4. CONTENTS
LETTER TO SHAREHOLDERS
PERFORMANCE REVIEW
PROFILE OF THE YEAR
BUSINESS REVIEW
COMMITMENT TO SUSTAINABLE DEVELOPMENT
FINANCIAL REVIEW
GROUP RESULTS FOR THE YEAR
FINANCIAL INFORMATION
DIRECTORS AND OFFICERS
INVESTOR INFORMATION
5. MISSION
2
We are a major integrated energy company, committed to growth in the activities of finding, producing,
transporting, transforming and marketing oil and gas. Eni men and women have a passion for challenges,
continuous improvement, excellence and particularly value people, the environment and integrity.
LETTER TO SHAREHOLDERS
Roberto Poli Paolo Scaroni
Chairman CEO
Over the next four years, we will invest €48.8 billion, slightly less than
2008 was an excellent year for Eni, both operationally and financially.
in the 2008-2011 plan.
Despite deteriorating market conditions over the last four months of
The projected free cash flow will allow us to maintain a dividend yield
the year, we delivered on our targets, leveraging on the resilience of
amongst the highest in the sector.
our business portfolio to achieve sector-leading growth and distribute
€5.7 billion to our shareholders.
In Exploration & Production, we achieved an adjusted net profit of
In 2008 we acquired Distrigas, gaining a strategic position in Belgium,
€8 billion, up 23.4% compared to 2007, driven by production growth
a key country in the European gas market due to its geographic
and improved mix in a favourable oil price environment. This was
location and its high level of interconnectivity with the Centre-North
partially offset by the appreciation of the euro against the dollar and
European transit gas networks.
higher operating costs and amortisation charges.
Finally, in 2008 Eni was recognised as the world’s most sustainable
Oil and gas production totalled 1,797 kboe/day, up 3.5% from 2007
company in the oil and gas sector among the companies included in
with an average Brent oil price of 97 $/bl (33.7% higher than 2007). Our
the Dow Jones Sustainability Index.
production growth was the highest in our peer group. Furthermore,
Even in the current context of uncertain and volatile energy
excluding the effect of higher prices on PSA contracts, we would have
markets, we confirm our strategy of superior production growth and
increased production by 5.6%.
leadership in the European gas market. We will continue to invest in
We achieved an all sources reserve replacement ratio of 135%,
our long-term growth while maintaining a strong financial position
resulting in a reserve life index of 10 years at December 31, 2008 (in
and rewarding our shareholders with a dividend yield among the
line with 2007). Over the course of the year, our exploration activities
highest in our sector.
led to the discovery of more than 1 billion boe.
On October 31, 2008, Eni and its partners in the North Caspian Sea PSA
FINANCIAL PERFORMANCE
consortium signed the final agreement with the Kazakh authorities,
Eni’s 2008 net profit was €8.8 billion. Adjusted net profit was €10.2
implementing the new contractual and governance framework of the
billion, an increase of 7.7% compared to 2007, as a result of the
Kashagan project. In the new operating model Eni, with a reduced
stronger operating performance, partly offset by a higher tax rate.
stake of 16.81%, is confirmed as the operator of phase one of the
Return on average capital employed was 17.6%.
project (the Experimental Program) and will retain operatorship of
Record net cash generated from operating activities of €21.8 billion
the onshore operations of phase 2 of the development plan.
financed €18.9 billion of investments. Of this, €14.6 billion was
On November 21, 2008, Eni closed the acquisition of First Calgary
dedicated to organic growth projects, including exploration, and
Petroleum Ltd, an oil and gas company with exploration and
€4.3 billion to acquisitions. Our net debt to equity ratio at year end
development activities in Algeria.
was 38%.
In the E&P division our strategy of delivering production growth is
The results achieved in 2008 enable us to propose to the Annual
focused on conventional activities and on high quality assets, located
General Shareholders Meeting a dividend of €1.30 per share, of which
largely in three low cost areas (Africa, OECD Countries and Central
€0.65 was paid as an interim dividend in September 2008. This is in
Asia/Russia), where we develop giant projects with scale benefits.
line with our 2007 dividend.
We target an average annual production increase of 3.5% in the 2009-
2012 plan and expect to maintain robust production growth of 3%
SUSTAINING GROWTH AND SHAREHOLDER RETURNS
a year in the following three years to 2015. In 2009, hydrocarbon
Our strategic direction has not changed and growth continues to be
production will exceed 1.8 million boe/d, based on a $43 per barrel
our main priority. We will achieve our short and long-term growth
Brent price scenario. In 2012, production will exceed 2.05 million
targets through the development of our portfolio of quality projects
boe/day based on a 55 $/bl price scenario.
and by strengthening our leadership in the European gas market.
6. ENI IN 2008 LETTER TO SHAREHOLDERS 3
In Engineering & Construction, we reported an improved adjusted net
In the next four years, more than 0.5 million boe/day of new production
profit of €784 million (19.1% higher than in 2007) thanks to a better
will come on stream, 85% of which is related to projects which will be
operating performance driven by high efficiency and favourable
profitable even with an oil price scenario below $45 per barrel.
market conditions. Saipem is completing the expansion of its
This growth strategy is based on organic development plans carried
world-class fleet of construction and drilling vessels, consolidating
out with a reserve replacement ratio of 130%.
its leading position in the project management, engineering and
construction activities within the oilfield services industry.
In Gas & Power, we consolidated our leading position in Europe and
generated 1.9 billion euro of free cash flow, confirming the stability
In Petrochemicals we reported a loss at both operating and net
of the division’s cash generation. Gas sales reached 104 billion cubic
profit levels (-€375 million and -€306 million respectively) due
meters, an increase of 5.3% (up 5.27 bcm) compared to 2007, mainly
to the high costs of oil-based feedstock in the first three quarters
reflecting the contribution of the acquisition of Distrigas.
of the year and a steep decline in demand in the last quarter.
