SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN
ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of March 2010
Eni S.p.A.
(Exact name of Registrant as specified in its
charter)
Piazzale Enrico
Mattei 1 - 00144 Rome, Italy
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F x Form 40-F o
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2b under the Securities Exchange Act of 1934.)
Yes o No x
(If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): )
Press Release dated March 5, 2010
Press Release dated March 11, 2010
Annual Report 2009 (not including the opinion of the external auditors)
Press Release dated March 12, 2010
Press Release dated March 23, 2010
Notice of Shareholders Meeting 2010
Notice of "Eni TV 2010-2015" Bondholders Meeting
Notice of "Eni TF 2010-2015" Bondholders Meeting
Report on the proposals of the Board of Directors to the Shareholders Meeting
Press Release dated March 25, 2010
Press Release dated March 31, 2010
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorised.
Eni S.p.A. |
||||
Name: Antonio Cristodoro | ||||
Title: | Deputy Corporate Secretary | |||
Date: March 31, 2010
Eni: amendments to 2010 financial calendar
San Donato Milanese (Milan), March 5, 2010 - The press release regarding the Board of Directors approval of the Enis consolidated financial statements, the draft financial statements of the parent company for the year ended December 31, 2009 and the dividend proposal for 2009 will be issued on March 11, 2010.
Company contacts:
Press Office: Tel. +39.0252031875 -
+39.065982398
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +39. 800 11 22 34 56
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Web site: www.eni.com
ENI 2009 CONSOLIDATED FINANCIAL STATEMENTS
Net profit for the year: euro 4.37
billion
Proposed a dividend per share of euro 1.00
Rome, March 11, 2010 - Today, the Board of Directors approved Enis consolidated financial statements and the draft financial statements of the parent company for the year ended December 31, 2009. Consolidated net profit amounted to euro 4,367 million and net profit of the parent company amounted to euro 5,061 million. With respect to Enis preliminary results1 for the year 2009 announced on February 12, 2010, both results take account of an increase to the legal proceedings provision amounting to euro 250 million, with a corresponding reduction in net profit. This charge relates to the TSKJ consortium matter that is fully disclosed in Enis annual report under the section "legal Proceedings" in the notes to the consolidated statements on page 282. This charge, which is recognized a non-recurring item, does not affect the full-year consolidated adjusted result amounting to euro 5,207 million as announced in the preliminary results.
The Board of Directors resolved to propose to the Annual Shareholders Meeting the distribution of a dividend2 amounting to euro 1.00 per share. Taking into account an interim dividend of euro 0.50 per share paid in September 2009, a balance amounting to euro 0.50 per share (euro 1.00 per ADR3) will be paid on May 27, 2010 to all outstanding shares on the register at the ex-dividend date of May 24, 2010.
The 2009 Annual Report has been released to the public together with this press release and is available on the Eni website www.eni.com. Enis consolidated financial statements and the draft financial statements of the parent company were submitted to the Board of Statutory Auditors and to Enis external auditors. Enclosed are the 2009 summarized profit and loss account, balance sheet and cash flow statement4 of Enis group companies and the parent company, and the 2009 fourth quarter consolidated profit and loss and cash flow statement.
The Board of Directors also approved Enis 2009 Sustainability Report in which the Company illustrates its commitment to sustainable development in line with international best practice.
The Report on Corporate Governance and shareholding structure, included in the Operating and financial review, provides information about the adoption of the corporate governance code endorsed by the Italian Stock Exchange authority (Borsa Italiana SpA) and the other information requested, has been sent to Borsa Italiana SpA and is now available on Enis website, "Corporate Governance" section.
__________________
(1) | The press release on Enis preliminary results for the year 2009, published on February 12, 2010, is available on Enis website, www.eni.com, section Investor Relations. | |
(2) | As a consequence of new tax laws in force from January 1, 2004, dividends are not entitled to a tax credit and, depending on the receiver, are subject to a withdrawal tax on distribution or are partially cumulated to the receiver's taxable income. | |
(3) | On ADR payment date, JPMorgan Chase Bank, N.A. will pay the dividend less the entire amount of a withholding tax under Italian law (currently 27%) to all Depository Trust Company Participants, representing payment of Eni SpAs balance dividend for fiscal year 2009. | |
(4) | For a reconciliation of summarized Group profit and loss account, balance sheet and cash flow statement with the corresponding statutory statements see the attached Enis Annual Report 2009, under the section "Financial review". Summarized Group profit and loss account, balance sheet and cash flow statement will undergo audit procedures by external auditors in order to express an opinion on consistency between the management discussion on financial results and the consolidated financial statements, in accordance with Article 2409-ter c.c. and Article 156, of TUF paragraph 4-bis, under section d, as enacted in CONSOB communication 16801, of February 24, 2009. |
- 1 -
* * *
Enis Chief Financial Officer, Alessandro Bernini, in his capacity as manager responsible for the preparation of the Companys financial reports, certifies pursuant to rule 154-bis paragraph 2 of Legislative Decree No. 58/1998, that data and information disclosed in this press release correspond to the Companys evidence and accounting books and entries.
* * *
Contacts
E-mail: segreteriasocietaria.azionisti@eni.com
Investor Relations
E-mail: investor.relations@eni.com
Tel.: +39 0252051651 - Fax: +39 0252031929
Eni Press Office
E-mail: ufficiostampa@eni.com
Tel.: +39 0252031287 - +39 0659822040
* * *
Eni
Società; per Azioni Roma, Piazzale Enrico Mattei, 1
Share capital: euro 4,005,358,876 fully paid
Tax identification number 00484960588
Tel.: +39 0659821 - Fax: +39 0659822141
* * *
This press release is also available on the Eni web site: www.eni.com.
About Eni
Eni is one of the leading integrated energy companies in the
world operating in the oil and gas, power generation,
petrochemicals, engineering and construction industries. Eni is
present in 77 countries and is Italys largest company by
market capitalization.
- 2 -
Attachment
Eni consolidated profit and loss account
(euro million) |
Fourth |
Full year 2008 |
Full year 2009 |
Change |
||||
22,077 | Net sales from operations | 108,082 | 83,227 | (24,855 | ) | |||||||
284 | Other income and revenues | 728 | 1,118 | 390 | ||||||||
(16,728 | ) | Operating expenses | (80,354 | ) | (62,532 | ) | 17,822 | |||||
(250 | ) | of which non recurring items | 21 | (250 | ) | |||||||
94 | Other operating income (expense) | (124 | ) | 55 | 179 | |||||||
(3,261 | ) | Depreciation, depletion, amortization and impairments | (9,815 | ) | (9,813 | ) | 2 | |||||
2,466 | Operating profit | 18,517 | 12,055 | (6,462 | ) | |||||||
(157 | ) | Finance income (expense) | (640 | ) | (551 | ) | 89 | |||||
17 | Net income from investments | 1,373 | 569 | (804 | ) | |||||||
2,326 | Profit before income taxes | 19,250 | 12,073 | (7,177 | ) | |||||||
(1,648 | ) | Income taxes | (9,692 | ) | (6,756 | ) | 2,936 | |||||
678 | Net profit | 9,558 | 5,317 | (4,241 | ) | |||||||
Attributable to: | ||||||||||||
391 | - Eni | 8,825 | 4,367 | (4,458 | ) | |||||||
287 | - minority interest | 733 | 950 | 217 | ||||||||
Eni consolidated balance sheet
(euro million) |
Dec. 31, 2008 |
Dec. 31, 2009 |
Change |
|||
Fixed assets | |||||||||
Property, plant and equipment | 59,255 | 63,177 | 3,922 | ||||||
Inventory - compulsory stock | 1,196 | 1,736 | 540 | ||||||
Intangible assets | 7,697 | 8,057 | 360 | ||||||
Equity-accounted investments and other investments | 5,881 | 6,244 | 363 | ||||||
Receivables and securities held for operating purposes | 1,219 | 1,261 | 42 | ||||||
Net payables related to capital expenditures | (787 | ) | (749 | ) | 38 | ||||
74,461 | 79,726 | 5,265 | |||||||
Net working capital | |||||||||
Inventories | 6,082 | 5,495 | (587 | ) | |||||
Trade receivables | 16,444 | 14,916 | (1,528 | ) | |||||
Trade payables | (12,590 | ) | (10,078 | ) | 2,512 | ||||
Tax payables and provisions for net deferred tax liabilities | (5,323 | ) | (1,988 | ) | 3,335 | ||||
Provisions | (9,506 | ) | (10,319 | ) | (813 | ) | |||
Other current assets and liabilities | (4,544 | ) | (3,968 | ) | 576 | ||||
(9,437 | ) | (5,942 | ) | 3,495 | |||||
Current investments | 2,741 | (2,741 | ) | ||||||
Provisions for employee post-retirement benefits | (947 | ) | (944 | ) | 3 | ||||
Net assets held for sale including related liabilities | 68 | 266 | 198 | ||||||
CAPITAL EMPLOYED, NET | 66,886 | 73,106 | 6,220 | ||||||
Shareholders' equity including minority interest | 48,510 | 50,051 | 1,541 | ||||||
Net borrowings | 18,376 | 23,055 | 4,679 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 66,886 | 73,106 | 6,220 | ||||||
- 3 -
Eni consolidated cash flow statement
(euro million) |
Fourth |
Full year 2008 |
Full year 2009 |
Change |
||||
678 | Net profit | 9,558 | 5,317 | (4,241 | ) | |||||||
Adjustments to reconcile to cash generated from operating profit before changes in working capital: | ||||||||||||
3,902 | - amortization and depreciation and other non monetary items | 11,388 | 9,846 | (1,542 | ) | |||||||
58 | - net gains on disposal of assets | (219 | ) | (226 | ) | (7 | ) | |||||
1,651 | - dividends, interest, taxes and other changes | 9,080 | 6,688 | (2,392 | ) | |||||||
6,289 | Net cash generated from operating profit before changes in working capital | 29,807 | 21,625 | (8,182 | ) | |||||||
(2,196 | ) | Changes in working capital related to operations | 2,212 | (1,769 | ) | (3,981 | ) | |||||
(2,612 | ) | Dividends received, taxes paid, interest (paid) received during the period | (10,218 | ) | (8,720 | ) | 1,498 | |||||
1,481 | Net cash provided by operating activities | 21,801 | 11,136 | (10,665 | ) | |||||||
(3,894 | ) | Capital expenditures | (14,562 | ) | (13,695 | ) | 867 | |||||
(46 | ) | Investments and purchase of consolidated subsidiaries and businesses | (4,019 | ) | (2,323 | ) | 1,696 | |||||
28 | Disposals | 979 | 3,595 | 2,616 | ||||||||
214 | Other cash flow related to capital expenditures, investments and disposals | (267 | ) | (295 | ) | (28 | ) | |||||
(2,217 | ) | Free cash flow | 3,932 | (1,582 | ) | (5,514 | ) | |||||
13 | Borrowings (repayment) of debt related to financing activities | 911 | 396 | (515 | ) | |||||||
2,167 | Changes in short and long-term finance debt | 980 | 3,841 | 2,861 | ||||||||
(86 | ) | Dividends paid and changes in minority interest and reserves | (6,005 | ) | (2,956 | ) | 3,049 | |||||
(13 | ) | Effect of changes in consolidation and exchange differences | 7 | (30 | ) | (37 | ) | |||||
(136 | ) | NET CASH FLOW FOR THE PERIOD | (175 | ) | (331 | ) | (156 | ) | ||||
(2,217 | ) | Free cash flow | 3,932 | (1,582 | ) | (5,514 | ) | |||||
Net borrowings of acquired companies | (286 | ) | 286 | |||||||||
Net borrowings of divested companies | 181 | (181 | ) | |||||||||
(212 | ) | Exchange differences on net borrowings and other changes | 129 | (141 | ) | (270 | ) | |||||
(86 | ) | Dividends paid and changes in minority interests and reserves | (6,005 | ) | (2,956 | ) | 3,049 | |||||
(2,515 | ) | CHANGE IN NET BORROWINGS | (2,049 | ) | (4,679 | ) | (2,630 | ) | ||||
- 4 -
Eni SpA profit and loss account
(euro million) |
2008 |
2009 |
Change |
|||
Net sales from operations | 47,605 | 32,542 | (15,063 | ) | |||||
Other income and revenues | 215 | 270 | 55 | ||||||
Operating expenses | (45,117 | ) | (30,293 | ) | 14,824 | ||||
- of which non recurring items | 21 | (21 | ) | ||||||
Other operating income (expense) | 505 | (163 | ) | (668 | ) | ||||
Depreciation, depletion, amortization and impairments | (1,121 | ) | (1,053 | ) | 68 | ||||
Operating profit | 2,087 | 1,303 | (784 | ) | |||||
Finance income (expense) | 157 | (345 | ) | (502 | ) | ||||
Net income from investments | 4,807 | 4,753 | (54 | ) | |||||
- of which non recurring items | (250 | ) | (250 | ) | |||||
Profit before income taxes | 7,051 | 5,711 | (1,340 | ) | |||||
Income taxes | (306 | ) | (650 | ) | (344 | ) | |||
Net profit | 6,745 | 5,061 | (1,684 | ) | |||||
Eni SpA balance sheet
(euro million) |
Dec. 31, 2008 |
Dec. 31, 2009 |
Change |
|||
Fixed assets | |||||||||
Property, plant and equipment | 6,143 | 5,930 | (213 | ) | |||||
Compulsory stock | 1,028 | 1,637 | 609 | ||||||
Intangible assets | 1,014 | 988 | (26 | ) | |||||
Equity-accounted investments and other investments | 26,720 | 29,374 | 2,654 | ||||||
Receivables and securities held for operating purposes | 8,804 | 10,804 | 2,000 | ||||||
Net payables related to capital expenditures | (303 | ) | (330 | ) | (27 | ) | |||
43,406 | 48,403 | 4,997 | |||||||
Net working capital | (1,665 | ) | (836 | ) | 829 | ||||
Provisions for employee post-retirement benefits | (305 | ) | (306 | ) | (1 | ) | |||
Net assets held for sale including related liabilities | 911 | 911 | |||||||
CAPITAL EMPLOYED, NET | 41,436 | 48,172 | 6,736 | ||||||
Shareholders' equity | 30,049 | 32,144 | 2,095 | ||||||
Net borrowings | 11,387 | 16,028 | 4,641 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 41,436 | 48,172 | 6,736 | ||||||
- 5 -
Eni SpA Cash flow statement
(euro million) |
Dec. 31, 2008 |
Dec. 31, 2009 |
Change |
|||
Net profit | 6,745 | 5,061 | (1,684 | ) | |||||
Adjustments to reconcile to cash generated from operating profit before changes in working capital: | |||||||||
- amortization and depreciation and other non monetary items | 3,588 | 1,524 | (2,064 | ) | |||||
- net gains on disposal of assets | 3 | (1,325 | ) | (1,328 | ) | ||||
- dividends, interest, taxes and other changes | (5,481 | ) | (4,077 | ) | 1,404 | ||||
Net cash generated from operating profit before changes in working capital | 4,855 | 1,183 | (3,672 | ) | |||||
Changes in working capital related to operations | 183 | 808 | 625 | ||||||
Dividends received, taxes paid, interest (paid) received during the period | 6,135 | 2,762 | (3,373 | ) | |||||
Net cash provided by operating activities | 11,173 | 4,753 | (6,420 | ) | |||||
Capital expenditures | (1,373 | ) | (1,241 | ) | 132 | ||||
Investments and purchase of consolidated subsidiaries and businesses | (4,159 | ) | (6,491 | ) | (2,332 | ) | |||
Financing investments for operating purposes | (820 | ) | (2,003 | ) | (1,183 | ) | |||
Disposals | 48 | 4,579 | 4,531 | ||||||
Other cash flow related to capital expenditures, investments and disposals | 55 | 29 | (26 | ) | |||||
Free cash flow | 4,924 | (374 | ) | (5,298 | ) | ||||
Borrowings (repayment) of debt related to financing activities | 1,609 | (181 | ) | (1,790 | ) | ||||
Changes in short and long-term finance debt | (632 | ) | 4,433 | 5,065 | |||||
Dividends paid and changes in minority interest and reserves | (5,678 | ) | (4,165 | ) | 1,513 | ||||
Contribution of merged entities | 51 | (3 | ) | (54 | ) | ||||
Net cash flow for the period | 274 | (290 | ) | (564 | ) | ||||
Free cash flow | 4,924 | (374 | ) | (5,298 | ) | ||||
Dividends paid and changes in minority interest and reserves | (5,678 | ) | (4,165 | ) | 1,513 | ||||
Effect of changes in consolidation and exchange differences | (48 | ) | (99 | ) | (51 | ) | |||
Financing receivables and liabilities of acquired companies | (300 | ) | (3 | ) | 297 | ||||
Change in net borrowings | (1,102 | ) | (4,641 | ) | (3,539 | ) | |||
- 6 -
Ordinary Shareholders Meeting of April 27 and 29, 2010
The notice convening the meeting was published
on the
Gazzetta Ufficiale of the Republic of Italy
No. ___, section ___ of March ___, 2010 page ___
This annual report includes the report of
Enis Board of Directors and
Enis consolidated financial statements for the year ended
December 31,
2009, which have been prepared under the International Financial
Reporting Standards (IFRS), as adopted by the European Union.
Disclaimer
This annual report contains certain forward-looking statements in particular under the section "Outlook" regarding capital expenditures, development and management of oil and gas resources, dividends, share repurchases, allocation of future cash flow from operations, future operating performance, gearing, targets of production and sale growth, new markets, and the progress and timing of projects. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements, depending on a variety of factors, including the timing of bringing new fields on stream; managements ability in carrying out industrial plans and in succeeding in commercial transactions; future levels of industry product supply; demand and pricing; operational problems; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; development and use of new technology; changes in public expectations and other changes in business conditions; the actions of competitors and other factors discussed elsewhere in this document.
Operating and financial review | ||||
4 |
Profile of the year | |||
9 |
Letter to Shareholders | |||
Operating Review | ||||
13 |
Exploration & Production | |||
34 |
Gas & Power | |||
50 |
Refining & Marketing | |||
57 |
Petrochemicals | |||
60 |
Engineering & Construction | |||
Financial Review and other information | ||||
Financial Review | ||||
63 |
Profit and loss account | |||
85 |
Summarized Group Balance Sheet | |||
91 |
Cash flow statements | |||
98 |
Risk factors and uncertainties | |||
107 |
Outlook | |||
108 |
Other information | |||
109 |
Corporate Governance and Shareholding Structure Report | |||
159 |
Commitment to sustainable development | |||
181 |
Glossary | |||
Consolidated Financial Statements | ||||
189 |
Consolidated Financial Statements | |||
198 |
Basis of presentation and Use of accounting estimates | |||
216 |
Notes to the Consolidated Financial Statements | |||
304 |
Supplemental oil and gas information (unaudited) | |||
315 |
Managements certification | |||
316 |
Report of Independent Auditors |
Eni means the parent company Eni SpA and its consolidated subsidiaries
ENI ANNUAL REPORT / PROFILE OF THE YEAR
Results Eni reported net profit of euro 4.37 billion for the full year 2009. Adjusted basis net profit was euro 5.21 billion, down 48.8% from a year ago. The reduction reflected lower results mainly reported by the Exploration & Production division due to an unfavorable trading environment for oil prices in the first nine months of the year and by the Refining & Marketing division driven by sharply lower refining margins. The Gas & Power division and the Engineering & Construction business segment showed a resilient performance. Cash inflows for the year mainly comprised cash flow from operations of euro 11.14 billion, proceeds of euro 3.6 billion from divesting certain interests and non strategic assets, and euro 1.54 billion from a share capital increase subscribed by minorities following the restructuring of Enis regulated gas businesses in Italy. These inflows enabled the Company to partially fund capital expenditures of euro 13.69 billion to support organic growth and exploration activities, the completion of the Distrigas acquisition of euro 2.04 billion and the payment of dividends to Eni shareholders amounting to euro 4.17 billion. Ratio of net borrowings to total equity was 0.46 (0.38 at December 31, 2008). Dividends |
dividend in September 2009.
Management reaffirms its commitment to create value for
Enis investors. Oil and natural gas production Proved oil and natural gas reserves Natural gas sales |
4
ENI ANNUAL REPORT / PROFILE OF THE YEAR
negative trend was partly
offset by full contribution of the Distrigas acquisition
(up 12.02 bcm) and organic growth achieved in a number of
European markets. In a challenging outlook for the gas market, Eni expects to achieve gas sales of 118 bcm by 2013, implying an annual growth rate higher than 3%. To achieve this target, Eni will leverage on extracting synergies from integrating Distrigas commercial operations and its excellent strategic positioning in the European gas market. Distrigas Reorganization of the regulated businesses in the
Italian gas sector Strategic partnership between Eni and Gazprom |
Portfolio developments In January 2010, Eni leading with a 32.8% stake a consortium of international companies signed a contract with Iraq's state-owned South Oil Company (SOC) and Missan Oil Company to redevelop the Zubair giant oil field. The development plan of the field targets a production of 1.2 bbbl/d to be achieved in the next six years. In January 2010, Eni and the Venezuelan national company PDVSA signed a preliminary agreement for the joint development of the Junin 5 giant heavy oil field, located in the Orinoco Faja, which has 35 bbbl of certified oil in place. In June 2009, Eni purchased from Quicksilver Resources Inc a 27.5% interest in the Alliance area, in Northern Texas, with gas shale reserves. The price of the transaction was $280 million. In 2009 production from the acquired assets amounted to 4,000 boe/d, and is expected to ramp up to approximately 10,000 boe/d by 2011. In November 2009, Eni has been awarded a 37.8% stake in the Sanga Sanga license for the production of coal-bed methane in Indonesia. Preliminary studies in the block show a resource potential of about 4 trillion cubic feet (111 bcm) of gas to be better defined through an appraisal program that will commence in 2010. In May 2009, Eni and the Egypts Ministry of Petroleum signed a cooperation agreement to extend by 10 years the concession on the Belayim giant field. Eni plans to invest $1.5 billion over the next 5 years in developing expenditures, operating costs and interventions aimed at optimizing production. In January 2010, Eni signed an agreement to acquire oil downstream activities in Austria. This includes a retail network with 135 service, wholesale activities and commercial assets in the aviation business as well as logistics and storage activities. In October 2009, Eni and its Turkish and Russian partners in the construction of the Samsun-Ceyhan pipeline signed a Memorandum of Understanding whereby parties will define certain economic and contractual conditions in order to enable Russian companies to participate in the project. This will |
5
ENI ANNUAL REPORT / PROFILE OF THE YEAR
ensure the necessary volumes
of crude in order to support the project profitability.
The project is designed to build a by-pass for oil
incoming from the East, avoiding transport by sea through
the Dardanelles and Bosporus, thus enhancing safety and
environmental protection. As part of the optimization process of its upstream portfolio, management approved a plan for rationalizing Eni mineral activities in Italy that entails the sale of three Newcos, entirely controlled by Eni. The assets are divided into three groups, depending on their geographical location, which will each be transferred into a single newco: the first lies in northern Italy (Po Valley and Emilia Romagna), the second in central Italy (Marche, Abruzzo, Molise) and the third in southern Italy (Crotone area). Negotiations are well underway for the sale of two companies, Società Padana Energia SpA and Società Adriatica Idrocarburi SpA, holding the assets located in northern and central Italy. Partnership agreements |
of strategic partnerships
pursuing new ventures. The framework of these ventures provides integration between the traditional oil business and sustainable development initiatives designed to support the host countries population in achieving high social and economic standards. These agreements concerned mainly Angola, Egypt, Kazakhstan and Turkmenistan and represent opportunities to access new reserves. Exploration
activities |
6
ENI ANNUAL REPORT / PROFILE OF THE YEAR
Financial highlights | 2007 |
2008 |
2009 |
|||
(euro million) |
Net sales from operations | 87,204 | 108,082 | 83,227 | |||||
Operating profit | 18,739 | 18,517 | 12,055 | |||||
Adjusted operating profit (a) | 19,004 | 21,608 | 13,122 | |||||
Net profit (b) | 10,011 | 8,825 | 4,367 | |||||
Adjusted net profit (a) (b) | 9,569 | 10,164 | 5,207 | |||||
Net cash provided by operating activities | 15,517 | 21,801 | 11,136 | |||||
Capital expenditures | 10,593 | 14,562 | 13,695 | |||||
Acquisition of investments and businesses (c) | 9,909 | 4,305 | 2,323 | |||||
Dividends pertaining to the period (d) | 4,750 | 4,714 | 3,622 | |||||
Cash dividends | 4,583 | 4,910 | 4,166 | |||||
R&D expenditures | 208 | 217 | 207 | |||||
Total assets at period end | 101,460 | 116,673 | 117,529 | |||||
Debts and bonds at period end | 19,830 | 20,837 | 24,800 | |||||
Shareholders' equity including minority interests at period end | 42,867 | 48,510 | 50,051 | |||||
Net borrowings at period end | 16,327 | 18,376 | 23,055 | |||||
Net capital employed at period end | 59,194 | 66,886 | 73,106 | |||||
Shares price at period end | (euro) | 25.05 | 16.74 | 17.80 | ||||
Number of shares outstanding at period end | (million) | 3,656.8 | 3,622.4 | 3,622.4 | ||||
Market capitalization (e) | (euro billion) | 91.6 | 60.6 | 64.5 |
(a) | For a detailed explanation of adjusted profits (net and operating), that do not include inventory gain/loss and special items, see paragraph "Reconciliation of reported operating profit and reported net profit to results on an adjusted basis". | |
(b) | Profit attributable to Eni shareholders. | |
(c) | Net of acquired cash. | |
(d) | 2009 amount (relating to dividend payment) is estimated. | |
(e) | Number of outstanding shares by reference price at year end. |
Summary financial data | 2007 |
2008 |
2009 |
|||
Net profit: | ||||||||
- per ordinary share (a) | (euro) | 2.73 | 2.43 | 1.21 | ||||
- per ADR (a) (b) | (USD) | 7.49 | 7.15 | 3.36 | ||||
Adjusted net profit: | ||||||||
- per ordinary share (a) | (euro) | 2.61 | 2.79 | 1.44 | ||||
- per ADR (a) (b) | (USD) | 7.16 | 8.21 | 4.01 | ||||
Return On Average Capital Employed (ROACE): | ||||||||
- reported | (%) | 20.5 | 15.7 | 8.0 | ||||
- adjusted | (%) | 19.4 | 17.6 | 9.2 | ||||
Leverage | 0.38 | 0.38 | 0.46 | |||||
Dividends pertaining to the year | (euro per share) | 1.30 | 1.30 | 1.00 | ||||
Pay-out (c) | (%) | 47 | 53 | 83 | ||||
Total Shareholder Return (TSR) | (%) | 3.2 | (29.1) | 13.7 | ||||
Dividend yield (d) | (%) | 5.3 | 7.6 | 5.8 |
(a) | Fully diluted. Ratio of net profit and average number of shares outstanding in the period. Dollar amounts are converted on the basis of the average EUR/USD exchange rate quoted by ECB for the period presented. | |
(b) | One American Depositary Receipt (ADR) is equal to two Eni ordinary shares. | |
(c) | 2009 pay-out ratio is estimated with reference to the amounts due on the payment of the dividend balance of 2009. | |
(d) | Ratio of dividend for the period and average price of Eni shares in December. |
Key market indicators | 2007 |
2008 |
2009 |
|||
Average price of Brent dated crude oil (a) | 72.52 | 96.99 | 61.51 | |||||
Average EUR/USD exchange rate (b) | 1.371 | 1.471 | 1.393 | |||||
Average price in euro of Brent dated crude oil | 52.90 | 65.93 | 44.16 | |||||
Average European refining margin (c) | 4.52 | 6.49 | 3.13 | |||||
Average European refining margin Brent/Ural (c) | 6.45 | 8.85 | 3.56 | |||||
Average Europe refining margin in euro | 3.30 | 4.41 | 2.25 | |||||
Euribor - three-month euro rate | (%) | 4.3 | 4.6 | 1.2 | ||||
Libor - three-month dollar rate | (%) | 5.3 | 2.9 | 0.7 |
(a) | In USD per barrel. Source: Platts Oilgram. | |
(b) | Source: ECB. | |
(c) | In USD per barrel FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platts Oilgram data. |
7
ENI ANNUAL REPORT / PROFILE OF THE YEAR
Summary operating data | 2007 |
2008 |
2009 |
|||
Exploration & Production | ||||||||
Estimated net proved reserves of hydrocarbons (at period end) | (mmboe) | 6,370 | 6,600 | 6,571 | ||||
- Liquids | (mmbbl) | 3,219 | 3,335 | 3,463 | ||||
- Natural gas | (bcf) | 18,090 | 18,748 | 17,850 | ||||
Average reserve life index | (year) | 10.0 | 10.0 | 10.2 | ||||
Production of hydrocarbons | (kboe/d) | 1,736 | 1,797 | 1,769 | ||||
- Liquids | (kbbl/d) | 1,020 | 1,026 | 1,007 | ||||
- Natural gas | (mmcf/d) | 4,114 | 4,424 | 4,374 | ||||
Gas & Power | ||||||||
Worldwide gas sales (a) | (bcm) | 98.96 | 104.23 | 103.72 | ||||
LNG sales (b) | (bcm) | 11.7 | 12.0 | 12.9 | ||||
Customers in Italy | (million) | 6.61 | 6.63 | 6.88 | ||||
Gas volumes transported in Italy | (bcm) | 83.28 | 85.64 | 76.90 | ||||
Electricity sold | (TWh) | 33.19 | 29.93 | 33.96 | ||||
Refining & Marketing | ||||||||
Refining throughputs on own account | (mmtonnes) | 37.15 | 35.84 | 34.55 | ||||
Retail sales of petroleum products in Europe | (mmtonnes) | 11.80 | 12.03 | 12.02 | ||||
Service stations in Europe at period end (c) | (units) | 6,440 | 5,956 | 5,986 | ||||
Average throughput of service stations in Europe (c) | (kliters) | 2,486 | 2,502 | 2,477 | ||||
Petrochemicals | ||||||||
Production | (ktonnes) | 8,795 | 7,372 | 6,521 | ||||
Sales of petrochemical products | (ktonnes) | 5,513 | 4,684 | 4,625 | ||||
Engineering & Construction | ||||||||
Orders acquired | (euro million) | 11,845 | 13,860 | 9,917 | ||||
Order backlog at period end | (euro million) | 15,390 | 19,105 | 18,730 | ||||
Employees at period end | (units) | 75,862 | 78,880 | 78,417 |
(a) | Include E&P sales volumes of 6.17 bcm (5.39 and 6.00 bcm in 2007 and 2008, respectively) marketed by the Exploration & Production division in Europe (3.59, 3.36 and 2.57 bcm for 2007, 2008 and 2009, respectively) and in the Gulf of Mexico (1.8, 2.64 and 3.60 bcm for 2007, 2008 and 2009, respectively). | |
(b) | Refer to LNG sales of G&P division (included in worldwide gas sales) and E&P division. | |
(c) | Full year 2007 data include downstream activities in the Iberian Peninsula divested to Galp in October 2008. |
8
ENI ANNUAL REPORT / TO OUR SHAREHOLDERS
To our
shareholders In 2009, Eni delivered better results than expected, amongst the best in our industry, against the backdrop of the worst economic recessions over the past 60 years. Our integrated business portfolio has again proved its resilience, and we managed to mitigate the impact of the downturn on the company. We delivered on our targets, positioning the Company
for future growth. In E&P, we are strategically
focusing on giant projects in the worlds
fastest-growing oil-producing areas, namely Iraq and
Venezuela. We entered new, high-potential areas like
Ghana, and signed a number of framework agreements in our
core regions of Russia, the Caspian Sea (Kazakhstan and
Turkmenistan) and Africa. In G&P, we completed the
acquisition of Distrigas and the reorganization of our
regulated businesses in Italy. |
Despite an ongoing recovery
in oil prices, the outlook for 2010 points to significant
challenges. However, our strategy remains unchanged. We
continue to target superior production growth over the
long-term and to strengthen our leadership position in
the European gas market, while maintaining a strong
financial position and creating value for our
shareholders. Financial performance Enis 2009 net profit was euro 4.37 billion. |
9
ENI ANNUAL REPORT / TO OUR SHAREHOLDERS
Sustaining
growth and shareholder returns Our strategic
direction has remained unchanged. Our strong pipeline of
capital projects and investment opportunities will enable
us to deliver on our growth targets. In Exploration & Production, we achieved
adjusted net profit of euro 3.9 billion, down 50.9%
compared to 2008, driven by an unfavorable trading
environment for oil prices in the first nine months
(Brent prices were down 37%), lower sales volumes and a
higher tax rate. In 2009 a total of 27 new fields have been put into
production, which will add 190 kboe/d to our production
at plateau. |
We entered the
unconventional gas sector in the USA with the purchase of
a stake in the Alliance Area containing shale gas, from
Quicksilver Resources Inc, and in Indonesia by purchasing
a 37.8% interest in the Sanga Sanga license for the
production of coal bed methane. We target an average
annual production increase higher than 2.5% in the
2010-2013 plan. By 2013, our hydrocarbon production will
exceed 2 million bbl/d, based on our $65 per barrel Brent
price scenario. Most of our projects are in the final
investment decision stage or have already been
sanctioned. In Gas & Power, we reported adjusted net
profit of euro 2.92 billion, an increase of 10% from
2008, despite very weak market conditions, with gas
consumption down by 7.4% in Europe and 10% in Italy. This
result was largely due to stable performances in the
regulated businesses, excellent results achieved by
Distrigas and integration synergies. Sales volumes were
stable at 104 bcm, as a result of expansion in European
markets that made for declining sales in Italy (down
24%). Our strategy will focus on strengthening our leadership in the European gas market, as well as margins and market share in Italy, relying upon our commercial strength, long-term relationships with producing countries and access to international transport infrastructures. |
10
ENI ANNUAL REPORT / TO OUR SHAREHOLDERS
This access will not be
impaired by the possible divestment of our interests in
three gas import pipelines from Russia and Northern
Europe, which we have proposed to the relevant European
authorities in order to settle an antitrust procedure. In 2010 we expect a weak recovery in gas demand, particularly in Italy. Commercial integration with Distrigas and the advantages granted to us by renegotiating supply contracts with international suppliers will enable us to make for any declines in domestic markets, targeting sales volumes at the same level as in 2009. By 2013, we expect to grow our gas sales by an average growth rate higher than 3% a year, targeting a volume of 118 billion cubic meters. Our regulated businesses in Italy are expected to deliver stable returns, independent of trends in the gas market. They will be supported by guaranteed returns on planned capital expenditures and the cost synergies deriving from integrating gas transport, distribution and storage activities. In Refining & Marketing we reported
adjusted net loss of euro 197 million due to an extremely
weak refining scenario (down by 52% the TRC Brent
margin). Refining throughputs were reduced by one million
tonnes. These impacts were partly offset by the good
performance in marketing as a result of effective
marketing initiatives. |
activities and logistics and
storage assets from Exxon in Austria. In Engineering & Construction, we reported an improved adjusted net profit of euro 892 million (14% higher than in 2008) thanks to a better operating performance driven by a strong order backlog and increased efficiency. Saipem is completing the expansion of its world-class fleet of construction and drilling vessels, consolidating its leading position in the project management, engineering and construction activities within the oilfield services industry. In Petrochemicals we reported adjusted losses
at both operating and net profit levels (down euro 426
million and euro 340 million, respectively) due to an
unfavorable market environment that was dragged down by
weak demand, excess capacity and strong competitive
pressures on commodity products. Sustainable development We intend to maintain our position: an oil and gas company with one of the highest sustainability ratings in the world. We will strive to improve the sustainability of our activities through our commitment to research and innovation, the development of local communities, the protection of the environment, the endorsement of higher health and safety standards and people empowerment. In conducting operations and in our relations with partners we uphold the protection and promotion of human rights. Eni reaffirms its commitment to Research and Innovation over the next four years by starting a new phase where our strategic priorities will be developing technologies for finding and producing hydrocarbons, the sustainable use of renewable |
11
ENI ANNUAL REPORT / TO OUR SHAREHOLDERS
energy and environmental
restoration and clean-up of divested sites. We will
pursue these objectives by forging strategic alliances
with poles of international excellence and constant
commitment of dedicated Eni resources. Key to the
Companys success is our strong attention to our
people. In managing human resources, we are committed to
implementing programs to improve leadership skills,
increase knowledge and promote international development. |
model that aims at
developing host countries, through the valorization of
local resources, exploitation of specific skills, as well
as the realization of projects and the definition of
cooperation agreements. In conclusion, in spite of an unfavorable energy and market environment, Eni delivered a good year. 2010 will pose further challenges but Eni's strategic positioning will enable it to continue to deliver industry-leading results and create sustainable value for its shareholders in both the short and the long-term. |
March 11, 2010
In representation of the Board of Directors
Chairman | Chief Executive Officer and General Manager |
BOARD OF DIRECTORS (1) | BOARD OF STATUTORY AUDITORS (7) | |
Chairman | Chairman | |
Roberto Poli (2) | Ugo Marinelli | |
Chief Executive Officer and General Manager | Statutory Auditors | |
Paolo Scaroni (3) | Roberto Ferranti, Luigi Mandolesi, | |
Directors | Tiziano Onesti, Giorgio Silva | |
Alberto Clô, Paolo Andrea Colombo, | Alternate Auditors | |
Paolo Marchioni, Marco Reboa, Mario Resca, | Francesco Bilotti, Pietro Alberico Mazzola | |
Pierluigi Scibetta, Francesco Taranto | ||
MAGISTRATE OF THE COURT OF AUDITORS | ||
CHIEF OPERATING OFFICERS | DELEGATED TO THE FINANCIAL CONTROL OF ENI SpA | |
Exploration & Production Division | Raffaele Squitieri (8) | |
Claudio Descalzi (4) | Alternate | |
Gas & Power Division | Amedeo Federici (9) | |
Domenico Dispenza (5) | ||
Refining & Marketing Division | External Auditors (10) | |
Angelo Caridi (6) | PricewaterhouseCoopers SpA | |
(1)
Appointed by the Shareholders Meeting held on June
10, 2008 for a three year period. The Board of Directors
expires at the date of approval of the financial
statements for the 2010 financial year. (2) Appointed by the Shareholders Meeting held on June 10, 2008. (3) Powers conferred by the Board of Directors on June 11, 2008. (4) Appointed by the Board of Directors on July 30, 2008. (5) Appointed by the Board of Directors on December 14, 2005, effective from January 1, 2006. |
(6)
Appointed by the Board of Directors on August 3, 2007. (7) Appointed by the Shareholders Meeting held on June 10, 2008 for a three year period, expiring at the date of the approval of the financial statements for the 2010 financial year. (8) Duties conferred by the Governing Council of the Court of Auditors on October 28, 2009. (9) Duties conferred by the Governing Council of the Court of Auditors on December 3-4, 2008. (10) Appointment extended by the Shareholders Meeting held on May 24, 2007 for the 2007-2009 three year term. |
12
ENI ANNUAL REPORT / OPERATING REVIEW
Key performance indicators (a) | 2007 |
|
2008 |
|
2009 |
|
Net sales from operations (b) | (euro million) | 26,920 | 33,042 | 23,801 | ||||
Operating profit | 13,433 | 16,239 | 9,120 | |||||
Adjusted operating profit | 13,770 | 17,222 | 9,484 | |||||
Adjusted net profit | 6,328 | 7,900 | 3,878 | |||||
Capital expenditures | 6,480 | 9,281 | 9,486 | |||||
of which: exploratory expenditures (c) | 1,659 | 1,918 | 1,228 | |||||
Adjusted capital employed, net at year end (d) | 23,826 | 30,362 | 32,455 | |||||
Adjusted ROACE | (%) | 30.4 | 29.2 | 12.3 | ||||
Average realizations | ||||||||
- Liquids | ($/bbl) | 67.70 | 84.05 | 56.95 | ||||
- Natural gas | ($/mmcf) | 5.42 | 8.01 | 5.62 | ||||
- Total hydrocarbons | ($/boe) | 53.17 | 68.13 | 46.90 | ||||
Production (e) | ||||||||
- Liquids | (kbbl/d) | 1,020 | 1,026 | 1,007 | ||||
- Natural gas | (mmcf/d) | 4,114 | 4,424 | 4,374 | ||||
- Total hydrocarbons | (kboe/d) | 1,736 | 1,797 | 1,769 | ||||
Estimated net proved reserves (e) (f) (g) | ||||||||
- Liquids | (mmbbl) | 3,219 | 3,335 | 3,463 | ||||
- Natural gas | (bcf) | 18,090 | 18,748 | 17,850 | ||||
- Total hydrocarbons | (mmboe) | 6,370 | 6,600 | 6,571 | ||||
Reserve life index | (years) | 10.0 | 10.0 | 10.2 | ||||
All sources reserve replacement ration (e) (g) | (%) | 90 | 135 | 96 | ||||
Employees at year end | (units) | 9,023 | 10,891 | 10,870 |
(a) | From January 1, 2009, results of the gas storage business are reported within the Gas & Power segment reporting unit following restructuring of Eni's regulated gas businesses in Italy. Prior period results have been restated accordingly. | |
(b) | Before elimination of intragroup sales. | |
(c) | Includes exploration bonuses. | |
(d) | For a detailed explanation of adjusted capital employed and adjusted ROACE, see paragraph "Return On Average Capital Employed (ROACE)". | |
(e) | Includes Eni's share of equity-accounted entities. | |
(f) | The new US SEC rule has changed the pricing mechanism for oil&gas reserves estimation in 2009. It specifies that, in calculating economic producibility, a company must use a 12-month average 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. Prior period results use the one day price measured on the last day of the companys fiscal year. | |
(g) | Includes a 29.4% stake of the reserves of the three equity-accounted Russian companies participated by joint-venture OOO SeverEnergia, owned by Eni (60%) and its Italian partner Enel (40%) which on September 23, 2009 completed the divestment of the 51% stake in the venture to Gazprom in line with the call option arrangement. |
13
ENI ANNUAL REPORT / OPERATING REVIEW
Portfolio
Signed a technical service contract, under a 20-year
term with an option for further 5 years, with Iraqi National Oil
Companies to develop the Zubair oil field (Enis interest
32.8%). The partners of the project expect to gradually increase
production to a target plateau level of 1.2 mmbbl/d over the next
six years.
Signed an agreement with the Venezuelan National Oil Company PDVSA for the joint development of the Junin 5 giant field with 35 billion barrels of certified heavy oil in place, located in the Orinoco oil belt. Production start-up is planned for 2013 at an initial level of 75 kbbl/d and a long term production plateau of 240 kbbl/d is targeted.
Acquired from Quicksilver Resources Inc. a 27.5% interest in the Alliance area, in Northern Texas with gas shale reserves. Quicksilver has retained the 72.5% of the property and operatorship. The cash consideration for the transaction amounted to $280 million. Production from the acquired assets amounted to 4 kboe/d net to Eni for the full year 2009, ramping up to approximately 10 kboe/d by 2011.
Awarded a 37.8% stake in the Indonesian Sanga Sanga license for the production of coal bed methane. Recent preliminary studies in the block showed a resource potential of about 3,920 bcf of gas to be verified through an appraisal program that will commence in 2010.
As part of the optimization process of its upstream portfolio, management approved a plan for rationalizing Eni mineral activities in Italy that entails the sale of three Newcos, entirely controlled by Eni. The assets are divided into three groups, depending on their geographical location, which will each be transferred into a single newco: the first lies in northern Italy (Pianura Padana and Emilia Romagna), the second in central Italy (Marche, Abruzzo, Molise) and the third in southern Italy (Crotone area). Negotiations are well underway for the sale of two companies, Società Padana Energia SpA and Società Adriatica Idrocarburi SpA, holding the assets located in northern and central Italy.
Awarded new exploration leases in Angola, China, Ghana, the Gulf of Mexico, India, Norway and Yemen.
Divestment of Russian assets
On April 7, 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 exercise
price of the call option collected by Eni on April 24, 2009
amounting to euro 3,070 million is equal to the price ($3.7
billion) outlined in the bid procedure for the assets of bankrupt
Russian company Yukos as adjusted by subtracting dividends
distributed and adding the contractual yearly remuneration of
9.4% on the capital employed and financing collateral 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.
On September 23, 2009, Eni and its Italian partner Enel in the 60-40% owned joint-venture OOO SeverEnergia completed the divestment of the 51% stake in the venture to Gazprom based on the call option exercised by the Russian company. The total cash consideration amounted to $940 million net to Eni. The three partners are committed to producing first gas from the Samburskoye field by June 2011, targeting a production plateau of 150 kboe/d within two years from the start of production.
Partnership Agreements
In 2009, leveraging its established co-operation model with
oil host countries, Eni finalized a number of strategic
partnerships pursuing new ventures. The framework of these
ventures provides for integration between the traditional oil
business and sustainable development initiatives designed to
support the host countries population in achieving high social
and economic standards:
In February 2009 three agreements were finalized as part of the Memorandum of Understanding signed in August 2008 with Angolas national oil company Sonangol, providing for: (i) a feasibility study to assess the economics of the utilization of associated gas in feeding a grass-root onshore power plant; (ii) a joint study to evaluate and collect data on certain Angolan onshore basins in view of identifying upstream opportunities;
14
ENI ANNUAL REPORT / OPERATING REVIEW
(iii) the design of a number of educational and training projects targeting Angolan professionals in the development of energy resources.
In March 2009 signed a Protocol for Cooperation with the government of Pakistan to develop a number of important upstream, midstream and downstream projects in the Country. Eni will provide its expertise as well as new technologies developed in the field of exploring for and developing hydrocarbon fields.
In May 2009 signed a cooperation agreement with Egypts Ministry for Oil to increase and widen cooperation in development activities. The agreement provides for: (i) an extension of the concession of the giant Belayim field (Enis interest 100%) in the Gulf of Suez till 2030, with Eni's commitment to spending US $1.5 billion over the next five years to execute development expenditures, upgrading actions and operating costs; (ii) a joint study to evaluate a number of industrial initiatives to monetize the natural gas reserves at high depth; (iii) training and knowledge management.
In August 2009 signed a strategic partnership with the Oil Ministry of the Democratic Republic of Congo to start cooperation in developing the host countrys conventional and unconventional oil reserves, upgrading industrial facilities and training projects.
In November 2009 signed a co-operation agreement as part of the Memorandum of Understanding signed in July 2009 with the Kazakh National Oil Company KazMunayGas. The agreement provides for: (i) joint exploration activities in the Isatay and Shangala areas located in the Caspian Sea; (ii) studies of initiatives to optimize gas usage in Kazakhstan; (iii) 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 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 state bodies and the 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.
Financial results
Adjusted net profit for the full year was euro 3,878
million, a decrease of euro 4,022 million from 2008 (down 50.9%)
driven by lower oil realizations as a result of the negative
price environment recorded in the first nine months of the year,
lower gas realizations and lower sales volumes. These negatives
were partly offset by the depreciation of the euro against the
dollar.
Return on average capital employed calculated on an adjusted basis was 12.3% in 2009 (29.2% in 2008).
Full-year liquids and gas realizations in dollar terms declined by 31.2% on average reflecting market conditions (Brent dated was down 36.6%).
Production
Oil and natural gas production for the full year 2009
amounted to 1,769 kboe/d, representing a decrease of 28 kboe/d
from 2008 (down 1.6%). Excluding OPEC cuts (down 28 kboe/d)
production was barely unchanged. Lower production uplifts
associated with weak European gas demand, the impact of unplanned
facility downtime, continuing security issues in Nigeria and
mature field declines were partly offset by continuing production
ramp-ups and field start-ups as well as positive price impacts in
the Companys PSAs and similar contractual schemes (up 35
kbbl/d).
Leveraging on organic growth in Africa and Central Asia, Eni expects to deliver more than 2.5% compound average growth rate over the next four-year period, targeting a production level in excess of 2 mmboe/d by 2013 under Brent scenario at $65 per barrel.
15
ENI ANNUAL REPORT / OPERATING REVIEW
Estimated net proved reserves
Estimated net proved reserves at December 31, 2009
were 6.57 bboe (down 0.4% from 2008) based on a 12-month average
Brent price of $59.9 per barrel. All sources reserve replacement
ratio was 96%, with an average reserve life index of 10.2 years
(10 years at December 31, 2008). Excluding the price effect
resulting from higher liquids prices from a year ago (the Brent
crude price was $36.5 per barrel in 2008) the replacement ratio
would be 109%.
Exploration and development expenditures
In 2009, capital expenditures amounted to euro 9,486
million to enhance assets in well established areas of Africa,
the Gulf of Mexico and Central Asia. Exploration activities (euro
1,228 million) achieved a number of successes such as the large
Perla gas discovery in the Venezuelan offshore and the oil
discovery in the Cabaça Norte Angolan offshore basin. Further
discoveries were made in Ghana, the North Sea, the Gulf of Mexico
and the Indonesian offshore.
A total of 69 new exploratory wells were drilled (37.6 of which represented Enis share), in addition to 10 exploratory wells in progress at year end (4.2 net to Eni). The overall commercial success rate was 41.9% (43.6% net to Eni).
Development expenditures were euro 7,478 million (up 16.3% from 2008) to fuel the growth of major projects in Kazakhstan, the United States, Egypt, Congo, Italy and Angola.
16
ENI ANNUAL REPORT / OPERATING REVIEW
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 form a given date
forward, from know reservoirs, under existing economic
conditions, operating methods, and government regulations prior
to the time at which contracts providing the right to operate
expire.
Oil and natural gas prices used in the estimate of proved
reserves are obtained from the official survey published by
Platts Marketwire, except when their calculation derives
from existing contractual conditions. Prices1 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.
Engineering estimates of the Companys 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 Enis 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.
Reserve Governance
Eni has always exercised centralized rigorous control over
the process of booking proved reserves.
The Reserves Department of the Exploration & Production
Division is entrusted with the task of: (i) assuring the periodic
certification process of proved reserves; (ii) continuously
updating the Companys guidelines on reserves evaluation and
classification and the internal procedures; and (iii) providing
training of staff involved in the process of reserves estimation.
Company guidelines have been reviewed by DeGolyer and MacNaughton
(D&M), an independent petroleum engineering company, which
has affirmed their compliance with the SEC rules2;
D&M has also stated that the company formal guidelines
whenever SEC rules may be less precise, provide a reasonable
interpretation in line with the generally accepted practices in
the industry. When participating in exploration and production
activities operated by others 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 manager (geographic units) and Local Reserves 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 evaluation carried out by business unit managers; (iii) the Planning and Control Department which provides the economic evaluation of reserves; (iv) the Reserve Department which, through Division Reserves Evaluators (DRE), provides independent reviews of the fairness and correctness of classifications carried out by the above mentioned units and aggregates worldwide reserve data.
(1) | In prior periods, year-end liquids and natural gas prices were used in the estimate of proved reserves. | |
(2) | The reports of independent engineers are available on Eni website www.eni.com section Documentation/Annual Report 2009. |
17
ENI ANNUAL REPORT / OPERATING REVIEW
The Head of 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 oil and gas industry and more than 10 years of experience directly in evaluating reserves.
Staff involved in the reserves evaluation process fulfill the professional qualifications requested and maintains the highest level of independence, objectivity and confidentiality respecting professional ethics. Reserves Evaluators qualifications comply with international standards defined by the Society of Petroleum Engineers.
Reserves independent evaluation
Since 1991, Eni has requested qualified independent oil
engineering companies to carry out an independent audit3
of its proved reserves on a rolling basis. The description of
qualifications of the person primarily responsible of the reserve
audit is included in the third party audit report4. In
the preparation of their reports, those independent evaluators
rely, without independent verification, upon information
furnished by Eni with respect to property interests, production,
current costs of operations and development, sale agreements,
prices and other factual information and data that were accepted
as represented by the independent evaluators. These data, equally
used by Eni in its internal process, include logs, directional
surveys, core and PVT (Pressure Volume Temperature) analysis,
maps, oil/gas/water production/injection data of wells, reservoir
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, actual prices applicable to hydrocarbon sales, price adjustments required by applicable contractual arrangements and other pertinent information are provided. In 2009 Ryder Scott Company and DeGolyer and MacNaughton provided an independent evaluation of 28% of Enis total proved reserves at December 31, 20095, confirming, as in previous years, the reasonableness of Eni internal evaluations4.
In the 2007-2009 three year period, 86% of Eni total proved reserves were subject to independent evaluation. As at December 31, 2009 among the most important Eni properties, the only one which was not subject to an independent review is Barbara (Italy).
(3) | From 1991 to 2002, DeGolyer and MacNaughton; from 2003, also Ryder Scott. | |
(4) | The reports of independent engineers are available on Eni website www.eni.com section Documentation/Annual Report 2009. | |
(5) | Includes Enis share of proved reserves of equity-accounted entities. |
18
ENI ANNUAL REPORT / OPERATING REVIEW
Movements in estimated net proved reserves
Enis estimated proved reserves were determined taking
into account Enis share of proved reserves of
equity-accounted entities6. Movements in Enis
2009 estimated proved reserves were as follows:
(mmboe) | Consolidated Subsidiaries |
Equity-accounted entities | Total | |||
Estimated net proved reserves at December 31, 2008 | 6,242 | 358 | 6,600 | |||||||||||||||||
Extensions, discoveries and other additions, revisions of previous estimates, improved recovery and other factors, excluding price effect | 680 | 15 | 695 | |||||||||||||||||
Price effect | (100 | ) | (3 | ) | (103 | ) | ||||||||||||||
Reserve additions, total | 580 | 12 | 592 | |||||||||||||||||
Proved property acquisitions | 26 | 26 | ||||||||||||||||||
Sales of mineral-in-place | (1 | ) | (1 | ) | ||||||||||||||||
Production of the year | (638 | ) | (8 | ) | (646 | ) | ||||||||||||||
Estimated net proved reserves pro-forma at December 31, 2009 | 6,209 | 362 | 6,571 | |||||||||||||||||
Reserve replacement ratio, all sources | (%) | 95 | 150 | 96 | ||||||||||||||||
Reserve replacement ratio, all sources and excluding price effect | (%) | 109 | 187 | 109 | ||||||||||||||||
Additions to proved reserves booked in 2009 were 592 mmboe and
derived from: (i) revisions of previous estimates were 361 mmboe
mainly reported in Egypt, Italy, Congo, the United Kingdom and
the United States partly offset by the unfavorable effect of
higher oil prices on reserve entitlements in certain PSAs and
buy-back contracts (down 103 mmboe) resulting from higher oil
prices from a year ago (the Brent price used in the reserve
estimation process was $59.9 per barrel in 2009 compared to $36.6
per barrel in 2008). Higher oil prices also resulted in upward
revisions associated with improved economics of marginal
productions; (ii) extensions, discoveries and other factors were
297 mmboe, with major increases booked in Norway, Algeria, Iraq
and Libya; (iii) improved recovery were 37 mmboe mainly reported
in Angola, Norway and Libya.
The largest additions were related to following fields/projects:
Goliat in Norway, Belayim in Egypt, MBoundi in Congo, Bahr
Essalam in Libya, CAFC and MLE in Algeria and Zubair in Iraq.
Acquisitions related mainly to a 27.5% stake purchased from
Quicksilver Resources Inc in the Alliance area, in Texas.
In 2009 Eni achieved an all sources reserve replacement ratio7
of 96% with a reserve life index of 10.2 years (10 years at
December 31, 2008). Excluding the price effect, the replacement
ratio would be 109%.
(6) | Proved reserves included a 29.4% stake of proved reserves owned by the three equity-accounted Russian companies participated by the joint-venture OOO SeverEnergia following the divestment of a 51% stake in the venture to Gazprom on September 23, 2009, in line with the call option arrangement. | |
(7) | Ratio of changes in proved reserves for the year resulting from revisions of previously reported reserves, improved recovery, extensions, discoveries and sales or purchases of minerals in place, to production for the year. A ratio higher than 100% indicates that more proved reserves were added than produced in a year. The Reserve Replacement Ratio is not an indicator of future production because the ultimate development and production of reserves is subject to a number of risks and uncertainties. These include the risks associated with the successful completion of large-scale projects, including addressing ongoing regulatory issues and completion of infrastructure, as well as changes in oil and gas prices, political risks and geological and other environmental risks. |
19
ENI ANNUAL REPORT / OPERATING REVIEW
Estimtated net proved hydrocarbon reserves |
(mmboe) | Italy | Rest of Europe | North Africa | West Africa | Kazakhstan (b) | Rest of Asia | America | Australia and Oceania | Total consolidated subsidiaries | Equity-accounted entities | Total | |||||||||||
Year ended December 31, 2007 (a) | 747 | 638 | 1,879 | 1,095 | 1,061 | 198 | 259 | 133 | 6,010 | 360 | 6,370 | |||||||||||
Developed | 534 | 537 | 1,183 | 766 | 494 | 127 | 158 | 63 | 3,862 | 63 | 3,925 | |||||||||||
Undeveloped | 213 | 101 | 696 | 329 | 567 | 71 | 101 | 70 | 2,148 | 297 | 2,445 | |||||||||||
Year ended December 31, 2008 (a) | 681 | 525 | 1,922 | 1,146 | 1,336 | 265 | 235 | 132 | 6,242 | 358 | 6,600 | |||||||||||
Developed | 465 | 417 | 1,229 | 827 | 647 | 168 | 133 | 62 | 3,948 | 68 | 4,016 | |||||||||||
Undeveloped | 216 | 108 | 693 | 319 | 689 | 97 | 102 | 70 | 2,294 | 290 | 2,584 | |||||||||||
Year ended December 31, 2009 (a) | 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 | |||||||||||
Estimated net proved liquids reserves |
(mmbbl) | Italy | Rest of Europe | North Africa | West Africa | Kazakhstan (b) | Rest of Asia | America | Australia and Oceania | Total consolidated subsidiaries | Equity-accounted entities | Total | |||||||||||
Year ended December 31, 2007 (a) | 215 | 345 | 878 | 725 | 753 | 44 | 138 | 29 | 3,127 | 92 | 3,219 | |||||||||||
Developed | 133 | 299 | 649 | 511 | 219 | 35 | 81 | 26 | 1,953 | 21 | 1,974 | |||||||||||
Undeveloped | 82 | 46 | 229 | 214 | 534 | 9 | 57 | 3 | 1,174 | 71 | 1,245 | |||||||||||
Year ended December 31, 2008 (a) | 186 | 277 | 823 | 783 | 911 | 106 | 131 | 26 | 3,243 | 92 | 3,335 | |||||||||||
Developed | 111 | 222 | 613 | 576 | 298 | 92 | 74 | 23 | 2,009 | 27 | 2,036 | |||||||||||
Undeveloped | 75 | 55 | 210 | 207 | 613 | 14 | 57 | 3 | 1,234 | 65 | 1,299 | |||||||||||
Year ended December 31, 2009 (a) | 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 | |||||||||||
Estimated net proved natural gas reserves |
(bcf) | Italy | Rest of Europe | North Africa | West Africa | Kazakhstan (b) | Rest of Asia | America | Australia and Oceania | Total consolidated subsidiaries | Equity-accounted entities | Total | |||||||||||
Year ended December 31, 2007 (a) | 3,057 | 1,675 | 5,751 | 2,122 | 1,770 | 880 | 696 | 598 | 16,549 | 1,541 | 18,090 | |||||||||||
Developed | 2,304 | 1,364 | 3,065 | 1,469 | 1,580 | 530 | 442 | 213 | 10,967 | 237 | 11,204 | |||||||||||
Undeveloped | 753 | 311 | 2,686 | 653 | 190 | 350 | 254 | 385 | 5,582 | 1,304 | 6,886 | |||||||||||
Year ended December 31, 2008 (a) | 2,844 | 1,421 | 6,311 | 2,084 | 2,437 | 911 | 600 | 606 | 17,214 | 1,534 | 18,748 | |||||||||||
Developed | 2,031 | 1,122 | 3,537 | 1,443 | 2,005 | 440 | 339 | 221 | 11,138 | 230 | 11,368 | |||||||||||
Undeveloped | 813 | 299 | 2,774 | 641 | 432 | 471 | 261 | 385 | 6,076 | 1,304 | 7,380 | |||||||||||
Year ended December 31, 2009 (a) | 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 | |||||||||||
The conversion rate of natural gas from cubic feet to boe is 1,000 cubic feet = 0.1742 barrels of oil. | ||
(a) | Includes a 29.4% stake of the reserves of the three equity-accounted Russian companies participated by joint-venture OOO SeverEnergia, owned by Eni (60%) and its Italian partner Enel (40%) which on September 23, 2009 completed the divestment of the 51% stake in the venture to Gazprom in line with the call option arrangement. | |
(b) | As of December 31, 2009 and 2008 Enis proved reserves of the Kashagan field were determined based on Eni working interest of 16.81% and 18.52% as of December 31, 2007. |
20
ENI ANNUAL REPORT / OPERATING REVIEW
Oil and gas production
Liquids and gas production for the full year 2009 was 1,769 kboe/d, representing a decline of 28 kboe/d from 2008, or 1.6%. 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 as well as the positive price impact reported in the Companys PSAs and similar contractual schemes (up 35 kbbl/d). The share of oil and natural gas produced outside Italy was 90% (89% in 2008).
Liquids production (1,007 kbbl/d) declined by 19 kbbl/d from 2008 (down 1.9%) due to OPEC cuts. Excluding OPEC cuts, the unplanned facility downtime in Libya and mature field declines, mainly in Italy and the North Sea were offset by production increases achieved in: (i) Angola due to the start-up of the Tombua-Landana project (Enis interest 20%) and improved performance in Block 0 (Enis interest 9.8%); (ii) Congo due to the ramp-up of the Awa Paloukou project (Enis interest 90%); (iii) Kazakhstan due to a better performance; (iv) the Gulf of Mexico due to the start-up of the Thunderhawk (Enis interest 25%), Pegasus (Enis interest 58%) and Longhorn (Enis interest 75%) projects; (v) Venezuela due to the ramp-up of the Corocoro field (Enis interest 26%).
Natural gas production (4,374 mmcf/d) slightly declined from 2008 (down 0.8%). Main increases were registered in the Gulf of Mexico, Congo due to the contribution of MBoundi gas project (Enis interest 83%), and Croatia due to the start-up of Annamaria field (Enis interest 50%). Production decreased in Libya due to lower gas demand on the European market and the mentioned technical reasons, and for mature field declines, mainly in Italy.
Oil and gas production sold amounted to 622.8 mmboe. The 22.9
mmboe difference over production (645.7 mmboe) reflected volumes
of natural gas consumed in operations (19.1 mmboe).
Approximately 60% of liquids production sold (365.2 mmbbl) was
destined to Enis Refining & Marketing division (of
which 17% was processed in Enis refinery); about 30% of
natural gas production sold (1,479 bcf) was destined to
Enis Gas & Power division.
21
ENI ANNUAL REPORT / OPERATING REVIEW
Production of oil and natural gas (a) (b) |
Liquids |
|
Natural gas |
|
Hydrocarbons |
|
Liquids |
|
Natural gas |
|
Hydrocarbons |
|
Liquids |
|
Natural gas |
|
Hydrocarbons |
|
Change |
||||
|
|
(kbbl/d) |
|
(mmcf/d) |
|
(kboe/d) |
|
(kbbl/d) |
|
(mmcf/d) |
|
(kboe/d) |
|
(kbbl/d) |
|
(mmcf/d) |
|
(kboe/d) |
|
Ch. |
|
% |
2007 | 2008 | 2009 | 2009 vs 2008 | |||||
Italy | 75 | 789.7 | 212 | 68 | 749.9 | 199 | 56 | 652.6 | 169 | (30 | ) | (15.1 | ) | |||||||||||
Rest of Europe | 157 | 647.2 | 270 | 140 | 626.7 | 249 | 133 | 655.5 | 247 | (2 | ) | (0.8 | ) | |||||||||||
Croatia | 52.5 | 9 | 68.7 | 12 | 95.5 | 17 | 5 | 41.7 | ||||||||||||||||
Norway | 90 | 271.1 | 137 | 83 | 264.8 | 129 | 78 | 273.7 | 126 | (3 | ) | (2.3 | ) | |||||||||||
United Kingdom | 67 | 323.6 | 124 | 57 | 293.2 | 108 | 55 | 286.3 | 104 | (4 | ) | (3.7 | ) | |||||||||||
North Africa | 337 | 1,474.2 | 594 | 338 | 1,761.6 | 645 | 292 | 1,614.2 | 573 | (72 | ) | (11.2 | ) | |||||||||||
Algeria | 85 | 18.8 | 88 | 80 | 18.5 | 83 | 80 | 19.7 | 83 | |||||||||||||||
Egypt | 97 | 811.2 | 238 | 98 | 818.4 | 240 | 91 | 793.7 | 230 | (10 | ) | (4.2 | ) | |||||||||||
Libya | 142 | 629.6 | 252 | 147 | 907.6 | 306 | 108 | 780.4 | 244 | (62 | ) | (20.3 | ) | |||||||||||
Tunisia | 13 | 14.6 | 16 | 13 | 17.1 | 16 | 13 | 20.4 | 16 | |||||||||||||||
West Africa | 280 | 274.2 | 327 | 289 | 260.7 | 335 | 312 | 274.3 | 360 | 25 | 7.5 | |||||||||||||
Angola | 132 | 25.1 | 136 | 121 | 28.1 | 126 | 125 | 29.3 | 130 | 4 | 3.2 | |||||||||||||
Congo | 67 | 11.4 | 69 | 84 | 12.7 | 87 | 97 | 27.3 | 102 | 15 | 17.2 | |||||||||||||
Nigeria | 81 | 237.7 | 122 | 84 | 219.9 | 122 | 90 | 217.7 | 128 | 6 | 4.9 | |||||||||||||
Kazakhstan | 70 | 237.9 | 112 | 69 | 244.7 | 111 | 70 | 259.0 | 115 | 4 | 3.6 | |||||||||||||
Rest of Asia | 37 | 408.9 | 108 | 49 | 426.2 | 124 | 57 | 444.8 | 135 | 11 | 8.9 | |||||||||||||
China | 6 | 11.0 | 8 | 6 | 10.9 | 8 | 7 | 8.2 | 8 | |||||||||||||||
India | 3.7 | 1 | 1 | |||||||||||||||||||||
Indonesia | 2 | 105.4 | 20 | 2 | 99.7 | 20 | 2 | 104.8 | 21 | 1 | 5.0 | |||||||||||||
Iran | 26 | 26 | 28 | 28 | 35 | 35 | 7 | 25.0 | ||||||||||||||||
Pakistan | 1 | 292.5 | 52 | 1 | 315.6 | 56 | 1 | 328.1 | 58 | 2 | 3.6 | |||||||||||||
Russia | 2 | 2 | ||||||||||||||||||||||
Turkmenistan | 12 | 12 | 12 | 12 | ||||||||||||||||||||
America | 53 | 240.3 | 95 | 63 | 311.5 | 117 | 79 | 424.7 | 153 | 36 | 30.8 | |||||||||||||
Ecuador | 16 | 16 | 16 | 16 | 14 | 14 | (2 | ) | (12.5 | ) | ||||||||||||||
Trinidad & Tobago | 58.9 | 10 | 54.6 | 9 | 67.0 | 12 | 3 | 33.3 | ||||||||||||||||
United States | 37 | 181.4 | 69 | 42 | 256.9 | 87 | 57 | 357.7 | 119 | 32 | 36.8 | |||||||||||||
Venezuela | 5 | 5 | 8 | 8 | 3 | 60.0 | ||||||||||||||||||
Australia and Oceania | 11 | 41.5 | 18 | 10 | 42.2 | 17 | 8 | 48.6 | 17 | |||||||||||||||
Australia | 11 | 41.5 | 18 | 10 | 42.2 | 17 | 8 | 48.6 | 17 | |||||||||||||||
Total | 1,020 | 4,113.9 | 1,736 | 1,026 | 4,423.5 | 1,797 | 1,007 | 4,373.7 | 1,769 | (28 | ) | (1.6 | ) |
(a) | Includes volumes of gas consumed in operations (300, 281 and 296 mmcf/d in 2009, 2008 and 2007, respectively). | |
(b) | Includes Eni's share of production of equity-accounted entities. |
22
ENI ANNUAL REPORT / OPERATING REVIEW
Drilling and other exploratory and development activities
Exploration
In 2009, a total of 69 new exploratory wells8 were
drilled (37.6 of which represented Enis share), as compared
to 111 exploratory wells drilled in 2008 (58.4 of which
represented Enis share) and 81 exploratory wells drilled in
2007 (43.5 of which represented Enis share).
The following tables show the number of net productive, dry and
in progress exploratory wells in the years indicated by the Group
and its equity-accounted entities in accordance with the
requirements of the FASB Extractive-Oil & Gas (Topic 932).
Overall commercial success rate was 41.9% (43.6% net to Eni) as
compared to 36.5% (43.4% net to Eni) and 40% (38% net to Eni) in
2008 and 2007, respectively.
Development
In 2009 a total of 418 development wells were drilled (175.1
of which represented Enis share) as compared to 366
development wells drilled in 2008 (155.1 of which represented
Enis share) and 349 development wells drilled in 2007
(156.7 of which represented Enis share).
The drilling of 117 development wells (41.5 of which represented
Enis share) is currently underway. Oil and natural gas
producing wells are 7,181 (2,417.2 of which represent Enis
share).
The following tables show the number of net productive, dry and
in progress development wells as well as productive wells in the
years indicated by the Group and its equity-accounted entities in
accordance with the requirements of the FASB Extractive-Oil &
Gas (Topic 932).
Net exploration and development drilling activity |
(units) | Italy | Rest of Europe | North Africa | West Africa | Kazakhstan | Rest of Asia | America | 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 | 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. |
(8) | Including drilled exploratory wells that have been suspended pending further evaluation. |
23
ENI ANNUAL REPORT / OPERATING REVIEW
Present activities
Drilling activity in progress |
(units) | Italy | Rest of Europe | North Africa | West Africa | Kazakhstan | Rest of Asia | America | Australia and Oceania | Total | |||||||||
2009 | ||||||||||||||||||
Exploratory (a) | ||||||||||||||||||
gross | 6.0 | 25.0 | 26.0 | 60.0 | 13.0 | 19.0 | 22.0 | 1.0 | 172 | |||||||||
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 | |||||||||
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. |
Oil and gas properties, wells, operations and acreage
Productive oil and gas wells (a) |
(units) | Italy | Rest of Europe | North Africa | West Africa | Kazakhstan | Rest of Asia | America | Australia and Oceania | Total | |||||||||
2009 | ||||||||||||||||||
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 | 0.0 | 658.0 | 207.0 | 11.0 | 2,176.0 | |||||||||
net | 421.1 | 75.2 | 49.1 | 36.6 | 0.0 | 264.3 | 72.6 | 3.0 | 921.9 |
(a) | Productive wells are producing wells and wells capable of production. One or more completions in the same bore hole are counted as one well. |
Acreage
As of December 31, 2009, Enis 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 net to Eni of which
developed acreage of 41,794 square kilometers and undeveloped
acreage of 306,068 square kilometers.
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 signing of the technical
service contract to develop the giant Zubair oil field (Eni
32.8%); (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.
24
ENI ANNUAL REPORT / OPERATING REVIEW
Oil and natural gas interests |
Dec. 31, 2008 | December 31, 2009 | |||
Total net acreage (a) | Number of interests | Gross developed (a) (b) acreage | Gross undeveloped (a) acreage | Total gross acreage (a) | Net developed (a) (b) acreage | Net undeveloped (a) acreage | 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 | ||||||||||
AMERICA | 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. |
25
ENI ANNUAL REPORT / OPERATING REVIEW
Main exploration and development projects
Italy Full year development activities concerned
mainly: (i) the completion of the first development phase in the
Val dAgri concession (Enis interest 60.77%) through
the linkage to the oil treatment plant of the first wells located
in the Cerro Falcone, with a production of 6 kboe/d; (ii) the
start-up of Tresauro oil field and the installation of a
production platform on Annamaria B; (iii) optimization of
producing fields by means of sidetrack and work over activities
(Annalisa, Antares, Barbara, Cervia, Giovanna, Gela, Luna and
Trecate fields).
Offshore activities concerned the finalization of the joint
development of three recent gas discoveries (Panda, Argo and
Cassiopea), offshore Sicily. Start-up is expected in 2013.
REST OF EUROPE
Croatia Exploration activities yielded positive
results with the Ika SW 2 appraisal well which confirmed the
mineral potential of the area.
Full year production start-up was achieved in: (i) the Annamaria
field (Enis interest 50%), with a production of
approximately 13 mmcf/d net to Eni; (ii) the Irina (Enis
interest 50%) and Vesna (Enis interest 50%) fields, with an
overall production at approximately 3 mmcf/d net to Eni.
Other development activities concerned the continuation of the
drilling program on the Katarina field. Start-up is expected in
the third quarter of 2010 at approximately 7 mmcf/d.
Norway Exploration activities yielded positive results
in the Prospecting License 128 (Enis interest 11.5%) with
the Dompap gas discovery. Appraisal activities are underway.
In May 2009 following an international bid procedure Eni was
awarded the operatorship of exploration licenses PL 533
(Enis interest 40%) and PL 529 (Enis interest 40%) in
addition to a 30% stake in PL 532 in the Barents Sea.
Full year production start-up was achieved in: (i) the Yttergryta
(Enis interest 9.8%) field, with a production of
approximately 71 mmcf/d; (ii) the Tyrihans (Enis interest
6.23%) field, with a production of approximately 3 kbbl/d.
Development activities progressed on recent oil and gas
discoveries near the Aasgard field (Enis interest 14.82%).
In particular the development plan of the Morvin discovery
(Enis 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.
Other ongoing projects aim at maintaining and optimizing
production at the Ekofisk field by means of infilling wells, the
development of the South Area, upgrading of existing facilities
and optimization of water injection.
During the year the final investment decision of the Goliat
project (Enis interest 65%) was sanctioned. Start-up is
expected in 2013 with a production plateau at 100 kbbl/d.
United Kingdom Exploration activities yielded positive
results in Block 22/25a (Enis interest 16.95%) with the
Culzean gas discovery near the Elgin/Franklin producing field
(Enis interest 21.87%). Study of development activities is
underway.
Development activities concerned infilling actions at the
Elgin/Franklin, Mac-Culloch (Enis interest 40%) and Jade
(Enis interest 7%) fields to maintain production levels as
well as upgrading the facilities in the Liverpool Bay area
(Enis interest 53.9%).
Pre-development activities are underway at the following
discoveries: (i) the Burghley field (Enis interest 21.92%)
with expected start-up in 2010; (ii) the Kinnoul oil and gas
field (Enis interest 16.67%) to be developed in synergy
with the production facilities of the Andrew field (Enis
interest 16.21%) and expected start-up in 2012; (iii) the Jasmine
gas field (Enis interest 33%) with expected start-up in
2012; (iv) the Mariner field (Enis interest 8.89%) with
expected start-up in 2015.
NORTH AFRICA
Algeria Relevant authorities confirmed the acquisition
of the operatorship of the Kerzaz exploration area (Blocks 319a,
321a and 316b) covering a total acreage of 16,000 square
kilometers. Exploration activities are underway. Activities of
the year regarded mainly: (i) the development of the Rom and
satellites reserves (Zea, Zek and Rec) following the mineral
potential revaluation. Current production is collected at the Rom
26
ENI ANNUAL REPORT / OPERATING REVIEW
Central Production Facility (CPF) and delivered to the
treatment plant in Bir Rebaa North. Drilling and work over
activities were started in 2009. An export pipeline and a new
multiphase pumping system are underway in compliance with
applicable Country law to reduce gas flaring; (ii) the MLE and
CAFC integrated project (Enis interest 75%) purchased in
2008 from Canadian company First Calgary. The project regards the
construction of a treatment plant with a capacity of 350 mmcf/d
of NGL and 35 kbbl/d of oil. Production start-up is expected in
2011 with 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. The 11% of the project
was completed at the end of the year.
In 2009 the final investment decision of El Merk was sanctioned.
During the year all EPC contracts for the development of
facilities were awarded. Drilling activity started. The 24% of
the project was completed. Start-up is expected in 2012.
Egypt In 2009, in the offshore area of the Nile Delta,
the North Bardawil (Eni operator with a 60% interest) and Thekah
fields (Eni operator with a 50% interest) started-up by linking
to El Gamil facilities with an overall production plateau at
approximately 212 mmcf/d.
The basic engineering is ongoing at the Belayim field for the
upgrading of water injection facilities to recover residual
reserves.
Other development activities concerned the Tuna project, the
second phase at the Denise field and upgrading of the El Gamil
compression plant by adding new capacity to support production.
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
53 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.
Libya Main development activities underway concerned
the Western Libyan Gas project (Enis interest 50%) for the
monetization of gas reserves ratified in the strategic agreements
between Eni and NOC. In particular: (i) upgrading of plants and
facilities in order to increase sale gas by 49 bcf/y was
completed; (ii) additional 71 bcf/y will be on stream by 2015
through the installation of a new platform on structure A, an
upgrading of the Mellitah plant and of Greenstream compression
capacity; further 106 bcf/y will be achieved by means of another
offshore field development; (iii) maintaining gas production
profiles at the Wafa and Bahr Essalam fields is underway through
increasing compression capacity at Wafa field and joint drilling
additional wells.
In 2009 volumes delivered through the Greenstream pipeline were
318 bcf. In addition, 35 bcf were sold on the Libyan market for
power generation and to fuel the Greenstream pipeline compression
plant.
Other projects underway regarded: (i) a plan to monetize flaring
gas and associated condensates from the Bouri oil field
(Enis interest 50%) that will be pre-treated in the area
and then delivered at the Mellitah plant for the final treatment;
(ii) ongoing activities aimed at maintaining the El Feel field
(Enis interest 33.3%) production plateau through water
injection.
Tunisia Exploration activities yielded positive results
with four discovery wells among five drilled. In 2009 gas
production was started in one well, while two more wells are
expected to start-up in 2010.
The ongoing development projects mainly regarded the optimization
of production at the Adam (Eni operator with a 25% interest),
Djebel Grouz (Enis interest 50%), Oued Zar (Enis
interest 50%) and El Borma (Enis interest 50%) fields.
The development plan of Maamoura concession (Enis interest
49%) has been almost completed: early production started-up in
late 2009. The Baraka (Enis interest 49%) development
project is in final stage: peaking production at 11 kboe/d is
expected in 2010.
WEST AFRICA
Angola Exploration activities yielded positive results
in: (i) Block 3 (Enis interest 12%), the Punja-4 appraisal
well showed the presence of liquids and natural gas; (ii) the
Development Areas of former Block 14 (Enis interest 20%)
whit the Malange-2 appraisal well containing oil; (iii) the
Development Areas of former Block 15 (Enis interest 20%)
with the Mondo-4 appraisal well containing oil; (iv) Block 15/06
(Eni operator with a 35% interest) where the Cabaça Norte and
Nzanza discoveries showed the presence of oil and yielded 6.5
kbbl/d and 1.5 kbbl/d in test production, respectively.
27
ENI ANNUAL REPORT / OPERATING REVIEW
In 2009 production started-up at the Mafumeira field in Block
0 in the Cabinda A area (Enis interest 9.8%) and the
Landana-Tombua fields in the Development Areas of the former
Block 14. Peak production at 33 kboe/d and 136 kbbl/d is expected
in 2010 and 2011, respectively.
Within the activities for reducing gas flaring, projects
progressed at the Nemba field in Block 0. Start-up is expected in
2013 reducing flared gas by approximately 85%. In 2009 the
development activity of Takula field was completed. Gas flared is
re-injected in the field; condensates will be shipped to the
Malongo treatment plant, nearing completion.
Main projects underway in the Development Areas of former Block
15 regarded: (i) the development activities started-up at the
satellites of Kizomba project-phase 1. The project provides for
the drilling of 18 producing wells linked to the FPSO vessels
existing in the area. Associated gas will be initially
re-injected in the reservoirs in the Kizomba area, and thereafter
delivered to the A-LNG liquefaction plant. Start-up is expected
in 2012. Peak production at 100 kbbl/d (21 net to Eni) is
expected in 2013. The second phase provides for production from
nearby discoveries; (ii) the Gas Gathering project, entailing the
construction a pipeline collecting all gas from the Kizomba,
Mondo and Saxi/Batuque areas, is underway. Completion is expected
in 2014.
Eni holds a 13.6% interest in the Angola LNG Limited (A-LNG)
consortium responsible for the construction of an LNG plant in
Soyo, 300 kilometers north of Luanda. It will be designed with a
processing capacity of 1 bcf/y of natural gas and to produce 5.2
mmtonnes/y of LNG. The project has been sanctioned by relevant
Angolan authorities. It envisages the development of 10,594 bcf
of associated gas reserves in 30 years. Start-up is expected in
the first quarter of 2012. The LNG will be delivered to the
United States market at the re-gasification plant in Pascagoula
under construction (Enis capacity 45%, amounting to
approximately 205 bcf/y), in Louisiana. Start-up is expected in
late 2011.
In addition, Eni finalized with the national Angolan company and
other partners another agreement to be part of a second gas
consortium which will explore further potential gas discoveries
to support the feasibility of a second LNG train. Eni is
technical advisor with a 20% interest.
Congo Exploration activities yielded positive results
in: (i) the Marine XII permit (Eni operator with a 90% interest)
with two discoveries wells which confirmed the mineral potential
of the area. The related PSA was signed; (ii) the Le Kouilou
permit (Enis interest 85%) with the Zingali field,
confirmed by subsequently long production test.
In 2009 the development plan of Awa-Paloukou field (Enis
interest 90%) was completed. Production started-up at 12 kbbl/d.
Activities on the MBoundi operated field (Enis
interest 83%) moved forward with the revision of the production
schemes and layout to plan application of advanced recovery
techniques and a design to monetize associated gas. In 2009, Eni
signed a long term agreement to supply associated gas from the
MBoundi field to fire the Koilou potassium plant owned by
Canadian company MagIndustries and the Djeno power plant
(Enis interest 50%). The development activity to build the
Pointe-Noire power plant (Enis interest 20%) moved forward
as scheduled in the cooperation agreement signed by Eni and the
Republic of Congo in 2007. The start-up is expected in 2010. The
new power plant will be fired with associated gas from the
MBoundi field and also from the offshore discoveries of the
Marine XII permit.
Within the cooperation agreement signed in 2008, a project
concerns the development and extraction of unconventional oil
from the Tchikatanga and Tchikatanga-Makola oil sands deposits.
The two deposits are deemed to contain significant amounts of
resources based on a recent survey.
Ghana On September 28, 2009, Eni acquired operatorship of the offshore exploration permits Cape Three Point South and Cape Three Point (Enis interest 47.2%). Exploration activities yielded positive results in the latter with the Sankofa discovery containing oil and natural gas.
Nigeria In 2009 production of the Oyo offshore field in
Blocks OML 120/121 (Enis interest 40%) started-up at 25
kbbl/d.
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 (Enis interest
10.4%), the development of gas reserves continued for increasing
capacity at the Obiafu/Obrikom plant as well as the installation
of a new treatment plant and transport facilities for carrying
155 mmcf/d net to Eni of feed gas for 20 years. To
28
ENI ANNUAL REPORT / OPERATING REVIEW
the same end the development plan of the Tuomo gas field has
been progressing along with its linkage to the Ogbainbiri
treatment plant.
An integrated oil and gas project is underway in the Gbaran-Ubie
area. The development plan provides for the construction of a
Central Processing Facility (CPF) with treatment capacity of
about 1 mmcf/d of gas and 120 kbbl/d of liquids, the drilling of
producing wells and the construction of a pipeline to carry the
gas to the Bonny liquefaction plant. First gas is expected by the
fourth quarter of 2010.
Eni holds a 10.4% interest in Nigeria LNG Ltd responsible for the
management of the Bonny liquefaction plant, located in the
Eastern Niger Delta. The plant has a design treatment capacity of
approximately 1,236 bcf/y of feed gas corresponding to a
production of 22 mmtonnes/y of LNG on 6 trains. The seventh unit
is being engineered with start-up expected in 2012. When fully
operational, total capacity will amount to approximately 30
mmtonnes/y of LNG, corresponding to a feedstock of approximately
1,624 bcf/y. Natural gas supplies to the plant are provided under
gas supply agreements with a 20-year term from the SPDC joint
venture (Enis interest 5%) and the NAOC JV, the latter
operating the OMLs 60, 61, 62 and 63 (Enis interest 20%).
In 2009, total supplies were 3,461 mmcf/d (268 mmcf/d net to Eni
corresponding to 46 kboe/d). LNG production is sold under long
term contracts and exported to European and American markets by
the Bonny Gas Transport fleet, wholly-owned by Nigeria LNG Co.
Eni is operator with a 17% interest of the Brass LNG Ltd Co for
the construction of a natural gas liquefaction plant to be built
near the existing Brass terminal, 100 kilometers west of Bonny.
This plant is expected to start operating in 2015 with a
production capacity of 10 mmtonnes/y of LNG corresponding to 618
bcf/y (approximately 64 net to Eni) of feed gas on 2 trains for
twenty years. Supplies to this plant will derive from the
collection of associated gas from nearby producing fields and
from the development of gas reserves in the onshore OMLs 60 and
61. The venture signed preliminary long-term contracts to sell
the whole LNG production capacity. Eni acquired 1.67 mmtonnes/y
of LNG capacity (corresponding to approximately 81 bcf/y). The
LNG will be delivered to the United States market mainly at the
re-gasification plant in Cameron, in Louisiana, USA. Enis
capacity amounts to approximately 201 bcf/y. Front end
engineering activities continued. The final investment decision
is expected in early 2011.
KAZAKHSTAN
Kashagan Eni holds a 16.81% working interest in the
North Caspian Sea Production Sharing Agreement (NCSPSA). The
NCSPSA defines terms and conditions for the exploration and
development of the Kashagan field which was discovered in the
Northern section of the contractual area in the year 2000 over an
undeveloped area extending for 4,600 square kilometers. Kashagan
is believed to be one of the most important oil discoveries in
the world in the past thirtyfive years. Management estimates that
the gross recoverable reserves of the field amount to 7-9 bbbl,
extendible to 13 bbbl through partial gas re-injection.
A change in the working interest was effective as of January 1,
2008 according to the final agreement signed in 2008 with the
Kazakh authorities following which the stake held by the partner
KazMunayGas increased to 16.81%. The other partners of this
initiative are the international oil companies Total, Shell and
ExxonMobil, each with a participating interest currently of
16.81%, ConocoPhillips with 8.40%, and Inpex with 7.56%.
The exploration and development activities of the Kashagan field
and of the other discoveries made in the contractual area are
executed through an operating model which entails an increased
role of the Kazakh partner and defines the international
parties responsibilities in the execution of the subsequent
development phases of the project. The new North Caspian
Operating Co (NCOC) BV participated by the seven partners of the
consortium has taken over the operatorship of the project.
Subsequently development, drilling and production activities have
been delegated by NCOC BV to the main partners of the Consortium:
Eni is confirmed to be the operator of phase-one of the project
(the so-called "Experimental Program") and in addition
will retain operatorship of the onshore operations of phase 2 of
the development plan.
The phased development plan of the Kashagan field provides for
the drilling of about 240 wells and the construction of
production plants located on artificial islands which will
collect production from other satellite artificial islands. Oil
production will be marketed. Natural gas will be mostly used
(80%) for re-injection into the reservoir for maintaining
pressure levels. The natural gas not re-injected will be treated
for the removal of hydrogen sulphide and will be used as fuel in
power generation for the production plants. The remaining amounts
will be marketed.
29
ENI ANNUAL REPORT / OPERATING REVIEW
In consideration of the magnitude of the reserves base, the
results of the well tests conducted and the findings of
subsurface studies completed so far support expectations for a
full field production plateau of 1.5 mmbbl/d.
In conjunction with the final agreement signed in 2008, the
Kazakh authorities reached a final approval of the revised
expenditure budget of phase-one, amounting to $32.2 billion
(excluding general and administrative expenses) of which $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. Eni will fund those investments in proportion to its
participating interest of 16.81%.
On the basis of progress to completion (70% of phase 1 of the
project) and expertise developed, Eni management expects to
achieve the cost budget and first oil by the end of 2012. In the
following 12-15 months the treatment and compression plant for
gas re-injection will be completed reaching an installed
production capacity of 370 kbbl/d in 2014. Subsequently,
production capacity of phase-one is expected to step up to 450
kbbl/d, leveraging on availability of further compressor capacity
for gas re-injection associated with the start-up of phase-two
offshore facilities.
Phase 2 is actually in the stage of Front End Engineering Design
(FEED).
However, taking into account that future development expenditures
will be incurred over a long time horizon and subsequently to the
production start-up, management does not expect any material
impact on the Companys liquidity or its ability to fund
these capital expenditures.
In addition to the expenditures for developing the field, further
capital expenditures will be required to build the
infrastructures needed for exporting the production to
international markets.
As of December 31, 2009, the aggregate costs incurred by Eni for
the Kashagan project capitalized in the financial statements
amounted to $4.5 billion (euro 3.1 billion at the EUR/USD
exchange rate of December 31, 2009). This capitalized amount
included: (i) $3.4 billion relating to expenditures incurred by
Eni for the development of the oilfield; and (ii) $1.1 billion
relating primarily to accrue finance charges and expenditures for
the acquisition of interests in the North Caspian Sea PSA
consortium from exiting partners upon exercise of pre-emption
rights in previous years.
As of December 31, 2009, Enis proved reserves booked for
the Kashagan field amounted to 588 mmboe, recording a decrease of
6 mmboe with respect 2008, due to the price effect.
Karachaganak In 2009 production of the Karachaganak
field averaged 238 kbbl/d of liquids (70 net to Eni) and 883
mmcf/d of natural gas (259 net to Eni).
The fourth treatment unit has been progressing to completion and
will enable to increase export of oil volumes to European
markets. Currently non-stabilized oil production is delivered to
the Orenburg terminal. The development activities of the Uralsk
Gas Pipeline are 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 2010.
The engineering activities of Phase 3 of the Karachaganak project
identified a new design to complete development activities in
multiple phases. The project provides for the installation of gas
producing and re-injection facilities to increase gas sales at
the Orenburg plant up to 565 bcf/y, according to the General
Supply Agreement signed in 2007, and the liquids production up to
approximately 14 mmtonnes/y.
The sanction of relevant Authority to start-up with Phase 3 is
currently in the phase of technical and marketing discussion.
As of December 31, 2009, Enis proved reserves booked for
the Karachaganak field amounted to 633 mmboe, recording a
decrease of 107 mmboe with respect to 2008 and derived from
downward revisions due to lower prices and from production of the
year.
REST OF ASIA
China In 2009 Eni signed the PSAs related to Blocks
3/27 and 28/20 located in the South China Sea covering a total
net acreage of 18,194 square kilometers. Eni was awarded a 100%
stake in the exploration stage.
India In 2009 production started-up at the PY-1 gas field, part of the assets acquired from Hindustan Oil Exploration Co Ltd (Enis interest 47.18%), acquired in 2008 as part of the Burren deal. Gas production is sold to the local national Oil Company.
30
ENI ANNUAL REPORT / OPERATING REVIEW
Indonesia Exploration activity yielded positive results
with the Jangkrik gas discovery located in the Muara Bakau Block
(Enis interest 55%) offshore Borneo.
Eni is also involved in the ongoing joint development of the oil
and gas discoveries in the Bukat permit (Eni operator with a
66.25% interest) and the five gas discoveries in the Kutei Deep
Water Basin area (Enis interest 20%).
In 2009 the development plan of the Jau field in the Krueng Mane
Block (Enis interest 75%) located offshore Sumatra was
completed. The project is subject to approval by the relevant
Authority.
In November 2009, Eni was awarded a 37.8% stake in the Indonesian
Sanga Sanga PSC for the production of coal bed methane. The
contract refers to exploration, development and production of gas
from superficial levels of coal from a contractual area that
coincides with the one regulated by the Sanga Sanga PSC for the
production of conventional hydrocarbons. Exploration activity
start-up is expected in 2010. In case of commercial discovery,
the project will also benefit from synergies with existing
production and treatment plants in addition to feeding the LNG
plants of Bontang and Sanga Sanga.
Iraq On January 22, 2010 Eni leading a consortium of international companies and the Iraqi National Oil Companies, South Oil Company and Missan Oil Company signed a technical service contract, under a 20-year term with an option for further 5 years, to develop the Zubair oil field (Eni 32.8%). The field was awarded to the Eni-led consortium following a successful first bid round and was offered under a competitive bid starting on June 30, 2009. The partners of the project plan to gradually increase production to a target plateau level of 1.2 mmboe/d over the next six years. The contract provides that the consortium will earn a remuneration fee on the incremental oil production once production has been raised by 10% from its current level of approximately 180 kbbl/d and will recover its expenditures through a cost recovery mechanism based on the revenues from the fields production.
Iran In 2009 activities were executed at the Darquain project which related to plant commissioning and start-up in view of making formal hand over of operations to local partners. Darquain was the sole Eni-operated project in the Country.
Pakistan Exploration activity yielded positive results
with discoveries in the Badhra (Eni operator with a 40%
interest), Kadanwari (Eni operator with an 18% interest) and
Miano (Enis interest 15%) areas. The production start-up of
the recent discoveries benefited from the existing facilities.
Development activities concerned: (i) the Bhit field (Eni
operator with a 40% interest) with the ongoing installation of a
compressor plant aimed at maintaining current production plateau;
(ii) the Sawan field (Enis interest 23.68%) with the
ongoing construction activity of a compressor plant; (iii) the
Zamzama permit (Enis interest 17.75%) with the construction
of the third treatment plant for the production of HVC gas aimed
at optimizing current production.
During the year other activities were targeted to optimize
production from the Bhit, Sawan and Kadanwari fields by means of
the drilling additional wells.
