26
43
51
57
60

63
63
81
86
91
103

104
109

Operating review
Exploration & Production
Gas & Power
Refining & Marketing
Petrochemicals
Engineering & Construction

Financial review and other information
Financial review
     Profit and loss account
     Summarized Group Balance Sheet
     Cash Flow Statements
Risk factors and uncertainties
Outlook

Other information
Glossary

228

253
254
255

Consolidated Sustainability Statements

Notes to the Consolidated Sustainability Statements

Management’s certification
Report of Independent Auditors
Independent Assurance Report

Ordinary Shareholders’ Meeting of April 30 and May 8, 2012.
The notice convening the meeting was published on "Il Sole 24 ore" and "Financial Times WWE" of March 22, 2012 and on "Milano Finanza" of March 30, 2012.

This Annual Report includes the report of Eni’s Board of Directors and Eni’s Consolidated Financial Statements for the year ended December 31, 2011, which have been prepared under the International Financial Reporting Standards (IFRS), as adopted by the European Union.

Dividend for 2011
On the basis of the Company’s robust results and sound fundamentals, a dividend of euro 1.04 per share (euro 1.00 per share in 2010) will be distributed to shareholders. The annual dividend includes euro 0.52 per share already paid as interim dividend in September 2011. Management reaffirms its commitment to deliver industry-leading returns to the Company’s shareholders.

Oil and natural gas production
In 2011, Eni reported liquids and gas production of 1,581 kboe/d which was affected by the temporary shut down of the Company’s activities in Libya. Excluding the impact of force majeure in Libya and lower entitlements in the Company’s PSAs due to higher oil prices, production was in line with 2010. Eni targets to grow production at an average rate of more than 3% over the next four year period to achieve a plateau of 2.03 mmboe/d. This growth will be fuelled by our development projects in core areas and the Eni co-operation model.

Natural gas sales
Natural gas sales of 96.76 bcm were barely unchanged from 2010. Volumes growth in European key markets driven by effective marketing initiatives enabled the Company to absorb the impacts of weak demand, rising competitive pressures and lower sales to importers to Italy due to the loss of Libyan supplies.
In the next four year plan, the Company targets to strengthen the Company’s leadership on the European markets. A strong commercial franchise and service excellence in the domestic market, integration of recently-acquired assets, and renegotiation of long-term supply contracts will be the levers to achieve the sales target.

Exploration success
New discoveries have been the highlight of the year.
The large Mamba discovery in Mozambique, with 40 Tcf of gas in place, opens up extraordinary development opportunities and is ideally placed to serve the fast-growing Asian gas markets.
The Skrugard and Havis oil and gas discoveries in the Barents Sea found a combined amount of 500 mmbbl of recoverable resources (Eni 30%). In Indonesia, the Jangkrik gas discovery in the operated Block Muara Bakau (Eni 55%) made it possible to double the resources of the area. Other significant exploratory successes were achieved in Angola, USA, Ghana and the appraisal of the Perla discovery in Venezuela. We added 1.1 billion boe to Eni’s resource base.

Agreement with Gazprom
In March 2012, following their strategic partnership, Eni and Gazprom signed an agreement renegotiating the terms of certain long-term gas

Restarted Libyan operations
In Libya Eni achieved a quick production restart, also reopening the GreenStream pipeline, leveraging our consolidated relationships with the Interim Transitional National Council and continued collaboration with the NOC. Production at the Company’s Libyan sites is currently flowing at approximately 240 kboe/d. Management plans to achieve the pre-crisis production plateau of 280 kboe/d with full ramp-up by the second half of 2012.

Safety
In 2011 the injury frequency rate decreased by 22% and 15.9% relating to employees and contractors respectively, compared to the previous year. This positive trend progressed for the sixth consecutive year.

Inclusiveness
In 2011 Eni launched the second edition of "eni secondo te" climate analysis for collecting opinions and suggestions from over 32,000 employees in 47 countries. In 2011 women employees increased by 3.4% notwithstanding the decrease of the overall workforce by 1.6%.

