia) 100.00 Gas & Power Acqua Campania SpA (Italy) 47.62 Adriaplin Podjetje za distribucijo zemeljskega plina doo Ljubljana (Slovenia) 51.00 Compagnia Napoletana di Illuminazione e Scaldamento col Gas SpA (Italy) 99.69 Distribuidora de Gas Cuyana SA (Argentina) 45.60 Eni G&P Trading BV (the Netherlands) 100.00 Eni Gas & Power CH SA (Switzerland) 100.00 Eni Gas & Power Deutschland SpA (Italy) 100.00 Eni Gas & Power GmbH (Germany) 100.00 Eni Hellas SpA (Italy) 100.00 EniPower Mantova SpA (Italy) 86.50 EniPower SpA (Italy) 100.00 EniPower Trasmissione SpA (Italy) 100.00 Gas Brasiliano Distribuidora SA (Brazil) 100.00 E-10 GNL Italia SpA (Italy) 53.39 Greenstream BV (the Netherlands) 75.00 Inversora de Gas Cuyana SA (Argentina) 76.00 LNG Shipping SpA (Italy) 100.00 Napoletana Gas Clienti SpA (Italy) 99.69 Partecipazioni Industriali SpA (Italy) 100.00 Siciliana Gas Clienti SpA (Italy) 100.00 Siciliana Gas SpA (Italy) 100.00 Siciliana Gas Vendite SpA (Italy) 100.00 Snam Rete Gas SpA (Italy) 53.39 Società EniPower Ferrara Srl (Italy) 51.00 Società Italiana per il Gas pA (Italy) 100.00 Société de Service du Gazoduc Transtunisien SA - Sergaz SA (Tunisia) 66.67 Société pour la Construction du Gazoduc Transtunisien SA - Scogat SA (Tunisia) 100.00 Tigáz Tiszántúli Gázszolgáltató Zártkörûen Mûködõ Részvénytársaság (Hungary) 50.08 Toscana Energia Clienti SpA (ex Toscana Gas Clienti SpA) (Italy) 79.22 Trans Tunisian Pipeline Co Ltd (Channel Island) 100.00 Refining & Marketing Agip Austria GmbH (Austria) 100.00 Agip Benelux BV (the Netherlands) 100.00 Agip Ceská Republika Sro (Czech Republic) 100.00 Agip Deutschland GmbH (Germany) 100.00 Agip Ecuador SA (Ecuador) 100.00 Agip España SA (Spain) 100.00 Agip France Sàrl (France) 100.00 Agip Hungaria Zrt (Hungary) 99.40 Agip Lubricantes SA (Argentina) 100.00 Agip Pannónia Kft (Hungary) 99.40 Agip Portugal - Combustiveis SA (Portugal) 100.00 Agip Romania Srl (Romania) 100.00 Agip Schmiertechnik GmbH (Germany) 100.00 Agip Slovenija doo (Slovenia) 100.00 Agip Slovensko Spol Sro (Slovakia) 100.00 Agip Suisse SA (Switzerland) 100.00 AgipFuel SpA (Italy) 100.00 AgipRete SpA (Italy) 100.00 American Agip Co Inc (USA) 100.00 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 Esain SA (Ecuador) 100.00 Petrolig Srl (Italy) 70.00 Petroven Srl (Italy) 68.00 Praoil Oleodotti Italiani SpA (Italy) 100.00 Raffineria di Gela SpA (Italy) 100.00 Petrochemicals Dunastyr Polisztirolgyártó Zártkoruen Mukodo Részvénytársaság (ex Dunastyr Polisztirolgyártó Részvénytársaság Ltd) (Hungary) 100.00 Polimeri Europa Benelux SA (Belgium) 100.00 Polimeri Europa Elastomères France SA (France) 100.00 Polimeri Europa France SAS (France) 100.00 Polimeri Europa GmbH (Germany) 100.00 E-11 Polimeri Europa Ibérica SA (Spain) 100.00 Polimeri Europa SpA (Italy) 100.00 Polimeri Europa UK Ltd (the United Kingdom) 100.00 Engineering & Construction Andromeda Consultoria Tecnica e Representações Ltda (Brazil) 43.54 BOSCONGO SA (Congo) 43.54 BOS Investment Ltd (the United Kingdom) 43.54 BOS - UIE Ltd (the United Kingdom) 43.54 Camom Gesellschaft fur Instandhaltung und Montagen GmbH (Germany) 43.54 Camom SA (France) 43.54 CENMC Canada Inc (Canada) 43.54 Delong Hersent - Estudos, Construções Maritimas e Participações, Unipessoal Lda (Portugal) 43.54 Energy Maintenance Services SpA (Italy) 43.54 Engineering & Management Services SpA (Italy) 43.54 Entreprise Nouvelle Marcellin SA (France) 43.54 ER SAI Caspian Contractor Llc (Kazakhstan) 21.77 ERS - Equipment Rental & Services BV (the Netherlands) 43.54 European Marine Contractors Ltd (the United Kingdom) 43.54 European Marine Investments Ltd (the United Kingdom) 43.54 European Maritime Commerce BV (the Netherlands) 43.54 Global Petroprojects Services AG (Switzerland) 43.54 Hazira Cryogenic Engineering & Construction Management Private Ltd (India) 23.89 Hazira Marine Engineering & Construction Management Private Ltd (India) 43.54 Intermare Sarda SpA (Italy) 43.54 Katran-K Llc (Russia) 43.54 Moss Arctic Offshore AS (Norway) 43.54 Moss Maritime AS (Norway) 43.54 Moss Maritime Inc (USA) 43.54 Moss Offshore AS (Norway) 43.54 Nigerian Services & Supply Co Ltd (Nigeria) 43.54 North Caspian Service Co (Kazakhstan) 43.54 Petrex SA (Peru) 43.54 Petromar Lda (Angola) 30.48 PT Saipem Indonesia (Indonesia) 43.54 Saibos Construções Maritimas Lda (Portugal) 43.54 Saibos Fze (United Arab Emirates) 43.54 Saigut SA De Cv (Mexico) 34.83 Saimexicana SA De Cv (Mexico) 43.26 Saipem America Inc (USA) 43.26 Saipem Asia Sdn Bhd (Malaysia) 43.26 Saipem Contracting Algerie SpA (Algeria) 43.24 Saipem Contracting (Nigeria) Ltd (Nigeria) 42.65 Saipem do Brasil Serviçõs de Petroleo Ltda (Brazil) 43.54 Saipem Energy International SpA (Italy) 43.54 Saipem FPSO SpA (Italy) 43.54 Saipem Holding France SAS (France) 43.54 Saipem India Project Services Ltd (India) 43.54 Saipem International BV (the Netherlands) 43.54 Saipem Logistics Services Ltd (Nigeria) 43.54 Saipem Luxembourg SA (Luxembourg) 43.54 Saipem (Malaysia) Sdn Bhd (Malaysia) 18.02 Saipem Mediteran Usluge doo (Croatia) 43.54 Saipem Misr for Petroleum Services SAE (Egypt) 43.54 Saipem (Nigeria) Ltd (Nigeria) 38.93 E-12 Saipem - Perfurações e Construções Petroliferas Lda (ex Saipem - Perfurações e Construções Petroliferas America do Sul Lda) (Portugal) 43.54 Saipem (Portugal) - Comércio Marítimo, Sociedade Unipessoal Lda (Portugal) 43.54 Saipem (Portugal) - Gestão de Participações SGPS Sociedade Unipessoal SA (Portugal) 43.54 Saipem Projects SpA (Italy) 43.54 Saipem SA (France) 43.54 Saipem Services México SA De Cv (Mexico) 43.54 Saipem Services SA (Belgium) 43.54 Saipem Singapore Pte Ltd (Singapore) 43.54 Saipem SpA (Italy) 43.54 Saipem UK Ltd (the United Kingdom) 43.54 SAIR Construções Mecanicas de Estruturas Maritimas Lda (Portugal) 37.45 SAS Port de Tanger (France) 43.54 Saudi Arabian Saipem Ltd (Saudi Arabia) 26.12 Services et Equipements Gaziers et Petroliers SA (France) 43.44 Snamprogetti Canada Inc (Canada) 43.54 Snamprogetti France Sàrl (France) 43.54 Snamprogetti Ltd (the United Kingdom) 43.54 Snamprogetti Lummus Gas Ltd (Malta) 43.11 Snamprogetti Management Services SA (Switzerland) 43.54 Snamprogetti Netherlands BV (the Netherlands) 43.54 Snamprogetti Saudi Arabia Ltd (Saudi Arabia) 43.54 Snamprogetti SpA (Italy) 43.54 Snamprogetti Sud SpA (Italy) 43.54 Snamprogetti USA Inc (USA) 43.54 Société de Construction d’Oleoducs Snc (France) 43.44 Société Nouvelle Technigaz SA (France) 43.52 Sofresid Engineering SA (France) 43.54 Sofresid SA (France) 43.54 Sonsub AS (Norway) 43.54 Sonsub International Pty Ltd (Australia) 43.54 Sonsub Ltd (the