埃尼石油 (E) 2005 Q1 法說會逐字稿

good afternoon ladies and gentlemen and welcome to this conference call aimed at commenting on the 2005 first quarter results and business trends.

Today we are reporting a robust set of financial results thanks to the still positive scenarios and ENI saw it in better performances in the core businesses.

In the first quarter of 2005 the market environment was very favorable for the oil industry. A persistent strong oil demand and expansion of oil production capacity sustained our price increase to record levels why refining margins remained high. And in particular, compared to the same period of 2004, the average Brent price increased by 49% to about $48 while the average European Refining margin was about $4, almost doubling last year's level.

This strong market trend was slightly offset by the 5% appreciation of the euro versus the U.S. dollar.

In the first quarter, the net income reported in compliance with the International Financial Reporting standards, amounted to €2.45b, which is an increase of 22% if compared to the same period of 2004.

Excluding special items and inventory gains, the adjusted net income totaled €2.4b which is an increase of more than 44%. Such an increase is the result of a 37% growth in the operating results, mainly as a consequence of the strong performance of the upstream, R&M and the Petrochemical divisions as well as the good results, achieved in the Gas and Power Division.

Income growth from investments reported about €60m, mainly related to a higher contribution of European Gas and Power activities in marketing Sannazzaro gas, SRS and Galp and the gas transportation. These positive effects were partially offset by higher taxes for €500m as a consequence of the higher taxable income.

In the first quarter of 2005, reported clean EPS paid on an average number of shares of 3.8b showed in euros an increase of 22% and of about 44%. Clearly, if compared with the same period of last year. If we switch to dollar terms increase of the reported and the clean EPS is over 28% and about 51% respectively.

As for the cash flow per share in euro terms, we can see a decrease of more than 14% on a reported basis. And more than 30% on a clean basis. In dollar terms, the increase is of around 20% and around of 37% respectively.

As to the marginal results in the quarter, I am pleased to say that ENI is delivering once again the [marketing] sector. ENI reaching a strong production increase, confirming the positive trend recorded in the past.

In the first quarter of 2005, hydrocarbon production totaled 1,703,000 boe per day. Clearly, a 4.6% versus the corresponding period in 2004.

Before the impact of the high oil price on the PSA and the buyback contracts, the production growth rate is up 8.4%. This growth rate could be even better if cleared the impact of the portfolio rationalization realized during 2004.

2005 production growth is entirely organic and it has been achieved thanks to the ramp up of fields in Libya (Wafa), Iran (South Pars 4 and 5), Algeria (Rod), Angola (Kizoma A) and Kazakhstan (Karachaganak) partially offset by the decline of the major fields in Italy and the UK.

This trend is fully in line with our 2005 production budget and consistent with our 5% growth rate for 2005/'08 period.

As for the Gas and Power business, overall gas volumes sold or consolidated [associated] rose by 3% in the first quarter of 2005, reaching 29 PCM. The price increase comes from our sales growth, in particular [indiscernible] sales rose by more than 15% reaching 10.3 PCM from 9.1 PCM in the first quarter of 2004 as a result of higher gas sales in the [indiscernible], start up of and EPL gas project, in Turkey, the start of the building project and in Spain thanks to the start up of the [Dameta] LNG plant.

As to the domestic market, in the first quarter of 2005 gas sales decreased by 2% as a result of lower sales to wholesalers partially compensated by increased consumption related to the expansion in powergen activities. For the same period the gas demand in Italy confirmed its dynamic trend with an increase of more than 4% if compared with 2004.

These results in the G&P business are fully in line with our strategy.

Now I would like to briefly update you on our recent developments in the core business. In the Exploration and Production business, on March 31, British Gas sold its 16.67% stake in the Kashagan project with ENI and the other pre-emptive joint venture partners.

Secondly, half of this interest will transfer to the same price conditions to Kazmunaygaz, the Kazakh State owned oil company. As a result, Kazmunaygaz became a fully fledged member of the North Caspian Sea production share agreement with an 8.3% interest, thereby having the same rights and obligations as the other partners.

We see this as a positive outcome. The Kazakh National Oil Company will contribute to strength and expedite the development of the Kash oil fields.

