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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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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 2008

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)

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     (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

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     (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):               )

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Press Release dated March 14, 2008

Annual Report 2007 (not including the opinion of the external Auditors which will be made public within the terms set by the current legislation)

Notice of Annual General Meeting 2008

Report on the proposals of the Board of Directors to the Shareholders’ Meeting

Press Release dated March 27, 2008

 

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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: Fabrizio Cosco
		Title:	Corporate Secretary

Date: March 31, 2008

 

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ENI 2007 CONSOLIDATED FINANCIAL STATEMENTS

• Net profit for the year confirmed at euro 10 billion
• Proposed a dividend per share of euro 1.30

 

San Donato Milanese, March 14, 2008 - Eni’s Board of Directors today approved Eni’s 2007 consolidated financial statements, which reported net profit of euro 10,011 million¹ and draft financial statements of the parent company Eni SpA, which reported net profit of euro 6,600 million. The Board of Directors resolved to propose to the Annual Shareholders’ Meeting the distribution of a dividend² amounting to euro 1.30 per share (pay-out 47%). Taking account of an interim dividend of euro 0.60 per share paid in October 2007, a balance amounting to euro 0.70 per share (euro 1.40 per ADR³) will be paid on May 22, 2008 to all outstanding shares on the register at the ex-dividend date of May 19, 2008.

Eni’s consolidated financial statements and the draft financial statements of the parent company were submitted to the Board of Statutory Auditors and to Eni’s external auditors. Enclosed are the consolidated profit and loss account and balance sheet and the profit and loss account and balance sheet of the parent company.
The Board of Directors also approved Eni’s 2007 Sustainability Report in which the Company illustrates its commitment to sustainable development in line with international best practice.

Convening of the Annual Shareholders’ Meeting on April 22 and 29, 2008 to approve the 2007 financial statements
In addition to the approval of the 2007 financial statements of the parent company and of the dividend proposal, the Annual Shareholders’ Meeting is convened on April 22 and 29, 2008, on first and second call respectively, to approve the following:

Financial statements of AgipFuel SpA and Praoil Oleodotti Italiani SpA: the Board of Directors proposes the approval of 2007 financial statements of these Eni subsidiaries that were merged into the parent company, effective January 1, 2008. Reported net profit, amounting to euro 900,816 and euro 14,818,016 respectively, is proposed to be attributed to retained earnings.

Share buy-back: the Board of Directors intends to propose the continuation of the share buy back program for a period of 18 months after the Shareholders’ Meeting for a maximum amount of euro 7.4 billion, equating to 400 million shares or approximately 9.9866% of the issued share capital. Both limits will take account of treasury shares on the Shareholders’ Meeting date.
From the inception of the share buy-back programme to March 13, 2008, Eni has repurchased a total of 369.7 million of its own shares, equal to 9.23% of issued share capital, for a total cost of euro 6,352 million (representing an average cost of euro 17.182 per share), equal to 85.8% of the maximum of euro 7.4 billion authorized by the Annual Shareholders’ Meeting of May 24, 2007.

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(1)		Attributable to Eni shareholders. This result is the same as the preliminary results announced in February 2008; for details see Eni’s Press Release of February 15, 2008.
(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 SpA’s interim dividend.

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Convening of the Shareholders’ Meeting on June 9 and 10, 2008 for the renewal of the corporate bodies
The Board of Directors, with the majority of its members approving the resolution and with the consent of the Board of Statutory Auditors, convened the Shareholders’ Meeting on June 9 and 10, 2008, on first and second call respectively to appoint corporate bodies, proposing to set the number of Directors to be appointed by the Shareholders’ Meeting at nine.

Convening of the Noteholders’ Meeting
Eni’s Board of Director also convened the Meeting of Noteholders of the Eni’s bond “Eni SpA - Euro Medium Term Notes Third Issuance” on April 21, 22 and 28, 2008, on first, second and third call respectively to appoint the joint representative of the Noteholders, and to resolve on term and emolument of his/her office.

The report on Corporate Governance is available at Eni headquarter and on Eni’s website, www.eni.it. This report provides information about the adoption of the corporate governance code endorsed by the Italian Stock Exchange authority (Borsa Italiana SpA) and adherence to relevant commitments.

Eni’s 2007 Annual Report is available on Eni’s website www.eni.it, in the section Publications, Reports.

The convening notice and the Board of Directors report on the proposals to the Shareholders’ Meeting convened on April 22, 2008 will be available on Eni’s website www.eni.it, by March 21, 2008.

* * *

Financial statements and information herewith set forth are extracted from 2007 consolidated annual report and the parent company’s financial statements (available only in the Italian version) which have been disseminated along with this press release. The 2007 consolidated annual report and Eni SpA financial statements include the certification rendered by management pursuant to Article 154-bis, paragraph 5 of Legislative Decree No. 58/1998, in accordance with the format set by the Italian market regulatory body (CONSOB).

Contacts
E-mail: segreteriasocietaria.azionisti@eni.it

Investor Relations
E-mail: investor.relations@eni.it 
Tel.: +39 0252051651 - fax: +39 0252031929

Eni Press Office:
E-mail: ufficiostampa@eni.it
Tel.: +39 0252031287 - +39 0659822040


Eni
Società per Azioni, Rome, Piazzale Enrico Mattei, 1
Capital Stock: euro 4,005,358,876 fully paid
Registro Imprese di Roma, c. f. 00484960588
Tel.: +39-0659821 - Fax: +39-0659822141

* * *

This press release is also available on the Eni web site: www.eni.it.

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 70 countries and is Italy’s largest company by market capitalization.

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Eni consolidated profit and loss account

(million euro)		2006		2007		Change		% Ch.

Net sales from operations		86,105			87,256			1,151			1.3
Other income and revenues		783			827			44			5.6
Operating expenses		(61,140	)		(61,979	)		(839	)		(1.4	)
of which non recurring items		(239	)		(8	)
Depreciation, depletion, amortization and impairments		(6,421	)		(7,236	)		(815	)		(12.7	)

Operating profit		19,327			18,868			(459	)		(2.4	)
Finance income (expense)		161			(83	)		(244	)		..
Net income from investments		903			1,243			340			37.7

Profit before income taxes		20,391			20,028			(363	)		(1.8	)
Income taxes		(10,568	)		(9,219	)		1,349			12.8

Net profit		9,823			10,809			986			10.0
attributable to:
- Eni		9,217			10,011			794			8.6
- Minority interest		606			798			192			31.7

 

Eni consolidated balance sheet

(million euro)					Dec. 31, 2006		Dec. 31, 2007		Change

Fixed assets
Property, plant and equipment		44,312			50,137			5,825
Other assets		629			563			(66	)
Inventories - compulsory stock		1,827			2,235			408
Intangible assets		3,753			4,333			580
Investments accounted for using the equity method and other investments		4,246			6,111			1,865
Financing receivables and securities related to operations		557			725			168
Net payables in relation to capital expenditures		(1,090	)		(1,191	)		(101	)

		54,234			62,913			8,679
Net working capital
Inventories		4,752			5,435			683
Trade receivables		15,230			15,609			379
Trade payable		(10,528	)		(11,092	)		(564	)
Tax payable and provision for net deferred tax liabilities		(5,396	)		(4,412	)		984
Provisions		(8,614	)		(8,486	)		128
Other current assets and liabilities:
Equity instruments					2,476			2,476
Other		(641	)		(2,600	)		(1,959	)

		(5,197	)		(3,070	)		2,127
Provisions for employee benefits		(1,071	)		(935	)		136
Net assets held for sale including related net borrowings					286			286

CAPITAL EMPLOYED, NET

47,966

59,194

11,228

Shareholders' equity including minority interest		41,199			42,867			1,668
Net borrowings		6,767			16,327			9,560

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

47,966

59,194

11,228

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Eni SpA (4) profit and loss account

(million euro)		2006		2007		Change

Net sales from operations		52,985			47,810			(5,175	)
Other income and revenues		255			168			(87	)
Operating expenses		(49,264	)		(43,656	)		5,608
of which non recurring items		(164	)		21
Depreciation, depletion, amortization and impairments		(829	)		(863	)		(34	)

Operating profit		3,147			3,459			312
Finance income (expense)		98			(1,387	)		(1,485	)
Net income from investments		3,785			4,953			1,168

Profit before income taxes		7,030			7,025			(5	)
Income taxes		(1,164	)		(425	)		739

Net profit

5,866

6,600

734

 

Eni SpA balance sheet

(million euro)					Dec. 31, 2006		Dec. 31, 2007		Change

Fixed assets
Property, plant and equipment		5,507			5,748			241
Compulsory stock		1,701			2,109			408
Intangible assets		948			1,019			71
Investments accounted for using the equity method and other investments		20,897			23,545			2,648
Financing receivables and securities related to operations		6,662			7,985			1,323
Net payables in relation to capital expenditures		(313	)		(240	)		73

		35,402			40,166			4,764
Net working capital		(128	)		(667	)		(539	)
Provisions for employee benefits		(310	)		(288	)		22

CAPITAL EMPLOYED, NET

34,964

39,211

4,247

Shareholders' equity		26,935			28,926			1,991
Merger surplus		588
Net borrowings		7,441			10,285			2,844

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

34,964

39,211

4,247

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(4)

Following the merger of the wholly-owned subsidiaries Enifin SpA and Eni Portugal Investment SpA into Eni SpA effective since January 1, 2006, 2006 results have been restated in order to allow a homogeneous comparison among periods. All amounts deriving from inter-company transactions involving Eni SpA and the mentioned subsidiaries have been eliminated.

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Ordinary Shareholders’ Meeting of April 22 and 29, 2008

This notice convening the meeting was published on the
Gazzetta Ufficiale of the Republic of Italy
No. 34, section II of March 20, 2008


This annual report includes the report of Eni’s Board of Directors and
Eni’s consolidated financial statements for the year ended December 31,
2007, 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 expenditure, 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; management’s 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.

 

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  “Eni” means the parent company Eni SpA and its consolidated subsidiaries

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ENI ANNUAL REPORT 2007 / PROFILE OF THE YEAR

Results Eni reported net profit of euro 10 billion for the full year 2007, up 8.6% from a year earlier. On an adjusted basis, net profit amounted to euro 9.5 billion, down 9%, driven by lower operating performance in the upstream and downstream oil businesses, partly offset by better results in the Engineering & Construction and Gas & Power divisions. Dividend Based on 2007 earnings and cash flow, coupled with a sound financial structure, a dividend of euro 1.30 per share will be distributed to shareholders (euro 1.25 per share in 2006, up 4%) confirming management commitment to return to shareholders a dividend flow among the most attractive in the industry. Included in this annual payment is euro 0.60 per share which was distributed as interim dividend in October 2007. The balance of euro 0.70 per share is payable on May 22, 2008 to shareholders on the register on May 19, 2008. Pay-out stands at 47%. Oil and natural gas production Oil and natural gas production for the year averaged 1.736 mmboe/d, down by 1.9% compared with 2006. Production performance was impacted by mature field declines, price impacts in certain PSAs, disruptions and unplanned events in Nigeria, the North Sea and Venezuela. Partially offsetting these effects was the benefit of the acquired assets in the Gulf of Mexico and Congo as well as the organic growth achieved in Libya, Egypt and Kazakhstan.		Management plans to achieve strong production growth over the medium-term and leveraging on its portfolio of capital projects and the integration of acquired assets. The company targets a production level of more than 2.05 million boe/d by 2011, with an yearly average growth rate of 4.5% under Eni’s assumptions for Brent prices of 55 $/barrel. Proved oil and natural gas reserves Estimated net proved reserves at December 31, 2007 amounted to 6.37 bboe determined under a Brent price of 96 $/barrel. Eni’s estimated proved reserves comprised 30% of proved reserves of the three equity accounted Russian gas companies purchased as part of a bid procedure for assets of bankrupt Yukos and participated by Eni with a 60% interest, considering that it is probable that Gazprom will exercise a call option to acquire a 51% interest in these companies. The all sources reserve replacement ratio was 90% and the average reserve life index was 10 years. In the medium term Eni targets a reserve replacement ratio higher than 100% based on Eni’s assumptions for Brent prices. Natural gas sales Natural gas sales were up approximately 0.9% to 98.96 bcm driven by the organic growth achieved in international markets, partially offset by the lower European gas demand registered in the first quarter of 2007 due to unusually mild winter weather. In the

 

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ENI ANNUAL REPORT 2007 / PROFILE OF THE YEAR

medium term, Eni expects to target more than 110 bcm leveraging on international sales growth, which are planned to increase at a 9% yearly average growth rate in the four-year period 2008-2011. Portfolio developments In 2007, Eni executed a number of competitively-priced acquisitions of assets and investments and signed certain major deals in core areas. Made important transactions to acquire oil and gas assets in the Gulf of Mexico and in Congo onshore with total expenditures amounting to euro 4.52 billion. In 2008 these assets are expected to produce approximately 100 kboe/d under Eni scenario. As part of the strategic alliance with Gazprom, Eni in partnership with Enel (60% Eni, 40% Enel) was awarded a bid for the acquisition of Lot 2 of ex-Yukos assets including a 100% interest in the three companies OAO Arctic Gas Company, ZAO Urengoil Inc, OAO Neftegaztechnologia which are engaged in exploration and development of large predominantly gas reserves. Acquired assets allow Eni to access to 2.5 bboe of resources net to Eni according to a participating interest of 30%, considering that Gazprom retains a call option to purchase a 51% interest in those three gas companies. Through the same transaction Eni has also purchased 20% of OAO Gazprom Neft. The cash consideration for these transactions amounted to euro 3.73 billion net to Eni. Announced in November 2007 the terms of recommended cash offer to acquire the entire issued share capital of the UK-based oil company Burren Energy plc. Total cash consideration is expected to amount to approximately euro 2.4 billion. Burren holds producing assets in Congo and Turkmenistan flowing at a rate of over 25 kboe/d and partners Eni in the Congolese assets that Eni bought from Maurel & Prom. The deal closed in January 2008. Signed a major petroleum agreement with NOC, the Libyan National Oil Corporation. The agreement provides for the extension of the duration of Eni’s mineral rights in Libya and the launch of large projects aiming at monetizing substantial gas reserves and overhauling offshore exploration activities. Signed a gas sale agreement between the Consortium conducting operations at the Karachaganak field (Eni is co-operator with a 32.5% stake) and KazRosGaz, a joint venture established by the Kazakh and Russian companies KazMunaiGaz and Gazprom. This agreement lays the foundations for the development of gas reserves of the field.

Acquired a 13.6% stake in Angola LNG Ltd Consortium responsible for the construction of an LNG plant. It will be designed with a capacity to process one bcf/d of natural gas and produce 5.2 mmtonnes a year of LNG and related products. Signed a framework agreement with Gazprom to build the South Stream pipeline system which is expected to import to Europe volumes of natural gas produced in Russia across the Black Sea. Exploratory program In 2007, Eni invested euro 1,659 million in executing its exploratory program, up 23% from 2006. Activity for the year led to the completion of 81 exploratory wells (43.5 net to Eni) with a commercial rate of success of 40% (38% net to Eni). A further 28 wells were in progress as of the year end. The main discoveries were achieved in Angola, Brazil, Congo, Egypt, Indonesia, Nigeria, Norway, Pakistan, the United Kingdom, the Gulf of Mexico and Alaska. Eni’s exploratory portfolio has been strengthened by acquiring new acreage in the Gulf of Mexico, onshore Congo and Alaska, in line with Eni’s strategy of focusing on core areas. The new acquired acreage extends for 26,000 square kilometers (net to Eni, 95% operated). Kazakhstan - Agreement for the development project of the Kashagan oilfield On January 14, 2008, all parties to the North Caspian Sea Production Sharing Agreement (NCSPSA) consortium and the Kazakh authorities signed a memorandum of understanding to settle a dispute commenced in August 2007 regarding conditions and rights for developing and exploiting the Kashagan field. The agreement establishes a renewed economic equilibrium of the contract in consideration of changed market conditions and provides stability for the project execution which will continue to play a fundamental role in Eni’s future. Venezuela: Settlement of the dispute on the Dación field and Orinoco project On February 15, 2008 Eni and the Venezuelan authorities reached a final settlement over the dispute regarding the expropriation of the Dación field. Under the terms of the settlement, Eni will receive a cash compensation in line with the carrying value of the expropriated asset. On February 29, 2008 Eni and the Venezuelan State oil company PDVSA signed a strategic agreement for the development of the Junin Block 5 located in the Orinoco oil belt. This block covering a gross acreage of 670 square kilometers holds a resource potential estimated to be in excess of 2.5 bboe of heavy oil. Eni intends to maximize the value of the heavy oil using the Eni Slurry Technology (EST).

 

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ENI ANNUAL REPORT 2007 / PROFILE OF THE YEAR

STATISTIC RECAP

Financial highlights		2005		2006		2007
(million euro)

Net sales from operations				73,728		86,105		87,256
Operating profit				16,827		19,327		18,868
Adjusted operating profit (a)				17,558		20,490		18,986
Net profit (b)				8,788		9,217		10,011
Adjusted net profit (a) (b)				9,251		10,412		9,470
Net cash provided by operating activities				14,936		17,001		15,517
Capital expenditures				7,414		7,833		10,593
Dividends pertaining to the year (c)				4,086		4,594		4,750
Cash dividends				5,070		4,610		4,583
Cost of purchased own shares				1,034		1,241		680
Research and development costs				204		222		208
Total assets at year end				83,850		88,312		101,560
Debts and bonds at year end				12,998		11,699		19,830
Shareholders' equity including minority interest at year end				39,217		41,199		42,867
Net borrowings at year end				10,475		6,767		16,327
Net capital employed at year end				49,692		47,966		59,194
Share price at year end		(euro)		23.43		25.48		25.05
Number of shares outstanding at year end		(million)		3,727.3		3,680.4		3,656.8
Market capitalization (d)		(billion euro)		87.3		93.8		91.6

(a)		For a detailed explanation of adjusted operating and net profit see page 68.
(b)		Profit attributable to Eni shareholders.

(c)		Amounts due on the payment of the balance of 2007 dividend are estimated.
(d)		Number of outstanding shares by reference price at period end.

 

Summary financial data		2005		2006		2007

Net profit
- per ordinary share (a)		(euro)		2.34		2.49		2.73
- per ADR (a) (b)		(USD)		5.81		6.26		7.49
Adjusted net profit
- per ordinary share (a)		(euro)		2.46		2.81		2.58
- per ADR (a) (b)		(USD)		6.12		7.07		7.07
Return On Average Capital Employed (ROACE)
- reported		(%)		19.5		20.3		20.5
- adjusted		(%)		20.5		22.7		19.3
Leverage				0.27		0.16		0.38
Dividend pertaining to the year		(euro per share)		1.10		1.25		1.30
Pay-out (c)		(%)		46		50		47
Total Shareholder Return (TSR)		(%)		35.3		14.8		3.2
Dividend yield (d)		(%)		4.7		5.0		5.3

(a)		Fully diluted. Ratio of net profit and average number of shares outstanding in the year. Dollar amounts are converted on the basis of the average EUR/USD exchange rate quoted by the ECB for the periods presented.
(b)		One American Depository Receipt (ADR) is equal to two Eni ordinary shares.

(c)		2007 pay-out ratio is estimated with reference to the amounts due on the payment of the dividend balance of 2007.
(d)		Ratio of dividend for the period and average price of Eni shares in December.

 

Key market indicators		2005		2006		2007

Average price of Brent dated crude oil (a)				54.38		65.14		72.52
Average EUR/USD exchange rate (b)				1.244		1.256		1.371
Average price in euro of Brent dated crude oil				43.71		51.86		52.90
Average European refining margin (c)				5.78		3.79		4.52
Average European refining margin in euro				4.65		3.02		3.30
Euribor - three-month euro rate		(%)		2.2		3.1		4.3
Libor - three-month dollar rate		(%)		3.5		5.2		5.3

(a)		In USD per barrel. Source: Platt's Oilgram.
(b)		Source: ECB.

(c)

In USD per barrel FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platt's Oilgram data.

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ENI ANNUAL REPORT 2007 / PROFILE OF THE YEAR

Summary operating data		2005		2006		2007

Exploration & Production
Estimated net proved reserves of hydrocarbons (at period end)		(mmboe)		6,837		6,436		6,370
- Liquids		(mmbbl)		3,773		3,481		3,219
- Natural gas		(bcf)		17,591		16,965		18,090
Average reserve life index		(year)		10.8		10.0		10.0
Production of hydrocarbons		(kboe/d)		1,737		1,770		1,736
- Liquids		(kbbl/d)		1,111		1,079		1,020
- Natural gas		(mmcf/d)		3,595		3,964		4,144
Gas & Power
Worldwide gas sales		(bcm)		94.21		98.10		98.96
- of which E&P sales (a)		(bcm)		4.51		4.69		5.39
LNG sales		(bcm)		7.0		9.9		11.7
Customers in Italy		(million)		6.02		6.54		6.61
Gas volumes transported in Italy		(bcm)		85.10		87.99		83.28
Electricity sold		(TWh)		27.56		31.03		33.19
Refining & Marketing
Refining throughputs on own account		(mm tonnes)		38.79		38.04		37.15
Conversion index		(%)		56		57		56
Refining throughputs of wholly-owned refineries		(mm tonnes)		27.34		27.17		27.79
Balanced capacity of wholly-owned refineries		(kbbl/d)		524		534		544
Retail sales of petroleum products in Europe		(mm tonnes)		12.42		12.48		12.65
Service stations in Europe at period end		(units)		6,282		6,294		6,441
Average throughput of service stations in Europe		(kliters)		2,479		2,470		2,486
Petrochemicals
Production		(ktonnes)		7,282		7,072		8,795
Sales of petrochemical products		(ktonnes)		5,376		5,276		5,513
Average plant utilization rate		(%)		78.4		76.4		80.6
Engineering & Construction
Orders acquired		(million euro)		8,395		11,172		12,011
Order backlog at period end		(million euro)		10,122		13,191		15,390
Employees at period end		(units)		72,258		73,572		75,862

(a)		E&P sales include volumes marketed by the Exploration and Production division in Europe for 3.59 bcm and in the Gulf of Mexico for 1.8 bcm for the full year 2007 (4.07 and 0.62 bcm for the full year 2006 respectively). It also includes volumes marketed in Europe for 4.51 bcm for the full year 2005.

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ENI ANNUAL REPORT 2007 / PROFILE OF THE YEAR

THE ENI SHARE

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ENI ANNUAL REPORT 2007 / LETTER TO SHAREHOLDER

 

		Eni’s Board of Directors
		Roberto Poli Chairman		Paolo Scaroni CEO and General Manager

 

To our Shareholders 2007 was another good year for Eni, in which we delivered excellent financial and operational results. In accordance with our strategy and objectives, we pursued projects that will enable us to achieve sector-leading growth and value creation. We completed a number of strategic and competitively-priced acquisitions and closed major agreements in our core areas, strengthening our position in key markets. We delivered solid results and distributed a total of euro 5.3 billion to our shareholders through dividends and share buy-backs. Financial performance Eni’s 2007 net profit was euro 10 billion. Adjusted net profit was euro 9.5 billion, a decrease of 9% compared to 2006 due to the significant appreciation of the euro against the US dollar (up 9.2%). Return on average capital employed was 19.3%. Net cash generated from operating activities of euro 15.5 billion enabled us to finance euro 20.5 billion of investments. Of this, euro 10.6 billion was dedicated to organic growth projects, including exploration, and euro 9.9 billion to acquisitions. Our net debt to equity ratio was 0.38 at year end. The results achieved in 2007 enable us to propose a dividend of euro 1.30 per share to our Annual General Shareholders Meeting, of which euro 0.60 was paid as an interim dividend in October 2007. This represents an increase of 4% compared to 2006 (euro 1.25 per share), confirming the Company’s policy of distributing generous dividend flows to its shareholders.

Sustaining growth and shareholder returns Growth is at the centre of our strategy. We will achieve our short and long term growth targets through the development of our portfolio of assets, including those acquired in 2007, and by strengthening our leadership role in the European gas market. Over the next four years, we will invest euro 49.8 billion, up 15% compared to our previous plan. More than two thirds of the increase refers to new capital projects which will drive the company's short and long-term growth strategy. The projected free cash flow in 2011 will allow us to sustain the current level of dividends in real terms, even with a Brent scenario lower than 40 $/bl. The Exploration & Production division delivered a cash flow from operations of euro 11.6 billion confirming the record level of 2006, despite the euro’s appreciation versus the US dollar, cost pressures and the adverse impact of disruptions and contingencies on production. In 2007, the division’s adjusted net profit was euro 6.5 billion, down 10.8% compared to 2006. Oil and gas production totalled 1,736 kboe/day, down 1.9% from 2006 with a price scenario of 72.5 $/bl (11% higher than 2006). At our forecast oil price of 55 $/bl, production would have been in line with 2006. Our key priority in the E&P division remains the maximization of returns through production growth in the medium and long term, in the context of higher oil prices. Leveraging on the high quality of our portfolio and the integration of purchased assets, we target an average annual production increase of 4.5% in the 2008-2011 period and forecast an annual growth rate of

 

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approximately 3% in 2012-2014. In 2008, production will exceed 1.8 million boe/d, whilst in 2011 it will exceed 2.05 million boe/day based on Eni's 55 $/bl Brent scenario. In 2007, we added 5.1 billion barrels to our hydrocarbon resource base of 28 billion barrels through focused acquisitions and successful exploration. These resources will enable us to deliver our ambitious long-term production growth targets. In 2007 we also reached an agreement on the key Kashagan project which reflects the evolution in market conditions and increases the project’s stability. The original PSA contract remains unchanged, ensuring the value of the project remains very satisfactory for Eni. We are progressing with the global expansion of our LNG business, which will enable us to monetize our substantial gas reserves. In 2007 we acquired a 13.6% stake in the Angola LNG Ltd Consortium, which is building an LNG plant with an annual capacity of 5.2 million tonnes. New LNG projects will increase liquefaction capacity to 11.3 billion cubic meters in 2011 and 18.8 billion cubic meters in 2014. LNG sales will grow from 11.7 billion cubic meters in 2007 to 14.5 in 2011, and will reach 25.8 in 2014. In the Gas & Power division, we achieved excellent operating and financial results. Gas sales reached 99 billion cubic meters, an increase of 4% compared to 2006 if we exclude the weather impact. Adjusted net profit for the year rose by 2.6% to euro 2.9 billion, supported by a 17.6% increase in volume sold in the European markets to 24.35 bcm (excluding gas sold by E&P of 3.6

bcm), partially offset by decreasing supplies to Italian importers (down 3.43 bcm to 10.67 bcm) and on the Italian market (down 0.96 bcm to 56.13 bcm). Adjusted free cash flow rose by 10%, from euro 1.9 billion in 2006 to euro 2.1 billion, underpinning around 40% of Eni’s dividend. Our strategy is based on further increasing our international sales, consolidating our domestic natural gas business, and effectively managing our regulated business. Eni can leverage on a unique portfolio of gas both equity and purchased under long term supply contracts, in-depth market knowledge and a large customer base to further strengthen its market leadership. We target gas sales of 110 billion cubic meters in 2011, including E&P North Sea and USA equity gas production, and average international sales growth of 9% per year between 2008 and 2011. Our Refining & Marketing division reported an adjusted net profit of euro 319 million. This was 49.3% lower than in 2006 due to a reduction in heavy sour crude discounts in the market, the appreciation of the euro against the dollar and a decline in the profitability of marketing activities as the rapid increase in international crude prices was not fully reflected in product sale prices. Our strategy in R&M aims to significantly increase profitability along the whole of the value chain, targeting a euro 400 million EBIT increase by 2011 at 2007 scenario. In Refining, we will increase the conversion rate to 60% to achieve a middle distillate yield of 43% by 2011, partly thanks to new hydrocrakers in Sannazzaro and Taranto. On both these measures, we see further improvements following the start-up of EST in

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Sannazzaro in 2012. Furthermore, an efficiency programme targeting maintenance, energy consumption and general expenses will provide cost savings of around euro 130 million by 2011. In Marketing, we aim to consolidate our leadership in Italy, improving the quality and the range of our offer with premium products, new loyalty programs and non-oil formats. In Europe, we are focusing on those markets where we can leverage on scale, supply & logistic synergies and brand awareness. In Engineering & Construction, adjusted net profit rose by 65% to euro 658 million, reflecting the strong competitive position held by Saipem and the favourable environment for engineering and construction activities. Saipem is planning to further expand the geographical reach and operational features of its world-class fleet to cope with rising demand for drilling equipment and oilfield services. Our strategy in the Petrochemicals division, which reported an adjusted net profit of euro 57 million for 2007, is to improve efficiency and selectively develop those plants in areas of excellence (styrenes and elastomers) with competitive scale and a favourable geographic location. Eni’s efforts in the field of Research and Innovation are primarily aimed at reducing the costs of finding and recovering hydrocarbons, upgrading heavy oils, monetizing stranded gas and protecting the environment. Our significant research and innovation activities are coherent with our strategy, which posits

technology as a key factor to increase our competitive advantage over the long term, promoting sustainable growth and profitable partnerships with producing countries. We also raised our efficiency target by 50% to euro 1.5 billion in the 2006-2011 period, having already achieved a cost reduction of euro 500 million in 2006-2007. Sustainable development With regards to sustainable development, 2007 was a landmark year for Eni. We were selected to join the FTSE4Good and Dow Jones Sustainability World indices, the most prestigious stock-market indices in the world in the field of corporate social responsibility. The two indices select companies on the basis of their performance in environmental sustainability, research and innovation and on the quality of their relationship with shareholders, suppliers, employees and local communities. For Eni, sustainable development is part of a broad process of identifying and implementing concrete actions to manage the complexities of a large, integrated energy company. Admission of the Eni share to worldwide sustainability indices confirm to us that managing a company in a responsible manner is rewarded by investors and stakeholders. We will continue to promote the development of the communities in which we operate, to increase investment in research and innovation, and to focus on reducing greenhouse gas emissions from industrial processes.

 

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In conclusion, 2007 was an excellent year for Eni. As well as delivering impressive results, we have worked to create growth opportunities in all our businesses.

We are confident that we will continue to deliver industry-leading growth and generate value for our shareholders.

March 14, 2008

In representation of the Board of Directors

 

The composition and powers of the Internal Control Committee, Compensation Committee and International Oil Committee are presented in the section “Corporate Governance” in the Report of the Directors.

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Key performance indicators		2005		2006		2007

Net sales from operations (a)		(million euro)		22,531		27,173		27,278
Operating profit				12,592		15,580		13,788
Adjusted operating profit				12,903		15,763		14,051
Adjusted net profit				6,186		7,279		6,491
Capital expenditures				4,965		5,203		6,625
of which: exploratory expenditures (b)				656		1,348		1,659
Adjusted capital employed, net				20,206		18,590		24,643
Adjusted ROACE		(%)		32.4		37.5		30.0
Average realizations
- Liquids		($/bbl)		49.09		60.09		67.70
- Natural gas		($/mmcf)		4.49		5.29		5.42
- Total hydrocarbons		($/boe)		41.06		48.87		53.17
Production (c)
- Liquids		(kbbl/d)		1,111		1,079		1,020
- Natural gas		(mmcf/d)		3,595		3,964		4,114
- Total hydrocarbons		(kboe/d)		1,737		1,770		1,736
Estimated net proved reserves (c) (d)
- Liquids		(mmbbl)		3,773		3,481		3,219
- Natural gas		(bcf)		17,591		16,965		18,090
- Total hydrocarbons		(mmboe)		6,837		6,436		6,370
Reserve life index		(year)		10.8		10.0		10.0
Reserve replacement ratio of subsidiaries (SEC criteria)		(%)		43		38		38
Reserve replacement ratio including equity-accounted entities (d)		(%)		40		38		90
Employees at year end		(units)		8,030		8,336		9,334

(a)		Before elimination of intragroup sales.
(b)		Includes exploration bonuses.
(c)		Includes Eni's share of equity-accounted entities.

(d)

Includes a 30% stake of the reserves of the three equity-accounted Russian companies purchased as part of a bid procedure for assets of bankrupt Yukos and partecipated by Eni with a 60% interest, considering that it is probable that Gazprom will exercise a call option to acquire a 51% interest in these companies so as to dilute Eni's interest to 30%. Reserves of the 20% partecipated OAO Gazprom Neft were also excluded considering the call option attributed to Gazprom.

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Agreement for the development project of the Kashagan oilfield
› On January 14, 2008, all parties to the North Caspian Sea Production Sharing Agreement (NCSPSA) consortium and the Kazakh authorities signed a memorandum of understanding to settle a dispute commenced in August 2007 regarding conditions and rights for developing and exploiting the Kashagan field. The agreement establishes a renewed economic equilibrium of the contract in consideration of changed market conditions and provides stability for the project execution which will continue to play a fundamental role in Eni’s future.

Agreements in Venezuela
› On February 15, 2008 Eni and the Venezuelan Authorities reached a final settlement over the dispute regarding the expropriation of the Dación field which took place on April 1, 2006. Under the terms of the settlement, Eni will receive a cash compensation in line with the carrying value of the expropriated asset. Eni believes this settlement represents an important step towards improving and strengthening cooperation with PDVSA.

› As part of improving cooperation with the Venezuelan State oil company PDVSA, on February 29, 2008 the two partners signed a strategic agreement for the development of the Junin Block 5 located in the Orinoco oil belt. This block covering a gross acreage of 670 square kilometers holds a resource potential estimated to be in excess of 2.5 bbbl of heavy oil. Once relevant studies have been performed and a development plan defined, a joint venture between PDVSA (60%) and Eni (40%) will be established to execute the project. Eni intends to contribute its experience and leading technology to the project in order to maximize the value of the heavy oil. In particular, it will make available its EST (Eni Slurry Technology) proprietary technology. This is a highly innovative technology for the complete conversion of heavy oils into high-quality light products.

Financial results
› Adjusted net profit for the full year was euro 6,491 million, a decline of euro 788 million from 2006 (down 10.8%) reflecting a lower operating performance impacted by the appreciation of the euro over the dollar, rising costs and lower production volumes sold.

› Return on average capital employed calculated on an adjusted basis was 30% in 2007, lower than in 2006 (37.5%).

› Average liquids and gas realizations increased in dollar terms by 8.8% from 2006 due to slightly higher oil realizations as compared to the marker Brent which benefited from a reduction in sour crude discounts in the marketplace.

Portfolio developments
› Made important transactions to acquire oil and gas assets in the Gulf of Mexico from Dominion Resources and in onshore Congo from Maurel & Prom with total expenditures amounting to euro 4.52 billion. In 2008 these assets are expected to produce approximately 100 kboe/d under Eni Brent price assumptions.

› Purchased in partnership with Enel (Eni 60%, Enel 40%) a 100% interest in OAO Arctic Gas Company, ZAO Urengoil Inc, OAO Neftegaztechnologia as part of the liquidation procedure of bankrupt Russian company Yukos. The acquired entities are engaged in exploration and development of large predominantly gas reserves, amounting to approximately 2.5 bboe of resources net to Eni according to a 30% interest determined assuming Gazprom exercises its call option to acquire a 51% stake in the three companies. Through the same transaction Eni also purchased a 20% stake in the oil and gas company OAO Gazprom Neft. Eni granted Gazprom a call option to purchase the 20% stake in OAO Gazprom Neft. The cash consideration for these transactions amounted to euro 3.73 billion net to Eni.

› Signed a major agreement with NOC, the Libyan National Oil Corporation. The agreement provides for the extension of the duration of Eni’s mineral rights in Libya, for oil properties until 2042 and for gas properties until 2047, and the launch of large projects aiming at monetizing substantial gas reserves and overhauling offshore exploration activities. This deal further strengthens Eni’s competitive position in Libya, reaffirming its leadership among the international oil companies engaged in this country. Relevant agreements are effective from January 1, 2008.

› Announced in November 2007 the terms of recommended cash offer to acquire the entire issued share capital of the UK-based oil company Burren Energy Plc. Total cash consideration is expected to amount to approximately euro 2.4 billion. Burren holds producing assets in Congo and Turkmenistan flowing at a rate of over 25 kboe/d and partners Eni in the Congolese assets that Eni bought from Maurel & Prom. Burren also owns a

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number of exploration licenses in Egypt, Yemen and India. On January 11, 2008 Eni declared its recommended offer to be unconditional and at the end of February held a 96.9% stake in the company share capital.

› Signed a gas sale agreement between the consortium conducting operations at the Karachaganak field (Eni is co-operator with a 32.5% stake) and KazRosGaz, a joint venture established by the Kazakh and Russian companies KazMunaiGaz and Gazprom. This agreement lays the foundations for the development of gas reserves of the field.

› Acquired a 13.6% stake in Angola LNG Ltd Consortium responsible for the construction of an LNG plant. It will be designed with a processing capacity of 1 bcf/d of natural gas and produce 5.2 mmtonnes a year of LNG and related products.

› Acquired a 70% interest in the Nikaitchuq oilfield in Alaska, in which Eni reached both the 100% ownership and the operatorship. Production start-up is expected at the end of 2009.

› Awarded 26 new exploration licenses in Gulf of Mexico following an international bid procedure. The acquired acreage is estimated to have a significant mineral potential and is located near to Eni’s production facilities in the area.

› Signed an agreement to extend duration of the development and production licence for oilfield of Block 403 (Eni’s interest 50%) with Sonatrach in Algeria. In 2007 production from this block represented approximately 14% of Eni’s total production in the country.

Production
› Oil and natural gas production for the full year averaged 1.736 mmboe/d, down by 1.9% compared with 2006. Production performance was impacted by mature field declines, price impacts in certain Production Sharing Agreements (PSAs)¹, disruptions and unplanned events in Nigeria, the North Sea and Venezuela. Partially offsetting these effects was the benefit of the acquired assets in the Gulf of Mexico and Congo as well as the organic growth achieved in Libya, Egypt and Kazakhstan. The production of liquids and natural gas was in line with 2006 under the assumption of Brent crude oil prices at $55 per barrel in determining volume entitlements in certain PSAs.

› Leveraging on the contribution of the acquired assets and organic growth Eni expects to deliver a 4.5% compound average growth rate over the next four-year period, targeting a production level in excess of 2.05 mmboe/d by 2011 under Eni’s Brent scenario at $55 per barrel.

Estimated net proved reserves
› Estimated net proved reserves at December 31, 2007 were 6.37 bboe (down 1% from 2006) determined based on a year-end Brent price of $96.02 per barrel. The amount of proved reserves comprised 30% of quantities of the three equity accounted Russian companies purchased as part of a bid procedure for assets of bankrupt Yukos and participated by Eni with a 60% interest, considering that it is probable that Gazprom will exercise a call option to acquire a 51% interest in these companies. All sources reserve replacement ratio was 90% with an average reserve life index of 10 years. Eni’s reserve replacement ratio calculated according to SEC criteria was 38% including only reserve additions of consolidated subsidiaries.

› In the medium term, Eni expects to more than replace produced reserves leveraging on the contribution of acquired assets and the high mineral potential of Eni’s assets located in core areas such as the Caspian Sea, West and North Africa and North Sea.

Exploration and development expenditures
› In 2007, exploration expenditures amounted to euro 1,659 million (up 23% from 2006) to execute a very extensive campaign in well established areas of presence. A total of 81 new exploratory wells were drilled (43.5 of which represented Eni’s share) in addition to 28 exploratory and development wells in progress. The overall commercial success rate was 40% (38% net to Eni). The main discoveries were made in: Angola, Brazil, Congo, Egypt, Indonesia, Nigeria, Norway, Pakistan, the United Kingdom, the Gulf of Mexico and Alaska. New acreage was acquired with an extension of 26,000 square kilometers (net to Eni, 95% operated).

› Development expenditures were euro 4,788 million (up 32% from 2006), in particular in Kazakhstan, Angola, Egypt, Italy and Congo.

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Reserves Reserve Governance The Company has adopted comprehensive classification criteria for 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 the estimated quantities of crude oil, natural gas and natural gas liquids which geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under technical, contractual, economic and operating conditions existing at the time. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. Net proved reserves exclude royalties and interests owned by others. Engineering estimates of the Company’s oil and gas reserves are inherently uncertain. Although authoritative guidelines exist regarding engineering criteria that have to be met before estimated oil and gas reserves can be designated as “proved”, the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. Consequently, the estimated proved reserves of oil and natural gas may be subject to future revision and upward and downward revisions may be made to the initial booking of reserves due to analysis of new information concerning production, reservoir performance, commercial factors, acquisition and divestment activity and additional reservoir development activity. Field resources will only be categorized as proved reserves when all criteria for the attribution of proved status has been met, including technical, economic and commercial criteria. Proved reserves to which Eni is entitled under concession contracts are determined by applying Eni’s share of production to total proved reserves of the contractual area, in respect of the duration of the relevant mineral right that normally coincides with the duration over which a field can be produced economically. Proved reserves to which Eni is entitled under Production Sharing Agreements or buy-back contracts 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. A similar scheme applies to buy-back and service contracts. In a high oil price environment, the volume of entitlements necessary to cover the same amount of expenditures is lower. Eni has always exercised rigorous control over the booking process of proved reserves. The Reserve Department of the Exploration & Production division,

reporting directly to the General Manager, is entrusted with the task of continuously updating the Company’s guidelines concerning reserve evaluation, classification and monitoring the periodic determination process. Company guidelines have been reviewed by DeGolyer and MacNaughton (D&M), an independent petroleum engineers company which has declared their compliance with applicable SEC rules. D&M has also stated that the company guidelines regulate situations for which the SEC rules lack details, providing a reasonable interpretation in line with the generally accepted practices in international markets. Eni estimates its proved reserves on the basis of the mentioned guidelines, also when participating in exploration and production activities operated by other entities. The process for evaluating reserves involves: (i) business unit managers (geographic units) and Local Reserve Evaluators (LRE), who perform the evaluation and classification of technical reserves (production profiles, capital expenditure, operating costs and costs related to asset retirement obligations); (ii) geographic area managers at head offices checking evaluations carried out by business unit managers; (iii) the Reserve Department, providing independent reviews of the fairness and correctness of classifications carried out by business units, who also aggregates worldwide reserve data and calculates equity volumes. Moreover, the Reserve Department has the following responsibilities: to ensure the periodic certification process of reserves, to perform economic assessment of reserves and to continuously update the Company guidelines on reserves evaluation and classification. All personnel involved in the process of reserve evaluation are knowledgeable on SEC guidelines for proved reserves classification and have professional abilities adequate to the complexity of the task, expressing their judgment independently and respectful of professional ethics. Since 1991, Eni has requested qualified independent oil engineering companies carry out and independent evaluation2 of its proved reserves on a rotation basis. Eni believes these independent evaluators to be experienced and qualified in the marketplace. In the preparation of their reports, these independent evaluators relied, without independent verification, upon information furnished by Eni with respect to property interest, production, current cost of operation and development, agreements relating to future operations and sale, prices and other factual information and data that were accepted as represented by the independent evaluators. This information was used by Eni in determining its proved reserves and included log, directional surveys, core and PVT analysis, maps, oil/gas/water monthly production/injection data of wells, reservoir and field; field studies, reservoir studies;

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engineers comments relative to field performances, reservoir performances, development programs, work programs etc.; budget data for each field, long range development plans, future capital and operating costs, actual prices received from hydrocarbon sales, instructions on future prices, and other pertinent information to calculate NPV for the fields required to undertake an independent evaluation. Accordingly, Eni believes that the work performed by the independent evaluators is to be considered an evaluation of Eni’s proved reserves as opposed to a determination. We also note that the work performed in evaluating our reserves may not be the same work that the independent evaluators perform when evaluating other companies’ reserves. Notwithstanding the above, the circumstance that the independent evaluations achieved the same results as those of the Company for the vast majority of fields supports the management’s confidence that the company’s booked reserves meet the regulatory definition of proved reserves and are reasonably certain to be produced in the future. Additionally, for those fields where a discrepancy arose, the Company has adopted the reserve estimate indicated by the independent evaluators, whenever the latter was lower than the Company’s estimate. In any case, those differences were not significant.

In particular, in 2007, a total of 2.4 billion boe of proved reserves was evaluated, representing 37% of Eni’s total proved reserves at December 31, 2007 (calculated including a 60% interest of the proved reserves of the three Russian gas companies). Outcomes of these independent evaluations confirmed Eni’s evaluations, as they did in previous years. During the 2005-2007 three year period, independent evaluations covered 67% of Eni’s total proved reserves. Further information on reserves is provided in notes to Eni consolidated financial statements - “Supplemental oil and gas information for the exploration and production activities - Oil and natural gas reserves”. Movements in estimated net proved reserves Eni’s estimated net proved reserves amounts were determined taking into account Eni’s share of proved reserves of equity-accounted entities. The year end amounts comprised 30% of proved reserves of the three equity-accounted Russian companies purchased as part of a bid procedure for assets of bankrupt Yukos and participated by Eni with a 60% interest, considering that it is probable that Gazprom will exercise a call option to acquire a 51% interest in these companies. Based on this assumption, movements in Eni’s 2007 estimated proved reserves were as follows:

 

(mmboe)		Consolidated subsidiaries		Equity-accounted entities		Total

Estimated net proved reserves at December 31, 2006							6,400						36						6,436
Extensions, discoveries and other additions, revisions of previous estimates and improved recovery, gross of year-end price revision				429						24						453
Year-end price revision in PSAs				(348	)					(2	)					(350	)
Reserve additions							81						22						103
Proved property acquisitions							156						309						465
Production for the year							(627	)					(7	)					(634	)
Estimated net proved reserves pro-forma at December 31, 2007							6,010						360						6,370
Reserve replacement ratio, all sources		(%)					38						n.c.						90
Reserve replacement ratio, all sources and gross of year-end price revision		(%)					-						-						145

 

Additions to proved reserves booked in 2007 were 103 mmboe deriving from: (i) extensions and discoveries (202 mmboe), with major increases booked in Angola, Congo, Egypt, Kazakhstan, Tunisia and United States; (ii) improved recovery (24 mmboe) mainly in Algeria and Angola. These increases were offset in part by a negative balance of 123 mmboe resulting from downward and upward revisions of previous estimates. Downward revisions of previous estimates related mainly to adverse price impacts in determining volume entitlements in

certain PSAs (down 350 mmboe) resulting from higher year end oil prices (Brent price was $96.02 per barrel at December 31, 2007 compared to $58.925 per barrel at December 31, 2006). These negative revisions were recorded mainly in Kazakhstan, Libya and Angola, and were partly offset by upward revisions in Egypt, Italy, Nigeria and Norway. Acquisitions amounted to 465 mmboe reflecting a 30% stake of proved reserves of the three equity accounted Russian companies purchased as part of a bid procedure for assets of bankrupt Yukos, and

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Estimated net proved reserves pro-forma

Italy

North Africa

West Africa

North Sea

Caspian Area (b)

Rest of world

Total consolidated subsidiaries

Equity- accounted entities

Total

2005
Liquids		(mmbbl)		228		961		936		433		778		412		3,748		25		3,773
Natural gas		(bcf)		3,676		6,117		1,965		1,864		1,774		2,105		17,501		90		17,591
Hydrocarbons		(mmboe)		868		2,026		1,279		758		1,087		778		6,796		41		6,837
2006
Liquids		(mmbbl)		215		982		786		386		893		195		3,457		24		3,481
Natural gas		(bcf)		3,391		5,946		1,927		1,697		1,874		2,062		16,897		68		16,965
Hydrocarbons		(mmboe)		805		2,018		1,122		682		1,219		554		6,400		36		6,436
2007 (a)
Liquids		(mmbbl)		215		878		725		345		753		211		3,127		92		3,219
Natural gas		(bcf)		3,057		5,751		2,122		1,558		1,770		2,291		16,549		1,541		18,090
Hydrocarbons		(mmboe)		747		1,879		1,095		617		1,061		611		6,010		360		6,370

The conversion rate of natural gas from cubic feet to boe is 1,000 cubic feet = 0.1742 barrels of oil.
(a)		Includes a 30% stake of the reserves of the three equity-accounted Russian companies purchased as part of a bid procedure for assets of bankrupt Yukos and participated by Eni with a 60% interest, considering that it is probable that Gazprom will exercise 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. Eni’s estimated proved reserves would be 6,678 mmboe including the proved reserves of three Russian gas companies on the basis of Eni’s current 60% interest.
(b)		Eni's proved reserves of the Kashagan field were determined based on Eni working interest of 18.52% as of December 31, 2007. As part of the agreements defined with the Kazakh Republic, the change of Eni’s interest to 16.81% in 2008 will determine a decrease of approximately 50 mmbbl in Eni’s estimated net proved reserves of the Kashagan field with respect to December 31, 2007 (information on the Kashagan agreements is provided under the section “Main exploration and development projects - Caspian Area” on page 26).

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(3)		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 a measure used by management to indicate the extent to which production is replaced by proved oil and gas reserves booked according with the Securities Exchange Commission (SEC) criteria under the S-X Regulation, Rule 4-10. 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.

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Oil and natural gas interests (a)

		December 31, 2006		December 31, 2007

Italy		28,508		25,991		20,664		12,582		162
Outside Italy		673,631		731,292		373,827		25,060		1,058
North Africa
Algeria		12,739		11,432		3,041		902		36
Egypt		23,214		24,443		14,469		3,011		56
Libya		39,569		37,749		33,289		796		16
Tunisia		6,464		6,464		2,274		1,558		11
		81,986		80,088		53,073		6,267		119
West Africa
Angola		18,776		20,527		3,570		1,398		55
Congo		9,797		11,099		4,905		968		24
Nigeria		43,215		44,049		7,756		5,715		50
		71,788		75,675		16,231		8,081		129
North Sea
Norway		18,851		15,335		5,390		123		49
United Kingdom		5,860		5,445		1,239		610		88
		24,711		20,780		6,629		733		137
Caspian Area		4,934		4,933		959		488		6
Rest of world
Australia		24,143		62,510		31,544		891		19
Brazil		2,948		2,920		2,774				4
China		866		632		103		103		3
Croatia		6,056		1,975		988		988		2
East Timor		12,224		12,224		9,779				5
Ecuador		2,000		2,000		2,000		2,000		1
India		14,445		24,425		9,091				3
Indonesia		28,438		27,999		16,047		656		10
Iran		1,456		1,456		820		820		4
Pakistan		29,790		38,426		21,155		601		22
Russia				5,126		3,076		1,168		4
Saudi Arabia		51,687		51,687		25,844				1
Trinidad & Tobago		382		382		66		66		1
United States		7,803		10,619		6,024		937		558
Venezuela		1,958		1,556		614		145		3
		184,196		243,937		129,925		8,375		640
Other countries		6,311		6,311		1,364		1,116		9
Other countries with only exploration activity		299,705		299,568		165,646				18
Total		702,139		757,283		394,491		37,642		1,220

(a)		Square kilometers.

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Daily 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.

