埃尼石油 (E) 2011 Q2 法說會逐字稿

(audio in progress) conference call, hosted by Paulo Scaroni, Chief Executive Officer, and Alessandro Bernini, Chief Financial Officer. For the duration of the call, we will be in listen only mode. However, at the end of the call, you have the opportunity to ask questions. I'm now handing you over to your hosts to begin today's conference call. Thank you.

Good afternoon, ladies and gentlemen, and welcome to our interim update and second quarter results conference call. During the first half of 2011, our results were hit by two uncertainties, of which the major one is, of course, Libya. In this context, we have made good progress on the strategic drivers which underpin our medium and long-term growth, and value creation targets.

I will now give you a brief overview of the developments in our business for this quarter. Sandro will then take you through our financial performance in Q2.

Let's look at the two uncertainties which impacted the first half results in more depth. The disruption in Libya has affected all our businesses. Turning first to E&P, in the second quarter of the year, our Libyan production averaged about 50,000 BOE per day, with a negative impact of more than 230,000 BOE per day on the average daily production for the quarter.

Meanwhile, the suspension of Libyan gas imports into Italy impacted Gas & Power results in two ways. In terms of volumes, we suffered from reduced sales to shippers, and in terms of margins, we suffered because Libyan gas was replaced with gas from other sources which have not yet been renegotiated.

The situation in Libya is also impacting our Downstream Refining and Petrochemicals businesses, as both had to replace Libyan feedstocks with more expensive alternatives.

For forecasting purposes, we are assuming that the situation in Libya will continue as is until the end of 2011. However, we are ready to resume normal operations as soon as the necessary political and security conditions are in place. Our assets have suffered no damage, and we will be able to return to pre-crisis levels of production in a relatively short space of time, especially in our gas fields.

The second major uncertainty affecting our results this year is the ongoing renegotiation of our main gas supply contracts. Our reported first half EBIT does not include the expected benefit from contract renegotiations, which would be retroactive once agreements have been reached. Discussion with our suppliers are progressing well.

Looking now at the broader picture, we have made significant progress on the strategic drivers which underpin our medium and long-term growth. Exploration continues to deliver excellent results. Following the over 900 million BOE discovered last year, we added another 416 million BOE of resources in the first half of 2011. Amongst those, we are particularly excited by the Skrugard discovery in the Barents Sea, which together with the Angola project starting up in 2013, will give us a significant presence in this new frontier oil producing area.

Indonesia, we have roughly doubled the gross recovery of the resources in place at Jankrik to more than 2 TCF through additional exploration, resulting in a material resource base in an area with existing infrastructure and favorable gas market conditions.

Over the last few months, we have also made excellent progress on some of the giants which will drive growth to 2014. In Venezuela, we have agreed all the details of the Junin-5 development plan with PVDSA, including the possibility of bringing forward production startup. And we are finalizing the commercial agreements for Perla, for which we expect to sign the GSA and take the FID before year end.

In Russia, our joint venture with Novatek has defined the gas sales agreement with Gazprom for our fields in the Yamal Peninsula, paving the way for the final investment decisions on Samburgskoye and also Urengoskoye in the second half of this year.

In Gas & Power, we continue to strengthen our leading position in the European gas market. Organically, we have expanded our market share, recovery is 6 percentage points in Italy and increasing volumes despite flattish demand in Germany, France and Spain. Meanwhile, we have consolidated our prices in the Belgian retail market through the recent acquisition of Nuon Belgium.

We also continue to work on our objective of maximizing value from our non-core subsidiaries, Galp and Snam.

I will now hand you over to Sandro for the presentation of our results.

Thank you, Paulo, and good afternoon, ladies and gentlemen. In the second quarter of 2011, the macro environment was mixed. On the positive side, the Brent price averaged at USD117 a barrel, up 50% compared to the second quarter of 2010. However, the average European refining margin Brent [euro] was USD2.20 per barrel, a 50% year on year decrease that heavily impacted our R&M results.

