ENI - 20-F annual report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .

Commission file number: 1-14090

Eni SpA
(Exact name of Registrant as specified in its charter)

Republic of Italy
(Jurisdiction of Incorporation of Organization)

Piazzale Enrico Mattei 1, 00144 Rome, Italy
(Address of principal executive offices)

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     Securities registered or to be registered pursuant to Section 12(b) of the Act:

     Shares, nominal value euro 1 each, listed on the New York Stock Exchange not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the New York Stock Exchange.

     American Depositary Shares, each representing the right to receive five Shares, listed on the New York Stock Exchange.

     Securities registered or to be registered pursuant to Section 12(g) of the Act:

None.

     Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None.

     Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes o    No o

     Indicate by check mark which financial statement Item the Registrant has elected to follow:

Item 17o     Item 18 o

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     Certain disclosures contained herein including, without limitation, information appearing in «Item 4. Information on the Company», and in particular «Item 4 — Exploration & Production», «Item 5. Operating and Financial Review and Prospects» and «Item 11. Quantitative and Qualitative Disclosures of Market Risk» contain 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. Eni may also make forward-looking statements in other written materials, including other documents filed with or furnished to the U.S. Securities and Exchange Commission (the «SEC»). In addition, Eni’s senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. In particular, among other statements, certain statements with regard to

CERTAIN DEFINED TERMS

     In this Form 20-F, the term «Eni» refers to Eni SpA and its consolidated subsidiaries and, unless the context otherwise requires, their respective predecessor companies. All references to «Italy» or the «State» are references to the Republic of Italy, all references to the «Government» are references to the government of the Republic of Italy. For definitions of certain oil and gas terms used herein and certain conversions, see «Certain Oil and Gas Terms» and «Conversion Table».

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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, those discussed in this Report under the section entitled «Risk Factors» and elsewhere. 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 SEC.

CERTAIN DEFINED TERMS

     In this Form 20-F, the term «Eni» refers to Eni SpA and its consolidated subsidiaries and, unless the context otherwise requires, their respective predecessor companies. All references to «Italy» or the «State» are references to the Republic of Italy, all references to the «Government» are references to the government of the Republic of Italy. For definitions of certain oil and gas terms used herein and certain conversions, see «Certain Oil and Gas Terms» and «Conversion Table».

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     Unless otherwise indicated, the financial information contained herein has been prepared in accordance with Eni Group accounting policies which are in accordance with principles prescribed by Italian law and supplemented by the accounting principles issued by the Consiglio Nazionale dei Dottori Commercialisti e dei Ragionieri or, in the absence thereof and if applicable, the International Accounting Standards Board (collectively, «Italian GAAP»). For further details see Note 2 to the Consolidated Financial Statements as described in Note 27 to the Consolidated Financial Statements, Italian GAAP differ in certain significant respects from accounting principles generally accepted in the United States («U.S. GAAP»). Unless otherwise indicated,

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any reference herein to «Consolidated Financial Statements» is to the Consolidated Financial Statements of Eni (including the Notes thereto) included herein.

     Starting from 1999, Eni published its Consolidated Financial Statements in euro; prior to 1999 Eni published its Consolidated Financial Statements in Italian lire. As of January 1, 1999, the lira became a sub-unit of the euro which is now the official currency of Italy. The euro/lira exchange rate was irrevocably fixed on December 31, 1998, at lire 1936.27 per euro. Eni Consolidated Financial Statement for years prior to 1999 have been translated into euro for a better comparison of data. See «Item 3 — Selected Consolidated Financial Data». Unless otherwise specified or the context otherwise requires, references herein to «dollars», «$», «U.S. dollars» and «U.S.$» are to the currency of the United States and references to «euro» and «E» are to the currency of the European Monetary Union.

     Market share estimates contained in this document are based on management estimates unless otherwise indicated.

STATEMENTS REGARDING COMPETITIVE POSITION

     Statements made in «Item 4 — Information on the Company», referring to Eni’s competitive position are based on the company’s belief, and in some cases rely on a range of sources, including investment analysts’ reports, independent market studies and Eni’s internal assessment of market share based on publicly available information about the financial results and performance of market participants.

GLOSSARY

     A glossary of financial and oil and gas terms is available on Eni’s web page at the address www.eni.it/english/notizie/mediateca/glossario_eni.html. Below is a selection of the most frequently used terms.

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ABBREVIATIONS

CONVERSION TABLE

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PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     NOT APPLICABLE

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     NOT APPLICABLE

Item 3. KEY INFORMATION

Selected Financial Information

     Financial information shown below has been extracted or derived from the audited consolidated financial statements of Eni. Starting from 1999, Eni publishes its consolidated financial statements in euro and has translated all lire amounts relating to consolidated financial statements for the year 1998 at the fixed official exchange rate of lire 1,936.27 = 1 euro. Although these statements depict the same trends as would have been shown had they been presented in lire, they may not be directly comparable to the financial statements of other companies that have also been restated in euro. Prior to the adoption of the euro, the currencies of other countries fluctuated against the lira, but as the euro did not exist prior to January 1, 1999, actual historical exchange rates for the euro are not available. A comparison of Eni’s financial statements for the year 1998 and those of other companies that historically used a reporting currency other than the lira that takes into account actual fluctuations in exchange rates could give a different impression than a comparison of Eni’s financial statements for the year 1998 and those of that company translated into euro.

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Selected Operating Information

     The table below sets forth selected operating information with respect to Eni’s proved reserves, developed and undeveloped, of crude oil (including condensates and natural gas liquids) and natural gas, as well as other data, for the years ended and at December 31, 1998, 1999, 2000, 2001 and 2002. Such estimates of proved reserves have been prepared in accordance with Statement of Financial Accounting Standards No. 69 («SFAS 69»). See the unaudited supplemental oil and gas information on Note No. 29 to the Consolidated Financial Statements.

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Exchange Rates

     Italy is one of the eleven member states of the European Monetary Union that entered the single European currency which became effective on January 1, 1999; the other countries are Austria, Belgium, Finland, France, Germany, Ireland, Luxembourg, the Netherlands, Portugal and Spain. Greece entered the single European currency on January 1, 2001. The official fixing rate of the lira versus the euro is 1,936.27 lire per euro.

     The following table sets forth, for the periods indicated, certain information regarding the Noon Buying Rate in U.S. dollars per euro, rounded to the second decimal (Source: The Federal Reserve Board). Exchange rates for the year 1998 are derived dividing the official fixing rate of the lira versus the euro by the Noon Buying Rates of the lira versus the U.S. dollar.

