SIX MONTH REPORT AS AT 30 TH OF JUNE S a i p e m SIX MONTH REPORT 2000 CONTENTS

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2 CONTENTS SIX MONTH REPORT AS AT 30 TH OF JUNE 2000 Six month results 3 Saipem S.p.A. company officers 3 Saipem Group structure 4 Report of the directors 5 Performance of Saipem S.p.A. shares 6 Operating review 7 - Offshore Construction 9 - Offshore Drilling and Floating Production 11 - Onshore Drilling 13 - Onshore Construction 14 - Infrastructure 15 Research and development 16 Health, Safety and Environment 18 Human resources 19 Information system 21 Comments on the financial and economic results 22 - Results of operations 22 - Consolidated balance sheet and financial position 25 Other information 28 - Subsequent events 28 - Management expectations of operations 29 - Related party transactions 30 - Euro 32 SIX MONTH REPORT AS AT 30 TH OF JUNE 2000 CONTENTS Consolidated financial statements as at 30 th of June Saipem Group consolidated financial statements as at 30 th of June Notes to the consolidated financial statements 37 Auditors Report 58 (Translation from the Italian original which remains the definitive version) 1

3 S a i p e m S E M E S T R A L E SAIPEM IN THE WORLD Saipem is present in the following countries: Europe: France, Great Britain, Italy, Holland, Luxembourg, Norway, Portugal, Switzerland Americas: Argentina, Brazil, Canada, Peru, U.S.A. C.S.I.: Azerbaijan, Georgia, Kazakhstan, Russia Africa: Algeria, Congo, Egypt, Libya, Nigeria Middle East: Abu Dhabi, Iran, Oman, Qatar, Saudi Arabia, Sharjah Far East: Australia, India, Indonesia, Malaysia, Singapore, Thailand 2

4 SIX MONTH RESULTS The results achieved by the Saipem Group in the first six months of 2000 are in line with predictions that the first half of the year would still be strongly influenced by the crisis generated by the delay or postponement of investment programmes by Oil Companies, due to the fall in prices of oil in 1998 and in the first half of Signs of recovery were evident in the last part of the six month period through the commencement of new important Drilling and Construction projects following intense selling activity during The commencement of other important works is predicted in the second half of the year. On the basis of signs of recovery already seen, and those predicted, a year end operating income in line with expectations is forecast (+ 20% compared to 1999), and the fiscal year 2001 is predicted to be a year of significant growth. It should be stated that the sectors in which we operate are influenced both by seasonal climatic conditions and by time frames required for the completion of projects, which may affect the volume of work completed, as well as the resultant profit levels in these sectors. Consequently, our results may not be linear over time. Operating revenues for the Saipem Group to 30 th of June 2000 were 543 million euros (776 million for the same period in 1999) and net income amounted to 9 million euros (37 million in respect of the same period in 1999). Stefano Cao Chairman & CEO SIX MONTH RESULTS Notwithstanding the final results, which should be interpreted in light of the above considerations, the following events occurred which are of significant importance for the future of the Group: - The deep water drillship Saipem was launched in April of this year and is currently being used for deep water drilling activity in the South Adriatic, north of the Aquila field. This ship is particularly suitable for the development of hydrocarbon fields in ultra deep waters and has deep water dynamic positioning capabilities in up to 3,000 metres, permitting Saipem to consolidate its presence in the technologically sophisticated market of offshore drilling. - During the course of the last six month period the conversion of the fourth generation semi-submersible platform Scarabeo 7 was also completed. Having successfully concluded its first project in the Egyptian offshore, it was transferred offshore from Crotone where it shall shortly commence drilling for two wellheads on behalf of ENI-Agip. - In the first few months of the half year period Saipem 7000, which is equipped with the J laying system for the laying of sealines in ultra deep waters, successfully concluded its first project in the Gulf of Mexico. - The Saipem S.p.A. branches in Russia and Turkey have been incorporated, organised and are fully operative. These branches are destined to directly manage activities connected to the Blue Stream project, in relation to which the detailed engineering, full survey of the sea-bed and trials of special equipment necessary for completion of the works have already been completed. In conclusion, the flexible organisation of the Group, which is represented world-wide and therefore able to directly develop and manage local market opportunities, and its ability to develop innovative and high quality customer solutions, have permitted the Group to deal with a market crisis which has lasted far longer than originally predicted, and to establish strong foundations in order to take advantage of the market recovery. Giancarlo Mazzone Managing Director & CFO DIRECTORS (1) Chairman and Chief Executive Officer Entrusted with ordinary and extra-ordinary powers, except for the limits prescribed by law and by the company s memorandum and articles of association. Stefano Cao Managing Director Chief financial officer Giancarlo Mazzone Directors Franco Bruni Paolo Andrea Colombo Carlo Grande Roberto Jaquinto Marco Mangiagalli Alfredo Moroni Marco Reboa BOARD OF STATUTORY AUDITORS (1) Chairman Gaetano Troina Statutory Auditors Aldo Sanchini Giorgio Viva Alternate Statutory Auditors Giovanni Battista Fregoso Bruno Maier INDEPENDENT AUDITORS (2) KPMG S.p.A. (1) Appointed by the Shareholders meeting, 26 th of July 1999, for three years (2) Appointed by the Shareholders meeting, 16 th of April 1998, for the six month report, for the three year period

