埃尼石油 (E) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Eni's 2009 first quarter results conference call, hosted by Mr. Alessandro Bernini, CFO. My name is Maddy and I will be your coordinator for today's conference. For the duration of the call, you will be on listen-only. However, at the end of the call, you will have the opportunity to ask questions. (Operator Instructions). I am now handing you over to Mr. Alessandro Bernini to begin today's conference. Thank you.

Good afternoon, ladies and gentlemen, and welcome to our first quarter results presentation. Here with me is Claudio Descalzi, and together we will be pleased to answer to your question at the end of the presentation.

In the first quarter of 2009, the Brent price continued to weaken, averaging $44 per barrel and declining by approximately 54% compared to the first quarter of 2008. The benchmark European Refining Margin averaged $5.3 per barrel, increasing by 40% compared to one year ago. The margins realized by our own refineries did increase, but less than the benchmark, as a result of the narrowing light/heavy oil differential and the CIF/FOB spreads. The euro showed a depreciation of 13% versus the US dollar, compared to the same period of last year.

As usual, I would like to remind you that Eni's results are affected by several issues, including the seasonal factor affecting the demand for natural gas and petroleum products used for residential heating, the demand for which is highest in the first quarter of the year, the coldest months, and the lowest in the third quarter, the warmest months. Therefore, Eni's operating profit and change in net debt in the first quarter cannot be extrapolated for the full year.

In the first quarter of 2009, the adjusted operating profit was about EUR3.8b, down 36%. This was due to the weaker operating performance of our Upstream and Gas and Power businesses segments, due to falling oil prices and lower natural gas demand. The adjusted net profit also reported a 42% decrease, for the performance at the operating level and for the lower contribution from equity accounted investments. It was also impacted by the higher tax rate in Italy, and in some Exploration and Production subsidiaries outside Italy.

Starting from this quarter, in accordance with the IFRS, we will include the overall impact of derivatives on commodities which don't meet the requirements of effectiveness required by the accounting standard in the reporting -- reported operating profit line, instead of in the net financial charges line. The adjusted operating profit will include only the realized component, while the mark-to-market component will be treated as a special item.

The aim of this reporting change is to better reflect the operating profitability of the businesses which hedge a portion of their commercial transactions in order to achieve margin targets, and is in line with the best practices in the oil sector.

In the Exploration and Production division, hydrocarbon production in the first quarter decreased by around 1% compared to the same period of 2008. This performance is the result of the OPEC cut, 31,000 barrel a day, the weaker gas demand and the force majeure events which occurred mainly in Nigeria, Congo and Gulf of Mexico, overall 34,000 barrels per day. These negative factors were partially offset by the impact of the production sharing agreements and the contribution of 2008 startups.

Exploration and Production adjusted operating profit amounted to EUR2.2b, down 49% compared to the first quarter of 2008. This decrease was mainly due to lower oil realization prices in dollars, lower production sold and higher DD&A. These negative factors were partially offset by the depreciation of the euro versus the US dollar, higher gas prices and lower exploration charges.

Starting from this quarter, as a result of the regulated business restructuring expected in the second half of 2009, the Storage business result will be reported in the regulated segment of the Gas and Power division, instead of in the Exploration and Power division. The 2008 figures have been restated accordingly.

As for the Gas and Power division, overall gas volumes sold, including both consolidated and associated companies, increased by more than 6%, totally around 31b cubic meters. In particular, international gas sales increased by more than 46%, reflecting the Distrigas acquisition and the higher volumes sold in the target markets, despite a decline in gas demand. In Italy, including own consumption, gas sales decreased by 22% as a consequence of the economic slowdown, which caused a significant decrease in gas sales to industrial, a decrease of 20%, and power customers less 44%.

The Gas and Power adjusted operating profit amounted to approximately EUR1.4b, down 18% over the same period of 2008. This reduction was primarily due to the lower volumes sold in Italy and the weaker contribution from power activity. This negative element was partially offset by the favorable trend in energy parameters, to which gas purchase cost and sell-in price are indexed, and the acquisition of Distrigas.