Adjusted net profit for the year decreased by 9.7% to €2.65 billion,
Our target is to preserve profitability even in an unfavourable
largely due to a weaker operating performance. This was caused by
scenario. We will improve efficiency, especially in our steam crackers,
stronger competitive pressure, particularly impacting the Italian
and selectively invest in areas where we have a competitive advantage
market in the fourth quarter, and was partly offset by the increase in
(styrenics and elastomers), also leveraging on our proprietary
international sales.
technologies.
In October 2008, following the authorization from the European
The efficiency programme launched in 2006 delivered almost 1
Commission, we closed the acquisition of the 57.243% majority
billion in cost reductions by the end of 2008. We target another €1
stake in Distrigas SA from the French company Suez-Gaz de France.
billion of cost reductions by 2012, bringing overall savings to around
On December 30, 2008, Eni was granted authorization from the
€2 billion by 2012, in real terms versus the 2005 baseline.
Belgian market authorities to execute a mandatory tender offer on
Furthermore, on February 12th 2009, we announced the restructuring
the minorities of Distrigas.
Our strategy is to further strengthen our leadership in the European of our regulated businesses in Italy, with the sale of our gas distribution
gas market, where we hold a unique competitive position, thanks to and storage regulated activities to Snam Rete Gas. This deal will create
our large and diversified gas supply portfolio and our direct access one of the major European operators in the regulated gas business
to a vast infrastructure system and customer base. We will grow our and will enable us to extract significant synergies and unlock the
international gas sales by an average of 7% a year, reaching total gas value of these assets for our shareholders.
sales of 124 billion cubic meters by 2012 despite our reduced forecast
for gas demand growth in Europe. SUSTAINABLE DEVELOPMENT
We are very proud of having been selected as the leading oil and gas
In Refining & Marketing we reported an adjusted net profit of €510 company in the Dow Jones Sustainability Index.
million. This was 59.9% higher than in 2007 due to a better operating We will strive to improve the sustainability of our activities through
performance and higher profits of equity-accounted entities, partly our commitment to: research and innovation, the development
offset by increased income taxes. This result reflects higher margins of local communities, the protection of the environment and the
in both refining and marketing. endorsement of higher health and safety standards. In conducting
Marketing activities in Italy reported higher operating results due to a operations and in our relations with partners we uphold the
recovery in selling margins and an increased market share in retail as protection and promotion of Human Rights.
a result of effective marketing campaigns.
Our strategy in R&M focuses on the selective strengthening of Eni confirms its commitment to Research and Innovation. We will
our refining system, the improvement of quality standards in our focus on developing innovative technologies supporting our core
marketing activities, and the widespread increase in operating businesses, leveraging on the industrial application of our proprietary
efficiency. Overall, we target a €400 million EBIT increase by 2012, technologies, and on expanding our activities in renewables, also
excluding scenario effects. In refining, we will increase our conversion thanks to cooperation agreements with primary academic and
index to 65% and achieve a middle distillate yield of 45%, more than technology institutions.
double the yield in gasoline. Three new hydrocrackers will come on
stream in 2009 in the Sannazzaro, Taranto and Bayern Oil refineries. In People are our most important asset. In managing Human resources,
marketing, we target an Italian market share increase to 32% through we are committed to implementing programs to improve leadership
loyalty programmes and enhanced non-oil services. Abroad, we will skills, increase knowledge and promote international development.
focus on three countries: Germany, Switzerland and Austria, where In conclusion, 2008 was another good year for Eni. The industry
we enjoy significant advantages in terms of supply, logistics and brand is undoubtedly facing uncertain times, but we are well-placed to
awareness. continue to deliver value to our shareholders, both in the short and
the long term.
March 13, 2009
In representation of the Board of Directors
Chairman Chief Executive Officer
7.
8. PERFORMANCE REVIEW
2008 was an excellent year for Eni,
both operationally and financially.
We delivered on our targets, leveraging
on the resilience of our business portfolio
to achieve sector leading growth.
9. PROFILE OF THE YEAR
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS 2006 2007 2008
(€ million, unless otherwise specified)
Net sales from operations 86,105 87,256 108,148
Operating profit 19,327 18,868 18,641
Adjusted operating profit 20,490 18,986 21,793
Net profit pertaining to Eni 9,217 10,011 8,825
Adjusted net profit attributable to Eni 10,412 9,470 10,201
Net cash provided by operating activities 17,001 15,517 21,801
Capital and exploration expenditures 7,833 10,593 14,562
Acquisitions 95 9,909 4,305
Cash dividends to Eni shareholders 4,610 4,583 4,910
Research and development costs 222 208 217
Total assets at year end 88,312 101,560 116,590
Debts and bonds at year end 11,699 19,830 20,865
Shareholders’ equity including minority interests at year end 41,199 42,867 48,510
Net borrowings at year end 6,767 16,327 18,376
Net capital employed at year end 47,966 59,194 66,886
Return On Average Capital Employed (ROACE)
- reported 20.3 20.5 15.7
(%)
- adjusted 22.7 19.3 17.6
(%)
Leverage 0.16 0.38 0.38
Our Gas & Power business being a utility-like business is able
ENI AT A GLANCE to generate steady earnings and cash flows, which have proven
to be very resilient through the commodity price cycles. The
impact of the current economic slowdown on gas sales is
BUSINESS PORTFOLIO
mitigated by the Company’s strengthened leadership on the
Eni is a major integrated energy company, committed to growth
European gas market on the back of the Distrigas acquisition
in the activities of finding, producing, transporting, transforming
and the cash generation of the regulated businesses;
and marketing oil and gas.