United Kingdom) 43.54 Star Gulf Free Zone Co (United Arab Emirates) 43.54 TBE Ltd (Egypt) 30.47 Other activities Ing. Luigi Conti Vecchi SpA (Italy) 100.00 Syndial SpA - Attività Diversificate (Italy) 100.00 Corporate and financial companies Agenzia Giornalistica Italia SpA (Italy) 100.00 Banque Eni SA (Belgium) 100.00 Eni Coordination Center SA (Belgium) 100.00 Eni Corporate University SpA (Italy) 100.00 Eni Insurance Ltd (Ireland) 100.00 Eni International Bank Ltd (Bahamas) 100.00 Eni International BV (the Netherlands) 100.00 Eni International Resources Ltd (the United Kingdom) 100.00 EniServizi SpA (Italy) 100.00 Padana Assicurazioni SpA (Italy) 99.72 Serfactoring SpA (Italy) 48.81 Servizi Aerei SpA (Italy) 100.00 Società Finanziamenti Idrocarburi - Sofid - SpA (Italy) 99.61 Società Finanziaria Eni SpA - Enifin (Italy) 100.00 E-13 EXHIBIT 11 Exhibit 11 Code of EthicsPractice Approved by the Board of Directors of Eni SpA on October 21, 1998 and on July 31, 2003 (Addendum)   CONTENTS Addendum Foreword 1. General Principles 1.1 To whom the Code applies 1.2 Duties of Eni 1.3 Duties of Employees 1.4 Additional Duties of Managers 1.5 Applicability of the Code to Third Parties 1.6 Reference, Implementation and Control Functions (Guarantors) 1.7 Contractual Value of the Code 2. Business Conduct 2.1 Relations with Customers 2.2 Relations with Suppliers 3. Transparency of Accounting and Internal Controls 3.1 Accounting Records 3.2 Internal Controls 4. Personnel Policies 4.1 Human Resources 4.2 Harassment in the Workplace 4.3 Abuse of Alcohol or Drugs 4.4 Smoking 5. Health, Safety and the Environment 6. Confidentiality 7. External Relations 7.1 Relations with Public Institutions 7.2 Relations with Political Organizations and Trade Unions 7.3 Relations with the Media 7.4 Presentation of Eni Objectives, Activities, Results and Points of View 7.5 "Non Profit" Initiatives E-14 ADDENDUM In conducting its activities as an international company, Eni refers to the protection of human and labor rights, of safety and the environment, as well as to the system of values and principles concerning transparency and integrity, energy efficiency and sustainable development, as outlined by international institutions and conventions. In this respect Eni reaffirms its commitment to operate within the framework of the United Nations Universal Declaration of Human Rights, the Fundamental Conventions of the ILO – International Labour Organization – and the OECD Guidelines on Multinational Enterprises, with particular reference to the areas concerning the protection of labor rights, freedom of association, the rejection of all forms of discrimination, forced and child labor, corruption, the safeguarding of dignity, health and safety at the workplace, the respect for natural biodiversities and the protection of the environment. Moreover, Eni is committed to actively contribute to promoting the quality of life and the socio-economic development of the communities where the Group operates and to the development of their human resources and capabilities, while conducting its business activities in internal and external markets according to standards that are compatible with fair commercial practice. All of Eni'sEni’s activities are carried out in the awareness of the Social Responsibility that the Group has towards all of its stakeholders (employees, shareholders, customers, suppliers, communities, commercial and financial partners, institutions, industry associations, trade unions…), in the belief that the capacity for dialogue and interaction with civil society constitutes an important asset for the company. Therefore, Eni is committed to spreading an awareness of its values and principles both within and outside the Group and to implementing adequate control procedures. FOREWORD Eni1 is an internationally oriented industrial group which, because of its size and the importance of its activities, plays a significant role in the marketplace and in the economic development and welfare of the communities where it is present. Eni operates in many institutional, economic, political, social and cultural environments in constant and rapid development. Eni’s activities must be performed in full respect of the law, in fair competition, with honesty, integrity and good faith, with due respect for the legitimate interests of its customers, employees, shareholders, commercial and financial partners and the communities where it is present. All those who work in Eni are, without any distinction or exception whatsoever, committed to respecting these principles in performing their roles and responsibilities and to making sure that others respect them. The conviction that one is acting in favor or to the advantage of Eni can never, in any way, justify acts or behavior that conflict with these principles. Due to the complexity of the situations in which Eni operates, it is important to define clearly the values that Eni accepts, acknowledges and shares as well as the responsibilities assumed by Eni inside and outside Eni itself. For this reason the present Code of Practice (hereinafter called the "Code") has been produced. Respect of the Code by every Eni employee is of paramount importance for the good functioning, reliability and reputation of Eni; all of which are crucial factors for its success. Apart from fulfilling their general duties of loyalty, fairness and the performance of their labor contract in good faith, all Eni employees must refrain from acts that compete with Eni and they must respect company rules and comply with the Code; which compliance is also required under existing laws.laws2. Each employee is expected to have full knowledge of the Code and to contribute actively to its implementation and to report any shortcomings. Eni undertakes to facilitate and promote knowledge of the Code among its employees and to accept their constructive contribution to the Code’s contents. Any behavior violating the letter and the spirit of the Code will be punished according to the rules herein defined. Eni will check compliance with the Code by providing suitable information, prevention and control instruments and it shall ensure transparency in all operations and conduct by taking corrective measures if and as required. The Code shall be brought to the attention of every person or body having business relations with Eni. (1)   In the present Code "Eni" or "Group" mean Eni SpA and its subsidiaries as defined in Article 2359 of the Italian Civil Code as well as other subsidiaries as defined in Article 26 of Legislative Decree No. 127 of April 9, 