Eni Strategy and Results Marco Mangiagalli CFO Palermo, May 20 th 2004
Disclaimer This presentation contains forward-looking statements regarding future events and the future results of Eni that are based on current expectations, estimates, forecasts, and projections about the industries in which Eni operates and the beliefs and assumptions of the management of Eni. In particular, among other statements, certain statements with regard to management objectives, trends in results of operations, margins, costs, return on equity, risk management and competition are forward-looking in nature. Words such as expects, anticipates, targets, goals, projects, intends, plans, believes, seeks, estimates, variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Therefore, Eni s actual results may differ materially and adversely from those expressed or implied in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, economic conditions globally, the impact of competition, political and economic developments in the countries in which Eni operates, regulatory developments in Italy and internationally and changes in oil prices and in the margins for Eni products. Any forward-looking statements made by or on behalf of Eni speak only as of the date they are made. Eni does not undertake to update forward-looking statements to reflect any changes in Eni s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any further disclosures Eni may make in documents it files with the US Securities and Exchange Commission. 2
1Q 2004 Results Palermo, May 20 th 2004
Market Environment /$ Exchange rate Brent Average European Refining Margin* 1,3 $/boe /boe $/boe /boe 32 32 4 4 1,2 1,1 30 28 26 24 30 28 26 24 3,5 3 2,5 3,5 3 2,5 22 22 2 2 1 1Q03 2Q03 3Q03 4Q03 1Q04 20 1Q03 2Q03 3Q03 4Q03 1Q04 20 1,5 1Q03 2Q03 3Q03 4Q03 1Q04 1,5 1Q04/1Q03 /$ Δ% +16.5 1Q04/1Q03 $/boe /boe Δ% +1.4-13.0 1Q04/1Q03 $/boe /boe Δ% -42.0-50.2 * FOB Mediterranean market, lead free gasoline. Eni calculations on Platt s Oilgram data 4
Eni Consolidated Results: net income Million Reported Excluding special items +6.9% -14.1% 2,145 2,006 1,901 1,633 1Q 2003 1Q 2004 1Q 2003 1Q 2004 5
Eni Consolidated Result: operating income Million Reported Excluding special items 3,333-4.8% 3,173-4.6% 3,363 3,208 + 6.7% net of /US$ appreciation 1Q 2003 1Q 2004 1Q 2003 1Q 2004 6
Maintaining a Solid Financial Structure Million Investments Net financial debt Capex Financial invest. 9,414 8,048 +38.7% 1,366 13,057 4,255 8,802 11,141 13,543 0.48 11,280 0.39 0.36 2002 2003-66.3% 5,247 3,512 25 1,766 1,735 1,741 Dec 02 Dec 03 Mar 04 1Q 2003 1Q 2004 7
Strategic Highlights Palermo, May 20 th 2004
Industry Challenges and Priorities and Eni Strategic Plan From end of 90s to nowdays! Production growth! Operating efficiency, maximizing sinergies after mega mergers & acquisitions! Rationalization in downstream oil! European energy market liberalization! Growth based on capital discipline Future trend! Reserve replacement! Development in frontier areas pursuing long term profitable growth! Further development of gas industry! Capital & operative efficiency! Focus on cash 2000-2003 Strategic plan 2004-2007 Strategic plan 9
Eni Strategic Highlights in 2004-2007 Growth in core business Sustain attractive returns leveraging on business integration! E&P: Efficient organic growth continuing portfolio rationalization Reserve replacement! G&P: Profitable growth leveraging on Italian gas demand and power development in Italy and international gas expansion! R&M: Continuing Italian network requalification and expansion in Europe Efficiency! Delivering on cost cutting! Strong Focus on unit cost Shareholders return! Capital and financial discipline! Dividend 10