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     Fluctuations in the exchange rate between the euro and the dollar affect the dollar equivalent of the euro price of the Shares on Telematico and the dollar price of the ADSs on the NYSE. Cash dividends related to fiscal year 2002 will be paid by Eni SpA in euro in 2003 and exchange rate fluctuations will also affect the dollar amounts received by owners of ADSs upon conversion by the Depository of cash dividends paid in euro on the underlying Shares. The Noon Buying Rate on June 20, 2003 was U.S. dollars 1.1616 = euro 1.00.

Risk Factors

     Competition

     There is strong competition worldwide, both within the oil industry and with other industries, in supplying energy to the industrial, commercial and residential energy markets. A number of Eni’s competitors have merged or may have the intention to merge and so lead to possibly stronger competition from competitors with greater financial resources. In its Exploration & Production business, particularly outside Italy, Eni encounters competition from other major international oil companies for exploration and development rights. In its natural gas business, Eni encounters increasingly strong competition from both national and international natural gas suppliers, also following the impact of the liberalization of the Italian natural gas market introduced by Legislative Decree No. 164/2000 which provides for, among other things, the opening of the entire Italian market to competition by 2003, limits to the size of gas companies relative to the market and third parties access to transport infrastructure. In its electricity business, Eni competes with other producers from Italy or outside Italy which sell electricity on the Italian market. In addition an uncertain regulatory framework and delays in the authorization process for the construction of new power plants on the part of public administrations prevent operators, amongst which Eni, from fully deploying their growth plans in the electricity business according to scheduled time. Eni faces competition from several major international oil companies in its refinery and refined product marketing businesses. In the retail market, Eni competes with third parties both in Italy and outside Italy (including major international oil companies, companies owned by oil producing nations and local operators) to obtain concessions to establish and operate service stations. Once established, Eni’s service stations compete primarily on the basis of services and availability of non-petroleum products. In Italy plans for the upgrading and efficiency improvement of a service station network can advance only in accordance with the evolution of the regulatory framework, which lags behind that of other major European countries. Eni also faces significant competition from certain international operators in the oilfield services contracting and engineering industries. Such competition is primarily on the basis of technical expertise, quality

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and number of services, availability of technologically advanced facilities (for example vessels, drilling plants etc.) and price.

     Cyclicality of Petrochemical Industry

     The petrochemical industry is subject to cyclical fluctuations in supply and demand, with consequent effects on prices and profitability exacerbated by the highly competitive environment of the industry. Eni’s petrochemicals operations, which are located mainly in Italy with certain plants located also outside Italy, have been in the past and may in the future be adversely affected by worldwide excess installed production capacity, as well as by economic slowdowns in many industrialized countries. The dislocation of petrochemical activities to geographical areas like the Far East and oil producing countries which provides long term competitive advantages has weakened the competitiveness of petrochemicals operations in industrialized countries, amongst which Eni’s own petrochemical operations. Petrochemicals operations in industrialized countries are also less competitive than those in the above-mentioned areas due to stricter regulatory frameworks and growing environmental concerns which prevail in industrialized countries.

     Political and Economic Considerations

     The production of oil and natural gas requires high levels of capital expenditure and entails particular economic risks and opportunities. It is subject to natural hazards and other uncertainties including those relating to the physical characteristics of oil or natural gas fields.

     The production of oil and natural gas is highly regulated and is subject to intervention by governments throughout the world in matters such as the award of exploration and production interests, the imposition of specific drilling and other work obligations, environmental protection measures, control over the development and abandonment of fields and installations, and restrictions on production. In addition, the oil and gas industry is subject to the payment of royalties and excise duties, which tend to be higher than those payable in respect of many other commercial activities.

     Crude oil prices are subject to international supply and demand and other factors that are beyond Eni’s control. OPEC member countries control production of a significant portion of the worldwide supply of oil and can exercise substantial influence over its price levels. International geopolitical tensions and political developments, including sanctions imposed on certain oil-producing countries on the basis of resolutions of the United Nations, can also affect world supply and prices of oil. Such factors can also affect the prices of natural gas because such prices are typically tied to the prices of certain refined petroleum products. Higher crude oil prices have a favourable impact on Eni’s results of operations and lower crude oil gives an adverse impact.

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     Substantial portions of Eni’s hydrocarbons reserves are located in countries outside the EU and North America, certain of which may be politically or economically less stable than EU or North American countries. At December 31, 2002, approximately 69% of Eni’s proved hydrocarbons reserves were located in such countries. See «Item 4 — Exploration & Production — Oil and Natural Gas Reserves». Similarly, a substantial portion of Eni’s natural gas supply comes from countries outside the EU and North America. In 2002, approximately 29% of Eni’s domestic supply of natural gas came from such countries. See «Item 4 — Gas & Power — Natural Gas Supplies». In August 1996, the United States adopted the Iran and Libya Sanctions Act (the «Sanctions Act»). The Sanctions Act requires the President of the United States to impose certain enumerated sanctions under certain circumstances on companies which engage in trade with or investment activities in Libya. Under the Sanctions Act, sanctions against Libya are expected to be applied until the President of the United States decides that Libya has complied with UN resolutions No. 731 of 1992 and No. 883 of 1993. Recent signs of a new Libyan attitude to the solution of existing controversies have led the UN to suspend Resolutions No. 731 and 883. Eni cannot predict interpretations of, or the implementation policy of the U.S. Government with respect to the Sanctions Act. However, Eni does not believe that the Sanctions Act will have a material adverse effect on its financial condition or results of operations. For a description of Eni’s operations in Libya and Iran see «Item 4 — Information on the Company — Exploration and Production — North Africa and Rest of the World.»

     Liberalization of the Italian Natural Gas Market

     Legislative Decree n. 164 dated May 23, 2000 introduced rules for the liberalization of the Italian natural gas market which management believes will have a significant impact on Eni’s activity, as the company is present in all the phases of the natural gas chain. The decree, among other things, establishes:

     In order to meet the medium and long-term demand of natural gas in particular of the Italian market, Eni entered into long-term purchase contracts with producing countries that currently have a residual average term of approximately 17 years. Existing contracts, which in general contain take-or-pay clauses, will ensure a total of about

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66 billion cubic meters of natural gas per year (Russia 28.5, Algeria 21.5, Netherlands 10 and Norway 6) by 2008. The above quantities are based on the annual contract quantity of the relevant contract. The average annual minimum quantity is approximately 85% of said quantities. In order to comply with the above mentioned regulatory thresholds relating to volumes input to the national transport network, Eni signed multi-annual contracts with third party importers to sell natural gas volumes exceeding said thresholds outside of the Italian territory; in prior years these volumes were imported into Italy and sold to Italian consumers by Eni. This change in the sale mix is structural and will adversely affect Eni’s results of operations. Further, management expects Eni’s margins on natural gas in Italy to come under pressure in future years due to the entry into the market of new competitors including the above mentioned third parties which purchase natural gas from Eni outside the Italian territory and resell it to Italian customers. Finally due to the antitrust threshold on direct sales in Italy, management expects Eni’s natural gas sales in Italy to increase at a rate that cannot exceed the growth rate of natural gas demand in Italy. Management believes all these developments might have a material adverse impact on Eni’s results of operations.