Our Refining and Marketing business has a size that is
The Company is ideally positioned to cope with industry challenges
comparatively smaller than our peer group. This represents
and the current economic downturn thanks to the resiliency of its
an advantage during an economic downturn. We will leverage
business portfolio. We have three major businesses:
on our refining capabilities and focused presence in Italy and
selected European markets to improve the profitability of the
Our Exploration & Production business is well placed to
business.
withstand the low price environment due to its ability to
deliver profitable growth with industry leading costs. This
In addition, our strong presence in the engineering and oilfield
reflects the business’s competitive advantages in terms of high
services business provides the Company with the necessary
exposure to low cost, fast growing areas, giant projects and
competence and expertise, coupled with access to engineering
conventional resources, as well as integration with our Gas &
skills and technologies, to design and execute world scale
Power operations. In the last couple of years, we have made a
projects, representing a key element supporting Eni growth and
number of synergic acquisitions that have strengthened our
innovation plans.
competitive profile in our core areas;
10. ENI IN 2008 PROFILE OF THE YEAR 7
Kazakhstan - Kashagan field
The development plan of the
Kashagan field provides for the
construction of production plants
located on artificial islands that
will collect oil and natural gas
from other satellite islands.
Oil production will undergo
a further treatment stage onshore
and then be marketed. Natural
gas will mostly be re-injected into
the reservoir and used for power
generation. First oil is expected
late in 2012.
This business profile is excellent, underpinned by the Company’s acting as an earnings stabilizer through the commodity cycles,
diversity and operating and capital efficiency. The large cash- thus counterbalancing the higher volatility of the upstream
generative gas downstream business is unique among oil majors, business.
VOLUME SUMMARY 2006 2007 2008
Exploration & Production
Estimated net proved reserves of hydrocarbons (at period end) 6,436 6,370 6,600
(mmboe)
- Liquids 3,481 3,219 3,335
(mmbbl)
- Natural gas 16,965 18,090 18,748
(bcf)
Average reserve life index 10.0 10.0 10.0
(year)
Production of hydrocarbons 1,770 1,736 1,797
(kboe/d)
- Liquids 1,079 1,020 1,026
(kbbl/d)
- Natural gas 3,964 4,114 4,424
(mmcf/d)
Gas & Power
Worldwide gas sales 98.10 98.96 104.23
(bcm)
- of which E&P sales (a) 4.69 5.39 6.00
(bcm)
LNG sales 9.9 11.7 12.0
(bcm)
Customers in Italy 6.54 6.61 6.63
(million)
Gas volumes transported in Italy 87.99 83.28 85.64
(bcm)
Electricity sold 31.03 33.19 29.93
(TWh)
Refining & Marketing
Refining throughputs on own account 38.04 37.15 35.84
(mmtonnes)
Conversion index 57 56 58
(%)
Balanced capacity of refineries 711 748 737
(kbbl/d)
Retail sales of petroleum products in Europe 12.48 12.65 12.67
(mmtonnes)
Service stations in Europe at period end 6,294 6,441 5,956
(units)
Average throughput of service stations in Europe 2,470 2,486 2,389
(kliters)
Engineering & Construction
Orders acquired 11,172 11,845 13,860
(€ million)
Order backlog at period end 13,191 15,390 19,105
(€ million)
73,572 75,862 78,880
(units)
Employees at period end
(a) E&P sales include volumes marketed by the Exploration & Production division in Europe (4.07, 3.59, 3.36 bcm in 2006, 2007 and 2008 respectively) and in the Gulf of Mexico (0.62,
1.8 and 2.64 bcm in 2006, 2007 and 2008 respectively).
11. ENI IN 2008 PROFILE OF THE YEAR
8
STRATEGY enhancing product margins by promoting customer-oriented
business policies and reducing the cost-to-serve, also leveraging
In spite of the current downturn and volatile and uncertain energy
long-standing relationship with key suppliers and partners to
markets, our strategic direction has remained unchanged.
obtain competitive contractual conditions.
Eni’s priorities continue being the delivery of industry-leading
growth and the creation of sustainable long-term shareholders’
value. We have retained a stable approach in managing our Preserve a solid financial structure
Eni intends to preserve a solid capital structure targeting an
businesses, which is consistent with their long-term nature.
optimal mix between net borrowings and shareholders’ equity,
Our investment decisions have always been made assuming a
while at the same time, continuing to invest to fuel profitable
conservative oil-price deck in the region of 50-60 US$ per barrel.
growth and rewarding investors with superior dividend yields.
This explains why our strategy is resilient even in the current
Eni has been assigned high credit ratings by Standard & Poor’s
challenging environment.
(A-A) and Moody’s (Aa2) reflecting Eni’s ability to generate strong
operating cash flows also in a low oil price environment, disciplined
Eni’s strategy is consistent with the above-mentioned priorities
approach to investments, capital efficiency and business strategy.
and is based on the following pillars:
As part of our financial framework, we retain a sufficient degree
- Select the best capital and investment opportunities.
of financial flexibility to pursue investment opportunities in the
- Pursue capital and operating efficiency.
marketplace.
- Preserve a solid capital structure.
- Manage risks.
- Leverage research and innovation. Manage risks
Eni has developed internal policies and guidelines aiming at
- Apply the highest principles of business conduct.
effectively identifying, assessing and managing risks in order
- Promote the sustainability of the business model.
to minimize their impact on the Company’s value. Our primary
sources of risk are the nature and scope of our operations, the
Select the best capital and investment opportunities
trading environment and the geographic diversity of the business.