%

		2005		2006		2007		2007 vs 2006

Italy		86		1,002.9		261		79		911.4		238		75		789.7		212		(26	)		(10.9	)
North Africa		308		988.8		480		329		1,299.1		555		337		1,474.2		594		39			7.0
Egypt		90		706.3		213		85		813.4		227		97		811.2		238		11			4.8
Libya		120		254.3		164		144		452.1		222		142		629.6		252		30			13.5
Algeria		86		14.1		88		88		19.4		91		85		18.8		88		(3	)		(3.3	)
Tunisia		12		14.1		15		12		14.2		15		13		14.6		16		1			6.7
West Africa		310		190.7		343		322		281.7		372		280		274.2		327		(45	)		(12.1	)
Nigeria		123		165.9		152		106		247.8		149		81		237.7		122		(27	)		(18.1	)
Angola		122		17.7		124		151		24.1		156		132		25.1		136		(20	)		(12.8	)
Congo		65		7.1		67		65		9.8		67		67		11.4		69		2			3.0
North Sea		179		600.4		283		178		597.0		282		157		594.7		261		(21	)		(7.4	)
Norway		96		243.7		138		98		245.2		140		90		271.1		137		(3	)		(2.1	)
United Kingdom		83		356.7		145		80		351.8		142		67		323.6		124		(18	)		(12.7	)
Caspian Area		64		222.5		102		64		227.6		103		70		237.9		112		9			8.7
Rest of world		164		589.8		268		107		647.4		220		101		743.2		230		10			4.5
Australia		21		3.5		22		18		47.9		26		11		41.5		18		(8	)		(30.8	)
China		7				7		6		9.4		8		6		11.0		8					..
Croatia				42.4		7				66.8		12				52.5		9		(3	)		(25.0	)
Ecuador		17				17		15				15		16				16		1			6.7
Indonesia		3		137.7		27		2		118.1		23		2		105.4		20		(3	)		(13.0	)
Iran		35				35		29				29		26				26		(3	)		(10.3	)
Pakistan		1		275.5		49		1		289.2		51		1		292.5		52		1			2.0
Russia														2				2		2			..
United States		19		74.2		33		21		64.3		32		37		181.4		69		37			..
Trinidad & Tobago				56.5		10				51.7		9				58.9		10		1			11.1
Venezuela		61				61		15				15								(15	)		..
Total		1,111		3,595.1		1,737		1,079		3,964.2		1,770		1,020		4,113.9		1,736		(34	)		(1.9	)

(a)		Includes own consumption of natural gas (296, 286, 247 mmcf/d, in 2007, 2006 and 2005 respectively)
(b)		Includes Eni's share of production of equity-accounted entities.

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Algeria - Bir Rebaa, Treatment plant

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Angola - Kizomba FPSO (Floating Production, Storage and Offloading)

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Caspian Sea - Kashagan field

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Australia - Darwin, LNG plant

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United States (Gulf of Mexico) - Allegheny production platform OAO Arctic Gas Co, ZAO Urengoil Inc and OAO Neftegaztechnologia as well as certain minor assets that are expected to be sold or liquidated. Eni and Enel granted to Gazprom a call option on a 51% interest in SeverEnergia to be exercisable within two years from the purchase date (for further details on this deal, see the discussion on the balance sheet section of the financial review); and (ii) a 20% interest in OAO Gazprom Neft which was purchased only by Eni. Eni granted to Gazprom a call option on this 20% interest in OAO Gazprom Neft to be exercisable within two years from the purchase date (for further details on this deal, see the discussion on the balance sheet section of the financial review). The three acquired companies own significant predominantly gas resources estimated at approximately 2.5 bboe net to Eni (assuming Gazprom exercises its call option) located in the Yamal Nenets region, the largest natural gas producing region in the world: (i) OAO Arctic Gas Company owns two exploration licences, Sambugurskii and Yevo-Yahinskii including seven fields currently in the appraisal/development phase. Main fields are Sambugorskoye currently under development and production testing and Urengoiskoye; (ii) ZAO Urengoil Inc owns exploration and development licences for the Yaro-Yakhinskoye gas and condensate field; (iii) OAO Neftegaztechnologia owns the exploration and development licence of the Severo-Chasselskoye field. During the year, certain activities were executed in order to set up the operational organization and take control of existing assets. Ongoing development activities moved forward bringing the wells to a sufficient level of safety and revising production and transportation facilities according to Western standards, as well as defining a seismographic activity. The final assessment of the gas sale contracts is underway.

United States - Gulf of Mexico In July 2007, Eni closed the acquisition of the Gulf of Mexico upstream activities of Dominion Resources, one of the major US energy companies, for a cash consideration of euro 3.5 billion. Acquired properties brought in an additional production of approximately 75 kboe/d and proved and probable reserves amounting to 222 mmbbl equivalent to an average purchase cost of 18.4$/bl. Assets acquired include production, development and exploration assets located in deepwater Gulf of Mexico and the continental shelf. Management believes that purchased leases hold significant volumes of resources. Around 60% of these leases are operated. Main producing fields are Devils Tower, Triton and Goldfinger (Eni operator with a 75% interest); purchased assets included also certain fields where appraisal and development activities are underway, among which the Front Runner (Eni’s interest 37.5%) and Thunderhawk (Eni’s interest 25%). Leveraging on this acquisition Eni expects to achieve a production level of 100 kboe/d in the Gulf of Mexico to in 2008. Development of acquired assets in the year allowed the startup of production at the San Jacinto (Eni is operator with a 53.3% interest), Q (Eni’s interest 50%) e Spiderman (Eni’s interest 36.7%) fields. Joint development of these fields was performed by installing underwater facilities to link to the Independence Hub platform. Production of approximately 25 kboe/d has been reached at the end of 2007. In October 2007, following an international bid procedure Eni was awarded 26 new exploration licenses in the Gulf of Mexico, covering a gross acreage of 606 square kilometers. Main projects include the development of reserves at the Longhorn discovery (Eni’s interest 75%) trough installing production platform. Production is expected to start in 2009 peaking at 28 kboe/d (approximately 19 net to Eni). United States - Alaska In April 2007, Eni acquired 70% and the operatorship of the Nikaitchuq field, located offshore on the North Slope of Alaska. Eni, which already owned a 30% stake in the field, now retains the 100% working interest. Nikaitchuq will be the first development project operated by Eni in Alaska. In October 2007, the phased development plan was sanctioned by the authorities. Production is expected to start at the end of 2009 with production plateau at 25 kboe/d in 2014. Venezuela In June 2007, Eni signed a Memorandum of Understanding with national state-owned company PDVSA which defines the terms for the transfer of the development activity of the Corocoro field in Venezuela to the new contractual regime of “empresa mixta”. Eni

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will retain its 26% interest in this project. On December 5, 2007, the agreement was finalized. In February 2008, Eni and the Venezuelan Authorities reached a final settlement over the dispute regarding the expropriation of the Dación field which took place on April 1, 2006. Under the terms of the settlement, Eni will receive a cash compensation in line with the carrying amount of the expropriated asset. In February 2008, Eni and PDVSA signed a strategic agreement for the development of the Junin Block 5 located in the Orinoco oil belt. This block covering a gross acreage of 670 square kilometers holds a resource potential estimated to be in excess of 2.5 bboe of heavy oil. Once relevant studies have been performed and a development plan defined, a joint venture between PDVSA (60%) and Eni (40%) will be established to execute the project. Eni intends to contribute its experience and leading technology to the project in order to maximize the value of the heavy oil. In particular, it will make available its EST (Eni Slurry Technology) proprietary technology. This is a highly innovative technology for the complete conversion of heavy oils into high-quality light products. Italy Exploration activity was successful in the onshore of the Abruzzi Region with Colle Sciarra 1 gas discovery well. In 2007, production started at: (i) Fiumetto and Pizzo Tamburino concessions in the onshore of Sicily, with a production at 600 boe/d and 1,000 boe/d, respectively; (ii) Tea/Arnica/Lavanda field in the Adriatic Sea with production peaking at 35 mmcf/d which was linked to Ravenna Mare power station; (iii) Candela field in the Puglia Region with a production at 3,351 cf/d. The first development phase was completed trough linking at existing facilities. Development activities concerned in particular: (i) optimization of producing fields by means of sidetracking and infilling (Gela, Gagliano, Cervia, Barbara, Bonaccia and Emma); (ii) continuation of drilling and upgrading of

producing facilities in the Val d’Agri; (iii) development of the oil and natural gas reserves at the Miglianico field located in the onshore of the Abruzzi Region. Three development wells has been drilled. The projects provides for the construction of facilities to treat production volumes of oil, to be delivered to logistic structures of the Refining & Marketing division. The production volumes of gas shall be input into Italian natural gas transportation network. Production is expected to start in the second half of 2009 peaking at 7 kboe/d. Capital expenditures Capital expenditures of the Exploration & Production division (euro 6,625 million) concerned development of oil and gas reserves directed mainly outside Italy, in particular Kazakhstan, Angola, Egypt and Congo. Development expenditures in Italy concerned in particular well drilling program and facility upgrading in Val d’Agri and sidetrack and infilling interventions in mature fields. Important expenditures were directed to exploratory projects. About 94% of these expenditures were directed outside Italy in particular the Gulf of Mexico, Egypt, Brazil, Norway and Nigeria. In Italy, exploration activities were directed mainly to the offshore of Sicily. Acquisition of proved and unproved property concerned mainly a 70% interest in the Nikaitchuq oilfield in Alaska, in which Eni reached a 100% ownership. As compared to 2006, capital expenditures increased by euro 1,422 million, up 27.3%, due in particular to an increase in exploration expenditures in the Gulf of Mexico, Brazil, Egypt, Congo and East Timor, and higher development expenditures in Congo, Egypt, Italy, Angola and Kazakhstan.

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Capital expenditure		(million euro)		2005		2006		2007		Change		% Ch.

Acquisition of proved and unproved property		301		152		96		(56	)		(36.8	)
Italy				139
North Africa				10		11
West Africa		60
Caspian Area		169
Rest of World		72		3		85
Exploration		656		1,348		1,659		311			23.1
Italy		38		128		104		(24	)		(18.8	)
North Africa		153		270		380		110			40.7
West Africa		75		471		239		(232	)		(49.3	)
North Sea		126		174		193		19			10.9
Caspian Area		15		25		36		11			44.0
Rest of World		149		280		707		427			..
Development		3,952		3,629		4,788		1,159			31.9
Italy		411		403		606		203			50.4
North Africa		1,007		701		948		247			35.2
West Africa		889		864		1,343		479			55.4
North Sea		385		406		397		(9	)		(2.2	)
Caspian Area		593		593		733		140			23.6
Rest of World		667		662		761		99			15.0
Other expenditures		56		74		82		8			10.8
		4,965		5,203		6,625		1,422			27.3

 

 

		2005		2006		2007

Available capacity
Modulation and mineral		(bcm)		7.5		8.4		8.5
- share utilized by Eni		(%)		44		54		44
Strategic		(bcm)		5.1		5.1		5.1
Total customers		(number)		44		38		44

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Key performance indicators		2005		2006		2007

Net sales from operations (a)		(million euro)		22,969		28,368		27,633
Operating profit				3,321		3,802		4,127
Adjusted operating profit				3,531		3,882		4,092
Adjusted net profit				2,552		2,862		2,936
EBITDA pro-forma adjusted				4,320		4,895		5,077
Capital expenditures				1,152		1,174		1,366
Adjusted capital employed, net				18,898		18,864		20,547
Adjusted ROACE		(%)		13.7		15.1		14.9
Worldwide gas sales		(bcm)		94.21		98.10		98.96
- of which: E&P sales (b)				4.51		4.69		5.39
LNG sales				7.0		9.9		11.7
Customers in Italy		(million)		6.02		6.54		6.61
Gas volumes transported in Italy		(bcm)		85.10		87.99		83.28
Electricity sold		(TWh)		27.56		31.03		33.19
Employees at year end		(units)		12,324		12,074		11,582

(a)		Before the elimination of intragroup sales.
(b)		E&P sales include volumes marketed by the Exploration & Production division in Europe for 3.59 bcm and in the Gulf of Mexico for 1.8 bcm for the full year 2007 (4.07 and 0.62 bcm for the full year 2006 respectively). It also includes volumes marketed in Europe for 4.51 bcm for the full year 2005.

Agreement with Gazprom: South Stream project
› Signed a framework agreement with Gazprom to build the South Stream pipeline system which is expected to import to Europe volumes of natural gas produced in Russia across the Black Sea.

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Expansion on the French market
› Acquired a significant stake in Altergaz, the main independent operator in the French gas market. Eni plans to support Altergaz development in the French retail and small enterprises segments, through a 10 years supply contract of 1.3 bcm gas volumes per year.

Financial results
› The Gas & Power business confirmed its ability to generate strong and stable performances. The adjusted net profit was euro 2.94 billion up 2.6% from 2006, reflecting better operating performance.

› Return on average capital employed on an adjusted basis was 14.9% in 2007 (15.1% in 2006).

› Capital expenditures totalled euro 1.37 billion and mainly related to the development and upgrading of Eni’s transport and distribution networks in Italy, the upgrading of international pipelines and the ongoing plan of building new electricity generation capacity.

Operating results
› Natural gas sales of 98.96 bcm, including own consumption and sales by affiliates and E&P sales in Europe and in the Gulf of Mexico, increased by 0.86 bcm from 2006, or nearly 1%, reflecting growth achieved in the main markets in the rest of Europe (+17.6%, in Spain, Turkey, France and Northern Europe) and higher LNG volumes sold on the North American and Asian markets.

› Management plans to achieve 110 bcm of sales volumes in 2011 leveraging on growth in international markets where sales are expected to increase by as much as 9% on average in the next four years.

› Electricity volumes sold were 33.19 terawatthour, up 7% from 2006.

› Natural gas volumes transported on the Italian network were 83.28 bcm, down 5.4% from 2006.

 

 

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Supply of natural gas		(bcm)		2005		2006		2007		Change		% Ch.

Italy		10.73			10.21			8.65			(1.56	)		(15.3	)
Russia for Italy		21.03			21.30			18.79			(2.51	)		(11.8	)
Russia for Turkey		2.47			3.68			4.65			0.97			26.4
Algeria		19.58			18.84			16.55			(2.29	)		(12.2	)
The Netherlands		8.29			10.28			7.74			(2.54	)		(24.7	)
Norway		5.78			5.92			5.78			(0.14	)		(2.4	)
Libya		4.61			7.70			9.24			1.54			20.0
United Kingdom		2.28			2.50			3.15			0.65			26.0
Hungary		3.63			3.28			2.87			(0.41	)		(12.5	)
Croatia		0.43			0.86			0.54			(0.32	)		(37.2	)
Algeria (LNG)		1.45			1.58			1.86			0.28			17.7
Others (LNG)		0.69			1.57			2.32			0.75			47.8
Other supplies Europe		0.41			0.78			0.76			(0.02	)		(2.6	)
Outside Europe		1.18			0.77			0.90			0.13			16.9
Outside Italy		71.83			79.06			75.15			(3.91	)		(4.9	)
Total supplies of consolidated companies		82.56			89.27			83.80			(5.47	)		(6.1	)
Offtake from (input to) storage		0.84			(3.01	)		1.49			4.50			..
Network losses and measurement differences		(0.78	)		(0.50	)		(0.46	)		0.04			(8.0	)
Available for sale of Eni's own companies		82.62			85.76			84.83			(0.93	)		(1.1	)
Available for sale of Eni's affiliates		7.08			7.65			8.74			1.09			14.2
E&P volumes		4.51			4.69			5.39			0.70			14.9
Total available for sale		94.21			98.10			98.96			0.86			0.9

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TAKE-OR-PAY In order to meet the medium and long-term demand for natural gas, in particular in the Italian market, Eni entered into long-term purchase contracts with producing countries. Particularly, following the strategic agreement with Gazprom signed on November 14, 2006, effective from February 1, 2007, Eni extended the duration of its gas supply contracts with Gazprom until 2035, bringing the residual average life of its supply portfolio to approximately 22 years. Existing contracts, which generally contain take-or-pay clauses, will ensure a total of approximately 62.4 bcm/y of natural gas by 2010. Despite the fact that an increasing portion of natural gas volumes purchased under said contracts has been sold outside Italy, management believes that in the long term unfavorable trends in the Italian demand and supply for natural gas, also due to the possible implementation of all publicly announced plans for the construction of new supply infrastructure, and the evolution of Italian regulations of the natural gas sector, represent risk factors to the fulfillment of Eni’s obligations in connection with its take-or-pay supply contracts.

Sales of natural gas In 2007 natural gas sales (98.96 bcm, including own consumption, Eni’s share of affiliates sales and E&P sales in Europe and in the Gulf of Mexico) were up 0.86 bcm from 2006, or 0.9%, due to growth achieved on international markets, in particular in the main consumption target areas in the rest of Europe (up 3.64 bcm) and outside Europe (up 0.91 bcm), offset in part by lower sales to Italian importers (down 3.43 bcm) and to the domestic market (down 0.96 bcm). Natural gas sales in Italy (56.13 bcm, including own consumption) declined by 0.96 bcm from 2006, or 1.7%, primarily due to lower sales to industrial users (down 1.56 bcm), also owing to competitive pressure, and residential users (down 0.64 bcm) mainly due to unusually mild winter weather. Supplies to the power generation segment and wholesalers increased by 0.54 and 0.38 bcm respectively. Sales under the so-called gas release1 (2.37 bcm) increased by 0.37 bcm from 2006, relating to a procedure settled between Eni and the Italian antitrust authority. Sales to importers in Italy (10.67 bcm) declined by 3.43 bcm mainly due to a switch from supplies of Libyan gas to volumes directly sold in Italy to a number of clients in view of optimizing Eni equity production, as well as the expiration of supply contract with Promgas. Gas sales in target markets in the Rest of Europe (24.35 bcm including affiliates) increased by 3.64 bcm, or 17.6%, reflecting also market share gains. Main increases were registered mainly in: (i) Spain (up 1.67 bcm), due to higher supplies to the power generations segment; (ii) Turkey (up 0.94 bcm), due to the progressive reaching of full operations of the Blue Stream pipeline; (iii) France (up 0.55 bcm) due to marketing initiatives targeting small businesses and residential customers; and (iv) Northern Europe (up 0.53 bcm). Sales to markets outside Europe (2.42 bcm) grew by 0.91 bcm, or 60.3%, on the back of higher LNG volumes sold on the Asian and Northern American markets by the affiliate Unión Fenosa Gas (Eni’s share 50%).

 

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Natural gas sales by market		(bcm)		2005		2006		2007		Change		% Ch.

Italy		58.08		57.09		56.13		(0.96	)		(1.7	)
Wholesalers		12.05		11.54		11.92		0.38			3.3
Gas release		1.95		2.00		2.37		0.37			18.5
Industries		13.07		13.33		11.77		(1.56	)		(11.7	)
Power generation		17.60		16.67		17.21		0.54			3.2
Residential		7.87		7.42		6.78		(0.64	)		(8.6	)
Own consumption		5.54		6.13		6.08		(0.05	)		(0.8	)
Rest of Europe		29.91		34.81		35.02		0.21			0.6
Importers in Italy		11.53		14.10		10.67		(3.43	)		(24.3	)
Target Market		18.38		20.71		24.35		3.64			17.6
Iberian Peninsula		4.59		5.24		6.91		1.67			31.9
Germany-Austria		4.23		4.72		5.03		0.31			6.6
Turkey		2.46		3.68		4.62		0.94			25.5
Northern Europe		2.93		2.62		3.15		0.53			20.2
Hungary		3.39		3.10		2.74		(0.36	)		(11.6	)
France		0.15		1.07		1.62		0.55			51.4
Other		0.63		0.28		0.28
Outside Europe		1.71		1.51		2.42		0.91			60.3
E&P in Europe and in the Gulf of Mexico		4.51		4.69		5.39		0.70			14.9
Worldwide gas sales		94.21		98.10		98.96		0.86			0.9

 

Gas sales by entity		(bcm)		2005		2006		2007		Change		% Ch.

Sales of consolidated companies		82.62		85.76		84.83		(0.93	)		(1.1	)
Italy (including own consumption)		58.01		57.07		56.08		(0.99	)		(1.7	)
Rest of Europe		23.44		27.93		27.86		(0.07	)		(0.3	)
Outside Europe		1.17		0.76		0.89		0.13			17.1
Sales of Eni’s affiliates (net to Eni)		7.08		7.65		8.74		1.09			14.2
Italy		0.07		0.02		0.05		0.03			..
Rest of Europe		6.47		6.88		7.16		0.28			4.1
Outside Europe		0.54		0.75		1.53		0.78			..
E&P in Europe and in the Gulf of Mexico		4.51		4.69		5.39		0.70			14.9
Worldwide gas sales		94.21		98.10		98.96		0.86			0.9

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LNG sales		(bcm)		2005		2006		2007		Change		% Ch.

G&P sales		3.7		6.4		8.0		1.6			25.0
Italy		0.7		1.5		1.2		(0.3	)		(20.0	)
Iberian Peninsula		3.0		4.4		5.6		1.2			27.3
Extra european markets				0.5		1.2		0.7			..
E&P sales		3.3		3.5		3.7		0.2			5.7
Liquefaction plants:
Bontang (Indonesia)		1.2		0.9		0.7		(0.2	)		(22.2	)
Point Fortin (Trinidad & Tobago)		0.6		0.4		0.6		0.2			50.0
Bonny (Nigeria)		1.5		1.8		2.0		0.2			11.1
Darwin (Australia)				0.4		0.4
		7.0		9.9		11.7		1.8			18.2

 

 

Electricity sales		(TWh)		2005		2006		2007		Change		% Ch.

Free market		14.76		16.22		20.73		4.51			27.8
Italian Exchange for electricity		7.74		9.67		8.66		(1.01	)		(10.4	)
Industrial plants		2.71		2.70		2.81		0.11			4.1
Electricity Services Operator		2.35		2.44		0.99		(1.45	)		(59.4	)
		27.56		31.03		33.19		2.16			7.0
Electricity production		22.77		24.82		25.49		0.67			2.7
Trading of electricity		4.79		6.21		7.70		1.49			24.0

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Transport and regasification of natural gas In 2007, volumes of natural gas input in the national grid (83.28 bcm) decreased by 4.71 bcm from 2006, down 5.4%, mainly due to lower volumes of natural gas input to storage for the rebuilding of stocks.

Eni transported 30.89 bcm of natural gas on behalf of third parties in Italy in line with 2006. In 2007, the LNG terminal in Panigaglia (La Spezia) regasified 2.38 bcm of natural gas (3.13 bcm in 2006), discharging 73 tanker ships (96 in 2006).

 

Gas volumes transported in Italy (a)		(bcm)		2005		2006		2007		Change		% Ch.

Eni		54.88			57.09			52.39			(4.70	)		(8.2	)
On behalf of third parties		30.22			30.90			30.89			(0.01	)
Enel		9.90			9.67			9.36			(0.313	)		(3.2	)
Edison Gas		7.78			8.80			7.16			(1.64	)		(18.6	)
Others		12.54			12.43			14.37			1.94			15.6
		85.10			87.99			83.28			(4.71	)		(5.4	)

(a)		Include amounts destined to domestic storage.

 

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POWER GENERATION Eni’s electricity generation sites are located in Ferrera Erbognone, Ravenna, Livorno, Taranto, Mantova, Brindisi and Ferrara. In 2007, electricity production sold was 25.49 TWh, up 0.67 TWh or 2.7% from 2006, due mainly to dull operation of the Brindisi plant. At December 31, 2007 installed capacity was 4.9 GW. Eni expects to complete the upgrading plan of its power generation capacity in 2010, targeting an

installed capacity of 5.5 GW. The development plan is underway at Ferrara (Eni’s interest 51%), where in partnership with Swiss company EG Luxembourg AG the construction of two new 390 megawatt combined cycle units is nearing completion. This will bring installed capacity to 840 megawatt with start-up expected in 2008. The start-up of a new 240 megawatt combined cycle unit located in Taranto (current capacity 75 megawatt) is expected in 2008.

 

				2005		2006		2007		Change		% Ch.

Purchases
Natural gas		(mmcm)		4,384			4,775			4,860			85			1.8
Other fuels		(ktoe)		563			616			720			104			16.9
Electricity production sold		(TWh)		22.77			24.82			25.49			0.67			2.7
Steam		(ktonnes)		10,660			10,287			10,849			562			5.5

 

 

Capital expenditures		(million euro)		2005		2006		2007		Change		% Ch.

Italy		1,066			1,014			1,063			49			4.8
Outside Italy		86			160			303			143			89.4
		1,152			1,174			1.366			192			16.4
Market		40			63			52			(11	)		(17.5	)
Italy		2						2			2
Outside Italy		38			63			50			(13	)		(20.6	)
Distribution		182			158			195			37			23.4
Transport		691			724			944			220			30.4
Italy		643			627			691			64			10.2
Outside Italy		48			97			253			156			..
Power generation		239			229			175			(54	)		(23.6	)
		1,152			1,174			1,366			192			16.4

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Key performance indicators		2005		2006		2007

Net sales from operations (a)		(million euro)		33,732		38,210		36,401
Operating profit				1,857		319		729
Adjusted operating profit				1,214		790		329
Adjusted net profit				945		629		319
Capital expenditures				656		645		979
Adjusted capital employed, net				5,326		5,766		7,149
Adjusted ROACE		(%)		18.2		10.7		5.0
Refining throughputs on own account		(mmtonnes)		38.79		38.04		37.15
Conversion index		(%)		56		57		56
Refining throughputs of wholly-owned refineries				27.34		27.17		27.79
Balanced capacity of wholly-owned refineries		(kbbl/d)		524		534		544
Retail sales of petroleum products in Europe		(mmtonnes)		12.42		12.48		12.65
Service stations in Europe at period end		(units)		6,282		6,294		6,441
Average throughput of service stations in Europe		(kliters)		2,479		2,470		2,486
Employees at year end		(units)		8,894		9,437		9,428

(a)		Before elimination of intragroup sales.

Portfolio developments
› Purchased 102 retail stations owned by ExxonMobil in the Czech Republic, Slovakia and Hungary. The agreement also includes the business of marketing fuels at the Prague and Bratislava airports and certain lubricants activities.

› Purchased a 16.11% stake in the Czech Refining Company, increasing Eni’s ownership interest to 32.4% equal to a refining capacity of 2.6 mmtonnes per year. This acquisition supports the selective growth in Europe.

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› In accordance with the agreement signed in December 2005 by majority shareholders (Eni 33.34%, Amorim Energia and Caixa Geral de Depósitos) Galp Energia exercised its call option to acquire Eni’s Agip branded oil products marketing activities in the Iberian region both in the retail and wholesale markets. The transaction, subject to approval from antitrust authorities, includes 371 service stations. The closing is expected in 2008.

Financial results
› In 2007, adjusted net profit was down euro 310 million to euro 319 million, or 49.3%, reflecting lower realized refining margins, mainly for complex refineries, and the appreciation of the euro over the dollar. The negative result was also influenced by a lower operating performance of marketing activities in Italy.

› Eni’s realized refining margins were sharply lower mainly due to narrowed sour crude discounts which reduced the competitive advantage of Eni’s complex refineries to process low-cost feedstock.

› Return on average capital employed on an adjusted basis was 5% (10.7% in 2006).

› Capital expenditures totalled euro 979 million and related mainly to projects designed to improve the conversion rate and flexibility of refineries and upgrade the refined product retail network in Italy and in the rest of Europe.

Operating results
› Refining throughputs on own account in Italy and outside Italy (37.15 mmtonnes) declined by 0.89 mmtonnes from 2006, down 2.3%, reflecting the expiry of a processing contract at the Priolo refinery owned by third parties. Excluding this effect, refining throughputs in Italy increased by 1.5% due to better performance of Livorno e Gela refineries.

› Retail market share in Italy was 29.2%. Sales of refined products (8.62 mmtonnes) declined by 0.5% from 2006 particularly due to the decline in domestic consumption.

› Retail sales of refined products in the rest of Europe (4.03 mmtonnes) were up 5.5%, particularly in Central Eastern Europe reflecting growth via acquisitions.

› In 2007 Eni started/restructured at its service stations in Italy 89 stores for the sale of convenience items and car services. Non oil revenues in Europe amounted to euro 144 million, up 6% from 2006.

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Italy - Livorno refinery

 

Supply of oil		(mmtonnes)		2005		2006		2007		Change		% Ch.

Production outside Italy		32.86			32.76			27.47			(5.29	)		(16.1	)
Production in Italy		4.44			4.05			4.10			0.05			1.2
Total Eni production		37.30			36.81			31.57			(5.24	)		(14.2	)
Spot markets		14.33			10.73			11.34			0.61			5.7
Long-term contracts		14.85			18.16			16.65			(1.51	)		(8.3	)
		66.48			65.70			59.56			(6.14	)		(9.3	)

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Availability of refined products		(mmtonnes)		2005		2006		2007		Change		% Ch.

Italy
Refinery throughputs
At wholly-owned refineries		27.34			27.17			27.79			0.62			2.3
Less input on account of third parties		(1.70	)		(1.53	)		(1.76	)		(0.23	)		15.0
At affiliates refineries		8.58			7.71			6.42			(1.29	)		(16.7	)
Refinery throughputs on own account		34.22			33.35			32.45			(0.90	)		(2.7	)
Consumption and losses		(1.87	)		(1.45	)		(1.63	)		(0.18	)		12.4
Products available for sale		32.35			31.90			30.82			(1.08	)		(3.4	)
Purchases of refined products and change in inventories		4.85			4.45			2.16			(2.29	)		(51.5	)
Products transferred to operations outside Italy		(5.41	)		(4.82	)		(3.80	)		1.02			(21.2	)
Consumption for power generation		(1.09	)		(1.10	)		(1.13	)		(0.03	)		2.7
Sales of products		30.70			30.43			28.05			(2.38	)		(7.8	)
Outside Italy
Refinery throughputs on own account		4.57			4.69			4.70			0.01			0.2
Consumption and losses		(0.24	)		(0.32	)		(0.31	)		0.01			(3.1	)
Products available for sale		4.33			4.37			4.39			0.02			0.5
Purchases of refined products and change in inventories		11.19			11.51			13.91			2.40			20.9
Finished products transferred from Italian operations		5.41			4.82			3.80			(1.02	)		(21.2	)
Sales of products		20.93			20.70			22.10			1.40			6.8
Refining throughputs on own account		38.79			38.04			37.15			(0.89	)		(2.3	)
Total equity crude input		12.53			13.66			11.22			(2.44	)		(17.8	)
Total sales of refined products		51.63			51.13			50.15			(0.98	)		(1.9	)

 

Libyan Bu-Attifel crude processed at the Priolo refinery due to the above mentioned process contract expiry. Purchase of Ceska Rafinerska On September 1, 2007 Eni closed an agreement for the purchase of a 16.11% stake in the Czech Refining

Company from ConocoPhillips, thus increasing Eni’s ownership interest to 32.4% equal to a refining capacity of 2.6 mmtonnes per year. This acquisition supports the selective growth of marketing activities in Central-Eastern Europe.

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Marketing of refined products In 2007, sales volumes of refined products (50.15 mmtonnes) were down 0.98 mmtonnes from 2006, or 1.9%, mainly due to lower volumes sold to oil companies and traders in Italy, lower volumes supplied

to the petrochemical sector due to the expiry of a processing contract at the Priolo refinery and a decline in wholesale sales in Italy. These declines were partly offset by higher retail and wholesale sales on markets in the rest of Europe (up 0.41 mmtonnes, or 5.1%).

 

Sales of refined products in Italy and outside Italy		(mmtonnes)		2005		2006		2007		Change		% Ch.

Italy
Retail marketing		10.05			8.66			8.62			(0.04	)		(0.5	)
- Agip brand		8.75			8.66			8.62			(0.04	)		(0.5	)
- IP brand		1.30
Wholesale marketing		12.11			11.74			11.09			(0.65	)		(5.5	)
Petrochemicals		3.07			2.61			1.93			(0.68	)		(26.1	)
Other sales		5.47			7.42			6.41			(1.01	)		(13.6	)
Total		30.70			30.43			28.05			(2.38	)		(7.8	)
Outside Italy
Retail marketing rest of Europe		3.67			3.82			4.03			0.21			5.5
Wholesale marketing outside Italy		4.50			4.60			4.96			0.36			7.8
of which wholesale marketing rest of Europe		4.10			4.19			4.39			0.20			4.8
Other sales		12.76			12.28			13.11			0.83			6.8
Total		20.93			20.70			22.10			1.40			6.8
		51.63			51.13			50.15			(0.98	)		(1.9	)

 

Retail and wholesale sales of refined products		(mmtonnes)		2005		2006		2007		Change		% Ch.

Italy
Retail sales		10.05			8.66			8.62			(0.04	)		(0.5	)
Gasoline		4.35			3.38			3.19			(0.19	)		(5.6	)
Gasoil		5.49			5.09			5.25			0.16			3.1
LPG		0.20			0.18			0.17			(0.01	)		(5.6	)
Lubricants		0.01			0.01			0.01
Wholesale sales		12.11			11.74			11.09			(0.65	)		(5.5	)
Gasoil		4.86			4.60			4.42			(0.18	)		(3.9	)
Fuel oil		1.50			1.27			0.95			(0.32	)		(25.2	)
LPG		0.46			0.41			0.37			(0.04	)		(9.8	)
Gasoline		0.16			0.15			0.15
Lubricants		0.13			0.13			0.13
Bunker		1.63			1.68			1.58			(0.10	)		(6.0	)
Other		3.37			3.50			3.49			(0.01	)		(0.3	)
Outside Italy (retail + wholesale)		8.17			8.42			8.99			0.57			6.8
Gasoline		2.14			2.06			2.29			0.23			11.2
Gasoil		4.71			4.90			5.16			0.26			5.3
Jet fuel		0.34			0.34			0.38			0.04			11.8
Fuel oil		0.12			0.23			0.25			0.02			8.7
Lubricants		0.10			0.10			0.09			(0.01	)		(10.0	)
LPG		0.44			0.46			0.49			0.03			6.5
Other		0.32			0.33			0.33
		30.33			28.82			28.70			(0.12	)		(0.4	)

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Capital expenditures		(million euro)		2005		2006		2007		Change		% Ch.

Italy		585			547			873			326			59.6
Outside Italy		71			98			106			8			8.2
		656			645			979			334			51.8
Refining, supply and logistics		349			376			675			299			79.5
Italy		349			376			675			299			79.5
Marketing		225			223			282			59			26.5
Italy		154			125			176			51			40.8
Outside Italy		71			98			106			8			8.2
Other activities		82			46			22			(24	)		(52.2	)
		656			645			979			334			51.8

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Key performance indicators		2005		2006		2007

Net sales from operations (a)		(million euro)		6,255		6,823		6,934
Operating profit				202		172		74
Adjusted operating profit				261		219		90
Adjusted net profit				227		174		57
Capital expenditures				112		99		145
Production		(ktonnes)		7,282		7,072		8,795
Sales of petrochemical products				5,376		5,276		5,513
Average plant utilization rate		(%)		78.4		76.4		80.6
Employees at year end		(units)		6,462		6,025		6,534

(a)		Before elimination of intragroup sales.

› Adjusted net profit was euro 57 million, down euro 117 million from a year ago, or 67.2%, due to lower selling margins reflecting the sharp increase in cost of oil based feedstocks.

› Sales of petrochemical products were 5,513 ktonnes, up 237 ktonnes from last year, or 4.5%, due to the outage of the Priolo cracker in 2006 and a better performance.

› Petrochemical production volumes were 8,723 ktonnes, up 1,723 ktonnes from 2006, or 24.4%, mainly due to consolidation of operations at the Porto Torres plant.

› Efficiency improvement plans implemented helped to partly offset the negative impact of the petrochemical cycle.

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Product availability		(ktonnes)		2005		2006		2007		Change		% Ch.

Basic petrochemicals		4,450			4,275			5,688			1,413			33.1
Styrene and elastomers		1,523			1,545			1,632			87			5.6
Polyethylene		1,309			1,252			1,475			223			17.8
Production		7,282			7,072			8,795			1,723			24.4
Consumption of monomers		(2,606	)		(2,488	)		(4,304	)		(1,816	)		73.0
Purchases and change in inventories		700			692			1,022			330			47.7
		5,376			5,276			5,513			237			4.5

 

Sales		(ktonnes)		2005		2006		2007		Change		% Ch.

Basic petrochemicals		3,022			2,882			3,023			141			4.9
Styrene and elastomers		1,003			1,000			1,041			41			4.1
Polyethylene		1,351			1,394			1,449			55			3.9
		5,376			5,276			5,513			237			4.5

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Key performance indicators		2005		2006		2007

Net sales from operations (a)		(million euro)		5,733		6,979		8,678
Operating profit				307		505		837
Adjusted operating profit				314		508		840
Adjusted net profit				328		400		658
Capital expenditures				349		591		1,410
Adjusted ROACE		(%)		12.0		12.8		17.1
Orders acquired				8,395		11,172		12,011
Order backlog				10,122		13,191		15,390
Employees at year end		(units)		28,684		30,902		33,111

(a)		Before elimination of intragroup sales.

› Adjusted net profit was euro 658 million, up euro 258 million from a year ago or 64.5%, reflecting a better operating performance against the backdrop of favourable trends in the demand for oilfield services.

› Return on average capital employed calculated on an adjusted basis was 17.1% in 2007, higher than 2006 (12.8%).

› Orders acquired amounted to euro 12,011 million, up euro 839 million from 2006 (+7.5%), in particular in onshore activities.

› Order backlog was euro 15,390 million at December 31, 2007 (euro 13,191 million at December 31, 2006).

› Capital expenditures amounted to euro 1,410 million in 2007, up euro 819 million or 139% due mainly to the upgrade of the fleet.

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(million euro)

2006

Full year 2007

Change

% Ch.

Orders acquired		11,172	(b)		12,011			839			7.5
Offshore construction		3,681			3,496			(185	)		(5.0	)
Onshore construction		4,923			6,236			1,313			26.7
Offshore drilling		2,230			1,644			(586	)		(26.3	)
Onshore drilling		338			635			297			87.9
of which:
- Eni		2,692			1,923			(769	)		(28.6	)
- third parties		8,480			10,088			1,608			19.0
of which:
- Italy		1,050			574			(476	)		(45.3	)
- outside Italy		10,122			11,437			1,315			13.0

 

(million euro)

Dec. 31, 2006

Dec. 31, 2007

Change

% Ch.

Order backlog		13,191	(b)		15,390			2,199			16.7
Offshore construction		4,283			4,215			(68	)		(1.6	)
Onshore construction		6,285			7,003	(a)		718			11.4
Offshore drilling		2,247			3,471			1,224			54.5
Onshore drilling		376			701			325			86.4
of which:
- Eni		2,602			3,399			797			30.6
- third parties		10,589			11,991			1,402			13.2
of which:
- Italy		1,280			799			(481	)		(37.6	)
- outside Italy		11,911			14,591			2,680			22.5

(a)		Net of the backlog of divested companies (Haldor Topsøe and Camom Group) for euro 181 million.
(b)		Includes the Bonny project for euro 28 million in orders acquired and euro 101 million in order backlog.

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		(million euro)		2005		2006		2007		Change		% Ch.

Offshore construction		262		390		566		176		45.1
Onshore construction		20		53		76		23		43.4
Offshore drilling		46		101		478		377		..
Onshore drilling		13		36		266		230		..
Other expenditures		8		11		24		13		..
Capital expenditures		349		591		1,410		819		138.6

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Financial Review

 

 

 

PROFIT AND LOSS ACCOUNT

2005		(million euro)		2006		2007		Change		% Ch.

73,728			Net sales from operations		86,105			87,256			1,151			1.3
798			Other income and revenues		783			827			44			5.6
(51,918	)		Operating expenses		(61,140	)		(61,979	)		(839	)		(1.4	)
(290	)		of which non recurring items		(239	)		(8	)
(5,781	)		Depreciation, depletion, amortization and impairments		(6,421	)		(7,236	)		(815	)		(12.7	)
16,827			Operating profit		19,327			18,868			(459	)		(2.4	)
(366	)		Financial income (expense)		161			(83	)		(244	)		..
914			Net income from investments		903			1,243			340			37.7
17,375			Profit before income taxes		20,391			20,028			(363	)		(1.8	)
(8,128	)		Income taxes		(10,568	)		(9,219	)		1,349			12.8
46.8			Tax rate (%)		51.8			46.0			(5.8	)
9,247			Net profit		9,823			10,809			986			10.0
			Attributable to:
8,788			- Eni		9,217			10,011			794			8.6
459			- Minority interest		606			798			192			31.7

 

 

2005		(million euro)		2006		2007		Change		% Ch.

8,788			Net profit attributable to Eni		9,217			10,011			794			8.6
(759	)		Exclusion of inventory holding (gain) loss		33			(499	)
1,222			Exclusion of special items		1,162			(42	)
			of which.
290			- non recurring items		239			35
932			- other special items		923			(77	)
9,251			Eni’s adjusted net profit (a)		10,412			9,470			(942	)		(9.0	)

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The break-down of adjusted net profit by division¹ is shown in the table below:

2005		(million euro)		2006		2007		Change		% Ch.

6,186			Exploration & Production		7,279			6,491			(788	)		(10.8	)
2,552			Gas & Power		2,862			2,936			74			2.6
945			Refining & Marketing		629			319			(310	)		(49.3	)
227			Petrolchemicals		174			57			(117	)		(67.2	)
328			Engineering & Construction		400			658			258			64.5
(297	)		Other activities		(301	)		(210	)		91			30.2
(142	)		Corporate and financial companies		54			(141	)		(195	)		..
(89	)		Unrealized profit in inventory (a)		(79	)		(16	)		63
9,710					11,018			10,094			(924	)		(8.4	)
			of which attributable to:
459			Minority interest		606			624			18			3.0
9,251			Eni		10,412			9,470			(942	)		(9.0	)

 

The decline in the Group adjusted net profit was owed to the reduction of adjusted net profit reported in: - Exploration & Production was down euro 788 million, or 10.8%, reflecting a lower operating performance (down euro 1,712 million, or 10.9%) impacted by the appreciation of the euro over the dollar (9.2%), lower production volumes sold (down 14.7 mmboe) and higher operating costs and amortization charges particularly relating to higher exploratory expenses (an increase of euro 703 million; euro 840 million on a constant exchange rate

basis). These negatives were partly offset by higher realizations in dollars (oil up 12.7%; natural gas up 2.2%). - Refining & Marketing was down euro 310 million, or 49.3%, reflecting lower realized refining margins, mainly for complex refineries, and the appreciation of the euro over the dollar. The negative result was also influenced by a lower operating performance in marketing activities in Italy. - Petrochemicals was down euro 117 million, or 67.2%, reflecting a decline in operating performance (down

 

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Analysis of profit and loss account items

Net sales from operations

2005		(million euro)		2006		2007		Change		% Ch.

22,531			Exploration & Production		27,173			27,278			105			0.4
22,969			Gas & Power		28,368			27,633			(735	)		(2.6	)
33,732			Refining & Marketing		38,210			36,401			(1,809	)		(4.7	)
6,255			Petrochemicals		6,823			6,934			111			1.6
5,733			Engineering & Construction		6,979			8,678			1,699			24.3
863			Other activities		823			205			(618	)		(75.1	)
1,239			Corporate and financial companies		1,174			1,313			139			11.8
(19,594	)		Consolidation adjustment		(23,445	)		(21,186	)		2,259
73,728					86,105			87,256			1,151			1.3

 

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Other income and revenues
The analysis of other income and revenues is provided in the table below:

2005		(million euro)		2006		2007		Change		% Ch.

114		Contract penalties and other trade revenues		61			181			120			..
102		Lease and rental income		98			95			(3	)		(3.1	)
89		Compensation for damages		40			87			47			..
71		Gains from sale of assets		100			66			(34	)		(34.0	)
422		Other proceeds (a)		484			398			(86	)		(17.8	)
798				783			827			44			5.6

Operating expenses

2005		(million euro)		2006		2007		Change		% Ch.

48,567			Purchases, services and other		57,490			58,179			689			1.2
			of which:
290			- non-recurring items		239			91
1,300			- other special items		390			470
3,351			Payroll and related costs		3,650			3,800			150			4.1
			of which:
			- non-recurring items					(83	)
79			- provision for redundancy incentives		178			198
51,918					61,140			61,979			839			1.4

 

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Depreciation, depletion, amortization and impairments

2005		(million euro)		2006		2007		Change		% Ch.

3,945			Exploration & Production		4,646			5,483			837			18.0
684			Gas & Power		687			687
462			Refining & Marketing		434			433			(1	)		(0.2	)
118			Petrochemicals		124			116			(8	)		(6.5	)
176			Engineering & Construction		195			248			53			27.2
16			Other activities		6			4			(2	)		(33.3	)
112			Corporate and financial companies		70			68			(2	)		(2.9	)
(4	)		Unrealized profit in inventory		(9	)		(10	)		(1	)
5,509			Total depreciation, depletion and amortization		6,153			7,029			876			14.2
272			Impairments		268			207			(61	)		(22.8	)
5,781					6,421			7,236			815			12.7

 

Operating profit
An analysis of reported operating profits by division is provided below:

2005		(million euro)		2006		2007		Change		% Ch.

12,592			Exploration & Production		15,580			13,788			(1,792	)		(11.5	)
3,321			Gas & Power		3,802			4,127			325			8.5
1,857			Refining & Marketing		319			729			410			..
202			Petrochemicals		172			74			(98	)		(57.0	)
307			Engineering & Construction		505			837			332			65.7
(934	)		Other activities		(622	)		(444	)		178			28.6
(377	)		Corporate and financial companies		(296	)		(217	)		79			26.7
(141	)		Impact of unrealized profit in inventory		(133	)		(26	)		107
16,827			Operating profit		19,327			18,868			(459	)		(2.4	)

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Adjusted operating profit
An analysis of adjusted operating profits by division is provided below:

2005		(million euro)		2006		2007		Change		% Ch.

16,827			Operating profit		19,327			18,868			(459	)		(2.4	)
(1,210	)		Exclusion of inventory holding (gains) losses		88			(620	)
1,941			Exclusion of special items		1,075			738
			of which:
290			- non recurring items		239			8
1,651			- other special items		836			730
17,558			Adjusted operating profit		20,490			18,986			(1,504	)		(7.3	)
			Break-down by division:
12,903			Exploration & Production		15,763			14,051			(1,712	)		(10.9	)
3,531			Gas & Power		3,882			4,092			210			5.4
1,214			Refining & Marketing		790			329			(461	)		(58.4	)
261			Petrochemicals		219			90			(129	)		(58.9	)
314			Engineering & Construction		508			840			332			65.4
(296	)		Other activities		(299	)		(207	)		92			30.8
(228	)		Corporate and financial companies		(240	)		(183	)		57			23.8
(141	)		Impact of unrealized profit in inventory		(133	)		(26	)		107
17,558					20,490			18,986			(1,504	)		(7.3	)

 

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Financial income (expense)

2005		(million euro)		2006		2007		Change

(334	)		Finance income (expense) related to net borrowings		(207	)		(412	)		(205	)
(419	)		Finance expense on short and long-term debt		(463	)		(703	)		(240	)
60			Net interest due to banks		194			236			42
25			Net income from receivables and securities for non-financing operating activities		62			55			(7	)
(386	)		Income (expense) on derivatives		383			26			(357	)
169			Exchange differences, net		(152	)		(51	)		101
26			Other finance income and expense		21			174			153
			Income from equity instruments					188			188
123			Net income from receivables and securities for financing operating activities and interest on tax credits		136			127			(9	)
(109	)		Finance expense due to the passage of time (accretion discount)		(116	)		(186	)		(70	)
12			Other		1			45			44
(525	)				45			(263	)		(308	)
159			Finance expense capitalized		116			180			64
(366	)				161			(83	)		(244	)

 

Net income from investments
The table below sets forth 2007 break-down of net income from investments by division:

2007

(million euro)

Exploration & Production

Gas & Power

Refining & Marketing

Engineering & Construction

Other

Group

Share of gains (losses) from equity-accounted investments		23		449			216		79		6		773
Dividends		143		4			23						170
Net gains on disposal		10							290				300
Other income (expense)				(5	)				1		4
		176		448			239		370		10		1,243

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The table below sets forth an analysis of net income/losses from investment by type for the periods indicated.

2005		(million euro)		2006		2007		Change

737			Share of gsins (losses) from equity-accounted investments		795			773			(22	)
33			Dividends		98			170			72
171			Net gains on disposal		18			300			282
(27	)		Other income (expense)		(8	)					8
914					903			1,243			340

Income taxes

2005		(million euro)		2006		2007		Change

		Profit before income taxes
5,779		Italy		5,566		5,849		283
11,596		Outside Italy		14,825		14,179		(646	)
17,375				20,391		20,028		(363	)
		Income taxes
2,206		Italy		2,237		1,798		(439	)
5,922		Outside Italy		8,331		7,421		(910	)
8,128				10,568		9,219		(1,349	)
		Tax rate (%)
38.2		Italy		40.2		30.7		(9.5	)
51.1		Outside Italy		56.2		52.3		(3.9	)
46.8				51.8		46.0		(5.8	)

 

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Divisional performance²

Exploration & Production

2005		(million euro)		2006		2007		Change		% Ch.

12,592			Operating profit		15,580			13,788			(1,792	)		(11.5	)
311			Exclusion of special items		183			263
			of which:
			Non-recurring items					(11	)
311			Other special items		183			274
247			- asset impairments		231			226
			- gains on disposal of assets		(61	)
57			- risk provisions
7			- provision for redundancy incentives		13			6
			- other					42
12,903			Adjusted operating profit		15,763			14,051			(1,712	)		(10.9	)
(80	)		Net finance income (expense) (a)		(59	)		44			103
10			Net income from investments (a)		85			176			91
(6,647	)		Income taxes (a)		(8,510	)		(7,780	)		730
51.8			Tax rate (%)		53.9			54.5			0.6
6,186			Adjusted net profit		7,279			6,491			(788	)		(10.8	)
			Results also include:
4,101			- amortizations and depreciations		4,776			5,626			850			17.8
			of which:
445			- amortizations of exploratory drilling expenditures and other		820			1,370			550			67.1
173			- amortizations of geological and geophysical exploration expenses		255			407			152			59.6

 

The adjusted operating profit for the year was euro 14,051 million, down euro 1,712 million from one year ago, reflecting: (i) the effect of the appreciation of the euro over the dollar (approximately euro 1,400 million); (ii) lower sold production volumes (down 14.7 mmboe); (iii) an increase in exploration expense (euro 703 million; euro 840 million on a constant basis); (iv) rising operating costs reflecting the impact of sector-specific inflation and higher amortization and depreciation charges. These negatives were partly offset by lower realizations in dollars (oil up 12.7%, natural gas up 2.2%). Liquids and gas realizations for 2007 increased on average by 8.8% in dollar terms. Oil realizations increased more than the marker Brent (up 11.3%),

benefiting from a reduction in sour crude discounts in the market place. Adjusted net profit of euro 6,491 million declined by euro 788 million, down 10.8% from 2006 due to a weaker operating performance and an increased adjusted tax rate (from 53.9% to 54.5%), reflecting the impact of changes in the fiscal regimes in Algeria enacted in the second half of 2006. These negative factors were partly offset by better earnings reported by certain affiliates, particularly the Nigeria LNG affiliate which operates the Bonny liquefaction plant in Nigeria. Special charges excluded by the adjusted operating profit of euro 263 million primarily related to the impairment of mineral assets.

 

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Gas & Power

2005		(million euro)		2006		2007		Change		% Ch.

3,321			Operating profit		3,802			4,127			325			8.5
(127	)		Exclusion of inventory holding (gains) losses		(67	)		44
337			Exclusion of special items		147			(79	)
			of which:
290			Non-recurring items		55			(61	)
47			Other special items		92			(18	)
31			- environmental provisions		44			15
1			- asset impairments		51
6			- risk provisions
8			- provision for redundancy incentives		37			38
1			- other		(40	)		(71	)
3,531			Adjusted operating profit		3,882			4,092			210			5.4
1,777			Market and Distribution		2,062			2,202			140			6.8
1,162			Transport in Italy		1,087			1,114			27			2.5
448			International transportation		579			585			6			1.0
144			Power generation (a)		154			191			37			24.0
37			Net finance income (expense) (b)		16			11			(5	)
370			Net income from investments (b)		489			420			(69	)
(1,386	)		Income taxes (b)		(1,525	)		(1,587	)		(62	)
35.2			Tax rate (%)		34.8			35.1			0.3
2,552			Adjusted net profit		2,862			2,936			74			2.6

 

Other performance indicators
Follows a breakdown of the proforma adjusted EBITDA by business:

		(million euro)		2006		2007		Change		% Ch.

