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Eni SpA (NYSE:E)

Q3 2007 Earnings Call

October 31, 2007, 10:00 AM ET

Executives

Marco Mangiagalli - CFO

Stefano Cao - COO

Analysts

Theepan Jothilingam - Morgan Stanley

Lucy Haskins - Lehman Brothers

Neil McMahon - Sanford Bernstein

Iain Reid - UBS Securities

Alastair Syme - Merrill Lynch

Barry MacCarthy - Abn Amro

Gordon Gray - JP Morgan

James Hubbard - Deutsche Bank

Michele Della Vigna - Goldman Sachs

Colin Smith - Dresdner Kleinwort Bank

Huw Williams - Bear Stearns

Presentation

Operator

: Good afternoon ladies and gentlemen and welcome to the Eni 2007 3Q Results Conference Call hosted by Marco Mangiagalli, CFO. My name is Wendy and I will be your coordinator for this conference. Throughout the presentation, you will be on listen-only. However at the end of the call, there will be an opportunity to ask questions. [Operator Instructions].

I will now hand you over to your host, Mr. Marco Mangiagalli to begin today's conference. Thank you.

Marco Mangiagalli - Chief Financial Officer

Thank you, Wendy. Good afternoon, ladies and gentlemen, and welcome to this conference call during which I'll comment on this 2007 third quarter results and business trends. At the end of the presentation together with Stefano here with me and who is in a position to update you on the recent development in the upstream division. And will be pleased to answer to your questions.

Let me start with a quick overview of the trading environment. The third quarter 07, the Brent price strengthened averaging $74.9 per barrel and increasing by approximately 8% compared to the third quarter of 2006. In the refining, our third quarter indicator margin fell by approximately 5%. The margins realized by our old refineries were however significantly weaker due to the narrowing of light to heavy crude differential.

Finally, the euro showed an appreciation of 8% verses the U.S. dollar compared to the same period of last year. As usual, I would like to remind you that our results are affected by several issues including the seasonal factor affecting the demand for natural gas and petroleum products use for residential heating, the demand for which is highest in the first quarter of the year, the colder months. And lowest is the third quarter, the warmest months. Therefore, Eni's operating profit and change in net debt in the first nine months can not be extrapolated for the full year. Having said this, let us now comment on the results.

Adjusted net profit for the third quarter amounted to €1.89 billion, a decrease of approximately 28% compared to the same period of 06. This result mainly reflects 17% decrease in the adjusted operating profit as well as the higher adjusted tax rate, which was 53% compared to the 48.8% for the same period of last year.

Adjusted operating profit amounted to €4.2 billion, a decrease of 17% compared to the third quarter of 2006. This result mainly reflects the weaker results in the upstream and downstream oil businesses. It's worth mentioning that engineering and construction posted 46% adjusted operating profit increase.

Moving to our business segments in the E&P hydrocarbon production in the third quarter usually affected by maintenance activities totaled 1.659 million boe per day, a decline of 2.9% versus the corresponding period in 2006. This decline is the result of the price effect, the disruptions in Nigeria, the CATS pipeline shutdown, the depletion of material steels mainly in Italy and UK, and the lower entitles [ph] in certain production sharing agreement. The negative effects were partially offset by the contribution of the assets acquired in the Gulf of Mexico and Congo.

Turning to the first nine months of 2007, daily hydrocarbon production decreased by 2.9%, averaging 1.710 million boe. It was mentioned that part [ph] of the scheduled maintenance activity has been substantially completed and during October, production accounted for approximately 1.780 million boe per day.

Having said that I can confirm that despite the disruption in Nigeria and the UK and the impact on Venezuela, assumed evidence to bring pricing 2007 of $55 per barrel, which you might remember was our planning vessels. However, production is expected to be substantially in line with 2006.

Third quarter reported operating profit for the E&P division amounted to €3.3 billion, down 18% year-on-year. On an adjusted basis, operating profit declined by around 19% on a like-for-like basis. And this decrease is mainly due to the appreciation of the euro versus the dollar, lower production sold, increased exploration expenses, higher operating costs and DD&A also as a result of sector-specific inflation.

The negative effects were partially offset by the higher realization prices denominated in US dollars. To the Gas and Power division, overall oil gas volumes sold both consolidated and associated increased by approximately 5% in the third quarter of 2007 totaling approximately 19 bcm.