Finally, the euro appreciated 13% versus the US dollar, compared to the corresponding period of last year.

Moving to our results, adjusted operating profit in the second quarter amounted to EUR4 billion, down 3% year on year. This result is mainly due to the weak performances of the Gas & Power, which doesn't reflect any benefits from gas contract renegotiations and downstream businesses, partially offset by the contribution of Exploration and Production division and Saipem.

Adjusted net profit for the second quarter was EUR1.4 billion, down 14% year on year. This result also reflects a higher adjusted tax rate, up by more than 2 percentage points to 59.2%.

In the second quarter of 2011, Eni's hydrocarbon production amounted to 1.489 million BOE per day, a decrease of 15% compared to Q2 2010. This negative operating result was mainly due to the ongoing instability in Libya, which reduced production by approximately 2,000 BOE per day, if compared to the second quarter of 2010, and by at least 230,000 BOE per day if compared to our planned production profile in Q2 2011.

Furthermore, PSA entitlements were negatively affected by the sharp increase in the oil price, up 36,000 BOE per day. The increase in the oil price, however, boosted the division's adjusted operating profit, which amounted to over EUR3.8 billion, up 11% compared to the second quarter of last year.

This positive result comes in spite of the negative impact of the US dollar depreciation, amounted to around EUR300 million in the quarter.

In Gas & Power, overall, gas volumes soared, including consolidated and associated companies, totaled 20.3 BCN, up around 14% year on year. However, adjusted operating profit decreased by 60% compared to the same period of 2010, due to the sharply lower results delivered by the marketing business. It's worth reminding you that the results do not include any benefits from the renegotiating of our long-term supply contracts, although these will be retroactive once agreements are finalized.

Gas & Power adjusted pro forma EBITDA for the second of 2011 was EUR300 million, compared to EUR800 million in the second quarter of 2010. International transportation results showed a 17% increase, notwithstanding the closure of the GreenStream pipeline. The regulated businesses generated EUR367 million, up 5% versus the corresponding period of last year. The increase is mainly due to higher returns of -- on the new investments, and the efficiency actions.

Adjusted pro forma [behind] the Marketing and Power business was negatively impacted by increasing competitive pressure in Italy and Europe, as well as unfavorable climate and scenario effects. Furthermore, the ongoing situation in Libya reduced the volumes to shippers and affected margins, owing to the substitution of recently renegotiated Libyan gas with other sources of supply not yet renegotiated.

Turning now to R&M, in the second quarter of 2011, the division reported an adjusted operating loss of EUR114 million, versus a loss of EUR52 million in the same period of last year, due to an unfavorable scenario as well as to the depreciation of the dollar versus the euro. These negatives were partially offset by improved efficiency, the synergy integration of refineries, and optimization of supply.

Marketing activities reported a significant improvement of EBIT, benefiting from higher sales margins, positively influenced by commercial initiatives, which more than offset the sluggish demand for oil products both in Italy and abroad.

In the second quarter of 2011, the Petrochemical business reported an adjusted operating loss of EUR30 million, compared to a loss of EUR30 million in the second quarter of 2010. The result was negatively impacted by lower margins, as high cost of oil based feedstock and the cost of substituting the Libyan (inaudible) were not fully recovered in sale prices on end markets, and a substantial demand decrease.

Saipem delivered adjusted operating profit of EUR378 million, up 10% versus Q2 2010, mainly driven by higher results in onshore construction and offshore drilling operation. Other activities incorporated showed an aggregate loss of EUR129 million in line with the results reported in the second quarter of 2010.

In the second quarter of 2011, cash flow from operations was EUR4.4 billion. Other sources of cash included proceeds from divestments amounted to around EUR100 million, mainly related to the sale of upstream marginal assets. The cash inflows were used to partially fund the cash outflows relating to capital expenditure of EUR3.7 billion, and dividend payment of EUR2.2 billion, which included the payment of the final dividend of 2010, as well as the dividends paid to Snam and Saipem minorities.

Net financial debt as at the end of June amount to EUR26 billion, an increase of EUR1 billion versus Q1, and in line with the net debt at the end of 2010.

