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Executives

Paolo Scaroni – Chief Executive Officer, General Manager and Executive Director

Alessandro Bernini – Chief Financial Officer and Financial Reporting Officer

Domenico Dispenza – Chief Operating Officer, Gas & Power

Claudio Descalzi – Chief Operating Officer, Exploration & Production

Analysts

Clint Oswald – Sanford C. Bernstein

Lucy Haskins – Barclays Capital

Barry MacCarthy – Royal Bank of Scotland

John Reade – UBS

Demichelis Alejandro – Bank of America

Mark Bloomfield – Deutsche Bank

Marc Kofler – Macquarie Securities

Jon Rigby – UBS

Eni S.p.A. (E) Q2 2011 Earnings Call July 29, 2011 8:00 AM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to Eni’s 2011 Second Quarter Results Conference Call hosted by Paolo Scaroni, Chief Executive Officer and Alessandro Bernini, Chief Financial Officer. For the duration of the call you will be in listen-only mode. However at the end of the call you have the opportunity to ask questions.

I am now handing you over to your host to begin today's conference call. Thank you.

Paolo Scaroni

Good afternoon, ladies and gentlemen and welcome to our interim update and second quarter results conference call. During the first half of 2011, our results were [affected] by two uncertainties of which the major one is of course Libya.

In this context we have made good progress on the strategic drivers, which underpin our medium and long term growth and value creation target. And we’ll now give you a brief overview of the developments in our business for this quarter. Alessandro will then take you through our financial performance in Q2.

Let’s look at the two uncertainties which impacted first half results in more depth. The disruption in Libya has affected all our businesses.

Turning first to E&P, in the second quarter of the year our Libyan production averaged about 50,000 BOE per day with a negative impact on more than 230,000 BOE per day on the average daily production for the quarter. Mean while, the suspension of Libyan gas import into Italy impacted gas and power results in two ways.

In terms of volumes, we suffered from reduced sales to shippers, and in terms of margins, we suffered because Libyan gas was replaced with gas from other sources, which have not yet been re-negotiated.

The situation in Libya is also impacting our balance in refining and petrochemical business as both had to replace Libyan feedstocks with more expensive alternatives.

For forecasting purposes, we are assuming that the situation in Libya will continue as it is until the end of 2011. However, we are ready to resume normal operations as soon as the necessary political and security conditions are in place.

Our assets have suffered no damage, and we will be able to return to pre-crisis levels of production in a relatively short pace of time, especially in our gas fields.

The second major uncertainty affecting our results this year is the ongoing renegotiation of our main gas supply contract. Our reported first half EBIT does not include the expected benefit from contract renegotiations, which would be a re-proactive once agreements have been reached. Discussion with our suppliers are progressing well.

Looking now at the broader picture, we have made significant progress on the strategic drivers which underpin our medium and long-term growth. Exploration continues to deliver excellent results. Following the over 900 million BOE discovered last year, we added another 416 million BOE of resources in the first half of 2011. Amongst those, we are particularly excited by the Skrugard discovery in the Barents Sea, which together with the Goliat project starting up in 2015 will give us a significant presence in this new frontier oil producing area.

In Indonesia, we have roughly doubled the growth recovered the resources in place of Jangkrik to more than 2 BCF through additional exploration, resulting in a material resource base in an area with existing infrastructure and favorable gas market conditions. Over the last few months, we’ve also made excellent progress on some of the giants which will drive growth in 2014.

In Venezuela, we had agreed all the details of the Junin-5 development plan in PDVSA including the possibility of bringing forward robots and set up. And we are finalizing the commercial agreement for Perla for which we expect to sign the GSA and take the FID before year-end. In Russia, our joint-venture with Novatek has defined a gas agreement with Gazprom for our fields in the Yamal Peninsula paving the way for the final investment decisions on Samburgskoye and also Urengoskoye in the second half of this year.

In gas and power, we continue to strengthen our leading position in the European gas market. Organically, we have expanded our market share, recovering 6 percentage point in Italy and increasing volumes despite the sluggish demand in Germany, France and Spain. Meanwhile, we’ve consolidated our presence in the Belgium retail market through the recent acquisition of Noun Belgium. We also continued to work on our objective of maximizing value from our non-core subsidiaries, Galp and Snam.