Furthermore, I would like to add that more than 80% of the first phase contracts have been awarded. In line with our strategy, the Gas sector is aimed at seizing further opportunities in the LNG sector. On March 24, ENI signed a Memorandum of Understanding with the Egyptian government for the development of a second [indiscernible] energy plant. The capacity will be equal to about [77] a year. The plant fees will be secured by the major gas discovery already made in the Nile Delta region considering the area's exploration potential.

Furthermore, at the beginning of March we also entered into a preliminary agreement with the US company Centra LNG for the acquisition of 4 to 6 PCM per year reciprocation capacity and to the Cameron terminal in Louisiana with the other.

Final agreement with the validity of 20 years will be signed at the end of June. These deals will enhance our overall commission presence in the Gas business.

Finally, although not finalized in the first quarter 2005, I add that an agreement for disposal of the [Iberian] network will be reached in the R&M division after a bidding process. In April [indiscernible] realized both a proposed sale and that this really is a whole proximity for €190m for 100% of the shares and is expected to be clinched by June subject to the concerns of the Antitrust authority.

With the IP sale, ENI will refocus its marketing activity on the Agip network which has 30% market share in Italy and an average throughput in line with the European standards. These outcomes correlate with strategies launched in 2000 in the R&M sector.

That's all. Thank you for your attention and now I will hand you over to Marco who will analyze first quarter results business by business.

Thank you Vittorio. Good afternoon ladies and gentlemen. As usual I would like to remind you that ENI's results are affected by several factors, including the seasonality demand for natural gas for petroleum products used in residential heating, the demand which is highest in the first quarter of the year. That includes the coldest months. And lowest in the third quarter, which includes the warmest months. Therefore, ENI's operating income and change in net debt in the first 3 months cannot be extrapolated for the full year.

Before commenting our results, let me remind you that IFRS application starts from January 1, 2005 and it requires for comparison purposes the restatement of the accounts starting from January 1, 2004. Also on a quarterly basis as I mentioned a couple of weeks ago.

Furthermore, starting from 2005, we adopt a new definition of adjusted results, excluding both special items which we will continue to provide separately for financial analysts and the impact of the inventory evaluation.

Having said that, let's now comment on the results.

In the first quarter, reported operating income amounted to around €4,387m, with a 39.2% increase versus the corresponding period of 2004. Excluding net negative special items of €92m and inventory gains of around €200m mainly related to R&M, the first quarter 2005 adjusted operating income totaled €4,285m. 36.7% up on a like-for-like basis.

If we add the effects of the euro appreciation versus the dollar of around €150m, of which around €75m related to the translation effect, the increase in the clean operating income would be around 22%. It's worth saying that the negative impact of the euro appreciation versus the US dollar is mainly related to the upstream business.

Let me now go into more detail for each business, starting from the upstream. Before commencing the results, I would like to underline that the operating income, both reported and adjusted, includes profit in stocks on upstream sales to R&M and G&P divisions unrealized with the past.

First quarter reported operating income amounted to €2,557m. This 54.2% increase if compared to the corresponding period of 2004. The results include the net negative special items for €31m related to some asset write-down. On an adjusted basis, operating income amounted to €2,598m, showing a robust increase of 52.6% over the same period of 2004. In dollar terms, the adjusted operating profit is up 50%.

The strong operating income is mainly related to higher hydrocarbon realization prices denominated in US dollars following the positive oil market scenario and higher production to.

Before commencing on the Gas and Power business results, let me underline that following the IFRS adoption there will be some amortization increase as a result of the revision of the useful life of transportation and distribution networks.

Turning now to the results. First quarter reported operating income amounted to €1,563m, 1% up if compared to the €1,551m accounted for in 2004.

The first quarter result includes a negative special item for €16m related to the contribution received in the distribution business from customers as entry fee and €7m provisions related to green certificates in our old generative power plants [indiscernible].

In addition, we also accounted €52m for inventory gains compared to €56m inventory gains accounted for in the same period of 2004.

The first quarter 2005 adjusted operating income amounted to €1,575m, up 2.1% over the same period of 2004.

Let me now comment more extensively on the G&P operating adjusted income by activity area.