Eni’s participation to global governance on sustainability themes
Eni joined the Collective Action initiative against energy poverty within the LEAD program which involves global companies with an excellent track record in sustainability according to the Global Compact. By 2030 this initiative aims to: secure global access to modern energy services, double the energy efficiency growth rate and the share of renewable sources in the energy mix. Eni promoted the Task Force on Business Action which guarantees the contribution and the commitment of the private sector. Furthermore, Eni and the International Scientific and Professional

Technology Innovation
In 2011, in the field of scientific cooperation, Eni signed a new agreement with Stanford University. The agreement will develop a research program focused on oil&gas technologies and environmental issues for an overall expenditure of $10 million over the next four year.

Portfolio developments
Eni made the Final Investment Decision of the Perla giant gas field, located in the offshore Cardon IV Block in the Gulf of Venezuela.
In 2011 production start-up was achieved in eleven oil and gas fields which are expected to add approximately 80 kboe/d at plateau to medium-term production.
Management expects that sanctioned oil&gas projects for the year will add up to approximately 140 kboe/d of production to our plateau in 2015. These projects included the signing of the final investment decisions and relevant gas supply agreements for the jointly-operated Samburgskoye and Urengoskoye giant fields in Siberia, in addition to the above mentioned Perla project.
In 2011, important deals were finalized in Ukraine, China, Algeria, South Africa, Libya, Angola and Venezuela.
The Gas & Power Division consolidated its leading market position by integrating the Altergaz customer portfolio in France and acquiring Nuon Belgium in Belgium.
Eni started the "green chemistry" project at its industrial site of Porto Torres, Sardinia, paving the way to a strategic shift in its petrochemicals activity away from the old, commoditized businesses in favor of growing Eni’s presence in niche segments and innovative production. In this way, management is aiming at restoring the economic equilibrium of Polimeri Europa over the medium-term.
The Company’s asset portfolio was rationalized by divesting its interests in the entities engaged in international gas transport from Northern Europe and Russia, and certain other marginal assets.

Financial performance

In 2011, net profit attributable to Eni’s shareholders was euro 6.86 billion. Adjusted net profit was euro 6.97 billion; an increase of 1.5% from 2010, driven by a robust performance delivered by the Exploration & Production Division (up 15.8%) and, to a lesser extent, by the Engineering & Construction Division (up 8.8%). These positives were partly offset by the impact of the Libyan Revolution on our hydrocarbon production and profitability of gas sales, as well as the sharp contraction in results reported by our downstream businesses hit by the downturn and increasing competitive pressure.
Return on Average Capital Employed (ROACE) calculated on an adjusted basis was 9.9%. Net cash generated by operating activities amounted to euro 14.38 billion. Proceeds from divestments amounted to euro 1.9 billion and mainly related to the divestment of the company’s interests in the entities engaged in the international transport of gas from Northern Europe and Russia.
Main outflows were associated with capital expenditures of euro 13.44 billion to support organic growth and exploration activities, expenditures in joint venture initiatives of euro 0.36 billion, and dividend payments to Eni’s shareholders amounting to euro 3.70 billion and to non-controlling interests (euro 0.55 billion). The ratio of net borrowings to total equity decreased to 0.46 from 0.47 at the end of 2010. On the basis of the Company’s sound results and coherently with our dividend policy, we are proposing a dividend of euro 1.04 per share, up 4% from 2010, to the Annual Shareholders Meeting.