I will now hand you over to Alessandro for the presentation of our results.

Alessandro Bernini

Thank you, Paolo and good afternoon, ladies and gentlemen. In the second quarter of ‘011, the macro environment was a mix. On the positive side, the brand price averaged at $117 a barrel, up 50% compared to the second quarter of ‘010.

However, the average European refining margin brand euro was $2.2 per barrel, a 52% year-on-year decrease that heavily impacted our M&M result. Finally, the euro appreciated a 13% versus the US dollar compared to the corresponding period of last year.

Moving to our results, adjusted operating profit in the second quarter amounted to 4 billion euro, down 3% year-on-year. This result is mainly due to the weak performances of the gas and power, which doesn't reflect any benefits upon gas contract renegotiation and (inaudible) businesses, partially offset by the contribution of Exploration & Production division (inaudible).

Adjusted net profit for the second quarter was 1.4 billion euro, down 14% year-on-year. This result also reflects a higher adjusted tax rate up by more than 2 percentage point to 59.2%.

In the second quarter of '011, Eni's hydrocarbon production amounted to 1,489,000 BOE per day, a decrease of 15% compared to the Q2 '010. This negative operating result was mainly due to the ongoing instability in Libya, which reduced the production by approximately 2000 BOE per day is compared to the first quarter of '010 and by at least 230,000 BOE as compared to our plan and production profile in Q2 ‘011.

Furthermore PSA entitlements were negatively affected by the sharp increase in the oil price of 36,000 BOE per day. The increase in the oil price however boosted the division's adjusted operating profit which amounted to over 3.8 billion euro, up 11% compared to the second quarter of last year. This positive result comes in spite of the negative impact of the US dollar depreciation amounted to around 300 million euro in the quarter.

In gas and power, overall gas volumes sold including consolidated and associated companies totaled 20.3 bcm up around 14% year-on-year. However, adjusted operating profit decreased by 60% compared to the same period of '010 due to the sharply lower results delivered by the marketing business. It’s worth reminding you that the results do not include any benefits from their renegotiation of our long term supply concepts although this will be reflective once the agreements are finalized.

Gas and power adjusted proforma EBITDA for the second quarter of '011 was 300 million euro compared to 800 million euro in the second quarter of '010. International transportation results showed a 17% increase notwithstanding the closure of the Greenstream pipeline. The regulated businesses generated 367 million euro, up 5% versus the corresponding period of last year. The increase is mainly due to higher returns of on the new investments and efficiency actions.

Adjusted proforma EBITDA in the marketing and power business was negatively impacted by increasing competitive pressure in Italy and Europe as well as unfavorable climate and scenario affects. Furthermore the ongoing situation in Libya reduced volumes to shippers and the affected margins owing to the substitution of recently renegotiated Libyan gas with other sources of supply not yet renegotiated.

Turning now to R&M. In the second quarter of '011 the division reported an adjusted operating loss of 1.14 million euro versus a loss of 52 million euro in the same period of last year due to an unfavorable scenario as well as the depreciation of the dollar versus the euro. These negatives were partially offset by improved efficiency, the synergic integration of refineries and optimization of supply.

Marketing activities reported a significant improvement of EBIT benefitting from higher sales margin positively influenced by commercial initiatives which more than offset this largest demand for oil products both in Italy and abroad.

In the second quarter of ’011 the petrochemical business had reported an adjusted operating loss of €30 million compared to a loss of €11 million in the second quarter of '010. The result was negatively impacted by lower margins as high cost of oil based feedstock and the cost of substituting the Libyan (inaudible) we’re not fully recovered in sale prices on end the markets and substantial demand decrease.

Site and deliver adjusted operating profit of 378 million euro up 10% versus Q2 '010, mainly driven by higher results in onshore construction and offshore drilling operations. Other activities and corporate show an aggregate loss of 129 million euro in line with the results reported in the second quarter of '010.

In the second quarter of '011 cash flow from operations was 4.4 billion euros. Other sources of cash included proceeds from divestments amounted to around 100 million euro mainly related to the sale of upstream marginal losses. The cash inflows were partially fund the cash outflows relating to capital expenditure of 3.7 billion euro and dividend payment of 2.2 billion euro, which included the payment of the final dividend ’010 as well as the dividends paid to Snam and Saipem minorities.

