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ENI S.p.A. (NYSE:E)

Q4 2011 Earnings Call

February 15, 2012 09:00 a.m. ET

Executives

Paolo Scaroni – CEO

Alessandro Bernini – CFO

Claudio Descalzi – COO, Exploration & Production

Umberto Vergine - COO of Gas & Power Division

Analysts

Nitin Sharma - JP Morgan

Marc Kofler – Macquarie Securities

Alejandro Demichelis – Merrill Lynch

Theepan Jothilingam – Nomura International

Oswald Clint – Sanford Bernstein Research

Andrea Scauri - Mediobanca Securities

Domenico Ghilotti – Equita S.I.M. S.p.A.

Mark Bloomfield - Deutsche Bank

Neill Morton - Berenberg Bank

Operator

Good afternoon, ladies and gentlemen, and welcome to ENI’s 2011 Fourth Quarter and Full Year 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 2011 fourth quarter and full year results presentation.

In 2011, we made exceptional progress on our medium and long term growth prospects. We had some remarkable successes in exploration with important discoveries in the Far East. With the discoveries of Jangkrik North East which have almost doubled our resources in the area.

In the Barents Sea, Skrugrad and in recent weeks Havis have opened up a new hub with 500,000 Boe of recoverable reserves. And of course in Mozambique where we have today announced results of our second well Mamba North and raise our estimate gas in place to 30 Tcf.

We are very excited about the block’s further potential and then expanded our exploration and appraisal plan with eight further wells to be drilled in the next two years. Overall, we have added 1.1 billion Boe of resource in 2011 building on our excellent track record in exploration over the past four years. We have also made good progress on our key projects for medium-term growth, signing the GSAs and taking final investment decisions for Perla in Venezuela.

On our FIDs in the Yamal Peninsula in Russia, we are pleased with the technical and commercial progress on these developments, which alongside with the year other FIDs with contribute 140,000 Boe a day of new production by 2015.

Now the highlight of Eni’s performance in 2011 was the quick operational recovering in Libya. While the turmoil in our largest producing country affected both volumes and results last year, our consolidated local relationships and experience helped to contain the impact of the crisis. We were the only IOC to maintain some level of production in Libya during the revolution with local employees continuing to work at Wafa and gas production for domestic power generation exempts from international sections and since the liberation of Tripoli in September. We started all of our fields and reopened the GreenStream ramping up production faster than even we had anticipated.

Today, we are almost back to pre-crisis level and expect 2012 production from Libya of around 230,000 to 240,000 Boe per day compared to the 110,000 Boe per day reported for the full year 2011 and the 273,000 BOE per day in 2010.

Let’s now turn to Gas & Power, R&M, and Petrochemicals. For all these businesses the market context in 2011 was difficult and we saw deterioration in the fourth quarter of the year as the sovereign debt crisis started to affect the European, and particularly the Italian economy. This crisis spread across all our Italian businesses. In Gas & Power, demand was down 11% in the quarter also due to mild weather. In R&M, consumption of refined products declined by 5.5% in the quarter, and for Petrochemicals, the second part of the year, was the worst in the last 10 years. In this context, we have taken steps to strengthen our competitive position in each sector.

In Gas & Power, we continue our strategy of reviewing our supply costs and have already closed agreement with Sonatrach. However, it is worth reminding you that Gas & Power results do not yet include the expected benefit of the Gazprom renegotiation, which is progressing constructively and will be retroactive for the whole of 2011. Meanwhile, we have strengthened our position in the most resilient retail segment through organic growth in Italy and selective acquisitions in France and Belgium.

In Refining and Marketing, we are concentrating our efforts on efficiency. In 2011, we exceeded our target with over €150 million of savings. In Petrochemicals, alongside cost cutting, we are refocusing our business on more profitable niches. An example comes from our innovative project to convert a structurally loss making basic chemical plant to bio-chemicals, giving us a foothold in this fast growing market.

Thank you for your attention. I will now hand you over to Sandro for a closer look at our fourth quarter results.

