Annual Report 2002 2002

COVER ANNUAL REPORT.qxd 27-03-2003 21:44 Pagina 1 Società per Azioni · Piazzale Enrico Mattei 1 - 00144 Roma · tel +39.0659821 · fax +39.0659822141 · www.eni.it Annual Report Annual Report 2002 2002 Annual Report 2002 Mission Annual Report Eni is one of the most important integrated energy companies in the world operating 2002 in the oil and gas, electricity generation, petrochemicals, oilfield services 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 sustainable growth. 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. Eni operates in the following 69 countries EUROPE Austria, Belgium, Croatia, Cyprus, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Switzerland, Turkey, United Kingdom CIS Azerbaijan, Kazakhstan, Russia MIDDLE EAST Iran, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Yemen CENTRAL ASIA India, Pakistan SOUTH EAST ASIA AND OCEANIA Australia, China, Indonesia, Malaysia, Papua-New Guinea, Singapore, Taiwan, Thailand, Vietnam AMERICAS Argentina, Brazil, Canada, Ecuador, Peru, Trinidad & Tobago, United States, Venezuela AFRICA Algeria, Angola, Cameroon, Congo, Egypt, Eritrea, Gabon, Guinea Bissau, Libya, Mauritania, Morocco, Nigeria, Senegal, Somalia, South Africa, Tunisia contents Report of the Directors 4 Profile of the Year 8 Letter to our Shareholders Operating Review 16 Exploration & Production 25 Gas & Power 34 Refining & Marketing 40 Petrochemicals 43 Oilfield Services and Engineering Corporate governance and responsibility 48 Introduction 49 Synthetic presentation of results obtained 51 Corporate governance 58 Development of human resources and working standards 61 Sustainable development 67 Research and development 69 Financial Review 81 Other Information 86 Glossary Report of Independent Auditors 89 Consolidated Financial Statements 90 Balance Sheets 91 Statements of Income 92 Statements of Cash Flows 95 Statements of Changes in Shareholders’ Equity 96 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, 2002, which have been presented in a format generally used internationally. Eni’s Annual Report for the year ended December 31, 2002 prepared in accordance with Law No. 127 of April 9, 1991, will be submitted for approval at the General Meeting on May 28 and 30, 2003. March 27, 2003 2002 results The transformation of Eni’s organizational structure was completed Hydrocarbon production in 2002 and future growth targets profile of the year Purchase of Fortum Petroleum The most important oil discovery in the past thirty years: the Kashagan field in Kazakhstan Eni’s international expansion strategy in natural gas through the GVS and Unión Fenosa Gas deals Eni’s public purchase offering on Italgas Eni’s program for the expansion of power generation capacity 4 ENI ANNUAL REPORT PROFILE OF THE YEAR Eni reported a net income for year 2002 amounting to euro 4,593 million, an 11% decrease over 2001 in comparable terms. Capital expenditure (euro 8 billion) increased by euro 1.5 billion over 2001 (up 22%) and concerned for 93% the Exploration & Production, Gas & Power and Refining & Marketing divisions. Self-help measures generated savings for euro 500 million bringing total savings achieved in the 1999-2002 period to euro 1.7 billion With the merger of Snam and AgipPetroli the transformation of Eni’s organizational structure, started in 1997 with the merger of Agip, was completed. Now Eni is an operating company with direct governance of its three main businesses: Exploration & Production, Gas & Power and Refining & Marketing In 2002 daily hydrocarbon production reached the record level of 1,472,000 boe with a 7.5% increase over 2001, due to increases in consolidated areas and start-ups of relevant fields. In the fourth quarter of 2002 daily production was 1,527,000 boe, reaching the 1.5 million boe target set for 2003 one year in advance. Eni intends to maintain a strong production growth in the near future leveraging on internal development and targeting over 1.8 million boe/day in 2006 (an yearly average increase of approximately 6%). Eni’s proved reserved reached over 7 billion boe The purchase of the Norwegian company Fortum Petroleum completed in March 2003, with a daily production of 39,000 boe in 2002 and proved and probable reserves of 202 million boe, is part of Eni’s strategy of development of upstream activities through a strengthening in key areas and an increase in interests in assets partially held in order to create operating synergies. This purchase allows an approximately 40% increase in Eni’s hydrocarbon production in Norway in 2003 The