Gas sales in Italy including sales consumption increased to 11.5 bcm as a result of higher volumes sold to wholesalers. This positive trend was partially offset by lower sales to industrial and power generation customers. International gas sales rose by approximately 6% reaching 7.6 bcm and this was mainly a result of higher gas volumes sold in our target market.

The first nine months of 2007, overall Italian gas demand reached approximately 59 bcm with a year-on-year decrease of 3.7%. In the same period Eni's domestic gas sales decreased by 3.6% mainly as a result of the mild weather conditions.

International gas sales in the first nine months of 2007 totaled 26 bcm. This was broadly flat compared with the same period of 2006. Turning to the Gas & Power division's financial results, reported operating profit for the third quarter amounted to €590 million in line with a corresponding period of 2006.

Third quarter results includes the negative impact of special items including €19 million mainly related to redundancy incentives and to environmental provisions. In addition, we counted for an inventory gain of €28 million.

Adjusted operating profit amounted to €581 million, down approximately 6% from the same period in 2006. G&P adjusted pro forma EBITDA for the third quarter of 2007 amounted to €797 million. This compares to the €882 million in 2006.

Let me now elaborate on the business segment. Supply and marketing decreased by 22%, this performance was primarily due to the mismatch between purchase and sales prices that has affected distinction we are seeing this to terminated [ph] users. This negative effect was partially offset by higher volume sold, which we are up 5%. The regulated business generated €215 million, up 11% versus the third quarter of 2006.

The strength is due to the increased operating profit of natural gas and also to the increased ownership resulting from the now completed buyback program of the company. Now again EBITDA accounted for €18 million. Let me remind you that starting from the third quarter of 2007, the Powergen segment only comprises the tolling activity, since marketing activities has been moved to the supply and marketing segment in accordance with our objective of developing a dual offerings strategy.

If we look at the first nine months of 2007, overall adjusted pro forma EBITDA increased by approximately 4% versus the corresponding period of 2006. Basically, the result of improved regulatory framework and despite the lower gas volumes sold, transported, and distributed due to the mild winter. Furthermore, the result of the first nine months of 2007 has been negatively affected by the unfavorable trend in energy parameters recorded in the third quarter.

Let me now turn to the R&M Division. 2007 third quarter reported operating profit totaled €282 million, up 13% compared to the same period of 2006. The result includes negative special items for €56 million mainly related to environmental provisions and redundancy incentives. In addition, we accounted for an inventory gain of €219 million.

On an adjusted basis, the operating profit decreased by approximately 67% compared to the same period of 2006. This reflects weaker refining modules mainly as a result of the narrowing of the differential between light and heavy oil, as well as the appreciation of the euro against the dollar.

Marketing 2007 third quarter pro forma was substantially in line with the same period of 2006. As other businesses are concerned in the third quarter of 2007, the Petrochemical division posted an adjusted operating profit of €30 million. This decrease versus the same period of 2006 was mainly due to lower based chemical margins resulting from a highest in stock cost.

The adjusted operating profit of the oilfield services and engineering business totaled €211 million in the third quarter of 2007, up 46% versus the same period of last year. This achievement was attributable to higher results in both, onshore and offshore construction activity.

Looking at our cash flow, this slide compares our sources and uses of cash for the first nine months of 2006 and 2007. Operating cash flow of €13 billion and divestments totaling €0.6 billion partially funded €6.9 billion of organic capital spend and €8.7 billion of acquisition. Furthermore, shareholder distributions amounted to €3.4 billion out of which dividend payment exceeded €2.6 billion.

As a result of the significant investment and the case returned to shareholders, our net financial debt as at the end of September increased to €11.4 billion and our debt to equity ratio was equal to 0.26.

Revenue underlies that assuming $15 per barrel scenario again resonance for us, the net debt-to-equity ratio could be in the range of 0.3, 0.4 at year end depending on whether gas exercises the options on the 20% stake in gas from net and on the 51% stake in the four mergers [ph].

Finally, let me comment on CapEx. In the first nine months of 2007, capital expenditure amounted to €6.9 billion representing an increase of approximately 42% compared to the same period of last year. This was mainly due to higher expenditures in all our core businesses, particularly upstream showed 40% increase mainly as a consequence over higher exploration expenses in the Gulf of Mexico, Egypt, Norway and Brazil as well as increased development activity in Congo, Egypt, Italy and Angola. It's worth mentioning that the increase results of the result of their recent acquisition in Gulf of Mexico and Congo.