5 SAIPEM GROUP STRUCTURE Intermare Sarda S.p.A. Saipem Inc. Saipem (Services) A.G. Saipem S.p.A. 100% 100% 50% 100% 100% Saipem International B.V. 100% 50% European Marine 100% Saipem UK Contractors Ltd. Ltd. 100% Sasp Offshore Engineering S.p.A. Saipem Luxembourg S.A. European Marine Contractors Netherland B.V. 100% European Marine Contractors LLC Saipem Asia Sdn. Bhd. 100% 100% Saipem (Portugal) Gestão e Participações SGPS S.A. 100% Saipem (Portugal) Comércio Marítimo Lda. P.T. Saipem Indonesia 100% 100% ERS Equipment Rental & Services B.V. 50% SB. Construction & Maritime Services B.V. 100% Saipem Perfurações e Construções Petroliferas América do Sul Lda. Saipem Australia Pty. Ltd. 100% 100% Sonsub International B.V. 100% Sonsub Inc. 50% FPSO - Firenze Produção de Petròleo Lda. Saipem Contracting (Nigeria) Ltd. 94% 100% Petrex S.A. 100% Sonsub International Pty. Ltd. 50% Saibos Construções Marítimas Lda. 100% Saipem (Nigeria) Ltd. 89% 99% Saipem Argentina S.a.m.i.c. y F. 100% Sonsub Asia Sdn. Bhd. Saibos FZE Akjaik Drilling Company J.S.C. 51% 60% Saudi Arabian Saipem Ltd. 100% Sonsub S.p.A. Sasp Offshore Engineering UK Ltd. 50% 50% Saibos (Services) S.A.S. 100% Sonsub Ltd. 100% Sonsub International A/S Saipem Aban Drilling Co. Pvt. Ltd. 50% 50% SaiClo Pty. Ltd. SaiClo Luxembourg S.A. 50% 50% Saifor S.p.A. 4 Saibos do Brasil Ltda. 50% 41% Saipem (Malaysia) Sdn. Bhd.

6 REPORT OF THE DIRECTORS 5

7 PERFORMANCE OF SAIPEM S.P.A. SHARES PERFORMANCE OF SAIPEM S.p.A. SHARES During the course of the first six months of 2000, the value of Saipem ordinary shares increased significantly on the Milan Stock Exchange, from 3.59 euros at the end of 1999 to 6.26 euros at the end of June 2000 (an increase of 74.4%). Since the beginning of March, the performance of Saipem s shares has continually and progressively improved, confirming forecast satisfactory profits for companies operating in the Oil services sector in the medium to long term. This upswing is due to overall market recovery resulting from and sustained by the high price of crude oil. The consistent medium to high price of oil over the past few months has resulted in Oil Companies slowly and gradually recommencing investment programmes which has in turn led to higher demand for services. Furthermore, the commencement of favourable market conditions has coincided with the completion of two new vessels, the drilling rig Scarabeo 7 and the drillship Saipem 10000, which are now both functional and which further improve Saipem s position in the most technologically advanced and rapidly expanding deep water market. In view of these favourable conditions the value of Saipem s shares, which remained stable from the end of December 1999 to February 2000, has consistently increased for the remaining part of the half year period and for the week following the close of the half year period, reaching a value of 6.77 euros per share. Approximately 219 million shares were traded during the first six months of 2000, compared to 280 million which were traded for the same period in The value of the shares traded amounted to 1,009 million euros as opposed to 1,102 million euros for the same period in The performance of savings shares during the first six months of 2000 was in line with that of ordinary shares. Savings shares in fact increased from 3.51 euros at the end of 1999 to 6.14 euros at the end of June 2000 (an increase of 75%) and the volume of shares traded in this period amounted to 1.5 million (0.7 million for the same period in 1999) for a value of 7 million euros (2.6 in the first six months of 1999). On the Paris Stock Exchange, the volume of shares traded was relatively modest with share prices in line with those registered in Milan. Ordinary shares Share prices on the Milan Stock Exchange (in euros) First six months of 2000 High Low Average End of period Savings shares High Low Average End of period

8 OPERATING REVIEW OPERATING REVIEW Saipem Deepwater drillship. NEW ORDERS AND BACKLOG Orders Awarded to the Saipem Group for the first six months of 2000 First six months of 1999 First six months of 2000 Amount % Amount % Saipem S.p.A % % Other Group Companies % % Total % % Offshore Construction % % Offshore Drilling and Floating Production 26 7% 63 11% Onshore Drilling 25 6% % Onshore Construction % 31 6% Total % % Italy % 4 1% Abroad % % Total % % Eni Group % 67 12% Third Parties % % Total % % The Group was awarded new orders for a total of 555 million euros (400 million euros in the same period of 1999). Of the total orders awarded, 61% refer to the offshore construction sector, 11% to offshore drilling and floating production, 22% to onshore drilling and 6% to onshore construction. Orders to be executed outside of Italy represent 99% of the total whilst acquisitions by the Eni Group of companies represent 12% of the total. Finally, new orders awarded to Saipem S.p.A. were 45% of the total awarded to the Group. 7