Alessandro Bernini

Thank you, Paolo. In the fourth quarter of 2011, the market environment was mixed. The Brent price averaged at $109 a barrel, up 26% compared to the fourth quarter of 2010. Meanwhile, the average European refining margin Brent/Ural was $2.5 a barrel, well below historical levels and showing an 8% decline year-on-year. The euro-dollar exchange rate was broadly in line with the last quarter of 2010 at $1.35 per euro.

Moving to our results, Eni’s adjusted operating profit for the fourth quarter of 2011 was €4.3 billion, a decrease of 10% from the fourth quarter ‘10. This result reflects the operating losses recorded by the balance in businesses against the backdrop of a recessionary environment and the increased competitive pressure of Gas & Power marketing results, which only partially included the benefits of supply renegotiations. These negatives were to some extent offset by the improved operating performance in E&P, where operating profits were up 4.3% year-on-year, reflecting higher oil prices and the efforts made to recover a Libyan production after the suspension of much of power activity in the country during the crisis.

Adjusted net profit for the fourth quarter of 2011 was €1.54 billion down 9.5% compared with a year ago. This decrease reflects a lower operating results and higher group consolidated adjusted tax rate. The group tax rate was approximately three percentage points higher due to the higher contribution of the E&P to grow profits as well as the upward revision of the so called Robin Tax.

In the fourth quarter of 2011 Eni’s hydrocarbon production amounted to 1,678,000 Boe per day a decrease of about 14% compared to Q4 2010. The decrease was mainly driven by the Libyan crisis. However, the extraordinary efforts made in the last part of the year to restore production and reopen the GreenStream pipeline helped to reduce the impact of force majeure.

Fourth quarter production from Libya was over 160,000 Boe per day compared to the third quarter production of around 50,000 Boe per day. Furthermore the sharp increase in oil prices compared to the fourth quarter of 2010 negatively affected entitlements on the PSA contracts with an estimate impact of 20,000 Boe per day.

The divisions adjusted operating profit was supported by higher oil prices and amounted to €4.2 billion up 4% compared to the fourth quarter of last year. In terms of reserves we added 827 million Boe through organic promotions. The results are driven by the important FIDs taken in 2011, amongst the richer the first to two developments in the Yamal Peninsula in Russia, Samburskoye and Urengoskoye and the super giant, Perla field in Venezuela.

Overall, reserves at the end of 2011 were 7.1 million Boe, a figure which rises to 7.2 billion Boe excluding price effect compared to 6.8 billion Boe at the end of ‘10. Our organic reserve replacement before price effect was 160%. Even assuming full Libyan production in the 2011, it would have been in the region of 120%.

In Gas & Power, overall gas volume sold including consolidated and associated companies, totaled 24.7 bcm, a decrease of around 9% compared with last year. The decline is mainly attributable to weak demand in Europe, growing competitive pressure and the effect of force majeure in Libya on off-takes by importers to Italy.

Adjusted operating profit in the fourth quarter decreased by 50% compared to the same period of 2010, due to the sharply lower results delivered by the marketing business. It is worth reminding you that fourth quarter marketing results reflected the benefits of the finalized renegotiation with Sonatrach backdated to April 1, 2011, and do not yet reflect the benefits of the pending negotiations with Gazprom, although this will also be retroactive to January 1, 2011.

Gas & Power adjusted pro forma EBITDA for the fourth quarter of 2011 was €671 million compared to €921 million in the same quarter of last year. International transportation results showed a 42% decrease mainly due to the divestment of Eni’s interest in the gas pipelines from Northern Europe and Russia. The regulated businesses generated €389 million in line with the corresponding period of last year.

Adjusted pro forma EBITDA in the marketing and power business was negatively impacted by recessionary environment and increasing competitive pressure in Italy and Europe, as well as unusually mild weather conditions.

Increased competitive pressure was partially offset by the positive outcome of the renegotiation of long-term supply contract with Sonatrach and other suppliers, as well as by portfolio optimization strategies. On the other hand, the result doesn’t yet reflect the benefit of the pending renegotiation with Gazprom whose effects will be retroactive to January 1, 2011. Furthermore, the lower production in Libya reduced the volumes to shippers and affected margins, owing to the substitution of recently renegotiate Libyan gas with other sources of supply.