Engineering and oilfield services showed 104% increase related to the construction of two new SPA source units and other vessels. Gas and power higher CapEx are related to the upgrading of the Italian and international transportation network. And finally, R&M posted 48% CapEx increase referred to the ongoing refinery upgrading program. For the full year, we expect proposed and overall CapEx of approximately €10.5 billion.

Thank you for your attention. And now we will be pleased to answer your questions.

Question And Answer

Operator

Thank you. [Operator Instructions]. Our first question comes through from the line of Theepan Jothilingam from Morgan Stanley. Please go ahead.

Theepan Jothilingam - Morgan Stanley

Hi, good afternoon, Marco. Just three questions actually, couple on volumes. First, I just want to understand whether you could give an indication of the contribution of the acquisition that you have made this year to the 2007 volume number? Secondly, whether you are in a position to give any sort of guidance on 2008, if not... if you could sort of highlight where you think the key great areas would be? And the second question again just on Nigeria, I was just wondering whether you could give a indication of what the total disruption is at the moment to Eni's net production in the country? And there has been sort of discussion about potential change in first quarter. I was wondering whether that had any implications of Brass LNG or whether you have an update there. And finally just the third question was just on your strategy for growth. You've made a number of acquisitions already this year. I think you put forward a potential bid at the moment on the table. Could you just talk a little bit about the criteria you are looking at for acquisition and for growth? Thank you.

Marco Mangiagalli - Chief Financial Officer

I think Stefano should address it.

Stefano Cao - Chief Operating Officer

Yes, this has three questions there and many more. I think volume contribution to production coming from the acquisition in the third quarter, the contribution is 77,000 barrels of oil per day. So this is the contribution on the quarter. On the... if you wish to have an indication on the full year, I would say that should account around 45,000 barrels per day. Then the second... then you were asking about the... you had asked that the situation in Nigeria, the impact again on the quarter is the one we mentioned is 25,000 barrels per day in the third quarter. What is the total impact is certainly higher because this is what we have identified as the additional and unexpected impact. Currently, we produce around another 30,000 barrels per day. I would say that in normal circumstances, we would expect to have something like around 50,000 barrels of oil production more from Nigeria. In terms of fees concerns, fees concerns in Nigeria then there was just a big statement. I think that it is difficult to anticipate out of the statement worked that might be the eventual impact in fiscal terms, so it is extremely difficult to make a judgment. But what I can tell you is that the fiscal is related to the Brass LNG will be a not a hydrocarbon relative facility, but will be a facility devised on purpose, so it follows a different treatment. You referred to then to acquisition, and I will say that what has been so far the criteria on which we have based the acquisition we have made. Those are the criteria we have always referred to in terms of materiality of the acquisition, in terms of strategic presence in the country, in terms of synergies which we retain... we can extract. Obviously, a great importance is associated whether we are operator or not from the financial point of view. That's... we base all the acquisitions on the big financial discipline to which is based on the application of their scenario, which for the acquisition. We have made is the $40 long-term plus a four year valuation closer to what is the forward curve for the first four years as I said. So basically, this has been the criteria. In terms of obviously other operations, which you might have been hearing, we are not at all enable to make any comment whatsoever at this stage.

Theepan Jothilingam - Morgan Stanley

Great. Thanks very much for that.

Operator

Thank you. Our next question comes from the line of Lucy Haskins from Lehman Brothers. Please go ahead.

Lucy Haskins - Lehman Brothers

Good afternoon. I think what has been... basically touched on in terms of questions earlier with any potential guidance you could give us in terms of volumes for 2008? And perhaps secondary to that is, in extreme oil price environment as perhaps you all enjoying the presence. Are there any more acute PSC effects than your current guidance as indicated? On the final question from my perspective, I would also like to ask what the reserve replacements impact may be if U.S. oil prices stay at this kind level for the year end, and getting your PSC exposure?

Marco Mangiagalli - Chief Financial Officer

Quite frankly, it was not by chance that I was not addressing 2008 because --

Lucy Haskins - Lehman Brothers

I knew you'd say that.

