Annual Report2004
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This Annual Report was approved by Eni’s Board of Directors on March 30, 2005 Annual Report 2004 Annual Report 2004 Mission Annual Report Eni is one of the most important integrated energy companies in the world operating in the oil and gas, power generation, petrochemicals, oilfield 2004 services construction and engineering industries. In these businesses it has a strong edge and leading international market positions. Eni’s objective is to create new value to meet its shareholders expectations through the continuous improvement of cost efficiency and the quality of its products and services and through the attention to the needs of its employees and the commitment to a sustainable growth pattern also encompassing the careful assessment of the environmental impact of its activities and the development of innovative and efficient technologies. To achieve this objective Eni relies on the managerial and technical capabilities as well as the continuous development of its workforce, and on an increasingly lean and entrepreneurial organization. Countries of activity EUROPE Austria, Belgium, Croatia, Cyprus, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Switzerland, Turkey, United Kingdom CIS Azerbaijan, Georgia, Kazakhstan, Russia AFRICA Algeria, Angola, Cameroon, Chad, Congo, Egypt, Guinea Bissau, Libya, Morocco, Nigeria, Senegal, Somalia, South Africa, Sudan, Tunisia MIDDLE EAST Iran, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates CENTRAL ASIA India, Pakistan SOUTH EAST ASIA AND OCEANIA Australia, China, Indonesia, Malaysia, Papua-New Guinea, Singapore, Taiwan, Thailand, Vietnam AMERICAS Argentina, Brazil, Canada, Dominican Republic, Ecuador, Mexico, Peru, Trinidad & Tobago, United States, Venezuela Report of the Directors 4 Profile of the Year contents 8 Letter to our Shareholders Operating Review 16 Exploration & Production 28 Gas & Power 39 Refining & Marketing 44 Petrochemicals 47 Oilfield Services Construction and Engineering Governance and corporate responsibility 51 Introduction 53 Corporate governance 70 Human resources and organization 74 Sustainable development 80 Research and development 83 Financial Review 96 Other Information 102 Glossary Report of Independent Auditors 105 Consolidated Financial Statements 106 Balance Sheets 107 Statements of Income 108 Statements of Cash Flows 111 Statements of Changes in Shareholders’ Equity 112 Notes to the Consolidated Financial Statements This Annual Report includes the report of Eni’s Board of Directors to shareholders and Eni’s consolidated financial statements for the year ended December 31, 2004, which have been presented in a format generally used internationally. Eni’s General Meeting – convened on May 26 and 27, 2005 – approves Eni SpA’s 2004 Annual Report which has not been included herein. March 30, 2005 Results of the year Dividend Hydrocarbon production in the year and future targets profile of the year Proved reserves of hydrocarbons The Kashagan oil field’s development plan The Western Libyan Gas integrated project started-up Expansion strategy of natural gas activities Development plans for power generation Rationalization and selective growth in downstream oil 4 ENI ANNUAL REPORT PROFILE OF THE YEAR In 2004, Eni’s net income totaled euro 7,274 million, an increase of euro 1,689 million over 2003, up 30.2%, due mainly to a positive operating performance (up euro 2,946 million). Eni’s operating income of euro 12,463 million is the highest ever achieved by Eni, euro 1.7 billion higher than the previous record of 2000 The increase in earnings and in cash flows generated by operations, along with a sound balance sheet structure, allow Eni to distribute to shareholders a dividend of euro 0.90 per share, with a 20% increase over 2003. Pay-out amounts to approximately 47% Hydrocarbon production was over 1.6 million boe/day, a 4% increase over 2003 (6.4% without taking into account the price effect in Production Sharing Agreements - PSA); in the fourth quarter of 2004 production reached 1.7 million boe/day. Eni intends to maintain a strong production growth rate in the medium-term, leveraging in particular on the contribution of the great projects underway and targeting a production level of approximately 2 million boe/day in 2008, with a compound average growth rate higher than 5% Eni’s proved reserves of hydrocarbons at December 31, 2004 amounted to 7,218 million boe with a reserve replacement ratio of 132% before the effects of higher realized oil prices in PSAs and of asset divestment; this average declines to 91% after these effects. In