SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN
ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August 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)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F x Form 40-F o
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2b under the Securities Exchange Act of 1934.)
Yes o No x
(If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): )
TABLE OF CONTENTS
Press Release dated August 8, 2008
Interim Consolidated Report as of June 30, 2008
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorised.
Eni S.p.A. |
||||
Name: Antonio Cristodoro | ||||
Title: | Deputy Corporate Secretary | |||
Date: August 31, 2008
Mandatory offer by Eni UK
Holding Plc (Eni Holding)
for 20% of
Hindustan Oil Exploration Ltd (HOEC)
San Donato Milanese (Milan), August 8, 2008 - Further to the announcement on April 24, 2008, Eni Holding, a wholly owned subsidiary of Eni SpA, is pleased to announce the successful results of its mandatory open offer for 20% of the shares of HOEC. As a result of the offer, Eni Holding will become the largest shareholder of HOEC with a 47.17% interest.
The mandatory offer opened on July 2, 2008 and closed on July 21, 2008. It was well-received with an approximately 1.5 times over-subscription and validly tendered shares were accepted on a pro-rata basis. Communication of acceptance and payment were sent to HOEC shareholders on August 5, 2008. The aggregate consideration amounts to 3,765.8 million rupees equivalent to approximately euro 57 million.
In accordance with Indian takeover rules Eni Holding had to make a mandatory cash offer to acquire up to 20% of the share capital of HOEC pursuant to the acquisition of Burren Energy Plc, resulting in the indirect acquisition of 27.17% interest HOEC.
Eni considers its investment in HOEC as a means of participating in Indias fast-growing upstream sector and intends to contribute with its industry experience and expertise to assist HOEC in growing its business. Eni also reserves the right to seek board representation that is commensurate with its shareholding following the completion of the offer process.
Company contacts:
Press Office: +39 02.52031875 -
06.5982398
Free number for shareholders: 800940924
Switchboard: +39-0659821
ufficio.stampa@eni.it
segreteriasocietaria.azionisti@eni.it
investor.relations@eni.it
Website: www.eni.it
MISSION
We are a major integrated energy company, committed to growth in
the activities of finding, producing, transporting, transforming
and marketing oil and gas.
Eni men and women have a passion for challenges, continuous
improvement, excellence and particularly value people, the
environment and integrity.
BOARD OF
DIRECTORS (1) Chairman Roberto Poli (2) Chief Executive Officer and General Manager Paolo Scaroni (3) Directors Alberto Clô, Paolo Andrea Colombo, Paolo Marchioni, Marco Reboa, Mario Resca, Pierluigi Scibetta, Francesco Taranto GENERAL MANAGERS Exploration & Production Division Claudio Descalzi (4) Gas & Power Division Domenico Dispenza (5) Refining & Marketing Division Angelo Caridi (6) |
BOARD OF
STATUTORY AUDITORS (7) Chairman Ugo Marinelli Statutory Auditors Roberto Ferranti, Luigi Mandolesi, Tiziano Onesti, Giorgio Silva Alternate Auditors Francesco Bilotti, Pietro Alberico Mazzola MAGISTRATE OF THE COURT OF ACCOUNTANTS DELEGATED TO THE FINANCIAL CONTROL OF ENI SpA Lucio Todaro Marescotti (8) Alternate Angelo Antonio Parente (9) External Auditors (10) PricewaterhouseCoopers SpA |
|
Information on powers retained by the Board of Directors, powers conferred to the Chairman and the Chief Executive Officer, as well as on the composition and powers of the Board Committees (Internal Control Committee, Compensation Committee e Oil-Gas Energy Committee) are presented in the section Corporate Governance, available on Eni website at the following address: http://www.eni.it/it_IT/azienda/corporate-governance/corporate-governance.shtml. (1) Appointed by the
Shareholders Meeting held on June 10, 2008 for a
three year period. The Board of Directors expires at the
date of approval of the financial statements for the 2010
financial year. |
(4) Appointed
by the Board of Directors on July 30, 2008. (5) Appointed by the Board of Directors on December 14, 2005, effective from January 1, 2006. (6) Appointed by the Board of Directors on August 3, 2007. (7) Appointed by the Shareholders Meeting held on June 10, 2008 for a three year period, expiring at the date of the approval of the financial statements for the 2010 financial year. (8) Duties conferred by the Governing Council of the Court of Accountants on July 19-20, 2006. (9) Duties conferred by the Governing Council of the Court of Accountants on May 27-28, 2003. (10) Appointed by the Shareholders Meeting of May 24, 2007 for the 2007-2009 three-year term. |
July 30, 2008
Enis Interim Consolidated Report
as of June 30, 2008
Contents
Operating and financial review |
2 |
Highlights | ||
4 |
Statistic recap | |||
Operating Review | ||||
6 |
Exploration & Production | |||
15 |
Gas & Power | |||
22 |
Refining & Marketing | |||
27 |
Petrochemicals | |||
29 |
Engineering & Construction | |||
31 |
Financial Review | |||
59 |
Risk factors and outlook | |||
66 |
Subsequent events | |||
67 |
Transactions with related parties | |||
68 |
Other information | |||
69 |
Glossary | |||
Condensed Consolidated Interim Financial Statements |
74 |
Financial Statements | ||
82 |
Basis of presentation and Use of accounting estimates | |||
83 |
Notes to the condensed consolidated financial statements | |||
109 |
||||
110 |
"Eni" means the parent company Eni SpA and its consolidated subsidiaries
ENI OPERATING AND FINANCIAL REVIEW / HIGHLIGHTS
Highlights
In the first half of 2008 Eni reported net profit of
euro 6.76 billion, up 39.2% from a year earlier. On an adjusted
basis, net profit amounted to euro 5.37 billion, up 9.6%, driven
by a better operating performance.
In light of the financial results achieved for the first
half of 2008 and the projected full-year results, the CEO will
propose the distribution of an interim dividend for the fiscal
year 2008 of euro 0.65 per share (euro 0.60 per share in 2007; up
8.3%) to the Board of Directors on September 11, 2008. The
interim dividend is payable from September 25, 2008 being the
ex-dividend date September 22, 2008. Holders of ADRs will receive
euro 1.30 per ADR payable from October 2, 2008 to holders on
record on September 24, 2008.
In the first half of 2008, a total of 16.6 million own shares
purchased at a cost of euro 388 million. Since the inception of
the share buy-back programme, Eni has purchased 379 million own
shares at a total cost of euro 6.58 billion, representing 88.9%
of the amount authorized by the Shareholders Meeting.
Oil and natural gas production for the first half of 2008
averaged 1.784 mmboe/d, an increase of 2.8% compared with the
first half of 2007 mainly due to the benefit of the assets
acquired in 2007 and 2008 in the Gulf of Mexico, Congo and
Turkmenistan (for an overall increase of 103 kboe/d), as well as
continuing production ramp-up in Egypt, Angola, Pakistan and
Venezuela. These positives were partially offset by planned and
unplanned facility downtime and technical issues in the North
Sea, Nigeria and Australia, as well as mature field declines.
Higher oil prices resulted in lower volume entitlements in
Enis PSAs and similar contractual schemes, down
approximately 90 kboe/d. When excluding the impact of lower
entitlements in PSAs, production was up by 8.1%.
Enis worldwide natural gas sales were 53.07 bcm, an
increase of 4.2 bcm or up 8.6% driven by an increase in
international sales that were up by 20.1% mainly reflecting in
addition to the higher seasonal sales recorded in the first
quarter, organic growth achieved in European markets.
On May 2008, Eni entered into a binding agreement with the
French company Suez-Tractebel to buy its 57.243% majority stake
in Distrigaz SA, for an initial price of euro 2.74 billion. The
deal values Distrigaz at euro 4.8 billion. In 2007, Distrigaz,
the incumbent gas company within Belgium, sold 17 bcm of gas
volumes. This deal will strengthen Enis leadership in the
European gas market and speed up the Companys strategy of
international growth in its gas business.
Furthermore, Eni signed a preliminary agreement with Suez to
dispose of certain assets, also targeting optimization of its
asset portfolio. Enis consideration assets include
Enis network of low-pressure pipelines serving the consumer
area of Rome and interests in some of Enis exploration and
production properties. Also the two partners are negotiating
certain long-term supply contracts of electricity, natural gas
and LNG volumes.
Defined a cooperation agreement with the Republic of Congo
for the extraction of unconventional oil from the Tchikatanga and
Tchikatanga-Makola oil sands deposits deemed to contain
significant amount of resources based on a recent survey. Eni
plans to monetize the heavy oil by applying its EST (Eni Slurry
Technology) proprietary technology intended to convert entirely
the heavy barrel into high-quality light products. The agreement
also comprises construction of a new 450 MW electricity
generation plant (Enis share 20%) to be fired with the
associated natural gas from the operated MBoundi field and
a partnership for the production of bio-diesel.
Signed a strategic agreement with the Venezuelan State oil
company PDVSA for the definition of a plan to develop a field
located in the Orinoco oil belt, with a gross acreage of 670
square kilometers. This block is deemed to contain significant
amounts of heavy oil according to a recent survey. Eni plans to
monetize the heavy oil using its EST Technology.
Signed a Memorandum of Understanding with the British
company Tullow Oil Ltd to purchase a 52% stake and the
operatorship of fields in the Hewett Unit and relevant
facilities. Eni targets to upgrade certain depleted fields in the
area so as to achieve a gas storage facility with a 5 bcm
capacity to support seasonal upswings in gas demand in the UK.
Once completed, it will be the largest storage site in the UK.
This transaction is expected to close by the end of 2008.
Renewed the partnership with the Brazilian oil company
Petrobras to implement joint projects targeting crude oil
production and processing, production and marketing of bio-fuels
and joint assessment of options to monetize gas reserves that
were found by Eni offshore Brazil.
Signed a Memorandum of Understanding with the state-owned
company Qatar Petroleum International to target joint investment
opportunities in the exploration and production of oil and gas.
- 2 -
ENI OPERATING AND FINANCIAL REVIEW / HIGHLIGHTS
Finalized a strategic oil deal with the
Libyan national oil company based on the framework agreement of
October 2007. This deal effective from January 1, 2008, extends
the terms of Eni titles in Libya until 2042 and 2047 for oil and
gas properties respectively. It also targets a number of
industrial initiatives designed to monetize the large reserve
base, particularly through the implementation of important gas
projects.
Made a cash offer to acquire up to 20% of the share
capital of Hindustan Oil Exploration Ltd pursuant to the
acquisition of Burren Energy Plc, resulting in the indirect
acquisition of 27.17% of the share capital of the target company.
This company is listed on the main Indian stock markets. The
offer process closed successfully early in August 2008. As a
result Eni increased its interest to 47.17%.
Signed an agreement to purchase a 17% stake in the share
capital of Gaz de Bordeaux Energie Services SAS. Also Enis
associate Altergaz (Enis interest being 38%) intends to
purchase a stake of a similar size. The two partners plan to
support the development of the target company by supplying it
with up to 250 mmcm/y for ten years to expand sales to
residential, commercial and industrial customers.
Signed a gas supply contract with a thermoelectric
customer in Russia. This deal marks the start of Enis gas
marketing activities in the country.
Approved the Kitan oilfield development area by the Timor
Sea Designated Authority pursuant to the declaration of
commercial discovery that was made by Eni. The discovery is
located in lease 06-105 in the Joint Petroleum Development Area
170 kilometers off the Timor Leste coast and 500 kilometers off
the Australian coast.
Sanctioned the development plan of the operated Nikaitchuq
oilfield in Alaska (Eni 100%). Production start-up is expected by
the end of 2009.
In the first half of 2008, Eni invested euro 2.83 billion
in the development of hydrocarbon reserves mainly in Egypt,
Kazakhstan, Angola, Italy and Congo.
In the first half of 2008, Eni invested euro 981 million
(up 31.1% from the first half of 2007) executing an extensive
exploration campaign in well established areas of presence
leading to the completion of 64 new exploratory wells (31 net to
Eni) with a commercial rate of success of 38.2% (46% net to Eni).
Main discoveries were made off the coast of Angola, Australia,
Egypt, the Gulf of Mexico, Italy, Norway, Pakistan and the United
Kingdom.
New exploration leases were acquired in Angola, Alaska,
Indonesia, Norway and the Gulf of Mexico with an extension of
15,612 square kilometers (net to Eni, 98% operated).
Disclaimer
This report contains certain forward-looking statements in
particular under the section Outlook regarding
capital expenditures, development and management of oil and gas
resources, dividends, share repurchases, allocation of future
cash flow from operations, future operating performance, gearing,
targets of production and sale growth, new markets, and the
progress and timing of projects. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that will or may occur in the
future.
Actual results may differ from those expressed in such
statements, depending on a variety of factors, including the
timing of bringing new fields on stream; managements
ability in carrying out industrial plans and in succeeding in
commercial transactions; future levels of industry product
supply; demand and pricing; operational problems; general
economic conditions; political stability and economic growth in
relevant areas of the world; changes in laws and governmental
regulations; development and use of new technology; changes in
public expectations and other changes in business conditions; the
actions of competitors and other factors discussed elsewhere in
this document.
Due to the seasonality in demand for natural gas and certain
refined products and the changes in a number of external factors
affecting Enis operations, such as prices and margins of
hydrocarbons and refined products, Enis results of
operations and changes in net borrowings for the first half of
the year cannot be extrapolated for the full year.
- 3 -
ENI OPERATING AND FINANCIAL REVIEW / STATISTIC RECAP
Financial highlights | ||
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
87,256 | Net sales from operations | 41,688 | 55,422 | 13,734 | 32.9 | |||||||||
18,868 | Operating profit | 9,323 | 11,901 | 2,578 | 27.7 | |||||||||
18,986 | Adjusted operating profit (a) | 9,449 | 11,514 | 2,065 | 21.9 | |||||||||
10,011 | Net profit (b) | 4,855 | 6,758 | 1,903 | 39.2 | |||||||||
9,470 | Adjusted net profit (a) (b) | 4,900 | 5,368 | 468 | 9.6 | |||||||||
15,517 | Net cash provided by operating activities | 9,683 | 9,950 | 267 | 2.8 | |||||||||
10,593 | Capital expenditures | 4,257 | 6,759 | 2,502 | 58.8 | |||||||||
208 | R&D expenditures | 89 | 126 | 37 | 41.6 | |||||||||
101,460 | Total assets at period end | 94,936 | 109,044 | 14,108 | 14.9 | |||||||||
19,830 | Debts and bonds at period end | 16,141 | 21,323 | 5,182 | 32.1 | |||||||||
42,867 | Shareholders equity including minority interests at period end | 42,296 | 43,889 | 1,593 | 3.8 | |||||||||
16,327 | Net borrowings at period end | 9,122 | 16,565 | 7,443 | 81.6 | |||||||||
59,194 | Net capital employed at period end | 51,418 | 60,454 | 9,036 | 17.6 | |||||||||
680 | Cost of purchased own shares | 339 | 388 | 49 | 14.5 | |||||||||
27.56 | Number of own shares purchased | (million) | 13.83 | 16.64 | 2.81 | 20.3 |
(a) | For a detailed explanation of adjusted operating profit and adjusted net profit see page 44. | |
(b) | Profit attributable to Eni shareholders. |
Summary financial data | ||
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
Net profit | ||||||||||||||
2.73 | - per ordinary share (a) | (EUR) | 1.32 | 1.85 | 0.53 | 40.2 | ||||||||
7.49 | - per ADR (a) (b) | (USD) | 3.51 | 5.66 | 2.15 | 61.3 | ||||||||
Adjusted net profit | ||||||||||||||
2.58 | - per ordinary share (a) | (EUR) | 1.33 | 1.47 | 0.14 | 10.5 | ||||||||
7.07 | - per ADR (a) (b) | (USD) | 3.54 | 4.50 | 0.96 | 27.1 | ||||||||
Return on Average Capital Employed (ROACE) (c) | ||||||||||||||
20.5 | - reported | (%) | 19.2 | 23.6 | 4.4 | |||||||||
19.3 | - adjusted | (%) | 21.4 | 19.8 | (1.6 | ) | ||||||||
0.38 | Leverage | 0.35 | 0.38 | 0.03 |
(a) | Fully diluted. 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 Depositary Receipt (ADR) is equal to two Eni ordinary shares. | |
(c) | Calculated on a 12-month period ending on June 30, 2008, on June 30, 2007 and on December 31, 2007. |
Key market indicators | ||
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
72.52 | Average price of Brent dated crude oil (a) | 63.26 | 109.14 | 45.88 | 72.5 | |||||||||
1.371 | Average EUR/USD exchange rate (b) | 1.329 | 1.530 | 0.201 | 15.1 | |||||||||
52.90 | Average price in euro of Brent dated crude oil | 47.60 | 71.33 | 23.73 | 49.9 | |||||||||
4.52 | Average European refining margin (c) | 4.98 | 5.93 | 0.95 | 19.1 | |||||||||
3.30 | Average European refining margin in euro | 3.75 | 3.88 | 0.13 | 3.5 | |||||||||
4.3 | Euribor - three-month rate | (%) | 3.9 | 4.7 | 0.8 | 20.5 | ||||||||
5.3 | Libor - three-month dollar rate | (%) | 5.5 | 3.0 | (2.5 | ) | (45.5 | ) |
(a) | In US dollars per barrel. Source: Platts Oilgram. | |
(b) | Source: ECB. | |
(c) | In US dollars per barrel FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platts Oilgram data. |
- 4 -
ENI OPERATING AND FINANCIAL REVIEW / STATISTIC RECAP
Summary operating data | ||
|
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
Exploration & Production | ||||||||||||||
1,736 | Production of hydrocarbons | (kboe/d) | 1,735 | 1,784 | 49 | 2.8 | ||||||||
1,020 | Liquids | (kbbl/d) | 1,028 | 1,005 | (23 | ) | (2.2 | ) | ||||||
4,114 | Natural gas | (mmcf/d) | 4,063 | 4,472 | 409 | 10.4 | ||||||||
Gas & Power | ||||||||||||||
98.96 | Worldwide gas sales | (bcm) | 48.87 | 53.07 | 4.20 | 8.6 | ||||||||
5.39 | of which: E&P sales (a) | (bcm) | 2.24 | 3.32 | 1.08 | 48.2 | ||||||||
83.28 | Gas volumes transported in Italy | (bcm) | 41.89 | 45.36 | 3.47 | 8.3 | ||||||||
33.19 | Electricity sold | (TWh) | 16.24 | 15.37 | (0.87 | ) | (5.4 | ) | ||||||
Refining & Marketing | ||||||||||||||
37.15 | Refining throughputs on own account | (mmtonnes) | 18.32 | 17.65 | (0.67 | ) | (3.7 | ) | ||||||
56 | Conversion index | (%) | 57 | 56 | (1 | ) | (1.8 | ) | ||||||
12.65 | Retail sales of petroleum products in Europe | (mmtonnes) | 6.06 | 6.27 | 0.21 | 3.5 | ||||||||
6,440 | Service stations in Europe at period end | (units) | 6,279 | 6,373 | 94 | 1.5 | ||||||||
2,486 | Average throughput of service stations in Europe | (kliters) | 1,198 | 1,210 | 12 | 1.0 | ||||||||
Petrochemicals | ||||||||||||||
8,795 | Production | (ktonnes) | 4,411 | 4,136 | (275 | ) | (6.2 | ) | ||||||
5,513 | Sales of petrochemical products | (ktonnes) | 2,812 | 2,677 | (135 | ) | (4.8 | ) | ||||||
80.6 | Average plant utilization rate | (%) | 81.5 | 77.3 | (4.2 | ) | (5.2 | ) | ||||||
Engineering & Construction | ||||||||||||||
12,011 | Orders acquired | (million euro) | 4,948 | 5,471 | 523 | 10.6 | ||||||||
15,390 | Order backlog at period end | (million euro) | 13,308 | 16,191 | 2,883 | 21.7 | ||||||||
75,862 | Employees at period end | (units) | 75,841 | 76,360 | 519 | 0.7 |
(a) | E&P sales include volumes marketed by the Exploration & Production division in Europe (1.94, 1.83 and 3.59 bcm for the first half of 2007, 2008 and the full year 2007) and in the Gulf of Mexico (0.30, 1.49 and 1.80 bcm for the first half of 2007, 2008 and the full year 2007). |
- 5 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Exploration & Production
Key performance indicators |
First Half |
2007 |
(million euro) |
2007 |
2008 |
||
27,278 | Net sales from operations (a) | 12,829 | 17,889 | |||||
13,788 | Operating profit | 6,550 | 9,058 | |||||
14,051 | Adjusted operating profit (b) | 6,615 | 9,369 | |||||
13,785 | Exploration & Production | 6,425 | 9,252 | |||||
266 | Stoccaggi Gas Italia | 190 | 117 | |||||
6,491 | Adjusted net profit | 3,056 | 4,141 | |||||
Results also include: | ||||||||
5,626 | amortization and depreciation | 2,547 | 3,259 | |||||
of which: | ||||||||
1,777 | exploration expenditures | 777 | 1,056 | |||||
1,370 | amortization of exploratory drilling expenditures and other | 615 | 806 | |||||
407 | amortization of geological and geophysical exploration expenses | 162 | 250 | |||||
6,625 | Capital expenditures | 2,837 | 4,462 | |||||
of which: | ||||||||
1,659 | exploration expenditures (c) | 748 | 981 | |||||
145 | storage | 34 | 98 | |||||
24,643 | Adjusted capital employed, net | 21,717 | 23,610 | |||||
30.0 | Adjusted ROACE | (%) | 30.9 | 33.4 | ||||
Production (d) | ||||||||
1,020 | Liquids (e) | (kbbl/d) | 1,028 | 1,005 | ||||
4,114 | Natural gas | (mmcf/d) | 4,063 | 4,472 | ||||
1,736 | Total hydrocarbons | (kboe/d) | 1,735 | 1,784 | ||||
Average realizations | ||||||||
67.70 | Liquids (e) | ($/bbl) | 59.47 | 95.71 | ||||
5.42 | Natural gas | ($/mmcf) | 5.18 | 7.29 | ||||
53.17 | Total hydrocarbons | ($/boe) | 47.96 | 73.11 | ||||
9,334 | Employees at period end | (units) | 8,670 | 10,773 |
(a) | Before elimination of intragroup sales. | |
(b) | From 2008, adjusted operating profit is reported for the Exploration & Production and Storage businesses within the Exploration & Production division. Prior period data have been restated accordingly. | |
(c) | Includes exploration bonuses. | |
(d) | Includes Enis share of equity-accounted entities. | |
(e) | Includes condensates. |
Mineral right
portfolio and exploration activities As of June 30, 2008,
Enis mineral right portfolio consisted of 1,236
exclusive or shared rights for exploration and
development in 38 countries on five continents for a
total net acreage of 383,557 square kilometers (394,491
at December 31, 2007). |
was partly offset by the acquisition of Burren Energy Plc for a total net exploration and development acreage of 7,761 square kilometers (mainly in Turkmenistan, Yemen, Congo and Egypt). New exploration leases were acquired in Angola, Alaska, Indonesia, Norway and the Gulf of Mexico with an extension of 15,612 square kilometers (net to Eni, 98% operated). In Italy, net acreage (19,654 square kilometers) declined by 1,010 square kilometers due to releases. |
- 6 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
In the first half of 2008, a total of 64 exploratory wells were completed (31 of which represented Enis share), as compared to 45 exploratory wells completed in the first half of 2007 (24 of which | represented Enis share). The commercial success rate was 38.2% (46% net to Eni) as compared to 22.7% (18.8% net to Eni) in the first half of 2007. |
Oil and natural gas interests
December 31, 2007 | June 30, 2008 | ||
Gross exploration and development acreage (a) |
Gross exploration and development acreage (a) |
Net exploration and development acreage (a) |
Net development acreage (a) |
Number of interests |
|||||
Italy | 25,991 | 25,014 | 19,654 | 12,548 | 160 | |||||
Outside Italy | 731,292 | 730,366 | 363,903 | 24,855 | 1,076 | |||||
North Africa | ||||||||||
Algeria | 11,432 | 2,876 | 903 | 903 | 33 | |||||
Egypt | 24,443 | 28,059 | 10,163 | 2,549 | 59 | |||||
Libya | 37,749 | 36,375 | 24,044 | 762 | 13 | |||||
Tunisia | 6,464 | 6,464 | 2,274 | 1,558 | 11 | |||||
80,088 | 73,774 | 37,384 | 5,772 | 116 | ||||||
West Africa | ||||||||||
Angola | 20,527 | 20,492 | 3,323 | 1,397 | 55 | |||||
Congo | 11,099 | 15,655 | 8,244 | 1,009 | 26 | |||||
Nigeria | 44,049 | 44,049 | 7,756 | 5,715 | 50 | |||||
75,675 | 80,196 | 19,323 | 8,121 | 131 | ||||||
North Sea | ||||||||||
Norway | 15,335 | 13,180 | 4,424 | 123 | 51 | |||||
United Kingdom | 5,445 | 5,198 | 1,172 | 644 | 91 | |||||
20,780 | 18,378 | 5,596 | 767 | 142 | ||||||
Caspian Area | ||||||||||
Kazakhstan | 4,933 | 4,933 | 959 | 488 | 6 | |||||
Turkmenistan | 200 | 200 | 200 | 1 | ||||||
4,933 | 5,133 | 1,159 | 688 | 7 | ||||||
Rest of world | ||||||||||
Australia | 62,510 | 61,520 | 30,554 | 891 | 19 | |||||
Brazil | 2,920 | 1,772 | 1,772 | 3 | ||||||
China | 632 | 770 | 159 | 135 | 5 | |||||
Croatia | 1,975 | 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 | 24,425 | 24,425 | 9,091 | 3 | ||||||
Indonesia | 27,999 | 30,958 | 20,218 | 656 | 11 | |||||
Iran | 1,456 | 1,456 | 820 | 820 | 4 | |||||
Pakistan | 38,426 | 35,939 | 18,359 | 601 | 21 | |||||
Russia | 5,126 | 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 | 10,619 | 11,272 | 6,464 | 920 | 569 | |||||
Venezuela | 1,556 | 1,556 | 614 | 145 | 3 | |||||
243,937 | 243,062 | 129,804 | 8,390 | 652 | ||||||
Other countries | 6,311 | 6,311 | 1,364 | 1,117 | 9 | |||||
Other countries with only exploration activity | 299,568 | 303,512 | 169,273 | 19 | ||||||
Total | 757,283 | 755,380 | 383,557 | 37,403 | 1,236 |
(a) | Square kilometers. |
- 7 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Production Oil and natural gas production for the first half of 2008 averaged 1,784 kboe/d, an increase of 49 kboe/d compared to the same period of the last year (up 2.8%). This improvement mainly benefited from the assets acquired in the Gulf of Mexico, Congo and Turkmenistan (for an overall increase of 103 kboe/d), as well as continuing production ramp-up in Egypt, Angola, Pakistan and Venezuela. These positives were partially offset by planned and unplanned facility downtime in the North Sea, Nigeria and Australia as well as mature field declines. Higher oil prices resulted in lower volume entitlements in Enis Production Sharing Agreements (PSAs)1 and similar contractual schemes, down approximately 90 kboe/d. When excluding the impact of lower entitlements in PSAs, production was up 8.1%. The share of oil and natural gas produced outside Italy was 89% (87% in the first half of 2007). Production of liquids was 1,005 kbbl/d and decreased by 23 kbbl/d from the first half of 2007 or 2.2%. Production decreases were mainly reported in the North Sea and |
Australia. The impact of
lower entitlements in Enis PSAs was mainly reported
in Angola. The acquired assets in the Gulf of Mexico,
Congo and Turkmenistan as well as continuing production
ramp-up in Egypt and the start-up of Corocoro field
(Enis interest 26%) in Venezuela supported
production growth. Production of natural gas for the first half of 2008 was 4,472 mmcf/d and increased by 409 mmcf/d, or 10.4%. This improvement was mainly driven by the acquired assets in the Gulf of Mexico in 2007, the ramp-up production of the Zamzama field (Enis interest 17.75%) and start-up of the Badhra field (Eni operator with a 40% interest) in Pakistan and in Kazakhstan. Production decreased in the United Kingdom and Italy due to mature field declines. Oil and gas production sold amounted to 313.9 mmboe. The 10.8 mmboe difference over production mainly reflected volumes of gas consumed in operations (8 mmboe). |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
1,736 | Production of oil and natural gas (a) (b) | (kboe/d) | 1,735 | 1,784 | 49 | 2.8 | ||||||||
212 | Italy | 219 | 205 | (14 | ) | (6.4 | ) | |||||||
594 | North Africa | 583 | 639 | 56 | 9.6 | |||||||||
327 | West Africa | 335 | 315 | (20 | ) | (6.0 | ) | |||||||
261 | North Sea | 275 | 243 | (32 | ) | (11.6 | ) | |||||||
112 | Caspian Area | 117 | 131 | 14 | 12.0 | |||||||||
230 | Rest of world | 206 | 251 | 45 | 21.8 | |||||||||
611.4 | Oil and natural gas sold (a) | (mmboe) | 302.3 | 313.9 | 11.6 | 3.8 |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
1,020 | Production of liquids (a) | (kbbl/d) | 1,028 | 1,005 | (23 | ) | (2.2 | ) | ||||||
75 | Italy | 76 | 71 | (5 | ) | (6.6 | ) | |||||||
337 | North Africa | 331 | 340 | 9 | 2.7 | |||||||||
280 | West Africa | 286 | 269 | (17 | ) | (5.9 | ) | |||||||
157 | North Sea | 163 | 143 | (20 | ) | (12.3 | ) | |||||||
70 | Caspian Area | 75 | 86 | 11 | 14.7 | |||||||||
101 | Rest of world | 97 | 96 | (1 | ) | (1.0 | ) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
4,114 | Production of natural gas (a) (b) | (mmcf/d) | 4,063 | 4,472 | 409 | 10.4 | ||||||||
790 | Italy | 820 | 770 | (50 | ) | (6.1 | ) | |||||||
1,474 | North Africa | 1,446 | 1,718 | 272 | 18.8 | |||||||||
274 | West Africa | 279 | 261 | (18 | ) | (6.5 | ) | |||||||
595 | North Sea | 647 | 574 | (73 | ) | (11.3 | ) | |||||||
238 | Caspian Area | 238 | 261 | 23 | 9.7 | |||||||||
743 | Rest of world | 633 | 888 | 255 | 40.3 |
(a) | Includes Enis share of production of equity-accounted entities. | |
(b) | Includes production volumes of natural gas consumed in operations (284 and 292 mmcf/d in the first half of 2008 and 2007, respectively, and 296 mmcf/d in 2007). |
_______________
(1) | For a definition of PSA see Glossary below. |
- 8 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Main
exploration and development projects NORTH AFRICA |
expected to ensure natural
gas supplies of 23 kboe/d to the first train of the
Damietta LNG plant. In the Gulf of Suez optimization activities progressed at the Belayim field (Enis interest 100%) by finalizing basic engineering for the upgrading of the water injection system intended to recover residual reserves. Development activities are underway offshore the Nile Delta, particularly in the Thekah concession (Eni operator with a 50% interest) and the North Bardawil concession (Eni operator with a 60% interest). Upgrading of el Gamil compression plant progressed by adding new capacity. Eni and the partners of Damietta LNG plant have planned to double the capacity of this facility through the construction of a second train with a treatment capacity of 265 bcf/y of gas with start up expected in 2012. Eni will provide 88 bcf/y to the second train for a period of twenty years. The project is expected to be approved by the Egyptian authorities before the end of 2008. The reserves have been already identified which are destined to feed this second train, including any additional amounts that must be developed to meet the countrys domestic requirements under existing laws. In April 2008, Eni signed a memorandum of understanding relating to the thermoelectric sector in Egypt whereby the Company will provide its technology for the combined production of electricity and steam from gas-fired plants. Libya Exploration activities yielded positive results in: a) the offshore Block NC41 (Enis interest 100%), where the U1-NC41 discovery well showed the presence of oil and natural gas and the D4-NC41 appraisal well was successfully tested; b) in former Concession 82 (Enis interest 50%), the YY1-82 discovery well showed the presence of oil. In June 2008, Eni and the Libyan national oil company (NOC) finalized six Exploration and Production Sharing contracts (EPSA) converting the original agreements that regulated Enis exploration and development activities in the country. The new contracts have incorporated general terms and conditions set in the framework agreement signed in October 20072. Terms of Eni titles in Libya have been extended till 2042 and 2047 for oil and gas properties respectively. The two partners have also agreed to develop a number of industrial initiatives designed to monetize the large reserve base, particularly through the implementation of important gas projects. The economic effects and Enis production entitlements based on the new contracts have been determined effective from January 1, 2008. Also the tax burden on Enis taxable |
_______________
(2) | For more information see Operating Review, Exploration & Production, Main exploration and development projects in Annual Report 2007. |
- 9 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
profit has been determined
based on the renewed tax framework applicable to foreign
oil companies operating under PSAs schemes. This new tax
regime was enacted in 2007. In line with past practice,
NOC has retained the role of tax agent on behalf of
foreign oil companies. This tax regime does not alter the
agreed economic value of the EPSAs currently in place
between Eni and NOC. Based on the arrangements agreed
upon with NOC, the tax base of the Companys Libyan
oil properties has been reassessed resulting in the
partial utilization of previously accrued deferred tax
liabilities amounting to US $ 265 million (see Financial
Review, below). Tunisia Exploration activities yielded positive results: a) onshore in the Adam Block (Eni operator with a 25% interest), where the MEJDA-1 well showed the presence of oil and gas; b) onshore in the Bek Block (Eni operator with a 25% interest), where the ABIR-1 well found oil and gas. The ongoing development projects mainly regarded the optimization of production at the Oued Zar (Eni operator with a 50% interest) and El Borma (Enis interest 50%) fields. Development activities started also at the production platform of the Maamoura (Enis interest 49%) and Baraka (Enis interest 49%) fields. Production start-up is expected in 2009. WEST AFRICA Angola Exploration activities yielded positive results in: a) Block 15/06 (Eni operator with a 35% interest) with the Ngoma-1 and Sangos-1 oil discoveries. The Sangos discovery was declared of commercial interest; b) Block 0 (Enis interest 9.8%) with the Kambala appraisal well; c) the development area of former Block 14 (Enis interest 20%) with the Lucapa-5 appraisal well. In May 2008, Eni acquired a 10% interest in the Cabinda North Block from the state oil company Sonangol. As part of Phase C of the development of reserves in the Kizomba deep offshore area, the Mondo and Saxi/Batuque fields in Block 15 (Enis interest 20%) were started-up by means of an FPSO vessel. Peak production at 100 kbbl/d (18 net to Eni) is expected in 2008 and 2009, respectively. Congo In May 2008, Eni defined a cooperation agreement with the Republic of Congo intend to develop the countrys mineral potential. The agreement provides for: (i) development and extraction of unconventional oil from the Tchikatanga and Tchikatanga-Makola oil sands deposits. The two deposits that cover acreage of approximately 1,790 square kilometers are deemed to |
contain significant amount
of resources based on a recent survey. Eni plans to
monetize the heavy oil by applying its EST (Eni Slurry
Technology) proprietary technology intended to fully
convert the heavy barrel into high-quality light
products. The project will also benefit from synergies
resulting from the close proximity of the M'Boundi
oilfield (Enis interest 80.1%); (ii) collaboration
in the use of vegetable oils, aimed at covering domestic
demand for food uses and using exceeding amounts for the
production of bio-diesel with Enis proprietary
technology Ultra-Bio-Diesel; (iii) construction of a 450
MW electricity generation plant near the Djeno oil
terminal, with start-up expected in 2009. The power
station (Enis share 20%) will be fired with the
associated natural gas from the operated MBoundi
field and offshore discoveries in Permit Marine XII (Eni
operator with a 90% interest) contributing to the
reduction of gas flaring. This project aims at qualifying as Clean Development Mechanism in implementing the Kyoto protocol and as a contribution to the sustainable development of the Country. Development activities at the Awa Paloukou (Enis interest 90%) and Ikalou-Ikalou Sud (Enis interest 100%) fields are underway. Production is expected to start in the second half of 2008 peaking at 13 kboe/d net to Eni in 2009. Nigeria Eni exercised its pre-emption rights on the remaining 49.81% interest in Blocks OML 125 and 134 (Enis interest 50.19%). This transaction is subject to approval by relevant authorities. In Blocks OML 60, 61, 62 and 63 (Eni operator with a 20% interest) development activities of gas reserves are underway: (i) the basic engineering work for increasing capacity at the Obiafu/Obrikom plant was completed. The project also provides for installation of a new treatment plant and transport facilities; (ii) the development plan of the Tuomo gas field has been progressing. Production is expected to start by means of linkage to the Ogbainbiri treatment plant. These activities target to supply 311 mmcf/d of feed gas to the Bonny liquefaction plant (Enis interest 10.4%) for a period of 20 years. In the OML 120/121 blocks (Eni operator with a 40% interest), the Oyo oil discovery is under development. The project provides for the installation of an FPSO unit with production start-up expected in 2009. NORTH SEA Norway Exploration activities yielded positive results in: a) the Prospecting License 312 (Enis interest 17%) with the Gamma gas discovery at a depth of about 2,500 |
- 10 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
meters. Production will be
treated at the nearby Aasgard facilities (Enis
interest 14.82%); b) the Prospecting License 112 (Eni
operator with a 20% interest), the Marulk discovery was
appraised leading to an estimated mineral potential
ranging from 80 to 120 mmboe; c) the Prospecting License
293 (Eni operator with a 45% interest), with the gas and
condensate Aphrodite discovery. Ongoing pre-development
activities aim to assessing the economic viability of the
project. In February 2008, following an international bid procedure, Eni was awarded operatorship of 2 exploration licenses with a 40% and 65% stake, respectively, in the Barents Sea and further 3 licenses in the Norwegian Sea with stakes from 19.6% to 29.4%. Development activities concerned in particular optimization of producing fields, in particular Ekofisk (Enis interest 12.39%), Aasgard (Enis interest 14.82%), Heidrun (Enis interest 5.12%) and Norne (Enis interest 6.9%) through infilling activities designed to support production levels. In May 2008, the relevant authorities sanctioned the development plan for the Morvin discovery (Enis interest 30%). The basic design provides linkage to existing production facilities that will be upgraded. Production start-up is expected in the first quarter of 2010. Drilling program started at the Tyrihans field (Enis interest 6.23%) that will be developed through synergies with the production facilities of Kristin (Enis interest 8.25%). Production is expected to start in 2009, in coincidence with the expected production decline of Kristin which will make spare capacity available to process production from Tyrihans. In Prospecting Licence 229 (Eni operator with a 65% interest) appraisal activities continued on the Goliath oil discovery. The project is progressing according to schedule with start up expected in 2012 and production expected to plateau at 100 kbbl/d. In the first half of 2008 contracts were awarded for the study of two possible development plans by means of a cylindrical FPSO unit. The final investment decision is expected before the end of 2008. United Kingdom Exploration activities yielded positive results in: a) the Block 16/23 (Enis interest 16.67%) with the oil and gas Kinnoul discovery. The discovery is planned to be developed in synergy with the production facilities of Andrew (Enis interest 16.21%); b) the Block 30/6 (Enis interest 33%) gas and condensates were found nearby the recent Jasmine discovery. Joint development of these two structures is being assessed in combination with existing facilities. |
In June 2008, Eni signed a
Memorandum of Understanding with the British company
Tullow Oil to purchase a 52% stake and the operatorship
of fields in the Hewett Unit in the British section of
the North Sea and relevant facilities including the
associated Bacton terminal. Eni aims to upgrade certain
depleted fields in the area so as to achieve a gas
storage facility with a 177 bcf capacity to support
seasonal upswings in gas demand in the UK. Once
completed, it will be the largest storage site in the UK.