Marco Mangiagalli - Chief Financial Officer

So you know that we are right now in the process of drafting our new four year plan, and we should start with the 2008 budget. So I think we will be precise and will give you all the background and all the information once we come out with the four year plan. In terms of reserve replacement, I am afraid the comment is the same while in terms of PSA effect you were referring to more acute effects coming from PSA. I think there are... we confirm for 2007 that the guidance of 2000 barrels per day of production pace dollar of scenario in permanent scenario [ph] what we see happening is that we see a number of contractual figures basically related to the de-saturation of the coast oil in a number of countries and I would strategically refer to the PSC in Angola related to Block 15 [inaudible] we hit the figure like the one I'm referring to and this impact on the basis of the full year in 2007 impacts for about 15,000 barrel of production of the full year, and the same applies to the Australian [indiscernible] where the impact is around 6000-7000 barrel of oil equivalent to-date.

Lucy Haskins - Lehman Brothers

Thanks.

Operator

Thank you. Our next question comes from the line of Neil McMahon from Sanford Bernstein. Please go ahead.

Neil McMahon - Sanford Bernstein

Hi. Two questions, I think for Stefano. First of all, will you on your new Libyan contract various press reports suggests that that even though there was a substantial increase in the terms of the contract, in terms of length, could you go into any way that we should adjust our models for the financial components and the returns of those contracts. I'm presuming milling the Libyans are pretty smart as oil investing that your terms didn't get any easier? And then I've got a follow-up question as well. Thanks.

Stefano Cao - Chief Operating Officer

Okay. In terms of mentioning specific component in the PSC, we don't disclose these values but what I can say is that all in all, the Libyan agreement is... reflects a real win-win situation whereby we get the extension of course in exchange for some contractual adjustments, which in a way provide the Trigger for a number of... significant number of new investments to be realized, which means that resources which are in area which we already detain, they may become obviously through the oil process of the... for the fusion of the final investment decisions will become reserves of the various category and finally improvement of reserves. We have disclosed that the total amount of investment, which is 100% at $28 billion, I would say that in particular these refer to the expansion of capacity for the Green Stream [ph] for about 3 billion bcm of gas, which of course implies that we need to invest some money in upstream development. And on top of that we will develop the sufficient gas or reserve to cover the building of LNG trading, which will account for about five more bcm of gas to be exported via LNG. Though I think rather than being specific on contractual terms, you can make a judgment yourself on the importance of the agreement, which we have just finalized with the Libyans. In terms of timing, the timing which we have set is about three years to come to a final investment decision for the building of the LNG and then the time of construction and the duration of supply for about 20 years.

Neil McMahon - Sanford Bernstein

Okay, thanks for that explanation. Secondly, I couldn't leave [ph] a question on cash again. Really, it's a number of questions and maybe you could confirm or refuse some of the numbers that have been out there in the press or from the expanding government in terms of the total cost for this oilfield of the life of the field being more than $130 --

Marco Mangiagalli - Chief Financial Officer

130 billion. 130 million we said into that figure.

Neil McMahon - Sanford Bernstein

Yes, I am sure you would love if it was 130 million, but... also I am presuming if that is that sort of magnitude, it means this oilfield ramp up will be well beyond 2020 and also maybe if you could tell us as we have pretty much no knowledge what is going on behind the scenes. Is it likely that the state will have a greater share in this field so that it can progress forward?

Marco Mangiagalli - Chief Financial Officer

Okay, let me try to give you a little bit of a picture on how things are evolving. The 22nd of October of this month, we signed what we consider a very important memorandum of understanding, which formally avoids the deadline of the 60 base, which were contractually allowed for the resolution... the amicable resolution of the dispute and at the same time, establish a number of parameters around which the negotiation will take place in order to define what is the resolution... the complete resolution of the dispute and also provide certain framework within which the discussion will take place. As you may imagine, we are not in a position to disclose the framework and not prepared to disclose the parameter around which the discussion will take place. But I think it is very important that we have... with the signature of the MoU, we have resolved the issue of the 60 base. We are currently and through an intense round of negotiation, we are working with the counterpart as a concussion. And all in all, we are confident that we shall manage to resolve the dispute. What is extremely important and this is associated of course with the signature of the MoU is that the work on the size they continue uninterrupted, which for initially was something which was questioned. So the work had continued and the project is progressing. In terms of costing, the figures which are being mentioned on the press, the 136 billion which we refer to they are an evaluation of the total cost for full field development plus the cost for G&A and services plus all the operating costs throughout the life of the contract until 2041. So this is really a broad figure, which I don't think gives any guidance whatsoever on the amount of CapEx required for the full field development. There is of course an ongoing process within the venture, which is in the direction of making the concept of design for the full field development after the conceptual design, progress from intend and engineering and design will be launched, and the view is that we should be in a position to make a final investment decision for the full field by the end of 2009. So up to that moment, there will be no further indication on the total CapEx for full field development. Of course, we maintain that 19 billion is the cost for Trans I and II of the experimental program and the end of 2010 is the date for the set up of production.