The achievement of Eni’s growth targets is supported by a
Firstly, we have adopted proven management systems to achieve
disciplined and selective approach when making investment
the highest operating standards to preserve the environment and
decisions. Once an investment opportunity has been identified, it
protect health and safety of our workers, third parties and the
is carefully assessed based on our medium and long-tem scenario
communities involved by our activity, ensuring at the same time
for the macroeconomic environment and commodity prices that
compliance with all applicable laws and regulations.
has never deviated from what we see as long-term equilibrium
Our integrated HSE management system encompasses a full
prices. This scenario reflects our management’s view of the
cycle of planning, executing, controlling and evaluating HSE
fundamentals underlying the expected trends for oil and products
performances of our operations so as to foster a continuing
prices. The company selects and executes capital projects
learning process to minimize risks. Secondly, we manage risks
able to generate attractive returns and deliver shareholders
deriving from the trading environment, including risks from the
value. The same approach applies when acquiring an asset or a
exposure to movements in commodity prices, interest rates and
corporation. Acquisitions undergo a rigorous appraisal process
foreign currency exchange rates, in a way to achieve a tolerable
to test whether a deal is accretive to shareholders’ value and the
level of exposure to potential losses in earnings or assets value
strategic rationale i.e. fits with our existing asset portfolio. In 2008
in accordance with our conservative financial policies. During
we spent some €4.3 billion to capture upstream and downstream
the credit crunch, we have adopted additional measures and
gas opportunities to strengthen our market leadership in Europe
contingency plans to mitigate risks to the Group liquidity
and our competitive position in upstream legacy areas.
and counterparty’s risks. Finally, due to the scale and reach of
our Company, we are exposed to unfavorable socio-political
Pursue capital and operating efficiency
developments in many of our countries of operations. While we
Eni is committed to pursuing high levels of operating and capital
acknowledge that certain risks are unavoidable, we are deeply
efficiency. We attain this by applying industry best practices and
convinced that establishing constructive relationships with host
effective management systems to all of our operations, building
countries’ institutions, representatives and communities is the
on core competencies and continuously updating and improving
best way to uphold profitable operations.
internal processes, as in the case of energy-efficiency initiatives
at our industrial plants and the achievement of standards of
operational excellence in our upstream business. We have stepped Leverage research and innovation
Meeting global energy needs requires us to develop new
up efforts to streamline our organization by reducing decision-
technologies designed to create sustainable competitive
making levels and centralizing responsibilities over business
advantages. We have consistently invested significant amounts of
supporting processes to reap economies of scale resulting in
resources in excess of €0.2 billion per year for many years to date
significant savings due to our procurement and ICT optimization
and we plan to step up our R&D efforts in the future by investing
and rationalization. Integration across our businesses enables
approximately 1 billion in the next four years.
Eni to both pursue joint opportunities in the marketplace and
We have successfully developed incremental innovations
achieve synergies from the vertical and physical integration of our
supporting our businesses’ competitive positions, while at
facilities, so as to maximize value and returns from our assets. We
the same time we have continued to make progress on our
improve our profitability by implementing cost control initiatives,
12. ENI IN 2008 PROFILE OF THE YEAR 9
RESULTS AND TARGETS
potentially break-trough technologies intended to monetize
massive worldwide availability of stranded gas, and high-sulphur In recent years, we have delivered strongly on our strategy,
content and non-conventional crude oils. creating value to our shareholders and growing our Company.
Over a long-term perspective, we believe that our commitment We have increased our oil and gas production at an average
in the fields of solar energy, reduction of GHG emissions and bio- rate of approximately 3% over the last five years to achieve 1.8
fuels could potentially result in huge rewards for the company. million barrels per day in 2008, outperforming the major oil
companies.
Our gas sales have grown at a 6% rate in the same period topping
Apply the highest principles of business conduct
The company has long recognized and upheld high business the 100 billion cubic meters mark in 2008 and confirming Eni
standards in managing the Group’s activity on the belief that they as the market leader in Europe. Over the last five years, we have
are an essential prerequisite for success. These standards are set in returned more than €25 billion to our shareholders through
our Code of Ethics which is designed to provide all Eni employees dividends and repurchase of own shares.
with guidelines for appropriate business conduct. Of that, approximately 85% has been distributed to shareholders
Corporate governance, business integrity, honesty, accountability, via dividends. Unit dividends have been increased on average
internal control and respect for human rights are the standards by 12% per annum over the period, while total shareholders’
underpinning Eni’s global reputation and ability to create return amounted to 10.4% on average, better than the
shareholders’ value. worldwide stockmarket benchmark S&P500.
In the last five years, we have invested approximately €48
Promote the sustainability of the business model
Sustainable development is at the heart of Eni’s priorities. We billion in capital and exploratory projects in order to fuel
wish to make a positive contribution to social and economic organic growth and a further €14 billion have been deployed
development wherever we operate, strengthen the value of to capture opportunities in the marketplace by closing a
our intangible assets and keep the trust of our stakeholders. To number of acquisitions that strengthened our competitive
attain all these things, we have integrated sustainability targets position in our core upstream areas and in the European gas
and actions into our management, planning and development market.
processes. Our capital structure is solid with a ratio of net borrowings
We are committed to empowering our people, preserving the to total equity at 0.38 thanks to our impressive cash flow
environment, running our operations in a safe and reliable manner, generation, totaling €82 billion; a further €4.45 billion has
respecting human rights, contributing to local development and been collected by divesting non strategic assets.
increasing expenditures in research and innovation. On the back Looking forward, over the next four years, we plan to invest
of our strong performance in every field of sustainability, we have €48.8 billion in our businesses to support continued organic
been selected as the leading oil and gas company in the Dow growth, also beyond 2012.
Jones Sustainability Index.
13. ENI IN 2008 PROFILE OF THE YEAR
10
In spite of ongoing uncertainties in the energy markets, our growth with an annual growth rate of 3% a year in the following
investment program remains broadly unchanged with respect three years to 2015. In 2012 our production will exceed 2.05
to the previous industrial plan for the following reasons: million boe/day based on a 55 US$ per barrel price scenario.
(i) adoption of prudent price assumptions when making In our Gas & Power division, we will grow our international gas sales
investment decisions; by an average of 7% a year, enabling us to achieve total gas sales of
(ii) a high-quality portfolio with a low break-even price; 124 billion cubic meters by 2012, despite our reduced forecast for
(iii) expectations for a decrease in oilfield service rates and gas demand growth in Europe.
purchase costs of materials and support equipment as a The ability to generate robust cash flow from operations will
consequence of the current economic downturn; enable Eni to finance its capital expenditure plans and to sustain
(iv) high exposure to regulated activities in the Italian gas sector the distribution of dividends to shareholders, while maintaining a
which bear preset rates of return. Additionally, a significant solid balance sheet. Specifically, we expect that the projected free
portion equalling to approximately 50% of Eni’s capital plan cash flow will allow us to ensure our shareholders a dividend yield
has yet to be committed which ensures the Company a high amongst the highest in the sector.
degree of flexibility in terms of capacity to reschedule capital Finally, the efficiency program launched in 2006 delivered almost
expenditures should market conditions further deteriorate. €1 billion in cost reductions by the end of 2008. We target another
€1 billion of cost reductions by 2012, bringing overall savings to
We target an average annual production increase of 3.5% in the around €2 billion by 2012, in real terms versus the 2005 baseline.
