UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
————————————————————
Form 20-F
(Mark One) |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
OR | ||
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 200 | ||
OR | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ | ||
OR | ||
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report |
Commission file number: 1-14090
Eni SpA
(Exact name of Registrant as specified in its charter)
Republic of Italy
(Jurisdiction of incorporation or organization)
1, piazzale Enrico Mattei
- 00144 Roma
- Italy
(Address of principal executive offices)
Alessandro Bernini
Eni SpA
1, piazza Ezio Vanoni
20097 San Donato Milanese20097 Milano
(Milano) - Italy
Tel +39 02 52041730
- Fax +39 02 52041765
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Name of each exchange on which registered | |
Shares | New York Stock Exchange* | |
(Which represent the right to receive two Shares) | * Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the 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.
Ordinary shares of euro 1.00 each 4,005,358,876
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. |
Yes | No |
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Yes | No |
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections. Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
Yes | No |
Indicate by check mark whether the registrant 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. (Check one):
Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
Yes | No |
Indicate by check mark whether the registrant have submitted electronically and posted on their corporate Web sites, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).* |
Yes | No |
* This requirement does not apply to the registrants until their fiscal year ending December 31, 2011. Indicate by check mark if the registrant 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. (Check one): |
Large accelerated filer | Accelerated filer | Non-accelerated filer |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: |
U.S. GAAP | International Financial Reporting Standards as issued by the International Accounting Standards Board | Other |
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. |
Item 17 | Item 18 |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Yes | No |
Page | ||||
Certain Defined Terms | ii | |||
Presentation of Financial and Other Information | ii | |||
Statements Regarding Competitive Position | ii | |||
Glossary | iii | |||
Abbreviations and Conversion Table | vi |
PART I | II | I | II | II |
Item 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS | 1 | ||
Item 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 1 | ||
Item 3. | KEY INFORMATION | 1 | ||
Selected Financial Information | 1 | |||
Selected Operating Information | 3 | |||
Exchange Rates | 5 | |||
Risk Factors | 5 | |||
Item 4. | INFORMATION ON THE COMPANY | |||
History and Development of the Company | ||||
Business Overview | ||||
Exploration & Production | ||||
Gas & Power | ||||
Refining & Marketing | ||||
Engineering & Construction | ||||
Petrochemicals | ||||
Corporate and Other activities | ||||
Research and Development | ||||
Insurance | ||||
Environmental Matters | ||||
Regulation of Eni’s Businesses | ||||
Property, Plant and Equipment | ||||
Organizational Structure | ||||
Item 4A. | UNRESOLVED STAFF COMMENTS | |||
Item 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | |||
Executive Summary | ||||
Critical Accounting Estimates | ||||
Liquidity and Capital Resources | ||||
Recent Developments | ||||
Management’s Expectations of Operations | ||||
Item 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | |||
Directors and Senior Management | ||||
Compensation | I | 132 | ||
I | I | Board Practices | ||
Share Ownership | ||||
Item 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | |||
Major Shareholders | ||||
Related Party Transactions | ||||
Item 8. | FINANCIAL INFORMATION | |||
Consolidated Statements and Other Financial Information | ||||
Significant Changes | ||||
Item 9. | THE OFFER AND THE LISTING | |||
Offer and Listing Details | ||||
Markets | ||||
Item 10. | ADDITIONAL INFORMATION | |||
Memorandum and Articles of Association | ||||
Material Contracts | ||||
Exchange Controls | I | 154 | ||
I | I | Taxation | I | 155 |
I | I | Documents on Display | ||
Item 11. | ||||
Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | |||
12B. | I | Warrants and Rights | I | 160 |
12C. | I | Other Securities | I | 160 |
12D. | I | American Depositary Shares | I | 160 |
I | I | I | III | I |
PART II | ||||
Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 162 | ||
Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 162 | ||
Item 15. | CONTROLS AND PROCEDURES | 162 | ||
Item 16. | I | I | ||
16A. | Board of Statutory Auditors Financial Expert | 163 | ||
16B. | Code of Ethics | 163 | ||
16C. | Principal Accountant Fees and Services | 163 | ||
16D. | Exemptions from the Listing Standards for Audit Committees | 164 | ||
16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||
165 | ||||
16G. | I | Significant Differences in Corporate Governance Practices as per Section 303A.11 of the New York Stock Exchange Listed Company Manual | I | 165 |
I | I | I | III | I |
PART III | ||||
Item 17. | FINANCIAL STATEMENTS | 168 | ||
Item 18. | FINANCIAL STATEMENTS | 168 | ||
Item 19. | EXHIBITS | 168 |
i
Certain disclosures contained herein including, without limitation, information appearing in "Item 4 – Information on the Company", and in particular "Item 4 – Exploration & Production", “Item"Item 5 – Operating and Financial Review and Prospects”Prospects" and "Item 11 – Qualitative and Quantitative Disclosures about Market Risk" contain forward-looking statements regarding future events and the future results of Eni that are based on current expectations, estimates, forecasts, and projections about the industries in which Eni operates and the beliefs and assumptions of the management of Eni. Eni may also make forward-looking statements in other written materials, including other documents filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). In addition, Eni’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. In particular, among other statements, certain statements with regard to management objectives, trends in results of operations, margins, costs, return on capital, risk management and competition are forward looking in nature. Words such as ‘expects’, ‘anticipates’, ‘targets’, ‘goals’, ‘projects’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Therefore, Eni’s actual results may differ materially and adversely from those expressed or implied in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 20-F under the section entitled "Risk Factors" and elsewhere. Any forward-looking statements made by or on behalf of Eni speak only as of the date they are made. Eni does not undertake to update forward-looking statements to reflect any changes in Eni’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any further disclosures Eni may make in documents it files with the SEC.
CERTAIN DEFINED TERMS
In this Form 20-F, the terms "Eni", the "Group", or the "Company" refer 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 "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).
Unless otherwise indicated, any reference herein to "Consolidated Financial Statements" is to the Consolidated Financial Statements of Eni (including the Notes thereto) included herein.
Unless otherwise specified or the context otherwise requires, references herein to "dollars", "$", "U.S. dollars" and "U.S. $" are to the currency of the United States, and references to "euro" and "€" are to the currency of the European Monetary Union.
Unless otherwise specified or the context otherwise requires, references herein to "division" and "segment" are to Eni’s business activities: Exploration & Production, Gas & Power, Refining & Marketing, Engineering & Construction, Petrochemicals and other activities.
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.
ii
GLOSSARY
A glossary of oil and gas terms is available on Eni’s web page at the address www.eni.it.www.eni.com. Below is a selection of the most frequently used terms.
Financial terms | ||
Leverage | A non-GAAP measure of the Company’s financial condition, calculated as the ratio between net borrowings and shareholders’ equity, including minority interest. For a discussion of management’s view of the usefulness of this measure and its reconciliation with the most directly comparable GAAP measure which in the case of the Company refers to IFRS, see "Item 5 – Financial Condition". | |
Net borrowings | Eni evaluates its financial condition by reference to "net borrowings", which is a non-GAAP measure. Eni calculates net borrowings as total finance debt less: cash, cash equivalents and certain very liquid investments not related to operations, including among others non-operating financing receivables and securities not related to operations. Non-operating financing receivables consist of amounts due to Eni’s financing subsidiaries from banks and other financing institutions and amounts due to other subsidiaries from banks for investing purposes and deposits in escrow. Securities not related to operations consist primarily of government and corporate securities. For a discussion of management’s view of the usefulness of this measure and its reconciliation with the most directly comparable GAAP measure which in the case of the Company refers to IFRS, see "Item 5 – Financial Condition". | |
TSR (Total Shareholder Return) | Management uses this measure to asses the total return of the Eni share. It is calculated on a yearly basis, keeping account of changes in prices (beginning and end of year) and dividends distributed and reinvested at the ex-dividend date. | |
Business terms | ||
AEEG (Authority for Electricity and Gas) | The Regulatory Authority for Electricity and Gas is the Italian independent body which regulates, controls and monitors the electricity and gas sectors and markets in Italy. The Authority’s role and purpose is to protect the interests of users and consumers, promote competition and ensure efficient, cost-effective and profitable nationwide services with satisfactory quality levels. | |
Associated gas | ||
Average reserve life index | Ratio between the amount of reserves at the end of the year and total production for the year. | |
Barrel/BBL | Volume unit corresponding to 159 liters. A barrel of oil corresponds to about 0.137 metric tons. | |
BOE | Barrel of Oil Equivalent. It is used as a standard unit measure for oil and natural gas. The latter is converted from standard cubic meters into barrels of oil equivalent using a certain coefficient (see "Conversion Table"). | |
Concession contracts | Contracts currently applied mainly in Western countries regulating relationships between states and oil companies with regards to hydrocarbon exploration and production. The company holding the mining concession has an exclusive on exploration, development and production activities and for this reason it acquires a right to hydrocarbons extracted against the payment of royalties on production and taxes on oil revenues to the state. | |
Condensates | ||
Contingent resources | Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. | |
Conversion capacity | Maximum amount of feedstock that can be processed in certain dedicated facilities of a refinery to obtain finished products. Conversion facilities include catalytic crackers, hydrocrackers, visbreaking units, and coking units. | |
iii
Conversion index | Ratio of capacity of conversion facilities to primary distillation capacity. The higher the ratio, the higher is the capacity of a refinery to obtain high value products from the heavy residue of primary distillation. | |
Deep waters | Waters deeper than 200 meters. | |
Development | Drilling and other post-exploration activities aimed at the production of oil and gas. |
iii
Enhanced recovery | Techniques used to increase or stretch over time the production of wells. | |
EPC | Engineering, Procurement and Construction. | |
EPIC | Engineering, Procurement, Installation and Construction. | |
Exploration | Oil and natural gas exploration that includes land surveys, geological and geophysical studies, seismic data gathering and analysis and well drilling. | |
FPSO | Floating Production Storage and Offloading System. | |
FSO | Floating Storage and Offloading System. | |
Infilling wells | Infilling wells are wells drilled in a producing area in order to improve the recovery of hydrocarbons from the field and to maintain and/or increase production levels. | |
LNG | Liquefied Natural Gas obtained through the cooling of natural gas to minus 160 °C at normal pressure. The gas is liquefied to allow transportation from the place of extraction to the sites at which it is transformed back into its natural gaseous state and consumed. One tonne of LNG corresponds to 1,400 cubic meters of gas. | |
LPG | Liquefied Petroleum Gas, a mix of light petroleum fractions, gaseous at normal pressure and easily liquefied at room temperature through limited compression. | |
Margin | The difference between the average selling price and direct acquisition cost of a finished product or raw material excluding other production costs (e.g. refining margin, margin on distribution of natural gas and petroleum products or margin of petrochemical products). Margin trends reflect the trading environment and are, to a certain extent, a gauge of industry profitability. | |
Mineral Potential | (Potentially recoverable hydrocarbon volumes) Estimated recoverable volumes which cannot be defined as reserves due to a number of reasons, such as the temporary lack of viable markets, a possible commercial recovery dependent on the development of new technologies, or for their location in accumulations yet to be developed or where evaluation of known accumulations is still at an early stage. | |
Mineral Storage | According to Legislative Decree No. 164/2000, these are volumes required for allowing optimal operation of natural gas fields in Italy for technical and economic reasons. The purpose is to ensure production flexibility as required by long-term purchase contracts as well as to cover technical risks associated with production. | |
Modulation Storage | According to Legislative Decree No. 164/2000, these are volumes required for meeting hourly, daily and seasonal swings in demand. | |
Natural gas liquids (NGL) | Liquid or liquefied hydrocarbons recovered from natural gas through separation equipment or natural gas treatment plants. Propane, normal-butane and isobutane, isopentane and pentane plus, that were previously defined as natural gasoline, are natural gas liquids. | |
Network Code | A code containing norms and regulations for access to, management and operation of natural gas pipelines. | |
Over/Under lifting | Agreements stipulated between partners which regulate the right of each to its share in the production for a set period of time. Amounts lifted by a partner different from the agreed amounts determine temporary Over/Under lifting situations. |
Possible reserves | Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. | |
Probable reserves | Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. | |
Primary balanced refining capacity | Maximum amount of feedstock that can be processed in a refinery to obtain finished products measured in BBL/d. | |
iv
Production Sharing Agreement ("PSA") | Contract in use in African, Middle Eastern, Far Eastern and Latin American countries, among others, regulating relationships between states and oil companies with regard to the exploration and production of hydrocarbons. The mineral right is awarded to the national oil company jointly with the foreign oil company that has an exclusive right to perform exploration, development and production activities and can enter into agreements with other local or international entities. In this type of contract the national oil company assigns to the international contractor the task of performing exploration and production with the contractor’s equipment and financial resources. Exploration risks are borne by the contractor and production is divided into two portions: "cost oil" is used to recover costs borne by the contractor and "profit oil" is divided between the contractor and the national company according to variable schemes and represents the profit deriving from exploration and production. Further terms and conditions of these contracts may vary from country to country. |
iv
Proved reserves | Proved oil and gas reserves are | |
Reserves | Reserves are estimated remaining quantities of oil and | |
Reserve life index | Ratio between the amount of proved reserves at the end of the year and total production for the year. | |
Reserve replacement ratio | Measure of the reserves produced replaced by proved reserves. Indicates the company’s ability to add new reserves through exploration and purchase of property. A rate higher than 100% indicates that more reserves were added than produced in the period. The ratio should be averaged on a three-year period in order to reduce the distortion deriving from the purchase of proved property, the revision of previous estimates, enhanced recovery, improvement in recovery rates and changes in the amount of reserves – in PSAs – due to changes in international oil prices. |
Ship-or-pay | Clause included in natural gas transportation contracts according to which the customer is requested to pay for the transportation of gas whether or not the gas is actually transported. | |
Strategic Storage | According to Legislative Decree No. 164/2000, these are volumes required for covering lack or reduction of supplies from extra-European sources or crises in the natural gas system. | |
v
Take-or-pay | Clause included in natural gas supply contracts according to which the purchaser is bound to pay the contractual price or a fraction of such price for a minimum quantity of gas set in the contract whether or not the gas is collected by the purchaser. The purchaser has the option of collecting the gas paid for and not delivered at a price equal to the residual fraction of the price set in the contract in subsequent contract years. | |
Upstream/Downstream | The term upstream refers to all hydrocarbon exploration and production activities. The term downstream includes all activities inherent to the oil and gas sector that are downstream of exploration and production activities. |
v
ABBREVIATIONS
mmCF | = | million cubic feet | ktonnes | = | thousand tonnes | |
BCF | = | billion cubic feet | mmtonnes | = | million tonnes | |
mmCM | = | million cubic meters | MW | = | megawatt | |
BCM | = | billion cubic meters | GWh | = | gigawatthour | |
BOE | = | barrel of oil equivalent | TWh | = | terawatthour | |
KBOE | = | thousand barrel of oil equivalent | /d | = | per day | |
mmBOE | = | million barrel of oil equivalent | /y | = | per year | |
BBOE | = | billion barrel of oil equivalent | E&P | = | the Exploration & Production segment | |
BBL | = | barrels | G&P | = | the Gas & Power segment | |
KBBL | = | thousand barrels | R&M | = | the Refining & Marketing segment | |
mmBBL | = | million barrels | E&C | = | the Engineering & Construction segment | |
BBBL | = | billion barrels |
CONVERSION TABLE
1 acre | = | 0.405 hectares | ||
1 barrel | = | 42 U.S. gallons | ||
1 BOE | = | 1 barrel of crude oil | = | 5,742 cubic feet of natural gas |
1 barrel of crude oil per day | = | approximately 50 tonnes of crude oil per year | ||
1 cubic meter of natural gas | = | 35.3147 cubic feet of natural gas | ||
1 cubic meter of natural gas | = | approximately 0.00615 barrels of oil equivalent | ||
1 kilometer | = | approximately 0.62 miles | ||
1 short ton | = | 0.907 tonnes | = | 2,000 pounds |
1 long ton | = | 1.016 tonnes | = | 2,240 pounds |
1 tonne | = | 1 metric ton | = | 1,000 kilograms |
= | approximately 2,205 pounds | |||
1 tonne of crude oil | = | 1 metric ton of crude oil | = | approximately 7.3 barrels of crude oil (assuming an API gravity of 34 degrees) |
vi
PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
NOT APPLICABLE
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
NOT APPLICABLE
Item 3. KEY INFORMATION
Selected Financial InformationInformation
The Consolidated Financial Statements of Eni have been prepared in accordance with IFRS issued by the International Accounting Standards Board (IASB). The tables below show Eni selected historical financial data prepared in accordance with IFRS as of and for the years ended December 31, 2004, 2005, 2006, 2007, 2008 and 2008.2009. The selected historical financial data for the years ended December 31, 2004, 2005, 2006, 2007 and 2008presented herein are derived from Eni’s Consolidated Financial Statements included in Item 18.
All such data should be read in connection with the Consolidated Financial Statements and the related notes thereto included in Item 18.
Year ended December 31, | |
2004 | 2005 | 2006 | 2007 | 2008 | |||||
2005 | 2006 | 2007 | 2008 | 2009 | |||||
(euro million except data per share and per ADR) |
CONSOLIDATED PROFIT STATEMENT DATA | ||||||||||||||||||||||||||||||
Net sales from operations | 57,545 | 73,728 | 86,105 | 87,256 | 108,148 | 73,728 | 86,105 | 87,204 | 108,082 | 83,227 | ||||||||||||||||||||
Operating profit by segment | ||||||||||||||||||||||||||||||
Exploration & Production | 8,185 | 12,592 | 15,580 | 13,788 | 16,415 | 12,592 | 15,580 | 13,433 | 16,239 | 9,120 | ||||||||||||||||||||
Gas & Power | 3,428 | 3,321 | 3,802 | 4,127 | 3,933 | 3,321 | 3,802 | 4,465 | 4,030 | 3,687 | ||||||||||||||||||||
Refining & Marketing | 1,080 | 1,857 | 319 | 729 | (1,023 | ) | 1,857 | 319 | 686 | (988 | ) | (102 | ) | |||||||||||||||||
Petrochemicals | 320 | 202 | 172 | 74 | (822 | ) | 202 | 172 | 100 | (845 | ) | (675 | ) | |||||||||||||||||
Engineering & Construction | 203 | 307 | 505 | 837 | 1,045 | 307 | 505 | 837 | 1,045 | 881 | ||||||||||||||||||||
Other activities | (395 | ) | (934 | ) | (622 | ) | (444 | ) | (346 | ) | (934 | ) | (622 | ) | (444 | ) | (346 | ) | (382 | ) | ||||||||||
Corporate and financial companies | (363 | ) | (377 | ) | (296 | ) | (217 | ) | (686 | ) | (377 | ) | (296 | ) | (312 | ) | (743 | ) | (474 | ) | ||||||||||
Impact of unrealized intragroup profit elimination | (59 | ) | (141 | ) | (133 | ) | (26 | ) | 125 | (141 | ) | (133 | ) | (26 | ) | 125 | ||||||||||||||
Operating profit | 12,399 | 16,827 | 19,327 | 18,868 | 18,641 | 16,827 | 19,327 | 18,739 | 18,517 | 12,055 | ||||||||||||||||||||
Net profit attributable to Eni | 7,059 | 8,788 | 9,217 | 10,011 | 8,825 | 8,788 | 9,217 | 10,011 | 8,825 | 4,367 | ||||||||||||||||||||
Data per ordinary share (euro) | ||||||||||||||||||||||||||||||
Operating profit: | ||||||||||||||||||||||||||||||
- basic | 3.29 | 4.48 | 5.23 | 5.14 | 5.12 | 4.48 | 5.23 | 5.11 | 5.09 | 3.33 | ||||||||||||||||||||
- diluted | 3.28 | 4.47 | 5.22 | 5.14 | 5.12 | 4.47 | 5.22 | 5.11 | 5.09 | 3.33 | ||||||||||||||||||||
Net profit attributable to Eni basic and diluted | 1.87 | 2.34 | 2.49 | 2.73 | 2.43 | 2.34 | 2.49 | 2.73 | 2.43 | 1.21 | ||||||||||||||||||||
Data per ADR ($) (2) (3) | ||||||||||||||||||||||||||||||
Data per ADR ($) (3) (4) | ||||||||||||||||||||||||||||||
Operating profit: | ||||||||||||||||||||||||||||||
- basic | 8.18 | 11.14 | 13.13 | 14.10 | 15.07 | 11.14 | 13.13 | 14.01 | 14.97 | 9.27 | ||||||||||||||||||||
- diluted | 8.17 | 11.12 | 13.12 | 14.10 | 15.07 | 11.12 | 13.12 | 14.00 | 14.97 | 9.27 | ||||||||||||||||||||
Net profit attributable to Eni basic and diluted | 4.66 | 5.82 | 6.26 | 7.48 | 7.14 | 5.82 | 6.26 | 7.48 | 7.14 | 3.36 |
1
As of December 31, | |
2004 | 2005 | 2006 | 2007 | 2008 | |||||
2005 | 2006 | 2007 | 2008 | 2009 | |||||
(euro million except number of shares and dividend information) |
CONSOLIDATED BALANCE SHEET DATA | ||||||||||
Total assets | 72,853 | 83,850 | 88,312 | 101,460 | 116,590 | |||||
Short-term and long-term debt | 12,684 | 12,998 | 11,699 | 19,830 | 20,837 | |||||
Capital stock issued | 4,004 | 4,005 | 4,005 | 4,005 | 4,005 | |||||
Minority interest | 3,166 | 2,349 | 2,170 | 2,439 | 4,074 | |||||
Shareholders’ equity - Eni share | 32,374 | 36,868 | 39,029 | 40,428 | 44,436 | |||||
Capital expenditures | 7,499 | 7,414 | 7,833 | 10,593 | 14,562 | |||||
Weighted average number of ordinary shares outstanding (fully diluted - shares million) | 3,775 | 3,763 | 3,701 | 3,669 | 3,639 | |||||
Dividend per share (euro) | 0.90 | 1.10 | 1.25 | 1.30 | 1.30 | |||||
Dividend per ADR ($) (2) | 2.17 | 2.73 | 3.24 | 3.74 | 3.72 |
CONSOLIDATED BALANCE SHEET DATA | ||||||||||
Total assets | 83,850 | 88,312 | 101,460 | 116,673 | 117,529 | |||||
Short-term and long-term debt | 12,998 | 11,699 | 19,830 | 20,837 | 24,800 | |||||
Capital stock issued | 4,005 | 4,005 | 4,005 | 4,005 | 4,005 | |||||
Minority interest | 2,349 | 2,170 | 2,439 | 4,074 | 3,978 | |||||
Shareholders’ equity - Eni share | 36,868 | 39,029 | 40,428 | 44,436 | 46,073 | |||||
Capital expenditures | 7,414 | 7,833 | 10,593 | 14,562 | 13,695 | |||||
Weighted average number of ordinary shares outstanding (fully diluted - shares million) | 3,763 | 3,701 | 3,668 | 3,639 | 3,622 | |||||
Dividend per share (euro) | 1.10 | 1.25 | 1.30 | 1.30 | 1.00 | |||||
Dividend per ADR ($) (3) | 2.73 | 3.24 | 3.74 | 3.72 | 2.91 | |||||
(1) | From 2009, gains and losses on non-hedging commodity derivative instruments, including both fair value re-measurement and settled transactions are reported as items of operating profit. Also results of the gas storage business are reported within the Gas & Power segment reporting unit, as part of the regulated businesses results, following the restructuring of Eni’s regulated gas businesses in Italy. In past years, results of the gas storage business were reported within the Exploration & Production segment. Data for the years ended December 31, 2008 and 2007 have been restated. Prior year data have not been restated. | |
(2) | This item mainly concerned | |
Euro per share or U.S. dollars per American Depositary Receipt (ADR), as the case may be. From 2006, one ADR represents two Eni shares. Previously, one ADR was equivalent to five Eni shares. Data per ADR for the | ||
Eni’s financial statements are stated in euro. The translations of certain euro amounts into U.S. dollars are included solely for the convenience of the reader. The convenient translations should not be construed as representations that the amounts in euro have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange. Data per ADR, with the exception of dividends, were translated at the EUR/U.S. $ average exchange rate as recorded by in the Federal Reserve Board official statistics for each year presented (see the table on page 5). Dividends per ADR for the years |
2
Selected Operating Information
The tables below set 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, 2004, 2005, 2006, 2007, 2008 and 2008.2009. Data on production of oil and natural gas and hydrocarbon production sold includes Eni’s share of production of affiliates and joint ventures accounted for under the equity or cost method of accounting.
Year ended December 31, | |
2004 | 2005 | 2006 | 2007 | 2008 | |||||
Proved reserves of liquids of consolidated subsidiaries at period end (mmBBL) | 3,972 | 3,748 | 3,457 | 3,127 | 3,243 | |||||
of which developed | 2,471 | 2,331 | 2,126 | 1,953 | 2,009 | |||||
Proved reserves of liquids of equity-accounted entities at period end (mmBBL) | 36 | 25 | 24 | 142 | 142 | |||||
of which developed | 19 | 18 | 26 | 33 | ||||||
Proved reserves of natural gas of consolidated subsidiaries at period end (BCF) | 18,278 | 17,501 | 16,897 | 16,549 | 17,214 | |||||
of which developed | 10,501 | 11,159 | 10,949 | 10,967 | 11,138 | |||||
Proved reserves of natural gas of equity-accounted entities at period end (BCF) | 157 | 90 | 68 | 3,022 | 3,015 | |||||
of which developed | 70 | 48 | 428 | 420 | ||||||
Proved reserves of hydrocarbons of consolidated subsidiaries in mmBOE at period end (1) | 7,154 | 6,796 | 6,400 | 6,010 | 6,242 | |||||
of which developed | 4,300 | 4,275 | 4,032 | 3,862 | 3,948 | |||||
Proved reserves of hydrocarbons of equity-accounted entities in mmBOE at period end (a) | 64 | 41 | 36 | 668 | 666 | |||||
of which developed | 31 | 27 | 101 | 107 | ||||||
Reserve replacement ratio (2) | 91 | 43 | 38 | 38 | 136 | |||||
Average daily production of liquids (KBBL/d) | 1,034 | 1,111 | 1,079 | 1,020 | 1,026 | |||||
Average daily production of natural gas available for sale (mmCF/d) (3) | 3,171 | 3,344 | 3,679 | 3,819 | 4,143 | |||||
Average daily production of hydrocarbons available for sale (KBOE/d) (3) | 1,586 | 1,693 | 1,720 | 1,684 | 1,748 | |||||
Hydrocarbon production sold (mmBOE) | 576.5 | 614.9 | 625.1 | 611.4 | 632.0 | |||||
Oil and gas production costs per BOE (4) | 5.59 | 5.79 | 6.90 | 7.77 | ||||||
Profit per barrel of oil equivalent (5) | 12.20 | 14.97 | 14.03 | 15.80 |
2005 | 2006 | 2007 | 2008 | 2009 | |||||
Proved reserves of liquids of consolidated subsidiaries at period end (mmBBL) | 3,748 | 3,457 | 3,127 | 3,243 | 3,377 | |||||
of which developed | 2,331 | 2,126 | 1,953 | 2,009 | 2,001 | |||||
Proved reserves of liquids of equity-accounted entities at period end (mmBBL) | 25 | 24 | 142 | 142 | 86 | |||||
of which developed | 19 | 18 | 26 | 33 | 34 | |||||
Proved reserves of natural gas of consolidated subsidiaries at period end (BCF) | 17,501 | 16,897 | 16,549 | 17,214 | 16,262 | |||||
of which developed | 11,159 | 10,949 | 10,967 | 11,138 | 11,650 | |||||
Proved reserves of natural gas of equity-accounted entities at period end (BCF) | 90 | 68 | 3,022 | 3,015 | 1,588 | |||||
of which developed | 70 | 48 | 428 | 420 | 234 | |||||
Proved reserves of hydrocarbons of consolidated subsidiaries in mmBOE at period end (1) | 6,796 | 6,400 | 6,010 | 6,242 | 6,209 | |||||
of which developed | 4,275 | 4,032 | 3,862 | 3,948 | 4,030 | |||||
Proved reserves of hydrocarbons of equity-accounted entities in mmBOE at period end (a) | 41 | 36 | 668 | 666 | 362 | |||||
of which developed | 31 | 27 | 101 | 107 | 74 | |||||
Reserve replacement ratio (2) | 43 | 38 | 38 | 136 | 95 | |||||
Average daily production of liquids (KBBL/d) | 1,111 | 1,079 | 1,020 | 1,026 | 1,007 | |||||
Average daily production of natural gas available for sale (mmCF/d) (3) | 3,344 | 3,679 | 3,819 | 4,143 | 4,074 | |||||
Average daily production of hydrocarbons available for sale (KBOE/d) (3) | 1,693 | 1,720 | 1,684 | 1,748 | 1,716 | |||||
Hydrocarbon production sold (mmBOE) | 614.9 | 625.1 | 611.4 | 632.0 | 622.8 | |||||
Oil and gas production costs per BOE (4) | 5.59 | 5.79 | 6.90 | 7.77 | 7.49 | |||||
Profit per barrel of oil equivalent (5) | 12.20 | 14.97 | 14.03 | 15.80 | 7.96 | |||||
(a) | Mainly refers to Eni’s share of proved reserves relating to three Russian companies purchased in 2007 and participated by the joint venture OOO SeverEnergia, owned by Eni | |
(1) | Includes approximately | |
(2) | Referred to Eni’s subsidiaries. Consists of: (i) the increase in proved reserves of consolidated subsidiaries attributable to: (a) purchases of minerals in place; (b) revisions of previous estimates; (c) improved recovery; and (d) extensions and discoveries, less sales of minerals in place; divided by (ii) production during the year as set forth in the reserve tables, in each case prepared in accordance with | |
(3) | Natural gas production volumes exclude gas consumed in operations | |
(4) | Expressed in U.S. dollars. Consists of production costs (costs incurred to operate and maintain wells and field equipment including also royalties) prepared in accordance with IFRS divided by | |
(5) | Expressed in U.S. dollars. Results of operations from oil and gas producing activities, divided by actual sold production, in each case prepared in accordance with IFRS to meet ongoing U.S. reporting obligations. See the unaudited supplemental oil and gas information in |
3
Selected Operating Information continued
Year ended December 31, | |
2004 | 2005 | 2006 | 2007 | 2008 | |||||
Sales of natural gas to third parties (6) | 72.79 | 77.08 | 79.63 | 78.75 | 83.69 | |||||
Natural gas consumed by Eni (6) | 3.70 | 5.54 | 6.13 | 6.08 | 5.63 | |||||
Sales of natural gas of affiliates (Eni’s share) (6) | 5.84 | 7.08 | 7.65 | 8.74 | 8.91 | |||||
Total sales and own consumption of natural gas of the Gas & Power segment (6) | 82.33 | 89.70 | 93.41 | 93.57 | 98.23 | |||||
E&P natural gas sales in Europe and in the Gulf of Mexico (6) (7) | 4.70 | 4.51 | 4.69 | 5.39 | 6.00 | |||||
Worldwide natural gas sales (6) | 87.03 | 94.21 | 98.10 | 98.96 | 104.23 | |||||
Transport of natural gas for third parties in Italy (6) | 28.26 | 30.22 | 30.90 | 30.89 | 33.84 | |||||
Length of natural gas transport network in Italy at period end (8) | 30.2 | 30.7 | 30.9 | 31.1 | 31.5 | |||||
Electricity sold (9) | 16.95 | 27.56 | 31.03 | 33.19 | 29.93 | |||||
Refinery throughputs (10) | 35.75 | 36.68 | 36.27 | 35.21 | 33.98 | |||||
Balanced capacity of wholly-owned refineries (11) | 504 | 524 | 534 | 544 | 544 | |||||
Retail sales (in Italy and rest of Europe) (10) | 14.40 | 13.72 | 12.48 | 12.65 | 12.67 | |||||
Number of service stations at period end (in Italy and rest of Europe) | 9,140 | 6,282 | 6,294 | 6,440 | 5,956 | |||||
Average throughput per service station (in Italy and rest of Europe) (12) | 2,488 | 2,479 | 2,470 | 2,486 | 2,502 | |||||
Petrochemical production (10) | 7.12 | 7.28 | 7.07 | 8.80 | 7.37 | |||||
Engineering & Construction order backlog at period end (13) | 8,521 | 10,122 | 13,191 | 15,390 | 19,105 | |||||
Employees at period end (units) | 70,348 | 72,258 | 73,572 | 75,862 | 78,880 |
2005 | 2006 | 2007 | 2008 | 2009 | |||||
Sales of natural gas to third parties (6) | 77.08 | 79.63 | 78.75 | 83.69 | 83.79 | |||||
Natural gas consumed by Eni (6) | 5.54 | 6.13 | 6.08 | 5.63 | 5.81 | |||||
Sales of natural gas of affiliates (Eni’s share) (6) | 7.08 | 7.65 | 8.74 | 8.91 | 7.95 | |||||
Total sales and own consumption of natural gas of the Gas & Power segment (6) | 89.70 | 93.41 | 93.57 | 98.23 | 97.55 | |||||
E&P natural gas sales in Europe and in the Gulf of Mexico (6) (7) | 4.51 | 4.69 | 5.39 | 6.00 | 6.17 | |||||
Worldwide natural gas sales (6) | 94.21 | 98.10 | 98.96 | 104.23 | 103.72 | |||||
Transport of natural gas for third parties in Italy (6) | 30.22 | 30.90 | 30.89 | 33.84 | 37.27 | |||||
Length of natural gas transport network in Italy at period end (8) | 30.7 | 30.9 | 31.1 | 31.5 | 31.5 | |||||
Electricity sold (9) | 27.56 | 31.03 | 33.19 | 29.93 | 33.96 | |||||
Refinery throughputs (10) | 36.68 | 36.27 | 37.15 | 35.84 | 34.55 | |||||
Balanced capacity of wholly-owned refineries (11) | 524 | 534 | 544 | 544 | 554 | |||||
Retail sales (in Italy and rest of Europe) (10) | 13.72 | 12.48 | 11.80 | 12.03 | 12.02 | |||||
Number of service stations at period end (in Italy and rest of Europe) | 6,282 | 6,294 | 6,441 | 5,956 | 5,986 | |||||
Average throughput per service station (in Italy and rest of Europe) (12) | 2,479 | 2,470 | 2,486 | 2,502 | 2,477 | |||||
Petrochemical production (10) | 7.28 | 7.07 | 8.80 | 7.37 | 6.52 | |||||
Engineering & Construction order backlog at period end (13) | 10,122 | 13,191 | 15,390 | 19,105 | 18,730 | |||||
Employees at period end (units) | 72,258 | 73,572 | 75,862 | 78,880 | 78,417 | |||||
(6) | Expressed in BCM. | |
(7) | From 2006, also includes E&P sales of volumes of natural gas produced in the Gulf of Mexico. | |
(8) | Expressed in thousand kilometers. | |
(9) | Expressed in TWh. | |
(10) | Expressed in mmtonnes. | |
(11) | Expressed in KBBL/d. | |
(12) | Expressed in thousand liters per day. | |
(13) | The sum of the order backlog of Saipem SpA and Snamprogetti SpA, expressed in |
4
Exchange Rates
The following tables set forth, for the periods indicated, certain information regarding the Noon Buying Rate in U.S. dollars per euro, rounded to the second decimal (Source: The Federal Reserve Board).
High | Low | Average (1) | At period end | ||||
(U.S. dollars per euro) |
Year ended December 31, | ||||||||
2004 | 1.36 | 1.18 | 1.24 | 1.35 | ||||
2005 | 1.35 | 1.17 | 1.24 | 1.18 | ||||
2006 | 1.33 | 1.19 | 1.26 | 1.32 | ||||
2007 | 1.49 | 1.29 | 1.37 | 1.46 | ||||
2008 | 1.60 | 1.24 | 1.47 | 1.39 |
Year ended December 31, | ||||||||
2005 | 1.35 | 1.17 | 1.24 | 1.18 | ||||
2006 | 1.33 | 1.19 | 1.26 | 1.32 | ||||
2007 | 1.49 | 1.29 | 1.37 | 1.46 | ||||
2008 | 1.60 | 1.24 | 1.47 | 1.39 | ||||
2009 | 1.51 | 1.25 | 1.39 | 1.43 | ||||
(1) | Average of the Noon Buying Rates for the last business day of each month in the period. |
High | Low | At period end | |||
(U.S. dollars per euro) |
November 2008 | 1.30 | 1.25 | 1.27 | |||
December 2008 | 1.44 | 1.26 | 1.39 | |||
January 2009 | 1.39 | 1.28 | 1.28 | |||
February 2009 | 1.31 | 1.25 | 1.27 | |||
March 2009 | 1.37 | 1.25 | 1.31 | |||
April 2009 | 1.35 | 1.30 | 1.32 | |||
May 2009 (through May 4, 2009) | 1.34 | 1.33 | 1.34 |
November 2009 | 1.51 | 1.47 | 1.50 | |||
December 2009 | 1.51 | 1.42 | 1.43 | |||
January 2010 | 1.45 | 1.39 | 1.39 | |||
February 2010 | 1.40 | 1.35 | 1.37 | |||
March 2010 | 1.38 | 1.33 | 1.35 | |||
April 2010 (through April 9, 2010) | 1.36 | 1.34 | 1.35 | |||
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 ADRs on the NYSE. Exchange rate fluctuations also affect the dollar amounts received by owners of ADRs upon conversion by the Depository of cash dividends paid in euro on the underlying Shares. The Noon Buying Rate on May 4, 2009April 9, 2010 was $1.34$1.35 per euro 1.00.
Risk Factors
Competition
There is strong competition worldwide, both within the oil industry and with other industries, to supply energy to the industrial, commercial and residential energy markets.
Eni encountersfaces competition from other oil and natural gas companies in all areas of its operations.
• | In the Exploration & Production business, Eni faces competition from both international oil companies and | |
• |
5
In its |
5
downturn has caused a much larger-than-anticipated demand contraction. As natural gas is a commodity, gas oversupply may lead suppliers | ||
• | In its domestic electricity business, Eni competes with other producers and traders from Italy or outside of Italy who sell electricity on the Italian market. The Company expects in the near future increasing competition |
• | In retail marketing of refined products both in and outside Italy, Eni competes with third parties (including international oil companies and local operators such as supermarket chains) to obtain concessions to establish and operate service stations. Once established, Eni’s service stations compete primarily on the basis of pricing, services and availability of non-petroleum products. In Italy, there is pressure from political and | |
• | In the Petrochemical segment we face intense competition from well-established international players and state-owned petrochemical companies, particularly in the most commoditized market segments. Many of those competitors may benefit from cost advantages due to larger scale, looser environmental regulations, availability of oil-based feedstock, and more favorable location and proximity to end-markets. Excess capacity and sluggish economic growth may exacerbate competitive pressures. The Company expects continuing margin pressures in the foreseeable future as a result of those trends. | |
• | Competition in the oilfield services, construction and engineering industries is primarily based on technical expertise, quality and number of services and availability of technologically advanced facilities (for example, vessels for offshore construction). Lower oil prices could result in lower margins and |
The Company’s failure or inability to respond effectively to competition could adversely impact the Company’s growth prospects, future results of operations and cash flows.
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 expenditures and entails particular economic risks. It is subject to natural hazards and other uncertainties including those relating to the physical characteristics of oil and natural gas fields. The production of oil and natural gas is highly regulated and is subject to conditions 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 income taxes which tend to be higher than those payable in many other commercial activities.
6
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 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 adverse weather conditions and shortages or delays in the delivery of equipment. Exploring or drilling in offshore areas, particularly in deep waters, is generally more complex and riskier than in onshore areas; the same is true for exploratory activity in remote areas or in challenging environmental conditions such as those we are experiencing in the Caspian region or Alaska. In addition, we may fail to secure a market for the quantities of oil and gas that are discovered, for example because there is no economic or practicable means to transport such quantities to the final market. Failure to discover commercial quantities of oil and natural gas could have an adverse impact on Eni’s future growth prospects, results of operations and liquidity. Because Eni plans to invest significant capital expenditures in executing high risk exploration projects, it is likely that Eni will incur significant exploration and dry hole expenses in future years. High risk exploration projects include projects executed in deep and ultra-deep offshore and in new areas where the Company lacks installed production facilities. In particularParticularly, Eni plans to explore for oil and gas offshore, frequently in deep waterwaters or at deep drilling depths, where
6
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 the case of theThe Company plans to conduct risky exploration projects are conductedoffshore in the deep offshore of the Gulf of Mexico, Australia, Brazil, the Barents Sea, India,Libya, Angola, Nigeria, Norway and offshore Ireland.Indonesia. In 2009, managementthe Company invested euro 1.23 billion in executing exploration projects and it plans to spend significant amounts of exploration expenditures in these areas that may result in significant dry hole expenses.approximately euro 1.17 billion per annum on average over the next four years.
Furthermore, shortage of deep water rigs and failure to find additional commercial reserves could reduce 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 a number of development projects for the production of hydrocarbon reserves. Certain projects are planned to develop reserves principally offshore.in high risk areas, particularly offshore and in remote and hostile environments. Eni’s future results of operations and liquidity rely upon its ability to develop and operate major projects as planned. Key factors that may affect the economics of these 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. Furthermore, projects executed with partners and co-venturers reduce the ability of the Company to manage risks and costs, and Eni could have limited influence over and control of the operations, behaviors and performance of its partners; | |
• | timely issuance of permits and licenses by government agencies; | |
• | the Company’s relative size compared to its main competitors which may prevent it from affording opportunities to participate in large-scale projects or affect its ability to reap benefits associated with economies of scale, for example by obtaining more favorable contractual terms by | |
• | the ability to design development projects so as to prevent the occurrence of technical inconvenience; | |
• | delays in manufacturing and delivery of critical equipment, or shortages in the availability of such equipment, causing cost overruns and delays; | |
• | risks associated with the use of new 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 | |
• | the actual performance of the reservoir and natural field decline; and | |
• | the ability and time necessary to build suitable transport infrastructures to export production to final markets. |
7
Furthermore, deep waters 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 scheduled and actual timing of critical events, as well as cost overruns may adversely affect completion, the total amount of expenditures to be incurred and start upstart-up of production from such projects and, consequently, actual returns. Finally, developing and marketing hydrocarbons reserves typically requires several years after a discovery is made. This is because a development project involves an array of complex and lengthy activities, including appraising a discovery in order to evaluate its commercial potential, sanctioning a development project and building and commissioning related facilities. As a consequence, rates of return for such long-lead-time projects are exposed to the 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. For example, we have experienced increased budgeted expenditures and a substantial delay in the scheduling of production start upstart-up at the Kashagan field, where development is ongoing. Moreover, in July 2007 these matters triggered a dispute withSpecifically, based on the new plan that was sanctioned by relevant Kazakh authorities. On October 31,Authorities in 2008, all the international partnersCompany increased estimated expenditures to develop the phase 1 of the project andfrom an original amount of U.S. $10.3 billion (Eni’s interest being at the Kazakh authorities agreed upontime 18.52%) – subject to adjustment to take into account cost inflation up to 2007 – to a new contractual and governance framework of the Kashagan project, settling the dispute. See "Item 4 – Exploration & Production – Caspian Sea" for a full description of the material terms of the agreement. In conjunction with the finalization of the agreements, parties also sanctioned the revised expenditure budget of phase-one, amounting to U.S. $32.2 billion (excluding general and administrative expenses), of which U.S. $25.4 billion related to the original scope of work of phase 1 (including tranches 1 and 2), with the remaining part planned to be spent to execute tranche 3 and build certain exporting facilities. First oil is expected late in 2012.. Eni will fund those investments in proportion to its participating interest of 16.81%. TheFirst oil is expected late in 2012 based on the new plan, while the original development plan that was filed with Kazakh Authorities in 2004 forecast expenditures of U.S. $10.3 billion (Eni’s interest being at the time 18.52%) to execute tranches 1&2 (to be adjusted to take into account cost inflation up to 2007) and first oil in 2008. The change in production start-up and the relevant cost increase over the original budget were driven by:by a number of factors including depreciation of the U.S. dollar versus the euro and other currencies; cost price escalation of goods and services required to execute the project; an original underestimation of the costs and complexity to operate in the North Caspian Sea due to lack of benchmarks; design changes to enhance the operability and safety standards of the offshore facilities. See "Item 4 – Exploration & Production – Caspian Sea" for a full description of the material terms of the Kashagan project.
7In 2009, we experienced significant cost overruns to develop our operated Blacktip project, offshore Australia, leading us to record an impairment charge of euro 153 million to take into account the reduced project profitability.
See "Item 4 – Business Overview – Exploration & Production". IfIn the event the Company is unable to develop and operate major projects as planned, particularly if the Company fails to exercise tight control over costs and time schedules, it may have a materialcould incur significant impairment charges associated with costs overruns and project delays in future years with an adverse effect on our results of operations and liquidity.
Inability to replace oil and natural gas reserves could adversely impact results of operations and financial condition
Eni’s results of operations and financial condition are substantially dependent on its ability to develop and sell oil and natural gas. Unless the Company is able to replace produced oil and natural gas, its reserves will decline. TheIn addition to being a function of production and new discoveries, the Company’s reserve replacement is also affected by the entitlement mechanism in its Production Sharing Agreements and similar contractual schemes. In accordance with such contracts, Eni is entitled to a portion of a field’s reserves, the sale of which shouldis intended to cover expenditures incurred by the Company to develop and operate the field. The higher the reference prices for Brent crude oil used to determine year-end amounts ofestimate Eni’s proved reserves, the lower the number of barrels necessary to recover the same amount of expenditures. TheIn 2009, the Company’s reserve replacement was negatively affected by reduced entitlements in its PSAs infor an estimated amount of 100 mmBOE, which was the years 2006 and 2007 when Eni’sprincipal factor leading to a reserve replacement ratio was 38% in both years, meaningof 95% for Eni’s subsidiaries (meaning that the Company replaced less reserves than those produced. Eni’s proved reserves of subsidiaries declined by 6.1% in 2007 and by 5.8% in 2006.produced). See "Item 4 – Business Overview – Exploration & Production". Future oil and gas production is 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 levels and growth prospects, thus negatively affecting Eni’s future results of operations and financial condition.
We forecast a significant reduction in costs to develop and operate oil and gas fields. If we fail to benefit from this expected trend, our oil and gas margins will deteriorate due to falling hydrocarbons prices
Due to the current oil downturn, we expect that prices for oilfield services and materials will trend lower in the future. We intend to benefit from this reduction by implementing the needed cost initiatives to preserve our profitability in an environment of low oil prices. Cost initiatives include rescheduling of certain field developments to obtain cost saving and renegotiating contracts for oilfield services with our supplies on more favorable terms. If we fail to achieve the targeted levels of cost reductions, our profits per BOE in the Exploration & Production segment will be adversely affected.
Changes in crude oil and natural gas prices may adversely affect Eni’s results of operations
The exploration and production of oil and gas is a commodity business with a history of price volatility. The single largest variable that affects the Company’s results of operations and financial condition is crude oil prices. Eni generally does not hedge its exposure to variabilityfluctuations in future cash flows due to crude oil price movements. As a consequence, Eni’s profitability depends heavily on crude oil and natural gas prices.
Crude oil and natural gas prices are subject to international supply and demand and other factors that are beyond Eni’s control, including among other things:
8
(i) | the control on production exerted by OPEC member countries which control a significant portion of the | |
(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; in the current economic downturn we have experienced a significant reduction in worldwide demand for crude oil and in the European gas demand which have negatively impacted crude oil and natural gas prices; | |
(iv) | prices and availability of alternative sources of energy; | |
(v) | governmental and intergovernmental regulations, including the implementation of national or international laws or regulations intended to limit greenhouse gas emissions, which could impact the prices of hydrocarbons; and | |
(vi) | success in developing and applying new technology. |
All these factors can affect the global balance between demand and supply for oil and prices of oil. Such factors can also affect the prices of natural gas because natural gas prices for the major part of our supplies are typically indexed to the prices of crude oil and certain refined petroleum products. Lower crude oil prices have an adverse impact on Eni’s results of operations and cash flowsflow. In 2009, the average price of the Brent barrel decreased by 36.6% compared to 2008 in dollar terms; gas prices experienced an even sharper decline driven by weak spot prices due to large gas availability on the marketplace. Spot prices of gas at the Henry Hub market, which is a highly liquid spot market in the U.S. declined by 55.4% in dollar terms. As a consequence of those trends in the market benchmarks, realized prices of the Company’s equity oil and gas decreased by 31.2% on average in dollar terms. Reduced prices negatively impacted the operating profit reported by the Exploration & Production segment which was down by 43.8%, or euro 7,119 million from operations.a year ago.
Furthermore, lower oil and gas prices over prolonged periods may also adversely affect Eni’s results of operations and cash flowsflow by: (i) reducing rates of return of development projects either planned or being implemented, leading the Company to reschedule, postpone or cancel development projects, or accept a lower rate of return on such projects; (ii) reducing the Group’s liquidity, entailing lower resources to fund expansion projects, further dampening the Company’s ability to grow future production and revenues; and (iii) triggering a review of future recoverability of the Company’s carrying amounts of oil and gas properties, which could lead to the recognition of significant impairments charges.
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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 judgment; | |
• | projections regarding future rates of production and timing of development expenditures; | |
• | whether the prevailing tax rules, other government regulations and contractual conditions will remain the same as on the date estimates are made; |
• | results of drilling, testing and the actual production performance of Eni’s reservoirs after the date of the estimates which may require substantial upward or downward revisions; and | |
• | changes in oil and natural gas prices which could affect the quantities of Eni’s proved reserves because the estimates of reserves are based on prices and costs existing as of the date when those estimates are made. In particular the reserves estimates are subject to revisions as prices fluctuate due to the cost recovery mechanism under the Company’s PSAs and similar contractual schemes. |
Many of these factors, assumptions and variables involved in estimating proved reserves are beyond Eni’s control and may change over time and impact the estimates of oil and natural gas reserves. Accordingly, the estimated reserves could be significantly different from the quantities of oil and natural gas that will ultimately will be recovered. Additionally, any downward revision in Eni’s estimated quantities of proved reserves would indicate lower future production volumes, which could adversely impact Eni’s results of operations and financial condition.
Oil and gas activity may be subject to increasingly high levels of income taxes
In recent years, Eni has experienced adverse changes in tax regimes applicable to oil and gas operations in Italy and in a number of countries where the Company conducts its upstream operations. In 2009 management estimates that the tax rate of the Company’s Exploration & Production segment was approximately 60%, representing an increase of an estimated 4% compared to 2008 as a result of new mechanisms that were implemented to calculate income taxes currently payable in a number of non OECD countries, namely Libya. See "Item 5 – Operating and Financial Review and Prospects – Taxation for the year". Management believes that adverse changes are always possible in
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the tax regimes of any country in which Eni conducts its oil and gas operations, regardless of the level of stability of the political and legislative framework in each country. See "Political considerations" below. In recent years, developments in the regulatory framework, mainly regarding tax issues, have been implemented or announced also in EU countries and in North America. In 2008, Italy enacted new tax rules that increased the statutory tax rate applicable to energy companies with annual turnover in excess of euro 25 million by 5.5 percentage points,5.5%, thus reversing a reduction in the statutory tax rate of the same amount that was enacted the previous year. EarlyIn 2009, the above mentioned 5.5% supplemental tax rate was increased by another percentage point to 6.5% thus bringing the Italian statutory tax-rate to 34%. Also in 2009, the Italian Parliament enacted a supplemental tax rate of 4% that has to be applied to profit before income taxes reported by the parent company Eni SpA associated with the Treatya treaty between Italy and Libya. This supplemental tax rate will entail increased tax payables amounting toby approximately euro 300239 million for the full year 2009.
Adverse changes in the tax rate applicable to the Group profit before income taxes would translate intohave a negative impactsimpact on Eni’s future results of operations and cash flows. Furthermore, the marginal tax rate in the oil and gas industry tends to increase in correlation with higher oil prices which could make it difficult for Eni to translate higher oil prices into increased net profit. However, the Company does not expect that the marginal tax rate will trend lowerdecrease in response to falling oil prices.
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. AtAs of December 31, 2008,2009, approximately 80% of Eni’s proved hydrocarbon reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supplies comes from countries outside the EU and North America. In 2007,2009, approximately 70%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 of those countries may affect Eni’s ability to continue operating in an economic way, either temporarily or permanently, and Eni’s ability to access oil and gas reserves. Particularly Eni faces risks in connection with the following issues: (i) lack of well-established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; (ii) unfavorable developments in laws, regulations and contractual arrangements leading for example to expropriations or forced divestitures of assets and unilateral cancellation or modification of contractual terms. For example, in conjunction with the rescheduling of the Kashagan project in 2007, the Kazakh authorities opened a dispute against the international partners of the consortium operating the Kashagan development claiming failure on part of the consortium to fulfill certain contractual obligations. Subsequently, the Kazakh authorities and the international partners of the consortium have agreed on a new contractual framework of the project. See "Item 4 – Exploration & Production – Caspian Sea" for a full description of the material terms of the agreement; (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, we have been
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experiencing continuing social unrest in Nigeria leading to a number of disruptions at certain Eni oil producing facilities in the country. As a consequence, our oil and gas production in the country has yet to return to normal production levels. In the first quarter of 2009, security problems have continued to impact our operations.
(i) | lack of well-established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; | |
(ii) | unfavorable developments in laws, regulations and contractual arrangements leading for example to expropriations or forced divestitures of assets and unilateral cancellation or modification of contractual terms. Eni is facing increasing competition from state-owned oil companies who are partnering with Eni in a number of oil and gas projects and titles in the host countries where Eni conducts its upstream operations. These state-owned oil companies can change contractual terms and other conditions of oil and gas projects in order to obtain a larger profit share from a given project, thereby reducing Eni’s profit share. For example, Sonatrach, the Algerian national oil company, is seeking to modify the contractual terms of certain PSAs in which Eni is party to achieve a redistribution of the tax burden of such PSAs. Sonatrach alleges that it is currently bearing part of the tax burden attributable to Eni following the enactment of certain modifications to the country’s tax regime. In case those negotiations result in a negative outcome for Eni, the future profitability of certain of Eni’s PSAs in Algeria will be reduced. For more information on this matter see "Item 4 – Exploration & Production – Algeria". Furthermore, in 2009 we recorded a loss amounting to euro 205 million on certain receivables versus local co-venturers as certain contractual clauses relating to cost recovery were unfavorably interpreted and applied. As of the balance sheet date receivables for euro 461 million relating to cost recovery under a petroleum contract in a non-OECD country were the subject of arbitration proceedings. Similar issues are also being experienced in Kazakhstan where there is a dispute in relation to certain unresolved items of expenditure incurred by the operating company Karachaganak Petroleum Operating BV which has led to the Kazakh Authorities making certain claims against the company on the base of audits performed relating to prior years 2003-2006. Parties are negotiating in order to settle the dispute; | |
(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, we have been experiencing continuing social unrest in Nigeria leading to a number of disruptions at certain Eni oil producing facilities in the country. As a consequence, our oil and gas production in the country has yet to return to normal production levels. In 2009, security problems have continued to impact our operations. See "Item 4 – Exploration & Production". |
In 2008 we incurred significant asset impairments for euro 989 million in our Exploration & Production business amounting to euro 989 million mainly driven by changes in contractual arrangements and regulatory provisions and environmental obligations leading the
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Company to reassess the recoverable amounts of a number of its oil and gas properties.properties, particularly in Turkmenistan.
See "Item 4 – Exploration & Production – Oil and Natural Gas Reserves"; and "Item 5 – Recent Developments". While the occurrence of thesethose events is unpredictable, it is likely that the occurrence of such events could cause Eni to incur material losses or facility disruptions, by this way adversely impacting Eni’s results of operations and cash flows.
Our activities in Iran could lead to sanctions under relevant U.S. legislation
Eni is currently conducting oil and gas operations in Iran. The legislation and other regulations of the United States of America impose sanctions on this country and may lead to the imposition of sanctions on any persons doing business in this country or with Iranian counterparties.
Under the Iran Sanctions Act of 1996 (as amended, "ISA"), which implements sanctions against Iran with the objective of denying it the ability to support acts of international terrorism and fund the development or acquisition of weapons of mass destruction, upon receipt by the U.S. authorities of information indicating potential violation of this act, the President of the United States is authorized to start an investigation aiming at possibly imposing sanctions from a six-sanction menu against any person found in particular to have knowingly made investments of U.S. $20 million or more in any twelve-month period, contributing directly and significantly to the enhancement of Iran’s ability to develop its hydrocarbons resources. Furthermore, the ISA envisages thatcontemplates sanctions to be imposed by the President of the United States is bound to impose sanctions against any persons that knowingly contribute to certain military programs of Iran, effective on June 6, 2006. Eni cannot predict interpretations of, or the implementation policy of the U.S. Government under ISA with respect to Eni’s current or future activities in Iran or other areas. Eni has incurred capital expenditures in excess of U.S. $20 million in Iran in each of the last 910 years. Management expectsmay decide to continue investing in Iran yearlyinvest amounts in excess of that threshold$20 million per year in the foreseeablecountry in the future. No sanctions have been imposed to date on Eni’s activities in the country. Eni’s current activities in Iran are primarily limited to carrying out residual development activities relating to certain buy-back contracts it entered into in 2000 and 2001 and no sanctions have ever been imposed on2001. Specifically, activities are progressing to hand over operatorship of the Darquain oilfield to the local partners as development activities were concluded at this field in 2009. Darquain remained the sole activity operated by Eni in the Country. Regarding another project that was handed over in past years, Eni’s involvement consists essentially in being reimbursed for its past investments. In 2009, Eni’s production in Iran was 35 KBOE/d, approximately 2% of the Group’s total production. Eni does not believe that its activities in Iran have a material impact on the country.Group’s results.
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 see "Item 4 – Information on the Company – Exploration & Production – North Africa and Rest of World"Asia". It is possible that in future years Eni’s activities in Iran may be sanctioned under relevant U.S. legislation.
We are aware of initiatives by certain U.S. states and U.S. institutional investors, such as pension funds, to adopt or consider adopting laws, regulations or policies requiring divestment from, or reporting of interests in, companies that do business with countries designated as states sponsoring terrorism. These policies could adversely impact or limit investment by certain investors in our securities.securities and so possibly impact adversely our share price.
Cyclicality of the Petrochemical Industry
The petrochemical industry is subject to cyclical fluctuations in demand in response to economic cycles, with consequential effects on prices and profitability exacerbated by the highly competitive environment of this industry. Eni’s petrochemical operations have been in the past and may be adversely affected in the future by worldwide economic slowdowns, intense competitive pressures and excess installed production capacity. Furthermore, Eni’s petrochemical operations face increasing competition from AsiaticAsian companies and national oil companies’ petrochemical divisions which can leverage on certain long-term competitive advantages in terms of lower operating costs and feedstock purchase costs. In particular,Particularly, Eni’s petrochemical operations are located mainly in Italy and Western Europe where the regulatory framework and public environmental sensitivity are generally more stringent than in other countries, especially Far East countries, resulting in higher operating costs of our petrochemical operation compared to the Company’s Asiatic competitors due to the need to comply with applicable laws and regulations in environmental and other related matters. In 2008Additionally, our petrochemical operations lack sufficient scale and competitiveness in a number of sites. Due to weak industry fundamentals, intense competitive pressures and high feedstock costs, our petrochemicals operations postedincurred operating losses in both 2009 and 2008 of euro 822675 million due to sharply higher feed-stock costs inand euro 845 million, respectively. Results were also affected by the first halfrecognition of the year and lower product volumes and margins in the second half due to the current economic downturn and related asset impairments. Impairmentimpairment losses were recorded amounting to euro 121 million and euro 278 million respectively as the recoverable amounts of certain petrochemicals plants were
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lower than their carrying amounts due to deteriorating profitability prospects on the back of lowered expectations for industry fundamentals and unfavorable trends in the trading environment. As
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the downturn is expected to continue for the full year 2009, we doManagement does not projectexpect any significant improvementrecovery in our petrochemicals business profitability.industry fundamentals and the trading environment for 2010, making it likely that further operating losses will be incurred.
LiberalizationRisks in the Company Gas & Power business segmenti) Market risks
In 2009 the Company’s results of operations and cash flow were negatively affected by the
Italian Natural Gas Marketsevere contraction in gas demand due to the economic downturn and increasing competitive pressures resulting from large gas availability on the market place
Legislative Decree No. 164/2000 opened upIn 2009 European gas demand was severely impacted by the economic downturn, as a fall in both producing activities and demand for electricity reduced gas consumption. European gas demand decreased by 7.4% from 2008, excluding seasonal effects. The Italian naturalmarket was particularly hit by the downturn as demand fell by approximately 9 BCM from 2008, down 10%, and almost 10 BCM from the pre-crisis levels seen in 2007, down 12%, excluding seasonal effects. At the same time, new gas supplies entered the market as several operators, including Eni, completed plans to competition asupgrade gas import pipelines from January 1, 2003.gas producing countries or projects to build new facilities to import gas to Europe via LNG carriers. In particular, Eni finalized plans to upgrade the import capacity of its two main pipelines from Russia and Algeria increasing capacity by an overall amount of 13 BCM/y (the gas pipelines TAG and TTPC), with new capacity entirely sold to third parties. A new LNG terminal with a capacity of 8 BCM/y commenced operations late in 2009, operated by a consortium of competitors. As a result, all customers in Italy are free to choose their supplier of natural gas. The decree, among other things, introduced rules which have a significant impactgas availability on Eni’s activity, as the Company is present in all the phases of the natural gas chain:
Furthermore, on June 30, 2008 provisions came into effect on the unbundling of regulated entities in the Italian gas sector on the basis of a Code that was adopted by the Authority for Electricity and Gas in 2007. According to unbundling rules, controlling entities as in the case of the parent company Eni SpA are forbidden from interfering in the decision-making process of its subsidiaries running gas transport, storage and distribution infrastructures.
Eni expects that a combination of regulatory effects and increasing competition will limit growth prospects and profitability of our natural gas business in Italy as discussed below.
Eni has been experiencing significant pressure on its natural gas margins1since the inception of the liberalization process in Italy. In the current economic downturn, margin pressures could worsen also considering an expected increase in supplies of natural gas tothe Italian market increased at a time when demand actually shrunk, resulting inlight of new import capacity that has been completed or is expected to come on stream in the next one to three years
Since the inceptionoversupply. Accordingly, Eni’s results of the liberalization process in the Italian natural gas market, Eni has been experiencingmarketing business, sales volumes and average gas selling margins1 were driven down by rising competition and weak demand both in its naturalItaly and Europe. Large gas business leading to lower selling margins due to the entry of new competitors into the market. Certain competitors of Eni are supplied byavailability on other European markets also prevented the Company itself, generally on the basisfrom disposing of long-term contracts. In fact, in order to comply with the above mentioned regulatory thresholds relating to volumes supplied through the national transport network and sales volumes in Italy, Eni sold part of its gas availability underby selling it on European markets. This situation was exacerbated by lower gas consumption in the U.S. driven by the economic downturn and recent developments in extracting gas by unconventional sources. As a result of these trends, large amounts of LNG were re-directed towards Europe. The condition of oversupply on the European market is signaled by the circumstance that gas spot prices no longer appear correlated to trends in oil prices. This trend has resulted in Eni being less competitive as its take-or-pay supply contractscosts are based on the price formulas of long-term supply agreements which link the price of gas to third parties importing said volumesthe price of oil.
The outlook for the European gas sector is challenging as current imbalances between demand and supply in Europe and Italy might negatively affect the Company’s results of operation and cash flows in future years
The outlook for gas supply and demand both in Europe and Italy is challenging as GDP growth in the EU 27 Countries is expected to remain weak over the next few years and gas demand is expected to recover only gradually to pre-crisis levels. Currently, management does not expect that demand will recover to 2008 levels before 2013 and expects gas prices on spot markets to remain depressed for another one or two years. Gas availability will remain abundant on the marketplace as the Company expects that new infrastructures will be finalized over the next five to ten years, as publicly announced by certain consortia of competitors. In particular, it has been announced that a new pipeline will be built from Algeria to Italy via Sardinia with a 5 BCM capacity and marketing thema new LNG terminal will be started up in a yet to be identified location in Italy with 8 BCM capacity.
In addition, ongoing trends towards energy preservation and rising competition from renewable or alternative sources of energy will further dampen the recovery perspectives of gas demand. Specifically, at the March 2007 European Council, the European Heads of Government decided to adopt the Climate Action and Renewable Energy Package. This legislation was voted into law by the European Parliament in December 2008. The package, also known as "20-20-20 European Policy", includes a commitment to reduce greenhouse gas (GHG) emissions by 20% by 2020 compared to emission levels recorded in 1990 (the target being 30% if an international agreement is reached), as well as an improved energy efficiency within the EU Member States of 20% by 2020 and a 20% renewable energy target by 2020. To factor in those trends, management has revised downwards its long-term projections of both European and Italian customers.gas demand growth. For morefurther information on Eni’s take-or-pay contracts, see "Item 4 – Gas & Power – Natural gas purchases"Power".
Management expects Eni’s gas selling margins in Italy to remain under pressure in the foreseeable future considering deteriorating The expected sluggish growth of demand, fundamentals in the current economic downturn, Eni’scoupled with ample gas availability underon the marketplace may adversely affect the Company’s results of operations and cash flow in its take-or-pay supply contracts, build-up of Eni’s supplies to the above mentioned competitors and new competitors entering the Italian market alsogas marketing business in light of ongoing or already implemented capital projects designed to expand the transport capacity of import pipelines to Italy and to build new import infrastructures, particularly LNG terminals. In fact, Eni is currently implementing its plans to upgrade its natural gas import pipelines mainly from Algeria and Russia to Italy to achieve an increase of 13 BCM/y in import capacity reaching full operation in 2010. Specifically, the upgrading of the TTPC pipeline from Algeria was completed in 2008 and is expected to be fully operational in 2009. The upgrade of the Russian pipeline is ongoing. Further 3 BCM/y of new import capacity will be added by upgrading the GreenStream gasline from Libya with expected start up in 2012. A large portion of the new capacity deriving from Eni’s upgrading projects has been or is planned to be sold to third parties. In addition, a third party project has been implemented to build a new LNG terminal with an 8 BCM/y capacity in the Adriatic Sea and is expected to commence operations by late 2009. These new or upgraded gas infrastructures will considerably increase supplies to the Italian natural gas market at a time when demand is falling due to the economic downturn.
future years.
(1) | For a definition of margin see "Glossary". |
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Despite the fact that an increasing portion of natural gas volumes purchased by Eni under its take-or-pay contracts is planned to be marketed outside Italy, management believes that unfavorableCurrent, negative trends in gas demands and supplies may impair theItalian demand and supply for natural gas on both the short and the longer-term, also dueCompany’s ability tothe reaching of full operation at new supply infrastructures, and the evolution of Italian regulations of the natural gas sector, represent risk factors to the fulfillment of Eni’sfulfill its minimum off-take obligations in connection with its take-or-pay, long-term gas supply contracts
In order to secure long-term access to gas availability, particularly with a view to supplying the Italian gas market, the Company signed in the past a number of long-term gas supply contracts with key producing countries that supply the European gas markets. These contracts will ensure approximately 62.4 BCM of gas availability in 2010 (excluding the contribution of other subsidiaries and may resultassociates), have a residual life of approximately 20 years, and provide take-or-pay clauses whereby the Company is required to off-take minimum predetermined volumes of gas each year of the contractual term or, in case of failure, to pay the whole price, or a portion of it, up to the minimum contractual quantity. The take-or-pay clause entitles the Company to off-take pre-paid volumes of gas in later years during the term of the contract execution. The amount of price that is required being paid in advance and the schedules for off-taking pre-paid gas vary from contract to contract. Generally speaking, cash pre-payments are calculated on the basis of the energy prices prevailing in the year of non-fulfillment with the balance due in the year when the gas is actually off-taken. Amounts of pre-payments range from 10 to 100 percent of the full price. Right to off-take pre-paid gas expires within a ten-year term in some contracts or remains in place until contract expiration in other arrangements.
In addition, rights to off-take pre-paid gas in future years can only be exercised if the Company has fulfilled its minimum take obligation in a downward pressuregiven year. In this case, Eni will pay the residual price for the gas that was not off-taken initially based on a purchase price calculated as average of market prices prevailing in the year when the gas is actually off-taken. Similar considerations apply to ship-or-pay contractual obligations.
Management believes that the current outlook for gas demand and large gas availability on the marketplace, as well as the possible evolution of sector-specific regulation, present significant risks to the Company’s ability to fulfill its minimum take obligations associated with its long-term supply contracts.
In accordance with the terms of its long-term supply contracts, in 2009 Eni off-took lower volumes than the contractual minimum and recognized a trade payable amounting to euro 255 million corresponding to the amount of gas selling margins. Basedthat the Company was required contractually to off-take.
Management believes that over the next two years the Company will experience failure to fulfill its take-or-pay obligations with respect to significant volumes of gas, unless demand fundamentals improve substantially and a better balance between demand and supply is achieved on the foregoing, Eni’s futuremarketplace.
If Eni fails to off-take the contractual minimum amounts, it will be exposed to a price risk, because the purchase price Eni will ultimately be required to pay is based on prices prevailing after the date on which the off-take obligation arose. In addition, Eni is subject to the risk of not being able to dispose of pre-paid volumes. The Company also expects to incur financing costs to pay cash advances corresponding to contractual minimum amounts. As a result, the Company’s selling margins, results of operations and cash flows mightflow may be adverselynegatively affected.
Eni is committed to increasing natural gas sales in Europe. If Eni fails to achieve this target, future growth prospects may be adversely affected. Furthermore, Eni may be unable to fulfill its minimum take obligations under its take-or-pay purchase contracts and this could adversely impact results of operations and liquidity
Over the medium-term, Eni plans to increase its natural gas sales in Europe leveraging on its natural gas availability under take-or-pay purchase contracts it has entered into with major natural gas producing countries (namely Russia, Algeria, Libya, Norway and the Netherlands) and synergies from the acquisition of the Belgian gas operator Distrigas that was completed in 2008.2009. Should Eni fail to increase natural gas sales in Europe as planned due to poor strategy execution or competition, Eni’s future growth prospects, results of operations and cash flows might be adversely affected also taking account that Eni might be unable to fulfill its contractual obligations to purchase certain minimum amounts of natural gas based on its take-or-pay purchase contracts currently in force.
ii) Risks associated with sector-specific regulations in Italy
The opening of the Italian natural gas market as per Legislative Decree No. 164/2000 has gradually increased competition on the market thus reducing margins
Legislative Decree No. 164/2000 opened the Italian natural gas market to competition, impacting on Eni’s activities, as the company is engaged in all the phases of the natural gas chain. The opening to competition was achieved through the enactment of certain antitrust thresholds on volumes input into the national transport network and on volumes sold to final customers. Specifically, these antitrust thresholds are effective until December 31, 2010 and prescribe that: (i) operators transmit a volume of imported or domestically produced gas into the national
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transport network which shall not be higher than a predetermined share of Italian final consumption. This share was 75% of total final consumption in the first year of regulation, decreasing by 2 percentage points per year to achieve a 61% threshold in terms of final consumption by 2009; and (ii) operators are forbidden from marketing gas volumes to final customers in excess of 50% of overall volumes marketed to final customers. Compliance with these ceilings is verified annually by comparing actual average shares reached by any operator in a given three-year period for both volumes input and volumes marketed to customers to average shares permitted by the law for the same period. Actual shares are computed net of losses (in the case of sales) and volumes of natural gas consumed in own operations. Based on a bill passed by the Italian upper house, Eni expects that these antitrust thresholds will be renewed when they expire in 2010.
These antitrust thresholds enabled new competitors to enter the Italian gas market, resulting in declining selling margins on gas. In addition, certain competitors of Eni are supplied by the Company itself, generally on the basis of long-term contracts. This is a result of the fact that, in order to comply with the above mentioned regulatory thresholds relating to volumes supplied through the national transport network and sales volumes in Italy, Eni sold part of its gas availability under its take-or-pay supply contracts to third parties importing said volumes to Italy and marketing them to Italian customers.
Risks associated with the regulatory powers entrusted to the Italian Authority for Electricity and Gas in the matter of pricing to residential customers
The Authority for Electricity and Gas is entrusted with certain powers in the matters of natural gas pricing. Specifically, the Authority for Electricity and Gas holds a general surveillance power on pricing in the natural gas market in Italy and the power to establish selling tariffs for the supply of natural gas to residential and commercial users consuming less than 200,000 CM/y (qualified as non eligible customers as of December 31, 2002 as defined by Legislative Decree No. 164/2000) taking into account the public goal of containing the inflationary pressure due to rising energy costs. Accordingly, decisions of the Authority on these matters may limit the ability of Eni to pass an increase in the cost of fuels onto final consumers of natural gas. Following a complex and lengthy administrative procedure started in 2004 and finalized in March 2007 with Resolution No. 79/2007, the Authority finally established a new indexation mechanism for updating the raw material cost component in supplies to residential and commercial users consuming less than 200,000 CM/y, establishing, among other things that Italian natural gas importers – including Eni – must renegotiate wholesale supply contracts in order to take account of the new indexation mechanism of the raw material cost component. This indexation mechanism has been recently updated based on Resolution No. 64/2009 of the Authority, which provides that changes in a preset basket of hydrocarbons are transferred to the cost of the supply to those customers. Also a floor has been established in the form of a fixed amount that applies only at certain low level of international prices of hydrocarbons. The Company does not expect any material impact following enactment of Resolution No. 64/2009.
However, management cannot exclude the possibility that in the future the Authority could implement measures in this matter which may negatively affect Eni results of operations and liquidity. On March 26, 2010 the Authority for Electricity and Gas published a consultation document regarding certain proposed amendments to the current mechanism that is used to update the raw material cost component in supplies to residential users. The document addresses Italian gas importers, including Eni. The Authority reaffirmed its belief that such cost component should continue being linked to supply prices as provided by the long-term contracts held by Eni as the incumbent operator in the Italian gas market, as evidence suggests that there have not been sufficiently liquid spot markets in Italy. However, the Authority considers that Eni still holds as large market power as to influence wholesale gas prices. Based on that belief, the Authority suggests that the incumbent operator disposes of predetermined amounts of gas at preset economic conditions that take into account the supply costs of an efficient portfolio of long-term supply contracts which could be lower than current wholesale prices realized by Eni. Alternatively, those gas disposals might be in favor of an independent buyer for amounts that might possibly cover the entire capacity of the wholesale market in Italy. Those proposals require establishment of adequate rules by relevant administrative authorities. In case the rules are not implemented, the Authority plans to continue updating the raw material component in supplies to residential customers on the base of the current updating mechanism as it schedules to do in the fourth quarter of 2010. The eventual update will take into account of any effects associated with ongoing renegotiations of long-term supply contracts and may lead to lower wholesale gas prices.
Due to the regulated access to natural gas transport infrastructures in Italy, Eni may not be able to sell in Italy all the natural gas volumes it planned to import and, as a consequence, the Company may be unable to sell all the natural gas volumes which it is committed to purchase under take-or-pay contract obligations
OverOther risk factors deriving from the medium-term, Eni has scheduled its import volumesregulatory framework are associated with the regulation of natural gas to Italy based on the assumption to use the purchase flexibility contractually provided by its take-or-pay purchase contracts during periods in which demand is expected to peak. These import programs are also based on the assumption that Eni will obtain the necessary transport capacity entitlements on the Italian transport network. However, Eni’s planning assumptions may be considered to be not fully in line with current rules regulating the access to the Italian gas transport infrastructures as provided fornetwork that is currently set by the Network Code currently in force which has been drafted in accordance with Decision No. 137 of July 17, 137/2002 of the Authority for Electricity and Gas. Such rules establish certainThe decision is fully incorporated into the network code presently in force as prepared by the system’s operator. The
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decision sets priority criteria for transport capacity entitlements at points where the Italian transport infrastructurenetwork connects with international import pipelines (the so-called entry points to the Italian transport system). Specifically, Eni’s gas volumes purchased underoperators that are holders of take-or-pay contracts, as in the case of Eni, are entitled to a priority in the allocation ofallocating available transport capacity for amounts not exceedingwithin the limit of average daily contractual volumes. Accordingly, Eni’s purchaseGas volumes exceeding average daily contractual volumes are not entitled to any priority and, in gaining access tocase of congestion at any entry points, they are entitled available capacity on a proportionate basis together with all pending requests for capacity assignments. Under its take-or-pay purchase contracts, Eni has the Italian transport infrastructures. The contractual flexibility represented by Eni’s right to upliftoff-take daily volumes larger than average daily contractual volumes under its take-or-pay purchase contractsvolumes. This flexibility is important to Eni’s commercial programs as it is used when demand peaks, usually during the wintertime. In the event congestion occurs at entry points to the Italian transport network, underbased on current regulationregulations, available transport capacity would be entitled firstly to operators having a priority right, i.e. holders of take-or-pay contracts within the limits of average daily contractual volumes. Then any residual available transport capacity would be allocated in proportion to all pending capacity requests. However, in planning its commercial flows, the Company normally assumes to make full use of its contractual flexibility and to obtain all necessary capacity entitlements at the entry points to the national transport network. Those assumptions may be inconsistent with rules sets by Decision No. 137/2002 specifically with regard to priority criteria governing capacity entitlements. Eni considers Decision No. 137/2002 to be inconsistentillegitimate as it is, in Eni’s view, in contrast with the overall rationale of the European natural gas regulatory framework especially with reference to Directive 98/30/CE (superseded and replaced byon the gas market as provided in European Directive 03/55/CE) and Legislative Decree No. 164/2000, andCE. The Company based on that belief has openedcommenced an administrative procedure to repeal Decision No. 137/2002 before an administrative court.court which recently confirmed in part Eni’s position. An administrative appeals court also confirmed the Company’s position. Specifically, the Court stated that the purchase of the contractual flexibility is an obligation on part of the importer, which responds to a collective interest. According to the Court, there is no reasonable motivation whereby volumes corresponding to such contractual flexibility should not be granted priority in access to the network, also in case congestion occurs. At the moment, however, no case of congestion occurred at entry points to the Italian transport infrastructure such to impairing Eni’s marketing plans. Management cannot predict a final outcome of this proceeding. See "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power". Eni cannot rule out a negative outcome for this matter. However, management
Management also believes that Eni’s results of operations and cash flows could be adversely affected should a combination of market conditions in light of currentand regulatory constraints prevent Eni from selling its whole availability of natural gas purchased to fulfill its minimum take contract obligations (e.g. in case a congestion occurs at the entry points of the Italian transport infrastructure, Eni would be forced to uplift a smaller volume of gas than the minimum contractual take).obligations. See "Item 5 – Management Expectations of Operations".
A number of mandatory gas release measures have been recently implemented in Italy resulting in a negative impact on Eni’s results of operations and liquidity. Management cannot exclude that similar measures will be implemented in future years
Gas release measures are administrative acts whereby Eni is obliged to dispose of certain amounts of gas at set prices and conditions as provided in the relevant gas release measure. Those measures are intended to increase flexibility and liquidity in the gas market. This measure strongly affected Eni’s marketing activity in Italy. In 2004, based on certain agreements with the Antitrust Authority, Eni released in a four-year period a total amount of 9.2 BCM (2.3 BCM/y between October 1, 2004 and September 30, 2008) and the related transport capacity. In addition, in 2007 Eni agreed to adhere to a new gas release program involving 4 BCM which were disposed of in a two-year period (from October 1, 2007 and September 30, 2009). For thermal year 2009/2010 Italian Law No. 99/2009 introduced a new obligation for Eni to make additional sales for a total of 5 BCM of gas in yearly and half-yearly amounts. Although the allotment procedure (bid) was based on a minimum price set by the Ministry for Economic Development as proposed by the Authority for Electricity and Gas only a 1.1 BCM portion of the gas release was awarded out of the 5 BCM which had been planned. The price set by the Ministry is lower than the average price of Eni’s sales in Italy.
For the next few years, based on indications made by the AEEG (in a report to the Parliament on the situation of the gas and electricity market in Italy as provided in Resolution PAS 3/2010), Eni cannot exclude the possibility that new gas release programs will be imposed on it. As a consequence, future results and cash flows could be negatively affected.
The Italian Government, Parliament and the regulatory authorities in Italy and in Europe may take further steps to increase competition in the Italian natural gas market and such regulatory developments may adversely affect Eni’s results of operations and cash flows
Italian institutionaladministrative and governmental institutions and political forces are urging a higher degree of competition in the Italian natural gas market and this may produce significant developments in this area. A brief description follows of certain recently enacted laws and certain proceedings before the Authority for Electricity and Gas and the Italian Antitrust Authority in order to allow investors to gain some insight into the complexity of this
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matter. For a full discussion of laws and procedures described herein see "Item 4 – Regulation of the Italian Hydrocarbons Industry – Gas & Power".
InItalian Parliament is required to enact the third European Directive on the gas market No. 73 by March 2011. The Directive prescribes that member states choose one of two options for ensuring carriers’ independence in case transport systems belong to a vertically integrated company. One of these options provides that a parent company involved in both gas production and marketing and transport divests its interests in the carrier subsidiary. Eni currently owns a majority stake in the Italian carrier company Snam Rete Gas which owns and manages approximately 97% of the Italian natural gas transport infrastructure (Eni’s share being 52.54%). Following an internal reorganization, Snam Rete Gas also manages all of Eni’s activities in the distribution sector and in storage. See "Item 4 – Gas & Power – Reorganization of the regulated businesses in Italy". Eni is not able to predict developments on this matter.
Also in 2003, Law No. 290 was enacted in Italy which prohibits Eni from holding an interest higher than 20% in undertakings owning natural gas transport infrastructure in Italy (Eni currently holds a 50.04%52.54% interest in Snam Rete Gas, which owns and manages approximately 97% of the Italian natural gas transport infrastructure)Gas). A decree is expected to be enacted by the Italian Prime Minister to establish the relevant provisions to implement this mandatory disposal. The deadline for the disposal, which was initially scheduled for December 31, 2008, is to be re-
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scheduledre-scheduled in a 24-month term starting fromdeadline following enactment of the date in which this decree from the Italian Prime Minister becomes effective.Minister. Currently, Eni is unable to foreseepredict a deadline for this disposal.
OnIn recent years, both the basis 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") concluded thathave conducted several reviews and inquiries on the Italian natural gas market, targeting the overall level of competition of the Italian natural gas market, the degree of opening to competition of the residential sector, levels of entry-exit barriers, and other areas such as sub-investment in the storage sector. Virtually the entire storage capacity belong to Eni through its indirect interest in Stoccaggi Gas Italia SpA, which is unsatisfactory duewolly owned by Snam Rete Gas SpA. In 2009, the Italian Antitrust commenced an inquiry targeting the possible existence of entry barriers in the residential sector and alleged anti-competitive practices on the part of sellers which are integrated in the activity of gas distribution, including Eni and the subsidiary Italgas (which is wolly owned by Snam Rete Gas SpA). See Note 28 to the dominant position held by Eni in many phasesConsolidated Financial Statements for a full description of the natural gas chain. According to bothsuch proceeding. Both the Authority for Electricity and Gas and the Antitrust Authority both believe that the vertical integration of Eni in the supply, transport, distribution, storage and storagemarketing of gas has restrictedmay hamper 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 order to implement a Law Decree defined by the Italian Government to face the economic downturn, in March 2009 the Authority for Electricity and Gas proposed certain rules on the Italian gas market designed to increase competition. These rules provide that Eni supplies to the market preset amounts of natural gas at fixed prices. Implementation of these rules could materially and adversely affect the Company’s results of operations and cash flow.
In November 2006, the Authority for Electricity and Gas concluded an inquiry concerning the competitive behavior of operators selling natural gas to residential and commercial customers. This inquiry found that the retailing market for natural gas in Italy lacked a sufficient degree of competition due to current commercial practices and the existence of both entry and exit barriers.
In November 2007, the Italian Authority for Electricity and Gas and the Italian Antitrust Authority opened an inquiry to gain insight into the functioning of the natural gas storage activity in Italy, particularly with regard to lack of investments by operators directed to expand capacity to store natural gas in Italy. Eni through its wholly-owned subsidiary Stogit Italia owns almost the entire storage capacity currently existing in Italy.
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 and cannot exclude negative impacts deriving from developments on these matters on Eni’s future results of operations and cash flows.
Decisions of the Authority for Electricity and Gas on 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 for supplying natural gas to residential and commercial users consuming less than 200,000 CM/y (qualified as non eligible customers at December 31, 2002 as defined by Legislative Decree No. 164/2000) taking into account, among other things, the public interest of containing inflationary pressure due to rising energy costs. The decisions of the Authority on these matters may limit the ability of Eni to pass an increase in the purchase cost of natural gas on to the final consumers. Following a complex and lengthy administrative procedure started in 2004 and finalized in March 2007 with Resolution No. 79/2007, the Authority established a new indexation mechanism for updating the raw material cost component in supplies to residential and 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 to residential and commercial users of natural gas in case international prices of Brent crude oil exceed the 35 dollars per barrel threshold; and (ii) that Italian natural gas importers – including Eni – must renegotiate wholesale supply contracts in order to take account of this new indexation mechanism. Management cannot exclude the possibility that in the future the Authority could implement similar measures that may negatively affect Eni results of operations and liquidity.
Certain provisions of law may also limit the Company’s ability to set commercial margins. Specifically, Law Decree No. 112 enacted in June 2008 forbids energy companies such as Eni to transfer on to customers, through higher prices, the higher income taxes incurred in connection with a supplemental tax rate of 5.5 percentage points introduced by the same decree on energy companies with a yearly turnover in excess of euro 25 million. The Authority for Electricity and Gas is in charge of monitoring compliance with the rule. The Authority has subsequently that energy companies have to adopt effective operational and monitoring systems in order to prevent the transfer to customers by means of unlawful variations of final prices of gas.
For more information on these issues (particularly the Authority’s Decisions No. 248/2004, 134/2006 and 79/2007) see "Item 4 – Regulation – Gas & Power".
Antitrust and competition law
The Group’s activities are subject to antitrust and competition laws and regulations in many countries of operations, especially in Europe. In the years prior to 2008, Eni recorded significant loss provisions due to unfavorable developments in certain antitrust proceedings before the Italian Antitrust Authority, and the European
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Commission. It is possible that the Group may incur significant loss provisions in future years relative to ongoing antitrust proceedings or possible new proceedings. The Group is particularly exposed to this risk in its natural gas and refining and marketing activities due to its large presencethe fact that Eni is the incumbent operator in thesethose markets in Italy and in Europe.a large European gas player. See Note 2928 to the Consolidated Financial Statements for a full description of Eni’s main pending antitrust proceedings. Particularly, as a result ofOur main antitrust matter relates to an inquiry onongoing proceeding before the level ofEuropean Commission with respect to alleged anti-competitive practices designed to harm competition in the European natural gas market on March 9, 2009 the European Commission sent Eni a Statementin violation of Objections related to a proceeding under Article No. 82 of the EU Treaty and Article No. 54 of the SEE agreement with reference to anSEE. The proceeding involved Eni and other European players. Eni received a statement of objections from the European Commission which alleged unjustifiable refusalthat during the 2000-2005 period Eni was responsible for limiting the access of accessthird parties to the TAG and TENP/Transitgas gas pipelines that are interconnected withTAG, TENP and Transitgas, thus restricting gas availability in Italy. On February 4, 2010, Eni formally submitted the ItalianEuropean Commission a set of structural remedies relating certain international gas transport system through actions intendedpipelines. With prior agreement from its partners, Eni committed to "capacity hoarding, capacity degradation and strategic limitationdispose of investment" with the effect of "hindering the development of a real competitionits interests in the downstream marketGerman TENP, in the Swiss Transitgas and […] harmingin the consumers".Austrian TAG gas pipelines. The European Commission envisagesintends to submit these remedies to a market test. In case the possibleCommission approves those remedies upon conclusion of the market test, Eni will be in the position to settle the matter without imposition of aany fine and of structural remedies. or other remedial measures.
Based on available information and its knowledge of the proceeding, the Company is currently unable to determine the outcome of the matter.
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Furthermore, based on the findings of antitrust proceedings, plaintiffs could seek payment to compensate for any alleged damages as a result of antitrust business practices on part of Eni. Both these risks could adversely affect the Group’s future results of operations and cash flows.
Environmental, Health and Safety Regulation
Eni may incur material operating expenses and expenditures in relation to compliance with applicable environmental, health and safety 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. In particular,Generally, these laws and regulations require the acquisition of a permit before drilling for hydrocarbons may commence, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with exploration, drilling and production activities, as well as refining, petrochemicals and other Group operations, limit or prohibit drilling activities in 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 polluting the environment or harming employees or communities health and safety resulting from oil, natural gas, refining, petrochemical and other Group’s operations.
These laws and regulations may also restrictregulate emissions of substances and pollutants, handling of hazardous materials and discharges to surface and subsurface water resulting from the operation of oil and natural gas extraction and processing plants, petrochemical plants, refineries, service stations, vessels, oil carriers, pipeline systems and other facilities owned by Eni. In addition, Eni’s operations are subject to laws and regulations relating to the production, handling, transportation, storage, disposal and treatment of waste materials. Breach of environmental, health and safety laws exposes the Company’s employees to criminal and civil liability and the Company to the incurrence of liabilities associated with compensation for environment health or safety damage. Additionally, in the case of violation of certain rules regarding safety in the workplace, the Company can be liable as provided for by a general EU rule on businesses liability due to negligent or willful conduct on part of their employees as adopted in Italy with Law Decree No. 231/2001.
Environmental, health and safety laws and regulations have a substantial impact on Eni’s operations. Management expects that the Group will continue to incur significant amounts of operating expenses and expenditures to comply with environmental, health and safety laws and regulations, also taking into account possible future developments in environmental regulations in Italy and in other countries where Eni operates, particularly thecurrent and proposed fuel and product specifications, emission controls and implementation of increasingly strict measures decided at both international and country level to reduce greenhouse gas emissions. For more discussion about this topic see "Item 4 – Environmental regulations".
Eni’s results of operations and financial condition are exposed to risks deriving from environmental, health and safety accidents and liabilities
Risks of environmental, health and safety incidences and liabilities are inherent in many of Eni’s operations and products. Notwithstanding management believesmanagement's belief that Eni adopts high operational standards to ensure safety of its operations and to protect the environment and health of people and employees, it is always possible that incidents like blow-outs, spillovers,spill-overs, contaminations and similar events could occur that would result in damage to the environment, employees and communities. In particular,Environmental laws also require the Company to remediate and clean-up the environmental impacts of prior disposals or releases of chemicals or petroleum substances and pollutants by the Company. Such contingent liabilities may exist for various sites that the Company disposed of, closed or shut-down in prior years where the Group products have been produced, processed, stored, distributed or sold, such as chemicals plants, mineral-metallurgic plants, refineries and other facilities. Particularly, Eni is performing a number of remedial actionsplans to restore and clean-up certain industrial sites that were contaminated by the Group’s industrial activities in previous years, mainly in Italy. Management expects further remedialRemedial actions are expected to be implementedcontinue in the foreseeable future, years. Theimpacting our liquidity as the Group has accrued risk provisions to cope with all existing environmental liabilities whereby both a legal or constructive obligation to perform a clean-up or other remedial actions is in place and the associated costs can be reasonably estimated. The accrued amount represents the management’s best estimates of future environmental expenses to be incurred. In 2009, the Company’s environmental provision increased by euro 280 million.
Notwithstanding this, management believes that it is possible that in the future Eni may incur significant environmental expenses and liabilities in addition to the amounts already accrued due to: (i) the chance of as yet
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unknown contamination; (ii) the results of on-going surveys or surveys to be carried out on the environmental status of certain Eni’s industrial sites as required by the applicable regulations on contaminated site; (iii) unfavorable
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developments in ongoing litigation on the environmental status of certain Company’s site where a number of public administrations and the Italian Ministry for environment act as plaintiffs; (iv) the possibility that new litigation might arise; and (v) the probability that new and stricter environmental laws might be implemented.implemented; and (vi) the circumstance that the extent and cost of future environmental restoration and remediation programs are often inherently difficult to estimate.
Legal Proceedings
Eni is party to a number of civil actions and administrative proceedings arising in the ordinary course of business. In 2009, we increased our legal proceeding provision by euro 372 million due to the business.estimated probable losses associated with ongoing litigations. Of that amount, euro 250 million related to the possible resolution of the investigation related to the TSKJ consortium based on the current status of the ongoing discussions with U.S. Authorities. The matter is fully disclosed in the section "Legal Proceedings" in Note 28 to the Consolidated Financial Statements. This estimate in particular should be read in light of the qualifications set forth in the last sentence of this paragraph. In addition to existing provisions accrued as of the balance sheet date to account for ongoing proceedings, it is possible that in future years Eni may incur significant losses in addition to amounts already accrued in connection with pending legal proceedings due to: (i) uncertainty regarding the final outcome of each proceeding; (ii) the occurrence of new developments that management could not take into consideration when evaluating the likely outcome of each proceeding in order to accrue the risk provisions as of the date of the latest financial statements; (iii) the emergence of new evidence and information; and (iv) underestimation of probable future losses.losses due to the circumstance that they are often inherently difficult to estimate.
Risks related to Changes in the Price of Oil, Natural Gas, Refined Products and Chemicals
Operating results in Eni’s Exploration & Production, Refining & Marketing, and Petrochemical segments are affected by changes in the price of crude oil and by movements in crude oil prices on margins of 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 for produced oil is generally immediate. Furthermore, Eni’s average realizations for produced oil differ from the price of Brent crude marker primarily due to the circumstance that Eni’s production slate, which also includes heavy crude qualities, has a lower API gravity compared with Brent crude (when processed the latter allows for higher yields of valuable products compared to heavy crude qualities, hence higher market price).
The favorable impact of higher oil prices on Eni’s results of operations may be offset in part by different trends in margins for Eni’s downstream businesses
The impact of changes in crude oil prices on Eni’s downstream businesses, including the Gas & Power, the Refining & Marketing and the Petrochemical businesses, depends upon the speed at which the prices of gas and products adjust to reflect these changes. Wholesale margins in the Gas & Power business are substantially independent from fluctuations in crude oil prices as purchase and selling prices of natural gas are contractually indexed to prices of crude oil and certain refined products according to similar pricing schemes. However, quarterly performance and year-to-year comparability of results of Eni’s natural gas business may be somewhat affected by the indexation mechanism of the raw material component in gas supplies to residential customers and certain resellers to residentialsresidential customers in Italy in accordance with applicable regulations from the Italian Authority for Electricity and Gas as outlined above in the risk factor describing the "Liberalization of the Italian Natural Gas Market".Gas. Specifically, this indexation mechanism provides a certain time lag between movements in the price of crude oil and the related adjustment to the selling price of natural gas. For a detailed discussion of this indexation mechanism in Italy see "Item 4 – Regulation – Gas & Power – Natural gas prices".
In the Refining & Marketing and Petrochemical businesses a time lag exists between movements in oil prices and in prices of finished products.
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Eni’s results of operations are affected by changes in European refining margins
The resultsResults of operations of the 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 as outlined above. The prices of refined products in turn depend on global and regional supply/demand balances, inventory levels, refinery operations, import/export balances and weather. Furthermore, Eni’s realized margins are also affected by relative price movements of heavy crude qualities vs. light crude qualities, taking into account the ability of Eni’s refineries to process complex crudes that representrepresents a cost advantage when market prices of heavy crudes are relatively cheaper than the marker Brent price. In 2009, Eni expects thatrefining margins decreased substantially due to the rapid recovery in oil prices which the Company was unable to transfer on to final prices of refined products due to weak demand, for productshigh worldwide and regional inventory levels and excess refining capacity. Also, Eni’s results of operation in its refining segment were affected by narrowing price differentialsdifferential between heavy and light crudes onescrude qualities resulting in poor margins on complex throughputs. Management does not expect any significant recovery in industry fundamentals in 2010. The sector as a whole will negatively affectcontinue to suffer from weak demand and excess capacity, while the performancecost of Eni’soil feedstock is seen rising and price differentials to remain compressed. In this context, management expects that the Company refining operations.margins will remain at below break-even levels.
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Eni’s results of operations are affected by changes in petrochemical margins
Eni’s margins on petrochemical products are affected by trends in demand for petrochemical products and changes in oil prices which influence changes in purchase costs of petroleum-based feedstock. Given the commoditized nature of Eni petrochemical products, it is difficult for the Company to transfer higher purchase costs for oil-based feedstock to selling prices to customers. In 2008,2009, the profitability of Eni’s petrochemical segment was significantly affected by lower selling margins for commodity petrochemical products due to higherhigh purchase costs for oil-based feedstock that were not fully transferred to selling prices of products, in the first half of the year and, subsequently byas well as weak demand for petrochemical products.and competitive pressures. These negative factors also triggered asset impairments. Management’s outlook for 2009 is also2010 remains challenging, as industry fundamentals are not expected to improve substantially. Weak demand, competition, and management does not expect any significant improvementhigh oil-based feedstock costs will continue to negatively affect Eni’s results of operations and liquidity in the trading environment from 2008 and possibly a further contraction in margins on petrochemical products.this business segment.
Risks from Acquisitions
Eni constantly monitors the oil and gas market in search of opportunities to acquire individual assets or corporations in order to achieve its growth targets or complement its asset portfolio. Acquisitions entail an execution risk – thean important risk, among other matters, that the acquirer will not be able to effectively integrate the purchased assets so as to achieve expected synergies. In addition, acquisitions entail a financial risk – the risk of not being able to recover the purchase costs of acquired assets, in case a prolonged decline in the market prices of oil and natural gas occurs. We also incur unanticipated costs or assume unexpected liabilities and losses in connection with companies or assets we acquire. If the integration and financial risks connected to acquisitions materialize our financial performance may be adversely affected.
Credit risk
Credit risk is the potential exposure of the Group to losses in case counterparties fail to perform or pay amounts due. Credit risks arise from both commercial partners and financial ones. Although the Group has nevernot experienced in the past material non-performance from its counterparties, due to the severity of the current economic and financial crisis it is possible that we may experience a higher than normal level of counterparty failure. In our consolidated financial statements for the year 2008, we accrued an allowance against doubtful accounts amounting to euro 251 million more than doubling the allowance made a year earlier. In 2009 Consolidated Financial Statements we made a further allowance for doubtful accounts amounting to euro 260 million, mainly relating to the Gas & Power business. Management believes that the Gas & Power business is particularly exposed to the ongoing impacts of the economic and financial crisis due to its large and diversified customer base which include a large number of middle and small businesses and retail customers.
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 euros. Similarly, prices of Eni’s petrochemical
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products are generally denominated in, or linked to, the euro, whereas expenses in the Petrochemical segment are denominated both in euros and U.S. dollars. Accordingly, a depreciation of the U.S. dollar against the euro generally has an adverse impact on Eni results of operations and liquidity because it reduces booked revenues by an amount greater than the decrease in dollar-denominated expenses. The Exploration & Production segment is particularly affected by movements in the U.S. dollar vs. the euro exchange rates. In 2008, Eni’s operating profit in this business segment has been impacted by an estimated amount of euro 1.2 billion due to a 7.3% depreciation of the U.S. dollar versus the euro. This trend reversed in 2009 resulting in an addition to reported operating profit which was estimated in euro 500 million.
Risks deriving from Eni’s Exposure to Weather Conditions
Significant changes in weather conditions in Italy and in the rest of Europe from year to year may affect demand for natural gas and some refined products; in colder years, demand is higher. Accordingly, the results of operations of the Gas & Power segment and, to a lesser extent, the Refining & Marketing segment, as well as the comparability of results over different periods may be affected by such changes in weather conditions.
Furthermore, our operations, particularly offshore production of oil and natural gas, are exposed to extreme weather phenomena that can result in material disruption to our operations and consequent loss or damage of properties and facilities.
Interest Rates
Interest on Eni’s finance debt is primarily indexed at a spread to benchmark rates such as the Europe Interbank Offered Rate, "Euribor", and the London Interbank Offered Rate, "Libor". As a consequence, movements in interest rates can have a material impact on Eni’s finance expense in respect to its finance debt.
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Critical Accounting Estimates
The preparation of financial statements requires management to make certain accounting estimates that are characterized by a high degree of uncertainty, complexity and judgment. These estimates affect the reported amount of the Company’s assets and liabilities, as well as the reported amount of the Company’s income and expenses for a given period. Although management believes these estimates to represent the best outcome of the estimation process, actual results could differ from such estimates, due to, among other things, the following factors: uncertainty, lack or limited availability of information; the availability of new informative elements, variations in economic conditions such as prices, significant factors (e.g. removal technologies and costs) and the final outcome of legal, environmental or regulatory proceedings. See "Item 5 – Critical Accounting Estimates".
Item 4. INFORMATION ON THE COMPANY
History and Development of the Company
Eni SpA with its consolidated subsidiaries is engaged in the oil and gas, electricitypower generation, petrochemicals, oilfield services and engineering industries. Eni has operations in about 7077 countries and 78,88078,417 employees as of December 31, 2008.2009.
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.
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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.www.eni.com.
The name of the agent of Eni in the United States is De Luca Vincenzo, 485 Madison Ave.,Avenue, New York, NY 10002.
Eni’s principal segments of operations are described below.
Eni’s Exploration & Production segment engages in oil and natural gas exploration and field development and production, as well as LNG operations in 3940 countries, including Italy, the UK, Norway, Libya, Egypt, Norway, the UK, Angola, Nigeria, Congo, the U.S., Kazakhstan, Russia Algeria, Pakistan and Australia. In 2008, Eni’s production of oil and natural gas amounted to 1,7482009, Eni produced 1,716 KBOE/d on an available-for-saleavailable for-sale basis. As of December 31, 2008,2009, Eni’s total proved reserves of subsidiaries stood at 6,2426,209 mmBOE; Eni’s share of reserves of equity-accounted entities amounted to 666362 mmBOE. In 2008,2009, Eni’s Exploration & Production segment reported net sales from operations (including inter-segment sales) of euro 33,31823,801 million and operating profit of euro 16,4159,120 million.
Eni’s Gas & Power segment engages in supply, transport, distribution, storage, re-gasification and marketing of natural gas, as well as ofelectricity and LNG. This segment also includes the activity of power generation that enables Eniis ancillary to extract further value from gas, diversifying its commercial outlets.the marketing of electricity. In 2008,2009, Eni’s worldwide sales of natural gas amounted to 104.23103.72 BCM, including 6.006.17 BCM of gas sales made directly by the Eni’s Exploration & Production segment in Europe and the U.S. Sales in Italy amounted to 52.8740.04 BCM, while sales in European markets were 43.0355.45 BCM that included 11.2510.48 BCM of gas sold to certain importers to Italy. SalesIn 2009, following the reorganization of the regulated businesses the parent company Eni SpA concluded the sale of the entire share capital of its fully-owned subsidiaries Italgas SpA and Stoccaggi Gas Italia SpA to markets outside Europe amounted to 2.33 BCM. Through its 50.0352.54 per cent-owned subsidiary Snam Rete Gas.
Through Snam Rete Gas, Eni operates an Italian network of high and medium pressure pipelines for natural gas transport that is approximately 31,474-kilometer31,531-kilometer long, while outside Italy Eni holds capacity entitlements on a network of European pipelines extending for approximately 4,400 kilometers made up of high pressure pipelines to import gas from Russia, Algeria, Libya and North Europe production basins to European markets. Eni,Snam Rete Gas, through its 100 percent-owned subsidiary Italgas and other subsidiaries, is engaged in natural gas distribution activity in Italy serving 1,3201,322 municipalities through a low pressure network consisting of approximately 49,40049,973 kilometers of pipelines as of December 31, 2008.2009. Snam Rete Gas, through its wholly-owned subsidiary Stoccaggi Gas Italia operates in natural gas storage activities in Italy through eight storage fields. Eni produces electricitypower and steam at its operated sites of Livorno, Taranto, Mantova, Ravenna, Brindisi, Ferrera Erbognone and Ferrara with a total installed capacity of 4.95.3 GW as of December 31, 2008.2009. In 2008,2009, sales of electricitypower totaled 29.9333.96 TWh. Eni operates a re-gasification terminal in Italy and holds indirect interest or capacity entitlements in a number of LNG facilities in
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Europe, Egypt and in certain projects under construction in the U.S. In 2008,2009, Eni’s Gas & Power segment reported net sales from operations (including inter-segment sales) of euro 36,93630,447 million and operating profit of euro 3,9333,687 million.
Eni’s Refining & Marketing segment engages in refining and marketing of petroleum products mainly in Italy and in the rest of Europe. In 2008,2009, processed volumes of crude oil and other feedstock amounted to 35.8434.55 mmtonnes and sales of refined products were 50.6845.59 mmtonnes, of which 28.9226.68 mmtonnes in Italy. Retail sales of refined product at operated service stations amounted to 12.6712.02 mmtonnes including Italy and the rest of Europe. In 2008,2009, Eni’s retail market share in Italy through its Agip-branded network of service stations was 30.6%31.5%. In 2008,2009, Eni’s Refining & Marketing segment reported net sales from operations (including inter-segment sales) of euro 45,08331,769 million and operating net loss of euro 1,023102 million.
Eni’s petrochemical activities include production of olefins and aromatics, basic intermediate products, polyethylene, polystyrenes, and elastomers. Eni’s petrochemical operations are concentrated in Italy and Western Europe. In 2008,2009, Eni sold 4.74.3 mmtonnes of petrochemical products. In 2008,2009, Eni’s Petrochemical segment reported net sales from operations (including inter-segment sales) of euro 6,3034,203 million and an operating net loss of euro 822675 million.
Eni’s oilfield services, construction and engineering activities are conducted through its 42.91 per cent-owned subsidiary Saipem and Saipem’s controlled entities. Activities involve offshore construction, particularly fixed platform installation, sub-sea pipe laying and floating production systems and onshore construction. Offshore and onshore drilling services and engineering and project management services are also provided to the oil and gas, refining and petrochemical industries. In 2008,2009, Eni’s Engineering & Construction segment reported net sales from operations (including intra-group sales) of euro 9,1769,664 million and operating profit of euro 1,045881 million.
A list of Eni’s subsidiaries of Eni is included as an exhibit to this Annual Report on Form 20-F.
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Strategy
Eni’s strategy is to grow the Company’s main businesses over both the medium and the long-term, with improving profitability. This strategy has remained unchanged in spite of the current2009 economic downturn and an uncertain outlookperspectives for the global energy demand. Specifically, the Company is planning for:
• | growing profitably oil and gas production in the Exploration & Production business; | |
• | preserving profitability in the Gas & Power business by leveraging on the Company’s competitive position on the European market in spite of an uncertain demand outlook and increasing competition; | |
• | improving profitability and cash generation in the Refining & Marketing business by implementing cost reduction initiatives and tightly selecting our capital projects in the face of a difficult trading environment, also boosting profitability of marketing operations; | |
• | improving revenues and profitability in our Engineering & Construction business leveraging on our strong order backlog and technologically-advanced assets; and | |
• | managing efficiently and effectively our petrochemicals business. |
In executing this strategy, management intends to preserve a solid capital structure targeting an optimal mix between net borrowingspursue integration opportunities among businesses and shareholders’ equity. By this means, management expectswithin them and to maintain the Company’s current credit rating.strongly focus on efficiency improvement through technology upgrading, cost efficiencies, commercial and supply optimization and continuing process streamlining across all businesses. Over the next four-years, Eni plans to execute a capital expenditure program amounting to euro 48.852.8 billion to support continuing organic growth.growth in its businesses. In 2010, Eni plans to invest approximately euro 14 billion, an amount roughly in line with 2009. Eni plans to fund thisthose capital expenditure program mostlyplans mainly by means of cash flows provided by operating activities. Capital projects will be assessed and implemented in accordance with tight financial criteria. Those will be the levers whereby the Company intends to preserve a solid capital structure targeting an optimal mix between net borrowings and shareholders’ equity. The Company intends to remunerate its shareholders through significanta progressive dividend distributions so aspolicy. In 2010 management plans to ensuredistribute a dividend in line with 2009. In subsequent years, dividends are planned to its shareholders competitivebe increased in line with OECD inflation. This dividend yields (measured aspolicy is based on the ratioCompany’s planning assumptions of dividend to the share price recorded on averageBrent oil prices at $65 per barrel flat in the monthnext four years and other assumptions (see “Item 5 – Management’s Expectations of DecemberOperations” and “Item 3 – Risk Factors”).
Further details on the Italian stock exchange). Management intends to support the Company’s profitability by focusing on cost reduction initiatives, including a number of actions that will be implemented in order to benefit from the expected reduction in purchase costs for oilfield materials, equipment and services in the Exploration and Production segment.each business segment strategy are discussed throughout this item. For a description of risks and uncertainties associated with the Company’s outlook and the capital expenditure program See "Item 5 – Management’s Expectations of Operations".
Eni’s strategy in its Exploration & Production operations is to grow production leveraging on the development of the Company’s asset portfolio. Eni targets to achieve a production growth rate of 3.5% on average over the 2009-2012 period, assuming Eni’s Brent price scenario of 55 U.S. dollar per barrel in 2012. For a discussion of Eni’s production volume sensitivity to oil prices see "Item 5 – Management’sManagement of Expectations of Operations". Management will continue to assess opportunities to increase production through acquisitions. Eni intends to pay special attention to reserve replacement in order to secure the medium to long-term sustainability of its business.
In its Gas & Power activities, Eni intends to grow natural gas sales in the international market, preserve the profitability of the Italian marketing business, effectively manage regulated businesses, and develop a global LNG business. Due to the current economic downturn, the Company has revised down its long-term growth expectations for the European gas demand from 3% to 2% per annum until 2020. For a description of trends in the natural gas markets see "Gas & Power" below. The impact of a worsening demand outlook and increasing competitive pressure on Eni’s results of operations on the domestic market is expected to be offset by the contribution of regulated businesses and continuing growth in European markets, mainly driven by the integration of the recently acquired Belgian company Distrigas. Eni targets worldwide gas sales of 124 BCM in 2012, including E&P sales in Europe and the U.S. In particular, Eni targets to achieve an annual average growth rate of 7% in international sales in the four-year period 2009 to 2012. The Company’s strategy contemplates a further strengthening of Eni’s presence in the European market, leveraging on the synergies expected from the acquisition of Distrigas (for further details see below – "Significant business and portfolio developments"). The integration with upstream activities will provide the Gas & Power business with opportunities to monetize the equity gas reserves and develop LNG sales.
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In its Refining & Marketing activities, the Company’s strategy focuses on improving the business profitability and reducing the cash requirements of the business by means of strict capital discipline also in light of a weak outlook for refined products demand. The Company intends to selectively upgrade its refinery system and improve quality standards in marketing activities as well as increase operating efficiency. In refining Eni plans to increase the conversion index and flexibility of plants in order to achieve a higher yield of middle distillates and increase the ability of its refineries to process less valuable crudes. In marketing, Eni intends to strengthen its leadership position in the Italian retail market trough plant upgrading, loyalty programs and enhanced non-oil service formats. In Europe, Eni’s growth strategy will continue to be selective, focusing on those markets where it can leverage on scale, supply and logistic synergies and brand awareness.
In its Engineering & Construction activities, Eni aims at developing and expanding its geographical reach and technical characteristics of its world class fleet in order to maintain its strong competitive position and reduce its exposure to the cyclicality of the oil industry.
In technological research and innovation activities, Eni plans to implement significant capital expenditures amounting to euro 1.11.4 billion in the next four years to develop such technologies that management believes may ensure competitive advantages in the long-term. Eni plans to continue developing ongoing programs focused on reducing costs to find and recover hydrocarbons, developing clean fuels, upgrading heavy crude (in particular the EST project), monetizing natural gas through projects such as high pressure high distance gas transmission (TAP) and Gas to Liquids (GTL), and protecting the environment by investing in the fields of renewable sources of energy and reduction of GHG emissions.
Significant
businessBusiness and Portfolio Developments
The significant business and portfolio developments that occurred in 20082009 and to date in 20092010 were the following:
• | In January | |
• | In | |
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In addition, in 2008 Eni completed the following transactions:
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• | In April | |
Recent developments are described below.
• | In September 2009, Eni and its Italian partner Enel in the 60-40% owned joint-venture OOO SeverEnergia completed the divestment of a 51% stake in the venture to Gazprom |
In addition, in 2009 Eni closed the following transactions:
• | In February 2009, Eni signed the project for the feasibility study addressing the utilization of associated gas | |
• | On | |
• | On May 15, 2009 Eni and Gazprom have agreed upon a new scope of | |
• | In June 2009, Eni finalized the acquisition from Quicksilver Resources Inc of a 27.5% interest in the Alliance area, in Northern Texas, covering approximately 53 square kilometers, with gas shale reserves. Quicksilver will retain the 72.5% of the interests and operatorship of the properties. The cash consideration |
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• | ||
• | In November 2009, Eni was awarded a 37.8% stake in the Indonesian Sanga Sanga license for | |
• | In November 2009, Eni and the Kazakh National Oil Company KazMunayGas signed a co-operation agreement for initiatives in the fields of developing, explorating and producing hydrocarbon resources and industrial facilities in the Country. Under the agreement, Eni and KazMunayGas will jointly execute exploration studies, studies for the optimization of gas usage in Kazakhstan and the evaluation of a number of industrial initiatives including the upgrading of the Pavlodar refinery, in which KMG holds a majority interest. | |
• | In December 2009, Eni signed a memorandum of understanding with Turkmenistan aimed at promoting and reinforcing the partnership in the development of the oil industry of the Country. Eni will co-operate with the State companies and Agency for Hydrocarbons to carry out studies to ascertain the oil and gas potential of the country. Eni will contribute its expertise in technology and the sustainability field. | |
• | In January 2010, Eni signed an agreement for the acquisition of a number of marketing activities of refined products in Austria, including a retail network of 135 service stations, wholesale activities as well as commercial assets in aviation business and complementary logistic and storage activities. The |
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In 2009, capital expenditures amounted to euro 13,695 million, of which 86% related to the Exploration & Production, Gas & Power and Refining & Marketing businesses, and primarily related to: (i) the development of oil and gas reserves (euro 7,478 million) deployed mainly in Kazakhstan, the United States, Egypt, Congo, Italy and Angola, and exploration projects (euro 1,228 million) carried out mainly in the United States, Libya, Egypt, Norway and Angola; (ii) the acquisition of proved and unproved properties amounting to euro 697 million mainly related to the acquisition of a 27.5% interest in assets with gas shale reserves from Quicksilver Resources Inc and extension of the duration of oil and gas properties in Egypt following the agreement signed in May 2009; (iii) the development and upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 919 million and euro 278 million, respectively) as well as the development and increase of the storage capacity (euro 282 million); (iv) projects aimed at improving the conversion capacity and flexibility of refineries, and at building and upgrading service stations in Italy and outside Italy (totaling euro 608 million); and (v) the upgrading of the fleet used in the Engineering & Construction segment (euro 1,630 million).
In 2009, Eni’s acquisitions amounted to euro 2.32 billion and mainly related to the completion of the acquisition of Distrigas NV. Following the acquisition of the 57.243% majority stake in the Belgian company Distrigas NV from French company Suez-Gaz de France, Eni made an unconditional mandatory public takeover bid on the minorities of Distrigas (42.76% stake). On March 19, 2009, the mandatory tender offer on the minorities of Distrigas was finalized. Shareholders representing 41.61% of the share capital of Distrigas, including the second largest shareholder, Publigaz SCRL with a 31.25% interest, tendered their shares. The squeeze-out of the residual 1.14% of the share capital was finalized on May 4, 2009. After this, Distrigas shares have been delisted from Euronext Brussels. The total cash consideration amounted to approximately euro 2.05 billion.
In 2008, capital expenditures amounted to euro 14,562 million, of which 84% related to the Exploration & Production, Gas & Power and Refining & Marketing segmentsdivisions and mainly related to:concerned mainly: (i) the development of oil and gas reserves (euro 6,429 million) deployed mainly in Kazakhstan, Egypt, Angola, Congo and Italy and exploration projects (euro 1,918 million), primarily in the United States, Egypt, Nigeria, Angola and Libya; (ii) the purchase of proved and unproved property for euro 836 million related mainly to the extension of mineral rights in Libya following an agreement signed in October 2007 with the state company NOC and the purchase of a 34.81% interest in the ABO project in Nigeria; (iii) the development and upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 1,130 million and euro 233 million, respectively) and upgrading of natural gas import pipelines to Italy (euro 233 million); (iv) the ongoing construction of combined cycle power plants (euro 107 million); (v) projects designed to upgrade the conversion capacity and flexibility of Eni’s refineries, including construction of a new hydrocracking unit at the Sannazzaro refinery, and to build of new service stations and upgrade of existing ones in Italy and outside Italy (totaling euro 965 million); and (vi) the upgrading of the fleet used in the Engineering & Construction division (euro 2,027 million).
In 2008, Eni’s acquisitions amounted to euro 5.85 billion (euro 4.3 billion net of acquired cash of euro 1.54 billion) and mainly related to: (i) the acquisition of the 57.243% majority stake in Distrigas NV; (ii) the completion of the acquisition of Burren Energy Plc; (iii) the purchases of certain upstream properties and gas storage assets, related to the entire share capital of the Canadian company First Calgary operating in Algeria, a 52% stake in the Hewett Unit in the North Sea, a 20% stake in the Indian company Hindustan Oil Exploration Co; and (iv) other investments in non-consolidated entities mainly related to funding requirements for an LNG project in Angola.
In 2007, capital expenditures amounted to euro 10,593 million, of which 84.7% related to the Exploration & Production, Gas & Power and Refining & Marketing businesses, and primarily related to: (i) the development of oil and gas reserves (euro 4,788 million) deployed predominantly in Kazakhstan, Egypt, Angola, Italy and Congo, and exploration projects (euro 1,659 million) particularly in the Gulf of Mexico, Egypt, Norway, Nigeria and Brazil; (ii) development and upgrading of Eni’s natural gas transport and distribution networks in Italy (euro 886 million) as well as upgrading of natural gas import pipelines to Italy (euro 253 million); (iii) the ongoing construction of combined cycle power plants (euro 175 million); (iv) projects designed to upgrade the conversion capacity and flexibility of Eni’s refineries, including construction of a new hydrocracking unit at the Sannazzaro refinery, and to build and upgrade service stations (totaling euro 979 million); and (v) the upgrading of the fleet used in the Engineering & Construction segment (euro 1,410 million).