E&P: confirming strong organic production growth in 2004-2007 (kboe/d) Net of portfolio rationalization CAGR +10% 1,472 1,562 +5% Above 1,800 1,900 1,064 1999 2002 2003 Target 2007 2006 11
E&P: 1Q 2004 - Strong Production Trend confirmed Thousands boe/d 1Q 04 / 1Q 03 +8.7% 1,628 1,498 1Q 2003 1Q 2004 12
E&P: reserve replacement consistent with production trend (million boe) PROVED HYDROCARBON RESERVES 5,534 +31.4% 7,272! Booking criteria in line with SEC guidelines! Centralized control system! Independent auditors assessing reserves on a rotating basis 1999 2003 REPLACEMENT RATIO 01-03 All sources +181% 00-02 202% 99-01 226% RRR target 2004-2007 >100% Organic +127% 137% 141% 13
E&P: efficient organic growth enhancing portfolio value and quality EFFICIENCY AND CASH FLOW! Leading position in lifting costs! Reduction in discovery costs! Strong focus on F&D costs trend! High cash flow per Boe! Continuing rationalization! Operatorship & concentration N OF PRODUCING COUNTRIES 23 19 75% of equity production in only 8 countries PORTFOLIO Countries producing > than 100 kboed 5 8! Selectivity in exploration 2003 2007! Developing large scale projects: Libya, West Africa, Caspian Basin Project selectivity based on strict capital discipline 14
E&P: building beyond the plan period Kashagan Giant field CONTRACT BLOCKS! Operatorship! High reserves KAIRAN Long term! Management and engineering knowhow! High potential exploration KALAMKAS KASHAGAN SW AKTOTE profitable production growth Further exploration activity in: Kashagan SW Kalamkas Aktote and Kairan 15
Eni achievements in G&P: gas sales increase leveraging on international expansion Italy Internationally 60.2 60.0 2002/2003 Ceiling respected in the Italian gas market 62.9 65.6 67.4 68.7 5.6* 8.5* 58.9 16.1* 52.6** 78.4 25.6* 52.8** First quarter data 26.1 27.9 7.2* 9.1* 18.9** 18.8** 1999 2000 2001 2002 2003 1Q 2003 1Q 2004 * Including gas sales in South America ** Including self consumption 16
Eni: acting proactively in the Italian gas market opening ITALIAN DEMAND (Bcm) ~85.0 ~90.0 77.1 70.4 70.5 100,0 PRICE TRENDS NET OF SCENARIO Gas demand and price trends -7% 2000 2002 2003 2007 2010 0,0 2000 2003! Higher flexibility in the supply contract both in Italy and abroad Supply contract! No risk on Take or Pay in 2004-07 period thanks to the expansion abroad and gas demand increase driven by power generation 17
Eni: acting proactively in the Italian gas market opening Bcm Italian gas demand Thermoelec. Industry Resid.& Comm *+5.3% Normalized for weather effect 70.5 +9.4%* +17% +1% +10% 77.1 26.4 2002 2003 1Q 2003 Eni gas sales in Italy 52.6 52.8 18.9 +4.1% +11% +6% -0.1% 27.5 1Q 2004 x 18.8 Final customer** Wholesalers ** Including Italgas sales 35.4 37.5 17.2 15.3 2002 2003 11.7 11.9 11,7 11,9 7.2 7,2 6.9 6,9 1Q 2003 1Q 2004 18
Eni profitable Expansion in the Italian Power Market Strategic targets confirmed Powergen market in Italy:! 3% Growth rate in 2002-2010*! Inefficient power generation capacity! Environmental issue * Source GRTN Eni powergen development plan can leverage on:! Gas self consumption! Eni s sites availability! CCGT high efficiency! Commercial integration! Environmental sustainable! 5-6 GW of installed capacity! 6-7 Bcm of gas selfconsumption! Attractive returns FIRST OPERATOR STARTING NEW POWER PLANTS IN ITALY 19
EniPower Ongoing Expansion in the Italian Market: on track with strategy INSTALLED CAPACITY* (GW) SALES (TWh) OPERATING RESULT ( million) 1.0 1.8 2.06 0.8 1.26 3.31 38 0.8 2.51 5 1Q 2003 1Q 2004 1Q 2003 1Q 2004 1Q 2003 1Q 2004 * In commercial operation Trading Production 20