9 OPERATING REVIEW Saipem Group - Backlog at 30 th of June th of June th of June 2000 Amount % Amount % Saipem S.p.A. 1,445 69% 2,024 78% Other Group Companies % % Total 2, % 2, % Offshore Construction % 1,492 57% Offshore Drilling and Floating Production % % Onshore Drilling 69 3% 129 5% Onshore Construction % 130 5% Infrastructure % % Total 2, % 2, % Italy % % Abroad 1,502 72% 2,117 81% Total 2, % 2, % ANDAMENTO OPERATIVO Eni Group % % Third Parties 1,419 68% 2,011 77% Total 2, % 2, % The backlog at 30 th of June 2000, amounted to 2,601 million euros showing an increase of 25% as compared to 30 th of June As for the breakdown by sector, 57% is attributable to offshore construction, 22% to offshore drilling and floating production, 5% to onshore drilling, 5% to onshore construction and 11% to infrastructure. Saipem S.p.A. has 78% of the overall backlog of orders. Orders to be executed outside of Italy amount to 81%, whilst orders awarded by members of the Eni Group represent 23% of the total. INVESTMENTS Group investments in tangible and intangible assets for the first six months of 2000 totalled 146 million euros (of which 21 million was invested by Saipem S.p.A.) compared to 227 million for the same period in 1999 (20 million invested by Saipem S.p.A.). Investments for the period include those for the completion of two new vessels for deep water offshore drilling, Saipem and Scarabeo 7, and the continued construction of a new special vessel for subsea developments (Field Development Ship). The following table provides a breakdown of investments: First six months of 1999 First six months of 2000 Saipem S.p.A Other Group Companies Total Offshore Construction Offshore Drilling and Floating Production Onshore Drilling 7 7 Onshore Construction 3 1 Others 8 8 Total Investments relative to individual activities are described in the following paragraphs. Other investments concern Group offices and are mainly related to the ongoing creation of an integrated Group information system.

10 Analysing the individual sectors: Pipelines laid (km) OFFSHORE CONSTRUCTION 30 th of June th of December th of June Italy Abroad Total Km Structures installed (tons) - Italy 4,238 4,601 5,025 - Abroad 56, ,563 10,775 Total tons 60, ,164 15,800 General information The Saipem Group is one of the world leaders in traditional Offshore Construction, comprising the laying of large diameter sealines, in medium depths, and the installation of fixed platforms. Of the semi-submersible fleet of vessels that Saipem operates and which are equipped with state-of-the-art equipment and technology, the most important are; Saipem 7000, with it s dynamic positioning capability, lifting capacity of 14,000 metric tons and J lay system of laying sealines in deep waters, and the Castoro Sei, which is used for the laying of large diameter sealines. Saipem also has a strong presence in the rapidly expanding deep water market, using highly sophisticated and technologically advanced equipment, such as remotely controlled under water vehicles and especially equipped robots to carry out complex work in deep water. Companies active in the Offshore Construction sector, in addition to the parent company, are: Saipem U.K., Saipem Inc., Saipem Luxembourg, Saipem (Portugal) Comércio Marítimo Ltd., European Marine Contractors (jointly owned and managed with Brown & Root), Saibos Construções Maritimas (jointly owned and managed with Bouygues Offshore), which is currently completing construction of a special Field Development Ship in order to assist the Oil Companies in the development of deep water fields, Saipem Malaysia, Saipem Asia and Saipem Indonesia, the Sonsub Group, SaiClo (jointly owned and managed with the Australian company Clough), SASP Offshore Engineering (jointly owned and managed with Snamprogetti) and Intermare Sarda. OPERATING REVIEW Market overview There has been an overall reduction of activity in the Offshore Construction sector during the first six months of Significant fluctuations in the price of oil and fears concerning the continuance over the medium to long term of the high price of crude oil are both elements which have contributed to a cautious approach in terms of amount of expenditure by large-scale Oil Companies. The commencement of new projects has been slow and only towards the end of the six month period has the clear improvement in the market situation been reflected in the increasing number of contracts awarded. In this context, those geographic areas which have shown better performance are South East Asia and the Gulf of Mexico, both in terms of the development of new fields and in terms of development of infrastructures for the transport of hydrocarbons. This performance is also related to the strong increase in demand for gas in these areas. New Orders The most significant contracts awarded for the period were: - the EPC (Engineering, Procurement, Construction) Cakerawala project in Thailand on behalf of CTOC (Carigali Triton Operating Company Sdn Bhd), for the detailed engineering, supply of materials, construction, installation and commissioning of three wellhead platforms, a compression platform (CKR), a central production platform (CKP), an accommodation unit (CKQ), a 6 diameter sealine, two 18 diameter connecting lines for a total of 13 kilometres and a gas exportation and container ship. The contract was awarded to the Technip, Samsung, Saipem S.p.A. joint venture, for the out of country activity and to the Technip, Samsung, Saipem Malaysia Sdn Bhd. joint venture, for the 9