In 2007, Eni’s acquisitions amounted to euro 9.7 billion and mainly related to: (i) a 60% interest in three Russian gas companies as part of the liquidation procedure of bankrupt Russian company Yukos. Through the same transaction Eni also purchased a 20% stake in the oil and gas company OAO Gazprom Neft. Gazprom was granted a call option to purchase a 51% interest in those three gas companies and the 20% stake in OAO Gazprom Neft; (ii) the purchase of upstream assets in the Gulf of Mexico; (iii) the purchase of upstream assets onshore Congo; (iv) the purchase of a 24.9% interest in Burren Energy; (v) the acquisition of a further 16.11% stake in the Ceska Rafinerska in the Czech Republic increasing Eni’s ownership interest to 32.4%; (vi) the purchase of 102 retail fuel stations and related marketing assets located in the Czech Republic, Slovakia and Hungary; and (vii) the purchase of a 13.6% stake in the Angola LNG consortium.
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BUSINESS OVERVIEW
Exploration & Production
Eni’s Exploration & Production segment engages in oil and natural gas exploration and field development and production, as well as LNG operations, in 3940 countries, including Italy, Libya, Egypt, Norway, the UK, Angola, Congo, the U.S., Kazakhstan, Russia, Algeria, PakistanAustralia, Venezuela and Australia.Iraq. In 2008,2009, Eni produced 1,7481,716 KBOE/d on an available for-sale basis. As of December 31, 2008,2009, Eni’s total proved reserves amounted to 6,571 mmBOE; proved reserves of subsidiaries stood at 6,2426,209 mmBOE; Eni’Eni’s share of reserves of equity-accounted entities amounted to 666362 mmBOE.
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Eni’s strategy in its Exploration & Production operations is to increasepursue profitable production growth leveraging on the Company’s portfolio of assets and pipeline of development of its asset portfolio. Eni plansprojects. We plan to achieve a production growth rate of 3.5%higher than 2.5% on average over the 2009-2012 period, under2010-2013 periods, targeting a production level in excess of 2 mmBOE/d based on our long-term Brent price assumptions of 65 $/BBL and certain other trading environment assumptions (See "Item 5 – Management’s Expectations of Operations"). A descriptionincluding an indication of Eni’s production volume sensitivity to oil prices iswhich are disclosed under "Item 5 – Management’s Expectations of Operations".
Future growth will be driven Management plans to achieve that target via organic developments, leveraging on the Company’s asset portfolio. We plan to achieve 75% of that production level by continuing production ramp-up at our existing fields and 25% by successfully starting to production 41 new fields that based on management estimates are forecast to add up to 560 KBOE/d to the developmentCompany’s production level by 2013. We have already sanctioned half of new projects locatedand expect to sanction a further 40% in a number of strategic oil2010. Management plans to maximize product contribution from existing fields, particularly those with long-life cycles, by applying its advanced recovery technologies, reservoir management capabilities and gas basins in the world, namely the Caspian Region, North and West Africa and the Gulf of Mexico. A high-quality portfolio geographically focused and resilient, with one of the lowest breakeven prices in the industry, high exposureimplementing actions to the most competitive giant projects and long-standing relationships with key host countries will enable any to deliver industry-leading growth even in current market conditions. Management will continue to evaluate opportunities to increase production through focused acquisitions. offset natural field depletion.
Eni intends to pay special attention to reserve replacement in order to guaranteeensure the medium-to long-term sustainability of itsthe business. Eni intends to optimize its portfolio of development properties by focusing on areas where its presence is established, seeking new opportunities and divesting non-strategic or marginal assets. Eni also intends to develop itscertain LNG businessproject in order to monetize its large base of gas reserves mainly in NorthWest Africa. We also plan to exercise tight cost control by achieving cost efficiencies associated with scale of operations and West Africa.leveraging on our well-established presence in areas such as Africa where we believe development and production costs are lower than in other areas and increasing exposure to operated-projects.
In exploration activities, Eni intends to concentrate resourcesexpenditures in well established areas of presence where availability of production facilities and existing competenciesknow-how and long-term relationships with host countriescompetencies will enable Enithe Company to readily put in production discovered reserves, reducing the time-to-market and capturing synergies.achieving cost efficiencies. Approximately 80%45% of planned capitalexploration expenditures will be directed to such core areas (located mainly in the United States, Libya, Angola, Nigeria, Norway, Egypt, Libya, Nigeria, Angola, Italy, NorwayCongo and Congo)Indonesia). Eni also plans to selectively pursue high risk/high reward opportunities arising from expansion in areas with high mineral potential.potential and to appraise the resource potential in recently entered areas like Gabon and Ghana. Eni expects to purchase new exploration permits and to divest or exit marginal or non strategic ones.areas.
In order to execute these strategies, Eni intendsManagement plans to invest approximately euro 32.637 billion on reserve developmentto explore for and field optimization as well as exploration projectsdevelop new reserves over the next four-year period;four years; approximately euro 1.80.5 billion of which will be spent to build transportation infrastructures and execute LNG projects through equity-accounted entities.
In 2009, oil and gas prices are expected to be significantly lower than 2008. In response Eni For the year 2010, management plans to improve profitability of its operations by implementing a number of initiatives designed to reduce costs to developspend euro 10.5 billion in reserves development and operate oil and gas fields by leveraging on the expected reduction in purchase costs of oilfield services, materials and equipment due to the economic downturn. Management has yet to commit a large amount of future development expenditures and plans to be able to benefit from ongoing downward trends in rates of oilfield services and purchase costs of goods and equipment. Additional cost control measures will address ongoing operations. The amount of planned capital expenditures for the years 2009-2012 already factors in the benefits associated with cost control. See "Item 3 – Risk Factors".exploration projects.
Disclosure of Reserves
Overview
The Company has adopted comprehensive classification criteria for the estimate of proved, proved developed and proved undeveloped oil and gas reserves in accordance with applicable U.S. Securities and Exchange Commission (SEC) regulations, as provided for in Regulation S-X, Rule 4-10. Proved oil and gas reserves are those quantities of liquids (including condensates and natural gas liquids) and natural gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.
Oil and Natural Gas natural gas prices used in the estimate of proved reserves are obtained from the official survey published by Platt’s Marketwire, except when their calculation derives from existing contractual conditions.
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Prices are calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. Prices include consideration of changes in existing prices provided only by contractual arrangements. In prior periods, year-end liquids and natural gas prices were used in the estimate of proved reserves in accordance with then applicable rules.
Engineering estimates of the Company’s oil and gas reserves are inherently uncertain. Although authoritative guidelines exist regarding engineering criteria that have to 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. Consequently, the estimated proved reserves of oil and natural gas may be subject to future revision and upward and downward revisions may be made to the initial booking of reserves due to analysis of new information. Proved reserves to which Eni is entitled under concession contracts are determined by applying Eni’s share of production to total proved reserves of the contractual area, in respect of the duration of the relevant mineral right. Proved reserves to which Eni is entitled under Production Sharing Agreements are calculated so that the sale of production entitlements should cover expenses incurred by the Group to develop a field (cost oil) and on the profit oil set contractually (profit oil). A similar scheme applies to buy-back and service contracts.
Reserves Governance
Eni has always exercised centralized rigorous control over the process of booking of proved reserves.
The ReserveReserves Department of the Exploration & Production segmentDivision is entrusted with the task of: (i) ensuring the periodic certification process of proved reserves; (ii) continuously updating the Company’s guidelines regardingon reserves evaluation. The department monitorsevaluation and classification and the periodic estimation process. Company guidelines follow Regulation S-X Rule 4-10internal procedures; and (iii) providing training of staff involved in the U.S. Securities and Exchange Commission (SEC) as well as on specific issues not regulated by the SEC rules, the established practice endorsed by qualified institutions on the marketplace. process of reserves estimation.
Company guidelines have been reviewed by DeGolyer and MacNaughton (D&M), an independent petroleum engineering company, which has certifiedaffirmed their compliance with applicablethe SEC rules.rules2; D&M has also stated that the Companycompany formal guidelines, regulate situations for which thewhenever SEC rules are less precise, providingdo not provide specific prescription, provide a reasonable interpretation in line with the generally accepted practices in international markets.the industry. When participating in exploration and production activities operated by otherothers entities, Eni also estimates its proved reserves on the basis of the above guidelines.
The process for evaluating reserves, as described in the internal procedure, involves: (i) business unit managersmanager (geographic units) and Local ReserveReserves Evaluators (LRE), who perform the evaluation and classification of reserves including estimates of production profiles, capital expenditures, operating costs and costs related to asset retirement obligations; (ii) geographic area managers at head offices checking evaluationsevaluation carried out by business unit managers; (iii) the Planning and (iii)Control Department which provides the economic evaluation of reserves; and (iv) the Reserve Department which, through Division Reserves Evaluators (DRE), provides independent reviews of the fairness and correctness of classifications carried out by businessthe above mentioned units and aggregates worldwide reserve data and performs an economic assessmentdata.
The head of reserves to calculate equity volumes. Moreover, the Reserve Department attended the "Politecnico di Torino" and received a Master of Science degree in Mining Engineering in 1985. She has more than 20 years of experience in the responsibility to ensureoil and gas industry and more than 10 years of experience specifically in evaluating reserves.
Staff involved in the periodic certification process of reserves and to update continuously the Company guidelines on reserves evaluation process fulfill the professional qualifications requested and classification.maintain the highest level of independence, objectivity and confidentiality in accordance with professional roles of conduct. Eni’s Reserves Evaluators qualifications comply with international standards established by the Society of Petroleum Engineers.
Reserves independent evaluation
Since 1991, Eni has requested qualified independent oil engineering companies to carry out an independent evaluationaudit23 of its proved reserves on a rotationalrolling basis. Eni believes those independent evaluators to be experienced
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and qualifiedThe description of qualifications of the person primarily responsible for the reserve audit is included in the marketplace.third party audit report4. In the preparation of their reports, those independent evaluators relied,rely, without independent verification, upon information furnished by Eni with respect to property interest,interests, production, current costcosts of operationoperations and development, sale agreements, relating to future operations and sale, prices and other factual information and data that were accepted as represented by the independent evaluators. This information wasdata, equally used by
(2) | See "Item 19 – Exhibits". | |
(3) | From 1991 to 2002, DeGolyer and MacNaughton; from 2003, also Ryder Scott Co. | |
(4) | See "Item 19 – Exhibits". |
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Eni in determining its proved reserves and included log,internal process, include logs, directional surveys, core and PVT (Pressure Volume Temperature) analysis, maps, oil/gas/water production/injection data of wells, reservoir and field, reservoir studies;studies, technical analysis relevant to field performance, reservoir performance, long-term development plans, future capital and operating costs.
In order to calculate the economic value of Eni equity reserves, net present value (NPV), actual prices received fromapplicable to hydrocarbon sales, instructions on future prices,price adjustments required by applicable contractual arrangements and other pertinent information are provided. Accordingly, Eni believes that the work performed by theIn 2009, Ryder Scott Co and DeGolyer and MacNaughton provided an independent evaluators is to be considered an evaluation of Eni’s proved reserves carried out in parallel with the internal evaluation. The circumstance that the independent evaluations achieved the same results as those of the Company for the vast majority of fields support management’s confidence that the company’s booked reserves meet the regulatory definition of proved reserves which are reasonably certain to be produced in the future. When the assessment of independent engineers is lower than internal evaluations, Eni revises its estimates based on information provided by independent evaluators. In any case, those differences were not significant.
In 2008, a total of 1.5 BBOE of proved reserves of subsidiaries have been evaluated, representing approximately 25%almost 28% of Eni’s total proved reserves as of subsidiaries at December 31, 2008. 20095, confirming, as in previous years, the reasonableness of Eni’s internal evaluations6.
In the 2006-20082007-2009 three-year period, 76%86% of Eni’sEni total proved reserves of subsidiaries were subject to independent evaluations.evaluation. As atof December 31, 20082009 among the most important of Eni’sEni properties, the only property which werewas not subject to an independent evaluation were: Bourireview was Barbara (Italy).
Summary of proved oil and
Bu Attifel (Libya), Barbara (Italy), M’Boundi (Congo)gas reserves
The tables below provide a summary of proved oil and Elgin-Franklin (United Kingdom)gas reserves of the Group companies and its equity-accounted entities by geographic area for the three years ended December 31, 2009, 2008 and 2007. Reserves data for 2009 is based on the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. Data for 2008 and 2007 are based on the last day price of the Company’s fiscal year in accordance with then applicable rules.
HYDROCARBONS
(mmBOE) | Italy | Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total consolidated subsidiaries | Equity-accounted entities | Total | |||||||||||
Year ended Dec. 31, 2007 | 747 | 638 | 1,879 | 1,095 | 1,061 | 198 | 259 | 133 | 6,010 | 668 | 6,678 | |||||||||||
Developed | 534 | 537 | 1,183 | 766 | 494 | 127 | 158 | 63 | 3,862 | 101 | 3,963 | |||||||||||
Undeveloped | 213 | 101 | 696 | 329 | 567 | 71 | 101 | 70 | 2,148 | 567 | 2,715 | |||||||||||
Year ended Dec. 31, 2008 | 681 | 525 | 1,922 | 1,146 | 1,336 | 265 | 235 | 132 | 6,242 | 666 | 6,908 | |||||||||||
Developed | 465 | 417 | 1,229 | 827 | 647 | 168 | 133 | 62 | 3,948 | 107 | 4,055 | |||||||||||
Undeveloped | 216 | 108 | 693 | 319 | 689 | 97 | 102 | 70 | 2,294 | 559 | 2,853 | |||||||||||
Year ended Dec. 31, 2009 | 703 | 590 | 1,922 | 1,141 | 1,221 | 236 | 263 | 133 | 6,209 | 362 | 6,571 | |||||||||||
Developed | 490 | 432 | 1,266 | 799 | 614 | 139 | 168 | 122 | 4,030 | 74 | 4,104 | |||||||||||
Undeveloped | 213 | 158 | 656 | 342 | 607 | 97 | 95 | 11 | 2,179 | 288 | 2,467 | |||||||||||
LIQUIDS
(mmBBL) | Italy | Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total consolidated subsidiaries | Equity-accounted entities | Total | |||||||||||
Year ended Dec. 31, 2007 | 215 | 345 | 878 | 725 | 753 | 44 | 138 | 29 | 3,127 | 142 | 3,269 | |||||||||||
Developed | 133 | 299 | 649 | 511 | 219 | 35 | 81 | 26 | 1,953 | 26 | 1,979 | |||||||||||
Undeveloped | 82 | 46 | 229 | 214 | 534 | 9 | 57 | 3 | 1,174 | 116 | 1,290 | |||||||||||
Year ended Dec. 31, 2008 | 186 | 277 | 823 | 783 | 911 | 106 | 131 | 26 | 3,243 | 142 | 3,385 | |||||||||||
Developed | 111 | 222 | 613 | 576 | 298 | 92 | 74 | 23 | 2,009 | 33 | 2,042 | |||||||||||
Undeveloped | 75 | 55 | 210 | 207 | 613 | 14 | 57 | 3 | 1,234 | 109 | 1,343 | |||||||||||
Year ended Dec. 31, 2009 | 233 | 351 | 895 | 770 | 849 | 94 | 153 | 32 | 3,377 | 86 | 3,463 | |||||||||||
Developed | 141 | 218 | 659 | 544 | 291 | 45 | 80 | 23 | 2,001 | 34 | 2,035 | |||||||||||
Undeveloped | 92 | 133 | 236 | 226 | 558 | 49 | 73 | 9 | 1,376 | 52 | 1,428 | |||||||||||
(5) | Includes Eni’s share of proved reserves of equity-accounted entities. |
(6) | From 1991 to 2002, DeGolyer and MacNaughton; from 2003, also Ryder Scott. |
27
NATURAL GAS
(BCF) | Italy | Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total consolidated subsidiaries | Equity-accounted entities | Total | |||||||||||
Year ended Dec. 31, 2007 | 3,057 | 1,675 | 5,751 | 2,122 | 1,770 | 880 | 696 | 598 | 16,549 | 3,022 | 19,571 | |||||||||||
Developed | 2,304 | 1,364 | 3,065 | 1,469 | 1,580 | 530 | 442 | 213 | 10,967 | 428 | 11,395 | |||||||||||
Undeveloped | 753 | 311 | 2,686 | 653 | 190 | 350 | 254 | 385 | 5,582 | 2,594 | 8,176 | |||||||||||
Year ended Dec. 31, 2008 | 2,844 | 1,421 | 6,311 | 2,084 | 2,437 | 911 | 600 | 606 | 17,214 | 3,015 | 20,229 | |||||||||||
Developed | 2,031 | 1,122 | 3,537 | 1,443 | 2,005 | 439 | 340 | 221 | 11,138 | 420 | 11,558 | |||||||||||
Undeveloped | 813 | 299 | 2,774 | 641 | 432 | 472 | 260 | 385 | 6,076 | 2,595 | 8,671 | |||||||||||
Year ended Dec. 31, 2009 | 2,704 | 1,380 | 5,894 | 2,127 | 2,139 | 814 | 629 | 575 | 16,262 | 1,588 | 17,850 | |||||||||||
Developed | 2,001 | 1,231 | 3,486 | 1,463 | 1,859 | 539 | 506 | 565 | 11,650 | 234 | 11,884 | |||||||||||
Undeveloped | 703 | 149 | 2,408 | 664 | 280 | 275 | 123 | 10 | 4,612 | 1,354 | 5,966 | |||||||||||
Volumes of oil and natural gas applicable to long-term supply agreements with foreign governments in mineral assets where Eni is operator totaled 674 mmBOE as of December 31, 2009 (679 and 676 mmBOE as of December 31, 2008 and 2007, respectively). Said volumes are not included in reserves volumes shown in the table herein.
Activity of the year
Subsidiaries | Equity-accounted entities | ||
2007 | 2008 | 2009 | 2007 | 2008 | 2009 | ||||||
(mmBOE) |
Additions to proved reserves | 237 | 882 | 605 | 639 | 6 | (296 | ) | |||||||||||
of which purchases and sales | ||||||||||||||||||
of reserves-in-place | 156 | 32 | 25 | 617 | (314 | ) | ||||||||||||
Production for the year | (627 | ) | (650 | ) | (638 | ) | (7 | ) | (8 | ) | (8 | ) | ||||||
Subsidiaries | |
2007 | 2008 | 2009 | |||
(%) |
Proved reserves replacement ratio of subsidiaries | 38 | 136 | 95 | |||
Eni’s proved reserves of subsidiaries atas of December 31, 20082009 totaled 6,2426,209 mmBOE (oil and condensates 3,2433,377 mmBBL; natural gas 17,21416,262 BCF) representing an increasea decrease of 23233 mmBOE, or 3.9%5.3%, from December 31, 2007.2008. Additions to proved reserves booked by Eni’s subsidiaries in 20082009 were 850605 mmBOE derivingand derived from: (i) revisions of previous estimates (261 mmBOE) mainly reported in Egypt, Italy, Congo, the United Kingdom and the United States which were partly offset by the unfavorable effect of 746 mmBOE, partly related to higher oil prices on reserve entitlements reported in certain PSAs (up 340and buy-back contracts (down 100 mmBOE) resulting from lower year endhigher oil prices from a year ago (Brent(the Brent price used in the reserve estimation process was $36.55 per barrel at December 31, 200859.9 $/BBL in 2009 compared to $96.02 per barrel at December 31, 2007), net of downward36.5 $/BBL in 2008). Higher oil prices also resulted in upward revisions associated with improved economics of marginal productions in certain mature fields such as Angola, Kazakhstan and Libya;productions; (ii) extensions and discoveries (71(282 mmBOE), with majormain increases bookedreported in Angola, Egypt, Nigeria, Norway, Algeria, Iraq and United States; andLibya; (iii) improved recovery (33(37 mmBOE) mainly reported in Angola, Norway and Libya; and (iv) purchases and sales of mineral in place (25 mmBOE).
The largest additions were related to following fields/projects: Goliat in Norway, CAFC and MLE in Algeria, Angola,Belayim in Egypt due to the new extension terms that were agreed upon with relevant Egyptian authorities, M’Boundi in Congo and Libya. Acquisitions amountedBahr Essalam in Libya as a result of continuing development activities and revisions as well as Zubair in Iraq due to 91 mmBOE reflecting the contributionsigning of the acquired Burren assets in Congo, Turkmenistan and India. Sales of reserves (59 mmBOE)technical service contract.
Acquisitions for 26 mmBOE related mainly to the divestment of a 1.71%27.5% stake purchased from Quicksilver Resources Inc in the Kashagan project following the finalization of the agreements implementing the new contractual and governance framework of the project effective January 1, 2008 (information on the Kashagan agreements is provided below under the section "Caspian Area" on page 39). Due to risks inherentAlliance area, 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 gas" and – "Uncertainties in estimates of oil and natural gas reserves".Texas.
28
As of December 31, 20082009 Eni’s share of proved reserves of equity-accounted entities amounted to 666 mmBOE. The362 mmBOE, a decrease of 304 mmBOE compared to December 31, 2008, year end amounts comprise 60% of proved reserves ofmainly due to the three Russian gas companies purchased in 2007 as partdivestment of a bid procedure for assets of bankrupt Russian company Yukos. Terms of the call option granted to Gazprom to purchase a 51% intereststake in the share capital ofjoint venture OOO SeverEnergia (Eni’s interest beingwas 60%), which owns 100%currently 29.4%) after the call option exercised by Gazprom.
The new SEC rules allow the use of these three Russian companies engaging inreliable technology (i.e. seismic, wireline formation test, logs and core) to justify the developmentreserves estimate if it produces consistent and repeatable results. We did not have any material additions of gasproved reserves are currently under review by Eni, Eneldue to application of new reliable technologies.
Proved developed reserves of subsidiaries as of December 31, 2009 amounted to 4,030 mmBOE (2,001 mmBBL of liquids and Gazprom.11,650 BCF of natural gas) representing 65% of total estimated proved reserves (63% and 64% as of December 31, 2008 and 2007, respectively).
The reserve replacement ratio for Eni’s subsidiaries was 136%95% in 2008 (38%2009 (136% in 20072008 and 38% in 2006)2007). The average reserve life index for Eni’s subsidiaries was 9.6 years at December 31, 2008. The reserve replacement ratio was calculated by dividing additions to proved reserves by total production, each as derived from the tables of changes in proved reserves prepared in accordance with SFAS No. 69FASB Extractive Activities - Oil & Gas (Topic 932) (see the supplemental oil and gas information in the Consolidated Financial Statements). The reserve replacement ratio is a measure used by management to assess the extent to which produced reserves in the year are replaced by reserve additions booked according with SEC criteria under Rule 4-10 of Regulation S-X.booked. Management considers the reserve replacement ratio to be an important gauge of the abilityindicator of the Company to sustain its growth prospects. However, this ratio measures past performances and is not an indicator of future production because the ultimate development and productionrecovery of reserves is subject to a number of risks and uncertainties. These include the risks associated with the successful completion of large-scale projects, including addressing ongoing regulatory issues and completion of infrastructure, as well as changes in oil and gas prices, political risks and geological and other environmental risks. Specifically, in recent years Eni’s reserves replacement produced reservesratio has been affected by the impact of higher year-end oil prices on reserves entitlements in the Company’s Production Sharing Agreements (PSAs) and similar contractual schemes. In accordance with such contracts, Eni is entitled to a portion of field reserves, the sale of which should cover expenditures incurred by the Company to develop and operate the field. The higher the reference prices for Brent crude oil used to determine year-end amounts of Eni’s proved reserves, the lower the number of barrels necessary to cover the same amount of expenditures. In 20082009 this negative trend reversed resultingresulted in a higherlower amount of booked reserves associated with the Company’s PSAs as the oil price recorded at 2008 year-end was loweraveraged higher than the previous year.
23
The table below show Eni’s calculations See "Item 3 – Risks associated with exploration and production of its reserve replacement ratios for the years ended December 31, 2006, 2007oil and 2008.
|
| ||
2006 | 2007 | 2008 | 2006 | 2007 | 2008 | ||||||
Additions to proved reserves | 244 | 237 | 882 | 1 | 639 | 6 | ||||||||||||
of which purchases and sales of reserves-in-place | (172 | ) | 156 | 32 | 617 | |||||||||||||
Production for the year | (640 | ) | (627 | ) | (650 | ) | (6 | ) | (7 | ) | (8 | ) |
| |
2006 | 2007 | 2008 | |||
Proved developed reserves of subsidiaries at December 31, 2008 amounted to 3,948 mmBOE (2,009 mmBBL of liquidsnatural gas" and 11,138 BCF of natural gas) representing 63% of total estimated proved reserves (64% and 63% at December 31, 2007 and 2006, respectively).
Volumes– "Uncertainties in estimates of oil and natural gas applicable to long-term supply agreements with foreign governments in mineral assets where Eni is operator totaled 679 mmBOEreserves".
The average reserve life index of Eni’s proved reserves was 10.2 years as of December 31, 2008 (6762009 which included reserves of both subsidiaries and 583 mmBOEequity-accounted entities.
Proved undeveloped reserves
Proved undeveloped reserves as of December 31, 20072009 totaled 2,467 mmBOE. At year-end, liquids proved undeveloped reserves amounted to 1,428 mmBBL, mainly concentrated in Africa and 2006, respectively). Said volumes are not includedKazakhstan. Natural gas proved undeveloped reserves accounted for 5,966 BCF, mainly located in Africa and Russia.
In 2009, total proved undeveloped reserves volumes showndecreased by 386 mmBOE. The main reasons for the variation are: (i) reclassification to proved developed reserves; (ii) divestment of a 51% stake in the table herein.joint-venture OOO SeverEnergia (Eni’s interest being 60%) after the call option exercised by Gazprom; and (iii) addition from new projects and revisions.
The tables below set forth a geographical breakdownDuring 2009, Eni converted approximately 370 mmBOE of Eni’s proved undeveloped reserves andto 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
|
2006 | 2007 | 2008 | ||||
Italy | 805 | 747 | 681 | |||
North Africa | 2,018 | 1,879 | 1,922 | |||
West Africa | 1,122 | 1,095 | 1,146 | |||
North Sea | 682 | 617 | 510 | |||
Caspian Area | 1,219 | 1,061 | 1363 | |||
Rest of the World | 554 | 611 | 620 | |||
Total consolidated subsidiaries | 6,400 | 6,010 | 6,242 | |||
Equity-accounted entities | 36 | 668 | 666 |
Eni’s proved reserves of liquids by geographic area
|
2006 | 2007 | 2008 | ||||
Italy | 215 | 215 | 186 | |||
North Africa | 982 | 878 | 823 | |||
West Africa | 786 | 725 | 783 | |||
North Sea | 386 | 345 | 276 | |||
Caspian Area | 893 | 753 | 939 | |||
Rest of the World | 195 | 211 | 236 | |||
Total consolidated subsidiaries | 3,457 | 3,127 | 3,243 | |||
Equity-accounted entities | 24 | 142 | 142 |
24
Eni’s proved reserves of natural gas by geographic area
|
2006 | 2007 | 2008 | ||||
Italy | 3,391 | 3,057 | 2,844 | |||
North Africa | 5,946 | 5,751 | 6,311 | |||
West Africa | 1,927 | 2,122 | 2,084 | |||
North Sea | 1,697 | 1,558 | 1,336 | |||
Caspian Area | 1,874 | 1,770 | 2,437 | |||
Rest of the World | 2,062 | 2,291 | 2,202 | |||
Total consolidated subsidiaries | 16,897 | 16,549 | 17,214 | |||
Equity-accounted entities | 68 | 3,022 | 3,015 |
Eni’sreserves. The main reclassification to proved developed were related to development activities and the start-up of the following fields: Blacktip (Australia), PY1 (India), Lennox (UK), Karachaganak (Kazakhstan), Longhorn (USA), Val d’Agri (Italia), and Poinsettia (Trinidad & Tobago).
Main additions of proved undeveloped reserves were recorded in Rest of hydrocarbons by geographic areaEurope, North Africa and Rest of Asia.
|
2006 | 2007 | 2008 | ||||
Italy | 562 | 534 | 465 | |||
North Africa | 1,242 | 1,183 | 1,229 | |||
West Africa | 798 | 766 | 827 | |||
North Sea | 571 | 524 | 407 | |||
Caspian Area | 525 | 494 | 670 | |||
Rest of the World | 334 | 361 | 350 | |||
Total consolidated subsidiaries | 4,032 | 3,862 | 3,948 | |||
Equity-accounted entities | 27 | 101 | 107 |
Eni’sIn 2009, capital expenditure amounted to approximately euro 2.2 billion and were made to progress the development of proved developedundeveloped reserves.
Reserves that remain proved undeveloped for five or more years are a result of several physical factors that affect the timing of the projects development and execution, such as the complex nature of the development project in adverse and remote locations, physical limitations of infrastructure or plant capacities and contractual limitations that establish production levels.
29
The Company estimates that approximately 0.8 BBOE of proved undeveloped reserves of liquids by geographic area
|
2006 | 2007 | 2008 | ||||
Italy | 136 | 133 | 111 | |||
North Africa | 713 | 649 | 613 | |||
West Africa | 546 | 511 | 576 | |||
North Sea | 329 | 299 | 222 | |||
Caspian Area | 262 | 219 | 321 | |||
Rest of the World | 140 | 142 | 166 | |||
Total consolidated subsidiaries | 2,126 | 1,953 | 2,009 | |||
Equity-accounted entities | 18 | 26 | 33 |
Eni’s proved developed reserves of natural gas by geographic area
|
2006 | 2007 | 2008 | ||||
Italy | 2,449 | 2,304 | 2,031 | |||
North Africa | 3,042 | 3,065 | 3,537 | |||
West Africa | 1,447 | 1,469 | 1,443 | |||
North Sea | 1,395 | 1,293 | 1,065 | |||
Caspian Area | 1,511 | 1,580 | 2,006 | |||
Rest of the World | 1,105 | 1,256 | 1,056 | |||
Total consolidated subsidiaries | 10,949 | 10,967 | 11,138 | |||
Equity-accounted entities | 48 | 428 | 420 |
25
Mineral Right Portfolio and ExplorationActivityhave remained undeveloped forthe year
As of December 31, 2008, Eni’s mineral right portfolio consisted of 1,244 exclusivefive years or shared rights for exploration and development in 39 countries on five continents, for a total net acreage of 415,494 square kilometers (394,490 at December 31, 2007). Of these 39,244 square kilometers concerned production and development (37,642 at December 31, 2007). Outside Italy net acreage (395,085 square kilometers) increased by 21,258 square kilometers mainly duemore with respect to the acquisition of Burren Energy Plc for a total net explorationbalance sheet date, mainly related to the Kashagan project (Kazakhstan), where development activities are progressing and development acreage of 9,569 square kilometers (mainly in Turkmenistan, Yemen, Congo and Egypt) and an increase of net exploration acreage in Mali. These increases were partly offsetproduction start-up is expected by the contractual revision in Libya. In addition, new exploration leases were awarded in Angola, Algeria, Alaska, the Gulfend of Mexico, Gabon, Indonesia, Norway and the United Kingdom for a total acreage of 57,361 square kilometers (net to Eni, 99% operated).
In Italy, net acreage (20,409 square kilometers) declined by 255 square kilometers due to releases.
A total of 111 new exploratory wells were drilled in 2008 (58.4 of which represented Eni’s share), as compared to 81 exploratory wells completed in 2007 (43.5 of which represented Eni’s share). In addition, 21 exploratory wells were in progress at year end. The overall commercial success rate was 36.5% (43.4% net to Eni) as compared to 40% (38% net to Eni) in 2007. In 2006, 68 exploratory wells were completed (35.9 of which represented Eni’s share), with an overall success rate of 43% (the success rate of Eni’s share of exploratory wells was 49%).2012.
Delivery commitments
Eni sells crude oil and natural gas from its producing operations under a variety of contractual obligations. Some of these contracts, mostly relating to natural gas, specify the delivery of fixed and determinable quantities.
Eni is contractually committed under existing contracts or agreements to deliver over the next three years natural gas to third parties for a total of approximately 1,908 BCF from producing properties located in Australia, Egypt, India, Indonesia, Libya, Nigeria, Norway, Pakistan, Tunisia and the United Kingdom.
The sales contracts contain a mix of fixed and variable pricing formulas that are generally referenced to the market price for crude oil, natural gas or other petroleum products.
Management believes it can satisfy these contracts from quantities available from production of the company’s proved developed reserves and supplies from third parties based on existing contracts. Production will account for approximately 70% of delivery commitments.
Eni has met all contractual delivery commitments as of December 31, 2009.
Oil and gas production, production prices and production costs
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 2008,2009, oil and natural gas production available for sale averaged 1,7481,716 KBOE/d (liquids 1,0261,007 KBBL/d; natural gas 4,1434,074 mmCF/d), an increaserepresenting a decline of 6432 KBOE/d from 2008, or 3.8%, compared to 2007. This improvement mainly came from the assets acquired1.8%. Excluding OPEC cuts (down 28 KBOE/d) production was barely unchanged. Lower production uplifts associated with weak European gas demand, unplanned facility downtime, continuing security issues in Nigeria and mature field declines negatively affected full-year performance. Production increases were driven by continuing production ramp-ups/start-ups in Angola, Congo, Egypt, Kazakhstan, Venezuela and the Gulf of Mexico Congo and Turkmenistan (up 62 KBOE/d), as well as continuing production ramp-up in Angola, Congo, Egypt, Pakistan and Venezuela. This increase was partially offset by mature field declines as well as planned and unplanned facility downtimethe positive price impact reported in the North Sea and hurricane-related impacts in the Gulf of Mexico (down 11 KBOE/d). Higher oil prices on a yearly average resulted in lower volume entitlements in Eni’sCompany’s PSAs and similar contractual schemes down approximately 37 KBOE/d. When excluding the impact of lower entitlements in PSAs, production was up 5.6%(up 35 KBBL/d). The share of oil and natural gas produced outside Italy was 89% (88% in90% (89% for the full year 2007)ended December 31, 2008).
Production of liquidsLiquids production amounted to 1,0261,007 KBBL/d for the year ended December 31, 2009 which was down 1.9% from 2008 due to OPEC cuts. Excluding OPEC cuts, the unplanned facility downtime in Libya and was up 0.6% from a year ago. The most significantmature field declines, mainly in Italy and the North Sea were offset by production increases were registeredachieved in: (i) the Gulf of Mexico, Congo and Turkmenistan due to the contribution of acquired assets; (ii) Angola due to the start-up of the Mondo and Saxi/Batuque fields in the development area of former Block 15Tombua-Landana project (Eni’s interest 20%) and improved performance in Block 0 (Eni’s interest 9.8%); (ii) Congo due to the ramp-up of the Awa Paloukou project (Eni’s interest 90%); (iii) Kazakhstan due to a better performance; (iv) the Gulf of Mexico due to the start-up of the Thunderhawk (Eni’s interest 25%), Pegasus (Eni’s interest 58%) and (iii)Longhorn (Eni’s interest 75%) projects; and (v) Venezuela due to the start-upramp-up of the Corocoro field (Eni’s interest 26%).
Natural gas production (4,074 mmCF/d for the year ended December 31, 2009) declined from 2008 (down 1.7%). Production decreases were reporteddecreased in the North Sea and ItalyLibya due to plannedlower gas demand on the European market and unplanned facility downtimethe mentioned technical reasons, and for mature field declines. In addition, lower volume entitlements associated with higher average yearly oil pricesdeclines, mainly in Italy. Main increases were reported in the Company’s PSAs.
Production of natural gas for the full year was 4,143 mmCF/d and increased by 324 mmCF/d, or 8.5%, from a year ago. The improvement was driven by growthregistered in the Gulf of Mexico, Congo due to the contribution of acquired assets,M’Boundi gas project (Eni’s interest 83%), and PakistanCroatia due to production ramp-upthe start-up of the ZamzamaAnnamaria field (Eni’s interest 17.25%50%) and start-up of the Badhra field (Eni operator with a 40% interest). Production decreased in Italy and the United Kingdom due to mature field declines.
Oil and gas production sold in 2008 amounted to 632 mmBOE.622.8 mmBOE for the year ended December 31, 2009. The 22.9 mmBOE difference over production (645.7 mmBOE for the year ended December 31, 2009) reflected volumes of natural gas consumed in operations (19.1 mmBOE). Approximately 53%60% of liquids production sold (370.2(365.2 mmBBL) was destined to Eni’s Refining & Marketing division;division (of which 17% was processed in Eni’s refinery); about 32%30% of natural gas production sold (1,503(1,479 BCF) was destined to Eni’s Gas & Power division.
2630
The tables below set forthprovide Eni’s production, by final product sold of liquids and natural gas on an available-for-sale basisby geographical area for each of the periods indicated.last three fiscal years.
LIQUIDS PRODUCTION(1)
(KBBL/d) |
| Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total |
2006 | 2007 | 2008 | ||||
Liquids production (1) (2) | ||||||
Italy | 79 | 75 | 68 | |||
North Africa | 329 | 337 | 338 | |||
West Africa | 322 | 280 | 289 | |||
North Sea | 178 | 157 | 140 | |||
Caspian Area | 64 | 70 | 81 | |||
Rest of the World | 107 | 101 | 110 | |||
Total | 1,079 | 1,020 | 1,026 |
2007 | 75 | 157 | 337 | 280 | 70 | 37 | 53 | 11 | 1,020 | |||||||||
2008 | 68 | 140 | 338 | 289 | 69 | 49 | 63 | 10 | 1,026 | |||||||||
2009 | 56 | 133 | 292 | 312 | 70 | 57 | 79 | 8 | 1,007 | |||||||||
(1) | Data includes Eni’s share of production of affiliates and joint |
NATURAL GAS PRODUCTION AVAILABLE FOR SALE(1) (2)
(mmCF/d) |
| Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total |
2006 | 2007 | 2008 | ||||
Natural gas production available for sale (1) (2) | ||||||
Italy | 883 | 763 | 725 | |||
North Africa | 1,187 | 1,357 | 1,661 | |||
West Africa | 232 | 220 | 204 | |||
North Sea | 557 | 557 | 521 | |||
Caspian Area | 214 | 222 | 227 | |||
Rest of the World | 606 | 700 | 805 | |||
Total | 3,679 | 3,819 | 4,143 |
2007 | 763 | 607 | 1,357 | 220 | 222 | 380 | 232 | 38 | 3,819 | |||||||||
2008 | 725 | 588 | 1,661 | 204 | 227 | 396 | 304 | 38 | 4,143 | |||||||||
2009 | 630 | 608 | 1,503 | 213 | 241 | 417 | 416 | 46 | 4,074 | |||||||||
(1) | Data includes Eni’s share of production of affiliates and joint | |
(2) | It excludes production volumes of natural gas consumed in operations. Said volumes were 300, 281 |
Volumes of oil and natural gas purchased under long-term supply contracts with foreign governments or similar entities in properties where Eni acts as producer totaled 97 KBOE/d, 93 KBOE/d and 75 KBOE/d in 2009, 2008 and 57 KBOE/d2007, respectively.
The tables below provide Eni’s average sales prices per unit of liquids and natural gas by geographical area for each of the last three fiscal years. Also Eni’s average production cost per unit of production is disclosed. The average production cost does not include any ad valorem or severance taxes.
AVERAGE SALES PRICES AND PRODUCTION COST PER UNIT
($) | Italy | Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total | |||||||||
2007 | ||||||||||||||||||
Oil and condensate, per BBL | 62.47 | 70.84 | 67.86 | 69.77 | 59.34 | 64.73 | 66.37 | 71.23 | 67.70 | |||||||||
Natural gas, per KCF | 8.58 | 6.71 | 4.60 | 1.21 | 0.41 | 4.34 | 6.69 | 5.94 | 5.42 | |||||||||
Average production cost, per BOE | 7.89 | 8.35 | 4.22 | 11.53 | 4.90 | 3.13 | 7.17 | 10.35 | 6.90 | |||||||||
2008 | ||||||||||||||||||
Oil and condensate, per BBL | 84.87 | 71.90 | 84.71 | 91.58 | 79.06 | 75.08 | 88.69 | 82.80 | 84.05 | |||||||||
Natural gas, per KCF | 13.06 | 10.55 | 7.14 | 1.50 | 0.53 | 5.50 | 8.81 | 9.59 | 8.01 | |||||||||
Average production cost, per BOE | 9.40 | 8.67 | 3.66 | 15.25 | 5.86 | 3.69 | 10.27 | 8.50 | 7.77 | |||||||||
2009 | ||||||||||||||||||
Oil and condensate, per BBL | 56.02 | 56.46 | 55.97 | 59.75 | 52.34 | 55.23 | 55.74 | 50.40 | 56.95 | |||||||||
Natural gas, per KCF | 9.01 | 7.06 | 5.78 | 1.66 | 0.45 | 4.30 | 4.05 | 8.14 | 5.62 | |||||||||
Average production cost, per BOE | 9.69 | 8.28 | 4.05 | 13.15 | 5.20 | 3.49 | 8.25 | 9.56 | 7.49 |
Drilling and other exploratory and development activities
In 2009, a total of 69 new exploratory wells7 were drilled (37.6 of which represented Eni’s share), as compared to 111 exploratory wells drilled in 2008 (58.4 of which represented Eni’s share) and 81 exploratory wells drilled in 2007 (43.5 of which represented Eni’s share).
Overall commercial success rate was 41.9% (43.6% net to Eni) as compared to 36.5% (43.4% net to Eni) and 2006,40% (38% net to Eni) in 2008 and 2007, respectively.
(7) | Including drilled exploratory wells that have been suspended pending further evaluation. |
31
In 2009, a total of 418 development wells were drilled (175.1 of which represented Eni’s share) as compared to 366 development wells drilled in 2008 (155.1 of which represented Eni’s share) and 349 development wells drilled in 2007 (156.7 of which represented Eni’s share).
The table below provides the number of net productive and dry exploratory and development oil and natural gas wells completed in the years indicated by the Group companies and its equity-accounted entities.
NET EXPLORATION AND DEVELOPMENT DRILLING ACTIVITY
(units) | Italy | Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total | |||||||||
2007 Exploratory | 4.0 | 1.4 | 15.3 | 1.7 | 0.2 | 0.2 | 9.6 | 0.6 | 33.0 | |||||||||
Productive | 0.5 | 7.7 | 0.5 | 0.2 | 3.6 | 12.5 | ||||||||||||
Dry (a) | 3.5 | 1.4 | 7.6 | 1.2 | 0.2 | 6.0 | 0.6 | 20.5 | ||||||||||
Development | 17.0 | 27.3 | 45.8 | 18.5 | 1.3 | 37.8 | 8.4 | 0.6 | 156.7 | |||||||||
Productive | 17.0 | 27.2 | 45.8 | 18.5 | 1.3 | 34.1 | 5.9 | 0.6 | 150.4 | |||||||||
Dry (a) | 0.1 | 3.7 | 2.5 | 6.3 | ||||||||||||||
2008 Exploratory | 0.7 | 3.7 | 22.9 | 7.4 | 16.2 | 3.4 | 1.4 | 55.7 | ||||||||||
Productive | 0.7 | 8.7 | 4.0 | 9.4 | 1.4 | 24.2 | ||||||||||||
Dry (a) | 0.7 | 3.0 | 14.2 | 3.4 | 6.8 | 2.0 | 1.4 | 31.5 | ||||||||||
Development | 12.9 | 5.5 | 47.6 | 37.2 | 2.6 | 43.0 | 6.3 | 155.1 | ||||||||||
Productive | 11.3 | 5.5 | 46.4 | 36.4 | 2.6 | 36.5 | 6.3 | 145.0 | ||||||||||
Dry (a) | 1.6 | 1.2 | 0.8 | 6.5 | 10.1 | |||||||||||||
2009 Exploratory | 1.0 | 4.3 | 8.6 | 2.7 | 6.2 | 4.8 | 2.2 | 29.8 | ||||||||||
Productive | 4.1 | 4.8 | 2.3 | 1.0 | 0.8 | 13.0 | ||||||||||||
Dry (a) | 1.0 | 0.2 | 3.8 | 2.7 | 3.9 | 3.8 | 1.4 | 16.8 | ||||||||||
Development | 18.3 | 12.5 | 41.1 | 37.7 | 3.8 | 42.9 | 16.6 | 2.2 | 175.1 | |||||||||
Productive | 18.3 | 12.5 | 40.7 | 35.8 | 3.8 | 38.6 | 15.6 | 2.2 | 167.5 | |||||||||
Dry (a) | 0.4 | 1.9 | 4.3 | 1.0 | 7.6 | |||||||||||||
(a) | A dry well is an exploratory, development, or extension well that proves to be incapable of producing either oil or gas sufficient quantities to justify completion as an oil or gas well. |
Present activities
The table below provides the number of exploratory and development oil and natural gas wells in the process of being drilled by the Group companies and its equity-accounted entities as of December 31, 2009. A gross well is a well in which Eni owns a working interest.
DRILLING ACTIVITY IN PROGRESS
(units) | Italy | Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total | |||||||||
As of December 31, 2009 Exploratory (a) | ||||||||||||||||||
Gross | 6.0 | 25.0 | 26.0 | 60.0 | 13.0 | 19.0 | 22.0 | 1.0 | 172.0 | |||||||||
Net | 4.4 | 6.6 | 18.6 | 15.4 | 2.3 | 8.8 | 8.4 | 1.0 | 65.5 | |||||||||
Development | ||||||||||||||||||
Gross | 6.0 | 8.0 | 16.0 | 23.0 | 2.0 | 13.0 | 47.0 | 1.0 | 116.0 | |||||||||
Net | 5.8 | 1.2 | 6.9 | 8.2 | 0.7 | 6.2 | 12.1 | 0.1 | 41.2 | |||||||||
(a) | Includes temporary suspended wells pending further evaluation. |
27Oil and gas properties, operations and acreage
As of December 31, 2009, Eni’s mineral right portfolio consisted of 1,246 exclusive or shared rights for exploration and development in 40 countries on five continents for a total acreage of 347,862 square kilometers of which 41,794 square kilometers was developed acreage and 306,068 square kilometers was undeveloped acreage.
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In 2009, total net acreage increased mainly due to: (i) the acquisition of a 27.5% interest in the Alliance area, in Northern Texas from Quicksilver Resources Inc and of a 37.8% interest in the Sanga Sanga license in Indonesia, both in the development of non-conventional gas resources; (ii) the awarding of the giant Zubair oil field (Eni’s interest 32.8%); and (iii) new leases in Angola, China, Ghana, the Gulf of Mexico, India, Norway and Yemen for a total acreage of approximately 40,000 square kilometers net to Eni.
Main decreases were in Mali due to the release of exploration licenses covering an undeveloped acreage of 100,000 square kilometers. Other exploration licenses were released in Congo, Egypt, Italy, Morocco, Norway, Russia, the United Kingdom and the United States mainly related to undeveloped areas.
The table below provides certain information about the Company’s oil and gas properties. It discloses the total gross and net developed and undeveloped oil and natural gas acreage in which the Group and its equity-accounted entities had interest as of December 31, 2009. A gross acreage is one in which Eni owns a working interest.
December 31, 2008 | December 31, 2009 | ||
Total net acreage (a) | Number | Gross developed (b) acreage (a) | Gross undeveloped acreage (a) | Total gross acreage (a) | Net developed (b) acreage (a) | Net undevelopedacreage (a) | Total net acreage (a) | |||||||||
EUROPE | 30,511 | 315 | 17,918 | 33,643 | 51,561 | 11,794 | 19,813 | 31,607 | ||||||||
Italy | 20,409 | 167 | 11,641 | 15,537 | 27,178 | 9,692 | 12,346 | 22,038 | ||||||||
Rest of Europe | 10,102 | 148 | 6,277 | 18,106 | 24,383 | 2,102 | 7,467 | 9,569 | ||||||||
Croatia | 988 | 2 | 1,975 | 1,975 | 987 | 987 | ||||||||||
Norway | 3,861 | 51 | 2,277 | 8,907 | 11,184 | 338 | 3,074 | 3,412 | ||||||||
United Kingdom | 1,450 | 89 | 2,025 | 3,140 | 5,165 | 777 | 692 | 1,469 | ||||||||
Other countries | 3,803 | 6 | 6,059 | 6,059 | 3,701 | 3,701 | ||||||||||
AFRICA | 249,672 | 276 | 70,121 | 230,549 | 300,670 | 19,865 | 138,884 | 158,749 | ||||||||
North Africa | 31,088 | 119 | 30,820 | 54,725 | 85,545 | 13,431 | 32,580 | 46,011 | ||||||||
Algeria | 909 | 38 | 2,152 | 17,458 | 19,610 | 727 | 16,517 | 17,244 | ||||||||
Egypt | 9,741 | 57 | 4,445 | 18,652 | 23,097 | 1,571 | 6,757 | 8,328 | ||||||||
Libya | 18,164 | 13 | 17,947 | 18,427 | 36,374 | 8,951 | 9,214 | 18,165 | ||||||||
Tunisia | 2,274 | 11 | 6,276 | 188 | 6,464 | 2,182 | 92 | 2,274 | ||||||||
West Africa | 156,557 | 151 | 39,301 | 98,600 | 137,901 | 6,434 | 54,090 | 60,524 | ||||||||
Angola | 3,323 | 67 | 4,532 | 16,317 | 20,849 | 590 | 2,803 | 3,393 | ||||||||
Congo | 8,244 | 25 | 1,865 | 13,724 | 15,589 | 991 | 7,197 | 8,188 | ||||||||
Gabon | 7,615 | 6 | 7,615 | 7,615 | 7,615 | 7,615 | ||||||||||
Ghana | 2 | 2,300 | 2,300 | 1,086 | 1,086 | |||||||||||
Mali | 128,801 | 1 | 47,500 | 47,500 | 31,668 | 31,668 | ||||||||||
Nigeria | 8,574 | 50 | 32,904 | 11,144 | 44,048 | 4,853 | 3,721 | 8,574 | ||||||||
Other countries | 62,027 | 6 | 77,224 | 77,224 | 52,214 | 52,214 | ||||||||||
ASIA | 93,710 | 80 | 18,924 | 204,274 | 223,198 | 6,369 | 119,272 | 125,641 | ||||||||
Kazakhstan | 880 | 6 | 324 | 4,609 | 4,933 | 105 | 775 | 880 | ||||||||
Rest of Asia | 92,830 | 74 | 18,600 | 199,665 | 218,265 | 6,264 | 118,497 | 124,761 | ||||||||
China | 192 | 7 | 237 | 18,461 | 18,698 | 39 | 18,283 | 18,322 | ||||||||
East Timor | 9,779 | 5 | 9,999 | 9,999 | 7,999 | 7,999 | ||||||||||
India | 9,091 | 14 | 303 | 27,861 | 28,164 | 143 | 9,946 | 10,089 | ||||||||
Indonesia | 17,316 | 12 | 1,735 | 25,940 | 27,675 | 656 | 15,863 | 16,519 | ||||||||
Iraq | 1 | 1,950 | 1,950 | 640 | 640 | |||||||||||
Iran | 820 | 4 | 1,456 | 1,456 | 820 | 820 | ||||||||||
Pakistan | 18,855 | 21 | 9,122 | 24,782 | 33,904 | 2,708 | 15,493 | 18,201 | ||||||||
Russia | 3,891 | 5 | 3,597 | 3,039 | 6,636 | 1,058 | 1,265 | 2,323 | ||||||||
Saudi Arabia | 25,844 | 1 | 51,687 | 51,687 | 25,844 | 25,844 | ||||||||||
Turkmenistan | 200 | 1 | 200 | 200 | 200 | 200 | ||||||||||
Yemen | 3,598 | 2 | 23,296 | 23,296 | 20,560 | 20,560 | ||||||||||
Other countries | 3,244 | 1 | 14,600 | 14,600 | 3,244 | 3,244 | ||||||||||
AMERICAS | 12,043 | 558 | 4,737 | 17,234 | 21,971 | 3,090 | 8,433 | 11,523 | ||||||||
Brazil | 1,389 | 2 | 1,389 | 1,389 | 1,067 | 1,067 | ||||||||||
Ecuador | 2,000 | 1 | 2,000 | 2,000 | 2,000 | 2,000 | ||||||||||
Trinidad & Tobago | 66 | 1 | 382 | 382 | 66 | 66 | ||||||||||
United States | 6,648 | 543 | 1,977 | 9,120 | 11,097 | 926 | 5,524 | 6,450 | ||||||||
Venezuela | 614 | 3 | 378 | 1,178 | 1,556 | 98 | 516 | 614 | ||||||||
Other countries | 1,326 | 8 | 5,547 | 5,547 | 1,326 | 1,326 | ||||||||||
AUSTRALIA AND OCEANIA | 29,558 | 17 | 1,057 | 48,216 | 49,273 | 676 | 19,666 | 20,342 | ||||||||
Australia | 29,520 | 16 | 1,057 | 47,452 | 48,509 | 676 | 19,628 | 20,304 | ||||||||
Other countries | 38 | 1 | 764 | 764 | 38 | 38 | ||||||||||
Total | 415,494 | 1,246 | 112,757 | 533,916 | 646,673 | 41,794 | 306,068 | 347,862 | ||||||||
(a) | Square kilometers. | |
(b) | Developed acreage refers to those leases in which at least a portion of the area is in production or encompasses proved developed reserves. |
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The table below sets forth certain informationprovides the number of gross and operating data regarding Eni’s principalnet productive oil and natural gas wells in which the Group companies and its equity-accounted entities had interests as of December 31, 2008.
Principal2009. A gross well is a well in which Eni owns a working interest. The number of gross wells is the total number of wells in which Eni owns a whole or fractional working interest. The number of net wells is the sum of the whole or fractional working interests in a gross well. One or more completions in the same bore hole are counted as one well. Productive wells are producing wells and wells capable of production. The total number of oil and natural gas interests at December 31, 2008productive wells is 7,181 (2,417.2 of which represent Eni’s share).
Commencement | Number of interests | Gross exploration and development acreage (1) | Net exploration and development acreage (1) | Type of fields | Number of producing fields | Number of other fields | ||||||||
Italy | 1926 | 159 | 25,522 | 20,409 | Onshore/Offshore | 87 | 99 | |||||||
Outside Italy | 1,085 | 732,976 | 395,085 | Onshore/Offshore | 419 | 219 | ||||||||
North Africa | ||||||||||||||
Algeria | 1981 | 34 | 2,921 | 909 | Onshore | 28 | 12 | |||||||
Egypt | 1954 | 59 | 26,335 | 9,741 | Onshore/Offshore | 34 | 34 | |||||||
Libya | 1959 | 13 | 36,375 | 18,164 | Onshore/Offshore | 12 | 17 | |||||||
Mali | 2006 | 5 | 193,200 | 128,801 | Onshore | |||||||||
Tunisia | 1961 | 11 | 6,464 | 2,274 | Onshore/Offshore | 21 | 4 | |||||||
122 | 265,295 | 159,889 | 95 | 67 | ||||||||||
West Africa | ||||||||||||||
Angola | 1980 | 55 | 20,492 | 3,323 | Onshore/Offshore | 45 | 27 | |||||||
Congo | 1968 | 26 | 15,655 | 8,244 | Onshore/Offshore | 20 | 8 | |||||||
Gabon | 2008 | 6 | 7,615 | 7,615 | Onshore/Offshore | |||||||||
Nigeria | 1962 | 50 | 44,049 | 8,574 | Onshore/Offshore | 95 | 38 | |||||||
137 | 87,811 | 27,756 | 160 | 73 | ||||||||||
North Sea | ||||||||||||||
Norway | 1965 | 50 | 11,771 | 3,861 | Offshore | 13 | 8 | |||||||
United Kingdom | 1964 | 91 | 5,207 | 1,450 | Offshore | 35 | 14 | |||||||
141 | 16,978 | 5,311 | 48 | 22 | ||||||||||
Caspian Area | ||||||||||||||
Kazakhstan | 1995 | 6 | 4,933 | 880 | Onshore/Offshore | 1 | 5 | |||||||
Turkmenistan | 2008 | 1 | 200 | 200 | Onshore | 2 | ||||||||
7 | 5,133 | 1,080 | 3 | 5 | ||||||||||
Rest of world | ||||||||||||||
Australia | 2001 | 18 | 60,486 | 29,520 | Offshore | 2 | 2 | |||||||
Brazil | 1999 | 2 | 1,389 | 1,389 | Offshore | |||||||||
China | 1983 | 3 | 899 | 192 | Offshore | 10 | 3 | |||||||
Croatia | 1996 | 2 | 1,975 | 988 | Offshore | 6 | 5 | |||||||
East Timor | 2006 | 5 | 12,224 | 9,779 | Offshore | |||||||||
Ecuador | 1988 | 1 | 2,000 | 2,000 | Onshore | 1 | 1 | |||||||
India | 2005 | 3 | 24,425 | 9,091 | Onshore/Offshore | 4 | 2 | |||||||
Indonesia | 2001 | 11 | 28,605 | 17,316 | Onshore/Offshore | 7 | 12 | |||||||
Iran | 1957 | 4 | 1,456 | 820 | Onshore/Offshore | 3 | ||||||||
Pakistan | 2000 | 21 | 35,938 | 18,855 | Onshore/Offshore | 7 | 3 | |||||||
Russia | 2007 | 5 | 6,636 | 3,891 | Onshore | 9 | ||||||||
Saudi Arabia | 2004 | 1 | 51,687 | 25,844 | Onshore | |||||||||
Trinidad & Tobago | 1970 | 1 | 382 | 66 | Offshore | 3 | 4 | |||||||
United States | 1968 | 575 | 11,478 | 6,648 | Onshore/Offshore | 69 | 11 | |||||||
Venezuela | 1998 | 3 | 1,556 | 614 | Offshore | 1 | ||||||||
Yemen | 2008 | 1 | 3,911 | 3,598 | Onshore | |||||||||
656 | 245,047 | 130,611 | 113 | 52 | ||||||||||
Other countries | 9 | 6,311 | 1,363 | Offshore | ||||||||||
Other countries with only exploration activity | 13 | 106,401 | 69,075 | Onshore/Offshore | ||||||||||
Total | 1,244 | 758,498 | 415,494 | 506 | 318 | |||||||||
PRODUCTIVE OIL AND GAS WELLS
(units) | Italy | Rest | North Africa | West Africa | Kazakhstan | Rest of Asia | Americas | Australia and Oceania | Total | |||||||||
Number of productive wells as of Dec. 31, 2009 (a) Oil wells | ||||||||||||||||||
Gross | 185.0 | 384.0 | 1,103.0 | 2,764.0 | 85.0 | 355.0 | 125.0 | 4.0 | 5,005.0 | |||||||||
Net | 145.7 | 64.5 | 469.2 | 474.3 | 27.6 | 255.1 | 56.3 | 2.6 | 1,495.3 | |||||||||
Gas wells | ||||||||||||||||||
Gross | 481.0 | 198.0 | 120.0 | 501.0 | 658.0 | 207.0 | 11.0 | 2,176.0 | ||||||||||
Net | 421.1 | 75.2 | 49.1 | 36.6 | 264.3 | 72.6 | 3.0 | 921.9 | ||||||||||
Eni’s principal regions of operationsoil and gas properties are described below. In the discussion that follows, references to hydrocarbon production are to be intended to represent hydrocarbon production available for sale.
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Eni has been operating in Italy since 1926. In As part of the optimization process of Eni’s upstream portfolio, management approved a plan for rationalizing Eni’s mineral activities in Italy by establishing three new companies to which certain of the Company’s assets have been contributed. The selected assets have different geographical locations: a first group of assets that are located in Northern Italy (Pianura Padana and Emilia Romagna) have been contributed to Società Padana Energia SpA; a second group with assets located in central Italy (Marche, Abruzzo, Molise) to Società Adriatica Idrocarburi SpA; lastly certain assets in southern Italy (Crotone area) have been contributed to Società Ionica Gas SpA. Negotiations are firmly underway for the sale of the two companies, Società Padana Energia SpA and Società Adriatica Idrocarburi SpA. The Adriatic Sea represents Eni’s main production area in Italy, accounting for |
|
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Eni is the operator of the Val d’Agri concession (Eni’s interest 60.77%) in the Basilicata Region in southern Italy. Production from the Monte Alpi, Monte Enoc and Cerro Falcone fields is fed by 24 production wells of the 47 foreseen by the sanctioned development plan and is supported by the Viggiano oil center with a treatment capacity of 104 KBBL/d. Oil produced is carried to Eni’s refinery in Taranto via a 136-kilometer long pipeline. Gas produced is treated at the Viggiano oil center and then delivered to the national grid system. In 2009, the Val d’Agri concession produced 78 KBOE/d (42 net to Eni) representing 25% of Eni’s production in Italy.
Eni is the operator of 15 production concessions onshore and offshore in Sicily. Its main fields are Gela, Ragusa, Giaurone, Fiumetto and Prezioso, which in 2009 accounted for 10% of Eni’s production in Italy.
Eni is operator
Full year development activities mainly related to: (i) the completion of
| sidetrack, work over and rigless activities (Annalisa, Antares, Barbara, Cervia, Giovanna, Gela, Luna and Trecate fields).
|
29
sidetracking and infilling (Antares, Cervia, Emma, Fratello North, Giovanna, Hera-Lacinia, Gela, Luna and Fiumetto); (ii) continuation of drilling and upgrading of producing facilities in the Val d’Agri; and (iii) completion of development activities at Cascina Cardana field and phase 1 of the Val d’Agri project.
Other development activities were the development of the Annamaria and the Guendalina gas fields in the Adriatic Sea. The Annamaria project provides for the installation of a production platform and the linkage by sealines to the Fano plant. Start-up is expected in 2009. Actions on Guendalina include the installation of a platform and the linkage by existing facilities to the Ravenna plant. Start-up is expected in 2010.
In December 2008 Eni was awarded two onshore exploration blocks in Puglia region.
Major discoveries were made in offshore Sicily with the operated gas discovery Cassiopea that has yielded excellent results in addition to the positive appraisal of the Argo gas field. Eni holds a 60% interest in the two discoveries. In particular for Cassiopea an accelerated development plan is foreseen in order to provide optimal synergies with the nearby Panda and Argo discoveries. The project provides for the drilling of undersea producing wells and the installation of a production platform linked to the existing onshore treatment facilities. Production start up is expected in 2011.
In the medium-term, management expects production in Italy to remain stable at the current level due to the production ramp-up of the Val d’Agri fields and ongoing new field projectprojects and continuing developmentproduction optimization activities designed to counteract mature field decline.
Eni’s operations in the Rest of Europe are conducted mainly in Croatia, Norway and the United Kingdom. In 2009, the Rest of Europe accounted for 14% of Eni’s total worldwide production of oil and natural gas. Croatia. Eni has been present in Croatia since 1996. In 2009, Eni’s production of natural gas averaged 92 mmCF/d. Activities are deployed in the Adriatic Sea near the city of Pula. Exploration and production activities in Croatia are regulated by PSAs. The main producing gas fields are Ivana, Ika & Ida, Marica and Katarina operated by Eni through a 50/50 joint operating company with the Croatian oil company INA. The fields start-up in 2009 are: (i) Annamaria (Eni’s interest 50%), with a production of approximately 13 mmCF/d net to Eni; and (ii) Irina (Eni’s interest 50%) and Vesna (Eni’s interest 50%), with an overall production at approximately 3 mmCF/d net to Eni. |
35
Exploration activities yielded positive results with the Ika SW 2 appraisal well, which confirmed the mineral potential of the area.
Norway. Eni has been operating in Norway since 1964. Eni’s activities are performed in the Norwegian Sea, in the Norwegian section of the North Sea and in the Barents Sea. Eni’s production in Norway amounted to 123 KBOE/d in 2009.
Exploration and production activities in Norway are regulated by Production Licenses (PL). According to a PL, the holder is entitled to perform seismic surveys and drilling and production activities for a few years with possible extensions. In May 2009 following an international bid procedure Eni was awarded the operatorship of exploration licenses PL 533 (Eni’s interest 40%) and PL 529 (Eni’s interest 40%) in addition to a 30% stake in PL 532 in the Barents Sea. Eni holds interests in 6 production areas in the Norwegian Sea. The principal producing fields are Aasgard (Eni’s interest 14.82%), Kristin (Eni’s interest 8.25%), Heidrun (Eni’s interest 5.12%), Mikkel (Eni’s interest 14.9%) and Norne (Eni’s interest 6.9%), which in 2009 accounted for 65% of Eni’s production in Norway. Full year production start-up was achieved in: (i) the Yttergryta (Eni’s interest 9.8%) field, with a production of approximately 71 mmCF/d; and (ii) the Tyrihans (Eni’s interest 6.23%) field, with a production of approximately 3 KBBL/d. Development activities progressed in recent oil and gas discoveries near the Aasgard field (Eni’s interest 14.82%). In particular the development plan of the Morvin discovery (Eni’s interest 30%) provides linkage to existing production facilities that will be upgraded. Production start-up is expected in 2010 with peak production at 12 KBOE/d net to Eni in 2014. |
Eni holds interests in four production licenses in the Norwegian section of the North Sea. The main producing field is Ekofisk (Eni’s interest 12.39%) in PL 018, which in 2009 produced approximately 56 KBOE/d net to Eni and accounted for 44% of Eni’s production in Norway. The license expires in 2028, and extension negotiations are ongoing. Ongoing projects aim at maintaining and optimizing production at Ekofisk by means of infilling wells, the development of the South Area, upgrading of existing facilities and optimization of water injection.
Currently Eni is only performing exploration activities in Barents Sea. Operations in this area are focused on the appraisal of the mineral potential of the large Goliat discovery made in 2000 at a water depth of 370 meters in PL 229 (Eni operator with a 65% interest) aimed at its commercial development. The license expires in 2042. The project is progressing according to schedule. Commencement is expected in 2013 with a production plateau at 100 KBBL/d. In 2009, the final investment decision of the Goliat project was sanctioned.
Exploration activities yielded positive results in the Prospecting License 128 (Eni’s interest 11.5%) with the Dompap gas discovery. Appraisal activities are underway.
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 2009 Eni’s net production of oil and gas averaged 100 KBOE/d.
Exploration and production activities in the United Kingdom are regulated by concession contracts.
Eni holds interests in 12 production areas in the British section of the North Sea. The main fields are Elgin/Franklin (Eni’s interest 21.87%), the J-Block (Eni’s interest 33%), Andrew (Eni’s interest 16.21%), Farragon (Eni’s interest 30%), the Flotta Catchment Area (Eni’s interest 20%), Mac-Culloch (Eni’s interest 40%) and West
36
Franklin (Eni’s interest 21.87%), which in 2009 accounted for 61% of Eni’s production in the United Kingdom. Development activities consist of infilling actions at the Elgin/Franklin, Mac-Culloch (Eni’s interest 40%) and Jade (Eni’s interest 7%) fields to maintain production levels. Pre-development activities are underway at the following discoveries: (i) the Burghley field (Eni’s interest 21.92%) with expected start-up in 2010; (ii) the Kinnoul oil and gas field (Eni’s interest 16.67%) to be developed in synergy with the production facilities of the Andrew field (Eni’s interest 16.21%) and expected start-up in 2012; (iii) the Jasmine gas field (Eni’s interest 33%) with expected start-up in 2012; and (iv) the Mariner field (Eni’s interest 8.89%) with expected start-up in 2015.
Eni holds a 53.9% interest in 6 production fields in the Liverpool Bay area in the Eastern section of the Irish Sea. The main fields are Douglas, Hamilton and Lennox and their extension which in 2009 accounted for 21% of Eni’s production in UK. Upgrades to the facilities are underway.
Eni holds interest in 6 production permits located east of the Shetland Islands. The main fields are Ninian (Eni’s interest 12.94%) and Magnus (Eni’s interest 5%), which in 2009 accounted for 4% of Eni’s production in the United Kingdom. In 2009, maintenance and optimization actions were performed with the drilling of infilling wells.
Exploration activities yielded positive results in Block 22/25a (Eni’s interest 16.95%) with the Culzean gas discovery near the Elgin/Franklin producing field (Eni’s interest 21.87%). A study of the development activities is underway.
North Africa
Eni’s operations in North Africa are conducted in Algeria, Egypt, Libya and Tunisia. In 2008,2009, North Africa accounted for 36%32% of Eni’s total worldwide production of oil and natural gas.
Algeria. Eni has been present in Algeria since 1981. In 2008,2009, Eni’s oil and gas production averaged 80 KBOE/d. Operating activities are located in the Bir Rebaa area in the South-Eastern desert and include the following exploration and production blocks: (a)(i) Blocks 403 a/d (Eni’s interest 100%); (b)(ii) Blocks 401a/402a (Eni’s interest 55%); (c)(iii) Blocks 403 (Eni’s interest 50%) and 404a (Eni’s interest 12.25%); and (d)(iv) under development Blocks 212 (Eni’s interest 22.38%) and, 208 (Eni’s interest 12.25%). and 405b (Eni’s interest 75%), the latter purchased in 2008 from Canadian company First Calgary.
37
Exploration and production activities in Algeria are regulated by Production Sharing Agreements (PSAs) and concession contracts. Production in Block 403a/d is supplied mainly by the HBN and Rom and satellite fields Production in Blocks 401a/402a is supplied mainly by the Rod and satellite fields and accounted for approximately 22% of The main fields in Block 403 are BRN, BRW and |
30
Rhourde Messaoud and Zemlet Adreg development licenses for further 10 years and the Bir Rebaa North license for further 5 years.
Production in Blocks 401a/402a is supplied mainly by the Rod and satellite fields and accounted for approximately 23% of Eni’s production in Algeria in 2008. Infilling activities are being performed in order to maintain the current production plateau.
The main fields in Block 403 are BRN, BRW and BRSW and accounted for approximately 14% of Eni’s production in Algeria in 2008.Eni’s production in Algeria in 2009. Exploration activities for appraising the mineral potential of the area are planned.
In Block 405b, the development activity relates to the MLE and CAFC integrated project. During 2009 the MLE final investment decision was sanctioned. This project provides the construction of a NGL plant with a capacity of 350 mmCF/d. Production start-up is expected in November 2011. The CAFC final investment decision will be sanctioned in 2010. The CAFC project will provide the construction of an oil treatement plant with a capacity of 35 KBBL/d and installation of water/gas injection systems. The development of the two fields will ensure a production plateau of approximately 33 KBOE/d net to Eni by 2012. Drilling activities are underway. In 2009 the EPC contract for the construction of a gas treatment plant, gathering and exporting facilities has been awarded. As of December 31, 2009, 11% of the project was completed. The PSA expires in 2037.
Block 208 is located south of Bir Rebaa. TheIn 2009, the final investment decision of El Merk Synergy, designed to jointly developwas sanctioned. During the year all EPC contracts for the development of this blockfacilities were awarded and adjoining blocks operated by other companies, is the main project underway in Algeria. In 2008 following an international bid procedure, the seven EPC contractsdrilling activity started. 24% of the project have been awarded. The project provides for the construction of a new treatment plant with a capacity of 11 KBOE/d net to Eniwas completed and production facilities in Block 404/208. Start-upstart-up is expected in the first quarter of 2012.
Main discoveries for the year were achieved in: (a) the Block 401a/402a with the ROD-21 appraisal well that started production through existing facilities; (b) the Block 404a with the BKNE-24 and HBNSE-12 appraisal wells, with the latter starting production through existing facilities.
The new Algerian hydrocarbon law No. 05 of 2007 introduced a higher tax burden for the national oil company Sonatrach that requested to renegotiate the economic terms of certain PSAs in order to restore the initial economic equilibrium. Eni signed an agreement for Block 403 while negotiations are ongoing for Block 401a/402a (Eni’s interest 55%) and Block 208 (Eni’s interest 12.25%). At present, management is not able to foresee the final outcome of such renegotiations.
In the medium-term, management expects to increase Eni’s production in Algeria to approximately 110greater than 125 KBOE/d, reflecting the development and integration of the First Calgary acquired assets.
Egypt. Eni has been present in Egypt since 1954. In 2008,2009, Eni’s share of production in this country amounting to 232220 KBOE/d and accounted for 13% of Eni’s total annual hydrocarbon production. Eni’s main producing liquid fields are located in the Belayim concession (Eni’s interest 100%), in the Western Desert mainly Melehia concession (56% interest) and offshore the Gulf of Suez.Ras Qattara (75% interest). Gas production mainly comes from the operated or participated concession of North Port Said (former Port Fouad, Eni’s interest 100%), Baltim (50% interest), Ras el Barr (50% interest, non-operated) and el Temsah (50% interest) offshore the Nile Delta. In 20082009, production from these concessions also includingincludes a portion of liquids accountedaccounting for 90%more than 80% of Eni’s production in Egypt.
38 Exploration and production activities in Egypt are regulated by concession contracts and PSAs.
39 Through its affiliate Unión Fenosa Gas, Eni has an indirect interest in the Damietta natural gas liquefaction plant with a producing capacity of 5.1 mmtonnes/y of LNG corresponding to approximately 268 BCF/y of feed gas. Eni is currently supplying 35 BCF/y for a twenty-year period. Natural gas supplies derived from the Taurt and Denise fields with 17 KBOE/d net to Eni of feed gas. In the medium-term, management expects
Main development activities underway include the Western Libyan Gas project (Eni’s interest 50%) for the exploitation of gas reserves ratified in the strategic agreements between Eni and NOC. In particular upgrading of plants and facilities in order to increase gas sales by 49 BCF/y was completed. Additional gas volumes are also expected to be on stream by 2015 from a portfolio of undeveloped fields. Gas production at Wafa and Bahr Essalam will be maintained by increasing compression capacity at Wafa field and drilling of additional wells in both fields. In 2009, volumes delivered through the GreenStream pipeline were 309 BCF. In addition, 43 BCF were sold on the Libyan market for power generation and to fuel the GreenStream pipeline compression plant. Other projects underway related to: (i) a plan to exploit flaring gas and associated condensates from the Bouri oil field (Eni’s interest 50%) In the
Tunisia. Eni has been present in Tunisia since 1961. In Exploration and production in this country are regulated by concessions. Production mainly comes from the Adam (Eni operator with a 25% interest), Oued Zar (Eni operator with a 50% interest), MLD (Eni’s interest 50%) and El Borma (Eni’s interest 50%) onshore blocks. The ongoing development
Exploration activities yielded positive results with four discovery wells among five drilled. In 2009 gas production was started in one well, In the medium-term, Eni expects production in Tunisia to increase
Eni’s operations in West Africa are conducted mainly in Angola, Congo and Nigeria. In Angola.Eni has been present in Angola since 1980. In
41 Development
Main projects underway in the Development Areas of former Block 15 were as follows: (i) development activities started-up at the 2012. Peak production at 100 KBOE/d (21 net to Eni) is expected in 2013. The second phase provides for production from nearby discoveries; and (ii) the Gas Gathering project, entailing the construction of a pipeline collecting all gas from the Kizomba, Mondo and Saxi/Batuque
Eni holds a 13.6% interest in the Angola LNG
Exploration activities yielded positive results in: (i) Block
42 In 2009, the Activities on the M’Boundi
The development activities to build the CEC power plant moved forward in 2009 as scheduled in the Cooperation Agreement signed by Eni and the Republic of Congo in 2007, and the start-up of the first turbo-generator occurred by the end of March 2010. Also the studies related to the possible exploitation of unconventional oil reserves from the Tchikatanga and Tchikatanga-Makola areas have progressed, according to the cooperation agreement signed in 2008, with the particular aim to identify area where it would be possible to withstand the stringent Eni’s environmental and sustainability requirements for development. Exploration activities yielded positive results in: (i) the Marine XII permit with two discoveries wells which confirmed the mineral potential of the area. The related PSA was signed; and (ii) the Le Kouilou permit with the Zingali field, confirmed by subsequently long production test. In the medium-term, management expects to increase Eni’s production in Congo due to the integration and development of recently acquired assets as well as projects underway, targeting a level in excess of Ghana. On September 28, 2009, Eni acquired the operatorship of the offshore exploration permits for Cape Three Point South and Cape Three Point (Eni’s interest 47.2%). Exploration activities yielded positive results in Nigeria. Eni has been present in Nigeria since 1962. In
In the development/production phase Eni is operator of onshore Oil Mining Leases (OML) 60, 61, 62 and 63 (Eni’s interest 20%) and offshore OML 125 (Eni’s interest 85%), OMLs 120-121 (Eni’s interest 40%) In the exploration phase Eni is operator of offshore Oil
Exploration and production activities in Nigeria are regulated mainly by Production Sharing Agreements and concession contracts as well as service contracts, in two blocks, where Eni acts as contractor for state owned companies. In 2009, production from the Oyo offshore field in Blocks In Blocks OML 60, 61, 62 and 63 (Eni operator with a 20% interest), within the activities aimed at guaranteeing production to feed gas to the Bonny liquefaction plant (Eni’s interest 10.4%), the development An integrated oil and gas
Eni holds a 10.4% interest in Nigeria LNG Ltd 43 being engineered Eni In the medium-term, management expects to increase Eni’s production in Nigeria to approximately
44 number of industrial initiatives including the upgrading of the Pavlodar refinery, in which KMG holds a majority interest. Kashagan. Eni holds a 16.81% participating interest in the NCSPSA. The NCSPSA The participating interest in the NCSPSA has been redefined, effective as of January 1, 2008, in line with an agreement signed in October 2008 with Kazakh authorities
Exploration and development activities in the In conjunction with the Phase 2 is currently in the stage of
The development plan of the Kashagan field was originally
In addition to the expenditures for developing the field, further capital expenditures will be required to upgrade or to build the infrastructures needed for exporting the production to international markets, for which various options are currently under review by the 45 connecting the onshore Bolashak production As of December 31, 2009, Eni’s proved reserves booked for the Kashagan field amounted to 588 mmBOE, recording a decrease of 6 mmBOE with respect to 2008. As of December 31, 2008, Eni’s proved reserves booked for the Kashagan field amounted to 594 mmBOE determined according to Eni’s participating interest of 16.81%, recording an increase of 74 mmBOE with respect to 2007 despite the divestment of a 1.71% stake in the Kashagan project following the finalization of the agreements implementing the new contractual and governance framework of the project. As of December 31, 2007, Eni’s proved reserves booked for the Kashagan field amounted to 520 mmBOE, recording a decrease of 76 mmBOE with respect to 2006 mainly due to the impact of increased year-end oil prices on reserve entitlements in accordance with the PSA scheme. Proved reserves for the field as of December 31, 2007 were determined according to Eni’s then current participating interest of 18.52%. As of December 31,
The execution of a fourth oil treatment unit has been
Orenburg terminal. The construction of the Uralsk Gas Pipeline is ongoing. This new infrastructure, with a length of 150 kilometers, will link the Karachaganak field to the Kazakhstan gas network. Start-up is expected in
As of December 31, 2009, As of December 31, 2008, Eni’s proved reserves booked for the Karachaganak field amounted to 740 mmBOE, recording an increase of 200 mmBOE with respect to 2007 As of December 31, 2007, Eni’s proved reserves booked for the Karachaganak field amount to 541 mmBOE,
India. Eni has been present in India since 2005.
48 Co signed a technical service contract, with a 20-year term with an option for further 5 years, to develop the Zubair oil field (Eni 32.8%). The field was awarded in October 2009 to the Eni-led consortium following a successful first bid round and was offered under a competitive bid process beginning on June 30, 2009. The partners of the The field development will take place in two phases: (i) the Rehabilitation Plan, which will improve the existing production rate to gain full knowledge of the
Iran.Eni has been present in Iran since 1957.
Pakistan. Eni has been present in Pakistan since 2000. In Exploration and production activities in Pakistan are regulated by concessions (onshore) and PSAs (offshore). In March 2009, Eni signed a Protocol for Cooperation with the government of Pakistan Eni’s main permits in the Country are Bhit
Positive results from exploration activity were obtained with discoveries in the Badhra (Eni operator with a 40% interest), Kadanwari (Eni operator with an 18% interest) and Miano (Eni’s interest 15%) areas. The start-up timing of these recent discoveries will benefit from the proximity to existing producing facilities. Russia. Eni has been present in Russia since 2007 following the acquisition of Lot 2 in the liquidation of Yukos. In September 2009, Eni and its Italian partner Enel in the 60-40% owned joint-venture OOO SeverEnergia completed the divestment of the
In April 2009, Gazprom exercised its call option to purchase a 20% interest in OAO Gazprom Neft held by Eni based on the existing agreements between the two partners. The
49
In 2009, Eni’s operations in America area accounted for 9% of its total worldwide production of oil and natural gas.
Trinidad and Tobago. Eni has been present in Trinidad Exploration and production activities in Trinidad Production is provided by the Chaconia, Ixora and Hibiscus gas fields in the North Coast Marine Area 1 Block (Eni’s interest 17.4%). Production is supported by fixed platforms linked to the Hibiscus treatment facility. Natural gas is used to feed trains 2, 3 and 4 of the Atlantic LNG liquefaction plant under long-term contracts. LNG production is sold in the United States, Spain and the Dominican Republic. The main development project United States. Eni has been present in the United States since In
Exploration and production activities in the United States are regulated by concessions. 50 Eni holds interests in The main fields operated by Eni with a 100% interest are Allegheny, East Breaks and Morphet as well as Devils Towers, Triton and Goldfinger (Eni operator with a 75% interest). Eni also holds interests in the Medusa (Eni’s interest 25%), Europa (Eni’s interest 32%), and King Kong (Eni operator with a 56% interest) fields.
The Oooguruk oil field (Eni’s interest 30%), in the Beaufort Sea, There are ongoing activities relating to the phased development plan of the Nikaitchuq field (Eni’s interest 100%) which is located
Venezuela. Eni has been present in Venezuela since 1998. In Activity is concentrated in the Gulf of Venezuela and in the Gulfo de
Exploration and production are regulated by the terms of the so called Empresa Mixta. Under the new legal framework, only a company incorporated under the law of Venezuela is entitled to conduct petroleum operations. A stake of at least 60% in the capital of such company is held by an affiliate of the Venezuela
51 production rate and field performance under water and gas injection. A production peak of
On January 26, 2010 Eni and the Venezuelan National Oil Company, PDVSA, signed an agreement for the joint development of the giant field Junin 5, located in the Orinoco oil belt. Production start-up is planned for 2013 at an initial level of 75 KBBL/d and a target of long term production plateau of 240 KBOE/d. Development will be conducted through an "Empresa Mixta" (Eni 40%, PDVSA 60%). At the time of the establishment of the "Empresa Mixta", Eni will pay a bonus of $300 million, and additional amount of $346 million will be paid upon the achievement of certain project milestones. Finally, Eni will present a project for the construction of a power plant in Guiria peninsula. Eni also holds interest in the Blanquilla and Tortuga exploration Eni is participating with 19.5% interest in the Gulfo de
Eni’s operations in Australia and Oceania area are conducted mainly in Australia. In 2009, Australia and Oceania area accounted for 1% of Eni’s total worldwide production of oil and natural gas. Australia. Eni has been present in Australia since 2000. In 2009 Eni’s production of oil and natural gas averaged 16 KBOE/d. Activities are focused on conventional and deep offshore fields. The main production blocks in which Eni holds interests are WA-33-L (Eni’s interest 100%), WA-25-L (Eni operator with a 65% interest) and JPDA 03-13 (Eni’s interest 10.99%). In the exploration phase Eni holds interests in 13 licenses (in 8 as operator and in 4 of which with a 100% interest), of particular interest are the Alberts blocks (WA-362/363/386/387-P) and JPDA 06-15 (Eni’s interest 40%), where the Kitan discovery is located. The Kitan development activities started in April 2010. Exploration and production activities in Australia are regulated by concession agreements, whereas in the cooperation zone between East Timor and Australia (Joint Petroleum Development Area - JPDA) they are regulated by PSAs. In 2009, production start-up was achieved at the Blacktip gas field (Eni’s interest 100%) located in the north western offshore in the South Bonaparte basin by means of a production platform linked to an onshore treatment plant with a capacity of 42 BCF/y. Natural gas produced from this field is sold under a 25-year contract signed with Power & Water Utility Co to fuel a power plant. In 2010 a production of 71 mmCF/d is expected. Ongoing further development phase (phase 2) of the Bayu Undan field (Eni’s interest 10.99%) is underway aimed at increasing liquids production and maintaining the field’s production profile. In the medium-term, management expects to increase Eni’s production in Australia through ongoing development activities.
See "Item 5 – Liquidity and Capital Resources – Capital Expenditures by Segment".
Gas & Power Eni’s Gas & Power segment engages in supply, transport, distribution, storage, re-gasification and marketing of natural gas, 52 In the context of a changed demand outlook and stronger competitive pressures both on the European and Italian markets, Eni’s strategy in its Gas & Power segment In 2009, the market environment was extremely difficult and the outlook for 2010 remains uncertain. Demand is slowly recovering from the huge contraction registred in 2009 as a severe economic downturn caused lower consumption, in particular in the power generation and industrial sectors. Assuming normal seasonal effects, European gas demand in 2009 declined by 7.4% from 2008 and the Italian market contracted by approximately 9 BCM from 2008, down 10%, and In a
Additionally, ongoing patterns towards energy preservation and rising competition from renewable or alternative sources of energy will further dampen recovery perspectives of gas demand. Specifically, at the March 2007 European Council, the European Heads of Government decided to adopt the Climate Action and Renewable Energy Package. This legislation was voted on by the European Parliament in December 2008. The package includes a commitment to reduce greenhouse gas (GHG) emissions by 20% by 2020 from emission levels recorded in 1990 (the target being 30% if an international agreement is reached), as well as a 20% improvement in energy efficiency within the EU Member States by 2020 and a 20% increase in renewable energy by 2020. The combined impact of all these trends will weigh on the perspectives of a rapid demand recovery. Based on current In consideration of a changed demand outlook, management has decreased its long-term projections of European gas For more detailed information about this topic and risks associated with those obligations, see "Item 3 – Risk Factors", "Item 5 – Contractual Obligations" and "Item 5 – Management expectations". In spite of an unfavorable trading environment and weak demand outlook, management intends to drive sales growth and support marketing margins. Planned actions are targeted to expand sales volumes and revenues in the European markets where the Company’s presence is well established and market opportunities are being created. Those markets will include France, Germany, the Benelux countries and continental hubs in North Europe. Management plans to achieve sales volumes in Europe (excluding Italy) of approximately 59 BCM by 2013, with an annual growth rate of 6% from 2009 when sales in European markets amounted to 47 BCM (this amount comprises 44.97 BCM of sales of the Gas & Power segment and approximately 2 BCM of the Exploration & Production segment). The drivers of this growth are expected to be
In Italy, 53 offer, by: (i)
The achievement of Management plans to strongly focus on cost control as a way to improve marketing margins. The action on costs will include a planned reduction in the cost to serve residential clients and In the regulated businesses in Italy, management plans to deliver steady profitability as new investments will come on line benefiting from guaranteed returns from the Italian Authority for Electricity and Gas, as well as operating synergies deriving from the Over the medium term management intends to sustain the Company’s actions by a disciplined capital expenditure plan focused in particular on the regulated businesses in Italy. Specifically, in the next four-year period Eni plans to invest approximately euro 8.3 billion in the Gas & Power segment of which euro 6.4 billion will mainly be devoted to: (i) expanding and upgrading transport networks in order to match the requirements of additional flexibility and security of the system. More than 80% of the total transport capital expenditures will continue to receive a 2% or 3% premium on the base allowed return; (ii) upgrading storage regulated capacity, both through the development of new fields and the expansion of existing capacity; and (iii) upgrading and developing local distribution networks. In addition, management plans to invest the remaining euro 1.8 billion capital expenditures in marketing activities by completing power plant upgrading and increasing generation flexibility (euro 0.7 billion), as well as in international marketing activities (euro 1.1 billion), including a storage project in the Hewett area off the British coast, to sustain growth in European markets. The matters regarding future natural gas demand and sales target discussed in this section and elsewhere
In Gas volumes supplied outside Italy Due to market trends, in particular a weak demand environment in Italy, the Gas & Power segment reduced its gas purchases from: (i) Algeria (down 5.40 BCM) which was also impacted by damage incurred to the TMPC pipeline in late December 2008; (ii) Libya (down 0.73 BCM); Supplies in In 54 BCM); and (iv) other European areas (in particular Croatia with In The table below sets forth Eni’s purchases of natural gas by source for the periods indicated.
In order to
Management believes that over the next two years the Company will experience failure in fulfilling its take-or-pay obligations associated with significant volumes of gas, unless demand fundamentals improve substantially and a 55 better balance between demand and supply is achieved in the marketplace. Currently, the Company is unable to forecast the timing of such a recovery. However, based on management’s projections for sales volumes and prices for the four-year plan and subsequent years, volumes for which an obligation to pay cash advances might arise due to take or pay clauses, will be off-taken within contractual terms, thus recovering cash advances. Even if financing associated with cash advances are factored in, the net present value associated with those long-tem contracts discounted at the weighted average cost of capital for the Gas & Power segment still remains positive and consequently those contracts do not fall within the category of an onerous contract as prescribed by IAS 37. The assessment of the Company’s take-or-pay supply For more detailed information about this topic and risks associated with those obligations, see "Item 3 – Risk Factors" and "Item 5 – Contractual Obligations".
In Natural gas sales in Italy were The Italian market includes large businesses, power generation users, wholesalers, middle-sized enterprises and service and residential customers; 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) wholesalers, mainly local selling companies which resell natural gas to residential customers through low pressure distribution networks and distributors of natural gas for automotive use; and (iii) residential customers, that include households (also referred to as the retail market), the tertiary sector (mainly commercial outlets, hospitals, schools and local administrations) and middle-sized enterprises (also referred to as the middle market) located in large metropolitan areas and urban centers. As of December 31, In Sales to importers in Italy Gas sales in European markets Sales to markets outside Europe E&P sales in Europe and
The tables below set forth Eni’s sales of natural gas by principal market for the periods indicated.
As part of its marketing activities in Italy, Eni engages in selling electricity on the Italian market mainly on the open market, at industrial sites and on the Italian Exchange for electricity. Supplies of electricity include both own production volumes through gas-fired, combined-cycles facilities and purchases on the open market. This activity has been developed in order to capture further value along the gas value-chain leveraging on the Company’s large gas availability. In addition, with the aim of developing and retaining valuable customers in the residential space and middle to large industrial users, the Company has been developing a commercial offer that provides the combined supply of gas and power. In 2009, the program for expanding the combined integrated offer of gas and power progressed in accordance with the Company’s expansion plans. 57 Notwithstanding weaker domestic demand, in 2009 sales of power amounted to 33.96 TWh, an increase of 4.03 TWh, or 13.5%, from 2008, also as a result of leveraging the dual-offer penetration. The increase mainly related to: (i) higher sales on open markets, in particular the retail market, with an increased number of clients served following intensive marketing campaigns, and to wholesalers due to the start of VPP (Virtual Power Plant) supply agreements signed at the end of 2008. Sales to large clients, on the other hand declined due to a reduction in the customer base and the impact of the economic downturn; and (ii) higher volumes traded on the Italian power exchange (up 0.88 TWh, or 23%). Sales of power were directed to the free market (73%), the Italian power exchange (14%), industrial sites (9%) and others (4%).
In order to support sales volumes and profitability of its marketing operations in Italy, Eni intends to implement an effective marketing policy,
In the future, Eni intends to strengthen its Benelux.The
France.Eni sells natural gas to industrial clients, wholesalers and Furthermore, the
Iberian Peninsula Portugal. Eni operates on the Portuguese market through its affiliate Galp Energia (Eni’s interest 33.34%) which sold approximately Spain. Eni operates in the Spanish gas market through a direct marketing structure that markets , respectively). In 2009 Eni Turkey. Eni sells gas supplied from Russia and transported via the UK/Northern Europe. Eni through its subsidiary North Sea Gas & Power (Eni UK Ltd) markets in the UK the equity gas produced at Eni’s fields in the North Sea and operates in the main continental natural gas hubs (NBP, Zeebrugge, TTF). Projects in the Hewett area. Eni
The project sanction is expected
Eni’s plans to expand its natural gas sales in the U.S. are described under the "LNG business" below.
Eni is present in
Eni’s main assets and projects in the LNG business are described below. Italy.Eni, through Snam Rete Gas, operates the Management is planning to Qatar. The closing of the acquisition of Distrigas allowed Eni to increase its development opportunities in the LNG business with Egypt.Eni, through its interest in Unión Fenosa Gas, owns a 40% interest in the Damietta liquefaction plant Spain.Eni through Unión Fenosa Gas holds a 21.25% interest in the Sagunto regasification plant, near Valencia, with a capacity of Eni through Unión Fenosa Gas also holds a USA Cameron. In consideration of a changed demand outlook, Eni renegotiated certain terms of the contract with the U.S. company Cameron LNG, relating to Taking into account current conditions of oversupply on the U.S. gas market, Eni rescheduled the Brass project (West Africa) for Pascagoula.
60 At the same time Eni Usa Gas Marketing Llc entered a 20-year contract for the purchase of
In 2009, power generation was 24.09 TWh, up 0.76 TWh, or 3.3% from 2008, mainly due to higher production at the Ferrara plant (Eni’s interest 51%), in connection with two new 390 megawatt combined cycle units coming on line. As of Power availability in 2009 was supported by the growth in electricity trading activity (up 3.27 TWh from
At full capacity in This expansion will allow Eni to consolidate its market share and its position as the third power producer in Italy. Supplies of natural gas are expected to amount to approximately Residual expected capital expenditure New installed generation capacity uses the combined cycle gas fired technology (CCGT), ensuring a high level of efficiency and low environmental impact. In particular, management estimates that for a given amount of energy (electricity and heat) produced,
61 power produced from renewable sources set at 2% of power 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 power 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, Eni’s main operated power plants are described below. Ferrera Erbognone. This power plant has an installed capacity of approximately 1,030 MW divided Ravenna.Two new combined cycle units with the capacity of 390 MW Brindisi.This power plant has been upgraded by installing three new combined cycle units, each with a capacity of 390 MW, Mantova.This power plant has been upgraded by installing two new combined cycle units, each with a capacity of 390 MW, Livorno. This power plant has an installed capacity of approximately 200 MW, divided Taranto.The existing power units have a capacity of approximately 75 MW, divided Ferrara. Two new combined cycle units with the capacity of 390 MW
By June 2009, the
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. Service stations. Legislative Decree No. 32 of February 11, 1998, as amended by Legislative Decree No. Law No. 133 of August 6, 2008, by intervening in competition provisions, removes some national and regional regulations which might prejudice the liberty of establishment and introduces new provisions particularly concerning the elimination of restrictions concerning distances between service stations, the obligation to undertake non oil activities and the liberalization of opening hours. Management believes that those measures will favor competition in the Italian retail market and support efficient operators. Petroleum product 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; such recommendations are considered by service station operators in establishing retail prices for petroleum products.
Compulsory stocks.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
Eni’s compulsory stocks
The "Treaty of Friendship" between the Republic of Italy and Libya was enacted
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 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:
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, 96 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. 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.
Property, Plant and Equipment Eni has freehold and leasehold interests in real estate in numerous countries throughout the
Organizational Structure Eni SpA is the parent company of the Eni Group. As of December 31,
97 Item 4A. UNRESOLVED STAFF COMMENTS None. Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section is the Company’s analysis of its financial performance and of significant trends that may affect its future performance. It should be read in conjunction with the Key Information presented in Item 3 and the Consolidated Financial Statements and related Notes thereto included in Item 18. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB. This section contains forward-looking statements which are subject to risks and uncertainties. For a list of important factors that could cause actual results to differ materially from those expressed in the forward-looking statements, see the cautionary statement concerning forward-looking statements on page ii.
Executive Summary Eni reported net profit of euro
Net cash provided by operating activities amounted to euro As of December 31,
Eni’s oil and gas production for the year (on an available for sale basis)
These
98
Worldwide gas sales in Capital expenditures in
In
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". 99 In
Critical Accounting Estimates The
environmental liabilities and recognition of revenues in the oilfield services construction and engineering businesses. Although the
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 that can be economically producible with reasonable certainty Field reserves will only be categorized as proved when all the criteria for 100 attribution of proved status have been met. At this stage, all booked reserves will be classified as proved undeveloped. Volumes will subsequently be reclassified 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. Eni reassesses its estimate of proved reserves 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. 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 Consolidated 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 quarter and proved developed reserves existing at the end of the quarter increased by the amounts extracted during the quarter. Assuming all other variables are held constant, an increase in estimated proved developed reserves for each field decreases depreciation, depletion and amortization expense. Conversely, a decrease in estimated proved developed reserves increases depreciation, depletion and amortization expense. 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 or not property impairment is to be carried out. The larger the volume of estimated reserves, the lower the likelihood of asset
Eni assesses its tangible 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, a reduced utilization of the plants and, for oil and gas properties, significant downward revisions of estimated proved reserve quantities or significant increase of the estimated development costs. 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 demand conditions for crude oil, natural gas, commodity chemicals and refined products. Similar remarks are valid for the physical recoverability of assets recognized in the balance sheet (deferred cost – see also item "Current assets") related to natural gas volumes not collected under long term purchase contracts with take-or-pay clauses. The amount of an impairment loss 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 based on the present values of expected future cash flows 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 principally based on developed and non-developed proved reserves including, among other elements, production taxes and the costs to be incurred for the reserves yet to be developed. The estimated future level of production is based on assumptions
Oil, natural gas and petroleum products prices used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace for the first four years and management’s long-term planning assumptions thereafter. The estimate of the future amount of production is based on assumptions related to the commodity future prices, lifting and development costs, market demand and to other factors. The discount rate reflects the current market valuation of the time value of money and of the specific risks of the asset not reflected in the estimate of the future cash flows. Goodwill and other intangible assets with an indefinite useful life are not subject to amortization. The A cash generating unit is the smallest aggregate 101 amount, goodwill attributed to that cash generating unit is impaired up to that 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.
Obligations to remove tangible equipment and restore land or seabed require significant estimates in calculating the amount of the obligation and determining the amount required to be recorded presently in the consolidated financial statements. Estimating future asset retirement obligations is complex. It requires management to make estimates and judgments with respect to removal obligations that will come to term many years into the future and contracts and regulations are often unclear as to what constitutes removal. In addition, the ultimate financial impact of environmental laws and regulations is not always clearly known as asset removal technologies and costs constantly evolve in the countries where Eni operates, as do political, environmental, safety and public expectations. 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 obligation in the period when it is incurred (typically, at the time the asset is installed at the production 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 (i.e. interest accretion) and any change in the estimates following the modification of future cash flows and discount rate adopted. The recognized asset retirement obligations are based on future retirement cost estimates and incorporate many assumptions such as: expected recoverable quantities of crude oil and natural gas, abandonment time, future inflation rates and the risk-free rate of interest adjusted for the Company’s credit costs.
Accounting for business combinations requires the allocation of the purchase price to the various assets and liabilities of the acquired business at their respective fair values. Any positive residual difference is recognized as "Goodwill". Negative residual differences are credited to the profit and loss account. Management uses all available information to make these fair value determinations and, for major business acquisitions, typically engages an independent appraisal firm to assist in the fair value determination of the acquired assets and 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, production and other activities. They include legislations that implement 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. Management, considering the actions already taken, 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. However,
Defined benefit plans and other long-term benefits are evaluated with reference to uncertain events and based upon actuarial assumptions including among others discount rates, expected rates of return on plan assets, expected rates of salary increases, medical cost trends, estimated retirement dates and mortality rates. The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows: 102
Additionally, obligations for other 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.
In addition to accruing the estimated costs for environmental liabilities, asset retirement
Revenue recognition in the Engineering & Construction 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 deducting 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 conditions in that region and any assessment that is necessary to estimate with sufficient precision the total future costs as well as the expected timetable. Requests
103
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.
The table below sets forth certain income statement items as a percentage of net sales from operations for the periods indicated.
2009 compared to 2008. Net profit pertaining to Eni in 2009 was euro 4,367 million, a decrease of euro 4,458 million from 2008, or 50.5%. This decrease was affected by the following factors:
104 2008 compared to
These negative factors were partly offset by higher profit from non consolidated entities that are accounted for under the equity or the cost method, up euro 130 million.
Discontinued operations in 2009, 2008
Eni’s total revenues were euro 105
The table below sets forth, for the periods indicated, the net sales from operations generated by each of Eni’s business segments including intra-group sales, together with consolidated net sales from operations.
2009 compared to 2008. Eni’s net sales from operations (revenues) for 2009 (euro 83,227 million) were down euro 24,855 million, or 23% from 2008, primarily reflecting lower realizations on oil, products and natural gas in dollar terms and lower sales volumes. These negatives were partly offset by the positive impact of the depreciation of the euro versus the dollar (down 5.3%). Revenues generated by the Exploration & Production division (euro 23,801 million) decreased by euro 9,241 million, or 28% from 2008, mainly due to lower realizations in dollars (oil down 32.2%; natural gas down 29.8%) reflecting a trading environment that was particularly adverse in the first nine months and the impact of energy parameters on gas prices and a fall in gas spot prices. This decrease reflected also lower sales volumes (down 9.2 million BOE, or 1.5%). These negatives were partly offset by the depreciation of the euro vs. the U.S. dollar. Revenues generated by the Gas & Power division (euro 30,447 million) decreased by euro 6,615 million, or 17.8% from 2008, mainly due to lower gas prices reflecting trends in energy parameters, as well as lower volumes sold in Italy (down 12.8 BCM, or 24.2%) due to the impact of the economic downturn. These negatives were partly offset by increased sales outside Italy due to contribution of the Distrigas acquisition (up 12.02 BCM). Revenues generated by the Refining & Marketing division (euro 31,769 million) decreased by euro 13,248 million, or 29.4% from 2008, reflecting lower product prices and lower sales volumes (down 10%), that were partially offset by the impact of the depreciation of the euro vs. the dollar. Revenues generated by the Petrochemical division (euro 4,203 million) decreased by euro 2,100 million, or 33.3% from 2008, mainly reflecting lower sales prices (down 26%) due to lower international prices for crude oil and refined products and a decline in volumes sold due to lower end-markets demand that was driven down by the economic downturn. Revenues generated by the Engineering & Construction business (euro 9,664 million) increased by euro 488 million, or 5.3% from 2008, as a result of the large number of oil & gas projects that were started during the upward phase of the oil cycle. 2008 compared to 2007. Eni’s net sales from operations (revenues) for 2008 (euro
Revenues generated by the Exploration & Production division (euro Revenues generated by the Gas & Power division (euro Revenues generated by the Refining & Marketing division (euro Revenues generated by the Petrochemical division (euro 6,303 million) decreased by euro 631 million, Revenues generated by the Engineering & Construction division (euro 9,176 million) increased by euro 498 million,
The table below sets forth the components of Eni’s operating expenses for the periods indicated.
2009 compared to 2008. Operating expenses for 2009 (euro 62,532 million) were down euro 17,822 million from 2008, or 22.2%, reflecting primarily lower supply costs of purchased oil, gas and petrochemical feedstocks, partially offset by the depreciation of the euro against the dollar. Purchases, services and other included environmental and other risk provisions, impairments of certain current and non-current assets, other than tangible and intangible assets, amounting to euro 537 million. They also included a charge amounting to euro 250 million which was estimated on the basis of the possible resolution of an investigation related to the TSKJ consortium based on the current status of the ongoing discussions with U.S. Authorities. Payroll and related costs (euro 4,181 million) increased by euro 177 million from 2008 (up 4.4%) mainly due to higher unit labor cost in Italy and outside Italy, partly due to exchange rate translation differences, the increase in the average number of employees outside Italy, following the consolidation of Distrigas in the Gas & Power division, increased personnel in the Engineering & Construction and Exploration & Production businesses due to higher activity levels, as well as increased provisions for redundancy incentives. These increases were partially offset by a decrease in the average number of employees in Italy. 2008 compared to Payroll and related costs (euro 4,004 million) were up euro 204 million, or 5.4%, mainly due to higher unit labor cost in Italy and an increase in the average number of employees outside Italy that was recorded mainly in the Exploration & Production, 107 Engineering & Construction business due to higher volumes. In addition in 2007 a non-recurring gain of euro 83 million was recorded in connection with the curtailment of the provision for post-retirement benefits relating to obligations towards Italian employees. These increases were partly offset by exchange rate translation differences.
The table below sets forth a breakdown of depreciation,
2009 compared to 2008. In 2009 depreciation, depletion and amortization charges (euro 8,762 million) increased by euro 340 million, or 4% from 2008, mainly in: (i) the Gas & Power division (up euro 184 million) reflecting consolidation of assets acquired and entry into service of new investments; and (ii) the Exploration & Production segment (up euro 111 million) where higher charges were associated with the depreciation of the euro against the dollar, rising development activities reflecting consolidation of acquired oil & gas properties and increased expenditures to develop new complex fields and projects. These negatives were partly offset by lower exploration expenses. The Engineering & Construction segment also increased amortization charges in connection with the entry into service of new assets. In 2009, impairments (euro 1,051 million) which were down euro 342 million, mainly related to: (i) impairment charges recorded on proved and unproved properties in the Exploration & Production division due to downward reserve revisions and cost increases mainly recorded in the Gulf of Mexico, Australia, Congo and Egypt; (ii) refinery plants due to expectations of poor refining margins reflecting the industry weak fundamentals and plants’ specific factors such as low complexity. Also impairments of goodwill were recognized on marketing assets acquired in Central-Eastern Europe and certain other marketing assets in the Refining & Marketing division, in the light of a downsizing of growth expectations on certain markets; and (iii) a number of plants in the Petrochemical division due to a weak outlook for pricing/margins as a result of lower petrochemical products demand, excess capacity and higher competitive pressures. 2008 compared to In 2008, impairments (euro 1,393 million) mainly regarded proved and unproved mineral properties in the Exploration & Production division due to changes in the regulatory and contractual framework for certain properties, cost increases, as well as a changed pricing environment. 108 Refining & Marketing and Petrochemical divisions were impaired due to a downward revision of the future profitability associated with worsening expectations for the future pricing/margin environment.
The table below sets forth Eni’s operating profit by business segment for the periods indicated.
The table below sets forth operating profit for each of Eni’s principal business segments as a percentage of each segment’s net sales from operations (including intragroup sales) for the periods presented.
Exploration & Production. Operating profit in 2009 amounted to euro 9,120 million, down euro 7,119 million from 2008, or 43.8%, reflecting lower realizations in dollars (oil down 32.2%; natural gas down 29.8%), and reduced production sales volumes (down 9.2 mmBOE, or 1.5%). These negatives were partly offset by: (i) positive currency translation differences which were reported by subsidiaries which adopted the U.S. dollar as functional currency, as the euro depreciated on average by 5.3%. This had an estimated positive impact of euro 500 million; (ii) recognition of lower asset impairments (down euro 234 million); and (iii) gains recorded on the divestment of certain exploration and production assets as part of the agreements signed with Suez. Liquids and gas realizations for the year decreased on average by 31.2% in dollar terms driven by lower oil prices for market benchmarks (Brent crude price decreased by 36.6%), partly offset by an improved product mix of Eni’s crudes (down 32.2%). Average oil realizations were barely unchanged, due to the settlement of certain non-strategic commodity derivatives relating to the sale of 42.2 mmBBL. 109 In 2009, the impact of those cash flow hedges was immaterial as the increase in liquids realizations by $0.45 per barrel as a result of the sale of 31.6 mmBBL at the hedged price recorded in the first nine months was absorbed by a reduction on average by $1.46 per barrel from the sale of 10.6 mmBBL in the fourth quarter, reflecting the inversion in oil prices trends. The derivatives were entered into to hedge exposure to fluctuations in future cash flows expected from the sale of a portion of the Company’s proved reserves, in connection with the acquisition of oil and gas assets in Congo and in the Gulf of Mexico. When entered into, those hedging transactions originally covered an amount of approximately 125.7 mmBBL in the 2008-2011 period, which by the end of 2009 has decreased to approximately 37.5 mmBBL. In 2009 average gas realizations were down 29.8%, driven by time-lags between movements in oil prices and their effect on gas prices pursuant to pricing formulae and by weak spot prices. Liquid realizations and the impact of commodity derivatives were as follows:
Operating profit in 2008 amounted to euro
110 through
Refining & Marketing. In 2009, the Refining & Marketing segment reported an operating loss of euro 102 million, which represented a significant improvement (up euro 886 million) compared to 2008 when a loss of euro 988 million was recorded. The improvement reflected the circumstance that an inventory write-down amounting to euro 1,199 million was recorded in 2008 as year-end inventories of oil and products were aligned to net realizable values prevailing on the marketplace at the time of the assessment which coincided with the low of the oil cycle. In 2009, an inventory holding gain amounting to euro 792 million was recognized reflecting the impact of a recovery in prices of crude oil and products on year-end valuation of inventories according to the average-cost method of inventory accounting. When excluding the inventory impacts, the Refining & Marketing segment reported underlying losses mainly due to sharply lower refining margins. Those were affected by an unfavorable trading environment due to weak end-prices of products depressed by poor demand, excess inventory of finished products on the marketplace, in particular diesel oil, whose spread on raw material reached historical lows in the fourth quarter, and excess capacity. As a result, product price did not absorbed the purchase price of oil-based feedstock. Also narrowing price differentials between heavy and light crude qualities negatively affected Eni’s complex throughputs by reducing cost-advantages associated to conversion: (i) lower operating performance delivered by the Marketing activities affected by weak demand in wholesale markets in Italy and retail European markets; and (ii) higher asset impairment charges recorded in the light of the negative outlook for the refining industry and a downsizing of growth expectations on certain markets. The Refining & Marketing segment in 2008 reported an operating loss of euro
Engineering & Construction. Operating profit in 2009 amounted to euro 881 million, a decrease of euro 164 million, or 15.7% compared to 2008. This decrease related to a non-recurring item represented by a charge amounting to euro 250 million that was the estimated cost of a possible resolution of the investigation related to the TSKJ consortium based on the current status of ongoing discussions with U.S. Authorities (See “Item 18 – Note 28 of the Financial Statements”). Although the charge was recognized in the segment results of the Engineering & Construction business as it related to a project to build gas liquefaction plants, it will be fully incurred by Eni and Saipem’s minorities will be left unaffected due to Eni’s contractual obligations to indemnify Saipem undertaken in connection with the divestiture of Snamprogetti SpA, whose subsidiary Snamprogetti Netherlands BV participates to the TSKJ venture. See “Item 8 Financial Information – Legal Proceedings” for further details. When excluding the 111 impact of the charge, the segment reported an improved operating performance recorded in all business areas reflecting steady revenue growth and stable profitability as a result of the large number of oil & gas projects that were started during the upward phase of the oil cycle. Operating profit in 2008 amounted to euro 1,045 million, a euro 208 million increase
Other activities. This reporting segment includes the results of operations of Eni’s subsidiary Syndial which runs minor petrochemical activities and reclamation and decommissioning activities pertaining to certain businesses which Eni exited in past years. Other activities reported an operating loss of euro 382 million for 2009, representing a reduction of euro 36 million, or 10.4%, compared to the loss recorded in 2008 (euro 346 million) mainly due to higher environmental charges (euro 153 million). Other activities reported an operating loss of euro 346 million for 2008, representing an improvement of euro 98 million, or 22.1%, compared to
Corporate and financial companies. These activities include expenses incurred in connection with corporate activities including the central treasury department and financial subsidiaries that
financial services to the The aggregate Corporate and financial companies reported an operating loss of euro The aggregate Corporate and financial companies reported an operating loss of euro 743 million for 2008, representing a decline of euro
The table below sets forth a breakdown of Eni’s net financial expense for the periods indicated:
2009 compared to 2008. In 2009 net finance expenses were euro 551 million, a decrease of euro 89 million from 2008. This was mainly due to increased losses on exchange differences (up euro 312 million) offset by gains recognized in connection with fair value evaluation through profit and loss of certain derivative instruments on 112 exchange rates (up euro 423 million) which were recorded against profit as they did not qualify for hedge accounting. In addition, lower finance charges were incurred as interest rates on euro-denominated finance debt (Euribor down 3.4 percentage points) and on dollar loans (Libor down 2.2 percentage points) were down. A gain from an interest amounting to euro 163 million was recorded (euro 241 million in 2008) related to the contractual remuneration of 9.4% on the 20% interest in OAO Gazprom Neft, calculated up to April 24, 2009, when Gazprom paid for the call option exercised on April 7, 2009. 2008 compared to
2009 compared to
2008 compared to
2009 compared to 2008. In 2009, income taxes amounted to euro 6,756 million, down euro 2,936 million from a year ago, or 30.3%, mainly reflecting reduced income taxes currently payable recorded by subsidiaries in the Exploration & Production division operating outside Italy due to lower taxable profit. The Group reported consolidated tax rate was higher compared to 2008, from 50.3% to 56% (up 5.7 percentage points). A number of factors explained the increase:
These higher tax expenses were partly offset by recognition of a positive adjustment to deferred taxation following alignment of the tax base of certain oil and gas properties to their higher carrying amounts by paying a one-off tax, as part of the reorganization of upstream activities in Italy, and lower income taxes currently payable as 113 new rules came into effect providing for the partial deduction of an Italian local tax from taxable income, also applying to previous fiscal years (for a total positive impact of euro 222 million). In 2010 management expects the Group effective tax-rate to be flat to slightly lower compared to 2009 (see "Item 3 – Risk Factors"). 2008 compared to 2007. In 2008, income taxes amounted to euro 9,692 million, up euro 473 million, or 5.1%, mainly reflecting increased income taxes currently payable recorded by subsidiaries in the Exploration & Production The
These positives were partly offset by the
2009 compared to 2008. Minority interest was euro 950 million, up euro 217 million from 2008, or 29.6%, and concerned primarily Saipem SpA (euro 567 million) and Snam Rete Gas SpA (euro 369 million). 2008 compared to
Liquidity and Capital Resources Eni’s cash requirements for working capital, share
The following table summarizes the Group cash flows and the principal components of Eni’s change in cash and cash equivalent for the periods indicated.
The table below sets forth the principal components of Eni’s change in net borrowings(1) for the periods indicated.
115
Net cash generated from operating profit before changes in working capital totaled euro 21,625 million in 2009 (euro 29,807 million in
Net profit for 2008 was adjusted to take into account
In 2009, changes in working capital absorbed flows amounting to a negative euro 1,769 million as a result of a decreased balance between trade payables and receivables. In 2008, changes in working capital added positive flows amounting to euro 2,212 million as a result of increased current liabilities and trade
Capital expenditures totaled euro In For a discussion of capital expenditures by business segment and a description of year-on-year changes see below "Capital Expenditures by Segment" 116 Acquisitions of investments and businesses totaled euro 2,323 million in 2009 and euro 4,019 million in Disposals amounted to euro 3,595 million in 2009 and euro 979 million in In 2009, disposals primarily related to: (i) the divestment of a 20% interest in Gazprom Neft following exercise of a call option by Gazprom on April 7, 2009 (amounting to euro 3,070 million). The exercise price of the call option was equal to the bid price ($3.7 billion) as adjusted by subtracting dividends distributed and adding the contractual annual remuneration of 9.4% on capital employed and certain financial collateral expenses; (ii) the divestment to Gazprom of a 51% stake in the joint venture OOO SeverEnergia (Eni 60%). Eni’s share of the transaction is worth $940 million of which $230 million were collected as of year end, which corresponded to euro In 2008, disposals primarily related to the Engineering & Construction segment, in connection with the divestment of the 30% stake in GTT (Gaztransport et Technigaz SAS)
In 2009, dividends paid and changes in minority interests and reserves (euro 2,956 million) related mainly to the dividend distribution to Eni shareholders for euro 4,166 million (of which euro 2,355 million related to the balance for the fiscal year 2008 and euro 1,811 million as an interim dividend for fiscal year 2009) and the distribution of dividend to minority interest by Snam Rete Gas SpA and Saipem SpA (euro 335 million) and other consolidated subsidiaries (euro 15 million). These outflows were partly offset by the subscription by Snam Rete Gas SpA minorities of their respective share of a capital increase amounting to euro 1,542 million as part of Eni’s reorganization of its regulated businesses in Italy. This transaction is outlined in “Item 4 – Significant business and portfolio developments for the year”. In 2008, dividends paid and changes in minority interests and reserves (euro 6,005 million) related mainly to the dividend distribution to Eni shareholders for euro 4,910 million (of which euro 2,551 million related to the balance for the fiscal year 2007 and euro 2,359 million as an interim dividend for fiscal year 2008) and the distribution of dividend to minority interest by Snam Rete Gas SpA and Saipem SpA (euro 288 million) and other consolidated subsidiaries (euro 9 million) and the buy-back program (for euro 778 million by Eni SpA and for euro 58 million by Saipem SpA).
In assessing its capital structure, Eni uses net borrowings, Management believes that net borrowings is a useful measure of Eni’s financial condition as it provides insight about the soundness of Eni’s capital structure and the
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.
Total debt included bonds for euro 10,576 million (including accrued interest and discount on issuance). Bonds maturing in the next 18 months amounted to euro 993 million (including accrued interest and discount). Bonds issued in 2009 amounted to euro 5,058 million (including accrued interest and discount). Total debt was denominated in the following currencies: euro (83%), U.S. dollar (13%), pound sterling (3%) and 1% in other currencies. In 2008, net borrowings amounted to euro 18,376 million, representing a euro 2,049 million increase from 2007. This increase was mainly due to the large amount of capital expenditures and acquisitions executed in the year which was only partially funded with cash flows from operations. Total debt of euro 20,837 million consisted of euro 6,908 million short-term debt (including the portion of long-term debt due within twelve months equal to euro 549 million) and euro 13,929 million of long-term debt. Total debt included bonds for euro 6,843 million (including accrued interest and discount on issuance).
As of December 31, 2009, short-term debt of euro 6,736 million (including the portion of long-term debt due within twelve months) decreased by euro 172 million over 2008. The weighted average interest rate of Eni’s short-term debt was 0.8% and 4.2% for the years ended December 31, 2009 and 2008, respectively. As of December 31, 2009, Eni had undrawn committed and uncommitted borrowing facilities available of euro 2,241 million and euro 9,533 million, respectively (euro 3,313 and euro 7,696 million as of December 31, 2008). 118 These facilities were under interest rates that reflected market conditions. Changes in unutilized facilities were not significant. As of December 31, 2008, short-term debt of euro 6,908 million (including the portion of long-term debt due within twelve months) decreased by euro 1,592 million over 2007. The weighted average interest rate of Eni’s short-term debt was 4.2% and 4.9% for the years ended December 31, 2008 and 2007, respectively.
As of December 31,
As of December 31, 2008, long-term debt of euro 13,929 million increased by euro 2,599 million over 2007.