Net financial debt as at the end of June amounted to 26 billion euro, and increase of 1 billion euro versus Q1 and inline with the net debt at the end of '010.

In the second part of the year we will benefit from the sale of the international pipelines one of which has been already finalized while we are in exclusive negotiations with our preferred bidder for the disposal (inaudible) gas. The cashing is expected by year end.

In this time of market turbulence we can rely on the financial debt which is diversified by source of funding and is characterized by an optimal profile in terms of both composition and duration. In the first half of the year we’ve totally extended the duration of our debt.

Over 80% of our gross debt has meet long-term with an average maturity of more than five years. (Inaudible) and long term debt view by year end ‘011 is just 300 million euro.

In addition, 53% of our long term debt bears fixed interest rate stabilizing our risk exposure. Thank you for your attention and I will now hand you over to Paolo for his closing remarks.

Paolo Scaroni

Thank you, Alessandro. In conclusion, in E&P we are delivering on our strategy of developing giant fields in promising areas and making good progress on our growth targets for the time period and beyond.

For 2011, the forecast that Libya will continue to produce at current reduced levels until the end of the year, with an estimated overall impact of at least 200,000 BOE per day on full year production. Net of this impact, we confirm our previous guidance of growth excluding PFA affect; [offset] production at a $100 per barrel, rent offs and better performance from other areas of the world. We sustain our production in the second part of the year.

In Gas and Power, giving guidance for 2011 is particularly complex. as our result will depend on both of the timing and the terms of ongoing supplier and negotiations, which are at present confidential. let’s state, assuming the negotiations of growth before the end of the year, we expect gas and power results to be broadly in line with results and intent net of the impact on Libya. The final impact of substituting Libyan gas with alternative from our portfolio we also depend on the outcome of negotiations, but we expect it to be around 300 million euro.

In R&M, we previously guided to breakeven in 2011 at the same refining market conditions at 2010.

So far this year, market conditions have continued to decline leaving us to report a 260 million loss for the first half. we expect market conditions to improve slightly in the second half of the year, which coupled with continuing cost optimization and the favorable seasonality of marketing results; we significantly reduce second half derivatives. In terms of leverage, we confirm our guidance of reducing year-end gearing below that reported at the end of last year.

Looking forward, our strategy remains unchanged. We continue to invest our growth in the long-term interest of our shareholders while maintaining a firm financial discipline, a strong balance sheet and our dividend policy.

Our solid long-term prospect and the group of overall results expected for this year support our proposal of an interim dividend of $0.52 a share with a 4% increase on the 2010 interim dividend.

We will now be placed to answer your questions.

Question-and-Answer Session.

Operator

Ladies and gentlemen the Q&A session is now open. (Operator Instructions) First question comes from Mr. Clint Oswald from Sanford Bernstein. Mr. Oswald, please proceed with your question.

Clint Oswald – Sanford C. Bernstein

Yes. Hi, good afternoon. Questions, first one just on the natural gas. Tonight it’s confirmed, are you counting for extra Russian gas in 2011 and you're not sourcing deferred volumes on your long-term contracts, potentially 2010. So you're actually buying extra natural gas from Russia. And then secondly, may be just on the gallon, could you talk about some of your second discovery that now you have. Could you talk about the prospect you think you have in that block and also the splits you may have between the natural gas and condensate. Thank you.

Paolo Scaroni

Very good. The first answer would be from Domenico and the second from Claudio.

Domenico Dispenza

Of course, we have taken more gas just to replace the Libyan gas. (inaudible) our own portfolio by 15, if we are taking more Russian gas than from other sources. But these within the contract that oppose also some flexibility enough takes.

Claudio Descalzi

Ghana. So, the second discovery we made in Ghana that is close to the first one is a 15 kilometer is a tropically with the discovery we doubled our resource base. And the percentage of condensate is few percentage, we talk about 5%, so the condensate is not a lot, but in this second discovery we have found also some good oil rising that other norm is just under evaluation and can give additional productivity on other – another (inaudible) in the surroundings.

Clint Oswald – Sanford C. Bernstein

Okay, thank you. Just a follow-up. Could you potentially put some numbers on the resource. You said it doubled, could you talk about some numbers?

Claudio Descalzi

Yes, we are above 2 tcf.