Furthermore, regulated business accounted for a lower adjusted operating profit, as a result of the revision of the tariff mechanism that smoothed the seasonality of the Distribution business, as well as the lower volume transported as a consequence of the lower gas demand. These negative elements were partially offset by the incentives provided on the new investment in the transportation network.

Gas and Power pro forma adjusted EBITDA amounted to EUR1.7b. This compares to EUR1.8b in the first quarter of 2008. The Marketing segment result was effectively flat. The lower volumes sold in Italy were offset by the favorable trend in energy parameters, the acquisition of Distrigas and the adjustments for the impact of derivatives on commodities and exchange rates related to the sales in other accounting periods.

The regulated business EBITDA declined for the reasons commented on the EBIT adjusted. Finally, International Transportation showed a 10% increase versus the first quarter of 2008, thanks to the increased transport capacity.

Refining and Marketing adjusted operating result for the first quarter accounted for EUR55m, compared to EUR12m in the same period of 2008. This result reflects the lower utilities cost and the depreciation of the euro versus dollar. These positive elements were partially offset by the lower throughput due to planned and unplanned maintenance activities. The Marketing activities showed a stable operating result.

As far as the other businesses are concerned, Petrochemicals posted an adjusted operating loss of EUR111m, due to the economic downturn driving a 25% decline in sales and weaker base chemical margins. In the Engineering and Construction sector, the first quarter adjusted operating profit amounted to EUR272m, versus EUR214m in 2008, and the increase is attributable to higher results in all business segments. The overall result from Other Activities and Corporate was substantially flat, year-on-year.

Moving now to the operating cash flow, this amounted to EUR5.4b in the first quarter. Divestments accounted for EUR0.2b. CapEx amounted to EUR3.1b, in line with the first quarter of 2008.

Net financial debt at the end of March declined to EUR16.5b. Since then, we have paid EUR2b to Distrigas minority shareholders, and we can confirm to have received EUR3.1b from Gazprom, from -- for the 20% stake in Gazprom Neft. At the end of April, our gearing is therefore below 0.32. At year-end, gearing is expected to slightly increase versus the 2008 year-end level.

So, thank you for your attention and now, together with Claudio, I am pleased to answer any questions you may have.

Thank you. (Operator Instructions). And the first question comes from the line of Dave Thomas from Citi. Please go ahead.

Yes, good morning, gentlemen. I've got a couple of questions, please. Firstly, regarding E&P, in your outlook statement you're projecting a - what you call - slight reduction in your production growth expectations for 2009. Can you say what slight is? And also, can you say what additional impact we should assume from OPEC reductions, assuming current production quotas remain in place for this year?

And secondly, can you confirm what assumptions you're making regarding CapEx for this year and dividend payout, in saying that gearing will be within levels required to retain your current credit rating? Thanks.

Okay. Talking about E&P production, when we talk, we project our production to the year-end and we talk about a slight reduction, we talk about 0.9%, without considering the OPEC quota reduction and also some force majeure, an issue that really occurred especially in Nigeria and West Africa and Gulf of Mexico. So that is the reduction that we expect to have at the year-end, at the moment.

Can I just clarify that it's 0.9% before the OPEC cuts and any force majeures? But on OPEC cuts, is something around 30,000 to 40,000 barrels a day you suffered in the first quarter appropriate still?

Yes, yes, yes. The OPEC quota cuts account for 30 -- about 31,000, 35,000 barrels per day.

As far as the leverage and the dividends that you mentioned before, I have to confirm that we have so far not changed our strategy that we have announced on February 17. It means that we are maintaining our target in terms of CapEx, which should be slightly lower than those realized in 2008. And we are still committed to maintain and to deliver the three basic pillars of our strategy of 2009, which are to maintain the strong credit rating, to drive growth through our CapEx program and to continue to distribute a superior dividend yield.