Exploration & Production. In 2009, capital expenditures of the Exploration & Production segment amounted to euro 9,486 million, representing an increase of euro 205 million, or 2.2%, from 2008 mainly due to the development of oil and gas reserves (euro 7,478 million) directed mainly outside Italy, in particular Kazakhstan, United States, Egypt, Congo and Angola. Development expenditures in Italy concerned the well drilling program and facility upgrading in Val d’Agri as well as sidetrack and infilling activities in mature fields. About 97% of exploration expenditures that amounted to euro 1,228 million were directed outside Italy in particular to the United States, Libya, Egypt, Norway and Angola. In Italy, exploration activities were directed mainly to the offshore of Sicily. Acquisition of proved and unproved property concerned mainly the acquisition from Quicksilver Resources Inc of a 27.5% interest in the Alliance area, in Northern Texas and the extension of Eni’s mineral rights in Egypt, following the agreement signed in May 2009. In 2008, capital expenditures of the Exploration & Production segment amounted to euro
Gas & Power. In 2009, capital expenditures in the Gas & Power segment totaled euro 1,686 million and related principally to: (i) developing and upgrading the transport network in Italy (euro 1,479 million); (ii) developing and upgrading storage capacity in Italy (euro 282 million); (iii) developing and upgrading the distribution network in Italy (euro 278 million); (iv) completion of construction of combined cycle power plants (euro 73 million), in particular at the Ferrara site; and (v) the upgrading plan of international pipelines (euro 32 million). In 2008, capital expenditures in the Gas & Power segment totaled euro 119 Refining & Marketing.In
hydrocracker at the Sannazzaro refinery, and expenditures on health, safety and environmental upgrades; (ii) upgrade and restructuring of the retail network in Italy (euro 183 million); and (iii) upgrade of the retail network and purchase of service stations in the rest of Europe (euro 115 million). Expenditures on health, safety and the environment amounted to euro 166 million. Petrochemicals.In
Engineering & Construction.In Engineering & In 2008, capital expenditures in the Engineering & Construction division (euro 2,027 million) mainly
Recent Developments The table below sets forth certain indicators of the trading environment for the periods indicated:
120
Improved results reported by the Exploration & Production segment were mainly driven by higher oil realization in dollars and higher sales volumes (up 2.1%). Lower expenditures incurred in connection with lower exploration activity offset higher amortization charges taken in connection with development activities due to production ramp-up at fields which were started in 2009. Production expressed in BOE on an available-for-sale base amounted to 1,762 KBOE/d representing an increase of approximately 2% that was driven by continuing production ramp-up in Nigeria, Congo and U.S., and additions from fields which were started-up in 2009. These positive trends were partly offset by a combined negative impact associated with lower entitlements in Company’s PSAs due to higher oil prices, and lower OPEC restrictions. Also production for the quarter was negatively affected by unplanned facility downtimes and mature field declines, particularly in the North Sea. The Gas & Power segment reported slightly better operating results as an inventory holding loss incurred last year reversed to profit. This positive was partly offset by a negative impact associated with lower sales volumes and reduced marketing margins
At March 31,
On
Management’s Expectations of Operations
Production of liquids and natural gas in 2010 is forecast to achieve a level slightly higher than in 2009, when production was 1.716 mmBOE/d, assuming the Company’s scenario for Brent price of 76 $/BBL for the full year 2010, the same level of OPEC restrictions as in the first quarter of 2010 and asset disposals underway. Growth will be driven by continuing field start-ups, mainly in Congo, Norway and marginally the Zubair project in Iraq, and production ramp-up at the Company’s recently started fields, mainly in Nigeria, Angola and the USA. These additions are expected to be partly offset by mature field declines. According to management’s plans, production growth will strengthen in the coming years as the Company is targeting a production level in excess of 2 mmBOE/d by 2013, implying an annual growth rate of more than 2.5% in the 2010-2013 period under management’s assumptions for oil prices at 65 $/BBL flat in the 2011-2013 period. Those oil price assumptions are particularly significant when it comes to assess the Company’s future production performance considering the entitlement mechanism under Eni’s PSAs and similar contractual schemes. For the current year, the Company estimates that production entitlements in its PSAs would decrease on average by approximately 1,000 BBL/d for a $1 increase in oil prices compared to Eni’s assumptions for oil prices at 65 $/BBL. However, this sensitivity analysis only applies to small deviations from the 65 $/BBL scenario and the impact on Eni’s production increases more than proportionally as the deviation increases. This sensitivity analysis relates to the existing Eni portfolio and might vary in the future. Our production forecast also takes into account the rescheduling of certain projects designed to develop additional gas reserves in the light of current uncertainties about gas demand outlook in Europe. Management expects that a number of factors will drive cost increases in Exploration & Production operations over the future years. Those factors include: (i) the growing complexity of development projects, as a number of planned new developments will be executed offshore or in remote/hostile environment; (ii) the intense investing activity that is required to maintain the production plateau at existing fields and to counteract natural depletion rate; and (iii) steady trends in costs for purchasing upstream goods and services. Due to those trends, operating costs and depreciation and amortization charges might trend higher in future years. Management plans to offset those negative factors by leveraging on the Company’s exposure to long-life fields where it plans to achieve substantial cost economies due to scale of operations and the growing exposure to operated projects. Project operatorship enables the Company to exercise more tight control over project execution, expenditures and achievement of project milestones and time schedule.
In 2010, natural gas sales are expected to slightly decrease compared to 2009 122
The Engineering & Construction business is expected to see solid results due to a robust order backlog. The segment is expected to leverage its diversified business model articulated across various market sectors combined with a strong competitive position in frontier areas, which are traditionally less exposed to the cyclical nature of this market. The start of operations of new advanced assets in 2010 and 2011 coupled with the size and quality of the backlog and management focus on execution, underpin expectations for a further strengthening of Saipem’s competitive position in the medium-term.
Management expects that results in the Petrochemicals segment will continue being negatively affected by sluggish demand, high costs for oil-based feedstock and competitive pressures. However, management believes that there are signs that demand for the main commodities has bottomed-up. Management plans to implement a number of initiatives designed to reduce fixed operating expenses and to realign the industrial set-up of Eni’s petrochemical operations with a view of enhancing areas of competitive advantage. 123
Over the next four years, the Company plans to invest euro The main planned projects are as follows: (i) development of oil and gas reserves Eni’s capital expenditure program For the year 2010, management
Management
associated with each country of
In the foreseeable future, management is strongly focused on preserving a solid balance sheet and an adequate level of liquidity taking into account macroeconomic uncertainties and tight financial markets. Management plans for achieving a ratio of net borrowings to total equity For planning purposes, management assumed an average exchange rate of approximately 124
In the next four-year period management intends to pursue a progressive dividend policy. Management intends to pay a euro 1.00 a share dividend for 2010, and thereafter growing the dividend in line with OECD inflation. This dividend policy
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. Please refer to “Item 3 – Risk Factors”.
Eni has entered into certain off-balance sheet arrangements, including guarantees, commitments and risks, as described in Note 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
Amounts in the table refer to expected payments, undiscounted, by period under existing contractual obligations
The table below summarizes Eni’s capital expenditure commitments for property, plant and equipment
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Eni Watch Structure and Model 231
According to the Italian regulations pertaining to the "administrative liability of legal entities deriving from offences", pursuant to Legislative Decree No. 231 of June 8, 2001 (hereinafter, "Legislative Decree No. 231 of 2001"), associations, including corporations, may be held liable – and therefore charged with the payment of a penalty or placed under injunction, with regard to certain offences that are attempted or committed in Italy or abroad in the interest or for the benefit of the Company. The companies may, in any case, adopt organizational, management and control models suitable to the prevention of possible offences. With regards to this issue, Eni SpA’s Board of Directors – in its meetings of December 15, 2003 and January 28, 2004 – has approved an organizational, managerial and control model pursuant to Legislative Decree No. 231 of 2001 ("Model 231") and has appointed the Eni Watch Structure13. The composition of the Eni Watch Structure, initially consisting of only three members, was amended in 2007 with the addition of two external members, one of them appointed by the CEOChairman of the Eni Watch Structure and selected from among university professors and professionals of proven experience and expertise in economics and business management. The internal members are represented by the Legal Affairs Senior Executive Vice President, the Internal Audit Senior Executive Vice President and the CFO concerning any significant deficiency in the design or operationHuman Resources Executive Vice President (or managers directly reporting to them).
(13) | The Eni Watch Structure is also the Guarantor of the Code of Ethics. |
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Court of
internal controls which are reasonably likelyAuditors ("Corte dei conti")
The financial management of Eni is subject to adversely affect the Company’s ability to record, process, summarize and report financial information and any material weakness in internal controls; and
Appointment, requirements and other duties
Like the Directors and in accordance with applicable regulations, the StatutoryCourt of Auditors, areLucio Todaro Marescotti, succeeded by Raffaele Squitieri, appointed by meansresolutions issued on October 28, 2009 by the Council of a list vote as provided for by Eni’s By-laws. At least two Auditors and one alternate are elected from lists presented by minorities and the ChairmanPresidency of the Court of Auditors. The Judge of the Court assists at the meetings of the Board of Directors, of the Board of Statutory Auditors shall be elected from a list other than the one obtaining the majority of votes (for a detailed descriptionand of the procedure, see "Item 10 – Minority protection provisions").Internal Control Committee.
Employees
As stressed in the Code, the Statutory Auditors shall act with autonomy and independence also towards the shareholders who elected them and, in accordance with the TUF, they shall possess the independence, expertise and integrity requirements prescribed byof December 31, 2009, Eni’s had a regulationtotal of the Minister78,417 employees, a decrease of Justice. As for the professional qualifications of the candidates, Article 28 of Eni’s By-laws, in line with the said Decree of the Minister of Justice, foresees that the professional requirements can also be acquired with at least three years of professional experience463 employees or by teaching business law, business administration and finance, as well as at least a three year experience in a managerial position in geological or engineering businesses. Eni’s Auditors are all chartered auditors.
Statutory Auditors declared consequently to possess independence, integrity and expertise requirements as foreseen by the applicable law. In compliance with the Eni Code prescriptions designed to ensure that auditors are independent subsequently to their appointment based also on the Code provisions for the same matter in the case of directors, the Board of Statutory Auditors in its meeting of January 21, 2009 verified that all its members possess such requirements (independence, integrity and expertise) and the Board of Directors in its meeting of February 26, 2009 verified this certification.
With reference to positions held in other companies, until coming into force of new Consob regulation on this matter, Eni’s By-laws prohibited the appointment as statutory auditor of persons that were already statutory auditors or members of the supervisory board or members of the management control committee of at least five companies in regulated markets other than listed subsidiaries of Eni SpA. In light of that, appointed Auditors communicated to the Company their positions in other entities and subsequently the Board of Statutory Auditors verified compliance with the said limit as provided by Eni’s By-laws. As of June 30, 2008, accordingly with the By-laws provisions, Statutory Auditors may assume positions in governing or controlling bodies in companies other than Eni within the limits set by the mentioned Consob regulation. In September 2008 Eni’s Statutory Auditors communicated to Consob their compliance with said limits.
External Auditors
As provided for by Italian law, the auditing of financial statements is entrusted to external auditors registered on the register held by Consob. The external auditor is appointed and its fee is determined by the Shareholders’ Meeting on reasoned proposal of the Board of Statutory Auditors.
Eni’s external auditor, PricewaterhouseCoopers SpA, was appointed for the first time on June 1, 2001 and was reappointed by the ordinary Shareholders’ Meeting on May 28, 2004, for a term of three financial years. The
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Shareholders’ Meeting of May 24, 2007 resolved to renew the appointment for the 2007-2009 period in accordance with Legislative Decree No. 303/2006, as it did not yet complete the maximum nine financial year engagement allowed by the law.
At the end of this engagement, PricewaterhouseCoopers SpA will cease to act as Eni’s external auditors.
In 2008, Eni’s External Auditors met with Eni Statutory 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 deriving0.6% 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.
Compensation
Board members’ emoluments are determined by the Shareholders’ Meeting, while the emoluments of the Chairman and CEO, in relation to the powers entrusted to them, are determined by the Board of Directors considering relevant proposals made by the Compensation Committee and after consultation with the Board of Statutory Auditors.
Main elements of the compensation of the Chairman, the CEO, other Board members and Eni’s three General Managers are described below.
CHAIRMANThe compensation of the Chairman of the Board of Directors has been resolved by Eni’s Shareholders’ Meeting and includes:
With regard to the powers delegated to the Chairman, the Board of Directors determined further compensation, as follows:
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.
CEOCompensation for the CEO has been resolved by the Board of Directors of Eni in connection with his position both as CEO and as General Manager of the parent company Eni SpA.
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 companies producing goods and services), as well as by any internal agreement stipulated by the representatives of managers and Eni SpA.
The CEO compensation includes the following items:
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MEMBERS OF THE BOARD OF DIRECTORSThe compensation of members of the Board of Directors has been determined by Eni’s Shareholders’ Meeting and includes:
The Board of Directors in the meeting of June 11, 2008, as proposed by the Compensation Committee and advised by the Board of Statutory Auditors, confirmed the 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 MANAGERSThe terms of employment of the General Managers of Eni’s Divisions are regulated by the "Contratto collettivo nazionale di lavoro per i dirigenti di aziende produttrici di beni e servizi" (the Italian national collective contract for managers of companies producing goods and services), as well as by any internal agreement stipulated by the representatives of managers and Eni SpA. The General Managers of Divisions may be appointed as members of the Board of Directors of Eni subsidiaries and affiliates; compensation deriving from such appointments as provided for by Article 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:
With the exception 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.
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Remuneration earned for 2008 by members of the Board of Directors, including the CEO and the Chairman, the three Chief Operating Officers 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 are also included.
Below is a description of each column of the following table:
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Board of Directors | ||||||||||||||
Roberto Poli | Chairman | 768 | 18 | 345 | 1,131 | |||||||||
Paolo Scaroni | CEO | 430 | 17 | 1,267 | 1,363 | (b) | 3,077 | |||||||
Alberto Clô | Director | 157 | 157 | |||||||||||
Paolo Andrea Colombo (c) | Director | 64 | 64 | |||||||||||
Renzo Costi (d) | Director | 85 | 85 | |||||||||||
Dario Fruscio (e) | Director | 19 | 19 | |||||||||||
Paolo Marchioni | Director | 64 | 64 | |||||||||||
Marco Pinto (d) | Director | 85 | 85 | |||||||||||
Marco Reboa | Director | 157 | 157 | |||||||||||
Mario Resca | Director | 143 | 143 | |||||||||||
Pierluigi Scibetta | Director | 149 | 149 | |||||||||||
Francesco Taranto | Director | 64 | 64 | |||||||||||
Board of Statutory Auditors | ||||||||||||||
Paolo Andrea Colombo (d) | Chairman | 51 | 33 | (f) | 84 | |||||||||
Ugo Marinelli | Chairman | 64 | 64 | |||||||||||
Filippo Duodo (d) | Auditor | 35 | 71 | (g) | 106 | |||||||||
Roberto Ferranti | Auditor | 44 | 44 | |||||||||||
Edoardo Grisolia (d) (h) | Auditor | 35 | 35 | |||||||||||
Luigi Mandolesi | Auditor | 44 | 44 | |||||||||||
Tiziano Onesti | Auditor | 44 | 40 | (i) | 84 | |||||||||
Riccardo Perotta (d) | Auditor | 35 | 32 | (l) | 67 | |||||||||
Giorgio Silva | Auditor | 80 | 24 | (m) | 104 | |||||||||
Chief Operating Officers | ||||||||||||||
Stefano Cao (n) | Exploration & Production | 1 | 2,294 | (o) | 3,825 | (p) | 6,120 | |||||||
Claudio Descalzi (q) | Exploration & Production | 1 | 268 | 269 | ||||||||||
Domenico Dispenza | Gas & Power | 1 | 856 | (r) | 710 | 1,567 | ||||||||
Angelo Caridi | Refining & Marketing | 2 | 268 | 565 | 835 | |||||||||
Other managers with strategic responsibilities (s) | 12 | 3,137 | 6,475 | (t) | 9,624 | |||||||||
2,617 | 52 | 8,167 | 13,406 | 24,242 |
For the year ended December 31, 2008, the overall compensation of persons responsible of key positions in planning, direction and control functions of Eni Group companies, including executive and non-executive directors, Chief Operating Officers and Eni’s senior managers amounted to euro 25 million. The break-down is as follows:
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The above amounts include salaries, fees for attending meetings, lump-sum amounts paid in lieu of expense reimbursements, stock-based compensation and other deferred incentive bonuses, health and pension contributions and amounts accrued to the reserve for employee termination indemnities, which is used to pay severance pay as required by Italian law to employees upon termination of employment. The members of the Board of Directors in
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their capacity as such are not entitled to receive such severance pay. At December 31, 2008, 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, the three general managers and Eni’s senior managers was euro 1,548 thousand. The break-down of this amount is presented in the table below:
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Long-term Incentive Schemes
In March 2006, the Board of Directors approved a new long-term incentive scheme for the managers of Eni and its subsidiaries (excluding listed subsidiaries), as proposed by the Compensation Committee. This new scheme is designed to motivate more effectively and retain managers, linking incentives to targets and performance achieved in a tighter way than previous incentives schemes. This new incentive scheme applies to the 2006-2008 three year period and is composed of a deferred monetary bonus, linked to the achievement of certain business growth and operating efficiency targets, and stock option grants 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 monetary bonus
This leg of the long-term incentive scheme provides 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 preset annual EBITDA targets, as assessed by comparing actual results with set targets under a constant trading environment.
The following table sets out the basic bonus awarded in the year 2008 to the CEO and to the Chief Operating Officers of Eni’s Divisions, and the total amount awarded to Eni’s senior managers.
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Stock Options
Eni can award share options to managers holding strategic positions or positions of significant responsibility for the achievement of the Company’s results. This incentive scheme is designed to ensure that managers’ interests are aligned with those of shareholders and to stimulate entrepreneurial behavior on part of managers. Differently from previous schemes, the 2006-2008 stock option plan introduced a performance condition upon which grants can be exercised. 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
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of the scheme, depending on the performance of Eni shares measured in terms of annual Total Shareholders Return as compared to that achieved by a panel of major international oil companies in terms of market capitalization. Options can be exercised for a three year period. Under this plan, the Board resolved to make available 7,415,000 options pertaining to 2008 with a strike price equal to euro 22.540 and 6,128,500 options pertaining to 2007 with a strike price equal to euro 27.451.
At December 31, 2008, a total of 23,557,425 options were outstanding for the purchase of an equal amount of ordinary shares nominal value euro 1 of Eni SpA, carrying an average strike price of euro 23.540. The weighted average remaining contractual life of options outstanding at December 31, 2007 and 2008 was 4 years and 7 months and 5 years and 7 months respectively.
The following is a summary of stock option activity for the years 2007 and 2008:
2007 | 2008 | ||
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Options as of January 1 | 15,290,400 | 21.022 | 25.520 | 17,699,625 | 23.822 | 25.120 | ||||||||
New options granted | 6,128,500 | 27.451 | 27.447 | 7,415,000 | 22.540 | 22.538 | ||||||||
Options exercised in the period | (3,028,200 | ) | 16.906 | 25.338 | (582,100 | ) | 17.054 | 24.328 | ||||||
Options cancelled in the period | (691,075 | ) | 24.346 | 24.790 | (975,100 | ) | 24.931 | 19.942 | ||||||
Options outstanding as of December 31 | 17,699,625 | 23.822 | 25.120 | 23,557,425 | 23.540 | 16.556 | ||||||||
of which exercisable at December 31 | 2,292,125 | 18.440 | 25.120 | 5,184,250 | 21.263 | 16.556 |
The fair value of stock options granted during the years ended December 31, 2007 and 2008 of euro 2.98 and euro 2.60, respectively, was calculated applying the Black-Scholes method and using the following assumptions:
2007 | 2008 | ||||
Risk-free interest rate | (%) | 4.7 | 4.9 | |||
Expected life | (year) | 6 | 6 | |||
Expected volatility | (%) | 16.3 | 19.2 | |||
Expected dividends | (%) | 4.9 | 6.1 |
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The following table presents the amount of stock options awarded to Eni’s CEO, the three Chief Operating Officers and Eni’s senior managers.
Options outstanding at the beginning of the period: | |||||||||||||||||||||||
- number of options | 1,953,000 | 406,500 | 178,500 | 232,500 | 269,500 | (e) | 30,500 | 122,000 | (f) | 1,353,000 | 110,000 | (g) | |||||||||||
- average exercise price | (euro) | 24.165 | 24.655 | 24.713 | 25.159 | 3.988 | 22.509 | 21.098 | 23.985 | 18.953 | |||||||||||||
- average maturity in months | 63 | 62 | 62 | 60 | 61 | 67 | 60 | 61 | 56 | ||||||||||||||
Options granted during the period: | |||||||||||||||||||||||
- number of options | 634,500 | - | 85,500 | 147,500 | 120,000 | - | 584,000 | - | |||||||||||||||
- average exercise price | (euro) | 22.540 | - | 22.540 | 22.540 | 22.540 | - | 22.540 | - | ||||||||||||||
- average maturity in months | 72 | - | 72 | 72 | 72 | - | 72 | - | |||||||||||||||
Options exercised at the end of the period: | |||||||||||||||||||||||
- number of options | - | - | - | - | 127,500 | (e) | - | - | 68,500 | 29,500 | (g) | ||||||||||||
- average exercise price | (euro) | - | - | - | - | 3.530 | - | - | 16.576 | 11.881 | |||||||||||||
- average market price at date of exercise | (euro) | - | - | - | - | 4.095 | - | - | 23.996 | 24.541 | |||||||||||||
Options expired during the period: | |||||||||||||||||||||||
- number of options | 206,375 | - | - | - | - | - | 167,550 | - | |||||||||||||||
Options outstanding at the end of the period: | |||||||||||||||||||||||
- number of options | 2,587,500 | 200,125 | 264,000 | 380,000 | 142,000 | (e) | 150,500 | 122,000 | (f) | 1,700,950 | 80,500 | (g) | |||||||||||
- average exercise price | (euro) | 23.767 | 24.060 | 24.009 | 24.142 | 4.399 | 22.534 | 21.098 | 23.670 | 21.545 | |||||||||||||
- average maturity in months | 55 | 51 | 55 | 56 | 54 | 65 | 48 | 55 | 48 |
Employees
At December 31, 2008, Eni’s employees totaled 78,880, withreflects an increase of 3,018 employees from December 31, 2007, up 4%, reflecting a 2,965 increase in718 employees hired and working outside Italy and an increasea decrease of 53718 employees hired in Italy.
Employees hired in Italy were 39,480 (50.1%38,299 (48.9% of all Group employees). Of these, 35,92934,794 were working in Italy, 3,3813,282 outside Italy and 170223 on board of vessels, with a 531,181 unit increasedecrease from 2007.2008. Declines were registered in all business segments due to efficiency actions and to the postponement to 2010 of some orders obtained by Saipem.
The process of improvement in the quality mix of employees continued in 20082009 with the hiring of 2,5171,163 persons, of which 781, were with491 had fixed-term contracts. A total of 1,736672 persons were hired with open-endopen-ended and with apprenticeship contracts, most of them with university qualifications (1,048(359 persons) and 650282 persons with a high school diploma. During the year 2,5492,357 persons left their job at Eni, of these 1,9031,634 had an open-end contract and 646 had491 a fixed-term contract.
Employees hired and working outside Italy were 38,400 (49.9%40,118 (51.1% of all Group employees), with a 2,965 personsan increase of these718 persons, of which approximately 1,800650 employees were hired with fixed-term contracts in the Engineering & Construction segment mainly due mainly to new contracts in the Caspian area (Kazakhstan, KashaganNigeria and Kazakhstan (Kashagan project) and Peru/Venezuela (drilling projects), and 1,642160 persons in the Exploration & Production segment, mainly following the purchase of Burren and First Calgary Petroleums (1,150 persons). Inoffset by downsizing in other segments, in particular in Hungary in the Gas & Power segment the acquisition of Distrigas concerned 135 persons and in the Refining & Marketing segment, Agip España (850 persons) and Galp Energia were sold.(Tigaz).
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Employees at year end | 2006 | 2007 | 2008 | |||
Employees at year end | 2007 | 2008 | 2009 | |||
(units) |
Exploration & Production | 8,336 | 9,334 | 11,194 | 9,023 | 10,891 | 10,870 | ||||||
Gas & Power | 12,074 | 11,582 | 11,389 | 11,893 | 11,692 | 11,404 | ||||||
Refining & Marketing | 9,437 | 9,428 | 8,327 | 9,428 | 8,327 | 8,166 | ||||||
Petrochemicals | 6,025 | 6,534 | 6,274 | 6,534 | 6,274 | 6,068 | ||||||
Engineering & Construction | 30,902 | 33,111 | 35,629 | 33,111 | 35,629 | 35,969 | ||||||
Other activities | 2,219 | 1,172 | 1,070 | 1,172 | 1,070 | 968 | ||||||
Corporate and financial companies | 4,579 | 4,701 | 4,997 | 4,701 | 4,997 | 4,972 | ||||||
73,572 | 75,862 | 78,880 | 75,862 | 78,880 | 78,417 | |||||||
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The table below sets forth Eni’s employees atas of December 31, 2006, 2007, 2008 and 20082009 in Italy and outside Italy:
2006 | 2007 | 2008 | ||||
2007 | 2008 | 2009 | ||||
(units) |
Exploration & Production | Italy | 5,273 | 5,535 | 5,771 | ||||
Outside Italy | 3,063 | 3,799 | 5,423 | |||||
8,336 | 9,334 | 11,194 | ||||||
Gas & Power | Italy | 9,602 | 9,114 | 8,810 | ||||
Outside Italy | 2,472 | 2,468 | 2,579 | |||||
12,074 | 11,582 | 11,389 | ||||||
Refining & Marketing | Italy | 7,196 | 7,101 | 6,641 | ||||
Outside Italy | 2,241 | 2,327 | 1,686 | |||||
9,437 | 9,428 | 8,327 | ||||||
Petrochemicals | Italy | 4,948 | 5,476 | 5,230 | ||||
Outside Italy | 1,077 | 1,058 | 1,044 | |||||
6,025 | 6,534 | 6,274 | ||||||
Engineering & Construction | Italy | 6,164 | 6,618 | 7,316 | ||||
Outside Italy | 24,738 | 26,493 | 28,313 | |||||
30,902 | 33,111 | 35,629 | ||||||
Other activities | Italy | 2,219 | 1,172 | 1,070 | ||||
Outside Italy | - | - | - | |||||
2,219 | 1,172 | 1,070 | ||||||
Corporate and financial companies | Italy | 4,363 | 4,411 | 4,642 | ||||
Outside Italy | 216 | 290 | 355 | |||||
4,579 | 4,701 | 4,997 | ||||||
Total | Italy | 39,765 | 39,427 | 39,480 | ||||
Total | Outside Italy | 33,807 | 36,435 | 39,400 | ||||
73,572 | 75,862 | 78,880 | ||||||
of which senior managers | 1,603 | 1,585 | 1,658 |
Exploration & Production | Italy | 5,224 | 5,468 | 5,287 | |||
Outside Italy | 3,799 | 5,423 | 5,583 | ||||
9,023 | 10,891 | 10,870 | |||||
Gas & Power | Italy | 9,425 | 9,113 | 8,911 | |||
Outside Italy | 2,468 | 2,579 | 2,493 | ||||
11,893 | 11,692 | 11,404 | |||||
Refining & Marketing | Italy | 7,101 | 6,641 | 6,493 | |||
Outside Italy | 2,327 | 1,686 | 1,673 | ||||
9,428 | 8,327 | 8,166 | |||||
Petrochemicals | Italy | 5,476 | 5,230 | 5,054 | |||
Outside Italy | 1,058 | 1,044 | 1,014 | ||||
6,534 | 6,274 | 6,068 | |||||
Engineering & Construction | Italy | 6,618 | 7,316 | 7,003 | |||
Outside Italy | 26,493 | 28,313 | 28,966 | ||||
33,111 | 35,629 | 35,969 | |||||
Other activities | Italy | 1,172 | 1,070 | 968 | |||
Outside Italy | - | - | - | ||||
1,172 | 1,070 | 968 | |||||
Corporate and financial companies | Italy | 4,411 | 4,642 | 4,583 | |||
Outside Italy | 290 | 355 | 389 | ||||
4,701 | 4,997 | 4,972 | |||||
Total | Italy | 39,427 | 39,480 | 38,299 | |||
Total | Outside Italy | 36,435 | 39,400 | 40,118 | |||
75,862 | 78,880 | 78,417 | |||||
of which senior managers | 1,585 | 1,658 | 1,649 | ||||
Share Ownership
As of April 30, 2009,March 29, 2010, the cumulative number of shares owned by the Eni’s directors, statutory auditors and senior managers, including the three Chief Operating Officers, was 242,769231,870 equal to approximately 0.006% of Eni’s share capital outstanding as of the same data. In this time frame, no further options to purchase Eni shares were granted by the Company to those persons (see tables in the section "Stock Option Plans"). Eni issues only ordinary shares, each bearing one-vote right; therefore shares held by those persons have no different voting rights. The break-down of share ownership for each of those persons is provided below.
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Name | Position | Number of shares owned | Option granted(*) | |
Board of Directors | ||||||
Roberto Poli | Chairman | |||||
Paolo Scaroni | CEO and COO of Eni | 56,250 | 1,894,230 | |||
Alberto Clô | Director | |||||
Paolo Andrea Colombo | Director | 1,650 | ||||
Paolo Marchioni | Director | 600 | ||||
Marco Reboa | Director | |||||
Mario Resca | Director | |||||
Pierluigi Scibetta | Director | |||||
Francesco Taranto | Director | 500 | ||||
Chief Executive Officers | ||||||
Claudio Descalzi | Chief Operating Officer of the E&P Division | 24,455 | 182,830 | |||
Domenico Dispenza | Chief Operating Officer of the G&P Division | 99,715 | 251,275 | |||
Angelo Caridi | Chief Operating Officer of the R&M Division | 40,595 | 150,500 | |||
Board of Statutory Auditors | 1,000 | |||||
Senior managers | 7,105 | 1,213,995 | ||||
(*) | The Board of Directors, in its meeting of March 11, 2010, determined the number of exercisable options for the 2006-2008 stock option plan, within the number of previously granted rights as of December 31, 2009, as the relevant vesting conditions were assessed (For further details see tables in the section “Stock Option Plans”). |
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
As of May 4, 2009,March 29, 2010, the following persons were 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 | Number of shares owned | Percent of class | ||||
Ministry of Economy and Finance | 813,443,277 | 20.3 | 813,443,277 | 20.3 | ||||
Cassa Depositi e Prestiti | 400,288,338 | 10.0 | 400,288,338 | 10.0 | ||||
BNP Paribas Group | 93,822,428 | 2.3 | ||||||
The Ministry of Economy and Finance, in agreement with the Ministry of Economic Development, retains certain special powers over Eni. See "Item 10 – Additional Information – Memorandum and Articles of Association – Limitations on Voting and Shareholdings – Special Powers of the State". For a discussion of the Eni share buy-back program see "Item 16E – Purchases of Equity Securities by the Issuer and Affiliated Purchasers". As of May 4, 2009March 29, 2010 there were 44,072,28236,275,119 ADRs, each representing two Eni ordinary shares outstanding corresponding to 2.2%2% 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 reported in Note 37 to the Consolidated Financial Statements.
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Item 8. FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
See Item"Item 18 – Financial Statements.Statements".
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Legal Proceedings
Eni is a party to a number of civil actions and administrative arbitral and other judicial proceedings arising in the ordinary course of business. Based on information available to date, and taking into account the existing risk provisions, Eni believes that the foregoing will not have an adverse effect on Eni’s Consolidated Financial Statements. The following is
For a description of the most significant proceedings currently pending. Unless otherwise indicated below, no provisions have been made for these legal proceedings asin which Eni believes that negative outcomes are not probable or because the amountis involved and which may affect Eni’s financial position and results of the provision cannot be estimated reliably.
Environment
Criminal proceedings
ENI SPASubsidence. The Court of Rovigo conducted investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration and extraction activities in the Ravenna and North Adriatic area both on land and in the sea. Eni appointed an independent and interdisciplinary scientific commission, composed of prominent and highly qualified international experts of subsidence caused by hydrocarbon exploration and extraction activities, with the aim of verifying the magnitude and effects and any actions appropriate to reduce or to neutralize any subsidence phenomenon in the area. This commission produced a study which excludes the possibility of any risk to human health or damageoperations see Note 28 to the environment. The study also states that worldwide there are no instances of accidents of harm to public safety caused by subsidence induced by hydrocarbon production. It also shows that Eni employs the most advanced techniques for monitoring, measuring and controlling the soil. This proceeding is in the first level hearing stage. The Veneto Region, other local bodies and two private entities have been acting as plaintiffs. Eni was admitted as a defendant. The Court decided that the proceeding must be heard by the Court of Ravenna.
Alleged damage. In 2002, the public prosecutor of Gela commenced a criminal investigation to ascertain alleged damage caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (formerly EniChem SpA) and Raffineria di Gela SpA. The judge for the preliminary hearing dismissed the accusation of adulteration of food products, while the proceeding for the other allegations regarding pollution and environmental damage remains underway. The trial ended in acquittal with regard to the general manager and officer pro tempore of the refinery. The sentence of the Gela Tribunal stated that the charges were lacking factual basis.
Alleged negligent fire in the refinery of Gela. In June 2002, in connection with a fire at the refinery of Gela, a criminal investigation began concerning alleged negligent fire, environmental crimes and crimes against natural beauty. First degree proceedings ended with an acquittal sentence. In November 2007, the public prosecutors of Gela and of Caltanissetta filed an appeal against this decision.
Investigation of the quality of ground water in the area of the refinery of Gela. In 2002, the public prosecutor of Gela commenced a criminal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. Eni is charged of having breached environmental rules concerning the pollution of water and soil and of illegal disposal of liquid and solid waste materials. The preliminary hearing phase was closed for one employee who would stand trial, while the preliminary hearing phase is ongoing for other defendants. During the hearings the judge admitted as plaintiffs three environmental associations.
Alleged negligent fire (Priolo). The public prosecutor of Siracusa commenced an investigation regarding certain Eni managers who were previously in charge of conducting operations at the Priolo refinery (Eni divested this asset in 2002) to ascertain whether they acted with negligence in connection with a fire that occurred at the Priolo plants on April 30 and May 1-2, 2006. After preliminary investigations and based on the outcome of preliminary hearing the public prosecutor requested the opening of a proceeding against the mentioned managers for negligent behavior.
Groundwater at the Priolo site. The Public Prosecutor of Siracusa (Sicily) has started an investigation in order to ascertain the level of contamination of the groundwater at the Priolo site. The Company has been notified that a number of its executive officers are being investigated who were in charge at the time of the events subject to probe, including chief executive officers and plant general managers of the Company’s subsidiaries AgipPetroli SpA (now merged into the parent company), Syndial and Polimeri Europa. Probes on technical issues are ongoing as required by the Prosecutor.
ENIPOWER SPAAlleged unauthorized waste management activities. In 2004, the public prosecutor of Rovigo commenced an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to the samples of soil used during the construction of the new EniPower power station in Mantova. The prosecutor requested the CEO of EniPower and the managing director of the Mantova plant at the time of the alleged crime to stand trial.
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Air emissions. The public prosecutor of Mantova commenced an investigation against two managers of the Mantova plant in connection with air emissions by the new power plant.
SYNDIAL SPAPorto Torres. In March 2009, the Public Prosecutor of Sassari (Sardinia) resolved to commence a criminal trial against a number of executive officers and managing directors of companies engaging in petrochemicals operations at the site of Porto Torres, including the manager responsible for plant operations of the Company’s fully-owned subsidiary Syndial. The charge involves environmental damage and poisoning of water and stuff destined to feeding. A preliminary hearing is scheduled in July 2009.
Civil and administrative proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)Alleged pollution caused by the activity of the Mantova plant. In 1992, the Ministry of Environment summoned EniChem SpA (now Syndial SpA) and Edison SpA before the Court of Brescia. The Ministry requested, primarily, environmental remediation for the alleged pollution caused by the activity of the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, the payment of environmental damages. Edison agreed on a settlement with the Ministry whereby Edison quantified compensation for environmental damage freeing from any obligation Syndial, which purchased the plant in 1989. Parties are working through a possible settlement of the matter.
Summon before the Court of Venice for environmental damages allegedly caused to the lagoon of Venice by the Porto Marghera plants. On December 13, 2002, EniChem SpA (now Syndial SpA), jointly with Ambiente SpA (now merged into Syndial SpA) and European Vinyls Corporation Italia SpA, was summoned before the Court of Venice by the Province of Venice. The province requested compensation for environmental damages that were not quantified, allegedly caused to the lagoon of Venice by the Porto Marghera plants, which were already the subject of two previous criminal proceedings against employees and managers of the defendants. EVC Italia and Ineos presented an action to be indemnified by Eni’s Group companies in case the alleged pollution is proved. The environmental damage has been assessed by an independent consultant who filed his advice to be discussed in a hearing set in October 2009.
Claim of environmental damages, allegedly caused by industrial activities in the area of Crotone, commenced by the President of the Regional Council of Calabria. On April 14, 2003, the President of the Regional Council of Calabria, as Delegated Commissioner for Environmental Emergency in the Calabria Region, commenced an action against EniChem SpA (now Syndial SpA) with reference to environmental damages for approximately euro 129 million and damages for euro 250 million (plus interest and compensation) in connection with loss of income and damage to property allegedly caused by industrial activities in the area of Crotone. In addition, the Province of Crotone is acting as plaintiff, claiming damage for euro 300 million. With a decision in May 2007, the Court of Milan declared the invalidity of the power of proxy conferred to the Delegated Commissioner to act on behalf of the Calabria Region with the notice served to Syndial SpA and decided the liquidation of expenses born by the defendant. The Province of Crotone appealed this decision. The second instance court accepted this appeal and Syndial repealed this determination. On October 21, 2004, Syndial was convened before the Court of Milan by the Calabria Region which is seeking to obtain a condemnation of Syndial for a damage payment, should the office of the Delegated Commissioner for Environmental Emergency in the Calabria Region cease during this proceeding. The Calabria Region requested a damage payment amounting to euro 800 million as already requested by the Delegated Commissioner for Environmental Emergency in the Calabria Region in the proceeding commenced in 2003. This new proceeding is in the preliminary investigation stage. This proceeding was unified with the one opened by the Ministry of the Environment. Syndial filed a new project for the environmental remediation of the site to be approved by the Ministry and the body of public administrations and entities involved in the matter that expressed a first partial consent in January 2009. The environmental provision was consequently increased. In 2006, the Council of Ministers, Ministry for the Environment and the Delegated Commissioner for Environmental Emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan to obtain the ascertainment, quantification and payment of damage (in the form of land, air and water pollution and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the Municipality of Crotone and in surrounding municipalities. The local authorities requested the ascertainment of Syndial’s responsibility as concerns expenses borne and to be borne for the cleanup and reclamation of sites, currently quantified at euro 129 million. This proceeding concerns the same matter and damage claim as the proceedings commenced by the Delegated Commissioner for Environmental Emergency in the Calabria Region and the Calabria Region against Syndial in 2003 and 2004, respectively.
Summon for alleged environmental damage caused by DDT pollution in the Lake Maggiore. With a temporarily executive decision dated July 3, 2008 the District Court of Turin sentenced the subsidiary Syndial SpA (former EniChem) to compensate for environmental damages that were allegedly caused when EniChem managed an industrial plant at Pieve Vergonte during the 1990-1996 period. Specifically, the Court sentenced Syndial to pay the Italian Ministry of the Environment compensation amounting to euro 1,833.5 million, plus legal interests that
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accrue from the filing of the decision. Syndial and Eni technical-legal consultants have considered the decision and the amount of the compensation to be without factual and legal basis and have concluded that a negative outcome of this proceeding is unlikely. Particularly, Eni and its subsidiary deem the amount of the environmental damage to be absolutely ill-founded as the sentence has been considered to lack sufficient elements to support such a material amount of the liability charged to Eni and its subsidiary with respect to the volume of pollutants ascertained by the Italian Environmental Minister. As no development of the proceeding has occurred since the filing of the Court’s decision, management has confirmed its stance of making no provision for this proceeding in accordance with accounting principles. Syndial will appeal against the ruling on Pieve Vergonte site of the District Court of Turin as soon as possible. Another administrative proceeding is ongoing regarding a ministerial decree enacted by the Italian Ministry for the Environment. The decree provides that Syndial executes the following tasks: (i) the upgrading of a hydraulic barrier to protect the site; and (ii) the design of a project for the environmental remediation of Lake Maggiore. The Administrative Court of Piemonte rejected Syndial’s opposition against the outlined environmental measures requested by the Ministry of the Environment. However, the Court judged the prescriptions of the Ministry regarding the remediation of the site to be plain findings of an environmental enquiry to ascertain the state of the lake. Syndial has filed an appeal against the decision of the Court before an upper degree body, also requesting suspension of the effectiveness of the decision. The appeal has been put on hold considering that a plan to ascertain the environmental status of the site is going to be approved by all interested parties, including the Ministry and local municipalities.
Action commenced by the Municipality of Carrara for the remediation and reestablishment of previous environmental conditions at the Avenza site and payment of environmental damage. The Municipality of Carrara commenced an action before the Court of Genova requesting Syndial SpA to remediate and restore previous environmental conditions at the Avenza site and the payment of certain environmental damage which cannot be cleaned up as well as further damages of various types (e.g. damage to the natural beauty of this site). This request is related to an accident that occurred in 1984, as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), at the time owner of the site, carried out safety and remediation works. The Ministry of the Environment joined the action and requested environmental damage payment – from a minimum of euro 53.5 million to a maximum of euro 93.3 million – to be broken down among the various companies that ran the plant in the past. Syndial summoned Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA, who ran the plant in previous years, in order to be guaranteed. A report produced by an independent expert appointed by the judge was filed with the Court. The findings of this report quantify the residual environmental damage at euro 15 million. With a sentence of March 2008, the Court of Genova rejected all claims made by the Municipality of Carrara and the Ministry of environment. Both plaintiffs filed an appeal against this decision in June 2008, requesting to all defendants cumulative damage amounting to euro 189.9 million. Syndial filed in the appeal hearing, disputing the plaintiffs’ claims.
Ministry for the Environment Augusta harbor. The Italian Ministry for the Environment with various administrative acts ordered companies running plants in the petrochemical site of Priolo to perform safety and environmental remediation works in the Augusta harbor. Companies involved include Eni subsidiaries Polimeri Europa and Syndial. Pollution has been detected in this area primarily due to a high mercury concentration which is allegedly attributed to the industrial activity of the Priolo petrochemical site. Polimeri Europa opposed said administrative actions, objecting in particular to the way in which remediation works have been designed and information on concentration of pollutants has been gathered. The Regional Administrative Court of Catania with its decision of July 2007 annulled the decision made by the Service Conference of the Ministry of the Environment concerning Priolo and the Augusta harbor. The Ministry and the municipalities of Augusta and Melilli filed a claim with an Administrative Court of the Sicily Region which accepted the claim. In January 2008 the Regional Court of Catania accepted two further claims on this matter, remitting to the European Union Court of Justice the correct application of the debated community principle on the matter of environmental responsibility. In June 2008 the Ministry for the Environment and the Municipalities of Melilli and Augusta filed and appeal against the decision of the Regional Court of Catania with the Administrative Justice Council. Syndial challenged the administrative acts of December 20, 2007 and March 6, 2008, also requesting the Court of Justice of the EU to decide on the correct application of the debated community principle. A review of the issue made by an independent consultant has been filed showing evidence supporting the thesis of the plaintiffs. The proceedings are still pending before the Administrative Court of Lazio.
ENI SPAReorganization procedure of the airlines companies Volare Group, Volare Airlines and Air Europe. On March 2009 Eni was notified a bankruptcy claw-back as part of a reorganization procedure filed by the airlines companies Volare Group, Volare Airlines and Air Europe which commenced under the provisions of Ministry of Production Activities, on November 30, 2004. The request regarded the override of all the payments made by those entities to Eni and its subsidiary Sofid in the year previous to the insolvency declaration from November 30, 2003 to November 29, 2004, for a total estimated amount of euro 46 million.
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Other judicial or arbitration proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)Serfactoring: disposal of receivables. In 1991, Agrifactoring SpA commenced proceedings against Serfactoring SpA, a company 49% owned by Sofid SpA and which is controlled by Eni SpA. The claim relates to an amount receivable of euro 182 million for fertilizer sales (plus interest and compensation for inflation), originally owed by Federconsorzi to EniChem Agricoltura SpA (later Agricoltura SpA - in liquidation), and Terni Industrie Chimiche SpA (merged into Agricoltura SpA - in liquidation), that has been merged into EniChem SpA (now Syndial SpA). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent to collect payments. Agrifactoring guaranteed to pay the amount of such receivables to Serfactoring, regardless of whether or not it received payment on the due date. Following payment by Agrifactoring to Serfactoring, Agrifactoring was placed in liquidation and the liquidator of Agrifactoring commenced proceedings in 1991 against Serfactoring to recover such payments (equal to euro 182 million) made to Serfactoring based on the claim that the foregoing guarantee became invalid when Federconsorzi was itself placed in liquidation. Agricoltura and Terni Industrie Chimiche brought counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent. The amount of these counterclaims has subsequently been reduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, which have all been joined, were decided with a partial judgment, deposited on February 24, 2004; the request of Agrifactoring has been rejected and the company has been ordered to pay the sum requested by Serfactoring and damages in favor of Agricoltura, to be determined following the decision. A final verdict on this issue is pending. 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. On June 2008, the trial was decided with a partial judgment that, reforming the previous judgment of the Court of Rome, granted the requests of Agrifactoring and condemned Serfactoring to reimburse to Agrifactoring in liquidation the amount of the receivables due from Federconsorzi and not collected as Federconsorzi went bankrupt. The Court resolved to appoint an independent accounting consultant to quantify the amount paid by Agrifactoring to Serfactoring and amounts paid by Federconsorzi to Agrifactoring. The hearing has been rescheduled to February 2010 in order to allow the Court to review the independent accounting consultant’s advice. Syndial and Serfactoring have appealed the sentence with the Supreme Court of Appeal. Agrifactoring has presented a counter-recourse. Eni accrued a provision with respect to this proceeding.
ENI SPAFintermica. Fintermica presented a claim against Eni concerning the management of the Jacorossi joint venture with reference to an alleged abuse of key roles played by Eni SpA in the joint venture, thus damaging the other partner’s interest and the alleged dilatory behavior of Syndial in selling its interest in the joint venture to Fintermica. The parties decided to commence arbitration on the matter. The examining phase is ongoing and an independent assessment of this matter is being executed. The Board of Arbitrators issued a decision on November 26, 2008 condemning Eni and Syndial to compensate Fintermica for the damages suffered amounting to euro 5 million including monetary revaluation and accrued interest as of April 3, 2001.
SNAMPROGETTI SPACEPAV Uno and CEPAV Due. Eni holds interests in the CEPAV Uno (50.36%) and CEPAV Due (52%) consortia that in 1991 signed two contracts with TAV SpA for the construction of two railway tracks for high speed/high capacity trains from Milan to Bologna (under construction) and from Milan to Verona (in the design phase). With regard to the project for the construction of the line from Milan to Bologna, an Addendum to the contract between CEPAV Uno and TAV was signed on June 27, 2003, redefining certain terms and conditions of the contract. Subsequently, the CEPAV Uno consortium requested a time extension for the completion of works and a claim amounting to euro 800 million. CEPAV Uno and TAV failed to solve this dispute amicably. CEPAV Uno opened an arbitration procedure as provided for under terms of the contract on April 27, 2006. With regard to the project for the construction of a high-speed railway from Milan to Verona, in December 2004, CEPAV Due presented the final project, prepared in accordance with Law No. 443/2001 on the basis of the preliminary project approved by an Italian governmental authority (CIPE). As concerns the arbitration procedure requested by CEPAV Due against TAV for the recognition of costs incurred by the Consortium in the 1991-2000 ten-year period plus suffered damage, in January 2007, the arbitration committee determined the Consortium’s right to recover the costs incurred in connection with the design activities performed. A technical independent survey is underway to assess the amount of compensation to be awarded to the Consortium as requested by the arbitration committee. TAV appealed the arbitration committee’s determination. In April 2007, the Consortium filed with the second instance court of Rome an appeal against Law Decree No. 7 of December 31, 2007, that revoked the concessions awarded to TAV resulting in the annulment of arrangements signed between TAV and the Consortium to build the high-speed railway section from Milan to Verona. The European Court of Justice was requested to judge on this matter. In the meantime, TAV decided to not request the reimbursement of advances paid to the Consortium. Subsequently, Law 133/2008 re-established the concessions awarded to TAV resulting in the continuation of the arrangements between the consortium CEPAV Due and a new entity in charge of managing the Italian railway system.
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Antitrust, EU Proceedings, Actions of the Authority for Electricity and Gas and of Other Regulatory Authorities
Antitrust
ENI SPAAbuse of dominant position of Snam alleged by the Italian Antitrust Authority. In March 1999, the Italian Antitrust Authority concluded its investigation started in 1997 and: (i) found that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam for euro 2 million; and (iii) ordered a review of the practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Authority did not appeal this decision. The decision on the merit of this dispute is still pending before the same Administrative Court.
Formal assessment commenced by the Commission of the European Communities for the evaluation of alleged participation to activities limiting competition in the field of paraffin. On April 28, 2005, the Commission of the European Communities commenced a formal assessment to evaluate the alleged participation of Eni and its subsidiaries in activities limiting competition in the field of paraffin. The alleged violation of competition is for: (i) the determination of and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. After, the Commission requested information on Eni’s activities in the field of paraffin and certain documentation acquired by the Commission during an inspection. Eni filed the requested information. On October 2008, the Commission of the European Communities issued the final decision on the matter condemning Eni to the payment of a sanction amounting to euro 29,120,000. Eni has filed for recourse against this decision that is fully covered by the accrued risk provision.
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 that the Group companies 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. 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 public its decision to start a further stage of inquiry, as the elements collected supported its suspicion that Eni adopted behaviors leading to "capacity hoarding and strategic, in its view, 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". On March 9, 2009 Eni received a Statement of Objections related to a proceeding under Article No. 82 of the EU Treaty and Article No. 54 of the SEE agreement with reference to an alleged unjustifiable refusal of access to the TAG and TENP/Transitgas gas pipelines, that are interconnected with the Italian gas transport system through actions intended to "capacity hoarding, capacity degradation and strategic limitation of investment" with the effect of "hindering the development of a real competition in the downstream market and [...] harming the consumers". The European Commission envisages the possible imposition of a fine and of structural remedies. The Company is currently assessing the reasoning underlying the Commission’s objections in order to ascertain whether the challenged actions are supported by evidence and may be qualified as infringement of the European competition rules. The Company will file its defensive memories within the proceeding. In addition, and following the aforementioned assessment, the Company may consider whether to voluntarily file a set of remedies to settle the proceeding as provided by Article No. 9 of the European Regulation No. 1/2003. Taking into account the numerous elements to be considered in determining the amount of the fine, the complex checks to carry out with respect to the Statement of Objections, and also the circumstance that the Commission’s approval of the possible remedies, presented by Eni pursuant to European Regulation No. 1/2003, would settle the matter without imposing a fine, management believes that the liability is contingent upon the future events described and cannot be measured with reasonable reliability.
TTPC. In April 2006, Eni filed a claim before the Regional Administrative Court of Lazio against the decision of the Italian Antitrust Authority of February 15, 2006 stating that Eni’s behavior pertaining to implementations of plans for the upgrading of the TTPC pipeline for importing natural gas from Algeria represented an abuse of dominant position under Article 82 of the European Treaty and fined Eni. The initial fine amounted to euro 390 million and was reduced to euro 290 million in consideration of Eni’s commitment to perform actions favoring competition including the upgrade of the gasline. Eni accrued a provision with respect to this proceeding. With a decision filed on November 29, 2006, the Regional Administrative Court of Lazio partially accepted Eni’s claim, annulling such part of the Authority’s decision where the fine was quantified. Eni is waiting for the filing of the motivations of the Court decision to ascertain the impact of said decision. Pending this development, the payment of the fine has been voluntarily suspended. In 2007, the Regional Administrative Court of Lazio accepted in part Eni’s claim and cancelled the quantification of the fine based on the Antitrust Authority’s inadequate evaluation of the
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circumstances presented by Eni. Eni filed an appeal with the Council of State, as did the Antitrust Authority and TTPC. Pending the final outcome, Eni awaits for the determination of the amount of the fine to be paid.
Italian natural gas market. On May 7, 2009, the Italian Antitrust Authority started a preliminary investigation against the Company and its fully-owned subsidiary Italgas and other operators engaging in the gas retail market in Italy. The investigation targets an alleged abuse of dominant position in the gas retail market in Italy associated with commercial practices intended to make it difficult for retail clients to change the supplier and the retrieval of data on volumes.
POLIMERI EUROPA SPA AND SYNDIAL SPAInquiries in relation to alleged anti-competitive agreements in the area of elastomers. In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the field of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. At present, proceedings are pending before the European Commission regarding the CR and NBR products. In March 2007, the Commission sent to Eni, Polimeri Europa and Syndial a statement of objections, thus opening the second phase of this proceeding. In December 2007, the European Commission dismissed Syndial’s position on CR and imposed on Eni and Polimeri a fine amounting to euro 132.16 million. The two companies have filed an appeal with the EU Court of First Instance against this decision and, at the same time, paid the fine in March 2008. Investigations relating to other elastomers products resulted in the ascertainment of Eni having infringed European competition laws in the field of synthetic rubber production (BR and ESBR). On November 29, 2006, the Commission fined Eni and its subsidiary Polimeri Europa for an amount of euro 272.25 million. Eni and its subsidiary filed claims against this decision before the European Court of First Instance in February 2007. The Commission filed a counter appeal. Pending the outcome, Polimeri Europa presented a bank guarantee for euro 200 million and paid the residual amount of the fine. In August 2007, Eni submitted a request for a negative ascertainment with the Court of Milan aimed at proving the non-existence of alleged damages suffered by tire manufacturers. With regard to NBR, an inquiry is underway also in the U.S., where class actions have also been commenced. On the federal level, the class action was abandoned by the plaintiffs. However, the federal judge has yet to acknowledge this abandonment. With regard to other products under investigation in the U.S., settlements were reached with both relevant U.S. antitrust authorities and the plaintiffs acting through a class action. Eni recorded a provision for these matters.
Regulation
TOSCANA ENERGIA CLIENTI SPAEni’s subsidiary Toscana Energia Clienti SpA started an action against a customer regarding alleged lack of measurement of gas consumption due to inability to access a measurement facility at the customer’s site, also in connection with the application of Resolution No. 229/2001 of the Italian Authority for Electricity and Gas. This customer has annual consumption in excess of 5,000 CM. The defendant has filed a counter-claim in relation to this proceeding. In the hearing of November 12, 2008 the judge resolved to partially accept the Eni’s subsidiary reasons and to limit compensation to be paid to the defendant to only euro 1,475 with interests amounting to euro 90. The sum was paid while the defendant is evaluating the opportunity to appeal the sentence.
DISTRIBUIDORA DE GAS CUYANA SAFormal investigation of the agency entrusted with the regulations for the natural gas market in Argentina.Enargas started a formal investigation on some operators, among them Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. In April 2004 the company filed a defensive memorandum. On April 28, 2006, the company formally requested the acquisition of documents from Enargas in order to have access to the documents on which the allegations are based.
Tax Proceedings
ENI SPADispute for the omitted payment of the municipal tax related to oil platforms located in territorial waters in the Adriatic Sea. With a formal assessment presented by the Municipality of Pineto (Teramo) in December 1999, Eni SpA has been accused of not having paid a municipal tax on real estate for the period from 1993 to 1998 on four oil platforms located in the Adriatic Sea which constitute municipal waters in front of the coast of Pineto. Eni was requested to pay a total of approximately euro 17 million including interest and a fine. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application as requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. However, the Court overturned both judgments, declaring that a municipality can consider requesting a tax on real estate in the sea facing its territory and with the decision of February 2005 sent the proceeding to another section of the Regional Tax Commission in order
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to judge on the matters of the proceeding. This commission nominated a Board of Consultants, in order to make all the accounting/technical verifications necessary for the judgment. On December 28, 2005, the Municipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested from Eni is euro 24 million including interest and penalties. Eni filed a claim against this request which was accepted by the first degree judge with a decision of December 4, 2007. Similar formal assessments related to Eni oil and gas offshore platforms were presented by the Municipalities of Falconara Marittima and Pedaso. The total amounts of those claims were approximately euro 6 million. The company filed appeal or is planning to appeal.
AGIP KARACHAGANAK BVClaims 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 Co BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of 2000 to 2003 tax audits. Both companies counterclaimed against the assessment and a preliminary agreement was reached on November 18, 2004. Final assessments have now been issued by the Kazakh Authorities, and payment has been made. The final amount assessed and paid was $39 million net to Eni; this figure included taxes and interest. The companies continue to dispute the assessments and reserve the right to challenge their findings further.
Court Inquiries
EniPower. In June 2004, the Milan Public Prosecutor commenced inquiries into contracts awarded by Eni’s subsidiary EniPower and on supplies from other companies to EniPower. These inquiries were widely covered by the media. It emerged that illicit payments were made by EniPower suppliers to a manager of EniPower who was immediately dismissed. The Court presented EniPower (commissioning entity) and Snamprogetti (contractor of engineering and procurement services) with notices of process in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In its meeting of August 10, 2004, Eni’s Board of Directors examined the aforementioned situation and Eni’s CEO approved the creation of a task force in charge of verifying the compliance with Group procedures regarding the terms and conditions for the signing of supply contracts by EniPower and Snamprogetti and the subsequent execution of works. The Board also advised divisions and departments of Eni to cooperate fully in every respect with the Court. From the inquiries performed, no default in the organization emerged, nor deficiency in internal control systems. External experts have performed inquiries with regard to certain specific aspects. In accordance with its transparency and firmness guidelines, Eni will take the necessary steps in acting as plaintiff in the expected legal action in order to recover any damage that could have been caused to Eni by the illicit behavior of its suppliers and of their and Eni employees. In the meantime, preliminary investigations have found that both EniPower and Snamprogetti are not to be considered defendants in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In August 2007, Eni was notified that the Public Prosecutor requested the dismissal of EniPower SpA and Snamprogetti SpA, while the proceeding continues against former employees of these companies and employees and managers of the suppliers under the provisions of Legislative Decree No. 231/2001. Eni SpA, EniPower and Snamprogetti presented themselves as plaintiffs.
Trading. An investigation is pending regarding two former Eni managers who were allegedly bribed by third parties to favor the closing of certain transactions with two oil product trading companies. Within such investigation, on March 10, 2005, the public prosecutor of Rome notified Eni of two judicial measures for the seizure of documentation concerning Eni’s transactions with the said companies. Eni is acting as plaintiff in this proceeding. The judge for preliminary hearings rejected most of the dismissal request, forcing the public prosecutor to continue with the criminal case.
TSKJ Consortium Investigations of the SEC and other Authorities. The U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice (DoJ), and other authorities are investigating alleged improper payments made by the TSKJ Consortium to certain Nigerian public officials in relation to the construction of natural gas liquefaction facilities at Bonny Island in Nigeria. Snamprogetti Netherlands BV had a 25% participation in the TSKJ companies, with the remaining participations held by subsidiaries of Halliburton/KBR, Technip, and JGC. Snamprogetti SpA, the holding company of Snamprogetti Netherlands BV, was a wholly owned subsidiary of Eni until February 2006, when an agreement was entered into for the sale of Snamprogetti to Saipem SpA and Snamprogetti was merged into Saipem as of October 1, 2008. Eni holds a 43% participation in Saipem. In connection with the sale of Snamprogetti to Saipem, Eni agreed to indemnify Saipem for a variety of matters, including potential losses resulting from the investigations into the TSKJ matter. In February 2009, KBR and its former parent company, Halliburton, announced that they had reached a settlement with the SEC and DoJ with respect to the TSKJ matter as well as other unspecified matters. In connection with the settlement, KBR pleaded guilty to Foreign Corrupt Practices Act (FCPA) charges stemming from the TSKJ matter. KBR and Halliburton also agreed to pay a substantial fine and entered into civil settlements with the SEC. We understand that the DoJ and the SEC believe that representatives of the other members of the TSKJ Consortium were involved in the conduct that gave rise to the FCPA charges against KBR. Since June 2004, Eni and Saipem/Snamprogetti have been in discussions with, and have provided information in response to requests by, various regulators, including the SEC, the DoJ and the Public Prosecutor’s office of Milan, in connection with the investigations.
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Gas Metering. On May 28, 2007, a seizure order (in respect to certain documentation) was served upon Eni and other Group companies as part of a proceeding brought by the Public Prosecutor at the Courts of Milan. The order was also served upon five top managers of the Group companies in addition to third party companies and their top managers. The investigation alleges behavior which breaches Italian criminal law, starting from 2003, regarding the use of instruments for measuring gas, the related payments of excise duties and the billing of clients as well as relations with the Supervisory Authorities. The allegation regards, interalia, the offense contemplated by Legislative Decree of June 8, 2001, No. 231, which establishes the liability of the legal entity for crimes committed by its employee in the interests of such legal entity, or to its advantage. Accordingly, notice of the commencement of investigations was served upon Eni Group companies (Eni, Snam Rete Gas and Italgas) as well as third party companies. The Group companies are cooperating with the Supervising Authorities in the investigations.
Agip KCO NV. In November 2007, the public prosecutor of Kazakhstan informed Agip KCO of the start of an inquiry for an alleged fraud in the award of a contract to the Overseas International Constructors GmbH in 2005.
Settled Proceedings
ENI SPAInquiry of the Italian Authority for Electricity and Gas regarding information to clients about the right to pay amounts due for natural gas sales in installments. With Decision No. 228/2007, the Italian Authority for Electricity and Gas commenced a formal inquiry regarding information to clients about the right to pay amounts due for the natural gas sales in installments in order to possibly put a stop to the alleged infringement of the clients’ rights and to impose a fine. In April 2008, the Authority concluded its inquiry and fined the Company by euro 3.2 million.
SYNDIAL SPA (FORMER ENICHEM SPA)Criminal action commenced by the public prosecutor of Brindisi. In 2000, the public prosecutor of Brindisi commenced 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 the public prosecutor asked for the dismissal of the case in respect of the employees and the managers of EniChem. Plaintiffs presented oppositions, but the prosecutor confirmed the request to dismiss the case with a decision of June 2008, the public prosecutor dismissed the accusation as unfounded and requested the closing of the proceeding.
AGIP KCO NVIn December 2007 the Kazakh tax authority filed a notice of tax assessment for fiscal years 2004 to 2006 to Agip KCO, operator of the Kashagan contract. Allegedly unpaid taxes, including interest and penalties, amounted to approximately U.S. $235 million net to Eni and related to unpaid amounts and inapplicable deductions on value added tax and the default in applying certain withholding taxes on payments to foreign suppliers. The same notice also informed the companies party to the Kashagan contract that further assessments were pending on non-deductible costs for U.S. $188 million net Eni and higher taxable income on Kazakh branches for U.S. $48 million net to Eni. The further assessments were subsequently issued, the company filed an appeal and a settlement was reached in October 2008 with the following outcome: the unpaid taxes net to Eni were agreed at U.S. $24 million (U.S. $235 million assessed). An adjustment to deductible costs was agreed at U.S. $38 million net to Eni (U.S. $188 million assessed) and it was further agreed that there would be no income taxable on Kazakh branches (U.S. $48 million assessed).Consolidated Financial Statements.
Dividends
Eni’s dividend policy in future periods, and the sustainability of the current amount of dividends over the next four-year period, will depend upon a number of factors including future levels of profitability and cash flow provided by operating activities, a sound balance sheet structure, capital expenditures and development plans, in light of the "Risk Factors"“Risk Factors” set out in Item 3. The parent Company’s net profit and, therefore, the amounts of earnings available for the payment of dividends will also depend on the level of dividends received from Eni’s subsidiaries. However, subject to such factors, inunder the Company’s scenario for Brent prices at 65 $/BBL flat over the next four-year periodfour years, management intendsplans to pursuepay a dividend policy designedper share for the year 2010 which will be in line with 2009 at euro 1.00 per share. In the subsequent years of the industrial plan 2010-2013 as approved by the Board, the dividend per share is anticipated to ensure competitivegrow in line with OECD inflation. If management assumptions on oil prices were to change, management may rebase the dividend.
Management intend to propose to the Annual Shareholders’ Meeting scheduled on April 29, 2010, the distribution of a dividend yields to Eni’s shareholders. On April 30, 2009, Eni’s Shareholders' Meeting approved a dividend,of euro 1.00 per share for fiscal year 2008, of euro 1.30 per share,2009, of which euro 0.65 per share0.50 was already paid in September 2008 as an interim dividend with the balance of euro 0.65 per share to be paid late in MaySeptember 2009. Total cash outlay for the 20082009 dividend is expected at approximately euro 4.73.6 billion (including the euro 2.361.8 billion already paid in September 2008).2009) in case the Annual Shareholders’ Meeting approves the annual dividend. In future years, management expects to continue paying interim dividends for each fiscal year, with the balance to the full year dividend to be paid in each following year.
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Significant Changes
See "Item 5 – Recent developments"Developments" for a discussion of significant events occurred after 20082009 year-end up to the latest practicable date, including a review of Eni’s performance in the first quarter of 2009, the exercise by Gazprom of the call option to purchase the 20% interest in the Russian company OAO Gazprom Neft held by Eni, the divestment of 100% of Italgas SpA and Stoccaggi Gas Italia SpA to Snam Rete Gas and the finalization of the mandatory tender offer on the minority shareholders of Distrigas.date.
Item 9. THE OFFER AND THE LISTING
Offer and Listing Details
The principal trading market for the ordinary shares of Eni SpA ("Eni"), nominal value euro 1.00 each (the "Shares"), is the Mercato Telematico Azionario or MTA ("Telematico"), the Italian regulated electronic share market,. Telematico, which is the principal trading market for shares in Italy.Italy, is a regulated market organized and managed by Borsa Italiana SpA ("Borsa Italiana"). The Shares are traded on the Blue Chip segment of Telematico, which includes shares of the companies whose market capitalization amounts to more than euro 1,000 million. American Depositary Receipts ("ADRs"), each representing two shares,Shares, are listed on the New York Stock Exchange. The ratio has changed from one ADR per five Shares to one ADR 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 ADRs on the New York Stock Exchange, respectively. Due to the ratio change, the historical prices of ADRs have been adjusted by an adjustment factor of 2.5. See "Item 3 – Key Information – Exchange Rates" regarding applicable exchange rates during the periods indicated below.
Telematico | New York | ||
High | Low | High | Low | ||||
(euro per share) | (U.S. $ per ADR) |
2003 | 15.746 | 11.881 | 37.992 | 26.460 | ||||
2004 | 18.748 | 14.723 | 50.580 | 36.940 | ||||
2005 | 24.960 | 17.930 | 60.540 | 47.400 | ||||
2006 | 25.730 | 21.820 | 67.690 | 54.650 | ||||
2007 | 28.330 | 22.760 | 78.290 | 60.220 | ||||
2008 | 26.930 | 13.798 | 84.140 | 37.220 | ||||
2007 | ||||||||
First quarter | 25.720 | 22.760 | 66.720 | 60.220 | ||||
Second quarter | 27.150 | 24.130 | 72.840 | 64.710 | ||||
Third quarter | 28.330 | 23.310 | 78.290 | 63.160 | ||||
Fourth quarter | 26.680 | 23.320 | 75.660 | 67.220 | ||||
2008 | ||||||||
First quarter | 25.580 | 20.870 | 75.130 | 61.790 | ||||
Second quarter | 26.930 | 21.820 | 84.140 | 68.570 | ||||
Third quarter | 23.450 | 18.263 | 73.930 | 51.410 | ||||
Fourth quarter | 19.350 | 13.798 | 52.600 | 37.220 | ||||
2009 | ||||||||
First quarter | 17.830 | 12.300 | 49.440 | 31.070 | ||||
January 2009 | 17.830 | 16.210 | 49.440 | 42.390 | ||||
February 2009 | 17.630 | 15.740 | 45.690 | 39.200 | ||||
March 2009 | 15.240 | 12.300 | 41.380 | 31.070 | ||||
April 2009 | 16.450 | 14.510 | 43.010 | 37.240 | ||||
May 2009 (through May 4, 2009) | 16.930 | 16.930 | 45.550 | 44.040 |
2004 | 18.748 | 14.723 | 50.580 | 36.940 | ||||
2005 | 24.960 | 17.930 | 60.540 | 47.400 | ||||
2006 | 25.730 | 21.820 | 67.690 | 54.650 | ||||
2007 | 28.330 | 22.760 | 78.290 | 60.220 | ||||
2008 | 26.930 | 13.798 | 84.140 | 37.220 | ||||
2009 | 18.350 | 12.300 | 54.450 | 31.070 | ||||
2008 | ||||||||
First quarter | 25.580 | 20.870 | 75.130 | 61.790 | ||||
Second quarter | 26.930 | 21.820 | 84.140 | 68.570 | ||||
Third quarter | 23.450 | 18.263 | 73.930 | 51.410 | ||||
Fourth quarter | 19.350 | 13.798 | 52.600 | 37.220 | ||||
2009 | ||||||||
First quarter | 17.830 | 12.300 | 49.440 | 31.070 | ||||
Second quarter | 18.350 | 14.510 | 51.800 | 37.240 | ||||
Third quarter | 17.700 | 15.860 | 52.100 | 44.400 | ||||
Fourth quarter | 18.220 | 16.500 | 54.450 | 48.660 | ||||
October 2009 | 18.220 | 16.730 | 54.450 | 48.660 | ||||
November 2009 | 17.540 | 16.500 | 52.450 | 49.740 | ||||
December 2009 | 17.870 | 16.690 | 51.380 | 48.720 | ||||
2010 | ||||||||
First quarter | 18.560 | 16.010 | 53.890 | 43.950 | ||||
January 2010 | 18.560 | 16.710 | 53.890 | 46.520 | ||||
February 2010 | 17.110 | 16.010 | 47.910 | 43.950 | ||||
March 2010 (through March 29, 2010) | 17.870 | 16.840 | 48.710 | 45.680 | ||||
JPMorgan Chase Bank NA (the "Depositary") functions as depositary bank issuing 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.hereunder.
At May 4, 2009As of March 29, 2010 there were 44,072,28236,275,119 ADRs outstanding, representing 88,144,56472,550,238 ordinary shares or 2.2%2% of all Eni’s shares outstanding, held by 107113 holders of record (including the Depository Trust Company) in the United
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States of America, 105111 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/FTSE MIB Index (the "FTSE MIB"), the primary benchmark index for the Italian stock exchange index thatmarket. Capturing approximately 80% of the domestic market capitalization, the FTSE MIB measures the performance of the 40 highly liquid, leading companies inacross leading industries listed on Telematico and seeks to replicate the markets organized and managed by Borsa Italiana SpA ("Borsa Italiana").broad sector weights of the Italian stock market. The constituents of the S&P/FTSE MIB are selected according to the following criteria: sector representation, market capitalization of free-float shares and liquidity. The FTSE MIB is market cap-weighted after adjusting constituents for float. Since September 20, 2004June 1, 2009 the FTSE MIB (previously S&P/MIB Index) 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. Eni’s Shares are the second largest component of the S&P/FTSE MIB after UniCredit, with a weighting of approximately 14.7%.14.9%, as established by Standard & Poor’s and Borsa ItalianaFTSE after the quarterly rebalancing for S&P/FTSE MIB effective March 23, 2009.22, 2010.
Trading in the Telematico is allowed in any quantity of shares or other financial instruments. Where necessary, Borsa Italiana may specify a minimum lot for each financial instrument. 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. 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. In addition, future and option contracts on the Shares are traded on IDEM and securitized derivatives based on the
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Shares are traded on the Italian Securitized 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 securitized derivatives (covered warrants and certificates). Outside Regulated Markets, block trading is permitted for orders that meet certain minimum size requirements and must be notified to Consob and Borsa Italiana.
Markets
Telematico is organizedBorsa Italiana disseminates daily market data and administerednews for each listed security, including volume traded and high and low prices. At the end of each trading day an "official price", calculated as the weighted average price of the total volume of each security traded in the market during the session, and a "reference price", calculated as the closing-auction price, are reported 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, interalia, with regulating the Italian securities market 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 ("ISD"). Borsa Italiana has issued rules governing the organization and management of the Italian Regulated Markets it regulates, which are Telematico (shares, convertible bonds, pre-emptive rights, warrants, and Funds), After Hours, Mercato Expandi (small companies), ETFplus (Exchange Traded Funds and Exchange Traded Commodities market), IDEM (index and stock derivatives market), SeDeX (covered warrants and certificates), and MOT (bond market), as well as the admission to listing on and trading on these markets. Borsa Italiana is part of the London Stock Exchange Group, following the agreement signed in June 2007.
Italiana. For the purposes of the automatic control of the regularity of trading on Telematico, the following price variation limits shall apply to contracts concluded on shares making up the S&P/MIB:FTSE MIB, effective December 10, 2009: (i) ± 7.5%5.0% (or such other amount established by Borsa Italiana in the "Guide to the Parameters" for trading on the regulated markets organized and managed by Borsa Italiana) with respect to the static price (the static price shall be the previous day’s reference price, in the opening auction, or the auction price, in the continuous trading phase); and (ii) ± 3.5% (or such other amount established by Borsa Italiana)Italiana in the "Guide to the Parameters") with respect to the dynamic price (the price of the last contract concluded during the continuous trading phase). The reference price is the closing-auction price. Where the price of a contract that is being concluded exceeds one of the price variation limits referred to above, trading in that security will be automatically suspended and a volatility auction phase begun for a certain period of time.
Effective November
Markets
The Commissione Nazionale per le Società e la Borsa (the National Commission for Companies and the Stock Exchange or "Consob"), is the public authority responsible for regulating and supervising the Italian securities markets to ensure the transparency and regularity of the dealings and protect the investing public. Borsa Italiana, which is part of London Stock Exchange Group, following the merger effective October 1, 2007, followingis a joint stock company authorized by Consob to operate regulated markets in Italy; it is responsible for the national implementationorganization and management of the Italian stock exchange. One of the fundamental characteristics of the financial market organization in Italy is the separation of responsibility for supervision (Consob and the Bank of Italy) from that of market management (Borsa Italiana). Main responsibilities of Borsa Italiana are: to oversee transaction activities; to define the rules and procedures for admission and listing on the market for issuing companies; to define the rules and procedures for admission for intermediaries.
According to Consob Regulations, Borsa Italiana has issued rules governing the organization and management of the Italian Regulated Markets it is responsible for, which are Telematico (shares, convertible bonds, pre-emptive rights, warrants, and Funds), TAH (After Hours trading market), ETFplus (Exchange Traded Funds and Exchange Traded Commodities market), IDEM (index and stock derivatives market), SeDeX (covered warrants and certificates), MOT (bond market), and MIV (Investment Vehicles Market), as well as the admission to listing on and trading on these markets.
According to EU Markets in Financial Instruments Directive (2004/39/EC) ("MiFID"), the so called ’concentration rule’ has been superseded. The MiFID, that replaces the ISD, establishes the legal framework governing investment services and financial markets in Europe. With the new regulatory regime of MiFID,Consob Regulations, orders can be routed not only to Regulated Markets but also to either Multilateral Trading Facilities ("MTF"s) or Systematic Internalisers. An MTF is a multilateral system, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments – in the system and in accordance with non-discretionary rules – in a way that results in a contract. A Systematic Internaliser is an investment firm or a bank which deals on own account by executing client orders outside a Regulated Market or an MTF.
Italian exchanges and securities are primarily regulated byAccording to Legislative Decree No. 58 of February 24, 1998 ("Decree No. 58"). According to Decree No. 58,, the consolidated law on financial intermediaries, the provision of investment services and activities to the public on a professional basis is reserved to banks and investment firms ("intermediaries"), which are firms authorized persons"). The Bank of Italy and Consob shall exercise supervisory powers over authorized persons. They shall each supervise the observance of regulatory and legislative provisions according to provide investment services or activities.their respective responsibilities. In addition, banks and investment firms organizedparticular, in a member nationconnection with the pursuance of the EU are permitted to operatesafeguarding of faith in Italy provided that the intentfinancial system, the protection of investors, the stability and correct operation of the bank or investment firm to operate in Italy is communicated to Consob byfinancial system, the competent authoritycompetitiveness of the member state. Non-EU banksfinancial system and non-EU investment
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firms may operate in Italy subject to the specific authorizationobservance of Consob, in agreement with the Bank of Italy. Pursuant to Decree No. 58, Consob shall be responsible for the transparency and correctness of conduct of intermediaries andfinancial provisions, the Bank of Italy shall be responsible for risk containment, asset stability and the sound and prudent management of intermediaries. intermediaries whilst Consob shall be responsible for the transparency and correctness of conduct.
The Bank of Italy, in agreement with Consob, also regulates the operation of the clearing and settlement service for transactions involving financial instruments. The regulations and measures of general application adopted by Consob and the Bank of Italy are available on the website of Consob (www.consob.it) or Bank of Italy (www.bancaditalia.it). The regulations adopted by Borsa Italiana are available on its website (www.borsaitaliana.it).
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Item 10. ADDITIONAL INFORMATION
Memorandum and Articles of Association
The full text of the memorandum and articles of association ofRegister office
"Eni is attached as an exhibit to this annual report. See "Exhibit 1".
Eni is incorporated under the name "Eni SpA" resultingresults from the transformationprivatization of Ente Nazionale Idrocarburi, a public law agency, established by Law No. 136 of February 10, 1953. 1953 and it is registered at the Rome Companies Register, with identification number (and Tax number) 00484960588, and Vat number 0090581106.
The full text of Eni’s By-Laws is attached as an exhibit to this annual report (last amended on March 25, 2009). See "Exhibit 1".
Company objects and purpose
According to Article 4 of Eni’s By-Laws, Company’s purpose is the direct and/or indirectobjects include: 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 withrespect of concessions requiredprovided by law.
The Company also has the purpose of direct and/or indirectlaw; management by way of shareholdings in companies, agencies or businesses, of activities in the fields of chemicals, nuclear fuels, geothermygeothermal and renewable energy sources, in the sector ofindustrial plant construction and 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 ofdistribution, environmental protection and treatment and disposal of waste, as well as in everyany other business activity that is instrumental, supplemental or complementary with the aforementioned activities.
The Company also has the purpose of managingmanages 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 forcompanies. Moreover, the achievement of 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 purpose with the exception of public fund raising and the performance of investment services as regulated by Decree No. 58 of February 24, 1998.
The Company may take shareholdings and interests in other companies or businessesbusiness 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.
DirectorsDirectors’ issues
The Eni 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 purpose, except for the acts that the law or Eni’s By-lawsBy-Laws reserve to the Shareholders’ Meeting. The Board of Directors has appointed a Chief Executive Officer and delegated to him all necessary powers for the administration of the Company, with the exception of those powers that cannot be delegated in accordance with current legislation and those retained exclusively by the Board onof Directors on the matters regarding major strategic, operational and organizational decisions.
ForAccording with Eni’s By-Laws, a complete descriptionmajority of members having a voting right must be present for a Board meeting to be valid. Board’s resolutions are taken with the majority of votes of the powersmembers (with voting rights) present at the meeting; votes are equal, the person who chairs the meeting has a casting vote.
Interests in Company’s transactions
As provided by Italian Civil Code, when a Director retains a personal interest or an interest on behalf of third parties in Company’s transactions, he shall disclose it to the others (as well as to the Board of Statutory Auditors), specifying the nature, terms, origin and extent of such interest. Based on this provision and in compliance with the provisions of the Eni Corporate Governance Code, the Board of Directors – in its decision of February 12, 2009 and with the CEOopinion of the Internal Control Committee – has adopted a specific policy ("Guidelines on transactions involving interests of Directors or Statutory Auditors and related parties transactions"), to detail the above mentioned disclosure obligations (extending them to the Statutory Auditors). According to these Guidelines Directors involved in matters subject to the Board resolution normally shall not participate in the correspondent discussion and decision and shall leave the room during these procedures. If the person involved is the Chief Executive Officer and the Chairman, appointments, roletransaction is under his jurisdiction, he shall in any case abstain from taking part in the transaction and shall entrust the matter to the Board of Directors (as provided by Article 2391 of the BoardCivil Code). Moreover, to ensure compliance with the preliminary and rulesauthorizing procedures described, Eni’s Directors and proceduresStatutory Auditors shall periodically issue a statement representing the potential interests each one of them has with respect to the Company and the Group, and in any case they shall promptly notify the Chief Executive Officer (or the Chairman, if the matter concerns the latter’s interest) – who shall inform the other Directors and the Statutory Auditors – of the meetingsindividual transactions that the Company intends to perform, in which they have an interest.
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Compensation
Directors’ compensation is determined by the Shareholders Meeting, as required by Italian civil law, while compensation of Directors invested with particular powers (such as the Chairman and the CEO) is determined by the Board of the Directors, on proposal of the Compensation Committee after consultation with the Board of Statutory Auditors (for more details about compensation policy in 2009, see "Item 6 – Board Practices"Compensation").
Borrowing powers
Borrowing powers exercisable by directors are included in the Company purpose. Moreover, according to the Article 11 of the By-Laws, the Company may issue bonds, including convertibles and warrant bonds in compliance with the law.
Retirement and shareholdings
There are no provisions asin the By-Laws relating both to the retirement based on age-limit requirements and the number of shares required for director’s qualification.
Company’s shares
According to Article 5 of the By-Laws, the Company’s share capital amounts to euro 4,005,358,876, fully paid, and is represented by 4,005,358,876 ordinary nominative shares with a nominal value of euro 1 (one) each. As required by Italian legislation on dematerialization of financial instruments, Eni’s shares must be held with "Monte Titoli" (the Italian Central Depository for financial instrument) and their beneficial owners may exercise their rights through special deposit accounts opened with authorized intermediaries, such as banks, brokers and securities dealers.
Shares are indivisible and each share is entitled to one vote. Shareholders are allowed to vote at ordinary and extraordinary Shareholders’ Meeting, also through proxy or requirementmail.
Moreover, according to Article 9 of the By-Laws, the Shareholders’ Meeting might resolve to increase the Company capital by issuing shares, including shares of different classes, to be assigned for no consideration to Eni’s employees, pursuant to Article 2349 of the Italian Civil Code. This faculty has not been exercised.
In 1995, Eni established a sponsored ADR (American Depositary Receipts) program directed to U.S. investors. Each of Eni’s ADR is equal to two of Eni’s ordinary shares; Eni’s ADR are listed on the New York Stock Exchange.
Dividend rights
Shareholders have the right to participate in profits and any other right as provided by the law and subject to any applicable legal limitations: in particular, the ordinary Shareholders’ Meeting called for the approval of the annual financial statements may allocate the net income resulting after the allotment to the legal reserve, to the payment of a final dividend per share. In addition, during the course of the financial year, the Board of Directors has the faculty, as allowed by the By-Laws, to pay interim dividends to the shareholders. Dividends not collected within five years from the day in which they are payable will be prescribed in favor of the Company and allocated to reserves.
Voting rights
The general provisions on the shares' "voting rights" are described at the point 6 below. In relation to the appointment of the Board of Directors (Eni’s Board is not a "staggered board") and the Board of Statutory Auditors (see Item 6) the By-Laws provide a voting list system. In particular, pursuant to Article 17 of the By-Laws and according to the provisions of Law No. 474/1994, lists may be presented both by shareholders, either individually or together with others, representing at least 1% of the share ownershipcapital, or by the Board of Directors. Each shareholder may present or contribute towards presenting, and vote for, a director’s qualificationsingle list.
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There are no provisions in Eni’s By-laws.By-Laws relating to: rights to share in the Company’s profits; redemption provisions; sinking fund provisions; liability to further capital calls by the Company.
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Liquidation rights
In case of liquidation of the Company, the Shareholders’ Meeting would appoint one or more liquidators and determine their powers and remuneration. According to the Italian law, shareholders would be entitled to the distribution of the remaining liquidated assets of the Company in proportion to the nominal value of their shares, only after payments of all Company’s liabilities and satisfaction of all other creditors.
Change in shareholders’ rights
To change the rights of holders of the stocks is necessary a shareholders’ resolution. In case of any modification of the By-Laws provisions relating to voting and dividend rights, resolved by the Shareholders’ Meeting, with the attendance and decision quorum established by the law for extraordinary meetings, shareholders are entitled with a withdrawal right, provided by the Italian Law.
Shareholders’ Meeting
The Shareholders’ Meeting resolves on the issues set forth applicable law and Eni’s By-Laws, in "ordinary" or "extraordinary" form. In particular, an ordinary meeting appoints and revokes Directors and Statutory Auditors, approves financial statements within 120 days from the end of each financial year (December 31), while an extraordinary meeting approves amendments in By-Laws14 and extraordinary transactions, such as capital increases, mergers and demergers.
The notice of a Shareholders’ Meeting may specify two meeting dates ("calls") for ordinary meetings and three or more calls for extraordinary Shareholders’ meetings. The attendance quorum for an ordinary meeting on first call is at least 50% of the outstanding ordinary shares, while on second call there is no attendance quorum requirement. 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 an extraordinary meeting is at least 50% of the company’s share capital on first call, or more than 1/3 or at least 1/5 of the company’s share capital, on second call and the following calls, respectively. On first, second and following calls, resolutions may be approved by a majority of 2/3 of the shares represented at the Shareholders’ Meeting.
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.
With the aim of facilitating the attendance of shareholders, according to law and Article 13 of the By-Laws, calls for meetings are published, at least 30 days before the date fixed for the meeting on first call, in the Gazzetta Ufficiale of the Italian Republic, and in the newspapers "Il Sole 24 Ore", "Corriere della Sera" and "Financial Times". The notice, which reports the conditions of admission requested by the By-Laws, is filed with Borsa Italiana and published on the Company website. Admission to the Shareholders’ Meeting is granted to shareholders who deliver the communication issued by financial intermediaries, according to applicable laws, at least two business days prior to the date of the meeting. The communication can be withdrawn, through the financial intermediaries: in this case shareholders lose the right to participate. Shareholders may also attend the meeting by proxy and vote by mail, as allowed by Article 13 and 14 of Eni’s By-Laws. Vote by mail can be revoked by express communication sent to the Company at least one day before the meeting. In order to attend the meeting, legal or voluntary representatives of shareholders shall present the documentation confirming their power to the proper office of the Company according to the dates and forms indicated in the call for the meeting. In addition, as provided by Article 14 of Eni’s By-Laws, in order to simplify the collection of proxies issued by shareholders who are also employees of Eni and Group companies and members of associations of shareholders, that comply with current regulations, Eni provides areas for communicating and collecting proxies.
Meetings are regulated by the "Eni’s Shareholders’ Meeting Regulation" approved by the ordinary Shareholders’ Meeting of Eni on December 4, 1998, in order to guarantee an efficient development of meetings and the right of each shareholder to express his opinion on the items in the agenda.
(14) | With the exception of such amendments resolved to merely adequate the By-Laws provisions to law, which can be deliberated by the Board of Directors. |
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During Shareholders’ Meetings, the Board of Directors provides wide disclosure on items examined and shareholders can require information on issues in the agenda. Information is provided taking account of applicable rules on inside information.
Stock ownership limitation and voting rights restrictions
General
There are no limitations imposed by Italian law or by the Eni’s By-lawsBy-Laws on the rights of non-residents ofin Italy or foreign persons to hold shares or vote the shares other than the limitations described below (which are equally applicable to residents and non-residents ofin Italy).
In accordance with Article 6 of Eni’s By-lawsthe By-Laws, and in accordance withapplying the special provision ofrules pursuant to Article 3 of Law Decree No. 332/1994, as converted into Law No. 474/1994 ("Law No. 474 of 1994")1994 (Law No. 474/1994), under no shareholder can directlycircumstances may any party own shares in the Company which constitute a direct or indirectlyindirect shareholding of more than 3% of the share capital. Exceeding this limit results in a ban on exercising the voting rights and other rights, except for the right to partecipate in profits, relative to any shareholding that exceeds the limit.
Pursuant to Article 32 of the By-Laws and the same laws mentioned above, shareholdings owned by the Ministry of the Economy and Finance, public bodies or organization controlled by them are exempt from this ban.
Finally, this special rule provides that the clause regarding shareholding limits will lose effect if the limit is exceeded as a result of a take-over bid, provided that, as a result of the takeover, the bidder will own a shareholding higher than 3% of Eni’s share capital. This limitation does not apply to shares held by the State, the Public Entities or entities controlled by them. The law states in addition that this limitation is waived in case of a public offer to buy Eni’s shares whereby the bidder will hold at least the 75% of the share capital givingwith the right to vote on resolutions concerning the appointment or revocationdismissal of Directors.
Limitation on changes in control of the
Board of Directors.
Such maximum limit at 3% 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).
Control exists with reference also to entities other than companies in the cases envisaged by in the cases envisaged by Article 2359, paragraphs 1 and 2 of the Civil Code. 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 a broker 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 exceeding this limit are voted, any shareholders’ resolution adopted pursuant to such a vote may be challenged if the majority required to approve such resolution would not have been reached without the vote of the shares exceeding such maximum limit. Shares not entitled to be voted are nevertheless counted for the purpose of determining the quorum at a Shareholders’ Meeting.
For other limitations that may affect voting rights, see "– Reporting Requirements and Restrictions on Acquisitions of Shares".
SpecialCompany (Special Powers of the ItalianStateState)
Under Italian laws,Pursuant to Article 6.2 of theItalian State, acting throughBy-Laws and to theMinisterspecial rules set out in Law No. 474/1994, the Ministry of Economy and Finance, in agreement with theMinisterMinistry of Economic Development,(the "Ministers"),holdscertainspecial powersin connection with any transfer of a controlling interest in certain State-owned companies operating in public service sectors, including Eni. The law places no limit on the duration of such special powers. Such powers are tothat can be exercised in accordance withspecific criteria provided for by the regulation and EU principles.
Article 6.2 of Eni’s By-laws, in accordance with the special law referred to as Law No. 474 of 1994, attribute to the Minister of Economy and Finance, in agreement with the Minister of Economic Development, the following special powers to be used in compliance withthe criteriaindicatedset out in the Prime Ministerial Decreeof the President of the Council of Ministersof June 10,2004 and, synthetically:2004.These special powers are briefly the following:
(a) opposition with respectobjection to theacquisitionpurchase, by parties who are subject to the shareholding limit, ofmaterialsignificant shareholdings,representingi.e. shareholdings that represent at least 3% of theEni’sshare capitalhavingand consist of shares with the right to voteatin ordinary Shareholders’Meeting by entities subject to such ownership limitations pursuant to Article 6.1. Such oppositionMeetings. The objection, duly justified, must be expressed if the transaction isrequireddeemed to beduly motivated and expressedprejudicial to the vital interests of the State, within10ten days of the date of thenoticenotification which Directors are required tobe filed by the Board of Directors at the timesend when a request is made for registration in theShareholders’registerwhenof shareholders. During thetransaction is considered prejudicialperiod of time allowed for the right of objection tovital interests of the State. Until the ten-day term as expired,be exercised, the voting rights and other rights, except for thenon-asset linked rightsright to partecipate in profits, connected with the sharesrepresentingthat represent thematerialsignificant shareholdingshould not be exercised. Ifremain suspended. In theopposition power isevent of the right of objection being exercised, by means of a dulymotivated act in connection withjustified decision based on theprejudice that may beactual prejudicial effect caused by theoperationtransaction to the vital interests of theItalianState, thepurchaser can not exercise theassignee will be forbidden from exercising its voting rights andtheany rights othernon-asset linkedthan property rights connected with the sharesrepresentingthat represent thematerialsignificant shareholding, andmust sell the relevantwill be required to assign these same shares within one year.IfIn thepurchase failsevent of a failure to comply, thelaw court, uponCourt, at the request of theMinisterMinistry of Economy and Finance, will order the sale of the shares representinga materialthe significant shareholding according to the procedures setforthout in Article 2359-ter of the Civil Code;
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(b) opposition with respectobjection to thesubscriptionsigning ofshareholders’agreements,or other arrangements (asas definedbyin Article 122 of theTUF) wherebyConsolidated Law on Finance, in the event that at least 3%or moreof the share capital consisting ofEni havingshares with the right to voteatin ordinary Shareholders’ Meetings isinvolved. In exercising this opposition power,represented in thepublic authority responsible for regulating Italian securities and exchanges (Consob) communicatesagreements. For the purpose of allowing the right of objection to be exercised, Consob will inform theMinisterMinistry of the Economy and Finance of any significantshareholders’ agreementagreements of which it has been notifiedin accordance withunder the terms of the aforementioned Article 122 of theTUF.Consolidated Law on Finance. Theopposition power mayright of objection must be exercised within ten daysasof the date of Consob’s notification. During thenotice by Consob. Untilperiod of time allowed for theten-day term is not lapsed,right of objection to be exercised, the votingrightrights andtheany rights othernon-asset linkedthan property rightsconnected with the shares held byof the shareholderswho have subscribedsigning up to theabove mentioned agreements can not be exercised.agreement are suspended. If an objection decision is issued with due justification detailing theopposition power is exercised through a duly motivated act in considerationactual prejudicial effect of theprejudice that may be caused by saidaforesaid agreements to the vital interests of theItalianState, theshareholders agreements shallagreement will be null and void. Ifintheshareholders’ meetingsconduct during the Shareholders’ Meeting of the shareholderswho have signed shareholders’ agreements behave as if those agreements disciplinedbound by the agreement reveals that the undertakings given under an agreement pursuant to the aforesaid Article 122 of theTUF were still in effect,Consolidated Law on Finance have been maintained, any resolutions passed with theresolutions approved with theircasting voteif determining for the approval, canof these same shareholders may besued;challenged;
(c) veto power –vetoing, if dulymotivated in connection withjustified by an actual prejudicial effect to theprejudice to thevital interests of the State,– with respect to Shareholders’ Meetingof resolutions towind-updissolve the Company, transfer the company,tomerge, demerge, transfer theenterprise, to merger or to demerger, to transfer the headquarters of the company abroad, toregistered office overseas,152
change the company objects or topurpose, amend theBy-laws cancelingBy-Laws in a way that withdraws ormodifying any ofmodifies thespecialpowersdescribeddetailed inthis section (with reference tolettersa)(a),b)(b),c)(c) and thefollowingsubsequent letterd)(d); and(d) appointment of a Director with no right to vote in Board member without voting right in the Board resolutions.meetings.
The acts whereby these specialDecisions to exercise the powersare exerciseddetailed in letters a), b) and c) may besubject to a lawsuitchallenged within sixty days, by thelegitimate subjectsparties entitled to do so, before the Regional Administrative Court ofLazio within 60 days.Lazio.These powers have been limited after some decisions of the European Court of Justice. The European Court, on March
23,26, 2009, declared that Italian Regulation that defined the criteria for exercising such special powers (DPCM of June 10, 2004) violated the provisions of Articles 43 (former Article 52, right of establishment) and 56 (free movement of capitals) of the European Treaty. To obtain further information about the measures examined to comply with the ruling of the Court, the European Commission has sent the Italian authorities a formal notice under European Community infringements procedures (Article 228). Management can not foresee developments on this matter: only the Government is responsible for the amendment of the above mentioned regulation.
Law No. 266In order to "promote privatization and the spread ofDecember 23, 2005 (Budget Law for 2006)investment in shares" of companies in which the State has a significant shareholding, Article 1, paragraphs 381 to 384in orderof Law No. 266 of 2005 (2006 Financial Law) introduced the power topromoteadd provisions to theprocessBy-Laws ofprivatization and the diffusion among the public of shareholdings inprivatized companiesin whichprimarily controlled by the State,holds significant stakes, introduced the option to include in the By-laws of such listed companies,like Eni,provisions for the issuance ofwhich allow shares orsecurities bearing the same characteristics as shares, which giveparticipating financial instruments to be issued that grant the special meeting oftheir relevantits holders the right to requestthe issuance on their behalf ofthat new shares,alsoeven at par value, orsecurities bearingnew financial instruments be issued to them with the right to voteat bothin ordinary and extraordinary Shareholders’Meeting. The introduction of these normsMeetings. Making this amendment to the By-Laws would lead to the shareholding limit referred to inEni’s By-laws would entail the cancellation of the 3% threshold to individual shareholdings as contained in the mentionedArticle 6.1 of the By-Laws being removed. At the present time, however, Eni’sBy-laws. To date, Eni’s By-laws doesn’tBy-Laws do not containthisany such provision.
Minority protection provisionsShareholder ownership thresholds
In order to allow forThere are no By-Laws provisions governing thepresence of representatives elected by minority shareholders, under Italian laws, listed companies such as Eni. 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-laws require that the membersdisclosure of theBoard of Directors having decisional powers andownership threshold because theBoard of Statutory Auditors have to be elected on the basis of candidate lists presented either by one or more shareholders, representing, alone or in aggregate, at least 1% of the Eni’s share capital having the right to vote at ordinary shareholders’ meetings, ormatter is regulated by theBoard of Directors.
Each shareholder can present or participate in presenting and voting for only one list. Entities controlling a shareholder and companies controlled by a common entity are forbidden from presenting or otherwise concurring to the presentation of additional lists and from voting them, also through broker or fiduciaries.
Such candidate lists, in which the independent candidates are clearly identified, must be deposited at the Eni’s registered office and published in at least threeItaliannewspapers 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 appearlaw. Under Consolidated Law ononly one list.
Lists must be also be filed with Borsa Italiana and published on Eni’s website.
All candidates must posses the honorability requirements as provided for by the applicable legislation. Filing a list is a pre-requisite for its validity together with filing of a professional curriculum of each candidate and statements in which each candidate accepts his candidature and attests the lack of situations of ineligibility or incompatibility and the possession of the honorability and, in case, the independence requirements.
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After the votes are cast, appointments take place by extracting seven tenths of directors from the majority list in the order in which they are listed and the remaining directors from the other lists that must not be directly or indirectly connected with the shareholders that filed or voted the list that collected the majority of votes. The list vote is applied only when the whole Board is re-elected. In case of appointment of directors that for whatever reason have not been voted according to the described procedure, the Shareholders’ Meeting decides with the majorities set by the law, so that the composition of the Board complies with the law and Eni’s By-laws.
As per Article 6, paragraph 2, letter d) of Eni’s By-laws, the Minister for Economy andFinancein agreement with the Minister of Economic Development, may appoint one member of the Board without voting rights in addition to those appointed by the Shareholders’ Meeting. The Ministers chose not to appoint such member (see "Special Powers of the Italian State").
According to Article 28.2 of Eni’s By-laws in accordance with the law, the Shareholders’ Meeting shall elect Chairman of the Board of Statutory Auditors a member elected from a list other than the one obtaining the majority of votes.
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 (Article 2367 Civil Code); (ii) the attendance quorum required for a valid shareholder meeting at an extraordinary meeting is at least 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 and following calls the attendance quorum is at least 1/5 of the shares outstanding. On first, second and third call, resolutions shall be approved by a majority of 2/3 of the shares represented at the Shareholders’ Meeting (Articles 2368-2369 Civil Code); (iii) in addition to the general action against the Board of Directors approved by the Shareholders’ Meeting, shareholders’ actions against the Board of Directors and the Statutory Auditors may be initiated by shareholders holding at least 2.5% of the outstanding shares (Articles 2393, 2393-bis and 2407 Civil Code); (iv) a single shareholder may sue the directors for individual damages (Article 2395 Civil Code) or complain to the Board of Statutory Auditors about 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 Civil Code). The companies’ By-laws may further lower the thresholds in (iii), (iv) and (v) and increase the voting quorums under (ii).
Reporting requirements and restrictions on acquisitions of shares
Holdings in listed companies.Under law15 and Consob Regulation816,as modified following the implementation of Directive 2004/109/EC (the Transparency Directive9)any direct or indirect holding in the voting shares of a listed issuer in excess of 2%17, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%,66,6%66.6%, 75%, 90% and 95% must be promptly disclosed to the investee company and to Consob.The same disclosure requirements refer to holdings which fall below one of the specified threshold.
As specified in new Article 117-bis of Consob Regulation, these obligations apply also to treasury-shares owned directly or through its subsidiary companies by a listed issuer.Due declarations shall be made within five trading days of the date of the transaction triggering the obligation to notify, regardless of the date on which it is to take effect, using the specific forms attached to the above mentioned Regulation.
In the event the same relevant participation is directly or indirectly held by two or more entities, the obligation to notify may be satisfied by one of such person, provided that completeness of information is guaranteed.The relevant thresholds noted above shall be calculated including: (i) shares owned by the reporting person, even if the voting rights belong or are assigned to third parties, or are suspended, as well as shares of which the voting rights belong or are assigned to him; and (ii) shares held through third parties (and shares whose voting rights are assigned to such third parties) such as nominees, trustees or subsidiary companies.
Article 119 of Consob Decision No. 11971/1999, provide also for specific disclosure requirements (with partially different thresholds), connected to the potential holdings (such as holdings of derivatives or other equity-linked securities), so that, in calculating the defined threshold, potential holdings shall not be aggregated with actual holding.
(8)iArticle 119 of Consob Decision No. 11971/1999 and subsequently amendments.(9)Directive 2004/109/EC of the European Parliament and of the Council of December 15, 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.
153The obligation to notify also applies to any direct or indirect participation owned through ADRs. Specific disclosure requirements (with partially different thresholds), are connected to the so called "potential holdings" (such as holdings of derivatives or other equity-linked securities).
Voting rights attached to listed shares which have not been notified pursuant the above mentioned disclosure requirements may not be exercised. Any resolution or act adopted in violation of such limitation, with the contribution of those undisclosed shares, could be voided if challenged in Court, under the Civil Code, by shareholders or by Consob itself.
Moreover, basedThe Consolidated Law onreasoned investor protection and/or market efficiency aims, Consob is entitled to fix the first relevant threshold to a measure lower than 2%, by its decree (as provided for Law Decree No. 5 of February 2, 2009, converted into Law No. 33 of April 9, 2009). This faculty may be exercised only for definite period of time, with regard to public companies with high capitalization level.
Holdings in unlisted companies.Under law and Consob Regulation (Article 125 of the mentioned decision), listed issuers holding more than 10% of the voting capital of an Italian or foreign unlisted company or a "società a responsabilità limitata" as regulated in Italian Civil Code (Articles 2462-2483), shall inform the investee company, within seven days from reaching such threshold (applying, for calculating this thresholds, the some rules established for holding in listed companies).
In the same way, 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 or "società a responsabilità limitata" owned at the closing date of the financial year, within 30 days from the date of approval of the draft annual report.
Cross-holdings rules
In addition to the rules of Article 2359-bis of the Italian civil code governing the acquisition of shares of the parent company by a controlled subsidiary, Decree No. 58/1998Finance 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 (applying, for calculating these ownership thresholds, the same rules established for holdings in listed companies).
The company that last exceed the limit of 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 and must sell such shares within the following 12 months. In the event of failure to make the disposal within such time limit, the suspension of voting rights shall apply to the entire shareholding, and any resolution or act adopted with the contribution of relevant shares, could be challenged under the Civil Code.
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
(15) Legislative Decree No. 58 of February 24, 1998, with specific reference to Articles 120-122. (16) Article 117 of Consob Decision No. 11971/1999 and subsequently amendments. (17) Moreover, based on reasoned investor protection and/or market efficiency aims, Consob is entitled to fix the first relevant threshold to a measure lower than 2%, by its decree (as provided for Law Decree No. 5 of February 2, 2009, converted into Law No. 33 of April 9, 2009). This faculty may be exercised only for definite period of time, with regard to public companies with high capitalization level. 153
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. In the event of non-compliance, the voting rights attached to the shares in excess of the limit specified shall be suspended and any resolution or act adopted with the contribution of relevant shares could be challenged under the Italian Civil Code.
Described limitations are not applicable in case of a takeover bid or exchange tender offer for acquiring at least 60% of the ordinary shares of a listed company.
For a description ofUnder the
limitationsame Consolidated Law oncross-ownership between a company and its subsidiaries, see "Purchase by Eni SpA of its Own Shares".
Shareholders’ agreements
Under Decree No. 58/1998,Finance, any agreement, in whatever form,intended to regulateregarding the exercise of voting rights in a listed company or inthe companies controlling a listedits parent company,together with anymust be, within five days ofits subsequent amendments, renewal or termination, must be:stipulation: (i) notified toConsob, within five days from its execution;Consob; (ii)disclosed to the public through the publication,published insummaryabstract form, in the Italian dailypress, within ten days from its execution; andpress; (iii)deposited infiled with theCompanies’Register of Companies in which theplace where suchlisted companyhas its registered office within 15 days from its conclusion.is registered; and (iv) notified to the company with listed shares. In the event of non-compliance with these requirements, the agreements shall be null and void and the voting rights connected to the relevant shares may not be exercised and any resolution or act adopted with the contribution of such shares could be challenged under the Italian Civil Code.
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requirementsprovisions also apply to agreements, in whatever form, that: (a)impose an obligationcreate obligations of consultation prior to the exercise of voting rights in a listed company and in its controlling companies; (b) set limits on the transfer of the related shares or of other financial instruments that entitle holders to buy or subscribe for them; (c) provide for the purchase of the shares or of above mentioned financial instruments; (d) have as their object oreffect the exercise, jointly or otherwise, of dominant influence on such companies; and
d-bis)(d-bis) which aim to encourage or frustrate a takeover bid or equity swap, including commitments relating to non-participation in a takeover bid.
In the event of non-compliance with said requirements, the agreements shall be null and void, the voting rights connected to the relevant shares may not be exercised and any resolution or act adopted with the contribution of such shares could be challenged under the Civil Code.
If the parties have agreed upon the duration of the agreement, such duration cannot exceed three years. In case of agreements concluded for an indeterminate period, each party may withdraw on giving six months’ notice.
Antitrust rules
InFinally, in accordance with Law No. 287 of October 10, 1990, any merger or 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 and mergers and acquisition of specified dimension must be subject to preventive authorization of Italian Antitrust Authority1018. 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’ meetingsChanges in share capital
The Shareholders’ Meeting could be "ordinary" or "extraordinary". In particular, an ordinary meeting appoints and revokes directors and statutory auditors, approves financial statements within 120 days fromEni’s By-Laws do not provide for more stringent conditions than is required by theend of each fiscal year (December 31) and vote on other issues that can be defined in the By-laws, while an extraordinary meeting approves amendments in By-laws and extraordinary transactions, such aslaw.Share capital increases
and mergers.
The notice of a Shareholders’ Meeting may specify two meeting dates ("calls") for ordinary meetings and three calls, in case of listed companies, for extraordinary shareholders’ meetings. Shareholders’ meetingsareusually held at the Company registered office unless otherwiseresolved bythe Board of Directors, provided however they are held in Italy.
Meetings are called by Eni’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’s share capital, both on an individual andacumulative 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, through a specific notice, at least ten days before the Shareholders’ Meeting date.
The attendance quorum for an ordinary meeting on first call is at least 50% of the outstanding ordinary 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 meetingshareholders’ resolution at an extraordinarymeeting is at least 50% of the company’s share capital on first call, or more than 1/3 or at least 1/5 of the company’s share capital, on second call and third call, respectively. On first, second and third call, resolutions may be approved by a majority of 2/3 of the shares represented at theShareholders’ Meeting.
With the aim of facilitating the attendance of shareholders, accordingAccording tolaw and Article 13 of the By-laws, calls for meetings are published, at least 30 days before the date fixed for the meeting on first call, in the Official Gazette of the Italian Republic or in the "Il Sole 24 Ore", "Corriere della Sera" and "Financial Times" newspapers. The notice is filed with Borsa Italiana and published on the Company website, also. The reports and proposals of the Board of Directors for any item on the agenda of the meeting together with the financial statements to be submitted to the shareholders’ approval, must be deposited at the shareholders’ disposal at the Company’s registered office and at Borsa Italiana’s, during the 15 days before the Shareholders’ Meeting.
(10)Autorità garante per la concorrenza ed il mercato (AGCM - www.agcm.it).
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The 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.
Admission to the Shareholders’ Meeting is granted to shareholders who deliver the notification of attendance issued by financial intermediaries, under applicable laws, at least two business days prior to the date of the meeting on first call. The communication can be withdrawn, through the financial intermediaries, in which case shareholders lose the right to participate. Shareholders may attend the meeting by proxy. Directors, Statutory Auditors, and employees of Eni or of their subsidiary companies, as well as the External Auditors of Eni, and its subsidiary companies, may not be appointed proxies. Any one proxy may not represent more than 200 shareholders. A proxy may be appointed only for a single meeting, including the first, second and third call thereof, unless the proxy is general or given by a company, association, foundation, other entities or institutions to its employees. Rules relating to proxies solicitation are established by Decree No. 58/1998 and the related Consob Decision No. 11971/1999. 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 provisions also allow companies to implement vote by mail procedures.
Eni’s By-laws allow vote by mail and the collection of proxies in Articles 13 and 14. Vote by mail can be revoked by express communication sent to the Company at least one day before the meeting. Persons that intend to attend the meeting as legal or voluntary representatives of other shareholders must present the documentation confirming their power to the proper office of the Company according to the dates and forms indicated in the call for the meeting. In addition, as provided by Article 14 of Eni’s By-laws, in order to simplify the collection of proxies issued by shareholders that are also employees of Eni and Group companies and members of associations of shareholders that comply with current regulations, Eni provides areas for communicating and collecting proxies to said associations in ways to be agreed from time to time with their legal representatives.
There are no limitations arising under Italian law or the Eni’s By-laws on the right of non-resident or foreign persons to hold or vote the shares other than limitations that apply generally to all shareholders.
Meetings are conducted according to the "Eni’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 its provisions to new rules introduced in the Civil Code on this matter.
During shareholders’ meetings, the Board of Directors provides wide disclosure on items examined and shareholders can request information on issues in the agenda. Information is provided within the limits of confidentiality, taking account of applicable rules regulating price sensitive information.
Subscription rights
New shares may be issued pursuant to a resolution of shareholders at an extraordinary meeting. Under theItalian law, shareholders have a pre-emptive right to subscribe for new issues of shares and corporate bonds convertible into shares in proportion to their respective shareholdings. Subject tocertaindefinite conditions,principallydesignated to preventdilutionreduction of (actual) shareholders rights, and to preserve therights of shareholders, thisCompany’s interest, the pre-emptive right may be waived or limited by a shareholders’ resolutiontaken byat an extraordinary Shareholders’ Meetingbywith theaffirmative voteconsent of more than 50% of the shares outstanding.Such percentage applies to all calls of the meeting.Thepreemptiveshareholders’ pre-emptive right is also waived by the law, inspecific cases, such as non-cash contributions.
Liquidation rights
Under the Italian law, subject to the satisfactioncase ofthe claims of all other creditors, shareholders are entitled to the distribution of the remaining liquidated assets of Eni in proportion to the nominal value of their shares. Holders of savings shares and preferred shares, if foreseen by the By-laws, in the event such shares are issued by Eni, would be 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.contributions in-kind.
Material Contracts
None.
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Documents on Display
It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at 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, 17thfloor, 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.
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Updated reporting and record-keeping requirements are contained in the 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.
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 ADRs 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, in respect of
20082009 profits, received by Italian resident individuals in relation to interest exceeding 2% of the voting rights or 5% of the share capital ("substantial interest") are included in the taxable income subject to personal income tax to the extent of 49.72% 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 interest 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 interest is related to the conduct of a business, dividends received in respect of20082009 profits are included in the taxable business income to the extent of 49.72% of their amount.Despite the above statement, dividends are included in the taxable income at 40% to the extent they relate to un-distributed profit of 2007 and previous years.
157Dividends received by Italian pension funds are included in the overall result of the pension funds subject to an 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 (under certain circumstances a 1% tax on net asset value is applied). Entities exempt from IRES (company income tax) are subject to the substitute tax at the rate of 27%.
Dividends 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 interest 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.
Dividends are subject to the 1.375% substitute tax introduced by Financial Bill for 2008 where the conditions in Article 27, paragraph 3-ter, Presidential Decree No. 600 of 1973 are met, i.e. dividends are paid to companies and entities subject to a corporate income tax in a European Union member state or in Norway.
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The substitute tax may also 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%25% of the Company’s shares are subject to an Italian withholding or substitute tax at a reduced rate of 15%, provided that the interest 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%.The threshold holding will be increased to 25% following a new tax treaty that has been ratified.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 ADRs to relevant taxing authorities in connection with any distributions relating to ADRs; or (ii) in the procedures through which certain holders of ADRs 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 to be resident in United States for purposes of applicable law to receive any rebates or tax credits (pursuant to treaty or otherwise) relating to distributions on the ADRs 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 or otherwise) relating to distributions on the ADRs 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 ADRs of any necessary actions to be undertaken by such Holders.
158Capital gains tax
This paragraph applies with respect to capital gains out of the scope of a business activity carried out in Italy.
Gains realized by Italian resident individuals upon the sale of substantial interest is included in the taxable base subject to personal income tax to the extent of 49.72% of their amount, while gains realized upon the sale of non substantial interest is subject to a substitute tax at a 12.5% rate.
For gains deriving from the sale of non substantial 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-residents from non substantial interest in listed companies are deemed not to be realized in Italy and consequently are not subject to the capital gains tax.
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On the contrary, gains realized by non-residents from substantial interest even in listed companies are deemed to be realized in Italy and consequently they are subject to the capital gains tax.
However double taxation treaties may eliminate the capital gains tax. Under the income tax convention between the United States and Italy, a U.S. resident will not be subject to the capital gains tax unless the shares or ADRs form part of the business property of a permanent establishment of the holder in Italy or pertain to a fixed establishment available to a shareholder in Italy for the purposes of performing independent personal services. U.S. residents who sell shares may be required to produce appropriate documentation establishing that the above-mentioned conditions of non-taxability pursuant to the convention have been satisfied.
Inheritance and gift tax
Pursuant 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 on the value exceeding euro 1,500,000. Moreover, an anti-avoidance rule is provided for by Law No. 383 of October 18, 2001 for any gift of assets (including shares) which, if sold for consideration, would give rise to capital gains subject to a substitute tax (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 on capital gains as if the gift had never 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 ADRs. This summary is addressed to U.S. Holders that hold Shares or ADRs as capital assets, and does not purport to address all material tax consequences of the ownership of Shares or ADRs. The summary does not address 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 ADRs 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),
159possibly 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 ADRs.
As used in this section, the term "U.S. Holder" means a beneficial owner of Shares or ADRs 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.
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In general, and taking into account the earlier assumptions, for the United States federal income tax purposes, U.S. Holders who own ADRs evidencing ADRs will be treated as owners of the underlying Shares. Exchanges of Shares for ADRs and ADRs for shares generally will not be subject to the United States federal income tax.
Dividends
Subject to the passive foreign investment company, or PFIC, rules discussed below, 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 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 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 ADRs 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 ADRs 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. For foreign tax credit purposes, dividends will be income from sources outside the United States and will, depending on your circumstances, generally be either "passive" or "general" income for purposes of computing the foreign tax credit allowable to you.
Sale or exchange of shares
Subject to the PFIC rules discussed below, a U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes on the sale or exchange of Shares or ADRs equal to the difference between the U.S. Holder’s adjusted basis in the shares or ADRs (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 ADRs are held as capital assets and will be a long-term capital gain or loss if the shares or ADRs 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
160maximum 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.
PFIC rules
Eni SpA believes that shares and ADRs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If Eni SpA were to be treated as a PFIC, unless a U.S. holder elects to be taxed annually on a mark-to-market basis with respect to the shares or ADRs, gain realized on the sale or other disposition of your shares or ADRs would in general not be treated as capital gain. Instead, if you are a U.S. holder, you would be treated as if you had realized such gain and certain "excess distributions" ratably over your holding period for the shares or
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ADRs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, your shares or ADRs will be treated as stock in a PFIC if Eni SpA were a PFIC at any time during your holding period in your shares or ADRs. Dividends that you receive from Eni SpA will not be eligible for the special tax rates applicable to qualified dividend income if Eni SpA is treated as a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.
Documents on Display
Eni’s Annual Report and Accounts and any other document concerning the Company are also available online on the Company website at:
http://www.eni.com/en_IT/documentation/documentation.page?type=bilrap&header=documentazione&doc_from=hpeni_header.The Company is subject to the information requirements of the U.S. Security Exchange Act of 1934 applicable to foreign private issuers.
In accordance with these requirements, Eni files its annual report on Form 20-F and other related documents with the SEC. It’s possible to read and copy documents that have been filed with the SEC at the SEC’s public reference room located at 100 F Street NE, Washington, DC 20549, U.S.
You may also call the SEC at +1 800-SEC-0330 or log on to www.sec.gov.
It is also possible to read and copy documents referred to in this annual report on Form 20-F at the New York Stock Exchange, 20 Broad Street, 17th floor, New York, USA.
Item 11.
QUALITATIVEQUANTITATIVE ANDQUANTITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risk is the possibility that the exposure to fluctuations in currency exchange rates, interest rates or commodity prices will adversely affect the value of the Group’s financial assets, liabilities or expected future cash flows. Eni’s financial performance is particularly sensitive to changes in the price of crude oil and movements in the euro/U.S. $ exchange rate. Overall, a rise in the price of crude oil has a positive effect on Eni’s results from operations and liquidity due to increased revenues from oil and gas production. Conversely, a decline in crude oil prices reduces Eni’s results from operations and liquidity.
The impact of changes in crude oil prices on the Company’s downstream gas and refining and marketing businesses and petrochemical operations depends upon the speed at which the prices of finished products adjust to reflect changes in crude oil prices. In addition, the Group’s activities are, to various degrees, sensitive to fluctuations in the euro/U.S. $ exchange rate as commodities are generally priced internationally in U.S. dollars or linked to dollar denominated products as in the case of gas prices. Overall, an appreciation of the euro against the dollar reduces the Group’s results from operations and liquidity, and vice versa.
Please refer to Note 29 to the Consolidated Financial Statements for a qualitative and quantitative discussion of the Company’s exposure to market risks. Please also refer to Notes 7 and 20 to the Consolidated Financial Statements for details of the different derivatives owned by the Company in these markets.As part of its financing and cash management activities, the Company uses derivative instruments to manage its exposure to changes in interest rates and foreign exchange rates. These instruments are principally interest rate and currency swaps. The Company also enters into commodity derivatives as part of its ordinary commercial and trading activities and, from time to time, to hedge the exposure to variability in future cash flows due to movements in commodity prices, in view of pursuing acquisitions of oil and gas reserves as part of the Company’s ordinary asset portfolio management or other strategic initiatives.
These instrumentsPlease refer to Note 28 to the Consolidated Financial Statements for a qualitative andtheir accounting treatment are detailed inquantitative discussion of the Company’s exposure to market risks. Please also refer to Notes 7, 14, 19 and2524 to the Consolidated FinancialStatements.Statements for details of the different derivatives owned by the Company in these markets.159
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Item 12A. Debt Securities
Not applicable.
Item 12B. Warrants and Rights
Not applicable.
Item 12C. Other Securities
Not applicable.
