Saipem Reports Preliminary Consolidated Results for 2006

Net profit for the fourth quarter of 2006, inclusive of the effects of the acquisition of Snamprogetti (25 million euro), amounted to 118 million euro, a 40.5% increase compared to the fourth quarter 2005.

Net profit for 2006, inclusive of the effects of the acquisition of Snamprogetti (47 million euro), amounted to 384 million euro, a 50.6% increase compared to the previous year.

New contracts won in 2006 amounted to 10,962 million euro and the backlog at December 31, 2006 stood at a record 13,090 million euro.

Investments in 2006 amounted to 605 million euro.

Dividend per share: 0.29 euro per ordinary share (0.19 in 2006); 0.32 euro per savings shares (0.22 in 2006).

The Board of Directors of Saipem S.p.A. reviewed the Saipem Group preliminary consolidated results at December 31, 2006 (not yet submitted to the Company Statutory Auditors and Independent Auditors), which have been prepared in compliance with the new International Financial Reporting Standards (IFRS). The 2006 results include the effects of the consolidation of Snamprogetti from April 1, 2006, the date of Saipem's acquisition of control.

The Board of Directors will propose to the Annual Shareholder's Meeting, set to convene on 28th (and not on 27th as previously stated) and April 30th, first and second summons respectively, the distribution of a dividend of 0.29 euro per ordinary share(*) (0.19 in 2006) and 0.32 euro per savings share (*) (0.22 in 2006). Dividends will be paid from May 24, 2007 (ex-dividend date: May 21, 2007).

The payout, in line with that of previous years, represents approximately one third of consolidated net income.

Investments in the fourth quarter of 2006 amounted to 189 million euro and consisted of the following: maintenance and upgrading of the existing asset base (101 million euro); investments in vessels and equipment for specific projects, mainly the Khurais project and operations in Latin America (29 million euro); capex to strengthen the operating bases/yards in Kazakhstan and West Africa (1 million euro); conversion of two tankers into FPSO units, due to operate respectively on Petrobras' Golfinho 2 field in Brazil and on behalf of Sonangol P&P in Angola (50 million euro); and investments carried out by Snamprogetti (8 million euro).

Investments in 2006 amounted to 605 million euro (compared to 355 million in 2005) and consisted of the following: maintenance and upgrading of the existing asset base (210 million euro); investments in vessels and equipment for specific projects, mainly Kashagan and the upgrades to the jack-up Perro Negro 4 (115 million euro); capex to strengthen the operating bases/yards in Kazakhstan and West Africa (48 million euro); conversion of two tankers into FPSO units, due to operate respectively on Petrobras' Golfinho 2 field in Brazil and on behalf of Sonangol P&P in Angola (214 million euro); and investments carried out by Snamprogetti in the second, third and fourth quarters 2006 (18 million euro).

Net financial debt at December 31, 2006 amounted to 1,419 million euro, representing an increase of 407 million euro from December 31, 2005, mainly due to the acquisition of Snamprogetti and the distribution of dividends.

New contracts and backlog

During the fourth quarter of 2006, Saipem stand-alone was awarded contracts amounting to 2,119 million euro (compared to 1,413 million euro in the fourth quarter of 2005); during the same period, Snamprogetti won contracts amounting to 426 million euro.

New contracts awarded to the Saipem Group in 2006, inclusive of contracts won by Snamprogetti in the last nine months of the year, amounted to 10,962 million euro.

The backlog of the Saipem Group as at December 31, 2006 stands at a record level of 13,090 million euro.

In January and February (to date) 2007, Saipem was awarded new contracts and negotiated variations to existing contracts amounting to approximately 1.5 billion euro. The most important contracts won during this period are detailed in the press release dated February 16, 2007.

Management outlook for 2007

Global spending by the oil industry has grown significantly in recent years and is forecast to increase further in 2007, creating particularly favorable market conditions for contractors.

Saipem is expected to reap the benefits of this trend: in the offshore sector, where it enjoys a long-standing leading position, particularly for complex projects in frontier areas; in the onshore sector, also on account of the distinctive expertise brought by Snamprogetti; and in the Drilling sector, where higher rates have been negotiated on the renewal of several contracts.

The strong overall market performance and Saipem's reliability underpin management's expectations of new contract awards for 2007, so as to further boost the exceptionally high level of backlog achieved at 2006 year end.

With regard to financial performance, revenues for 2007 are expected to exceed 9 billion euro and net income, before one-off income from disposals, is due to grow by at least 20% versus the record net income achieved in 2006.

Capital expenditure for 2007 is estimated at approximately 1.2 billion euro and will include:

  • expansion of the fleet: for the Drilling business unit, the construction of a new deep-water semi-submersible drilling vessel (completion is due in Q3 2009), and a tender barge; for the Offshore business unit, the construction of a new pipelay vessel (completion is due in Q2 2010), the conclusion of works on FPSO Citade de Vitoria, and preparation of FPSO Gimboa;
  • commencement of development for a new fabrication yard specialising in large offshore structures;
  • further expansion of existing yards in Kazakhstan and West Africa;
  • construction of new smaller vessels and additional project-specific equipment;
  • maintenance and upgrading of the existing asset base.

