埃尼石油 (E) 2009 Q2 法說會逐字稿

The first six months of the year have been challenging. In E&P, with oil prices down 53% year on year, production was affected by OPEC cuts and force majeure. While in Gas & Power the economic downturn [shift] gas sales. Despite these challenges we have achieved sound financial results with EUR6.3 billion of adjusted operating profit, EUR2.7 billion of adjusted net profit, and EUR7.6 billion of cash flow from operations.

In the context of an uncertain macro environment, I intend to propose to the Board an interim dividend of EUR0.50 per share, which reflects Eni's prudent approach to the short-term challenges.

During the first six months of the year we made good operational progress across our businesses, consolidating our long-term growth prospects. In E&P we developed our portfolio further and we have added 300 billion BOE of new resources through successful exploration activity. A significant contribution comes from discoveries in Angola, Gulf of Mexico, Indonesia, Pakistan, and Brazil through Galp. This was achieved amidst a 30% reduction in exploration expenses year-on-year.

In the same period we have added 21,000 square kilometers of new acreage to our portfolio, which will sustain our resource replacement. Amongst this new acreage is the Barnett Shale formation, which we acquired from Quicksilver. This alliance will promote technical exchange, particularly in drilling and completion technologies in unconventional gas sales.

In Gas & Power we completed the restructuring of the regulated business and the integration with Distrigas. I will now hand you over to Alessandro for the second-quarter results.

Good morning ladies and gentlemen. In the second quarter of 2009 the Brent price showed an increasing trend averaging $59 per barrel, down 52% compared to the second quarter of 2008. The European refining margin averaged $3.6 per barrel, declining by 55% versus the corresponding period of 2008. Finally, the euro showed a depreciation of 13% versus the US dollar.

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 and lowest in the third quarter. Therefore, Eni's operating profit and change in net debt in the first six months cannot be extrapolated for the full year.

Moving to the results, adjusted operating profit in the second quarter totaled EUR2.5 billion, down 54% year-on-year. This result mainly reflects the lower contribution of the Exploration & Production and Refining & Marketing divisions. Adjusted net profit in the second quarter declined by 60% to EUR902 million as a result of the weaker operating performance and of the lower contribution from equity accounted entities. These negative factors were partially offset by the lower adjusted tax rate.

As far as the Exploration & Production performance is concerned, the hydrocarbon production in the second quarter decreased by 2.2% compared to the same period of 2008, averaging 1,733,000 BOE per day. The decrease is due to the OPEC cuts, 29,000 BOE per day, the force majeure events which occurred mainly in Nigeria, an overall 34,000 barrel per day, weaker European gas demand and the mature field declines.

These negatives were partially offset by the production ramp up in Angola, Congo, Gulf of Mexico, (inaudible) and Venezuela, as well the impact of the production (inaudible) agreement around 60,000 barrels per day.

Second-quarter adjusted operating profit amounted to EUR2.1 billion, down 58% compared to the second quarter of 2008, mainly as a consequence of the low hydrocarbon realization prices denominated in US dollars and the lower production we saw. These negative elements were partially compensated for by the depreciation of the euro versus the US dollar.

As for the Gas & Power division, overall gas volumes sold in the second quarter of 2009, including both consolidated and associated companies, decreased by approximately 8% year-on-year, totalling 19 billion cubic meters. This decrease is due to the lower volumes sold in Italy as a consequence of the economical slowdown, partially offset by higher international gas sales, reflecting the Distrigas acquisition, and the robust sales in several European target markets despite the weak gas demand.

As for the Gas & Power division adjusted operating profit amounted to EUR690 million, up 10% over the same period of 2008. The increase reflects the higher contribution from the marketing and related activities, partially offset by the lower results in international transportation.

Gas & Power adjusted pro forma EBITDA for the second quarter of 2009 amounted to EUR821 million. This compares to EUR806 million in the second quarter of 2008. Marketing segment results increased by around 8% as the result of favorable scenario related to euro appreciation versus the US dollar, and the positive trend in energy parameters, certain operating expenses incurred in the second quarter of 2008 related to a claim filed by the Authority for Electricity and Gas, which reversed a favorable (inaudible) regime, or electricity productions, as well as the Distrigas consolidation. These positives were partially offset by the lower gas volumes sold.