Adjusted EBITDA		4,896		5,077		181		3.7
Supply & Marketing		2,378		2,435		57		2.4
Regulated Business		1,222		1,289		67		5.5
International Transportation		1,009		1,028		19		1.9
Power Generation		287		325		38		13.2

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Refining & Marketing

2005		(million euro)		2006		2007		Change		% Ch.

1,857			Operating profit		319			729			410			..
(1,064	)		Exclusion of inventory holding (gains) losses		215			(658	)
421			Exclusion of special items		256			258
			of which:
			Non-recurring items		109			35
421			Other special items		147			223
337			- environmental provisions		111			128
5			- asset impairments		14			58
69			- risk provisions		8			9
22			- provision for redundancy incentives		47			31
(12	)		- other		(33	)		(3	)
1,214			Adjusted operating profit		790			329			(461	)		(58.4	)
231			Net income from investments (a)		184			126			(58	)
(500	)		Income taxes (a)		(345	)		(136	)		209
34.6			Tax rate (%)		35.4			29.9			(5.5	)
945			Adjusted net profit		629			319			(310	)		(49.3	)

 

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Petrochemicals

2005		(million euro)		2006		2007		Change		% Ch.

202			Operating profit		172			74			(98	)		(57.0	)
(19	)		Exclusion of inventory holding (gains) losses		(60	)		(6	)
78			Exclusion of special items		107			22
			of which:
			Non-recurring items		13			(2	)
78			Other special items		94			24
29			- asset impairments		50
53			- risk provisions		31
4			- provision for redundancy incentives		19			24
(8	)		- other		(6	)
261			Adjusted operating profit		219			90			(129	)		(58.9	)
			Net finance income (expense) (a)					1			1
3			Net income from investments (a)		2			1			(1	)
(37	)		Income taxes (a)		(47	)		(35	)		12
227			Adjusted net profit		174			57			(117	)		(67.2	)

 

Engineering & Construction

2005		(million euro)		2006		2007		Change		% Ch.

307			Operating profit		505			837			332			65.7
7			Exclusion of special items		3			3
			of which:
			Non-recurring items					(4	)
7			Other special items		3			7
4			- asset impairments		1
3			- provision for redundancy incentives		2			7
314			Adjusted operating profit		508			840			332			65.4
141			Net income from investments (a)		66			80			14
(127	)		Income taxes (a)		(174	)		(262	)		(88	)
328			Adjusted net profit		400			658			258			64.5

 

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Other activities

2005		(million euro)		2006		2007		Change		% Ch.

(934	)		Operating profit		(622	)		(444	)		178			28.6
638			Exclusion of special items		323			237
			of which:
			Non-recurring items		62			61
638			Other special items		261			176
413			- environmental provisions		126			210
75			- asset impairments		22			6
130			- risk provision		75			13
6			- provision for redundancy incentives		17			18
14			- other		21			(71	)
(296	)		Adjusted operating profit		(299	)		(207	)		92			30.8
			Net finance income (expense) (a)		(7	)		(8	)		(1	)
(1	)		Net income from investments (a)		5			5
(297	)		Adjusted net profit		(301	)		(210	)		91			30.2

 

Corporate and financial companies

2005		(million euro)		2006		2007		Change		% Ch.

(377	)		Operating profit		(296	)		(217	)		79			26.7
149			Exclusion of special items		56			34
			of which:
			Non-recurring items					(10	)
149			Other special items		56			44
54			- environmental provisions		11			12
2			- asset impairments
64			- risk provision
29			- provision for redundancy incentives		43			32
			- other		2
(228	)		Adjusted operating profit		(240	)		(183	)		57			23.8
(296	)		Net finance income (expense) (a)		205			(154	)		(359	)
23			Net income from investments (a)					4			4
359			Income taxes (a)		89			192			103
(142	)		Adjusted net profit		54			(141	)		(195	)		..

 

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NON-GAAP Measures

Reconciliation of reported operating profit and 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, 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, and exchange rate differences are excluded when determining adjusted net profit of each business segment. The taxation effect of such items excluded from adjusted net profit is determined based on the specific rate of taxes applicable to each item, with the exception for finance charges or income, to which the Italian statutory tax rate of 33% is applied. 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 Eni’s 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 which 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 relevant income or charges pertaining to either: (i) infrequent or unusual events and transactions, 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 management’s discussion and financial tables. 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 abovementioned derivative financial instruments 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.

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2007

(million euro)

E&P

G&P

R&M

Petrochemicals

E&C

Other activities

Corporate and financial companies

Impact of unrealized profit in inventory

Group

Reported operating profit		13,788			4,127			729			74			837			(444	)		(217	)		(26	)		18,868
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:		274			(18	)		223			24			7			176			44						730
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
other		42			(71	)		(3	)								(71	)								(103	)
Special items of operating profit		263			(79	)		258			22			3			237			34						738
Adjusted operating profit		14,051			4,092			329			90			840			(207	)		(183	)		(26	)		18,986
Net financial (expense) income (a)		44			11						1						(8	)		(154	)					(106	)
Net income from investments (a)		176			420			126			1			80			5			4						812
Income taxes (a)		(7,780	)		(1,587	)		(136	)		(35	)		(262	)					192			10			(9,598	)
Tax rate (%)		54.5			35.1			29.9																		48.7
Adjusted net profit		6,491			2,936			319			57			658			(210	)		(141	)		(16	)		10,094
of which:
- adjusted net profit of Minority interest																										624
- Eni’s adjusted net profit																										9,470
Eni’s reported net profit																										10,011
Exclusion of inventory holding (gains) losses																										(499	)
Exclusion of special items																										(42	)
Non-recurring (income) charges																										35
Other special (income) charges																										(77	)
Eni’s adjusted net profit																										9,470

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2006

(million euro)

E&P

G&P

R&M

Petrochemicals

E&C

Other activities

Corporate and financial companies

Impact of unrealized profit in inventory

Group

Reported operating profit		15,580			3,802			319			172			505			(622	)		(296	)		(133	)		19,327
Exclusion of inventory holding (gains) losses					(67	)		215			(60	)														88
Exclusion of special items
of which:
Non-recurring (income) charges					55			109			13						62									239
Other special (income) charges:		183			92			147			94			3			261			56						836
environmental charges					44			111									126			11						292
asset impairments		231			51			14			50			1			22									369
gains on disposal of assets		(61	)																							(61	)
provisions to the reserve for contingencies								8			31						75									114
provision for redundancy incentives		13			37			47			19			2			17			43						178
other					(40	)		(33	)		(6	)					21			2						(56	)
Special items of operating profit		183			147			256			107			3			323			56						1,075
Adjusted operating profit		15,763			3,882			790			219			508			(299	)		(240	)		(133	)		20,490
Net financial (expense) income (*)		(59	)		16												(7	)		205						155
Net income from investments (*)		85			489			184			2			66			5									831
Income taxes (*)		(8,510	)		(1,525	)		(345	)		(47	)		(174	)					89			54			(10,458	)
Tax rate (%)		53.9			34.8			35.4																		48.7
Adjusted net profit		7,279			2,862			629			174			400			(301	)		54			(79	)		11,018
of which:
- adjusted net profit of Minority interest																										606
- Eni’s adjusted net profit																										10,412
Eni’s reported net profit																										9,217
Exclusion of inventory holding (gains) losses																										33
Exclusion of special items																										1,162
Non-recurring (income) charges																										239
Other special (income) charges																										923
Eni’s adjusted net profit																										10,412

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2005

(million euro)

E&P

G&P

R&M

Petrochemicals

E&C

Other activities

Corporate and financial companies

Unrealized profit in inventory

Group

Reported operating profit		12,592			3,321			1,857			202			307			(934	)		(377	)		(141	)		16,827
Exclusion of inventory holding (gains) losses					(127	)		(1,064	)		(19	)														(1,210	)
Exclusion of special items
of which:
Non-recurring (income) charges					290																					290
Other special (income) charges:		311			47			421			78			7			638			149						1,651
environmental charges					31			337									413			54						835
asset impairments		247			1			5			29			4			75			2						363
provisions to the reserve for contingencies								39			36						126									201
increase insurance charges		57			6			30			17						4			64						178
provision for redundancy incentives		7			8			22			4			3			6			29						79
other					1			(12	)		(8	)					14									(5	)
Special items of operating profit		311			337			421			78			7			638			149						1,941
Adjusted operating profit		12,903			3,531			1,214			261			314			(296	)		(228	)		(141	)		17,558
Net financial (expense) income (*)		(80	)		37															(296	)					(339	)
Net income from investments (*)		10			370			231			3			141			(1	)		23						777
Income taxes (*)		(6,647	)		(1,386	)		(500	)		(37	)		(127	)					359			52			(8,286	)
Tax rate (%)		51.8			35.2			34.6																		46.0
Adjusted net profit		6,186			2,552			945			227			328			(297	)		(142	)		(89	)		9,710
of which:
- adjusted net profit of Minority interest																										459
- Eni’s adjusted net profit																										9,251
Eni’s reported net profit																										8,788
Exclusion of inventory holding (gains) losses																										(759	)
Exclusion of special items																										1,222
Non-recurring (income) charges																										290
Other special (income) charges																										932
Eni’s adjusted net profit																										9,251

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Breakdown of special items

2005		(million euro)		2006		2007

290			Non-recurring charges (income)		239			8
			of which:
			- curtailment recognized of the reserve for post-retirement benefits for Italian employees					(83	)
290			- provisions and utilizations against on antitrust proceedings and regulations		239			91
1,651			Other special charges (income):		836			730
835			environmental charges		292			365
363			asset impairments		369			290
			gains on disposal of property, plant and equipment		(61	)
379			risk provisions		114			22
79			provisions for redundancy incentives		178			156
(5	)		other		(56	)		(103	)
1,941			Special items of operating profit		1,075			738
27			Net finance (expense) income		(6	)		(23	)
(137	)		Net income from investments		(72	)		(321	)
			of which:
(132	)		- gain on the disposal of Italiana Petroli (IP)
			- gain on Galp Energia SGPS SA (divestment of assets to Rede Electrica National)		(73	)
			- gain on divestment of Haldor Topsøe AS and Camom SA					(290	)
(609	)		Income taxes		165			(610	)
			of which:
			- adjustment to deferred tax for Italian subsidiaries					(394	)
			- supplemental tax rate UK		91
			- wind-fall tax Algeria		179
			- tax proceeding in Venezuela		77
1,222			Total special items of net profit		1,162			(216	)
			attributable to:
			- Eni					(174	)
			- Minority interest					(42	)

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Summarized Group balance sheet

Summarized Group balance sheet ^(a)

(million euro)		Dec. 31, 2006		Dec. 31, 2007		Change

Fixed assets
Property, plant and equipment		44,312			50,137			5,825
Other assets		629			563			(66	)
Inventories - compulsory stock		1,827			2,235			408
Intangible assets		3,753			4,333			580
Investments accounted for using the equity method and other investments		4,246			6,111			1,865
Financing receivables and securities related to operations		557			725			168
Net payables related to capital expenditures		(1,090	)		(1,191	)		(101	)
		54,234			62,913			8,679
Net working capital
Inventories		4,752			5,435			683
Trade receivables		15,230			15,609			379
Trade payables		(10,528	)		(11,092	)		(564	)
Tax payables and provision for net deferred tax liabilities		(5,396	)		(4,412	)		984
Provisions		(8,614	)		(8,486	)		128
Other current assets and liabilities:
Equity instruments					2,476			2,476
Other (b)		(641	)		(2,600	)		(1,959	)
		(5,197	)		(3,070	)		2,127
Provisions for employee benefits		(1,071	)		(935	)		136
Net assets held for sale including related net borrowings					286			286
CAPITAL EMPLOYED, NET		47,966			59,194			11,228
Shareholder’ equity:
- Eni shareholder’s equity		39,029			40,428			1,399
- Minority interest		2,170			2,439			269
		41,199			42,867			1,668
Net borrowings		6,767			16,327			9,560
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		47,966			59,194			11,228

 

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Fixed assets Fixed assets totalled euro 62,913 million, representing an increase of euro 8,679 million from December 31, 2006 (euro 54,234 million) due to capital expenditures (euro 10,593 million) and acquisition of assets and investments (euro 7,138 million), partly offset by depreciation, depletion, amortization and impairments charges (euro 7,236 million) and currency translation effects. Other assets included the expropriated assets relating to the Dación oilfield in Venezuela, with a carrying amount of $829 million (corresponding to euro 563 million at the December 31, 2007 euro/US $ exchange rate). The expropriation took place on April 1, 2006 by the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) which has been conducting operations since this date. In February 2008 Eni has reached a settlement agreement with the Republic of Venezuela thus terminating the dispute for the Dación field. Under the terms of the settlement agreement, Eni will receive a cash compensation to be paid in seven yearly instalments. This cash compensation is not subject to taxation and yields interest income from the date of the settlement. The net present value of this cash compensation is in line with the book value of assets, net of the related provisions. Consequently, Eni dropped the international arbitration proceeding commenced in 2006 against PDVSA. The item Investments comprises a 60% interest in Arctic Russia BV (the former Eni Russia BV) which owns a 100% interest in three Russian companies acquired on April 4, 2007 in partnership with Enel (Eni 60%, Enel 40%), following award of a bid for Lot 2 in the Yukos liquidation procedure. These three companies – OAO Arctic Gas, OAO Urengoil and OAO Neftegaztechnologiya – are engaged in exploration and development of gas reserves. Eni and Enel granted to Gazprom a call option to acquire a 51% interest in these acquired companies to be exercisable by Gazprom within 24 months starting from the acquisition date. Eni evaluates the investment in Arctic Russia BV under the equity method as it jointly controls the three entities based on ongoing contractual arrangements, therefore exercising significant influence in the financial and operating policy decisions of the investees. This 60% interest corresponds to the present ownership interest of Eni in the acquired companies determined by not taking into account the eventual exercise of the call option by Gazprom.

Net working capital At December 31, 2007, net working capital totalled euro -3,070 million, representing an increase of euro 2,127 million from December 31, 2006 mainly due to: (i) The acquisition of a 20% interest in the Russian company OAO Gazprom Neft (see the following paragraph “Equity instruments”). (ii) The impact of higher year end prices in euro for oil and petroleum products on the evaluation of inventories at the weighted average cost. (iii) A decrease recorded in tax payable and provision for net deferred tax liabilities mainly reflecting an adjustment to deferred tax assets and liabilities for Italian subsidiaries relating to certain amendments to the Italian tax regime and lower current taxes. (iv) A receivable upon a dividend approved by OAO Gazprom Neft on June 22, 2007; this dividend has not yet been distributed. These increases were partly offset by a loss of euro 2,248 million (euro 1,383 million net of taxes) recognized on the fair value evaluation of certain derivative financial instruments Eni entered into to hedge the exposure to variability in future cash flows3 deriving from marketing an amount of Eni’s proved reserves equal to 2% of proved reserves as of December 31, 2006 (corresponding to approximately 125.7 mmboe). These hedging transactions were undertaken in connection with the acquisitions executed in 2007 of proved and unproved properties in Congo and in the Gulf of Mexico. Eni put in place certain forward sale contracts at a fixed price and call and put options with the same date of exercise. These options can be exercised in presence of crude oil market prices higher or lower compared with preset contractual prices. The ineffective portion of the change in fair value of these derivatives arising from market price fluctuations within the range provided by these call and put options (the time value component) was recognized in the profit and loss account under the item net finance expenses (down euro 52 million). The item Equity instruments comprises the carrying amount of a 20% interest in OAO Gazprom Neft acquired on April 4, 2007 following finalization of a bid within the Yukos liquidation procedure. This entity is currently listed at the London Stock Exchange where approximately 5% of the share capital is traded. This accounting classification reflects the circumstance that Eni granted to Gazprom a call option on the entire 20% interest to be exercisable by Gazprom within 24 months starting from the acquisition date, at a price of $3.7 billion equalling the bid price, as modified by subtracting dividends received and adding possible

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Return On Average Capital Employed (ROACE)

 

2007	(million euro)		Exploration & Production		Gas & Power		Refining & Marketing		Group

Adjusted net profit		6,491		2,936		319		10,094
Exclusion of after-tax finance expenses/interest income		-		-		-		174
Adjusted net profit unlevered		6,491		2,936		319		10,268
Adjusted capital employed, net
- at the beginning of period		18,590		18,906		5,631		47,966
- at the end of period		24,643		20,547		7,149		58,695
Adjusted average capital employed, net		21,617		19,727		6,390		53,331
Adjusted ROACE (%)		30.0		14.9		5.0		19.3

 

 

2006	(million euro)		Exploration & Production		Gas & Power		Refining & Marketing		Group

Adjusted net profit		7,279		2,862		629		11,018
Exclusion of after-tax finance expenses/interest income		-		-		-		46
Adjusted net profit unlevered		7,279		2,862		629		11,064
Adjusted capital employed, net
- at the beginning of period		20,206		18,978		5,993		49,692
- at the end of period		18,590		18,864		5,766		47,999
Adjusted average capital employed, net		19,398		18,921		5,880		48,846
Adjusted ROACE (%)		37.5		15.1		10.7		22.7

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2005	(million euro)		Exploration & Production		Gas & Power		Refining & Marketing		Group

Adjusted net profit		6,186		2,552		945		9,710
Exclusion of after-tax finance expenses/interest income		-		-		-		42
Adjusted net profit unlevered		6,186		2,552		945		9,752
Adjusted capital employed, net
- at the beginning of period		17,954		18,387		5,081		45,983
- at the end of period		20,206		18,898		5,326		48,933
Adjusted average capital employed, net		19,080		18,643		5,204		47,458
Adjusted ROACE (%)		32.4		13.7		18.2		20.5

Net borrowings and leverage

 

(million euro)		Dec. 31, 2006		Dec. 31, 2007		Change

Total debt		11,699			19,830			8,131
- Short-term debt		4,290			8,500			4,210
- Long-term debt		7,409			11,330			3,921
Cash and cash equivalent		(3,985	)		(2,114	)		1,871
Securities not related to operations		(552	)		(174	)		378
Non-operating financing receivables		(395	)		(1,215	)		(820	)
Net borrowings		6,767			16,327			9,560
Shareholders’ equity including minority interest		41,199			42,867			1,668
Leverage		0.16			0.38			0.22

 

Net borrowings at December 31, 2007 were euro 16,327 million, representing an increase of euro 9,560 million from December 31, 2006. Debts and bonds amounted to euro 19,830 million, of which euro 8,500 million were short-term (including the portion of long-term debt due within 12 months for euro 737 million) and euro 11,330 million were long-term.

At December 31, 2007, leverage – ratio between net borrowings and shareholders’ equity – was 0.38 compared with 0.16 at December 31, 2006. Assuming Gazprom exercises its call options to purchase a 20% interest in OAO Gazprom Neft and a 51% interest in ex-Yukos gas assets from Eni as of December 31, 2007, leverage would stand at 0.31.

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Changes in shareholders’ equity

(million euro)

Shareholders’ equity at December 31, 2006					41,199
Net profit for the year		10,809
Reserve for cash flow hedges		(1,370	)
Dividends paid by Eni to shareholders		(4,583	)
Dividends paid by consolidated subsidiaries to shareholders		(289	)
Shares repurchased		(680	)
Treasury shares attributed against employee share incentive schemes		55
Effect on equity of the shares repurchased by consolidated subsidiaries (Snam Rete Gas/Saipem)		(201	)
Exchange differences from translation of financial statements denominated in currencies other than euro		(1,948	)
Other changes		(93	)
Total changes					1,668
Shareholders’ equity at December 31, 2007					42,867
Attributable to:
- Eni					40,428
- Minority interest					2,439

 

 

Reconciliation of net profit and shareholders’ equity of the parent company Eni SpA to consolidated net profit and shareholders’ equity

		Net profit		Shareholders’ equity

		(million euro)		2006		2007		Dec. 31, 2006		Dec. 31, 2007

As recorded in Eni SpA’s Financial Statements		5,821			6,600			26,935			28,926
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		3,823			4,122			16,136			16,320
Consolidation adjustments:
- difference between purchase cost and underlying book value of net equity		(52	)		(1	)		1,138			1,245
- elimination of tax adjustments and compliance with group accounting policies		627			649			(1,435	)		(1,235	)
- elimination of unrealized intercompany profits		(237	)		(435	)		(2,907	)		(3,383	)
- deferred taxation		(195	)		(97	)		1,244			711
- other adjustments		36			(29	)		88			283
		9,823			10,809			41,199			42,867
Minority interest		(606	)		(798	)		(2,170	)		(2,439	)
As recorded in Consolidated Financial Statements		9,217			10,011			39,029			40,428

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Summarized cash flow statement and change in net borrowings

Summarized Group cash flow statement ^(a)

2005		(million euro)		2006		2007		Change

9,247			Net profit		9,823			10,809			986
			Adjustments to reconcile to cash generated from operating profit before changes in working capital:
6,518			- amortization and depreciation and other non monetary items		5,753			6,346			593
(220	)		- net gains on disposal of assets		(59	)		(309	)		(250	)
8,471			- dividends, interest, taxes and other changes		10,435			8,850			(1,585	)
24,016			Net cash generated from operating profit before changes in working capital		25,952			25,696			(256	)
(2,422	)		Changes in working capital related to operations		(1,024	)		(1,667	)		(643	)
(6,658	)		Dividends received, taxes paid, interest (paid) received during the period		(7,927	)		(8,512	)		(585	)
14,936			Net cash provided by operating activities		17,001			15,517			(1,484	)
(7,414	)		Capital expenditures		(7,833	)		(10,593	)		(2,760	)
(127	)		Investments and purchase of consolidated subsidiaries and businesses		(95	)		(9,665	)		(9,570	)
542			Disposals		328			659			331
293			Other cash flow related to capital expenditures, investments and disposals		361			(35	)		(396	)
8,230			Free cash flow		9,762			(4,117	)		(13,879	)
(109	)		Borrowings (repayment) of debt related to financing activities		216			(479	)		(695	)
(540	)		Changes in short and long-term financial debt		(682	)		8,761			9,443
(7,284	)		Dividends paid and changes in minority interests and reserves		(6,443	)		(5,836	)		607
33			Effect of changes in consolidation and exchange differences		(201	)		(200	)		1
330			NET CASH FLOW FOR THE PERIOD		2,652			(1,871	)		(4,523	)

CHANGES IN NET BORROWINGS

2005				2006		2007		Change

8,230			Free cash flow		9,762			(4,117	)		(13,879	)
(19	)		Net borrowings of acquired companies					(244	)		(244	)
21			Net borrowings of divested companies		1						(1	)
(980	)		Exchange differences on net borrowings and other changes		388			637			249
(7,284	)		Dividends paid and changes in minority interests and reserves		(6,443	)		(5,836	)		607
(32	)		CHANGE IN NET BORROWINGS		3,708			(9,560	)		(13,268	)

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Cash inflow generated by operating activities (euro 15,517 million) and cash from divestments (euro 659 million) partly absorbed cash outflows related to: (i) capital and exploratory expenditures (euro 10,593 million); (ii) the acquisition of investments and businesses (euro 9,909 million, including acquired net borrowings) mainly relating to the 20% interest in OAO Gazprom Neft and 60% interest in three Russian companies engaged in developing natural gas following finalization of a bid procedure for ex-Yukos assets (euro 3.73 billion), the purchase of Dominion Resources upstream assets in the Gulf of Mexico (approximately euro 3.5 billion), the purchase of oil producing assets onshore Congo (approximately euro 1 billion), the purchase of a 24.9% interest in Burren Energy (euro 0.6 billion) and the acquisition of downstream oil assets (euro 0.4 billion); (iii) dividend payments (euro 4,872 million); (iv) the repurchase of own shares for euro 1,038 million. Dividends paid and changes in minority interest and reserves (euro 5,836 million) mainly related to: (i) dividend

payments by the parent company Eni SpA (euro 4,583 million), relating to the balance of the 2006 dividend (euro 2,384 million) and the 2007 interim dividend (euro 2,199 million), and by Snam Rete Gas SpA and Saipem SpA (euro 211 million and euro 71 million respectively); (ii) the repurchase of own shares by Eni SpA for euro 680 million, and by other listed subsidiaries (Snam Rete Gas SpA and Saipem SpA, totalling euro 358 million) for a total amount of euro 1,038 million (euro 965 million considering treasury shares attributed against employee share incentive schemes). From January 1 to December 31, 2007, a total of 27.56 million own shares were purchased by the company for a total amount of euro 680 million (representing an average cost of euro 24.694 per share). Since the inception of the share buy-back programme (September 1, 2000), Eni has repurchased 362.56 million shares, equal to 9,05% of outstanding capital stock, at a total cost of euro 6,193 million (representing an average cost of euro 17.081 per share).

Capital expenditure

2005		(million euro)		2006		2007		Change		% Ch.

4,965		Exploration & Production		5,203			6,625			1,422			27.3
1,152		Gas & Power		1,174			1,366			192			16.4
656		Refining & Marketing		645			979			334			51.8
112		Petrochemicals		99			145			46			46.5
349		Engineering & Construction		591			1,410			819			..
48		Other activities		72			59			(13	)		(18.1	)
132		Corporate and financial companies		88			108			20			22.7
		Impact of unrealized profit in inventory		(39	)		(99	)		(60	)
7,414		Capital expenditures		7,833			10,593			2,760			35.2

 

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Reconciliation of summarized Group balance sheet and statement of cash flows to statutory schemes

Summarized Group balance sheet

(million euro)		December 31, 2006		December 31, 2007

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							44,312						50,137
Other assets							629						563
Inventories - compulsory stock							1,827						2,235
Intangible assets							3,753						4,333
Equity-accounted investments and other investments							4,246						6,111
Receivables and securities for financing operating activities		(see note 3 and note 13)					557						725
Net payables related to capital expenditures, made up of:							(1,090	)					(1,191	)
Receivables related to capital expenditures/disposals		(see note 3)		100						125
Receivables related to capital expenditures/disposals		(see note 15)		2						7
Payables related to capital expenditures		(see note 17)		(1,166	)					(1,301	)
Payables related to capital expenditures		(see note 25)		(26	)					(22	)
Total fixed assets							54,234						62,913
Net working capital
Inventories							4,752						5,435
Trade receivables		(see note 3)					15,230						15,609
Trade payables		(see note 17)					(10,528	)					(11,092	)
Tax payables and provisions for net deferred tax liabilities, made up of:							(5,396	)					(4,412	)
Income tax payables				(1,640	)					(1,688	)
Other tax payables				(1,190	)					(1,383	)
Deferred tax liabilities				(5,852	)					(5,471	)
Other tax liabilities		(see note 25)								(215	)
Current tax assets				116						703
Other current tax assets				542						833
Deferred tax assets				1,725						1,915
Other tax assets		(see note 15)		903						894
Provisions							(8,614	)					(8,486	)
Other current assets and liabilities
Equity instruments													2,476
Other, made up of:							(641	)					(2,600	)
Securities for financing operating activities		(see note 2)		420						259
Receivables for financing operating activities		(see note 3)		242						357
Other receivables		(see note 3)		3,080						3,668
Other (current) assets				855						1,080
Other receivables and other assets		(see note 15)		89						209
Advances, other payables		(see note 17)		(4,301	)					(4,823	)
Other (current) liabilities				(634	)					(1,556	)
Other payables and other liabilities		(see note 25)		(392	)					(1,794	)
Total net working capital							(5,197	)					(3,070	)
Provisions for employee benefits							(1,071	)					(935	)
Net assets held for sale including related net borrowings, made up of:													286
Assets held for sale										383
Liabilities directly associated to assets held for sale										(97	)
CAPITAL EMPLOYED, NET							47,966						59,194

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continued Summarized Group balance sheet

(million euro)		December 31, 2006		December 31, 2007

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							47,966						59,194
Shareholders’ equity including minority interest							41,199						42,867
Net borrowings
Total debt, made up of:							11,699						19,830
Non current debt				7,409						11,330
Current portion of non current debt				890						737
Current financial liabilities				3,400						7,763
less:
Cash and cash equivalents							(3,985	)					(2,114	)
Securities not related to operations		(see note 2)					(552	)					(174	)
Non-operating financing receivables, made up of:							(395	)					(1,215	)
Trade receivables for non-operating purposes		(see note 3)		(143	)					(990	)
Financial assets made for non-operating purposes		(see note 13)		(252	)					(225	)
Total net borrowings (a)							6,767						16,327
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY							47,966						59,194

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Summarized Group cash flow statement

(million euro)		2006		2007

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					9,823						10,809
Adjustments to reconcile to cash generated from operating profit before changes in working capital:
amortization and depreciation and other non monetary items					5,753						6,346
amortization and depreciation		6,153						7,029
writedowns (revaluations) net		(386	)					(494	)
net change in the reserve for contingencies		(86	)					(122	)
net changes in the reserve for employee benefit		72						(67	)
net gain on disposal of assets					(59	)					(309	)
dividends, interest, taxes and other non monetary items					10,435						8,850
dividend income		(98	)					(170	)
interest income		(387	)					(603	)
interest expense		346						523
exchange differences		6						(119	)
current and deferred income taxes		10,568						9,219
Net cash generated from operating profit before changes in working capital					25,952						25,696
Changes in working capital related to operations					(1,024	)					(1,667	)
inventories		(953	)					(1,117	)
accounts receivable		(1,952	)					(728	)
other assets		(315	)					(362	)
trade and other accounts payable		2,146						433
other liabilities		50						107
Dividends received, taxes paid, interest (paid) received					(7,927	)					(8,512	)
dividend received		848						658
interest received		395						333
interest paid		(294	)					(555	)
income taxes paid		(8,876	)					(8,948	)
Net cash provided by operating activities					17,001						15,517
Capital expenditure					(7,833	)					(10,593	)
tangible assets		(6,138	)					(8,532	)
intangible assets		(1,695	)					(2,061	)
Investments and businesses					(95	)					(9,665	)
investments		(42	)					(4,890	)
consolidated subsidiaries and businesses		(46	)					(4,759	)
acquisition of additional interests in subsidiaries		(7	)					(16	)
Disposals					328						659
tangible assets		237						172
intangible assets		12						28
consolidated subsidiaries and businesses		8						56
investments		36						403
sales of interest in consolidated subsidiaries		35
Other cash flow related to capital expenditure, investments and disposals					361						(35	)
securities		(49	)					(76	)
financing receivables		(516	)					(1,646	)
change in accounts receivable in relation to disposals		(26	)					185
reclassification: purchase of securities and financing receivables non related to operations		178						1,045
sale of securities		382						491
sale of financing receivables		794						545
change in accounts receivable in relation to disposals		(8	)					(13	)
reclassification: sale of securities and financing receivables non related to operations		(394	)					(566	)
Free cash flow					9,762						(4,117	)

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continued Summarized Group cash flow statement

 

(million euro)		2006		2007

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					9,762						(4,117	)
Borrowings (repayment) of debt related to financing activities					216						(479	)
reclassification: purchase of securities and financing receivables non related to operations		(178	)					(1,045	)
reclassification: sale of securities and financing receivables non related to operations		394						566
Changes in short and long-term financial debt					(682	)					8,761
proceeds from long-term debt		2,888						6,589
payments of long-term debt		(2,621	)					(2,295	)
additions (reductions) of short-term debt		(949	)					4,467
Dividends paid and changes in minority interests and reserves					(6,443	)					(5,836	)
net capital contributions/payments by/to minority shareholders		22						1
dividends paid by Eni to shareholders		(4,610	)					(4,583	)
dividends paid by consolidated subsidiaries to shareholders		(222	)					(289	)
shares repurchased, net		(1,156	)					(625	)
shares repurchased by consolidated subsidiaries		(477	)					(340	)
Effect of changes in consolidation and exchange differences					(201	)					(200	)
effect of change in consolidation area		(4	)					(40	)
effect of exchange differences		(197	)					(160	)
Net cash flow for the period					2,652						(1,871	)

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Other Information

 

 

 

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Report on Corporate Governance

 

 

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(%)				Chairman		CEO		Divisional General Managers		Other managers with strategic responsibility

Base salary		66		30		42		43
Bonuses (linked to performance)		34		27		27		32
Long term incentive (linked to performance) (*)		-		43		31		25
Total		100		100		100		100

 

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(thousand euro)

Name

Position

Term of office

Expiry date of the position (a)

Emoluments for service at Eni SpA

Non-cash benefits

Bonuses and other incentives (b)

Salaries and other elements

Total

Board of Directors
Roberto Poli		Chairman		01.01-12.31			04.29.08			765		16		388					1,169
Paolo Scaroni		CEO		01.01-12.31			04.29.08			430		62		1,277		1,016			2,785
Alberto Clô		Director		01.01-12.31			04.29.08			138				10					148
Renzo Costi		Director		01.01-12.31			04.29.08			134				10					144
Dario Fruscio		Director		01.01-12.31			01.30.08	(c)		126				10					136
Marco Pinto		Director		01.01-12.31			04.29.08			133				10					143
Mario Resca		Director		01.01-12.31			04.29.08			130				10					140
Marco Reboa		Director		01.01-12.31			04.29.08			148				10					158
Pierluigi Scibetta		Director		01.01-12.31			04.29.08			134				10					144
Board of Statutory Auditors
Paolo Andrea Colombo		Chairman		01.01-12.31			04.29.08			115						88	(d)		203
Filippo Duodo		Auditor		01.01-12.31			04.29.08			80						72	(e)		152
Edoardo Grisolia (f)		Auditor		01.01-12.31			04.29.08			80									80
Riccardo Perotta		Auditor		01.01-12.31			04.29.08			80						38	(g)		118
Giorgio Silva		Auditor		01.01-12.31			04.29.08			80						45	(h)		125
General Managers
Stefano Cao		Exploration & Production		01.01-12.31								1		551		935			1,487
Domenico Dispenza		Gas & Power		01.01-12.31								1		457		654			1,112
Angelo Taraborrelli		Refining & Marketing		01.01-08.02	(i)							1		386		340			727
Angelo Caridi		Refining & Marketing		08.03-12.31	(l)							1				210			211
Other managers with strategic responsibilities (m)												10		2,570		3,529			6,109

 

(thousand euro)

Name				Deferred bonus awarded

Paolo Scaroni		CEO and General Manager of Eni		787
Stefano Cao		General Manager of the E&P Division		380
Domenico Dispenza		General Manager of the G&P Division		268
Angelo Taraborrelli		General Manager of the R&M Division (a)		236
Angelo Taraborrelli		General Manager of the R&M Division (b)		140	(c)
Other managers with strategic responsibilities (d)				1,126

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		2006		2007

Number of shares

Weighted average exercise price

Market price in euro (a)

Number of shares

Weighted average exercise price

Market price in euro (a)

Options as of January 1		13,379,600			17.705		23.460		15,290,400			21.022		25.520
New options granted		7,050,000			23.119		23.119		6,128,500			27.451		27.447
Options exercised in the period		(4,943,200	)		15.111		23.511		(3,028,200	)		16.906		25.338
Options cancelled in the period		(196,000	)		19.119		23.797		(691,075	)		24.346		24.790
Options outstanding as of December 31		15,290,400			21.022		25.520		17,699,625			23.822		25.120
of which exercisable at December 31		1,622,900			16.190		25.520		2,292,125			18.440		25.120

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		2006		2007

Risk free interest rate		(%)		4.0		4.7
Expected life		(years)		6		6
Expected volatility		(%)		16.8		16.3
Expected dividends		(%)		5.3		4.9

  

  

CEO

General Manager E&P Division

General Manager G&P Division

General Manager R&M Division

General Manager R&M Division

Other Managers with strategic responsibilities (a)

Paolo Scaroni (b)

Stefano Cao

Domenico Dispenza

Angelo Taraborrelli (c)

Angelo Caridi (d)

Options outstanding at the beginning of the period:
- number of options				1,380,000		314,500		137,000		269,500	(e)		238,000		54,500		73,500	(f)		926,500
- average exercise price		(euro)		22.801		21.641		22.244		3.988			20.624		19.896		17.519			21.709
- average maturity in months				73		70		65		73			68		74		67			69
Options granted during the period
- number of options				573,000		155,500		110,000		-			96,500		-		48,500	(f)		472,500
- average exercise price		(euro)		27.451		27.451		27.451		-			27.451		-		26.521			27.451
- average maturity in months				72		72		72		-			72		-		72			72
Options exercised at the end of the period
- number of options				-		63,500		14,500		-			73,000		24,000		-			46,000
- average exercise price		(euro)		-		16.576		15.013		-			15.431		16.576		-			13.743
- average market price at date of exercise		(euro)		-		27.529		24.721		-			25.774		25.306		-			24.756
Options outstanding at the end of the period
- number of options				1,953,000		406,500		232,500		269,500	(e)		261,500		30,500		122,000	(f)		1,353,000
- average exercise price		(euro)		24.165		24.655		25.159		3.988			24.593		22.509		21.098			23.985
- average maturity in months				63		62		60		61			62		67		60			61

 

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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
Barclays Global Investor Group		80,267,278		2.01
Eni SpA (own shares)		348,525,005		8.70

(a)		Cassa Depositi e Prestiti SpA is controlled by the Ministry of Economy and Finance.

 

Shareholders by area
Shareholders		Number of shareholders		Number of shares		% of capital (a)

Italy		314,517		2,512,562,966		62.73
UK and Ireland		1,056		140,946,897		3.52
Other EU		4,138		507,550,360		12.67
USA and Canada		1,857		343,761,345		8.58
Rest of world		1,425		135,500,715		3.39
Own shares at the dividend date				336,892,397		8.41
Other				28,144,196		0.70
Total				4,005,358,876		100.00

(a)		At the dividend payment date, June 21, 2007 (ex-dividend date was June 18, 2007).

 

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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		1		400,288,338		9.99
2%-3%		0		0		0
1%-2%		11		718,332,508		17.93
0.5%-1%		4		99,289,018		2.48
0.3%-0.5%		16		247,086,313		6.17
0.1%-0.3%		54		355,070,012		8.87
<= 0.1%		322,906		1,006,812,817		25.14
Own shares at the dividend date				336,892,397		8.41
Other				28,144,196		0.70
Total				4,005,358,876		100.00

(1)		At the dividend payment date, June 21, 2007 (ex-dividend date was June 18, 2007).

 

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Consob interpretation expressed on March 28, 2006. Eni’s Code of Ethics defines confidentiality duties upheld by Group employees relating to the treatment of sensitive information. Directors and Auditors ensure the confidentiality of documents and information acquired in performing these tasks and observe the procedure adopted by Eni for the internal treatment of these information and documents and for the timely disclosure to the market. Register of the persons having access to privileged information On February 28, 2006, the Board of Directors approved a procedure for establishing and maintaining a register of persons with a right to access privileged information, as provided for by Article 115-bis of Legislative Decree No. 58 of February 24, 1998. The procedure implementing Consob Decision on listed companies, states: (i) terms and procedures for the recording and possible cancellation of the persons that, due to their professional activity or tasks performed on behalf of Eni, have access to privileged information; (ii) terms and procedures to inform said persons of their recording or cancellation and relevant reasons. The procedure is in force from April 1, 2006 and was updated on September 29, 2006 to take into account the Consob position expressed on March 28, 2006. The procedure is published on Eni’s website.

Internal Dealing On February 28, 2006, the Board of Directors approved the “Internal dealing procedure” for the identification of relevant persons and the communication of transactions involving securities issued by Eni SpA and its listed subsidiaries made by these persons, replacing the Internal Dealing Code approved by the Board on December 18, 2002. The procedure implements the provisions of Article 114, paragraph 7 of Legislative Decree No. 58 of February 24, 1998. Eni’s procedure, implementing Consob Decision on listed companies: (i) identifies relevant persons: (ii) defines the transactions involving securities issued by Eni SpA; (iii) determines the terms and conditions for the disclosure to the public of such information. The procedure states that managers having regular access to privileged information, during specific periods of the year (blocking periods), are not allowed to buy or sell shares. The procedure was updated on September 29, 2006 to take into account the Consob position expressed on March 28, 2006. The procedure is published on Eni’s website. * * * Follow the tables included in the “Handbook for the preparation of the report on corporate governance” issued by Assonime and Emittente Titoli SpA in March 2004.

 

Structure of the Board of Directors and its Committees
Board of Directors		Internal Control Committee		Compensation Committee		International Oil Committee

Members

executive

non executive

independent

% attendance

other appointments (1)

members

% attendance

members

% attendance

members

% attendance

Chairman

Roberto Poli

X

X

100

4

CEO

Paolo Scaroni

X

100

4

X

Directors

Alberto Clô (*)

X

X

92

4

X

64

X

100

Renzo Costi (*)

X

X

84

X

79

X

75

Dario Fruscio

X

X

68

X

100

Marco Pinto

X

92

(b)

X

75

Marco Reboa (*)

X

X

96

5

X

100

X

100

Mario Resca

X

X

92

3

X

100

Pierluigi Scibetta

X

X

92

1

X

71

X

100

Number of meetings in 2007		25				14		4		4

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Board of Statutory Auditors

Members				% attendance Meeting of the Board of Statutory Auditors		% attendance Meeting of the Board of Directors		Number of other appointments (a)

Chairman
Paolo Andrea Colombo		100		100		6
Auditors
Filippo Duodo		89		84		1
Edoardo Grisolia		72		72
Riccardo Perotta (*)		100		96		3
Giorgio Silva (*)		83		92		3
Number of meetings in 2007		18		25

 

Other information to be disclosed under the Corporate Governance Code published by Borsa Italiana in 2002

		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 report				X (*)
Procedures for the latest appointment of Directors and Statutory Auditors
Lists of candidate directors were deposited at least 10 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 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

Investor Relations (**)

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Commitment to sustainable development

INTRODUCTION

 

 

 

Sustainability is an integral part of Eni’s culture and represents the engine of a process of continuous internal improvement. Eni’s actions are oriented to value people, contributing to the development and welfare of communities where it operates, respecting the environment, investing in R&D, pursuing energy efficiency and mitigating the risks of climate change. As a result of Eni’s renewed commitment to sustainability, 2007 marked Eni’s entry in the Dow Jones Sustainability World Index, in the FTSE4Good Index, in the CDP5 Climate Disclosure Leadership Index. In addition, Eni greatly improved its ranking in the GS SUSTAIN Focus List of Goldman Sachs (from the third to the second quartile) and in Fortune’s annual list of the 100 most sustainable companies (from the 28th to the 3th place). In its Shareholders’ Meeting of May 2007, in addition to its Annual Report Eni presented for the first time its Sustainability Report, which was prepared and certified also by means of a new sustainability reporting system. In July 2007 Eni completed and formalized its sustainability organizational model by publishing strategic guidelines that identify the processes of planning, control, reporting, communication and stakeholders’ engagement. In 2007 Eni also issued guidelines for the protection and promotion of human rights and promoted the adoption of operating procedures in some operating sites outside Italy. Eni also performed initiatives in favour of local communities related to development projects, the main ones were achieved in Libya, Kazakhstan, Ecuador and Nigeria. Eni obtained significant reductions in GHG emissions in

Russia and started interventions for further reductions to be achieved in Nigeria, Congo and Libya. In the areas of refining and power generation Eni started new projects and completed current projects for the improvement of energy efficiency. The “Along with Petroleum” program addressing innovation in the area of renewable energy sources, alternative energy sources and systems for energy efficiency financed projects in innovative photovoltaic solar energy (for euro 12 million) and biofuels (for euro 7 million). As concerns information and communication, Eni achieved the ENI 30PERCENTO information campaign that suggests the diffusion of virtuous behaviours among families, that can save up to 30% of their energy bills and contribute to environmental protection by following 24 simple and efficient suggestions. With this campaign Eni intends to appear as a catalyst for the debate on energy efficiency, engaging various actors in the economic, industrial and social world. A panel of 100 households following the 24 suggestions and 100 households that continue with their usual behaviours are going to be monitored until May 2008 in order to compare the actual consumption of the two classes of users. In March 2007 Eni started its Welfare Project, aimed at identifying and applying actions for the improvement of the quality of life and the wellbeing of Eni people, increasing their satisfaction with the company they work for. The main intervention areas are psycho-physical wellbeing, conciliation of personal life and work life, creation of opportunities for leisure time and health. In the latter area Eni started its Health Project aimed at improving the general health of the company, making available to all Eni employees the training and information tools for a proper management of stress

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factors. Eni also launched a Sustainability Intranet site aimed at informing and engaging Eni people in the various aspects of sustainable development reinforcing Eni’s culture and providing users with various degrees of knowledge of relevant information. Eni also started experimental and research projects for the promotion of an innovative management of cross-sectional issues strategically relevant for the company: Human Rights Compliance Assessment: testing a tool for the evaluation of the implementation of Eni guidelines in this area;

Diversity: analysis of the various kinds of diversities present in Eni with special attention to those deriving from cultural differences (internationalization dynamics), gender difference and the so called age diversity (intergenerational differences).

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PEOPLE

 

 

 

To Eni people working in its production system represent an asset to be safeguarded and enhanced with careful career paths. This path, made up of accurate development and training initiatives customized to roles and persons, along with the respect of shared ethical values, represents a key factor for the creation of sustainable value in the long term. Eni’s main objectives for its human resources are: to preserve, share and develop know-how for the development of Eni’s businesses; to develop its managers’ leadership and ability to understand and interpret economic-financial events; to invest in young people in terms of development and retention; to improve the overall efficacy of management and development with particular attention to Eni‘s international role and its relations with competitors; to support employees’ engagement as element related to the overall company performance. More detailed information on the management of human resources is found on Eni’s website in the area Sustainability and in the Report on Sustainability.

Employees At December 31, 2007, Eni’s employees totaled 75,862, with an increase of 2,290 employees from December 31, 2006, up 3.1%, reflecting a 2,628 increase in employees hired and working outside Italy and a decline of 338 employees hired in Italy. Employees hired in Italy were 39,427 (52% of all Group employees). Of these, 36,300 were working in Italy, 2,940 outside Italy and 187 on board of vessels, with a 338 unit decline from 2006; of these 40 persons left the group due to changes in consolidation. The process of improvement in the quality mix of employees continued in 2007 with the hiring of 2,632 persons, of which 726 with open-end contracts. A total of 1,906 persons were hired with this type of contract and with apprenticeship contracts, most of them with university qualifications (1,117 persons of which 759 are engineers) and 733 persons with a high school diploma. During the year 2,943 persons left their job at Eni, of these 2,189 had an open-end contract and 754 a fixed-term contract. Employees hired and working outside Italy at December 31, 2007 were 36,435 (48% of all Group employees), with a 2,628 persons increase due to the positive

 

Employees at year-end		(units)		2005		2006		2007		Change		% Ch.

Exploration & Production		8,030			8,336			9,334			998			12.0
Gas & Power		12,324			12,074			11,582			(492	)		(4.1	)
Refining & Marketing		8,894			9,437			9,428			(9	)		(0.1	)
Petrochemical		6,462			6,025			6,534			509			8.4
Engineering & Construction		28,684			30,902			33,111			2,209			7.1
Other activities		2,636			2,219			1,172			(1,047	)		(47.2	)
Corporate and financial companies		5,228			4,579			4,701			122			2.7
		72,258			73,572			75,862			2,290			3.1

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balance of new hires with fixed-term contracts and persons leaving their job in the Engineering & Construction segment (approximately 1,800 employees) due mainly to new contracts in Saudi Arabia and the sale of Camom SA and 736 persons in the Exploration & Production segment, of these approximately 400 following the purchase of Dominion and Maurel & Prom. Organization In 2007 Eni continued to upgrade its structures and processes along guidelines consistent with the new integrated corporation model adopted by Eni which includes: a constant upgrading of organizational structures to corporate strategies and streamlining of the organizational and company set-up of Eni; the full accountability of business and functional units and their integration around Group initiatives. the strengthening of Eni Corporate’s role of orientation and coordination; improved coordination of the ways to represent Eni outside Italy aimed at developing its businesses and international relations; the centralization and optimization of services to support the business with the aim of achieving greater efficiency and quality of services provided; the compliance of processes and control systems to laws and regulations. Among the most significant upgrading processes completed in 2007, the following are worth mentioning: the role played by Eni Corporate in guiding and controlling Group activities has been strengthened also by means of a new planning and control model designed to measure the performance of line and staff activities and reinforcing internal control structures (watch structure, centralization of the internal audit function);

the sustainability project designed to implement a structured system for planning and executing Eni activities in Italy and outside Italy under principles of sustainability. The first sustainability report was issued to fully disclose the activities performed by Eni divisions and subsidiaries in this area; the process for centralizing various staff activities (procurement, finance, insurance, ICT and documentation) while rationalizing and improving efficiency in certain projects (centralization of the management of employees of Eni Spa and its subsidiaries in EniServizi); certain reengineering processes of business activities in the upstream, downstream (in particular shipping and trading), construction and engineering, environmental and R&D. Management and development of human resources Eni continued various initiatives aimed at making the evaluation and development of human resources more efficient. In particular, the integration of the tools dedicated to managers’ management and development (evaluation of abilities, performance assessment and positions) required to support the top management in its decisions of succession planning relevant to positions of major importance to the company, allowed to accelerate the growth of young managers to higher responsibility positions. Eni continued its plan of rejuvenation of management which determined a significant decrease in average age at all levels of management, which lead to management style more appropriate to the new challenges of a very competitive market. Eni updated the tools for the recruitment of personnel, evaluation of the development potential of resources in order to guarantee transparency and traceability of processes thereby integrating in them the issues of sustainability. In 2007 Eni continued its evaluation activities that lead to an overall mapping of management roles in Italy and outside Italy aimed at supporting development and compensation decisions and favouring compensation benchmarking with competitors. Eni started its first project of climate evaluation, called “Eni secondo te” addressing questionnaires to employees of Eni and main subsidiaries for a total of 37,000 persons.