Clint Oswald – Sanford C. Bernstein

Thank you.

Unidentified Company Representative

Next question, please.

Operator

Next question comes from Mrs. Lucy Haskins, Barclays Capital. Mrs. Haskins, please.

Lucy Haskins – Barclays Capital

Good afternoon. And thanks very much for giving an indication as on what capital employed do you have in Libya. Could you give us an estimate of what proportion I mean, last year’s PV-10, which is represented by your Libyan asset?

Paolo Scaroni

No. I don’t want to disclose these numbers.

Lucy Haskins – Barclays Capital

And do you, can you give us any indication of just the reserve number.

Paolo Scaroni

I think, when we speak about production, it’s our production leading normal conditions is between 208 and 300,000 BOE per day on which the last proportion is gas, almost to the 50 plus percent. This asset generally speaking and therefore with an amount of production expected to continue for our long time, this I think is the maximum we can really disclose about Libya.

Lucy Haskins – Barclays Capital

Okay, thank you.

Unidentified Company Representative

Can we have the next question please?

Operator

Next question comes from Mr. Barry MacCarthy from Royal Bank of Scotland. Mr. MacCarthy please.

Barry MacCarthy – Royal Bank of Scotland

Thank you, afternoon. Thank you for the presentation. I’m going to just ask about the non-core comment Galp and Snam Rete Gas and I think that's a stronger indication than you’ve previously given that Snam is non-core. Is that correct? That’s how you moved on and you’re thinking about Snam in the portfolio, and if you can give any update at all I understand the sensitive, but any update at all on when you might conclude the deal on that? Thank you.

Paolo Scaroni

Okay. Let me make first a general comment about the Snam. You have heard me saying in the past that we were not dramatic about the presence of Snam in our portfolio. We were not dramatic, but of course, what we wanted to avoid at almost any price was to be obliged to sale, because when you are obliged to sale, you normally say that very poor conditions.

Now we think we have achieved that approved adoption of the [dialective] in the form of the, what we call [eye toe], which will allow us to keep the ownership of Snam Rete Gas as long as we want. Now with this behind us, then we become even less dramatic than before, what I mean by that is that if we find ways to create value from the shareholding of ours for our shareholders, we would be happy to do it. Now this is easier to say than to do, because you should always remember that what pave us to loose and we find for a divestment of Snam we need the approval of the Italian government and even more need a decrease from the government which allows us to go below 50% of the capital because it is a kind of process of (inaudible).

So regarding the need of all of that, we frankly are in no hurry, because in the meanwhile the company is performing well and delivering a return which is well in excess of our work. But of course, we are working on this project, and we’re expecting the next few months to come with some ideas. Now as you said, all this is confidential because we are talking about two listed released companies, and we don't want to raise expectations of something very soon, but certainly we are working on this subject. Galp, do you want me to say something about Galp as well?

Barry MacCarthy – Royal Bank of Scotland

If you could Mr. Scaroni, that would be very helpful.

Paolo Scaroni

Yeah, yeah. Finally as Galp is concerned, let’s say our strategy has not changed. We certainly don't want to be a long-term investor in the listed company, which we do not control and which represent a sizeable amount of investment, because our share holding in Galp is something in excess of €4 billion. We are looking at potential opportunities. Again, here two things are easier to say to do because until 2014 any divestment of our stake in Galp should in fact be approved by the two partners, we have the two strategic partners, one being Mr. Amorim, Amorim Energia, and the other one being the government, the Portuguese government through La-Casa, they are their financial institution.

So again, this is a point of which we are working. We are probably more in advance than on (inaudible) in terms of timing. We cannot really disclose much more than that. Again, we are relaxed in terms of timing for two leases, first of all because the company share price is performing reasonably well, and second because Galp is in the process of selling its stake of its (inaudible) asset, which includes all the assets that Galp has in Brazil, so roughly 75% to 80% of the value of the company, and we expect that at the end of this process, the share price, we move upper rather than down. So again, yes, we are working, but no hurry at all.

Barry MacCarthy – Royal Bank of Scotland

That’s very helpful. Thank you very much.

Operator

Next question comes from Mr. John Reade from UBS. Mr. Reade, please proceed with your question.