2009-2012 period and expect to maintain robust production
KEY MEDIUM-TERM TARGETS ANNOUNCED TO INVESTORS
2008 2012
E&P
Daily production 1.8 million barrels/day >2.05 million barrels/day - c.a.g.r. 3.5% (Brent 55$/bl at 2012)
130% on average in the next four-year period (at our long-term
Reserve replacement ratio 135%
deck for Brent 57$/bl)
G&P
Worldwide gas sales 104 billion cubic meters 124 billion cubic meters; c.a.g.r. 7% in international sales
EBITDA (a)
€19 billion in 2008-2011 period €20 billion in 2009-2012 period
R&M
Refineries conversion index 57% 65%
Retail market share in Italy 30.6% 32%
EBIT €566 million +€400 million vs 2008, at a constant trading environment
Cash allocation
Capital expenditures €49.8 billion in 2008-2011 period €48.8 billion in 2009-2012 period
Dividend yield 7.6% Among the highest in the industry
~€1.5 billion savings expected by 2011 ~€2 billion savings expected by 2012
Efficiency program
(a) Cumulated.
14. ENI IN 2008 PROFILE OF THE YEAR 11
SHAREHOLDER INFORMATION 2006 2007 2008
Net profit pertaining to Eni:
- per share (a) 2.49 2.73 2.43
(€)
- per ADR (b) 6.26 7.49 7.15
(US$)
Adjusted net profit pertaining to Eni:
- per share (a) 2.81 2.58 2.80
(€)
- per ADR (b) 7.07 7.07 8.24
(US$)
Dividend
- per share (c) 1.25 1.30 1.30
(€)
- per ADR (b)
3.14 3.56 3.82
(US$)
Annual dividend per share growth 13.6 4.0 0
(%)
Pay-out 50 47 53
(%)
Dividend yield (d) 5.0 5.3 7.6
(%)
Total shareholder return (TSR) 14.8 3.2 (29.1)
(%)
Common stock purchases (gross) 1,241 680 778
(€ million)
Number of shares outstanding:
- at year end 3,680.4 3,656.8 3,622.4
(million of shares)
- average (fully diluted) 3,701.3 3,669.2 3,638.9
(million of shares)
Market capitalization (e) 93.8 91.6 60.6
(€ billion)
Market quotations for common stock on the Mercato Telematico
Azionario (MTA - “Telematico”)
High 25.73 28.33 26.93
(€)
Low 21.82 22.76 13.8
(€)
Average daily close 23.83 25.10 21.43
(€)
Year-end close 25.48 25.05 16.74
(€)
Market quotations for ADR on the New York Stock Exchange
High 67.69 78.29 84.14
(US$)
Low 54.65 60.22 37.22
(US$)
Average daily close 59.97 68.80 63.38
(US$)
Year-end close 67.28 72.43 47.82
(US$)
Average daily traded volumes 26.2 30.5 28.7
(million of shares)
Value of traded volumes 619.1 773.1 610.4
(€ million)
(a) Ratio of net profit to the average number of shares outstanding in the year, assuming dilution. Dollar amounts are converted on the basis of the average EUR/USD exchange rate
quoted by the ECB for the periods presented.
(b) One ADR (American Depositary Receipt) is equal to two Eni ordinary shares.
(c) Dividend per share pertaining to the year. This dividend is paid in two tranches. An interim dividend is paid in the same year, as approved by the Board; the balance to the full year
dividend is paid in the following calendar year (after approval by the Annual Shareholders’ Meeting).
(d) Ratio of dividend for the period to the average price of the Eni shares recorded on the Italian Stock Exchange in December.
(e) Number of outstanding shares by reference price at year end.
15. BUSINESS REVIEW
EXPLORATION & PRODUCTION
KEY PERFORMANCE INDICATORS 2006 2007 2008
Net sales from operations (a) 27,173 27,278 33,318
(€ million)
Operating profit 15,580 13,788 16,415
Adjusted operating profit (b) 15,763 14,051 17,416
Exploration & Production 15,518 13,785 17,233
Storage Business 245 266 183
Adjusted net profit 7,279 6,491 8,008
Capital expenditures 5,203 6,625 9,545
of which:
exploration expenditures (c) 1,348 1,659 1,918
storage 40 145 264
Adjusted capital employed, net 18,590 24,643 31,302
Adjusted ROACE 37.5 30.0 28.6
(%)
Average realizations
- Liquids 60.09 67.70 84.05
($/bbl)
- Natural gas 5.29 5.42 8.01
($/mmcf)
- Total hydrocarbons 48.87 53.17 68.13
($/boe)
Production (d)
- Liquids 1,079 1,020 1,026
(kbbl/d)
- Natural gas 3,964 4,114 4,424
(mmcf/d)
- Total hydrocarbons 1,770 1,736 1,797
(kboe/d)
Estimated net proved reserves (d) (e)
- Liquids 3,481 3,219 3,335
(mmbbl)
- Natural gas 16,965 18,090 18,748
(bcf)
- Total hydrocarbons 6,436 6,370 6,600
(mmboe)
Reserve life index 10.0 10.0 10.0
(year)
Reserve replacement ratio of consolidated subsidiaries (SEC criteria) 38 38 136
(%)
Reserve replacement ratio including equity-accounted entities (e) 38 90 135
(%)
(a) Before elimination of intragroup sales.