Turning now to R&M, in the fourth quarter of 2011 the division reported an adjusted operating loss of €271 million versus a loss of €39 million in the same period of last year. This decrease reflects the worsening result of the refining business, with unprofitable refining margins due to rising costs for feedstock and plenty utilities, in particularly fuel oil.

Eni’s complex refineries were also impacted by the reduction in the spread between light and heavy crudes. These negatives were partially offset by efficiency announcement measures, the synergic integration of refineries and the optimization of supply activities. Meanwhile, operating profits in marketing were impacted by declining fuel consumption for transport in the industry in a recessionary environment and by increased competitive pressure.

In the fourth quarter of 2011, the Petrochemical business reported an adjusted operating loss of €154 million, compared to a loss of €74 million in the fourth quarter of 2010. The business was negatively impacted by full year margins and a substantial decrease in demand. Saipem delivered an adjusted operating profit of €390 million, up 3% versus Q4 2010. Other activities in corporate showed an aggregate loss of €88 million, compared to a loss of €129 million in the fourth quarter of 2010. This decline is mainly related to a year-end adjustment of insurance cost, tends to improve to the injury frequency rates and other one-off items.

Cash flow from operations was €14.3 billion in 2011. Proceeds from divestments amounted to almost €2 billion, including the sale of Eni’s interest in gas transport pipelines from Northern Europe and Russia along with usual activities in Brazil, and non-strategic upstream assets.

Cash out flows related to capital expenditure of €13.4 billion and dividend payments of €4.3 billion including dividends paid to Essalam minorities. Net financial debt at yearend amounted to €28 billion and the ratio of net borrowings to total equity the leverage ratio stood at 0.46 compared to 0.47 in 2010.

Thank you for your attention and now I will hand you over to Paolo for his final remarks.

Paolo Scaroni

Thank you, Alessandro. And now, our outlook for 2012. Our upstream production will grow by around 10% net of PSA effect driven by the recovery in Libya and startups in Algeria, Angola, and Russia.

This guidance factors in reduced growth expectation from Iraq where bureaucratic difficulties has slowed the ramp up in our entitlements. Turning to Gas & Power as you are aware the Italian Government has issued a decree which includes the proprietary separation of Eni Essalam a move which is coherent with our medium term strategy.

The timing and shape of the disposal are yet to be determined and our guidance refers to group structure as it currently stands. The businesses will continue to perform well, although international transport results will reflect the sale of our European pipelines completed in the fourth quarter of 2011.

Our marketing activities will benefit from the recovery in the Libyan supply and continued renegotiation on long-term contracts, which will have a material impact on 2012 results and provides the basis for a more competitive commercial strategy.

Following the agreement reached with Sonatrach, we expect to close negotiation with Gazprom in the first part of 2012. At the same time, our merchant business will face additional market pressure, effective regulatory changes will impact our Italian retail business. While, the economic and climate effects remain volatile, we see a weak 2012 on the back of the deterioration experienced in the fourth quarter. In this context, we will continue to grow sales in our key markets and increase LNG volumes, investing in our market position coherently with our view of a longer term tightening of the market.

In R&M, in the context of the continuing weak refining margins, we will further improve the efficiency of our operations. Consolidated CapEx will remain in 2012 broadly in line with 2011 and will be mainly focused on the development of our new major projects. This will continue to fuel any growth in the future a theme which we will discuss in our strategy presentation next month.

We will now be pleased to answer your question. And here with me apart from Alessandro Bernini and Claudio Descalzi, Umberto Vergine who as you probably remember has replaced Domenico Dispenza as the Chief Operating Officer of our Gas & Power division. He will be ready to answer your question as well.

Question-and-Answer Session

Operator

Ladies and gentlemen, the Q&A session is now open. (Operator Instructions) First question comes from Mr. Nitin Sharma from JP Morgan. Mr. Sharma please.

Nitin Sharma – JP Morgan

Hi, good afternoon. Two questions if I may, first one on Galp. What is the update on the sale of stake in Galp? Is there a price threshold that you want to achieve before progressing with this divestment? Second one on R&M and Chemicals, both these segments have been consistently reporting operating losses in the last few years and I do hear the plans in progress that you are looking to make. Is downsizing the Company’s exposure in these businesses also an option on the table, especially given your cautious view on the outlook for refining margins? Thanks.