John Reade – UBS

Oh, yes. Hi, thanks for taking the question. Let’s talk about the gas and & power business and I recognize on the gas marketing, you don’t want to talk specifically about the negotiations by country. But could you sort of talk in rather a higher level about if the contracts had been renegotiated to your satisfaction prior to the second quarter, where you would have expected the gas marketing earnings to be or put it in another way, if we get to the fourth quarter and you’re able to renegotiate and we sort of spread it back across the, can you just talk a little more about that? And then secondly, I think you then said something about comparing it to last year, but then having to adjust it for Libyan effects, can you also just elaborate a little further on that if that’s possible? Thank you very much.

Alessandro Bernini

Okay. Let me try to take you through a kind of process out of which you might deduct what our expectations are, more than giving you elements about the negotiation, which as you can imagine is really delicate on one side and then it is not concluded so even more. Now, we try to solve this question of yours, giving you guidance for 2011. The guidance we give on gas and power is that on the basis of what we consider a potential outcome of the renegotiations. Our results will be in line with 2010 excluding $300 million of Libya. Okay.

Now if you elaborate on that you take our results on the first half, which do not include any result of this negotiation and you compare with the guidance that we are giving to you I think you might expect a total number of what we expect to be the benefits we should have by year-end from our negotiations both with Gazprom and Sonatrach.

John Reade – UBS

Okay. And the 300 million that is Libyan effect. Is that a loss of more market share to give you.

Alessandro Bernini

Now this is made of two components. One is we saw the less gas that (inaudible) would have sold.

John Reade – UBS

Yeah.

Alessandro Bernini

Simply, because we didn’t have the gas. Second, I will say, then second price. Price is made again of two components. The first component is that we had to replace some Libyan gas with our portfolio, which is certainly more expensive than the Libyan gas for the simple reason that the Libyan gas is the only one we have already negotiated. We have been lucky, we renegotiated the wrong one for is that to say. Now that’s the first. Second, in the contract of the Libyan gas there is a portion which is what we call extra gas, so gas released by the Libyan’s which do not use it for internal consumption, which is particularly cheap and therefore, we had to replace even this one. As a conclusion of that, we attributed roughly 300 million euros to the Libyan short fall.

John Reade – UBS

Okay. Now, that’s very clear thank you.

Operator

Next question comes from Mr. Sharma Nitin from JPMorgan. Mr. Sharma, please proceed with your question.

Nitin Sharma – JPMorgan

Hi, just one question please. And I’m conscious that you’ve delivered a [4%] increase an interim dividend, but given the likely diverse in the Gulf International pipeline much stronger oil price versus your planning assumptions. When do you plan to revaluate your dividend policy in terms to pace of euro 1.

Paolo Scaroni

Not now. We are not planning to revaluate our dividend policy. We’re planning to revaluate our dividend base that is, I don’t if you remember, but our dividend policy is based on our scenario. And according to our scenario, our plan which include the CapEx we plan to make and the moves we have to do to go below 40% of leverage define the sustainable dividend for the four years period of the plan. Therefore, in our presentation, our strategy presentation we will make in February, which will present a new plan of Eni and will disclose as usual our scenario as far as oil prices are concerned, then we would give you the new base of calculation of our dividend.

Now, of course, the new thing is that all these has to take into account Libya, because Libya is such an important position for us that if, while frankly, I hope will not be the case, but in February next year, the Libyan situation would be the same (inaudible) where we are today this would be also part of our considerations.

Nitin Sharma – JPMorgan

Thanks.

Paolo Scaroni

Thank you.

Operator

Next question comes from Demichelis Alejandro from Bank of America. Mr. Demichelis please.

Demichelis Alejandro – Bank of America

Yes. Good afternoon, gentlemen. Couple of questions. The first one is on the renewal seasons of the contract for your gas. These are the numbers that you are providing us with a kind of the minimum numbers you are expecting on those renewal seasons or is there a kind of range that of different alternatives that we should be thinking about. And the second question is regarding the media situation, how quickly you said you kind of will start production. Can you give us some kind of time if you are saying for the gas quite quickly, but for the oil how long should we think about that?

Paolo Scaroni

Domenico will answer the first one and (inaudible) with the second.

Domenico Dispenza

(inaudible) by Mr. Scaroni. Our expectation (inaudible) all the negotiation we are having, talk albeit what we think will be the possible outcome of them.