The regulated business generated EUR301 million, up 12% versus the second quarter of 2008. The increase mainly reflects the higher contribution from distribution activity as a result of the revision of the tariff mechanism that smoothed the seasonality of the business.

Finally, international transportation declined versus the second quarter of 2008 as a result of costs incurred to repair the TMPC pipeline damaged in an accident which occurred last December.

Turning now to Refining & Marketing utilization rate declined by 12% year-on-year as a result of the weak demand and higher maintenance activity. The second quarter accounted for an adjusted operating loss of EUR106 million, compared to an operating profit of EUR97 million in the same period of 2008. This result reflects significantly weaker refining margins, mainly as a result of the narrowing of the differential between light and heavy crude. This reduction was partially offset by the depreciation of the euro versus the US dollar exchange rate.

Marketing performance improved, reflecting the higher retail volumes sold in Italy as a result of increased marketshare. These positives were partially offset by the lower volumes sold through world sales.

In the second quarter of 2009 the petrochemical business posted an adjusted operating loss of EUR146 million due to the very weak volume and margins.

The Engineering & Construction sector, the second-quarter adjusted operating profit amounted to EUR297 million, versus EUR253 million in 2008. The increase is attributable mainly to higher results in the offshore (inaudible) and construction business lines.

The other activities or segment reported an operating loss of EUR73 million. And finally, corporate activities have posted an adjusted operating loss of EUR117 million, due to higher insurance costs, expenses related to the bond repaid offering, as well as increased ICP and research and development costs.

In the first half of 2009 operating activities generated a cash flow of EUR7.6 billion. On top of this disposals and (inaudible) minority shareholder capital increase contributed around EUR4.8 billion, bringing the overall cash generated to EUR12.4 billion.

The cash flow generated finance at CapEx of [EUR6.8 billion]. Acquisition costs are mainly related to (inaudible) minorities for overall [EUR2.2 billion] and dividends of EUR2.6 billion. Other uses absorbed EUR800 million, and brought the overall cash outflow to EUR12.4 billion.

Net financial debt as at the end of June amounted to EUR18.4 billion, and the debt to equity ratio slightly decreased to 0.37 when compared to 0.38 of year-end.

Thank you for your attention. And now I hand you over to Paolo for his closing remarks.

In conclusion, the industry as a whole faces challenges from the economic downturn, which may result in renewed oil price weakness, and which will continue to depress gas demand and put pressure on refining margins.

The outlook for the near-term remains highly uncertain. In this context Eni will continue to leverage on its strategic strength. The E&P division, a healthy pipeline of projects is coming on stream over the remaining part of this year. In Gas & Power, despite weak volumes caused by the economic downturn, we will deliver a stable result year on year. Our small downstream exposure means that the negative impact from this sector will be relatively limited.

Our strategy remains unchanged. We will continue to invest for growth in the long-term interest of our Company's shareholders, while maintaining firm financial discipline, and assuring that our balance sheet remains strong. This approach leaves Eni well-positioned to achieve continued growth, and equips us to overcome industry challenges. We will now be pleased to answer your questions.

(Operator Instructions). Alastair Syme, Nomura.

Can I just ask on -- related to the dividend about the rationale for capping it. Is it something to do with the structure at the holding company level? And obviously you present the accounts on a consolidated basis, but now with the move to the storage assets, etc., and (inaudible) gas, would it be more helpful to present the accounts on a go forward basis looking at the holding company level? Is that the way we should be considering it, do you think?

Alessandro will answer this question.

The restructuring of the regulated business will not generate any particular impact on our earning generation, but because what will be lost at the bottom line level as a consequence of the fact that 45% of Italgas and Stoccaggi will be attributed to minority. Minorities reflect only a very, very limited amount, because we -- for 2009 we have -- our estimate is in the region of EUR80 million, so absolutely a negligible amount. So the restructuring of the regulated business will not affect our dividend strategy.

Are you happy that the rating agencies can see your credit rating in the same mind, look at a consolidated company, or do they look at the holding company, do you think?

We think the restructuring will not change the scope of consolidation. I mean, we will continue to consolidate on a line by line basis as Snam Rete Gas, as well as Italgas and Stoccaggi. So the restructuring and the sale of Italgas and the Stoccaggi to Snam Rete Gas has not modified the positive attitude that we have had vis-a-vis all the rating agencies.