Item 12D. American Depositary Shares
In the USA, the Company’s securities are traded in the form of ADSs (American Depositary Shares) which are listed on the New York Stock Exchange. ADSs are evidenced by American Depositary Receipts (ADRs), and each ADR represents two Eni ordinary shares. The depositary receipts are issued, cancelled and exchanged at the office of JP Morgan Chase Bank of New York, 60 Wall Street, 36th Floor, NY 10260, as depositary (the "Depositary") under a deposit agreement between Eni, the Depositary and the holders of ADRs.
JP Morgan Chase Bank is also the transfer agent for Eni ADRs, and its principal office is 2 Heritage Drive, North Quincy, MA 02171.
BNP Paribas is the custodian (the "Custodian") on behalf of the holders of Eni ADRs, and its principal office is located in Milan, Italy.
Fees and charges paid by ADR holders
The depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting on their behalf. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.
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The table below sets forth all fees and charges that a holder of Eni’s ADRs may have to pay, either directly or indirectly, to JP Morgan, as Depositary.
Type of service Amount of fees or charges (1) Depositary Actions (a) Depositing or substituting the underlying shares. U.S. $ 5.00 for each 100 ADSs
(or portion thereof)Each person to whom ADRs are issued against deposits of shares, including deposits and issuances in respect of:
• Share distributions, stock split, rights, merger.
• Exchange of securities or any other transaction or event or other distribution affecting the ADSs or the Deposited Securities.(b) Selling or exercising rights. U.S. $5.00 for each 100 ADSs
(or portion thereof)Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities. (c) Withdrawing an underlying security. U.S. $5.00 for each 100 ADSs
(or portion thereof)Acceptance of ADRs surrendered for withdrawal of deposited securities. (d) Transferring, splitting or grouping receipts. U.S. $1.50 per ADS Transfers, combining or grouping of depositary receipts. (e) Expenses of the depositary. Expenses payable at the sole discretion of the Depositary by billing holders or by deducting charges from one or more cash dividends or other cash distributions. Expenses incurred on behalf of holders in connection with:
• Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment.
• The depositary’s or its custodian’s compliance with applicable law, rule or regulation.
• Stock transfer or other taxes and other governmental charges.
• Cable, telex, facsimile transmission/delivery.
• Expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency).
• Any other charge payable by Depositary or its agents.
(1) All fees and charges are paid by ADR holders to JP Morgan as Depositary and Transfer agent. Fees and payments made by the Depositary to the issuer
The Depositary has agreed to reimburse certain company expenses related to the ADR Program and incurred in connection with the program and the listing of Eni’s ADSs on the New York Stock Exchange. These expenses mainly related to legal and accounting fees incurred in connection with the preparation of regulatory filings and other documentation related to ongoing SEC compliance, NYSE listing fees, listing and custodian bank fees, advertising, certain investor relationship programs or special investor relations activities.
For the year 2009, as agreed in the Deposit Agreement and subsequent amendments, the Depositary reimbursed to Eni a total amount of U.S. $900,000 in connection with above mentioned expenditures.
Expenses waived or paid directly to third parties by the Depositary
There are no agreements whereby the Depositary has agreed to waive the Company for any fees associated with the administration of the ADRs Program or other services thereof, nor to directly pay fees to third-parties.
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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 Chief Executive Officer and 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 judgment in evaluating the cost benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.It should be noted that the Company has investments in certain non-consolidated entities. As the 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 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 can only provide reasonable assurance 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-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 31,2008.2009.The effectiveness of the Company’s internal control over financial reporting as of December 31,
2008,2009, has been audited by PricewaterhouseCoopers SpA, an independent registered public accounting firm, as stated in its report that is included on pages F-1 and F-2 of this Annual Report on Form 20-F.162
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.
162Item 16A. Board of Statutory Auditors Financial Expert
Eni’s Board of Statutory Auditors has determined that five members of Eni’s Board of Statutory Auditors, qualify as "audit committee financial expert", as defined in Item 16A of Form 20-F. These five members are: Ugo Marinelli, who is the Chairman of the Board, and Roberto Ferranti, Luigi Mandolesi, Tiziano Onesti 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 Sustainability – Corporate Governance and Corporate Ethics – Code of Ethics. A copy of this code of ethics is included as an exhibit to this Annual Report on Form 20-F.
Eni’s code of ethics contains ethical guidelines, describes corporate values and requires 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 affirms the principles of accounting transparency and internal control and endorses human rights and the issue of the sustainability of the business model.
Item 16C. Principal Accountant Fees and Services
PricewaterhouseCoopers SpA has served as
EniEni's principal independent public auditor for fiscal years2006,2007, 2008 and20082009 for which audited Consolidated Financial Statements appear in this Annual Report on Form 20-F.The following table shows total fees paid by Eni, its consolidated and non-consolidated subsidiaries and Eni’s share of fees incurred by joint ventures for services provided by Eni public auditor PricewaterhouseCoopers and its member firms, with respect to the years indicated:
Year ended December 31,
2006
2007
2008
(thousand euro)
Audit fees 22,240
26,383
27,962
Audit-related fees 166
169
152
Tax fees 303
81
46
All other fees 6
120
1
Total 22,715
26,753
28,161
2007
2008
2009
(euro thousand)
Audit fees 26,383 27,962 30,748 Audit-related fees 169 152 276 Tax fees 81 46 51 All other fees 120 1 - Total 26,753 28,161 31,075 Audit Fees include professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements, including the audit on the Company’s internal control over financial reporting.
Audit Related Fees include assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant’s financial statements and are not reported as
163
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, 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.
163Pre-approval policies and procedures of the Internal Control Committee
The Board of Statutory Auditors has 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 which are either controlled or jointly-controlled (directly or indirectly) by Eni SpA. According to this policy, permissible services within the other audit services category are pre-approved by the Board of Statutory Auditors. The Board of Statutory Auditors approval is required on a case by case basis for those requests regarding: (i) audit-related services; and (ii) non-audit services to be performed by the external auditors 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
2008,2009, 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-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).
164
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following tables present purchasesIn May 2000, Eni’s Ordinary Shareholders’ Meeting authorized Eni’s Board of Directors to carry out a program for the repurchase of own shares within such limits as established byEnithe Shareholders’ Meeting itself. The authorization was renewed from time to time. The latest authorization for share repurchases granted by thebeginningOrdinary Shareholders’ Meeting expired on October 18, 2009. Management does not plan to request authorization for share repurchases in the foreseeable future. In the period from January 1, 2009 up to expiration of theprogram through May 4, 2009:ongoing authorization on October 18, 2009 the Company did not make any share repurchases.
Period Number of shares (million)
Average price
(euro per share)Total cost
(euro million)Share
capital%(%)
2000 (since September 1) 44.38 12.92 574 1.11 2001 110.00 13.58 1,494 2.75 2002 52.26 14.74 771 1.30 2003 23.94 13.76 329 0.60 2004 4.23 16.60 70 0.10 2005 47.06 21.97 1,034 1.18 2006 53.13 23.35 1,241 1.33 2007 27.56 24.69 680 0.68 2008 35.90 21.67 778 0.90 2009, through May 4, 2009 - - - - Total purchased as of May 4, 2009 398.47 17.49 6,971 9.95 minus: - stock options exercised and shares granted pursuant to stock option and stock grant plans (15.51 ) Total shares held in treasury 382.95 9.56
164
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, 2007 (1) 362,562,118 17.08 362,562,118 51,474,995 January 2008 2,709,130 22.13 365,271,248 48,873,565 February 2008 3,380,161 22.25 368,651,409 45,504,204 March 2008 2,606,938 22.01 371,258,347 42,908,766 April 2008 (3) 2,242,200 23.41 373,500,547 40,678,566 May 2008 2,728,900 25.74 376,229,447 37,949,666 June 2008 2,982,450 24.50 379,211,897 34,967,216 July 2008 2,823,050 22.37 382,034,947 32,144,166 August 2008 1,839,400 21.48 383,874,347 30,304,766 September 2008 13,426,200 19.79 397,300,547 16,878,566 October 2008 1,166,306 18.38 398,466,853 15,712,260 November 2008 - - 398,466,853 15,712,260 December 2008 - - 398,466,853 15,712,260 January 2009 - - 398,466,853 15,712,260 February 2009 - - 398,466,853 15,712,260 March 2009 - - 398,466,853 15,712,260 April 2009 - - 398,466,853 15,712,260 May 2009 (through May 4, 2009) - - 398,466,853 15,712,260
(1)From May 2000, Eni’s Ordinary Shareholders’ Meeting has authorized Eni’s Board of Directors to carry out a program for the repurchase of own shares within such limits as established by the Shareholders’ Meeting itself. 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.(2)Based on the authorized purchase ceiling, deducting the total number of shares purchased and adding back the number of stock options exercised by and shares granted to Eni’s managers pursuant to stock option and stock grant plans as of Annual Shareholders’ Meeting date.(3)On April 29, 2008 Eni’s Ordinary Shareholders’ Meeting authorized the continuation of the program for the repurchase of own shares for a further 18-month period and up to 400 million ordinary shares, nominal value euro 1 each, corresponding approximately to 10% of Eni’s share capital, for an aggregate amount not exceeding euro 7.4 billion: The 400 million shares and the euro 7.4 billion thresholds take into account the number and amount of Eni shares held in treasury as of April 29, 2008. As of April 29, 2008, Eni held in treasury 359.08 million own shares at a cost of euro 6,236 million. The 18-month period will expire in October 2009. According to applicable regulations, the nominal value of shares so purchased, including shares held by subsidiaries cannot exceed 20% of a company’s share capital. Shares purchased in excess of such 20% limit must be resold within one year from the date of their purchase.
2000 (since September 1) 44.38 12.92 574 1.11 2001 110.00 13.58 1,494 2.75 2002 52.26 14.74 771 1.30 2003 23.94 13.76 329 0.60 2004 4.23 16.60 70 0.10 2005 47.06 21.97 1,034 1.18 2006 53.13 23.35 1,241 1.33 2007 27.56 24.69 680 0.68 2008 35.90 21.67 778 0.90 2009 - - - - Total purchased as of December 31, 2009 398.47 17.49 6,971 9.95 minus: - stock options exercised and shares granted pursuant to stock option and stock grant plans (15.53 ) Total shares held in treasury 382.93 9.56
Item 16F. Change in Registrant’s Certifying Accountant
Due to the audit firm rotation rules in Italy, PwC, as the Company’s independent public accounting firm, must step-down at the next meeting of the Company’s shareholders (set for April 29, 2010). PwC was hired for a period of three years and served as our independent auditor for the fiscal years ended December 31, 2009, 2008 and 2007.
PwC’s report on the Company’s financial statements for each of the past three years did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principle.
In connection with the audit of the Company’s financial statements in the fiscal years ended December 31, 2009 and 2008, there were no disagreements with PwC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of PwC, would have caused PwC to make reference to the matter of such disagreements in their reports.
Eni has provided a copy of this disclosure to PwC and requested that PwC furnish us with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of PwC’s letter is filed as an exhibit to this Form 20-F.
The Statutory Board of Auditors has selected Ernst & Young to be appointed as the Company’s new independent auditor, subject to the approval of Eni’s shareholders. If approved, Ernst & Young will become the Company's independent registered public accounting firm effective from April 30, 2010.
Item 16G. Significant Differences in Corporate Governance Practices as per Section 303A.11 of the New York Stock Exchange Listed Company Manual
Corporate governance.Eni’s governance structure follows the traditional model as defined by the Italian Civil Code which provides for two main separate corporate bodies, the Board of Directors and the Board of Statutory Auditors to whom management and monitoring duties are respectively entrusted.
This model differs from the U.S. one-tier model which provides for the Board of Directors as the sole corporate body responsible for management and for the establishment of an Audit Committee within the same Board, for monitoring activities.
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, also with reference to Borsa Italiana Corporate Governance Code that Eni adopted.165
Independent Directors
NYSE standards. 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-year "cooling-off" period following the termination of any relationship that compromised a director’s independence.Eni standards.In Italy, the TUF states that at least one member, or two members if the Board is composed by more than seven members, must possess the independence requirements provided for Statutory Auditors of listed companies.
165
In particular, a director may not be deemed independent if he/she or an immediate family member has relationships with the issuer that could influence their autonomous judgment, with its directors or with the companies in the same group of the issuer.
Eni’s By-laws increases the number and states that at least one member, if the Board is made up by up to five members, or three Board members, in case the Board is made up by more than five members, shall have the independence requirement.
Eni’s Code foresees further independence requirements, in line with the ones provided by the Borsa Italiana Code, that recommends that the Board of Directors includes an adequate number of independent non-executive directors in the sense that they do not maintain, nor have recently maintained, directly or indirectly, any business relationships with the issuer or persons linked to the issuer, of such a significance as to influence their autonomous judgment.
In accordance with Eni’s By-laws, the Board of Directors, after appointment of its member and periodically, evaluates independence of Directors. Eni’s Code also provides for the Board of Statutory Auditors to verify the proper application of criteria and procedures adopted by the Board of Directors to evaluate the independence of its members.
The results of the assessments of the Board shall be communicated to the market.
In accordance with Eni’s By-laws, should the independence requirements be impaired or cease or the minimum number of independent directors diminish below the threshold set by Eni’s By-laws, the Board declares the termination of office of the member lacking said requirements and provides for his substitution. Board members are expected to inform the Company in case they lose their independence requirements or of any reasons for ineligibility or incompatibility that might arise.
Meetings of non Executive Directors
NYSE standards.Non-executive directors, including those who are not independent, must meet at regularly scheduled executive sessions without management.
In addition, if the group of non-executive directors includes directors who are not independent, independent directors should meet separately at least once a year.Eni standards.
As providedThe Eni Code allows independent Directors to decide whether to meet in the absence of the other Directors for discussion of topics deemed relevant to the functioning of the Board. This express provision allowing such meetings to take place was requested byEni’s Codethe independent Directorsmaythemselves in order to have greater flexibility to deal with actual requirements. In 2009, the independent Directors, in consideration of the frequency of the Board meetings, had numerous opportunities to meet, holding formal and informal meetings to holdmeetings without the other Directors: this faculty was exercised on January 22, 2009.discussions and exchange opinions.
Audit Committee
NYSE standards. 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 standards. In
its meeting of March 22,2005,Eni’sthe Board of Directors,making useas permitted by the rules of theexemption provided by Rule 10A-3 for non-U.S. privateU.S. Securities and Exchange Commission applicable to foreign issuershaslisted on the regulated U.S. markets, identified the Board of Statutory Auditors as the body that,starting fromsince June 1, 2005,is performinghas been fulfilling, within thefunctions requiredlimits set forth by Italian laws, theSEC rules andresponsibilities assigned to the Audit Committee of such foreign issuers by the Sarbanes-Oxley Actto be performed byand theaudit committees of non-U.S. companies listed on the NYSESEC regulations (seeparagraph "Board“Item 6 – Board of StatutoryAuditors"Auditors” earlier).166
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.“Item 6 – Board of Statutory Auditors”.
Nominating/Corporate Governance Committee
NYSE standards. U.S. listed companies must have a nominating/corporate governance committee (or equivalent body) composed entirely of independent directors that are entrusted, among others, with the responsibility to identify individuals qualified to become board members and to select or recommend director nominees for submission to the Shareholders’ Meeting, as well as to develop and recommend to the Board of Directors a set of corporate governance guidelines.
Eni standards.This provision is not applicable to non-U.S. private issuers. The Borsa Italiana 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 owned companies.
Eni has not set up a nominating committee, considering the nature of its shareholding as well as the circumstance that, under Eni’s By-laws, directors are appointed by the Shareholders’ Meeting based on lists presented by shareholders.
166Code of Business Conduct and Ethics
NYSE standards.The NYSE listing standards require each U.S. listed company to adopt a code of business conduct and ethics for its directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.
Eni standards.Eni’s Code of Ethic – adopted on March 14, 2008, replacing the previous version of 1998 – represents a clear definition of the value system that Eni recognizes, accepts and upholds and the responsibilities that Eni assumes internally and externally in order to ensure that all business 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 all stakeholders with which Eni relates on ongoing basis: shareholders, employees, suppliers, customers, commercial and financial partners, and the local communities and institutions of the Countries where Eni operates. These values are stated in the Code of Ethics and all the people working for Eni, without exception or distinction, starting from Directors, senior management and members of Company’s bodies, as also requested by the SEC rules and the Sarbanes-Oxley Act, are committed to observing and enforcing these principles within their function and responsibility. The Guarantor for the Code of Ethics – that is the Watch Structure of the "Model 231" for the organizational, management and control according to Legislative Decree No. 231/2001 – acts for the protection and promotion of the above mentioned principles and every six months presents a report on the implementation of the Code to the Internal Control Committee, to the Board of Statutory Auditors and to the Chairman and the CEO, who reports on this to the Board of Directors.
167
PART III
Item 17. FINANCIAL STATEMENTS
Not applicable.
Item 18. FINANCIAL STATEMENTS
Index to Financial Statements:
Page
Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet atas of December 31,20082009 and20072008Consolidated profit and loss account for the years ended December 31, 2009, 2008 2007and20062007Consolidated Statements of comprehensive income for the years ended December 31, 2009, 2008 and 2007 F-5 Consolidated Statements of changes in shareholder’s equity for the years ended December 31, 2009, 2008 2007and20062007Consolidated Statement of cash flows for the years ended December 31, 2009, 2008 2007and20062007Supplemental cash flow information for the years ended December 31, 2009, 2008 2007and20062007Notes to the Consolidated Financial Statements
Item 19. EXHIBITS
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 Act15.a(i) Consent of DeGolyer and MacNaughton
15.a(ii) Consent of Ryder Scott Co
15.a(iii) Report of DeGolyer and MacNaughton
15.a(iv) Report of Ryder Scott Co
15.a(v) Report of DeGolyer and MacNaughton168
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: May 14, 2009
Eni SpA/s/ANTONIO CRISTODOROAntonio CristodoroTitle: Deputy Corporate Secretary
169REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Eni SpA.
In our opinion, the accompanying consolidated balance sheets and the related consolidated profit and loss accounts, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows present fairly, in all material respects, the financial position of Eni SpA and its subsidiaries at December 31,
20082009 and December 31,2007,2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31,20082009 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2008,2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing in Item 15 Controls and Procedures of the20082009 Annual Report to Shareholders. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.F-1
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting 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.
F-1
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers SpA
Rome, Italy
May 14, 2009April 26, 2010
F-2
CONSOLIDATED BALANCE SHEET
(euro million)
Dec. 31, 20072008Dec. 31, 20082009
Note Total amount
of which with related parties
Total amount
Total amountof which with related parties
ASSETS Current assets Cash and cash equivalents (1) 2,114 1,939 Other financial assets held for trading or available for sale: (2) - equity instruments 2,476 2,741 - other securities 433 495 2,909 3,236 Trade and other receivables (3) 20,676 1,616 22,222 1,539 Inventories (4) 5,499 6,082 Current tax assets (5) 703 170 Other current tax assets (6) 833 1,130 Other current assets (7) 1,080 2,349 59 Total current assets 33,814 37,128 Non-current assets Property, plant and equipment (8) 46,919 55,833 Other assets (9) 563 Inventory - compulsory stock (10) 2,171 1,196 Intangible assets (11) 7,551 11,037 Equity-accounted investments (12) 5,639 5,471 Other investments (12) 472 410 Other financial assets (13) 923 87 1,134 356 Deferred tax assets (14) 1,915 2,912 Other non-current receivables (15) 1,110 16 1,401 21 Total non-current assets 67,263 79,394 Assets classified as held for sale (26) 383 68 TOTAL ASSETS 101,460 116,590 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Short-term debt (16) 7,763 131 6,359 153 Current portion of long-term debt (21) 737 549 Trade and other payables (17) 17,116 1,021 20,515 1,253 Income taxes payable (18) 1,688 1,949 Other taxes payable (19) 1,383 1,660 Other current liabilities (20) 1,556 4 4,319 4 Total current liabilities 30,243 35,351 Non-current liabilities Long-term debt (21) 11,330 16 13,929 9 Provisions for contingencies (22) 8,486 9,573 Provisions for employee benefits (23) 935 947 Deferred tax liabilities (24) 5,471 5,742 Other non-current liabilities (25) 2,031 57 2,538 53 Total non-current liabilities 28,253 32,729 Liabilities directly associated with the assets classified as held for sale (26) 97 TOTAL LIABILITIES 58,593 68,080 SHAREHOLDERS’ EQUITY (27) Minority interest 2,439 4,074 Eni shareholders’ equity Share capital 4,005 4,005 Reserves 34,610 40,722 Treasury shares (5,999 ) (6,757 ) Interim dividend (2,199 ) (2,359 ) Net profit 10,011 8,825 Total Eni shareholders’ equity 40,428 44,436 TOTAL SHAREHOLDERS’ EQUITY 42,867 48,510 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 101,460 116,590
ASSETS Current assets Cash and cash equivalents (1) 1,939 1,608 Other financial assets held for trading or available for sale: (2) - equity instruments 2,741 - other securities 495 348 3,236 348 Trade and other receivables (3) 22,222 1,539 20,348 1,355 Inventories (4) 6,082 5,495 Current tax assets (5) 170 753 Other current tax assets (6) 1,130 1,270 Other current assets (7) 1,870 59 1,307 9 Total current assets 36,649 31,129 Non-current assets Property, plant and equipment (8) 55,933 59,765 Inventory - compulsory stock (9) 1,196 1,736 Intangible assets (10) 11,019 11,469 Equity-accounted investments (11) 5,471 5,828 Other investments (11) 410 416 Other financial assets (12) 1,134 356 1,148 438 Deferred tax assets (13) 2,912 3,558 Other non-current receivables (14) 1,881 21 1,938 40 Total non-current assets 79,956 85,858 Assets held for sale (25) 68 542 TOTAL ASSETS 116,673 117,529 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt (15) 6,359 153 3,545 147 Current portion of long-term debt (20) 549 3,191 Trade and other payables (16) 20,515 1,253 19,174 1,241 Income taxes payable (17) 1,949 1,291 Other taxes payable (18) 1,660 1,431 Other current liabilities (19) 3,863 4 1,856 5 Total current liabilities 34,895 30,488 Non-current liabilities Long-term debt (20) 13,929 9 18,064 Provisions for contingencies (21) 9,506 10,319 Provisions for employee benefits (22) 947 944 Deferred tax liabilities (23) 5,784 4,907 Other non-current liabilities (24) 3,102 53 2,480 49 Total non-current liabilities 33,268 36,714 Liabilities directly associated with assets held for sale (25) 276 TOTAL LIABILITIES 68,163 67,478 SHAREHOLDERS' EQUITY (26) Minority interest 4,074 3,978 Eni shareholders' equity Share capital 4,005 4,005 Reserves 40,722 46,269 Treasury shares (6,757 ) (6,757 ) Interim dividend (2,359 ) (1,811 ) Net profit 8,825 4,367 Total Eni shareholders' equity 44,436 46,073 TOTAL SHAREHOLDERS' EQUITY 48,510 50,051 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 116,673 117,529 F-3
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(euro million except as otherwise stated)
20062007 2008 2009
Note Total amount
of which with related parties
Total amount
of which with related parties
Total amount
of which with related parties
REVENUES Net sales from operations (30)
86,105
3,974
87,256
4,198
108,148
5,048
(29) 87,204 4,198 108,082 5,048 83,227 3,300 Other income and revenues 783
827
720
39
833 728 39 1,118 26 Total revenues 86,888
88,083
108,868
88,037 108,810 84,345 OPERATING EXPENSES (31)
(30) Purchases, services and other 57,490
2,720
58,179
3,777
76,408
6,298
58,133 3,777 76,350 6,298 58,351 4,999 - of which non-recurring charge 239
91
(21
) 91 (21 ) 250 Payroll and related costs 3,650
3,800
4,004
3,800 4,004 4,181 - of which non-recurring income (83
) (83 ) Depreciation, depletion, amortization and impairments 6,421
7,236
9,815
OTHER OPERATING (CHARGE) INCOME (129 ) 10 (124 ) 58 55 44 DEPRECIATION, DEPLETION, AMORTIZATIONAND IMPAIRMENTS 7,236 9,815 9,813 OPERATING PROFIT 19,327
18,868
18,641
18,739 18,517 12,055 FINANCE INCOME (EXPENSE) (32)
(31) Finance income 3,749
58
4,445
49
7,985
42
4,445 49 7,985 42 5,950 27 Finance expense (3,971
) (18
) (4,554
) (20
) (8,198
) (17
) (4,554 ) (20 ) (8,198 ) (17 ) (6,497 ) (4 ) Derivative financial instruments 383
26
10
(551
) 58
155 (427 ) (4 ) 161
(83
) (764
) 46 (640 ) (551 ) INCOME FROM INVESTMENTS (33)
(32) Share of profit (loss) of equity-accounted investments 795
773
640
773 640 393 Other gain (loss) from investments 108
470
733
470 733 176 903
1,243
1,373
1,243 1,373 569 PROFIT BEFORE INCOME TAXES 20,391
20,028
19,250
20,028 19,250 12,073 Income taxes (34)
(10,568
) (9,219
) (9,692
) (33) (9,219 ) (9,692 ) (6,756 ) Net profit 9,823
10,809
9,558
10,809 9,558 5,317 Attributable to Eni 9,217
10,011
8,825
Minority interest (27)
606
798
733
Attributable to: - Eni 10,011 8,825 4,367 - Minority interest (26) 798 733 950 9,823
10,809
9,558
10,809 9,558 5,317 Earnings per share attributable to Eni (euro per share) (35)
(34) Basic 2.49
2.73
2.43
2.73 2.43 1.21 Diluted 2.49
2.73
2.43
2.73 2.43 1.21 F-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(euro million)
Note 2007 2008 2009
Net profit 10,809 9,558 5,317 Other items of comprehensive income Foreign currency translation differences (1,980 ) 1,077 (869 ) Change in the fair value of cash flow hedging derivatives (26) (2,237 ) 1,969 (481 ) Change in the fair value of available-for-sale securities (26) (6 ) 3 1 Share of "Other comprehensive income" on equity-accounted entities 2 Taxation (26) 869 (767 ) 202 Other comprehensive income (3,354 ) 2,282 (1,145 ) Total comprehensive income 7,455 11,840 4,172 Attributable to: - Eni 6,708 11,148 3,245 - Minority interest 747 692 927 7,455 11,840 4,172
F-4F-5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(euro million)million euro)
Eni shareholders’ equity
Share capital
Legal reserve of Eni SpA
Reserve for treasury shares
Reserve related to the fair value of cash flow hedging derivatives net of the tax effect
Reserve related to the fair value of available-for-sale securities net of the tax effect
Other reserves
Cumulative
currency translation
differencesTreasury shares
Retained earnings
Interim dividend
Net profit for the year
Total
Minority interest
Total shareholders’ equity
Balance at December 31, 2006 4,005 959 7,262 400 (398 ) (5,374 ) 25,168 (2,210 ) 9,217 39,029 2,170 41,199 Net profit for the year 10,011 10,011 798 10,809 Gains (losses) recognized directly in equity Change in the fair value of available-for-sale securities (4 ) (4 ) (4 ) Change in the fair value of cash flow hedge derivatives (1,370 ) (1,370 ) (1,370 ) Foreign currency translation differences 25 (1,954 ) (1,929 ) (51 ) (1,980 ) (1,349 ) (1,954 ) (3,303 ) (51 ) (3,354 ) Total recognized income and (expense) for the year (1,349 ) (1,954 ) 10,011 6,708 747 7,455 Transactions with shareholders Dividend distribution of Eni SpA (euro 0.65 per share in settlement of 2006 interim dividend of euro 0.60 per share) 2,210 (4,594 ) (2,384 ) (2,384 ) Interim dividend distribution of Eni SpA (euro 0.60 per share) (2,199 ) (2,199 ) (2,199 ) Dividend distribution of other companies (289 ) (289 ) Payments by minority shareholders 1 1 Allocation of 2006 net profit 4,623 (4,623 ) Shares repurchased (680 ) (680 ) (680 ) Treasury shares sold under incentive plans for Eni managers (55 ) 35 55 11 46 46 Difference between the carrying amount and strike price of stock options exercised by Eni managers 9 9 9 (55 ) 35 (625 ) 4,643 11 (9,217 ) (5,208 ) (288 ) (5,496 ) Other changes in shareholders’ equity Net effect related to the purchase of treasury shares by Saipem SpA and Snam Rete Gas SpA (201 ) (201 ) Cost related to stock option and stock grant 18 18 18 Foreign currency translation differences on the distribution of dividends and other changes 119 (238 ) (119 ) 11 (108 ) 119 (220 ) (101 ) (190 ) (291 ) Balance at December 31, 2007 4,005 959 7,207 (914 ) (2,233 ) (5,999 ) 29,591 (2,199 ) 10,011 40,428 2,439 42,867
Balance at December 31, 2006 4,005 959 7,262 1 6 393 (398 ) (5,374 ) 25,168 (2,210 ) 9,217 39,029 2,170 41,199 Net profit for the year 10,011 10,011 798 10,809 Other items of comprehensive income Change in the fair value of cash flow hedge derivatives net of the tax effect (1,370 ) (1,370 ) (1,370 ) Change in the fair value of available-for-sale securities net of the tax effect (4 ) (4 ) (4 ) Foreign currency translation differences 25 (1,835 ) (119 ) (1,929 ) (51 ) (1,980 ) (1,345 ) (4 ) (1,835 ) (119 ) (3,303 ) (51 ) (3,354 ) Total recognized income and (expense) for the year (1,345 ) (4 ) (1,835 ) (119 ) 10,011 6,708 747 7,455 Transactions with shareholders Dividend distribution of Eni SpA (euro 0.65 per share in settlement of 2006 interim dividend of euro 0.60 per share) 2,210 (4,594 ) (2,384 ) (2,384 ) Interim dividend distribution of Eni SpA (euro 0.60 per share) (2,199 ) (2,199 ) (2,199 ) Dividend distribution of other companies (289 ) (289 ) Payments by minority shareholders 1 1 Allocation of 2006 net profit 4,623 (4,623 ) Shares repurchased (680 ) (680 ) (680 ) Net effect related to the purchase of treasury shares by Saipem SpA and Snam Rete Gas SpA (201 ) (201 ) Treasury shares sold under incentive plans for Eni managers (55 ) 35 55 11 46 46 Difference between the carrying amount and strike price of stock options exercised by Eni managers 9 9 9 (55 ) 35 (625 ) 4,643 11 (9,217 ) (5,208 ) (489 ) (5,697 ) Other changes in shareholders’ equity Cost related to stock options and stock grant 18 18 18 Other changes (119 ) (119 ) 11 (108 ) (101 ) (101 ) 11 (90 ) Balance at December 31, 2007 4,005 959 7,207 (1,344 ) 2 428 (2,233 ) (5,999 ) 29,591 (2,199 ) 10,011 40,428 2,439 42,867
F-5F-6CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY continued
(euro million)million euro)
Eni shareholders’ equity
Share capital
Legal reserve of Eni SpA
Reserve for treasury shares
Reserve related to the fair value of cash flow hedging derivatives net of the tax effect
Reserve related to the fair value of available-for-sale securities net of the tax effect
Other reserves
Cumulative
currency translation
differencesTreasury shares
Retained earnings
Interim dividend
Net profit for the year
Total
Minority interest
Total shareholders’ equity
Balance at December 31, 2007 4,005
959
7,207
(914
) (2,233
) (5,999
) 29,591
(2,199
) 10,011
40,428
2,439
42,867
4,005 959 7,207 (1,344 ) 2 428 (2,233 ) (5,999 ) 29,591 (2,199 ) 10,011 40,428 2,439 42,867 Net profit for the year
8,825
8,825
733
9,558
8,825 8,825 733 9,558 Gains (losses) recognized directly in equity
Change in the fair value of available-for-sale securities (Note 27)
2
2
2
Change in the fair value of cash flow hedge derivatives (Note 27)
1,255
1,255
(52
) 1,203
Change in the fair value of cash flow hedge derivatives net of the tax effect 1,255 1,255 (52 ) 1,203 Change in the fair value of available-for-sale securities net of the tax effect 2 2 2 Foreign currency translation differences
1,066
1,066
11
1,077
25 1,264 (223 ) 1,066 11 1,077
1,257
1,066
2,323
(41
) 2,282
1,280 2 1,264 (223 ) 2,323 (41 ) 2,282 Total recognized income and (expense) for the year
1,257
1,066
8,825
11,148
692
11,840
1,280 2 1,264 (223 ) 8,825 11,148 692 11,840 Transactions with shareholders
Transactions with shareholders: Dividend distribution of Eni SpA (euro 0.70 per share in settlement of 2007 interim dividend of euro 0.60 per share)
2,199
(4,750
) (2,551
)
(2,551
) 2,199 (4,750 ) (2,551 ) (2,551 ) Interim dividend distribution of Eni SpA (euro 0.65 per share)
(2,359
)
(2,359
)
(2,359
) (2,359 ) (2,359 ) (2,359 ) Dividend distribution of other companies
(297
) (297
) (297 ) (297 ) Payments by minority shareholders
20
20
20 20 Allocation of 2007 net profit
5,261
(5,261
)
5,261 (5,261 ) Shares repurchased
(778
)
(778
)
(778
) (778 ) (778 ) (778 ) Treasury shares sold under incentive plans for Eni managers
(20
) 13
20
(1
)
12
12
(20 ) 13 20 (1 ) 12 12 Difference between the carrying amount and strike price of stock options exercised by Eni managers
2
2
2
2 2 2 Net effect related to the purchase of treasury shares by Saipem SpA (31 ) (31 ) Put option granted to Publigaz Scrl (the Distrigas NV minority shareholder) (1,495 ) (1,495 ) (1,495 ) Minority interest recognized following the acquisition of Distrigas NV and Hindustan Oil Exploration Co Ltd 1,261 1,261
(20
) 13
(758
) 5,262
(160
) (10,011
) (5,674
) (277
) (5,951
) (20 ) (1,482 ) (758 ) 5,262 (160 ) (10,011 ) (7,169 ) 953 (6,216 ) Other changes in shareholders’ equity
Net effect related to the purchase of treasury shares by Saipem SpA
(31
) (31
) Cost related to stock option and stock grant
18
18
18
Put option granted to Publigaz (the Distrigas minority shareholder)
(1,495
)
(1,495
)
(1,495
) Minority interest recognized following the acquisition of Distrigas NV and Hindustan Oil Exploration Co Ltd
1,261
1,261
Foreign currency translation differences on the distribution of dividends and other changes
(1
) 198
(186
)
11
(10
) 1
Cost related to stock options and stock grant 18 18 18 Other changes (26 ) 37 11 (10 ) 1
(1,496
) 198
(168
)
(1,466
) 1,220
(246
) (26 ) 55 29 (10 ) 19 Balance at December 31, 2008 (Note 27) 4,005
959
7,187
(1,140
) (969
) (6,757
) 34,685
(2,359
) 8,825
44,436
4,074
48,510
Balance at December 31, 2008 (Note 26) 4,005 959 7,187 (90 ) 4 (1,054 ) (969 ) (6,757 ) 34,685 (2,359 ) 8,825 44,436 4,074 48,510 F-7
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYcontinued
(million euro)
Eni shareholders’ equity
Share capital
Legal reserve of Eni SpA
Reserve for treasury shares
Reserve related to the fair value of cash flow hedging derivatives net of the tax effect
Reserve related to the fair value of available-for-sale securities net of the tax effect
Other reserves
Cumulative currency translation
differencesTreasury shares
Retained earnings
Interim dividend
Net profit for the year
Total
Minority interest
Total shareholders’ equity
F-6
CONSOLIDATED STATEMENT OF CASH FLOWS(euro million)
Note
2006
2007
2008
Net profit of the year 9,823
10,809
9,558
Depreciation, depletion and amortization (31)
6,153
7,029
8,422
Revaluations, net (386
) (494
) 2,560
Net change in provisions for contingencies (86
) (122
) 414
Net change in the provisions for employee benefits 72
(67
) (8
) Gain on disposal of assets, net (59
) (309
) (219
) Dividend income (33)
(98
) (170
) (510
) Interest income (387
) (603
) (592
) Interest expense 346
523
809
Exchange differences 6
(119
) (319
) Income taxes (34)
10,568
9,219
9,692
Cash generated from operating profit before changes in working capital 25,952
25,696
29,807
(Increase) decrease: - inventories (953
) (1,117
) (801
) - trade and other receivables (1,952
) (655
) (974
) - other assets (315
) (362
) 162
- trade and other payables 2,146
360
2,318
- other liabilities 50
107
1,507
Cash from operations 24,928
24,029
32,019
Dividends received 848
658
1,150
Interest received 395
333
266
Interest paid (294
) (555
) (852
) Income taxes paid, net of tax receivables received (8,876
) (8,948
) (10,782
) Net cash provided from operating activities 17,001
15,517
21,801
- of which with related parties (37)
2,206
549
(62
) Investing activities: - tangible assets (8)
(5,963
) (8,364
) (12,082
) - intangible assets (11)
(1,870
) (2,229
) (2,480
) - consolidated subsidiaries and businesses (46
) (4,759
) (3,634
) - investments (12)
(42
) (4,890
) (385
) - securities (49
) (76
) (152
) - financing receivables (516
) (1,646
) (710
) - change in payables and receivables in relation to capital expenditures and capitalized depreciation (26
) 185
367
Cash flow from investments (8,512
) (21,779
) (19,076
) Disposals: - tangible assets 231
165
318
- intangible assets 18
35
2
- consolidated subsidiaries and businesses 8
56
149
- investments 36
403
510
- securities 382
491
145
- financing receivables 794
545
1,293
- change in payables and receivables in relation to disposals (8
) (13
) (299
) Cash flow from disposals 1,461
1,682
2,118
Net cash used in investing activities (*) (7,051
) (20,097
) (16,958
) - of which with related parties (37)
(686
) (822
) (1,598
)
Balance at December 31, 2008 (Note 26) 4,005 959 7,187 (90 ) 4 (1,054 ) (969 ) (6,757 ) 34,685 (2,359 ) 8,825 44,436 4,074 48,510 Net profit for the year 4,367 4,367 950 5,317 Gains (losses) recognized directly in equity Change in the fair value of cash flow hedge derivatives net of the tax effect (Note 26) (279 ) (279 ) (279 ) Change in the fair value of available-for-sale securities net of the tax effect (Note 26) 1 1 1 Share of "Other comprehensive income" on equity-accounted entities 2 2 2 Foreign currency translation differences 1 (696 ) (151 ) (846 ) (23 ) (869 ) (278 ) 1 2 (696 ) (151 ) (1,122 ) (23 ) (1,145 ) Total recognized income and (expense) for the year (278 ) 1 2 (696 ) (151 ) 4,367 3,245 927 4,172 Transactions with shareholders: Dividend distribution of Eni SpA (euro 0.65 per share in settlement of 2007 interim dividend of euro 0.65 per share) 2,359 (4,714 ) (2,355 ) (2,355 ) Interim dividend distribution of Eni SpA (euro 0.50 per share) (1,811 ) (1,811 ) (1,811 ) Dividend distribution of other companies (350 ) (350 ) Payments by minority shareholders 1,560 1,560 Allocation of 2008 net profit 4,111 (4,111 ) Put option granted to Publigaz Scrl (the Distrigas NV minority shareholder) 1,495 1,495 1,495 Effect related to the purchase of Italgas SpA and Stoccaggi Gas SpA by Snam Rete Gas SpA 1,086 1,086 (1,086 ) Minority interest acquired following the mandatory tender offer and the squeeze-out on the shares of Distrigas NV (1,146 ) (1,146 ) 2,581 4,111 548 (8,825 ) (1,585 ) (1,022 ) (2,607 ) Other changes in shareholders’ equity Utilization of the reserve for the acquisition of treasury shares (430 ) 1 429 Cost related to stock options and stock grant 13 13 13 Stock option expired (7 ) (7 ) (7 ) Other changes (71 ) (38 ) 80 (29 ) (1 ) (30 ) (430 ) (71 ) (37 ) 515 (23 ) (1 ) (24 ) Balance at December 31, 2009 (Note 26) 4,005 959 6,757 (439 ) 5 1,492 (1,665 ) (6,757 ) 39,160 (1,811 ) 4,367 46,073 3,978 50,051
F-7F-8CONSOLIDATED STATEMENT OF CASH FLOWS
(euro million)
Note
2007
2008
2009
Net profit of the year 10,809 9,558 5,317 Depreciation, depletion and amortization (30) 7,029 8,422 8,762 Impairments and other, net (494 ) 2,560 495 Net change in provisions for contingencies (122 ) 414 574 Net change in the provisions for employee benefits (67 ) (8 ) 16 Gain on disposal of assets, net (309 ) (219 ) (226 ) Dividend income (32) (170 ) (510 ) (164 ) Interest income (603 ) (592 ) (352 ) Interest expense 523 809 603 Exchange differences (119 ) (319 ) (156 ) Income taxes (33) 9,219 9,692 6,756 Cash generated from operating profit before changes in working capital 25,696 29,807 21,625 (Increase) decrease: - inventories (1,117 ) (801 ) 52 - trade and other receivables (655 ) (974 ) (19 ) - other assets (362 ) 162 (472 ) - trade and other payables 360 2,318 (1,201 ) - other liabilities 107 1,507 (129 ) Cash from operations 24,029 32,019 19,856 Dividends received 658 1,150 576 Interest received 333 266 594 Interest paid (555 ) (852 ) (583 ) Income taxes paid, net of tax receivables received (8,948 ) (10,782 ) (9,307 ) Net cash provided from operating activities 15,517 21,801 11,136 - of which with related parties (36) 549 (62 ) (1,188 ) Investing activities: - tangible assets (8) (8,364 ) (12,082 ) (12,032 ) - intangible assets (10) (2,229 ) (2,480 ) (1,663 ) - consolidated subsidiaries and businesses (4,759 ) (3,634 ) (25 ) - investments (11) (4,890 ) (385 ) (230 ) - securities (76 ) (152 ) (2 ) - financing receivables (1,646 ) (710 ) (972 ) - change in payables and receivables in relation to investments and capitalized depreciation 185 367 (97 ) Cash flow from investments (21,779 ) (19,076 ) (15,021 ) Disposals: - tangible assets 165 318 111 - intangible assets 35 2 265 - consolidated subsidiaries and businesses 56 149 - investments 403 510 3,219 - securities 491 145 164 - financing receivables 545 1,293 861 - change in payables and receivables in relation to disposals (13 ) (299 ) 147 Cash flow from disposals 1,682 2,118 4,767 Net cash used in investing activities (*) (20,097 ) (16,958 ) (10,254 ) - of which with related parties (36) (822 ) (1,598 ) (1,262 ) F-9
CONSOLIDATED STATEMENT OF CASH FLOWS continued
(euro million)
Note
2006
2007
2008
Proceeds from long-term debt 2,888
6,589
3,774
Repayments of long-term debt (2,621
) (2,295
) (2,104
) Increase (decrease) in short-term debt (949
) 4,467
(690
) (682
) 8,761
980
Net capital contributions by minority shareholders 22
1
20
Net acquisition of treasury shares different from Eni SpA (477
) (340
) (50
) Acquisition of additional interests in consolidated subsidiaries (7
) (16
) Sale of additional interests in consolidated subsidiaries 35
Dividends paid to Eni’s shareholders (4,610
) (4,583
) (4,910
) Dividends paid to minority interest (222
) (289
) (297
) Net purchase of treasury shares (1,156
) (625
) (768
) Net cash used in financing activities (7,097
) 2,909
(5,025
) - of which with related parties (37)
(57
) 20
14
Effect of change in consolidation (inclusion/exclusion of significant/insignificant subsidiaries) (4
) (40
) (1
) Effect of exchange rate changes on cash and cash equivalents (197
) (160
) 8
Net cash flow for the period 2,652
(1,871
) (175
) Cash and cash equivalents - beginning of year (1)
1,333
3,985
2,114
Cash and cash equivalents - end of year (1)
3,985
2,114
1,939
Note
2007
2008
2009
Proceeds from long-term debt 6,589 3,774 8,774 Repayments of long-term debt (2,295 ) (2,104 ) (2,044 ) Increase (decrease) in short-term debt 4,467 (690 ) (2,889 ) 8,761 980 3,841 Net capital contributions by minority shareholders 1 20 1,551 Net acquisition of treasury shares different from Eni SpA (340 ) (50 ) 9 Acquisition of additional interests in consolidated subsidiaries (16 ) (2,068 ) Dividends paid to Eni's shareholders (4,583 ) (4,910 ) (4,166 ) Dividends paid to minority interest (289 ) (297 ) (350 ) Net purchase of treasury shares (625 ) (768 ) Net cash used in financing activities 2,909 (5,025 ) (1,183 ) - of which with related parties (36) 20 14 (14 ) Effect of change in consolidation (inclusion/exclusion of significant/insignificant subsidiaries) (40 ) (1 ) Effect of exchange rate changes on cash and cash equivalents and other changes (160 ) 8 (30 ) Net cash flow for the period (1,871 ) (175 ) (331 ) Cash and cash equivalents - beginning of year (1) 3,985 2,114 1,939 Cash and cash equivalents - end of year (1) 2,114 1,939 1,608
(*) Net cash used in investing activities included investments in certain financial assets to absorb temporary surpluses of cash or as part of our ordinary management of financing activities. Due to their nature and the circumstance that they are very liquid, these financial assets are netted against finance debt in determining net borrowings. For the definition of net borrowings, see "Item 5 – Operating and Financial Review and Prospects""Financial Review" in the "Report of the Directors".
Cash flows of such investments were as follows:
(euro million)
2006
2007
2008
(euro million)
2007
2008
2009
Financing investments: - securities (44
) (75
) (74
) (75 ) (74 ) (2 ) - financing receivables (134
) (970
) (99
) (970 ) (99 ) (36 ) (178
) (1,045
) (173
) (1,045 ) (173 ) (38 ) Disposal of financing investments: - securities 340
419
145
419 145 123 - financing receivables 54
147
939
147 939 311 394
566
1,084
566 1,084 434 Net cash flows from financing activities 216
(479
) 216
(479 ) 911 396
F-8F-10SUPPLEMENTAL CASH FLOW INFORMATION
(euro million)million euro)
2006
2007
2008
Effect of investment of companies included in consolidation and businesses Current assets 68
398
1,938
Non-current assets 130
5,590
7,442
Net borrowings 53
1
1,543
Current and non-current liabilities (92
) (972
) (3,598
) Net effect of investments 159
5,017
7,325
Minority interests (1,261
) Fair value of investments held before the acquisition of control (13
) (601
) Sale of unconsolidated entities controlled by Eni (60
) Purchase price 99
5,004
5,463
less: Cash and cash equivalents (53
) (245
) (1,829
) Cash flow on investments 46
4,759
3,634
Effect of disposal of consolidated subsidiaries and businesses Current assets 9
73
277
Non-current assets 1
20
299
Net borrowings (1
) 26
(118
) Current and non-current liabilities (4
) (94
) (270
) Net effect of disposals 5
25
188
Gain on disposal 3
33
25
Minority interest (1
) Selling price 8
58
212
less: Cash and cash equivalents (2
) (63
) Cash flow on disposals 8
56
149
2007
2008
2009
Effect of investment of companies included in consolidation and businesses Current assets 398 1,938 7 Non-current assets 5,590 7,442 47 Net borrowings 1 1,543 4 Current and non-current liabilities (972 ) (3,598 ) (29 ) Net effect of investments 5,017 7,325 29 Minority interests (1,261 ) Fair value of investments held before the acquisition of control (13 ) (601 ) Sale of unconsolidated entities controlled by Eni Purchase price 5,004 5,463 29 less: Cash and cash equivalents (245 ) (1,829 ) (4 ) Cash flow on investments 4,759 3,634 25 Effect of disposal of consolidated subsidiaries and businesses Current assets 73 277 Non-current assets 20 299 Net borrowings 26 (118 ) Current and non-current liabilities (94 ) (270 ) Net effect of disposals 25 188 Gain on disposal 33 25 Minority interest (1 ) Selling price 58 212 less: Cash and cash equivalents (2 ) (63 ) Cash flow on disposals 56 149 Transactions that did not produce cash flows
Acquisition of equity investments in exchange of businesses contribution:
(euro million)
2006
2007
2008
Current assets 23
Non-current assets 213
38
Net borrowings (44
) (4
) Long-term and short-term liabilities (53
) Net effect of contribution 139
34
Minority interest (36
) Gain on contribution 18
Acquisition of investments 121
34
(euro million)
2007
2008
2009
Current assets Non-current assets 38 Net borrowings (4 ) Long-term and short-term liabilities Net effect of contribution 34 Minority interest Gain on contribution Acquisition of investments 34
F-9F-11Basis of presentation
The Consolidated Financial Statements of Eni Group for the Annual Report on Form 20-F have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Oil and natural gas exploration and production activity is accounted for in conformity with internationally accepted accounting principles. Specifically, this concerns the determination of the amortization expenses using the unit-of-production method and the recognition of the production-sharing agreements and buy-back contracts. The Consolidated Financial Statements have been prepared on a historical cost basis except for certain items that under IFRS must be recognized at fair value as described in the summary of significant accounting policies paragraph.
The Consolidated Financial Statements include the accounts of Eni SpA and the accounts of controlled subsidiary companies where the company holds the right to directly or indirectly exercise control, determine financial and management decisions and obtain economic and financial benefits.
Immaterial subsidiaries are not consolidated. A subsidiary is generally considered to be immaterial when it does not exceed two of the following three 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 consolidation does not produce significant economic and financial effects are not consolidated. These are
usuallyessentially entities acting as sole-operator in the management of oil and gas contracts on behalf of companies participating in a joint venture. These are financed proportionately based on a budget approved by the participating companies upon presentation of periodical reports of proceeds and expenses. 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 statements of the companies involved. The effects of these exclusions are immaterial1.Immaterial subsidiaries excluded from consolidation, jointly controlled entities, associates and other interests are accounted for as described below under the item "Financial fixed assets".
Subsidiaries’ financial statements are audited by the independent auditors who examine and certify also the information required for the preparation of the Consolidated Financial Statements.
The
20082009 Consolidated Financial Statements approved by Eni’s Board of Directors on March13, 200911, 2010 were audited by the independent auditor PricewaterhouseCoopers SpA (PwC). The independent auditor of Eni SpA, as the main auditor of the Group, is in charge of the auditing activities of the subsidiaries, unless this is incompatible with local laws, and, to the extent allowed under Italian legislation, of the work of other independent auditors.Amounts in the notes to these financial statements are expressed in millions of euros (euro million).
Principles of consolidation
Interest in consolidated companies
Assets and liabilities, revenues and expenses related to fully consolidated subsidiaries are wholly incorporated in the Consolidated Financial Statements; the book value of interests in these subsidiaries is eliminated against the corresponding share oftheshareholders’ equity by attributing to each of the balance sheet items its fair value at the acquisition date.When acquired, the net equity of controlled subsidiaries is initially recognized at fair value. The excess of the purchase price of an acquired entity over the total fair value assigned to assets acquired and liabilities assumed is recognized as goodwill; negative goodwill is recognized in the profit and loss account.
Equity and net profit of minority shareholders are included in specific lines of the financial statements; this share of equity is determined using the fair value of assets and liabilities, excluding any related goodwill, at the time when control is acquired.
The purchase of additional ownership interests in subsidiaries from minority shareholders is recognized as goodwill and represents the excess of the amount paid over the carrying value of the minority interest acquired.
Gains or losses associated with the sale of interests in consolidated subsidiaries are reflected in the profit and loss account for the difference between the proceeds from the sale and the divested portion of net equity.
(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-10F-12Inter-company transactions
Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are not eliminated since they are considered an impairment indicator of the asset transferred.Foreign currency translation
Financial statements of foreign companies having a functional currency other than the euro are translated into the presentation currency using closing exchange rates for assets and liabilities, historical exchange rates for equity accounts and average rates for the period for the profit and loss account (source: Bank of Italy).Cumulative exchange rate differences resulting from this translation are recognized in shareholders’ equity under "Other reserves" in proportion to the group’s interest and under "Minority interest" for the portion related to minority shareholders. Cumulative exchange rate differences are charged to the profit and loss account when the investments are sold or the capital employed is repaid.
Financial statements of foreign subsidiaries which are translated into the euro are denominated in the functional currencies of the countries where the entities operate. The U.S. dollar is the prevalent functional currency for the entities that do not adopt the euro.
Summary of significant accounting policies
The most significant accounting policies used in the preparation of the Consolidated Financial Statements are described below.
Current assets
Held for trading financial assets and available-for-sale financial assets are measured at fair value with gains or losses recognized in the profit and loss account under "Financial income (expense)" andas a component ofto the equitywithin "Other reserves",reserve related to other comprehensive income, respectively.In the latter case, changes in fair value recognized
under shareholders’in equity are charged to the profit and loss account when they are impaired or realized. The objective evidence that an impairment loss has occurred is verified considering,interalia,inter alia, significant breaches of contracts, serious financial difficulties or the high probability of insolvency of the counterparty; asset write downs are included in the carrying amount2.of the financial asset.Available-for-sale financial assets include financial assets other than derivative financial instruments, loans and receivables, held for trading financial assets, held-to-maturity financial assets and, if applicable, investments associated with a derivative financial instrument. The latter are stated at fair value with effects of changes in fair value recognized in the profit and loss account rather than
inshareholders’ equity (the so-called "fair value option") in order to ensure a match with the recognition in the profit and loss accountoffor the changes in fair value of the derivative instrument32.The fair value of financial instruments is determined 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 market operators and prices obtained in similar recent transactions in the market. Interests and dividends on financial assets stated at fair value with gains or losses reflected in the profit and loss account are accounted for on an accrual basis
asin "Financial income (expense)" and"Income (expense)"Other gain (loss) from investments", respectively. When the purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame generally establishedgenerallyby regulation or convention in the market place concerned, the transaction is accounted for on the settlement date. Receivables are carried at amortized cost (see item "Financial fixed assets" below). Transferred financial assets are derecognized when the contractual rights to receive the cash flows of the financial assets are transferred together with the risks and rewards of the ownership.Inventories, including compulsory stocks and excluding contract work in progress, are stated at the lower of purchase or production cost and net realizable value. Net realizable value is the estimated selling price less the costs to
sell.sell, or, with reference to inventories of crude oil and petroleum products already included in binding sale contracts, the contractual sale price. The cost for inventories of hydrocarbons (crude oil, condensates and naturalgas) and petroleum products is
(2) Amendments to IAS 39 "Financial Instruments: Recognition and Measurement" and to IFRS 7 "Financial Instruments: Disclosures" that permit, with certain criteria met, an entity to reclassify held for trading and available-for-sale financial assets into financial instruments valuated at cost or at amortized cost have not produced any effect for Eni.(3)Regarding the investment in OAO Gazprom Neft see Note 2 -– Other financial assets held for trading or available for sale.
F-11F-13gas) and petroleum products is determined by applying the weighted-average cost method on a three-month
basis;basis, or monthly, when it is justified by the use and the turnover of inventories of crude oil and petroleum products; 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 measured using the cost-to-cost method whereby contract revenue is recognized based on the stage of completion as determined by the cost
sustained.incurred. Advances are deducted from inventories within the limits of contractual considerations; any excess of such advances over the value of the inventories is recorded as a liability. Losses related to construction contracts are accrued for once the company becomes aware of such losses. Contract work in progress not yet invoiced, whose payment will be made in a foreign currency, is translated to euro using the current exchange rates at year end and the effect of rate changes is reflected in the profit and loss account.When take-or-pay clauses are included in long term natural gas purchase contracts, uncollected gas volumes which imply the "pay" clause, measured using the price formulas contractually defined, are recognized under "Other assets" as "deferred costs" as an offset to "Trade payables" or, after the settlement, to "Cash and Cash equivalents".
The deferred costs are charged to the profit and loss account: (i) when natural gas is actually delivered – the related cost is included in the determination of the weighted-average cost of inventories and (ii) for the portion which is not recoverable, when it is not possible to collect gas that was previously uncollected within the contractually defined deadlines. Furthermore, the deferred costs are tested for economic recoverability by comparing the related carrying amount and their net realizable value, measured adopting the same criteria described for inventories.
Hedging instruments are described in the section "Derivative
instruments"Instruments".Non-current assets
Property, plant and equipment
43
Tangible assets, including investment properties, are recognized using the cost model and stated at their purchase or self-construction cost including any costs directly attributable to bringing the asset into operation. In addition, when a substantial period of time is required to make the asset ready for use, the purchase price or self-construction cost includes the borrowing costs incurred that could have otherwise been saved had the investment not been made. In the case of a present obligation for the dismantling and removal of assets and the restoration of sites, the carrying value includes, with a corresponding entry to a specific provision, the estimated (discounted) costs to beborneincurred at the moment the asset is retired. Changes in the estimate of the carrying amounts of provisions due to the passage of time and changes in discount rates are recognized under "Provisions for contingencies"54.Property, plant and equipment is not revalued for financial reporting purposes.
Assets carried under financial
leasingleases or concerning arrangements that do not take the legal form of a finance lease but substantially transfer all the risks and rewards of ownership of the leased asset are recognized at fair value, net of taxes duefromto the lessor or, if lower, at the present value of the minimum lease payments. Leased assets are included within property, plant and equipment. A corresponding financial debt payable to the lessor is recognized as a financial liability. These assets are depreciated using the criteria described below. When the renewal is not reasonably certain, leased assets are depreciated over the shorter of the lease termandor the estimated useful life of the asset.Expenditures on renewals, improvements and transformations which provide additional economic benefits are capitalized to property, plant and equipment.
Tangible assets, from the moment they begin or should begin to be used, are depreciated systematically using a straight-line method over their useful life which is an estimate of the period over which the assets will be used by the company. When tangible assets are composed of more than one significant element with different useful lives, each component is depreciated separately. The amount to be depreciated is
represented bythe book valuereduced byless the estimated net realizable value at the end of the useful life, if it is significant and can be reasonably determined. Land is notdepreciated, even when purchased with a building. Tangible assets held for sale are not depreciated but are valued at the lower of book value and fair value less costs of disposal.
Assets that can be used free of charge by third parties are depreciated over the shorter term of the duration of the concession and the useful life of the asset.
Replacement costs 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. Expenditures for ordinary maintenance and repairs are expensed as incurred.
The carrying value of property, plant and equipment is reviewed for impairment whenever events indicate that the carrying amounts for those assets may not be recoverable. The recoverability of an asset is assessed by comparing its carrying value with the recoverable amount represented by the higher of fair value less costs to sell
(4)(3)Recognition and evaluation criteria of exploration and production activities are described in the section "Exploration and production activities" below. (5)(4)The company recognizes material provisions for the retirement of assets in the Exploration & Production business. No significant asset retirement obligations associated with any legal obligations to retire refining, marketing and transportation (downstream) and chemical long-lived assets are generally recognized, as undetermined settlement dates for asset retirements do not allow a reasonable estimate of the fair value of the associated 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.
F-12F-14depreciated, even when purchased with a building. Tangible assets held for sale are not depreciated (see item "Non-current assets held for sale" below).
Assets that can be used free of charge by third parties are depreciated over the shorter term of the duration of the concession or the asset's useful life.
Replacement costs 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. Expenditures for ordinary maintenance and repairs are expensed as incurred.
The carrying value of property, plant and equipment is reviewed for impairment whenever events indicate that the carrying amounts for those assets may not be recoverable. The recoverability of an asset is assessed by comparing its carrying value with the recoverable amount which is the higher of fair value less costs to sell or its value in use. If there is no binding sales agreement, fair value is estimated on the basis of market values, recent transactions, or the best available information that shows the proceeds that the company could reasonably expect to collect from the disposal of the asset. Value in use is the present value of the future cash flows expected to be derived 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 remaining useful life of the asset, giving more importance to independent assumptions. Oil, natural gas and petroleum products prices (and to prices for products which derive
therefrom)there from) used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace for the first four years and management’s long-term planning assumptions thereafter. Discounting is carried out at a rate that reflects a current market valuation of the time value of money and of those specific risks of the asset that are not reflected in the estimate of the future cash flows. In particular, the discount rate used is the Weighted Average Cost of Capital (WACC) adjusted for the specific country risk of the activity.The evaluation of the specific country risk
to be includedconsidered for inclusion in the discount rate is determined on the basis of information provided by external parties. The WACC differs considering the risk associated with individual operating segments; in particular for the assets belonging to the Gas & Power and Engineering & Construction segments, taking into account the differentriskrisks compared with Eni, specific WACC rates have been defined (for Gas & Power segment on the basis of a sample of companies operating in the same segment; for Engineering & Construction segment on the basis of the market quotation); WACC used for impairments in the Gas & Power segment is adjusted to take into consideration the risk premium of the specific country of the activity while WACC used for impairments in the Engineering & Construction segment is not adjusted for country risk as most of the company assets are not located in a specific country. Fortheregulated activities, the discount rateto useused for the measurement of the value in use is equal to the rate of return defined by the Regulator. Fortheother segments, a single WACC is used considering that the risk is the same to that of Eni as a whole. Value in use is calculated net of the tax effect as this method results in values similar to those resulting from discounting pre-tax cash flows at a pre-tax discount rate deriving, through an iteration process, from a post-tax valuation. 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 generating unit". When the reasons for their impairment cease to exist, Eni makes a reversal that is recognized in the profit or loss account as income from asset revaluation. This reversed amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.Intangible assets
Intangible assets are assets without physical substance, controlled by the company and able to produce future economic benefits, and goodwill acquired in business combinations. An asset is classified as intangible when management is able to distinguish it clearly from goodwill. This condition is normally met when: (i) the intangible asset arises from contractual or legal rights, 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 generated by the underlying asset and to restrict the access of others to those cash flows.Intangible assets are initially stated at cost as determined by the criteria used for tangible assets and they are not revalued for financial reporting purposes.
Intangible assets with a definite useful life are amortized systematically over their useful life estimated as the period over which the assets will be used by the company; the amount to be amortized and the recoverability of the
F-15
carrying amount are verified in accordance with the criteria described in the section "Property, plant and equipment".
Goodwill and other intangible assets with an indefinite useful life are not amortized. The recoverability of their carrying value is reviewed at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the level of the smallest aggregate on which the company, directly or indirectly, evaluates the return on the capital expenditure to which goodwill relates. When the carrying amount of the cash generating unit, including goodwill allocated thereto, exceeds the cash generating unit’s recoverable amount, the excess is recognized as impairment. The impairment loss is first allocated to reduce the carrying amount of goodwill; any remaining excess to be allocated to the assets of the unit is applied
F-13pro-rata on the basis of the carrying amount of each asset in the unit. Impairment charges against goodwill are not reversed
65. Negative goodwill is recognized in the profit and loss account.Costs of technological development activities are capitalized when: (i) the cost attributable to the development activity can be reasonably determined; (ii) there is the intention, availability of funding and technical capacity to make the asset available for use or sale; and (iii) it can be demonstrated that the asset is able to generate future economic benefits.
Intangible assets also include public to private service concession arrangements in which: (i) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them and at what price; and (ii) the grantor controls – through ownership, beneficial entitlement or otherwise – any significant residual interest in the infrastructure at the end of the term of the arrangement.
According to the terms of the agreements the operator has the right to operate the infrastructure, controlled by the grantor, in order to provide the public service
7 86.Exploration and production activities
97Acquisition of mineral rights
Costs associated with the acquisition of mineral rights are capitalized in connection with the assets acquired (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 flows.
ExpenditureExpenditures 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 in the balance sheet as assets.
Costs associated with proved reserves are amortized on a 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.
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 initially capitalized in order to reflect their nature as an investment and subsequently 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. They are then capitalized within property, plant and equipment and
(5) Impairment charges recognized in an interim period are not reversed also when, considering conditions existing in a subsequent interim period, they would have been recognized in a smaller amount or would not have been recognized. (6) When the operator has a unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor, considerations received or receivable by the operator for construction or upgrade of the infrastructure are recognized as a financial asset. (7) IFRSs have not specificcriteria for hydrocarbon exploration and production activities. Eni continues to use existing accounting policies for exploration and evaluation of assets previously applied before the introduction of IFRS 6 "Exploration for and evaluation of mineral resources". F-16
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 at a rate representing the ratio between the volumes extracted during the quarter and the proved developed reserves existing at the end of the quarter, increased by the volumes extracted during the quarter. This method is applied with reference to the smallest aggregate representing a direct correlation between investments and proved developed reserves.
Costs related to unsuccessful development wells or damaged wells are expensed immediately as losses on disposal. Impairments and reversal of impairments of development costs are made on the same basis as those for tangible assets.
(6)Impairment charges recognized in an interim period are not reversed also when, considering conditions existing in a subsequent interim period, they would have been recognized in a smaller amount or would not have been recognized.(7)When the operator has a unconditional contractual right to riceive cash or another financial asset from or at the direction of the grantor, considerations received or receivable by the operator for construction or upgrade of the infrastructure are recognized as a financial asset.(8)The accounting policy for service concession arrangement has been defined according to IFRIC 12 "Service concession arrangements" (IFRIC 12); the application of IFRIC 12 has determined for 2007 the reclassification of euro 3,218 million from the line item "Property, plant and equipment" to "Intangible assets"; the effects on profit and loss accounts are not material.(9)IFRS 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-14Production
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
Oil and gas reserves related to production-sharing agreements and buy-back contracts are determined on the basis of contractual clauses related to the repayment of costs incurred for the exploration, development and production activities executed through the use of the company’s technologies and financing (cost oil) and the company’s share of production volumes not destined to cost recovery (profit oil). Revenues from the sale of the production entitlements against both cost oil and profit oil are accounted for on an accrual basiswhilstwhile exploration, development and production costs are accounted for according to the policies mentioned above.The company’s share of production volumes and reserves representing the profit oil includes the share of hydrocarbons which corresponds to the taxes to be paid, according to the contractual agreement, by the national government on the behalf of the company. As a consequence the company has to recognize at the same time an increase in the taxable profit, through the increase of
therevenues, andatax expense.Retirement
Costs expected to be incurred with respect to the retirement of a 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 "Property, plant and equipment".Grants
Grants related to assets are recorded as a reduction of purchase price or production cost of the related assets when there is reasonable assurance that all the required conditions attached to them, agreed upon with government entities, have been met. Grants not related to capital expenditure are recognized in the profit and loss account.Financial fixed assets
Investments
Investments in subsidiaries excluded from consolidation, jointly controlled entities and associates are accounted for using the equity method108. When there is objective evidence of impairment (see also section "Current assets"), the recoverability is tested by comparing the carrying amount and the related recoverable amount determined by adopting the criteria indicated in the section "Property, plant and equipment".Subsidiaries, joint ventures and associates excluded from consolidation are accounted for at cost, adjusted for impairment losses if this does not result in a misrepresentation of the company’s financial condition. When the reasons for their impairment cease to exist, investments accounted for at cost are re-valued within the limit of the impairment made and their effects are included in "Other income (expense) from investments".
Other investments included in
non currentnon-current assets are recognized at their fair value and their effects are included inshareholders’the equityunder "Other reserves"; thisreserveisrelated to other comprehensive income; the changes in fair value recognized in equity are charged to the profit and loss account when it is impaired or realized. When investments are not traded in a publicmarket and fair value cannot be reasonably determined, investments are accounted for at cost, adjusted for impairment losses; impairment losses may not be reversed11.
The risk deriving from losses exceeding shareholders’ equity is recognized in a specific provision to the extent the parent company is required to fulfill legal or implicit obligations towards the subsidiary or to cover its losses.
Receivables and financial assets to be held to maturityReceivables and financial assets to 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 adjusted 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, or at the
(10)(8)In the case of step acquisition of a significant influence (or joint control), the investment is recognized at the acquisition date of significant influence (joint control) at the amount deriving from the use of the equity method assuming the adoption of this method since initial acquisition; the "step-up" of the carrying amount of interests owned before the acquisition of significant influence (joint control) is taken to equity.
(11)Impairment charges recognised in an interim period are not reversed also when, considering conditions existing in a subsequent interim period, they would have been recognized in a smaller amount or would not have been recognized.
F-15F-17market and fair value cannot be reasonably determined, investments are accounted for at cost, adjusted for impairment losses; impairment losses may not be reversed9.
The risk deriving from losses exceeding shareholders’ equity is recognized in a specific provision to the extent the parent company is required to fulfill legal or implicit obligations towards the subsidiary or to cover its losses.
Receivables and financial assets to be held to maturity
Receivables and financial assets to 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 adjusted to take into account capital repayments, impairment and amortization of the difference between the reimbursement value and the initial carrying value. Amortization is carried out on the basis of the effective interest 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"). Receivables for finance leases are recognized at an amount equal to the present value of the lease payments and the purchase option price or any residual value; the amount is discounted at the interest rate implicit in the lease.Any impairment is recognized by comparing the carrying value with the present value of the expected cash flows discounted at the effective interest rate as defined at initial recognition, or at the moment of its updating to reflect re-pricings contractually established. Receivables and financial assets to be held to maturity are recognized net of the allowance for impairment losses; when the impairment loss is definite the
excessallowance for impairment losses isreversed.reversed for charges otherwise for excess. Changes to the carrying amount of receivables or financial assets in accordance with the amortized cost method are recognized as "Financial income (expense)".Non-current assets held for sale
Non-current assets and current and non-current assets included within disposal groups, whose carrying amount will be recovered principally through a sale transaction rather than through their continuing use, are classified as held for sale.Non-current assets held for sale, current and non-current assets included within disposal groups that have been classified as held for sale and the liabilities directly associated with them are recognized in the balance sheet separately from the entity’s other assets and liabilities.
Non-current assets held for sale are not depreciated and they are measured at the lower of the fair value less costs to sell or their carrying amount.
Any difference between the carrying amount and the fair value less costs to sell is taken to the profit or loss account as an impairment loss; any subsequent reversal is recognized up to the cumulative impairment losses, including those recognized prior to qualification of the asset as held for sale.
Financial liabilities
Debt is carried at amortized cost (see item "Financial fixed assets" above).Provisions for contingencies
Provisions for contingencies are liabilities for risks and charges of a definite nature and whose existence is certain or probable but for which at year-end the timing or amount of future expenditure is uncertain. Provisions are recognized when: (i) there is a current obligation (legal or constructive), as a result of a past event; (ii) it is probable that the settlement of that obligation will result in an outflow of resources embodying economic benefits; and (iii) the amount of the obligation can be reliably estimated. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date or to transfer it to third parties at that time. The amount recognized for onerous contracts is the lower of the cost necessary to fulfill the obligations, net of expected economic benefits deriving from the contracts, and any indemnity or penalty arising from failure to fulfill these obligations. If the effect of the time value is material, and the payment date of the obligations can be reasonably estimated, provisions to be accrued are the present value of the expenditures expected to be required to settle the obligation at a discount rate that reflects the company’s average borrowing rate taking
(9) Impairment charges recognized in an interim period are not reversed also when, considering conditions existing in a subsequent interim period, they would have been recognized in a smaller amount or would not have been recognized. F-18
into account the risks associated with the obligation. The increase in the provision due to the passage of time is recognized as "Financial income (expense)".
When the liability regards a tangible asset (e.g. site restoration and abandonment), the provision is
statedrecorded with a corresponding entry to the asset to which itrefers; chargesrefers. Charges to the profit and loss accountchargeare madewiththrough the amortizationprocess.process of the asset.Costs that the company expects to bear in order to carry out restructuring plans are recognized when the company formally defines the plan and the interested parties have developed the reasonable expectation that the restructuring will happen.
Provisions are periodically updated to show the variations of estimates of costs, production times and actuarial
rates; therates. 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 statementsConsolidated 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 not result in an outflow of resources embodying economic benefits.Employee benefits
Post-employment benefit plans, including constructive obligations, are classified as either defined contribution plans or defined benefit plans depending on the economic substance of the plan as derived from its principal terms and conditions. In the first case, the company’s obligation, which consists of making payments to the State or a trust or a fund, is determined on the basis of contributions due.The liabilities related to defined benefit plans, net of any plan assets, are determined on the basis of actuarial assumptions and charged on an accrual basis during the employment period required to obtain the benefits.
The actuarial gains and losses of defined benefit plans are recognized pro-rata on service, in the profit and loss account using the corridor method, if and to the extent that net cumulative unrecognized actuarial gains and losses
unrecognizedat the end of the previous reporting period exceed the greaterofor 10% of the present value of the defined benefit obligationandor 10% of the fair value of the plan assets, over the expected average remaining working lives of the employees participatingtoin the plan.Such actuarial gains and losses derive from changes in the actuarial assumptions used or from a change in the conditions of the plan.
F-16Obligations for long-term benefits are determined by adopting actuarial
assumptions; theassumptions. The effect of changes in actuarial assumptions or a change in the characteristics of the benefit are taken to the profit or loss in their entirety.Treasury shares
Treasury shares are recorded at cost and as a reduction of equity. Gains resulting from subsequent sales are recorded in equity.Revenues and costs
Revenues associated with sales of products and services are recorded when significant risks and rewards of ownership pass to the customer or when the transaction can be considered settled and associated revenue can be reliably measured. In particular, revenues are recognized for the sale of:
- crude oil, generally upon shipment;
- natural gas, upon delivery to the customer;
- petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales of petroleum products are generally recognized upon shipment;
- chemical products and other products, generally upon shipment.
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Revenues are recognized upon shipment when, at that date, significant risks are transferred to the buyer. Revenues from crude oil and natural gas production from properties in which Eni has an interest together with other producers are recognized on the basis of Eni’s net working interest in those properties (entitlement method). Differences between Eni’s net working interest volume and actual production volumes are recognized at current prices at year end.
Income related to partially rendered services is recognized
inon the measurement of accrued income if the stage of completion can be reliably determined and there is no significant uncertainty as to the collectability of the amount and the related costs. When the outcome of the transaction cannot be estimated reliably, revenue is recognized only to the extent of the expenses recognized that are recoverable.Revenues accrued
induring the year related to construction contracts are recognized on the basis of contractual revenues with reference to the stage of completion of a contract measured on the cost-to-cost basis1210-11.Requests
offor additional revenues, deriving from a change in the scope of work, are included in the total amount of revenues when it is probable that the customer will approve the variation and the relatedamount; claimsamount. Claims deriving from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that the counterparty will accept them.Revenues are stated net of returns, discounts, rebates, bonuses and direct taxation.
Award credits, related to customer loyalty programs, are recognized as a separate component of the sales transaction which grant the right to customers. Therefore, the portion of revenues related to the fair value of award credits granted is recognized as an offset to the item "Other liabilities". The liability is charged to the profit and loss account in the period in which the award credits are redeemed by customers or the related right is lost.
The exchange of goods and services of a similar nature and value do not give rise to revenues and costs as they do not represent sale transactions.
Costs are recorded when the related goods and services are sold, consumed or allocated, or when their future benefits cannot be determined.
Costs associated with emission quotas, determined on the basis of the average prices of the main European markets at period end, are reported in relation to the amount of the carbon dioxide emissions that exceed the amount
assigned; related revenues are recognized upon sale.assigned. Costs related to the purchase of the emission rights are taken to intangible assets net of any negative difference between the amount of emissions and the quotas assigned. Revenues related to emission quotas are recognized when they are realized after the related sale. In case of sale, if applicable, the acquired emission rights should be considered as the first to be sold.Operating lease payments are recognized in the profit and loss account over the length of the contract.
Labor costs include
stock grants andstock options granted to managers, consistent with their actual remunerative nature. The instruments granted are recorded at fair value on the vesting date and are not subject to subsequent adjustments; the current portion is calculated pro-rata over the vesting period1312. Fair value of stock options is determined using valuation techniques which consider conditions related to the exercise of options, current share prices, expected volatility and the risk-free interest rate. The fair value ofthe stock grants andstock options is recorded as a charge 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 incurred for other scientific research activities or technological development, which cannot be capitalized, are included in the profit and loss account.
Exchange rate differences
Revenues and costs associated with transactions in currencies other than the functional currency are translated into the functional currency by applying the exchange rate at the date of the transaction.
(12)(10)For service concession arrangements in which customers fees do not provide a distinction compensation for construction/update of the infrastructure and compensation for operating it and in the absence of external benchmarks which could be used to determine the respective fair value of these two items, revenues recognisedrecognized during the construction phase are limited to the amount of the costs incurred.
(13)(11)For stock grants,When customers transfer an Item of property, plant and equipment different from an infrastructure used in a service concession arrangement (see Item "Intangible assets" above) or cash, which the entity must then use to connect customers to a network and/or to provide them with an ongoing access to a supply of goods or services, the related revenues are recognized immediately or on accrual basis considering the contractual services are rendered.(12) The period between the date of the award and the date of assignation of stock; for stock options, the period between the date of the award and the date at whichstarting from the option can be exercised.
F-17F-20
The costs for the acquisition of new knowledge or discoveries, the study of products or alternative processes, new techniques or models, the planning and construction of prototypes or, in any case, costs borne for other scientific research activities or technological development, which cannot be capitalized, are included in the profit and loss account.
Exchange rate differencesRevenues and costs associated with transactions in currencies other than the functional currency are translated into the functional currency by applying the exchange rate at the date of the transaction.Monetary assets and liabilities denominated in currencies other than
thefunctional 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 denominated in currencies other than the functional currency valued at cost are translated at the initial exchangerate; non-monetaryrate. Non-monetary assets that are re-measured to fair value, recoverable amount or realizable value, are translated at the exchange rate applicable at the date of re-measurement.Dividends
Dividends are recognized at the date of the generalShareholders’ Meetingshareholders’ 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 included in "Incometaxtaxes payables". Current income tax assets and liabilities are measured at the amount expected to be paid to (recovered from) the tax authorities, using tax laws that have been enacted or substantively enactedatas of the balance sheet date and the tax rates estimated onanannual basis. Deferred tax assets or liabilities are provided on temporary differences arising between the carrying amounts of the assets and liabilities and their tax bases, based on tax rates (tax laws) that have been enacted or substantively enacted for future years. Deferred tax assets are recognized when their realization is considered probable. Deferred tax assets and liabilities are included in 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"; if negative, in the item "Deferred tax liabilities". When the results of transactions are recognized directly in shareholders’ equity, current taxes, deferred tax assets and liabilities are also charged totheshareholders’ equity.Derivatives
Derivatives, including embedded derivatives which are separated from the host contract, are assets and liabilities recognized at their fair value which is estimated by using the criteria described in the section "Current assets". When there is objective evidence that an impairment loss has occurred (see "Current assets" paragraph) derivatives are recognized net of the allowance for impairment losses.
Derivatives are classified as hedging instruments when the relationship between the derivative and the
subject of the hedgehedged item is formally documented and theeffectiveness of thehedge ishighhighly effective andis checked periodically.regularly reviewed. When hedging instruments cover the risk of variation of the fair value of the hedged item (fair value hedge, e.g. hedging of the variabilityofon the fair value of fixed interest rate assets/liabilities) the derivatives are stated at fair value and the effects are charged to the profit and loss account. 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, 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 equity and then recognized in the profit and loss account consistent with the economic effects produced by the hedged transaction. The changes in the fair value of derivatives that do not meet the conditions required to qualify for hedge accounting areshownreported in the profit and loss account.Economic effects of transactions, which relate to purchase or sales contracts for commodities entered into to meet the entity’s normal operating requirements and for which the settlement is provided with the delivery of the goods, are recognized on an accrual basis (the so-called normal sale and normal purchase exemption or own use exemption).
F-18F-21Financial statements13
Assets and liabilitiesofon the balance sheet are classified as current and non-current. Itemsofon the profit and loss account are presented by nature14.The statement of comprehensive income shows net profit integrated with income and expenses that are recognized directly in equity according to IFRS.
The statement of changes in shareholders’ equity includes profit and loss for the year, transactions with shareholders and other changes in shareholders’ equity.
The statement of cash flows is presented using the indirect method, whereby net profit is adjusted for the effects of non-cash transactions.
Changes in accounting principles
Starting from January 1, 2009, following the adoption of the provisions of IFRIC 13 "Customer Loyalty Programmes", award credits granted are recognized as a separate component of the sales transaction which granted the right to customers. As a result, part of the consideration received from the sale transaction is allocated to award credits granted, on the basis of their fair value, as an offset to the balance sheet item "Other liabilities"; such liability is recorded to the profit and loss account (as a revenue) in the year when award credits are redeemed by customers or rights are cancelled.
The application of IFRIC 13 determined the following adjustments in the 2007 and 2008 profit and loss account and in the balance sheet as of January 1, 2008 and December 31, 2008: (i) a decrease of euro 52 million and euro 66 million in "Net sales from operations" in the 2007 and 2008 profit and loss account, respectively; (ii) an increase of euro 6 million and euro 8 million in "Other income and revenues" in the 2007 and 2008 profit and loss account, respectively; (iii) a decrease of euro 46 million and euro 58 million in the line item "Purchases, services and other" in the 2007 and 2008 profit and loss account, respectively; (iv) the reclassification of euro 53 million and euro 66 million from "Provisions for contingencies" to "Other current liabilities" in the balance sheet as of January 1, 2008 and December 31, 2008, respectively.
Segment reporting is prepared according to the provisions of IFRS 8 "Operating Segments", effective from January 1, 2009. The new standard requires segment reporting to be prepared according to the requirements used for the preparation of internal reports for the entity’s chief operating decision maker. Therefore the identification of operating segments and the related reporting are prepared on the basis of internal reports that are regularly reviewed by the entity’s chief operating decision maker in order to allocate resources to the segment and to assess its performance. The adoption of the provisions of IFRS 8 "Operating Segments" has not modified the reporting segments.
Starting from 2009, the provisions of the revised IAS 23 "Borrowing Costs" are effective. The revised standard requires the capitalization of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset that takes a substantial period of time to get ready for use or sale. As a result, the main change from the previous version is the removal of the option of immediately recognizing as an expense such borrowing costs. The change does not affect Eni’s financial statements as it already capitalizes such costs.
(13) The financial statements are consistent with those reported in the Annual Report 2008 with the exception of: (i) the modifications related to the application, starting from 2009, of the revised IAS 1 "Presentation of Financial Statements" as integrated by the document "Improvements to IFRSs" issued in May 2008, which requires the preparation of the statement of comprehensive income and the recognition of non-hedging derivatives in the "current" and "non-current" section of the balance sheet. The classification of non-hedging derivatives determined the following effects: (a) the reclassification from current assets to non-current assets of euro 290 million and euro 480 million at January 1, 2008 and December 31, 2008, respectively; (b) the reclassification from current liabilities to non-current liabilities of euro 86 million and euro 564 million at January 1, 2008 and December 31, 2008, respectively; (ii) the recognition of the changes in the fair value of non-hedging derivatives on commodities, also including the effects of settlements, in the new profit and loss account item "Other operating income (expense)". Comparative period figures have been consistently restated; (iii) the final allocation of the acquisition costs of Distrigas NV, Eni Hewett Ltd, First Calgary Petroleums Ltd and Hindustan Oil Exploration Co Ltd related to business combinations occurred in 2008; carrying amounts of certain assets and liabilities acquired have been restated starting from the acquisition date. The final allocations are indicated in Note 27 – Other information. (14) Further information on financial instruments as classified in accordance with IFRS is provided in Note 28 – Guarantees, commitments and risks – Other information about financial instruments. F-22
Use of accounting estimates
The company’s Consolidated Financial Statements are prepared in accordance with IFRS. These require the use of estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. Estimates made are based on complex or subjective judgments and past experience of other assumptions deemed reasonable in consideration of the information available at the time. The accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the Consolidated Financial Statements are in relation to the accounting for oil and natural gas activities, specifically in the determination of proved and proved developed reserves, impairment of fixed assets, intangible assets and goodwill, asset retirement obligations, business combinations, pensions and other post-retirement benefits, recognition of environmental liabilities and recognition of revenues in the oilfield services construction and engineering businesses. Although the company uses its best estimates and judgments, actual results could differ from the estimates and assumptions used. A summary of significant estimates follows.
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 that can beproducedeconomically producible with reasonable certaintyto be recoverable in future yearsfrom known reservoirs under existing economic conditions and operatingconditions.methods. Although there are authoritative guidelines regarding the engineering criteria that must 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 dataandengineering and geological interpretation and judgment.Field reserves will only be categorized as proved when all the criteria for attribution of proved status have been met. At this stage, all booked reserves will be classified as proved undeveloped. Volumes will subsequently be reclassified 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. Eni reassesses its estimate of proved reserves 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
asin regards to 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. 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 Consolidated 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 quarter and proved developed reserves existing at the end of the quarter increased by the amounts extracted during the quarter.
Assuming all other variables are held constant, an increase in estimated proved developed reserves for each field decreases depreciation, depletion and amortization expense. Conversely, a decrease in estimated proved
(14)Further information on financial instruments as classified in accordance with IFRS is provided in Note 29 - Guarantees, commitments and risks "Other information about financial instruments".
F-19developed reserves increases depreciation, depletion and amortization expense. 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 or not property impairment is to be carried out. The larger the volume of estimated reserves, the lower the likelihood of asset impairment.
Impairment of assets
Eni assesses its tangible 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, a reduced utilization of the plants and, for oil and gas properties, significant downward revisions of estimated proved reserve quantities or significant increase of the estimated development costs. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain
F-23
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 demand conditions for crude oil, natural gas, commodity chemicals and refined products. Similar remarks are valid for the physical recoverability of assets recognized in the balance sheet (deferred cost - see also item "Current assets") related to natural gas volumes not collected under long term purchase contracts with take-or-pay clauses.
The amount of an impairment loss 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
andor the value in use. The estimated value in use is based on the present values of expected future cash flows net of disposal costs. The expected future cash flows used for impairmentreviewsanalyses 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 principally based on developed and non-developed proved reserves including, among other elements, production taxes and the costs to be incurred for the reserves yet to be developed. The estimated future level of production is based on assumptions concerning: future commodity prices, lifting and development costs, field decline rates, market demand and supply, economic regulatory climates and other factors.
Oil, natural gas and petroleum
productsproduct prices used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace for the first four years and management’s long-term planning assumptions thereafter. The estimate of the future amount of production is based on assumptions related to the commodity future prices, lifting and development costs, market demand andtoother factors. The discount rate reflects the current market valuation of the time value of money and of the specific risks of the asset not reflected in the estimate of the future cash flows.Goodwill and other intangible assets with an indefinite useful life are not subject to amortization. The company tests such assets at the cash-generating unit level for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount. In particular, goodwill impairment is based on the determination of the fair value of each cash-generating unit to which goodwill can be attributed on a reasonable and consistent basis. A cash generating unit is the smallest aggregate on which the company, directly or indirectly, evaluates the return on the capital expenditure. If the recoverable amount of a cash generating unit is lower than the carrying amount, goodwill attributed to that cash generating unit is impaired up to that 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 to remove tangible equipment and restore land or seabed require significant estimates in calculating the amount of the obligation and determining the amount required to be recorded presently in theconsolidated financial statements.Consolidated Financial Statements. Estimating future asset retirement obligations is complex. It requires management to make estimates and judgments with respect to removal obligations that will come to term many years into the future and contracts and regulations are often unclear as to what constitutes removal. In addition, the ultimate financial impact of environmental laws and regulations is not always clearly known as asset removal technologies and costs constantly evolve in the countries where Eni operates, as do political, environmental, safety and public expectations. 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 obligation in the period when it is incurred (typically, at the time the asset is installed at the production 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 (i.e. interest
F-20accretion) and any change in the estimates following the modification of future cash flows and discount rate adopted. The recognized asset retirement obligations are based on future retirement cost estimates and incorporate many assumptions such as: expected recoverable quantities of crude oil and natural gas, abandonment time, future inflation rates and the risk-free rate of interest adjusted for the Company’s credit costs.
Business combinations
Accounting for business combinations requires the allocation of the purchase price to the various assets and liabilities of the acquired business at their respective fair values. Any positive residual difference is recognized as "Goodwill". Negative residual differences are credited to the profit and loss account. Management uses all available information to make these fair value determinations and, for major business acquisitions, typically engages an independent appraisal firm to assist in the fair value determination of the acquired assets and liabilities.F-24
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, production and other activities. They includelegislationlegislations that implement 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.Management, considering the actions already taken, insurance policies obtained 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. However, 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 an unknown contamination; (ii) the results of the ongoing surveys and 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 effects of future environmental legislations and rules; (iv) the effects 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 litigations and the possible insurance recoveries.
(i) the possibility of an unknown contamination; (ii) the results of the ongoing surveys and 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 effects of future environmental legislations and rules; (iv) the effects of possible technological changes relating to future remediation; and (v) the possibility of litigation and the difficulty of determining Eni’s liability, if any, against other potentially responsible parties with respect to such litigations and the possible insurance recoveries. Employee benefits
Defined benefit plans and other long-term benefits are evaluated with reference to uncertain events and based upon actuarial assumptions including among others discount rates, expected rates of return on plan assets, expected rates of salary increases, medical cost trends, estimated retirement dates and mortality rates. 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. Indicators used in selecting the discount rate include rates of annuity contracts and rates of return on high quality fixed-income investments. 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 individual employees involved, based principally on available actuarial data; and (v) determination of the 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 expected and actual costs and between the expected return and the actual return on plan assets routinely occur and are called actuarial gains and losses. Eni applies the corridor method to amortize its actuarial losses and gains. This method amortizes on a pro-rata basis the net cumulative unrecognized actuarial gains and losses 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.Additionally, obligations for other 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 the profit or loss in their entirety.
F-21Contingencies
In addition to accruing the estimated costs for environmental liabilities, asset retirement obligation and employee benefits, Eni accrues for all contingencies that are both probable and estimable. These other contingencies are primarily related to litigation and tax issues. Determining the appropriateamounts for accrualamount to accrue is a complex estimation process that includes subjective judgments.Revenue recognition in the Engineering & Construction segment
Revenue recognition in the Engineering & Construction 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 deducting 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 toF-25
the geographical region, market conditions in that region and any assessment that is necessary to estimate with sufficient precision the total future costs as well as the expected timetable. Requests of additional income, deriving from a change in the scope of 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 from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that the counterparty will accept them.
Recent accounting principles
Accounting standards and interpretations issued by IASB /IFRIC
IFRS 8 "Operating Segments" replaced IAS 14 "Segment Reporting". IFRS 8 sets out requirements for disclosure of information about the group segments that management uses to make decisions about operating matters.Theidentification of operating segments is based on internal reports that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and assess their performances. IFRS 8 comes into effect starting on January 1, 2009.
The revised IAS 1 "Presentation of Financial Statements" requires, among other things, a statement of comprehensive income that begins with the amount of net profit for the year adjusted with all items of income and expenses directly recognized in equity, but excluded from net income, in accordance with IFRS. The revised standard comes into effect starting on January 1, 2009.
The revised IAS 23 "Borrowing Costs" requires the removal of the option of immediately recognizing as an expense borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset that take a substantial period of time to get ready for use or sale. The company is required to capitalize such borrowing costs as part of the cost of the asset. The revised standard comes into effect starting on January 1, 2009.
The revised IFRS 2 "Share-based payment" specifies the accounting treatment of all cancellations of a grant of equity instruments to employees. It also imposes that vesting conditions are only service and performance conditions required in return for the equity instruments issued. The revised standard comes into effect starting on January 1, 2009.
IFRIC 13 "Customer Loyalty Programmes" addresses how companies, which grant their customers loyalty, award credits when buying goods or services, should account for their obligation to provide free or discounted goods or services if and when the customers redeem the credits. In particular IFRIC 13 requires companies to allocate some of the consideration received from the sales transaction to the award credits and their recognition at fair value. This interpretation came into effect for annual periods beginning on or after July 1, 2008 (for Eni: 2009 financial statements).
Amendments to IAS 1 "Presentation of Financial Statements" and to IAS 32 "Financial Instruments: Presentation" define the conditions that the puttable instruments issued by companies have to meet in order to be classified as equity. Moreover it allowed the classification as equity of instruments issued by the company that impose on the company an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation. The amendments to IAS 1 and IAS 32 come into effect starting on January 1, 2009.
"Improvements to IFRSs", defined in the context of the annual process of "Improvements to IFRS" regards only changes to the existing standards with a technical and editorial nature. The provisions come into effect starting on January 1, 2009.
F-22
On January 10, 2008, IASB issued arevised IFRS 3 "Business Combinations"and an amended version of IAS 27 "Consolidated and Separate Financial Statements". The revisions to IFRS 3require,among other things,interalia, (i) the acquisition-related costs to be accounted for separately from the business combination and then recognized asexpenses rather than included in goodwill,expenses; (ii) the recognitioninto theincome statementprofit and loss account of any change to contingentconsideration,consideration; and (iii) the choice of the full goodwill method which means totreataccount for the full value of the goodwill of the business combination including the share attributable tominority interest.non-controlling interests. In the case of step acquisitions, the revisions alsorelate torequire the recognition in the profit and loss accountofthe difference between the fair value at the acquisition date of the net assets previously held and their carrying amounts.The amendments of IAS 27 "Consolidated and Separate Financial Statements" require,
among other things,interalia, that acquisitions or disposals ofnon-controllingownership interests in a subsidiary that do not result in thelossacquisition (loss) of control, shall be accounted for as equity transactions. By contrast, disposal of any interests that the parent retains in a former subsidiary, jointly controlled entity or associate may result in a loss ofcontrol.control, joint control and significant influence. In this case, at the date when control (joint control or significant influence) is lost, the remaining investment retained isincreased/decreased torecognized at its fair value with gains or losses arising from the difference between the fair value and carrying amount of the held investmentrecognizedrecorded in the profit or loss account. The revised Standards shall be applied for annual periods beginning on or after July 1, 2009 (for Eni: 2010 financial statements).
On July 3, 2008, IFRIC issued IFRIC 16 "HedgesAmendment to IAS 32 "Classification of rights issues" clarifies how to classify in the issuer’s financial statements those financial instruments which grant to shareholders the right to acquire equity instruments of the issuers for aNet Investmentprice denominated in aForeign Operation" which definescurrency other than issuer’s functional currency. If such instruments are issued pro rata to thecriteriaissuer's existing shareholders forrecognition and evaluationa fixed amount ofhedges of a net investmentcash, they should be classified as equity even if their exercise price is denominated in aforeign operation. In particularcurrency other than theinterpretation defines, among other things, that the object of the hedge is the exchange differences between theissuer's functionalcurrency of the foreign operation and the parent’s functional currency and that the hedge instrument can be held by any Group company with the exception of the hedged foreign operation. This interpretationcurrency. The amendment to IAS 32 shall be applied for annualperiodsperiod beginning on or afterOctoberFebruary 1,20082010 (for Eni:20092011 financial statements).
On November 27, 2008, IFRIC issuedIFRIC 17 "Distributions of Non-cash Assets toOwner" which definesOwners" (hereinafter IFRIC 17) provides clarification and guidance on thecriteriaaccounting treatment ofrecognition and evaluation of thedistributions of non-cash assetsother than cash when it pays dividendstoits owner. It also applies in those situations in whichowners of an entity,gives its owneror distributions that give owners a choice of receiving either non-cash assets or a cash alternative. In particular,an entity shall measure a liability to distribute non-cash assets as dividends to its ownersthe interpretation requires, interalia, that the distribution is measured at the fair value of the assets to be distributed. The liabilitywith anyto pay a dividend shall be recognized when the dividend is appropriately authorized; the liability and the related adjustmentsisare recognized asa contraan offset to equity. Whenthean entity settles the dividend payable, it shall recognize the difference, if any, between the carrying amount of the non-cash assets distributed and the fair value of the dividend payableis taken toin the profit orloss.loss account. This interpretation shall be applied for annual periods beginning on or after July 1, 2009 (for Eni: 2010 financial statements).On November 4, 2009, IASB issued a new version of IAS 24 "Related Party Disclosures", which: (i) enhances the definition of a related party requiring new cases; (ii) for transactions between entities related to the same Government, allows to limit quantitative disclosures to significant transactions. The revised standard shall be applied for annual periods beginning on or after January
29, 2008, IFRIC1, 2011.On November 12, 2009 IASB issued IFRS 9 "Financial Instruments" which changes recognition and measurement of financial assets and their classification in the financial statements. In particular, new provisions require, inter alia, a classification and measurement model of financial assets based exclusively on the following categories: (i) financial assets measured at amortized cost; (ii) financial assets measured at fair value. New provisions also require that investments in equity instruments, other than subsidiaries, jointly controlled entities or associates, shall be measured at fair value with effects taken to the profit and loss account. If these investments are not held for trading purposes, subsequent changes in the fair value can be recognized in other comprehensive income, even if dividends are taken to the profit and loss account. Amounts taken to other comprehensive income shall not be subsequently transferred to the profit or loss account, even at disposal. IFRS 9 provisions shall be applied for annual periods beginning on or after January 1, 2013.
F-26
On November 26, 2009 IASB issued IFRIC
18 "Transfers of Assets from customers"19 "Extinguishing Financial Liabilities with Equity Instruments" which defines thecriteriaaccounting treatment to adopt when a financial liability is settled by issuing equity instruments to the creditor (debt for equity swaps). Equity instruments issued to extinguish a liability in full or in part are measured at their fair value or, if fair value cannot be reliably measured, at the fair value ofrecognitionthe financial liability extinguished. The difference between the carrying amount of the financial liability extinguished andevaluationthe fair value oftransfers of items of property, plant and equipment by service providers that receive such transfers from their customers. The interpretation is also appliedequity instrument issued shall be recognized in thecases in which the entity receives cash from a customer that must be used only to connect the customer to a network. When the definition of an asset is met, the asset is recognized at its fair value. When the connection is realized, the entity shall recognize the revenue for a period generally determined by the terms of the arrangement with the customerprofit orif the arrangement does not specify a term, over a period corresponding to the lower of the length of the supply and the useful life of the asset used to provide the ongoing service. This interpretationloss account. IFRIC 19 provisions shall be applied for annual periods beginning on or after July 1,20092010 (for Eni:20102011 financial statements).On April 16, 2009, IASB issued the document "Improvements to IFRSs" which includes only changes to the existing standards and interpretations with a technical and editorial nature. The provisions come into effect starting from 2010.
Eni is currently reviewing these new IFRS and interpretations to determine the likely impact on the Group’s results.
F-23F-27
Notes to the Consolidated Financial Statements
Current assets
1 Cash and cash equivalents
Cash and cash equivalents in the amount of euro 1,608 million (euro 1,939 million(euro 2,114 million atas of December 31,2007)2008) included financing receivables originally due within 90 days for euro 450 million (euro 616 million(euro 415 million atas of December 31,2007)2008). The latter were related to amounts on deposit with financial institutions accessible onlyonwith a 48-hour notice.
2 Other financial assets held for trading or available for sale
Other financial assets held for trading or available for sale are set out below:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Investments 2,476 2,741 Securities held for operating purposes Listed Italian treasury bonds 229 257 Listed securities issued by Italian and foreign financial institutions 27 45 Non-quoted securities 3 8 259 310 Securities held for non-operating purposes Listed Italian treasury bonds 168 109 Listed securities issued by Italian and foreign financial institutions 5 67 Non-quoted securities 1 9 174 185 Total other securities 433 495 2,909 3,236
Investments 2,741 Securities held for operating purposes Listed Italian treasury bonds 257 113 Listed securities issued by Italian and foreign financial institutions 45 171 Non-quoted securities 8 310 284 Securities held for non-operating purposes Listed Italian treasury bonds 109 49 Listed securities issued by Italian and foreign financial institutions 67 14 Non-quoted securities 9 1 185 64 Total securities 495 348 3,236 348 Equity instruments
of euro 2,741 million (U.S. $3,815 million at December 31, 2008 exchange rate) compriseddecreased by the carrying amount ofathe 20% interest in OAO Gazprom Neft (euro 2,741 million), purchased by Gazprom following the exercise of a call option on April 7, 2009 on the basis of the existing agreements with Eni. On April 24, 2009, Eni received a payment of euro 3,070 million (U.S. $4,062 million at the exchange rate on the date of the transaction). Eni acquired the investment in Gazprom Neft on April 4, 2007following finalization ofthrough a bidwithinon theYukosliquidationprocedure. This entity is currently listed at the London Stock Exchange where approximately 5%of theshare capital is traded, while Gazprom currently holds a 75% stake. This accounting classification reflectssecond lot of ex-Yukos assets. The strike price of thecircumstance that Eni granted to Gazprom acall optionon the entire 20% interestwas equal tobe exercisable by Gazprom within 24 months from the acquisition date, at a price of U.S. $3.7 billion equalingthe bid priceadjusted(U.S.$3.7 billion) decreased bysubtractingthe dividends distributed andadding possible share capital increases, aan increase of the contractual remuneration of 9.4% on the capital employed andrelatedfinancing collateral expenses.
The existing shareholder agreements establish that the governance of the investee will be modified to allow Eni to exercise significant influence through participationOther securities in thefinancial and operating policy decisions of the investee in the case that Gazprom does not exercise its call option. The carryingamount ofthe interest equals the strike price of the call optioneuro 348 million (euro 495 million as of December 31,2008. Eni decided not to adjust the carrying amount2008) were classified as available-for-sale securities. As ofthe interest to the market prices at the balance sheet date resulting in U.S. $1,961 million for the following reasons: (i) if Gazprom decides to exercise the call option, the strike price will be equal to the current carrying amount; (ii) if Gazprom decides not to exercise the call option, Eni will be granted significant influence in the decision-making process of the investee and consequently will be in a position to account for the investee in accordance with the equity method of accounting provided by IAS 28 for interests in associates. Under the equity method, Eni is required to allocate the purchase price to the corresponding interest in net equity and the residual amount to fair values of the investee’s assets and liabilities. Subsequently, the carrying amount is adjusted to reflect Eni’s share of losses and profits of the investee. Based on available information and the outcome of an impairment test performed also with the support of an independent consultant, the equity method assessment would result in an amount not lower than the current carrying amount of the interest.
Other securities of euro 495 million (euro 433 million atDecember 31,2007) were available-for-sale securities. At December 31, 20072008 andDecember 31, 2008,2009, Eni did not own financial assets held for trading.
F-24The effects of the valuation at fair value of securities are set
outbelow:
(euro million) Value at
Dec. 31,20072008Changes recognized in the reserves of shareholders' equity
Value at
Dec. 31,20082009
Fair value 2
3
5
5 1 6 Deferred tax liabilities (1
) (1
) (1 ) (1 ) Other reserves of shareholders’ equity 2
2
4
Other reserves of shareholders' equity 4 1 5
Securities held for operating purposes in the amount of euro 284 million (euro 310 million
(euro 259 million atas of December 31,2007)2008) were designed to provide coverage of technical reservesoffor the Group’s insurance company, Eni Insurance Ltdfor euro(euro 302 million(euro 256 million atas of December 31,2007)2008).F-28
The fair value of securities was determined by reference to quoted market prices.
3 Trade and other receivables
Trade and other receivables were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Trade receivables 15,609 16,444 Financing receivables: - for operating purposes - short-term 357 402 - for operating purposes - current portion of long-term receivables 27 85 - for non-operating purposes 990 337 1,374 824 Other receivables: - from disposals 125 149 - other 3,568 4,805 3,693 4,954 20,676 22,222
Trade receivables 16,444 14,916 Financing receivables: - for operating purposes - short-term 402 339 - for operating purposes - current portion of long-term receivables 85 113 - for non-operating purposes 337 73 824 525 Other receivables: - from disposals 149 82 - other 4,805 4,825 4,954 4,907 22,222 20,348 Receivables are stated net of the allowance for impairment losses in the amount of euro 1,647 million (euro 1,251 million
(euro 935 million atas of December 31,2007)2008):
(euro million) Value at
Dec. 31,20072008Additions
Deductions
Other changes
Value at
Dec. 31,20082009
Trade receivables 595
251
(36
) (63
) 747
747 260 (15 ) (50 ) 942 Financing receivables 14
5
19
19 (13 ) 6 Other receivables 340
137
(26
) 34
485
485 206 (24 ) 32 699 935
402
(62
) (24
) 1,251
1,251 466 (52 ) (18 ) 1,647
The increaseTrade receivables decreased intrade receivablesthe amount of euro8351,528 millionwasprimarilyrelateddue to the Gas & Power segment (euro1,9871,990 million),the Engineering & Construction segment (euro 513 million). These increases werewhich was partially offset by thedecrease related toincrease in the Refining & Marketing segment (euro1,036 million), Petrochemicals (euro 459 million) and Exploration & Production segment (euro 115380 million).
F-25Trade and other receivables were as follows:
(euro million)Dec. 31, 2008
Dec. 31, 2009
(euro million)
Trade receivables
Other receivables
Total
Trade receivables
Other receivables
Total
Neither impaired nor past due 12,611
3,395
16,006
12,611 3,395 16,006 11,557 3,004 14,561 Impaired (net of the valuation allowance) 1,242
88
1,330
1,242 88 1,330 1,037 58 1,095 Not impaired and past due in the following periods: - within 90 days 1,812
502
2,314
1,812 502 2,314 1,168 772 1,940 - 3 to 6 months 231
68
299
231 68 299 503 56 559 - 6 to 12 months 248
294
542
248 294 542 294 439 733 - over 12 months 300
607
907
300 607 907 357 578 935 2,591
1,471
4,062
2,591 1,471 4,062 2,322 1,845 4,167 16,444
4,954
21,398
16,444 4,954 21,398 14,916 4,907 19,823
Trade receivables not impaired and past due primarily referred to high-credit-quality public administrations and other highly-reliable counterparties for oil, natural gas and chemical products supplies.
Allowances for impairment losses of traded receivables in the amount of euro 260 million (euro 251 million
(euro 98 million in 2007)as of December 31, 2008) primarily referred toRefining & Marketing segment (euro 72 million),the Gas & Power segment (euro65165 million), Petrochemicals (euro 60 million) and Syndial SpA (euro 27 million).In comparison with 2007 the amount of the allowance is more than double as a consequence of the larger number of clients in financial difficulties after the worsening of general economic conditions over the last part of the year.F-29
Allowances for impairment losses of other receivables in the amount of euro 206 million (euro 137 million
(euro 109 million in 2007)as of December 31, 2008) primarily referred to the Exploration & Production segment (euro135205 million)duewhich primarilytorepresents the impairment of certain receivables associated with cost recovery with respect to local state-owned co-venturers based on underlying petroleum agreements and modifications of the Company’s interest in certain joint ventures.Trade receivables included guarantees for work in progress
forin the amount of euro 168 million (euro 213 million(euro 156 million atas of December2007)31, 2008).
Other receivables for euro 227 million associated with cost recovery in the Exploration & Production segment are currently undergoing arbitration procedure. No impairment loss has been recognized as the Company and the third party are in the process of defining a transaction on amicable terms.Receivables for financing operating activities in the amount of euro 452 million (euro 487 million
(euro 384 million atas of December 31,2007)2008) included euro399245 million due fromnot consolidatedunconsolidated subsidiaries, joint ventures and associates (euro246399 millionatas of December 31,2007) and2008), euro47179 million cash deposit to provide coverage of Eni Insurance Ltd technical reserves (euro11247 millionatas of December 31,2007)2008) and receivables for financial leasing in the amount of euro 19 million (the same amount as of December 31, 2008). More information about receivables for financial leasing is included in Note 12 – Other Financial assets.Receivables for financing non-operating activities amounted to euro 73 million (euro 337 million
(euro 990 million atas of December 31,2007)2008), of which euro17367 million related to deposits for thecurrent portion of a restricted deposit held by Eni Lasmo Plc as a guarantee of a debenture and euro 88 million related to deposit of Eni Insurance Ltd.Engineering & Construction segment. The decrease of euro653264 millionrelated for euro 898 millionis mainly due to thedischargerelease of acollateral cashdepositmade byof EniSpALasmo Plc made to guaranteecertain cash flow hedging derivatives.a debenture (euro 173 million) and the decrease of deposits of Eni Insurance Ltd (euro 88 million).Other receivables were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Accounts receivable from: - joint venture operators in exploration and production 1,699 2,242 - Italian government entities 386 378 - insurance companies 253 146 2,338 2,766 Prepayments for services 194 857 Receivables relating to factoring operations 182 171 Other receivables 979 1,160 3,693 4,954
F-26
Accounts receivable from: - joint venture operators in exploration and production 2,242 2,372 - Italian government entities 378 457 - insurance companies 146 194 2,766 3,023 Prepayments for services 857 860 Receivables relating to factoring operations 171 156 Other receivables 1,160 868 4,954 4,907 Receivables deriving from factoring operations in the amount of euro 156 million (euro 171 million
(euro 182 million atas of December 31,2007) were2008) related to Serfactoring SpA and consisted primarily of advances for factoring operations with recourse and receivables for factoring operations without recourse.Other receivables in the amount of euro 461 million (euro 227 million as of December 31, 2008) associated with cost recovery in the Exploration & Production segment are currently undergoing arbitration procedures.
Receivables with related parties are described in Note
37 -36 – Transactions with related parties.Because of the short-term maturity of trade receivables, the fair value
approximatedapproximates their carrying amount.
F-304 Inventories
Inventories were as follows:
Dec. 31,
20072008Dec. 31,
20082009
(euro million)
Crude oil, gas and petroleum products
Chemical products
Work in progress
Other
Total
Crude oil, gas and petroleum products
Chemical products
Work in progress
Other
Total
Raw and auxiliary materials and consumables 861
299
809
1,969
466
263
1,155
1,884
466 263 1,155 1,884 616 150 1,363 2,129 Products being processed and semi finished products 74
27
15
116
48
17
3
68
48 17 3 68 74 17 9 100 Work in progress 553
553
953
953
953 953 759 759 Finished products and goods 1,962
703
17
2,682
2,528
557
92
3,177
2,528 557 92 3,177 1,889 552 66 2,507 Advances 179
179
2,897
1,029
732
841
5,499
3,042
837
953
1,250
6,082
3,042 837 953 1,250 6,082 2,579 719 759 1,438 5,495
Inventories increased by euro 583 million primarily due to: (i) an increase in the trade value of the inventories in the Gas & Power segment reflecting favorable trends in the gas price formulas (euro 661 million); and (ii) inclusion in consolidation of Distrigas NV (euro 322 million). Those increases were partially offset by a decrease of euro 718 million in the trade value of crude oil and petroleum products inventories in the Refining & Marketing segment primarily due to the impact of falling oil and petroleum product prices resulting in the recognition of a provision to write inventories down to their net realizable value at the year end.Contract work in progress
forin the amount of euro 759 million (euro 953 million(euro 553 million atas of December 31,2007)2008) are net of prepaymentsforin the amount of euro 13 million (euro 274 million(euro 577 million atas of December 31,2007)2008) which are within the limits of contractual considerations.Inventories are stated net of the valuation allowance in the amount of euro 103 million (euro 697 million
(euro 75 million atas of December 31,2007)2008):
(euro million) Value at
Dec. 31,20072008Additions
Deductions
Other changes
Value at
Dec. 31,20082009
75697 36
628(
5505) (
801)
697103
The additionsDeductions in the amount of euro628550 million(euro 9 million in 2007) primarily related toessentially represent the Refining & Marketingsegment(euro402336 million) andto Petrochemicalsthe Petrochemical segments (euro215200 million)as a consequence of the alignment of the inventories to their net realizable values at the closing date.
F-27.
5 Current tax assets
Current tax assets were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Italian subsidiaries 634 53 Foreign subsidiaries 69 117 703 170
Italian subsidiaries 53 570 Foreign subsidiaries 117 183 170 753 The
euro 533 million decreaseincrease in other current tax assets in thecurrent incomeamount of euro 583 million mainly relates to receivables for interim taxassets primarily referred topayments which exceeded the full-year tax payable (euro 430 million) made by EniSpA which has used the tax receivables to offset the tax payables for 2008 year (euro 554 million).SpA.
F-316 Other current tax assets
Other current tax assets were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
VAT 376 623 Excise and customs duties 316 167 Other taxes and duties 141 340 833 1,130
VAT 623 889 Excise and customs duties 167 119 Other taxes and duties 340 262 1,130 1,270
7 Other current assets
Other current assets were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Fair value of non-hedging derivatives 629 1,608 Fair value of cash flow hedge derivatives 10 474 Other assets 441 267 1,080 2,349
F-28
Fair value of non-hedging derivatives 1,128 698 Fair value of cash flow hedge derivatives 474 236 Other curren assets 268 373 1,870 1,307 The fair value of derivative contracts which do not meet the criteria to be classified as hedges under IFRS was as follows:
Dec. 31,
20072008Dec. 31,
20082009
(euro million)
Fair value
Purchase commitments
Sale
commitments
Fair value
Purchase commitments
Sale
commitments
Non-hedging derivatives on exchange rate Interest currency swap 170
821
291
141
403
200
Interest Currency Swap 35 80 2 113 Currency swap 69
1,596
2,881
202
2,654
1,712
201 2,653 1,701 64 1,855 1,117 Other 3
18
11
314
111
1,202
285 98 1,154 142 174 537 242
2,435
3,183
657
3,168
3,114
521 2,751 2,935 208 2,142 1,654 Non-hedging derivatives on interest rate Interest rate swap 91
248
3,466
29
217
703
2 300 1 133 Other 4
4 9 9 91
248
3,466
29
221
703
2 4 300 10 142 Non-hedging derivatives on commodities Over the counter 12
75
22
864
1,270
2,709
547 1,063 1,850 469 1,383 1,257 Other 284
2
1,218
58
65
53
58 65 53 11 234 8 296
77
1,240
922
1,335
2,762
605 1,128 1,903 480 1,617 1,265 629
2,760
7,889
1,608
4,724
6,579
1,128 3,883 5,138 698 3,901 2,919
Fair value of the derivative contracts is determined using market quotations provided by
theprimaryinfo-provider,information providers, or in the absence of market information, appropriate valuation methods used in the marketplace.Fair values of non-hedging derivatives in the amount of euro 698 million (euro 1,128 million as of December 31, 2008) consisted of derivative contracts that do not meet the formal criteria to be designated as hedges under IFRS because they were entered into in order to manage the net business exposures in foreign currency exchange rates, interest rates and commodity prices. Therefore, such derivatives were not related to specific trade or financing transactions.
The
increasedecrease in the fair value of the non-hedging derivatives in the amount of euro979430 million primarily referred tothe fair value of the derivatives deriving from the consolidation of Distrigas NV after the acquisition of control bythe Gas & Power segment (euro637315 million) and the Corporate and financial companies segment (euro 160 million).F-32
Fair value of the cash flow
hedgeshedge derivatives in the amount of euro474236 million referred to DistrigasNV (euro 293 million) and to Exploration & Production segment (euro 181 million). The Distrigas NVNV. These derivatives were designated to hedge surpluses or deficits of gas to achieve a proper balance in the gasportfolio and sales/purchases of amounts of gas and oil products at fixed price. Fair value related to the Exploration & Production segment referred to theportfolio. The negative fair valueof the future sale agreements of the proved oil reserves with a deadline by 2009. Those derivatives were entered into to hedge exposure to variability in future cash flows deriving from the sale in the 2008-2011 period of approximately 2% of Eni’s proved reserves as of December 31, 2006 corresponding to 125.7 mmBBL, decreasing to 79.7 mmBOE as of the end of December 2008 due to transactions settled in the year. These hedging transactions were undertaken in connection with acquisitions of oil and gas assets in the Gulf of Mexico and Congo that were executed in 2007.
Fair value offor contracts expiringby 2009in 2010 is given in Note20 -19 – Other current liabilities; positive and negative fair value of contracts expiring beyond20092010 is given in Note15 -14 – Other non-current receivables andinNote25 -24 – Other non-current liabilities. The effects of the evaluation at fair value of cash flow hedge derivatives aregivenprovided intheNote27 -26 – Shareholders’ equity andin theNote32 - Finance income (expense).30 – Operating expenses.The nominal value of cash flow hedge derivatives
referred torepresented purchase and sale commitmentsforin the amount of euro1,06925 million and euro3,130 million.603 million, respectively.Information on the hedged risks and the hedging policies is
givenprovided in Note29 -28 – Guarantees, commitments and risks.Other assets amounted to euro
267373 million (euro441268 millionatas of December 31,2007)2008) and included prepayments and accrued income for euro 104 million (euro 63 million(euro 297 million atas of December 31,2007)2008), rentals for euro 35 million (euro 31 million(euro 21 million atas of December 31,2007),2008) and insurance premiums for euro 18 million (euro 11 million(euro 10 million atas of December 31,2007)2008).