Russia In September 2009, Eni and its Italian partner
Enel in the 60-40% owned joint-venture OOO SeverEnergia completed
the divestment of the 51% stake in the venture to Gazprom based
on the call option exercised by the Russian company. Eni
collected the first tranche of the total cash consideration ($940
million) corresponding to approximately 25% of the whole amount
for euro 155 million (or $230 million at the EUR/USD exchange
rate of 1.48 as of the transaction date). A gain amounting to
euro 100 million was recognized in the profit for the year. The
gain was associated with interest income at an annual rate of
9.4% accruing on the initial investment in the venture when it
was acquired on April 4, 2007 based on the contractual
arrangements between Eni and Gazprom. The three partners are
committed to producing first gas from the Samburskoye field by
June 2011, targeting a production plateau of 150 kboe/d within
two years from the start of production.
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 exercise price
of the call option collected by Eni on April 24, 2009 amounting
to euro 3,070 million is equal to the price ($3.7 billion)
outlined in the bid procedure for the assets of bankrupt Russian
company Yukos as adjusted by subtracting dividends distributed
and adding the contractual yearly remuneration of 9.4% on the
capital employed and financing
31
ENI ANNUAL REPORT / OPERATING REVIEW
collateral expenses. Eni and Gazprom signed new cooperation agreements targeting certain development projects to be conducted jointly in Russia and other countries of interest.
AMERICA
Trinidad & Tobago The main development project
concerns the Poinsettia, Bougainvillea and Heliconia fields in
the North Coast Marine Area 1 (Enis interest 17.4%). The
project provides for the installation of a production platform on
the Poinsettia field and the linkage to the Hibiscus treatment
facility which was already upgraded. The drilling program on
Heliconia and Bougainvillea fields is underway. Start-up is
expected in 2010. In 2009 production started-up at the Poinsettia
field.
United States Offshore exploration activities yielded
positive results in the following blocks: (i) Green Canyon 859
(Enis interest 12.5%) with the oil and gas Heidelberg-1
discovery; (ii) Keathley Canyon 919 (Enis interest 25%)
with the oil and gas Hadrian West discovery.
In May 2009, Eni signed a strategic alliance with Quicksilver
Resources Inc, an independent US natural gas producer, to acquire
a 27.5% interest in the Alliance area, in the Fort Worth basin,
in Texas. The acquisition for cash consideration amounting to
$280 million includes gas shale9 production assets
with 40 mmbbl of resources base. Production plateau at 10 kboe/d
net to Eni is expected in 2011.
In 2009 production start-up was achieved in: (i) the Thunderhawk
field (Enis interest 25%) through the drilling of
underwater wells and linkage to a semi submersible production
unit with a treatment capacity of 45 kbbl/d of oil and about 71
mmcf/d of natural gas; (ii) the Longhorn field (Enis
interest 75%) through the drilling of underwater wells and
installation of production platform with a treatment capacity of
approximately 247 mmcf/d; (iii) the Leo field (Enis
interest 75%) by means of the linkage to the Longhorn production
facilities.
The development plan of the Appaloosa discovery (Enis
interest 100%) was sanctioned. The discovery is planned to be
developed in synergy with the Longhorn production facilities.
Start-up is expected in 2010 with production peaking at 1.5
kboe/d.
Other ongoing activities concerned the phased development plan of
the Nikaitchuq field (Enis interest 100%), located in North
Slope basins in Alaska. First oil is expected in 2011 with
peaking production at 28 kbbl/d.
Venezuela A large gas discovery was made in the Perla
field, located in the Cardon IV block (Eni 50%) in the Gulf of
Venezuela, yielding 21 mmcf/d (approximately 3.7 kboe/d) during
flow tests. The field has been estimated to contain a reserve
potential of more than 5,650 bcf of gas (1 bboe).
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 with 35 bbbl of certified heavy oil in place,
located in the Orinoco oil belt. Production start-up is planned
for 2013 at an initial level of 75 kbbl/d and a long term
production plateau of 240 kboe/d is targeted. Development will be
conducted through an "Empresa Mixta" (Eni 40%, PDVSA
60%). At the time of the establishment of the "Empresa
Mixta", Eni will disburse a bonus of $300 million, and
further $346 million will be paid upon the achievement of certain
project milestones. The agreement also includes an option to
deploy Enis proprietary technology in hydrogenation for the
conversion of heavy oils. Finally, Eni will present a project for
the construction of a power plant in the Guiria peninsula.
AUSTRALIA AND OCEANIA
Australia In 2009 production start-up was achieved at
the Blacktip gas field (Enis interest 100%) located in the
north western offshore in the South Bonaparte basin by means of a
production platform and linkage to onshore treatment plant with a
capacity of 42 bcf/y. Natural gas extracted from this field is
sold under a 25-year contract signed with Power & Water
Utility Co to fuel a power plant. Peak production at 26 mmcf/d is
expected in 2010.
Ongoing further development phase (phase 2) of Bayu Undan field
(Enis interest 10.99%) is underway aimed at increasing
liquids production and maintaining the fields production
profile.
(9) | Shale gas is a continuous natural gas reservoir contained within fine grained rocks, dominated by shale. |
32
ENI ANNUAL REPORT / OPERATING REVIEW
Capital expenditures
Capital expenditures of the Exploration & Production division (euro 9,486 million) concerned 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 dAgri 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 Enis mineral rights in Egypt, following the agreement signed in May 2009.
As compared to 2008, capital expenditures increased by euro 205 million, up 2.2%, due to higher development expenditures mainly in Congo, Algeria, Nigeria, Kazakhstan, Italy, Australia and India.
Capital expenditures | (euro million) |
2007 |
2008 |
2009 |
Change |
% Ch. |
||||||
Acquisition of proved e unproved properties | 96 | 836 | 697 | (139 | ) | (16.6 | ) | ||||||||
North Africa | 11 | 626 | 351 | ||||||||||||
West Africa | 210 | 73 | |||||||||||||
Rest of Asia | 94 | ||||||||||||||
America | 85 | 179 | |||||||||||||
Exploration | 1,659 | 1,918 | 1,228 | (690 | ) | (36.0 | ) | ||||||||
Italy | 104 | 135 | 40 | (95 | ) | (70.4 | ) | ||||||||
Rest of Europe | 195 | 227 | 113 | (114 | ) | (50.2 | ) | ||||||||
North Africa | 373 | 379 | 317 | (62 | ) | (16.4 | ) | ||||||||
West Africa | 246 | 485 | 284 | (201 | ) | (41.4 | ) | ||||||||
Kazakhstan | 36 | 16 | 20 | 4 | 25.0 | ||||||||||
Rest of Asia | 162 | 187 | 159 | (28 | ) | (15.0 | ) | ||||||||
America | 505 | 441 | 243 | (198 | ) | (44.9 | ) | ||||||||
Australia and Oceania | 38 | 48 | 52 | 4 | 8.3 | ||||||||||
Development | 4,643 | 6,429 | 7,478 | 1,049 | 16.3 | ||||||||||
Italy | 461 | 570 | 689 | 119 | 20.9 | ||||||||||
Rest of Europe | 429 | 598 | 673 | 75 | 12.5 | ||||||||||
North Africa | 948 | 1,246 | 1,381 | 135 | 10.8 | ||||||||||
West Africa | 1,343 | 1,717 | 2,105 | 388 | 22.6 | ||||||||||
Kazakhstan | 733 | 968 | 1,083 | 115 | 11.9 | ||||||||||
Rest of Asia | 238 | 355 | 406 | 51 | 14.4 | ||||||||||
America | 345 | 655 | 706 | 51 | 7.8 | ||||||||||
Australia and Oceania | 146 | 320 | 435 | 115 | 35.9 | ||||||||||
Other expenditures | 82 | 98 | 83 | (15 | ) | (15.3 | ) | ||||||||
6,480 | 9,281 | 9,486 | 205 | 2.2 |
33
ENI ANNUAL REPORT / OPERATING REVIEW
Key performance indicators (a) | 2007 |
|
2008 |
|
2009 |
|
Net sales from operations (b) | (euro million) | 27,793 | 37,062 | 30,447 | ||||
Operating profit | 4,465 | 4,030 | 3,687 | |||||
Adjusted operating profit | 4,414 | 3,564 | 3,901 | |||||
Market | 2,284 | 1,309 | 1,721 | |||||
Regulated businesses in Italy | 1,685 | 1,732 | 1,796 | |||||
International transport | 445 | 523 | 384 | |||||
Adjusted net profit | 3,127 | 2,648 | 2,916 | |||||
EBITDA pro-forma adjusted (b) | 5,029 | 4,310 | 4,403 | |||||
Market | 3,061 | 2,271 | 2,392 | |||||
Regulated businesses in Italy | 1,248 | 1,284 | 1,345 | |||||
International transport | 720 | 755 | 666 | |||||
Capital expenditures | 1,511 | 2,058 | 1,686 | |||||
Adjusted capital employed, net at year end (c) | 21,364 | 22,273 | 25,024 | |||||
Adjusted ROACE (c) | (%) | 15.2 | 12.2 | 12.3 | ||||
Worldwide gas sales (d) | (bcm) | 98.96 | 104.23 | 103.72 | ||||
LNG sales (e) | 11.7 | 12.0 | 12.9 | |||||
Customers in Italy | (million) | 6.61 | 6.63 | 6.88 | ||||
Gas volumes transported in Italy | (bcm) | 83.28 | 85.64 | 76.90 | ||||
Electricity sold | (TWh) | 33.19 | 29.93 | 33.96 | ||||
Employees at year end | (units) | 11,893 | 11,692 | 11,404 |
(a) | From January 1, 2009, results of the gas storage business are reported within the Gas & Power segment reporting unit, within the regulated businesses results, following restructuring of Eni regulated gas businesses in Italy. As of that date, the results of the regulated businesses in Italy therefore include results of the Transport, Distribution, Regasification and Storage activities in Italy. Results of the power generation activity are reported within the marketing business as it is ancillary to the latter. Prior period results have been restated accordingly. | |
(b) | Before the elimination of intragroup sales. | |
(c) | For a detailed explanation of adjusted capital employed and adjusted ROACE, see paragraph "Return On Average Capital Employed (ROACE)". | |
(d) | Include volumes marketed by the Exploration & Production division of 6.17 bcm (5.39 and 6.00 bcm in 2007 and 2008, respectively), of which 2.57 bcm in Europe (3.59 and 3.36 bcm in 2007 and 2008, respectively) and in the Gulf of Mexico (1.80 bcm and 2.84 bcm in 2007 and 2008, respectively). | |
(e) | Refer to LNG sales of the G&P division (included in worldwide gas sales) and the E&P division. |
Presentation to the European Commission of a set of
structural remedies related to some international gas pipelines
On February 4, 2009, Eni has formally presented to the
European Commission a set of structural remedies relating certain
international gas pipelines. With prior agreement from its
partners, Eni has committed to dispose of its interests in the
German TENP, in the Swiss Transitgas and in the Austrian TAG gas
pipelines.
34
ENI ANNUAL REPORT / OPERATING REVIEW
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 received 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 the 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 a solution with the Commission which calls for the transfer of its stake to an entity controlled by the Italian State. The remedies negotiated with the Commission do not affect Enis contractual gas transport rights. For further details on this topic see note "Guarantees, commitments and risks" to the consolidated financial statements.
European gas market
In 2009, the mandatory tender offer on the minorities
of Distrigas was finalized and Distrigas shares have been
delisted from Euronext Brussels. Thanks to the achievement of
synergies on integration, the Distrigas acquisition represented
for Eni a remarkable result in strengthening its leadership in
the European gas market.
Notwithstanding the unfavorable trends in natural gas demand, in 2009 Eni achieved organic growth outside Italy, increasing market shares in a number of European gas markets. This increase, coupled with the full contribution of Distrigas sales, determined a change in natural gas sales portfolio with international sales at 63.68 bcm representing 61% of total sales (49% in 2008).
Reorganization of regulated businesses in the Italian gas
sector
In 2009 the reorganization of gas infrastructures was
concluded through the sale of Italgas SpA and Stoccaggi Gas
Italia SpA (Stogit) to Snam Rete Gas. The transaction is expected
to create significant synergies in the segment of regulated
businesses allowing Eni to maximize the value of both gas
distribution and storage activities and to strengthen the
financial soundness of the Group's capital structure.
Strategic partnership with Gazprom
The strategic partnership between Eni and Gazprom,
leading world natural gas producer, celebrated its 40th
year of activity in 2009. The partners plan to proceed with the
joint development of projects in the sectors of upstream and
natural gas markets. In particular, concerning the gas business,
Eni and Gazprom have agreed upon a new scope of work in the
development project of the South Stream pipeline, aimed at
increasing its transport capacity from an original amount of 31
bcm/y to 63 bcm/y.
Projects in the Hewett area
In order to strengthen its European leadership in the
storage business, Eni continued pre-development activities for a
project to build an offshore storage facility in the Hewett area,
near the Bacton terminal (North Sea basin). Eni targets to
develop storage capacity in order to support the seasonal swings
of gas demand in the United Kingdom. The project sanction is
expected at some point in 2010, with start up in 2015.
Financial results
In 2009 adjusted net profit was euro 2,916 million,
increasing by euro 268 million from 2008 (up 10.1%) due to the
positive performance recorded by the Marketing business. An
improved scenario for energy parameters, the full contribution of
the acquisition of Distrigas in terms of integration synergies
and improved performance, as well as the impact of the
renegotiation of long-term supply contracts, were the main
positive drivers of the year. These positives were partly offset
by lower sales volumes, mainly on the Italian market.
Regulated Businesses in Italy recorded steady results. The International transport business reported weaker results.
35
ENI ANNUAL REPORT / OPERATING REVIEW
In 2010 natural gas sales are expected to remain flat compared to 2009. Increasing competitive pressures, mainly in Italy, will be offset by an expected recovery in European gas demand. Other positive trends include a benefit associated with integrating Distrigas operations and the optimization of supply portfolio, including re-negotiation of long-term supply contracts.
Eni expects to achieve gas sales of approximately 118 bcm by 2013 with an average annual growth rate higher than 3%.
Return on average capital employed (ROACE) on an adjusted basis was 12.3% (12.2% in 2008).
Capital expenditures totaled euro 1,686 million and mainly related to the development and upgrading of Enis transport and distribution networks in Italy, the upgrading of storage capacity and the ongoing plan for improving power generation efficiency standards.
Operating results
In 2009 Enis natural gas sales (103.72 bcm) were
slightly down as a result of offsetting trends. On the negative
side, volumes supplied to the Italian market were materially
lower from a year ago against the backdrop of the economic
downturn and stronger competitive pressures (down 12.83 bcm, or
24.3%). On the plus side, volumes gains were associated with the
full contribution of the Distrigas acquisition (up 12.02 bcm for
the full year) and organic growth achieved in a number of
European markets.
Electricity volumes sold were 33.96 TWh, increasing by 4.03 TWh, or 13.5%, from 2008.
Natural gas volumes transported on the Italian network were 76.90 bcm, down 10.2% from 2008.
36
ENI ANNUAL REPORT / OPERATING REVIEW
Natural gas
Supply of natural gas
In 2009 Enis consolidated subsidiaries, including the
Distrigas share amounting to 16.91 bcm, supplied 88.65 bcm of
natural gas with a 1 bcm decrease from 2008, down 1.1%.
Gas volumes supplied outside Italy (81.79 bcm from consolidated
companies), imported in Italy or sold outside Italy, represented
91% of total supplies with an increase of 0.14 bcm from 2008, or
0.2%, mainly due to the growth registered on European markets in
particular due to Distrigas full contribution, with higher
volumes purchased: (i) from Norway (up 5.68 bcm); (ii) from Qatar
(up 2.20 bcm) due to the coming on stream of LNG long-term supply
contracts; and (iii) from the Netherlands (up 1.90 bcm).
Lower volumes were purchased from: (i) Algeria (down 5.40 bcm)
due to the damage occurred to the TMPC pipeline in late December
2008; (ii) Libya (down 0.73 bcm); (iii) Russia mainly to Italy
(down 2.75 bcm) in line with the implementation of agreements
with Gazprom providing for Gazproms entrance in the market
of supplies to Italian importers.
Supplies in Italy (6.86 bcm) declined by 1.14 bcm from 2008, or
14.3%, due to lower domestic production.
In 2009, main gas volumes from equity production derived from:
(i) Italian gas fields (6.5 bcm); (ii) the Wafa and Bahr Essalam
fields in Libya linked to Italy through the Greenstream pipeline.
In 2009 these two fields supplied 2.5 bcm net to Eni; (iii)
certain Eni fields located in the British and Norwegian sections
of the North Sea (2.9 bcm); and (iv) other European areas (in
particular Croatia with 0.8 bcm). Considering also the direct
sales of the Exploration & Production division in Europe and
in the Gulf of Mexico and LNG supplied from the Bonny
liquefaction plant in Nigeria, supplied gas volumes from equity
production were approximately 20.7 bcm representing 20% of total
volumes available for sale.
Supply of natural gas | (bcm) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
ITALY | 8.65 | 8.00 | 6.86 | (1.14 | ) | (14.3 | ) | ||||||||
Russia | 23.44 | 22.91 | 22.02 | (0.89 | ) | (3.9 | ) | ||||||||
Algeria (including LNG) | 18.41 | 19.22 | 13.82 | (5.40 | ) | (28.1 | ) | ||||||||
Libya | 9.24 | 9.87 | 9.14 | (0.73 | ) | (7.4 | ) | ||||||||
Netherlands | 7.74 | 9.83 | 11.73 | 1.90 | 19.3 | ||||||||||
Norway | 5.78 | 6.97 | 12.65 | 5.68 | 81.5 | ||||||||||
United Kingdom | 3.15 | 3.12 | 3.06 | (0.06 | ) | (1.9 | ) | ||||||||
Hungary | 2.87 | 2.84 | 0.63 | (2.21 | ) | (77.8 | ) | ||||||||
Qatar (LNG) | - | 0.71 | 2.91 | 2.20 | .. | ||||||||||
Other supplies of natural gas | 2.20 | 4.07 | 4.49 | 0.42 | 10.3 | ||||||||||
Other supplies of LNG | 2.32 | 2.11 | 1.34 | (0.77 | ) | (36.5 | ) | ||||||||
OUTSIDE ITALY | 75.15 | 81.65 | 81.79 | 0.14 | 0.2 | ||||||||||
Total supplies of Eni's consolidated subsidiaries | 83.80 | 89.65 | 88.65 | (1.00 | ) | (1.1 | ) | ||||||||
Offtake from (input to) storage | 1.49 | (0.08 | ) | 1.25 | 1.33 | .. | |||||||||
Network losses, measurement differences and other changes | (0.46 | ) | (0.25 | ) | (0.30 | ) | (0.05 | ) | 20.0 | ||||||
AVAILABLE FOR SALE BY ENI'S CONSOLIDATED SUBSIDIARIES | 84.83 | 89.32 | 89.60 | 0.28 | 0.3 | ||||||||||
Available for sale by Eni's affiliates | 8.74 | 8.91 | 7.95 | (0.96 | ) | (10.8 | ) | ||||||||
E&P volumes | 5.39 | 6.00 | 6.17 | 0.17 | 2.8 | ||||||||||
GAS VOLUMES AVAILABLE FOR SALE | 98.96 | 104.23 | 103.72 | (0.51 | ) | (0.5 | ) |
37
ENI ANNUAL REPORT / OPERATING REVIEW
Sales of natural gas
In 2009 natural gas sales were 103.72 bcm, declining slightly
from 2008, (down 0.51 bcm, or 0.5%). Sales included own
consumption, Enis share of sales made by equity-accounted
entities and upstream sales in Europe and the Gulf of Mexico. The
contribution of the Distrigas acquisition (up 12.02 bcm) partly
offset the negative effects of sharply lower gas demand in Italy
(down 10%) and Europe (down 7.4% both percentages net of seasonal
swings).
In Italy, sales volumes decreased by 12.83 bcm, or 24.3%, to
40.04 bcm reflecting sharply lower supplies to power generation
utilities (down 8.01 bcm), industrial customers (down 2.01 bcm)
and wholesalers (down 1.60 bcm) dragged down by a decline in
industrial production following the economic downturn and
competitive pressures, especially in the last part of the year
which was affected by new gas availability. Volumes sold to the
residential sector increased slightly due to higher
weather-related sales, particularly in the first and fourth
quarter of 2009 as well as volumes destined to Enis power
generation business.
International sales were up 12.32 bcm, or 24%, to 63.68 bcm,
benefiting from the contribution of Distrigas (up 12.02 bcm).
Organic sales increases were achieved in France (up 1.27 bcm) and
in the Northern Europe (up 1.10 bcm). These increases were offset
in part by lower volumes reported in supplies to importers to
Italy (down 0.77 bcm), in the Iberian Peninsula (down 0.63 bcm)
and Hungary (down 0.24 bcm) mainly due to declining demand.
Sales to markets outside Europe (2.06 bcm) declined by 0.27 bcm
from 2008.
E&P sales in Europe and in the United States (6.17 bcm)
increased by 0.17 bcm, up 2.8%.
38
ENI ANNUAL REPORT / OPERATING REVIEW
Gas sales by market | (bcm) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
ITALY | 56.13 | 52.87 | 40.04 | (12.83 | ) | (24.3 | ) | ||||||||
Wholesalers | 10.01 | 7.52 | 5.92 | (1.60 | ) | (21.3 | ) | ||||||||
Gas release | 2.37 | 3.28 | 1.30 | (1.98 | ) | (60.4 | ) | ||||||||
Italian gas exchange and spot markets | 1.90 | 1.89 | 2.37 | 0.48 | 25.4 | ||||||||||
Industries | 11.77 | 9.59 | 7.58 | (2.01 | ) | (21.0 | ) | ||||||||
Medium-sized enterprises and services | 1.00 | 1.05 | 1.08 | 0.03 | 2.9 | ||||||||||
Power generation | 17.21 | 17.69 | 9.68 | (8.01 | ) | (45.3 | ) | ||||||||
Residential | 5.79 | 6.22 | 6.30 | 0.08 | 1.3 | ||||||||||
Own consumption | 6.08 | 5.63 | 5.81 | 0.18 | 3.2 | ||||||||||
INTERNATIONAL SALES | 42.83 | 51.36 | 63.68 | 12.32 | 24.0 | ||||||||||
Rest of Europe | 35.02 | 43.03 | 55.45 | 12.42 | 28.9 | ||||||||||
Importers in Italy | 10.67 | 11.25 | 10.48 | (0.77 | ) | (6.8 | ) | ||||||||
European markets | 24.35 | 31.78 | 44.97 | 13.19 | 41.5 | ||||||||||
Iberian Peninsula | 6.91 | 7.44 | 6.81 | (0.63 | ) | (8.5 | ) | ||||||||
Germany-Austria | 5.03 | 5.29 | 5.36 | 0.07 | 1.3 | ||||||||||
Belgium | - | 4.57 | 14.86 | 10.29 | .. | ||||||||||
Hungary | 2.74 | 2.82 | 2.58 | (0.24 | ) | (8.5 | ) | ||||||||
Northern Europe | 3.15 | 3.21 | 4.31 | 1.10 | 34.3 | ||||||||||
Turkey | 4.62 | 4.93 | 4.79 | (0.14 | ) | (2.8 | ) | ||||||||
France | 1.62 | 2.66 | 4.91 | 2.25 | 84.6 | ||||||||||
Other | 0.28 | 0.86 | 1.35 | 0.49 | 57.0 | ||||||||||
Outside Europe | 2.42 | 2.33 | 2.06 | (0.27 | ) | (11.6 | ) | ||||||||
E&P in Europe and in the Gulf of Mexico | 5.39 | 6.00 | 6.17 | 0.17 | 2.8 | ||||||||||
WORLDWIDE GAS SALES | 98.96 | 104.23 | 103.72 | (0.51 | ) | (0.5 | ) |
Gas sales by entity | (bcm) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Sales of consolidated companies | 84.83 | 89.32 | 89.60 | 0.28 | 0.3 | ||||||||||
Italy (including own consumption) | 56.08 | 52.82 | 40.04 | (12.78 | ) | (24.2 | ) | ||||||||
Rest of Europe | 27.86 | 35.61 | 48.65 | 13.04 | 36.6 | ||||||||||
Outside Europe | 0.89 | 0.89 | 0.91 | 0.02 | 2.2 | ||||||||||
Sales of Eni's affiliates (net to Eni) | 8.74 | 8.91 | 7.95 | (0.96 | ) | (10.8 | ) | ||||||||
Italy | 0.05 | 0.05 | - | (0.05 | ) | (100.0 | ) | ||||||||
Rest of Europe | 7.16 | 7.42 | 6.80 | (0.62 | ) | (8.4 | ) | ||||||||
Outside Europe | 1.53 | 1.44 | 1.15 | (0.29 | ) | (20.1 | ) | ||||||||
E&P in Europe and in the Gulf of Mexico | 5.39 | 6.00 | 6.17 | 0.17 | 2.8 | ||||||||||
WORLDWIDE GAS SALES | 98.96 | 104.23 | 103.72 | (0.51 | ) | (0.5 | ) |
Risk factors related to the natural gas market
Risks 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 form 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,
Enis results of the gas marketing business, sales volumes
and average gas selling margins
39
ENI ANNUAL REPORT / OPERATING REVIEW
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 EU 27 Countries will remain weak
over the next few years and gas demand is expected to recover
only gradually to pre-crisis 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, also known as "PEE 20-20-20",
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 Companys results of operations and cash flow in its gas
marketing business over the next few years.
Current, negative trends in gas demands and
supplies may impair the Companys 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 the 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 pre-payments 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. 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 percentage that complements 100, based on the
arithmetical average of monthly base prices in place in the year
of the missed 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 possible
evolution of sector-specific regulation, represent risks factors
to the Companys 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.
40
ENI ANNUAL REPORT / OPERATING REVIEW
In addition, there also exists 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 selling margins,
results of operations and cash flow may be negatively affected.
Based on managements 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 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 the 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; | |
- | 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 Enis activities, as
the company is engaged in all the phases of the natural gas
chain. The opening to competition was achieved through the
enactment of certain antitrust thresholds on volumes input into
the national transport network and on volumes sold to final
customers. These enabled new competitors to enter the Italian gas
market, resulting in declining selling margins on gas. Other
material aspects regarding the Italian gas sector regulations 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. 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 at December 31, 2002 as defined by Legislative Decree
No. 164/2000) taking into account the public goal of containing
the inflationary pressure due to rising energy costs.
Accordingly, decisions of the Authority on these matters may
limit the ability of Eni to pass an increase in the cost of fuels
onto final consumers of natural gas. 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 a 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.
41
ENI ANNUAL REPORT / OPERATING REVIEW
Also certain provisions of law may limit the Company 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 of 6.5 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
this rule. The Authority has subsequently established with a set
of deliberation that energy companies have to adopt effective
operational and monitoring systems in order to prevent unlawful
increases of final prices of gas.
Other risk factors and uncertainties deriving from the regulatory
framework are associated with the regulation of the access to the
Italian gas 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 systems 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, are
entitled to a priority in allocating available transport capacity
within the limit 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 for capacity
assignments. The ability of Eni to collect gas volumes exceeding
average daily volumes as provided by its take-or-pay supply
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 sets 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 03/55/CE. The
Company based on that belief 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 Companys
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
the 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.
Further uncertainty factors related to the regulatory 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 a four-year period a total amount of 9.2 bcm (2.3
bcm per year 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 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 AEEG (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 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.
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ENI ANNUAL REPORT / OPERATING REVIEW
LNG
In 2009, LNG sales (12.9 bcm) increased by 0.9 bcm from 2008, up 7.5%, mainly reflecting higher volumes sold by the Gas & Power segment (9.8 bcm, included in worldwide gas sales) that increased by 1.4 bcm, up 16.7%, from 2008, due to the Distrigas contribution related to the coming on stream of a long-term supply from Qatar (up 2.2 bcm).
LNG sales | (bcm) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
G&P sales | 8.0 | 8.4 | 9.8 | 1.4 | 16.7 | ||||||||||
Italy | 1.2 | 0.3 | 0.1 | (0.2 | ) | (66.7 | ) | ||||||||
Rest of Europe | 5.6 | 7.0 | 8.9 | 1.9 | 27.1 | ||||||||||
Outside Europe | 1.2 | 1.1 | 0.8 | (0.3 | ) | (27.3 | ) | ||||||||
E&P sales | 3.7 | 3.6 | 3.1 | (0.5 | ) | (13.9 | ) | ||||||||
Terminals: | |||||||||||||||
- Bontang (Indonesia) | 0.7 | 0.7 | 0.8 | 0.1 | 14.3 | ||||||||||
- Point Fortin (Trinidad & Tobago) | 0.6 | 0.5 | 0.5 | ||||||||||||
- Bonny (Nigeria) | 2.0 | 2.0 | 1.4 | (0.6 | ) | (30.0 | ) | ||||||||
- Darwin (Australia) | 0.4 | 0.4 | 0.4 | ||||||||||||
11.7 | 12.0 | 12.9 | 0.9 | 7.5 |
Power
Availability of electricity
Enis power generation sites are located in Ferrera
Erbognone, Ravenna, Livorno, Taranto, Mantova, Brindisi and
Ferrara. In 2009, power generation was 24.09 TWh, up 0.76 TWh or
3.3% from 2008, due mainly to higher production at the Ferrara
plant (Enis interest 51%), in connection with the coming on
line of two new 390 megawatt combined cycle units.
At December 31, 2009, installed capacity was 5.3 GW (4.9 GW in
2008).
Power availability in 2009 was supported by the growth in
electricity trading activity (up 3.27 TWh from 2008, or 49.5%) as
a consequence of higher volumes traded on the Italian power
exchange benefiting from lower purchase prices.
By 2013 Eni intends to complete its plan for expanding its power
generation capacity, targeting an installed capacity of 5.4 GW1.
The development plan is underway at Taranto (Eni 100%) and
Ferrara (Eni 51%), as well as at the recently acquired Bolgiano
plant (Eni 100%).
Electricity sales
In 2009 electricity sales (33.96 TWh) were directed to the
free market (73%), the Italian power exchange (14%), industrial
sites (9%) and others (4%).
Notwithstanding weaker domestic demand, Enis sales (up 4.03
TWh, or 13.5%) were driven by: (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 starting 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; (ii) higher volumes
traded on the Italian power exchange (up 0.88 TWh, or 23%).
(1) | Capacity available after completion of dismantling of obsolete plants. |
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ENI ANNUAL REPORT / OPERATING REVIEW
2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||||
Purchases of natural gas | (mmcm) | 4,860 | 4,530 | 4,790 | 260 | 5.7 | |||||||||||
Purchases of other fuels | (ktoe) | 720 | 560 | 407 | (153 | ) | (27.3 | ) | |||||||||
Power generation | (TWh) | 25.49 | 23.33 | 24.09 | 0.76 | 3.3 | |||||||||||
Steam | (ktonnes) | 10,849 | 10,584 | 10,048 | (536 | ) | (5.1 | ) |
Availability of electricity | (TWh) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Power generation | 25.49 | 23.33 | 24.09 | 0.76 | 3.3 | ||||||||||||
Trading of electricity (a) | 7.70 | 6.60 | 9.87 | 3.27 | 49.5 | ||||||||||||
33.19 | 29.93 | 33.96 | 4.03 | 13.5 | |||||||||||||
Free market | 20.73 | 22.89 | 24.74 | 1.85 | 8.1 | ||||||||||||
Italian power exchange | 8.66 | 3.82 | 4.70 | 0.88 | 23.0 | ||||||||||||
Industrial plants | 2.81 | 2.71 | 2.92 | 0.21 | 7.7 | ||||||||||||
Other (a) | 0.99 | 0.51 | 1.60 | 1.09 | .. | ||||||||||||
Electricity sales | 33.19 | 29.93 | 33.96 | 4.03 | 13.5 |
(a) | Include positive and negative unbalancings. |
Transport and regasification of natural gas
Volumes of gas transported in Italy in 2009 were 76.90 bcm
decreasing by 8.74 bcm, or 10.2%, from 2008 due to lower gas
deliveries due to a weaker demand.
Natural gas volumes transported on behalf of third parties (37.27
bcm) increased by 0.09 bcm, or 10.1%.
In 2009, the LNG terminal in Panigaglia (La Spezia) regasified
1.32 bcm of natural gas (1.52 bcm in 2008).
Gas volumes transported (a) | (bcm) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Eni | 52.39 | 51.80 | 39.63 | (12.17 | ) | (23.5 | ) | ||||||||
On behalf of third parties | 30.89 | 33.84 | 37.27 | 3.43 | 10.1 | ||||||||||
83.28 | 85.64 | 76.90 | (8.74 | ) | (10.2 | ) |
(a) | Include amounts destined to domestic storage. |
Storage
In 2009, 8.71 bcm of gas were supplied (up 3.44 bcm from 2008)
while 7.81 bcm were inputted to Companys storage deposits,
an increase of 1.51 bcm compared to 2008.
In 2009 storage capacity amounted to 13.9 bcm, of which 5 were
destined to strategic storage.
The share of storage capacity used by third parties was 70% (61%
in 2008).
2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||||
Total storage capacity: | (bcm) | 13.6 | 13.7 | 13.9 | 0.2 | 1.5 | ||||||||||||
- of which strategic storage | 5.1 | 5.1 | 5 | (0.1 | ) | (2.0 | ) | |||||||||||
- of which available storage | 8.5 | 8.6 | 8.9 | 0.3 | 3.5 | |||||||||||||
Available capacity: share utilized by Eni | (%) | 44 | 39 | 30 | (9 | ) | (23.1 | ) | ||||||||||
Total offtake from (input to) storage | (bcm) | 9.27 | 11.57 | 16.52 | 4.95 | 42.8 | ||||||||||||
- input to storage | 4.00 | 6.30 | 7.81 | 1.51 | 24.0 | |||||||||||||
- offtake from storage | 5.27 | 5.27 | 8.71 | 3.44 | 65.3 | |||||||||||||
Total customers | (No.) | 44 | 48 | 56 | 8 | 16.7 |
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ENI ANNUAL REPORT / OPERATING REVIEW
Main development projects for 2009
Marketing
Natural gas
Finalization of the acquisition of Distrigas
Following the acquisition of the 57.24% majority stake in
Distrigas NV from the French company Suez-Gaz de France, Eni made
an unconditional mandatory public takeover bid on the minorities
of Distrigas (42.76% stake), at the same price proposed to Suez
(euro 6,809.64 per share)2.
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 amounting to euro 2,045 million. As of December 31,
2009, Eni owns the entire share capital of Distrigas, except for
one share with special powers owned by the Belgian State.
The purchase of Belgian company Distrigas has entailed a
significant expansion of Enis supply portfolio with an
addition of long-term supplies of approximately 14.7 bcm (from
the Netherlands, Norway and Qatar) having a maximum residual life
of 18 years. In 2009 Distrigas' sales amounted to 17.25 bcm.
Projects in the Hewett area
Following the recent acquisition of an interest in the Hewett
Unit, pre-development activities progressed for building an
offshore storage facility in the Hewett area (Enis interest
89%) located in the Southern Gas Basin in the North Sea, near the
Bacton terminal. Peak working gas is estimated at 5.6 bcm with a
production of approximately 60 mmcm/d. An appraisal well is
planned to be drilled shortly, whose outcome will provide further
data to confirm those estimates.
The project sanction is expected in 2010 with start up in 2015.
LNG
USA
Cameron In the third quarter of 2009 operations started at
the Cameron re-gasification plant located on the banks of the
Calcasieu River, approximately 15 miles south of Lake Charles in
Louisiana, USA.
In consideration of a changed demand outlook, on March 1, 2010,
Eni renegotiated certain terms of the contract with the US
company Cameron LNG, relating to the farming out of a share of
the regasification capacity. The new agreement provides that Eni
will be entitled to a daily send-out of 572,000 mmbtu
(approximately 5.7 bcm/y) and a dedicated storage capacity of 160
thousand cubic meters, giving Eni more flexibility in managing
seasonal swings in gas demand.
Taking into account the oversupply characterizing at the moment
the USA gas market, Eni rescheduled the Brass project (West
Africa) for developing gas reserves to fuel the Cameron plant.
The start-up is now expected in 2015.
Pascagoula This project is part of an upstream development related to the construction of an LNG plant in Angola designed to produce 5.2 mmtonnes of LNG (approximately 7.3 bcm/y) for the North American market in order to market part of the Companys gas reserves. As part of the downstream leg of the project, Eni signed with Gulf LNG a 20-year contract to buy 5.8 bcm/y of the regasification capacity of the plant under construction near Pascagoula in Mississippi, with expected start up by end of 2012 in line with the start-up of the upstream project in Angola.
(2) | Eni recognized to minority shareholders a certificate granting the right to receive an additional consideration to the bid price for a pro-rata amount of any price revision set as a part of the sale agreement pursuant to which Distrigas sold its subsidiary Distrigas & Co to Belgian operators Fluxys SA and Huberator SA. |
45
ENI ANNUAL REPORT / OPERATING REVIEW
At the same time Eni USA Gas Marketing Llc entered a 20-year
contract for the purchase of approximately 0.9 bcm/y of
regasified gas downstream the terminal owned by Angola Supply
Services, a company whose partners also own Angola LNG.
Regulated businesses in Italy
Reorganization of the regulated business in the Italian gas
sector
On June 30, 2009 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 its subsidiary Snam
Rete Gas. The transaction, which was approved by Enis Board
of Directors in February 2009, included cash consideration
amounting to euro 4,509 million (euro 2,922 million and euro
1,587 million, respectively). Snam Rete Gas funded the
transaction by means of: (i) a share capital increase amounting
to euro 3.5 billion, which was entirely subscribed to by
minorities and Eni for their respective shares; and (ii)
arranging medium and long-term financing. The main impact
expected on Enis consolidated financial statements are: (i)
as of December 31, 2009 a decrease of euro 1.54 billion was
reported in the Group consolidated 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
minorities; (ii) a decrease in Enis net profit equal to 45%
of the aggregate net profit of Italgas and Stogit reported in the
consolidated profit and loss for the second half of 2009, with a
corresponding increase in net profit pertaining to minorities.
As of December 31, 2009 Enis interest in Snam Rete Gas is
equal to 52.54%.
South Stream project
New agreement with Gazprom
Based on the agreements signed between Italy and Russia on
May 15, 2009, the original scope of work of the project to build
the South Stream pipeline has been enlarged, providing for an
increase in transport capacity from 31 to 63 bcm/y.
Following the project, the South Stream pipeline is expected to
be composed by two sections: (i) an offshore section crossing the
Black Sea from the Russian coast at Beregovaya (the same starting
point of the Blue Stream pipeline) to the Bulgarian coast at
Varna; (ii) an onshore section crossing Bulgaria for which two
options are currently being evaluated: one pointing North West
and another one pointing South West. The second option envisages
crossing Greece and the Adriatic Sea before linking to the
Italian network.
In December 2009, Eni and Gazprom signed an agreement for the
entrance of the French company Edf in the project. The conditions
of the agreement will be defined in the coming months.
International Transport
Accident at the TMPC pipeline
In 2009, the operation of TMPC gas pipeline was fully
restored. One of the five lines of the import pipeline from
Algeria was damaged by an oil tanker anchor crossing the Sicily
channel on December 19, 2008. Transport continued on the
remaining lines.
TAG - Russia
In 2009 the upgrading of the TAG pipeline has been finalized
increasing the total capacity to the current 37.4 bcm/y. The
second 3.3 bcm/y portion of the upgrade started-up in the fourth
quarter of 2009 and was entirely awarded to third parties.
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ENI ANNUAL REPORT / OPERATING REVIEW
Regulatory framework
Legislative Decree No. 164/2000
Legislative Decree No. 164/2000 imposed thresholds to
operators until December 31, 2010 calculated as a share of
domestic consumption as follows: (i) operators are forbidden from
importing into the national transport network imported or
domestically produced gas volumes higher than a preset share of
Italian final consumption. This share is 61% in the 2009-2010
period; 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 yearly by comparing the allowed average share computed
on a three-year period for both volumes input and volumes
marketed to the actual average share achieved by each operator in
the same three-year period. Allowed shares are calculated net of
losses (in the case of sales) and volumes of natural gas consumed
in own operations. In particular, 2009 closes the sixth
three-year regulated period for natural gas volumes input in the
domestic transport network, and the fifth three-year regulated
period for sales volumes to the Italian market. Enis
presence on the Italian market complied with said limits.
Resolution ARG/gas 64/2009: Approval of the code for the
retail sale of natural gas and gas other than natural gas
distributed through urban pipeline networks
With resolution ARG 64/2009, the Authority for Electricity
and Gas approved the code for the retail sale of natural gas and
gas other than natural gas distributed through urban pipeline
networks.
Main changes introduced by the Authority refer to the definition
of a unique national value for sale price to retail customers,
including a new calculation mechanism of distribution tariffs
aimed to favor domestic customers with a low consumption profile,
and, since October 1, 2009, the review of the formula for
calculating the components to cover the wholesale marketing
costs.
Resolution ARG/gas 159/2008: Tariffs criteria for the
2009-2012 regulated period for the service of gas distribution
and measurement and transitional rules for 2009
With resolution ARG 159/2008, the Authority for Electricity
and Gas approved a new methodology for determining revenues to
natural gas distributing companies that operate through local low
pressure networks and serve final customers in the residential
and tertiary sector. Starting from July 1, 2009 and for the
duration of the three-year regulated period, i.e. until 2012, the
resolution provides for the recognition of total revenues for
each regulated year amounting to a value that the Authority will
set at the time of approving the operators requests for
distribution tariffs and defined as total revenue cap,
representing the maximum remuneration recognized by the Authority
to each operator for covering costs borne. In previous years,
revenues were determined by applying tariffs set by the Authority
to volumes actually distributed to selling companies in the
relevant year. The resolution also provides for any positive or
negative difference between the total revenue cap and revenues
resulting from invoices for actually distributed volumes to be
regulated through an equalization device making use of
credit/debit cards lodged with the Electricity Equalization
Exchange. As a result of the new mechanism, revenues are no
longer related to the seasonality of volumes distributed. The
introduction of this new mechanism does not cause a decline in
total revenues on a yearly basis.
Law No. 99, July 23, 2009
Within the framework of measures approved to counter the
economic downturn, on June 26, 2009, the Italian Council of
Ministers approved the so called "Anti-crisis Decree"
whose Article 3 concerns measures for reducing the cost of energy
for companies and households and introduces the obligation for
Eni to make new sales at the virtual exchange point for a total
of 5 bcm of gas (so called gas release) in the period October
2009-September 2010. In particular the decree provides for these
sales to be made under non discriminatory competitive procedures
(bids) at the terms and conditions decided with proposal of the
Authority for Electricity and Gas. The price paid to Eni is
determined with a decree of the Ministry for Economic
Development, as recommended by the Authority, taking into account
the average prices on the most relevant European markets and the
structure of supply costs borne by Eni. Any positive difference
between the sale price determined by the procedure of volume
allocation and that determined by the Ministry and the Authority
will be destined to industrial final customers that showed a high
use rate of gas withdrawals
47
ENI ANNUAL REPORT / OPERATING REVIEW
in the past three years according to criteria determined by the Ministry. The decree provides also that the Authority within 90 days from the entry into force of the same decree: (i) introduces degressive elements in transport tariffs for the 2010-2013 regulatory period; (ii) reforms the balancing methods by adopting flexibility mechanisms providing advantages to all final customers, including industrial customers; (iii) promotes the supply of peak services and storage for industrial and power generation customers.
Resolution ARG/gas 184/2009 - Quality and tariff code for
the natural gas transport and dispatching services and tariff
regulations for the metering service of natural gas transport for
the 2010-2013 regulatory period
With resolution ARG/gas 184/2009, published on December 2,
2009, the Authority set the criteria regulating the tariffs for
natural gas transportation on the national and regional gas
pipeline network for the third regulatory period (January 1,
2010-December 31, 2013).
The Authority also recognized Snam Rete Gas a total amount of
euro 33.6 million as settlement of additional costs incurred
during the 2007-2008 thermal year and referring to the purchase
of fuel gas for compression stations. The Regulated Asset Base
(RAB) is calculated with the re-valuated historical cost
methodology.
The allowed rate of return (WACC) on Regulatory Asset Base (RAB)
has been set equal to 6.4% in real terms pre tax.
The new tariff structure confirms the recognition in tariff of
expenditures incurred for network upgrading, providing for a
higher remuneration than WACC, changing in a 1-3% range in
relation to the nature of expenditures and for a period of 5 to
15 years. Depreciation costs of gas transport infrastructures
(gas pipelines) are determined on a 50-years useful technical
life and are excluded from the price cap mechanism. Operating
costs are defined with reference to operating costs incurred
during 2008 and increased by a 50% rate to recognize productivity
gains achieved in the second regulatory period. Fuel gas is
excluded from the price cap mechanism. The revenue component
related to volumes transported is determined referring to
operating costs recognized in tariff and amounts to a 15% of
revenue cap.
Third Energy Package: 2009 European Directive No. 73
As a part of the so-called "Third Energy Package"
published in 2009, European Directive No. 73 regulates the
internal market for natural gas requesting that member states
choose one of two options for ensuring carriers
independence in case transport systems belong to a vertically
integrated companies.
The two options provided are:
(i) | Separation of ownership under two alternative modes: | ||
- | Ownership Unbundling (OU): the company that owns the networks and manages transport activities is unbundled from its integrated parent company that will retain supply/production and sale activities; | ||
- | Independent System Operator (ISO): the vertically integrated company retains ownership of the networks but confers their management to a third independent party. | ||
(ii) | Strengthened functional separation: | ||
- | Independent Transmission Operator (ITO): the vertically integrated company retains control of the company that manages transport activities and owns transport networks, provided the vertically integrated company refrains from interfering in the decision-making process of the controlled carrier company. |
48
ENI ANNUAL REPORT / OPERATING REVIEW
Capital expenditures
In 2009, capital expenditures totaled euro 1,686 million and mainly related to: (i) developing and upgrading Enis transport network in Italy (euro 1,479 million); (ii) developing and upgrading Enis storage capacity in Italy (euro 282 million); (iii) developing and upgrading Enis 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; (v) the upgrading plan of international pipelines (euro 32 million).
Capital expenditures | (euro million) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Italy | 1,219 | 1,750 | 1,564 | (186 | ) | (10.6 | ) | ||||||||
Outside Italy | 292 | 308 | 122 | (186 | ) | (60.4 | ) | ||||||||
1,511 | 2,058 | 1,686 | (372 | ) | (18.1 | ) | |||||||||
Marketing | 238 | 198 | 175 | (23 | ) | (11.6 | ) | ||||||||
Marketing | 63 | 91 | 102 | 11 | 12.1 | ||||||||||
Italy | 13 | 16 | 12 | (4 | ) | (25.0 | ) | ||||||||
Outside Italy | 50 | 75 | 90 | 15 | 20.0 | ||||||||||
Power generation | 175 | 107 | 73 | (34 | ) | (31.8 | ) | ||||||||
Regulated businesses in Italy | 1,031 | 1,627 | 1,479 | (148 | ) | (9.1 | ) | ||||||||
Transport | 691 | 1,130 | 919 | (211 | ) | (18.7 | ) | ||||||||
Distribution | 195 | 233 | 278 | 45 | 19.3 | ||||||||||
Storage | 145 | 264 | 282 | 18 | 6.8 | ||||||||||
International transport | 242 | 233 | 32 | (201 | ) | (86.3 | ) | ||||||||
1,511 | 2,058 | 1,686 | (372 | ) | (18.1 | ) |
49
ENI ANNUAL REPORT / OPERATING REVIEW
Key performance indicators | 2007 |
|
2008 |
|
2009 |
|
Net sales from operations (a) (b) | (euro million) | 36,349 | 45,017 | 31,769 | |||||||
Operating profit | 686 | (988 | ) | (102 | ) | ||||||
Adjusted operating profit | 292 | 580 | (357 | ) | |||||||
Adjusted net profit | 294 | 521 | (197 | ) | |||||||
Capital expenditures | 979 | 965 | 635 | ||||||||
Adjusted capital employed, net at year end (c) | 7,149 | 8,260 | 7,560 | ||||||||
Adjusted ROACE (c) | (%) | 4.6 | 6.5 | (2.6 | ) | ||||||
Refinery throughputs on own account | (mmtonnes) | 37.15 | 35.84 | 34.55 | |||||||
Conversion index | (%) | 56 | 58 | 60 | |||||||
Balanced capacity of refineries | (kbbl/d) | 748 | 737 | 747 | |||||||
Retail sales of petroleum products in Europe | (mmtonnes) | 11.80 | 12.03 | 12.02 | |||||||
Service stations in Europe at year end (d) | (units) | 6,440 | 5,956 | 5,986 | |||||||
Average throughput per service station in Europe (d) | (kliters) | 2,486 | 2,502 | 2,477 | |||||||
Employees at year end | (units) | 9,428 | 8,327 | 8,166 |
(a) | From January 1, 2009 Eni adopted IFRIC 13 "Customer Loyalty Programmes" that requires that the award points granted to clients within the related loyalty programmes be accounted as a separate component of the basic transaction, evaluated at their fair value and recognized as revenues when effectively used. Prior period results have been restated accordingly. | |
(b) | Before elimination of intragroup sales. | |
(c) | For a detailed explanation of adjusted capital employed and adjusted ROACE, see paragraph "Return On Average Capital Employed (ROACE)". | |
(d) | 2007 data include downstream activities in the Iberian Peninsula divested to Galp in October 2008. |
Portfolio development and main projects
On January 21, 2010 Eni signed an agreement for the
acquisition of downstream activities in Austria, including a
retail network of 135 service stations, wholesale activities
(with 36 additional Esso branded retail service stations) as well
as commercial assets in the aviation business and related
logistic and storage activities. The finalization of the
transaction is subject to the approval of the relevant antitrust
authorities.
The upgrading process of Enis retail network of service stations continued aimed at improving service and quality standards. In 2010 the re-branding to "eni" brand of all downstream activities was launched.
50
ENI ANNUAL REPORT / OPERATING REVIEW
Financial results
In 2009 the Refining & Marketing division reported
an adjusted net loss of euro 197 million (down euro 718
million, reversing a prior year profit of euro 521 million)
mainly driven by a lower operating performance, reflecting lower
refining margins as a result of an unfavorable trading scenario,
as well as decreased earnings reported by equity-accounted
subsidiaries.
Return on average capital employed on an adjusted basis was a negative 2.6% declining from 2008 (6.5%).
Capital expenditures totaled euro 635 million and related mainly to projects designed to improve the conversion rate and flexibility of refineries, logistic assets, the upgrade the refined product retail network in Italy and in the rest of Europe.
In the medium term, management plans to recovery profitability by improving the refining system and reinforcing Enis leadership in the Italian retail market and increasing market shares in core European countries.
Operating results
Enis refining throughputs for 2009 were 34.55 mmtonnes,
down 3.6% from 2008. Lower volumes were recorded in Italy (down
3.3%) as refinery operations were rescheduled at certain plants
to take account of weak demand for products. Volumes processed
outside Italy declined in particular in the Czech Republic due to
lower utilization of plant capacity in response to weak market
conditions.
In 2009 Enis retail market share in Italy averaged 31.5%, up 0.9 percentage points from 2008 driven by the "You&Agip" promotional campaign, marketing pricing initiatives (in particular the success of the Iperself program), and the opening of new service stations. While Italian consumption was barely unchanged (down 0.6%), retail sales in Italy were 9.03 mmtonnes (up 2.5%) driven by higher volumes of gasoil and LPG sales.
Retail sales in the rest of Europe (approximately 2.99 mmtonnes) decreased by approximately 230 ktonnes, or 7.1%, mainly reflecting a decline in fuel demand, particularly in Eastern Europe.
In 2009 Eni opened/restructured 53 stores for the sale of
convenience items and car services at its service stations in
Italy. Excluding the impact of the divestment of marketing
activities in the Iberian Peninsula in October 2008, non oil
revenues were euro 147 million, up 2.4% from 2008.
Supply and trading
In 2009, a total of 67.40 mmtonnes of crude were purchased by
the Refining & Marketing division (57.91 mmtonnes in 2008),
of which 32.75 mmtonnes from Enis Exploration &
Production division. Volumes amounting to 19.71 mmtonnes were
purchased under long-term supply contracts with producing
countries, while 14.94 mmtonnes were purchased on the spot
market. Approximately 25% of crude purchased in 2009 came from
West Africa, 19% from European and Asian Russia, 15% from the
Middle East, 13% from North Africa, 11% from the North Sea, 4%
from Italy, and 13% from other areas.
In 2009 some 36.11 mmtonnes of crude purchased were marketed, up
38.9% from the same period of 2008, mainly driven by higher
trading activities. In addition, 2.92 mmtonnes of intermediate
products were purchased (3.39 mmtonnes in the 2008) to be used as
feedstock in conversion plants and 13.98 mmtonnes of refined
products (17.42 mmtonnes in the 2008) were purchased to be sold
on markets outside Italy (10.10 mmtonnes) and on the domestic
market (3.88 mmtonnes) as a complement to available production.
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ENI ANNUAL REPORT / OPERATING REVIEW
Purchases | (mmtonnes) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Equity crude oil | |||||||||||||||
Eni production outside Italy | 27.47 | 26.14 | 29.84 | 3.70 | 14.2 | ||||||||||
Eni production in Italy | 4.10 | 3.57 | 2.91 | (0.66 | ) | (18.5 | ) | ||||||||
31.57 | 29.71 | 32.75 | 3.04 | 10.2 | |||||||||||
Other crude oil | |||||||||||||||
Purchases on spot markets | 11.34 | 12.09 | 14.94 | 2.85 | 23.6 | ||||||||||
Purchases under long-term contracts | 16.65 | 16.11 | 19.71 | 3.60 | 22.3 | ||||||||||
27.99 | 28.20 | 34.65 | 6.45 | 22.9 | |||||||||||
Total crude oil purchases | 59.56 | 57.91 | 67.40 | 9.49 | 16.4 | ||||||||||
Purchases of intermediate products | 3.59 | 3.39 | 2.92 | (0.47 | ) | (13.9 | ) | ||||||||
Purchases of products | 16.14 | 17.42 | 13.98 | (3.44 | ) | (19.7 | ) | ||||||||
TOTAL PURCHASES | 79.29 | 78.72 | 84.30 | 5.58 | 7.1 | ||||||||||
Consumption for power generation | (1.13 | ) | (1.00 | ) | (0.96 | ) | 0.04 | (4.0 | ) | ||||||
Other changes (a) | (2.19 | ) | (1.04 | ) | (1.64 | ) | (0.60 | ) | 57.7 | ||||||
75.97 | 76.68 | 81.70 | 5.02 | 6.5 |
(a) | Includes change in inventories, decrease in transportation, consumption and losses. |
Refining
In 2009, refining throughputs on own account in Italy and
outside Italy were 34.55 mmtonnes, down 1.29 mmtonnes from 2008,
or 3.6%. Volumes processed in Italy decreased by approximately
990 ktonnes, down 3.3%, mainly at the Gela plant due to the
extension of planned refinery downtime, and at the Livorno and
Taranto plants as refinery operations were rescheduled to take
account of a weak demand for products. Volumes processed outside
Italy declined by approximately 330 ktonnes in particular in the
Czech Republic and in Germany due to lower utilization of plant
capacity in response to weak market conditions and the
restructuring of the Ingolstadt facility in Germany.
Total throughputs in wholly-owned refineries (24.02 mmtonnes)
decreased by 1.57 mmtonnes, down 6.1%, from 2008, due to lower
refining throughputs for third parties in the Venezia and
Sannazzaro plants for the termination of the agreement with
Tamoil at the end of 2008.
Approximately 16.3% of volumes of processed crude was supplied by
Enis Exploration & Production segment (21.5% in 2008)
representing a 5.2 percentage point decrease from 2008,
corresponding to a lower volume of 1.87 mmtonnes.
52
ENI ANNUAL REPORT / OPERATING REVIEW
Availability of refined products | (mmtonnes) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
ITALY | |||||||||||||||
At wholly-owned refineries | 27.79 | 25.59 | 24.02 | (1.57 | ) | (6.1 | ) | ||||||||
Less input on account of third parties | (1.76 | ) | (1.37 | ) | (0.49 | ) | 0.88 | (64.2 | ) | ||||||
At affiliated refineries | 6.42 | 6.17 | 5.87 | (0.30 | ) | (4.9 | ) | ||||||||
Refinery throughputs on own account | 32.45 | 30.39 | 29.40 | (0.99 | ) | (3.3 | ) | ||||||||
Consumption and losses | (1.63 | ) | (1.61 | ) | (1.60 | ) | 0.01 | (0.6 | ) | ||||||
Products available for sale | 30.82 | 28.78 | 27.80 | (0.98 | ) | (3.4 | ) | ||||||||
Purchases of refined products and change in inventories | 2.16 | 2.56 | 3.73 | 1.17 | 45.7 | ||||||||||
Products transferred to operations outside Italy | (3.80 | ) | (1.42 | ) | (3.89 | ) | (2.47 | ) | 173.9 | ||||||
Consumption for power generation | (1.13 | ) | (1.00 | ) | (0.96 | ) | 0.04 | (4.0 | ) | ||||||
Sales of products | 28.05 | 28.92 | 26.68 | (2.24 | ) | (7.7 | ) | ||||||||
OUTSIDE ITALY | |||||||||||||||
Refinery throughputs on own account | 4.70 | 5.45 | 5.15 | (0.30 | ) | (5.5 | ) | ||||||||
Consumption and losses | (0.31 | ) | (0.25 | ) | (0.25 | ) | |||||||||
Products available for sale | 4.39 | 5.20 | 4.90 | (0.30 | ) | (5.8 | ) | ||||||||
Purchases of refined products and change in inventories | 13.91 | 15.14 | 10.12 | (5.02 | ) | (33.2 | ) | ||||||||
Products transferred from Italian operations | 3.80 | 1.42 | 3.89 | 2.47 | 173.9 | ||||||||||
Sales of products | 22.10 | 21.76 | 18.91 | (2.85 | ) | (13.1 | ) | ||||||||
Refinery throughputs on own account | 37.15 | 35.84 | 34.55 | (1.29 | ) | (3.6 | ) | ||||||||
of which: refinery throughputs of equity crude on own account | 9.29 | 6.98 | 5.11 | (1.87 | ) | (26.8 | ) | ||||||||
Total sales of refined products | 50.15 | 50.68 | 45.59 | (5.09 | ) | (10.0 | ) | ||||||||
Crude oil sales | 25.82 | 26.00 | 36.11 | 10.11 | 38.9 | ||||||||||
TOTAL SALES | 75.97 | 76.68 | 81.70 | 5.02 | 6.5 |
53
ENI ANNUAL REPORT / OPERATING REVIEW
Marketing of refined products
In 2009, excluding the impact of the divestment of marketing activities in the Iberian Peninsula in 2008 (down 1.52 mmtonnes), sales volumes of refined products (45.59 mmtonnes) were down 3.57 mmtonnes from 2008, or 7.3%, mainly due to lower wholesale sales on the domestic and foreign market.
Product sales in Italy and outside Italy by market | (mmtonnes) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Retail | 8.62 | 8.81 | 9.03 | 0.22 | 2.5 | ||||||||||
Wholesale | 11.09 | 11.15 | 9.56 | (1.59 | ) | (14.3 | ) | ||||||||
Petrochemicals | 1.93 | 1.70 | 1.33 | (0.37 | ) | (21.8 | ) | ||||||||
Other sales | 6.41 | 7.26 | 6.76 | (0.50 | ) | (6.9 | ) | ||||||||
Sales in Italy | 28.05 | 28.92 | 26.68 | (2.24 | ) | (7.7 | ) | ||||||||
Retail rest of Europe | 3.18 | 3.22 | 2.99 | (0.23 | ) | (7.1 | ) | ||||||||
Wholesale rest of Europe | 3.20 | 3.94 | 3.66 | (0.28 | ) | (7.1 | ) | ||||||||
Wholesale outside Italy | 0.57 | 0.56 | 0.41 | (0.15 | ) | (26.8 | ) | ||||||||
Other sales | 13.11 | 12.52 | 11.85 | (0.67 | ) | (5.4 | ) | ||||||||
Sales outside Italy | 20.06 | 20.24 | 18.91 | (1.33 | ) | (6.6 | ) | ||||||||
48.11 | 49.16 | 45.59 | (3.57 | ) | (7.3 | ) | |||||||||
Iberian Peninsula | 2.04 | 1.52 | - | (1.52 | ) | (100.0 | ) | ||||||||
of which: | |||||||||||||||
- Retail | 0.85 | 0.64 | (0.64 | ) | (100.0 | ) | |||||||||
- Wholesale | 1.19 | 0.88 | (0.88 | ) | (100.0 | ) | |||||||||
TOTAL SALES | 50.15 | 50.68 | 45.59 | (5.09 | ) | (10.0 | ) |
Retail and wholesale sales of refined products | (mmtonnes) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Italy | 19.71 | 19.96 | 18.59 | (1.37 | ) | (6.9 | ) | ||||||||
Retail sales | 8.62 | 8.81 | 9.03 | 0.22 | 2.5 | ||||||||||
Gasoline | 3.19 | 3.11 | 3.05 | (0.06 | ) | (1.9 | ) | ||||||||
Gasoil | 5.25 | 5.50 | 5.74 | 0.24 | 4.4 | ||||||||||
LPG | 0.17 | 0.19 | 0.22 | 0.03 | 15.8 | ||||||||||
Lubricants | 0.01 | 0.01 | 0.02 | 0.01 | 100.0 | ||||||||||
Wholesale sales | 11.09 | 11.15 | 9.56 | (1.59 | ) | (14.3 | ) | ||||||||
Gasoil | 4.42 | 4.52 | 4.30 | (0.22 | ) | (4.9 | ) | ||||||||
Fuel Oil | 0.95 | 0.85 | 0.72 | (0.13 | ) | (15.3 | ) | ||||||||
LPG | 0.37 | 0.38 | 0.35 | (0.03 | ) | (7.9 | ) | ||||||||
Gasoline | 0.15 | 0.15 | 0.12 | (0.03 | ) | (20.0 | ) | ||||||||
Lubricants | 0.13 | 0.12 | 0.09 | (0.03 | ) | (25.0 | ) | ||||||||
Bunker | 1.58 | 1.70 | 1.38 | (0.32 | ) | (18.8 | ) | ||||||||
Other | 3.49 | 3.43 | 2.60 | (0.83 | ) | (24.2 | ) | ||||||||
Outside Italy (retail+wholesale) | 8.99 | 7.72 | 7.06 | (0.66 | ) | (8.5 | ) | ||||||||
Gasoline | 2.29 | 2.12 | 1.89 | (0.23 | ) | (10.8 | ) | ||||||||
Gasoil | 5.16 | 3.80 | 3.54 | (0.26 | ) | (6.8 | ) | ||||||||
Jet fuel | 0.38 | 0.47 | 0.35 | (0.12 | ) | (25.5 | ) | ||||||||
Fuel Oil | 0.25 | 0.23 | 0.28 | 0.05 | 21.7 | ||||||||||
Lubricants | 0.09 | 0.11 | 0.10 | (0.01 | ) | (9.1 | ) | ||||||||
LPG | 0.49 | 0.52 | 0.50 | (0.02 | ) | (3.8 | ) | ||||||||
Other | 0.33 | 0.47 | 0.40 | (0.07 | ) | (14.9 | ) | ||||||||
28.70 | 27.68 | 25.65 | (2.03 | ) | (7.3 | ) | |||||||||
Iberian Peninsula | 2.04 | 1.52 | - | (1.52 | ) | (100.0 | ) | ||||||||
TOTAL SALES | 30.74 | 29.20 | 25.65 | (3.55 | ) | (12.2 | ) |
54
ENI ANNUAL REPORT / OPERATING REVIEW
Retail sales in Italy
In 2009, while domestic consumption was barely unchanged,
retail sales on the Italian network (9.03 mmtonnes) were up
approximately 220 ktonnes from 2008, or 2.5%, mainly due to
fidelity programs, marketing and pricing initiatives, in
particular "Iperself" sales, and the opening of new
services stations that sustained a 0.9 percentage point growth in
market share from 30.6% in December 2008 to 31.5% in December
2009. Higher sales mainly regarded gasoil and LPG sales, while
gasoline sales declined slightly.
At December 31, 2009, Enis retail network in Italy
consisted of 4,474 service stations, 65 more than at December 31,
2008 (4,409 service stations), resulting from the positive
balance of acquisitions/releases of lease concessions (90 units),
the opening of new service stations (7 units), partly offset by
the closing of service stations with low throughput (24 units)
and the release of 9 service stations under highway concession.
Average throughput related to gasoline and gasoil (2,482 kliters)
registered an increase of 13 kliters from 2008.
In 2009, fuel sales of the Blu line high performance
and low environmental impact fuel recorded lower prices
from 2008 with the stability of sales due to marketing
initiatives and fidelity programs during the year. Sales of
BluDiesel and its reformulated version BluDieselTech amounted
approximately to 600 ktonnes (720 mmliters), and represented
10.5% of gasoil sales on Enis retail network. At December
31, 2009, service stations marketing BluDiesel totaled 4,104
units (4,095 at 2008 year end) covering approximately 92% of
Enis network. Retail sales of BluSuper amounted to 82
ktonnes (110 mmliters), in line with 2008 and covered 2.6% of
gasoline sales on Enis retail network. At December 31,
2009, service stations marketing BluSuper totaled 2,679 units
(2,631 at December 31, 2008), covering approximately 60% of
Enis network.
In 2009 finished "You&Agip", the promotional
campaign, launched in March 2007 and lasting 3 years. As of
December 31, 2009, the number of customers that actively used the
card in the year amounted to approximately 5.4 million. The
average number of cards active each month was over 3.1 million.
Volumes of fuel marketed under this initiative represented over
45% of total volumes marketed on Enis service stations
joining the programme, and 44% of overall volumes marketed on
Enis network. In February 2010 Eni launched the new
promotional campaign "You&Eni" lasting 3 years
until January 31, 2013.
Retail sales in the Rest of Europe
Excluding the impact of the divestment of marketing
activities in the Iberian Peninsula to Galp (down 1.52 mmtonnes),
in 2009 retail sales of refined products marketed in the rest of
Europe (2.99 mmtonnes) were down approximately 230 ktonnes from
2008, or 7.1%, mainly in Germany and Eastern Europe due to a
decrease in fuel demand. At December 31, 2009, Enis retail
network in the rest of Europe consisted of 1,512
55
ENI ANNUAL REPORT / OPERATING REVIEW
units, a decrease of 35 units from December 31, 2008 (1,547
service stations). The network evolution was as follows: (i) 32
low throughput service stations were closed; (ii) negative
balance of acquisitions/releases of lease concessions (32 units)
with negative changes in Germany and positive changes in Hungary;
(iii) purchased 21 service station, in particular in Romania;
(iv) opened 8 new outlets.
Average throughput (2,461 kliters) decreased by 116 kliters from
2008.
Wholesale and other sales
In 2009, sales volumes on wholesale markets in Italy (9.56
mmtonnes) were down 1.59 mmtonnes from 2008, or 14.3%, reflecting
mainly a decrease in demand for jet fuel, the bunkering market
and fuel oil for power generation, as well as in gasoil sales due
to lower industrial consumption reflecting the economic downturn.
Sales on wholesale markets in the rest of Europe (3.66 mmtonnes)
decreased by approximately 280 ktonnes, or 7.1% (excluding the
impact of asset divestments in the Iberian Peninsula), mainly in
Germany, in the Czech Republic and Switzerland due to declining
consumption in particular of gasoil for heating.
Supplies of feedstock to the petrochemical industry (1.33
mmtonnes) declined by approximately 370 ktonnes due to declining
demand. Other sales (18.61 mmtonnes) decreased by approximately
1.17 mmtonnes, or 5.9%, mainly due to lower sales volumes to
trader and oil companies, as well as the reduction of volumes
sold to the cargo market, also due to lower refining throughputs.
Capital expenditures
In 2009, capital expenditures in the Refining & Marketing segment amounted to euro 635 million and regarded mainly: (i) refining, supply and logistics in Italy (euro 436 million), with projects designed to improve the conversion rate and flexibility of refineries, of which the construction of an industrial plant employing the Enis proprietary Est technology, a new hydrocracker at the Sannazzaro refinery (operating from July) and at the Taranto refinery (start up schedules in 2010) as well as expenditures on health, safety and environmental upgrades; (ii) upgrade of the retail network in Italy, wholesale and LPG activities (euro 118 million); (iii) upgrade of the retail network and purchase of service stations in the rest of Europe (euro 54 million). Expenditures on health, safety and the environment amounted to euro 78 million.
Capital expenditures | (euro million) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Italy | 873 | 850 | 581 | (269 | ) | (31.6 | ) | ||||||||
Outside Italy | 106 | 115 | 54 | (61 | ) | (53.0 | ) | ||||||||
979 | 965 | 635 | (330 | ) | (34.2 | ) | |||||||||
Refinery, supply and logistic | 675 | 630 | 436 | (194 | ) | (30.8 | ) | ||||||||
Italy | 675 | 630 | 436 | (194 | ) | (30.8 | ) | ||||||||
Marketing | 282 | 298 | 172 | (126 | ) | (42.3 | ) | ||||||||
Italy | 176 | 183 | 118 | (65 | ) | (35.5 | ) | ||||||||
Outside Italy | 106 | 115 | 54 | (61 | ) | (53.0 | ) | ||||||||
Other | 22 | 37 | 27 | (10 | ) | (27.0 | ) | ||||||||
979 | 965 | 635 | (330 | ) | (34.2 | ) |
56
ENI ANNUAL REPORT / OPERATING REVIEW
Key performance indicators | 2007 |
|
2008 |
|
2009 |
|
Net sales from operations (a) | (euro million) | 6,934 | 6,303 | 4,203 | |||||||
Operating profit | 100 | (845 | ) | (675 | ) | ||||||
Adjusted operating profit | 116 | (398 | ) | (426 | ) | ||||||
Adjusted net profit | 74 | (323 | ) | (340 | ) | ||||||
Capital expenditures | 145 | 212 | 145 | ||||||||
Production | (ktonnes) | 8,795 | 7,372 | 6,521 | |||||||
Sales of petrochemical products | 5,513 | 4,684 | 4,265 | ||||||||
Average plant utilization rate | (%) | 80.6 | 68.6 | 65.4 | |||||||
Employees at period end | (units) | 6,534 | 6,274 | 6,068 |
(a) | Before elimination of intragroup sales. |
In 2009, the Petrochemical segment incurred an adjusted net loss of euro 340 million, a decrease of euro 17 million from 2008, due to a prolonged weakness in industry fundamentals reflecting lower end-market demand and high competitive pressure.
Sales of petrochemical products were 4,265 ktonnes, down 419 ktonnes from last year, or 8.9%, due to a context of economic downturn, especially in the automotive sector, that negatively influenced demand for petrochemical products.
Petrochemical production volumes were 6,521 ktonnes, down 851 ktonnes, or 11.5%, due to a steep decline in demand for petrochemical products in all business.
57
ENI ANNUAL REPORT / OPERATING REVIEW
Sales - production - prices
In 2009 sales of petrochemical products (4,265 ktonnes) decreased by 419 ktonnes million from 2008 (or 8.9%) due to a general weakness of end-markets in the first nine months of 2009 with a slight recovery in demand for polymers in the last quarter.
Petrochemical production (6,521 ktonnes) decreased by 851 ktonnes from 2008 (or 11.5%) affecting all business areas. The general demand decrease in the chemical industry, in particular for commodities, required unexpected outages in a number of plants in order to avoid excess stocks. Relevant production decreases were registered at the Porto Torres plant (down 51%), as result of the shutdown of the phenol plant at the beginning of the year and of reduced production for commercial reasons.
Nominal production capacity decreased by 3.3% from 2008, due to the shutdown of the Gela cracker and the Porto Torres phenol plant. The average plant utilization rate, calculated on nominal capacity decreased from 68.6% to 65.4% due to reduced production.
Average unit sale prices decreased by 26%. The steeper decreases affected the prices of the main petrochemical products (olefins were down 35%), due to the negative impact of the oil price scenario (virgin naphtha was down 32.3% from 2008). Average unit prices of polymers, in particular elastomers (down 17%) decreased less, due to a slower adjustment to the oil scenario and to expected price increases in 2010.
Product availability | (ktonnes) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Basic petrochemicals | 6,274 | 5,110 | 4,350 | (760 | ) | (14.9 | ) | ||||||||
Polymers | 2,521 | 2,262 | 2,171 | (91 | ) | (4.0 | ) | ||||||||
Production | 8,795 | 7,372 | 6,521 | (851 | ) | (11.5 | ) | ||||||||
Consumption and losses | (4,304 | ) | (3,652 | ) | (2,701 | ) | 951 | (26.0 | ) | ||||||
Purchases and change in inventories | 1,022 | 964 | 445 | (519 | ) | (53.8 | ) | ||||||||
5,513 | 4,684 | 4,265 | (419 | ) | (8.9 | ) |
Revenues | (euro million) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Basic petrochemicals | 3,582 | 3,060 | 1,832 | (1,228 | ) | (40.1 | ) | ||||||||
Polymers | 3,109 | 2,961 | 2,185 | (776 | ) | (26.2 | ) | ||||||||
Other revenues | 243 | 282 | 186 | (96 | ) | (34.0 | ) | ||||||||
6,934 | 6,303 | 4,203 | (2,100 | ) | (33.3 | ) |
Business trends
Basic petrochemicals
Basic petrochemical revenues (euro 1,832 million)
decreased by euro 1,228 million from 2008 (or 40.1%) in all the
main business segments due to the steep reduction in average unit
prices (ranging from 25% to 35%) related to the prices of main
petrochemical products, and to a lower extent to the decrease in
sales volumes. In particular olefins and aromatics sales volumes
decreased by 8% and 10.5%, respectively, with a slight increase
in the last quarter of 2009. Intermediates sales volumes
continued to report a negative performance (down 34%) as a result
of lower product availability due to the shutdown of the Porto
Torres plant as a result of the unfavorable scenario.
Basic petrochemicals production (4,350 ktonnes) decreased by 760
ktonnes from 2008 (or 14.9%), in line with lower demand of
monomers.
58
ENI ANNUAL REPORT / OPERATING REVIEW
Polymers
Polymer revenues (euro 2,185 million) decreased by euro
776 million, or 26.2%, from 2008, mainly due to price reduction.
Sales volumes of polyethylene decreased by 1.3% in spite of a
slight demand increase registered in the last months of the year.
Styrene sales achieved a stable performance and compact
polystyrene sales increased by 2.5% from 2008. Sales decreases
were registered mainly in elastomers (down 7%) due to a greater
impact of industrial sectors affected by the economic downturn
(mainly automotive).
Polymers production (2,171 ktonnes) decreased by 91 ktonnes from
2008 (or 4%), in line with sales trends. Production volumes of
styrene and elastomers decreased by 3% mainly due to the shutdown
of the Porto Torres plant. Elastomers production decreased by
8.8% as a result of plants outages, mainly in the first months of
2009 due to lower demand from industries, in particular the
automotive sector.
Capital expenditures
In 2009, capital expenditures in the Petrochemicals segment amounted to euro 145 million (euro 212 million in 2008) and regarded mainly plant upgrades (euro 58 million), extraordinary maintenance (euro 28 million), environmental protection, safety and environmental regulation compliance (euro 28 million), upkeeping and rationalization (euro 20 million).
59
ENI ANNUAL REPORT / OPERATING REVIEW
Key performance indicators | 2007 |
|
2008 |
|
2009 |
|
Net sales from operations (a) | (euro million) | 8,678 | 9,176 | 9,664 | ||||
Operating profit | 837 | 1,045 | 881 | |||||
Adjusted operating profit | 840 | 1,041 | 1,120 | |||||
Adjusted net profit | 658 | 784 | 892 | |||||
Capital expenditures | 1,410 | 2,027 | 1,630 | |||||
Adjusted ROACE (b) | (%) | 17.1 | 16.8 | 15.4 | ||||
Orders acquired | (euro million) | 11,845 | 13,860 | 9,917 | ||||
Order backlog | (euro million) | 15,390 | 19,105 | 18,730 | ||||
Employees at period end | (units) | 33,111 | 35,629 | 35,969 |
(a) | Before elimination of intragroup sales. | |
(b) | For a detailed explanation of adjusted capital employed and adjusted ROACE, see paragraph "Return On Average Capital Employed (ROACE)". |
Adjusted net profit was euro 892 million, up euro 108 million from a year ago, or 13.8%, driven by steady revenue flows and 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 decreased to euro 881 million, down euro 164 million from 2008, or 15.7%, as a result of a non-recurring charge amounting to euro 250 million reflecting the estimated cost of a possible resolution of the investigation related to the TSKJ consortium based on the current status of the ongoing discussions with US Authorities. The matter is fully disclosed under the section "Legal Proceedings" in the notes to the consolidated statements. Notwithstanding the charge is recognized in the segment results of the Engineering & Construction business as it relates to a project to build gas liquefaction plants, it will be fully incurred by Eni and Saipems minorities will be left unaffected altogether due to the contractual obligations assumed by Eny to indemnify Saipem as part of the divestiture of Snamprogetti SpA, which subsidiary Snamprogetti Netherland BV participates to the TSKJ venture.
Return on average capital employed calculated on an adjusted basis was 15.4% in 2009, lower than in 2008 (16.8%).
Orders acquired amounted to euro 9,917 million, down euro 3,943 million from 2008 (down 28.4%), in particular in onshore construction and drilling onshore activities.
60
ENI ANNUAL REPORT / OPERATING REVIEW
Orders backlog was euro 18,730 million at December 31, 2009 (euro 19,105 million at December 31, 2008), related in particular to projects in North Africa (30%), West Africa (15%) and the Rest of Europe (13%).
Capital expenditures amounted to euro 1,630 million, down euro 397 million from 2008, or 19.6%. The main projects related to the upgrade of the construction and drilling fleet.
Activity for the year
Among the main orders acquired in 2009 were:
- | an EPC contract on behalf of the joint venture between Eni and Sonatrach for the construction of facilities for the treatment of natural gas extracted from the Menzel Ledjmet East field and from the future developments of the CAFC (Central Area Field Complex) in Algeria; | |
- | an EPC contract on behalf of Agip KCO as part of the development program of the Kashagan field related to the hook-up and commissioning of offshore facilities, as well as activities to be executed in the Kuryk construction yard in Kazakhstan; | |
- | a contract on behalf of Eni for the conversion of a tanker into an FPSO (Floating Production Storage and Offloading) vessel that will have a storage and production capacity of 700 kbbl/d and 12 kbbl/d, respectively; | |
- | an EPC contract on behalf of Sonatrach for the construction of the GK3-lot 3 gas pipeline that will connect various cities situated in the north-eastern region of Algeria for a total length of approximately 350 kilometers; | |
- | an EPC contract on behalf of Esso Exploration Angola for the development of Kizomba Satellites Project offshore Angola. The project is related to the connection of the Mavacola and Clochas field to the existing FPSO units; | |
- | an EPC contract on behalf of Qafco for the construction of a new urea plant in the city of Mesaieed, in Qatar; | |
- | a contract on behalf of Esso Highlands Ltd, for the installation of the gas sealine PNG LNG EPC2 for a total length of 407 kilometers, in Papua New Guinea; | |
- | an EPIC contract on behalf of Premier Oil Natuna Sea BV for the construction of two platforms and related infrastructures in the Gajah Baru offshore field in Indonesia; | |
- | an EPC contract on behalf of Sonatrach for the construction of a marine export terminal for the future urea/ammonia plant to be built near Arzew, in Algeria. |
Orders acquired amounted to euro 9,917 million, of these projects to be carried out outside Italy represented 79%, while orders from Eni companies amounted to 32% of the total. Enis order backlog was euro 18,730 million at December 31, 2008 (euro 19,105 million at December 31, 2008). Projects to be carried out outside Italy represented 93% of the total order backlog, while orders from Eni companies amounted to 22% of the total.
Orders acquired | (euro million) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Orders acquired | 11,845 | 13,860 | 9,917 | (3,943 | ) | (28.4 | ) | |||||||
Offshore construction | 3,496 | 4,381 | 5,089 | 708 | 16.2 | |||||||||
Onshore construction | 6,070 | (a) | 7,522 | 3,665 | (3,857 | ) | (51.3 | ) | ||||||
Offshore drilling | 1,644 | 760 | 585 | (175 | ) | (23.0 | ) | |||||||
Onshore drilling | 635 | 1,197 | 578 | (619 | ) | (51.7 | ) | |||||||
of which: | ||||||||||||||
- Eni | 1,923 | 540 | 3,147 | 2,607 | .. | |||||||||
- Third parties | 9,922 | 13,320 | 6,770 | (6,550 | ) | (49.2 | ) | |||||||
of which: | ||||||||||||||
- Italy | 574 | 831 | 2,081 | 1,250 | .. | |||||||||
- Outside Italy | 11,271 | 13,029 | 7,836 | (5,193 | ) | (39.9 | ) |
(a) | Net of the backlog of divested companies (Haldor Topsøe and Camom Group) for euro 181 million. |
61
ENI ANNUAL REPORT / OPERATING REVIEW
Order backlog | (euro million) | Dec. 31, 2007 |
|
Dec. 31, 2008 |
|
Dec. 31, 2009 |
|
Change |
|
% Ch. |
||
Order backlog | 15,390 | 19,105 | 18,730 | (375 | ) | (2.0 | ) | |||||||
Offshore construction | 4,215 | 4,682 | 5,430 | 748 | 16.0 | |||||||||
Onshore construction | 7,003 | (a) | 9,201 | 8,035 | (1,166 | ) | (12.7 | ) | ||||||
Offshore drilling | 3,471 | 3,759 | 3,778 | 19 | 0.5 | |||||||||
Onshore drilling | 701 | 1,463 | 1,487 | 24 | .. | |||||||||
of which: | ||||||||||||||
- Eni | 3,399 | 2,547 | 4,103 | 1,556 | 61.1 | |||||||||
- Third parties | 11,991 | 16,558 | 14,627 | (1,931 | ) | (11.7 | ) | |||||||
of which: | ||||||||||||||
- Italy | 799 | 435 | 1,341 | 906 | .. | |||||||||
- Outside Italy | 14,591 | 18,670 | 17,839 | (831 | ) | (4.5 | ) |
(a) | Net of the backlog of divested companies (Haldor Topsøe and Camom Group) for euro 181 million. |
Capital expenditures
In 2009 capital expenditures in the Engineering &
Construction segment (euro 1,630 million) mainly regarded:
(i) Offshore: purchase of the lay barge Acergy Piper renamed
Castoro Sette, construction of a new pipelayer and the ultra-deep
water Field Development Ship FDS2, development of a new
fabrication yard in Indonesia and the activities for the
conversion of a tanker into an FPSO;
(ii) Offshore drilling: construction of the two semisubmersible
rigs Scarabeo 8 and 9, the new ultra deep water drillship Saipem
12000 and the jack-up Perro Negro 6;
(iii) Onshore drilling: construction/development of operating
structures;
(iv) Onshore: maintenance and upgrading of the existing asset
base.
(euro million) | 2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
|||
Offshore construction | 566 | 741 | 691 | (50 | ) | (6.7 | ) | |||||
Onshore construction | 76 | 48 | 19 | (29 | ) | (60.4 | ) | |||||
Offshore drilling | 478 | 785 | 706 | (79 | ) | (10.1 | ) | |||||
Onshore drilling | 266 | 424 | 188 | (236 | ) | (55.7 | ) | |||||
Other expenditures | 24 | 29 | 26 | (3 | ) | (10.3 | ) | |||||
1,410 | 2,027 | 1,630 | (397 | ) | (19.6 | ) |
62
ENI ANNUAL REPORT / FINANCIAL REVIEW
Financial review
Profit and loss account
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
87,204 | Net sales from operations (a) | 108,082 | 83,227 | (24,855 | ) | (23.0 | ) | ||||||||
833 | Other income and revenues | 728 | 1,118 | 390 | 53.6 | ||||||||||
(61,933 | ) | Operating expenses | (80,354 | ) | (62,532 | ) | 17,822 | 22.2 | |||||||
(8 | ) | of which non recurring items | 21 | (250 | ) | (271 | ) | ||||||||
(129 | ) | Operating income (expense) (b) | (124 | ) | 55 | 179 | .. | ||||||||
(7,236 | ) | Depreciation, depletion, amortization and impairments | (9,815 | ) | (9,813 | ) | 2 | .. | |||||||
18,739 | Operating profit | 18,517 | 12,055 | (6,462 | ) | (34.9 | ) | ||||||||
46 | Finance (expense) income | (640 | ) | (551 | ) | 89 | 13.9 | ||||||||
1,243 | Net income from investments | 1,373 | 569 | (804 | ) | (58.6 | ) | ||||||||
20,028 | Profit before income taxes | 19,250 | 12,073 | (7,177 | ) | (37.3 | ) | ||||||||
(9,219 | ) | Income taxes | (9,692 | ) | (6,756 | ) | 2,936 | 30.3 | |||||||
46.0 | Tax rate (%) | 50.3 | 56.0 | 5.7 | |||||||||||
10,809 | Net profit | 9,558 | 5,317 | (4,241 | ) | (44.4 | ) | ||||||||
Attributable to: | |||||||||||||||
10,011 | - Eni | 8,825 | 4,367 | (4,458 | ) | (50.5 | ) | ||||||||
798 | - minority interest | 733 | 950 | 217 | 29.6 | ||||||||||
(a) | From January 1, 2009 Eni adopted IFRIC 13 "Customer Loyalty Programmes" that requires that the award points granted to clients within the related loyalty programmes be accounted as a separate component of the basic transaction, evaluated at their fair value and recognized as revenues when effectively used. Prior period results have been restated accordingly. | |
(b) | From year 2009, the Company accounts gains and losses on non-hedging commodity derivative instruments, including both fair value re-measurement and settled transactions, as items of operating profit. Adjusted operating profit and net profit only include gains and losses associated with settled transactions, gross and net of the associated tax impact respectively. Prior period results have been restated accordingly. |
Net profit
In 2009 Enis net profit was euro 4,367 million
compared with euro 8,825 million a year ago, down euro 4,458
million, or 50.5%. This result was driven by lower reported
operating profit (down euro 6,462 million, or 34.9%) reflecting
an unfavorable trading environment for oil prices, which were
significantly lower than a year ago in the first nine months of
the year. This trend was partly offset by the circumstance that
the Company incurred a material charge related to inventory
write-down of oil and products (down euro 2.35 billion) as they
were aligned to their net realizable value at 2008 year end when
the oil cycle hit a low.
Group results were also affected by lower profits reported by
equity-accounted entities, and a higher consolidated tax rate up
from 50.3% to 56% (up 5.7 percentage points), mainly due to new
tax rules in Italy and outside Italy which impacted taxes
currently payable, charges accounted in the year which are not
considered for fiscal purposes, and the circumstance that in 2008
the tax rate benefited from certain tax gains associated with an
adjustment to deferred taxation amounting to euro 733 million as
new tax provisions came into effect pertaining to both Italian
and foreign subsidiaries.
63
ENI ANNUAL REPORT / FINANCIAL REVIEW
Adjusted net profit
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
10,011 | Net profit attributable to Eni | 8,825 | 4,367 | (4,458 | ) | (50.5 | ) | ||||||||
(499 | ) | Exclusion of inventory holding (gain) loss | 723 | (191 | ) | (914 | |||||||||
57 | Exclusion of special items | 616 | 1,031 | 415 | |||||||||||
of which: | |||||||||||||||
35 | - non recurring items | (21 | ) | 250 | 271 | ||||||||||
22 | - other special items | 637 | 781 | 144 | |||||||||||
9,569 | Eni's adjusted net profit (a) | 10,164 | 5,207 | (4,957 | ) | (48.8 | ) | ||||||||
(a) | For a detailed explanation of adjusted operating profit and net profit see paragraph "Reconciliation of reported operating profit and reported net profit to results on an adjusted basis". |
Enis adjusted net profit for the year was euro
5,207 million compared with euro 10,164 million a year ago, down
euro 4,957 million or 48.8%.
Adjusted net profit excludes an inventory holding profit of euro
191 million and net special charges of euro 1,031 million,
resulting in an overall adjustment equal to an increase of euro
840 million. The balance between special charges and gains is
comprised of, on the negative side, impairment charges recorded
on oil&gas properties in the Exploration & Production
division, refineries and goodwill recognized on marketing assets
in the Refining & Marketing division, and a number of
petrochemicals plants (euro 1,395 million as before tax impact)
as well as environmental (euro 298 million) and operational
provisions (euro 378 million), including a non-recurring charge
amounting to euro 250 million reflecting the estimated cost of a
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 the notes to the
consolidated financial statements. Notwithstanding the charge is
recognized in the segment results of the Engineering &
Construction business as it relates to a project to build gas
liquefaction plants, it will be fully incurred by Eni and
Saipems minorities will be left unaffected altogether due
to the contractual obligations assumed by Eni to indemnify Saipem
as part of the divestiture of Snamprogetti SpA, whose subsidiary
Snamprogetti Netherlands BV participates to the TSKJ venture. On
the positive side, gains were recorded on the divestment of
certain oil&gas properties to the partner Suez (euro 277
million), gains on fair value evaluation of certain non-hedging
commodity derivatives (euro 287 million), and positive
adjustments on deferred taxation and other tax benefits (euro 222
million).
The breakdown of adjusted net profit by division is shown in the table below:
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
6,328 | Exploration & Production | 7,900 | 3,878 | (4,022 | ) | (50.9 | ) | ||||||||
3,127 | Gas & Power | 2,648 | 2,916 | 268 | 10.1 | ||||||||||
294 | Refining & Marketing | 521 | (197 | ) | (718 | ) | .. | ||||||||
74 | Petrochemicals | (323 | ) | (340 | ) | (17 | ) | (5.3 | ) | ||||||
658 | Engineering & Construction | 784 | 892 | 108 | 13.8 | ||||||||||
(210 | ) | Other activities | (279 | ) | (245 | ) | 34 | 12.2 | |||||||
(62 | ) | Corporate and financial companies | (532 | ) | (744 | ) | (212 | ) | (39.8 | ) | |||||
(16 | ) | Impact of unrealized intragroup profit elimination (a) | 76 | (3 | ) | (79 | ) | .. | |||||||
10,193 | 10,795 | 6,157 | (4,638 | ) | (43.0 | ) | |||||||||
of which attributable to: | |||||||||||||||
624 | - Minority interest | 631 | 950 | 319 | 50.6 | ||||||||||
9,569 | - Eni | 10,164 | 5,207 | (4,957 | ) | (48.8 | ) | ||||||||
(a) | This item concerned mainly intragroup sales of commodities, services and capital goods recorded in the assets of the purchasing business segment as of end of the period. |
64
ENI ANNUAL REPORT / FINANCIAL REVIEW
The decline in group adjusted net profit reflected lower
results mainly reported by:
- the Exploration & Production division reported a
decrease of euro 4,022 million in adjusted net profit, down
50.9%, due to a weaker operating performance (down euro 7,738
million, or 44.9%) affected by lower oil&gas realizations in
dollars (down 32.2% and 29.8%, respectively) and lower sales
volumes (down 9.2 mmboe, or 1.5%). These negatives were partly
offset by the depreciation of the euro over the dollar (down
5.3%). The divisional performance was also impacted by a higher
tax rate (from 55.9% to 60%);
- the Refining & Marketing division reported
adjusted net loss of euro 197 million, reversing a prior
year profit of euro 521 million. The euro 718 million decline was
mainly due to an adjusted operating loss of euro 357
million, a decrease of euro 937 million from 2008, driven by
sharply lower refining margins as a result of an unfavorable
trading environment;
- the Petrochemicals division continued to
report losses at both operating and net level (down euro 426
million and euro 340 million, respectively) due to weak industry
fundamentals reflecting lower end markets demand, excess capacity
and high competitive pressures. Net loss was almost in line with
2008.
These negative performances were partly offset by higher
results reported by:
- the Gas & Power division (up euro 268
million, or 10.1%) driven by a better operating performance of
the Marketing activities (up euro 412 million). Higher
results in the Marketing activities were also driven by gains
recorded on the settlement of certain non-hedging commodity
derivatives amounting to euro 218 million associated with future
sales of gas and electricity. Under IFRS, the Company is required
to recognize fair value accounting effects on those derivatives
in profit or loss because hedge accounting is not followed.
However, in assessing the underlying performance of the Marketing
business, management calculates the EBITDA pro-forma adjusted as
an alternative measure of performance, by bringing forward the
impact of the settlement of those derivatives to future reporting
periods where the associated revenues are expected to be
recognized. Management believes that disclosing this
internally-used measure is helpful in assisting investors to
understand these business trends (see page 75). When measured
against this performance indicator, the Marketing business
confirmed the achievement of positive results. The
underlying performance was mainly driven by a favorable trading
environment related to energy parameters, improved results
reported by the subsidiary Distrigas and the achievement of
synergies on integration, as well as the impact of the
renegotiation of long-term supply contracts. These positives were
partly offset by lower sales volumes, mainly on the Italian
market and the impact of rising competitive pressure on marketing
margins. Regulated Businesses in Italy recorded steady
results. The International transport business reported weaker
results;
- the Engineering & Construction business achieved
an increase of euro 108 million from 2008, or 13.8%
reflecting better operating performance (up euro 79 million)
driven by steady revenue flows and profitability as a result of
the large number of oil&gas projects that were started during
the upward phase of the oil cycle.
Return on average capital employed (ROACE) calculated on an adjusted basis was 9.2% (17.6% in 2008).
Enis results for 2009 were achieved in a trading environment characterized by an average 31.2% decrease in hydrocarbon realizations driven by a fall in Brent prices which were down 36.6% from 2008. Enis realized refining margins in dollar terms were sharply lower in the full year 2009, mirroring trends in Brent margins (down $3.4 per barrel, or 51.8%). A number of negative factors explained the reduction. Firstly, significantly compressed light-heavy crude differentials due to a reduction in heavy crude availability on the marketplace negatively affected the profitability of Enis complex refineries. Secondly, the industry continued to be plagued by weak fundamentals due to excess capacity, high inventory levels and stagnant demand affecting end-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 spread versus the cost of oil. Results of operations for the full year were helped by the depreciation of the euro vs. the US dollar, down by 5.3%.