As regards the marketing and distribution segment, we accounted for a better result due to higher volumes sold abroad, positive scenario, as well as the time lag mismatch in effect between purchase and sale price for [Monat] in Italy which was almost entirely recovered.

These positive trends were partially offset by lower margins due to competition.

In the transportation activity, the adjusted operating result showed an increase both abroad (€12m) and in Italy (another €20m) as a result of higher volumes transported.

The lower profit in the powergen is a temporary result due to first lower revenues related to the change set in December 13, 2004 by the authorities in the time of band tariff in the bilateral contracts aimed at reducing the seasonality of the electricity prices. As a result, the revenues are now more equally distributed throughout the whole year.

Secondly, higher maintenance costs. These negative elements more than offset the higher electricity production sold.

Let's now turn to the R&M sector. The first quarter 2005 reported operating income totaled €269m, up 115% versus the same period of 2004. The result includes negative special items for €26m related to provision for risks and contingencies related to environment laws and by the Commissioner.

In addition, we also accounted for €143m for inventory gains compared to €25m inventory gains accounted for in the same period of 2004.

On an adjusted basis, operating income amounted to €152m, showing an increase of 55% over the same period of 2004. The result was achieved thanks to the strong increase of the contribution of the refining activity as a consequence of the high level of refining margin.

These positive elements were partially offset by higher costs related to goodwill and damages and maintenance standstill in the Gela refinery and the related lower volume processed and the euro appreciation versus the dollar.

In the first quarter of 2005 the Petrochemical business, and I have to remind that with core Petrochemical business our preliminary Europa subsidiary, posted an operating income of €158m compared to the €5m in the same period of 2004.

This result was due to higher margins in base chemicals and polyethylene, as well as higher volumes sold.

In the first quarter 2005 €58m operating loss in other activities. This now includes a number of factors mainly related to the senior €62m negative result. As you remember in let me call it [S] company other chemicals.

Lastly, the corporate activities reported an operating loss of €55m in line with the overall consolidated loss of the first quarter 2004. It was €49m.

As far as investments are concerned, in capital expenditure, the first quarter amounted to around €1.4b, showing a decrease of around 16% if compared with 1 year ago. This decrease is mainly related to E&P and G&P businesses.

In the upstream, the decrease is due to the completion of the projects in Iran (South Pars) and Libya (Wafa), as well as the euro appreciation versus the US dollar.

The Gas and Power. Below our CapEx are related to the completion of the greenfield project.

For the first quarter 2005 the 98% of the overall CapEx were concentrated in the core business. €1.1b (74%) was invested in the upstream sector and €266m (19%) in the G&P business.

These figures are in line with our full year CapEx that presently we set at around €7.5b based on an exchange rate of US dollars against euro of 1.31, lower than the 1.36 which is estimated for planned.

The first quarter 2005, the strong operating cash flow of around €44.6b was reinvested in our core business for around €1.4b and return to the shareholders for around €50m via our share buyback program. In this regard, let me add that up to the beginning of May, which yesterday, the share buyback program accounted a cash out of more than €140m. Thus strengthened our financial structure.

The net financial debt decreased €7.7b, bringing our debt to equity ratio to 0.2. But if you were saying that is not possible to extrapolate such a level for the full year because the current gearing is highly affected by the seasonality of the natural gas business. And in addition, by the end of the year we will be facing a cash out of around €5.1m related to dividends - both those which we will pay and June and at the interim dividends which will be paid in full - and more than €5b related to tax payments.

Thank you for listening and now we are pleased to answer any questions you may have. Together with us today are Stefano Cao, Luciano Sgubini and Mario Taraborrelli.

Thank you. [OPERATOR INSTRUCTIONS]. The first question we have coming through this afternoon is from the line of Alastair Syme of Merrill Lynch. Please go ahead with your question now.

Yes good afternoon everyone. 2 quick things. 1, in the past you've been quite helpful giving an idea of price realizations on oil and some sort of indication on gas. That would be kind of useful this quarter.

And just secondly, a kind of semi-strategic question. The Chemicals business now doing quite well. It's a business you obviously tried to sell a couple of years ago. We look around, everybody else is kind of offloading chemical assets. Any view that it might be potentially something you would look back at considering doing?