F-29
Non-current assets
8 Property, plant and equipment
Analysis of tangible assets is set out below:
(euro million) Net value at the beginning of the year Investments Depreciation Impairments Change in the scope of consolidation Currency translation 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, 2007 Land 442 4 28 123 597 627 30 Buildings 1,406 74 (98 ) (3 ) 115 (3 ) (152 ) 1,339 3,123 1,784 Plant and machinery 32,494 1,774 (4,642 ) (37 ) 31 (1.530 ) 4.885 32,975 78,030 45,055 Industrial and commercial equipment 230 163 (112 ) 40 (8 ) 38 351 1,434 1,083 Other assets 328 86 (83 ) (3 ) 1 (11 ) 23 341 1,361 1,020 Tangible assets in progress and advances 6,229 6,263 (97 ) 235 (648 ) (666 ) 11,316 11,969 653 41,129 8,364 (4,935 ) (140 ) 450 (2,200 ) 4,251 46,919 96,544 49,625 Dec. 31, 2008 Land 597 8 (7 ) 27 625 655 30 597 8 (7 ) 27 625 655 30 Buildings 1,339 101 (105 ) (29 ) (122 ) 7 (341 ) 850 3,055 2,205 1,339 101 (105 ) (29 ) (122 ) 7 (341 ) 850 3,055 2,205 Plant and machinery 32,975 3,486 (5,648 ) (652 ) 1.299 123 4,535 36,118 86,714 50,596 32,975 3,486 (5,648 ) (652 ) 1,301 123 4,535 36,120 86,716 50,596 Industrial and commercial equipment 351 180 (158 ) (3 ) 1 230 601 1,722 1,121 351 180 (158 ) (3 ) 1 230 601 1,722 1,121 Other assets 341 124 (83 ) (6 ) (13 ) 5 9 377 1,563 1,186 341 124 (83 ) (6 ) (13 ) 5 9 377 1,563 1,186 Tangible assets in progress and advances 11,316 8,183 (653 ) 2.344 414 (4,342 ) 17,262 18,481 1,219 11,316 8,183 (653 ) 2,442 414 (4,342 ) 17,360 18,579 1,219 46,919 12,082 (5,994 ) (1,343 ) 3.501 550 118 55,833 112,190 56,357 46,919 12,082 (5,994 ) (1,343 ) 3,601 550 118 55,933 112,290 56,357 Dec. 31, 2009 Land 625 10 2 (3 ) (16 ) 618 646 28 Buildings 850 35 (99 ) (37 ) 25 (34 ) 45 785 3,057 2,272 Plant and machinery 36,120 3,530 (6,277 ) (496 ) 3 (184 ) 7,162 39,858 96,280 56,422 Industrial and commercial equipment 601 112 (152 ) (2 ) 16 (18 ) 230 787 1,948 1,161 Other assets 377 152 (130 ) (4 ) (8 ) 156 543 1,920 1,377 Tangible assets in progress and advances 17,360 8,193 (451 ) 2 (281 ) (7,649 ) 17,174 18,715 1,541 55,933 12,032 (6,658 ) (990 ) 48 (528 ) (72 ) 59,765 122,566 62,801
Capital expenditures in the amount of euro 12,032 million (euro 12,082 million
(euro 8,364 million atfor the year ended December 31,2007) primarily2008) essentially related to the Exploration & Production segment (euro7,6118,196 million), the Gas & Power segment (euro 1,354 million), the Engineering & Construction segment (euro2,0151,615 million),the Gas & Power segment (euro 1,318 million)and the Refining & Marketing segment (euro941626 million). Capital expenditures included capitalized finance expenses of euro 221 million (euro 236 million(euro 180 million atfor the year ended December 31,2007)2008) essentially related to the Exploration & Production segment (euro10977 million), the Engineering & Construction segment (euro 76 million), the Refining & Marketing segment (euro4435 million) and the Gas & Power segment (euro4231 million). The interest rate used for the capitalization of finance expense rangedfrom 3.5%between 1.9% to 3.7% (3.5% and 5.1%(4.4% and 5.2% atfor the year ended December 31,2007)2008).F-33
The depreciation rates used were as follows:
(%) Buildings 2
-
10
Plant and machinery 2
-
10
Industrial and commercial equipment 4
-
33
Other assets 6
-
33
F-30
The break-down by segmentImpairments in the amount ofimpairments amounting toeuro 990 million (euro 1,343 million(euro 140 atas of December 31,2007)2008) and the associated tax effect by segment is provided below:
(euro million) 2007
2008
Impairment Exploration & Production 86 765 Refining & Marketing 52 292 Petrochemicals 279 Other segments 2 7 140 1,343 Fiscal effect Exploration & Production 30 213 Refining & Marketing 19 108 Petrochemicals 88 Other segments 2 49 411 Impairment net of the relevant fiscal effect Exploration & Production 56 552 Refining & Marketing 33 184 Petrochemicals 191 Other segments 2 5 91 932
(euro million) 2008
2009
Impairment Exploration & Production 765 576 Refining & Marketing 292 287 Petrochemicals 279 121 Other segments 7 6 1,343 990 Tax effect Exploration & Production 213 197 Refining & Marketing 108 108 Petrochemicals 88 33 Other segments 2 2 411 340 Impairment net of the relevant tax effect Exploration & Production 552 379 Refining & Marketing 184 179 Petrochemicals 191 88 Other segments 5 4 932 650 In assessing whether an impairment is required, the carrying value of
thean asset is compared with its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to selland value in use.or value-in-use. Given the nature of Eni’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers are taking place.ConsequentlyEni assesses individual assets or groups of assets (Cash Generating Units - CGUs) which represent the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. In particular, the CGUs consist of: (i) the Exploration & Production segment, which include individual oilfields or pools of oilfields whereby technical, economic or contractual features make the underlying cash flows interdependent; (ii) the Gas & Power segment, which include transport and distribution networks and related facilities, storage sites and re-gasification facilities in a consistent way with the gas segments of operations that are defined by the Italian Authority for Electricity and Gas for the purpose of tariff settings and other authorities. Other CGUs are gas carrier ships and plants for the production of electricity; (iii) the Refining & Marketing segment, which include refining plants and commercial facilities relating to each distribution channel and by country (ordinary network, high-ways network, and wholesale activity); (iv) the Petrochemicals segment, which include production plants and related facilities; and (v) the Engineering & Construction segment, which include Business Units Offshore construction, Onshore construction and Onshore drilling facilities and individual Rigs for Offshore operations.The recoverable amount used in assessing the impairment charges described below is
value in use. Value in usevalue-in-use. Value-in-use is calculated by discounting the estimated cash flows determined on the basis of the best information available at the moment of the assessmentderivingwhich is derived from: (i) the Company’s four-year plan approved bythetop managementwhichthat provides information on the expected oil and gas production, sales volumes, capital expenditures, operating costs and margins and industrial and marketing set-up, as well as trendsinon the main monetary variables, including inflation, nominal interest rates and exchange rates. For the subsequent years beyond the four-year plan,horizon,arealnominal growth rate is used ranging from 0% to 2%has been used;; (ii) the commodity prices have been assessed based on the forward prices prevailinginon the market place as of the balance sheet date for the first four years of the cash flow projections and the long-term price assumptions adopted by the Company’s management for strategic planning purposes for the following years (see "Basis of presentation").F-34
Post-tax cash flows are discounted at the rate which corresponds for the Exploration & Production, Refining & Marketing and Petrochemicals segments to the Company’s weighted average cost of capital, adjusted to consider the risks specific to each country of
activity. Theactivity (adjusted post-taxWACCWACC). For 2009, the adjusted post-tax rates used for impairmentpurposes hastesting showed an increase of 0.5 percentage points on average from the previous year as a result of a higher market premium for the equity risk and the country risk. Such increase was partially reduced by decreased nominal interest rates reflected in the cost of borrowings and in rates of assets risk-free. For 2009, the adjusted post-tax rates ranged from8.5%9% to12.5%13.5%. Post-tax cash flows and discount rates have been adopted as they result in an assessment that is substantially equal to a pre-tax assessment.In the Exploration & Production segment the main impairments
were associatedrelated to proved and unproved oil & gas properties mainly located inTurkmenistan, Iran andthe Gulf of Mexico, Australia, Congo, Egypt and Nigeria as aconsequenceresult ofchanges in the regulatorydownward reserve revisions andcontractual framework,costincreases, as well as a changed pricing environment.increases.In the Refining & Marketing segment the main impairments
referred to: (i)related to refiningplants due toplants. The drivers of those impairments were aworsening pricingweak refining environment andspecific plantthe Company’s expectations for a slow recovery in those trends which negatively affected the refining performance in 2009, including compressed price differentials between heavy and light crudes, and weak prices for middle distillates that were dragged down by excess inventory. Also, plant-specific factors(low complexity and high fixed operating costs); and (ii) the motorway retail network of service stations due to a worsening pricing environment, lower forecast volumes, increased motorway royalties and the commitments with the grantor to execute certain capital expenditures that bear no return.were taken into account, particularly low complexity.In the Petrochemicals segment the main impairments
referred to: (i) aromaticrelated to the olefins-aromatic-polyethylene plantsof the Sicilian industrial base andof Porto Marghera and the Sicilian pole. The main drivers of those impairments were continuing trends for margin pressures and volumes reduction, particularly in the case of commoditized products, due tolowerweak industry fundamentals in terms of sluggish demand, excess capacity and rising competitive pressures as new capacity is expectedprofitability associated with a worsening margin environment; (ii) styrene plants of Mantova duetothe structural drop of the demand by the users of polystyrene; and (iii) polyethylene plants of the Sicilian industrial base due to the low competitiveness of the product, to the drop of the demand and the competitive pressure.
Changescome on line in theconsolidation area of euro 3,501 million (euro 450 million at December 31, 2007) referred to the acquisition of control by the Exploration & Production segment of Burren Energy Plc (euro 2,543 million), FirstMiddle East.
F-31
Petroleums Ltd (euro 757 million), Hindustan Oil Exploration Co (euro 199 million) and Eni Hewett Ltd (euro 118 million), the acquisition of control by the Gas & Power segment of Distrigas NV (euro 30 million) and the sale by Refining & Marketing of Agip España SA (euro 146 million). More information on acquisitions is included in the Note 28 - Other information.
ForeignNegative foreign currency translation differences in the amount of euro550528 million were primarily related to translation of entities accounts denominated in U.S. dollar (euro1,3741,005 million). This effect was partially offset by translation of entities accounts denominated in Norwegian krones (euro433 million) and British pounds (euro 308339 million).Other negative changes in the net book value of tangible assets (euro
11872 million)referredrelate to the reclassification to assets classified as held for sale in the amount of euro 311 million and the disposals of assets in the amount of euro 150 million, which was offset by an increase in the initial recognition and changein theof estimatedamount of thecosts for the dismantling and restoration of sitesreferringin the amount of euro 289 million which mainly relate to the Exploration & Production segment (euro620273 million).This effect was partially offset by asset disposals for euro 318 million,The following is a description of
which euro 248 million related to oilunproved mineral interests, included in tangible assets in progress andgas assetsadvances:
(euro million) Value at the beginning of the year
Acquisitions
Impairments
Reclassification to Proved Mineral Interest
Other changes and currency translation differences
Net value at the end of the year
Dec. 31, 2008 Congo 641 862 (10 ) (81 ) 85 1,497 USA 1,401 (144 ) 74 1,331 Turkmenistan 809 (164 ) 40 685 Algeria 748 (59 ) 689 Other countries 255 209 (90 ) (85 ) (1 ) 288 2,297 2,628 (408 ) (166 ) 139 4,490 Dec. 31, 2009 Congo 1,497 42 (333 ) (42 ) 1,164 USA 1,331 43 (231 ) (229 ) (32 ) 882 Turkmenistan 685 (13 ) (23 ) 649 Algeria 689 (220 ) (17 ) 452 Other countries 288 137 (54 ) (140 ) 231 4,490 222 (285 ) (935 ) (114 ) 3,378
Unproved mineral interests are normally recognized upon allocation of the purchase price of business combinations in the Exploration & Production segment. The main amounts are associated with probable and possible reserves in Congo, Gulf of Mexico, Turkmenistan and Algeria associated with recent acquisitions. Changes during the year amounted to a decrease of euro 935 million which related to transfers to property, plant and equipment associated with recognition of proved reserves and internal approval for development. Impairments for
F-35
the year amounted to euro 285 million due to downward revisions related to properties in the Gulf of Mexico and, to a lesser extent, Nigeria.
The accumulated provisions for impairments amounted to euro
3,3284,692 million and euro4,6925,680 millionatas of December 31,20072008 and2008,2009, respectively.
AtAs of December 31,2008,2009, Eni pledged property, plant and equipment for euro2728 million primarily as collateral against certain borrowings (euro5229 millionatas of December 31,2007)2008).Government grants recorded as a
decreasereduction of property, plant and equipment amounted to euro 642 million (euro 651 million(euro 682 million atas of December 31,2007)2008).Assets acquired under financial lease agreements amounted to euro 28 million (euro 163 million as of December 31, 2008), of which, euro
127 million related to a drilling platform by the Engineering & Construction segment, euro 2519 million related to FPSO ships used by the Exploration & Production segment to support oil production and treatment activities and euro119 million related to service stations in the Refining & Marketing segment. The decrease of euro 135 million primarily related to the exercise of the option for the acquisition of a drilling platform by the Engineering & Construction segment for euro 127 million.Contractual commitments related to the purchase of property, plant and equipment are included in Note
29 -28 – Guarantees, commitments and risks-– Liquidity risk.Property, plant and equipment under concession arrangements are described in Note
29 -28 – Guarantees, commitments and risks- Assets– Asset under concession arrangements.
F-32Property, plant and equipment by segment
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Property, plant and equipment, gross Exploration & Production 54,284 66,023 64,338 71,189 Gas & Power 17,438 18,944 20,729 22,040 Refining & Marketing 12,421 12,899 12,899 13,378 Petrochemicals 4,918 5,036 5,036 5,174 Engineering & Construction 5,823 7,702 7,702 9,163 Other activities 1,543 1,550 1,550 1,592 Corporate and financial companies 344 391 391 373 Elimination of intra-group profits (227 ) (355 ) (355 ) (343 ) 96,544 112,190 112,290 112,566 Accumulated depreciation, amortization and impairment losses Exploration & Production 27,806 32,811 31,983 36,727 Gas & Power 6,179 6,863 7,691 8,262 Refining & Marketing 7,926 8,403 8,403 8,981 Petrochemicals 3,819 4,124 4,124 4,321 Engineering & Construction 2,310 2,548 2,548 2,858 Other activities 1,461 1,467 1,467 1,513 Corporate and financial companies 148 179 179 194 Elimination of intra-group profits (24 ) (38 ) (38 ) (55 ) 49,625 56,357 56,357 62,801 Property, plant and equipment, net Exploration & Production 26,478 33,212 32,355 34,462 Gas & Power 11,259 12,081 13,038 13,778 Refining & Marketing 4,495 4,496 4,496 4,397 Petrochemicals 1,099 912 912 853 Engineering & Construction 3,513 5,154 5,154 6,305 Other activities 82 83 83 79 Corporate and financial companies 196 212 212 179 Elimination of intra-group profits (203 ) (317 ) (317 ) (288 ) 46,919 55,833 55,933 59,765
F-36
9
Other assetsThe carrying amount of the expropriated Dación assets (euro 563 million at December 31, 2007) have been reclassified in the item "Other non-current receivables" following the settlement agreement with the Republic of Venezuela. Under the terms of this agreement, Eni will receive cash compensation, a part of which has been already collected in the year, to be paid in seven yearly installments, yielding interest income from the date of the settlement. The net present value of this cash compensation is in line with the book value of assets, net of the related provisions.
10Inventory - compulsory stock
Inventory - compulsory stock was as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Crude oil and petroleum products 2,015 1,040 Natural gas 156 156 2,171 1,196
F-33
Crude oil and petroleum products 1,040 1,586 Natural gas 156 150 1,196 1,736 Compulsory stock was primarily held by Italian companies (euro
2,0081,184 million and euro1,1841,724 millionatas of December 31,20072008 and2008,2009, respectively) in accordance with minimum stock requirements set forth by applicable laws.The decrease of euro 975 million in crude oil and petroleum products is primarily due to the impairment for alignment of the inventories to the net realizable values recognized at year end (euro 724 million).
1110 Intangible assets
Intangible assets were as follows:
(euro million) Net value at the beginning of the year
Investments
Amortization
Changes in the scope of consolidation
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, 2007 Intangible assets with finite useful lives Exploration expenditures 409 1,682 (1,812 ) 470 749 1,509 760 Industrial patents and intellectualproperty rights 112 40 (81 ) 77 148 1,179 1,031 Concessions, licenses, trademarksand similar items 856 12 (83 ) 1 786 2,449 1,663 Service concession arrangements 3,183 168 (96 ) (37 ) 3,218 5,699 2,481 Intangible assets in progressand advances 151 312 (86 ) 377 381 4 Other intangible assets 141 15 (24 ) 36 (10 ) 158 572 414 4,852 2,229 (2,096 ) 37 414 5,436 11,789 6,353 Intangible assets with indefinite useful lives Goodwill 2,084 31 2,115 6,936 2,229 (2,096 ) 37 445 7,551 Dec. 31, 2008 Intangible assets with finite useful lives Exploration expenditures 749 1,907 (2,097 ) 326 77 962 2,286 1,324 749 1,907 (2,097 ) 335 77 971 2,295 1,324 Industrial patents and intellectual property rights 148 44 (85 ) 42 149 1,203 1,054 148 44 (85 ) 42 149 1,203 1,054 Concessions, licenses, trademarks and similar items 786 17 (93 ) (15 ) 38 733 2,475 1,742 786 17 (93 ) (15 ) 38 733 2,475 1,742 Service concession arrangements 3,218 230 (109 ) (17 ) 3,322 5,837 2,515 3,218 230 (109 ) (17 ) 3,322 5,837 2,515 Intangible assets in progressand advances 377 264 (61 ) 580 590 10 Intangible assets in progress and advances 377 264 (61 ) 580 590 10 Other intangible assets 158 18 (52 ) 1,600 14 1,738 2,000 262 158 18 (52 ) 1,595 14 1,733 1,995 262 5,436 2,480 (2,436 ) 1,911 93 7,484 14,391 6,907 5,436 2,480 (2,436 ) 1,915 93 7,488 14,395 6,907 Intangible assetswith indefinite useful lives Intangible assets with indefinite useful lives Goodwill 2,115 1,439 (1 ) 3,553 2,115 1,417 (1 ) 3,531 7,551 2,480 (2,436 ) 3,350 92 11,037 7,551 2,480 (2,436 ) 3,332 92 11,019 Dec. 31, 2009 Intangible assets with finite useful lives Exploration expenditures 971 1,273 (1,615 ) 2 631 2,259 1,628 Industrial patents and intellectual property rights 149 10 (85 ) 64 138 1,275 1,137 Concessions, licenses, trademarks and similar items 733 20 (153 ) 71 671 2,403 1,732 Service concession arrangements 3,322 268 (121 ) (57 ) 3,412 5,958 2,546 Intangible assets in progress and advances 580 83 (82 ) 581 584 3 Other intangible assets 1,733 9 (136 ) 20 1,626 2,035 409 7,488 1,663 (2,110 ) 18 7,059 14,514 7,455 Intangible assets with indefinite useful lives Goodwill 3,531 15 864 4,410 11,019 1,663 (2,110 ) 15 882 11,469
Exploration expenditures in the amount of euro
962631 million mainly related to license acquisition costs that are amortized on a straight-line basis over the contractual term ofunproved reserves other than probablethe exploration lease or fully written off against profit andpossible resources includedloss inbusiness combinations and the purchasecase ofmineral rights. Main additions inrelease or when no future activity is planned. Additions for the year included exploration drilling expenditures which were fully amortized as incurredforin the amount of euro 1,271 million (euro 1,715 millionincluded within "investments" (euro 1,610 million atas of December 31,2007)2008).F-37
Concessions, licenses, trademarks and similar items
forin the amount of euro733671 million primarily comprised of transmission rights for natural gas imported from Algeria (euro482452 million) and concessions for mineral exploration (euro189157 million).Service concession arrangements in the amount of euro 3,412 primarily refer to the Italian gas distribution activity (euro
3,1113,205 million and euro3,2053,340 millionatas of December 31,20072008 and2008,2009, respectively). Such activity is conducted on the basis of concessions granted by local public entities. At theexpiryexpiration date of the concession, a compensation is paid, defined by using criteria of a 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
F-34maximum length of 12 years. Other negative changes in the net book value of intangible assets (euro 57 million) referred to the reclassification to assets classified as held for sale in the amount of euro 110 million. Government grants recorded as a decrease
ofin service concession arrangements amounted to euro 693 million (euro 657 million(euro 513 million atas of December 31,2007)2008).Other intangible assets with finite useful lives in the amount of euro
1,7381,626 million primarily referred to: (i) customer relationship and order backlogforin the amount of euro 1,244 million (euro 1,355 million as of December 31, 2008) recognized after the acquisition of controlofon Distrigas NV. These assets are amortized on the basis of the supply contract with the longest term (19 years) and the residual useful life of the sale contract (4 years); (ii) the development project of the gas storage capacity recognized after the acquisition of control of Eni Hewett Ltd in the amount of euro 234 million (euro 208million)million as of December 31, 2008); (iii) royalties for the use of licenses by Polimeri Europa SpA in the amount of euro 68 million (euro 72million)million as of December 31, 2008);and(iv) estimated costs for Eni’s social responsibility projects in relation to oil development programs in Val d’Agri in the amount of euro 38 million (euro 18million)million as of December 31, 2008) following commitments made with the Basilicata Region.The depreciation rates used were as follows:
(%) Exploration expenditures 10
-
33
14
-
33
Industrial patents and intellectual property rights 20
-
33
20
-
33
Concessions, licenses, trademarks and similar items 7
-
33
3
-
33
Service concession arrangements 2
-
20
Concessions, licenses, trademarks and similar items 2
-
20
Other intangible assets 4
-
25
4
-
25
Changes in the consolidation area related to theOther changes of intangible assets with afinitedefinite usefullifelive in the amount of euro1,91118 millionprimarily related to the acquisitioninclude negative currency translation differences ofcontrol by the Gas & Power segment on Distrigas NV foreuro1,395 million (customer relationship for euro 1,216 million, order backlog for euro 165 million and software for euro 14 million), unproved reserves other than probable and possible resources recognized after the acquisition of control by the Exploration & Production segment on Burren Energy Plc for euro 326 million and the development project of the gas storage capacity recognized after the acquisition of control of Eni Hewett Ltd (euro 208 million).22 million.
ChangeChanges in the scope of consolidationarearelated totheintangible assets withanindefinite usefullifelive (goodwill) in the amount of euro1,43915 millionprimarilymainly refers to the acquisition ofcontrol by the Gas & Power segment on Distrigas NVSeacom SpA (euro1,245 million), the acquisition of control by the Exploration & Production segment on Burren Energy Plc (euro 89 million), on First Calgary Petroleums Ltd (euro 88 million) and on Eni Hewett (euro 3913 million).The carrying amount of goodwill
at the endas ofthe yearDecember 31, 2009 was euro3,5534,410 million (euro2,1153,531 millionatas of December 31,2007)2008). The break-down by operating segment is as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Exploration & Production 158 266 243 249 Gas & Power 1,125 2,399 2,400 3,328 Refining & Marketing 86 142 142 84 Engineering & Construction 746 746 746 749 2,115 3,553 3,531 4,410
Goodwill acquired through business combinations has been allocated to the cash generating units ("CGUs") that are expected to benefit from the synergies of the acquisition. The recoverable amount of the CGUs is the higher of: (i) fair value less costs to sell if there is an active market or recent transactions for similar assets within the same industry between knowledgeable and willing parties;
and(ii) value-in-use which is determined by discounting the estimated future cash flowsdetermined on the basisbased of the bestpieces ofinformation available at the moment of the assessmentderivingwhich is derived from: (a) the Company’s four-year plan approved bythetop managementwhichthat provides information on the expected oil and gas production, sales volumes, capital expenditures, operating costs and margins and industrial and marketing set-up, as well as trendsinon the main monetary variables, including inflation, nominal interest rates and exchange rates. For the subsequent years beyond the four-year plan,horizon,arealnominal growth rate is used ranging from 0%F-38
to 2%
has been used;; (b) the commodity prices have been assessed based on the forward prices prevailinginon the market place as of the balance sheet date for the first four years of the cash flow projections and the long-term price assumptions adopted by the Company’s top management for strategic planning purposes for the following years (seeBasis"Basis ofpresentation)presentation").Value-in-use is determined by discounting post-tax cash flows at the
rate which corresponds:following rates: (i)forin the Exploration & Production and Refining & Marketing and Petrochemicals segments,atimpairment rates correspond to the Company’s weighted average cost of capital,(post-tax WACC),as adjusted to consider risks specific to each country ofactivity. WACCactivity (adjusted post-tax WACC). For 2009, the adjusted post-tax rates used for impairment testing showed an increase of 0.5 percentage points on average from theimpairment purposes hasprevious year as a result of a higher market premium for the equity risk and the country risk. Such increases were partially reduced by decreased nominal interest rates reflected in the cost of borrowings and in rates of assets risk-free. For 2009, the adjusted post-tax rates ranged from8.5%9% to12.5%13.5%; (ii) for the Gas & Power and Engineering
F-35& Construction segments,
at theirspecificWACC.adjusted post-tax WACC have been used. For the Gas & Power segment it has been estimated on the basis of a sample of companies operating in the same segment, for the Engineering & Construction segment on the basis of market data.WACCRates used for impairments in the Gas & Power segmenthashave been adjusted to take into consideration risks specific to each country of activity, whileWACCrates usedfor impairmentsin the Engineering & Construction segmenthashave not been adjusted as most of the company assets are not permanently located in a specific country.WACC used for impairment has ranged from 7.5% to 9%Rates for the Gas & Power segmentand it washave ranged from 7% to 8%, representing a reduction of 0.5 percentage points on average from the previous year, which reflects decreased nominal interest rates, while the equity risk for utilities has remained unchanged. In the Engineering & Constructionsegment;segment, rates at 8.5% have increased on average by 0.5 percentage points due to higher equity risk; and (iii) for the regulated activities in the Italian natural gas sector, the discount rates have been assumed equal to the rates of return defined by the Italian Authority for Electricity and Gas.Post-tax cash flows and discount rates have been adopted as they result in an assessment that is substantially equal to a pre-tax assessment.
Goodwill has been allocated to the following CGUs:
Gas & Power segment
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Domestic gas market 743 743 Foreign gas market 67 1,341 - of which Distrigas NV 1,245 Domestic natural gas transportation network 305 305 Other 10 10 1,125 2,399
Domestic gas market 743 766 Foreign gas market 1,342 2,247 - of which European market (Distrigas) 1,248 2,148 Domestic natural gas transportation network 305 305 Other 10 10 2,400 3,328 Goodwill allocated to the CGU domestic gas market
referredprimarily related to goodwill recognizedfollowingupon thepurchasebuy-out of minorities in Italgas SpA in 2003 through a public offering (euro 706 million). The key assumptions adopted for assessing the recoverable amount of the CGU which exceeds its carrying amountreferred toincluded commercial margins, forecast sales volumes, the discount rate and the growth rates adopted to determine the terminal value. Information on these drivers has been collected from the four-year-plan approved by the Company’s top managementwhile thethat factored in revised downward prospects of gas demand growth in Italy. The terminal valuehas beenwas estimatedthroughbased on the perpetuity method of thelast-year-plan.last-year-plan assuming a long-term nominal growth rate equal to zero. The excess of the recoverable amount of the domestic gas market CGU over its carrying amount including the allocated portion of goodwill (headroom) would be reduced to zero under each of the following hypothesis: (i) a decrease of20%28.7% on average in the projected commercialmargins in each of the four years of the plan;margins; (ii) a decrease of20%28.7% on average in theexpected volumes in each of the four years of the plan;projected sales volumes; (iii) an increase of1.73.4 percentage points in the discount rate;and(iv) a negativerealnominal growth rate of2%4.4%. The recoverable amount of the CGU domestic gas market and the relevant sensitivity analysis were calculated solely on the basis of retail margins, thus excluding wholesale and business client margins (industrial, thermoelectric and others).Goodwill allocated to the
DistrigasCGUhas beenrepresented by the European gas market was recognizedfollowing theupon acquisition of the Belgian company Distrigas NV that was acquired in two different steps: (i) a controlling interest of 57.24%in the Belgian companywas acquired in October2008. The allocation is2008 and (ii) a mandatory tender offer was finalized ona preliminary basis. Whenthe minorities of Distrigas and the subsequent squeeze-out at the same priceallocation is finalized,of the acquisition of the controlling interest. Such goodwillis expected to behas been allocated to thedifferent CGUsCGU thatareis expected to benefit from the synergies of theacquisition. Atacquisition corresponding to the European market thattime, it will be possibleincludes the activities of Distrigas and other European marketing activities conducted by the GasF-39
& Power Division of Eni SpA. Key assumptions adopted for assessing the recoverable amount of the European market CGU which exceeds its carrying amount included commercial margins, forecast sales volumes, the discount rate and the growth rates adopted to determine
anythe terminal value. The determination of the value-in use is based on the four-year-plan approved by Eni’s top management which assumed full integration of the Distrigas activities with other European activities. The plan also factored in the revised downward prospects for gas demand growth in Europe and consistent projection on marketing margins. The terminal value was estimated based on the perpetuity method of the last-year-plan assuming a long-term nominal growth rate equal to 1.6%. The excess of the recoverable amount of theCGUsEuropean market CGU overtheirits carryingamounts,amount includinganythe allocated portion of goodwilland define the hypothesis under which the headroom(headroom) would be reduced tozero.zero under each of the following hypothesis: (i) a decrease of 40.9% on average in the projected marketing margins; (ii) a decrease of 40.9% on average in planned sales volumes; (iii) an increase of 3.9 percentage points in the discount rate; (iv) a negative nominal growth rate of 4.0%.Goodwill allocated to the domestic natural gas transportation network CGU referred to the purchase of own shares by Snam Rete Gas SpA and it is equal to the difference between the purchase
costprice over the carrying amount of the corresponding share of equity. The recoverable amount of the CGU is assessed based on its Regulatory Asset Base (RAB) as recognized by the Italian Authority for Electricity and Gas and it is higher than its carrying amount, including the allocated goodwill. Management believes that no reasonably possible change in the assumptions adopted would cause the headroom of the CGU to be reduced to zero.
F-36Engineering & Construction
segment
(euro million) Dec. 31, 2008
Dec. 31, 2009
Offshore constructions 416 416 Onshore constructions 314 317 Other 16 16 746 749 The
segmentEngineering & Construction segment’s goodwill in the amount of euro746749 million was mainly recognized following the acquisition of Bouygues Offshore SA, now Saipem SA (euro 711 million)and was allocated to the following CGUs:.
(euro million)
Dec. 31, 2007
Dec. 31, 2008
Offshore constructions 416 416 Onshore constructions 315 314 Other 15 16 746 746
The key assumptions adopted for assessing the recoverable amount of the CGUs which exceeds the carrying amount referred to operating results, the discount rate and the growth rates adopted to determine the terminal value. Information on these drivers has been collected from the four-year-plan approved by the Company’s top management while the terminal value has been estimated by using a perpetual nominal growth rate of 2% applied to
an average normalized terminalthe cashflow.flow of the four-year period. The following changes in each of the assumptions,
all else being equalceteris paribus would cause the headroom of the Offshore construction CGU to be reduced to zero: (i) decrease of52%56% of the operating result of the four years of the plan; (ii) increase of68 percentage points of the discount rate; and (iii) a negative real growth rate.Changes in each of the assumptions,
all else being equalceteris paribus that would cause the headroom of the Onshore construction CGU to be reduced to zero are greater than those of the Offshore construction CGU described above.As well, alsoThe Exploration & Production and the Refining & Marketing segments tested their goodwill, yielding the following results: (i) in the Exploration & Production segment (euro 249 million of carrying amount), management believes that there are no reasonably possible changes in the pricing environment and production/cost profiles that would cause the headroom
for the Offshore and Onshore CGUs calculated by removing the normalizationof theterminal cash flows results widely positive.relevant CGUs to be reduced to zero. Goodwill mainly refers to the portion of the acquisition cost that was not allocated to proved or unproved mineral interests from the business combinations of Lasmo, Burren Energy (Congo) and First Calgary. The change in goodwill recorded by the segment in the period derived from the completion of the purchase price allocation of First Calgary in the amount of euro 65 million; (ii) in the Refining & Marketing segment (euro 84 million), the Company recorded an impairment charge in the amount of euro 58 million, of which euro 48 million related to goodwill allocated to the fuel retail business assets and aviation fuel supply business recently acquired in Central-Eastern Europe driven by lower expectations for margins/volumes due to decreased fuel demand caused by the economic downturn and loss of market share and an impairment charge in the amount of euro 10 million related to goodwill allocated to minor assets. Net of this impairment, the residual goodwill primarily referred to the retail network CGUs which relates to the acquisitions in Czech Republic, Hungary and Slovakia.Other changes in
goodwillintangible assets with indefinite useful lives in the amount of euro1864 millionreferredinclude the accounting of goodwill related toimpairments of euro 44 million of which euro 38 million primarily referred to Exploration & Production which has impaired the interest in goodwill recognized followingthe acquisition ofBurren Energy Plc42.757% of Distrigas NV, following the finalization of the mandatory tender offer for the minorities with a 41.617% adhesion of the share capital, including the 31.25%F-40
interest of Publigaz SCRL, the other major stakeholder of Distrigas, and the 1.14% interest through the squeeze-out procedure (euro
28903 million) and,of Lasmo Plc (euro 9 million). More information on acquisitions is includedas a decrease, the impairments in theNote 28 - Other information.amount of euro 58 million related to the Refining & Marketing segment as described above.
1211 InvestmentsEquity-accounted investmentsInvestments accounted for using the equity method
Equity-accounted investments were as follows:
(euro million) Value at the beginning of the year Acquisition and subscriptions Share of profit of equity-accounted investments Share of loss of equity-accounted investments Deduction for dividends Currency translation differences Other changes Value at the end of the year
Dec. 31, 2007 Investments in unconsolidated entities controlled by Eni 144
4
10
(2
) (9
) (6
) 141
Joint ventures 2,506
1,109
481
(130
) (351
) (173
) (132
) 3,310
Associates 1,236
813
415
(3
) (220
) (42
) (11
) 2,188
3,886
1,926
906
(135
) (580
) (221
) (143
) 5,639
Dec. 31, 2008 Investments in unconsolidated entities controlled by Eni 141
41
27
(6
) (5
) 3
(24
) 177
141 41 27 (6 ) (5 ) 3 (24 ) 177 Joint ventures 3,310
47
536
(94
) (444
) (123
) 25
3,257
3,310 47 536 (94 ) (444 ) (123 ) 25 3,257 Associates 2,188
289
198
(5
) (266
) 35
(402
) 2,037
2,188 289 198 (5 ) (266 ) 35 (402 ) 2,037 5,639
377
761
(105
) (715
) (85
) (401
) 5,471
5,639 377 761 (105 ) (715 ) (85 ) (401 ) 5,471 Dec. 31, 2009 Investments in unconsolidated entities controlled by Eni 177 1 42 (4 ) (8 ) (3 ) 12 217 Joint ventures 3,257 25 478 (81 ) (254 ) (54 ) (44 ) 3,327 Associates 2,037 200 173 (156 ) (122 ) (31 ) 183 2,284 5,471 226 693 (241 ) (384 ) (88 ) 151 5,828
Acquisitions and subscriptions
forin the amount of euro377226 million related to the increase in subscription of capitalincrease forin the amount of euro345224 million, of which euro254181 million related to Angola LNG Ltd.
F-37Share of profit of equity-accounted investments and the decrease following the distribution of the dividends referred to the following companies:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Share of profit of equity-accounted investments
Deduction for dividends
Eni’s interest %
Share of profit of equity-accounted investments
Deduction for dividends
Eni’s interest %
Galp Energia SGPS SA 39 88 33.34 116 64 33.34 Unión Fenosa Gas SA 181
173
50.00
200
185
50.00
200 185 50.00 108 138 50.00 Artic Russia BV 29 60.00 103 60.00 Trans Austria Gasleitung GmbH 39 28 89.00 84 22 89.00 Eni BTC Ltd 16 100.00 35 100.00 Blue Stream Pipeline Co BV 34 50.00 33 50.00 United Gas Derivatives Co 79
40
33.33
107
127
33.33
107 127 33.33 24 40 24.55 (*) EnBW Eni Verwaltungsgesellschaft mbH 64
42
50.00
40
22
50.00
40 22 50.00 15 50.00 Trans Austria Gasleitung GmbH 43
28
89.00
39
28
89.00
Supermetanol CA 34
36
34.51
39
34
34.51
39 34 34.51 6 13 34.51 Galp Energia SGPS SA 255
126
33.34
39
88
33.34
Other investments 250
135
297
231
218 231 169 107 906
580
761
715
761 715 693 384
(*) Equity ratio 33.33.
The shareShare of loss of equity-accounted investments in the amount of euro105241 million primarilyrelatedrelates toEnirepsa GasCeska Rafinerska AS (euro 140 million) as a result of an impairment test on the refinery, Transmediterranean Pipeline Co Ltd (euro4430 million) andLipardiz - Construção de Estruturas Maritimas LdaSuper Octanos CA (euro4021 million).
Other changes of euro 401 million arefollowing the impairment on the relevant CGU mainly due to theexclusion from the equity-accounted investments and the inclusionnegative trends in exchange rates.F-41
Other changes in the
consolidation areaamount ofBurren Energy Plc aftereuro 151 million include theacquisitionreclassification from receivables made for operating financing purposes associated with the contribution ofcontrolthe Venezuelan activities of Corocoro (euro 153 million) to PetroSucre SA. Also an increase was recorded upon reclassification from assets classified as held for sale of Fertilizantes Nitrogenados de Oriente (euro 68 million). A decrease was recorded as a capital reimbursement was made by theExploration & Production segmentjoint venture Artic Russia BV (euro592111 million), the disposalupon divestment ofGaztransport et Technigaz SAS (euro 115 million). These effects were partially offset by the inclusiona 51% stake in the 60-40% owned joint-venture OOO SeverEnergia following the exercise of the call option by Gazprom on September 23, 2009. The transaction is worth U.S. $940 million net to Eni. Eni collected the first tranche of the price corresponding to approximately 25% of the whole amount for euro 155 million (or U.S. $230 million at the EUR/USD exchange rate of 1.48 as of the transaction date). A gain was recognized in the profit and loss on equity-accounted evaluation of the investments in Artic Russia BV in the amount ofAngola LNG Ltd (euro 175 million).euro 103, of which euro 100 million related to the contractual remuneration at an annual rate of 9.4% accruing on the initial investment in the venture when it was acquired on April 4, 2007 in accordance with the arrangements between Eni and Gazprom.
F-38The following table sets out the net carrying amount relating to equity-accounted:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Net carrying amount
Eni’s interest %
Net carrying amount
Eni’s interest %
Investments in unconsolidated entities controlled by Eni: - Eni Btc Ltd 42
100.00
62
100.00
- other investments (*) 99
115
- Eni BTC Ltd 62 100.00 93 100.00 - Other investments (1) 115 124 141
177
177 217 Joint ventures: - Artic Russia BV 925
60.00
895
60.00
895 60.00 918 60.00 - Unión Fenosa Gas SA 507
50.00
499
50.00
499 50.00 473 50.00 - Blue Stream Pipeline Co BV 298
50.00
351
50.00
351 50.00 371 50.00 - EnBW Eni Verwaltungsgesellschaft mbH 256
50.00
268
50.00
268 50.00 284 50.00 - Azienda Energia e Servizi Torino SpA 162
49.00
166
49.00
166 49.00 170 49.00 - Eteria Parohis Aeriou Thessalonikis AE 154
49.00
158
49.00
158 49.00 161 49.00 - Toscana Energia SpA 133
49.38
136
49.38
136 49.38 143 49.38 - Raffineria di Milazzo ScpA 126
50.00
128
50.00
128 50.00 128 50.00 - Trans Austria Gasleitung GmbH 96
89.00
109
89.00
109 89.00 170 89.00 - Super Octanos CA 90
49.00
90
49.00
90 49.00 66 49.00 - Supermetanol CA 78
34.51
90
34.51
90 34.51 80 34.51 - Unimar Llc 71
50.00
65
50.00
65 50.00 72 50.00 - Eteria Parohis Aeriou Thessalias AE 41
49.00
42
49.00
42 49.00 43 49.00 - Starstroi Llc 19 50.00 31 50.00 - Transmediterranean Pipeline Co Ltd 47
50.00
40
50.00
40 50.00 8 50.00 - Transitgas AG 30
46.00
33
46.00
33 46.00 33 46.00 - Altergaz SA 18
27.80
25
38.91
25 38.91 28 41.62 - Lipardiz - Construção de Estruturas Maritimas Lda 88
50.00
10
50.00
- FPSO Mystras - Produção de Petròleo Lda 58
50.00
2
50.00
- other investments (*) 132
150
- Other investments (1) 143 148 3,310
3,257
3,257 3,327 Associates: - Galp Energia SGPS SA 911
33.34
862
33.34
862 33.34 914 33.34 - Angola LNG Ltd 453
13.60
453 13.60 612 13.60 - Ceska Rafinerska AS 325
32.44
323
32.44
323 32.44 184 32.44 - PetroSucre SA 19 26.00 176 26.00 - United Gas Derivatives Co 140
33.33
128
33.33
128 33.33 84 24.55 (2) - Fertilizantes Nitrogenados de Oriente CEC 68 20.00 68 20.00 - ACAM Gas SpA 45
49.00
46
�� 49.00
46 49.00 47 49.00 - Distribuidora de Gas del Centro SA 33
31.35
32
31.35
32 31.35 29 31.35 - Burren Energy Plc 592
24.90
- other investments (*) 142
193
- Other investments (1) 106 170 2,188
2,037
2,037 2,284 5,639
5,471
5,471 5,828
(*)(1)Each individual amount included herein did not exceed euro 25 million. (2) Equity ratio 33.33. F-42
The net carrying amount of investments in
not consolidatedunconsolidated entities controlled by Eni, joint ventures and associates include the differences between the purchase price and Eni’s equity in investments in the amount of euro615521 million. Such differences primarily related to Unión Fenosa Gas SA (euro 195 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro187181 million),and Galp Energia SGPS SA (euro 106 million)and Ceska Rafinerska AS (euro 97 million).
Artic Russia BV (the former Eni Russia BV) held 100% interest in three Russian companies acquired on April 4, 2007 in partnership with Enel (Eni 60%, Enel 40%), following award of a bid for Lot 2 in the Yukos liquidation procedure. The three companies – OAO Arctic Gas, OAO Urengoil and OAO Neftegaztechnologiya – engage in exploration and development of gas reserves.
Eni and Enel granted to Gazprom a call option to acquire a 51% interest in the three companies to be exercisable by Gazprom within 24 months from the acquisition date. Eni assesses the investment in Artic Russia BV under the equity method as it jointly controls the three entities based on ongoing shareholder arrangements, therefore exercising significant influence in the financial and operating policy decisions of the investees. This 60% interest corresponds to the present ownership interest of Eni in the acquired companies determined by not taking
F-39
into account the possible exercise of the call option by Gazprom. The carrying amount of the three entities is lower than the strike price of the call option with respect to the underlying stake. The strike price equals the bid price adjusted by subtracting dividends received and adding possible share capital increases, a contractual remuneration of 9.4% on the capital employed and additional financing expenses.The fair value of listed investments was as follows:
Shares Ownership
(%)Price per share
(euro)Fair value
(euro million)
Galp Energia SGPS SA 276,472,160 33.34 7.18 1,985 276,472,161 33.34 12.08 3,340 Altergaz SA 1,050,892 38.91 9.90 10 1,123,954 41.62 29.80 33
The table below sets out the provisions for losses included in the provisions for contingencies in the amount of euro 170 million (euro 119 million
(euro 135 million atas of December 31,2007)2008), which primarilyrelatedrelate to the following equity-accounted investments:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Charville - Consultores e Serviços Lda 31 33 Polimeri Europa Elastomeres France SA (under liquidation) 50 31 Industria Siciliana Acido Fosforico - ISAF - SpA (under liquidation) 28 27 Southern Gas Constructors Ltd 14 17 Other investments 12 11 135 119
Industria Siciliana Acido Fosforico - ISAF SpA (under liquidation) 27 64 Cardon IV SA 11 32 Polimeri Europa Elastomeres France SA (under liquidation) 31 32 Charville - Consultores e Serviços Lda 33 21 Southern Gas Constructors Ltd 17 13 Other investments 8 119 170 Other investments
Other investments were as follows:
(euro million) Net value at the beginning of the year Acquisition and subscriptions Currency translation differences Other changes Net value at the end of the year Gross value at the end of the year Accumulated impairment charges
Dec. 31, 2007 Investments in unconsolidated entities controlled by Eni 21
3
(1
) 2
25
36
11
Associates 9
1
10
11
1
Other investments 330
190
(36
) (47
) 437
443
6
360
193
(37
) (44
) 472
490
18
Dec. 31, 2008 Investments in unconsolidated entities controlled by Eni 25
1
4
30
41
11
25 1 4 30 41 11 Associates 10
(6
) 4
28
24
10 (6 ) 4 28 24 Other investments 437
5
11
(77
) 376
382
6
437 5 11 (77 ) 376 382 6 472
6
11
(79
) 410
451
41
472 6 11 (79 ) 410 451 41 Dec. 31, 2009 Investments in unconsolidated entities controlled by Eni 30 (1 ) 15 44 55 11 Associates 4 4 8 8 0 Other investments 376 4 (7 ) (9 ) 364 371 7 410 4 (8 ) 10 416 434 18
Investments in
not consolidatedunconsolidated entities controlled by Eni and associates are stated at cost net of impairment losses. Other investments, for which fair value cannot be reliably determined, were recognized at cost and adjusted for impairment losses.
F-40F-43
The net carrying amount of other investments in the amount of euro 416 million (euro 410 million
(euro 472 million atas of December 31,2007) was related2008) relates to the following entities:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Net carrying amount
Eni’s interest %
Net carrying amount
Eni’s interest %
Investments in unconsolidated entities controlled by Eni (*) 25
30
30 44 Associates 10
4
4 8 Other investments: - Interconnector (UK) Ltd 22
5.00
135
16.06
135 16.06 134 16.06 - Nigeria LNG Ltd 80
10.40
85
10.40
85 10.40 82 10.40 - Darwin LNG Pty Ltd 87
10.99
83
10.99
83 10.99 78 10.99 - Angola LNG Ltd 175
13.60
- other (*) 73
73
- Other (*) 73 70 437
376
376 364 472
410
410 416
(*) Each individual amount included herein did not exceed euro 25 million. Provisions for losses related to other investments, included within the provisions for contingencies, amounted to euro 41 million (euro 44 million
(euro 28 million atas of December 31,2007)2008) and were primarily in relation to the following entities:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Caspian Pipeline Consortium R - Closed Joint Stock Co 25 24 Burren Energy Ship Management Ltd (Cyprus) 17 Other investments 3 3 28 44
Burren Energy Ship Management Ltd 17 25 Caspian Pipeline Consortium R - Closed Joint Stock Co 24 15 Other investments 3 1 44 41 Other information about investments
The following table summarizes key financial data, net to Eni, as disclosed in the latest available financial statements ofnot consolidatedunconsolidated entities controlled by Eni, joint ventures and associates:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Not consolidatedUnconsolidated entities controlled by Eni
Joint ventures
Associates
Not consolidatedUnconsolidated entities controlled by Eni
Joint ventures
Associates
Total assets 1,247
7,781
4,252
1,361
7,761
4,020
1,361 7,761 4,020 2,215 6,981 4,218 Total liabilities 1,111
4,526
2,061
1,230
4,565
1,958
1,230 4,565 1,958 2,081 3,721 1,929 Net sales from operations 99
4,667
5,134
134
5,303
5,067
134 5,303 5,067 65 3,936 5,718 Operating profit 14
674
502
2
736
702
2 736 702 (48 ) 564 141 Net profit 14
318
410
20
490
690
20 490 690 (9 ) 474 101
The total assets and liabilities of
not consolidatedunconsolidated controlled entities of euro 2,215 million and euro 2,081 million respectively (euro 1,361 million and euro 1,230 millionrespectively (euro 1,247as of December 31, 2008) concerned for euro 1,873 million and euro1,1111,860 millionat December 31, 2007) concerned for euro(euro 923 million and euro 923 million(euro 873 million and euro 873 million atas of December 31,2007)2008) entities for which the consolidation does not produce significant effects. The residual amount referred to controlled entities which are not consolidated due to their immateriality based on the criteria of significance indicated in the "Basis of presentation".
F-41F-44
1312 Other financial assets
Otherfinancial assetsfinancing receivables were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Financing receivables: - receivables for financing operating activities 677 1,084 - receivables for financing non-operating activities 225 902 1,084 Securities: - securities held for operating purposes 21 50 21 50 923 1,134
Receivables for financing operating activities 1,084 1,112 Securities held for operating purposes 50 36 1,134 1,148 Financing receivables are presented net of the allowance for impairment losses in the amount of euro 29 million (euro 26 million
(euro 24 million atas of December 31,2007)2008).Operating financing receivables in the amount of euro 1,112 million (euro 1,084 million
(euro 677 million atas of December 31,2007)2008) primarilyconcernedconsist of loansmadeentered into by the Exploration & Production segment (euro754580 million), Gas & Power segment (euro 311 million) and Refining & Marketing segment (euro109 million) and Gas & Power segment (euro 76111 million), as well as receivables for financial leasing of euro 97 million (euro 128million)million as of December 31, 2008). Receivables for financial leasing related to the disposal of the Belgian gas network by Finpipe GIE,companyare included in the consolidation area after the acquisition of control bytheGas & Power segment of Distrigas NV. The following table shows principal receivable by maturity date, which was obtained by summing future lease payment receivables discounted at the effective interest rate,interestinterests and the nominal value of future lease receivables:
(euro million) Maturity range
Within 12 months
Between one and five years
Beyond five years
Total
Principal receivable 19
95
33
147
19 77 20 116 Interests 4
13
2
19
6 11 1 18 Undiscounted value of future lease payments 23
108
35
166
25 88 21 134
Receivables with a maturity date within one year are shown in current assets in the
itemtrade receivables for operating purposes–- current portion of long-term receivables intheNote 3- Trade and other receivables.
Non-operating financing receivables of euro 225 million at December 31, 2007 concerning a restricted deposit held by Eni Lasmo Plc as a guarantee of a debenture have been reclassified to current assets in the item financing receivables for non operating purposes in the Note 3 -– Trade and other receivables.Receivables in currencies other than euro amounted to euro 716 million (euro 827 million
(euro 821 million atas of December 31,2007)2008).Receivables due beyond five years amounted to euro 460 million (euro 617 million
(euro 509 million atas of December 31,2007)2008).Securities in the amount of euro 36 million (euro 50 million
(euro 21 million atas of December 31,2007)2008), designated as held-to-maturity investments, are listed securities, issued byforeign governments (euro 30 million) and bythe Italian Government (euro2021 million) and by foreign governments (euro 15 million). Theincreasedecrease of euro2914 millionreferredrelates to Banque Eni SA.Securities with a maturity beyond five years amounted to euro 20 million.
The fair value of financing receivables and securities did not differ significantly from their carrying amount. The fair value of financing receivables has been determined based on the present value of expected future cash flows discounted at rates ranging from
1.9%1.0% to 4.5% (1.9% and 3.9%(3.8% and 6.0% atas of December 31,2007)2008). The fair value of securities was derived from quoted market prices.
F-42Receivables with related parties are described in Note 36 – Transactions with related parties.F-45
1413 Deferred tax assets
Deferred tax assets were recognized net of deferred tax liabilities able to be offsetforin the amount of euro 3,764 million (euro 3,468 million(euro 3,526 million atas of December 31,2007)2008).
(euro million) Value at
Dec. 31,20072008Additions
Deductions
Currency translation differences
Other changes
Value at
Dec. 31,20082009
1,9152,912
1,7781,715(
7671,078) (
4328)
2937
2,9123,558
Deferred tax assets are described in Note
24 -23 – Deferred tax liabilities.
1514 Other non-current receivablesreceivables
The following table provides an analysis of other non-current receivables:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Tax receivables from: - Italian tax authorities . income tax 486 24 . interest on tax credits 325 58 . Value Added Tax (VAT) 42 2 . other 11 864 84 - foreign tax authorities 30 28 894 112 Other receivables: - in relation to disposals 7 780 - other non-current receivables 197 268 204 1,048 Fair value cash flow hedge derivative instruments 197 Other asset 12 44 1,110 1,401
Tax receivables from: - income tax 24 18 - interest on tax credits 58 55 - Value Added Tax (VAT) 2 84 73 - foreign tax authorities 28 39 112 112 Other receivables: - in relation to disposals 780 710 - other non-current receivables 268 215 1,048 925 Fair value of non-hedging derivatives 480 339 Fair value of cash flow hedge derivative instruments 197 129 Other asset 44 433 1,881 1,938
The decrease of tax receivables of euro 782 million primarily referred to Eni SpA which obtained the reimbursement of the income tax and of the related interest of euro 746 million.
The otherOther receivables related to disposalsamounting toin the amount of euro780710 millionrelatedrelate to: (i)thea receivable of euro501421 million recognizedafterupon the agreementsettledsigned with the Republic of Venezuelaaccording to whichwhereby Eni will receive a cash compensation for the expropriated Dación assets,for apart of which was alreadyreceived,collected. Eni is set tobe paid incollect seven annual installments whichyieldsyield interest income from the date of thesettlement. More information is included in Note 9 - Other assets; andagreement. The 2009 installment of euro 71 million ($104 million) was paid through an equivalent assignment of hydrocarbons (compensation in-kind); (ii)thea receivable of euro275279 million related to the disposal of the interest of 1.71% in the Kashagan project to the local partnerkazMunaiGasKazMunaiGas on the basis of the agreements defined with the international partners of the North Caspian Sea PSA and the Kashagan government, whicharewere effective starting from January 1, 2008.F-46
The fair value of derivative contracts which do not meet the criteria to be classified as hedges under IFRS was as follows:
Dec. 31, 2008
Dec. 31, 2009
(euro million) Fair value
Purchase commitments
Sale
commitmentsFair value
Purchase commitments
Sale
commitments
Non-hedging derivatives on exchange rate Interest Currency Swap 106 403 120 112 458 197 Currency swap 1 1 11 7 333 33 Other 29 13 48 136 417 179 119 791 230 Non-hedging derivatives on interest rate Interest rate swap 27 217 403 46 677 563 27 217 403 46 677 563 Non-hedging derivatives on commodities Over the counter 317 207 859 172 540 659 Other 2 37 317 207 859 174 577 659 480 841 1,441 339 2,045 1,452
The fair value of the derivative contracts is determined using market quotations provided by primary
info-provider,information providers, or in the absence of such market information, the appropriate valuation methods generally accepted in the marketplace.Fair values of non-hedging derivatives in the amount of euro 339 million (euro 480 million as of December 31, 2008) consisted of derivative contracts that do not meet the formal criteria to be designated as hedges under IFRS because they were entered into in order to manage the net business exposures in foreign currency exchange rates, interest rates and commodity prices. Therefore, such derivatives were not related to specific trade or financing transactions.
Fair value of the cash flow hedge derivatives in the amount of euro
197129 millionreferredrefers to DistrigasNV (euro 105 million) and to the Exploration & Production segment (euro 92 million).NV. Further information on cash flow hedge derivatives isgivenprovided in Note7 -19 – Other currentassets; fairliabilities. Fair value related to the contracts expiring beyond20092010 isgivenprovided in Note25 -24 – Other non-current liabilities; fair value related to the contracts expiring in20092010 isindicatedprovided in Note 7-– Other current assets and in Note20 -19 – Other current liabilities. The effects of the evaluation at fair value of cash flow hedge derivatives aregivenprovided in Note27 -26 – Shareholders’ equity and in Note32 - Finance income (expense).30 – Operating expenses.
F-43The nominal value of cash flow hedge derivatives
referredrelating to purchase and sale commitmentsforamounted to euro6429 million and euro1,268 million.427 million, respectively.Information on the hedged risks and the hedging policies is
givenprovided in Note29 -28 – Guarantees, commitments and risks.Other asset in the amount of euro 433 million (euro 44 million as of December 31, 2008) included a deferred cost that relates to amounts of gas which were collected below minimum take quantities for the year provided by take-or-pay clauses contained in certain long-term gas purchase contracts. Those volumes were recorded to offset a trade payable for an amount of euro 255 million based on the contractual purchase price formula provided in the relevant contractual arrangements and the contractual percentage of advance, as aligned to their net realizable value as of year end. The Company expects to collect the underlying gas volumes over a period longer than the next twelve months.
F-47
Current liabilities1615 Short-term debt
Short-term debt was as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Banks 4,070 2,411 Ordinary bonds 3,176 3,663 Other financial institutions 517 285 7,763 6,359
Banks 2,411 683 Ordinary bonds 3,663 2,718 Other financial institutions 285 144 6,359 3,545 Short-term debt decreased by euro
1,4042,814 million primarily due to the balance of repayments and new proceeds (euro1,6522,889 million), partially offset by currency translation differences (euro193 million) and changes in the consolidation area (euro 48 million) due to the acquisition of Distrigas NV by the Gas & Power segment (euro 76 million) and the disposal of Agip España SA by the Refining & Marketing segment (euro 2897 million). Debt comprised of commercial paper in the amount of euro 2,718 million (euro 3,663 million(euro 3,176 million atas of December 31,2007)2008) which was mainly issued by the financial company Eni Finance USA Inc (euro 2,020 million) and Eni Coordination CenterSA.SA (euro 698 million).Short-term debt per currency is shown in the table below:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Euro 5,453 3,801 U.S. dollar 1,591 1,332 Other currencies 719 1,226 7,763 6,359
Euro 3,801 1,143 U.S. dollar 1,332 2,321 Other currencies 1,226 81 6,359 3,545 In
2008,2009, the weighted average interest rate on short-term debt was4.2% (4.9%0.8% (4.2% in2007)2008).
AtAs of December 31,20082009, Eni had undrawn committed and uncommitted borrowing facilities available in the amount of euro 2,241 million and euro 9,533 million, respectively (euro 3,313 million and euro 7,696 millionrespectively (euro 5,006 million and euro 6,298 million atas of December 31,2007)2008). These facilities were under interest rates that reflected market conditions. Chargesforin unutilized facilities were not significant.
1716 Trade and other payables
Trade and other payables were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Trade payables 11,092 12,590 Advances 1,483 2,916 Other payables: - related to capital expenditures 1,301 1,716 - others 3,240 3,293 4,541 5,009 17,116 20,515
F-44
Trade payables 12,590 10,078 Advances 2,916 3,230 Other payables: - related to capital expenditures 1,716 1,541 - others 3,293 4,325 5,009 5,866 20,515 19,174 The
increasedecrease in trade payables in the amount of euro1,4982,512 millionin trade payableswas primarily related to the Gas & Power segment (euro1,4171,640 million), the Engineering & Construction segment (euro630619 million), the Exploration & Production segment (euro658566 million)andwhich waspartlyoffset bya decrease relating toan increase in the Refining & Marketing segment (euro942 million) and the Petrochemical segment (euro 251266 million).Advances in the amount of euro 3,230 million (euro 2,916 million
(euro 1,483 million atas of December 31,2007)2008) were related to advances on contract work in progressforin the amount of euro 2,590 million (euro 2,516 million(euro 996 million atas of December 31,2007)2008) and other advancesforin the amount of euro 640 million (euro 400 million(euro 487 million atas of December 31,2007)2008).F-48
Advances on contract work in progress
were in respect ofrelated to the Engineering & Construction segment.Other payables were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Payables due to: - joint venture operators in exploration and production activities 1,624 2,007 - suppliers in relation to investments 1,015 1,057 - non-financial government entities 397 441 - employees 257 400 - social security entities 226 284 3,519 4,189 Other payables 1,022 820 4,541 5,009
Payables due to: - joint venture operators in exploration and production activities 2,007 2,305 - suppliers in relation to investments 1,057 809 - non-financial government entities 441 661 - employees 400 451 - social security entities 284 292 4,189 4,518 Other payables 820 1,348 5,009 5,866 Payables
towith related parties are described in Note37 -36 – Transactions with related parties.The fair value of trade and other payables did not differ significantly from their carrying amount considering the short-term maturity of trade payables.
1817 Income taxes payable
Income taxes payable were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Italian subsidiaries 247 808 Foreign subsidiaries 1,441 1,141 1,688 1,949
Italian subsidiaries 808 363 Foreign subsidiaries 1,141 928 1,949 1,291 Income taxes payable by Italian subsidiaries were affected by the fair value valuation of cash flow hedging derivatives (euro
291137 million).This effect was recorded in the relevant provision within equity.Further information is provided in Note7 -19 – Other currentassets, Note 15 - Other non-current receivables, Note 20 - - Other current liabilities and Note 25 - Other non-currentliabilities.
1918 Other taxes payable
Other taxes payable were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Excise and customs duties 804 920 Other taxes and duties 579 740 1,383 1,660
Excise and customs duties 920 832 Other taxes and duties 740 599 1,660 1,431
F-45F-49
2019 Other current liabilities
Other current liabilities were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Fair value of non-hedging derivatives 412 1,982 Fair value of cash flow hedge derivatives 911 452 Other liabilities 233 1,885 1,556 4,319
Fair value of non-hedging derivatives 1,418 691 Fair value of cash flow hedge derivatives 452 680 Other liabilities 1,993 485 3,863 1,856 Fair value of non-hedging derivative contracts was as follows:
Dec. 31,
20072008Dec. 31,
20082009
(euro million) Fair value
Purchase commitments
Sale commitments
Fair value
Purchase commitments
Sale commitments
Non-hedging derivatives on exchange rate Currency swap 63
2,096
296
293
1,928
2,479
211 1,234 2,379 113 3,044 2,487 Interest currency swap 5
140
82
694
100
78 694 60 8 113 Other 7
76
1
327
151
1,197
299 101 1,181 135 107 684 75
2,312
297
702
2,773
3,776
588 2,029 3,620 256 3,264 3,171 Non-hedging derivatives on interest rate Interest rate swap 24
722
401
134
641
3,002
5 500 15 816 24
722
401
134
641
3,002
5 500 15 816 Non-hedging derivatives on commodities Over the counter 12
49
58
1,090
3,297
388
769 2,528 191 415 1,244 549 Other 301
1,187
28
56
66
119
56 66 119 5 2 54 313
1,236
86
1,146
3,363
507
825 2,594 310 420 1,246 603 412
4,270
784
1,982
6,777
7,285
1,418 5,123 3,930 691 4,510 4,590
Fair value of derivative contracts was determined by using market quotations
reportedgiven bymajor market dataprimary information providers, or,if noabsent market information,was available,on the basis of valuation models generally accepted in the marketplace.
The increase in the fair valueFair values of non-hedging derivatives in the amount of euro1,570691 millioncomprises the inclusion(euro 1,418 million as oftheDecember 31, 2008) consisted of derivative contractsheld by Distrigas NV which has been includedthat do not meet the formal criteria to be designated as hedges under IFRS because they were entered into in order to manage theconsolidation area following the acquisition of control by the Gas & Power segment (euro 873 million).net business exposures in foreign currency exchange rates, interest rates and commodity prices. Therefore, such derivatives were not related to specific trade or financing transactions.The fair value of cash flow hedges amounted to euro 680 million (euro 452 million
(euro 911 million atas of December 31,2007)2008) and related to Exploration & Production segment in the amount of euro 369 million and Distrigas NVforin the amount of euro 311 million (euro 37 million and euro 415 millionandas of December 31, 2008, respectively). Fair value related to the Exploration & Production segmentfor euro 37 million (euro 911 million atreferred to the fair value of the future sale agreements of the proved oil reserves with deadlines in 2010. Those derivatives were entered into to hedge exposure to variability in future cash flows deriving from the sales during the 2008-2011 period of approximately 2% of Eni’s proved reserves as of December 31,2007). Further information on2006 corresponding to 125.7 mmBBL, decreasing to 37.5 mmBBL as of December 31, 2009 due to transactions settled in the past year. These hedging transactions were undertaken in connection with acquisitions of oil and gas assets in the Gulf of Mexico and Congo that were executed in 2007. The Distrigas NV derivatives were designated to hedge surpluses or deficits of gas to achieve a proper balance in the gas portfolio.Fair value of contracts expiring by 2010 is provided in Note 7 – Other current assets; fair value of contracts expiring beyond 2010 is provided in Note 24 – Other non-current liabilities and in Note 14 – Other non-current assets. The effects of the evaluation at fair value of cash flow hedge derivatives
is givenare provided in Note7 - Other current assets. The fair value related to the contracts expiring in 2009 is given in Note 7 - Other current assets, in Note 15 - Other non-current receivables and in Note 25 - Other non-current liabilities. The effects of fair value valuation of cash flow hedging derivatives are given in Note 27 -26 – Shareholders’ equity and in Note32 - Finance income (expense).30 – Operating expenses.The nominal value of cash flow hedge derivatives
referredrelating to purchase and sale commitmentsforamount to euro 1,882 million and euro 272 million, respectively (euro 989 million and euro 895 millionrespectively (euro 1,399 million and euro 1,977 million atas of December 31,2007)2008, respectively).F-50
Information on the hedged risks and the hedging policies is
givenprovided in Note29 -28 – Guarantees, commitments and risks.
OtherThe decrease of other liabilities in the amount of euro1,8851,508 million(euro 233mainly relate to the extinction of the euro 1,495 millionat December 31, 2007) comprisedput option exercised by Publigaz. Eni granted the put optiongrantedto Publigaz (the Distrigas minority shareholder) to divest its 31.25% stake in Distrigas NV to Enifor a total amount of euro 1,495 million basedon the same per-share price of theongoingmandatory tender offer to minorities as part of the Distrigasacquisition as provided for the Shareholders Agreement signed by the two partners on July 30, 2008. ThisNV acquisition. The relevant liability was recognizedagainst the Group’s netwith a corresponding entry in a reserve within equity.In subsequent periods, changes in the put option value will be recognized against the profit and loss account.
F-46
Non-current liabilities2120 Long-term debt and currentportionmaturities of long-term debt
Long-term debt included the current portion maturing during the year following the balance sheet date (current maturity). The table below analyzes debt by year of forecasted repayment:
(euro million)
At December 31 Long-term maturity
Type of debt instrument
Maturity range
2007
2008
Current maturity 2009
2010
2011
2012
2013
After
Total
Towards banks: - bank loans 2009-2019 6,073
6,896
145
2,503
600
2,584
324
740
6,751
- other bank loans at favorable rates 2009-2012 9
6
2
2
1
1
4
- other 2009-2010 101
101
101
6,082
7,003
147
2,606
601
2,585
324
740
6,856
Ordinary bonds 2009-2037 5,386
6,843
360
844
133
40
1,602
3,864
6,483
Other financial institutions 2009-2020 599
632
42
180
63
62
55
230
590
12,067
14,478
549
3,630
797
2,687
1,981
4,834
13,929
Type of debt instrument
Maturity range
2008
2009
Current maturity 2010
2011
2012
2013
2014
After
Total
Banks 2010-2029 7,003 9,056 2,028 1,106 3,559 323 1,122 918 7,028 Ordinary bonds 2010-2037 6,843 11,687 1,111 141 38 1,589 1,314 7,494 10,576 Other financial institutions 2010-2021 632 512 52 95 63 55 51 196 460 14,478 21,255 3,191 1,342 3,660 1,967 2,487 8,608 18,064
Long-term debt, including the current portion of long-term debt, of euro 21,255 million (euro 14,478 million
(euro 12,067 million atas of December 31,2007)2008) increased by euro2,4116,777 million. The increase mainly reflected the balance of payments and new proceeds of euro2,4666,730 million as well asthe change in the consolidation area (euro 286 million) primarily due to the acquisition of First Calgary Petroleums Ltd by the Exploration & Production segment that accounts for euro 229 million.
This increase was offset by the negative impact of foreign currency translation differences andtranslation differences arising on debt taken on by euro-reporting subsidiaries denominated in a foreigncurrenciescurrency which are translated intoeuroeuros at the year-end exchange rates (euro383100 million). These increases were offset by currency translation differences resulting from the translation of financial statements denominated in currencies other than euro (euro 74 million).Debt from banks in the amount of euro 9,056 million mainly relate to committed and uncommitted borrowing facilities in the amount of euro 4,030 million.
Debt from other financial institutions in the amount of euro 512 million (euro 632 million as of December 31, 2008) included euro
16124 million of finance leasetransactions.transactions (euro 161 million as of December 31, 2008). Thefollowing table shows principal outstandingdecrease of euro 137 million mainly referred to the exercise of the option to purchase a drilling rig bymaturity date, which was obtained by summing future lease payments discounted attheeffective interest rate, interest and the nominal value of future lease payments:Engineering & Construction segment.
Maturity range
(euro million)
Within 12 months
Between one and five years
Beyond five years
Total
Principal debt outstanding 134
22
5
161
Interests 3
5
2
10
Undiscounted value of future lease payments 137
27
7
171
Eni entered into long-term borrowing facilities with the European Investment Bank which were conditioned to the maintenance of certain performance indicators based on Eni’s consolidated financial statements or the maintenance of a
rating not inferiorminimum level of rating. According toA- (S&P) and A3 (Moody’s). Atthe agreements, in case the latter condition is impaired, the Company shall provide new guarantees which the European Investment Bank finds to be satisfactory. As of December 31,20072008 and2008,2009, the amount of short and long-term debt subject to restrictive covenants was euro1,4291,323 million and euro1,3231,508 million, respectively. Eni considers that non-compliance with the above mentioned covenants does not produce significant effects. Furthermore, Saipem SpA entered into certain borrowing facilitiesforin the amount of euro 75 million (the same amount as of December 31, 2008) with a number of financial institutions subordinated to the maintenance of certain performance indicators based on the consolidated financial statements of Saipem. Eni and Saipem are in compliance with the covenants contained in their respective financing arrangements.Bonds in the amount of euro
6,84311,687 million consisted of bonds issuedwithinthrough the Euro Medium Term Notes Program for a total of euro6,3919,419 million and other bonds for a total of euro4522,268 million.
F-47F-51The following table
analysesanalyzes bonds per issuing entity, maturity date, interest rate and currency asatof December 31,2008:2009:
Amount
Discount on bond issue and accrued expense
Total
Currency
Maturity
% rate
(euro million) from
to
from
to
Issuing entity Euro Medium Term Notes Eni SpA 1,500
43
1,543
EUR
2013
4.625
Eni SpA 1,250
(5
) 1,245
EUR
2017
4.750
Eni SpA 1,250
2
1,252
EUR
2014
5.875
Eni Coordination Center SA 682
7
689
GBP
2010
2019
4.875
6.125
Eni SpA 500
16
516
EUR
2010
6.125
Eni Coordination Center SA 366
1
367
YEN
2012
2037
1.150
2.810
Eni Coordination Center SA 350
10
360
EUR
2010
2028
2.876
5.441
Eni Coordination Center SA 183
2
185
USD
2013
2015
4.450
4.800
Eni Coordination Center SA 165
4
169
EUR
2009
2015
variable
Eni Coordination Center SA 34
34
CHF
2010
2.043
Eni Coordination Center SA 32
(1
) 31
USD
2013
variable
6,312
79
6,391
Other bonds Eni USA Inc 287
3
290
USD
2027
7.300
Eni Lasmo Plc (*) 157
(6
) 151
GBP
2009
10.375
Eni UK Holding Plc 11
11
GBP
2013
variable
455
(3
) 452
6,767
76
6,843
Issuing entity - Euro Medium Term Notes: - Eni SpA 1,500 58 1,558 EUR 2016 5.000 - Eni SpA 1,500 44 1,544 EUR 2013 4.625 - Eni SpA 1,500 8 1,508 EUR 2019 4.125 - Eni SpA 1,250 66 1,316 EUR 2014 5.875 - Eni SpA 1,250 (4 ) 1,246 EUR 2017 4.750 - Eni Coordination Center SA 733 6 739 GBP 2010 2019 4.875 6.125 - Eni SpA 500 17 517 EUR 2010 6.125 - Eni Coordination Center SA 350 10 360 EUR 2010 2028 2.876 5.600 - Eni Coordination Center SA 346 2 348 YEN 2012 2037 1.150 2.810 - Eni Coordination Center SA 176 4 180 USD 2013 2015 4.450 4.800 - Eni Coordination Center SA 41 (1 ) 40 EUR 2011 2015 variable - Eni Coordination Center SA 34 34 CHF 2010 2.043 - Eni Coordination Center SA 31 (2 ) 29 USD 2013 variable 9,211 208 9,419 Other bonds: - Eni SpA 1,000 7 1,007 EUR 2015 4.000 - Eni SpA 1,000 (15 ) 985 EUR 2015 variable - Eni USA Inc 277 (3 ) 274 USD 2027 7.300 - Eni UK Holding Plc 2 2 GBP 2013 variable 2,279 (11 ) 2,268 11,490 197 11,687
(*)The bond is guaranteed by a restricted cash deposit recorded under non-current financial assets (euro 173 million).As
atof December 31,20082009 bonds maturing within 18 months (euro412993 million) were issued by Eni Coordination Center SAforin the amount of euro261476 million and by EniLasmo Plc forSpA in the amount of euro151517 million. During2008,2009, Eni SpAEni Coordination Center SA and Eni UK Holding Plcissued bondsforin the amount of euro1,499 million, euro 302 million and euro 11 million respectively.5,058 million.The following table shows the currency composition of long-term debt and its current portion and the related weighted average interest rates on total borrowings.
Dec. 31,
20072008
(euro million)Average rate
(%)Dec. 31,
20082009
(euro million)Average rate
(%)
Euro 9,973
4.4
12,284
4.2
12,284 4.2 19,345 3.9 U.S. dollar 900
8.6
912
6.1
912 6.1 779 3.9 British pound 882
6.2
859
6.2
859 6.2 742 5.2 Japanese yen 281
1.9
367
2.0
367 2.0 348 2.0 Other currencies 31
2.0
56
3.8
56 3.8 41 3.0 12,067
14,478
14,478 21,255
AtAs of December 31,20082009 Eni had undrawn committed long-term borrowing facilities in the amount of euro 2,850 million (euro 1,850 million(euro 1,400 million atas of December 31,2007)2008). Interest rates on these contracts were at market conditions. Charges for unutilized facilities were not significant.Fair value of long-term debt, including the current portion of long-term debt amounted to euro 22,320 million (euro 15,247 million
(euro 12,390 million atas of December 31,2007)2008) and consisted of the following:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Ordinary bonds 5,523 7,505 Banks 6,148 7,056 Other financial institutions 719 686 12,390 15,247
Ordinary bonds 7,505 12,618 Banks 7,056 9,152 Other financial institutions 686 550 15,247 22,320
F-48F-52Fair value was calculated by discounting the expected future cash flows at rates ranging from
1.4%1.0% to 4.5% (1.4% and 3.9%(3.8% and 6.0% atas of December 31,2007)2008).
AtAs of December 31,20082009 Enipledgeddid not pledge restricted deposits as collateral against its borrowingsfor euro(euro 151 million(euro 198 million atas of December 31,2007)2008).Analysis of net borrowings, as defined in the "Item 5 – Operating and Financial Review and Prospects", was as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Current
Non-current
Total
Current
Non-current
Total
A. Cash and cash equivalents 2,114
2,114
1,939
1,939
1,939 1,939 1,608 1,608 B. Available-for-sale securities 174
174
185
185
185 185 64 64 C. Liquidity (A+B) 2,288
2,288
2,124
2,124
2,124 2,124 1,672 1,672 D. Financing receivables 990
225
1,215
337
337
337 337 73 73 E. Short-term debt towards banks 4,070
4,070
2,411
2,411
2,411 2,411 683 683 F. Long-term debt towards banks 161
5,921
6,082
147
6,856
7,003
147 6,856 7,003 2,028 7,028 9,056 G. Bonds 263
5,123
5,386
360
6,483
6,843
360 6,483 6,843 1,111 10,576 11,687 H. Short-term debt towards related parties 131
131
153
153
153 153 147 147 I. Long-term debt towards related parties 16
16
9
9
9 9 L. Other short-term debt 3,562
3,562
3,795
3,795
3,795 3,795 2,715 2,715 M. Other long-term debt 313
270
583
42
581
623
42 581 623 52 460 512 N. Total borrowings (E+F+G+H+I+L+M) 8,500
11,330
19,830
6,908
13,929
20,837
6,908 13,929 20,837 6,736 18,064 24,800 O. Net borrowings (N-C-D) 5,222
11,105
16,327
4,447
13,929
18,376
4,447 13,929 18,376 4,991 18,064 23,055
Available-for-sale securities in the amount of euro 64 million (euro 185 million
(euro 174 million atas of December 31,2007)2008) were held for non-operating purposes.Not included in the calculation above were held-to-maturity and available-for-sale securities held for operating purposes amounting to euro 320 million (euro 360 million
(euro 280 million atas of December 31,2007)2008), of which euro 284 million (euro 302 million(euro 256 million atas of December 31,2007)2008) were held to provide coverage of technical reserves for Eni’s insurancecompanies.company, Eni Insurance Ltd.Financing receivables in the amount of euro 73 million (euro 337 million
(euro 1,215 million atas of December 31,2007)2008) were held for non-operating purposes.Not included in the calculation above were financing receivables held for operating purposes amounting to euro 452 million (euro 487 million
(euro 384 million atas of December 31,2007)2008), of which euro 245 million (euro 399 million(euro 246 million atas of December 31,2007)2008) were in respect of securities granted tonon-consolidatedunconsolidated subsidiaries, joint ventures and associates primarily in relation to the implementation of certain capital projects and a euro47179 million cash deposit (euro 47 million as of December 31, 2008) to provide coverageoffor Eni Insurance Ltd technical reserves.AtAs of December 31,2007, non-current2008, current financial receivables in the amount of euro225173 millionwere relatedreferred to a restricted deposit held by Eni Lasmo Plc as a guarantee of adebenture; the financial receivable has been reclassified in the current portion for euro 173 million.debenture.
F-49F-53
2221 Provisions for contingencies
Provisions for contingencies were as follows:
(euro million) Value at Dec. 31,
20072008Additions
Changes of estimated expenditures
Accretion discount
Reversal of utilized provisions
Reversal of unutilized provisions
Other changes
Value at Dec. 31,
20082009
Provision for site restoration and abandonment 3,974
635
202
(113
) (8
) (116
) 4,574
4,574 317 212 (191 ) (5 ) (110 ) 4,797 Provision for environmental risks 1,858
369
38
(333
) (9
) 57
1,980
1,980 280 (249 ) (22 ) (53 ) 1,936 Provision for legal and other proceedings 716
90
1
(30
) (35
) 70
812
812 372 (62 ) (39 ) 85 1,168 Loss adjustments and actuarial provisions for Eni’s insurance companies 418
1
(49
) 34
404
Loss adjustments and actuarial provisions for Eni's insurance companies 404 135 (25 ) 514 Provisions for the supply of goods 187
115
6
308
308 35 10 353 Provision for taxes 213
39
(3
) (10
) 21
260
260 46 (1 ) (9 ) 296 Provision for losses on investments 163
21
(5
) (16
) 163
163 96 (39 ) (9 ) 211 Provisions for marketing and promotion initiatives 65
75
(57
) (2
) 81
Provision for onerous contracts 4 115 (26 ) (3 ) 90 Provision for OIL insurance 80
14
(13
) (8
) (1
) 72
72 9 (1 ) (1 ) 79 Provision for restructuring or decommissioning 130
(114
) 16
Provision for onerous contracts 50
(50
) 4
4
Other (*) 632
418
(2
) 2
(151
) (73
) 73
899
929 306 22 (4 ) (298 ) (72 ) (8 ) 875 8,486
1,142
633
249
(750
) (199
) 12
9,573
9,506 1,394 339 218 (827 ) (179 ) (132 ) 10,319
(*) Each individual amount included herein does not exceed euro 50 million.
The provisionProvision for site restoration and abandonment in the amount of euro4,5744,797 million primarily referred to the estimation of future costs relating to decommissioning of oil and natural gas production facilities at the end of the producing lives of fields, well-plugging, abandonment and site restoration (euro4,4944,500 million). The increase in the provision for the year amounted to euro635317 million and was primarily due to changes in the estimates of future costs made bysubsidiaries in the Exploration & Production segment includingEniNorge ASPetroleum Co Inc (euro183153 million), Eni UK Ltd (euro9076 million) and EniPetroleum Co IncSpA (euro8251 million)with a corresponding entry to fixed assets.. Also an amount of euro202212 million was recognized through profit and loss as the accretion charge for the period.The discount rates adopted ranged from 1.9% to 8.8% (from 3.3% to 6.2%
(from 4.2% to 6.2% atfor the year-ended December 31,2007)2008). Other changes in the amount of euro116110 million mainly related to the reclassification of the liabilities directly associated with assets held for sale (euro 188 million).Offsetting this effect were negative currency translation differences which
aroseresulted from the translation of financial statements denominated in currencies other than euro (euro157 million). Offsetting this effect was the acquisition of Eni Hewett Ltd by the Exploration & Production segment (euro 5270 million).
The provisionProvision for environmental risks in the amount of euro1,9801,936 million primarily related to the estimated future costs of remediation in accordance with existing laws and regulationsrecognizedand the estimated costs of reclamation and restoration sanctioned by the competent authorities. There provisions mainly relate to Syndial SpA (euro1,3821,412 million) and to the Refining & Marketing segment (euro 394 million). The increases in the provision in the amount of euro 280 million were primarily related to Syndial SpA (euro 186 million) and the Refining & Marketing segment (euro45468 million).The increaseDecreases in theprovisionamount of euro369249 millionwas primarily related to Syndial SpA (euro 222 million) and the Refining & Marketing segment (euro 108 million). Specifically, Syndial SpA recognized the estimated cost of the remediation of the divested area of Crotone as the clean-up has become probable and the associated costs can be reliably estimated. The decrease of euro 333 million waswere related to the reversal of utilized provisions primarily bySyndial SpA (euro 194 million) andthe Refining & Marketing segment (euro93125 million). Other changes of euro 57 million included the reclassification from the provision for restructuring or decommissioning made by the Refining & Marketing segmentand Syndial SpA (euro11497 million).
The provisionProvision for legal and other proceedings in the amount of euro8121,168 million primarily included charges expectedonfor the failure to perform certain contractual obligations and estimated future losses on pending litigation including legal, antitrust and administrative matters. These provisions are stated on the basis of Eni’s best estimate of the expected probable liability and primarilyrelaterelated to the Gas & Power segment (euro452476 million), Engineering & Construction segment (euro 278 million), Syndial SpA (euro225220 million), Eni Corporate (euro 79 million) and the Petrochemical segment (euro3634 million).Other changesThe increases in the provision in the amount of euro70372 millionwere essentially relatedincludes the estimate of a non-recurring item represented by a charge amounting to euro 250 million that was estimated based on management’s best knowledge of the possible resolution of the TSKJ matter with U.S. Authorities. The matter is fully disclosed in Note 28 – Guarantees, commitments and risks – Legal Proceedings. The charge is recognized in the segment results of the Engineering & Construction business as it relates to a project that was executed in Nigeria by the TSKJ joint venture. At the time of the project, the venture was participated by Snamprogetti Netherlands BV that was controlled by Snamprogetti SpA that was subsequently divested by the parent company Eni SpA to thechangesubsidiary Saipem. On the occasion of the divestiture, Eni agreed to indemnify Saipem of all possible claims that might arise in connection with Snamprogetti involvement in theconsolidation area followingTSKJ venture. As a result, theacquisitionfuture monetary settlement ofDistrigas NVthe provision will be incurred bythe Gas & Power segment (euro 68 million).Eni SpA and Saipem’s minorities will be left unaffected altogether.F-54
Loss adjustments and actuarial provisions for Eni’s insurance companies in the amount of euro
404514 millionrepresentedrepresent the liabilities accrued for claims on insurance policies underwritten by Eni’s insurance company, Eni Insurance Ltd.Provisions for the supply of goods
forin the amount of euro308353 millionrelated to Eni SpA and includedinclude the estimated costs of the supply contracts.
F-50
The provisionProvision for taxes in the amount of euro260296 million primarily included charges for unsettled tax claims in connection with uncertain applications ofthetaxregulationregulations for foreign subsidiaries of the Exploration & Production segment (euro193176 million) and the Engineering & Construction segment (euro 66 million).
The provisionProvision for losses on investments in the amount of euro163211 million was made with respect to lossesonfrom investments in entities incurred to date, where the lossesexceededexceed the carrying amount of the investments.
The provisionProvision formarketing and promotional initiatives amounted to euro 81 million and was made in respect of marketing initiatives involving awards and prizes to clientsonerous contracts in theRefining & Marketing segment.amount of euro 90 million relate to contracts for which the termination or execution costs exceed the relevant benefits.
The provisionProvision for OIL insurance cover in the amount of euro7279 millionincludedinclude a mutual insurance provisionforrelated to futureincreases inincrease of insurancechargecharges, as a result of accidents that occurred in pastaccidentsperiods that will be paid in the next 5 years by Eni for participating in the mutual insurancepolicyof Oil Insurance Ltd.
The provision for restructuring or decommissioning of unused production facilities of euro 16 million was primarily made for the estimated future costs of site restoration and remediation in connection with divestments and the closing of facilities in the Refining & Marketing segment (euro 10 million). Other changes of euro 114 million related to a reclassification to the provision for environmental risks made by the Refining & Marketing segment.
The provision for onerous contracts of euro 4 million related to contracts for which the termination or execution costs exceed the benefits. The reversal of utilized provisions related to Syndial SpA.
2322 Provisions for employee benefits
Provisions for employee benefits were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
TFR 499 458 Foreign pension plans 219 223 Supplementary medical reserve for Eni managers (FISDE) and other foreign medical plans 99 98 Other benefits 118 168 935 947
TFR 458 445 Foreign pension plans 223 204 Supplementary medical reserve for Eni managers (FISDE) and other foreign medical plans 98 107 Other benefits 168 188 947 944 Provisions for indemnities upon termination of employment primarily
relatedrelate to the provisions accrued by Italian companies for employee termination indemnities ("TFR"), which are determined using actuarial techniques and is regulated by Article 2120 of the Italian Civil Code.The indemnity is paid upon retirement as a lump sum payment in the amount
ofwhich corresponds to the totalof theprovisions accrued during theemployee’semployees’ service period based on payroll costs as revalued until retirement. Following the changes intheregime, starting from January 1, 2007 the amount already then accrued andthefuture benefitshave been transferred to awill be put in pensionfundfunds or the treasury fundcustodiedheld by the Italian administration for post-retirement benefits (INPS).CompaniesFor companies with less than 50 employees,can choose notit will be possible toadoptcontinue thenew scheme.scheme as in previous years. Therefore, the allocation of future TFR provisions to pension funds or the INPS treasury fund determines that these amounts will be classified as costs to provide benefits under a defined contribution plan. Past unpaid amounts accrued asatof December 31, 2006 for post-retirement indemnities under the Italian TFR regime continue to represent costs to provide benefits under a defined benefit plan and must be assessed based on actuarial assumptions.Pension funds are defined benefit plans provided by foreign subsidiaries located mainly in Nigeria and in Germany. Benefits under these plans
consistedconsist of payments based on seniority and the salary paid in the last year of service, or alternatively, the average annual salary over a defined period prior to retirement.Group companies provide healthcare benefits to retired managers. Liability
tofor these plans (FISDE and other foreign healthcare plans) and the current cost are limited to the contributions made by the company.Other benefits primarily related to a deferred cash incentive scheme for managers and certain Jubilee awards. The provision for the deferred cash incentive scheme is assessed based on the
likelihood thatprobability of the companywillreaching
F-51F-55
reachplanned targets andthe employees will reachemployee reaching individual performance goals. Jubilee awards are benefits due following the attainment of a minimum period of service and, for the Italian companies, consist of an in-kind remuneration.The value of employee benefits, estimated by applying actuarial techniques,
consistedconsists of the following:
Foreign pension plans
(euro million) TFR
Gross liability
Plan assets
FISDE
and other foreign medical plans
Other benefits
Total
2007 Current value of benefit liabilities and plan assets at beginning of year 614
771
(440
) 91
95
1,131
Current cost 13
13
1
38
65
Interest cost 23
32
4
2
61
Expected return on plan assets (23
) (23
) Employee contributions (126
) (126
) Actuarial gains (losses) (52
) 3
12
1
(1
) (37
) Benefits paid (64
) (35
) 18
(6
) (7
) (94
) Amendments 1
2
3
Curtailments and settlements (62
) (201
) 201
(62
) Currency translation differences and other changes 3
36
(4
) 1
(9
) 27
Current value of benefit liabilities and plan assets at end of year 476
621
(362
) 92
118
945
2008 Current value of benefit liabilities and plan assets at beginning of year 476
621
(362
) 92
118
945
476 621 (362 ) 92 118 945 Current cost 21
1
48
70
21 1 48 70 Interest cost 25
28
5
5
63
25 28 5 5 63 Expected return on plan assets (25
) (25
) (25 ) (25 ) Employee contributions (1
) (41
) (42
) (1 ) (41 ) (42 ) Actuarial gains (losses) 8
(11
) 102
3
3
105
8 (11 ) 102 3 3 105 Benefits paid (65
) (25
) 20
(7
) (7
) (84
) (65 ) (25 ) 20 (7 ) (7 ) (84 ) Curtailments and settlements (2
) (2
) (2 ) (2 ) Currency translation differences and other changes (1
) 169
(147
) 2
1
24
(1 ) 169 (147 ) 2 1 24 Current value of benefit liabilities and plan assets at end of year 443
802
(453
) 94
168
1,054
443 802 (453 ) 94 168 1,054 2009 Current value of benefit liabilities and plan assets at beginning of year 443 802 (453 ) 94 168 1,054 Current cost 27 2 45 74 Interest cost 26 22 6 6 60 Amendments 81 10 91 Expected return on plan assets (16 ) (16 ) Employee contributions 1 (42 ) (41 ) Actuarial gains (losses) 18 301 (16 ) 9 4 316 Benefits paid (41 ) (45 ) 22 (7 ) (39 ) (110 ) Curtailments and settlements (15 ) 14 (1 ) Currency translation differences and other changes 1 (28 ) (9 ) 1 4 (31 ) Current value of benefit liabilities and plan assets at end of year 447 1,146 (500 ) 115 188 1,396
The gross liability for foreign employee pension plans in the amount of euro 1,146 million (euro 802 million
(euro 621 million atas of December 31,2007) included2008) include the liabilities related to joint ventures operating in exploration and production activitiesforin the amount of euro6777 million and euro7762 millionatas of December 31,20072008 and2008,2009, respectively. A receivable of an amount equivalent to such liability was recorded. Other benefits in the amount of euro 188 million (euro 168 million(euro 118 million atas of December 31,2007) primarily concerned2008) mainly relate to the deferred monetary incentive planforin the amount of euro 119 million (euro 107 million(euro 69 million atas of December 31,2007)2008) andjubileeJubilee awardsforin the amount of euro 52 million (euro 47 million(euro 40 million atas of December 31,2007)2008).
F-52F-56
The reconciliation analysis of benefit obligations
toand plan assets was as follows:
TFR Foreign pension plans FISDE and other foreign medical plans Other benefits
(euro million) Dec. 31,
20072008Dec. 31, 2009
Dec. 31, 2008
Dec. 31,
20072009Dec. 31, 2008
Dec. 31,
20072009Dec. 31, 2008
Dec. 31,
2007
Dec. 31, 20082009
Present value of benefit obligations with plan assets 439
610
610 935 Present value of plan assets (362
) (453
) (453 ) (500 ) Net present value of benefit obligations with plan assets 77
157
157 435 Present value of benefit obligations without plan assets 476
443
182
192
92
94
118
168
443 447 192 211 94 115 168 188 Actuarial gains (losses) not recognized 23
15
(33
) (126
) 7
4
15 (2 ) (126 ) (442 ) 4 (6 ) Past service cost not recognized (7
) (2 ) Net liabilities recognized in provisions for employee benefits 499
458
219
223
99
98
118
168
458 445 223 204 98 107 168 188
Costs charged to the profit and loss account were as follows:
(euro million) TFR
Foreign pension plans
FISDE and other foreign medical plans
Other benefits
Total
2007 Current cost 13
13
1
38
65
Interest cost 23
32
4
2
61
Expected return on plan assets (23
) (23
) Amortization of actuarial gains (losses) 1
3
4
Effect of curtailments and settlements (83
) 41
(42
) (46
) 66
5
40
65
2008 Current cost 19
1
48
70
21 1 48 70 Interest cost 25
28
5
5
63
25 28 5 5 63 Expected return on plan assets (25
) (25
) (25 ) (25 ) Amortization of actuarial gains (losses) 1
1
1 1 Effect of curtailments and settlements (2
) (2
) (2 ) (2 ) 25
25
4
53
107
25 25 4 53 107 2009 Current cost 27 2 45 74 Interest cost 26 22 6 6 60 Expected return on plan assets (16 ) (16 ) Amortization of actuarial gains (losses) 10 7 4 21 Effect of curtailments and settlements 1 (3 ) (2 ) 26 44 15 52 137
The main actuarial assumptions used
forin thevaluationevaluation of post-retirement benefit obligations atyear-endyear end andforin the estimate of costs expected for20092010 were as follows:
(%) TFR
Foreign pension plans
FISDE and other foreign medical plans
Other benefits
2007 2008 Discount rate 5.4
3.5-13.0
5.5
4.8-5.4
6.0 3.5-13.0 6.0 5.2-6.0 Expected return rate on plan assets 4.0-13.0
4.5-13.0 Rate of compensation increase 2.7-3.0
2.0-12.0
2.7-4.0
2.7-3.0 2.4-13.0 2.7-4.0 Rate of price inflation 2.0
1.0-10.0
2.0
2.0
2.5 1.3-11.0 2.5 2.5 2008 2009 Discount rate 6.0
3.5-13.0
6.0
5.2-6.0
5.0 2.7-11.0 5.0 2.0-5.0 Expected return rate on plan assets 4.5-13.0
4.0-13.0 Rate of compensation increase 2.7-3.0
2.4-13.0
2.7-4.0
3.0 2.7-14.0 Rate of price inflation 2.5
1.3-11.0
2.5
2.5
2.0 0.9-10.0 2.0 2.0
F-53F-57With regards to Italian plans, demographic tables prepared by Ragioneria Generale dello Stato (RG48) were used.
The expectedExpected return rate by plan assets has been determined by reference to quoted prices expressed in regulated markets.Plan assets consisted of the following:
(%) Plan assets
Expected return
Securities 6.910.06.6-8.96.0-7.5 Bonds 20.428.82.8-10.02.4-13.0 Real estate 1.81.65.4-15.06.0-7.5 Other 70.959.62.0-13.00.5-13.0 Total 100.0
The effective return
onof the plan assets amounted toazero (a cost in the amount of euro 77 million(a profit of euro 11 million atfor the year ended December 31,2007)2008).With reference to healthcare plans, the effects deriving from a 1% change of the actuarial assumptions of medical costs were as follows:
(euro million) 1% Increase
1% Decrease
Impact on the current costs and interest costs 1 (1 ) 1 (1 ) Impact on net benefit obligation 10 (9 ) 14 (12 )
The amount expected to be accrued
tofor defined benefit plansfor 2009 isin 2010 amounted to euro3288 million.The analysis of changes in the actuarial valuation of the net liability with respect to prior year deriving from the non-correspondence of actuarial assumptions with actual values recorded at year-end was as follows:
(euro million) TFR
Foreign pension plans
FISDE and other foreign medical plans
Other benefits
2007 Impact on net benefit obligation (8
) 6
Impact on plan assets 3
2008 Impact on net benefit obligation 7
15
3
1
7 15 3 1 Impact on plan assets (62
) (62 ) 2009 Impact on net benefit obligation (7 ) 4 3 2 Impact on plan assets (16 )
2423 Deferred tax liabilities
Deferred tax liabilities were recognized net of offsettable deferred tax assetsforin the amount of euro 3,764 million (euro 3,468 million(euro 3,526 million atas of December 31,2007)2008).
(euro million) Value at
Dec. 31,20072008Additions
Deductions
Changes in the scope of consolidation
Currency translation differences
Other changes
Value at
Dec. 31,20082009
5,4715,784
952631(
2,3351,434)
1,6843(
3822)
8(55)
5,7424,907
F-54F-58Deferred tax
liabilitiesassets anddeferred tax assetsliabilities consisted of the following:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Deferred tax liabilities 8,997
9,210
9,252 8,671 Deferred tax assets available for offset (3,526
) (3,468
) (3,468 ) (3,764 ) 5,471
5,742
5,784 4,907 Deferred tax assets not available for offset (1,915
) (2,912
) (2,912 ) (3,558 ) 3,556
2,830
2,872 1,349
The most significant temporary differences giving rise to net deferred tax liabilities were as follows:
(euro million) Value at
Dec. 31,20072008Additions
Deductions
Currency translation differences
Other changes
Value at
Dec. 31,20082009
Deferred tax liabilities: - accelerated tax depreciation 6,257
212
(895
) (60
) (148
) 5,366
5,366 238 (392 ) (6 ) (34 ) 5,172 - site restoration and abandonment (tangible assets) 539
191
(30
) (32
) (14
) 654
654 59 (132 ) 27 (59 ) 549 - capitalized interest expense 177
10
(15
) 1
173
173 3 (15 ) (2 ) 159 - application of the weighted average cost method in evaluation of inventories 731
335
(1,070
) 83
79
79 31 (91 ) 42 61 - other 1,293
204
(325
) 54
1,712
2,938
2,980 300 (804 ) (43 ) 297 2,730 8,997
952
(2,335
) (38
) 1,634
9,210
9,252 631 (1,434 ) (22 ) 244 8,671 Deferred tax assets: - site restoration and abandonment (provisions for contingencies) (1,363
) (244
) 17
45
(27
) (1,572
) (1,572 ) (84 ) 100 (8 ) 79 (1,485 ) - accruals for impairment losses and provisions for contingencies (913
) (701
) 235
3
(21
) (1,397
) (1,397 ) (334 ) 309 32 (1,390 ) - depreciation and amortization (622
) (278
) 48
(42
) (16
) (910
) (910 ) (474 ) 140 33 25 (1,186 ) - assets revaluation as per Laws No. 342/2000 and No. 448/2001 (788
) 60
(7
) (735
) (735 ) 58 (677 ) - carry-forward tax losses (79
) (10
) 37
1
(6
) (57
) (57 ) (150 ) 40 (7 ) (174 ) - other (1,676
) (545
) 370
36
106
(1,709
) (1,709 ) (673 ) 431 10 (469 ) (2,410 ) (5,441
) (1,778
) 767
43
29
(6,380
) (6,380 ) (1,715 ) 1,078 28 (333 ) (7,322 ) Net deferred tax liabilities 3,556
(826
) (1,568
) 5
1,663
2,830
2,872 (1,084 ) (356 ) 6 (89 ) 1,349
Deferred tax assets are recognized for deductible temporary differences to the extent that it is probable that sufficient taxable profit will be available against which part or all of the deductible temporary differences can be utilized.
WhenIn the case where future taxable profit is no longer deemed to be sufficient to absorb all existing deferred tax assets, any surplus is written off.
Other changesNo deferred tax liabilities were recognized on undistributed reserves of the shareholders’ equity considered to be reinvested indefinitely (approximately euro1,663 million included: (i)41,000 million). The determination of the tax effect relating to such reinvested reserves is not praticable.Other changes in the
consolidation area foramount of euro1,45689 millionfollowing of the acquisition made by the Exploration & Production segment of Burren Energy Plc (euro 733 million), of First Calgary Petroleums Ltd (euro 108 million), of Eni Hewett Ltd (euro 91 million) and of Hindustan Oil Exploration Co Ltd (euro 31 million), the acquisition made by the Gas & Power segment of Distrigas NV (euro 504 million) and the disposal done by the Refining & Marketing segment of Agip España SA (euro 11 million); and (ii)includes the recognition of the deferred tax effect against equity on the fair value evaluation of derivatives designated as cash flowhedge forhedges in the amount of euro7665 million. Further information on cash flowhedginghedge derivatives isgivenprovided in Note7 -19 – Other currentassets, in Note 15 - Other non-current receivables and in Note 25 - Other non-currentliabilities.Italian taxation law allows the carry-forward of tax losses over the five subsequent years. Losses suffered in the first three years of the company’s life can, however, be, for the most part, carried forward indefinitely. Foreign taxation laws allow, on average, the carry-forward of tax losses over a period higher than the five subsequent years, and in many cases, indefinitely. The tax rate applied by the Italian subsidiaries to determine the portion of
carry-forwardscarry-forward tax losses to be utilized equaled33%25.8%;33.73%this rate equaled on average to 28.2% for foreign entities.
F-55F-59Carry-forward tax losses in the amount of euro
1,0241,532 million can be used in the following periods:
(euro million) Italian
subsidiariesForeign
subsidiaries
2009 41 7 2010 12 2011 1 2 2012 1 2013 6 3 7 Beyond 2013 3 14 2014 107 43 Beyond 2014 64 19 Without limit 38 899 16 1,273 88 936 194 1,338
Carry-forward tax losses in the amount of euro
171634 million expected to be offset against future taxable profit and were in respect of Italian subsidiariesforin the amount of euro88194 million and of foreign subsidiariesforin the amount of euro83440 million. Deferred tax assets recognized on these losses amounted to euro2950 million and euro28124 million, respectively.
2524 Other non-current liabilities
Other non-current liabilities were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Fair value of cash flow hedge derivatives 1,340 499 Current income tax liabilities 215 254 Payables related to capital expenditures 22 Other payables 295 55 Other liabilities 159 1,730 2,031 2,538
Fair value of non-hedging derivatives 564 372 Fair value of cash flow hedge derivatives 499 436 Current income tax liabilities 254 52 Other payables 55 54 Other liabilities 1,730 1,566 3,102 2,480
The fairFair value of derivative contracts was determined by using market quotationsreportedgiven bymajor market dataprimary information providers, or,if noin lack of market information,was available,on the basis of generally accepted methods for financial valuations.
The fairFair value of non-hedging derivatives was as follows:
Dec. 31, 2008
Dec. 31, 2009
(euro million) Fair value
Purchase commitments
Sale commitments
Fair value
Purchase commitments
Sale commitments
Non-hedging derivatives on exchange rate Currency swap 82 694 100 10 296 94 Interest currency swap 4 40 23 394 Other 28 50 16 114 744 156 33 690 94 Non-hedging derivatives on interest rate Interest rate swap 129 141 3,002 137 41 4,030 129 141 3,002 137 41 4,030 Non-hedging derivatives on commodities Over the counter 321 769 197 199 850 219 Other 3 12 9 321 769 197 202 862 228 564 1,654 3,355 372 1,593 4,352
F-60
Fair value of non-hedging derivatives in the amount of euro 372 million (euro 564 million as of December 31, 2008) referred to derivative contracts that do not meet the formal criteria to be designated as hedges under IFRS because they were entered into in order to manage the net business exposures in foreign currency exchange rates, interest rates and commodity prices. Therefore, such derivatives were not related to specific trade or financing transactions.
Fair value of cash flow
hedginghedge derivatives amounted to euro 436 million (euro 499 million(euro 1,340 million atas of December 31,2007) and2008) related to Distrigas NV in the amount of euro 275 million (euro 235 million as of December 31, 2008) and the Exploration & Production segmentforin the amount of euro 161 million (euro 264 million(euro 1,340 million atas of December 31,2007) and to Distrigas NV (euro 235 million)2008).Further information on cash flow
hedginghedge derivatives isgivenprovided in Note 19 – Other current liabilities. Fair value of contracts expiring beyond 2010 is provided in Note 14 – Other non-current receivables; fair value of contracts expiring by 2010 is provided in Note 19 – Other current liabilities and Note 7-– Other current assets. Thefair value related to the contracts expiring in 2009 is given in Note 7 - Other current assets, in Note 15 - Other non-current receivables and in Note 25 - - Other non-current liabilities. Theeffects of the evaluation at the fair valuevaluationof cash flowhedginghedge derivatives aregivenprovided in Note27 -26 – Shareholders’ equity andinNote32 - Finance income (expense).30 – Operating expenses.The nominal value of
thesethe derivativesreferredrelating to purchase and sale commitmentsforamounted to euro 1,544 million and euro 129 million, respectively (euro 1,878 million andeuro1,832 millionrespectively (euro 2,804 million and euro 3,404 million atas of December 31,2007)2008, respectively).Information on the hedged risks and the hedging policies is shown in Note
29 -28 – Guarantees, commitments and risks.The group’s liability for current income taxes in the amount of euro 52 million (euro 254 million
(euro 215 million atas of December 31,2007)2008) was due as a special tax (with a rate lower than the statutory tax rate), relating to the option to increase the deductible tax bases of certain tangible and other assets to their carrying amounts as permitted by the 2008 Budget Law.Other liabilities in the amount of euro 1,566 million (euro 1,730 million
(euro 159 million atas of December 31,2007)2008) included advances received by Suez following the long-term supply of natural gas and electricity in the amount of euro 1,455 million (euro 1,552million.
F-56million as of December 31, 2008).
2625 Assetsclassified asheld for sale and liabilities directly associated withtheassetsclassified asheld for sale
Non-current assets held for sale and liabilities directly associatedliabilities relatedwith non-current assets held for sale amounted to euro 542 million and euro 276 million, respectively, which mainly relate to the divestment of certain mineral properties in Italy which were contributed in kind to two new entities, Società Padana Energia SpA and Società Adriatica Idrocarburi SpA, for the disposal ofFertlizantes Nitrogenados de Oriente,Gas Brasiliano Distribuidora SA, a companyspecializedoperating in theproductiondistribution and marketing offertilizers.natural gas in an area of São Paulo state in Brazil, and Distri RE SA, a company acquired following the acquisition of Distrigas NV. The disposals to third parties are under negotiation.
F-61
2726 Shareholders’ equityMinority interest
MinorityProfit attributable to minority interest and theattributable profit with reference tominority interest in certain consolidated subsidiaries related to:
(euro million) Net profit
Shareholders’ equity
2007
2008
Dec. 31, 2007
Dec. 31, 2008
Saipem SpA 514
407
1,299
1,560
Distrigas NV 74
1,162
Snam Rete Gas SpA 268
254
865
948
Hindustan Oil Exploration Co Ltd (1
) 128
Tigàz Tiszàntùli Gàzszolgàltatò Részvénytàrsasàg 1
(11
) 79
65
Others 15
10
196
211
798
733
2,439
4,074
2008
2009
Dec. 31, 2008
Dec. 31, 2009
Saipem SpA 407 567 1,560 2,005 Snam Rete Gas SpA 254 369 948 1,568 Hindustan Oil Exploration Co Ltd (1 ) 1 128 123 Tigàz Tiszàntùli Gàzszolgàltatò Részvénytàrsasàg (11 ) 8 65 72 Distrigas NV 74 1,162 Others 10 5 211 210 733 950 4,074 3,978
The increase in Snam Rete Gas SpA equity is due to the increase in the share capital for the minority shareholders’ contribution (euro 1,542 million) partially offset by the effect of acquisition from Eni of Italgas SpA and Stogit SpA (euro 1,086 million). The zero amount of the minority interests in Distrigas NV is due to the acquisition of the entire share capital of the company through the finalization of the mandatory tender offer on the minorities of Distrigas. Shareholders, including Publigaz with its entire interest (31.25%), tendered shares representing 41.617% of the share capital of Distrigas. The residual 1.14% of the share capital has been acquired by Eni through a squeeze-out.
Eni shareholders’ equity
Eni’s net equityatas of December 31, 2008 and 2009 was as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Share capital 4,005
4,005
4,005 4,005 Legal reserve 959
959
959 959 Reserve for treasury shares 7,207
7,187
7,187 6,757 Cumulative foreign currency translation differences (2,233
) (969
) Reserve related to the fair value of cash flow hedging derivatives net of the tax effect (90 ) (439 ) Reserve related to the fair value of available-for-sale securities net of the tax effect 4 5 Other reserves (914
) (1,140
) (1,054 ) 1,492 Cumulative currency translation differences (969 ) (1,665 ) Treasury shares (6,757 ) (6,757 ) Retained earnings 29,591
34,685
34,685 39,160 Treasury shares (5,999
) (6,757
) Interim dividend (2,199
) (2,359
) (2,359 ) (1,811 ) Net profit for the period 10,011
8,825
8,825 4,367 40,428
44,436
44,436 46,073
Share capital
AtAs of December 31,20082009 the parent company’s issued share capital consisted of 4,005,358,876 shares (nominal value euro 1 each) fully paid-up (the same amountatas of December 31,2007)2008).On April
29, 200830, 2009 Eni’s Shareholders’ Meeting declared a dividend distribution of euro0.700.65 per share, with the exclusion of treasury shares held at the ex-dividend date, in full settlement of the20072008 dividend of euro 1.30 per share, of which euro0.600.65 per share paid as interim dividend. The balance waspaidpayable on May22, 200821, 2009 to shareholders on the registeronas of May19, 2008.18, 2009.Legal reserve
This reserve represents earnings restricted from the payment of dividends pursuant to Article 2430 of the Italian Civil Code. The legal reserve has reached the maximum amount required by the Italian Law.
F-57F-62Reserve for treasury shares
The reserve for treasury shares represents the reserverestricteddestined tothepurchaseof ownEni shares in accordance with the decisionsofreached at Eni’s Shareholders’ Meetings. The amount of euro 6,757 million (euro 7,187 million(euro 7,207 million atas of December 31,2007)2008) included treasury shares purchased. During the year 2009 the Company did not purchase its own shares and the term established by Eni’s Shareholders’ Meetings for the purchase has expired. Thedecreaseresidual amount of euro20430 millionprimarily concerned the salewas taken to Retained earnings (euro 429 million) andgrant of treasury shares to Group managers following stock option and stock grants incentive schemes.
Cumulative foreign currency translation differencesThe cumulative foreign currency translation differences arose from the translation of financial statements denominated in currencies other than euro.
Other reserves
Other reservesof negative amount were euro 1,140 million (at December 31, 2007 other reserves of negative amount were euro 914(euro 1 million)and included:.
•a reserve of euro 247 million constituted following the sale by Eni SpA of Snamprogetti SpA to Saipem Projects SpA (now Saipem SpA) (same amount at December 31, 2007);•a reserve of euro 194 million (euro 181 million at December 31, 2007) deriving from Eni SpA’s equity;•a reserve of euro 86 million (at December 31, 2007 a negative for euro 1,342 million) including the related tax, for the valuation at fair value of available-for-sale securities and cash flow hedge derivatives. Further information is given in Note 2 - Other financial assets held for trading or available for sale, Note 7 - Other current assets, Note 20 - Other current liabilities and Note 25 - Other non-current liabilities;•a negative reserve of euro 1,495 million relatedReserve referring to the
put option granted to Publigaz (the Distrigas minority shareholder) to divest its 31.25% stake in Distrigas NV valued at the same per-share price of the ongoing mandatory tender offer to minorities.
Thevaluation at fair value ofsecurities available for sale andcash flowhedgehedging derivatives and available-for-sale securities, net of the related taxeffect,
The valuation of the fair value of cash flow hedging derivatives and available-for-sale securities, net of the related tax, consisted of the following:
Available-for-sale securities Cash flow hedge derivatives Total
(euro million) Gross reserve
Deferred tax liabilities
Net reserve
Gross reserve
Deferred tax liabilities
Net reserve
Gross reserve
Deferred tax liabilities
Net reserve
Reserve as of December 31, 2006 8
(2
) 6
1
1
9
(2
) 7
Changes of the year 2007 (2,237
) 867
(1,370
) (2,237
) 867
(1,370
) Foreign currency translation differences 51
(26
) 25
51
(26
) 25
Amount recognized in the profit and loss account (6
) 2
(4
) (6
) 2
(4
) Reserve as of December 31, 2007 2
2
(2,185
) 841
(1,344
) (2,183
) 841
(1,342
) 2 2 (2,185 ) 841 (1,344 ) (2,183 ) 841 (1,342 ) Changes of the year 2008 3
(1
) 2
964
(364
) 600
967
(365
) 602
3 (1 ) 2 964 (364 ) 600 967 (365 ) 602 Changes in the scope of consolidation (68
) 23
(45
) (68
) 23
(45
) (68 ) 23 (45 ) (68 ) 23 (45 ) Foreign currency translation differences 48
(23
) 25
48
(23
) 25
48 (23 ) 25 48 (23 ) 25 Amount recognized in the profit and loss account 1,005
(402
) 603
1,005
(402
) 603
1,005 (402 ) 603 1,005 (402 ) 603 Reserve as of December 31, 2008 5
(1
) 4
(236
) 75
(161
) (231
) 74
(157
) 5 (1 ) 4 (236 ) 75 (161 ) (231 ) 74 (157 ) of which: Eni Group 5
(1
) 4
(128
) 38
(90
) (123
) 37
(86
) Of which: Eni Group 5 (1 ) 4 (128 ) 38 (90 ) (123 ) 37 (86 ) Changes of the year 2009 1 1 (636 ) 246 (390 ) (635 ) 246 (389 ) Foreign currency translation differences 3 (2 ) 1 3 (2 ) 1 Amount recognized in the profit and loss account 155 (44 ) 111 155 (44 ) 111 Reserve as of December 31, 2009 6 (1 ) 5 (714 ) 275 (439 ) (708 ) 274 (434 )
F-58The ineffective portion of the change in fair value of cash flow hedging derivatives (time value component) entered into by the Exploration & Production segment consisted of the following:
(euro million) Value at
Dec. 31,20072008Changes recognized in profit and loss account
Currency translation differences
Value at
Dec. 31,20082009
(
5645)
76
41(
4538)
Other reserves
Other reserves of negative amount were euro 1,492 million (as of December 31, 2008 other reserves of negative amount were euro 1,054 million) and included:
- a reserve in the amount of euro 1,086 million related to the increase of Eni’s shareholders’ equity as a control to minority interest following the sale by Eni SpA of Italgas SpA and Stogit SpA to Snam Rete Gas SpA;
- a reserve in the amount of euro 247 million related to the increase of Eni’s shareholders’ equity as a control to minority interest following the sale by Eni SpA of Snamprogetti SpA to Saipem Projects SpA, both merged in Saipem SpA (same amount as of December 31, 2008);
- a reserve in the amount of euro 157 million deriving from Eni SpA’s equity (euro 194 million as of December 31, 2008);
- a reserve in the amount of euro 2 million related to the share of "Other comprehensive income" on equity-accounted entities;
F-63
- as of December 31, 2008 other reserves of negative amount mainly related to the put option granted to Publigaz (the Distrigas minority shareholder) to divest its 31.25% stake in Distrigas NV valued at the same per-share price of the mandatory tender offer to minorities (euro 1,495 million). Publigaz agreed to the mandatory tender offer and the related reserve has been set to zero.
Cumulative foreign currency translation differences
The cumulative foreign currency translation differences arose from the translation of financial statements denominated in currencies other than euro.Treasury shares
purchased
A total of382,954,240382,952,240 ordinary shares(348,525,005 at(382,954,240 as of December 31,2007)2008) with a nominal value of euro 1 each, were held in treasury, for a total cost of euro 6,757 million(euro 5,999 million at(same amount as of December 31,2007)2008).23,557,425During the year 2009, the company has not purchased its own shares and the term established by Eni’s Shareholders’ Meetings for the purchase has expired. 19,482,330 treasury shares(35,423,925 at(23,557,425 as of December 31,2007)2008) at a cost of euro 414 million (euro 505 million(euro 768 million atfor the year-ended December 31,2007)2008) were available for 2002-2005 and 2006-2008 stock option plans.The decrease of
11,866,5004,075,095 shares consisted of the following:
Stock option
Stock grant
Total
Number of shares at December 31, 2008
23,557,425Rights exercised (2,000 ) Rights cancelled (4,073,095 ) (4,075,095 ) Number of shares at December 31, 2009 19,482,330
Number of shares at December 31, 2007 34,521,125
902,800
35,423,925
Rights not assigned for the 2006-2008 stock option plan (9,406,500
) (9,406,500
) Rights exercised (582,100
) (893,400
) (1,475,500
) Rights cancelled (975,100
) (9,400
) (984,500
) (10,963,700
) (902,800
) (11,866,500
) Number of shares at December 31, 2008 23,557,425
23,557,425
AtAs of December 31,2008,2009, options outstanding were23,557,42519,482,330 shares. Options refer to the 2002 stock plan for 97,000 shares with an exercise price of euro 15.216 per share, to the 2003 stock plan for231,900229,900 shares with an exercise price of euro 13.743 per share, to the 2004 stock plan for 671,600 shares with an exercise price of euro 16.576 per share, to the 2005 stock plan for3,756,0003,281,500 shares with an exercise price of euro 22.512 per share, to the 2006 stock plan for5,954,2503,018,155 shares with an weighted average exercise price of euro 23.119 per share, to the 2007 stock plan for5,492,3755,144,050 with an weighted average exercise price of euro 27.451 per share and to the 2008 stock plan for7,354,3007,040,125 with anweighted averageexercise price of euro 22.540 per share.Information about commitments related to stock grant and stock option plans is included in Note
31 -30 – Operating expenses.Interim dividend
InterimThe interim dividend for the year2008ended December 31, 2009 amounted of euro2,3591,811 million corresponding to euro0.650.50 per share, as decided by the Board of Directors on September11, 200810, 2009 in accordance with Article 2433-bis, paragraph 5 of the Italian Civil Code; the dividend was paid on September25, 2008.24, 2009.Distributable reserves
AtUndistributed reserves considered to be reinvested indefinitely amounted to approximately euro 41,000 million as of December 31,2008 Eni shareholders’ equity included distributable2009. The determination of the tax effect relating to such reinvested reservesfor euro 39,000 million.is not practicable.
F-59F-64Reconciliation of net profit and shareholders’ equity of the parent company Eni SpA to consolidated net profit and shareholders’ equity
Net profit
Shareholders’ equity
(euro million) 2007
2008
Dec. 31, 2007
Dec. 31, 2008
As recorded in Eni SpA’s Financial Statements 6,600
6,745
28,926
30,049
Difference between the equity value of individual accounts of consolidated subsidiaries with respect to the corresponding carrying amount in the statutory accounts of the parent company 4,122
4,140
16,320
18,999
Consolidation adjustments: - difference between cost and underlying value of equity (1
) (330
) 1,245
5,161
- elimination of tax adjustments and compliance with accounting policies 649
(1,373
) (1,235
) (2,852
) - elimination of unrealized intercompany profits (435
) 216
(3,383
) (3,127
) - deferred taxes (97
) 159
711
(15
) - other adjustments (29
) 1
283
295
10,809
9,558
42,867
48,510
Minority interest (798
) (733
) (2,439
) (4,074
) As recorded in Consolidated Financial Statements 10,011
8,825
40,428
44,436
(euro million) 2008
2009
Dec. 31, 2008
Dec. 31, 2009
As recorded in Eni SpA’s Financial Statements 6,745 5,061 30,049 32,144 Difference between the equity value of individual accounts of consolidated subsidiaries with respect to the corresponding carrying amount in the statutory accounts of the parent company 4,140 158 18,999 17,464 Consolidation adjustments: - difference between cost and underlying value of equity (330 ) (213 ) 5,161 5,068 - elimination of tax adjustments and compliance with accounting policies (1,373 ) (113 ) (2,852 ) (1,062 ) - elimination of unrealized intercompany profits 216 117 (3,127 ) (4,582 ) - deferred taxation 159 378 (15 ) 1,175 - other adjustments 1 (71 ) 295 (156 ) 9,558 5,317 48,510 50,051 Minority interest (733 ) (950 ) (4,074 ) (3,978 ) As recorded in Consolidated Financial Statements 8,825 4,367 44,436 46,073
2827 Other informationAcquisitionsBurren Energy Plc
OnJanuary 11, 2008, followingFebruary 4, 2010 Eni formally presented to the Directorate General for Competition of the European Commission anon-hostile takeover by meansset of structural remedies for the conclusion of acash offer,legal proceeding related to some international gas pipelines.The legal proceeding concerns the Statement of Objections that Eni
acquired control overreceived from theBritish oil company Burren Energy Plc (Burren). Burren held producingEuropean Commission on March 9, 2009 which, under Article No. 82 of the EC Treaty and Article No. 54 of the SEE agreement, alleged that during the period 2000-2005, Eni was responsible for limiting the access of third parties to the gas pipelines TAG, TENP and Transitgas.With prior agreement from its partners, Eni has committed to dispose of its interests in both the German Tenp gas pipeline and in Switzerland’s Transitgas pipeline which both transport gas from the sites in the North of Europe.
Given the strategic importance of the Austrian Tag pipeline, which transports gas from Russia to Italy, Eni has negotiated a solution with the Commission which calls for the transfer of its stake into an entity controlled by the Italian State. The remedies negotiated with the Commission do not affect Eni’s contractual gas transport rights.
The European Commission accepted commitments proposed by Eni and will implement a market test before adopting a decision under Article 9 of Regulation (EC) No. 1/2003.