In the second part of the year, we will benefit from the sale of the international pipelines, one of which has been already finalized, while we are in exclusive negotiations with a preferred bidder for the disposal of TENP and Transitgas. The cash in is expected by year end.

In this time of market turbulence, we can rely on a financial debt which is well diversified by source of funding, and is characterized by an optimal profile in terms of both composition and the duration. In the first half of the year, we further extended the duration of our debt. Over 80% of our gross debt is mid, long-term, with a leverage maturity of more than 5 years. No bonds are due this year, and long-term debt due by year end 2011 is just EUR300 million.

In addition, 53% of our long-term debt bears a fixed interest rate, further stabilizing our risk exposure.

Thank you for your attention, and I will now hand you over to Paulo for his closing remarks.

Thank you, Sandro. In conclusion, in E&P, we are delivering on our strategy of developing giant fields in promising areas, and making good progress on our growth targets for the planned period and beyond. For 2011, we forecast that Libya will continue to produce at current reduced levels until the end of the year, with an estimated overall impact of at least 200,000 BOE per day on full year production.

Net of this impact, we confirm our previous guidance of growth, excluding PSA effect, or (inaudible) production at USD100 per barrel, and startups, ramp ups, and better performance from other areas of the world, we sustain our production in the second part of the year.

In Gas & Power, giving guidance for 2011 is particularly complex, as our results will depend on both the timing and the terms of ongoing supplier negotiations, which are, at present, confidential. That said, assuming the negotiations are closed before the end of the year, we expect the Gas & Power results to be broadly in line with 2010, net of the impact on Libya.

The final impact of substituting Libyan gas with alternatives from our portfolio will also depend on the outcome of negotiation, but we expect it to be around EUR300 million.

In R&M, we previously guided to break even in 2011 with the same Refining and Marketing conditions as 2010. So far this year, market conditions have continued to decline, leading us to report EUR260 million loss for the first half. We expect market conditions to improve slightly in the second half of the year, which, coupled with continuing cost optimization and the favorable seasonality and marketing result, will significantly reduce second half losses.

In terms of leverage, we confirm our guidance of reducing year end gearing below that reported at the end of last year.

Looking forward, our strategy remains unchanged. We continue to invest for growth in the long-term interest of our shareholders while maintaining a firm financial discipline, a strong balance sheet, and our dividend policy. Our solid long-term prospects and the Group overall results expected for this year support our proposal of an interim dividend of EUR0.52 a share, with a 4% increase on the 2010 interim dividend.

We will now be pleased to answer your questions.

Ladies and gentlemen, the Q&A session is now open. (Operator instructions) The first question comes from Mr. Clint Oswald from Sanford Bernstein. Mr. Oswald, please proceed with your question.

Yes, hi -- good afternoon. Two questions, first one, just on the natural gas. Can I just confirm, are you paying for extra Russian gas, and in 2011, you're not sourcing deferred volumes on our long-term contracts from potentially 2010, so you're actually buying extra natural gas from Russia?

And then secondly, really, maybe just on Ghana, could you talk about what's -- some of your second discovery last week, and now you have two. Could you talk about the [prospectivity] you think you have in that block, and also, the split you may have between natural gas and condensate? Thank you.

Very good. The first answer would be from Domenico, and the second from Claudio.

Of course, we have taken more gas, just to replace the Libyan gas. We use our own portfolio (inaudible) we are taking more Russian gas than from other sources. But this is within the contract, that of course, offer some flexibility in [uptakes].

Ghana. So the second discovery we made in Ghana that is close to the first one, it is, I think, in meters, is (inaudible) this discovery will double our resource base, and the present stage of condensate is a few percentage, you talk about 5%. So the condensate is not a lot, but in this second discovery, we also -- we have found also good oil horizon, that at the moment, is just under evaluation, and can give additional prospectivity on other -- another prospect, in fact, that we had in the surrounding.

