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Eni announces preliminary results for the fourth quarter and the full year 2008

Dividend proposal for the full year: €1.30 per share (includes an interim dividend of €0.65 per share paid in September 2008).
Adjusted net profit: €10.20 billion for the full year (up 7.7%); €1.94 billion for the fourth quarter (down 27.4%).
Reported net profit: €8.83 billion for the full year (down 11.8%); down €874 million for the fourth quarter due to fixed asset impairments and inventory write-downs.
Cash flow: €21.8 billion for the full year (up 40.5%); €6.11 billion for the fourth quarter (up 148%).
Oil and natural gas production: up 3.5% for the full year; up 2.1% for the fourth quarter.
Year-end proved reserves (1) amounted to 6.6 bboe with a reference Brent price of $36.55 per barrel. All sources reserve replacement ratio was 135%.
Natural gas sales: up 5.3% for the full year; up 4.2% for the fourth quarter.

San Donato Milanese, February 13, 2009 – Yesterday evening, Eni’s Board of Directors took notice of the Group preliminary results for the fourth quarter and the full year 2008 (unaudited).

Paolo Scaroni, Chief Executive Officer, commented:

“2008 has been an excellent year for Eni both financially and operationally. In E&P we have grown more than our peer group. In G&P we have consolidated our leadership in the European gas market through the acquisition of Distrigaz. Looking forward, Eni will tackle the economic downturn continuing to grow and to provide sector-leading returns to shareholders”.

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(a) For a detailed explanation of adjusted operating profit and net profit see page 29.
(b) Profit attributable to Eni shareholders.
(c) Fully diluted. Dollar amounts are converted on the basis of the average EUR/USD exchange rate quoted by the ECB for the periods presented.
(d) One ADR (American Depositary Receipt) is equal to two Eni ordinary shares.

(1) Includes Eni’s share of proved reserves of equity-accounted entities. The year-end amount of proved reserves comprised 30% of proved reserves of the three equity-accounted Russian companies purchased as part of a bid procedure for assets of bankrupt Yukos and participated by Eni with a 60% interest, considering Gazprom exercises a call option to acquire a 51% interest in these companies.

Financial highlights
Fourth quarter of 2008

Adjusted operating profit was €4.08 billion, down 22.9% from the fourth quarter of 2007. This was due to the weaker operating performance reported by the Exploration & Production and Gas & Power divisions due to falling oil prices and lower natural gas demand. The Refining & Marketing division reverted to a better level of profitability.
Adjusted net profit was down 27.4% to €1.94 billion, mainly as a result of the weaker operating performance.
Capital expenditures for the quarter were up 28.3% from a year ago to €4.69 billion mainly related to continuing development of oil and gas reserves and exploration activities, the upgrading of gas transportation infrastructure and the construction of rigs and offshore vessels in the Engineering & Construction division.
Financing requirements for the fourth quarter were mainly related to capital expenditures (€4.69 billion),
the acquisition of the 57.243% majority stake in Distrigaz SA for cash consideration amounting to €2.75 billion (€1.27 billion net of cash acquired), the purchase of certain assets amounting to €0.95 billion, as well as the repurchase of 1.17 million own shares at a cost of €21 million. These cash outflows were partially absorbed by net cash generated by operating activities of €6.11 billion, including proceeds on advances received from partner Suez following the signing of a number of long-term gas and electricity supply contracts (€1.55 billion). Net borrowings (2) in the quarter were €18.38 billion, up €0.55 billion from the end of September 2008.
Full year 2008