     To date Eni’s natural gas supply contracts have not entailed the application of take-or-pay clauses. Natural gas imports for the next few years have been programmed based on the highest flexibility allowed by longterm supply contracts, assuming that access capacity to the Italian network will be available in accordance with said flexibility. However, this assumption may be inconsistent with the current network code as established by the Authority for Electricity and Gas with decision No. 137 of July 17, 2002, in implementation of article 24, line 5 of Legislative Decree No. 164/2000. Decision No. 137 established priority criteria for the entitlement of transmission capacity at entry points from international networks into the domestic network. Entitlement periods can last no longer than five years. In particular it recognises priority access to take-or-pay contracts entered into before 1998, within the limit of the average daily contractual quantity. There is therefore no guaranteed access priority for the whole contractual flexibility. In fact, take-or-pay contracts entered by Eni before 1998 envisage Eni’s right to withdraw daily amounts larger than the average daily contractual amount; this contractual flexibility provided by the difference between the maximum daily amount Eni is entitled to and the average contractual daily amount is used in particular in winter. In the event of congestion at entry points, natural gas volumes not receiving a priority are assigned available transmission capacity on a pro-rata basis. Decision No. 137 establishes a transitional regime according to which for thermal year 2002-2003 access priority is granted also for two thirds of the difference between maximum contractual daily amounts and average daily amounts. For the thermal year 2003-2004, priority will be granted for only one third of that difference. On November 6, 2002 Eni filed a claim with the Regional Administrative Court of Lombardia requesting the annulment of decision No.137/2002 as Eni considers this decision non consistent with the overall rationale of the European natural gas framework, especially with reference to Directive 98/30/CE and Legislative Decree No. 164/2000. In case of an unfavourable outcome of this matter, management believes that Eni’s results of operations could be negatively affected should market conditions prevent Eni from selling its whole availability of natural gas under take-or pay contract obligations. See »Item 5—Management Expectations of Operations».

     On November 21, 2002 the Italian Antitrust Authority concluded the inquiry started on request of Blugas SpA concerning Eni’s alleged violation of competition rules, and acquitted Eni for the specific case of Blugas (deriving from the fact that in the spring-summer of 2001 Eni partially accepted Blugas’s request to access the network) but judged that Eni had abused of commanding position for having given, with the aim of respecting binding market thresholds, priority access to Italian purchasers with which Eni had entered supply contracts with volumes bought out of Italy supplied at entry points into the Italian network. The Antitrust Authority considers that these contracts infringe the rationale of article 19 of Legislative Decree No. 164/2000 which defines the limits for volumes to be input by a single operator into the national network. Given this infringing behavior and the lack of clarity of Italian regulations and Eni’s availability to increase the transmission capacity of gaslines outside Italy, the Antitrust Authority imposed on Eni a symbolic fine amounting to euro 1,000 and requested Eni to submit «a report indicating measures to be taken to eliminate infringing behaviors with specific attention to the upgrading of the transmission network or equivalent actions». Eni filed this report on March 6, 2003. On February 5, 2003 Eni filed a claim with the Regional Administrative Court of Lazio in Rome requesting the annulment of the measures taken by the Authority.

     Eni cannot predict the final outcome on this matter and future developments in the more general institutional debate ongoing on the liberalization of the natural gas market in Italy as confirmed by the joint official inquiry regarding the Italian gas market started in March 2003 by the Authority for electricity and gas and the Antitrust Authority with the aim of acquiring elements and information useful to define actions to improve competition. Management believes this is an area of concern and cannot exclude negative impacts on Eni’ s results of operations in future years.

     Environmental Regulation

     Together with other companies in the industries in which it operates, Eni is subject to numerous EU, national, regional and local environmental laws and regulations concerning its oil and gas operations, products and other activities, including legislation that implements international conventions or protocols. In particular, these laws and regulations require the acquisition of a permit before drilling for hydrocarbons may commence, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with exploration, drilling and production activities, limit or prohibit drilling activities on certain protected areas, and impose criminal or civil liabilities for pollution resulting from oil, natural gas, refining and petrochemicals operations. These laws and regulations may also restrict air emissions and discharges to surface and subsurface water resulting from the operation of natural gas processing plants, petrochemicals plants, refineries, pipeline systems and other facilities that Eni owns. In addition, Eni’s operations are subject to laws and regulations relating to the generation, handling, transportation, storage, disposal and treatment of waste materials. Environmental laws and regulations have a substantial impact on Eni’s operations. Some risk of environmental costs and liabilities is inherent in particular operations and products of Eni, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs and liabilities will not be incurred. Although Eni, considering the

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actions already taken, the insurance policies to cover environmental risks and the provisions for risks accrued, does not currently expect any material adverse effect upon its results of operations and financial position as a result of its compliance with such laws and regulations, there can be no assurance that this will be the case due to: (i) the possibility of as yet unknown contamination; (ii) the results of the on-going surveys and the other possible effects of Decree No. 471/99 of the Ministry of Environment (which implements Legislative Decree No. 22/97, the “Ronchi Decree”); (iii) the possible effect of future environmental legislation and rules; (iv) the effect of possible technological changes relating to future remediation; and (v) the possibility of litigation and the difficulty of determining Eni’s liability, if any, as against other potentially responsible parties with respect to such litigation and the possible insurance recoveries.

     Risks deriving from changes in oil prices and in natural gas, refined and petrochemical products prices and margins (1)

     Operating results in certain of Eni’s businesses, particularly the Exploration & Production, Refining & Marketing, Gas & Power and Petrochemical segments are affected by changes in the price of oil and by their impact on prices and margins of natural gas and refined and petrochemical products. Overall, higher oil prices have a net positive impact on Eni’s results of operations. The effect of higher oil prices on Eni’s average realized price of oil is generally immediate. However Eni’s average realized price for oil differs from the price of marker crude Brent due primarily to the circumstance that Eni’s production slate, including also heavy crudes, has a lower API gravity compared with Brent crude (when processed the latter allows for higher yields of valuable products compared to heavy crudes, hence higher market price). In addition changes in relative prices of Brent crude oil and heavy crudes cause changes in the results of operations of Eni’s Exploration & Production segment from one year to the year.