The Exploration & Production Division reported operating profit of euro 16.1 billion, driven by crude oil prices. The big progress made by the Company in the last part of the year to put production back online in Libya helped absorb the impact of force majeure.
Oil and gas production was 1.58 mmboe/d. Excluding the impact of force majeure in Libya and lower entitlements in the Company’s

Our investment plans and strategy to boost growth and returns

We expect the 2012 outlook to be a challenging one due to continuing signs of an economic slowdown, particularly in the Euro-zone, and volatile market conditions. International oil prices will be supported by robust demand growth from China and other emerging economies. For investment planning purposes Eni assumes a 2012 Brent price of $90 a barrel and a long-term price of $85 a barrel.
Recovery perspectives look poor in the gas sector. The recovery perspectives of gas demand are weak, while competition will

In the Exploration & Production Division, Eni intends to deliver organic production growth with increasing returns and reserve replacement. The Company’s value proposition in its upstream operations will leverage on strengthening our leadership in core areas, increasing the volume of operated production and retaining a strong portfolio of long-term plateau fields. Eni will pursue further growth options by developing unconventional plays, gas-to-LNG projects and integrated gas projects. Eni’s growth trajectory will be supported by its ongoing commitment in establishing and consolidating its partnerships with key host Countries, leveraging the Eni co-operation model.
Management expects that continuing technological innovation and competence build-up will drive production growth and increasing rates of reserve recovery, developing drilling techniques to be

In the Gas & Power Division, Eni plans to strengthen its leadership in the European gas markets in spite of increasing competitive pressures, oversupply and weak gas spot prices. Management intends to leverage on: (i) the renegotiation of the economic conditions of Eni’s key supply contracts in order to improve the competitiveness of Eni’s gas portfolio; (ii) extracting value from Eni’s logistics assets and its presence at the continental hubs; (iii) developing an international commercial platform and a multi-country approach; (iv) boosting LNG sales; (v) enhancing of Eni’s gas and power commercial offer (the so-called "luce e gas" offer), continuing service improvement and customer care through the adoption of systems and processes which best suit customers’ needs, mainly in retail markets.
Regulated businesses in Italy are committed to develop additional transport and storage capacity, focusing on improving infrastructure reliability and flexibility as well as efficient operations. In particular, EniPower is planning to upgrade the energy efficiency at proprietary plants in order to retain an index of CO₂ emissions below the target level of 415 gCO₂/kWheq.
We target to recover a fair level of profitability in the G&P Division. Eni will continue pursuing the OHSAS 18001 certification for its health and safety management systems at all its plants.

In the Refining & Marketing Division, Eni will strive to regain profitability against the backdrop of a depressed trading

To cope with the structural challenges of Petrochemical business, management is implementing a strategic shift targeting to restore the economic equilibrium of Polimeri Europa over the medium-term. This new strategy features a gradual reduction of the exposure to the unprofitable, commoditized businesses in favor of growing the Company’s presence in niche productions, particularly elastomers and specialities which have shown good profitability. Eni will pursue this goal by reconverting and restructuring loss-making plants, improving plant integration and flexibility, as well as optimization projects. Eni intends to growth its presence in green chemistry leveraging its joint venture project at Porto Torres in Sardinia which targets the restructuring of an obsolete plant into a modern and advanced facility for the production of environmentally-friendly chemicals. The licensing of Eni’s proprietary technologies

Engineering & Construction segment will consolidate its leading position in the Offshore and Onshore businesses leveraging the EPIC-oriented business model and outstanding relationships with the Majors and NOCs. Saipem will continue focusing on the execution of technologically-advanced mega-projects mainly located in frontier areas and complex environments, carefully selecting business opportunities. The upgrading of a world-class drilling and construction fleet, the availability of an important construction yard in Indonesian targeting offshore projects, as well as the expenditures made to boost local assets and logistic centers in key areas (in particular in Brazil) will support the competitive advantages.

Management believes that the achievement of Eni’s projected targets and expected returns will be underpinned by Eni’s operational excellence, synergies from integration and the development of integrated risk management capabilities intended to extract value from Eni’s assets.
Operational excellence thanks to Eni’s know-how and distinctive competences endorses a preventive business conduct when managing the environmental footprint of Eni’s operations and risks to employees and communities’ health and safety. Continuing improvement in efficiency through innovation of business processes will enable the Company to reduce the energy intensity of its productions, optimize plants activities and achieve economies of scale in centralized services.