Neil McMahon - Sanford Bernstein

Great. Thanks very much.

Operator

Thank you. Our next question comes from the line of Iain Reid from UBS. Please go ahead.

Iain Reid - UBS Securities

Hi gentlemen. One question on gas and power and one on the EMP. On gas and power market, I think you mentioned when you were talking about some gas that after the completion of buyback program, you have to increased interest in that. I wonder if you can say what the new interest is.

Marco Mangiagalli - Chief Financial Officer

Well, yes... sorry, go ahead.

Iain Reid - UBS Securities

I will follow-up with the second question also.

Marco Mangiagalli - Chief Financial Officer

Oh, well. If you want a broad mix, 10% of their old share capital, so we moved from 50 which we own before to 55 as a consequence of that.

Iain Reid - UBS Securities

Okay, fine. Thanks very much. Secondly, Stefano can I ask you a bit more of detail question of Brass LNG. It's obviously been delayed for some months now. Can you tell us what the likely date of the FID is going to be and why this delay is ongoing? There may be obvious reasons for that, is there any sort of conceptual or cost reason. And may be you could update us on what you think the total cost of the development will be and if you can split that into liquid faction and the offshore development?

Stefano Cao - Chief Operating Officer

Okay, Brass as you look quite nicely, you said Iain has been the aggregate factor by the security situation in the Nigeria delta. What you will see appearing on the Brass is the fact that we are parting some priority work on site, which I think is the first tangible sign that things are restarting all over again. We are... as you know we are working on the finalization of the front end in generating and design, and we expect the foreign investment decision during the, let's say at the end of the first quarter of 2008. So all in all of course this is based on a security situation, which is satisfactory from the point of view of doing physical work, which at the moment we are experiencing while I've to say that in other sides, the situation seems to be slightly different. But all in all, we have a strong perception that after election the situation is moving to an higher degree of stability, should that be confirmed, be maintained will go with the scheme as mentioned. In terms of the costing, we will update you at that time of final investment decision. That is the right time for announcing what is the total volume of investments. We will be... at this stage what I can add is that we expect the LNG cargo in 2012.

Iain Reid - UBS Securities

All right. Thank you very much.

Operator

Thank you. Our next question comes from the line of Alastair Syme from Merrill Lynch. Please go ahead.

Alastair Syme - Merrill Lynch

Hi Marco and Stefano. Can I get two questions on... actually one on gas and power and one on the EMP? On Gas and Power, would you be prepared to guide on the full year 07 EBIT as you look into the fourth quarter. And on the EMP if you just talk a little bit about cost inflation and what you saw the unit production cost out in the quarter?

Marco Mangiagalli - Chief Financial Officer

Yes, I addressed the gas and power guidance and that could be this level we are projecting something in the range of €3.8 billion, €3.9 billion, which EBITDA would be at 4.8 to 4.9 in line with last year's results and despite of a probably worse... general situation.

Alastair Syme - Merrill Lynch

Can I ask so and project... can I ask what the... as you sort of look at the deltas this year in terms of currency and gas sales volumes, how they might have impacted on that number?