65
ENI ANNUAL REPORT / FINANCIAL REVIEW
Analysis of profit and loss account items
Net sales from operations
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
26,920 | Exploration & Production | 33,042 | 23,801 | (9,241 | ) | (28.0 | ) | ||||||||
27,793 | Gas & Power | 37,062 | 30,447 | (6,615 | ) | (17.8 | ) | ||||||||
36,349 | Refining & Marketing | 45,017 | 31,769 | (13,248 | ) | (29.4 | ) | ||||||||
6,934 | Petrochemicals | 6,303 | 4,203 | (2,100 | ) | (33.3 | ) | ||||||||
8,678 | Engineering & Construction | 9,176 | 9,664 | 488 | 5.3 | ||||||||||
205 | Other activities | 185 | 88 | (97 | ) | (52.4 | ) | ||||||||
1,313 | Corporate and financial companies | 1,331 | 1,280 | (51 | ) | (3.8 | ) | ||||||||
Impact of unrealized intragroup profit elimination | 75 | (66 | ) | (141 | ) | ||||||||||
(20,988 | ) | Consolidation adjustment | (24,109 | ) | (17,959 | ) | 6,150 | .. | |||||||
87,204 | 108,082 | 83,227 | (24,855 | ) | (23.0 | ) | |||||||||
Enis net sales from operations (revenues) for 2009 (euro 83,227 million) were down euro 24,855 million from 2008 (down 23%) 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 vs. the US dollar.
Revenues generated by the Exploration & Production division (euro 23,801 million) decreased by euro 9,241 million or 28%, mainly due to lower realizations in dollars (oil down 32.2%; natural gas down 29.8%) reflecting the first nine months trading environment 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 mmboe, or 1.5%). These negatives were partly offset by the depreciation of the euro vs. the US dollar.
Revenues generated by the Gas & Power division (euro 30,447 million) decreased by euro 6,615 million, down 17.8%, 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 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%, reflecting lower product prices and lower sales volumes (down 10%), partly offset by the impact of the depreciation of the euro vs. the US dollar.
Revenues generated by the Petrochemical division (euro 4,203 million) decreased by euro 2,100 million, down 33.3% from 2008, mainly reflecting lower sales prices (down 26%) and a decline in volumes sold due to lower end-markets demand.
Revenues generated by the Engineering & Construction business (euro 9,664 million) increased by euro 488 million, up 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.
66
ENI ANNUAL REPORT / FINANCIAL REVIEW
Operating expenses
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
58,133 | Purchases, services and other | 76,350 | 58,351 | (17,999 | ) | (23.6 | ) | ||||||||
of which: | |||||||||||||||
91 | - non-recurring items | (21 | ) | 250 | 271 | ||||||||||
470 | - other special items | 761 | 537 | (224 | ) | ||||||||||
3,800 | Payroll and related costs | 4,004 | 4,181 | 177 | 4.4 | ||||||||||
of which: | |||||||||||||||
(83 | ) | - non-recurring items | |||||||||||||
198 | - provision for redundancy incentives | 91 | 134 | 43 | |||||||||||
61,933 | 80,354 | 62,532 | (17,822 | ) | (22.2 | ) | |||||||||
Operating expenses for the year (euro 62,532 million) decreased by euro 17,822 million from 2008, down 22.2%.
Purchases, services and other costs (euro 58,351
million) decreased by euro 17,999 million (down 23.6%) due to
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, as well as impairments of certain current and
non-current assets, other than tangible and intangible assets,
amounting to euro 537 million. Non-recurring items were
represented by a charge amounting to euro 250 million,
estimated on the basis of 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 the notes to the consolidated financial
statements.
In 2008, environmental and risk provisions as well as impairments
of certain current assets amounted to euro 761 million.
Payroll and related costs (euro 4,181 million) increased
by euro 177 million (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.
Depreciation, depletion, amortization and impairments
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
5,431 | Exploration & Production | 6,678 | 6,789 | 111 | 1.7 | ||||||||||
739 | Gas & Power | 797 | 981 | 184 | 23.1 | ||||||||||
433 | Refining & Marketing | 430 | 408 | (22 | ) | (5.1 | ) | ||||||||
116 | Petrochemicals | 117 | 83 | (34 | ) | (29.1 | ) | ||||||||
248 | Engineering & Construction | 335 | 433 | 98 | 29.3 | ||||||||||
4 | Other activities | 3 | 2 | (1 | ) | (33.3 | ) | ||||||||
68 | Corporate and financial companies | 76 | 83 | 7 | 9.2 | ||||||||||
(10 | ) | Impact of unrealized intragroup profit elimination | (14 | ) | (17 | ) | (3 | ) | |||||||
7,029 | Total depreciation, depletion and amortization | 8,422 | 8,762 | 340 | 4.0 | ||||||||||
207 | Impairments | 1,393 | 1,051 | (342 | ) | (24.6 | ) | ||||||||
7,236 | 9,815 | 9,813 | (2 | .. | |||||||||||
Depreciation, depletion and amortization (euro 8,762
million) increased by euro 340 million from 2008 (up 4%) mainly
in the Gas & Power and Exploration & Production divisions
(up euro 184 million and euro 111 million, respectively) in
connection with rising development amortization charges
reflecting consolidation of acquired assets and increased
expenditures to develop new complex fields. These negatives were
partly offset by the depreciation of the euro against the dollar.
Impairment charges of euro 1,051 million mainly regarded:
(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 with
low
67
ENI ANNUAL REPORT / FINANCIAL REVIEW
complexity, impairment of goodwill recognized on marketing assets acquired in Central - Eastern Europe and certain other marketing assets in the Refining & Marketing division, in the light of the negative outlook for the refining industry and a downsizing of growth expectations on certain markets; (iii) a number of plants in the Petrochemical division due to a worsening pricing/margin environment as a result of lower petrochemical demand, excess capacity and higher competitive pressure.
The breakdown of impairment charges by division is shown in the table below:
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
143 | Exploration & Production | 810 | 576 | (234 | ) | (28.9 | ) | ||||||||
Gas & Power | 1 | (1 | ) | .. | |||||||||||
58 | Refining & Marketing | 299 | 346 | 47 | 15.7 | ||||||||||
Petrochemicals | 279 | 121 | (158 | ) | (56.6 | ) | |||||||||
Engineering & Construction | 2 | 2 | .. | ||||||||||||
6 | Other activities | 4 | 6 | 2 | 50.0 | ||||||||||
207 | 1,393 | 1,051 | (342 | ) | (24.6 | ) | |||||||||
Operating profit
The breakdown of the reported operating profit by division is
provided below:
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
13,433 | Exploration & Production | 16,239 | 9,120 | (7,119 | ) | (43.8 | ) | ||||||||
4,465 | Gas & Power | 4,030 | 3,687 | (343 | ) | (8.5 | ) | ||||||||
686 | Refining & Marketing | (988 | ) | (102 | ) | 886 | 89.7 | ||||||||
100 | Petrochemicals | (845 | ) | (675 | ) | 170 | 20.1 | ||||||||
837 | Engineering & Construction | 1,045 | 881 | (164 | ) | (15.7 | ) | ||||||||
(444 | ) | Other activities | (346 | ) | (382 | ) | (36 | ) | (10.4 | ) | |||||
(312 | ) | Corporate and financial companies | (743 | ) | (474 | ) | 269 | 36.2 | |||||||
(26 | ) | Impact of unrealized intragroup profit elimination | 125 | (125 | ) | ||||||||||
18,739 | Operating profit | 18,517 | 12,055 | (6,462 | ) | (34.9 | ) | ||||||||
Adjusted operating profit
The breakdown of adjusted operating profit by division is
provided below:
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
18,739 | Operating profit | 18,517 | 12,055 | (6,462 | ) | (34.9 | ) | ||||||||
(620 | ) | Exclusion of inventory holding (gains) losses | 936 | (345 | ) | (1,281 | ) | ||||||||
885 | Exclusion of special items | 2,155 | 1,412 | (743 | ) | ||||||||||
of which: | |||||||||||||||
8 | - non-recurring items | (21 | ) | 250 | 271 | ||||||||||
877 | - other special items | 2,176 | 1,162 | (1,014 | ) | ||||||||||
19,889 | Adjusted operating profit | 21,608 | 13,122 | (8,486 | ) | (39.3 | ) | ||||||||
Breakdown by division: | |||||||||||||||
13,770 | Exploration & Production | 17,222 | 9,484 | (7,738 | ) | (44.9 | ) | ||||||||
4,414 | Gas & Power | 3,564 | 3,901 | 337 | 9.5 | ||||||||||
292 | Refining & Marketing | 580 | (357 | ) | (937 | ) | .. | ||||||||
116 | Petrochemicals | (398 | ) | (426 | ) | (28 | ) | (7.0 | ) | ||||||
840 | Engineering & Construction | 1,041 | 1,120 | 79 | 7.6 | ||||||||||
(207 | ) | Other activities | (244 | ) | (258 | ) | (14 | ) | (5.7 | ) | |||||
(195 | ) | Corporate and financial companies | (282 | ) | (342 | ) | (60 | ) | (21.3 | ) | |||||
(26 | ) | Impact of unrealized intragroup profit elimination | 125 | (125 | ) | ||||||||||
19,004 | 21,608 | 13,122 | (8,486 | ) | (39.3 | ) | |||||||||
Enis adjusted operating profit amounted to euro 13,122 million, a reduction of euro 8,486 million from 2008 (down 39.3%). Adjusted operating profit is calculated by excluding an inventory holding profit of euro 345 million and
68
ENI ANNUAL REPORT / FINANCIAL REVIEW
special losses of euro 1,412 million. This reduction is mainly due to a weaker performance recorded by the following divisions:
- | the Exploration & Production division performance (down euro 7,738 million, or 44.9%) was driven by lower oil and natural gas realizations in dollars (down 32.2% and 29.8%, respectively) and lower production sales volumes (down 9.2 mmboe). These negatives were partly offset by the depreciation of the euro over the dollar (approximately euro 500 million); | |
- | the Refining & Marketing division reported an adjusted operating loss of euro 357 million (down euro 937 million) driven by sharply lower refining margins as a result of weak industry fundamentals and weaker results reported by the Marketing business; | |
- | the Petrochemicals division reported an operating loss of euro 426 million (down euro 28 million, or 7%) due to a prolonged weakness in industry fundamentals reflecting lower end-markets demand and high competitive pressures. |
These negatives were partly offset by the better operating performance recorded by:
- | the Gas & Power division improved performance (up euro 337 million, or 9.5%) was driven by a better operating performance of the Marketing activities. This reflected gains recorded on the settlement of certain non-hedging commodity derivatives amounting to euro 218 million, associated with future sales of gas and electricity. Under IFRS, the Company is required to recognize fair value accounting effects on those derivatives in profit or loss because hedge accounting is not followed. However, in assessing the underlying performance of the Marketing business, management calculates the EBITDA pro-forma adjusted as an alternative measure of performance, by bringing forward the impact of the settlement of those derivatives to future reporting periods where the associated revenues are expected to be recognized. Management believes that disclosing this internally-used measure is helpful in assisting investors to understand these business trends (see page 75). When measured against this performance indicator, the Marketing business confirmed the achievement of positive results driven by a favorable trading environment related to energy parameters and exchange rates, the improved results of the subsidiary Distrigas and the achievement of synergies on integration, as well as the impact of the renegotiation of long-term supply contracts. These positives were partly offset by lower sales volumes (down 12.8 bcm), mainly on the Italian market and the impact of the competitive pressure on sale margins. The International Transport business recorded a drop in operating profit; | |
- | the Engineering & Construction increased results (up euro 79 million, or 7.6%) were due to steady revenue flows and profitability as a result of the large number of oil&gas projects that were started during the upward phase of the oil cycle. |
Financial income (expense)
2007 |
(euro million) |
2008 |
2009 |
Change |
||||
(412 | ) | Finance income (expense) related to net borrowings | (824 | ) | (673 | ) | 151 | |||||
(703 | ) | Finance expense on short and long-term debt | (993 | ) | (751 | ) | 242 | |||||
236 | Net interest due to banks | 87 | 31 | (56 | ) | |||||||
55 | Net income from receivables and securities for non-financing operating activities | 82 | 47 | (35 | ) | |||||||
155 | Income (expense) on derivatives | (427 | ) | (4 | ) | 423 | ||||||
(51 | ) | Exchange differences, net | 206 | (106 | ) | (312 | ) | |||||
174 | Other finance income and expense | 169 | 9 | (160 | ) | |||||||
188 | Income from equity instruments | 241 | 163 | (78 | ) | |||||||
127 | Net income from receivables and securities for financing operating activities and interest on tax credits | 99 | 43 | (56 | ) | |||||||
(186 | ) | Finance expense due to the passage of time (accretion discount) | (249 | ) | (218 | ) | 31 | |||||
45 | Other | 78 | 21 | (57 | ) | |||||||
(134 | ) | (876 | ) | (774 | ) | 102 | ||||||
180 | Finance expense capitalized | 236 | 223 | (13 | ) | |||||||
46 | (640 | ) | (551 | ) | 89 | |||||||
In 2009, net finance expenses decreased by euro 89 million to euro 551 million from 2008, mainly due to lower finance charges on finance debt due to lower interest rates on both euro-denominated (down 3.4 percentage
69
ENI ANNUAL REPORT / FINANCIAL REVIEW
points) and dollar loans (down 2.2 percentage points). Increased exchange differences losses (up euro 312 million) were offset by gains recognized in connection with fair value evaluation through profit and loss of certain derivative instruments on exchange rates (up euro 423 million). The main financial gains amounting to euro 163 million, related to the contractual remuneration of 9.4% on the 20% interest in OAO Gazprom Neft, calculated until April 24, 2009, when Gazprom paid for the call option exercised on April 7, 2009. The gain also included the recovery of certain collateral operating expenses and other charges for a total amount of euro 172 million ($229 million at the exchange rate of the payment date).
Net income from investments
The table below sets forth the breakdown of net income from
investments by division:
2009 (euro million) |
Exploration |
|
Gas |
|
Refining |
|
Engineering |
|
Other |
|
Group |
||
Share of gains (losses) from equity-accounted investments | 142 | 310 | (70 | ) | 50 | (39 | ) | 393 | ||||||||||
Dividends | 110 | 13 | 39 | 2 | 164 | |||||||||||||
Gains on disposal | 3 | 2 | 1 | 10 | 16 | |||||||||||||
Other income (expense), net | 1 | (3 | ) | (3 | ) | 1 | (4 | ) | ||||||||||
256 | 322 | (30 | ) | 59 | (38 | ) | 569 |
Net income from investments amounted to euro 569
million and related to: (i) Enis share of profit of
entities accounted for with the equity method (euro 393 million),
mainly in the Gas & Power and Exploration & Production
divisions. Gains also comprised an equity gain on the 60%
interest in Artic Russia (euro 100 million) due to the divestment
of a 51% stake in OOO Severenergia to Gazprom based on the call
option exercised by the Russian company; (ii) dividends received
by entities accounted for at cost (euro 164 million), mainly
related to Nigeria LNG Ltd.
The table below sets forth a breakdown of net income/loss from
investments for 2009:
2007 |
|
(euro million) |
|
2008 |
|
2009 |
|
Change |
773 | Share of gains (losses) from equity-accounted investments | 640 | 393 | (247 | ) | |||||||
170 | Dividends | 510 | 164 | (346 | ) | |||||||
300 | Gains on disposal | 217 | 16 | (201 | ) | |||||||
Other income (expense), net | 6 | (4 | ) | (10 | ) | |||||||
1,243 | 1,373 | 569 | (804 | ) | ||||||||
The decrease of euro 804 million from 2008 related to lower profit and dividends from equity or cost-accounted entities in the Gas & Power and Exploration & Production divisions driven by an unfavorable trading environment, as well as the circumstance that in 2008 a net gain of euro 190 million on the divestment of certain interests was recorded in the Engineering & Construction segment.
Income taxes
2007 |
|
(euro million) |
|
2008 |
|
2009 |
|
Change |
Profit before income taxes | ||||||||||||
5,849 | Italy | 1,894 | 2,403 | 509 | ||||||||
14,179 | Outside Italy | 17,356 | 9,670 | (7,686 | ) | |||||||
20,028 | 19,250 | 12,073 | (7,177 | ) | ||||||||
Income taxes | ||||||||||||
1,798 | Italy | 313 | 1,190 | 877 | ||||||||
7,421 | Outside Italy | 9,379 | 5,566 | (3,813 | ) | |||||||
9,219 | 9,692 | 6,756 | (2,936 | ) | ||||||||
Tax rate (%) | ||||||||||||
30.7 | Italy | 16.5 | 49.5 | 33.0 | ||||||||
52.3 | Outside Italy | 54.0 | 57.6 | 3.6 | ||||||||
46.0 | 50.3 | 56.0 | 5.7 | |||||||||
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Income taxes were euro 6,756 million, down euro 2,936 million, or 30.3%, mainly reflecting lower income taxes currently payable by subsidiaries in the Exploration & Production division operating outside Italy due to lower taxable profit. Reported tax rate increased by 5.7 percentage points due to:
(i) | the impact of recently enacted tax regulations that provided a one-percentage point increase in the tax rate applicable to Italian companies in the energy sector and the enactment of a supplemental tax rate to be added to the Italian statutory tax rate resulting in higher taxes currently payable, amounting to euro 239 million in the full year; | |
(ii) | the recognition of a non-recurring item which is not considered for tax purposes represented by a charge amounting to euro 250 million that was estimated on the base of 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 the notes to the consolidated financial statements; | |
(iii) | the payment of a balance for prior-year income taxes amounting to $310 million (or euro 230 million) in Libya as new rules came into effect which reassessed revenues for tax purposes; | |
(iv) | a write-down of certain deferred tax assets associated with upstream properties to factor in expected lower profitability (down euro 72 million); | |
(v) | a lower capacity for Italian companies to deduct the cost of goods sold associated with lower gas inventories at year end (down euro 64 million); | |
(vi) | the circumstance that in 2008 certain tax gains associated with an adjustment to deferred taxation amounting to euro 733 million were recorded as new tax provisions came into effect pertaining to both Italian and foreign subsidiaries. |
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 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).
Adjusted tax rate, calculated as ratio of income taxes to net profit before taxes on an adjusted basis, was 53.6% (51.4% in 2008).
Minority interest
Minority interests share of profit was euro 950
million and related mainly to Snam Rete Gas SpA (euro 369
million) and Saipem SpA (euro 567 million).
71
ENI ANNUAL REPORT / FINANCIAL REVIEW
Divisional performance1
Exploration & Production (a)
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
13,433 | Operating profit | 16,239 | 9,120 | (7,119 | ) | (43.8 | ) | ||||||||
337 | Exclusion of special items | 983 | 364 | ||||||||||||
of which: | |||||||||||||||
(11 | ) | Non-recurring items | |||||||||||||
348 | Other special items: | 983 | 364 | ||||||||||||
226 | - asset impairments | 989 | 618 | ||||||||||||
- gains on disposals of assets | 4 | (270 | ) | ||||||||||||
6 | - provision for redundancy incentives | 8 | 31 | ||||||||||||
74 | - re-measurement gains/losses on commodity derivatives | (18 | ) | (15 | ) | ||||||||||
42 | - other | ||||||||||||||
13,770 | Adjusted operating profit | 17,222 | 9,484 | (7,738 | ) | (44.9 | ) | ||||||||
60 | Net finance income (expense) (b) | 70 | (23 | ) | (93 | ) | |||||||||
176 | Net income (expense) from investments (b) | 609 | 243 | (366 | ) | ||||||||||
(7,678 | ) | Income taxes (b) | (10,001 | ) | (5,826 | ) | 4,175 | ||||||||
54.8 | Tax rate (%) | 55.9 | 60.0 | 4.1 | |||||||||||
6,328 | Adjusted net profit | 7,900 | 3,878 | (4,022 | ) | (50.9 | ) | ||||||||
Results also include: | |||||||||||||||
5,574 | amortizations and depreciations | 7,488 | 7,365 | (123 | ) | (1.6 | ) | ||||||||
of which: | |||||||||||||||
1,777 | exploration expenditures | 2,057 | 1,551 | (506 | ) | (24.6 | ) | ||||||||
1,370 | - amortizations of exploratory drilling expenditure and other | 1,577 | 1,264 | (313 | ) | (19.8 | ) | ||||||||
407 | - amortizations of geological and geophysical exploration expenses | 480 | 287 | (193 | ) | (40.2 | ) | ||||||||
(a) | From January 1, 2009, results of the gas storage business are reported within the Gas & Power segment reporting unit following restructuring of Eni regulated gas businesses in Italy that was approved by the Companys Board of Directors and is expected to close by mid-year. Prior period results have been restated accordingly. | |
(b) | Excluding special items. |
In 2009, the Exploration & Production division reported an adjusted operating profit of euro 9,484 million, a decrease of euro 7,738 million compared to 2008, or 44.9%, driven by lower oil&gas realizations in dollars (down 32.2% and down 29.8%, respectively) and lower sales volumes (down 9.2 mmboe). These negatives were partly offset by the depreciation of the euro over the dollar (approximately euro 500 million).
Special charges excluded by adjusted operating profit amounted to euro 364 million and comprised impairments of proved and unproved mineral interests mainly due to downward reserve revisions and cost increases, mainly in the Gulf of Mexico, Australia and Congo. Gains were recorded on the divestment of certain exploration and production assets as part of the agreements signed with Suez, while re-measurement losses were recorded on fair value evaluation of the ineffective portion of certain cash flow hedges and provisions for redundancy incentives.
In 2009 liquids and gas realizations 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 a relative appreciation of the Eni equity basket (down
32.2%).
Enis average oil realizations were barely unchanged, due to
the settlement of certain commodity derivatives relating to the
sale of 42.2 mmbbl.
(1) | For a detailed explanation of adjusted operating profit and net profit see the paragraph "Reconciliation of reported operating profit and reported net profit to results on an adjusted basis". |
72
ENI ANNUAL REPORT / FINANCIAL REVIEW
In the first nine months of the year, liquids
realizations increased by $0.45 per barrel from the sale of 31.6
mmbbl at the hedged price. The gain was absorbed by the reduction
on average by $1.46 per barrel from the sale of 10.6 mmbbl in the
fourth quarter, reflecting the inversion in oil prices trends.
These derivatives were entered into to hedge exposure to
variability in future cash flows expected from the sale of a
portion of the Companys proved reserves, in connection with
the acquisition of oil and gas assets in Congo and in the Gulf of
Mexico, for an original amount of approximately 125.7 mmbbl in
the 2008-2011 period, decreasing to approximately 37.5 mmbbl by
end of 2009.
In 2009 average gas realizations were down 29.8%, driven by time-lags between movements in oil prices and their effect on gas prices provided in pricing formulae and weak spot prices.
Liquids realizations and the impact of commodity derivatives were as follows:
Liquids | 2008 |
|
2009 |
|
Sales volumes | (mmbbl) | 364.3 | 373.5 | |||||
Sales volumes hedged by derivatives (cash flow hedge) | 46.0 | 42.2 | ||||||
Total price per barrel, excluding derivatives | ($/bbl) | 88.17 | 56.98 | |||||
Realized gains (losses) on derivatives | (4.13 | ) | (0.03 | ) | ||||
Total average price per barrel | ($/bbl) | 84.05 | 56.95 |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Gas & Power (a)
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
4,465 | Operating profit | 4,030 | 3,687 | (343 | ) | (8.5 | ) | ||||||||
44 | Exclusion of inventory holding (gains) losses | (429 | ) | 326 | |||||||||||
(95 | ) | Exclusion of special items: | (37 | ) | (112 | ) | |||||||||
of which: | |||||||||||||||
(61 | ) | Non-recurring items | |||||||||||||
(34 | ) | Other special items: | (37 | ) | (112 | ) | |||||||||
15 | - environmental provisions | 12 | 19 | ||||||||||||
- asset impairments | 1 | 27 | |||||||||||||
- gains on disposals of assets | 7 | (6 | ) | ||||||||||||
- risk provisions | 115 | ||||||||||||||
38 | - provisions for redundancy incentives | 20 | 25 | ||||||||||||
(16 | ) | - re-measurement gains/losses on commodity derivatives | (74 | ) | (292 | ) | |||||||||
(71 | ) | - other | (3 | ) | |||||||||||
4,414 | Adjusted operating profit | 3,564 | 3,901 | 337 | 9.5 | ||||||||||
2,284 | Marketing | 1,309 | 1,721 | 412 | 31.5 | ||||||||||
1,685 | Regulated business in Italy | 1,732 | 1,796 | 64 | 3.7 | ||||||||||
445 | International transport | 523 | 384 | (139 | ) | (26.6 | ) | ||||||||
(5 | ) | Net finance income (expense) (b) | (13 | ) | (15 | ) | (2 | ) | |||||||
420 | Net income (expense) from investments (b) | 420 | 332 | (88 | ) | ||||||||||
(1,702 | ) | Income taxes (b) | (1,323 | ) | (1,302 | ) | 21 | ||||||||
35.2 | Tax rate (%) | 33.3 | 30.9 | (2.4 | ) | ||||||||||
3,127 | Adjusted net profit | 2,648 | 2,916 | 268 | 10.1 | ||||||||||
(a) | From January 1, 2009, results of the gas storage business are reported within the Gas & Power segment reporting unit, within the regulated businesses results, following restructuring of Eni regulated gas businesses in Italy. As of that date, the results of the regulated businesses in Italy therefore include results of the Transport, Distribution, Re-gasification and Storage activities in Italy. Results of the Power generation activity are reported within the Marketing business as it is ancillary to the latter. Prior period results have been restated accordingly. | |
(b) | Excluding special items. |
In 2009 the Gas & Power division reported adjusted operating profit of euro 3,901 million, an increase of euro 337 million compared to 2008, up 9.5%, driven by a better operating performance of the Marketing activities (up euro 412 million, or 31.5%). This reflected gains recorded on the settlement of certain non-hedging commodity derivatives amounting to euro 218 million, associated with future sales of gas and electricity. Under IFRS, the Company is required to recognize fair value accounting effects on those derivatives in profit or loss because hedge accounting is not followed. However, in assessing the underlying performance of the Marketing business, management calculates the EBITDA pro-forma adjusted as an alternative measure of performance, by bringing forward the impact of the settlement of those derivatives to future reporting periods where the associated revenues are expected to be recognized. Management believes that disclosing this internally-used measure is helpful in assisting investors to understand these business trends (see page 75). When measured against this performance indicator, the Marketing business confirmed the achievement of positive results driven by a favorable trading environment related to energy parameters and exchange rates, the improved results of the subsidiary Distrigas and the achievement of synergies on integration, as well as the impact of the renegotiation of certain long-term supply contracts. These positives were partly offset by lower sales volumes, mainly on the Italian market and the impact of rising competitive pressures. The International Transport business recorded a drop in operating profit.
Special items excluded from the adjusted operating profit amounted to euro 112 million and mainly regarded a provision in the LNG business and re-measurement impacts recorded on fair value evaluation of certain non-hedging commodity derivatives (euro 292 million) in the Marketing business, as well as provisions for redundancy incentives.
Adjusted net profit was euro 2,916 million, increasing by euro 268 million from 2008 (up 10.1%) due to an improved operating performance and offset in part by lower earnings reported by equity accounted entities.
74
ENI ANNUAL REPORT / FINANCIAL REVIEW
Marketing
The Marketing business reported adjusted operating profit
of euro 1,721 million, an increase of euro 412 million from 2008,
or 31.5%. This mainly reflected gains on the settlement of
certain non-hedging commodity derivatives amounting to a euro 218
million gain associated with future sales of gas and electricity.
Net of this effect, the Marketing business showed a positive
performance despite the sharp decline in sales volumes in Italy,
down by approximately a fourth (down 12.8 bcm) and the impact of
competitive pressures on margins. An improved scenario for energy
parameters, the contribution of the acquisition of Distrigas in
terms of integration synergies and improved performance together
with the impact of the renegotiation of long-term supply
contracts were the main positive trends for the year.
Regulated businesses in Italy
Regulated businesses in Italy reported adjusted operating
profit of euro 1,796 million, up euro 64 million, or 3.7%
from 2008, due to an improved performance reported by
Distribution activities (up euro 72 million) driven by a positive
impact associated with a new tariff regime set by the Authority
for Electricity and Gas. This positive was partly offset by
weaker results reported by Transport activities (down euro 52
million), caused by a decline in gas demand in Italy, despite the
recognition of new investments in tariffs.
The Storage business reported an increased adjusted operating profit from a year ago (euro 227 million and euro 183 million in 2009 and 2008, respectively).
International Transport
This business reported adjusted operating profit of
euro 384 million, representing a decrease of euro 139 million
from 2008, or 26.6%, mainly due to the recognition of higher
amortization charges related to the upgrading of the TTPC
pipeline and costs incurred to repair and restore to full
capacity the TMPC pipeline which was damaged in an accident
occurred in December 2008.
Other performance indicators
Follows a breakdown of the pro-forma adjusted EBITDA by
business:
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
5,029 | Pro-forma EBITDA adjusted | 4,310 | 4,403 | 93 | 2.2 | ||||||||||
3,061 | Marketing | 2,271 | 2,392 | 121 | 5.3 | ||||||||||
(64 | ) | of which: +/(-) adjustment on commodity derivatives | 119 | (133 | ) | ||||||||||
1,248 | Regulated businesses in Italy | 1,284 | 1,345 | 61 | 4.8 | ||||||||||
720 | International transport | 755 | 666 | (89 | ) | (11.8 | ) | ||||||||
EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization charges) on an adjusted basis is calculated by
adding amortization and depreciation charges to adjusted
operating profit which is also modified to take into account
impact associated with certain derivatives instruments as
discussed below.
This performance indicator includes the adjusted EBITDA of
Enis wholly owned subsidiaries and Enis share of
adjusted EBITDA generated by certain associates which are
accounted for under the equity method for IFRS purposes. Snam
Rete Gas EBITDA is included according to Enis share
of equity (55.58% as of December 31, 2009, which takes into
account the amount of own shares held in treasury by the
subsidiary itself) although this Company is fully consolidated
when preparing consolidated financial statements in accordance
with IFRS, due to its listed company status. Italgas SpA and
Stoccaggi Gas Italia SpA results are also included according to
the same share of equity as Snam Rete Gas, due to the closing of
the restructuring deal which involved Enis regulated
business in the Italian gas sector, whereby the parent company
Eni SpA divested the entire share capital of the two subsidiaries
to Snam Rete Gas. In order to calculate the EBITDA pro-forma
adjusted, the adjusted operating profit of the Marketing business
is modified to take into account the impact of the settlement of
certain commodity and exchange rate derivatives that do
75
ENI ANNUAL REPORT / FINANCIAL REVIEW
not meet the formal criteria to be classified as hedges under
the IFRS. Those are entered into by the Company in view of
certain amounts of gas and electricity that the Company expects
to supply at fixed prices in future periods. The impact of those
derivatives is allocated to the EBITDA proforma adjusted relating
to the reporting periods during which those supplies at fixed
prices are recognized. Management believes that the EBITDA
pro-forma adjusted is an important alternative measure to assess
the performance of Enis Gas & Power division, taking
into account evidence that this division is comparable to
European utilities in the gas and power generation sector. This
measure is provided in order to assist investors and financial
analysts in assessing the Eni Gas & Power divisional
performance as compared to its European peers, as EBITDA is
widely used as the main performance indicator for utilities.
The EBITDA pro-forma adjusted is a non-GAAP measure under IFRS.
76
ENI ANNUAL REPORT / FINANCIAL REVIEW
Refining & Marketing
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
686 | Operating profit | (988 | ) | (102 | ) | 886 | (89.7 | ) | |||||||
(658 | ) | Exclusion of inventory holding (gains) losses | 1,199 | (792 | ) | ||||||||||
264 | Exclusion of special items | 369 | 537 | ||||||||||||
of which: | |||||||||||||||
35 | Non-recurring items | (21 | ) | ||||||||||||
229 | Other special items: | 390 | 537 | ||||||||||||
128 | - environmental provisions | 76 | 72 | ||||||||||||
58 | - asset impairments | 299 | 389 | ||||||||||||
- gains on disposals of assets | 13 | (2 | ) | ||||||||||||
9 | - risk provisions | 17 | |||||||||||||
31 | - provisions for redundancy incentives | 23 | 22 | ||||||||||||
6 | - re-measurement gains/losses on commodity derivatives | (21 | ) | 39 | |||||||||||
(3 | ) | - other | |||||||||||||
292 | Adjusted operating profit | 580 | (357 | ) | (937 | ) | .. | ||||||||
Net finance income (expense) (a) | 1 | (1 | ) | ||||||||||||
126 | Net income (expense) from investments (a) | 174 | 75 | (99 | ) | ||||||||||
(124 | ) | Income taxes (a) | (234 | ) | 85 | 319 | |||||||||
29.7 | Tax rate (%) | 31.0 | .. | .. | |||||||||||
294 | Adjusted net profit | 521 | (197 | ) | (718 | ) | .. | ||||||||
(a) | Excluding special items. |
In 2009 the Refining & Marketing division reported an adjusted operating loss of euro 357 million, reversing a prior year profit of euro 580 million. The marked decrease (down euro 937 million from 2008) was mainly driven by sharply lower refining margins as a result of an unfavorable trading environment, due to narrowing price differentials between heavy and light crude and excess finished products, in particular diesel oil, whose spread on raw material reached historical lows in the fourth quarter. Full year results were also affected by lower operating performance delivered by the Marketing activities. An improved performance was delivered in the first nine months reflecting market share gains posted by the Italian retailing activities supported by effective marketing campaigns and pricing initiatives, which were more than offset by lower marketed volumes affected by weak demand on wholesale markets in Italy and retail European markets.
Special charges excluded from adjusted operating profit amounted to euro 537 million and mainly related to asset impairment charges recorded in the light of the negative outlook for the refining industry and a downsizing of the growth expectations on certain markets. In particular, impairment charges affected low complexity refineries, including refineries participated by Eni, goodwill recognized on marketing assets acquired in Central-Eastern Europe, marketing assets in Europe and capital expenditures for the period on assets impaired in previous reporting periods. Other special charges mainly related to environmental and other risk provisions and re-measurement losses recorded on fair value evaluation of certain non-hedging commodity derivatives.
Full-year adjusted net loss was euro 197 million (down euro 718 million, reversing a prior year profit of euro 521 million), mainly due to a lower operating performance (down euro 937 million) and decreased earnings reported by equity-accounted entities.
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Petrochemicals
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
100 | Operating profit | (845 | ) | (675 | ) | 170 | 20.1 | ||||||||
(6 | ) | Exclusion of inventory holding (gains) losses | 166 | 121 | |||||||||||
22 | Exclusion of special items | 281 | 128 | ||||||||||||
of which: | |||||||||||||||
(2 | ) | Non-recurring items | |||||||||||||
24 | Other special items: | 281 | 128 | ||||||||||||
- asset impairments | 278 | 121 | |||||||||||||
- gains on disposals of assets | (5 | ) | |||||||||||||
24 | - provisions for redundancy incentives | 8 | 10 | ||||||||||||
- re-measurement gains/losses on commodity derivatives | (3 | ) | |||||||||||||
116 | Adjusted operating profit | (398 | ) | (426 | ) | (28 | ) | (7.0 | ) | ||||||
1 | Net finance income (expense) (a) | 1 | (1 | ) | |||||||||||
1 | Net income (expense) from investments (a) | (9 | ) | 9 | |||||||||||
(44 | ) | Income taxes (a) | 83 | 86 | 3 | ||||||||||
74 | Adjusted net profit | (323 | ) | (340 | ) | (17 | ) | (5.3 | ) | ||||||
(a) | Excluding special items. |
The Petrochemical division reported an adjusted operating
loss of euro 426 million, an increase of euro 28 million from
2008, due to a prolonged weakness in industry fundamentals
reflecting lower end-markets demand and high competitive
pressures.
Special charges excluded from adjusted operating loss of
euro 128 million related mainly to impairment of assets, in
particular the Porto Marghera and Sicily plants for the
production of olefins, aromatics and polyethylene, due to an
expected unfavorable trading environment in terms of
margins/volumes, affected by lower petrochemical products demand
and higher competitive pressures, in connection with new
available capacity in the Middle-East.
Engineering & Construction
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
837 | Operating profit | 1,045 | 881 | (164 | ) | (15.7 | ) | ||||||||
3 | Exclusion of special items: | (4 | ) | 239 | |||||||||||
of which: | |||||||||||||||
(4 | ) | Non-recurring items | 250 | ||||||||||||
7 | Other special items: | (4 | ) | (11 | ) | ||||||||||
- asset impairments | 2 | ||||||||||||||
- gains on disposals of assets | (4 | ) | 3 | ||||||||||||
7 | - provisions for redundancy incentives | ||||||||||||||
- re-measurement gains/losses on commodity derivatives | (16 | ) | |||||||||||||
840 | Adjusted operating profit | 1,041 | 1,120 | 79 | 7.6 | ||||||||||
Net finance income (expense) (a) | 1 | (1 | ) | ||||||||||||
80 | Net income (expense) from investments (a) | 49 | 49 | ||||||||||||
(262 | ) | Income taxes (a) | (307 | ) | (277 | ) | 30 | ||||||||
28.5 | Tax rate (%) | 28.1 | 23.7 | (4.4 | ) | ||||||||||
658 | Adjusted net profit | 784 | 892 | 108 | 13.8 | ||||||||||
(a) | Excluding special items. |
The Engineering & Construction division reported an adjusted
operating profit increasing by euro 79 million, or 7.6%, to
euro 1,120 million, reflecting steady revenue flows and
profitability as a result of the large number of oil&gas
projects that were started during the upward phase of the oil
cycle.
Special charges excluded from adjusted operating profit
related mainly to a non-recurring item represented by a charge
amounting to euro 250 million that was estimated on the basis of
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 the notes to the
consolidated financial statements.
Adjusted net profit amounted to euro 892 million, an
increase of euro 108 million from 2008.
78
ENI ANNUAL REPORT / FINANCIAL REVIEW
Other activities
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
(444 | ) | Operating profit | (346 | ) | (382 | ) | (36 | ) | (10.4 | ) | |||||
237 | Exclusion of special items: | 102 | 124 | ||||||||||||
of which: | |||||||||||||||
61 | Non-recurring items | ||||||||||||||
176 | Other special items: | 102 | 124 | ||||||||||||
210 | - environmental provisions | 101 | 153 | ||||||||||||
6 | - asset impairments | 5 | 5 | ||||||||||||
- gains on disposals of assets | (14 | ) | (2 | ) | |||||||||||
13 | - risk provision | 4 | (4 | ) | |||||||||||
18 | - provisions for redundancy incentives | 4 | 8 | ||||||||||||
(71 | ) | - other | 2 | (36 | ) | ||||||||||
(207 | ) | Adjusted operating profit | (244 | ) | (258 | ) | (14 | ) | (5.7 | ) | |||||
(8 | ) | Net financial income (expense) (a) | (39 | ) | 12 | 51 | |||||||||
5 | Net income (expense) from investments (a) | 4 | 1 | (3 | ) | ||||||||||
(210 | ) | Adjusted net profit | (279 | ) | (245 | ) | 34 | 12.2 | |||||||
(a) | Excluding special items. |
Corporate and financial companies
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
(312 | ) | Operating profit | (743 | ) | (474 | ) | 269 | 36.2 | |||||||
117 | Exclusion of special items: | 461 | 132 | ||||||||||||
of which: | |||||||||||||||
(10 | ) | Non-recurring items | |||||||||||||
127 | Other special items: | 461 | 132 | ||||||||||||
12 | - environmental provisions | 120 | 54 | ||||||||||||
- gains on disposals of assets | (9 | ) | |||||||||||||
32 | - provisions for redundancy incentives | 28 | 38 | ||||||||||||
83 | - re-measurement gains/losses on commodity derivatives | 52 | |||||||||||||
- other | 270 | 40 | |||||||||||||
(195 | ) | Adjusted operating profit | (282 | ) | (342 | ) | (60 | ) | (21.3 | ) | |||||
(25 | ) | Net financial income (expense) (a) | (661 | ) | (525 | ) | 136 | ||||||||
4 | Net income (expense) from investments (a) | 5 | (5 | ) | |||||||||||
154 | Income taxes (a) | 406 | 123 | (283 | ) | ||||||||||
(62 | ) | Adjusted net profit | (532 | ) | (744 | ) | (212 | ) | (39.8 | ) | |||||
(a) | Excluding special items. |
79
ENI ANNUAL REPORT / FINANCIAL REVIEW
Non-GAAP measures
Reconciliation of reported operating profit and
reported net profit to results on an adjusted basis
Management evaluates Group and business performance on the basis
of adjusted operating profit and adjusted net profit, which are
arrived at by excluding inventory holding gains or losses and
special items. Further more, finance charges on finance debt,
interest income, gains or losses deriving from evaluation of
certain derivative financial instruments at fair value through
profit or loss (as they do not meet the formal criteria to be
assessed as hedges under IFRS, excluding commodity derivatives),
and exchange rate differences are all excluded when determining
adjusted net profit of each business segment. The taxation effect
of the items excluded from adjusted operating or net profit is
determined based on the specific rate of taxes applicable to each
of them. The Italian statutory tax rate of 34% is applied to
finance charges and income (33% in previous reporting periods).
Adjusted operating profit and adjusted net profit are non-GAAP
financial measures under either IFRS, or U.S. GAAP. Management
includes them in order to facilitate a comparison of base
business performance across periods and allow financial analysts
to evaluate Enis trading performance on the basis of their
forecasting models. In addition, management uses segmental
adjusted net profit when calculating return on average capital
employed (ROACE) by each business segment.
The following is a description of items that are excluded from
the calculation of adjusted results.
Inventory holding gain or loss is the difference between
the cost of sales of the volumes sold in the period based on the
cost of supplies of the same period and the cost of sales of the
volumes sold calculated using the weighted average cost method of
inventory accounting.
Special items include certain significant income or charges pertaining to either: (i) infrequent or unusual events and transaction, being identified as non-recurring items under such circumstances; or (ii) certain events or transactions which are not considered to be representative of the ordinary course of business, as in the case of environmental provisions, restructuring charges, asset impairments or write ups and gains or losses on divestments even though they occurred in past periods or are likely to occur in future ones. As provided for in Decision No. 15519 of July 27, 2006 of the Italian market regulator (CONSOB), non recurring material income or charges are to be clearly reported in the managements discussion and financial tables. Also, special items include gains and losses on re-measurement at fair value of certain non-hedging commodity derivatives, including the ineffective portion of cash flow hedges.
Finance charges or income related to net borrowings excluded from the adjusted net profit of business segments are comprised of interest charges on finance debt and interest income earned on cash and cash equivalents not related to operations. In addition gains or losses on the fair value evaluation of the aforementioned derivative financial instruments, excluding commodity derivatives, and exchange rate differences are excluded from the adjusted net profit of business segments. Therefore, the adjusted net profit of business segments includes finance charges or income deriving from certain segment-operated assets, i.e., interest income on certain receivable financing and securities related to operations and finance charge pertaining to the accretion of certain provisions recorded on a discounted basis (as in the case of the asset retirement obligations in the Exploration & Production division). Finance charges or interest income and related taxation effects excluded from the adjusted net profit of the business segments are allocated on the aggregate Corporate and financial companies.
For a reconciliation of adjusted operating profit and adjusted net profit to reported operating profit and reported net profit see tables below.
80
ENI ANNUAL REPORT / FINANCIAL REVIEW
2009
(euro million) | E&P | G&P | R&M | Petrochemicals | Engineering & Construction |
Other activities | Corporate and financial companies | Impact of unrealized intragroup profit elimination | Group | |||||||||
Reported operating profit | 9,120 | 3,687 | (102 | ) | (675 | ) | 881 | (382 | ) | (474 | ) | 12,055 | |||||||||||||||
Exclusion of inventory holding (gains) losses | 326 | (792 | ) | 121 | (345 | ) | |||||||||||||||||||||
Exclusion of special items | |||||||||||||||||||||||||||
of which: | |||||||||||||||||||||||||||
Non-recurring (income) charges | 250 | 250 | |||||||||||||||||||||||||
Other special (income) charges: | 364 | (112 | ) | 537 | 128 | (11 | ) | 124 | 132 | 1,162 | |||||||||||||||||
- environmental charges | 19 | 72 | 153 | 54 | 298 | ||||||||||||||||||||||
- asset impairments | 618 | 27 | 389 | 121 | 2 | 5 | 1,162 | ||||||||||||||||||||
- gains on disposals of assets | (270 | ) | (6 | ) | (2 | ) | 3 | (2 | ) | (277 | ) | ||||||||||||||||
- risk provisions | 115 | 17 | (4 | ) | 128 | ||||||||||||||||||||||
- provision for redundancy incentives | 31 | 25 | 22 | 10 | 8 | 38 | 134 | ||||||||||||||||||||
- re-measurement gains/losses on commodity derivatives | (15 | ) | (292 | ) | 39 | (3 | ) | (16 | ) | (287 | ) | ||||||||||||||||
- other | (36 | ) | 40 | 4 | |||||||||||||||||||||||
Special items of operating profit | 364 | (112 | ) | 537 | 128 | 239 | 124 | 132 | 1,412 | ||||||||||||||||||
Adjusted operating profit | 9,484 | 3,901 | (357 | ) | (426 | ) | 1,120 | (258 | ) | (342 | ) | 13,122 | |||||||||||||||
Net finance (expense) income (a) | (23 | ) | (15 | ) | 12 | (525 | ) | (551 | ) | ||||||||||||||||||
Net income from investments (a) | 243 | 332 | 75 | 49 | 1 | 700 | |||||||||||||||||||||
Income taxes (a) | (5,826 | ) | (1,302 | ) | 85 | 86 | (277 | ) | 123 | (3 | ) | (7,114 | ) | ||||||||||||||
Tax rate (%) | 60.0 | 30.9 | 23.7 | 53.6 | |||||||||||||||||||||||
Adjusted net profit | 3,878 | 2,916 | (197 | ) | (340 | ) | 892 | (245 | ) | (744 | ) | (3 | ) | 6,157 | |||||||||||||
of which: | |||||||||||||||||||||||||||
- Adjusted net profit of minority interest | 950 | ||||||||||||||||||||||||||
- Eni's adjusted net profit | 5,207 | ||||||||||||||||||||||||||
Eni's reported net profit | 4,367 | ||||||||||||||||||||||||||
Exclusion of inventory holding (gains) losses | (191 | ) | |||||||||||||||||||||||||
Exclusion of special items: | 1,031 | ||||||||||||||||||||||||||
- non-recurring (income) charges | 250 | ||||||||||||||||||||||||||
- other special (income) charges | 781 | ||||||||||||||||||||||||||
Eni's adjusted net profit | 5,207 | ||||||||||||||||||||||||||
(a) | Excluding special items. |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
2008
(euro million) | E&P | G&P | R&M | Petrochemicals | Engineering & Construction |
Other activities | Corporate and financial companies | Impact of unrealized intragroup profit elimination | Group | |||||||||
Reported operating profit | 16,239 | 4,030 | (988 | ) | (845 | ) | 1,045 | (346 | ) | (743 | ) | 125 | 18,517 | ||||||||||||||
Exclusion of inventory holding (gains) losses | (429 | ) | 1,199 | 166 | 936 | ||||||||||||||||||||||
Exclusion of special items | |||||||||||||||||||||||||||
of which: | |||||||||||||||||||||||||||
Non-recurring (income) charges | (21 | ) | (21 | ) | |||||||||||||||||||||||
Other special (income) charges: | 983 | (37 | ) | 390 | 281 | (4 | ) | 102 | 461 | 2,176 | |||||||||||||||||
- environmental charges | 12 | 76 | 101 | 120 | 309 | ||||||||||||||||||||||
- asset impairments | 989 | 1 | 299 | 278 | 5 | 1,572 | |||||||||||||||||||||
- gains on disposals of assets | 4 | 7 | 13 | (5 | ) | (4 | ) | (14 | ) | (9 | ) | (8 | ) | ||||||||||||||
- risk provisions | 4 | 4 | |||||||||||||||||||||||||
- provision for redundancy incentives | 8 | 20 | 23 | 8 | 4 | 28 | 91 | ||||||||||||||||||||
- re-measurement gains/losses on commodity derivatives | (18 | ) | (74 | ) | (21 | ) | 52 | (61 | ) | ||||||||||||||||||
- other | (3 | ) | 2 | 270 | 269 | ||||||||||||||||||||||
Special items of operating profit | 983 | (37 | ) | 369 | 281 | (4 | ) | 102 | 461 | 2,155 | |||||||||||||||||
Adjusted operating profit | 17,222 | 3,564 | 580 | (398 | ) | 1,041 | (244 | ) | (282 | ) | 125 | 21,608 | |||||||||||||||
Net finance (expense) income (a) | 70 | (13 | ) | 1 | 1 | 1 | (39 | ) | (661 | ) | (640 | ) | |||||||||||||||
Net income from investments (a) | 609 | 420 | 174 | (9 | ) | 49 | 4 | 5 | 1,252 | ||||||||||||||||||
Income taxes (a) | (10,001 | ) | (1,323 | ) | (234 | ) | 83 | (307 | ) | 406 | (49 | ) | (11,425 | ) | |||||||||||||
Tax rate (%) | 55.9 | 33.3 | 31.0 | 28.1 | 51.4 | ||||||||||||||||||||||
Adjusted net profit | 7,900 | 2,648 | 521 | (323 | ) | 784 | (279 | ) | (532 | ) | 76 | 10,795 | |||||||||||||||
of which: | |||||||||||||||||||||||||||
- Adjusted net profit of minority interest | 631 | ||||||||||||||||||||||||||
- Eni's adjusted net profit | 10,164 | ||||||||||||||||||||||||||
Eni's reported net profit | 8,825 | ||||||||||||||||||||||||||
Exclusion of inventory holding (gains) losses | 723 | ||||||||||||||||||||||||||
Exclusion of special items: | 616 | ||||||||||||||||||||||||||
- non-recurring (income) charges | (21 | ) | |||||||||||||||||||||||||
- other special (income) charges | 637 | ||||||||||||||||||||||||||
Eni's adjusted net profit | 10,164 | ||||||||||||||||||||||||||
(a) | Excluding special items. |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
2007
(euro million) | E&P | G&P | R&M | Petrochemicals | Engineering & Construction |
Other activities | Corporate and financial companies | Impact of unrealized intragroup profit elimination | Group | |||||||||
Reported operating profit | 13,433 | 4,465 | 686 | 100 | 837 | (444 | ) | (312 | ) | (26 | ) | 18,739 | |||||||||||||||
Exclusion of inventory holding (gains) losses | 44 | (658 | ) | (6 | ) | (620 | ) | ||||||||||||||||||||
Exclusion of special items | |||||||||||||||||||||||||||
of which: | |||||||||||||||||||||||||||
Non-recurring (income) charges | (11 | ) | (61 | ) | 35 | (2 | ) | (4 | ) | 61 | (10 | ) | 8 | ||||||||||||||
Other special (income) charges: | 348 | (34 | ) | 229 | 24 | 7 | 176 | 127 | 877 | ||||||||||||||||||
- environmental charges | 15 | 128 | 210 | 12 | 365 | ||||||||||||||||||||||
- asset impairments | 226 | 58 | 6 | 290 | |||||||||||||||||||||||
- risk provisions | 9 | 13 | 22 | ||||||||||||||||||||||||
- provision for redundancy incentives | 6 | 38 | 31 | 24 | 7 | 18 | 32 | 156 | |||||||||||||||||||
- re-measurement gains/losses on commodity derivatives | 74 | (16 | ) | 6 | 83 | 147 | |||||||||||||||||||||
- other | 42 | (71 | ) | (3 | ) | (71 | ) | (103 | ) | ||||||||||||||||||
Special items of operating profit | 337 | (95 | ) | 264 | 22 | 3 | 237 | 117 | 885 | ||||||||||||||||||
Adjusted operating profit | 13,770 | 4,414 | 292 | 116 | 840 | (207 | ) | (195 | ) | (26 | ) | 19,004 | |||||||||||||||
Net finance (expense) income (a) | 60 | (5 | ) | 1 | (8 | ) | (25 | ) | 23 | ||||||||||||||||||
Net income from investments (a) | 176 | 420 | 126 | 1 | 80 | 5 | 4 | 812 | |||||||||||||||||||
Income taxes (a) | (7,678 | ) | (1,702 | ) | (124 | ) | (44 | ) | (262 | ) | 154 | 10 | (9,646 | ) | |||||||||||||
Tax rate (%) | 54.8 | 35.2 | 29.7 | 28.5 | 48.6 | ||||||||||||||||||||||
Adjusted net profit | 6,328 | 3,127 | 294 | 74 | 658 | (210 | ) | (62 | ) | (16 | ) | 10,193 | |||||||||||||||
of which: | |||||||||||||||||||||||||||
- Adjusted net profit of minority interest | 624 | ||||||||||||||||||||||||||
- Eni's adjusted net profit | 9,569 | ||||||||||||||||||||||||||
Eni's reported net profit | 10,011 | ||||||||||||||||||||||||||
Exclusion of inventory holding (gains) losses | (499 | ) | |||||||||||||||||||||||||
Exclusion of special items: | 57 | ||||||||||||||||||||||||||
- non-recurring (income) charges | 35 | ||||||||||||||||||||||||||
- other special (income) charges | 22 | ||||||||||||||||||||||||||
Eni's adjusted net profit | 9,569 | ||||||||||||||||||||||||||
(a) | Excluding special items. |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Breakdown of special items
2007 | (euro million) | 2008 | 2009 | |||
8 | Non-recurring charges (income) | (21 | ) | 250 | |||||
of which: | |||||||||
- estimated charge of the possible resolution of the TSKJ matter | 250 | ||||||||
(83 | ) | - curtailment recognized of the reserve for post-retirement benefits for Italian employees | |||||||
91 | - provisions and utilizations against proceedings | (21 | ) | ||||||
877 | Other special charges (income): | 2,176 | 1,162 | ||||||
365 | - environmental charges | 309 | 298 | ||||||
290 | - asset impairments | 1,572 | 1,162 | ||||||
- gains on disposal of assets | (8 | ) | (277 | ) | |||||
22 | - risk provisions | 4 | 128 | ||||||
156 | - provision for redundancy incentives | 91 | 134 | ||||||
147 | - re-measurement gains/losses on commodity derivatives | (61 | ) | (287 | ) | ||||
(103 | ) | - other | 269 | 4 | |||||
885 | Special items of operating profit | 2,155 | 1,412 | ||||||
(23 | ) | Net financial (expense) income | |||||||
(321 | ) | Net income from investments | (239 | ) | 179 | ||||
of which, gain on divestment of: | |||||||||
(290 | ) | - Haldor Topsøe AS and Camom SA | |||||||
- GTT (Gaztransport et Technigaz SAS) | (185 | ) | |||||||
(658 | ) | Income taxes | (1,402 | ) | (560 | ) | |||
of which: | |||||||||
tax impact pursuant to Law Decree No. 112 of June 25, 2008 for Italian subsidiaries | (270 | ) | (27 | ) | |||||
- on inventories | (176 | ) | |||||||
- on deferred taxes | (94 | ) | (27 | ) | |||||
tax impact pursuant Budget Law 2008 for Italian subsidiaries | (290 | ) | |||||||
(394 | ) | adjustment to deferred tax for Italian subsidiaries | |||||||
adjustment to deferred tax for Libyan assets | (173 | ) | |||||||
impairment of deferred tax assets E&P | 72 | ||||||||
(50 | ) | other special items | (46 | ) | (192 | ) | |||
(214 | ) | taxes on special items of operating profit | (623 | ) | (413 | ) | |||
(117 | ) | Total special items of net profit | 514 | 1,031 | |||||
attributable to: | |||||||||
(174 | ) | - Minority interest | (102 | ) | |||||
57 | - Eni | 616 | 1,031 |
Breakdown of impairments
2007 |
(euro million) |
2008 |
2009 |
Change |
207 | Tangible and intangible asset impairments | 1,349 | 995 | (354 | ) | |||||||
Goodwill impairments | 44 | 56 | 12 | |||||||||
207 | Sub total | 1,393 | 1,051 | (342 | ) | |||||||
83 | Impairment losses on current and non-current assets | 179 | 111 | (68 | ) | |||||||
290 | Impairments | 1,572 | 1,162 | (410 | ) | |||||||
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Summarized Group Balance Sheet
The summarized group balance sheet aggregates the amount of assets and liabilities derived from the statutory balance sheet in accordance with functional criteria which consider the enterprise conventionally divided into the three fundamental areas focusing on resource investments, operations and financing. Management believes that this summarized group balance sheet is useful information in assisting investors to assess Enis capital structure and to analyze its sources of funds and investments in fixed assets and working capital. Management uses the summarized group balance sheet to calculate key ratios such as return on capital employed (ROACE) and the proportion of net borrowings to shareholders equity (leverage) intended to evaluate whether Enis financing structure is sound and well-balanced.
Summarized Group Balance Sheet (a)
(euro million) | Dec. 31, 2008 |
|
Dec. 31, 2009 |
|
Change |
|
Fixed assets | |||||||||
Property, plant and equipment | 59,255 | 63,177 | 3,922 | ||||||
Inventories - compulsory stock | 1,196 | 1,736 | 540 | ||||||
Intangible assets | 7,697 | 8,057 | 360 | ||||||
Equity-accounted investments and other investments | 5,881 | 6,244 | 363 | ||||||
Receivables and securities held for operating purposes | 1,219 | 1,261 | 42 | ||||||
Net payables related to capital expenditures | (787 | ) | (749 | ) | 38 | ||||
74,461 | 79,726 | 5,265 | |||||||
Net working capital | |||||||||
Inventories | 6,082 | 5,495 | (587 | ) | |||||
Trade receivables | 16,444 | 14,916 | (1,528 | ) | |||||
Trade payables | (12,590 | ) | (10,078 | ) | 2,512 | ||||
Tax payables and provision for net deferred tax liabilities | (5,323 | ) | (1,988 | ) | 3,335 | ||||
Provisions | (9,506 | ) | (10,319 | ) | (813 | ) | |||
Other current and non-current assets and liabilities (b) | (4,544 | ) | (3,968 | ) | 576 | ||||
(9,437 | ) | (5,942 | ) | 3,495 | |||||
Current investments | 2,741 | (2,741 | ) | ||||||
Provisions for employee post-retirement benefits | (947 | ) | (944 | ) | 3 | ||||
Net assets held for sale including related net borrowings | 68 | 266 | 198 | ||||||
CAPITAL EMPLOYED, NET | 66,886 | 73,106 | 6,220 | ||||||
Shareholders' equity: | |||||||||
- Eni | 44,436 | 46,073 | 1,637 | ||||||
- Minority interest | 4,074 | 3,978 | (96 | ) | |||||
48,510 | 50,051 | 1,541 | |||||||
Net borrowings | 18,376 | 23,055 | 4,679 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 66,886 | 73,106 | 6,220 |
(a) | For a reconciliation to the statutory balance sheet see the paragraph "Reconciliation of summarized group balance sheet and summarized group cash flow statement to statutory schemes". | |
(b) | Include receivables and securities for financing operating activities for euro 339 million (euro 410 million at December 31, 2008) and securities covering technical reserves of Eni's insurance activities for euro 284 million (euro 302 million December 31, 2008). |
The appreciation of the euro, in particular versus the US dollar, from December 31, 2008 (the EUR/USD exchange rate was 1.441 as of December 31, 2009, as compared to 1.392 as of December 31, 2008, up 3.5%) reduced net capital employed, net equity and net borrowings by euro 894 million, euro 869 million and euro 25 million, respectively, as a result of translation differences.
At December 31, 2009, net capital employed totaled euro 73,106 million, representing an increase of euro 6,220 million from December 31, 2008.
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Fixed assets
Fixed assets amounted to euro 79,726 million, representing an
increase of euro 5,265 million from December 31, 2008, reflecting
capital expenditures incurred in the period (euro 13,695 million)
and the recognition of the share of goodwill associated with the
buy-out of the Distrigas minorities (euro 903 million), partly
offset by depreciation, depletion, amortization and impairment
charges (euro 9,813 million).
The item intangible assets included among fixed assets, increased by euro 360 million to euro 8,057 million mainly due to the completion of the Distrigas acquisition whereby goodwill increased by the amount of goodwill pertaining to Distrigas minorities (euro 903 million) following the buyout, thus increasing the total amount of goodwill recognized on the acquisition to euro 2,148 million. In order to test the recoverability of its carrying amount, the Distrigas goodwill has been allocated to the group of cash generating unit forming the European gas market cash generating unit that is expected to benefit from synergies of the acquisition.
Net working capital
At December 31, 2009, net working capital amounted to
a negative euro 5,942 million, representing an increase of
euro 3,495 million from December 31, 2008, mainly due to:
- | lower tax payables and provisions for net deferred tax liabilities (up euro 3,335 million) related to lower income taxes accrued for the period, reflecting lower taxable profit; | |
- | lower trade payables partly offset by a corresponding reduction in trade receivables, reflecting the impact of lower prices and volumes of commodities, resulting in an increase of euro 984 million; | |
- | a reduction in the item other liabilities net (up euro 576 million) associated with (i) the derecognition of the put option awarded to Publigaz Scrl in 2008 as accounted in Eni 2008 financial statements (euro 1,495 million) following Publigaz tendering its 31.25% share in Distrigas to Eni as part of Enis mandatory buy-out of Distrigas minorities. This put option was carried at the same price provided in the public tender offer; (ii) a deferred cost classified as non current assets in the statutory balance sheet which related 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 contra 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. |
These increases in net working capital have been partly offset by:
- | a decrease in gas inventories as a result of gas off-takes made during winter time (down euro 587 million); | |
- | environmental and operational provisions, legal proceeding provisions and oil&gas asset decommissioning provisions accrued in the year, including the impact of lower interest rates in evaluating the discount factor of future obligations, for a total amount of euro 813 million; | |
- | the negative change of euro 502 million (from a negative euro 28 million to a negative euro 530 million; respectively down euro 28 million and euro 312 million net of taxes) in fair value of certain derivative instruments Eni entered into to hedge exposure to variability in future cash flows deriving from the sale in the 2008-2011 period of approximately 2% of Enis proved reserves as of December 31, 2006 corresponding to 125.7 mmboe, decreasing to 37.5 mmboe as of end of December 2009 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 in 2007. The effective portion of changes in fair value of these hedges is recognized directly in equity, whilst the ineffective portion is recognized in profit and loss. |
The line item equity instruments decreased by an amount corresponding to the book value of a 20% interest in Gazprom Neft (euro 2,741 million at the 2008 balance sheet date) as on April 7, 2009 the Russian company Gazprom exercised its call option on the whole interest based on the arrangements in place with Eni. On April 4, 2007, Eni acquired the 20% interest in OAO Gazprom Neft, following finalization of a bid as part of the Yukos liquidation procedures. At that time, Eni granted Gazprom a call option on the entire 20% to
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ENI ANNUAL REPORT / FINANCIAL REVIEW
be exercisable by Gazprom within 24 months from the acquisition date, at a price of $3.7 billion equaling the bid price, as modified by subtracting dividends distributed, a contractual remuneration of 9.4% on the capital employed and financing collateral expenses. Total cash consideration amounting to euro 3,070 million (US$4.06 billion, increasing to approximately euro 3.16 billion or US$4.2 billion when including the 2008 dividend) was paid by Gazprom on April 24, 2009.
Net assets held for sale including related liabilities (euro 266 million) mainly related to the divestment of certain mineral properties in Italy which were contributed in kind to two newcos Società Padana Energia SpA and Società Adriatica Idrocarburi SpA as well as the company Gas Brasiliano Distribuidora SA operating in marketing and distribution of natural gas in Brazil, whose disposal to third parties is under negotiation.
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Return On Average Capital Employed (ROACE)
Return on Average Capital Employed for the Group, on an adjusted basis is the return on the Group average capital invested, calculated as ratio of net adjusted profit before minority interest, plus net finance charges on net borrowings net of the related tax effect, to net average capital employed. The tax rate applied on finance charges is the Italian statutory tax rate of 34% effective from January 1, 2009. The capital invested as of period-end used for the calculation of net average capital invested is obtained by deducting inventory gains or losses as of in the period, net of the related tax effect. ROACE by division is determined as ratio of adjusted net profit to net average capital invested pertaining to each division and rectifying the net capital invested as of period-end, from net inventory gains or losses (after applying the division specific tax rate).
December 31, 2009 | (euro million) | Exploration |
|
Gas |
|
Refining |
|
Group |
|
Adjusted net profit | 3,878 | 2,916 | (197 | ) | 6,157 | ||||
Exclusion of after-tax finance expenses/interest income | - | - | - | 283 | |||||
Adjusted net profit unlevered | 3,878 | 2,916 | (197 | ) | 6,440 | ||||
Adjusted capital employed, net: | |||||||||
- at the beginning of period | 30,362 | 22,547 | 7,379 | 66,886 | |||||
- at the end of period | 32,455 | 25,024 | 7,560 | 72,915 | |||||
Adjusted average capital employed, net | 31,409 | 23,786 | 7,470 | 69,901 | |||||
Adjusted ROACE (%) | 12.3 | 12.3 | (2.6 | ) | 9.2 | ||||
December 31, 2008 | (euro million) | Exploration |
|
Gas |
|
Refining |
|
Group |
|
Adjusted net profit | 7,900 | 2,648 | 521 | 10,795 | |||||
Exclusion of after-tax finance expenses/interest income | - | - | - | 335 | |||||
Adjusted net profit unlevered | 7,900 | 2,648 | 521 | 11,130 | |||||
Adjusted capital employed, net: | |||||||||
- at the beginning of period | 23,826 | 21,333 | 7,675 | 59,194 | |||||
- at the end of period | 30,362 | 22,273 | 8,260 | 67,609 | |||||
Adjusted average capital employed, net | 27,094 | 21,803 | 7,968 | 63,402 | |||||
Adjusted ROACE (%) | 29.2 | 12.2 | 6.5 | 17.6 | |||||
December 31, 2007 | (euro million) | Exploration |
|
Gas |
|
Refining |
|
Group |
|
Adjusted net profit | 6,328 | 3,127 | 294 | 10,193 | |||||
Exclusion of after-tax finance expenses/interest income | - | - | - | 174 | |||||
Adjusted net profit unlevered | 6,328 | 3,127 | 294 | 10,367 | |||||
Adjusted capital employed, net: | |||||||||
- at the beginning of period | 17,783 | 19,713 | 5,631 | 47,966 | |||||
- at the end of period | 23,826 | 21,364 | 7,149 | 58,695 | |||||
Adjusted average capital employed, net | 20,805 | 20,539 | 6,390 | 53,331 | |||||
Adjusted ROACE (%) | 30.4 | 15.2 | 4.6 | 19.4 | |||||
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Leverage and net borrowings
Leverage is a measure used by management to asses the Companys level of indebtedness. It is calculated as ratio of net borrowings which is calculated by excluding cash and cash equivalents and certain very liquid assets from financial debt to shareholders equity, including minority interest. Management periodically reviews leverage in order to assess the soundness and efficiency of the Group balance sheet in terms of optimal mix between net borrowings and net equity, and to carry out benchmark analysis with industry standards.
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
Change |
|||
Total debt | 20,837 | 24,800 | 3,963 | ||||||
- Short-term debt | 6,908 | 6,736 | (172 | ) | |||||
- Long-term debt | 13,929 | 18,064 | 4,135 | ||||||
Cash and cash equivalents | (1,939 | ) | (1,608 | ) | 331 | ||||
Securities held for non-operating purposes | (185 | ) | (64 | ) | 121 | ||||
Financing receivables for non-operating purposes | (337 | ) | (73 | ) | 264 | ||||
Net borrowings | 18,376 | 23,055 | 4,679 | ||||||
Shareholders' equity including minority interest | 48,510 | 50,051 | 1,541 | ||||||
Leverage | 0.38 | 0.46 | 0.08 |
Net borrowings at December 31, 2009 amounted to euro
23,055 million and increased by euro 4,679 million from December
2008.
Total debt amounted to euro 24,800 million, of which euro
6,736 million were short-term (including the portion of long-term
debt due within 12 months for euro 3,191 million) and euro 18,064
million were long-term.
The ratio of net borrowings to shareholders equity
including minority interest leverage
increased to 0.46 with respect to 0.38 recorded at the end of
2008.
Comprehensive income
2007 | (euro million) | 2008 | 2009 | |||
10,809 | Net profit (loss) | 9,558 | 5,317 | ||||||
Other items of comprehensive income: | |||||||||
(1,980 | ) | - foreign currency translation differences | 1,077 | (869 | ) | ||||
(2,237 | ) | - change in fair value of cash flow hedge derivates | 1,969 | (481 | ) | ||||
(6 | ) | - change in fair value of available-for-sale securities | 3 | 1 | |||||
- share of "Other comprehensive income" on equity-accounted entities | 2 | ||||||||
869 | - taxation | (767 | ) | 202 | |||||
(3,354 | ) | Other comprehensive income | 2,282 | (1,145 | ) | ||||
7,455 | Total comprehensive income | 11,840 | 4,172 | ||||||
Attributable to: | |||||||||
6,708 | - Eni | 11,148 | 3,245 | ||||||
747 | - minority interest | 692 | 927 |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Changes in shareholders equity
(euro million)
Shareholders' equity at December 31, 2008 | 48,510 | ||||
Total comprehensive income | 4,172 | ||||
Dividends paid to Eni shareholders | (4,166 | ) | |||
Dividends paid by consolidated subsidiaries to minorities | (350 | ) | |||
Acquisition of Distrigas minorities | (1,146 | ) | |||
Cancellation of Publigaz put option | 1,495 | ||||
Share capital increase subscribed by Snam Rete Gas minorities | 1,542 | ||||
Rights cancelled stock option - 2006 plan | (7 | ) | |||
Current cost of assigned options | 13 | ||||
Other contributions from payments of shareholders | 18 | ||||
Other changes | (30 | ) | |||
Total changes | 1,541 | ||||
Shareholders' equity at December 31, 2009 | 50,051 | ||||
Attributable to: | |||||
- Eni | 46,073 | ||||
- Minority Interest | 3,978 |
The Groups total equity including minorities increased by euro 1,541 million to euro 50,051 million, reflecting (i) comprehensive income for the period (euro 4,172 million) as a result of net profit for the period (euro 5,317 million), losses on fair value evaluation of certain cash flow hedges placed in reserve and foreign currency translation effects; (ii) closing of the mandatory public takeover bid on the minorities of Distrigas which determined an increase in shareholders equity due to derecognition of the put option awarded to Publigaz Scrl in 2008 (euro 1,495 million); (iii) Snam Rete Gas share capital increase subscribed by minorities for euro 1,542 million. These increases were partly offset by: (i) dividend payments to Eni shareholders (euro 4,166 million) as well as minority shareholders of certain consolidated subsidiaries (euro 350 million); (ii) elimination of the book value, including their respective share of profit for the period, of the Distrigas minorities who tendered their shares to the public offer (euro 1,146 million).
Reconciliation 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) | 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 book value in the statutory accounts of the parent company | 4,140 | 158 | 18,999 | 17,464 | ||||||||
Consolidation adjustments: | ||||||||||||
- difference between purchase cost and underlying book value of net equity | (330 | ) | (213 | ) | 5,161 | 5,068 | ||||||
- elimination of tax adjustments and compliance with group account 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 the Consolidated Financial Statements | 8,825 | 4,367 | 44,436 | 46,073 |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Summarized Group cash flow statement and change in net borrowings
Enis summarized group cash flow statement derives from the statutory statement of cash flows. It enables investors to understand the link existing between changes in cash and cash equivalents (deriving from the statutory cash flows statement) and in net borrowings (deriving from the summarized cash flow statement) that occurred in the period. The measure enabling such a link is represented by the free cash flow which is the cash in excess of capital expenditure needs. Starting from free cash flow it is possible to determine either: (i) changes in cash and cash equivalents for the period by adding/deducting cash flows relating to financing debts/receivables (issuance/repayment of debt and receivables related to financing activities), shareholders equity (dividends paid, net repurchase of own shares, capital issuance) and the effect of changes in consolidation and of exchange rate differences; (ii) changes in net borrowings for the period by adding/deducting cash flows relating to shareholders equity and the effect of changes in consolidation and of exchange rate differences. The free cash flow is a non-GAAP measure of financial performance.
Summarized Group cash flow statement (a)
2007 |
(euro million) |
2008 |
2009 |
Change |
||||
10,809 | Net profit | 9,558 | 5,317 | (4,241 | ) | |||||||
Adjustments to reconcile to cash generated from operating profit before changes in working capital: | ||||||||||||
6,346 | - amortization and depreciation and other non monetary items | 11,388 | 9,846 | (1,542 | ) | |||||||
(309 | ) | - net gains on disposal of assets | (219 | ) | (226 | ) | (7 | ) | ||||
8,850 | - dividends, interest, taxes and other changes | 9,080 | 6,688 | (2,392 | ) | |||||||
25,696 | Net cash generated from operating profit before changes in working capital | 29,807 | 21,625 | (8,182 | ) | |||||||
(1,667 | ) | Changes in working capital related to operations | 2,212 | (1,769 | ) | (3,981 | ) | |||||
(8,512 | Dividends received, taxes paid, interest (paid) received during the period | (10,218 | ) | (8,720 | ) | 1,498 | ||||||
15,517 | Net cash provided by operating activities | 21,801 | 11,136 | (10,665 | ) | |||||||
(10,593 | ) | Capital expenditures | (14,562 | ) | (13,695 | ) | 867 | |||||
(9,665 | ) | Investments and purchase of consolidated subsidiaries and businesses | (4,019 | ) | (2,323 | ) | 1,696 | |||||
659 | Disposals | 979 | 3,595 | 2,616 | ||||||||
(35 | ) | Other cash flow related to capital expenditures, investments and disposals | (267 | ) | (295 | ) | (28 | ) | ||||
(4,117 | ) | Free cash flow | 3,932 | (1,582 | ) | (5,514 | ) | |||||
(479 | ) | Borrowings (repayment) of debt related to financing activities | 911 | 396 | (515 | ) | ||||||
8,761 | Changes in short and long-term financial debt | 980 | 3,841 | 2,861 | ||||||||
(5,836 | ) | Dividends paid and changes in minority interests and reserves | (6,005 | ) | (2,956 | ) | 3,049 | |||||
(200 | ) | Effect of changes in consolidation and exchange differences | 7 | (30 | ) | (37 | ) | |||||
(1,871 | ) | NET CASH FLOW FOR THE PERIOD | (175 | ) | (331 | ) | (156 | ) | ||||
Change in net borrowings
2007 |
(euro million) |
2008 |
2009 |
Change |
||||
(4,117 | ) | Free cash flow | 3,932 | (1,582 | ) | (5,514 | ) | |||||
(244 | ) | Net borrowings of acquired companies | (286 | ) | 286 | |||||||
Net borrowings of divested companies | 181 | (181 | ) | |||||||||
637 | Exchange differences on net borrowings and other changes | 129 | (141 | ) | (270 | ) | ||||||
(5,836 | ) | Dividends paid and changes in minority interests and reserves | (6,005 | ) | (2,956 | ) | 3,049 | |||||
(9,560 | ) | CHANGE IN NET BORROWINGS | (2,049 | ) | (4,679 | ) | (2,630 | ) | ||||
(a) | For a reconciliation to the statutory statement of cash flows see the paragraph "Reconciliation of Summarized Group Balance Sheet and Statement of Cash Flows to statutory schemes". |
Main cash inflows for the year were: (i) net cash provided by operating activities (euro 11,136 million); (ii) cash proceeds of euro 3,070 million associated with the divestment of a 20% interest in Gazprom Neft following the exercise of a call option agreement by Gazprom, plus the first tranche of the proceeds from the sale of a 51% interest in OOO SeverEnergia (Enis share 60%) for euro 155 million (including repayment of financing); (iii) the subscription by Snam Rete Gas minorities of a share capital increase amounting to euro 1,542 million;
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ENI ANNUAL REPORT / FINANCIAL REVIEW
(iv) further cash proceeds of euro 370 million mainly associated with the divestment of certain non strategic assets in the Exploration & Production division, following agreements signed with Suez in 2008. These inflows were used to partially fund capital expenditures of euro 13,695 million, completion of a mandatory takeover bid on the Distrigas minorities, including the squeeze-out procedure for a total cash consideration of euro 2,045 million, payment of dividends to Eni shareholders (euro 4,166 million of which euro 1,811 million as interim dividend for the year 2009) as well as dividend payments to minorities (euro 350 million) in particular relating to Snam Rete Gas and Saipem (euro 335 million). Net borrowings increased by euro 4,679 million from a year ago to euro 23,055 million.
Capital expenditures
2007 |
(euro million) |
2008 |
2009 |
Change |
% Ch. |
|||||
6,480 | Exploration & Production | 9,281 | 9,486 | 205 | 2.2 | ||||||||||
1,511 | Gas & Power | 2,058 | 1,686 | (372 | ) | (18.1 | ) | ||||||||
979 | Refining & Marketing | 965 | 635 | (330 | ) | (34.2 | ) | ||||||||
145 | Petrochemicals | 212 | 145 | (67 | ) | (31.6 | ) | ||||||||
1,410 | Engineering & Construction | 2,027 | 1,630 | (397 | ) | (19.6 | ) | ||||||||
59 | Other activities | 52 | 44 | (8 | ) | (15.4 | ) | ||||||||
108 | Corporate and financial companies | 95 | 57 | (38 | ) | (40.0 | ) | ||||||||
(99 | ) | Impact of unrealized profit in inventory | (128 | ) | 12 | 140 | |||||||||
10,593 | Capital expenditures | 14,562 | 13,695 | (867 | ) | (6.0 | ) | ||||||||
In 2009, capital expenditures amounted to euro 13,695 million (euro 14,562 million in 2008), of which 86% related to the Exploration & Production, Gas & Power and Refining & Marketing divisions. Main expenditures were the following ones:
- | Oil&Gas development activities were euro 7,478 million and were deployed mainly in Kazakhstan, the United States, Egypt, Congo, Italy and Angola; | |
- | Exploration projects were euro 1,228 million of which 97% were carried out outside Italy, primarily in the United States, Libya, Egypt, Norway and Angola; | |
- | 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; | |
- | Development and upgrading of Enis natural gas transport network in Italy amounted to euro 919 million. Distribution network upgrades were euro 278 million, and further euro 282 million were invested to develop and increase storage capacity; | |
- | Projects aimed at improving the conversion capacity and flexibility of refineries amounted to euro 436 million. Building and upgrading service stations in Italy and outside Italy absorbed euro 172 million; | |
- | Upgrading of the fleet used in the Engineering & Construction division amounted to euro 1,630 million. |
Investments and purchases of consolidated subsidiaries and businesses (euro 2,323 million) mainly related to the completion of the acquisition of Distrigas NV.
Disposals amounted to euro 3,595 million and mainly
related to the divestment of a 20% interest in Gazprom Neft
following exercise on April 7, 2009 of the call option by Gazprom
(euro 3,070 million). The exercise price of the call option is
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. In addition a 51% stake in the joint venture
OOO SeverEnergia (Eni 60%) was divested to Gazprom. Enis
share of the transaction is worth $940 million of which $230
million were collected as of year end, which corresponded to euro
155 million at the exchange rate of the transaction date.
Other disposals related to non strategic oil & gas properties
following agreements signed with Suez.
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Dividends paid and changes in minority interests and reserves amounting to euro 2,956 million mainly related to: (i) cash dividends to Eni shareholders (euro 4,166 million, of which euro 2,355 million pertained to the payment of the balance of the dividend for fiscal year 2008 and euro 1,811 million pertained to the payment of an interim dividend for fiscal year 2009); (ii) dividend payment for fiscal year 2008 from certain consolidated subsidiaries to minorities (euro 350 million) mainly relating to Snam Rete Gas and Saipem (euro 335 million). These outflows were partly offset by the subscription by Snam Rete Gas minorities of a share capital increase amounting to euro 1,542 million as part of Enis reorganization of its regulated businesses in Italy.
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Reconciliation of Summarized Group Balance Sheet and Statement of Cash Flows to Statutory Schemes
Summarized Group Balance Sheet
(euro million) | December 31, 2008 | December 31, 2009 | ||
Items
of Summarized Group Balance Sheet (where not expressly indicated, the item derives directly from the statutory scheme) |
Notes to
the consolidated financial statements |
Partial amounts from statutory scheme |
Amounts of the summarized Group scheme |
Partial amounts from statutory scheme |
Amounts of the summarized Group scheme |
|||||
Fixed assets | ||||||||||||||
Property, plant and equipment | 59,255 | 63,177 | ||||||||||||
Inventories - compulsory stock | 1,196 | 1,736 | ||||||||||||
Intangible assets | 7,697 | 8,057 | ||||||||||||
Equity-accounted investments and other investments | 5,881 | 6,244 | ||||||||||||
Receivables and securities held for operating activities | (see Note 3 and 12) | 1,219 | 1,261 | |||||||||||
Net payables related to capital expenditures, made up of: | (787 | ) | (749 | ) | ||||||||||
- receivables related to capital expenditures/disposals | (see Note 3) | 149 | 82 | |||||||||||
- receivables related to capital expenditures/disposals | (see Note 14) | 780 | 710 | |||||||||||
- payables related to capital expenditures | (see Note 16) | (1,716 | ) | (1,541 | ) | |||||||||
Total fixed assets | 74,461 | 79,726 | ||||||||||||
Net working capital | ||||||||||||||
Inventories | 6,082 | 5,495 | ||||||||||||
Trade receivables | (see Note 3) | 16,444 | 14,916 | |||||||||||
Trade payables | (see Note 16) | (12,590 | ) | (10,078 | ) | |||||||||
Tax payables and provisions for net deferred tax liabilities, made up of: | (5,323 | ) | (1,988 | ) | ||||||||||
- income tax payables | (1,949 | ) | (1,291 | ) | ||||||||||
- other tax payables | (1,660 | ) | (1,431 | ) | ||||||||||
- deferred tax liabilities | (5,784 | ) | (4,907 | ) | ||||||||||
- other tax liabilities | (see Note 24) | (254 | ) | (52 | ) | |||||||||
- current tax assets | 170 | 753 | ||||||||||||
- other current tax assets | 1,130 | 1,270 | ||||||||||||
- deferred tax assets | 2,912 | 3,558 | ||||||||||||
- other tax assets | (see Note 14) | 112 | 112 | |||||||||||
Provisions | (9,506 | ) | (10,319 | ) | ||||||||||
Other current assets and liabilities: | ||||||||||||||
Other, made up of: | (4,544 | ) | (3,968 | ) | ||||||||||
- securities held for operating purposes | (see Note 2) | 310 | 284 | |||||||||||
- receivables for operating purposes | (see Note 3) | 402 | 339 | |||||||||||
- other receivables | (see Note 3) | 4,805 | 4,825 | |||||||||||
- other (current) assets | 1,870 | 1,307 | ||||||||||||
- other receivables and other assets | (see Note 14) | 989 | 1,116 | |||||||||||
- advances, other payables | (see Note 16) | (6,209 | ) | (7,555 | ) | |||||||||
- other (current) liabilities | (3,863 | ) | (1,856 | ) | ||||||||||
- other payables and other liabilities | (see Note 24) | (2,848 | ) | (2,428 | ) | |||||||||
Total net working capital | (9,437 | ) | (5,942 | ) | ||||||||||
Current investments | (see Note 2) | 2,741 | ||||||||||||
Provisions for employee post-retirement benefits | (947 | ) | (944 | ) | ||||||||||
Net assets held for sale including related net borrowings, made up of: | 68 | 266 | ||||||||||||
- assets held for sale | 68 | 542 | ||||||||||||
- liabilities directly associated to assets held for sale | (276 | ) | ||||||||||||
CAPITAL EMPLOYED, NET | 66,886 | 73,106 |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
continued Summarized Group Balance Sheet
(euro million) | December 31, 2008 | December 31, 2009 | ||
Items
of Summarized Group Balance Sheet (where not expressly indicated, the item derives directly from the statutory scheme) |
Notes to
the Consolidated Financial Statements |
Partial amounts from statutory scheme |
Amounts of the summarized Group scheme |
Partial amounts from statutory scheme |
Amounts of the summarized Group scheme |
CAPITAL EMPLOYED, NET | 66,886 | 73,106 | ||||||||||||
Shareholders' equity including minority interest | 48,510 | 50,051 | ||||||||||||
Net borrowings | ||||||||||||||
Total debt, made up of: | 20,837 | 24,800 | ||||||||||||
- long term debt | 13,929 | 18,064 | ||||||||||||
- current portion of long term debt | 549 | 3,191 | ||||||||||||
- short-term financial liabilities | 6,359 | 3,545 | ||||||||||||
less: | ||||||||||||||
Cash and cash equivalents | (1,939 | ) | (1,608 | ) | ||||||||||
Securities held for non-operating purposes | (see Note 2) | (185 | ) | (64 | ) | |||||||||
Financing receivables for non-operating purposes | (see Note 3) | (337 | ) | (73 | ) | |||||||||
Total net borrowings (a) | 18,376 | 23,055 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 66,886 | 73,106 |
(a) | For details on net borrowings see also note No 20 to the consolidated financial statements. |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
Summarized Group Cash Flow Statement
(euro million) | December 31, 2008 | December 31, 2009 | ||
Items
of Summarized Group Cash Flow Statement and confluence/reclassification of items in the statutory scheme |
Partial amount from statutory scheme |
Amounts of the summarized Group scheme |
Partial amount from statutory scheme |
Amounts of the summarized Group scheme |
Net profit | 9,558 | 5,317 | ||||||||||
Adjustments to reconcile to cash generated from operating profit before changes in working capital: | ||||||||||||
Depreciation, depletion and amortization and other non monetary items: | 11,388 | 9,846 | ||||||||||
- depreciation, depletion and amortization | 8,422 | 8,762 | ||||||||||
- net impairments (write-ups) | 2,560 | 494 | ||||||||||
- net changes in provisions | 414 | 574 | ||||||||||
- net changes in the provisions for employee benefits | (8 | ) | 16 | |||||||||
Net gains on disposal of assets | (219 | ) | (226 | ) | ||||||||
Dividends, interest, income taxes and other changes: | 9,080 | 6,688 | ||||||||||
- dividend income | (510 | ) | (163 | ) | ||||||||
- interest income | (592 | ) | (352 | ) | ||||||||
- interest expense | 809 | 603 | ||||||||||
- exchange differences | (319 | ) | (156 | ) | ||||||||
- income taxes | 9,692 | 6,756 | ||||||||||
Cash generated from operating profit before changes in working capital | 29,807 | 21,625 | ||||||||||
Changes in working capital related to operations: | 2,212 | (1,769 | ) | |||||||||
- inventories | (801 | ) | 52 | |||||||||
- trade and other receivables | (974 | ) | (19 | ) | ||||||||
- other assets | 162 | (472 | ) | |||||||||
- trade and other payables | 2,318 | (1,201 | ) | |||||||||
- other liabilities | 1,507 | (129 | ) | |||||||||
Dividends received, taxes paid, interest (paid) received during the period: | (10,218 | ) | (8,720 | ) | ||||||||
- dividend received | 1,150 | 576 | ||||||||||
- interest received | 266 | 594 | ||||||||||
- interest paid | (852 | ) | (583 | ) | ||||||||
- income taxes paid | (10,782 | ) | (9,307 | ) | ||||||||
Net cash provided by operating activities | 21,801 | 11,136 | ||||||||||
Capital expenditures: | (14,562 | ) | (13,695 | ) | ||||||||
- tangible assets | (12,312 | ) | (12,304 | ) | ||||||||
- intangible assets | (2,250 | ) | (1,391 | ) | ||||||||
Acquisition of investments and businesses: | (4,019 | ) | (2,323 | ) | ||||||||
- investments | (385 | ) | (230 | ) | ||||||||
- consolidated subsidiaries and businesses | (3,634 | ) | (25 | ) | ||||||||
- acquisition of additional interests in subsidiaries | (2,068 | ) | ||||||||||
Disposals: | 979 | 3,595 | ||||||||||
- tangible assets | 318 | 126 | ||||||||||
- intangible assets | 2 | 250 | ||||||||||
- consolidated subsidiaries and businesses | 149 | |||||||||||
- investments | 510 | 3,219 | ||||||||||
- sale of interests in subsidiaries | ||||||||||||
Other cash flow related to capital expenditures, investments and disposals: | (267 | ) | (295 | ) | ||||||||
- securities | (152 | ) | (2 | ) | ||||||||
- financing receivables | (710 | ) | (972 | ) | ||||||||
- change in payables and receivables relating to investments and capitalized depreciation | 367 | (97 | ) | |||||||||
reclassification: purchase of securities and financing receivables for non-operating purposes | 173 | 38 | ||||||||||
- disposal of securities | 145 | 164 | ||||||||||
- disposal of financing receivables | 1,293 | 861 | ||||||||||
- change in payables and receivables | (299 | ) | 147 | |||||||||
reclassification: disposal of securities and financing receivables held for non-operating purposes | (1,084 | ) | (434 | ) | ||||||||
Free cash flow | 3,932 | (1,582 | ) |
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ENI ANNUAL REPORT / FINANCIAL REVIEW
continued Summarized Group Cash Flow Statement
(euro million) | December 31, 2008 | December 31, 2009 | ||
Items
of Summarized Group Cash Flow Statement and confluence/reclassification of items in the statutory scheme |
Partial amount from statutory scheme |
Amounts of the summarized Group scheme |
Partial amount from statutory scheme |
Amounts of the summarized Group scheme |
Free cash flow | 3,932 | (1,582 | ) | |||||||||
Borrowings (repayment) of debt related to financing activities | 911 | 396 | ||||||||||
reclassification: purchase of securities and financing receivables held for non-operating purposes | (173 | ) | (38 | ) | ||||||||
reclassification: sale of securities and financing receivables held for non-operating purposes | 1,084 | 434 | ||||||||||
Changes in short and long-term finance debt: | 980 | 3,841 | ||||||||||
- proceeds from long-term finance debt | 3,774 | 8,774 | ||||||||||
- payments of long-term finance debt | (2,104 | ) | (2,044 | ) | ||||||||
- increase (decreases) in short-term finance debt | (690 | ) | (2,889 | ) | ||||||||
Dividends paid and changes in minority interests and reserves: | (6,005 | ) | (2,956 | ) | ||||||||
- net capital contributions/payments by/to minority shareholders | 20 | 1,551 | ||||||||||
- dividends paid by Eni to shareholders | (4,910 | ) | (4,166 | ) | ||||||||
- dividends paid to minority interest | (297 | ) | (350 | ) | ||||||||
- net repurchase of treasury shares | (768 | ) | ||||||||||
- treasury shares repurchased by consolidated subsidiaries | (50 | ) | 9 | |||||||||
Effect of changes in consolidation area and exchange differences: | 7 | (30 | ) | |||||||||
- effect of change in consolidation area | (1 | ) | ||||||||||
- effect of exchange differences and other changes | 8 | (30 | ) | |||||||||
CHANGE IN CASH AND CASH EQUIVALENTS | (175 | ) | (331 | ) |
97
ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
Foreword
The main risks that the Company is facing and actively
monitoring and managing are the following: (i) the market risk
deriving from exposure to fluctuations in interest rates, foreign
currency exchange rates and commodity prices; (ii) the credit
risk deriving from the possible default of a counterparty; (iii)
the liquidity risk deriving from the risk that suitable sources
of funding for the Groups operations may not be available;
(iv) the country risk in the upstream business; (v) the
operational risk; (vi) the possible evolution of the Italian gas
market; (vii) the specific risks deriving 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 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 Groups 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 on separate entities: the parent companys (Eni SpA) finance department, Eni Coordination Center and Banque Eni which is subject to certain bank regulatory restrictions preventing the Groups exposure to concentrations of credit risk and Eni Trading & Shipping that has the mandate to manage and monitor solely commodity derivative contracts. In particular Eni SpA and Eni Coordination Center manage subsidiaries financing requirements in and outside 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 Enis 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 Groups activity, i.e., potential gain or loss in fair values, due to changes in market conditions taking account of the correlation existing among changes in fair value of existing instruments. Enis finance departments define maximum tolerable levels of risk exposure to changes in interest rates and foreign currency exchange rates, pooling Group companies risk positions. Enis 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. Enis guidelines prescribe that Enis Group companies minimize such kinds of market risks. With regard to the commodity risk, Enis policies and guidelines define rules to manage this risk aiming at the optimization of core activities and the pursuing of preset targets of industrial margins. The maximum tolerable level of risk exposure is pre-defined in terms of value-at-risk in connection with trading and commercial activities, while the strategic risk exposure to commodity prices fluctuations i.e. the impact on the Groups business results deriving from changes in commodity prices is monitored in terms of value-at-risk, albeit not hedged in a systematic way. Accordingly, Eni evaluates the opportunity to mitigate its
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
commodity risk exposure by entering into hedging transactions in view of certain acquisition deals of oil and gas reserves as part of the Groups 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 Enis
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 single
transactions 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 Groups 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 Enis
results of operations, and vice versa. Enis 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 Enis
central finance departments which match opposite positions within
Group companies, hedging the Group net exposure through the use
of certain derivatives, such as currency swaps, forwards and
options. Such derivatives are evaluated at fair value on the
basis of market prices provided by specialized sources. Changes
in fair value of those derivatives are normally recognized
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 exposure
arising from possible future changes in market values over a
24-hour period within a 99% confidence level and a 20-day holding
period.
Interest rate risk
Changes in interest rates affect the market value of
financial assets and liabilities of the company and the level of
finance charges. Enis interest rate risk management policy
is to minimize risk with the aim to achieve financial structure
objectives defined and approved in the managements finance
plans. Borrowing requirements of the Groups companies are
pooled by the Groups central finance department in order to
manage net positions and the funding of portfolio developments
consistently with managements plans while maintaining a
level of risk exposure within prescribed limits. Eni enters into
interest rate derivative transactions, in particular interest
rate swaps, to effectively manage the balance between fixed and
floating rate debt. Such derivatives are evaluated 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
Enis 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 Enis 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 and
NYMEX (futures) and derivatives traded over the counter (swaps,
forward, contracts for differences and options) with the
underlying commodities being crude oil, refined products or
electricity. Such derivatives are evaluated 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
99
ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
formal criteria to be recognized as hedges in accordance with IAS 39. Value at risk deriving from commodity exposure is measured daily on the basis of a historical simulation technique, with a 95% confidence level and a one-day holding period. The following table shows amounts in terms of value at risk, recorded in 2009 (compared with 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.