Okay, thank you. Just as a follow up, could you potentially put some numbers on that resource? You said it doubled. Could -- can you talk about some numbers, about?

Yes, we are about [2] this year.

Thank you.

Next question, please?

Next question comes from Miss Lucy Haskins from Barclays Capital. Miss Haskins, please.

Good afternoon. Thank you very much for giving an indication of what capital employed you have in Libya. Could you give us an estimate of what proportion of last year's [PV10] was represented by your Libyan assets?

No, I don't think we want to disclose these numbers.

And do you -- can you give us any indication of just the reserve number?

I think when we speak about production -- listen, our production [leading] normal conditions is between 280,000 BOE and 300,000 BOE per day, on which a large proportion is gas, almost 60% plus. These assets, our assets are, generally speaking, young, and therefore, with an amount of production expected to continue for a long time. This, I think, is the maximum we can really disclose about Libya.

Okay, thank you.

May we have the next question, please?

Next question comes from Mr. Barry MacCarthy from Royal Bank of Scotland. Mr. MacCarthy, please.

Thank you, good afternoon. Thank you for the presentation. Can I just ask about the non-core comment, Galp and Snam Rete Gas. I think that's a stronger indication than you've previously given, that Snam is non-core. Is that correct? Have you moved on in your thinking about Snam in the portfolio? And if you can give any updates at all on -- I understand it's sensitive, but any update at all on when you might conclude a deal on Galp? Thank you.

Okay, let me make first a general comment about Snam. You have heard me saying in the past that we were not dogmatic about the presence of Snam in our portfolio. We were not dogmatic, but of course, what we wanted to avoid at almost any price was to be obliged to sell, because when you are obliged to sell, you normally sell at very poor conditions.

Now, we think we have achieved that through the adoption of the third directive in the form of what we call [ITO], which will allow us to keep the ownership of Snam Rete Gas as long as we want. Now, with this behind us, then we become even less dogmatic than before. What I mean by that is, if we find ways to create value from this shareholding of ours, for our shareholders, we would be happy to do it.

Now, this is easier to say than to do, because you should always remember that whatever solution we find for a divestment of Snam needs the approval of the Italian government, and even more, needs a decree from the government which allows us to go below 50% of the capital, because it is a kind of process of [privatization], so forth.

So we are in the middle of all of that, with, frankly, with no hurry, because in the meanwhile, the company is performing well and delivering a return which is well in excess of our (inaudible). But of course, we are working on this project, and we expect in the next few months to come with some ideas.

Now, as you said, all this is confidential, because we are talking about two listed companies, and we don't want to raise expectations of something very soon. But certainly, we are working on this subject.

Galp -- do you want me to say something about Galp as well?

If you could, Mr. Scaroni, it would be very helpful.

No, no. As far as Galp is concerned, let's say, our strategy has not changed. We certainly don't want to be long-term investor in a listed company which we do not control, and which represents a sizable amount of investment. Because our shareholding in Galp is worth something in excess of EUR4 billion.

We are looking at potential opportunities. Again, hereto, things are easier to say than to do, because until 2014, any divestment of our stake in Galp should, in fact, be approved by the two partners we have, the two strategic partners, one being Mr. Amorim, Amorim Energia, and the other one being the government, the Portuguese government, through La Caixa, their financial institution.

So again, this is a point on which we are working. We are probably more in advance than on Snam, in terms of timing. We cannot really disclose much more than that. Again, we are relaxed in terms of timing, for two reasons. First of all, because the company is a good company, share price is performing reasonably well, and second, because Galp will -- is in the process of selling a stake of its Petroval asset, which includes all the assets that Galp has in Brazil, so roughly, 75%, 80% of the value of the company. And we expect that at the end of this process, the share price of Galp will move up, rather than down.

So again, yes, we are working, but no hurry at all.

That's very helpful. Thank you very much.

Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please proceed with your question.