This transaction is expected to close by the end of 2008. Pre-development activities are underway at the Burgley discovery (Enis interest 7.1%). The project sanction is expected in the second half of 2008. Development activities concerned: (i) optimization of producing fields, in particular J-Block (Enis interest 33%) and the Liverpool Bay area (Enis interest 59.3%) trough the upgrading of existing facilities; (ii) infilling actions at the Flotta Catchment Area (Enis interest 20%) and Mac Culloch (Enis interest 40%) field targeting to maintain production levels. Development activities progressed at the West Franklin field (Enis interest 21.87%) by completing a new development well expected to peak at 20 kboe/d (4 net to Eni) in the second half of 2008. CASPIAN AREA Kazakhstan - Kashagan Eni is the single operator of the North Caspian Sea Production Sharing Agreement (NCSPSA) with a participating interest equal to 18.52% as of December 31, 2007. The other partners of this initiative are Total, Shell and ExxonMobil, each with a participating interest of 18.52%, ConocoPhillips with 9.26%, and Inpex and KazMunaiGas each with 8.33%. On January 14, 2008, all parties to the NCSPSA consortium and the Kazakh authorities signed a memorandum of understanding for the amicable solution of a dispute that commenced in August 2007 about the economic terms of the Kashagan development project. The material terms of the agreement are: (i) the proportional dilution of the participating interest of all the international members of the Kashagan consortium, following which the stake held by the national Kazakh company KazMunaiGas and the stakes held by the other four major shareholders will each be equal to 16.81%. These changes will be effective from January 1, 2008. The Kazakh partner will pay to the other co-venturers an aggregate amount of US $1.78 billion; (ii) a value transfer package to be implemented through changes to the terms of the |
- 11 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
NCSPSA, the amount of which
will vary in proportion to future levels of oil prices.
Eni is expected to contribute to the value transfer
package in proportion to its new participating interest
in the project; (iii) an increased role of the Kazakh
partner in operations and a new operating and governance
model which will entail a greater involvement of the
major international partners. Although the project
continued during the negotiation process, its progress
was delayed due to lack of approval of relevant
contracts. In April 2008, the NCPSA consortium partners
filed with the Kazakh authorities a revised budget and
schedule (expenditures and first oil) for the execution
of phase-one of the project (the so called
Experimental Program). Parties have agreed to
reach a final approval of the revised budget of phase one
by October 15, 2008. Parties have also agreed to extend
the variable value transfer mechanism to higher oil
prices and to define a schedule to finalize the
arrangements intended to enact terms and conditions
contained in the MOU that was signed in January 2008. In
the meantime, the Kazakh authorities approved the 2008
budget and relevant working plan as well as outstanding
contracts. Kazakhstan - Karachaganak In April 2008, the Kazakh authorities approved a tax decree enacting a new duty tax on crude oil exports. Eni and the Kazakh authorities are currently assessing whether this new duty tax is applicable to oil exports from the Karachaganak field where Eni is co-operator with a 32.5% stake, taking into account that certain clauses in the PSA regulating activities at the field provide the stability of the tax burden for the venturers. REST OF WORLD Australia Exploration activities yielded positive results in: a) the Block WA-328-P (Eni operator with a 67% interest) with the offshore Charon-1 oil discovery; b) the Block JPDA 06-105 (Eni operator with a 40% interest), located in the international offshore cooperation zone between East Timor and Australia, where the Kitan-1 exploration well showed the presence of oil at a depth of 3,658 meters and yielded 6.1 kbbl/d in test production. In June 2008, the oilfield development area was approved by the Timor Sea Designated Authority pursuant to the declaration of commercial discovery that was made by Eni. Activities are ongoing for the preparation of development plan to be filed with relevant authorities within 12 months. In the first half of 2008 development activities have been completed in the southern area of the Woollybutt field (Eni operator with a 65% interest) with the drilling of a new production well that was |
linked to an FPSO unit.
Production rump-up is expected in the second half of the
year. Development activities are underway at the Blacktip field (Eni operator with a 100% interest). The development strategy is expected to be deployed envisaging installation of a platform that will be linked to an onshore treatment plant. Engineering activities and the offshore facilities have been completed. Start-up is expected in 2009, peaking at 26,133 mmcf/year in 2010. Natural gas production is destined to supply a power station plant. India In April 2008, Eni made a cash offer to acquire up to 20% of the share capital of Hindustan Oil Exploration Ltd pursuant to the acquisition of Burren Energy plc, resulting in the indirect acquisition of 27.17% of the share capital of the target company. This company is listed on the main Indian stock markets. The offer process closed successfully early in August 2008. As a result Eni increased its interest to 47.17%. Indonesia In May 2008, following an international bid procedure, Eni was awarded the operatorship of the West Timor exploration block extending over an offshore and onshore area of about 4,000 square kilometers. Development activity concerned: (i) in the Krueng Mane permit (Eni operator with an 85% interest) the drilling preliminary activities was completed. The drilling program is expected to start in the second half of the year; (ii) in the Bukat permit (Eni operator with a 66.25% interest), the seismic data campaign was completed. Pakistan Exploration activities yielded positive results in: a) the Mubarak Block (Enis interest 38%) with the Squib gas discovery that yielded 700 kmc/d in test production; b) the Latif exploration licence, where the Latif-2 appraisal well allowed to confirm the presence of new reserves and the mineral potential of the area. As part of the development of reserves in the Bhit permit (Eni operator with a 40% interest) the third treatment unit was started and increased the plant capacity by 46 bcf leading to the start-up of the satellite Badhra field. Qatar Eni signed a memorandum of understanding with the state-owned company Qatar Petroleum International to target joint investment opportunities in the exploration and production of oil and gas. The agreement also envisages the development of joint projects in the petrochemical industry and power generation. United States - Gulf of Mexico Offshore exploration activities yielded positive results: a) in Block Mississippi Canyon 771 (Enis interest 25%) with the oil and gas |
- 12 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Kodiak discovery near the
operated Devils Tower platform (Enis interest
75%); b) in Block Walker Ridge 508 (Enis interest
15%) the Stones-3 discovery well found oil. This
discovery is part of the exploration assets acquired from
Dominion Resources; c) in Block Mississippi Canyon 459
(Enis interest 100%) with the Appaloosa and Aransas
oil discoveries. In March 2008, following an international bid procedure Eni was awarded 32 exploration blocks. The subsequent development phase will leverage synergies relating to the proximity of acquired acreage to existing operated facilities. The development program of the Longhorn discovery (Enis interest 75%) was sanctioned. The project provides for installation of a fixed platform linked to 3 underwater wells. Start-up is expected in the first quarter of 2009 with peak production at 28 kboe/d (about 19 net to Eni) in 2009. United States - Alaska In February 2008, following an international bid procedure Eni was awarded 18 offshore exploration blocks, 4 of which as operator, in the Chukchi Sea. The acquired acreage is estimated to have significant mineral potential and will strengthen Enis position in the area. The phased development plan of Nikaitchuq field (Eni operator with a 100% interest) was sanctioned. Production is expected to start in 2009 with production plateau at 25 kboe/d in 2014. In June 2008, production started at the Ooguruk oil field (Enis interest 30%), in the Beaufort Sea, by linking to onshore facilities located on an artificial island. Peak production at 17 kboe/d is expected in 2011. Venezuela 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 cash compensation in line with the carrying amount of the expropriated asset. Part of this cash compensation has been collected in the period. Eni believes this settlement represents an important step towards improving and strengthening cooperation with the |
Venezuelan State oil company
PDVSA. As part of improving cooperation with 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. In the first quarter of 2008, production started at the Corocoro field (Enis interest 26%) in the Gulf of Paria West Block. A second development phase is expected to be designed based on the results achieved in the first one regarding well production rate and field performance under water and gas injection. A production peak of 66 kbbl/d (17 net to Eni) is expected in 2010. Italy In the offshore Sicily, the operated gas discovery Cassiopea 1 (Enis interest 60%) was made yielding excellent results. In February 2008 Eni exercised its pre-emption right on the 13% stake in the Serra San Bernardo exploration permit in Basilicata. With this transaction Eni holds 63.34% interest. In the first half of 2008, development activities concerned in particular: (i) optimization of producing fields by means of sidetracking and infilling (Cervia, Bonaccia, Barbara, Emma, Fratello-Nord, Hera-Lacinia, Gela, Fiumetto and Cascina Cardana); (ii) continuation of drilling and upgrading of producing facilities in the Val dAgri; (iii) development of the Annamaria field. The Miglianico project has been put on hold due to a determination made by the Region of Abruzzo that suspended the validity of authorizations previously granted for the construction of the treatment center. |
- 13 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Capital
expenditures Capital expenditures of the Exploration & Production division (euro 4,462 million) concerned development of oil and gas reserves (euro 2,827 million) directed mainly outside Italy, in particular Egypt, Kazakhstan, Angola and Congo. Development expenditures in Italy concerned well drilling program and facility upgrading in Val dAgri and sidetrack and infilling interventions in mature fields. About 93% of exploration expenditures that amounted to euro 981 million were directed outside Italy in particular to the United States, Egypt, Angola, Libya, Norway and the United Kingdom. In Italy, exploration activities were directed mainly to the offshore of Sicily. Acquisition of proved and unproved property concerned mainly the extension of the duration of Enis |
mineral rights in Libya
pursuant to a strategic oil deal with the Libyan national
oil company based on the framework agreement of October
2007. This deal went effective from January 1, 2008. As compared to the first half of 2007, capital expenditures increased by euro 1,625 million, up 57.3%, due to increased development expenditures in Egypt, Nigeria, United States and Kazakhstan. In the first half of 2008 the Exploration & Production division completed the acquisition of Burren Energy Plc for cash consideration amounting to euro 1.7 billion (total cash consideration for this transaction amounted to euro 2.3 billion which includes the amount of Burrens shares purchased in December 2007). |
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
96 | Acquisitions of proved and unproved property | 96 | 621 | 525 | .. | |||||||
11 | North Africa | 11 | 601 | 590 | ||||||||
West Africa | 13 | 13 | ||||||||||
85 | Rest of world | 85 | 7 | (78 | ) | |||||||
1,659 | Exploration | 748 | 981 | 233 | 31.1 | |||||||
104 | Italy | 62 | 71 | 9 | 14.5 | |||||||
380 | North Africa | 169 | 213 | 44 | 26.0 | |||||||
239 | West Africa | 138 | 139 | 1 | 0.7 | |||||||
193 | North Sea | 124 | 148 | 24 | 19.4 | |||||||
36 | Caspian Area | 19 | 7 | (12 | ) | (63.2 | ) | |||||
707 | Rest of world | 236 | 403 | 167 | 70.8 | |||||||
4,788 | Development | 1,965 | 2,827 | 862 | 43.9 | |||||||
606 | Italy | 254 | 357 | 103 | 40.6 | |||||||
145 | of which: storage | 34 | 98 | 64 | .. | |||||||
948 | North Africa | 395 | 542 | 147 | 37.2 | |||||||
1,343 | West Africa | 522 | 780 | 258 | 49.4 | |||||||
397 | North Sea | 203 | 212 | 9 | 4.4 | |||||||
733 | Caspian Area | 316 | 435 | 119 | 37.7 | |||||||
761 | Rest of world | 275 | 501 | 226 | 82.2 | |||||||
82 | Other expenditures | 28 | 33 | 5 | 17.9 | |||||||
6,625 | 2,837 | 4,462 | 1,625 | 57.3 |
- 14 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Gas & Power
Key performance indicators |
First Half |
2007 |
(million euro) |
2007 |
2008 |
||
27,633 | Net sales from operations (a) | 13,722 | 16,892 | |||||
4,127 | Operating profit | 2,106 | 2,284 | |||||
4,092 | Adjusted operating profit (b) | 2,202 | 2,165 | |||||
2,225 | Marketing | 1,263 | 1,093 | |||||
1,419 | Regulated businesses in Italy | 714 | 816 | |||||
448 | International transport | 225 | 256 | |||||
2,936 | Adjusted net profit | 1,577 | 1,579 | |||||
5,077 | EBITDA pro-forma adjusted (b) | 2,688 | 2,642 | |||||
3,065 | Marketing | 1,670 | 1,521 | |||||
1,289 | Regulated businesses in Italy | 648 | 752 | |||||
723 | International transport | 370 | 369 | |||||
1,366 | Capital expenditures | 526 | 871 | |||||
20,547 | Adjusted capital employed, net | 18,451 | 20,045 | |||||
14.9 | Adjusted ROACE | (%) | 16.6 | 15.3 | ||||
98.96 | Worldwide gas sales | (bcm) | 48.87 | 53.07 | ||||
5.39 | of which: E&P sales (c) | 2.24 | 3.32 | |||||
6.61 | Customers in Italy | (million) | 6.55 | 6.61 | ||||
83.28 | Gas volumes transported in Italy | (bcm) | 41.89 | 45.36 | ||||
33.19 | Electricity sold | (TWh) | 16.24 | 15.37 | ||||
11,582 | Employees at period end | (units) | 11,861 | 11,381 |
(a) | Before elimination of intragroup sales. | |
(b) | From 2008, adjusted operating profit is reported for the same businesses as EBITDA pro-forma adjusted. Results of the power generation activity are reported within the marketing business as it is ancillary to the latter. Results from Regulated businesses in Italy include results from Transport, Distribution and Re-gasification activities in Italy. Prior period data have been restated accordingly. | |
(c) | Exploration & Production sales in Europe and in the Gulf of Mexico. |
NATURAL GAS Supply of natural gas In the first half of 2008 Enis consolidated subsidiaries supplied 45.07 bcm with a 3.18 bcm increase from the first half of 2007, up 7.6% reflecting higher sales due to strong seasonal factors in the first quarter. Natural gas volumes supplied outside Italy (41.03 bcm), imported in Italy or sold on European and extra European markets, represented 91% of total supplies with a 3.61 bcm increase from the first half of 2007, up |
9.6%. Higher volumes were
purchased from: (i) Algeria via pipeline (up 0.95 bcm);
(ii) the Netherlands (up 0.90 bcm); (iii) Russia (up 0.66
bcm); (iv) Libya (up 0.41 bcm) in line with the build-up
of gas production from Eni-operated fields. Supplies in Italy (4.04 bcm) declined by 0.43 bcm, down 9.6%, from the first half of 2007 due to mature field declines. |
- 15 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Supply of natural gas |
(bcm) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
8.65 | Italy | 4.47 | 4.04 | (0.43 | ) | (9.6 | ) | ||||||||
18.79 | Russia for Italy | 9.34 | 10.00 | 0.66 | 7.1 | ||||||||||
4.65 | Russia for Turkey | 2.46 | 2.65 | 0.19 | 7.7 | ||||||||||
16.55 | Algeria | 8.81 | 9.76 | 0.95 | 10.8 | ||||||||||
7.74 | Netherlands | 3.35 | 4.25 | 0.90 | 26.9 | ||||||||||
5.78 | Norway | 2.90 | 2.98 | 0.08 | 2.8 | ||||||||||
9.24 | Libya | 4.61 | 5.02 | 0.41 | 8.9 | ||||||||||
3.15 | United Kingdom | 1.57 | 1.47 | (0.10 | ) | (6.4 | ) | ||||||||
2.87 | Hungary | 1.45 | 1.67 | 0.22 | 15.2 | ||||||||||
1.86 | Algeria (LNG) | 0.85 | 0.89 | 0.04 | 4.7 | ||||||||||
2.32 | Others (LNG) | 1.14 | 0.95 | (0.19 | ) | (16.7 | ) | ||||||||
1.30 | Other supplies Europe | 0.57 | 0.99 | 0.42 | 73.7 | ||||||||||
0.90 | Outside Europe | 0.37 | 0.40 | 0.03 | 8.1 | ||||||||||
75.15 | Outside Italy | 37.42 | 41.03 | 3.61 | 9.6 | ||||||||||
83.80 | Total supplies of Enis own company | 41.89 | 45.07 | 3.18 | 7.6 | ||||||||||
1.49 | Offtake from (input to) storage | 0.92 | 0.33 | (0.59 | ) | (64.1 | ) | ||||||||
(0.46 | ) | Network losses and measurement differences | (0.22 | ) | (0.12 | ) | 0.10 | (45.5 | ) | ||||||
84.83 | Available for sale of Enis own companies | 42.59 | 45.28 | 2.69 | 6.3 | ||||||||||
8.74 | Available for sale of Enis affiliates | 4.04 | 4.47 | 0.43 | 10.6 | ||||||||||
5.39 | E&P volumes | 2.24 | 3.32 | 1.08 | 48.2 | ||||||||||
98.96 | Total available for sale | 48.87 | 53.07 | 4.20 | 8.6 |
TAKE-OR-PAY In order to meet medium and long-term demand growth for natural gas, in particular in the Italian market, Eni entered into long-term purchase contracts with producing countries. The residual average life of the Companys supply portfolio currently amounts to approximately 21.5 years. Such contracts, which generally contain take-or-pay clauses, will ensure a total of approximately 62.4 bcm/y of natural gas supplies by 2010. The finalization of the purchase of the Belgian company Distrigaz (for details on this deal see Development Projects below) will entail significant expansion in Enis supply portfolio with an addition of long-term supplies of approximately 14.7 bcm (Norway, the Netherlands and Qatar) having residual average life of about 14 years. Enis supply portfolio will be more diversified and less risky, as Eni will depend from one single supplier for about 20% of total projected supplies in 2011. Despite the fact that an increasing portion of natural gas volumes 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 possible implementation of all publicly announced plans for the construction of new supply infrastructures via pipeline and LNG terminals, and the evolution of Italian |
regulations of the natural
gas sector, represent risk factors to the fulfillment of
Enis obligations in connection with its take-or-pay
supply contracts. Sales of natural gas In the first half of 2008, natural gas sales were 53.07 bcm, an increase of 4.20 bcm or 8.6% from the first half of 2007 driven by an increase in international sales that were up by 20.1% mainly reflecting in addition to the higher seasonal sales recorded in the first quarter, organic growth achieved in European markets. Sales included own consumption, sales by affiliates and upstream sales in Europe and the Gulf of Mexico. Natural gas sales in Italy (28.60 bcm, including own consumption) grew by 0.10 bcm from the first half of 2007, up 0.4%, primarily reflecting higher supplies to the power generation segment (up 1.23 bcm) and higher seasonal sales to residential customers (up 0.57 bcm). These increases were partially offset by lower supplies to wholesalers (down 1.76 bcm) and to industrial customers (down 1.03 bcm) mainly relating to competitive pressure and a gas release program (up 1.17 bcm) agreed by Eni and the Italian Antitrust Authorithy3 late in 2007. |
_______________
(3) | In June 2004, Eni agreed with the Antitrust Authority to sell a total volume of 9.2 bcm of natural gas (2.3 bcm/y) in the four thermal years from October 1, 2004 to September 30, 2008 at the Tarvisio entry point into the Italian network. In March 2007 a new gas release program was signed for volumes amounting to 4 bcm of natural gas to sell in the two thermal years from October 1, 2007 to September 30, 2009 at a virtual exchange point in the Italian market. |
- 16 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
International sales amounted
to 24.47 bcm with a 4.10 bcm increase (up 20.1%). Sales to importers in Italy (6.84 bcm) increased by 1.13 bcm, up 19.8%, mainly due to the circumstance that in 2007 part of these sales was replaced with direct sales in Italy. Gas sales on European markets (13.17 bcm including affiliates) increased by 1.69 bcm, up 14.7%, reflecting also market share gains. Main increases were registered in: (i) the Iberian Peninsula (up 0.71 bcm), due to higher |
supplies to wholesalers;
(ii) Germany-Austria (up 0.37 bcm) due to higher supplies
to wholesalers; (iii) France (up 0.26 bcm) due to
marketing initiatives targeting small businesses and
residential customers; and (iv) Turkey (up 0.18 bcm), due
to the progressive reaching of full operations of the
Blue Stream pipeline. Sales to markets outside Europe (1.14 bcm) grew by 0.20 bcm, up 21.3%, on the back of higher LNG sales to the Asiatic markets by the affiliate Unión Fenosa Gas (Enis share 50%). |
Gas sales by market |
(bcm) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
56.13 | Italy | 28.50 | 28.60 | 0.10 | 0.4 | ||||||||||
10.01 | Wholesalers | 6.21 | 4.45 | (1.76 | ) | (28.3 | ) | ||||||||
2.37 | Gas release | 0.95 | 2.12 | 1.17 | .. | ||||||||||
1.90 | Italian exchange for gas and spot markets | 0.68 | 0.52 | (0.16 | ) | (23.5 | ) | ||||||||
12.77 | Industries | 6.83 | 5.80 | (1.03 | ) | (15.1 | ) | ||||||||
11.77 | Industries | 6.33 | 5.21 | (1.12 | ) | (17.7 | ) | ||||||||
1.00 | Medium-sized enterprises and services | 0.50 | 0.59 | 0.09 | 18.0 | ||||||||||
17.21 | Power generation | 7.81 | 9.04 | 1.23 | 15.7 | ||||||||||
5.79 | Residential | 3.15 | 3.72 | 0.57 | 18.1 | ||||||||||
6.08 | Own consumption | 2.87 | 2.95 | 0.08 | 2.8 | ||||||||||
42.83 | International sales | 20.37 | 24.47 | 4.10 | 20.1 | ||||||||||
10.67 | Importers in Italy | 5.71 | 6.84 | 1.13 | 19.8 | ||||||||||
24.35 | European markets | 11.48 | 13.17 | 1.69 | 14.7 | ||||||||||
6.91 | Iberian Peninsula | 2.92 | 3.63 | 0.71 | 24.3 | ||||||||||
5.03 | Germany-Austria | 2.28 | 2.65 | 0.37 | 16.2 | ||||||||||
4.62 | Turkey | 2.46 | 2.64 | 0.18 | 7.3 | ||||||||||
3.15 | Northern Europe | 1.57 | 1.47 | (0.10 | ) | (6.4 | ) | ||||||||
2.74 | Hungary | 1.37 | 1.59 | 0.22 | 16.1 | ||||||||||
1.62 | France | 0.77 | 1.03 | 0.26 | 33.8 | ||||||||||
0.28 | Other | 0.11 | 0.16 | 0.05 | 45.5 | ||||||||||
2.42 | Extra European markets | 0.94 | 1.14 | 0.20 | 21.3 | ||||||||||
5.39 | E&P in Europe and in the Gulf of Mexico | 2.24 | 3.32 | 1.08 | 48.2 | ||||||||||
98.96 | Worldwide gas sales | 48.87 | 53.07 | 4.20 | 8.6 |
Gas sales by entity |
(bcm) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
84.83 | Sales of consolidated companies | 42.59 | 45.28 | 2.69 | 6.3 | ||||||||||
56.08 | Italy (including own consumption) | 28.47 | 28.57 | 0.10 | 0.4 | ||||||||||
27.86 | Rest of Europe | 13.76 | 16.32 | 2.56 | 18.6 | ||||||||||
0.89 | Outside Europe | 0.36 | 0.39 | 0.03 | 8.3 | ||||||||||
8.74 | Sales of Enis affiliates (net to Eni) | 4.04 | 4.47 | 0.43 | 10.6 | ||||||||||
0.05 | Italy | 0.03 | 0.03 | ||||||||||||
7.16 | Rest of Europe | 3.43 | 3.69 | 0.26 | 7.6 | ||||||||||
1.53 | Outside Europe | 0.58 | 0.75 | 0.17 | 29.3 | ||||||||||
5.39 | E&P in Europe and in the Gulf of Mexico | 2.24 | 3.32 | 1.08 | 48.2 | ||||||||||
98.96 | Worldwide gas sales | 48.87 | 53.07 | 4.20 | 8.6 |
- 17 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Electricity
sales In the first half of 2008 sales of electricity (15.37 TWh) were directed to the free market (76%), the electricity exchange (12%), industrial sites (9%) and GSE/Cip 6 (3%). In the first half of 2008 sales declined by 0.87 TWh, down 5.4%, reflecting lower traded volumes. The decrease mainly regarded volumes to the electricity |
exchange. Sales on the free market to wholesalers increased due to higher spot sales, and so did sales to industrial users due to new customers acquired. Customers whom the Company jointly supplies gas and electricity amounted approximately to 177,000 units as of June 30, 2008 57,000 higher than at December 31, 2007 (120,000 customers). |
Electricity sales |
(TWh) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
20.73 | Free market | 9.67 | 11.76 | 2.09 | 21.6 | ||||||||||
8.66 | Italian Exchange for electricity | 4.61 | 1.80 | (2.81 | ) | (61.0 | ) | ||||||||
2.81 | Industrial plants | 1.41 | 1.39 | (0.02 | ) | (1.4 | ) | ||||||||
0.99 | Electricity Services Operator | 0.55 | 0.42 | (0.13 | ) | (23.6 | ) | ||||||||
33.19 | 16.24 | 15.37 | (0.87 | ) | (5.4 | ) | |||||||||
25.49 | Electricity production | 12.15 | 12.28 | 0.13 | 1.1 | ||||||||||
7.70 | Trading of electricity | 4.09 | 3.09 | (1.00 | ) | (24.4 | ) |
Transport and
regasification of natural gas Eni transported 45.36 bcm of natural gas in Italy, an increase of 3.47 bcm from the first half of 2007, up 8.3% due mainly to increased volumes of natural gas input in the national grid for the rebuilding of stocks in the second quarter following the relevant amounts sold in the first quarter. |
Volumes of natural gas transported on behalf of third parties (18.10 bcm) increased by 2.92 bcm from the first half of 2007, up 19.2%. In the first half of 2008, the LNG terminal in Panigaglia (La Spezia) regasified 0.91 bcm of natural gas (1.31 bcm in the first half of 2007). |
Gas volumes transported in Italy (a) |
(bcm) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
52.39 | Eni | 26.71 | 27.26 | 0.55 | 2.1 | ||||||||||
30.89 | On behalf of third parties | 15.18 | 18.10 | 2.92 | 19.2 | ||||||||||
83.28 | 41.89 | 45.36 | 3.47 | 8.3 |
(a) | Include amounts destined to domestic storage. |
- 18 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Development
projects MARKETING Distrigaz acquisition On May 29, 2008, as a result of an auction process that involved all the major European gas players, Eni signed a binding agreement with the French company Suez-Tractebel for the acquisition in cash of a 57.243% majority stake in the Belgian company Distrigaz SA, listed on the Euronext Brussels Stock Exchange, for euro 2.74 billion. The deal values Distrigaz at euro 4.8 billion. The holding company of Belgian utilities, Publigas, owns a 31.254% interest in Distrigaz. The remaining 11.503% of the share capital is floating. The Kingdom of Belgium owns a golden share, which is allowed to exercise in case there is a threat to national interests. Distrigaz is the incumbent natural gas operator on the Belgian market with total sales amounting to 17 billion cubic meters in 2007 mainly to the industries, resellers and electricity producers in Belgium. It also sells gas in France, Germany, the Netherlands and Luxembourg. About 90% of its sales are supplied by long-term contracts with Norway, the Netherlands and Qatar. In addition it owns gas infrastructure and an 11% interest in Interconnector UK Ltd, the company that owns the interconnection of the transit gas networks between Belgium and the UK. Transit capacity on the Troll and vTn/rTr gas pipelines are marketed by its affiliate Distrigaz & Co, which is being divested4. In 2007, Distrigaz reported net consolidated sales amounting to euro 4.3 billion and consolidated net profit after minority interests amounting to euro 294 million. The deal is expected to be finalized by the end of 2008, as soon as authorization from the European Commission is granted and other conditions are met, including the condition that the municipal holding company Publigaz SCRL waives its rights of pre-emption over the transfer of shares from Suez to Eni. Following the closing, Eni will launch a mandatory tender offer on the remaining shares of Distrigaz. On July 30, 2008 Eni and Publigaz signed a shareholders agreement intended to regulate the governance of Distrigaz. This agreement provides the right of Publigaz to put its shares to Eni in accordance with the terms contained in the shareholders agreement. Publigaz has currently waived its pre-emption rights |
on the 57.243 stake of the
share capital of Distrigaz being sold. The deal will strengthen Enis leadership in the European gas market and accelerate its growth strategy by ensuring Eni a strong foothold in Belgium, a key country in the European gas market due to being a liquid gas market and its high level of interconnectivity with the Centre-North European transit gas networks. Furthermore, Eni signed a preliminary agreement with Suez to dispose of certain assets, also targeting optimization of its asset portfolio. Enis consideration assets include: (i) Enis network of low-pressure pipelines serving the consumer area of Rome; this is a 5,300-kilometer long network; (ii) interests in some of Enis exploration and production properties. Also the two partners are negotiating certain long-term supply contracts whereby Eni will supply to Distrigaz: (i) volumes of electricity up to a maximum of 1.1 GW of generation capacity for 20 years; (ii) volumes of gas to be delivered in Italy and outside Italy up to a 20-year period and an option for Distrigaz to purchase LNG volumes equivalent to 0.9 bcm to be delivered to the Gulf of Mexico for 20 years. France: agreement for the acquisition of a stake in Gaz de Bordeaux Energie Services On July 15, 2008 Eni signed an agreement to purchase a 17% stake in the share capital of Gaz de Bordeaux Energie Services SAS. Also Enis associate Altergaz (Enis interest being 38%) intends to purchase a stake of a similar size. The two partners plans to support the development of the target company by supplying it with up to 250 million cubic meters of gas per year for ten years to expand sales to residential, commercial and industrial customers, targeting a potential market of approximately 250,000 customers. Russia: Supply contract to TGK-9 On July 8, 2008 Eni signed a gas sale contracts with TGK-9, a Russian producer of electricity. Under the terms of the contracts, as of June 1, 2008, Eni will sold to the customer 350 million cubic meters of gas per year, with expected build-up by 2010. Based on this deal, Eni will become the first European player to enter the Russian gas downstream market, the second largest in the world in terms of consumption. |
_______________
(4) | The closing of this transaction might entail the payment of compensation by Eni to Suez, or vice versa, according to the actual price of the transaction. |
- 19 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
LNG Egypt Eni, through its interest in Unión Fenosa Gas, owns a 40% stake in the Damietta liquefaction plant producing approximately 5 mmtonnes/y of LNG equal to a feedstock of 7.6 bcm/y of natural gas. In the first half of 2008, the Gas & Power segment withdrew approximately 0.7 mmtonnes of LNG to be marketed in Europe. The partners of the project (Unión Fenosa Gas, the state owned Egyptian company EGAS and oil producers Eni and BP) defined terms and conditions for doubling the plant capacity. The project is expected to be approved by the Egyptian authorities by end of 2008. USA Eni is implementing a global development strategy of its LNG business targeting expansion in the strategic US market where Eni holds a 40% capacity entitlement in the Cameron re-gasification terminal for 20 years. The plant is currently under construction on the coast of Louisiana and is planned to have initial outbound capacity of 15.5 bcm/y (6 net to Eni). Operations are expected to start between end of 2008 and the first quarter of 2009. Eni is implementing certain initiatives to ensure its share of supplies to the plant. In addition, in the framework of the Angola LNG project providing for the construction of an LNG plant designed to produce 5.2 mmtonnes/y of LNG (approximately 5.6 bcm/y) destined to the US market, Eni purchased a share of 5.6 bcm/y of the capacity of the Pascagoula re-gasification plant under construction in Mississippi and expected to start operations in 2011. TRANSPORT INFRASTRUCTURES TAG - Russia The TAG gasline is undergoing an upgrade designed to increase the transport capacity by 6.5 bcm/y from the |
current level of 37 bcm/y. A
first 3.2 bcm/y portion of the upgrade was awarded to
third parties in February 2006 and is expected to be
operating from October 1, 2008. The second portion of 3.3
bcm/y is expected to start operating in the fourth
quarter of 2009. Its awarding will take place by end of
2008. TTPC - Algeria The transport capacity of the TTPC gasline from Algeria is expected to be increased by 6.5 bcm/y from the current 27 bcm/y. A 3.2 bcm/y portion came on line on April 1, 2008; the second portion is expected to come on line by October 2008. New available capacity has already been awarded to third parties. A corresponding capacity on the TMPC downstream gasline is already available. TMPC crosses underwater the Sicily channel. POWER GENERATION Enis electricity generation sites are located in Ferrera Erbognone, Ravenna, Livorno, Taranto, Mantova, Brindisi and Ferrara. In the first half of 2008, electricity production sold was 12.28 TWh, up 0.13 TWh or 1.1% from the first half of 2007, due mainly to higher volumes produced at the Ferrera Erbognone plant, partially offset by lower production at the Livorno and Brindisi plants. At June 30, 2008 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 particularly underway at Ferrara (Enis interest 51%), where in partnership with Swiss company EG Luxembourg AG the construction of two new 390 megawatt combined cycle units is planned to be completed in 2009. |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
Purchases | ||||||||||||||||
4,860 | Natural gas | (mmcm) | 2,283 | 2,350 | 67 | 2.9 | ||||||||||
720 | Other fuels | (ktep) | 324 | 302 | (22 | ) | (6.8 | ) | ||||||||
25.49 | Electricity production |
(TWh) | 12.15 | 12.28 | 0.13 | 1.1 | ||||||||||
10,849 | Steam | (ktonnes) | 5,365 | 5,410 | 45 | 0.8 |
- 20 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Capital
expenditures Capital expenditures in the Gas & Power segment totaled euro 871 million and mainly related to: (i) developing and upgrading Enis transport network in Italy (euro 529 million); (ii) the upgrading plan of |
international pipelines (euro 175 million); (iii) developing and upgrading Enis natural gas distribution network in Italy (euro 85 million); (iv) ongoing construction and other operations of combined cycle power plants (euro 41 million). |
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
1,063 | Italy | 425 | 668 | 243 | 57.2 | |||||||||||
303 | Outside Italy | 101 | 203 | 102 | .. | |||||||||||
1,366 | 526 | 871 | 345 | 65.6 | ||||||||||||
227 | Marketing | 112 | 82 | (30 | ) | (26.8 | ) | |||||||||
52 | Marketing | 24 | 41 | 17 | 70.8 | |||||||||||
2 | Italy | 8 | 13 | 5 | 62.5 | |||||||||||
50 | Outside Italy | 16 | 28 | 12 | 75.0 | |||||||||||
175 | Power generation | 88 | 41 | (47 | ) | (53.4 | ) | |||||||||
886 | Regulated businesses in Italy | 329 | 614 | 285 | 86.6 | |||||||||||
691 | Transport | 273 | 529 | 256 | 93.8 | |||||||||||
195 | Distribution | 56 | 85 | 29 | 51.8 | |||||||||||
253 | International transport | 85 | 175 | 90 | .. | |||||||||||
1,366 | 526 | 871 | 345 | 65.6 |
- 21 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Refining & Marketing
Key performance indicators |
First Half |
2007 |
(million euro) |
2007 |
2008 |
||
36,401 | Net sales from operations (a) | 16,880 | 24,274 | |||||
729 | Operating profit | 420 | 847 | |||||
329 | Adjusted operating profit | 305 | 180 | |||||
319 | Adjusted net profit | 250 | 172 | |||||
979 | Capital expenditures | 319 | 350 | |||||
7,149 | Adjusted capital employed, net | 5,909 | 8,490 | |||||
5.0 | Adjusted ROACE | (%) | 10.8 | 3.4 | ||||
37.15 | Refinery throughputs on own account | (mmtonnes) | 18.32 | 17.65 | ||||
56 | Conversion index | (%) | 57 | 56 | ||||
748 | Balanced capacity of refineries | (kbbl/d) | 721 | 747 | ||||
12.65 | Retail sales of petroleum products in Europe | (mmtonnes) | 6.06 | 6.27 | ||||
6,440 | Service stations in Europe at period end | (units) | 6,279 | 6,373 | ||||
2,486 | Average throughput per service station in Europe | (kliters) | 1,198 | 1,210 | ||||
9,428 | Employees at period end | (units) | 9,372 | 9,468 |
(a) | Before elimination of intragroup sales. |
Supply and
trading In the first half of 2008, purchases of crude oil amounted to 28.77 mmtonnes (30.84 mmtonnes in the first half of 2007), of which 14.02 mmtonnes were purchased from the Enis Exploration & Production5 segment, 8.67 mmtonnes on the spot market and 6.08 mmtonnes under long-term supply contracts with producing countries. Some 26% of crude oil purchases came from West Africa, 22% from Russia and the Caspian region, 15% from North Africa, 15% from the Middle East, 12% from the North Sea, 7% from Italy and 3% from other areas. |
Some 13.03 mmtonnes of
purchased crude oil were marketed, down 7.4% from the
first half of 2007. In addition, 1.51 mmtonnes of
intermediate products were purchased (1.72 mmtonnes in
the first half of 2007) to be used as feedstock in
conversion plants and 7.42 mmtonnes of refined products
(7.36 in the first half of 2007) were purchased to be
sold on markets outside Italy (5.69 mmtonnes) and on the
Italian market (1.72 mmtonnes) as a complement to own
production. The table below presents the break-down of crude oil supplies by sources. |
Supply of oil |
(mmtonnes) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
27.47 | Enis production outside Italy | 15.32 | 12.23 | (3.09 | ) | (20.2 | ) | ||||||||
4.10 | Enis production in Italy | 1.98 | 1.79 | (0.19 | ) | (9.6 | ) | ||||||||
31.57 | Total production | 17.30 | 14.02 | (3.28 | ) | (19.0 | ) | ||||||||
11.34 | Purchases on spot markets | 5.68 | 8.67 | 2.99 | 52.6 | ||||||||||
16.65 | Purchases under long-term contracts | 7.86 | 6.08 | (1.78 | ) | (22.7 | ) | ||||||||
59.56 | 30.84 | 28.77 | (2.07 | ) | (6.7 | ) |
__________________
(5) | The Refining & Marketing segment purchases approximately two-thirds of the Exploration & Production segments liquid production and resold on the marketplace those crude and condensate qualities that are not fit for processing at Enis refineries also considering the geographic area of production. |
- 22 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Refining In the first half of 2008, refining throughputs on own account in Italy and outside Italy were 17.65 mmtonnes, down 0.67 mmtonnes from the first half of 2007, or 3.7%. In Italy refining throughputs decrease by 1.19 mmtonnes, down 7.4%, in particular at the Porto Marghera, Taranto and Milazzo refineries mainly due to planned and unplanned downtime, as well as at Livorno plant due to a negative refining scenario. Refining throughputs outside Italy increased by 0.52 mmtonnes due to higher capacity available at Ceska Rafinerska reflecting the purchase of an additional interest in the plant which was executed late in 2007. |
Total throughputs on
wholly-owned refineries (12.69 mmtonnes) decreased by
1.07 mmtonnes from the first half of 2007, down 7.8%. Approximately 21.8% of processed feedstock was supplied by Enis Exploration & Production segment (32.8% in the first half of 2007), representing an 11 percentage point decrease from the first half of 2007, associated with a decline in production in Angola and Nigeria. |
Availability of refined products | (mmtonnes) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
Italy | |||||||||||||||
Refinery throughputs | |||||||||||||||
27.79 | At wholly-owned refineries | 13.76 | 12.69 | (1.07 | ) | (7.8 | ) | ||||||||
(1.76 | ) | Less input on account of third parties | (0.88 | ) | (0.74 | ) | 0.14 | (15.9 | ) | ||||||
6.42 | At affiliated refineries | 3.22 | 2.96 | (0.26 | ) | (8.1 | ) | ||||||||
32.45 | Refinery throughputs on own account | 16.10 | 14.91 | (1.19 | ) | (7.4 | ) | ||||||||
(1.63 | ) | Consumption and losses | (0.81 | ) | (0.79 | ) | 0.02 | (2.5 | ) | ||||||
30.82 | Products available for sale | 15.29 | 14.12 | (1.17 | ) | (7.7 | ) | ||||||||
2.16 | Purchases of refined products and change in inventories | 1.79 | 1.59 | (0.20 | ) | (11.2 | ) | ||||||||
(3.80 | ) | Products transferred to operations outside Italy | (2.51 | ) | (0.86 | ) | 1.65 | (65.7 | ) | ||||||
(1.13 | ) | Consumption for power generation | (0.53 | ) | (0.54 | ) | (0.01 | ) | 1.9 | ||||||
28.05 | Sales of products | 14.04 | 14.31 | 0.27 | 1.9 | ||||||||||
Outside Italy | |||||||||||||||
4.70 | Refinery throughputs on own account | 2.22 | 2.74 | 0.52 | 23.4 | ||||||||||
(0.31 | ) | Consumption and losses | (0.19 | ) | (0.13 | ) | 0.06 | (31.6 | ) | ||||||
4.39 | Products available for sale | 2.03 | 2.61 | 0.58 | 28.6 | ||||||||||
13.91 | Purchases of refined products and change in inventories | 5.78 | 5.78 | ||||||||||||
3.80 | Products transferred from Italian operations | 2.51 | 0.86 | (1.65 | ) | (65.7 | ) | ||||||||
22.10 | Sales of products | 10.32 | 9.25 | (1.07 | ) | (10.4 | ) | ||||||||
37.15 | Refinery throughputs on own account | 18.32 | 17.65 | (0.67 | ) | (3.7 | ) | ||||||||
11.22 | Input from Enis production | 6.01 | 3.85 | (2.16 | ) | (36.0 | ) | ||||||||
50.15 | Total sales of refined products | 24.36 | 23.56 | (0.80 | ) | (3.3 | ) |
Marketing of
refined products In the first half of 2008, sales volumes of refined products (23.56 mmtonnes) were down 0.80 mmtonnes from the first half of 2007, or 3.3%, mainly |
due to lower volumes sold to oil companies and traders in Italy, partly offset by higher retail and wholesale sales on markets in the rest of Europe and in Italy. |
- 23 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Products sales in Italy and outside Italy by market | (mmtonnes) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
8.62 | Retail | 4.17 | 4.24 | 0.07 | 1.7 | ||||||||||
11.09 | Wholesale | 5.27 | 5.36 | 0.09 | 1.7 | ||||||||||
1.93 | Petrochemicals | 0.97 | 0.95 | (0.02 | ) | (2.1 | ) | ||||||||
6.41 | Other sales | 3.63 | 3.76 | 0.13 | 3.6 | ||||||||||
28.05 | Sales in Italy | 14.04 | 14.31 | 0.27 | 1.9 | ||||||||||
4.03 | Retail rest of Europe | 1.89 | 2.03 | 0.14 | 7.4 | ||||||||||
4.96 | Wholesale outside Italy | 2.34 | 2.82 | 0.48 | 20.5 | ||||||||||
4.39 | of which rest of Europe | 2.07 | 2.54 | 0.47 | 22.7 | ||||||||||
13.11 | Other sales | 6.09 | 4.40 | (1.69 | ) | (27.8 | ) | ||||||||
22.10 | Sales outside Italy | 10.32 | 9.25 | (1.07 | ) | (10.4 | ) | ||||||||
50.15 | 24.36 | 23.56 | (0.80 | ) | (3.3 | ) |
Retail and wholesale sales of refined products | (mmtonnes) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
Italy | |||||||||||||||
8.62 | Retail sales | 4.17 | 4.24 | 0.07 | 1.7 | ||||||||||
3.19 | Gasoline | 1.56 | 1.50 | (0.06 | ) | (3.8 | ) | ||||||||
5.25 | Gasoil | 2.53 | 2.65 | 0.12 | 4.7 | ||||||||||
0.17 | LPG | 0.08 | 0.09 | 0.01 | 12.5 | ||||||||||
0.01 | Lubricants | ||||||||||||||
11.09 | Wholesale sales | 5.27 | 5.36 | 0.09 | 1.7 | ||||||||||
4.42 | Gasoil | 2.11 | 2.12 | 0.01 | 0.5 | ||||||||||
0.95 | Fuel oil | 0.47 | 0.42 | (0.05 | ) | (10.6 | ) | ||||||||
0.37 | LPG | 0.19 | 0.18 | (0.01 | ) | (5.3 | ) | ||||||||
0.15 | Gasoline | 0.07 | 0.06 | (0.01 | ) | (14.3 | ) | ||||||||
0.13 | Lubricants | 0.06 | 0.06 | ||||||||||||
1.58 | Bunker | 0.73 | 0.81 | 0.08 | 11.0 | ||||||||||
3.49 | Other | 1.64 | 1.71 | 0.07 | 4.3 | ||||||||||
8.99 | Outside Italy (retail + wholesale) | 4.23 | 4.85 | 0.62 | 14.7 | ||||||||||
2.29 | Gasoline | 1.11 | 1.20 | 0.09 | 8.1 | ||||||||||
5.16 | Gasoil | 2.43 | 2.76 | 0.33 | 13.6 | ||||||||||
0.38 | Jet fuel | 0.16 | 0.02 | (0.14 | ) | (87.5 | ) | ||||||||
0.25 | Fuel oil | 0.11 | 0.11 | ||||||||||||
0.09 | Lubricants | 0.04 | 0.06 | 0.02 | 50.0 | ||||||||||
0.49 | LPG | 0.24 | 0.26 | 0.02 | 8.3 | ||||||||||
0.33 | Other | 0.14 | 0.44 | 0.30 | .. | ||||||||||
28.70 | Total | 13.67 | 14.45 | 0.78 | 5.7 |
Retail sales in
Italy Retail volumes of refined products marketed on the Italian network (4.24 mmtonnes) were up 70 ktonnes from the first half of 2007, or 1.7% mainly due to a higher market share (from 28.8% in the first half of 2007 to 29.8%). Higher sales mainly regarded gasoil following the same pattern as national consumption trends, while gasoline sales declined. At June 30, 2008, Enis retail network in Italy consisted of 4,402 service stations, 12 more than at December 31, |
2007 (4,390 service
stations). This increase resulted from the opening of new
service stations (3 units) and the positive balance of
acquisitions/releases of leased service stations (20
units). Ten low throughput service stations were shut
down and one outlet under highway concessions was
released. Average throughput was 1,183 kliters as
measured on gasoline and gasoil volumes, in line with the
first half of 2007. Retail volumes of BluDiesel, including its reformulated version BluDieselTech, declined due to the sensitivity of demand to fuel prices considering that prices were at |
- 24 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
historical highs. They are
high performance and low environmental impact gasoil.