Can I just ask one supplementary to Paolo as well, just in terms of the way that the dividend policy has been set for the interim. Should we take it on a go forward basis that the dividend will relate to net income in a given year, i.e. is it going to be very variable from here on out?

No. Look, of course, dividend is very much a question of judgment. We thought that considering the uncertainties in the economic environment we would like to take a prudent approach. What I would like to add to this that is certainly not part of our strategy today will not be part of our strategy tomorrow to distribute the reserves.

James Hubbard, Morgan Stanley.

On refining could you enlighten us as to if you're making any progress on disposing of any of your assets? And if not, do you see the second half environment as one in which you will take down some more capacity?

There is one question on refining. On Russia now that you know it is clear what the situation is as it accounts for assets you have for the future, can you remind us what your development plans are for the remaining assets that you have there?

And I guess just coming back to the dividend, which probably won't be the last question on it. With respect to the statement that you made earlier in the year as regards how we should go about calculating the payout, can we just take that -- is that still current that you will not go above 100%, with the caveat that you -- with your last answer that you're not going to go above 100% payout ratio?

Let me quickly tackle the first question about refining. Now we continue to have a pessimistic view of the future of refining margin in the Mediterranean. Therefore, we keep our view that investment, CapEx and refining should be limited, and the disposal of Livorno is still on the agenda.

We are running a process of sale of this refinery. By the way, this refinery is not losing money today. So we are not losing actually money. But we certainly want to reduce our refining capacity in a market which is going down. Petroleum products are down both in Italy and in Europe. We are confident, we hope, that we will receive an offer which satisfies our request for the Livorno refinery in the next couple of months.

On Russia we have closed the famous Gazprom Neft question quite satisfactory, I think. And now we are left with our share in what we call [sink], which are the assets in the Yamal Peninsula of Arctic Gas and (inaudible) oil. We will continue to develop this field for which we expect to have the first gas in June 2011.

As far as the CapEx which will be required from now to the first gas, we are in the region of EUR2 billion more or less.

It is less than EUR2 billion.

Less than EUR2 billion. 100%. Since we have 30% of it, we should expect to be investing in order to achieve the first gas something in the region of $500 million, $600 million, not euros. We will take the final decision at the end of the year -- at the end of this year.

As far as the dividend is concerned, yes, I want to reiterate that we do not consider now and in the future to distribute reserves, because we maintain that the major target that we want to achieve is to grow. Now to grow at the same time to distribute our reserve would be a contradiction.

Having said that, we will continue to pursue our targets in terms of cash allocation. So first, we want to protect a rating which is solid and strong, and which will allow our Company, as we have done in the last few months, to go in the market and raise funds easily and at a competitive cost.

We want to continue to invest. You have seen that we confirm our CapEx with a slight increase for this year. And finally, we look at our dividend as a way of rewarding our shareholders, but we certainly don't want to jeopardize our growth prospectives.

Could I just clarify then, as regards to comments you made on the Q1 conference call about the method of calculating and targeting a superior yield, would you say they still stand? Does the target of a superior yield and all of those comments still stand with the caveat that you are not going past 100% payout. Or should we be just -- me basing our expectations completely here (multiple speakers) superior yield?

No, we still target a superior yield. We target a superior yield as we stated. Therefore, with all the clarifications we made in the past few months, having in mind that this is the third of our objectives. So we will be able to pay a superior yield as long as we will be able to protect a strong credit rating and finance all our CapEx. Remember it was a ranking among the three uses of cash.

Collin Smyth, [ITAP].

My question just related to the comments you make in other information about leaguer proceedings. I wonder if you could just spell out for us what you think the potential payments might be in the second half of the year related to that, whether or not you intend to appeal them?

Okay. Now, of course when we speak about this litigation -- this kind of litigation is not easy to make forecasts, neither in terms of the amount of money which will cost us, nor in terms of the timing in which all these events will happen.

In any case, we expect developments in some of these pending legal proceedings in the second half of the year. Namely, as regard possible (inaudible) inquiry of the EU Commission on our international gas transport operations and the proceedings relating to the Snam Rete participation to the TSKJ consortium.

As better said in our interim report, I have to say that under the present circumstances the Company is in no position to make a reliable estimate of a loss provision associated with these proceedings, also considering the numerous elements that may concur in determining their amounts.