Oh, yes, hi. Thanks for taking the question. It's -- talk about the Gas and Power business. And I recognize on the gas marketing, you don't want to talk specifically about the negotiations by country. But could you sort of talk in a rather high level about if the contracts had been renegotiated to your satisfaction prior to the second quarter, where you would have expected the gas marketing earnings to be? Or, put it another way, if we get to the fourth quarter and you're able to renegotiate, and we sort of spread it back across the -- can you just talk a little more about that?

And then secondly, I think you then said something about comparing it to last year, but then having to adjust it for Libyan effects. Can you also just elaborate a little further on that, if that's possible? Thank you very much.

Let me try to take you through a kind of process, out of which you might deduct what our expectations are. Now, more than giving you element about a negotiation which, as you can imagine, is very delicate, on one side, and then, is not concluded, so even more.

Now, we try to solve this question of yours, giving you guidance for 2011. The guidance we give on Gas and Power is that on the basis of what we consider a potential outcome of the renegotiations, our results would be in line with 2010, excluding EUR300 million of Libya. Okay?

Now, if you elaborate on that, you take our results on the first half, which do not include any result of this negotiation, and you compare with this guidance we are giving to you, I think you might extract a total number of what we expect to be the benefit we should have by year end from our negotiations both with Gazprom and Sonatrach.

And the EUR300 million, that is --

Libya.

--- the Libyan effect, is that loss of market share, particularly --

No, this is made of two components. One is, we sold less gas than we would have sold, simply because we didn't have the gas. Second -- then second, price. Price is made, again, of two components. The first component is that we have to replace some Libyan gas with our portfolio, which is certainly much more expensive than the Libyan gas, for the simple reason, the Libyan gas is the only one we have already negotiated. We have been unlucky, we negotiated the wrong one first, I would say.

Second, in the contract of the Libyan gas, there is a portion which is what we call extra gas, so gas released by the Libyans which do not use it for internal consumption, which is particularly cheap. And therefore, we had to replace even this one. As a conclusion of that, we attribute roughly EUR300 million to the Libyan shortfall.

Okay. No, that's very clear. Thank you.

Next question comes from Mr. [Sharma Nitin] from JPMorgan. Mr. Sharma, please proceed with your question.

Hi, just one question, please. And I'm conscious that you've delivered a 4% increase in interim dividend, but given the likely divestment of stake in Galp, international pipeline, much stronger oil price versus your planning assumptions, when do you plan to reevaluate your dividend policy in terms of the base of (inaudible)?

Now, we are not planning to reevaluate our dividend policy. We are planning to reevaluate our dividend base. That is, I don't know if you remember, but our dividend policy is based on our scenario, and according to our scenario, our plan, which include the CapEx we plan to make, and the need we have to do, to go below 40% of leverage, define the sustainable dividend for the full year's period of the plan.

Therefore, in our presentation, with our strategy presentation we make in February, which we will present the new plan of Eni, and we will disclose, as usual, our scenario as far as oil prices are concerned. Then we will give you the new base of calculation of our dividend.

Now, of course, the new thing is that all these have to take into account Libya, because Libya is such an important position for us, that if -- well, frankly, I hope it will not be the case, but if in February of next year the Libya situation will be at the same point where we are today, this would be also part of our considerations.

Thanks.

Thank you.

Next question comes from Mr. [Demichelis Alejandro] from Bank of America. Mr. Demichelis, please.

Yes, good afternoon, gentlemen. A couple of questions, already. The first one is one the renegotiations on the contracts for your gas. This number that you are providing us with, kind of the minimum number you're expecting on those renegotiations, or is there a kind of range that a -- of different alternatives that we should be thinking about?

And the second question is regarding the Libyan situation, how quickly you said you can restart production. Can you give us some kind of time, if you're saying for the gas, quite quickly, but for the oil, how long should we think about that?

Domenico will answer the first one, and Claudio the second.

Much has been said by Mr. Scaroni. In line with what our expectation of the (inaudible), the (inaudible) of the negotiation we are [running]. So I basically know what we think will be the possible outcome of them.

For Libya production, for gas, because the reason that the first one is that gas fields are quite young, and so, there is no water problem, (inaudible) problem, and all the installations, from what we know up to now, are in very good shape. I think it is a question of months, two, three months, we can restart gas field production.