     A time lag exists between movements in oil prices and movements in the prices and margins of natural gas and refined and petrochemical products. In particular, the prices under natural gas purchase and sale contracts, which generally are for multiyear terms, are typically updated automatically by reference to the market prices of certain refined products and oil during a prior period, and therefore tend to mitigate the impact of changes in oil prices on Eni’s operating results. However, since Eni’s natural gas purchase and sale contracts are indexed to different refined products and types of oil, in different proportions and as measured over different reference periods, and are denominated in different currencies, Eni’s unit margins for natural gas may be significantly affected in the short term by variations in refined product and oil prices and exchange rates. In secondary distribution of natural gas, despite the passage of all customers from non eligible to eligible from January 1, 2003, the Authority for Electricity and Gas still establishes reference sale prices for non eligibile customers in order to allow for a gradual and regular transition to a free market, in accordance with the provisions of a Decree of the President of the Council of Ministers of October 31, 2002. In this segment, sale prices can be affected by Government regulations aimed at fighting inflation that limit the ability to transfer natural gas purchase costs onto the final sale price.

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     The results of operations of Eni’s Refining & Marketing segment are substantially affected by changes in European refining margins which reflect changes in relative prices of crude oil and refined products. Generally, a time lag exists between changes in oil prices and movements in refined products prices. In recent years the latter factor has more markedly influenced the trends in refining margins.

     Eni’s petrochemical products margins are affected by trends in demand and changes in oil prices which influence changes in cost of petroleum-based feedstock. Generally, an increase in oil price determines a decrease in petrochemical products margins on the short term. Prolonged weakness of international economy as well as Eni’s own structural weaknesses have prevented Eni’s Petrochemical segment from returning to profitability in recent years. Due to industry conditions and weak economic growth, management does not expect any significant improvement in petrochemicals segment profitability over the foreseeable future.

     Weather in Italy and Seasonality.

     Significant changes in weather conditions in Italy from year to year may cause variations in demand for natural gas and some refined products; in colder years, demand is higher. Accordingly, the results of operations of the Gas & Power segment and, to a lesser extent, the Refining & Marketing segment, may be affected by such variations in weather conditions. In addition, Eni’s results of operations reflect the seasonality in demand for natural gas and certain refined products used in residential space heating, the demand for which is typically highest in the first quarter of the year, which includes the coldest months, and lowest in the third quarter, which includes the warmest months.

     Exchange Rates.

     Movements in the exchange rate of the euro against the U.S. dollar can have a material impact on Eni’s results of operations. Prices of oil, natural gas and refined products generally are denominated in, or linked to, U.S. dollars, while a significant portion of Eni’s expenses is denominated in euro. Similarly, prices of Eni’s petrochemical products generally are denominated in, or linked to, euro, whereas expenses in the Petrochemicals segment are denominated both in euro and U.S. dollars. Accordingly an appreciation of the U.S. dollar versus the euro generally has a positive effect on Eni results of operations, and vice-versa.

     Interest Rates.

     Interest on Eni’s debt is primarily indexed at a spread to benchmark rates such as the Europe Interbank Offered Rate, «EURIBOR» and the London Interbank Offered Rate, «LIBOR». As a consequence, movements in interest rates can have a material impact on Eni’s financial expense in respect of its net borrowings, which amounted to euro 11,141 million at December 31, 2002.

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     Uncertainties in Estimates of Oil and Natural Gas Reserves

     Numerous uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgement. Results of drilling, testing and production after the date of the estimate may require substantial upward and downward revision. In addition changes in oil and natural gas prices could have an effect on the quantities of Eni’s proved reserves because the estimates of reserves are based on prices and costs at the date when such estimates are made. In addition the reserves estimates are subject to revision as prices fluctuate due to the cost recovery feature under certain Production Sharing Agreements (PSA). Accordingly, the estimated reserves could be materially different from the quantities of oil and natural gas that ultimately will be recovered.

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Item 4.  INFORMATION ON THE COMPANY

History and Development of the Company

     Eni SpA with its consolidated subsidiaries is engaged in the oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. Eni has operations in about 70 countries and 80,655 employees as of December 31, 2002.

     Eni, the former Ente Nazionale Idrocarburi, a public law agency, established by Law 136 of February 10, 1953, was transformed into a joint stock company by Law Decree 333 of July 11, 1992 published in the Official Gazette of the Republic of Italy no. 162 of July 11, 1992 (converted into law on August 8, 1992, by Law 359, published in the Official Gazette of the Republic of Italy no. 190 of August 13, 1992). The shareholders’ meeting of August 7, 1992 resolved that the company be called Eni SpA. Eni is registered at the Companies Register of Rome, register tax identification number 00484960588, VAT number 00905811006, R.E.A. Rome no. 756453. Eni is expected to remain in existence until December 31, 2100; its duration can however be extended by resolution of the shareholders.

     Eni’s registered head office is located at Piazzale Enrico Mattei 1, Rome, Italy (telephone number: +39-0659821). Eni branches are located in:

     Internet address: www.eni.it

     Eni’s principal segments of operations and subsidiaries are described below.

     Agip SpA was merged into Eni SpA effective as of January 1, 1997 to become Eni’s Exploration & Production division. Eni conducts its exploration and production activities through its Exploration & Production division and certain operating subsidiaries. Eni’s exploration, development and production activities commenced in 1926, when Agip was formed by the Government with a mandate to explore for and develop oil and natural gas. Exploration & Production operations are principally conducted in Italy, North Africa, West Africa, the North Sea and the Gulf of Mexico; it also operates in areas such as Latin America, Australia, the Middle and Far East and the Caspian Sea where Eni has recently entered. In 2002, Eni produced 1,449,000 BOE/d of hydrocarbons and, at December 31, 2002, it had estimated proved reserves of 7,030 mmBOE with a life index of 13.2 years. In 2002, Eni’s Exploration & Production segment had net sales from operations (including intersegment sales) of euro 12,877 million and operating income of euro 5,175 million.

     Snam SpA was merged into Eni SpA effective as of February 1, 2002 to become Eni’s Gas & Power division. Eni now conducts its natural gas and electricity generation activities through its Gas & Power division and certain operating subsidiaries. Eni natural gas supply, transmission and distribution activities commenced in the 1940s with the commercial sale of natural gas to industrial users in Northern Italy. In 2002, Eni’s primary distribution sales of natural gas totaled 52.56 billion cubic meters in Italy and 8.2 billion cubic meters in Europe. Primary distribution sales include sales to wholesalers, mainly local distribution companies, and large industrial and thermoelectric users which are supplied by a high and medium pressure gas pipeline network. Eni’s high and medium pressure gas pipeline network for primary distribution is about 30,000-kilometres long in Italy, while outside Italy Eni holds transmission rights on over 3,700 kilometers of high pressure pipelines. Effective on July 1, 2001 Eni’s natural gas transport network in Italy was conferred to Snam Rete Gas SpA. In December 2001 shares representing 40.24% of Snam Rete Gas capital were sold through an initial public offering with proceeds of euro 2.2 billion. Snam Rete Gas transports natural gas on behalf of Eni and third parties («shippers»); in 2002 transported volumes were 73.7 billion cubic meters, of which 19 billion on behalf of third parties. Eni operates directly in retail distribution (“secondary distribution”) of natural gas which includes almost exclusively sales made by local distribution companies to commercial and residential users through a low pressure gas pipeline network. Eni operates in secondary distribution in Italy through Italgas—the largest local distribution company in Italy—of wholly owned by Eni following the tender offer successfully closed in January 2003 and the subsequent squeeze-out of remaining minority shareholders. Eni also operates in secondary distribution activities outside Italy in Hungary through

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Tigaz, in Argentina through Distribuidora de Gas Cuyana and in Slovenia through Adriaplin. In 2002, Eni’s secondary distribution sales were 7.84 billion cubic meters in Italy and 3.79 billion cubic meters outside Italy. Eni’s secondary distribution network in Italy is over 46,000-kilometres long and over 30,000-kilometres long outside Italy.