Marco Mangiagalli - Chief Financial Officer

Well, yes but it could be a little bit complicated to address if you want as to on a quarter basis, we can say that and we have now to go to the different business segment relevant to the G&P division. The EBITDA adjusted pro forma was slightly less than 800 billion, 797 billion which means roughly 85 billion less than last year, the third quarter and the supply and marketing posted 977 because of the scenario and the regulated activity is increased by 22 and this is because primarily of the new way to enumerate investment in the non-rated gas activity. The Powergen had a minus 14, which is a consequence of the... you might remember that we have moved marketing activity from also for electricity from any power subsidiaries to the Gas & Power division and this is the reason of the lower contribution of Powergen because that contribution in terms of marketing is under the Gas & Power division. And the international transportation, which is the cause of business segment we normally report to, is I would say in line that is 16 million reduction versus 234 overall, a contribution in terms of EBITDA. Alastair, you asked on inflation impact. I would say that we still see the cost going up in general terms and that we make normally distinction that our cost which continue rising while others, they seem to show some sign of declining and the difference is between talking about equipment between the more sophisticated drilling equipment and the more conventional one. In terms of specific impact on the cost, if we refer to the operating cost, we have... we've project a cost per barrel for the full year 2007 around $4.8 a barrel that was $4.1 the year before, which is the combination of inflation we have to be more covenant on the maintenance activities, but is also impacted by the acquisition which imply an higher operating cost in particular the Gulf [ph] referring to the Gulf of Mexico. In terms of DD&A, I would say that we project for 2007 around $7.3 a barrel that was $6.6 in 2006, which is basically again the result of volume growing activities but is also impacted by the contribution of the acquisition for demand on which the acquisition impacted the DD&A.

Alastair Syme - Merrill Lynch

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Barry MacCarthy from Abn Amro. Please go ahead.

Barry MacCarthy - Abn Amro

Thank you. Good afternoon. It's a question on refining and marketing. If you can say by how much your effective refining margin changed in the quarter? I see you gave some changes in the benchmark margin but it looks as though the effective margin narrowed somewhat more than the benchmark would indicate, which would hopefully explain the large decline in the operating profit there?

Marco Mangiagalli - Chief Financial Officer

Yes. I will try to elaborate on that and I've to check whether it is... yes, let's say that the benchmark margin in the third quarter 07 decreased by 5% in dollars and by 12% in euro while initially they decreased by 23% in dollar and 28% in euro. So you can attach the difference to the strong decrease differential between light and heavy crude. The brand to the price differential decreased from 5.7 in the third quarter of 06 to $3.22 per barrel in the third quarter 07, which means reduction over 44% barrel which has affected the competitive advantage of the more complex refineries, which... the kind of refineries which we have.

Barry MacCarthy - Abn Amro

Okay. That's great. Thank you.

Marco Mangiagalli - Chief Financial Officer

You are welcome.

Operator

Thank you. Our next question comes from the line of Gordon Gray from J.P. Morgan. Please go ahead.

Gordon Gray - JP Morgan

Thanks. Good afternoon gentleman. Couple of quick questions on EMP, if I could. The first one is, with a few months of track record now, if you could comment on the Congo assets and how you... whether you had any surprises positive or negative relative to your first impression? And the second one was whether you can us a bit more background on the licenses you recently acquired in the Gulf of Mexico and how that fits in with the recent Dominion acquisition and your broader U.S. Gulf strategy?

Marco Mangiagalli - Chief Financial Officer

Yes, Gordon. In terms of track record I would say it's a bit as you may need to understand, it is a bit early just four months that we are taking control of the Congo asset. We are at the moment concentrated much more on HSE assets and a particularly on the different approach, which we have on these issues. So we are in the process of obtaining people. We are in a process of devising and designing the changes to the hardware, which makes the equipment in line with our requirements. Of course at the same time we have started the review of the design of the water injection to which we have had a very important, as you know. We'll need obviously, the result of the first well of water injection, we'll then be in a position to make a proper design of the final configuration of the water injection. So, I would say that we are now adding an orderly fashion [ph] will be in a position to make a judgment sometime during the course of 2009.

Gordon Gray - JP Morgan

Okay.

Marco Mangiagalli - Chief Financial Officer

In terms of the license, 26 additional licenses which we have acquired during the recent round, and I would like to say that first of all we are quite pleased with the outcome. These are all areas which we are carefully investigated and which we consider very attractive to us. In this respect I had to say that we have found in the Dominion organization in particularly in the people involved in charge for the exploration a lot of value, which we... quite frankly which we do not expect that they were much in terms of debt of the investigation they have done. So, once we have combined the two organizations, I would say that this has been the first possibility, unexpected outcome of the combination. So in our nutshell we are quite pleased with the work we have acquired. They perfectly fit with the combined portfolio of our leases and Dominion leases, and we are carefully analyzing all the commitments which we are making so that to positively sure that by the time we need to give the work, we shall have the equipment duly available.