Assets in hand refer to investments in Trans Austria Gasleitung GmbH (TAG), Trans Europa Naturgas Pipeline GmbH & Co KG (TENP) and Transitgas AG as well as assets and liabilities mainly referring to the marketing of the transportation capacity of the consolidated companies Eni Gas Transport Deutschland SpA and Eni Gas Transport International SA.
Considering the amounts as of December 31, 2009, the foreseen disposals concerns the investments accounted for using the equity method in the amount of euro 210 million, current assets in
Turkmenistan and Congo, and exploratory licenses in Egypt, Yemen and India. Total consideration for this transactionthe amount of euro2,358258 million, liabilities in the amount of euro 98 million of which euro148 millionrelated to additional costs directly attributable to the combination, has been allocated to assetsare non-current, andliabilities onGroup’s equity for adefinitive basis.
Hindustan Oil Exploration Co Ltd (HOEC)On August 5, 2008, following the execution of a mandatory tender offer on a 20% stake of the HOEC share capital, Eni acquired control over the Indian company Hindustan Oil Exploration Co Ltd (HOEC). The mandatory offer was associated with Eni’s acquisition of a 27.18% of HOEC as part of the Burren deal. Total consideration for this transactiontotal amount of euro107 million, with the exclusion of the minority interest, has been allocated to assets and liabilities on a preliminary basis because of the significant amount of time required for a more precise valuation.160 million.F-65
Main acquisitions
Distrigas NV
On October 30, 2008, following the acquisition of a 57.243% majority stake from the French company Suez-Tractebel, Eni acquired control over the Belgian company Distrigas NV. OnDecember 30, 2008,March 19, 2009, Eniwas granted authorization fromfinalized theBelgian market authorities to execute amandatory tender offertoon the minorities of Distrigas.The deadlineShareholders, including Publigaz with its entire interest (31.25%), tendered shares representing 41.617% of theoffershare capital of Distrigas. On May 4, 2009, the residual 1.14% of the share capital wasMarch 19, 2009. Total considerationacquired by Eni through a squeeze-out procedure. At December 31, 2009 Eni owns 100% of share capital of Distrigas NV with the exception of a share with special rights owned by the Belgian State.Consideration for
this transactionthe acquisition of control amounted to euro 2,751 million,ofwhich includes euro 12 million related to additional costs directly attributable to theacquisition, with the exclusionacquisition. The allocation of the cost, not including the minority interest,has been allocatedto assets and liabilities was made on a preliminary basisbecauseas ofthe amount of time required for a more precise valuation.
First Calgary Petroleums LtdOn November 21,December 31, 2008,following the acquisition of all of the common shares Eni gained control of First Calgary Petroleums Ltd, a Canadian oilandgas company with exploration and development activities in Algeria. Total consideration for this transaction of euro 605 million, of which euro 5 million related to additional costs directly attributable to the acquisition, has been allocated to assets and liabilitieson apreliminarydefinitive basisbecauseas ofthe amount of time required for a more precise valuation.December 31, 2009.
F-60Eni Hewett Ltd
On November 28, 2008, following the finalization of an agreement with the British company Tullow Oil Ltd Eni acquired a 52% stake and the operatorship of fields in the Hewett Unit and relevant facilities in the North Sea, with the aim to upgrade certain depleted fields in the area so as to achieve a gas storage facility. Total consideration for this transactionofamounted to euro 224 million which was allocated to assets and liabilities on a preliminary basis as of December 31, 2008 and on a definitive basis as of December 31, 2009.First Calgary Petroleums Ltd
On November 21, 2008, following the acquisition of all of the common shares Eni gained control of First Calgary Petroleums Ltd, a Canadian oil and gas company with exploration and development activities in Algeria. Total consideration for this transaction amounted to euro 605 million, of which euro 5 million related to additional costs directly attributable to the acquisition. The allocation of the cost to assets and liabilities was made on a preliminary basis as of December 31, 2008, and on a definitive basis as of December 31, 2009.Hindustan Oil Exploration Co Ltd (HOEC)
On August 5, 2008, following the execution of a mandatory tender offer on a 20% stake of the HOEC share capital, Eni acquired control over the Indian company Hindustan Oil Exploration Co Ltd (HOEC). The mandatory tender offer was associated with Eni’s acquisition of 27.18% of HOEC as part of the Burren deal. Total consideration for this transaction in the amount of euro 107 million, not including the minority interest, has been allocated to assets and liabilities on a preliminary basisbecauseas of December 31, 2008, and on a definitive basis as of December 31, 2009.The definitive allocation of the
amountcosts oftime required for a more precise valuation.the business combinations made during the year ended December 31, 2008 year consisted of the following:
(euro million)
Burren Energy PlcDistrigas NV (a)
Hindustan Oil Exploration CoEni Hewett Ltd
Distrigas NVFirst Calgary Petroleums Ltd
Eni HewettHindustan Oil Exploration Co Ltd
Pre- acquisitionPreliminaryallocation atDec. 31,
2008
Post- acquisitionDefinitiveallocation
Pre- acquisitionPreliminaryallocation atDec. 31,
2008
Post- acquisitionDefinitiveallocation
Pre- acquisitionPreliminaryallocation atDec. 31,
2008
Post- acquisitionDefinitiveallocation
Pre- acquisitionPreliminaryallocation atDec. 31,
2008
Post- acquisition
Pre- acquisition
Post- acquisitionDefinitiveallocation
Current assets 187
187
115
115
3,375
3,375
148
148
56
19
3,375 3,375 19 20 148 148 115 115 Property, plant and equipment 457
2,543
79
199
30
30
643
757
29
118
30 30 118 118 757 855 199 201 Intangible assets 47
326
8
1
1,395
208
1,395 1,390 208 217 Goodwill 89
1,245
88
39
1,245 1,248 39 37 88 65 Investments 56
53
1
1
112
112
112 112 1 1 Other non-current assets 17
17
202
203
9
203 203 Assets acquired 764
3,215
203
315
3,720
6,360
791
993
94
384
6,360 6,358 384 392 993 1,068 315 317 Current liabilities 62
100
37
37
1,796
1,796
45
45
17
17
1,796 1,796 17 22 45 82 37 37 Net deferred tax liabilities 36
733
(5
) 31
30
504
15
108
91
Deferred tax liabilities 504 502 91 94 108 147 31 33 Provisions for contingencies 14
24
4
3
80
80
3
6
44
52
80 80 52 52 6 5 3 3 Other non-current liabilities 17
17
88
88
229
229
88 88 229 229 17 17 Liabilities acquired 112
857
53
88
1,994
2,468
292
388
61
160
2,468 2,466 160 168 388 463 88 90 Minority interest 79
120
748
1,141
1,141 1,141 120 120 Eni’s shareholders equity 652
2,358
71
107
978
2,751
499
605
33
224
Eni's shareholders equity 2,751 2,751 224 224 605 605 107 107
(a) It does not include the share of goodwill attributable to minorities whose equity interest has been acquired during 2009.
F-66
2928 Guarantees, commitments and risks
Guarantees
Guarantees were as follows:
Dec. 31,
20072008Dec. 31,
20082009
(euro million)
Unsecured guarantees
Other
guaranteesTotal
Unsecured guarantees
Other
guaranteesTotal
Consolidated subsidiaries 6,388
6,388
13,139
13,139
13,139 13,139 9,863 9,863 Unconsolidated entities controlled by Eni 150
150
151
151
151 151 146 146 Joint ventures and associates 5,896
1,099
6,995
6,027
1,075
7,102
6,027 1,075 7,102 6,060 1,251 7,311 Others 12
279
291
8
245
253
8 245 253 5 266 271 5,908
7,916
13,824
6,035
14,610
20,645
6,035 14,610 20,645 6,065 11,526 17,591
Other guarantees issued on behalf of consolidated subsidiaries in the amount of euro 9,863 million (euro 13,139 million
(euro 6,388 million atas of December 31,2007)2008) primarily consisted of: (i) guarantees given to third parties relating to bid bonds and performance bondsforin the amount of euro 6,091 million (euro 7,004 million(euro 3,244 million atas of December 31,2007)2008), of which euro5,9654,936 million related to the Engineering & Construction segment (euro2,3515,965 millionatas of December 31,2007)2008); (ii) VAT recoverable from tax authorities in the amount of euro 1,171 million (euro 1,248 million as of December 31, 2008); (iii) insurance risk in the amount of euro 253 million reinsured by Eni (euro 257 million as of December 31, 2008). During 2009, guarantees for euro 2,739 million expired. These guarantees were issued on behalf of Eni Gas & Power Belgium SAfor euro 2,739 millionrelated to the Share Purchase Agreement with Suez-Tractebel SA for the acquisition ofa57.24% majority stake in DistrigasNV; (iii) VAT recoverable from tax authorities for euro 1,248 million (euro 1,286 million atNV. As of December 31,2007); and (iv) insurance risk for euro 257 million reinsured by Eni (euro 259 million at December 31, 2007). At December 31, 20072009 the underlying commitment covered by such guarantees was euro 9,783 million (euro 10,202 million(euro 6,050 million atas of December 31,2007)2008).Other guarantees issued on behalf of unconsolidated subsidiaries in the amount of euro 146 million (euro 151 million
(euro 150 million atas of December 31,2007)2008) consisted of letters of patronage and other guarantees issued to commissioning entities relating to bid bonds and performance bondsforin the amount of euro 141 million (euro 146 million(euro 144 million atas of December 31,2007)2008).AtAs of December 31,2008,2009, the underlying commitment covered by such guarantees was euro 64 million (euro 79 million(euro 19 million atas of December 31,2007)2008).Unsecured guarantees and other guarantees issued on behalf of joint ventures and associates in the amount of euro 7,311 million (euro 7,102 million
(euro 6,995 million atas of December 31,2007)2008) primarilyconcerned:consisted of: (i) an unsecured guarantee in the amount of euro 6,037 million (euro 6,001 million(euro 5,870 million atas of December 31,2007)2008) given by Eni SpA to Treno Alta Velocità - TAV-SpA for the proper and timely completion of a project relating to the Milan-Bologna train link by CEPAV (Consorzio Eni per
F-61l’Alta Velocità) Uno; consortium members, excluding unconsolidated entities controlled by Eni, gave Eni liability of surety letters and bank guarantees amounting to 10% of their respective portion of the work; (ii) unsecured guarantees, letters of patronage and other guarantees given to banks in relation to loans and lines of credit received
forin the amount of euro 971 million (euro 871 million(euro 824 million atas of December 31,2007)2008), of which euro716692 million related to a contract released bySnamEni SpA(now merged into Eni SpA)on behalf of Blue Stream Pipeline Co BV (Eni 50%) to a consortium of international financial institutions (euro677716 millionatas of December 31,2007)2008);and(iii) unsecured guarantees and other guarantees given to commissioning entities relating to bid bonds and performance bondsforin the amount of euro 126 million (euro 107 million(euro 119 million atas of December 31,2007)2008).AtAs of December 31,2008,2009, the underlying commitment covered by such guarantees was euro 814 million (euro 983 million(euro 1,562 million atas of December 31,2007)2008).Unsecured and other guarantees given on behalf of third parties in the amount of euro 271 million (euro 253 million
(euro 291 million atas of December 31,2007)2008) consisted primarily of: (i) guarantees issued on behalf of Gulf LNG Energy and Gulf LNG Pipeline and on behalf of Angola LNG Supply Service Llc (Eni 13.6%) as security against payment commitmentsoffor fees in connection with the re-gasificationactivity foractivity. The expected commitment has been valued at euro216206 million (euro204223 millionatas of December 31,2007)2008) and it is included in the off-balance sheet commitments in the following paragraph "Liquidity risk";and(ii) guarantees issued by Eni SpA to banks and other financial institutions in relation to loans and lines of creditforin the amount of euro1923 million on behalf of minor investments or companies sold (euro2019 millionatas of December 31,2007)2008).
AtAs of December 31,20082009 the underlying commitment covered by such guarantees was euro 266 million (euro 232 million(euro 281 million atas of December 31,2007)2008).F-67
Commitments and contingencies
Commitments and contingencies were as follows:
(euro million) Dec. 31,
20072008Dec. 31,
20082009
Commitments 200 205 Risks 1,520 1,660 1,720 1,865
Commitments 13,382 16,668 Risks 1,660 1,277 15,042 17,945 Other commitments in the amount of euro
20516,668 million (euro20013,382 millionatas of December 31,2007)2008) mainly related to: (i) parent company guarantees that wereessentially relatedissued in connection with certain contractual commitments for hydrocarbon exploration and production activities that was quantified on the basis of the capital expenditures expected to be incurred which is euro 10,302 million (euro 10,585 million as of December 31, 2008); (ii) a commitment entered into by Eni USA Gas Marketing Llc on behalf of Angola LNG Supply Service for the acquisition of regasified gas at the Pascagoula plant (USA) that will come into force when the regasification service starts during the period between 2011-2032. The expected commitment has been valued at euro 3,941 million and it is included in the off-balance sheet commitments in the following paragraph "Liquidity risk"; (iii) a commitment entered into by Eni USA Gas Marketing Llc on behalf of Gulf LNG Energy for the acquisition of regasification capacity of Pescagoula’s terminal (6 BCM/y) over a twenty-year period (2011-2031). The expected commitment has been valued at euro 1,151 million (euro 1,247 million as of December 31, 2008) and it is included in the off-balance sheet commitments in the following paragraph "Liquidity risk"; (iv) a commitment entered into by Eni USA Gas Marketing Llc on behalf of Cameron Llc for the acquisition of regasification capacity at the Cameron plant (USA) (5.7 BCM/y) over a twenty-year period (until 2029). The expected commitment has been valued at euro 990 million (euro 1,222 million as of December 31, 2008) and it is included in the off-balance sheet commitments in the following paragraph "Liquidity risk"; (v) a memorandum of intent signed with the Basilicata Region, whereby Eni has agreed to invest euro180150 million in the future, also on account of Shell Italia E&P SpA, in connection with Eni’s development plan of oil fields in Val d’Agri (euro177180 millionatas of December 31,2007)2008). The commitment is included in the off-balance sheet commitments in the following paragraph "Liquidity risk"; (vi) a commitment entered into by Eni USA Gas Marketing Llc for the contract of gas transportation from the Cameron plant (USA) to the American network. The expected commitment has been valued at euro 110 million (euro 123 million as of December 31, 2008) and it is included in the off-balance sheet commitments in the following paragraph "Liquidity risk".Risks in the amount of euro 1,277 million (euro 1,660 million
(euro 1,520 million atas of December 31,2007)2008) primarilyconcernedrelate to potential risks associated with the value of assets of third parties under the custody of Eniforin the amount of euro 899 million (euro 1,273 million(euro 1,126 million atas of December 31,2007)2008) and contractual assurances given to acquirers of certain investments and businesses of Eniforin the amount of euro 378 million (euro 387 million(euro 376 million atas of December 31,2007)2008).Non-quantifiable commitments
Under the convention signed on October 15, 1991 by Treno Alta Velocità - TAV SpA and CEPAV (Consorzio Eni per l’Alta Velocità) Due, Eni committed to guarantee the execution of design and construction of the works assigned to the CEPAV Consortium (to which it is 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 Consortium contains the same obligations and guarantees contained in the CEPAV Uno Agreement.Eni is liable for certain non-quantifiable risks related to contractual assurances given to acquirers of certain of Eni’s assets, including businesses and investments, against certain contingent liabilities deriving from tax, social security contributions, environmental issues and other matters applicable to periods during which such assets were operated by Eni. Eni believes such matters will not have a material adverse effect on Eni’s results of operations and liquidity.
Risk factors
FOREWORD
The main risks that the Company is facing and actively monitoring and managing are the following: (i)themarket riskderivingderived from exposure to fluctuations in interest rates, foreign currency exchange rates and commodity prices; (ii)thecredit riskderivingderived from the possible default of a counterparty; (iii)theliquidity riskderivingderived from the risk thatF-68
suitable sources of funding for the Group’s operations may not be available; (iv)
thecountry risk in the upstream business; (v)theoperational risk; (vi) the possible evolution of the Italian gas market;and(vii) the specific risksderivingderived from exploration and production activities.Financial risks are managed in respect of guidelines defined by the parent company, targeting to align and coordinate Group
companies’companies policies on financial risks.Market risk
Market risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the Group’s financial assets, liabilities or expected future cash flows. The Company actively manages market risk in accordance with a set of policies and guidelines that provide a centralized model of conducting finance, treasury and risk management operations based onthreeseparate entities: the parent company’s (Eni SpA) finance department, Eni Coordination Center and Banque Eni which is subject to certain bank regulatory
F-62restrictions preventing the Group’s exposure to concentrations of credit
risk. Additionally, in 2007,risk and Eni Trading & Shippingwas established andthat has the mandate to manage and solely monitorsolelycommodity derivative contracts. In particular, Eni SpA and Eni Coordination Center manage subsidiaries’ financing requirementsininside and outside of Italy, respectively, covering funding requirements and using available surpluses. All transactions concerning currencies and derivative financial contracts are managed by the parent company as well as the activity of trading certificates according to the European Union Emission Trading Scheme. The commodity risk is managed by each business unit with Eni Trading & Shipping ensuring the negotiation of hedging derivatives. Eni uses derivative financial instruments (derivatives) in order to minimize exposure to market risks related to changes in exchange rates and interest rates and to manage exposure to commodity prices fluctuations. Eni does not enter into derivative transactions on a speculative basis. The framework defined by Eni’s policies and guidelines prescribes that measurement and control of market risk be performed on the basis of maximum tolerable levels of risk exposure defined in accordance with value-at-risk techniques. These techniques make a statistical assessment of the market risk on the Group’s activity, i.e., potential gain or loss in fair values, due to changes in market conditions taking into accountofthe correlationexistingthat exists among changes in fair value of existing instruments. Eni’s finance departments define maximum tolerable levels of risk exposure to changes in interest rates and foreign currency exchange rates, pooling Group companies risk positions. Eni’s calculation and measurement techniques for interest rate and foreign currency exchange rate risks are in accordance with established banking standards, as established by the Basel Committee for bank activities surveillance. Tolerable levels of risk are based on a conservative approach, considering the industrial nature of the company. Eni’s guidelines prescribe thatEni’sEni Group companies minimize suchkinds ofmarket risks. With regard tothecommodity risk, Eni’s policies and guidelines define rules to manage this risk aiming at the optimization of core activities and thepursuingpursuit of preset targets of industrial margins. The maximum tolerable level of risk exposure is pre-defined in terms ofvalue at riskvalue-at-risk in connection with trading and commercial activities, while the strategic risk exposure to commodity prices fluctuations – i.e. the impact on the Group’s business results deriving from changes in commodity prices – is monitored in terms ofvalue-at risk,value-at-risk, albeit not hedged in a systematic way. Accordingly, Eni evaluates the opportunity to mitigate its commodity risk exposure by entering into hedging transactions in view of certain acquisition deals of oil and gas reserves as part of the Group’s strategy to achieve its growth targets or ordinary asset portfolio management. The Group controls commodity risk with a maximum value-at-risk limit awarded to each business unit. Hedging needs from business units are pooled by Eni Trading & Shipping which also manages its own risk exposure. The three different market risks, whose management and control have been summarized above, are described below.Exchange rate risk
Exchange rate risk derives from the fact that Eni’s operations are conducted in currencies other than the euro (mainly in the U.S. dollar). Revenues and expenses denominated in foreign currencies may be significantly affected by exchange rates fluctuations due to conversion differences on singletransactiontransactions arising from the time lag existing between execution and definition of relevant contractual terms (economic risk) and conversion of foreign currency-denominated trade and financing payables and receivables (transactional risk). Exchange rate fluctuations affect the Group’s reported results and net equity as financial statements of subsidiaries denominated in currencies other than the euro are translated from their functional currency into euro (translation risk). Generally, an appreciation of the U.S. dollar versus the euro has a positive impact on Eni’s results of operations, and vice versa. Eni’s foreign exchange risk management policy is to minimize economic and transactional exposures arising from foreign currency movements. Eni does not undertake any hedging activity for risks deriving from the translation of foreign currency denominated profits or assets and liabilities of subsidiaries which prepare financial statements in a currency other than the euro, except for single transactions to be evaluated on a case-by-case basis. Effective management of exchange rate risk is performed within Eni’s central finance departments which match opposite positions within Group companies, hedging theGroupGroup's net exposure through the use of certain derivatives, such as currency swaps, forwards and options. Such derivatives are evaluated at fair value on the basis of market prices provided by specialized sources. Changes in fair value of those derivatives are normally recognized through the profit and loss account as they do not meet the formal criteria to be recognized as hedges in accordance with IAS 39. The VAR techniques are based on variance/covariance simulation models and are used to monitor the risk exposureF-69
arising from possible future changes in market values over a 24-hour period within a 99% confidence level and a 20-day holding period.
Interest rate risk
Changes in interest rates affect the market value of financial assets and liabilities of the company and the level of finance charges. Eni’s interest rate risk management policy is to minimize risk with the aim to achieve financial structure objectives defined and approved in the management’s finance plans. Borrowing requirements of the Group’s companies are pooled by the Group’s central finance department in order to manage net positions and the funding of portfolio developments consistently with management’s plans while maintaining a level of risk exposure within prescribed limits. Eni enters into interest rate derivative transactions, in particular interest rate swaps, to effectively manage the balance between fixed and floating rate debt.
F-63Such derivatives are
evaluatedvalued at fair value on the basis of market prices provided from specialized sources. Changes in fair value of those derivatives are normally recognized through the profit and loss account as they do not meet the formal criteria to be accounted for under the hedge accounting method in accordance with IAS 39. Value at risk deriving from interest rate exposure is measured daily on the basis of a variance/covariance model, with a 99% confidence level and a 20-day holding period.Commodity risk
Eni’s results of operations are affected by changes in the prices of commodities. A decrease in oil and gas prices generally has a negative impact on Eni’s results of operations and vice-versa. Eni manages exposure to commodity price risk arising in normal trading and commercial activities in view of achieving stable margins. In order to accomplish this, Eni uses derivatives traded on the organized markets of ICE andNyMExNYMEX (futures) and derivatives traded over the counter (swaps, forward, contracts for differences and options) with the underlying commodities being crude oil, refined products or electricity. Such derivatives areevaluatedvalued at fair value on the basis of market prices provided from specialized sources or, absent market prices, on the basis of estimates provided by brokers or suitable evaluation techniques. Changes in fair value of those derivatives are normally recognized through the profit and loss account as they do not meet the formal criteria to be recognized as hedges in accordance with IAS 39.Value at risk derivingValue-at-risk derived from commodity exposure is measured daily on the basis of a historical simulation technique, with a 95% confidence level and a one-day holding period. The following table shows amounts in terms ofvalue at risk,value-at-risk, recorded inthe first half of 20082009 (compared withfull year 2007)2008) relating to interest rate and exchange rate risks in the first section, and commodity risk in the second section. VAR values are stated in U.S. dollars, the currency used in oil products markets.(Interest and exchange rate - Value at risk - parametric method variance/covariance; holding period: 20 days; confidence level: 99%)
2007
2008
2008 2009
(euro million) High
Low
Average
AvgAt year end
High
Low
Average
AvgAt year end
Interest rate 7.36
0.47
1.39
4.35
12.31
0.73
4.17
6.54
12.31 0.73 4.17 6.54 6.85 1.65 3.35 1.98 Exchange rate 1.25
0.03
0.21
0.43
1.48
0.09
0.48
0.47
1.48 0.09 0.48 0.47 1.22 0.07 0.35 0.31
(Commodity risk - Value at risk - - historic simulation method; holding period: 1 day; confidence level: 95%)
2007
2008
2008 2009
( U.S.$ million)High
Low
Average
AvgAt year end
High
Low
Average
AvgAt year end
Area oil, products 44.59
4.39
20.17
12.68
46.48
3.44
19.88
5.43
46.48 3.44 19.88 5.43 37.51 4.74 17.65 6.64 Area Gas & Power (*) 54.11
20.12
34.56
25.57
67.04
24.38
43.53
32.07
67.04 24.38 43.53 32.07 51.62 28.01 40.97 38.26
(*) Amounts relating to the Gas & Power business also include the results of Distrigas NV forstarting from themonths of November and December 2008 based on the closing date of acquisition.acquisition date.Credit risk
Credit risk is the potential exposure of the Group to losses in case counterparties fail to perform or pay amounts due. The Group managesdifferentlycredit risk differently depending on whether credit risk arises from exposure to financial counterparties or to customers relating to outstanding receivables. Individual business units are responsible for managing credit risk arising in the normal course of the business. The Group has established formal credit systems and processes to ensure that before trading with a new counterpart can start, its creditworthiness is assessed. Also credit litigation and receivable collection activities are assessed. The monitoring activity of credit risk exposure is performed at the Group level according to set guidelines and measurement techniques that establish counterparty limits and systems to monitor exposure against limits and report regularly on those exposures. Specifically, credit risk exposure to multi-business clients and exposures higher than the limit set at euro 4 million are closely monitored. Monitoring activities do not include retail clients and public administrations. The assessmentF-70
methodology assigns a score to individual clients based on publicly available financial data and capital, profitability and liquidity ratios. Based on those scores, an internal credit rating is assigned to each counterparty
that isand accordingly allocated to its proper risk category. The Group risk categories are comparable to those prepared by the main rating agenciesonin the marketplace. The Group’s internal ratings are also benchmarked against ratings prepared by a specialized external source.With regard to risk arising from financial counterparties, Eni has established guidelines prior to entering into cash management and derivative contracts to assess the counterparty’s financial soundness and rating in view of optimizing the risk profile of financial activities while pursuing operational targets. Maximum limits of risk exposure are set in terms of maximum amounts of credit exposures for categories of counterparties as defined by the
F-64Company’s Board of Directors taking into
accountsaccount the credit ratings provided bytheprimary credit rating agenciesonin the marketplace. Credit risk arising from financial counterparties is managed by the Group central finance departments, including Eni’s subsidiary Eni Trading & Shipping which specifically engages in commodity derivatives transactions. Those are the sole Group entities entitled to be party to financial transactions due to the Group centralized finance model. Eligible financial counterparties are closely monitored to check exposures against limits assigned to each counterparty on a daily basis. Exceptional market conditions have forced the Group to adopt contingency plans and under certain circumstances to suspend eligibility to be a Group financial counterparty. Actions implemented also have been intended to limit concentrations of credit risk by maximizing counterparty diversification and turnover. Counterparties have also beenalsoselected on more stringent criteria particularly in transactions on derivatives instruments and with maturity longer than a three-month period.Eni has not experienced material non-performance by any counterparty.See Note 3 for a disclosure of Eni’s allowance against doubtful accounts for year. As of December 31,2007 and 2008,2009, Enihad nodid non have a significantconcentrationsconcentration of credit risk.Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the Group may not be available, or the Group is unable to sell its assetsonin the market place as to be unable to meet short-term finance requirements and to settle obligations. Such a situation would negatively impacttheGroup results as it would result in the Company incurring higher borrowing expenses to meet its obligations or under the worst of conditions the inability of the Company to continue as a going concern. As part of its financial planning process, Eni manages the liquidity risk by targeting such a capital structure as to allow the Company to maintain a level of liquidity adequate to the Group’s needs optimizing the opportunity cost of maintaining liquidity reserves also achieving an efficient balance in terms of maturity and composition of finance debt. TheGroupGroup’s capital structure is set according to the Company’s industrial targets and within the limits established by the Company’s Board of Directors who are responsible for prescribing the maximum ratio of debt to total equity and minimum ratio of medium andlong-termlong term debt to total debt as well as fixed rate medium andlong-termlong term debt to total medium andlong-termlong term debt. In spite of ongoing tough credit market conditions resulting in higher spreads to borrowers, the Company has succeeded in maintaining access to a wide range of funding at competitive rates through the capital markets and banks. The actions implemented as part of Eni’s financial planning have enabled the Group to maintain access to the credit market particularly via theissueissuance of commercial paper also targeting to increase the flexibility of funding facilities. In particular in 2009, Eni issued bonds addressed to institutional investors and to the retail market in the amount of euro 3 billion and euro 2 billion, respectively. The above mentioned actions aimed at ensuring availability of suitable sources of funding to fulfillshort-termshort term commitments and obligations dueobligations alsowhile preserving the necessary financial flexibility to support the Group’s development plans. In doing so, the Group has pursued an efficient balance of finance debt in terms of maturity and composition leveraging on the structure of its lines of credit particularly the committed ones.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.
As of December 31,
2008,2009, Eni maintainedshort-termshort term committed and uncommitted unused borrowing facilities in the amount of euro11,09911,774 million, of which euro3,3132,241 million were committed, andlong-termlong term committed unused borrowing facilitiesofamounted to euro1,8502,850 million.These facilities were under interest rates that reflected market conditions. Fees charged for unused facilities were not significant.
Eni has a program in place
a programfor the issuance of Euro Medium Term Notes up to euro1015 billion, of which euro6,3919,211 million were drawn as ofthe balance sheet date.December 31, 2009.The Group has debt ratings of AA- and A-1+
respectively for the long and short-term debtassigned by Standard & Poor’s and Aa2 and P-1 assigned byMoody’s; theMoody’s respectively for long and short-term debt. The outlook isstable for both.negative in both ratings.The tables below summarize the
Groupmaturities of the Group’s main contractual obligations for finance debt repayments, including expected payments for interest charges, and trade and otherpayables maturities.payables.F-71
Finance debt
Maturity year
(euro million) 2009
2010
2011
2012
2013
2014 and thereafter
Total
Non current debt 549
3,630
797
2,687
1,981
4,834
14,478
Current financial liabilities 6,359
-
-
-
-
-
6,359
6,908
3,630
797
2,687
1,981
4,834
20,837
Interest on finance debt 502
469
412
383
336
791
2,893
(euro million) 2010
2011
2012
2013
2014
2015 and thereafter
Total
Non current debt 3,191 1,342 3,660 1,967 2,487 8,608 21,255 Current financial liabilities 3,545 3,545 Fair value of derivative instruments 1,371 517 133 46 14 98 2,179 8,107 1,859 3,793 2,013 2,501 8,706 26,979 Interest on finance debt 654 570 545 510 426 1,159 3,864 Guarantees to banks 377 377
F-65Trade and other payables
Maturity year
(euro million)
20092010
2010-20132011-2014
20142015 and thereafter
Total
Trade payables 12,590
-
-
12,590
10,078 10,078 Advances, other payables 7,925
28
27
7,980
9,096 31 23 9,150 20,515
28
27
20,570
19,174 31 23 19,228
In addition to finance debt and trade payables presented in the financial statements, the Group has in place a number of contractual obligations arising in the normal course of
thebusiness. To meet these commitments, the Group will have to make payments to third parties. The Company’s main obligations are certain arrangements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. Such arrangements include non-cancelable, long-term contractual obligations to secure access to supply and transport of natural gas, which include take-or-pay clauses whereby theCompanyCompany's obligations consist of off-taking minimum quantities of product or service or paying the corresponding cash amount that entitles the Company to off-take the product in future years. Future obligations in connection with these contracts were calculated by applying the forecasted prices of energy or services included in the four-year business plan approved by the Company’s Board of Directors and on the basis of the long-term market scenarios used by Eni for planning purposes to minimum take and minimum ship quantities.The table below summarizes the Group principal contractual obligations as of the balance sheet date, shown on an undiscounted basis.
F-72
Expected payments by period under contractual obligations and commercial commitments
Maturity year
(euro million) 2009
2010
2011
2012
2013
2014 and thereafter
Total
Operating lease obligations (1) 618
1,025
697
468
395
1,084
4,287
Decommissioning liabilities (2) 269
35
61
18
256
8,830
9,469
Environmental liabilities 396
421
284
223
221
443
1,988
Purchase obligations (3) 17,938
13,777
14,326
14,405
14,112
185,415
259,973
Gas - Natural gas to be purchased in connection with take-or-pay contracts 15,694
13,041
13,574
13,610
13,343
179,067
248,329
- Natural gas to be transported in connection with ship-or-pay contracts 539
537
545
549
528
3,151
5,849
Other take-or-pay and ship-or-pay obligations 139
135
126
111
106
838
1,455
Other purchase obligations (4) 1,566
64
81
135
135
2,359
4,340
Other obligations 8
5
5
5
5
152
180
of which: - Memorandum of intent relating Val d’Agri 8
5
5
5
5
152
180
19,229
15,263
15,373
15,119
14,989
195,924
275,897
(euro million) 2010
2011
2012
2013
2014
2015 and thereafter
Total
Operating lease obligations (1) 886 889 561 470 415 1,034 4,255 Decommissioning liabilities (2) 79 55 112 161 1,640 9,280 11,327 Environmental liabilities 293 259 257 214 193 687 1,903 Purchase obligations (3) 14,845 14,151 13,923 14,634 14,651 175,888 248,092 Gas - Natural gas to be purchased in connection with take-or-pay contracts (4) 13,986 13,365 13,123 13,827 13,838 169,268 237,407 - Natural gas to be transported in connection with ship-or-pay contracts (4) 546 538 545 559 567 3,658 6,413 Other take-or-pay and ship-or-pay obligations 162 154 139 133 131 1,068 1,787 Other purchase obligations (5) 151 94 116 115 115 1,894 2,485 Other obligations (6) 21 4 3 3 3 152 186 of which: - Memorandum of intent relating Val d’Agri 21 4 3 3 3 152 186 16,124 15,358 14,856 15,482 16,902 187,041 265,763
(1) Operating leases primarily regarded assets for drilling activities, time charter and long-termlong term rentals of vessels, lands, service stations and office buildings. Such leases did not include renewal options. There are no significant restrictions provided by these operating leases which limit the ability of the Company to pay dividend, use assets or to take on new borrowings.(2) Represents the estimated future costs for the decommissioning of oil and natural gas production facilities at the end of the producing lives of fields, well-plugging, abandonment and site restoration. (3) Represents any agreement to purchase goods or services that is enforceable and legally binding and that specifies all significant terms. (4) Such arrangements include non-cancellable, long-term contractual obligations to secure access to supply and transport of natural gas, which include take-or-pay clauses whereby the Company obligations consist of off-taking minimum quantities of product or service or paying the corresponding cash amount that entitles the Company to off-take the product in future years. Future obligations in connection with these contracts were calculated by applying the forecasted prices of energy or services included in the four-year business plan approved by the Company’s Board of Directors and on the basis of the long-term market scenarios used by Eni for planning purposes to minimum take and minimum ship quantities. See "Item 4 – Gas & Power – Natural Gas Purchases" and "Item 3 – Risk Factors – Liberalization of the Italian Natural Gas Market" for a discussion of 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. (5) Mainly refers to arrangements to purchase capacity entitlements at certain re-gasification facilities in the U.S. (6) In addition to these amounts, Eni has certain obligations that are not contractually fixed as to timing and amount, including contributions to defined benefit pension plans (see Note 22 to the Consolidated Financial Statements).
F-66Over the next four-year period, Eni plans to invest euro 52.8 billion.The table below summarizes Eni’s capital expenditure commitments for property, plant and equipment and capital projects
atas of December 31,2008.2009. Capital expenditures are considered to be committed when the project has received the appropriate level of internal managementapproval.approval and for which, usually, procurements have been arranged or set. Such costs are included in the amounts shown.Capital expenditure commitments
Maturity year
(euro million) 2009
2010
2011
2012
2013 and subsequent years
Total
Committed on major projects 4,938
3,831
2,697
1,837
9,856
23,159
Other committed projects 5,147
4,342
3,186
2,389
9,846
24,910
10,085
8,173
5,883
4,226
19,702
48,069
(euro million) 2010
2011
2012
2013
2014 and thereafter
Total
Committed on major projects 4,119 3,793 2,829 1,928 11,357 24,026 Other committed projects 9,330 5,284 3,467 3,640 7,489 29,210 13,449 9,077 6,296 5,568 18,846 53,236
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 the EU or North American.AtAs of December 31,2007,2009, approximately70%80% 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. In2007,2009, approximately 60% of Eni’s domestic supply of natural gas came from such countries. Developments in the political framework, economic crisis, and social unrest can compromise temporarily or permanently Eni’s ability to operate or to economically operate in such countries, and to have access to oil and gas reserves. Further risksrelated to the activity undertakenassociated withF-73
activities in
thesethose countries are represented by: (i) lack of well established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; (ii) unfavorable developments in laws and regulations leading to expropriation of Eni’s titles and mineral assets, changes in unilateral contractual clauses reducing the value of Eni’s assets; (iii) restrictions on exploration, production, imports and exports; (iv) tax or royalty increases;and(v) civil and social unrest leading to sabotages, acts of violence and incidents. While the occurrence of these events is unpredictable, it is possible that they can have a material adverse impact on Eni’s financial condition and results of operations. Eni periodically monitors political, social and economic risks of approximately 60 countries where it has invested, or, with regard to upstream projects evaluation, where Eni is planning to invest in order to assess returns of single projects based also on the evaluation of each country’s risk profile. Country risk is mitigated in accordance with guidelines on risk management defined in the procedure "Project risk assessment and management". In the most recent years, unfavorable developments in the regulatory framework, mainly regarding tax issues, have been implemented or announced also in EU countries and in North America.Operational risk
Eni’s business activities conducted in and outsideofItaly are subject to a broad range of laws and regulations, including specific rules concerning oil and gas activities currently in force in countries in which it operates. In particular, those laws and regulations require the acquisition of a license before exploratory drilling may commence and compliance with health, safety and environment standards. Environmental laws impose restrictions on the types, quantities and concentration of various substances that can be released into the environment and on discharges to surface and subsurface water. In particular Eni is required to follow strict operating practices and standards to protect biodiversity when exploring for, drilling and producing oil and gas in certain ecologically sensitive locations (protected areas). Breach of environmental, health and safety laws exposes employees to criminal and civil liability and in the case of violation of certain rules regarding safetyonin the workplace also companies can be liable as provided for by a general EU rule on businesses liability due to negligent or willful conduct on part of their employees as adopted in Italy with Law Decree No. 231/2001.Environmental, health and safety laws and regulations have a substantial impact on Eni’s operations and expenses and liabilities that Eni may incur in relation to compliance with environmental, health and safety laws and regulations are expected to remain material to the group’s results of operations or financial position in future years. Recently enacted
regulation ofregulations on safety and healthofin the workplace in Italywill(Legislative Decree No. 81/2008 and Legislative Decree No. 106/2009) impose a new array of obligations to theCompanyCompany's operations, particularly regarding contractors. Newregulationregulations prescribe that a company adopts certified operational and organizational systems whereby the Company can discharge possible liabilities due to a violation of health and security standards on condition that adopted operational systems and processes worked properly and were effective.Eni has adopted guidelines for assessing and managing health, safety and environmental (HSE) risks, with the objective of protecting Eni’s employees, the populations involved in its activity, contractors and clients, and the environment and being in compliance with local and international rules and regulations. Eni’s guidelines prescribe the adoption of international best practices in setting internal principles, standards and solutions. The ongoing process for identifying, evaluating and managing HSE operations in each phase of the business activity
andis performed through the adoption of procedures and effective pollution management systems tailoredonto the
F-67peculiarities of each business and industrial site and on steady enhancement of plants and process. Additionally, coding activities and procedures on operating phases allow to reduce the human component in
theplant risk management. Operating emergencies that may have an adverse impact ontheassets, people and the environment are managed by the business units for each site. These units manage the HSE riskthroughin a systematic way that involves having emergency response plans in place with a number of corrective actions to be taken that minimize damage in the event of an incident. In the case of a major crisis, Divisions/Entities are assisted by the Eni Unit ofCrisesCrisis to deal with the emergency through a team which has the necessary training and skills to coordinate in a timely and efficient manner resources and facilities.The integrated management system of health, safety and environmental matters is supported by the adoption of Eni’s Model of HSE operations in all the
DivisionsDivision and companies of the Eni Group. This is a procedure based on an annual cycle of planning, implementation, control, review of results and definition of new objectives. The model is directed towards the prevention of risks, the systematic monitoring and control of HSE performance, in a continuous improvement cyclealso subject to audits by internal(Deming cycle).Eni is reaching the goal of total certification of its plants. Industrial and
independent experts. Major refiningcommercial sites of the R&M segment have been certified as ISO 14001, and six of them are EMAS certified; in the petrochemical segment facilitiesof Eniare certified under ISO 14001, EMAS and OHSAS 18001. EniPower power stations are EMAS certified, while in other segments facilities are mainly certified under ISO 14001 and OHSAS 18001.The system for monitoring HSE operational risks is based on the monitoring of HSE indicators at quarterly intervals and on an audit plan addressed to
international environmental standards, such as ISO14001, OHSAS 18001three levels: HSE Corporate, HSE business unit andEMAS.at site level consisting of:
- internal audits of management systems (performed by Eni employees or external consultants);
F-74
- audits for the confirmation or renewal of certification of management systems performed annually by external certifying entities;
- control of compliance with existing HSE regulations;
- specific audits on relevant issues (e.g. following events/accidents/reported failures).
Eni provides a program of specific training and development
forto its HSE staff in order to:(i)
- promote the execution of behaviors consistent with guidelines;
(ii)- drive people’s learning growth process by developing professionalism, management and corporate culture;
(iii)- support management knowledge and control of HSE risks.
Risk factors related to the natural gas market
Possible evolutionRisks and uncertainties associated with the current outlook for gas demand and supply in Europe and Italy
In 2009 European gas demand was severely impacted by the economic downturn (down 7.4% from 2008, assuming normal average temperatures). As a result of that trend, both producing activities and request for electricity reduced. The Italian market was particularly hit by the downturn as demand fell by approximately 9 BCM from 2008, down 10%, and almost 10 BCM from the pre-crisis levels seen in 2007, down 12%, assuming normal average temperatures. In the meantime, new gas supplies entered the market as several operators, including Eni, completed plans to upgrade gas import pipelines from gas producing Countries or to build new facilities to import gas to Europe via LNG. Particularly, Eni has finalized plans to upgrade the import capacity of its two main pipelines from Russia and Algeria by 13 BCM/y (the gas pipelines TAG and TTPC), with new capacity entirely sold to third parties. A new LNG terminal with a capacity of 8 BCM/y commenced operations late in 2009, operated by a consortium of competitors. As a result, gas availability on the Italian market increased at a time when demand actually shrunk, resulting in a situation of oversupply. In this context, Eni’s results of the gas marketing business, sales volumes and average gas selling margins were driven down by rising competition and weak demand both in Italy and Europe. Large gas availability on European markets also prevented the Company from disposing of part of its gas availability by selling it on European markets. The outlook for gas supply and demand both in Europe and Italy is challenging as GDP growth in the 27 EU Countries will remain weak over the next few years and gas demand is expected to recover only gradually to precrisis levels. In addition, ongoing patterns towards energy preservation and rising competition from renewable or alternative sources of energy will further dampen recovery perspectives of gas demand. Specifically, at the March 2007 European Council, the European Heads of Government decided to adopt their Climate Action and Renewable Energy Package. This legislation was voted by the European Parliament in December 2008. The package includes a commitment to reduce greenhouse gas (GHG) emissions by 20% by 2020 compared to emission levels recorded in 1990 (the target being 30% if an international agreement is reached), as well as an improved energy efficiency within the EU Member States of 20% by 2020 and a 20% renewable energy target by 2020. To factor in those trends, management has revised down its long-term projections of European gas demand growth from a previous compound average growth rate (c.a.g.r.) of 2% till 2020 to a revised 1.5% c.a.g.r. These assumptions imply an overall consumption of approximately 600 BCM by 2020 compared to a previous forecast of 720 BCM. Management also expects the Italian market to grow less than anticipated at an annual rate that will be slightly lower than 2%, implying a level of consumption amounting to 94 BCM versus a previous forecast of 107 BCM at 2020. These demand trends of sluggish growth associated with ample gas availability on the marketplace might adversely affect the Company’s results of operations and cash flow in its gas marketing business over the next few years.Current negative trends in gas demand and supply may impair the Company’s ability to fulfill its minimum off-take obligations in connection with its take-or-pay, long-term gas supply contracts
In order to secure long-term access to gas availability, particularly in view of supplying the Italian gas market, the Company has signed a number of long-term gas supply contracts with key producing Countries that supply European gas markets. These contracts will ensure approximately 62.4 BCM of gas availability in 2010 (excluding the contribution of other subsidiaries and associates) with a residual life of approximately 20 years, and provide take-or-pay clauses whereby the Company is required to collect minimum predetermined volumes of gas in each year of the contractual term or, in case of failure, to pay the whole price, or a fraction of it, of uncollected volumes up to the minimum contractual quantity. The take-or-pay clause entitles the Company to collect pre-paid volumes of gas in later years during the period of contract execution. Amounts of cash prepayments and time schedules for collecting pre-paid gas vary from contract to contract. Generally speaking, cash pre-payments are calculated on the basis of the energy prices current in the year of non-fulfillment with the balance due in the year when the gas is actually collected. Amounts of pre-payments range from 10 to 100 percent of the full price. The right to collect pre-paid gas expires within a ten-year term in some contracts or remains in place until contract expiration in other arrangements. In addition, rights to collect pre-paid gas in future years can be exercised provided that the Company has fulfilled its minimum take obligation in a given year and within the limit of the maximum annual quantity that can be collected in each contractual year. In this case, Eni will pay the residual price calculating it as the percentageF-75
that complements 100, based on the arithmetical average of monthly base prices in place in the year of the off-take. Similar considerations apply to ship-or-pay contractual obligations. Management believes that the current outlook for gas demand and large gas availability on the marketplace, as well as the possible evolution of sector-specific regulation, represent risks factors to the Company’s ability to fulfill its minimum take obligations associated with its long-term supply contracts. Under current contractual terms, in 2009 Eni collected lower volumes than its minimum take and recognized a trade payables corresponding to the amount of gas that the Company was contractually required to collect. Management believes that over the next three years the Company will experience failure to fulfill its take-or-pay obligations associated with significant volumes of gas, unless demand fundamentals improve substantially and a better balance between demand and supply is achieved on the marketplace. Currently, the Company is unable to forecast the timing of such a recovery. In addition, there also exist both a pricing risk as a portion of the gas purchase price is based on the prices of the energy parameters recorded in the year of non-fulfillment, and a volume risk in case the Company is actually unable to dispose of pre-paid volumes. In this context, the Company’s selling margins, results of operations and cash flow may be negatively affected. Based on management’s projections for sales volumes and prices for the four-year plan and subsequent years, volumes for which an obligation to pay cash advances might arise due to take or pay clauses will be off-taken within contractual terms, thus recovering cash advances. Even if financing associated with cash advances is factored in, the net present value associated with those long-term contracts discounted at the weighted average cost of capital for the Gas & Power segment still remains a positive and consequently those contracts do not fall within the category of the onerous contract provided by IAS 37. In the medium term Eni intends to preserve the profitability and cash flow generation of its gas marketing operations. A number of initiatives have been identified, including:
- maximization of gas sales volumes leveraging on the multiple presence in a number of markets; market knowledge, the integration with Distrigas commercial operations and supply portfolio (which is not expected to have take-or-pay obligations in future years) and marketing policies aimed at increasing Eni’s market share in Europe;
- renegotiations of the main long-term supply contracts through the exercise of the contractual right to amend terms and conditions of the contracts as provided by specific contractual clauses in case of significant changes in the market environment, as those that have been occurring from the second half of 2008. These renegotiations were finalized early in 2010 with a positive impact both on 2009 results and on future commercial plans giving Eni more flexibility in its marketing operations;
- launching of innovative pricing formulas and improving the quality of services on the core Italian market;
- reduction of the cost-to-serve; and
- monitoring and controlling working capital requirements.
Risks associated with sector-specific regulations in Italy
Legislative Decree No. 164/2000 opened the Italian natural gas market to competition, impacting on Eni’s activities, as the company is engaged in all the phases of the natural gas chain. The opening to competition was achieved through the enactment of certain antitrust thresholds on volumes input into the national transport network and on volumes sold to final customers. These enabled new competitors to enter the Italian gas market, resulting in declining selling margins on gas. Other material aspects regarding the Italian gas sectorregulationregulations are the regulated access to natural gas infrastructure (transport backbones, storage fields, distribution networks and LNG terminals), the provision that activities relating to infrastructures are mandatory charged to separate companies; the Code adopted by the Authority for Electricity and Gas on the issue of unbundling which forbids a controlling entity from interfering in the decision-making process of its subsidiaries running gas transport and distribution and other infrastructures and the circumstance that the Authority for Electricity and Gas is entrusted with certain powers in the matters of natural gas pricing and in establishing tariffs for the use of natural gas infrastructures.Particularly,Specifically, the Authority for Electricity and Gas holds a general surveillance power on pricing in the natural gas market in Italy and the power to establish selling tariffs for the supply of natural gas to residential and commercial users consuming less than 200,000 CM/y (qualified as non eligible customersatas of December 31, 2002 as defined by Legislative Decree No. 164/2000) taking into account the public goal of containing the inflationary pressure due to rising energy costs. Accordingly, decisions of the Authority on these matters may limit the ability of Eni to pass an increase in the cost of fuels onto final consumers of natural gas.As a matter of fact, followingFollowing a complex and lengthy administrative procedure started in 2004 and finalized in March 2007 with Resolution No. 79/2007, the Authority finally established a new indexation mechanism for updating the raw material cost component in supplies to residential and commercial users consuming less than 200,000 CM/y, establishing, among otherthings: (i) that an increase in the international price of Brent crude oil is only partially transferred to residential and commercial users of natural gas in case international prices of Brent crude oil exceed the 35 dollars per barrel threshold; and (ii)things that Italian natural gas importers – including Eni – must renegotiate wholesale supply contracts in order to take accountof thisa new indexationmechanism.mechanism of the raw material cost component. This indexation mechanism has been recently updated based on Resolution No. 64/2009 of the Authority, which provides that changes in a preset basket of hydrocarbons are transferred to the cost of the supply to those customers. Also a floor has been established in the form of a fixed amount that applies only at certain low level of international prices of hydrocarbons. Also certain provisions of law may limit the
CompanyCompany’s ability to set commercial margins. Specifically, Law Decree No. 112 enacted in June 2008 forbids energy companies like Eni to pass to prices to final customers the higher income taxes incurred in connection with a supplemental tax rate of5.56.5 percentage points introduced by the same decree on energy companies with a yearly turnover in excess of euro 25 million. The Authority for Electricity and Gas is in charge of monitoring compliance withthethis rule. The AuthorityF-76
has subsequently established with a set of deliberations that energy companies have to adopt effective operational and monitoring systems
certified by the Company CEOin order to prevent unlawful increasesofin final prices of gas.
In order to meetOther risk factors and uncertainties deriving from themedium and long-term demand for natural gas, in particular inregulatory framework are associated with theItalian market, Eni entered into long-term purchase contracts with producing countries. These contracts which contain take-or-pay clauses will ensure total supply volumesregulation ofapproximately 62.4 BCM/y of natural gas to Eni by 2010 (excluding take-or-pay volumes coming from Distrigas acquisition which will destined to supplytheBelgian market). Despite the fact that an increasing portion of natural gas volumes purchased under said contracts is planned to be marketed outside Italy, management believes that in the long-term unfavorable trends in the Italian demand and supply for natural gas, also taking into account the start-up of new import capacityaccess to the Italianmarketgas transport network that is currently set by Decision No. 137/2002 of the Authority for Electricity and Gas. The decision is fully incorporated into the network code presently in force as prepared by the system’s operator. The decision sets priority criteria for transport capacity entitlements at points where the Italian transport network connects with international import pipelines (the so-called entry points to the Italian transport system). Specifically, operators that are holders of take-or-pay contracts, as in the case of Eni,and third parties
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as well as implementation of all publicly announced plans for the construction of new import infrastructures (backbone upgrading and new LNG terminals), and developmentsare entitled to a priority in allocating available transport capacity within theItalian regulatory framework, represent risk factorslimit of average daily contractual volumes. Gas volumes exceeding average daily contractual volumes are not entitled to any priority and, in case of congestion at any entry points, they are entitled available capacity on a proportionate basis together with all pending requests forthecapacity assignments. The ability ofthe CompanyEni tomeet its contractual obligations in connection withcollect gas volumes exceeding average daily volumes as provided by its take-or-pay supplycontracts. Particularly,contracts represents an important operational flexibility that the Company uses to satisfy demand peaks. In planning its commercial flows, the Company normally assumes to make full use of its contractual flexibility and to obtain the necessary capacity entitlements at the entry points to the national transport network. Those assumptions may be inconsistent with rules set by Decision No. 137/2002 specifically with regard to priority criteria governing capacity entitlements. Eni considers Decision No. 137/2002 to be illegitimate as it is supposedly in contrast with the rationale of the European regulatory framework on the gas market as provided in European Directive 55/2003/CE. Based on that belief the Company has opened an administrative procedure to repeal Decision No. 137/2002 before an administrative court which recently confirmed in part Eni’s position. An upper grade court also confirmed the Company’s position. Specifically, the Court stated that the purchase of contractual flexibility is an obligation on part of the importer, which responds to a collective interest. According to the Court, there is no reasonable motivation whereby volumes corresponding to such contractual flexibility shouldnatural gas demandnot be granted priority inItaly grow at a lower pace than management expectations,the access to the network, also inviewcase congestion occurs. At the moment, however, no case ofthe expected build-up of natural gas suppliescongestion occurred at entry points to the Italianmarket,transport infrastructure such to impair Eni’s marketing plans. Further uncertainty factors related to theCompany could faceregulatory framework are the so called gas release measures that are intended to increase flexibility and liquidity in the gas market. This measure strongly affected Eni’s marketing activity in Italy. In 2004, based on certain agreements with the Antitrust Authority, Eni released in afurther increasefour-year period a total amount of 9.2 BCM (2.3 BCM/y between October 1, 2004 and September 30, 2008) and the related transport capacity. In addition, incompetitive pressure2007 Eni agreed to adhere to a new gas release program involving 4 BCM which were disposed of at the virtual exchange point (PSV) in a two-year period (from October 1, 2007 and September 30, 2009). For thermal year 2009-2010 Italian Law No. 99/2009 introduced a new obligation for Eni to make additional sales at the virtual exchange point for a total of 5 BCM of gas in yearly and half-yearly amounts. Although the allotment procedure (bid) was based on a minimum price set by the Ministry for Economic Development as proposed by the Authority (Eni considering this point discriminatory, filed a claim to the competent authority), only a 1.1 BCM portion of the gas release was awarded out of the 5 BCM which had been planned. For the next few years, based on indications of the Authority (in a report to the Parliament on theItaliansituation of the gas and electricity marketresultingina negative impactItaly as provided in Resolution PAS 3/2010), Eni cannot exclude the possibility that new gas release programs will be imposed onits selling margins, taking account of Eni’s gas availability under take-or-pay supply contracts and risks in executing its expansion plans to grow sales volumes in European markets.it.Specific risks associated with
theexploration and production of oil and natural gasThe explorationExploration and production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks. It is subject to natural hazards and other uncertainties including those relating to the physical characteristics of oil or natural gas fields. Exploratory activity involves numerous risks including the risk of dry holes or failure to find commercial quantities of hydrocarbons. Developing and marketing hydrocarbons reserves typically requires several years after a discovery is made. This is because a development project involves an array of complex and lengthy activities, including appraising a discovery in order to evaluate its commerciality, sanctioning a development project and building and commissioningrelatingrelated facilities.As a consequence, rates of return of such long lead-time projects are exposed to the volatility of oil and gas prices and the risk of an increase in developing and lifting costs, resulting in lower rates of return. This set of circumstances is particularly important to those projects intended to develop reserves located in deep water and harsh environments, where the majority of Eni’s planned and ongoing projects
isare located.
Managing sources of fundsEni management makes useRisks associated with the cyclicality of theleverage asoil and gas sector
The global economic downturn and the associated reduction in industrial output recorded in 2008 and for most of 2009 triggered afinancial measuresharp decline in worldwide demand for energy, resulting in significantly lower commodity prices.F-77
In spite of weak fundamentals (level of global demand and level of inventories), international oil prices have shown a steady upward trend since the second half of 2009 driven by expectations for a global economic recovery and OPEC production cuts, settling by year end in a range of 70-80 $/BBL.
Volatile oil prices pose a critical issue to
assessthesoundnesssustainability of capital plans of oil andefficiencygas companies, considering that they are engaged in long lead-time projects. Such projects normally require lengthy and complex activities for assessing all technical and commercial aspects and developing and marketing hydrocarbons. As a consequence, return rates of 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 made, resulting in lower rates of return. The Company, likewise other players in the industry, assesses its oil & gas projects based on long-term scenarios for oil prices, which reflect management’s best assumptions about the underlying fundamentals of global demand and offer. The adoption of long-term prices in assessing capital projects support the achievement of theGroup balance sheetplanned rates of return.Eni plans to invest euro 52.8 billion in the four-year period from 2010 through 2013, at the Company’s long-term price for Brent crude of 65 $/BBL (in real terms 2013). Of this, euro 37.7 billion, or 71%, will be dedicated to execute projects for exploring and developing oil and gas reserves. The plan shows an increase of 8% from the previous plan that was approved when the trading environment was particularly depressed. The main drivers which explain the increase are: (i) planned expenditures for developing new upstream projects, particularly those associated with reserves development in Iraq, Venezuela and certain fields offshore Angola; (ii) the circumstance that the Company is forecasting steady trends in costs for materials and sector specific services which have fallen far less than what management has anticipated due to the fast recovery in international oil prices, and the impact of the decision on part of most oil companies to maintain their spending patterns substantially unchanged. In the previous plan, management assumed a decline in those costs. These increasing trends will be partially offset by the impact of the U.S. dollar depreciation versus the euro.
Volatile oil prices also influence the reserve replacement ratio. Changes in oil prices normally trigger two opposite impacts in proved reserves revisions. On one side, a larger or smaller amount of reserves is booked in connection with production sharing agreements and similar contractual schemes. Under such contracts, the Company is entitled to receive a portion of the production, the sale of which should cover expenditures incurred and earn the Company a share of profit. Accordingly, the higher the reference prices for crude oil used to determine production and reserves entitlements, the lower the number of barrels to cover the same dollar amounts hence the amounts of booked reserves; and vice versa. On the other side, downward revisions of reserves occur for those marginal amounts of reserves that are no longer economically producible based on oil prices that are significantly lower than those at which they were originally assessed and sanctioned; and the opposite occurs in case of higher oil prices.
In the Gas & Power segment, Eni’s outlook for the year 2010 factors in a modest improvement in Italian and European gas demand, recovering from the sharp decline suffered in 2009.
Eni also expects that the gas market will be well supplied as new import capacity to Europe and Italy is available in light of recent facility start-ups and upgrades of the main importpipelines made by Eni and other operators. Those trends, together with the recently enacted gas release programs in Italy, represent risk factors to the Company’s ability to maintain its margins in the marketing business also taking into account the take or pay clauses of certain long-term supply contracts which require the Company to collect minimum predetermined volumes of gas or, in case of failure, to pay the price, or a portion of it, for uncollected volumes. Under take or pay clauses the Company is entitled to collect pre-paid volumes of gas in future years, assuming a stronger recovery in gas demand.
The Refining & Marketing and the Petrochemical segments are particularly exposed to the volatility of the economic cycle, as their respective industries continue to be plagued by excess capacity, intense competitive pressure, low entry barriers and commoditized products. These industries are also exposed to movements in oil prices and the speed at which the prices of refined products and petrochemicals products adjust to reflect change in the cost of oil-based feedstock. Normally, a time lag occurs between movements in oil prices and those of refined and petrochemical products. As a consequence, in a period of rapidly escalating feedstock costs, margins on refined and petrochemical products are negatively affected.
For 2010, Eni’s management does not expect any appreciable recovery in the main trends that negatively affected the performances of these businesses last year. In 2009 Eni’s realized refining margins were sharply lower mirroring the environment for Brent margins (down 50%), while margins on a mix of light and heavy crude were further lower, down by 60%, both under break-even. A number of negative factors contribute to the reduction. Firstly, significantly compressed light-heavy crude differentials due to a reduction in heavy crude availability on the market place negatively affected the profitability of Eni’s complex refineries. Secondly, the industry continued to be plagued by weak fundamentals due to excess capacity, high inventory levels and stagnant demand affecting end-
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prices, while feedstock costs have been on an upward trend since the beginning of the second half. Finally, middle-distillates prices plunged to historical lows in terms of
optimal mix between net borrowings and net equity,spread versus the cost of oil. At the moment, management does not expect a reversal in those trends on the short-term.In its Petrochemical segment, management has been pursuing a number of initiatives designed to reduce fixed operating expenses and to
carry out benchmark analysisrealign the industrial set-up of Eni’s petrochemical operations withindustry standards. Leverage isameasureview of enhancing areas of competitive advantage. In spite of all this, the achievement of thecompany’s leveloperating break-even in this segment depends on a global recovery in the economy that is uncertain at least in the short term.The Engineering & Construction segment followed a different trend, maintaining a steady order backlog and economic returns, thanks to a business model articulated across various market sectors combined with a strong competitive position in frontier areas, which are traditionally less exposed to the cyclical nature of
indebtedness, calculated asthis market. The start of operations of new distinctive assets in 2010 and 2011 coupled with theratio between net borrowingssize andshareholders’ equity, including minority interests. Inquality of themedium-term, management plans to target a level of leverage up to 0.4 which is intended to provide an efficient capital structurebacklog and theappropriate levelstrong operating performance on projects, underpin expectations for a further significant strengthening offinancial flexibility.Saipem’s competitive position in the medium term.
F-69Other information about financial instruments
The carrying amount of financial instruments and relevant economic effect as of and for theyearyears ended December 31, 2008 and 2009 consisted of the following:
2008 2009
Finance income (expense) recognized in Finance income (expense) recognized in
(euro million) Carrying amount
Profit and loss account
Equity
Carrying amount Profit and loss account Equity
Held-for-trading financial instruments Non-hedging derivatives (a) (374
) (558
) (374 ) (558 ) (26 ) 45 Held-to-maturity financial instruments Securities 50
2
3
Securities (b) 50 2 36 1 Available-for-sale financial instruments Securities (a) 495
19
Securities (b) 495 19 3 348 13 1 Receivables and payables and other assets/liabilities valued at amortized cost Trade and receivables and other (b)(c)22,446
(254
) 22,446 (254 ) 20,748 (361 ) Financing receivables (a)(b)1,908
117
1,908 117 1,637 72 Trade payables and other (c)(d)20,570
(53
) 20,570 (53 ) 19,228 (48 ) Financing payables (a)(b)20,837
(607
) 20,837 (607 ) 24,800 (508 ) Assets at fair value through profit or loss (fair value option) Investments (a)(b)2,741
241
2,741 241 163 Net liabilities for hedging derivatives (d)(e)280
1,012
964
280 1,012 964 751 161 (636 )
(a) GainsIn the profit and loss account, incomes were recognized within "Other operating income (loss)" for euro 49 million (expenses for euro 131 million at December 31, 2008) and within "Finance income (expense)" for euro 4 million (expenses for euro 427 million at December 31, 2008).(b) Income or lossesexpense were recognized in the profit and loss account within "Finance income (expense)".(b)(c)In the profit and loss account, essentially impairments and losses on receivableswere recognized within "Purchase, services and other" for euro 427 million (euro 385 millionwhilst negativeat December 31, 2008) while positive exchange differences arising from accounts denominated in foreign currency and translated into euro at year-end were recognized within "Finance income (expense)" for euro100 million.66 million (euro 131 million at December 31, 2008).(c)(d)PositiveIn the profit and loss account, primarily exchange differences arising from accounts denominated in foreign currency and translated into euro at year-end were recognizedin the profit and loss accountwithin "Finance income (expense)".(d)(e)GainsIncome orlossesexpense were recognized in the profit and loss account within "Net sales from operations" and "Purchase, services and other" for euro 155 million (euro 1,005 million at December 31, 2008) within "Finance income (expense)" for euro 6 million (euro 7 million at December 31, 2008) (time value component).Fair value of financial instruments
Following the classification of financial assets and liabilities, measured at fair value in the balance sheet, is provided according to the fair value hierarchy defined on the basis of the relevance of the inputs used in the measurement process. In particular, on the basis of the features of the inputs used in making the measurements, the fair value hierarchy shall have the following levels:
(a) Level 1: quoted prices (unadjusted) in active markets for identical financial assets or liabilities; F-79
(b) Level 2: measurements based on the basis of inputs, other than quoted prices above, which, for assets and liabilities that have to be measured, can be observable directly (e.g. prices) or indirectly (e.g. deriving from prices); (c) Level 3: inputs not based on observable market data. Financial instruments measured at fair value in the balance sheet as of December 31, 2009 were classified as follows: (i) level 1, "Other financial assets held for trading or available for sale"; (ii) level 2, derivative instruments included in "Other current assets", "Other non-current assets", "Other current liabilities" and "Other non-current liabilities". During 2009 no transfers were done between the different hierarchy levels of fair value. More information about the amount of financial instruments valued at fair value are provided in Note 2 – Other financial assets held for trading or available for sale, Note 7 – Other current assets, Note 14 – Other non-current assets, Note 19 – Other current liabilities and Note 24 – Other non-current liabilities.
Legal ProceedingsEni is a party to a number of civil actions and administrative arbitral and other judicial proceedings arising in the ordinary course of business. Based on information available to date, and taking into account the existing risk provisions, Eni believes that the foregoing will not have an adverse effect on Eni’s Consolidated Financial Statements.
The 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 cannot be estimated reliably.
1. Environment1.1 Criminal proceedings
ENI SPA (i) Subsidence.Subsidence. The Court of Rovigo conducted investigations concerning a subsidence phenomenon allegedly caused by hydrocarbon exploration and extraction activities in the Ravenna and North Adriatic area both on land and in the sea. Eni appointed an independent and interdisciplinary scientific commission, composed of prominent and highly qualified international experts of subsidence caused by hydrocarbon exploration and extraction activities, with the aim of verifying the magnitude and effects and any actions appropriate to reduce or to neutralize any subsidence phenomenon in the area. This commission produced a study which excludes the possibility of any risk to human health or damage to the environment. The study also states that worldwide there are no instances of accidents of harm to public safety caused by subsidence induced by hydrocarbon production. It also shows that Eni employs the most advanced techniques for monitoring, measuring and controlling the soil. This proceeding is
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in the first level hearing stage. The Veneto Region, other local bodies and two private entities have been acting as plaintiffs. Eni was admitted as a defendant. The Court decided thatAt theproceeding must be heard byend of the renewed preliminary investigations the Court ofRavenna.Ravenna requested the closing of the proceeding. According to press news a number of plaintiffs would file appeals against this decision.
(ii) Alleged damage.damage - Prosecuting body: Public Prosecutor of Gela. In 2002, the public prosecutor of Gela commenced a criminal investigation to ascertain alleged damage caused by emissions of the Gela plant, owned by Polimeri Europa SpA, Syndial SpA (formerly EniChem SpA) and Raffineria di Gela SpA. The judge for the preliminary hearing dismissed the accusation of adulteration of food products, while the proceeding for the other allegations regarding pollution and environmental damage remains underway. The trial ended in acquittal with regard to the general manager and officer pro tempore of the refinery. The sentence of the Gela Tribunal stated that the charges were lacking factual basis. A number of farmers of Gela area, who have been acting as plaintiffs in the first level hearing stage, filed an appeal against the acquittal sentence in the civil action. In the first hearing on December 17, 2009, the public prosecutor asked for the dismissal of the appeal confirming the motivations of the acquittal sentence in the first degree proceeding. The Court of Rome postponed the proceeding to the hearing of February 25, 2010. In February 25, 2010 the Court confirmed the acquittal sentence. The Court would file the grounds of the judgments within the next 60 days.
(iii) Alleged negligent fire in the refinery of Gela. In June 2002, in connection with a fire at the refinery of Gela, a criminal investigation began concerning alleged negligent fire, environmental crimes and crimes F-80
against natural beauty. First degree proceedings ended with an acquittal sentence. In November 2007, the public prosecutors of Gela and of Caltanissetta filed an appeal against this decision. In the first hearing the Court re-opened the examining phase, arranging a collegial appraiser. On December 10, 2009 the appraisers appointed by the Court filed their report. On January 21, 2010 the Court of Caltanissetta announced an acquittal sentence for all the defendants. (iv) Investigation of the quality of ground water in the area of the refinery of Gela. In 2002, the public prosecutor of Gela commenced a criminal investigation concerning the refinery of Gela to ascertain the quality of ground water in the area of the refinery. Eni is charged of having breached environmental rules concerning the pollution of water and soil and of illegal disposal of liquid and solid waste materials. The preliminary hearing phase was closed for one employee who would stand trial, while the preliminary hearing phase is ongoing for other defendants. During the hearings the judge admitted as plaintiffs three environmental associations. The proceeding was subsequently assigned to a different judge and was disposed the renewal of the debate phase. In the said phase were examined indictment and defense witnesses. Subsequently it was examined the first technical appraiser of the defense. The proceeding continues with examination of another technical appraiser of the defense. (v) Alleged negligent fire (Priolo). The public prosecutor of Siracusa commenced an investigation regarding certain Eni managers who were previously in charge of conducting operations at the Priolo refinery (Eni divested this asset in 2002) to ascertain whether they acted with negligence in connection with a fire that occurred at the Priolo plants on April 30 and May 1-2, 2006. After preliminary investigations and based on the outcome of preliminary hearingthe public prosecutor requested the opening of a proceeding against the mentioned managers for negligent behavior. The first hearing, in which the parties could present themselves as plaintiffs, was scheduled for February 26, 2010. On February 5, 2010, the Court of Siracusa following the exception of inadmissibility issued by the defendants, admitted as a plaintiff the only the Ministry for the Environment excluding all the other counterparts, including the Council of Ministers. The proceeding continues with the examination of three witnesses of the Public Prosecutor.
(vi) Groundwater at the Priolo site.site - Prosecuting body: Public Prosecutor of Siracusa. The Public Prosecutor of Siracusa (Sicily) has started an investigation in order to ascertain the level of contamination of the groundwater at the Priolo site. The Company has been notified that a number of its executive officers are being investigated who were in charge at the time of the events subject to probe, including chief executive officers and plant general managers of the Company’s subsidiaries AgipPetroli SpA (now merged into the parentcompany)company Eni SpA in the Refining & Marketing division), Syndial and Polimeri Europa. Probes on technical issuesare ongoing asrequired by theProsecutor.
ENIPOWER SPA
(i)Alleged unauthorized waste management activities.In 2004,Prosecutor were finalized on October 15, 2009. On February 25, 2010 thepublic prosecutortechnical survey was filed. According to this report the ground and the groundwater at the Priolo site should be considered polluted according to Law Decree 152/2006. This contamination was caused by a spill over made in the period prior to 2001 and not subsequent to 2005; the equipments still operating on the site represent another source ofRovigo commenced an investigation for alleged crimes related to unauthorized waste management activitiesrisk, inLoreo relatingparticular the ones owned by another operator. According to thesamplesfindings ofsoil used duringthis report theconstructiondefense of Syndial, Polimeri Europa and Eni SpA (Refining & Marketing division) will file a defensive memorandum to request the dismissal of thenew EniPower power station in Mantova. The prosecutor requested the CEO of EniPower and the managing director of the Mantova plant at the time of the alleged crime to stand trial.(ii)Air emissions.The public prosecutor of Mantova commenced an investigation against two managers of the Mantova plant in connection with air emissions by the new power plant.proceeding.
SYNDIAL SPA
(i)(vii)Porto Torres.Torres - Prosecuting body: Public Prosecutor of Sassari. In March 2009, the Public Prosecutor of Sassari (Sardinia) resolved to commence a criminal trial against a number of executive officers and managing directors of companies engaging in petrochemicals operations at the site of Porto Torres, including the manager responsible for plant operations of the Company’s fully-owned subsidiary Syndial. The charge involves environmental damage and poisoning of water and stuff destined to feeding.AIn the preliminary hearingison July 17, 2009, the Province of Sassari, the Association Anpana (animal preservation) and the company Fratelli Polese Snc situated in the industrial site have been acting as plaintiffs. None of these parties claimed the identification of the civil responsible and the damage quantification that will be asked in a second step. The legal defense of Syndial requested further time for the recognition of the proceeding plaintiffs and the verification of their right to institute proceedings. The defense of Syndial filled a number of exceptions on the admissibility in acting as plaintiffs of the counterpart; the judge will resolve the question in the hearing which has been scheduled for February 19, 2010. In this hearing the judge, based on the exceptions issued by Syndial on the lack of connection between the action as plaintiff and the charge, excluded all the counterparts that have been acting as plaintiff with regard to the serious pathologies related to the existence of poisoning agents inJuly 2009.the fishing talent of the industrial port of Porto Torres; the judge admitted as plaintiffs the Municipality of Sassari, the Environmental Association Anpana and the company Fratelli Polese Snc. The judge also requested that Syndial SpA, Polimeri Europa SpA, Ineos Vinylis and Sasol Italy SpA stand trial. The proceeding continues for the constitution as defendants of the said parts.F-81
1.2 Civil and administrative proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
(i) Alleged pollution caused by the activity of the Mantova plant.In 1992, the Ministry of Environment summoned EniChem SpA (now Syndial SpA) and Edison SpA before the Court of Brescia. The Ministry requested, primarily, environmental remediation for the alleged pollution caused by the activity
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of the Mantova plant from 1976 until 1990, and provisionally, in case there was no possibility to remediate, the payment of environmental damages. Edison agreed on a settlement with the Ministry whereby Edison quantified compensation for environmental damage freeing from any obligation Syndial, which purchased the plant in 1989. Parties are working through a possible settlementNegotiations between the parts for the quantification of thematter.environmental damage (relating only to 1990) are underway; the judgment has been postponed a number of times until the next hearing that has been scheduled for January 28, 2010. This hearing has been adjourned again to July 22, 2010 because negotiations between the parts are underway.
(ii) Summon before the Court of Venice for environmental damages allegedly caused to the lagoon of Venice by the Porto Marghera plants.On December 13, 2002, EniChem SpA (now Syndial SpA), jointly with Ambiente SpA (now merged into Syndial SpA) and European Vinyls Corporation Italia SpA (EVC Italia, then Ineos Vinyls SpA, actually Vinyls Italia SpA) was summoned before the Court of Venice by the Province of Venice. The province requested compensation for environmental damages that initially were not quantified, allegedly caused to the lagoon of Venice by the Porto Marghera plants, which were already the subject of two previous criminal proceedings against employees and managers of the defendants. EVCVinyls Italiaand IneosSpA presented an action to be indemnified by Eni’s Group companies in case the alleged pollution is proved. TheenvironmentalProvince of Venice, in the preliminary stage of the proceeding, filed claims amounting to euro 287 million. Syndial submitted its written reply evidencing that the abovementioned damage quantification has beenassessed by an independent consultant who filed his advicemade lacking of probations for the damage and based on evidence that allowed the Court of First and Second Instance tobe discussed indisclaim EniChem of any responsibility through definitive sentence. In the hearing on October 16, 2009, scheduled to review the technical appraisal, the Court declared the interruption of the proceeding because Vinyls Italia had undergone ahearing set in October 2009.reorganization procedure. The proceeding is suspended until the eventual action as plaintiff of the Province of Venice.
(iii) Claim of environmental damages, allegedly caused by industrial activities in the area of Crotone commenced- Prosecuting Bodies: the Council of Ministers, the Ministry for the Environment, the Delegated Commissioner for Environmental Emergency in the Calabria Region and the Calabria Region. The council of Ministers, the Ministry for the Environment, the Delegated Commissioner for Environmental Emergency in the Calabria Region and the Calabria Region requested Syndial to appear before the Court of Milan in order Syndial is condemned to compensate for the environmental damage caused by thePresidentoperations of Pertusola Sud SpA (merged in EniChem, now Syndial) in theRegional CouncilCrotone site. This first degree proceeding was generated in January 2008 by the unification ofCalabria.On April 14, 2003,two different actions, thePresidentfirst brought by Calabria Region in October 2004, the second one by the council of Ministers, theRegional Council of Calabria, asMinistry for the environment and the Delegated Commissioner for Environmental Emergency in the Calabria Region commencedan action against EniChem SpA (now Syndial SpA) with referencein February 2006. The Calabria Region is claiming compensation amounting to euro 129 million for the site environmental remediation and clean-up on the basis of the cost estimation provided in the remediation plan submitted by the Delegated Commissioner, plus additional compensation amounting to a preliminary estimate of euro 800 million relating to environmentaldamagesdamage, estimated increases in the regional health expenditures and damage to the public image to be fairly determined during the civil proceeding. The council of Ministers, the Ministry forapproximatelythe Environment and the Delegated Commissioner is claiming compensation amounting to euro 129 million for the site environmental remediation and clean-up (this request is analogous to that of the Calabria Region) and eventual compensation for other environmental damage to be fairly determined during the civil proceeding. In February 2007 the Ministry for the Environment filed with the Court an independent appraiser’s report issued by APAT that estimated a refundable environmental damage amounting to euro 1,920 million, including the remediation and clean-up expenditures, increased by euro 1,620 million from the original amount of euro 129 million, anddamagesan estimation of environmental damage and other damage items amounting approximately to euro 300 million. The amounts estimated by the independent appraiser, added to the claim of the Calabria Region, generate a total of euro 2,720 million of potential compensation. In May and September 2007 Syndial presented its own technical advice that, based on what the Company believes to be well-founded circumstances, vigorously object the independent appraiser’s findings filed by the Ministry foreuro 250 million (plus interestthe Environment on site contamination, the responsibility of Syndial in the contamination of the site, the criteria of estimate remediation costs, which according to the Company are erroneous, arbitrary andcompensation)technically inadequate. On October 7, 2009 an independent appraiser report was filed that reviewed the environmental status of the site and estimated the remediation costs while the estimate of both the health damage caused by the pollution and the environmental damage would be issued inconnectiona further independent appraiser report. The findings of the independent appraisers are substantially in line withlossthe issues expressed by Syndial on the measures forF-82
the environmental remediation and clean-up, based on a risk analysis aimed to define effective and specific actions. The clean-up project, approved to a great extent by the ministry for the Environment and the Calabria Region, has been considered substantially adequate. The independent appraisers affirmed the necessity of incomeclean-up measures that were not planned by Syndial on one of the external areas (the so-called archaeological area) and considered being unnecessary the dredging of sea sediments. The estimated clean-up costs are in line with the estimate made by Syndial. The independent appraiser report is less favorable to Syndial because it identifies as source of the contamination the production slag management, even recent. The independent appraiser report evaluated that the production technology was a BAT (best available technology), instead the slag treatment could be performed in a more respectful way for the environment and the products (the so-called Cubilot) lacked the physic-chemical characteristic of stability that would avoided the emission of polluting agents in the soil. As regards the quantification of the environmental damage different by the remediation, the independent report APAT provided by the Ministry of Environment quantified the damage for the lack of fruition of the site basing on the remediation costs that were significantly reduced by the independent appraiser report. In case the judge resolves on the responsibility of Syndial in the contamination of the site based on the conclusions of the independent appraiser report, the Company could be liable, for the environmental damage different from the goods fruition (damage to the community, increases in the regional health expenditures), at least in part and as far as the damage is actually probed. On November 14, 2009, Syndial filed its objections to the independent appraiser report, sharing the conceptual model adopted by the independent appraiser report but demonstrating that the site contamination should be charged mainly to past management of the pollution slag on part of other operators that operated the site until the '70s. On November 11, 2009 the Calabria Region filed its objection to the independent appraiser report affirming that the environmental damage toproperty allegedly causedthe surrounding areas of the site has not been assessed by the independent appraisers. The hearing for the review of the independent appraiser report and of the parts objections has yet to be held, as it has been assigned to another judge.
In order to arrange for a possible resolution of all environmental claims, in 2007 Eni’s subsidiary Syndial took charge of the management of the clean-up activities and on December 5, 2008 presented a new clean-up project. As for the approval procedure of the abovementioned project all interested parties approved the removal of the dump from the seafront to another area, the construction of an hydraulic barrier and of the related treatment plant of the groundwater (providing that if the subsequent monitoring would demonstrate the efficiency of the plant, Eni’s subsidiary would build up a physical barrier in the seafront) and the start-up of the first lot of activities on the soil through in situ technologies on condition that all the waste present in the areas, recognized after a specific inspection.
Initially, the environmental provision made by Syndial in its financial statements amounted to euro 103 million based on the cost estimation of the original clean-up project, as the Eni’s subsidiary believes to have no responsibility for the environmental damage considering the limited period during which it conducted industrial activities in theareasite and the Delegated Commissioner responsibility for not having properly managed the site cleanup activities. In the 2008 financial statements, Eni increased the environmental provision by euro 154 million bringing the total amount ofCrotone. In addition,the environmental provision related to the clean-up project to euro 257 million. The provision doesn’t cover the entire amount of clean-up project expenses (euro 300 million) considering the circumstance that it has been only partially approved. It must be noted that in 2003 the Delegated Commissioner for Environmental Emergency, Calabria Region and Province of Crotoneis acting as plaintiff, claiming damagepresented a first claim foreuro 300 million.the payment of damages. With a decision in May 2007, the Court of Milan declared the invalidity of the power of proxy conferred to the Delegated Commissioner to act on behalf of the Calabria Region with the notice served to Syndial SpA and decided the liquidation of expenses born by the defendant. TheProvince of Crotone appealedappeal against that decision is pending. The claims made in thisdecision. The secondfirst instancecourt accepted this appeal and Syndial repealed this determination. On October 21, 2004, Syndial was convened before the Court of Milan by the Calabria Region which is seeking to obtain a condemnation of Syndial for a damage payment, should the office of the Delegated Commissioner for Environmental Emergencyare substantially absorbed in theCalabria Region cease during this proceeding. The Calabria Region requested a damage payment amounting to euro 800 million as already requested by the Delegated Commissioner for Environmental Emergency in the Calabria Region in the proceeding commenced in 2003. This new proceeding is in the preliminary investigation stage. This proceeding was unified with the one opened by the Ministry of the Environment. Syndial filed a new project for the environmental remediation of the site to be approved by the Ministry and the body of public administrations and entities involved in the matter that expressed a first partial consent in January 2009. The environmental provision was consequently increased. In 2006, the Council of Ministers, Ministry for the Environment and the Delegated Commissioner for Environmental Emergency in the Calabria Region represented by the State Lawyer requested Syndial to appear before the Court of Milan to obtain the ascertainment, quantification and payment of damage (in the form of land, air and water pollution and therefore of the general condition of the population) caused by the operations of Pertusola Sud SpA in the Municipality of Crotone and in surrounding municipalities. The local authorities requested the ascertainment of Syndial’s responsibility as concerns expenses borne and to be borne for the cleanup and reclamation of sites, currently quantified at euro 129 million. This proceeding concerns the same matter and damage claim as the proceedings commenced by the Delegated Commissioner for Environmental Emergency in the Calabria Region and the Calabria Region against Syndial in 2003 and 2004, respectively.two subsequent proceedings.(iv) Summon for alleged environmental damage caused by DDT pollution in the Lake Maggiore.Maggiore - Prosecuting body: Ministry of the Environment. With a temporarily executive decision dated July 3, 2008 the District Court of Turin sentenced the subsidiary Syndial SpA (former EniChem) to compensate for environmental damages that were allegedly caused when EniChem managed an industrial plant at Pieve Vergonte during the 1990-1996 period. Specifically, the Court sentenced Syndial to pay the Italian Ministry of the Environment compensation amounting to euro 1,833.5 million, plus legal interests that accrue from the filing of the decision. Syndial and Eni technical-legal consultants have considered the decision and the amount of the compensation to be without factual and legal basis and have concluded that a negative outcome of this proceeding is unlikely. Particularly, Eni and its subsidiary deem the amount of the environmental damage to be absolutely ill-founded as the sentence has been considered to lack sufficient elements to support such a material amount of the liability charged to Eni and its subsidiary with respect to the volume of pollutants ascertained by the Italian Environmental Minister.As no developmentOn occasion of theproceeding has occurred since the filing of the Court’s decision,2008 consolidated financial statements, managementhasconfirmed its stance of making no loss provision for this proceeding on the basis of the abovementioned technical legal advice, inaccordanceconcert with external consultants on accounting principles. In July 2009, Eni’s subsidiary SyndialwillfiledF-83
an appeal against the ruling on Pieve Vergonte siteabovementioned sentence, also requesting suspension of theDistrictsentence effectiveness. The Ministry of the Environment, in the appeal filed, requested to the Second Instance Court to adjust the first degree sentence condemning Syndial to the payment ofTurin as soon as possible.euro 1,900 million or alternatively euro 1,300 million in addition to the amount assessed by the First Degree Court. In the hearing on December 11, 2009, the Second Instance Court considering the modification of Environmental Damage regulation introduced by the Article 5-bis of the Law Decree No. 135/2009 and following a request of the Board of State lawyers decided the postponement to May 28, 2010, pending the Decree of the Ministry of the Environment related to the determination of the quantification criteria for the monetary compensation of the environmental damage pursuant to the abovementioned Article 5 of the Law Decree 135/2009. The Board of State lawyers committed itself to not examine the sentence until the next hearing. Another administrative proceeding is ongoing regarding a ministerial decree enacted by the Italian Ministry for the Environment. The decree provides that Syndial executes the following tasks: (i) the upgrading of a
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hydraulic barrier to protect the site; and (ii) the design of a project for the environmental remediation of Lake Maggiore. The Administrative Court of Piemonte rejected Syndial’s opposition against the outlined environmental measures requested by the Ministry of the Environment. However, the Court judged the prescriptions of the Ministry regarding the remediation of the site to be plain findings of an environmental enquiry to ascertain the state of the lake. Syndial has filed an appeal against the decision of the Court before an upper degree body, also requesting suspension of the effectiveness of the decision.
The appeal has been put on hold considering that a plan to ascertain the environmental status of the siteis going to behas been approved by all interested parties, including the Ministry and localmunicipalities.municipalities pursuant to the statement on April 28, 2009, which included certain recommendations. Syndial appealed against this statement and the related Ministerial Decree of approval in order to avoid the case to give implicit consent to the request (appealed by the Company) of the Minister that claimed that Syndial is obliged to execute the clean-up. On the contrary, Syndial has agreed on the scope of the plan to ascertain the environmental status of the site, as it has been actually implementing it.
Syndial also presented a clean-up project for the groundwater and the soil, that hasn’t been approved, as the abovementioned prescriptions that have been prescribed are the object of the Company opposition in the abovementioned proceeding. In case Syndial should be found guilty, it would incur remediation and cleanup expenses, actually not quantifiable, that would be offset against any compensation for the environmental damage that Eni’s subsidiary is condemned to pay with regard to civil proceeding pending before the second instance court of Turin.
(v) Action commenced by the Municipality of Carrara for the remediation and reestablishment of previous environmental conditions at the Avenza site and payment of environmental damage.The Municipality of Carrara commenced an action before the Court of Genova requesting Syndial SpA to remediate and restore previous environmental conditions at the Avenza site and the payment of certainunavoidable environmental damagewhich cannot be cleaned up as well as(amounting to euro 139 million), further damages of various types (e.g. damage to the natural beauty of this site).amounting to euro 80 million as well as damages relating to loss of profit and property amounting to approximately euro 16 million. This request is related to an accident that occurred in 1984, as a consequence of which EniChem Agricoltura SpA (later merged into Syndial SpA), at the time owner of the site, carried out safety and remediation works. The Ministry of the Environment joined the action and requested environmental damage payment – from a minimum of euro 53.5 million to a maximum of euro 93.3 million – to be broken down among the various companies that ran the plant in the past. Syndial summoned Rumianca SpA, Sir Finanziaria SpA and Sogemo SpA, who ran the plant in previous years, in order to be guaranteed. A report produced by an independent expertappointedcharged by the judge was filed with the Court. The findings of this report quantify the residual environmental damage at euro 15 million. With a sentence of March 2008, the Court of Genova rejected all claims made by the Municipality of Carrara and the Ministry ofenvironment.the Environment. Both plaintiffs filed an appeal against this decision in June 2008requesting to all defendants cumulative damage amounting toconfirming the requests issued in the first judgment degree and a total compensation of euro189.9189.8 million. Syndial filed in the appeal hearing, disputing the plaintiffs’ claims. The proceeding is underway without any further investigation. The hearing has been postponed to July 2010 for the filing of the pleadings.
(vi) Ministry for the Environment Augusta harbor.The Italian Ministry for the Environment with various administrative acts orderedprescribed 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, Syndial andSyndial.Eni R&M. 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 EuropaThe abovementioned companies opposed said administrative actions, objecting in particular to the way in which remediation works have been designed and information on concentration of pollutants has been gathered. The Regional Administrative Court of Catania withits decision of Julythe sentence No. 1254/2007 annulled thedecision made by the Service Conference of the Ministry of the Environment concerning Priolo and the Augusta harbor.said decisions. The Ministry and the municipalities of Augusta and Melilli filed a claim for the revocation of the decision and requested the suspension of sentence effectiveness withanthe AdministrativeCourtCouncil of the Sicily Region which accepted the claim. The recommendations whichF-84
the Council’s decision related, have been restated by the Ministry for the Environment with further administrative resolutions that have been appealed by the Eni companies. Again the Regional Administrative Court of Catania reiterated its decision to suspend the effectiveness of the Ministry’s acts.
In January 2008 the Regional Court of Catania acceptedtwofurther claims on thismatter, remitting to the European Union Court of Justice the correct application of the debated community principle on the matter of environmental responsibility.matter. In June 2008 the Ministry for the Environment and the Municipalities of Melilli and Augusta filedandan appeal against the decision of the Regional Court of Catania with the Administrative Council of the Sicily region, without a resolution of the issue of suspending the effectiveness of the Regional Court’s decisions.
The hearing for the examination of both appeal pending with the Administrative Council of the Sicily Region that has been originally scheduled on December 11, 2008, has been postponed sine die due to preliminary issues pending with the Court of JusticeCouncil. Syndialof the European community.
In April 2008, the Eni companies challengedthecertain administrative acts of December 20, 2007 related to the execution of further clean-up and remediation works of sediments in the Augusta harbor. In this proceeding the Regional Court of Catania has ordered an independent appraiser report, issued on February 20, 2009, that resulted favorable to the objections of the recurring companies. The proceeding is pending.
In May 2008, the Eni companies also challenged with the Regional Court of Catania, requesting the suspension of administrative act effectiveness, certain decisions of an Administrative Body on March 6, 2008also requesting(and other subsequent decisions). Those decisions were intended to enlarge the scope of the already approved project of environmental remediation and clean-up of the groundwater trough works of physic limitation and the new criteria used by the Administration Body in the restitution of the areas to their legitimate use. With regard to this last proceeding, basing on a request of the appealing companies, the Regional Court of Catania requested the decision of the Court of Justice oftheEU to decide on the correct application of thedebatedcommunityprinciple. A reviewprinciple, that represent the basis for the all appeals’ decision particularly the principles of theissue made byliability associated with the environmental damage, the proportionality in bearing the expenditures associated with environmental remediation and clean-up, as well as a criteria of reasonableness and diligent execution in remedying anindependent consultant has been filed showing evidence supportingenvironmental damage. On March 9, 2010 thethesisEuropean Court gave a sentence that basically represented a favorable outcome for Eni’s subsidiaries involved in the matter. Specifically, the European Court confirmed the community principle of theplaintiffs.liability associated with the environmental damage, whereby central to its correct interpretation is the relation between cause and effect and the identification of the entity that is actually liable for polluting.
It must be noted that the Public prosecutor of Siracusa commenced a criminal action against unknown in order to verify the effective contamination of the Augusta harbor and the connected risks on the execution on the clean-up project proposed by the Ministry. Theproceedings are still pending beforetechnical assessment disposed by theAdministrative CourtPublic Prosecutor generated the following outcomes: a) no public health risk in the Augusta harbor; b) absence ofLazio.any involvement on part of Eni companies in the contamination; c) drainages dangerousness. Based on those findings, the Public Prosecutor decided to dismiss the proceeding.
ENI SPA (i)(vii)Reorganization procedure of the airlines companies Volare Group, Volare Airlines and Air Europe.Europe - Prosecuting body: Delegated Commissioner.OnIn March 2009 Eniwasand its subsidiary Sofid (now Eni Adfin) were notified of a bankruptcy claw-back as part of a reorganization procedure filedby the airlines companies Volare Group, Volare Airlines and Air Europe which commenced under the provisions of Ministry of Production Activities, on November 30, 2004. The request regarded the override of all the payments made by those entities to Eni andits subsidiary SofidEni Adfin, as Eni agent for the receivables collection, in the year previous to the insolvency declaration from November 30, 2003 to November 29, 2004, for a total estimated amount of euro 46million.million plus interest. Eni and Eni Adfin were admitted as defendants and the trial has been postponed to the hearing on May 5, 2010 for the related investigation. Eni accrued a risk provision with respect to this proceeding.
F-732. Other judicial or arbitration proceedings
2. Other judicial or arbitration proceedingsSYNDIAL SPA (FORMER ENICHEM SPA) (i) Serfactoring: disposal of receivables.receivables.In 1991, Agrifactoring SpA commenced proceedings against SerfactoringSpA, a company 49% owned by Sofid SpA and which is controlled by EniSpA. 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(both merged intoEniChem SpA (now Syndial SpA)Syndial). Such receivables were transferred by Agricoltura and Terni Industrie Chimiche to Serfactoring, which appointed Agrifactoring as its agent toF-85
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. Agricolturaliquidation, claiming for the reimbursement of the amount paid to Serfactoring andTerni Industrie Chimiche broughtnot liquidated to Agrifactoring by Federconsorzi. Syndial and Serfactoring filed counterclaims against Agrifactoring (in liquidation) for damages amounting to euro 97 million relating to acts carried out by Agrifactoring SpA as agent. The amount of these counterclaimshaswas subsequentlybeenreduced to euro 46 million following partial payment of the original receivables by the liquidator of Federconsorzi and various setoffs. These proceedings, whichhave all been joined,were unitized, were decided with a partial judgment, deposited on February 24, 2004; the request of Agrifactoringhas been– that was reduced by an independent accounting consultant to the amount of euro 42.3 million – was rejected and the companyhas beenwas ordered to pay the sum requested by Serfactoring anddamages in favor of Agricoltura,Syndial to be determined following the decision.A final verdict on this issue is pending.Agrifactoring appealed thispartialdecisionrequestingand inparticular 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. OnJune 2008, the trial was decided with a partial judgment that, reforming the previous judgment of the Court of Rome, granted the requests of Agrifactoring and condemned Serfactoring to reimburse Agrifactoring the sum paid by the latter toAgrifactoring in liquidationtheamount of the receivables due from Federconsorziformer and notcollected as Federconsorzi went bankrupt.refunded by Federconsorzi. The Court resolved toappointcharge an independent accounting consultantto quantifywith quantifying the total amount paid by Agrifactoring to Serfactoring andamountsthe amount paid by Federconsorzi toAgrifactoring. The hearing has been rescheduled to February 2010Agrifactoring in order toallowdetermine theCourtsum toreviewbe reimbursed to Agrifactoring.
The proceeding will continue with the recognition of the assessment made by the independent accountingconsultant’s advice.consultant. Serfactoring and Syndialand Serfactoring(as precautionary measure, since they have already filed a preliminary appeal) appealed the above mentioned partial sentence of 2008 of the second instance court of Rome with an upper degree Court. Agrifactoring in turn filed counterclaim, requesting theSupreme Courtdeclaration ofAppeal. Agrifactoring has presented a counter-recourse.inadmissibility or the rejection of the appeal.. The judgment is still pending. Eni accrued a provision with respect to this proceeding.
ENISAIPEM SPA(i)Fintermica.Fintermica presented a claim against Eni concerning the management of the Jacorossi joint venture with reference to an alleged abuse of key roles played by Eni SpA in the joint venture, thus damaging the other partner’s interest and the alleged dilatory behavior of Syndial in selling its interest in the joint venture to Fintermica. The parties decided to commence arbitration on the matter. The examining phase is ongoing and an independent assessment of this matter is being executed. The Board of Arbitrators issued a decision on November 26, 2008 condemning Eni and Syndial to compensate Fintermica for the damages suffered amounting to euro 5 million including monetary revaluation and accrued interest as of April 3, 2001.
SNAMPROGETTI SPA(i)(ii)CEPAV Uno and CEPAV Due. EniSaipem holds interests in the CEPAV Uno (50.36%) and CEPAV Due (52%) consortia that in 1991 signed two contracts with TAV SpA for the construction of two railway tracks for high speed/high capacity trains from Milan to Bologna (under construction) and from Milan to Verona (in the design phase). With regard to the project for the construction of the line from Milan to Bologna, an Addendum to the contract between CEPAV Uno and TAV was signed on June 27, 2003, redefining certain terms and conditions of the contract. Subsequently, the CEPAV Uno consortium requested a time extension for the completion of works and a claim amounting to euro 800 million then increased to euro 1,770 million. CEPAV Uno and TAV failed to solve this dispute amicably. CEPAV Uno opened an arbitration procedure as provided for under terms of the contract on April 27, 2006. The deadline for the submission of the arbitration determination has been scheduled for December 27, 2011. With regard to the project for the construction of a high-speed railway from Milan to Verona,inon December 2004, CEPAV Due presented the final project, prepared in accordance with Law No. 443/2001 on the basis of the preliminary project approved by an Italian governmental authority (CIPE). As concerns the arbitration procedure, commenced on December 28, 2000, requested by CEPAV Due against TAV for the recognition of costs incurred by the Consortium in the1991-2000 ten-yearten year period from 1991 through 2000 plus damages suffered,damage,in January 2007, the arbitration committee determined the Consortium’s right to recover the costs incurred in connection with the design activities performed.AThe technical independent surveyis underwayto assess the amount of compensation
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to be awarded towas submitted on October 19, 2009. The trial ended on February 23, 2010 with theConsortium as requested byresolution of the arbitrationcommittee.that condemned TAVappealedto pay to CEPAV Due consortium an amount of euro 44,176,787 plus legal interest and compensation for inflation accrued from the submission of the arbitrationcommittee’s determination. In April 2007,until theConsortiumdate of effective damage payment; the court also condemned TAV to pay euro 1,115,000 plus interest and compensation for inflation accrued from October 30, 2000 until the date of effective damage payment. The resolution has been filed with relevant administrative authorities for its efficacy as per applicable regulations. TAV filed with the second instance court of Rome an appeal againstLawthe partial arbitration committee’s determination of January 2007. The hearing for the examination of the pleadings has been scheduled for January 28, 2011. In February 2007, the Consortium CEPAV Due notified to TAV a second request of arbitration following the Decree No. 7 of December 31, 2007, that revoked the concessions awarded to TAV resulting in the annulment of arrangements signed between TAV and the Consortium to build the high-speed railway section from Milan to Verona. The European Court of Justice was requested to judge on this matter.In the meantime, TAV decided to not request the reimbursement of advances paid to the Consortium.Subsequently, Law 133/2008 re-established the concessions awarded to TAV resulting in the continuation of the arrangements between the consortium CEPAV Due and a new entity in charge of managing the Italian railway system. The second arbitration proceeding, which continued in order toF-86
3. Antitrust, EU Proceedings, Actionsdeterminate the damages suffered by the Consortium even in the period prior to the revocation of theAuthorityconcession through an independent appraiser report. The deadline forElectricity and Gas andthe submission ofOther Regulatory Authoritiesthe arbitration determination has been scheduled for December 31, 2010.3.1 Antitrust3. Antitrust, EU Proceedings, Actions of the Authority for Electricity and Gas and of Other Regulatory Authorities
3.1 Antitrust
ENI SpASPA(i) Abuse of dominant position of Snam alleged by the Italian Antitrust Authority.Authority. In March 1999, the Italian Antitrust Authority concluded its investigation started in 1997 and: (i) found that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam for euro 2 million; and (iii) ordered a review of the practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Authority did not appeal this decision. The decision on the merit of this dispute is still pending before the same Administrative Court.
(ii) Formal assessment commenced by the Commission of theEuropeanCommunities for the evaluation of alleged participation to activities limiting competitionCommission’s investigations on players active in thefieldnatural gas sector. In the context ofparaffin.On April 28, 2005, the Commission of the European Communities commenced a formal assessment to evaluate the alleged participation of Eni anditssubsidiaries in activities limiting competition in the field of paraffin. The alleged violation of competition is for: (i) the determination of and increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. After, the Commission requested information on Eni’s activities in the field of paraffin and certain documentation acquired by the Commission during an inspection. Eni filed the requested information. On October 2008, the Commission of the European Communities issued the final decision on the matter condemning Eni to the payment of a sanction amounting to euro 29,120,000. Eni has filed for recourse against this decision that is fully covered by the accrued risk provision.(iii)Ascertainment by the European Commission ofinitiatives aimed at verifying the level of competition in theEuropeannatural gasmarket.As part of its activities to ascertain the level of competition insector within the Europeannatural gas market, with Decision No. C (2006)1920/1 ofUnion, the Commission adopted a decision – notified to Eni in May5,2006 – whereby it ordered Eni and all companies solely or jointly controlled by theEuropean Commission informed Eni that the Group companies were subjectlatter toan inquiry undersubmit to inspections pursuant to Article 20, paragraph 4 of theEuropeanCouncil Regulation No. 1/2003 of the Council in order2003. The inspections were intended to verify the possible existence ofany business conducts breaching Europeanbehaviors or commercial practices violating EC competition rulesin terms of competitionandintended to preventaimed at limiting access to the Italian wholesale natural gaswholesalemarketand to subdivideor at sharing the marketamong few operatorswith other companies active in theactivity of supply andsale or transport of natural gas.Similar actions have been performed byThe Commission undertook similar initiatives with respect to theCommission also againstother largest European players in themain operators innatural gas sector in Germany, France, Austria and Belgium.In April 2007, the European Commission made public its decision to start a further stage of inquiry, as the elements collected supported its suspicion that Eni adopted behaviors leading to "capacity hoarding and strategic, in its view, 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".On March 9, 2009, Eni received aStatementstatement ofObjections relatedobjections by the European Commission relating to a proceeding under ArticleNo.82of the EU TreatyEC and ArticleNo.54 of theSEE agreement with reference toEEA Agreement and concerning an allegedunjustifiableunjustified refusalofto grant access to the TAGand(Austria), TENP/Transitgasgas(Germany/Switzerland) pipelines,that are interconnectedconnected with the Italian gas transportsystemsystem. In particular, according to the Statement of Objections, the alleged refusal to grant access would have been carried out throughactions intended to "capacity"capacity hoarding, capacity degradation and strategiclimitation of investment" withunderinvestment" and would have had the effect of"hindering"hindering the development ofa realeffective competition in the downstream market and [...] harming consumers". In theconsumers". The EuropeanStatement of Objections, the Commission envisages the possible imposition upon Eni of structural remedies and a fine, which, if imposed, could be significant. Eni after the completion of the assessment of the allegations set forth by the Commission in Statement of Objections with respect to both the existence of the alleged behaviors and whether they can be properly qualified as infringements of EC competition rules submitted its written reply that was exposed before the representatives of the Commission in November 27, 2009. On February 4, 2010 Eni, reaffirming the legitimacy of its activity, filed with the European Commission a number of structural remedies with a view to resolving the proceeding without the ascertainment of the illicit behavior and consequently without sanctions. Eni has committed to dispose of its interests in the German TENP, in the Swiss Transitgas and in the Austrian TAG gas pipelines. Given the strategic importance of the Austrian Tag pipeline, which transports gas from Russia to Italy, Eni has negotiated a solution with the Commission which calls for the transfer of its stake to an entity controlled by the Italian State. The European Commission has announced its intention to submit those remedies to a market test. According to the results of the market test, the Commission may issue a decision pursuant to Article 9 of Council Regulation No. 1/2003, making the remedies mandatory thus excluding the imposition of any fines upon Eni. In case the Commission, after the performance of the market test, resolves to reject Eni’s remedies, or the Company decides to withdraw those remedies for any reasons, the ordinary antitrust proceeding would resume and in this eventuality an adverse conclusion cannot be excluded, thus resulting in a sentence of conviction including a fine and possibly structural remedies during the course ofstructural remedies. The Company is currently assessing2010. Eni would in any event be entitled to file an appeal for thereasoning underlyingannulment of such a sentence before theCommission’s objections in order to ascertain whether the challenged actions are supported by evidence and may be qualified as infringement of the European competition rules. The Company will file its defensive memories within the proceeding. In addition, and following the aforementioned assessment, the Company may consider whether to voluntarily file a set of remedies to settle the proceeding as providedEC Courts.
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by Article No. 9 of the European Regulation No. 1/2003. Taking into account the numerous elements to be considered in determining the amount of the fine, the complex checks to carry out with respect to the Statement of Objections, and also the circumstance that the Commission’s approval of the possible remedies, presented by Eni pursuant to European Regulation No. 1/2003, would settle the matter without imposing a fine, management believes that the liability is contingent upon the future events described and cannot be measured with reasonable reliability.
(iv)(iii)TTPC.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’sF-87
commitment to perform actions favoring competition including the upgrade of the gasline. Eni accrued a provision with respect to this proceeding. With a decision filed on November 29, 2006, the Regional Administrative Court of Lazio partially accepted Eni’s claim, annulling such partpartt of the Authority’s decision where the fine was quantified. Eni is waiting for the filing of the motivations of the Court decision to ascertain the impact of said decision. Pending this development, the payment of the fine has been voluntarily suspended. In 2007, the Regional Administrative Court of Lazio accepted in part Eni’s claim and cancelled the quantification of the fine based on the Antitrust Authority’s inadequate evaluation of the circumstances presented by Eni. Eni filed an appeal with the Council of State, as did the Antitrust Authority and TTPC. Pending the final outcome, Eni awaits for the determination of the amount of the fine to be paid.
(v)(iv)Italian naturalAntitrust Authority’s inquiry in the distribution and selling of gasmarket.in the retail sector. On May 7, 2009, the Italian Antitrust Authority, based on complaints sent by the company Sorgenia, started a preliminary investigation againstthe Company and its fully-owned subsidiary Italgas and othervarious operators engaging in the gas retail market inItaly.Italy by means of integrated operations in both gas distribution via local low-pressure network and gas marketing to retail customers in urban areas, among them the Company and its fully-owned subsidiary Italgas. The investigation targets an alleged abuse of dominant position in the gas retail market in Italy associated with commercial practices intended to make it difficult for retailclientscustomers consuming less than 200,000 CM/y to change thesuppliersupplier. According to the Italian Antitrust Authority, these commercial practices would enable selling companies that belong to integrated group companies to preserve their market shares in the areas operated by group’s distributors. The deadline for the finalization of the preliminary investigation against Eni andthe retrieval of data on volumes.Italgas has been scheduled for June 30, 2010.
ENI SPA, POLIMERI EUROPA SPA AND SYNDIAL SPA (i)(v)Inquiries in relation to alleged anti-competitive agreements in the area of elastomers.elastomers - Prosecuting Body: European Commission. In December 2002, inquiries were commenced concerning alleged anti-competitive agreements in the field of elastomers. These inquiries were commenced concurrently by European and U.S. authorities. At present,proceedings area proceeding is still pending before the European Commission regarding theCR andNBRproducts. In March 2007, the Commission sent to Eni, Polimeri Europa and Syndial a statement of objections, thus opening the second phase of this proceeding.product. In December 2007, the European Commission dismissed Syndial’s position on CR and imposed on Eni and Polimeri a fine amounting to euro 132.16 million. The two companies have filed an appeal with the EU Court of First Instance against this decision and, at the same time, paid the fine in March 2008. Investigations relating to other elastomers products (BR and SBR) resulted in the ascertainment of Eni having infringed European competitionlaws in the field of synthetic rubber production (BR and ESBR).laws. On November 29, 2006, the Commission fined Eni and its subsidiary Polimeri Europa for an amount of euro 272.25 million. Eni and its subsidiary filed claims against this decision before the European Court of First Instance in February 2007. TheCommission filed a counter appeal.hearings took place in October 2009 and the filing of the Court’s decisions is still pending. Pending the outcome, Polimeri Europa presented a bank guarantee for euro 200 million and paid the residual amount of the fine. In August 2007, with respect to the above mentioned decision of the European Commission, Eni submitted a request for a negative ascertainment with the Court of Milan aimed at proving the non-existence of alleged damages suffered by tire BR/SBR manufacturers.With regard to NBR, an inquiry is underway also inThe Court of Milan declared theU.S., where class actions have alsoappeal inadmissible appealing against a sentence of the District Court of Milan; the related hearing has beencommenced. On the federal level, the class action was abandoned by the plaintiffs. However, the federal judge has yet to acknowledge this abandonment. With regard to other products under investigation in the U.S., settlements were reached with both relevant U.S. antitrust authorities and the plaintiffs acting through a class action. Eni recorded a provisionscheduled forthese matters.May 2010.
3.2 Regulation
TOSCANA ENERGIA CLIENTI SPAEni’s subsidiary Toscana Energia Clienti SpA started an action against a customer regarding alleged lack of measurement of gas consumption due to inability to access a measurement facility at the customer’s site, also in connection with the application of Resolution No. 229/2001 of the Italian Authority for Electricity and Gas. This customer has annual consumption in excess of 5,000 CM. The defendant has filed a counter-claim in relation to this proceeding. In the hearing of November 12, 2008 the judge resolved to partially accept the Eni’s subsidiary reasons and to limit compensation to be paid to the defendant to only euro 1,475 with interests amounting to euro 90. The sum was paid while the defendant is evaluating the opportunity to appeal the sentence.
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DISTRIBUIDORA DE GAS CUYANA SA(i) Toscana Energia Clienti SpA. Eni’s subsidiary Toscana Energia Clienti SpA started an action against a customer regarding alleged lack of measurement of gas consumption due to inability to access a measurement facility at the customer’s site, also in connection with the application of Resolution No. 229/2001 of the Italian Authority for Electricity and Gas. This customer has annual consumption in excess of 5,000 CM. The defendant has filed a counter-claim in relation to this proceeding. During the hearing on November 12, 2008 the judge resolved to partially accept the Eni’s subsidiary reasons and to limit compensation to be paid to the defendant to only euro 1,475 with interests amounting to euro 90. The sum was paid and the defendant in December 2009 filed an appeal against the said decision. (ii) Distribuidora de Gas Cuyana SA.Formal investigation of the agency entrusted with the regulations for the natural gas market in Argentina. Enargas started a formal investigation on some operators, among them Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be F-88
decided after closing the investigation. In April 2004 the company filed a defensive memorandum. On April 28, 2006, the company formally requested the acquisition of documents from Enargas in order to have access to the documents on which the allegations are based. (iii) Preliminary investigation of the Authority for Electricity and Gas on the application of the regulation on the issue of the transparency of invoices. On September 25, 2009 the Authority for Electricity and Gas sentenced (sentence VIS 93/2009) to commence a preliminary investigation against 5 marketing companies in the electricity sector, including Eni, to ascertain the eventual violation of the regulation on the issue of the transparency of the invoices (Resolutions 152/2006, 156/2007 and 272/2007) and to eventually inflict administrative monetary penalties.
4. Tax Proceedings
ITALY - ENI SPA (i) Dispute for the omitted payment of the municipal tax related to oil platforms located in territorial waters in the Adriatic Sea. With a formal assessment presented by the Municipality of Pineto (Teramo) in December 1999, Eni SpA has been accused of not having paid a municipal tax on real estate for the period from 1993 to 1998 on four oil platforms located in the Adriatic Sea which constitute municipal waters in front of the coast of Pineto. Eni was requested to pay a total of approximately euro 17 million including interest and a fine. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application as requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. However, the Court overturned both judgments, declaring that a municipality can consider requesting a tax on real estate in the sea facing its territory and with the decision of February 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the matters of the proceeding. This commission charged an independent consultant with assessing all the accounting/technical aspects of the matter. The independent consultant confirmed that Eni’s offshore installations lack any ground to be subject to the municipal tax that was claimed by the local Municipality. Those findings were accepted by the Regional Tax Commission with a ruling made on January 19, 2009, and filed on December 14, 2009.
Also on December 28, 2005, also the Municipality of Pineto presented similar claims relating to the same Eni platforms for the years 1999 to 2004. The total amount requested was euro 24 million including interest and penalties. Eni filed a claim against this claim which was accepted by the first degree judge with a decision of December 4, 2007. Similar formal assessments related to Eni oil and gas offshore platforms were presented by the Municipalities of Falconara Marittima, Tortoreto, Pedaso, and also from 2009 the Gela Municipality. The total amounts of those claims were approximately euro 7.5 million. The company filed appeal against all those claims. With reference to the formel claims to Eni’s platforms presented by the Municipality of Tortoreto the first degree judge, with a decision of March 1, 2010, accepted the request of Eni.
ENI SPADispute for the omitted payment of the municipal tax related to oil platforms located in territorial waters in the Adriatic Sea.With a formal assessment presented by the Municipality of Pineto (Teramo) in December 1999, Eni SpA has been accused of not having paid a municipal tax on real estate for the period from 1993 to 1998 on four oil platforms located in the Adriatic Sea which constitute municipal waters in front of the coast of Pineto. Eni was requested to pay a total of approximately euro 17 million including interest and a fine. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application as requested by the municipality lacked objective fundamentals. The claim has been accepted in the first two degrees of judgment at the Provincial and Regional Tax Commissions. However, the Court overturned both judgments, declaring that a municipality can consider requesting a tax on real estate in the sea facing its territory and with the decision of February 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the matters of the proceeding. This commission nominated a Board of Consultants, in order to make all the accounting/technical verifications necessary for the judgment. On December 28, 2005, the Municipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested from Eni is euro 24 million including interest and penalties. Eni filed a claim against this request which was accepted by the first degree judge with a decision of December 4, 2007. Similar formal assessments related to Eni oil and gas offshore platforms were presented by the Municipalities of Falconara Marittima and Pedaso. The total amounts of those claims were approximately euro 6 million. The company filed appeal or is planning to appeal.
OUTSIDE ITALY - AGIP KARACHAGANAK BV (ii) Claims concerning unpaid taxes and relevant payment of interest and penalties. In July 2004, relevant Kazakh Authorities informed Agip Karachaganak BV and Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of 2000 to 2003 tax audits. Both companies counterclaimed against the assessment and a preliminary agreement was reached on November 18, 2004. Final assessments have now been issued by the Kazakh Authorities, and payment has been made. The final amount assessed and paid was $39 million net to Eni; this figure included taxes and interest. The companies continue to dispute the assessments and reserve the right to engage in International Arbitration proceedings with the Kazakh Authorities.
In October 2009, Kazakh Tax Authorities conducted a complex tax audit of Agip Karachaganak BV Branch and Karachaganak Petroleum Operating Co BV Branch, for the period 2004-2007.
In December 2009, the tax authorities issued Tax Audit Act and relevant Notification for the year 2004 but so far nothing has been finalized for the later years. The 2004 audit resulted in an assessment of $21.6 million relating to CIT and WHT ($0.3 million). These amounts are disputed and appeals have been submitted to the Higher Level Tax Authority. There is also a dispute in relation to certain unresolved items of expenditure incurred by the operating company Karachaganak Petroleum Operating
AGIP KARACHAGANAK BVClaims 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 Co BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of 2000 to 2003 tax audits. Both companies counterclaimed against the assessment and a preliminary agreement was reached on November 18, 2004. Final assessments have now been issued by the Kazakh Authorities, and payment has been made. The final amount assessed and paid was $39 million net to Eni; this figure included taxes and interest. The companies continue to dispute the assessments and reserve the right to challenge their findings further.F-89
BV which has led to the Kazakh Authorities making certain claims against the company on the base of audits performed relating to prior years 2003-2006. Parties are negotiating in order to settle the dispute.
(iii) Tax proceedingEni Angola Production BV. In the first months of 2009 the Ministry of the Finance of Angola, following a fiscal audit commenced at the end of 2007, filed a notice of tax assessment for fiscal years 2002 to 2007 in which it objected to the deductibility of amortization charges recognized on assets in progress related to the payment of the Petroleum Income Tax that was made by Eni Angola Production BV as co-operator of Cabinda concession. The company filed an appeal against this decision with the Provincial Court of Luanda for all the years of the claim. The Court of First Instance declared that it lacked competence in judging the matter. The judgment is still pending before the Supreme Court. Eni accrued a provision with respect to this proceeding.
5. Court Inquiries
(i) EniPower.EniPower. In June 2004, the Milan Public Prosecutor commenced inquiries into contracts awarded by Eni’s subsidiary EniPower and on supplies from other companies to EniPower. These inquiries were widely covered by the media. It emerged that illicit payments were made by EniPower suppliers to a manager of EniPower who was immediately dismissed. The Court presented EniPower (commissioning entity) and Snamprogetti (now Saipem SpA) (contractor of engineering and procurement services) with notices of process in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In its meeting of August 10, 2004, Eni’s Board of Directors examined the aforementioned situation and Eni’s CEO approved the creation of a task force in charge of verifying the compliance with Group procedures regarding the terms and conditions for the signing of supply contracts by EniPower and Snamprogetti and the subsequent execution of works. The Board also
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advised divisions and departments of Eni to cooperate fully in every respect with the Court. From the inquiries performed, no default in the organization emerged, nor deficiency in internal control systems. External experts have performed inquiries with regard to certain specific aspects. In accordance with its transparency and firmness guidelines, Eni will taketook the necessary steps in acting as plaintiff in the expected legal action in order to recover any damage that could have been caused to Eni by the illicit behavior of its suppliers and of their and Eni employees. In the meantime, preliminary investigations have found that both EniPower and Snamprogetti are not to be considered defendants in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In August 2007, Eni was notified that the Public Prosecutor requested the dismissal of EniPower SpA and Snamprogetti SpA, while the proceeding continues against former employees of these companies and employees and managers of the suppliers under the provisions of Legislative Decree No. 231/2001. Eni SpA, EniPower and Snamprogetti presented themselves asplaintiffs.plaintiffs in the preliminary hearing. In the preliminary hearing related to the main proceeding on April 27, 2009, the judge for the preliminary hearing requested all the parties that have not requested the plea-bargain to stand in trial, excluding Romeo Franco Musazzi and ABB Instrumentation SpA as a result of the statute of limitations. During the hearing on March 2, 2010 the Court confirmed the admission as plaintiffs of Eni SpA, EniPower SpA and Saipem SpA against the inquired parties under the provisions of Legislative Decree No. 231/2001. The trial continues.
(ii) Trading. An investigation is pending regarding two former Eni managers who were allegedly bribed by third parties to favor the closing of certain transactions with two oil product trading companies. Within such investigation, on March 10, 2005, the public prosecutor of Rome notified Eni of two judicial measures for the seizure of documentation concerning Eni’s transactions with the said companies. Eni is acting as plaintiff in this proceeding. The judge for preliminary hearings rejected most of the dismissal request, forcingrequests issued by the public prosecutor. Based on the decision of the judge for preliminary hearings the public prosecutor of Rome notified Eni, as injured party, the summon against two former managers of the company charged of aggravated fraud related tocontinue withthecriminal case.relevant patrimonial damage caused to the injured party through the abuse of working relations and activities. The first hearing took place in March 30, 2010 and the Company established itself as plaintiff. The proceeding is still pending.