(b) From 2008, adjusted operating profit is reported for the “Exploration & Production” and “Storage” businesses, within the Exploration & Production division. Prior period data have
been restated accordingly.
(c) Includes exploration bonuses.
(d) Includes Eni’s share of equity-accounted entities.
(e) Includes a 30% stake of the reserves of the three equity-accounted Russian companies purchased in 2007 as part of a bid procedure for assets of bankrupt Yukos and participated by
Eni with a 60% interest, considering that Gazprom exercises a call option to acquire a 51% interest in these companies so as to dilute Eni’s interest to 30%. Reserves of the 20% participated
OAO Gazprom Neft were also excluded considering the call option attributed to Gazprom.
2008 HIGHLIGHTS
of Understanding signed on January 14, 2008. First oil is
Final Agreement for the development project of the Kashagan
expected late in 2012.
oilfield
On October 31, 2008, all the international parties to the
North Caspian Sea Production Sharing Agreement (NCSPSA) Portfolio developments
consortium and the Kazakh authorities signed the final In the year we successfully executed a number of strategic
agreement implementing the new contractual and governance acquisitions and deals that strengthen our competitive
framework of the Kashagan project, based on the Memorandum position:
16. ENI IN 2008 BUSINESS REVIEW / EXPLORATION & PRODUCTION 13
Libya - Wafa field.
The Western Libyan Gas Project is
the first major project to valorise the
natural gas produced in Libya trough
export to and marketing in Europe.
Production from Bahr Essalam
and Wafa fields is processed at the
onshore Mellitah plant.
2008 Performance
- Completed the acquisition of entire share capital of the UK-
Adjusted net profit for the full year was €8,008 million, an
based oil company Burren Energy Plc.
increase of €1,517 million from 2007 (up 23.4%) due to a better
- Finalized an agreement with the British company Tullow Oil Ltd
operating performance driven by higher realizations in dollars
to purchase a 52% stake and the operatorship of fields in the
and production growth, partially offset by rising operating costs
Hewett Unit and relevant facilities in the North Sea.
and higher amortization charges also associated with increased
- Acquired all the common shares of First Calgary Petroleum
exploration activities.
Ltd, a Canadian oil and gas company with exploration and
development activities in Algeria.
Return on average capital employed calculated on an adjusted
- Acquired control of the Indian company Hindustan Oil basis was 28.6% in 2008 (30% in 2007).
Exploration Limited (Eni 47.18%) pursuant to the acquisition of
Burren Energy Plc. Liquids and gas realizations for the full year increased on average
- Finalized a major agreement in Libya for the extension of Eni’s by 28.1% in dollar terms from 2007, driven by the strong market
mineral rights and the launch of gas and exploration projects. environment of the first nine months of the year.
- Defined a cooperation agreement with the Republic of Congo
Oil and natural gas production for the full year 2008 averaged the
for the extraction of unconventional oil, the construction of a
record level of 1,797 kboe/d, an increase of 61 kboe/d, or 3.5%,
new power generation plant and the production of bio-diesel.
from a year earlier. This improvement mainly benefited from the
- Signed a Memorandum of Understanding with Sonangol
assets acquired in the Gulf of Mexico, Congo and Turkmenistan, as
for the definition of an integrated model of cooperation and
well as continuing production ramp-up in Angola, Congo, Egypt,
development.
Pakistan and Venezuela. When excluding the impact of lower
- Signed new strategic agreements with Petroleos de Venezuela entitlements in PSAs, production was up 5.6%.
SA (PDVSA) for the definition of a plan to develop a field located
in the Orinoco oil belt and the exploration and development of Estimated net proved reserves at December 31, 2008 were
two offshore fields in the Caribbean Sea. 6.6 bboe, up 3.6% from 2007, determined based on a year-
- Signed a partnership agreement with Papua New Guinea for the end Brent price of $36.55 per barrel. Additions for the year,
exploration of oil and gas and identification of opportunities to including acquisitions and the divestment of a 1.71% stake in
develop the Country’s resources. the Kashagan project, enabled the Company to replace 136%
of production.
- Finalized a Memorandum of Understanding with Colombia’s
state oil company Ecopetrol to evaluate joint exploration
Development expenditures were €6,429 million (up 38.5% from
opportunities.
2007), in particular in the Gulf of Mexico, Kazakhstan, Italy, Nigeria,
- Renewed the Memorandum of Understanding with Brazilian oil
Egypt, Australia and Congo.
company Petrobras for the evaluation of joint initiatives in the
upstream and downstream sectors.
In 2008, exploration expenditures amounted to €1,918 million
- Signed a Memorandum of Understanding with state-owned (up 15.6% from 2007) to execute a very extensive campaign in
company Qatar Petroleum International to target joint well established areas of presence. A total of 111 new exploratory
investment opportunities in the exploration and production of wells were drilled (58.4 of which represented Eni’s share), in
oil and gas. addition to 21 exploratory wells in progress at year end (12 net to
- Awarded 32 exploration leases in the Gulf of Mexico close to Eni). The commercial success rate was 36.5% (43.4% net to Eni).
certain of Eni’s producing fields as well as 18 exploration leases
in Alaska. New exploratory acreage was added with an extension of
approximately 57,000 square kilometers (net to Eni, 99% operated).
17. ENI IN 2008 BUSINESS REVIEW / EXPLORATION & PRODUCTION
14
STRATEGIES
Eni’s Exploration & Production business boasts strong competitive Maintain strong production growth
positions in a number of strategic oil and gas basins in the world, Ensure medium to long-term business sustainability by
focusing on reserve replacement
namely the Caspian Region, North and West Africa, the Gulf of
Develop new projects to fuel future growth
Mexico and Russia. A high-quality portfolio, integration with our
Develop the LNG business
Gas & Power business and long-standing relationships with key
Implement cost reduction initiatives
host countries will enable Eni to deliver industry-leading growth
even in a low-price environment. Our excellent track record of
successfully bringing on stream projects on time and budget In order to carry out these strategies, over the next four years
and integrating acquired assets as well as operational excellence Eni intends to invest approximately €32.6 billion to fund organic
underpins our ambitious production and reserve replacement growth and exploration initiatives; €1.8 billion of wich will be
targets to 2012 and beyond. Consistently with these targets, our spent to build transport infrastructures and execute LNG projects
strategic guidelines for the Exploration & Production division through equity-accounted entities.
have remained basically unchanged in the years, as follows:
that have strengthened our competitive position in legacy areas.