Gordon Gray - JP Morgan

That's great. Thank you.

Operator

Thank you. Our next question comes from the line of James Hubbard from Deutsche Bank. Please go ahead.

James Hubbard - Deutsche Bank

Hi, thank you. Just two questions, firstly; are you reviewing your Iranian [ph] investments given the public statements by some large funds over the last couple of weeks, are they going to be selling now --

Marco Mangiagalli - Chief Financial Officer

Can you speak a bit louder, so --

James Hubbard - Deutsche Bank

Yes, sorry. Is this better?

Marco Mangiagalli - Chief Financial Officer

Perfect.

James Hubbard - Deutsche Bank

Yes, question number one; are you looking again at your Iranian investments and operations given that's a couple of large funds have announced recently they will be selling down thus facing companies that have large investments in the country. Does that... also do you feel any pressure from that at all? And then secondly, could you just tell me what the next step and the time line is for south stream, what we can expect to see happening there over the next couple of years and when?

Marco Mangiagalli - Chief Financial Officer

Okay, in terms of the Iranian operation, I'm sure you are aware that we are active in the country since the beginning of this decade that we have four buyback contracts, three out of the four they have seen the completion of the investment phase and we are just in the phase of recovering through the production of the investment and getting the upside, the profit basically while we are completing the development of that grade in particular a second phase of that grade, so I would say that at this stage we are continuing the operation. On one side, recovering the investment and on that lane in particular competing the second phase, so at this stage this is the situation... these are all the commitments that we have in the accounts. In regard to the next step in the south stream, we are in a very preliminary phase at the feasibility start begun already. We expect the outcome to be available with September end. And since then if the outcome would be possible, we will begin to work on the more precise engineering development.

James Hubbard - Deutsche Bank

Okay, Thank you.

Operator

Thank you. Our next question comes from the line of Michele Della Vigna from Goldman Sachs. Please go ahead.

Michele Della Vigna - Goldman Sachs

Hi, I would like to ask a follow-up question on your TV teasing Libya, if you wanted to increase that production there by around 8 bcm per annum on 20 years that will mean around 160 bcm. Now, I was wondering how much of these reserves have already been identified and how much of it instead less to exploration at this point? And than on another gas project in North Africa, the second train of Damietta, I just wondered given the intensive exploration you have had there over the past years and it would point out in terms of coverage of the gas required for a second train there and how much more do you need find?

Marco Mangiagalli - Chief Financial Officer

Okay, in terms of the Libyan agreement as I have you pertaining to say earlier on addressing another question, we are talking of gas resources coming from area, which we already detained so there are no new areas to be added. And these are volumes which are not reserves, which are resources which we've already identified. Obviously through the work of the development of the best scheme for the exploitation of the gas that will have to be transformed from resources to reserves. But they are all well identified and they are all within areas, which already retain in terms of contractual rights. As far as the secondary in Damietta, we have duly identified all the volumes needed for the second train in Damietta, and we are in the final process of varying these approved by the Egyptian government. Obviously, when I say we I refer not only to Eni but to Eni and the other partners in the venture in particular, I would say BP. I familiarized [ph] of course you are aware that the requirement for the country is not only towards the gas, a sufficient volume for the export by also to have sufficient volumes for the domestic and to have also at least additional volumes available, which might be in the form of P3 or exploration resources. At first what they call the future generation, so these are all the volumes which have been identified.

Michele Della Vigna - Goldman Sachs

Thank you.

Operator

Thank you. Our next question comes from the line of Colin Smith from Dresdner Kleinwort Bank. Please go ahead.

Colin Smith - Dresdner Kleinwort Bank

Good afternoon gentlemen. Can we just talk about Dominion and Congo again? As I recall Dominion was about 74,000 barrels a day and it completed pretty much at the beginning of the quarter. And Dambundi [ph] was round about 50,000 to 60,000 barrels a day. So combined I think one might have expected some thing closer to 100,000 barrels a day than the 77,000, you got from portfolio changes in the quarter. Was there anything else going on in the portfolio changes? Or can you just comment about where you think volumes for both Dominion and Dambundi will be in Q4 a little bit more directly? And my second question was just on Libya, again with the moved ups the four terms, will that make any noticeable difference to the volumes over the profit that we might expect to see from your Libya operations from the beginning of next year? Thank you.