Hi, this is Stefano. As far as the realization price for the upstream, for the oil we report $42.8 per barrel, which compares with the $30 per barrel which was back in the first quarter of 2004.

As far as the average realization price for gas, again for the upstream, we have a $4.2 per million bpo which compares with a $3.6 per million bpo average in the quarter for the first quarter 2004.

Alastair, as regards the strategy versus the Chemical versus, which is in fact presenting effectively acceptable results but the strategy didn't change at all. So we will stick to our already announced approach.

Okay. Thank you very much.

Yes thank you for that question. The next question we have comes through from the line of Edward Westlake of Credit Suisse First Boston. Please go ahead with your question now sir.

Yes, just again 3 questions. Firstly, CapEx in the first quarter €1.4b and a target of €7.5b for the full year. Are you looking to accelerate or does that imply any sort of delay in the projects or is that just a timing issue?

The second question is just on tax rates 43% I think in the quarter. Is that still the sort of guidance for the full year?

Then just on your debt. I mean it may be pushing you a little. I mean you have got a low debt now. You do have dividend payments ahead of you and that tax payment, but are you going to be more aggressive on buybacks than the €140m that we've seen so far? Would you want to have done the dividends and therefore make that decision later in the year?

First Capex. No, Capex we do not envisage any delay, nor anticipating impact. So going ahead as planned for the time being. The reference to the €7.5b versus the €7.3b which we had mentioned at the time of our strategic presentation is just due to the fact that we have revised the expected exchange rate from here to year-end which considering the relative weight of the CapEx denominated in dollars we are in fact expecting a worsening of the exchange rate between dollar and euro. Mean a weakening of the euro let's put it this way. The consequence would be an increase of roughly €200m in our expected CapEx in 2005.

The tax rate yes we are still forecasting between 40 and 42%.

Low debt. It is true at March 31 we had debt to equity of 0.2. But we expect to have something like €10b payments starting from June to year-end for the dividend, the interim dividend and the taxes.

The buyback, you know that we never announced a target of buyback. We've never given a guidance in that respect. No doubt debt showed an excess of cash still be available, that would be where we can maybe [increase] [indiscernible].

But already in the 4 months we had 140. So you can see that anyway versus last year behavior we had some substantial pick up activity.

Thank you.

Thank you for that question. Our next question comes through from the line of Irene Himona from Morgan Stanley. Please go ahead with your question.

Good afternoon. It's Irene Himona at Morgan Stanley. 3 quick questions. First of all could you discuss the impact of currency on the Gas and Power result in the first quarter versus last year?

Secondly, regarding the sale of IP in marketing, what level of after tax profit do you expect to book in your income statement?

And thirdly, on Exploration, I was wondering if you could make any comment at all about exploration success rates in the first quarter? Thank you.

Hello Irene. Luciano speaking. With the currency impact -- this is Luciano speaking. Good afternoon to everybody. I would like to give you a breakdown of the scenario. Compared to last year we have a production internal margin of €41m. That is compensated completed with the volumes sold in the [overall] gas market. So this is the answer to your question.

Thank you.

As far as the capital gain on the IP sale, we have a capital gain of €121m for the 90% of the share we sold. Plus an additional, around €20m for the 10% that we still owned at year-end.

As far as the success rate in Exploration, quite frankly on such a short period of time it would be really an unreliable number. No more longer the better the assessment you make on this will translate. So we really don't do the evaluation on such a short period of time.

Okay. Thank you.

Thank you. The next question we have coming through is from the line of Barry MacCarthy of Exane. If you would like to go ahead with your question now sir?

Hi. Can I just clarify on the breakdown of the Gas and Power operating income? So the reduction in margin of €41m, is that entirely a currency effect or is there a separate effect you can quantify which is the competitive pressure?

And a follow on question is the guidance from the March strategy meeting impact which is essentially no increase in those competitive pressures beyond the average we've seen in recent years.

The answer I gave was already on the scenario effect. But on the structural margin we had a reduction for competition that is in the range of 100. This is the effect of the renegotiation of all the contracts that happened at the end of last year. This is the effect of these renegotiations.

Considering all the year time you can evaluate this number would be more or less double.

For the full year?

Yes.

Okay and you said, or in the presentation it said the time lag effect has reversed from 2004. Is that right?