(Exchange and interest rate: Value at Risk - Parametric method variance/covariance; holding period: 20 days; confidence level: 99%)
2008 | 2009 | |||
(euro million) | High | Low | Avg | At period end | High | Low | Avg | At period end |
Interest rate | 12.31 | 0.73 | 4.17 | 6.54 | 6.85 | 1.65 | 3.35 | 1.98 | ||||||||
Exchange rate | 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%)
2008 | 2009 | |||
($ million) | High | Low | Avg | At period end | High | Low | Avg | At period end |
Area oil, products | 46.48 | 3.44 | 19.88 | 5.43 | 37.51 | 4.74 | 17.65 | 6.64 | ||||||||
Area Gas & Power (*) | 67.04 | 24.38 | 43.53 | 32.07 | 51.62 | 28.01 | 40.97 | 38.26 |
(*) | In 2008, amounts relating to the Gas & Power business also include Distrigas' contribution, since the 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 manages differently credit risk 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
assessment 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 who is
accordingly allocated to its proper risk category. The Group risk
categories are comparable to those prepared by the main rating
agencies on the marketplace. The Groups 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 counterpartys
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 Companys Board of
Directors taking into accounts the credit ratings provided by
primary credit rating agencies on the marketplace. Credit risk
arising from financial counterparties is managed by the Group
central finance departments, including Enis 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 been selected 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. As of December 31, 2009, Eni
had no significant concentrations of credit risk.
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
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 assets on the market place as to be unable to meet
short-term finance requirements and to settle obligations. Such a
situation would negatively impact Group 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 Groups needs
optimizing the opportunity cost of maintaining liquidity reserves
also achieving an efficient balance in terms of maturity and
composition of finance debt. The Group capital structure is set
according to the Companys industrial targets and within the
limits established by the Companys Board of Directors who
are responsible for prescribing the maximum ratio of debt to
total equity and minimum ratio of medium and long term debt to
total debt as well as fixed rate medium and long term debt to
total medium and long 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 Enis financial
planning have enabled the Group to maintain access to the credit
market particularly via the issue of commercial paper also
targeting to increase the flexibility of funding facilities. In
particular in 2009, Eni issued bonds addressed to institutional
investor and to the retail market for euro 3 billion and euro 2
billion, respectively. The above mentioned actions aimed at
ensuring availability of suitable sources of funding to fulfill
short term commitments and due obligations also preserving the
necessary financial flexibility to support the Groups
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, 2009, Eni maintained short term committed and
uncommitted unused borrowing facilities of euro 11,774 million,
of which euro 2,241 million were committed, and long term
committed unused borrowing facilities of euro 2,850 million.
These facilities were under interest rates that reflected market
conditions. Fees charged for unused facilities were not
significant.
Eni has in place a program for the issuance of Euro Medium Term
Notes up to euro 15 billion, of which euro 9,211 million were
drawn as of December 31, 2009.
The Group has debt ratings of AA- and A-1+ respectively for long
(outlook negative) and short-term debt assigned by Standard &
Poors and Aa2 and P-1 (outlook negative) assigned by
Moodys.
The tables below summarize the Group main contractual obligations
for finance debt repayments, including expected payments for
interest charges, and trade and other payables maturities.
Current and non current finance debt
Maturity year |
||
(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 |
Trade and other payables
Maturity year |
||
(euro million) | 2010 |
|
2011-2014 |
|
2015 and thereafter |
|
Total |
|
Trade payables | 10,078 | 10,078 | ||||||
Advances, other payables | 9,096 | 31 | 23 | 9,150 | ||||
19,174 | 31 | 23 | 19,228 |
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
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 the business. To meet these commitments, the Group will have to make payments to third parties. The Companys 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 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 Companys 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.
Expected payments by period under contractual obligations and commercial commitments
Maturity year |
||
(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 | 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 | 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 (4) | 151 | 94 | 116 | 115 | 115 | 1,894 | 2,485 | |||||||
Other obligations | 21 | 4 | 3 | 3 | 3 | 152 | 186 | |||||||
of which: | ||||||||||||||
- Memorandum of intent relating Val dAgri | 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 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) | Mainly refers to arrangements to purchase capacity entitlements at certain re-gasification facilities in the U.S. |
The table below summarizes Enis capital expenditure commitments for property, plant and equipment and capital projects at December 31, 2009. Capital expenditures are considered to be committed when the project has received the appropriate level of internal management approval. Such costs are included in the amounts shown.
Capital expenditure commitments
Maturity year |
||
(euro million) | 2010 |
2011 |
2012 |
2013 |
2014 and subsequent years |
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 Enis hydrocarbons reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American. At December 31, 2009, approximately 80% of Enis proved hydrocarbons reserves were located in such countries. Similarly, a substantial portion of Enis natural gas supplies comes from countries outside the EU
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
and North America. In 2009, approximately 60% of Enis domestic supply of natural gas came from such countries. Developments in the political framework, economic crisis, social unrest can compromise temporarily or permanently Enis ability to operate or to economically operate in such countries, and to have access to oil and gas reserves. Further risks associated with activities in those 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 Enis titles and mineral assets, changes in unilateral contractual clauses reducing the value of Enis assets; (iii) restrictions on exploration, production, imports and exports; (iv) tax or royalty increases; (v) civil and social unrest leading to sabotages, acts of violence and incidents. While the occurrence of these events is unpredictable, it is possible that they can have a material adverse impact on Enis 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 countrys 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
Enis business activities conducted in and outside Italy
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 safety on 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 Enis 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 groups results of
operations or financial position in future years. Recently
enacted regulations on safety and health in the workplace in
Italy impose a new array of obligations to the Company
operations, particularly regarding contractors. New regulations
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 Enis employees, the populations involved in its
activity, contractors and clients, and the environment and being
in compliance with local and international rules and regulations.
Enis 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 is
performed through the adoption of procedures and effective
pollution management systems tailored to the peculiarities of
each business and industrial site and on steady enhancement of
plants and process. Additionally, coding activities and
procedures on operating phases allow to reduce the human
component in the plant risk management. Operating emergencies
that may have an adverse impact on assets, people and the
environment are managed by the business units for each site.
These units manage the HSE risk in 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 of Crisis 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
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
by the adoption of Enis Model of HSE operations in all
the Division 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 cycle (Deming cycle).
Eni is reaching the goal of total certification of its plants.
Industrial and commercial sites of the R&M segment have been
certified as ISO 14001, and six of them are EMAS certified; in
the petrochemical segment facilities are 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 three levels: HSE Corporate, HSE business
unit and at site level consisting of:
- | internal audits of management systems (performed by Eni employees or external consultants); | |
- | 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 to its HSE staff in order to:
- | promote the execution of behaviors consistent with guidelines; | |
- | drive peoples learning growth process by developing professionalism, management and corporate culture; | |
- | support management knowledge and control of HSE risks. |
Possible evolution of the Italian gas market
Detailed information is furnished in the paragraph "Risk factors" - Operating Review of the Gas & Power division.
Specific risks associated with exploration and production of oil and natural gas
Exploration and production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks. It is subject to natural hazards and 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 commissioning relating 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 Enis planned and ongoing projects is located.
Risks associated with the cyclicality of the oil and gas sector
The global economic downturn and the associated reduction in
industrial output recorded in 2008 and for most of 2009 triggered
a sharp decline in worldwide demand for energy, resulting in
significantly lower commodity prices.
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 the sustainability
of capital plans of oil and gas 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
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
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 managements 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 the planned rates of return.
Eni plans to invest euro 52.8 billion in the 2010-2013 four-year
period, at the Companys long-term price for Brent crude of
65 $/bbl (in real terms 2013). Of these, 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 US 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 division, Enis 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 import
pipelines made by Eni and other operators. Those trends, together
with the recently enacted gas release programs in Italy,
represent risk factors to the Companys 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.
For more information see the specific risk paragraph in the
"Operating Review" of the Gas & Power section in
this annual report.
The Refining & Marketing and the Petrochemical divisions 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, Enis management does not expect any appreciable
recovery in the main trends that negatively affected the
performances of these businesses last year. In 2009 Enis
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
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
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 Enis complex refineries. Secondly, the
industry continued to be plagued by weak fundamentals due to
excess capacity, high inventory levels and stagnant demand
affecting end-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
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 division, management has been pursuing a
number of initiatives designed to reduce fixed operating expenses
and to realign the industrial set-up of Enis petrochemical
operations with a view of enhancing areas of competitive
advantage. In spite of all this, the achievement of the operating
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 this market. The start of operations of new distinctive
assets in 2010 and 2011 coupled with the size and quality of the
backlog and the strong operating performance on projects,
underpin expectations for a further significant strengthening of
Saipems competitive position in the medium term.
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ENI ANNUAL REPORT / RISK FACTORS, UNCERTAINTIES AND TREND INFORMATION
Outlook
In what remains an uncertain energy environment, Eni forecasts
a modest improvement in global oil demand and a Brent price of 65
$/bbl in 2010. Gas demand in Europe and Italy is expected to
recover gradually from the steep decline suffered in 2009, which
mainly impacted the industrial and power generation sectors at a
time when new import capacity was coming on line. The Company
faces a challenging refining environment, excluding any
significant recovery in industry fundamentals that will entail
prolonged weakness in refinery margins.
- Production of liquids and natural gas is forecast to
achieve a level not lower than in 2009, when production came in
at 1.769 mmboe/d, based on the Companys scenario for a
Brent price of 65 $/bbl for the full year, OPEC restrictions at
the same level as 2009 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 Companys recently started fields, mainly in Nigeria,
Angola and the USA. These additions will be offset by mature
field declines. Production growth will resume at a strong rate in
the coming years.
- Natural gas sales are expected to remain flat compared
to 2009 (approximately 104 bcm were achieved in 2009). Increasing
competitive pressures, mainly in Italy, will be offset by an
expected recovery in European gas demand. Other positive trends
include a benefit associated with integrating Distrigas
operations and the optimization of supply portfolio, including
re-negotiation of long-term supply contracts.
- Regulated businesses in Italy will benefit from the
pre-set, regulatory return on new capital expenditures and cost
savings from integrating the whole chain of transport, storage
and distribution activities.
- Refining throughputs on Enis account are planned
to be in line with 2009 (actual throughputs in 2009 were 34.55
mmtonnes). Volumes processed at wholly-owned refineries are
expected to increase, resulting in a higher capacity utilization
rate, due to a reduction in volumes on third party refineries
reflecting the Companys decision to terminate certain
processing agreements. Efficiency improvement actions will partly
offset the unfavorable trading environment.
- Retail sales of refined products in Italy and the rest
of Europe are expected to be unchanged from 2009 (12.02 mmtonnes
in 2009) reflecting weak demand. New marketing initiatives are
planned in order to strengthen Enis leadership on the
Italian retail market and to develop its market share in European
markets.
- The Engineering & Construction business is expected
to see solid results due to a robust order backlog.
In 2010, management plans to make capital expenditures broadly in line with 2009 (euro 13.69 billion were invested in 2009). Capital expenditures will mainly be directed to the development of oil and natural gas reserves, exploration projects, the upgrading of construction vessels and rigs, and the upgrading of natural gas transport infrastructure. Management has planned a number of measures designed to ensure the achievement of a ratio of net borrowings to total equity (leverage) which will adequately support a strong credit rating.
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ENI ANNUAL REPORT / OTHER INFORMATION
Other information
Continuing listing standards provided by Article No. 36 of
Italian exchanges regulation about issuers that control
subsidiaries incorporated or regulated in accordance with laws of
extra-EU countries
Certain provisions have been recently enacted regulating
continuing Italian listing standards of issuers controlling
subsidiaries that are incorporated or regulated in accordance
with laws of extra-EU countries, also having a material impact on
the consolidated financial statements of the parent company.
Regarding the aforementioned provisions, the Company discloses
that:
- | as of December 31, 2009, the provisions of Article No. 36 of Italian exchanges regulation in accordance with Italian continuing listing standards apply to Enis subsidiaries Burren Energy (Bermuda) Ltd, Eni Congo SA, Eni Norge AS, Eni Petroleum Co Inc, NAOC-Nigerian Agip Oil Co Ltd, Nigerian Agip Exploration Ltd, Trans Tunisian Pipeline Co Ltd e Burren Energy (Congo) Ltd which fell within the scope of the regulation as of September 30, 2009, as well as the following subsidiary Eni Finance USA Inc; | |
- | the Company has already adopted adequate procedure to ensure full compliance with the regulation. |
Subsequent events
Subsequent business developments are described in the
operating review of Enis business segment. In this section
management discloses the following matter.
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
Corporate Governance and Shareholding Structure Report
This Report is intended to provide a general and complete
overview of the corporate governance system adopted by Eni.
Fulfilling the applicable legal and regulatory duties1,
in accordance with the guidelines and recommendations of Borsa
Italiana SpA ("Borsa Italiana") the company
responsible for the organization and management of the Italian
stock exchange and the most representative trade
associations, the Report contains information regarding ownership
structures and compliance with the Corporate Governance Code
promoted by Borsa Italiana, giving reasons for the choices made
in the application of corporate governance principles, as well as
practices actually applied.
Borsa Italianas Corporate Governance Code is accessible to
the public at www.borsaitaliana.it2.
The text of this Report is also available at the registered
office, published in the "Corporate Governance" section
of the Companys website3 and forwarded to Borsa
Italiana according to the procedures and by the deadlines
required by applicable regulations.
The information contained in this Report relates to the financial
year 2009 and has been updated, in respect of certain matters, as
of March 11, 2010, the date of the Board of Directors
meeting that approved it together with the Directors
report, the consolidated financial statements and the draft
financial statements for the financial year 2009.
Eni: profile, structure and values
Profile
Eni is an integrated energy company with operations in more
than 77 countries and a workforce of approximately 78,400 people.
It operates in industries ranging from oil and natural gas to the
generation and sale of electricity, from petrochemicals and
engineering to construction, all of them sectors in which it has
excellent skills and strong global market positions.
All of Enis actions are characterized by a strong
commitment to sustainable development: making the most of
peoples skills, contributing to the development and
well-being of the communities in which it works, respecting the
environment, investing in technical innovation, pursuing energy
efficiency and lowering the risks of climate change are
objectives shared by the corporate bodies, management and
employees.
All of Enis men and women have a passion for challenges,
continuous improvement and excellence, and above all they believe
in the fundamental role played by the individual, the
environment, integrity and the values established by the Code of
Ethics.
Because of this, constant attention is paid to ensuring good
governance.
Integrity and transparency are the principles which Eni pursues
in formulating an administration and control structure that is
suited to its size, complexity and operating structure, in
adopting an effective internal control system, and in
communicating with shareholders and other stakeholders,
particularly by reviewing and updating the information available
on its website.
(1) | Article 123-bis of Legislative Decree No. 58/1998 ("Consolidated Law on Finance") and Article 89-bis of Consob Resolution No. 11971/99 and subsequent amendments ("Consob Regulations on Issuers"). | |
(2) | At the following address: http://www.borsaitaliana.it/borsaitaliana/ufficio-stampa/comunicati-stampa/2006/ codiceautodisciplina.en_pdf.htm | |
(3) | At the following address: http://www.eni.com/en_IT/governance/report-on-corporate-governance/report-on-corporate-governance.shtml |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
Governance structure
The corporate governance structure of Eni follows the
traditional model, which assigns corporate management to the
Board of Directors, the linchpin of the organizational system,
supervisory functions to the Board of Statutory Auditors and
auditing of the accounts to the audit firm appointed by the
Shareholders Meeting.
In compliance with the provisions of the By-laws, the Board
appoints a Chief Executive Officer (CEO), to whom it assigns the
management of the Company, with the exception of some matters
which it reserves for itself, and assigns proxies to the Chairman
to identify and promote integrated projects and strategically
important international agreements.
The chosen model therefore establishes a clear distinction
between the functions of the Chairman and those of the CEO,
pursuant to Article 25 of the By-laws, both of them retain
representative powers for the Company.
The Board of Directors has created three internal committees with
consulting and advisory functions: the "Internal Control
Committee", "Compensation Committee" and
"Oil-Gas Energy Committee". Furthermore, on a proposal
made by the CEO, in agreement with the Chairman, it has appointed
three General Managers (Chief Operating Officers) to head the
three operating Divisions of Eni4.
The Board of Directors, on a proposal made by the CEO, in
agreement with the Chairman, subject to the prior approval of the
Board of Statutory Auditors, has appointed the Companys
Chief Financial Officer as the Officer in charge of preparing
financial reports.
The Chief Operating Officers and the Chief Financial Officer,
together with the Chief Corporate Operations Officer and the
Executives which directly report to the CEO (Senior Executive
Vice President of the Company) are permanent members of the
Management Committee, which advises and supports the CEO.
Some of the organizational and management choices highlighted in
the Report have been made in order to fulfill US legal
requirements, with which the Company has been required to comply
following its listing on the New York Stock Exchange
("NYSE").
Code of Ethics
The Board of Directors believes it is fundamentally important
that the values and principles which guide Eni are clearly
defined, both internally and externally, in order to ensure that
all company activities are implemented in compliance with the
relevant laws and in a context of fair competition, honesty,
integrity, fairness and good faith as well as in accordance with
the legitimate interests of all the stakeholders with which Eni
comes into contact on a daily basis: shareholders, employees,
suppliers, customers, commercial and financial partners, as well
as local communities and institutions within the countries in
which Eni operates.
These values are embedded in the new Eni Code of Ethics, approved
by the Board of Directors at its meeting held on March 14, 2008
to replace the previous Business Conduct Code of 1998. The Code
of Ethics fulfils the evolution of the regulatory framework,
expands on the issues of human rights and sustainability, ensures
compliance with international best practices and updates
references in relation to Enis new organizational
structure. Everyone working for Eni, from the corporate bodies
and management downwards, is specifically committed to complying
and ensuring compliance with these principles in the context of
their duties and responsibilities. Under no circumstances may the
conviction that one is acting for the benefit of Eni justify
behavior which conflicts with these principles. The Guarantor of
the Code of Ethics defends and promotes these principles and
presents a report on the implementation of the Code, on a
half-yearly basis, to the Internal Control Committee as well as
to the Board of Statutory Auditors, the Chairman and the CEO, who
in turn report to the Board. With specific reference to corporate
governance issues, the new Code refers to the main corporate
governance rules contained in the Corporate Governance Code
adopted by Eni5, highlighting relations with
shareholders and the market and defining the general principles
to be applied when disseminating company information and in
relations with the media.
(4) | "Exploration& Production", "Gas& Power" and "Refining& Marketing" Divisions. | |
(5) | For further details, see the paragraph entitled "Compliance with the Corporate Governance Code of Borsa Italiana and Eni Code". |
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The Code is also a general unwaivable principle of Model 231,
of which it is an integral part: the synergies between the Code
of Ethics and the Model are also emphasized by the allocation of
Guarantor functions with respect to the Code of Ethics to the Eni
Watch Structure, the latter being established by Model 231, with
responsibility for promoting and verifying its implementation.
The Code of Ethics applies to all subsidiaries which are directly
and indirectly controlled in Italy and abroad by Eni.
Subsidiaries which are listed on the stock exchange and those of
the gas sector which are subject to so-called unbundling
regulations adopt the Code and adjust it as necessary, in
accordance with their own company peculiarities and the principle
of managerial autonomy. Each subsidiary assigns Guarantor
functions with respect to the Code of Ethics to its own Watch
Structure.
The representatives specified by Eni in the corporate bodies of
other investee companies, as well as in consortia and joint
ventures, promote the principles and contents of the Code within
their respective areas of responsibility.
Enis commitment to disseminating the principles of the Code
is further underlined by the creation, under the responsibility
of the Guarantor of the Code of Ethics, of a specific "Code
of Ethics Promotion Team". The Teams task is to
promote knowledge and facilitate the implementation of the Code
providing all the tools required to interpret and understand it.
For this purpose, it promotes a variety of initiatives depending
on the stakeholders involved. These initiatives also aim to
stimulate observations on the Code so that it can be constantly
updated to fulfill the needs of the social context in which Eni
operates
In particular, through a specific Promotion Plan, the Code of
Ethics Promotion Team realized in 2009 various initiatives
concerning dissemination and communication, training and
participation of stakeholders.
For further details regarding dissemination and communication
activities relating to the Code, see the
"Sustainability" Section of the Eni website and the
Sustainability Report6.
Sustainability
Sustainability is an integral part of Enis governance
model and is driving a process of improvement centered on issues
identified through dialogue with stakeholders and discussions
about future energy scenarios.
Each Sustainability objective is pursued through projects and
initiatives defined by Eni and its Subsidiaries and included in
specific short and medium term action plans. Planning,
implementation and control is a process shared with the Business
Units and Areas and approved by the companys highest
decision-making bodies. The Board of Directors also has a key
role in defining sustainability policies and approving the
Sustainability Report, which is also submitted to the
Shareholders' Meeting. The audit firm certifies the
Sustainability Report, verifying the correctness of the planning
and management process for the activity as a whole and of the
flow of data supplied by operating sites, which are subsequently
consolidated and audited at level of Country, Company, Division,
Corporate Management and Sustainability Unit. This certification
process complies with the requirements of the ISAE 3000 standard,
issued in 2004 by the International Auditing and Assurance
Standard Board (IAASB), the same body that is assigned to issuing
auditing principles.
The most significant initiatives carried out by Eni in recent
years to ensure the sustainability of the governance system
include in particular encouraging shareholders to participate in
the life of the company, raising awareness among shareholders and
the Board about issues connected with the model of sustainability
and diversity in particular, as well as disseminating good
governance practices according to the principles of the Code of
Ethics.
Enis commitment to sustainable development is also
recognized by the leading financial Sustainability indexes. In
2009, the companys place was reconfirmed in the Dow Jones
Sustainability Index and STOXX, where it has been since 2007. The
company is also included in the FTSE4GOOD index and had
its second place in the Accountability Rating Italy 2009
reconfirmed.
Moreover, Eni came first both in the Italian and world CSR Online
Awards 2009, ranks drawn up by the financial communication
company Lundquist. Finally, in June 2009 in New York, Enis
CEO was presented
(6) | http://www.eni.com/en_IT/sustainability/sustainability_swf.page |
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with the Foreign Policy Association's Corporate Social Responsibility Award. For further details, see the Sustainability Report and the Sustainability section of the Eni website7.
Information about the shareholding structure8
Share capital structure and significant shareholdings
The share capital of Eni consists of ordinary registered
shares. The shares are indivisible and each share gives one
voting right. Owners of Eni shares may vote in the ordinary and
extraordinary shareholders meetings of the company and may,
in any case, exercise the corporate and financial rights which
are ascribed to them by current regulations, in compliance with
the limits imposed by the latter and by the Companys
By-laws.
On December 31, 2009, the Companys share capital was Euro
4,005,358,876, fully paid-up and represented by 4,005,358,876
ordinary registered shares, each with a nominal value of euro
1.00.
In 1995, Eni issued an ADR (American Depositary Receipt)
program for the US market. The ADR identifies the stock
certificates representing shares of foreign companies traded in
stock exchanges of the United States. Each Eni ADR represents two
ordinary shares and is listed on the New York Stock Exchange9.
Based on the information available and communications received in
accordance with Article 120 of Legislative Decree No. 58/1998
(Testo Unico della Finanza - Italian Consolidated Law on
Finance), Consob Resolution No. 11971/1999 (Regolamento Emittenti
Consob - Consob Regulations on Issuers), on December 31, 2009 the
shareholders who owned a more than 2% share of Enis capital
were:
Main shareholders |
Shareholders | Shares held | % of capital | ||
Ministry of Economy and Finance | 813,443,277 | 20.31 | ||
Cassa Depositi e Prestiti SpA (a) | 400,288,338 | 9.99 | ||
Eni SpA (own shares) | 382,952,240 | 9.56 | ||
(a) | Cassa Depositi e Prestiti SpA is controlled by the Ministry of Economy and Finance. |
(7) | http://www.eni.com/en_IT/sustainability/sustainability_swf.page | |
(8) | The
information regarding the ownership structure is provided
in accordance with Article 123-bis, paragraph 1,
of the Testo Unico della Finanza (Consolidated Law
on Finance). For information regarding: - the mechanism for the exercise of voting rights in any employee share scheme, where voting rights are not exercised directly by the employees, as required by letter e) of the aforementioned provision, see the paragraph entitled "Shareholders meeting and rights"; - agreements between companies and its Directors, which provide compensation in the event of a resignation or dismissal without just cause or if employment contracts are terminated following a takeover bid, as required by letter i) of the aforementioned provision, see the paragraph entitled "Directors Remuneration"; - rules applicable to the appointment and replacement of Directors, as required by letter l) of the aforementioned provision, see the paragraph entitled "Appointment of the Board of Directors"; - amendments to the By-laws required by letter l) of the aforementioned provision, see the paragraph entitled "Shareholders meetings and rights". |
|
(9) | For further details on ADR program see the Eni website section relative to "FAQ":http://www.eni.com/en_IT/investor-relation/investor-tools/investor-faq/investor-faq.shtml |
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Shareholders by area | ||||||
Shareholders | Number of shareholders | Number of shares | % of capital (a) | |||
Italy | 340,489 | 2,246,718,828 | 56.09 | |||
UK and Ireland | 998 | 188,379,015 | 4.70 | |||
Other UE | 4,603 | 523,822,062 | 13.08 | |||
USA and Canada | 1,701 | 394,799,891 | 9.86 | |||
Rest of world | 1,175 | 241,943,718 | 6.04 | |||
Own shares at the dividend date | 382,952,240 | 9.56 | ||||
Other | 26,743,122 | 0.67 | ||||
Total | 4,005,358,876 | 100.00 |
(a) | As of September 24, 2009, payment date of the interim dividend for fiscal year 2009 (ex-dividend date, September 21, 2009). |
Shareholders by amount of shares held | ||||||
Shareholders | Number of shareholders | Number of shares | % of capital (a) | |||
>10% | 1 | 813,443,277 | 20.31 | |||
3%-10 (b) | 2 | 551,813,303 | 13.78 | |||
2%-3% | 0 | 0 | 0 | |||
1%-2% | 8 | 431,214,800 | 10.77 | |||
0.5%-1% | 6 | 168,306,301 | 4.20 | |||
0.3%-0.5% | 13 | 190,695,057 | 4.76 | |||
0.1%-0.3% | 36 | 254,058,897 | 6.34 | |||
< 0.1% | 348,900 | 1,186,131,879 | 29.61 | |||
Own shares at the dividend date | 382,952,240 | 9.56 | ||||
Other | 26,743,122 | 0.67 | ||||
Total | 4,005,358,876 | 100.00 |
(a) | As of September 24, 2009, payment date of the interim dividend for fiscal year 2009 (ex-dividend date, September 21, 2009). | |
(b) | Afterwards, Intesa San Paolo Group reduced the percentage of shares held from 3.78% to 1.39%. |
Eni is not subject to management and coordination activities10.
Shareholding limits and restrictions on voting rights
In accordance with Article 6 of the By-laws, and applying the
special rules pursuant to Article 3 of Law Decree No. 332/1994,
converted into Law No. 474 of 1994 (Law No. 474/1994), under no
circumstances may any party own shares in the company which
constitute a direct or indirect shareholding of more than 3% of
the share capital. Exceeding this limit results in a ban on
exercising the voting rights and any rights other than
property rights 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 not apply 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 of at least 75% of
the share capital with the right to vote on resolutions
concerning the appointment or dismissal of Directors11.
(10) | Article 19, paragraph 6, of Law Decree No. 78/2009, converted into Law No. 102/2009, states that the term enti (entities) in the reference contained in Article 2497, paragraph 1, of the Civil Code, regarding management and coordination, should be understood to refer to "legal entities other than the State that own a shareholding in the context of their business activities or for economic or financial purposes". | |
(11) | According to Law No. 266 of 2005 (2006 Budget Law), to which a specific paragraph of this Report is dedicated, the same clause would cease to apply if rules regarding the issue of the shares or financial instruments for which the same law provides were included in the By-laws. |
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Special powers of the State (Golden Share)
Pursuant to article 6.2 of the By-laws and to the special
rules set out in Law No. 474/1994, the Ministry of Economy and
Finance, in agreement with the Ministry of Economic Development,
holds special powers that can be exercised in accordance with the
criteria set out in the Prime Ministerial Decree of June 10,
2004. These special powers are briefly the following:
a) | objection to the purchase, by parties who are subject to the shareholding limit12, of significant shareholdings, i.e. shareholdings that represent at least 3% of the share capital and consist of shares with the right to vote in ordinary shareholders meetings. The objection, duly justified, must be expressed if the transaction is deemed to be prejudicial to the vital interests of the State, within ten days of the date of the notification which Directors are required to send when a request is made for registration in the register of shareholders. During the period of time allowed for the right of objection to be exercised, the voting rights and any rights other than property rights connected with the shares that represent the significant shareholding remain suspended. In the event of the right of objection being exercised, by means of a duly justified decision based on the actual prejudicial effect caused by the transaction to the vital interests of the State, the assignee will be forbidden from exercising its voting rights and any rights other than property rights connected with the shares that represent the significant shareholding, and will be required to assign these same shares within one year. In the event of a failure to comply, the Court, at the request of the Ministry of Economy and Finance, will order the sale of the shares representing the significant shareholding according to the procedures set out in Article 2359-ter of the Civil Code; | |
b) | objection to the signing of agreements, as defined in Article 122 of the Consolidated Law on Finance, in the event that at least 3% of the share capital consisting of shares with the right to vote in ordinary shareholders meetings is represented in the agreements. For the purpose of allowing the right of objection to be exercised, Consob will inform the Ministry of the Economy and Finance of any significant agreements of which it has been notified under the terms of the aforementioned Article 122 of the Consolidated Law on Finance. The right of objection must be exercised within ten days of the date of Consobs notification. During the period of time allowed for the right of objection to be exercised, the voting rights and any rights other than property rights of the shareholders signing up to the agreement are suspended.. If an objection decision is issued with due justification detailing the actual prejudicial effect of the aforesaid agreements to the vital interests of the State, the agreement will be null and void. If the conduct during the Shareholders Meeting of the shareholders bound by the agreement reveals that the undertakings given under an agreement pursuant to the aforesaid article 122 of the Consolidated Law on Finance have been maintained, any resolutions passed with the casting vote of these same shareholders may be challenged; | |
c) | vetoing, if duly justified by an actual prejudicial effect to the vital interests of the State, of resolutions to dissolve the Company, transfer the company, merge, demerge, transfer the registered office overseas, change the company purpose, amend the By-laws in a way that withdraws or modifies the powers detailed in letters (a), (b), (c) and the subsequent letter (d); | |
d) | appointment of a Director with no right to vote in Board meetings. |
Decisions to exercise the powers detailed in letters a), b) and c) may be challenged within sixty days, by the parties entitled to do so, before the Regional Administrative Court of Lazio.
Shares and participating financial instruments referred to
in Law No. 266 of December 22, 2005
In order to "promote privatization and the spread of
investment in shares" of companies in which the State has a
significant shareholding, Article 1, paragraphs 381 to 384 of Law
No. 266 of 2005 (2006 Financial Law) introduced the power to add
provisions to the By-laws of privatized companies primarily
controlled by the State, like Eni, which allow shares or
participating financial instruments to be issued that grant the
special meeting of its holders the right to request that new
shares, even at par value, or new financial instruments be issued
to them with the right to vote in ordinary and extraordinary
Shareholders Meetings. Making this
(12) | These are the parties described in Article 6.1 of the By-laws, excluding those described in Article 32.2. |
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amendment to the By-laws would lead to the shareholding limit referred to in Article 6.1 of the By-laws being removed. At the present time, however, Enis By-laws do not contain any such provision.
Agreements between shareholders
The Company is not aware of any agreements under the terms of
Article 122 of the Consolidated Law on Finance.
Significant agreements that would become effective, be
modified or be extinguished in the event of a change of control
of Eni
Except as follows, Eni and its subsidiaries are not parties
to any significant agreements that can be disclosed without
causing serious prejudice to the Company and that would become
effective, be modified or be extinguished in the event of a
change in the identity of the shareholders who currently control
Eni. Significant agreements are considered to be agreements that
have been examined and approved by the Board of Directors because
they come within its exclusive areas of responsibility, as stated
below.
In particular, the agreements that come into this category relate
to:
(i) the Shareholders Agreements between Eni, Amorim Energia
and Caixa Geral de Depòsitos for the joint management of Galp
Energia SGPS SA. The agreement provides that in case of change of
control of any participating company, the other partners have a
call option to purchase the Galp shareholding held by the party
whose controlling entity has changed;
(ii) any expiry of the natural gas distribution license of the
subsidiary Distribuidora de Gas Cuyana SA, due to the provisions
of Article 34 of title VIII of Law 24.076 if the company were to
be controlled by a shareholder that engages directly or through
subsidiaries in the activities production, storage or
distribution of natural gas in Argentina.
Proxies for capital increases, power of Directors to issue
participating financial instruments and authorizations to
purchase treasury shares
There are no provisions for proxies to be granted to the
Board of Directors to carry out share capital increases pursuant
to Article 2443.
The Directors have no powers to issue participating financial
instruments.
In a resolution approved on April 29, 2008, the
Shareholders Meeting authorized the Board of Directors,
pursuant to Article 2357 of the Civil Code, subject to prior
revocation of the non-implemented part of the previous
authorization, to purchase treasury shares on the Electronic
Stock Market within 18 months of the date of the resolution, up
to a maximum of 400 million shares, with a nominal value of 1
euro, and up to a total amount of euro 7.4 billion, including
shares held in portfolio as of the date of the Shareholders
Meeting, for a price no lower than their nominal value and no
higher than the reference price recorded on the day before each
individual purchase plus 5%.
The authorization expired on October 29, 200913. On
December 31, 2009, the treasury shares in Enis portfolio
amounted to 382,952,240, the equivalent of 9.56% of share capital
of Eni.
(13) | For further information, go to http://www.eni.com/en_IT/governance/shareholders/treasury-shares/treasury-shares.shtml |
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Corporate Governance information14
Compliance with the Corporate Governance Code
of Borsa Italiana and Eni Code
In a resolution of the Board of Directors approved on
December 13, 2006, which conformed to a similar decision of
January 20, 2000, Eni adhered to the new Corporate Governance
Code for listed companies promoted by Borsa Italiana, according
to the version issued on March 14, 2006 ("Code of Borsa
Italiana")15.
In accordance with the Code of Borsa Italiana, Eni has adopted
its own Corporate Governance Code (following the "Code"
or "Eni Code") for the purpose of transposing its
provisions, adapting them to the specific reality of Eni,
clarifying some of them and at the same time enhancing and
raising the general standards of governance of the Company.
The Eni Code is therefore a clear and comprehensive description
of the Companys governance system that complies with the
provisions of the Code of Borsa Italiana and with the
Companys main documents.
In particular, the Code takes into account the fact that Eni is a
parent company that is not controlled by any other company and is
not subject to management or coordination by others. Equally, the
Code takes into account the current provisions of the By-laws,
which establish a traditional administration and control system
(therefore eliminating the provisions regarding the single and
dual models contained in the Code of Borsa Italiana), separating
the posts of Chairman and CEO (which avoids the need for a lead
independent Director to be appointed) and establishing specific
provisions for the appointment and composition of the Board of
Directors and the Board of Statutory Auditors.
In order to ensure greater transparency and intelligibility, the
Eni Code deals directly with the various options envisaged by the
Code of Borsa Italiana, without therefore referring to later
documents (e.g. with regard to the decision not to redistribute
or modify the functions of the Boards internal committees,
to provide for a single Officer in charge of internal control, to
provide for this Officer also to report to the CEO, not to assign
Internal Auditing to external parties).
The provisions of the Code of Borsa Italiana that refer to the
responsibilities of the Shareholders Meeting have been
included as hopes or recommendations, since the Board cannot
guarantee compliance with them.
Some of the generic recommendations of the Code of Borsa Italiana
have been made specific, particularly those relating to the
independence of Directors, adopting specific terms which identify
"additional remunerations" that prejudice their
independence and which define "close family members".
Finally, provisions have been included that raise the standard of
governance proposed by the Code of Borsa Italiana and in
particular:
- the interest of all stakeholders has been established as a
benchmark for Directors: Directors act and decide in an informed
manner and autonomously, pursuing the primary objective of
creating value for shareholders, taking into account the interest
of other stakeholders;
- the minimum reporting frequency to the Board on the part of
Directors with proxies has been reduced from three to two months;
- for the purposes of the self-assessment of the Board (board
review), it is possible to utilize the services of a specialized
external consultant in order to ensure that the implemented work
is objective;
- the commitment of Directors and Auditors to stay in office
until they are capable of ensuring sufficient time for
implementing their tasks has been emphasized;
- it has been established that the internal Committees of the
Board required by the Eni Code (with specific reference to
the Committee for Internal Control and Compensation Committee)
shall not consist of a number of Directors that represent a
majority of the Board, so as not to alter the process for Board
resolutions;
(14) | The governance information is also provided in accordance with the requirements of Article 123-bis, paragraph 1, letters e), i), l), and paragraph 2, of the Consolidated Law on Finance. | |
(15) | The Code of Borsa Italiana is available to the public on the www.borsaitaliana.it website at: http://www.borsaitaliana.it /borsaitaliana/ufficio-stampa/comunicati-stampa/2006/codiceautodisciplina.en_pdf.htm |
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- provision has been made for an opinion to be issued by the
Internal Control Committee in relation to rules for ensuring
transparency as well as substantive and procedural fairness
during transactions with related parties and transactions
involving interests on the part of Directors. The Committee has
also been ascribed a significant role in the preliminary phase of
operations with related parties, in compliance with sector
principles and best practices;
- for the appointment of the Officer in charge of internal
control, the Boards proposal is made by the CEO in
agreement with the Chairman. In a resolution approved on October
30, 2008, the Board of Directors provided for the proposal to be
made after having also heard from the Internal Control Committee
and for these appointment procedures also to apply to the Senior
Executive Vice President of Internal Audit; it therefore
appointed the latter, with the agreement of the Committee, as
Enis Officer in charge of internal control16;
- provision has been made for at least two members of the
Internal Control Committee to have adequate experience in the
accounting and financial fields (the Code of Borsa Italiana only
requires one).
As of December 13, 2006, the Board of Statutory Auditors has
expressly complied with the relevant provisions of the Code.
Following the adoption of the Eni Code, the Board of Directors
also approved a number of resolutions implementing and specifying
the provisions it contains.
In particular:
- the functions of the Board of Directors have been redefined.
The Board maintains an absolutely central position with respect
to the corporate governance system of the Company and retains
wide-ranging responsibilities, particularly in terms of Company
and Group organization and the internal control system;
- the most significant operations of the Company and its
subsidiaries have been defined and presented for approval by the
Board, which is required to pay particular attention to
situations in which the Directors have personal or third party
interests as well as to transactions with related parties;
- the Board of Directors also has a key role in defining
sustainability policies and approving the Sustainability Report,
which are also submitted to the Shareholders Meeting;
- subsidiaries that are of strategic importance (Snam Rete Gas
SpA, Saipem SpA, Polimeri Europa SpA and Eni International BV)
have been identified;
- the guidelines on the maximum number of offices held by
Directors in other companies have been defined in order to ensure
that Directors dedicate the time required to perform their duty
effectively; the provisions set for the Executive Director are
extended to cover the General Managers as well;
- the principle has been established of respect for the
managerial independence of listed subsidiaries (currently, in
Italy, Saipem SpA and Snam Rete Gas SpA) and the commitment on
the part of Eni to comply with the provisions of the Code that
relate to the shareholders of issuers. This principle has been
subsequently extended, as a result of developments in the legal
framework, to cover companies that are subject to separate
administration and accounting systems (known as
"unbundling") as required by specific regulation
applicable (in addition to Snam Rete Gas SpA, for Italy, Italgas
SpA and Stogit SpA17).
At its meeting on April 23, 2009, the Board of Directors also
established the general governance principles that Eni applies,
in its position as the shareholder, to its investee companies in
Italy and overseas. For this purpose, it has issued Guidelines,
complemented by specific implementation rules, aimed at
establishing general principles, roles and organizational
responsibilities for identifying governance and control systems
and for the composition of company bodies and the respective
appointment criteria. In particular, the governance model chosen
for the Italian companies is that of the joint-stock company with
a traditional administration and control system, while for
overseas companies provision has been made for the adoption of
legal forms that are similar to that of a joint-stock and/or
limited liability company under Italian law. The auditing of
investee companies in Italy and overseas must be entrusted to an
audit firm. In order to ensure adequate representation of
diversity in company bodies, particularly gender diversity, a
monitoring project in Eni scenery has been launched.
(16) | The Board thus confirmed a previous resolution of March 16, 2007. | |
(17) | With effect from July 2009, Eni sold its shareholding in the two companies to Snam Rete Gas SpA. |
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The Eni corporate governance system therefore complies with
the requirements of the Code of Borsa Italiana and also contains
provisions that improve the standard of corporate governance.
Further details of the implementation of the respective
provisions will be provided in the rest of this Report.
The Eni Code is published in the Corporate Governance section of
the Eni website18. In order to avoid making the text
too burdensome to read, the "Comment" contained in the
Code of Borsa Italiana does not appear but it is borne in mind by
Eni in applying the Principles and Criteria.
Shareholders Meetings and rights19
The Shareholders Meeting, whether ordinary or
extraordinary, has the power to pass resolutions according to the
procedures and on the matters stated in the law and in the
By-laws. In particular, the Ordinary Shareholders Meeting
appoints and dismisses Directors and Statutory Auditors,
determines their remuneration, approves the financial statements
(closed on December 31 of each year) and appoints the audit firm
and determines its remuneration. The Extraordinary
Shareholders Meeting passes resolutions on changes to the
By-laws and operations of an extraordinary nature, such as
capital increases, mergers and demergers.
As regards the rules applicable to amendments to the By-laws, Eni
complies with ordinary legislation, with the exception of the
terms of the paragraph relating to the special powers of the
State contained in this Report, to which reference should be
made. It is also worth noting that Article 23.2 of the By-laws
provides for the Board of Directors to pass resolutions regarding
the adaptation of provisions in the By-laws to legal
requirements.
The By-laws have also assigned the Board of Directors, pursuant
to Article 2365, paragraph 2, of the Civil Code, responsibility
for passing resolutions on mergers by incorporation and
proportional demergers of companies at least 90% of whose shares
or units are owned by the Company, as well as on the
establishment and closure of secondary offices.
In order to promote the attendance of shareholders at
Shareholders Meetings, until the new provisions become
effective20, the convocation will be sent out by
notice addressed to Borsa Italiana and published on the website
and in the Gazzetta Ufficiale, as well as, in accordance
with Article 13 of the By-laws and current legislation, in the
daily newspapers Il Sole 24 Ore, Corriere della Sera
and The Financial Times. Convocation notices must state
the provisions of the By-laws that are relevant to the meeting,
including, in particular, instructions on how to obtain proxy
forms.
In order to speak at a Shareholders Meeting, notice must be
submitted, at least two working days before the date of first
convocation of the Shareholders Meeting, by an authorized
financial broker. The entitled person may withdraw this notice,
through the financial broker, thus losing the right to speak at
the meeting.
In order to facilitate attendance by shareholders, the By-laws
provide for votes to be cast by mail and establish specific
facilities for collecting proxies
Votes sent by mail, within the period established by law, may be
revoked by means of an explicit declaration made known to the
Company at least one day before the Shareholders Meeting.
Anyone intending to attend the Shareholders Meeting as the
legal or voluntary representative of shareholders or other
persons entitled to attend must submit documentation that
demonstrates their powers to the relevant department of the
Company according to the terms and procedures stated in the
convocation notice.
Furthermore, pursuant to Article 14 of the By-laws, in order to
facilitate the collection of proxies from shareholders who are
employees of the Company and its subsidiaries, and who are
members of shareholders associations that fulfill the
requirements of current relevant legislation, the associations in
question are provided, according to terms and procedures agreed
by their legal representatives, with spaces to be used for
communication purposes and for the collection of proxies.
(18) | At the following address: http://www.eni.com/en_IT/governance/governance-model-policies/eni-corporate-governance-code/eni-corporate-governance-code.shtml | |
(19) | Information provided pursuant to Article 123-ii, paragraph 1, letters e) and l) with reference to changes to the By-laws, and paragraph 2, letter c), of the Consolidated Law on Finance. | |
(20) | For shareholders meetings whose convocation notices will be published after October 31, 2010, the new provisions will apply which transpose Directive 2007/36/EC on the convocation, contribution and voting rights of shareholders. |
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In accordance with the law and the By-laws, within five days
of the convocation notice being published, shareholders who,
whether jointly or individually, represent at least one fortieth
of the share capital may submit a request for the list of
additional matters to be discussed. The request must state the
proposed matters (which must exclude any matters that may only be
proposed by the Directors or are based on plans or reports drawn
up by the Directors).
In order to ensure the orderly and efficient running of
Shareholders Meetings and allow each shareholder to
contribute to the matters being discussed, on December 4, 1998,
the Shareholders Meeting approved the regulations for its
meetings, which are available on the Eni website21.
Shareholders Meetings are chaired by the Chairman of the
Board of Directors or, in his stead, by the individuals named in
the By-laws.
As part of the initiatives launched to stimulate the interest of
shareholders and a greater degree of involvement, at the last
Annual Shareholders Meeting (April 29-30, 2009) an
interactive animation and a Shareholders Handbook were
produced, available on the website22, in order to
provide clear and immediate information on the attendance
procedures and the rights that can be exercised at these events
which are so important for the life of the Company and its
shareholders. Eni also intends to extend these initiatives to the
Shareholders Meeting that will be convened to approve the
financial statements for 2009, paying more attention, also
communicative, to the relation with its shareholders.
During the Shareholders Meetings, the Board strives to
ensure the greatest transparency of the matters discussed by
shareholders, who are granted the opportunity to ask for
information about the matters included in the agenda, this
information being subsequently provided in accordance with the
rules regarding inside information.
Board of Directors23
Composition
In accordance with Article 17 of the By-laws, the members of
the Board of Directors vary between a minimum of three and a
maximum of nine. The Ordinary Shareholders Meeting
determines the number of members within these limits.
The By-laws state that minority shareholders may appoint a number
of their own representatives on the Board that corresponds to
three tenths of the total.
The Shareholders Meeting of June 10, 2008, set the number
of Directors at nine, appointing the Board of Directors and
Chairman of the Board for three financial years or in any case
until the date of the Shareholders Meeting convened to
approve the financial statements for the financial year 2010. On
June 11, 2008 the Board of Directors appointed Paolo Scaroni
Chief Executive Officer of Eni.
The Board consists of Roberto Poli (Chairman of the Board), Paolo
Scaroni (Chief Executive Officer), Alberto Clô, Paolo Andrea
Colombo, Paolo Marchioni, Marco Reboa, Mario Resca, Pierluigi
Scibetta and Francesco Taranto.
Roberto Poli, Paolo Scaroni, Paolo Andrea Colombo, Paolo
Marchioni, Mario Resca and Pierluigi Scibetta were elected on the
basis of the list submitted by the Ministry of the Economy and
Finance, which owns 20.31% of the share capital.
Alberto Clô, Marco Reboa and Francesco Taranto were elected on
the basis of the list submitted by the institutional investors,
which owned a total of 1.10% of the share capital at the time.
Roberto Ulissi, Corporate Affairs and Governance Senior Executive
Vice President of the Company was confirmed as Secretary of the
Board of Directors.
Information is provided below on the personal and professional
lives of the elected Directors.
(21) | At the following address: http://www.eni.com/en_IT/governance/shareholder-meeting/meeting-regulation/meeting-regulation.shtml | |
(22) | At the following address: http://www.eni.com/en_IT/governance/shareholders/initiatives/initiatives.shtml | |
(23) | Information also provided pursuant to Article 123-bis, second paragraph, letter d) of the Consolidated Law on Finance. |
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ROBERTO POLI
Born in 1938. Chairman of Eni SpA since May 2002. Holds the post
of Chairman of Poli e Associati SpA, a consultancy company in the
fields of corporate finance, extraordinary operations, company
acquisitions and restructuring plans. He is a Director of
Mondadori SpA, Fininvest SpA, Coesia SpA, Maire Tecnimont SpA and
Perennius Capital Partners SGR SpA Between 1966 and 1998, he
lectured in corporate finance at Università Cattolica del Sacro
Cuore, in Milan. He has worked as extraordinary operations
advisor for some of Italys largest industrial groups. He
was Chairman of Rizzoli-Corriere della Sera SpA and Publitalia
SpA.
PAOLO SCARONI
Born in 1946. CEO of Eni SpA since June 2005. Director of
Assicurazioni Generali SpA, LSEG Plc (London Stock Exchange
Group), Veolia Environnement (Paris), Board of Overseers of
Columbia Business School, New York, and Director of the Teatro
alla Scala Foundation. After graduating in Economics and Trade in
1969 at Bocconi University, Milan, and gaining initial work
experience at Chevron for three years, he gained a Masters
Degree in Business Administration from Columbia University, New
York, and continued his career at McKinsey. In 1973, he joined
the Saint Gobain Group, where he performed numerous managerial
tasks in Italy and overseas until he was appointed President of
the Glass Division in Paris in 1984. Between 1985 and 1996, he
was Vice President and CEO of Techint and managed the
privatizations of the subsidiaries SIV, Italimpianti and Dalmine.
In 1996, he moved to the UK and joined Pilkington, working as CEO
until May 2002. Between May 2002 and May 2005, he was CEO and
General Manager of Enel. Between 2005 and July 2006 he was
Chairman of Alliance Unichem (UK). In November 2007, he was
honored by France as an Officer of the Legion of Honor.
ALBERTO CLô
Born in 1947. Director of Eni SpA since June 1999. Currently
Director of Atlantia SpA, Italcementi SpA and De Longhi SpA
Graduated in Political Sciences at the University of Bologna.
Lecturer in Industrial Economics and Public Service Economics at
the University of Bologna. In 1980, he founded the journal
"Energia", of which he is editor. Author of books and
over 100 essays and articles on the problems of the industrial
economy and energy. Contributor to various daily newspapers and
financial journals. Between 1995 and 1996 he was Minister of
Industry and ad interim Minister of Foreign Trade and President
of the Council of Industry and Energy Ministers of the European
Union during the six-month Italian presidency. In 1996, he
received the honor of "Cavaliere di Gran Croce" of the
Republic of Italy.
PAOLO ANDREA COLOMBO
Born in 1960. Director of Eni SpA since June 2008. Graduated in
Business Administration in 1984 at the Bocconi University, Milan.
Qualified as a professional accountant in 1985 and Auditor.
Lecturer in the Accounting Department of the Bocconi University,
Milan. Founding partner of Borghesi Colombo& Associati, a
specialized consultancy firm on corporate finance operations
including taxation and business consultancy in the context
of extraordinary operations as well as strategic and
corporate governance consultancy. Director of Mediaset SpA,
Ceresio SIM SpA and Versace SpA, Chairman of the Board of
Statutory Auditors of Aviva Vita SpA and Interbanca SpA,
Statutory Auditor of Sirti SpA, A. Moratti Sapa, Humanitas
Mirasole SpA, Credit Agricole Assicurazioni Italia SpA and
Iniziativa Gestione Investimenti SGR SpA. Between May 2002 and
May 2005, he worked as Effective Statutory Auditor of Eni SpA.
Between May 2005 and May 2008, he was Chairman of the Board of
Statutory Auditors.
PAOLO MARCHIONI
Born in 1969. Director of Eni SpA since June 2008. Lawyer
specialized in criminal and administrative law, counsel for
defense in the Italian Supreme Court and superior jurisdictions.
Advisor of public organizations, and commercial companies in
matters of commercial, corporate, administrative and local
government law. Mayor of the town of Baveno (VB) between April
1995 and June 2004. President of the Assembly of Mayors of
Con.Ser.Vco between September 1995 and June 1999 and member of
the Assembly of Mayors of ASL14,
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
the management committee of the Verbano Health District, the Assembly of Mayors of the Waste Water Consortium of the Val dOssola and the Assembly of Mayors of the Social Services Consortium of Verbano until June 2004. Councillor of the Municipality of Stresa (VB) between April 2005 and January 2008. Between October 2001 and April 2004, he was a Director of C.i.m. SpA, Novara (Goods Interport Centre) and, between December 2002 and December 2005, Director and member of the Executive Committee of Finpiemonte SpA Between June 2005 and June 2008 he was a Director of Consip. Since June 2009, he has been Vice-President of the Province of Verbano-Cusio-Ossola and provincial alderman for budgeting, property, legal affairs and production activities.
MARCO REBOA
Born in 1955. Director of Eni SpA since May 2005. Graduated in
Business Administration at the Bocconi University, Milan.
Professional Accountant and Auditor. Professor at the Faculty of
Law of the Carlo Cattaneo University - LIUC - Castellanza, and
author of numerous publications regarding corporate governance,
economic assessment and budgeting. Works in Milan and is editor
of the Rivista dei Dottori Commercialisti, an accountancy
journal. Director of Luxottica Group SpA and Interpump Group SpA.
Chairman of the Board of Statutory Auditors of Mediobanca SpA,
Auditor of Gruppo Lactalis Italia SpA, Egidio Galbani SpA and Big
Srl.
MARIO RESCA
Born in 1945. Director of Eni SpA since May 2002. In 2008, he was
appointed by the government as General Director for the
enhancement of Italian museums within the Italian Ministry for
Cultural Heritage and Activities. Chairman of Confimprese and
Finbieticola Casei Gerola SpA. Director of Mondadori SpA.
Graduated in Economics and Trade at the Bocconi University,
Milan. Hired after graduating by Chase Manhattan Bank, in 1974 he
was appointed Manager of Saifi Finanziaria (Fiat Group) and
between 1976 and 1991 he was a partner in Egon Zehnder. During
this period he served as a Director of Lancôme Italia, companies
in the RCS Corriere della Sera Group and the Versace Group.
Between 1995 and 2007, he was Chairman and CEO of McDonalds
Italia. He has also been Chairman of Sambonet SpA, Kenwood Italia
SpA, founding partner of Eric Salmon& Partners and President
of the American Chamber of Commerce. In June 2002, he received
the honor of Cavaliere del Lavoro.
PIERLUIGI SCIBETTA
Born in 1959. Director of Eni SpA since May 2005. Graduated in
Economics and Business at La Sapienza University, Rome.
Professional Accountant and Auditor, he has practiced at his own
studio in Rome since 1990. He was Director of Gestore del Mercato
Elettrico (GME) SpA, Istituto Superiore per la Previdenza e la
sicurezza del lavoro (I.S.P.E.S.L.), Nucleco SpA, FN SpA and
Agenzia per linnovazione tecnologica (AGITEC) SpA, as well
as a former Deputy Extraordinary Commissioner and Director of
Ente per le Nuove Tecnologie, lEnergia e lAmbiente
(ENEA) and Effective Statutory Auditor of Consorzio
smantellamento impianti del ciclo del combustibile nucleare.
FRANCESCO TARANTO
Born in 1940. Director of Eni SpA since June 2008. Currently
Director of Cassa di Risparmio di Firenze SpA, Pioneer Global
Asset Management SpA (Gruppo Unicredito) and Kedrios SpA. Began
his career in Milan, in 1959, at the offices of an exchange
broker, subsequently working for Banco di Napoli between 1965 and
1982, where he held the post of deputy manager for the stock
exchange and securities department. He has held numerous
management posts in the asset management field, particularly as
Director of securities funds at Eurogest, between 1982 and 1984,
and general Director of Interbancaria Gestioni between 1984 and
1987. After moving to the Prime Group (1987-2000) he held the
post of CEO of the parent company for many years. He is also a
member of the steering council of Assogestioni and of the
corporate governance committee for listed companies set up by
Borsa Italiana. He was a Director of Enel between October 2000
and June 2008.
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
Appointment24
In order to ensure that the Board includes representatives of
the minority shareholders, in accordance with the rules
established by Law No. 474/199425 and in compliance
with the provisions of the Consolidated Law on Finance26,
the By-laws provide for Directors to be appointed by list voting.
In particular, pursuant to Article 17 of the By-laws and by
virtue of 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 capital, or by
the Board of Directors. Each shareholder may present or
contribute towards presenting, and vote for, a single list. The
entities that control it, the companies controlled by them and
those that are jointly controlled are not allowed to present, or
contribute to presenting, other lists or to vote for them, not
even through a third party or trust company. The lists, which
must expressly identify candidates who fulfill the independence
requirements, must be deposited at the registered office at least
ten days before the date for which the Shareholders Meeting
is first convened (twenty days if presented by the Board of
Directors) and published in at least three national Italian daily
newspapers, two of them financial, according to the requirements
of Law No. 474/1994. The lists will also be forwarded to market
management companies and published on the companys website.
All candidates must fulfill the integrity requirements imposed by
current laws. At the same time as each list is deposited, on pain
of the list being considered inadmissible, the professional CV of
each candidate must be presented together with statements in
which they accept their candidacy and confirm that there are no
reasons for ineligibility and incompatibility, and that they
fulfill the honorability and any necessary independence
requirements.
After the voting formalities have been completed, the appointment
is implemented by drawing seven tenths of the Directors (rounded
down to the nearest whole number in the event of a fraction), in
the progressive order in which they are listed, from the list
which won a majority of votes; the remaining ones being drawn
from other lists which are not directly or indirectly connected
with the shareholders that presented or voted for the list that
came first in terms of the number of votes.
The list voting procedure only applies in the event of the whole
Board of Directors being replaced.
For the appointment of Directors who were not elected by this
method, for whatever reason, the Shareholders Meeting shall
pass a resolution by the majority required by law in order to
ensure that the composition of the Board complies with the law
and the By-laws.
Pursuant to Article 6, paragraph 2, letter d) of the By-laws, in
addition to the Directors appointed by the Shareholders
Meeting, the Ministry of the Economy and Finance is entitled to
appoint one non-voting Director in agreement with the Minister of
Economic Development. This power has not be exercised.
Independence requirements
The Consolidated Law on Finance establishes that at least one
of the Directors, or two if the Board consists of more than seven
members, must fulfill the independence requirements established
for the Statutory Auditors of listed companies by Article 148,
paragraph 3, of the same act, and, if required by the By-laws,
the additional requirements established in the Code of Ethics.
Article 17.3 of the Eni By-laws improves on these legal
requirements by providing for at least one Director, if the Board
consists of no more than five members, or at least three
Directors, if the Board consists of more than five members, to
fulfill the aforesaid independence requirements. The same
provision of the By-laws also establishes an additional mechanism
to the ordinary election system that in any case ensures the
existence on the Board of the minimum number of independent
Directors. Eni has done this to strengthen the presence of
independent Directors on the Board.
(24) | Information also provided pursuant to Article 123-bis, first paragraph, letter l) of the Consolidated Law on Finance. | |
(25) | Article 4 of Law 474/1994 provides for the Board to be elected by list voting and for at least one fifth of Directors with voting rights to be reserved for the minority lists, rounded up to the nearest whole number in case of a fraction. Shareholders meetings whose convocation notices will be published after October 31, 2010 will be subject to the new provisions that transpose Directive 2007/36/EC, according to which the provisions of Articles 125-bis, 147-ter and 148 of the Consolidated Law on Finance will apply to privatized listed companies, subject to the proviso that at least one fifth of Directors are drawn from the minority lists. | |
(26) | Article 147-ter of the Consolidated Law on Finance provides for the voting list mechanism and establishes that at least one of the members of the Board of Directors must be drawn from the minority list and that he/she must have won the majority of votes and is not connected directly or indirectly with the shareholders that presented or voted for the list which came first in terms of the number of votes. |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
In addition to the requirements of the Consolidated Law on
Finance, in accordance with the Code of Borsa Italiana, Article 3
of the Eni Code identifies further independence requirements.
These requirements are the same as those set out in the Code of
Borsa Italiana, specified in three separate points:
- "subsidiaries of strategic importance" of which the
Director may have been a significant exponent are identified on
the basis of an assessment by the Board of Directors27;
- the "additional remuneration" which impairs
independence is identified as being 30% of the "fixed"
remuneration payable to the Companys non-executive
Directors28;
- the "close family members" have been defined as
family members and in-laws up to the second degree of kinship29.
The Board of Directors takes into account all the above criteria
in its periodic assessments of the independence of its
non-executive members, prioritizing substance over than form.
Following the appointment, the non-executive Directors made the
statements regarding fulfillment of the independence requirements
and the Board verified that these existed, as required by current
regulations and the Eni Code.
In accordance with the By-laws and the Eni Code, which require
the fulfillment of independence requirements to be verified
periodically, at its meeting on February 11, 2010, the Board of
Directors confirmed, on the basis of the statements made and the
information available to the Company, that the non-executive
Directors Clô, Colombo, Marchioni, Reboa, Resca, Scibetta and
Taranto are independent under the terms of the law and the
By-laws, as well as the Eni Code30. Director Clô was
confirmed as being independent, under the terms of the Eni Code
as well, even though he has held the position for over nine years31,
because he has been appointed by the minority shareholders
(specifically the institutional investors) and because of his
recognized professional skills and independence of judgment.
The Board of Statutory Auditors has always verified, most
recently at its meeting on February 11, 2010, the correct
application of the criteria and procedures adopted by the Board
for assessing the independence of its members.
The result of this assessment is summarized in the tables
attached to this Report.
No lead independent Director has been appointed given the
presence of a CEO and a Chairman with different roles.
Integrity requirements, reasons for ineligibility and
incompatibility
The Consolidated Law on Finance requires individuals who
perform administration and management functions in listed company
to fulfill the integrity requirements established for the members
of control bodies by the Regulation of the Minister of Justice
issued in accordance with Article 148 of the same act32.
Article 17.3 of the By-laws transposes this provision and
establishes that all candidates for the post of Director must
fulfill the integrity requirements established by current
legislation. Directors are also required to fulfill the
additional specific requirements established by the special rules
applicable to them.
The same provision also requires the Board periodically to assess
both the fulfillment of independence and integrity requirements
of Directors and to verify that no reasons for ineligibility and
incompatibility exist.
Also under the terms of Article 17.3 of the By-laws, if one of
the Directors should not fulfill or no longer fulfill the
independence or integrity requirements declared and required by
legislation, or if there are reasons for ineligibility or
incompatibility, the Board will declare the dismissal of the
Director and arrange for him to be replaced or ask for the reason
for incompatibility to be removed within an established period of
time, on pain of forfeiture of the post. Appointed Directors must
inform the Company if they no longer fulfill the independence and
integrity requirements or if reasons for ineligibility or
incompatibility should arise. Following the appointment, the
non-executive Directors made the statements regarding fulfillment
of the
(27) | Criterion 3.C.1.b). | |
(28) | Criterion 3.C.1.d). | |
(29) | Criterion 3.C.1.h). | |
(30) | Despite being a non-executive Director, the Chairman of the Board cannot be declared independent under a strict interpretation of the requirements of the Code of Borsa Italiana because he is a significant representative of the company (Application Criterion 3.C.2). | |
(31) | Director Clô was appointed for the first time in 1999. | |
(32) | Ministerial Decree No. 162 of March 30, 2000. |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
integrity requirements imposed by legislation and the Board
verified their existence, as required by current regulations and
the Eni Code.
In accordance with the instructions contained in the By-laws and
the Eni Code, which require that the fulfillment of requirements
is verified periodically by the Board, at its meeting on February
11, 2010, on the basis of the statements made and the information
available to the Company, the Board of Directors verified that
the integrity requirements were fulfilled and that there were no
reasons for incompatibility and ineligibility affecting any of
the Directors, not even in relation to the banking and financial
subsidiaries.
Guidelines of the Board of Directors on the maximum number
of offices held by the Directors in other companies
By means of the resolution of June 11, 2008 (confirming the
guidelines set by the previous Board) and as required by the Eni
Code, the Board of Directors defined the general criteria
pertaining to the maximum number of administration and control
offices which can be held in other companies in order to ensure
effective performance of the role of Director of Eni:
- an executive Director should not hold: i) the office of
executive Director in another listed company, whether Italian or
foreign, or in a financial33, banking or insurance
company or in a company with net equity of over euro 10 billion
and ii) the office of non-executive Director or Statutory Auditor
(or member of a controlling body) in more than three of the
aforesaid companies;
- a non-executive Director, in addition to the office held in the
company, should not hold: i) the office of executive Director in
more than one of the aforesaid companies and the office of
non-executive Director or Statutory Auditor (or member of another
controlling body) in more than three of the aforesaid companies,
or ii) the office of non-executive Director or Statutory Auditor
in more than six of the aforesaid companies.
The limit on multiple offices excludes offices held in Eni Group
companies.
If these limits are exceeded, the Directors will promptly inform
the Board, which will assess the situation in light of the
interests of the Company and will call upon the Director to take
the consequent decisions. In any case, before taking up a post of
Director or Statutory Auditor (or member of another controlling
body) in another company that is not an investee company or a
company which is directly or indirectly controlled by Eni, the
executive Director must inform the Board of Directors, which will
evaluate the compatibility of the office with the functions
attributed to the executive Director and with the interests of
Eni. The rules applicable to the executive Director also apply to
Chief Operating Officers.
On the basis of the information supplied, following the
appointments and at the meeting held on February 11, 2009, the
Board of Directors verified that the Directors had complied with
the aforementioned limits on multiple offices.
Detailed information about the number of offices held by the
members of the Board with reference to the resolution on the
number of offices that may be held is available in the table
attached to this Report.
Responsibilities
The Board of Directors has the widest powers for the ordinary
and extraordinary administration of the Company in relation to
its purpose.
In a resolution dated June 11, 2008, the Board appointed Paolo
Scaroni as CEO and Chief Operating Officer34,
entrusting him with the widest powers for the ordinary and
extraordinary administration of the Company, while exclusively
reserving the most important strategic, operational and
organizational powers in addition to those that cannot be
delegated by law. These powers specify the role established for
the management body in the Eni Code.
(33) | For the purpose assessing the maximum number of offices, financial companies are considered to be the financial intermediaries referred to in Article 106 of Legislative Decree 385/1993 (Banking Consolidation Act) and the companies that perform investment or collective savings management services under the terms of the Consolidated Law on Finance. | |
(34) | Paolo Scaroni was appointed CEO of the company for the first time on June 1, 2005. |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
In more detail, the Board:
1. | Defines the system and rules of corporate governance of the Company and the Group. In particular and after consulting the Internal Control Committee, it adopts rules which ensure transparency as well as substantive and procedural correctness in transactions with related parties and in transactions in which a Director retains a personal interest or an interest on behalf of third parties; in addition, it adopts a procedure for the handling and disclosure of corporate information, with specific reference to inside information. | |
2. | Establishes the internal committees of the Board with advisory and consulting functions and appoints their members, while establishing their tasks and remuneration and approving their regulations. | |
3. | Assigns and revokes proxies to the CEO and to the Chairman, defining the limits and modalities for exercising these proxies in addition to determining after examining the proposals of the relative Committee and consulting with the Board of Statutory Auditors the remuneration associated with these proxies. May impart directives to the delegated bodies and implement itself any operations falling under the proxy. | |
4. | Defines the fundamental guidelines pertaining to the organizational, administrative and accounting structure of the company, including the internal control system, of the primary subsidiaries and of the Group. Assesses the adequacy of the organizational, administrative and accounting structure formulated by the CEO, particularly in reference to modalities for managing conflicts of interest. | |
5. | Defines, in particular, after having examined the proposals of the Internal Control Committee, the guidelines of the internal control system in order to ensure the identification, measurement, management and monitoring of the primary risks of the company and its subsidiaries. Assesses, on an annual basis, the adequacy, efficacy and effective functioning of the internal control system that is supervised by the CEO. | |
6. | Defines on a proposal from the CEO the strategic guidelines and objectives of the company and the Group, including sustainability policies. Examines and approves the strategic, industrial and financial plans of the company and the Group as well as agreements of strategic nature for the company. Examines and approves the plan for non-profit operations of the company and approves operations not included within the plan whose cost exceeds euro 500,000. | |
7. | Examines and approves the annual budgets of the divisions as well as of the company and the consolidated Group budget. | |
8. | Examines and approves the half-year financial report and the interim reports of the company and the Group, in accordance with currently effective regulations. Examines and approves the Sustainability Report which must be presented to the Shareholders Meeting. | |
9. | Receives information from Directors with proxies at the time of Board meetings and in any case at least on a bi-monthly basis - relative to activities implemented during the exercising of proxies as well as on activities of the Group and atypical or unusual operations or with related parties of the company which have not been presented for examination and approval to the Board. In particular, it periodically receives information on a half-year basis along with justification for any modifications applied to investment operations which were previously approved by the Board, in accordance with point 12, letter b) and c) and on the basis of criteria established by the Board itself. | |
10. | Receives periodical half-year information from the internal committees of the Board. | |
11. | Assesses the general management trends of the company and of the Group on the basis of information received from Directors with proxies while paying particular attention to conflicts of interest and comparing attained results as reported in the financial statements and periodical accounting statements with budget estimates. | |
12. | Examines and approves the operations of the company and its subsidiaries which are significant from a strategic, economic and financial perspective, particularly with regards to situations in which one or more Directors retain personal or third party interests as well as related parties transactions; In the case of listed companies, as well as companies subject to unbundling regulations, the Board must guarantee the principle of managerial autonomy. These provisions are applicable without prejudice to compliance with confidentiality obligations pertaining to commercial relations between the subsidiary and Eni or third parties, thereby protecting the interests of the subsidiary. |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
The following operations are considered significant in nature:
a) acquisitions or sales of shareholdings, companies or company
branches, mineral rights and real estate, company mergers,
spin-offs and liquidations, whose value exceeds 100 million Euro
and without prejudice to the provisions of Article 23.2 of the
By-laws;
b) investments in fixed asset whose value exceeds euro 300
million or even of smaller amount if of particular strategic
value or in the case of specific risks;
c) exploration initiatives and portfolio operations in the
E&P sector in new countries;
d) purchase and sale of goods and services other than those
allocated for investments and gas supplies, for an overall price
exceeding euro 1 billion excluding the purchase and sale
of real estate and services included in ordinary administration
or whose duration exceeds 20 years; gas supply contracts,
or amendments to such contracts, for a minimum of three billion
cubic meters per year and a ten-year duration;
e) financing to parties other than subsidiaries: i) for amounts
exceeding euro 200 million if in proportion to the shareholding
quota or ii) in the case of any amount if provided in favor of
non-subsidiaries or for amounts that are not proportional to the
shareholding quota;
f) the issue of personal or real securities to parties other than
subsidiaries: i) for amounts exceeding euro 200 million, if in
the interest of the company or of subsidiaries, or in the
interest of non-subsidiary companies, so long as the security is
proportional to the shareholding quota, or ii) in the case of any
amount if provided in the interest of non-controlled subsidiaries
or if the security is not proportional to the shareholding quota.
For the issue of the securities pursuant to point i) whose amount
ranges between euro 100 and 200 million, the Board grants a joint
proxy to the CEO and the Chairman;
g) Eni SpA intermediary agreements.
13. | Appoints and dismisses on a proposal from the CEO and in agreement with the Chairman the Chief Operating Officers and grants their powers. If the CEO is appointed as the Chief Executive Officer, the proposal is made by the Chairman. | |
14. | Appoints and dismisses on a proposal from the CEO, in agreement with the Chairman and following approval from the Board of Statutory Auditors the Officer in charge of preparing financial reports and ensures that the Officer is equipped with adequate powers and means in order to exercise his legally ascribed tasks in addition to monitoring the effective compliance with the administrative and accounting procedures formulated by this Officer. | |
15. | Appoints and dismisses on a proposal from the CEO, in agreement with the Chairman and following a consultation from the Internal Control Committee an Officer in charge of internal control and an Senior Executive Vice President of Internal Audit in addition to defining their remuneration in accordance with the compensation policies of the company as well as approving the guidelines for the activities of these two managers. | |
16. | Ensures that a manager is appointed for the body which manages shareholder relations. | |
17. | Defines after having examined the proposals of the relative Committee the criteria for remunerating the top management of the Company and of the Group in addition to implementing the compensation plans on the basis of stocks or financial instruments deliberated by the Shareholders Meeting. | |
18. | Resolves on a proposal from the CEO on the exercise of voting rights and on the appointment of members of corporate bodies of the primary subsidiaries. In the case of listed companies, the Board must guarantee compliance with the provisions of the Corporate Governance Code falling under the competence of the Shareholders Meeting. | |
19. | Formulates the proposals to present to the Shareholders Meeting. | |
20. | Examines and resolves on other issues which Directors with proxies believe it is appropriate to present to the Board due to their particular relevance or sensitivity. |
In accordance with Article 23.2 of the By-laws, the Board also resolves: on merger by incorporation operations and proportional demergers operations of at least 90% directly owned subsidiaries; on the creation and closing of secondary offices; and on adjustments of the By-laws to regulatory requirements.
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During the financial year, the Board may also resolve on the
distribution to shareholders of advance interim dividends, as
allowed by Article 29.3 of the By-laws.
At its meeting held on June 30, 2008, the Board granted proxies
to the Chairman, Roberto Poli, to identify and promote integrated
projects and international agreements of a strategic nature, in
accordance with Article 24.1 of the By-laws. In accordance with
Article 27 of the By-laws, the Chairman chairs the
Shareholders Meeting, convenes and chairs meetings of the
Board of Directors and verifies implementation of the resolutions
passed by the Board.
At its meeting held on June 11, 2008, the Board identified Saipem
SpA, Snam Rete Gas SpA, Eni International BV and Polimeri Europa
SpA as subsidiaries of strategic importance for the purposes of
the approval of transactions pursuant to point 12 of the
aforementioned powers.
At its meeting held on January 18, 2010, the Board of Directors
confirmed the appropriateness of the organizational,
administrative and accounting structure of the Company, the main
subsidiaries and the Group.
At its meeting held on March 11, 2010, the Board of Directors
confirmed the appropriateness, effectiveness and efficient
operation of Enis internal control system as a whole. At
the same meeting, pursuant to Article 154-bis of the
Consolidated Law on Finance, the Board also verified compliance
with the administrative and accounting procedures established by
the Officer in charge of preparing financial report and also
confirmed the appropriateness of the powers and resources
assigned to him for the performance of his duties.
At its meeting held on February 12, 2009, with the approval of
the Internal Control Committee, the Board approved the Guidelines
on transactions involving interests of Directors (and Statutory
Auditors) and those with related parties35.
At its meeting held on February 25, 2010, the Board carried out a
self-assessment of its composition and operation36.
Meetings and running of meetings
At its meeting on September 10, 2009, the Board of Directors
approved the regulations that established the procedures for
convening and running its meetings. In particular, the Board is
convened by the Chairman who in agreement with the CEO
draws up the agenda and sends it to the Directors,
effective Statutory Auditors and the Judge of the Court of
Auditors delegated with the task of financially auditing Eni; the
notice must be sent at least five days before the date set for
the meeting. In cases of necessity and urgency, the convocation
notice is sent at least 12 hours before the date set for the
meeting. The By-laws allow meetings of the Board to take place by
videoconferencing or teleconferencing, these methods being
specifically governed by the regulations.
Normally, at the same time as the convocation notice is sent out,
and in any case no less than three days before the date of the
meeting, the Directors, effective Statutory Auditors and the
Judge of the Court of Auditors are provided with documentation on
the matters included in the agenda, with the exception of
price-sensitive information, which is not included in any prior
communication. Managers of the company and its subsidiaries are
typically invited to attend Board meetings in order to provide
information on specific topics pertaining to the agenda. Specific
information is also provided on the individual sectors in which
the Company and the Group are operating.
In accordance with the provisions of Article 2391 of the Italian
Civil Code and of the Eni Code, before each item on the
agenda of the Board meeting is discussed, each Director is
required to report any personal or third party interests that
he/she may have in relation to the topics or issues under
discussion, specifying their nature, terms, origin and scope.
Transactions in which a Director (or Statutory Auditor) retains
an interest or is a related party are regulated by the Guidelines
relative to transactions involving interests of Directors (or
Statutory Auditors) and related parties transactions, approved on
February 12, 2009 by the Board of Directors following
consultation with the Internal Control Committee.
During 2009, the Board of Directors met 17 times for an average
of 3 hours and 17 minutes at a time. In 2009, an average of 98.7%
of Directors attended Board meetings and, in particular, 98.3% of
independent
(35) | For further details see the paragraph of the Report specifically dedicated to this topic. | |
(36) | For further details see the paragraph of the Report specifically dedicated to this topic. |
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Directors. During the current financial year, as of March 11,
2010, 5 meetings have been held, including the one held on that
date. A further 12 meetings are planned to take place before the
end of the financial year.
The public is notified in advance, usually by the end of the
financial year, of the dates of meetings of the Board of
Directors to review the pre-final results, the financial
statements and the intra-year accounting reports required by
current legislation. These meetings also serve to determine the
interim dividend payable for the year and to submit a proposal
for balance of the dividend to the Shareholders Meeting
along with the relative dates for dividend payment and
detachment of the coupon. The financial calendar is available on
the Eni website37.
The 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 by the independent Directors themselves 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 hold discussions
and exchange opinions.
The tables attached to this Report show each Directors
percentage of attendance at meetings of the Board of Directors
and meetings of the committees of which they are members.
Board Review
In accordance with international best practice and with the
provisions of the Code of Borsa Italiana, as well as required by
the Eni Code, for the fourth year running, the Board of Directors
has launched a self-assessment program (board review) of the
Board of Directors and the Board Committees.
The Board of Directors carried out the assessment, availing
itself, as required by the Eni Code in order to ensure maximum
objectivity to the assessment, of the assistance of a specialized
external consultant: the company Spencer Stuart, appointed at the
end of a formal tender.
Spencer Stuarts work related to: (i) the size, composition,
operation and efficiency of the Board and of the Committees; (ii)
identifying any elements that might hinder or improve the
operation and efficiency of the Board itself; (iii) the
effectiveness of the improvements undertaken following the
previous board review and verification of the satisfaction of
Directors with their achievement; (iv) comparison of procedures
and practices adopted by the Eni Board with the best practices
used by leading Italian and foreign companies.
The Board Review was based on a questionnaire prepared by the
consultant and on detailed individual interviews with the
Directors, carried out by the consultant. The results were
presented to the Board, which discussed at its meeting on
February 25, 2010. First of all, the Board confirmed various
areas of excellence, such as: (i) the proper size of the Board of
Directors and constant attendance by Directors; (ii) the
transparent presentation of topics during Board meetings, and the
availability of management to provide all the required
information during the meeting of the Board; (iii) satisfactory
quantity and quality of the information provided, even in the
period between the meetings of the Board, and the punctual
updates received on legislative and regulatory developments; (iv)
accurate minuting of meetings and decisions of the Board; (v)
fruitful and accurate work carried out by committees,
particularly the Internal Control Committee and the Oil-Gas
Energy Committee.
The Directors also convened to undertake, in a proper meeting, a
detailed analysis of the results of the Board review and the
comparison with the best practice, in particular in order to
identify the most appropriate conditions to: i) allow the Board
to focus its attention on strategic and directive issues; and ii)
increase the value of contribution of non-executive Directors.
Induction program of the Board of Directors
In accordance with the provisions of the Eni Code relative to
the effective and conscious implementation of each
Directors role, Eni drew up, for the Board currently
holding office, immediately after their appointment, an induction
training plan (board induction) allowing the new Directors to
acquire detailed knowledge of the activities and organization of
the company, its industry and their role considering the specific
characteristics
(37) | At the following address: http://www.eni.com/en_IT/investor-relation/financial-calendar/financial-calendar.shtml |
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of Eni. The program, which also involved the new members of the Board of Statutory Auditors, and to which the other members of the two company bodies were also invited, began on June 30, 2008, and was implemented by setting up a series of meetings dedicated to analyzing the identified themes in depth, with the involvement of senior managers and the participation of external speakers of acknowledged professionalism. The meetings covered the following topics: (i) responsibilities, duties, powers, composition and operation of the Board of Directors; (ii) the market and the relevant sector; (iii) organization; (iv) Group business; (v) business administration; (vi) sustainability and ethics of business administration; (vii) technological innovation. In 2009, more detailed examinations of business issues were carried out and are still under way. In this context, for example, Board meetings can be held in locations other than the registered offices of companies, even abroad, in order to increase knowledge of company operations.
Remuneration report
General Criteria
The Eni Remuneration System is intended to strengthen values,
skills and competencies that are consistent with the culture and
strategy of the company, recognizing the responsibilities
assigned, the results achieved, the quality of professional
contributions and the potentiality of development of the resource
in the context of the relevant international remuneration
markets.
An important element of Enis remuneration policy is the
variable incentive systems associated with the achievement of
economic/financial, business development and operating targets
established to ensuring the sustainability of results and the
creation of value for shareholders over a medium to long term
period, in accordance with Enis Strategic Plan.
The remuneration system is complemented by benefits, which
consist of goods and services primarily associated with
supplementary social security and health care.
Governance Rules
The remuneration of the Board Members is determined by the
Shareholders Meeting.
Remuneration of the Board Members invested with particular powers
(Chairman and Chief Executive Officer) is determined by the Board
of Directors on proposal of the Compensation Committee after
consultation with the Board of Statutory Auditors.
The general criteria for the remuneration of managers with
strategic responsibilities38 are approved by the Board
of Directors, on proposal of the Compensation Committee, which
examined the indications of the CEO.
Remuneration structure
On June 10, 2008, the Shareholders Meeting confirmed
the structure and amounts established in 2005, fixing the annual
remuneration due to the Chairman (euro 265,000) and the Board
Members (euro 115,000) and the variable remuneration determined
according to Enis position in the reference year in terms
of share performance, considering the dividend paid out, compared
to that of the seven other largest international oil companies
for market capitalization. The variable part of the remuneration
is paid to the Chairman, in the amount of euro 80,000 or euro
40,000, and to the Board Members, in the amount of euro 20,000 or
euro 10,000, depending on whether the performance of Eni shares
is rated first or second or third or fourth in the reference
year, respectively. In other cases, the variable part is not
paid. On March 25, 2009, the Board of Directors verified that Eni
rated fourth in 2008.
On June 11, 2008, the Board of Directors confirmed the structure
and amounts established in 2006, deciding the remuneration of the
Board Members attending the Committees established by the Board,
excluding the Chairman and the CEO. For the Chairman of a
Committee, the annual fee is euro 30,000, for the other
(38) | Managers who have been members of the Enis Steering Committee, with the CEO and the General Managers of Enis Divisions, and Eni Senior Executive Vice Presidents who report directly to the CEO. |
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members, the annual fee is euro 20,000. This amount decreases
to euro 27,000 and euro 18,000 in case a member holds positions
in more than one Committee.
On June 10, 2008, the Shareholders Meeting resolved that
the Company continues to apply the insurance policy already
authorized in May 25, 2006, in favor of the Board Members and
Statutory Auditors for risks associated with the execution of the
respective tasks.
The remuneration structure of the Chairman, in relation to the
powers delegated to him, consists of a fixed part and a variable
part associated with the achievement of specific company
objectives established for the previous financial year.
The remuneration structure of the CEO consists of a fixed
component, based on the powers delegated to him, and an annual
variable component associated with the achievement of specific
company objectives (economic/financial, operating and strategic)
established for the previous financial year and a variable
long-term component composed by two separate plans with different
company performance conditions, established over a three-year
period and measured both in absolute terms and in relative terms
compared to an oil industry peer group.
The remuneration structure of managers with strategic
responsibilities and other managerial resources consists of a
fixed remuneration, determined according to the role and
responsibilities assigned, with reference to the levels applied
to equivalent positions in large national and international
companies (oil, industrial and services sectors) and with annual
adjustments according to merit (continuity of individual
performance) or promotion (progression in terms of
role/responsibility), and a variable annual remuneration
associated with the achievement of specific economic, financial
and operating targets, and a variable long-term remuneration
associated with company performance, measured over a three-year
period.
In 2009, the variable annual remuneration of the Chairman and CEO
was determined in accordance with Enis objectives for 2008
as approved by the Board of Directors, on proposal of the
Compensation Committee, defined in accordance with Enis
Strategic Plan and annual budget in terms of adjusted EBITDA,
divisional operating performance, reduction in company costs and
maintaining of position in sustainability indexes. The company
results, assessed on a constant scenario basis, have been
verified by the Compensation Committee and approved by the Board
of Directors and have set out the score of 120 on a scale of 85
(minimum)-130 (maximum), used for the purpose of determining the
variable remuneration to be paid.
On March 25, 2009, the Board of Directors resolved to eliminate
the Eni Stock Option Plan for 2009 and to maintain the Deferred
Monetary Incentive Plan for the three-year period 2009-2011. This
Plan, which is aimed at all managerial resources and is focused
on certain business growth and operating efficiency targets,
provides for an incentive to be paid after a period of three
years in an amount connected with the achievement of annual
EBITDA objectives (actual results vs. budget, on a constant
scenario basis) defined for the reference three-year period.
In order to adopt an alternative incentive scheme to Stock Option
Plan, the Compensation Committee defined a new long-term
incentive plan for critical managerial resources that will be
approved by the Board of Directors in 2010. In 2009 the Board of
Directors approved a plan with similar characteristics for the
CEO; this plan provides for an incentive to be paid after a
period of three years in an amount connected with the variation
of the adjusted net profit + DD&A (Depletion, Depreciation
& Amortization), measured over the three-year period
2009-2011 in relative terms compared to the other six largest
international oil companies for market capitalization.
In 2009, the vesting period of the long-term incentive plan
assigned in 2006 expired. This plan consisted of a Deferred
Monetary Incentive Plan, aimed at managerial resources, and a
Stock Option Plan, aimed only at managerial resources holding
positions that are more directly responsible for results and are
of strategic interest. The Board of Directors, on March 25, 2009,
based on the results achieved in 2006-2008, as verified by the
Compensation Committee, resolved that: i) with reference to the
Deferred Monetary Incentive Plan, a multiplier of 143% should be
applied to the amount awarded in 2006, calculated on the basis of
the performance achieved in terms of Enis EBITDA; ii) with
reference to the Stock Option Plan, a percentage of 47% of
exercisable options, calculated on the basis of the performance
achieved in terms of Enis relative TSR, should be applied
to the total amount granted in 2006.
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The CEO, in his quality of General Manager, participated in
both Plans.
In 2009, the remuneration structure of the Chairman, CEO,
Divisional Chief Operating Officers and other managers
with strategic responsibilities was the following:
(%) |
|
Chairman |
CEO |
Divisional COO |
Other managers with strategic responsibility |
|||||
Fixed remuneration | 66 | 22 | 46 | 50 | ||||
Annual variable remuneration (linked to performance) | 34 | 27 | 32 | 31 | ||||
Long-term variable remuneration (linked to performance) (a) | 51 | 22 | 19 | |||||
Total | 100 | 100 | 100 | 100 |
(a) | Evaluation of the deferred monetary incentive (discounted) for target result. |
Remuneration earned by members of the Board of Directors,
Statutory Auditors, General Managers, and other managers with
strategic responsibilities
Pursuant to Article 78 of Consob Decision No. 11971 of May
14, 1999, and to its subsequent modifications, remuneration
earned by members of the Board of Directors, Statutory Auditors,
General Managers and other managers with strategic
responsibilities is reported in the table below. Remuneration
earned by managers who held a position in 2009 for a fraction of
the year is reported too.
Pursuant to Consob decisions:
- in the column "Emoluments for service at Eni SpA" are
reported fixed fees paid to non-executive and executive
directors, fixed fees paid to Directors attending the Committees
formed by the Board of Directors, and fees paid to Statutory
Auditors. Fixed fees earned by the Chairman and the CEO include
also fees earned for the powers delegated to them by the Board;
- in the column "Non-cash benefits" are reported
amounts referring to all fringe benefits, including insurance
policies;
- in the column "Bonuses and other incentives" are
reported the portion of fees linked to performances which was
awarded in the year to both non-executive directors and executive
directors, and the portion of salaries linked to performances
which was awarded in the year to the CEO, the General Managers of
Enis Divisions and other managers with strategic
responsibilities;
- in the column "Salaries and other elements" are
reported base salaries and elements associated to salary paid to
the CEO, the General Managers of Enis Divisions and other
managers with strategic responsibilities, and indemnities paid
upon termination of the employment contract. Referring to the
Statutory Auditors, fees paid for positions held on the Board of
Statutory Auditors in Enis subsidiaries are also reported.
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(euro thousand) | ||||||||||||||||
Name | Position |
Term of office |
Expiry date of the position (a) |
Emoluments |
Non-cash benefits |
Bonuses and other incentives (b) |
Salaries and |
Total |
||||||||
Board of Directors | ||||||||||||||||
Roberto Poli | Chairman | 01.01-12.31 | 04.2011 | 765 | 400 | 1,165 | ||||||||||
Paolo Scaroni | CEO | 01.01-12.31 | 04.2011 | 430 | 1 | 2,824 | 1,017 | 4,272 | ||||||||
Alberto Clô | Director | 01.01-12.31 | 04.2011 | 162 | 10 | 172 | ||||||||||
Paolo Andrea Colombo | Director | 01.01-12.31 | 04.2011 | 96 | 10 | 106 | ||||||||||
Paolo Marchioni | Director | 01.01-12.31 | 04.2011 | 107 | 10 | 117 | ||||||||||
Marco Reboa | Director | 01.01-12.31 | 04.2011 | 163 | 10 | 173 | ||||||||||
Mario Resca | Director | 01.01-12.31 | 04.2011 | 162 | 10 | 172 | ||||||||||
Pierluigi Scibetta | Director | 01.01-12.31 | 04.2011 | 96 | 10 | 106 | ||||||||||
Francesco Taranto | Director | 01.01-12.31 | 04.2011 | 153 | 10 | 163 | ||||||||||
Board of Statutory Auditors | ||||||||||||||||
Ugo Marinelli | Chairman | 01.01-12.31 | 04.2011 | 121 | 121 | |||||||||||
Roberto Ferranti (c) | Auditor | 01.01-12.31 | 04.2011 | 84 | 84 | |||||||||||
Luigi Mandolesi | Auditor | 01.01-12.31 | 04.2011 | 84 | 84 | |||||||||||
Tiziano Onesti (d) | Auditor | 01.01-12.31 | 04.2011 | 84 | 40 | 124 | ||||||||||
Giorgio Silva | Auditor | 01.01-12.31 | 04.2011 | 44 | 44 | |||||||||||
Divisional Chief Operating Officers | ||||||||||||||||
Claudio Descalzi | Exploration& Production | 01.01-12.31 | 3 | 772 | 734 | 1,509 | ||||||||||
Domenico Dispenza | Gas& Power | 01.01-12.31 | 1 | 1002 | 745 | 1,748 | ||||||||||
Angelo Caridi | Refining& Marketing | 01.01-12.31 | 2 | 648 | 642 | 1,292 | ||||||||||
Other managers with strategic responsibilities (e) | 15 | 4,179 | 4,266 | 8,460 | ||||||||||||
2,551 | 22 | 9,895 | 7,444 | 19,912 |
(a) | The term of position ends with the Meeting approving financial statements for the year ending December 31, 2010. | |
(b) | Based on annual incentive plan related to performance achieved in 2008 and payment of the deferred monetary incentive granted in 2006. | |
(c) | Compensation for the service is paid to the Ministry for Economy and Finance. | |
(d) | Includes the compensation obtained as Chairman of the Board of Statutory Auditors of AGI and Servizi Aerei. | |
(e) | Managers who, during the year, have been members of Eni's Steering Committee with the CEO and the Divisional Chief Operating Officers, and Eni Senior Executive Vice Presidents who report directly to the CEO (8 managers). |
Long Term Incentive Plan awarded to the CEO, the Chief Operating Officers and managers with strategic responsibilities
1. Deferred Monetary Incentive
The deferred bonus scheme approved for the 2009- 2011
three-year period provides for the award of a basic monetary
bonus to be paid after three years from grant 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. The following table sets out the basic
bonus awarded in the year 2009 to the CEO and to the Divisional
Chief Operating Officers, and the total amount awarded to the
Companys managers with strategic responsibilities.
(euro thousand)
Name | Deferred bonus awarded | |||
Paolo Scaroni | CEO and General Manager of Eni | 787 | ||
Claudio Descalzi | COO of the E&P Division | 340 | ||
Domenico Dispenza | COO of the G&P Division | 350 | ||
Angelo Caridi | COO of the R&M Division | 307 | ||
Other managers with strategic responsibilities (a) | 1,612 | |||
(a) | No. 8 managers. |
With reference to Eni Board of Directors resolution not to implement the Eni stock option Plan for 2009 and the relevant commitment to the CEO of adopting an alternative incentive scheme with the same financial effectiveness, has been approved a new long term monetary incentive plan in behalf of CEO to replace and
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compensate the Eni stock option Plan for 2009, whose value and
characteristics are comparable with those of the former plan.
Performance conditions of this plan are set in terms of variation
of the Adjusted Net Profit + Depletion Depreciation&
Amortization (DD&A) measured on 2009-2011 three-year period
and compared, in relative terms, to that of the other six largest
international oil companies for market capitalization.
The amount of incentive assigned in 2009 is euro 2,716,391 and
itll be paid in 2012, after a three-year vesting period, in
a percentage ranging from 0 to 130% of the amount assigned in
2009 in relation to the performance achieved in the reference
three-year period.
2. Stock options
Following the decision of Enis Board of Directors to
discontinue any stock option plans from 2009, information
reported herein on Enis stock based compensation relates to
plans adopted in previous years whereby options to purchase
treasury shares were awarded for no consideration to managers of
Eni and its subsidiaries as defined in the Article 2359 of the
Civil Code holding positions of significant responsibility for
achieving the Companys profitability targets or are
otherwise strategically important. The stock option scheme
provided that grantees had the right to purchase treasury shares
in a 1 to 1 ratio, with a strike price calculated as the
arithmetic average of official prices registered on the Mercato
Telematico Azionario in the month preceding award or, if greater,
as the average carrying cost of treasury shares held by Eni as of
the date preceding the award.