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Training Eni considers training one of key drivers in managing human resources. Eni’s significant commitment to training is underpinned by the number of employees participating in training initiatives and the number of hours dedicated to it in Italy and outside Italy. In 2007, expenditure for training amounted to euro 88 million, of which euro 28 million in Italy and euro 60 million outside Italy. A total of about 3,428,000 training hours were provided (1,430,000 in Italy and 1,998,000 outside Italy). Eni Corporate University, a subsidiary of Eni, offering services in recruiting and personnel selection, is fostering the quality of Eni’s human resources and the company’s strategies, covering the whole “knowledge cycle” from planning the requirements of critical skills to the construction of integrated academic curricula in cooperation with universities in Italy, up to the selection of new talents and their training during their professional lives. In 2007, the first edition of the master course in general manager was launched in cooperation with SDA Bocconi and the Milan Polytechnic. This course is addressed to 30 young Eni managers that will receive a second degree master diploma and is part of a wider training and development program of Eni managers. In 2007, ECU prepared a thorough survey of the knowledge management issue in Eni’s business units and in this area the E&P Division received the Giorgio Sacerdoti Award established by the Università Cattolica del Sacro Cuore, the Fondazione Politecnico and AICA (Italian association for information technology and automatic computing). In early 2007, Eni celebrated the 50th anniversary of the establishment of the Scuola Mattei operating in research and post-graduate training. From its foundation in 1957, the school trained nearly 2,570 young talents, of which 1,415 came from nearly 100 countries of the world. In 2007-2008 three new curricula were introduced involving 81students (33 from Italy and 48 from the rest of the world). Industrial relations Within a consolidated and structured system industrial relations represented an efficient and consistent support to Eni’s strategic choices. Leveraging on a constant dialogue with workers’ unions Eni reached significant agreements to implement a reorganization program in the Gas & Power and Refining & Marketing Divisions, to progress in the area of additional pension payments (applied also to the

most recent employees), in social activities (increased payments by the company to workers’ organizations) and in professional training (new training activities under the sponsorship of Fondimpresa) as well as a successful plan for allowing early retirement (491 employees). In 2007 Eni defined integrations to collective contracts for the segments of energy and oil and chemicals. Eni also signed an agreement for the establishment of a fund integrating public health assistance for employees operating in the energy and oil industry. Internationally, Eni continued its dialogue with workers’ unions in specific forums such as the European Works Council. Health Eni is committed at protecting 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 production, distribution and marketing activities. Eni’s activities for the protection of health aim at the continuous improvement of work conditions are developed along the following lines: continuous improvement of efficiency and reliability of plants; adoption of best practices and operating management based on advanced criteria of protection of health and the internal and external environment; research and innovation, with specific reference to the issues related to health and to the exposure of workers to working risks; results of audits for a continuous improvement; identification and monitoring of indicators and guidelines for analysis and intervention areas; programs of certification of management systems for production sites and operating units; definition and development of programs related to sustainability. In 2007 Eni continued the activities started in 2006 and defined new ones. In particular, the following activities were realized: mapping and rationalization of doctors working for Eni in Italy and outside Italy, of paramedics and contracts entered by Eni divisions and subsidiaries in the area of health with universities or institutions aimed at increasing their efficiency and service level; definition of a standard contract to be used in new instances or renewals; preparation of a procedure on issues related to HIV on workplaces;

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preparation of a procedure for facing the consequences on workplaces of a possible influenza pandemics, with specific reference to the transmission of contagion and the protection of continuity of operations; updating of norms and promotion of health and medical support. With this aim since December a website has been dedicated to health prevention in Eni’s Intranet; start up of the Health card project and opening of a health care center in Rome and support to the initiative of the Italian league against cancer in Rome within a project for early diagnosis of cancer; development of telemedicine program and opening of a center in Gela; support to the FASEN for the realization of a screening of cardiologic risk. In the definition of choices, risk prevention has been considered a priority and has been implemented in all operating sites by means of an integrated HSE management system. In 2007 Eni extended the application of this health management system to its activities outside Italy and continued the certification process to 28 entities. Particular attention has been paid to the implementation of prevention standards for working risks – such as chemical, physical and biological risks – and also to those related to local contexts – such as climate, infectious diseases, food problems – that are constantly updated and monitored by means of specific surveys, the implementation of socio-hygienic projects and Health Impact Assessments (32 HIA). Eni has a network of 296 own health care centers located in its main operating areas of these 203 centers are outside Italy and are managed by expatriate and local staff. A set of international agreements with the best local and international health centers guarantees efficient service and timely reactions to emergencies. 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. Its strategy has been based on: the dissemination of a safety culture within its organization; a common policy, specific guidelines and proper management systems in line with international standards;

control, prevention and protection from exposure to dangerous situations; minimization of exposure to risk in all production activities. Eni’s Guidelines on the evaluation and mitigation of risks published in 2004 by the Corporate HSE department and in greater detail the “Instructions for the management of HSE risk” published in January 2008 describe the methods applied in the identification of dangers, evaluation and mitigation of risks associated to plants, processes, transportation means, workplaces, chemical substances and products used, produced and marketed. This process includes the following phases: identification of all exposures and risks related to processes, products and operations performed; identification of prevention plans (where possible) and mitigation of risks; evaluation of risks in terms of seriousness and frequency of accidents; investigation and analysis of accidents in order to learn from them and increase the ability to prevent and mitigate risks; development of action plans to minimize risks focused mainly on capital expenditures, implementation of safety management systems and training of staff. In 2007 Eni started a number of initiatives in the area of safety. The most relevant ones were: audit activities in business units testing the complete functioning of HSE management systems and specific audits on typical risks of certain sectors; engagement of resources in safety at various levels and of employees operating staff in a network connecting promoters of a safety culture within the organization (SAFELLOWS network); establishment of a module monitoring and managing geo-referenced data in the Mediterranean area supporting the management of relevant emergencies. This system favours the evaluation and organization of response interventions in case of emergencies at sea (MEDSTAR project); development of the innovative “Simulation of HSE processes” allowing new projects to foresee any issues related to HSE. These issues could lead to delays in obtaining authorizations, changes during work in progress, etc.); application of “Leading Indicators” in HSE for monitoring the safety parameters and the aspects of health and the environment;

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the promotion of training courses on specific issues; the establishment of international groups for sharing knowledge and the evaluation of advanced technical/structural standards for the control and monitoring of work environments in the prevention and protection of workers; completion of the technical guidelines for safety in new frontier activities (extreme working conditions), new procedure for the management of emergencies. Documents required for the implementation of Legislative Decree 123/2007 on the evaluation of risks from interferences and contractual standards have been drafted as a result of the cooperation between business units, the HSE function and the legal department of Eni Corporate.

Eni is organizing a data base on accidents that should be operating in 2008, allowing access to information to selected users reducing time losses and assuring and the possibility of learning from lessons learned especially in cases of near miss. In addition in 2008 a data base of laws and regulations is going to be prepared collecting all local and international regulations, UNI and CE standards and the main data bases on HSE issues. In 2007, safety indicators improved from 2006. The injury frequency rate was 3.01, down 5%, and the injury severity rate was 0.10 in line with 2006.

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RESPONSIBILITY TOWARDS THE ENVIRONMENT

 

 

 

Reference scenario Oil companies deploy activities with a potential impact on territories and the environment and are therefore subject to careful scrutiny by public opinion and stakeholders. This thrusts operational performance to fully comply with laws and international and domestic best practices especially as concerns risk prevention and reduction and minimization of environmental impacts. The sustainable operations of an oil company are measured also in terms of commitment to the development and implementation of programs and actions concerning relevant environmental criticalities in the various areas where it operates. Eni is a company that pays great attention to the issues of environmental sustainability and developed program aimed at the mitigation of climate change, the

sustainable use of natural resources and the conservation of biodiversity. More detailed information on the reduction of the environmental footprint is found on Eni’s website in the area Sustainability and in the Report on Sustainability. Environmental management In 2007 Eni further improved its HSE management system, paying greater attention to the planning and implementation of periodic control systems – technical and compliance audits – and the definition of four year objectives for business units. The planning and analysis process of four year HSE plans lead to the definition of improvement objectives for the main environmental performances that business units assumed and are achieving with innovative specific projects.

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Rational use of natural resources In order to reduce its impact on territories Eni consolidated the development of activities and the application of technologies for the reduction in pure water consumption investing in the treatment and recycling of water used in industrial processes. Eni further reduced the amounts of waste deriving from its production activities and continues to increase waste deriving from reclaiming activities in proportions to the areas reclaimed. Improvement plans are underway for the reduction of waste sent to landfills and by developing treatment and other forms of waste disposal. Eni continues its commitment to environmental reclaiming and completed most of its safety interventions, especially the erection of hydraulic barriers in depleted sites and in operating sites awaiting for reclaiming. The control of emissions into the atmosphere and in soils and waters is an area to which Eni pays special attention with its monitoring plans, required for receiving Integrated Environmental Authorizations, mandatory for any plant with an installed capacity higher that 50 MW. In most of Eni’s production sites – refineries, petrochemical plants and oil centers – Eni is introducing monitoring and control systems of methane losses and emissions containing organic volatile compounds, with the aim of reducing emissions into the atmosphere (photochemical smog, climate change). As for integrated environmental management, Eni defined a single system for monitoring and collecting environmental data involving all business units. The system will be operational by the end of 2008 and will be used to meet the internal and external environmental reporting requirements of Eni. Oil Spill Production, handling and transport of oil products can give rise to spills of variable size. 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. In 2007, a total of 368 oil spills were registered for a total of 9,336 barrel of oil spilled.

Biodiversity Eni considers biodiversity an integral element of sustainable development and is engaged in the evaluation and reduction of its exploration and production activities impact both onshore and offshore. Eni is engaged in supporting conservation projects onshore and offshore, evaluating the impact of activities in diverse ecosystems and organizing actions that raise attention for biodiversity. Current projects concern onshore and offshore sites in Val d’Agri in Italy, Ecuador, the Mediterranean Sea, the Arctic Sea and Kazakhstan.

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THE FUTURE OF ENERGY AND INNOVATION

 

 

 

The future challenges of energy Hydrocarbons will be for many more decades the most important energy source for world economies due to their availability, flexibility of use and low cost. In the period considered and with the present technologies, renewable sources will be able to contribute only marginally to global energy requirements due to high costs and volumetric limitations. In this scenario the issue of dependence from imports of hydrocarbons will be felt even more worldwide, in particular in the countries and areas where domestic production is decreasing or economic growth is strong. From the point of view of international oil companies, the global energy scenario shows increasing complexity due rather than to the feared exhaustion of oil resources – according to the most recent estimates reserves are still abundant and sufficient to maintain current consumption for about 100 years – but rather to the increase in competition for access to reserves, the worsening of contract and tax conditions, increasing costs and scarcity of human and technical resources. In fact the actual ability of international oil companies to access the world’s vast mineral potential have constantly decreased after the second world war through a process of reappropriation of resources by producing countries. This progress – never actually decreased in the years – was further accelerated in the past few years, also due to the high international oil prices. In addition to the difficulty in accessing “easy” hydrocarbon resources, international oil companies must face the maturity of traditional areas. All these factors are forcing international oil companies to move to frontier areas (e.g. deep waters, Arctic areas, remote areas) that require high technology and capital

intensive projects. The protection of the (local and global) environment and more in general the sustainability issues are fundamental components of a long term development model and make the reference context of the energy industry even more delicate. The most important challenge for the energy sector is represented by meeting the demand for energy mitigating its environmental impact. Eni intends to act by maximizing its commitment to technological innovation and energy efficiency that also have a direct impact on the safety of supply. The achievement of significant technological discontinuity and a more rational and careful use of resources are in fact the major levers for widening the availability of hydrocarbons, making renewable sources competitive and competing on environmental issues. More detailed information on Eni’s commitment to innovation is found on Eni’s website in the area Innovation and in the Report on Sustainability. A new approach to access to oil reserves In the scenario described above, in order to accelerate the development of new mineral resources, the approach of international oil companies must deploy new forms of cooperation tailored to the requirements of host countries which include social and economic development, the valorization of energy sources and attention to environmental issues. International oil companies need to suggest and manage integrated projects (upstream, midstream and downstream) including not only the development of fossil sources but also the promotion and enhancement of renewable energy sources. Eni’s strategy moves in this direction as Eni has always entertained distinctive relations with

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producing countries, paying special attention to the number of local workers employed, to training and scholarship initiatives, to the demand for water resources. In this context, the ability to develop, manage and integrate state-of-the-art technologies in innovative projects plays a crucial role for implementing Eni’s strategy in the medium and long term. Climate change In order to reduce greenhouse gas emissions Eni defined plans for gas flaring reduction, energy saving and efficiency improvement and projects aimed at financing R&D for the containment of CO2, In particular for: increasing efficiency in the whole production process (including gas flaring and gas venting reduction), in transport and conversion as well as in final uses; developing technologies for a more efficient exploitment of renewable energy sources (e.g. solar, biofuels); development of processes for the capture and geologic confinement of CO2 (technically feasible but still requiring testing for proving efficacy, cost efficiency and safety in the long term; biofixation of CO2. In 2007, greenhouse gas emissions expressed in mmtonnes of CO2eq. (including CO2 by burning and process, natural gas, gas flaring and gas venting) increased by 10.2% from 2006. The higher increase was recorded in the E&P division, mainly due to the increase of gas flaring emissions (up 30%) in relation to acquired assets in Congo and Russia.

Development of upstream activities and of natural gas One of the most interesting options for the oil industry is represented by the full use of already identified mineral resources. Eni is committed first of all to developing and improving upstream technologies, aimed at the optimization of exploration and production from field – also with complex geology – implementing enhanced recovery processes and introducing techniques for monitoring production in real time. Enhanced oil and gas recovery techniques can also represent a lever for accessing non conventional resources (extra heavy oil and bitumen, tar sands, tight gas and coal bed methane). The development of the natural gas sector and the upgrade of transport infrastructure are a significant option considering the environmental and supply criticalities described above. The use of natural gas in power generation is in fact a more efficient and less polluting solution as compared to other fossil sources. Unlike other international oil companies, Eni has a strong core of midstream and downstream activities and competences in its portfolio, which are confirmed by its strong presence and experience in natural gas transmission by pipeline, distribution and in its leading role in natural gas sale in Europe. In this light, a relevant option is the full use of the relevant stranded gas reserves – approximately half of all world reserves – located in areas far from final markets, in deep and ultra deep water basins, in complex geological formations or in small fields. In addition to the extraction difficulties, the geographic dispersion and remoteness of these resources limited their production until now. Technological innovation Technological innovation represents the main tool sued by Eni to face the challenges of the environment and climate, to overcome the limitations of use of large but remote resources of hydrocarbons, to establish and consolidate alliances with producing countries, to stimulate the use of renewable sources. In 2007 Eni completed and made fully operational the new structure of its R&D activities and launched the Eni Award, an award established to support, promote and reward advanced scientific research and its innovative applications in the field of sustainable energy. Eni Award includes three sections: Science and Technology, Research and Environment, and Debut in Research. Prizes have been awarded in February 2008. The “Along with Petroleum” initiative addressed to innovation in the field of renewable energy sources and

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systems for efficient energy use was assigned euro 120 million for the 2008-2011 four year period and in 2007 financed projects in the area of innovative photovoltaic projects (for euro 12 million) and biofuels (for euro 7 million). In 2007, Eni invested over euro 208 million in research and development (euro 220 million in 2006), of these 47% were directed to the Exploration & Production division, 32% to the Refining & Marketing division, 14% to the Petrochemical division and 7% to the Engineering & Construction division. At December 31, 2007, a total of 1,082 people were employed in research and development activities. In 2007 a total 41 applications for patents were filed (29 in 2006). Main innovation initiatives in 2007 E&P Division In the E&P division research was focused on numeric and high resolution geophysical prospecting techniques, geological simulation and field prospecting in Arctic environments. The development of the proprietary seismic technology 3D Prestack Depth Migration Kirchoff True Amplitude High Resolution (KTA Hi Res) continued with the aim of overcoming the current vertical and horizontal limitations in the construction of a seismic image of the subsoil and of reducing exploration and mineral risks. The first development phase of the seismic tomography technology (X-DVA) has been completed. Demonstrations in use of the proprietary CRS technology (3D Common Reflection Surface Stack) for prospecting in areas characterized by low seismic response have been performed. Work continued for the implementation of technologies for the simulation of the behaviour of fluids in the reservoir and the first stage of the project aiming at collecting seismic surveys in Arctic zones directly in the open sea (On Ice Seismic) has been completed. Within Eni’s Drilling Advanced Technologies project aimed at developing and integrating advanced drilling of oil wells, the field application stage of some proprietary technologies began in Egypt and Italy. The Extreme Lean Profile technique (small diameter wells) allows to reach greater depths and/or to drill only the last part of the well with larger diameters. The joint application of the Eni Circulation Device and Secure Drilling techniques allowed to complete the drilling of some high pressure and high temperature wells in the Egyptian offshore and in Italy thanks to improved safety in drilling operations.

The new non conventional well testing method based on the injection into the well of fluids compatible with those contained in the field, has been developed and tested in a well for the delimitation of the Goliath field in Norway. This method avoids the emission of combustion residues and hydrocarbons in the atmosphere, thus reducing environmental and safety risks as compared to conventional methods. This is extremely useful in fields where extracted gas is associated to hydrogen sulphide (H2S), such as Kashagan, Karachaganak and Val d’Agri. Eni completed the executive project for the construction of a pilot plant for the demonstrative storage of sulphur expected to start operations in 2008 based on Eni’s proprietary technology. Eni also completed the feasibility study for the new technology for the sweetening of natural gas and identified the location of a pilot plant In the Gas to Liquids project (GTL) with the cooperation of IFP/Axens, Eni completed the tests on the catalytic performance and the mechanical stability of the catalyst for Fischer-Tropsch synthesis. The catalyst which will be produced in the first half of 2008 by Axens in the Salindres plant in France and later employed in the pilot tests of the GTL of Sannazzaro in 2008. In the conversion of heavy crudes and fractions into light products, testing continued at the Taranto demonstration plant of Eni’s proprietary technology EST (Eni Slurry Technology). Technical and economic evaluations performed show that the EST provides competitive advantage as compared to the conversion technologies available on the market for applications both upstream, in the upgrading of non conventional crudes, including oil from tar sands, and downstream for the conversion of heavy residues from distillation and visbreaking. In 2007 Eni filed 5 patent applications. Within the SCT-CPO Project (Short Contact Time - Catalytic Partial Oxidation) project aimed at the development of a reforming technology called SCT-CPO (Short Contact Time - Catalytic Partial Oxidation) flexible in terms of production capacity and oil-based feedstocks in order to increase the availability of hydrogen at competitive costs for refinery operations and oil upgrading. Ongoing activities tend to the validation of this technology on a pilot plant at the Milazzo Research Center aimed at the construction of a first industrial plant in one of Eni’s refineries. In 2007 Eni filed two patent applications.

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Work continued on the integrated Green House Gases research program, aimed at verifying the industrial feasibility of the geological sequestration of CO2 in depleted fields and salty aquifers. The team has been built for the design and development of a pilot plant in a depleted gas field employing the surface structures. G&P Division In the G&P Division work continued on the natural gas high pressure transport (TAP) project that provided an advanced long distance, high capacity, high pressure and high grade solution for: transport on distances over 3,000 kilometers; natural gas volumes to be transported of about 20-30 billion cubic meters/year; pressure equal to or higher than 15 MPa; use of high and very high grade steel. This technology allows the exploitation of remote fields and the reduction of the consumption of gas in transit in compression stations. In 2007, testing was completed on pilot lines in X100 steel at the Perdasdefogu experimental military polygon in Sardinia. Projects on intermediate transport pressure in traditional environments and projects for high pressure transport in non conventional environments characterized by non standard environmental and geological conditions are under definition for 2008-2011. The MAST (Advanced monitoring of gas transport systems) project aims at developing advanced monitoring technologies and to test their application in the design phase, their installation during construction and their reliability in operation in order to obtain an integrated and automated system for monitoring these structures. R&M Division Eni continued to improve its “Blu” fuels (BluDiesel and BluSuper). In 2007 it launched BluDiesel Tech, a new diesel fuel adjusted to the requirements for detergence of new generation diesel engines. In addition to the keep clean function, BluDiesel Tech provides a clean up function which guarantees clean operations also to engines with a very high numbers of kilometres. It also has a very low level of sulphur (less than 10 ppm) anticipating the specifications that will be mandatory from 2009. As for gasolines, Eni is studying innovative solutions aimed at new generation engines with high fuel efficiency (low powered and overfueled vehicles). In 2007 Eni filed a patent application. In synergy with the new fuels, Synt 2000, the Agip

branded flagship lubricant, has been upgraded in order to meet the requirements of the most recent API specifications for cars. In 2007 Eni also developed a new lubricant with a high level of fuel economy totally compatible with after treatment systems based on innovative proprietary components. This new product can be considered the first of a series of engine lubricants suitable to meet the environmental sustainability required by the Euro 5 standard and for later ones. In 2007 Eni filed 2 patent applications. Green Diesel This process, developed in cooperation with UOP by means of the EcofiningTM technology, consists in the hydrocracking of vegetable oils yielding an oxygen free hydrocarbon product which is a component of a diesel fuel. This biofuel called Green Diesel has a markedly higher quality than conventional biodiesel obtained by means of the transesterification of fatty acid methyl ester (FAME). The development project provides for a direct passage to industrial scale. In 2007 the basic design of an industrial plant for the production of 250 ktonnes/year of Green Diesel from soy and/or palm oil has been completed. A patent application was filed. LCO Upgrading In agreement with the business objective of adjusting production to the evolution of demand (increase in gasoil with correspondent decrease in gasolines and decline in fuel oil) this project aims at the development on an industrial scale of a process for selectively converting highly aromatic gasoil from catalytic cracking (light cycle oil - LCO) a low density component of diesel fuel with low polyaromatic content and medium-high cetane number with reduced hydrogen consumption as compared to the conventional dearomatization process. The scaleup of catalysts and the technical-economic feasibility study currently underway. Biofixation of CO2 by means of micro algae The project aims at testing the technical and economic feasibility of a process based on the biofixation by means of micro algae for the recycling of CO2 produced by oil refining plants and the purification of discharge waters with production of biomass that can be converted into biofuel and/or other energy vectors. Most of the testing activities are performed at the Gela refinery, where in 2007 a small scale pilot plant made up of photobioreactors and open pools is operating. In 2008 Eni plans to build a pilot plant extended over one hectare and full scale demonstration plant covering 10

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hectares if the expected results are reached. In 2007 Eni filed 2 patent applications. The Ensolvex technology developed and patented by Eni will be applied in 2008 in the construction of a 4 tonnes/h plant in the Gela refinery for the reclaiming of soil polluted by hydrocarbons within the limits imposed by Ministerial Decree No. 471/1999. The En-Z-lite process removes organic compounds from water by means of adsorption on synthetic hydrophobic zeolytes that can either represent the reactive element of permeable reactive barrier (PRB*) or the filling of filter in a treatment on the ground (pump & treat). In 2007 Eni filed a patent application for the thermal regeneration of synthetic hydrophobic zeolytes. In the Taranto refinery a pilot PRB plant is operating for the local reclaiming of ground waters containing MTBE, hydrocarbons and arsenic. In 2008 a full scale PRB plant will be designed and its economic viability will be tested. This process is the only one capable to perform treatments resulting in the meeting of the requirements set for MTBE. Process for the reduction of industrial mud The process of hydrolysis and anaerobic digestion developed and patented by Eni allows a stark reduction in mud derived from industrial operations to be disposed of (>75%) and a potential valorization of the residue (compost). A pilot test was performed at the Gela refinery along with the technical economic feasibility study preliminary to the construction of a full scale plant with a capacity of 800 tonnes/y of dry mud to be built in the refinery. Corporate In 2007 within the “Along with petroleum” initiative Eni started six research projects on solar energy and on the production of biofuels at its research center for renewable energies in Novara and with the cooperation of other Eni research centers (San Donato Milanese and Monterotondo). Eni also started the evaluation of technologies of solar concentration to build hybrid solar powered/turbogas power stations/desalination plants. Eni started to cooperate with Italian and foreign institutions (the Milan Polytechnic, the Turin Polytechnic, the universities of Milan and Ferrara) with Italian research centers (NRC institutes in Bologna, Messina and Milan) and with foreign institutes (the MIT for a strategic alliance on solar energy to be started in 2008). Other agreements are under negotiation.

In the area of research on renewable sources, the Organic Solar project aims at reducing investment costs for photovoltaic plants. It then intends to identify materials, such as polymers, suitable for substituting the costly semiconductors traditionally employed in solar cells. Research on the photoproduction of hydrogen is underway. This activity aims at identifying a system to generate hydrogen from the splitting of water by means of solar energy. Process equipment and materials have been bought for the construction of equipment for photoproduction of hydrogen. Experiments have started by means of operating prototypes. Work on photoactive materials aims at identifying materials that can improve the exploitation of sunlight by photovoltaic cells. Experiments and modelling have started. In the field of concentration solar CSP, the aim of the research is the design of hybrid concentration solar and gas turbine power stations (CCGT) that combine the advantage of plenty of sunlight and the availability of natural gas for electricity generation and for the desalination of water for agricultural or industrial use. The study will concentrate on a hybrid CCGT-solar-desalination plant locate in North Africa using linear parabolic technologies. As concerns biomass for fuels, Eni research aims at substituting traditional cultivations with other highly productive non edible products or based on microorganisms capable of absorbing CO2 and producing lipids that can be transformed into biofuels. Screening activities are underway on various breeds of microorganisms (bacteria, yeasts, algae) for a preliminary evaluation of the biomass-biodiesel process flow. Research is focused on the production of high quality biofuels without by-products to be disposed of, both from hydrogenation of vegetables (Ecofining) and from gasification or pyrolysis of biomass from waste with high cellulose content. In this area Eni formalized its participation to the European Chrisgas network and started a cooperation with the University of Milan. Petrochemicals division In the Petrochemicals division (Polimeri Europa) a project is underway on new products for tyres. The functioning of the pilot plant has been consolidated and some improvements have been made to increase its reliability. By means of proprietary technologies Eni developed

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prototypes of new polymers. The first samples have been offered to some of the major European manufacturers of tyres in order to evaluate their application properties, with specific reference to reduced rolling resistance other properties being equal (adherence on wet surfaces and snow). New LLDPE series from new catalysis for high temperature processes In 2007 the series of products in low density linear polyethylene (with octane comonomer) has been enlarged with the industrialization of two new types, by means of a catalytic process with low environmental impact. innovative products (EPS) for insulation in buildings from a continuous mass process have been developed.

Some grade of polymers have been produced specifically suited to insulation in buildings characterized by a very low use of expanding agents. This allows for a reduction of emissions in air during processing and an increased insulating capacity in finished products. Improvements in terms of energy consumption have been achieved also in the final manufacturing phase. Development of EPS from suspension processes in specific applications An experimental production of EPS with higher molecular weight has been achieved at Eni’s Hungarian plants. Testing with clients showed that this product allows to reduce energy consumption (lover steam pressure) as compared to standard products.

 

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TERRITORY AND COMMUNITIES

 

 

 

Eni respects the social and cultural values and the traditions and economic aspirations of the countries where it operates and provided itself with the tools for analyzing its interventions and evaluating potential partnerships. Policies Eni is committed to integrating the concept of transparency of its management system in the countries where it operates through adhering to and promoting the Extractive Industries Transparency Initiative (EITI). In Nigeria, Eni’s affiliate NAOC publishes data relating to royalties, profit taxes and gas flaring fees, in East Timor Eni is a member of the EITI Multistakeholder Working Group. In addition, Eni is committee to providing transparent information on royalties paid to the Basilicata Region and to the municipalities touches by its oil extracting activities, according to an agreement signed with the Region. After the issue of Eni’s guidelines for the protection and promotion of human rights in 2007, Eni Australia developed a specific policy on indigenous peoples. In Nigeria human rights protection is included in the security policy. Local Content Maximizing local content is another distinctive factor characterizing Eni’s presence in various countries through the purchase of goods and services, the hiring of local staff and the development of specific training

programs. Eni developed actions in Pakistan, Kazakhstan, Nigeria, India, Tunisia and Egypt. In particular, in Pakistan, in 2007, Eni’s activities offered jobs to over 200 workers and contributed to the local economy with over US$ 600,000 of gods and services purchased locally. Eni is implementing a Social Impact Assessment (SIA) for the evaluation of the impact of its operations on territories and communities interested by relevant projects. In 2007, these activities were performed in Indonesia, Australia, India, Pakistan, Kazakhstan. Another tool for the evaluation of impact on territories is the Health Impact Assessment (HIA) developed in 2007 in Congo and Pakistan. Relations with local stakeholders In 2007, Eni developed community engagement initiatives in Italy, Ecuador, Mali, Norway, East Timor, Australia, Libya, Pakistan, Indonesia, Nigeria, Kazakhstan. In Val d’Agri it started a community mission in order to a establish dialogue with local stakeholders and promote projects in the area of sustainable development. Investments for communities Eni considers investments in favour of communities as an integral part of its relation with the territory and of the management of local businesses. Its approach to these issues is therefore based on methods of analysis and implementation that are typical of project management. In 2007 expenditures for communities amounted to euro 85.88 million.

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Socio-economic development and basic infrastructure In 2007 these interventions concerned the completion of specific projects aimed at providing access to energy (electricity, gas) and water resources, upgrading road networks in Nigeria, Ecuador, Pakistan, Indonesia. In Congo Eni continued to carry on its project for the reintroduction of rice farming. In Pakistan, micro-irrigation schemes were introduced for a more efficient use of water. In Pakistan, Nigeria, Australia, Indonesia and Ecuador micro-credit initiatives and personal financial management were fostered. In Pakistan funds were offered to 1,175 families for a total amount of 10.2 million of rupees. Education and training In 2007 Eni worked along three main lines: basic schooling, basic and advanced training. In Libya, Nigeria and Pakistan schools were built and equipped. In Australia an indigenous training and employment program was completed with the hiring of 16 local workers. In Nigeria, Eni launched the nationalization project for the development of local skilled labour, it built a training center for handicapped people and provided 1,797 scholarships to students with an expenditure of approximately US$ 340,000. In Libya, Eni

continued its training program for young Libyan graduates that lead to the hiring of 40 persons and the selection of other 20 graduates that will start their training in 2008. In Pakistan Eni built a training center for women and a computer training center. It also continued its “EniScuola” project started in 2000 with the cooperation of the Eni Enrico Mattei Foundation. Health Eni supports projects and programs for the improvement of health conditions and quality of life of populations by providing primary health care, prevention, health assistance and promoting vocational training. In Congo, Eni upgraded the Kento Muana project aimed at preventing the mother-child transmission of HIV targeted at approximately 15,000 women. It also increased its health structures and services in Indonesia, Libya and Ecuador. In Nigeria, a project organized by Unicef and sponsored by Eni provided services for the prevention of mother-child transmission of HIV in the Rivers and Bayelsa states. In Pakistan Eni opened 3 Community Health Centers and a center for mothers and babies. Enhancement of cultural and environmental heritage Eni promotes actions aimed at the conservation and promotion of cultural and environmental heritage of local communities. In Italy Eni sponsors the restoration of the Basilica of Saint Peter in Rome and two project for the protection of biodiversity in Val d’Agri and the Adriatic Sea. In Libya Eni is cooperating to the protection of the archaeological sites of Sabratha and Leptis Magna. In Australia, within the Blacktip project Eni prepared a cultural heritage plan for the protection of local heritage through which it manages the access of employees and suppliers to aboriginal territories. In Nigeria the Water fields project for the valorization of biomass is underway. In Algeria Eni and the Sonatrach Tassili Foundation signed an agreement for the electrification with solar energy of 4 water wells to be completed in 2008. Sponsorship In Italy Eni is founding partner of 4 music foundations and sponsors the organization of concerts and operas in 4 theatres, as well as the FAI concerts and the Ravenna festival. Cultural promotion is achieved also by sponsoring MaratonArte, promoted by the Italian Ministry for Culture and aimed at raising funds for the protection and safeguard of artistic heritage.

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Foundations The Eni Enrico Mattei Foundation (FEEM) has the objective of contributing to the increase in knowledge in the fields of economy and sustainable development. In 2007, FEEM developed 69 international projects, 35 of these sponsored by the European Union for a total value of over euro 4 million and organized 66 seminars and meetings.

Eni Foundation intends to promote solidarity actions in support of disadvantaged and vulnerable persons, paying special attention to old age. In the second half of 2007, Eni Foundation started a project in Congo and for 2008 it plans a similar initiative in Angola.

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RISK FACTORS

 

 

 

 

Foreword The main company risks identified, monitored and, as described below, managed by Eni are the following: (i) the market risk deriving from the 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 Group’s business activities may not be available; (iv) the country risk in oil & gas activities; (v) the operational risk; (vi) the possible evolution of the Italian gas market; (vii) the specific risks deriving from the exploration and production activities. In 2007 Eni’s management reviewed and revised policies and guidelines regarding standards to identify, assess, control and manage market risks of significance to Eni. The purpose was to issue a reference book on policies to be handily consulted and updated as appropriate. In 2007 risk policies have been revised to take account of changes in the group’s organizational structure (following the merger with Enifin on January 1, 2007 and the establishment of Eni Trading & Shipping) as well as needs to further integrate risk management. Market risk Market risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the group’s financial assets, liabilities or expected future cash flows. Eni’s market risk management activities is performed in accordance with standards prescribed by policies and guidelines mentioned above, providing for a centralized model of conducting finance, treasury and risk management operations based on three in separate entities: the parent company’s (Eni SpA) finance department,

Eni Coordination Center and Banque Eni subject to certain bank regulatory restrictions preventing the group’s exposure to concentrations of credit risk. Additionally, in 2007, Eni Trading & Shipping was established and 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 of Italy, respectively, covering borrowing requirements and employing available surpluses. All the 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 derivative transactions on a speculative basis. The framework defined by Eni’s policies and guidelines prescribes that measurement and control of market risk are to be performed on the basis of maximum tolerable levels of risk exposure defined in accordance with value-at-risk techniques. These techniques make a statistical assessment of the market risk on the Group’s activity, i.e., potential gain or loss in fair values, due to changes in market conditions taking account of the correlation existing among changes in fair value of existing instruments. Eni’ s finance departments define maximum tolerable levels of risk exposure to changes in interest rates and foreign currency exchange rates, pooling Group companies risk positions. Calculation

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and measurement techniques for interest rate and foreign currency exchange rate risks followed by Eni are in accordance with established banking standards, as established by the Basel Committee for bank activities surveillance. Tolerable levels of risk are based on a conservative approach, considering the industrial nature of the company. Eni’s guidelines prescribe that Eni’s group companies minimize such kinds of market risks. With regard to the commodity risk, Eni’s 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 Group’s 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 Group’s strategy to achieve growth targets or ordinary asset portfolio management. The group controls commodity risk with a maximum value-at-risk limit authorized for each business unit. Hedging needs from business units are pooled by Eni Trading & Shipping which also manages its own risk exposure. The three different market risks, whose management and control have been summarized above, are described below. Exchange rate risk Exchange rate risk derives from the fact that Eni’s operations are conducted in currencies other than the euro (mainly in the U.S. dollar). In particular revenues and costs denominated in foreign currencies maybe significantly affected by fluctuations in the exchange rates typically due to conversion differences on specific transaction arising from the time lag existing between the execution of a given transaction and the definition of relevant contractual terms (economic risk) and conversion of foreign currency-denominated commercial and financial payables and receivables (transaction risk). Exchange rate fluctuations affect group’s reported results and net equity as financial statements of subsidiaries denominated in currencies other than the euro are translated from their functional currency into euro (translation risk).

Generally, an appreciation of the U.S. dollar versus the euro has a positive impact on Eni’s results of operations, and viceversa. Eni’s foreign exchange risk management policy is to minimize economic and transaction exposures arising from foreign currency movements. Eni does not undertake any hedging activity for risks deriving from translation of foreign currency denominated profits or investments except for single transactions to be evaluated on a case-by-case basis. Effective management of exchange rate risk is performed within Eni’s central finance departments which match opposite positions within Group companies, hedging 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 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. Eni’s interest rate risk management policy is to minimize risk with the aim to achieve financial structure objectives defined and approved in the management’s plans. Borrowing requirements of the group’s companies are pooled by the group’s central finance department in order to manage net positions and the funding of portfolio developments consistently with management’s plans while maintaining a level of risk exposure within prescribed limits. Eni enters into interest rate derivative transactions, in particular interest rate swap, 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.

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Commodity risk Eni’s results of operations are affected by changes in the prices of products and services sold. A decrease in oil and gas prices generally has a negative impact on Eni’s results of operations and vice-versa. Eni manages the exposure to commodity price risk by optimizing core activities in order to achieve stable margins. In order to manage commodity risk in connection with its trading and commercial activities, 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 values in terms of value at risk, recorded during 2007 (compared with year 2006) referring to interest rate risk and exchange rate in the first section, and the commodity risk in the second section.

(Value at risk - parametric method variance/covariance; holding period: 20 days; confidence level: 99%)

		2006		2007

(euro million)		High		Low		Avg		At period end		High		Low		Avg		At period end
Interest rate		5.15		0.45		2.01		1.10		7.36		0.47		1.39		4.35
Exchange rate		2.02		0.02		0.24		0.21		1.25		0.03		0.21		0.43

(Value at risk - historic simulation method; holding period: 1 day; confidence level: 95%)

		2006		2007

($ million)		High		Low		Avg		At period end		High		Low		Avg		At period end
Hydrocarbons		35.69		5.40		17.80		8.59		44.59		4.39		20.17		12.68
Gas & power		46.63		18.36		31.01		22.82		54.11		20.12		34.56		25.57

 

Credit risk Credit risk is the potential exposure of the Group to losses that would be recognized if counterparties failed to perform or failed to pay amounts due. The credit risk arising from the Group’s normal commercial operations is controlled by each operating unit within Group-approved procedures for evaluating the reliability and solvency of each counterparty, including receivable collection and the managing of commercial litigation. The monitoring activity of credit risk exposure is performed at the Group level according to set guidelines and measurement techniques to quantify and monitor counterparty risk. In particular, credit risk exposure to large clients and multi-business clients is monitored at the Group level on the basis of score cards quantifying risk levels. Eni’s has established guidelines prior to entering into cash management and derivative contracts to assess the counterparty’s financial soundness and its rating. Eni has never experienced material non-performance by any counterparty. As of December 31, 2007, Eni has no significant exposure to 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 settle obligations causing material financial losses in the case the group is required to incur additional expenses to meet its obligations or under the worst of conditions a default. Eni manages liquidity risk by targeting an optimal ratio between equity and total debt consistent with management plans and business objectives including prescribed limits in terms of maximum indebtedness rate and of minimum debt ratio between medium-long term debt and total debt as well as between fixed rate debt and total medium-long term debt. This enables Eni to maintain an appropriate level of liquidity and financial capacity as to minimize borrowing expenses and to achieve an optimal profile of composition and duration of indebtedness. The Group has access to a wide range of funding at competitive rates through the capital markets and banks and coordinates relationships with banks centrally. At present, the Group believes it has access to

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sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements. Effective management of the liquidity risk has the objective of ensuring both availability of adequate funding to meet short term requirements and due obligations, and a sufficient level of flexibility in order to fund the development plans of the Group businesses, maintaining an adequate finance structure in terms of debt composition and maturity. This implies the adoption of a strategy for pursuing an adequate structure of borrowing facilities (particularly availability of committed borrowings facilities) and the maintenance of cash reserves. Country risk Substantial portions of Eni’s hydrocarbons reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American. At December 31, 2007, approximately 70% of Eni’s proved hydrocarbons reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supplies comes from countries outside the EU and North America. In 2007, approximately 60% of Eni’s domestic supply of natural gas came from such countries. Developments in the political framework, economic crisis, social unrest can compromise temporarily or permanently Eni’s ability to operate or to economically operate in such countries, and to have access to oil and gas reserves. Further risks related to the activity undertaken in these countries, are represented by: (i) lack of well established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; (ii) unfavourable developments in laws and regulations leading to expropriation of Eni’s titles and mineral assets relating to an important oil field in Venezuela which occurred in 2006, following the unilateral cancellation of the contract regulating oil activities in this field by the Venezuelan state oil company PDVSA; (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 Eni’s financial condition and results of operations. Eni periodically monitors political, social and economic risks of approximately 60 countries where it has invested or with regard to upstream projects evaluation where Eni is planning to invest, in order to assess returns of single projects based also on the evaluation of each country’s risk profile. Country risk is mitigated in accordance with guidelines on risk

management defined in the procedure “Project risk assessment and management”. Operational risk Eni’s business activities conducted in and outside of Italy are subject to a broad range of legislation and regulations, including specific rules concerning oil and gas activities currently in force in countries in which it operates. In particular, these laws and regulations require the acquisition of a licence before exploratory drilling may commence and the compliance with the health, safety and environment rules. These 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 conducts exploration, drilling and production activities in certain ecologically sensitive locations (protected areas). Environmental, health and safety laws and regulations have a substantial impact on Eni’s operations and the expenses and liabilities that Eni may incur in relation to compliance with environmental, health and safety laws and regulations are expected to remain material to the group’s results of operations or financial position. For this purpose, Eni adopted guidelines for the evaluation and management of health, safety and environmental (HSE) risks, with the objective of protecting Eni’s employees, the populations involved in its activity, contractors and clients, and the environment and being in compliance with local and international rules and regulations. Eni’s guidelines prescribe the adoption of international best practices in setting internal principles, standards and solutions. The ongoing process for identifying, evaluating and managing HSE operations in each phase of the business activity and is performed through the adoption of procedures and effective pollution management systems tailored on 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 the assets, people and the environment are managed by the operating (business) units for each site. These units manage the HSE risk through a systematic way that involves having emergency response plans in place with a number of corrective actions to be taken

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that minimise damage in the event of an incident. In the case of major crisis, Division/Entity are assisted by the Eni Unit of Crises to deal with the emergency through a team which have the necessary training and skills to coordinate in a timely and efficient manner resources and facilities. The integrated management system on health, safety and environmental matters is supported by the adoption of a Eni’s Model of HSE operations in all the Division and companies of 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, also subject to audits by internal and independent experts. Eni has major facilities certified to international environmental standards, such as ISO14001, OHSAS 18001 and EMAS particularly in the Petrochemicals and Refining & Marketing division. Eni provides a program of specific training and development for HSE staff in order to: Promote the execution of behaviours consistent with guidelines. Drive people’s learning growth process by developing professionalism, management and corporate culture. Support management knowledge and control of HSE risks. Further information on HSE activities, projects and R&D undertaken is provided on the Eni’s Intranet site. Possible evolution of the Italian gas market Legislative Decree No. 164/2000 opened the Italian natural gas market to competition, impacting on Eni’s activities, as the company is engaged in all the phases of the natural gas chain. The opening to competition was achieved through the enactment of certain antitrust thresholds on volumes input into the national transport network and on volumes sold to final customers. These enabled new competitors to enter the Italian gas market, resulting in declining selling margins on gas. Other material aspects regarding the Italian gas sector regulation are the regulated access to natural gas infrastructure (transport backbones, storage fields, distribution networks and LNG terminals), and the circumstance that the Authority for Electricity and Gas is entrusted with certain powers in the matters of

natural gas pricing and in establishing tariffs for the use of natural gas infrastructures. Particularly, 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 supply of natural gas to residential and commercial users consuming less than 200,000 cm per year (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. As a matter of fact, 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 cubic meters per year, establishing, among other things: (i) that an increase in the international price of Brent crude oil is only partially transferred to residential and commercial users of natural gas in case international prices of Brent crude oil exceed the 35 dollars per barrel threshold; and (ii) that Italian natural gas importers – including Eni – must renegotiate wholesale supply contracts in order to take account of this new indexation mechanism. In order to meet the medium and long-term demand for natural gas, in particular in the Italian market, Eni entered into long-term purchase contracts with producing countries. These contracts which contain take-or-pay clauses, will ensure total supply volumes of approximately 62.4 bcm/y of natural gas to Eni by 2010. Despite the fact that an increasing portion of natural gas volumes purchased under said contracts is planned to be sold outside Italy, management believes that in the long-term unfavorable trends in the Italian demand and supply for natural gas, also due to the possible implementation of all publicly announced plans for the construction of new import infrastructure (backbone upgrading and new LNG terminals), and possible evolution of Italian regulatory framework, represent risk factors to the fulfillment of Eni’s obligations in connection with its take-or-pay10 supply contracts. Particularly, should natural gas demand in Italy grow at a lower pace than management expectations, also in view of expected developments in the supply of natural gas to Italy, Eni could face a further increase in competitive

 

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pressure on the Italian gas market resulting in a negative impact on its selling margins, taking account of Eni’s gas availability under take-or-pay supply contracts and execution risks in increasing its sales volumes in European markets. Specific risks associated with the exploration and production of oil and natural gas The exploration and production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks. 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 hostile environments, where the majority of Eni’s planned and ongoing projects is located.

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Glossary The glossary of oil and gas terms is available on Eni’s web page at the address www.eni.it. Below is a selection of the most frequently used terms.   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. Leverage Is a measure of a company’s 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. Conversion Refining processes that enable for the transformation of heavy fractions into lighter products. Cracking, visbreaking, coking, gasification of refining residues are conversion processes. The ratio of the processing capacity of these plants and distillation capacity expresses the refinery conversion index; the higher this index, the more flexible and potentially profitable the refinery. 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 their original shape, to a certain degree, once the stress ceases to be applied. The main synthetic elastomers are polybutadiene (BR), styrene-butadiene rubbers (SBR), ethylene-propylene rubbers (EPR), thermoplastic rubbers (TPR) and nitrylic rubbers (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.

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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 by means of risers from the seabed the underwater wellheads to the treatment, storage and offloading systems onboard. 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.