And as far as dividends, what I can tell you is that our dividend yield will be superior, if we base the dividend yield calculation on the share prices on February 13, the day of our strategy presentation. And as far as the definition of superior, it means that our yield will be among the highest in our peer group. And for peer group, we -- in our peer group, we include Shell, Total, Conoco, Chevron, Exxon and BP. So, so far, basic assumption are not changed and we confirm and we are committed to deliver these highest -- one of the highest dividend yield in the sector.

No. Okay, I appreciate that. Just to really clarify, in terms of the gearing level being slightly above the 38% at the end of 2008, given a $43 per barrel Brent price, the CapEx you've already guided to of about EUR14.1b for 2009, and therefore assuming, say, a flat dividend payout from what you've paid out in cash terms, is that what's driving the gearing to slightly rise? So, in other words, what's the cash cycle for this year?

I am not saying that the dividends will be flat compared to last year. I am -- I confirm that -- the final decision about dividends will be taken by the Board of Directors. As far as the account, the advanced portion will be decided in July and the final -- the balance will be decided in February 2010. I don't want to confirm that we are talking about flat dividend. I strongly confirm that we are committed to deliver a superior dividend. And as far as the definition of superior, I have already clarified before.

We expect to face a slight increase in our leverage at year-end because in the original assumption we didn't include the total residual acquisition of Distrigas, because in our original assumption we expected to have -- to acquire only a portion of the stake which was held by Publigas. Whilst during the offering period, Publigas has notified their total adherence to the public offer, and we have liquidated -- we have paid the consideration on April 8. So, it means that the slight increase compared to the level we had at the end of last year is primarily due to the acquisition, the total acquisition of Distrigas.

Okay. Thank you, Mr. Bernini.

Thank you. And the next question comes from the line of Domenico Ghilotti from Equita. Please go ahead.

Good afternoon and congratulations for the good set of results. My question is still on the CapEx. You used slightly different wording in your CapEx guidance and -- but so far you have confirmed your indication presented in February. I would like just to understand if you see some further optimization achievable on your CapEx, not already, let's say, included in your guidance so far, but do you see some opportunities for some CapEx optimizations?

Talking about E&P, that accounts for about EUR2.2b, I think that we can say that we can have -- we can reach additional CapEx optimization in respect of the CapEx we had in 2008, so about 5%, 10% over 2009. That is a reduction optimization that we expect in this year. For that reason also, we delay or we postpone some projects, just to be able to catch this reduction that we forecast for 2009.

Thank you.

Of course, E&P represents the most important portion of our CapEx program, because the remaining significant portion of our CapEx program is represented by the CapEx of the Engineering and Construction segment. I mean Saipem, in other words. And they are committed to deliver their vessels at a certain due date, so they cannot modify, of course, their commitments. And accordingly, we don't see any possibility to optimize this portion of CapEx. But of course, our most important efforts will be addressed to the Exploration and Production division, of course.

And what about the Refining and Marketing, just to complete the review?

Refining and Marketing, we -- of course, since we consider the Refining and Marketing segment the most weak in -- considering the present market environment, we have analyzed critically some projects and we have identified some additional room for savings, but we are talking about very slight amounts.

Sure. Thank you.

Thank you. And the next question comes from the line of Irene Himona from Exane BNP Paribas. Please go ahead.

Good afternoon. I had two questions, please. Firstly, on Gas and Power, can you give us an idea of the expected decline in 2009 Italian gas demand? And is there some guidance concerning your Gas and Power EBIT in 2009 versus '08, in light of the recession?

And then secondly, on Gazprom, you've just announced that you have received the cash for Gazprom Neft, but can you clarify what is happening with the rest of the assets, please? Thank you.

Excuse me. Can you repeat the last one?

So, as far as the Gas and Power division, you may remember, of course, that the most significant portion of the Gas and Power results are represented by regulated and semi-regulated business, for which, on a yearly basis, we do not expect any major changes compared to the amounts already -- historically delivered by this segment. And just to remember that, effective from January '09, also the Storage business will be part of the Gas and Power margin segment.