11 OPERATING REVIEW remaining activity. - The Bucaneer project in the USA, on behalf of Transco Williams Energy, for the construction of a 36 diameter pipeline covering 675 kilometres from Alabama to Florida. The contract was awarded to the European Marine Contractors Ltd./Saipem Inc. joint venture. - The EPC (Engineering, Procurement, Construction) Fukanda Mwafi project in Congo on behalf of AGIP Recherches Congo, for the engineering, supply of materials and construction of two 1,400 ton platforms. The contract was awarded to an Association comprising Intermare Sarda S.p.A., Sasp Off-shore S.p.A. and Marino Rosetti S.p.A.. - The Kvitebjorn project in the Norwegian sector of the North Sea on behalf of Statoil, for the transport and installation of a 23,000 ton platform and drill head. The contract was awarded to Saipem UK Ltd.. - The Espoir Field Development Project on the Ivory Coast on behalf of Ranger Oil Cote d Ivoire, for the planning, construction, installation and commissioning of a platform with a 550 ton deck, and a 120 metre tripod, and two 8 and 20 diameter sealines. The contract was awarded to Saibos Construções Maritimas Lda.. - The Ivana II phase project in Croatia on behalf of INAGIP, for the installation of the Ivana B, D and E platforms totalling 1,035 tons and the related connecting sealines of various diameters for an overall length of 15 kilometres. The contract was awarded to Saipem S.p.A.. - The Helang Field Development project in Malaysia, on behalf of Nippon Oil, for the transport and installation of a 16,000 ton production platform. The contract was awarded to Saipem Malaysia Sdn Bhd.. - The Huelva Sealine project in Spain, on behalf of Cepsa (Compania Espanola de Petroleos, S.A.), for the detailed engineering, supply of materials and the laying of a 36 diameter, 5 km sealine, which will replace an old sealine already in place. The contract was awarded to Saipem S.p.A.; - An EPC (Engineering, Procurement, Construction) project in the Jade sector of the English portion of the North Sea on behalf of Phillips, for the engineering, procurement, installation and testing of a 16 diameter 17 kilometre sealine, 75 metres below sea-level between the platforms Jade and Judy. The contract was awarded to European Marine Contractors Ltd.. Investments The most significant investments in the offshore construction sector were: - construction and procurement continued by the Korean ship-yard Samsung of a Field Development Ship on behalf of Saibos, a company jointly owned and managed by Saipem and Bouygues Offshore. This new ship will be an advanced dynamically positioned multipurpose workship, equipped with a J tower capable of laying smaller diameter sealines. It will also be used for underwater installation work. Delivery of the ship is expected in the first few months of 2001; - commencement of investments necessary for the Blue Stream project both in relation to offshore and onshore activities; - research activities continued on the development of technologically advanced solutions for deep water operations as well as the realisation of new non-destructive welding systems. 10

12 Offshore Drilling Metres drilled OFFSHORE DRILLING AND FLOATING PRODUCTION 30 th of June th of December th of June Abroad 43,911 87,919 38,075 Total mt 43,911 87,919 38,075 Wells drilled - Abroad Total General information In the Offshore Drilling and Floating Production sector the Group operates in Northern Europe, West Africa, Peru and India. The completion during the last six month period of Saipem and Scarabeo 7, which are destined to be used for deep water drilling activity, further strengthened the Group s position as a world leader in terms of technical capability. In addition to the parent company, Saipem Nigeria and Saipem (Portugal) Comércio Marìtimo Ltd. also operate in this sector. In the floating production sector, FPSO - Firenze Produção de Petróleo (a company jointly owned and managed with Single Buoy Moorings) operates a floating production system in the Aquila field on behalf of ENI-Agip, in the South Adriatic Sea. OPERATING REVIEW Market overview The level of activity in the Offshore Drilling sector during the last six months has materially improved compared to the last few months of 1999, according to various geographic areas and market sectors. Market recovery in this sector has been promoted by the significant improvement in the Gulf of Mexico where both daily operating rates and the operating rates for jack-ups have significantly increased compared to the lows registered during the course of The situation relative to semi-submersible vessels suitable for sophisticated deep water activity also progressively improved, particularly in terms of significant increases in rates of utilisation of the world fleet. In particular, it should be noted that, in the sub-sector of ultradeepwater vessels, semisubmersible vessels which are capable of operating in depths in excess of 5000 ft., all of the vessels were fully utilised and the short to medium term forecasts are extremely positive in relation to improvements in day operating rates. Further general improvements in the sector are also forecast, particularly in Operating costs for the Floating Production sector registered poor levels of activity during the last six months, however the significant number of new projects which are currently at an advanced stage of planning, and the growing number of contracts concluded towards the end of the period are important indicators of the clear improvement in the market situation. Short to medium term prospects are therefore positive above all in West Africa, Brazil and the Gulf of Mexico. New Orders The most significant contracts for the period were: - the extension for a further 12 months of Saipem s existing contract in Nigeria, for the charter of the semi-submersible platform Scarabeo 4, on behalf of Belbop; - the extension for a further 12 months of Saipem s existing contract in Nigeria, for the charter of the drill ship Perro Negro 5, on behalf of Belbop; - the extension for a further six months of Saipem s existing contract in Congo, for the charter of Scarabeo 3, on behalf of Agip Recherches Congo; - the charter for six months of the drillship Perro Negro 2 in Nigeria, on behalf of ELF. The contract was awarded to Saipem S.p.A.. 11