But you are expecting to make a fairly significant payment, are you not, in the second half in relation to these?

Well, I would say it is not very easy to say what is significant. We are expecting that possibly one, two of these events, mainly the two I mentioned, might in the next five or six months come to an end. Now what it is significant (inaudible) time.

But more than EUR1 billion?

No, I would think less. But, of course it does not depend from us, or rather it depends how we want to close some of these issues. Let me just make you an example. On the EU Commission on our international gas transports, we are somewhat in a squeeze between a rock and a hard stone in the sense that we are reasonably confident that we close with no fine -- no fine, zero fine, if we divest from our target pipeline, the target pipeline which links Italy to Russia.

On the other hand, the Italian government does not want to -- divestment of this pipeline, which it regards as a strategic one for the country. So we are somewhat in a bind, because we don't know exactly what to do. I personally am hopeful that we will find a reasonable compromise with the EU Commission, which we will start discussing in September. But, of course, this is an issue which is very difficult to quantify.

As far as TSKJ Consortium, I think you might have some indication about a potential compromise looking at the numbers that Halliburton has been paying, and considering that Halliburton was the head, the leader in the consortium.

Iain Reid, Macquarie.

It is Iain Reid from Macquarie. On your production forecast for 2009 I think I saw some headlines this morning saying that after the impact of OPEC cuts you are expecting to see a small growth rate of between 0.5% and 1%. I wonder if you could tell us what -- how that is influenced by your assumption over OPEC reductions, and also the PSC positive effect, which you are expecting this year? Because it seems to me that using your relatively lower price forecast has given you quite a lot of benefit in terms of the PSC effect.

I would be interested to know also what you are seeing in terms of the OPEC affect for the full year? That is the first question.

Maybe Claudio will answer to this question.

Talking about production in the second half, I think that the PSC affect is always in the region of 1,000 barrels per dollar, so it remains constant. And the growth that we expect is without considering the upper quarter and considering the Nigeria situation as usual, so no growth at all. And considering steel restriction on the gas demand, can bring gas to an increase of our production of about 1%. So that is confirmed.

Okay. Could I ask another question? Sorry, I meant to ask really the second question at the same time. I think you said in the last quarter you are expecting overall EBIT for Gas & Power business to be similar to last year. Is that the case for the full year still?

It is for the full year. Let's say we expect this year the Gas & Power pro forma EBITDA of the division, therefore including the regulated assets, in the same region the last year.

And for EBIT?

EBIT for the year as well, no difference. As you know, as far as the trading activity of the Gas & Power division EBIT and EBITDA are essentially identical, because there is no CapEx. And for the regulated businesses depreciation remains the same.

Thanks, Paolo.

Jason Kenney, ING.

Jason Kenney from ING. I am just going to go back to the dividend, if I may. I probably won't get an answer to this, but I will ask anyway. Are you building a war chest, by any chance? Because you've got positive cash balance at the moment, and the cut in the dividend was probably more than you had to do to keep that yield commitment. Or is there some strategic thing that maybe we're missing, maybe renegotiation of gas contracts later in the year or something like that?

Secondly, on Kashagan, I think it was the CEO of KazMunaiGas said earlier in June that he wanted to cut development costs there by 30%. I was just wondering what flexibility is there to cut costs for Kashagan at this time, and what is the outlook for Kashagan going forward?

Let me answer the first question, and then I will pass it over to Claudio for the second. No war chest, or rather we want to keep Eni with a balance sheet which will allow us to continue to pursue our growth strategy. So our decision around the dividend is a combination of a prudent approach in very volatile times, which are the times we are living today, combined with the desire of having a balance sheet which a growth company should have.

Talking about Kashagan, that is true. As a result of a downturn in the global economy the (inaudible) and the Kashagan consortium decided to take strong action to reduce costs. It is clear that we want to reduce cost without impacting our security (inaudible) the agency and the rest.

We another never talk about a reduction of the experimental phase budgets. We try to optimize, so there is no new budgets at all. And this reduction is going to impact mainly on the second phase, because in the first phase all the main [contractors] on the main contract has already been awarded.

Gordon Gray, Collins Stewart.

It is Gordon Gray, Collins Stewart. You talked about the measures you're taking to ensure your gearing is adequate to sustain your current credit rating. Beyond the dividend, obviously part of that comes around the issue of cost reduction. Maybe you could just give us a little bit more information on current progress on costs in the year to date, and in particular what you see the potential is for taking costs out of the business?