(iii) TSKJ Consortium Investigations of the SECby U.S., Italian, andotherOther Authorities.The U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice (DoJ), and other authorities are investigating alleged improper payments made bySnamprogetti Netherlands BV has a 25% participation in the TSKJ Consortiumto certain Nigerian public officialscompanies. The remaining participations are held inrelation toequal shares of 25% by Halliburton/KBR, Technip, and JGC. Beginning in 1994 the TSKJ Consortium was involved in the construction of natural gas liquefaction facilities at Bonny Island in Nigeria.Snamprogetti Netherlands BV had a 25% participation in the TSKJ companies, with the remaining participations held by subsidiaries of Halliburton/KBR, Technip, and JGC.Snamprogetti SpA, the holding company of Snamprogetti Netherlands BV, was a wholly owned subsidiary of Eni until February 2006, when an agreement was entered into for the sale of Snamprogetti to Saipem SpA and Snamprogetti was merged into Saipem as of October 1, 2008. Eni holds a 43% participation in Saipem. In connection with the sale of Snamprogetti to Saipem, Eni agreed to indemnify Saipem for a variety of matters, including potential losses and charges resulting from the investigations into the TSKJmatter.matter referred to below, even in relation to Snamprogetti subsidiaries. TheF-90
U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice (DOJ), and other authorities, including the Public Prosecutor’s office of Milan, are investigating alleged improper payments made by the TSKJ Consortium to certain Nigerian public officials. The proceedings in the U.S.: beginning in June 2004, Eni and Saipem/Snamprogetti voluntarily provided information in response to requests by the SEC and the DOJ in connection with the investigations. In February 2009, KBR and its former parent company, Halliburton, announced that they had reached a settlement with the SEC and DoJthe DOJ with respect to the TSKJ matter as well as other unspecified matters.In connection with the settlement, KBRKBR/Halliburton pleaded guilty to Foreign Corrupt Practices Act (FCPA) charges, for the conduct stemming fromthetheir participation in TSKJ,matter. KBRandHalliburton alsothey have agreed to pay asubstantialcriminal fine of $402 million to the DOJ and a civil penalty of $177 million to the SEC. In view of the agreements entered intocivil settlementsby KBR/Halliburton with theSEC. We understand thatDOJ and SEC, theDoJ andTSKJ matter could result in legal liability on theSEC believe that representativespart of individuals as well as the other members of the TSKJ Consortiumwere involvedEntities found inthe conduct that gave rise toviolation of the FCPA,charges against KBR. Since June 2004, EniandSaipem/Snamprogetti have been inthose entities could be subject to substantial fines and the imposition of ongoing measures by the U.S. government to prevent future violations, including potentially a monitor of internal controls, and debarment from government contracts.
In a press release on February 12, 2010, the French company Technip announced, as a result of the circumstances that its discussions with U.S. authorities had intensified over the prior weeks, the recognition of a provision for an amount of euro 245 million reflecting the estimated cost of resolution with such authorities.
As to Eni, discussions with the U.S. authorities have intensified recently. Based on the ongoing status of the discussions, the Company has estimated the cost of a global resolution of the matter with the U.S. authorities andhave provided informationrecorded a provision of euro 250 million also considering the contractual obligations assumed by Eni to indemnify Saipem as part of the divestment of Snamprogetti.
The proceedings inresponse to requestsItaly: beginning in 2004, the TSKJ matter has prompted investigations byvarious regulators, including the SEC, the DoJ andthe Public Prosecutor’s office of Milan against unknown persons. Since March 10, 2009, the Company has received requests of exhibition of documents from the Public Prosecutor’s office of Milan. On July 17, 2009, the date on which a search and attachment warrant was served on Saipem/Snamprogetti, the Public Prosecutor’s office of Milan indicated to the company that it is investigating one or more people, including at least one former manager of Snamprogetti; previously, as far as the company knew, none of its employees or former employees was under formal investigation. The events under investigation cover the period since 1994 and also concern the period of time subsequent to the June 8, 2001 enactment of Italian Legislative Decree No. 231 concerning the liability of legal entities. A violation of Legislative Decree June 8, 2001, No. 231 can result inconnectionthe confiscation of criminal profits in addition to administrative penalties. During the preliminary investigations, the preventive attachment of such profits and other precautionary measures are possible. On July 31, 2009, a decree issued by the Judge for Preliminary Investigation at the Court of Milan was served on Saipem SpA (as legal entity incorporating Snamprogetti SpA). The decree set for September 22, 2009 a hearing in Court in relation to a proceeding ex Legislative Decree No. 231 of June 8, 2001 whereby the Public prosecutor of Milan is investigating Eni SpA and Saipem SpA for liability of legal entities arising from offences involving international corruption charged to two former managers of Snamprogetti SpA. The Public Prosecutor of Milan requested Eni SpA and Saipem SpA to be debarred from activities involving – directly or indirectly – any agreement with theinvestigations.Nigerian National Petroleum Corporation and its subsidiaries. The above mentioned hearing allowed Eni and Saipem to their own defenses before any decision was made on the requested disqualification. The events referred to the request of precautionary measures of the Public Prosecutor of Milan cover TSKJ Consortium practices during the period from 1995 to 2004. In this regard, the Public Prosecutor claims the inadequacy and violation of the organizational, management and control Model adopted to prevent those offences charged to people subject to direction and supervision. At the time of the events under investigation, the Company had adopted a code of practice and internal procedures with reference to the best practices at the time. Subsequently, such code and internal procedures have been improved aiming at the continuous improvement of internal controls. Furthermore, on March 14, 2008 Eni approved a new Code of Ethics and a new Model 231 reaffirming that the belief that one is acting in favor or to the advantage of Eni can never, in any way, justify – not even in part – any behaviors that conflict with the principles and contents of the Code. Since April 23, 2009, with regard to investigations on the TSKJ matter the Company’s Board of Directors has timely recalled the analysis of the existing internal procedures against corruption, in order to implement any upgrading to be possibly needed, and to continue the cooperation with the relevant authorities and also resolved to promote all legal measures for protecting the Company’s interests and reputation, in the event the responsibility of its employees or collaborators is verified. The jury room of September 22, 2009 was postponed to the hearing of October 21, 2009 when the judge for the preliminary investigation rejected the request of precautionary measures of disqualification filed by the Public Prosecutor of Milan against Eni and Saipem. The Public Prosecutor of Milan appealed the decision of the Judge for Preliminary Investigation. The hearing for the review of the appeal, scheduled initially for January 20, 2010 was moved up, through a measure communicated to the defense on January 12, 2010, on JanuaryF-91
19, 2010 when the Judge of Re-examination dismissed as unfounded the appeal of the Public Prosecutor. In February 19, 2010 the Public Prosecutor of Milan filed an appeal with the Third Instance Court, asking for the cancellation of the abovementioned decision of the Judge of Re-examination. At the same time on February 11, 2010 the Public Prosecutor of Milan requested, according to Article 248 of Penal Code the collection of documentation and information related to companies participated by Eni SpA and Saipem SpA (former Snamprogetti SpA) involved in the Bonny Island project. (iv) Gas Metering.Metering.On May 28, 2007, a seizure order (in respect to certain documentation) was served upon Eni and other Group companies as part of a proceeding brought by the Public Prosecutor at the Courts of Milan. The order was also served upon five top managers of the Group companies in addition to third party companies and their top managers. The investigation alleges behavior which breaches Italian criminal law, starting from 2003, regarding the use of instruments for measuring gas, the related payments of excise duties and the billing of clients as well as relations with the Supervisory Authorities. The allegation regards,interalia,inter alia, the offense contemplated by Legislative Decree of June 8, 2001, No. 231, which establishes the liability of the legal entity for crimes committed by its employee in the interests of such legal entity, or to its advantage. Accordingly, notice of the commencement of investigations was served upon Eni Group companies (Eni, Snam Rete Gas and Italgas) as well as third party companies. On November 26, 2009 a notice of conclusion of the preliminary investigation was served to Eni’s Group companies whereby 14 Eni employees, also including former employees, are under investigation. The exceptions filed in the notice include: (i) violations pertaining to recognition and payment of certain amounts of the excise on natural gas; (ii) violations or failure in submitting the annual statement of gas consumption and/or in the annual declarations to be filed with the Duty Authority or the Authority for Electricity and Gas; and (iii) a related obstacle which has been allegedly posed to the monitoring functions performed by the Authority for Electricity and Gas. Based on information reported by the press on March 9, 2010, it has been disseminated that the Public Prosecutor of Milan requested that a number of investigated Eni’s employees and former employees would stand trial.
On February 23, 2010 Eni, Snam Rete Gas and Italgas received a notification requesting the collection of documents related to procedures of constitution, definition, update and implementation of Model 231 in the period from 2003 to 2008.
The Group companies are cooperating with the Supervising Authorities in the investigations.(v) Agip KCO NV.NV. In November 2007, the public prosecutor of Kazakhstan informed Agip KCO of the start of an inquiry for an alleged fraud in the award of a contract to the Overseas International Constructors GmbH in 2005.(vi) Kazakhstan. On October 1, 2009 the Public Prosecutor of Milan requested a number of documents pursuant to Article 248 of the Penal code. Through this decision, part of a criminal proceeding against unknown parties, Eni SpA was requested to transmit – in relation to the alleged international corruption, embezzling pillage, and other crimes – audit reports and other documentation related to anomalies and critical issues on the management of: the Karachaganak plant; and the Kashagan project. The crime of "international corruption" mentioned in the said request of transmission of documents is sanctioned, in addition to the Italian criminal code, by Legislative Decree June 8, 2001 No. 231 which establishes the administrative responsibility of companies for crimes committed by their employees on their behalf. Eni commenced the collection of the documentation in order to rapidly fulfill the requests of the Public Prosecutor. The company has deposited in different phases the documents collected. The Company continues to fully collaborate with the Public Prosecutor providing also further documentation when available.
6. Settled Proceedings
(i) Preliminary investigation of the Authority for Electricity and Gas about application of the "K" conversion factors for volumes adjustments. In May 2009 the Authority for Electricity and Gas, based on evidence collected during certain inspections and subsequent requests of information, communicated to the Company the results of an inquiry that stated that the company improperly applied the conversion factor "K" for natural gas volumes accounting at a number of Eni’s delivery points. The company filed its conclusions in a defensive memorandum, objecting to the Authority’s findings. On the basis of a comparative evaluation of the sanctions imposed at the end of analogous inquiries commenced against other gas companies, Eni accrued a risk provision with respect to this proceeding. On October 5, 2009 the Authority for Electricity and Gas with sentence VIS 94/2009 upheld partially Eni’s objections and recognized that the obligation to apply the "K" conversion index for marketing companies as determined by the distribution companies was effective from 2004 as opposed to the year 2001 as initially stated by the Authority for Electricity and Gas. This decision determined in one case the ceasing of the
ENI SPAInquiry of the Italian Authority for Electricity and Gas regarding information to clients about the right to pay amounts due for natural gas sales in installments.With Decision No. 228/2007, the Italian Authority for Electricity and Gas commenced a formal inquiry regarding information to clients about the right to pay amounts due
F-78F-92
infringement as well as the reduction of the liability and associated duration in all the other cases. The Authority for Electricity and Gas imposed a fine amounting to euro 1,023,000 on Eni that was fully covered by the accrued risk provision. Eni paid the sanction even if the Company considers its motivations to be well grounded in the appeal proposed against the Authority for Electricity and Gas findings before the Administrative Court in December 2009. (ii) Formal assessment commenced by the Commission of the European Communities for the evaluation of alleged participation to activities limiting competition in the field of paraffin. On April 28, 2005, the Commission of the European Communities commenced a formal assessment to evaluate the alleged participation of Eni and its subsidiaries in activities limiting competition in the field of paraffin. The alleged violation of competition is for: (i) the determination of an increase in prices; (ii) the subdivision of customers; and (iii) exchange of trade secrets, such as production capacity and sales volumes. After, the Commission requested information on Eni’s activities in the field of paraffin and certain documentation acquired by the Commission during an inspection, Eni filed the requested information. In October 2008, the Commission of the European Communities issued the final decision on the matter condemning Eni to the payment of a sanction amounting to euro 29,120,000. Eni paid the fine which was fully covered by the accrued risk provision, filing however for recourse against this decision.
(iii) Alleged unauthorized waste management activities - EniPower. In 2004, the public prosecutor of Rovigo commenced an investigation for alleged crimes related to unauthorized waste management activities in Loreo relating to the samples of soil used during the construction of the new EniPower power station in Mantova. The prosecutor requested the CEO of EniPower and the managing director of the Mantova plant at the time of the alleged crime to stand trial. In the hearing on April 6, 2009 the judge dismissed the accusation as a result of the statute of limitations.
for the natural gas sales in installments in order to possibly put a stop to the alleged infringement of the clients’ rights and to impose a fine. In April 2008, the Authority concluded its inquiry and fined the Company by euro 3.2 million.
SYNDIAL SPA (FORMER ENICHEM SPA)Criminal action commenced by the public prosecutor of Brindisi.In 2000, the public prosecutor of Brindisi commenced 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 the public prosecutor asked for the dismissal of the case in respect of the employees and the managers of EniChem. Plaintiffs presented oppositions, but the prosecutor confirmed the request to dismiss the case with a decision of June 2008, the public prosecutor dismissed the accusation as unfounded and requested the closing of the proceeding.
AGIP KCO NVIn December 2007 the Kazakh tax authority filed a notice of tax assessment for fiscal years 2004 to 2006 to Agip KCO, operator of the Kashagan contract. Allegedly unpaid taxes, including interest and penalties, amounted to approximately U.S. $235 million net to Eni and related to unpaid amounts and inapplicable deductions on value added tax and the default in applying certain withholding taxes on payments to foreign suppliers. The same notice also informed the companies party to the Kashagan contract that further assessments were pending on non-deductible costs for U.S. $188 million net Eni and higher taxable income on Kazakh branches for U.S. $48 million net to Eni. The further assessments were subsequently issued, the company filed an appeal and a settlement was reached in October 2008 with the following outcome: the unpaid taxes net to Eni were agreed at U.S. $24 million (U.S. $235 million assessed). An adjustment to deductible costs was agreed at U.S. $38 million net to Eni (U.S. $188 million assessed) and it was further agreed that there would be no income taxable on Kazakh branches (U.S. $48 million assessed).
Other risks and commitmentsParent company guarantees amounted to euro 11,110 million (euro 4,911 million at December 31, 2006) were issued in connection with certain contractual commitments for hydrocarbon exploration and production activities, quantified on the basis of the capital expenditures to be incurred. The increase of euro 6,199 million primarily related to commitments that Agip Caspian Sea BV in Kazakhstan had entered into for euro 5,605 million.
Under the convention signed on October 15, 1991 by Treno Alta Velocità - TAV SpA and CEPAV (Consorzio Eni per l’Alta Velocità) Due, Eni committed to guarantee the execution of design and construction of the works assigned to the CEPAV Consortium (to which it is 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.
A commitment entered into by Eni USA Gas Marketing Llc on behalf of Cameron LNG for fulfilling certain obligations in connection with a regasification contract signed on August 1, 2005. This commitment is subject to a suspension clause and will come into force when the regasification service starts in a period included between October 1, 2008 and June 30, 2009 for an estimated total consideration of euro 226 million.
A commitment entered into by Eni USA Gas Marketing Llc on behalf of Gulf LNG Energy for the acquisition of unused regasification capacity (5.78 BCM/y) over a twenty-year period (2011-2031) for an estimated total consideration as high as $1,400 million equal to euro 951 million.
A commitment entered into by Eni USA Gas Marketing Llc on behalf of Angola LNG Supply Service for the acquisition of regasified gas at the Pascagoula plant in the United States that will come into force when the regasification service starts in a period included between 2011-2031.
Eni is liable for certain non-quantifiable risks related to contractual assurances given to acquirers of certain of Eni’s assets, including businesses and investments, against certain contingent liabilities deriving from tax, social security contributions, environmental issues and other matters applicable to periods during which such assets were
F-79
operated by Eni. Eni believes such matters will not have a material adverse effect on the Company’s results of operations and liquidity.Assets 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 theproductionexploration and development activities and it is entitled to the productions realized. InProductProduction 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 therecoverrecovery of costs incurred for the exploration, development and operating activities (cost oil) and give entitlement to theownretained portion of the realized productions (profit oil). With reference to natural gas storage in Italy, the activity is conducted on the basis of concessions with a duration that does not exceedatwentyyear durationyears and it is granted by the Ministry of Productive Activities to persons 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 theexpiryexpiration date of the concession, compensation is paid, defined by using criteria of business appraisal, to the outgoing operator following the sale of its own gas distribution network. Service tariffs for distribution are defined on the basis of a method established by the Authority for Electricity and 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, all non-removable assets are transferred to the grantor of the concession.
Environmental regulations
Risks associated with the footprint of Eni’s activities on the environment, health and safety are described in the risk section above, under the paragraph "Operational risks".RegardingIn the future, Eni will sustain significant expenses in relation to compliance with environmental, health and safety laws and regulations and for reclaiming, safety and remediation works of areas previously used for industrial production and dismantled sites. In particular, regardingF-93
the environmental risk, management does not currently expect any material adverse effect upon Eni’s
consolidated financial statements,Consolidated Financial Statements, taking account of ongoing remedial actions, existing insurance policiesto cover environmental risksand the environmental risk provision accrued in theconsolidated financial statements.Consolidated Financial Statements. However, management believes that it is possible that Eni may incur material losses and liabilities in future years in connection with environmental matters due to: (i) the possibility of as yet unknown contamination; (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; (iii) new developments in environmental regulation; (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.Emission trading
Legislative Decree No. 216 of April 4, 2006 implemented the Emission Trading Directive 2003/87/EC concerning greenhouse gas emissions and Directive 2004/101/EC concerning the use of carbon credits deriving from projects for the 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 November 27, 2008, the National Committee for Emissions Trading Scheme (Ministry of Environment-Mse) publishedtheResolution 20/2008 defining emission permits for the 2008-2012 period.In particular,Eni was assigned permits corresponding to
127.2126.4 mmtonnes of carbon dioxide(approximately 25 mmtonnes/y)(of which, 25.8 in 2008, 25.8 in 2009, 25.1 in 2010, 25.0 in 2011, 24.7 in 2012) and in addition to approximately7.48.6 millionofpermits expected to be assigned with respect to new plants in the five-year period 2008-2012. Emissions of carbon dioxide from Eni’s plants were lower than permits assigned in2008. Emission permits for 25.9
F-80
million tonnes were assigned, against2009. Against emissions of carbon dioxide amounting to approximately 24.8 mmtonnes, emission permits amounting to 25.9 mmtonnes were assigned, determining a 1.1 mmtonnes surplus. In addition to such surplus, a 0.3 mmtonnes ofapproximately 25.3 million tonnes, resultingpermits (an increase inathe availability of Eni) are to be included following the contract of Virtual Power Plan GDF Suez Energia Italia, primarily assigned to cover the emissions of the EniPower plants. For this reason, the total surplusof 0.6 million tonnes.amounted to about 1.4 mmtonnes.
3029 Revenues
The following is a summary of the main components of "Revenues". For more information about changes in revenues, see "Item 5 – Operating and Financial Review and Prospects".Net sales from operations were as follows:
(euro million) 2006
2007
2008
Net sales from operations 85,957 87,103 107,843 Change in contract work in progress 148 153 305 86,105 87,256 108,148
(euro million) 2007
2008
2009
Net sales from operations 87,051 107,777 83,519 Change in contract work in progress 153 305 (292 ) 87,204 108,082 83,227
F-94
Net sales from operations were net of the following items:
(euro million) 2006
2007
2008
Excise taxes 13,762 13,292 13,142 Exchanges of oil sales (excluding excise taxes) 2,750 2,728 2,694 Services billed to joint venture partners 1,385 1,554 2,081 Sales to service station managers for sales billed to holders of credit cards 1,453 1,480 1,700 Exchanges of other products 127 121 83 19,477 19,175 19,700
(euro million) 2007
2008
2009
Excise taxes 13,292 13,142 12,122 Exchanges of oil sales (excluding excise taxes) 2,728 2,694 1,680 Services billed to joint venture partners 1,554 2,081 2,435 Sales to service station managers for sales billed to holders of credit cards 1,480 1,700 1,531 Exchanges of other products 121 83 55 19,175 19,700 17,823
Net sales from operations by business segment and geographic area of destination are presented in Note
36 -35 – Information byindustrybusiness segment and geographic financial information.Other income and revenues
Other income and revenues were as follows:
(euro million) 2006
2007
2008
Gains on price adjustments under overlifting/underlifting transactions 30 79 180 Lease and rental income 98 95 98 Gains from sale of assets 100 66 48 Contract penalties and other trade revenues 61 181 23 Compensation for damages 40 87 15 Other proceeds (*) 454 319 356 783 827 720
(euro million) 2007
2008
2009
Gains from sale of assets 66 48 306 Lease and rental income 95 98 100 Compensation for damages 87 15 54 Contract penalties and other trade revenues 181 23 31 Gains on price adjustments under overlifting/underlifting transactions 79 180 148 Other proceeds (*) 325 364 479 833 728 1,118
(*) Each individual amount included herein does not exceed euro 50 million.
F-81Gains from sale of assets amounted to euro 306 million of which euro 283 million related to the Exploration & Production segment.
3130 Operating expenses
The following is a summary of the main components of "Operating expenses". For more information about changes in operating expenses see "Item 5 – Operating and Financial Review and Prospects".
Purchases,F-95Purchase, services and other
Purchases,Purchase, services and other included the following:
(euro million) 2006
2007
2008
Production costs - raw, ancillary and consumable materials and goods 44,661 44,884 58,712 Production costs - services 10,015 10,828 13,355 Operating leases and other 1,903 2,276 2,558 Net provisions for contingencies 767 591 900 Other expenses 1,089 1,095 1,652 58,435 59,674 77,177 less: - capitalized direct costs associated with self-constructed assets - tangible assets (783 ) (1,325 ) (645 ) - capitalized direct costs associated with self-constructed assets - intangible assets (162 ) (170 ) (124 ) 57,490 58,179 76,408
(euro million) 2007
2008
2009
Production costs - raw, ancillary and consumable materials and goods 44,850 58,662 40,311 Production costs - services 10,828 13,355 13,520 Operating leases and other 2,276 2,558 2,567 Net provisions for contingencies 573 884 1,055 Other expenses 1,101 1,660 1,527 59,628 77,119 58,980 less: - capitalized direct costs associated with self-constructed assets - tangible assets (1,357 ) (680 ) (576 ) - capitalized direct costs associated with self-constructed assets - intangible assets (138 ) (89 ) (53 ) 58,133 76,350 58,351
Production costs-services included brokerage fees related to Engineering & Construction segment
forin the amount of euro 79 million (euro 37 million and euro 155 million(euro 39 millionfor the years ended December 31, 2007 andeuro 37 million in 2006 and 2007,2008, respectively).Costs incurred in connection with research and development activity recognized in the profit and loss account amounted to euro
216207 million (euro219189 million and euro189216 millionin 2006for the years ended December 31, 2007 and2007,2008, respectively) as they do not meet the requirements to be capitalized.The item "Operating leases and other" included operating leases
forin the amount of euro 1,220 million (euro 1,081 million and euro 957 million(euro 860 millionfor the years ended December 31, 2007 andeuro 1,081 million in 2006 and 2007,2008, respectively) and royalties on hydrocarbons extractedforin the amount of euro 641 million (euro 772 million and euro 871 million(euro 823 millionfor the years ended December 31, 2007 andeuro 772 million in 2006 and 2007,2008, respectively). Future minimum lease payments expected to be paid undernon-cancelablenon-cancellable operating leases were as follows:
(euro million) 2006
2007
2008
To be paid within 1 year 594 588 618 Between 2 and 5 years 1,474 1,401 2,585 Beyond 5 years 762 942 1,084 2,830 2,931 4,287
(euro million) 2007
2008
2009
To be paid within 1 year 588 618 886 Between 2 and 5 years 1,401 2,585 2,335 Beyond 5 years 942 1,084 1,034 2,931 4,287 4,255
Operating leases primarily
concernedrelate to assets for drilling activities, time charter and long-term rentals of vessels, lands, service stations and office buildings. Such leases did not include renewal options. There are no significant restrictions provided by these operating leases which limit the ability of Eni to pay dividends, use assets or to take on new borrowings.Increase of provisions for contingencies net of reversal of unutilized provisions amounted to euro
8741,055 million (euro767573 million and euro591884 millionin 2006for the years ended December 31, 2007 and2007,2008, respectively) and mainlyregarded environmental risks for euro 360 million (euro 248 million and euro 327 million in 2006 and 2007, respectively), marketing initiatives awarding prizesrelated toclients for euro 73 million (euro 44 million and euro 59 million in 2006 and 2007, respectively) andlegal or other proceedingsforin the amount of euro 333 million (euro 79 million and euro 55 million for the years ended December 31, 2007 and 2008, respectively) and environmental risks in the amount of euro 258 million (euro149327 million and euro79360 millionin 2006for the years ended December 31, 2007 and2007,2008, respectively). More information is included in Note22 -21 – Provisions for contingencies.
F-82F-96Payroll and related costs
Payroll and related costs were as follows:
(euro million) 2006
2007
2008
Wages and salaries 2,630 2,906 3,204 Social security contributions 691 690 694 Cost related to defined benefits plans and defined contributions plans 230 161 107 Other costs 305 275 282 3,856 4,032 4,287 less: - capitalized direct costs associated with self-constructed assets - tangible assets (99 ) (109 ) (148 ) - capitalized direct costs associated with self-constructed assets - intangible assets (107 ) (123 ) (135 ) 3,650 3,800 4,004
(euro million) 2007
2008
2009
Wages and salaries 2,906 3,204 3,330 Social security contributions 690 694 706 Cost related to defined benefits plans and defined contributions plans 161 107 137 Other costs 275 282 342 4,032 4,287 4,515 less: - capitalized direct costs associated with self-constructed assets - tangible assets (184 ) (235 ) (280 ) - capitalized direct costs associated with self-constructed assets - intangible assets (48 ) (48 ) (54 ) 3,800 4,004 4,181
Average number of employees
The average number and break-down of employees by category of Eni’s subsidiaries were as follows:
(number) 2006
2007
2008
Senior managers 1,676 1,594 1,621 Junior managers 11,142 11,816 12,597 Employees 34,671 35,725 36,766 Workers 25,426 25,582 26,387 72,915 74,717 77,371
(euro million) 2007
2008
2009
Senior managers 1,594 1,621 1,653 Junior managers 11,816 12,597 13,255 Employees 35,725 36,766 37,207 Workers 25,582 26,387 26,533 74,717 77,371 78,648
The average number of employees was calculated as the average between the number of employees at the beginning and end of the respective period. The average number of senior managers
includedinclude managers employed and operating in foreign countries, whose position is comparable to that of a seniormanager status.manager.Stock-based compensation
Stock
grantoption
In2008 residual rights for2009, Eni suspended the incentive plan based on the stockgrant were exercised byoption assignment to managers of EniSpAand its subsidiaries as defined in Article23592359. The following is the information about the residual plans of past periods.As of December 31, 2009 19,482,330 options were outstanding for the
Civil Codepurchase of 19,482,330 Eni ordinary shares (nominal value euro 1 each). The break-down of outstanding options are aseligible to this compensation plan. Therefore at the balance sheet date there are not residual rights granted. Changes in the 2006, 2007 and 2008 stock grant plans consisted of the following:follows:
2006
2007
2008
NumberRights outstanding
as ofsharesDec. 31, 2009
MarketAverage strike price(a)(euro)
Number of shares
Market price(a)(euro)
Number of shares
Market price(a)(euro)
Stock grants outstanding as of January 1 3,127,200
23.460
1,873,600
25.520
902,800
25.120
New rights granted Rights exercised in the period (1,236,400
) 23.933
(966,000
) 24.652
(893,400
) 21.832
Rights cancelled in the period (17,200
) 23.338
(4,800
) 26.972
(9,400
) 22.683
Stock grants outstanding as of December 31 1,873,600
25.520
902,800
25.120
of which exercisable at December 31 156,700
25.520
68,100
25.120
Stock option plan 2002 97,000 15.216 Stock option plan 2003 229,900 13.743 Stock option plan 2004 671,600 16.576 Stock option plan 2005 3,281,500 22.512 Stock option plan 2006 3,018,155 23.119 Stock option plan 2007 5,144,050 27.451 Stock option plan 2008 7,040,125 22.540 19,482,330
(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 grant assignment; (ii) the date on which the emission/transfer of the shares 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 at the beginning and end of the year is the price recorded at December 31.
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Stock optionStock options plans are designed for managersAs ofEni SpA and its subsidiaries as defined in Article 2359December 31, 2009 the weighted-average remaining contractual life of theCivil Code, who are directly responsible for corporate results or for strategic positions, making them participate to an effective incentive plan.plans at December 2002, 2003, 2004, 2005, 2006, 2007 and 2008 plans were 7 months, 1 years and 7 months, 2 years and 7 months, 3 years and 7 months, 2 years and 7 months, 3 years and 7 months and 4 years and 7 months, respectively.
2002-2004 and 2005 plansStock options plans provide the right for the assignee to purchase treasury shares 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. The strike price was determined to be the arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding the grant date or, from 2003 onwards, the average carrying amount of treasury shares as of the day preceding the assignment, if greater.F-97
2006-2008 plan
The 2006-2008 stock optionplan hasplans have introduced a performance condition for the exercise of the options. At the end of each three-year period (vesting period) from the assignment, the Board of Directors determines the percentage of exercisable options, from 0 to 100, in relation to the Total Shareholders’ Return (TSR) of Eni’s shares as benchmarked against the TSR delivered by a panel of the six largest international oil companies for market capitalization. Options can be exercised after three years from the assignment (vesting period) and for amaximumminimum period of three years. The strike price is calculated asthean arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding the assignment.
At December 31, 2008, 23,557,425 options were outstanding for the purchase of 23,557,425 ordinary shares. The break-down of outstanding options was the following:
Rights outstandingas of December 31
Average strike price(euro)
Stock option plan 2002 97,000 15.216 Stock option plan 2003 231,900 13.743 Stock option plan 2004 671,600 16.576 Stock option plan 2005 3,756,000 22.512 Stock option plan 2006 5,954,250 23.119 Stock option plan 2007 5,492,375 27.451 Stock option plan 2008 7,354,300 22.540 23,557,425
At December 31, 2008 the weighted-average remaining contractual life of the plans at December 2002, 2003, 2004, 2005, 2006, 2007 and 2008 was 1 year and 7 months, 2 years and 7 months, 3 years and 7 months, 4 years and 7 months, 3 years and 7 months, 4 years and 7 months and 5 years and 7 months, respectively.
ChangesIn 2009, changes of stock option plansin 2006, 2007 and 2008consisted of thefollowing:carry-over of the previous plans. The following table summarizes these changes:
2006
2007
2008
2007
2008
2009
Number
of shares
Average strike price (euro)
Market price (a) (euro)
Number
of shares
Average strike price (euro)
Market price (a) (euro)
Number
of shares
Average strike price (euro)
Market price (a) (euro)
Stock options as of January 1 13,379,600
17.705
23.460
15,290,400
21.022
25.520
17,699,625
23.822
25.120
Rights outstanding as of January 1 15,290,400 21.022 25.520 17,699,625 23.822 25.120 23,557,425 23.540 16.556 New rights granted 7,050,000
23.119
23.119
6,128,500
27.451
27.447
7,415,000
22.540
22.538
6,128,500 27.451 27.447 7,415,000 22.540 22.538 Rights exercised in the period (4,943,200
) 15.111
23.511
(3,028,200
) 16.906
25.338
(582,100
) 17.054
24.328
(3,028,200 ) 16.906 25.338 (582,100 ) 17.054 24.328 (2,000 ) 13.743 16.207 Rights cancelled in the period (196,000
) 19.119
23.797
(691,075
) 24.346
24.790
(975,100
) 24.931
19.942
(691,075 ) 24.346 24.790 (975,100 ) 24.931 19.942 (4,073,095 ) 13.374 14.866 Stock options outstanding as of December 31 15,290,400
21.022
25.520
17,699,625
23.822
25.120
23,557,425
23.540
16.556
Rights outstanding as of December 31 17,699,625 23.822 25.120 23,557,425 23.540 16.556 19,482,330 23.576 17.811 of which exercisable at December 31 1,622,900
16.190
25.520
2,292,125
18.440
25.120
5,184,250
21.263
16.556
2,292,125 18.440 25.120 5,184,250 21.263 16.556 7,298,155 21.843 17.811
(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 grantsgrant assignment; (ii) the dateinon which the emission/transfer of the shares grantedwaswere recorded in thegrantee’sgrantee��s securities account; and (iii) the datein whichof the unilateral termination of employment for rightswascancelled), weighted with the number of shares. Market price of stock at the beginning and end of the year is the price recorded at December 31.
F-84The 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 per share, respectively. For 2006, 2007 and 2008 the weighted average considering options granted was euro 2.89, euro 2.98 and euro 2.60 per share, respectively.
The fair value was determined by applying the following assumptions:
2002
2003
2004
2005
2006
2007
2008
Risk-free interest rate (%) 3.5 3.2 3.2 2.5 4.0 4.7 4.9 Expected life (years) 8 8 8 8 6 6 6 Expected volatility (%) 43.0 22.0 19.0 21.0 16.8 16.3 19.2 Expected dividends (%) 4.5 5.4 4.5 4.0 5.3 4.9 6.1
Costs of the year related to stock
grant and stockoption plans amounted to euro2512 million (euro2027 million and euro2725 millionin 2006for the years ended December 31, 2007 and2007,2008, respectively).F-98
Compensation of key management
Compensation of persons responsible for key positions in planning, direction and control functions of Eni Group, including executive and non-executive officers, general managers and managers with strategic responsibility (key management)amountin office for the years ended December 31, 2007, 2008 and 2009 amounted to euro2325 million, euro 25 million and euro2535 million,for 2006, 2007 and 2008respectively, and consisted of the following:
(euro million) 2006
2007
2008
Wages and salaries 16 17 17 Post-employment benefits 1 1 1 Other long-term benefits 3 3 3 Stock grant/option 3 4 4 23 25 25
(euro million) 2007
2008
2009 (*)
Wages and salaries 17 17 20 Post-employment benefits 1 1 1 Other long-term benefits 3 3 10 Stock grant/option 4 4 4 25 25 35
(*) Comparing with the previous years, the increase is attributable to a different composition of key managers and to the introduction, as substitution of stock options, of deferred bonus. The fair value of such bonus is recognized in the year while the fair value of stock options was recognized pro-quota along the duration of the plan. Compensation of Directors and Statutory Auditors
Compensation of Directors amounted to euro8.78.9 million, euro8.96.4 million and euro6.49.9 million for2006,the years ended December 31, 2007, 2008 and2008,2009, respectively. Compensation of Statutory Auditors amounted to euro0.686,0.678, euro0.6780.634 million and euro0.6340.475 millionin 2006,for the years ended December 31, 2007, 2008 and2008,2009, respectively.Compensation included emoluments and all other retributive and social security compensations due for the function of directors or statutory auditor assumed by Eni SpA or other companies included in the scope of consolidation, representing a cost for Eni.
Other operating income (loss)
Other operating income (loss) related to the recognition in the profit and loss account the effects related to the valuation of fair value, including the effects deriving from the settlement, of those derivatives on commodities which cannot be recognized according to the hedge accounting under IFRS. Net gain on commodity derivatives in the amount of euro 55 million (euro 129 and euro 124 million for the years ended December 31, 2007 and 2008, respectively) included euro 6 million related to the ineffective portion of the negative change in the fair value of cash flow hedging derivatives (time value component) entered into by the Exploration & Production segment (a loss of euro 52 million and a gain of euro 7 million for the years ended December 31, 2007 and 2008, respectively).F-99
Depreciation, depletion, amortization and impairments
Depreciation, depletion, amortization and impairments charges consisted of the following:
(euro million) 2006
2007
2008
Depreciation, depletion and amortization: - tangible assets 4,694 4,935 5,994 - intangible assets 1,462 2,096 2,436 6,156 7,031 8,430 Impairments: - tangible assets 231 140 1,343 - intangible assets 54 67 53 285 207 1,396 less: - reversal of impairments - tangible assets (17 ) (2 ) - reversal of impairment - intangible assets (1 ) - capitalized direct costs associated with self-constructed assets - tangible assets (1 ) (1 ) (4 ) - capitalized direct costs associated with self-constructed assets - intangible assets (2 ) (1 ) (4 ) 6,421 7,236 9,815
(euro million) 2007
2008
2009
Depreciation, depletion and amortization: - tangible assets 4,935 5,994 6,658 - intangible assets 2,096 2,436 2,110 7,031 8,430 8,768 Impairments: - tangible assets 145 1,343 990 - intangible assets 62 53 62 207 1,396 1,052 less: - reversal of impairments - tangible assets (2 ) (1 ) - reversal of impairment - intangible assets (1 ) - capitalized direct costs associated with self-constructed assets - tangible assets (2 ) (6 ) (4 ) - capitalized direct costs associated with self-constructed assets - intangible assets (2 ) (2 ) 7,236 9,815 9,813
F-85
32 Financial31 Finance income (expense)
Finance income (expense) consisted of the following:
(euro million) 2006
2007
2008
Finance income (expense) Finance income 3,749 4,445 7,985 Finance expense (3,971 ) (4,554 ) (8,198 ) (222 ) (109 ) (213 ) Gain (loss) on derivative financial instruments 383 26 (551 ) 161 (83 ) (764 )
(euro million) 2007
2008
2009
Finance income (expense) Finance income 4,445 7,985 5,950 Finance expense (4,554 ) (8,198 ) (6,497 ) (109 ) (213 ) (547 ) Gain (loss) on derivative financial instruments 155 (427 ) (4 ) 46 (640 ) (551 )
F-100
Net finance income (expense) consisted of the following:
(euro million) 2006
2007
2008
Finance income (expense) related to net borrowings Interest due to banks and other financial institutions (215 ) (445 ) (745 ) Interest and other finance expense on ordinary bonds (248 ) (258 ) (248 ) Interest from banks 194 236 87 Interest and other income on financing receivables and securities held for non-operating purposes 62 55 82 (207 ) (412 ) (824 ) Exchange differences Positive exchange differences 2,496 2,877 7,339 Negative exchange differences (2,648 ) (2,928 ) (7,133 ) (152 ) (51 ) 206 Other finance income (expense) Income from equity instruments 188 241 Capitalized finance expense 116 180 236 Interest and other income on financing receivables and securities held for operating purposes 119 96 62 Interest on tax credits 17 31 37 Finance expense due to passage of time (accretion discount) (a) (116 ) (186 ) (249 ) Other finance income 1 45 78 137 354 405 (222 ) (109 ) (213 )
(euro million) 2007
2008
2009
Finance income (expense) related to net borrowings Interest and other finance expense on ordinary bonds (258 ) (248 ) (423 ) Interest due to banks and other financial institutions (445 ) (745 ) (330 ) Interest from banks 236 87 33 Interest and other income on financing receivables and securities held for non-operating purposes 55 82 47 (412 ) (824 ) (673 ) Exchange differences Positive exchange differences 2,877 7,339 5,572 Negative exchange differences (2,928 ) (7,133 ) (5,678 ) (51 ) 206 (106 ) Other finance income (expense) Capitalized finance expense 180 236 223 Income from equity instruments 188 241 163 Interest and other income on financing receivables and securities held for operating purposes 96 62 39 Interest on tax credits 31 37 4 Finance expense due to passage of time (accretion discount) (a) (186 ) (249 ) (218 ) Other finance income 45 78 21 354 405 232 (109 ) (213 ) (547 )
(a) The item related to the increase in provisions for contingencies that are shown at present value in non-current liabilities. Income from equity instruments in the amount of euro
241163 million (euro 188 millionin 2007) relatingand euro 241 million for the years ended December 31, 2007 and 2008, respectively) related to the contractual remuneration of 9.4% on the 20% interest in OAO Gazprom Neft according to the contractual arrangements between Eni and Gazprom. Income has been recognized up to the date of the payment from Gazprom of the strike price on the call option, including the recovery of any additional costs, on April 24, 2009 (more information is included in Note 2-– Other financial assets held for trading or available for sale).The fair value gain (loss) on derivative financial instruments consisted of the following:
(euro million) 2006
2007
2008
Derivatives on exchange rate 313 120 (300 ) Derivatives on interest rate 61 35 (127 ) Derivatives on commodities 9 (129 ) (124 ) 383 26 (551 )
(euro million) 2007
2008
2009
Derivatives on exchange rate 120 (300 ) 40 Derivatives on interest rate 35 (127 ) (52 ) Derivatives on commodities 8 155 (427 ) (4 )
Net loss from derivatives in the amount of euro
5514 million (euro383 million and euro 26155 million of net gainin 2006for the year ended December 31, 2007 and2007, respectively)euro 427 million of net loss for the year ended December 31, 2008) was primarily due to the recognition in the profit and loss account of the change in the fair value of those derivativesthatwhich cannot bequalifiedrecognized according to the hedge accounting under IFRS ashedging instruments under IFRS. In fact, since these derivatives arethey were entered
F-86into for amounts
correspondingequal to the net exposure to exchange rate risk and interest rate risk,or commodity risk,and as such, they cannot belinkedreferred to specific trade or financing transactions.The lack of these formal requirements
in ordertoassessqualify these derivatives as hedging instruments under IFRSprovidesalso included the recognition in the profitorand lossofaccount the negativeexchangeimpact from currency translation differences on assets and liabilities denominated in currencies other than the functional currency, asthese translation effectsthis effect cannot be offset by changes in the fair value ofderivative contracts.the related instruments.
Losses on commodity derivatives amounted to euro 124 million, included gain of euro 7 million related to the ineffective portion of the change in fair value of cash flow hedging derivatives (time value component) entered into by the Exploration & Production segment. Further information is given in Note 7 - Other current asset. The fair value of derivative contracts is provided in Note 7 - Other current asset, Note 15 - Other non-current receivables, Note 20 - Other current liabilities and Note 25 - Other non-current liabilities.F-101
3332 Income (expense) from investmentsShare of profit (loss) of equity-accounted investments
Share of profit (loss) of equity-accounted investments consisted of the following:
(euro million) 2006
2007
2008
Share of profit of equity-accounted investments 887 906 761 Share of loss of equity-accounted investments (36 ) (135 ) (105 ) Decreases (increases) in the provision for losses on investments (56 ) 2 (16 ) 795 773 640
(euro million) 2007
2008
2009
Share of profit of equity-accounted investments 906 761 693 Share of loss of equity-accounted investments (135 ) (105 ) (241 ) Decreases (increases) in the provision for losses on investments 2 (16 ) (59 ) 773 640 393
More information is provided in Note
12 -11 – Investments.
Other gain (loss) from investments
Other gain (loss) from investments consisted of the following:
(euro million) 2006
2007
2008
Gains on disposals 98 170 510 Dividends 25 301 218 Losses on disposals (7 ) (1 ) (1 ) Other income (expense), net (8 ) 6 108 470 733
(euro million) 2007
2008
2009
Dividends 170 510 164 Gains on disposals 301 218 16 Losses on disposals (1 ) (1 ) Other income (expense), net 6 (4 ) 470 733 176
Dividends in the amount of euro
510164 millionprimarily relatedmainly relate to Nigeria LNG (euro453 million) and Saudi European Petrochemical Co - Ibn Zahr (euro 34101 million).Gains on disposals in 2009 amounted to euro 16 million and primarily related to a price revision for the sale of Gaztransport et Technigaz SAS (euro 10 million), which occurred in 2008. Gains on disposals in 2008 amounted to euro 218 million and primarily related to the sale of Gaztransport et Technigaz SAS (euro 185 million), Agip España SA (euro 15 million) and Padana Assicurazioni SpA (euro 10 million). Gains on disposals
forin 2007ofamounted to euro 301 million and primarily related to the sale of Haldor Topsøe AS (euro 265 million) and Camom SA (euro 25 million).Gains on disposals for 2006 of euro 25 million primarily related to the sale of Fiorentina Gas SpA and Toscana Gas SpA (euro 16 million).
F-87
3433 Incometaxestax expense
Incometaxestax expense consisted of the following:
(euro million) 2006
2007
2008
Current taxes: - Italian subsidiaries 2,007 2,380 1,916 - foreign subsidiaries of the Exploration & Production segment 6,740 6,695 9,744 - foreign subsidiaries 529 482 426 9,276 9,557 12,086 Net deferred taxes: - Italian subsidiaries 230 (582 ) (1,603 ) - foreign subsidiaries of the Exploration & Production segment 1,095 246 (827 ) - foreign subsidiaries (33 ) (2 ) 36 1,292 (338 ) (2,394 ) 10,568 9,219 9,692
(euro million) 2007
2008
2009
Current taxes: - Italian subsidiaries 2,380 1,916 1,724 - foreign subsidiaries of the Exploration & Production segment 6,695 9,744 5,989 - foreign subsidiaries 482 426 483 9,557 12,086 8,196 Net deferred taxes: - Italian subsidiaries (582 ) (1,603 ) (534 ) - foreign subsidiaries of the Exploration & Production segment 246 (827 ) (733 ) - foreign subsidiaries (2 ) 36 (173 ) (338 ) (2,394 ) (1,440 ) 9,219 9,692 6,756
Current income taxes in the amount of euro
1,9161,724 millionwere in respectconsist of IRES (euro 1,485 million) and IRAP (euro 219 million) for Italian subsidiariesfor Ires (euro 1,408 million)andIrap (euro 307 million) and offoreign taxes (euro20120 million).F-102
The effective tax rate was 56.0% (46.0% and 50.3%
(51.8%for the years ended December 31, 2007 and46.0% in 2006 and 2007,2008, respectively) compared with a statutory tax rate of 40.1% (37.9% and 38.2%(37.9% in 2006for the years ended December 31, 2007 and2007,2008, respectively) and calculated by applying a33.0%34.0%15 tax rate(Ires)(IRES) to profit before income taxes and 3.9% tax rate(Irap)(IRAP) to the net value of production as provided for by Italian laws.The difference between the statutory and effective tax rate was due to the following factors:
(%) 2006
2007
2008
Statutory tax rate 37.9 37.9 38.2 Items increasing (decreasing) statutory tax rate: - higher foreign subsidiaries tax rate 13.6 10.2 15.2 - changes in Italian statutory tax rate and adjustment of tax base of amortizable assets for Italian subsidiaries (2.0 ) - impact pursuant to Law Decree No. 112 of June 25, 2008, the Budget Law 2008 and enactment of a renewed tax framework in Libya (3.8 ) - permanent differences and other adjustments 0.3 (0.1 ) 0.7 13.9 8.1 12.1 51.8 46.0 50.3
(%) 2007
2008
2009
Statutory tax rate 37.9 38.2 40.1 Items increasing (decreasing) statutory tax rate: - higher foreign subsidiaries tax rate 10.2 15.2 13.3 - changes in Italian statutory tax rate and adjustment of tax base of amortizable assets for Italian subsidiaries (2.0 ) - impact pursuant to Law Decree No. 112 of June 25, 2008, the Budget Law 2008 and enactment of a renewed tax framework in Libya (3.8 ) 2.4 - permanent differences and other adjustments (0,1 ) 0.7 0.2 8.1 12.1 15.9 46.0 50.3 56.0
The increase in the tax rate of foreign subsidiaries primarily related to a
17.116.1 percentage points increase in the Exploration & Production segment(17.2%(15.0% and15% in 200617.1% for the years ended December 31, 2007 and2007,2008, respectively).The impact pursuant to Law Decree No. 112 of June 25, 2008, the Budget Law 2008 and enactment of a renewed tax framework in Libya
of 3.8%consisted of the following: in the 2009 (i) the equalization in Libya of the 2008 income taxes in the amount of euro 230 million following adjustments to the valorization criteria of revenues; (ii) a reduced deductibility in Italy of cost of goods sold following the reduction in the gas volumes of inventories in the amount of euro 64 million; in the 2008 (iii) the utilization of deferred tax liabilities recognized on higher carrying amounts of year-end inventories of oil, gas and refined products stated attheweighted-average cost with respect to their tax base according to the last-in-first-out method (LIFO) (euro 528 million). In fact, pursuant to the Law Decree No. 112 of June 25, 2008 (become Law No. 133/2008), energy companies in Italyarewere required from 2008 to state inventories of hydrocarbons at the weighted-average cost for tax purposes as opposed to the previous LIFO evaluation and to recognize a one-off tax calculated by applying a special tax with a 16% rate on the difference between the two amounts. Accordingly, the profit and loss account benefited from the difference between utilization of deferred tax liabilities accrued on hydrocarbons inventories and the one-off tax (euro 229 million), for a total positive impact of euro 176 million, which consider the previously applicable statutory tax rate(Ires)(IRES) of 33% pursuant to the Law Decree No. 112 of June 25, 2008 instead of 27.5% of the previous tax regime. This one-off tax will be paid in three annual installments of same amount, due from 2009 onwards;(ii)(iv) application of the Italian Budget Law for 2008 that provide an increase in limits whereby carrying amounts of assets and liabilities of consolidated subsidiaries can be recognized for tax purposes by paying a one-off tax calculated by
(15)Includes a 5.5% supplemental tax rate on taxable profit of energy companies in Italy (whose primary activity is the production and marketing of hydrocarbons and electricity and with annual revenues in excess of euro 25 million) effective January 1, 2008 and pursuant to the Law Decree No. 112 of June 25, 2008.
F-88applying a special rate of 6% (positive impact on the profit and loss account in the amount of euro 370 million; euro 290 million net of the special tax);
(iii)(v) enactment of a renewed tax framework in Libya regarding oil companies operating in accordance with production sharing schemes. Based on the new provisions, the tax base of the Company’s Libyan oil properties has been reassessed resulting in the partial utilization of previously accrued tax liabilities in the amount of euro 173 million;and (iv)(vi) the impact of above mentioned Law Decree No. 112/2008 on energy companies calculated by applying statutory tax rate(Ires)(IRES) of 33% pursuant to the Law Decree No.112 of June 25,112/2008 instead of the previously applicable statutory tax rate(Ires)(IRES) of 27.5% (euro 94 million).
In 2006 the increase in the tax rate of foreign subsidiaries relating the Exploration & Production segment included the application of a windfall tax introduced by the Algerian government with effect starting from August 1, 2006 (1.6 percentage points) and a supplemental tax rate introduced by the government of the United kingdom relating to the North Sea productions with effect starting from January 1, 2006 (1 percentage point).The adjustment to deferred tax assets and liabilities and to the 2007 tax rate for Italian subsidiaries were recognized in connection with certain amendments to the Italian tax regime enacted by the 2008 Budget
Law.Law and the subsequent modification introduced by the Law Decree No. 112/2008. These included an option regarding the increase of the tax bases of certain tangible and other assets to their carrying amounts (euro 773 million) by paying a special tax (euro 325 million) and a lower statutory tax rate(Ires(IRES from 33% to 27.5%,IrapIRAP from 4.25% to 3.9%, euro 54 million).
(15) Includes a 5.5% supplemental tax rate on taxable profit of energy companies in Italy (whose primary activity is the production and marketing of hydrocarbons and electricity and with annual revenues in excess of euro 25 million) effective from January 1, 2008 and a further 1% increase effective from January 1, 2009, pursuant to the Law Decree No. 112 of June 25, 2008. F-103
In
20062009, permanent differencesmainly arose from certain chargesand other adjustments for 0.2 percentage points included: (i) as an increase, a non-recurring item represented by a charge amounting to euro 250 million thatare not deductible because takenwas estimated on the base of the management’s best knowledge of the possible resolution of the TSKJ matter with U.S. Authorities. More information is provided inconnection with risk provisions arising from proceedings againstNote 28 – Guarantees, commitments and risks; and (ii) as a decrease, deferred tax assets accounted for following an adjustment of the fiscal value to the carrying amount of oil & gas properties related to a reorganization of the ItalianAntitrustactivities by paying a special tax andother regulatory Authorities (0.4 percentage points)the partial deductibility of IRAP of income taxes from previous years (euro 222 million).
3534 Earnings per shareattributable to Eni
Basic earnings per ordinary share are calculated by dividing net profit for the year attributable to Eni’s shareholders by the weighted average number of ordinary shares issued and outstanding during the year, excluding treasury shares.The average number of ordinary shares used for the calculation of the basic earnings per share outstanding
atas of December 31,2006,2007, 2008 and2008,2009, was3,698,201,896,3,668,305,807, 3,638,835,896 and3,638,835,8963,622,405,852, respectively.Diluted earnings per share is calculated by dividing net profit for the year attributable to Eni’s shareholders by the weighted average number of fully-diluted shares
fully-dilutedwhich includes issued and outstanding shares during the year, excluding treasury shares and including the number of shares that could potentially be issuedpotentiallyin connection with stock-based compensation plans. As of December 31, 2008 and 2009, the number of shares that could potentially be issued were related to stock options plans. As of December 31, 2007, the number of shares that could potentially be issued were related to stock options and stock grant plans.The average number of shares fully diluted used in the calculation of diluted earnings was
3,701,262,557,3,669,172,762, 3,638,854,276 and3,638,854,2763,622,438,937 for the yearsendingended December 31,2006,2007, 2008 and2008,2009, respectively.Reconciliation of the average number of shares used for the calculation for both basic and diluted
earningearnings per share was as follows:
2006
2007
2008
Average number of shares used for the calculation of the basic earnings per share 3,698,201,896
3,668,305,807
3,638,835,896
Number of potential shares following stock grant plans 1,070,676
302,092
Number of potential shares following stock options plans 1,989,985
564,863
18,380
Average number of shares used for the calculation of the diluted earnings per share 3,701,262,557
3,669,172,762
3,638,854,276
Eni’s net profit (euro million)
9,217
10,011
8,825
Basic earning per share (euro per share)
2.49
2.73
2.43
Diluted earning per share (euro per share)
2.49
2.73
2.43
2007
2008
2009
Average number of shares used for the calculation of the basic earnings per share 3,668,305,807 3,638,835,896 3,622,405,852 Number of potential shares following stock grant plans 302,092 Number of potential shares following stock options plans 564,863 18,380 33,085 Average number of shares used for the calculation of the diluted earnings per share 3,669,172,762 3,638,854,276 3,622,438,937 Eni’s net profit (euro million) 10,011 8,825 4,367 Basic earning per share (euro per share) 2.73 2.43 1.21 Diluted earning per share (euro per share) 2.73 2.43 1.21
F-89F-104
3635 Information by industry segment and geographic financial information
Information by industry segment
(euro million)
Exploration & Production
Gas & Power
Refining & Marketing
Petrochemicals
Engineering & Construction
Other activities
Corporate and financial companies
Intra-Group
profitsTotal
2006 Net sales from operations (a) 27,173
28,368
38,210
6,823
6,979
823
1,174
Less: intersegment sales (18,445
) (751
) (1,300
) (667
) (771
) (520
) (991
) Net sales to customers 8,728
27,617
36,910
6,156
6,208
303
183
86,105
Operating profit 15,580
3,802
319
172
505
(622
) (296
) (133
) 19,327
Provisions for contingencies 153
197
264
30
(13
) 236
(100
) 767
Depreciation, amortization and writedowns 4,776
738
447
174
196
28
71
(9
) 6,421
Share of profit (loss) of equity-accounted investments 28
509
194
2
66
(4
) 795
Identifiable assets (b) 29,720
23,500
11,359
2,984
6,362
344
1,023
(666
) 74,626
Unallocated assets 13,686
Equity-accounted investments 258
2,214
874
11
483
46
3,886
Identifiable liabilities (c) 9,119
5,284
4,712
806
3,869
1,940
1,619
27,349
Unallocated liabilities 19,764
Capital expenditures 5,203
1,174
645
99
591
72
88
(39
) 7,833
2007 Net sales from operations (a) 27,278
27,633
36,401
6,934
8,678
205
1,313
Less: intersegment sales (16,475
) (760
) (1,276
) (363
) (1,182
) (31
) (1,099
) Net sales to customers 10,803
26,873
35,125
6,571
7,496
174
214
87,256
Operating profit 13,788
4,127
729
74
837
(444
) (217
) (26
) 18,868
Provisions for contingencies 5
37
256
15
11
264
3
591
Depreciation, amortization and writedowns 5,626
687
491
116
248
10
68
(10
) 7,236
Share of profit (loss) of equity-accounted investments 23
449
216
79
6
773
Identifiable assets (b) 33,435
24,530
13,767
3,427
8,017
275
854
(692
) 83,613
Unallocated assets 17,847
Equity-accounted investments 1,926
2,152
1,267
15
230
49
5,639
Identifiable liabilities (c) 11,480
5,390
5,420
939
4,349
1,827
1,380
30,785
Unallocated liabilities 27,808
Capital expenditures 6,625
1,366
979
145
1,410
59
108
(99
) 10,593
2008 Net sales from operations (a) 33,318
36,936
45,083
6,303
9,176
185
1,331
75
Less: intersegment sales (19,067
) (873
) (1,496
) (398
) (1,219
) (29
) (1,177
) Net sales to customers 14,251
36,063
43,587
5,905
7,957
156
154
75
108,148
Operating profit 16,415
3,933
(1,023
) (822
) 1,045
(346
) (686
) 125
18,641
Provisions for contingencies 155
237
206
2
36
99
165
900
Depreciation, amortization and writedowns 7,542
744
729
395
335
8
76
(14)
9,815
Share of profit (loss) of equity-accounted investments 173
413
16
(9
) 43
4
640
Identifiable assets (b) 41,989
31,894
11,081
2,629
10,630
362
789
(641
) 98,733
Unallocated assets 17,857
Equity-accounted investments 1,787
2,249
1,227
25
130
53
5,471
Identifiable liabilities (c) 11,030
11,212
4,481
664
6,177
1,638
1,780
(75
) 36,907
Unallocated liabilities 31,173
Capital expenditures 9,545
1,794
965
212
2,027
52
95
(128
) 14,562
2007 Net sales from operations (a) 26,920 27,793 36,349 6,934 8,678 205 1,313 Less: intersegment sales (16,280 ) (757 ) (1,276 ) (363 ) (1,182 ) (31 ) (1,099 ) Net sales to customers 10,640 27,036 35,073 6,571 7,496 174 214 87,204 Operating profit 13,433 4,465 686 100 837 (444 ) (312 ) (26 ) 18,739 Provisions for contingencies 7 35 238 15 11 264 3 573 Depreciation, amortization and writedowns 5,574 739 491 116 248 10 68 (10 ) 7,236 Share of profit (loss) of equity-accounted investments 23 449 216 79 6 773 Identifiable assets (b) 32,382 25,583 13,767 3,427 8,017 275 854 (692 ) 83,613 Unallocated assets 17,847 Equity-accounted investments 1,926 2,152 1,267 15 230 49 5,639 Identifiable liabilities (c) 10,955 5,915 5,420 939 4,349 1,827 1,380 30,785 Unallocated liabilities 27,808 Capital expenditures 6,480 1,511 979 145 1,410 59 108 (99 ) 10,593 2008 Net sales from operations (a) 33,042 37,062 45,017 6,303 9,176 185 1,331 75 Less: intersegment sales (18,917 ) (873 ) (1,496 ) (398 ) (1,219 ) (29 ) (1,177 ) Net sales to customers 14,125 36,189 43,521 5,905 7,957 156 154 75 108,082 Operating profit 16,239 4,030 (988 ) (845 ) 1,045 (346 ) (743 ) 125 18,517 Provisions for contingencies 154 238 190 2 36 99 165 884 Depreciation, amortization and writedowns 7,488 798 729 395 335 8 76 (14 ) 9,815 Share of profit (loss) of equity-accounted investments 173 413 16 (9 ) 43 4 640 Identifiable assets (b) 40,815 33,151 11,081 2,629 10,630 362 789 (641 ) 98,816 Unallocated assets 17,857 Equity-accounted investments 1,787 2,249 1,227 25 130 53 5,471 Identifiable liabilities (c) 10,481 11,802 4,481 664 6,177 1,638 1,780 (75 ) 36,948 Unallocated liabilities 31,215 Capital expenditures 9,281 2,058 965 212 2,027 52 95 (128 ) 14,562 2009 Net sales from operations (a) 23,801 30,447 31,769 4,203 9,664 88 1,280 (66 ) Less: intersegment sales (13,630 ) (635 ) (965 ) (238 ) (1,315 ) (24 ) (1,152 ) Net sales to customers 10,171 29,812 30,804 3,965 8,349 64 128 (66 ) 83,227 Operating profit 9,120 3,687 (102 ) (675 ) 881 (382 ) (474 ) 12,055 Provisions for contingencies (2 ) 277 154 1 311 139 175 1,055 Depreciation, amortization and writedowns 7,365 981 754 204 435 8 83 (17 ) 9,813 Share of profit (loss) of equity-accounted investments 142 310 (70 ) 50 (39 ) 393 Identifiable assets (b) 42,729 32,135 12,244 2,583 11,611 355 1,031 (553 ) 102,135 Unallocated assets 15,394 Equity-accounted investments 1,989 2,044 1,494 37 213 51 5,828 Identifiable liabilities (c) 10,918 9,161 4,684 742 5,967 1,639 1,690 (8 ) 34,793 Unallocated liabilities 32,685 Capital expenditures 9,486 1,686 635 145 1,630 44 57 12 13,695
(a) Before elimination of intersegment sales. (b) IncludedIncludes assets directly associated with the generation of operating profit.(c) IncludedIncludes liabilities directly associated with the generation of operating profit.
F-90F-105
Inter-segment sales wereIntersegment revenues are conductedonat an arm’s length basis.Geographic financial information
AssetsIdentifiable assets and investments by geographic area of origin
(euro million) Italy
Other European Union
Rest of Europe
AmericasAmericaAsia
Africa
Other areas
Total
2006 Identifiable assets (a) 37,339
10,037
3,200
2,987
6,341
14,190
532
74,626
Capital expenditures 2,529
713
436
572
1,032
2,419
132
7,833
2007 Identifiable assets (a) 39,742
11,071
3,917
6,260
6,733
15,368
522
83,613
39,742 11,071 3,917 6,260 6,733 15,368 522 83,613 Capital expenditures 3,246
1,246
469
1,004
1,253
3,152
223
10,593
3,246 1,246 469 1,004 1,253 3,152 223 10,593 2008 Identifiable assets (a) 40,432
15,065
3,561
6,149
10,561
22,044
921
98,733
40,432 15,071 3,561 6,224 10,563 22,044 921 98,816 Capital expenditures 3,674
1,660
582
1,240
1,777
5,153
476
14,562
3,674 1,660 582 1,240 1,777 5,153 476 14,562 2009 Identifiable assets (a) 40,861 15,571 3,520 6,337 11,187 23,397 1,262 102,135 Capital expenditures 3,198 1,454 574 1,207 2,033 4,645 584 13,695
(a) Includes assets directly related to the generation of operating profit. Sales from operations by geographic area of destination
(euro million) 2006
2007
2008
Italy 36,343 37,346 42,909 Other European Union 23,949 23,074 29,341 Rest of Europe 6,975 5,507 7,125 Americas 6,250 6,447 7,218 Asia 5,595 5,840 8,916 Africa 5,949 8,010 12,331 Other areas 1,044 1,032 308 86,105 87,256 108,148
(euro million) 2007
2008
2009
Italy 37,294 42,843 27,950 Other European Union 23,074 29,341 24,331 Rest of Europe 5,507 7,125 5,213 America 6,447 7,218 7,080 Asia 5,840 8,916 8,208 Africa 8,010 12,331 10,174 Other areas 1,032 308 271 87,204 108,082 83,227
3736 Transactions with related parties
In the ordinary course ofitsbusiness Eni enters into transactionsregarding:relating to:
a) the exchange of goods, provision of services and financing with joint ventures, associates and non-consolidated subsidiaries; b) the exchange of goods and provision of services with entities directly and indirectly owned or controlled by the Government; c) transactions with theCosmi Holding Group, which is related to EniSpAthrough a member of the Board of Directors,related tofor certain acquisition of engineering, construction and maintenance services. Relevant transactions which were executedonat an arm’s length basis amounted to approximately euro1318 million, euro1813 million and euro1321 million in2006,2007, 2008 and2008,2009, respectively.AtAs of December 31,20082009, there were outstanding receivablesforin the amount of euro 4 million and payablesforin the amount euro 9 million (euro 4 million and euro 8million;million as of December 31, 2008, respectively);d) contributions to entities, controlled by Eni with the aim to develop solidarity, culture and research initiatives. In particular these related to: (a)(i) Eni Foundation established by Eni as a non-profit entity with the aim of pursuing exclusively solidarity initiatives in the fields of social assistance, health, education, culture and environment as well as research and development. Transactions with Eni Foundation related tocontributioncontributions for the year ended December 31, 2008 in the amount of euro 200 million to the solidarity fund pursuant to Italian Law Decree No. 112/2008 and the payable as of December 31, 2008 and 2009 in the amount of euro 100 million related to thepartportion of the contribution that had notalreadyyet been paid. Transactions in thepastperiods preceding 2008 were not material;(b)(ii) Enrico Mattei Foundation established byF-106
Eni with the aim of enhancing, through studies, research and training initiatives, knowledge in the fields of
F-91
economics, energy and environment, both at the national and international level. Transactions with Enrico Mattei Foundation were not material. Transactions with related parties were conducted in the interest of Eni companies and, with exception of those with entities with the aim to develop solidarity, culture and research initiatives,
onat an arm’s length basis.Trade and other transactions with joint ventures, associates and non-consolidated subsidiaries as well as with entities directly and indirectly owned or controlled by the Government in the
2006,years ended December 31, 2007, 2008 and2008,2009, respectively, consisted of the following:
(euro million) Dec. 31,
20062007
20062007
Costs
Revenues
Name Receivables and other assets
Payables and other liabilities
Guarantees
Goods
Services
Goods
Services
Joint ventures and associates ASG Scarl 7 40 80 88 1 1 Azienda Energia e Servizi Torino SpA 1 22 64 1 1 Bernhard Rosa Inh. Ingeborg Plöchinger GmbH 10 96 Blue Stream Pipeline Co BV 34 19 193 1 Bronberger & Kessler Und Gilg & Schweiger GmbH 11 113 CAM Petroli Srl 103 310 CEPAV (Consorzio Eni per l’Alta Velocità) Uno 87 87 5,654 16 2 304 Charville - Consultores e Serviços Lda 7 85 4 11 Eni Oil Co Ltd 5 96 59 Fox Energy SpA 35 125 Gasversorgung Süddeutschland GmbH 14 1 123 19 Gruppo Distribuzione Petroli Srl 19 54 Karachaganak Petroleum Operating BV 23 70 29 129 7 Mangrove Gas Netherlands BV 1 52 Mellitah Oil & Gas BV 28 90 7 72 8 2 Petrobel Belayim Petroleum Co 3 181 Promgas SpA 44 39 375 419 Raffineria di Milazzo ScpA 9 12 237 109 Rodano Consortile Scarl 3 14 54 1 RPCO Enterprises Ltd 13 104 12 Supermetanol CA 13 91 Super Octanos CA 13 257 Trans Austria Gasleitung GmbH 7 78 53 138 56 Transitgas AG 8 64 Transmediterranean Pipeline Co Ltd 7 80 Unión Fenosa Gas SA 1 7 61 93 7 Other (*) 72 169 168 75 188 119 66 533 788 6,204 996 1,557 1,482 481 Unconsolidated entities controlled by Eni Agip Kazakhstan North Caspian Operating Co NV 27 132 18 16 57 Eni BTC Ltd 185 Eni Timor Leste SpA 102 Other (*) 20 30 8 1 4 8 4 47 162 295 19 20 8 61 580 950 6,499 1,015 1,577 1,490 542 Entities owned or controlled by the Government Gruppo Alitalia 12 354 Gruppo 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.
F-92
(euro million)
Dec. 31, 2007
2007
Costs
Revenues
Name
Receivables and other assets
Payables and other liabilities
Guarantees
Goods
Services
Goods
ServicesOther operating (charge) income
Joint ventures and associates ASG Scarl 6 43 121 108 3 6 43 121 108 3 Bernhard Rosa Inh. Ingeborg Plöchinger GmbH 11 86 11 86 Blue Stream Pipeline Co BV 19 183 1 19 183 1 Bronberger & Kessler und Gill & Schweiger GmbH 18 106 CEPAV (Consorzio Eni per l’Alta Velocità) Uno 84 70 5,870 263 CEPAV (Consorzio Eni per l’Alta Velocità) Due 1 1 64 1 1 Bronberger & Kessler und Gilg & Schweiger GmbH 18 106 CEPAV (Consorzio Eni per l'Alta Velocità) Uno 84 70 5,870 263 CEPAV (Consorzio Eni per l'Alta Velocità) Due 1 1 64 1 1 Eni Oil Co Ltd 7 60 141 1 7 60 141 1 Fox Energy SpA 49 139 49 139 Gasversorgung Süddeutschland GmbH 54 195 4 54 195 4 Gruppo Distribuzione Petroli Srl 26 50 26 50 Karachaganak Petroleum Operating BV 43 102 24 301 7 43 102 24 301 7 Mellitah Oil & Gas BV 10 137 105 1 6 10 137 105 1 6 OOO "EniNeftegaz" 215 1 215 1 Petrobel Belayim Petroleum Co 60 211 60 211 Raffineria di Milazzo ScpA 17 21 245 118 5 17 21 245 118 5 Supermetanol CA 11 78 1 11 78 1 Super Octanos CA 18 201 1 18 201 1 Trans Austria Gasleitung GmbH 6 80 43 147 47 6 80 43 147 47 Transitgas AG 8 64 8 64 Transmediterranean Pipeline Co Ltd 6 70 1 6 70 1 Unión Fenosa Gas SA 1 61 193 1 61 193 Other (*) 120 127 56 76 374 172 118 120 127 56 76 374 122 118 687 744 6,172 422 1,950 1,011 459 687 744 6,172 422 1,950 1,011 459 Unconsolidated entities controlled by Eni Agip Kazakhstan North Caspian Operating Co NV 49 111 11 534 52 49 111 11 534 52 Eni BTC Ltd 138 1 138 1 Other (*) 23 8 11 2 18 5 18 23 8 11 2 18 5 18 72 119 149 13 552 5 71 72 119 149 13 552 5 71 759 863 6,321 435 2,502 1,016 530 759 863 6,321 435 2,502 1,016 530 Entities owned or controlled by the Government Gruppo Alitalia 4 363 1 4 363 1 Gruppo Enel 384 8 245 894 408 384 8 245 894 408 GSE - Gestore Servizi Elettrici 124 63 239 37 870 7 124 63 239 37 870 7 10 Terna SpA 19 69 106 105 31 19 69 106 105 31 Other (*) 45 79 19 89 75 3 45 79 19 89 75 3 576 219 364 476 2,202 450 576 219 364 476 2,202 450 10 1,335 1,082 6,321 799 2,978 3,218 980 1,335 1,082 6,321 799 2,978 3,218 980 10
(*) Each individual amount included herein does not exceed euro 50 million.
F-93F-107
(euro million) Dec. 31, 2008
2008
Costs
Revenues
Name Receivables and other assets
Payables and other liabilities
Guarantees
Goods
Services
Other
Goods
Services
Other
Other operating (charge) income
Joint ventures and associates Agiba Petroleum 11
60
Agiba Petroleum Co 11 60 Altergaz SA 30
135
30 135 ASG Scarl 2
25
49
57
2 25 49 57 Bayernoil Raffineriegesellschaft mbH 3
4
1
6
62
4
3 4 1 6 62 4 Bernhard Rosa Inh. Ingeborg Plöchinger GmbH 5
98
5 98 Blue Stream Pipeline Co BV 23
17
171
1
23 17 171 1 Bronberger & Kessler und Gilg & Schweiger GmbH 12
175
12 175 CEPAV (Consorzio Eni per l’Alta Velocità) Uno 95
37
6,001
17
3
397
CEPAV (Consorzio Eni per l’Alta Velocità) Due 4
1
64
1
1
CEPAV (Consorzio Eni per l'Alta Velocità) Uno 95 37 6,001 17 3 397 CEPAV (Consorzio Eni per l'Alta Velocità) Due 4 1 64 1 1 Eni Oil Co Ltd 9
28
660
6
9 28 660 6 Fox Energy SpA 37
2
329
1
37 2 329 1 FPSO Mystras - Produção de Petroleo Lda 94
10
FPSO Mystras - Produção de Petròleo Lda 94 10 Gasversorgung Süddeutschland GmbH 64
337
18
64 337 18 Gruppo Distribuzione Petroli Srl 20
111
20 111 InAgip doo 24
45
116
3
35
24 45 116 3 35 Karachaganak Petròleum Operating BV 72
207
874
380
25
12
Karachaganak Petroleum Operating BV 72 207 874 380 25 12 Mellitah Oil & Gas BV 10
121
329
2
4
10 121 329 2 4 Petrobel Belayim Petroleum Co 77
181
77 181 Raffineria di Milazzo ScpA 11
4
276
135
3
11 4 276 135 3 Saipon Snc 4
58
12
4 58 12 Super Octanos CA 24
286
24 286 Supermetanol CA 5
90
5 90 Trans Austria Gasleitung GmbH 8
78
60
153
64
8 78 60 153 64 Transitgas AG 5
1
64
5 1 64 Unión Fenosa Gas SA 1
25
62
25
257
1
1 25 62 25 257 1 Other (*) 231
115
18
36
319
46
71
129
8
231 115 18 36 319 46 71 129 8 655
829
6,253
1,473
2,783
148
1,657
684
8
665 829 6,253 1,473 2,783 148 1,657 684 8 Unconsolidated entities controlled by Eni Agip Kazakhstan North Caspian Operating Co NV 144
166
720
11
1
367
10
144 166 720 11 1 367 10 Eni BTC Ltd �� 146
146 Other (*) 22
18
4
2
20
2
4
6
4
22 18 4 2 20 2 4 6 4 166
184
150
2
740
13
5
373
14
166 184 150 2 740 13 5 373 14 831
1,013
6,403
1,475
3,523
161
1,662
1,057
22
831 1,013 6,403 1,475 3,523 161 1,662 1,057 22 Entities owned or controlled by the Government Ferrovie dello Stato 4
417
2
Gruppo Alitalia 153
12
13
223
941
380
4 417 2 Gruppo Enel 19
7
27
1
57
153 12 13 223 941 380 Gruppo Ferrovie dello Stato 19 7 27 1 57 GSE - Gestore Servizi Elettrici 92
63
315
79
347
16
6
92 63 315 79 347 16 6 58 Terna SpA 33
35
14
128
12
83
10
33 35 14 128 12 83 10 Other (*) 28
72
33
88
5
72
2
1
28 72 33 88 5 72 2 1 329
189
375
466
85
1,846
483
17
329 189 375 466 85 1,846 483 17 58 1,160
1,202
6,403
1,850
3,989
246
3,508
1,540
39
1,160 1,202 6,403 1,850 3,989 246 3,508 1,540 39 58
(*) Each individual amount included herein does not exceed euro 50 million. F-108
(euro million) Dec. 31, 2009
2009
Costs
Revenues
Name Receivables and other assets
Payables and other liabilities
Guarantees
Goods
Services
Other
Goods
Services
Other
Other operating (charge) income
Joint ventures and associates Agiba Petroleum Co 5 64 Altergaz SA 50 142 ASG Scarl 10 54 25 Azienda Energia e Servizi Torino SpA 1 30 62 1 Bayernoil Raffineriegesellschaft mbH 31 1 15 77 2 Blue Stream Pipeline Co BV 17 15 34 163 Bronberger & Kessler und Gilg & Schweiger GmbH 16 95 CEPAV (Consorzio Eni per l'Alta Velocità) Uno 38 12 6,037 5 84 CEPAV (Consorzio Eni per l'Alta Velocità) Due 6 1 76 1 2 Fox Energy SpA 44 1 241 Gasversorgung Süddeutschland GmbH 17 196 8 Gruppo Distribuzione Petroli Srl 15 71 InAgip doo 44 23 86 71 Karachaganak Petroleum Operating BV 61 196 588 344 27 9 10 Kwanda Suporto Logistico Lda 72 20 Mellitah Oil & Gas BV 30 190 306 2 31 Petrobel Belayim Petroleum Co 4 12 205 4 2 Raffineria di Milazzo ScpA 14 8 242 98 5 Saipon Snc 8 2 61 45 Super Octanos CA 24 133 Trans Austria Gasleitung GmbH 4 71 36 157 40 Transitgas AG 1 61 Unión Fenosa Gas SA 8 62 12 53 1 Other (*) 143 58 15 62 188 41 117 125 10 592 688 6,340 847 1,926 129 1,026 446 13 Unconsolidated entities controlled by Eni Agip Kazakhstan North Caspian Operating Co NV 194 224 1 914 7 15 466 7 Eni BTC Ltd 141 1 Other (*) 29 23 4 1 52 4 14 6 1 223 247 145 2 966 11 29 473 8 815 935 6,485 849 2,892 140 1,055 919 21 Entities owned or controlled by the Government Gruppo Enel 96 32 9 286 77 342 428 1 Gruppo Finmeccanica 33 37 16 56 21 7 GSE - Gestore Servizi Elettrici 83 74 373 79 342 15 19 Terna SpA 7 37 52 52 19 7 86 4 25 Other (*) 78 71 1 71 6 62 16 297 251 451 465 181 774 552 5 44 1,112 1,186 6,485 1,300 3,357 321 1,829 1,471 26 44
(*) Each individual amount included herein does not exceed euro 50 million.
MostThe most significant transactions with joint ventures, associates and non-consolidated subsidiariesconcerned:consisted of the following:
- transactions related to the planning and the construction of the tracks for high speed/high capacity trains from Milan to Bologna with ASG Scarl, CEPAV (Consorzio Eni per l’Alta Velocità) Uno, and related guarantees;
F-94
- transportation and distribution activity with Azienda Energia e Servizi Torino SpA;
- acquisition of refining services from Bayernoil Raffineriegesellschaft mbH and Raffineria di Milazzo ScpA in relation to incurred costs;
- supply of oil products to
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH,Bronberger & Kessler und Gilg & Schweiger GmbH, Fox EnergySrl,SpA, Gruppo Distribuzione Petroli Srl and Raffineria di Milazzo ScpA on the basis of pricesreferredrelated to the quotations on international markets of the main oil products, as they would be conductedonat an arm’s length basis;acquisition of FPSO from FPSO Mystras - Produção de Petròleo Lda;- acquisition of natural gas transport services outside Italy from Blue Stream Pipeline Co BV, Trans Austria Gasleitung GmbH and Transitgas
AG;AG and the issuing of guarantees on behalf of Blue Stream Pipeline Co BV;F-109
- guarantees issued on behalf of CEPAV (Consorzio Eni per l’Alta Velocità) Due and Saipon Snc in relation to contractual commitments related to the execution of project planning and realization;
- provision of specialized services in upstream activities and payables for investment activities from Agip Kazakhstan North Caspian Operating Co NV, Agiba Petroleum Co,
Eni Oil Co Ltd,InAgip doo, Karachaganak Petroleum Operating BV, Mellitah Oil & Gas BV, Petrobel Belayim Petroleum Co and, only for Karachaganak Petroleum Operating BV supply of oil products; services are invoiced on the basis ofincurred costs;costs incurred;- logistic support by Kwanda Suporto Logistico Lda;
- sale of natural gas to Altergaz SA and Gasversorgung Süddeutschland GmbH;
- acquisition of petrochemical products from
Supermetanol CA andSuper Octanos CA on the basis of pricesreferredrelated to the quotations on international markets of the main products;- performance guarantees given on behalf of Unión Fenosa Gas SA in relation to contractual commitments related to the results of operations;
- guarantees issued in relation to the construction of an oil pipeline on behalf of Eni BTC Ltd.
MostThe most significant transactions with entities owned or controlled by the Governmentconcerned:consisted of the following:
sale of oil products with Alitalia and Ferrovie dello Stato;- sale and transportation of natural gas, the sale of fuel oil and the sale and purchase of electricity and the acquisition of electricity transmission service with Enel;
- a long term contract for the maintenance of the newly combined cycle power plants with Gruppo Finmeccanica;
- sale and purchase of electricity, green certificates and the fair value of derivative financial instruments included in prices of electricity related to sale/purchase transactions with GSE - Gestore Servizi Elettrici;
- sale and purchase of electricity,
andthe acquisition of domestic electricity transmission servicejointlyand the fair value of derivative financial instruments included in prices of electricity related to sale/purchase transactions with Terna SpA.Financing transactions with joint ventures, associates and non-consolidated subsidiaries as well as with entities directly and indirectly owned or controlled by the Government
infor the2006,years ended December 31, 2007, 2008 and2008,2009, respectively, consisted of the following:
(euro million) Dec. 31,
20062007
20062007
Name Receivables
Payables
Guarantees
Charges
Gains
Joint ventures and associates Blue Stream Pipeline Co BV 3
794
4
26
1 711 20 Raffineria di Milazzo ScpA 57
60 Spanish Egyptian Gas Co SAE 323
Trans Austria Gasleitung GmbH 41
6
65 3 Transmediterranean Pipeline Co Ltd 147
11
97 9 Other (*) 88
81
39
13
11
108 120 52 19 11 276
84
1,213
17
54
270 121 823 19 43 Unconsolidated entities controlled by Eni Other (*) 95
25
2
1
4
114 26 1 1 6 95
25
2
1
4
114 26 1 1 6 371
109
1,215
18
58
384 147 824 20 49
(*) Each individual amount included herein does not exceed euro 50 million.
F-95F-110
(euro million)
Dec. 31, 2007
2007
Name
Receivables
Payables
Guarantees
Charges
Gains
Derivative financial instruments
Joint ventures and associates Blue Stream Pipeline Co BV 1 711 20 Raffineria di Milazzo ScpA 60 Trans Austria Gasleitung GmbH 65 3 Transmediterranean Pipeline Co Ltd 97 9 Other (*) 108 120 52 19 11 270 121 823 19 43 Unconsolidated entities controlled by Eni Other (*) 114 26 1 1 6 114 26 1 1 6 Entities owned or controlled by the Government GSE - Gestore Servizi Elettrici 10 10 384 147 824 20 49 10
(*)Each individual amount included herein does not exceed euro 50 million.
(euro million) Dec. 31, 2008
2008
Name Receivables
Payables
Guarantees
Charges
Gains
Derivative financial instruments
Joint ventures and associates Bayernoil Raffineriegesellschaft mbH 131 131 Blue Stream Pipeline Co BV 752 14 752 14 PetroSucre SA 153 153 Raffineria di Milazzo ScpA 70 70 Trans Austria Gasleitung GmbH 186 7 186 7 Transmediterranean Pipeline Co Ltd 103 6 103 6 Other (*) 123 124 27 16 9 123 124 27 16 9 696 124 849 16 36 696 124 849 16 36 Unconsolidated entities controlled by Eni Other (*) 115 38 1 1 6 115 38 1 1 6 115 38 1 1 6 115 38 1 1 6 Entities owned or controlled by the Government GSE - Gestore Servizi Elettrici 58 58 811 162 850 17 42 811 162 850 17 42 58
(*) Each individual amount included herein does not exceed euro 50 million.
Most
(euro million) Dec. 31, 2009
2009
Name Receivables
Payables
Guarantees
Charges
Gains
Joint ventures and associates Artic Russia BV 70 1 170 1 Bayernoil Raffineriegesellschaft mbH 133 Blue Stream Pipeline Co BV 692 12 Raffineria di Milazzo ScpA 85 Trans Austria Gasleitung GmbH 171 5 Transmediterranean Pipeline Co Ltd 149 3 Other (*) 125 112 24 2 3 648 113 971 2 24 Unconsolidated entities controlled by Eni Other (*) 78 34 1 2 3 78 34 1 2 3 726 147 972 4 27
(*) Each individual amount included herein does not exceed euro 50 million. The most significant transactions with joint ventures, associates and non-consolidated subsidiaries
included:consisted of the following:
- bank debt guarantee issued on behalf of Artic Russia BV, Blue Stream Pipeline Co BV and Raffineria di Milazzo ScpA, and, exclusively with Artic Russia BV, financing loans and cash deposit at Eni’s financial companies;
bank debt guarantee issued on behalf of Raffineria di Milazzo ScpA;- financing loan to Bayernoil Raffineriegesellschaft mbH;
receivable from PetroSucre SA following the contribution of Corocoro activities, still to be defined, in the new mixed company;thefinancing 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, respectively.
F-96F-111
Most significant transactions with entities owned or controlled by the Government concerned the fair value of derivative financial instruments included in prices of electricity related to sale/purchase transactions with GSE - Gestore Servizi Elettrici.Impact of transactions and positions with related parties on the balance sheet,
netprofit and loss account and statement of cash flows
The impact of transactions and positions with related parties on the balance sheet,netprofit and loss account and statement of cash flows consisted of the following:
Dec. 31,
2006
Dec. 31,2007Dec. 31, 2008
Dec. 31, 2009
(euro million) Total Related parties Impact % Total Related parties Impact % Total Related parties Impact %
Trade and other receivables 18,799
1,027
5.46
20,676
1,616
7.82
22,222
1,539
6.93
20,676 1,616 7.82 22,222 1,539 6.93 20,348 1,355 6.66 Other current assets 855
4
0.47
1,080
2,349
59
2.51
790 1,870 59 3.16 1,307 9 0.69 Other non-current financial assets 805
136
16.89
923
87
9.43
1,134
356
31.39
923 87 9.43 1,134 356 31.39 1,148 438 38.15 Other non-current assets 994
1,110
16
1.44
1,401
21
1.50
1,400 16 1.14 1,881 21 1.12 1,938 40 2.06 Current financial liabilities 3,400
92
2.71
7,763
131
1.69
6,359
153
2.41
7,763 131 1.69 6,359 153 2.41 3,545 147 4.15 Trade and other payables 15,995
961
6.01
17,116
1,021
5.97
20,515
1,253
6.11
17,116 1,021 5.97 20,515 1,253 6.11 19,174 1,241 6.47 Other liabilities 634
4
0.63
1,556
4
0.26
4,319
4
0.09
1,523 4 0.26 3,863 4 0.10 1,856 5 0.27 Long-term debt and current portion of long-term debt 8,299
17
0.20
12,067
16
0.13
14,478
9
0.06
12,067 16 0.13 14,478 9 0.06 21,255 Other non-current liabilities 418
56
13.40
2,031
57
2.81
2,538
53
2.09
2,117 57 2.69 3,102 53 1.71 2,480 49 1.98
The impact of transactions with related parties on the profit and loss
accountsaccount consisted of the following:
Dec. 31, 2006
Dec. 31, 2007
Dec. 31, 2008
2007
2008
2009
(euro million) Total Related parties Impact % Total Related parties Impact % Total Related parties Impact %
Net sales from operations 86,105
3,974
4.62
87,256
4,198
4.81
108,148
5,048
4.67
87,204 4,198 4.81 108,082 5,048 4.67 83,227 3,300 3.97 Other income and revenues 783
..
827
..
720
39
5.42
833 .. 728 39 5.36 1,118 26 2.33 Purchases, services and other 57,490
2,720
4.73
58,179
3,777
6.49
76,408
6,298
8.24
58,133 3,777 6.50 76,350 6,298 8.25 58,351 4,999 8.57 Other operating income (expense) (129 ) 10 .. (124 ) 58 .. 55 44 80.00 Financial income 3,749
58
1.55
4,445
49
1.10
7,985
42
0.53
4,445 49 1.10 7,985 42 0.53 5,950 27 0.45 Financial expense (3,971
) (18
) 0.45
(4,554
) (20
) 0.44
(8,198
) (17
) 0.21
(4,554 ) (20 ) 0.44 (8,198 ) (17 ) 0.21 (6,497 ) (4 ) 0.06 Gain (loss) on derivative financial instruments 383
..
26
10
38.46
(551
) 58
..
Transactions with related parties
concernedduring the ordinary course of Eni’s businessandwere mainly conductedonat an arm’s length basis.
F-97Main cash flows with related parties were as follows:
(euro million) 2006
2007
2008
Revenues and other income 3,974 4,198 5,087 Costs and other expenses (2,720 ) (3,777 ) (6,298 ) Net change in trade and other receivables and liabilities 162 (492 ) 351 Dividends and net interests 790 620 798 Net cash provided from operating activities 2,206 549 (62 ) Capital expenditures in tangible and intangible assets (733 ) (779 ) (2,022 ) Investments (20 ) 8 Change in accounts payable in relation to investments (276 ) (8 ) 27 Change in financial receivables 343 (43 ) 397 Net cash used in investing activities (686 ) (822 ) (1,598 ) Change in financial liabilities (57 ) 20 14 Net cash used in financing activities (57 ) 20 14 Total financial flows to related parties 1,463 (253 ) (1,646 )
(euro million) 2007
2008
2009
Revenues and other income 4,198 5,087 3,326 Costs and other expenses (3,777 ) (6,298 ) (4,999 ) Other operating income (loss) 10 58 44 Net change in trade and other receivables and liabilities (492 ) 351 34 Dividends and net interests 610 740 407 Net cash provided from operating activities 549 (62 ) (1,188 ) Capital expenditures in tangible and intangible assets (779 ) (2,022 ) (1,364 ) Investments 8 Change in accounts payable in relation to investments (8 ) 27 19 Change in financial receivables (43 ) 397 83 Net cash used in investing activities (822 ) (1,598 ) (1,262 ) Change in financial liabilities 20 14 (14 ) Net cash used in financing activities 20 14 (14 ) Total financial flows to related parties (253 ) (1,646 ) (2,464 )
F-112
The impact on the statement of cash flows with related parties consisted of the following:
2006
2007
2008
2007
2008
2009
(euro million) Total Related parties Impact % Total Related parties Impact % Total Related parties Impact %
Cash provided from operating activities 17,001
2,206
12.98
15,517
549
3.54
21,801
(62
) ..
15,517 549 3.54 21,801 (62 ) .. 11,136 (1,188 ) .. Cash used in investing activities (7,051
) (686
) 9.73
(20,097
) (822
) 4.09
(16,958
) (1,598
) 9.42
(20,097 ) (822 ) 4.09 (16,958 ) (1,598 ) 9.42 (10,254 ) (1,262 ) 12.31 Cash used in financing activities (7,097
) (57
) 0.80
2,909
20
0.69
(5,025
) 14
..
2,909 20 0.69 (5,025 ) 14 .. (1,183 ) (14 ) 1.18
3837 Significant non-recurring events and operations
Non-recurringincomesincome (charges) consisted of the following:
(euro million) 2006
2007
2008
Curtailment of post-retirement benefits for Italian employees 83 Risk provisions for proceedings against Antitrust authorities (184 ) (130 ) (21 ) Risk provisions for proceedings against the Italian Authority for Electricity and Gas (55 ) 39 (239 ) (8 ) (21 )
(euro million) 2007
2008
2009
Estimate of the charge from the possible resolution of the TSKJ matter 250 Curtailment of post-retirement benefits for Italian employees 83 Risk provisions for proceedings against Antitrust authorities (130 ) 21 Risk provisions for proceedings against the Italian Authority for Electricity and Gas 39 (8 ) 21 250
The estimate of the charge related to the TSKJ matter represents a charge in the amount of euro 250 million that was estimated based on management’s best estimate of the cost of the resolution of the TSKJ matter with U.S. Authorities. The matter is fully disclosed in Note 28 – Guarantees, commitments and risks – Legal Proceedings. The charge is recognized in the results of the Engineering & Construction segment as it relates to a project that was executed in Nigeria by the TSKJ joint venture. However, the charge will be incurred by Eni due to the contractual obligations assumed by Eni related to the indemnification of Saipem as part of the divestment of Snamprogetti. At the time of the project, the TSKJ venture was participated by Snamprogetti Netherlands BV which was controlled by Snamprogetti. As a result, the future monetary settlement of the provision will be incurred by Eni SpA and Saipem’s minorities will be left unaffected.
Non-recurring income
related toconsists of a gainderivingresulting from the curtailment of the provisions accrued by Italian companies for employee termination indemnities ("TFR") following the changes introduced by Italian Budget Law for 2007 and related decrees (euro 83 million).Non recurringNon-recurring charges for 2007concernedconsist of risk provisions related to ongoing antitrust proceedings against the European Antitrust authorities (euro 130 million)in the fields of paraffin and elastomers.
In 2006 a risk provision was made in connection with a proceeding against the Italian Antitrust authority regarding the field of supplies of jet fuel (euro 109 million).In addition a risk provision was made for an inquiry before the European Antitrust authorities in the field of elastomers (euro 75 million). In 2006 certain fines were imposed by the Authority for Electricity and Gas regarding an inquiry relating to the 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).
F-98
3938 Positions or transactions deriving from atypical and/or unusual operationsIn 2006, 2007 and in 2008There were no positions or transactions deriving from atypical and/or unusual operationswere reported.for the years ended December 31, 2007, 2008 and 2009.
Recent developments
On February 4, 2010, Eni formally presented to the European Commission a set of structural remedies relating certain international gas pipelines. With prior agreement from its partners, Eni committed to dispose of its interests in the German TENP, in the Swiss Transitgas and in the Austrian TAG gas pipelines. The European Commission intends to submit these remedies to a market test. In case the Commission approves those remedies upon conclusion of the market test, Eni will be in the position to resolve an inquiry started in May 2006 for alleged infringements of the European antitrust regulations in the gas sector, which involved the main players in European gas market. Eni
On April 7, 2009 Gazprom exercised its call optionF-113received a statement of objections from the European Commission which alleged that during the 2000-2005 period Eni was responsible for limiting the access of third parties to
purchasethe gas pipelines TAG, TENP and Transitgas, thus restricting gas availability in Italy. Given the strategic importance of the Austrian TAG pipeline, which transports gas from Russia to Italy, Eni has negotiated a20% interest in OAO Gazprom Neft held by Eni following agreements betweensolution with thetwo partners. The 20% interest in Gazprom Neft was acquired by Eni on April 4, 2007 as part of a bid procedureCommission which calls for theassetstransfer ofbankrupt Russian company Yukos. The exercise price ofits stake to an entity controlled by thecall option is equal toItalian State. In case they are implemented, thebid price (U.S. $ 3.7 billion)remedies negotiated with the Commission will not affect Eni’s contractual gas transport rights. Management expects that a possible divestiture will occur asadjusted by subtracting dividends distributed and adding the contractual yearly remuneration of 9.4% on the capital employed and related financing expenses. At the same time, Eni and Gazprom signed new cooperation agreements targeting certain development projects to be conducted jointly in Russia and other countries of interest. Terms of the call option granted to Gazprom to purchase a 51% interest in the share capital of OOO SeverEnergia, which owns 100% of the three abovementioned Russian companies engaging in gas development, are currently under review by Eni, Enel and Gazprom.
On March 19, 2009, a mandatory tender offer on the minorities of Distrigas was finalized. Shareholders representing 41.61% of the share capital of Distrigas tendered 292,390 shares on Eni’s offer. Publigaz Scrl tendered its entire interest (31.25%). The transaction has been accounted in Eni financial statementsearly as atMarch 31, 2009. On April 8, 2009 Eni paid tothe beginning of 2011 and as such the profit and loss for the year 2010 will report the full-year results of Eni’s share of profit in thoseshareholders cash consideration amounting to euro 1,991 million. Following the tender offer, Eni owns 98.86% of the share capital of Distrigas. The squeeze-out on the residual 1.14% of the share capital has been completed early in May. Consequently Eni holds all the shares of Distrigas except for one share belonging to the Belgian State with special powers. Distrigas shares has been delisted from Euronext Brussels.entities. For further details onthis transactionthe matter see "Item48 –Gas & Power"Legal Proceedings".
On February 12,Management intends to divest a stake in its fully-consolidated subsidiary GreenStream where the Company currently owns a 75% stake. Following the intended divestment, the Company expects to account for the entity in accordance with the equity-method of accounting. At December 31, 2009,Eni’s Boardincluded as part ofDirectors approvedtotal assets and total liabilities in thedivestment of 100% of Italgas SpA and Stoccaggi Gas Italia SpA (Stogit)Consolidated Financial Statements in respect toSnam Rete Gas (50.03% owned by Eni) for total cash consideration ofthe Company’s investment in GreenStream are euro4,720 million (euro 3,070673 million and euro1,650525 million,respectively). The transaction will be financed by Snam Rete Gas through: (i) a rights issue up for a maximum of euro 3.5 billion (Eni has already committed to subscribe its relative share of the rights issue); and (ii) new medium to long-term financing for euro 1.3 billion. The main impacts expected on Eni's consolidated financial statements when the transaction closes will be: (i) a decrease of euro 1.5 billion in net borrowings and a corresponding increase in total equity as a consequence of the pro-quota subscription of the Snam Rete Gas capital increase by the minority shareholders; and (ii) a decrease in Eni’s net profit equal to 45% of the aggregate net profit of Italgas and Stogit, with a corresponding increase in net profit attributable to minorities. From an industrial perspective the transaction, expected to close in July 2009, will create significant synergies in the regulated businesses segment and maximize the value of Italgas and Stogit due to the higher visibility of regulated businesses as a part of Snam Rete Gas. For further details on this transaction see "Item 4 – Gas & Power".respectively.
By the end of May 2008, based on the approval of the full year dividend proposal made by theThe Company’s Annual General Shareholders Meeting scheduled on April30, 2009,29, 2010, is due to approve the full year dividend proposal. Eni expects to pay the balance of the dividend for fiscal year20082009 amounting to euro0.650.50 pershare.share in May. Total cash out is estimated at euro2.361.81 billion.
F-99Supplemental oil and gas information (unaudited)
The following information pursuant to "International Financial Reporting Standards" (IFRS) is presented in accordance withStatement of Financial Accounting Standards No. 69, "Disclosures aboutSFAB Extractive Activities - Oil & GasProducing Activities"(Topic 932). Amounts related to minority interests are not significant.Capitalized costs
Capitalized costs represent the total expenditures for proved and unproved mineral interests and related support equipment and facilities utilized in oil and gas exploration and production activities, together with related accumulated depreciation, depletion and amortization. Capitalized costs by geographical area consist of the following:
(euro million) Italy
North AfricaRest of Europe
WestNorth Africa
North SeaWest Africa
Caspian AreaKazakhstan (1)Rest of
WorldAsiaAmericas
Australia and Oceania
Total consolidated subsidiaries Total joint ventures and associatesaffiliates (2)
December 31, 2007 Proved mineral interests 10,571 8,118 8,506 8,672 1,447 7,718 45,032 790 Unproved mineral interests 32 120 1,030 330 35 2,582 4,129 1,089 Support equipment and facilities 279 1,125 443 16 41 59 1,963 10 Incomplete wells and other 726 562 1,078 75 1,852 808 5,101 112 Gross capitalized costs 11,608 9,925 11,057 9,093 3,375 11,167 56,225 2,001 Accumulated depreciation, depletion and amortization (7,440 ) (4,960 ) (5,340 ) (5,670 ) (445 ) (4,909 ) (28,764 ) (345 ) Net capitalized costs (a) (b) 4,168 4,965 5,717 3,423 2,930 6,258 27,461 1,656 December 31, 2008 Proved mineral interests 10,772 10,116 11,368 7,499 2,130 8,954 50,839 813 10,772 7,852 10,116 11,368 1,663 3,939 4,737 392 50,839 813 Unproved mineral interests 32 638 2,267 316 1,051 2,908 7,212 928 32 316 638 2,267 37 1,461 2,418 43 7,212 928 Support equipment and facilities 283 1,205 520 16 51 71 2,146 14 283 24 1,205 520 51 16 43 4 2,146 14 Incomplete wells and other 1,374 1,006 1,443 159 2,631 1,797 8,410 267 1,374 249 1,006 1,443 2,631 713 632 362 8,410 267 Gross capitalized costs 12,461 12,965 15,598 7,990 5,863 13,730 68,607 2,022 Gross Capitalized Costs 12,461 8,441 12,965 15,598 4,382 6,129 7,830 801 68,607 2,022 Accumulated depreciation, depletion and amortization (7,943 ) (6,318 ) (7,027 ) (5,132 ) (858 ) (6,932 ) (34,210 ) (441 ) (7,943 ) (5,327 ) (6,318 ) (7,027 ) (560 ) (3,224 ) (3,638 ) (173 ) (34,210 ) (441 ) Net capitalized costs (a) (b) 4,518 6,647 8,571 2,858 5,005 6,798 34,397 1,581 Net Capitalized Costs (a) (b) 4,518 3,114 6,647 8,571 3,822 2,905 4,192 628 34,397 1,581 December 31, 2009 Proved mineral interests 10,079 9,472 11,122 14,011 1,723 4,566 5,750 1,338 58,061 791 Unproved mineral interests 33 305 580 1,854 36 1,518 2,144 38 6,508 443 Support equipment and facilities 273 31 1,287 585 57 17 45 4 2,299 13 Incomplete wells and other 1,028 329 1,228 934 3,481 316 600 14 7,930 358 Gross Capitalized Costs 11,413 10,137 14,217 17,384 5,297 6,417 8,539 1,394 74,798 1,605 Accumulated depreciation, depletion and amortization (7,557 ) (6,824 ) (7,044 ) (8,424 ) (620 ) (3,679 ) (4,673 ) (379 ) (39,200 ) (485 ) Net Capitalized Costs (a) (b) (c) 3,856 3,313 7,173 8,960 4,677 2,738 3,866 1,015 35,598 1,120
iii(1) Eni's capitalized costs of the Kashagan field are determined based on Eni shareof 16.81%. (2) The amounts of joint ventures and affiliates as at December 31, 2009 includes 29.4% of the three Russian companies former Yukos as a result of the Gazprom call option on the 51% of the shares (2007 and 2008 are reported at 60%). (a) iThe amounts include net capitalized financial charges totaling euro 441 million in 2007 and euro537 million in2008.2008 and euro 570 million in 2009.(b) iThe amounts do not include costs associated with exploration activities which are capitalized in order to reflect their investment nature and amortized in full when incurred. The application of the"Successful Effort Method" application would have led to an increase in net capitalized costs ofeuro 2,547 millionin2007 andeuro 3,308 million in 2008 and euro 3,690 million in 2009 for the consolidated companies and of euro94 million in 2007 and euro48 million in 2008 and euro 76 million in 2009 for joint venturesand associates.affiliates.
(1)(c)iEni'sAmounts of 2009 do not include the capitalized costs related to the Italian gas storage activities, following restructuring ofthe Kashagan field are determined based on Eni's share of 16.81% as of December 31, 2008 and 18.52%Eni regulated gas businesses inthe previous year.(2)iThe amounts of joint ventures and associates as at December 31, 2007 and December 31, 2008 include 60% of the three Russian companies former Yukos purchasedItaly now reported in2007, for which Gazprom has a call option of 51%.Gas & Power segment.
F-100F-114
CostsCost 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:
(euro million) Italy
North AfricaRest of Europe
WestNorth Africa
North SeaWest Africa
CaspianAreaKazakhstan (1)Rest of
WorldAsiaAmericas
Australia and Oceania
Total consolidated subsidiaries Total joint ventures and associatesaffiliates (2)
2006 Proved property acquisitions 139 10 149 Unproved property acquisitions 3 3 Exploration 128 270 471 174 25 280 1,348 26 Development (a) 1,120 892 956 478 595 766 4,807 31 Total costs incurred 1,387 1,172 1,427 652 620 1,049 6,307 57 2007 Proved property acquisitions (b) 11 451 1,395 1,857 187 11 451 1,395 1,857 187 Unproved property acquisitions (b) 510 1,417 1,927 1,086 510 1,417 1,927 1,086 Exploration (b) 104 380 298 193 36 1,181 2,192 42 104 195 373 305 36 162 980 37 2,192 42 Development (a) (b) 320 1,047 1,425 518 744 1,185 5,239 156 320 557 1,047 1,425 744 247 734 165 5,239 156 Total costs incurred 424 1,438 2,684 711 780 5,178 11,215 1,471 424 752 1,431 2,691 780 409 4,526 202 11,215 1,471 2008 Proved property acquisitions (b)626 413 173 83 1,295 626 413 256 1,295 Unproved property acquisitions (b)384 655 33 647 1,719 33 384 655 647 1,719 Exploration (b)135 421 581 214 144 719 2,214 48 135 227 403 600 16 345 440 48 2,214 48 Development (a) (b) 644 1,388 1,884 850 1,208 1,593 7,567 163 644 957 1,388 1,884 1,023 598 748 325 7,567 163 Total costs incurred 779 2,819 3,533 1,097 2,172 2,395 12,795 211 779 1,217 2,801 3,552 1,039 1,846 1,188 373 12,795 211 2009 Proved property acquisitions (b)298 27 11 131 467 Unproved property acquisitions (b)54 42 83 43 222 Exploration (b)40 114 317 284 20 159 242 52 1,228 41 Development (a) 742 727 1,401 2,121 1,086 423 858 462 7,820 206 Total costs incurred 782 841 2,070 2,474 1,106 676 1,274 514 9,737 247
iii(1) iEni’sEni's incurred costsincurredof the Kashagan field are determined based onEni’sEni shareof 16.81% asofat December31,2008 and 2009 and 18.52%in the previous year.as at December 2007.(2) iThe amounts of joint ventures and associates foraffiliates as at December 31,2007 and December 31, 2008 include 60%2009 includes 29.4% of the three Russian companies former Yukospurchased in 2007, for whichas a result of the Gazpromhas acall option on the 51% of51%the shares (2007 and 2008 are reported at 60%).(a) iIncludes the abandonment costs of the assets for euro 1,170 million in 2006, euro173 million in 2007,andeuro 628 million in 2008 and euro16301 millionfor joint ventures and associates.in 2009.(b) iOf which business combination:
(euro million)
Italy
Rest of Europe
North Africa
WestNorth Africa
West Africa
North Sea
Kazakhstan (1)
Caspian Area
Rest of
AsiaWorldAmericas
Australia and Oceania
Total consolidated subsidiaries
Total joint ventures and
affiliates (2)associates
2007 Proved property acquisitions 451 1,395 1,846 187 451 1,395 1,846 187 Unproved property acquisitions 510 1,334 1,844 1,086 510 1,334 1,844 1,086 Exploration 59 474 533 59 474 533 Development 10 345 355 101 10 345 355 101 Total 1,030 3,548 4,578 1,374 1,030 3,548 4,578 1,374 2008 Proved property acquisitions 298 173 83 554 298 256 554 Unproved property acquisitions 384 560 33 647 1,624 33 384 560 647 1,624 Exploration 23 115 116 42 296 23 115 158 296 Development 132 4 52 156 77 421 52 132 4 233 421 Total 539 977 85 1,092 202 2,895 85 539 977 1,294 2,895
Results of operations from oil and gas producing activities
Results of operations from oil and gas producing activities,including gas storage services used to modulate the seasonal variation of demand,represent only those revenues and expenses directly associated with 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’sPSA-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.
F-101F-115Results of operations from oil and gas producing activities by geographical area consist of the following:
(euro million) Italy
North AfricaRest of Europe
WestNorth Africa
North SeaWest Africa
CaspianAreaKazakhstan (1)Rest of
WorldAsiaAmericas
Australia and Oceania
Total consolidated subsidiaries Total joint ventures and associatesaffiliates (2)Total consolidated subsidiaries, joint ventures and affiliates
2006 Revenues Sales to consolidated entities 3,601
4,185
4,817
3,295
261
712
16,871
3,171 3,273 3,000 4,439 296 44 229 91 14,543 14,543 Sales to third parties 184
3,012
967
983
721
1,873
7,740
120
163 755 4,793 693 833 961 1,112 187 9,497 176 9,673 Total revenues 3,785
7,197
5,784
4,278
982
2,585
24,611
120
3,334 4,028 7,793 5,132 1,129 1,005 1,341 278 24,040 176 24,216 Operation costs (249
) (496
) (475
) (481
) (147
) (191
) (2,039
) (18
) Operations costs (248 ) (584 ) (542 ) (499 ) (142 ) (39 ) (177 ) (50 ) (2,281 ) (27 ) (2,308 ) Production taxes (181
) (95
) (475
) (82
) (833
) (3
) (188 ) (91 ) (473 ) (28 ) (780 ) (6 ) (786 ) Exploration expenses (137
) (273
) (186
) (160
) (25
) (293
) (1,074
) (26
) (108 ) (196 ) (379 ) (297 ) (36 ) (168 ) (566 ) (27 ) (1,777 ) (42 ) (1,819 ) D.D. & A. and provision for abandonment (a) (457
) (795
) (737
) (684
) (80
) (895
) (3,648
) (43
) Other income and (expenses) (315
) (569
) (190
) 57
(89
) (283
) (1,389
) 8
Pretax income from producing activities 2,446
4,969
3,721
3,010
641
841
15,628
38
Income taxes (909
) (2,980
) (2,133
) (1,840
) (223
) (381
) (8,466
) (31
) Results of operations from E&P activities (b) 1,537
1,989
1,588
1,170
418
460
7,162
7
2007 Revenues Sales to consolidated entities 3,171
3,000
4,439
3,125
296
512
14,543
Sales to third parties 163
4,793
693
755
833
2,260
9,497
176
Total revenues 3,334
7,793
5,132
3,880
1,129
2,772
24,040
176
Operation costs (248
) (542
) (499
) (579
) (142
) (271
) (2,281
) (27
) Production taxes (188
) (91
) (473
) (28
) (780
) (6
) Exploration expenses (108
) (385
) (291
) (193
) (36
) (764
) (1,777
) (42
) D.D. & A. and provision for abandonment (a) (499
) (768
) (685
) (729
) (76
) (989
) (3,746
) (51
) D.D. & A. and Provision for abandonment (a) (499 ) (766 ) (768 ) (685 ) (76 ) (422 ) (511 ) (19 ) (3,746 ) (51 ) (3,797 ) Other income and (expenses) (283
) (627
) (297
) (45
) (72
) (243
) (1,567
) (18
) (283 ) (83 ) (627 ) (285 ) (72 ) (134 ) (18 ) (65 ) (1,567 ) (18 ) (1,585 ) Pretax income from producing activities 2,008
5,380
2,887
2,334
803
477
13,889
32
2,008 2,399 5,386 2,893 803 214 69 117 13,889 32 13,921 Income taxes (746
) (3,102
) (1,820
) (1,419
) (284
) (241
) (7,612
) (49
) (746 ) (1,447 ) (3,102 ) (1,820 ) (284 ) (93 ) (110 ) (10 ) (7,612 ) (49 ) (7,661 ) Results of operations from E&P activities (b) 1,262
2,278
1,067
915
519
236
6,277
(17
) 1,262 952 2,284 1,073 519 121 (41 ) 107 6,277 (17 ) 6,260 2008 Revenues Sales to consolidated entities 3,956
2,622
5,013
3,691
360
629
16,271
3,956 3,892 2,622 5,013 360 39 323 66 16,271 16,271 Sales to third parties 126
7,286
1,471
121
1,288
2,928
13,220
265
126 160 7,286 1,471 1,025 1,335 1,599 218 13,220 265 13,485 Total revenues 4,082
9,908
6,484
3,812
1,648
3,557
29,491
265
4,082 4,052 9,908 6,484 1,385 1,374 1,922 284 29,491 265 29,756 Operation costs (260
) (528
) (609
) (515
) (173
) (326
) (2,411
) (34
) Operations costs (260 ) (521 ) (528 ) (609 ) (157 ) (68 ) (233 ) (35 ) (2,411 ) (34 ) (2,445 ) Production taxes (195
) (32
) (616
) (35
) (878
) (53
) (195 ) (32 ) (616 ) (35 ) (878 ) (53 ) (931 ) Exploration expenses (135
) (425
) (529
) (215
) (57
) (697
) (2,058
) (48
) (135 ) (228 ) (406 ) (548 ) (16 ) (232 ) (435 ) (58 ) (2,058 ) (48 ) (2,106 ) D.D. & A. and provision for abandonment (a) (551
) (1,120
) (1,115
) (782
) (331
) (1,490
) (5,389
) (84
) D.D. & A. and Provision for abandonment (a) (551 ) (829 ) (1,120 ) (1,115 ) (79 ) (823 ) (837 ) (35 ) (5,389 ) (84 ) (5,473 ) Other income and (expenses) (420
) (936
) (279
) (63
) (286
) (270
) (2,254
) (15
) (420 ) (56 ) (934 ) (268 ) (270 ) (259 ) (6 ) (41 ) (2,254 ) (15 ) (2,269 ) Pretax income from producing activities 2,521
6,867
3,336
2,237
801
739
16,501
31
2,521 2,418 6,888 3,328 863 (43 ) 411 115 16,501 31 16,532 Income taxes (924
) (4,170
) (2,262
) (1,581
) (315
) (435
) (9,687
) (49
) (924 ) (1,623 ) (4,170 ) (2,262 ) (302 ) (122 ) (214 ) (70 ) (9,687 ) (49 ) (9,736 ) Results of operations from E&P activities (b) 1,597
2,697
1,074
656
486
304
6,814
(18
) Total results of operations from E&P activities (b) 1,597 795 2,718 1,066 561 (165 ) 197 45 6,814 (18 ) 6,796 2009 Revenues Sales to consolidated entities 2,274 2,583 1,738 4,386 245 41 808 29 12,104 12,104 Sales to third parties 540 5,037 586 739 1,208 639 181 8,930 232 9,162 Total revenues 2,274 3,123 6,775 4,972 984 1,249 1,447 210 21,034 232 21,266 Operations costs (271 ) (517 ) (553 ) (749 ) (153 ) (78 ) (273 ) (41 ) (2,635 ) (34 ) (2,669 ) Production taxes (148 ) (20 ) (445 ) (34 ) (647 ) (44 ) (691 ) Exploration expenses (40 ) (114 ) (319 ) (451 ) (20 ) (204 ) (341 ) (62 ) (1,551 ) (41 ) (1,592 ) D.D. & A. and Provision for abandonment (a) (463 ) (921 ) (956 ) (1,502 ) (78 ) (535 ) (1,108 ) (186 ) (5,749 ) (76 ) (5,825 ) Other income and (expenses) (125 ) (134 ) (471 ) (467 ) (186 ) (17 ) 170 (47 ) (1,277 ) (41 ) (1,318 ) Pretax income from producing activities 1,227 1,437 4,456 1,358 547 381 (105 ) (126 ) 9,175 (4 ) 9,171 Income taxes (467 ) (833 ) (3,010 ) (1,042 ) (180 ) (67 ) (2 ) 23 (5,578 ) (40 ) (5,618 ) Results of operations from E&P activities (b) (c) 760 604 1,446 316 367 314 (107 ) (103 ) 3,597 (44 ) 3,553
iii(1) Eni's results of operations of the Kashagan field are determined based on Eni shareof 16.81% as at December 2008 and 2009 and 18.52% as at December 2007. (2) The amounts of joint ventures and affiliates as at December 31, 2009 includes 29.4% of the three Russian companies former Yukos as a result of the Gazprom call option on the 51% of the shares (2007 and 2008 are reported at 60%). (a) iIncludes asset impairments amounting to euro 130 million in 2006, euro91 million in 2007,andeuro 770 million in2008.2008 and euro 576 million in 2009.(b) iThe "Successful Effort Method" application would have led to an increase in resultsof result of operations ofeuro 220 million in 2006,euro 438 million in 2007,andeuro 408 million in 2008 and euro 320 million in 2009 for the consolidated companies and of euro15 million in 2006, euro26 million in 2007 andnoany variation in 2008 and euro 26 million in 2009 for joint ventures andassociates.affiliates.
(1)(c)iEni'sAmounts of 2009 do not include results ofoperationsoperation related to the Italian gas storage activities, following the restructuring ofthe Kashagan field are determined based on Eni’s share of 16.81% as of December 31, 2008 and 18.52%Eni's regulated gas businesses in Italy now reported in theprevious year.(2)iThe amounts of joint ventures and associates for December 31, 2007 and December 31, 2008 include 60% of the three Russian companies formerly part of Yukos purchased in 2007, for which Gazprom has a call option of 51%.Gas & Power segment.
F-102F-116Average sale prices and production costs per unit of production
(euro million)($)Italy
Rest of Europe
North Africa
West Africa
North SeaKazakhstanCaspian AreaRest of
WorldAsiaAmericas
Australia and Oceania
Total
2006 Average sales prices Oil and condensates per BBL ($) 55.22 60.99 61.55 62.18 53.18 57.15 60.09 Natural gas. per KCF 8.23 4.17 1.05 6.89 0.39 5.09 5.29 Average production costs per BOE 6.36 3.87 9.02 6.03 5.02 4.52 5.79 2007 Average sales prices Oil and condensates per BBL ($) 62.47 67.86 69.77 69.40 59.34 68.63 67.70 Natural gas. per KCF 8.58 4.60 1.21 6.53 0.41 5.53 5.42 Average production costs per BOE 7.89 4.22 11.53 8.56 4.90 5.33 6.90 2008 (a) Average sales prices Oil and condensates per BBL ($) 84.87 84.71 91.58 71.90 80.43 82.06 84.05 Natural gas. per KCF 13.06 7.14 1.50 10.21 0.53 7.56 8.01 Average production costs per BOE 9.40 3.66 15.25 8.99 5.79 6.92 7.77
(a)In 2008 Eni’s liquid realizations amounted to $84.05 per barrel and were reduced by approximately $4.13 per barrel due to the settlement of certain commodity derivatives relating to the sale of 46 mmBBL in the year. This was part of a derivative transaction the Company entered into to hedge exposure to variability in future cash flows expected from the sale of a portion of the Company’s proved reserves for an original amount of approximately 125.7 mmBBL in the 2008-2011 period, decreasing to 79.7 mmBBL by the end of December 2008.
2007 Oil and condensate, per BBL 62.47 70.84 67.86 69.77 59.34 64.73 66.37 71.23 67.70 Natural gas, per KCF 8.58 6.71 4.60 1.21 0.41 4.34 6.69 5.94 5.42 Average production cost, per BOE 7.89 8.35 4.22 11.53 4.90 3.13 7.17 10.35 6.90 2008 Oil and condensate, per BBL 84.87 71.90 84.71 91.58 79.06 75.08 88.69 82.80 84.05 Natural gas, per KCF 13.06 10.55 7.14 1.50 0.53 5.50 8.81 9.59 8.01 Average production cost, per BOE 9.40 8.67 3.66 15.25 5.86 3.69 10.27 8.50 7.77 2009 Oil and condensate, per BBL 56.02 56.46 55.97 59.75 52.34 55.23 55.74 50.40 56.95 Natural gas, per KCF 9.01 7.06 5.78 1.66 0.45 4.30 4.05 8.14 5.62 Average production cost, per BOE 9.69 8.28 4.05 13.15 5.20 3.49 8.25 9.56 7.49 Oil and natural gas reserves
Eni’s criteria concerning evaluation and classification of proved developed and undeveloped reserves follow Regulation S-X 4-10 of the U.S. Securities and Exchange Commission have been disclosed in accordance with FASB Extractive Activities - Oil & Gas (Topic 932).Proved oil and gas reserves are
the estimatedthose quantities ofcrudeoilnaturaland gas,and natural gas liquidswhich,geologicalby analysis of geoscience and engineering data,demonstratecan be estimated with reasonable certainty to berecoverable in future yearseconomically producible, from a given date forward, from known reservoirs, and undertechnical, contractual,existing economic conditions, operating methods, andoperatinggovernment regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.Existing economic conditions
existinginclude prices and costs at which economic producibility from a reservoir is to be determined. The price16 shall be thetime. Prices include considerationaverage price during the 12-month period prior to the ending date ofchanges in existingthe period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless pricesprovided onlyare defined by contractual arrangements,but not of increasesexcluding escalations based upon future conditions.Net proved reserves exclude
royaltiesinterests andinterestsroyalties owned by others.Proved reserves are classified as either developed or undeveloped.