1991. (2)   "Article 2104. Diligence of workers. Workers are expected to render diligently the services expected from them according to the nature of such services, the interests of the company and the higher interests of national production. They must also comply with the rules for work execution and discipline as set down by their employers and the superiors to whom they report." E-15 Eni will check compliance with the Code by providing suitable information, prevention and control instruments and it shall ensure transparency in all operations and conduct by taking corrective measures if and as required. The Code shall be brought to the attention of every person or body having business relations with Eni.   1. GENERAL PRINCIPLES 1.1 To whom the code applies Moral integrity is a constant duty for any person working for Eni and characterizes the conduct of its entire organization. The rules of the Code are applicable to each and every Eni employee without exception and to all those who work for the achievement of Eni’s objectives. Eni’s management has to comply with the rules of the Code in the presentation of projects, and in actions and investments aimed at increasing in the long-term the value of Eni assets, managerial capability, technology, the return on investment for shareholders, and the welfare of employees and the community at large. Members of the Board of Directors must bear in mind the principles contained in the Code when determining corporate objectives. Company managers must be the first to give concrete form to the values and principles contained in the Code, by assuming responsibility for them both inside and outside the Group, and by instilling trust, cohesion and a sense of team-work. Eni employees shall not only respect existing applicable laws but they are also expected to adjust their actions and conduct so as to conform to the principles, objectives and commitments contemplated in the Code. The general conduct and any action, operation and negotiation performed by Eni employees in the performance of their duties shall be inspired by the highest principles of fairness, completeness and transparency of information and legitimacy, both in form and substance, as well as in clarity and truthfulness in all accounting matters, as per existing and applicable laws and internal regulations. Eni shall actively and fully cooperate with public Authorities, through its employees. All in-house work shall be performed with the utmost care and professional skill. Each employee must bring adequate skills and expertise to the task assigned and always act in a way that shall protect Eni’s reputation. Relationships between employees, at all levels, must be characterized by fairness, cooperation, loyalty and mutual respect. In order to fully comply with the Code, each employee may refer not only to his or her superior but may also contact directly any internal body or office specifically designated for the purpose. 1.2 Duties of Eni Through the establishment of specific internal bodies ("Guarantor" and "Committee for the Code of Practice"), Eni will: •   ensure the widest dissemination of the Code among its employees and partners; •   provide for further analyses and updating of the Code as required to meet evolving circumstances and laws; •   make available all the tools for understanding and clarifying the interpretation and the implementation of the Code; •   arrange for a careful evaluation to be carried out on any instances where the Code may have been violated; •   in the event of an acknowledged violation of the Code, it shall provide for an evaluation of the facts and, if necessary, the adoption of appropriate sanctions; •   ensure that no one may suffer any retaliation whatsoever for having provided information regarding possible violations of the Code or related laws. 1.3 Duties of employees All employees are expected to know the regulations contained in the Code and the relevant rules governing activities performed in their respective functions. Eni employees shall: •   refrain from all conduct contrary to such rules and regulations; •   consult their superior, or the Guarantor, whenever clarifications concerning the implementation of said rules are needed; •   immediately report to their superiors or to the Guarantor: •   - any fact that comes to their direct, or indirect, knowledge concerning a possible violation of such rules; •   - any request they receive to violate such rules; •   cooperate with the relevant office or department in ascertaining any violations. If, after notifying a supposed violation, an employee should deem that the issue has not been fully investigated or feels that he or she has been subject to retaliation, then the employee shall be entitled to make a complaint to the Committee for the Code of Practice. E-16 Employees are not allowed to conduct personal investigations, nor to exchange information, except to their superiors, the Guarantor or the Committee for the Code of Practice. 1.4 Additional duties of managers Each manager shall: •   act in a way that shall serve as an example of good conduct to his or her subordinates; •   encourage employees to respect the Code and to raise relevant questions and issues relating to the Code; •   act in such a way as to demonstrate to employees that respecting the Code is an essential aspect of the quality of their work; •   in so far as it is possible, try to select employees and external collaborators in such a way that will prevent assignments being given to persons who cannot be relied upon to implement the Code; •   immediately report the discovery of any possible deviations from the Code to a Senior Manager or to the Guarantor. Likewise, any information on possible deviations that is received from subordinates must also be passed on immediately to Senior Management; •   immediately take corrective measures whenever necessary; • prevent any kind of retaliation. prevent any kind of retaliation. 