Okay. Let me first qualify a point. We are not saying that we want to protect our present credit rating. What we said is that we want to preserve a solid and strong credit rating, which could not -- could be also a notch lower what we have today. So we consider that. Of course, we would prefer to keep a double A-, which is the rating we have today. But we would not regard an A+ as something that we at any cost would refuse to have.

In any case, we believe that a prudent approach in terms of the dividend in this difficult times, we also flag to the rating agencies that when we said that dividend comes after a solid credit rating, a CapEx -- we really mean it. It is not just a question of talking, but is a fact.

Now -- and most specifically on the cost savings, you might remember that we defined a cost reduction plan of EUR2 billion in the period 2006, which was the beginning of our plan, until 2012, which is the end of our planning period. Today we are at EUR1.2 billion. So we are progressing well. And we are confident to reach the EUR2 billion by 2012.

Paul Spedding, HSBC.

Can I ask two more questions related to the dividend? Firstly, if the second half of the year proved to be a repeat of the first half of the year, which is expected, would you expect to repeat the dividend?

And secondly, if [they were currently appealing] a $48 Brent price, if the Brent price prove to continue at around $70 growth in currency, do you therefore expect it than to be higher at the final stages than at the interim stage?

Okay, now let me try to answer your first question in this way. Now first of all, we will take the decision about the second-half dividend sometime in February, possibly in the first half of February. At the moment in which we have in front of us, the results from 2009 finals, we will have maybe, maybe some results of the extraordinary litigation that we have been mentioning a few minutes ago. And we will have in front of us the plan for 2010, 2013. We will have in front of us elements which today we don't have.

At that time I will propose to the Board a dividend, a final dividend, which will reflect a prudent approach which we want to keep. At the same time I would like to regulate -- will certainly not imply distribution of reserves.

Now if the scenario you're making, that either we will have a result net similar to the results we had in the first half, the possibility of repeating the same dividend that we pay today is very likely, considering all the rest have been telling you so far.

As far as the Brent price is concerned, yes, of course Brent price is quite important in our forecast and what happens to our results. That is not the only one element we have. The condition of other markets, including refining, including the gas market, are also relevant. And therefore I would suggest that the best answer to your second question is the answer I gave you to your first question.

Barry MacCarthy, Royal Bank of Scotland.

A question -- what was the methodology behind your calculation of EUR0.5 per share for the first half? And allied to that, I am still not quite up to speed on what the new dividend policy is. I hear what you say about not putting out reserves, but is there a payout band? Is EUR0.5 per share, is that a new floor for a dividend payout? I just simply don't understand this high dividend yield aspiration. Is that not tantamount to wishing for a lower share price?

Let me try to be a little more precise on that. Now first of all, Eni never declared any specific dividend policy. I'm talking the last 10 years. It was only reiterated that we wanted to be generous with the shareholders. And in fact we are being generous with our shareholders, particularly as far as dividend as related. Because just as a reminder, until last year nobody was really talking about payout of dividend yields, but everybody was talking about cash back to shareholders. Because in fact the buybacks were so relevant the only comparison which included buybacks, could really make a meaningful comparison.

Now we -- coming back to what we said, that we wanted to preserve a strong credit rating first, finance CapEx second, and pay a superior dividend yield, third. We consider that EUR0.50 was complying for the time being with all three of these objectives. Because if you look at what it means, EUR0.50 for one semester, considering with a share price on February 13, 2009, which was our base point, you will see that we are more or less complying with all three objectives that we set in our cash allocation.

So you're not going to give a hard and fast element on that?

No.

I do think you -- I mean, you say that about the dividend policy, but in '07 20-F you did say subject to caveats, of course, but the intention was to pay to shareholders yearly amounts of dividends in line with the level of fiscal year '07 in real terms.

It was in 2008.

'07 in the 20-F. So you're saying -- I mean, there were suggestions to the contrary of what you were just saying.

Look, maybe at that time we knew what the results for 2008 was already -- we had an idea. Those times were much less volatile times that we live today. So maybe at that time this was the rationale behind such an iteration.

Okay. But is -- can the EUR0.5 be seen as a floor now or is that too strong a statement?