13 OPERATING REVIEW Investments The most significant investments in the offshore drilling and floating production sector were almost entirely relative to new deep water drilling vessels, and in particular: - finalisation and use in the Mediterranean of the semi-submersible fourth generation drilling rig Scarabeo 7, on behalf of ENI-Agip. - Completion at the Samsung ship-yard in Korea of the drillship Saipem 10000, capable of operating in ultra deep waters and already positioned in the South Adriatic where it will be utilized on behalf of ENI-Agip. Major equipment utilization Vessel Type Semi-submersible Drilling Vessels Days under contract Scarabeo gg. a Scarabeo gg. Scarabeo gg. a Scarabeo gg. Scarabeo 7 68 gg. b Drillship Saipem gg. c Jack Ups Perro Negro gg. Perro Negro gg. a Perro Negro 4 Perro Negro 5 FPSO - Firenze a The balance was spent in maintenance activities. b New vessel which became functional during the last six month period. c New vessel not yet in use but pre-paid by customer. 182 gg. 182 gg. 182 gg. 12

14 Onshore Drilling Metres drilled ONSHORE DRILLING 30 th of June th of December th of June Italy 9,148 13,752 5,846 - Abroad 27,947 48,945 61,398 Total mt 37,095 62,697 67,244 Wells Drilled - Italy Abroad Total General information The onshore drilling activity of the Group is primarily located in Italy, Algeria, Saudi Arabia, Egypt, Nigeria, Kazakhstan, Peru, Bolivia and India. The companies operating in this sector are Saipem S.p.A., Saipem Nigeria, Petrex, Sadco (an Indian company jointly owned and managed with Aban Drilling Co.), Saipem Perfurações and Construções Petrolíferas América Do Sul and Saudi Arabian Saipem. In a joint venture with Trevi S.p.A., Saipem S.p.A. also carries out slim cheap drilling using advanced and innovative technology. OPERATING REVIEW Market overview During the last six month period onshore drilling activity showed signs of strong recovery which exceeded the most optimistic predictions. Recovery began in the USA and spread rapidly to South America and subsequently to other geographic areas. This positive situation mainly concerned volumes of business and further positive developments are expected in the short term in respect of day rates. Finally, there is growing interest on the part of Oil Companies in new exploration programmes in Central Asia, an area which shows strong potential for the development of large-scale fields. New orders The most significant contracts awarded for the period were: - the charter of three drilling units for three years in Kazakhstan, on behalf of KPO. The contract was awarded to Saipem S.p.A.; - the charter of two drilling units for a total of 13 months in Nigeria, on behalf of Nigerian AGIP Oil Company. The contracts were awarded to Saipem S.p.A.; - the charter of one drilling unit for 12 months in Nigeria, on behalf of ELF. The contract was awarded to Saipem S.p.A.; - the charter of one drilling unit in Algeria, on behalf of ORYX. The contract was awarded to Saipem S.p.A.; - the charter of one drilling unit for four months in Bolivia, on behalf of Intergas. The contract was awarded to Petrex SA.. Investments Investments carried out in this sector for the period refer mainly to the preparation of a unit for new drilling activity in Saudi Arabia on behalf of Aramco. 13

15 OPERATING REVIEW Onshore Construction Pipelines laid (km) ONSHORE CONSTRUCTION 30 th of June th of December th of June Italy Abroad 544 1, Total km 544 1, Industrial plants (tons.) - Italy Abroad 16,980 30,767 9,782 Total tons 16,980 30,767 9,782 General information The Saipem Group has historically been a leader in the Onshore Construction sector, completing demanding projects principally involving the laying of large diameter pipelines in harsh environmental conditions and the construction of large complex petrochemical plants. The regions in which the Group consistently operates, are Nigeria and the Arabian Peninsula. The Group is also presently involved in the completion of important projects in the Sudan, Argentina, Thailand and Kazakhstan. Work in Italy was terminated due to a lack of viable possibilities following the completion of the gas transport project on behalf of Snam. The Group does not believe that new opportunities will arise in the medium term. The companies which operate in this sector are Saipem S.p.A., Saipem Contracting Nigeria, Saudi Arabian Saipem, Saipem Malaysia and Saipem Asia. The asset holding unit ERS Equipment Rental & Services manages the Group s operating equipment. Market overview The level of Onshore Construction activity for the period was substantially similar to that of offshore construction. After a slow start in the first few months of 2000, activity increased towards the end of the period with a growing number of interesting projects on offer and many already awarded. The level of Onshore pipeline construction activity appears to have been promoted by strong demand for gas for the production of electricity, in particular in South East Asia, Central Asia, the Middle East and South America. Plant construction activity (refineries and petrochemical plants) is also improving, above all in connection with the economic recovery taking place in developing countries and in particular in South East Asia and South America. New orders The most significant contracts awarded to Saipem for the period were: - the Rehabilitation work project in Saudi Arabia, on behalf of ARAMCO, for the replacement of old gaslines. The contract was awarded to Saudi Arabian Saipem Ltd.. Investments Investments for the period in the onshore construction sector were limited to the refurbishing and upgrading of certain existing equipment in order to complete existing contracts. 14