So, having said that, we -- of course the results of the merchant segment, the Marketing segment inside Gas and Power will be affected by the lower gas volumes sold, in particular in Italy where we expect a significant reduction in terms of volumes, but more than compensated by the volumes sold by Distrigas at the international level. So, all in all, the EBIT levels expected at the end of the year, of Gas and Power, is -- will be more or less in line with those achieved in 2008.

Okay.

As far as the --

Gas demand in Italy. Okay. So, I talk a little bit about the ex-Yukos asset. Now, first of all, I want to say that upstream activity on these assets on this field is proceeding according to the schedule, and in the first quarter we drilled and completed three wells. And we are working with Gazprom and Enel on this issue. And for the rest, because of the situation of the gas demand in Russia and also because of the financial market, we are discussing with Enel and Gazprom to phase in -- schedule the call option. I think that the updated schedule will be provided one of the party. I mean Gazprom, Enel and Eni have defined a final agreement. We are in discussion, but from an industrial point of view we are working on the project.

Okay. Thank you.

Thank you. And the next question comes from the line of Mark Iannotti from Banc of America-Merrill Lynch. Please go ahead.

Afternoon, gentlemen. There's been some speculation that you've drawn up a list of non-core assets potentially for disposal, in the event that you hadn't sold your GNeft call option. Can you just make some comments on potential disposals for 2009 and the order of magnitude that could be?

And then, possibly a question on tax. I see the 4% supplemental tax applied to Eni from the reparations treaty with Libya. Do you have any right of appeal to that or is that something now that is set in stone?

First of all, talking about disposal and rationalization of our assets in 2009, that is normal working that we perform on our assets. And it's a matter of rationalize and cut small assets, reduce our costs, define synergies, and that is a daily exercise. For sure, we are forecasting for 2009 maybe some small operation on these aspects, and aim there especially to reduce our costs and find new synergy and position our asset in area where our efficiency in fact is much better. So that is the issue. We are not talking about big dismission, big disposal, so not big impact on production.

Okay.

As far as the tax issues are concerned, I would remember that the modification in the Italian tax law significantly affect the comparison between the first quarter '09 with the first quarter '08, because the amendment which has increased the statutory tax rate from 27.5% to 33% has been introduced in the second quarter of last year. So, effectively, the comparison between first quarter of this year and the last year reflects also this situation, which was then recovered in the second quarter.

Then, as far as the surcharge -- tax surcharge as a consequence of the Libyan tax treaty, we confirm that we have started with the appealing process because in our rules (technical difficulty) low. And -- but the result, the outcome, is expected only in the last part of '09. For the time being, in the first quarter, the application of this surcharge affected the bottom line by an amount which is not so significant because it is in the region of EUR70m, because we expect on a yearly basis an amount in the region of EUR280m. But we are confident to have good reason to contest the application of this law.

Okay. Thank you.

Thank you. And the next question comes from the line of Tim Whittaker from Barclays Capital. Please go ahead, sir.

Yes. Hello, Alessandro. My first question is about the dividend again. I must admit, I'm a bit confused by your dividend policy. It seems to me it depends on the dividends paid out by other companies, the price of the shares of other companies and the price of shares of your own, and I would have thought the main driver would be your balance sheet position and cash generation. So maybe you could just explain this again, how you see the dividend evolving, bearing in mind if you talk about a yield it includes all those other moving parts, which makes it difficult for us to assess, and also bearing in mind your CEO was reported to have made some public comments about the dividend ahead of the Gazprom Neft option exercise. Maybe you could clarify that. And I also have another question.

First of all, I want to clarify that our dividend strategy never, never referred to Gazprom Neft call. It was absolutely independent from the exercise or not the call on Gazprom Neft by Gazprom, first. Then, you are right; yield is basically a ratio, which in one side there is the market value of the share and on the other side the amount of the dividend. We have clarified, because of course we were conscious that originally there was some misunderstanding on the market, we have clarified that we want to deliver, we are committed, because of course the final decision will be taken by the appropriate bodies, which are Board of Directors and shareholders.