No, I wouldn't define it at all. Now in both ways, would take, as I say, we would take the decision on -- I don't know -- 10th of February, 11th of February, when we will have in front of us all these elements which we consider extremely important to protect the solidity of the rate of our Company and our (inaudible).

On top of that at that time, we will have in front of us, and we will present the same day, our plan. And maybe at that time we will present a dividend policy, which would be built around the plan that we would present.

Okay, thank you for that. Just a final question, the strategic implications of this. So should this imply that perhaps in future periods that the gearing ceiling would be reduced, assuming this volatility in the operating environment might continue, it might be better at a lower gearing or perhaps phasing CapEx -- CapEx in individual years might be somewhat lower? Are those the types of strategic things that can fallout from this change?

I think we are quite happy with our say 40% debt to equity ratio, this time of region. 40% can also mean 36% or 44%, we are not looking at a very precise number.

Considering that most of our peer group has a lower debt to equity ratio, but most of our peer group does not have the solidity of our results which are based on -- particularly on our regulated businesses, which provide a very solid ground to our results. So 40%, it is equivalent to a 30% or a 32% of some of our peer group simply because we have this regulated portion of our results.

For the rest, our strategy remains the same. We want to continue to be a growth company, growing more than our peer group. We will continue to develop, in particular, our Gas & Power division. And while we continue to remain a small player in Refining & Marketing, and we are quite happy to be small in these difficult times, which we do not see improving in the short term.

Thank you.

Kim Fustier, J.P. Morgan.

Just two questions, if I could. Firstly, on chemicals, contrary to some of your peers you have remained in the red in chemicals in 2Q, and you have actually shown no improvement versus the first quarter. Was there anything unusual about 2Q? And what can you do about this? Were there any structural disadvantages that will take time to be fixed?

And secondly, can you give us a flavor of what projects you expect to get to FID in the next year or so?

Well, let me comment on chemicals. I think I have to be a little long. I could not give you a short answer, but maybe it is worthwhile that we touch this part of our business, which normally is somewhat neglected, and today pops up because the results are particularly bad.

Now our chemical business, which is a European business, but is largely an Italian business, has some structural problems. One, a part of our production is competing with gas-based chemicals, while we start from (inaudible). And of course when you're competing with gas producing countries which produce chemicals on the spot, you are in a very weak position. We know that the position is weak. And that is the reason why from a few years we have been reducing this business, closing down inefficient plants, reducing cost. And we have been quite effective at that, because this part of our business in the last five years has been generating cash and not consuming cash.

Now all this until the prices of the second half 2008 and 2009. And this business had been badly hit, because volumes have been down by something like 20%, 25% in tonnes. Something that nobody had seen before. And our business, as most of the other chemical business in Europe and in the world, have been suffering dramatically.

I have to say that we expect -- we have seen some positive signs in the last few months to the point that we expect that this business in 2009 as a whole will be better than 2008. Since that first half has been very bad, you can see that we expect to come out from the dramatic situation in which we have been in the last 12 months quite quickly.

So this is how we perceive our chemical business. Our strategy has not changed. We want to reduce our presence, cut down production which are inefficient, and improve this business for the future.

Projects will be Claudio answering this question.

This year we expansion already two main projects. One is (inaudible) in Algeria, and the second is MLE in Algeria, but it is a project that we come from the acquisition we made last year, First Calgary.

And in the next months we are going to sanction a project in Libya, that is also in development. And by the end of the year in the North Sea, in the Barents Sea Goliat project, and (inaudible) project. That is the first development that we're going to do in Russia. So that is the main projects that we are going to sanction. We have other smaller projects that are more maintenance for increasing our production, but those are the main ones.

Dave Thomas, Citigroup.

A couple of questions please. Sorry to belabor the point, but I just need to clarify the definition of superior yield. I think you talked in the past about the share prices at 13th of February of yourself and your peers, prospective dividends. And one thing I just wanted to really get clarification on was when you say superior, is that you being the top one, two or in the top one, two, three?

The second question is, your outlook for the oil price seems very cautious. It implied around $44 per barrel for the second half of the year. Can you say whether you considered hedging an increased portion of your oil production to therefore secure second half of the year cash flows, and perhaps therefore provide the market with some confidence about your full-year dividend?