Sales of both products amounted to approximately 300
ktonnes (346 mmliters), down 14% from the first half of
2007 and represented 11.3% of gasoil sales on the
Enis retail network. At June 30, 2008, virtually
all Agip branded service stations marketed the product
(about 91% of Enis network). Also retail volumes of BluSuper suffered from the price environment. This is a high performance and low environmental impact gasoline. Sales in the first half amounted to approximately 39 ktonnes (45 mmliters), slightly declining from the first half of 2007 and covered 2.6% of gasoline volumes sold on Enis retail network. At June 30, 2008, service stations marketing BluSuper totaled 2,540 units (2,565 at December 31, 2007) corresponding to approximately 58% of Enis network. Under the You&Agip promotional campaign lasting 3 years, at June 30, 2008 the number of customers that actively used the card in the period amounted to approximately 5 million. This campaign was launched in March 2007 and was designed to retain customers. In the period the average number of active cards was approximately 3 million. Volumes of fuel marketed under this initiative represented 47% of total volumes marketed on Enis service stations joining the programme, and 46% of overall volumes marketed on the Eni network. Retail sales outside Italy In the first half of 2008, retail sales of refined products marketed in the rest of Europe were 2.03 mmtonnes, up 140 ktonnes from the first half of 2007, or 7.4%, mainly in the Czech Republic, Hungary and Slovakia due the purchase of assets made in the fourth quarter of 2007. Volume growth was driven primarily by increased sales of gasoil and LPG. |
At June 30, 2008, Enis
retail network in the rest of Europe consisted of 1,971
units, a decrease of 79 units from December 31, 2007
(2,050 service stations). The networks evolution
was as follows: (i) 13 service stations were acquired;
(ii) 4 outlets were opened; (iii) 9 low throughput
service stations were closed in particular in Spain; (iv)
a negative balance of acquisitions/releases of leased
service stations was recorded (down 87 units), with
positive changes in Switzerland, Spain and Slovenia, and
negative ones in Germany and Portugal. Average throughput
(1,269 kliters) was up 3%. Wholesale and other sales Sales volumes on wholesale markets in Italy (5.36 mmtonnes) were up 90 ktonnes from the first half of 2007, or 1.7%, reflecting mainly am increase in domestic consumption on the bunkering market and increased sales of kerosene for aviation uses reflecting a recovery in the airline industry offset only in part by lower demand for heating oil from the power generation sector due to substitution of this fuel with gas. Sales on wholesale markets in the rest of Europe (2.54 mmtonnes) increased 470 ktonnes, mainly in the Czech Republic and Switzerland, while sales declined in Austria and France. Supplies of feedstock to the petrochemical industry (0.95 mmtonnes) declined by 20 ktonnes due to lower supplies of feestocks. Other sales (8.16 mmtonnes) decreased by 1.56 mmtonnes, or 16%, mainly due to lower sales to oil companies and traders (down 1.69 mmtonnes) outside Italy. |
- 25 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Capital
expenditures In the first half of 2008, capital expenditures in the Refining & Marketing segment amounted to euro 350 million (euro 319 million in the first half of 2007) and regarded mainly: (i) refining, supply and logistics (euro 251million) in Italy, with projects designed to improve the conversion rate and flexibility of refineries, in particular ongoing |
construction of a new
hydro-cracker at the Sannazzaro refinery, and
expenditures on health, safety and environmental
upgrades; (ii) upgrade and restructuring of the retail
network in Italy (euro 49 million); (iii) upgrade of the
retail network in the rest of Europe (euro 32 million). Expenditures on health, safety and the environment amounted to euro 45 million. |
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
873 | Italy | 283 | 318 | 35 | 12.4 | ||||||||||
106 | Outside Italy | 36 | 32 | (4 | ) | (11.1 | ) | ||||||||
979 | 319 | 350 | 31 | 9.7 | |||||||||||
675 | Refinery, supply and logistic | 214 | 251 | 37 | 17.3 | ||||||||||
675 | Italy | 214 | 251 | 37 | 17.3 | ||||||||||
282 | Marketing | 85 | 81 | (4 | ) | (4.7 | ) | ||||||||
176 | Italy | 49 | 49 | ||||||||||||
106 | Outside Italy | 36 | 32 | (4 | ) | (11.1 | ) | ||||||||
22 | Other | 20 | 18 | (2 | ) | (10.0 | ) | ||||||||
979 | 319 | 350 | 31 | 9.7 |
- 26 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Petrochemicals
Key performance indicators |
First Half |
2007 |
(million euro) |
2007 |
2008 |
||
6,934 | Net sales from operations (a) | 3,476 | 3,519 | ||||||
74 | Operating profit | 211 | (272 | ) | |||||
90 | Adjusted operating profit | 189 | (225 | ) | |||||
57 | Adjusted net profit | 130 | (168 | ) | |||||
145 | Capital expenditures | 56 | 68 | ||||||
8,795 | Production | (ktonnes) | 4,411 | 4,136 | |||||
5,513 | Sales of petrochemical products | 2,812 | 2,677 | ||||||
80.6 | Average plant utilization rate | (%) | 81.5 | 77.3 | |||||
6,534 | Employees at period end | (units) | 6,845 | 6,485 |
(a) | Before elimination of intragroup sales. |
Sales -
production - prices In the first half of 2008, sales of petrochemical products (2,677 ktonnes) decreased by 135 ktonnes from the first half of 2007, down 4.8%. This decrease mainly regarded: (i) basic petrochemicals (down 6.2%) due to lower product availability related to the shutdown of the Gela cracker; and (ii) polyethylene due to negative market trends. These declines were partially offset by higher sales of intermediates (up 8.4%), reflecting higher product availability, and elastomers (up 5.7%) due to positive market trends. Petrochemical production (4,136 ktonnes) decreased by 275 ktonnes from the first half of 2007, down 6.2% due to unplanned downtime at Dunkerque, Porto Torres and shutdown of the Gela cracker. Nominal production capacity was in line with the first |
half of 2007. Average plant
utilization rate calculated on nominal capacity decreased
by approximately 4 percentage points from 81.5% to 77.3%
due to lower production. Approximately 48% of total production was directed to Enis own production cycle (46% in the first half of 2007). Oil-based feedstock supplied by Enis Refining & Marketing division covered 23% of feed requirements (22% in the first half of 2007). Prices of Enis main petrochemical products increased on average by 5%. Main increases were registered in olefins (up 11%) and polyethylene (up 9%), with increases in all products. Declines regarded: (i) styrene (down 4%), in particular expandable polystyrenes; (ii) aromatics (down 3%), in particular benzene; and (iii) intermediates (down 3%), in particular phenol. |
- 27 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Product availability | (ktonnes) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
5,688 | Basic petrochemicals | 2,803 | 2,635 | (168 | ) | (6.0 | ) | ||||||||
1,632 | Styrene and elastomers | 837 | 788 | (49 | ) | (5.9 | ) | ||||||||
1,475 | Polyethylene | 771 | 713 | (58 | ) | (7.5 | ) | ||||||||
8,795 | Production | 4,411 | 4,136 | (275 | ) | (6.2 | ) | ||||||||
(4,304 | ) | Consumption of monomers | (2,042 | ) | (1,973 | ) | 69 | (3.4 | ) | ||||||
1,022 | Purchases and change in inventories | 443 | 514 | 71 | 16.0 | ||||||||||
5,513 | 2,812 | 2,677 | (135 | ) | (4.8 | ) |
Sales | (ktonnes) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
3,023 | Basic petrochemicals | 1,510 | 1,417 | (93 | ) | (6.2 | ) | ||||||||
1,041 | Styrene and elastomers | 544 | 539 | (5 | ) | (0.9 | ) | ||||||||
1,449 | Polyethylene | 758 | 721 | (37 | ) | (4.9 | ) | ||||||||
5,513 | 2,812 | 2,677 | (135 | ) | (4.8 | ) |
Business
areas Basic petrochemicals Sales of basic petrochemicals of 1,417 ktonnes decreased by 93 ktonnes from the first half of 2007, down 6.2%, mainly due to lower product availability following the shutdown of the Gela cracker and of a paraxylene line at Priolo. Declines registered in xylene (down 26%), ethylene (down 13%) and propylene (down 10%), offset in part by higher sales of butadiene (up 31%) and intermediates (up 8.4%), in particular cicloexanone (up 24%) reflecting higher product availability due to the fact that in 2007 availability of this product was affected by maintenance shutdown of the Mantova plant. Basic petrochemicals production (2,635 ktonnes) decreased by 168 ktonnes, down 6%. Styrene and elastomers Styrene sales (296 ktonnes) decreased by 5.4% from the first half of 2007 mainly due to lower sales of compact polystyrenes (down 13.6%) reflecting negative market trends. Elastomers sales (243 ktonnes) increased by 5.7% from the first half of 2007. Increased sales of SBR (up 22%), thermoplastic rubbers (up 11%) and EPR (up 7%) reflected positive market trends |
Styrene production (529
ktonnes) decreased by 6% as it was affected by unplanned
downtime occurred at the Mantova plant. Elastomers production (259 ktonnes) decreased by 5.5% from the first half of 2007 due to the maintenance shutdown of the Ravenna plant. Polyethylene Polyethylene sales (721 ktonnes) decreased by 37 ktonnes from the first half of 2007, down 4.9%, due to lower product availability in particular for HDPE (down 11.2%) and LDPE (down 11.5%). Increased sales of LLPDE (up 3.8%) and EVA (up 5.7%) reflected positive market trends. Production (713 ktonnes) decreased by 58 ktonnes from the first half of 2007, down 7.5%, affecting all products except for EVA, due to unplanned downtime occurred at the Dunkerque plant. Capital expenditures In the first half of 2008, capital expenditures (euro 68 million; mainly regarded plant upgrade (euro 24 million), measures to comply with environmental, health and safety regulations (euro 17 million), plant efficiency (euro 15 million) and upkeeping (euro 8 million). |
- 28 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
Engineering & Construction
Key performance indicators |
First Half |
2007 |
(million euro) |
2007 |
2008 |
||
8,678 | Net sales from operations (a) | 4,289 | 4,211 | |||||
837 | Operating profit | 390 | 467 | |||||
840 | Adjusted operating profit | 379 | 467 | |||||
658 | Adjusted net profit | 304 | 368 | |||||
1,410 | Capital expenditures | 510 | 977 | |||||
17.1 | Adjusted ROACE | (%) | 15.8 | 17.1 | ||||
12,011 | Orders acquired | 4,948 | 5,471 | |||||
15,390 | Order backlog | 13,308 | 16,191 | |||||
33,111 | Employees at period end | (units) | 32,903 | 32,184 |
(a) | Before elimination of intragroup sales. |
Activity for
the year Among the main orders acquired in the first half of 2008 were:
|
Order acquired in the first half of 2008 amounted to euro 5,471 million, of these projects to be carried out outside Italy represented 92%, while orders from Eni companies amounted to 1% of the total. Order backlog was euro 16,191 million at June 30, 2008 (euro 15,390 million at December 31, 2007). Projects to be carried out outside Italy represented 95% of the total order backlog, while orders from Eni companies amounted to 17% of the total. |
First Half |
(million euro) |
2007 |
2008 |
Change |
% Ch. |
||||
Orders acquired | 4,948 | 5,471 | 523 | 10.6 | ||||||||
Offshore construction | 1,881 | 3,419 | 1,538 | 81.8 | ||||||||
Onshore construction | 2,774 | 1,055 | (1,719 | ) | (62.0 | ) | ||||||
Offshore drilling | 144 | 213 | 69 | 47.9 | ||||||||
Onshore drilling | 149 | 784 | 635 | .. | ||||||||
of which: | ||||||||||||
- Eni | 556 | 62 | (494 | ) | (88.8 | ) | ||||||
- Third parties | 4,392 | 5,409 | 1,017 | 23.2 | ||||||||
of which: | ||||||||||||
- Italy | 164 | 455 | 291 | .. | ||||||||
- Outside Italy | 4,784 | 5,016 | 232 | 4.8 |
- 29 -
ENI OPERATING AND FINANCIAL REVIEW / OPERATING REVIEW
(million euro) |
Dec. 31, 2007 |
June 30, 2008 |
Change |
% Ch. |
||||
Order backlog | 15,390 | 16,191 | 801 | 5.2 | ||||||||
Offshore construction | 4,215 | 5,843 | 1,628 | 38.6 | ||||||||
Onshore construction | 7,003 | (a) | 5,616 | (1,387 | ) | (19.8 | ) | |||||
Offshore drilling | 3,471 | 3,446 | (25 | ) | (0.7 | ) | ||||||
Onshore drilling | 701 | 1,286 | 585 | 83.5 | ||||||||
of which: | ||||||||||||
- Eni | 3,399 | 2,724 | (675 | ) | (19.9 | ) | ||||||
- Third parties | 11,991 | 13,467 | 1,476 | 12.3 | ||||||||
of which: | ||||||||||||
- Italy | 799 | 731 | (68 | ) | (8.5 | ) | ||||||
- Outside Italy | 14,591 | 15,460 | 869 | 6.0 |
(a) | Net of the backlog of divested companies (Haldor Topsøe and Camom Group) for euro 181 million. |
Capital expenditures
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
566 | Offshore construction | 225 | 385 | 160 | 71.1 | ||||||||||
76 | Onshore construction | 40 | 31 | (9 | ) | (22.5 | ) | ||||||||
478 | Offshore drilling | 165 | 449 | 284 | .. | ||||||||||
266 | Onshore drilling | 72 | 112 | 40 | 55.6 | ||||||||||
24 | Other expenditures | 8 | (8 | ) | .. | ||||||||||
1,410 | Capital expenditures | 510 | 977 | 467 | 91.6 |
In the first half of 2008 capital expenditures in the Engineering & Construction segment (euro 977 million) mainly regarded: (i) ongoing construction of a new pipelayer, two new semisubmersible platform and a new deepwater drilling ship; (ii) the conversion of a tanker ship into FPSO vessels that will operate in | Angola; (iii) strengthening
the operating bases/yards; (iv) upgrading the existing
asset base. The turnkey contract for the construction of the Saipem FDS 2 deepwater field development ship was awarded to Samsung Heavy Industries Co. The overall investment will amount to approximately euro 380 million. |
- 30 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Financial Review
Profit and loss account
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
87,256 | Net sales from operations | 41,688 | 55,422 | 13,734 | 32.9 | ||||||||||
827 | Other income and revenues | 445 | 406 | (39 | ) | (8.8 | ) | ||||||||
(61,979 | ) | Operating expenses | (29,504 | ) | (39,538 | ) | (10,034 | ) | (34.0 | ) | |||||
(8 | ) | of which non recurring items | (56 | ) | 56 | ||||||||||
(7,236 | ) | Depreciation, depletion, amortization and impairments | (3,306 | ) | (4,389 | ) | (1,083 | ) | (32.8 | ) | |||||
18,868 | Operating profit | 9,323 | 11,901 | 2,578 | 27.7 | ||||||||||
(83 | ) | Finance (expense) income | 25 | (61 | ) | (86 | ) | .. | |||||||
1,243 | Net income from investments | 491 | 869 | 378 | 77.0 | ||||||||||
20,028 | Profit before income taxes | 9,839 | 12,709 | 2,870 | 29.2 | ||||||||||
(9,219 | ) | Income taxes | (4,673 | ) | (5,482 | ) | (809 | ) | (17.3 | ) | |||||
46.0 | Tax rate (%) | 47.5 | 43.1 | (4.4 | ) | ||||||||||
10,809 | Net profit | 5,166 | 7,227 | 2,061 | 39.9 | ||||||||||
Attributable to: | |||||||||||||||
10,011 | - Eni | 4,855 | 6,758 | 1,903 | 39.2 | ||||||||||
798 | - minority interest | 311 | 469 | 158 | 50.8 |
Net profit Enis net profit for the first half of 2008 was euro 6,758 million, an increase of euro 1,903 million from the first half of 2007, or 39.2%. This result benefited from higher reported operating profit, which was up euro 2,578 million, or 27.7%, mainly as a result of an improved performance by the Exploration & Production division and increased net income from investments (euro 378 million). The improved operating result was partly absorbed by |
higher income taxes (down euro 809 million), reflecting higher tax currently payable recorded by subsidiaries of the Exploration & Production division operating outside Italy. On the positive side, an adjustment was recorded relating to deferred tax for Italian companies and for Libyan activities reflecting new tax rules enacted in the period, effective from January 1, 2008 (for more details on tax matters see the following discussion under income taxes). |
Adjusted net profit
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
10,011 | Net profit attributable to Eni | 4,855 | 6,758 | 1,903 | 39.2 | ||||||||||
(499 | ) | Exclusion of inventory holding (gain) loss | (110 | ) | (783 | ) | |||||||||
(42 | ) | Exclusion of special items | 155 | (607 | ) | ||||||||||
of which: | |||||||||||||||
35 | - non recurring items | 81 | |||||||||||||
(77 | ) | - other special items | 74 | (607 | ) | ||||||||||
9,470 | Enis adjusted net profit (a) | 4,900 | 5,368 | 468 | 9.6 |
(a) | For a detailed explanation of adjusted operating profit and net profit see page 44. |
Enis adjusted net profit amounted to euro 5,368 million, an increase of euro 468 million or 9.6% from the first half of 2007. Adjusted net profit is calculated by excluding an | inventory holding gain of euro 783 million and special gains of euro 607 million net, resulting in an overall adjustment equal to a decrease of euro 1,390 million. |
- 31 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Special items mainly related to: (i) an adjustment to deferred tax for Italian subsidiaries and Libyan oil properties due to new tax rules; (ii) a special gain was also recorded on the divestment of interests in the | Engineering & Construction business; and (iii) asset impairments, including unproved oil and gas properties, refineries and petrochemicals plants. |
The breakdown of adjusted net profit by division is shown in the table below:
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
6,491 | Exploration & Production | 3,056 | 4,141 | 1,085 | 35.5 | ||||||||||
2,936 | Gas & Power | 1,577 | 1,579 | 2 | 0.1 | ||||||||||
319 | Refining & Marketing | 250 | 172 | (78 | ) | (31.2 | ) | ||||||||
57 | Petrochemicals | 130 | (168 | ) | (298 | ) | .. | ||||||||
658 | Engineering & Construction | 304 | 368 | 64 | 21.1 | ||||||||||
(210 | ) | Other activities | (120 | ) | (114 | ) | 6 | 5.0 | |||||||
(141 | ) | Corporate and financial companies | 29 | (97 | ) | (126 | ) | .. | |||||||
(16 | ) | Impact of unrealized intragroup profit elimination (a) | (15 | ) | (146 | ) | (131 | ) | |||||||
10,094 | 5,211 | 5,735 | 524 | 10.1 | |||||||||||
of which attributable to: | |||||||||||||||
624 | - Minority interest | 311 | 367 | 56 | 18.0 | ||||||||||
9,470 | - Eni | 4,900 | 5,368 | 468 | 9.6 |
(a) | This item concerned mainly intragroup sales of products, services and capital goods recorded among assets of the purchasing business segment as of period-end. |
The increase in the Group
adjusted net profit mainly reflected a higher result
reported by: - the Exploration & Production division achieved an increase of euro 1,085 million in adjusted net profit, up 35.5%, due to a better operating performance (up euro 2,754 million, or 41.6%) driven by higher realizations in dollars (oil up 60.9%; natural gas up 40.8%) and production growth (up 11.8 mmboe). These improvements were partially offset by the appreciation of the euro against the dollar (up 15.1%), rising operating costs and higher amortization charges, also due to increased exploration activity (increasing by euro 417 million at constant exchange rates). Income taxes increased by euro 1,859 million, also reflecting a higher tax rate (from 54.5% to 57.1%); - the Engineering & Construction division reported improved net profit (up 64 million, or 21.1%) driven by better operating performance which was up euro 88 million due to favorable market conditions. These increases were partly offset by weaker results reported by the oil and petrochemical downstream businesses. - The Petrochemical division incurred a loss at both the operating level and the bottom line reversing prior year profit, down euro 414 million and euro 298 million respectively. This shortfall was due to a steep decline in commodity chemical margins, reflecting higher supply costs of oil-based feedstock that were not fully recovered in sales prices. - The Refining & Marketing division reported lower adjusted results (down euro 78 million, or 31.2%) as |
operating performance
decreased by euro 125 million from a year ago, mainly due
to poor refining performance. Also lower results of
certain equity-accounted entities were recorded. These
negatives were partly offset by lower income taxes. Return On Average Capital Employed (ROACE) calculated on an adjusted basis for the twelve-month period ending June 30, 2008 was 19.8% (21.4% for the twelve-month period ending June 30, 2007). Enis results for the first half of 2008 were achieved in a trading environment characterized by a significant increase in Enis oil and gas realizations up by 52.4% on average on the back of strong crude oil prices with Brent prices up 72.5% from the first half of 2007. Margins on gas sales were affected by unfavorable trends in energy parameters to which gas purchase costs and selling prices are indexed. Refining activities were negatively affected by the appreciation of the euro against the dollar and rising refining utility expenses, partly offset by an improved dollar-denominated trading environment from the second quarter. Wholesale margins on refined products mostly declined due to rapidly escalating costs of supplies that were not fully transferred to final prices due to time lag. A steep decline was registered in selling margins of commodity chemicals, reflecting higher supply costs of oil-based feedstock that were not fully recovered in sales prices. Enis results for the first half were negatively affected by the 15.1% appreciation of the euro against the US dollar. |
- 32 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Analysis of Profit and Loss
Account Items
Net sales from operations
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
27,278 | Exploration & Production | 12,829 | 17,889 | 5,060 | 39.4 | ||||||||||
27,633 | Gas & Power | 13,722 | 16,892 | 3,170 | 23.1 | ||||||||||
36,401 | Refining & Marketing | 16,880 | 24,274 | 7,394 | 43.8 | ||||||||||
6,934 | Petrochemicals | 3,476 | 3,519 | 43 | 1.2 | ||||||||||
8,678 | Engineering & Construction | 4,289 | 4,211 | (78 | ) | (1.8 | ) | ||||||||
205 | Other activities | 103 | 95 | (8 | ) | (7.8 | ) | ||||||||
1,313 | Corporate and financial companies | 617 | 643 | 26 | 4.2 | ||||||||||
(21,186 | ) | Consolidation adjustment | (10,228 | ) | (12,101 | ) | (1,873 | ) | |||||||
87,256 | 41,688 | 55,422 | 13,734 | 32.9 |
Enis net sales
from operations (revenues) for the first half of
2008 (euro 55,422 million) were up euro 13,734 million
from the first half of 2007, or 32.9%, primarily
reflecting higher realizations on oil, products and
natural gas in dollar terms, an increase in hydrocarbon
production sold and higher natural gas sales volumes.
These positives were partially offset by the impact of
the appreciation of the euro versus the dollar (up
15.1%). Revenues generated by the Exploration & Production division (euro 17,889 million) increased by euro 5,060 million, up 39.4%, mainly due to higher realizations in dollars (oil up 60.9%, natural gas up 40.8%). Enis liquid realizations were affected by the settlement of certain commodity derivatives relating to the sale of 23 mmbbl in the period, with a negative impact of $5.70 per barrel (for a more detailed explanation about this issue see the discussion on results of the Exploration & Production division below). Revenue increase was also driven by production growth (up 11.8 mmboe, or 3.9%). These improvements were partially offset by the appreciation of the euro against the dollar. Revenues generated by the Gas & Power division (euro 16,892 million) increased by euro 3,710 million, up 23.1%, mainly due to higher average natural gas prices |
reflecting trends in energy
parameters to which gas prices are contractually indexed.