16 INFRASTRUCTURE Activities in the infrastructure sector mainly relate to the High Speed Rail Project, on behalf of TAV (Treno Alta Velocità). Saipem has a 13.7% share in the Cepav 1 Consortium for the construction of the Milano-Bologna stretch. In completion of procedures which have lasted for approximately eight years, immediately following the close of the six month period on 3rd of August 2000 TAV and the Cepav 1 consortium entered into a final Supplementary Agreement for the construction of the Milano-Bologna high speed stretch. The basic contractual value of this stretch, prior to contractually agreed monetary revaluation which has yet to be defined, has been fixed at 4,645 million euros (8,995 billion lira). Saipem also has a 12% share in the Cepav 2 consortium for the construction of the Milano-Verona stretch. The previously submitted project for this section is currently being updated on the basis of an Inter-ministerial Commissions findings and in particular the routing through Brescia is still pending. - Works performed by other consortia in which Saipem S.p.A. is a participating partner included works carried out by the Sapro Consortium for the construction of a courthouse in Pescara, whilst a decision is expected on the financing arrangements for the construction of a Juvenile courthouse in Sassari. Activities by the Venezia Nuova Consortium, for the protection of the Laguna Veneta from exceptionally high tides continued. The U.S.G. Consortium and the Società Consortile Sage are still in the liquidation phase. OPERATING REVIEW 15

17 RESEARCH AND DEVELOPMENT RESEARCH AND DEVELOPMENT Gulf of Mexico, the Saipem 7000 during the J-laying of risers for the Diana Hoover platform. The expected reduction in Research and Development activity for the year 2000 was confirmed over the last six month period due to the substantial completion of works related to the Blue Stream project which have involved significant technological development over the past few years. In fact a total of approximately 3 million euros were spent and pure research costs of approximately 1 million euros were fully expensed in the income statement, whilst costs associated with the production of new equipment and prototypes, of approximately 2 million euros, were capitalised, increasing the tangible assets concerned. Significant projects carried out during the period were as follows: Ultra deep-water sealine laying technology The Diana Hoover project confirmed performance of the new J lay system of the S7000 at 1,500 metres, validating positive results achieved in tests carried out in the Norwegian portion of the Black Sea in the summer of The project proved decisive in relation to the customisation of laying sub-systems for the Blue Stream project. Auxiliary sealine laying systems used in the Diana Hoover project also provided extremely positive results: - integration of the dynamic positioning/pipe: the prototype guidance system for the S7000 during J-lay permitted more efficient guiding of the vessel during critical stages of the dynamic positioning, demonstrating the operative utility of the vessel. The system is substantially ready for the Blue Stream project, and will be provided with additional functions which shall be tested during year end trials. - Touchdown monitoring system: the installation on board S7000 of a sonar prototype capable of establishing when the tube meets the sea-bed provided reassuring results in respect of project specifications. The software systems for this project shall soon be finalised (above all in respect of man-machine interfacing) and it shows great potential for the integration of further functions, such as on line identification of trenching, which will be evaluated for future applications. 16 Non-intrusive Buckle (fault) detector: following encouraging quality results, an onshore test campaign was instituted in order to quantify the system precision and to verify the ability of the system to assess and supply information on the sealine configuration during laying operations. The final results which should be ready by next autumn, will lead to construction of the definiti-

18 ve system for use in the Blue Stream project. It is also expected that research shall be effected for the purpose of integrating this system with the dp/pipe and touchdown monitoring functions described above. Requirements for a potential project for the laying of sealines in the Gulf of Mexico on behalf of BP-Amoco have led to studies for improving the J lay system which, together with an analysis of possible alternative sealine abandonment and recovery systems in ultra deep waters, shall be completed in the first part of the next six months. Research and development of pipe laying and aligning system solutions for the new Saibos FDS vehicle has concluded. Welding technology and non-destructive testing For the entire six month period experiments continued at Saipem s Cortemaggiore base involving the new Presto fully automatic welding system, with dual welding heads and the Carousel primary and auxiliary power supply management system. It is predicted that operative cycles will be simulated during the first few months of the second half year period, in order to evaluate the reliability of the system which will then be tested on S7000 during year end trials. RESEARCH AND DEVELOPMENT NDT in real time: the scope of work is to be redefined giving priority, over the short term, to the system s ability to work on hot junctions, consequently reducing the cycle time. The development of real time non-destructive testing shall continue at a later date. Subsea intervention systems During the survey campaign in the Black Sea significant data was collected concerning the lay of the seabed and various drilling technologies were tested in relation to future works for the Blue Stream project. Operations confirmed that the new remote control Innovator vehicles developed by Sonsub, are highly versatile and capable of working in subsea environments. Various There were continued developments of an innovative Knowledge management system which will permit distribution of information and best practices within the Group. Saipem s participation in Eurogif (a consortium of contract workers for the European Union with the task of identifying the technological requirements of the energy/hydrocarbon sector) should permit it to address future Group activity to subsea developments, with the aim of developing distinct Group technologies in the context of Global Contracting. A phase for the review of critical operative procedures has recently been commenced, with particular emphasis on laying cycles. Some areas of technological improvement have been identified and should lead to projects with high economic returns. Research has commenced for an integrated shore approach system, which combines a linear winch with equipment for shoreline trenching. A phase for the research and testing of chemical-physical agents has been carried out in order to choose suitable materials for the pig for the Blue Stream Project. 17