For oil, it is quite different. We talk about, generally, about very old fields with old installations, so it's some -- we need some time, and most likely than one year, 12 months to restart production for oil fields.

So, then, when you're talking about your guidance, that's for this year and not for next year, then we should be thinking that even if the situation in Libya were to be solved today, your 2012 numbers would be quite affected --

So today, I think that for gas we can consider a full rate gas for 2012, and for oil, you know, our [share in oil] is very low, because there is not the investment. So I think that we talk about 40,000 barrels per day, 50,000 barrels per day, and we can consider half of that production for the guidance on next year.

That's very clear. Thank you.

Thank you.

Are there any more questions?

No more questions at the moment. (Operator instructions) Next question comes from Mr. Mark Bloomfield from Deutsche Bank. Mr. Bloomfield, please.

Good afternoon. Yes, two questions, please. First of all, on Iraq, perhaps you could update us on the pace of developments there, and how that's progressing since you've taken operatorships (inaudible) there. And the second question, just turning to China, I wondered if you could update us on the status of your negotiations with Petrochina under the MOU that you signed earlier this year. Thanks.

Okay, Claudio will answer both of those two.

First, Iraq. From [a patient] point of view, Iraq is going quite well. We are still producing 280 -- an average of 280,000 barrels per day. We are still in the first phase, you know, that we are (inaudible) phase that will last two years, and after that, the full development phase.

There is no operational problem. We are experiencing some problem from a -- in the awarding of contracts because of bureaucracy, and that is in the main area we are facing.

So there is no -- other that (inaudible) very beginning, pipe capacity or other things, but the main issue now on the table is the awarding of contracts that will allow us to go ahead with a big development.

And could I follow up on that point? Does that change your expectations for production from Iraq this year and next?

No, no. That doesn't impact production. If you remember, during the strategy presentation, we put some contingency on the Iraqi production, and so, there is no impact from that point of view, for that reason you said that our guidance for 2011 is absolutely the same. And I don't think that this problem, that is not a technical problem, it's just bureaucracy, I think that will be solved.

Thank you.

And second question is China. So China, we start -- we signed the first MOU at the beginning of the year with Petrochina, and now, really recently, we signed (inaudible). The [aim and the contract (inaudible)] more or less the same in the sense that our main objective is to have some unconventional blocks in China, and many targets and objective of our Chinese partner is to have an access in Africa. Well, we are the first company, in term of our (inaudible) production and service.

So we are working, really, an (inaudible) possible area, and I think that in the next month, we will be ready to start a serious discussion and possible transaction.

Thank you.

Next question comes from Mr. Sergio Molisani from UniCredit. Mr. Molisani, please.

Yes, good afternoon, (inaudible). Two question, if I may. The first one, just how the sale and all the consolidation of Snam Rete Gas could change your strategy? I don't know, more aggressive exploration, acquisition of assets. More generally, what are the main constraints you see in your current (inaudible)?

Second question, what's the main takeaway from the recent negotiation of Edison with (inaudible), with Gazprom? It looks like quite generous for Edison, so I was wondering whether you could give us more flavor of what happened there. Thank you very much.

Let me say a word about the consolidation of Snam Rete Gas. Let's say, we do not expect that rating agencies will look at us in a different way if we deconsolidate Snam Rete Gas, for the simple reason that it is true that out of our EUR26 billion of debt, EUR12 billion or EUR11.5 billion are Snam Rete Gas debt. But the rating agencies, quite correctly, make the fine reasoning that this debt is well, well hedged, with regulated assets. And therefore, we are not expecting major change in the perception of the rating agency or of the financial markets.

As far Edison is concerned, I think Domenico will give you a feel.

Yes. As you may have arrived, Edison found an agreement with Gazprom on the gas that they buy. This after (inaudible), in fact, not (inaudible) started (inaudible). Well, [from the line that they (inaudible)] operate in a different market. Edison is mainly concentrated in power generation. Our marketing is a little bit different.