Revenues also increased as result of a growth achieved in
volumes sold by consolidated subsidiaries (up 2.69 bcm or
6.3%) as well as higher volumes transported to re-build
gas stocks and higher volumes distributed. Revenues generated by the Refining & Marketing division (euro 24,274 million) increased by euro 7,394 million, up 43.8%, mainly due to higher international prices for oil and products partly offset by the effect of the appreciation of the euro over the dollar and lower product volumes sold (down 3.6%) and traded volumes of oil (down 7.4%). Revenues generated by the Petrochemical division (euro 3,519 million) increased by euro 43 million, up 1.2%, mainly reflecting a 5% increase in commodity chemicals prices partly offset by a decline in volumes sold (down 4.7%), reflecting a decrease in production. Revenues generated by the Engineering & Construction division (euro 4,211 million) decreased by euro 78 million, down 1.8%, due to the impact of the appreciation of the euro versus the dollar, partially offset by increased activity levels. |
- 33 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Operating expenses
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
58,179 | Purchases, services and other | 27,727 | 37,566 | 9,839 | 35.5 | ||||||||||
of which: | |||||||||||||||
91 | - non-recurring items | 130 | |||||||||||||
470 | - other special items | 171 | 190 | ||||||||||||
3,800 | Payroll and related costs | 1,777 | 1,972 | 195 | 11.0 | ||||||||||
of which: | |||||||||||||||
(83 | ) | - non-recurring items | (74 | ) | |||||||||||
198 | - provision for redundancy incentives | 19 | 27 | ||||||||||||
61,979 | 29,504 | 39,538 | 10,034 | 34.0 |
Operating expenses
for the first half of 2008 (euro 39,538 million)
increased by euro 10,034 million from the first half of
2007, up 34%. Purchases, services and other (euro 37,566 million) increased by euro 9,839 million, up 35.5%, mainly reflecting: (i) higher purchase prices of natural gas as well as higher prices for refinery and petrochemical feedstock due to trends in energy commodities; (ii) and rising dollar-denominated operating expenses in the Exploration & Production division due to full consolidation of acquired assets in 2007 and the impact of sector-specific inflation. These increases were partly offset by the appreciation of the euro over the dollar. Purchases, services and other include special items amounting to euro 190 million mainly relating to environmental provisions and other charges as well as current assets impairments. |
In the first half of 2007
non recurring items amounting to euro 130 million mainly
related to risk provision on ongoing antitrust and
regulatory proceedings, whilst other special items of
euro 171 million mainly related to current assets
impairments and environmental and other risk provisions. Payroll and related costs (euro 1,972 million) increased by euro 195 million, up 11%, mainly due to higher unit labor cost in Italy and outside Italy and an increase in the average number of employees outside Italy that was recorded mainly in the Exploration & Production division. In addition in the first half of 2007 a non-recurring gain of euro 74 million was recorded in connection with the curtailment of the provision for post-retirement benefits relating to obligations towards Italian employees. These increases were partly offset by exchange rate translation differences. |
Depreciation, depletion, amortization and impairments
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
5,483 | Exploration & Production | 2,516 | 3,072 | 556 | 22.1 | ||||||||||
687 | Gas & Power | 333 | 340 | 7 | 2.1 | ||||||||||
433 | Refining & Marketing | 216 | 218 | 2 | 0.9 | ||||||||||
116 | Petrochemicals | 56 | 64 | 8 | 14.3 | ||||||||||
248 | Engineering & Construction | 119 | 154 | 35 | 29.4 | ||||||||||
4 | Other activities | 2 | 1 | (1 | ) | (50.0 | ) | ||||||||
68 | Corporate and financial companies | 31 | 35 | 4 | 12.9 | ||||||||||
(10 | ) | Impact of unrealized intragroup profit elimination | (4 | ) | (6 | ) | (2 | ) | |||||||
7,029 | Total depreciation, depletion and amortization | 3,269 | 3,878 | 609 | 18.6 | ||||||||||
207 | Impairments | 37 | 511 | 474 | .. | ||||||||||
7,236 | 3,306 | 4,389 | 1,083 | 32.8 |
Depreciation, depletion and amortization charges (euro 3,878 million) increased by euro 609 million, up 18.6%, mainly in the Exploration & Production division (up euro 556 million) in connection with: (i) higher exploration expenditures reflecting execution of a greater number of exploration projects (up by euro 279 million, up by euro 417 million on a constant exchange rate basis); (ii) rising development amortization charges (up euro 277 million), reflecting the consolidation of assets acquired in 2007 in the Gulf of Mexico and Congo and increased | expenditures needed to
develop new fields and to sustain production performance
of mature fields. These negatives were partly offset by
the appreciation of the euro against the dollar. Impairment charges for the first half of 2008 at euro 511 million regarded mainly unproved mineral properties in the Exploration & Production division and plants and equipment in the Refining & Marketing and Petrochemical divisions. |
- 34 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Operating profit
The breakdown of reported operating profit by division
is provided below:
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
13,788 | Exploration & Production | 6,550 | 9,058 | 2,508 | 38.3 | ||||||||||
4,127 | Gas & Power | 2,106 | 2,284 | 178 | 8.5 | ||||||||||
729 | Refining & Marketing | 420 | 847 | 427 | .. | ||||||||||
74 | Petrochemicals | 211 | (272 | ) | (483 | ) | .. | ||||||||
837 | Engineering & Construction | 390 | 467 | 77 | 19.7 | ||||||||||
(444 | ) | Other activities | (231 | ) | (141 | ) | 90 | 39.0 | |||||||
(217 | ) | Corporate and financial companies | (99 | ) | (112 | ) | (13 | ) | (13.1 | ) | |||||
(26 | ) | Impact of unrealized intragroup profit elimination | (24 | ) | (230 | ) | (206 | ) | |||||||
18,868 | Operating profit | 9,323 | 11,901 | 2,578 | 27.7 |
Adjusted operating profit
The breakdown of adjusted operating profit by division
is provided below:
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
18,868 | Operating profit | 9,323 | 11,901 | 2,578 | 27.7 | ||||||||||
(620 | ) | Exclusion of inventory holding (gains) losses | (107 | ) | (1,078 | ) | |||||||||
738 | Exclusion of special items: | 233 | 691 | ||||||||||||
of which: | |||||||||||||||
8 | - non-recurring items | 56 | |||||||||||||
730 | - other special items | 177 | 691 | ||||||||||||
18,986 | Adjusted operating profit | 9,449 | 11,514 | 2,065 | 21.9 | ||||||||||
Breakdown by division: | |||||||||||||||
14,051 | Exploration & Production | 6,615 | 9,369 | 2,754 | 41.6 | ||||||||||
4,092 | Gas & Power | 2,202 | 2,165 | (37 | ) | (1.7 | ) | ||||||||
329 | Refining & Marketing | 305 | 180 | (125 | ) | (41.0 | ) | ||||||||
90 | Petrochemicals | 189 | (225 | ) | (414 | ) | .. | ||||||||
840 | Engineering & Construction | 379 | 467 | 88 | 23.2 | ||||||||||
(207 | ) | Other activities | (116 | ) | (102 | ) | 14 | 12.1 | |||||||
(183 | ) | Corporate and financial companies | (101 | ) | (110 | ) | (9 | ) | (8.9 | ) | |||||
(26 | ) | Impact of unrealized intragroup profit elimination | (24 | ) | (230 | ) | (206 | ) | |||||||
18,986 | 9,449 | 11,514 | 2,065 | 21.9 |
Adjusted operating
profit for the first half of 2008 amounted to
euro 11,514 million, up euro 2,065 million or 21.9% from
the first half of 2007. Adjusted operating profit is
arrived at by excluding an inventory holding gain of euro
1,078 million and special charges of euro 691 million
net. The increase reported in adjusted operating profit reflected better operating performance delivered by: - the Exploration & Production division that achieved an increase of euro 2,754 million from the first half of 2007, up 41.6%, primarily due to higher hydrocarbon realizations in dollar terms (+52.4% on average) and production growth (+11.8 mmboe), partly offset by the euros appreciation against the dollar (up 15.1%) and rising costs and amortization charges; - the Engineering & Construction division that achieved an increase of euro 88 million from the first half of 2007, or 23.2%, due to higher activity levels related to favorable market conditions. |
These increases were partly
offset by weaker results reported by: - the Petrochemical division (down euro 414 million), due to a steep decline in commodity chemical margins, reflecting higher supply costs of oil-based feedstock that were not fully recovered in sales prices; - the Refining & Marketing division (down euro 125 million, or 41%), due to a weaker operating performance delivered by the refining business as a result of higher planned and unplanned downtime, the euros appreciation against the dollar and rising refining utility expenses. Also marketing activities in Italy reported a weaker operating result due to reduced wholesale margins, partly offset by better performance delivered by retail activities; - the Gas & Power division (down euro 37 million or 1.7%) was affected by a weaker performance recorded by marketing activities, which was partly offset by improved results achieved by the regulated businesses in Italy and international transport. |
- 35 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Finance income (expense)
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
|||||
(412 | ) | Finance income (expense) related to net borrowings | (153 | ) | (401 | ) | (248 | ) | ||||
(703 | ) | Finance expense on short and long-term debt | (313 | ) | (464 | ) | (151 | ) | ||||
236 | Net interest due to banks | 149 | 36 | (113 | ) | |||||||
55 | Net income from receivables and securities for non-financing operating activities | 11 | 27 | 16 | ||||||||
26 | Income (expense) on derivatives | 33 | 153 | 120 | ||||||||
(51 | ) | Exchange differences, net | (25 | ) | (10 | ) | 15 | |||||
174 | Other finance income and expense | 102 | 96 | (6 | ) | |||||||
188 | Income from equity instruments | 62 | 118 | 56 | ||||||||
127 | Net income from receivables and securities for financing operating activities and interest on tax credits | 80 | 54 | (26 | ) | |||||||
(186 | ) | Finance expense due to the passage of time (accretion discount) | (92 | ) | (115 | ) | (23 | ) | ||||
45 | Other | 52 | 39 | (13 | ) | |||||||
(263 | ) | (43 | ) | (162 | ) | (119 | ) | |||||
180 | Finance expense capitalized | 68 | 101 | 33 | ||||||||
(83 | ) | 25 | (61 | ) | (86 | ) |
In the first half of 2008 net
finance expense was recorded amounting to euro
61 million which compares to net finance income of euro
25 million in the first half of 2007. This euro 86
million loss was mainly due to an increase registered in
average net borrowings, as well as the impact of higher
interest rates on euro finance debt (Euribor up 0.8
percentage points) partially offset by lower interest
rates on dollar loans (Libor down 2.5 percentage points). These negatives were partly offset by a net gain of |
euro 118 million (euro 62 million in the first half of 2007) recognized in connection with fair value evaluation through profit and loss of both the 20% interest in OAO Gazprom Neft and the related call option granted to Gazprom for this interest. This net gain is equal to the remuneration of the capital employed according to the contractual arrangements between the two partners (for more details on this matter see the Balance Sheet discussion under the paragraph Net working capital. |
Net income from investments
The table below sets forth the breakdown of net income
from investments by division for the first half of 2008.
(million
euro) First Half of 2008 |
Exploration & Production |
Gas & Power |
Refining & Marketing |
Engineering & Construction |
Other |
Group |
||||||
Share of profit (loss) of equity-accounted entities | 27 | 232 | 130 | 20 | 2 | 411 | |||||||
Dividends | 238 | 2 | 29 | 1 | 270 | ||||||||
Gains on disposal | 187 | 187 | |||||||||||
Other net income | (2 | ) | 3 | 1 | |||||||||
263 | 234 | 159 | 211 | 2 | 869 |
Net income from investments in the first half of 2008 was a net gain of euro 869 million and mainly related to: (i) Enis share of profit of entities accounted for with the equity method (euro 411 million), in particular in the Gas & Power and Refining & Marketing divisions; (ii) net | gains on the divestment of interest in Gaztransport et Technigaz SAS (euro 185 million) in the Engineering & Construction division; (iii) dividends received by entities accounted for at cost (euro 270 million), mainly related to Nigeria LNG Ltd. |
- 36 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
The table below sets forth a breakdown of net income/loss from investments for the periods presented:
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
|||||
773 | Share of profit (loss) of equity-accounted entities | 348 | 411 | 63 | |||||
170 | Dividends | 131 | 270 | 139 | |||||
300 | Gains on disposal | 11 | 187 | 176 | |||||
Other net income | 1 | 1 | |||||||
1,243 | 491 | 869 | 378 |
Income taxes
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
|||||
Profit before income taxes | |||||||||
5,849 | Italy | 3,348 | 3,133 | (215 | ) | ||||
14,179 | Outside Italy | 6,491 | 9,576 | 3,085 | |||||
20,028 | 9,839 | 12,709 | 2,870 | ||||||
Income taxes | |||||||||
1,798 | Italy | 1,255 | 406 | (849 | ) | ||||
7,421 | Outside Italy | 3,418 | 5,076 | 1,658 | |||||
9,219 | 4,673 | 5,482 | 809 | ||||||
Tax rate (%) | |||||||||
30.7 | Italy | 37.5 | 13.0 | (24.5 | ) | ||||
52.3 | Outside Italy | 52.7 | 53.0 | 0.3 | |||||
46.0 | 47.5 | 43.1 | (4.4 | ) |
Income taxes
were euro 5,482 million, up euro 809 million, or 17.3%,
mainly reflecting increased income taxes currently
payable recorded by subsidiaries in the Exploration &
Production division operating outside Italy due to higher
taxable profit. The increased taxes currently payable were partly offset by an adjustment to deferred tax relating to: (i) utilization of deferred tax liabilities recognized on higher carrying amounts of period-end inventories of oil, gas and refined products stated at the weighted-average cost with respect to their tax base according to the last-in-first-out method (LIFO) by Italian subsidiaries. In fact, pursuant to recently enacted Law Decree No. 112 of June 25, 2008, energy companies in Italy are required from now on to state inventories of hydrocarbons at the weighted-average cost for tax purposes as opposed to the previous LIFO evaluation and to recognize a one-off tax calculated by applying a special rate of 16% on the difference between the two amounts. Accordingly, profit and loss benefited from the difference between utilization of deferred tax liabilities accrued on hydrocarbons inventories and the mentioned one-off tax. This one-off tax will be paid in three annual installments of same amount, due from 2009 onwards; (ii) application of the Italian Budget Law for 2008 that |
provided an increase in
limits whereby carrying amounts of assets and liabilities
of consolidated subsidiaries can be recognized for tax
purposes by paying a one-off tax calculated by applying a
special rate of 6%. This provision applies to
subsidiaries that are included in consolidated accounts
for the purpose of preparing the tax return; (iii) enactment of a renewed tax framework in Libya regarding oil companies operating in accordance with production sharing schemes. Based on the new provisions, the tax base of the Companys Libyan oil properties has been reassessed resulting in the partial utilization of previously accrued deferred tax liabilities. Adjusted tax rate, calculated as ratio of income taxes to net profit before taxes on an adjusted basis, was 52.4% (47.4% in the first half of 2007). This increase was due to a higher share of profit earned by subsidiaries in the Exploration & Production division which bear a higher tax rate than the Group average tax rate. Minority interest Minority interests share of profit was euro 469 million and related to Snam Rete Gas SpA (euro 155 million) and Saipem SpA (euro 302 million). |
- 37 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Divisional performance6
Exploration & Production
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
13,788 | Operating profit | 6,550 | 9,058 | 2,508 | 38.3 | ||||||||||
263 | Exclusion of special items | 65 | 311 | ||||||||||||
of which: | |||||||||||||||
(11 | ) | Non-recurring items | (12 | ) | |||||||||||
274 | Other special items | 77 | 311 | ||||||||||||
226 | - asset impairments | 76 | 310 | ||||||||||||
6 | - provision for redundancy incentives | 1 | 2 | ||||||||||||
42 | - other | (1 | ) | ||||||||||||
14,051 | Adjusted operating profit (a) | 6,615 | 9,369 | 2,754 | 41.6 | ||||||||||
13,785 | Exploration & Production | 6,425 | 9,252 | 2,827 | 44.0 | ||||||||||
266 | Stoccaggi Gas Italia | 190 | 117 | (73 | ) | (38.4 | ) | ||||||||
44 | Net finance income (expense) (b) | (4 | ) | 23 | 27 | ||||||||||
176 | Net income (expense) from investments (b) | 100 | 263 | 163 | |||||||||||
(7,780 | ) | Income taxes (b) | (3,655 | ) | (5,514 | ) | (1,859 | ) | |||||||
54.5 | Tax rate (%) | 54.5 | 57.1 | 2.6 | |||||||||||
6,491 | Adjusted net profit | 3,056 | 4,141 | 1,085 | 35.5 | ||||||||||
Results also include: | |||||||||||||||
5,626 | amortization and depreciation | 2,547 | 3,259 | 712 | 28.0 | ||||||||||
of which: | |||||||||||||||
1,777 | exploration expenditures | 777 | 1,056 | 279 | 35.9 | ||||||||||
1,370 | - amortization of exploratory drilling expenditure and other | 615 | 806 | 191 | 31.1 | ||||||||||
407 | - amortization of geological and geophysical exploration expenses | 162 | 250 | 88 | 54.3 |
(a) | From 2008, adjusted operating profit is reported for the Exploration & Production and Storage businesses within the Exploration & Production division. Prior period data have been restated accordingly. | |
(b) | Excluding special items. |
Exploration &
Production business Adjusted operating profit of the Exploration & Production business for the first half of 2008 was euro 9,252 million, up euro 2,827 million or 44% from the first half of 2007 due to higher realizations in dollars (oil up 60.9%; natural gas up 40.8%) and increased production sales volumes (up 11.8 mmboe). These improvements were partly offset by the following: (i) the adverse impact of the appreciation of the euro against the dollar (approximately euro 1,300 million); (ii) rising operating costs and amortization charges taken in connection with development activities. This increase also reflected consolidation of assets acquired; (iii) higher amortization charges incurred in connection with exploration activity (euro 279 million; euro 417 million on a constant exchange rate basis); (iv) higher production royalties were incurred associated with higher production volumes and prices. It is worth mentioning that royalties due in Italy were calculated without taking into account certain tax provisions that were first enacted pursuant to Law Decree No. 112 of June 25, 2008, under Article 81, line 1 to 7, and then repealed by the Italian Government pursuant to an amendment to the bill filed with Italian Parliament in view of approving Law Decree No. 112. |
Storage business First half of 2008 adjusted operating profit reported by the natural gas storage business was euro 117 million down euro 73 million or 38.4% from the first half of 2007. Adjusted net profit of the Exploration & Production division for the first half of 2008 was euro 4,141 million, an increase of euro 1,085 million and up 35.5% from the first half of 2007. This was due to an improved operating performance partly offset by higher income taxes also due to an increase recorded in the adjusted tax rate (from 54.5% to 57.1%). Special charges not accounted for in adjusted operating profit of euro 311 million in the first half primarily regarded impairment of unproved properties and other assets. Other special items not accounted for in adjusted net profit primarily regarded an adjustment to deferred tax relating to enactment of a renewed tax framework in Libya regarding oil companies operating in accordance with production sharing schemes. Based on the new provisions, the tax base of the Companys Libyan oil properties has been reassessed resulting in the utilization of previously accrued deferred tax liabilities. |
_______________
(6) | For a detailed explanation of adjusted operating profit and net profit see page 44. |
- 38 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Liquids and gas
realizations for the first half increased on
average by 52.4% in dollar terms driven by higher Brent
prices. Liquid realizations for the first half amounted to $95.71 per barrel and were reduced by approximately $5.70 per barrel due to the settlement of certain commodity derivatives relating to the sale of 23 mmbbl in the first half. This was part of a derivative transaction the Company entered into to hedge exposure to variability in future cash flows expected from the sale of a portion of the Companys proved reserves for an original amount of approximately 125.7 mmbbl in the 2008-2011 |
period, decreasing to 102.7
mmbbl at the end of June 2008. These hedging transactions
were undertaken in connection with the acquisition of oil
and gas assets in Congo and in the Gulf of Mexico that
were executed in 2007. Excluding this impact, liquid
realizations would have been $101.41 per barrel in the
first half. Average gas realizations were supported by a better sales mix reflecting higher volumes marketed on the basis of spot prices on the US market. Liquid realizations and the impact of commodity derivatives were as follows: |
|
First Half |
2007 |
2008 |
|||
Sales volumes | (mmbbl) | 187.3 | 182.6 | ||||
Sales volumes hedged by derivatives (cash flow hedge) | 23.0 | ||||||
Total price per barrel, excluding derivatives | ($/bbl) | 59.47 | 101.41 | ||||
Realized gains (losses) on derivatives | (5.70 | ) | |||||
Total average price per barrel | 59.47 | 95.71 |
Gas & Power
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
4,127 | Operating profit | 2,106 | 2,284 | 178 | 8.5 | ||||||||||
44 | Exclusion of inventory holding (gains) losses | 108 | (138 | ) | |||||||||||
(79 | ) | Exclusion of special items: | (12 | ) | 19 | ||||||||||
of which: | |||||||||||||||
(61 | ) | Non-recurring items | (18 | ) | |||||||||||
(18 | ) | Other special items | 6 | 19 | |||||||||||
15 | - environmental provisions | 1 | 14 | ||||||||||||
38 | - provisions for redundancy incentives | 5 | 7 | ||||||||||||
(71 | ) | - other | (2 | ) | |||||||||||
4,092 | Adjusted operating profit (a) | 2,202 | 2,165 | (37 | ) | (1.7 | ) | ||||||||
2,225 | Marketing | 1,263 | 1,093 | (170 | ) | (13.5 | ) | ||||||||
1,419 | Regulated business in Italy | 714 | 816 | 102 | 14.3 | ||||||||||
448 | International transport | 225 | 256 | 31 | 13.8 | ||||||||||
11 | Net finance income (expense) (b) | 4 | 1 | (3 | ) | ||||||||||
420 | Net income (expense) from investments (b) | 218 | 233 | 15 | |||||||||||
(1,587 | ) | Income taxes (b) | (847 | ) | (820 | ) | 27 | ||||||||
35.1 | Tax rate (%) | 34.9 | 34.2 | (0.7 | ) | ||||||||||
2,936 | Adjusted net profit | 1,577 | 1,579 | 2 | 0.1 |
(a) | From 2008, adjusted operating profit is reported for the same businesses as EBITDA pro-forma adjusted. Results of the Power generation activity are reported within the Marketing business as it is ancillary to the latter. Results from Regulated businesses in Italy include results from Transport, Distribution and Re-gasification service activities in Italy. Prior period data have been restated accordingly. | |
(b) | Excluding special items. |
In the first half of 2008,
the Gas & Power division reported adjusted
operating profit of euro 2,165 million, a
decrease of euro 37 million or 1.7% from the first half
of 2007. This decrease reflected lower results recorded
by marketing activities, partially offset by an improved
performance delivered by the regulated businesses in
Italy. Special charges for the first half of 2008 (euro 19 million) referred to the marketing business (euro 8 million) and the |
regulated businesses in
Italy (euro 11 million) mainly regarding provisions for
redundancy incentives and environmental charges. Adjusted net profit for the first half of 2008 was euro 1,579 million, an increase of euro 2 million or 0.1% from the first half of 2007. Lower operating profit (down euro 37 million) was offset by higher earnings reported by certain equity-accounted affiliates and lower income taxes. |
- 39 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Marketing This business reported adjusted operating profit of euro 1,093 million for the first half of 2008, a decrease of euro 170 million or 13.5% from the first half of 2007mainly due to:
|
These negatives were partly offset by higher sales
volumes, also reflecting stronger seasonal sales in the
first quarter. |
Other performance indicators
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
5,077 | EBITDA pro-forma adjusted | 2,688 | 2,642 | (46 | ) | (1.7 | ) | |||||||
3,065 | Marketing | 1,670 | 1,521 | (149 | ) | (8.9 | ) | |||||||
1,289 | Regulated business in Italy | 648 | 752 | 104 | 16.0 | |||||||||
723 | International transport | 370 | 369 | (1 | ) | (0.3 | ) |
EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization charges)
on an adjusted basis is calculated by adding amortization
and depreciation charges to adjusted operating profit on
a pro forma basis. This performance indicator, which is not a GAAP measure under either IFRS or U.S. GAAP, includes:
|
Management also evaluates performance in Enis Gas & Power division on the basis of this measure taking account of the evidence that this division is comparable to European utilities in the gas and power generation sector. This measure is provided with the intent to assist investors and financial analysts in assessing the Eni Gas & Power divisional performance as compared to its European peers, as EBITDA is widely used as the main performance indicator for utilities. |
- 40 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Refining & Marketing
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
729 | Operating profit | 420 | 847 | 427 | .. | ||||||||||
(658 | ) | Exclusion of inventory holding (gains) losses | (187 | ) | (816 | ) | |||||||||
258 | Exclusion of special items | 72 | 149 | ||||||||||||
of which: | |||||||||||||||
35 | Non-recurring items | 37 | |||||||||||||
223 | Other special items | 35 | 149 | ||||||||||||
128 | - environmental provisions | 32 | 6 | ||||||||||||
58 | - asset impairments | 1 | 149 | ||||||||||||
31 | - provisions for redundancy incentives | 3 | 6 | ||||||||||||
9 | - risk provisions | ||||||||||||||
(3 | ) | - other | (1 | ) | (12 | ) | |||||||||
329 | Adjusted operating profit | 305 | 180 | (125 | ) | (41.0 | ) | ||||||||
126 | Net income (expense) from investments (a) | 84 | 64 | (20 | ) | ||||||||||
(136 | ) | Income taxes (a) | (139 | ) | (72 | ) | 67 | ||||||||
29.9 | Tax rate (%) | 35.7 | 29.5 | (6.2 | ) | ||||||||||
319 | Adjusted net profit | 250 | 172 | (78 | ) | (31.2 | ) |
(a) | Excluding special items. |
The Refining & Marketing division reported an adjusted operating profit of euro 180 million for the first half of 2008, a decrease of euro 125 million or 41.0% from the first half of 2007 mainly due to a weaker operating performance delivered by the refining business as a result of higher planned and unplanned downtime, the euros appreciation against the dollar and rising refining utility expenses. Also marketing activities in Italy reported a weaker operating result due to reduced wholesale margins, partly offset by better performance delivered by retail activities. | Adjusted net profit
for the first half was euro 172 million, down euro 78
million or 31.2%, mainly due to a weaker operating
performance and lower profit recorded by certain
equity-accounted affiliates, partially offset by lower
income taxes. Special charges excluded from the adjusted operating profit amounted to euro 149 million and mainly related to refinery impairments. |
Petrochemicals
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
74 | Operating profit | 211 | (272 | ) | (483 | ) | .. | ||||||||
(6 | ) | Exclusion of inventory holding (gains) losses | (28 | ) | (124 | ) | |||||||||
22 | Exclusion of special items | 6 | 171 | ||||||||||||
of which: | |||||||||||||||
(2 | ) | Non-recurring items | 6 | ||||||||||||
24 | Other special items | 171 | |||||||||||||
- asset impairments | 172 | ||||||||||||||
24 | - provisions for redundancy incentives | ||||||||||||||
- other | (1 | ) | |||||||||||||
90 | Adjusted operating profit | 189 | (225 | ) | (414 | ) | .. | ||||||||
1 | Net finance income (expense) (a) | ||||||||||||||
1 | Net income (expense) from investments (a) | 2 | 2 | ||||||||||||
(35 | ) | Income taxes (a) | (61 | ) | 55 | 116 | |||||||||
57 | Adjusted net profit | 130 | (168 | ) | (298 | ) | .. |
(a) | Excluding special items. |
- 41 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
The Petrochemical division incurred a loss at both the operating level and the bottom line reversing previous year profit, down euro 414 million and euro 298 million respectively. This shortfall was due to a steep decline in commodity chemical margins, reflecting higher supply | costs of oil-based feedstock
that were not fully recovered in sales prices. Special charges of euro 171 million related mainly to impairment of assets. |
Engineering & Construction
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
837 | Operating profit | 390 | 467 | 77 | 19.7 | ||||||||||
3 | Exclusion of special items | (11 | ) | ||||||||||||
of which: | |||||||||||||||
(4 | ) | Non-recurring items | (11 | ) | |||||||||||
7 | Other special items | ||||||||||||||
7 | - provisions for redundancy incentives | ||||||||||||||
840 | Adjusted operating profit | 379 | 467 | 88 | 23.2 | ||||||||||
80 | Net income (expense) from investments (a) | 38 | 26 | (12 | ) | ||||||||||
(262 | ) | Income taxes (a) | (113 | ) | (125 | ) | (12 | ) | |||||||
28.5 | Tax rate (%) | 27.1 | 25.4 | (1.7 | ) | ||||||||||
658 | Adjusted net profit | 304 | 368 | 64 | 21.1 |
(a) | Excluding special items. |
Adjusted operating profit for the first half of 2008 was euro 467 million, up euro 88 million or 23.2%, from the first half of 2007 due to a better operating performance recorded in all business areas, in particular: (i) Onshore and Offshore construction due to improved margins; (ii) Offshore drilling due to higher tariffs and higher activity levels of the Scarabeo 4 and Scarabeo 6 | semisubmersible platforms;
and (iii) Onshore drilling due to higher activity levels
in South America. Adjusted net profit for the first half of 2008 was euro 368 million, up euro 64 million from the first half of 2007 due to a better operating performance. |
Other activities
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
(444 | ) | Operating profit | (231 | ) | (141 | ) | 90 | 39.0 | |||||||
237 | Exclusion of special items | 115 | 39 | ||||||||||||
of which: | |||||||||||||||
61 | Non-recurring items | 65 | |||||||||||||
176 | Other special items | 50 | 39 | ||||||||||||
210 | - environmental provisions | 83 | 28 | ||||||||||||
6 | - asset impairments | 6 | 2 | ||||||||||||
13 | - risk provision | 9 | 20 | ||||||||||||
18 | - provisions for redundancy incentives | 1 | 1 | ||||||||||||
(71 | ) | - other | (49 | ) | (12 | ) | |||||||||
(207 | ) | Adjusted operating profit | (116 | ) | (102 | ) | 14 | 12.1 | |||||||
(8 | ) | Net finance income (expense) (a) | (4 | ) | (12 | ) | (8 | ) | |||||||
5 | Net income (expense) from investments (a) | ||||||||||||||
(210 | ) | Adjusted net profit | (120 | ) | (114 | ) | 6 | 5.0 |
(a) | Excluding special items. |
- 42 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Corporate and financial companies
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
(217 | ) | Operating profit | (99 | ) | (112 | ) | (13 | ) | (13.1 | ) | |||||
34 | Exclusion of special items | (2 | ) | 2 | |||||||||||
of which: | |||||||||||||||
(10 | ) | Non-recurring items | (11 | ) | |||||||||||
44 | Other special items | 9 | 2 | ||||||||||||
12 | - environmental provisions | ||||||||||||||
32 | - provisions for redundancy incentives | 9 | 11 | ||||||||||||
- other | (9 | ) | |||||||||||||
(183 | ) | Adjusted operating profit | (101 | ) | (110 | ) | (9 | ) | (8.9 | ) | |||||
(154 | ) | Net finance income (expense) (a) | 29 | (73 | ) | (102 | ) | ||||||||
4 | Net income (expense) from investments (a) | ||||||||||||||
192 | Income taxes (a) | 101 | 86 | (15 | ) | ||||||||||
(141 | ) | Adjusted net profit | 29 | (97 | ) | (126 | ) | .. |
(a) | Excluding special items. |
- 43 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
NON-GAAP Measures
Reconciliation of reported operating profit
and reported net profit
to results on an adjusted basis
Management assesses 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 the items excluded from adjusted net
profit is determined based on the specific rate of taxes
applicable to each item. The Italian statutory tax rate
of 33% is applied to finance charges and income recorded
by companies in the energy sector, whilst a tax rate of
27.5% is applied to all other companies from January 1,
2008 (33% in previous reporting periods for all
companies). Adjusted operating profit and adjusted net profit are non-GAAP financial measures under either IFRS, or U.S. GAAP. Management includes them in order to facilitate a comparison of base business performance across periods and allow financial analysts to evaluate Enis trading performance on the basis of their forecasting models. In addition, management uses segmental adjusted net profit when calculating return on average capital employed (ROACE) by each business segment. The following is a description of items that are excluded from the calculation of adjusted results. Inventory holding gain or loss is the difference between the cost of sales of the volumes sold in the period based on the cost of supplies of the same period and the cost of sales of the volumes sold calculated using the weighted average cost method of inventory accounting. Special items include certain significant income or charges pertaining to either: (i) infrequent or unusual |
events and 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
managements 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. |
- 44 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
(million euro)
First Half of 2008 | E&P | G&P | R&M | Petrochemicals | Engineering & Construction | Other activities | Corporate and financial companies | Impact of unrealized intragroup profit elimination | Group | |||||||||
Reported operating profit | 9,058 | 2,284 | 847 | (272 | ) | 467 | (141 | ) | (112 | ) | (230 | ) | 11,901 | ||||||||||||||
Exclusion of inventory holding (gains) losses | (138 | ) | (816 | ) | (124 | ) | (1,078 | ) | |||||||||||||||||||
Exclusion of special items | |||||||||||||||||||||||||||
of which: | |||||||||||||||||||||||||||
Non-recurring (income) charges | |||||||||||||||||||||||||||
Other special (income) charges: | 311 | 19 | 149 | 171 | 39 | 2 | 691 | ||||||||||||||||||||
environmental charges | 14 | 6 | 28 | 48 | |||||||||||||||||||||||
asset impairments | 310 | 149 | 172 | 2 | 633 | ||||||||||||||||||||||
risk provisions | 20 | 20 | |||||||||||||||||||||||||
provision for redundancy incentives | 2 | 7 | 6 | 1 | 11 | 27 | |||||||||||||||||||||
other | (1 | ) | (2 | ) | (12 | ) | (1 | ) | (12 | ) | (9 | ) | (37 | ) | |||||||||||||
Special items of operating profit | 311 | 19 | 149 | 171 | 39 | 2 | 691 | ||||||||||||||||||||
Adjusted operating profit | 9,369 | 2,165 | 180 | (225 | ) | 467 | (102 | ) | (110 | ) | (230 | ) | 11,514 | ||||||||||||||
Net finance (expense) income (a) | 23 | 1 | (12 | ) | (73 | ) | (61 | ) | |||||||||||||||||||
Net income from investments (a) | 263 | 233 | 64 | 2 | 26 | 588 | |||||||||||||||||||||
Income taxes (a) | (5,514 | ) | (820 | ) | (72 | ) | 55 | (125 | ) | 86 | 84 | (6,306 | ) | ||||||||||||||
Tax rate (%) | 57.1 | 34.2 | 29.5 | 25.4 | 52.4 | ||||||||||||||||||||||
Adjusted net profit | 4,141 | 1,579 | 172 | (168 | ) | 368 | (114 | ) | (97 | ) | (146 | ) | 5,735 | ||||||||||||||
of which: | |||||||||||||||||||||||||||
- adjusted net profit of minority interest | 367 | ||||||||||||||||||||||||||
- Enis adjusted net profit | 5,368 | ||||||||||||||||||||||||||
Enis reported net profit | 6,758 | ||||||||||||||||||||||||||
Exclusion of inventory holding (gains) losses | (783 | ) | |||||||||||||||||||||||||
Exclusion of special items: | (607 | ) | |||||||||||||||||||||||||
- non-recurring (income) charges | |||||||||||||||||||||||||||
- other special (income) charges | (607 | ) | |||||||||||||||||||||||||
Enis adjusted net profit | 5,368 |
(a) | Excluding special items. |
- 45 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
(million euro)
First Half of 2007 | E&P | G&P | R&M | Petrochemicals | Engineering & Construction | Other activities | Corporate and financial companies | Impact of unrealized intragroup profit elimination | Group | |||||||||
Reported operating profit | 6,550 |
2,106 |
420 |
211 |
390 |
(231 |
) | (99 |
) | (24 |
) | 9,323 |
|||||||||||||||
Exclusion of inventory holding (gains) losses | 108 |
(187 |
) | (28 |
) | (107 |
) | ||||||||||||||||||||
Exclusion of special items | |||||||||||||||||||||||||||
of which: | |||||||||||||||||||||||||||
Non-recurring (income) charges | (12 |
) | (18 |
) | 37 |
6 |
(11 |
) | 65 |
(11 |
) | 56 |
|||||||||||||||
Other special (income) charges: | 77 |
6 |
35 |
50 |
9 |
177 |
|||||||||||||||||||||
environmental charges | 1 |
32 |
83 |
116 |
|||||||||||||||||||||||
asset impairments | 76 |
1 |
6 |
83 |
|||||||||||||||||||||||
risk provisions | 9 |
9 |
|||||||||||||||||||||||||
provision for redundancy incentives | 1 |
5 |
3 |
1 |
9 |
19 |
|||||||||||||||||||||
other | (1 |
) | (49 |
) | (50 |
) | |||||||||||||||||||||
Special items of operating profit | 65 |
(12 |
) | 72 |
6 |
(11 |
) | 115 |
(2 |
) | 233 |
||||||||||||||||
Adjusted operating profit | 6,615 |
2,202 |
305 |
189 |
379 |
(116 |
) | (101 |
) | (24 |
) | 9,449 |
|||||||||||||||
Net financial (expense) income (a) | (4 |
) | 4 |
(4 |
) | 29 |
25 |
||||||||||||||||||||
Net income from investments (a) | 100 |
218 |
84 |
2 |
38 |
442 |
|||||||||||||||||||||
Income taxes (a) | (3,655 |
) | (847 |
) | (139 |
) | (61 |
) | (113 |
) | 101 |
9 |
(4,705 |
) | |||||||||||||
Tax rate (%) | 54.5 |
34.9 |
35.7 |
27.1 | 47.4 |
||||||||||||||||||||||
Adjusted net profit | 3,056 |
1,577 |
250 |
130 |
304 |
(120 |
) | 29 |
(15 |
) | 5,211 |
||||||||||||||||
of which: | |||||||||||||||||||||||||||
- adjusted net profit of minority interest | 311 |
||||||||||||||||||||||||||
- Enis adjusted net profit | 4,900 |
||||||||||||||||||||||||||
Enis reported net profit | 4,855 |
||||||||||||||||||||||||||
Exclusion of inventory holding (gains) losses | (110 |
) | |||||||||||||||||||||||||
Exclusion of special items: | 155 |
||||||||||||||||||||||||||
- non-recurring (income) charges | 81 |
||||||||||||||||||||||||||
- other special (income) charges | 74 |
||||||||||||||||||||||||||
Enis adjusted net profit | 4,900 |
||||||||||||||||||||||||||
(a) | Excluding special items. |
- 46 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
(million euro)
2007 | E&P | G&P | R&M | Petrochemicals | Engineering & Construction | Other activities | Corporate and financial companies | Impact of unrealized intragroup profit elimination | Group | |||||||||
Reported operating profit | 13,788 |
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 |
28.5 |
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 |
||||||||||||||||||||||||||
- Enis adjusted net profit | 9,470 |
||||||||||||||||||||||||||
Enis 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 |
) | |||||||||||||||||||||||||
Enis adjusted net profit | 9,470 |
||||||||||||||||||||||||||
(a) | Excluding special items. |
- 47 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Breakdown of special items
First Half |
2007 |
(million euro) | 2007 |
2008 |
||
8 | Non-recurring charges (income) | 56 | |||||||
of which: | |||||||||
(83 | ) | curtailment recognized of the reserve for post-retirement benefits for Italian employees | (74 | ) | |||||
91 | provisions and utilizations against on antitrust proceedings and regulations | 130 | |||||||
730 | Other special charges (income) | 177 | 691 | ||||||
365 | Environmental charges | 116 | 48 | ||||||
290 | Asset impairments | 83 | 633 | ||||||
22 | Risk provisions | 9 | 20 | ||||||
156 | Provision for redundancy incentives | 19 | 27 | ||||||
(103 | ) | Other | (50 | ) | (37 | ) | |||
738 | Special items of operating profit | 233 | 691 | ||||||
(23 | ) | Net financial (expense) income | |||||||
(321 | ) | Net income from investments | (6 | ) | (185 | ) | |||
of which, gain on divestment of: | |||||||||
(290 | ) | - Haldor Topsøe and Camom SA | |||||||
- GTT (Gaztransport et Technigaz sas) | (185 | ) | |||||||
(610 | ) | Income taxes | (72 | ) | (1,215 | ) | |||
of which: | |||||||||
(394 | ) | adjustments to deferred tax for Italian subsidiaries | |||||||
tax impact pursuant to Budget Law 2008 for Italian subsidiaries | (290 | ) | |||||||
tax impact pursuant to Law Decree No. 112 of June 25, 2008 for Italian subsidiaries | (537 | ) | |||||||
adjustment to deferred tax for Libyan assets | (173 | ) | |||||||
(50 | ) | other tax items | (46 | ) | (40 | ) | |||
(166 | ) | taxes on special items of operating profit | (26 | ) | (175 | ) | |||
(216 | ) | Total special items of net profit | 155 | (709 | ) | ||||
attributable to: | |||||||||
(174 | ) | - Minority interest | (102 | ) | |||||
(42 | ) | - Eni | 155 | (607 | ) |
- 48 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Summarized Group balance sheet
The summarized group balance sheet aggregates the amount of assets and liabilities derived from the statutory balance sheet in accordance with functional criteria which consider the enterprise conventionally divided into the three fundamental areas focusing on resource investments, operations and financing. Management believes that this summarized group balance sheet is useful information in assisting investors | to assess Enis capital structure and to analyze its sources of funds and investments in fixed assets and working capital. Management uses the summarized group balance sheet to calculate key ratios such as return on capital employed (ROACE) and the proportion of net borrowings to shareholders equity (leverage) intended to evaluate whether Enis financing structure is sound and well-balanced. |
Summarized Group Balance Sheet (a)
(million euro) |
|
Dec. 31, 2007 |
June 30, 2008 |
Change |
||||||
Fixed assets | |||||||||
Property, plant and equipment, net | 50,137 | 53,032 | 2,895 | ||||||
Other assets | 563 | (563 | ) | ||||||
Inventories - compulsory stock | 2,171 | 2,401 | 230 | ||||||
Intangible assets | 4,333 | 4,797 | 464 | ||||||
Equity-accounted investments and other investments | 6,111 | 5,884 | (227 | ) | |||||
Receivables and securities held for operating purposes | 725 | 833 | 108 | ||||||
Net payables related to capital expenditures | (1,191 | ) | (1,556 | ) | (365 | ) | |||
62,849 | 65,391 | 2,542 | |||||||
Net working capital | |||||||||
Inventories | 5,499 | 6,213 | 714 | ||||||
Trade receivables | 15,609 | 15,101 | (508 | ) | |||||
Trade payables | (11,092 | ) | (10,563 | ) | 529 | ||||
Tax payables and provision for net deferred tax liabilities | (4,412 | ) | (4,340 | ) | 72 | ||||
Provisions | (8,486 | ) | (8,296 | ) | 190 | ||||
Other current assets and liabilities: | |||||||||
Equity instruments | 2,476 | 2,279 | (197 | ) | |||||
Other (b) | (2,600 | ) | (5,002 | ) | (2,402 | ) | |||
(3,006 | ) | (4,608 | ) | (1,602 | ) | ||||
Provisions for employee post-retirement benefits | (935 | ) | (915 | ) | 20 | ||||
Net assets held for sale including related net borrowings | 286 | 586 | 300 | ||||||
CAPITAL EMPLOYED, NET | 59,194 | 60,454 | 1,260 | ||||||
Shareholders equity: | |||||||||
- Eni shareholders equity | 40,428 | 41,207 | 779 | ||||||
- Minority interest | 2,439 | 2,682 | 243 | ||||||
42,867 | 43,889 | 1,022 | |||||||
Net borrowings | 16,327 | 16,565 | 238 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY | 59,194 | 60,454 | 1,260 |
(a) | For a reconciliation to the statutory balance sheet see the paragraph Reconciliation of summarized group balance sheet and statement of cash flows to statutory schemes pages 55-56. | |
(b) | Include receivables and securities for financing operating activities for euro 398 million at June 30, 2008 (euro 248 million at December 31, 2007) and securities covering technical reserves of Enis insurance activities for euro 356 million at June 30, 2008 (euro 368 million at December 31, 2007). |
Period-end currency
translation effects reduced the carrying amounts of net
capital employed, shareholders equity and net borrowings by approximately euro 1,860 million, euro 1,310 million and euro 550 million respectively compared to 2007 year end amounts. This reduction was mainly driven by the appreciation of the euro against the dollar (at June 30, 2008 the EUR/USD exchange rate was 1.576 as compared to 1.472 at December 31, 2007, up 7.1%). |
At June 30, 2008, net
capital employed totalled euro 60,454 million,
representing an increase of euro 1,260 million from
December 31, 2007. Fixed assets amounted to euro 65,391 million, representing an increase of euro 2,542 million from December 31, 2007 due to capital expenditures for the period (euro 6,759 million) and consolidation of Burren Energy assets (euro 2,180 million), partly offset by depreciation, depletion, |
- 49 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
amortization and impairment
charges (euro 4,389 million) and currency translation
effects. 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. The carrying amount of the expropriated assets relating to the Dación oilfield in Venezuela (corresponding to euro 563 million as of December 31, 2007) has been reclassified from the item Other assets to Net payables related to capital expenditures, following the settlement agreement with the Republic of Venezuela. Under the terms of this agreement, Eni will receive cash compensation to be paid in seven yearly installments, yielding interest income from the date of the settlement. The net present value of this cash compensation is in line with the book value of assets, net of the related provisions. Part of the cash compensation was collected in the period. Net working capital At June 30, 2008, net working capital amounted to a negative euro 4,608 million, representing a decrease of euro 1,602 million from December 31, 2007 mainly due to (i) a negative change in fair value (euro 2,673 million, euro 1,624 million net of taxes) of certain derivative instruments Eni entered into to hedge exposure to variability in future cash flows deriving from the sale in the 2008-2011 period of an amount of Enis proved reserves equal to 2% of proved reserves as of December 31, 2006 corresponding to approximately 125.7 mmbbl, decreasing to 102.7 mmboe as of end |
of June. These hedging
transactions were undertaken in connection with
acquisitions of oil and gas assets in the Gulf of Mexico
and Congo which were executed in 2007. The effective
portion of changes in fair value of these hedges is
recognized directly in equity, whilst the ineffective
portion is recognized in profit and loss. Tax payables and deferred tax liabilities net were substantially unchanged from year end amounts, recording a decrease of euro 72 million. This decrease was mainly due to: (i) lower tax payables recognized on losses from fair value evaluation of the above mentioned cash flow hedges; (ii) the payment of the balance of income taxes due for the year 2007 by Italian subsidiaries; (iii) a decrease recorded in net deferred tax liabilities for Italian companies and for Libyan activities against an increase in deferred tax liabilities recognized in connection with the acquisition of Burren Energy. Main increases were associated to income taxes accrued for the period as well as increased tax payables related to excise taxes7 due on oil products marketed in Italy. The item Equity instruments comprises the carrying amount (euro 2,279 million) 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 share capital increases, a contractual remuneration of 9.4% on the capital employed and financing collateral expenses. In accordance with the fair value option provided for by IAS 39, Eni recognized the change in fair value of this 20% interest in OAO Gazprom Neft through the profit and loss instead of net equity. Eni elected this way in order to eliminate a recognition inconsistency that would otherwise arise from measuring the equity instrument and the related call option on different bases. In fact, the call option granted to Gazprom is measured at fair value through profit and loss being a derivative instrument. Consequently, the carrying amount of this equity instrument is determined based on its fair value as expressed by current quoted market prices, as reduced by the fair value amount of the relevant call |