Paolo Scaroni

Thank you. Well, on Galp I will give you a general view and maybe Sandro, who is rounding the negotiations around the stake of ours, will add few details. But let me tell you, first of all, this has been a business which has been a very good investment for us. As you may remember, we paid our 33.34% stake roughly €1 billion. We got back more or less the same amount in dividends and in tax benefit and our stake is worth something around €3.7 billion €3.8 billion. We are considering the sale of this business, but as you may remember, from now to 2014, more exactly March of 2014, every divestment of our stake should receive an approval from our strategic partners which include Mr. Amorim and the CDP, essentially the Portuguese Government. So every divestment should receive its approval. As far as price is concerned, we would consider a price, which take into account the market of course, and we’ll not be ready to sell below the market price. Now, moving to R&M and chemicals. Did I forget something, Sandro?

Alessandro Bernini

The perfect situation that you have described is exactly where we are today. In order to get the approval from our reference, the other two reference shareholder we are discussing with them and I have only to add that the discussions are progressing very, very well.

Paolo Scaroni

Now, as for your second question around R&M and chemicals, let’s say we look at the future of these two businesses in somewhat different way. R&M has been a profitable business for us until 2008. So, not a long time ago we were making good profits. Now today, the main reason that this business is not profitable is that the refining margin in the Mediterranean, which is the market of our competence, has been extremely low. And in fact, the drop in demand for petroleum products is certainly not helping. Our view is that the amount of refining capacity in the area has to be reduced in order to balance the reduced demand. We expect some closure of some refineries in the region. We will look close to our business to see if we can improve our market position. That is managing better our capacity.

You might be aware that for example right now our refinery in Venice is not working and the main reason is to match with a declining demand. On chemicals the story is somewhat different this is a business in which there is no reason why we should not be making reasonable returns where the plan or improvement of our activity are moving from commodity markets to specialty products which we are progressively implementing the first step is the transformation of our Porto Torres plant into new green chemical products we have several ideas about that we’ll progress in this business. And we target for 2014 to go back to much more the results which would be more competitive with our peer group.

Nitin Sharma – JP Morgan

Can I just ask one additional one Gas & Power? Assuming a successful conclusion of your ongoing negotiations at Gazprom could you give us an EBITDA guidance for this year please as you’ve done historically? Thanks.

Paolo Scaroni

Well I would prefer to give it to you after the conclusion of the negotiations and I am hopefully, although it does not depend for me to be in that position at our strategy presentations.

Nitin Sharma - JP Morgan

Thanks, thanks a lot.

Operator

Next question is from Mr. Marc Kofler from Macquarie. Mr. Kofler please.

Marc Kofler – Macquarie Securities

Good afternoon everyone. I just had a quick question following up on Mozambique and the results today and the guidance for an eight well campaign, is it in the next two years. I was wondering if you could offer any color at this stage at least when you hope to sanction a development, I’m guessing sort of early 2014, anymore color there would be great?

Claudio Descalzi

The well is finished and the well added 8 Tcf in total we have found 5.4 billion of barrels. So it’s much more than what we expected. The well is being tested. We got core, we test and also the production results have been very, very positive. Now we have to drill other eight wells in the next two years. We have more than four structures; three, four maybe five structures depends on the result of the next well, all exploration wells. I think by the end of the year we’ll have all the data necessary to go for an FID. I think that 2013 could be a good year to have the first FID, at least for the first two structures.

Paolo Scaroni

Next question?

Operator

Next question comes from Mr. Alejandro Demichelis from Merrill Lynch. Mr. Demichelis, please.

Alejandro Demichelis – Merrill Lynch

Yes, good afternoon gentlemen. Three questions if I may. The first one is Claudio was mentioning, having all the data by the end of this year on the structure. So, maybe you can comment on how the unitization discussions are ongoing? The second question is regarding your renegotiation with the contracts with Gazprom. Why that you are more confident this time than last year? The third one is how we should be thinking about the dividend going forward?