The most recent stock option scheme covered the three-year period
2006-2008 and was approved on May 25, 2006, by the
Shareholders Meeting that authorized the Board of Directors
to dispose of a maximum amount of 30 million treasury shares
(equal to 0.749% of the share capital) for the stock option plan.
This stock option plan also provided a performance condition upon
which options can be exercised. At the end of each vesting period
with a three-year duration, the Board of Directors determined the
number of exercisable options, in a percentage ranging from 0% to
100% of the total amount awarded for each year of the scheme,
depending on the performance of Eni shares measured in terms of
Total Shareholder Return as compared to that achieved by a panel
of major international oil companies in terms of market
capitalization. Options may be exercised upon fulfillment of all
conditions after three years from the award and within the next
three years.
At December 31, 2009, a total of 19,482,330 options were
outstanding for the purchase of an equal amount of ordinary
shares nominal value euro 1.00 of Eni SpA, carrying an average
strike price of euro 23.576.
The following is a summary of residual stock option activity as in 2009 there were no awards:
2008 |
2009 |
|||
Number of shares | Weighted average exercise price (euro) | Market price (a) (euro) | Number of shares | Weighted average exercise price (euro) | Market price (a) (euro) | |||||||
Options as of January 1 | 17,699,625 | 23.822 | 25.120 | 23,557,425 | 23.540 | 16.556 | ||||||
New options granted | 7,415,000 | 22.540 | 22.538 | |||||||||
Options exercised in the period | (582,100) | 17.054 | 24.328 | 2,000 | 13.743 | 16.207 | ||||||
Options cancelled in the period | (975,100) | 24.931 | 19.942 | 4,073,095 | 23.374 | 14.866 | ||||||
Options outstanding as of December 31 | 23,557,425 | 23.540 | 16.556 | 19,482,330 | 23.576 | 17.811 | ||||||
of which exercisable at December 31 | 5,184,250 | 21.263 | 16.556 | 7,298,155 | 21.843 | 17.811 | ||||||
(a) | Market price relating to new rights assigned, rights exercised in the period and rights cancelled in the period correspond to the average market value (arithmetic average of official prices recorded on Mercato Telematico Azionario in the month preceding: (i) the date of assignment; (ii) the date of the recording in the securities account of the managers to whom the options have been assigned; (iii) the date of the unilateral termination of employment for rights cancelled). Market price of shares referring to options as of the beginning and the end of the year, is the price recorded at December 31. |
Further information on stock options is furnished in Note 31 to the Consolidated Financial Statements. The following table presents the amount of outstanding stock options awarded in past years to Enis CEO, Divisional Chief Operating Officers and other managers with strategic responsibilities.
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CEO and General Manager of Eni | COO of E&P Division |
COO of G&P Division |
COO of R&M Division |
Other managers with strategic responsibilities (a) | ||||||
Paolo Scaroni (b) | Claudio Descalzi | Domenico Dispenza | Angelo Caridi | |||||||
Options outstanding at the beginning of the period: | |||||||||||||||||||||
- number of options | 2,587,500 | 264,000 | 380,000 | 142,000 | (c) | 150,500 | 122,000 | (d) | 1,671,000 | 80,500 | (e) | ||||||||||
- average exercise price | (euro) | 23.767 | 24.009 | 24.142 | 4.399 | 22.534 | 21.098 | 23.660 | 21.545 | ||||||||||||
- average maturity in months | 55 | 55 | 56 | 54 | 65 | 48 | 56 | 48 | |||||||||||||
Options granted during the period: | |||||||||||||||||||||
- number of options | |||||||||||||||||||||
- average exercise price | (euro) | ||||||||||||||||||||
- average maturity in months | |||||||||||||||||||||
Options exercised at the end of the period: | |||||||||||||||||||||
- number of options | 35,600 | (e) | |||||||||||||||||||
- average exercise price | (euro) | 17.519 | |||||||||||||||||||
- average market price at date of exercise | (euro) | 22.264 | |||||||||||||||||||
Options expired during the period: | |||||||||||||||||||||
- number of options | 360,930 | 40,280 | 64,925 | 14,700 | (d) | 233,995 | 8,900 | (e) | |||||||||||||
- average exercise price | (euro) | 23.100 | 23.100 | 23.100 | 17.519 | 23.100 | 17.519 | ||||||||||||||
- average market price at date of exercise | (euro) | 14.079 | 14.079 | 14.079 | 12.240 | 14.079 | 12.240 | ||||||||||||||
Options outstanding at the end of the period: | |||||||||||||||||||||
- number of options | 2,226,570 | 223,720 | 315,075 | 142,000 | (c) | 150,500 | 107,300 | (d) | 1,437,005 | 36,000 | (e) | ||||||||||
- average exercise price | (euro) | 23.875 | 24.173 | 24.357 | 4.399 | 22.534 | 21.588 | 23.751 | 26.521 | ||||||||||||
- average maturity in months | 45 | 46 | 46 | 42 | 53 | 36 | 46 | 43 | |||||||||||||
(a) | No. 8 managers. | |
(b) | The assignment to the CEO have been integrated in 2007 by a monetary incentive to be paid after three-year in relation to the performance of Eni shares, equal to 80,500 options with a strike price of euro 27.451. Relating to the attribution of this incentive for 2006, equal to 96,000 options with a strike price of euro 23.100, the conditions for its payment were not fulfilled, since the price of Eni share resulted lower to the exercise-price at the end of the three-year vesting period. | |
(c) | Options on Snam Rete Gas shares: assigned by the company to Domenico Dispenza who held the position of Chairman of Snam Rete Gas until December 23, 2005. | |
(d) | Options on Saipem shares: assigned by the company to Angelo Caridi who held the position of CEO of Snamprogetti until August 2, 2007. | |
(e) | Options on Saipem shares. |
Indemnity upon termination
Upon expiry of the contract as employee of Eni, the CEO in
his quality of General Manager of the parent company is entitled
to receive an indemnity that is accrued along the service period.
The indemnity is determined by taking into account social
security contribution rates and post-retirement benefit
computations applied to the CEO base salary and 50% of the
bonuses earned as a Director.
In 2009 a provision of euro 244,435.07 has been accrued. In case
the work contract of the CEO is terminated at or before the
expiry of his office, the CEO will receive a termination payment,
in addition to other termination elements, equal to euro
3,200,000 plus an amount corresponding to the average performance
bonus earned in the three-year period 2008-2010 in lieu of notice
thus waiving both parties from any obligation related to notice.
This payment is not applicable in case the work contract is
terminated upon due cause, death or resignation from office other
than as a result of a reduction in powers currently attributed to
the CEO.
Overall remuneration of key management personnel
Remuneration of persons responsible of key positions in
planning, direction and control functions of Eni Group companies,
including executive and non-executive directors, general managers
and other managers holding strategic responsibilities amounted to
euro 35 million for 2009 consisting of: (i) fees and salaries for
euro 20 million; (ii) post-employment benefits for euro 1
million; (iii) other long term benefits for euro 10 million; and
(iv) fair value of stock option for euro 4 million.
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Board Committees39
The Board has set up three internal committees, two of which
are required by the Code of Borsa Italiana, with consulting and
advisory functions: a) the Internal Control Committee, b) the
Compensation Committee and c) the Oil-Gas Energy Committee. The
composition, tasks and operation of the committees are governed
by the Board, according to specific regulations, in compliance
with the criteria outlined in the Eni Code.
The committees required by the Code (Internal Control Committee
and Compensation Committee) consist of no fewer than three
members, although the number of members must not exceed the
majority of members of the Board. All the committees must consist
of non-executive Directors, the majority of whom must be
independent.
In performing their functions, the committees retain the right to
access any information and company departments that are necessary
to carry out their tasks. They are also provided with adequate
financial resources and retain the right to avail themselves of
external consultants according to terms established by the Board
of Directors. Meetings of the committees may also be attended by
non-members expressly invited to attend with reference to
individual items on the meeting agenda. Meetings of the Internal
Control Committee are attended by the Chairman of the Board of
Statutory Auditors or an Effective Auditor appointed by him.
Committee meetings are minuted by the respective Secretaries.
At the meeting held on June 11, 2008, the following non-executive
Directors, all of them independent, were appointed as members of
the committees:
- Internal Control Committee: Marco Reboa (Chairman), Francesco
Taranto, Pierluigi Scibetta and Paolo Marchioni;
- Compensation Committee: Mario Resca (Chairman), Francesco
Taranto, Alberto Clô and Paolo Andrea Colombo;
- Oil-Gas Energy Committee (OGEC): Alberto Clô (Chairman), Marco
Reboa, Mario Resca, Paolo Andrea Colombo and Pierluigi Scibetta.
In accordance with the Code of Borsa Italiana, the Eni Code
provides for the Board of Directors to determine whether to set
up an Appointments Committee, particularly in cases where the
Board finds that it is difficult for shareholders to draw up
proposals for appointment, as can happen in a listed company with
a diversified shareholder base. No such Committee has ever been
set up because of the nature of the Companys shareholders
and because, under the terms of the law and the By-laws, the
Directors are appointed by the Shareholders Meeting on the
basis of lists presented by shareholders.
The regulations of the three Committees are available on the Eni
website.
Internal Control Committee
During 2009, the Committee met 20 times, and the meetings
were attended on average almost by 94% of its members40.
The composition, appointment and operating procedures, tasks,
powers and resources of the Committee are governed by a specific
regulation, a new version of which was approved by the Board of
Directors at the end of December 2009 in order to update its
content to the provisions of other company documents published
since the previous version, which was produced in March 2007.
The following is a summary of the main topics examined during the
year:
(i) | the final statement on Enis Internal Audit activities in 2008, the Integrated Audit Plan for 2009 and the Eni Internal Audit Budget for 2009, together with the respective periodic states of progress; | |
(ii) | the final data for operations in 2008 and the 2009 Plan for Internal Auditing Functions of the subsidiaries Saipem and Snam Rete Gas; | |
(iii) | the results of planned and non-planned audits issued by the Internal Audit Department of Eni as well as the outcomes from monitoring the state of execution of corrective actions planned by operational divisions for overcoming issues which emerged during the audit, including in-depth analysis of certain specific themes; |
(39) | Information provided pursuant to Article 123-bis, second paragraph, letter d) of the Consolidated Law on Finance. | |
(40) | For further details of the tasks of the Internal Control Committee, see the "Internal Control System" paragraph of this Report. |
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(iv) | the results of audits implemented by the Internal Auditing Department of Eni in connection with specific requests made by Controlling Bodies; | |
(v) | the periodic reports on reports, including anonymous ones, received by Eni and subsidiaries; | |
(vi) | the report on Enis Internal Control System produced by the Officer in charge of internal control; | |
(vii) | the Guidelines adopted by Eni regarding transactions involving interests of Directors and related parties transactions; | |
(viii) | the periodic report on activities carried out by the Eni SpA Watch Structure, including information on the functions of the Guarantor of the Code of Ethics, after meeting the members of the Structure itself, as required by Eni Model 231; | |
(ix) | reports relative to news/notifications of investigations on the part of bodies/authorities of the Italian or foreign governments with criminal jurisdiction or, in any case, retaining powers of judicial investigation with reference to crimes which could, even potentially, involve Eni or its direct or indirect subsidiaries both in Italy and abroad, or on the part of its Directors and/or employees; | |
(x) | reports on developments regarding disputes considered to be of particular interest, particularly as regards the appropriateness of documentation supporting assessments of the potential liabilities that may be connected with these proceedings and the text of the respective disclosures to the market in the context of the annual and half-yearly financial report; | |
(xi) | the Reports of the Officer in charge of preparing financial reports on the administrative and accounting structure of Eni as of December 31, 2008 and as of June 30, 2009, verifying the appropriateness of the powers and resources made available to the Chief Financial Officer as the Officer in charge of preparing financial reports. In this respect, the examination is focused on the main organizational changes that took place at the end of the second half of 2009 in the CFO area, particularly as regards administrative activities; | |
(xii) | the Reports of the relevant Officer in charge of internal controls contained in the financial statement on December 31, 2008 and on June 30, 2009, and the update on November 30, 2009; | |
(xiii) | the essential aspects of the Statutory and consolidated financial statements as of December 31, 2009, holding meetings with the most senior member of Enis administrative functions, its main subsidiaries and the companies subject to so-called unbundling rules for this purpose, as well as the Chairmen or other members of the Board of Statutory Auditors of each company and the partners of the Auditing Company instructed to express an opinion on the individual financial statements; the representation in the financial statements of specific transactions and/or shareholdings; the draft consolidated half-year financial report as of June 30, 2009, with particular reference to the application of the IAS 36 international accounting standard to the assets of Enis main areas of business; the reports of the audit firm on the Annual Financial Report for 2008 and the Half-Year Financial Report for 2009; | |
(xiv) | the main aspects of the Annual Report on Form 20-F 2008 and the new developments associated with application of the International Financial Reporting Interpretation Committee (IFRIC) 12, the statement on the implementation of SOA activities and update on the 2009 Fraud Prevention Program; | |
(xv) | the draft of the Report on Operations of the Directors pursuant to Article 2433-bis of the Italian Civil Code and relative to the interim dividends for the year 2009; | |
(xvi) | the chapter on the Internal Control System to be inserted within the Corporate Governance Report of the 2008 financial statements; | |
(xvii) | the report on the reports presented by the audit firms on the 2008 Financial Statements, the auditing approach and strategy used in 2008 and 2009 and the audit firms communication on the outcome of the auditing activities pertaining to the internal controls that oversee the process of drawing up Enis consolidated financial statements for 2008 in accordance with section 404 of the Sarbanes-Oxley Act; | |
(xviii) | the report on the tender launched in the second half of 2009 to assign the task of auditing the financial statements and internal control system of the Eni group, in accordance with the Sarbanes-Oxley Act, for the nine-year period 2010-2018; | |
(xix) | the organization and control model adopted by Eni for the purpose of ensuring fulfillment of the requirements of AEEG VIS Resolution No. 109/2008 of December 11, 2009 regarding the ban on passing on |
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the charge imposed by Article 81 of Decree Law No. 112 of June 25, 200841 ("Consumer Prices Control Model") in its prices; | ||
(xx) | the main aspects of the companys organizational model regarding Health, Safety and the Environment; | |
(xxi) | updating of the Eni Guidelines pertaining to the management and control of financial risks; | |
(xxii) | the results of the "Unbundling Implementation Program" launched in 2007, with particular reference to the organizational activities carried out and the formalities required to comply with relevant national and European regulations; | |
(xxiii) | the main features of Enis current regulatory system and the state of progress of improvements implemented by the company in mid-2009 to rationalize the management architecture and method, with a view to simplifying it and making it easier to use, while maintaining its effectiveness; | |
(xxiv) | the main activities carried out by the working group on "Gas Metering Systems"; | |
(xxv) | the main aspects of Enis Security activities, with particular reference to the organization, procedures and operational costs of the dedicated company structure; | |
(xxvi) | the periodic Report on the disciplinary actions taken against illegal conduct on the part of employees drawn up by the relevant sections of the Human Resources and Organization departments in accordance with the companys regulations; | |
(xxvii) | the main features of the ICT operation processes and main initiatives currently under way to strengthen the security of information systems and prevent computer crime and illegal data processing under the terms of Legislative Decree 231/2001. |
Compensation Committee
Established by the Board of Directors in 1996, this committee
advises the Board regarding the remuneration payable to Directors
with proxies and to the members of the committees of Directors
set up by the Board and, on instructions from the CEO, regarding:
(i) Annual and long-term incentive plans; (ii) general criteria
for the remuneration of executives with strategic
responsibilities; (iii) objectives and results of the Performance
and Incentive Plans.
During 2009, the Compensation Committee met 13 times, with a 96%
attendance rate, and in particular it made proposals regarding:
i) Enis 2008 results and 2009 objectives for the purposes
of the Annual and Long-Term Incentive Plans; ii) the variable
remuneration of the Chairman, CEO and Directors based on the
results achieved in 2008; iii) the criteria of the remuneration
policy for executives with strategic responsibilities; iv)
establishment of the 2009 Long-Term Monetary Incentive Plan for
the CEO, to replace and compensate for the Eni Stock Option Plan;
v) establishment of the 2010 Long-Term Incentive Plan, to replace
the Stock Option Plan, for critical managerial resources; vi)
establishment of the 2009-2011 Deferred Monetary Incentive Plan
for managerial resources; vii) 2009 implementation of the
Deferred Monetary Incentive Plan and its assignment to the CEO.
The composition, appointment and operating methods, tasks, powers
and resources of the Committee are governed by an appropriate
regulation approved by the Board of Directors42.
Oil - Gas Energy Committee
The Oil-Gas Energy Committee (OGEC) was established by the
Board of Directors in order to monitor trends and scenarios in
the international energy markets and to analyze the competitive
dynamics of these markets. OGEC has advisory and consulting
functions with respect to the Board of Directors, particularly in
relation to drafting of the Groups Strategic Plans and
verifying the consistency of operational policies adopted in the
multi-year plans.
The OGEC met 10 times in 2009 with an 80% attendance rate on the
part of its five member Directors. The meetings were also often
attended by the Chairman and other Directors.
(41) | Turned into Law No. 133 of August 6, 2008. | |
(42) | http://www.eni.com/en_IT/governance/committees/committees.shtml |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
The Committees first meetings of the year were aimed at
monitoring the effects of the economic and financial crisis on
the national and international energy market, in order to allow
the Board of Directors to assess the potential impacts on Eni and
take appropriate and prompt countermeasures.
The OGEC spent a considerable amount of time examining the
scenario of oil and natural gas prices, which is important for
strategic corporate planning and the assessment of investments.
The committees analysis of oil price formation mechanisms
and the respective financial markets were particularly important.
During the year, the OGEC began to reflect on the fundamental
challenges of the Strategic Master Plan, which are likely to have
a very significant impact on market developments and therefore on
Enis business. For this purpose, two meetings were
dedicated to the evolution of the gas market in Europe, which is
characterized by great uncertainty about supply and demand.
The composition, appointment and operating methods, tasks, powers
and resources of the Committee are governed by an appropriate
regulation approved by the Board of Directors43.
Chief Operating Officers of the Divisions
In accordance with Article 24 of the By-laws, the Board of
Directors can appoint one or more Chief Operating Officers44,
establishing their powers, on a proposal from the CEO, in
agreement with the Chairman, subject to their fulfillment of the
integrity requirements imposed by the law being verified. The
Board periodically assesses the integrity of the Chief Operating
Officers on the basis of statements made by the Managers
themselves. Any failure to fulfill the requirements leads to
dismissal from their post.
The Chief Operating Officers are also required to respect the
instructions of the Board of Directors regarding the number of
posts they may hold, in accordance with the rules applicable to
the CEO.
The Board of Directors has appointed three Chief Operating
Officers responsible for Enis three operating divisions:
- Claudio Descalzi, Chief Operating Officer,
Exploration& Production Division;
- Domenico Dispenza, Chief Operating Officer, Gas&
Power Division;
- Angelo Caridi, Chief Operating Officer, Refining&
Marketing Division.
At its meeting on February 10, 2010, the Board of Directors,
based on the statements made, verified the fulfillment of the
integrity requirements and also verified that the Chief Operating
Officers complied with the rules on the maximum number of posts
they may hold.
Board of Statutory Auditors
Responsibilities
Pursuant to the Consolidated Law on Finance, the Board of
Statutory Auditors oversees the following: (i) the compliance
with the law and the By-laws; (ii) the observance of the
principles for correct administration, the suitability of the
companys organizational structure, within each area of
competence, the suitability of the internal control system and of
the administrative-accounting system, as well as the accurate
recording by the latter of the companys operations; (iii)
the methods for complying with corporate governance regulations
set forth in the Code of Borsa Italiana to which the company
adheres; (iv) the adequacy of the provisions imposed on the
subsidiaries by the company, in order to guarantee full
compliance with legal reporting requirements.
Pursuant to the Consolidated Law on Finance, the Board of
Statutory Auditors submits a documented proposal to the
Shareholders Meeting concerning the granting of auditing
responsibilities as well as compensation for the audit firm. In
accordance with Enis Code, the Board also monitors the
independence of the audit firm, its compliance with all
applicable regulatory provisions as well as the nature and size
of non-auditing services provided to the Eni's Group either
directly or through companies within its network. The outcomes of
this monitoring activity are included in the Report which shall
be prepared pursuant to Article
(43) | http://www.eni.com/en_IT/governance/committees/committees.shtml | |
(44) | For further details, see the section of the website that also contains the companys organizational chart http://www.eni.com/en_IT/company/organisation-chart/organisation-chart.shtml |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
153 of the Consolidated Law on Finance, and attached to the
documentation accompanying the financial statements.
On March 22, 2005, the Board of Directors, by virtue of the
rights granted by the Stock Exchange Commission (SEC) to foreign
issuers listed on the regulated US markets, has identified the
Board of Statutory Auditors as the body that, since June 1, 2005,
has been fulfilling, within the limits set forth by Italian laws,
the responsibilities assigned to the Audit Committee of such
foreign issuers by the Sarbanes-Oxley Act and by SEC regulations.
On June 15, 2005, the Board of Statutory Auditors has approved
the regulations concerning the fulfillment of the
responsibilities assigned pursuant to the aforementioned U.S.
regulations45, the text of which is available on
Enis website46.
Composition and appointments
In compliance with the provisions of the Consolidated Law on
Finance, the Board of Statutory Auditors is composed of a minimum
of three effective Statutory Auditors and two alternate Auditors.
Enis By-laws provide for the Board of Statutory Auditors to
be composed of five Statutory Auditors and two alternates,
appointed by the Shareholders Meeting for a period of three
years and re-electable at the end of their term.
Similarly to the Board of Directors and consistent with the
applicable provisions, the By-laws provide for the auditors to be
appointed by proportional representation (so-called "voto di
lista") where the candidates are listed according to a
progressive numbering; two Statutory Auditors and one alternate
Auditor are selected from among the candidates of minority
shareholders.
More specifically, the shareholders who represent, on their own
or jointly with others, at least 1% of the share capital have the
right to submit a list. Each shareholder may submit, or
contribute to the submission of, and vote for, a single list. The
subjects that control it, the companies controlled by them and
those that are jointly controlled are neither allowed to submit,
nor contribute to the submission of, other lists or to vote for
them, not even through a third party or trust companies.
Eni applies special provisions, concerning the methods and the
timeline for submitting and filing the lists, as set forth in Law
No. 474/1994, that are partially different from those contained
in the Consob Regulations on Issuers. However, in order to
guarantee the utmost transparency of its election process, Eni
has adopted the regulations issued by Consob and not included in
the aforementioned special provisions by voluntarily applying and
expressly providing for them in the By-laws (Article 28).
The lists must be accompanied by the following: information on
the shareholder or shareholders who are submitting the list; a
declaration, from each candidate, stating compliance with the
legal independence, integrity and professional requirements;
their personal and professional curricula.
The lists shall be filed with the registered office at least ten
days prior to the date of the first call of the Shareholders'
Meeting and published in three Italian daily newspapers, two of
them financial, with national circulation. The lists are also
forwarded to the market management company and published on the
companys website.
The appointment procedure shall adopt the methods already
described in the Board of Directors section.
The procedure of proportional representation (voto di lista) only
applies in the event of the entire Board of Statutory Auditors
being replaced. In the event of a replacement of an Auditor from
the list that has received the majority of votes, the alternate
Auditor from the same list fills the vacant position; in the
event of a replacement of an Auditor from other lists, the
alternate Auditor from those lists fills the vacant position.
Pursuant to Article 28.2 of the By-laws, in compliance with the
provisions of the Consolidated Law on Finance, the
Shareholders Meeting appoints as Chairman of the Board of
Statutory Auditors one of the elected candidates from a list that
did not receive the majority of votes.
On June 10, 2008, the Shareholders Meeting has appointed
the following Auditors for a period of three years and in any
case until the date when the Shareholders' Meeting is convened to
approve the 2010
(45) | These regulations were amended on March 30, 2007 in order to include the new provisions introduced by Legislative Decree 303/2006 to Article 159, paragraph 1 of the Consolidated Law on Finance, and by Enis Code, as well as to make the necessary adjustments based on the organizational changes that have occurred since June 15, 2005 when the original regulations were approved. | |
(46) | At the following address: http://www.eni.com/en_IT/governance/board-of-Statutory-auditors/board-of-Statutory-auditors.shtml |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
financial statements: Ugo Marinelli, Chairman, Roberto
Ferranti, Luigi Mandolesi, Tiziano Onesti and Giorgio Silva,
effective Statutory Auditors, Francesco Bilotti and Pietro
Alberico Mazzola, alternate Auditors. The Shareholders' Meeting
has also determined the pre-tax annual compensation for the
Chairman of the Board of Statutory Auditors and of each Statutory
Auditor, in the respective amounts of euro 115,000 and euro
80,000, in addition to reimbursement for any expenses incurred
while performing auditing duties.
Roberto Ferranti, Luigi Mandolesi, Tiziano Onesti and Francesco
Bilotti were elected from the list submitted by the Ministry of
the Economy and Finances as holder of 20.30% of the share
capital.
Ugo Marinelli, Giorgio Silva and Pietro Alberico Mazzola were
elected from the list submitted by the institutional investors,
holders of 1.10% of the share capital.
Personal and professional information on the Statutory Auditors
is provided here below.
UGO MARINELLI
Born in 1941. He holds a degree in Economics and Business from
Luiss University, Rome. He lectures Corporate Auditing in the
department of Economics "Federico Caffé" at Roma Tre
University, Rome. He is also a Professional Accountant and
Auditor. He spent a large part of his career (from 1965 to 2000)
at Arthur Andersen, where he occupied positions with increasing
responsibilities at both the domestic and international levels.
Expert in international accounting principles, he was a member of
EFRAG European Financial Reporting Advisory Group
the technical advisory body of the European Commission for the
endorsement of international accounting principles issued by IASB
- International Accounting Standards Board. As a professional
corporate business consultant, he specializes in risk management
and internal control. He has held and continues to hold a number
of positions in many companies. He is currently Chairman of the
Board of Statutory Auditors of A.D. Moving SpA, of Società
Energie Rinnovabili SpA and its subsidiary Società Energie
Rinnovabili 1 SpA. He is also Chairman of Auditors of Civita and
a member of the Board of Directors of Fingold SpA. Since June
2008, he has been Statutory Auditor and Chairman of the Board of
Statutory Auditors of Eni.
ROBERTO FERRANTI
Born in 1947. He holds a degree in Economics and Business from
"La Sapienza" University, Rome. He is a Professional
Auditor. In 1987, he was appointed Director of Division VI of the
General Inspectorate for Budget Policies General
Accounting Office and in 1992, Director of Division II of
the General Inspectorate for Budget Policies. In 1994, he took
over as interim head of the Public Finance office at the General
Inspectorate for Budget Policies and, since 1997, he has been
serving as Director of the Public Finance office. He has
participated in workgroups in charge of drafting sections of the
General Report on the Italian Economy, and of auditing the
Treasury statements of accounts. He has held teaching positions
at the Italian General Accounting office. He was appointed
Chairman of the Board of Statutory Auditors of Equitalia Piacenza
SpA and of Equitalia Spezia SpA, and Auditor on the Board of
Statutory Auditors of SIMEST SpA He currently holds the following
positions: Chairman of the Board of Auditors of Agenzia Nazionale
Sicurezza Volo; member of the Board of Auditors of Federazione
Italiana Nuoto; Chairman of the Board of Auditors of Registro
Italiano Navale; member of the Board of Directors of Equitalia
Cerit SpA di Firenze. Since July 2009, he has been holding the
position of Chief Inspector General at the General Inspectorate
for Accounting and Public Finance. He has been a Statutory
Auditor of Eni since 2008.
LUIGI MANDOLESI
Born in 1943. After graduating in Economics and Business from
"La Sapienza" University, Rome, he took a position as a
Certified Public Accountant and Accounting Specialist in 1966 and
as a Certified Auditor in 1995. He was appointed Chairman of the
Order of Accountants and Auditors of Rome, Rieti and Velletri and
also held the position of Vice-Chairman of the Order of Certified
Public Accountants and Accounting Specialists of Rome, Rieti,
Tivoli and Velletri. He is partner in the firm "Studio
Commercialisti Associati Luigi e Massimo Mandolesi". He is
Chairman of the Board of Auditors of Procter& Gamble Holding
Srl, Finamca, Impreme, Albergo Centrale, Edev Italia and Edf en
Italia; he is a Statutory Auditor of Altec, Pietro Mezzaroma e
Figli, Larimart and Fondazione Luca Pacioli, and he is a member
of the Board of Directors of Villa Margherita and Finconcordia.
He has been a Statutory Auditor of Eni since 2008.
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
TIZIANO ONESTI
Born in 1960. He is a Certified Public Accountant and Certified
Auditor. He holds a teaching position in Business Economics at
Università degli Studi di Roma TRE and he is also a professor of
General and Applied Accountancy at Università LUISS "Guido
Carli" in Rome. He is the author of several publications on
accounting and business economics and carries out, on an on-going
basis, research and advance education activities. He is currently
the scientific coordinator of the master degree program in Public
Administration (MIFAP) at Università degli Studi di Foggia, and
is a member of the scientific and editorial committees for
several prestigious national journals. He is a corporate
consultant to a number of premier Italian and multinational
companies, specializing in the evaluation of companies and of
their branches, in extraordinary transactions, in civil balance
sheets and IAS/IFRS; he also carries out, within the areas of his
competence, technical advisory activities, upon appointments by
the parties or by the court in civil or penal proceedings. He has
held and still holds positions as a member of Boards of
Directors, as Statutory Auditor, as external Auditor and
liquidator. He is Chairman of the Board of Auditors of AGI SpA,
NewCo Rai International SpA; PM&Partners SpA SGR, Servizi
Aerei SpA, as well as Chairman of the Board of Auditors of
Agenzia Autonoma per la gestione dellAlbo dei Segretari
Comunali e Provinciali. He is also a Statutory Auditor of Euler
Hermes Siac SpA and liquidator of American Express Co SpA. He is
an independent advisor of Gruppo Editoriale LEspresso SpA
and of Fondo Pensione per il Personale della Banca di Roma. He
has been a Statutory Auditor of Eni since 2008.
GIORGIO SILVA
Born in 1945, he holds a degree in Economics and Business from
Università Cattolica del Sacro Cuore in Milano; he has been
registered in the Register of Certified Public Accountants of
Busto Arsizio since July 4, 1975 and in the Register of Varese
since May 3, 1989. He has been a Chartered Accountant since 1981
and a Certified Auditor since 1995 (Ministerial Decree April 12,
1995 published in Gazzetta Ufficiale No. 31-bis of April
21, 1995). He held executive administrative positions in primary
industrial companies from 1965 to 1973. He assumed an executive
role in the tax section of the audit firm Peat Marwick &
Mitchell (currently KPMG) in Milan from 1973 to 1976. In 1977, he
joined Studio legale Tributario L. Biscozzi-A. Fantozzi,
currently Studio Legale e Tributario Biscozzi Nobili, of which he
is a founding partner He held positions of Board Director in
listed companies such as Gemina SpA, from 1996 to May 3, 1999; of
Chairman of the Board of Auditors in Impregilo SpA from 1999 to
May 2, 2005, and in ATC Trevisan Cometal SpA until May 7, 2008.
The positions he currently holds are: Chairman of the Board of
Auditors of Kedrios SpA, TSP - Tecnologie e Servizi per il
Pubblico Srl; Statutory Auditor of the listed RCS Mediagroup SpA,
Statutory Auditor of: Alitalia Compagnia Aerea Italiana SpA, CAI
Second SpA, Air One SpA, Air One Cityliner SpA, Air One Technic
SpA, SIA - SSB SpA, Hewlett Packard Italiana Srl, Bolton
Alimentari SpA (he also holds the position as Alternate Auditor
in Autogrill SpA, CAI First SpA, Nuova Sidap Srl; Auditor in
Fondazione Corriere della Sera; Auditor in Fondazione Candido
Cannavò per lo sport, and Auditor for the Provincia di Varese).
He is a speaker at conventions and the author of numerous
articles and publications on the taxation system. He is a member
of the Eni Watch Structure overseeing compliance with Legislative
Decree 631/2001 of RCS Mediagroup SpA and Luxottica SpA. He has
been a Statutory Auditor of Eni since May 2005.
The personal and professional résumés of the Statutory Auditors are also available on Enis Website, in the Corporate Governance section.
Independence, integrity and professional requirements,
causes for ineligibility, incompatibility and dismissal
As stated in the Enis Code, the Statutory Auditors act
with autonomy and independence also towards the shareholders who
have appointed them.
Pursuant to the Consolidated Law on Finance, the Statutory
Auditors must meet specific independence requirements, as well as
professional and integrity requirements, as set forth in the
regulations issued by the Ministry of Justice and the Ministry of
Economy and Finance.
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As for the professional requirements, Article 28 of the
By-laws states that, as set forth in the aforementioned
ministerial regulatory provisions, the requirements may be met
also through a professional or teaching experience (of at least
three years) in the business law, business economics and finance
disciplines or through the exercise (for at least three years) of
executive functions in the engineering end geology fields.
The Auditors in office must also be registered in the Registry of
Certified Auditors.
The Statutory Auditors have stated for the first time, on the
occasion of their appointment, to meet the requirements of
independence, integrity and professionalism set forth in the
applicable regulations, and the Board of Directors has completed
the verification assignments conferred to them at the meeting of
June 11, 2008. Subsequently and in compliance with the provisions
of Enis Code, aimed at ensuring that the Statutory Auditors
satisfy the prerequisites of independence, also in accordance
with the criteria provided for in the same Code for the Board of
Directors, the Board of Statutory Auditors has verified, at the
meeting of January 21, 2009 and January 18, 2010, that its
members meet the afore mentioned requirements (independence,
integrity and professionalism) and the Board of Directors, at the
meetings of February 26, 2009 and February 11, 2010 respectively,
has completed the verification assignment received.
Finally, pursuant to all applicable laws, the subjects who hold
the same position in five other issuer companies, are not allowed
to assume the role of member of the auditing body in any other
issuer company. They may however be assigned other administrative
and control functions in Italian companies, within the limits set
forth by Consob and in compliance with internal corporate
regulations. In compliance with this policy, entered into effect
on June 30, 2008, each Statutory auditor has forwarded to Consob,
in September 2008, a communication stating compliance with the
aforementioned restrictions. In July 2009, the Statutory Auditors
have submitted to Consob their annual report on the number of
offices held and on the ranking associated with such offices.
Meetings attendance
The Statutory Auditors and the Directors are simultaneously
provided with documentation on the items of the agenda to be
discussed at the Board of Directors meeting, and the Board of
Directors and the CEO shall report, at least every quarter or in
any case, at the time of the Board of Directors meetings, on the
activities performed and on the most relevant economic, financial
activities and operations carried out by the company and by its
subsidiaries, pursuant to Article 23.3 of the By-laws.
In compliance with the specifications of the Enis Code, the
Statutory Auditors must inform the Board of Directors and the
other Auditors of any interest they may retain on their own or on
behalf of third parties with respect to specific transactions of
the company. Corporate operations in which the Statutory Auditors
retain an interest, or of which they are the related third
parties, are regulated by specific Guidelines that were approved
on February 12, 2009 by the Board of Directors following
consultation with the Internal Control Committee.
The meetings of the Board of Statutory Auditors may be held by
video or teleconference.
In 2008, the Board of Statutory Auditors met 26 times. The
average duration of the meetings was approximately 3 hours and 48
minutes. In 2009, the average attendance at the meetings of the
Board of Statutory Auditors was 91% of the members whereas the
average attendance at the meetings of the Board of Directors was
95% of the members.
The tables attached to this report show the attendance of each
Auditor at the meetings of the Board of Statutory Auditors and of
the Board of Directors.
Internal Control System47
The internal control system is a set of rules, procedures and organizational structures aimed at creating healthy and sound company management that is consistent with established goals, by means of an adequate process for the identification, measurement, management and monitoring of the main risks. An effective internal control system contributes towards guaranteeing the protection of the companys assets as
(47) | Information provided pursuant to Article 123-bis, second paragraph, letter b), of the Consolidated Law on Finance. |
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well as efficiency and efficacy of business transactions,
reliability of financial reporting and compliance with laws and
regulations.
The structure of the internal control system, is a part of the
organizational and management model of the company and involves,
in different roles, administrative bodies, watch structures
auditing bodies48, management and all personnel, in
compliance with the principles of the Code of Borsa italiana and
the framework of reference, "Coso Report"49.
Each specific structuring of this system is integrated with the
provisions of the Code of Ethics which provides for the following
as fundamental values: the formal and substantive legitimacy of
the behaviors of members of corporate bodies and of employees at
any organizational level; accounting transparency; and the
promotion of a corporate culture based on internal controls.
Eni is aware that the investors rely on the commitment of the
corporate bodies, management and employees to maintain full
compliance with the rules set forth in the corporate internal
control system. Within this scope, Eni manages, by means of a set
of internal regulations and in compliance with the provisions set
forth in the Sarbanes-Oxley Act, the receipt through
easily accessible communication channels the analysis and
the handling of the reports of issues, even in confidential or
anonymous form (whistle blowing), that are received by Eni and
its subsidiaries and related to internal control, financial
reporting, company administrative responsibility, frauds or other
types of concerns50.
According to Eni, the so-called "culture of risk and related
control" contributes to characterize and affect the
managements aptitude and choices in pursuing company
objectives and reporting the outcomes. Eni is consistently
committed to promote the development and pervasiveness by the
companys employees of an awareness regarding internal
control issues.
For the purposes of ensuring an effective and sound management of
corporate operations, in compliance with pre-set strategies and
objectives, Eni supports a risk prevention approach and focuses
its choices and management activities on the reduction of the
probability of the occurrence of negative events and their
potential impact. To this end, Eni adopts strategies of risk
management, depending on their nature and type such as mainly
financial and industrial risks, compliance/regulatory risks, as
well as other strategic and operational risks, such as country
risks in oil& gas activities, and other risks related to
exploration for and production of hydrocarbon. The methods by
which management identifies, assesses, handles and monitors the
specific risks associated with the company operations, are
regulated by internal guidelines, rules, procedures and
organizational provisions within the company's regulatory system,
which being risk prevention-based, contribute to their
containment. With specific regard to industrial51 and
financial risks, special control measures have been set forth and
special regulations have been issued or are being issued within
the CEO's area of competence, which will be periodically updated
in order to guarantee an effective and transversal management of
these types of risks. In addition, the development of risk
assessment programs in specific areas contributes to further
developing the sensibility of management with respect to risk
management and contributes to the improvement and efficacy of
decision-making processes.
In 2009, in line with the evolution of the company organizational
model and consistent with the companys mission and values,
Eni has undertaken initiatives to streamline and integrate its
own regulatory system by simplifying it and easing its use for
the purpose of higher overall efficacy. Similar initiatives were
applied also to the ICT processes and are currently undergoing an
assessment in terms of streamlining and integrating the risk
management system.
(48) | For further information on the supervisory activities performed by the Board of Statutory Auditors in regard to the adequacy of the internal control system and of the administrative-accounting system, also as Audit Committee under US laws, see the paragraph "Board of Statutory Auditors - Responsibilities" above and "Officer in charge of preparing financial reports and internal control system on financial reporting". | |
(49) | See CoSO - Committee of Sponsoring Organizations of the Treadway Commission (1992), Internal Control. Integrated Framework. The adoption by Eni of the CoSO Report is mentioned in several documents, among which the most relevant are: Enis organizational, management and control Model pursuant to Legislative Decree No. 231 of 2001 approved by the Board of Directors in the meetings of December 15, 2003, of January 28, 2004 and March 14, 2008; Guidelines on internal control system over corporate reporting Rules and Methods II Release approved by the Board of Directors on June 20, 2007, as well as all referenced best practices set forth by the Internal Audit. | |
(50) | Eni guarantees full confidentiality of the identity of the people who reports issues of concern in good faith, and communicates the results of the assessment carried out on report cases to the top management of the company as well as to the appropriate control and supervisory bodies. | |
(51) | The term "Industrial risks" refers specifically to risks that occurs from events which may cause damage to the company's asset (property) and/or to third parties, within the scope of their activities (causality), including damages suffered by the people involved in the production process. |
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The internal control system is subject, over time, to evaluation and updates in order to steadily guarantee its capacity to preside over the main areas of corporate risks, according to the typical issues of each operating segment and organizational structure, ready to take account of any new law or regulations. The main changes introduced in 2009 are part of a natural evolutionary process aimed at achieving "on-going improvements" of the efficacy and efficiency of the system itself. In particular, in response to the evolution of the applicable legislation, Model 231 was updated to include the types of offences recently added within the application scope of Legislative Decree No. 231 of 2001, as detailed hereinafter, and a specific Control Model was adopted in order to prevent the application, to consumer prices, of the charge associated with the income surtax introduced by Legislative Decree No. 112 of 2008 (Consumer Prices Control Model).
Board of Directors
The Board of Directors retains a central role in internal
control system by defining the basic principles to be applied to
the organizational, administrative and accounting structure of
the Company, of the main subsidiaries and of the Group; in this
context, it defines, examined proposals submitted by the Internal
Control Committee, the guidelines for the companys internal
control system aimed at identifying, measuring, managing and
monitoring the main risks to which the company and its
subsidiaries are exposed. In the definition of these guidelines,
the Board applies sector regulations and takes into adequate
consideration the referenced models and the best national and
international practices.
Finally, the Board assesses annually, with the support of the
Internal Control Committee, the adequacy, efficacy and efficiency
of the overall internal control system with respect to Eni's
characteristics. In its meeting of March 11, 2010, the Board
examined the Internal Control Committees 2009 Report
(updated on March 10, 2010) as well as the observations included
therein on the status of Enis internal control system and,
at the conclusion of this review, the Board, also in
consideration of the initiatives underway, assessed the overall
internal control system adequate, effective and efficiently
operating.
Internal Control Committee
The Internal Control Committee, established within Eni in
1994, is entrusted with providing consulting and advisory
services to the Board of Directors as regards the internal
control system. It is exclusively made up of non-executive,
independent Directors provided with the professional
qualification required by the responsibilities entrusted to them52,
and reports to the Board of Directors both on its activities and
on the adequacy of the internal control system, at least once
every six months, at the time of approval of the annual and
half-year financial statements The periodical reports, to be
submitted to the Board of Directors, are prepared by the
Committee and must keep into consideration the content of the
periodical reports prepared by the Officer in charge of preparing
financial reports, the Officer in charge of Internal Control and
the Eni Watch Structure and, in general, must be based on the
evidence acquired while performing its activities, which are:
- | examining and assessing in conjunction with the Officer in charge of preparing financial reports and the Audit firm the correct utilization of accounting principles and their homogeneity for the drafting of the annual and half-year financial statements before approval by the Board of Directors; | |
- | assisting the Board in defining the guidelines for the internal control system; | |
- | providing an evaluation upon request by the CEO on specific aspects concerning the process used to identify the main risks related to the Company as well as on the planning, implementation and management of the internal control system; | |
- | overseeing the activities of Internal Audit and of the Officer in charge of Internal Control; furthermore within this area of responsibility, the Committee examines: the proposal of the Audit Plan and its potential amendments during the financial year; the annual budget of the Internal Audit Department;, the periodical reports and performance indicators on the activities of the Internal Audit Department; | |
- | examining and assessing the following: i) the outcomes of internal audit reports as well as any evidence on related monitoring activities on improvement actions on control system, planned after |
(52) | Unlike to the Code of Borsa Italiana, the Eni Code requires that at least two (and not only one) Committee members have adequate expertise in accounting and financial matters, to be assessed by the Board of Directors at the time of their appointment. |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
the audits are performed; ii) evidence resulting from the periodical reports on the outcomes of the monitoring activities conducted on the internal control system over financial reporting, on its adequacy and actual application, as well as the adequacy of the powers and means assigned to the Officer in charge of preparing financial reports; iii) communications and information received from the Board of Statutory Auditors and its members regarding the internal control system, also in reference to the outcomes of preliminary inquiries conducted by the Internal Audit department following reports received also in anonymous form (whistle blowing); iv) evidence emerging from the reports and management letters submitted by the Audit Firm53; v) periodical reports issued by Eni Watch Structure, also in its capacity as Guarantor of the Code of Ethics; vi) evidence emerging from the periodical reports submitted by the Officer in charge of preparing financial reports and by the Officer in Charge of internal control; vii) information on the internal control system as it relates to the companys structure, also through periodical meetings with management, as well as enquiries and reviews carried out by third; | ||
- | performing other specific activities aimed at formulating analyses and opinions on topics falling under its competence and based on the Boards request for details, and in particular, providing an opinion on the rules concerning the transparency and substantial and procedural correctness of operations carried out with related third parties, as well as transactions where a Director of the Board retains a personal interest or an interest on behalf of third parties, and finally carrying out any additional task assigned within this scope, including the review and evaluation of specific types of transactions. |
The activities performed by the Committee in 2009 are described in the dedicated paragraph above.
Chief Executive Officer
The Chief Executive Officer (CEO) is entrusted by the
Board of Directors with overseeing the functioning of the
internal control system. To this end, he identifies the main
company risks and, in implementing the guidelines on to the
internal control system approved by the Board, provides to their
design, implementation and management. The CEO is also entrusted
with monitoring the overall adequacy, efficiency and efficacy of
the internal control system and ensuring that it is adjusted to
Companys operations and applicable laws. With reference to
the internal control system applied to financial reporting, these
tasks are performed in compliance with the tasks assigned, by
law, to the Officer in charge of preparing financial reports54.
Enis people - Management
As set forth in the Code of Ethics, the responsibility to
implement an effective internal control system applies to all
levels of Enis organizational structure; therefore all
Enis people, according to their function and
responsibilities are committed to define and actively participate
in the correct functioning of the internal control system. The
CEO and/or the Chief Operating Officers of Enis Divisions,
by exercising the powers entrusted to them by the Board of
Directors, assign to the managers responsible of their respective
areas task, responsibilities and powers for ensuring an effective
and efficient internal control in the performance of their
respective activities and in the pursuit of related business
objectives.
Officer in charge of Internal Control and
Internal Audit
A primary role in monitoring and assessment process of
the internal control system is performed by the Officer in charge
of Internal Control, a position which, in Eni, is held by the
Senior Executive Vice President of Internal Audit (Rita Marino),
given the substantial identity of operational areas and the
consequent strong link between the two roles.
(53) | Eni entrusted to the Board of Statutory Auditors, as set forth in the Code of Borsa Italiana, the role of Audit Committee under the SOA and therefore the task of reviewing the proposals submitted by Audit Firm in order to obtain the auditing mandate and monitor the efficacy of the accounting auditing process. | |
(54) | To this end, please see details in the following paragraph describing the responsibilities assigned to the Officer in charge of preparing financial reports. |
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Officer in charge of Internal Control
The Officer in charge of Internal Control is
entrusted with the main task of i) verifying that the internal
control system is always adequate, fully operational and
correctly functioning and ii) providing evaluation on its
adequacy.
The Officer in charge of Internal Control is appointed by
the Board of Directors, on proposal of the CEO, in agreement with
the Chairman of the Board of Directors, and after opinion of the
Internal Control Committee55. The Board determines the
compensation of the Officer in charge of Internal Control, in
compliance with corporate policies and following consultation
with the Internal Control Committee.
The Officer in charge of Internal Control is not
responsible for any specific operational area, has direct access
to information which may be useful for carrying out her tasks, is
provided with the necessary tools for fulfilling her tasks, and
reports, through the Internal Control Committee, to the Board of
Directors, the Board of Statutory Auditors and the CEO by means
of periodical reports.
On March 4, 2010, the Officer in charge of Internal Control has
released its Annual Report on the internal control system (for
the period between January 1 and December 31, 2009, updated as at
the release date) and has also provided an evaluation on its
adequacy based on the outcomes of the monitoring activities
carried out in the relevant period by the Internal Audit
Department, by the Officer in charge of Internal Control of the
listed subsidiaries and by the Internal Audit Departments of the
subsidiaries that are under the supervision of the Bank of Italy.
Internal Audit Department
The Internal Audit Department is entrusted with the task
of providing the following to the CEO and, through the Internal
Control Committee, to the Board of Directors and to the Board of
Statutory Auditors in its capacity as "Audit Committee"
in accordance with US law: audits, analyses, assessments and
recommendations pertaining to the design and functioning of, as
well as compliance with, the internal control system of the
company and of the Group, in order to promote its efficiency, and
efficacy. The Internal Audit Department performs the activities,
within its own area of responsibility, as regards Eni SpA and the
subsidiaries in which ENI retains majority voting rights, with
the exception of those with listed shares or those under the
supervision of the Bank of Italy. Those subsidiaries have their
own internal audit departments.
The Senior Executive Vice President of Internal Audit, reports to
the CEO who is entrusted with overseeing the functioning of the
internal control system; the Internal Control Committee oversees
the activities carried out by the Internal Audit which reports
also to the Board of Statutory Auditors, in its capacity as
"Audit Committee", pursuant to the laws of the Unites
States. The methods for appointing/revoking the Senior Executive
Vice President of Internal Audit are compliant with the
provisions set forth in the Code of Ethics, as regards the
Internal Control Manager, given the synergy between the two
roles. The Internal Control Committee evaluates annually the
upholding of the characteristics of honorability, competence and
expertise of the Senior Executive Vice President of Internal
Audit, as well as the absence of any causes of incompatibility,
and provides the Board of Directors with its opinion on the
compensation to be paid to the Senior Executive Vice President of
Internal Audit upon proposal by the CEO in accordance with
corporate policies.
Tasks, powers and means of the Internal Audit Department
and information flows
Objectives, areas of intervention and functioning methods
pertaining to the Internal Audit department are defined in the
"Internal Audit Charter", approved by the Board of
Directors at the end of 2008 in line with the best practices.
The Internal Audit Department is entrusted with the powers and
means adequate for performing its tasks in full operational
independence also in terms of expenditure autonomy,
availability of an adequate number of professionally competent
resources, and access to information, data, archives and assets
held by the company and by its subsidiaries.
(55) | The Officer in charge of internal control was appointed for the first time in the meeting of March 16, 2007 and later reconfirmed by a resolution issued on October 30, 2008. |
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According to this organizational model, the Internal Audit Department, by ensuring the preservation of the necessary conditions of independence, as well as of the required professional objectivity, skills and diligence in compliance with the set forth international standards for professional practices and the Code of Ethics, performs the following main activities:
(i) | Executes audit activities (operational,, financial and compliance audit, with particular attention given to the provisions of Legislative Decree no. 231 of 2001), thus implementing the Annual Audit Plan formulated with a top-down risk based approach and approved by the Board of Directors together with the budget of the resources and, for the relevant aspects as set forth in Legislative Decree No. 231 of 2001, by the Eni Watch Structure. | |
(ii) | Performs unplanned internal audit activities, upon request by the primary stakeholders of the internal control system and/or by the top management. | |
(iii) | Monitors the implementation of corrective actions defined on the basis of audit activities. | |
(iv) | Organizes and oversees the development and management of the information flows set up for receiving the reports, also in anonymous form, of which it keeps an updated archive, and conducts preliminary audits in compliance with applicable corporate procedures. | |
(v) | Performs monitoring activities, as provided for in the 231 Model of Eni SpA. Within this specific area, the Internal Audit Department has started, in 2009, monitoring activities pertaining to HS, which, in compliance with the aforementioned Internal Audit Charter, provide for conducting independent assessments on the auditing, measurement and reporting activities, to be carried out by the competent HSE units. | |
(vi) | Carries out independent monitoring activities performed for financial reporting, according to a plan communicated by the CFO and, starting in 2009, performs also independent monitoring activities for relevant operations in terms of "Consumer Prices Control Model", based on the Plan formulated by the General Manager of each Division. | |
(vii) | Participates in corporate training regarding internal control issues. |
The Internal Audit department ensures systematic and periodical reporting (quarterly summary reports and half-year reports) on the outcomes of its activities which are forwarded to the control and supervisory bodies and to upper management in order to enable them to perform their duties, in terms of control and assessment of the internal control system; in addition, it promptly informs the CEO and the control and supervisory bodies about serious deficiencies identified in the internal control system and about any circumstance that may compromise its own prerequisites of independence.
Officer in charge of preparing Financial Reports and internal control system applied to financial reporting
Officer in charge of preparing Financial Reports
Pursuant to Article 24 of the By-laws, in compliance with
the provisions of Article 154-bis of the Finance
Consolidation Act, the Officer in charge of preparing
Financial Reports (Appointed Officer - AO) is
appointed by the Board of Directors, upon proposal submitted by
the CEO in agreement with the Chairman and upon favorable opinion
issued by the Board of Statutory Auditors. The AO must be
selected, in accordance with the provisions of the By-laws, from
among subjects with at least three years of experience with the
following:
(a) | administration, control or management activities carried out at companies that are listed in the Italian, in other European Union states and in OECD countries regulated markets, and with a share capital of at least euro 2 million, or | |
(b) | auditing activities carried out at the same types of companies listed under letter a), or | |
(c) | professional activities with, or university teaching experience in, financial or accounting disciplines, or | |
(d) | management experience developed at public or private enterprises operating in the financial, accounting or auditing sectors. |
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Tasks, powers and means of the Appointed Officer
In compliance with law provisions, the AO is responsible,
within the internal control system, for the financial reporting
and to this end, he/she sets forth the administrative and
accounting procedures for drafting the periodical accounting
documentation and any other financial reporting, certifying
in accordance with the CEO and by means of a report on the
financial statements of the year, on the half-year summary
financial statements and on the consolidated financial statements
the adequate and actual application of the internal
control over the period to which these accounting documents
refer. The Board of Directors oversees these activities, pursuant
to Article 154-bis, in order to ensure that the AO has
the powers and the means necessary to carry out the assigned
tasks and that compliance with the aforementioned procedures is
maintained. In the meeting of July 30, 2008, the Board of
Directors, upon favorable opinion issued by the Board of
Statutory Auditors, has appointed to the position of AO Mr.
Alessandro Bernini, Enis Chief Financial Officer (CFO) and
has deemed as being adequate, for the purpose of performing his
functions, the conferred expenditure powers, to be exercised
independently from or jointly with the CEO, as well as the means
at his disposal in terms of organizational structures and
administrative, accounting and internal control systems.
In the meeting of March 11, 2010, the Board of Directors has
confirmed the adequacy of the "powers and means" at the
disposal of the CFO, in his capacity as AO, and has verified
compliance of the procedures implemented by the AO with the
applicable law.
Main characteristics of the risk management and internal
control systems applied to the financial reporting process
The internal control system applied to financial
reporting is a process aimed at providing a reasonable certainty
on the reliability56 of the financial reporting itself
and on the capacity of the process set up for the preparation of
the financial statements to produce financial reports compliant
with generally accepted international accounting principles.
The "Guidelines on internal control system over corporate
reporting" approved by the Board of Directors on June 20,
2007, define the rules and methods to be adopted in the planning,
establishing and maintaining, over time, of the internal control
system applied to Enis financial reporting, as well as in
the assessment process of its efficacy.
These Guidelines have been defined in compliance with the
provisions of the aforementioned Article 154-bis of the
Consolidated Law on Finance and with the provisions of the US
Sarbanes-Oxley Act of 2002 (SOA), to which Eni must adhere as a
company whose stocks are listed on the New York Stock Exchange
(NYSE), formulated in accordance with the CoSO Report
("Internal Control - Integrated Framework" published by
the Committee of Sponsoring Organizations of the Treadway
Commission).
The Guidelines are applicable to Eni SpA and to the subsidiaries
in which Eni holds a direct or indirect interest, in compliance
with international accounting principles and in consideration of
their relevance in terms of the preparation of financial
reporting. All subsidiaries, regardless of their relevance within
the internal control system applied to Enis financial
reporting, refer to these Guidelines in setting up their own
control system on financial reporting that better reflects the
companys size and complexity of operation.
The planning, set up and maintenance of the internal control
system applied to financial reporting are guaranteed through:
risk assessment, controls identification, controls evaluation and
reporting.
The risk assessment process, based on a "top-down"
approach, aims at identifying the organizational entities, the
processes and the specific activities capable of generating risks
of unintentional errors or of frauds, which may significantly
affect the financial statements.
In particular, the identification of the organizational entities
under the internal control system applied to financial reporting,
is based on the contribution, by the various entities, to the
figures stated in the consolidated financial statements (assets,
financial debt, net proceeds, taxable income) also in
consideration of their relevance in terms of processes and
specific risks57. Within the companies that are
relevant to the
(56) | Reliability (of the reporting): A reporting that meets the requirements of correctness and compliance with generally accepted accounting principles and includes the characteristics sets forth by the applicable laws and regulations. | |
(57) | Among the entities under the internal control system, are some companies established and operating in compliance with the laws of countries that are not part of the European Union, to which the regulatory provisions of Article 39 of the Consob Market Regulations apply. |
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control system applied to financial reporting, significant
processes are subsequently identified upon an analysis of
quantitative factors (processes that contribute to determining
the financial statement items for amounts over a certain
percentage of pre-tax profits) and of qualitative factors (e.g.:
complexity in the accounting handling of financial operations;
news and/or significant changes in the business conditions).
Following identification of all relevant processes and
activities, the potential risks are identified. The term
"risk" refers to potential events that may compromise
the achievement of the control systems objectives applied
to financial reporting (e.g. financial statements). The
identified risks are assessed in terms of their potential impact
and probability of occurrence, based on qualitative and
quantitative parameters and assuming the absence of a control
system (inherent assessment). In particular, with reference to
fraud risks58, a risk assessment was performed based
on a specific methodology used in the "Anti-fraud programs
and controls" to which the aforementioned Guidelines refer.
In consideration of the relevant companies, of the processes and
risks involved, a control system was set up on the basis of two
fundamental principles: the application of the control system to
all levels of the corporate organizational structure and in
accordance with the assigned operating responsibilities, and the
controls sustainability over time so as to ensure a
performance that is integrated and compatible with operational
requirements.
The structure of the control system applied to financial
reporting provides for controls implemented at the level of
entities that operate in a transversal manner with respect to the
reference entity (Group / Division / single company), and
provides for controls at the process level.
The controls implemented at the entity level are organized in a
checklist which, based on the model adopted in the CoSO Report,
focuses on five components (control environment, risk assessment,
control activity, information systems and reporting, monitoring
activities). Of particular importance are the control activities
related to the scheduling of drafting and disseminating
economic-financial operating results ("half-year and
financial statement circular" and related timelines); the
existence of organizational structures and of a regulatory body
aimed at reaching the pre-set objectives as regards financial
reporting (these controls provide, for example, for auditing and
updating activities carried out through specialized corporate
functions, as set forth in the Groups Regulations, with
reference to the groups financial statements and Accounting
Plan); training activities on accounting principles and an
internal control system applied to financial reporting; and
finally activities related to the reporting system for the
management of the consolidation process (Mastro).
The controls at the process level are divided as follows:
specific controls intended as a set of manual or automated
activities aimed at preventing, identifying and correcting errors
or irregularities that may occur in carrying out operational
activities; pervasive controls intended as structural elements of
the control system applied to financial reporting and aimed at
defining the general conditions that would promote a correct
execution and control of operational activities (e.g. segregation
of incompatible tasks and general controls on information
systems).
The "specific controls" consist in special procedures
that define both the execution of corporate processes and the
so-called "key controls", the absence or
non-functioning of which would carry the risk of a relevant error
or fraud in the financial statements that may not be detected by
other forms of controls.
The controls at the entity and process level are subject to
evaluation (monitoring) in order to assess, over time, the
effectiveness of their design and their actual functioning. For
this purpose, the following activities were provided for: ongoing
monitoring assigned to the management group responsible
for the relevant processes/activities and separate
evaluations, assigned to the Internal Audit Department which
operates in compliance with a preset plan, formulated by the
CFO/AO, that defines the scope and the objectives of the
interventions through agreed upon auditing procedures.
The monitoring activities enable the identification of
deficiencies present in the control system applied to financial
reporting, which are subject to evaluation in terms of
probability and impact on Enis financial reporting and,
based on their relevance, are qualified as
"deficiencies", "significant weak points" or
"relevant deficiencies".
(58) | Fraud: within Internal Control System, each act or intentional omission which generates a deceptive statement. |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
The results of these monitoring activities are included in
periodical reports on the status of the control system applied to
financial reporting, through the use of computerized tools in
order to guarantee the tracking of the information collected on
the effectiveness of the design and on the actual functioning of
the controls. Based on this reporting activity, the CFO/AO
prepares a report on the adequacy and actual implementation of
the control system applied to financial reporting, which, after
approval by the CEO, is submitted to the Board of Directors,
following review by the Internal Control Committee and upon
approval of the annual and half-year financial statements, in
order to enable the execution of the required supervisory
functions and of the appropriate evaluations, related to the
internal control system applied to financial reporting. This
report is also submitted to the Board of Statutory Auditors, in
its capacity as Audit Committee in compliance with US
regulations.
The CEO/AO is assisted, in his/her activities within ENI, by
several other individuals whose tasks and responsibilities are
defined in the aforementioned Guidelines. More specifically,
control activities involve all levels of Enis
organizational structure, from business managers to executives to
administrative Directors and the CEO. Within this organizational
structure, the so-called "risk owner" assumes a
particular relevance, as regards the internal control system, as
he/she performs ongoing monitoring activities aimed at evaluating
the design and effectiveness of specific and pervasive controls,
as well as providing information to be used in the reports on
monitoring activities and on any identified deficiencies, in
order to promptly implement all necessary corrective actions.
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 SpAs 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
(hereinafter, "Model 231") and has appointed the Eni
Watch Structure. 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 Chairman 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 Senior Executive Vice
President (or managers directly reporting to them) of Legal
Affairs, Human Resources and the Internal Audit Departments.
The Eni Watch Structure carries out the following main
activities: (i) monitors the efficacy of Model 231 of Eni SpA as
well as all related implementation and updating activities; (ii)
evaluates the effectiveness of Model 231 and ensures the
maintenance over time of its sound and efficient functioning by
proposing the necessary updates; (iii) monitors the progress of
its application to the subsidiaries and promotes the
dissemination and knowledge to the same of the methodologies and
tools to be used for the Models implementation (iv)
approves the annual planning of all Eni SpAs supervisory
activities, coordinates their implementation and evaluates the
results; (v) manages the reporting activities, working for this
purpose with the Watch Structure of subsidiaries
appropriate personnel and supervisory bodies. The synergies
between Model 231 and the Code of Ethics, an integral part and
underogable principle of Model 231, are evident in the assignment
to Eni SpAs Watch Structure of the functions of Guarantor
of the Code of Ethics. Similarly, each subsidiary assigns the
functions of Guarantor of the Code of Ethics to its own Watch
Structure. The Watch Structure of Eni SpA reports periodically on
its activities to the Chairman, to the CEO who informs the
Board of Directors by means of his/her own report on the
execution of delegated powers to the Internal Control
Committee and to the Board of Statutory Auditors. These
periodical reports are processed according to the evidence
acquired while performing its activities.
Following the first approval of Model 231 and its subsequent
updates in compliance with legislative developments, in the
meeting of March 14, 2008, the Board of Directors of Eni SpA,
after consultation with
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the Board of Statutory Auditors, has approved its own update
which has been implemented in accordance with corporate
organizational changes, new legal requirements59, new
developments on the part of authorities and case law, issues
resulting from the application of the Model (including any
knowledge stemming from legal disputes), the practices of Italian
and foreign companies with regards to the models, the outcomes of
supervisory activity and the results of internal auditing
activities.
Model 231 of Eni SpA, a set of principles and the point of
reference for subsidiaries, is provided to each subsidiary so
that they may adopt and/or update their own models. The
subsidiaries listed on the stock exchange and those operating in
the gas and electrical sectors, subject to unbundling
regulations, adopt their own model and adjust it as necessary, in
accordance with their own company characteristics and with the
principle of managerial autonomy. The representatives identified,
as indicated by Eni, within the corporate bodies of the
subsidiaries as well as in consortia and joint ventures, promote
the principles and contents of Model 231 within their respective
areas of competence. Control provisions (based on general and
specific standards) have been set forth in order to regulate
corporate activities for the prevention of crimes, pursuant to
Legislative Decree No. 231 of 2001. In addition, in compliance
with the applicable law, a disciplinary system has been
implemented to sanction infringements of Model 231 and failures
to comply with corporate procedures. At the end of 2009, Eni has
launched some initiatives aimed at streamlining and optimizing
the organizational and operational structure of the watch
structures of the subsidiaries, and at analyzing the process
implemented by the subsidiaries themselves for the adoption of
Model 231 while taking into consideration any developments in the
regulatory system and in best practices.
The Board of Directors plays a primary role concerning Model 231
since, as mentioned earlier, it has reserved the right to approve
it, to establish and appoint the members of the Watch Structure
and to receive, through the CEO, periodical reports on its
operations. On the other hand, the CEO is responsible for
implementing and updating Model 231, pursuant to the powers
conferred to him/her by the Model itself. For this purpose, the
CEO has set up a multifunctional Team ("Team 231")
responsible for drafting/submitting proposals for updates. During
2009, the Team 231 has completed the update of Model 231 to
include crimes pertaining to receiving stolen goods, recycling,
and unlawful usage of money and properties of illegal origins,
computer crimes and unlawful data processing, and will shortly
implement new updates by adding new types of presumed crimes
introduced by the legislature in 2009 (organized crimes, crimes
against industry and commerce, infringements of copyrights,
instigation not to make statements or to make false statements to
judicial authorities).
In 2009, the rationale and methods to be applied to the planning
and implementation of supervisory activities were defined in the
areas of workplace safety and health for the prevention of
"manslaughter or serious or very serious personal injuries,
in violation of workplace safety and health laws", pursuant
to the provisions of Legislative Decree 231/2001, to the
principles and the content of Model 231 and to Eni SpAs
Managing System Model HSE concerning internal assessments and
controls. The activities were carried out by a dedicated
multifunctional team, under the coordination of the Watch
Structure of Eni SpA, which, in accordance with the tasks
assigned by Model 231, shall promote, in 2010, the implementation
in the subsidiaries of the principles defined for Enis
supervisory activities pertaining to HS.
For a correct implementation of Model 231, training and/or
communication activities based on the type of recipient
(including third party and the market) have been planned. A Web
Based Training (WBT) on Model 231 has been planned for the year
2010 and will be provided specifically to managers/executives,
corporate organizational communication groups and to key officers
of Eni.
Model 231 and the Code of Ethics are published on Enis web
site and are available on the companys intranet network.
(59) | The current scope of application of Legislative Decree No. 231 of 2001 provides for the following: Offences against public authorities and public faith, (ii) corporate crimes, (iii) crimes associated with the subversion of public order, and financing of terrorism, (iv) offences against the person, (v) market abuse ("abuse of confidential information" and "market manipulation"), (vi) offences against individuals, Law No. 7 of 2006, (vii) transnational crimes, (viii) manslaughter and serious or very serious personal injury committed in violation of industrial accident laws and of the protection of industrial hygiene and health, (ix) crimes related to receiving stolen goods, recycling, and unlawful usage of money and properties of illegal origins, (x) computer crimes and unlawful data processing, (xi) organized crimes, (xii) offences against industry and commerce, (xiii) infringements of copyrights, (xiv) instigation to make false statements to judicial authorities. |
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Anti-Corruption Policy
Of primary importance is the fight against corruption,
which has been approved by Enis Board of Directors and
subsequently regulated with Anti-Corruption Guidelines and with
the first two Auxiliary Anti-Corruption Procedures dealing
specifically with joint-venture and intermediary agreements.
Other Auxiliary Anti-Corruption Procedures, on specific subject
matters, are currently under review. The Anti-Corruption
Guidelines and Auxiliary Anti-Corruption Procedures aim at
providing a systematic reference framework with anti-corruption
regulations and procedures, already implemented by Eni over time,
as well as at ensuring full compliance, by Eni and its employees,
with the Code of Ethics, with Model 231 and with national and
international anti-corruption laws. For this purpose, both the
Anti-Corruption Guidelines and the Auxiliary Anti-Corruption
Procedures are being adopted by all of Enis subsidiaries,
both in Italy and abroad, upon resolution issued by the Board of
Directors (or by the corresponding body/function, if the
governance of the subsidiary does not provide for the
establishment of a Board). The internal regulations adopted by
Eni, as regards this subject matter, provide for the involvement
of Enis Board of Directors or of the subsidiary company, in
the approval phase of the most significant activities (such as
the appointment of intermediaries). In compliance with
international market best practices, an anti-corruption unit was
also set up, within the Eni SpAs Legal Affairs Department,
with the objective of providing legal advisory services and
support, in anti-corruption matters, to Enis business units
and unlisted subsidiaries.
At the time of the adoption of this policy, a presentation event
was held in order to provide Enis personnel with
information on the companys new and future initiatives
aiming at a continuously more effective fight against, and
prevention of, corruption. An anti-corruption training program
for the companys employees, currently under development,
will be held in the course of the year and will consist of an
information session, delivered through e-learning modules with an
overview of the anti-corruption topic, and a series of
interactive workshops for a more in-depth analysis on specific
sub-topics.
Audit firm60
The auditing of Enis financial statements is entrusted,
in accordance with the law, to an audit firm, registered in the
Consob special registry and appointed by the Board of Directors,
upon a documented proposal submitted by the Board of Statutory
Auditors.
In addition to the obligations set forth in national auditing
regulations, Enis listing on the New York Stock Exchange
requires that the audit firm files an Annual Report on Form 20-F,
in compliance with the auditing principles generally accepted in
the United States, and requires the issue of an assessment on the
efficacy of the internal control system, applied to financial
reporting, which oversees the preparation of the consolidated
financial statements.
For the most part, the subsidiaries financial statements
are subject to auditing by the same company that audits
Enis financial statements. In addition and for the purpose
of issuing an assessment on the consolidated financial
statements, Enis audit firm assumes the responsibility for
the work performed by other auditing companies as regards those
subsidiaries financial statements which represent
altogether an irrelevant part of the companys assets and
consolidated turnover.
The current audit firm is PricewaterhouseCoopers SpA Its first
mandate of June 1, 2001, was later confirmed for three more years
by the Shareholders Meeting held on May 28, 2004, and
subsequently extended to the 2007-2009 financial years by the
Shareholders Meeting held on May 24, 2007, pursuant to
Legislative Degree No. 303/2006, since the maximum term of nine
financial years provided for by the law had yet to be completed.
Consequently, at the time of the approval of the financial
statements of the 2009 financial year, PricewaterhouseCoopers SpA
will have fulfilled its mandate and the Shareholders
Meeting will appoint another audit firm.
During the course of its operations, the audit firm shall have
access to the information and data in both printed and digital
form, as well as to the archives and assets of the company and of
its subsidiaries.
(60) | The audit firm, verified the redaction of this Report, renders an opinion according to Article 156, par. 4-bis, lett. d) of the Consolidated Law on Finance on the information provided according to Article 123-bis, par. 1, lett. c), d), f), l) and m), and par. 2, lett. b) of the same law. The audit report is published together with the Annual Financial Report. |
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The single reference framework for the application to Enis group of auditing regulations is represented by the Financial Statements Auditing Regulations (Normativa in materia di revisione dei bilanci) adopted by the Board of Directors as of April 3, 2008. These regulations include the new legislative provisions issued in the last few years61 as well as the provisions issued by the appropriate control authorities (Consob and SEC). The regulations comply with the general framework of principles applied to the following: granting and revocation of the mandate; relations between the Groups primary and secondary Auditors; independence of the audit firm and reasons for incompatibility; reporting responsibilities and obligations of the audit firm; regulations applied to the reports to be submitted to the company, to Consob and SEC. In order to protect the independent nature of the Auditors, a monitoring system of "non-auditing" tasks has been set up where, in general, the entrusted audit firm and the companies of its network, shall not be assigned tasks other than those pertaining to accounting audits, with few exceptions in the case of assignments that are not prohibited by Italian laws or the Sarbanes-Oxley Act. These assignments are approved by the Board of Directors of each company, following consultation with the Board of Statutory Auditors of that same company, and are subsequently authorized by Enis Board of Statutory Auditors if such assignments are not included among those provided for in the applicable laws and regulations. Enis Board of Statutory Auditors is, in any case, periodically informed of the tasks entrusted to the audit firm by the companies of the Group.
The following table shows total fees paid by Eni, its consolidated and non-consolidated subsidiaries and Enis share of fees incurred by joint ventures for services provided by Eni audit for and its member firms, with respect to the years indicated:
Principal accountant fees and services | 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 | - | |||
26,753 | 28,161 | 31,075 |
Court of Auditors
The financial management of Eni is subject to control by the
Court of Auditors in order to protect public finances. This
activity was carried out by the Judge of the Court of Auditors,
Lucio Todaro Marescotti, succeeded by Raffaele Squitieri62,
appointed by resolutions issued on October 28, 2009 by the
Council of the Presidency 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 and of the Internal
Control Committee.
Directors interests and transactions with related third parties
While awaiting the issue of the executive provisions of
Article 2391-bis of the Italian Civil Code, the Board of
Directors following consultation with the Internal Control
Committee has adopted the Guidelines relative to
transactions involving Directors and Auditors interests and
related third parties in order to ensure compliance with the
principles of transparency and of formal and substantial
correctness which govern these transactions in relation to
the aforementioned transactions by the cited provisions
and by the Code of Borsa Italiana.
By sharing the general principles set forth by Consob on this
matter, Eni has incorporated them into its own procedures while
also taking into account the markets best practices. More
specifically, in the adopted Guidelines, the Board:
(61) | Law No. 262/2005 and Legislative Decree No. 303/2006 which have amended the Consolidated Law on Finance. | |
(62) | Alternate Judge is Amedeo Federici. |
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- | has identified, on the basis of pre-determined criteria, the most relevant transactions with related third parties that fall under its decision-making area of competence; | |
- | has assigned a decisive role to the independent Directors by providing for the involvement of the Internal Control Committee in the inquiry and deliberative phases of the aforementioned relevant transactions with the possibility to be assisted in carrying out these tasks by one or more experts appointed in its choice. The Committee plays also an important role in those transactions that do not fall within the area of the competence of the Board; | |
- | has provided for a more in-depth inquiry into all transactions conducted with related third parties, regardless of deliberative powers, in order to ensure transparency as well as a substantial and procedural correctness of the transactions; This transparency must also be ensured in the subsequent deliberative phase. |
Consequently, the approved Guidelines define the policies to
be adopted by the Group in this area.
The number of relations of a commercial, financial and other
nature with related third parties, the description of the type of
most relevant transactions, the impact of these relations and
transactions on the balance sheet, the income statement and cash
flow statements, are highlighted in the explanatory notes to the
consolidated financial statements (Note 36 Relations with
related third parties).
The Guidelines, as required by Enis Code, also regulate
transactions involving the interests of Directors/Auditors,
thereby providing that:
- | Directors and Auditors periodically issue a statement reporting the potential interests held by each party in relation to the company and to the Group, and they promptly notify the other Directors and the Board of Statutory Auditors about individual transactions with the Company in which they hold interests that are "external" to the company; | |
- | the involved Directors normally do not take part in the discussion and in the resolutions issued by the Board with regard to relevant issues; at times they may even leave the meeting room. |
In any case, the transactions in which the related third party
is a Director or an Auditor, or other parties associated with
them, are considered relevant and thus subject to more in-depth
investigational and deliberative procedures, as well as to a
resolution that the Board of Directors takes after consulting
with the Internal Control Committee.
The text of the Guidelines is available on the web site of the
company, in the Corporate Governance section.
Relations with the shareholders and the market
From the start of the privatization process and in compliance
with its Code of Ethics and Corporate Governance Code, Eni
maintains an open and on-going communication with institutional
investors, with retail shareholders and with the market in order
to ensure the dissemination of complete, correct and timely
information on its activity, with restrictions applied only to
certain confidential information.
Information concerning periodical reports, the four year
strategic plan, events and relevant operations is disseminated by
means of press releases, meetings and conference calls with
institutional investors, financial analysts and the press and is
promptly disseminated to the public also through its web site. In
particular, presentations given by top management and directed to
the financial markets, that contain quarterly and yearly
operating results and the four year strategy, are broadcast live
from the website of the company, thus giving to the retail
shareholders the opportunity to be informed in real time on the
most significant market events. The recording of these events,
the press releases and the live presentations are available at
all times on the website. In the month of December, the financial
calendar is disclosed to the market and published on the website
with details on the main financial events of the following year.
The pages "Eni on the Stock Markets" (Eni in Borsa), in
the Investor Relations section of Enis website63
are constantly updated with information regarding dividends,
securities prices, peer securities trends and main exchange
codes.
Also available on the web site are the periodical reports, the
press releases, the Report, the Governance Code and related
procedures, Enis By Laws, communications to shareholders
and bond holders, reports
(63) | At the following address: http://www.eni.com/en_IT/investor-relation/eni-stock-markets/eni-stock.shtml |
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and documentation regarding the topics of the agenda of the
Shareholders and Bondholders meetings, with the related
minutes. The documentation is sent to anybody who may request it,
also through the website64.
The company has also agreed to fulfill the requests, which have
emerged in recent Shareholders meetings, for an increasing
involvement of the investors.
Eni is fully committed to make available to the public all
information, as required by the law, and in addition all
information related to its own Corporate Governance system, with
particular attention given to keeping the content on the website
consistently updated. A section of the website is dedicated to
Enis corporate governance, and the governance system is
illustrated in a summary interactive diagram65 as well
as through additional detailed explanations. The site also
provides a significant amount of documentation, easy to consult,
including this Report, previous reports and all the documents
mentioned in the Report. The efficacy of the communication
provided by Eni through its corporate website has been rated of
the best quality for two consecutive years (2008 and 2009), both
at national and European levels66, thanks to its
capacity for guaranteeing a high level of disclosure through a
clear, accessible and transparent presentation style. In
particular, the corporate governance section has earned the
highest score among Italian companies and the second highest
among European companies67. Notwithstanding all
regulatory and Statutory provisions, the project aiming at
encouraging the interest and participation of the shareholders is
progressing. In recent years, in fact, the objective to have
companies not only respect the rights of the shareholders, but
also promote their active participation by assisting them in
exercising their rights, by communicating comprehensible and
easily accessible information and by encouraging their
participation in corporate activities, has been strongly
stressed.
The commitment to presenting Eni to the shareholders in the
simplest and most intuitive way led to the idea of creating a
section of the website68 dedicated to direct
communications including a Guide for the Shareholders and an
overview of future initiatives. One of these initiatives is the
presentation of the Shareholders Meeting held on
April 30, 2009, for the approval of the 2008 financial statements
and of the shareholders rights, by means of a simple and
quick interactive animated film. Specific positions/functions
within Eni ensure effective relations with institutional
investors, shareholders and the media.
In particular, as set forth in the Enis Code, the relations
with institutional investors and financial analysts are handled
by the Manager of Investor Relations; all related information is
available on the Eni website and may be requested by e-mail at
the address: investor.relations@Eni.com.
The relations with the media are handled by the External
Communication Manager; all related information is available on
the Eni website and may be requested by e-mail at the address:
ufficio.stampa@Eni.com.
The relations with the shareholders are handled by the Company
Secretary For Eni SpA Manager. All related information is
available on the Eni website and may be requested by e-mail at
the address segreteriasocietaria.azionisti@Eni.com or by calling
the toll free number 800940924 (outside of Italy: 80011223456).
The relations with the shareholders, as regards corporate
governance matters, are handled by the Corporate Governance
Systems and Policies Manager. All related information is
available on the Eni website and may be requested by e-mail at
the address: info.governance@Eni.com.
(64) | At the following address: http://www.eni.com/en_IT/documentation/documentation.page?type=bil-rap&header=documentazione&doc_from=hpeni_header | |
(65) | At the following address: http://www.eni.com/en_IT/governance/governance-model-policies/eni-corporate-governance-code/eni-corporate-governance-code.shtml | |
(66) | This refers to the "H&H Webranking" which provides the most authoritative rankings on the quality of corporate communication through a website of the most important 100 Italian and 500 European companies. | |
(67) | At the following address: http://www.eni.com/en_IT/governance/governance-model-policies/eni-governance-awards/eni-governance-awards.shtml | |
(68) | At the following address: http://www.eni.com/en_IT/governance/shareholders/initiatives/initiatives.shtml |
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Corporate information processing
In compliance with the provisions set forth in the Consolidated Law on Finance and in the Consob Regulations on Issuers, upon implementation of the European Directive on the so-called Market Abuse, the Board of Directors, on February 28, 2006, has approved procedures for communicating privileged information to the market, for creating a log of individuals with access to privileged information and for notifying about transactions carried out by previously identified "relevant subjects" and concerning the shares of the company (internal dealing). These procedures were subsequently updated to include the interpretations provided by Consob through a communication dated March 28, 2006, and are available in the Corporate Governance section of the Eni website69. Following is a summary of the approved procedures.
Communication to the market of documents and inside
information
The "Procedure for advising the market of inside
information and documents concerning the Group's issuer companies
and their financial instruments", adopted in substitution of
a previous policy dating back to 2002, sets forth the
requirements for communicating inside information (materiality,
clarity, homogeneity, information symmetry, consistency and
timeliness) to the public and defines the rules for acquiring,
from the subsidiaries, the data and information that are
necessary to provide accurate and prompt reports to the Board and
to the market on the events and circumstances that may
materialize into inside information.
Furthermore, the procedure identifies the measures to be adopted
in the event of an infringement of the provisions contained
therein, also keeping into account the new types of offences that
are subject to legal and administrative sanctions introduced by
the Savings Protection Law. Enis Code of Ethics defines the
confidentiality obligations of the Group's employees with regard
to the processing of confidential information.
The Directors and the Auditors ensure the confidentiality of the
documents and of the information acquired during the course of
their operations and comply with the procedure adopted by Eni
concerning the internal management, as well as the communication
to external parties, of such documents and information.
Register of persons having access to inside information
The "Procedure for keeping and updating the Register of
Persons with access to inside information of Eni SpA", set
up in compliance with the provisions of Article 115-bis
of the Consolidated Law on Finance and with the executive
provisions of the Consob Regulations on Issuers, defines the
following: the methods and terms for the registration in the
Register (or removal from it) of individuals who, because of
their work or professional activity or because of the functions
carried out on behalf of Eni, have access, on a regular or
occasional basis, to inside information; (ii) the methods for
communicating to the interested parties their registration in the
Register, and/or their removal from it, with the related
explanations.
Internal Dealing
The "Procedure concerning identification of the relevant
persons and the transactions carried out directly or through
nominees in respect of shares issued by Eni SpA or other related
financial instruments " (Internal Dealing Procedure) has
replaced the previous policy on the subject matter, dating back
to 2002, and is written in compliance with the provisions of
Article 114, paragraph 7, of the Consolidated Law on Finance. The
procedure, in accordance with the indications provided for in the
Consob Regulations on Issuers (i) identifies the relevant
subjects; (ii) defines the transactions on shares issued by Eni
or other related financial instruments; (iii) sets forth the
methods and terms for communicating to Eni the transactions that
are carried out, as well as the terms for disclosing such
communications to the public.
The procedure provides also, in addition to regulatory
obligations, for certain periods of the year during which the
subjects identified as "relevant" are not allowed to
perform transactions (blocking periods). A similar principle has
also been introduced in another internal procedure approved on
December 23, 2008, concerning transactions carried out by the
company on Enis securities or on securities associated with
Enis
(69) | At the following address: http://www.eni.com/en_IT/governance/market-abuse/market-abuse-procedures/market-abuse-procedures.shtml |
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
securities. The Internal Dealing procedure was updated further on September 1, 2009 to include some organizational changes.
***
Following are the tables mentioned in the "Handbook for the preparation of the report on corporate governance", issued in March 2004 by Assonime and Emittenti Titoli SpA.
Structure of the Board of Directors and its Committees |
Board of Directors |
Internal Control |
Compensation |
Oil - Gas Energy Committee |
||||
Members |
executive |
non executive |
independent |
% attendance |
other appointments (a) |
members |
% attendance |
members |
% attendance |
members |
% attendance |
|||||||||||
Chairman | ||||||||||||||||||||||
Roberto Poli | X | 100 | 3 | |||||||||||||||||||
CEO | ||||||||||||||||||||||
Paolo Scaroni | X | 100 | 3 | |||||||||||||||||||
Directors | ||||||||||||||||||||||
Alberto Clô (*) | X | X | 100 | 3 | X | 92 | X | 100 | ||||||||||||||
Paolo Andrea Colombo | X | X | 100 | 6 | X | 92 | X | 100 | ||||||||||||||
Paolo Marchioni | X | X | 100 | 0 | X | 80 | ||||||||||||||||
Marco Reboa (*) | X | X | 100 | 3 | X | 100 | X | 100 | ||||||||||||||
Mario Resca | X | X | 88.2 | 1 | X | 100 | X | 10 | ||||||||||||||
Pierluigi Scibetta | X | X | 100 | 0 | X | 95 | X | 90 | ||||||||||||||
Francesco Taranto (*) | X | X | 100 | 2 | X | 100 | X | 100 | ||||||||||||||
Number of meetings in 2009 | 17 | 20 | 13 | 10 | ||||||
Average duration of meetings | 3h 17m | 4h 36m | 1h 46m | 1h 31m | ||||||
Average attendance percentage | 98.3% | 98.7% | 93.80% | 96% | 80% |
(a) | Appointments as director or statutory auditor in other listed companies, also outside Italy, in financial, banking, insurance or large companies. | |
(*) | Appointed by the minority list. | |
For presenting a list a shareholder or group of shareholders must hold at least 1% of voting shares in an ordinary shareholders meeting, unless new regulation coming into force. |
Board of Statutory Auditors |
Members | % attendance |
% attendance |
Number of other |
Total number of |
||||
Members | ||||||||
Chairman | ||||||||
Ugo Marinelli (*) | 100 | 94 | 1 | 5 | ||||
Auditors | ||||||||
Roberto Ferranti | 69 | 82 | 1 | 2 | ||||
Luigi Mandolesi | 96 | 100 | 1 | 10 | ||||
Tiziano Onesti | 96 | 100 | 2 | 18 | ||||
Giorgio Silva (*) | 92 | 100 | 2 | 12 | ||||
Number of meetings in 2009 | 26 | 17 | ||||||
Average duration of meetings | 3h 48m | |||||||
Average attendance percentage | 91% | 95% |
(*) | Appointed by the minority list. | |
(a) | Including Eni SpA in accordance with Article 144-quinquiesdecies of "Regolamento Emittenti Consob". | |
(b) | Including listed companies in accordance with Article 144-quinquiesdecies of "Regolamento Emittenti Consob". |
For presenting a list a shareholder or group of shareholders must hold at least 1% of voting shares in an ordinary shareholders meeting, unless new regulation coming into force.
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ENI ANNUAL REPORT / CORPORATE GOVERNANCE AND SHAREHOLDING STRUCTURE REPORT
Other information to be disclosed under the Self-discipline Code |
Yes |
No |
|||
System of delegated powers and transactions with related parties | ||||
The Board of Directors delegated powers defining: | ||||
a) limitations | X |
|||
b) exercise | X |
|||
c) periodicity of information | X |
|||
The Board of Directors reserved examination and approval of relevant transactions (including transactions with related parties) | X |
|||
The Board of Directors defined guidelines for identifying relevant transactions | X |
|||
Such guidelines are described in the report | X |
|||
The Board of Directors defined procedures for examination and approval of transactions with related parties | X |
|||
Such procedures are described in the annual report | X |
|||
Procedures for the latest appointment of Directors and Statutory Auditors | ||||
Lists of candidate directors were deposited at least 10 days before the date set for appointment | X |
|||
Lists were accompanied by sufficient information on candidates | X |
|||
Candidates to the role of director disclosed information that qualified them as independent | X |
|||
Lists of candidate auditors were deposited at least 10 days before the date set for appointment | X |
|||
Lists were accompanied by sufficient information on candidates | X |
|||
Meetings | ||||
The company approved regulations of meetings | X |
|||
The regulations are attached to the report (indication of where to find it online is provided) | X |
|||
Internal Control | ||||
The company appointed persons responsible for internal control | X |
|||
Such persons do not report to managers of operating divisions | X |
Internal office responsible of internal control (Article 9.3 of the Code) | Internal Audit |
|
||
Investor relations | ||||
The company appointed an investor relations manager | X |
Information on investor relations manager (telephone, address, e-mail) and unit |
|
|||
Eni SpA - Piazza Vanoni, 1 - San Donato Milanese (Milan) 20097 Italy - Tel: +39 02 52051651 - Fax +39 02 52031929 - investor.relations@eni.com |
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ENI ANNUAL REPORT / COMMITMENT TO SUSTAINABLE DEVELOPMENT
Commitment to sustainable development
The implementation of a sustainability model and relations with stakeholders
The sustainability model is part of Enis governance
system and allows to plan, manage and communicate Enis
commitment to sustainable development, focusing on the issues
emerging from the assumptions on future energy scenarios and from
dialogue with our stakeholders. The commitment to sustainable
development is part of Enis governance model and affects
the development of our management system. The most significant
actions taken in this direction in the past few years concerned
the promotion of shareholders participation in the
companys life, a stronger focus on issues of sustainability
to be communicated to shareholders, the Board and the company
itself and the dissemination of good governance practices in
accordance with the principles stated in Enis Code of
Ethics.
In 2009 Enis 231 Team updated Model 231 for the parts
concerning crimes of receiving stolen goods, recycling and using
moneys, goods and utilities deriving from illegal sources, crimes
in IT and illegal data treatment, and will also take care of
updating it with the new crimes introduced into Italian law in
2009.
During 2009 the Code Promotion Team carried out the
implementation of a promotion plan that concerned: dissemination
of the code to all those to whom Eni relates in its ordinary
business activity, training activities and engagement of
Enis main stakeholders on this issue.
Relations with the Global Compact were enhanced in light of the
strategic value of this initiative for multilateral cooperation
and with the United Nations. In 2009, in particular, Eni prepared
an analysis of the ten principles of Global Compact in terms of
achieved results, future commitments and measurability of
results.
With the aim of promoting transparency and fairness in dealings
with the countries where it operates, in 2009 Eni continued to
provide its contribution to the Extractive Industries
Transparency Initiative (EITI) detailing the cash flows generated
by its business activities in the countries participating in the
Initiative in cooperation with the Italian Ministry for External
Affairs with the aim of promoting the initiative in the countries
that have not yet endorsed it.
As concerns human rights, after the completion of the
experimental phase of the Human Rights Compliance Assessment
(HRCA) methodology, in 2009 three new assessments were performed
in industrial sites in Algeria, Egypt and Congo. In Nigeria and
Kazakhstan, where pilot assessments were carried out, work
continued for sharing results and analyzing recommendations on
gaps recorded. As concerns security activities, in 2009, Eni
designed and implemented a module on human rights in the
framework of a training course addressed to security managers,
along with a test training for staff of security agencies working
for Eni. As concerns the provision of security services, Eni
resolved to include specific provisions on the respect of human
rights in its supply contracts.
Enis commitment to sustainability is confirmed by its
ranking in the major sustainability indexes. In 2009 Eni was
included in the Dow Jones Sustainability Index, in the STOXX and
in the FTSE4GOOD, in addition to ranking second in the
Accountability Rating Italy 2009. Eni was also ranked first in
the Italian and world rating of the CSR Online Award 2009. In
June 2009 Enis CEO received the Foreign Policy
Associations Corporate Social Responsibility Award.
Enis commitment for human resources in 2009 was focused on
improvement actions based on the climate analysis performed and
on the updating of management and development tools with a
special focus on feedback processes.
In the area of safety, the progressive improvement of performance
indicators achieved also in 2009 confirms Enis constant
commitment to reducing the number of accidents involving
employees and contractors and preventing and mitigating process
risks. Eni also continued to work to improve the management of
health
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ENI ANNUAL REPORT / COMMITMENT TO SUSTAINABLE DEVELOPMENT
protection, carried out with a "systemic" approach
in all Eni sites in Italy and abroad, based on the development of
a system for the integrated management of HSE issues.
The complexity and globality of the issues of sustainable
development led Eni to cooperate actively with international
organizations in the area of dissemination of sustainability.
In 2009 Eni requested CENSIS to perform a qualitative and
quantitative survey addressed to Eni employees. The survey
interviewed over 240 senior and junior managers and allowed to
obtain an interesting view of the quality of the relations Eni
holds with the countries where it operates, Italy included, as
well as an overall view of its strengths and of the areas where
improvement is required.
In 2009 Eni continued its work in consolidating relations with
producing countries through the signing of agreements that
integrate our traditional business with actions aimed at
sustainable development. In 2009 Eni signed agreements in this
sense in Angola, Kazakhstan, Congo, Egypt, Pakistan,
Turkmenistan.
Eni has been committed for a long time to the protection of
biodiversity and ecosystems by means of an organic approach to
territories, that can highlight risks and opportunities related
to a better management of resources, the enhancement of the
environmental, cultural and social wealth of the countries where
it operates.
The main objectives of Enis commitment to customers and
consumers are represented by its ability to combine efficiently
its sustainability model with the offer provided to its customers
and increasing its dialogue with consumers associations. In
2009 in fact, Eni developed various new projects aimed at
improving the quality of the services rendered and customer
satisfaction, as well as consolidating relations with
consumers associations.
The fact of being active in different parts of the world requires
Eni to invest consistently so that also local suppliers and
contractors respect the principles upheld by Eni. In 2009 Eni
focused on projects aimed at:
- | improving and codifying qualifications and controls of supply chains (vendor management systems), including an improvement of management systems and auditing, in particular in the areas requiring greater attention (e.g. emerging countries, critical areas); | |
- | monitoring and disseminating the respect of sustainability principles in the supply chain; | |
- | improving data collection systems especially outside Italy. |
Commitment to environmental protection and investment of
resources in it are major strategic objectives for Eni. The
projects approved for reaching by 2012 the goal of decreasing by
70% flaring emissions (from emissions registered in 2007) reached
on average 80% of completion in 2009, while many water injection
projects have been carried out.