Adjusted operating profit was €21.79 billion, up 14.8% from a year ago, due to a better operating performance reported by the Exploration & Production and Refining & Marketing divisions, and, to a lesser extent, the Engineering & Construction division. These improvements were partly offset by lower operating results reported by the Gas & Power and Petrochemical divisions.
Adjusted net profit was up 7.7% to €10.20 billion, mainly as a result of the stronger operating performance, that was partly offset by a higher tax rate on adjusted basis (from 48.7% to 51.4%).
Net cash generated by operating activities was a record €21.80 billion and coupled with cash from divestments for €1.16 billion was used to fund a part of Eni’s financing needs associated with expenditures on capital and exploration projects (€14.56 billion), payment of dividends by Eni SpA (€4.91 billion, of which €2.36 billion related to 2008 interim dividend), the purchase of a number of assets, including consolidated subsidiaries, investments and businesses for €5.85 billion (€4.31 billion net of acquired cash), and the repurchase of 35.9 million own shares at a cost of €778 million. Net borrowings at year end amounted to €18.38 billion and increased by €2.05 billion from December 31, 2007.
Return on Average Capital Employed (ROACE) (3) calculated on an adjusted basis for the twelve-month period ending December 31, 2008 was 17.6% (19.3% in 2007).
Ratio of net borrowings to shareholders’ equity including minority interest – leverage (3) – was unchanged in comparison with the end of 2007 (0.38).
2008 Dividend

The Board of Directors intends to submit to the Annual Shareholders’ Meeting the proposal of distributing a cash dividend of €1.30 per share (4) (€1.30 in 2007). Included in this annual payment is €0.65 per share which was distributed as interim dividend in September 2008. The balance of €0.65 per share is payable on May 21, 2009 to shareholders on the register on May 18, 2009.

(2) Information on net borrowings composition is furnished on page 40.
(3) Non-GAAP financial measures disclosed throughout this press release are accompanied by explanatory notes and tables to help investors to gain a full understanding of said measures in line with guidance provided for by CESR Recommendation No. 2005-178b. See pages 40 and 42 for leverage and ROACE, respectively.
(4) Dividends do not entitle a tax credit and, depending on the receiver, are subject to a withholding tax on distribution or are partially cumulated to the receiver’s taxable income.

Operational highlihts and trading environment

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Fourth quarter of 2008

Oil and natural gas production for the fourth quarter amounted to 1,854 kboe/d, representing an increase of 2.1% compared with the fourth quarter of 2007. This improvement mainly reflected the benefit of acquired assets by Burren in Congo and Turkmenistan early in 2008 (for an overall increase of 32 kboe/d), organic growth achieved in Angola, Congo, Egypt, Pakistan and Venezuela. These positives were partly offset by the ongoing effect of damage to production facilities caused by hurricanes in the Gulf of Mexico in September 2008 (down 28 kboe/d), mature fields decline and production cuts by OPEC (down 9 kboe/d), as well as planned and unplanned facility downtime in the North Sea. Excluding the impact of higher entitlements in PASs, production slightly decreased from the fourth quarter of 2007 (down 0.6%).
Eni’s worldwide natural gas sales for the quarter were up 4.2% to 30.99 bcm, mainly reflecting the acquisition of Distrigaz. This increase was partly offset by the impact of lower European gas demand, mainly in the Italian market where gas sales decreased by 17.7%.
Oil realizations for the quarter were down 42.9% driven by falling Brent prices (down 38.1% from the fourth quarter of 2007). Natural gas realizations followed the opposite trend mainly due to the impact of time lags in the pricing formulae.
The fourth quarter results were favourably influenced by the depreciation of the euro against the dollar (down 9.1%), with the only exception being the natural gas marketing business.
Realized refining margins significantly improved from a year ago due to better relative prices of products (Brent refining margins were 7.72$/bbl, up 89.7% from the fourth quarter 2007). Higher margins were recorded in the marketing activities.
Full year 2008