the medium-term reserve replacement will be supported by the relevant mineral potential of Eni’s assets located in core areas such as the Caspian Sea, West Africa, North Africa and the Norwegian section of the North Sea. The average reserve life index was 12.1 years Within the development plan for the Kashagan field (Eni operator with a 16.67% interest) in the Kazakh offshore section of the Caspian Sea, contracts for a total of over dollar 5 billion were awarded. The development plan, approved by the Kazakh authorities on February 25, 2004, to be implemented in multiple phases, aims at the production of up to 13 billion barrels of oil reserves by means of partial reinjection of gas from 2008 with an expenditure of dollar 29 billion (5 billion being Eni’s share). Production plateau is targeted at 1.2 million barrels/day The Western Libyan Gas integrated project was started-up. This is the most important integrated project ever achieved in the Mediterranean basin and concerns natural gas produced in Libyan fields exported and marketed on European markets. When fully operational in 2006, volumes produced and transported via the underwater Greenstream gasline which started operations in October, will amount to 8 billion cubic meters/year (4 of which net to Eni) already booked by operators under long-term contracts Sales of natural gas, including own consumption and Eni’s share of sales of affiliates, reached 84.5 billion cubic meters (up 7.8% over 2003), in line with Eni’s strategy of international expansion in natural gas in markets with interesting growth prospects. In 2008 Eni targets sales of about 94 billion cubic meters with a compound average growth rate of 2.8% Eni continued its plan for expanding its power generation capacity targeting 5.3 gigawatt of installed capacity in 2007. In 2004 a total of 1.3 gigawatt were installed, thus increasing Eni’s installed capacity to 3.3 gigawatt at year end. When fully operational the new combined cycle gas fired plants will allow to consume over 6 billion cubic meters per year of natural gas produced by Eni In the downstream oil business Eni sold its activities in the distribution of refined products and LPG in Brazil, and continued the rationalization of its Agip branded retail network in Italy, which led average throughput to reach over 2.5 million liters (up 4.5% over 2003). In Italy Eni sold approximately 13.8 billion liters. With over 4.4 billion liters, sales in the rest of Europe increased by over 15% thanks to the selective growth strategy pursued 5 ENI ANNUAL REPORT PROFILE OF THE YEAR Selected consolidated financial data (million euro) 2000 2001 2002 2003 2004 Net sales from operations 47,938 49,272 47,922 51,487 58,382 Operating income 10,772 10,313 8,502 9,517 12,463 Net income 5,771 7,751 4,593 5,585 7,274 Net cash provided by operating activities 10,583 8,084 10,578 10,827 12,362 Capital expenditure 5,431 6,606 8,048 8,802 7,503 Investments 4,384 4,664 1,366 4,255 316 Shareholders’ equity including minority interest 24,073 29,189 28,351 28,318 32,466 Net borrowings 7,742 10,104 11,141 13,543 10,228 Net capital employed 31,815 39,293 39,492 41,861 42,694 Net income per share (euro per share) 1.44 1.98 1.20 1.48 1.93 Dividend (euro per share) 0.424 0.75 0.75 0.75 0.90 Dividends paid (1) 1,664 2,876 2,833 2,828 3,388 Pay-out (%) 29 37 62 51 47 Return On Average Capital Employed (ROACE) (%) 21.5 23.9 13.7 15.6 18.8 Debt to equity ratio 0.32 0.35 0.39 0.48 0.31 Number of shares outstanding at period end (2) (million) 3,956.7 3,846.9 3,795.1 3,772.3 3,770.0 Market capitalization (3) (billion euro) 54.0 54.0 57.5 56.4 69.4 (1) Per fiscal year. 2004 data are estimated. (2) Excluding own shares in portfolio. (3) Number of outstanding shares by reference price at period end. Forward-looking statements Certain disclosures contained in Eni’s financial statements are forward-looking statements. By their nature forward-looking statements involve risk and uncertainty. The factors described herein could cause actual results of operations and developments to differ materially from those expressed or implied by such forward-looking statements. Key market indicators 2000 2001 2002 2003 2004 Average price of Brent dated crude oil (1) 28.39 24.46 24.98 28.84 38.22 Average EUR/USD exchange rate (2) 0.924 0.896 0.946 1.131 1.244 Average price in euro of Brent dated crude oil 30.73 27.30 26.41 25.50 30.72 Average European refining margin (3) 3.99 1.97 0.80 2.65 4.02 Average European refining margin in euro 4.32 2.20 0.85 2.34 3.23 Euribor - three-month euro rate (%) 4.4 4.3 3.3 2.3 2.1 (1) In US dollars per barrel. Source: Platt’s Oilgram.