Research and innovation are a basic part of our commitment to
constantly improve our sustainability model. Technologies
developed to date intend to favor access to new energy sources,
improve their recovery from the soil and the efficiency of use
while reducing environmental impact.
Enis R&D is also addressed to the field of renewable
energy sources, mainly solar energy and biofuels. In order to
reach excellent results in this area and to overcome the current
limitations to renewable sources by means of breakthrough
solutions, Eni continued its policy of strategic alliances and
cooperation based on the construction of a global network with
major research centers while developing internal resources.
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ENI ANNUAL REPORT / COMMITMENT TO SUSTAINABLE DEVELOPMENT
PEOPLE
To Eni the people working in its production system represent an asset to be safeguarded and enhanced with careful career paths. Accurate assessment and development of personnel, training initiatives customized to roles and persons, along with the respect of shared ethical values, are key factors for the creation of sustainable value in the long term. Enis main objectives for its human resources are:
- | constantly updating management and development tools with a specific focus on feedback processes, addressing them to various population targets and extending them to all business units; | |
- | investing on different types of population by identifying specific tools within a general policy aimed at a better integration and valorization of internal resources with a reduced recourse to new hiring; | |
- | protecting, sharing and developing strategic know-how for supporting business strategies; | |
- | supporting the engagement of personnel also with the introduction of additional welfare tools aimed at reconciling private and working life. |
More detailed information on the management of human resources is found on Enis website in the area People and in the Sustainability Report.
Employees
At December 31, 2009, Enis employees totaled 78,417,
with a decrease of 463 employees from December 31, 2008, down
0.6%, reflecting a 718 increase in employees hired and working
outside Italy and a decrease of 718 employees hired in Italy.
Employees hired in Italy were 38,299 (48.9% of all Group
employees). Of these, 34,794 were working in Italy, 3,282 outside
Italy and 223 on board of vessels, with a 1,181 unit decrease
from 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 2009 with the hiring of 1,163 persons, of which 491
with fixed-term contracts. A total of 672 persons were hired with
open-end and with apprenticeship contracts, most of them with
university qualifications (359 persons) and 282 persons with a
high school diploma. During the year 2,357 persons left their job
at Eni, of these 1,634 had an open-end contract and 491 a
fixed-term contract.
Employees hired and working outside Italy were 40,118 (51.1% of
all Group employees), with a 718 persons increase, of these
approximately 650 employees were hired with fixed-term contracts
in the Engineering & Construction segment due mainly to new
contracts in Nigeria and Kazakhstan (Kashagan project), and 160
persons in the Exploration & Production segment, offset by
downsizing in other segments, in particular in Hungary in the Gas
& Power segment (Tigaz).
Employees at year end | (units) |
2007 |
|
2008 |
|
2009 |
|
Change |
|
% Ch. |
||
Exploration & Production | 9,023 | 10,891 | 10,870 | (21 | ) | (0.2 | ) | ||||||
Gas & Power | 11,893 | 11,692 | 11,404 | (288 | ) | (2.5 | ) | ||||||
Refining & Marketing | 9,428 | 8,327 | 8,166 | (161 | ) | (1.9 | ) | ||||||
Petrochemicals | 6,534 | 6,274 | 6,068 | (206 | ) | (3.3 | ) | ||||||
Engineering & Construction | 33,111 | 35,629 | 35,969 | 340 | 1.0 | ||||||||
Other activities | 1,172 | 1,070 | 968 | (102 | ) | (9.5 | ) | ||||||
Corporate and financial companies | 4,701 | 4,997 | 4,972 | (25 | ) | (0.5 | ) | ||||||
75,862 | 78,880 | 78,417 | (463 | ) | (0.6 | ) |
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Organization
In 2009 Eni continued to upgrade its structures and
organizational processes following guidelines consistent with the
new corporate integrated model adopted by Eni.
Among the most significant upgrading processes completed in 2009,
the following are worth mentioning:
- | the centralization of all administration activities of Eni SpA into a single company (through the sale of relevant business units to Sofid, which changed its name in Eni adfin) in order to guarantee greater homogeneity and standardization of administrative processes and to improve efficiency and quality of services rendered. In addition, two new units, reporting directly to the CFO, have been created for evaluating and managing Industrial risks and Insurance, respectively. The former insurance unit has been eliminated with the new company taking up this role (Eni insurance) reporting directly to the CFO; | |
- | a new structure has been given to the supply and procurement function, now called Global Procurement and Strategic Sourcing aimed at strengthening its presence outside Italy and optimizing the planning of procurement through a stronger integration with the requesting lines (to this end specific competence centers have been established that are made up of personnel from procurement and technical line reference persons); | |
- | the reorganization of the Legal Department continued through the consolidation of a structure organized by geographical areas with a greater focus on compliance and antibribery issues (the new structure has been finalized on December 1, 2009 and started operating on January 1, 2010); | |
- | the definition of a new structure for the Strategy and Development department, concerning in particular an improvement of direction and control of the areas of innovation and the integrated monitoring of long-term strategies; | |
- | the start-up of new project called "Eni rules" aimed at defining a system of regulations and procedures oriented to processes, providing greater efficiency and flexibility in line with Enis new organizational model. |
The design phase has been completed in December 2009, along
with the inception of pilot projects, while in the first part of
2010 Eni intends to launch a new information system supporting
document consultation, provided also with a view by process.
As concerns business units, Eni continued to upgrade their
organizational structures to better adjust to business
requirements and industrial plans in order to maximize efficiency
and the protection of safety, health and the environment.
Management and development of human resources
The "Eni secondo te 2008" climate analysis was a great opportunity for collecting opinions and suggestions from Eni people, following which Eni launched and continued various initiatives aimed at improving communication, leadership and engagement also providing a stronger support to the effort at reconciling private and working life. These initiatives have been collected in a dedicated internet site that is going to be opened to users in 2010 in coincidence with the start-up of a new survey.
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ENI ANNUAL REPORT / COMMITMENT TO SUSTAINABLE DEVELOPMENT
Eni continued the integration and revision of its various
management and development tools that led to the definition of a
new formalized feedback process related to the annual performance
assessment. In 2009 Eni launched an "Eni excellence
model" aimed at supporting managers in assessing resources
and favoring the dissemination of a common language. The
excellence model will be disseminated to all Eni people and will
be used for evaluation and development actions. Eni continued the
mapping of managers skills by means of its Management
Review that keeps into account potential development and
performance achieved. For resources with a high development
potential specific methodologies have been applied for an
in-depth evaluation of future allocations. These processes
allowed to update the succession plan, a tool used by top
management in its decisions concerning the more relevant
managerial resources.
In 2009 in the area of compensation and benefits various projects
have been set up for better integrating compensation and local
situations and benchmarking compensation with competitors.
A relevant initiative concerned the updating of compensation
policies addressed to international mobility of resources, a key
factor for the development of businesses outside Italy.
Aimed at enhancing the benefit system, Eni started a
communication program to support its offer of additional health
and pension programs. Eni also started the definition of a global
governance model to be applied internationally in the area of
health and pension benefits.
Training and internal communication
Following the results of the "Eni secondo te"
climate analysis performed in 2008, in 2009 various training
activities have been carried out in order to develop leadership,
improve relations between managers and employees, support
individual motivation and favor widespread wellbeing. A total of
1,100 managers from all business areas participated to these
initiatives that included also managers involved in the
"360° feedback" project.
In addition, at the end of 2009, a training initiative was
addressed to key managers and concerned assessment of and
feedback to employees. The action will continue also in 2010.
In 2009, expenditure for training amounted to euro 49.2 million,
of which euro 30.4 million in Italy and euro 18.8 million outside
Italy. A total of 3,094,487 training hours were provided
(1,423,051 in Italy and 1,674,436 outside Italy). In addition,
807,969 hours of training were provided to non consolidated
companies outside Italy for an expenditure of euro 21.1 million.
Eni continued its work on the development of knowledge management
systems by implementing dedicated IT systems supporting existing
ones, increasing the number of persons addressed and creating new
practice communities in the E&P and R&M divisions, in the
HSE area and at Polimeri Europa. Also in the G&P division
projects have been started for the creation of a knowledge
management portal and the development of a practice community in
the division and at EniPower.
In 2009, Eni inaugurated the 53rd academic year of the
Scuola Mattei operating in research and post-graduate training in
the fields of energy and the environment. From its foundation in
1957, the school trained over 2,600 young talents, of which 55%
came from 110 countries in the world. In 2009-2010 the school
hosts 59 students (28 from Italy and 31 from the rest of the
world).
Special attention has been paid to internal communication to
promote a more widespread and constant penetration of
communication that favors the exchange of information and ideas.
In 2009 the cascade program addressed to all Eni people and aimed
at stressing the concept that the contribution of each person
allows to reach corporate objectives, engaged 30,940 persons in
43 countries and consisted of 484 meetings in 103 sites.
All internal communication programs are published on myeni, the
corporate intranet portal, a unified platform for sharing
information with 31,700 registered employees. The program for
extending myeni outside Italy continued and reached a total of
over 5,400 users (up 34%). Other communication channels have also
been increased by means of tools such as digital signage (a
system of plasma screens centrally managed to disseminate news
and videos in real time), myeni news (a paper version for
employees who do not use a computer); an internal communication
network (an international network aimed at highlighting success
experiences, disseminating information and providing a local base
for cross company initiatives).
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ENI ANNUAL REPORT / COMMITMENT TO SUSTAINABLE DEVELOPMENT
In 2009 the new welfare site has been launched, as a
communication tool where employees find information on current
and new initiatives aimed at enhancing and showing Enis
commitment to the issues of reconciling private and working life.
New activities and services meeting the real and specific needs
of Eni people are being elaborated, such as services supporting
families and favoring an improved management of money and time.
Industrial relations
Industrial relations in 2009 have been characterized by a
constant dialogue with workers unions that led to
significant agreements concerning the reorganization of business
units that touched Eni and its subsidiaries.
In particular agreements regulated the sale of the Administration
business unit from Eni SpA to Eni adfin SpA and the transfer of
mineral assets from the E&P division to three newcos,
Società Padana Energia Spa, Società Adriatica Idrocarburi SpA
and Ionica Gas SpA
Dialogue and communication with workers unions also marked
the completion of the reorganization of the G&P and R&M
divisions started in the previous year. In 2009 the new
collective contract for workers in the chemical industries was
signed, while negotiations are underway for renewing the
collective work contract of workers in the energy and oil and
water industry.
With reference to the new fund integrating public health
assistance for employees (FASIE), the process of integration with
the pre-existing organizations has been completed, thus unifying
all provisions related to reimbursement of personal health
spending under specific tariffs and an insurance against death
and illness for all employees that will be operating from January
2010.
Internationally, in March 2009, Eni and the International
Federation of Chemical, Energy, Mine and General workers Union
(ICEM) and the Italian Workers Unions signed an agreement
on international industrial relations and corporate social
responsibility. In June 2009, the European Works Council met in
Lisbon for its 13th general meeting.
Health
Eni is committed to the protection of the health of its
people, of the communities living in the areas where its plants
are located and of all those that get in touch at various times
with its activities.
In particular Eni adopted a systemic approach to all its
activities in Italy and abroad based on a general framework of
regulations on health and safety in line with OHSAS 18001.
In implementing this system, Eni carried out assessments of the
local health situations and of any risks posed to workers
health by means of:
- health risk assessments;
- health surveys;
- Occupational Health and Medical Support Gap Analysis -
OH&MSA GA.
These methodologies represent the basis for developing local
programs of work medicine, health assistance and management of
emergencies.
In order to optimize health management Eni is implementing a
documentation system extended to all business units by
integrating all existing systems.
Eni confirms its serious commitment to prevention also outside
Italy with actions geared on local regulations and Eni standards
and signing service agreements with other companies active in
areas where no generalized service is provided.
At European level Eni continued its work for applying the REACH
Regulation (Registration, Evaluation, Authorization and
Restriction of Chemicals, EC Regulation No. 197/2006). Eni
estimates that about 150 products in its plants fall within the
scope of this rule.
Safety
Eni has always been deeply engaged in the issue of the safety of its workers, of the people living in the areas where its industrial sites are located and of its producing assets. Based on the evaluation of actions,
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ENI ANNUAL REPORT / COMMITMENT TO SUSTAINABLE DEVELOPMENT
benchmarking and performance, its short and medium term
strategy is updated every year and is addressed to:
- dissemination of a safety culture to all Eni people, this year
mainly focused on process security;
- technological and operational support to business units;
- compliance with recently enacted Italian safety laws, as
improved by Legislative Decree No. 106 and analysis of its impact
on Enis activities;
- continuing improvement of performance in critical areas.
As a response to these policies, Eni started the following
actions.
In the area of enhancing the safety culture of Eni people: a new
project called Communicating safety, developed and promoted
jointly by the corporate HSE department and the Internal
Communication department, based on a careful survey of the most
frequent accident causes, from which it emerged that a relevant
portion (over 60%) of accidents is related to behaviors such as
underestimation of risk, lack of concentration, etc. This project
is directed to 11 business units, in about 100 sites, and
addressed to employees and contractors for a total of about
60,000 persons. The first operating phase (teasing) started on
December 18, 2009, anticipates the dissemination of messages on
safety making use of well established media techniques: posters
in the workplace, images and slogans that capture attention and
accompany people on a route of awareness and motivation.
The application of a methodology for increasing awareness of
middle management and workers called Leadership in safety,
developed and successfully applied by Saipem in the past two
years in refineries of the R&M division.
On the question of process safety a seminar has been organized
for middle management and staff (for a total of 140 persons)
aimed at exchanging knowledge and experiences integrated by
lectures on the European approach to the issue. This initiative
is part of the HSE training for top middle management that will
be reported to employees through the cascade system.
As for technological support, business units have been provided
with the INDACO database for the collection, management and
dissemination of information on accidents, near misses and under
standard operating conditions. The most relevant business units
have started to feed in their data.
Support to business units includes also the simulation of
accident trends (Congo, Italy) based on historical data,
information on the developments of emergency management worldwide
and participation to emergency drills and trials (Archimede, oil
spills in the sea, with the cooperation of the Italian navy).
Among the actions for improving safety management, we like to
mention: technical guidelines on monitoring contractors,
guidelines for obtaining work permits, the updating of safety
audits according to the most recent model, the developments in
the 3TER software to an advanced version with better integration
of georeferenced data of industrial sites.
After the earthquake in Abruzzo, Eni provided its valuable
support to the civil works department with qualified
professionals and appliances. Enis new HSE emergency room
and personnel from its emergency unit coordinated all the work
required for guaranteeing the safety of plants and the
distribution of refined products in the area affected by the
quake. This constant commitment led to a further improvement in
safety indicators for Eni, confirming the positive trends of the
past three years.
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RELATIONS WITH TERRITORY AND COMMUNITIES
The model of cooperation and development in territories
One of the distinctive features of Enis relations with
the communities and territories where it operates ever
since the early times of the "Mattei formula"
consists in developing strategies for dialogue, cooperation and
the creation of actions and projects for producing development
paths that respect local specificities. The tools used by our
company for implementing a cooperation model in the countries
where it operates are the promotion of open and proactive
dialogue with the main stakeholders, the definition of integrated
agreements (Memorandum of understanding or Intent protocol) with
subjects in countries or regions, the promotion of local content
through the enhancement of local supply chains, the support of
development initiatives for the self-determination of social and
economic systems, the integrated charitable action of Eni
foundation.
In 2009 Eni continued to consolidate its relations with producing
countries, first of all through the definition of agreements that
integrate its traditional business with actions aimed at
promoting sustainable development in those countries. The actions
carried out confirm Enis commitment to the areas with
greater strategic importance, with particular reference to
Sub-Saharan Africa, where Eni has been present since the early
sixties, in the most important producing countries such as
Angola, Nigeria, the Republic of Congo, Gabon and Mozambique.
In 2009 Eni signed agreements in Angola, Kazakhstan, the
Democratic Republic of Congo, Egypt, Pakistan, Turkmenistan. In
February 2009 in Angola Eni signed with Sonangol the first
agreements provided for by a Memorandum of Understanding relating
to a contribution to the sustainable development of the
countrys energy infrastructure and the implementation of
educational and training projects for local professionals. Within
the cooperation agreement signed with the Egyptian Oil Ministry,
Eni agreed to provide its infrastructure and the skills of Eni
Corporate University for a joint training program for local
professionals addressed to selected qualified resources. In
November 2009 Eni signed a cooperation agreement with
Turkmenistan for the provision of training to local resources.
In Italy Eni signed an addendum to the intent protocol with the
Basilicata Region that implements actions for sustainable
development and the management of an environmental monitoring
system on upstream activities in Val dAgri with an
investment of approximately euro 67 million to be paid by Eni in
annual installments in the next 10 and 15 years, respectively.
Eni also signed a protocol of intent with the ministry of
education and the university of LAquila for the project
called "A bridge to innovation".
In 2009 expenditures for local development amounted to euro 93.6
million.
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Engaging communities and knowing territories
Eni acts as an integral part of the territories where it is
present proactively opening areas of dialogue and communication
with local communities. The engagement of local stakeholders is
included in all phases of our business projects. In addition, in
order to manage and monitor the effect of its activities on the
areas, Eni performs feasibility studies and impact assessments.
In order to improve these tools, in late 2009 Eni started a
cooperation with the International Business Leaders Forum (IBLF)
aimed at integrating the impact assessment criteria directly
related to human rights in business practices (impact analysis).
In 2009 within Enis E&P activities, various studies
have been carried out for assessing and analyzing the
environmental and social impacts, as well as the social and
health risks (ESIA - Environmental and Social Impact Assessment,
SIA - Social Impact Assessment, EIA - Environmental Impact
Assessment, HIA - Health Impact Assessment, SBA - Social Baseline
Assessment) in Algeria, Angola, Congo, Mali, Indonesia, Italy,
Mozambique, Nigeria, Australia, India and Pakistan.
Development of territories
Eni aims at creating opportunities for the territories where
it operates respecting the directions chosen by local communities
through integrated long-term programs and projects, as for
example the Green River Project that started in 1987, and
continues to support the development of local communities in the
states of Nigeria where it operates.
In 2009 Eni started various initiatives for the development of
local social and economic activities through the upgrading of
local procurement, microcredit actions, local empowerment,
vocational training and provision of infrastructure and basic
services for communities.
In 2009 expenditure for local communities amounted to euro 70.4
million, over 60% of which was devoted to infrastructure and
social actions.
In Italy in 2009 in
cooperation with FEEM and the Aaster consortium Eni
continued the "Community Mission" project aimed
at engaging local communities in actions and dialogue for
fostering tourism. Special attention was paid to the enhancement of tourism in particular focusing on small sized enterprises by means of the creation of an educational nature trail and the inauguration of an educational center dedicated to Energy and Territory in Calvello. In cooperation with Civita, Eni started a project for the enhancement of the historical and artistic heritage of 23 municipalities in Val dAgri and Val Camastra. Eni also cooperated in the creation of trails and tracks for a better knowledge of local natural beauties and, in cooperation with Shell and the local arts council Eni sponsors the restoration of a Roman villa at Barricelle. In May 2009 Eni signed a protocol with the University of LAquila and the Ministry of Education called "A bridge for innovation" aimed at supporting research and fostering the economic recovery of the Italian city badly damaged by an earthquake in April 2009. Eni is providing human, financial and structural resources. |
In 2009 in Kazakhstan Eni invested $7 million for the
provision of vocational training for local employees and
approximately $10 million in infrastructure, such as schools,
hospitals, sports and arts centers aimed at fostering local
social and economic development policies.
In Pakistan Eni continued in 2009 the Bhit Rural Support program
with an investment of $420,000. The BSRP is a rural development
program based on the promotion of local skills and on the
engagement of the local community in the definition and
implementation of activities such as vocational training,
microcredit for starting new enterprises, creation and management
of infrastructure for improving the life conditions of local
communities, support of animal husbandry and agriculture. In East
Timor Eni continued its integrated rural
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development program started in 2008 in partnership with CARE, the international NGO, aimed at improving health and life conditions in 6 villages in the Bobonaro and Covalima districts. Over 100 courses of health and food education have been provided along with the supplies for planting 140 vegetable gardens and training 364 farmers.
Country | Areas /Activities 2009 | |
Algeria | Construction of infrastructure for power generation from solar energy and water supply in cooperation with the Sonatrach-Tassili Foundation; at Setif, training and hiring of local staff for the restoration of the Roman Bacchus mosaic; sponsoring of the second pan-African cultural festival; environmental and social impact assessments. | |
Angola | Finalization of specific agreements included in the MoU among which a Cooperation Protocol for education signed with Sonangol. | |
Australia | Local empowerment actions and capacity building projects, support of local indigenous entrepreneurship; campaigns for the protection of womens and childrens health; support and enhancement of indigenous culture; social impact assessments. | |
Republic of Congo | Construction of water infrastructure, agricultural development projects, construction of schools; creation of a Monitoring Committee and a Working Team for the "Oil Palm" pilot project. | |
Ecuador | Construction of roads and water supply mains; construction of health centers and schools; cooperation agreements with indigenous communities in the area of the Villano Project. | |
Egypt | Campaigns on road safety; provision of a training course on health and safety; support of health services; support of education by means of scholarships. | |
India | Social structure assessments in the Andaman Islands. | |
Indonesia | Construction of roads; support of agricultural development; sponsoring of projects for specialized surgery; enhancement of local cultural heritage; environmental and social impact assessments. | |
Italy | Basilicata Signed an
Addendum to the Intent Protocol with the Basilicata
Region; support to the development of tourism and
start-up/improvement of relations with developing
entrepreneurs; protection of natural beauties and
construction of an educational nature trail; elaboration
of the first social territorial balance of Val Camastra
(FEEM); creation of a permanent seat of confrontation
between Eni and local stakeholders; provision of training
for journalists (with FEEM) and educational activities;
restoration and enhancement of local cultural heritage;
environmental and health impact assessments. LAquila - signed an Intent Protocol for starting the project "A bridge for innovation". Ravenna - Social and economic impact assessments. |
|
Kazakhstan | Construction of infrastructure for the health, education and community sectors, for gas and water supply; promotion of local empowerment actions fostering entrepreneurship; support to culture, training and education; social impact assessments. | |
Libya | Construction of
infrastructure for the health and education sectors. Restoration of the existing museums and construction of a new visitor trail in the Archaeological Site of Sabratha; study on the management of urban, special and hospital waste; inauguration of a laboratory at the department of environmental engineering at the Sabratha - Seventh of April University; support to treatment programs for AIDS patients; environmental impact assessments. |
|
Mali | Construction of water wells powered with solar energy for local communities; training of medical and paramedical staff; environmental and social impact assessments. | |
Mozambique | Restoration of water supply networks; provision of education and training; environmental impact assessments. | |
Nigeria | Signed a MoU concerning actions in education, power supply, health protection, infrastructure and protection of coastal areas; improvement of water supply and road networks, civil, health and education infrastructure; microcredit projects, development of human resources, support to farmers; scholarships; environmental impact assessments. | |
Norway | Construction of a bird watching center; design of an Arctic Slow Food Centre; educational projects for increasing learning of industry related subjects. | |
Pakistan | Signed partnership agreements for the 2010-2013 period with local NGOs; integrated projects for rural development by means of capacity building; construction of water mains, medical buildings and services; support to medical centers; training for promoting food safety, for computer use, teaching projects; social impact assessments. | |
East Timor | Integrated rural development projects fostering local entrepreneurship, health and safe nutrition, training and capacity building; health and nutrition education, childrens rights and protection of childrens and mothers health; environmental impact assessments. |
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Eni Foundation
In 2009 the Eni Enrico Mattei Foundation continued its work
for solidarity actions in support of the health of women and
children especially in Africa with the Salissa Mwana and Kento
Mwana programs in Congo and Kamba Kiaxi in Angola. In 2009 in
Congo nearly 5,000 pregnant women applied to the health centers
that provide tests and protocols for the prevention of AIDS. In
Angola approximately 150,000 children received care from a
program sponsored by Eni.
Protection and enhancement of ecosystems
Eni has been committed for years to the protection of
biodiversity and ecosystems through an organic approach that
highlights risks and opportunities related to an improved
management of resources, the protection of the environmental,
cultural and social heritage of the countries where it operates.
As part of "Proteus 2012", an action promoted by UNEP
(United Nations Environmental Program) -WCMC (World Conservation
Monitoring Centre) endorsed by Eni in 2008, in 2009 Eni continued
the collection of information within the World Database on
Protected Areas (WDPA) aimed at mapping operating sites in terms
of biodiversity so as to reduce the risks deriving from
operations in these areas.
From 2009 Eni is also part of the Environmental Services, Tools
& Markets Working Group promoted by Business for Social
Responsibility (BSR) that is to date the most important business
action for the comparison and analysis of the most updated tools
and methods for evaluating ecosystemic services on the life cycle
of industrial plants.
The culture of sustainable development
The promotion and support of culture as a lever for education
and training of new generations have become a distinctive feature
of Eni. Eni supports research by participating in international
projects and providing funds for scholarships. In 2009 Eni
conferred to Eni Corporate University the management and
coordination of all its activities in the area of education and
research carried out with Italian and international academic
institutions.
Enis expenditures in this field in 2009 amounted to euro
28.5 million (49% in Italy and 51% abroad). Over half of
co-operations concerned research activities (including service
contracts), 17% was dedicated to training and 23% scholarships
and other funding.In May 2009, in L'Aquila, a Protocol of
Understanding was signed by the Italian Ministry of Education,
University and Research, the University of L'Aquila and Eni which
launched the "Un ponte per l'Innovazione" (A Bridge for
Innovation) Project for the support and accommodation at
structures belonging to the Eni Group of 50 PhD students and
researchers from the university, also through study grants and
project contracts aimed at allowing the continuation or start up
of study, teaching or research activities in the energy and
environmental sectors.
Eni supports culture also by sponsoring projects based on
criteria such as affinity with Enis image and identity,
links with areas of presence, adherence to Enis business
objective and high visibility, always keeping account of
sustainability.
In 2009 Eni sponsored
projects and events with a total expenditure of euro 16.6
million. Eni was partner of the municipal museums of Venice and financed various events and exhibitions in Italy, such as the Mantova Festival and the Ravenna Festival. Eni was also a partner for the festival of the city and area of Ferrara centered on the issue of territory in all its aspects. Through its Historical Archive in 2009 Eni conducted research on its brand. Cooperated to the shooting of a TV movie on the life of Enrico Mattei based on historical material provided by Rai and Lux Vide which received very positive reviews and great appreciation from the public. It also participated to the European Oil and Gas Archives Network in Norway together with the main players of this industry (Total, ConocoPhillips and Hydro Statoil). |
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Activities of the Eni Enrico Mattei Foundation
The Fondazione Eni Enrico Mattei (FEEM) that celebrated in
2009 twenty years of activity in the field of sustainable
development is considered one of the international centers of
excellence on the study of environmental and energy issues. FEEM
supports Eni in actions favoring sustainable development, in
particular in Basilicata by providing training, research and
support to local activities.
The year 2009 was very important for research: as worldwide
governments met in Copenhagen to define an agreement on policies
for climate change (COP15), FEEM worked at defining indicators of
sustainability in addition to GDP. This year has been important
also for innovation in the promotion of research, dissemination
of scientific results and communication, three factors that
contributed to confirming the relevance and impact of FEEM.
In 2009 various cooperation agreements were confirmed with
important Italian and international institutions such as the
Fondazione Giorgio Cini in Venice and the Monitor Group in the
USA.
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RESPONSIBILITY TOWARDS THE ENVIRONMENT
Reference scenario
The impact of industrial activities on the environment is
affected by an increasing number of stringent laws and
regulations in Italy and Europe. In 2009 this trend was further
confirmed. In Italy Law No. 68/2009 devolved authority to the
government to approve before June 30, 2010 legislative decrees
for adjusting and integrating the so called "Environmental
Code" intended to collect and simplify all laws and
regulations pertaining to the environment. A ministerial decree
of December 17, 2009 defined a system to trace all waste. In
Europe too the situation has changed. In April a new directive
was published concerning the geological storage of carbon dioxide
(2009/31/CE). On October 10 the new REACH discipline came into
force. In November the European Union marked the official start
of the new E-PRTR (European Pollutant Release and Transfer
Register) where 2007 data of over 24,000 industrial facilities
covering 65 different economic activities are stored. At the end
of 2009 the new EMAS 1221/2009 regulation came in force. At the
end of December the European Commission published a list of
sectors and sub-sectors considered exposed to an increased risk
of relocalization of carbon emissions.
Despite these trends in laws and regulations, Eni strives to
carry out its activities going beyond the limits set by current
laws. In all its facilities Eni employs reference best practices
and guarantees high quality products while respecting the
environment. Eni applies and promotes the most efficient
environmental management systems, alerts its managers on the
issues of the environment, makes use of state of the art
technologies, provides training on environmental themes to its
employees. Eni pursues the highest performance targets, extending
its standards to its suppliers and contractors and at its foreign
affiliates.
More detailed information on the reduction of the environmental
footprint is found on Enis website in the area
Sustainability and in the Sustainability Report.
Environmental management
Eni pursues the objective of a high environmental performance
in all its activities by means of comprehensive certification
programs of its HSE management system applied in all areas in
line with its management model, as updated in January 2010.
In the spring of 2009, the US Environmental Protection Agency
published an article "The Eni success story" describing
the participation of Eni to the international initiative called
M2M (Methane to Markets) and confirming our contribution to
innovative actions for the reduction of methane emissions. This
project promotes the recovery of methane and its use as clean
energy source to favor economic growth and energy safety,
improving the quality of air and reducing greenhouse gas
emissions.
In 2009 Eni further improved its HSE planning and periodic
control systems. The planning and analysis process led to the
definition of improvement objectives for the main environmental
aspects to be reached by means of specific innovative projects.
The Eni PRTR project is nearing completion. The project consists
in the implementation of a centralized information system for the
areas of air, water, soil and waste in line with the European
Regulation 166/2006/CE aimed at the creation of the European
Register of Pollutant Release and Transfer. This will lead to a
unification, integration and improvement of environmental
management and of performance monitoring. This system, currently
being released to business units will provide for the collection
of environmental data for 2010.
In 2009 Eni obtained 5 integrated environmental authorizations
(AIA) for 4 types of facility (refinery, power plant, platform,
petrochemical plant), while the remaining facilities are still
undergoing the relevant survey. As concerns certification, nearly
all major production plants obtained the ISO 14001 certification.
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In Europe, Enis main production facilities have applied for EMAS certification, while many foreign affiliates, petrochemical plants and gas pipelines obtained a OHSAS 18001 certification or ISO 9000 or both. In the Exploration & Production division, on a total of 37 companies, 23 obtained the ISO 14001 certification; in the petrochemical segment the ISO 14001 certification was completed for all production plants, as already done in the refining area. The electric segment expects to complete the ISO 14001 certification of all plants by 2010.
Know-how in the HSE area is managed also with the help of
specific career paths aimed at enhancing the contribution of
qualified resources conferring their competence and expertise.
These qualified professional resources are managed in a way that
enables them to share information and knowledge, thus optimizing
synergies among the various units.
Rational use of natural resources
The minimization of use of natural resources and the control
of impacts that are priority objectives of a sustainable
environmental management are achieved by adopting the best
practices and technologies capable of ensuring a proper control
of releases in the environment (air, waters, soils).
Eni constantly strives to reduce air emissions with the help of
investments aimed at improving monitoring and reduction systems.
By using the best available techniques, Enis facilities
show a good level of control of emission of primary pollutants
(carbon monoxide, nitrogen oxides, sulphur dioxide, total
particulate and aromatic compounds). Emissions of SO2
and NOx declined by 5 and 3%, respectively.
In addition, the development and adoption of programs of energy
efficiency, aimed at optimizing the use of energy in industrial
processes guarantee the containment of all air emissions. Eni has
been striving for years to use low environmental impact fuels and
promotes the use of natural gas with ensuing benefits for air
quality.
The rationalization of water consumption has been obtained by
preferring integrated production cycles based on the treatment
and recycling of process water. In the Exploration &
Production division, water injection projects allow to maintain
field pressure, reducing the environmental impact of releasing
process waters.
In 2009 re-injection of water increased due to projects carried
out in Libya (in the Bouri field from June 2009, in the Bu
Attifel field is expected to come on line in the first quarter of
2010), Egypt (where a 50% share of reinjected water was reached
from 40% in 2008), Algeria (expected to reach 100% at mid-2010),
Indonesia (in 2008 all water had been reinjected at the Badak,
Nilam and Semberah sites and in 2009 the project has been
extended to Pamaguan and Mutiara) and Kazakhstan, where in the
settlements built for the workers and the facilities of the
offshore Kashagan project water treatment plants have been
installed that reduced the amount of clear water required. In
addition, in 2009, work continued to define the standard on the
minimization of water consumption and discharge that already led
to a 17% reduction in water consumption from 2008.
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The management of waste deriving from production activities is
obtained by optimizing production processes, identifying actions
for reducing waste sent to landfills and by controlling also the
operations of contractors. Eni continued the planning and
management of divestment/decommissioning of industrial plants,
the environmental reclaiming of soils and aquifers under approved
and environmentally adequate processes and procedures.
Waste from production processes amounted to approximately 1.6
mmtonnes, in line with 2008.
In 2009 the Exploration & Production division following the
assessment of waste management performed, published a standard
for waste management planning addressed to all its affiliates and
indicating the planning process to be carried out for each year
and four-year period that will allow to monitor and plan the
management of different kinds of waste, identifying all possible
improvement actions.
In the Petrochemical segment, technical and management actions
continued to reduce total waste produced, while Syndial applied a
program for the management of reclaiming actions also intended to
reduce waste production.
In order to protect the areas where Eni operates,
responsibilities and operating modes aiming at reducing the
negative impact of oil spills have been defined. Tools available
include the recourse to external professionals and/or
international organizations. Various projects in oil spill
assessment/response/plan are underway or have been completed. In
the R&M division in 2009 Eni continued to apply technical
improvements for prevention and containment to its facilities
with new actions planned to be carries out in the next few years.
In 2009, In the Exploration & Production segment a total of
287 oil spills were registered for a total of 21,547 barrels of
oil spilled (increasing from the preceding two years). About 17%
of all spills were due to sabotage, while the volumes deriving
from accidents increased by 33%.
In line with the increasing attention for green remediation, Eni
also invested in the concept of taking account of all the aspect
of remediation also outside the specific site and is currently
planning its reclaiming actions protecting the environment at
sustainable cost and creating value for communities.
Climate change and emissions
Enis action plan for the mitigation of climate change,
finalized in 2009, is based on projects for the reduction of gas
flaring, for energy saving and increasing efficiency of
industrial plants and R&D projects aimed at the containment
of CO2 emissions.
In particular Eni aims at:
- reducing gas flaring: the E&P division confirmed in its
industrial plan the gas flaring reduction target of 70% by 2012
from 2007 levels. In order to reach this objective capital
expenditures will be dedicate to new and modern infrastructure
for gas transport, more efficient power plants and gas
liquefaction plants;
- increasing efficiency in all areas: from production (including
gas flaring/venting) to transport and energy conversion to final
uses; the G&P division cooperates with its final customers by
providing technical consultancy for energy saving actions;
- feasibility studies and planning in the field of renewables
(photovoltaic, biomass, wind energy);
- capture and geological confinement of CO2: in
October 2008 Eni and Enel signed a strategic agreement for a
first integrated project for the capture, transport and
geological sequestration of CO2;
- promotion of methane as vehicle fuel with low environmental
impact that also allows to reduce CO2 emissions as
compared to other fuels;
- participation in European emission trading schemes that, in
addition to monitoring compliance, require a focus on technical,
economic and financial aspects of this trade performed by a team
responsible for the control of greenhouse gas emissions;
- constant updating of internal procedures: Eni is currently
updating its Protocol for accounting and reporting greenhouse gas
emission under the new rules imposed by current laws and best
practices and the API compendium.
Eni also signed a program agreement with the Ministry for the
Environment within the environmental pact signed by other 10
large companies in Italy. Under this agreement approximately euro
450 million will be invested in the 2009-2013 period in the areas
of energy saving, renewables, the distribution network for
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methane as vehicle fuel. Aim of this agreement is to save 160
ktoe/y of consumption and 459 ktoe CO2/y from 2013.
In 2009 total greenhouse gas emissions in CO2 tonnes,
including CO2 emissions from combustion and processes,
methane emissions (converted into CO2 using the Global
Warming Potential of 21) and flaring and venting emissions
decreased by 8% from 2008. The most significant decrease in the
Exploration & Production segment, which accounts for 50% of
total Eni emissions and reduced its emissions by 13% from 2008,
resulted from reductions in flaring (down 20%) and venting (down
9%).
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THE FUTURE OF ENERGY AND INNOVATION
The future challenges of energy
The availability of energy is crucial in supporting social and
economic development worldwide. The energy industry has to face
the challenge of the growth of energy requirements and relevant
issues of energy interdependence, security of supplies and
environmental impact of fossil fuel production and use.
The question of interdependence is crucial because it deeply
affects the relationships between producing and consuming
countries and is bound to become even more relevant in the
long-term.
The diversification of producing areas and energy sources
represents a necessary step to cope with the question of
interdependence and security of supplies.
The diversification of production areas and energy sources is not
a question of scarcity of resources, but rather of limited
access, technical complexity and high costs. Conventional
hydrocarbon resources that are technically recoverable can
support current production levels for a few decades.
But Western oil companies have limited access to economical and
plentiful resources, that are directly controlled by state owned
companies and local governments. This leads to a reduction in
opportunities for Western companies that tend to explore
borderline areas (ultra deep waters, Arctic areas, complex
geological structures) that are costly and technically difficult
to bring to production.
This situation is complemented by the fact that renewable sources
currently satisfy only a portion of energy requirement worldwide
3% excluding biomass and waste due to the low
energy density and power produced at high cost based on currently
available technologies. It is reasonable to assume that at least
in the medium term the cost of renewable energy will remain high
and not competitive with traditional sources. It is difficult to
economically support an industry, like generation from renewable
sources, that requires subsidization for growing, also because in
some cases the policies aimed at boosting the use of these
sources can produce an increase in costs that is too high both
for consumers and producers.
Furthermore, although renewable sources are growing at a
considerable rate, they start from a very low contribution to
overall consumption and will not be able to meet a high share of
requirements unless relevant technological breakthroughs are
obtained, as is foreseeable in the long-term.
The prevalence of fossil sources in the overall energy mix brings
to the forefront the problem of the environmental impact of
energy production. About 60% of current CO2 emissions
from human activities (about 38 btonnes in 2004) derive from the
energy segment.
In order to win these challenges, it is necessary to work on the
cornerstones represented by technological innovation and energy
efficiency, also developing new forms of cooperation with
producing countries and national oil companies.
Eni pays special attention to these aspects that directly affect
the supply and consumption of energy and are crucial for
mitigating their negative impact on the environment.
A strategy for innovation
The consequences of the recent financial crisis and the
related decline in energy consumption, environmental pressures
for the containment of greenhouse gas emissions and the increase
in use of renewable energy sources allow to outline a scenario
without scarcity of oil and natural gas worldwide.
All this notwithstanding, the growth in consumption related to
the accelerated industrialization of emerging countries, such as
China and India, requires the development and dissemination of
technologies that reduce the environmental impact of production
and use of fossil fuels, leading to sustainable development.
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Consistent with this vision, Eni launched in 2006 an
innovation strategy based on the following lines:
i) the "Along with petroleum" program to reach
technological leadership in the exploitment of solar energy and
the production of biofuels;
ii) the launch of the Blue Sky fund for financing research
projects characterized by high technical risk, whose results can
provide significant returns within Enis core business by
means of technological discontinuities;
iii) a new approach to the enhancement and management of
intellectual property, based on the recognition of the value of
intellectual assets generated by R&D activities. In 2009 Eni
filed 106 patent applications, with a 54% increase from 2007 and
10% from 2008. In particular, 24 applications were in the field
of drilling and completion, geology/ geophysics of fields,
engineering, mid/downstream; 3 applications concerned gas
transport, 21 related to biofuels, catalysts and refining
processes and the environment; 9 applications concerned solar
energy and biomass and 15 concerned petrochemical technology;
iv) a new policy of strategic alliances and scientific
cooperation projects with internationally renowned academic
institutions and research centers aimed at reaching technological
goals in less time and increasing knowledge and skills of Eni
employees. An example is the research alliance with the
Massachusetts Institute of Technology, Boston (USA), focused on
innovative technology in the field of solar energy and on Oil
& Gas issues and environmental sustainability. Eni also
signed framework agreements with the Milan and Turin Polytechnic
Schools and with the Italian Research Council (CNR);
v) establishment of the Eni Award for advanced research in the
new frontiers of hydrocarbons, alternative and non conventional
sources and environmental protection. The 2009 edition received
792 applications for its main prize, an 82% increase from 2008
and 374% increase from its first edition in 2007. It received 82
application for the prize for research debut from post doc
students in 25 Italian universities.
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Results achieved in 2009
In 2009 overall expenditure in R&D amounted to
approximately euro 207 million, excluding general and
administrative expenses (euro 217 million in 2008 and euro 208
million in 2007).
At December 31, 2009, a total of 1,019 persons were employed in
research and development activities (1,098 in 2008). The
following table describes the main results achieved in research
and innovation.
E&P division
Advanced exploration techniques
Drilling technologies
Increase in recovery rates
Marketing of marginal gas resources
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Conversion of heavy crude into lighter products (oil upgrading)
Petrochemicals
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Environment and efficiency
Renewable energy sources
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ENI ANNUAL REPORT / GLOSSARY
Glossary
The glossary of oil and gas terms is available on Enis web page at the address www.eni.com. Below is a selection of the most frequently used terms.
FINANCIAL TERMS
Dividend Yield Measures the return on a share based on dividends for the year. Calculated as the ratio of dividends per share of the year and the average reference price of shares in the last month of the year. Generally, companies tend to keep a constant dividend yield, as shareholders compare this indicator with the yield of other shares or other financial instruments (e.g. bonds).
Leverage Is a measure of a companys debt, calculated as the ratio between net financial debt and shareholders equity, including minority interests.
ROACE Return On Average Capital Employed Is the return on average capital invested, calculated as the ratio between net income before minority interests, plus net financial charges on net financial debt, less the related tax effect and net average capital employed.
TSR Total Shareholder Return Measures the total return of a share 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.
OIL AND NATURAL GAS ACTIVITIES
Average reserve life index Ratio between the amount of reserves at the end of the year and total production for the year.
Barrel Volume unit corresponding to 159 liters. A barrel of oil corresponds to about 0.137 metric tons.
Boe (Barrel of Oil Equivalent) 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 coefficient equal to 0.00615.
Concession contracts Contracts currently applied mainly in Western countries regulating relationships between States and oil companies with regards to hydrocarbon exploration and production. The company holding the mining concession has an exclusive on mining activities and for this reason it acquires a right on hydrocarbons extracted, against the payment of royalties to the State on production and taxes on oil revenues.
Condensates These are light hydrocarbons produced along with gas, that condense to a liquid state at normal temperature and pressure for surface production facilities.
Contingent resources Amounts of oil and gas estimated at a given date that are potentially recoverable by means of development projects that are not considered commercially recoverable due to one or more contingency.
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ENI ANNUAL REPORT / GLOSSARY
Deep waters Waters deeper than 200 meters.
Development Drilling and other post-exploration activities aimed at the production of oil and gas.
Elastomers (or Rubber) Polymers, either natural or synthetic, which, unlike plastic, when stress is applied, return , to a certain degree, to their original shape, once the stress ceases to be applied. The main synthetic elastomers are polybutadiene (BR), styrene-butadiene rubber (SBR), ethylene-propylene rubber (EPR), thermoplastic rubber (TPR) and nitrylic rubber (NBR).
Enhanced recovery Techniques used to increase or stretch over time the production of wells.
EPC (Engineering, Procurement, Construction) A contract typical of onshore construction of large plants in which the contractor supplies engineering, procurement and construction of the plant. The contract is defined "turnkey" when the plant is supplied for start-up.
EPIC (Engineering, Procurement, Installation, Commissioning) A contract typical of offshore construction of complex projects (such as the installation of production platforms or FPSO systems) in which the global or main contractor, usually a company or a consortium of companies, supplies engineering, procurement, construction of plant and infrastructure, transport to the site and all preparatory activities for the start-up of plants.
Exploration Oil and natural gas exploration that includes land surveys, geological and geophysical studies, seismic data gathering and analysis, and well drilling.
FPSO vessel Floating, Production, Storage and Offloading system made up of a large capacity oil tanker including a large hydrocarbon treatment plant. This system, moored at the bow in order to maintain a geostationary position, is in fact a temporary fixed platform linking the underwater wellheads to the treatment, storage and offloading systems onboard by means of risers from the seabed.
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 and consumed. One ton of LNG corresponds to 1,400 cubic meters of gas.
LPG Liquefied Petroleum Gas, a mix of light petroleum fractions, gaseous at normal pressure and easily liquefied at room temperature through limited compression.
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 Volumes of natural gas required for allowing optimal operation of natural gas fields in Italy for technical and economic reasons.
Modulation Storage Volumes of natural gas required for meeting hourly, daily and seasonal swings of demand.
Natural gas liquids 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 used to be defined natural gasoline, are natural gas liquids.
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ENI ANNUAL REPORT / GLOSSARY
Network Code A code containing norms and regulations for access to, management and operation of natural gas pipelines.
Offshore/Onshore The term offshore indicates a portion of open sea and, by induction, the activities carried out in such area, while onshore refers to land operations.
Olefins (or Alkenes) Hydrocarbons that are particularly active chemically, used for this reason as raw materials in the synthesis of intermediate products and of polymers.
Over/Underlifting Agreements stipulated between partners regulate the right of each to its share in the production of a set period of time. Amounts different from the agreed ones determine temporary Over/Underlifting 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.
Production Sharing Agreement Contract in use in non OECD countries, regulating relationships between States and oil companies with regard to the exploration and production of hydrocarbons. The mining concession is assigned to the national oil company jointly with the foreign oil company who has exclusive right to perform exploration, development and production activities and can enter 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 contractors 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, "profit oil" is divided between contractor and national company according to variable schemes and represents the profit deriving from exploration and production. Further terms and conditions may vary from one country to the other.
Proved reserves Proved oil and gas reserves are 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 know reservoirs, and under existing economic conditions. 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.
Reserves 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 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. Reserves can be: (i) developed reserves quantities of oil and gas anticipated to be through installed extraction equipment and infrastructure operational at the time of the reserves estimate; (ii) undeveloped reserves: oil and gas expected to be recovered from new wells, facilities and operating methods.
Reserve replacement ratio Measure of the reserves produced replaced by proved reserves. Indicates the companys 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 value of reserves in PSAs due to changes in international oil prices. Management also calculates this ratio by excluding the effect of the purchase of proved property in order to better assess the underlying performance of the Company s operations.
Ship or pay Clause included in natural gas transportation contracts according to which the customer for
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ENI ANNUAL REPORT / GLOSSARY
which the transportation is carried out is bound to pay for the transportation of the gas also in case the gas is not transported.
Strategic Storage Volumes of natural gas required for covering lack or reduction of supplies from extra-European sources or crises in the natural gas system.
Swap In the gas sector, the term is referred to a buy/sell contract between some counterparties and is generally aimed to the optimization of transport costs and respective commitments in purchasing and supplying.
Take or pay Clause included in natural gas purchase contracts according to which the purchaser is bound to pay the contractual price or a fraction of such price for a minimum quantity of the gas set in the contract also in case it is not collected by the customer. The customer has the option of collecting the gas paid and not delivered at a price equal to the residual fraction of the price set in the contract in subsequent contract years.
Upstream/Downstream The term upstream refers to all hydrocarbon exploration and production activities. The term downstream includes all activities inherent to the oil sector that are downstream of exploration and production activities.
Wholesale sales Domestic sales of refined products to wholesalers/distributors (mainly gasoil), public administrations and end consumers, such as industrial plants, power stations (fuel oil), airlines (jet fuel), transport companies, big buildings and households. They do not include distribution through the service station network, marine bunkering, sales to oil and petrochemical companies, importers and international organizations.
Workover Intervention on a well for performing significant maintenance and substitution of basic equipment for the collection and transport to the surface of liquids contained in a field.
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ENI ANNUAL REPORT / GLOSSARY
ABBREVIATIONS
mmcf | = | million cubic feet |
bcf | = | billion cubic feet |
mmcm | = | million cubic meters |
bcm | = | billion cubic meters |
boe | = | barrel of oil equivalent |
kboe | = | thousand barrel of oil equivalent |
mmboe | = | million barrel of oil equivalent |
bboe | = | billion barrel of oil equivalent |
bbl | = | barrels |
kbbl | = | thousand barrels |
mmbbl | = | million barrels |
bbbl | = | billion barrels |
mmtonnes | = | million tonnes |
ktonnes | = | thousand tonnes |
/d | = | per day |
/y | = | per year |
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186
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188
ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet
Dec. 31, 2008 | Dec. 31, 2009 | |||
(euro million) | Note | Total amount |
|
of which with related parties |
|
Total amount |
of which with related parties |
|||
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) | 59,255 | 63,177 | |||||||||
Inventory - compulsory stock | (9) | 1,196 | 1,736 | |||||||||
Intangible assets | (10) | 7,697 | 8,057 | |||||||||
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 | ||||||||||
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ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
Profit and loss account
2007 | 2008 | 2009 | ||||
(euro million) | 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 | (29) | 87,204 | 4,198 | 108,082 | 5,048 | 83,227 | 3,300 | |||||||||||||
Other income and revenues | 833 | 728 | 39 | 1,118 | 26 | |||||||||||||||
Total revenues | 88,037 | 108,810 | 84,345 | |||||||||||||||||
OPERATING EXPENSES | (30) | |||||||||||||||||||
Purchases, services and other | 58,133 | 3,777 | 76,350 | 6,298 | 58,351 | 4,999 | ||||||||||||||
- of which non-recurring charge | 91 | (21 | ) | 250 | ||||||||||||||||
Payroll and related costs | 3,800 | 4,004 | 4,181 | |||||||||||||||||
- of which non-recurring income | (83 | ) | ||||||||||||||||||
Other operating (charge) income | (129 | ) | 10 | (124 | ) | 58 | 55 | 44 | ||||||||||||
Depreciation, depletion, amortization and impairments | 7,236 | 9,815 | 9,813 | |||||||||||||||||
OPERATING PROFIT | 18,739 | 18,517 | 12,055 | |||||||||||||||||
FINANCE INCOME (EXPENSE) | (31) | |||||||||||||||||||
Finance income | 4,445 | 49 | 7,985 | 42 | 5,950 | 27 | ||||||||||||||
Finance expense | (4,554 | ) | (20 | ) | (8,198 | ) | (17 | ) | (6,497 | ) | (4 | ) | ||||||||
Derivative financial instruments | 155 | (427 | ) | (4 | ) | |||||||||||||||
46 | (640 | ) | (551 | ) | ||||||||||||||||
INCOME FROM INVESTMENTS | (32) | |||||||||||||||||||
Share of profit (loss) of equity-accounted investments | 773 | 640 | 393 | |||||||||||||||||
Other gain (loss) from investments | 470 | 733 | 176 | |||||||||||||||||
1,243 | 1,373 | 569 | ||||||||||||||||||
PROFIT BEFORE INCOME TAXES | 20,028 | 19,250 | 12,073 | |||||||||||||||||
Income taxes | (33) | (9,219 | ) | (9,692 | ) | (6,756 | ) | |||||||||||||
Net profit | 10,809 | 9,558 | 5,317 | |||||||||||||||||
Attributable to: | ||||||||||||||||||||
- Eni | 10,011 | 8,825 | 4,367 | |||||||||||||||||
- Minority interest | (26) | 798 | 733 | 950 | ||||||||||||||||
10,809 | 9,558 | 5,317 | ||||||||||||||||||
Earnings per share attributable to Eni (euro per share) | (34) | |||||||||||||||||||
Basic | 2.73 | 2.43 | 1.21 | |||||||||||||||||
Diluted | 2.73 | 2.43 | 1.21 | |||||||||||||||||
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ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
Statement of comprehensive income
(euro million) | Note | December 31, 2007 | December 31, 2008 | December 31, 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 |
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ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
Statements of changes in shareholders equity
Eni shareholders equity |
||
(euro million) | 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 |
Treasury 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 | 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 | ||||||||||||||||||||||||
192
ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
Statements of changes in shareholdersequity continued
Eni shareholders equity |
||
(euro million) | 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 |
Treasury 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 | (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 | ||||||||||||||||||||||||||||||||||||||
Gains (losses) recognized directly in equity | ||||||||||||||||||||||||||||||||||||||||||
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 | 25 | 1,264 | (223 | ) | 1,066 | 11 | 1,077 | |||||||||||||||||||||||||||||||||||
1,280 | 2 | 1,264 | (223 | ) | 2,323 | (41 | ) | 2,282 | ||||||||||||||||||||||||||||||||||
Total recognized income and (expense) for the year | 1,280 | 2 | 1,264 | (223 | ) | 8,825 | 11,148 | 692 | 11,840 | |||||||||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||||||||||||||
Interim dividend distribution of Eni SpA (euro 0.65 per share) | (2,359 | ) | (2,359 | ) | (2,359 | ) | ||||||||||||||||||||||||||||||||||||
Dividend distribution of other companies | (297 | ) | (297 | ) | ||||||||||||||||||||||||||||||||||||||
Payments by minority shareholders | 20 | 20 | ||||||||||||||||||||||||||||||||||||||||
Allocation of 2007 net profit | 5,261 | (5,261 | ) | |||||||||||||||||||||||||||||||||||||||
Shares repurchased | (778 | ) | (778 | ) | (778 | ) | ||||||||||||||||||||||||||||||||||||
Treasury shares sold under incentive plans for Eni managers | (20 | ) | 13 | 20 | (1 | ) | 12 | 12 | ||||||||||||||||||||||||||||||||||
Difference between the carrying amount and strike price of stock options exercised by Eni managers | 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 | ) | (1,482 | ) | (758 | ) | 5,262 | (160 | ) | (10,011 | ) | (7,169 | ) | 953 | (6,216 | ) | |||||||||||||||||||||||||||
Other changes in shareholders equity | ||||||||||||||||||||||||||||||||||||||||||
Cost related to stock options and stock grant | 18 | 18 | 18 | |||||||||||||||||||||||||||||||||||||||
Other changes | (26 | ) | 37 | 11 | (10 | ) | 1 | |||||||||||||||||||||||||||||||||||
(26 | ) | 55 | 29 | (10 | ) | 19 | ||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||
193
ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
Statements of changes in shareholders equity continued
Eni shareholders equity |
||
(euro million) | 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 |
Treasury shares |
Retained earnings |
Interim dividend |
Net profit for the year |
Total |
Minority interest |
Total shareholders equity |
||||||||||||||
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 | ||||||||||||||||||||||||
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ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
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 | |||||||
Revaluations, 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) | (8,532 | ) | (12,312 | ) | (12,300 | ) | ||||
- intangible assets | (10) | (2,061 | ) | (2,250 | ) | (1,395 | ) | ||||
- 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 | 172 | 318 | 126 | ||||||||
- intangible assets | 28 | 2 | 250 | ||||||||
- 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 | ) | ||||
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ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
Statement of cash flows continued
(euro million) | 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 | ) | |||||||
Sale of additional interests in consolidated subsidiaries | |||||||||||
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 "Financial
Review" in the "Report of the Directors". Cash flows of such investments were as follows: |
|
(euro million) |
|
2007 |
2008 |
2009 |
||||
Financing investments: | |||||||||
- securities | (75 | ) | (74 | ) | (2 | ) | |||
- financing receivables | (970 | ) | (99 | ) | (36 | ) | |||
(1,045 | ) | (173 | ) | (38 | ) | ||||
Disposal of financing investments: | |||||||||
- securities | 419 | 145 | 123 | ||||||
- financing receivables | 147 | 939 | 311 | ||||||
566 | 1,084 | 434 | |||||||
Net cash flows from financing activities | (479 | ) | 911 | 396 |
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ENI ANNUAL REPORT / CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CASH FLOW INFORMATION |
(euro million) |
|
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) |
|
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 | ||||||||
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation
The Consolidated Financial Statements of Eni Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and adopted by the European Union (EU) pursuant to Article 6 of the EC Regulation No. 1606/2002 of the European Parliament and Council of July 19, 2002 and in accordance with Article 9 of Legislative Decree No. 38/20051. 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 statutory 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 essentially 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 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 immaterial2. 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. 2009 Consolidated Financial Statements approved by Enis Board of Directors on March 11, 2010 were audited by the independent auditor PricewaterhouseCoopers SpA (PwC) who reviewed disclosed information. 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
of the shareholders 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
(1) | Differences in certain respects between IFRS as endorsed by the EU and IFRS as issued by IASB are on matters that do not relate to Eni. On this basis, the Consolidated Financial Statements are fully compliant with IFRS as issued by the IASB and effective for the year 2009 with the exception of IFRIC 12 "Service Concession Arrangements" and IFRIC 18 "Transfers of Assets from Customers" (see also "Recent Accounting Principles" paragraph). | |
(2) | 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. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
liabilities assumed is recognized as goodwill; negative goodwill is recognized in 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 profit and loss account for the difference between proceeds from the sale and the divested portion of net equity.
Inter-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 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 differences
resulting from this translation are recognized in
shareholders equity under "Other reserves" in
proportion to the groups interest and under "Minority
interest" for the portion related to minority shareholders.
Cumulative exchange 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 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 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)" and to the equity reserve related to the
other comprehensive income, respectively. In the latter case,
changes in fair value recognized 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, significant breaches of
contracts, serious financial difficulties or the high probability
of insolvency of the counterparty; asset write downs are included
in the carrying amount3.
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 to the
profit and loss account rather than shareholders equity,
the so-called "fair value option",
(3) | By EU Commission Regulation No. 1004/2008 of October 15, 2008, amendments to IAS 39 "Financial Instruments: Recognition and Measurement" and to IFRS 7 "Financial Instruments: Disclosures" were endorsed. The amendments 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. The change has not produced any effect for Eni. |
199
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
in order to ensure a match with the recognition in the profit
and loss account of the changes in fair value of the derivative
instrument4. 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 profit and loss
account are accounted for on an accrual basis as "Financial
income (expense)" and "Income (expense) 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 established generally by
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, 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 natural gas) and petroleum products is determined
by applying the weighted-average cost method on a three-month
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. 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 profit and loss account.
When take-or-pay clauses are included in long term natural gas
purchase contracts, not collected gas volumes which imply the
"pay" clause, measured using the price formulas
contractually defined, are recognized under "Other
assets" as "deferred costs" as a contra to
"Trade payables" or, after the settlement, to
"Cash and Cash equivalents".
The allocated deferred costs are charged to 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; (ii) for the portion which
is not recoverable, when it is not possible collecting the gas
previously not collected on the basis of the deadlines
contractually defined. Furthermore, the allocated 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".
Non-current assets
Property, plant and equipment5
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
(4) | Regarding the investment in OAO Gazprom Neft see Note 2 Other financial assets held for trading or available for sale. | |
(5) | Recognition and evaluation criteria of exploration and production activities are described in the section "Exploration and production activities" below. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 be borne at the moment the asset is retired. Changes in estimate of the carrying amounts of provisions due to the passage of time and changes in discount rates are recognized under "Provisions for contingencies"6. Property, plant and equipment is not revalued for financial reporting purposes. Assets carried under financial leasing or concerning arrangements that do not take the legal form of a finance lease but substantially transfer all the risks and rewards of ownership of the leased asset are recognized at fair value, net of taxes due from the lessor or, if lower, at the present value of the minimum lease payments. Leased assets are included within property, plant and equipment. A corresponding financial debt payable to the lessor is recognized as 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 term and 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 by the book value reduced by the estimated net realizable value at the end of the useful life, if it is significant and can be reasonably determined. Land is not depreciated, 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 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 and 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) used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace for the first four years and managements 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 included in the discount rate is provided by external parties. WACC differ considering the risk associated with individual operating segments; in particular for the assets belonging to the Gas & Power and Engineering & Constructions segments, taking into account the different risk 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 & Constructions segment on the basis of the market quotation); WACC used for impairments in
(6) | 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. |
201
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 & Constructions segment is not adjusted for country risk as most of the company assets are not located in a specific country. For the regulated activities, the discount rate to use for the measurement of value in use is equal to the rate off return defined by the Regulator. For the other 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 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 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 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 units 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 pro-rata on
the basis of the carrying amount of each asset in the unit.
Impairment charges against goodwill are not reversed7.
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.
(7) | 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. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Exploration and production activities8
ACQUISITION 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. Expenditure for the exploratory
potential, represented by the costs for the acquisition of the
exploration permits and for the extension of existing permits, is
recognized under "Intangible assets" and is amortized
on a straight-line basis over the period of the exploration as
contractually established. If the exploration is abandoned, the
residual expenditure is charged to the profit and loss account.
Acquisition costs for proved reserves and for possible and
probable reserves are recognized 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 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.
PRODUCTION
Production costs are those costs incurred to operate and maintain
wells and field equipment and are expensed as incurred.
PRODUCTION-SHARING AGREEMENTS AND BUY-BACK CONTRACTS
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 companys technologies and financing
(cost oil) and the companys 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 basis whilst
(8) | IFRS does 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". |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
exploration, development and production costs are accounted for according to the policies mentioned above. The companys 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 the revenues, and a tax 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 may be accounted for using the
equity method9. 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 adopting the criteria
indicated in the item "Property, plant and equipment".
Subsidiaries, joint ventures and associates excluded from
consolidation may be accounted for at cost, adjusted for
impairment losses if this does not result in a misrepresentation
of the companys 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 current assets, are recognized
at their fair value and their effects are included in the equity
reserve related to the 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 public market and fair value cannot be
reasonably determined, investments are accounted for at cost,
adjusted for impairment losses; impairment losses may not be
reversed10. 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, devaluations and
amortization of the difference between the reimbursement value
and the initial carrying value.
(9) | 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. | |
(10) | 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. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 defined at the 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 allowance for
impairment losses is 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 and liabilities directly
associated with them are recognized in the balance sheet
separately from the entitys 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 and
their carrying amount.
Any difference between the carrying amount and the fair value
less costs to sell is taken to 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
as 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
companys average borrowing rate taking 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 stated with a corresponding entry to the asset
to which it refers; profit and loss account charge is made with
the amortization process. 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
rates; the estimated revisions to the provisions are recognized in the same profit and loss account item that had previously held the provision, or, when the liability regards tangible assets (i.e. site restoration and abandonment) with a corresponding entry to the assets to which they refer. In the notes to the consolidated financial statements the following potential liabilities are described: (i) possible, but not probable obligations deriving from past events, whose existence will be confirmed only when one or more future events beyond the companys 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 companys 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 valuation of the liability is made by independent
actuaries. 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 actuarial gains and losses unrecognized at the end of
the previous reporting period exceed the greater of 10% of the
present value of the defined benefit obligation and 10% of the
fair value of the plan assets, over the expected average
remaining working lives of the employees participating to 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. Obligations for long-term benefits are determined by
adopting actuarial assumptions; the effect of changes in
actuarial assumptions or a change in the characteristics of the
benefit are taken to profit or loss in their entirety.
Treasury shares
Treasury shares are recorded at cost and as a reduction of
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:
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 Enis net working interest in those properties (entitlement method). Differences between Enis net working interest volume and actual production volumes are recognized at current prices at year end. Income related to partially rendered services is recognized in 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 in the year related to construction contracts are recognized on the basis of contractual revenues with
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
reference to the stage of completion of a contract measured on
the cost-to-cost basis. Requests of 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 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. Revenues are
stated net of returns, discounts, rebates, bonuses and direct
taxation.
Award credits, related to customer loyalty programmes, 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 a contra to the item "Other liabilities"; the
liability is recycled to 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. 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 and stock 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 period11. 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 of the stock grants and stock
options is recorded as a counter-balance of "Other
reserves". The costs for the acquisition of new knowledge or
discoveries, the study of products or alternative processes, new
techniques or models, the planning and construction of prototypes
or, in any case, costs borne for other scientific research
activities or technological development, which cannot be
capitalized, are included in 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.
Monetary assets and liabilities in currencies other than
functional currency are converted by applying the year end
exchange rate and the effect is stated in the profit and loss
account. Non-monetary assets and liabilities in currencies other
than the functional currency valued at cost are translated at the
initial exchange rate; non-monetary assets that are re-measured
to fair value, recoverable amount or realizable value, are
translated at the exchange rate applicable to the date of
re-measurement.
Dividends
Dividends are recognized at the date of the general
shareholders meeting in which they were declared, except
when the sale of shares before the ex-dividend date is certain.
(11) | The period between the date of the award and the date starting from the option can be exercised. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Income taxes
Current income taxes are determined on the basis of
estimated taxable income. The estimated liability is included in
"Income taxes 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 enacted at the balance sheet date
and the tax rates estimated on annual basis. Deferred tax assets
or liabilities are provided on temporary differences arising
between the carrying amounts of the assets and liabilities 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 to the
shareholders equity
Derivatives
Derivatives, including embedded derivatives which are
separated from the host contract, are assets and liabilities
recognized at their fair value 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) derivative
are recognized net the allowance for impairment losses.
Derivatives are classified as hedging instruments when the
relationship between the derivative and the subject of the hedge
is formally documented and the effectiveness of the hedge is high
and is checked periodically. When hedging instruments cover the
risk of variation of the fair value of the hedged item (fair
value hedge, e.g. hedging of the variability on the fair value of
fixed interest rate assets/liabilities) the derivatives are
stated at fair value and the effects charged to the profit and
loss account. 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 are shown in the profit
and loss account. Economic effects of transactions, which relate
to purchase or sales contracts for commodities entered into to
meet the entitys normal operating requirements and for
which the settlement is provided with the delivery of the goods,
are recognized on an accrual basis (the so-called normal sale and
normal purchase exemption or own use exemption).
Financial statements12
Assets and liabilities of the balance sheet are classified
as current and non-current. Items of the profit and loss account
are presented by nature13.
(12) | The financial statements are the same reported in the Annual Report 2008 with the exception of: (i) the adjustments related 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 the 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 the 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. | |
(13) | 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. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Statement of comprehensive income shows net profit integrated
with incomes and expenses that are recognized directly to 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 grant 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 a contra to the balance sheet item
"Other liabilities"; such liability is recycled to
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 at January 1, 2008 and December 31, 2008: (i) a decrease of
euro 52 million and of euro 66 million in the "Net sales
from operations" in 2007 and 2008 profit and loss account,
respectively; (ii) an increase of euro 6 million and euro 8
million in the "Other income and revenues" in 2007 and
2008 profit and loss account, respectively; (iii) a decrease of
euro 46 million and euro 58 million in the "Purchases,
services and other" in 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 at January 1, 2008 and December 31, 2008,
respectively.
Segment reporting is prepared according to the provisions of IFRS
8 "Operating Segments", effective starting 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 entitys 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 entitys
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 segments14.
Use of accounting estimates
The companys 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
(14) | Moreover, 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 Enis financial statements as it already capitalizes such costs. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Companys 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 from known reservoirs under existing
economic conditions and operating 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 data and
engineering 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 Enis 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 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 Groups 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 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 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
managements 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 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 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 Companys credit costs.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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 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 Enis 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 Enis 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 Enis liability, if any, as 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Contingencies
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 appropriate amounts for
accrual 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 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 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 and endorsed by EU
By Commission Regulation No. 495/2009 and 494/2009 of June 3,
2009 the revised IFRS 3 "Business Combinations" and an
amended version of IAS 27 "Consolidated and Separate
Financial Statements" have been endorsed. The revisions to
IFRS 3 require, inter alia, (i) the acquisition-related costs to
be accounted for separately from the business combination and
then recognized as expenses; (ii) the recognition to the profit
and loss account of any change to contingent consideration; and
(iii) the choice of the full goodwill method which means to
account for the full value of the goodwill of the business
combination including the share attributable to non-controlling
interests. In the case of step acquisitions, the revisions also
require the recognition in the profit and loss account of the
difference between the fair value at the acquisition date of the
net assets previously held and their carrying amounts. The
amendments of IAS 27 require, inter alia, that acquisitions or
disposals of ownership interests in a subsidiary that do not
result in the acquisition (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 of 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 is recognized at its fair
value with gains or losses arising from the difference between
the fair value and carrying amount of the held investment
recognized in the profit or loss account. The revised Standards
shall be applied for annual periods beginning on or after July 1,
2009 (for Eni: 2010 financial statements).
By Commission Regulation No. 1293/2009 of December 23, 2009, the
amendment to IAS 32 "Classification of rights issues"
has been endorsed. The amendment clarifies how to classify in the
issuers financial statements those financial instruments
which grant to shareholders the right to acquire equity
instruments of the issuers for a price denominated in a currency
other than issuers functional currency. If such instruments
are issued pro rata to the issuer's existing shareholders for a
fixed amount of cash, they should be classified as equity even if
their
213
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
exercise price is denominated in a currency other than the
issuer's functional currency. The amendment to IAS 32 shall be
applied for annual period beginning on or after February 1, 2010
(for Eni: 2011 financial statements).
By Commission Regulation No. 254/2009 of March 25, 2009 IFRIC 12
"Service Concession Arrangements" (hereinafter IFRIC
12) has been endorsed. The interpretation provides guidance on
the accounting by operators for public-to-private service
concession arrangements. An arrangement within the scope of this
interpretation involves for a specified period of time an
operator constructing, upgrading, operating and maintaining the
infrastructure used to provide the public service. In particular
when the grantor controls or regulates what services the operator
must provide with the infrastructure, at what price and any
significant residual interest in the infrastructure at the end of
the term of the arrangement, the operator shall recognize the
concession as an intangible asset or as a financial asset on the
basis of the agreements. According to the Commission Regulation,
this interpretation shall be applied for annual periods beginning
on or after March 29, 2009 (for Eni: 2010 financial statements)15.
By Commission Regulation No. 1142/2009 of November 26, 2009 IFRIC
17 "Distributions of Non-cash Assets to Owners"
(hereinafter IFRIC 17) has been endorsed. The interpretation
provides clarification and guidance on the accounting treatment
of distributions of non-cash assets to owners of an entity, or
distributions that give owners a choice of receiving either
non-cash assets or a cash alternative. In particular, the
interpretation requires, inter alia, that the distribution is
measured at the fair value of the assets to be distributed. The
liability to pay a dividend shall be recognized when the dividend
is appropriately authorized; the liability and the related
adjustments are recognized as a contra to equity. When an 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 payable in profit
or loss account. According to the Commission Regulation, this
interpretation shall be applied for annual periods beginning on
or after October 31, 2009 (for Eni: 2010 financial statements)16.
By Commission Regulation No. 1164/2009 of November 27, 2009 IFRIC
18 "Transfers of Assets from Customers" (hereinafter
IFRIC 18) has been endorsed. The interpretation provides
clarification and guidance on the accounting for transfers of
assets to be used to connect customers to a network to supply
goods or services.
The interpretation is also applied in the cases 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 set out in the Framework is met, the asset received
is recognized at its fair value; when the agreement states the
supply of more than one service (for example, connection to a
network and supply of goods) the entity receiving the transfer
shall assess which service is provided against the transferred
asset and recognizes, consistently, a revenue when the connection
is made or over a period no longer than the length of the supply
and the useful life of the asset. IFRIC 18 provisions do not
apply to assets within the scope of IFRIC 12. According to the
Commission Regulation, this interpretation shall be applied for
annual periods beginning after October 31, 2009 (for Eni: 2010
financial statements)17.
(15) | According to IFRIC 12 provisions, the interpretation shall be applied for annual periods beginning on or after January 1, 2008. Therefore, IFRIC 12 had to be considered, starting from 2008, for the preparation of Annual Report on Form 20-F. In particular starting from 2007 year Eni applies the SEC provisions allowing elimination of the U.S. GAAP reconciliation of the net income and equity for foreign private issuers that prepare their financial statements adopting the provisions of the international accounting standards (IFRS) issued by the IASB (even if not endorsed yet or, even if endorsed, they have a different effective date). The IFRIC 12 provisions regard some Group companies of the secondary gas distribution segment; the effects of the application of the interpretation regard the different classification of the carrying amount of the distribution networks from the line item "Property, plant and equipment" to assets under concession arrangements. | |
(16) | According to IFRIC 17 provisions, the interpretation shall be applied for annual periods beginning on or after July 1, 2009. | |
(17) | According to IFRIC 18 provisions, the interpretation shall be applied prospectively to transfers of assets from customers received on or after July 1, 2009. Therefore, similarly to IFRIC 12, IFRIC 18 provisions have to be considered for the preparation of Annual Report on Form 20-F. |
214
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Accounting standards and interpretations issued by
IASB/IFRIC and not yet been endorsed by EU
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 1, 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 require also that investments in
equity instruments, other than subsidiaries, jointly controlled
entities or associates, shall be measured at fair value with
effects taken to profit and loss account. If these investments
are not held for trading purposes, subsequent changes in the fair
value can be recognized in the other comprehensive income, even
if dividends are taken to profit and loss account. Amounts taken
to other comprehensive income shall not be subsequently
transferred to profit or loss, even at the disposal. IFRS 9
provisions shall be applied for annual periods beginning on or
after January 1, 2013.
On November 26, 2009 IASB issued IFRIC 19 "Extinguishing
Financial Liabilities with Equity Instruments" which defines
the accounting treatment to adopt when a financial liability is
settled by issuing equity instruments to the creditor (debt for
equity swaps). Equity instruments issued for extinguish fully or
partially a liability are measured at their fair value or, if
fair value cannot be reliably measured, at the fair value of the
financial liability extinguished. The difference between the
carrying amount of the financial liability extinguished and the
fair value of equity instrument issued shall be recognized in
profit or loss account. IFRIC 19 provisions shall be applied for
annual periods beginning on or after July 1, 2010 (Eni: 2011
financial statements).
On April 16, 2009, IASB issued the document "Improvements to
IFRSs" which includes only changes to the existing standards
and interpretation 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 Groups results.
215
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes to the Consolidated
Financial Statements
Current assets
1 Cash and cash equivalents
Cash and cash equivalents of euro 1,608 million (euro
1,939 million at December 31, 2008) included financing
receivables originally due within 90 days for euro 450 million
(euro 616 million at December 31, 2008). The latter were related
to amounts on deposit with financial institutions accessible only
on 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, 2008 |
Dec. 31, 2009 |
||
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 decreased of the carrying amount of the 20%
interest in OAO Gazprom Neft (euro 2,741 million), purchased by
Gazprom following the exercising 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 of the date of the
transaction). Eni acquired the investment in Gazprom Neft on
April 4, 2007 through a bid on the liquidation of the second lot
of ex-Yukos assets. The strike price of the call option was equal
to the bid price (U.S. $3.7 billion) decreased by the dividends
distributed and increased of a contractual remuneration of 9.4%
on the capital employed and financing collateral expenses.
Other securities of euro 348 million (euro 495 million at
December 31, 2008) were available-for-sale securities. At
December 31, 2008 and December 31, 2009, Eni did not own
financial assets held for trading.
The effects of the valuation at fair value of securities are set
below:
(euro million) | Value at |
Changes recognized in the reserves of shareholders' equity |
Value at |
|||
Fair value | 5 | 1 | 6 | ||||||
Deferred tax liabilities | (1 | ) | (1 | ) | |||||
Other reserves of shareholders' equity | 4 | 1 | 5 |
Securities held for operating purposes of euro 284 million
(euro 310 million at December 31, 2008) were designed to provide
coverage of technical reserves of Groups insurance company
Eni Insurance Ltd (euro 302 million at December 31, 2008).
The fair value of securities was determined by reference to
quoted market prices.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3 Trade and other receivables
Trade and other receivables were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 of euro 1,647 million (euro 1,251 million at December 31, 2008):
(euro million) | Value at |
Additions |
Deductions |
Other changes |
Value at |
|||||
Trade receivables | 747 | 260 | (15 | ) | (50 | ) | 942 | |||||
Financing receivables | 19 | (13 | ) | 6 | ||||||||
Other receivables | 485 | 206 | (24 | ) | 32 | 699 | ||||||
1,251 | 466 | (52 | ) | (18 | ) | 1,647 |
The decrease in trade receivables of euro 1,528 million was
primarily related to the Gas & Power segment (euro 1,990
million). Such decrease was partially offset by the increase
primarily related to the Refining & Marketing segment (euro
380 million).
Trade and other receivables were as follows:
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 | 11,356 | 3,004 | 14,360 | ||||||
Impaired (net of the valuation allowance) | 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 | 1,248 | 772 | 2,020 | ||||||
- 3 to 6 months | 231 | 68 | 299 | 589 | 56 | 645 | ||||||
- 6 to 12 months | 248 | 294 | 542 | 309 | 439 | 748 | ||||||
- over 12 months | 300 | 607 | 907 | 377 | 578 | 955 | ||||||
2,591 | 1,471 | 4,062 | 2,523 | 1,845 | 4,368 | |||||||
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 of euro
260 million (euro 251 million in 2008) primarily referred to the
Gas & Power segment (euro 165 million).
Allowances for impairment losses of other receivables of euro 206
million (euro 137 million in 2008) primarily referred to the
Exploration & Production segment (euro 205 million) due
primarily to 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
Companys interest in certain joint ventures.
Trade receivables included guarantees for work in progress for
euro 168 million (euro 213 million at December 31, 2008).
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other receivables for euro 461 million (euro 227 million at
December 31, 2008) associated with cost recovery in the
Exploration & Production segment are currently undergoing
arbitration procedure.
Receivables for financing operating activities of euro 452
million (euro 487 million at December 31, 2008) included euro 245
million due from unconsolidated subsidiaries, joint ventures and
associates (euro 399 million at December 31, 2008), euro 179
million cash deposit to provide coverage of Eni Insurance Ltd
technical reserves (euro 47 million at December 31, 2008) and
receivables for financial leasing for euro 19 million (the same
amount as of December 31, 2008). More information about
receivables for financial leasing is included in the Note 12
Other financial assets.
Receivables for financing non-operating activities amounted to
euro 73 million (euro 337 million at December 31, 2008) of which
euro 67 million related to deposits of the Engineering &
Construction segment. The decrease of euro 264 million related to
the release of a deposit of Eni Lasmo Plc made to guarantee a
debenture (euro 173 million) and to the decrease of deposits of
Eni Insurance Ltd (euro 88 million).
Other receivables were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 of euro 156
million (euro 171 million at December 31, 2008) were related to
Serfactoring SpA and consisted primarily of advances for
factoring operations with recourse and receivables for factoring
operations without recourse.
Receivables with related parties are described in Note 36
Transactions with related parties.
Because of the short-term maturity of trade receivables, the fair
value approximated their carrying amount.
4 Inventories
Inventories were as follows:
Dec. 31, 2008 |
Dec. 31, 2009 |
|||
(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 | 466 | 263 | 1,155 | 1,884 | 616 | 150 | 1,363 | 2,129 | ||||||||||||
Products being processed and semi finished products | 48 | 17 | 3 | 68 | 74 | 17 | 9 | 100 | ||||||||||||
Work in progress | 953 | 953 | 759 | 759 | ||||||||||||||||
Finished products and goods | 2,528 | 557 | 92 | 3,177 | 1,889 | 552 | 66 | 2,507 | ||||||||||||
3,042 | 837 | 953 | 1,250 | 6,082 | 2,579 | 719 | 759 | 1,438 | 5,495 |
Contract work in progress for euro 759 million (euro 953 million at December 31, 2008) are net of prepayments for euro 13 million (euro 274 million at December 31, 2008) within the limits of contractual considerations.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Inventories are stated net of the valuation allowance of euro 103 million (euro 697 million at December 31, 2008):
(euro million) | Value at |
Additions |
Deductions |
Other changes |
Value at |
|||||
697 | 36 | (550 | ) | (80 | ) | 103 |
Deductions for euro 550 million essentially referred to the
Refining & Marketing (euro 336 million) and the Petrochemical
segments (euro 200 million).
5 Current tax assets
Current tax assets were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Italian subsidiaries | 53 | 570 | ||
Foreign subsidiaries | 117 | 183 | ||
170 | 753 | |||
The increase in other current tax assets of euro 583 million
essentially referred to receivables for interim tax payments
exceeding full-year taxation payable (euro 430 million) made by
Eni SpA.
6 Other current tax assets
Other current tax assets were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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, 2008 |
Dec. 31, 2009 |
||
Fair value of non-hedging derivatives | 1,128 | 698 | ||
Fair value of cash flow hedge derivatives | 474 | 236 | ||
Other assets | 268 | 373 | ||
1,870 | 1,307 | |||
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 |
|
Fair value |
|
Purchase commitments |
|
Sale |
Non-hedging derivatives on exchange rate | ||||||||||||
Interest Currency Swap | 35 | 80 | 2 | 113 | ||||||||
Currency swap | 201 | 2,653 | 1,701 | 64 | 1,855 | 1,117 | ||||||
Other | 285 | 98 | 1,154 | 142 | 174 | 537 | ||||||
521 | 2,751 | 2,935 | 208 | 2,142 | 1,654 | |||||||
Non-hedging derivatives on interest rate | ||||||||||||
Interest rate swap | 2 | 300 | 1 | 133 | ||||||||
Other | 4 | 9 | 9 | |||||||||
2 | 4 | 300 | 10 | 142 | ||||||||
Non-hedging derivatives on commodities | ||||||||||||
Over the counter | 547 | 1,063 | 1,850 | 469 | 1,383 | 1,257 | ||||||
Other | 58 | 65 | 53 | 11 | 234 | 8 | ||||||
605 | 1,128 | 1,903 | 480 | 1,617 | 1,265 | |||||||
1,128 | 3,883 | 5,138 | 698 | 3,901 | 2,919 |
Fair value of the derivative contracts is determined using
market quotations provided by primary info-provider, or in the
absence of market information, appropriate valuation methods used
on the marketplace.
Fair values of non-hedging derivatives of euro 698 million (euro
1,128 million at 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 decrease in the fair value of the non-hedging derivatives of
euro 430 million primarily referred to the Gas & Power
segment (euro 315 million) and to Eni SpA (euro 160 million).
Fair value of the cash flow hedge derivatives of euro 236 million
referred to Distrigas NV. These derivatives were designated to
hedge surpluses or deficits of gas to achieve a proper balance in
gas portfolio. Negative fair value of contracts expiring by 2010
is given in Note 19 Other current liabilities; positive
and negative fair value of contracts expiring beyond 2010 is
given in Note 14 Other non-current receivables and in Note
24 Other non-current liabilities. The effects of the
evaluation at fair value of cash flow hedge derivatives are given
in the Note 26 Shareholders equity and in the Note
30 Finance income (expense).
The nominal value of cash flow hedge derivatives referred to
purchase and sale commitments of euro 25 million and euro 603
million.
Information on the hedged risks and the hedging policies is given
in Note 28 Guarantees, commitments and risks.
Other assets amounted to euro 373 million (euro 268 million at
December 31, 2008) and included prepayments and accrued income
for euro 104 million (euro 63 million at December 31, 2008),
rentals for euro 35 million (euro 31 million at December 31,
2008) and insurance premiums for euro 18 million (euro 11 million
at December 31, 2008).
220
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2008 | ||||||||||||||||||||||||||||||
Land | 598 | 8 | (7 | ) | 27 | 626 | 656 | 30 | ||||||||||||||||||||||
Buildings | 1,376 | 102 | (106 | ) | (29 | ) | (122 | ) | 7 | (342 | ) | 886 | 3,125 | 2,239 | ||||||||||||||||
Plant and machinery | 35,880 | 3,590 | (5,737 | ) | (652 | ) | 1,301 | 112 | 4,548 | 39,042 | 91,864 | 52,822 | ||||||||||||||||||
Industrial and commercial equipment | 550 | 228 | (177 | ) | (3 | ) | 1 | 227 | 826 | 2,203 | 1,377 | |||||||||||||||||||
Other assets | 341 | 124 | (83 | ) | (6 | ) | (13 | ) | 5 | 9 | 377 | 1,563 | 1,186 | |||||||||||||||||
Tangible assets in progress and advances | 11,392 | 8,260 | (653 | ) | 2,442 | 408 | (4,351 | ) | 17,498 | 18,716 | 1,218 | |||||||||||||||||||
50,137 | 12,312 | (6,103 | ) | (1,343 | ) | 3,601 | 533 | 118 | 59,255 | 118,127 | 58,872 | |||||||||||||||||||
Dec. 31, 2009 | ||||||||||||||||||||||||||||||
Land | 626 | 10 | 2 | (3 | ) | (9 | ) | 626 | 654 | 28 | ||||||||||||||||||||
Buildings | 886 | 36 | (100 | ) | (37 | ) | 25 | (34 | ) | 46 | 822 | 3,129 | 2,307 | |||||||||||||||||
Plant and machinery | 39,042 | 3,599 | (6,370 | ) | (496 | ) | 3 | (176 | ) | 7,238 | 42,840 | 101,538 | 58,698 | |||||||||||||||||
Industrial and commercial equipment | 826 | 214 | (179 | ) | (2 | ) | 16 | (17 | ) | 228 | 1,086 | 2,482 | 1,396 | |||||||||||||||||
Other assets | 377 | 152 | (130 | ) | (4 | ) | (8 | ) | 156 | 543 | 1,920 | 1,377 | ||||||||||||||||||
Tangible assets in progress and advances | 17,498 | 8,289 | (451 | ) | 2 | (273 | ) | (7,805 | ) | 17,260 | 18,801 | 1,541 | ||||||||||||||||||
59,255 | 12,300 | (6,779 | ) | (990 | ) | 48 | (511 | ) | (146 | ) | 63,177 | 128,524 | 65,347 |
Capital expenditures of euro 12,300 million (euro 12,312
million at December 31, 2008) essentially related to the
Exploration & Production segment (euro 8,196 million), the
Gas & Power segment (euro 1,622 million), the Engineering
& Construction segment (euro 1,615 million), and the Refining
& Marketing segment (euro 626 million). Capital expenditures
included capitalized finance expenses of euro 222 million (euro
236 million at December 31, 2008) essentially related to the
Exploration & Production segment (euro 77 million), the
Engineering & Construction segment (euro 76 million), the
Refining & Marketing segment (euro 35 million) and the Gas
& Power segment (euro 32 million). The interest rate used for
the capitalization of finance expense ranged from 1.9% to 3.7%
(3.5% and 5.1% at December 31, 2008).
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 |
221
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The break-down by segment of impairments amounting to euro 990 million (euro 1,343 million at December 31, 2008) and the associated tax effect is provided below:
(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 impairment is required, the carrying
value of an asset, item of property, plant and equipment, is
compared with its recoverable amount. The recoverable amount is
the higher of the assets fair value less costs to sell and
value in use. Given the nature of Enis activities,
information on the fair value of an asset is usually difficult to
obtain unless negotiations with potential purchasers are taking
place. Eni 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 mainly comprise: (i) in the Exploration
& Production segment, individual oilfields or pools of
oilfields whereby technical, economic or contractual features
make the underlying cash flows interdependent; (ii) in the Gas
& Power segment, 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) in the Refining & Marketing segment, refining plants
and commercial facilities relating to each distribution channel
and by country (ordinary network, high-ways network, and
wholesale activity); (iv) in the Petrolchemicals segment,
production plants and related facilities; (v) in the Engineering
& Construction segment, the 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 use is calculated by
discounting the estimated cash flows determined on the basis of
the best information available at the moment of the assessment
deriving from: (i) the Companys four-year plan approved by
the top management which provides information on expected oil and
gas production, sales volumes, capital expenditures, operating
costs and margins and industrial and marketing set-up, as well as
trends on the main monetary variables, including inflation,
nominal interest rates and exchange rates. For the subsequent
years beyond the plan horizon, it has been used a nominal growth
rate ranging from 0% to 2%; (ii) the commodity prices have been
assessed based on the forward prices prevailing on 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 Companys management for strategic planning
purposes for the following years (see "Basis of
presentation").
Post-tax cash flows are discounted at the rate which corresponds
for the Exploration & Production, Refining & Marketing
and Petrochemicals segments to the Companys weighted
average cost of capital, adjusted to consider the risks specific
to each country of activity (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 the
222
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 from 9% to 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
related to proved and unproved oil&gas properties mainly
located in the Gulf of Mexico, Australia, Congo, Egypt and
Nigeria as a result of downward reserve revisions and cost
increases.
In the Refining & Marketing segment the main impairments
related to refining plants. The drivers of those impairments were
a weak refining environment and the Companys 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 were taken into account,
particularly low complexity.
In the Petrochemicals segment the main impairments related to the
olefins-aromatic-polyethylene plants of 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 to weak
industry fundamentals in terms of sluggish demand, excess of
capacity and rising competitive pressures as new capacity is
expected to come on line in the Middle East.
Negative foreign currency translation differences of euro 511
million were primarily related to translation of entities
accounts denominated in U.S. dollar (euro 1,005 million). This
effect was partially offset by translation of entities accounts
denominated in Norwegian krones (euro 339 million).
Other negative changes in the net book value of tangible assets
(euro 146 million) referred to the reclassification to assets
classified as held for sale of euro 421 million and asset
disposals of euro 150 million and, as increase, the initial
recognition and change in the estimated amount of the costs for
the dismantling and restoration of sites for euro 289 million
primarily referring to the Exploration & Production segment
(euro 273 million).
The following is a description of unproved mineral interests,
included in tangible assets in progress and advances:
(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, the Gulf of Mexico, Turkmenistan and Algeria associated with recent acquisitions. Changes of the year amounting to a decrease of euro 935 million related to transfers to property, plant and equipment associated with recognition of proved reserves and internal approval for development.
223
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairments for 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 4,692
million and euro 5,680 million at December 31, 2008 and 2009,
respectively.
At December 31, 2009, Eni pledged property, plant and equipment
for euro 28 million primarily as collateral against certain
borrowings (euro 29 million at December 31, 2008).
Government grants recorded as a decrease of property, plant and
equipment amounted to euro 1,302 million (euro 1,308 million at
December 31, 2008).
Assets acquired under financial lease agreements amounted to euro
28 million (euro 163 million at December 31, 2008), of which,
euro 19 million related to FPSO ships used by the Exploration
& Production segment to support oil production and treatment
activities and euro 9 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 28 Guarantees,
commitments and risks - Liquidity risk.Property, plant and
equipment under concession arrangements are described in Note 28
Guarantees, commitments and risks - Asset under concession
arrangements.
Property, plant and equipment by segment
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Property, plant and equipment, gross | ||||||
Exploration & Production | 64,338 | 71,189 | ||||
Gas & Power | 26,566 | 27,998 | ||||
Refining & Marketing | 12,899 | 13,378 | ||||
Petrochemicals | 5,036 | 5,174 | ||||
Engineering & Construction | 7,702 | 9,163 | ||||
Other activities | 1,550 | 1,592 | ||||
Corporate and financial companies | 391 | 373 | ||||
Elimination of intra-group profits | (355 | ) | (343 | ) | ||
118,127 | 128,524 | |||||
Accumulated depreciation, amortization and impairment losses | ||||||
Exploration & Production | 31,983 | 36,727 | ||||
Gas & Power | 10,206 | 10,808 | ||||
Refining & Marketing | 8,403 | 8,981 | ||||
Petrochemicals | 4,124 | 4,321 | ||||
Engineering & Construction | 2,548 | 2,858 | ||||
Other activities | 1,467 | 1,513 | ||||
Corporate and financial companies | 179 | 194 | ||||
Elimination of intra-group profits | (38 | ) | (55 | ) | ||
58,872 | 65,347 | |||||
Property, plant and equipment, net | ||||||
Exploration & Production | 32,355 | 34,462 | ||||
Gas & Power | 16,360 | 17,190 | ||||
Refining & Marketing | 4,496 | 4,397 | ||||
Petrochemicals | 912 | 853 | ||||
Engineering & Construction | 5,154 | 6,305 | ||||
Other activities | 83 | 79 | ||||
Corporate and financial companies | 212 | 179 | ||||
Elimination of intra-group profits | (317 | ) | (288 | ) | ||
59,255 | 63,177 |
224
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9 Inventory
- compulsory stock
Inventory - compulsory stock was as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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
1,184 million and euro 1,724 million at December 31, 2008 and
2009, respectively) in accordance with minimum stock requirements
set forth by applicable laws.
10 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 |
||||||||
Dec. 31, 2008 | |||||||||||||||||||
Intangible assets with finite useful lives | |||||||||||||||||||
Exploration expenditures | 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 | |||||||||||
Concessions, licenses, trademarks and similar items | 786 | 17 | (93 | ) | (15 | ) | 38 | 733 | 2,475 | 1,742 | |||||||||
Intangible assets in progress and advances | 377 | 264 | (61 | ) | 580 | 590 | 10 | ||||||||||||
Other intangible assets | 158 | 18 | (52 | ) | 1,595 | 14 | 1,733 | 1,995 | 262 | ||||||||||
2,218 | 2,250 | (2,327 | ) | 1,915 | 110 | 4,166 | 8,558 | 4,392 | |||||||||||
Intangible assets with indefinite useful lives | |||||||||||||||||||
Goodwill | 2,115 | 1,417 | (1 | ) | 3,531 | ||||||||||||||
4,333 | 2,250 | (2,327 | ) | 3,332 | 109 | 7,697 | |||||||||||||
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 | |||||||||||
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 | |||||||||||
4,166 | 1,395 | (1,989 | ) | 75 | 3,647 | 8,556 | 4,909 | ||||||||||||
Intangible assets with indefinite useful lives | |||||||||||||||||||
Goodwill | 3,531 | 15 | 864 | 4,410 | |||||||||||||||
7,697 | 1,395 | (1,989 | ) | 15 | 939 | 8,057 |
Exploration expenditures of euro 631 million mainly related to
license acquisition costs that are amortized on a straight-line
basis over the contractual term of the exploration lease or fully
written off against profit and loss in case of release or when no
future activity is planned. Additions for the year included
exploration drilling expenditures which were fully amortized as
incurred for euro 1,271 million (euro 1,715 million at December
31, 2008).
Concessions, licenses, trademarks and similar items for euro 671
million primarily comprised transmission rights for natural gas
imported from Algeria (euro 452 million) and concessions for
mineral exploration (euro 157 million).