19 HEALTH, SAFETY AND ENVIRONMENT HEALTH, SAFETY AND ENVIRONMENT In last six months Saipem has continued its activities for the distribution and implementation of a new HSE (Health Safety Environment) system. In particular this system was implemented in all peripheral offices in order to ensure the application of an increasingly standardised and precise documentary system within the Group, which meets the requirements of the main Oil Companies. Significant projects carried out were as follows: - Personnel training, particularly for persons recruited locally for operative projects, on matters concerning health and safety in the workplace. - Training activity in the new health and safety training centres in Saudi Arabia and Nigeria. - Commencement of environmental informative programmes aimed at the management and treatment of water collection and discharge. - Commencement of Programma Strategico Sanitario (PSS) (Strategic Health Plan) in order to identify direct and indirect costs incurred by the Group for medicine at work. - Continued preparation of new software, to be integrated with the pre-existing GIPSI system (Gestione Informazioni Prestazioni Sanitarie Individuali Individual Health Information Management), in order to identify and simultaneously monitor hygiene and medicine at work and health emergencies in all operative areas. - Upgrade and review of HSE manuals, specifically those relative to off-shore vessels and related operative projects, also in order to obtain ISM Code certification. - Audits and inspections effected on various operative sites in order to verify and guarantee implementation of the system and the constant improvement of safety conditions in the work place. - Monitoring of working environments with particular attention to exposure of workers to chemical and physical agents. - Emergency trials in various Group situations. All of these ventures, which are fully supported by top management, are aimed at improving standards of safety and at guaranteeing Saipem s standing compared to average sector competitors. 18

20 HUMAN RESOURCES HUMAN RESOURCES The types of activities undertaken by the Saipem Group confer two important peculiarities on the human resource: - Flexibility, because activities can be performed either with its own personnel, temporary personnel or through sub-contractors; - Variable impact, as the total number of personnel (internal and/or external) varies according to the types of contract undertaken. Slinging operation for a module installation. These factors do not easily allow the use of conventional ratios, which depend on a constant proportion of headcount to annual turnover. In addition, the seasonal variability of our work volume and our reliance on international labour, and/or Italian personnel with temporary contracts, render more significant ratios based on average year headcount rather than end of the year headcount. This being said, the Group employed an average of 9,998 people for the first six months of 2000 (11,410 for the same period in 1999) of whom 2,657 were employed by Saipem S.p.A. (3,101 for the same period in 1999). First six months of 1999 First six months of 2000 Saipem S.p.A. (**) 3,101 2,657 Other Group Companies 8,309 7,341 11,410 9,998 Offshore Construction 2,636 2,084 Offshore Drilling and Floating Production 872 1,038 Onshore Drilling 1,582 1,573 Onshore construction 5,629 4,624 Infrastructure Staff Total (*) 11,410 9,998 Italian 2,628 2,402 Foreign 8,782 7,596 Italian Permanent personnel 2,409 2,199 Italian Temporary personnel Total 2,628 2,402 (*) including all consolidated companies: For those consolidated companies using the proportional method, a proportion equivalent to the consolidated percentage was used. (**) including all personnel involved in joint-ventures to the extent equivalent to the participation proportion. 19

21 HUMAN RESOURCES The decrease in the average number of persons employed in the first six months of 2000 is due to a contraction in offshore and onshore construction activities, as a direct consequence of postponement of investment programmes by Oil Companies following fluctuations in the price of crude oil. Flexibility in numbers of personnel permitted us to deal with this market depression by reducing foreign personnel (-13.5%) and temporary Italian personnel (-7.3%). The down-scaling of business not only influenced the number of permanent Italian personnel reduced by 253 persons compared to the same period in 1999, despite the recruitment of 28 graduates and 15 people with diplomas it also highlighted the need for further re-organisation of work activities and processes for the purpose of repositioning the Company within the reference market. The first six months of 2000 therefore involved continued ventures aimed at optimising work processes including from an organisational point of view and its consequent impact on human resources. In particular: - we concluded the phase for the implementation of a Group Documentary System in support of the changed organisational structure and the decentralisation of some processes to periphery offices; - activities for the re-engineering and the stream-lining of some of the main processes were continued; - personnel management policies were adapted to the need to locate and develop high profile professional candidates. 20 Trade Unions: a) the Trade Union Organisations were provided with information concerning the labour implications of the reorganisation process and an agreement was reached which provides for the implementation of government plans provided for by Italian legislation for resources from the drilling sector (203 persons have been placed on a Contratto di Solidarietà (CDS)) and for resources from the onshore construction sector and offices and bases (CIGS (lay-offs) have been activated for 150 persons). This agreement binds the parties to support a reorganisation programme over a period of 24 months the main objectives of which are as follows: - continued policy of achievement of quality mix in resources through new recruits; - the improvement of professional knowledge through suitable training programmes; - re-organisation of work in the drilling and construction sectors, with the execution of specific agreements for the purpose of containing labour costs; - the transfer and mobility of resources within the Group to ensure better use of existing professionals; - maintenance of flexibility in relation to incoming and outgoing resources; - disposal of non core activity through transfers of going-concerns. b) At a purely contractual level the policy for the sharing of company objectives has continued with: - The renewal of the CCNL ENERGY classification system (National Collective Labour Agreement for the Energy Sector) ; - The monitoring of working hours in various sectors; - The analysis and finalisation of a bonus system linked to annual wage variables and increases in performance and profitability; - The meeting for the execution of the specific CCNL (National Collective Labour Agreement) for Seagoing Saipem personnel. Training and courses have continued with renewed attention to health and safety of personnel and typical technical themes for Saipem business. Furthermore training programmes have been commenced in order to improve those areas considered critical for the Group. In terms of managerial training, participation in innovative ventures has been launched.