Yes it is correct. What we hoped during the last quarter 2004, it is fully recovered in this the first quarter for the time effect.

And the guidance from the strategy meeting is that unchanged?

No, no, no. We don't have any other change in this position really of the time lag. So what we lost during the last quarter of the year 2004, we don't expect any variation.

Okay. So the guidance remains. For the overall Gas and Power remains intact?

Yes.

Okay. Thank you.

Thank you. Our next question comes through from the line of Mr. Iain Reid of EBS. Please go ahead with your question now.

I think it is UBS actually. Just a question for Stefano on unit costs. I just wonder where you can tell us Stefano what's happened to underlying lifting costs and maybe DD&A per barrel in the first quarter compared to last year? What sort of inflation rates have you seen and what are the reasons for that?

In terms of DD&A we have a quarter-on-quarter we have an increase which accounts for most of the growth. But when I say the growth, I refer to underlying growth. The growth based on the 8% growth rate. You can measure the efficiency based on that. So we have a component which is exactly equal to the 8% growth, but we have also another to say component 2% which are related to the slight increase in [year-end] cost for the DD&As.

Nothing really to worry about. But there is a small sign that there is an increase in the DD&A.

In terms of costs for operation, we are absolutely in line with last year and we consider that quite a good performance for the time being.

Okay. Thank you very much indeed.

Thank you. The next question we have comes through from the line of Jason Kenney of ING. Please go ahead with your question.

Hi there. Going back to an earlier question on share buybacks and the headline there may be room for dividend increases. I wonder if you could give us some clarity on whether any proposed payouts could be a one-off or indeed given the hike that we saw at full year results even a sustained dividend increase 2006 onwards, your preference of dividend versus share buybacks to as well if possible.

Secondly, the request for information on Iran from the SEC. Have you got any details there as to exactly what is required and if you see any pressure?

Well as regard the dividend, listen we haven't even stated yet the increase we have announced 2 months ago. So I think, and we have declared, that the €0.90 is sustainable. We do not expect to consider in a reasonable period of time an increase of dividend anyway. That's the guidance, which we have given so far. As a consequence of that, the share buyback could be the natural let me say relocation of any extraordinary expense of cash.

In terms of the request coming from SEC related to Iran, we have established a dialogue with the SEC. We are providing all the information related to the relationship which we established to Iran in the country to run our operations in the country itself.

You ask about pressure. I don't know whether to make reference to pressure. For the time being we are providing all the information, which we are requested to provide. We would not reckon to see any problem whatsoever in that respect.

Okay. Thank you very much.

Thank you. The next question we have now comes through from the line of Mr. Mark Hume of JP Morgan. Please go ahead with your question now sir.

Thank you. Afternoon gentlemen. Just a couple of quick questions. First of all on Karachaganak Phase 3. Clearly, you've settled differences in terms of the sale of the asset. Of BG's sale of the asset. And you've now look to preempt part of that. How is that accelerating negotiations to get BG and Karachaganak up and running?

And also, with the increased political risk in Venezuela do you envisage pulling out of the country altogether?

As far as Karachaganak Stage 3, quite frankly I would not find any relation between the exit of BG from the Kashagan consortium and the ongoing negotiations for the Karachaganak Phase 3. I would say that the discussions are going on. I think we have a number of opportunities to mention that we are pretty much interested in coming to a conclusion with these negotiations in order there is a substantial impact coming from political decisions which need to be made between the Republic of Kazakh and the Republic of Russia.

We are pushing as much as we can, but at this stage we cannot really commit on when there will be a final outcome with the discussions.

As far as the political risk and Venezuela, yes of course there are a lot of conversations ongoing at the moment. Some conversations are related, focus on Caracas, particularly the introduction of the new standards in terms of corporate structure and the mineral agreements with [Petrovisa]. Overall I have to say that our operation up and running in [Dajeon]. We are considering the developments of Corocoro and overall we are confident to reach a mutually satisfactory agreement. That's as far as we can go in terms of commenting the political risk in the country.

But is it fair to say that you will have to spin those assets into the joint venture?