Paolo Scaroni

Okay, so Claudio.

Claudio Descalzi

Unitization is we would start talking with government about unitization and also with Anadarko. We are adjusting in a preliminary stage. Unitization will involve just the first two discoveries because most of the structure are completely only in the Area 4. So, we don’t need any unitization. So the time to market – our time to market will now link just the new unitization because we have also enough resource in layers, and the reservoir that are just only in the Area 4.

Alejandro Demichelis – Merrill Lynch

Second question?

Paolo Scaroni

Umberto will answer.

Umberto Vergine

We are confident that an agreement with Gazprom will be reached soon because, first of all, the negotiation is proceeding constructively. These have been based on our long term relation with Gazprom and the negotiation is along the lines of agreements that we have recently concluded also with other suppliers.

Paolo Scaroni

On the dividend, I would be fair to discuss about dividend once a year at our Strategy Presentation and which this year would take place on the 15th of March. For the time being we are pleased to confirm a dividend of €1.04 per share.

Alejandro Demichelis – Merrill Lynch

Okay that’s fine, thank you very much.

Operator

Next question comes from Mr. Theepan Jothilingam from Nomura International, sir please go ahead.

Theepan Jothilingam – Nomura International

Yeah, thanks very much, good afternoon gentlemen. Three questions please. Firstly, just on 2012 CapEx, could you talk about the moving parts in terms of what assumptions you’ve made in terms of exploration spend for 2012 cost inflation, and then I assume there’s a retreat from the reduction in CapEx at Saipem? Secondly, very quickly, Sandro, what sort of assumption should we make on the tax rate for this year? And then lastly, a question I think I asked in the Congo, but I was just wondering, you’ve clearly got a very big position in Mozambique with very high interest. I was just thinking about are there any plans to reduce that stake? Thank you.

Paolo Scaroni

Listen, I think Claudio will answer on the first question, and on the second, Sandro, and maybe the third one, I will say something and then give it to Claudio. Claudio?

Claudio Descalzi

For 2012 outlook for exploration, we increased our CapEx. So we expect 2011 about €350 million increase, and that is due to the big discovery that we did in Indonesia, Mozambique, Angola and Norway. So, we increased the number of wells to reduce the time to market and to appraise the area and to get the FIDs as soon as possible. So that is more or less the increase that we are going to have in 2012.

Alessandro Bernini

Then, just to give a comfort and to confirm what there is and why we have already stated that we expect to face a CapEx expenditure for 2012, broadly in line with 2011, it is because as you have already stated, we expect a significant decrease in the spending made by Saipem since they have almost completed their enhancement of their drilling fleet predominantly. As far as the 2012 tax rate is concerned, we expect that in 2012 the adjusted tax rate will be slightly higher compared to what we have incurred in the 2011 and is because we expect an higher contribution of the E&P pre-tax results also due to the restart of activities in Libya. We expect to have the full contribution of their economical results from Libya.

Paolo Scaroni

Mozambique, well as you are aware we hold 70% of the block. Now, Mamba raised a huge interest from everybody and we have been approached by almost everybody. The industry asking to be part of this huge development in the area. Our view is first of all we need to complete the exploration because we don’t know exactly what we have, not yet, and then if let’s say probably our first hypothesis is to decrease slightly our stake probably keeping it in the region of 50% in that region and attracting new partners particularly in the area of consuming, buyers of gas, because this will ensure a contract in order to sell the gas when we will be able to start exports.

Theepan Jothilingam - Nomura International

Can I just follow-up one, just Mamba North, in terms of your expectation on the resource base, I think maybe a few months back you talked about the gas in place numbers potentially doubling. Where do you see that sort of, let say full case scenarios of the gas in place?

Paolo Scaroni

What we said last time broad-based, at the end of this exploration campaign, our decision was to double the gas in place. Now I think that the result of this well is better than what we forecast. So, we have to see because each well is a different well, it really a wise gas, but we’re still thinking that we can double what we have found with Mamba South in the order of 40, 45 Tcf of gas internal resources.

Theepan Jothilingam – Nomura International

Thank you.