Other intangible assets with finite useful lives of euro 1,626
million primarily referred to: (i) customer relationship and
order backlog for euro 1,244 million (euro 1,355 million at
December 31, 2008) recognized after the acquisition of control on
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 on Eni Hewett Ltd for euro 234 million
(euro 208 million at December 31, 2008); (iii) royalties for the
use of licenses by Polimeri Europa SpA euro 68 million (euro 72
million at December 31, 2008); (iv) estimated costs for
Enis social responsibility projects in relation to oil
development programs in Val dAgri euro 38 million (euro 18
million at December 31, 2008) following commitments made with the
Basilicata Region.
225
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The depreciation rates used were as follows:
(%) | |||||||||
Exploration expenditures | 14 |
- |
33 |
||||||
Industrial patents and intellectual property rights | 20 |
- |
33 |
||||||
Concessions, licenses, trademarks and similar items | 3 |
- |
33 |
||||||
Other intangible assets | 4 |
- |
25 |
Other changes of intangible assets with a definite useful live
of euro 75 million included negative currency translation
differences of euro 5 million.
Change in the consolidation area related to the intangible assets
with indefinite useful live (goodwill) of euro 15 million
essentially refers to the acquisition of Seacom SpA (euro 13
million).
The carrying amount of goodwill at the end of the year was euro
4,410 million (euro 3,531 million at December 31, 2008). The
break-down by operating segment is as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Exploration & Production | 243 | 249 | ||
Gas & Power | 2,400 | 3,328 | ||
Refining & Marketing | 142 | 84 | ||
Engineering & Construction | 746 | 749 | ||
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; (ii) value-in-use determined
by discounting the estimated future cash flows determined on the
basis of the best pieces of information available at the moment
of the assessment deriving from: (a) the Companys four-year
plan approved by the top management which provides information on
expected oil and gas production, sales volumes, capital
expenditures, operating costs and margins and industrial and
marketing set-up, as well as trends on the main monetary
variables, including inflation, nominal interest rates and
exchange rates. For the subsequent years beyond the plan horizon,
a nominal growth rate ranging from 0% to 2% has been used; (b)
the commodity prices have been assessed based on the forward
prices prevailing on 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 Companys top
management for strategic planning purposes for the following
years (see "Basis of presentation").
Value-in-use is determined by discounting post-tax cash flows at
the following rates: (i) in the Exploration & Production and
Refining & Marketing and Petrochemicals segments, impairment
rates correspond to the Companys weighted average cost of
capital, as adjusted to consider risks specific to each country
of activity (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 the previous 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 from 9% to 13.5%; (ii) for the Gas & Power and
Engineering & Constructions segments, specific 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 &
Constructions segment on the basis of market data. Rates used for
impairments in the Gas & Power segment has been adjusted to
take into consideration risks specific to each country of
activity, while rates used in the Engineering & Constructions
segment has not been adjusted as most of the company assets are
not permanently located in a specific country. Rates for the Gas
& Power segment have 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 & Constructions segment, rates at 8.5% have
increased on average by 0.5 percentage points due to higher
equity risk; (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.
226
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Goodwill has been allocated to the following CGUs:
Gas & Power segment
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 primarily
related to goodwill recognized upon the buy-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 amount included 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 Companys top management that factored in revised
downward prospects of gas demand growth in Italy. The terminal
value was estimated based on the perpetuity method of the
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 of 28.7% on
average in the projected commercial margins; (ii) a decrease of
28.7% on average in the projected sales volumes; (iii) an
increase of 3.4 percentage points in the discount rate; (iv) a
negative nominal growth rate of 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 CGU represented by the European gas
market was recognized upon acquisition of the Belgian company
Distrigas NV that was acquired in two different steps: (i) a
controlling interest of 57.24% was acquired in October 2008; (ii)
a mandatory tender offer was finalized on the minorities of
Distrigas and the subsequent squeeze-out at the same price of the
acquisition of the controlling interest. Such goodwill has been
allocated to the CGU that is expected to benefit from the
synergies of the acquisition corresponding to the European market
that includes the activities of Distrigas and other European
marketing activities conducted by the Gas & 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 the
terminal value. The determination of the value-in use is based on
the four-year-plan approved by Enis 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 the European 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 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
cost 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.
227
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Engineering & Construction segment
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Offshore constructions | 416 | 416 | ||
Onshore constructions | 314 | 317 | ||
Other | 16 | 16 | ||
746 | 749 | |||
The segment goodwill of euro 749 million was mainly recognized
following the acquisition of Bouygues Offshore SA, now Saipem SA
(euro 711 million).
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
Companys top management while the terminal value has been
estimated by using a perpetual nominal growth rate of 2% applied
to the cash flow of the four-year period. The following changes
in each of the assumptions, ceteris paribus would cause
the headroom of the Offshore construction CGU to be reduced to
zero: (i) decrease of 56% of the operating result of the four
years of the plan; (ii) increase of 8 percentage points of the
discount rate; (iii) negative real growth rate.
Changes in each of the assumptions, ceteris 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.
The 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), the management believes that there are no
reasonably possible changes in the pricing environment and
production/cost profiles that would cause the headroom of the
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 of the business combinations
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 for
euro 65 million; (ii) in the Refining & Marketing segment
(euro 84 million), the Company recorded an impairment charge 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 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
related to the acquisitions in Czech Republic, Hungary and
Slovakia.
Other changes in intangible assets with a indefinite useful lives
of euro 864 million included the accounting of the goodwill
related to the acquisition of the 42.757% of Distrigas NV,
following the finalization of the mandatory tender offer on the
minorities with a 41.617% adhesion of the share capital,
including the 31.25% interest of Publigaz Scrl, the other major
stakeholder of Distrigas, and the 1.14% interest through the
squeeze-out procedure (euro 903 million) and, as a decrease, the
impairments for euro 58 million of the Refining & Marketing
segment as described above.
228
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11 Investments
Investments 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, 2008 | ||||||||||||||||||||
Investments in unconsolidated entities controlled by Eni | 141 | 41 | 27 | (6 | ) | (5 | ) | 3 | (24 | ) | 177 | |||||||||
Joint ventures | 3,310 | 47 | 536 | (94 | ) | (444 | ) | (123 | ) | 25 | 3,257 | |||||||||
Associates | 2,188 | 289 | 198 | (5 | ) | (266 | ) | 35 | (402 | ) | 2,037 | |||||||||
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 for euro 226 million related to
the subscription of capital increase for euro 224 million, of
which euro 181 million related to Angola LNG Ltd.
Share of profit of equity-accounted investments and the decrease
following the distribution of the dividends referred to the
following companies:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Share of profit of equity-accounted investments |
|
Deduction for dividends |
|
Enis interest % |
|
Share of profit of equity-accounted investments |
|
Deduction for dividends |
|
Enis interest % |
||
Galp Energia SGPS SA | 39 | 88 | 33.34 | 116 | 64 | 33.34 | |||||||
Unión Fenosa Gas SA | 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 | 107 | 127 | 33.33 | 24 | 40 | 24.55 | |||||||
EnBW Eni Verwaltungsgesellschaft mbH | 40 | 22 | 50.00 | 15 | 50.00 | (*) | |||||||
Supermetanol CA | 39 | 34 | 34.51 | 6 | 13 | 34.51 | |||||||
Other investments | 218 | 231 | 169 | 107 | |||||||||
761 | 715 | 693 | 384 |
(*) | Equity ratio 33.33. |
Share of loss of equity-accounted investments of euro 241
million primarily related to Ceska Rafinerska AS (euro 140
million) following the outcome of an impairment test on the
refinery, Transmediterranean Pipeline Co Ltd (euro 30 million)
and Super Octanos CA (euro 21 million) following an impairment on
the relevant CGU mainly associated with negative trends in
exchange rates.
Other changes of euro 151 million included the reclassification
from receivables made for operating financing purposes associated
with the contribution of the 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
the joint venture Artic Russia BV (euro 111 million) upon
divestment of a 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 profit
and loss on equity-accounted evaluation of the investments in
Artic Russia BV amounting to euro 103 million, of which euro 100
million
229
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
was associated with 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 based on the arrangements
between Eni and Gazprom.
The following table sets out the net carrying amount relating to
equity-accounted:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Net carrying amount |
Enis interest % |
Net carrying amount |
Enis interest % |
|||||
Investments in unconsolidated entities controlled by Eni: | |||||||||
- Eni BTC Ltd | 62 | 100.00 | 93 | 100.00 | |||||
- Other investments (1) | 115 | 124 | |||||||
177 | 217 | ||||||||
Joint ventures: | |||||||||
- Artic Russia BV | 895 | 60.00 | 918 | 60.00 | |||||
- Unión Fenosa Gas SA | 499 | 50.00 | 473 | 50.00 | |||||
- Blue Stream Pipeline Co BV | 351 | 50.00 | 371 | 50.00 | |||||
- EnBW Eni Verwaltungsgesellschaft mbH | 268 | 50.00 | 284 | 50.00 | |||||
- Azienda Energia e Servizi Torino SpA | 166 | 49.00 | 170 | 49.00 | |||||
- Eteria Parohis Aeriou Thessalonikis AE | 158 | 49.00 | 161 | 49.00 | |||||
- Toscana Energia SpA | 136 | 49.38 | 143 | 49.38 | |||||
- Raffineria di Milazzo ScpA | 128 | 50.00 | 128 | 50.00 | |||||
- Trans Austria Gasleitung GmbH | 109 | 89.00 | 170 | 89.00 | |||||
- Super Octanos CA | 90 | 49.00 | 66 | 49.00 | |||||
- Supermetanol CA | 90 | 34.51 | 80 | 34.51 | |||||
- Unimar Llc | 65 | 50.00 | 72 | 50.00 | |||||
- Eteria Parohis Aeriou Thessalias AE | 42 | 49.00 | 43 | 49.00 | |||||
- Starstroi Llc | 19 | 50.00 | 31 | 50.00 | |||||
- Transmediterranean Pipeline Co Ltd | 40 | 50.00 | 8 | 50.00 | |||||
- Transitgas AG | 33 | 46.00 | 33 | 46.00 | |||||
- Altergaz SA | 25 | 38.91 | 28 | 41.62 | |||||
- Other investments (1) | 143 | 148 | |||||||
3,257 | 3,327 | ||||||||
Associates: | |||||||||
- Galp Energia SGPS SA | 862 | 33.34 | 914 | 33.34 | |||||
- Angola LNG Ltd | 453 | 13.60 | 612 | 13.60 | |||||
- Ceska Rafinerska AS | 323 | 32.44 | 184 | 32.44 | |||||
- PetroSucre SA | 19 | 26.00 | 176 | 26.00 | |||||
- United Gas Derivatives Co | 128 | 33.33 | 84 | 24.55 | (2) | ||||
- Fertilizantes Nitrogenados de Oriente CEC | 68 | 20.00 | 68 | 20.00 | |||||
- ACAM Gas SpA | 46 | 49.00 | 47 | 49.00 | |||||
- Distribuidora de Gas del Centro SA | 32 | 31.35 | 29 | 31.35 | |||||
- Other investments (1) | 106 | 170 | |||||||
2,037 | 2,284 | ||||||||
5,471 | 5,828 |
(1) | Each individual amount included herein did not exceed euro 25 million. | |
(2) | Equity ratio 33.33. |
The net carrying amount of investments in unconsolidated entities controlled by Eni, joint ventures and associates include the differences between purchase price and Enis equity in investments of euro 521 million. Such differences primarily related to Unión Fenosa Gas SA (euro 195 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 181 million) and Galp Energia SGPS SA (euro 106 million).
230
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The fair value of listed investments was as follows:
Shares | Ownership (%) |
Price
per share (euro) |
Fair
value (euro million) |
|||||
Galp Energia SGPS SA | 276,472,161 | 33.34 | 12.08 | 3,340 | ||||
Altergaz SA | 1,123,954 | 41.62 | 29.80 | 33 |
The table below sets out the provisions for losses included in the provisions for contingencies of euro 170 million (euro 119 million at December 31, 2008), primarily related to the following equity-accounted investments:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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, 2008 | ||||||||||||||||
Investments in unconsolidated entities controlled by Eni | 25 | 1 | 4 | 30 | 41 | 11 | ||||||||||
Associates | 10 | (6 | ) | 4 | 28 | 24 | ||||||||||
Other investments | 437 | 5 | 11 | (77 | ) | 376 | 382 | 6 | ||||||||
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 unconsolidated 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.
231
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The net carrying amount of other investments of euro 416 million (euro 410 million at December 31, 2008) was related to the following entities:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Net carrying amount |
|
Enis interest % |
|
Net carrying amount |
|
Enis interest % |
||
Investments in unconsolidated entities controlled by Eni (*) | 30 | 44 | ||||||
Associates | 4 | 8 | ||||||
Other investments: | ||||||||
- Interconnector (UK) Ltd | 135 | 16.06 | 134 | 16.06 | ||||
- Nigeria LNG Ltd | 85 | 10.40 | 82 | 10.40 | ||||
- Darwin LNG Pty Ltd | 83 | 10.99 | 78 | 10.99 | ||||
- Other (*) | 73 | 70 | ||||||
376 | 364 | |||||||
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 at December 31, 2008) and were primarily in relation to the following entities:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 of
unconsolidated entities controlled by Eni, joint ventures and
associates:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Unconsolidated entities controlled by Eni |
|
Joint ventures |
|
Associates |
|
Unconsolidated entities controlled by Eni |
|
Joint ventures |
|
Associates |
||
Total assets | 1,361 | 7,761 | 4,020 | 2,215 | 6,981 | 4,218 | |||||||
Total liabilities | 1,230 | 4,565 | 1,958 | 2,081 | 3,721 | 1,929 | |||||||
Net sales from operations | 134 | 5,303 | 5,067 | 65 | 3,936 | 5,718 | |||||||
Operating profit | 2 | 736 | 702 | (48 | ) | 564 | 141 | ||||||
Net profit | 20 | 490 | 690 | (9 | ) | 474 | 101 |
The total assets and liabilities of unconsolidated controlled entities of euro 2,215 million and euro 2,081 million respectively (euro 1,361 million and euro 1,230 million at December 31, 2008) concerned for euro 1,873 million and euro 1,860 million (euro 923 million and euro 923 million at December 31, 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".
232
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12 Other financial assets
Other financing receivables were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 of euro 29 million (euro 26 million at December
31, 2008).
Operating financing receivables of euro 1,112 million (euro 1,084
million at December 31, 2008) primarily concerned loans made by
the Exploration & Production segment (euro 580 million), Gas
& Power segment (euro 311 million) and Refining &
Marketing segment (euro 111 million), as well as receivables for
financial leasing of euro 97 million (euro 128 million at
December 31, 2008). Receivables for financial leasing related to
the disposal of the Belgian gas network by Finpipe GIE, company
included in the consolidation area after the acquisition of
control by Gas & Power segment on 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, interests 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 | 77 | 20 | 116 | ||||
Interests | 6 | 11 | 1 | 18 | ||||
Undiscounted value of future lease payments | 25 | 88 | 21 | 134 |
Receivables with a maturity date within one year is shown in
current assets in the item trade receivables for operating
purposes - current portion of long-term receivables in the Note 3
Trade and other receivables.
Receivables in currencies other than euro amounted to euro 716
million (euro 827 million at December 31, 2008).
Receivables due beyond five years amounted to euro 460 million
(euro 617 million at December 31, 2008).
Securities of euro 36 million (euro 50 million at December 31,
2008), designated as held-to-maturity investments, are listed
securities, issued by the Italian Government (euro 21 million)
and by foreign governments (euro 15 million). The decrease of
euro 14 million referred to Banque Eni SA.
Securities with a maturity beyond five years amounted to euro 20
million.
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 1.0% to 4.5% (1.9% and 3.9% at December 31, 2008). The fair
value of securities was derived from quoted market prices.
Receivables with related parties are described in Note 36
Transactions with related parties.
13 Deferred tax assets
Deferred tax assets were recognized net of deferred tax
liabilities able to be offset for euro 3,764 million (euro 3,468
million at December 31, 2008).
(euro million) | Value at |
Additions |
Deductions |
Currency translation differences |
Other changes |
Value at |
||||||
2,912 |
1,715 |
(1,078 |
) | (28 |
) | 37 |
3,558 |
Deferred tax assets are described in Note 23 Deferred tax liabilities.
233
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14 Other non-current receivables
The following table provides an analysis of other non-current
receivables:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Tax receivables from: | ||||
- income tax | 24 | 18 | ||
- interest on tax credits | 58 | 55 | ||
- Value Added Tax (VAT) | 2 | |||
- other | ||||
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 | |||
Other receivables related to disposals of euro 710 million
referred to: (i) a receivable of euro 421 million recognized upon
the agreement signed with the Republic of Venezuela whereby Eni
will receive a cash compensation for the expropriated Dación
assets, part of which was already collected. Eni is set to
collect seven annual installments which yield interest income
from the date of the agreement. The 2009 installment of euro 71
million ($104 million) was paid through an equivalent assignment
of hydrocarbons (compensation in-kind); (ii) a receivable of euro
279 million related to the disposal of the interest of 1.71% in
the Kashagan project to the local partner KazMunaiGas on the
basis of the agreements defined with the international partners
of the North Caspian Sea PSA and the Kashagan government, which
are effective starting from January 1, 2008.
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 |
|
Fair value |
|
Purchase commitments |
|
Sale |
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 | ||||||
Other | ||||||||||||
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 |
Fair value of the derivative contracts is determined using
market quotations provided by primary info-provider, or in the
absence of market information, appropriate valuation methods
generally accepted in the marketplace.
Fair values of non-hedging derivatives of euro 339 million (euro
480 million at 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,
234
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 of euro 129 million
referred to Distrigas NV. Further information on cash flow hedge
derivatives is given in Note 19 Other current liabilities.
Fair value related to the contracts expiring beyond 2010 is given
in Note 24 Other non-current liabilities; fair value
related to the contracts expiring in 2010 is indicated in Note 7
Other assets and in Note 19 Other current
liabilities. The effects of the evaluation at fair value of cash
flow hedge derivatives are given in Note 26
Shareholders equity and in Note 30 Operating
expenses.
Nominal value of cash flow hedge derivatives referred to purchase
and sale commitments for euro 29 million and euro 427 million.
Information on the hedged risks and the hedging policies is given
in Note 28 Guarantees, commitments and risks.
Other asset of euro 433 million (euro 44 million at 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 contra 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.
235
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Current liabilities
15 Short-term debt
Short-term debt was as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 2,814 million primarily due
to the balance of repayments and new proceeds (euro 2,889
million), partially offset by currency translation differences
(euro 97 million). Debt comprised commercial paper of euro 2,718
million (euro 3,663 million at December 31, 2008) mainly issued
by the financial company Eni Finance USA Inc (euro 2,020 million)
and Eni Coordination Center SA (euro 698 million).
Short-term debt per currency is shown in the table below:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Euro | 3,801 | 1,143 | ||
U.S. dollar | 1,332 | 2,321 | ||
Other currencies | 1,226 | 81 | ||
6,359 | 3,545 | |||
In 2009, the weighted average interest rate on short-term debt
was 0.8% (4.2% in 2008).
At 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 million and euro 7,696
million at December 31, 2008). These facilities were under
interest rates that reflected market conditions. Charges in
unutilized facilities were not significant.
16 Trade and other payables
Trade and other payables were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 decrease of euro 2,512 million in trade payables was
primarily related to the Gas & Power segment (euro 1,640
million), the Engineering & Construction segment (euro 619
million), the Exploration & Production segment (euro 566
million) and, in increase, to the Refining & Marketing
segment (euro 266 million).
Advances of euro 3,230 million (euro 2,916 million at December
31, 2008) were related to advances on contract work in progress
for euro 2,590 million (euro 2,516 million at December 31, 2008)
and other advances for euro 640 million (euro 400 million at
December 31, 2008).
Advances on contract work in progress were in respect of the
Engineering & Construction segment.
236
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other payables were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 with related parties are described in Note 36
Transactions with related parties.
The fair value of trade and other payables did not differ
significantly from their carrying amount considering the
short-term maturity of trade payables.
17 Income taxes payable
Income taxes payable were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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
137 million). Further information is provided in Note 19
Other current liabilities.
18 Other taxes payable
Other taxes payable were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Excise and customs duties | 920 | 832 | ||
Other taxes and duties | 740 | 599 | ||
1,660 | 1,431 | |||
19 Other current liabilities
Other current liabilities were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 | |||
237
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair value of non-hedging derivative contracts 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 | 211 | 1,234 | 2,379 | 113 | 3,044 | 2,487 | ||||||
Interest currency swap | 78 | 694 | 60 | 8 | 113 | |||||||
Other | 299 | 101 | 1,181 | 135 | 107 | 684 | ||||||
588 | 2,029 | 3,620 | 256 | 3,264 | 3,171 | |||||||
Non-hedging derivatives on interest rate | ||||||||||||
Interest rate swap | 5 | 500 | 15 | 816 | ||||||||
5 | 500 | 15 | 816 | |||||||||
Non-hedging derivatives on commodities | ||||||||||||
Over the counter | 769 | 2,528 | 191 | 415 | 1,244 | 549 | ||||||
Other | 56 | 66 | 119 | 5 | 2 | 54 | ||||||
825 | 2,594 | 310 | 420 | 1,246 | 603 | |||||||
1,418 | 5,123 | 3,930 | 691 | 4,510 | 4,590 |
Fair value of derivative contracts was determined by using
market quotations given by primary info-providers, or, absent
market information, on the basis of valuation models generally
accepted in the marketplace.
Fair values of non-hedging derivatives of euro 691 million (euro
1,418 million at 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 fair value of cash flow hedges amounted to euro 680 million
(euro 452 million at December 31, 2008) and related to
Exploration & Production segment for euro 369 million and
Distrigas NV for euro 311 million (euro 37 million and euro 415
million at December 31, 2008, respectively). Fair value related
to the Exploration & Production segment referred to the fair
value of the future sale agreements of the proved oil reserves
with deadline by 2010. 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
Enis proved reserves as of December 31, 2006 corresponding
to 125.7 mmbbl, decreasing to 37.5 mmboe 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
gas portfolio.
Fair value of contracts expiring by 2010 is given in Note 7
Other current assets; fair value of contracts expiring
beyond 2010 is given 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 are given in the Note 26 Shareholders
equity and in the Note 30 Operating expenses.
The nominal value of cash flow hedge derivatives referred to
purchase and sale commitments for euro 1,882 million and euro 272
million, respectively (euro 989 million and euro 895 million at
December 31, 2008, respectively).
Information on the hedged risks and the hedging policies is given
in Note 28 Guarantees, commitments and risks.
The decrease of other liabilities of euro 1,508 million referred
for euro 1,495 million to the extinction of the put option
exercised by Publigaz. Eni granted the put option to Publigaz
(the Distrigas minority shareholder) to divest its 31.25% stake
in Distrigas NV to Eni on the same per-share price of the
mandatory tender offer to minorities as part of the Distrigas NV
acquisition. The relevant liability was recognized with a
corresponding entry in a reserve within equity.
238
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Non-current liabilities
20 Long-term debt and current maturities 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 |
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 at December 31,
2008) increased by euro 6,777 million. The increase mainly
reflected the balance of payments and new proceeds of euro 6,730
million as well as translation differences arising on debt taken
on by euro-reporting subsidiaries denominated in foreign currency
which are translated into euros at year-end exchange rates (euro
100 million). These increases were offset by currency translation
differences arose from the translation of financial statements
denominated in currencies other than euro (euro 74 million).
Debt from banks of euro 9,056 million referred to committed and
uncommitted borrowing facilities for euro 4,030 million.
Debt from other financial institutions of euro 512 million (euro
632 million at December 31, 2008) included euro 24 million of
finance lease transactions (euro 161 million at December 31,
2008). The decrease of euro 137 million mainly referred to the
exercise of the option to purchase a drilling rig by the
Engineering & Construction segment.
Eni entered into long-term borrowing facilities with the European
Investment Bank which were conditioned to the maintenance of
certain performance indicators based on Enis consolidated
financial statements or the maintenance of a minimum level of
rating. According to the agreements, the lack of this latter
condition required new guarantees, able to be accepted by the
European Investment Bank, to be found. At December 31, 2008 and
2009, the amount of short and long-term debt subject to
restrictive covenants was euro 1,323 million and euro 1,508
million, respectively. Eni considers that the non-compliance with
the above covenants does not produce relevant effects.
Furthermore, Saipem SpA entered into certain borrowing facilities
for 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 of euro 11,687 million consisted of bonds issued within the
Euro Medium Term Notes Program for a total of euro 9,418 million
and other bonds for a total of euro 2,269 million.
239
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table analyses bonds per issuing entity, maturity date, interest rate and currency as at December 31, 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 | 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 | 3 | 179 | 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 | 207 | 9,418 | |||||||||||||||
Other bonds | |||||||||||||||||
Eni SpA | 1,000 | 7 | 1,007 | EUR | 2015 | 4.000 | |||||||||||
Eni SpA | 1,000 | (14 | ) | 986 | EUR | 2015 | variable | ||||||||||
Eni USA Inc | 277 | (3 | ) | 274 | USD | 2027 | 7.300 | ||||||||||
Eni UK Holding Plc | 2 | 2 | GBP | 2013 | variable | ||||||||||||
2,279 | (10 | ) | 2,269 | ||||||||||||||
11,490 | 197 | 11,687 |
As at December 31, 2009 bonds maturing within 18 months (euro
993 million) were issued by Eni Coordination Center SA for euro
476 million and by Eni SpA for euro 517 million. During 2009, Eni
SpA issued bonds for euro 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, 2008 |
Average rate |
Dec. 31, 2009 |
Average rate |
|||||
Euro | 12,284 | 4.2 | 19,345 | 3.9 | ||||
U.S. dollar | 912 | 6.1 | 779 | 3.9 | ||||
British pound | 859 | 6.2 | 742 | 5.2 | ||||
Japanese yen | 367 | 2.0 | 348 | 2.0 | ||||
Other currencies | 56 | 3.8 | 41 | 3.0 | ||||
14,478 | 21,255 |
At December 31, 2009 Eni had undrawn committed long-term borrowing facilities of euro 2,850 million (euro 1,850 million at December 31, 2008). Interest rates on these contracts were at market conditions. Charges for unutilized facilities were not significant.
240
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair value of long-term debt, including the current portion of long-term debt amounted to euro 22,320 million (euro 15,247 million at December 31, 2008) and consisted of the following:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Ordinary bonds | 7,505 | 12,618 | ||
Banks | 7,056 | 9,152 | ||
Other financial institutions | 686 | 550 | ||
15,247 | 22,320 | |||
Fair value was calculated by discounting the expected future
cash flows at rates ranging from 1.0% to 4.5% (1.4% and 3.9% at
December 31, 2008).
At December 31, 2009 Eni did not pledge restricted deposits as
collateral against its borrowings (euro 151 million at December
31, 2008).
Analysis of net borrowings, as defined in the "Financial
Review", was as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Current |
Non-current |
Total |
Current |
Non-current |
Total |
|||||||
A. Cash and cash equivalents | 1,939 | 1,939 | 1,608 | 1,608 | ||||||||
B. Available-for-sale securities | 185 | 185 | 64 | 64 | ||||||||
C. Liquidity (A+B) | 2,124 | 2,124 | 1,672 | 1,672 | ||||||||
D. Financing receivables | 337 | 337 | 73 | 73 | ||||||||
E. Short-term debt towards banks | 2,411 | 2,411 | 683 | 683 | ||||||||
F. Long-term debt towards banks | 147 | 6,856 | 7,003 | 2,028 | 7,028 | 9,056 | ||||||
G. Bonds | 360 | 6,483 | 6,843 | 1,111 | 10,576 | 11,687 | ||||||
H. Short-term debt towards related parties | 153 | 153 | 147 | 147 | ||||||||
I. Long-term debt towards related parties | 9 | 9 | ||||||||||
L. Other short-term debt | 3,795 | 3,795 | 2,715 | 2,715 | ||||||||
M. Other long-term debt | 42 | 581 | 623 | 52 | 460 | 512 | ||||||
N. Total borrowings (E+F+G+H+I+L+M) | 6,908 | 13,929 | 20,837 | 6,736 | 18,064 | 24,800 | ||||||
O. Net borrowings (N-C-D) | 4,447 | 13,929 | 18,376 | 4,991 | 18,064 | 23,055 |
Available-for-sale securities of euro 64 million (euro 185
million at December 31, 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 at December 31, 2008), of which euro 284 million (euro
302 million at December 31, 2008) were held to provide coverage
of technical reserves for Enis insurance company, Eni
Insurance Ltd.
Financing receivables of euro 73 million (euro 337 million at
December 31, 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 at December 31, 2008), of which euro 245 million
(euro 399 million at December 31, 2008) were in respect of
securities granted to unconsolidated subsidiaries, joint ventures
and associates primarily in relation to the implementation of
certain capital projects and a euro 179 million cash deposit
(euro 47 million at December 31, 2008) to provide coverage of Eni
Insurance Ltd technical reserves. At December 31, 2008, current
financial receivables of euro 173 million referred to a
restricted deposit held by Eni Lasmo Plc as a guarantee of a
debenture.
241
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21 Provisions for contingencies
Provisions for contingencies were as follows:
(euro million) | Value at Dec. 31, 2008 |
Additions |
Changes of estimated expenditures |
Accretion discount |
Reversal of utilized provisions |
Reversal of unutilized provisions |
Other changes |
Value at Dec. 31, 2009 |
||||||||
Provision for site restoration and abandonment | 4,574 | 317 | 212 | (191 | ) | (5 | ) | (110 | ) | 4,797 | ||||||||||
Provision for environmental risks | 1,980 | 280 | (249 | ) | (22 | ) | (53 | ) | 1,936 | |||||||||||
Provision for legal and other proceedings | 812 | 372 | (62 | ) | (39 | ) | 85 | 1,168 | ||||||||||||
Loss adjustments and actuarial provisions for Eni's insurance companies | 404 | 135 | (25 | ) | 514 | |||||||||||||||
Provisions for the supply of goods | 308 | 35 | 10 | 353 | ||||||||||||||||
Provision for taxes | 260 | 46 | (1 | ) | (9 | ) | 296 | |||||||||||||
Provision for losses on investments | 163 | 96 | (39 | ) | (9 | ) | 211 | |||||||||||||
Provision for onerous contracts | 4 | 115 | (26 | ) | (3 | ) | 90 | |||||||||||||
Provision for OIL insurance | 72 | 9 | (1 | ) | (1 | ) | 79 | |||||||||||||
Other (*) | 929 | 306 | 22 | (4 | ) | (298 | ) | (72 | ) | (8 | ) | 875 | ||||||||
9,506 | 1,394 | 339 | 218 | (827 | ) | (179 | ) | (132 | ) | 10,319 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
Provision for site restoration and abandonment of euro 4,797
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 (euro 4,500
million). The increase in the provision for the year amounted to
euro 317 million and was primarily due to changes in the
estimates of future costs made by Eni Petroleum Co Inc (euro 153
million), Eni UK Ltd (euro 76 million) and Eni SpA (euro 51
million). Also an amount of euro 212 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% at December 31, 2008). Other changes of euro 110 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 arose from the translation of financial statements
denominated in currencies other than euro (euro 70 million).
Provision for environmental risks of euro 1,936 million primarily
related to the estimated future costs of remediation in
accordance with existing laws and regulations and the estimated
costs of reclamation and restoration sanctioned by the competent
authorities. It referred mainly to Syndial SpA (euro 1.412
million) and to Refining & Marketing segment (euro 394
million). The increases in the provision of euro 280 million were
primarily related to Syndial SpA (euro 186 million) and the
Refining & Marketing segment (euro 68 million). Decreases for
euro 249 million were related to the reversal of utilized
provisions primarily by the Refining & Marketing segment
(euro 125 million) and Syndial SpA (euro 97 million).
Provision for legal and other proceedings of euro 1,168 million
primarily included charges expected on 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 Enis best
estimate of the expected probable liability and primarily related
to the Gas & Power segment (euro 476 million), Engineering
& Construction segment (euro 278 million), Syndial SpA (euro
220 million), Eni Corporate (euro 79 million) and the
Petrochemical segment (euro 34 million). The increases in the
provision of euro 372 million includes the estimate of a
non-recurring item represented by a charge amounting to euro 250
million that was estimated on the base of the managements
best knowledge of the possible resolution of the TSKJ matter with
US Authorities. The matter is fully disclosed in the 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 Netherland
BV that was controlled by Snamprogetti SpA that was subsequently
divested by the parent company Eni SpA to the subsidiary Saipem.
On the occasion of the divestiture, Eni agreed to indemnify
Saipem of all possible claims that might arise in connection with
Snamprogetti
242
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
involvement in the TSKJ venture. As a result, the future
monetary settlement of the provision will be incurred by Eni SpA
and Saipems minorities will be left unaffected altogether.
Loss adjustments and actuarial provisions for Enis
insurance companies of euro 514 million represented the
liabilities accrued for claims on insurance policies underwritten
by Enis insurance company, Eni Insurance Ltd.
Provisions for the supply of goods for euro 353 million included
the estimated costs of the supply contracts.
Provision for taxes of euro 296 million primarily included
charges for unsettled tax claims in connection with uncertain
applications of the tax regulation for foreign subsidiaries of
the Exploration & Production segment (euro 176 million) and
of the Engineering & Construction segment (euro 66 million).
Provision for losses on investments of euro 211 million was made
with respect to losses from investments in entities incurred to
date, where the losses exceeded the carrying amount of the
investments.
Provision for onerous contracts of euro 90 million related to
contracts for which the termination or execution costs exceed the
relevant benefits.
Provision for OIL insurance cover of euro 79 million included
mutual insurance provision related to future increase of
insurance charges, as a result of accidents that occurred in past
periods that will be paid in the next 5 years by Eni for
participating in the mutual insurance of Oil Insurance Ltd.
22 Provisions for employee benefits
Provisions for employee benefits were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 related to the provisions accrued by Italian companies
for employee termination indemnities ("TFR"),
determined using actuarial techniques and regulated by Article
2120 of the Italian Civil Code.
The indemnity is paid upon retirement as a lump sum payment the
amount of which corresponds to the total of the provisions
accrued during the employees service period based on
payroll costs as revalued until retirement. Following the changes
in regime, starting from January 1, 2007 the amount already then
accrued and future benefits will be put in pension funds or the
treasury fund held by the Italian administration for
post-retirement benefits (INPS). For companies with less than 50
employees, it will be possible to continue the 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 at 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 consisted 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 to 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 for a deferred cash incentive
scheme to managers and certain Jubilee awards. The provision for
the deferred cash incentive scheme is assessed based on the
probability of the company reaching planned targets and employee
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.
243
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The value of employee benefits, estimated by applying actuarial techniques, consisted of the following:
Foreign pension plans | ||
(euro million) | TFR |
|
Gross liability |
|
Plan assets |
|
FISDE |
|
Other benefits |
|
Total |
|
2008 | ||||||||||||||||||
Current value of benefit liabilities and plan assets at beginning of year | 476 | 621 | (362 | ) | 92 | 118 | 945 | |||||||||||
Current cost | 21 | 1 | 48 | 70 | ||||||||||||||
Interest cost | 25 | 28 | 5 | 5 | 63 | |||||||||||||
Expected return on plan assets | (25 | ) | (25 | ) | ||||||||||||||
Employee contributions | (1 | ) | (41 | ) | (42 | ) | ||||||||||||
Actuarial gains (losses) | 8 | (11 | ) | 102 | 3 | 3 | 105 | |||||||||||
Benefits paid | (65 | ) | (25 | ) | 20 | (7 | ) | (7 | ) | (84 | ) | |||||||
Curtailments and settlements | (2 | ) | (2 | ) | ||||||||||||||
Currency translation differences and other changes | (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 | |||||||||||
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 of euro 1.146 million (euro 802 million at December 31, 2008) included the liabilities related to joint ventures operating in exploration and production activities for euro 77 million and euro 62 million at December 31, 2008 and 2009, respectively. A receivable of an amount equivalent to such liability was recorded. Other benefits of euro 188 million (euro 168 million at December 31, 2008) primarily concerned the deferred monetary incentive plan for euro 119 million (euro 107 million at December 31, 2008) and jubilee awards for euro 52 million (euro 47 million at December 31, 2008).
244
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation analysis of benefit obligations and plan assets was as follows:
TFR | Foreign pension plans | FISDE and other foreign medical plans | Other benefits | |||||
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
Dec. 31, 2008 |
Dec. 31, 2009 |
Dec. 31, 2008 |
Dec. 31, 2009 |
Dec. 31, 2008 |
Dec. 31, 2009 |
||||||||
Present value of benefit obligations with plan assets | 610 | 935 | ||||||||||||||||||
Present value of plan assets | (453 | ) | (500 | ) | ||||||||||||||||
Net present value of benefit obligations with plan assets | 157 | 435 | ||||||||||||||||||
Present value of benefit obligations without plan assets | 443 | 447 | 192 | 211 | 94 | 115 | 168 | 188 | ||||||||||||
Actuarial gains (losses) not recognized | 15 | (2 | ) | (126 | ) | (442 | ) | 4 | (6 | ) | ||||||||||
Past service cost not recognized | (2 | ) | ||||||||||||||||||
Net liabilities recognized in provisions for employee benefits | 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 |
|||||
2008 | |||||||||||||||
Current cost | 21 | 1 | 48 | 70 | |||||||||||
Interest cost | 25 | 28 | 5 | 5 | 63 | ||||||||||
Expected return on plan assets | (25 | ) | (25 | ) | |||||||||||
Amortization of actuarial gains (losses) | 1 | 1 | |||||||||||||
Effect of curtailments and settlements | (2 | ) | (2 | ) | |||||||||||
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 |
245
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The main actuarial assumptions used in the evaluation of post-retirement benefit obligations at year end and in the estimate of costs expected for 2010 were as follows:
(%) | TFR |
Foreign pension plans |
FISDE and other foreign medical plans |
Other benefits |
||||
2008 | ||||||||
Discount rate | 6.0 | 3.5-13.0 | 6.0 | 5.2-6.0 | ||||
Expected return rate on plan assets | 4.5-13.0 | |||||||
Rate of compensation increase | 2.7-3.0 | 2.4-13.0 | 2.7-4.0 | |||||
Rate of price inflation | 2.5 | 1.3-11.0 | 2.5 | 2.5 | ||||
2009 | ||||||||
Discount rate | 5.0 | 2.7-11.0 | 5.0 | 2.0-5.0 | ||||
Expected return rate on plan assets | 4.0-13.0 | |||||||
Rate of compensation increase | 3.0 | 2.7-14.0 | 2.7-4.0 | |||||
Rate of price inflation | 2.0 | 0.9-10.0 | 2.0 | 2.0 |
With regards to Italian plans, demographic tables prepared by
Ragioneria Generale dello Stato (RG48) were used. Expected return
rate by plan assets has been determined by reference to quoted
prices expressed in regulated markets.
Plan assets consisted of the following:
(%) | Plan assets |
Expected return |
||
Securities | 10.0 | 6.0-7.5 | ||
Bonds | 27.8 | 2.4-13.0 | ||
Real estate | 2.6 | 6.0-7.5 | ||
Other | 59.6 | 0.5-13.0 | ||
Total | 100.0 |
The effective return of the plan assets amounted to a zero
million (a cost of euro 77 million at December 31, 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 | ) | ||
Impact on net benefit obligation | 14 | (12 | ) |
The amount expected to be accrued to defined benefit plans for 2010 amounted to euro 88 million.
246
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 |
||||
2008 | ||||||||||
Impact on net benefit obligation | 7 | 15 | 3 | 1 | ||||||
Impact on plan assets | (62 | ) | ||||||||
2009 | ||||||||||
Impact on net benefit obligation | (7 | ) | 4 | 3 | 2 | |||||
Impact on plan assets | (16 | ) |
23 Deferred tax liabilities
Deferred tax liabilities were recognized net of offsettable
deferred tax assets for euro 3,764 million (euro 3,468 million at
December 31, 2008).
(euro million) | Value at |
Additions |
Deductions |
Changes in the scope of consolidation |
Currency translation differences |
Other changes |
Value at |
|||||||
5,784 |
631 |
(1,434 |
) | 3 |
(22 |
) | 8 |
4,907 |
Deferred tax assets and liabilities consisted of the following:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Deferred tax liabilities | 9,252 | 8,671 | ||||
Deferred tax assets available for offset | (3,468 | ) | (3,764 | ) | ||
5,784 | 4,907 | |||||
Deferred tax assets not available for offset | (2,912 | ) | (3,558 | ) | ||
2,872 | 1,349 |
247
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The most significant temporary differences giving rise to net deferred tax liabilities were as follows:
(euro million) | Value at |
Additions |
Deductions |
Currency translation differences |
Other changes |
Value at |
||||||
Deferred tax liabilities: | ||||||||||||||||||
- accelerated tax depreciation | 5,366 | 238 | (392 | ) | (6 | ) | (34 | ) | 5,172 | |||||||||
- site restoration and abandonment (tangible assets) | 654 | 59 | (132 | ) | 27 | (59 | ) | 549 | ||||||||||
- capitalized interest expense | 173 | 3 | (15 | ) | (2 | ) | 159 | |||||||||||
- application of the weighted average cost method in evaluation of inventories | 79 | 31 | (91 | ) | 42 | 61 | ||||||||||||
- other | 2,980 | 300 | (804 | ) | (43 | ) | 297 | 2,730 | ||||||||||
9,252 | 631 | (1,434 | ) | (22 | ) | 244 | 8,671 | |||||||||||
Deferred tax assets: | ||||||||||||||||||
- site restoration and abandonment (provisions for contingencies) | (1,572 | ) | (84 | ) | 100 | (8 | ) | 79 | (1,485 | ) | ||||||||
- accruals for impairment losses and provisions for contingencies | (1,397 | ) | (334 | ) | 309 | 32 | (1,390 | ) | ||||||||||
- depreciation and amortization | (910 | ) | (474 | ) | 140 | 33 | 25 | (1,186 | ) | |||||||||
- assets revaluation as per Laws No. 342/2000 and No. 448/2001 | (735 | ) | 58 | (677 | ) | |||||||||||||
- carry-forward tax losses | (57 | ) | (150 | ) | 40 | (7 | ) | (174 | ) | |||||||||
- other | (1,709 | ) | (673 | ) | 431 | 10 | (469 | ) | (2,410 | ) | ||||||||
(6,380 | ) | (1,715 | ) | 1,078 | 28 | (333 | ) | (7,322 | ) | |||||||||
Net deferred tax liabilities | 2,872 | (1,084 | ) | (356 | ) | 6 | (89 | ) | 1,349 |
Deferred tax assets are recognized for deductible temporary
differences to the extent that is probable that sufficient
taxable profit will be available against which part or all of the
deductible temporary differences can be utilized. In the case
future taxable profit is no longer deemed to be sufficient to
absorb all existing deferred tax assets, any surplus is written
off.
Other changes of euro 89 million included the recognition of the
deferred tax effect against equity on the fair value evaluation
of derivatives designated as cash flow hedge for euro 65 million.
Further information on cash flow hedge derivatives is given in
Note 19 Other current liabilities.
Italian taxation law allows the carry-forward of tax losses over
the five subsequent years. Losses suffered in the first three
years of the companys life can, however, be, for the most
part, carried forward indefinitely. Foreign taxation laws allows,
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-forwards tax losses to be utilized equaled
25.8%; this rate equaled on average to 28.2% for foreign
entities.
Carry-forward tax losses of euro 1,532 million can be used in the
following periods:
(euro million) | Italian |
Foreign |
||
2010 | ||||
2011 | 2 | |||
2012 | 1 | |||
2013 | 7 | |||
2014 | 107 | 43 | ||
Beyond 2014 | 64 | 19 | ||
Without limit | 16 | 1,273 | ||
194 | 1,338 |
Carry-forward tax losses of euro 634 million expected to be offset against future taxable profit and were in respect of Italian subsidiaries for euro 194 million and of foreign subsidiaries for euro 440 million. Deferred tax assets recognized on these losses amounted to euro 50 million and euro 124 million, respectively.
248
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
24 Other non-current liabilities
Other non-current liabilities were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
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 | |||
Fair value of derivative contracts was determined by using
market quotations given by primary info-providers, or, in lack of
market information, on the basis of generally accepted methods
for financial valuations.
Fair 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 |
Fair value of non-hedging derivatives of euro 372 million
(euro 564 million at 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 hedge derivatives amounted to euro 436
million (euro 499 million at December 31, 2008) related to
Distrigas NV for euro 275 million (euro 235 million at December
31, 2008) and the Exploration & Production segment for euro
161 million (euro 264 million at December 31, 2008).
Further information on cash flow hedge derivatives is given in
Note 19 Other current liabilities. Fair value of contracts
expiring beyond 2010 is given in Note 14 Other non-current
receivables; fair value of contracts expiring by 2010 is given in
Note 19 Other current liabilities and in Note 7
Other current assets. The effects of the evaluation at the fair
value of cash flow hedge derivatives are given in Note 26
Shareholders equity and in Note 30 Operating
expenses.
The nominal value of these derivatives referred to purchase and
sale commitments for euro 1,544 million and euro 129 million,
respectively (euro 1,878 million and 1,832 million at December
31, 2008).
Information on the hedged risks and the hedging policies is shown
in Note 28 Guarantees, commitments and risks.
The groups liability for current income taxes of euro 52
million (euro 254 million at December 31, 2008) was due as
special tax (with a rate lower than the statutory tax rate),
relating to the option to increase the deductible tax bases of
certain tangible and other assets to their carrying amounts as
permitted by the 2008 Budget Law.
249
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other liabilities of euro 1,566 million (euro 1,730 million at
December 31, 2008) included advances received by Suez following
the long-term supplying of natural gas and electricity of euro
1,455 million (euro 1,552 million at December 31, 2008).
25 Assets held for sale and liabilities directly
associated with assets held for sale
Non-current assets held for sale and liabilities directly
associated with non-current assets held for sale of euro 542
million and euro 276 million mainly related to the divestment of
certain mineral properties in Italy which were contributed in
kind to two newco Società Padana Energia SpA and Società
Adriatica Idrocarburi SpA, to the disposal of Gas Brasiliano
Distribuidora SA, a company operating in the distribution and
marketing of natural gas in an area of São Paulo state in
Brazil, and to Distri RE SA, a company acquired following the
acquisition of Distrigas NV. The disposals to third parties are
under negotiation.
26 Shareholders equity
Minority interest
Profit attributable to minority interest and the minority
interest in certain consolidated subsidiaries related to:
(euro million) | Net profit |
Shareholders equity |
||
2008 |
2009 |
Dec. 31, 2008 |
Dec. 31, 2009 |
|||||
Saipem SpA | 407 | 567 | 1,560 | 2,005 | |||||
Snam Rete Gas SpA | 254 | 369 | 948 | 2 | |||||
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 | 2,412 |
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 setting of the minority interests in Distrigas NV is due to acquisition of the entire share capital of the company through 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 squeeze-out.
Eni shareholders equity
Enis net equity at December 31 was as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Share capital | 4,005 | 4,005 | ||||
Legal reserve | 959 | 959 | ||||
Reserve for treasury shares | 7,187 | 6,757 | ||||
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 | (1,054 | ) | 1,492 | |||
Cumulative currency translation differences | (969 | ) | (1,665 | ) | ||
Treasury shares | (6,757 | ) | (6,757 | ) | ||
Retained earnings | 34,685 | 39,160 | ||||
Interim dividend | (2,359 | ) | (1,811 | ) | ||
Net profit for the period | 8,825 | 4,367 | ||||
44,436 | 46,073 |
250
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Share capital
At December 31, 2009 the parent companys issued share
capital consisted of 4,005,358,876 shares (nominal value euro 1
each) fully paid-up (the same amount at December 31, 2008).
On April 30, 2009 Enis Shareholders Meeting declared
a dividend distribution of euro 0.65 per share, with the
exclusion of treasury shares held at the ex-dividend date, in
full settlement of the 2008 dividend of euro 1.30 per share, of
which euro 0.65 per share paid as interim dividend. The balance
was payable on May 21, 2009 to shareholders on the register on
May 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.
Reserve for treasury shares
The reserve for treasury shares represents the reserve
destined to purchase own shares in accordance with the decisions
of Enis Shareholders Meetings. The amount of euro
6,757 million (euro 7,187 million at December 31, 2008) included
treasury shares purchased. During the year 2009 the company has
not purchased own shares and the term established by Enis
Shareholders Meetings for the purchase has expired. The
residual amount of euro 430 million was taken to Retained
earnings (euro 429 million) and Other reserves (euro 1 million).
Reserve referring to the valuation at fair value of cash
flow hedging derivatives and available-for-sale securities, net
of the related tax
The valuation at 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, 2007 | 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 | |||||||||||||
Changes in the scope of consolidation | (68 | ) | 23 | (45 | ) | (68 | ) | 23 | (45 | ) | |||||||||||||||
Foreign currency translation differences | 48 | (23 | ) | 25 | 48 | (23 | ) | 25 | |||||||||||||||||
Amount recognized in the profit and loss account | 1,005 | (402 | ) | 603 | 1,005 | (402 | ) | 603 | |||||||||||||||||
Reserve as of December 31, 2008 | 5 | (1 | ) | 4 | (236 | ) | 75 | (161 | ) | (231 | ) | 74 | (157 | ) | |||||||||||
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 | ) |
The 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 |
Changes recognized in profit and loss account |
Currency translation differences |
Value at |
||||
(45 |
) | 6 |
1 |
(38 |
) |
251
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other reserves
Other reserves of negative amount were euro 1,492 million (at
December 31, 2008 other reserves of negative amount were euro
1,054 million) and included:
- | a reserve of euro 1,086 million referred to the increase of Enis 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 of euro 247 million referred to the increase of Enis 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 at December 31, 2008); | |
- | a reserve of euro 157 million deriving from Eni SpAs equity (euro 194 million at December 31, 2008); | |
- | a reserve of euro 2 million referred to the share of "Other comprehensive income" on equity-accounted entities; | |
- | at 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
A total of 382,952,240 ordinary shares (382,954,240 at
December 31, 2008) with nominal value of euro 1 each, were held
in treasury, for a total cost of euro 6,757 million (same amount
at December 31, 2008). During the year 2009 the company has not
purchased own shares and the term established by Enis
Shareholders Meetings for the purchase has expired.
19,482,330 treasury shares (23,557,425 at December 31, 2008) at a
cost of euro 414 million (euro 505 million at December 31, 2008)
were available for 2002-2005 and 2006-2008 stock option plans.
The decrease of 4,075,095 shares consisted of the following:
Stock option |
||
Number of shares at December 31, 2008 | 23,557,425 | ||
Rights exercised | (2,000 | ) | |
Rights cancelled | (4,073,095 | ) | |
(4,075,095 | ) | ||
Number of shares at December 31, 2009 | 19,482,330 |
At December 31, 2009, options outstanding were 19,482,330
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 for 229,900 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 for 3,281,500 shares with an exercise price of euro 22.512
per share, to the 2006 stock plan for 3,018,155 shares with an
weighted average exercise price of euro 23.119 per share, to the
2007 stock plan for 5,144,050 with an weighted average exercise
price of euro 27.451 per share and to the 2008 stock plan for
7,040,125 with an exercise price of euro 22.540 per share.
Information about commitments related to stock grant and stock
option plans is included in Note 30 Operating expenses.
Interim dividend
Interim dividend for the year 2009 amounted of euro 1,811
million corresponding to euro 0.50 per share, as decided by the
Board of Directors on September 10, 2009 in accordance with
Article 2433-bis, paragraph 5 of the Italian Civil Code; the
dividend was paid on September 24, 2009.
252
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Distributable reserves
At December 31, 2009 Eni shareholders equity included
distributable reserves for euro 41,100 million.
Reconciliation 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) | 2008 |
2009 |
Dec. 31, 2008 |
Dec. 31, 2009 |
||||
As recorded in Eni SpAs 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 |
253
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27 Other information
On February 4, 2010 Eni formally presented to the
Directorate General for Competition of the European Commission a
set of structural remedies for the conclusion of a legal
proceeding related to some international gas pipelines.
The legal proceeding concerns the Statement of Objections that
Eni received from the European 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 Switzerlands 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 Enis
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 at December 31, 2009, the foreseen
disposals concerns the investments accounted for using the equity
method for euro 210 million, current assets for euro 258 million,
liabilities for euro 98 million of which non-current for euro 8
million, and Groups equity for a total amount of euro 160
million.
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. On March
19, 2009, Eni finalized 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. On May 4, 2009, the
residual 1.14% of the share capital has been acquired 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 the acquisition of control of euro 2,751
million includes euro 12 million related to additional costs
directly attributable to the acquisition. The allocation of the
cost, not including the minority interest, to assets and
liabilities has been made on a preliminary basis at December 31,
2008, and on a definitive basis at December 31, 2009.
Eni 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 transaction of
euro 224 million, allocated to assets and liabilities on a
preliminary basis at December 31, 2008, has been allocated on a
definitive basis at 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
of euro 605 million, of which euro 5 million related to
additional costs directly attributable to the acquisition,
allocated to assets and liabilities on a preliminary basis at
December 31, 2008, has been allocated on a definitive basis at
December 31, 2009.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Enis acquisition of a 27.18% of HOEC as
part of the Burren deal. Total consideration for this transaction
of euro 107 million, not including the minority interest, has
been allocated to assets and liabilities on a preliminary basis
at December 31, 2008, and on a definitive basis at December 31,
2009.
The definitive allocation of the costs of the business
combinations made during the 2008 year consisted of the
following:
(euro million) | Distrigas NV (a) |
Eni Hewett Ltd |
First Calgary Petroleums Ltd |
Hindustan Oil Exploration Co Ltd |
||||
Preliminary allocation
at Dec. 31, |
Definitive allocation |
Preliminary allocation
at Dec. 31, |
Definitive allocation |
Preliminary allocation
at Dec. 31, |
Definitive allocation |
Preliminary allocation
at Dec. 31, |
Definitive allocation |
|||||||||
Current assets | 3,375 | 3,375 | 19 | 20 | 148 | 148 | 115 | 115 | ||||||||
Property, plant and equipment | 30 | 30 | 118 | 118 | 757 | 855 | 199 | 201 | ||||||||
Intangible assets | 1,395 | 1,390 | 208 | 217 | ||||||||||||
Goodwill | 1,245 | 1,248 | 39 | 37 | 88 | 65 | ||||||||||
Investments | 112 | 112 | 1 | 1 | ||||||||||||
Other non-current assets | 203 | 203 | ||||||||||||||
Assets acquired | 6,360 | 6,358 | 384 | 392 | 993 | 1,068 | 315 | 317 | ||||||||
Current liabilities | 1,796 | 1,796 | 17 | 22 | 45 | 82 | 37 | 37 | ||||||||
Deferred tax liabilities | 504 | 502 | 91 | 94 | 108 | 147 | 31 | 33 | ||||||||
Provisions for contingencies | 80 | 80 | 52 | 52 | 6 | 5 | 3 | 3 | ||||||||
Other non-current liabilities | 88 | 88 | 229 | 229 | 17 | 17 | ||||||||||
Liabilities acquired | 2,468 | 2,466 | 160 | 168 | 388 | 463 | 88 | 90 | ||||||||
Minority interest | 1,141 | 1,141 | 120 | 120 | ||||||||||||
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. |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28 Guarantees, commitments and
risks
Guarantees
Guarantees were as follows:
Dec. 31, 2008 |
Dec. 31, 2009 |
|||
(euro million) |
Unsecured guarantees |
Other |
Total |
Unsecured guarantees |
Other |
Total |
||||||
Consolidated subsidiaries | 13,139 | 13,139 | 9,863 | 9,863 | ||||||||
Unconsolidated entities controlled by Eni | 151 | 151 | 146 | 146 | ||||||||
Joint ventures and associates | 6,027 | 1,075 | 7,102 | 6,060 | 1,251 | 7,311 | ||||||
Others | 8 | 245 | 253 | 5 | 266 | 271 | ||||||
6,035 | 14,610 | 20,645 | 6,065 | 11,526 | 17,591 |
Other guarantees issued on behalf of consolidated subsidiaries
of euro 9,863 million (euro 13,139 million at December 31, 2008)
primarily consisted of: (i) guarantees given to third parties
relating to bid bonds and performance bonds for euro 6,091
million (euro 7,004 million at December 31, 2008), of which euro
4,936 million related to the Engineering & Construction
segment (euro 5,965 million at December 31, 2008); (ii) VAT
recoverable from tax authorities for euro 1,171 million (euro
1,248 million at December 31, 2008); (iii) insurance risk for
euro 253 million reinsured by Eni (euro 257 million at December
31, 2008). At December 31, 2008 the underlying commitment covered
by such guarantees was euro 9,783 million (euro 10,202 million at
December 31, 2008).
Other guarantees issued on behalf of unconsolidated subsidiaries
of euro 146 million (euro 151 million at December 31, 2008)
consisted of letters of patronage and other guarantees issued to
commissioning entities relating to bid bonds and performance
bonds for euro 141 million (euro 146 million at December 31,
2008). At December 31, 2009, the underlying commitment covered by
such guarantees was euro 64 million (euro 79 million at December
31, 2008).
Unsecured guarantees and other guarantees issued on behalf of
joint ventures and associates of euro 7,311 million (euro 7,102
million at December 31, 2008) primarily concerned: (i) an
unsecured guarantee of euro 6,037 million (euro 6,001 million at
December 31, 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
lAlta Velocità) Uno; consortium members, excluding
unconsolidated entities controlled by Eni, gave Eni liability of
surety letters and bank guarantees amounting to 10% of their
respective portion of the work; (ii) unsecured guarantees,
letters of patronage and other guarantees given to banks in
relation to loans and lines of credit received for euro 971
million (euro 871 million at December 31, 2008), of which euro
692 million related to a contract released by Eni SpA on behalf
of Blue Stream Pipeline Co BV (Eni 50%) to a consortium of
international financial institutions (euro 716 million at
December 31, 2008); (iii) unsecured guarantees and other
guarantees given to commissioning entities relating to bid bonds
and performance bonds for euro 126 million (euro 107 million at
December 31, 2008). The guarantees, that were issued on behalf of
Eni Gas & Power Belgium SA related to the Share Purchase
Agreement with Suez-Tractebel SA for the acquisition of a 57.24%
majority stake in Distrigas NV (euro 2,739 million), expired
during 2009. At December 31, 2009, the underlying commitment
covered by such guarantees was euro 814 million (euro 983 million
at December 31, 2008).
Unsecured and other guarantees given on behalf of third parties
of euro 271 million (euro 253 million at December 31, 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
commitments of fees in connection with the re-gasification
activity. The expected commitment has been valued at euro 206
million (euro 223 million at December 31, 2008) and it has
included in the off-balance sheet commitments of the following
paragraph "Liquidity risk"; (ii) guarantees issued by
Eni SpA to banks and other financial institutions in relation to
loans and lines of credit for euro 23 million on behalf of minor
investments or companies sold (euro 19 million at December 31,
2008).
At December 31, 2009 the underlying commitment covered by such
guarantees was euro 266 million (euro 232 million at December 31,
2008).
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Commitments and contingencies
Commitments and contingencies were as follows:
(euro million) | Dec. 31, 2008 |
Dec. 31, 2009 |
||
Commitments | 13,382 | 16,668 | ||
Risks | 1,660 | 1,277 | ||
15,042 | 17,945 | |||
Other commitments of euro 16,668 million (euro 13,382 million
at December 31, 2008) were essentially related to: (i) parent
company guarantees that were issued in connection with certain
contractual commitments for hydrocarbon exploration and
production activities and quantified, on the basis of the capital
expenditures to be incurred, to euro 10,302 million (euro 10,585
million at 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 in a period included between 2011-2032. The expected
commitment has been valued at euro 3,941 million and it has
included in the off-balance sheet commitments of 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
Pescagoulas 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 at December 31, 2008) and it
has included in the off-balance sheet commitments of 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 at December 31, 2008) and it has included in the
off-balance sheet commitments of the following paragraph
"Liquidity risk"; (v) a memorandum of intent signed
with the Basilicata Region, whereby Eni has agreed to invest euro
150 million in the future, also on account of Shell Italia
E&P SpA, in connection with Enis development plan of
oil fields in Val dAgri (euro 180 million at December 31,
2008). The commitment has included in the off-balance sheet
commitments of 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
at December 31, 2008) and it has included in the off-balance
sheet commitments of the following paragraph "Liquidity
risk".
Risks of euro 1,277 million (euro 1,660 million at December 31,
2008) primarily concerned potential risks associated with the
value of assets of third parties under the custody of Eni for
euro 899 million (euro 1,273 million at December 31, 2008) and
contractual assurances given to acquirers of certain investments
and businesses of Eni for euro 378 million (euro 387 million at
December 31, 2008).
Non-quantifiable commitments
Under the convention signed on October 15, 1991 by Treno Alta
Velocità - TAV SpA and CEPAV (Consorzio Eni per lAlta
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
Enis 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
Enis 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) the market risk deriving from
exposure to fluctuations in interest rates, foreign currency
exchange rates and commodity prices; (ii) the credit risk
deriving from the possible default of a counterparty; (iii) the
liquidity risk
257
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
deriving from the risk that suitable sources of funding for
the Groups operations may not be available; (iv) the
country risk in the upstream business; (v) the operational risk;
(vi) the possible evolution of the Italian gas market; (vii) the
specific risks deriving 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 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 Groups 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 on
separate entities: the parent companys (Eni SpA) finance
department, Eni Coordination Center and Banque Eni which is
subject to certain bank regulatory restrictions preventing the
Groups exposure to concentrations of credit risk and Eni
Trading & Shipping that has the mandate to manage and monitor
solely commodity derivative contracts. In particular Eni SpA and
Eni Coordination Center manage subsidiaries financing
requirements in and outside 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 Enis 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 Groups activity, i.e., potential gain or loss in
fair values, due to changes in market conditions taking account
of the correlation existing among changes in fair value of
existing instruments. Enis finance departments define
maximum tolerable levels of risk exposure to changes in interest
rates and foreign currency exchange rates, pooling Group
companies risk positions. Enis 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. Enis guidelines prescribe that Enis Group
companies minimize such kinds of market risks. With regard to the
commodity risk, Enis policies and guidelines define rules
to manage this risk aiming at the optimization of core activities
and the pursuing of preset targets of industrial margins. The
maximum tolerable level of risk exposure is pre-defined in terms
of value-at-risk in connection with trading and commercial
activities, while the strategic risk exposure to commodity prices
fluctuations i.e. the impact on the Groups business
results deriving from changes in commodity prices is
monitored in terms of value-at-risk, albeit not hedged in a
systematic way. Accordingly, Eni evaluates the opportunity to
mitigate its commodity risk exposure by entering into hedging
transactions in view of certain acquisition deals of oil and gas
reserves as part of the Groups 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 Enis
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 single
transactions 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 Groups reported results and net equity
as financial statements of subsidiaries denominated in currencies
other than the euro are translated from their functional
258
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
currency into euro (translation risk). Generally, an appreciation of the U.S. dollar versus the euro has a positive impact on Enis results of operations, and vice versa. Enis 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 Enis central finance departments which match opposite positions within Group companies, hedging the Group net exposure through the use of certain derivatives, such as currency swaps, forwards and options. Such derivatives are evaluated at fair value on the basis of market prices provided by specialized sources. Changes in fair value of those derivatives are normally recognized 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 exposure arising from possible future changes in market values over a 24-hour period within a 99% confidence level and a 20-day holding period.
Interest rate risk
Changes in interest rates affect the market value of
financial assets and liabilities of the company and the level of
finance charges. Enis interest rate risk management policy
is to minimize risk with the aim to achieve financial structure
objectives defined and approved in the managements finance
plans. Borrowing requirements of the Groups companies are
pooled by the Groups central finance department in order to
manage net positions and the funding of portfolio developments
consistently with managements plans while maintaining a
level of risk exposure within prescribed limits. Eni enters into
interest rate derivative transactions, in particular interest
rate swaps, to effectively manage the balance between fixed and
floating rate debt. Such derivatives are evaluated 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
Enis 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 Enis 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 and
NYMEX (futures) and derivatives traded over the counter (swaps,
forward, contracts for differences and options) with the
underlying commodities being crude oil, refined products or
electricity. Such derivatives are evaluated 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
deriving from commodity exposure is measured daily on the basis
of a historical simulation technique, with a 95% confidence level
and a one-day holding period. The following table shows amounts
in terms of value at risk, recorded in 2009 (compared with 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.
(Exchange and interest rate: Value at Risk - Parametric method variance/covariance; holding period: 20 days; confidence level: 99%)
2008 | 2009 | |||
(euro million) | High | Low | Avg | At period end | High | Low | Avg | At period end |
Interest rate | 12.31 | 0.73 | 4.17 | 6.54 | 6.85 | 1.65 | 3.35 | 1.98 | ||||||||
Exchange rate | 1.48 | 0.09 | 0.48 | 0.47 | 1.22 | 0.07 | 0.35 | 0.31 |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Commodity risk: Value at Risk - Historic simulation method; holding period: 1 day; confidence level: 95%)
2008 | 2009 | |||
($ million) | High | Low | Avg | At period end | High | Low | Avg | At period end |
Area oil, products | 46.48 | 3.44 | 19.88 | 5.43 | 37.51 | 4.74 | 17.65 | 6.64 | ||||||||
Area Gas & Power (*) | 67.04 | 24.38 | 43.53 | 32.07 | 51.62 | 28.01 | 40.97 | 38.26 |
(*) | In 2008, amounts relating to the Gas & Power business also include Distrigas' contribution, since the 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
manages differently credit risk 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
assessment 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 who is
accordingly allocated to its proper risk category. The Group risk
categories are comparable to those prepared by the main rating
agencies on the marketplace. The Groups 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 counterpartys
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 Companys Board of
Directors taking into accounts the credit ratings provided by
primary credit rating agencies on the marketplace. Credit risk
arising from financial counterparties is managed by the Group
central finance departments, including Enis 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 been selected 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. As of December 31, 2009, Eni
had no significant concentrations 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 assets on the market place as to be unable to meet
short-term finance requirements and to settle obligations. Such a
situation would negatively impact Group 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 Groups needs
optimizing the opportunity cost of maintaining liquidity reserves
also achieving an efficient balance in terms of maturity and
composition of finance debt. The Group capital structure is set
according to the Companys industrial targets and within the
limits established by the
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Companys Board of Directors who are responsible for
prescribing the maximum ratio of debt to total equity and minimum
ratio of medium and long term debt to total debt as well as fixed
rate medium and long term debt to total medium and long 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 Enis financial planning have
enabled the Group to maintain access to the credit market
particularly via the issue of commercial paper also targeting to
increase the flexibility of funding facilities. In particular in
2009, Eni issued bonds addressed to institutional investor and to
the retail market for euro 3 billion and euro 2 billion,
respectively. The above mentioned actions aimed at ensuring
availability of suitable sources of funding to fulfill short term
commitments and due obligations also preserving the necessary
financial flexibility to support the Groups 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, 2009, Eni maintained short term committed and
uncommitted unused borrowing facilities of euro 11,774 million,
of which euro 2,241 million were committed, and long term
committed unused borrowing facilities of euro 2,850 million.
These facilities were under interest rates that reflected market
conditions. Fees charged for unused facilities were not
significant.
Eni has in place a program for the issuance of Euro Medium Term
Notes up to euro 15 billion, of which euro 9,211 million were
drawn as of December 31, 2009.
The Group has debt ratings of AA- and A-1+ respectively for long
(outlook negative) and short-term debt assigned by Standard &
Poors and Aa2 and P-1 (outlook negative) assigned by
Moodys.
The tables below summarize the Group main contractual obligations
for finance debt repayments, including expected payments for
interest charges, and trade and other payables maturities.
Finance debt
Maturity year |
||
(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 |
Trade and other payables
Maturity year |
||
(euro million) | 2010 |
|
2011-2014 |
|
2015 and thereafter |
|
Total |
|
Trade payables | 10,078 | 10,078 | ||||||
Advances, other payables | 9,096 | 31 | 23 | 9,150 | ||||
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 the business. To meet these commitments, the Group will have to make payments to third parties. The Companys 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 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 Companys 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.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes the Group principal contractual obligations as of the balance sheet date, shown on an undiscounted basis.
Expected payments by period under contractual obligations and commercial commitments
Maturity year |
||
(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 | 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 | 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 (4) | 151 | 94 | 116 | 115 | 115 | 1,894 | 2,485 | |||||||
Other obligations | 21 | 4 | 3 | 3 | 3 | 152 | 186 | |||||||
of which: | ||||||||||||||
- Memorandum of intent relating Val dAgri | 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 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) | Mainly refers to arrangements to purchase capacity entitlements at certain re-gasification facilities in the U.S. |
The table below summarizes Enis capital expenditure commitments for property, plant and equipment and capital projects at December 31, 2009. Capital expenditures are considered to be committed when the project has received the appropriate level of internal management approval. Such costs are included in the amounts shown.
Capital expenditure commitments
Maturity year |
||
(euro million) | 2010 |
2011 |
2012 |
2013 |
2014 and subsequent years |
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 Enis hydrocarbons reserves are
located in countries outside the EU and North America, certain of
which may be politically or economically less stable than EU or
North American. At December 31, 2009, approximately 80% of
Enis proved hydrocarbons reserves were located in such
countries. Similarly, a substantial portion of Enis natural
gas supplies comes from countries outside the EU and North
America. In 2009, approximately 60% of Enis domestic supply
of natural gas came from such countries. Developments in the
political framework, economic crisis, social unrest can
compromise temporarily or permanently Enis ability to
operate or to economically operate in such countries, and to have
access to oil and gas reserves. Further risks associated with
activities in those 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
Enis titles and mineral assets, changes in unilateral
contractual clauses reducing the value of Enis assets;
(iii) restrictions on exploration, production, imports and
exports; (iv) tax or royalty increases; (v) civil and social
unrest leading to sabotages, acts of violence and incidents.
While the occurrence of these events is unpredictable, it is
possible that they can have a material adverse impact on
Enis 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 countrys 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
framework, mainly regarding tax issues, have been implemented or announced also in EU countries and in North America.
Operational risk
Enis business activities conducted in and
outside Italy 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
safety on 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 Enis 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 groups results of
operations or financial position in future years. Recently
enacted regulations on safety and health in the workplace in
Italy (D.Lgs. 81/2008 and D.Lgs. 106/2009) impose a new array of
obligations to the Company operations, particularly regarding
contractors. New regulations 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 Enis employees, the populations involved in its
activity, contractors and clients, and the environment and being
in compliance with local and international rules and regulations.
Enis 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 is
performed through the adoption of procedures and effective
pollution management systems tailored to the peculiarities of
each business and industrial site and on steady enhancement of
plants and process. Additionally, coding activities and
procedures on operating phases allow to reduce the human
component in the plant risk management. Operating emergencies
that may have an adverse impact on assets, people and the
environment are managed by the business units for each site.
These units manage the HSE risk in 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 of Crisis 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
Enis Model of HSE operations in all the Division 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 cycle
(Deming cycle).
Eni is reaching the goal of total certification of its plants.
Industrial and commercial sites of the R&M segment have been
certified as ISO 14001, and six of them are EMAS certified; in
the petrochemical segment facilities are 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 three levels: HSE Corporate, HSE business
unit and at site level consisting of:
- | internal audits of management systems (performed by Eni employees or external consultants); |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- | 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); |
- | 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 to its HSE staff in order to:
- | promote the execution of behaviors consistent with guidelines; | |
- | drive peoples learning growth process by developing professionalism, management and corporate culture; | |
- | support management knowledge and control of HSE risks. |
Possible evolution of the Italian gas market
Risks 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). 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 form
Algeria and Russia by 13 bcm per year, with new capacity entirely
sold to third parties. A new LNG terminal with a capacity of 8
bcm per year 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.
In this context, Enis 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 own gas
availability by selling it on European markets.
The outlook for European gas demand is uncertain as GDP growth in
the EU 27 Countries will remain weak over the next few years and
gas demand is expected to recover only gradually to pre-crisis
levels. In addition, ongoing patterns towards energy preservation
and rising competition from renewable or alternative sources of
energy will further limit 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, also known as
"PEE 20-20-20", includes a commitment to reduce
greenhouse gas (GHG) emissions by 20% by 2020 (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. These
demand trends associated with ample gas availability on the
marketplace will likely result in a negative impact on the
Companys results of operations and cash flow in its gas
marketing business over the next few years.
Current, negative trends in gas demands and supplies may
impair the Companys 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 the 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 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 pre-payments 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. 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, the right 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 percentage that complements 100, based on
the arithmetical average of monthly base prices in place in the
year of actual 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 possible
evolution of sector-specific regulation, represent risks factors
to the Companys 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.
In addition, there also exists 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 selling margins,
results of operations and cash flow may be negatively affected.
Based on managements 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 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 IAS37.
In the medium term Eni intends to preserve the profitability and
cash flow generation of the 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; | |
- | 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 Enis activities, as
the company is engaged in all the phases of the natural gas
chain. The opening to competition was achieved through the
enactment of certain antitrust thresholds on volumes input into
the national transport network and on volumes sold to final
customers. These enabled new competitors to enter the Italian gas
market, resulting in declining selling margins on gas. Other
material aspects regarding the Italian gas sector regulations are
the regulated access to natural gas infrastructure (transport
backbones, storage
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
fields, distribution networks and LNG terminals), 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 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.
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 at December 31, 2002 as defined by Legislative Decree
No. 164/2000) taking into account the public goal of containing
the inflationary pressure due to rising energy costs.
Accordingly, decisions of the Authority on these matters may
limit the ability of Eni to pass an increase in the cost of fuels
onto final consumers of natural gas. 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 a new indexation mechanism of the raw material cost
component. This indexation mechanism has been recently updated
based on Resolution 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 Company 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 of 6.5 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 this rule. The
Authority has subsequently established with a set of deliberation
that energy companies have to adopt effective operational and
monitoring systems in order to prevent unlawful increases of
final prices of gas.
Other risk factors and uncertainties deriving from the regulatory
framework are associated with the regulation of the access to the
Italian gas transport network that is currently set by Decision
No. 137 of July 17, 2002 of the Authority for Electricity and
Gas. The decision is fully incorporated into the network code
presently in force as prepared by the systems 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,
are entitled to a priority in allocating available transport
capacity within the limit 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 for capacity
assignments. The ability of Eni to collect gas volumes exceeding
average daily volumes as provided by its take-or-pay supply
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 sets 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 Directive 03/55/CE. The Company
based on that belief 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 Companys 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 the
access to the network, also in case a 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.
Further uncertainty factors related to the regulatory 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
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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 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 (PSV) for a total of 5 billion cubic meters of gas
in yearly and half-yearly amounts. Although the allotment
procedure (bids) was based on a minimum price set by the Ministry
for Economic Development as proposed by the AEEG (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 AEEG (in a
report to the Parliament on the situation of the gas and
electricity market in Italy), Eni cannot exclude the possibility
that new gas release programs be imposed on it.
Specific risks associated with exploration and production
of oil and natural gas
Exploration and production of oil and natural gas requires
high levels of capital expenditure and entails particular
economic risks. It is subject to natural hazards and 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 commissioning relating 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 Enis planned and
ongoing projects is located.
Risks associated with the cyclicality of the oil and gas
sector
The global economic downturn and the associated reduction in
industrial output recorded in 2008 and for most of 2009 triggered
a sharp decline in worldwide demand for energy, resulting in
significantly lower commodity prices.
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 the sustainability
of capital plans of oil and gas 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 managements 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 the planned rates of return.
Eni plans to invest euro 52.8 billion in the 2010-2013 four-year
period, at the Companys long-term price for Brent crude of
65 $/bbl (in real terms 2013). Of these, 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 division, Enis 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 Companys 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.
For more information see the specific risk paragraph in the
"Operating Review" of the Gas & Power section in
this annual report.
The Refining & Marketing and the Petrochemical divisions 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, Enis management does not expect any appreciable
recovery in the main trends that negatively affected the
performances of these businesses last year. In 2009 Enis
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
Enis complex refineries. Secondly, the industry continued
to be plagued by weak fundamentals due to excess capacity, high
inventory levels and stagnant demand affecting end-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 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 division, management has been pursuing a
number of initiatives designed to reduce fixed operating expenses
and to realign the industrial set-up of Enis petrochemical
operations with a view of enhancing areas of competitive
advantage. In spite of all this, the achievement of the operating
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 this market. The start of operations of new distinctive
assets in 2010 and 2011 coupled with the size and quality
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of the backlog and the strong operating performance on projects, underpin expectations for a further significant strengthening of Saipems competitive position in the medium term.
Other information about financial instruments
The carrying amount of financial instruments and relevant
economic effect for the year 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 | ) | (26 | ) | 45 | ||||||||||
Held-to-maturity financial instruments | |||||||||||||||||
Securities (b) | 50 | 2 | 36 | 1 | |||||||||||||
Available-for-sale financial instruments | |||||||||||||||||
Securities (b) | 495 | 19 | 3 | 348 | 13 | 1 | |||||||||||
Receivables and payables and other assets/liabilities valued at amortized cost | |||||||||||||||||
Trade and receivables and other (c) | 22,446 | (254 | ) | 20,348 | (361 | ) | |||||||||||
Financing receivables (b) | 1,908 | 117 | 1,637 | 72 | |||||||||||||
Trade payables and other (d) | 20,570 | (53 | ) | 19,174 | (48 | ) | |||||||||||
Financing payables (b) | 20,837 | (607 | ) | 24,800 | (552 | ) | |||||||||||
Assets at fair value through profit or loss (fair value option) | |||||||||||||||||
Investments (b) | 2,741 | 241 | 163 | ||||||||||||||
Net liabilities for hedging derivatives (e) | 280 | 1,012 | 964 | 751 | 161 | (636 | ) |
(a) | In 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 expense were recognized in the profit and loss account within "Finance income (expense)". | |
(c) | In the profit and loss account, essentially impairments were recognized within "Purchase, services and other" for euro 427 million (euro 385 million at 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 euro 66 million (euro 131 million at December 31, 2009). | |
(d) | In the profit and loss account, primarily exchange differences arising from accounts denominated in foreign currency and translated into euro at year-end were recognized within "Finance income (expense)". | |
(e) | Income or expense 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; | |
(b) | Level 2: measurements based on the basis of inputs, other than quoted prices above, which, for assets and liabilities which 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 statement of financial position at 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.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Enis 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. Environment
1.1 Criminal proceedings
ENI SPA
(i) Subsidence. The Court of Rovigo conducted investigations
concerning a subsidence phenomenon allegedly caused by
hydrocarbon exploration and extraction activities in the Ravenna
and North Adriatic area both on land and in the sea. Eni
appointed an independent and interdisciplinary scientific
commission, composed of prominent and highly qualified
international experts of subsidence caused by hydrocarbon
exploration and extraction activities, with the aim of verifying
the magnitude and effects and any actions appropriate to reduce
or to neutralize any subsidence phenomenon in the area. This
commission produced a study which excludes the possibility of any
risk to human health or damage to the environment. The study also
states that worldwide there are no instances of accidents of harm
to public safety caused by subsidence induced by hydrocarbon
production. It also shows that Eni employs the most advanced
techniques for monitoring, measuring and controlling the soil.
This proceeding is in the first level hearing stage. The Veneto
Region, other local bodies and two private entities have been
acting as plaintiffs. Eni was admitted as a defendant. At the end
of the renewed preliminary investigations the Court of Ravenna
requested the closing of the proceeding. According to press news
a number of plaintiffs would file appeals against this decision.
(ii) Alleged 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 of 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 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. In December 10, 2009 the appraisers appointed by the Court filed their report. In January 21, 2010 the Court of Caltanissetta pronounced acquittal sentence for all the defendants.
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(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 the 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, has been scheduled for February 26, 2010. In the meanwhile in February 5, 2010, the Court of Siracusa following the exception of inadmissibility issued by the defendants, admitted as plaintiff 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 - 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 Companys subsidiaries AgipPetroli SpA (now merged into the parent company Eni SpA in the Refining & Marketing division), Syndial and Polimeri Europa. Probes on technical issues required by the Prosecutor were finalized in October 15, 2009. In February 25, 2010 the technical 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 spill over made in the period prior to 2001 and not subsequent to 2005; the equipments still operating on the site represent another source of risk, in particular the ones owned by another operator. According to the findings of this report the defense of Syndial, Polimeri Europa and Eni SpA (Refining & Marketing division) will file a defensive memorandum to request the dismissal of the proceeding.
SYNDIAL SPA
(vii) Porto 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 Companys fully-owned subsidiary Syndial. The charge
involves environmental damage and poisoning of water and stuff
destined to feeding. In the preliminary hearing of 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 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 in 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
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Fratelli Polese Snc. The judge also requested that Syndial SpA, Polimeri Europa SpA, Ineos Vinylis and Sasol Italy SpA would stand in trial. The proceeding continues for the constitution as defendants of the said parts.
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 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.
Negotiations between the parts for the quantification of the
environmental damage (relating only 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. EVC Italia and Ineos presented an action to be indemnified by Enis Group companies in case the alleged pollution is proved. The Province 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 been made lacking of probations for the damage and based on evidence that allowed the Court of First and Second Instance to disclaim EniChem of any responsibility through definitive sentence. In the hearing of October 16, 2009, scheduled to review the technical appraisal, the Court declared the interruption of the proceeding because in the meanwhile Vinylis Italia had undergone a 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 - Prosecuting Bodies: the Council of Ministers, 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 the operations of Pertusola Sud SpA (merged in EniChem, now Syndial) in the Crotone site. This first degree proceeding was generated in January 2008 by the unification of two different actions, the first brought by Calabria Region in October 2004, the second one by the council of Ministers, the Ministry for the environment and the Delegated Commissioner for Environmental Emergency in the Calabria Region commenced in 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 environmental damage, 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 for the 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
appraisers 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,
and an 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 own technical advice that, based on what the Company
believes to be well-founded circumstances, vigorously object the
independent appraisers findings filed by the Ministry for
the 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 and technically inadequate. On October 7,
2009 was filed an independent appraiser report 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 in a
further independent appraiser report. The findings of the
independent appraisers are substantially in line with the issues
expressed by Syndial on the measures for the environmental
remediation and clean-up, based on a risk analysis aimed to
define effective end 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
clean-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
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 to the
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 been
scheduled for April 13, 2010, as it has been assigned to another
judge.
In order to arrange for a possible resolution of all
environmental claims, in 2007 Enis 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, Enis 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
Enis subsidiary believes to have no responsibility for the
environmental damage considering the limited period during which
it conducted industrial activities in the site 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 of the environmental provision related
to the clean-up
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
project to euro 257 million. The provision doesnt 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 Crotone presented a first claim for 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. The appeal against that decision is pending. The claims made in this first instance are substantially absorbed in the two subsequent proceedings.
(iv) Summon for alleged environmental damage caused by DDT
pollution in the Lake 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. On occasion of the 2008 consolidated
financial statements, management confirmed its stance of making
no loss provision for this proceeding on the basis of the
abovementioned technical legal advice, in concert with external
consultants on accounting principles. In July 2009, Enis
subsidiary Syndial filed an appeal against the abovementioned
sentence, also requesting suspension of the sentence
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 of euro 1,900
million or alternatively euro 1,300 million in addition to the
amount assessed by the First Degree Court. In the hearing of
December 11, 2009 the Second Instance Court considering the
modification of Environmental Damage regulation introduced by the
Article 5 of the Law Decree 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
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 Syndials
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 has been approved
by all interested parties, including the Ministry and local
municipalities pursuant to the statement of 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 hasnt 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
Enis subsidiary is condemned to pay with regard to civil
proceeding pending before the second instance court of Turin.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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 unavoidable environmental damage (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 expert charged by the judge was filed with the Court. The findings of this report quantify the residual environmental damage at euro 15 million. With a sentence of March 2008, the Court of Genova rejected all claims made by the Municipality of Carrara and the Ministry of environment. Both plaintiffs filed an appeal against this decision in June 2008 confirming the requests issued in the first judgment degree. 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 prescribed 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 and 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. The 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 with the
sentence No. 1254/2007 annulled the 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 with the Administrative Council of the
Sicily Region which accepted the claim. The recommendations which
the Councils 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 Ministrys
acts.
In January 2008 the Regional Court of Catania accepted further
claims on this matter. 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 Council of the Sicily region, without a
resolution of the issue of suspending the effectiveness of the
Regional Courts 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
Justice of the European community.
In April 2008, the Eni companies challenged certain
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 of
March 6, 2008 (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 of EU to decide on the correct
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
application of the community principle, that represent the
basis for the all appeals decision particularly the
principles of the liability 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 an environmental damage. On March 9, 2010 the European
Court gave a sentence that basically represented a favorable
outcome for Enis subsidiaries involved in the matter.
Specifically, the European Court confirmed the community
principle of the 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. The technical assessment disposed by the Public
Prosecutor generated the following outcomes: a) no public health
risk in the Augusta harbor; b) absence of 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
(vii) Reorganization procedure of the airlines companies Volare
Group, Volare Airlines and Air Europe - Prosecuting body:
Delegated Commissioner. On March 2009 Eni and its subsidiary
Sofid (now Eni Adfin) were notified of 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
Eni 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
46 million plus interest. Eni and Eni Adfin were admitted as
defendants and the trial has been postponed to the hearing of May
5, 2010 for the related investigation. Eni accrued a risk
provision with respect to this proceeding.
2. Other judicial or arbitration proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
(i) Serfactoring: disposal of receivables. In 1991,
Agrifactoring SpA commenced proceedings against Serfactoring SpA.
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 and
Terni Industrie Chimiche SpA (both merged into Syndial). 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, claiming for the
reimbursement of the amount paid to Serfactoring and not
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 counterclaims was subsequently reduced to euro 46 million
following partial payment of the original receivables by the
liquidator of Federconsorzi and various setoffs. These
proceedings, which were unitized, were decided with a partial
judgment, deposited on February 24, 2004; the request of
Agrifactoring that was reduced by an independent
accounting consultant to the amount of euro 42.3 million
was rejected and the company was ordered to pay the sum requested
by Serfactoring and Syndial to be determined following the
decision. Agrifactoring appealed this decision and in 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
Agrifactoring the sum paid by the latter to the former and not
refunded
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by Federconsorzi. The Court resolved to charge an independent
accounting consultant with quantifying the total amount paid by
Agrifactoring to Serfactoring and the amount paid by
Federconsorzi to Agrifactoring in order to determine the sum to
be reimbursed to Agrifactoring.
The proceeding will continue with the recognition of the
assessment made by the independent accounting consultant.
Serfactoring and Syndial (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 the declaration of inadmissibility or
the rejection of the appeal.. The judgment is still pending. Eni
accrued a provision with respect to this proceeding.
SAIPEM SPA
(ii) CEPAV Uno and CEPAV Due. Saipem 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, 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, commenced in December 28, 2000, 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
Consortiums right to recover the costs incurred in
connection with the design activities performed. The technical
independent survey to assess the amount of compensation was
submitted on October 19, 2009. The trial ended in February 23,
2010 with the resolution of the arbitration that condemned TAV to
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 arbitration until the date 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. TAV filed with
the second instance court of Rome an appeal against the partial
arbitration committees 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. 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 to determinate the damages suffered by the Consortium even
in the period prior to the revocation of the concession through
an independent appraiser report. The deadline for the submission
of the arbitration determination has been scheduled for December
31, 2010.
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3. Antitrust, EU Proceedings, Actions of the Authority for Electricity and Gas and of Other Regulatory Authorities
3.1 Antitrust
(i) Abuse of dominant position of Snam alleged by the Italian Antitrust Authority. In March 1999, the Italian Antitrust Authority concluded its investigation started in 1997 and: (i) found that Snam SpA (merged in Eni SpA in 2002) abused its dominant position in the market for the transportation and primary distribution of natural gas relating to the transportation and distribution tariffs applied to third parties and the access of third parties to infrastructure; (ii) fined Snam for euro 2 million; and (iii) ordered a review of the practices relating to such abuses. Snam believes it has complied with existing legislation and appealed the decision with the Regional Administrative Court of Lazio requesting its suspension. On May 26, 1999, stating that these decisions are against Law No. 9/1991 and the European Directive 98/30/EC, this Court granted the suspension of the decision. The Authority did not appeal this decision. The decision on the merit of this dispute is still pending before the same Administrative Court.
(ii) European Commissions investigations on players active in the natural gas sector. In the context of its initiatives aimed at verifying the level of competition in the natural gas sector within the European Union, the Commission adopted a decision notified to Eni on May 2006 whereby it ordered Eni and all companies solely or jointly controlled by the latter to submit to inspections pursuant to Article 20, paragraph 4 of the Council Regulation No. 1/2003. The inspections were intended to verify the possible existence of behaviors or commercial practices violating EC competition rules and aimed at limiting access to the Italian wholesale natural gas market or at sharing the market with other companies active in the sale or transport of natural gas. The Commission undertook similar initiatives with respect to the other largest European players in the natural gas sector in Germany, France, Austria and Belgium. On March 9, 2009, Eni received by the European Commission a statement of objections relating to a proceeding under Article 82 EC and Article 54 of the EEA Agreement and concerning an alleged unjustified refusal to grant access to the TAG (Austria), TENP/Transitgas (Germany/Switzerland) pipelines, connected with the Italian gas transport system. In particular, according to the Statement of Objections, the alleged refusal to grant access would have been carried out through "capacity hoarding, capacity degradation and strategic underinvestment" and would have had the effect of "hindering the development of effective competition in the downstream market and [...] harming consumers". In the Statement 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 Enis 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 of 2010. Eni would in any event be entitled to file an appeal for the annulment of such a sentence before the EC Courts.
(iii) 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 Enis behavior pertaining to
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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 Enis 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 Enis claim, annulling such part of the Authoritys 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 Enis claim and cancelled the quantification of the fine based on the Antitrust Authoritys 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.
(iv) Italian Antitrust Authoritys inquiry in the distribution and selling of gas in the retail sector. On May 7, 2009, the Italian Antitrust Authority, based on complaints sent by the company Sorgenia, started a preliminary investigation against various operators engaging in the gas retail market in 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 retail customers consuming less than 200,000 cm/y to change the supplier. According the Authority, these commercial practices would enable selling companies that belong to integrated group companies to preserve their market shares in the areas operated by groups distributors. The deadline for the finalization of the preliminary investigation against Eni and Italgas has been actually scheduled for June 30, 2010.
ENI SPA, POLIMERI EUROPA SPA AND SYNDIAL SPA
(v) Inquiries in relation to alleged anti-competitive agreements
in the area of 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, a proceeding is still
pending before the European Commission regarding the NBR product.
In December 2007, the European Commission dismissed
Syndials 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
competition 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. The hearings took place in October 2009 and the filing of
the Courts 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. The Court
of Milan declared the appeal inadmissible appealing against a
sentence of the District Court of Milan; the related hearing has
been scheduled on May, 2010.
3.2 Regulation
(i) Toscana Energia Clienti SpA. Enis 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 customers 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Enis 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) Distribudora de Gas Cuyana SA. Formal investigation of the agency entrusted with the regulations for the natural gas market in Argentina. Enargas started a formal investigation on some operators, among them Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. In April 2004 the company filed a defensive memorandum. On April 28, 2006, the company formally requested the acquisition of documents from Enargas in order to have access to the documents on which the allegations are based.
(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. The preliminary investigation should be
finalized within a 120-day term from the communication of the
proceeding to the parties.
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 Enis 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 rule made on
January 19, 2009, filed on December 14, 2009.
On December 28, 2005, also the Municipality of Pineto
presented similar claims relating to the same Enis
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 form 2009 also the Gela Municipality. The
total amounts of those claims were approximately euro 7.5
million. The company filed appeal against all those claims.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
(iii) Tax proceeding Eni Angola Production BV. In
the first months of 2009 the Ministry of the Finance of Angola,
following to a fiscal audit commenced at the end of 2007, filed a
notice of tax assessment for fiscal years 2002 to 2007 by which
objected to the deducibility 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. In June 2004, the Milan Public Prosecutor commenced inquiries into contracts awarded by Enis 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, Enis Board of Directors examined the aforementioned situation and Enis 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 took the necessary steps in acting as plaintiff in the expected legal action in order to recover any damage that could have been caused to Eni by the illicit behavior of its suppliers and of their and Eni employees. In the meantime, preliminary investigations have found that both EniPower and Snamprogetti are not to be considered defendants in accordance with existing laws regulating the administrative responsibility of companies (Legislative Decree No. 231/2001). In August 2007, Eni was notified that the Public Prosecutor requested the dismissal of EniPower SpA and Snamprogetti SpA, while the proceeding continues against former employees of these companies and employees and managers of the suppliers under the provisions of Legislative Decree No. 231/2001. Eni SpA, EniPower and Snamprogetti presented themselves as plaintiffs in the preliminary hearing. In the preliminary hearing related to the main proceeding of 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. In
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
the hearing of March 2, 2010 the Court confirmed the admission as plaintiffs of Eni SpA, EniPower SpA and Saipem SpA against the inquired parts under the provisions of Legislative Decree No. 231/2001. The trial has been postponed to the hearing of April 13, 2010 in order to permit the identification of the defendants of further companies involved.
(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 Enis transactions with the said companies. Eni is acting as plaintiff in this proceeding. The judge for preliminary hearings rejected most of the dismissal requests issued by the public prosecutor. Basing on the decision of the judge for preliminary hearings the public prosecutor of Rome notified Eni, as injured part, the summon against two former managers of the company charged of aggravated fraud related to the relevant patrimonial damage caused to the injured part through the abuse of working relations and activities. The first hearing, scheduled for January 27, 2010, has been postponed to March 30, 2010 due to the cancellation of the hearings deliberated by the Association of Italian Criminal Courts.
(iii) TSKJ Consortium Investigations by U.S., Italian, and
Other Authorities. Snamprogetti Netherlands BV has a 25%
participation in the TSKJ Consortium companies. The remaining
participations are held in equal shares of 25% by
Halliburton/KBR, Technip, and JGC. Beginning in 1994 the TSKJ
Consortium has been involved in the construction of natural gas
liquefaction facilities at Bonny Island in Nigeria. 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 TSKJ matter
referred to below, even in relation to Snamprogetti subsidiaries.