No, no. The inventory refers to the new law. As far as the [Dajeon] that is a local company with no prospect see any change. Bear in mind the size of our operation there. I would say that number 1 we don't expect that to put that into contention. Number 2, it would be anyway part of overall negotiation with [Petrovisa].

Okay. Thank you.

Okay. Thank you. Our next call comes through from the line of Ruairidh Stewart who is from Simmons and Co. Please go ahead with your question now sir.

Thanks. 3 quick questions. Some press statements through the last month or so on potential export options with Kashagan and some talk of funding the BTC line is fairly significant. I wonder if you could just update on options and the potential spare capacity you see on BTC and other options?

Secondly, the Centra Terminal capacity that you've signed up preliminary agreement on, I believe there is still some permitting issues there. Just your level of level of confidence that those will be secured as that has proved a difficulty?

And thirdly, on production volumes, you're talking about 5% growth this year. I wonder what oil price conditions you're referencing there? If I think back to your strategy presentation I think your reference condition was around $30 Brent for '05. Obviously we've been in the high $40s for much of this year and we're a third the way through. So just wondering if there was any pressure on that from PSA/PSE effect? Thanks.

Okay, in terms of the export option for Kashagan, the situation is not much different from what we were presenting during our roadshow. Of course, we reckon that the early production of Kashagan would be about quarter through the -- increasing mostly through increasing steam and in particular we rely on the CPC expansion and on the BTC transport capacity rights which you know that we as ENI together with our partners in Kashagan we have in the scheme. In the scheme.

However we know and we have always known that in any case that position for the association of the Kashagan production will be required, especially at the time we will have the 1.2m barrel per day of oil production. This is an issue which we are analyzing together with our partners and with our counterparty, the Republic who have now entered the joint venture. So there will be a lively component of the discussion for the definition of the -- all the various schemes for the various levels of production.

In terms of Centra, Centra LNG as you know we are permitting -- final commitment will be taken at the end of June of this year. Later on the Company will start divestment. We don't have any evidence about problems in terms of authorization so far.

In terms of the 5% growth. The 5% was the average growth rate for the period 2005/2008. And for 2005 the reference price was, as you quite rightfully said, was $30 for Brent. I would say that in terms of guidance, based on the fact, for instance, that the average of production for the month of April has been 1,729,000 boe per day and that production has been achieved at the current Brent price of $51.08 per barrel, I would say that support the view that even taking into account the fact that in the second and third quarter we have the natural reduction in production related to be maintenance in the various producing fields. So we ought to achieve -- we ought to achieve by the end of the year a level of production which is in line with the production of the first quarter.

Okay. Very helpful. Thanks.

Okay thank you. Our next question comes through from the line of Huw Williams at Cazenove. Could you please go ahead with your question now sir?

Yes thank you very much. 2 quick questions. The first, just circling back on the exploration question. If you can't say much about quarter 1, can you maybe give us a steal from the key areas of exploration to look out for as the year progresses?

And then second question on the R&M segment. You've made some discussion on the hurricane and the quarter refining margins. Could you maybe give us a feel for the progress and I guess also the outlook for marketing margins through the rest of the year please?

Okay. As far as Exploration, the accounts which were at the moment we are coming ahead with our exploration campaign are related to the area where we have the strongest presence I should say. So I would refer to exploration in Egypt. I would say, I would refer to exploration in Algeria. I would refer to exploration in Nigeria and in Norway, including the [Baltic] Sea where we are planning to have a number of wells this year.

Okay, as far R&M is concerned, let me start with the impact of the hurricane on the Gela refinery you mentioned. The hurricane that took place at the very end of last year and we were obliged to shut down the refinery for the entire month of January. Then in February the refinery came to operation, but a lower scale. At a reduced steam so to say. Now we are operating the refinery approximately 80% of the capacity.

Of course, in such a massive situation we had to bear a loss on the refinery because -- a big loss because of the very peculiar market situation due to the very broad good price of refined between light and heavy crude, taking into the account the high complexity of the Gela refinery.

In addition to that, we have to move products by big tanker in order to keep the refinery working and we have to move products to some intermediate logistics centers. And then we remove products from those storage facilities in order to cover the market. This entails solid elevation across the costs.