1.5 Applicability of the code to third parties In dealing with third parties, Eni employees shall: •   properly inform all third parties about the commitments and duties contained in the Code; •   require the third parties to respect the obligations in the Code relevant to their activities; •   adopt proper internal actions and, if the matter comes within the limits of the employee’s own responsibilities, also external actions, in the event that any third party should fail to comply with the Code. 1.6 Reference, implementation and control functions (guarantors) Eni has established the function of "Guarantor of the Code of Practice" with the following proposes and once the office of the Guarantor has been established, all employees must be made aware of its purpose and of how they themselves can communicate directly with it (by telephone, fax, e-mail, etc.): •   to establish criteria and procedure aimed at reducing the risk of violations of the Code; •   to promote the publication of guidelines and operational procedures in cooperation with offices and departments responsible for their preparation; •   to organize information and training programs for employees aimed at providing a better knowledge of the Code’s objectives; •   to promote and monitor knowledge of the Code inside and outside Eni and its implementation; •   to investigate reports of any violation by initiating proper inquiry procedures; •   to inform the Personnel Department about the results of any inquiries for the adoption of any sanctions; •   to inform the relevant departments of the results of any inquiries in relation to the taking any further actions; •   to present the Chairman, in conjunction with the Committee for the Code of Practice, with proposals for the further dissemination and updating of the Code (the Chairman then reports these to the Board of Directors); •   to initiate and then maintain a proper reporting and communication flow with similar departments and bodies in Eni subsidiaries; •   to present the Chairman, in conjunction with the Committee for the Code of Practice, with a yearly report on the implementation of the Code inside Eni SpA and its subsidiaries (the Chairman then reports these to the Board of Directors). In performing its duties, the Guarantor will be aided by the relevant structures within Eni SpA. Eni has established the Committee for the Code of Practice to carry out the following assignments: •   to express an evaluation on the Guarantor’s proposals for the dissemination and updating of the Code; •   to analyze the yearly report on the Code’s implementation and suggest to the Chairman (who reports to the Board on such matters), appropriate actions to prevent any recurrences of violations; •   to take action at the request of employees in the event of receiving reports that violations of the Code have not been properly dealt with or in the event of being informed of any retaliation against employees for having reported violations. Similar structures will be created in all Eni Group companies. The Eni SpA Guarantor coordinates the activities of the Guarantors in subsidiaries. After review by the Board of Directors of the respective sector head companies, a copy of the yearly report concerning each sector shall be presented to the Eni SpA Guarantor. The Eni SpA Guarantor shall also receive a copy of the yearly report of directly controlled companies not included in any sector. E-17 1.7 Contractual value of the code Respect of the Code’s rules is an essential part of the contractual obligations of Eni employees as per Article 2104 of the Italian Civil Code. Any violation of the Code’s rules may be considered as a violation of primary obligations under labor relations or of the rules of discipline, and can entail the consequences provided for by law, including termination of the work contract and reimbursement of damages arising from any violation therefrom.   2. BUSINESS CONDUCT In conducting its business Eni is inspired by the principles of fairness, loyalty, transparency, efficiency and an open market. Eni employees, and external collaborators whose actions may somehow be referred to Eni, must act correctly when conducting business in Eni’s interest and in their relations with the Public Administration, irrespective of the market conditions and the importance of the business under negotiation. Bribes, illegitimate favors, collusion, pressures, either direct or through third parties, requests of personal benefits for oneself or others, are prohibited. Eni acknowledges and respects the right of employees to take part in investments, businesses and other kinds of activities, provided that these are not related to the activities that such employees perform in the interests of Eni and provided that such activities are permitted by law and are compatible with the duties of being employees of Eni. In any event, Eni employees shall avoid any situation and activity where a conflict of interest may arise or which can interfere with their ability to make impartial decisions in the best interests of Eni and in full accordance with the Code. Any situation that may constitute or give rise to a conflict of interest shall be immediately reported to one’s superiors. In particular, all Eni employees shall avoid conflicts of interest between personal and family economic activities and their tasks within their company. By way of example, conflicts of interest are determined by the following situations: •   economic and financial interest of employee and/or his family in activities of supplier, customer and competitor; •   use of one’s position in the company, or of information acquired during one’s work, in such a way as to create a conflict between one’s personal interests and the interests of the company; •   performing any type of work for suppliers, customers and competitors; •   accepting money, favors or benefits from persons or firms that have, or intend to have, business relationships with Eni; •   buying or selling of shares in Eni companies or in other corporations on the basis of important information not in the public domain and obtained because of one’s position at Eni. In any case, transactions in securities of Eni companies shall always be conducted with the utmost transparency and fairness with respect to the issuing company and its Group, as well as to investors and shall always be such as not to generate any expectations, alarm or errors in judgment in third parties. It is prohibited to pay or offer, directly or indirectly, money and material benefits of any kind to third parties, whether public officers or private individuals, in order to influence or remunerate the actions of their office. Courtesy objects, such as small presents or hospitality gifts, are allowed only when the value of such objects is small and does not compromise the integrity and reputation of the partners and cannot be construed by an impartial observer as aimed at obtaining undue advantages. In any case, these expenses must always be authorized by the designated managersmanager as per existing rules and accompanied by appropriate documentation. Employees receiving presents or special treatment that cannot be directly related to normal courteous