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Quarter Financial Highlights - Eni 3Q Highlights 2006

Source: www.gulfoilandgas.com 11/10/2006, Location: Europe

Eni, the international oil and gas company, today announces its group results for the third quarter and the nine months of 2006. Paolo Scaroni, Chief Executive Officer, commented: ?Following third quarter results, I am confident Eni will deliver excellent profitability for the full year. Operating performance improved in virtually all of Eni?s business divisions, in a favourable trading environment with higher crude prices?.

Quarterly financial highlights
  • Adjusted operating profit: up 15.3% to o5.13 billion primarily reflecting an improved operating performance of all Eni?s business divisions compared to the third quarter of 2005.
  • Adjusted net profit: up 7.1% to o2.62 billion as a result of higher operating profit partly offset by a higher Group tax rate on an adjusted basis, up 4.3 percentage points (from 44.5% to 48.8%).
  • Net cash generated by operating activities4 totalled o4.56 billion allocated as follows: o1.84 billion to capital expenditure and o2.54 million to the re-payment of debt. A further o158 million was spent for the repurchase of 6.83 million of own shares.
  • At period-end, the ratio of net borrowings to shareholders? equity including minorities decreased from 0.27 at year-end 2005 to 0.09.
  • Return on average capital employed (ROACE)5 calculated for the twelve-month period ending 30 September 2006 was 21.8%.

    Quarterly operational highlights and trading environment
  • Oil and natural gas production for the quarter averaged 1.71 mmboe/d, almost unchanged relative to the third quarter of 2005. Production compared to a year ago, however, increased by 4.2%, excluding the impact of the loss of production at the Venezuelan Daci?n oilfield (down 62 kbbl/d) as a consequence of the unilateral cancellation of the service contract for the Daci?n oilfield by the Venezuelan State oil company PDVSA and the impact of lower entitlements in certain Production Sharing Agreements (PSAs)6 and buy-back contracts due to increased oil and gas prices (down 16 kbbl/d). Libya, Angola and Egypt were the main growth areas.
  • Natural gas sales in Europe were up 7.6% to 7,259 mmcf/d driven primarily by the growth in sales in a number of target European markets and the build-up of supplies of natural gas from Libya.
  • The trading environment was supported by higher oil prices with average Brent crude prices close to $70 per barrel, up 12.9% compared to the third quarter of 2005, and improved selling margins on natural gas and products. These positives were offset in part by the appreciation of the euro over the dollar (up 4.4%). Refining margins achieved by Eni were higher compared to the third quarter of 2005 in spite of a negative trend in market benchmarks (Brent refining margins were down 39.2% for the same period). The performance of Eni?s refining margins was attributable to a better yield on the spate of processed crude.

    Outlook

    Eni reaffirms its 2006 outlook, with key business trends for the year as follows:
    - production of liquids and natural gas is forecast to continue growing from 1.74 mmboe/d in 2005. Increases will be achieved outside Italy, mainly in Libya, Angola and Egypt due to the achievement of full production in fields which started-up in 2005 and to new start-ups in 2006. Production for the year is expected to be adversely affected by the loss of the Venezuelan Daci?n oilfield, the impact of security issues in Nigeria and natural field decline, mainly in Italian fields. Despite the adverse impact of the unforeseen events in Venezuela and Nigeria, the production growth rate for the year is expected to be approximately 3%, assuming a Brent crude oil price of approximately $55 per barrel in the market scenario for 2006;
    - sales volumes of natural gas in Europe are forecast to increase by more than 6% from 2005 levels (9,095 mmcf/d) with major increases expected in volumes sold in the Iberian Peninsula, German/Austrian, Turkish and French markets;
    - sold production of electricity is expected to increase by more than 9% from 2005 levels (22.77 TWh) due to the continuing ramp-up of new production capacity, offset in part by higher levels of maintenance activity;
    - refining throughputs on Eni?s account are expected to decline slightly from 2005 due to higher levels of maintenance activity, with Eni?s refineries expected to run at full capacity;
    - retail sales of refined products on the Agip branded network are expected to decline slightly in Italy, while continuing their upward trend in the rest of Europe, with major increases in the German, Spanish, Austrian and French markets reflecting contributions from new or purchased outlets.
    In 2006, capital expenditure is expected to amount to o8.7 billion, representing a 17% increase from 2005. Approximately 90% of capital expenditure is planned in Eni?s Exploration & Production, Gas & Power and Refining & Marketing divisions; increases are expected in exploration projects, development of oil and natural gas reserves, upgrading of refineries and upgrading of natural gas transport and import infrastructure. The Engineering and Construction segment is also expected to increase its capital expenditure by approximately 84.5% due to the construction of a new FPSO unit and upgrading of the fleet and logistic centres. The reduction in forecast capital expenditure for the year, compared to the guidance given at the end of the second quarter of 2006 (o9.1 billion) is due to a reduction of forecast amounts in the following business segments:
    (i) Exploration & Production, as a consequence of delays in a number of development projects;
    (ii) Refining & Marketing, as a consequence of delays in expenditure for certain refining projects.

    Management also expects net borrowings to increase from the current level, reflecting cash requirements for capital expenditure planned in the fourth quarter (approximately o3.8 billion) for the distribution to shareholders of the interim dividend of o0.60 per share for fiscal year 2006 (corresponding to approximately o2.2 billion) and the repurchase of own shares. At year-end, the ratio of net borrowings to shareholders? equity including minorities is expected to reach 0.20.

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