But our aim is to deliver to our shareholders a superior dividend yield, which means you can refer to the value -- market value of our share by February 13, when the promise was released to the market. And in order to obtain, say, the relevant amount, you can take also the market value of the shares of our peers, which means Shell, Total, Conoco, Chevron, Exxon, BP, at the same day. And considering that we want to deliver a superior, and for superior we classify it to be the first or the second one, you can easily obtain the final amount to which we are committed to recognize to our shareholders. But of course, finally, the decision pertains to our Board and shareholders.

Sure. And if they declare their dividend after you, then you won't be certain whether you're going to be superior or not, I guess.

Sorry, can you say that again, Tim (multiple speakers)?

Well, it's still dependent on what the other companies declare for their dividends, so if they declare them after you then you won't know whether you're superior or not. Is that correct?

Of course you are right in a certain way, but since they're also our peers they have declared clearly their policy about their dividends. And since we are committed to be the first or the second one giving it in precise terms, which is the market value of our share at February 13, you can -- it is not dependent on the fluctuation of the shares of Eni and the other peer group companies in a certain period of time. You can refer to the market value of the shares on February 13, and accordingly comparing then with their declaration. And at the end of the day, since we want to be the first or the second one, you can obtain very easily what is the amount in terms of dividend that we are committed to recognize.

Okay. Thank you, Alessandro. I have one other question for Claudio. We're getting reports from the Middle East, for example, that costs on new projects may have fallen even by as much as 50% on new contract tenders. Could you comment on the recent trends you've seen in the contracts that you're looking at?

The recent trend in the first quarter was not so high, from our point of view. We recorded on average about 10%, 15%, no more than that. We have an expectation to reach around 25% by the end of this year. That depends on -- if you consider raw material, services or contracts, for example, for deep offshore and ultra-deep offshore, we didn't record any kind of strong reduction. So we are still in the range of 4%, 5%, no more than that, so for that kind of rigs. And for vessels, we recorded a drop of about 60%, 50%/60%. So we think that we have to wait till end of the year to have a strong reduction in our costs.

So, for that reason, we are optimizing our project portfolio to catch the maximum value and create the maximum value in our projects. But that are the range.

Thank you. That's very helpful. Thank you.

Thank you. And the next question comes from the line of Paolo Citi from Intermonte. Please go ahead.

Hello, good morning, everyone. I have just two questions, first one on the E&P segment. Is it possible to have an idea of the PSC effect on Q1 production?

Second question, again on E&P, is an elaboration regarding your view regarding the potential cost deflation we will see in the coming months.

And finally, I have a question on the gas side, and particularly regarding your investment in the de-bottlenecking of the import pipeline [for the Italian PPC]. Is it possible to have a precise idea on when this additional capacity will be available, and your view regarding the supply/demand balance in the Italian gas market in the next quarter? Thanks.

Okay. Starting from E&P, first of all, the effect that we had in the first quarter is about 1,000 barrels from the PSC effect, so per dollar. So that is a continuous updating. It depends on different things, on the stage of the project, on the price, so that is an average on all the package. We run new model and that is what consolidated in the first quarter.

Talking about the deflection of cost in the next period, the outlook, as we said -- I said, at the moment we reach in average about 10%, 15% and we think that we can reach as an average 25% on the new package, on the new [outside deal], on the new projects by the end of the year.

As far as the Gas and Power division, relating to -- your question relating to the de-bottlenecking of the Tag, of course you may remember that the first portion of 3.2b cubic meter per year already started the operation in October 2008. And the second portion is expected to start operating in the fourth quarter, in the last part of 2009. And in 2008, the whole new capacity has been awarded to third parties following a transparent and non-discriminatory procedure.

Thank you.

Okay. Thank you, okay.

Thank you. And the next question comes from the line of James Hubbard from Morgan Stanley. Please go ahead, sir.