relations must inform their superior of the facts. External collaborators (including consultants, representatives, agents, brokers etc.) are required to comply with the Code’s principles. To this purpose, in accordance with their responsibilities, employees shall make sure that: •   code principles and procedures are followed in the selection of external collaborators and in relationships with them; •   only qualified and reputable persons and companies are selected; •   all information relevant to the selection of particular external collaborators be taken into proper account regardless of the source of such information; •   doubts on any supposed violation of the Code by external collaborators are immediately reported to one’s superior or the Guarantor; •   an explicit commitment to respect the principles of the Code of Practice be included in contracts with outside collaborators. In any case, the remuneration to be paid shall be exclusively commensurate with the services to be rendered and described in the contract and payments shall be made only to the contract partner and within the country indicated in the contract. E-18 2.1 Relations with customers Eni pursues its business success on markets by offering quality products and services under competitive conditions while respecting the rules protecting fair competition. Eni knows that the esteem of those requesting products or services is of primary importance for success in business. Therefore, Eni employees shall: •   follow internal procedures on relations with customers; •   provide, with courtesy and efficiency and within the limits set in the contracts, high quality products that can meet or exceed the customers’ reasonable expectations and needs; •   provide sufficient and accurate information about its products and services so that customers can take reasoned decisions; •   be truthful in all advertising and communications. 2.2 Relations with suppliers In the case of tenders and contracts for the supply of goods and services, Eni employees shall: •   follow internal procedures concerning selection and relations with suppliers; •   abstain from the exclusion of suppliers that have the proper requirements to bid for Eni’s orders, by adopting appropriate and objective selection methods, based on established, transparent criteria; •   secure the cooperation of suppliers in guaranteeing the continuous satisfaction of Eni’s customers in terms of quality, costs and delivery times, to the extent expected by customers; •   whenever possible and in accordance with applicable laws, make use of products and services supplied by other Eni Group companies at arm’s length conditions; •   respect all conditions contained in contracts; •   maintain a frank and open dialogue with suppliers in line with good commercial practice; • inform Eni SpA’s Department for Industrial Planning and Development about any serious problems that may arise with a particular supplier in order to evaluate the possible consequences for Eni. inform Eni SpA’s Department for Industrial Planning and Development about any serious problems that may arise with a particular supplier in order to evaluate the possible consequences for Eni. 3. TRANSPARENCY OF ACCOUNTING AND INTERNAL CONTROLS 3.1 Accounting records Accounting transparency is based on the use of true, accurate and complete information for construing entries in the books of accounts. Each employee shall cooperate in order to have events properly and timely registered in the books of accounts. For each transaction the proper supporting evidence has to be maintained in order to: •   facilitate registration of the accounting; • identify the different degrees of responsibilities; •   provide an accurate representation of the transaction so as to avoid any errors in interpretation of the facts. Each record shall reflect exactly what is shown by the supporting evidence. Each employee shall make sure, through accurate filing according to logical criteria, that the documentation can be easily traced. Eni employees who become aware of any omissions, misrepresentations, negligence in the accounting or in the documents on which accounting is based, shall bring the facts to the attention of his or her superior or to the Guarantor. 3.2 Internal controls It is Eni’s policy to disseminate, at every level of its organization, a culture characterized by an awareness of the existence of controls and a control oriented mentality. A positive attitude towards control is to be achieved in order to increase its efficiency. Internal controls are all those necessary or useful tools for addressing, managing and checking activities in the company; they aim at ensuring respect of corporate laws and procedures, protecting corporate assets, efficiently managing operations and providing precise and complete accounting information. The responsibility for building an efficient internal control system rests on all levels of the organization; therefore all Eni employees, in their respective functions, are responsible for the definition and proper functioning of internal controls. Within their areas of responsibility, managers shall be requested to become involved in the company’s system of internal controls and inform employees thereon. Each employee shall be held responsible for the corporate tangible and intangible assets relevant to his job. No employee can make, or let others make, improper use of assets and equipment belonging to Eni. Internal Auditors and appointed external auditors shall have full access to all data, documents and information necessary to perform their audit activities. E-19 4. PERSONNEL POLICIES 4.1 Human resources Human resources are basic components in the company’s life. The dedication and professionalism of employees represent fundamental values and conditions for reaching Eni’s objectives. Eni is committed to developing the abilities and skills of each employee so that his or her energy and creativity can have full expression for the fulfillment of their potential. Eni offers equal opportunities to all its employees, making sure that each of them receives fair treatment based on merit, without discrimination of any kind. All departments therefore shall: •   adopt criteria of merit, ability and professionalism in all decisions concerning employees; •   select, hire, train, compensate and manage employees without discrimination of any kind; •   create a working environment where personal characteristics do not give rise to discrimination. Eni considers the protection of working conditions and the protection of the mental and physical health of workers to be part of its entrepreneurial activity, while always respecting their moral personality and avoiding any undue pressures. To this end, any personal conduct considered to be offensive and liable to produce difficulties in relationships within the working environment will be given due consideration. Eni expects all its employees, at every level, to cooperate in maintaining a climate of reciprocal respect for a person’s dignity, honor and reputation. Eni shall do its best to prevent the emergence of attitudes that can be considered offensive. 