_______________
(7) | This increase reflects excise taxes on oil products marketed in Italy in the first 15 days of December which are settled within the end of this month, instead of being paid in the following month as in the rest of the year. |
- 50 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
option, thus equalling the
option strike price as of June 30, 2007. Net assets held for sale including related net borrowings were euro 586 million and related to: (i) the Refining & Marketing divisions stake in Agip España SA and Agip Portugal Combustiveis SA; (ii) the Engineering |
& Construction
divisions 20% stake in Fertinitro (Fertilizantes
Nitrogenados de Oriente) which produces fertilizers; and
(iii) the whole interest in Padana Assicurazioni SpA. Net capital employed in the Exploration & Production, Gas & Power and Refining & Marketing divisions represented 88% of total net capital employed (89% at December 31, 2007). |
Return On Average Capital Employed (ROACE)
Return on Average Capital Employed for the Group, on an adjusted basis is the return on the Group average capital invested, calculated as ratio between net adjusted profit before minority interest, plus net finance charges on net borrowings net of the related tax effect, and net average capital employed. The tax | rate applied on finance charges is the Italian statutory tax rate of 33% effective from January 1, 2008. The capital invested as of period-end used for the calculation of net average capital invested is obtained by deducting inventory gains or losses as of in the period, net of the related tax effect. |
Calculated on a
12-month period ending on |
(million euro) |
Exploration |
Gas |
Refining |
Group |
|||||
Adjusted net profit | 7,576 | 2,938 | 241 | 10,618 | ||||
Exclusion of after-tax finance expenses/interest income | - | - | - | 327 | ||||
Adjusted net profit unlevered | 7,576 | 2,938 | 241 | 10,945 | ||||
Adjusted capital employed, net: | ||||||||
- at the beginning of the period | 21,717 | 18,412 | 5,775 | 51,418 | ||||
- at period end | 23,610 | 20,045 | 8,490 | 59,282 | ||||
Adjusted average capital employed, net | 22,664 | 19,229 | 7,133 | 55,350 | ||||
Adjusted ROACE (%) | 33.4 | 15.3 | 3.4 | 19.8 |
Assuming Gazprom exercises its call options to purchase a 20% interest in OAO Gazprom Neft held by Eni and a 51% interest in the three Russian gas companies held according | to a 60:40 interest by Eni and Enel as of June 30, 2008, ROACE for the Group and for the Exploration & Production division would stand at 20.4% and 35.9%, respectively. |
Calculated on a
12-month period ending on |
(million euro) |
Exploration |
Gas |
Refining |
Group |
|||||
Adjusted net profit | 6,316 | 2,922 | 622 | 10,454 | ||||
Exclusion of after-tax finance expenses/interest income | 4 | |||||||
Adjusted net profit unlevered | 6,316 | 2,922 | 622 | 10,458 | ||||
Adjusted capital employed, net: | ||||||||
- at the beginning of the period | 19,166 | 16,706 | 5,626 | 46,257 | ||||
- at the end of period | 21,717 | 18,451 | 5,909 | 51,551 | ||||
Adjusted average capital employed, net | 20,442 | 17,579 | 5,768 | 48,904 | ||||
Adjusted ROACE (%) | 30.9 | 16.6 | 10.8 | 21.4 |
Calculated on a
12-month period ending on |
(million euro) |
Exploration |
Gas |
Refining |
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 the period | 18,590 | 18,906 | 5,631 | 47,966 | ||||
- at period end | 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 |
- 51 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Net borrowings and leverage
Leverage is a measure of a companys level of indebtedness, calculated as the ratio between net borrowings which is calculated by excluding cash and cash equivalents and certain very liquid assets from financial debt and shareholders equity, including minority interests. Management makes use of leverage in | order to assess the soundness and efficiency of the Group balance sheet in terms of optimal mix between net borrowings and net equity, and to carry out benchmark analysis with industry standards. In the medium term, management plans to maintain a strong financial structure targeting a level of leverage up to 0.40. |
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
Change |
|||
Total debt | 19,830 | 21,323 | 1,493 | ||||||
Short-term debt | 8,500 | 10,857 | 2,357 | ||||||
Long-term debt | 11,330 | 10,466 | (864 | ) | |||||
Cash and cash equivalents | (2,114 | ) | (1,518 | ) | 596 | ||||
Securities held for non-operating purposes | (174 | ) | (114 | ) | 60 | ||||
Financing receivables held for non-operating purposes | (1,215 | ) | (3,126 | ) | (1,911 | ) | |||
Net borrowings | 16,327 | 16,565 | 238 | ||||||
Shareholders equity including minority interest | 42,867 | 43,889 | 1,022 | ||||||
Leverage | 0.38 | 0.38 |
Net borrowings at June 30,
2008 were euro 16,565 million, representing an increase
of euro 238 million from December 31, 2007. Total debt amounted to euro 21,323 million, of which euro 10,857 million were short-term (including the portion of long-term debt due within 12 months for euro 758 million) and euro 10,466 million were long-term. Financing receivables held for non-operating purposes amounted to euro 3,126 million and mainly related to a collateral cash deposit (euro 2,755 million) made by the parent company Eni SpA to guarantee |
certain cash flow hedging
derivatives (for further details, see the discussion on
the net working capital below). Ratio of net borrowings to shareholders equity including minority interest leverage was unchanged at 0.38 with respect to end of 2007. Assuming Gazprom exercises its call options to purchase a 20% interest in OAO Gazprom Neft held by Eni and a 51% interest in the three Russian gas companies held according to a 60:40 interest by Eni and Enel as of June 30, 2008, leverage would stand at 0.31. |
Changes in shareholders equity
(million euro)
Shareholders equity at December 31, 2007 | 42,867 | ||||
Net profit for the period | 7,227 | ||||
Reserve for cash flow hedges | (1,751 | ) | |||
Dividends paid to Enis shareholders | (2,551 | ) | |||
Dividends paid by consolidated subsidiaries to minorities | (224 | ) | |||
Shares repurchased | (388 | ) | |||
Treasury shares attributed against employee share incentive schemes | 9 | ||||
Impact of share repurchases made by consolidated subsidiaries (Saipem) | (9 | ) | |||
Currency translation differences | (1,312 | ) | |||
Other changes | 21 | ||||
Total changes | 1,022 | ||||
Shareholders equity at June 30, 2008 | 43,889 | ||||
Attributable to: | |||||
- Eni | 41,207 | ||||
- Minority interest | 2,682 |
Shareholders equity including minority interest amounted to euro 43,889 million and increased by euro 1,022 million. This increase reflected net profit for the period (euro 7,227 million), partly offset by the payment of dividends (euro 2,551 million), losses upon fair value evaluation of certain cash flow hedges taken to reserve | including hedged transactions settled in the period (euro 1,751 million net of the related tax effect for euro 1,139 million) as well as a deduction associated with the repurchase of shares in the first half of 2008 (euro 388 million). Shareholders equity also decreased as a result of foreign currency translation effects. |
- 52 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Summarized Group cash flow statement and change in net borrowings
Enis summarized Group cash flow statement derives from the statutory statement of cash flows. It enables investors to understand the link existing between changes in cash and cash equivalents (deriving from the statutory cash flows statement) and in net borrowings (deriving from the summarized cash flow statement) that occurred from the beginning of period to the end of period. The measure enabling such a link is represented by the free cash flow which is the cash in excess of capital expenditure needs. Starting from free cash flow it is possible to determine either: (i) changes in cash and cash equivalents for the | period by adding/deducting
cash flows relating to financing debts/receivables
(issuance/repayment of debt and receivables related to
financing activities), shareholders equity
(dividends paid, net repurchase of own shares, capital
issuance) and the effect of changes in consolidation and
of exchange rate differences; (ii) changes in net
borrowings for the period by adding/deducting cash flows
relating to shareholders equity and the effect of
changes in consolidation and of exchange rate
differences. The free cash flow is a non-GAAP measure of financial performance. |
Summarized Group cash flow statement (a)
(million euro) |
First Half |
2007 |
2008 |
Change |
||||||
Net profit | 5,166 | 7,227 | 2,061 | ||||||
Adjustments to reconcile to cash generated from operating profit before changes in working capital: | |||||||||
- depreciation, depletion and amortization and other non monetary items | 2,871 | 3,874 | 1,003 | ||||||
- net gains on disposal of assets | (26 | ) | (207 | ) | (181 | ) | |||
- dividends, interest, income taxes and other changes | 4,370 | 5,262 | 892 | ||||||
Cash generated from operating profit before changes in working capital | 12,381 | 16,156 | 3,775 | ||||||
Changes in working capital related to operations | 923 | ) | (1,150 | ) | (2,073 | ) | |||
Dividends received, taxes paid, interest (paid) received during the period | (3,621 | ) | (5,056 | ) | (1,435 | ) | |||
Net cash provided by operating activities | 9,683 | 9,950 | 267 | ||||||
Capital expenditures | (4,257 | ) | (6,759 | ) | (2,502 | ) | |||
Acquisition of investments and businesses | (4,935 | ) | (1,949 | ) | 2,986 | ||||
Disposals | 176 | 473 | 297 | ||||||
Other cash flow related to capital expenditures, investments and disposals | 206 | 581 | 375 | ||||||
Free cash flow | 873 | 2,296 | 1,423 | ||||||
Borrowings (repayment) of debt related to financing activities | 230 | (1,829 | ) | (2,059 | ) | ||||
Changes in short and long-term finance debt | 4,634 | 2,110 | (2,524 | ) | |||||
Dividends paid and changes in minority interest and reserves | (3,266 | ) | (3,158 | ) | 108 | ||||
Effect of changes in consolidation and exchange differences | (88 | ) | (15 | ) | 73 | ||||
CHANGE IN CASH AND CASH EQUIVALENTS FOR THE PERIOD | 2,383 | (596 | ) | (2,979 | ) |
Change in net borrowings
(million euro) |
First Half |
2007 |
2008 |
Change |
||||||
Free cash flow | 873 | 2,296 | 1,423 | ||||||
Net borrowings of acquired companies | |||||||||
Net borrowings of divested companies | (24 | ) | 24 | ||||||
Exchange differences on net borrowings and other changes | 62 | 624 | 562 | ||||||
Dividends paid and changes in minority interest and reserves | (3,266 | ) | (3,158 | ) | 108 | ||||
CHANGE IN NET BORROWINGS | (2,355 | ) | (238 | ) | 2,117 |
(a) | For a reconciliation to the statutory statement of cash flow see the paragraph Reconciliation of summarized group balance sheet and statement of cash flows to statutory schemes pages 57-58. |
- 53 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
In the first half of 2008 net cash provided by operating activities (euro 9,950 million) coupled with cash from divestments for euro 473 million were used to fund the cash outflows relating to: (i) capital expenditures totalling euro 6,759 million; (ii) payment of the balance of the 2007 dividend by Eni SpA (euro 2,551 million), as well as dividend payment from certain consolidated subsidiaries to minorities (euro 212 million, relating to | Snam Rete Gas and Saipem); (iii) the completion of the acquisition of Burren Energy Plc (cash outflow in 2008 being euro 1.7 billion net of acquired cash of euro 0.1 billion; total cash consideration for this transaction amounted to euro 2.3 billion which includes the amount of Burrens shares purchased in December 2007); (iv) the repurchase of own shares by the parent company Eni SpA for a total amount of euro 388 million. |
Capital expenditures
(million euro) |
First Half |
2007 |
2007 |
2008 |
Change |
% Ch. |
||||||
6,625 | Exploration & Production | 2,837 | 4,462 | 1,625 | 57.3 | ||||||||||
1,366 | Gas & Power | 526 | 871 | 345 | 65.6 | ||||||||||
979 | Refining & Marketing | 319 | 350 | 31 | 9.7 | ||||||||||
145 | Petrochemicals | 56 | 68 | 12 | 21.4 | ||||||||||
1,410 | Engineering & Construction | 510 | 977 | 467 | 91.6 | ||||||||||
59 | Other activities | 35 | 14 | (21 | ) | (60.0 | ) | ||||||||
108 | Corporate and financial companies | 28 | 36 | 8 | 28.6 | ||||||||||
(99 | ) | Impact of unrealized intragroup profit elimination | (54 | ) | (19 | ) | 35 | (64.8 | ) | ||||||
10,593 | 4,257 | 6,759 | 2,502 | 58.8 |
In the first half of 2008 capital
expenditures amounted to euro 6,759 million
(euro 4,257 million in the first half of 2007), of which
84% related to the Exploration & Production, Gas
& Power and Refining & Marketing divisions (for a
more detailed discussion about capital expenditures, see
the Operating Review by division above). Acquisition of investments and businesses (euro 1,949 million) related mainly to the completion of the acquisition of Burren Energy (euro 1.7 billion, net of acquired cash amounting to euro 100 million). Disposals (euro 473 million) related mainly to the sale of the Engineering & Construction divisions 30% stake in GTT (Gaztransport et Technigaz sas). GTT is a company owning a patent for the construction of tanks to transport LNG. |
Dividends paid and
changes in minority interests and reserves (euro
3,158 million) mainly related to the balance of the 2007
dividend (euro 2,551 million) by the parent company Eni
SpA and the dividend payments by Snam Rete Gas SpA and
Saipem SpA (for a total amount of euro 212 million), and
the repurchase of own shares by Eni SpA for euro 388
million. From January 1 to June 30, 2008 a total of 16.6 million own shares were purchased at a cost of euro 388 million (on average euro 23.323 per share). From the beginning of the share buy-back plan (September 1, 2000), Eni has purchased 379.2 million of its own shares, equal to 9.5% of capital stock at issue, at a total cost of euro 6,581 million (for an average cost of euro 18.74 per share) representing 88.9% of the amount authorized by the Shareholders Meeting. |
- 54 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Reconciliation of
summarized Group balance sheet and statement of cash flows to
statutory schemes
Summarized Group balance sheet
(million euro) | Dec. 31, 2007 | June 30, 2008 | ||
Items
of summarized Group balance sheet (where not expressly indicated, the item derives directly from the statutory scheme) |
Notes to the condensed consolidated interim 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 | 50,137 | 53,032 | ||||||||||||
Other assets | 563 | |||||||||||||
Inventories - compulsory stock | 2,171 | 2,401 | ||||||||||||
Intangible assets | 4,333 | 4,797 | ||||||||||||
Equity-accounted investments and other investments | 6,111 | 5,884 | ||||||||||||
Receivables and securities held for operating purposes | (see note 2 and note 8) | 725 | 833 | |||||||||||
Net payables related to capital expenditures, made up of: | (1,191 | ) | (1,556 | ) | ||||||||||
- receivables related to capital expenditures/disposals | (see note 2) | 125 | 93 | |||||||||||
- receivables related to capital expenditures/disposals | (see note 10) | 7 | 437 | |||||||||||
- payables related to capital expenditures | (see note 12) | (1,301 | ) | (2,086 | ) | |||||||||
- payables related to capital expenditures | (see note 18) | (22 | ) | |||||||||||
Total fixed assets | 62,849 | 65,391 | ||||||||||||
Net working capital | ||||||||||||||
Inventories | 5,499 | 6,213 | ||||||||||||
Trade receivables | (see note 12) | 15,609 | 15,101 | |||||||||||
Trade payables | (see note 12) | (11,092 | ) | (10,563 | ) | |||||||||
Tax payables and provisions for net deferred tax liabilities, made up of: | (4,412 | ) | (4,340 | ) | ||||||||||
- income tax payables | (1,688 | ) | (2,204 | ) | ||||||||||
- other tax payables | (1,383 | ) | (1,988 | ) | ||||||||||
- deferred tax liabilities | (5,471 | ) | (4,974 | ) | ||||||||||
- other tax liabilities | (see note 18) | (215 | ) | (379 | ) | |||||||||
- current tax assets | 703 | 507 | ||||||||||||
- other current tax assets | 833 | 796 | ||||||||||||
- deferred tax assets | 1,915 | 3,059 | ||||||||||||
- other tax assets | (see note 10) | 894 | 843 | |||||||||||
Provisions | (8,486 | ) | (8,296 | ) | ||||||||||
Other current assets and liabilities: | ||||||||||||||
Equity instruments | 2,476 | 2,279 | ||||||||||||
Other, made up of: | (2,600 | ) | (5,002 | ) | ||||||||||
- securities held for operating purposes | (see note 1) | 259 | 365 | |||||||||||
- receivables for operating purposes | (see note 2) | 357 | 389 | |||||||||||
- other receivables | (see note 2) | 3,568 | 4,509 | |||||||||||
- other (current) assets | 1,080 | 1,532 | ||||||||||||
- other receivables and other assets | (see note 10) | 209 | 316 | |||||||||||
- advances, other payables | (see note 12) | (4,723 | ) | (5,705 | ) | |||||||||
- other current liabilities | (1,556 | ) | (3,275 | ) | ||||||||||
- other payables and other liabilities | (see note 18) | (1,794 | ) | (3,133 | ) | |||||||||
Total net working capital | (3,006 | ) | (4,608 | ) | ||||||||||
Provisions for employee post-retirement benefits | (935 | ) | (915 | ) | ||||||||||
Net assets held for sale including related net borrowings, made up of: | 286 | 586 | ||||||||||||
- assets held for sale | 900 | |||||||||||||
- liabilities directly associated to assets held for sale | (314 | ) | ||||||||||||
CAPITAL EMPLOYED, NET | 59,194 | 60,454 |
- 55 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
continued Summarized Group balance sheet
(million euro) | Dec. 31, 2007 | June 30, 2008 | ||
Items
of summarized Group balance sheet (where not expressly indicated, the item derives directly from the statutory scheme) |
Notes to the condensed consolidated interim 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 | 59,194 | 60,454 | ||||||||||||
Shareholders equity including minority interest | 42,867 | 43,889 | ||||||||||||
Net borrowings | ||||||||||||||
Total debt, made up of: | 19,830 | 21,323 | ||||||||||||
- long-term debt | 11,330 | 10,466 | ||||||||||||
- current portion of long-term debt | 737 | 758 | ||||||||||||
- short-term financial liabilities | 7,763 | 10,099 | ||||||||||||
less: | ||||||||||||||
Cash and cash equivalents | (2,114 | ) | (1,518 | ) | ||||||||||
Securities held for non-operating purposes | (see note 1) | (174 | ) | (114 | ) | |||||||||
Financing receivables for non-operating purposes, made up of: | (1,215 | ) | (3,126 | ) | ||||||||||
- trade receivables held for non-operating purposes | (see note 2) | (990 | ) | (2,917 | ) | |||||||||
- financial assets made for non-operating purposes | (see note 8) | (225 | ) | (209 | ) | |||||||||
Total net borrowings (a) | 16,327 | 16,565 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY | 59,194 | 60,454 |
(a) | For details on net borrowings see also note No. 15 to the condensed consolidated financial statements. |
- 56 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
Summarized Group cash flow statement
(million euro)
First Half of 2007 | First Half of 2008 | |||
Items
of summarized cash flow statement and confluence/reclassification of items in the statutory scheme |
Partial amounts from statutory scheme | Amounts of the summarized Group scheme | Partial amounts from statutory scheme | Amounts of the summarized Group scheme | ||||||
Net profit | 5,166 | 7,227 | ||||||||||
Adjustments to reconcile to cash generated from operating profit before changes in working capital: | ||||||||||||
Depreciation, depletion and amortization and other non monetary items: | 2,871 | 3,874 | ||||||||||
- depreciation, depletion and amortization | 3,269 | 3,878 | ||||||||||
- net impairments (write-ups) | (258 | ) | (95 | ) | ||||||||
- net changes in provisions | (80 | ) | 103 | |||||||||
- net changes in the provisions for employee benefits | (60 | ) | (12 | ) | ||||||||
Net gains on disposal of assets | (26 | ) | (207 | ) | ||||||||
Dividends, interest, income taxes and other changes: | 4,370 | 5,262 | ||||||||||
- dividend income | (131 | ) | (270 | ) | ||||||||
- interest income | (301 | ) | (293 | ) | ||||||||
- interest expense | 197 | 377 | ||||||||||
- exchange differences | (68 | ) | (34 | ) | ||||||||
- income taxes | 4,673 | 5,482 | ||||||||||
Cash generated from operating profit before changes in working capital | 12,381 | 16,156 | ||||||||||
Changes in working capital related to operations: | 923 | (1,150 | ) | |||||||||
- inventories | (158 | ) | (1,222 | ) | ||||||||
- trade and other receivables | 1,317 | 154 | ||||||||||
- other assets | 77 | (3 | ) | |||||||||
- trade and other payables | (158 | ) | (102 | ) | ||||||||
- other liabilities | (155 | ) | 23 | |||||||||
Dividends received, taxes paid, interest (paid) received during the period: | (3,621 | ) | (5,056 | ) | ||||||||
- dividend received | 307 | 409 | ||||||||||
- interest received | 209 | 166 | ||||||||||
- interest paid | (169 | ) | (308 | ) | ||||||||
- income taxes paid | (3,968 | ) | (5,323 | ) | ||||||||
Net cash provided by operating activities | 9,683 | 9,950 | ||||||||||
Capital expenditures: | (4,257 | ) | (6,759 | ) | ||||||||
- tangible assets | (3,353 | ) | (5,584 | ) | ||||||||
- intangible assets | (904 | ) | (1,175 | ) | ||||||||
Acquisition of investments and businesses: | (4,935 | ) | (1,949 | ) | ||||||||
- investments | (3,850 | ) | (232 | ) | ||||||||
- consolidated subsidiaries and businesses | (1,085 | ) | (1,717 | ) | ||||||||
- acquisition of additional interests in subsidiaries | ||||||||||||
Disposals: | 176 | 473 | ||||||||||
- tangible assets | 145 | 41 | ||||||||||
- intangible assets | 13 | |||||||||||
- consolidated subsidiaries and businesses | 8 | |||||||||||
- investments | 10 | 432 | ||||||||||
Other cash flow related to capital expenditures, investments and disposals: | 206 | 581 | ||||||||||
- securities | (71 | ) | (164 | ) | ||||||||
- financing receivables | (408 | ) | (2,393 | ) | ||||||||
- change in payables and receivables relating to investments and capitalized depreciation | 91 | 845 | ||||||||||
reclassification: purchase of securities and financing receivables for non-operating purposes | 106 | 1,992 | ||||||||||
- disposal of securities | 307 | 106 | ||||||||||
- disposal of financing receivables | 503 | 332 | ||||||||||
- change in payables and receivables | 14 | 26 | ||||||||||
reclassification: disposal of securities and financing receivables held for non-operating purposes | (336 | ) | (163 | ) | ||||||||
Free cash flow | 873 | 2,296 |
- 57 -
ENI OPERATING AND FINANCIAL REVIEW / FINANCIAL REVIEW
continued Summarized Group cash flow statement
(million euro) | First Half of 2007 | First Half of 2008 | ||
Items
of summarized cash flow statement and confluence/reclassification of items in the statutory scheme |
Partial amounts from statutory scheme | Amounts of the summarized Group scheme | Partial amounts from statutory scheme | Amounts of the summarized Group scheme | ||||||
Free cash flow | 873 | 2,296 | ||||||||||
Borrowings (repayment) of debt related to financing activities | 230 | (1,829 | ) | |||||||||
reclassification: purchase of securities and financing receivables held for non-operating purposes | (106 | ) | (1,992 | ) | ||||||||
reclassification: sale of securities and financing receivables held for non-operating purposes | 336 | 163 | ||||||||||
Changes in short and long-term finance debt: | 4,634 | 2,110 | ||||||||||
- proceeds from long-term finance debt | 2,351 | 2,636 | ||||||||||
- payments of long-term finance debt | (2,422 | ) | (3,332 | ) | ||||||||
- increase (decrease) in short-term finance debt | 4,705 | 2,806 | ||||||||||
Dividends paid and changes in minority interests and reserves: | (3,266 | ) | (3,158 | ) | ||||||||
- net capital contributions/payments by/to minority shareholders | 1 | 10 | ||||||||||
- dividends paid by Eni to shareholders | (2,384 | ) | (2,551 | ) | ||||||||
- dividends paid to minority interest | (227 | ) | (224 | ) | ||||||||
- net repurchase of treasury shares | (319 | ) | (379 | ) | ||||||||
- treasury share repurchased by consolidated subsidiaries | (337 | ) | (14 | ) | ||||||||
Effect of changes in consolidation area and exchange differences: | (88 | ) | (15 | ) | ||||||||
- effect of change in consolidation area | (4 | ) | ||||||||||
- effect of exchange differences | (84 | ) | (15 | ) | ||||||||
CHANGE IN CASH AND CASH EQUIVALENTS FOR THE PERIOD | 2,383 | (596 | ) |
- 58 -
ENI OPERATING AND FINANCIAL REVIEW / RISK FACTORS AND OUTLOOK
Risk factors and outlook
Foreword The main risks that the Company is facing and actively monitoring and managing are the following: (i) the market risk deriving from exposure to fluctuations in interest rates, foreign currency exchange rates and commodity prices; (ii) the credit risk deriving from the possible default of a counterparty; (iii) the liquidity risk deriving from the risk that suitable sources of funding for the Groups operations may not be available; (iv) the country risk in the upstream business; (v) the operational risk; (vi) the possible evolution of the Italian gas market; (vii) the specific risks deriving from exploration and production activities. Financial risks are managed in respect of guidelines defined by the parent company, targeting to align and coordinate Group companies policies on financial risks. Market risk Market risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the Groups financial assets, liabilities or expected future cash flows. The Company actively manages market risk in accordance with a set of policies and guidelines that provide a centralized model of conducting finance, treasury and risk management operations based on three separate entities: the parent companys (Eni SpA) finance department, Eni Coordination Center and Banque Eni which is subject to certain bank regulatory restrictions preventing the Groups exposure to concentrations of credit risk. 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 funding requirements and using
available surpluses. All transactions concerning currencies and derivative financial contracts are managed by the parent company as well as the activity of trading certificates according to the European Union Emission Trading Scheme. The commodity risk is managed by each business unit with Eni Trading & Shipping ensuring the negotiation of hedging derivatives. Eni uses derivative financial instruments (derivatives) in order to minimize exposure to market risks related to changes in exchange rates and interest rates and to manage exposure to commodity prices fluctuations. Eni does not enter into derivative transactions on a speculative basis. The framework defined by Enis policies and guidelines prescribes that measurement and control of market risk be performed on the basis of maximum tolerable levels of risk exposure defined in accordance with value-at-risk techniques. These techniques make a statistical assessment of the market risk on the Groups activity, i.e., potential gain or loss in fair values, due to changes in market conditions taking account of the correlation existing among changes in fair value of existing instruments. 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. Enis calculation and measurement techniques for interest rate and foreign currency exchange rate risks are in accordance with established banking standards, as established by the Basel Committee for bank activities surveillance. Tolerable levels of risk are based on a conservative approach, considering the industrial nature of the company. Enis guidelines prescribe that Enis Group companies minimize such kinds of market risks. With regard to the commodity risk, Enis policies and |
- 59 -
ENI OPERATING AND FINANCIAL REVIEW / RISK FACTORS AND OUTLOOK
guidelines define rules to
manage this risk aiming at the optimization of core
activities and the pursuing of preset targets of
industrial margins. The maximum tolerable level of risk
exposure is pre-defined in terms of value at risk in
connection with trading and commercial activities, while
the strategic risk exposure to commodity prices
fluctuations i.e. the impact on the Groups
business results deriving from changes in commodity
prices is monitored in terms of value-at-risk,
albeit not hedged in a systematic way. Accordingly, Eni
evaluates the opportunity to mitigate its commodity risk
exposure by entering into hedging transactions in view of
certain acquisition deals of oil and gas reserves as part
of the Groups strategy to achieve its growth
targets or ordinary asset portfolio management. The Group
controls commodity risk with a maximum value-at-risk
limit awarded to each business unit. Hedging needs from
business units are pooled by Eni Trading & Shipping
which also manages its own risk exposure. The three
different market risks, whose management and control have
been summarized above, are described below. Exchange rate risk Exchange rate risk derives from the fact that Enis operations are conducted in currencies other than the euro (mainly in the U.S. dollar). Revenues and expenses denominated in foreign currencies may be significantly affected by exchange rates fluctuations due to conversion differences on single transaction arising from the time lag existing between execution and definition of relevant contractual terms (economic risk) and conversion of foreign currency-denominated trade and financing payables and receivables (transactional risk). Exchange rate fluctuations affect Groups reported results and net equity as financial statements of subsidiaries denominated in currencies other than the euro are translated from their functional currency into euro (translation risk). Generally, an appreciation of the U.S. dollar versus the euro has a positive impact on Enis results of operations, and viceversa. Enis foreign exchange risk management policy is to minimize economic and transactional exposures arising from foreign currency movements. Eni does not undertake any hedging activity for risks deriving from translation of foreign currency denominated profits or assets and liabilities of subsidiaries which prepare financial statements in a currency other than the euro, except for single transactions to be evaluated on a case-by-case basis. Effective management of exchange rate risk is performed within Enis central finance departments which match opposite positions within Group |
companies, hedging the Group
net exposure through the use of certain derivatives, such
as currency swaps, forwards and options. Such derivatives
are evaluated at fair value on the basis of market prices
provided by specialized sources. Changes in fair value of
those derivatives are normally recognized through the
profit and loss account as they do not meet the formal
criteria to be recognized as hedges in accordance with
IAS 39. The VAR techniques are based on
variance/covariance simulation models and are used to
monitor the risk exposure arising from possible future
changes in market values over a 24-hour period within a
99% confidence level and a 20-day holding period. Interest rate risk Changes in interest rates affect the market value of financial assets and liabilities of the company and the level of finance charges. Enis interest rate risk management policy is to minimize risk with the aim to achieve financial structure objectives defined and approved in the managements finance plans. Borrowing requirements of the Groups companies are pooled by the Groups central finance department in order to manage net positions and the funding of portfolio developments consistently with managements plans while maintaining a level of risk exposure within prescribed limits. Eni enters into interest rate derivative transactions, in particular interest rate swaps, to effectively manage the balance between fixed and floating rate debt. Such derivatives are evaluated at fair value on the basis of market prices provided from specialized sources. Changes in fair value of those derivatives are normally recognized through the profit and loss account as they do not meet the formal criteria to be accounted for under the hedge accounting method in accordance with IAS 39. Value at risk deriving from interest rate exposure is measured daily on the basis of a variance/covariance model, with a 99% confidence level and a 20-day holding period. Commodity risk Enis results of operations are affected by changes in the prices of commodities. A decrease in oil and gas prices generally has a negative impact on Enis results of operations and vice-versa. Eni manages exposure to commodity price risk arising ordinary trading and commercial activities in view of achieving stable margins. In order to accomplish this, Eni uses derivatives traded on the organized markets of ICE and NYMEX (futures) and derivatives traded over the counter (swaps, forward, contracts for differences and options) with the underlying commodities being crude oil, refined |
- 60 -
ENI OPERATING AND FINANCIAL REVIEW / RISK FACTORS AND OUTLOOK
products or electricity. Such derivatives are evaluated at fair value on the basis of market prices provided from specialized sources or, absent market prices, on the basis of estimates provided by brokers or suitable evaluation techniques. Changes in fair value of those derivatives are normally recognized through the profit and loss account as they do not meet the formal criteria to be recognized as hedges in accordance with IAS 39. Value at risk | deriving from commodity
exposure is measured daily on the basis of a historical
simulation technique, with a 95% confidence level and a
one-day holding period. The following table shows amounts in terms of value at risk, recorded in the first half of 2008 (compared with full year 2007) relating to interest rate and exchange rate risks in the first section, and commodity risk in the second section. |
(Value at risk - parametric method variance/covariance; holding period: 20 days; confidence level: 99%)
2007 |
First Half of 2008 |
||
(million euro) | High |
Low |
Avg. |
At period end |
High |
Low |
Avg. |
At period end |
||||||||
Interest rate | 7.36 | 0.47 | 1.39 | 4.35 | 4.46 | 0.73 | 2.25 | 2.40 | ||||||||
Exchange rate | 1.25 | 0.03 | 0.21 | 0.43 | 1.37 | 0.09 | 0.36 | 0.27 |
(Value at risk - Historic simulation method; holding period: 1 day; confidence level: 95%)
2007 |
First Half of 2008 |
||
($ million) | High |
Low |
Avg. |
At period end |
High |
Low |
Avg. |
At period end |
||||||||
Area oil, products | 44.59 | 4.39 | 20.17 | 12.68 | 34.93 | 6.99 | 22.60 | 13.58 | ||||||||
Area Gas & Power | 54.11 | 20.12 | 34.56 | 25.57 | 65.29 | 24.38 | 43.02 | 65.29 |
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 Groups normal commercial operations is controlled by each business 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 on the basis of score cards quantifying risk levels. Eni has established guidelines prior to entering into cash management and derivative contracts to assess the counterpartys financial soundness and rating. Eni has never experienced material non-performance by any counterparty. As of December 31, 2007 and June 30, 2008, Eni had no significant concentrations of credit risk, except for a collateral cash deposit made by Eni with a financing institution to guarantee certain cash flow hedges, as reported in the discussion under note 2 Trade and other receivables to the Condensed consolidated interim financial statements. |
Liquidity
risk Liquidity risk is the risk that suitable sources of funding for the Group may not be available, or the Group is unable to sell its assets on the market place as to be unable to meet short-term finance requirements and to settle obligations 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 a sound optimal ratio between equity and total debt consistent with management finance 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 funding capacity as to minimize borrowing expenses and to achieve an optimal profile of composition and maturity 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 |
- 61 -
ENI OPERATING AND FINANCIAL REVIEW / RISK FACTORS AND OUTLOOK
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 development plans of the
Group businesses, maintaining an adequate finance
structure in terms of debt composition and maturity. This implies adoption of a strategy intended to pursue an adequate structure of borrowing facilities (particularly availability of committed borrowings facilities) and the maintenance of cash reserves. Country risk Substantial portions of Enis hydrocarbons reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American. At December 31, 2007, approximately 70% of Enis proved hydrocarbons reserves were located in such countries. Similarly, a substantial portion of Enis natural gas supplies comes from countries outside the EU and North America. In 2007, approximately 60% of Enis domestic supply of natural gas came from such countries. Developments in the political framework, economic crisis, social unrest can compromise temporarily or permanently Enis ability to operate or to economically operate in such countries, and to have access to oil and gas reserves. Further risks 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) unfavorable developments in laws and regulations leading to expropriation of Enis titles and mineral assets, changes in unilateral contractual clauses reducing value of Enis assets; (iii) restrictions on exploration, production, imports and exports; (iv) tax or royalty increases; (v) civil and social unrest leading to sabotages, acts of violence and incidents. While the occurrence of these events is unpredictable, it is possible that they can have a material adverse impact on Enis financial condition and results of operations. Eni periodically monitors political, social and economic risks of approximately 60 countries where it has invested, or, with regard to upstream projects evaluation, where Eni is planning to invest in order to assess returns of single projects based also on the evaluation of each countrys risk profile. Country risk is mitigated in accordance with guidelines on risk management defined in the procedure Project risk assessment and management. In the most recent years, unfavorable developments in the regulatory framework, mainly regarding tax issues, have been implemented or announced also in EU countries and in North America. |
Operational
risk Enis business activities conducted in and outside of Italy are subject to a broad range of laws and regulations, including specific rules concerning oil and gas activities currently in force in countries in which it operates. In particular, these laws and regulations require the acquisition of a license 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 Enis 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 groups 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 Enis employees, the populations involved in its activity, contractors and clients, and the environment and being in compliance with local and international rules and regulations. Enis guidelines prescribe the adoption of international best practices in setting internal principles, standards and solutions. The ongoing process for identifying, evaluating and managing HSE operations in each phase of the business activity 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 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 minimize damage in the event of an incident. In the case of major crisis, Divisions/Entities 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. |
- 62 -
ENI OPERATING AND FINANCIAL REVIEW / RISK FACTORS AND OUTLOOK
The integrated management
system on health, safety and environmental matters is
supported by the adoption of a Enis 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. Major refining and
petrochemical facilities of Eni are certified to
international environmental standards, such as ISO14001,
OHSAS 18001 and EMAS. Eni provides a program of specific training and development for HSE staff in order to:
Possible evolution of the Italian gas
market |
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 (excluding the acquisition of Distrigaz). Despite the fact that an increasing portion of natural gas volumes purchased under said contracts is planned to be marketed outside Italy, management believes that in the long-term unfavorable trends in the Italian demand and supply for natural gas, also due to possible implementation of all publicly announced plans for the construction of new import infrastructures (backbone upgrading and new LNG terminals), and developments within the Italian regulatory framework, represent risk factors for the ability of the Company to meet its contractual obligations in connection with its take-or-pay8 supply contracts. Particularly, should natural gas demand in Italy grow at a lower pace than management expectations, also in view of the expected build-up of natural gas supplies to the Italian market, the Company 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 Enis gas availability under take-or-pay supply contracts and risks in executing its expansion plans to grow sales volumes in European markets. |
_______________
(8) | For an explanation of take-or-pay clauses, see Glossary. |
- 63 -
ENI OPERATING AND FINANCIAL REVIEW / RISK FACTORS AND OUTLOOK
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 harsh environments, where the majority of Enis planned and ongoing projects is located. Trends and uncertainties affecting the second half of the year Changes in crude oil prices have different impacts on the results of operations of each of the Companys businesses. Exploration & Production results are positively impacted by higher oil prices. The impact of changes in crude oil prices on sales margins of natural gas, refined and petrochemical products depends upon the speed at which prices adjust to reflect changes in crude prices. Wholesale margins in the Gas & Power business are substantially insulated from fluctuations in crude oil prices as purchase and selling prices of natural gas are contractually indexed to prices of crude oil and certain refined products according to similar pricing schemes. On the contrary, in the Refining & Marketing and Petrochemical businesses, a time lag exists between movements in oil prices and in prices of manufactured products. In the short-term, it is likely that these businesses may find it difficult to pass on rapid increases in crude oil prices to selling prices, thus resulting in a squeeze on selling margins. In the first half of 2008, rising trends in the cost of oil-based raw materials adversely affected results reported by the |
refining and petrochemical
businesses, as higher purchase prices were not fully
recovered in sales prices. Should this scenario persist
during the second half of the year, results would
continue being adversely impacted. Furthermore, higher crude oil prices jeopardize the Companys performance in terms of hydrocarbon production growth and reserve replacement ratio, given the significant weight of production sharing agreements in Enis oil and gas portfolio. Under such contracts, the Company is entitled to receive a portion of the production, the sale of which should cover expenditures incurred and earn the Company a share of profit. Accordingly, the higher the reference prices for crude oil used to determine production and reserves entitlements, the lower the number of barrels to cover the same dollar amounts. For the current year and considering the existing Eni portfolio, management estimates that production entitlements would decrease by approximately 2,000 bbl/d for each $1 per barrel increase in oil prices. Outlook The outlook for Eni in 2008 remains positive, with key business trends for the year as follows:
|
- 64 -
ENI OPERATING AND FINANCIAL REVIEW / RISK FACTORS AND OUTLOOK
|
In 2008, management expects to spend approximately
euro 14 billion on capital expenditures up 32% from 2007
(euro 10.59 billion in 2007). Major increases are
expected in the development of oil and natural gas
reserves, the upgrading of construction vessels and rigs,
and the upgrading of natural gas transport
infrastructures. |
- 65 -
ENI OPERATING AND FINANCIAL REVIEW / SUBSEQUENT EVENTS
Subsequent events
Subsequent business
developments are described in the operating review of
Eni's business segment. In this section management
discloses the following matter. In May 2003 the Italian Ministry of the Environment sued Enis subsidiary Syndial SpA (former EniChem) for environmental damages allegedly caused when EniChem managed the facilities at Pieve Vergonte from 1990-1996. With a temporarily executive Decision No. 4991/08 dated July 3, 2008 and filed on July 8, 2008 the District Court of Turin ordered Syndial to pay the Italian Ministry of the Environment the sum of euro 1,833.5 million for the claim, plus legal interests that accrue from the filing of the decision. Syndial and its technical-legal consultants consider the decision and the amount of the compensation to be without factual and legal basis and concluded that a negative outcome of this proceeding is unlikely. In addition the sentence has been considered to lack sufficient elements to quantify the liability that Syndial should recognize in the case of an unfavorable |
outcome. Specifically, the
Courts Decision did not gave consideration to the
fact that Eni took over responsibility for this plant
pursuant to a State law and that the Company could not be
held responsible for previous running of the plant that
started operations several years before the Company took
over. Additionally, the Company considers that the preliminary investigation has failed to demonstrate that the plants operations were not in compliance with applicable laws and regulations. Based on this technical-legal advice, in concert with external consultants on the matter of accounting principles engaged by Syndial SpA and Eni, no loss provision has been made for this proceeding. As announced in the press release published on July 16, 2008, Syndial will appeal against the ruling on Pieve Vergonte site of the District Court of Turin as soon as possible. Further information on this matter is provided in the Notes to the condensed consolidated financial statements, under note No. 22. |
- 66 -
ENI OPERATING AND FINANCIAL REVIEW / TRANSACTIONS WITH RELATED PARTIES
Transactions with related parties
The transactions entered into by Eni and identified by IAS 24, concern mainly the exchange of goods, provision of services and financing with non consolidated subsidiaries and affiliates as well as other companies owned or controlled by the Italian Government. All such transactions are conducted on an arms length basis and in the interest of Eni companies. | Twice a year Directors,
General Managers and managers with strategic
responsibilities declare any transaction they enter with
Eni SpA or its subsidiaries, even through other persons
or persons related to them as per IAS 24. Amounts and types of trade and financial transactions with related parties are described in the Notes to the condensed consolidated financial statements (Note No. 30). |
- 67 -
ENI OPERATING AND FINANCIAL REVIEW / OTHER INFORMATION
Other information
Continuing listing
standards provided by article No. 36 of Italian exchanges
regulation about issuers that control subsidiaries
incorporated or regulated in accordance with laws of
extra-EU countries. Certain provisions have been recently enacted regulating continuing Italian listing standards of issuers controlling subsidiaries that are incorporated or regulated in accordance with laws of extra-EU countries, also having a material impact on the consolidated financial statements of the parent company. |
Regarding the aforementioned
provisions, the Company discloses that: (i) four of Enis subsidiaries Eni Congo SA, Eni Petroleum Co Inc, Eni Norge AS and NAOC-Nigerian AgipOil Co Ltd Fall within the scope of the new continuing listing standard; (ii) the Company has already adopted adequate procedures to ensure full compliance with the new regulation. |
- 68 -
ENI OPERATING AND FINANCIAL REVIEW / GLOSSARY
Glossary
The glossary of oil and gas
terms is available on Enis web page at the address www.eni.it.