Hi, good afternoon. Three questions, please. Firstly, on your cash cycle this year, given your comments earlier on, can we assume that in your scenario of $43 a barrel we will not be looking at any acquisitions this year? Or is it the case that if you see an attractive acquisition, which could well be possible in the current environment, you would then revisit this commitment to a superior dividend yield?

Secondly, listening to your comments around the dividend policy, can I just ask why would you not just have a payout policy? And how did you actually arrive at the policy that you seem to have at the moment, which is somewhat ambiguous and confusing?

And then, finally, the Iraq oilfield I believe you're bidding on, along with two competitors. If I understand it rightly, it's an EPC contract, which again, if I'm right, and I might be wrong, will give you no exposure to oil prices. Could you just take us through the thinking of -- the balance that you think of in trying to get into that region against accepting a contract which presumably will have low returns and no exposure to oil prices, what you're thinking of longer term there?

So, as far as the first part of your question, before to talk about Iraq, our strategy, our estimates relating to 2009 in terms of cash flow, you're right, have been prepared estimating that all over 2009 cash flow generated by the operations were based on a Brent of $43 per barrel, which more or less the actual figures confirm the appropriateness of our estimate.

So far we confirm, since as part of our estimate the cash flow generated by the whole of Gazprom Neft was part of our estimate, what's happened today didn't modify at all what was already estimated at the beginning. So we are still committed strongly for -- with an organic growth and we pay attention to, let me say, a small acquisition, but only to the extent they satisfy the requirements of synergies, to be synergical with our presence in certain countries where we have a historic and strong presence. But we are only talking about a very, very, very small transaction which can be considered as part of our normal portfolio management. We cannot talk about acquisition.

Okay.

In terms of dividends, I believe that nobody of the various oil companies declares a dividend policy, a clear dividend policy, nor Eni did it in the past. So I believe that the elements that I've given before in terms of what can be expected in terms of dividends is quite precise, and should eliminate all the misunderstanding or the various, let me say, doubt which affected the dividend policy and the dividend expectations which Eni is committed to recognize to our shareholders.

Of course, this policy, this -- our [sentence] to pay a superior dividend yield is based, of course, on the view that all over 2009 the Brent will remain at least at $43 per barrel and the crisis -- the economical crisis will maintain the effect which we have already estimated. Of course, if the crisis will reinforce negatively the effect and will continue all over 2009 worsening the present situation, of course we will review accordingly our economical expectations. But so far, there are absolutely no changes compared to what we have already announced on February 13.

Okay.

Okay. So we can talk about Iraq. As you know, we submitted a bid a few days ago and so I can't talk about this bid, because it's under evaluation by the first party. But just talking about concept, this bid is related to an early production phase, so it's just a preliminary development of the field and with a target of 150,000 barrels per day. And looking at the full field development, I think that we can consider an EPC contract for a full field development. That is just a first step, a preliminary step. We're going to just facing upstream normal challenges and risk. There is also a country risk, security, first mover because other countries started an upstream project over there.

So for this first and preliminary phase, we consider we want absolutely to reduce and minimize our risk. But for a full development, for sure, our aim is to have a PEC (sic) contract or a service contract, where -- a normal contract, where we can book our services and keep our upside and develop, invest, trying to optimize the field development and also the upside potential and the final value of the development.

Okay. Okay, thank you.

Thank you. And the next question comes from the line of Katy Raven from Sanford Bernstein. Please go ahead.

Hi, thanks. I've got a question for Claudio. You already mentioned in the press release that one of the elements contributing to your downward revision of production growth guidance was project rescheduling. Can you just confirm for us which projects that affects and where you think you've got the greatest leverage to improve costs and which projects are most in need of cost improvement? Thank you.

Okay. Thank you. I think that the main area is Africa, and we rescheduled some projects in West Africa. One of the projects is the M'Boundi, and not in terms of production but of gas recycling and water injection that we pushed a lot in the last year, because we pass from 10,000 barrels per day water injected to now we are injected 50,000, 60,000 barrels per day. Our target is 200,000. So we reschedule a little bit this growth in terms of water injection to get the best value.