4.2 Harassment in the workplace Eni demands that there shall be no harassment in personal relationships either inside or outside the company. Harassment is: •   the creation of an intimidating, hostile or isolating environment or atmosphere for one or more employee; •   unjustified interference in the work performed by others; •   the placing of obstacles in the way of the work prospects and expectations of others merely for reasons of personal competitiveness. Eni does not tolerate sexual harassment, by which it means: •   the subordinating of decisions on someone’s working life to the acceptance of sexual attentions; •   proposals of private interpersonal relations which are repeated despite the recipient’s clear distaste and which, because of the specific situation, can put the recipient in a difficult situation because they entail direct consequences on the recipient’s work and career. 4.3 Abuse of alcohol or drugs Eni demands that each employee contribute to maintaining a good work environment in respect of the feelings of others. Eni will therefore consider individuals who: • work under the effect of alcohol or drug abuse; • make use of or give to others any drug or similar substance during work; who work under the effect of alcohol or drug abuse; make use of or give to others any drug or similar substance during work; as being aware of the risk they bring to such environmental conditions, during the performance of their work activities and in the workplace. Chronic addiction to such substances, when it affects work performance, shall be considered similar to the above mentioned events in terms of the contractual consequences. Eni is committed to favor the social action in this field as provided for by collective work contracts. 4.4 Smoking Without prejudice to the general prohibition on smoking in workplaces where this is dangerous and where such prohibition is indicated, Eni, in its normal workplaces, will pay particular attention to the condition of those suffering physical discomfort from exposure to smoke and who request to be protected from "passive smoke" in their place of work.   5. HEALTH, SAFETY AND THE ENVIRONMENT In its activities, Eni is committed to contributing to the development and welfare of the communities where it operates by pursuing the objective of ensuring the safety and health of its employees, external collaborators, customers and local communities that may be affected by Eni’s activities and to reducing the environmental impact of such activities. Eni actively contributes to the promotion of research and development aimed at protecting the environment and natural resources. Eni’s industrial activities shall be performed in full accordance with all applicable laws on prevention and protection. E-20 Operations shall be carried out according to advanced criteria for the protection of the environment and energy efficiency, with the aim of creating better working conditions and protecting the health and safety of employees. Research and technological development must be aimed in particular at promoting the use of products and processes that are as environmental friendly as possible and characterized by an ever-greater attention being paid to the safety and health of employees. Eni employees, within their areas of responsibility, participate in the process of risk prevention and environmental and health protection and safety, that is in their own interest and in the interest also of third parties.   6. CONFIDENTIALITY Eni’s activities require the constant acquisition, storage, handling, communication and diffusion of news, documents and other data relevant to negotiations, administrative procedures, financial transactions, know-how (contracts, deeds, reports, studies, drawings, photographs, software), etc. Eni’s data bases may contain, among other things, personal data protected according to privacy laws, some of which cannot be made known outside Eni under contractual obligations and some of which cannot be improperly or untimely disclosed on risk of harmful prejudice to Eni’s interest. Employees shall guarantee the confidentiality of all information acquired in the performance of their work. Eni is committed to protecting information concerning its employees and third parties, whether generated or obtained inside Eni or in the conduct of Eni’s business and to avoiding improper use of any such information. Information, know-how and data that are acquired and processed by employees during their work at Eni or because of their responsibilities, all belong to Eni and cannot be used, communicated to others or disclosed without specific authorization of one’s superior. Without prejudice to the prohibition to disclose information concerning the organization and methods of production or to use such information in a way that could be harmful to Eni, each Eni employee shall: •   obtain and handle only data that are necessary and adequate to the aims of their work and strictly related to the tasks being performed; •   obtain and handle such data only within specified procedures; •   store said data in a way that avoids non-authorized persons having access to it; •   disclose such data only pursuant to specific procedures and/or subject to specific authorization by one’s superior and, in any case, only after having checked that such data are available for disclosure; •   make sure that no relative or absolute constraint exists on the disclosure of information concerning third parties connected to Eni by any kind of relationship and, whenever necessary, ensure that their consent is obtained; •   file said data in such a way that any person authorized to access them may do so with as much precision, clarity and truthfulness as possible. 