Integration will enable Eni to capture joint opportunities in the marketplace, reaping the benefits of synergies and maximizing asset returns. Particularly, the new business unit Eni trading will develop integrated risk management activities with a view of better coping with the increasingly volatile commodity markets.

Cooperation

The cooperation model with producing Countries, or rather the will to invest with a long-term prospective and the flexibility of offering solutions to the requirements of the Countries, has been an integral part of corporate strategy from the very beginning. This is now transforming into ever greater integration among the Company development projects and the development of growth opportunities in the territories where Eni is hosted.

This approach has enabled the completion of important industrial agreements with strategic Countries, contributing to the achievement of the first operator position in Africa. In 2011

new cooperation agreements were signed with Ukraine, China, Algeria, South Africa, Libya, Angola and Venezuela which are added to the existing Memorandum of Understanding (MoU). The equal position with producing Countries has enabled Eni to be seen as a reliable partner that unites the pursuit of corporate objectives with the offer of stable development solutions. Eni’s cooperation model is the foundation of the long-lasting relationships it has with producing Countries. The case of Libya is an example: Eni has worked in Libya since 1959, when Agip obtained its first concession, in the south eastern Sahara desert. As a consequence of the 2011 revolution, regardless of the interruption of most of the Country’s production, Eni kept its Wafa Field active, where the gas required to fuel the Tripoli power plants is produced along with meeting the needs of the local population for a total of about 50 thousand barrels per day. Also, thanks to the attention to the Country’s needs, just a few months after the resolution of the conflict, production returned to pre-crisis levels. In Africa, with a production of about 1 mmboe/day, equal to 55% of Eni total production, the cooperation model’s success is evident: after arriving in Egypt in 1954, Eni grew quickly, achieving a position of leadership both in Countries where it has traditionally had a presence such as North Africa, Angola, Nigeria and Congo and in the new producing Countries, such as Togo, Ghana, Gabon, South Africa and Mozambique, where in 2011 a new discovery of natural gas significant in Eni’s history was made.

Within this framework Eni knew how to integrate the development of local energy systems with its own core business activities, seizing new opportunities and building the foundations for development in its host Countries, especially in those areas where energy poverty is a critical issue.

Integration

Operating in an integrated manner along the entire energy supply chain has given us a heritage of solid and valuable skills and synergies being one of the keys to Eni’s successful growth ensuring: competitiveness, flexibility, and a unique offering.

One of Eni’s distinctive features is its integration of skills and operations throughout the energy supply chain. Its strong presence in the gas market, its operations in LNG, its industrial capabilities in power generation and refining with the strong support of world class engineering and construction capabilities enable Eni to oversee every phase of value creation from exploration for to marketing of hydrocarbons and to pursue linked opportunities and projects in the market.
Integration of all the activities along the entire oil&gas chain has become a key element in the development of Eni’s cooperation model, which brings together traditional business with sustainability operations in the territory.
In particular, integrated gas cycle management represents an opportunity for Eni from the economic, industrial and social viewpoint. The benefits generated by the integration of the business is well represented in Countries such as Congo, Nigeria and Angola, where, thanks to an integrated business at any stage of the energy chain and the ability to find win-win solutions through agreements, the presence of Eni is consolidated and activities have been undertaken to promote socio-economic development.
The integrated approach enables greater flexibility in relation with producing Countries, to whom Eni propose solutions that each and every time are adapted to the specific requirements for technology, infrastructure and economic growth of the local society. Integration is therefore a strong point: it enables

Innovation

Technological innovation is a key element for the pursuit of long-term growth. Eni’s commitment to technological research is aimed at reducing the time-to-market for new scientific discoveries in the traditional oil&gas sectors, at enhancing renewable energy, and at developing innovative methods of environmental conservation. More broadly, the possibility of developing innovative and ever safer technology enables Eni to be recognized as a reliable partner with many advantages in terms of competitiveness.