Operator

Next question comes from Mr. Oswald Clint from Sanford Bernstein, Mr. Clint please proceed with your question.

Oswald Clint – Sanford Bernstein Research

Yes, thank you very much. First one really just back on Libya, I was curious if you could give us some Libyan export numbers on top of the production numbers. How much oil are you actually receiving on Libya or was there any under lift in the fourth quarter? Maybe diving into Iraq for the second quarter, what exactly is happening there? Have you talked about some of the bureaucratic issues? Do you think these are going to get worse and some of your other companies talking about potentially exiting Iraq? Just I’d like to hear your thoughts on that or do you have any intentions to move potentially up in the Kyrgyzstan?

Alessandro Bernini

First Libya. Libya we’re exporting oil in November and December, so we don’t have under lift in Libya at the moment. The oil production is not yet at the top, so we are seeing as a equity about 25,000 barrels per day, 30,000 barrels per day, so that is the rate and I think that it will take all the 2012 to go back to the oil production, gas is doing quite well. For Iraq – that’s all I think for as a question on Libya. For Iraq, Iraq I think the situation is improving, and we are doing quite well at least for us, for our operation and better than in 2011. So, our intention is first of all to remain in Iraq, our intention is to participate in the 4th bid round that will be, should I think in the next month. For sure Kurdistan stand is very interesting from a geological point of view, but we don’t want to make any move that can jeopardize our position in the South Iraq.

Oswald Clint – Bernstein Research

That sounds great, thank you.

Operator

Next question comes from Mr. Andrea Scauri from Mediobanca, Mr. Scauri, please.

Andrea Scauri - Mediobanca Securities

Yes good afternoon everybody. A couple of questions from me, the first one that is on Snam Rete Gas and the potential disposal of your stake. I was wondering if you could provide us some more details on the timing, and the second question, if the deal will be concluded positively with the entire disposal of this stake, are you considering the opportunity to pay an extraordinary dividend? Thank you.

Paolo Scaroni

Let me start by saying we are not planning to divest from Snam Rete Gas. We are planning to divest from Snam. I am sorry for the confusion, but probably we made confusion with similar names for the two companies, but we are talking about Snam, which is the listed company, which controls Snam Rete Gas, di Stogit e Italgas and G&L Italy. So, this is what we are talking about. Now, it is very early days to tell you how and when this divestment will happen. It will not depend from us of course. It will depend firstly from the decree – first from the Italian parliament which has to convert the decree of the government, and then there should be a decree, a specific decree of the government which will clarify the procedure in which this divestment may happen. Just let me tell you what are our objectives on that, I mean, the objective that we will protect and defend at any cost. Now first of all, we want to make a transparent disposal which would be shareholder friendly in front of the Eni shareholders.

Second, we want to protect Snam shareholders because we should not forget that we have been bringing this company into the market. We have been putting together all our activities, regulated gas just a couple of years ago, and therefore we feel responsible that the interest of Snam shareholders will be perfected.

And thirdly, we want that at the end of all these processes, Eni will be a stronger company and not a weaker company. Now, giving you this three objectives and particular the third one. You will understand that we are not planning an extraordinary dividend.

Andrea Scauri - Mediobanca Securities

Okay, thank you.

Operator

Next question is from Mr. Domenico Ghilotti from Equita, Mr. Ghilotti please.

Domenico Ghilotti – Equita S.I.M. S.p.A.

Good afternoon. My first question is on Gas & Power. Could you give us an indication on the impact of Libya on profitability of the division in 2011? So what could have been normalized profitability in Gas & Power in 2011? The second question is on Snam. How would you manage the financing of Snam currently present in case of a disposal? There is any issue on this?

Paolo Scaroni

Well, look on the first, I’ll give you an answer because it’s a quick one. It’s €300 million the impact of Libya on Gas & Power. On the second Alessandro Bernini will make a few comments.

Alessandro Bernini

Basically, you know that the entire Snam Group is engaged in the type of business which the market considered to be a very low risky business. As a consequence, even in so difficult financial environment, we do not see any problem for Snam to refinance entirely there financial exposure when this will happen. I remember you bought it just because it has been already anticipated by the CEO of Snam during his conference call. As shown there will be a change of control of the company of Snam. The financial support provided by Eni will be immediately redeemable, but of course we – since we don’t want to create any problem for the Company. We will accompany Snam in refinancing, their financing process in order to preserve as much as possible the value for the Company. So all in all, we do not expect. We don’t foresee any problem in refinancing the financial exposure of the Company.