MAINTAIN STRONG PRODUCTION GROWTH Our assets are well balanced between mature producing field
Eni’s strategy is to deliver strong production growth leveraging and fields are at the early stages of their producing cycles with
on a high-quality portfolio, geographically focused and resilient significant opportunities for growth. Development of new
with one of the lowest break-even prices in the industry, large reserves and management of mature fields require a significant
exposure to highly competitive giant projects where we are able to amount of capital expenditures. In 2008, Eni invested €6.4 billion
reap economies of scale and a unique approach to business when on development activities. In the next four years, the Company
dealing with our host countries partners. Over both the medium plans to invest approximately €26.9 billion evenly allocated among
and the long-term our growth will derive from our assets mainly projects to fuel growth over the medium-term and long-term
located in the three core regions of Africa, OECD countries and growth projects and projects designed to counteract mature field
Central Asia/Russia where we can benefit from low lifting costs and declines. More importantly, a large share of those planned capital
competitive time to market. These main areas will absorb more expenditures is either uncommitted or associated with sanctioned
then 90% of our capital expenditures over the next four years and projects for which construction contracts have yet to be awarded.
produce more than 90% of our output by 2012. This leaves us with the flexibility to reschedule construction and
Our global oil and gas operations are conducted in 39 countries, procurement activities so as to benefit from ongoing downward
including Italy, Egypt, Algeria, the United Kingdom, Norway, Angola, trends in rates of oilfield services and purchase costs of goods
Congo, Nigeria, the United States, Kazakhstan and Russia. In 2008 and equipment. Additional cost control measures will address
we successfully executed a number of acquisitions and agreements our ongoing operations. In the next four years, we expect that our
initiatives will deliver significant cost reductions in our upstream
operations in the range of €5 billion.
STRENGHTEN OUR PORTFOLIO
In 2008 we have continued capturing opportunities to
strengthen our portfolio by focusing on highly synergic assets
with significant upside potential, positioning the company to
deliver growth and value over the coming years. We invested
€2.5 billion (approximately €11 billion in the 2007-2008 period)
on the execution of selective acquisitions in our core areas. We
have acquired conventional assets characterized by fast “scale
up” of production that will add 250 kboe/d in 2012 and a break-
even price below $50 per barrel. On top of that, we have already
identified material upsides, resulting in significant additions to
our resource base and value creation.
United Kingdom We completed the acquisition of UK-based
oil company Burren Energy Plc, for a total cash consideration
18. ENI IN 2008 BUSINESS REVIEW / EXPLORATION & PRODUCTION 15
survey, over an extension of 1,790 square kilometers. Eni plans to
amounting to approximately €2.4 billion (including Burren’s shares
monetize the heavy oil by applying its EST (Eni Slurry Technology)
purchased in 2007 for €0.6 billion). In 2008 production from
proprietary technology intended to convert the heavy barrel
Burren assets averaged 25 kbbl/d. Acquired proved and probable
into high-quality light products. The agreement also comprises
reserves are estimated to be approximately 214 mmboe at an
the construction of a new 450 MW power generation plant (Eni’s
average purchase cost of $13.5 per boe. This acquisition increased
share 20%) to be fired with the associated natural gas from the
our position in Congo and allowed us to enter Turkmenistan, a
operated M’Boundi field and a partnership for the production
new high potential area for the oil industry. Acquired assets also
of bio-diesel.
included a number of exploration licenses in Egypt and Yemen.
Angola Eni signed a Memorandum of Understanding with
India Eni acquired control of Indian company Hindustan Oil
Sonangol for the definition of an integrated model of cooperation
Exploration Limited (HOEC) following execution of a mandatory
and development. The agreement covers onshore development
tender offer on a 20% stake of the HOEC share capital. The
activities and construction of facilities in Angola designed to
mandatory offer was associated with Eni’s acquisition of a 27.18%
monetize flaring gas as well as collaboration in the field of bio-
of HOEC as part of the Burren deal. Assets acquired, located
fuels.
onshore in the Cambay Basin and offshore Chennai, include: (i)
producing assets that are expected to reach a production plateau
Venezuela Eni signed two strategic agreements with Petroleos
of 10 kboe/d in 2010; (i) a number of fields where appraisal and
de Venezuela SA (PDVSA): (i) one of these covers studies to
development activities are underway.
identify options for developing the Junin Block 5 located in the
Orinoco oil belt. This block covering a gross acreage of 670 square
United Kingdom Eni finalized an agreement with British company
kilometers holds a resource potential estimated to be in excess of
Tullow Oil to purchase a 52% stake and the operatorship of fields
2.5 bbbl of heavy oil. Once relevant studies have been performed
in the Hewett Unit in the British section of the North Sea and
and a development plan defined, a joint venture between PDVSA
relevant facilities including the associated Bacton terminal. Eni
and Eni will be established to execute the project. Eni intends to
aims to upgrade certain depleted fields in the area so as to achieve
contribute its experience and leading technology to the project
a gas storage facility with a 177 bcf capacity to support seasonal
in order to maximize the value of the heavy oil; (ii) the other
upswings in gas demand in the UK. For this purpose, Eni intends to
foresees an initiative to explore two offshore areas, Blanquilla and
request a storage licence.