Eni is committed to the development and application of innovative technology and processes for the advanced recovery of hydrocarbons, enabling an increased recovery factor both from conventional deposits and from those containing unconventional oil resources (heavy crude and tar). In 2011, for example, a process that enabled additional recovery of oil from a field in North Africa was successfully tested. Through technological innovation, Eni is able to acquire the tools required to seize the best opportunities coming from the cutting edge of the market.
In particular, even though Eni’s production is concentrated in areas with limited exposure to operational risk, it is also committed to the development of technology able to provide safe production even in extreme environments, in marginal fields and in deep/ultra-deep water fields.
For the purpose of taking advantage of even longer term innovative solutions, Eni confirms its commitment to the development of potentially breakthrough technology in the field of renewable energy (solar and biomass). Technological maturity achieved in some research programmes has enabled to proceed to their application. In particular in the solar field, it has been activated a project for the realization of a series of demonstration plants in Eni sites based on the technology of photoactive materials. Regarding the biomass, Eni’s research is focused on the development of second and third generation bio-fuels. Furthermore Eni makes use of collaborations of research institutes both in Italy and abroad. Outsourcing towards Universities and research centers came to about euro 30 million in 2011, that is, nearly a third of total outside costs (excluding Saipem and PE). Among the more important collaborations, those with the Politecnico of Milano and Politecnico of Torino, with the CNR [the Italian National Research Council] and the alliance with MIT stand out. In addition to these partnerships, the new cooperation agreement with Stanford University signed in 2011, provides for an investment of more than dollars 10 million over the next four years.
Aware of the importance arising from new technological discoveries, in order to protect its intellectual property Eni has put into place an active management system that focuses on two aspects: maximize the protection of innovative solutions

Excellence

Eni is committed to continuous improvement of processes, competencies and products as a lever for the improvement of the performance and reliability of its plants with respect for health, safety and the environment.

Asset management leverages on proprietary technologies. Instrumentation, software and workflow are used in the E&P sector to improve the drilling and completion operator activities in extreme environments. Special attention is dedicated to operational and environmental safety, especially for deepwater wells and high temperature/high pressure (HTHP) applications, and to environmental risk monitoring and mitigation related to E&P activities.
The advanced technology used, constant training and the expertise of the technicians, online monitoring of operations from the main office, use of strict procedures and the supervision of their application have enabled the achievement over time of excellent safety performance figures with a blow-out frequency index (relative to all of the wells drilled onshore and offshore) equal to 0 in the period 2005-2011.

For Eni, operational excellence translates into continuous innovation of fuels aimed at offering the market high performance and environmental quality products in anticipation of ever more stringent regulations. The industrial scale start-up of the first plant using the proprietary EST technology will also enable the use of heavy crude oils whilst nearly eliminating production of waste products. This technological innovation will also enable the relaunch of the chemical industry through an offering of low environmental impact products and the production of bio plastics from vegetable raw materials.

In addition to the continuous reduction in fresh water consumption and the recycling of industrial and ground water in the downstream sector, Eni has mapped out its own operations in water stress zones to further optimize the use of water resources. Progress is also being made on increasing the re-injection of water produced in association with oil extraction. Identification of areas rich in biodiversity potentially affected by exploration and production work will enable improved integration of our commitment to biodiversity conservation and the responsible use of ecosystem resources for operational management.
Eni continues to promote operations aimed at ensuring the integrity of operational facilities through "asset integrity" projects, at raising standards and, where necessary, at starting up operational plant and management projects, in compliance with the most advanced international standards. Over the next 4 years all of our most significant operational facilities will be certified pursuant to the OHSAS 18001 standard. Furthermore the spread of a culture of safety has continued with the implementation of Eni in Safety: an integrated programme of safety information and training activities. With regard to the additional operations for the spread of the know-how and the enhancement of the knowledge base in all of its businesses, Eni has an expertise management

Eni has developed ad hoc training programmes for each sector of its business with the objective of supporting the development of skills required by the business. Overall 1,176,928 hours of technical-professional training have been given: an increase of 24% compared to 2010.