22 INFORMATION SYSTEM In relation to the information and telecommunication system, in the course of the last six month period we have continued action aimed at providing the Group with a suitable technological infrastructure for an on line company organisational model. With respect to new applications, it should be noted that modules relative to Supplies, Assets, Maintenance and Warehouses have come into force in the SAP-R3 integrated system, which is currently being realised and a project for the implementation of a Human Resources Management Programme has commenced. From a managerial point of view, contracts with Telecom are being reduced and efforts made to find more convenient operators with lower service rates. INFORMATION SYSTEM 21

23 COMMENTS ON THE FINANCIAL AND ECONOMIC RESULTS COMMENTS ON THE FINANCIAL AND ECONOMIC RESULTS RESULTS OF OPERATIONS Saipem Group Reclassified income statement (millions of euros) First six months of 1999 First six months of 2000 Variations Operating revenues (30.0%) Other income and revenues 6 4 Purchases, services and other costs (527) (322) Payroll and related costs (153) (135) Gross operating income (11.8%) Amortization, depreciation and write-downs (46) (62) Operating income (50.0%) Financial (expenses), net (8) (15) Income before income taxes (72.9%) Income taxes (11) (4) Net income for the period 37 9 (75.7%) The Offshore construction sector was affected by past delays in the award and commencement of new projects, resulting in a higher idle cost of vessels and equipment. However, in the second quarter the sector was already positively influenced by the market recovery, that will produce more significant benefits in the second half of the year. During the last six month period the Offshore and Onshore Drilling sectors have already registered the positive effects deriving from market recovery both in terms of increase in volumes and profits. At the end of the six month period both Scarabeo 7 and Saipem became functional, further contributing to the positive performance. Increased equipment utilisation due to the commencement of contracts already awarded or under final negotiation, and the longer period of utilisation of Scarabeo 7 and Saipem 10000, lead us to predict that there will be further improvements in results in the second part of the year. Operating revenues in the six month period decreased by 30% and gross operating income by 11.8%. Depreciation and amortisation of tangible and intangible fixed assets amounted to 62 million euros, registering an increase of 35% compared to the same period in the previous year (46 million in the first six months of 1999) in that the majority of new investments were amortised. Operating income was 28 million euros, a decrease of 50% in respect of the same period for the previous year. The increase in net borrowings, mainly as a consequence of new investments, and the increase in net current assets resulted in an increase in financial expenses to 15 million euros as opposed to 8 million euros for the same period in Income before income taxes therefore amounts to 13 million euros, a decrease of 72.9% in respect of the same period for the previous year. Income taxes were 4 million euros, a decrease of approximately 7 million euros in respect of the first six months of Therefore net income for the period amounted to 9 million euros, a reduction of 75.7% in respect of the same period for

24 Operating income and cost by destination (millions of euros) First six months of 1999 First six months of 2000 Variations Operating revenues (30%) Production costs (655) (446) Idle costs (19) (26) Selling expenses (7) (9) Research and development costs (2) (1) Other operating income, net 1 Contribution from operations (33.3%) General and administrative expenses (37) (34) Operating income (50%) Operating revenues decreased by 30% to 543 million euros, as already mentioned. Income from Eni Group companies amounted to 79 million euros representing 14.5% of total operating income (47 million euros for the same period in 1999, equivalent to 6.3%). The part of income realized outside of Italy represented 87.8% of total income (92.5% for the same period in 1999) COMMENTS ON THE FINANCIAL AND ECONOMIC RESULTS Production costs, which include direct costs and depreciation and amortisation of assets, amounted to 446 million euros (655 million in the first six months of 1999); the decrease is related to the volume of activity. Idle costs, which include vessels and onshore construction equipment costs when idle, have increased, mainly due to the non-use of some offshore construction equipment. Selling expenses have increased by 2 million euros in respect of final expenses for the same period in the previous year, following intense selling activity aimed at achieving awards of new contracts. Research and development costs have slightly decreased. Other operating income for the period ended 30 th of June 2000 amounts to 1 million euros. The contribution from operations decreased for the period by 33.3% to 62 million euros. General and administrative expenses, which also include amortization of the SAP modules, in use since the beginning of the fiscal year, decreased by 3 million euros in respect of the previous six month period. Analysis of results achieved by major sectors: Offshore Construction (millions of euros) First six months of 1999 First six months of 2000 Operating revenues Operating expenses net of cost of materials (362) (174) Cost of materials (64) (41) Depreciation and amortization (15) (27) Contribution from operations (*) 47 7 (*) Operating income before general and administrative expenses. Revenues for the first six months of 2000 were 208 million euros, a significant reduction in respect of the same period for the previous year. This was due to a slight reduction in levels of activity as a result of interruption and/or postponement of investment programmes by Oil Companies. This led to consistent non-use of some vessels and idle costs amounted to 22 million euros (12 million for the same period in 1999). As a consequence there was a contraction in contribution from operations of 50 million euros in respect of the first six months of