Below is a selection of the most frequently used terms.
|
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. |
- 69 -
ENI OPERATING AND FINANCIAL REVIEW / GLOSSARY
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. 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. Olefins (or Alkenes) Hydrocarbons that are particularly active chemically, used for this reason as raw materials in the synthesis of intermediate products and of polymers. |
- 70 -
ENI OPERATING AND FINANCIAL REVIEW / GLOSSARY
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 contractors equipment and financial resources. Exploration risks are borne by the contractor and production is divided into two portions: cost oil is used to recover costs borne by the contractor, profit oil is divided between contractor and national company according to variable schemes and represents the profit deriving from exploration and production. Further terms and conditions may vary from one country to the other. Proved reserves Proved 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
companys 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 companys ability to add new reserves through exploration and purchase of property. A rate higher than 100% indicates that more reserves were added than produced in the period. The ratio should be averaged on a three-year period in order to reduce the distortion deriving from the purchase of proved property, the revision of previous estimates, enhanced recovery, improvement in recovery rates and changes in the value of reserves in PSAs due to changes in international oil prices. Management also calculates this ratio by excluding the effect of the purchase of proved property in order to better assess the underlying performance of the Company s operations. Ship or pay Clause included in natural gas transportation contracts according to which the customer for 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 |
- 71 -
ENI OPERATING AND FINANCIAL REVIEW / GLOSSARY
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
mmcf | = | million cubic feet |
bcf | = | billion cubic feet |
mmcm | = | million cubic meters |
bcm | = | billion cubic meters |
boe | = | barrel of oil equivalent |
kboe | = | thousand barrel of oil equivalent |
mmboe | = | million barrel of oil equivalent |
bboe | = | billion barrel of oil equivalent |
bbl | = | barrels |
kbbl | = | thousand barrels |
mmbbl | = | million barrels |
bbbl | = | billion barrels |
mmtonnes | = | million tonnes |
ktonnes | = | thousand tonnes |
/d | = | per day |
/y | = | per year |
- 72 -
Condensed Consolidated Interim Financial Statements
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
Consolidated balance sheet
Dec. 31, 2007 |
June 30, 2008 |
|||
(million euro) | Note |
Total amount |
of which with related parties |
Total amount |
of which with related parties |
|||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 2,114 | 1,518 | ||||||||||
Other financial assets held for trading or available for sale | (1) | |||||||||||
- equity instruments | 2,476 | 2,279 | ||||||||||
- other securities | 433 | 479 | ||||||||||
2,909 | 2,758 | |||||||||||
Trade and other receivables | (2) | 20,676 | 1,616 | 23,064 | 1,332 | |||||||
Inventories | (3) | 5,499 | 6,213 | |||||||||
Current tax assets | 703 | 507 | ||||||||||
Other current tax assets | 833 | 796 | ||||||||||
Other current assets | (4) | 1,080 | 1,532 | |||||||||
33,814 | 36,388 | |||||||||||
Non-current assets | ||||||||||||
Property, plant and equipment | (5) | 50,137 | 53,032 | |||||||||
Other assets | 563 | |||||||||||
Inventory - compulsory stock | 2,171 | 2,401 | ||||||||||
Intangible assets | (6) | 4,333 | 4,797 | |||||||||
Equity-accounted investments | (7) | 5,639 | 5,346 | |||||||||
Other investments | (7) | 472 | 538 | |||||||||
Other financial assets | (8) | 923 | 87 | 987 | 308 | |||||||
Deferred tax assets | (9) | 1,915 | 3,059 | |||||||||
Other non-current receivables | (10) | 1,110 | 1,596 | |||||||||
67,263 | 71,756 | |||||||||||
Assets classified as held for sale | (19) | 383 | 900 | |||||||||
TOTAL ASSETS | 101,460 | 109,044 | ||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Short-term finance debt | (11) | 7,763 | 131 | 10,099 | 252 | |||||||
Current portion of long-term finance debt | (15) | 737 | 758 | |||||||||
Trade and other payables | (12) | 17,116 | 1,021 | 18,354 | 872 | |||||||
Income tax payables | (13) | 1,688 | 2,204 | |||||||||
Other tax payables | 1,383 | 1,988 | ||||||||||
Other current liabilities | (14) | 1,556 | 3,275 | |||||||||
30,243 | 36,678 | |||||||||||
Non-current liabilities | ||||||||||||
Long-term debt | (15) | 11,330 | 10,466 | |||||||||
Provisions | (16) | 8,486 | 8,296 | |||||||||
Provision for employee benefits | 935 | 915 | ||||||||||
Deferred tax liabilities | (17) | 5,471 | 4,974 | |||||||||
Other non-current liabilities | (18) | 2,031 | 57 | 3,512 | 55 | |||||||
28,253 | 28,163 | |||||||||||
Liabilities directly associated with the assets classified as held for sale | (19) | 97 | 314 | |||||||||
TOTAL LIABILITIES | 58,593 | 65,155 | ||||||||||
SHAREHOLDERS EQUITY | (20) | |||||||||||
Minority interest | 2,439 | 2,682 | ||||||||||
Eni shareholders equity | ||||||||||||
Share capital | 4,005 | 4,005 | ||||||||||
Reserves | 34,610 | 36,822 | ||||||||||
Treasury shares | (5,999 | ) | (6,378 | ) | ||||||||
Interim dividend | (2,199 | ) | ||||||||||
Net profit | 10,011 | 6,758 | ||||||||||
Total Eni shareholders equity | 40,428 | 41,207 | ||||||||||
TOTAL SHAREHOLDERS EQUITY | 42,867 | 43,889 | ||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY | 101,460 | 109,044 |
- 74 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
Consolidated profit and loss account
First Half 2007 |
First Half 2008 |
|||
(million euro) | Note |
Total amount |
of which with related parties |
Total amount |
of which with related parties |
|||||
REVENUES | ||||||||||||
Net sales from operations | (23) | 41,688 | 2,052 | 55,422 | 2,145 | |||||||
Other income and revenues | 445 | 406 | ||||||||||
Total revenues | 42,133 | 55,828 | ||||||||||
OPERATING EXPENSES | (24) | |||||||||||
Purchases, services and other | 27,727 | 1,731 | 37,566 | 1,615 | ||||||||
- of which non-recurring charge | 130 | |||||||||||
Payroll and related costs | 1,777 | 1,972 | ||||||||||
- of which non-recurring income | (74 | ) | ||||||||||
Depreciation, depletion, amortization and impairment | 3,306 | 4,389 | ||||||||||
OPERATING PROFIT | 9,323 | 11,901 | ||||||||||
FINANCE INCOME (EXPENSE) | (25) | |||||||||||
Finance income | 1,280 | 61 | 2,539 | 31 | ||||||||
Finance expense | (1,288 | ) | 37 | (2,753 | ) | 6 | ||||||
Derivative financial instruments | 33 | 153 | ||||||||||
25 | (61 | ) | ||||||||||
INCOME FROM INVESTMENTS | (26) | |||||||||||
Share of profit (loss) of equity-accounted investments | 348 | 411 | ||||||||||
Other gain (loss) from investments | 143 | 458 | ||||||||||
491 | 869 | |||||||||||
PROFIT BEFORE INCOME TAXES | 9,839 | 12,709 | ||||||||||
Income taxes | (27) | (4,673 | ) | (5,482 | ) | |||||||
Net profit | 5,166 | 7,227 | ||||||||||
Attributable to | ||||||||||||
Eni | 4,855 | 6,758 | ||||||||||
Minority interest | 311 | 469 | ||||||||||
5,166 | 7,227 | |||||||||||
Earnings per share attributable to Eni (euro per share) | (28) | |||||||||||
Basic | 1.32 | 1.85 | ||||||||||
Diluted | 1.32 | 1.85 |
- 75 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
Consolidated 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 period |
Total |
Minority interest |
Total shareholders equity |
||||||||||||
Balance at Dec. 31, 2006 | 4,005 | 959 | 7,262 | 400 | (398 | ) | (5,374 | ) | 25,168 | (2,210 | ) | 9,217 | 39,029 | 2,170 | 41,199 | |||||||||||||||||||||
Net profit for the first half of 2007 | 4,855 | 4,855 | 311 | 5,166 | ||||||||||||||||||||||||||||||||
Gains (losses) recognized directly in equity | ||||||||||||||||||||||||||||||||||||
Change in the fair value of available-for-sale securities | (8 | ) | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||
Change in the fair value of cash flow hedging derivatives | (528 | ) | (528 | ) | (528 | ) | ||||||||||||||||||||||||||||||
Foreign currency translation differences | (348 | ) | (348 | ) | (2 | ) | (350 | ) | ||||||||||||||||||||||||||||
(536 | ) | (348 | ) | (884 | ) | (2 | ) | (886 | ) | |||||||||||||||||||||||||||
Total recognized income and (expense) for the period | (536 | ) | (348 | ) | 4,855 | 3,971 | 309 | 4,280 | ||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||
Dividend distribution of Eni SpA (euro 0.65 per share) in settlement of 2006 interim dividend of euro 0.60 per share | 2,210 | (4,594 | ) | (2,384 | ) | (2,384 | ) | |||||||||||||||||||||||||||||
Dividend distribution of other companies | (227 | ) | (227 | ) | ||||||||||||||||||||||||||||||||
Allocation of 2006 residual net profit | 4,623 | (4,623 | ) | |||||||||||||||||||||||||||||||||
Treasury shares repurchased | (339 | ) | (339 | ) | (339 | ) | ||||||||||||||||||||||||||||||
Treasury shares sold under incentive plans for Eni managers | (20 | ) | 12 | 20 | 8 | 20 | 20 | |||||||||||||||||||||||||||||
Difference between the carrying amount and strike price of stock options exercised by Eni managers | 4 | 4 | 4 | |||||||||||||||||||||||||||||||||
(20 | ) | 12 | (319 | ) | 4,635 | 2,210 | (9,217 | ) | (2,699 | ) | (227 | ) | (2,926 | ) | ||||||||||||||||||||||
Other changes in shareholders equity | ||||||||||||||||||||||||||||||||||||
Net effect related to the purchase of treasury shares by Saipem SpA and Snam Rete Gas SpA | (196 | ) | (196 | ) | ||||||||||||||||||||||||||||||||
Cost related to stock options | 8 | 8 | 8 | |||||||||||||||||||||||||||||||||
Foreign currency translation differences on the distribution of dividends and other changes | 117 | (198 | ) | (81 | ) | 12 | (69 | ) | ||||||||||||||||||||||||||||
117 | (190 | ) | (73 | ) | (184 | ) | (257 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2007 | 4,005 | 959 | 7,242 | (124 | ) | (629 | ) | (5,693 | ) | 29,613 | 4,855 | 40,228 | 2,068 | 42,296 |
- 76 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
continued Consolidated 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 period |
Total |
Minority interest |
Total shareholders equity |
||||||||||||
Balance at June 30, 2007 | 4,005 | 959 | 7,242 | (124 | ) | (629 | ) | (5,693 | ) | 29,613 | 4,855 | 40,228 | 2,068 | 42,296 | ||||||||||||||||||||||
Net profit for the second half of 2007 | 5,156 | 5,156 | 487 | 5,643 | ||||||||||||||||||||||||||||||||
Gains (losses) recognized directly in equity | ||||||||||||||||||||||||||||||||||||
Change in the fair value of available-for-sale securities | 4 | 4 | 4 | |||||||||||||||||||||||||||||||||
Change in the fair value of cash flow hedging derivatives | (842 | ) | (842 | ) | (842 | ) | ||||||||||||||||||||||||||||||
Foreign currency translation differences | 25 | (1,606 | ) | (1,581 | ) | (49 | ) | (1,630 | ) | |||||||||||||||||||||||||||
(813 | ) | (1,606 | ) | (2,419 | ) | (49 | ) | (2,468 | ) | |||||||||||||||||||||||||||
Total (expense) income of the period | (813 | ) | (1,606 | ) | 5,156 | 2,737 | 438 | 3,175 | ||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||
Interim dividend (euro 0.60 per share) | (2,199 | ) | (2,199 | ) | (2,199 | ) | ||||||||||||||||||||||||||||||
Dividend distribution of other companies | (62 | ) | (62 | ) | ||||||||||||||||||||||||||||||||
Payments by minority shareholders | 1 | 1 | ||||||||||||||||||||||||||||||||||
Treasury shares repurchased | (341 | ) | (341 | ) | (341 | ) | ||||||||||||||||||||||||||||||
Treasury shares sold under incentive plans for Eni managers | (35 | ) | 23 | 35 | 3 | 26 | 26 | |||||||||||||||||||||||||||||
Difference between the carrying amount and strike price of stock options exercised by Eni managers | 5 | 5 | 5 | |||||||||||||||||||||||||||||||||
(35 | ) | 23 | (306 | ) | 8 | (2,199 | ) | (2,509 | ) | (61 | ) | (2,570 | ) | |||||||||||||||||||||||
Other changes in shareholders equity | ||||||||||||||||||||||||||||||||||||
Net effect related to the purchase of treasury shares by Saipem SpA and Snam Rete Gas SpA | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||||||
Cost related to stock options | 10 | 10 | 10 | |||||||||||||||||||||||||||||||||
Currency translation differences deriving from the distribution of dividends and other changes | 2 | (40 | ) | (38 | ) | (1 | ) | (39 | ) | |||||||||||||||||||||||||||
2 | (30 | ) | (28 | ) | (6 | ) | (34 | ) | ||||||||||||||||||||||||||||
Balance at Dec. 31, 2007 | 4,005 | 959 | 7,207 | (914 | ) | (2,233 | ) | (5,999 | ) | 29,591 | (2,199 | ) | 10,011 | 40,428 | 2,439 | 42,867 |
- 77 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
continued Consolidated 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 period |
Total |
Minority interest |
Total shareholders equity |
||||||||||||
Balance at Dec. 31, 2007 | 4,005 | 959 | 7,207 | (914 | ) | (2,233 | ) | (5,999 | ) | 29,591 | (2,199 | ) | 10,011 | 40,428 | 2,439 | 42,867 | ||||||||||||||||||||
Net profit for the first half of 2008 | 6,758 | 6,758 | 469 | 7,227 | ||||||||||||||||||||||||||||||||
Gains (losses) recognized directly in equity | ||||||||||||||||||||||||||||||||||||
Change in the fair value of available-for-sale securities (Note 20) | 2 | 2 | 2 | |||||||||||||||||||||||||||||||||
Change in the fair value of cash flow hedging derivatives (Note 20) | (1,751 | ) | (1,751 | ) | (1,751 | ) | ||||||||||||||||||||||||||||||
Foreign currency translation differences | 39 | (1,335 | ) | (1,296 | ) | (16 | ) | (1,312 | ) | |||||||||||||||||||||||||||
(1,710 | ) | (1,335 | ) | (3,045 | ) | (16 | ) | (3,061 | ) | |||||||||||||||||||||||||||
Total income (expense) of the period | (1,710 | ) | (1,335 | ) | 6,758 | 3,713 | 453 | 4,166 | ||||||||||||||||||||||||||||
Transactions with shareholders | ||||||||||||||||||||||||||||||||||||
Dividend distribution of Eni SpA (euro 0.70 per share) in settlement of 2007 interim dividend of euro 0.60 per share | 2,199 | (4,750 | ) | (2,551 | ) | (2,551 | ) | |||||||||||||||||||||||||||||
Dividend distribution of other companies | (224 | ) | (224 | ) | ||||||||||||||||||||||||||||||||
Payments by minority shareholders | 10 | 10 | ||||||||||||||||||||||||||||||||||
Allocation of 2007 residual net profit | 5,261 | (5,261 | ) | |||||||||||||||||||||||||||||||||
Treasury shares repurchased | (388 | ) | (388 | ) | (388 | ) | ||||||||||||||||||||||||||||||
Treasury shares sold under incentive plans for Eni managers | (9 | ) | 5 | 9 | 1 | 6 | 6 | |||||||||||||||||||||||||||||
Difference between the carrying amount and strike price of stock options exercised by Eni managers | 2 | 2 | 2 | |||||||||||||||||||||||||||||||||
(9 | ) | 5 | (379 | ) | 5,264 | 2,199 | (10,011 | ) | (2,931 | ) | (214 | ) | (3,145 | ) | ||||||||||||||||||||||
Other changes in shareholders equity | ||||||||||||||||||||||||||||||||||||
Net effect related to the purchase of treasury shares by Saipem SpA | (9 | ) | (9 | ) | ||||||||||||||||||||||||||||||||
Cost related to stock options | 9 | 9 | 9 | |||||||||||||||||||||||||||||||||
Currency translation differences deriving from the distribution of dividends and other changes | 115 | (127 | ) | (12 | ) | 13 | 1 | |||||||||||||||||||||||||||||
115 | (118 | ) | (3 | ) | 4 | 1 | ||||||||||||||||||||||||||||||
Balance at June 30, 2008 (Note 20) | 4,005 | 959 | 7,198 | (2,619 | ) | (3,453 | ) | (6,378 | ) | 34,737 | 6,758 | 41,207 | 2,682 | 43,889 |
- 78 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
Consolidated statement of cash flows
(million euro) | Note | First Half 2007 | First Half 2008 | |||
Net profit of the period | 5,166 | 7,227 | ||||||
Depreciation, depletion and amortization | (24) | 3,269 | 3,878 | |||||
Net impairments (write-ups) | (258 | ) | (95 | ) | ||||
Net change in provisions | (80 | ) | 103 | |||||
Net change in the provision for employee benefits | (60 | ) | (12 | ) | ||||
Gain on disposal of assets, net | (26 | ) | (207 | ) | ||||
Dividend income | (26) | (131 | ) | (270 | ) | |||
Interest income | (301 | ) | (293 | ) | ||||
Interest expense | 197 | 377 | ||||||
Exchange differences | (68 | ) | (34 | ) | ||||
Income taxes | (27) | 4,673 | 5,482 | |||||
Cash generated from operating profit before changes in working capital | 12,381 | 16,156 | ||||||
(Increase) decrease: | ||||||||
- inventories | (158 | ) | (1,222 | ) | ||||
- trade and other receivables | 1,317 | 154 | ||||||
- other assets | 77 | (3 | ) | |||||
- trade and other payables | (158 | ) | (102 | ) | ||||
- other liabilities | (155 | ) | 23 | |||||
Cash from operations | 13,304 | 15,006 | ||||||
Dividends received | 307 | 409 | ||||||
Interest received | 209 | 166 | ||||||
Interest paid | (169 | ) | (308 | ) | ||||
Income taxes paid | (3,968 | ) | (5,323 | ) | ||||
Net cash provided by operating activities | 9,683 | 9,950 | ||||||
- of which with related parties | (30) | 667 | 1,110 | |||||
Investing activities: | ||||||||
- tangible assets | (5) | (3,353 | ) | (5,584 | ) | |||
- intangible assets | (6) | (904 | ) | (1,175 | ) | |||
- consolidated subsidiaries and businesses | (1,085 | ) | (1,717 | ) | ||||
- investments | (7) | (3,850 | ) | (232 | ) | |||
- securities | (71 | ) | (164 | ) | ||||
- financing receivables | (408 | ) | (2,393 | ) | ||||
- change in payables and receivables relating to investments and capitalized depreciation | 91 | 845 | ||||||
Cash flow from investing activities | (9,580 | ) | (10,420 | ) | ||||
Disposals: | ||||||||
- tangible assets | 145 | 41 | ||||||
- intangible assets | 13 | |||||||
- subsidiaries and businesses | 8 | |||||||
- investments | 10 | 432 | ||||||
- securities | 307 | 106 | ||||||
- financing receivables | 503 | 332 | ||||||
- change in payables and receivables in relation to disposals | 14 | 26 | ||||||
Cash flow from disposals | 1,000 | 937 | ||||||
Net cash used in investing activities (*) | (8,580 | ) | (9,483 | ) | ||||
- of which with related parties | (30) | (358 | ) | (826 | ) |
- 79 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
continued Consolidated statement of cash flows
(million euro) | Note | First Half 2007 | First Half 2008 | |||
Proceeds from long-term finance debt | 2,351 | 2,636 | ||||||
Repayments of long-term finance debt | (2,422 | ) | (3,332 | ) | ||||
Increase (decrease) in short-term debt finance debt | 4,705 | 2,806 | ||||||
4,634 | 2,110 | |||||||
Net capital contributions by minority shareholders | 1 | 10 | ||||||
Net repurchase of treasury shares different from Eni SpA | (337 | ) | (14 | ) | ||||
Dividends paid to Eni shareholders | (2,384 | ) | (2,551 | ) | ||||
Dividends paid to minority interest | (227 | ) | (224 | ) | ||||
Net repurchase of treasury shares | (319 | ) | (379 | ) | ||||
Net cash used in financing activities | 1,368 | (1,048 | ) | |||||
- of which with related parties | (30) | (17 | ) | 125 | ||||
Effect of changes in the consolidation area (inclusion/exclusion of significant/insignificant subsidiaries) | (4 | ) | ||||||
Currency translation differences relating to cash and cash equivalents | (84 | ) | (15 | ) | ||||
Net cash flow for the period | 2,383 | (596 | ) | |||||
Cash and cash equivalents - Beginning of the period | 3,985 | 2,114 | ||||||
Cash and cash equivalents - End of the period | 6,368 | 1,518 |
(*) | Net cash used in investing activities included investments in certain financial assets to absorb temporary surpluses of cash or as part of our ordinary management of financing activities. Due to their nature and liquidity, these financial assets are netted against finance debt in determining net borrowings. For the definition of net borrowings see the Financial Review section of this Interim Consolidated Report as of June 30, 2008. |
(million euro) | First Half 2007 | First Half 2008 | ||||
Financing investments: | ||||||||
- securities | (70 | ) | (3 | ) | ||||
- financing receivables | (36 | ) | (1,989 | ) | ||||
(106 | ) | (1,992 | ) | |||||
Disposal of financing investments: | ||||||||
- securities | 306 | 95 | ||||||
- financing receivables | 30 | 68 | ||||||
336 | 163 | |||||||
Net cash flows from financing activities | 230 | (1,829 | ) |
- 80 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / FINANCIAL STATEMENTS
SUPPLEMENTARY CASH FLOW DATA
(million euro) | First Half 2007 | First Half 2008 | ||||
Analysis of investments in companies which entered the consolidation area and lines of business | ||||||
Current assets | 106 | |||||
Non-current assets | 1,607 | 3,121 | ||||
Net borrowings | 102 | |||||
Current and non-current liabilities | (522 | ) | (909 | ) | ||
Net effect of investments | 1,085 | 2,420 | ||||
Fair value of investments held before the acquisition of control | (601 | ) | ||||
Purchase price | 1,085 | 1,819 | ||||
less: | ||||||
Cash and cash equivalents | (102 | ) | ||||
Cash flow on investments | 1,085 | 1,717 | ||||
Analysis of disinvestment in companies which exited the consolidation area and lines of business | ||||||
Non-current assets | 1 | |||||
Net borrowings | 24 | |||||
Current and non-current liabilities | (25 | ) | ||||
Net effect of disposals | 0 | |||||
Gain on disposal | 8 | |||||
Selling price | 8 | |||||
Cash flow on disposals | 8 |
- 81 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / BASIS OF PRESENTATION AND USE OF ACCOUNTING ESTIMATES
Basis of presentation
The Condensed Consolidated Interim Financial
Statements of Eni Group have been prepared in accordance with IAS
34 Interim Financial Reporting. This report includes
a complete set of financial statements and selected explanatory
notes. The Condensed Consolidated Interim Financial Statements
have been prepared in accordance with the same principles of
consolidation and evaluation criteria described in the Annual
Report 2007.
Income taxes were calculated based on the estimated taxable
profit. Tax payables and receivables were measured at the amount
expected to be paid to/recovered from tax authorities, applying
tax laws that have been enacted or substantively enacted at the
end of the period and using tax rates estimated on an annual
basis.
The Condensed Consolidated Interim Financial Statements at June
30, 2008, have been approved by Enis Board of Directors on
July 30, 2008 and a limited review has been carried out by the
independent auditor PricewaterhouseCoopers SpA (PwC). A limited
review is substantially less in scope than an audit performed in
accordance with generally accepted auditing standards
Use of accounting estimates
For a description of the accounting estimates used see the Annual
Report 2007.
- 82 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Notes to the
condensed consolidated financial statements
Current assets
1 Other financial assets held for trading or
available for sale
At December 31, 2007 and June 30, 2008, Eni did not own financial
assets held for trading. Other financial assets available for
sale are set out below:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Investments | 2,476 | 2,279 | ||||
Securities | ||||||
Securities held for operating purposes | 259 | 365 | ||||
Securities held for non-operating purposes | 174 | 114 | ||||
433 | 479 | |||||
2,909 | 2,758 |
Investments of euro 2,279 million (euro 2,476
million at December 31, 2007) included the carrying amount of a
20% interest in OAO Gazprom Neft, which is listed on the London
Stock Exchange and was 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 ownership
interest. This option is exercisable within 24 months starting on
the date of acquisition. If exercised, the price of the ownership
interest will be set at the acquisition price, 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 Neft investment was
carried at fair value and changes were reflected in the profit
and loss account rather than in a reserve of shareholders
equity so as 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 stock market, less the fair value of the
call option; this was the equivalent of the option strike price
at June 30, 2008.
Available-for-sale securities were euro 479 million (euro 433
million at December 31, 2007).
Changes in the fair value of available-for-sale financial assets
of euro 2 million net of the related taxes, were recognized in
net equity in Other reserves.
Securities held for operating purposes of euro 365 million (euro
259 million at December 31, 2007) included securities designated
to provide coverage of technical reserves of Enis insurance
companies for euro 356 million (euro 256 million at December 31,
2007).
2 Trade and other receivables
Trade and other receivables were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Trade receivables | 15,609 | 15,101 | ||||
Financing receivables: | ||||||
- for operating purposes - short-term | 357 | 389 | ||||
- for operating purposes - current portion of long-term receivables | 27 | 55 | ||||
- for non-operating purposes | 990 | 2,917 | ||||
1,374 | 3,361 | |||||
Other receivables: | ||||||
- from disposals | 125 | 93 | ||||
- other | 3,568 | 4,509 | ||||
3,693 | 4,602 | |||||
20,676 | 23,064 |
- 83 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Receivables were stated net of the allowance for impairment losses of euro 961 million (euro 935 million at December 31, 2007):
(million euro) | Value at Dec. 31, 2007 |
Additions |
Write-offs |
Other changes |
Value at June 30, 2008 |
|||||
Trade receivables | 595 | 36 | (21 | ) | (28 | ) | 582 | ||||||||
Other receivables | 340 | 44 | (1 | ) | (4 | ) | 379 | ||||||||
935 | 80 | (22 | ) | (32 | ) | 961 |
Receivables for financing operating activities of
euro 444 million (euro 384 million at December 31, 2007) included
euro 358 million due from unconsolidated entities controlled by
Eni, joint ventures and affiliates (euro 246 million at December
31, 2007) and a euro 41 million cash deposit to provide coverage
of Eni Insurance Ltd technical reserves (euro 112 million at
December 31, 2007).