The involvement and valorization of people and the creation of a work environment that offers everyone opportunities based on a transparent merit system without discrimination create the prerequisites for a suitable and timely response to market dynamics. Thanks to the skills of its employees and to their diversity, which Eni enhances inside its corporate structure, to its ability to integrate with different local contexts, Eni ensures a distinctive offering with significant advantages in terms of competitiveness.

Involvement of its people is fundamental to motivation and creation of a positive climate of reciprocal cooperation. With this view, in 2011 the second edition of the corporate climate analysis, "Eni secondo te" was drafted and issued. This was a survey aimed at gathering opinions on the Company as well as the expectations of its more than 32,000 employees in 47 Countries. 70.5% of all employees participated in this survey and based on the results that emerged, a transversal and directed programme of interventions will be set out.
The current economic difficulties have made it necessary to initiate processes of change and reorganization in the business for the purpose of achieving greater competitiveness. From this point of view, the industrial relations sector has undergone all of the different reorganization stages, even through new types of relations with union organizations. In this regard, with the objective of facilitating greater flexibility, efficiency and productivity, on May 26, 2011 a development and competitiveness agreement was signed with union organizations for a new industrial relations framework. The principles contained in the agreement minutes report were also confirmed in the "Green Chemistry" Protocol of Understanding for Porto Torres, signed at the office of the President of the Council of Ministers and relative to the industrial reconversion process of the Porto Torres facility.
The availability of open people capable of discussion and cooperation with the diversity found in Eni’s many different operational contexts is pursued through an inclination toward inclusive management, fully mindful of diversity, able to value it and its different contributions. It is in this configuration that Eni renews its commitment to the valorization and empowerment of women for the purpose of defining objectives for their increased presence in the work force and development programmes as well as for appointments to management and supervisory positions within Eni’s subsidiaries.
To promote international mobility the "Easy Landing" training program has been instituted for the development of international and multicultural skills among Eni people who will be exposed to living and working abroad for the first time. Also new training initiatives for the appreciation of

To deal with the impact of the "skill shortage" on its project scheduling, Eni has kept the core competences in house, such as for example, geologists and engineers with broad experience. In these categories Eni has a turnover of about 1%, the lowest in the sector. In addition, aside from internal growth, any other gaps in professional personnel are filled by hiring qualified technicians recruited directly on the international market by Eni’s international employer, Eirl.
Eirl is committed to the development of international careers with the intention of assigning valued professionals and at the same time responding to the requirements of Eni’s business growth. Eirl brings motivated and qualified resources on-board wherever needed, with a specific focus on technical personnel, most of whom are qualified as mid-career Petro Technical Professionals.
Cooperation with the academic world continues with the activation of specific Oil & Gas Master’s programmes at the Politecnico of Torino and the Università of Bologna.
Consistent with the principles of equity, people valorization and non-discrimination, the Eni’s reward system has the objective of reinforcing the sense of engagement of Eni’s personnel in the achievement of corporate business objectives and of rewarding values, ability and conduct coherent with corporate culture and strategy.
The reward model, applied worldwide, was updated in 2011, in relation to retention and overseas business development requirements, using policies differentiated by critical professional groups. New reward instruments aimed at more