The U.S. Securities and Exchange Commission (SEC), the U.S.
Department of Justice (DoJ), and other authorities, including the
Public Prosecutors office of Milan, are investigating
alleged improper payments made by the TSKJ Consortium to certain
Nigerian public officials. The proceedings in the US: beginning
in June 2004, Eni and Saipem/Snamprogetti have been voluntarily
providing 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 the DoJ with respect to
the TSKJ matter as well as other unspecified matters.
KBR/Halliburton pleaded guilty to Foreign Corrupt Practices Act
(FCPA) charges, for the conduct stemming from their participation
in TSKJ, and they have agreed to pay a criminal fine of $402
million to the DoJ and a civil penalty of $177 million to the
SEC. In view of the agreements entered into by KBR/Halliburton
with the DoJ and SEC, the TSKJ matter could result in legal
liability on the part of individuals as well as the other members
of the TSKJ Consortium Entities found in violation of the FCPA,
and those entities could be subject to substantial fines and the
imposition of ongoing measures by the US government to prevent
future violations, including potentially a monitor of internal
controls, and debarment from government contracts.
In a press release of February 12, 2010, the French company
Technip announced, as a result of the circumstances that its
discussions with US authorities have intensified over the last
weeks, the recognition of a provision for an amount of euro 245
million reflecting the estimated cost of resolution with such
Authorities. The decision was made according to the status of
ongoing discussions with DoJ and SEC that allowed Technip to
estimate a global resolution of all potential claims against the
company arising from the investigation.
As to Eni, the contacts with the US authorities have been
intensified recently. Based on the ongoing status of the
discussions, the Company has been able to estimate the cost of a
global resolution of all potential claims arising from the
investigation with the US authorities, similarly to Technip. As a
result of this, a provision of euro 250,000,000 has been accrued,
also considering the contractual obligations assumed by Eni to
indemnify Saipem as part of the divestment of Snamprogetti.
Discussions with the US authorities are underway.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The proceedings in Italy: beginning in 2004, the TSKJ matter has prompted investigations by the Public Prosecutors office of Milan against unknown persons. Since March 10, 2009, the company received requests of exhibition of documents by the Public Prosecutors office of Milan. On July 17, 2009, the date on which a search and attachment warrant was served on Saipem/ Snamprogetti, the Public Prosecutors 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, nobody 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 the Italian Legislative Decree No. 231 concerning the liability of legal entities. A violation of Legislative Decree June 8, 2001, No. 231 can result in the 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 sets 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 the Nigerian National Petroleum Corporation and its subsidiaries. The above mentioned hearing allow Eni and Saipem to conduct own defense before any decision is made on the requested disqualification. The events referred to the request of precautionary measures of the Public Prosecutor of Milan cover TSKJ Consortium practices in the period from 1995 to 2004. To 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 Companys 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 Companys interests and reputation, in case the responsibility of its employees or collaborators is verified. The jury room of September 22, 2009 has been 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 has been anticipated, through a measure communicated to the defense on January 12, 2010, on January 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 in 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 Bonny Island project.
(iv) Gas Metering. On May 28, 2007, a seizure order (in respect to certain documentation) was served upon Eni and other Group companies as part of a proceeding brought by the Public Prosecutor at the Courts of Milan. The order was also served upon five top managers of the Group companies in addition to third party companies and their top managers. The investigation alleges behavior which breaches Italian criminal law, starting from 2003, regarding the use of instruments for measuring gas, the related payments of excise duties and the billing of clients as well as relations with the Supervisory Authorities. The allegation regards, interalia, the offense contemplated by Legislative Decree of June 8, 2001, No. 231, which establishes the liability of the legal entity for crimes committed by its employee in the interests of such legal entity, or to its advantage. Accordingly, notice of the commencement of investigations was served upon Eni Group
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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 Enis Group
companies whereby 14 Eni employees, also including former
employees, are under investigation. The exceptions filed in the
notice include: (i) violations pertaining 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; (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 Enis employees and
former employees would stand trial.
On February 23, 2010 Eni, Snam Rete Gas and Italgas have been
notified a request of document collection 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. 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, Eni SpA was requested to
transmit in relation to the alleged international
corruption, embezzling pillage, an other crimes audit
reports and other documentation related to anomalies and critical
issues on the management of: 1. the Karachaganak plant; 2. 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 Enis delivery points. The company filed its conclusions in a defensive memorandum, objecting to the Authoritys 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 with sentence VIS 94/2009 upheld partially Enis 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. This decision determined in one case the ceasing of the infringement as well as the reduction of the liability and associated duration in all the other cases. The Authority imposed on Eni a fine amounting to euro 1,023,000 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 Authoritys 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Enis 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 paid the fine that 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 of April 6, 2009 the judge dismissed the accusation as a result of the statute of limitations.
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 the exploration and
development activities and it is entitled to the productions
realized. In Product Sharing Agreement and in buy-back contracts,
realized productions are defined on the basis of contractual
agreements drawn up with State oil companies which hold the
concessions. Such contractual agreements regulate the recover of
costs incurred for the exploration, development and operating
activities (cost oil) and give entitlement to the own portion of
the realized productions (profit oil). With reference to natural
gas storage in Italy, the activity is conducted on the basis of
concessions with a duration that does not exceed a twenty year
duration and it 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 the expiry 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 Enis activities
on the environment, health and safety are described in the risk
section above, under the paragraph "Operational risks".
In 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
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
sites. In particular, regarding the environmental risk, management does not currently expect any material adverse effect upon Enis consolidated financial statements, taking account of ongoing remedial actions, existing insurance policies and the environmental risk provision accrued in the consolidated financial statements. However, management believes that it is possible that Eni may incur material losses and liabilities in future years in connection with 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 Enis 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) published the Resolution 20/2008 defining
emission permits for the 2008-2012 period.
Eni was assigned permits corresponding to 126.4 million tonnes of
carbon dioxide (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
approximately 8.6 million of permits expected to be assigned with
respect to new plants in the five-year period 2008-2012.
Emissions of carbon dioxide from Enis plants were lower
than permits assigned in 2009. Against emissions of carbon
dioxide amounted to approximately 24.7 million tonnes, emission
permits amounting to 25.9 million tonnes were assigned,
determining a 1.2 million tonnes surplus. In addition to such
surplus, a 0.3 million tonnes of permits (as increase in the
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 surplus amount to about 1.5 million tonnes.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29 Revenues
The following is a summary of the main components of
"Revenues". For more information about changes in
revenues, see "Financial Review" of the "Report of
Directors".
Net sales from operations were as follows:
(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 |
Net sales from operations were net of the following items:
(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 35 Information by business segment and geographic financial information.
Other income and revenues
Other income and revenues were as follows:
(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. |
Gains from sale of assets of euro 306 million
related for euro 283 million to the Exploration & Production
segment.
30 Operating expenses
The following is a summary of the main components of
"Operating expenses".
(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 for euro 79 million (euro
37 million and euro 155 million in 2007 and 2008, respectively).
Costs incurred in connection with research and development
activity recognized in profit and loss amounted to euro 207
million (euro 189 million and euro 216 million in 2007 and 2008,
respectively) as they do not meet the requirements to be
capitalized.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The item "Operating leases and other" included operating leases for euro 1,220 million (euro 1,081 million and euro 957 million in 2007 and 2008, respectively) and royalties on hydrocarbons extracted for euro 641 million (euro 772 million and euro 871 million in 2007 and 2008, respectively). Future minimum lease payments expected to be paid under non-cancelable operating leases were as follows:
(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 concerned 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 1,055 million (euro 573
million and euro 884 million in 2007 and 2008, respectively) and
mainly regarded legal or other proceedings for euro 333 million
(euro 79 million and euro 55 million in 2007 and 2008,
respectively) and environmental risks for euro 258 million (euro
327 million and euro 360 million in 2007 and 2008, respectively).
More information is included in Note 21 Provisions for
contingencies.
Payroll and related costs
Payroll and related costs were as follows:
(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
Enis subsidiaries were as follows:
(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 period. The average number of senior managers included managers employed and operating in foreign countries, whose position is comparable to a senior manager status.
Stock-based compensation
STOCK OPTION
In 2009, Eni suspended the incentive plan based on the stock
option assignment to managers of Eni and its subsidiaries as
defined in Article 2359. The following is the information about
the residual plans of past periods.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2009 19,482,330 options were outstanding for the purchase of 19,482,330 Eni ordinary shares (nominal value euro 1 each). The break-down of outstanding options was the following:
Rights outstanding |
Average strike price (euro) |
|||
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 |
At December 31, 2009 the weighted-average remaining
contractual life of the plans at December 2002, 2003, 2004, 2005,
2006, 2007 and 2008 was 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.
The 2006-2008 stock option plan has 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 Enis 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). The
strike price is calculated as the arithmetic average of official
prices registered on the Mercato Telematico Azionario in the
month preceding the assignment.
In 2009, changes of stock option plans consisted of the
carry-over of the previous plans. The following table summarizes
these changes:
2007 |
2008 |
2009 |
||||
Number |
|
Average strike price (euro) |
|
Market price (a) (euro) |
|
Number |
|
Average strike price (euro) |
|
Market price (a) (euro) |
|
Number |
|
Average strike price (euro) |
|
Market price (a) (euro) |
||
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 | 6,128,500 | 27.451 | 27.447 | 7,415,000 | 22.540 | 22.538 | |||||||||||||||
Rights exercised in the period | (3,028,200 | ) | 16.906 | 25.338 | (582,100 | ) | 17.054 | 24.328 | (2,000 | ) | 13.743 | 16.207 | |||||||||
Rights cancelled in the period | (691,075 | ) | 24.346 | 24.790 | (975,100 | ) | 24.931 | 19.942 | (4,073,095 | ) | 13.743 | 14.866 | |||||||||
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 | 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 grant assignment; (ii) the date on which the emission/transfer of the shares granted were recorded in the grantees 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. |
The fair value of stock options granted during the years 2002,
2003, 2004 and 2005 was euro 5.39, euro 1.50, euro 2.01 and euro
3.33 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 option plans amounted to euro 12 million (euro 27 million and euro 25 million in 2007 and 2008, respectively).
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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) in office
at December 31 of each year amount to euro 25 million, euro 25
million and euro 35 million for 2007, 2008 and 2009,
respectively, and consisted of the following:
(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 euro 8.9 million, euro
6.4 million and euro 9.9 million for 2007, 2008 and 2009,
respectively. Compensation of Statutory Auditors amounted to euro
0.678, euro 0.634 million and euro 0.475 million in 2007, 2008
and 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 to
the income statement of the effects related to the valuation at
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 of euro 55 million (euro 129 and euro 124
million in 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
in the 2007 and 2008, respectively).
Depreciation, depletion, amortization and impairments
Depreciation, depletion, amortization and impairments charges
consisted of the following:
(euro million) | 2007 |
2008 |
2009 |
|||
Depreciation, depletion and amortization: | |||||||||
- tangible assets | 5,031 | 6,103 | 6,779 | ||||||
- intangible assets | 2,000 | 2,327 | 1,989 | ||||||
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 |
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 Finance income (expense)
Finance income (expense) consisted of the following:
(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 | ) |
Net finance income (expense) consisted of the following:
(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 of euro 163
million (euro 188 million and euro 241 million in 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 have been recognized
up to the date of the payment from Gazprom of the strike price of
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) | 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 of euro 4 million (euro 155 million of net gain in 2007 and euro 427 million of net loss in 2008) was primarily due to the recognition in the profit and loss account of the change in the fair value of those derivatives which cannot be recognized according to the hedge accounting under IFRS as they were entered into for amounts equal to the net exposure to exchange rate risk and interest rate risk, and as such, they cannot be referred to specific trade or financing transactions. The lack of these formal requirements to qualify these derivatives as hedging instruments under IFRS also entailed the recognition in profit or loss of negative currency translation differences on assets and liabilities denominated in currencies other than functional currency, as this effect cannot be offset by changes in the fair value of the related instruments.
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ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32 Income (expense) from investments
Share of profit (loss) of equity-accounted investments
Share of profit (loss) of equity-accounted investments
consisted of the following:
(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 11 Investments.
Other gain (loss) from investments
Other gain (loss) from investments consisted of the
following:
(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 of euro 164 million essentially related to Nigeria
LNG (euro 101 million).
Gains on disposals for 2009 of euro 16 million primarily referred
to a price revision related to the sale done in 2008 of
Gaztransport et Technigaz SAS (euro 10 million). Gains on
disposals for 2008 of euro 218 million 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 for 2007 of euro 301 million
primarily related to the sale of Haldor Topsøe AS (euro 265
million) and Camom SA (euro 25 million).
33 Income tax expense
Income tax expense consisted of the following:
(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 of euro 1,724 million were in respect of
Italian subsidiaries for Ires (euro 1,485 million) and Irap (euro
219 million) and of foreign taxes (euro 20 million).
The effective tax rate was 56.0% (46.0% and 50.3% in 2007 and
2008, respectively) compared with a statutory tax rate of 40.1%
(37.9% and 38.2 in 2007 and 2008, respectively) and calculated by
applying a 34.0%18 tax rate (Ires) to profit before
income taxes and 3.9% tax rate (Irap) to the net value of
production as provided for by Italian laws.
(18) | 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. |
292
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The difference between the statutory and effective tax rate was due to the following factors:
(%) | 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 16.1 percentage points increase in the Exploration
& Production segment (15.0% and 17.1% in 2007 and 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
consisted of the following: in the 2009 (i) the equalization in
Libya of the 2008 income taxes for euro 230 million following
adjustments to the valorization criteria of revenues; (ii) a
reduced deductibility in Italy of the cost of goods sold
following the reduction in the gas volumes of inventories for
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 at the
weighted-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 Italy are 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, profit and loss 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
previously applicable statutory tax rate (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; (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 applying a
special rate of 6% (positive impact on profit and loss of euro
370 million; euro 290 million net of the special tax); (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
Companys Libyan oil properties has been reassessed
resulting in the partial utilization of previously accrued tax
liabilities of euro 173 million; (vi) the impact of above
mentioned Law Decree No. 112/2008 on energy companies calculated
by applying statutory tax rate (Ires) of 33% pursuant to the Law
Decree No. 112/2008 instead of the previously applicable
statutory tax rate (Ires) of 27.5% (euro 94 million).
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 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 from 33% to 27.5%, Irap from 4.25% to
3.9%, euro 54 million).
In 2009 permanent differences and other adjustments for 0.2
percentage points included: (i) as increase, a non-recurring item
represented by a charge amounting to euro 250 million that was
estimated on the base of the managements best knowledge of
the possible resolution of the TSKJ matter with US Authorities.
More information is provided in Note 28 Guarantees,
commitments and risks (ii) as decrease, deferred tax assets
accounted following an adjustment of the fiscal value to the
carrying amount of oil & gas properties related to a
reorganization of the Italian activities by paying a special tax
and the partial deductibility of Irap of income taxes of previous
years (euro 222 million).
293
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
34 Earnings per share
Basic earnings per ordinary share are calculated by dividing net
profit for the year attributable to Enis 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 at December 31, 2007,
2008 and 2009, was 3,668,305,807, 3,638,835,896 and 3,622,405,852
respectively.
Diluted earnings per share is calculated by dividing net profit
for the year attributable to Enis shareholders by the
weighted average number of shares fully-diluted which includes
issued and outstanding shares during the year, excluding treasury
shares and including the number of shares that could be issued
potentially in connection with stock-based compensation plans. At
December 31, 2008 and 2009 the number of shares that could be
issued potentially are related to stock options plans; at
December 31, 2007 the number of shares that could be issued
potentially are related to stock options and stock grant plans.
The average number of shares fully diluted used in the
calculation of diluted earnings was 3,669,172,762, 3,638,854,276
and 3,622,438,937 for the years ending December 31, 2007, 2008
and 2009, respectively.
Reconciliation of the average number of shares used for the
calculation for both basic and diluted earning per share was as
follows:
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 | |||||
Enis 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 |
294
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
35 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 profits |
Total |
|||||||||
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 | 37,054 | 45,017 | 6,303 | 9,176 | 185 | 1,331 | 75 | ||||||||||||||||||
Less: intersegment sales | (18,917 | ) | (865 | ) | (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) | Includes assets directly associated with the generation of operating profit. | |
(c) | Includes liabilities directly associated with the generation of operating profit. |
Intersegment revenues are conducted on an arms length basis.
295
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Geographic financial information
IDENTIFIABLE ASSETS AND INVESTMENTS BY GEOGRAPHIC AREA OF
ORIGIN
(euro million) | Italy |
Other European Union |
Rest of Europe |
America |
Asia |
Africa |
Other areas |
Total |
||||||||||
2007 | ||||||||||||||||
Identifiable assets (a) | 39,742 | 11,071 | 3,917 | 6,260 | 6,733 | 15,368 | 522 | 83,613 | ||||||||
Capital expenditures | 3,246 | 1,246 | 469 | 1,004 | 1,253 | 3,152 | 223 | 10,593 | ||||||||
2008 | ||||||||||||||||
Identifiable assets (a) | 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 | ||||||||
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) | 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 |
36 Transactions with related parties
In the ordinary course of its business Eni enters into
transactions regarding:
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 the Cosmi Holding Group related to Eni through a member of the Board of Directors related to certain acquisition of engineering, construction and maintenance services. Relevant transactions which were executed on an arms length basis amounted to approximately euro 18 million, euro 13 million and euro 21 million in 2007, 2008 and 2009, respectively. At December 31, 2009 were outstanding receivables for euro 4 million and payables for euro 9 million (euro 4 million and euro 8 million at 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: (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 to contribution for the year 2008 of euro 200 million to the solidarity fund pursuant to Italian Law Decree No. 112/2008 and the payable at December 31, 2008 and 2009 of euro 100 million related to the part of the contribution that had not already been paid. Transactions in the periods preceding the 2008 were not material; (ii) Enrico Mattei Foundation established by Eni with the aim of enhancing, through studies, research and training initiatives, knowledge in the fields of 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, on an arms length basis.
296
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 2007, 2008 and 2009, respectively, consisted of the following:
(euro million) | Dec. 31, 2007 |
2007 |
||
Costs |
Revenues |
||||
Name | Receivables and other assets |
|
Payables and other liabilities |
|
Guarantees |
|
Goods |
|
Services |
|
Goods |
|
Services |
|
Other operating (charge) income |
|
Joint ventures and associates | ||||||||||||||||
ASG Scarl | 6 | 43 | 121 | 108 | 3 | |||||||||||
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH | 11 | 86 | ||||||||||||||
Blue Stream Pipeline Co BV | 19 | 183 | 1 | |||||||||||||
Bronberger & Kessler und 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 | ||||||||||||
Fox Energy SpA | 49 | 139 | ||||||||||||||
Gasversorgung Süddeutschland GmbH | 54 | 195 | 4 | |||||||||||||
Gruppo Distribuzione Petroli Srl | 26 | 50 | ||||||||||||||
Karachaganak Petroleum Operating BV | 43 | 102 | 24 | 301 | 7 | |||||||||||
Mellitah Oil & Gas BV | 10 | 137 | 105 | 1 | 6 | |||||||||||
OOO "EniNeftegaz" | 215 | 1 | ||||||||||||||
Petrobel Belayim Petroleum Co | 60 | 211 | ||||||||||||||
Raffineria di Milazzo ScpA | 17 | 21 | 245 | 118 | 5 | |||||||||||
Supermetanol CA | 11 | 78 | 1 | |||||||||||||
Super Octanos CA | 18 | 201 | 1 | |||||||||||||
Trans Austria Gasleitung GmbH | 6 | 80 | 43 | 147 | 47 | |||||||||||
Transitgas AG | 8 | 64 | ||||||||||||||
Transmediterranean Pipeline Co Ltd | 6 | 70 | 1 | |||||||||||||
Unión Fenosa Gas SA | 1 | 61 | 193 | |||||||||||||
Other (*) | 120 | 127 | 56 | 76 | 374 | 122 | 118 | |||||||||
687 | 744 | 6,172 | 422 | 1,950 | 1,011 | 459 | ||||||||||
Unconsolidated entities controlled by Eni | ||||||||||||||||
Agip Kazakhstan North Caspian Operating Co NV | 49 | 111 | 11 | 534 | 52 | |||||||||||
Eni BTC Ltd | 138 | 1 | ||||||||||||||
Other (*) | 23 | 8 | 11 | 2 | 18 | 5 | 18 | |||||||||
72 | 119 | 149 | 13 | 552 | 5 | 71 | ||||||||||
759 | 863 | 6,321 | 435 | 2,502 | 1,016 | 530 | ||||||||||
Entities owned or controlled by the Government | ||||||||||||||||
Gruppo Alitalia | 4 | 363 | 1 | |||||||||||||
Gruppo Enel | 384 | 8 | 245 | 894 | 408 | |||||||||||
GSE - Gestore Servizi Elettrici | 124 | 63 | 239 | 37 | 870 | 7 | 10 | |||||||||
Terna SpA | 19 | 69 | 106 | 105 | 31 | |||||||||||
Other (*) | 45 | 79 | 19 | 89 | 75 | 3 | ||||||||||
576 | 219 | 364 | 476 | 2,202 | 450 | 10 | ||||||||||
1,335 | 1,082 | 6,321 | 799 | 2,978 | 3,218 | 980 | 10 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
297
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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 Co | 11 | 60 | ||||||||||||||||||
Altergaz SA | 30 | 135 | ||||||||||||||||||
ASG Scarl | 2 | 25 | 49 | 57 | ||||||||||||||||
Bayernoil Raffineriegesellschaft mbH | 3 | 4 | 1 | 6 | 62 | 4 | ||||||||||||||
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH | 5 | 98 | ||||||||||||||||||
Blue Stream Pipeline Co BV | 23 | 17 | 171 | 1 | ||||||||||||||||
Bronberger & Kessler und Gilg & Schweiger GmbH | 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 | |||||||||||||||
Eni Oil Co Ltd | 9 | 28 | 660 | 6 | ||||||||||||||||
Fox Energy SpA | 37 | 2 | 329 | 1 | ||||||||||||||||
FPSO Mystras - Produção de Petròleo Lda | 94 | 10 | ||||||||||||||||||
Gasversorgung Süddeutschland GmbH | 64 | 337 | 18 | |||||||||||||||||
Gruppo Distribuzione Petroli Srl | 20 | 111 | ||||||||||||||||||
InAgip doo | 24 | 45 | 116 | 3 | 35 | |||||||||||||||
Karachaganak Petroleum Operating BV | 72 | 207 | 874 | 380 | 25 | 12 | ||||||||||||||
Mellitah Oil & Gas BV | 10 | 121 | 329 | 2 | 4 | |||||||||||||||
Petrobel Belayim Petroleum Co | 77 | 181 | ||||||||||||||||||
Raffineria di Milazzo ScpA | 11 | 4 | 276 | 135 | 3 | |||||||||||||||
Saipon Snc | 4 | 58 | 12 | |||||||||||||||||
Super Octanos CA | 24 | 286 | ||||||||||||||||||
Supermetanol CA | 5 | 90 | ||||||||||||||||||
Trans Austria Gasleitung GmbH | 8 | 78 | 60 | 153 | 64 | |||||||||||||||
Transitgas AG | 5 | 1 | 64 | |||||||||||||||||
Unión Fenosa Gas SA | 1 | 25 | 62 | 25 | 257 | 1 | ||||||||||||||
Other (*) | 231 | 115 | 18 | 36 | 319 | 46 | 71 | 129 | 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 | |||||||||||||
Eni BTC Ltd | 146 | |||||||||||||||||||
Other (*) | 22 | 18 | 4 | 2 | 20 | 2 | 4 | 6 | 4 | |||||||||||
166 | 184 | 150 | 2 | 740 | 13 | 5 | 373 | 14 | ||||||||||||
831 | 1,013 | 6,403 | 1,475 | 3,523 | 161 | 1,662 | 1,057 | 22 | ||||||||||||
Entities owned or controlled by the Government | ||||||||||||||||||||
Gruppo Alitalia | 4 | 417 | 2 | |||||||||||||||||
Gruppo Enel | 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 | 58 | ||||||||||||
Terna SpA | 33 | 35 | 14 | 128 | 12 | 83 | 10 | |||||||||||||
Other (*) | 28 | 72 | 33 | 88 | 5 | 72 | 2 | 1 | ||||||||||||
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 | 58 | |||||||||||
(*) | Each individual amount included herein does not exceed euro 50 million. |
298
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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. |
Most significant transactions with joint ventures, associates and non-consolidated subsidiaries concerned:
- | 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 lAlta Velocità) Uno, and related guarantees; | |
- | 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 Bronberger & Kessler und Gilg & Schweiger GmbH, Fox Energy SpA, Gruppo Distribuzione Petroli Srl and Raffineria di Milazzo ScpA on the basis of prices referred to the quotations on international markets of the main oil products, as they would be conducted on an arms length basis; | |
- | acquisition of natural gas transport services outside Italy from Blue Stream Pipeline Co BV, Trans Austria Gasleitung GmbH and Transitgas AG and the issuing of guarantees on behalf of Blue Stream Pipeline Co BV; | |
- | guarantees issued on behalf of CEPAV (Consorzio Eni per lAlta 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, 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 of incurred costs; | |
- | logistic support by Kwanda Suporto Logistico Lda; |
299
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- | sale of natural gas to Altergaz SA and Gasversorgung Süddeutschland GmbH; | |
- | acquisition of petrochemical products from Super Octanos CA on the basis of prices referred 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. |
Most significant transactions with entities owned or controlled by the Government concerned:
- | 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 new 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, the acquisition of domestic electricity transmission service and 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 in the 2007, 2008 and 2009, respectively, consisted of the following:
(euro million) | Dec. 31, 2007 |
2007 |
||
Name | Receivables |
|
Payables |
|
Guarantees |
|
Charges |
|
Gains |
|
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 | ||||||
384 | 147 | 824 | 20 | 49 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
300
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(euro million) | Dec. 31, 2008 |
2008 |
||
Name | Receivables |
|
Payables |
|
Guarantees |
|
Charges |
|
Gains |
|
Joint ventures and associates | ||||||||||
Bayernoil Raffineriegesellschaft mbH | 131 | |||||||||
Blue Stream Pipeline Co BV | 752 | 14 | ||||||||
PetroSucre SA | 153 | |||||||||
Raffineria di Milazzo ScpA | 70 | |||||||||
Trans Austria Gasleitung GmbH | 186 | 7 | ||||||||
Transmediterranean Pipeline Co Ltd | 103 | 6 | ||||||||
Other (*) | 123 | 124 | 27 | 16 | 9 | |||||
696 | 124 | 849 | 16 | 36 | ||||||
Unconsolidated entities controlled by Eni | ||||||||||
Other (*) | 115 | 38 | 1 | 1 | 6 | |||||
115 | 38 | 1 | 1 | 6 | ||||||
811 | 162 | 850 | 17 | 42 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
(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. |
Most significant transactions with joint ventures, associates and non-consolidated subsidiaries included:
- | 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 Enis financial companies; | |
- | financing loan to Bayernoil Raffineriegesellschaft mbH; | |
- | the financing of the Austrian section of the gasline from the Russian Federation to Italy and the construction of natural gas transmission facilities and transport services with Trans Austria Gasleitung GmbH and Transmediterranean Pipeline Co Ltd, respectively. |
301
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impact of transactions and positions with related parties
on the balance sheet, net profit and cash flows
The impact of transactions and positions with related parties
on the balance sheet, net profit and cash flows consisted of the
following:
Dec. 31, 2007 |
Dec. 31, 2008 |
Dec. 31, 2009 |
||||
(euro million) | Total | Related parties | Impact % | Total | Related parties | Impact % | Total | Related parties | Impact % | |||||||||
Trade and other receivables | 20,676 | 1,616 | 7.82 | 22,222 | 1,539 | 6.93 | 20,348 | 1,355 | 6.66 | |||||||||||||||
Other current assets | 790 | 1,870 | 59 | 3.16 | 1,307 | 9 | 0.69 | |||||||||||||||||
Other non-current financial assets | 923 | 87 | 9.43 | 1,134 | 356 | 31.39 | 1,148 | 438 | 38.15 | |||||||||||||||
Other non-current assets | 1,400 | 16 | 1.14 | 1,881 | 21 | 1.12 | 1,938 | 40 | 2.06 | |||||||||||||||
Current financial liabilities | 7,763 | 131 | 1.69 | 6,359 | 153 | 2.41 | 3,545 | 147 | 4.15 | |||||||||||||||
Trade and other payables | 17,116 | 1,021 | 5.97 | 20,515 | 1,253 | 6.11 | 19,174 | 1,241 | 6.47 | |||||||||||||||
Other liabilities | 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 | 12,067 | 16 | 0.13 | 14,478 | 9 | 0.06 | 21,255 | |||||||||||||||||
Other non-current liabilities | 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 accounts consisted of the following:
2007 |
2008 |
2009 |
||||
(euro million) | Total | Related parties | Impact % | Total | Related parties | Impact % | Total | Related parties | Impact % | |||||||||
Net sales from operations | 87,204 | 4,198 | 4.81 | 108,082 | 5,048 | 4.67 | 83,227 | 3,300 | 3.97 | |||||||||||||||
Other income and revenues | 833 | .. | 728 | 39 | 5.36 | 1,118 | 26 | 2.33 | ||||||||||||||||
Purchases, services and other | 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 | 4,445 | 49 | 1.10 | 7,985 | 42 | 0.53 | 5,950 | 27 | 0.45 | |||||||||||||||
Financial expense | (4,554 | ) | (20 | ) | 0.44 | (8,198 | ) | (17 | ) | 0.21 | (6,497 | ) | (4 | ) | 0.06 |
Transactions with related parties concerned the ordinary
course of Enis business and were mainly conducted on an
arms length basis.
Main cash flows with related parties were as follows:
(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 | ) |
302
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The impact of cash flows with related parties consisted of the following:
2007 |
2008 |
2009 |
||||
(euro million) | Total | Related parties | Impact % | Total | Related parties | Impact % | Total | Related parties | Impact % | |||||||||
Cash provided from operating activities | 15,517 | 549 | 3.54 | 21,801 | (62 | ) | .. | 11,136 | (1,188 | ) | .. | |||||||||||||
Cash used in investing activities | (20,097 | ) | (822 | ) | 4.09 | (16,958 | ) | (1,598 | ) | 9.42 | (10,254 | ) | (1,262 | ) | 12.31 | |||||||||
Cash used in financing activities | 2,909 | 20 | 0.69 | (5,025 | ) | 14 | .. | (1,183 | ) | (14 | ) | 1.18 |
37 Significant non-recurring events and operations
Non-recurring income (charges) consisted of the following:
(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 |
Estimate of the charge from the possible resolution of the
TSKJ matter was represented by a charge amounting to euro 250
million that was estimated on the base of the managements
best knowledge of the possible resolution of the TSKJ matter with
US Authorities. The matter is fully disclosed in the 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. However, the
charge is to be debited to Eni because, considering the
contractual obligations assumed by Eni to indemnify Saipem as
part of the divestment of Snamprogetti, at the time of the
project the TSKJ venture was participated by Snamprogetti
Netherlands BV that was controlled by Snamprogetti. As a result,
the future monetary settlement of the provision will be incurred
by Eni SpA and Saipems minorities will be left unaffected.
Non-recurring income related to a gain deriving from the
curtailment of the provisions accrued by Italian companies for
employee termination indemnities ("TFR") following the
changes introduced by Italian Budget Law for 2007 and related
decrees (euro 83 million). Non recurring charges for 2007
concerned risk provisions related to ongoing antitrust
proceedings against the European Antitrust authorities (euro 130
million).
38 Positions or transactions deriving from
atypical and/or unusual operations
In 2007, 2008 and in 2009 no transactions deriving from
atypical and/or unusual operations were reported.
303
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Supplemental oil and gas information (unaudited)
The following information pursuant to "International Financial Reporting Standards" (IFRS) is presented in accordance with SFAB Extractive Activities - Oil & Gas (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 |
Rest of Europe |
North Africa |
West Africa |
Kazakhstan (1) |
Rest of Asia |
America |
Australia and Oceania |
Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||||
December 31, 2008 | ||||||||||||||||||||||||||||||
Proved mineral interests | 10,772 | 7,852 | 10,116 | 11,368 | 1,663 | 3,939 | 4,737 | 392 | 50,839 | 813 | ||||||||||||||||||||
Unproved mineral interests | 32 | 316 | 638 | 2,267 | 37 | 1,461 | 2,418 | 43 | 7,212 | 928 | ||||||||||||||||||||
Support equipment and facilities | 283 | 24 | 1,205 | 520 | 51 | 16 | 43 | 4 | 2,146 | 14 | ||||||||||||||||||||
Incomplete wells and other | 1,374 | 249 | 1,006 | 1,443 | 2,631 | 713 | 632 | 362 | 8,410 | 267 | ||||||||||||||||||||
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 | ) | (5,327 | ) | (6,318 | ) | (7,027 | ) | (560 | ) | (3,224 | ) | (3,638 | ) | (173 | ) | (34,210 | ) | (441 | ) | ||||||||||
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 |
(1) | Eni's capitalized costs of the Kashagan field are determined based on Eni share of 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) | The amounts include net capitalized financial charges totaling euro 537 million in 2008 and euro 570 million in 2009. | |
(b) | The 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 "Successful Effort Method" application would have led to an increase in net capitalized costs of in euro 3,308 million in 2008 and euro 3,690 million in 2009 for the consolidated companies and of euro 48 million in 2008 and euro 76 million in 2009 for joint ventures affiliates. | |
(c) | Amounts of 2009 do not include the capitalized costs related to the Italian gas storage activities, following restructuring of Eni regulated gas businesses in Italy now reported in Gas & Power segment. |
304
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Cost 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 |
Rest of Europe |
North Africa |
West Africa |
Kazakhstan (1) |
Rest of Asia |
America |
Australia and Oceania |
Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||||
2007 | ||||||||||||||||||||
Proved property acquisitions (b) | 11 | 451 | 1,395 | 1,857 | 187 | |||||||||||||||
Unproved property acquisitions (b) | 510 | 1,417 | 1,927 | 1,086 | ||||||||||||||||
Exploration (b) | 104 | 195 | 373 | 305 | 36 | 162 | 980 | 37 | 2,192 | 42 | ||||||||||
Development (a) (b) | 320 | 557 | 1,047 | 1,425 | 744 | 247 | 734 | 165 | 5,239 | 156 | ||||||||||
Total costs incurred | 424 | 752 | 1,431 | 2,691 | 780 | 409 | 4,526 | 202 | 11,215 | 1,471 | ||||||||||
2008 | ||||||||||||||||||||
Proved property acquisitions (b) | 626 | 413 | 256 | 1,295 | ||||||||||||||||
Unproved property acquisitions (b) | 33 | 384 | 655 | 647 | 1,719 | |||||||||||||||
Exploration (b) | 135 | 227 | 403 | 600 | 16 | 345 | 440 | 48 | 2,214 | 48 | ||||||||||
Development (a) (b) | 644 | 957 | 1,388 | 1,884 | 1,023 | 598 | 748 | 325 | 7,567 | 163 | ||||||||||
Total costs incurred | 779 | 1,217 | 2,801 | 3,552 | 1,039 | 1,846 | 1,188 | 373 | 12,795 | 211 | ||||||||||
2009 | ||||||||||||||||||||
Proved property acquisitions | 298 | 27 | 11 | 131 | 467 | |||||||||||||||
Unproved property acquisitions | 54 | 42 | 83 | 43 | 222 | |||||||||||||||
Exploration | 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 |
(1) | Eni's incurred costs 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%). | |
(a) | Includes the abandonment costs of the assets for euro 173 million in 2007, euro 628 million in 2008 and euro 301 million in 2009. | |
(b) | Of which business combination: |
(euro million) | Italy |
Rest of Europe |
North Africa |
West Africa |
Kazakhstan (1) |
Rest of Asia |
America |
Australia and Oceania |
Total consolidated subsidiaries | Total joint ventures and affiliates (2) | ||||||||||
2007 | ||||||||||||||||||||
Proved property acquisitions | 451 | 1,395 | 1,846 | 187 | ||||||||||||||||
Unproved property acquisitions | 510 | 1,334 | 1,844 | 1,086 | ||||||||||||||||
Exploration | 59 | 474 | 533 | |||||||||||||||||
Development | 10 | 345 | 355 | 101 | ||||||||||||||||
Total | 1,030 | 3,548 | 4,578 | 1,374 | ||||||||||||||||
2008 | ||||||||||||||||||||
Proved property acquisitions | 298 | 256 | 554 | |||||||||||||||||
Unproved property acquisitions | 33 | 384 | 560 | 647 | 1,624 | |||||||||||||||
Exploration | 23 | 115 | 158 | 296 | ||||||||||||||||
Development | 52 | 132 | 4 | 233 | 421 | |||||||||||||||
Total | 85 | 539 | 977 | 1,294 | 2,895 |
305
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Results of operations from oil and gas
producing activities
Results of operations from oil and gas producing
activities, 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 Enis 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 Enis PSA-related
tax liabilities. Revenue and income taxes include such taxes owed
by Eni but paid by state-owned entities out of Enis share
of oil and gas production.
Results of operations from oil and gas producing activities by
geographical area consist of the following:
(euro million) | Italy |
Rest of Europe |
North Africa |
West Africa |
Kazakhstan (1) |
Rest of Asia |
America |
Australia and Oceania |
Total consolidated subsidiaries | Total joint ventures and affiliates (2) | Total consolidated subsidiaries, joint ventures and affiliates | |||||||||||
Revenues | |||||||||||||||||||||||||||||||||
Sales to consolidated entities | 3,171 | 3,273 | 3,000 | 4,439 | 296 | 44 | 229 | 91 | 14,543 | 14,543 | |||||||||||||||||||||||
Sales to third parties | 163 | 755 | 4,793 | 693 | 833 | 961 | 1,112 | 187 | 9,497 | 176 | 9,673 | ||||||||||||||||||||||
Total revenues | 3,334 | 4,028 | 7,793 | 5,132 | 1,129 | 1,005 | 1,341 | 278 | 24,040 | 176 | 24,216 | ||||||||||||||||||||||
Operations costs | (248 | ) | (584 | ) | (542 | ) | (499 | ) | (142 | ) | (39 | ) | (177 | ) | (50 | ) | (2,281 | ) | (27 | ) | (2,308 | ) | |||||||||||
Production taxes | (188 | ) | (91 | ) | (473 | ) | (28 | ) | (780 | ) | (6 | ) | (786 | ) | |||||||||||||||||||
Exploration expenses | (108 | ) | (196 | ) | (379 | ) | (297 | ) | (36 | ) | (168 | ) | (566 | ) | (27 | ) | (1,777 | ) | (42 | ) | (1,819 | ) | |||||||||||
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 | ) | (83 | ) | (627 | ) | (285 | ) | (72 | ) | (134 | ) | (18 | ) | (65 | ) | (1,567 | ) | (18 | ) | (1,585 | ) | |||||||||||
Pretax income from producing activities | 2,008 | 2,399 | 5,386 | 2,893 | 803 | 214 | 69 | 117 | 13,889 | 32 | 13,921 | ||||||||||||||||||||||
Income taxes | (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 | 952 | 2,284 | 1,073 | 519 | 121 | (41 | ) | 107 | 6,277 | (17 | ) | 6,260 | ||||||||||||||||||||
2008 | |||||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||||
Sales to consolidated entities | 3,956 | 3,892 | 2,622 | 5,013 | 360 | 39 | 323 | 66 | 16,271 | 16,271 | |||||||||||||||||||||||
Sales to third parties | 126 | 160 | 7,286 | 1,471 | 1,025 | 1,335 | 1,599 | 218 | 13,220 | 265 | 13,485 | ||||||||||||||||||||||
Total revenues | 4,082 | 4,052 | 9,908 | 6,484 | 1,385 | 1,374 | 1,922 | 284 | 29,491 | 265 | 29,756 | ||||||||||||||||||||||
Operations costs | (260 | ) | (521 | ) | (528 | ) | (609 | ) | (157 | ) | (68 | ) | (233 | ) | (35 | ) | (2,411 | ) | (34 | ) | (2,445 | ) | |||||||||||
Production taxes | (195 | ) | (32 | ) | (616 | ) | (35 | ) | (878 | ) | (53 | ) | (931 | ) | |||||||||||||||||||
Exploration expenses | (135 | ) | (228 | ) | (406 | ) | (548 | ) | (16 | ) | (232 | ) | (435 | ) | (58 | ) | (2,058 | ) | (48 | ) | (2,106 | ) | |||||||||||
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 | ) | (56 | ) | (934 | ) | (268 | ) | (270 | ) | (259 | ) | (6 | ) | (41 | ) | (2,254 | ) | (15 | ) | (2,269 | ) | |||||||||||
Pretax income from producing activities | 2,521 | 2,418 | 6,888 | 3,328 | 863 | (43 | ) | 411 | 115 | 16,501 | 31 | 16,532 | |||||||||||||||||||||
Income taxes | (924 | ) | (1,623 | ) | (4,170 | ) | (2,262 | ) | (302 | ) | (122 | ) | (214 | ) | (70 | ) | (9,687 | ) | (49 | ) | (9,736 | ) | |||||||||||
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 |
(1) | Eni's results of operations 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%). | |
(a) | Includes asset impairments amounting to euro 91 million in 2007, euro 770 million in 2008 and euro 576 million in 2009. | |
(b) | The "Successful Effort Method" application would have led to an increase of result of operations of euro 438 million in 2007, euro 408 million in 2008 and euro 320 million in 2009 for the consolidated companies and of euro 26 million in 2007 and any variation in 2008 and euro 26 million in 2009 for joint ventures and affiliates. | |
(c) | Amounts of 2009 do not include result of operation related to the Italian gas storage activities, following restructuring of Eni regulated gas businesses in Italy now reported in Gas & Power segment. |
306
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Oil and natural gas reserves
Enis 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 and have been
disclosed in accordance with FASB Extractive Activities - Oil
& Gas (Topic 932).
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.
Existing economic conditions include prices and costs at which
economic producibility from a reservoir is to be determined. The
price19 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.
Net proved reserves exclude interests and royalties owned by
others.
Proved reserves are classified as either developed and
undeveloped.
Developed oil and gas reserves are reserves that can be expected
to be recovered 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.
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.
Since 1991 Eni has requested qualified independent oil
engineering companies to carry out an independent evaluation20
of part of its proved reserves on a rotational basis. The
description of qualifications of the person primarily responsible
of the reserve audit is included in the third party audit report21.
In the preparation of their reports, independent evaluators rely,
without independent verification, upon information furnished by
Eni with respect to property interest, production, current cost
of operation and development, sale agreements, prices and other
factual information and data that were accepted as represented by
the independent evaluators. These data, equally used by Eni in
its internal process, include logs, directional surveys, core and
PVT (Pressure Volume Temperature) analysis, maps, oil/gas/water
production/injection data of wells, reservoir 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,
actual prices applicable to hydrocarbon sales, price adjustments
required by applicable contractual arrangements, and other
pertinent information are provided.
In 2009 Ryder Scott Company and DeGolyer and MacNaughton provided
an independent evaluation of almost 28% of Eni total proved
reserves at December 31, 200922 confirming, as in
previous years, the reasonableness of Eni internal evaluations21.
In the 2007-2009 three year period, 86% of Eni total proved
reserves were subject to independent evaluation.
(19) | In prior periods, year-end liquids and natural gas prices were used in the estimate of proved reserves. | |
(20) | From 1991 to 2002 DeGolyer and MacNaughton, from 2003 also Ryder Scott. | |
(21) | The reports of independent engineers are available on Eni website www.eni.com, section Documentation/Annual Report 2009. | |
(22) | Including reserves of joint ventures and affiliates. |
307
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2009 among the most important Eni
properties, the only one which was not subject to an independent
review is Barbara (Italy).
Eni operates under Production Sharing Agreements, PSAs, in
several of the foreign jurisdictions where it has oil and gas
exploration and production activities. Reserves of oil and
natural gas to which Eni is entitled under PSA arrangements are
shown in accordance with Enis 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 Enis share of production and Enis
net equity share after cost recovery.
Proved oil and gas reserves associated with PSAs represented 46%,
54% and 57% of total proved reserves as of year-end 2007, 2008
and 2009, respectively, on an oil-equivalent basis.
Similar effects as PSAs apply to service and "buy-back"
contracts; proved reserves associated with such contracts
represented 1%, 2% and 2% of total proved reserves on an
oil-equivalent basis as of year-end 2007, 2008 and 2009,
respectively.
Oil and gas reserve quantities include: (i) oil and natural gas
quantities in excess to cost recovery which the company has an
obligation to purchase under certain PSAs with governments or
authorities, whereby the company serves as producer of reserves.
Reserve volumes associated with oil and gas deriving from such
obligation represent 1.8%, 0.1% and 0.3% of total proved reserves
as of year-end 2007, 2008 and 2009, respectively, on an
oil-equivalent basis; (ii) volumes of natural gas used for own
consumption, (iii) the quantities of natural gas produced to feed
the Angola LNG plant and (iv) volumes of natural gas held in
certain Enis storage fields in Italy. Proved reserves
attributable to these fields include: (a) the residual natural
gas volumes of the reservoirs and (b) natural gas volumes from
other Eni fields input into these reservoirs in subsequent
periods. Proved reserves do not include volumes owned by or
acquired from third parties. Gas withdrawn from storage is
produced and thereby removed from proved reserves when sold.
Numerous uncertainties are inherent in estimating quantities of
proved reserves, in projecting future productions and development
expenditures. The accuracy of any reserve estimate is a function
of the quality of available data and engineering and geological
interpretation and judgment. Results of drilling, testing and
production after the date of the estimate may require substantial
upward or downward revision. In addition, changes in oil and
natural gas prices have an effect on the quantities of Enis
proved reserves since estimates of reserves are based on prices
and costs relevant to the date when such estimates are made.
Consequently, reserves evaluation could also diverge
significantly from oil and natural gas volumes which will be
actually produced.
The following tables present yearly changes in estimated proved
reserves, developed and undeveloped, of crude oil (including
condensate and natural gas liquids) and natural gas for the years
2007, 2008 and 2009.
308
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Crude oil (including Condensate and Natural Gas Liquids)
(mmbbl) | Italy |
Rest of Europe |
North Africa |
West Africa |
Kazakhstan (1) |
Rest of Asia |
America |
Australia and Oceania |
Total consolidated subsidiaries | Total joint ventures and affiliates (2) | Total consolidated subsidiaries, joint ventures and affiliates |
Reserves at December 31, 2006 | 215 | 386 | 982 | 786 | 893 | 62 | 98 | 35 | 3,457 | 24 | 3,481 | ||||||||||||||||||||||
of which: developed | 136 | 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 | 187 | ||||||||||||||||||||||||||||
Revisions of Previous Estimates | 28 | 14 | (35 | ) | (26 | ) | (114 | ) | (6 | ) | (23 | ) | (2 | ) | (164 | ) | 20 | (144 | ) | ||||||||||||||
Improved Recovery | 1 | 9 | 12 | 22 | 1 | 23 | |||||||||||||||||||||||||||
Extensions and Discoveries | 1 | 43 | 22 | 28 | 1 | 95 | 1 | 96 | |||||||||||||||||||||||||
Production | (28 | ) | (57 | ) | (121 | ) | (101 | ) | (26 | ) | (12 | ) | (19 | ) | (5 | ) | (369 | ) | (5 | ) | (374 | ) | |||||||||||
Reserves at December 31, 2007 | 215 | 345 | 878 | 725 | 753 | 44 | 138 | 29 | 3,127 | 142 | 3,269 | ||||||||||||||||||||||
of which: 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 | ||||||||||||||||||||||
Purchase of Minerals in Place | 32 | 36 | 68 | 68 | |||||||||||||||||||||||||||||
Revisions of Previous Estimates | (8 | ) | (30 | ) | 56 | 80 | 239 | 42 | 11 | 1 | 391 | 4 | 395 | ||||||||||||||||||||
Improved Recovery | 7 | 25 | 32 | 1 | 33 | ||||||||||||||||||||||||||||
Extensions and Discoveries | 4 | 13 | 4 | 26 | 2 | 3 | 52 | 52 | |||||||||||||||||||||||||
Production | (25 | ) | (51 | ) | (122 | ) | (105 | ) | (25 | ) | (18 | ) | (21 | ) | (4 | ) | (371 | ) | (5 | ) | (376 | ) | |||||||||||
Sales of Minerals in Place | (56 | ) | (56 | ) | (56 | ||||||||||||||||||||||||||||
Reserves at December 31, 2008 | 186 | 277 | 823 | 783 | 911 | 106 | 131 | 26 | 3,243 | 142 | 3,385 | ||||||||||||||||||||||
of which: 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 | ||||||||||||||||||||||
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: 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 |
(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 and 2006. | |
(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%). |
309
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Natural gas
(bcf) | Italy (a) |
Rest of Europe |
North Africa |
West Africa |
Kazakhstan (1) |
Rest of Asia |
America |
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: developed | 2,449 | 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: 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 | ||||||||||||||||||||||
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: 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 | ||||||||||||||||||||||
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: 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 |
(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 and 2006. | |
(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, 754, 749, 746 and 769 bcf of natural gas held in storage at December 31, 2006, 2007, 2008 and 2009, respectively. |
310
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 2007 and 2008 and the average
prices of the year for 2009 to the estimated 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 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 FASB Extractive
Activities - Oil & Gas (Topic 932). The standardized measure
does not purport to reflect realizable values or fair market
value of Enis proved reserves. An estimate of fair value
would also take into account, among other things, hydrocarbon
resources other than proved reserves, 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.
311
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The standardized measure of discounted future net cash flows by geographical area consists of the following:
(euro million) | Italy |
Rest of Europe |
North Africa |
West Africa |
Kazakhstan (1) |
Rest of Asia |
America |
Australia and Oceania |
Total consolidated subsidiaries | Total joint ventures and affiliates (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 |
(1) | Eni's standardized measure of discounted future of net cash flows 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%). | |
(a) | Amounts of 2009 do not include standardized measure of discounted future net cash flows related to the Italian gas storage activities, following restructuring of Eni regulated gas businesses in Italy now reported in Gas & Power segment. |
312
ENI ANNUAL REPORT / NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Changes in standardized measure of discounted future net cash flows
Changes in standardized measure of discounted future net cash flows for the years 2007, 2008 and 2009.
(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 |
313
BLANK PAGE
314
Certification pursuant to rule 154-bis paragraph 5 of the Legislative Decree No. 58/1998 (Testo Unico della Finanza)
1. | The undersigned Paolo Scaroni and Alessandro Bernini, in their quality as Chief Executive Officer and manager responsible for the preparation of financial reports of Eni, respectively, also pursuant to rule 154-bis, paragraphs 3 and 4 of Legislative Decree No. 58/1998, certify that internal controls over financial reporting in place for the reparation of the Annual Report as of December 31, 2009 and during the period covered by the report, were: | |
adequate to the company structure, and | ||
effectively applied during the process of preparation of the report. | ||
2. | Internal controls over financial reporting in place for the preparation of the 2009 consolidated accounts have been defined and the evaluation of their effectiveness has been assessed based on principles and methodologies adopted by Eni in accordance with the Internal Control-Integrated Framework Model issued by the Committee of Sponsoring Organizations of the Treadway Commission, which represents an internationally-accepted framework for the internal control system. | |
3. | The undersigned officers also certify that: | |
3.1 | This 2009 consolidated Annual Report: | |
a) was prepared in accordance with the evaluation and measurement criteria adopted by the European Commission according to the procedure set forth in Article 6 of the European Regulation (CE) No. 1606/2002 of the European Parliament and European Council of July 19, 2002; | ||
b) corresponds to the companys evidence and accounting books and entries; | ||
c) fairly represents the financial condition, results of operations and cash flows of the parent company and the Group consolidated companies as of, and for, the period presented in this report. | ||
3.2 | The operating and financial review provides a reliable analysis of business trends and results, including trend analysis of the parent company and the Group companies, as well as a description of the main risks and uncertainties. |
March 11, 2010
/s/ Paolo Scaroni Paolo Scaroni Chief Executive Officer |
/s/Alessandro Bernini Alessandro Bernini Chief Financial Officer |
315
ENI ANNUAL REPORT / REPORT OF INDEPENDENT AUDITORS
Report of Independent Auditors
316
ENI ANNUAL REPORT / REPORT OF INDEPENDENT AUDITORS
317
Investor
Relations Piazza Ezio Vanoni, 1 - 20097 San Donato Milanese (Milan) Tel. +39-0252051651 - Fax +39-0252031929 e-mail: investor.relations@eni.com
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eni spa
Internet Home
page: www.eni.com ADRs/Depositary ADRs/Transfer
agent Design: Opera |
Eni announces its 2010-2013
Strategic Plan
2004-2009 leading production growth among peers
San Donato Milanese (Milan), March 12, 2010 - Paolo Scaroni, CEO of Eni, today presents the company's 2010-2013 strategic plan to the financial community.
Eni confirms its strategic priorities of delivering robust long-term hydrocarbon production growth superior to the average growth of its peers, and of strengthening its leadership in the European gas market, in spite of the uncertainties surrounding economic recovery and volatile energy markets. These objectives will be pursued by leveraging on the companys unique integrated business model while maintaining a strong balance sheet and continuing to create value for shareholders.
Exploration & Production
Eni confirms its strategy of delivering production growth,
with an average annual rate of more than 2.5% for the 2010-2013
period. This growth strategy is based on organic development.
Beyond the four year plan, Eni expects to maintain robust
production growth with an average annual rate of more than 2% up
to 2016.
Assuming a $65 per barrel price scenario, in 2010 hydrocarbon
production will be in line with 2009 (assuming the same level of
OPEC cuts and planned disposals) and will exceed 2 million
boe/day in 2013.
Aside from the areas in which Eni has a consolidated presence, such as Africa, the Caspian region and OECD countries, production growth will be focused on new high potential areas, particularly Iraq.
In the next four years, Eni will take on stream 41 new fields. This will result in about 560,000 boe/day of new production in 2013, 75% of which will be operated by Eni.
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New production has an average break even of $40 per barrel thanks to:
Gas & Power
Eni will consolidate its leading position in the European natural gas market leveraging on its commercial strength enhanced by the Distrigas acquisition, long term relations with supplying countries and on the access to international transport facilities.
In the four-year period, Eni will grow its international gas sales by an average higher than 3% a year, targeting annual gas sales of 118 billion cubic meters and market share in Europe of more than 22% by 2013.
In the four-year plan, thanks to stable growth in regulated activities and the strengthening of commercial activities, Enis G&P division will achieve an average pro-forma adjusted EBITDA of euro 4.4 billion per annum. This result will be achieved despite the earnings reduction due to the announced sale of the TAG, TENP and Transitgas pipelines by the end of 2010.
Refining & Marketing
Enis strategy in R&M focuses on the selective strengthening of its refining system, the improvement in the quality of its marketing activities, and the widespread increase in operating efficiency. The objective is to reach a positive free cash flow from 2012.
In refining, Eni intends to exploit proprietary technologies to increase the complexity and flexibility of the plants, and the yield in middle distillates. In marketing, Eni aims to consolidate its leadership in the Italian market and its presence in other European Countries, through loyalty programs, the introduction of the Eni brand on the network and broadening its non-oil products offer. The objective is to achieve a 34% market share in Italy by 2013 more than two points higher than in 2009.
Investment plan and efficiency program
In the 2010-2013 period, Eni plans investments of euro 52.8 billion, an increase of approximately 8% vs. the 2009-2012 plan. This increase will be driven entirely by the E&P sector for the development of new projects, particularly in Iraq and Venezuela, which will contribute to Enis production growth in the four-year period and beyond.
- 2 -
Finally, Eni reiterates its focus on efficiency, targeting overall savings on operating costs of euro 2.4 billion by 2013, a 20% increase on the savings target in the previous plan.
Company contacts:
Press Office: Tel. +39.0252031875 -
+39.065982398
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +39. 800 11 22 34 56
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Web site: www.eni.com
- 3 -
Eni convenes the Annual Shareholders Meeting
Rome, March 23, 2010 - Eni's Board of Directors called the Annual Shareholders' Meeting on April 27 and 29, 2010, on first and second call respectively, and an extraordinary shareholders' meeting on April 23, 27 and 29, 2010 on first, second and third call respectively. The meetings have been scheduled to approve the 2009 financial statements, the application of revenues, the appointment of the auditor and certain changes in Enis by-laws. Included in these are bylaws required to incorporate some of the regulatory changes introduced by Legislative Decree No. 27 of January 27, 2010 for the implementation of the Directive 2007/36/EC related to the execution of certain rights of the shareholders of listed companies.
Notice of Shareholders meeting, Eni's 2009 Annual Financial Report and Board of Directors Report will be available on Eni's website www.eni.com.
Company contacts:
Press Office: Tel. +39.0252031875 -
+39.065982398
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +39. 800 11 22 34 56
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Web site: www.eni.com
Eni SpA
Registered Office: Piazzale Enrico Mattei, No. 1, Rome - Italy
Company Share capital euro 4,005,358,876.00 fully paid up
Rome Companies Register - Tax Identification Number 00484960588
VAT Number 00905811006 R.E.A. Rome No. 756453
NOTICE OF SHAREHOLDERS' MEETING
Shareholders of Eni SpA are hereby invited to attend the Ordinary Shareholders' Meeting, which will be held in Rome, Via del Serafico, 79, on April 27, 2010 at 10:00 a.m. (CET) on first call and, if necessary, on April 29, 2010, on second call, respectively, at the same time and location and the Extraordinary Shareholders' Meeting, which will be held on April 23, 2010 on first call and, if necessary, on April 27 and April 29, 2010, at the same time and location, on second and third call, respectively.
AGENDA
ORDINARY PART
EXTRAORDINARY PART
How to participate in the Shareholders Meeting
Admission to the Shareholders Meeting is subject to
the delivery of the notification of attendance issued by
authorised financial intermediaries at least two working days
before the date of the Shareholders Meeting.
Shareholders and other persons entitled may ask to their financial intermediary to withdraw said communication; if they avail of this faculty, they will not be able to take part in the Shareholders Meeting.
In order to take part in the Shareholders Meeting, Shareholders holding shares not yet in uncertificated form, shall previously deliver said shares to a financial intermediary in order to have them deposited with the Italian Securities Register Centre and subsequently transformed into uncertificated form and request the above-mentioned notification of attendance.
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How Shareholders may request to add other items in the
agenda
Pursuant to Article 13, first Paragraph, of the By-laws,
the Shareholders that, severally or jointly, represent at least
2.5% of Eni share capital, may ask, within five days as of the
date of publication of this 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 in said Article.
How to vote by proxy
In order to simplify controls of powers entitling the
participation in the Shareholders Meeting, people who
intend to participate in the Meeting as legal or voluntary
representatives of Shareholders or other people entitled to take
part in it are requested to deliver to Eni SpAs Corporate
Secretarys Office the deeds entitling them to said
participation, by mail, also in copy, or by fax, at least two
days before the date of the Meeting.
The proxy is at the foot of the notification of attendance issued
by authorised financial intermediaries for the admission to the
Meeting.
How to vote by mail
Vote may be exercised also by mail pursuant to current
legislation and subject to the delivery of the above mentioned
notification of attendance by the authorised financial
intermediaries. Shareholders willing to exercise their vote by
mail are entitled to request the Vote by Mail Card and a return
envelope to the Company.
In order to consider the votes by mail valid, envelopes
containing the Vote by Mail Card, duly filled in and signed,
shall be received by Eni SpAs Corporate Secretarys
Office, Piazzale Enrico Mattei, 1 - 00144 Rome, Italy within
forty-eight hours before the Shareholders Meeting.
Votes by mail contained in the Vote by Mail Cards received after
said term will not be taken into consideration. Vote by mail must
be exercised personally by the person entitled to vote on each
proposal presented.
The vote by mail may be withdrawn through a declaration to be
delivered to the Company at least one day before the
Shareholders Meeting.
Information regarding ADRs holder
Beneficial Owners of ADRs, listed on the New York Stock
Exchange, each ADR representing two Eni ordinary shares, who are
recorded in Eni ADRs register of JPMorgan Chase Bank, NA, ADRs
Depositary, by March 25, 2010 will be entitled to participate in
the Meeting, delegate the exercise of their voting right or to
exercise votes by mail, after having complied with the deposit
and registration requirements contained in Eni ADR Deposit
Agreement; also Beneficial Owners who have taken advantage of
Proxy Vote or Vote by Mail options are entitled to assist at the
Meeting upon written request to be made to JPMorgan Chase Bank,
NA.
- 2 -
Information for Eni Shareholders
The report on the proposals of resolutions of the Board
of Directors to the Shareholders on each item of the Agenda will
be deposited at the Companys Registered Office and with the
Borsa Italiana SpA (the Italian Stock Exchange) by the terms set
forth by current legislation and shall remain at the
Shareholders disposal until the date of the
Shareholders Meeting.
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.
Shares may not be split up and each share is entitled to one vote, Eni treasury shares on the date of the Meeting excluded.
* * *
Experts, financial analysts and journalists wishing to attend the Shareholders Meeting shall deliver, by mail or fax, a request to Eni SpAs Corporate Secretarys Office at least two days before the date of the Meeting.
To timely comply with admission and registration procedures, Shareholders are kindly requested to arrive at the Meeting in advance of the start time of the Meeting itself. Registration for the Meeting will take place at the same location of the Meeting and will start at 9:00 a.m. (CET).
Eni SpA's Corporate Secretarys Office is available for any further information Shareholders may need at the toll-free number 800 940 924 (for calls from abroad Italy: 80011223456, after dialling the International Access Code (+), fax number + 39 06 59822233 or by e-mail at segreteriasocietaria.azionisti@eni.com.
In consideration of Eni shareholdings, the Ordinary and Extraordinary Shareholders Meeting should be held on April 29, 2010.
A notice to inform on the effective date of the Shareholders Meeting will be published on "Il Sole 24 Ore", "Corriere della Sera", "Financial Times" and on website www.eni.com.
The Notice, published on the Italian Official Gazette, "Il Sole 24 Ore", "Corriere della Sera" and "Financial Times" and the documentation regarding the Shareholders Meeting will be available on website www.eni.com and may be requested by e-mail at segreteriasocietaria.azionisti@eni.com or by calling the above-mentioned toll-free numbers or by fax.
The Chairman of the
Board of Directors |
- 3 -
Eni SpA
Registered Office: Piazzale Enrico Mattei, No. 1, Rome - Italy
Company Share capital euro 4,005,358,876.00 fully paid up
Rome Companies Register - Tax Identification Number 00484960588
VAT Number 00905811006, R.E.A. Rome No. 756453
NOTICE OF BONDHOLDERS' MEETING
Bondholders of "ENI TV 2009-2015" are hereby invited to attend the Bondholders' Meeting, which will be held in Rome, Via del Serafico, 79, on April 23, 2010 at 11:00 a.m. (CET) on first call and, if necessary, on April 26 and April 27, 2010, at the same time and location, on second and third call, respectively
AGENDA
- Appointment of the representative of Bondholders, determination of duration in office and of his compensation.
Admission to the Bondholders Meeting is subject to the delivery of the notification of attendance issued by financial intermediaries at least two working days before the date of the Bondholders Meeting on first call.
Eni SpA's Corporate Secretarys Office is available for any further information Bondholders may need at the toll-free number 800 940 924 for calls [from abroad Italy: 800 112 234 56, before dialling the international access code (+)] or fax number + 39 06 59822233.
- 1 -
The Notice, published on the Italian Official Gazette, "Il Sole 24 Ore" and other newspapers of general circulation, will be available on website www.eni.com.
The Chairman of the
Board of Directors |
- 2 -
Eni SpA
Registered Office: Piazzale Enrico Mattei, No. 1, Rome - Italy
Company Share capital euro 4,005,358,876.00 fully paid up
Rome Companies Register - Tax Identification Number 00484960588
VAT Number 00905811006, R.E.A. Rome No. 756453
NOTICE OF BONDHOLDERS' MEETING
Bondholders of "ENI TF 2009-2015" are hereby invited to attend the Bondholders' Meeting, which will be held in Rome, Via del Serafico, 79, on April 23, 2010 at 9:00 a.m. (CET) on first call and, if necessary, on April 26 and April 27, 2010, at the same time and location, on second and third call, respectively
AGENDA
1. Appointment of the representative of Bondholders, determination of duration in office and of his compensation.
Admission to the Bondholders Meeting is subject to the delivery of the notification of attendance issued by financial intermediaries at least two working days before the date of the Bondholders Meeting on first call.
Eni SpA's Corporate Secretarys Office is available for any further information Bondholders may need at the toll-free number 800 940 924 for calls [from abroad Italy: 800 112 234 56, before dialling the international access code (+)] or fax number + 39 06 59822233.
- 1 -
The Notice, published on the Italian Official Gazette, "Il Sole 24 Ore" and other newspapers of general circulation, will be available on website www.eni.com.
The Chairman of the
Board of Directors |
- 2 -
ENI SPA ORDINARY
SHAREHOLDERS MEETING ON APRIL
27 AND 29, 2010 REPORT
OF THE BOARD OF DIRECTORS |
The Italian text prevails over the translation into English
- 1 -
ENI SPA
ORDINARY SHAREHOLDERS MEETING
ON APRIL 27
AND 29, 2010
RESPECTIVELY ON FIRST AND SECOND CALL
EXTRAORDINARY SHAREHOLDERS MEETING
ON APRIL
23, 27 AND 29, 2010
RESPECTIVELY ON FIRST, SECOND AND THIRD CALL
Report of the Board of Directors
on the proposals presented to the Meeting
ORDINARY MEETING
ITEM 1
ENI FINANCIAL STATEMENTS
AT DECEMBER
31, 2009; ENI CONSOLIDATED FINANCIAL
STATEMENTS AT DECEMBER 31, 2009;
REPORT OF THE DIRECTORS ON THE COURSE OF THE
BUSINESS; REPORT OF THE BOARD OF STATUTORY
AUDITORS
AND REPORT OF THE INDEPENDENT AUDITORS
Dear Shareholders,
The document "Financial Statements at December 31, 2009" of Eni SpA deposited at the companys registered offices and with Borsa Italiana SpA contains the details on the annual financial statements for Eni SpA and the consolidated financial statements. Reference should therefore be made to this document.
You are invited to approve the financial statements at December 31, 2009 of Eni SpA which show profits of 5,060,639,549.44 euro.
ITEM 2
ALLOCATION OF NET INCOME
Dear Shareholders,
in relation to the results achieved, the Board of Directors proposes that you resolve as follows:
- | the allocation of the profit for the period of 5,060,639,549.44 euro, of which 3,249,436,231.44 euro remains following the distribution of the 2009 dividend advance of 0.50 euro per share resolved by the Board of Directors on September 10, 2009 and paid out on September 24, 2009, as follows: |
| to Shareholders as dividend 0.50 euro per share owned and outstanding at the coupon detachment date, excluding treasury shares in the portfolio on that date, completing payment of the dividend for the financial year 2009; the total dividend per share for financial year 2009 therefore amounts to 1 euro; | |
| to the statutory Reserve the amount remaining following the distribution of the proposed dividend; |
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- | to the balance of the 2009 dividend will be paid beginning on May 27, 2010, with coupon detachment set for May 24, 2010. |
ITEM 3
APPOINTMENT OF THE INDEPENDENT AUDITORS FOR THE PERIOD 2010-2018
Dear Shareholders,
on the date set for the Shareholders Meeting to approve the financial statements at December 31, 2009 the mandate conferred on PricewaterhouseCoopers SpA to audit the company conferred by the Shareholders Meeting of May 28, 2004 for the three year period 2004-2006 and extended for the period 2007-2009 by the Shareholders meeting of May 24, 2007 lapses.
The Board submits for the Meetings approval the motivated proposal presented by the Board of Auditors relative to the conferral of the auditing mandate for Eni SpAs financial statements for the period 2010-2018, as below:
"Dear Shareholders,
In view of the fact that:
| with the 2009 financial year, the mandate conferred on PricewaterhouseCoopers (PwC) to audit the company and consolidated financial statements of Eni lapses, and since the mandate was extended previously and has in fact been in force for nine years, it is no longer renewable pursuant to art. 159, clause 4, of Lgs. Decree 58 of February 24, 1998, and it is necessary to confer the mandate on another auditing firm; | |
| pursuant to art. 159, clause 1, of Lgs. Decree 58 of February 24, 1998, the Shareholders Meeting held to approve the financial statement "shall confer the mandate for the auditing of the company and consolidated financial statements on an auditing firm included on the special list contemplated by article 161, and approve the relative fee" on the basis of a "motivated proposal presented by the Board of Auditors"; | |
| pursuant to art. 159, clause 4, of Lgs. Decree 58 of February 24, 1998, the mandate must be conferred for a period of 9 financial years: | |
| the Eni SpA shares are also listed on the New York Stock Exchange and because of this circumstance Eni SpA is also subject to United States law, and consequently: |
(i) | by resolution of the Eni SpA Board of Directors of March 22, 2005, and under the right granted by the U.S. Securities and Exchange Commission ("SEC") in Rule 10A-3 to foreign issuers listed in the USA, the Eni SpA Board of Auditors has been assigned, within the limits allowed by Italian law, the functions attributed by the Sarbanes-Oxley Act and by the SEC provisions to the Audit Committees of USA issuers including, in particular, responsibility for the appointment and supervision of the auditing firm; |
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(ii) | on the basis of Rule 2-01 of Regulation S-X issued by the SEC, the subject charged with auditing the accounts must hold the requisites of independence, which include incompatibility relative to the performance of certain professional services for the company subject to auditing as from the former of either the date on which the mandate is formally accepted or that of the start of the first financial year to which the mandate refers, and therefore, in this specific case, as of January 1, 2010; it is therefore necessary to choose the subject proposed for the mandate before this date in order to guarantee respect for the incompatibility rule contemplated by the laws in force; |
| according to No. 9 of Appendix II A to Lgs. Decree 163 of April 12, 2006 (the Contracts Code), companies that are subject to the discipline of the said Code must confer mandates for "Accounting, accounts auditing and bookkeeping" in compliance with the Code. |
In view of the above, the Eni SpA Board of Auditors, with the assistance of the company structures (Administration and Accounts, Legal Affairs, Internal Audit and Global Procurement and Strategies Sourcing1), has carried out the necessary activities to formulate its motivated proposal, and specifically:
| at the meeting held on April
23, 2009, it approved the procedure for the selection of
the subject to be proposed to the Shareholders
Meeting for the mandate, to be chosen by a competitive
procedure to be conducted according to the so-called
"limited scope procedure" contemplated by art.
55, clause 6, of the Contracts Code, in consideration of
the particular complexity, difficulty and term of the
mandate. At the same meeting, the requisites to be held
by the subjects to be admitted to the tender procedure
were approved, and specifically: (a) enrolment on the CONSOB list; (b) overall sales in Italy of more than 60 million euro; (c) experience as auditor for at least one of the companies included in the SP MIB 40 in the period 2004-2008. Considering the criteria adopted, Deloitte & Touche, Reconta Ernst & Young, KPMG and PricewaterhouseCoopers qualified (the last, pursuant to art. 159, clause 4, of Lgs. Decree 58 of February 24, 1998, was excluded from the second stage of the limited scope procedure, having been the auditing form for Eni SpA in the last 9 financial years); |
|
| at the meetings of July 1 and 14, 2009, it approved the technical specifications of the tender procedure and the Scoring Model (the criteria for assessment of the offers), contemplating, in particular, that the choice should be made on the basis of the best "overall price", obtained by adding a value ("price addition") to the price offered by the bidders, linked to the difference between the points attributed to the technical aspects of each offer and the point attributed to the best technical offer; | |
| on October 15 and 16, 2009, it examined the documentation offered by the bidders; | |
| in the meetings of October 21 and 22, 2009, it met the bidders to examine the approach to the auditing proposed by them and to examine the results of the analysis of the technical documentation attached to the offers, particularly with regard to the following elements; (i) quality and adherence of the proposals to the customers needs; (ii) professional references of the individuals that the bidder would use to |
(1) | Representatives of these head management departments were appointed, on September 18, 2009, as members of a special Inquiry Commission for the analysis of the Administrative, Technical and Economic offers presented by competitors, for the purpose of successive assessment on the part of the Board of Auditors. |
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perform the tasks (professional skills held, experience gained in the period 2004-2008 in accounts auditing carried out for companies listed on the S&P MIB 40 and in Oil and Gas companies with sales, at December 31, 2008, of US$ 50 billion or more, certifications relative to languages known); (iii) plan for the auditing of the financial statements of Eni SpA and its subsidiaries for the financial years 2010-2018; (iv) methodology, operating instruments and tools or aids used; (v) attention to matters of internal auditing system analysis; | ||
| in the meeting of October 28, 2009, it drew up the overall assessment of the technical aspects of the offers, identifying, as the best technical offer, the proposal of Reconta Ernst & Young; | |
| in the meeting of November 18, 2009, the Board of Auditors, acknowledging the conclusions of the examination of the technical offers, identified, as the best offer also from the best "overall price" aspect, that of Reconta Ernst & Young, and it pointed out that: |
| the plan for the auditing of the financial statements of Eni SpA and its subsidiaries illustrated in the proposal of Reconta Ernst & Young was consistent with the criteria of reference indicated by the Board of Auditors meeting of July 14, 2009; | |
| the said proposal contained the description of the nature of the task, indication of the activities and the relative means for execution of the same, with specific reference, for the financial years 2010-2018: |
- | the auditing of the company financial statement; | |
- | the auditing of the consolidated financial statement; | |
- | check on how the companys accounts are kept; | |
- | a limited audit for the six-monthly report; | |
- | verification of Form 20F; |
| the estimate of the hours of work to be carried out by Reconta Ernst & Young to audit the financial statement and for the other above-mentioned connected audit activities was substantially in line with the volume of hours calculated a posteriori by the outgoing auditing firm, which was deemed adequate by the Board of Auditors; | |
| there was no relevant difference between the total fees, an important but not priority element, requested by Reconta Ernst & Young and the various other proposals, and the figure quoted by Reconta Ernst & Young was deemed adequate also compared to the fees of the outgoing auditing firm, and such to guarantee the quality and reliability of the work as well as the auditing firms independence (pursuant to art. 145-bis of the CONSOB Regulation for the implementation of Lgs. Decree 58 of February 24, 1998); | |
| discounts were contemplated on the hourly tariff, due to the keen interest in establishing a lasting professional relationship with a company of prestige and, on the basis of the confirmation expressed by the auditing firm itself, with no reduction of the estimated hours, which could compromise the necessary quality of the work, as illustrated during the meeting held with the bidder; | |
| the Partner responsible for the mandate would be Mr. Riccardo Schioppo. |
The Board of Auditors therefore passed resolution in favour of proposing to the Shareholders Meeting the assignment of the mandate on Reconta Ernst & Young, subject to the acquisition of the certifications requested by Rule 3526 of the Public Company Accounting Oversight Board (PCAOB), relative to situations that can raise doubts on the independence of the subject proposed for the accounts auditing at the date of the opening of the first financial year to which the mandate refers.
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| On February 10, 2010, Reconta Ernst & Young presented the certifications required by Rule 3526 of the PCAOB, which confirmed the inexistence of situations and/or mandates that could cause doubts on the independence of the subject proposed for auditing, and the said certifications were acknowledged by the Board of Auditors in the meeting held on February 11, 2010. |
Given all the above,
the Eni SpA Board of Auditors proposes to the Eni SpA Ordinary Shareholders' Meeting conferment on the auditing firm Reconta Ernst & Young, for the nine-year term 2010-2018, of mandate:
| to audit the company financial statement, pursuant to art. 159 of Legislative Decree 58 of February 24, 1998; | |
| to audit the consolidated financial statement, pursuant to art. 159 of Legislative Decree 58 of February 24, 1998; | |
| to verify, during the course of the financial period, that the companys accounts are regularly kept and the management events are correctly entered in the accounts, pursuant to art. 155 of Legislative Decree 58 of February 24, 1998; | |
| to perform a limited audit for the six-monthly financial report, pursuant to CONSOB directives (No. 97001574/1997 and No. 10867/1997); | |
| to verify Form 20F. |
For the above indicated auditing work, Reconta Ernst & Young SpA proposed fees for 2010 amounting to a total of euro 2,527,543 and for 2010-2018 for a total of euro 20,346,714, divided as follows:
(amounts in euro)
Activity | 2010 | 2010-2018 | ||
Hours | Fee | Hours | Fee | |
a) Auditing of the company financial statement | 20,733 | 1,410,176 | 166,898 | 11,351,734 |
b) Auditing of the consolidated financial statement | 4,453 | 302,875 | 35,847 | 2,438,170 |
c) Verification, during the financial period, that the accounts are correctly kept | 4,682 | 318,451 | 37,692 | 2,563,659 |
d) Limited audit for the six-monthly report | 4,193 | 285,191 | 33,754 | 2,295,812 |
e) Verification of Form 20F | 3,100 | 210,850 | 24,955 | 1,697,339 |
Total | 37,161 | 2,527,543 | 299,146 | 20,346,714 |
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The following table shows the breakdown according to the various activities to be carried out in 2010, with reference to effort, tariff and fees of the individual professionals.
a) Eni SpA: Company financial statement audit
(amounts in euro)
Category | Hours | Hour mix % | Fees | |
Hourly2 | Total | |||
Partner | 2,073 | 10 | 145 | 300,585 |
Manager | 7,257 | 35 | 89 | 645,873 |
Senior | 6,220 | 30 | 52 | 323,440 |
Assistant | 5,183 | 25 | 27 | 139,941 |
Net total (rounded up/down) | 20,733 | 1,410,176 |
b) Eni SpA: Consolidated financial statement audit
(amounts in euro)
Category | Hours | Hour mix % | Fees | |
Hourly2 | Total | |||
Partner | 445 | 10 | 145 | 64,525 |
Manager | 1,559 | 35 | 89 | 138,751 |
Senior | 1,336 | 30 | 52 | 69,472 |
Assistant | 1,113 | 25 | 27 | 30,051 |
Net total (rounded up/down) | 4,453 | 302,875 |
c) Eni SpA: Verification, during the financial period, that the accounts are correctly kept
(2) | For clearer summarised representation, the hourly fees are rounded up/down to the nearest euro. |
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(amounts in euro)
Category | Hours | Hour mix % | Fees | |
Hourly2 | Total | |||
Partner | 468 | 10 | 145 | 67,860 |
Manager | 1,639 | 35 | 89 | 145,871 |
Senior | 1,405 | 30 | 52 | 73,060 |
Assistant | 1,170 | 25 | 27 | 31,590 |
Net total (rounded up/down) | 4,682 | 318,451 |
d) Eni SpA: Limited audit for the six-monthly report
(amounts in euro)
Category | Hours | Hour mix % | Fees | |
Hourly2 | Total | |||
Partner | 419 | 10 | 145 | 60,755 |
Manager | 1,468 | 35 | 89 | 130,652 |
Senior | 1,258 | 30 | 52 | 65,416 |
Assistant | 1,048 | 25 | 27 | 28,296 |
Net total (rounded up/down) | 4,193 | 285,191 |
e) Eni SpA: Verification of Form 20F
(amounts in euro)
Category | Hours | Hour mix % | Fees | |
Hourly2 | Total | |||
Partner | 310 | 10 | 145 | 44,950 |
Manager | 1,085 | 35 | 89 | 96,565 |
Senior | 930 | 30 | 52 | 48,360 |
Assistant | 775 | 25 | 27 | 20,925 |
Net total (rounded up/down) | 3,100 | 210,850 |
The above indicated fees, regarding only the performance of the work, have been determined according to the criteria laid down in CONSOB communication No. 96003556 of April 18, 1996, and shall be adjusted annually to the extent of 75% of the part exceeding 6% of the variation in the cost of living index, taking as base 100 the index for January 2010. The adjustment shall be calculated on the cumulative index, taking the contractual fees as the base. Any travel expenses to Italy for work performed
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elsewhere than on the premises of the auditing firms
network shall be reimbursed against the presentation of relative
justifying documents; allowance for board and lodging shall be
recognised according to specific flat parameters. Such expenses
shall be recognised only if the auditing firms network has
no office in the various localities where Eni is present on the
territory (to this regard, the head office at San Donato Milanese
must not be considered any differently from the Milan offices of
the auditing firm's network). In the case of any travel or
transfer expenses sustained by the auditing firm abroad for work
performed outside the areas where its network offices are
located, the documented cost, within normal limits, shall be
reimbursed on presentation of justifying documents.
The contribution for supervision due to the CONSOB by the
auditing firm shall be refunded by Eni SpA.
The said adjustments/expenses/contributions, are estimated at
equal to 18% of the annual fee to be recognised to the auditing
firm.
The above fees may vary subsequent to exceptional events that are
entirely impossible to foresee at the moment of the stipulation
of the contract.
***
The Boards of Auditors of Saipem SpA and of Snam Rete Gas SpA have proposed to their respective Shareholders Meetings to confer mandate on the auditing firm Reconta Ernst & Young SpA for the auditing of their financial statements for the nine-year term 2010-2018; consequently, if the said Meetings approve the proposal, the auditing firm shall undertake the same auditing duties for the same and for their respective subsidiaries. The auditing firm Reconta Ernst & Young will also perform the additional activities contemplated by art. 165 of Lgs. Decree 58 of February 24, 1998, according to the means prescribed by document No. 600 of the Auditing Principles; this involves the assumption of full responsibility on the part of the said auditing firm for the work performed on the financial statements audited by other auditors. With the assumption of this responsibility, Reconta Ernst & Young, in its report on the consolidated financial statement, shall undertake the role and responsibility of Sole Auditor of the Group.
The overall proposal of the auditing firm therefore regards not only Eni SpA but also the other 397 companies of the Group, and is structured as follows:
(amounts in euro)
2010 | 2010-2018 | |||
Hours | Fee | Hours | Fee | |
Eni SpA and subsidiaries | 259,491 | 16,502,488 | 2,097,856 | 133,379,211 |
of which, for accounts auditing | 167,237 | 10,372,933 | 1,346,425 | 83,513,742 |
of which, for SOX activities | 75,110 | 5,048,515 | 597,135 | 40,136,103 |
of which, for additional duties | 17,144 | 1,081,040 | 154,296 | 9,729,365 |
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Saipem SpA and subsidiaries | 77,742 | 4,826,089 | 628,137 | 39,001,978 |
of which, for accounts auditing | 67,660 | 4,161,361 | 544,742 | 33,504,252 |
of which, for SOX activities | 6,989 | 461,504 | 55,558 | 3,668,709 |
of which, for additional duties | 3,093 | 203,224 | 27,837 | 1,829,017 |
SRG SpA and subsidiaries | 15,145 | 1,030,104 | 123,546 | 8,403,105 |
of which, for accounts auditing | 8,910 | 606,024 | 71,750 | 4,880,148 |
of which, for SOX activities | 4,112 | 279,682 | 32,689 | 2,223,375 |
of which, for additional duties | 2,123 | 144,398 | 19,107 | 1,299,582 |
TOTAL | 352,378 | 22,358,681 | 2,849,539 | 180,784,294 |
Board of Auditors"
Dear Shareholders,
you are invited to approve the proposal presented to you relative to the conferral of the auditing mandate for Eni SpAs financial statements for the period 2010-2018 according to the terms and conditions proposed by the Board of Auditors.
EXTRAORDINARY MEETING
ITEM 1
PROPOSED
AMENDMENTS TO ARTICLES 1, 4, 12, 14, 15 AND
16 OF THE BY-LAWS.
RELATING AND RESULTING
RESOLUTIONS
Dear Shareholders,
On March 5, 2010 Lgs. Decree 27 of January 27, 2010 was
published in the Official Gazzette. This Decree transposes into
Italian law Directive 2007/36/CE, in relation to certain rights
granted to Shareholders of listed companies, and the company's
By-laws must therefore be changed to ensure compliance.
It has therefore been decided, to this end, to present to the
Meeting the changes for which the new law assigns a margin of
choice to the company. The remaining changes to the By-laws,
which involve mere updating to comply with the new rules, will be
left to the Board of Directors.
All changes to the By-laws required by the decree will become
effective, by law, following the meetings for which the call to
convene is published after October 31, 2010; until this date the
statutory rules replaced or cancelled will still remain in force.
In consideration of the above, the Board of Directors proposes
the following changes:
Shareholders meeting for the approval of annual
financial statement
The combined provisions of Article 154-ter of Lgs.
Decree 58 of February 24, 1998 as modified by the aforementioned
Decree 27 of January 27, 2010, and Article 2364,
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second paragraph of the Civil Code, permit companies required to draw up consolidated financial statements to call, as in the past, the Shareholders Meeting for their approval within the extended term of 180 days after the end of the financial year, while the draft financial statements approved by the Board of Directors, together with the annual financial report, must still be published within 120 days of the end of the financial year. Eni intends to take this option, which will allow for greater flexibility, as well as safeguarding the interests of Shareholders and the market regarding timely communication of the annual results; it is therefore proposed that Article 12 of the By-laws be modified.
Single call for the Shareholders Meetings
Lgs. Decree 27 of January 27, 2010 changes Article 2369 of
the Civil Code, establishing that the By-laws of companies that
have recourse to the market for risk capital may rule out the
possibility of calls for Shareholders Meetings subsequent
to the first laying down that, for the Ordinary Meeting in single
call the same majorities apply as in the second call and, for the
Extraordinary Meeting, the majorities applicable be those
envisaged for all calls following the second.
With regard to the aforementioned rule it is proposed that
Article 16 of the By-laws be modified so that both the Ordinary
Shareholders Meeting and the Extraordinary
Shareholders Meeting be called normally with multiple
calls, but that the Board of Directors may resolve, if necessary,
that both the Ordinary and Extraordinary Meeting take place
following a single call. This change consequently entails that in
each reference in the By-laws to the first call of the
Shareholders' Meeting, the case of the single call must be added.
In making the updates to the Articles to ensure compliance with
the law following the Shareholders' Meeting, the Board of
Directors will also make adjustments to the references.
Electronic conferral and notification of meeting proxies
The new article 135-novies of Lgs. Decree 58 of
February 24, 1998 introduces specific rules regarding
representation in the Shareholders Meetings of companies
that have recourse to the market for risk capital. These rules
are added to the previously established regulations. More
specifically, the above mentioned Article, in paragraph 6,
establishes that the proxy may be conferred by electronic means
according to the prescriptions laid down in regulations to be
issued by the Ministry of Justice, following consultation with
Consob. Furthermore, the companies must indicate in their own
By-laws at least one means of electronic proxy notification that
the Shareholders have the right to use. It is proposed that
Article 14 of the By-laws be modified, with reference to the
electronic proxy conferral procedure provided for in the
regulations to be issued by the Ministry of Justice. In this
instance, the Shareholder may also take advantage of the
possibility of notifying proxy by electronic means via a specific
section of the Company's website according to the means laid down
in the meeting notice.
Shareholders Meeting attendance via Telecommunication
systems and electronic voting
The combined provisions of Articles 2370, paragraph 4 of the
Civil Code and 127 of Lgs. Decree 58 of February 24, 1998, as
modified by Lgs. Decree 27 of January 27, 2010, grant companies
the option of allowing legitimate subjects to take part in
Meetings via Telecommunication systems and to cast their vote
electronically as well as by mail. While awaiting the publication
of the Consob regulations prescribed by Article 127 of Lgs.
Decree 58 of February 24, 1998 and once defined the technical
modalities, it is proposed to introduce the new rule in Article
14 of the By-laws. The indication of the possibility of using
Telecommunication systems to take part in
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Meetings and electronic voting will be included in the meeting call. This possibility will in no way jeopardize the possibility of voting by mail.
Shareholders representative designated by the company
Article 135-undecies of Lgs. Decree 58 of February 24,
1998, introduced by Lgs. Decree 27 of January 27, 2010, requires
that listed companies designate a subject for each
Shareholders Meeting to whom Shareholders may confer
proxies along with voting instructions on all or some of the
proposals on the agenda, according to the conditions and
procedures established by the mentioned Decree 27 of January 27,
2010 itself. The rule applies unless the By-laws provide
otherwise. It is therefore proposed that Article 14 of the
By-laws be modified so that Eni may make use of the opportunity
of designating a Shareholders representative.
* * *
In addition to the changes owing to the recent innovations of the aforementioned Decree 27 of January 27, 2010, it has been deemed advisable to take advantage of this occasion to change certain other By-Laws provisions. The Board therefore proposes to the Shareholders' Meeting the following changes:
Company name
Further to the change of the company logo, it has become
necessary to change the instructions regarding the writing of the
company name by including in Article 1 of the By-laws the
provision that the Company name may also be written with a lower
case initial.
Specification of the Company purpose
A further specification of Company purpose is proposed,
purely in order to clarify it, by expressly including in Article
4 of the By-laws the energy sector in general, in consideration
of Eni's role, well known to the public, as an integrated energy
Company. The change does not give the right to withdrawal as
provided by Article 2437 of the Civil Code, as it does not
involve any significant change to the Company business, but only
gives rise to a more precise specification of this business.
Chairmanship of the Shareholders Meeting
A proposal is presented for the modification of Article 15 of
the By-laws in order to align its provisions to the recent legal
interpretation of Article 2371 of the Civil Code by eliminating
the generic reference to "any other person delegated by the
Board".
Dear Shareholders,
In view of all of the above, you are invited
- | to approve the changes to Articles 1, 4, 12, 14, 15 and 16 of Eni SpA's By-laws according to the text proposed, following written beside the text currently in effect. The changes relating to Articles 1, 4 and 15 will come into effect on the date on which they are registered in the Companies Register under the terms of Article 2436 of the Civil Code, while those relating to Articles 12, 14 and 16 will come into effect on November 1, 2010. |
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TEXT CURRENTLY IN EFFECT |
PROPOSED TEXT |
ART. 1 1.1 "Eni S.p.A." resulting from the transformation of Ente Nazionale Idrocarburi, a public law agency, established by Law 136 of February 10, 1953, is regulated by these by-laws. |
ART. 1 1.1 "Eni S.p.A." resulting from the transformation of Ente Nazionale Idrocarburi, a public law agency, established by Law 136 of February 10, 1953, is regulated by these by-laws. |
1.2 The company name may be written with an upper case or lower case initial. | |
ART. 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. |
ART. 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, 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. |
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ART. 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. |
ART. 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. | 12.2 Ordinary
shareholders meetings must be called at least once
a year, within 180 days of the end of the business
year, to approve the financial statements |
ART. 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. |
ART. 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 or by electronic means where this is provided for in specific regulations and according to the procedure laid down in these regulations. In this latter case, the electronic notification of the proxy may be carried out using a special section of the company's Website in accordance with the methods indicated in the meeting notice. 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. | 14.2 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. | 14.3 The right to vote may also be exercised by mail according to the laws and regulations in force concerning this matter. If envisaged in the meeting notice, all subjects with a right to vote may attend the meeting via telecommunication systems and exercise their right to vote by electronic means in compliance with the law, the regulations governing these matters and the meeting Regulations. |
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14.4 Eni S.p.A. shareholders' meetings are disciplined by Eni S.p.A.'s shareholders' meeting Regulation approved by the ordinary shareholders' meeting. | 14.4 Eni S.p.A. shareholders' meetings are disciplined by Eni S.p.A.'s shareholders' meeting Regulation approved by the ordinary shareholders' meeting. |
14.5 The company may designate a subject for each Shareholders meeting to whom the shareholders may confer a proxy with voting instructions on all or some of the proposals on the agenda. The conferral must comply with the law and with regulations, and must be conferred by the end of the second day of open market preceding the date set for the Shareholders meeting in first or single call. The proxy is not valid for proposals on which no voting instructions have been provided. | |
ART. 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. |
ART. 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 their absence, |
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. | 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. |
ART. 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. |
ART. 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. | 16.2 |
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. | 16.3 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. | 16.4 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. | 16.5 The minutes of extraordinary meetings must be drawn up by a notary public. |
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- | be aware that the Board of Directors, in making regulatory adjustments to the By-laws, will consider the modifications to the same according to the text proposed above and, in particular, to the "single call only" point for calling a Shareholders' Meeting; | |
- | grant the Chief Executive Officer the broadest powers in order to, even through the offices of agents and complying with all conditions and procedures of law, implement this resolution, deposit it with in the Company Register and, where opportune or necessary, to bring about formal additions, modification, or removals for registration in the Company Register. |
The Chairman of the
Board of Directors |
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Angelo Fanelli is the new COO of Eni Refining & Marketing
San Donato Milanese (Milan), March 25, 2010 - Following a specific deliberation of the Board of Directors, Angelo Fanelli has been appointed Chief Operating Officer of Eni Refining & Marketing Division, starting from April 6, 2010.
Angelo Caridi will be assigned to other office.
Eni thanks Angelo Caridi for the activity carried out and the results achieved as COO of the Refining & Marketing Division.
Company contacts:
Press Office: Tel. +39.0252031875 -
+39.065982398
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +39. 800 11 22 34 56
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Web site: www.eni.com
Gazprom completes payment for the 51% stake in SeverEnergia
San Donato Milanese (Milan), March 31, 2010 - Eni and Enel announce that today Gazprom has effected the payment of 1.182 billion US dollars to Artic Russia BV (60% Eni, 40% Enel) as the second and final tranche owed by Gazprom in respect of the sale and purchase agreement of a 51% participation interest in SeverEnergia, signed on June 5, 2009. The total consideration paid by Gazprom, including the first tranche paid on September 23, 2009, amounts to approximately 1.6 billion US dollars (Enis total share is 940 million US dollars of which 709 related to todays payment).
SeverEnergia, is the first Russian-Italian E&P company. It has offices in Moscow and operations in the Yamal-Nenets region (Western Siberia), which currently produces some 90% of Russian gas. As already stated in previous agreements, the parties are committed to producing first gas by 2011 from the Samburgskoye field and reaching a production level of about 150,000 boe per day within two years of the start of production.
Company contacts:
Press Office: Tel. +39.0252031875 -
+39.065982398
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +39. 800 11 22 34 56
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Web site: www.eni.com