Receivables for financing non-operating activities amounted to
euro 2,917 million (euro 990 million at December 31, 2007) of
which euro 2,755 million (euro 898 million at December 31, 2007)
related to a collateral cash deposit made by Eni SpA at Morgan
Stanley to guarantee certain cash flow hedging derivatives.
Further information on cash flow hedging derivatives is provided
in Note 14 Other current liabilities and 18
Other non-current liabilities.
Receivables with related parties are described in Note 30
Transactions with related parties.
3 Inventories
Inventories were as follows:
Dec. 31, 2007 |
June 30, 2008 |
|||
(million euro) |
Crude oil, natural gas and petroleum products |
Petrochemical products |
Work in progress |
Other |
Total |
Crude oil, natural gas and petroleum products |
Petrochemical products |
Work in progress |
Other |
Total |
||||||||||
Raw and auxiliary materials and consumables | 861 | 299 | 809 | 1,969 | 451 | 199 | 889 | 1,539 | ||||||||||||
Products being processed and semi finished products | 74 | 27 | 15 | 116 | 49 | 75 | 22 | 146 | ||||||||||||
Work in progress | 553 | 553 | 963 | 963 | ||||||||||||||||
Finished products and goods | 1,962 | 703 | 17 | 2,682 | 2,524 | 693 | 191 | 3,408 | ||||||||||||
Advances | 179 | 179 | 157 | 157 | ||||||||||||||||
2,897 | 1,029 | 732 | 841 | 5,499 | 3,024 | 967 | 1,120 | 1,102 | 6,213 |
Inventories were stated net of the valuation allowance of euro 73 million (euro 75 million at December 31, 2007).
(million euro) | Value at Dec. 31, 2007 |
Additions |
Deductions |
Other changes |
Value at June 30, 2008 |
|||||
75 | 7 | (8 | ) | (1 | ) | 73 |
- 84 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
4 Other current assets
Other assets were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Fair value of non-hedging derivatives | 629 | 1,110 | ||||
Fair value of cash flow hedging derivatives | 10 | 1 | ||||
Other assets | 441 | 421 | ||||
1,080 | 1,532 |
Fair values of non-hedging derivatives of euro 1,110 million (euro 629 million at December 31, 2007) consisted of derivative contracts that do not meet the formal criteria to be designated as hedges under IFRS because they were entered into in order to manage the net business exposures in foreign currency exchange rates, interest rates and commodity prices. Therefore, such derivatives were not related to specific trade or financing transactions.
Non-current assets
5 Property, plant and equipment
Analysis of tangible assets is set out below:
(million euro) | Carrying amount at Dec. 31, 2007 |
Accumulated amortization and impairment at Dec. 31, 2007 |
Net carrying amount at Dec. 31, 2007 |
Acquisitions | Amortizations | Impairments | Currency translation differences | Other changes | Net carrying amount at June 30, 2008 |
Carrying amount at June 30, 2008 |
Accumulated amortization and impairment at June 30, 2008 |
|||||||||||
Property, plant and equipment | 102,243 | 52,106 | 50,137 | 5,584 | (2,737) | (503) | (1,611) | 2,162 | 53,032 | 106,768 | 53,736 |
Acquisitions of euro 5,584 million were primarily
related to the Exploration & Production segment (euro 3,474
million), the Engineering & Construction segment (euro 972
million), the Gas & Power segment (euro 701 million) and the
Refining & Marketing segment (euro 348 million).
Impairments of euro 503 million were primarily related to proved
properties of the Exploration & Production segment (euro
181million), petrochemical plants (euro 172 million) and refining
facilities (euro 148 million). The recoverable amount used in
assessing the impairment charges was determined by discounting
the expected future cash flows before taxation at discount rates
ranging from 8% to 12.6% derived from the weighted average cost
of capital which took into account the sector-specific risk.
Other changes in the net book value of tangible assets (euro
2,162 million) were primarily due to the inclusion in the
consolidation area of Burren Energy Plc assets following the
acquisition of controlling interest by the Exploration &
Production segment (euro 2,544 million). This increase was
partially offset by: (i) the reclassification to assets held for
sale of Agip España SA and Agip Portugal Combustiveis SA assets
(euro 152 million); (ii) the initial recognition and changes in
the estimated decommissioning and restoration costs of euro 149
million related to the Exploration & Production segment; and
(iii) the disposal of tangible assets for euro 41 million.
Further information on the acquisition of Burren Energy Plc is
provided in Note 21 Other information.
- 85 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
6 Intangible assets
Intangible assets were as follows:
(million euro) | Carrying amount at Dec. 31, 2007 |
Accumulated amortization and impairment at Dec. 31, 2007 |
Net carrying amount at Dec. 31, 2007 |
Acquisitions | Amortizations | Other changes | Net carrying amount at June 30, 2008 |
Carrying amount at June 30, 2008 |
Accumulated amortization and impairment at June 30, 2008 |
|||||||||
Intangible assets with finite useful lives | 6,090 | 3,872 | 2,218 | 1,175 | (1,143 | ) | 222 | 2,472 | 6,486 | 4,014 | |||||||||
Intangible assets with indefinite useful lives: | |||||||||||||||||||
- goodwill | 2,115 | 210 | 2,325 | ||||||||||||||||
6,090 | 3,872 | 4,333 | 1,175 | (1,143 | ) | 432 | 4,797 | 6,486 | 4,014 |
Acquisitions of euro 1,175 million included
exploration expenditures of euro 907 million which were fully
amortized as incurred.
Other changes in intangible assets with finite useful lives of
euro 222 million were primarily related to the inclusion in the
consolidation area of Burren Energy Plc following the acquisition
of controlling interest by the Exploration & Production
segment (euro 302 million).
Other changes in intangible assets with indefinite useful lives
of euro 210 million were in respect to the recognition of
goodwill of euro 147 million related to the acquisition of Burren
Energy Plc.
Further information on the Burren Energy Plc transaction is
provided in Note 21 Other information.
7 Investments
Analysis of investments is set out below:
(million euro) | Value at Dec. 31, 2007 | Acquisitions and subscriptions | Share of profit (loss) of equity-accounted investments | Deduction for dividends | Other changes | Value at June 30, 2008 | ||||||
Equity-accounted investments | 5,639 | 58 | 411 | (282 | ) | (538 | ) | 5,288 | ||||||
Other investments | 472 | 174 | (50 | ) | 596 | |||||||||
6,111 | 232 | 411 | (282 | ) | (588 | ) | 5,884 |
Acquisitions and subscriptions for euro 174
million were primarily related to the subscription of other
investments for increase in share capital of Angola LNG Ltd (euro
171 million).
Share of profit of equity-accounted investments million primarily
related to Galp Energia SGPS SA (euro 154 million), Unión Fenosa
Gas SA (euro 104 million) and United Gas Derivatives Co (euro 47
million).
Deduction following the distribution of dividends of euro 282
million primarily related to Galp Energia SGPS SA (euro 46
million), United Gas Derivatives Co (euro 45 million) and Unión
Fenosa Gas SA (euro 37 million).
Other changes of euro 588 million were primarily related to: (i)
the consolidation of Burren Energy Plc, hence its exclusion from
the rest of equity-accounted investments, following the
acquisition of controlling interest by the Exploration &
Production segment (euro 592 million); (ii) the sale of
Gaztransport et Technigaz SAS (euro 125 million); and (iii) the
reclassification to assets held for sale of Fertilizantes
Nitrogenados de Oriente (euro 80 million). These changes were
partially offset by the inclusion within equity-accounted
investments of Hindustan Oil Exploration Co Ltd (euro 52 million)
with interests owned through entities controlled by Burren Energy
Plc.
- 86 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
8 Other financial assets
Other financing receivables were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Financing receivables: | ||||||
- for operating purposes | 677 | 707 | ||||
- for non-operating purposes | 225 | 209 | ||||
902 | 916 | |||||
Securities for operating purposes | 21 | 71 | ||||
923 | 987 |
Financing receivables were net of the allowance
for impairment losses of euro 25 million (euro 24 million at
December 31, 2007).
Operating financing receivables of euro 707 million (euro 677
million at December 31, 2007) primarily consisted of loans made
by the Exploration & Production segment (euro 536 million).
Non-operating financing receivables of euro 209 million (euro 225
million at June 30, 2007) consisted of a restricted deposit held
by Eni Lasmo Plc as a guarantee of a debenture.
Securities euro 71 million (euro 21 million at December 31, 2007)
were designated as held-to-maturity. The euro 50 million increase
was related to Banque Eni SA.
Receivables with related parties are described in Note 30
Transactions with related parties.
9 Deferred tax assets
Deferred tax assets were as follows:
(million euro) | Value at December 31, 2007 |
Net increases |
Currency translation differences |
Other changes |
Value at June 30, 2008 |
|||||
1,915 | 746 | (157 | ) | 555 | 3,059 |
Deferred tax assets of euro 3,059 million (euro
1,915 million at December 31, 2007) were recognized net of
offsettable deferred tax liabilities of euro 3,503 million (euro
3,526 million at December 31, 2007). The euro 746 million net
increase included the effects deriving from the application of
the Budget Law for 2008 which removed the limitations to the
recognition for fiscal purposes of carrying amounts of assets and
liabilities of controlled entities included in fiscal
consolidation by paying a special tax with a 6% rate (euro 229
million).
Other changes of euro 555 million were in respect of the tax
effect deriving from fair value valuation of cash flow hedging
derivatives (euro 547 million) recognized with a corresponding
entry in the relevant reserve within net equity.
Further information on cash flow hedging derivatives is provided
in Note 14 Other current liabilities and Note 18
Other non-current liabilities.
10 Other non-current assets
Other non-current assets were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Current tax assets | 894 | 843 | ||||
Receivables from disinvesting activities | 7 | 437 | ||||
Other receivables | 197 | 274 | ||||
Fair value on cash flow hedging derivatives | 5 | |||||
Other assets | 12 | 37 | ||||
1,110 | 1,596 |
The euro 430 million increase in receivables from disinvesting activities was primarily related to Eni Dación BV receivable from the Venezuelan Government as settlement for the 2006 expropriation of assets (euro 433 million). Under the terms of this agreement reached in February 2008, Eni will receive a cash compensation to be paid in seven annual installments, yielding interest income from the date of the settlement. At December 31, 2007 these assets were recorded in the balance sheet in Other assets.
- 87 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Current liabilities
11 Short-term debt
Short-term debt was as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Banks | 4,070 | 6,128 | ||||
Ordinary Bonds | 3,176 | 3,553 | ||||
Other financial institutions | 517 | 418 | ||||
7,763 | 10,099 |
Short-term debt increased by euro 2,336 million
primarily due to the balance of repayments and new proceeds (euro
2,742 million) partially offset by negative currency translation
differences (euro 403 million).
Ordinary bonds consisted of commercial paper of euro 3,553
million issued by the finance company Eni Coordination Center SA.
At June 30, 2008 within Eni financial framework, no unfulfilment
of terms and conditions or violation of agreements occurred.
12 Trade and other payables
Trade and other payables were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Trade payables | 11,092 | 10,563 | ||||
Prepayments | 1,483 | 1,897 | ||||
Payables from investing activities | 1,301 | 2,086 | ||||
Other payables | 3,240 | 3,808 | ||||
17,116 | 18,354 |
Payables with related parties are described in
Note 30 Transactions with related parties.
13 Income tax payables
Income tax payables were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Italian subsidiaries | 247 | 524 | ||||
Foreign entities | 1,441 | 1,680 | ||||
1,688 | 2,204 |
Income taxes of Italian subsidiaries were net of
tax benefit effect deriving from fair value valuation of cash
flow hedging derivatives (euro 1,083 million) recognized with a
corresponding entry in the relevant reserve within equity.
Further information on cash flow hedging derivatives is provided
in Note 14 Other current liabilities and Note 18
Other non-current liabilities.
14 Other current liabilities
Other current liabilities were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Fair value of cash flow hedging derivatives | 911 | 2,179 | ||||
Fair value of non-hedging derivatives | 412 | 861 | ||||
Other liabilities | 233 | 235 | ||||
1,556 | 3,275 |
The fair value of cash flow hedging derivatives amounted to euro 2,179 million of which euro 2,170 million (euro 911 million at December 31, 2007) was related to contracts expiring by June 2009 entered into by the Exploration & Production segment to hedge the variability of cash flows expected in the 2008-2011 period from the marketing of 125.7 mmbbl of Enis proved hydrocarbon reserves as at December 31, 2006 (102.7 mmbbl at June 30, 2008) 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 U.S. company Dominion Resources.
- 88 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Information on changes in fair value of the cash
flow hedging derivatives is provided in Note 20
Shareholders equity and Note 25 Finance
income (expense).
Information on the fair value recognition of contracts with a
maturity after June 30, 2009 is given in Note 18 Other
non-current liabilities.
Non-current liabilities
15 Long-term debt and current maturities of
long-term debt
Long-term debt including the current portion were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Long-term debt |
Current portion of long-term debt |
Total |
Long-term debt |
Current portion of long-term debt |
Total |
|||||||
Ordinary bonds | 5,123 | 263 | 5,386 | 5,087 | 471 | 5,558 | ||||||
Banks | 5,921 | 161 | 6,082 | 4,423 | 222 | 4,645 | ||||||
Other financial institutions | 286 | 313 | 599 | 956 | 65 | 1,021 | ||||||
11,330 | 737 | 12,067 | 10,466 | 758 | 11,224 |
Long-term debt, including the current portion of
long-term debt, decreased by euro 843 million to euro 11,224
million (euro 12,067 million at December 31, 2007). Such decrease
was due to the balance of payments and new proceeds of euro 696
million as well as the negative impact of foreign currency
translation differences and 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 175 million).
Eni entered into long-term borrowing facilities with the European
Investment Bank which were subordinated to the maintenance of
certain performance indicators based on Enis consolidated
financial statements or a rating not inferior to A- (S&P) and
A3 (Moodys). At December 31, 2007 and June 30, 2008, the
amount of short and long-term debt subject to restrictive
covenants was euro 1,429 million and euro 1,385 million,
respectively. In addition, Saipem SpA and Saipem SA entered into
certain borrowing facilities for euro 75 million and euro 18
million, respectively (euro 75 million and euro 34 million at
December 31, 2007), 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.
The following table analyzes bonds per issuing entity, maturity
date, interest rate and currency as at June 30, 2008:
Amount |
Discount on bond issue and accrued expense |
Total |
Currency |
Maturity |
Rate % |
|||||||
(million euro) | from |
to |
from |
to |
||||||||||||
Issuing entity | |||||||||||||||||
Euro Medium Term Notes: | |||||||||||||||||
- Eni SpA | 1,500 | 8 | 1,508 | Euro | 2013 | 4.625 | |||||||||||
- Eni SpA | 1,250 | 24 | 1,274 | Euro | 2017 | 4.750 | |||||||||||
- Eni Coordination Center SA | 630 | 3 | 633 | British pound | 2010 | 2019 | 4.875 | 5.125 | |||||||||
- Eni SpA | 500 | 1 | 501 | Euro | 2010 | 6.125 | |||||||||||
- Eni Coordination Center SA | 377 | 3 | 380 | Euro | 2008 | 2028 | 2.876 | 5.441 | |||||||||
- Eni Coordination Center SA | 306 | 2 | 308 | Japanese yen | 2008 | 2037 | 0.810 | 2.810 | |||||||||
- Eni Coordination Center SA | 267 | 6 | 273 | Euro | 2008 | 2015 | variable | ||||||||||
- Eni Coordination Center SA | 162 | 1 | 163 | US dollar | 2013 | 2015 | 4.450 | 4.800 | |||||||||
- Eni Coordination Center SA | 31 | 31 | Swiss franc | 2010 | 2.043 | ||||||||||||
- Eni Coordination Center SA | 29 | (1 | ) | 28 | US dollar | 2013 | variable | ||||||||||
5,052 | 47 | 5,099 | |||||||||||||||
Other bonds: | |||||||||||||||||
- Eni USA Inc | 254 | 2 | 256 | US dollar | 2027 | 7.300 | |||||||||||
- Eni Lasmo Plc (*) | 189 | (7 | ) | 182 | British pound | 2009 | 10.375 | ||||||||||
- Eni UK Holding Plc | 21 | 21 | British pound | 2013 | variable | ||||||||||||
464 | (5 | ) | 459 | ||||||||||||||
5,516 | 42 | 5,558 |
(*) | The bond is guaranteed by a bank fixed deposit recorded in non-current financial assets (euro 209 million). |
- 89 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Bonds maturing within 18 months (euro 468
million) were issued by Eni Coordination Center SA for euro 286
million and by Eni Lasmo Plc for euro 182 million. During the
first half of 2008, Eni SpA, Eni Coordination Center SA and Eni
UK Holding Plc issued bonds for a total amount of euro 405
million (euro 253 million, euro 131 million and euro 21 million,
respectively).
Net borrowings as indicated in the Financial Review section of
this Interim Consolidated Report as of June 30, 2008, were
analyzed as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Current |
Non-current |
Total |
Current |
Non-current |
Total |
|||||||
A. Cash and cash equivalents | 2,114 | 2,114 | 1,518 | 1,518 | ||||||||
B. Available-for-sale securities | 174 | 174 | 114 | 114 | ||||||||
C. Liquidity (A+B) | 2,288 | 2,288 | 1,632 | 1,632 | ||||||||
D. Financing receivables | 990 | 225 | 1,215 | 2,917 | 209 | 3,126 | ||||||
E. Short-term bank debt | 4,070 | 4,070 | 6,128 | 6,128 | ||||||||
F. Long-term bank debt | 161 | 5,921 | 6,082 | 222 | 4,423 | 4,645 | ||||||
G. Bonds | 263 | 5,123 | 5,386 | 471 | 5,087 | 5,558 | ||||||
H. Short-term related party debt | 131 | 131 | 252 | 252 | ||||||||
I. Long-term related party debt | 16 | 16 | 15 | 15 | ||||||||
L. Other short-term debt | 3,562 | 3,562 | 3,719 | 3,719 | ||||||||
M. Other long-term debt | 313 | 270 | 583 | 65 | 941 | 1,006 | ||||||
N. Total borrowings (E+F+G+H+I+L+M) | 8,500 | 11,330 | 19,830 | 10,857 | 10,466 | 21,323 | ||||||
O. Net borrowings (N-C-D) | 5,222 | 11,105 | 16,327 | 6,308 | 10,257 | 16,565 |
16 Provisions
Provisions were as follows:
(million euro) | Value at Dec. 31, 2007 | Increases | Changes in estimates | Discounting | Utilization | Write-back of unused provision | Other changes | Value at June 30, 2008 | ||||||||
Provision for decommissioning | 3,974 | (147 | ) | 99 | (37 | ) | (6 | ) | (119 | ) | 3,764 | |||||||||||||
Provision for environmental risks | 1,858 | 69 | 11 | (191 | ) | (2 | ) | 92 | 1,837 | |||||||||||||||
Provision for contract penalties and litigations | 716 | 21 | (25 | ) | (14 | ) | 8 | 706 | ||||||||||||||||
Reserve for losses and loss expenses for Enis insurance companies | 418 | 1 | (1 | ) | 7 | 425 | ||||||||||||||||||
Provision for taxes | 213 | (6 | ) | 207 | ||||||||||||||||||||
Provision for investment losses | 163 | 2 | (3 | ) | (33 | ) | 129 | |||||||||||||||||
Provision for restructuring assets disposal | 130 | (114 | ) | 16 | ||||||||||||||||||||
Provision for OIL insurance | 80 | (13 | ) | (7 | ) | (3 | ) | 57 | ||||||||||||||||
Provision for prize contests | 65 | 39 | (27 | ) | 77 | |||||||||||||||||||
Provision for onerous contracts | 50 | 17 | (29 | ) | 2 | 40 | ||||||||||||||||||
Other (*) | 819 | 282 | 5 | (38 | ) | (52 | ) | 22 | 1,038 | |||||||||||||||
8,486 | 431 | (147 | ) | 115 | (360 | ) | (85 | ) | (144 | ) | 8,296 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
Other changes of euro 144 million included negative exchange differences for euro 137 million.
- 90 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
17 Deferred tax liabilities
Deferred tax liabilities were recognized net of offsettable
deferred tax assets for euro 3,503 million (euro 3,526 million at
December 31, 2007).
(million euro) | Value at Dec. 31, 2007 |
Net utilizations |
Currency translation differences |
Other changes |
Value at June 30, 2008 |
|||||
Deferred tax liabilities | 5,471 | (814 | ) | (379 | ) | 696 | 4,974 |
Net utilizations of euro 814 million included tax
benefits derived from the application of provisions of Law Decree
No. 112 of June 25, 2008 and the enactment of a renewed tax
framework in Libya of May 2007 regarding oil companies operating
in production sharing schemes. In particular: (i) the utilization
of deferred taxes recognized by energy companies1 on
the difference between inventories of hydrocarbons carried at the
weighted-average cost and carrying amount determined for tax
purposes by applying the previous LIFO method valuation (euro 877
million); (ii) the review of the tax base of the Libyan
companys assets and the partial excess of cumulative
deferred taxes (euro 173 million).
Other changes of euro 696 million referred for euro 769 million
to the acquisition of Burren Energy Plc by the Exploration &
Production segment.
18 Other non-current liabilities
Other non-current liabilities were as follows:
(million euro) | Dec. 31, 2007 |
June 30, 2008 |
||
Fair value of cash flow hedging derivatives | 1,340 | 2,754 | ||||
Current income tax liabilities | 215 | 379 | ||||
Liabilities related to capital expenditures | 22 | |||||
Other payables | 295 | 49 | ||||
Other liabilities | 159 | 330 | ||||
2,031 | 3,512 |
The fair value of cash flow hedging derivatives
of euro 2,754 million (euro 1,340 million at December 31, 2007)
was related to contracts expiring after June 2009 entered into by
the Exploration & Production segment to hedge the variability
of cash flows expected in the 2008-2011 period from the marketing
of 125.7 mmbbl of Enis proved hydrocarbon reserves as at
December 31, 2006 (102.7 mmbbl at June 30, 2008) 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 U.S.
company Dominion Resources.
Information on changes in the fair value of cash flow hedging
derivatives is provided in Note 20 Shareholders
equity and Note 25 Finance income (expense).
_______________
(1) | Companies whose primary activity is the production and trade of hydrocarbons and electricity, and whose sales exceed euro 25 million. |
- 91 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
19 Assets held for sale and
liabilities directly associated to assets held for sale
Non-current assets held for sale and liabilities directly
associated with non-current assets held for sale of euro 900 and
euro 314 million, respectively, were related to the disposal of
Padana Assicurazioni SpA, Agip España SA and Agip Portugal
Combustiveis SA both operating in the distribution of refined
products and the interest in Fertilizantes Nitrogenados de
Oriente specialized in the production of fertilizers.
20 Shareholders equity
Enis net equity
Enis net equity was as follows:
(million euro) | Value at Dec. 31, 2007 |
Value at June 30, 2008 |
||
Share capital | 4,005 | 4,005 | ||||
Legal reserve | 959 | 959 | ||||
Reserve for treasury shares | 7,207 | 7,198 | ||||
Cumulative currency translation differences | (2,233 | ) | (3,453 | ) | ||
Other reserves | (914 | ) | (2,619 | ) | ||
Retained earnings | 29,591 | 34,737 | ||||
Treasury shares | (5,999 | ) | (6,378 | ) | ||
Interim dividend | (2,199 | ) | ||||
Net profit of the period | 10,011 | 6,758 | ||||
40,428 | 41,207 |
Share capital
At June 30, 2008 the parent companys issued share capital
consisted of 4,005,358,876 fully paid-up shares (nominal value
euro 1 each) (same amount at December 31, 2007).
On April 29, 2008 Enis Shareholders Meeting announced
a dividend distribution of euro 0.70 per share, with the
exclusion of treasury shares held at the ex-dividend date, in
settlement of the 2007 interim dividend of euro 0.60 per share.
The balance was payable on May 22, 2008 to shareholders on the
register on May 19, 2008.
Other reserves
Other reserves of negative amount of euro 2,619 million (euro 914
million at December 31, 2007) were as follows:
- 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, 2007).
- A reserve of euro 186 million (euro 181 million at December 31,
2007) deriving from Eni SpAs equity.
- A reserve of negative amount of euro 3,052 million (euro 1,342
million at December 31, 2007) net of the related taxes, for the
valuation at fair value of available-for-sale securities and cash
flow hedging derivatives.
- 92 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
The valuation at fair value of available-for-sale securities and cash flow hedging derivatives, net of the related tax, consisted of the following:
Available-for-sale securities |
Cash flow hedging derivatives |
Total |
||||
(million euro) | Reserve |
Tax effect |
Net reserve |
Reserve | Tax effect | Net reserve |
Reserve |
Tax effect |
Net reserve |
|||||||||
Reserve at Dec. 31, 2007 | 2 | 2 | (2,185 | ) | 841 | (1,344 | ) | (2,183 | ) | 841 | (1,342 | ) | |||||||||||||||
Changes of the period | 2 | 2 | (3,423 | ) | 1,352 | (2,071 | ) | (3,421 | ) | 1,352 | (2,069 | ) | |||||||||||||||
Currency translation differences | 76 | (37 | ) | 39 | 76 | (37 | ) | 39 | |||||||||||||||||||
Recognition in profit and loss account | 533 | (213 | ) | 320 | 533 | (213 | ) | 320 | |||||||||||||||||||
Reserve at June 30, 2008 | 4 | 4 | (4,999 | ) | 1,943 | (3,056 | ) | (4,995 | ) | 1,943 | (3,052 | ) |
21 Other information
Acquisition of Burren Energy Plc
On January 11, 2008, following a non-hostile takeover by means of
a cash offer, Eni acquired control over the British oil company
Burren Energy Plc (Burren). Burren held producing assets in
Turkmenistan and Congo, and exploratory licenses in Egypt, Yemen
and India. Total consideration for this transaction of euro 2,358
million, of which euro 14 million related to additional costs
directly attributable to the combination, has been allocated to
Burrens identifiable acquired assets and liabilities on a
preliminary basis because of the significant amount of time
required for a more precise valuation. The pre-acquisition values
determined in accordance with IFRS, as well as the amounts
following the allocation of the price to Burren Energy Plc assets
and liabilities, are indicated below:
(million euro) | Pre-acquisition |
Post-acquisition |
||
Current assets | 221 | 192 | ||||
Property, plant and equipment | 457 | 2,544 | ||||
Intangible assets | 47 | 302 | ||||
Goodwill | 147 | |||||
Investments | 27 | 52 | ||||
Assets acquired | 752 | 3,237 | ||||
Current liabilities | 63 | 100 | ||||
Deferred tax liabilities | 36 | 769 | ||||
Provisions | 1 | 10 | ||||
Liabilities acquired | 100 | 879 | ||||
Net equity acquired | 652 | 2,358 |
- 93 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
22 Guarantees, commitments and
risks
Commitments and risks
Acquisition of Distrigaz SA
On May 29, 2008, upon finalization of an auction procedure
in which virtually all the major European gas operators took
part, Eni entered into a binding agreement with the French
company Suez-Tractebel to buy its 57.243% majority stake in
Distrigaz SA, listed on Euronext, for an initial price of euro
2.74 billion. The deal values Distrigaz at euro 4.8 billion.
In 2007, Distrigaz, Belgiums main gas company, sold 17 bcm
of gas volumes to Belgian businesses, resellers and utilities as
well as other European markets. Distrigazs long-term gas
supply contracts with Norway, the Netherlands and Qatar were
responsible for approximately 90% of its annual sales . The deal
is expected to be finalized by the end of 2008, as soon as
authorization from the European Commission is granted and other
conditions are met, such as the waiver by Publigaz SCRL, the
municipal holding company, of its pre-emption right over the
transfer of shares from Suez to Eni. Currently Publigaz owns
31.254% of the share capital of Distrigaz.
Following the closing of the deal, Eni will launch a mandatory
cash offer on remaining Distrigaz shares. On July 30, 2008, Eni
and Publigaz signed a shareholders agreement for the
corporate governance of Distrigaz which gives Publigaz a put
option for the sale
of its part of interest to Eni. Publigaz has concurrently waived
its pre-emption rights on the 57.243% stake of the share capital
of Distrigaz SA being sold.
Furthermore, Eni signed a preliminary agreement with Suez to
dispose of certain assets in a move to optimize its asset
portfolio. Enis consideration assets include: (i)
Enis 5,300-kilometers network of low-pressure pipelines
serving the consumer area of Rome; (ii) interests in some of
Enis exploration and production properties. Also the two
partners are negotiating certain long-term supply contracts
whereby Eni will supply Distrigaz with: (i) volumes of
electricity up to a maximum of 1.1 GW of generation capacity for
20 years; (ii) volumes of gas to be delivered in Italy and
outside of Italy up to a 20-year period and an option for
Distrigaz to purchase LNG volumes equivalent to 0.9 bcm to be
delivered to the Gulf of Mexico for 20 years.
Managing companys risks
The main risks that the Company is facing and actively
monitoring and managing are described in the Risk factors
and outlook section of this Interim Consolidated Report as
of June 30, 2008.
Legal Proceedings
Eni is a party to a number of civil actions and administrative
arbitral and other judicial proceedings arising in the ordinary
course of business. Based on information available to date, and
taking into account the existing risk provisions, Eni believes
that the foregoing will not have an adverse effect on Enis
Consolidated Financial Statements. The following is a description
of the most significant proceedings currently pending. Unless
otherwise indicated below, no provisions have been made for these
legal proceedings as Eni believes that negative outcomes are not
probable or because the amount of the provision cannot be
estimated reliably.
1. Environment
1.1 Criminal proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
Criminal action commenced by the public prosecutor of Brindisi. In
2000, the public prosecutor of Brindisi commenced a criminal
action against 68 persons who are employees or former employees
of companies that owned and managed plants for the manufacture of
dichloroethane, vinyl chloride monomer and vinyl polychloride
from the early 1960s to date, some of which were managed by
EniChem from 1983 to 1993. At the end of the preliminary
investigation the public prosecutor asked for the dismissal of
the case in respect of the employees and the managers of EniChem.
Plaintiffs presented oppositions, but the prosecutor confirmed
the request to dismiss the case. With a decision of June 2008,
the public prosecutor dismissed the accusations as unfounded and
requested the closing of the proceeding.
1.2 Civil and administrative proceedings
SYNDIAL SPA (FORMER ENICHEM SPA)
(i) Alleged pollution caused by the activity of the Mantova
plant. In 1992, the Ministry of Environment summoned
EniChem SpA (now Syndial SpA) and Edison SpA before the Court of
Brescia. The Ministry requested, primarily, environmental
remediation for the alleged pollution caused by the activity of
the Mantova plant from 1976 until 1990, and provisionally, in
case there was no possibility to remediate, the payment of
environmental damages. Edison agreed on a settlement with the
Ministry whereby Edison quantified compensation for environmental
damage freeing from any obligation Syndial, which purchased the
plant in 1989. Syndial failed to settle this dispute with the
Ministry. The proceeding is still pending.
- 94 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
(ii) Claim of environmental damages,
allegedly caused by industrial activities in the area of Crotone,
commenced by the President of the Regional Council of Calabria. On
April 14, 2003, the President of the Regional Council of
Calabria, as Delegated Commissioner for Environmental Emergency
in the Calabria Region, commenced an action against EniChem SpA
(now Syndial SpA) with reference to environmental damages for
approximately euro 129 million and damages for euro 250 million
(plus interest and compensation) in connection with loss of
income and damage to property allegedly caused by Pertusola Sud
SpA activities (merged into EniChem) in the area of Crotone. In
addition, the Province of Crotone is acting as plaintiff,
claiming environmental damages for euro 300 million. With a
decision in May 2007, the Court of Milan declared the invalidity
of the power of proxy conferred to the Delegated Commissioner to
act on behalf of the Calabria Region with the notice served to
Syndial SpA and decided the liquidation of expenses born by the
defendant. The Province of Crotone appealed this decision. The
second instance court accepted this appeal and Syndial repealed
this determination. On October 21, 2004, Syndial was convened
before the Court of Milan by the Calabria Region which is seeking
to obtain a condemnation of Syndial for a damage payment, should
the office of the Delegated Commissioner for Environmental
Emergency in the Calabria Region cease during this proceeding.
The Calabria Region requested a damage payment amounting to euro
800 million as already requested by the Delegated Commissioner
for the environmental emergency in the Calabria Region in the
proceeding commenced in 2003. This new proceeding is in the
preliminary investigation stage. This proceeding was unified with
the one opened by the Ministry of the Environment. In 2006, the
Council of Ministers, Ministry for the Environment and Delegated
Commissioner for the Environmental Emergency in the Calabria
Region represented by the State Lawyer requested Syndial to
appear before the Court of Milan to obtain the ascertainment,
quantification and payment of damage (in the form of land, air
and water pollution and therefore of the general condition of the
population) caused by the operations of Pertusola Sud SpA in the
Municipality of Crotone and in surrounding municipalities. The
local authorities requested the ascertainment of Syndials
responsibility as concerns expenses borne and to be borne for the
cleanup and reclamation of sites, currently quantified at euro
129 million. This proceeding concerns the same matter and damage
claim as the proceedings commenced by the Delegated Commissioner
for Environmental Emergency in the Calabria Region and the
Calabria Region against Syndial in 2003 and 2004, respectively.
(iii) Summon for alleged environmental damage caused by
DDT pollution in the Lake Maggiore. In May 2003 the
Italian Ministry of the Environment sued Enis subsidiary
Syndial SpA (former EniChem) for environmental damages allegedly
caused when EniChem managed the facilities at Pieve Vergonte
from1990-1996.
With a temporarily executive Decision No. 4991/2008 dated July 3,
2008 and filed on July 8, 2008 the District Court of Turin
ordered Syndial to pay the Italian Ministry of the Environment
the sum of euro 1,833.5 million for the claim, plus legal
interests that accrue from the filing of the decision. Syndial
and its technical-legal consultants consider the decision and the
amount of the compensation to be without factual and legal basis
and concluded that a negative outcome of this proceeding is
unlikely. In addition the sentence has been considered to lack
sufficient elements to quantify the liability that Syndial should
recognize in the case of an unfavorable outcome. Specifically,
the Courts Decision did not gave consideration to the fact
that Eni took over responsibility for this plant pursuant to a
State law and that the Company could not be held responsible for
previous running of the plant that started operations several
years before the Company took over. Additionally, the Company
considers that the preliminary investigation has failed to
demonstrate that the plants operations were not in
compliance with applicable laws and regulations. Based on this
technical-legal advice, in concert with external consultants on
the matter of accounting principles engaged by Syndial SpA and
Eni, no loss provision has been made for this proceeding. Syndial
will appeal against the ruling on Pieve Vergonte site of the
District Court of Turin as soon as possible.
The Italian Ministry for environment enacted a ministerial decree
providing for: (i) the upgrading of a hydraulic barrier to
protect the site; and (ii) the presentation of a project for the
environmental remediation of Lake Maggiore. The Administrative
Court of Piemonte rejected Syndials opposition against the
outlined environmental measures requested by the Ministry of the
Environment. However, the Court judged the prescriptions of the
Ministry regarding the remediation of the site to be considered
plain findings of an environmental enquiry to ascertain the state
of the lake. Syndial has filed an appeal against the decision of
the Court before an upper degree body, also requesting suspension
of the effectiveness of the decision.
(iv) Action commenced by the Municipality of Carrara for
the remediation and reestablishment of previous environmental
conditions at the Avenza site and payment of the environmental
damage. The Municipality of Carrara commenced an action
before the Court of Genova requesting Syndial SpA to remediate
and restore previous environmental conditions at the Avenza site
and the payment of certain environmental damage which cannot be
cleaned up as well as further damages of various types (e.g.
damage to the natural beauty of this site). This request is
related to an accident that occurred in 1984, as a consequence of
which EniChem Agricoltura SpA (later merged into Syndial SpA), at
the time owner of the site, carried out safety and remediation
works. The Ministry of the Environment joined the action and
requested
- 95 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
environmental damage payment from a
minimum of euro 53.5 million to a maximum of euro 93.3 million
to be broken down among the various companies that ran the
plant in the past. Syndial summoned Rumianca SpA, Sir Finanziaria
SpA and Sogemo SpA, who ran the plant in previous years, in order
to be guaranteed. A report produced by an independent expert
charged by the Judge was filed with the Court. The findings of
this report quantify the residual environmental damage at euro 15
million. With a decision of March 2008 the Court of Genova
rejected all claims made by the Municipality of Carrara and the
Ministry for the Environment. Both parties filed an appeal
against this decision in June 2008.
(v) Ministry for the Environment Augusta harbor.
The Italian Ministry for the Environment with various
administrative acts ordered companies running plants in the
petrochemical site of Priolo to perform safety and environmental
remediation works in the Augusta harbor. Companies involved
include Eni subsidiaries Polimeri Europa and Syndial. Pollution
has been detected in this area primarily due to a high mercury
concentration which is allegedly attributed to the industrial
activity of the Priolo petrochemical site. Polimeri Europa
opposed said administrative actions, objecting in particular to
the way in which remediation works have been designed and
information on concentration of pollutants has been gathered. The
Regional Administrative Court of Catania with its decision of
July 2007 annulled the decision made by the Service Conference of
the Ministry of the Environment concerning Priolo and the Augusta
harbor. The Ministry and the municipalities of Augusta and
Melilli filed a claim with an Administrative Court of the Sicilia
Region which accepted the claim. In January 2008 the Regional
Court of Catania accepted two further claims on this matter,
while the decision of the Administrative Court of Lazio is still
pending. In June 2008 the Ministry for the Environment and the
Municipalities of Melilli and Augusta filed and appeal with the
Regional Administrative Council. The parties are waiting for the
date of the hearing. The proceedings are still pending before the
Administrative Court of Lazio.