Oil and natural gas production for the full year 2008 averaged the record level of 1,797 kboe/d, an increase of 61 kboe/d, or 3.5%, from a year earlier. This performance mainly benefited from the assets acquired in the Gulf of Mexico, Congo and Turkmenistan (up 62 kboe/d), as well as continuing organic growth in Angola, Congo, Egypt, Pakistan and Venezuela. These positives were partially offset by mature field declines as well as planned and unplanned facility downtime in the North Sea and hurricane-related impacts in the Gulf of Mexico (down 11 kboe/d). Higher oil prices resulted in lower volume entitlements in Eni’s PSAs and similar contractual schemes, down approximately 37 kboe/d. When excluding the impact of lower entitlements in PSAs, production was up 5.6%.
Eni’s worldwide natural gas sales were 104.23 bcm, up 5.3% driven by an increase in international sales (up 19.9%) mainly reflecting the contribution of the acquisition of Distrigaz and the organic growth recorded in the European markets, as well as higher seasonal sales recorded in the first quarter. These positives were partially offset by a weaker performance on the Italian gas market (down 5.8%).
Oil and gas realizations in the year were up 28.1% driven by the favourable trading environment of the first nine months of the year.
2008 full year results were negatively influenced by the appreciation of the euro vs. the dollar (up 7.3%).
Realized refining margins increased from a year ago due to a favourable trading environment (Brent refining margins were up 43.6%, to 6.49$/bbl).
2008 Portfolio developments
November 2008

Finalized an agreement with the British company Tullow Oil Ltd to purchase a 52% stake and the operatorship of fields in the Hewett Unit and relevant facilities in the North Sea. Eni plans to upgrade certain depleted fields in the area so as to achieve a gas storage facility.
Finalized an agreement to acquire all the common shares of First Calgary Petroleum Ltd, a Canadian oil and gas company with exploration and development activities in Algeria. The acquisition values the fully diluted share capital of First Calgary at approximately CAN$923 million. Production start up at First Calgary’s fields is expected in 2011 with a projected plateau of approximately 30,000 boe/d net to Eni by 2012.
October 2008

Following authorization from the European Commission, the acquisition of a 57.243% majority stake in Distrigaz SA from the French company Suez-Tractebel was closed. The deal was for a cash consideration of €2.75 billion, implying a value for 100% of the share capital at €4.8 billion. On December 30, 2008, Eni was granted authorization from the Belgian market authorities to execute a mandatory tender offer on the minorities of Distrigaz. The deadline of the offer is scheduled for March 19, 2008.
Signed the agreements with Suez related to the sale of a number of Eni’s assets as well as long-term gas and electricity supply contracts. As of end of December 2008 the following agreements have been finalized: (i) the Virtual Power Plant agreement that grants Suez the right to off-take volumes of electricity corresponding to capacity of up to 1,100 MW for a period of 20 years, with proceeds of €1.21 billion; (ii) gas supply contracts up to 4 bcm per year to be delivered in Italy for a period of 20 years and an option to purchase up to 2,5 bcm per year to be delivered in Germany for a period of 11 years, with proceeds amounting to €255 million; (iii) supply contracts for 0,9 bcm per year of LNG for a period of 20 years at a price of €87 million.
Completed the divestment of the entire share capital of the subsidiary Agip Espana to Galp Energia SGPS SA, following exercise of a call option in October 2007, pursuant to agreements among Galp’s shareholders. The divested asset includes 371 service stations as well as wholesale marketing activities of oil products located in the Iberian Peninsula.
September 2008

Finalized the purchase of a 17% stake in the share capital of Gaz de Bordeaux Energie Services SAS. Also Eni’s associate Altergaz (Eni’s interest being 38%) entered the deal with an equal stake. The two partners plan to support the development of the target company by supplying it with up to 250 mmcm of gas for ten years.
Signed a strategic agreement with Petroleos de Venezuela, S.A. (PDVSA) for the exploration and development of two offshore Venezuelan areas and the subsequent development of gas resources via an LNG project.
August 2008

Signed a Memorandum of Understanding with Sonangol to set up an integrated model of cooperation and development, targeting onshore development activities and construction of facilities in Angola designed to monetize flaring gas.
Acquired control of the Indian company Hindustan Oil Exploration Limited (HOEC), following execution of a mandatory tender offer on a 20% stake of the HOEC share capital. The mandatory offer was associated with Eni’s acquisition of a 27.17% of HOEC as part of the Burren deal.
June 2008

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 duration of Eni oil and gas properties until 2042 and 2047 respectively and lays the foundations for a number of projects targeting development of the significant gas potential in the country.