Another element that we should consider is related to (inaudible) sold to Edison are around 2 BCN a year, which means that under 10 times less, we probably buy around what we buy, because we buy around 20 billion (inaudible).

And now, this (inaudible) is quite interesting, because it shows the ability of Gazprom to find agreement.

Are there any more questions?

Next question comes from Mr. Marc Kofler from Macquarie. Mr. Kofler, please.

Oh, good afternoon, everyone. I just had one very quick question on your exploration program offshore Mozambique this year. If you could provide any color on that, that would be great, thanks.

Exploration program, in the second half of the year, (inaudible) in Mozambique, and that is [before], and that we have big expectation for this well and for the result of this well, also based on their result of the well drilled by (inaudible).

So within that, we have big structure and with [POS] now very, very high, cost of 50%, 60%, and where we think -- talked about possible appraisal phase, we have raised the rig and all the materials equipment, and people ready to go at it immediately with the back-to-back drilling to be able to define a very cost way and quick way, the dimension of these reserves. But we are very, very positive on that.

Great, thank you.

No more question at the moment. Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please

Yes, hi. I've got a follow up. Just on thinking about Snam a little bit, is that, as you said is that, it was sort of legally acknowledged that the structure that you had in place complied with the directives, the directive, which I believe essentially says that you don't have direct management control any further over the actions of Snam management.

So does that mean actually in legal terms that you could deconsolidate it anyway, even if you don't own, even if you continue to own 50%, just on substance over form?

Now, wait a second. I would like to be more precise.

Today, in what we call Snam, there is the transportation, gas transportation which is the network in Italy, then there is [Storjit] storage. Then we have we have Italgas distribution, and then we have the G&L, so the re-gasification terminal.

Out of all these four businesses, the only one which is object of the third directive is the transportation. Therefore, with Snam Rete Gas, they will create a company, which would be built to around the rules of the [ITO], which are very specific rules of government, which will manage the transportation system. All the rest, nothing would change. It would stay stay exactly as it is.

Now this transportation business represents roughly 40% of Snam, little less than 40% of Snam, whereas for the other 60% of Snam, nothing changes.

All right. Thank you for the clarification.

Next question comes from the line of Mr. Andreas Cowrie from MediaBank. Mr. Cowrie, please.

Yes, good afternoon, gentlemen. My question refers to [cash, again]. And it seems that the relationship with the government are more friendly now. So could you provide us an update on that, the relations with the government, and the possibility to see the second phase to start in the mid term. Thank you.

Thanks for this question. First of all, I want to elaborate that the relationship with the government are excellent. There is no problem with the government (inaudible), and there is no problem with the field. So things are going quite well, and for the first phase, as we said already, there are times we confirm the technical is not a problem to reach the first production by the end of 2012, and we are discussing about costs of the Phase II. For that reason, we are slowing down, and first of all, we want to see the result of the Phase I, and we are looking at the conceptual of the Phase II, so if demands cost increase the internal rate of return of the project.

So that is the situation we are discussing. I don't think that I should say more about that, thank you.

Okay, thank you.

No more question at the moment. If there are further questions, please come forward. Next question comes from Mr. [LaCoste Charles] from Cheuvreux. Mr. LaCoste, please.

Yes. Given the low profitability of the Refining business, would you consider spinoff of this kind of activity, like this is probably the case for ConocoPhillips in the US?

Well, you see, I've looked closely at what ConocoPhillips has been doing, and for the time being, we think that would not be appropriate to dispose of this business in these difficult times. We still consider that our Refining and Marketing business is an important -- is a core business within Eni.

Okay, thank you.

No more question at the moment.

Okay. If there are no more questions, perhaps we can bring the conference to a close.

The control room confirmed, madam, there are no more questions.

Okay, well, thank you very much, everybody, for being with us on the call and if there are any follow-up questions, you can get hold of us at the IR number later on, or next week. Thank you very much.

Ladies and gentlemen, the conference is over. Thank you for calling Eni.