     Eni conducts its electricity generation activities through Enipower SpA which owns and manages Eni’s power stations of Livorno, Taranto, Mantova, Ravenna and Brindisi with a total installed capacity of 1,000 megawatts and annual production sold of about 5,000 gigawatthour. Eni owns other minor power stations located in Eni’s petrochemical plants and refineries whose production is mainly for internal consumption. The accounts of these power stations are reported within Eni’s Refining & Marketing and Petrochemicals segment.

     In 2002, Eni’s Gas & Power segment had net sales from operations (including intersegment sales) of euro 15,297 million and operating income of euro 3,244 million.

     AgipPetroli SpA was merged into Eni SpA effective January 1, 2003 to become Eni’s Refining & Marketing division. Eni now conducts its refining and marketing activities through the Refining & Marketing division and certain operating subsidiaries. Activities commenced in the 1930s, when Eni initiated the development of the industrial and retail markets for refined products in Italy. Eni’s refining and marketing activities are located primarily in Italy, Europe and Latin America. Eni has the largest retail market share of refined products retail in Italy, equal to 37.5% of such market; its brands are Agip and IP. In 2002, sales of refined products totaled 52 million tons, of which 33 million in Italy. Eni’s total processing capacity of wholly-owned refineries amounted to 504,000 barrels per day at December 31, 2002. In 2002, Eni’s Refining & Marketing division had net sales from operations (including intersegment sales) of euro 21,546 million and operating income of euro 321 million.

     Eni’s petrochemical activities commenced in the 1950s, when it began production of basic petrochemicals at its Ravenna industrial complex. Through Polimeri Europa SpA and EniChem SpA (now Syndial SpA) and their subsidiaries, Eni operates in olefins and aromatics, basic intermediate products, chlorine derivatives, polyethylene, polystyrenes and elastomers. Eni’s petrochemical operations are concentrated in Italy and in Western Europe. In 2002, Eni sold 6.3 million tons of petrochemical products. In 2002, Eni’s Petrochemicals segment had net sales from operations (including intersegment sales) of euro 4,781 million and an operating loss of euro 347 million.

     Eni’s oilfield services and engineering activities commenced in the late 1950s. Through Saipem SpA (a 43% owned subsidiary) and its subsidiaries, Eni operates in offshore construction, in particular subsea pipe laying and floating production systems. Eni owns and operates a fleet of world class marine service vessels, able to drill wells 10,000 meters deep in water depths of up to 3,000 meters and to lay pipelines up to 60 inches in diameter in water depths up to 2,150 meters. Through Snamprogetti SpA (a wholly owned subsidiary) and its subsidiaries Eni is a provider of engineering and project management services to the oil and petrochemical industries. In 2002, Eni’s Oilfield Services and Engineering segment had net sales from operations (including intersegment sales) of euro 4,546 million and operating income of euro 298 million.

     Strategy

     Eni intends to maintain strong hydrocarbon production growth by developing existing projects and continuing its program of rationalisation of its mineral asset portfolio aimed at increasing its value by focusing on strategic areas with sound growth potential and exiting marginal ones. In gas activities Eni intends to increase sales in European markets and maintain sale levels in Italy by leveraging on expected natural gas demand growth, an effective marketing policy and the development of power generation capacity in its industrial plants.

     In the downstream oil segment Eni intends to reposition its activities by completing the upgrading of its distribution network in Italy and developing its presence in selected areas in Europe, where it can leverage on operating synergies and a well established brand.

     In oilfield services and engineering activities, Eni intends to concentrate its presence in the strategic segments of: (i) large projects for the development of offshore hydrocarbon reserves; (ii) construction of industrial complexes based on the application technologies for hydrocarbon production, treatment and transmission as well as the upgrading of natural gas and heavy crudes.

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     At the same time, Eni intends to reduce capital employed in non core businesses and to integrate its core activities in order to support international growth by means of integrated projects and improve its competitive positioning. Management plans to continue improving efficiency levels working on cost structure and capital expenditure processes.

     Strong attention will be devoted to R&D, which management believe to be the key factor for the future development of the oil industry. Eni intends to increase financial resources dedicated to this activity; in addition, management intends to focus resources on those strategic projects through which Eni believes to achieve competitive advantages in the medium to long term.

     Eni intends to pursue its growth strategy by implementing a four-year capital expenditure plan of euro 23 billion, about 80% of which in the Exploration & Production and Gas & Power segments. Management expects cash flow from operations to satisfy financial requirements related to new capital expenditure, the payment of dividends and the share buy-back program, while at the same time leaving enough resources to finance additional growth options in core activities.

     Recent developments

     The most significant events in the development of Eni occurred during 2002 and to date in 2003 were the following:

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     In 2002 Eni invested about euro 8 billion in new capital expenditure and financial investments. Capital expenditure (euro 6.6 billion) referred principally to the development of hydrocarbons reserves and exploration expenditure, the development and upgrade of Eni’s natural gas transport system, the expansion of power generation capacity, the maintenance of refineries as well as the upgrading of Eni’s network of service stations. Financial investments (euro 1.4 billion) referred in particular to the acquisition of 100% of Bouygues Offshore.

     In 2001 Eni invested about euro 11.3 billion in new capital expenditure and financial investments. Capital expenditures (euro 6.6 billion) referred principally to the development of hydrocarbons reserves and exploration expenditure, the development and upgrade of Eni’s natural gas transport system, the maintenance of refineries and petrochemicals plants as well as the upgrading of Eni’s network of service stations. Financial investments (euro 4.7 billion, including net borrowings) referred in particular to the completion of the acquisition of Lasmo for a total of euro 4,128 million (including net borrowings for about euro 970 million)

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and the purchase of 50% of Polimeri Europa — the remaining 50% already owned by Eni — (euro 204 million). Main divestment occurred in 2001 concerned: (i) 40.24% of share capital of Snam Rete Gas, a company indirectly wholly-owned by Eni, through means of an initial public offering and a private placement to foreign professional and institutional investors. The offering price was set at euro 2.8 per share with. Total consideration from the offering amounted to euro 2.2 billion in cash; (ii) 100% of share capital of Immobiliare Metanopoli, a wholly owned Eni’s subsidiary, as well as other Eni’s real estate for total consideration of euro 754 million in cash; (iii) the polyurethane business to Dow Chemical for a consideration of euro 428 million, of which euro 128 million in cash, euro 204 million corresponding to a 50% interest in Polimeri Europa (of which Eni already owns 50%) and euro 96 million of royalty rights for the use of Dow proprietary technology.