Tortuga in the Caribbean Sea, both with a 20% interest over an
area of 5,000 square kilometers. The prospective development of
Algeria Eni acquired First Calgary Petroleum Ltd, a Canadian
these areas will take place through an integrated LNG project.
oil and gas company with exploration and development
activities in Algeria. Cash consideration amounted to €605
Colombia Eni finalized two agreements with Colombia’s state oil
million. Assets acquired include the operatorship of Block 405b
company Ecopetrol: (i) a cooperation agreement for exploration
with a 75% interest with resources in excess of 1.3 billion boe,
assets in the Gulf of Mexico. Under the terms of the agreement,
approximately half is gas. Production start-up is expected in
Ecopetrol will invest approximately $220 million to acquire a
2011 with a projected production plateau of approximately 30
20-25% interest in five exploration wells due to be drilled before
kboe/d net to Eni by 2012.
2012; (ii) a Memorandum of Understanding to evaluate joint
exploration opportunities in Colombia and other South American
Libya Eni finalized a strategic oil deal with the Libyan national oil
countries as well as in Eni’s exploration portfolio.
company based on the framework agreement of October 2007.
This deal effective from January 1, 2008, extends the duration of
Brazil Eni renewed the Memorandum of Understanding with
Eni oil and gas properties until 2042 and 2047 respectively and lays
Brazilian oil company Petrobras for pursuing joint initiatives in
the foundations for a number of projects targeting development
the upstream and downstream sectors, including production
of the significant gas potential in the Country. This deal further
and marketing of renewable fuels and possible options for the
strengthens our competitive position in Libya and will enable
valorisation of the natural gas reserves discovered by Eni offshore
us to develop our long-life fields over the long-term though the
Brazil.
application of our advanced technologies for maximizing the
recovery factor.
Papua New Guinea We signed a partnership agreement with Papua
We also signed a number of framework agreements with our New Guinea for the exploration of oil and gas and identification
local partners as part of the Eni co-operation model that aims at of opportunities to develop the Country’s resources. Eni is also
integrating sustainable activity in the territory with the traditional interested in opportunities in the fields of power generation and
business of hydrocarbon exploration and production. alternative and existing renewable energies.
Congo We defined a cooperation agreement with the Republic Qatar We signed a Memorandum of Understanding with state-
of Congo for the extraction of unconventional oil from the owned company Qatar Petroleum International to target joint
Tchikatanga and Tchikatanga-Makola oil sands deposits deemed investment opportunities in the exploration and production of
to contain significant amounts of resources based on a recent oil and gas.
19. ENI IN 2008 BUSINESS REVIEW / EXPLORATION & PRODUCTION
16
PRODUCTION: 2008 AND OUTLOOK assets acquired in the Gulf of Mexico, Congo and Turkmenistan
Oil and natural gas production for the full year 2008 averaged the (up 62 kboe/d), as well as continuing production ramp-up in
record level of 1,797 kboe/d, an increase of 61 kboe/d, or 3.5%, Angola, Congo, Egypt, Pakistan and Venezuela. These positives
from a year earlier. This improvement mainly benefited from the were partially offset by mature field declines as well as planned
DAILY PRODUCTION OF OIL AND NATURAL GAS (a) (b)
Change
Liquids Natural gas Hydrocarbons Liquids Natural gas Hydrocarbons Liquids Natural gas Hydrocarbons
%
(kbbl/d) (mmcf/d) (kboe/d) (kbbl/d) (mmcf/d) (kboe/d) (kbbl/d) (mmcf/d) (kboe/d) Ch.
2006 2007 2008 2008 vs 2007
Italy 79 911.4 238 75 789.7 212 68 749.9 199 (13) (6.1)
North Africa 329 1,299.1 555 337 1,474.2 594 338 1,761.6 645 51 8.6
Egypt 85 813.4 227 97 811.2 238 98 818.4 240 2 0.8
Libya 144 452.1 222 142 629.6 252 147 907.6 306 54 21.4
Algeria 88 19.4 91 85 18.8 88 80 18.5 83 (5) (5.7)
Tunisia 12 14.2 15 13 14.6 16 13 17.1 16
West Africa 322 281.7 372 280 274.2 327 289 260.7 335 8 2.4
Nigeria 106 247.8 149 81 237.7 122 84 219.9 122
Angola 151 24.1 156 132 25.1 136 121 28.1 126 (10) (7.4)
Congo 65 9.8 67 67 11.4 69 84 12.7 87 18 26.1
North Sea 178 597.0 282 157 594.7 261 140 558.0 237 (24) (9.2)
Norway 98 245.2 140 90 271.1 137 83 264.8 129 (8) (5.8)
United Kingdom 80 351.8 142 67 323.6 124 57 293.2 108 (16) (12.9)
Caspian Area 64 227.6 103 70 237.9 112 81 244.7 123 11 9.8
Kazakhstan 64 227.6 103 70 237.9 112 69 244.7 111 (1) (0.9)
Turkmenistan 12 12 12 ..
Rest of the world 107 647.4 220 101 743.2 230 110 848.6 258 28 12.2
Australia 18 47.9 26 11 41.5 18 10 42.2 17 (1) (5.6)
China 6 9.4 8 6 11.0 8 6 10.9 8
Croatia 66.8 12 52.5 9 68.7 12 3 33.3
Ecuador 15 15 16 16 16 16
Indonesia 2 118.1 23 2 105.4 20 2 99.7 20
Iran 29 29 26 26 28 28 2 7.7
Pakistan 1 289.2 51 1 292.5 52 1 315.6 56 4 7.7
Russia 2 2 (2) ..
Trinidad & Tobago 51.7 9 58.9 10 54.6 9 (1) (10.0)
United States 21 64.3 32 37 181.4 69 42 256.9 87 18 26.1
Venezuela 15 15 5 5 5 ..
Total 1,079 3,964.2 1,770 1,020 4,113.9 1,736 1,026 4,423.5 1,797 61 3.5
(a) Includes production volumes of natural gas consumed in operations (281,296,286 mmcf/d in 2008, 2007, 2006 respectively).
(b) Includes Eni’s share of production of equity accounted-entities.