Paolo Scaroni

For Libyan production, for gas because of the reason the first one is that gas fields are quite young and so there is no water problem, water problem and all these conditions for up now are in a very good shape I think is a question of months, two, three months, we can restart practically good production. For oil field, quite frankly talking about (Inaudible) oil field, oil discoveries is some maybe some time not less than one year 12 months to restart production for oil it seems.

Demichelis Alejandro – Bank of America

So then what you’re talking about your guidance that’s for this year and not for next year then we should be thinking that (inaudible) to be sold today your 2012 numbers would be quite significant?

Domenico Dispenza

Talked about we can see there a full rate for 2012 and for our share is very low because there is no big investments, so I think that we talk about 450,000 barrel per day and we can see the half of that production for the guidance of next year.

Demichelis Alejandro – Bank of America

Okay. Thank you.

Paolo Scaroni

Thank you.

Unidentified Company Representative

Are there any more questions?

Operator

No more questions at the moment. (Operator Instructions) Next question comes from Mr. Mark Bloomfield from Deutsche Bank. Mr. Bloomfield, please.

Mark Bloomfield – Deutsche Bank

Good afternoon. Yes, three questions please. First of all on Iraq, perhaps you could update us on the phase of developments there, and how that’s progressing since you’ve taken operatorship there. And the second question, just turning to China, I wondered if you could update on the stakes of your negotiations with PetroChina on the MoU you signed earlier this year? Thanks.

Paolo Scaroni

Okay, Claudio will answer both the question.

Claudio Descalzi

First Iraq, from an operation point of view, Iraq is doing quite well. We are still producing an average of 280,000 barrel per day. We are still in the first phase, you know that we have the retentions phase that will last three years and after that the full development phase. There is no operational problem. We are experiencing some problem in the awarding of contract because of bureaucracy and that is the main hurdle we are facing. So there is no – the hurdle that – because in the very beginning plant capacity or other things but the main issue now in the table is the awarding contract that will allow us to rely with the government.

Mark Bloomfield – Deutsche Bank

Thank you. That’s all from that point, did that change your expectations perhaps from Iraq this year to next?

Paolo Scaroni

Now that’s doesn’t impact production because if you remember during the Strategy Presentation we’ve put some the contingency on Iraqi production, and so there is no impact from that point of view that seasonally say that our guidance for 2011 is absolutely the same. And I don’t think that these problems, that is not the technical problem, is just bureaucracy I think that will be solved.

Mark Bloomfield – Deutsche Bank

Thank you.

Paolo Scaroni

Second question for the China.

Mark Bloomfield – Deutsche Bank

China.

Paolo Scaroni

Well China will start, we said in the first and the beginning of the year with the PetroChina. And now, really recently with China. The aim and (inaudible) of Europe is more or less the same and to say that is, our main objective is to have some unconventional blocks in China and the main target objective of our Chinese partner is to have an access in Africa, where with this company in term of actually good production. So we are working, really identified some possible area, and I think in the next month we would be ready to start to see the discussion and possible transaction.

Mark Bloomfield – Deutsche Bank

Thank you.

Operator

Next question comes from. Mr. (inaudible)

Unidentified Analyst

Yes. Good afternoon, (inaudible). Two question if I may. The first one that I’ll ask, how the sale and or did the consolidation of [Sonatrach] with the gas could change your strategy. I don’t know more aggressive exploration acquisition of assets or generally what are the main cost rates you see in that your current giving. Second question, what’s the main take away from the recent negotiation of Edison with Promgas your joint venture with the Gazprom. It looks like quite generous for Edison, so I was wondering whether you could give us more flavor on what happened there. Thank you very much.

Paolo Scaroni

Let me say a word about the consolidation of Snam Rete Gas. Let’s say, we do not expect that rating agencies will look at that in a different way if we did consolidate Snam Rete Gas. For the simple reason that it is true that out of our 26 billion euro of debt, 12 or 11.5 or 12 are Snam Rete Gas of debt. But the rating agencies quite correctly make or define recently that this debt is well hedged with the regulator assets and therefore, we are not expecting major change in the perception of the rating agency or of the financial markets.

As far as Edison is concerned I think, Domenico will give you a view.