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. Olefines (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 Amounts of hydrocarbons that have a lower degree of certainty than probable reserves and are estimated with lower certainty, for which it is not possible to foresee production. Probable reserves Amounts of hydrocarbons that are probably, but not certainly, expected to be extracted. They are estimated based on known geological conditions, similar characteristics of rock deposits and the interpretation of geophysical data. Further uncertainty elements may concern: (i) the extension or other features of the field; (ii) economic viability of extraction based on the terms of the development project; (iii) existence and adequacy of transmission infrastructure and/or markets; (iv) the regulatory framework. Production Sharing Agreement Contract in use in non OECD area 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 contractor’s equipment and financial resources. Exploration risks are borne by the contractor and production is divided into two portions: “cost oil” is used to recover costs borne by the contractor, “profit oil” is divided between contractor and national company according to variable

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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 reserves are estimated volumes of crude oil, natural gas and gas condensates, liquids and associated substances which are expected to be retrieved from deposits and used commercially, at the economic and technical conditions applicable at the time of the estimate and according to current legislation. Proved reserves include: (i) proved developed reserves: amounts of hydrocarbons that are expected to be retrieved through existing wells, facilities and operating methods; (ii) non developed proved reserves: amounts of hydrocarbons that are expected to be retrieved following new drilling, facilities and operating methods. On these amounts the company has already defined a clear development expenditure program which is expression of the company’s determination. Recoverable reserves Amounts of hydrocarbons included in different categories of reserves (proved, probable and possible), without considering their different degree of uncertainty. Reserve replacement ratio Measure of the reserves produced replaced by proved reserves. Indicates the company’s ability to add new reserves through exploration and purchase of property. A rate higher than 100% indicates that more reserves were added than produced in the period. The ratio should be averaged on a three-year period in order to reduce the distortion deriving from the purchase of proved property, the revision of previous estimates, enhanced recovery, improvement in recovery rates and changes in the 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 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 swap 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 transportation 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. ABBREVIATIONS

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Balance sheet

		Dec. 31, 2006		Dec. 31, 2007

(million euro)		Note		Total amount		of which with related parties		Total amount		of which with related parties

ASSETS
Current assets
Cash and cash equivalents		(1)		3,985					2,114
Other financial assets held for trading or available for sale:		(2)
- equity instruments									2,476
- other securities				972					433
				972					2,909
Trade and other receivables		(3)		18,799			1,027		20,776			1,616
Inventories		(4)		4,752					5,435
Current tax assets		(5)		116					703
Other current tax assets		(6)		542					833
Other current assets		(7)		855					1,080
Total current assets				30,021					33,850
Non-current assets
Property, plant and equipment		(8)		44,312					50,137
Other assets		(9)		629					563
Inventories - compulsory stock		(10)		1,827					2,235
Intangible assets		(11)		3,753					4,333
Equity-accounted investments		(12)		3,886					5,639
Other investments		(12)		360					472
Other financial assets		(13)		805			136		923			87
Deferred tax assets		(14)		1,725					1,915
Other non-current receivables		(15)		994					1,110
Total non-current assets				58,291					67,327
Assets classified as held for sale		(26)							383
TOTAL ASSETS				88,312					101,560
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term debt		(16)		3,400			92		7,763			131
Current portion of long-term debt		(21)		890					737
Trade and other payables		(17)		15,995			961		17,216			1,021
Income taxes payable		(18)		1,640					1,688
Other taxes payable		(19)		1,190					1,383
Other current liabilities		(20)		634					1,556
Total current liabilities				23,749					30,343
Non-current liabilities
Long-term debt		(21)		7,409					11,330
Provisions for contingencies		(22)		8,614					8,486
Provisions for employee post-retirement benefits		(23)		1,071					935
Deferred tax liabilities		(24)		5,852					5,471
Other non-current liabilities		(25)		418			56		2,031			57
Total non-current liabilities				23,364					28,253
Liabilities directly associated with the assets classified as held for sale		(26)							97
TOTAL LIABILITIES				47,113					58,693
SHAREHOLDERS’ EQUITY		(27)
Minority interest				2,170					2,439
Eni shareholders’ equity
Share capital				4,005					4,005
Reserves				33,391					34,610
Treasury shares				(5,374	)				(5,999	)
Interim dividend				(2,210	)				(2,199	)
Net profit				9,217					10,011
Total Eni shareholders’ equity				39,029					40,428
TOTAL SHAREHOLDERS’ EQUITY				41,199					42,867
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				88,312					101,560

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Profit and loss account

		2005		2006		2007

(million euro)

Note

Total amount

of which with related parties

Total amount

of which with related parties

Total amount

of which with related parties

REVENUES		(29)
Net sales from operations				73,728			4,535		86,105			3,974		87,256			4,198
Other income and revenues				798					783					827
Total revenues				74,526					86,888					88,083
OPERATING EXPENSES		(30)
Purchases, services and other				48,567			3,429		57,490			2,720		58,179			3,777
- of which non-recurring charge				290					239					91
Payroll and related costs				3,351					3,650					3,800
- of which non-recurring income														(83	)
Depreciation, depletion, amortization and impairments				5,781					6,421					7,236
OPERATING PROFIT				16,827					19,327					18,868
FINANCE INCOME (EXPENSE)		(31)
Finance income				3,131			72		4,132			58		4,600			98
Finance expense				(3,497	)				(3,971	)				(4,683	)		59
				(366	)				161					(83	)
INCOME FROM INVESTMENTS		(32)
Share of profit (loss) of equity-accounted investments				737					795					773
Other gain (loss) from investments				177					108					470
				914					903					1,243
PROFIT BEFORE INCOME TAXES				17,375					20,391					20,028
Income taxes		(33)		(8,128	)				(10,568	)				(9,219	)
Net profit				9,247					9,823					10,809
Attributable to
Eni				8,788					9,217					10,011
Minority interest		(27)		459					606					798
				9,247					9,823					10,809
Earnings per share attributable to Eni (euro per share)		(34)
Basic				2.34					2.49					2.73
Diluted				2.34					2.49					2.73

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Statements of changes in shareholders’ equity

	Eni shareholders’ equity

(million euro)

Share capital

Legal reserve of Eni SpA

Reserve for treasury shares

Other reserves

Cumulative currency translation differences

Treasury shares

Retained earnings

Interim dividend

Net profit for the year

Total

Minority interest

Total shareholders’ equity

Balance at December 31, 2004		4,004			959			5,392			3,965			(687	)		(3,229	)		14,911						7,059			32,374			3,166			35,540
Effect of change in accounting policy - adoption of IAS 32 and IAS 39											13									(40	)								(27	)		12			(15	)
Adjusted balance at January 1, 2005		4,004			959			5,392			3,978			(687	)		(3,229	)		14,871						7,059			32,347			3,178			35,525
Net profit for the year																										8,788			8,788			459			9,247
Gains (losses) recognized directly in equity
Change in the fair value of available-for-sale securities											6																		6						6
Change in the fair value of cash flow hedge derivatives											16																		16						16
Foreign currency translation differences														1,497															1,497			15			1,512
											22			1,497															1,519			15			1,534
Total recognized income and (expense) for the year											22			1,497												8,788			10,307			474			10,781
Transactions with shareholders
Dividend distribution of Eni SpA (euro 0.90 per share)																										(3,384	)		(3,384	)					(3,384	)
Interim dividend (euro 0.45 per share)																							(1,686	)					(1,686	)					(1,686	)
Dividend distribution of other companies																																(1,218	)		(1,218	)
Allocation of 2004 net profit											1,300									2,375						(3,675	)
Shares repurchased																	(1,034	)											(1,034	)					(1,034	)
Shares issued under stock grant plans		1									(1	)
Treasury shares sold under incentive plans for Eni managers								(47	)		47						47												47						47
		1						(47	)		1,346						(987	)		2,375			(1,686	)		(7,059	)		(6,057	)		(1,218	)		(7,275	)
Other changes in shareholders’ equity
Cost related to stock options											5																		5						5
Sale of consolidated subsidiaries																																(40	)		(40	)
Foreign currency translation differences on the distribution of dividends and other changes														131						135									266			(45	)		221
											5			131						135									271			(85	)		186
Balance at December 31, 2005 (Note 27)		4,005			959			5,345			5,351			941			(4,216	)		17,381			(1,686	)		8,788			36,868			2,349			39,217

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continued Statements of changes in shareholders’ equity

	Eni shareholders’ equity

(million euro)

Share capital

Legal reserve of Eni SpA

Reserve for treasury shares

Other reserves

Cumulative currency translation differences

Treasury shares

Retained earnings

Interim dividend

Net profit for the year

Total

Minority interest

Total shareholders’ equity

Balance at December 31, 2005 (Note 27)		4,005			959			5,345			5,351			941			(4,216	)		17,381			(1,686	)		8,788			36,868			2,349			39,217
Net profit for the year (Note 27)																										9,217			9,217			606			9,823
Gains (losses) recognized directly in equity
Change in the fair value of available-for-sale securities (Note 27)											(13	)																	(13	)					(13	)
Change in the fair value of cash flow hedge derivatives (Note 27)											(15	)																	(15	)					(15	)
Foreign currency translation differences														(1,266	)														(1,266	)		(29	)		(1,295	)
											(28	)		(1,266	)														(1,294	)		(29	)		(1,323	)
Total recognized income and (expense) for the year											(28	)		(1,266	)											9,217			7,923			577			8,500
Transactions with shareholders
Dividend distribution of Eni SpA (euro 0.65 per share in settlement of 2005) interim dividend of euro 0.45 per share) (Note 27)																							1,686			(4,086	)		(2,400	)					(2,400	)
Dividend distribution of Eni SpA (euro 0.60 per share) (Note 27)																							(2,210	)					(2,210	)					(2,210	)
Dividend distribution of other companies																																(222	)		(222	)
Payments by minority shareholders																																22			22
Allocation of 2005 net profit																				4,702						(4,702	)
Authorization to shares repurchase (Note 27)								2,000												(2,000	)
Shares repurchased (Note 27)																	(1,241	)											(1,241	)					(1,241	)
Treasury shares sold under incentive plans for Eni managers (Note 27)								(85	)		54						85			21									75						75
Difference between the carrying amount and strike price of stock options exercised by Eni managers																				7									7						7
								1,915			54						(1,156	)		2,730			(524	)		(8,788	)		(5,769	)		(200	)		(5,969	)
Other changes in shareholders’ equity
Sale to Saipem Projects SpA of Snamprogetti SpA (Note 27)											247																		247			(247	)
Net effect related to the purchase of treasury shares by Saipem SpA and Snam Rete Gas SpA																																(306	)		(306	)
Purchase and sale to third parties of consolidated companies																																(5	)		(5	)
Cost related to stock options																				14									14						14
Reclassification of reserves of Eni SpA								2			(5,224	)					(2	)		5,224
Foreign currency translation differences on the distribution of dividends and other changes														(73	)					(181	)								(254	)		2			(252	)
								2			(4,977	)		(73	)		(2	)		5,057									7			(556	)		(549	)
Balance at December 31, 2006 (Note 27)		4,005			959			7,262			400			(398	)		(5,374	)		25,168			(2,210	)		9,217			39,029			2,170			41,199

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continued Statements of changes in shareholders’ equity

	Eni shareholders’ equity

(million euro)

Share capital

Legal reserve of Eni SpA

Reserve for treasury shares

Other reserves

Cumulative currency translation differences

Treasury shares

Retained earnings

Interim dividend

Net profit for the year

Total

Minority interest

Total shareholders’ equity

Balance at December 31, 2006 (Note 27)		4,005			959			7,262			400			(398	)		(5,374	)		25,168			(2,210	)		9,217			39,029			2,170			41,199
Net profit for the year (Note 27)																										10,011			10,011			798			10,809
Gains (losses) recognized directly in equity
Change in the fair value of available-for-sale securities (Note 27)											(4	)																	(4	)					(4	)
Change in the fair value of cash flow hedge derivatives (Note 27)											(1,370	)																	(1,370	)					(1,370	)
Foreign currency translation differences											25			(1,954	)														(1,929	)		(51	)		(1,980	)
											(1,349	)		(1,954	)														(3,303	)		(51	)		(3,354	)
Total recognized income and (expense) for the year											(1,349	)		(1,954	)											10,011			6,708			747			7,455
Transactions with shareholders
Dividend distribution of Eni SpA (euro 0.65 per share in settlement of 2006) interim dividend of euro 0.60 per share (Note 27)																							2,210			(4,594	)		(2,384	)					(2,384	)
Dividend distribution of Eni SpA (euro 0.60 per share) (Note 27)																							(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 (Note 27)																	(680	)											(680	)					(680	)
Treasury shares sold under incentive plans for Eni managers (Note 27)								(55	)		35						55			11									46						46
Difference between the carrying amount and strike price of stock options exercised by Eni managers																				9									9						9
								(55	)		35						(625	)		4,643			11			(9,217	)		(5,208	)		(288	)		(5,496	)
Other changes in shareholders’ equity
Net effect related to the purchase of treasury shares by Saipem SpA and Snam Rete Gas SpA																													(201	)		(201	)
Cost related to stock options																				18									18						18
Foreign currency translation differences on the distribution of dividends and other changes														119						(238	)								(119	)		11			(108	)
														119						(220	)								(101	)		(190	)		(291	)
Balance at December 31, 2007 (Note 27)		4,005			959			7,207			(914	)		(2,233	)		(5,999	)		29,591			(2,199	)		10,011			40,428			2,439			42,867

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Statement of cash flows

(million euro)		Note		2005		2006		2007

Net profit of the year				9,247			9,823			10,809
Depreciation and amortization		(30)		5,509			6,153			7,029
Revaluations, net				(288	)		(386	)		(494	)
Net change in provisions for contingencies				1,279			(86	)		(122	)
Net change in the provisions for employee benefits				18			72			(67	)
Gain on disposal of assets, net				(220	)		(59	)		(309	)
Dividend income		(32)		(33	)		(98	)		(170	)
Interest income				(214	)		(387	)		(603	)
Interest expense				654			346			523
Exchange differences				(64	)		6			(119	)
Income taxes		(33)		8,128			10,568			9,219
Cash generated from operating profit before changes in working capital				24,016			25,952			25,696
(Increase) decrease:
- inventories				(1,402	)		(953	)		(1,117	)
- trade and other receivables				(4,413	)		(1,952	)		(728	)
- other assets				351			(315	)		(362	)
- trade and other payables				3,030			2,146			433
- other liabilities				12			50			107
Cash from operations				21,594			24,928			24,029
Dividends received				366			848			658
Interest received				214			395			333
Interest paid				(619	)		(294	)		(555	)
Income taxes paid				(6,619	)		(8,876	)		(8,948	)
Net cash provided from operating activities				14,936			17,001			15,517
- of which with related parties		(36)		1,230			2,206			549
Investing activities:
- tangible assets		(8)		(6,558	)		(6,138	)		(8,532	)
- intangible assets		(11)		(856	)		(1,695	)		(2,061	)
- consolidated subsidiaries and businesses				(73	)		(46	)		(4,759	)
- investments		(12)		(54	)		(42	)		(4,890	)
- securities				(464	)		(49	)		(76	)
- financing receivables				(683	)		(516	)		(1,646	)
- change in payables and receivables in relation to investments and capitalized depreciation				149			(26	)		185
Cash flow from investments				(8,539	)		(8,512	)		(21,779	)
Disposals:
- tangible assets				99			237			172
- intangible assets				13			12			28
- consolidated subsidiaries and businesses				252			8			56
- investments				178			36			403
- securities				369			382			491
- financing receivables				804			794			545
- change in payables and receivables in relation to disposals				9			(8	)		(13	)
Cash flow from disposals				1,724			1,461			1,682
Net cash used in investing activities (*)				(6,815	)		(7,051	)		(20,097	)
- of which with related parties		(36)		(160	)		(686	)		(822	)

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continued Statement of cash flows

(million euro)		Note		2005		2006		2007

Proceeds from long-term debt				2,755			2,888			6,589
Repayments of long-term debt				(2,978	)		(2,621	)		(2,295	)
Increase (decrease) in short-term debt				(317	)		(949	)		4,467
				(540	)		(682	)		8,761
Net capital contributions by minority shareholders				24			22			1
Net acquisition of treasury shares different from Eni SpA				(30	)		(477	)		(340	)
Acquisition of additional interests in consolidated subsidiaries				(3	)		(7	)		(16	)
Sale of additional interests in consolidated subsidiaries							35
Dividends paid to:
- Eni’s shareholders				(5,070	)		(4,610	)		(4,583	)
- Minority interest				(1,218	)		(222	)		(289	)
Net purchase of treasury shares				(987	)		(1,156	)		(625	)
Net cash used in financing activities				(7,824	)		(7,097	)		2,909
- of which with related parties		(36)		23			(57	)		20
Changes in cash and cash equivalents not related to inflows/outflows from operating, investing or financing activities
Effect of change in consolidation (inclusion/exclusion of significant/insignificant subsidiaries)				(38	)		(4	)		(40	)
Effect of exchange rate changes on cash and cash equivalents				71			(197	)		(160	)
Net cash flow for the period				330			2,652			(1,871	)
Cash and cash equivalents - beginning of year		(1)		1,003			1,333			3,985
Cash and cash equivalents - end of year		(1)		1,333			3,985			2,114

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SUPPLEMENTAL CASH FLOW INFORMATION

(million euro)				2005		2006		2007

Effect of investment of companies included in consolidation and businesses
Current assets					68			398
Non-current assets		122			130			5,590
Net borrowings		(19	)		53			1
Current and non-current liabilities		(22	)		(92	)		(972	)
Net effect of investments		81			159			5,017
Sale of unconsolidated entities controlled by Eni					(60	)
Fair value of investments held before the acquisition of control		(8	)					(13	)
Purchase price		73			99			5,004
less:
Cash and cash equivalents					(53	)		(245	)
Cash flow on investments		73			46			4,759
Effect of disposal of consolidated subsidiaries and businesses
Current assets		204			9			73
Non-current assets		189			1			20
Net borrowings		42			(1	)		26
Current and non-current liabilities		(217	)		(4	)		(94	)
Net effect of disposals		218			5			25
Gain on disposal		140			3			33
Minority interest		(43	)
Selling price		315			8			58
less:
Cash and cash equivalents		(63	)					(2	)
Cash flow on disposals		252			8			56

 

Transactions that did not produce cash flows
Acquisition of equity investments in exchange of businesses contribution:

(million euro)				2005		2006		2007

Effect of the businesses contribution
Current assets		2			23
Non-current assets		17			213			38
Net borrowings					(44	)		(4	)
Long-term and short-term liabilities		(1	)		(53	)
Net effect of contribution		18			139			34
Minority interest					(36	)
Gain on contribution					18
Acquisition of investments		18			121			34

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Basis of presentation

The Consolidated Financial Statements of Eni 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. 38/2005. 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, Eni’s financial statements are fully in compliance with IFRS as issued by IASB.
Oil and natural gas exploration and production activity is accounted for in conformity with internationally accepted accounting principles. Specifically, this concerns the determination of the amortization expenses using the unit-of-production method and the recognition of the production-sharing agreements and buy-back contracts. The Consolidated Financial Statements have been prepared on a historical cost except for certain items that under IFRS must be recognized at fair value as described in the evaluation criteria.
The Consolidated Financial Statements include the statutory accounts of Eni SpA and 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 subsidiaries¹ 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 usually 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 immaterial.
Immaterial subsidiaries excluded from consolidation, jointly controlled entities, associates and other interests are accounted for as described below under the item “Financial fixed assets”.
2007 Consolidated Financial Statements approved by Eni’s Board of Directors on March 14, 2008 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 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 acquire entity over the total fair value assigned to assets acquired and liabilities assumed is recognized as Goodwill; negative goodwill is recognised in profit and loss account.
The purchase of additional ownership interests in subsidiaries from minority shareholders is recognised 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.
Equity and net profit of minority shareholders are included in specific lines of the financial statements; this share of equity is determined using the value of assets and liabilities, excluding any related goodwill, at the time when control is acquired.

 

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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 to 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 group’s 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 US 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 as a component of equity within “Other reserves”.
In the latter case, changes in fair value recognized under shareholders’ 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, inter alia, significant breaches of contracts, serious financial difficulties or the high probability of insolvency of the counterparty.
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 investments associated to 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”, in order to ensure a match with the recognition in the profit and loss account of the changes in fair value of the derivative instrument.
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. Interest 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 on settlement date.
Receivables are stated 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.
The cost for inventories of hydrocarbons (crude oil, condensates and natural gas) and petroleum products is determined by applying the weighted-average cost method on a three-month basis; the cost for inventories of the Petrochemical segment is determined by applying the weighted-average cost on an annual basis.
Contract work in progress is measured using the costs-to-cost method by which 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

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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.
Hedging instruments are described in the section “Derivative Instruments”.

Non-current assets

Property, plant and equipment²
Tangible assets, including investment properties, are recognized using the cost model and stated at their purchase or self-construction cost including any costs directly attributable to bringing the asset into operation. In addition, when a substantial period of time is required to make the asset ready for use, the purchase price or self-construction cost includes the borrowing costs incurred that could have otherwise been saved had the investment not been made.

In the case of a present obligation for the dismantling and removal of assets and the restoration of sites, the carrying value includes, with a corresponding entry to a specific provision, the estimated (discounted) costs to 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”.

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 indeterminate 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.
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 that extend the useful lives of the related asset 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 but are valued at the lower of book value and fair value less costs of disposal.
Assets that can be used free of charge are depreciated over the shorter term of the duration of the concession and the useful life of the asset.
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 their carrying value with the recoverable amount represented by the higher of fair value less costs to sell and value in use.

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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 them which derive from the previous ones) used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace for the first four years and management’s long-term planning assumptions thereafter.
Discounting is carried out at a rate that takes into account the implicit risk in the sectors where the entity operates. Valuation is carried out for each single asset or, if the realizable value of a single asset cannot be determined, for the smallest identifiable group of assets that generates independent cash inflows from their continuous use, the so called "cash 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 recoverability of their carrying amount is verified in accordance with the criteria described in the section “Property, plant and equipment”.
Goodwill and other intangible assets with an indefinite useful life are not amortized. The recoverability of their carrying value is reviewed at least annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the level of the smallest aggregate on which the company, directly or indirectly, evaluates the return on the capital expenditure to which goodwill relates. When the carrying amount of the cash generating unit, including goodwill allocated thereto, exceeds the cash generating unit’s recoverable amount, the excess is recognized as impairment. The impairment loss is first allocated to reduce the carrying amount of goodwill; any remaining excess to be allocated to the assets of the unit is applied pro-rata on the basis of the carrying amount of each asset in the unit. Impairment charges against goodwill are not reversed³. 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.

Exploration and production activities⁴

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

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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 Company’s technologies and financing (cost oil) and the Company’s share of production volumes not destined to cost recovery (profit oil).Revenues from the sale of the production entitlements against both cost oil and profit oil are accounted for on an accruals basis whilst exploration, development and production costs are accounted for according to the policies mentioned above.

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.

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Financial fixed assets

INVESTMENTS
Investments in subsidiaries excluded from consolidation, jointly controlled entities and associates may be accounted for using the equity method⁵. 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 company’s financial condition. When the reasons for their impairment cease to exist, investments accounted for at cost are re-valued within the limit of the impairment made and their effects are included in “Other income (expense) from investments”.
Other investments, included in non current assets, are recognized at their fair value and their effects are included in shareholders’ equity under “Other reserves”; this reserve is charged to the profit and loss account when it is impaired or realized. When fair value cannot be reasonably determined, investments are accounted for at cost, adjusted for impairment losses; impairment losses may not be reversed⁶.
The risk deriving from losses exceeding shareholders’ equity is recognized in a specific provision to the extent the parent company is required to fulfil 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. Amortization is carried out on the basis of the effective internal rate of return represented by the rate that equalizes, at the moment of the initial revaluation, the current value of expected cash flows to the initial carrying value (so-called amortized cost method). Any impairment is recognized by comparing the carrying value with the present value of the expected cash flows discounted at the effective interest rate defined at the initial recognition. Changes to the carrying amount of receivables or financial assets in accordance with the amortized cost method are recognized as “Financial income (expense)”.

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.
If the effect of the time value is material, and the payment date of the obligations can be reasonably estimated, provisions to be accrued are the present value of the expenditures expected to be required to settle the obligation at a discount rate that reflects the company’s average borrowing rate taking into account of 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 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

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financial statements the following potential liabilities are described: (i) possible, but not probable obligations deriving from past events, whose existence will be confirmed only when one or more future events beyond the company’s control occur; and (ii) current obligations deriving from past events whose amount cannot be reasonably estimated or whose fulfillment will probably not result in an outflow of resources embodying economic benefits.

Employee benefits
Post-employment benefit plans, including constructive obligations, are classified as either defined contribution plans or defined benefit plans depending on the economic substance of the plan as derived from its principal terms and conditions. In the first case, the company’s obligation, which consists of making payments to the State or a trust or a fund, is determined on the basis of contributions due. The liabilities related to defined benefit plans⁷, net of any plan assets, are determined on the basis of actuarial assumptions⁸ and charged on accrual basis during the employment period required to obtain the benefits. The actuarial gains and losses of defined benefit plans are recognized prorated 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:

• Crude oil, generally upon shipment.
• Natural gas, upon delivery to the customer.
• Petroleum products sold to retail distribution networks, generally upon delivery to the service stations, whereas all other sales are generally recognized upon shipment.
• Chemical products and other products, generally upon shipment.

Revenues are recognized upon shipment when, at that date, significant risks are transferred to the buyer. Revenues from crude oil and natural gas production from properties in which Eni has an interest together with other producers are recognized on the basis of Eni’s net working interest in those properties (entitlement method). Differences between Eni’s net working interest volume and actual production volumes are recognized at current prices at period end.
Income related to partially rendered services is recognized in the measure of accrued income if the stage of completion can be reliably determined and there is no significant uncertainty as to the collectibility 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 recognised that are recoverable.
Revenues accrued in the period related to construction contracts are recognized on the basis of contractual revenues with reference to the stage of completion of a contract measured on the cost-to-cost basis. Requests of additional revenues, deriving from a change in the scope of the work, are included in the total amount of revenues when it is probable that the customer will approve the variation and the related amount; claims deriving for instance from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that the counterpart will accept them.

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Revenues are stated net of returns, discounts, rebates, bonuses and direct taxation. The exchange of goods and services of similar nature and value do not give rise to revenues and costs as they do not represent sale transactions.
Costs are recorded when the related goods and services are sold, consumed or allocated, or when their future benefits cannot be determined. Costs associated with emission quotas, determined on the basis of the average prices of the main European markets at period end, are reported in relation to the amount of the carbon dioxide emissions that exceed the amount assigned; related revenues are recognized upon sale.
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, consistently with their actual remunerative nature. The instruments granted are recorded at fair value on vesting date and are not subject to subsequent adjustments; the current portion is calculated pro rata over the vesting period⁹. The fair value of stock grants is represented by the current value of the shares on vesting date, reduced by the current value of the expected dividends in the vesting period.
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 functional currency are translated in 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 remeasured to at fair value, recoverable amount or realizable value, are translated at the exchange rate applicable to the date of remeasurement.

Dividends
Dividends are recognized at the date of the general shareholders’ meeting in which they were declared, except when the sale of shares before the ex-dividend date is certain.

Income taxes
Current income taxes are determined on the basis of estimated taxable income. The estimated liability is included in “Income taxes payable”. Current 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 the 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 the shareholders’ equity, current taxes, deferred tax assets and liabilities are also charged to the shareholders’ equity.

Derivatives
Derivatives, including embedded derivatives which are separated from the host contract, are assets and liabilities recognized at their fair value which is estimated by using the criteria described in the section "Current assets".

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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 consistently 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 as hedging instruments are shown in the profit and loss account.
Economic effects of transactions, which relate to purchase or sales contracts for commodities signed to meet the entity’s normal operating requirements and for which the settlement is provided with the delivery of the goods, are recognized on an accrual basis, the so called normal sale and normal purchase exemption or own use exemption.

Financial statements
Assets and liabilities of the balance sheet are classified as current¹⁰ and non-current. Items of the profit and loss account are presented by nature¹¹.
The statement of changes in shareholders’ equity includes profit and loss for the year transactions with shareholders and other changes of the shareholders’ equity.
The statement of cash flows is presented using the indirect method, whereby net profit is adjusted for the effects of noncash transactions.


Use of accounting estimates

The company’s Consolidated Financial Statements are prepared in accordance with IFRS. These require the use of estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. Estimates made are based on complex or subjective judgments, past experience other assumptions deemed reasonable in consideration of the information available at the time. The accounting policies and areas that require the most significant judgements and estimates to be used in the preparation of 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 judgements, actual results could differ from the estimates and assumptions used. A summary of significant estimates follows.

Oil and gas activities
Engineering estimates of the Company’s oil and gas reserves are inherently uncertain. Proved reserves are the estimated volumes of crude oil, natural gas and gas condensates, liquids and associated substances which geological and engineering data demonstrate can be produced with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Although there are authoritative guidelines regarding the engineering criteria that 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

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oil and natural gas may be subject to future revision and upward and downward revision may be made to the initial booking of reserves due to production, reservoir performance, commercial factors, acquisition and divestment activity and additional reservoir development activity. In particular, changes in oil and natural gas prices could impact the amount of Eni’s proved reserves as regards the initial estimate and, in the case of Production-sharing agreements and buy-back contracts, the share of production and reserves to which Eni is entitled. Accordingly, the estimated reserves could be materially different from the quantities of oil and natural gas that ultimately will be recovered.
Oil and natural gas reserves have a direct impact on certain amounts reported in the 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 volumes of estimated reserves, the lower is the likelihood of asset impairment.

Impairment of assets
Eni assesses its tangible assets and intangible assets, including goodwill, for possible impairment if there are events or changes in circumstances that indicate the carrying values of the assets are not recoverable. Such indicators include changes in the Group’s business plans, changes in commodity prices leading to unprofitable performance and, for oil and gas properties, significant downward revisions of estimated proved reserve quantities. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, production profiles and the outlook for global or regional market supply and demand conditions for crude oil, natural gas, commodity chemicals and refined products.
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 on: 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 (and to them which derive from the previous ones) used to quantify the expected future cash flows are estimated based on forward prices prevailing in the marketplace for the first four years and management’s long-term planning assumptions thereafter. Previously, our expected future cash flow estimates were entirely based upon management’s planning assumptions.
Goodwill and other intangible assets with 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 at our present 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.

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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 well as 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 obligations 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 (interest accretion) and any change of the estimates following the modification of future cash flows and discount rate adopted.
The recognized asset retirement obligations are based on future retirement cost estimates and incorporate many assumptions such as: expected recoverable quantities of crude oil and natural gas, abandonment time, future inflation rates and the risk-free rate of interest adjusted for the Company’s credit costs.

Business combinations
Accounting for business combinations requires the allocation of the company’s 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, including legislation that implements international conventions or protocols. Environmental costs are recognized when it becomes probable that a liability has been incurred and the amount can be reasonably estimated.
Although management, considering the actions already taken, insurance policies to cover environmental risks and provision for risks accrued, does not expect any material adverse effect on Eni’s consolidated results of operations and financial position as a result of such laws and regulations, there can be no assurance that there will not be a material adverse impact on Eni’s consolidated results of operations and financial position due to: (i) the possibility of a yet 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 effect of future environmental legislation and rules; (iv) the effect of possible technological changes relating to future remediation; and (v) the possibility of litigation and the difficulty of determining Eni’s liability, if any, as against other potentially responsible parties with respect to such litigation and the possible insurance recoveries.

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 trend rates, estimated retirement dates, mortality rates. The significant assumptions used to account for pensions and other post-retirement benefits are determined as follows:

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Eni applies the corridor method to amortize its actuarial losses and gains. This method amortizes on a pro-rata basis the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period, that exceed 10% of the greater of: (i) the present value of the defined benefit obligation; and (ii) the fair value of plan assets, over the average expected remaining working lives of the employees participating in the plan.
Additionally, obligations for other long-term benefits are determined by adopting actuarial assumptions; the effect of changes in actuarial assumptions or a change in the characteristics of the benefit are taken to profit or loss in their entirety.

Contingencies
In addition to accruing the estimated costs for environmental liabilities, asset retirement obligation and employees 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 deducing costs attributable to the contract from revenues provided for in the contract. The estimate of future gross profit is based on a complex estimation process that includes identification of risks related to the geographical region, market condition in that region and any assessment that it is necessary to estimate with sufficient precision the total future costs as well as the expected timetable. Requests of additional incomes, deriving from a change in the scope of the work, are included in the total amount of revenues when it is probable that the customer will approve the variation and the related amount; claims deriving for instance from additional costs incurred for reasons attributable to the client are included in the total amount of revenues when it is probable that the counterparty will accept them.

Recent accounting principles

Accounting standards and interpretations issued by IASB /IFRIC and endorsed by UE
By Commission Regulation No. 1358/2007 of November 21, 2007, IFRS 8 “Operating Segments” replaced IAS 14 “Segment Reporting”. IFRS 8 sets out requirements for disclosure of information about the group segments that management uses to make decisions about operating matters. The identification of operating segments is based on internal reports that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and assess their performances. IFRS 8 shall be applied for annual periods beginning on or after January 1, 2009.

By Commission Regulation No. 611/2007 of June 1, 2007, IFRIC interpretation 11 “IFRS 2 - Group and Treasury Share Transactions” was issued. This interpretation gives guidance, inter alia, on how the share-based payment arrangements involving parent company equity instruments should be accounted for in the separate financial statements of each group subsidiary. IFRIC 11 shall be applied for annual periods beginning on or after March 1, 2007 (for Eni: 2008 financial statements).

Accounting standards and interpretations issued by IASB/IFRIC and not yet been endorsed by UE
On March 29, 2007, IASB issued a revised IAS 23 “Borrowing Costs”. The main change from the previous version is the removal of the option of immediately recognizing as an expense borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset that take a substantial period of time to get ready for use or sale. The Company is required to capitalize such borrowing costs as part of the cost of the asset. The revised Standard shall be applied for annual periods beginning on or after January 1, 2009.

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On September 6, 2007, IASB issued a revised IAS 1 “Presentation of Financial Statements”. The revisions require, among other things, a statement of comprehensive income that begins with the amount of net profit for the year adjusted with all items of income and expense directly recognized in the equity, but excluded from net income, in accordance with IFRS. The revised standard will come into effect for the annual periods beginning on or after January 1, 2009.

On January 10, 2008, IASB issued a revised IFRS 3 “Business Combinations” and an amended version of IAS 27 “Consolidated and Separate Financial Statements”. The revisions to IFRS 3 require, among other things, the acquisition-related costs to be accounted for separately from the business combination and then recognized as expenses rather than included in goodwill. The revised IFRS 3 also allows the choice of the full goodwill method which means to treat the full value of the goodwill of the business combination including the share attributable to minority interest. In the case of step acquisitions, the revisions also relate to 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, among other things, that acquisitions or disposals of non-controlling interests in a subsidiary that do not result in the loss of control, shall be accounted for as equity transactions.
By contrast, disposal of any interests that parent retains in a former subsidiary may result in a loss of control. In this case, at the date when control is lost the remaining investment retained is increased/decreased to 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).

On January 17, 2008, IASB issued a revised IFRS 2 “Share-based payment”. The amendment specifies the accounting treatment of all cancellations of a grant of equity instruments to the employees. It also imposes that vesting conditions are only service and performance conditions required in return for the equity instruments issued.
The amendment shall be applied for annual periods beginning on or after January 1, 2009.

On November 30, 2006, IFRIC issued IFRIC 12 “Service Concession Arrangements” which 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. This interpretation shall be applied for annual periods beginning on or after January 1, 2008.

On June 28, 2007, IFRIC issued IFRIC 13 “Customer Loyalty Programmes” which addresses how companies, which grant their customers loyalty, award credits when buying goods or services, should account for their obligation to provide free or discounted goods or services if and when the customers redeem the credits. In particular IFRIC 13 requires companies to allocate some of the consideration received from the sales transaction to the award credits and their recognition at fair value. This interpretation shall be applied for annual periods beginning on or after July 1, 2008 (for Eni: 2009 financial statements).

On July 5, 2007, IFRIC issued IFRIC 14 “The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” which provides guidance on how companies should determine the limit on the amount of a surplus in an employee benefit plan that they can recognise as an asset. The interpretation also gives guidance on the amounts that companies can recover from the plan, either as refunds or reductions in contribution. The interpretation shall be applied for annual periods beginning on or after January 1, 2008.

Eni is currently reviewing these new IFRS and interpretations to determine the likely impact on the Group’s results.

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Notes to the Consolidated Financial Statements

Current activities

1 Cash and cash equivalents
Cash and cash equivalents of euro 2,114 million (euro 3,985 million at December 31, 2006) included financing receivables originally due within 90 days for euro 415 million (euro 240 million at December 31, 2006). The latter were related to amounts on deposit with financial institutions accessible only on 48-hour notice. The decrease of euro 1,871 million primarily related to Eni Coordination Center SA (euro 2,686 million) and was partially offset by the increase of Banque Eni SA (euro 526 million).

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:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Investments					2,476
Securities held for operating purposes:
- listed Italian treasury bonds		329			229
- listed securities issued by Italian and foreign financial institutions		80			27
- non-quoted securities		11			3
		420			259
Securities held for non-operating purposes:
- listed Italian treasury bonds		508			168
- listed securities issued by Italian and foreign financial institutions		40			5
- non-quoted securities		4			1
		552			174
Total securities		972			433
		972			2,909

Equity instruments of euro 2,476 million included the carrying amount of a 20% interest in OAO Gazprom Neft which is listed on the London Stock Exchange and has been acquired on April 4, 2007 through a bid on the liquidation of the second lot of ex-Yukos assets. The classification of this transaction in this line reflects the call option granted by Eni to Gazprom on the entire interest. This option is exercisable within 24 months starting on the date of acquisition. If exercised, the price of the interest will be set at the acquisition price of euro 3.7 billion, less dividends, plus share capital increases, contractually agreed financial remuneration and additional financing costs. In application of the IAS 39 fair value option, the OAO Gazprom interest was carried at fair value and changes were reflected in the profit and loss account rather than in the relevant provisions in a way to maintain alignment with the inclusion in profit and loss of the derivative call option. Consequently, the carrying amount of this equity instrument was equal to its fair value as quoted on the market, less the fair value of the call option; this was the equivalent of the option strike price at December 31, 2007.
Available-for-sale securities decreased by euro 539 million to euro 433 million (euro 972 million at December 31, 2006) because securities owned by Eni SpA (euro 235 million) and the group insurance company Padana Assicurazioni SpA (euro 213 million) reached maturity. In addition a euro 125 million amount of securities owned by Padana Assicurazioni SpA was classified within assets held for sale. At December 31, 2006 and December 31, 2007, Eni did not own financial assets held for trading.

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The effects of the valuation at fair value of securities are set out below:

(million euro)		Value at Dec. 31, 2006		Realization to the profit and loss account		Value at Dec. 31, 2007

Fair value		8		(6	)		2
Deferred tax liabilities		2		(2	)
Other reserves of shareholders’ equity		6		(4	)		2

On disposal of securities owned primarily by Eni SpA, the cumulative changes in fair value of euro 6 million deriving from the recognition of such assets at fair value and the related deferred tax liabilities of euro 2 million, have been recognized in the profit and loss account as finance income and income taxes, respectively (see Note 27 - Shareholders’ equity).
Securities held for operating purposes of euro 259 million (euro 420 million at December 31, 2006) were designed to provide coverage of technical reserves of Eni’s insurance companies for euro 256 million (euro 417 million at December 31, 2006). The fair value of securities was determined by reference to quoted market prices.

3 Trade and other receivables
Trade and other receivables were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Trade receivables		15,230			15,609
Financing receivables:
- for operating purposes - short-term		242			357
- for operating purposes - current portion of long-term receivables		4			27
- for non-operating purposes		143			990
		389			1,374
Other receivables:
- from disposals		100			125
- other		3,080			3,668
		3,180			3,793
		18,799			20,776

Receivables are stated net of the allowance for impairment losses of euro 935 million (euro 874 million at December 31, 2006):

(million euro)		Value at Dec. 31, 2006		Additions		Deductions		Other changes		Value at Dec. 31, 2007

Trade receivables		587		98		(38	)		(52	)		595
Other receivables		287		109		(7	)		(49	)		340
		874		207		(45	)		(101	)		935

Included in 2007 trade receivables was the contractually agreed compensation of trade payables and receivables between Eni North Africa BV and the National Oil Co (the Libyan state company) for euro 1,798 million.
Advances of euro 156 million (euro 70 million at December 31, 2006) were paid as a guarantee of contract work in progress.
Trade receivables included euro 1,844 million of receivables not impaired that became due but were not provided for. Of these euro 999 million were 1-90 days overdue, euro 145 million were 3-6 months overdue, euro 329 million were 6-12 months overdue and euro 371 million were overdue for more than 12 months. These receivables were primarily due from high-credit-quality public administrations and other highly-reliable counterparties for oil, natural gas and chemicals products supplies.

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Receivables for financing operating activities of euro 384 million (euro 246 million at December 31, 2006) included euro 246 million due from unconsolidated entities under Eni’s control, joint ventures and affiliates (euro 241 million at December 31, 2006) and a euro 112 million cash deposit to provide coverage of Eni Insurance Ltd technical reserves.
Receivables for financing non-operating activities amounted to euro 990 million (euro 143 million at December 31, 2006) of which euro 898 million related to a collateral cash deposit made by Eni SpA to guarantee certain cash flow hedging derivatives. Further information is provided at the Note 20 - Other current liabilities and 25 - Other non-current liabilities.
Other receivables were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Accounts receivable from:
- joint venture operators in exploration and production		1,376			1,699
- Italian government entities		266			386
- insurance companies		223			253
		1,865			2,338
Receivables relating to factoring operations		440			294
Prepayments for services		191			182
Other receivables		684			979
		3,180			3,793

Receivables deriving from factoring operations of euro 182 million (euro 191 million at December 31, 2006) were related to Serfactoring SpA and consisted primarily of advances for factoring operations with recourse and receivables for factoring operations without recourse.
Other receivables included euro 537 million of receivables not impaired that became due but were not provided for. Of these euro 160 million were 1-90 days overdue, euro 19 million were 3-6 months overdue, euro 97 million were 6-12 months overdue and euro 261million were overdue for more than 12 months. These receivables were mainly due from public administrations.
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, 2006		Dec. 31, 2007

(million euro)

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		436		258				682		1,376		770		299				809		1,878
Products being processed and semi finished products		43		20				8		71		66		27				15		108
Work in progress						353				353						553				553
Finished products and goods		2,063		536				62		2,661		1,997		703				17		2,717
Advances		1				287		3		291						179				179
		2,543		814		640		755		4,752		2,833		1,029		732		841		5,435

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Inventories are stated net of the valuation allowance of euro 75 million (euro 92 million at December 31, 2006):

(million euro)		Value at Dec. 31, 2006		Additions		Deductions		Other changes		Value at Dec. 31, 2007

92

9

(23

)

(3

)

75

5 Current tax assets
Current tax assets were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Italian subsidiaries		44			634
Foreign subsidiaries		72			69
		116			703

The euro 590 million increase in the current income tax assets of Italian subsidiaries primarily related to receivables for interim tax payments exceeding full-year taxation payable (euro 557 million) made by Eni SpA.


6 Other current tax assets
Other current tax assets were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

VAT		303			376
Excise and customs duties		86			316
Other taxes and duties		153			141
		542			833

The euro 230 million increase in excise and custom duties primarily related to receivables for interim tax payments exceeding full-year taxation payable (euro 235 million) made by Eni SpA.


7 Other assets
Other assets were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Fair value of non-hedging derivatives		569			629
Fair value of cash flow hedge derivatives		37			10
Fair value of fair value hedge derivatives		1
Other assets		248			441
		855			1,080

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The fair value of derivative contracts which do not meet the criteria to be classified as hedges under IFRS was as follows:

		Dec. 31, 2006		Dec. 31, 2007

(million euro)

Fair value

Purchase commitments

Sale commitments

Fair value

Purchase commitments

Sale commitments

Non-hedging derivatives on exchange rate
Interest Currency Swap		137		1,075		325		170		821		291
Currency swap		46		4,068		1,434		69		1,596		2,881
Other				38		4		3		18		11
		183		5,181		1,763		242		2,435		3,183
Non-hedging derivatives on interest rate
Interest rate swap		66		127		3,266		91		248		3,466
		66		127		3,266		91		248		3,466
Non-hedging derivatives on commodities
Over the counter		35		85		177		12		75		22
Other		285		1		850		284		2		1,218
		320		86		1,027		296		77		1,240
		569		5,394		6,056		629		2,760		7,889

The fair value of these derivative contracts was determined using an appropriate valuation method based on market data at closing date.
At December 31, 2007 cash flow hedging derivatives with a fair value of euro 10 million were entered into to manage foreign currency exposures of the Engineering & Construction segment. The nominal value of euro 48 million and euro 132 million referred to purchase and sale commitments respectively. At December 31, 2006 cash flow hedging derivatives with a fair value of euro 37 million were related to the future marketing of certain crude volumes produced by the Exploration & Production segment. The nominal value of euro 421 million was related to sale commitments (further information is given in Note 20 - Other current liabilities and Note 25 - Other non-current liabilities). Changes in fair value of the effective hedging instruments were recognized in equity for euro 27 million.
Information on the hedged risks and the hedging policies is given in Note 28 - Guarantees, commitments and risks - Risk management.
Other assets amounted to euro 441 million (euro 248 million at December 31, 2006) and included prepayments and accrued income for euro 297 million (euro 65 million at December 31, 2006), rentals for euro 21 million (euro 20 million at December 31, 2006), and insurance premiums for euro 10 million (same amount at December 31, 2006).

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Non-current assets

8 Property, plant and equipment
Analysis of tangible assets is set out below:

(million euro)

Net value at the beginning of the year

Investments

Depreciations

Impairments

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, 2006
Land		373			16						(3	)					57			443			483			40
Buildings		1,453			81			(113	)		(12	)		(5	)		38			1,442			3,236			1,794
Plant and machinery		36,568			1,858			(4,510	)		(197	)		(1,586	)		3,240			35,373			79,873			44,500
Industrial and commercial equipment		372			130			(120	)					(6	)		50			426			1,659			1,233
Other assets		318			82			(78	)		(1	)		(9	)		16			328			1,382			1,054
Tangible assets in progress and advances		5,929			3,971						(18	)		(364	)		(3,218	)		6,300			6,822			522
		45,013			6,138			(4,821	)		(231	)		(1,970	)		183			44,312			93,455			49,143
Dec. 31, 2007
Land		443			4												151			598			628			30
Buildings		1,442			76			(99	)		(3	)		(3	)		(37	)		1,376			3,203			1,827
Plant and machinery		35,373			1,882			(4,724	)		(41	)		(1,535	)		4,925			35,880			83,123			47,243
Industrial and commercial equipment		426			185			(125	)		(1	)		(8	)		73			550			1,884			1,334
Other assets		328			86			(83	)		(3	)		(11	)		24			341			1,361			1,020
Tangible assets in progress and advances		6,300			6,299						(97	)		(646	)		(464	)		11,392			12,044			652
		44,312			8,532			(5,031	)		(145	)		(2,203	)		4,672			50,137			102,243			52,106

Capital expenditures of euro 8,532 million (euro 6,138 million at December 31, 2006) primarily related to the Exploration & Production segment (euro 4,925 million), the Engineering & Construction segment (euro 1,401 million), the Gas & Power segment (euro 1,084 million) and the Refining & Marketing segment (euro 944 million). Capital expenditures included capitalized finance expenses of euro 180 million (euro 116 million at December 31, 2006) essentially related to the Exploration & Production segment (euro 105 million), the Gas & Power segment (euro 30 million) and the Refining & Marketing segment (euro 26 million). The interest rate used for the capitalization of finance expense ranged from 4.4% to 5.2% (3.3% and 5.4% at December 31, 2006).
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

Impairments of euro 145 million were primarily related to producing oil and gas properties of the Exploration & Production segment (euro 86 million) and a refining plant of the Refining & Marketing segment (euro 52 million). The recoverable amount used in assessing the impairments charges was determined by discounting the expected future cash flows before taxation, at discount rates ranging from 11.2% to 12.2% derived from the weighted average cost of capital and that take into account the sector-specific risk.
Foreign currency translation differences of euro 2,203 million were primarily related to translation of entities accounts denominated in US dollar (euro 2,125 million).
Other changes in the net book value of tangible assets (euro 4,672 million) were primarily due to the acquisition of oil and gas upstream properties in the Gulf of Mexico (euro 3,050 million) from the US Company Dominion Resources and in Congo (euro 1,464 million) from the French company Maurel & Prom. The change from prior year was also due to the consolidation of the Frigstad Discover Invest Ltd acquired by the Engineering & Construction segment (euro 232 million) and the initial recognition and changes in the estimated decommissioning and restoration costs of euro 158 million related to the Exploration & Production segment.

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These increases were partially offset by asset disposals of euro 172 million of which euro 141 million related to the Exploration & Production segment. The accumulated impairments amounted to euro 3,295 million and euro 3,328 million at December 31, 2006 and 2007, respectively.
At December 31, 2007, Eni pledged tangible assets of euro 54 million primarily as collateral against certain borrowings (same amount at December 31, 2006).
Government grants recorded as decrease of property, plant and equipment amounted to euro 1,195 million (euro 1,067 million at December 31, 2006).
Assets acquired under financial lease agreements amounted to euro 42 million of which euro 29 million related to FPSO ships used by the Exploration & Production segment to support oil production and treatment activities and euro 13 million related to service stations in the Refining & Marketing segment.

Property, plant and equipment by segment

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Property, plant and equipment, gross
Exploration & Production		49,002			54,284
Gas & Power		22,277			23,137
Refining & Marketing		11,273			12,421
Petrochemicals		4,380			4,918
Engineering & Construction		4,363			5,823
Other activities		1,967			1,543
Corporate and financial companies		321			344
Elimination of intra-group profits		(128	)		(227	)
		93,455			102,243
Accumulated depreciation, amortization and impairment losses
Exploration & Production		26,000			27,806
Gas & Power		8,210			8,660
Refining & Marketing		7,482			7,926
Petrochemicals		3,308			3,819
Engineering & Construction		2,138			2,310
Other activities		1,874			1,461
Corporate and financial companies		145			148
Elimination of intra-group profits		(14	)		(24	)
		49,143			52,106
Property, plant and equipment, net
Exploration & Production		23,002			26,478
Gas & Power		14,067			14,477
Refining & Marketing		3,791			4,495
Petrochemicals		1,072			1,099
Engineering & Construction		2,225			3,513
Other activities		93			82
Corporate and financial companies		176			196
Elimination of intra-group profits		(114	)		(203	)
		44,312			50,137

9 Other assets
Other assets of euro 563 million related to the service contract governing mineral activities in the Dación area owned by the Venezuelan branch of the Eni Dación BV subsidiary. Effective April 1, 2006, the Venezuelan State oil company Petróleos de Venezuela SA (PDVSA) unilaterally terminated the Operating Service Agreement (OSA) governing activities at the Dación oil field where Eni acted as a contractor. Since then operations at the Dación oil field are conducted by PDVSA. In February 2008 Eni has reached a settlement agreement with the Republic of Venezuela thus terminating the dispute for the Dación field. Under the terms of the settlement agreement, Eni will receive a cash compensation to be paid in seven annual instalments. This cash compensation is not subject to taxation and yields interest income from the date of the settlement. The net present value of the compensation corresponds to the carrying value of expropriated assets, net of provisions. Consequently, Eni dropped the international arbitration proceeding commenced in 2006 against PDVSA.

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10 Inventory - compulsory stock
Inventory - compulsory stock was as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Crude oil and petroleum products		1,670			2,079
Natural gas		157			156
		1,827			2,235

Compulsory stock was primarily held by Italian companies (euro 1,688 million and euro 2,072 million at December 31, 2006 and 2007, respectively) in accordance with minimum stock requirements set forth by applicable laws.


11 Intangible assets
Intangible assets were as follows:

(million euro)

Net value at the beginning of the year

Investments

Amortization

Other changes

Net value at the end of the year

Gross value at the end of the year

Provisions for amortization and writedowns

Dec. 31, 2006
Intangible assets with finite useful lives
Exploration expenditures		164			1,337			(1,102	)		10			409			1,290			881
Industrial patents and intellectual property rights		137			31			(97	)		41			112			1,113			1,001
Concessions, licenses, trademarks and similar items		746			168			(110	)		52			856			2,417			1,561
Intangible assets in progress and advances		76			146						(71	)		151			156			5
Other intangible assets		157			13			(26	)		(3	)		141			457			316
		1,280			1,695			(1,335	)		29			1,669			5,433			3,764
Intangible assets with indefinite useful lives
Goodwill		1,914									170			2,084
		3,194			1,695			(1,335	)		199			3,753
Dec. 31, 2007
Intangible assets with finite useful lives
Exploration expenditures		409			1,682			(1,812	)		470			749			1,509			760
Industrial patents and intellectual property rights		112			40			(81	)		77			148			1,179			1,031
Concessions, licenses, trademarks and similar items		856			12			(83	)		1			786			2,449			1,663
Intangible assets in progress and advances		151			312						(86	)		377			381			4
Other intangible assets		141			15			(24	)		26			158			572			414
		1,669			2,061			(2,000	)		488			2,218			6,090			3,872
Intangible assets with indefinite useful lives
Goodwill		2,084									31			2,115
		3,753			2,061			(2,000	)		519			4,333

Exploration expenditures of euro 749 million related to acquisition costs of unproved reserves included in business combinations and the purchase of mining rights. Main additions in the year included exploration drilling expenditures which were fully amortized as incurred for euro 1,610 million included within “investments” (euro 1,028 million at December 31, 2006).

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Concessions, licenses, trademarks and similar items for euro 786 million primarily comprised transmission rights for natural gas imported from Algeria (euro 544 million) and concessions for mineral exploration (euro 204 million).
Other intangible assets with finite useful lives of euro 158 million included royalties for the use of licenses by Polimeri Europa SpA (euro 76 million) and estimated costs for Eni’s social responsibility projects in relation to mineral development programs in Val d’Agri (euro 22 million) following commitments made with the Basilicata Region.
The depreciation rates used were as follows:

(%)
Exploration expenditures					10		-	33
Industrial patents and intellectual property rights					20		-	33
Concessions, licenses, trademarks and similar items					7		-	33
Other intangible assets					4		-	25

Other changes in intangible assets with finite useful lives amounted to euro 488 million primarily related to the acquisition of unproved reserves in the Gulf of Mexico from the US company Dominion Resources (euro 470 million) and in Congo from the French company Maurel & Prom (euro 58 million). This increase was partially offset by negative exchange differences of euro 71 million.
Goodwill of euro 2,115 million primarily related to the Gas & Power segment (euro 1,125 million, of which euro 756 million related to the purchase of minorities in Italgas SpA in 2003 through a public offering), the Engineering & Construction segment (euro 746 million, of which euro 711 million was in respect of the purchase of Bouygues Offshore SA, now Saipem SA),the Exploration & Production segment (euro 158 million, of which euro 153 million was in respect of the purchase of Lasmo Plc, now Eni Lasmo Plc) and the Refining & Marketing segment (euro 86 million).
For impairment purposes, goodwill related to the acquisition of Bouygues Offshore SA and Italgas SpA has been allocated to the following cash-generating units:

(million euro)		Dec. 31, 2007

Italgas SpA
Domestic gas market					706
Foreign gas market					50
					756
Bouygues Offshore SA
Onshore constructions					296
Offshore constructions					415
					711

Goodwill is assessed by comparing the carrying amount of each cash-generating unit (comprehensive of goodwill) with its fair value. In absence of data allowing to determine the fair value of a unit, the recoverable amount is the value-in-use. Value-in-use was determined by computing, for the first four years, the discounted cash flows expected assuming current market assessments, and management’s long-term planning assumptions thereafter.
The expected future cash flows before taxation have been discounted at rates ranging from 4.9% to 13.1% derived from the weighted average cost of capital for the Group and that take into account the sector-specific risk. Thereafter Eni has used growth rate assumptions ranging from 0% to 2%. Key assumptions are based on past experience and reflect current market assessment of the time value of money.
Other changes in goodwill of euro 31 million included the difference between the cost of acquisition of own shares by Snam Rete Gas SpA over the corresponding share of net equity (euro 139 million). Such increase was partially offset by the classification of the associated goodwill allocated on Gaztransport et Technigaz SA (euro 81 million) as asset held for sale and the derecognition upon disposal of the associated goodwill allocated on Camom SA (euro 13 million). Goodwill allocated to these investments derived from the acquisition of Bouygues Offshore SA. Negative foreign currency translation differences amounted to euro 14 million.

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12 Investments

Investments accounted for using the equity method
Equity-accounted investments were as follows:

(million euro)

Value at the beginning of the year

Acquisitions 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, 2006
Investments in unconsolidated entities controlled by Eni		146			4			15			(8	)		(8	)		(6	)		1			144
Investments in joint ventures		2,322			33			516			(26	)		(302	)		(79	)		42			2,506
Investments in affiliates		1,422			1			356			(2	)		(440	)		(31	)		(70	)		1,236
		3,890			38			887			(36	)		(750	)		(116	)		(27	)		3,886
Dec. 31, 2007
Investments in unconsolidated entities controlled by Eni		144			4			10			(2	)		(9	)		(6	)					141
Investments in joint ventures		2,506			1,109			481			(130	)		(351	)		(173	)		(132	)		3,310
Investments in affiliates		1,236			813			415			(3	)		(220	)		(42	)		(11	)		2,188
		3,886			1,926			906			(135	)		(580	)		(221	)		(143	)		5,639

Acquisitions and subscriptions for euro 1,926 million mainly related to the: (i) subscription of capital increase of Artic Russia BV (euro 1,041 million; Eni 60%) following the acquisition of the three Russian gas companies – OAO Arctic Gas, OAO Urengoil and OAO Neftegaztechnologya – by OOO SeverEnergia (Artic Russia BV 100%) as part of a bid procedure for assets of bankrupt Yukos; (ii) acquisition of 24.9% of Burren Energy Plc (euro 601 million); (iii) acquisition of 16.1% of Ceska Rafinerska AS (euro 211 million), and (iv) subscription of capital increase of Enirepsa Gas Ltd (euro 42 million).
Share of gain of equity-accounted investments of euro 906 million primarily related to Galp Energia SGPS SA (euro 255 million), Unión Fenosa Gas SA (euro 181 million), United Gas Derivatives Co (euro 79 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 64 million), Trans Austria Gasleitung GmbH (euro 43 million), Blue Stream Pipeline Co BV (euro 39 million), Supermetanol CA (euro 34 million) and Gaztransport et Technigaz SAS (euro 31 million).
Share of loss of equity-accounted investments of euro 135 million primarily related to Artic Russia BV (euro 63 million), Enirepsa Gas Ltd (euro 35 million) and Starstroi Llc (euro 15 million).
Deduction following the distribution of dividends of euro 580 million primarily related to Unión Fenosa Gas SA (euro 173 million), Galp Energia SGPS SA (euro 126 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 42 million), United Gas Derivatives Co (euro 40 million), Supermetanol CA (euro 36 million), Trans Austria Gasleitung GmbH (euro 28 million), Gaztransport et Technigaz SAS (euro 28 million) and Azienda Energia e Servizi Torino SpA (euro 17 million).
Other changes of euro 143 million were primarily related to: (i) the exclusion from the scope of consolidation of Haldor Topsøe AS (euro 69 million); (ii) the classification as held for sale of interests in Fertlizantes Nitrogenados de Oriente (euro 89 million) and Gaztransport et Technigaz SAS (euro 33 million).