Responsibility

A risk management system that clearly establishes limits and responsibilities and operating methods based on the respect for the rules and the highest ethics are the foundation of responsible management. This approach enables Eni to be viewed as a reliable interlocutor, careful about keeping its reputation excellent and reducing potential risks. In practice, working responsibly takes shape in the implementation of strict financial discipline, using a selective approach in the choice of partners and investments along the entire value chain (suppliers and industrial partners) in the active contrast of corruption, and in respect for human rights.
The objective of maintaining a solid financial structure is pursued by way of balancing requirements for growth and remuneration whilst maintaining suitable financial flexibility. Ability to generate cash flow, discipline in the selection of investment projects, efficient use of capital and business strategy: these are the foundations of Eni’s financial solidity. Eni intends to preserve the excellent balance between its own capital assets and those of third parties, continuing to invest in growth and guaranteeing high returns for its shareholders.
Eni is also committed to the pursuit of high levels of operational efficiency, applying the industry’s operations management best practices, implementing the best organizational solutions for internal processes and suitably updating rules and standards of conduct, across all operational sectors and also specific to individual areas and in relation to changed operating and context requirements.
In the name of long lasting and stable relations, Eni seeks the highest levels of transparency and clarity in its affairs through the application of protective measures for clean and inclusive business deals. The fight against corruption, a priority, brings a double advantage: it reduces business risks and maximizes benefits in the countries where we work. The Company has been working on this issue for several years, explicitly prohibiting corrupt practices in its Code of Ethics, implementing a series of initiatives aimed at strengthening the business culture and adhering to the Global Compact and specifically taking part in its working group on the 10^th Principle.
In 2011 this commitment was strengthened through the work done by the Anti-Corruption Legal Support Unit (ACLSU), which took on the specialist legal counsel on the issue of anti-corruption for Eni people including its not-listed subsidiaries.
To reduce the risks to operations and reputation, the principles of transparency and propriety adopted by Eni have been extended

Overview
The Company has adopted comprehensive classification criteria for the estimate of proved, proved developed and proved undeveloped oil and gas reserves in accordance with applicable US Securities and Exchange Commission (SEC) regulations, as provided for in Regulation S-X, Rule 4-10. Proved oil and gas reserves are those quantities of liquids (including condensates and natural gas liquids) and natural gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.
Oil and natural gas prices used in the estimate of proved reserves are obtained from the official survey published by Platt’s Marketwire, except when their calculation derives from existing contractual conditions. Prices¹ are calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. Prices include consideration of changes in existing prices provided only by contractual arrangements.
Engineering estimates of the Company’s oil and gas reserves are inherently uncertain. Although authoritative guidelines exist regarding engineering criteria that have to be met before estimated oil and gas reserves can be designated as "proved", the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation

Reserves Governance
Eni retains rigorous control over the process of booking proved reserves, through a centralized model of reserves governance.
The Reserves Department of the Exploration & Production Division is entrusted with the task of: (i) ensuring the periodic certification process of proved reserves; (ii) continuously updating the Company’s guidelines on reserves evaluation and classification and the internal procedures; and (iii) providing training of staff involved in the process of reserves estimation.
Company guidelines have been reviewed by DeGolyer and MacNaughton (D&M), an independent petroleum engineering company, which has stated that those guidelines comply with the SEC rules². D&M has also stated that the Company guidelines provide reasonable interpretation of facts and circumstances in line with generally accepted practices in the industry whenever SEC

Reserves independent evaluation
Since 1991, Eni has requested qualified independent oil engineering

Movements in estimated net proved reserves
Eni’s estimated proved reserves were determined taking into account Eni’s share of proved reserves of equity-accounted entities. Movements in Eni’s 2011 estimated proved reserves were as follows:

Proved undeveloped reserves
Proved undeveloped reserves as of December 31, 2011 totaled 3,316 mmboe. At year-end, proved undeveloped reserves of liquids amounted to 1,539 mmbbl, mainly concentrated in Africa and Kazakhstan. Proved undeveloped reserves of natural gas amounted to 9,866 bcf, mainly located in Africa, Russia and Venezuela. Proved undeveloped reserves of consolidated subsidiaries amounted to 1,284 mmbbl of liquids and 5,219 bcf of natural gas.
In 2011, total proved undeveloped reserves increased by 495 mmboe due to new projects sanctions and upwards and downwards revisions mainly related to contractual and technical revisions, price effect and portfolio operation. Approximately 500 mmboe were due to new projects sanctions, mainly in Russia, Venezuela and the United States.
During 2011, Eni converted 193 mmboe of proved undeveloped reserves to proved developed reserves due to development activities, production start-up and revisions. The main reclassifications to proved developed reserves are related to the following fields/projects: Nikaitchuq (United States); MLE (Algeria); Denise, Belayim and Taurt (Egypt); M’Boundi (Congo); Zamzama (Pakistan); Kitan (Australia); Karachaganak (Kazakhstan); Tyrihans (Norway).
In 2011, capital expenditure amounted to approximately euro 1.9 billion and were made to progress the development of proved