And other projects in Nigeria, onshore Nigeria and also offshore, because we rescheduled some oil project that is still going to be in production this year, but with a different growth in terms of investment. Other project in Libya and project in Norway. Norway and Libya don't impact production in 2009 and '10, so we have just a small impact in West Africa. And that allows us to save $100m of investment.

Okay. And are you hoping to be able to capture anything for Kashagan going forward, now you've had the downturn?

No, Kashagan, for sure Kashagan is already in advanced stage (multiple speakers).

(Multiple speakers) later?

So we reach more or less 50% of growth, of progress, so we are on track and there is no particular problem. All the named projects have been -- all the projects involving lots of (inaudible). So that is done. We can optimize (technical difficulty) just looking at the timing, but from a [control] point of view everything has been closed and finalized.

What about the next phases of Kashagan beyond the first phase?

Next phase is under discussion. The new organization, new configuration, [see] Total is in charge, which -- with (technical difficulty) and Exxon. So we are discussing at the moment (technical difficulty). I'm not in the position to disclose any kind of schedule or milestone or target about that, but we are progressing and in good cooperation with our joint venture and the first party.

Okay, thank you.

You're welcome.

Thank you. And the next question comes from the line of Iain Reid from Macquarie. Please go ahead, sir.

Hi. Two questions, please, gentlemen. Claudio, the question you answered about production, the first question, could you just confirm what you said there? I thought I heard you say that you expected production to decline this year before the impacts of OPEC and force majeure. Was that correct? Because in the press release it says you're going to grow excluding those two, so maybe I heard it wrong.

I was not able to express clearly my view. There is not a reduction before OPEC and force majeure. We're going to increase our production, follow our schedule, just a small slight reduction because of the optimizations, but before OPEC and force majeure there is a growth production. Maybe I expressed not correctly, sorry.

What sort of growth rate are we thinking of now?

Sorry?

What sort of growth rate are you thinking of, in percentage terms?

I think that we are in a growth rate of 2%, 2.2%.

Okay. And the second question was on hedging. Could you just remind us what the hedging policy is doing on the Dominion assets, in terms of protecting your oil and gas prices there, in terms of how it works?

Right. At that time, the time in 2007, we have defined and agreed with a group of banks a derivative in order to secure the prices relating to a production of 125m barrels, part of which already have been already produced. And a portion amounting to more or less to the half is still to be produced. So, as clearly stated in our press release, through this contract we have secured prices in the range of $64, $65 per barrel, because it is not a fixed price. There is a cap and collar. So, more or less on average basis we have secured the sale of this production for an amount of $64, $65 per barrel.

Considering what are the present forward curves, this contract allowed Eni in the first quarter of 2009 to realize more than EUR100m in terms of gain, since in the first quarter a production of more or less 17m barrels had been realized. So presently we are -- of course, we have suffered in the past, but presently this hedging contract is creating a lot of satisfaction for a small portion of our production and the mark-to-market valuation of the residual portion, which affects our equity. Reserves of Eni presently is in a positive situation of some EUR100m.

Okay. Could you just say -- presumably that's the mark-to-market of the contract. What was the actual realized part of that in the first quarter?

Excuse me?

Can you repeat that?

The first quarter, we have realized a portion of -- more or less 10m barrels of production has been realized in the first quarter of 2009. And since for this portion we have secured a price higher than the current market curves, it has allowed Eni to realize a profit amounting to approximately EUR100m for this portion.

Okay. Thanks very much indeed.

Thank you. And the next question comes from the line of Neill Morton from MF Global. Please go ahead, sir.

Thank you. Good afternoon. I had a couple of questions on Gas and Power, please. The first is that I appreciate you've already given full year EBIT guidance for the division, but could you perhaps talk a little bit about the competitive position with regard to marketing margins in Italy this year, with falling demand, with import capacity, etc.? Margins seemed to be fairly resilient in the first quarter. You did mention the time lag on selling prices, but you also commented on derivative instruments. Has your, for example, hedging policy changed any in Italy? And I have a follow-up question, as well. Thank you.