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The following table sets out the net carrying amount of euro 5,639 million relating to equity-accounted investments (euro 3,886 million at December 31, 2006):

(million euro)		Dec. 31, 2006		Dec. 31, 2007

		Net carrying amount		Eni’s interest %		Net carrying amount		Eni’s interest %

Unconsolidated entities controlled by Eni:
- Eni Btc Ltd		46		100.00		42		100.00
- Others (*)		98				99
		144				141
Joint ventures:
- Artic Russia BV						925		60.00
- Unión Fenosa Gas SA		503		50.00		507		50.00
- Blue Stream Pipeline Co BV		293		50.00		298		50.00
- EnBW - Eni Verwaltungsgesellschaft mbH		234		50.00		256		50.00
- Azienda Energia e Servizi Torino SpA		165		49.00		162		49.00
- Eteria Parohis Aeriou Thessalonikis AE		157		49.00		154		49.00
- Toscana Energia SpA		111		48.72		133		49.38
- Raffineria di Milazzo ScpA		171		50.00		126		50.00
- Trans Austria Gasleitung GmbH		81		89.00		96		89.00
- Super Octanos CA		97		49.00		90		49.00
- Lipardiz - Construçao de Estruturas Maritimas Lda		97		50.00		88		50.00
- Supermetanol CA		90		34.51		78		34.51
- Unimar Llc		70		50.00		71		50.00
- FPSO Mystras - Produçao de Petroleo Lda		63		50.00		58		50.00
- Transmediterranean Pipeline Co Ltd		50		50.00		47		50.00
- Eteria Parohis Aeriou Thessalias AE		46		49.00		41		49.00
- Transitgas AG		31		46.00		30		46.00
- CMS&A Wll		27		20.00		22		20.00
- Altergaz SA						18		27.80
- Saibos Akogep Snc		38		70.00		5		70.00
- Haldor Topsøe AS		71		50.00
- Others (*)		111				105
		2,506				3,310
Affiliates:
- Galp Energia SGPS SA		782		33.34		911		33.34
- Burren Energy Plc						592		24.90
- Ceska Rafinerska AS						325		32.44
- United Gas Derivatives Co		117		33.33		140		33.33
- ACAM Gas SpA		45		49.00		45		49.00
- Distribuidora de Gas del Centro SA		37		31.35		33		31.35
- Fertlizantes Nitrogenados de Oriente CEC		88		20.00
- Gaztransport et Technigaz SAS		29		30.00
- Others (*)		138				142
		1,236				2,188
		3,886				5,639

(*)		Each individual amount included herein does not exceed euro 25 million.

The net carrying amount of investments in unconsolidated entities controlled by Eni, joint ventures and affiliates included the differences between purchase price and Eni’s equity in investments of euro 661 million. Such differences primarily related to Unión Fenosa Gas SA (euro 195 million), EnBW - Eni Verwaltungsgesellschaft mbH (euro 193 million), Galp Energia SGPS SA (euro 106 million), Ceska Rafinerska AS (euro 97 million) and Azienda Energia e Servizi Torino SpA (euro 69 million).

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The fair value of listed investments was as follows:

		Shares		Ownership (%)		Price per share (euro)		Fair value (euro million)

Galp Energia SGPS SA		276,472,160		33.34		18.39		5,084
Burren Energy Plc		35,136,033		24.90		16.60		583
Altergaz SA		750,892		27.80		24.00		18

The table below sets out the provisions for losses included in the provisions for contingencies of euro 135 million (euro 154 million at December 31, 2006), primarily related to the following equity-accounted investments:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Polimeri Europa Elastomères France SA (under liquidation)		50			50
Charville - Consultores e Serviços Lda		37			31
Industria Siciliana Acido Fosforico - ISAF - SpA (under liquidation)		31			28
Southern Gas Constructors Ltd		9			14
Geopromtrans Llc		19
Others		8			12
		154			135

Other investments
Other investments were as follows:

(million euro)

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, 2006
Investments in unconsolidated entities controlled by Eni		41									(20	)		21			49			28
Investments in affiliates		9												9			10			1
Other investments		371			4			(31	)		(14	)		330			332			2
		421			4			(31	)		(34	)		360			391			31
Dec. 31, 2007
Investments in unconsolidated entities controlled by Eni		21			3			(1	)		2			25			36			11
Investments in affiliates		9									1			10			11			1
Other investments		330			190			(36	)		(47	)		437			443			6
		360			193			(37	)		(44	)		472			490			18

Investments in unconsolidated entities controlled by Eni and affiliates 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.
Acquisitions and subscriptions for euro 193 million mainly related to the acquisition of 13.6% of Angola LNG Ltd and Angola LNG Supply Services Llc (euro 190 million).

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The net carrying amount of other investments of euro 472 million (euro 360 million at December 31, 2006) was related to the following entities:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

		Net carrying amount		Eni’s interest %		Net carrying amount		Eni’s interest %

Investments in unconsolidated entities controlled by Eni		21				25
Affiliates		9				10
Other investments:
- Angola LNG Ltd						175		13.60
- Darwin LNG Pty Ltd		108		12.04		87		10.99
- Nigeria LNG Ltd		90		10.40		80		10.40
- Ceska Rafinerska AS		31		16.33
- Others (*)		101				95
		330				437
		360				472

(*)		Each individual amount included herein does not exceed euro 25 million.

Provisions for losses related to other investments, included within the provisions for contingencies, amounted to euro 28 million (euro 30 million at December 31, 2006) and were primarily in relation to the following entities:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Caspian Pipeline Consortium R - Closed Joint Stock Co		27			25
Other investments		3			3
		30			28

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 affiliates:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Unconsolidated entities controlled by Eni

Joint ventures

Affiliates

Unconsolidated entities controlled by Eni

Joint ventures

Affiliates

Total assets		1,315			7,906			2,998			1,247			7,781			4,252
Total liabilities		1,182			5,466			1,753			1,111			4,526			2,061
Net sales from operations		71			5,536			4,905			99			4,667			5,134
Operating profit		(1	)		790			454			14			674			502
Net profit		3			465			351			14			318			410

The total assets and liabilities of unconsolidated controlled entities of euro 1,247 million and euro 1,111 million respectively (euro 1,315 million and euro 1,182 million at December 31, 2006) concerned for euro 873 million and euro 873 million (euro 900 million and euro 900 million at December 31, 2006) entities for which the consolidation would not produce significant effects.

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13 Other financial assets
Other financing receivables were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Financing receivables:
- receivables for financing operating activities		532			677
- receivables for financing non-operating activities		252			225
		784			902
Securities:
- securities held for operating purposes		21			21
		21			21
		805			923

Financing receivables are presented net of the allowance for impairment losses of euro 24 million (same amount at December 31, 2006).
Operating financing receivables of euro 677 million (euro 532 million at December 31, 2006) primarily concerned loans made by the Exploration & Production segment (euro 512 million) and Gas & Power segment (euro 87 million). The euro 145 million increase was primarily related to the Exploration & Production segment for euro 157 million and was offset by negative exchange differences of euro 82 million.
Non-operating financing receivables of euro 225 million (euro 252 million at December 31, 2006) concerned a restricted deposit held by Eni Lasmo Plc as a guarantee of a debenture (euro 246 million at December 31, 2006).
Receivables in currencies other than euro amounted to euro 821 million (euro 693 million at December 31, 2006).
Receivables due beyond five years amounted to euro 509 million (euro 396 million at December 31, 2006).
Securities euro 21 million (same amount as at December 31, 2006) designated as held-to-maturity investments were issued by the Italian Government.
Securities have a maturity beyond five years.
The fair value of financing receivables has been determined based on the present value of expected future cash flows discounted at rates ranging from 3.8% and 6.0% (3.6% and 5.6% at December 31, 2006).
The fair value of securities was derived from quoted market prices. The fair value of financing receivables and securities did not differ significantly from their carrying amount.

14 Deferred tax assets
Deferred tax assets were recognized net of offsettable deferred tax liabilities for euro 3,526 million (euro 4,028 million at December 31, 2006).

(million euro)

Value at Dec. 31, 2006

Additions

Deductions

Currency translation differences

Other changes

Value at Dec. 31, 2007

1,725

1,285

(1,736

)

(217

)

858

1,915

Other changes of euro 858 million were primarily related to additions reflecting: (i) a limited right for each subsidiaries to offset deferred tax assets against deferred tax liabilities (euro 502 million); (ii) the recognition of the deferred tax effect against equity on the fair value evaluation of derivatives designated as cash flow hedge for euro 378 million.
Further information is provided in Note 20 - Other current liabilities and Note 25 - Other non-current liabilities.
Deferred tax assets are described in Note 24 - Deferred tax liabilities.

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15 Other non-current receivables
The following table provides an analysis of other non-current receivables:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Tax receivables from:
- Italian tax authorities
. income tax		501			486
. interest on tax credits		322			325
. Value Added Tax (VAT)		37			42
. other		13			11
		873			864
- foreign tax authorities		30			30
		903			894
Other receivables:
- in relation to disposals		2			7
- others		83			197
		85			204
Other non-current receivables		6			12
		994			1,110

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Current liabilities

16 Short-term debt
Short-term debt was as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Banks		3,178			4,070
Ordinary bonds					3,176
Other financial institutions		222			517
		3,400			7,763

Short-term debt increased by euro 4,363 million primarily due to the balance of repayments and new proceeds (euro 4,850 million) and to changes in the scope of consolidation (euro 98 million) offset by negative currency translation differences (euro 583 million). Debt comprised commercial papers of euro 3,176 million mainly issued by the financial company Eni Coordination Center SA.

Short-term debt per currency is shown in the table below:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Euro		3,119			5,453
US dollar		161			1,591
Other currencies		120			719
		3,400			7,763

In 2007, the weighted average interest rate on short-term debt was 4.9% (3.9% in 2006).

At December 31, 2007 Eni had undrawn committed and uncommitted borrowing facilities available of euro 5,006 million and euro 6,298 million, respectively (euro 5,896 million and euro 6,523 million at December 31, 2006).
These facilities were under interest rates that reflected market conditions. Charges in unutilized facilities were not significant.


17 Trade and other payables
Trade and other payables were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Trade payables		10,528			11,092
Advances		1,362			1,583
Other payables:
- in relation to investments		1,166			1,301
- others		2,939			3,240
		4,105			4,541
		15,995			17,216

Included in 2007 trade payables was the contractually agreed compensation of receivables and payables between Eni North Africa BV and the National Oil Co (the Libyan state company) for euro 1,798 million.

Advances of euro 1,583 million (euro 1,362 million at December 31, 2006) were related to payments received in excess of the value of the work in progress performed for euro 772 million (euro 884 million at December 31, 2006), advances on contract work in progress for euro 324 million (euro 197 million at December 31, 2006) and other advances for euro 487 million (euro 281 million at December 31, 2006). Advances on contract work in progress were in respect of the Engineering & Construction segment.

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Other payables were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Payables due to:
- joint venture operators in exploration and production activities		1,146			1,624
- suppliers in relation to investments		923			1,015
- non-financial government entities		274			397
- employees		336			257
- social security entities		339			226
		3,018			3,519
Other payables		1,087			1,022
		4,105			4,541

Payables with related parties are described in Note 36 - Related-party transactions.
The fair value of trade and other payables did not differ significantly from their carrying amount considering the short-term maturity of trade payables.

 

18 Taxes payable
Taxes payable were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Italian subsidiaries		158			247
Foreign subsidiaries		1,482			1,441
		1,640			1,688

Income taxes payable of Italian subsidiaries were positively effected by the fair value valuation of cash flow hedging derivatives (euro 492 million). This effect was recorded in the relevant provision within equity. Further information is provided in Note 20 - Other current liabilities and Note 25 - Other non-current liabilities.


19 Other taxes payable
Other taxes payable were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Excise and customs duties		683			804
Other taxes and duties		507			579
		1,190			1,383

 

20 Other current liabilities
Other current liabilities were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Fair value of non-hedging derivatives		395			412
Fair value of cash flow hedge derivatives		40			911
Other liabilities		199			233
		634			1,556

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Fair value of derivative contracts which do not meet the formal criteria to be recognized as hedges in accordance with IFRS was as follows:

		Dec. 31, 2006		Dec. 31, 2007

(million euro)

Fair value

Purchase commitments

Sale commitments

Fair value

Purchase commitments

Sale commitments

Non-hedging derivatives on exchange rate
Currency swap		11		928		363		63		2,096		296
Interest currency swap		19		133		124		5		140
Other		2		69		1		7		76		1
		32		1,130		488		75		2,312		297
Non-hedging derivatives on interest rate
Interest rate swap		30		1,077		1,045		24		722		401
		30		1,077		1,045		24		722		401
Non-hedging derivatives on commodities
Over the counter		52		568		67		12		49		58
Other		281		855		75		301		1,187		28
		333		1,423		142		313		1,236		86
		395		3,630		1,675		412		4,270		784

The fair value of these derivative contracts was determined using an appropriate valuation method based on market data at closing date. The fair value of cash flow hedging derivatives amounted to euro 911 million (euro 40 million at December 31, 2006) related to contracts expiring in 2008 entered into by the Exploration & Production segment in order to hedge the exposure to variability in future cash flows expected in the 2008-2011 period deriving from marketing an amount of Eni’s proved hydrocarbon reserves equal to 2% of proved reserves as of December 31, 2006 in connection with the acquisition in 2007 of production, development and exploration upstream properties onshore Congo from the French company Maurel & Prom and in the Gulf of Mexico from the US company Dominion Resources. Change in fair value (euro 871 million) of the hedging instrument directly recognized in equity was euro 878 million for the effective portion whilst the ineffective portion of euro 16 million was recognized in the profit and loss as finance expense (the time value component). Cumulative currency translation differences increased by euro 23 million. Further information on the fair value recognition in the consolidated balance sheet and profit and loss account of contracts with a maturity in 2009-2011 is given in Note 25 - Other liabilities under the section other non-current liabilities. The nominal value of these cash flow hedging derivatives referred to purchase and sale commitments for euro 1,399 million and euro 1,977 million, respectively (euro 4 million and euro 525 million at December 31, 2006). Information on the hedged risks and the hedging policies is given in Note 28 - Guarantees, commitments and risks - Risk management.

 

Non-current liabilities

21 Long-term debt and current maturities of long-term debt
Long-term debt included the debt current portion maturing during the year following the balance sheet date (current maturity). The table below analyses debt by year of forecast repayment:

Type of debt instrument		Maturity range		2006		2007		Current maturity 2008		2009		2010		2011		2012		After		Total

Bank loans		2008-2022		2,298		6,073		159		607		423		121		4,106		657		5,914
Other bank loans at favorable rates		2008-2013		13		9		2		1		2		2		1		1		7
				2,311		6,082		161		608		425		123		4,107		658		5,921
Ordinary bonds		2008-2037		5,097		5,386		263		324		919		167		30		3,683		5,123
Other financial institutions		2008-2020		891		599		313		118		12		28		12		116		286
				8,299		12,067		737		1,050		1,356		318		4,149		4,457		11,330

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Long-term debt, including the current portion of long-term debt, increased by euro 3,768 million to euro 12,067 million (euro 8,299 million at December 31, 2006). Such increase was due to the balance of payments and new proceeds of euro 3,885 million as well as the consolidation of Frigstad Discover Invest Ltd accounts for euro 170 million. This was offset by: (i) the negative impact of foreign currency translation differences; (ii) translation differences arising on debt taken on by euro-reporting subsidiaries denominated in foreign currency which are translated into euro at year-end exchange rates (euro 312 million).

Debt from other financial institutions of euro 599 million included euro 37 million of finance lease transactions. The following table shows residual debt by maturity date, which was obtained by summing future lease payments discounted at the effective interest rate, interests and the nominal value of future lease payments:

		Maturity range

(million euro)		Within 12 months		Between one and five years		After five years		Total

Residual debt		7		25		5		37
Interests		4		7		4		15
Undiscounted value of future lease payments		11		32		9		52

Eni entered into long-term borrowing facilities with the European Investment Bank which were subordinated to the maintenance of certain performance indicators based on Eni’s Consolidated Financial Statement or a rating not inferior to A- (S&P) and A3 (Moody’s). At December 31, 2006 and 2007, the amount of short and long-term debt subject to restrictive covenants was euro 1,131 million and euro 1,429 million respectively. Furthermore, Saipem SpA and Saipem SA entered into certain borrowing facilities for euro 75 million and euro 34 million, respectively, with a number of financial institutions subordinated to the maintenance of certain performance indicators based on the Consolidated Financial Statements of Saipem and separate financial statements of Saipem SA. Eni and Saipem are in compliance with the covenants contained in their respective financing arrangements.
Bonds of euro 5,386 million consisted of bonds issued within the Euro Medium Term Notes Program for a total of euro 4,916 million and other bonds for a total of euro 470 million.
The following table analyses bonds per issuing entity, maturity date, interest rate and currency as at December 31, 2007:

Amount

Discount on bond issue and accrued expense

Total

Value

Maturity

% rate

(million euro)

from

to

from

to

Issuing entity
Euro Medium Term Notes:
- Eni SpA		1,500		43			1,543		Euro				2013				4.625
- Eni SpA		1,000		(3	)		997		Euro				2017				4.750
- Eni Coordination Center SA		683		4			687		British pound		2010		2019		4.875		5.125
- Eni SpA		500		16			516		Euro				2010				6.125
- Eni Coordination Center SA		367		8			375		Euro		2008		2015				variable
- Eni Coordination Center SA		277		5			282		Euro		2008		2024		2.876		5.050
- Eni Coordination Center SA		277		2			279		Japanese yen		2008		2037		0.810		2.810
- Eni Coordination Center SA		173		2			175		US dollar		2013		2015		4.450		4.800
- Eni Coordination Center SA		31					31		US dollar				2013				variable
- Eni Coordination Center SA		30		1			31		Swiss franc				2010				2.043
		4,838		78			4,916
Other bonds:
- Eni USA Inc		271		3			274		US dollar				2027				7.300
- Eni Lasmo Plc (*)		205		(9	)		196		British pound				2009				10.375
		476		(6	)		470
		5,314		72			5,386

(*)		The bond is guaranteed by a fixed deposit recorded under non-current financial assets (euro 225 million).

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As at December 31, 2007 bonds maturing within 18 months (euro 584 million) were issued by Eni Coordination Center SA for euro 388 million and by Eni Lasmo Plc for euro 196 million. During 2007, Eni SpA and Eni Coordination Center SA issued bonds for euro 997 million and euro 121 million, respectively.
The following table analyses the currency composition of long-term debt and its current portion, and the related weighted average interest rates on total borrowings:

		Dec. 31, 2006 (million euro)		Average rate (%)		Dec. 31, 2007 (million euro)		Average rate (%)

Euro		5,566		4.0		9,973		4.4
US dollar		1,261		7.8		900		8.6
British pound		1,259		5.9		882		6.2
Japanese yen		167		1.4		281		1.9
Swiss franc		46		2.0		31		2.0
		8,299				12,067

At December 31, 2007 Eni had undrawn committed long-term borrowing facilities of euro 1,400 million (euro 520 million at December 31, 2006). Interest rates on these contracts were at market conditions. Charges for unutilized facilities were not significant.
Fair value of long-term debt, including the current portion of long-term debt, consisted of the following:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Ordinary bonds		5,239			5,523
Banks		2,311			6,148
Other financial institutions		865			719
		8,415			12,390

Fair value was calculated by discounting the expected future cash flows at rates ranging from 3.8% to 6.0% (3.6% and 5.6% at December 31, 2006).
At December 31, 2007 Eni mortgaged certain tangible assets and pledged restricted deposits as collateral against its borrowings for euro 198 million (euro 231 million at December 31, 2006).
Analysis of net borrowings, as defined in the “Financial Review” section, is as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Current

Non-current

Total

Current

Non-current

Total

A. Cash		3,745					3,745		1,699				1,699
B. Cash equivalents		240					240		415				415
C. Available-for-sale securities		552					552		174				174
D. Liquidity (A+B+C)		4,537					4,537		2,288				2,288
E. Financing receivables		143			252		395		990		225		1,215
F. Short-term debt towards banks		3,178					3,178		4,070				4,070
G. Long-term debt towards banks		131			2,180		2,311		161		5,921		6,082
H. Bonds		685			4,412		5,097		263		5,123		5,386
I. Short-term debt towards related parties		92					92		131				131
L. Long-term debt towards related parties					16		16				16		16
M. Other short-term debt		130					130		3,562				3,562
N. Other long-term debt		74			801		875		313		270		583
O. Total borrowings (F+G+H+I+L+M+N)		4,290			7,409		11,699		8,500		11,330		19,830
P. Net borrowings (O-D-E)		(390	)		7,157		6,767		5,222		11,105		16,327

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Available-for-sale securities of euro 174 million (euro 552 million at December 31, 2006) are 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 280 million (euro 441 million at December 31, 2006), of which euro 256 million (euro 417 million at December 31, 2006) held to provide coverage of technical reserves of Eni’s insurance companies.
Financing receivables of euro 1,215 million (euro 395 million at December 31, 2006) are held for non-operating purposes. Not included in the calculation above were financing receivables held for operating purposes amounting to euro 384 million (euro 246 million at December 31, 2006), of which euro 246 million (euro 241 million at December 31, 2006) were in respect of securities granted to unconsolidated entities controlled by Eni, joint ventures and affiliates primarily in relation to the implementation of certain capital projects and a euro 112 million cash deposit to provide coverage of Eni Insurance Ltd technical reserves.
Non current financial receivables of euro 225 million (euro 252 million at December 31, 2006) were related to a restricted deposit held by Eni Lasmo Plc as a guarantee of a debenture (euro 246 million at December 31, 2006).

 

22 Provisions for contingencies
Provisions for contingencies were as follows:

(million euro)		Value at Dec. 31, 2006		Additions		Deductions		Other changes		Value at Dec. 31, 2007

Provision for site restoration and abandonment		3,724		550		(315	)		15			3,974
Provision for environmental risks		1,905		356		(353	)		(50	)		1,858
Provision for legal and other proceedings		654		146		(77	)		(7	)		716
Loss adjustments and actuarial provisions for Eni’s insurance companies		565				(81	)		(66	)		418
Provision for taxes		221		37		(20	)		(25	)		213
Provision for losses on investments		184		13		(20	)		(14	)		163
Provision for restructuring or decommissioning		157		17		(18	)		(26	)		130
Provision for OIL insurance		108				(27	)		(1	)		80
Provision for marketing and promotion initiatives		50		62		(47	)					65
Provision for onerous contracts		100				(50	)					50
Provision for revision of selling prices		172		24		(172	)					24
Other (*)		774		408		(359	)		(28	)		795
		8,614		1,613		(1,539	)		(202	)		8,486

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

The provision for site restoration and abandonment of euro 3,974 million, is mainly composed of provisions for 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 (euro 3,884 million). The increases in the provision for the year amounted to euro 550 million due to the initial recognition and changes in the present value of estimated expenditures creating a corresponding item of property, plant and equipment of an amount equivalent to the provision or change in estimates (euro 60 million and euro 317 million, respectively) and the passage of time recognized in the profit and loss account as finance expense (euro 173 million). The discount rates used ranged from 4.2% to 6.2%. Decreases in the provision amounted to euro 315 million of which euro 207 million in connection with lowered estimated expenditures and euro 108 million related to the reversal of utilized provisions. Other changes of euro 15 million related to acquired oil & gas properties in Congo and in the Gulf of Mexico (euro 130 million). Offsetting these effects were negative foreign currency translation differences for euro 155 million.
Provision for environmental risks of euro 1,858 million primarily related to the estimated costs of remediation in accordance with existing laws and regulations recognized by Syndial SpA (euro 1,362 million), the Refining & Marketing segment (euro 339 million) and the Gas & Power segment (euro 92 million). The increases in the provision of euro 356 million were primarily related to Syndial SpA (euro 223 million) and the Refining & Marketing segment (euro 95 million) including the effect due to the passage of time for euro 11 million recognized as finance expense. Decreases for euro 353 million were related to the reversal of utilized provisions primarily by Syndial SpA (euro 211 million) and the Refining & Marketing segment (euro 100 million) including the reversal of unutilized provisions of euro 18 million no longer required.

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Provision for legal and other proceedings of euro 716 million primarily included charges expected on failure to perform certain contractual obligations and proceeding on legal and administrative matters. These provisions are stated on the basis of Eni’s best estimate of the expected probable liability. The increase in the provision of euro 146 million was primarily related to Syndial SpA (euro 79 million). Decreases in the provision of euro 77 million included the reversal of unutilized provisions of euro 67 million of which euro 46 million related to the cancellation by the Regional Administrative Court of Lombardy of a fine imposed by the Authority for Electricity and Gas.
Loss adjustments and actuarial provisions for Eni’s insurance companies of euro 418 million represented the liabilities accrued for claims on insurance policies underwritten by Eni’s insurance companies. Changes in the provision of euro 66 million were primarily in respect of liabilities directly associated with assets classified as held for sale of Eni’s insurance subsidiary Padana Assicurazioni SpA for euro 64 million.
Provision for taxes of euro 213 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 158 million).
Provision for losses on investments of euro 163 million was made with respect of losses from investments in entities incurred to date, where the losses exceeded the carrying amount of the investments.
Provision for restructuring or decommissioning unused production facilities of euro 130 million was primarily made for the estimated future costs for site restoration and remediation in connection with divestments and facilities closures of the Refining & Marketing segment (euro 124 million). Decreases in the provision of euro 18 million included the reversal of unutilized provisions of euro 2 million.
Provision for OIL insurance cover of euro 80 million included mutual insurance provision related to future increase of insurance charges that will be paid in the next 5 years by Eni for participating in the mutual insurance of Oil Insurance Ltd, following the increased number of accidents that occurred in 2004 and 2005.
Provision for marketing and promotional initiatives amounted to euro 65 million and was made in respect of marketing initiatives envisaging awards and prizes to clients in the Refining & Marketing segment. Decreases in the provision of euro 47 million included the reversal of unutilized provisions for euro 3 million.
Provision for onerous contracts of euro 50 million primarily related to Syndial SpA and contracts for which the termination or execution costs exceed the relevant benefits.
Provision for the revision of selling prices of euro 24 million primarily related to the Gas & Power segment. Decreases in the provision of euro 172 million included the reversal of unutilized provisions of euro 122 million primarily related to the adoption of the new tariffs’ regime introduced by Decision 134/2006 by the Italian Authority for Electricity and Gas.
Utilization of other provisions of euro 359 million included the reversal of unutilized provisions for euro 159 million no longer required.

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23 Provisions for employee benefits
Provisions for employee benefits were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

TFR		608			499
Foreign pension plans		268			219
Supplementary medical reserve for Eni managers (FISDE) and other foreign medical plans		100			99
Other benefits		95			118
		1,071			935

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 along employees’ service period based on payroll costs as revalued until retirement according to the Italian legal scheme. Provisions for Italian post-retirement indemnities, considered for the determination of relevant liabilities and expenses, are reduced of the amounts drawn by employees and funded to pension funds.
Following the enactment of the Italian Budget Law for 2007, employees had until June 30, 2007 to decide whether to transfer their future provisions and any amounts accrued from January 1, 2007 for post-retirement indemnities under the Italian TFR regime to pension funds or the treasury fund held by the Italian administration for post-retirement benefits (INPS). Companies with less than 50 employees were allowed to continue recognizing the provision as in previous year. The choice applied retrospectively from January 1, 2007. 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 provisions accrued 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.
Following this change in regime, the existing provision for Italian employees was reassessed to take account of the curtailment due to reduced future obligations reflecting the exclusion of future salaries and relevant increases from actuarial calculations. As a result of this a non-recurring gain of euro 83 million was recognized in profit or loss.
Pension funds are defined benefit plans provided by foreign subsidiares located mainly in the United Kingdom, Nigeria and 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 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.

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The value of employee benefits, estimated by applying actuarial techniques, consisted of the following:

	Foreign pension plans

(million euro)

TFR

Gross liability

Plan assets

FISDE and other foreign medical plans

Other benefits

Total

2006
Current value of benefit liabilities and plan assets at beginning of year		653			757			(359	)		96			37			1,184
Current cost		99			18						2			48			167
Interest cost		22			28						3			6			59
Expected return on plan assets								(24	)								(24	)
Employees contributions					(3	)		(88	)								(91	)
Actuarial gains (losses)		(67	)		(2	)		(3	)		(5	)		6			(71	)
Benefits paid		(94	)		(16	)		12			(5	)		(2	)		(105	)
Amendments					2												2
Curtailments and settlements					(7	)		6									(1	)
Currency translation differences		1			(6	)		16									11
Current value of benefit liabilities and plan assets at end of year		614			771			(440	)		91			95			1,131
2007
Current value of benefit liabilities and plan assets at beginning of year		614			771			(440	)		91			95			1,131
Current cost		13			13						1			38			65
Interest cost		23			32						4			2			61
Expected return on plan assets								(23	)								(23	)
Employees contributions								(126	)								(126	)
Actuarial gains (losses)		(52	)		3			12			1			(1	)		(37	)
Benefits paid		(64	)		(35	)		18			(6	)		(7	)		(94	)
Amendments		1			2												3
Curtailments and settlements		(62	)		(201	)		201									(62	)
Currency translation differences		3			36			(4	)		1			(9	)		27
Current value of benefit liabilities and plan assets at end of year		476			621			(362	)		92			118			945

The gross liability for foreign employee pension plans of euro 621 million (euro 771 million at December 31, 2006) included the liabilities related to joint ventures operating in exploration and production activities for euro 112 million and euro 67 million at December 31, 2006 and 2007, respectively. A receivable of an amount equivalent to such liability was recorded. Other benefits of euro 118 million (euro 95 million at December 31, 2006) primarily concerned the deferred monetary incentive plan for euro 69 million (euro 37 million at December 31, 2006) and jubilee awards for euro 40 million (euro 44 million at December 31, 2006).

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The reconciliation analysis of benefit obligations and plan assets was as follows:

		TFR		Foreign pension plans		FISDE and other foreign medical plans		Other benefits

(million euro)

Dec. 31, 2006

Dec. 31, 2007

Dec. 31, 2006

Dec. 31, 2007

Dec. 31, 2006

Dec. 31, 2007

Dec. 31, 2006

Dec. 31, 2007

Present value of benefit obligations with plan assets								605			439
Present value of plan assets								(440	)		(362	)
Net present value of benefit obligations with plan assets								165			77
Present value of benefit obligations without plan assets		614			476			166			182			91		92		95		118
Actuarial gains (losses) not recognized		(6	)		23			(63	)		(33	)		9		7
Past service cost not recognized											(7	)
Net liabilities recognized in provisions for employee benefits		608			499			268			219			100		99		95		118

Costs charged to the profit and loss account were as follows:

(million euro)		TFR		Foreign pension plans		FISDE and other foreign medical plans		Other benefits		Total

2006
Current cost		99			18			2			48			167
Interest cost		22			28			3			6			59
Expected return on plan assets					(24	)								(24	)
Amortization of actuarial gains (losses)		2			21						5			28
Effect of curtailments and settlements					(1	)								(1	)
Other costs		1												1
		124			42			5			59			230
2007
Current cost		13			13			1			38			65
Interest cost		23			32			4			2			61
Expected return on plan assets					(23	)								(23	)
Amortization of actuarial gains (losses)		1			3									4
Effect of curtailments and settlements		(83	)		41									(42	)
		(46	)		66			5			40			65

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The main actuarial assumptions used in the evaluation of post-retirement benefit obligations at end of year and in the estimate of costs expected for 2008 were as follows:

(%)		TFR		Foreign pension plans		FISDE and other foreign medical plans		Other benefits

2006
Discount rate		4.3		3.0-13.0		4.5		4.0-4.3
Expected return rate on plan assets				3.5-13.0
Rate of compensation increase		2.7-4.0		2.0-12.0				2.7-4.5
Rate of price inflation		2.0		1.0-10.0		2.0		2.0-2.5
2007
Discount rate		5.35		3.5-13.0		5.5		4.8-5.4
Expected return rate on plan assets				4.0-13.0
Rate of compensation increase		2.7-3.0		2.0-12.0				2.7-4.0
Rate of price inflation		2.0		1.0-10.0		2.0		2.0

With regards to Italian plans were used demographic tables prepared by Ragioneria Generale dello Stato (RG48). Expected return rate by plan assets has been determined by reference to quoted prices expressed in regulated markets.
Plan assets consisted of the following:

(%)		Plan assets		Expected return

Dec. 31, 2007
Securities		23.3			6.8-8.4
Bonds		27.1			3.1-10.0
Real estate		1.7			5.8-15.0
Other		47.9			2.8-13.0
					100

The effective return of the plan assets amounted to euro 11 million (euro 27 million at December 31, 2006).
With reference to healthcare plans, the effects deriving from a 1% change of the actuarial assumptions of medical costs were as follows:

(million euro)		1% Increase		1% Decrease

Impact on the current costs and interest costs		1			(1	)
Impact on net benefit obligation		11			(9	)

The amount expected to be accrued to defined benefit plans for 2008 amounted to euro 48 million.
The analysis of changes in the actuarial valuation of the net liability with respect to prior year deriving from the
non-correspondence of actuarial assumptions with actual values recorded at year-end was as follows:

(million euro)		TFR		Foreign pension plans		FISDE and other foreign medical plans		Other benefits

2006
Impact on net benefit obligation		(19	)		13			(4	)		4
Impact on plan assets					3
2007
Impact on net benefit obligation		(8	)		6
Impact on plan assets					3

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24 Deferred tax liabilities
Deferred tax liabilities were recognized net of offsettable deferred tax assets for euro 3,526 million (euro 4,028 million at December 31, 2006).

(million euro)

Value at Dec. 31, 2006

Additions

Deductions

Currency translation differences

Other changes

Value at Dec. 31, 2007

5,852

1,198

(1,987

)

(490

)

898

5,471

Other changes of euro 898 million were primarily in respect of: (i) the deferred tax effect of the valuation at fair value of certain oil assets acquired by the Exploration & Production segment in Congo (euro 507 million); (ii) a limited right of subsidiaries to offset deferred tax assets against deferred tax liabilities (euro 502 million); (iii) the recognition of the deferred tax effect against equity on the fair value evaluation of derivatives designated as cash flow hedge for euro 3 million.
Deferred tax liabilities consisted of the following:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Deferred income taxes		9,880			8,997
Deferred income taxes available for offset		(4,028	)		(3,526	)
		5,852			5,471
Deferred income taxes not available for offset		(1,725	)		(1,915	)
		4,127			3,556

The most significant temporary differences giving rise to net deferred tax liabilities were as follows:

(million euro)

Value at Dec. 31, 2006

Additions

Deductions

Currency translation differences

Other changes

Value at Dec. 31, 2007

Deferred tax liabilities:
- accelerated tax depreciation		6,851			582			(1,246	)		(423	)		493			6,257
- application of the weighted average cost method in evaluation of inventories		649			263			(177	)					(4	)		731
- site restoration and abandonment (tangible assets)		683			40			(115	)		(14	)		(55	)		539
- capitalized interest expense		232			3			(51	)					(7	)		177
- other		1,465			310			(398	)		(53	)		(31	)		1,293
		9,880			1,198			(1,987	)		(490	)		396			8,997
Deferred tax assets:
- assets revaluation as per Law No. 342/2000 and No. 448/2001		(1,017	)					218						11			(788	)
- site restoration and abandonment (provisions for contingencies)		(1,496	)		(176	)		129			72			108			(1,363	)
- depreciation and amortization		(744	)		(129	)		236			62			(47	)		(622	)
- accruals for impairment losses and provisions for contingencies		(1,000	)		(396	)		522			1			(40	)		(913	)
- carry-forward tax losses		(83	)		(44	)		41			6			1			(79	)
- other		(1,413	)		(540	)		590			78			(391	)		(1,676	)
		(5,753	)		(1,285	)		1,736			219			(358	)		(5,441	)
Net deferred tax liabilities		4,127			(87	)		(251	)		(271	)		38			3,556

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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.
In May 2007 the Government of Libya issued an amending taxation law regarding profit taxation for foreign oil companies operating under PSA scheme. In line with past practice the Libya’s National Oil Co (NOC) was designated as tax agent on behalf of foreign oil companies operating under PSA. The new tax regime is expected to become effective from 2008, after having agreed beforehand with NOC the recognized tax base of the assets at January 1, 2008, and the consequent possibility to re-determine deferred taxation and the detailed recognition criteria applied. Pending the issuing of the new law, deferred taxation was determined by using the recognition criteria applied in prior years. The adoption of the new legislation is not expected to have any significant impact on the agreed oil profit share under PSA currently existing between the Libyan state company and Eni. Italian taxation law allow the carry-forward of tax losses over the five subsequent years. Losses suffered in the first three years of the company's life can however be, for most part, carried forward indefinitely. The tax rate applied by the Italian subsidiaries to determine the portion of carry-forwards tax losses to be utilized equalled 27.5%; this rate equalled on average to 29.8% for foreign entities.
Carry-forward tax losses of euro 1,261 million can be used in the following periods:

(million euro)		Italian subsidiaries		Foreign subsidiaries

2008		9			2
2009		3			22
2010					14
2011					36
2012		72			3
Beyond 2012					2
Without limit					1,098
		84			1,177

Carry-forward tax losses of euro 270 million expected to be offset against future taxable profit and were in respect of foreign subsidiaries for euro 198 million. At the end of 2007, euro 79 million of deferred tax assets were recognized on these losses, of which euro 59 million were in respect of foreign subsidiaries.
No deferred tax liabilities have been recognized in relation to certain taxable reserves of unconsolidated entities under Eni’s control because such reserves are not expected to be distributed (euro 135 million).

 

25 Other non-current liabilities
Other non-current liabilities were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Fair value of cash flow hedge derivatives					1,340
Current income tax liabilities					215
Payables related to capital expenditures		26			22
Other payables		207			295
Other liabilities		185			159
		418			2,031

The fair value of cash flow hedge derivatives amounted to euro 1,340 million related to contracts expiring within 2009-2011 entered into by the Exploration & Production segment in order to hedge the exposure to variability in future cash flows expected in the 2008-2011 period deriving from marketing an amount of Eni’s proved hydrocarbon reserves equal to 2% of proved reserves as of December 31, 2006 in connection with the acquisition in 2007of production, development and exploration assets upstream properties onshore Congo from the French company Maurel & Prom and in the Gulf of Mexico from the US company Dominion Resources. The effective portion of the change in fair value of the hedging instrument directly recognized in equity was euro 1,332 million whilst the ineffective portion of euro 36 million was recognized in the profit and loss as finance expenses (the time value component). Cumulative currency translation differences increased by euro 28 million. Further information on the fair value recognition in the consolidated balance sheet and profit and loss account of contracts with a maturity in 2008 is given in Note 20 - Other liabilities under the section other current liabilities.

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The nominal value of these derivatives referred to purchase and sale commitments for euro 2,804 million and euro 3,404 million, respectively.
The fair value of derivative contracts was determined by using valuation models that take into account relevant market data at the balance sheet date.
Information on the hedged risks and the hedging policies is shown in Note 28 - Guarantees, commitments and risks - Risk management.
The group’s liability for current income taxes of euro 215 million 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.

 

26 Assets held for sale and liabilities directly associated with assets held for sale
Non-current assets held for sale and liabilities directly associated to non-current assets held for sale of euro 383 million and euro 97 million related to the disposal of Padana Assicurazioni SpA (the related assets and liabilities amounted to euro 180 million and euro 97 million, respectively) and in Gaztransport et Technigaz SAS (the investment amounted to euro 114 million) and in Fertlizantes Nitrogenados de Oriente (the investment amounted to euro 89 million). Gaztransport et Technigaz SAS is a company owing a patent for the construction of tanks to transport LNG. Fertlizantes Nitrogenados de Oriente is specialized in the production of fertilizers.

 

27 Shareholders’ equity

Minority interest
Profit attributable to minority interests and the minority interest in certain consolidated subsidiaries related to:

(million euro)		Net profit		Shareholders’ equity

		2006		2007		Dec. 31, 2006		Dec. 31, 2007

Saipem SpA		303		514		879		1,299
Snam Rete Gas SpA		287		268		1,004		865
Tigáz Tiszántúli Gázszolgáltató Részvénytársaság				1		79		79
Others		16		15		208		196
		606		798		2,170		2,439

Eni shareholders’ equity
Eni’s net equity at December 31 was as follows:

(million euro)		Value at Dec. 31, 2006		Value at Dec. 31, 2007

Share capital		4,005			4,005
Legal reserve		959			959
Reserve for treasury shares		7,262			7,207
Cumulative foreign currency translation differences		(398	)		(2,233	)
Other reserves		400			(914	)
Retained earnings		25,168			29,591
Treasury shares		(5,374	)		(5,999	)
Interim dividend		(2,210	)		(2,199	)
Net profit for the period		9,217			10,011
		39,029			40,428

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Share capital
At December 31, 2007 the parent company’s issued share capital consisted of 4,005,358,876 shares (nominal value euro 1 each) fully paid-up (the same amount at December 31, 2006).
On May 24, 2007 Eni’s Shareholders’ Meeting decided 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 2006 dividend of euro 1.25 per share, of which euro 0.60 per share paid as interim dividend in October 2006. The balance was payable on June 21, 2007 to shareholders on the register on June 18, 2007.

Legal reserve
This reserve represents earnings restricted from the payment of dividends pursuant to Article 2430 of the Italian Civil Code.

Reserve for treasury shares
The reserve for treasury shares represents the reserve destined to purchase own shares in accordance with the decisions of Eni’s Shareholders’ Meetings. The amount of euro 7,207 million (euro 7,262 million at December 31, 2006) included treasury shares purchased. The decrease of euro 55 million primarily concerned the sale and grant of treasury shares to Group managers following stock option and stock grants incentive schemes.

Cumulative foreign currency translation differences
The cumulative foreign currency translation differences arose from the translation of financial statements denominated in currencies other than euro.

Other reserves
Other reserves of negative amount were euro 914 million (at December 31, 2006 other reserves of positive amount were euro 400 million) included:

• a reserve of euro 247 million constituted following the sale by Eni SpA of Snamprogetti SpA to Saipem Projects SpA (same amount at December 31, 2006);
• a reserve of euro 181 million (euro 146 million at December 31, 2006) deriving from Eni SpA’s equity;
• a reserve of euro 1,342 million (euro 7 million at December 31, 2006) including the related tax, for the valuation at fair value of available-for-sale securities and cash flow hedge derivatives. Further information is given in Note 2 - Other financial assets held for trading or available for sale, Note 7 - Other current assets, Note 20 - Other current liabilities and Note 25 - Other non current liabilities.

The valuation at fair value of securities available for sale and cash flow hedge derivatives, net of the related tax effect, consisted of the following:

Reserve as of January 1, 2005		27			(8	)		19			27			(11	)		16			54			(19	)		35
Changes of the year 2006		2						2			1						1			3						3
Amount recognized in the profit and loss account		(21	)		6			(15	)		(27	)		11			(16	)		(48	)		17			(31	)
Reserve as of December 1, 2006		8			(2	)		6			1						1			9			(2	)		7
Changes of the year 2007											(2,237	)		867			(1,370	)		(2,237	)		867			(1,370	)
Foreign currency translation differences											51			(26	)		25			51			(26	)		25
Amount recognized in the profit and loss account		(6	)		2			(4	)											(6	)		2			(4	)
Reserve as of December 31, 2007		2						2			(2,185	)		841			(1,344	)		(2,183	)		841			(1,342	)

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Treasury shares purchased
A total of 348,525,005 ordinary shares (324,959,866 at December 31, 2006) with nominal value of euro 1 each, were held in treasury, for a total cost of euro 5,999 million (euro 5,374 million at December 31, 2006). 35,423,925 of treasury shares (40,114,000 at December 31, 2006) at a cost of euro 768 million (euro 839 million at December 31, 2006) were available for 2002-2005 and 2006-2008 stock option plans (34,521,125 shares) and 2003-2005 stock grant plans (902,800 shares).

The decrease of 4,690,075 shares consisted of the following:

		Stock option		Stock grant		Total

Number of shares at December 31, 2006		38,240,400			1,873,600			40,114,000
Rights exercised		(3,028,200	)		(966,000	)		(3,994,200	)
Rights cancelled		(691,075	)		(4,800	)		(695,875	)
		(3,719,275	)		(970,800	)		(4,690,075	)
Number of shares at December 31, 2007		34,521,125			902,800			35,423,925

At December 31, 2007, options and grants outstanding were 17,699,625 shares and 902,800 shares, respectively. Options refer to the 2002 stock plan for 107,500 shares with an exercise price of euro 15.216 per share, to the 2003 stock plan for 281,400 shares with an exercise price of euro 13.743 per share, to the 2004 stock plan for 1,124,000 shares with an exercise price of euro 16.576 per share, to the 2005 stock plan for 3,812,000 shares with an exercise price of euro 22.512 per share, to the 2006 stock plan for 6,467,775 shares with an weighted average exercise price of euro 23.119 per share and to the 2007 stock plan for 5,906,950 with an weighted average exercise price of euro 27.451 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 2007 amounted of euro 2,199 million corresponding to euro 0.60 per share, as decided by the Board of Directors on September 20, 2007 in accordance with Article 2433-bis, paragraph 5 of the Italian Civil Code; the dividend was paid on October 25, 2007.

Distributable reserves
At December 31, 2007 Eni shareholders’ equity included distributable reserves for euro 34,000 million, a portion of which was subject to taxation upon distribution. Deferred tax liabilities have been recorded in relation to the share of profit recognized on equity-accounted affiliates and joint ventures (euro 32 million).

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Reconciliation of net profit and shareholders’ equity of the parent company Eni SpA to consolidated net profit and shareholders’ equity

		Net profit		Shareholders’ equity

(million euro)		2006		2007		Dec. 31, 2006		Dec. 31, 2007

As recorded in Eni SpA’s Financial Statements		5,821			6,600			26,935			28,926
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		3,823			4,122			16,136			16,320
Consolidation adjustments:
- difference between cost and underlying value of equity		(52	)		(1	)		1,138			1,245
- elimination of tax adjustments and compliance with accounting policies		627			649			(1,435	)		(1,235	)
- elimination of unrealized intercompany profits		(237	)		(435	)		(2,907	)		(3,383	)
- deferred taxation		(195	)		(97	)		1,244			711
- other adjustments		36			(29	)		88			283
		9,823			10,809			41,199			42,867
Minority interest		(606	)		(798	)		(2,170	)		(2,439	)
As recorded in Consolidated Financial Statements		9,217			10,011			39,029			40,428

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28 Guarantees, commitments and risks

Guarantees
Guarantees were as follows:

		Dec. 31, 2006		Dec. 31, 2007

(million euro)

Unsecured guarantees

Other guarantees

Total

Unsecured guarantees

Other guarantees

Total

Consolidated subsidiaries				6,539		6,539				6,388		6,388
Unconsolidated entities controlled by Eni		3		294		297				150		150
Affiliates and joint ventures		5,682		1,735		7,417		5,896		1,099		6,995
Others		79		52		131		12		279		291
		5,764		8,620		14,384		5,908		7,916		13,824

Other guarantees issued on behalf of consolidated subsidiaries of euro 6,388 million (euro 6,539 million at December 31, 2006) primarily consisted of: (i) guarantees given to third parties relating to bid bonds and performance bonds for euro 3,244 million (euro 3,467 million at December 31, 2006), of which euro 2,351 million related to the Engineering & Construction segment (euro 2,726 million at December 31, 2006); (ii) VAT recoverable from tax authorities for euro 1,286 million (euro 1,393 million at December 31, 2006); (iii) insurance risk for euro 259 million reinsured by Eni (euro 246 million at December 31, 2006). At December 31, 2007 the underlying commitment covered by such guarantees was euro 6,050 million (euro 6,160 million at December 31, 2006).
Other guarantees issued on behalf of unconsolidated subsidiaries of euro 150 million (euro 297 million at December 31, 2006) consisted of letters of patronage and other guarantees issued to commissioning entities relating to bid bonds and performance bonds for euro 144 million (euro 288 million at December 31, 2006). At December 31, 2007, the underlying commitment covered by such guarantees was euro 19 million (euro 204 million at December 31, 2006).
Unsecured guarantees and other guarantees issued on behalf of joint ventures and affiliated companies of euro 6,995 million (euro 7,417 million at December 31, 2006) primarily concerned: (i) an unsecured guarantee of euro 5,870 million (euro 5,654 million at December 31, 2006) 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 l’Alta Velocità) Uno; consortium members, excluding unconsolidated entities controlled by Eni, gave Eni liability of surety letters and bank guarantees amounting to 10% of their respective portion of the work; (ii) unsecured guarantees, letters of patronage and other guarantees given to banks in relation to loans and lines of credit received for euro 824 million (euro 1,214 million at December 31, 2006), of which euro 677 million related to a contract released by Snam SpA (now merged into Eni SpA) on behalf of Blue Stream Pipeline Co BV (Eni 50%) to a consortium of international financing institutions (euro 756 million at December 31, 2006); (iii) unsecured guarantees and other guarantees given to commissioning entities relating to bid bonds and performance bonds for euro 119 million (euro 251 million at December 31, 2006).
At December 31, 2007, the underlying commitment covered by such guarantees was euro 1,562 million (euro 2,470 million at December 31, 2006).
Unsecured and other guarantees given on behalf of third parties of euro 291 million (euro 131 million at December 31, 2006) 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 regasification activity for euro 204 million; (ii) guarantees issued by Eni SpA to banks and other financial institutions in relation to loans and lines of credit for euro 20 million on behalf of minor investments or companies sold (euro 87 million at December 31, 2006). At December 31, 2007 the underlying commitment covered by such guarantees was euro 281 million (euro 121 million at December 31, 2006).

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Commitments and contingencies
Commitments and contingencies were as follows:

(million euro)		Dec. 31, 2006		Dec. 31, 2007

Commitments
Purchase of assets		9
Other		207		200
		216		200
Risks		1,329		1,520
		1,545		1,720

Other commitments of euro 200 million (euro 207 million at December 31, 2006) were essentially related to a memorandum of intent signed with the Basilicata Region, whereby Eni has agreed to invest euro 177 million in the future, also on account of Shell Italia E&P SpA, in connection with Eni’s development plan of oil fields in Val d’Agri (euro 181 million at December 31, 2006).
Risks of euro 1,520 million (euro 1,329 million at December 31, 2006) primarily concerned potential risks associated with the value of assets of third parties under the custody of Eni for euro 1,126 million (euro 918 million at December 31, 2006) and contractual assurances given to acquirers of certain investments and businesses of Eni for euro 376 million (euro 393 million at December 31, 2006).

Risk factors
The main company risks identified, monitored and, as described below, managed by Eni are the following: (i) the market risk deriving from the 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 Group’s business activities may not be available; (iv) the country risk in oil & gas activities; (v) the operational risk; (vi) the possible evolution of the Italian gas market; (vii) the specific risks deriving from the exploration and production activities.

In 2007 Eni’s management reviewed and revised policies and guidelines regarding standards to identify, assess, control and manage market risks of significance to Eni. The purpose was to issue a reference book on policies to be handily consulted and updated as appropriate. In 2007 risk policies have been revised to take account of changes in the group’s organizational structure (following the merger with Enifin on January 1, 2007 and the establishment of Eni Trading & Shipping) as well as needs to further integrate risk management.