Delivery commitments
Eni sells crude oil and natural gas from its producing operations under a variety of contractual obligations. Some of these contracts, mostly relating to natural gas, specify the delivery of fixed and determinable quantities.
Eni is contractually committed under existing contracts or agreements to deliver in the next three years mainly natural gas to third parties for a total of approximately 341 mmboe from producing assets located in Australia, Egypt, India, Indonesia, Libya, Nigeria, Norway, Pakistan, Tunisia and the United Kingdom.
The sales contracts contain a mix of fixed and variable pricing formulas that are generally referenced to the market price for crude oil, natural gas or other petroleum products.
Management believes it can satisfy these contracts from quantities available from production of the Company’s proved developed reserves and supplies from third parties based on existing contracts. Production will account for approximately 69% of delivery commitments.
Eni has met all contractual delivery commitments as of December 31, 2011.

Liquids production (845 kbbl/d) decreased by 152 kbbl/d, or 15.2% due to production losses in Libya and lower entitlements in the Company’s PSAs as well as lower performance in Angola, Nigeria and the United Kingdom. These negatives were partly offset by start-ups/ramp-ups in: (i) Norway with higher production of Morvin (Eni’s interest 30%) and Tyrihans (Eni’s interest 6.23%) fields; (ii) Italy, due to start-up of Guendalina (Eni’s interest 80%).

Natural gas production (4,085 mmcf/d) decreased by 455 mmcf/d (down 10.1%) due to production losses in Libya and lower performance in the United States. Organic growth was achieved in: (i) Congo and Norway due to better performance; and (ii) Egypt, due to start-up of Denise B (Eni’s interest 50%) field and better performance of Tuna (Eni operator with a 50% interest) field.

Oil and gas production sold amounted to 548.5 mmboe. The 28.5 mmboe difference over production (577 mmboe) reflected mainly volumes of natural gas consumed in operations (21.1 mmboe).
Approximately 63% of liquids production sold (302.6 mmbbl) was destined to Eni’s Refining & Marketing Division (of which 26% was processed in Eni’s refinery); about 31% of natural gas production sold (1,367 bcf) was destined to Eni’s Gas & Power Division.

Eni’s efficient management of operations in the production of oil and natural gas reduced by 23% in oil spills from accidents (equal to 2,930 barrels in 2011) and by 30% in the number of events (92 events in 2011). Oil spills from accidents are concentrated mainly in Algeria, Egypt and Nigeria, while oil spills from sabotage and terrorism are mainly recorded in Nigeria.

2011

Oil wells

Natural gas wells

Gross

Net

Gross

Net

Development
In 2011 a total of 407 development wells were drilled (186.1 of which represented Eni’s share) as compared to 399 development wells drilled in 2010 (178 of which represented Eni’s share) and 418 development wells drilled in 2009 (175.1 of which represented Eni’s share).
The drilling of 118 wells (39.5 of which represented Eni’s share) is currently underway.
The following tables show the number of net productive, dry and in progress development wells in the years indicated by the Group and its equity-accounted entities in accordance with the requirements of the FASB Extractive Activities - Oil & Gas (Topic 932).

Net wells completed

Wells in progress
at Dec. 31 ^(a)

2009

2010

2011

2011

Productive

Dry ^(b)

Productive

Dry ^(b)

Productive

Dry ^(b)

Gross

Net