Eni S.p.A (Eni) has reported net sales from operations of EUR18.3 billion for the second quarter of 2009, compared with the net sales from operations of EUR27.1 billion in the year-ago quarter. It also reported a net profit of EUR832 million for the second quarter of 2009, compared with the net profit of EUR3,437 million in the year-ago quarter.

Paolo Scaroni, chief executive officer, commented: “In the first six months of this year we have strengthened our position in our core areas and achieved sound financial results in the context of sharply lower commodity prices and demand. Eni’s business portfolio proved to be resilient thanks in particular to the steady performance of the Gas & Power division. We are taking a prudent approach to the outlook for 2009 and beyond which is reflected in our proposed interim dividend of EUR0.50 per share, which we believe to be appropriate in the current environment.”

Adjusted Operating Profit

Adjusted operating profit for the quarter was EUR2.55 billion, down 54.3% from the second quarter of 2008. For the first half, adjusted operating profit was EUR6.30 billion, down 45.1% from a year ago. These results were principally due to the weaker operating result reported by the Exploration & Production division which was impacted by sharply lower oil and gas prices. Also the downstream oil business posted significantly lower operating results due to unprofitable refining margins. On the plus side, the Gas & Power division reported improved results in the quarter and the Engineering & Construction business reported improved results in both periods.

Adjusted Net Profit

Adjusted net profit for the quarter was EUR0.90 billion, down 60% and for the first half was EUR2.66 billion, down 49.8%. These results were mainly the result of a weaker operating environment and lower results reported by equity-accounted entities, partly offset by a lower adjusted tax rate (down 1.1 percentage point in the quarter; down 0.4 percentage point in the first half).

Capital Expenditure

Capital expenditure was EUR3,697 million for the quarter and EUR6,844 million for the first half mainly related to continuing development of oil and gas reserves, the construction of rigs and offshore vessels in the Engineering & Construction division and the upgrading of gas transportation infrastructure.

Cash

The main sources of cash for the quarter were: (i) net cash generated by operating activities amounting to EUR2,178 million; (ii) the divestment of a 20% interest in Gazprom Neft based on the call option agreement with Gazprom which yielded cash consideration of EUR3,070 million; and (iii) a share capital increase (EUR1,542 million) that was subscribed to by Snam Rete Gas minorities as part of the reorganization process of Eni’s regulated gas businesses in Italy. These inflows were used to fund the financing requirements associated with capital expenditure (EUR3,697 million), the payment of the balance dividend for the fiscal year 2008 (EUR2,355 million) to Eni shareholders and the completion of the Distrigas acquisition by means of a mandatory cash tender offer on its minorities amounting to EUR2,045 million, increasing net borrowings2 as of June 30, 2009 by EUR1,827 million from March 31, 2009.

For the half year, net cash generated by operating activities amounted to EUR7,621 million. This, combined with proceeds from disposals (EUR3,275 million) and a share capital increase (EUR1,542 million) subscribed to by the Snam Rete Gas minorities, was used to fund the financing requirements associated with capital expenditure (EUR6,844 million), the payment of the remaining dividend for the fiscal year 2008 (EUR2,355 million) and the completion of the Distrigas acquisition (EUR2,045 million). At June 30, 2009 net borrowings amounted to EUR18,355 million almost unchanged (EUR18,376 million at December 31, 2008).

Financial Ratios

Return on Average Capital Employed (ROACE)3 calculated on an adjusted basis for the twelve-month period to June 30, 2009 was 13% (19.7% at June 30, 2008).

The ratio of net borrowings to shareholders’ equity including minority interest – leverage3 – decreased to 0.37 at June 30, 2009 from 0.38 as of December 31, 2008.

Interim Dividend 2009

In light of the financial results achieved for the first half of 2009 and the projected full-year results, the interim dividend proposal to the board of directors on September 10, 2009 will amount to EUR0.50 per share (EUR0.65 per share in 2008). The interim dividend is payable on September 24, 2009 to shareholders on the register on September 21, 2009.

Exploration & Production

Oil and natural gas production for the second quarter 2009 amounted to 1,733 kboe/d, representing a decrease of 2.2% from the second quarter of 2008. For the half, oil and natural gas production amounted to 1,756 kboe/d, representing a decrease of 1.6% from the first half of 2008. These declines were mainly due to OPEC production cuts (down around 30 kboe/d), continuing security issues in West Africa, lower production uplifts associated with weak European gas demand and mature field declines. Those negatives were partially offset by continuing production ramp-up in Angola, Congo, USA, Kazakhstan and Venezuela, and the positive price impacts reported in the company’s PSAs (up around 60 kboe/d).

Gas & Power

Eni’s worldwide natural gas sales were 20.46 bcm in the quarter, down 7.7% from a year ago, and were 52.81 bcm for the half, down 0.5%. This reflected weaker European gas demand as a result of the economic downturn. Italian gas consumption recorded a steep decline (down 3.71 bcm for the quarter) as the major gas-consuming sectors of thermoelectric utilities and industrial businesses used 45% and 20% less gas respectively in the quarter (45% and 21% in the first half) as compared to the same quarter in the previous year. The negative impact of the economic downturn was partly offset by the contribution of Distrigas (up 2.67 bcm in the quarter and up 8.53 bcm in the half).

Realized Oil and Gas Prices

Oil realizations declined by 48.2% in the quarter and by 49.5% in the half driven by falling Brent prices. Recorded natural gas realizations were down by 35.4% in the quarter and by 16.9% in the half as the pace of decline reflected the time lag between movements in oil prices and their effect on gas prices provided in pricing formulae.

Refining & Marketing

Eni’s realized refining margins in dollar terms were sharply lower in both the quarter and the half due to a number of negative market trends. First of all, significantly compressed light-heavy crude differentials due to a reduction in heavy crude supplies from OPEC negatively affected the profitability of Eni’s complex refineries. Secondly, the company’s refining operations have experienced rapid increases in feedstock costs in recent months which have not been fully recovered in the final prices of refined products due to weak industry fundamentals; prices of middle distillates were particularly impacted. Eni’s margin performance was in line with the industry benchmark margin calculated on the Brent crude (down 55.1% in the second quarter and down 24.6% in the first half) due to the compressed light-heavy crude differentials on the negative side, and the appreciation of Eni’s yields due to the relatively higher weight of the fuel oil on the plus side.