Of course, as far as the margins -- domestic margins are concerned, in our estimates since the beginning when we have prepared our original budget for 2009 and so it is already part of the original announcement to the financial community, we have estimated a pressure on our margins as a consequence of the generic economic downturn, and also because in the second half of the year we expect that due to the starting operation of additional facilities in Italy there will be additional gas available on the market, which will create additional pressure on our margins. But effectively, this was already expected, forecasted. So presently, in preparing our forecast, our updated figures, this doesn't change too much because it was originally estimated.

As far as the hedging policy are concerned, effectively, in order to -- basically, it is not changed, the policy. It is changed the accounting treatment because Eni, in order to secure the margins when the market is significantly volatile, we put in place specific derivatives in order to froze the margin that we expected to realize from a specific transaction. And this affects both Gas and Power and in particular Refining and Marketing. These are the two business lines which are predominantly affected by commodity hedging contracts.

Starting from first quarter '09, we have decided because also as a consequence of the pressure of our auditors but also because more or less all our competitors do the same, the effect of those hedging contracts, which only for accounting reasons cannot be considered hedging contracts and from an accounting perspective they should be considered speculative, but of course we do not execute any speculative transaction. It is only because you know that the IFRS 39 provides a lot of requirements in order to consider a specific hedging contract to be a hedging contract. And sometimes happens that we are not in a position to meet all the accounting requirements.

But considering that all these hedging contracts that we put in place are only to secure margins and only for industrial or commercial reasons, we have agreed to reflect in the EBIT, directly in the EBIT, the effect also of those hedging contracts which don't meet the requirements -- the accounting requirements in order to transfer at operating -- the operating margin the entire effect generated by these contracts, which previously were booked in the financial charges line.

Okay. That's fine. You said the policy hasn't changed, but has the activity level changed? It sounds as if you have actually increased the volume of gas or whatever that has been forward sold to fix in a margin. Is that a fair comment?

First of all, I want to repeat, we have not changed our strategy, our policy. The policy was, is and will remain the same, because we refer to hedging contract only to secure margins on industrial and commercial transactions. Then, of course volumes can change according to the market volatility because of course, if the market is significantly volatile and we want to secure the margins of a certain transaction, we can increase or decrease the volume of the hedging contract in accordance with the market volatility. But so far, we do not expect to modify significantly the volumes of the hedging contracts that we have already put in place in the past.

Could you say, then, what the benefit or otherwise was in the first quarter from these derivative volumes?

Well, in the first quarter the effect was not a positive effect, because it was minus -- overall, was minus EUR190m. So basically it's not so significant, but this amount then will be recovered in the following months, when the sales of the gas purchased and on which we established a hedging contract will be realized. So it is only a timing effect. This amount, which presently is negative in the first quarter, will be recovered in the following quarters. So, on a year basis, we do not expect to face any significant effect at EBIT level.

So most of that EUR190m is in the Gas and Power business in Q1?

Right, indeed, EUR170m. Yes, you're right.

EUR170m, okay. Sorry, this is my second question, would you believe? Very quickly, could you quantify the EBIT for the storage contribution in Q1 and also the EBIT from Distrigas in Q1? Thank you.

So, in the first quarter, the contribution from Stogit was in the region of -- at EBIT level of EUR84m, whilst the contribution from Distrigas at EBIT adjusted level in the first quarter was in the region of EUR35m -- EUR25m, excuse me, EUR25m.

That's it for me. Thank you.

Thank you. And the final question comes from the line of Mr. Roberto Condulmari from Kairos. Please go ahead.

Thank you, but my question has already been answered. Thank you very much.

Thank you. And we currently have no further questions, so I'll hand you back to Mr. Alessandro to conclude today's conference. Thank you.

I just want to thank everybody for their participation to this conference and so hello to everybody.

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