2. Antitrust, EU Proceedings, Actions of the Authority
for Electricity and Gas and of Other Regulatory Authorities
2.1 Regulation
(i) 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 installments. With Decision
No. 228/2007, the Italian Authority for Electricity and Gas
commenced a formal inquiry regarding information to clients about
the right to pay amounts due for the natural gas sales in
installments in order to possibly impose put a stop to the
alleged infringement of the clients rights and to impose a
fine. In April 2008, the Authority concluded its inquiry and
fined the Company by euro 3.2 million.
(ii) Toscana Energia Clienti. Enis
subsidiary Toscana Energia Clienti started an action against a
customer regarding alleged lack of measurement of gas consumption
due to inability to access a measurement facility at the
customers site, also in connection with the application of
Resolution No. 229/2001 of the Italian Authority for Electricity
and Gas. This customer has annual consumption in excess of 5,000
cm. The defendant also acted against the Enis subsidiary.
This proceeding is in a preliminary stage.
3. Court Inquiries
Trading. An investigation is pending regarding two
former Eni managers who were allegedly bribed by third parties to
favor the closing of certain transactions with two oil product
trading companies. Within such investigation, on March 10, 2005,
the public prosecutor of Rome notified Eni of two judicial
measures for the seizure of documentation concerning Enis
transactions with the said companies. Eni is acting as plaintiff
in this proceeding. Due to the lack of evidence supporting this
charge in a trial, the public prosecutor filed a request for
dismissing this proceeding. The judge for preliminary hearings
rejected most of the dismissal request, requiring the public
prosecutor to continue with the criminal case.
Settled Proceedings
Alleged intentional poisoning (Priolo). In March 2002,
the public prosecutor of Siracusa commenced an investigation
concerning the activity of the refinery of Priolo to ascertain
whether infiltrations of refinery products into the deep
water-bearing stratum used for human consumption purposes in the
Priolo area had occurred. The Court appointed an independent
consultant to check the origin, causes and extension of the
alleged infiltrations. For mere caution the following actions
have been almost completed: (i) reclaiming and securitization of
the whole area; (ii) relocation of the wells producing drinking
water in areas farther uphill from the polluted area; (iii)
installation of a system for water purification.
In September 2007, the judge for the preliminary investigation
filed a request to dismiss this proceeding.
- 96 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
23 Revenues
The following is a summary of the main components of
Revenues. For more information about changes in
revenues and the seasonality of sales, see the Operating and
Financial Review and Prospects section of this Interim
Consolidated Report as June 30, 2008.
Net sales from operations were as follows:
(million euro) | First Half 2007 |
First Half 2008 |
||
Net sales from operations | 41,363 | 54,968 | ||||
Change in contract work in progress | 325 | 454 | ||||
41,688 | 55,422 |
Net sales from operations were net of the following items:
(million euro) | First Half 2007 |
First Half 2008 |
||
Excise taxes | 6,407 | 6,531 | ||||
Exchanges of oil sales (excluding excise taxes) | 1,246 | 1,407 | ||||
Services billed to joint venture partners | 664 | 939 | ||||
Sales to service station managers for sales billed to holders of credit card | 713 | 874 | ||||
Exchanges of other products | 56 | 44 | ||||
9,086 | 9,795 |
Net sales from operations by business segment are presented in Note 29 Information by business segment.
24 Operating expenses
The following is a summary of the main components of
Operating expenses. For more information about
changes in operating expenses, see the Operating and
Financial Review and Prospects section of this Interim
Consolidated Report as of June 30, 2008.
Purchases, services and other
Purchases, services and other miscellaneous operating
expenses included the following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Production costs - raw, ancillary and consumable materials and goods | 20,998 | 29,462 | ||||
Production costs - services | 5,406 | 6,589 | ||||
Operating leases and other | 1,034 | 1,080 | ||||
Net provision for contingencies | 281 | 353 | ||||
Other expenses | 546 | 564 | ||||
28,265 | 38,048 | |||||
less: | ||||||
- capitalized costs directly associated with self-constructed assets | (538 | ) | (482 | ) | ||
27,727 | 37,566 |
Production costs for services included brokerage
fees for euro 19 million (euro 12 million in the first half of
2007).
Increases in provisions, net of reversals of unused provisions,
were primarily made with respect to environmental liability risks
for euro 67 million (euro 114 million in the first half of 2007)
and contract penalties and litigations for euro 7 million (euro
91 million in the first half of 2007). More information is
provided in Note 16 Provisions.
Payroll and related costs
Payroll and related costs were as follows:
(million euro) | First Half 2007 |
First Half 2008 |
||
Payroll | 1,875 | 2,101 | ||||
less: | ||||||
- capitalized costs directly associated with self-constructed assets | (98 | ) | (129 | ) | ||
1,777 | 1,972 |
- 97 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Stock-based compensation
Stock-based compensation plans are designed to motivate and
retain Enis managers. No significant changes were made to
these plans as they were described in the Consolidated Financial
Statements at December 31, 2007. At June 30, 2008 Eni SpA did not
approve new stock grant and stock option plans for Eni managers.
Average number of employees
The average number and break-down of employees by category of
Enis subsidiaries were as follows:
(number) | First Half 2007 |
First Half 2008 |
||
Senior managers | 1,587 | 1,597 | ||||
Junior managers | 11,675 | 12,334 | ||||
Employees | 35,786 | 36,472 | ||||
Workers | 25,659 | 25,708 | ||||
74,707 | 76,111 |
The average number of employees was calculated as
the median between the number of employees at the beginning and
end of the period. The average number of senior managers included
managers employed and operating in foreign countries, whose
position is comparable to a senior manager status.
Depreciation, depletion, amortization and impairment
Depreciation, depletion, amortization and impairment are
detailed below:
(million euro) | First Half 2007 |
First Half 2008 |
||
Depreciation, depletion and amortization | 3,270 | 3,880 | ||||
Impairment | 37 | 511 | ||||
less: | ||||||
- capitalized direct costs associated with self-constructed assets | (1 | ) | (2 | ) | ||
3,306 | 4,389 |
25 Financial income (expense)
Finance income (expense) consisted of the following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Finance income (expense) | ||||||
Finance income | 1,280 | 2,539 | ||||
Finance expense | (1,288 | ) | (2,753 | ) | ||
(8 | ) | (214 | ) | |||
Derivative financial instruments | 33 | 153 | ||||
25 | (61 | ) |
- 98 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Analysis of net finance income (expense) was as follows:
(million euro) | First Half 2007 |
First Half 2008 |
||
Finance income (expense) related to net borrowings | ||||||
Interest and other expense due to banks and other financial institutions | (186 | ) | (331 | ) | ||
Interest and other expense on debentures | (127 | ) | (133 | ) | ||
Interest from banks | 149 | 36 | ||||
Interest and other income on financing receivables and securities held for non-operating purposes | 11 | 27 | ||||
(153 | ) | (401 | ) | |||
Positive (negative) exchange differences | ||||||
Positive exchange differences | 926 | 2,235 | ||||
Negative exchange differences | (951 | ) | (2,245 | ) | ||
(25 | ) | (10 | ) | |||
Other finance income (expense) | ||||||
Income from equity instruments | 62 | 118 | ||||
Finance expense capitalized | 68 | 101 | ||||
Interest and other income on financing receivables and securities held for operating purposes | 70 | 36 | ||||
Interest on tax credits | 10 | 18 | ||||
Finance expense due to passage of time (a) | (92 | ) | (115 | ) | ||
Other finance income | 52 | 39 | ||||
170 | 197 | |||||
(8 | ) | (214 | ) |
(a) | The item was related to the increase in provisions recognized at present value in non-current liabilities. |
Income from equity instruments of euro 118
million (euro 62 million in the first half of 2007) regarded the
valuation at fair value
of the 20% interest in OAO Gazprom Neft, the related call option
granted by Eni to Gazprom and the recognition of the dividend
announced in the period (more information is included in Note 1
Other financial assets held for trading or available for
sale).
Derivative financial instruments consisted of the following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Derivatives on interest rate | (28 | ) | 78 | |||
Derivatives on commodities | (24 | ) | 67 | |||
Derivatives on exchange rate | 85 | 8 | ||||
33 | 153 |
Net gain from derivatives of euro 153 million
(euro 33 million in the first half of 2007) was primarily due to
the recognition in the profit and loss account of the change in
the fair value of those derivatives which cannot be qualified as
hedging instruments under IFRS as they were entered into for
amounts equal to the net exposure to exchange rate risk, interest
rate risk or commodity risk, and as such, they cannot be referred
to specific trade or financing transactions. The lack of these
formal requirements to qualify these derivatives as hedging
instruments under IFRS also entailed the recognition in profit or
loss of negative currency translation differences on assets and
liabilities denominated in currencies other than functional
currency, as this effect cannot be offset by changes in the fair
value of the related instruments.
Gains on commodity derivatives of euro 67 million included euro
132 million related to the ineffective portion of the positive
change in the fair value of cash flow hedging derivatives (time
value component) entered into by the Exploration & Production
segment to hedge the variability of cash flows expected in the
2008-2011 period from the marketing of 125.7 mmbbl of Enis
proved hydrocarbon reserves as at December 31, 2006 (102.7 mmbbl
at June 30, 2008) 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 U.S. company Dominion Resources.
- 99 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
26 Income from investments
Share of profit (loss) of equity-accounted investments
Share of profit (loss) of equity-accounted investments consisted
of the following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Share of profit of equity-accounted investments | 454 | 510 | ||||
Share of loss of equity-accounted investments | (96 | ) | (99 | ) | ||
Increases in the provision for investment losses | (10 | ) | ||||
348 | 411 |
More information is provided in Note 7
Equity-accounted investments.
Other gain (loss) from investments
Other gain (loss) from investments consisted of the
following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Dividends | 131 | 270 | ||||
Gains on disposal | 11 | 187 | ||||
Other net income | 1 | 1 | ||||
143 | 458 |
Dividends of euro 270 million were mainly related
to Nigeria LNG Ltd (euro 231 million).
Gains on disposal of euro 187 million were primarily related to
the sale of Gaztransport et Technigaz SAS of the Engineering
& Construction segment (euro 185 million).
27 Income taxes
Income tax expense consisted of the following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Current taxes: | ||||||
- Italian subsidiaries | 1,147 | 1,588 | ||||
- foreign subsidiaries | 3,213 | 5,454 | ||||
4,360 | 7,042 | |||||
Net deferred taxes: | ||||||
- Italian subsidiaries | 108 | (1,182 | ) | |||
- foreign subsidiaries | 205 | (378 | ) | |||
313 | (1,560 | ) | ||||
4,673 | 5,482 |
The effective tax rate was 43.1% (47.5% in the first half of 2007) compared with a statutory tax rate of 37.3% (37.9% in the first half of 2007). This was calculated by applying a 33%2 tax rate (IRES) to profit before income taxes and a 3.9% tax rate (IRAP) to the net value of production as imposed by Italian legislation.
_______________
(2) | Included a 5.5% supplemental tax rate on taxable profits of energy companies (whose primary activity is the production and trade of hydrocarbons and electricity, and whose sales exceed euro 25 million) effective January 1, 2008 pursuant to Law Decree No. 112/2008. |
- 100 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
The difference between the statutory and effective tax rate is due to the following factors:
(%) | First Half 2007 |
First Half 2008 |
||
Statutory tax rate | 37.9 | 37.3 | ||||
Items increasing (decreasing) statutory tax rate: | ||||||
- higher foreign subsidiaries tax rate | 9.9 | 13.5 | ||||
- tax impact from application of Decree Law No. 112/2008, Budget Law 2008 and Libyan tax reform | (7.9 | ) | ||||
- other adjustments | (0.3 | ) | 0.2 | |||
9.6 | 5.8 | |||||
47.5 | 43.1 |
The tax impacts derived from the application of
new provisions pursuant to Law Decree No. 112/2008, the Budget
Law 2008 and the enactment of a renewed tax framework in Libya of
a 7.9% rate for oil companies operating in production sharing
schemes.
In particular the tax measures were the following: (i) the
utilization of deferred taxes recognized by energy companies on
the difference between inventories of hydrocarbons carried at the
weighted-average cost and carrying amount determined for tax
purposes by applying the previous LIFO method valuation, net of a
one-off amount calculated by applying a special 16% tax on the
difference between the two amounts as at June 30, 2008; (ii)
application of the 2008 Budget Law which removed the limitations
to the recognition for fiscal purposes of carrying amounts of
assets and liabilities of controlled entities included in fiscal
consolidation by paying a special tax with a 6% rate; (iii) based
on the enactment of a renewed tax framework in Libya, the tax
base of the Companys Libyan oil properties has been
reviewed and resulted in a partial excess of cumulative deferred
taxes.
28 Earnings per share
Basic earnings per ordinary share are calculated by dividing net
profit for the year attributable to Enis shareholders by
the weighted average 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 for the first half of
2007 and 2008, was 3,673,655,386 and 3,648,738,573, respectively.
Diluted earnings per share are calculated by dividing net profit
for the period attributable to Enis shareholders by the
weighted average of shares fully-diluted including shares issued
and outstanding during the period, with the exception of treasury
shares and including the number of shares that could potentially
be issued in connection with stock-based compensation plans.
The average number of fully-diluted shares used in the
calculation of diluted earnings for the first half of 2007 and
2008 was 3,676,504,634 and 3,649,110,251, respectively.
Reconciliation of the average number of shares used for the
calculation for both basic and diluted earning per share was as
follows:
First Half 2007 |
First Half 2008 |
|||
Average number of shares used for the calculation of the basic earnings per share | 3,673,655,386 | 3,648,738,573 | ||||
Number of potential shares following stock grant plans | 793,684 | 123,578 | ||||
Number of potential shares following stock options plans | 2,055,564 | 248,100 | ||||
Average number of shares used for the calculation of the diluted earnings per share | 3,676,504,634 | 3,649,110,251 | ||||
Enis net profit | (million euro) | 4,855 | 6,758 | |||
Basic earning per share | (euro per share) | 1.32 | 1.85 | |||
Diluted earning per share | (euro per share) | 1.32 | 1.85 |
- 101 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
29 Information by industry segment
Information by industry segment
(million euro) |
Exploration & Production |
Gas & Power |
Refining & Marketing |
Petrochemicals |
Engineering & Construction |
Other activities |
Corporate and financial companies |
Intragroup profits |
Total |
|||||||||
First Half 2007 | |||||||||||||||||||||||||||
Net sales from operations (a) | 12,829 | 13,722 | 16,880 | 3,476 | 4,289 | 103 | 617 | ||||||||||||||||||||
Less: intersegment sales | (8,144 | ) | (349 | ) | (596 | ) | (166 | ) | (457 | ) | (18 | ) | (498 | ) | |||||||||||||
Net sales to customers | 4,685 | 13,373 | 16,284 | 3,310 | 3,832 | 85 | 119 | 41,688 | |||||||||||||||||||
Operating profit | 6,550 | 2,106 | 420 | 211 | 390 | (231 | ) | (99 | ) | (24 | ) | 9,323 | |||||||||||||||
Provisions | (21 | ) | 56 | 107 | 14 | (11 | ) | 146 | (10 | ) | 281 | ||||||||||||||||
Depreciation, depletion, amortization and impairment | 2,547 | 333 | 217 | 56 | 119 | 7 | 31 | (4 | ) | 3,306 | |||||||||||||||||
Share of profit (loss) of equity-accounted investments | (22 | ) | 214 | 110 | 7 | 39 | ) | 348 | |||||||||||||||||||
Identifiable assets (b) | 31,493 | 21,346 | 11,803 | 3,316 | 7,170 | 291 | 975 | (690 | ) | 75,704 | |||||||||||||||||
Unallocated assets | 19,232 | ||||||||||||||||||||||||||
Equity-accounted investments | 1,372 | 2,091 | 942 | 15 | 381 | 44 | 4,845 | ||||||||||||||||||||
Identifiable liabilities (c) | 9,230 | 4,119 | 5,127 | 714 | 4,272 | 1,864 | 2,607 | 27,933 | |||||||||||||||||||
Unallocated liabilities | 24,707 | ||||||||||||||||||||||||||
Capital expenditures | 2,837 | 526 | 319 | 56 | 510 | 35 | 28 | (54 | ) | 4,257 | |||||||||||||||||
First Half 2008 | |||||||||||||||||||||||||||
Net sales from operations (a) | 17,889 | 16,892 | 24,274 | 3,519 | 4,211 | 95 | 643 | ||||||||||||||||||||
Less: intersegment sales | (9,615 | ) | (423 | ) | (727 | ) | (215 | ) | (547 | ) | (14 | ) | (560 | ) | |||||||||||||
Net sales to customers | 8,274 | 16,469 | 23,547 | 3,304 | 3,664 | 81 | 83 | 55,422 | |||||||||||||||||||
Operating profit | 9,058 | 2,284 | 847 | (272 | ) | 467 | (141 | ) | (112 | ) | (230 | ) | 11,901 | ||||||||||||||
Provisions | 140 | 119 | 43 | 1 | 48 | 2 | 353 | ||||||||||||||||||||
Depreciation, depletion, amortization and impairment | 3,259 | 340 | 367 | 236 | 154 | 4 | 35 | (6 | ) | 4,389 | |||||||||||||||||
Share of profit (loss) of equity-accounted investments | 27 | 232 | 130 | 2 | 20 | 411 | |||||||||||||||||||||
Identifiable assets (b) | 37,856 | 23,097 | 14,158 | 3,134 | 9,540 | 388 | 1,576 | (922 | ) | 88,827 | |||||||||||||||||
Unallocated assets | 20,217 | ||||||||||||||||||||||||||
Equity-accounted investments | 1,459 | 2,227 | 1,358 | 29 | 158 | 50 | 7 | 5,288 | |||||||||||||||||||
Identifiable liabilities (c) | 14,759 | 4,908 | 6,372 | 790 | 4,826 | 1,674 | 2,076 | 35,405 | |||||||||||||||||||
Unallocated liabilities | 29,750 | ||||||||||||||||||||||||||
Capital expenditures | 4,462 | 871 | 350 | 68 | 977 | 14 | 36 | (19 | ) | 6,759 |
(a) | Before elimination of intersegment sales. | |
(b) | Includes assets directly related to the generation of operating profit. | |
(c) | Includes liabilities directly related to the generation of operating profit. |
Intersegment sales are conducted on an arms length basis.
30 Transactions with related
parties
Enis transactions with related parties regard the supply of
goods and services as well as being a party to financing
transactions with joint ventures, affiliates and non-consolidated
entities as well as with entities directly and indirectly owned
or controlled by the Government. All these transactions are
generally conducted on an arms length basis on behalf of
Eni companies.
The following is a description of trade and financing
transactions with related parties.
- 102 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
Trade and other transactions
Trade and other transactions in the first half of 2007 and 2008
consisted of the following:
(million euro) | June 30, 2007 |
First Half 2007 |
||
Costs |
Revenues |
||
Name | Receivables |
Payables |
Guarantees |
Goods |
Services |
Goods |
Services |
|||||||
Joint ventures and affiliates | ||||||||||||||
ASG Scarl | 7 | 29 | 79 | 42 | 1 | |||||||||
Blue Stream Pipeline Co BV | 43 | 16 | 97 | |||||||||||
CAM Petroli Srl | 65 | 286 | ||||||||||||
CEPAV (Consorzio Eni per lAlta Velocità) Uno | 77 | 65 | 5,728 | 130 | ||||||||||
Charville - Consultores e Servicos Lda | 2 | 91 | 3 | |||||||||||
Eni Oil Co Ltd | 10 | 115 | 57 | |||||||||||
Fox Energy Srl | 42 | 119 | ||||||||||||
Gasversorgung Süddeutschland GmbH | 13 | 71 | ||||||||||||
Karachaganak Petroleum Operating BV | 40 | 90 | 11 | 128 | 4 | |||||||||
Mangrove Gas Netherlands BV | 51 | |||||||||||||
Mellitah Gas BV | 26 | 92 | 53 | |||||||||||
OOO "EniNeftegaz" | 220 | |||||||||||||
Petrobel Belaym Petroleum Co | 34 | 115 | ||||||||||||
Raffineria di Milazzo ScpA | 17 | 11 | 116 | 58 | 1 | |||||||||
RPCO Enterprises Ltd | 104 | |||||||||||||
Super Octanos CA | 1 | 105 | ||||||||||||
Trans Austria Gasleitung GmbH | 65 | 20 | 75 | 20 | ||||||||||
Transmediterranean Pipeline Co Ltd | 8 | 40 | ||||||||||||
Unión Fenosa Gas SA | 61 | 78 | ||||||||||||
Other (*) | 168 | 117 | 145 | 91 | 202 | 200 | 48 | |||||||
730 | 643 | 6,259 | 227 | 925 | 812 | 207 | ||||||||
Unconsolidated entities controlled by Eni | ||||||||||||||
Agip Kazakhstan North Caspian Operating Co NV | 29 | 130 | 5 | 249 | 13 | |||||||||
Eni BTC Ltd | 180 | |||||||||||||
Other (*) | 29 | 6 | 13 | 1 | 6 | 3 | 1 | |||||||
58 | 136 | 193 | 6 | 255 | 3 | 14 | ||||||||
788 | 779 | 6,452 | 233 | 1,180 | 815 | 221 | ||||||||
Entities owned or controlled by the Government | ||||||||||||||
Alitalia | 8 | 172 | ||||||||||||
Enel | 139 | 22 | 2 | 97 | 231 | 199 | ||||||||
GSE - Gestore Servizi Elettrici | 220 | 131 | 105 | 340 | ||||||||||
Other (*) | 67 | 90 | 40 | 74 | 72 | 2 | ||||||||
434 | 243 | 147 | 171 | 815 | 201 | |||||||||
1,222 | 1,022 | 6,452 | 380 | 1,351 | 1,630 | 422 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
- 103 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
(million euro) | June 30, 2008 |
First Half 2008 |
||
Costs |
Revenues |
||
Name | Receivables |
Payables |
Guarantees |
Goods |
Services |
Goods |
Services |
|||||||
Joint ventures and affiliates | ||||||||||||||
Artic Russia BV | 73 | |||||||||||||
ASG Scarl | 4 | 39 | 121 | 37 | ||||||||||
Bernhard Rosa Inh. Ingeborg Plöchinger GmbH | 13 | 78 | ||||||||||||
Blue Stream Pipeline Co BV | 38 | 15 | 83 | |||||||||||
Bronberger & Kessler und Gilg & Schweiger GmbH | 24 | 135 | ||||||||||||
CEPAV (Consorzio Eni per lAlta Velocità) Uno | 70 | 53 | 5,945 | 147 | ||||||||||
CEPAV (Consorzio Eni per lAlta Velocità) Due | 38 | 64 | ||||||||||||
Fox Energy Srl | 57 | 1 | 172 | 1 | ||||||||||
Gasversorgung Süddeutschland GmbH | 27 | 155 | 6 | |||||||||||
Gruppo Distribuzione Petroli Srl | 21 | 59 | ||||||||||||
Karachaganak Petroleum Operating BV | 50 | 129 | 93 | 8 | ||||||||||
Mellitah Gas BV | 5 | 115 | 39 | 1 | ||||||||||
Raffineria di Milazzo ScpA | 10 | 7 | 138 | 67 | 1 | |||||||||
Supermetanol CA | 5 | 51 | ||||||||||||
Super Octanos CA | 2 | 2 | 134 | |||||||||||
Trans Austria Gasleitung GmbH | 64 | 31 | 77 | 29 | ||||||||||
Unión Fenosa Gas SA | 36 | 61 | 147 | |||||||||||
Other (*) | 155 | 132 | 51 | 18 | 340 | 44 | 52 | |||||||
623 | 561 | 6,242 | 235 | 807 | 858 | 244 | ||||||||
Unconsolidated entities controlled by Eni | ||||||||||||||
Agip Kazakhstan North Caspian Operating Co NV | 32 | 128 | 18 | 23 | ||||||||||
Eni BTC Ltd | 154 | |||||||||||||
Other (*) | 24 | 13 | 5 | 4 | 7 | 2 | 5 | |||||||
56 | 141 | 159 | 4 | 25 | 2 | 28 | ||||||||
679 | 702 | 6,401 | 239 | 832 | 860 | 272 | ||||||||
Entities owned or controlled by the Government | ||||||||||||||
Alitalia | 24 | 221 | 1 | |||||||||||
Enel | 111 | 3 | 11 | 187 | 324 | 166 | ||||||||
GSE - Gestore Servizi Elettrici | 33 | 66 | 139 | 37 | 208 | 6 | ||||||||
Terna SpA | 19 | 78 | 13 | 89 | 1 | 26 | ||||||||
Other (*) | 71 | 82 | 25 | 43 | 56 | 4 | ||||||||
258 | 229 | 188 | 356 | 810 | 203 | |||||||||
937 | 931 | 6,401 | 427 | 1,188 | 1,670 | 475 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
Certain engineering, construction and maintenance services were acquired from the Cosmi Holding Group, related to Eni through a member of the Board of Directors. Relevant transactions which were executed on an arms length basis amounted to approximately euro 4 million and euro 4 million in the first half of 2007 and 2008, respectively.
- 104 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
The most significant transactions consisted of:
- | dividends receivable from Artic Russia BV; | |
- | transactions related to the planning and the construction of the tracks for high speed/high capacity railway from Milan to Bologna with ASG Scarl, CEPAV (Consorzio Eni per lAlta Velocità) Uno, and related guarantees; | |
- | supply of oil products to Bernhard Rosa Inh. Ingeborg Plöchinger 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 exchanged on an arms length basis; | |
- | acquisition of natural gas transport services outside of Italy from Blue Stream Pipeline Co BV and Trans Austria Gasleitung GmbH; | |
- | guarantee issued on behalf of CEPAV (Consorzio Eni per lAlta Velocità) Due in relation to contractual commitments related to the execution of project planning and realization; | |
- | supply of specialized upstream services and the re-charge carried out by Agip Kazakhstan North Caspian Operating Co NV, Mellitah Gas BV and Karachaganak Petroleum Operating BV of costs relating to Eni for acquisitions; services are invoiced on the basis of incurred costs; | |
- | sale of natural gas to 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; | |
- | guarantee of performance issued on behalf of Unión Fenosa Gas SA in relation to contractual commitments related to the results of operations; | |
- | guarantee issued on behalf of Eni BTC Ltd in relation to the construction of an oil pipeline; | |
- | sale of oil products to Alitalia; |
- | sale and transportation of natural gas, sale of fuel oil as well as sale and purchase of electricity and acquisition of electricity transmission services 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 the first half of 2007 and 2008 were as
follows:
(million euro) | June 30, 2007 |
First Half 2007 |
||
Name | Receivables |
Payables |
Guarantees |
Charges |
Gains |
|||||
Joint ventures and affiliates | ||||||||||
Blue Stream Pipeline Co BV | 6 | 775 | 24 | |||||||
Raffineria di Milazzo ScpA | 45 | |||||||||
Spanish Egyptian Gas Co SAE | 292 | |||||||||
Trans Austria Gasleitung GmbH | 70 | 1 | ||||||||
Transmediterranean Pipeline Co Ltd | 110 | 4 | ||||||||
Other (*) | 69 | 96 | 40 | 16 | 7 | |||||
249 | 102 | 1,152 | 16 | 36 | ||||||
Unconsolidated entities controlled by Eni | ||||||||||
Other (*) | 118 | 12 | 1 | 2 | ||||||
118 | 12 | 1 | 2 | |||||||
Entities owned or controlled by Eni | ||||||||||
Other (*) | 21 | 23 | ||||||||
21 | 23 | |||||||||
367 | 114 | 1,153 | 37 | 61 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
- 105 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
(million euro) | June 30, 2008 |
First Half 2008 |
||
Name | Receivables |
Payables |
Guarantees |
Charges |
Gains |
|||||
Joint ventures and affiliates | ||||||||||
Artic Russia BV | 32 | 126 | ||||||||
Bayernoil Raffineriegesellschaft mbH | 105 | |||||||||
Blue Stream Pipeline Co BV | 5 | 5 | 664 | 8 | ||||||
PetroSucre SA | 160 | |||||||||
Raffineria di Milazzo ScpA | 60 | |||||||||
Trans Austria Gasleitung GmbH | 134 | 3 | ||||||||
Transmediterranean Pipeline Co Ltd | 102 | 3 | ||||||||
Other (*) | 92 | 108 | 43 | 2 | 3 | |||||
625 | 239 | 767 | 2 | 17 | ||||||
Unconsolidated entities controlled by Eni | ||||||||||
Other (*) | 92 | 28 | 2 | 1 | 3 | |||||
92 | 28 | 2 | 1 | 3 | ||||||
Entities owned or controlled by Eni | ||||||||||
Other (*) | 3 | 11 | ||||||||
3 | 11 | |||||||||
717 | 267 | 769 | 6 | 31 |
(*) | Each individual amount included herein does not exceed euro 50 million. |
The most significant transactions included:
- | cash deposits at Group finance companies and financing loans to Artic Russia BV; | |
- | financing loan to Bayernoil Raffineriegesellschaft mbH; | |
- | a receivable from PetroSucre SA following the contribution of Corocoro activities; |
- | bank debt guarantees issued on behalf of Blue Stream Pipeline Co BV and cash deposits at Group finance companies; | |
- | bank debt guarantees issued on behalf of Raffineria di Milazzo ScpA; | |
- | financing loans to Trans Austria Gasleitung GmbH and Transmediterranean Pipeline Co Ltd for the realization of the Austrian gas pipeline section from the Russian Federation to Italy and the construction of natural gas transmission facilities, respectively. |
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, was as follows:
(million euro) | June 30, 2007 |
June 30, 2008 |
||
Total |
Related parties |
Impact % |
Total |
Related parties |
Impact % |
|||||||
Trade and other receivables | 17,648 | 1,504 | 8.52 | 23,064 | 1,332 | 5.78 | ||||||
Other current assets | 1,532 | 13 | 0.85 | |||||||||
Other non-current financial assets | 596 | 61 | 10.23 | 987 | 308 | 31.21 | ||||||
Other non-current assets | 1,263 | 24 | 1.90 | 1,596 | 1 | 0.06 | ||||||
Current financial liabilities | 8,131 | 97 | 1.19 | 10,099 | 252 | 2.50 | ||||||
Trade and other payables | 15,531 | 955 | 6.15 | 18,354 | 872 | 4.75 | ||||||
Other current liabilities | 604 | 8 | 1.32 | 3,275 | 4 | 0.12 | ||||||
Long-term debt and current portion of long-term debt | 8,010 | 17 | 0.21 | 11,224 | 15 | 0.13 | ||||||
Other non-current liabilities | 1,146 | 59 | 5.15 | 3,512 | 55 | 1.57 |
- 106 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
The impact of transactions with related parties on the profit and loss accounts consisted of the following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Total |
Related parties |
Impact % |
Total |
Related parties |
Impact % |
|||||||
Net sales from operations | 41,688 | 2,052 | 4.92 | 55,422 | 2,145 | 3.87 | ||||||
Purchases, services and other | 27,727 | 1,731 | 6.24 | 37,566 | 1,615 | 4.30 | ||||||
Finance income | 1,280 | 61 | 4,77 | 2,539 | 31 | 1.22 | ||||||
Finance expense | 1,288 | 37 | 2.87 | 2,753 | 6 | 0.22 |
Transactions with related parties regarded the ordinary course of Enis business and were primarily conducted on an arms length basis. The main cash flows with related parties were as follows:
(million euro) | First Half 2007 |
First Half 2008 |
||
Revenues and other income | 2,052 | 2,145 | ||||
Costs and other expenses | (1,372 | ) | (1,615 | ) | ||
Net change in trade and other receivables and liabilities | (370 | ) | 273 | |||
Dividends and net interests | 337 | 307 | ||||
Net cash from operating activities | 647 | 1,110 | ||||
Capital expenditures in tangible and intangible assets | (359 | ) | (495 | ) | ||
Investments | 8 | |||||
Change in payables related to investments | (17 | ) | 41 | |||
Change in financing receivables | 10 | (372 | ) | |||
Net cash used in investing activities | (358 | ) | (826 | ) | ||
Change in finance liabilities | (17 | ) | 125 | |||
Net cash used in financing activities | (17 | ) | 125 | |||
Total financial flows to related parties | 272 | 409 |
The impact of cash flows with related parties consisted of the following:
(million euro) | First Half 2007 |
First Half 2008 |
||
Total |
Related parties |
Impact % |
Total |
Related parties |
Impact % |
|||||||
Cash from operating activities | 9,683 | 647 | 6.68 | 9,950 | 1,110 | 11.16 | ||||||||||||
Cash used in investing activities | (8,580 | ) | (358 | ) | 4.17 | (9,483 | ) | (826 | ) | 8.71 | ||||||||
Cash used in financing activities | 1,368 | (17 | ) | .. | (1,048 | ) | 125 | .. |
- 107 -
ENI CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS / NOTES TO FINANCIAL STATEMENTS
31 Significant non-recurring
events and operations
In the first half of 2008, no significant non-recurring events
and/or operations had taken place.
In the first half of 2007, significant non-recurring transactions
consisted of risk provisions related to ongoing antitrust
proceedings against the European antitrust authority (euro 130
million) and gain deriving from the curtailment of the provisions
accrued by Italian companies for employee termination indemnities
(TFR) following the changes introduced by the 2007
Italian Budget Law and related decrees (euro 74 million).
32 Positions or transactions
deriving from atypical and/or unusual operations
In the first half of 2007 and 2008, no significant atypical
and/or unusual operations had been performed.
33 Significant post-closing events
Information on significant post-closing events is provided in the
Subsequent events section of this Interim
Consolidated Report as of June 30, 2008.
- 108 -
Certification pursuant to rule
154-bis paragraph 5 of the Legislative Decree No.
58/1998 (Testo Unico della Finanza)
1. The undersigned Paolo Scaroni and Marco Mangiagalli, in their
quality as Chief Executive Officer and manager responsible for
the preparation of financial reports of Eni, respectively, also
pursuant to rule 154-bis, paragraphs 3 and 4 of
Legislative Decree No. 58/1998, certify that internal controls
over financial reporting in place for the preparation of the
condensed consolidated interim financial statements as of June
30, 2008 and during the period covered by the report, were:
adequate to the company structure, and
effectively applied during the process of preparation of
the report.
2. Internal controls over financial reporting in place for the
preparation of the 2008 condensed consolidated interim financial
statements have been defined and the evaluation of their
effectiveness has been assessed based on principles and
methodologies adopted by Eni in accordance with the Internal
Control-Integrated Framework Model issued by the Committee of
Sponsoring Organizations of the Treadway Commission, which
represents an internationally-accepted framework for the internal
control system.
3. The undersigned officers also certify that:
3.1 The 2008 condensed consolidated interim financial statements:
a) were prepared in accordance with the evaluation and
measurement criteria issued by the International Accounting
Standards Board (IASB) and adopted by the European Commission
according to the procedure set forth in Article 6 of the European
Regulation (CE) No. 1606/2002 of the European Parliament and
European Council of July 19, 2002;
b) correspond to the companys evidence and accounting books
and entries;
c) fairly represent the financial condition, results of
operations and cash flows of the parent company and the Group
consolidated companies as of, and for, the periods presented in
this report.
3.2 The interim operating and financial review provides
information regarding material events occurred during the first
half of 2008 and their impact on condensed financial statements,
as well as a description of the main risks and uncertainties for
the second half of the year and related-party transactions.
July 30, 2008
/s/ Paolo Scaroni Paolo Scaroni Chief Executive Officer |
/s/ Marco Mangiagalli Marco Mangiagalli Chief Financial Officer |
- 109 -
- 110 -
Società per Azioni Headquarters: Rome, Piazzale Enrico Mattei, 1 Capital stock as of June 30, 2008: euro 4,005,358,876 fully paid Branches: San Donato Milanese (Milan) - Via Emilia, 1 San Donato Milanese (Milan) - Piazza Ezio Vanoni, 1 |
||
Investor Relations Piazza Ezio Vanoni, 1 - 20097 San Donato Milanese (Milan) Tel. +39-0252051651 - Fax +39-0252031929 e-mail: investor.relations@eni.it Publications Financial Statement pursuant to rule 154-ter paragraph 1 of Legislative Decree No. 58/1998 Annual Report Annual Report on Form 20-F for the Securities and Exchange Commission Sustainability Report (in Italian and English) Fact Book (in Italian and English) Eni in 2007 (in English) Interim Consolidated Report as of June 30 pursuant to rule 154-ter paragraph 2 of Legislative Decree No. 58/1998 Internet Home page: www.eni.it Rome office telephone: +39-0659821 Toll-free number: 800940924 e-mail: segreteriasocietaria.azionisti@eni.it ADRs/Depositary Morgan Guaranty Trust Company of New York ADR Department 60 Wall Street (36th Floor) New York, New York 10260 Tel. 212-648-3164 ADRs/Transfer agent Morgan ADR Service Center 2 Heritage Drive North Quincy, MA 02171 Tel. 617-575-4328 Design: Opera Cover: Grafica Internazionale - Rome - Italy Layout and supervision: Korus Srl - Rome - Italy Printing: Marchesi Grafiche Editoriali SpA - Rome - Italy Printed on environmental friendly paper: Fedrigoni Symbol Freelife Satin and Freelife Vellum |