7. EXTERNAL RELATIONS 7.1 Relations with public institutions Relations with Public Institutions that are aimed at the protection of Eni’s interests and related to the implementation of Eni’s programs, are to be maintained only by departments and persons specifically appointed to do so. Specific departments in the Eni Group companies shall coordinate their work with Eni SpA’s Department for Relations with Institutions in Italy, and in the European Union, so as to have a prior evaluation of the quality of the actions to be taken for sharing, for implementation and for monitoring. Small presents and courtesy gifts to representatives of Governments, public officers and civil servants are allowed provided that they are limited in value and do not compromise the integrity or good name of either party nor be construed by impartial observers as aimed at obtaining undue advantages. In any case this kind of expense must be authorized by the person indicated in the procedures and must always be duly documented. 7.2 Relations with political organizations and trade unions Eni does not give any direct or indirect contributions in whatever form to political parties, organizations, committees or trade unions, nor to their representatives and candidates, except those specifically contemplated by applicable laws and regulations. E-21 7.3 Relations with the media Information provided to outside parties shall be truthful and transparent. In its communications with the media, Eni shall be presented in an accurate and uniform way. Relations with the media shall be maintained only by departments and managers specifically appointed to do so and all communications shall be agreed upon beforehand with the Eni Unit responsible for Relations with the Media. Eni employees may not give information to media representatives nor engage in providing any such information unless they are duly authorized by the relevant Eni departments. Eni employees are never entitled to offer payments, gifts or other benefits aimed at influencing the professional activity of media representatives or that could reasonably be construed as an attempt to do so. 7.4 Presentation of Eni objectives, activities, results and points of view Eni employees who are required to present information to the public concerning the objectives, activities, results and opinions of Eni on such occasions as: •   congresses, meetings and seminars; •   essays, articles and publications in general; •   participation to public events; must be authorized by the highest organizational authority within their own department for all that relates to texts, lectures and the lines of action which they intend to make public; and they must also agree beforehand with Eni SpA’s Unit for Relations with the Media on the actual content of their presentations. 7.5 "Non profit" initiatives Eni supports "non profit" activities as evidence of its commitment to help meet the needs of those communities where it operates. Within the framework their respective responsibilities, Eni employees shall participate in the definition of such single initiatives in full respect of Eni’s policies and programs, and they shall implement them according to criteria of absolute transparency and shall support them as an integral part of Eni’s objectives. E-22 Certifications as separate documents filed as exhibits EXHIBIT 12.1 Certification   I, Paolo Scaroni, certify that:   1.   I have reviewed this annual report on Form 20-F of Eni SpA;   2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;   4.   The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:   (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;   (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and   (c)(d)   Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and   5.   The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):   (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and   (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: June 21, 2006 20, 2007 /s/PAOLO SCARONI Paolo Scaroni Title: Chief Executive Officer   E-23 EXHIBIT 12.2 Certification   I, Marco Mangiagalli, certify that:   1.   I have reviewed this annual report on Form 20-F of Eni SpA;   2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;   4.   The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:   (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;   (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and   (c)(d)   Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and   5.   The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):   (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and   (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: June 21, 200620, 2007   /s/MARCO MANGIAGALLI Marco Mangiagalli Title: Chief Financial Officer E-24 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, 20052006 (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 21, 200620, 2007   /s/PAOLO SCARONI Paolo Scaroni Title: Chief Executive Officer   The foregoing certification is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act. E-25 EXHIBIT 13.2   Certification Pursuant to 18 U.S.C. Section 1350   For purposes of 18 U.S.C. Section 1350, the undersigned officer of Eni SpA, a company incorporated under the laws of Italy (the "Company"), hereby certifies, to such officer’s knowledge, that: (i) the Annual Report on Form 20-F of the Company for the year ended December 31, 20052006 (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 21, 200620, 2007   /s/MARCO MANGIAGALLI Marco Mangiagalli Title: Chief Financial Officer   The foregoing certification is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act.   E-26 Footnotes Item 1-15 (1) For a definition of margin see "Glossary". (2) From 1991 to 2002 DeGolyer and MacNaughton, from 2003 also Ryder Scott. (3) In PSAs the national oil company awards the execution of exploration and production activities to the international oil company (contractor). The contractor bears the mineral and financial risk of the initiative and, when successful, recovers capital expenditure and costs incurred in the year (cost oil) by means of a share of production. This production share varies along with international oil prices. In certain PSAs changes in international oil prices affect also the share of production to which the contractor is entitled in order to remunerate its capital invested (profit oil) after costs incurred are repaid by cost oil. A similar scheme applies to buy-back contracts. (4) Of these, 5 are owned through affiliates for initiatives in Saudi Arabia, Russia and Spain. (5) Of these 27,422 square kilometers are owned through affiliates for initiatives in Saudi Arabia, Russia and Spain. (6) Two of these are not yet operational. (7) In accordance with Article 19, paragraph 4 of Legislative Decree No. 164/2000, the volumes of natural gas consumed in operations by a company or