Eni Regulated Asset Base STRATEGIC TARGET RECENT DEVELOPMENTS FUTURE STEPS Reduce exposure in regulated assets according to market dynamics and industrial needs October 2003 DECREE LAW sets the new rules for ownership in both gas and electricity transmission activity:! Maximum stake allowed: 20%! Timing: within June 2007 Optimize Italgas assets coherently with:! New RAB (Jan. 2004): 3.6 billion! Second regulatory period (July 2004)! Concession regime! Network Code! Market developments Sale of 9.05% of Snam Rete Gas 21
Eni: exploit European presence delivering on volume targets European sales (Bcm) Expansion in Target Markets: 2003 result 10% higher than 00/03 target 44 CAGR 03/02: 40% CAGR 07/03: 12% * Including Libyan gas in 2007 ** Including E&P direct sales 12 4 3 5 20 6 8 6 28 14 9 5 24 15 2001 2002 2003 2007 5! Target markets! Iberian peninsula! Germany! Turkey! Hungary (secondary distribution)! Shippers *! Equity ** 22
Eni Strategy in R&M confirmed STRATEGY REFINING! Completing reduction in FOB production in Italy 32.0 6.7 25.3 30.0 5.1 24.9 (Mln ton) FOB capacity CIF capacity 2003 2006 target MARKETING ITALY! Continuing network requalification EUROPE! Expansion in selected European areas Leveraging on brand awareness Supply advantages Increasing Increasing retail retail sales/refining sales/refining capacity capacity ratio ratio Throughtput per site (Mln lt/ss) Total sales (Bln lt) 2007 TARGETS Italy & Abroad 2.0 2003 17.9 2003 2.8 2007 19 2007 23
Capital Employed Billion 41.8 96% Continuing focus on core business Other Core business! CHEMICALS 2003: only less than 2% of overall capital employed (well below sector average) 2003 achievements: 3 plants shut down and 1 plant disposed Key priority: focus on cash flow 2003 1Q 2004: additional plants shut down in chemicals 24
Continuing Cost Cutting Billion real terms 2003: 587 99-02: 1,720 Confirmed 3.4 2007 Strong focus on unit costs Target exceeded by 15% 2.3 2.0! Operating performances! Capital efficiency in pursuing growth Target 99-03 2003 Target 2006 25
Eni Use of Cash Investments Dividend Share buy back Capital and financial discipline in Eni use of cash 26
Eni Use of Cash: capital expenditure Bn Strict capital discipline in selective projects, particularly in E&P sector Other E&OS R&M G&P E&P 4% 5% 25.5 9% 17% Capital Expenditure Highlights! Including non defined projects in E&P! Snam Rete Gas deconsolidation in 2007 65%! Powergen development completed by the end of 2006 2004-07 27
Eni Use of Cash: capital expenditure Bn 01/03 Investments trend:! Key projects in E&P! Higher production level in E&P! Developing powergeneration! Gas transmission abroad 5.5 5.4 2003 Peak of Eni investments 6.6 8.1 8.8 Average Capex 04-07 ~6.5 1999 2000 2001 2002 2003 04-07 plan 28
Eni: solid returns for shareholders Payout 29% 37% 62% 51% Board proposal to next AGM in May: 0.75 /share DIVIDEND (Euro per share) 0.424 0.750 0.750 0.750 Confirming sustainability in the 2004-2007 period 2000 2001 2002 2003 Total shareholders return CAGR 00-03: 15% 29
Eni Strategy: share buy-back Bn SHARE BUY-BACK PROGRAM UPDATE 0.6 1.5 0.8 0.3! From September 1, 2000 up to 2003 Bought back 231 million shares (5.8% of share capital) Spent 3.2 billion 2000 2001 2002 2003 30
Eni Financial Targets and Shareholders Return Growth in core business 2007! E&P production 5%! Gas sales abroad 12% Efficiency! Focus on unit costs and efficiency Capex! Dividend sustainability (0.75 per share)! Cash flow covering capex and dividends at mid cycle conditions (9-10 billion euro)! Debt to equity 0.4! 25.5 billion Mid Cycle Assumptions! Brent 16 $US/boe (real 2000)! /$ Exchange Rate 1 31
Eni Strategy and Results Marco Mangiagalli CFO Palermo, May 20 th 2004