     In 2000, Eni invested about euro 9.8 billion in new capital expenditures and financial investments. Capital expenditure in 2000 (euro 5.4 billion) referred principally to the development of hydrocarbon reserves, exploration expenditure, the acquisition of proved and unproved reserves of hydrocarbons, the development and upgrade of Eni’s natural gas transport system, the maintenance of refineries and petrochemicals plants as well as the upgrading of Eni’s network of service stations. Financial investments (euro 4.4 billion, including net borrowings) referred in particular to the purchase of 28% of the share capital of Lasmo Plc as a result of a Public Offering launched by Eni on December 31, 2000 (euro 1,225 million), the acquisition of British-Borneo for euro 1,263 million (847 are net borrowings) and of 33.34% of Galp (euro 964 million).

BUSINESS OVERVIEW

Exploration & Production

     Eni operates in the exploration and production of hydrocarbons in Italy, North Africa, West Africa, the North Sea and the Gulf of Mexico. It also operates in areas with great development potential such as Latin America, Australia, the Middle and Far East and the Caspian Sea.

     In 2002, Eni’s Exploration & Production segment had net sales from operations (including intersegment sales) of euro 12,877 million and operating income of euro 5,175 million.

     Eni is pursuing an aggressive production growth strategy aimed at achieving a daily production target in excess of 1.8 million boe by 2006, which corresponds to an annual increase of approximately 6% over the next four years. Management plans to increase production by developing in areas where Eni has a consolidated presence and through the start-up of important projects in Libya, the deep offshore of West Africa, Iran and Kazakhstan. Eni intends to continue the rationalization of its asset portfolio, started after the purchase of British-Borneo Plc and Lasmo Plc, in order to increase its value by focusing on strategic areas with the highest growth potential and exiting marginal areas with limited growth prospects. Management plans to concentrate exploration expenditure in areas with high mineral potential, capable of providing the highest returns. In 2002, beside the successful continuation of exploration activities in the Caspian Sea, Eni made discoveries in Italy, Egypt, Angola and Nigeria. Eni will continue to improve its performance by searching for operating solutions aimed at reducing operating costs and increasing synergies.

     Oil and Natural Gas Reserves

     Eni’s proved reserves of hydrocarbons at December 31, 2002 totaled 7,030 mmBOE (oil and condensates 3,783 mmBBL; natural gas 18,629 BCF), increasing by 101 million boe over 2001, due to: (i) new discoveries and extensions (338 mmBOE), in particular in Nigeria, Kazakhstan, Australia and Italy; (ii) revisions of previous estimates (337 mmBOE), in particular in Kazakhstan, Angola and Nigeria; (iii) acquisitions (39 mmBOE), in particular interests in fields in the British and Norwegian sections of the North Sea and Australia; (iv) improved recovery (15 mmBOE) in particular in Algeria. Increases in proved reserves were offset in part by production for the year and the sale of interests in fields in Italy, Qatar and the British section of the North Sea (96 mmBOE). The increase in proved reserves allowed to replace 119% of production; this average was 129% without taking into account the effect of rationalizations. The average reserve life index is 13.2 years (13.7 in 2001).

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     Proved developed reserves at December 31, 2002, amounted to 3,703 mmBOE (2,241 mmBBL of oil and condensates and 8,354 BCF of natural gas) representing 53% of total estimated proved reserves (54% and 50% at December 31, 2001 and 2000, respectively).

     The table below sets forth a geographical breakdown of Eni’s estimated proved reserves of hydrocarbons, on a barrel of oil equivalent basis, for the periods indicated.

     For additional information regarding Eni’s estimated proved reserves and proved developed reserves of crude oil and natural gas, see the unaudited supplemental oil and gas information on pages F-66 to F-73.

     Exploration and Development

     As of December 31, 2002, Eni’s portfolio of mineral rights consisted of 1,161 exclusive or shared rights for exploration and development in 37 countries on five continents, for a total net acreage of 281,682 square kilometers (317,283 at December 31, 2001). Of these, 41,578 square kilometers concerned production and development (41,841 at December 31, 2001). Net acreage decreased in Italy by 5,333 square kilometers, due to releases, and outside Italy by 30,268 square kilometers, due to releases in particular in Brazil, Pakistan, Egypt, Algeria and Guyana, and sales of mineral rights in Italy and Qatar. Increases were registered in Australia, Norway and Indonesia.

     A total of 120 new exploratory wells were drilled (52 of which represented Eni’s share), as compared to 110 exploratory wells completed in 2001 (47 of which represented Eni’s share).

     Overall success rate was 38.6% (39.1% of which represented Eni’s share) as compared to 36.5% (31.3% of which represented Eni’s share) in 2001.

     Exploration expenditure amounted to euro 902 million, of which 93% outside Italy, with a 19.2% increase over 2001. Outside Italy exploration concerned mainly the United States, Kazakhstan, Egypt, Angola, Russia and Brazil; in Italy mainly the deep waters of the Sicily Channel and areas in central-southern Italy.

     Capital expenditure for the purchase of mineral rights (euro 317 million) concerned primarily the purchase of: (i) a 2.39% interest in the North Caspian Sea PSA, where the Kashagan field is located (Eni is the single operator with a 16.67% interest in the PSA after the purchase) in Kazakhstan; (ii) a 5.6% interest in the Bayu Undan field (Eni’s interest 12.32% after the purchase) in Australia; (iii) an 11.3% interest in the T- Block fields (Eni is operator with an 88.7% share after the purchase) in the British section of the North Sea;

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(iv) a 7.9% interest in the Mikkel field in Norway; (v) an 8.9% interest in the Liverpool Bay fields (Eni’s interest is 53.9% after the purchase) in the Irish Sea.

     Expenditure for development and capital goods totaled euro 4,396 million, of which 89% outside Italy, an increase of 27.3% over 2001. Development expenditure outside Italy concerned fields in Nigeria, Iran, Libya, Kazakhstan, Angola, Venezuela and the United Kingdom. Development expenditure in Italy referred in particular to the continuation of construction of plant and infrastructure in the Val d’Agri. Total capital expenditure in 2002 amounted to euro 5,615 million, increasing by euro 1,339 million over 2001, up 31.3%.