Domenico Ghilotti – Equita S.I.M. S.p.A.

Thank you.

Operator

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

Mark Bloomfield - Deutsche Bank

Good afternoon and thanks for taking the question. You’ve been very clear that key thoughts are improving profitability in gas marketing relates to renegotiating your purchase contracts. Looking beyond that, can you perhaps talk about what other strategies you’re pursuing in that business to attempt to recover both volumes and margin. The second question based on your referenced oil price and your assumptions on the outlook for the Italian gas market this year. What kind of take-or-pay liabilities if any you expect in the Gas & Power business to incur in 2012? Thanks.

Paolo Scaroni

Bernini will answer the second question, while Umberto prepares to your first one, which is a very wide question. First of all, we do not pay the take-or-pay on the basis of the Italian market, but from our European market. I mean we buy gas for all of our state in Europe and we like to remind you that we sell more gas outside of Italy than in Italy. So for us it’s the European market which counts on that. Now, in terms of take-or-pay, I have to tell you that among the items that we are – which are under discussion with Gazprom is also – there are also the take-or-pay levels. So at which levels we can give up on some purchases of gas and still not be liable for paying the gas or pre-paying rather the gas. Therefore it’s not easy to give you a number, because the number would be the results of the negotiation. Let me just say that the number in total will be fairly reduced. We are speaking about the number of around €200 million, €300 million in total for 2011. Now on the more strategic issue, let me just give you the ballparking which we move. The crucial issue, when we look at the gas market, is that this market has never been so complex, so difficult as it is today. It is enough to tell you, which is certainly you do know, that 1 million Btu of gas is sold today at $2.5 in the U.S., at €11 in Europe and 18 in the Far East. This give you an idea of how difficult is to draw a strategy in such a complex environment, but we have done so and Umberto might try to give you some element although this would be an item that we will develop more in our Strategy Presentation in Eni.

Umberto Vergine

As we said, our gas mix business experienced tremendous volatility in terms of economic scenario, demand and also weather conditions. So, the point of renegotiation that means to remain market reflective in terms of price of which we buy gas is a fundamental first solution of this problem, and this is where we concentrating all our efforts. On top of that, we also plan to continue our strategy for growth, particularly in the European market, both in terms of capitalizing on the experience that we have in the Italian market in the oil segment and first in the retail and by expanding our presence also through acquisition if commercially these opportunities present being variable.

Mark Bloomfield - Deutsche Bank

Thank you.

Paolo Scaroni

Thank you.

Operator

Next question is from Mr. Neill Morton from Berenberg, Mr. Morton please.

Neill Morton - Berenberg Bank

Thank you, good afternoon. Just a couple of questions left. First on gas renegotiations again, you’ve talked about Libya, Algeria and Russia. Could you perhaps comment on Norway? And then just secondly, with regards to the Snam disposal, you talked about it being a transparent process, could you perhaps reassure Eni investors other than the government that whomever you sell to, you wouldn’t sell for less than, for example, the ramp of Snam? Thank you.

Umberto Vergine

Primarily, we haven’t had entered into any renegotiations so far, because the terms of the contract will give us the first opportunity at the end of 2012, and we are preparing for that.

Paolo Scaroni

On the Snam disposal, I don’t want to give you any specific number or any parameter to which you could refer. I just can assure you that we’ll fight to hell to protect any shareholders.

Neill Morton - Berenberg Bank

Great, thank you very much.

Paolo Scaroni

Thank you.

Operator

There are no more questions at the moment.

Unidentified Company Representative

Well if there are no more questions perhaps we can call the conference to an end. If you do have any additional questions at a later date please calls us on the investor relations number.

Operator

Ladies and gentlemen the conference call is over. Thank you for calling Eni.

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Source: ENI's CEO Discusses Q4 2011 Results - Earnings Call Transcript
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