Now let me answer quickly your second question. No, we are not planning to hedge our normal production. This hedging policy, which we very rarely follow, is linked to specific acquisitions or specific developments. We are not planning to hedge our production. We expect our shareholders to know that they are running the risk of the oil price, and they decide if they want to run this risk or not.

As far as the first question of yours, we consider that we are part of a peer group out of seven companies, including us, so we would rate superior the first three.

Thank you very much for that. And just to follow-up on one other comment more than anything else. Do you not feel that you may come under criticism that you're actually favoring your bondholders rather than your shareholders with this current cut in dividend?

Well, not really I would say. We have been -- when we issued bonds we never promised any specific credit rating. And, therefore, we have not been looking at our bondholders taking the decision. We have been looking at our shareholders, because we think that a company which wants to grow should have a very prudent approach to its cash allocation priorities.

Okay, thank you.

Lucy Haskins, Barclays Capital.

Two questions. I am afraid the first one will focus a bit on the dividend again. Can you tell me what changed in terms of your view about the outlook for cash flows relative to where you were in February when you set the final dividend for 2008?

When we set -- excuse me?

When you set the final dividend for 2008, what has changed in terms of your view of the outlook that makes you perhaps a little bit more cautious in terms of where your financials were for the first half, effectively for this year, but it seems to be you are taking a steer in terms of where you think cash flows and profitability may be. Your gearing obviously is a little bit less stretched at this point than was at the end of last year. So I just wondered what has changed in terms of your prudent cash (multiple speakers)?

I am not sure that I would like to link what is different in our view today as compared to February on the dividend. Our dividend decision has been made on the results of the first half, on what we expect as a result for the rest of the year. Then maybe we are wrong, but we thought that this is just an interim dividend and that we will take a final decision completely freely in February.

Now to answer your question on the substance. What we -- what has been surprising to us in the last six months is how deep has been the crisis, particularly on the gas market. On the petroleum products market we have seen drops in demand of petroleum products for diesel and gasoline of around 15% in some countries -- we have never seen before.

In chemicals we certainly are not very optimistic, but the drop has been quite dramatic. And therefore everything which is related to how deep and steep has been the crisis has been wider than we anticipated.

I think we can fairly recognize that for the first half, but you actually were talking about a quite bullish outlook, I thought, in terms of your chemicals business for the full year, for this year.

Bullish -- last -- lower than last year.

No, no, no. It was the first half, but obviously you think 2009 you expect full-year chemicals to be better than 2008. You're saying your gas guidance is remaining unchanged in terms of where it was in February in terms of keeping profitability flat, despite the declining volume.

I just wondered what specifically seems to have changed since February? When I think the superior yield you were sort of targeting probably was closer to the first 1 or 2, perhaps if not 3.

Well, chemicals -- no look -- listen, just I want to give you a couple of example. Last year, we had an operating profit of our Chemicals division, at a loss of EUR420 million. When I say that this year to expect to do better, well, well, I am not very bullish because better can be EUR400 million, and to me EUR400 million is not very positive.

As far as our gas business is concerned, just a reminder for a second that we said that we expect to have an EBITDA of our consolidated Gas & Power division not lower than last year. But last year we consolidated Distrigas for one semester, and this year we consolidated for the full year. So let's say when --

But you knew that in February. That is all I am suggesting. It doesn't seem to be much change in terms of the guidance you're giving us.

Well, at that time we were not expecting a drop in gas consumption in Europe as dramatic as it has been, which has impacted not only the Gas & Power division, but it has also impacted the E&P division, which have not been able to sell all the equity gas which has been producing, therefore impacting the E&P division.

So let's say certainly in February we were not bullish. No, that is for sure. When we look back at what has happened in the last six months, what has happened has been fundamentally worse than we were expecting.

I guess perhaps if we move on in terms of some of the prospects you will be doing. Do you have any more information in terms of your negotiations in Iraq and the development prospect there you are pursuing?

Look, no, we do not have. As you know, we have two fronts in Iraq, one is the offer we made around Syria. And the second one was the offer we made within the first dig round for Dubai. I don't think we have many more elements as of today. Maybe in the next few weeks something will happen. Even if now that we start to know Iraq, we can see the timing is not always as announced. And it has a tendency to move month after month with very little decision.

But would you still expect the potential from Nasiriyah to be within a sort of 12 to 18 month view, since that is a substantial production ramp up there?