May 2008

A cooperation agreement was set up with the Republic of Congo for the extraction of unconventional oil from the Tchikatanga e Tchikatanga-Makola oil sands deposits.
March 2008

Awarded 32 exploration leases in the Gulf of Mexico close to certain of Eni’s producing fields as well 18 exploration leases in Alaska.
February 2008

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 kilometres.
January 2008

Completed the acquisition of the entire issued share capital of the UK-based oil company Burren Energy plc, for a total cash consideration amounting to approximately €2.4 billion (including the amount of Burren’s shares for a total amount of €0.6 billion, purchased in 2007). Burren holds producing assets in Congo and Turkmenistan and exploratory leases in Egypt, Yemen and India.
Other developments

Started-up the Ooguruk (Eni 30%), Mondo (Eni 20%) and Corocoro (Eni 26%) fields in Alaska, Angola and Venezuela, respectively. Completed the upgrading of facilities at the operated Bhit gas field in Pakistan (Eni 40%) leading to the start-up of the satellite Badhra field.
Kashagan – Final Agreement
On October 31, 2008, all the international parties to the North Caspian Sea Production Sharing Agreement (NCSPSA) consortium and the Kazakh authorities signed the final agreement implementing the new contractual and governance framework of the Kashagan project, based on the Memorandum of Understanding signed on January 14, 2008.
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 stake held by the other four major stakeholders are each equal to 16.81%, effective from January 1, 2008. The Kazakh partner will pay 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 NCSPA, 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 (16.81%); (iii) a new operating model which entails an increased role of the Kazakh partner and defines the international parties’ responsibilities in the execution of the subsequent development phases of the project. Eni is confirmed to be the operator of phase-one
of the project (the so-called “Experimental Program”) and in addition will retain operatorship of the onshore operations of phase 2 of the development plan.
In conjunction with the final agreement, parties also reached a final approval of the revised expenditure budget of phase-one, amounting to $32.2 billion (excluding general and administrative expenses).
Eni will fund those investments in proportion to its participating interest of 16.81%. On the basis of progress to completion, Eni management expects to achieve first oil by the end of 2012. Phase-one production plateau is forecast at 300,000 bbl/day; the installed production capacity at the end of phase-one is planned
at 370,000 bbl/day in 2014. Subsequently, production capacity of phase-one is expected to step up to 450,000 bbl/day, leveraging on availability of further compressor capacity for gas re-injection associated with the start-up of phase-two offshore facilities.

Outlook for 2009
Eni will present in detail its strategy, targets and outlook for its 2009-2012 plan at 12:00 noon (London Time) today, at the London Stock Exchange. Management expects market volatility and the current economic downturn to continue well into calendar year 2009. The Company’s key assumptions for 2009 are average Brent prices at $43 per barrel, flat European gas demand and lower refining margins with respect to 2008. In this environment, management expectations regarding key operating drivers of Eni’s business for the year 2009 are as follows:

Production of liquids and natural gas is forecast to increase from 2008 (actual oil and gas production averaged 1,797 mmboe/d in 2008). Organic growth expected in Nigeria, Angola, Congo and the Gulf of Mexico will sustain production performance against expected mature field declines.
Sales volumes of natural gas worldwide are forecast to increase from 2008 (actual sales volumes in 2008 were 104.23 bcm) reflecting full contribution from the acquisition of Distrigaz and the impact of marketing initiatives aimed at supporting European market share. Sales in Italy are expected to decrease mainly due to competitive pressures and demand slowdown amidst the economic downturn;
Refining throughputs on Eni’s account are expected to increase from 2008 (actual throughputs in 2008 were 35.84 mmtonnes) as a result of improved operating performance expected at the Taranto and Gela refineries;
Retail sales of refined products in Italy and the rest of Europe are expected to decrease from 2008 (12.67 mmtonnes in 2008) reflecting the divestment of marketing activities in the Iberian Peninsula and an expected demand slowdown affecting fuel consumption in European markets.
In 2009 management expects slightly lower capital expenditures with respect to 2008 (€14.56 billion in 2008). The activities over the course of the year will be focused on the development of oil and natural gas reserves, the upgrading of existing construction vessels and rigs, and the upgrading of natural gas transport infrastructures. On the basis of planned cash outflows to fund capital expenditures, including the completion of the Distrigaz acquisition, and shareholder remuneration, taking into account the Company projections of cash flow at $43 per Brent barrel, management expects the Group to achieve a level of leverage that will be lower than the level of 0.38 reported in 2008, assuming that 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 in which Eni holds a 60% interest.

Full year and quarterly accounts set forth herein have been prepared in accordance with the evaluation and recognition criteria set by the International Financial Reporting Standards (IFRS) 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. The evaluation and recognition criteria applied during the preparation of the report for the full year and fourth quarter results are unchanged from those adopted for the preparation of the Annual Report on Form20-F for the year ended December 31, 2007 filed with the U.S. SEC. On October 15, 2008, the European Commission adopted certain amendments to accounting standards IAS39 and IFRS7 that enable under rare circumstances the reclassification of certain held for trading financial assets to other categories of financial instruments, thus changing their measurement criteria. These amendments did not result in any significant modification to the Company’s classification of its financial instruments.

Results are presented for the fourth quarter and the full year 2008 and for the fourth quarter and the full year 2007. Information on liquidity and capital resources relates to end of the periods as of December 31, 2008, September 30, 2008, and December 31, 2007. Tables contained in this press release are comparable with those presented in the management’s disclosure section of the Company’s annual report and interim report. Non-GAAP financial measures and other performance indicators disclosed throughout this press release are accompanied by explanatory notes and tables to help investors to gain a full understanding of said measures in line with guidance provided by recommendation CESR/05-178b.

Eni’s Chief Financial Officer, Alessandro Bernini, in his position as manager responsible for the preparation of the Company’s financial reports, certifies pursuant to rule 154-bis paragraph 2 of Legislative Decree No. 58/1998, that data and information disclosed in this press release correspond to the Company’s evidence and accounting books and entries.

Cautionary statement

This press release, in particular the statements under the section “Outlook”, contains certain forward-looking statements particularly those 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 sales growth, new markets, and the progress and timing of projects. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements, depending on a variety of factors, including the timing of bringing new fields on stream; management’s ability in carrying out industrial plans and in succeeding in commercial transactions; future levels of industry product supply; demand and pricing; operational problems; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; development and use of new technology; changes in public expectations and other changes in business conditions; the actions of competitors and other factors discussed elsewhere in this document.

Due to the seasonality in demand for natural gas and certain refined products and the changes in a number of external factors affecting Eni’s operations, such as prices and margins of hydrocarbons and refined products, Eni’s results from operations and changes in net borrowings for the fourth quarter of the year cannot be extrapolated on an annual basis.

Contacts

E-mail: [email protected]

Investor Relations
E-mail: [email protected]
Tel.: +39 0252051651 – Fax: +39 0252031929

Eni Press Office
E-mail: [email protected]
Tel.: +39 0252031287 – +39 0659822040

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Eni
Società per Azioni Roma, Piazzale Enrico Mattei, 1
Capital Stock: euro 4,005,358,876 fully paid
Tax identification number 00484960588
Tel.: +39 0659821 – Fax: +39 0659822141

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This press release for the Fourth Quarter and Full Year results of 2008 (unaudited) is also available on the Eni web site: www.eni.it

About Eni

Eni is one of the leading integrated energy companies in the world operating in the oil and gas, power generation, petrochemicals, engineering and construction industries. Eni is present in 70 countries and is Italy’s largest company by market capitalization.

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