Developed oil and gas reserves are
provedreserves that can beestimatedexpected to be recovered through existing wells with existing equipment and operatingmethods.methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.
Proved undevelopedUndeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required forcompletion.recompletion.
Additional oil and gas reserves expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing by a pilot project or after the operation of an installed program has confirmed, through production response, that increased recovery will be achieved.
Eni’s proved reserves have been estimated on the basis of the applicable U.S. Securities & Exchange Commission regulation, Rule 4-10 of Regulation S-X and its interpretations and have been disclosed in accordance with Statement of Financial Accounting Standard No. 69. The estimates of proved reserves, developed and undeveloped, for the years ended December 31, 2006, 2007 and 2008 are based on data prepared by Eni.Since 1991 Eni has requested qualified independent oil engineering companies to carry out an independent evaluation1617 of part of its proved reserves on arotationrotational basis.Eni believes these independent evaluators to be experienced and qualifiedThe description of qualifications of the person primarily responsible of the reserve audit is included in themarketplace.third party audit report18.In the preparation of their reports,
theseindependent evaluatorsrelied,rely, without independent verification, upon information furnished by Eni with respect to property interest, production, current cost of operation and development, sale agreements,relating to future operations and saleprices and other factual information and data that were accepted as represented by the independent evaluators.This information was the sameThese data, equally used by Eni indetermining proved reserves and include: log,its internal process, include logs, directional surveys, core and PVT (Pressure Volume Temperature) analysis, maps, oil/gas/water production/injection data of wells,reservoirs and fields,reservoirstudies,studies; technical analysis relevant to field performance, reservoir performance,budget data per field,long-term development plans, future capital and operating costs.
(16) In prior periods, year-end liquids and natural gas prices were used in the estimate of proved reserves. (17) From 1991 to 2002 DeGolyer and MacNaughton, from 2003 also Ryder Scott. (18) The reports of independent engineers are available on Eni website www.eni.com, section Documentation/Annual Report 2009. F-117
In order to calculate the economic value of
reserve NPV,Eni equity reserves, actual pricesreceived fromapplicable to hydrocarbon sales,instructions on future prices,price adjustments required by applicable contractual arrangements, and other pertinent information are provided.Accordingly, the work performed
(16)From 1991 to 2002 by DeGolyer and MacNaughton, from 2003 also by Ryder Scott Company.
F-103
by theIn 2009 Ryder Scott Company and DeGolyer and MacNaughton19 provided an independentevaluators is anevaluation ofEni’s proved reserves carried out in parallel with the internal one. The circumstance that the independent evaluations achieved the same results as thosealmost 28% ofthe Company for the vast majority of fields support the management’s confidence that the company’s booked reserves meet the regulatory definition of proved reserves which are reasonably certain to be produced in the future. When the assessment of independent engineers is lower than internal evaluations, Eni revises its estimates based on information provided by independent evaluators. In particular, in 2008, a total of 1.5 BBOE of proved reserves, or about 22% of Eni’sEni's total proved reservesatas of December 31,2008, have been evaluated. The results of this independent evaluation have essentially confirmed,200920 confirming, as in previous years, the reasonableness of Eni's internalassessment.evaluations.In the
2006-2008 three-yearthree year period77%from 2007 to 2009, 86% ofEni’sEni's total proved reserves were subject to independentevaluations. In the last three years,evaluation.As of December 31, 2009 among the most important
of Eni’sEni properties,as at December 31, 2008the only one whichwerewas not subject to an independentevaluation were: Bouri and Bu Attifel (Libya),review was Barbara (Italy), M’Boundi (Congo) and Elgin-Franklin (UK).Eni operates under Production Sharing Agreements,
(PSAs)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
53%46%,46%54% and54%57% of total proved reserves as ofyear-end 2006,December 31, 2007, 2008 and2008,2009, respectively, on an oil-equivalent basis.
ProvedSimilar effects as PSAs apply to service and "buy-back" contracts; proved reserves associated withservice and "Buy-Back"such contracts represented2%1%,1%2% and 2% of total proved reserves on an oil-equivalent basis as ofyear-end 2006,December 31, 2007, 2008 and2008,2009, respectively.Oil and gas reserve quantities include: (i) oil and natural gas quantities in excess of 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. Reserve volumes associated with oil and gas deriving from such
obligationsobligation represent1.1%1.8%,1.8%0.1% and0.1%0.3% of total proved reserves as ofyear-end 2006,December 31, 2007, 2008 and2008,2009, respectively, on an oil-equivalent basis; (ii) volumes of natural gas used for ownconsumption;consumption, (iii) the quantities of natural gas produced to feed the Angola LNG plant; and(iii)(iv) volumes of natural gas held in certainof Eni’sEni storage fields in Italy. Proved reserves attributable to these fields include: (a) the residual natural gas volumes of thereservoirsreservoirs; 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 acquiredbyfrom third parties. Gas withdrawn from storage is produced and thereby removed from proved reserves when sold.Numerous uncertainties are inherent in estimating quantities of proved reserves,
andin projecting futurerates of productionproductions andtiming ofdevelopment expenditures. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment.ResultsThe results of drilling, testing and production after the date of the estimate may require substantial upward or downwardrevision.revisions. 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 relevantatto the date when such estimates are made. Consequently, the evaluation of reservesevaluationcould alsodivergesignificantly differ from actual oil and natural gas volumeswhichthat will beactuallyproduced.
(19) The reports of independent engineers are available on Eni website www.eni.com, section Documentation/Annual Report 2009.
(20) Including reserves of joint ventures and affiliates. F-118
The following
table presentstables present yearly changes in estimated proved reserves, developed and undeveloped, of crude oil (including condensate and natural gas liquids) and natural gasfor the years 2006,as of December 31, 2007, 2008 and2008.2009.
F-104Crude oil (including condensate and natural gas liquids)
Proved oil reserves(mmBBL)Italy
North AfricaRest of Europe
WestNorth Africa
North SeaWest Africa
CaspianAreaKazakhstan (1)Rest of
WorldAsiaAmericas
Australia and Oceania
Total consolidated subsidiaries Total joint ventures and associatesaffiliates (2)
(mmBBL)
Total consolidated subsidiaries, joint ventures and affiliates
Reserves at December 31, 2005 228 961 936 433 778 412 3,748 25 Revisions of Previous Estimates (a) 15 61 (85 ) 20 72 (19 ) 64 1 Improved Recovery 49 41 14 104 1 Extensions and Discoveries 30 11 52 10 103 Production (28 ) (119 ) (117 ) (65 ) (23 ) (38 ) (390 ) (3 ) Sales of Minerals in Place (b) (2 ) (170 ) (172 ) Reserves at December 31, 2006 215 982 786 386 893 195 3,457 24 215 386 982 786 893 62 98 35 3,457 24 3,481 of which:
developed136 329 713 546 262 53 54 33 2,126 18 2,144 undeveloped 79 57 269 240 631 9 44 2 1,331 6 1,337 Purchase of Minerals in Place 32 54 86 101 32 54 86 101 187 Revisions of Previous Estimates 28 (35 (26 ) 14 (114 ) (31 ) (164 ) 20 28 14 (35 ) (26 ) (114 ) (6 ) (23 ) (2 ) (164 ) 20 (144 ) Improved Recovery 9 12 1 22 1 1 9 12 22 1 23 Extensions and Discoveries 43 22 1 29 95 1 1 43 22 28 1 95 1 96 Production (28 ) (121 ) (101 ) (57 ) (26 ) (36 ) (369 ) (5 ) (28 ) (57 ) (121 ) (101 ) (26 ) (12 ) (19 ) (5 ) (369 ) (5 ) (374 ) Reserves at December 31, 2007 215 878 725 345 753 211 3,127 142 215 345 878 725 753 44 138 29 3,127 142 3,269 of which:
developed133 299 649 511 219 35 81 26 1,953 26 1,979 undeveloped 82 46 229 214 534 9 57 3 1,174 116 1,290 Purchase of Minerals in Place 32 32 4 68 32 36 68 68 Revisions of Previous Estimates (8 ) 56 80 (31 ) 238 56 391 4 (8 ) (30 ) 56 80 239 42 11 1 391 4 395 Improved Recovery 7 25 32 1 7 25 32 1 33 Extensions and Discoveries 4 4 26 13 2 3 52 4 13 4 26 2 3 52 52 Production (25 ) (122 ) (105 ) (51 ) (30 ) (38 ) (371 ) (5 ) (25 ) (51 ) (122 ) (105 ) (25 ) (18 ) (21 ) (4 ) (371 ) (5 ) (376 ) Sales of Minerals in Place (56 ) (56 ) (56 ) (56 ) (56 Reserves at December 31, 2008 186 823 783 276 939 236 3,243 142 186 277 823 783 911 106 131 26 3,243 142 3,385 of which:
developed111 222 613 576 298 92 74 23 2,009 33 2,042 undeveloped 75 55 210 207 613 14 57 3 1,234 109 1,343 Purchase of Minerals in Place 2 2 2 Revisions of Previous Estimates 57 40 129 78 (36 ) (35 ) 36 1 270 270 Improved Recovery 8 10 15 33 33 Extensions and Discoveries 10 74 38 5 44 12 8 191 1 192 Production (20 ) (48 ) (105 ) (113 ) (26 ) (21 ) (26 ) (3 ) (362 ) (6 ) (368 ) Sales of Minerals in Place (51 ) (51 ) Reserves at December 31, 2009 233 351 895 770 849 94 153 32 3,377 86 3,463 of which:
developed141 218 659 544 291 45 80 23 2,001 34 2,035 undeveloped 92 133 236 226 558 49 73 9 1,376 52 1,428
Proved developed oil reserves
Italy
North Africa
West Africa
North Sea
CaspianArea(1)
Rest of WorldTotal consolidated subsidiariesTotal joint ventures and associates(2)
(mmBBL)
Reserves at December 31, 2005 149 697 568 353 266 298 2,331 19 Reserves at December 31, 2006 136 713 546 329 262 140 2,126 18 Reserves at December 31, 2007 133 649 511 299 219 142 1,953 26 Reserves at December 31, 2008 111 613 576 222 321 166 2,009 33
ii(a)iIncludes the redetermination of Eni’s share in the Val d’Agri concession in Italy.(b)iIncludes 170 mmBBL related to unilateral termination of OSA for Dación field by PDVSA.
(1)iEni’s proved reserves of the Kashagan field are determined based on Eni's share of 16.81% as of December 31, 2008 and 18.52% in previous years.(2)iReserves of joint ventures and associates as at December 31, 2007 and December 31, 2008 include 60% of the three Russian companies formerly part of Yukos purchased in 2007, for which Gazprom has a call option of 51%.
F-105
Natural gas
Proved natural gas reserves
Italy(a)
North Africa
West Africa
North Sea
CaspianArea(1)
Rest of WorldTotal consolidated subsidiariesTotal joint ventures and associates(2)
(BCF)
Reserves at December 31, 2005 3,676 6,117 1,965 1,864 1,774 2,105 17,501 90 Purchase of Minerals in Place 4 4 Revisions of Previous Estimates 36 154 31 53 183 47 504 (7 ) Extensions and Discoveries 19 146 34 1 132 332 8 Production (340 ) (471 ) (103 ) (218 ) (83 ) (222 ) (1,437 ) (15 ) Sales of Minerals in Place (7 ) (7 ) Reserves at December 31, 2006 3,391 5,946 1,927 1,697 1,874 2,062 16,897 68 Purchase of Minerals in Place 5 395 400 2,963 Revisions of Previous Estimates (53 ) 250 74 67 (222 ) 6 122 5 Improved Recovery 3 3 Extensions and Discoveries 4 89 213 7 205 89 607 Production (285 ) (534 ) (97 ) (216 ) (87 ) (261 ) (1,480 ) (14 ) Reserves at December 31, 2007 3,057 5,751 2,122 1,558 1,770 2,291 16,549 3,022 Purchase of Minerals in Place 6 8 114 128 Revisions of Previous Estimates 56 1,163 45 (51 ) 773 55 2,041 6 Improved Recovery 4 4 Extensions and Discoveries 5 38 2 25 42 112 Production (274 ) (641 ) (95 ) (204 ) (90 ) (300 ) (1,604 ) (13 ) Sales of Minerals in Place (16 ) (16 ) Reserves at December 31, 2008 2,844 6,311 2,084 1,336 2,437 2,202 17,214 3,015
Proved developed natural gas reserves
Italy(a)
North Africa
West Africa
North Sea
CaspianArea(1)
Rest of WorldTotal consolidated subsidiariesTotal joint ventures and associates(2)
(BCF)
Reserves at December 31, 2005 2,704 3,060 1,289 1,484 1,618 1,004 11,159 70 Reserves at December 31, 2006 2,449 3,042 1,447 1,395 1,511 1,105 10,949 48 Reserves at December 31, 2007 2,304 3,065 1,469 1,293 1,580 1,256 10,967 428 Reserves at December 31, 2008 2,031 3,537 1,443 1,065 2,006 1,056 11,138 420
(1) Eni's proved reserves of the Kashagan field are determined based on Eni share of 16.81% as at December 2008 and 2009 and 18.52% as at December 2007. (2) The amounts of joint ventures and affiliates as at December 31, 2009 includes 29.4% of the three Russian companies former Yukos as a result of the Gazprom call option on the 51% of the shares (2007 and 2008 are reported at 60%). F-119
Natural gas
(BCF) Italy (a)
Rest of Europe
North Africa
West Africa
Kazakhstan (1)
Rest of Asia
Americas
Australia and Oceania
Total consolidated subsidiaries Total joint ventures and affiliates (2) Total consolidated subsidiaries, joint ventures and affiliates
Reserves at December 31, 2006 3,391 1,836 5,946 1,927 1,874 991 299 633 16,897 68 16,965 of which:
developed2,449 1,480 3,042 1,447 1,511 614 159 247 10,949 48 10,997 undeveloped 942 356 2,904 480 363 377 140 386 5,948 20 5,968 Purchase of Minerals in Place 5 395 400 2,963 3,363 Revisions of Previous Estimates (53 ) 66 250 74 (222 ) 23 4 (20 ) 122 5 127 Improved Recovery 3 3 3 Extensions and Discoveries 4 6 89 213 205 4 86 607 607 Production (285 ) (236 ) (534 ) (97 ) (87 ) (138 ) (88 ) (15 ) (1,480 ) (14 ) (1,494 ) Reserves at December 31, 2007 3,057 1,675 5,751 2,122 1,770 880 696 598 16,549 3,022 19,571 of which:
developed2,304 1,364 3,065 1,469 1,580 530 442 213 10,967 428 11,395 undeveloped 753 311 2,686 653 190 350 254 385 5,582 2,594 8,176 Purchase of Minerals in Place 8 6 114 128 128 Revisions of Previous Estimates 56 (58 ) 1,163 45 772 52 (13 ) 24 2,041 6 2,047 Improved Recovery 4 4 4 Extensions and Discoveries 5 25 38 2 11 31 112 112 Production (274 ) (229 ) (641 ) (95 ) (89 ) (146 ) (114 ) (16 ) (1,604 ) (13 ) (1,617 ) Sales of Minerals in Place (16 ) (16 ) (16 ) Reserves at December 31, 2008 2,844 1,421 6,311 2,084 2,437 911 600 606 17,214 3,015 20,229 of which:
developed2,031 1,122 3,537 1,443 2,005 439 340 221 11,138 420 11,558 undeveloped 813 299 2,774 641 432 472 260 385 6,076 2,595 8,671 Purchase of Minerals in Place 1 136 137 137 Revisions of Previous Estimates 97 149 (309 ) 142 (204 ) 52 43 (17 ) (47 ) 18 (29 ) Improved Recovery 25 25 25 Extensions and Discoveries 1 26 479 2 7 4 519 80 599 Production (238 ) (239 ) (587 ) (100 ) (94 ) (151 ) (155 ) (18 ) (1,582 ) (14 ) (1,596 ) Sales of Minerals in Place (2 ) (2 ) (4 ) (1,511 ) (1,515 ) Reserves at December 31, 2009 2,704 1,380 5,894 2,127 2,139 814 629 575 16,262 1,588 17,850 of which:
developed2,001 1,231 3,486 1,463 1,859 539 506 565 11,650 234 11,884 undeveloped 703 149 2,408 664 280 275 123 10 4,612 1,354 5,966
(1) Eni's proved reserves of the Kashagan field are determined based on Eni shareof 16.81% as at December 2008 and 2009 and 18.52% as at December 2007. (2) The amounts of joint ventures and affiliates as at December 31, 2009 includes 29.4% of the three Russian companies former Yukos as a result of the Gazprom call option on the 51% of the shares (2007 and 2008 are reported at 60%). (a) Including approximately, 760,754, 749, 746 and746769 BCF of natural gas held in storage at December 31,2005,2006, 2007,and 2008, respectively.(1)Eni’s proved reserves of the Kashagan field are determined based on Eni's share of 16.81% as of December 31,2008 and18.52% in previous years.(2)Reserves of joint ventures and associates as at December 31, 2007 and December 31, 2008 include 60% of the three Russian companies formerly part of Yukos purchased in 2007, for which Gazprom has a call option of 51%.2009, respectively.Standardized measure of discounted future net cash flows
Estimated future cash inflows represent the revenues that would be received from production and are determined by applying year-end prices of oil and gas for the years ended December 31, 2007 and 2008 and the average prices during the year ended December 31, 2009 totheestimated future production of proved reserves. 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, 2006, 2007 and 2008 include amounts that Eni’s Gas & Power segment and other gas companies pay for storage services, required to support market demand flexibility needs.F-120Future 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-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.FASB Extractive Activities - Oil & Gas (Topic 932). 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, hydrocarbon resources other than proved
F-106reserves, anticipated changes in future prices and costs and a discount factor representative of the risks inherent in the oil and gas exploration and production activity.
The standardized measure of discounted future net cash flows by geographical area
consistsconsist of the following:
(euro million) Italy
North AfricaRest of Europe
WestNorth Africa
North SeaWest Africa
CaspianAreaKazakhstan (1)Rest of
WorldAsiaAmericas
Australia and Oceania
Total consolidated subsidiaries Total joint ventures and associatesaffiliates (2)Total consolidated subsidiaries, joint ventures and affiliates
At December 31, 2007 Future cash inflows 47,243 30,390 73,456 48,283 42,710 4,855 11,180 3,544 261,661 7,135 268,796 Future production costs (5,926 ) (6,759 ) (11,754 ) (9,875 ) (4,997 ) (476 ) (1,758 ) (459 ) (42,004 ) (1,249 ) (43,253 ) Future development and abandonment costs (7,218 ) (2,653 ) (4,643 ) (3,013 ) (3,374 ) (306 ) (1,533 ) (428 ) (23,168 ) (1,721 ) (24,889 ) Future net inflow before income tax 34,099 20,978 57,059 35,395 34,339 4,073 7,889 2,657 196,489 4,165 200,654 Future income tax (10,778 ) (14,388 ) (29,083 ) (23,083 ) (9,977 ) (1,109 ) (3,272 ) (1,003 ) (92,693 ) (2,009 ) (94,702 ) Future net cash flows 23,321 6,590 27,976 12,312 24,362 2,964 4,617 1,654 103,796 2,156 105,952 10% discount factor (13,262 ) (1,757 ) (11,143 ) (3,953 ) (17,480 ) (718 ) (1,568 ) (913 ) (50,794 ) (1,265 ) (52,059 ) Standardized measure of discounted future net cash flows 10,059 4,833 16,833 8,359 6,882 2,246 3,049 741 53,002 891 53,893 At December 31, 2008 Future cash inflows 46,458 16,963 62,785 22,344 21,648 5,072 5,257 2,937 183,464 4,782 188,246 Future production costs (5,019 ) (3,467 ) (10,673 ) (6,715 ) (6,273 ) (707 ) (1,657 ) (405 ) (34,916 ) (1,104 ) (36,020 ) Future development and abandonment costs (6,805 ) (2,317 ) (6,153 ) (3,868 ) (4,842 ) (738 ) (1,022 ) (258 ) (26,003 ) (1,845 ) (27,848 ) Future net inflow before income tax 34,634 11,179 45,959 11,761 10,533 3,627 2,578 2,274 122,545 1,833 124,378 Future income tax (11,329 ) (7,697 ) (27,800 ) (5,599 ) (2,745 ) (768 ) (232 ) (861 ) (57,031 ) (1,032 ) (58,063 ) Future net cash flows 23,305 3,482 18,159 6,162 7,788 2,859 2,346 1,413 65,514 801 66,315 10% discount factor (13,884 ) (1,042 ) (8,639 ) (2,155 ) (6,230 ) (672 ) (672 ) (768 ) (34,062 ) (763 ) (34,825 ) Standardized measure of discounted future net cash flows 9,421 2,440 9,520 4,007 1,558 2,187 1,674 645 31,452 38 31,490 At December 31, 2009 Future cash inflows 26,243 22,057 59,413 33,676 30,273 5,680 7,088 2,973 187,403 3,718 191,121 Future production costs (4,732 ) (6,215 ) (7,771 ) (9,737 ) (6,545 ) (1,427 ) (1,797 ) (529 ) (38,753 ) (1,251 ) (40,004 ) Future development and abandonment costs (5,143 ) (5,375 ) (8,618 ) (5,134 ) (4,345 ) (1,409 ) (1,897 ) (214 ) (32,135 ) (1,168 ) (33,303 ) Future net inflow before income tax 16,368 10,467 43,024 18,805 19,383 2,844 3,394 2,230 116,515 1,299 117,814 Future income tax (5,263 ) (6,621 ) (24,230 ) (9,894 ) (4,827 ) (636 ) (694 ) (563 ) (52,728 ) (432 ) (53,160 ) Future net cash flows 11,105 3,846 18,794 8,911 14,556 2,208 2,700 1,667 63,787 867 64,654 10% discount factor (5,868 ) (1,455 ) (9,160 ) (3,102 ) (10,249 ) (520 ) (1,162 ) (771 ) (32,287 ) (610 ) (32,897 ) Standardized measure of discounted future net cash flows (a) 5,237 2,391 9,634 5,809 4,307 1,688 1,538 896 31,500 257 31,757
At December 31, 2006 Future cash inflows 43,495 64,381 34,935 24,821 33,825 14,766 216,223 1,038 Future production costs (6,086 ) (9,707 ) (8,028 ) (6,426 ) (4,162 ) (1,753 ) (36,162 ) (224 ) Future development and abandonment costs (6,739 ) (5,383 ) (2,865 ) (2,265 ) (3,103 ) (1,473 ) (21,828 ) (79 ) Future cash inflow before income tax 30,670 49,291 24,042 16,130 26,560 11,540 158,233 735 Future income tax (10,838 ) (24,639 ) (14,141 ) (10,901 ) (7,649 ) (3,824 ) (71,992 ) (227 ) Future net cash flows 19,832 24,652 9,901 5,229 18,911 7,716 86,241 508 10% discount factor (11,493 ) (10,631 ) (2,994 ) (1,392 ) (13,878 ) (2,626 ) (43,014 ) (154 ) Standardized measure of discounted future net cash flows 8,339 14,021 6,907 3,837 5,033 5,090 43,227 354 At December 31, 2007 Future cash inflows 47,243 73,456 48,283 29,610 42,710 20,359 261,661 7,135 Future production costs (5,926 ) (11,754 ) (9,875 ) (6,670 ) (4,997 ) (2,782 ) (42,004 ) (1,249 ) Future development and abandonment costs (7,218 ) (4,643 ) (3,013 ) (2,461 ) (3,374 ) (2,459 ) (23,168 ) (1,721 ) Future cash inflow before income tax 34,099 57,059 35,395 20,479 34,339 15,118 196,489 4,165 Future income tax (10,778 ) (29,083 ) (23,083 ) (14,375 ) (9,977 ) (5,397 ) (92,693 ) (2,009 ) Future net cash flows 23,321 27,976 12,312 6,104 24,362 9,721 103,796 2,156 10% discount factor (13,262 ) (11,143 ) (3,953 ) (1,600 ) (17,480 ) (3,356 ) (50,794 ) (1,265 ) Standardized measure of discounted future net cash flows 10,059 16,833 8,359 4,504 6,882 6,365 53,002 891 At December 31, 2008 Future cash inflows 46,458 62,785 22,344 16,056 22,199 13,622 183,464 4,782 Future production costs (5,019 ) (10,673 ) (6,715 ) (3,414 ) (6,380 ) (2,715 ) (34,916 ) (1,104 ) Future development and abandonment costs (6,805 ) (6,153 ) (3,868 ) (2,166 ) (5,114 ) (1,897 ) (26,003 ) (1,845 ) Future cash inflow before income tax 34,634 45,959 11,761 10,476 10,705 9,010 122,545 1,833 Future income tax (11,329 ) (27,800 ) (5,599 ) (7,621 ) (2,781 ) (1,901 ) (57,031 ) (1,032 ) Future net cash flows 23,305 18,159 6,162 2,855 7,924 7,109 65,514 801 10% discount factor (13,884 ) (8,639 ) (2,155 ) (869 ) (6,272 ) (2,243 ) (34,062 ) (763 ) Standardized measure of discounted future net cash flows 9,421 9,520 4,007 1,986 1,652 4,866 31,452 38
(1) Eni's standardized measure of discounted future of net cash flows of the Kashagan field isare determined based onEni’sEni shareof 16.81% asofat December31,2008 and 2009 and 18.52%in previous years.as at December 2007.(2) The amounts of joint ventures and associatesaffiliates as at December 31,2007 and December 31, 2008 include 60%2009 includes 29.4% of the three Russian companiesformerly partformer Yukos as a result ofYukos purchased in 2007, for whichthe Gazpromhas acall option on the 51% of51%the shares (2007 and 2008 are reported at 60%).(a) Amounts of 2009 do not include standardized measure of discounted future net cash flows related to the Italian gas storage activities, following the restructuring of Eni's regulated gas businesses in Italy now reported in the Gas & Power segment.
F-107F-121Changes in standardized measure of discounted future net cash flows
Changes in standardized measure of discounted future net cash flows for the years
2006,ended December 31, 2007, 2008 and2008.2009, are as follows:
(euro million) 2006
2007
2008
Beginning of year 55,722 43,581 53,893 Beginning of year related to joint venture and associates (371 ) (354 ) (891 ) Beginning of year consolidated 55,351 43,227 53,002 Increase (decrease): - sales, net of production costs (21,739 ) (20,979 ) (26,202 ) - net changes in sales and transfer prices, net of production costs 4,097 34,999 (39,699 ) - extensions, discoveries and improved recovery, net of future production and development costs 3,629 3,982 1,110 - changes in estimated future development and abandonment costs (6,964 ) (4,000 ) (6,222 ) - development costs incurred during the period that reduced future development costs 3,558 4,682 6,584 - revisions of quantity estimates 383 (2,995 ) 5,835 - accretion of discount 9,489 7,968 10,538 - net change in income taxes 3,060 (17,916 ) 21,359 - purchase of reserves in-place 10 3,521 476 - sale of reserves in-place (1,252 ) 25 - changes in production rates (timing) and other (6,395 ) 513 4,646 Net increase (decrease) (12,124 ) 9,775 (21,550 ) Standardized measure of discounted future net cash flows consolidates 43,227 53,002 31,452 Standardized measure of discounted future net cash flows joint ventures and associates 354 891 38 Standardized measure of discounted future net cash flows 43,581 53,893 31,490
(euro million) Total consolidated subsidiaries
Total joint ventures and affiliates
Total consolidated subsidiaries, joint ventures and affiliates
Value at December 31, 2006 43,227 354 43,581 Increase (Decrease): - sales, net of production costs (20,979 ) (143 ) (21,122 ) - net changes in sales and transfer prices, net of production costs 34,999 153 35,152 - extensions, discoveries and improved recovery, net of future production and development costs 3,982 46 4,028 - changes in estimated future development and abandonment costs (4,000 ) (73 ) (4,073 ) - development costs incurred during the period that reduced future development costs 4,682 56 4,738 - revisions of quantity estimates (2,995 ) 527 (2,468 ) - accretion of discount 7,968 50 8,018 - net change in income taxes (17,916 ) (1,027 ) (18,943 ) - purchase of reserves in-place 3,521 929 4,450 - changes in production rates (timing) and other 513 19 532 Net increase (decrease) 9,775 537 10,312 Value at December 31, 2007 53,002 891 53,893 Increase (Decrease): - sales, net of production costs (26,202 ) (178 ) (26,380 ) - net changes in sales and transfer prices, net of production costs (39,699 ) (1,254 ) (40,953 ) - extensions, discoveries and improved recovery, net of future production and development costs 1,110 10 1,120 - changes in estimated future development and abandonment costs (6,222 ) (129 ) (6,351 ) - development costs incurred during the period that reduced future development costs 6,584 145 6,729 - revisions of quantity estimates 5,835 (61 ) 5,774 - accretion of discount 10,538 201 10,739 - net change in income taxes 21,359 657 22,016 - purchase of reserves in-place 476 476 - sale of reserves in-place 25 25 - changes in production rates (timing) and other 4,646 (244 ) 4,402 Net increase (decrease) (21,550 ) (853 ) (22,403 ) Value at December 31, 2008 31,452 38 31,490 Increase (Decrease): - sales, net of production costs (17,752 ) (154 ) (17,906 ) - net changes in sales and transfer prices, net of production costs 4,515 286 4,801 - extensions, discoveries and improved recovery, net of future production and development costs 3,587 22 3,609 - changes in estimated future development and abandonment costs (9,915 ) (157 ) (10,072 ) - development costs incurred during the period that reduced future development costs 7,401 208 7,609 - revisions of quantity estimates 4,686 (113 ) 4,573 - accretion of discount 6,112 29 6,141 - net change in income taxes 674 (67 ) 607 - purchase of reserves in-place 161 161 - sale of reserves in-place (7 ) 81 74 - changes in production rates (timing) and other 586 84 670 Net increase (decrease) 48 219 267 Value at December 31, 2009 31,500 257 31,757
F-109F-122SIGNATURES
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: April 26, 2010
Eni SpA /s/ANTONIO CRISTODORO Antonio Crstodoro Title: Deputy Corporate Secretary F-123
EXHIBIT 1
Eni SpA By-laws
Part I - Establishment - Name - Registered Office and Duration of the Company
ARTICLE 1
1.1 "Eni SpA" 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 and any other non-financial 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, paragraph 227, of Law December 24, 2003, No. 350, the Minister of Economy and Finance retains the following special powers to be exercised in agreement with the Minister of the 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 the 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 120 days of the end of the business year. 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 "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’ 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.13.2 Admission to the shareholders’ meeting is subject to the delivery, also for registered shares, of the communication 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 meeting may also be represented in compliance with the law by a person appointed by written proxy. Incorporated entities and companies may attend the meeting by way of a person appointed by written proxy. In order to simplify collection of proxies issued by Shareholders who are employees of the company or its subsidiaries and members of Shareholders associations incorporated under and managed pursuant to current legislation regulating proxies collection, notice boards for communications and rooms to allow proxies collection are made available to said associations according to terms and conditions agreed from time to time by the company with the associations representatives. 14.2 The Chairman of the meeting has to assure the regularity of written proxies and, in general, the right to attend the meeting. 14.3 The right to vote may also be exercised by mail according to the laws and regulations in force concerning this matter. 14.4 Eni SpA shareholders’ meetings are disciplined by Eni SpA’s shareholders’ meeting Regulation approved by the ordinary shareholders’ meeting. E-3
ARTICLE 15
15.1 The meeting is chaired by the Chairman of the Board of Directors, or in the event of absence or impediment, by the Chief Executive Officer; in absence of both, by another person, duly delegated by the Board of Directors, failing which the meeting may elect its own Chairman. 15.2 The Chairman of the meeting is assisted by a Secretary, who need not be a Shareholder, to be designated by the Shareholders present, and may appoint one or more scrutineers. ARTICLE 16
16.1 The ordinary shareholders’ meeting decides on all the matters for which it is legally entitled and authorises the transfer of the business. 16.2 Resolutions either at ordinary or extraordinary meetings, either on first, second or third call, must be taken with the majority required by the law in each case. 16.3 Resolutions of the meeting taken in compliance with the law and these 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 the Economic Development may appoint another member, with no voting rights, pursuant to Article 6, second 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 of Directors, except for the member appointed pursuant to Article 6.2, letter d) of these by-laws, is appointed by the shareholders’ meeting on the basis of lists presented by Shareholders and by the Board of Directors; in such lists the candidates must be listed in numerical order. Should the retiring Board of Directors present its own candidate list, it must be deposited at the company’s registered office and published in at least three Italian newspapers of general circulation, two of them business dailies, at least twenty days before the date set for the first call of the shareholders’ meeting. Candidate lists presented by Shareholders must be deposited 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 vote only one candidate list. Those who are controlling or controlled entities or are under common control, as defined by Article 93 of Legislative Decree No. 58 issued on February 24, 1998, by the same entity of the shareholder presenting a list shall not present nor take part in the presentation of another candidate 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 cent of voting share capital at the ordinary shareholders’ meeting may present candidate lists. In order to demonstrate the title on the number of shares necessary to present candidate lists, the Shareholders must present and/or deliver with the company’s registered office a copy of the communication 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.
At least one Board member, if the Board members are no more than five, or at least three Board members if the Board members are more than five, shall have the independence requirements set for 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 to accept 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 appointed shall communicate to the Company if they have lost the above mentioned independence and 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 and if situations of ineligibility or incompatibility have arisen.
If the honorability or independence requirements declared and set forth by the legislation in force are not present or elapse for a Board member or if situations of ineligibility or incompatibility have arisen, the Board of Directors removes said Board member and resolves upon his substitution or invites him to 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 in 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, 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 meeting is considered duly held in the place where the Chairman and the Secretary are present. 19.2 Usually notice is given at least five days in advance. In cases of urgency notice may be sent earlier. The Board of Directors decides on how to convene its meetings. 19.3 The Board of Directors must likewise be convened when so requested by at least two Board members or by one member if the Board consists of three members to decide on a specific matter considered of particular importance, pertaining to management, matter to be indicated in the request. ARTICLE 20
20.1 The Chairman of the Board or, in his absence, the oldest Board member in attendance chairs the meeting. 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 meeting has a casting vote. ARTICLE 22
22.1 Resolutions of the Board are entered in the minutes, which are recorded in a book kept for that purpose pursuant to the law, and said minutes are signed by the Chairman of the meeting and by the Secretary. 22.2 Copies of the minutes are bona fide if they are signed by the Chairman or the person acting for him and countersigned by the Secretary. ARTICLE 23
23.1 The Board of Directors is invested with the fullest powers for ordinary and extraordinary management of the company and, in particular, the Board has the power to perform all acts it deems advisable for the implementation and achievement of the company objects, except for the acts that the law or these 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, 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, 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, upon 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.
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. 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’ 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.
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 other than Eni SpA subsidiaries may not be appointed Statutory Auditor; if elected, they will lapse.28.2 The Board of Statutory Auditors is 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 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 by the 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 In the event the company is wound up, the shareholders’ meeting will decide the manner of liquidation, appoint one or more liquidators and determine their powers and remuneration. Part IX - General Provisions
ARTICLE 32
32.1 For matters not expressly regulated by these by-laws, the norms of the Civil Code and specific laws concerning these matters will apply. 32.2 Pursuant to Article 3, paragraph 2, of Law Decree 332 of May 31, 1994, converted with amendments into Law 474 of July 30, 1994, Article 6.1, paragraph sixth, of these bylaws does not apply to the share owned by the Ministry of Economy and Finance, by public bodies or by entities controlled thereby. ARTICLE 33
33.1 The company retains all assets and liabilities held before its transformation by the public law agency Ente Nazionale Idrocarburi.
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EXHIBIT 8
List of Eni’s subsidiaries for year
20082009
Subsidiary Country of Incorporation
Eni’s share of net profit (%)
EXPLORATION & PRODUCTION Eni Angola SpA Italy 100.00 Eni East Africa SpA Italy 100.00 Eni Medio Oriente SpA Italy 100.00 Eni Mediterranea Idrocarburi SpA Italy 100.00 Eni Timor Leste SpA Italy 100.00 Ieoc SpA Italy 100.00 Società Adriatica Idrocarburi SpA Italy 100.00 Società Ionica Gas SpA Italy 100.00 Società Oleodotti Meridionali - SOM SpA Italy 70.00 Società Padana Energia SpA Italy 100.00 Società Petrolifera Italiana SpA Italy 99.96 Stoccaggi Gas Italia SpA - Stogit SpAItaly100.00Tecnomare - Società per lo Sviluppo delle Tecnologie Marine SpA Italy 100.00 Agip Caspian Sea BV Netherlands 100.00 Agip Energy &and Natural Resources (Nigeria) LtdNigeria 100.00 Agip Karachaganak BV Netherlands 100.00 Agip Oil Ecuador BV Netherlands 100.00 Astrakhan Gas and Oil CoRussia3.00Burren Energy (Bermuda) Ltd Bermuda 100.00 Burren Energy (Buguruslan) LtdCyprus100.00Burren Energy (Congo)Congo LtdBritish Virgin Islands 100.00Burren Energy Drilling Services Ltd (in liquidation)UK100.00 Burren Energy (Egypt) Ltd UK 100.00 Burren Energy India Ltd UK 100.00 Burren Energy Ltd Cyprus 100.00 Burren Energy New Ventures LtdUK100.00Burren Energy (Oman) LtdUK100.00Burren EnergyPlcUK 100.00 Burren Energy (Services) LtdUK100.00Burren Energy (Yemen)LtdUK 100.00 Burren Resources Petroleum Ltd Bermuda 100.00 Burren Shakti Ltd Bermuda 100.00 Eni AEP Ltd UK 100.00 Eni Algeria Exploration BV Netherlands 100.00 Eni Algeria Ltd Sàrl Luxembourg 100.00 Eni Algeria Production BV Netherlands 100.00 Eni Ambalat Ltd UK 100.00 Eni America Ltd USA 100.00 Eni Angola Exploration BV Netherlands 100.00 Eni Angola Production BV Netherlands 100.00 Eni Australia BV Netherlands 100.00 Eni Australia Ltd UK 100.00 Eni BB Petroleum Inc USA 100.00 Eni Bukat Ltd UK 100.00 Eni Bulungan BV Netherlands 100.00 Eni Canada Holding Ltd Canada 100.00 Eni CBM Ltd UK 100.00 Eni China BV Netherlands 100.00 Eni Congo Holding BV Netherlands 100.00 Eni Congo SA Congo 100.00 Eni Croatia BV Netherlands 100.00 Eni Dación BV Netherlands 100.00 Eni Denmark BV Netherlands 100.00 Eni Elgin/Franklin Ltd UK 100.00 Eni Energy Ltd (in liquidation) UK 100.00 Eni Energy Russia BV Netherlands 100.00 Eni Gabon SA Gabon 99.96 Eni Ganal Ltd UK 100.00 Eni Gas & Power LNG Australia BV Netherlands 100.00
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Eni Grand Maghreb BVGhana Exploration and Production LtdNetherlandsGhana100.00 E-9
Eni Hewett Ltd UK 100.00 Eni India Ltd UK 100.00 Eni Indonesia Ltd UK 100.00 Eni International NA NV Sàrl Luxembourg 100.00 Eni Investments Plc UK 100.00 Eni Iran BV Netherlands 100.00 Eni Iraq BV Netherlands 100.00 Eni Ireland BV Netherlands 100.00 Eni JPDA 03-13 Ltd UK 100.00 Eni JPDA 06-105 Pty Ltd Australia 100.00 Eni Krueng Mane Ltd UK 100.00 Eni Lasmo Plc UK 100.00 Eni LNS Ltd UK 100.00 Eni Mali BV Netherlands 100.00 Eni Marketing Inc USA 100.00 Eni MHH Ltd (in liquidation) UK 100.00 Eni Middle East BV Netherlands 100.00 Eni Middle East Ltd UK 100.00 Eni MOG Ltd (in liquidation) UK 100.00 Eni Morocco BV Netherlands 100.00 Eni Muara Bakau BV Netherlands 100.00 Eni Norge AS Norway 100.00 Eni North Africa BV Netherlands 100.00 Eni Oil Algeria Ltd UK 100.00 Eni Oil do Brasil SA Brazil 100.00 Eni Oil & Gas Inc USA 100.00 Eni Oil Holdings BV Netherlands 100.00 Eni Pakistan Ltd UK 100.00 Eni Pakistan (M) Ltd Sàrl Luxembourg 100.00 Eni Papalang Ltd UK 100.00 Eni Petroleum Co Inc USA 100.00 Eni Petroleum US Llc USA 100.00 Eni PetroRussia BV Netherlands 100.00 Eni Popodi Ltd UK 100.00 Eni Rapak Ltd UK 100.00 Eni Resources Ltd UK 100.00 Eni Securities LtdUK100.00EniTNS LtdUK 100.00 Eni TrasportationTransportation LtdUK 100.00 Eni Trinidad and Tobago Ltd Trinidad & Tobago 100.00 Eni TTO Ltd UK 100.00 Eni Tunisia BEK BV Netherlands 100.00 Eni Tunisia BV Netherlands 100.00 Eni UFL Ltd UK 100.00 Eni UHL Ltd UK 100.00 Eni UKCS Ltd UK 100.00 Eni UK Holding Plc UK 100.00 Eni UK Ltd UK 100.00 Eni ULT Ltd UK 100.00 Eni ULX Ltd UK 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 Netherlands 100.00 Eni West Timor Ltd UK 100.00 Eni Yemen Ltd (ex Burren Energy (Yemen) Ltd) UK 100.00 First Calgary Petroleums LP USA 100.00 First Calgary Petroleums Ltd Canada 100.00 First Calgary Petroleums Partner Co ULC Canada 100.00 First Calgary Petroleums UK Ltd UK 100.00 Hindustan Oil Exploration Co Ltd India 47.18 Ieoc Exploration BV Netherlands 100.00 Ieoc Production BV Netherlands 100.00 Lasmo Sanga Sanga Ltd Bermuda 100.00 E-10
Nigerian Agip Exploration Ltd Nigeria 100.00 Nigerian Agip Oil Co Ltd Nigeria 100.00 OOO ‘Eni Energhia’ Russia 100.00 GAS & POWER Acqua Campania SpA Italy 47.6231.98Compagnia Napoletana di Illuminazione e Scaldamento col Gas SpA Italy 99.6955.40Eni Gas & Power Belgium SpA Italy 100.00 Eni Gas Transport Deutschland SpA Italy 100.00 Eni Hellas SpA Italy 100.00 EniPower Mantova SpA Italy 86.50 EniPower SpA Italy 100.00 EniPower TrasmissioneGNL Italia SpAItaly 55.57 LNG Shipping SpA Italy 100.00 GNL Italia SpAItaly55.59LNG ShippingSeacom SpAItaly 100.00 Snam Rete Gas SpA Italy 55.5955.57Società EniPower Ferrara Srl Italy 51.00 Società Italiana per il Gas pA Italy 100.0055.57Stoccaggi Gas Italia SpA - Stogit SpA Italy 55.57 Toscana Energia Clienti SpA Italy 79.22100.00Travagliato Energia Srl Italy 100.00 Adriaplin Podjetje za distribucijo zemeljskega plina doo Ljubljana Slovenia 51.00 Distribuidora de Gas Cuyana SA Argentina 45.60 Distrigas NV Belgium 57.24100.00Distri RE SA Luxembourg 57.24100.00Eni Gas & Power Belgium SA Belgium 100.00 Eni Gas & Power GmbH Germany 100.00 Eni Gas Transport GmbH (ex Eni Gas & Power GmbH)Germany 100.00 Eni Gas Transport International SA Switzerland 100.00 Eni G&P France BV Netherlands 100.00 Eni G&P Trading BV Netherlands 100.00 Finpipe GIE Belgium 36.2463.33Gas Brasiliano Distribuidora SA Brazil 100.00 GreenStream BV Netherlands 75.00 Inversora de Gas Cuyana SA Argentina 76.00 Société de Financement et de Participation SA Belgium 57.13100.00Société 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-Dso Földgázelosztó Korlátolt Felelossegu TarsasagkftHungary 50.08 Tigáz Tiszántúli Gázszolgáltató Zártkörûen Mûködõ Részvénytársaság Hungary 50.08 Transfin SA Belgium 57.13100.00Trans Tunisian Pipeline Co Ltd Channel Islands 100.00 REFINING & MARKETING AgipFuel Nord SpAItaly100.00Agip Rete SpAItaly100.00Costiero Gas Livorno SpA Italy 65.00 Ecofuel SpA Italy 100.00 Eni Fuel Nord SpA (ex AgipFuel Nord SpA) Italy 100.00 Eni Rete oil&nonoil SpA (ex Agip Rete SpA) Italy 100.00 Eni Trading & Shipping SpA Italy 100.00 Petrolig Srl Italy 70.00 Petroven Srl Italy 68.00 Raffineria di Gela SpA Italy 100.00 Agip Austria GmbH Austria 100.00 Agip Benelux BVNetherlands100.00AgipCeská Republika SroCzech Republic 100.00 Agip Deutschland GmbH Germany 100.00 Agip Ecuador SAEcuador100.00Agip France SàrlFrance100.00Agip Hungaria ZrtHungary100.00Agip Iberia SLU (ex Eni España Comercializadora de Gas SA)Spain100.00AgipLubricantes SAArgentina 100.00Agip Oil Ceská Republika SroCzech Republic100.00
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Agip Oil Slovensko Spol SroSlovakia100.00Agip Olaj Magyarország Kereskedelmi Korlátolt Felelõsségû TársaságHungary100.00 Agip Romania Srl Romania 100.00 Agip Schmiertechnik GmbH Germany 100.00 Agip Slovenija doo Slovenia 100.00 Agip Slovensko Spol SroSlovakia100.00Agip Suisse SASwitzerland100.00American Agip Co Inc USA 100.00 E-11
Eni Benelux BV (ex Agip Benelux BV) Netherlands 100.00 Eni Ecuador SA (ex Agip Ecuador SA) Ecuador 100.00 Eni France Sàrl (ex Agip France Sàrl) France 100.00 Eni Hungaria Zrt (ex Agip Hungaria Zrt) Hungary 100.00 Eni Iberia SLU (ex Agip Iberia SLU) Spain 100.00 Eni Oil Ceská Republika Sro (ex Agip Oil Ceská Republika Sro) Czech Republic 100.00 Eni Oil Slovensko Spol Sro (ex Agip Oil Slovensko Spol Sro) Slovakia 100.00 Eni Slovensko Spol Sro (ex Agip Slovensko Spol Sro) Slovakia 100.00 Eni Suisse SA (ex Agip Suisse SA) Switzerland 100.00 Eni Trading & Shipping BV (ex Eni Trading BV)Netherlands 100.00 Eni Trading & Shipping Inc USA 100.00 Esain SA Ecuador 100.00 PETROCHEMICALS Polimeri Europa SpA Italy 100.00 Dunastyr Polisztirolgyártó Zártkoruen Mukodo Részvénytársaság Hungary 100.00 Polimeri Europa Benelux SA Belgium 100.00 Polimeri Europa France SAS France 100.00 Polimeri Europa GmbH Germany 100.00 Polimeri Europa Ibérica SA Spain 100.00 Polimeri Europa UK Ltd UK 100.00 ENGINEERING & CONSTRUCTION Intermare Sarda SpA Italy 43.5543.48Saipem Energy ItaliaServices SpAItaly 43.55Saipem Energy Services SpA (ex Energy Maintenance Services SpA)Italy43.5543.48Saipem SpA Italy 43.5543.48Servizi Energia Italia SpA (ex Saipem Energy Italia SpA) Italy 43.48 Snamprogetti Chiyoda SAS di Saipem SpA Italy 43.51Snamprogetti Sud SpAItaly43.5543.44Andromeda Consultoria Tecnica e Representações Ltda Brazil 43.5543.48BOSCONGO SA Congo 43.5543.48BOS Investment Ltd UK 43.5543.48BOS - UIE Ltd UK 43.55Delong Hersent - Estudos, Construções Maritimas e Participações, Unipessoal LdaPortugal43.5543.48Entreprise Nouvelle Marcellin SA France 43.5543.48ER SAI Caspian Contractor Llc Kazakhstan 21.7821.74ERS - Equipment Rental & Services BV Netherlands 43.5543.48European Marine Contractors Ltd (in liquidation) UK 43.5543.48European Marine Investments Ltd (in liquidation) UK 43.5543.48European Maritime Commerce BV Netherlands 43.55Frigstad Discoverer Invest LtdBritish Virgin Islands43.55Firgstad Discoverer Invest (S) Pte LtdSingapore43.5543.48Global Petroprojects Services AG Switzerland 43.5543.48Katran-K Llc Russia 43.55Moss Arctic Offshore ASNorway43.5543.48Moss Maritime AS Norway 43.5543.48Moss Maritime Inc USA 43.5543.48Moss Offshore AS Norway 43.5543.48North Caspian ServicesService CoKazakhstan 43.5543.48Petrex SA Peru 43.5543.48Petromar Lda Angola 30.4930.44PT Saipem Indonesia Indonesia 43.55Saibos Construções Maritimas LtdaPortugal43.5543.48Saigut SA De Cv Mexico 43.5543.48Saimexicana SA De Cv Mexico 43.5543.48Saipem America Inc USA 43.5543.48Saipem Asia Sdn Bhd Malaysia 43.5543.48Saipem (Beijing) Technical Services Co Ltd China 43.5543.48Saipem Contracting Algerie SpA Algeria 43.5543.48Saipem Contracting (Nigeria) Ltd Nigeria 42.6642.59Saipem Discoverer Invest Sàrl (ex Frigstad Discoverer Invest Ltd) Luxembourg 43.48 Saipem do Brasil Serviçõs de Petroleo Ltda Brazil 43.5543.48
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Saipem Drilling Co Private Ltd (ex Saipem Aban Drilling Co Private Ltd) India 43.48 Saipem Holding France SAS France 43.5543.48Saipem India Projects Ltd (ex Saipem India Project Services Ltd)India 43.5543.48Saipem International BV Netherlands 43.5543.48Saipem Logistics Services LtdNigeria43.55E-12
Saipem Luxembourg SA Luxembourg 43.5543.48Saipem (Malaysia) Sdn Bhd Malaysia 18.0217.99Saipem Maritime Asset Management Luxembourg Sàrl Luxembourg 43.5543.48Saipem Mediteran Usluge doo Croatia 43.5543.48Saipem Misr for Petroleum Services SAE Egypt 43.5543.48Saipem (Nigeria) Ltd Nigeria 38.9438.88Saipem Perfurações e Construções PetroliferasPetrolíferas Unipessoal LdaPortugal 43.5543.48Saipem (Portugal) Comércio Marí timo,timo. Sociedade Unipessoal LdaPortugal 43.5543.48Saipem (Portugal) - Gestão de Participações SGPS Sociedade Unipessoal SA Portugal 43.5543.48Saipem SA France 43.5543.48Saipem Services México SA De Cv Mexico 43.5543.48Saipem Services SA Belgium 43.5543.48Saipem Singapore Pte Ltd Singapore 43.5543.48Saipem UK Ltd UK 43.5543.48Saipem Ukraine Llc Ukraine 43.5543.48SAS Port de Tanger France 43.5543.48Saudi Arabian Saipem Ltd United Arab EmiratesSaudi Arabia26.13Services et Equipements Gaziers et Petroliers SAFrance43.4826.09Sigurd Rück AG Switzerland 43.5543.48Snamprogetti Canada Inc Canada 43.5543.48Snamprogetti Engineering BV Netherlands 43.5543.48Snamprogetti France Sàrl France 43.5543.48Snamprogetti Ltd UK 43.5543.48Snamprogetti Lummus Gas Ltd Malta 43.12Snamprogetti Management Services SASwitzerland43.5543.05Snamprogetti Netherlands BV Netherlands 43.5543.48Snamprogetti Romania Srl Romania 43.5543.48Snamprogetti Saudi Arabia Co Ltd Llc (ex Snamprogetti Saudi Arabia Ltd)United Arab EmiratesSaudi Arabia43.55Snamprogetti USA IncUSA43.5543.48Société de Construction d’Oleoducsd'Oleoducs SncFrance 43.48 Sofresid Engineering SA France 43.5543.48Sofresid SA France 43.5543.48Sonsub AS Norway 43.5543.48Sonsub International Pty Ltd Australia 43.5543.48Sonsub Ltd (in liquidation) UK 43.5543.48Star Gulf FZ Co United Arab Emirates 43.5543.48Varisal - Serviços Dede Consultadoria e Marketing Unipessoal Lda(ex Varisal - Serviços de Consultadoria e Marketing Lda) Portugal 43.5543.48OTHER 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 Eni Administration & Financial Service SpA (ex Società Finanziamenti Idrocarburi - Sofid - SpA) Italy 99.62 Eni Corporate University SpA Italy 100.00 EniServizi SpA Italy 100.00 Serfactoring SpA Italy 48.81 Servizi Aerei SpA Italy 100.00 Società Finanziamenti Idrocarburi - Sofid - SpAItaly99.61Banque Eni SA Belgium 100.00 Eni Coordination Center SA Belgium 100.00 Eni Insurance LtdFinance USA IncIrelandUSA100.00 Eni International BankInsurance LtdBahamasIreland100.00 Eni International BV Netherlands 100.00 Eni International Resources Ltd UK 100.00
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EXHIBIT 11
Code of Ethics
Approved by the Board of Directors of Eni SpA on March 14, 2008
The English text is a translation of the Italian official "Code of Ethics"
For any conflict or discrepancies between the two texts the Italian text shall prevail
TABLE OF CONTENTS
Foreword
I. GENERAL PRINCIPLES: SUSTAINABILITY AND CORPORATE RESPONSIBILITY
II. BEHAVIOUR RULES AND RELATIONS WITH STAKEHOLDERS
1. Ethics, transparency, fairness, professionalism
2. Relations with shareholders and with the Market
2.1. Value for shareholders, efficiency, transparency
2.2. Self-Regulatory Code
2.3. Company information
2.4. Privileged information
2.5. Media
3. Relations with institutions, associations, local communities
3.1. Authorities and Public Institutions
3.2. Political organizations and trade unions
3.3. Development of local Communities
3.4. Promotion of "non profit" activities
4. Relations with customers and suppliers
4.1. Customers and consumers
4.2. Suppliers and external collaborators
5. Eni’s management, employees, collaborators
5.1. Development and protection of Human Resources
5.2. Knowledge Management
5.3. Corporate security
5.4. Harassment or mobbing in the workplace
5.5. Abuse of alcohol or drugs and no smokingIII. TOOLS FOR IMPLEMENTING THE CODE OF ETHICS
1. System of internal control
1.1. Conflicts of interest
1.2. Transparency of accounting records
2. Health, safety, environment and public safety protection
3. Research, innovation and intellectual property protection
4. Confidentiality
4.1. Protection of business secret
4.2. Protection of privacy
4.3. Membership in associations, participation in initiatives, events or external meetingsIV. CODE OF ETHICS SCOPE OF APPLICATION AND REFERENCE STRUCTURES
1. Obligation to know the Code and to report any possible violation thereof
2. Reference structures and supervision
2.1. Guarantor of the Code of Ethics
2.2. Code Promotion Team
3. Code review
4. Contractual value of the CodeE-14
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 individuals who work or collaborate with Eni and of the communities where it is present.
The complexity of the situations in which Eni operates, the challenges of sustainable development and the need to take into consideration the interests of all people having a legitimate interest in the corporate business ("Stakeholders"), strengthen the importance to clearly define the values that Eni accepts, acknowledges and shares as well as the responsibilities it assumes, contributing to a better future for everybody.
For this reason the new Eni’s Code of Ethics ("Code" or "Code of Ethics") has been devised.
Compliance with the Code by Eni’s directors, statutory auditors, management and employees as well as by all those who operate in Italy and abroad for achieving Eni’s objectives ("Eni’s People"), each within their own functions and responsibilities, is of paramount importance – also pursuant to legal and contractual provisions governing the relationship with Eni – for Eni’s efficiency, reliability and reputation, which are all crucial factors for its success and for improving the social situation in which Eni operates.
Eni undertakes to promote knowledge of the Code among Eni’s People and the other Stakeholders, and to accept their constructive contribution to the Code’s principles and contents. Eni undertakes to take into consideration any suggestions and remarks of Stakeholders, with the objective of confirming or integrating the Code.
Eni carefully checks for compliance with the Code by providing suitable information, prevention and control tools and ensuring transparency in all transactions and behaviours by taking corrective measures if and as required.
The Watch Structure of each Eni company performs the functions of guarantor of the Code of Ethics ("Guarantor").
The Code is brought to the attention of every person or body having business relations with Eni.
(1) "Eni" means Eni SpA and its direct and indirect subsidiaries, in Italy and abroad. E-15
I. GENERAL PRINCIPLES: SUSTAINABILITY AND CORPORATE RESPONSIBILITY
Compliance with the law, regulations, statutory provisions, self-regulatory codes, ethical integrity and fairness, is a constant commitment and duty of all Eni’s People, and characterizes the conduct of Eni’s entire organization.
Eni’s business and corporate activities has to be carried out in a transparent, honest and fair way, in good faith, and in full compliance with competition protection rules.
Eni undertakes to maintain and strengthen a governance system in line with international best practice standards, able to deal with the complex situations in which Eni operates, and with the challenges to face for sustainable development.
Systematic methods for involving Stakeholders are adopted, fostering dialogue on sustainability and corporate responsibility.
In conducting both its activities as an international company and those with its partners, Eni stands up for the protection and promotion of human rights – inalienable and fundamental prerogatives of human beings and basis for the establishment of societies founded on principles of equality, solidarity, repudiation of war, and for the protection of civil and political rights, of social, economic and cultural rights and the so-called third generation rights (selfdetermination right, right to peace, right to development and protection of the environment).
Any form of discrimination, corruption, forced or child labor is rejected. Particular attention is paid to the acknowledgement and safeguarding of the dignity, freedom and equality of human beings, to protection of labor and of the freedom of trade union association, of health, safety, the environment and biodiversity, as well as the set of values and principles concerning transparency, energy efficiency and sustainable development, in accordance with International Institutions and Conventions.
In this respect Eni operates within the reference framework of the United Nations Universal Declaration of Human Rights, the Fundamental Conventions of the ILO – International Labor Organization – and the OECD Guidelines on Multinational Enterprises.
All Eni’s People, without any distinction or exception whatsoever, respect the principles and contents of the Code in their actions and behaviours while performing their functions and according to their responsibilities, because compliance with the Code is fundamental for the quality of their working and professional performance. Relationships among Eni’s People, at all levels, must be characterized by honesty, fairness, cooperation, loyalty and mutual respect.
The belief that one is acting in favor or to the advantage of Eni can never, in any way, justify – not even in part – any behaviours that conflict with the principles and contents of the Code.
II. BEHAVIOUR RULES AND RELATIONS WITH STAKEHOLDERS
1. ETHICS, TRANSPARENCY, FAIRNESS, PROFESSIONALISM
In conducting its business, Eni is inspired by and complies with the principles of loyalty, fairness, transparency, efficiency and an open market, regardless of the importance level of the transaction in question.
Any action, transaction and negotiation performed and, generally, the conduct of Eni’s People in the performance of their duties is inspired by the highest principles of fairness, completeness and transparency of information and legitimacy, both in form and substance, as well as clarity and truthfulness of all accounting documents, in compliance with the applicable laws in force and internal regulations.
All Eni’s activities have to be performed with the utmost care and professional skill, with the duty to provide skills and expertise adequate to the tasks assigned, and to act in a way capable to protect Eni’s image and reputation. Corporate objectives, as well as the proposal and implementation of projects, investments and actions, have to be aimed at improving the company’s assets, management, technological and information level in the long term, and at creating value and welfare for all Stakeholders.
Bribes, illegitimate favours, collusion, requests for personal benefits for oneself or others, either directly or through third parties, are prohibited without any exception.
It is prohibited to pay or offer, directly or indirectly, money and material benefits and other advantages of any kind to third parties, whether representatives of governments, public officers and public servants or private employees, in order to influence or remunerate the actions of their office.
Commercial courtesy, such as small gifts or forms of hospitality, is only allowed when its value is small and it does not compromise the integrity and reputation of either party, and cannot be construed by an impartial observer as aimed at obtaining undue advantages. In any case, these expenses must always be authorized by the designated managers as per existing internal rules, and be accompanied by appropriate documentation.
It is forbidden to accept money from individuals or companies that have or intend to have business relations with Eni. Anyone who receives proposals of gifts or special or hospitality treatment that cannot be considered as commercial courtesy of small value, or requests therefore by third parties, shall reject them and immediately inform their superior, or the body they belong to, as well as the Guarantor.
Eni shall properly inform all third parties about the commitments and obligations provided for in the Code, require third parties to respect the principles of the Code relevant to their activities and take proper internal actions and, if the matter is within its own competence, external actions in the event that any third party should fail to comply with the Code.E-16
2. RELATIONS WITH SHAREHOLDERS AND WITH THE MARKET
2.1.Value2.1. Value for shareholders, efficiency, transparency
The internal structure of Eni and the relations with the parties directly and indirectly taking part in its activities are organized according to rules able to ensure management reliability and a fair balance between the management’s powers and the interests of shareholders and of the other Stakeholders in general as well as transparency and market traceability of management decisions and general corporate events which may considerably influence the market value of the financial instruments issued.
Within the framework of the initiatives aimed at maximizing the value for shareholders and at guaranteeing transparency of the management’s work, Eni defines, implements and progressively adjusts a coordinated and homogeneous set of behaviour rules concerning both its internal organizational structure and relations with shareholders and third parties, in compliance with the highest corporate governance standards at national and international level, based on the awareness that the company’s capacity to impose efficient and effective functioning rules upon itself is a fundamental tool for strengthening its reputation in terms of reliability and transparency as well as Stakeholders’ trust.
Eni deems it necessary that shareholders are enabled to participate in decisions which come within the limits of their competence and make informed choices. Therefore, Eni undertakes to ensure maximum transparency and timeliness of information communicated to shareholders and to the market – by means of the corporate internet site, too – in compliance with the laws and regulations applicable to listed companies. Moreover, Eni undertakes to keep in due consideration the legitimate remarks expressed by shareholders whenever they are entitled to do so.2.2. Self-Regulatory Code
The main corporate governance rules of Eni are contained in the Self-Regulatory Code of Eni SpA, adopted in compliance with the Code promoted by Borsa Italiana SpA, which is referred to herein as far as applicable.2.3. Company information
Eni ensures the correct management of company information, by means of suitable procedures for in-house management and communication to the outside.2.4. Privileged information
All Eni’s People are required, while performing the tasks entrusted to them, to properly manage privileged information such as to know and comply with corporate procedures referring to market abuse. Insider trading and any behaviour that may promote insider trading are expressly forbidden. In any case, the purchase or sale of shares of Eni or of companies outside Eni shall always be based on absolute and transparent fairness.2.5. Media
Eni undertakes to provide outside parties with true, prompt, transparent and accurate information.
Relations with the media are exclusively dealt with by the departments and managers specifically appointed to do so; information to be supplied to media representatives, as well as the undertaking to provide such information, have to be agreed upon beforehand by Eni’s People with the relevant Eni Corporate structure.
3. RELATIONS WITH INSTITUTIONS, ASSOCIATIONS, LOCAL COMMUNITIESEni encourages dialogue with Institutions and with organized associations of civil society in all the countries where it operates.
3.1. Authorities and Public Institutions
Eni, through its People, actively and fully cooperates with Authorities.
Eni’s People, as well as external collaborators whose actions may somehow be referred to Eni, must have behaviours towards the Public Administration characterized by fairness, transparency and traceability. These relations have to be exclusively dealt with by the departments and individuals specifically appointed to do so, in compliance with approved plans and corporate procedures.
The departments of the subsidiaries concerned shall coordinate with the relevant Eni Corporate structure for assessing the quality of the interventions to be carried out and for the sharing, implementing and monitoring of their actions.
It is forbidden to make, induce or encourage false statements to Authorities.3.2. Political organizations and trade unions
Eni does not make any direct or indirect contributions in whatever form to political parties, movements, committees, political organizations and trade unions, nor to their representatives and candidates, except those specifically contemplated by applicable laws and regulations.E-17
3.3. Development of local Communities
Eni is committed to actively contribute to promoting the quality of life, the socio-economic development of the communities where Eni operates and to the development of their human resources and capabilities, while conducting its business activities according to standards that are compatible with fair commercial practices.
Eni’s activities are carried out in the awareness of the social responsibility that Eni has towards all of its Stakeholders and in particular the local communities in which it operates, in the belief that the capacity for dialogue and interaction with civil society constitutes an important asset for the company. Eni respects the cultural, economic and social rights of the local communities in which it operates and undertakes to contribute, as far as possible, to their exercise, with particular reference to the right to adequate nutrition, drinking water, the highest achievable level of physical and mental health, decent dwellings, education, abstaining from actions that may hinder or prevent the exercise of such rights.
Eni promotes transparency of the information addressed to local communities, with particular reference to the topics that they are most interested in. Forms of continuous and informed consultancy are either promoted, through the relevant Eni structures, in order to take into due consideration the legitimate expectations of local communities in conceiving and conducting corporate activities and in order to promote a proper redistribution of the profits deriving from such activities.
Eni, therefore, undertakes to promote the knowledge of its corporate values and principles, at every level of its organization, also through adequate control procedures, and to protect the rights of local communities, with particular reference to their culture, institutions, ties and life styles.
Within the framework of their respective responsibilities, Eni’s People are required to participate in the definition of single initiatives in compliance with Eni’s policies and intervention programs, to implement them according to criteria of absolute transparency and support them as an integral part of Eni’s objectives.3.4. Promotion of "non profit" activities
The philanthropic activity of Eni is in line with its vision and attention to sustainable development.
Therefore, Eni undertakes to foster and support, as well as to promote among its People, its "non profit" activities which demonstrate the company’s commitment to help meet the needs of those communities where it operates.
4. RELATIONS WITH CUSTOMERS AND SUPPLIERS4.1 Customers and consumers
Eni pursues its business success on markets by offering quality products and services under competitive conditions while respecting the rules protecting fair competition.
Eni undertakes to respect the right of consumers not to receive products harmful to their health and physical integrity and to get complete information on the products offered to them.
Eni acknowledges that the esteem of those requesting products or services is of primary importance for success in business. Business policies are aimed at ensuring the quality of goods and services, safety and compliance with the precautionary principle. Therefore, Eni’s People shall:
• comply with in-house procedures concerning the management of relations with customers and consumers; • supply, with efficiency and courtesy, within the limits set by the contractual conditions, high-quality products meeting the reasonable expectations and needs of customers and consumers; • supply accurate and exhaustive information on products and services and be truthful in advertisements or other kind of communication, so that customers and consumers can make informed decisions. 4.2. Suppliers and external collaborators
Eni undertakes to look for suppliers and external collaborators with suitable professionalism and committed to sharing the principles and contents of the Code and promotes the establishment of long-lasting relations for the progressive improvement of performances while protecting and promoting the principles and contents of the Code.
In relationships regarding tenders, procurement and, generally, the supply of goods and/or services and of external collaborations (including consultants, agents, etc.), Eni’s People shall:follow internal procedures concerning selection and relations with suppliers and external collaborators and abstain from excluding any supplier meeting requirements from bidding for Eni’s orders; adopt appropriate and objective selection methods, based on established, transparent criteria;
• secure the cooperation of suppliers and external collaborators in guaranteeing the continuous satisfaction of Eni’s customers and consumers, to an extent adequate to that legitimately expected by them, in terms of quality, costs and delivery times; • use as much as possible, in compliance with the laws in force and the criteria for legality of transactions with related parties, products and services supplied by Eni companies at arm’s length and market conditions; • state in contracts the Code acknowledgement and the obligation to comply with the principles contained therein; • comply with, and demand compliance with, the conditions contained in contracts; • maintain a frank and open dialogue with suppliers and external collaborators in line with good commercial practice; promptly inform superiors, and the Guarantor, about any possible violations of the Code; E-18
inform the relevant Eni Corporate structure about any serious problems that may arise with a particular supplier or external collaborator, in order to evaluate possible consequences for Eni.The remuneration to be paid shall be exclusively proportionate to the services to be rendered and described in the contract and payments shall not be allowed to any party different from the contract party nor in a third Country different from the one of the parties or where the contract has to be performed.
5. ENI’S MANAGEMENT, EMPLOYEES, COLLABORATORS5.1. Development and protection of Human Resources
People are basic components in the company’s life. The dedication and professionalism of management and employees represent fundamental values and conditions for achieving Eni’s objectives.
Eni is committed to developing the abilities and skills of management and employees so that their energy and creativity can have full expression for the fulfilment of their potential in their working performance, such as to protect working conditions as regards both mental and physical health and dignity. Undue pressure or discomfort is not allowed, while appropriate working conditions promoting development of personality and professionalism are fostered.
Eni undertakes to offer, in full compliance with applicable legal and contractual provisions, equal opportunities to all its employees, making sure that each of them receives a fair statutory and wage treatment exclusively based on merit and expertise, without discrimination of any kind. Competent departments shall:
• adopt in any situation criteria of merit and ability (and anyhow strictly professional) in all decisions concerning human resources; • select, hire, train, compensate and manage human resources without discrimination of any kind; • create a working environment where personal characteristics or beliefs do not give rise to discrimination and which allows the serenity of all Eni’s People. Eni wishes that Eni’s People, at every level, cooperate in maintaining a climate of common respect for a person’s dignity, honour and reputation. Eni shall do its best to prevent attitudes that can be considered as offensive, discriminatory or abusive. In this regard, any behaviours outside the working place which are particularly offensive to public sensitivity are also deemed relevant.
In any case, any behaviours constituting physical or moral violence are forbidden without any exception.5.2. Knowledge Management
Eni promotes culture and the initiatives aimed at disseminating knowledge within its structures, and at pointing out the values, principles, behaviours and contributions in terms of innovation of professional families in connection with the development of business activities and to the company’s sustainable growth.
Eni undertakes to offer tools for interaction among the members of professional families, working groups and communities of practice, as well as for coordination and access to know-how, and shall promote initiatives for the growth, dissemination and systematization of knowledge relating to the core competences of its structures and aimed at defining a reference framework suitable for guaranteeing operating consistency.
All Eni’s People shall actively contribute to Knowledge Management as regards the activities that they are in charge of, in order to optimize the system for knowledge sharing and distribution among individuals.5.3. Corporate security
Eni engages in the study, development and implementation of strategies, policies and operational plans aimed at preventing and overcoming any intentional or non-intentional behaviour which may cause direct or indirect damage to Eni’s People and/or to the tangible and intangible resources of the company. Preventive and defensive measures, aimed at minimizing the need for an active response – always in proportion to the attack – to threats to people and assets, are favored.
All Eni’s People shall actively contribute to maintaining an optimal corporate security standard, abstaining from unlawful or dangerous behaviours, and reporting any possible activities carried out by third parties to the detriment of Eni’s assets or human resources to superiors or to the body they belong to, as well as to the relevant Eni Corporate structure.
In any case requiring particular attention to personal safety, it is compulsory to strictly follow the indications in this regard supplied by Eni, abstaining from behaviours which may endanger one’s own safety or the safety of others, promptly reporting any danger for one’s own safety, or the safety of third parties, to one’s superior.5.4. Harassment or mobbing in the workplace
Eni supports any initiatives aimed at implementing working methods for the achievement of a better organization.
Eni demands that there shall be no harassment or mobbing behaviours in personal working relationships either inside or outside the company. Such behaviours are all forbidden, without exceptions, and are:
• the creation of an intimidating, hostile, isolating or in any case discriminatory environment for individual employees or groups of employees; • 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 or because of other employees. E-19
Any form of violence or harassment, either sexual harassment or harassment based on personal and cultural diversity, is forbidden. Such harassment is for instance:
• subordinating decisions on someone’s working life to the acceptance of sexual attentions, or personal and cultural diversity; • obtaining sexual attentions using the influence of one’s role; • proposing private interpersonal relations despite the recipient’s explicit or reasonably clear distaste; alluding to disabilities and physical or psychic impairment, or to forms of cultural, religious or sexual diversity.5.5. Abuse of alcohol or drugs and no smoking
All Eni’s People shall personally contribute to promoting and maintaining a climate of common respect in the workplace; particular attention is paid to respect of the feelings of others.
Eni will therefore consider individuals who work under the effect of alcohol or drugs, or substances with similar effect, during the performance of their work activities and in the workplace, as being aware of the risk they cause. Chronic addiction to such substances, when it affects work performance, shall be considered similar to the above mentioned events in terms of contractual consequences; Eni is committed to favour social action in this field as provided for by employment contracts.
It is forbidden to:
• hold, consume, offer or give for whatever reason, drugs or substances with similar effect, at work and in the workplace; • smoke in the workplace. Eni supports voluntary initiatives addressed to People to help them quit smoking and, in identifying possible smoking areas, shall take into particular consideration the condition of those suffering physical discomfort from exposure to smoke in the workplace shared with smokers and requesting to be protected from "passive smoking" in their place of work.
III. TOOLS FOR IMPLEMENTING THE CODE OF ETHICS
1. SYSTEM OF INTERNAL CONTROL
Eni undertakes to promote and maintain an adequate system of internal control, i.e. all the necessary or useful tools for addressing, managing and checking activities in the company, aimed at ensuring compliance with corporate laws and procedures, at protecting corporate assets, efficiently managing activities and providing precise and complete accounting and financial information.
The responsibility for implementing an effective system of internal control is shared at every level of Eni’s organizational structure; therefore, all Eni’s People, according to their functions and responsibilities, shall define and actively participate in the correct functioning of the system of internal control.
Eni promotes the dissemination, at every level of its organization, of policies and procedures characterized by awareness of the existence of controls and by an informed and voluntary control oriented mentality; consequently, Eni’s management in the first place and all Eni’s People in any case shall contribute to and participate in Eni’s system of internal control and, with a positive attitude, involve its collaborators in this respect.
Each employee shall be held responsible for the corporate tangible and intangible assets relevant to his/her job. No employee can make, or let others make, improper use of assets and equipment belonging to Eni.
Any practices and attitudes linked to the perpetration or to the participation in the perpetration of frauds are forbidden without any exception.
Control and supervisory bodies, Eni Internal Audit department and appointed auditing companies shall have full access to all data, documents and information necessary to perform their own relevant activities.1.1. Conflicts of interest
Eni acknowledges and respects the right of its People to take part in investments, business and other kinds of activities other than the activity performed in the interest of Eni, provided that such activities are permitted by law and are compatible with the obligations assumed towards Eni. The Self-Regulatory Code of Eni SpA governs any possible conflict of interest of directors and statutory auditors of Eni SpA.
Eni’s management and employees shall avoid and report any conflicts of interest between personal and family economic activities and their tasks within the company. In particular, everyone shall point out any specific situations and activities of economic or financial interest (owner or member) to them or, as far as they know, of economic or financial interest to relatives of theirs or relatives by marriage within the 2nd degree of kinship, or to persons actually living with them, also involving suppliers, customers, competitors, third parties, or the relevant controlling companies or subsidiaries, and shall point whether they perform corporate administration or control or management functions therein.
Moreover, conflicts of interest are determined by the following situations:use of one’s position in the company, or of information, or of business opportunities acquired during one’s work, to one’s undue benefit or to the undue benefit of third parties;E-20
the performing of any type of work for suppliers, sub-suppliers and competitors by employees and/or their relatives.In any case, Eni’s management and employees shall avoid any situation and activity where a conflict with the Company’s interests may arise, or which can interfere with their ability to make impartial decisions in the best interests of Eni and in full accordance with the principles and contents of the Code, or in general with their ability to fully comply with their functions and responsibilities. Any situation that may constitute or give rise to a conflict of interest shall be immediately reported to one’s superior within management, or to the body one belongs to, and to the Guarantor. Furthermore, the party concerned shall abstain from taking part in the operational/decision-making process, and the relevant superior within management, or the relevant body, shall:
• identify the operational solutions suitable for ensuring, in the specific case, transparency and fairness of behaviours in the performance of activities; • transmit to the parties concerned – and for information to one’s superior, as well as to the Guarantor – the necessary written instructions; • file the received and transmitted documentation. 1.2.Transparency of accounting records
Accounting transparency is grounded on the use of true, accurate and complete information which form the basis for the entries in the books of accounts. Each member of company bodies, of management or employee shall cooperate, within their own field of competence, in order to have operational events properly and timely registered in the books of accounts.
It is forbidden to behave in a way that may adversely affect transparency and traceability of the information within financial statements.
For each transaction, the proper supporting evidence has to be maintained in order to allow:
• easy and punctual accounting entries; • identification of different levels of responsibility, as well as of task distribution and segregation; • accurate representation of the transaction so as to avoid the probability of any material or interpretative error. Each record shall reflect exactly what is shown by the supporting evidence. All Eni’s People shall cause that the documentation can be easily traced and filed according to logical criteria.
Eni’s People who become aware of any omissions, forgery, negligence in accounting or in the documents on which accounting is based, shall bring the facts to the attention of their superior, or to the body they belong to, and to the Guarantor.
2. HEALTH, SAFETY, ENVIRONMENT AND PUBLIC SAFETY PROTECTIONEni’s activities shall be carried out in compliance with applicable worker health and safety, environmental and public safety protection agreements, international standards and laws, regulations, administrative practices and national policies of the Countries where it operates.
Eni actively contributes as appropriate to the promotion of scientific and technological development aimed at protecting the environment and natural resources. The operative management of such activities 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 as well as the environment.
Eni’s People shall, within their areas of responsibility, actively participate in the process of risk prevention as well as environmental, public safety and health protection for themselves, their colleagues and third parties.
3. RESEARCH, INNOVATION AND INTELLECTUAL PROPERTY PROTECTIONEni promotes research and innovation activities by management and employees, within their functions and responsibilities. Any intellectual assets generated by such activities are an important and fundamental heritage of Eni.
Research and innovation focus in particular on the promotion of products, tools, processes and behaviours supporting energy efficiency, reduction of environmental impact, attention to health and safety of employees, of customers and of the local communities where Eni operates, and in general sustainability of business activities.
Eni’s People shall actively contribute, within their functions and responsibilities, to managing intellectual property in order to allow its development, protection and enhancement.
4. CONFIDENTIALITY4.1. Protection of business secret
Eni’s activities constantly require the acquisition, storing, processing, communication and dissemination of information, documents and other data regarding negotiations, administrative proceedings, financial transactions, and know-how (contracts, deeds, reports, notes, studies, drawings, pictures, software, etc.) that may not be disclosed to theE-21
outside pursuant to contractual agreements, or whose inopportune or untimely disclosure may be detrimental to corporate interest.
Without prejudice to the transparency of the activities carried out and to the information obligations imposed by the provisions in force, Eni’s People shall ensure the confidentiality required by the circumstances for each piece of news they have got to know of because of their working function.
Any information, knowledge and data acquired or processed during one’s work or because of one’s tasks at Eni, belong to Eni and may not be used, communicated or disclosed without specific authorization of one’s superior within management in compliance with specific procedures.4.2. Protection of privacy
Eni is committed to protecting information concerning its People 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.
Eni intends to guarantee that processing of personal data within its structures respects fundamental rights and freedoms, as well as the dignity of the parties concerned, as contemplated by the legal provisions in force.
Personal data must be processed in a lawful and fair way and, in any case, the data collected and stored is only that which is necessary for certain, explicit and lawful purposes. Data shall be stored for a period of time no longer than necessary for the purposes of collection.
Eni undertakes moreover to adopt suitable preventive safety measures for all databases storing and keeping personal data, in order to avoid any risks of destruction and losses or of unauthorized access or unallowed processing.
Eni’s People shall:
• obtain and process only data that are necessary and adequate to the aims of their work and responsibilities; • obtain and process such data only within specified procedures, and store said data in a way that prevents unauthorized parties from having access to it; • represent and order data in a way ensuring that any party with access authorization may easily get an outline thereof which is as accurate, exhausting and truthful as possible; disclose such data pursuant to specific procedures or subject to the express authorization by their superior and, in any case, only after having checked that such data may be disclosed, also making reference to absolute or relative constraints concerning third parties bound to Eni by a relation of whatever nature and, if applicable, after having obtained their consent.4.3. Membership in associations, participation in initiatives, events or external meetings
Membership in associations, participation in initiatives, events or external meetings is supported by Eni if compatible with the working or professional activity provided. Membership and participation considered as such are:
• membership in associations, participation in conferences, workshops, seminars, courses; • drawing up of articles, papers and publications in general; • participation in public events in general. In this regard, Eni’s management and employees in charge of illustrating, or providing to the outside data or news concerning Eni’s objectives, aims, results and points of view, shall not only comply with corporate procedures relating to market abuse, but also obtain the necessary authorization from their superior within management for the lines of action to follow and the texts as well as reports drawn up, such as to agree on contents with the relevant Eni Corporate structure.
IV. CODE OF ETHICS SCOPE OF APPLICATION AND REFERENCE STRUCTURES
The principles and contents of the Code apply to Eni’s People and activities.
Any listed subsidiaries and power & gas sector subsidiaries subject to unbundling shall receive the Code and adopt it, adjusting it – if necessary – to the characteristics of their company, consistently with their management independence.
The representatives indicated by Eni in the company bodies of partially owned companies, in consortia and in joint ventures shall promote the principles and contents of the Code within their own respective areas of competence.
Directors and management must be the first to give concrete form to the principles and contents of the Code, by assuming responsibility for them both towards the inside and the outside and by enhancing trust, cohesion and a sense of team-work, as well as providing a behaviour model for their collaborators in order to have them comply with the Code and make questions and suggestions on specific provisions.
To achieve full compliance with the Code, each of Eni’s People may even apply directly to the Guarantor.
1. OBLIGATION TO KNOW THE CODE AND TO REPORT ANY POSSIBLE VIOLATION THEREOFEach of Eni’s People is expected to know the principles and contents of the Code as well as the reference procedures governing own functions and responsibilities.
Each of Eni’s People shall:refrain from all conduct contrary to such principles, contents and procedures;E-22
• carefully select, as long as within their field of competence, their collaborators, and have them fully comply with the Code; • require any third parties having relations with Eni to confirm that they know the Code; • immediately report to their superiors or the body they belong to, and to the Guarantor, any remarks of theirs or information supplied by Stakeholders concerning a possible violation or any request to violate the Code; reports of possible violations shall be sent in compliance with conditions provided for by the specific procedures established by the Board of Statutory Auditors and by the Watch Structure of Eni SpA; • cooperate with the Guarantor and with the relevant departments according to the applicable specific procedures in ascertaining any violations; • adopt prompt corrective measures whenever necessary, and in any case prevent any type of retaliation. Eni’s People are not allowed to conduct personal investigations, nor to exchange information, except to their superiors, or to the body that they belong to, and to the Guarantor. If, after notifying a supposed violation any of Eni’s People feels that he or she has been subject to retaliation, then he or she may directly apply to the Guarantor.
2. REFERENCE STRUCTURES AND SUPERVISIONEni is committed to ensuring, even through the Guarantor’s appointment:
• the widest dissemination of the principles and contents of the Code among Eni’s People and the other Stakeholders, providing any possible tools for understanding and clarifying the interpretation and the implementation of the Code, as well as for updating the Code as required to meet evolving civil sensibility and relevant laws; • the execution of checks on any notice of violation of the Code principles and contents or of reference procedures; an objective evaluation of the facts and, if necessary, the adoption of appropriate sanctions; that no one may suffer any retaliation whatsoever for having provided information regarding possible violations of the Code or of reference procedures. 2.1. Guarantor of the Code of Ethics
The Code of Ethics is, among other things, a compulsory general principle of the Organizational, Management and Control Model adopted by Eni SpA according to the Italian provision on the "administrative liability of legal entities deriving from offences" contained in Legislative Decree No. 231 of June 8, 2001.
Eni SpA assigns the functions of Guarantor to the Watch Structure established pursuant to the above mentioned Model. Each direct or indirect subsidiary, in Italy and abroad, entrusts the function of Guarantor to its own Watch Structure by formal deed of the relevant corporate body.
The Guarantor is entrusted with the task of:
• promoting the implementation of the Code and the issue of reference procedures; reporting and proposing to the CEO of the company the useful initiatives for a greater dissemination and knowledge of the Code, also in order to prevent any recurrences of violations; • promoting specific communication and training programs for Eni’s management and employees; • investigating reports of any violation of the Code by initiating proper inquiry procedures; taking action at the request of Eni’s People in the event of receiving reports that violations of the Code have not been properly dealt with or in the event of being informed of any retaliation against Eni’s people for having reported violations; • notifying relevant structures of the results of investigations relevant to the adoption of possible penalties; informing the relevant line/area structures about the results of investigations relevant to the adoption of the necessary measures. Moreover, the Guarantor of Eni SpA submits to the Internal Control Committee and to the Board of Statutory Auditors as well as to the Chairman and to the Chief Executive Officer, which report about it to the Board of Directors, a six-monthly report on the implementation and possible need for updating the Code.
For the performance of its tasks, the Guarantor of Eni SpA avails itself of "Technical Secretariat of the Watch Structure 231 of Eni SpA" that reports thereto and is supported by the relevant Structures of Eni SpA. The Technical Secretariat is responsible for starting and maintaining an adequate reporting and communication flow to and from the Guarantors of subsidiaries.
Each information flow is to be sent to the following email address:
organismo_di_vigilanza@eni.it2.2. Code Promotion Team
The Code is made available to Eni’s People in compliance with applicable standards, and is also available on the internet and intranet sites of Eni SpA and of subsidiaries.
In order to promote the knowledge and facilitate the implementation of the Code, a Code Promotion Team reporting to the Guarantor of Eni SpA has been established. The Team makes available within Eni all possible tools for understanding and clarifying the interpretation and the implementation of the Code.
The members of the Team are chosen by the Chief Executive Officer of Eni SpA upon proposal of the Guarantor of Eni SpA.E-23
3. CODE REVIEW
The Code review is approved by the Board of Directors of Eni SpA, upon proposal of the Chief Executive Officer with the agreement of the Chairman, after hearing the opinion of the Board of Statutory Auditors.
The proposal is made taking into consideration the Stakeholders’ evaluation with reference to the principles and contents of the Code, promoting active contribution and notification of possible deficiencies by Stakeholders themselves.
4. CONTRACTUAL VALUE OF THE CODERespect of the Code’s rules is an essential part of the contractual obligations of all Eni’s People pursuant to and in accordance with applicable law.
Any violation of the Code’s principles and contents may be considered as a violation of primary obligations under labour relations or of the rules of discipline and can entail the consequences provided for by law, including termination of the work contract and compensation for damages arising out of any violation.
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Certifications as separate documents filed as exhibits
EXHIBIT 12.1
Certification
I, Paolo Scaroni, certify that:
1. I have reviewed this annual report on Form 20-F of Eni SpA;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(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:
May 14, 2009April 26, 2010
/s/PAOLO SCARONI
Paolo Scaroni
Title: Chief Executive Officer
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EXHIBIT 12.2
Certification
I, Alessandro Bernini, 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
(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:
May 14, 2009April 26, 2010
/s/ALESSANDRO BERNINI
Alessandro Bernini
Title: Chief Financial OfficerE-26
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,
20082009 (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:
May 14, 2009April 26, 2010
/s/PAOLO SCARONI
Paolo Scaroni
Title: Chief Executive Officer
The foregoing certification is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act.
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EXHIBIT 13.2
Certification Pursuant to 18 U.S.C. Section 1350
For purposes of 18 U.S.C. Section 1350, the undersigned officer of Eni SpA, a company incorporated under the laws of Italy (the "Company"), hereby certifies, to such officer’s knowledge, that:
(i) the Annual Report on Form 20-F of the Company for the year ended December 31,
20082009 (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:
May 14, 2009April 26, 2010
/s/ALESSANDRO BERNINI
Alessandro Bernini
Title: Chief Financial Officer
The foregoing certification is not deemed filed for purpose of Section 18 of the Exchange Act and not incorporated by reference with any filing under the Securities Act.
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EXHIBIT 15.a(i)
DeGolyer And MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244March 18, 2010
Eni S.p.A.
E&P Division
Via Emilia 1
20097 San Donato Milanese
Milano, ItalyWe hereby consent to references to DeGolyer and MacNaughton in the sections entitled "Part I - Item 4 Business Overview-Exploration and Production" and "Part III - Item 18 Financial Statement-Supplemental Oil and Gas Information" within the Annual Report on Form 20-F for the year ended December 31, 2009, of Eni S.p.A. (the Form 20-F) and to the inclusion of our letter dated November 6, 2009, regarding our statements pertaining to internal reserves guidelines of Eni S.p.A. and our third-party letter report dated February 26, 2010, concerning properties in Algeria, Angola, Congo, Egypt, and the United Kingdom, relating to our evaluation of certain oil and gas properties of Eni S.p.A., which are included as exhibits in the Form 20-F.
Very truly yours, /s/ DEGOLYER AND MACNAUGHTON DeGOLYER and MacNAUGHTON Texas Registered Engineering Firm F-716 E-29
EXHIBIT 15.a(ii)
March 8, 2010
Eni S.p.A
E&P Division
Ms. Manuela Feudaroli
Vice President Reserves
Via Emilia 1
20097 San Donato Milanese
Milano, ItalyCONSENT OF INDEPENDENT PETROLEUM ENGINEERS
Dear Ms. Feudaroli:
Ryder Scott Company, L.P. confirms its independence with respect to Eni S.p.A. and hereby consents to the references to Ryder Scott Company, L.P. and the inclusion of its report dated February 23, 2010 and information thereof in Eni S.p.A's annual report on Form 20-F for the year ended December 31, 2009 and other filings as required to fulfill Italian and U.S.A. obligations.
Very truly yours, RYDER SCOTT COMPANY, L. P. TBPE Firm Registration No. F-1580 /s/ HERMAN G. ACUÑA Herman G. Acuña, P.E. TBPE License No. 92254 Managing Senior Vice President-International E-30
EXHIBIT 15.a(iii)
DeGolyer And MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244This is a digital representation of a DeGolyer and MacNaughton report.
This file is intended to be a manifestation of certain data in the subject report and as such are subject to the same conditions thereof. The information and data contained in this file may be subject to misinterpretation; therefore, the signed and bound copy of this report should be considered the only authoritative source of such information.
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DeGolyer And MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244February 26, 2010
Eni S.p.A.
E&P Division
Ms. Manuela Feudaroli
Vice President, Reserves
Via Emilia 1
20097 San Donato Milanese
Milano, ItalyDear Ms. Feudaroli:
Pursuant to your request, we have conducted an independent evaluation to serve as a reserves audit of the net proved crude oil, natural gas liquids (NGL), and natural gas reserves, as of December 31, 2009, of certain properties in Algeria, Angola, Congo, Egypt, and the United Kingdom owned by Eni S.p.A. (Eni). Eni has represented that these properties account for 21 percent, on a net equivalent barrel basis, of Eni's net proved reserves as of December 31, 2009, and that Eni's net proved reserves estimates have been prepared in accordance with the reserves definitions of Rules 4-10(a) (1)-(32) of Regulation S-X of the Securities and Exchange Commission (SEC) of the United States. We have reviewed information provided to us by Eni that it represents to be Eni's estimates of the net reserves, as of December 31, 2009, for the same properties as those which we have independently evaluated.
Reserves included herein are expressed as net reserves as represented by Eni. Gross reserves are defined as the total estimated petroleum to be produced from these properties after December 31, 2009. Net reserves are defined as that portion of the gross reserves attributable to the interests owned by Eni after deducting interests owned by others.
Estimates of oil, NGL, and natural gas should be regarded only as estimates that may change as further production history and additional information become available. Not only are such reserves estimates based on that information which is
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DeGolyer And MacNaughton 2
currently available, but such estimates are also subject to the uncertainties inherent in the application of judgmental factors in interpreting such information.
Data used in this audit were obtained from reviews with Eni personnel, Eni files, from records on file with the appropriate regulatory agencies, and from public sources. In the preparation of this report we have relied, without independent verification, upon such information furnished by Eni with respect to property interests, production from such properties, current costs of operation and development, current prices for production, agreements relating to current and future operations and sale of production, and various other information and data that were accepted as represented. A field examination of the properties was not considered necessary for the purposes of this report.
Methodology and Procedures
Our estimates of reserves were prepared by the use of standard geological and engineering methods generally accepted by the petroleum industry. The method or combination of methods used in the analysis of each reservoir was tempered by experience with similar reservoirs, stage of development, quality and completeness of basic data, and production history.
When applicable, the volumetric method was used to estimate the original oil in place (OOIP) and the original gas in place (OGIP). Structure and isopach maps were constructed to estimate reservoir volume. Electrical logs, radioactivity logs, core analyses, and other available data were used to prepare these maps as well as to estimate representative values for porosity and water saturation. When adequate data were available and when circumstances justified, material balance and other engineering methods were used to estimate OOIP or OGIP.
Estimates of ultimate recovery were obtained after applying recovery factors to OOIP or OGIP. These recovery factors were based on consideration of the type of energy inherent in the reservoirs, analyses of the petroleum, the structural positions of the properties, and the production histories. When applicable, material balance and other engineering methods were used to estimate recovery factors. An analysis of reservoir performance, including production rate, reservoir pressure, and gas-oil ratio behavior, was used in the estimation of reserves.
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DeGolyer And MacNaughton 3
For depletion-type reservoirs or those whose performance disclosed a reliable decline in producing-rate trends or other diagnostic characteristics, reserves were estimated by the application of appropriate decline curves or other performance relationships. In the analyses of production-decline curves, reserves were estimated only to the limits of economic production or to the limit of production licenses as appropriate.
Definition of Reserves
Petroleum reserves included in this report are classified as proved. Reserves classifications used for our estimates of proved reserves are in accordance with the reserves definitions of Rules 4-10(a) (1)-(32) of Regulation S-X of the SEC. Eni has represented that its estimates of proved reserves are in accordance with the reserves definitions of Rules 4-10(a) (1)-(32) of Regulation S-X of the SEC. Reserves are judged to be economically producible in future years from known reservoirs under existing economic and operating conditions and assuming continuation of current regulatory practices using conventional production methods and equipment. In the analyses of production-decline curves, reserves were estimated only to the limit of economic rates of production under existing economic and operating conditions using prices and costs consistent with the effective date of this report, including consideration of changes in existing prices provided only by contractual arrangements but not including escalations based upon future conditions. The petroleum reserves are classified as follows:
Proved oil and gas reserves – Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
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DeGolyer And MacNaughton 4
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered
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DeGolyer And MacNaughton 5
by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
Developed oil and gas reserves – Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Undeveloped oil and gas reserves – Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in [section 210.4-10 (a)
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DeGolyer And MacNaughton 6
Definitions], or by other evidence using reliable technology establishing reasonable certainty.
Primary Economic Assumptions
The following economic assumptions were used for estimating existing and future prices and costs:
Oil and NGL Prices
Eni has represented that the oil and NGL prices were based on a 12-month average price (reference price), calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period, unless prices are defined by contractual arrangements. Eni supplied appropriate differentials by field to the relevant reference prices and the prices were held constant thereafter.
Natural Gas Prices
Eni has represented that the natural gas prices were based on a reference price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period, unless prices are defined by contractual arrangements. Eni supplied appropriate differentials by field to the relevant reference prices and the prices were held constant thereafter.
Operating Expenses and Capital Costs
Operating expenses and capital costs, based on information provided by Eni, were used in estimating future costs required to operate the properties. In certain cases, future costs, either higher or lower than existing costs, may have been used because of anticipated changes in operating conditions. These costs were not escalated for inflation.
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DeGolyer And MacNaughton 7
While the oil and gas industry may be subject to regulatory changes from time to time that could affect an industry participant's ability to recover its oil and gas reserves, we are not aware of any such governmental actions which would restrict the recovery of the December 31, 2009, estimated oil and gas volumes. The reserves estimated in this report can be produced under current regulatory guidelines.
Eni has represented that its estimated net proved reserves attributable to the reviewed properties in Algeria, Angola, Congo, Egypt, and the United Kingdom are based on the definitions of proved reserves of the SEC. Eni represents that its estimates of the net proved reserves attributable to these properties, which represent 21 percent of Eni's reserves on a net equivalent basis, are as follows, expressed in millions of barrels (MMbbl), billions of cubic feet (Bcf), and millions of barrels of oil equivalent (MMboe):
Estimated by Eni
Net Proved Reserves as of
December 31, 2009Oil and
NGL
(MMbbl)Natural
Gas
(Bcf)Oil
Equivalent
(MMboe)Properties reviewed by DeGolyer and MacNaughton Total Proved 952
2,470
1,383
Note: Gas is converted to oil equivalent using a factor of 5,742 cubic feet of gas per 1 barrel of oil equivalent. In comparing the detailed net proved reserves estimates prepared by us and by Eni, we have found differences, both positive and negative. It is our opinion that the net proved reserves estimates prepared by Eni on the properties reviewed by us and referred to above, when compared on the basis of net equivalent barrels, in aggregate, do not differ materially from those prepared by us, with tolerance of 5 percent or less.
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DeGolyer And MacNaughton 8
DeGolyer and MacNaughton is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world for over 70 years. DeGolyer and MacNaughton does not have any financial interest, including stock ownership, in Eni. Our fees were not contingent on the results of our evaluation. This letter report has been prepared at the request of Eni and should not be used for purposes other than those for which it is intended. DeGolyer and MacNaughton has used all procedures and methods that it considers necessary to prepare this report.
Submitted, /s/ DEGOLYER AND MACNAUGHTON DeGOLYER and MacNAUGHTON Texas Registered Engineering Firm F-716
/s/ LLOYD W. CADE, P.E. Lloyd W. Cade, P.E. Senior Vice President DeGolyer and MacNaughton E-39
DeGolyer And MacNaughton CERTIFICATE of QUALIFICATION
I, Lloyd W. Cade Petroleum Engineer with DeGolyer and MacNaughton, 5001 Spring Valley Road, Suite 800 East, Dallas, Texas, 75244 U.S.A., hereby certify:
1. That I am a Senior Vice President with DeGolyer and MacNaughton, which company did prepare the letter report addressed to Eni dated February 26, 2010, and that I, as Senior Vice President, was responsible for the preparation of this report. 2. That I attended Kansas State University, and that I graduated with a Bachelor of Science degree in Mechanical Engineering in the year 1982; that I am a Registered Professional Engineer in the State of Texas; that I am a member of the International Society of Petroleum Engineers; and that I have approximately twenty-seven (27) years of experience in oil and gas reservoir studies and reserves evaluations. SIGNED: February 26, 2010
/s/ LLOYD W. CADE, P.E. Lloyd W. Cade, P.E. Senior Vice President DeGolyer and MacNaughton E-40
EXHIBIT 15.a(iv)
Eni S.p.A.
Estimated
Future Reserves
Attributable to Certain Interests
SEC Parameters
As of
December 31, 2009
/s/HERMAN G. ACUÑA, P.E.
Herman G. Acuña, P.E.
TBPE License No. 92254
Managing Senior vice President-InternationalRYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
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February 23, 2010
Eni S.p.A.
E&P Division
Ms. Manuela Feudaroli
Vice President Reserves
Via Emilia 1
20097 San Donato Milanese
Milano, ItalyDear Ms. Feudaroli:
At your request, Ryder Scott Company has prepared an estimate of the proved reserves, future production and income attributable to certain properties of ENI S.p.A., as of December 31, 2009. The subject properties are located in the countries of:
• Ecuador • Trinidad & Tobago • Libya • United States of America The reserves and income data were estimated based on the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register (SEC regulations). The conclusions of our third party study, completed on January 25, 2010, are discussed herein.
The conclusions discussed in this report, as of December 31, 2009, are related to hydrocarbon prices. The hydrocarbon prices used in the preparation of this report are based on the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements as required by the SEC regulations. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, the conclusions of our third party study may differ significantly from the discussion below.
ENI S.p.A. has elected to represent that Ryder Scott Company conducted these 3rd party independent estimations; accordingly, Ryder Scott Company has prepared this report for inclusion as an exhibit to the relevant registration statement or other Commission filings by ENI S.p.A.
Scope of 3rd Party Independent Audit
At the request of ENI S.p.A., Ryder Scott Company conducted an independent estimation of the reserves, future production and income associated with certain assets in which ENI S.p.A. owns an interest. Ryder Scott Company was provided with both interpreted and uninterpreted data. Based on this information, Ryder Scott Company conducted the necessary studies to estimate and audit the proved reserves to render the opinions expressed herein conforming with our understanding of the definition as set forth in the Securities and Exchange Commission's Regulations Part 210.4-10(a). An abridged version of the SEC reserves definitions from 210.4-10(a) entitled "Petroleum Reserves Definitions is included as an attachment to this report. Furthermore, ENI S.p.A. has requested that we
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Eni S.p.A.
February 23, 2010
Page 2compare the proved reserves independently evaluated by us to the reserves prepared by ENI S.p.A. according to the SEC regulations to fulfill the scope of the audit.
During our investigations, no attempt was made to quantify or otherwise account for any accumulated gas production imbalances that may exist. ENI S.p.A. includes fuel gas in their estimation of net reserves, therefore, our conclusion herein are inclusive of these volumes.
While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may also increase or decrease from existing levels, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.
Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward. However, most of the parameters that define the reserves of a reservoir cannot be measured directly, and must be estimated indirectly through geologic and reservoir engineering analysis and interpretations. Moreover, estimates of reserves may increase or decrease as a result of future operations, effects of regulation by governmental agencies or geopolitical risks. As a result, the estimates of oil and gas reserves have an intrinsic uncertainty. The reserves included in this report are therefore estimates only and should not be construed as being exact quantities. They may or may not be actually recovered, and if recovered, the revenues therefrom and the actual costs related thereto could be more or less than the estimated amounts.
The conclusion reported herein are limited to the period prior to expiration of current contracts providing the legal right to produce or a revenue interest in such production unless evidence indicates that contract renewal is reasonably certain. Furthermore, properties in the different countries may be subjected to significantly varying contractual fiscal terms that affect the net revenue to ENI S.p.A. for the production of these volumes. The prices and economic return received for these net volumes can vary significantly based on the terms of these contracts. Therefore, when applicable, Ryder Scott reviewed the fiscal terms of such contracts and discussed with ENI S.p.A. the net economic benefit attributed to such operations for the determination of the net hydrocarbon volumes and income thereof. Ryder Scott has not conducted an exhaustive audit or verification of such contractual information. Neither our review of such contractual information or our acceptance of ENI S.p.A.'s representations regarding such contractual information should be construed as a legal or accounting opinion on this matter.
Ryder Scott did not evaluate country and geopolitical risks in the countries where ENI S.p.A. operates or has interests. ENI S.p.A.'s operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include matters relating to land tenure, drilling, production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax, and foreign trade and investment and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of reserves actually recovered and amounts of income actually received to differ significantly from the estimated quantities.
The conclusions presented herein were based upon a detailed study of the properties in which ENI S.p.A. owns an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities that may exist nor were any costs included for potential liability to restore and clean up damages, if any, caused by past operating practices.
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Eni S.p.A.
February 23, 2010
Page 3The properties reviewed by Ryder Scott Company are located in the following countries and do not represent the entire asset portfolio from ENI S.p.A.
• Ecuador • Trinidad & Tobago • Libya • United States of America ENI S.p.A. has indicated that the proved net reserves attributable to the properties that we reviewed account for 6.5 percent of their total proved net remaining hydrocarbon reserves.
Data, Methods and Procedures
In performing our estimates, we have relied upon data furnished by ENI S.p.A. with respect to property interests owned, production and well tests from examined wells, historical costs of operation and development, product prices, geological structural and isochore maps. well logs, core analyses, and pressure measurements, etc. In general, the reserve estimates for the properties that we reviewed are based on data available through December 31, 2009.
These data were accepted as authentic and sufficient for determining the reserves unless, during the course of our examination, a matter of question came to our attention in which case the data were not accepted until all questions were satisfactorily resolved.
As prescribed by the Society of Petroleum Engineers in Paragraph 2.2(f) of the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information a reserves audit is defined as "the process of reviewing certain of the pertinent facts interpreted and assumptions made that have resulted in an estimate of reserves prepared by others and the rendering of an opinion about (1) the appropriateness of the methodologies employed, (2) the adequacy and quality of the data relied upon, (3) the depth and thoroughness of the reserves estimation process, (4) the classification of reserves appropriate to the relevant definitions used, and (5) the reasonableness of the estimated reserve quantities."
The reserves included herein were estimated using generally accepted petroleum engineering and evaluation principles for the estimation of future reserves. In general, these reserves were estimated by performance methods, volumetric or material balance methods; however, other methods were used in certain cases where characteristics of the data, in our opinion, indicated such other methods were more appropriate.
Our forecasts of future production rates are based on historical performance from wells now on production. Test data and other related information were used to estimate the anticipated initial production rates for those wells or locations that are not currently producing. If no production decline trend has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate, until a decline in ability to produce was anticipated. An estimated rate of decline was then applied to depletion of the reserves. If a decline trend has been established, this trend was used as the basis for estimating future production rates. For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by ENI S.p.A. The future production rates from wells now on production may be more or less than estimated because of changes in market demand or allowables set by regulatory bodies. Wells or locations that are not currently producing may start producing earlier or later than anticipated in our estimates.
To estimate economically recoverable oil and gas reserves and related future net cash flows, we consider many factors and assumptions including, but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly,
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Eni S.p.A.
February 23, 2010
Page 4economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be demonstrated to be economically producible based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined as of the effective date of the report.
As previously stated, the hydrocarbon prices used herein are based on the average prices during the 12-month period prior to the ending date of the period covered in this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements. For hydrocarbon products sold under contract, the contract prices including fixed and determinable escalations, exclusive of inflation adjustments, were used until expiration of the contract. Upon contract expiration, the prices were adjusted to the 12-month unweighted arithmetic average as previously described.
ENI S.p.A. has informed us that the operating costs for the assets in this report are based on the operating expense reports of ENI S.p.A. and include only those costs directly applicable to the leases or wells. The operating costs include a portion of general and administrative costs allocated directly to the assets. When applicable for operated properties, the operating costs include an appropriate level of corporate general administrative and overhead costs. No deduction was made for loan repayments, interest expenses, or exploration and development prepayments that were not charged directly to the assets. Development costs were furnished to us by ENI S.p.A. and are based on authorizations for expenditure for the proposed work or actual costs for similar projects. The estimated net cost of abandonment after salvage was included for properties where abandonment costs net of salvage was significant. Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the data supplied by ENI S.p.A.
Summary of Ryder Scott Company Conclusions
In our opinion, ENI S.p.A.'s estimates of future reserves for the reviewed properties were prepared in accordance with generally accepted petroleum engineering and evaluation principles for the estimation of future reserves and we found no bias in the utilization and analysis of data in estimates for these properties.
In our opinion, the information relating to estimated proved reserves prepared by ENI S.p.A.'s have been prepared in accordance with Extractive Industries, Oil and Gas (Topic 932) of the Financial Accounting Standards Boards and Rules 4-10(a) of regulation S-X and rules 302(b) and 1201, 1202, 1203(a) of regulation S-K of the SEC.
Ryder Scott found both positive and negative differences between the proved reserves estimated by us and by ENI S.p.A. The overall proved reserves for the reviewed properties as estimated by ENI S.p.A. are, in the aggregate, not materially different than those prepared by Ryder Scott Company with a tolerance equal or less than five percent (5%).
Standards of Independence and Professional Qualification
Ryder Scott is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world for over seventy years. Ryder Scott is employee owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have over eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for which we provide services, no single client or job represents a
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Eni S.p.A.
February 23, 2010
Page 5material portion of our annual revenue. We do not serve as officers or directors of any publicly traded oil and gas company and are separate and independent from the operating and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity to each engagement for our services.
Ryder Scott actively participates in industry related professional societies and organizes an annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing education.
Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in the form of a registered or certified professional engineer's license or a registered or certified professional geoscientist's license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization.
We are independent petroleum engineers with respect to ENI S.p.A. Neither we nor any of our employees have any interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed.
The conclusions presented in this report are the result of technical analysis conducted by teams of geoscientists and engineers. The professional qualifications of the undersigned, the technical person primarily responsible for overseeing this project, are included as an attachment to this letter.
Terms of Usage
This report was prepared for the exclusive use and sole benefit of ENI S.p.A. Company and may not be put to other use without our prior written consent for such use. The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.
Very truly yours, RYDER SCOTT COMPANY, L. P. TBPE Firm Registration No. F-1580 /s/ HERMAN G. ACUÑA Herman G. Acuña, P.E. TBPE License No. 92254 Managing Senior Vice President-International E-46
Professional Qualifications
Herman G. AcuñaThe conclusions presented in the report issued on February 23, 2010 for Eni S.p.A. are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Herman G. Acuña was the primary technical person responsible for overseeing the independent estimation of the reserves, future production and income to render the audit conclusions of that report.
Mr. Acuña, an employee of Ryder Scott Company L.P. (Ryder Scott) since 1997, is a Managing Senior International Vice President and serves as an Engineering Group Coordinator responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Acuña served in a number of engineering positions with Exxon. For more information regarding Mr. Acuña's geographic and job specific experience, please refer to the Ryder Scott Company website at
www. ryderscott. com/Experience/Employees.Mr. Acuña earned a Bachelor (Cum Laude) and a Masters (Magna Cum Laude) of Science degree in Petroleum Engineering from The University of Tulsa in 1987 and 1989 respectively. He is a registered Professional Engineer in the State of Texas, a member of the Association of International Petroleum Negotiators (Al PN) and the Society of Petroleum Engineers (SPE).
In addition to gaining experience and competency through prior work experience, the Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Acuña fulfills. As part of his 2009 continuing education hours, Mr. Acuña attended over 34 hours of formalized training and conferences including 10 hours dedicated to the subject of the definitions and disclosure guidelines contained in the United States Securities and Exchange Commission Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register. In 2009, Mr. Acuña taught various company reserves evaluation schools in Argentina, Bolivia, China, Spain, U.S.A. and Venezuela. Mr. Acuña has participated in various capacities in reserves conferences such as being a panelist a the 2008 Trinidad and Tobago's Petroleum Conference, delivering the reserves evaluation seminar during IAPG convention in Mendoza, Argentina in 2006 and chairing the first Reserves Evaluation Conference in the Middle East in Dubai, U.A.E. in 2006.
Based on his educational background, professional training and 20 years of practical experience in petroleum engineering and the estimation and evaluation of petroleum reserves, Mr. Acuña has attained the professional qualifications as a Reserves Estimator and Reserves Auditor set forth in Article III of the "Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information" promulgated by the Society of Petroleum Engineers as of February 19, 2007.
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PETROLEUM RESERVES DEFINITIONS
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)PREAMBLE
On January 14, 2009, the United States Securities and Exchange Commission ("the Commission") published the "Modernization of Oil and Gas Reporting; Final Rule" in the Federal Register of National Archives and Records Administration (NARA). The "Modernization of Oil and Gas Reporting; Final Rule" includes revisions and additions to the definition section in Rule 4-10 of Regulation S-X, revisions and additions to the oil and gas reporting requirements in Regulation S-K, and amends and codifies Industry Guide 2 in Regulation S-K. The "Modernization of Oil and Gas Reporting; Final Rule", including all references to Regulation S-X and Regulation S-K, shall be referred to herein collectively as the "SEC Regulations". The SEC Regulations take effect with all filings made with the United States Securities and Exchange Commission as of December 31, 2009, or after January 1, 2010. Reference should be made to the full text under Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10 (a) for the complete definitions, as the following definitions, descriptions and explanations rely wholly or in part on excerpts from the original document (direct passages excerpted from the aforementioned SEC document are denoted in italics herein).
Reserves are those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward under defined conditions. All reserve estimates involve some degree of uncertainty. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. Under the SEC Regulations as of December 31, 2009, or after January 1, 2010, a company may optionally disclose estimated quantities of probable or possible oil and gas reserves in documents publicly filed with the Commission. The SEC Regulations continue to prohibit disclosure of estimates of oil and gas resources other than reserves and any estimated values of such resources in any document publicly filed with the Commission unless such information is required to be disclosed in the document by foreign or state law as noted in §229.102 (5).
Reserves estimates will generally be revised as additional geologic or engineering data become available or as economic conditions change.
Reserves may be attributed to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance, cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids. Other improved recovery methods may be developed in the future as petroleum technology continues to evolve.
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PETROLEUM RESERVES DEFINITIONS
Page 2RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (26) defines reserves as follows:
Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.
Note to paragraph (a) (26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
PROVED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (22) defines proved oil and gas reserves as follows:
Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and
(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
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PETROLEUM RESERVES DEFINITIONS
Page 3(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based: and
(B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
PROBABLE RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (18) defines probable oil and gas reserves as follows:
Probable reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.
(i) When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.
(ii) Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion.
Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.(iii) Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.
(iv) See also guidelines in paragraphs (a)(17) (iv) and (a)(17) (vi) of this section.
POSSIBLE RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (17) defines possible oil and gas reserves as follows:
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PETROLEUM RESERVES DEFINITIONS
Page 4Possible reserves. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.
(i) When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates.
(ii) Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a defined project.
(iii) Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.
(iv) The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.
(v) Possible reserves may be assigned where geoscience and engineering data identity directly adjacent portions of a reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore. and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir. Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.
(vi) Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology. Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations.
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RESERVES STATUS DEFINITIONS AND GUIDELINES
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)and
PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)
Sponsored and Approved by:
SOCIETY OF PETROLEUM ENGINEERS (SPE),
WORLD PETROLEUM COUNCIL (WPC)
AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)
SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)Reserves status categories define the development and producing status of wells and reservoirs.
DEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (6) defines developed oil and gas reserves as follows:
Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well:
and(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Developed Producing (SPE-PRMS Definitions)
While not a requirement for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance contained in the SPE-PRMS as Producing or Non-Producing.
Developed Producing Reserves
Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.Improved recovery reserves are considered producing only after the improved recovery project is in operation.
Developed Non-Producing
Developed Non-Producing Reserves include shut-in and behind-pipe reserves.RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
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RESERVES STATUS DEFINITIONS AND GUIDELINES
Page 2Shut-In
Shut-in Reserves are expected to be recovered from:(1) completion intervals which are open at the time of the estimate but which have not yet started producing;
(2) wells which were shut-in for market conditions or pipeline connections; or
(3) wells not capable of production for mechanical reasons.Behind-Pipe
Behind-pipe Reserves are expected to be recovered from zones in existing wells which will require additional completion work or future re-completion prior to start of production.In all cases. production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.
UNDEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §229.4-10(a) (31) defines undeveloped oil and gas reserves as follows:
Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances. justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a) (2) of this section. or by other evidence using reliable technology establishing reasonable certainty.
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EXHIBIT 15.a(v)
DeGolyer And MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244November 6, 2009
Mr. Lorenzo Acquati
Reserves Guidelines Coordinator
Eni E&P Division
Via Emilia, 1
20097 San Donato Milanese (MI)
ITALYDear Mr. Acquati:
Pursuant to your request, DeGolyer and MacNaughton has reviewed the document entitled "Eni S.p.A. Exploration and Production Division: Division Directive for Evaluation, Classification, and Reporting of Petroleum Reserves and Contingent Resources; November 4, 2009." The document was provided electronically to DeGolyer and MacNaughton on November 5, 2009.
The document is represented as being based on research of the requirements (2008 Release) of the United States Securities and Exchange Commission (SEC) and the Petroleum Resources Management System (PRMS) approved in March 2007 by the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers, as they apply to reserves and contingent resources classification, categorization, estimating, and reporting. It is observed that, throughout the document, language directly from SEC regulations, as well as PRMS, has been used. Where specific language from SEC rules or PRMS did not apply, typical industry standards have been utilized. It should be noted that the SEC has not commented on the PRMS and has not endorsed any specific methodology for determining reserves, nor has the SEC made any references to estimating contingent resources.
In our opinion, the referenced document presents guidelines for preparing estimates of proved, probable, and possible reserves that, if followed, would result in reporting reserves as specified in Rules 4-10(a)(1)-(32) of Regulation S-X and Rule 302(b) of Regulation S-K of the SEC and paragraphs 10-13 and 15 of the Statement of Financial Accounting Standards No. 69 (November 1982) of the
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Financial Accounting Standards Board (FASB). This opinion is based on our review of the document and our understanding of how the guidelines will be applied from discussions with Eni. The document addresses situations where SEC rules are less specific in a reasonable manner and provides guidance that is aligned with SEC standards and general industry practice.
Due to the recent implementation of the 2008 release of the SEC rules, there are a number of issues that are due for additional commentary and clarification by the SEC and its staff. However, that additional information is not yet available and may not be until well into the next calendar year. As such, the comments herein regarding compliance are applicable to prevailing conditions, interpretations, and public commentary at the date of this document. Thus, any such interpretations and implementation opinions are, particularly at this juncture in the application of the new SEC rules, subject to review and reconsideration pending any future public comments from the SEC staff.
It is also our opinion, that the referenced document presents guidelines for preparing estimates of contingent resources that, if followed, would result in volumes in accordance with the PRMS published and approved in 2007. This opinion is based on our review of the document and our understanding of how the guidelines will be applied from discussions with Eni.
To the extent that the document requires determinations of an accounting or legal nature, DeGolyer and MacNaughton is necessarily unable to express an opinion.
Submitted, /s/ DEGOLYER AND MACNAUGHTON DeGOLYER and MacNAUGHTON Texas Registered Engineering Firm F-716 E-55
EXHIBIT 16.f
April 26, 2010
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Ladies and Gentlemen:
We have read the statements made by Eni SpA (copy attached), pursuant to Item 16F(a) of Form 20-F, as part of the Annual Report on Form 20-F of the Company for the year ended December 31, 2009, which we understand will be filed by the Company with the Securities and Exchange Commission. We agree with such statements.
Very truly yours,
/s/ PricewaterhouseCoopers SpAE-56