importance of the Kashagan oil field discovery (Eni is single operator with a 16.67% interest) in the Kazakh offshore of the Caspian Sea was confirmed by the appraisal activities performed and underway in the area. The field’s recoverable reserves, calculated according to the most recent estimates in 7-9 billion barrels, reach 13 billion by employing gas reinjection techniques and make Kashagan the most relevant oil the discovery in the past thirty years Within its strategy of international expansion in natural gas activities, in joint venture with the German electricity company EnBW, Eni purchased GVS, one of the major regional operators in natural gas distribution in Germany with sales of approximately 7 billion cubic meters of gas per year; with this operation Eni enters a large natural gas market. Eni also defined the purchase of a 50% interest in Spanish natural gas company Unión Fenosa Gas, which is developing its activity in natural gas in Spain and internationally. With this transaction Eni strengthens its presence in the Spanish natural gas market which shows significant growth prospects. These two deals will allow Eni to strenghten its European leadership The public purchase offering on approximately 56% of the share capital of Eni’s subsidiary Italgas at the unit price of euro 13 per share is part of Eni’s strategy of rationalization and development of its natural gas activities also at international level. The public offering was successfully closed on January 27, 2003; Eni now owns 98.285% of Italgas share capital and is squeezing out the remaining shares outstanding Within its program of development of electricity generation capacity at Eni’s industrial sites, work started for the construction of a new combined cycle power plant at Ferrera Erbognone (Pavia) with a capacity of 1,030 megawatts and for the upgrade of the Ravenna power plant with the installation of two new combined cycle groups for a total capacity of 780 megawatts 5 ENI ANNUAL REPORT PROFILE OF THE YEAR Eni’s program for the reorganization and streamlining of its downstream oil segment: the reorganization of the Priolo refinery, purchases/sales of service stations Purchase of Bouygues Offshore Selected consolidated financial data (million o) 1998 1999 2000 2001 (1) 2002 Net sales from operations 28,341 31,008 47,938 49,272 47,922 Operating income 3,810 5,480 10,772 10,313 8,502 Net income 2,328 2,857 5,771 7,751 4,593 Net income before non-recurring items (2) 2,870 3,047 5,804 5,757 5,122 Net cash provided by operating activities 6,864 8,248 10,583 8,084 10,578 Capital expenditure 5,152 5,483 5,431 6,606 8,048 Financial investments 413 114 4,384 4,664 1,366 Shareholders’ equity including minority interest 17,390 19,749 24,073 29,189 28,351 Net borrowings 7,070 6,267 7,742 10,104 11,141 Net capital employed 24,460 26,016 31,815 39,293 39,492 Net income per share (euro per share) 0.58 0.71 1.44 1.98 1.20 Dividend (euro per share) 0.310 0.362 0.424 0.750 0.750 Dividends paid (3) 1,239 1,446 1,664 2,876 2,830 Pay-out (%) 53.2 50.6 28.8 37.0 62.0 Return On Average Capital Employed (ROACE) (%) 10.7 12.5 21.5 23.9 13.7 Debt to equity ratio 0.41 0.32 0.32 0.35 0.39 (1) Effective from January 1, 2002, Polimeri Europa Srl is consolidated line by line; previously it was accounted for by the equity method in view of its sale. In order to make a homogeneous comparison possible, Eni’s reclassified income statement for 2001, reclassified balance sheet and statement cash flows as of December 31, 2001 assume full consolidation of Polimeri Europa Srl from January 1, 2001. (2) 2002 data was adjusted also for the euro 199 million minority share in profits earned by Snam Rete Gas in the first half of 2002 (Snam Rete Gas started operations on July 1, 2001). (3) Per fiscal year. 2002 data are estimated. 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. Eni and MIB 30 - January 4, 1999 - March 20, 2003 Price in euro Monthly average MIB 30 Eni MIB 30 Brent Eni shares Brent price in US dollars/barrel 1999 2000 2001 2002 2003 18.00 43 54,000 17.00 39 50,000 16.00 35 46,000 15.00 31 42,000 14.00 27 38,000 13.00 23 34,000 12.00 19 30,000 11.00 15 26,000 10.00 11 22,000 9.00 7 18,000 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 6 ENI ANNUAL REPORT PROFILE OF THE YEAR Eni continued its program for repositioning its downstream oil activities: in 2002 Eni completed the new set-up of the Priolo refining pole, with this operation Eni targets a 7.5 million tonnes reduction in its own processing by 2006.

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