No, let me tell you what is the view we take Iraq. Now of course Iraq is a very interesting country, because it is the second holder of reserves in the world, and so and therefore Iraq needs and a (inaudible) for everyone in the oil industry. But that is not enough. If we do not see at least two other elements, the one is the profitability of our presence and the second is security, we will not be there. So we don't want to be there at any price, at any cost.

Michele Della Vigna, Goldman Sachs.

I just wanted to see if you could give us some guidance or some visibility on what you expect from Gas & Power in 2010, and in particular the dynamics you expect from the margins there, given the increased competition, especially on the Italian market? And also if you could see some risk in terms of potentially gas sales being below your floor on the take-or-pay contract?

Listen, let me -- let me first say that our EBITDA pro forma of our Gas & Power division today is composed by more than half by regulated businesses. Plus there is another portion quite relevant, which is a semi-regulated business, which is international transportation. These components of our EBITDA pro forma will not change. It will remain or will probably slightly grow rather than decrease.

As far as the marketing part of our EBITDA, we expect increased competition in Europe and in Italy. We expect also a market which will probably be low next year -- still low. It's very early days to make forecasts. We don't have a plan for next year. But we expect that this portion of our business might face a challenge of increased competition and slower demand.

Have you got any comments on the potential of your sales being below the floor of the take or pay?

Yes. It is possible there will be take or pay next year. Now of course, you are familiar on what it is that take or pay, no? So take or pay, particularly in times of low gas prices, it could be an opportunity, because in fact it is a prepayment of the gas. If you're not familiar with --

No, no. I am familiar with that.

(multiple speakers) like Domenico to make a specific reference to it.

The only challenge there could be on the cash flow side, because you're forced to make a payment before you take the gas.

Absolutely, you're right. We are not expecting announcements which will dramatically change our balance sheet.

Neill Morton, MF Global.

I actually just wanted to firstly follow up on Michele's question there. When you look at the second-half outlook for Gas & Power, the first half was down 10%. You have got increased competition in the second half. Is your confidence for full-year profits based on hedges in place, forward sales that underpin that forecast?

No, not hedges, simply contracts that have been signed -- signing -- signing really at the end of last year. Because most of the contracts are signed in October 2008 and are still valid until the end of 2009.

And just secondly, I had a question on working capital. Most of your peers have been reporting big increases in working capital in the first half. You have shown a big decreased. I appreciating in Q1 you are normally running down your gas storage inventories, but there was also a further decline in Q2. Could you perhaps comment on that please?

Working capital. Alessandro will answer this question.

Well, we have achieved a very good result in terms of working capital in particular in the second half. Because as you know, most of the revenues in the cash flow associated to the Gas & Power business are translated into cash flow in the second quarter of the year.

So for sure we do not expect a similar trend in the second half, because both volumes and also the dynamic of the business will not allow the same trend in the second half. But we are confident that despite the economical crisis to maintain a very good level of working capital also in the second half of the year.

We are monitoring very closely our receivables, so we have set up a specific and dedicated task force. And the results of these efforts are already included in the actual results by the end of June.

Just finally -- thank you. I appreciate you don't have a payout ratio, but when you come down -- sit down in February, because it is considered a final dividend, do you look at stated net profits, adjusted net profit, or both?

We will be looking at adjusted -- net adjusted profit. But of course if the net profit will be very different from adjusted, we will also look at the net profit.

Domenico Ghilotti, Equita.

You clearly stated that you don't want to distribute reserves. But you will face some lets say less predictable elements in the second half, such as potential provisions from litigation. So I would like to understand how will you consider this in your dividend policy? You partially answered my question, and the last question mentioned reporting a profit.

Well, you see, it depends on the amounts. If the amount is limited and closed down issues which have been pending for many, many years, okay, well we are will not particularly look at that. If these amounts would be significant if then they would include -- they would be considered, because we -- as we said, our priority is to defend a strong credit rating. Therefore, the credit rating will be based among other things on our leverage. The leverage will be impacted by any cash outflows, even if it is on an item which is coming from our past.

But also if it is, let's say, due to some provisions, so not necessarily already a cache item, but just an account?

Yes, because if it is the provision which is going to be executed in the following three or four months or -- this would be something we would take into consideration.

There are no further questions for the moment.

Thank you everybody. And if you wish to have any other questions, please give us a call at the Investor Relations. Thank you.