As far as marketing margins are concerned, you know that the situation now as far as demand is concerned, is not very bright. In the first quarter we had a reduction of the overall demand in the market, but nevertheless such a negative trend of the market we have been able to maintain, to keep, our sales at the same level as last year.

As far as margins are concerned, we expect that our target for this year can be achieved. We are fully on track as far as the first quarter is concerned.

Okay. Thank you.

Thank you very much. Our final question this afternoon comes through from the line of Mr. Tim Whittaker from Lehman Brothers. Please go ahead with your question now.

Yes hello everyone. My first question relates to the appointment of the new Board. Has the list been finalized? Do you know it? Is it possible Mr. Mincato will stay as the CEO?

Listen the matter only concerns majority shareholder and therefore I believe it is not fair making comment when at this very moment the composition of the list hasn't been decided. It may be tomorrow. Sorry, but I prefer not to answer.

Yes I thought you might say that. I have 2 other questions. Firstly, on your Services and Engineering subsidiaries. Saipem yesterday on its conference call said it was looking to move into onshore and downstream business which sounded very much like an indication it is interested in buying some Snam Rete. Are you considering selling this business?

And secondly, on the Chevron bid for Unocal it was widely reported that you were involved. Could you confirm that you did make a bid? Can you explain the strategic thinking behind that bid and should we expect other bids subsequently for potentially other assets that are for sale?

Listen, if we had to take an answer to the question relevant to Saipem announced strategy and possible disposal of this segment and relevant combination with Snam Rete, I mean that's just an indication of the strategy which the management intends to put through and it has nothing behind. So that for sure that would not be the way we would announce any decision of this kind. While Stefano will address the point relevant to Chevron and Unocal.

I would say that in more general terms, on the issue of corporate acquisition, indeed a lot of things addressing the 1 which we have been explaining during our 3 weeks -- recent 3 weeks roadshow. Our plan is solidly based on development on projects and for the small portion to access acquisition on the latter part of the full year program.

Anything else which might be represented by an opportunity arising in the market in terms of a corporate acquisition, as we said consistently with what we said, we shall certainly look at it, we will analyze and we will see whether it fits with our portfolio. Whether we can extract enough synergies and whether that is something which we consider consistent with our strategy.

So the fact that our name was at associated to the Unocal, in particular to the interest in Unocal, I think there is not a secret that what I said applies also to Unocal as far as we have been looking at the company as well as other companies. Then eventually we decided that we would not -- we were not interested at the process. So we will not pursue with it at all.

So I would say that pretty much the same philosophy would apply for other opportunities which might arise in the near future. The fact that our name is associated with the company does not mean that we are pursuing the company. It probably means that we will be looking at the company. That's it.

Okay. Thank you for that. Could I just come back on Snam Rete. Is that a company that you would consider selling and if not, what's the advantage of keeping it?

Listen we never considered Snam Rete for sale absolutely. And the sale frame is not very easy.

Okay. Thank you.

Okay, thank you. We do have 1 final question now coming through from the line of Marco Cipelletti of UBS. Please go ahead with your question now sir.

Good afternoon everybody. I have a question on Snam Rete Gas in relation to you disposal plan. I'm asking this because the government decree for the privatization of Snam should be imminent and also the regulatory process has now started which among other things proposes that the regulatory period is actually shortened to 3 years for this particular regulatory period and not 4 years. So I wanted to know your views as to whether you agree on the fact that with such a short regulatory period it would be in your interest to perhaps sell as soon as the regulator has clarified tariffs. That is sooner rather than later. And if you agree with that, whether you expect to be able to complete at least initiation of this privatization before the end of this year? Thank you.

Listen, we for sure won't give -- hello.

Continue on with your question sir.

Okay, can I go ahead with my answer? Okay well I mean we are for sure not anticipating any time frame in what our subject to the disposal which we have to make by law within June 2007 as far as the sale is concerned and the fact that, as you said, the new regulatory framework is still in process. The fact that started but isn't completed yet. The fact that the PCM is in process but we haven't a final wording yet is a clear evidence that anyway we have to wait in order to have a clearer picture under respects and then we see.

Okay, thank you.

Okay, thank you. There are no further questions in queue so I'll hand you back now to your host for today's call to wrap it up.

Thank you and bye bye to everybody.