Domenico Dispenza

Yes, as you may have arrived, Edison formed an agreement with the Gaaprom on the gas that they buy. This is off to a track in fact an arbitration cost that’s a bit (Inaudible) part of it. (Inaudible) Edison and lost sales operating in different market. Edison is mainly concentrated in power generation, our market is a little bit different. Another element that we should consider is about the volumes folder to Edison around 2 bcm and it is around 10 time less (inaudible) by around or what is lead by around 20 billion cubic meter. Anyhow, this result is quite interesting, because of their ability over Gazprom to find agreements.

Unidentified Company Representative

Are there any more questions?

Operator

Next question comes from Mr. Marc Kofler from Macquarie Securities. Mr. Kofler, please.

Marc Kofler – Macquarie Securities

Good afternoon, everyone. I just have one very question on your exploration program offshore (inaudible) this year. If you could provide any color on that, that would be great thanks.

Paolo Scaroni

Exploration program, in the second (inaudible) that we have big expectation for this well and for the result of this well, also based on their result of the well driven by energetically. So we assume that we have big structure and with the BOS now very, very high cost of 50%, 60% and where I think the talk about possible appraisal phase, we have raised the rig and all the materials equipment and people ready to go add immediately with this back-to-back tuning to be able to design a very (inaudible) shares, but we are very, very positive.

Marc Kofler – Macquarie Securities

Great, thank you.

Operator

No more questions at the moment. Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please

Jon Rigby – UBS

Yeah. Hi, I’m going to follow-up. Just on thinking about spend a little bit, is that, as you said is that, it was legally acknowledged that the structure that you had in place complied with the directives, you said directive, which I believe essentially says that you don’t have direct management control any further over the actions of that management. So does that mean actually in legal terms that you could be consolidated anyway even if you don’t own, even if you continue to own 50%, just on (inaudible) form?

Paolo Scaroni

Now, we’re thinking that we’d like to be more precise. Today in what we call as num, there is the transportation, that transportation which is the network in Italy, then there is (inaudible) to tolerate, then we have retail gas distribution. and then we have the G&A for the re-gasification terminal. Out of all these four businesses, the only one, which is object of the further activity in the transportation, therefore we bring this number to gas. they will create a company, which would be bear to around the rules of item, which are specific rules of government, which will manage the transportation system, all the rest, nothing would change. We’ll stay exactly as it is. Now this transportation business represents roughly 40% of this num, little less than 40% of num, whereas for the other 60% of num, nothing changes.

Jon Rigby – UBS

Okay, all right. Thank you for the clarification.

Operator

Next question comes from the line of (inaudible) please.

Unidentified Analyst

Yes, good afternoon gentlemen. My question refers to cash and do you think that the relationship with the government are more friendly. So could you provide us an update on that, the two relations with the government and the possibility to see the second phase to start in the mid term. Thank you.

Paolo Scaroni

Thanks for the question. First of all, I want to add that the agency with the government are excellent. There is no problem with the government until and there is no problem with the field. So things are quite clear and for the first phase as we said already there are times we confirm that second phase is not problem to reach the first production by the end of 2012, and we are discussing about the close of the Phase II for that season we are slowing down and first of all, we want to see there as well as for the Phase I and we are looking at the concept of the Phase II to the demand cost increased internal rates of the project. So that is the situation we are discussing I don’t think that I have to say more about that, thank you.

Unidentified Analyst

Okay. Thank you.

Operator

No more question at the moment. If there are further questions please come forward. Next question comes Mr. (inaudible).

Unidentified Analyst

Yes, given the loop of stability of the refining business, would you (inaudible) kind of activities like is this probably to guess what ConocoPhillips into US?

Paolo Scaroni

Well, you see I’ve looked closely at what ConocoPhillips has been doing and for the time being, we think that would not be appropriate to disclose of this business in these difficult times. We still consider that our refining marketing business is an important is a core business will remain.

Unidentified Analyst

Okay. Thank you.

Operator

No more question at the moment.

Unidentified Company Representative

Okay. If there are no more questions perhaps we can bring the conference to a close.

Operator

The counter has confirmed, madam. There are no more questions.

Unidentified Company Representative

Thank you. Well, thank you very much everybody for being with us on the call and if there are any follow-up questions you can get hold of us at the IR number later on or next week. Thank you very much.

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