Marco Mangiagalli - Chief Financial Officer

Okay in terms of contribution from the Dominion, I think I can give you what we expect to be contribution of fourth quarter of 2007 for Dominion. And this is a in the range of 80,000 barrel... 80,000 barrels per day which together with the existing production range the overall U.S.A production to 110,000 barrels of oil equivalent per day. This is of course takes into account the ramp up of the independence hub, which is going according to plan and I would say in a fairly satisfactory manner. In terms of the Congo lease asset, I think as we are proceeding to say already, being in the process of reviewing all the production scheme and layout, we are currently slightly reducing production in order also to reduce the amount of gas, which is flared. So at the moment we have a production which is for our part... for our component about 15,000 to 16,000 barrels per day. Then you were asking about the immediate impact beginning of 2008. No, there is no immediate impact in terms of production. In terms of reserve, there again we will give an update once we announce the overall reserve.

Colin Smith - Dresdner Kleinwort Bank

Can I just have a further question on Dambundi, I think you mentioned earlier on in the call that you would be... you're drilling a well and need to have better idea for 2009. Does that mean Dambundi production your share is going to be around about the 15,000 to 20,000 barrel a day level through 2008, is that your expectation?

Marco Mangiagalli - Chief Financial Officer

No. I think it is too early as I said the beginning of the... my reply was that we already took control of the asset there in the last four months. So we are still in a learning process, so I will not make any specific commitment on what is the expected production in 2008. The reference is not to a single well to injection mechanism of which we will need to test that we need to make an initial testing of how the system works. So to drive what is the final design of the overall injection scheme. So at this stage, I think I would rather prefer to remain with what we have got.

Colin Smith - Dresdner Kleinwort Bank

Okay. Thanks very much.

Operator

Thank you. Our next question comes from the line of Huw Williams from Bear Stearns. Please go ahead.

Huw Williams - Bear Stearns

Thank you very much and good afternoon gentleman. Just two quick upstream questions, first, whether you could just update us on any progress or relevance in Russia, on the projects which you secured following the asset swap earlier this year? And then secondly, if you could give us an update on what's going on in terms of other development or further exploration the last prospect up in Norway, please?

Marco Mangiagalli - Chief Financial Officer

Okay, as far as Russia we have got control of the asset attributes in the 1st of April. We are in the process of setting up the operational organization and again taking control of the existing assets, which are obviously very limited and there again the first attention here is been drawn by the HSE requirements, and we are in a process of bringing the wealth to the sufficient level of safety. At the same time, we are planning a seismic campaign so to have full knowledge of what we are talking about and we are looking at the status of the investment, which had been started at the time of the bankruptcy. And I would say that the initial outcome is that the achievement which was up and built, it was designed and built according to western standard. So something which is more than acceptable to us, so we are revising as well what is the best way to utilize some of these investments already made. At the same time of course, we are setting up all the negotiating team, which needs to come to the final assessment of the last phase contract which as you may appreciate will be the trigger for defining the scheme of the development and indeed the return on the investments as well. In terms of [indiscernible] things are progressing in accordance with the program. We are... we have final investment decision, which is expected in August 2008. Everything is moving in the right direction, so the effect to have the final investment this year in 2008, and then to move on with the development. You know that we have established the... we have signed the contract for the utilization of these kind of valuate [ph] for all these development wells, so the critical equipment is already ensured.

Huw Williams - Bear Stearns

That's great. Thank you. And just one quick follow up on Russia. What should we be looking out for in terms of sort of a timeframe for sort of guy post [ph] just to progress on that budget space?

Marco Mangiagalli - Chief Financial Officer

It's very premature, but I think we already said that we'll expect some sort of rarely production in 2011, and sort of a more substantial production in 2015, 2016.

Huw Williams - Bear Stearns

Thank you very much.

Operator

Thank you. That was our final question, so I will now hand you back to the host to conclude today's conference call. Thank you.

Huw Williams - Bear Stearns

Thank you everybody for joining us and we are looking forward to meeting you on the next occasion. Good bye.

Operator

Ladies and gentlemen, thank you for joining today's call. You may now replace your handsets.

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