Market risk
Market risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the group’s financial assets, liabilities or expected future cash flows. Eni’s market risk management activities is performed in accordance with standards prescribed by policies and guidelines mentioned above, providing for a centralized model of conducting finance, treasury and risk management operations based on three in separate entities: the parent company’s (Eni SpA) finance department, Eni Coordination Center; Banque Eni subject to certain Bank regulatory restrictions preventing the group’s exposure to concentrations of credit risk.
Additionally, in 2007, Eni Trading & Shipping was established and 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 of Italy, respectively, covering borrowing requirements and employing available surpluses

All the 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 derivative transactions on a speculative basis. The framework defined by Eni’s policies and guidelines prescribes that measurement and control of market risk are to be performed on the basis of maximum tolerable levels of risk exposure defined in accordance with value-at-risk techniques. These techniques make a statistical assessment of the market risk on the Group’s activity, i.e., potential gain or loss in fair values, due to changes in market conditions taking account of the correlation existing among changes in fair value of existing instruments. Eni’ s finance

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departments define maximum tolerable levels of risk exposure to changes in interest rates and foreign currency exchange rates, pooling Group companies risk positions. Calculation and measurement techniques for interest rate and foreign currency exchange rate risks followed by Eni are in accordance with established banking standards, as established by the Basel Committee for bank activities surveillance. Tolerable levels of risk are based on a conservative approach, considering the industrial nature of the company. Eni’s guidelines prescribe that Eni’s group companies minimize such kinds of market risks.
With regard to the commodity risk, Eni’s 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 Group’s 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 Group’s strategy to achieve growth targets or ordinary asset portfolio management. The group controls commodity risk with a maximum value-at-risk limit authorized for each business unit. Hedging needs from business units are pooled by Eni Trading & Shipping which also manages its own risk exposure.
The three different market risks, whose management and control have been summarized above, are described below.

Exchange rate risk
Exchange rate risk derives from the fact that Eni’s operations are conducted in currencies other than the euro (mainly in the U.S. dollar). In particular revenues and costs denominated in foreign currencies maybe significantly affected by fluctuations in the exchange rates typically due to conversion differences on specific transaction arising from the time lag existing between the execution of a given transaction and the definition of relevant contractual terms (economic risk) and conversion of foreign currency-denominated commercial and financial payables and receivables (transaction risk). Exchange rate fluctuations affect group’s reported results and net equity as financial statements of subsidiaries denominated in currencies other than the euro are translated from their functional currency into euro (translation risk).
Generally, an appreciation of the US dollar versus the euro has a positive impact on Eni’s results of operations, and viceversa.
Eni’s foreign exchange risk management policy is to minimize economic and transaction exposures arising from foreign currency movements. Eni does not undertake any hedging activity for risks deriving from translation of foreign currency denominated profits or investments except for single transactions to be evaluated on a case-by-case basis.
Effective management of exchange rate risk is performed within Eni’s central finance departments which match opposite positions within Group companies, hedging 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 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. Eni’s interest rate risk management policy is to minimize risk with the aim to achieve financial structure objectives defined and approved in the management’s plans. Borrowing requirements of the group’s companies are pooled by the group’s central finance department in order to manage net positions and the funding of portfolio developments consistently with management’s plans while maintaining a level of risk exposure within prescribed limits.
Eni enters into interest rate derivative transactions, in particular interest rate swap, 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
Eni’s results of operations are affected by changes in the prices of products and services sold. A decrease in oil and gas prices generally has a negative impact on Eni’s results of operations and viceversa. Eni manages the exposure to commodity price risk by optimizing core activities in order to achieve stable margins. In order to manage commodity risk in connection with its trading

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and commercial activities, 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 values in terms of value at risk, recorded during 2007 (compared with year 2006) referring to interest rate risk and exchange rate in the first section, and the commodity risk in the second section.

(Value-at-risk - parametric method variance/covariance; holding period: 20 days; confidence level: 99%)

	2006		2007

(million euro)

High

Low

Avg

At period end

High

Low

Avg

At period end

Interest rate		5.15		0.45		2.01		1.10		7.36		0.47		1.39		4.35
Exchange rate		2.02		0.02		0.24		0.21		1.25		0.03		0.21		0.43

(Value-at-risk - historic simulation method; holding period: 1 day; confidence level: 95%)

	2006		2007

($ million)

High

Low

Avg

At period end

High

Low

Avg

At period end

Hydrocarbons		35.69		5.40		17.80		8.59		44.59		4.39		20.17		12.68
Gas & power		46.63		18.36		31.01		22.82		54.11		20.12		34.56		25.57

Credit risk
Credit risk is the potential exposure of the Group to losses that would be recognized if counterparties failed to perform or failed to pay amounts due. The credit risk arising from the Group’s normal commercial operations is controlled by each operating unit within Group-approved procedures for evaluating the reliability and solvency of each counterparty, including receivable collection and the managing of commercial litigation. The monitoring activity of credit risk exposure is performed at the Group level according to set guidelines and measurement techniques to quantify and monitor counterparty risk. In particular, credit risk exposure to large clients and multi-business clients is monitored at the Group level on the basis of score cards quantifying risk levels. Eni’ s has established guidelines prior to entering into cash management and derivative contracts to assess the counterparty’s financial soundness and its rating. Eni has never experienced material non-performance by any counterparty. As of December 31, 2006 and 2007, Eni has no significant exposure to 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 settle obligations causing material financial losses in the case the group is required to incur additional expenses to meet its obligations or under the worst of conditions a default. Eni manages liquidity risk by targeting an optimal ratio between equity and total debt consistent with management plans and business objectives including prescribed limits in terms of maximum indebtedness rate and of minimum debt ratio between medium-long term debt and total debt as well as between fixed rate debt and total medium-long term debt. This enables Eni to maintain an appropriate level of liquidity and financial capacity as to minimize borrowing expenses and to achieve an optimal profile of composition and duration of indebtedness. The Group has access to a wide range of funding at competitive rates through the capital markets and banks and coordinates relationships with banks centrally. At present, the Group believes it has access to sufficient funding and has also both committed and uncommitted borrowing facilities to meet currently foreseeable borrowing requirements.
Effective management of the liquidity risk has the objective of ensuring both availability of adequate funding to meet short term requirements and due obligations, and a sufficient level of flexibility in order to fund the development plans of the Group businesses, maintaining an adequate finance structure in terms of debt composition and maturity.
This implies the adoption of a strategy for pursuing an adequate structure of borrowing facilities (particularly availability of committed borrowings facilities) and the maintenance of cash reserves.

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Undiscounted long-term debt by maturity date, comprehensive of the current portion and contractual interest payments at December 31, 2007, was as follows:

		Maturity

(euro million)		2008		2009		2010		2011		2012		Thereafter		Total

Long-term debt including the current portion of long-term debt

1,342

1,606

1,884

786

4,514

5,253

15,385

Country risk
Substantial portions of Eni’s hydrocarbons reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American. At December 31, 2007, approximately 70% of Eni’s proved hydrocarbons reserves were located in such countries. Similarly, a substantial portion of Eni’s natural gas supplies comes from countries outside the EU and North America. In 2007, approximately 60% of Eni’s domestic supply of natural gas came from such countries. Developments in the political framework, economic crisis, social unrest can compromise temporarily or permanently Eni’s ability to operate or to economically operate in such countries, and to have access to oil and gas reserves. Further risks related to the activity undertaken in these countries, are represented by: (i) lack of well established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; (ii) unfavourable developments in laws and regulations leading to expropriation of Eni’s titles and mineral assets relating to an important oil field in Venezuela which occurred in 2006, following the unilateral cancellation of the contract regulating oil activities in this field by the Venezuelan state oil company PDVSA; (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 Eni’s financial condition and results of operations. Eni periodically monitors political, social and economic risks of approximately 60 countries where it has invested or with regard to upstream projects evaluation where Eni is planning to invest, in order to assess returns of single projects based also on the evaluation of each country’s risk profile. Country risk is mitigated in accordance with guidelines on risk management defined in the procedure “Project risk assessment and management”.

Operational risk
Eni’s business activities conducted in and outside of Italy are subject to a broad range of legislation and regulations, including specific rules concerning oil and gas activities currently in force in countries in which it operates.
In particular, these laws and regulations require the acquisition of a licence before exploratory drilling may commence and the compliance with the health, safety and environment rules. These 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 conducts exploration, drilling and production activities in certain ecologically sensitive locations (protected areas).
Environmental, health and safety laws and regulations have a substantial impact on Eni’s operations and the expenses and liabilities that Eni may incur in relation to compliance with environmental, health and safety laws and regulations are expected to remain material to the group’s results of operations or financial position.
For this purpose, Eni adopted guidelines for the evaluation and management of health, safety and environmental (HSE) risks, with the objective of protecting Eni’s employees, the populations involved in its activity, contractors and clients, and the environment and being in compliance with local and international rules and regulations. Eni’s guidelines prescribe the adoption of international best practices in setting internal principles, standards and solutions.
The ongoing process for identifying, evaluating and managing HSE operations in each phase of the business activity and is performed through the adoption of procedures and effective pollution management systems tailored on 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 the assets, people and the environment are managed by the operating (business) units for each site. These units manage the HSE risk through a systematic way that involves having emergency response plans in place with a number of corrective actions to be taken that minimise damage in the event of an incident. In the case of major crisis, Division/Entity are assisted by the Eni Unit of Crises to deal with the emergency through a team which have the necessary training and skills to coordinate in a timely and efficient manner resources and facilities.
The integrated management system on health, safety and environmental matters is supported by the adoption of a Eni’s Model of

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HSE operations in all the Division and companies of 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, also subject to audits by internal and independent experts. Eni has major facilities certified to international environmental standards, such as ISO14001, OHSAS 18001 and EMAS particularly in the Petrochemicals and Refining & Marketing division.
Eni provides a program of specific training and development for HSE staff in order to:
- Promote the execution of behaviours consistent with guidelines.
- Drive people’s learning growth process by developing professionalism, management and corporate culture.
- Support management knowledge and control of HSE risks.
Further information on HSE activities, projects and R&D undertaken is provided on the Eni’s Intranet site.

Possible evolution of the Italian gas market
Legislative Decree No. 164/2000 opened the Italian natural gas market to competition, impacting on Eni’s activities, as the company is engaged in all the phases of the natural gas chain. The opening to competition was achieved through the enactment of certain antitrust thresholds on volumes input into the national transport network and on volumes sold to final customers. These enabled new competitors to enter the Italian gas market, resulting in declining selling margins on gas. Other material aspects regarding the Italian gas sector regulation are the regulated access to natural gas infrastructure (transport backbones, storage fields, distribution networks and LNG terminals), and the circumstance that the Authority for Electricity and Gas is entrusted with certain powers in the matters of natural gas pricing and in establishing tariffs for the use of natural gas infrastructures. Particularly, 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 supply of natural gas to residential and commercial users consuming less than 200,000 cubic meters per year (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. As a matter of fact, 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 cubic meters per year, establishing, among other things: (i) that an increase in the international price of Brent crude oil is only partially transferred to residential and commercial users of natural gas in case international prices of Brent crude oil exceed the 35 dollars per barrel threshold; and (ii) that Italian natural gas importers – including Eni – must renegotiate wholesale supply contracts in order to take account of this new indexation mechanism.
In order to meet the medium and long-term demand for natural gas, in particular in the Italian market, Eni entered into long-term purchase contracts with producing countries. These contracts which contain take-or-pay clauses, will ensure total supply volumes of approximately 62.4 bcm/y of natural gas to Eni by 2010. Despite the fact that an increasing portion of natural gas volumes purchased under said contracts is planned to be sold outside Italy, management believes that in the long-term unfavorable trends in the Italian demand and supply for natural gas, also due to the possible implementation of all publicly announced plans for the construction of new import infrastructure (backbone upgrading and new LNG terminals), and possible evolution of Italian regulatory framework, represent risk factors to the fulfillment of Eni’s obligations in connection with its take-or-pay supply contracts. Particularly, should natural gas demand in Italy grow at a lower pace than management expectations, also in view of expected developments in the supply of natural gas to Italy, Eni could face a further increase in competitive pressure on the Italian gas market resulting in a negative impact on its selling margins, taking account of Eni’s gas availability under take-or-pay supply contracts and execution risks in increasing its sales volumes in European markets.

Specific risks associated with the exploration and production of oil and natural gas
The exploration and production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks. 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 hostile environments, where the majority of Eni’s planned and ongoing projects is located.

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Managing sources of funds
Eni management makes use of the leverage as financial measure 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. Leverage is a measure of company’s level of indebtedness, calculated as the ratio between net borrowings and shareholders’ equity, including minority interests. In the medium term, management plans to target a level of leverage up to 0.4 which is intended to provide an efficient capital structure and the appropriate level of financial flexibility.

Other information about financial instruments
The book value of financial instruments and relevant economic effect consisted of the following:

		Finance income (expense) recognized in

(million euro)		Carrying amount		Profit and loss account		Equity

Held-for-trading financial instruments
Non-hedging derivatives (a)		217			78
Held-to-maturity financial instruments
Securities		21
Available-for-sale financial instruments
Securities (a)		433			39			(6	)
Receivables and payables and other assets/liabilities valued at amortized cost
Trade and receivables and other (b)		19,606			(242	)
Financing receivables (a)		2,276			112
Trade payables and other (c)		17,533			3
Financing payables (a)		19,830			(558	)
Assets at fair value through profit or loss (fair value option)
Investments (a)		2,476			188
Net liabilities for hedging derivatives (a)		2,241			(52	)		(2,237	)

(a)		Gains or losses were recognized in the profit and loss account within "Finance income (expense)".
(b)		In the profit and loss account, impairments and losses on receivables were recognized within "Purchase, services and other" for euro 177 million whilst negative exchange differences arising from accounts denominated in foreign currency and translated into euro at year-end were recognized within "Finance income (expense)" for euro 6 million.
(c)		Positive exchange differences arising from accounts denominated in foreign currency and translated into euro at year-end were recognized in the profit and loss account within "Finance income (expense)".

 

Legal Proceedings

Eni is a party to a number of civil actions and administrative proceedings arising in the ordinary course of business. Based on information available to date, and taking account of the existing risk provisions, Eni believes that the foregoing will not have an adverse effect on Eni’s Consolidated Financial Statements.
Following is a description of the most significant proceedings currently pending; unless otherwise indicated below, no provisions have been made for these legal proceedings as Eni believes that negative outcomes are not probable or because the amount of the provision can not be estimated reliably.

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1. Environment

1.1 Criminal proceedings

ENI SPA

ENIPOWER SPA

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SYNDIAL SPA (FORMER ENICHEM SPA)
Criminal action started by the public prosecutor of Brindisi. In 2000, the public prosecutor of Brindisi started a criminal action against 68 persons who are employees or former employees of companies that owned and managed plants for the manufacture of dichloroethane, vinyl chloride monomer and vinyl polychloride from the early 1960s to date, some of which were managed by EniChem from 1983 to 1993. At the end of the preliminary investigation, the public prosecutor asked for the dismissal of the case in respect of the employees and the managers of EniChem. Plaintiffs presented oppositions and the prosecutor confirmed the request to dismiss the case, rejecting such oppositions.

1.2 Civil and administrative proceedings

SYNDIAL SPA (FORMER ENICHEM SPA)

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2. Other judicial or arbitration proceedings

SYNDIAL SPA (FORMER ENICHEM SPA)

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ENI SPA

SNAMPROGETTI SPA

 

3. Antitrust, EU Proceedings, Actions of the Italian Authority for Electricity and Gas and of Other Regulatory Authorities

3.1 Antitrust

ENI SPA

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POLIMERI EUROPA SPA AND SYNDIAL SPA

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3.2 Regulation

Inquiry of the Italian Authority for Electricity and Gas regarding information to clients about the right to pay amounts due for natural gas sales in instalments. With Decision No. 228/2007, the Italian Authority for Electricity and Gas commenced a formal inquiry regarding information to clients about the right to pay amounts due for the natural gas sales in instalments in order to possibly impose the interruption of behaviour allegedly infringing clients’ rights and impose a fine. Eni accrued a provision for this proceeding.

DISTRIBUDORA DE GAS CUYANA SA
Formal investigation of the agency entrusted with the regulations for the natural gas market in Argentina. The agency entrusted with the regulations for the natural gas market in Argentina (“Enargas”) started a formal investigation on some operators, among these Distribuidora de Gas Cuyana SA, a company controlled by Eni. Enargas stated that the company improperly applied calculated conversion factors to volumes of natural gas invoiced to customers and requested the company to apply the conversion factors imposed by local regulations from the date of the default notification (March 31, 2004) without prejudice to any damage payment and fines that may be decided after closing the investigation. 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.

4. Tax Proceedings

ENI SPA
ICI Pineto. 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 territorial 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 for lacking payment and tax declaration. Eni filed a claim against this request stating that the sea where the platforms are located is not part of the municipal territory and the tax application 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. But the final decision Court cancelled both judgments declaring that a municipality can consider requesting a tax on real estate also in the sea facing its territory and with a decision of February 2005 sent the proceeding to another section of the Regional Tax Commission in order to judge on the matters of the proceeding. On February 22, 2007 the Commission held its hearing and the filing of the judgement is pending. On December 28, 2005, the Municipality of Pineto presented the same request for the same platforms for the years 1999 to 2004. The total amount requested from Eni is euro 24 million including interest and penalties. Eni filed a claim against this request which was accepted by the first degree judge with a decision of December 4, 2007.

AGIP KARACHAGANAK BV
Claims concerning unpaid taxes and relevant payment of interest and penalties. In July 2004, relevant Kazakh authorities informed Agip Karachaganak BV and Agip Karachaganak Petroleum Operating BV, shareholder and operator of the Karachaganak contract, respectively, on the final outcome of the tax audits performed for fiscal years 2000 to 2003. Claims by the Kazakh authorities concern unpaid taxes for a total of $43 million, net to Eni, and the anticipated offsetting of VAT credits for $140 million, net to Eni, as well as the payment of interest and penalties for a total of $128 million. Both companies filed a counterclaim. With an agreement reached on November 18, 2004, the original amounts were reduced to $26 million net to Eni that includes taxes, surcharges and interest. Meetings continue regarding residual matters. Eni recorded a provision for this matter.

AGIP KCO NV
In December 2007 the Kazakh tax authority filed a notice of tax assessment for fiscal years 2004 to 2006 to Agip KCO, operator of the Kashagan contract. Allegedly unpaid taxes, including interest and penalties, amount to approximately $235 million net to Eni and relate to unpaid amounts and inapplicable deductions on value added tax and the default in applying certain withholding taxes on payments to foreign suppliers. The same notice also informs the companies parties to the Kashagan contract that further assessments are pending on undeductible costs for $188 million net to Eni and higher taxable income of Kazakh organizations for $48 million net to Eni. The company filed an appeal. Eni made a provision on this matters.

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5. Court Inquiries

6. Settled Proceedings

ENI SPA
Inquiry of the Italian Authority for Electricity and Gas regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006. With Decision No. 37 of February 23, 2006, the Italian Authority for Electricity and Gas commenced an inquiry on a few natural gas selling companies, among which Eni, in order to possibly impose a fine or an administrative sanction regarding the use of storage capacity conferred in years 2004-2005 and 2005-2006.
For the 2004-2005 thermal year and for the period from October 1, 2005 to December 31, 2005, the Authority for Electricity and Gas supposed that given the weather of the period, the use of modulation storage capacity was featured by a higher volume of off takes with respect to the volume which would have been necessary to satisfy the commercial requirements for which the storage company entitled Eni to a priority in the conferral of storage capacity. According to the Authority for Electricity and Gas, such situation was in contrast with applicable regulation.

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Eni presented an articulated and documented memoranda to claim the thesis of the Authority for Electricity and Gas regarding the alleged non compliance of Eni behaviour with regulation in force, also taking account of the circumstances under which excess off takes occurred and the subsequent authorization of the Ministry for Economic Development to use the strategic storage for the thermal year 2004-2005.
With Decision No. 281/2006 of December 6, 2006, the Authority for Electricity and Gas closed said inquiry and fined Eni by euro 90 million of which euro 45 million pertaining to the thermal year 2004-2005 and euro 45 million to the thermal year 2005-2006 as a consequence of Eni having violated regulation in force pertaining to the priorities in the conferral of storage capacity.
Eni paid the amount of this fine pertaining to the thermal year 2004-2005 in accordance to a reduced form as provided by Law No. 689/1981 and filed an appeal against Decision No. 281/2006 of the Authority for Electricity and Gas before the Regional Administrative Court of Lombardy requesting the Tribunal: (i) for the first thermal 136 year, to ascertain whether Eni is legitimate to pay in a reduced form or, in case Eni is not legitimate to do so, to annul the fine; and (ii) for the second thermal year, to annul the fine. On June 19, 2007, the Regional Administrative Court of Lombardy ruled in favour of Eni and annulled that section of Decision No. 281/2006 of the Authority for Electricity and Gas imposing a fine on Eni for thermal year 2005-2006. Among other things, the Court’s ruling established that the elements collected by the Authority to fine Eni were lacking a sufficient degree of proof. With regard to thermal year 2004-2005, the Court ruled the request from Eni to ascertain its legitimacy to pay in a reduced form inadmissible being absent any opposition by the Authority. The terms for appealing this decision on part of the Authority expired. Consequently this proceeding closed without any further liability for the Company. Unutilized provision that were accrued for this proceeding in 2006 were recycled through profit and loss in 2007.

Inquiry of the Italian Antitrust Authority in relation to collusive mechanisms for the pricing of automotive fuels distributed on the retail market. With Decision of January 18, 2007, the Italian Antitrust Authority opened an inquiry to ascertain the existence of a possible agreement limit competition in the field of pricing of automotive fuels distributed on the retail market in Italy in violation of Article 81 of the EC Treaty. This inquiry concerns eight oil companies, among which Eni. According to the Authority, said companies would have been putting in place collusive mechanisms intended to influence the pricing of automotive fuels distributed on the retail market by way of a continuing exchange of informative flows since 2004. In April 2007, Eni filed with the Italian Antitrust Authority a proposal of initiatives, based on certain rules established by the same Authority enabling companies to reach the closure of a proceeding without sanctions or fines when they present counteractive measures designed to eliminate an infringing behaviour. In December 2007, The Antitrust Authority approved the initiatives proposed by Eni and decided to close the inquiry without ascertaining any violation and imposing any fine. In particular, Eni is engaged in initiatives designed to contain and possibly reduce the retail prices of fuels in the hyper-self selling mode until they are in line with European averages. It also committed itself to pursue agreements with large chain stores.

STOCCAGGI GAS ITALIA SPA
Tariffs. With Decision No. 26 of February 27, 2002, the Italian Authority for Electricity and Gas determined tariff criteria for modulation, mineral and strategic storage services for the period from April 1, 2002 to March 31, 2006 and effective retroactively from June 21, 2000. On March 18, 2002 Stoccaggi Gas Italia SpA (Stogit) filed its proposal of tariff for modulation, mineral and strategic storage for the first regulated period. With Decision No. 49 of March 26, 2002, the Authority for Electricity and Gas repealed Stogit’s proposal and defined tariffs for the first regulated period. Stogit applied the tariff determined by the two decisions, but filed an appeal against both decisions with the Regional Administrative Court of Lombardia requesting their cancellation. With a decision dated September 29, 2003, that court rejected the appeal presented by Stogit. Stogit filed an appeal to the Council of State against the sentence which was rejected by the Council of State on January 6, 2006.

POLIMERI EUROPA SPA
Violation of environmental regulations on waste management. Before the Court of Gela a criminal action took place relating to the alleged violation of environmental regulations on waste management concerning the ACN plant and the disposal of FOK residue deriving from the steam cracking process. Defendants were found guilty and a damage payment in first instance to an environmental association acting as plaintiff was required to be made. The amount of said damage payment is immaterial. The sentence was passed to the Civil Court for the quantification of any further damage and claim. Eni appealed this sentence and was acquitted by the Court of Appeal of Caltanissetta for non existence of the crime.

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RAFFINERIA DI GELA SPA
Soil and sea pollution. In 1999, the public prosecutor of Gela started an investigation in order to ascertain alleged soil and sea pollution caused by the discharge of pollutants by Eni’s Gela refinery. Three environmental organizations are acting as plaintiffs and have requested damage payment for euro 551 million. With a Decision of February 20, 2007, the Court of Gela dismissed these allegations.

SYNDIAL SPA
Summon for the ascertainment of responsibility in the pollution of soil of Paderno Dugnano. In 2004, Sitindustrie SpA, which in 1996 purchased a plant in Paderno Dugnano from Enirisorse (now merged into Syndial SpA), summoned Syndial SpA before the Court of Milan, requesting to establish the Syndial SpA’s responsibility in the alleged pollution of soil around the plant and to require it to pay environmental damage necessary for remediation. The Tribunal of Milan rejected the plaintiff’s request with a sentence released on June 10, 2006. The deadline to appeal the Tribunal sentence expired on November 1, 2007.

ENI SPA
Notification to Eni Petroleum Co Inc of a subpoena by the Department of Justice of the United States of America - Antitrust Division and request of information and documents relating to activities in the field of wax and of a deposition. On April 28, 2005, the Department of Justice of the United States of America - Antitrust Division, notified Eni Petroleum Co Inc of a subpoena requesting information and documents relating to activities in the field of wax to be filed before June 20, 2005 and a deposition on the same date. The Company informed the department that it does not produce nor import wax in the United States of America.

ENI SPA
Decree of the Lombardy Region. With a decree dated December 6, 2000, the Lombardy Region decided that natural gas used for electricity generation is subject to an additional regional excise tax in relation to which Snam SpA (merged into Eni SpA in 2002) should substitute for the tax authorities in its collection from customers. Given interpretive uncertainties, the same decree provides the terms within which distributing companies are expected to pay this excise tax without paying any penalty. Snam SpA and the other distributing companies of Eni believe that natural gas used for electricity generation is not subject to this additional excise tax. For this reason, an official interpretation was requested from the Ministry of Finance and Economy. With a Decision of May 29, 2001, the Ministry confirmed that this additional excise tax cannot be applied. The Region decided not to revoke its decree and Snam took appropriate legal action. On the basis of action carried out by Snam, the Council of State decided on March 18, 2002 that the jurisdiction of the Administrative Court did not apply to this case. In case the Region should request payment, Eni will challenge this request in the relevant Court. The Lombardy Region decided with Regional Law No. 27/2001 that no additional tax is due from January 1, 2002 onwards, but still requested the payment of taxes due before that date. The action for the recognition of such taxes bears a five-year term. Consequently, the exercise of such action has expired.

SNAM RETE GAS
Environmental tax of Sicilia Region upon the owners of primary pipelines. With Regional Law No. 2 of March 26, 2002, the Sicilia Region introduced an environmental tax upon the owners of primary pipelines in Sicily (i.e. pipelines operating at a maximum pressure of over 24 bar). Snam Rete Gas paid eight instalments for a total of euro 86.1 million and suspended payments in December 2002 based on a decision of the Regional Administrative Court of Lombardia. At the same time, Snam Rete Gas promoted all actions required to protect its interests with Italian and European Authorities.
On June 21, 2007 the European Court of Justice declared the regional law to be contrary to European rules and to the cooperation agreement between the European Economic Community and the Peoples’ Democratic Republic of Algeria, under which certain products (including natural gas) imported from this country could not be subjected to customs or other duties. Following this ruling, the Sicilia Region cancelled the law introducing the tax with Regional Law No. 15 of August 21, 2007. With various the Regional Tax Commission and the Provincial Tax Commission of Palermo declared the environmental tax of the Sicilia Region illegitimate because it is contrary to European rules and condemned the Region to repay the cashed amounts.
In its budget law for 2008 the Region accrued the necessary provisions for repaying Snam Rete Gas. On February 17, 2007 the Region and Snam Rete Gas signed an agreement that provides for the repayment in six annual instalments starting from the first quarter of 2008. On March 1, 2008 Snam Rete Gas received the first payment.

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Other risks and commitments
Parent company guarantees amounted to euro 11,110 million (euro 4,911 million at December 31, 2006) and were issued in connection with certain contractual commitments for hydrocarbon exploration and production activities, quantified on the basis of the capital expenditures to be incurred. The increase of euro 6,199 million primarily related to commitments that Agip Caspian Sea BV in Kazakhstan had entered into for euro 5,605 million.
Under the convention signed on October 15, 1991 by Treno Alta Velocità - TAV SpA and CEPAV (Consorzio Eni per l’Alta Velocità) Due, Eni committed to guarantee the execution of design and construction of the works assigned to the CEPAV Consortium (to which it is party) and guaranteed to TAV the correct and timely execution of all obligations indicated in the convention in a subsequent integration deed and in any further addendum or change or integration to the same. The regulation of CEPAV Due contains the same obligations and guarantees contained in the CEPAV Uno Agreement.
A commitment entered into by Eni USA Gas Marketing Llc on behalf of Cameron LNG for fulfilling certain obligations in connection with a regasification contract signed on August 1, 2005. This commitment is subject to a suspension clause and will come into force when the regasification service starts in a period included between October 1, 2008 and June 30, 2009 for an estimated total consideration of euro 226 million.
A commitment entered into by Eni USA Gas Marketing Llc on behalf of Gulf LNG Energy for the acquisition of unused regasification capacity (5.78 bcm/y) over a twenty-year period (2011-2031) for an estimated total consideration as high as $1,400 million equal to euro 951 million.
A commitment entered into by Eni USA Gas Marketing Llc on behalf of Angola LNG Supply Service for the acquisition of regasified gas at the Pascagoula plant in the United States that will come into force when the regasification service starts in a period included between 2011-2031.
Eni is liable for certain non-quantifiable risks related to contractual assurances given to acquirers of certain Eni’s assets, including businesses and investments, against certain contingent liabilities deriving from tax, social security contributions, environmental issues and other matters applicable to periods during which such assets were operated by Eni. Eni believes such matters will not have a material adverse effect on the Company’s results of operations and liquidity.

Assets under concession arrangements
Eni operates under concession arrangements mainly in the Exploration & Production segment and in some activities of the Gas & Power segment and the Refining & Marketing segment. In the Exploration & Production segment contractual clauses governing mineral concessions, licenses and exploration permits regulate the access of Eni to hydrocarbon reserves. Such clauses can differ in each country. In particular, mineral concessions, licenses and permits are granted by the legal owners and, generally, entered into with government entities, State oil companies and, in some legal contexts, private owners. As a compensation for mineral concessions, Eni pays royalties and taxes in accordance with local tax legislation. Eni sustains all the operation risks and costs related to the production and development activities and it is entitled to the productions realized. In Product Sharing Agreement and in buy-back contracts, realized productions are defined on the basis of contractual agreements drawn up with State oil companies which hold the concessions. Such contractual agreements regulate the recover of costs incurred for the exploration, development and operating activities (cost oil) and give entitlement to the own portion of the realized productions (profit oil). With reference to natural gas storage in Italy, the activity is conducted on the basis of concessions with a duration that not exceed a twenty years length and it is granted by the Ministry of Productive Activities to subjects that are consistent with legislation requirements and that can demonstrate to be able to conduct a storage program that meets the public interest in accordance with the laws. In the Gas & Power segment the gas distribution activity is primarily conducted on the basis of concessions granted by local public entities. At the expiry date of the concession, it is provided compensation, defined by using criteria of business appraisal, to the outgoing operator following the sale of its own gas distribution network. Service tariffs for distribution are defined on the basis of a method established by the Authority for Electricity and Gas. Legislative Decree No. 164/2000 provides the grant of distribution service exclusively by tender, with a maximum length of 12 years. In the Refining & Marketing segment several service stations and other auxiliary assets of the distribution service are located in the motorway areas and they are granted by the motorway concession operators following a public tender for the sub-concession of the supplying of oil products distribution service and other auxiliary services. Such assets are amortized over the length of the concession (generally, 5 years for Italy). In exchange of the granting of the services described above, Eni provides to the motorway companies fixed and variable royalties on the basis of quantities sold. At the end of the concession period, all non-removable assets are transferred to the grantor of the concession.

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Environmental regulations
Risks associated with the footprint of Eni’s activities on the environment, health and safety are described in the risk section above, under the paragraph “Operational risks”. Regarding the environmental risk, management does not currently expect any material adverse effect upon Eni’s consolidated financial statements, taking account of ongoing remedial actions, existing insurance policies to cover environmental risks 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 Eni’s liability, if any, as against other potentially responsible parties with respect to such litigation and the possible insurance recoveries.

Emission trading
Legislative Decree No. 216 of April 4, 2006 implemented the Emission Trading Directive 2003/87/EC concerning greenhouse gas emissions and Directive 2004/101/EC concerning the use of carbon credits deriving from projects for the reduction of emissions based on the flexible mechanisms devised by the Kyoto Protocol. This European emission trading scheme has been in force since January 1, 2005, and on this matter, on February 24, 2006, the Ministry of the Environment published a decree defining emission permits for the 2005-2007 period. In particular, Eni was assigned permits corresponding to 65.6 million tonnes of carbon dioxide (of which 22.4 for 2005, 22.4 for 2006 and 20.8 for 2007) in addition to approximately 11.7 million of permits assigned with respect to new plants in the three-year period 2005-2007. Following the realization of projects for the reduction of emissions, in particular related to the cogeneration of electricity and steam through high efficiency combined cycles in refineries and petrochemical sites, emissions of carbon dioxide from Eni’s plants were lower than permits assigned in 2007. In 2007 emissions of carbon dioxide amounted to approximately 24 millions of tonnes.

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29 Revenues
The following is a summary of the main components of "Revenues". More information about changes in revenues is provided in the “Financial review” section.
Net sales from operations were as follows:

(million euro)		2005		2006		2007

Net sales from operations		73,679			85,957			87,103
Change in contract work in progress		49			148			153
		73,728			86,105			87,256

Net sales from operations were net of the following items:

(million euro)		2005		2006		2007

Excise taxes		14,140			13,762			13,292
Exchanges of oil sales (excluding excise taxes)		2,487			2,750			2,728
Services billed to joint venture partners		1,331			1,385			1,554
Sales to service station managers for sales billed to holders of credit card		1,326			1,453			1,480
Exchanges of other products		108			127			121
		19,392			19,477			19,175

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:

(million euro)		2005		2006		2007

Contract penalties and other trade revenues		114			61			181
Lease and rental income		102			98			95
Compensation for damages		89			40			87
Gains from sale of assets		71			100			66
Other proceeds (*)		422			484			398
		798			783			827

30 Operating expenses
The following is a summary of the main components of "Operating expenses". More information about changes in operating expenses is provided in the in the “Financial review” section.

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Purchases, services and other
Purchases, services and other included the following:

(million euro)		2005		2006		2007

Production costs - raw, ancillary and consumable materials and goods		35,318			44,661			44,884
Production costs - services		9,405			10,015			10,828
Operating leases and other		1,929			1,903			2,276
Net provisions for contingencies		1,643			767			591
Other expenses		1,100			1,089			1,095
		49,395			58,435			59,674
less:
- capitalized direct costs associated with self-constructed assets - tangible assets		(704	)		(809	)		(1,357	)
- capitalized direct costs associated with self-constructed assets - intangible assets		(124	)		(136	)		(138	)
		48,567			57,490			58,179

Production costs - services include brokerage fees for euro 37 million (euro 24 million and euro 39 million in 2005 and 2006, respectively).
Costs incurred in connection with research and development activity recognized in profit and loss amounted to euro 189 million (euro 202 million and euro 219 million in 2005 and 2006, respectively) as they do not meet the requirements to be capitalized.
The item "Operating leases and other" included operating leases for euro 1,081 million (euro 777 million and euro 860 million in 2005 and 2006, respectively) and royalties on hydrocarbons extracted for euro 772 million (euro 965 million and euro 823 million in 2005 and 2006, respectively). Future minimum lease payments expected to be received under non-cancelable operating leases were as follows:

(million euro)		2005		2006		2007

To be paid within 1 year		363			594			588
Between 2 and 5 years		799			1,474			1,401
Beyond 5 years		418			762			942
		1,580			2,830			2,931

Operating leases primarily concerned 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 dividend, use assets or to take on new borrowings.
Increase of provisions for contingencies net of reversal of unutilized provisions amounted to euro 591 million (euro 1,643 million and euro 767 million in 2005 and 2006, respectively) and mainly regarded environmental risks for euro 327 million (euro 515 million and euro 248 million in 2005 and 2006, respectively), contract penalties and legal or administrative proceedings for euro 79 million (euro 336 million and euro 149 million in 2005 and 2006, respectively), and marketing initiatives awarding prizes to clients for euro 59 million (euro 50 million and euro 44 million in 2005 and 2006, respectively). More information is included in Note 22 - Provisions for contingencies.

Payroll and related costs
Payroll and related costs were as follows:

(million euro)		2005		2006		2007

Wages and salaries		2,484			2,630			2,906
Social security contributions		662			691			690
Cost related to defined benefits plans and defined contributions plans		126			230			161
Other costs		255			305			275
		3,527			3,856			4,032
less:
- capitalized direct costs associated with self-constructed assets - tangible assets		(143	)		(161	)		(184	)
- capitalized direct costs associated with self-constructed assets - intangible assets		(33	)		(45	)		(48	)
		3,351			3,650			3,800

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Provisions for post-retirement benefits of euro 161 million included a gain deriving from the curtailment of the provisions accrued by Italian companies for employee termination indemnities ("TFR") following the changes introduced by the Italian Budget Law for 2007 and related decrees (euro 83 million). More information is included in Note 23 - Provisions for employee benefits.

Average number of employees
The average number and break-down of employees by category of Eni’s subsidiaries were as follows:

(million euro)		2005		2006		2007

Senior managers		1,754			1,676			1,594
Junior managers		10,747			11,142			11,816
Employees		34,457			34,671			35,725
Workers		24,345			25,426			25,582
		71,303			72,915			74,717

The average number of employees was calculated as average between the number of employees at 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-based compensation schemes are designed to improve motivation and loyalty of the managers of Eni SpA and its subsidiaries as defined in Article 2359 of the Civil Code¹², by linking compensation to the attainment of preset individual and corporate objectives, making management participate in corporate risk and motivating them towards the creation of shareholder value.

STOCK GRANTS
Stock grants schemes provide for granting treasury shares for no consideration to those managers who have achieved corporate and individual objectives. The Company used this scheme for the 2003, 2004 and 2005 years. Grants vest within 45 days after the end of the third year from the date of the engagement.
At December 31, 2007, 902,800 grants were outstanding for assigning an equal number of treasury shares with a nominal value of euro 1 per share. These grants regarded the 2003 plan for a total of 2,500 shares with a fair value of euro 11.20 per share, the 2004 plan for a total of 1,700 shares with a fair value of euro 14.57 per share and the 2005 plan for a total of 898,600 shares with a fair value of euro 20.08 per share.
Changes in the 2005, 2006 and 2007 stock grant plans consisted of the following:

		2005		2006		2007

Number of shares

Market price (a) (euro)

Number of shares

Market price (a) (euro)

Number of shares

Market price (a) (euro)

Stock grants as of January 1		3,112,200			18.461			3,127,200			23.460			1,873,600			25.520
New rights granted		1,303,400			21.336
Rights exercised in the period		(1,273,500	)		23.097			(1,236,400	)		23.933			(966,000	)		24.652
Rights cancelled in the period		(14,900	)		22.390			(17,200	)		23.338			(4,800	)		26.972
Stock grants outstanding as of December 31		3,127,200			23.460			1,873,600			25.520			902,800			25.120
of which exercisable at December 31		38,700			23.460			156,700			25.520			68,100			25.120

 

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STOCK OPTION
2002-2004 AND 2005 PLANS
Stock options plans provide the right for the assignee to purchase treasury shares with a 1 to 1 ratio after the end of the third year from the date of the grant (vesting period) and for a maximum period of five years. The strike price was determined to be the arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding the grant date or, from 2003 onwards, the average carrying amount of treasury shares as of the day preceding the assignment, if greater.

2006-2008 PLAN
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 determine the percentage of exercisable options, from 0 to 100, in relation to the Total Shareholders’ Return (TSR) of the Eni’s share as benchmarked against the TSR delivered by a panel of the six largest international oil companies for market capitalization. Options can be exercised for a maximum period of three years. The strike price is calculated as the arithmetic average of official prices registered on the Mercato Telematico Azionario in the month preceding assignment.
The arithmetic average of such prices, weighted with the number of shares assigned, amounts to euro 23.119 and euro 27.451 per share for 2006 and 2007, respectively.
At December 31, 2007, 17,699,625 options were outstanding for the purchase of 17,699,625 ordinary shares.
The break-down of outstanding options is the following:

• 2002 stock plan for 107,500 shares with an exercise price of euro 15.216 per share.
• 2003 stock plan for 281,400 shares with an exercise price of euro 13.743 per share.
• 2004 stock plan for 1,124,000 shares with an exercise price of euro 16.576 per share.
• 2005 stock plan for 3,812,000 shares with an exercise price of euro 22.512 per share.
• 2006 stock plan for 6,467,775 shares with an exercise price of euro 23.119 per share.
• 2007 stock plan for 5,906,950 shares with an exercise price of euro 27.451 per share.

At December 31, 2007 the weighted-average remaining contractual life of the plans at December 2002, 2003, 2004, 2005, 2006 and 2007 was 2 years and 7 months, 3 years and 7 months, 4 years and 7 months, 5 years and 7 months, 4 years and 7 months and 5 years and 7 months, respectively.
Changes of stock option plans in 2005, 2006 and 2007 consisted of the following:

		2005		2006		2007

Number of shares

Weighted average (euro)

Market price (a) (euro)

Number of shares

Weighted average (euro)

Market price (a) (euro)

Number of shares

Weighted average (euro)

Market price (a) (euro)

Options as of January 1		11,789,000			15.111		18.461		13,379,600			17.705		23.460		15,290,400			21.022		25.520
New options granted		4,818,500			22.512		22.512		7,050,000			23.119		23.119		6,128,500			27.451		27.447
Options exercised in the period		(3,106,400	)		15.364		22.485		(4,943,200	)		15.111		23.511		(3,028,200	)		16.906		25.338
Options cancelled in the period		(121,500	)		16.530		23.100		(196,000	)		19.119		23.797		(691,075	)		24.346		24.790
Options outstanding as of December 31		13,379,600			17.705		23.460		15,290,400			21.022		25.520		17,699,625			23.822		25.120
of which exercisable at December 31		1,540,600			16.104		23.460		1,622,900			16.190		25.520		2,292,125			18.440		25.120

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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, euro 3.33 per share respectively. For 2006 and 2007 the weighted average was euro 2.89 and euro 2.98 per share respectively. The fair value was determined by applying the following assumptions:

				2002		2003		2004		2005		2006		2007
Risk-free interest rate		(%)		3.5		3.2		3.2		2.5		4.0		4.7
Expected life		(year)		8		8		8		8		6		6
Expected volatility		(%)		43.0		22.0		19.0		21.0		17.0		16.3
Expected dividends		(%)		4.5		5.4		4.5		4.0		5.3		4.9

Costs of the year related to stock grant and stock option plans amounted to euro 27 million (euro 35 and euro 20 million in 2005 and 2006, respectively).

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 manager with strategic responsibility (key management) amount to euro 15 million, euro 23 million and euro 25 million for 2005, 2006 and 2007 respectively, and consisted of the following:

(million euro)		2005		2006		2007

Wages and salaries		11			16			17
Post-employment benefits		1			1			1
Other long term benefits					3			3
Indemnities due upon termination of employment		1
Stock grant/option		2			3			4
		15			23			25

Compensation of Directors and Statutory Auditors
Compensation of Directors amounted to euro 19.2 million, euro 8.7 million and euro 8.9 million for 2005, 2006 and 2007, respectively. Compensation of Statutory Auditors amounted to euro 0.785, euro 0.686 million and euro 0.678 million in 2005, 2006 and 2007, 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.

Depreciation, amortization and impairments
Depreciation, amortization and impairments charges consisted of the following:

(million euro)		2005		2006		2007

Depreciation and amortization:
- tangible assets		4,576			4,821			5,031
- intangible assets		936			1,335			2,000
		5,512			6,156			7,031
Impairments:
- tangible assets		264			231			145
- intangible assets		8			54			62
		272			285			207
less:
- direct costs associated with self-constructed assets					(17	)
- capitalized direct costs associated with self-constructed assets - tangible assets		(2	)		(2	)		(2	)
- capitalized direct costs associated with self-constructed assets - intangible assets		(1	)		(1	)
		5,781			6,421			7,236

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31 Financial income (expense)
Finance income (expense) consisted of the following:

(million euro)		2005		2006		2007

Income on investments								188
Financial expense capitalized		159			116			180
Net income from financial receivables		95			130			112
Net income from securities		36			51			39
Interest on tax credits		17			17			31
Income (expense) on derivatives		(386	)		383			26
Exchange differences, net		169			(152	)		(51	)
Net interest due to banks		(38	)		79			(80	)
Net interest due to other financing institutions		(56	)		(101	)		(129	)
Financial expense due to passage of time (accretion discount) (a)		(109	)		(116	)		(186	)
Interest and other financial expense on ordinary bonds		(265	)		(247	)		(258	)
Other financial expense, net		12			1			45
		(366	)		161			(83	)

Gains (losses) on financial derivatives instruments consisted of the following:

(million euro)		2005		2006		2007

Derivatives on exchange rate		(85	)		313			120
Derivatives on interest rate		(138	)		61			35
Derivatives on commodities		(163	)		9			(129	)
		(386	)		383			26

Net gain from derivatives of euro 26 million (euro 386 million of net loss and euro 383 million of net gain in 2005 and 2006, respectively) was primarily due to the recognition in the profit and loss account of the change in fair value valuation of derivatives that cannot be qualified as hedging instruments under IFRS. In fact, since these derivatives are entered for amounts corresponding to the net exposure to exchange rate risk, interest rate risk or commodity risk, they cannot be referred to specific trade or financing transactions. The lack of these formal requirements in order to assess these derivatives as hedging instruments under IFRS provides also the recognition in profit or loss of negative exchange translation differences on assets and liabilities denominated in currencies other than functional currency, as these translation effects cannot be offset by changes in fair value of derivative contracts.
Losses on commodity derivatives amounted to euro 129 million of which euro 52 million related to the ineffective portion of the negative change in fair value of cash flow hedging derivatives entered into by the Exploration & Production segment in order to hedge the exposure to variability in future cash flows expected in the 2008-2011 period deriving from marketing an amount of Eni’s hydrocarbon proved reserves equal to 2% of proved reserves as of December 31, 2006 in connection with the acquisition in 2007 of production, development and exploration upstream properties onshore Congo from the French company
Maurel & Prom and in the Gulf of Mexico from the US company Dominion Resources. Further information is given in Note 20 - Other current liabilities and Note 25 - Other non-current liabilities.
Income from equity instruments of euro 188 million regarded the valuation at fair value of the 20% interest in OAO Gazprom Neft and the related call option granted by Eni to Gazprom (more information is included in Note 2 - Other financial assets held for trading or available for sale).


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:

(million euro)		2005		2006		2007

Share of profit of equity-accounted investments		770			887			906
Share of loss of equity-accounted investments		(33	)		(36	)		(135	)
Decreases (increases) in the provision for losses on investments					(56	)		2
		737			795			773

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More information is provided in Note 12 - Equity-accounted investments.

Other gain (loss) from investments
Other gain (loss) from investments consisted of the following:

(million euro)		2005		2006		2007

Gains on disposals		179			25			301
Dividends		33			98			170
Losses on disposals		(8	)		(7	)		(1	)
Other income (expense), net		(27	)		(8	)
		177			108			470

Gains on disposals of euro 301 million primarily related to the sale of Haldor Topsøe AS (euro 265 million) and Camom SA (euro 25 million). Gains on disposals for 2006 of euro 25 million primarily related to the sale of Fiorentina Gas SpA and Toscana Gas SpA (euro 16 million).
Gains on disposal for 2005 of euro 179 million primarily related to the sale of Italiana Petroli SpA (euro 132 million). Dividends of euro 170 million primarily related to Nigeria LNG Ltd (euro 131 million) and Saudi European Petrochemical Co - IBN ZAHR (euro 19 million).

33 Income tax expense
Income tax expense consisted of the following:

(million euro)		2005		2006		2007

Current taxes:
- Italian subsidiaries		1,872			2,007			2,380
- foreign subsidiaries of the Exploration & Production segment		5,116			6,740			6,695
- foreign subsidiaries		373			529			482
		7,361			9,276			9,557
less:
- tax credits on dividend distributions not offset with current tax payment		(34	)
		7,327			9,276			9,557
Net deferred taxes:
- Italian subsidiaries		334			230			(582	)
- foreign subsidiaries of the Exploration & Production segment		464			1,095			246
- foreign subsidiaries		3			(33	)		(2	)
		801			1,292			(338	)
		8,128			10,568			9,219

Current income taxes of euro 2,380 million were in respect of Italian subsidiaries for Ires (euro 1,964 million) and Irap (euro 346 million) and of foreign taxes (euro 70 million).
The effective tax rate was 46% (46.8% and 51.8% in 2005 and 2006, respectively) compared with a statutory tax rate of 37.9% (38.1% and 37.9% in 2005 and 2006, respectively) and calculated by applying a 33% tax rate (Ires) to profit before income taxes and 4.25% tax rate (Irap) to the net value of production as provided for by Italian laws. Statutory tax rates of Ires and Irap that were reduced to 27.5% and 3.9% respectively are effective from January 1, 2008.

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

(%)		2005		2006		2007

Statutory tax rate		38.1			37.9			37.9
Items increasing (decreasing) statutory tax rate:
- higher foreign subsidiaries tax rate		8.8			13.6			10.2
- changes in Italian statutory tax rate and adjustment of tax base of amortizable assets for Italian subsidiaries								(2.0	)
- permanent differences and other adjustments		(0.1	)		0.3			(0.1	)
		8.7			13.9			8.1
		46.8			51.8			46.0

In 2007 the increase in the tax rate of foreign subsidiaries primarily related to a 15 percentage points increase in the Exploration & Production segment (12.7% and 17.2% in 2005 and 2006, respectively). In 2006 the increase in the tax rate of foreign subsidiaries relating the Exploration & Production segment (4.5 percentage points) mainly derived from the application of a windfall tax introduced by the Algerian government with effect starting from August 1, 2006 (1.6 percentage points) and a supplemental tax rate introduced by the government of the United Kingdom relating to the North Sea productions with effect starting from January 1, 2006 (1 percentage point).
The adjustment to deferred tax assets and liabilities for Italian subsidiaries were recognized in connection with certain amendments to the Italian tax regime enacted by the 2008 Budget Law. 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) effective January 1, 2008.
In 2006 and 2005 permanent differences mainly arose from certain charges that are not deductible because taken in connection with risk provisions arising from proceedings against the Italian Antitrust and other regulatory Authorities (0.4 and 0.6 percentage points respectively).