     Production

     The matters regarding future production, additions to reserves and related production costs and estimated reserves discussed below and elsewhere herein are forward-looking statements that involve risks and uncertainties that could cause the actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties relating to future production and additions to reserves include political developments affecting the award of exploration or production interests or world supply and prices for oil and natural gas, or changes in the underlying economics of certain of Eni’s important hydrocarbons projects. Such risks and uncertainties relating to future production costs include delays or unexpected costs incurred in Eni’s production operations.

     In 2002 hydrocarbon production amounted to 1,449 KBOE/d (oil and condensates 921 KBBL/d; natural gas 3,015 mmCF/d) increasing by 96 KBOE/d over 2001, up 7.1%, despite the 26 KBOE/d effect of production cuts decided by OPEC and the 8 KBOE/d effect of the rationalization of Eni’s mineral rights portfolio. The production increase was due to: (i) start-up of fields mainly in Algeria, the United States, Nigeria, Iran, Trinidad & Tobago and Pakistan; (ii) production increases recorded mainly in Algeria, Kazakhstan, the United States, Egypt, Norway, the United Kingdom, Italy and Congo. These increases were partly offset by the production decline of mature gas fields in Italy. The share of production outside Italy reached 78.5% (77.5% in 2001).

     Daily production of oil and condensates (921 KBBL/d) increased by 64 KBBL/d, up 7.5%, due to increases registered outside Italy (up 80 KBBL/d) in particular in: (i) Algeria, due to the start-up of the HBNSE/BKNE/RBK fields (Eni’s interest 12.25%) and the reaching of full production at the HBN field (Eni’s interest 34.63%); (ii) Kazakhstan, due to the fact that in the third quarter of 2001 production at the Karachaganak field (co-operated by Eni with a 32.5% interest) was suspended due to a fiscal dispute between Russia and Kazakhstan; (iii) Congo due to the start-up of the Foukanda and Mwafi fields (Eni is operator with a 65% interest) in the second half of 2001; (iv) the United Kingdom, due to the full operation of the Elgin/Franklin fields (Eni’s interest 21.87%). In Italy production increased by 17 KBBL/d due to the reaching of full operation of the Monte Alpi pipeline which transports oil produced in the Val d’Agri fields to Eni’s refinery in Taranto. These increases were partly offset by a 33 KBBL/d reduction outside Italy due mainly to production cuts decided by OPEC.

     Production of natural gas (3,015 mmCF/d) increased by 188 mmCF/d, up 6.7%, due to increases registered outside Italy (up 241 mmCF/d), in particular in Egypt, the United States (in connection with the start-up of the King Kong/Yosemite field — Eni’s interest 50%), Kazakhstan (due to the reasons mentioned above), the United Kingdom and Norway. These increases were offset in part by the production decline of mature fields (down 53 mmCF/d) in Italy, in particular the Porto Garibaldi/Agostino and Luna fields.

     Hydrocarbon production sold amounted to 523.1 million boe. The 5.8 million boe decrease over production was due essentially to lower withdrawals with respect to entitlements outside Italy (3.4 million boe) and to production volumes of natural gas input to storage (1.8 million boe). About 75% of oil and condensate production sold (333.4 million barrels) was transferred to the Refining & Marketing division (68% in 2001). About 44% of natural gas production sold (30.68 billion cubic meters) was transferred to the Gas & Power division (47% in 2001).

     The tables below set forth Eni’s production(1) of oil and condensates and natural gas for the periods indicated.

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Production of oil and condensates

Natural gas production available for sale

     Storage

     Eni’s storage system in Italy is made up of a number of depleted fields used for the purposes of supply modulation in accordance with seasonal swings in demand (natural gas is stored in the summer and used in the winter), strategic reserve and mineral storage to ensure supply and to support domestic production. The present storage system is made up of 9 fields, 8 of which are located in northern Italy (one of them is not yet operational) and one in central Italy, on the basis of nine storage concessions vested by the Minister of Productive Activities.

     As provided for by article 21 of Legislative Decree No. 164/2000, which imposed the separation of storage activities from natural gas production and sale activities, on October 31, 2001 Eni SpA and Snam SpA contributed their storage business units to Stoccaggi Gas Italia SpA, a company established for this purpose in November 2000 and wholly owned by Eni SpA. This contribution concerned, among other assets, 749 BCF of natural gas, of which 378 BCF of so called working gas, that can be withdrawn without prejudice to general field performance, and 371 BCF representing the so called cushion gas necessary for allowing working gas volumes to be withdrawn.

     On February 27, 2002 the Italian Authority for Electricity and Gas (the «Authority») issued decision No. 26 containing the criteria for the determination of tariffs of natural gas storage for the first regulated period (from April 1, 2002 to March 31, 2006) and, retroactively, from June 21, 2000. With reference to these criteria, on March 18, 2002 Stoccaggi Gas Italia presented its suggested tariffs for supply modulation, mineral and strategic storage services for the first regulatory period. The Authority rejected Stoccaggi Gas Italia’s

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proposal and, in order to enact its decision No. 26, set storage tariffs for the thermal year 2002-2003 with its decision No. 49 of March 26, 2002. Stoccaggi Gas Italia currently applies the tariffs set by the Authority, and appealed both Authority decisions against the Regional Administrative Court of Lombardia in order to seek their repeal. The proceeding is still pending.

     In 2002, following optimization measures on existing fields that increased capacity by 13% (from 6.3 to 7.1 billion cubic meters), higher storage volumes have been made available for modulation services.

     The table below sets forth certain information and operating data regarding Eni’s principal oil and natural gas interests at and for the year ended December 31, 2002.

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     Eni’s principal regions of operations are described below.

     Italy

     In 2002, Eni’s hydrocarbon production in Italy totaled 311,000 boe/day and represented 21.5% of Eni’s total production. Eni’s exploration and development interests in Italy are concentrated in the Po Valley, the Adriatic Sea, the Central Southern Apennines, Sicily and the Sicilian offshore.

     Production of oil in Italy totaled 86 KBBL/d. Eni’s three major fields, Val d’Agri in Southern Italy, Villafortuna in the Po Valley and Aquila in the southern Adriatic offshore, represented 72% of Eni’s total production in Italy. In particular, the Val d’Agri fields increased production from 12,000 barrels/day in 2001 to 37,000 in 2002, with a share of total production increasing from 18.6% in 2001 to 42.6% in 2002, due to the entry into full service of the Monte Alpi pipeline which carries oil from the Viggiano oil center to Eni’s Taranto refinery. Other oil fields are Rospo in the Adriatic Sea, Vega offshore southern Sicily, Gela and Ragusa in Sicily.