its subsidiaries are excluded from the calculation of ceilings for sales to end customers and from volumes input into the Italian network to be sold in Italy. (8) 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 imported or produced from non renewable sources exceeding 100 gigawatts. Calculations are made on total amounts net of co-generation and own consumption. This obligation can be met also by purchasing volumes or rights from other producers employing renewable sources (the so called green certificates) to cover all or part of such 2% share. Legislative Decree No. 387/2003 established that from 2004 to 2006 the minimum amount of electricity from renewable sources to be input in the grid in the following year be increased by 0.35% per year. The Minister of Productive Activities, with decrees issued in consent with the Minister of the Environment, will define further increases for the 2007-2009 and 2010-2012 periods. (9) The Refining & Marketing segment purchased approximately 70% of the Exploration & Production segment’s oil and condensate production and resold on the market those crudes and condensates that are not suited to processing in its own refineries due to their characteristics or geographic area. (10) This definition applies to the term margin whenever used in Item 5. (11) Excluding loans directed to specific capital expenditure projects in the Exploration & Production and Gas & Power segments, whose financial charges are recognized as an increase of the relevant capital goods. (12) Corresponding to euro 0.90 per share or $2.17 per ADS converted at the Noon Buying Rate of 1 euro = 1.2054 U.S. dollar as at the payment date of June 23, 2005. (13) Corresponding to euro 0.45 per share or $1.09 per ADS converted at the Noon Buying Rate of 1 euro = 1.2148 U.S. dollar as at the payment date of October 27, 2005. (14) Corresponding to euro 0.75 per share or $1.83 per ADS converted at the Noon Buying Rate of 1 euro = 1.217 U.S. dollar as at the payment date of June 24, 2004. (15) Does not include listed subsidiaries, which have their own stock grant and stock option plans. (16) Does not include listed subsidiaries, which have their own stock grant and stock option plans. Footnotes F pages (1) Under the requirements of paragraph 5 of "Preface to International Financial Reporting Standards", IFRS (International Financial Reporting Standards) represent the principles and the interpretations adopted by the International Accounting Standards Board (IASB), former International Accounting Standards Committee (IASC) and include: (i) International Financial Reporting Standards (IFRS); (ii) International Accounting Standards (IAS); (iii) the interpretations issued by International Financial Reporting Interpretation Committee (IFRIC) and by Standing Interpretation Committee (SIC) adopted by IASB. The name International Financial Reporting Standards (IFRS) has been adopted by IASB for the principles issued afterwards May 2003. (2) Taking into account the later conferral of assets to Eni’s subsidiary Snam Rete Gas SpA, the timing difference was considered analogous to that deriving from the cancellation of intra-group profits; under Italian GAAP the adopted 19% rate is equal to taxes paid by the conferring entity, not to the taxes recoverable by the receiving entity, Snam Rete Gas SpA. (3) "Reversal" means the effect taken to profit or loss of deferred tax assets and liabilities entered in previous years following the effect of the annulment of the temporary difference which generated them. (4) In particular article 1 paragraph 61 states: "holders of natural gas underground storage concessions are entitled to no more than two renewals, each lasting ten years, on condition that such persons carry out storage programs and all other obligations arising from the concession". Previous Law No. 170/1970 stated: "concessions can be renewed for ten years periods". (5) Of which euro 30 million concern gas stored, recorded in fixed assets. (6) Given the uncertainties related to their payment date, employee termination indemnities are considered as a defined benefit plan. (7) Actuarial assumptions concern, among other things, the following variables: (i) level of future salaries; (ii) death rates of employees; (iii) turn-over rate of employees; (iv) share of participants with successors entitled to benefits (e.g. spouses and children); (v) for medical assistance plans, frequency of requests for reimbursement and future changes in medical costs; and (vi) interest rates. (8) According to the requirements of the framework of international accounting standards, information is material if its omission or misstatement could influence the economic decisions that users make on the basis of the financial statements. (9) Recognition and evaluation criteria of exploration and production activities are described in the section "Exploration and production activities" below. (10) International accounting principles do not establish specific criteria for hydrocarbon exploration and production activities. Eni continues to use the existing accounting policies for exploration and evaluation assets previously applied before the introduction of IFRS, as permitted by IFRS 6 "Exploration for and evaluation of mineral resources". (11) Given the uncertainties related to their payment date, employees termination indemnities are considered as a defined benefit plan. (12) Actuarial assumptions relate to, inter alia, the following variables: (i) future salary levels; (ii) the mortality rate of employees; (iii) personnel turnover; (iv) the percentage of plan participants with dependents who are eligible to receive benefits (e.g. spouses and dependent children); (v) for medical plans, the frequency of claims and future medical costs; and (vi) interest rates. (13) For stock grants, the period between the date of the award and the date of assignation of stock; for stock options, period between the date of the award and the date on which the option can be exercised. (14) Does not include listed subsidiaries, which have their own stock grant plans. (15) Does not include listed subsidiaries, which have their own stock grant plans. (16) There are no material differences between the accounting principles approved by the European Commission and the ones issued by IASB in respect of these Financial Statements. (17) Eni adopted the requirements of SEC which permit to the companies that apply IFRS accounting principles to include comparative figures of one prior period. (18) From 1991 to 2002 DeGolyer and MacNaughton, from 2003 also Ryder Scott Company.