34 Earnings per share
Basic earnings per ordinary share are calculated by dividing net profit for the year attributable to Eni’s shareholders by the weighted average number of ordinary shares issued and outstanding during the year, excluding treasury shares.
The average number of ordinary shares used for the calculation of the basic earnings per share outstanding at December 31, 2005, 2006 and 2007, was 3,758,519,603, 3,698,201,896 and 3,668,305,807 respectively.
Diluted earnings per share is calculated by dividing net profit for the year attributable to Eni’s shareholders by the weighted average number of 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.
The average number of shares fully diluted used in the calculation of diluted earnings was 3,763,375,140, 3,701,262,557 and 3,669,172,762 for the years ending December 31, 2005, 2006 and 2007 respectively.
Reconciliation of the average number of shares used for the calculation for both basic and diluted earning per share was as follows:

(million euro)		2005		2006		2007

Average number of shares used for the calculation of the basic earnings per share				3,758,519,603		3,698,201,896		3,668,305,807
Number of potential shares following stock grant plans				2,268,265		1,070,676		302,092
Number of potential shares following stock options plans				2,587,272		1,989,985		564,863
Average number of shares used for the calculation of the diluted earnings per share				3,763,375,140		3,701,262,557		3,669,172,762
Eni’s net profit		(million euro)		8,788		9,217		10,011
Basic earning per share		(euro per share)		2.34		2.49		2.73
Diluted earning per share		(euro per share)		2.34		2.49		2.73

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35 Information by industry segment and geographic financial information

Information by industry segment¹³

(million euro)

Exploration & Production

Gas & Power

Refining & Marketing

Petrochemicals

Engineering & Construction

Other activities

Corporate and financial companies

Elimination

Total

2005
Net sales from operations (a)		22,531			22,969			33,732			6,255			5,733			863			1,239
Less: intersegment sales		(14,761	)		(572	)		(1,092	)		(683	)		(925	)		(546	)		(1,015	)
Net sales to customers		7,770			22,397			32,640			5,572			4,808			317			224						73,728
Operating profit		12,592			3,321			1,857			202			307			(934	)		(377	)		(141	)		16,827
Provisions for contingencies		50			703			420			47			32			284			107						1,643
Depreciation, amortization and writedowns		4,101			685			467			147			180			91			114			(4	)		5,781
Share of profit (loss) of equity-accounted investments		14			359			221			3			140												737
Identifiable assets (b)		29,010			21,928			11,787			2,905			5,248			438			1,523			(534	)		72,305
Unallocated assets																										11,545
Equity-accounted investments		292			2,155			936			19			457			31									3,890
Identifiable liabilities (c)		6,785			5,097			4,542			702			3,204			2,070			2,131						24,531
Unallocated liabilities																										20,102
Capital expenditures		4,965			1,152			656			112			349			48			132						7,414
2006
Net sales from operations (a)		27,173			28,368			38,210			6,823			6,979			823			1,174
Less: intersegment sales		(18,445	)		(751	)		(1,300	)		(667	)		(771	)		(520	)		(991	)
Net sales to customers		8,728			27,617			36,910			6,156			6,208			303			183						86,105
Operating profit		15,580			3,802			319			172			505			(622	)		(296	)		(133	)		19,327
Provisions for contingencies		153			197			264			30			(13	)		236			(100	)					767
Depreciation, amortization and writedowns		4,776			738			447			174			196			28			71			(9	)		6,421
Share of profit (loss) of equity-accounted investments		28			509			194			2			66			(4	)								795
Identifiable assets (b)		29,720			23,500			11,359			2,984			6,362			344			1,023			(666	)		74,626
Unallocated assets																										13,686
Investments accounted for using the equity method		258			2,214			874			11			483			46									3,886
Identifiable liabilities (c)		9,119			5,284			4,712			806			3,869			1,940			1,619						27,349
Unallocated liabilities																										19,764
Capital expenditures		5,203			1,174			645			99			591			72			88			(39	)		7,833

 

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Information by industry segment continued

(million euro)

Exploration & Production

Gas & Power

Refining & Marketing

Petrochemicals

Engineering & Construction

Other activities

Corporate and financial companies

Elimination

Total

2007
Net sales from operations (a)		27,278			27,633			36,401			6,934			8,678			205			1,313
Less: intersegment sales		(16,475	)		(760	)		(1,276	)		(363	)		(1,182	)		(31	)		(1,099	)
Net sales to customers		10,803			26,873			35,125			6,571			7,496			174			214						87,256
Operating profit		13,788			4,127			729			74			837			(444	)		(217	)		(26	)		18,868
Provisions for contingencies		5			37			256			15			11			264			3						591
Depreciation, amortization and writedowns		5,626			687			491			116			248			10			68			(10	)		7,236
Share of profit (loss) of equity-accounted investments		23			449			216						79			6									773
Identifiable assets (b)		33,435			24,630			13,767			3,427			8,017			275			854			(692	)		83,713
Unallocated assets																										17,847
Equity-accounted investments		1,926			2,152			1,267			15			230			49									5,639
Identifiable liabilities (c)		11,480			5,390			5,420			939			4,449			1,827			1,380						30,885
Unallocated liabilities																										27,808
Capital expenditures		6,625			1,366			979			145			1,410			59			108			(99	)		10,593

Inter-segment sales were conducted on an arm’s length basis.

Geographic financial information

ASSETS AND INVESTMENTS BY GEOGRAPHIC AREA OF ORIGIN

(million euro)

Italy

Other EU

Rest of Europe

Americas

Asia

Africa

Other areas

Total

2005
Identifiable assets (a)		38,229		8,768		3,085		2,670		5,864		13,445		244		72,305
Capital expenditures		2,442		545		415		507		1,181		2,233		91		7,414
2006
Identifiable assets (a)		37,339		10,037		3,200		2,987		6,341		14,190		532		74,626
Capital expenditures		2,529		713		436		572		1,032		2,419		132		7,833
2007
Identifiable assets (a)		39,742		11,071		3,917		6,260		6,733		15,468		522		83,713
Capital expenditures		3,246		1,246		469		1,004		1,253		3,152		223		10,593

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SALES FROM OPERATIONS BY GEOGRAPHIC AREA OF DESTINATION

(million euro)		2005		2006		2007

Italy		32,846			36,343			37,346
Other European Union		19,601			23,949			21,895
Rest of Europe		5,123			6,975			6,686
Americas		6,103			6,250			6,447
Asia		4,399			5,595			5,840
Africa		5,259			5,949			8,010
Other areas		397			1,044			1,032
		73,728			86,105			87,256

 

36 Transactions with related parties
In the ordinary course of its business Eni enters into transactions concerning the exchange of goods, provision of services and financing with joint ventures, affiliated companies and non-consolidated subsidiaries as well as with entities directly and indirectly owned or controlled by the Government. All such transactions are mainly conducted on an arm’s length basis on behalf of Eni companies.
The following is a description of trade and financing transactions with related parties.

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Trade and other transactions
Trade and other transactions in the 2005 consisted of the following:

(million euro)		Dec. 31, 2005		2005

Name

Receivables

Payables

Guarantees

Goods

Services

Goods

Services

Joint ventures and affiliates
ASG Scarl		13		66		72				173				6
Azienda Energia e Servizi Torino SpA		2		24						56				2
Bayernoil Raffineriegesellshaft mbH				49		1				814
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH		10										172
Blue Stream Pipeline Co BV		45		12						177				4
Bronberger & Kessler Und Gilg & Schweiger GmbH		12										207
Cam Petroli Srl		85										593
CEPAV (Consorzio Eni per l’Alta Velocità) Uno		105		107		4,894								411
Eni Oil Co Ltd				84						50
Fox Energy SpA		22						4				240
Gruppo Distribuzione Petroli Srl		22										89
Karachaganak Petroleum Operating BV		13		46				6		99				4
Mellitah Gas BV (ex Eni Gas BV)		16		149						47
Mangrove Gas Netherlands BV						55
Modena Scarl		2		12		61				56		1		1
Petrobel Belayim Petroleum Co				138						248
Promgas SpA		44		45				307				355
Raffineria di Milazzo ScpA		10		10						204		94
Rodano Consortile Scarl		2		20						80				2
RPCO Enterprises Ltd						55
Supermetanol CA				8				65
Super Octanos CA		1		14				265
Toscana Energia Clienti SpA		46										118
Trans Austria Gasleitung GmbH		43		55				43		143				47
Transitgas AG				7						64
Transmediterranean Pipeline Co Ltd				4						88				1
Unión Fenosa Gas SA		4		4		62		79				16		2
Other (*)		101		86		112		69		157		147		67
		598		940		5,312		838		2,456		2,032		547
Unconsolidated entities controlled by Eni
Agip Kazakhstan North Caspian Operating Co NV		4		152				5		19				28
Eni BTC Ltd						165
Other (*)		44		48		8		1		31		15		9
		48		200		173		6		50		15		37
		646		1,140		5,485		844		2,506		2,047		584
Entities owned or controlled by the Government
Alitalia		20										276
Enel		187		5				12		10		1,180		333
Other (*)		20		19						57		103		12
		227		24				12		67		1,559		345
		873		1,164		5,485		856		2,573		3,606		929

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Trade and other transactions for the year 2006 consisted of the following:

(million euro)		Dec. 31, 2006		2006

Name

Receivables

Payables

Guarantees

Goods

Services

Goods

Services

Joint ventures and affiliates
ASG Scarl		7		40		80				88		1		1
Azienda Energia e Servizi Torino SpA		1		22						64		1		1
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH		10										96
Blue Stream Pipeline Co BV		34		19						193				1
Bronberger & Kessler Und Gilg & Schweiger GmbH		11										113
Cam Petroli Srl		103										310
CEPAV (Consorzio Eni per l’Alta Velocità) Uno		87		87		5,654		16		2				304
Charville - Consultores e Serviços Lda		7				85						4		11
Eni Oil Co Ltd		5		96						59
Fox Energy SpA		35										125
Gasversorgung Süddeutschland GmbH		14								1		123		19
Gruppo Distribuzione Petroli Srl		19										54
Karachaganak Petroleum Operating BV		23		70				29		129				7
Mangrove Gas Netherlands BV				1		52
Mellitah Gas BV (ex Eni Gas BV)		28		90				7		72		8		2
Petrobel Belayim Petroleum Co				3						181
Promgas SpA		44		39				375				419
Raffineria di Milazzo ScpA		9		12						237		109
Rodano Consortile Scarl		3		14						54				1
RPCO Enterprises Ltd		13				104								12
Supermetanol CA				13				91
Super Octanos CA				13				257
Trans Austria Gasleitung GmbH		7		78				53		138				56
Transitgas AG				8						64
Transmediterranean Pipeline Co Ltd				7						80
Unión Fenosa Gas SA		1		7		61		93		7
Other (*)		72		169		168		75		188		119		66
		533		788		6,204		996		1,557		1,482		481
Unconsolidated entities controlled by Eni
Agip Kazakhstan North Caspian Operating Co NV		27		132				18		16				57
Eni BTC Ltd						185
Eni Timor Leste SpA						102
Other (*)		20		30		8		1		4		8		4
		47		162		295		19		20		8		61
		580		950		6,499		1,015		1,577		1,490		542
Entities owned or controlled by the Government
Alitalia		12										354
Enel		162		42				47		33		1,068		383
Other (*)		42		29				4		44		136		1
		216		71				51		77		1,558		384
		796		1,021		6,499		1,066		1,654		3,048		926

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Trade and other transactions in 2007 consisted of the following:

(million euro)		Dec. 31, 2007		2007

Name

Receivables

Payables

Guarantees

Goods

Services

Goods

Services

Joint ventures and affiliated companies
ASG Scarl		6		43		121				108				3
Bernhard Rosa Inh. Ingeborg Plochinger GmbH		11										86
Blue Stream Pipeline Co BV		19								183				1
Bronberger & Kessler und Gill & Schweiger GmbH		18										106
CEPAV (Consorzio Eni per l’Alta Velocità) Uno		84		70		5,870								263
CEPAV (Consorzio Eni per l’Alta Velocità) Due		1		1		64				1				1
Eni Oil Co Ltd		7		60						141		1
Fox Energy Srl		49										139
Gasversorgung Süddeutschland GmbH		54										195		4
Gruppo Distribuzione Petroli Srl		26										50
Karachaganak Petroleum Operating BV		43		102				24		301				7
Mellitah 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		172		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
Alitalia		4										363		1
Enel		384		8						245		894		408
GSE - Gestore Servizi Elettrici		124		63				239		37		870		7
Terna SpA		19		69				106		105				31
Other (*)		45		79				19		89		75		3
		576		219				364		476		2,202		450
		1,335		1,082		6,321		799		2,978		3,218		980

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Engineering, construction and maintenance services were acquired from the Cosmi Holding Group, related to Eni through a member of the Board of Directors. Transactions on an arm's length basis amounted to approximately euro 18 million, euro 13 million and euro 18 million in 2005, 2006 and 2007, respectively.
Most significant transactions 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 l’Alta Velocità) Uno, and related guarantees.
• Supply of oil products to Bernahard Rosa Inh. Ingerborg Ploechinger GmbH, Bronberger & Kessler und Gilg & Schweiger GmbH, Fox Energy Srl, 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 arm’s length basis.
• Acquisition of natural gas transport services outside Italy from Blue Stream Pipeline Co BV, Trans Austria Gasleitung GmbH and Transitgas AG.
• Guarantees issued on behalf of CEPAV (Consorzio Eni per l’Alta Velocità) Due 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, Mellitah Gas BV, Eni Oil Co Ltd, Karachaganak Petroleum Operating BV and Petrobel Belayim Petroleum Co; services are invoiced on the basis of incurred costs.
• Receivable for dividends from OOO “EniNeftegaz”.
• Sale of natural gas with Gasversorgung Süddeutschland GmbH.
• Acquisition of refining services from Raffineria di Milazzo ScpA in relation to incurred costs.
• Acquisition of petrochemical products from Supermetanol CA and Super Octanos CA on the basis of prices referred to the quotations on international markets of the main products.
• Acquisition of natural gas transport services outside Italy from Transmediterranean Pipeline Co Ltd; transactions are regulated on the basis of tariffs which ensure a return on invested capital.
• 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.
• Sale of oil products with Alitalia.
• 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.
• Sale and purchase of electricity with GSE - Gestore Servizi Elettrici.
• Sale and purchase of electricity and the acquisition of domestic electricity transmission service jointly with Terna SpA.

Financing transactions
Financing transactions in 2005 were as follows:

(million euro)		Dec. 31, 2005		2005

Name		Receivables		Payables		Guarantees		Charges		Gains

Joint ventures and affiliates
Blue Stream Pipeline Co BV				15		887
Raffineria di Milazzo ScpA						72
Spanish Egyptian Gas Co SAE						360
Trans Austria Gasleitung GmbH		386								12
Transmediterranean Pipeline Co Ltd		190								11
Other (*)		74		125		81		27		47
		650		140		1,400		27		70
Unconsolidated entities controlled by Eni
Other (*)		79		30		34		1		2
		79		30		34		1		2
		729		170		1,434		28		72

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Financing transactions in 2006 were as follows:

(million euro)		Dec. 31, 2006		2006

Name		Receivables		Payables		Guarantees		Charges		Gains

Joint ventures and affiliates
Blue Stream Pipeline Co BV				3		794		4		26
Raffineria di Milazzo ScpA						57
Spanish Egyptian Gas Co SAE						323				6
Trans Austria Gasleitung GmbH		41
Transmediterranean Pipeline Co Ltd		147								11
Other (*)		88		81		39		13		11
		276		84		1,213		17		54
Unconsolidated entities controlled by Eni
Other (*)		95		25		2		1		4
		95		25		2		1		4
		371		109		1,215		18		58

Financing transactions in 2007 were as follows:

(million euro)		Dec. 31, 2007		2007

Name		Receivables		Payables		Guarantees		Charges		Gains

Joint ventures and affiliates
Blue Stream Pipeline Co BV				1		711				20
Raffineria di Milazzo ScpA						60
Trans Austria Gasleitung GmbH		65								3
Transmediterranean Pipeline Co Ltd		97								9
Other (*)		108		120		52		19		11
		270		121		823		19		43
Unconsolidated entities controlled by Eni
Other (*)		114		26		1		1		6
		114		26		1		1		6
Entities owned or controlled by the Government
Other (*)								39		49
								39		49
		384		147		824		59		98

Most significant transactions in 2007 included:

• Bank debt guarantee issued on behalf of Blue Stream Pipeline Co BV and cash deposit at Eni’s financial companies.
• Bank debt guarantee issued on behalf of Raffineria di Milazzo ScpA.
• The financing of the Austrian section of the gasline from the Russian Federation to Italy and the construction of natural gas transmission facilities and transport services with Trans Austria Gasleitung GmbH and Transmediterranean Pipeline Co Ltd.

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Impact of transactions and positions with related parties on the balance sheet, net profit and cash flows
The impact of transactions and positions with related parties on the balance sheet, net profit and financial flows consists of the following:

		Dec. 31, 2005		Dec. 31, 2006		Dec. 31, 2007

(million euro)

Total

Related parties

Impact %

Total

Related parties

Impact %

Total

Related parties

Impact %

Trade and other receivables		17,902		1,344		7.51		18,799		1,027		5.46		20,776		1,616		7.78
Other current assets		369						855		4		0.47		1,080
Other non-current financial assets		1,050		258		24.57		805		136		16.89		923		87		9.43
Other non-current assets		995						994						1,110		16		1.44
Current financial liabilities		4,612		152		3.30		3,400		92		2.71		7,763		131		1.69
Trade and other payables		13,095		1,164		8.89		15,995		961		6.01		17,216		1,021		5.93
Other liabilities		613						634		4		0.63		1,556		4		0.26
Long-term debt and current portion of long-term debt		8,386		18		0.21		8,299		17		0.20		12,067		16		0.13
Other non-current liabilities		897						418		56		13.40		2,031		57		2.81

The impact of transactions with related parties on the profit and loss accounts consisted of the following:

		2005		2006		2007

(million euro)

Total

Related parties

Impact %

Total

Related parties

Impact %

Total

Related parties

Impact %

Net sales from operations		73,728		4,535		6.15		86,105		3,974		4.62		87,256		4,198		4.81
Purchases, services and other		48,567		3,429		7.06		57,490		2,720		4.73		58,179		3,777		6.49
Financial income		3,131		72		2.30		4,132		58		1.40		4,600		98		2.13
Financial expense		3,497		28		0.80		3,971		18		0.45		4,683		59		1.26

Transactions with related parties concerned the ordinary course of Eni’s business and were mainly conducted on an arm’s length basis.

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Main cash flows with related parties were as follows:

(million euro)		2005		2006		2007

Revenues and other income		4,535			3,974			4,198
Costs and other expenses		(3,429	)		(2,720	)		(3,777	)
Net change in trade and other receivables and liabilities		(221	)		162			(492	)
Dividends and net interests		345			790			620
Net cash provided from operating activities		1,230			2,206			549
Capital expenditures in tangible and intangible assets		(474	)		(733	)		(779	)
Investments		(30	)		(20	)		8
Change in accounts payable in relation to investments		342			(276	)		(8	)
Change in financial receivables		2			343			(43	)
Net cash used in investing activities		(160	)		(686	)		(822	)
Change in financial liabilities		23			(57	)		20
Net cash used in financing activities		23			(57	)		20
Total financial flows to related parties		1,093			1,463			(253	)

The impact of cash flows with related parties consisted of the following:

		2005		2006		2007

(million euro)

Total

Related parties

Impact %

Total

Related parties

Impact %

Total

Related parties

Impact %

Cash provided from operating activities		14,936			1,230			8.24			17,001			2,206			12.98			15,517			549			3.54
Cash used in investing activities		(6,815	)		(160	)		2.35			(7,051	)		(686	)		9.73			(20,097	)		(822	)		4.09
Cash used in financing activities		(7,824	)		23						(7,097	)		(57	)		0.80			2,909			20			0.69

 

37 Significant non-recurring events and operations
Non-recurring incomes (charges) consisted of the following:

(million euro)		2005		2006		2007

Curtailment of post-retirement benefits for Italian employees								83
Risk provisions for proceedings against Antitrust authorities		(290	)		(184	)		(130	)
Risk provisions for proceedings against the Italian Authority for Electricity and Gas					(55	)		39
		(290	)		(239	)		(8	)

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), more information is provided in the Note 23 - Provisions for employee benefits.
Non recurring charges concerned risk provisions related to ongoing antitrust proceedings against the European Antitrust authorities (euro 130 million) in the fields of paraffin and elastomers. The euro 39 million gain relating to proceeding before the Italian Authority for Electricity and Gas mainly related to the annulment of a fine imposed in 2006 for the allegedly improper use of storage capacity in the Italian natural gas sector (euro 45 million).
In 2006 a risk provision was made in connection with a proceeding against the Italian Antitrust authority regarding the field of supplies of jet fuel (euro 109 million). In addition a risk provision was made for an inquiry before the European Antitrust authorities in the field of elastomers (euro 75 million). In 2006 certain fines were imposed by the Authority for Electricity and Gas regarding an inquiry relating to the use of storage capacity in thermal year 2006-2007 (euro 45 million) and an inquiry relating to an information requirement on natural gas supplying prices (euro 10 million).
In 2005 a risk provision was made in connection with a proceeding against the Italian Antitrust authority relating to an abuse of dominant position in the natural gas sector.
More information on these proceedings is included in Note 28 - Guarantees, commitments and risks - Legal Proceedings.


38 Positions or transactions deriving from atypical and/or unusual operations
In 2005, 2006 and in 2007 no transactions deriving from atypical and/or unusual operations were reported.

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Supplemental oil and gas information (unaudited)

The following information pursuant to “International Financial Reporting Standards” (IFRS) is presented in accordance with Statement of Financial Accounting Standards No. 69, “Disclosures about Oil & Gas Producing Activities”. Amounts related to minority interests are not significant.

Capitalized costs
Capitalized costs represent the total expenditures for proved and unproved mineral interests and related support equipment and facilities utilized in oil and gas exploration and production activities, together with related accumulated depreciation, depletion and amortization. Capitalized costs by geographical area consist of the following:

(million euro)

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

December 31, 2006
Proved mineral interests		10,267			8,273			8,004			8,333			1,570			6,447			42,894			427
Unproved mineral interests		33			143			402			382			39			964			1,963			35
Support equipment and facilities		276			1,238			451			33			37			60			2,095			8
Incomplete wells and other		582			399			612			110			1,342			564			3,609			31
Gross capitalized costs		11,158			10,053			9,469			8,858			2,988			8,035			50,561			501
Accumulated depreciation, depletion and amortization		(6,958	)		(4,738	)		(5,231	)		(5,185	)		(413	)		(4,387	)		(26,912	)		(300	)
Net capitalized costs (a) (b)		4,200			5,315			4,238			3,673			2,575			3,648			23,649			201
December 31, 2007
Proved mineral interests		10,571			8,118			8,506			8,672			1,447			7,718			45,032			790
Unproved mineral interests		32			120			1,030			330			35			2,582			4,129			1,089
Support equipment and facilities		279			1,125			443			16			41			59			1,963			10
Incomplete wells and other		726			562			1,078			75			1,852			808			5,101			112
Gross capitalized costs		11,608			9,925			11,057			9,093			3,375			11,167			56,225			2,001
Accumulated depreciation, depletion and amortization		(7,440	)		(4,960	)		(5,340	)		(5,670	)		(445	)		(4,909	)		(28,764	)		(345	)
Net capitalized costs (a) (b)		4,168			4,965			5,717			3,423			2,930			6,258			27,461			1,656

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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:

(million euro)

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

2005
Proved property acquisitions		19						16						88			11			134
Unproved property acquisitions		13						44						42			57			156
Exploration		45			153			75			127			15			249			664			18
Development (a)		644			960			910			522			646			745			4,427			31
Total costs incurred		721			1,113			1,045			649			791			1,062			5,381			49
2006
Proved property acquisitions		139			10															149
Unproved property acquisitions																	3			3
Exploration		128			270			471			174			25			280			1,348			26
Development (a)		1,120			892			956			478			595			766			4,807			31
Total costs incurred		1,387			1,172			1,427			652			620			1,049			6,307			57
2007
Proved property acquisitions (b1)					11			451									1,395			1,857			187
Unproved property acquisitions (b2)								510									1,417			1,927			1,086
Exploration (b3)		104			380			298			193			36			1,181			2,192			42
Development (a) (b4)		320			1,047			1,425			518			744			1,185			5,239			156
Total costs incurred		424			1,438			2,684			711			780			5,178			11,215			1,471

Results of operations from oil and gas producing activities
Results of operations from oil and gas producing activities, including gas storage services used to modulate the seasonal variation of demand, represent only those revenues and expenses directly associated with such activities, including operating overheads. These amounts do not include any allocation of interest expense or general corporate overhead and, therefore, are not necessarily indicative of the contributions to consolidated net earnings of Eni. Related income taxes are computed by applying the local income tax rates to the pre-tax income from producing activities. Eni is a party to certain Production Sharing Agreements (PSAs), whereby a portion of Eni’s share of oil and gas production is withheld and sold by its joint venture partners which are state-owned entities, with proceeds being remitted to the state in satisfaction of Eni’s PSA related tax liabilities. Revenue and income taxes include such taxes owed by Eni but paid by state-owned entities out of Eni’s share of oil and gas production.

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Results of operations from oil and gas producing activities by geographical area consist of the following:

(million euro)

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

2005
Revenues
Sales to consolidated entities		3,133			2,813			4,252			2,707			209			619			13,733
Sales to third parties		161			2,579			394			889			586			2,297			6,906			106
Total revenues		3,294			5,392			4,646			3,596			795			2,916			20,639			106
Operations costs		(261	)		(390	)		(363	)		(417	)		(123	)		(215	)		(1,769	)		(16	)
Production taxes		(157	)		(98	)		(513	)		(15	)					(207	)		(990	)		(3	)
Exploration expenses		(38	)		(137	)		(74	)		(158	)		(15	)		(196	)		(618	)		(32	)
D.D. & A. and provision for abandonment (a)		(512	)		(634	)		(598	)		(668	)		(90	)		(929	)		(3,431	)		(50	)
Other income and (expenses)		(224	)		(463	)		(201	)		17			(53	)		(216	)		(1,140	)		10
Pretax income from producing activities		2,102			3,670			2,897			2,355			514			1,153			12,691			15
Income taxes		(780	)		(1,976	)		(1,717	)		(1,387	)		(195	)		(321	)		(6,376	)		(25	)
Results of operations from E&P activities (b)		1,322			1,694			1,180			968			319			832			6,315			(10	)
2006
Revenues
Sales to consolidated entities		3,601			4,185			4,817			3,295			261			712			16,871
Sales to third parties		184			3,012			967			983			721			1,873			7,740			120
Total revenues		3,785			7,197			5,784			4,278			982			2,585			24,611			120
Operations costs		(249	)		(496	)		(475	)		(481	)		(147	)		(191	)		(2,039	)		(18	)
Production taxes		(181	)		(95	)		(475	)								(82	)		(833	)		(3	)
Exploration expenses		(137	)		(273	)		(186	)		(160	)		(25	)		(293	)		(1,074	)		(26	)
D.D. & A. and provision for abandonment (a)		(457	)		(795	)		(737	)		(684	)		(80	)		(895	)		(3,648	)		(43	)
Other income and (expenses)		(315	)		(569	)		(190	)		57			(89	)		(283	)		(1,389	)		8
Pretax income from producing activities		2,446			4,969			3,721			3,010			641			841			15,628			38
Income taxes		(909	)		(2,980	)		(2,133	)		(1,840	)		(223	)		(381	)		(8,466	)		(31	)
Total results of operations from E&P activities (b)		1,537			1,989			1,588			1,170			418			460			7,162			7
2007
Revenues
Sales to consolidated entities		3,171			3,000			4,439			3,125			296			512			14,543
Sales to third parties		163			4,793			693			755			833			2,260			9,497			176
Total revenues		3,334			7,793			5,132			3,880			1,129			2,772			24,040			176
Operations costs		(248	)		(542	)		(499	)		(579	)		(142	)		(271	)		(2,281	)		(27	)
Production taxes		(188	)		(91	)		(473	)								(28	)		(780	)		(6	)
Exploration expenses		(108	)		(385	)		(291	)		(193	)		(36	)		(764	)		(1,777	)		(42	)
D.D. & A. and provision for abandonment (a)		(499	)		(768	)		(685	)		(729	)		(76	)		(989	)		(3,746	)		(51	)
Other income and (expenses)		(283	)		(627	)		(297	)		(45	)		(72	)		(243	)		(1,567	)		(18	)
Pretax income from producing activities		2,008			5,380			2,887			2,334			803			477			13,889			32
Income taxes		(746	)		(3,102	)		(1,820	)		(1,419	)		(284	)		(241	)		(7,612	)		(49	)
Results of operations from E&P activities (b)		1,262			2,278			1,067			915			519			236			6,277			(17)

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Oil and natural gas reserves
Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under technical, contractual, economic and operating conditions existing at the time. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not of escalations based upon future conditions.
Net proved reserves exclude royalties and interests owned by others.
Proved developed oil and gas reserves are proved reserves that can be estimated to be recovered through existing wells, equipment and operating methods.
Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion.
Additional oil and gas reserves expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing by a pilot project or after the operation of an installed program has confirmed, through production response, that increased recovery will be achieved.

Eni’s proved reserves have been estimated on the basis of the applicable U.S. Securities & Exchange Commission regulation, Rule 4-10 of Regulation S-X and its interpretations and have been disclosed in accordance with Statement of Financial Accounting Standard No. 69. The estimates of proved reserves, developed and undeveloped for years ended December 31, 2004, 2005, 2006 and 2007 are based on data prepared by Eni. Since 1991 Eni has requested qualified independent oil engineering companies to carry out an independent evaluation¹⁴ of its proved reserves on a rotation basis. Eni believes these independent evaluators to be experienced and qualified in the marketplace. In the preparation of their reports, these independent evaluators relied, without independent verification, upon information furnished by Eni with respect to property interest, production, current cost of operation and development, agreements relating to future operations and sale, prices and other factual information and data that were accepted as represented by the independent evaluators. This information was used by Eni in determining its proved reserves and included log, directional surveys, core and PVT analysis, maps, oil/gas/water monthly production/injection data of wells, reservoirs and fields; field studies, reservoir studies; engineers' comments relevant to field performance, reservoir performance, development programs, work programs etc.; budget data for each field, long range development plans, future capital and operating costs, actual prices received from hydrocarbon sales, instructions on future prices, and other pertinent information to calculate NPV for the fields required to undertake an independent evaluation. Accordingly, the work performed by the independent evaluators is an evaluation of Eni’s proved reserves carried out concurrently with the internal one. Notwithstanding the above, the circumstance that the independent evaluations achieved the same results as those of the Company for the vast majority of fields support the management’s confidence that the company’s booked reserves meet the regulatory definition of proved reserves and are reasonably certain to be produced in the future. Additionally, for those fields where a discrepancy arose, the Company has adopted the most conservative reserve estimate. In any case, those differences were not significant.
In particular a total of 2.4 billion boe of proved reserves, or about 37% of Eni’s total proved reserves at December 31, 2007, have been evaluated. The results of this independent evaluation confirmed Eni’s evaluations, as in previous years. In the 2005-2007 three-year period, 67% of Eni’s total proved reserves were subject to independent evaluations. In the last three years, the most important Eni’s properties as at December 31, 2007 which were not subject to an independent evaluation were; Kashagan (Kazakhstan), Bayu Undan (Australia), Cerro Falcone and Monte Alpi-Monte Enoc (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 Eni’s economic interest in the volumes of oil and natural gas estimated to be recoverable in future years. Such reserves include estimated quantities allocated to Eni for recovery of costs, income taxes owed by Eni but settled by its joint venture partners (which are state-owned entities) out of Eni’s share of production and Eni’s net equity share after cost recovery.
Proved oil and gas reserves associated with PSAs represented 48%, 53% and 46% of total proved reserves as of year-end 2005, 2006 and 2007, respectively, on an oil-equivalent basis.
Similar effects as PSAs apply to Service and “Buy-Back” contracts; proved reserves associated with such contracts represented 2%, 2% and 1% of total proved reserves on an oil-equivalent basis as of year-end 2005, 2006 and 2007, respectively.
Oil and gas reserve quantities include: (i) oil and natural gas quantities in excess to cost recovery which the company has an obligation to purchase under certain PSAs with governments or authorities, whereby the company serves as producer of reserves. In accordance with SFAS 69, paragraph 13, reserve volumes associated with such oil and gas quantities represented 1.7%,1.1% and 1.8% of total proved reserves as of year-end 2005, 2006 and 2007, respectively, on an oil-equivalent basis; (ii) volumes of natural gas used for own consumption and (iii) volumes of natural gas held in certain Eni’s 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

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reservoirs in subsequent periods. Proved reserves do not include volumes owned by or acquired from third parties. Gas withdrawn from storage is produced and thereby detracted from proved reserves when sold.
Numerous uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgement. Results of drilling, testing and production after the date of the estimate may require substantial upward or downward revision. In addition, changes in oil and natural gas prices have an effect on the quantities of Eni’s proved reserves since estimates of reserves are based on prices and costs relevant to the date when such estimates are made. Reserve estimates are also subject to revision as prices fluctuate due to the cost recovery feature under certain PSAs.
The following table presents yearly changes in estimated proved reserves, developed and undeveloped, of crude oil (including condensate and natural gas liquids) and natural gas for the years 2005, 2006 and 2007.


Crude oil (including condensate and natural gas liquids)

(million barrels)

Proved oil reserves

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

Reserves at December 31, 2004		225			967			1,047			450			799			484			3,972			36
Purchase of Minerals in Place		2						6						46			1			55
Revisions of Previous Estimates		33			36			(47	)		27			(73	)		(15	)		(39	)		(9	)
Improved Recovery					43			29						15						87
Extensions and Discoveries					26			14			21			14			2			77
Production		(32	)		(111	)		(113	)		(65	)		(23	)		(60	)		(404	)		(2	)
Sales of Minerals in Place
Reserves at December 31, 2005		228			961			936			433			778			412			3,748			25
Purchase of Minerals in Place
Revisions of Previous Estimates (a)		15			61			(85	)		20			72			(19	)		64			1
Improved Recovery					49			41						14						104			1
Extensions and Discoveries					30			11						52			10			103
Production		(28	)		(119	)		(117	)		(65	)		(23	)		(38	)		(390	)		(3	)
Sales of Minerals in Place (b)											(2	)					(170	)		(172	)
Reserves at December 31, 2006		215			982			786			386			893			195			3,457			24
Purchase of Minerals in Place								32									54			86			101
Revisions of Previous Estimates		28			(35	)		(26	)		14			(114	)		(31	)		(164	)		20
Improved Recovery					9			12			1									22			1
Extensions and Discoveries					43			22			1						29			95			1
Production		(28	)		(121	)		(101	)		(57	)		(26	)		(36	)		(369	)		(5	)
Sales of Minerals in Place
Reserves at December 31, 2007		215			878			725			345			753			211			3,127			142

(million barrels)

Proved developed oil reserves

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

Reserves at December 31, 2004		174			655			588			386			323			345			2,471
Reserves at December 31, 2005		149			697			568			353			266			298			2,331			19
Reserves at December 31, 2006		136			713			546			329			262			140			2,126			18
Reserves at December 31, 2007		133			649			511			299			219			142			1,953			26

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Natural gas

(billion cubic feet)

Proved natural gas reserves

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

Reserves at December 31, 2004		3,818			6,432			1,727			2,051			2,124			2,126			18,278			157
Purchase of Minerals in Place		63						8						14			208			293
Revisions of Previous Estimates		159			(6	)		(9	)		(18	)		(284	)		(84	)		(242	)		(47	)
Improved Recovery					11															11
Extensions and Discoveries		1			37			309			50						56			453			(20	)
Production		(365	)		(357	)		(70	)		(219	)		(80	)		(201	)		(1,292	)
Sales of Minerals in Place
Reserves at December 31, 2005		3,676			6,117			1,965			1,864			1,774			2,105			17,501			90
Purchase of Minerals in Place											4									4
Revisions of Previous Estimates		36			154			31			53			183			47			504			(7	)
Improved Recovery
Extensions and Discoveries		19			146			34			1						132			332
Production		(340	)		(471	)		(103	)		(218	)		(83	)		(222	)		(1,437	)		(15	)
Sales of Minerals in Place											(7	)								(7	)
Reserves at December 31, 2006		3,391			5,946			1,927			1,697			1,874			2,062			16,897			68
Purchase of Minerals in Place								5									395			400			2,963
Revisions of Previous Estimates		(53	)		250			74			67			(222	)		6			122			5
Improved Recovery											3									3
Extensions and Discoveries		4			89			213			7			205			89			607
Production		(285	)		(534	)		(97	)		(216	)		(87	)		(261	)		(1,480	)		(14	)
Sales of Minerals in Place
Reserves at December 31, 2007		3,057			5,751			2,122			1,558			1,770			2,291			16,549			3,022

(billion cubic feet)

Proved developed natural gas reserves

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

Reserves at December 31, 2004		2,850			1,760			924			1,845			1,998			1,124			10,501
Reserves at December 31, 2005		2,704			3,060			1,289			1,484			1,618			1,004			11,159			70
Reserves at December 31, 2006		2,449			3,042			1,447			1,395			1,511			1,105			10,949			48
Reserves at December 31, 2007		2,304			3,065			1,469			1,293			1,580			1,256			10,967			428

Standardized measure of discounted future net cash flows
Estimated future cash inflows represent the revenues that would be received from production and are determined by applying year-end prices of oil and gas to the estimated future production of proved reserves. Future price changes are considered only to 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.

 

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Future cash flows as of December 31, 2005, 2006 and 2007 include amounts that Eni’s Gas & Power segment and other gas companies pay for storage services, required to support market demand flexibility needs.
Future production costs include the estimated expenditures related to the production of proved reserves plus any production taxes without consideration of future inflation. Future development costs include the estimated costs of drilling development wells and installation of production facilities, plus the net costs associated with dismantlement and abandonment of wells and facilities, under the assumption that year-end costs continue without considering future inflation. Future income taxes were calculated in accordance with the tax laws of the countries in which Eni operates.
The standardized measure of discounted future net cash flows, related to the preceding proved oil and gas reserves, is calculated in accordance with the requirements of Statement of Financial Accounting Standard No. 69. The standardized measure does not purport to reflect realizable values or fair market value of Eni’s proved reserves. An estimate of fair value would also take into account, among other things, the expected recovery of reserves in excess of proved reserves, anticipated changes in future prices and costs and a discount factor representative of the risks inherent in producing oil and gas.

The standardized measure of discounted future net cash flows by geographical area consists of the following:

(million euro)

Italy

North Africa

West Africa

North Sea

Caspian Area (1)

Rest of World

Total consolidated subsidiaries

Total joint venture and affiliates (2)

At December 31, 2005
Future cash inflows		36,203			66,100			45,952			30,835			30,339			20,251			229,680			1,055
Future production costs		(4,609	)		(10,030	)		(9,604	)		(5,632	)		(3,848	)		(2,551	)		(36,274	)		(226	)
Future development and abandonment costs		(2,936	)		(3,960	)		(2,594	)		(1,774	)		(2,562	)		(1,497	)		(15,323	)		(89	)
Future net inflow before income tax		28,658			52,110			33,754			23,429			23,929			16,203			178,083			740
Future income tax		(9,890	)		(22,744	)		(21,056	)		(15,225	)		(6,973	)		(5,124	)		(81,012	)		(187	)
Future net cash flows		18,768			29,366			12,698			8,204			16,956			11,079			97,071			553
10 % discount factor		(7,643	)		(12,095	)		(4,122	)		(2,155	)		(11,934	)		(3,771	)		(41,720	)		(182	)
Standardized measure of discounted future net cash flows		11,125			17,271			8,576			6,049			5,022			7,308			55,351			371
At December 31, 2006
Future cash inflows		43,495			64,381			34,935			24,821			33,825			14,766			216,223			1,038
Future production costs		(6,086	)		(9,707	)		(8,028	)		(6,426	)		(4,162	)		(1,753	)		(36,162	)		(224	)
Future development and abandonment costs		(6,739	)		(5,383	)		(2,865	)		(2,265	)		(3,103	)		(1,473	)		(21,828	)		(79	)
Future net inflow before income tax		30,670			49,291			24,042			16,130			26,560			11,540			158,233			735
Future income tax		(10,838	)		(24,639	)		(14,141	)		(10,901	)		(7,649	)		(3,824	)		(71,992	)		(227	)
Future net cash flows		19,832			24,652			9,901			5,229			18,911			7,716			86,241			508
10 % discount factor		(11,493	)		(10,631	)		(2,994	)		(1,392	)		(13,878	)		(2,626	)		(43,014	)		(154	)
Standardized measure of discounted future net cash flows		8,339			14,021			6,907			3,837			5,033			5,090			43,227			354
At December 31, 2007
Future cash inflows		47,243			73,456			48,283			29,610			42,710			20,359			261,661			7,135
Future production costs		(5,926	)		(11,754	)		(9,875	)		(6,670	)		(4,997	)		(2,782	)		(42,004	)		(1,249	)
Future development and abandonment costs		(7,218	)		(4,643	)		(3,013	)		(2,461	)		(3,374	)		(2,459	)		(23,168	)		(1,721	)
Future net inflow before income tax		34,099			57,059			35,395			20,479			34,339			15,118			196,489			4,165
Future income tax		(10,778	)		(29,083	)		(23,083	)		(14,375	)		(9,977	)		(5,397	)		(92,693	)		(2,009	)
Future net cash flows		23,321			27,976			12,312			6,104			24,362			9,721			103,796			2,156
10 % discount factor		(13,262	)		(11,143	)		(3,953	)		(1,600	)		(17,480	)		(3,356	)		(50,794	)		(1,265	)
Standardized measure of discounted future net cash flows		10,059			16,833			8,359			4,504			6,882			6,365			53,002			891

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Changes in standardized measure of discounted future net cash flows
Changes in standardized measure of discounted future net cash flows for the years 2005, 2006 and 2007.

(million euro)		2005		2006		2007

Beginning of year consolidated		36,901			55,351			43,227
Increase (decrease):
- sales, net of production costs		(17,880	)		(21,739	)		(20,979	)
- net changes in sales and transfer prices, net of production costs		33,372			4,097			34,999
- extensions, discoveries and improved recovery, net of future production and development costs		3,527			3,629			3,982
- changes in estimated future development and abandonment costs		(3,654	)		(6,964	)		(4,000	)
- development costs incurred during the period that reduced future development costs		3,865			3,558			4,682
- revisions of quantity estimates		47			383			(2,995	)
- accretion of discount		6,573			9,489			7,968
- net change in income taxes		(17,327	)		3,060			(17,916	)
- purchase of reserves in-place		977			10			3,521
- sale of reserves in-place					(1,252	)
- changes in production rates (timing) and other		8,950			(6,395	)		513
Net increase (decrease)		18,450			(12,124	)		9,775
Standardized measure of discounted future net cash flows consolidates		55,351			43,227			53,002
Standardized measure of discounted future net cash flows joint ventures and affiliates		371			354			891

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ENI ANNUAL REPORT 2007 / CERTIFICATION PURSUANT TO ARTICLE 81-TER OF THE REGULATION

Certification pursuant to Article 81-ter of the regulation issued by the Italian market regulatory body (Consob) No. 11971 of May 14, 1999 and subsequent integrations and updatings

 

March 14, 2008

 

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ENI ANNUAL REPORT 2007 / REPORT OF INDEPENDENT AUDITORS

Report of Independent Auditors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ENI S.P.A.

ORDINARY SHAREHOLDERS’ MEETING TO BE HELD ON APRIL 22 AND APRIL 29, 2008
ON FIRST AND SECOND CALL, RESPECTIVELY

REPORT ON THE PROPOSALS OF THE BOARD OF DIRECTORS TO THE SHAREHOLDERS’ MEETING

 

 

 

 

 

 

The Italian text prevails over the translation into English

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ENI S.P.A.

ORDINARY SHAREHOLDERS’ MEETING TO BE HELD ON APRIL 22 AND APRIL 29, 2008 ON FIRST AND SECOND CALL, RESPECTIVELY

Report on the proposals of the Board of Directors to the Shareholders’ Meeting

ITEM 1

FINANCIAL STATEMENTS AT DECEMBER 31, 2007, REPORT OF THE DIRECTORS ON THE COURSE OF THE BUSINESS, REPORT OF THE BOARD OF STATUTORY AUDITORS AND REPORT OF THE INDEPENDENT AUDITORS OF AGIPFUEL S.P.A., A COMPANY MERGED WITH ENI S.P.A. WITH DEED OF DECEMBER 21, 2007. ALLOCATION OF NET INCOME

To the Shareholders:

the merger of AgipFuel S.p.A. with Eni S.p.A. became effective on January 1, 2008. As indicated in the project of merger, AgipFuel S.p.A.’s operations are charged to Eni Financial Statements as of the same date. We therefore submit to the approval of the Shareholders’ Meeting AgipFuel S.p.A. Financial Statements at December 31, 2007.

For the illustration of said Financial Statements please refer to AgipFuel S.p.A. 2007 Financial Statements, deposited at Eni S.p.A.'s Registered Office and with the Borsa Italiana S.p.A. (the Italian Stock Exchange).

The Board proposes to allot AgipFuel S.p.A. net income of euro 900,816.00 to the Reserve of carried forward profits that will be considered in the calculation of the merger imbalance consequent to the merger of AgipFuel S.p.A. with Eni S.p.A..

 

To the Shareholders:

You are invited to approve AgipFuel S.p.A. Financial Statements at December 31, 2007, which disclose a net income of euro 900,816.00, and to allot the net income to the Reserve of carried forward profits that will be considered in the calculation of the merger imbalance consequent to the merger of AgipFuel S.p.A. with Eni S.p.A..

 

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ITEM 2

FINANCIAL STATEMENTS AT DECEMBER 31, 2007, REPORT OF THE DIRECTORS ON THE COURSE OF THE BUSINESS, REPORT OF THE BOARD OF STATUTORY AUDITORS AND REPORT OF THE INDEPENDENT AUDITORS OF PRAOIL - OLEODOTTI ITALIANI S.P.A., A COMPANY MERGED WITH ENI S.P.A. WITH DEED OF DECEMBER 31, 2007. ALLOCATION OF NET INCOME

To the Shareholders:

the merger of Praoil - Oleodotti Italiani S.p.A. with Eni S.p.A. became effective on January 1, 2008. As indicated in the project of merger, Praoil - Oleodotti Italiani S.p.A.’s operations are charged to Eni Financial Statements as of the same date. We therefore submit to the approval of the Shareholders’ Meeting Praoil - Oleodotti Italiani S.p.A. Financial Statements at December 31, 2007.

For the illustration of said Financial Statements please refer to Praoil - Oleodotti Italiani S.p.A. 2007 Financial Statements, deposited at Eni S.p.A.’s Registered Office and with the Borsa Italiana S.p.A. (the Italian Stock Exchange).

The Board proposes to allot Praoil - Oleodotti Italiani S.p.A. net income of euro 14,818,016.00 to the Reserve of carried forward profits that will be considered in the calculation of the merger imbalance consequent to the merger of Praoil - Oleodotti Italiani S.p.A. with Eni S.p.A..

To the Shareholders:

You are invited to approve Praoil - Oleodotti Italiani S.p.A. Financial Statements at December 31, 2007, which disclose a net income of euro 14,818,016.00, and to allot the net income to the Reserve of carried forward profits that will be considered in the calculation of the merger imbalance consequent to the merger of Praoil - Oleodotti Italiani S.p.A. with Eni S.p.A..

 

ITEM 3

ENI FINANCIAL STATEMENTS AT DECEMBER 31, 2007, CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2007, REPORT OF THE DIRECTORS ON THE COURSE OF THE BUSINESS, REPORT OF THE BOARD OF STATUTORY AUDITORS AND REPORT OF THE INDEPENDENT AUDITORS

To the Shareholders:

for the illustration of Eni Financial Statements please refer to Eni Annual Report 2007 deposited at the Company's Registered Office and with the Borsa Italiana S.p.A. (the Italian Stock Exchange).

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To the Shareholders:
You are invited to approve Eni Financial Statements at December 31, 2007, which disclose a net income of euro 6,599,897,011.52.

ITEM 4

ALLOCATION OF NET INCOME

To the Shareholders:

in consideration of Eni 2007 results, the Board of Directors proposes to approve:

 

ITEM 5

AUTHORISATION TO THE PURCHASE OF ENI SHARES AND WITHDRAWAL, FOR THE PART NOT YET EXECUTED, OF THE AUTHORISATION TO THE PURCHASE OF ENI SHARES APPROVED BY THE SHAREHOLDERS’ MEETING HELD ON MAY 24, 2007

To the Shareholders:

the Shareholders’ Meeting held on May 24, 2007 authorised the purchase of up to 400 million Eni ordinary shares, nominal value euro 1, within eighteen months as of the Shareholders’ Meeting date. According to said resolution, the total expense wouldn’t have exceeded 7.4 billion euro and the purchase price wouldn’t have been lower than Eni share nominal value and not higher than the reference price recorded on the trading day preceding each purchase increased of 5% of its amount.

On March 13, 2008 Eni shares bought are 369.7 million corresponding to 9.23% of Eni current share capital; the related expense totals 6,352.4 million euro, corresponding to 85.84% of 7.4 billion euro. The average purchase price is 17.182 euro. On the same date the number of treasury shares held was 355.6 million for a total amount of 6,157 million euro.

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The Board intends to continue the buy-back programme, initiated in 2000, which represents an effective and flexible instrument to increase the shareholders value. Therefore the Board proposes to the Shareholders’ Meeting to withdraw the authorisation to purchase Eni shares approved by the Shareholders’ Meeting held on May 24, 2007, for the amount not yet exercised at the Shareholders’ Meeting date, and to be authorised, pursuant to Article 2357 of the Civil Code and Article 132 of Legislative Decree No. 58 dated February 24, 1998, to purchase up to 400 million of Eni shares, nominal value euro 1, corresponding to 9.9866% of Eni share capital, within eighteen months as of the Shareholders’ Meeting date. The total expense will not exceed the amount of euro 7.4 billion.

The purchases will be executed exclusively on the electronic stock market organised and managed by the Borsa Italiana S.p.A. (the Italian Stock Exchange), according to the rules issued by the Italian Stock Exchange itself. The purchase price will not be lower than Eni shares nominal value and not higher than the reference price recorded on the trading day preceding each purchase increased of 5% of its amount.

In order not to trespass the 10% threshold set by Article 2357, third paragraph, of the Civil Code, in the determination of the number of shares to be purchased and the related total expense, the treasury shares owned on the Shareholders’ Meeting date will be taken into consideration. The Reserve for the purchase of Eni shares, as per Article 2357-ter of the Italian Civil Code, is already available for the corresponding amount.

You are invited to:

• withdraw the delegation of authority to the Board of Directors to purchase treasury shares approved by the Ordinary Shareholders’ Meeting held on May 24, 2007 for the amount not yet exercised at the Shareholders’ Meeting date;
• authorise the Board of Directors, pursuant to Article 2357, second paragraph, of the Civil Code, to purchase up to 400,000,000 (four hundred million) Eni ordinary shares, nominal value euro 1, within eighteen months as of the Shareholders’ Meeting date. The purchases will be executed exclusively on the electronic stock market organised and managed by the Borsa Italiana S.p.A. (the Italian Stock Exchange), according to the rules issued by the Italian Stock Exchange itself. The purchase price will not be lower than Eni shares nominal value and not higher than the reference price recorded on the trading day preceding each purchase increased of 5% of its amount. The total expense will not exceed however 7.4 billion euro. In order not to trespass the 10% threshold set by Article 2357, third paragraph, of the Civil Code, in the determination of the number of shares to be purchased and the related total expense, the number and the value of the treasury shares owned on the Shareholders’ Meeting date will be taken into consideration;
• delegate any and all powers to the Chief Executive Officer to execute, directly or through attorneys-in-fact, any and all acts necessary to enforce such resolution.

 

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PRESS RELEASE

 

 

 

Rome, March 27, 2008 - Following a specific request by Consob, the public authority responsible for regulating the Italian securities market, Eni reaffirms today’s comment by Eni’s CEO Paolo Scaroni: "Alitalia today is not in Eni’s agenda".

 

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