     Natural gas production totaled 1,26 mmCF/d and represented approximately 73% of Eni’s hydrocarbon production in Italy. Eni’s principal natural gas fields are located in the Adriatic Sea (Barbara, Porto Garibaldi/Agostino, Angela/Angelina, Cervia/Arianna and Bonaccia which collectively accounted for 47% of Eni’s natural gas production in Italy) and in the Ionian Sea (Luna, which accounted for 8.6%). In 2002 in the Adriatic offshore, the Calipso gas field started production with an output of approximately 4,000 boe/day.

     Within its asset rationalization program, Eni sold its 25% interest in the Gorgoglione concession in Basilicata, where the Tempa Rossa field is located. The achievement of full production of the Val d’Agri fields and the development of the recent oil discoveries at Miglianico in the central Apennines and of the Panda gas well in the deep offshore of Sicily will partly offset declines of mature gas fields.

     The achievement of full production of the Val d’Agri fields and the development of the recent oil discoveries at Miglianico in the central Apennines and of the Panda gas well in the deep offshore of Sicily will partly offset declines of mature gas fields.

     With regards to the Alto Adriatico Project, which contemplated the joint development of 15 offshore natural gas fields with proved reserves of 953 BCF, on December 3, 1999, the Ministry of the Environment, in agreement with the Veneto Region, issued a decree prohibiting the production of liquid or gaseous hydrocarbons in an area within 12 nautical miles from the coastline. The decree defined also the conditions for granting authorizations to exploit fields located beyond 12 nautical miles, from the test phase until the final exploitation phase. After the issue of this decree, natural gas reserves were reduced by the amount of proved

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reserves relating to the fields within the set limit (191 BCF), and the relevant assets were written off (21 million euro). Eni filed an extraordinary claim with the President of the Italian Republic against this decree. The claim was rejected. Currently the Italian Parliament is discussing a new law providing for the establishment of a technical Commission assessing exploitation feasability.

     North Africa

     Eni’s operations in North Africa are conducted in Algeria, Egypt, Libya and Tunisia. In 2002, North Africa accounted for 24,1% of Eni’s total worldwide production of hydrocarbons.

     Algeria.   Eni has been present in Algeria since 1981. Its principal oil producing fields are located in the Bir Rebaa area in the south-eastern desert, where Eni is operator with a 49% interest. Production from these fields accounted for approximately 27% of Algeria’s annual production in 2002. In 2002 oil production reached full levels at the Hassi Berkine (HBN) field (Eni’s interest is 34.63%) and the fourth oil treatment line in the Hassi Berkine South oil center (HBNS, Eni’s interest is 12.25%) has started operations. These events allowed to increase Eni’s production by 29,000 barrels/day.

     According to management’s industrial plans, the expected start-up in late 2004 of production from the ROD and satellite fields (Eni’s share is 55%) and higher production from the HBN and HBNS fields will generate an increase in daily oil production net to Eni from the present level of 65,000 barrels/day to over 100,000 by 2006.

     Egypt.   Eni has been present in Egypt since 1954 and is the leading international operator. In 2002, fields operated by Eni accounted for 34% of Egypt’s total annual hydrocarbon production, which amounted to 410,000 boe/day (173,000 boe net to Eni). In 2002, oil and condensate production amounted to 97,000 barrels/day net to Eni and came mainly from the Eni operated Belayim and Ashrafi fields in the Gulf of Suez and from the Melehia field located in the Western Desert.

     In 2002, natural gas daily production amounted to 547 mmCF net to Eni. The main natural gas producing interests operated by Eni are concentrated in the Nile Delta, the Abu Madi and El Qar’a onshore fields and the El Temsah, Port Fouad, Darfeel and Baltim offshore fields. In 2002 the Akhen field was started up.

     Eni successfully drilled the new exploration well Tennin 1 in the East Delta Deep Marine permit (Eni is operator with a 50% interest) in the Mediterranean offshore, before the Nile Delta, about 80-kilometer north of Damietta. The well was drilled at water depth of approximately 300 meters, reaching a total depth of over 2,000 meters encountering a gas sand interval of about 60 meters. In test production the well yielded over 23 mmCF/d. A pre-feasibility study is underway for the development of the field. Management believes that this discovery is important both for the size of its reserves and for the possibility to send its production to the Unión Fenosa Gas liquefaction plant under construction at Damietta (See Item 4 — Gas & Power — Development projects).

     According to management’s industrial plans, in the medium term the increase in gas production, while offsetting the natural decline of mature oil producing fields, will allow to maintain the present level of about 190,000 boe/day.

     Libya.   Eni started operations in Libya in 1959 and is the leading international operator, with oil fields operated by Eni accounting for approximately 14% of Libya’s annual oil production. Eni’s principal producing interests are located in two areas: onshore in the Bu-Attifel field, where Eni is operator with a 50% interest, and offshore Tripoli in the Bouri field, where Eni is operator with a 30% interest.

     With a 50% interest Eni is operator in the development of the natural gas, oil and condensates fields of Wafa, in onshore permit NC-169 A located 520 kilometers south of Tripoli, and Bahr Essalam, in the NC-41 permit in the Mediterranean offshore located 110 kilometers north of Tripoli.

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     Contracts were awarded for the construction of centers for hydrocarbon treatment near Wafa and Mellitah on the Libyan coast, an offshore production platform and production and transport infrastructure including an underwater production system for a total value of euro 4.2 billion, of which 2.4 are Eni’s share.

     Development is ongoing at the Elephant oil field in the NC-174 permit where Eni is operator with a 33.34% interest. Production is expected to start in the first half of 2004 and to peak at 150,000 barrels/day (35,000 net to Eni) in 2007.

     According to management’s plans, the start-up of fields under development will lead to an increase in daily hydrocarbon production from the present level of 79,000 boe to approximately 260,000 in 2006.

     Tunisia.  Eni has been present in Tunisia since 1961; its main producing interests are in the El Borma oil field and in the oil and gas Hammouda and Oued Zar fields, operated by Eni, which owns a 50% interest therein.

     A new oil discovery was made with the Baraka South East 1 exploration well in the Tunisian offshore approximately 100-kilometers south-east of Tunis. The well was drilled in waters approximately 90 meters deep and reached a depth of over 2,300 meters. It yielded about 5,000 barrels/day of high quality oil in test production. This is the highest flow rate ever reached with a vertical well in the Tunisian offshore. Development studies are ongoing. In the onshore Borj el Kadra concession (Eni is operator with a 50% interest) in southern Tunisia a new oil discovery was obtained by the Adam 1 well, which is expected to start production in the second half of 2003.

     According to management’s plans, in the next four years hydrocarbon production in Tunisia is expected to decline slightly from the present level of 14,000 boe/day.

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     West Africa

     Eni’s operations in West Africa are conducted in Angola, Congo, Gabon and Nigeria. In 2002, West Africa accounted for 16.4% of Eni’s total worldwide production of hydrocarbons.