Depreciation and amortisation for 2007 is expected to total around 280 million euro.

Saipem is planning the disposal of some non-core assets in 2007; the effects of these disposals on the balance sheet, which cannot be quantified at this stage, are expected to be positive.

Saipem S.p.A. preliminary results for 2006

The Board of Directors has also reviewed the 2006 preliminary results of Saipem S.p.A., which show a net income of 156 million euro (122 million euro in 2005). This 34 million euro increase is due mainly to better than expected results achieved in the Drilling sector.

The backlog as at December 31, 2006 amounted to 4,182 million euro, of which 2,282 million are to be realized in 2007.

Revenues for 2006 amounted to 3,192 million euro, representing a 14% increase compared to 2005, which is mainly due to higher levels of activity in Kazakhstan and Azerbaijan.

Operating profit for 2006 amounted to 300 million euro, equal to 9.4% of revenues, versus 241 million euro, equal to 8.6% of revenues in 2005. This increase in margin is attributable to improved contract conditions and strong operational performance.

The most significant orders awarded in the fourth quarter include:

  • on behalf of CNR International (Olowi) Limited, the EPIC-type project for the development of the Olowi field in Gabon, comprising three wellhead towers, a support platform, and interconnecting pipelines and umbilicals;
  • on behalf of Cabinda Gulf Oil Company, the EPIC-type "FARM" project in Angola, comprising the modification to the gas combustion and discharge systems in Block 0, which is located off the coast of Cabinda province;
  • on behalf of Eni Congo SA, the Ikalou South Fields Development project in Congo, comprising the installation of two platforms, Ikalou & Ikalou Sud, in addition to various interconnecting flowlines and cabling between the newly-installed and existing platforms.

In February 2007, a commitment was made with Yantai Raffles Yard in Yantai (China) for the construction of a new pipelay vessel. This new vessel will be 290 meters in length, 39 meters wide and 24 meters high; it will be equipped with a dynamic-positioning system, and is designed to lay large-diameter pipelines (up to 48 inch). Its maximum cruising speed will be 14 knots; the vessel will be capable of operating in harsh environments and have pipe storage capacity of 25,000 tons. Accommodation will cater for up to 450 personnel. Delivery of the new vessel is expected in the second quarter of 2010 and overall capital expenditure amounts to approximately 530 million euro.

The backlog as at December 31, 2006 (inclusive of Snamprogetti) amounted to 6,285 million euro, of which 2,980 million are to be realized in 2007.

Saipem stand-alone

Revenues for 2006 amounted to 1,411 million euro, representing a 15.6% increase on 2005, due mainly to the achievement of full-scale operations on projects in Mexico and Canada.

Operating profit for 2006 amounted to 73 million euro, versus 49 million euro in 2005, with a margin on revenues rising from 4% in 2005 to 5.2% in 2006. This increase in margin is attributable to high operational efficiency and improved contractual rates.

Snamprogetti

Revenues generated by Snamprogetti in the period April-December 2006 amounted to 2,289 million euro and are largely related to projects that have reached completion or that are under execution in the Middle East and Italy. Operating profit totalled 91 million euro, with a margin on revenues of 4%.

The most important orders awarded in the fourth quarter include:

  • on behalf of the DBP Group, the EPC-type project "Alinta Gas" in Australia, comprising phase 5-A of the project for the expansion of the DBNGP pipeline linking Dampier to Bunbury, crossing the state of Western Australia from north to south-west;
  • on behalf of Qatar Shell Limited, the EPC-type project "Pearl Gas To Liquids (GTL)" in Qatar, for the construction of a waste water treatment plant in the industrial city of Ras Laffan. The contract was won in consortium with the company Al Jaber and the joint venture comprising Saipem and OTV.

Offshore Drilling:

The backlog as at December 31, 2006 amounted to 2,247 million euro, of which 290 million are due to be realized in 2007.

Revenues for 2006 amounted to 365 million euro, representing a 20.9% increase on 2005, attributable mainly to increased activity of the drillship Saipem 10000 and the jackup Perro Negro 5, as well as to higher contractual rates.

Operating profit for 2006 amounted to 103 million euro, versus 54 million euro in 2005, with a margin on revenues rising from 17.9% to 28.2%. This growth both in absolute terms and in terms of profitability is due to higher margins on rates and increased utilization of rigs.

The most important orders won in the fourth quarter 2006 include:

  • on behalf of Eni Norge, the five-year charter of the under-construction semi-submersible platform Scarabeo 8 in the North Sea;
  • on behalf of Burullus Gas Company, the two-year charter of the semi-submersible platform Scarabeo 6 in Egypt;
  • on behalf of Eni Congo SA, the five-year charter of a tender-assisted drilling unit in Congo;
  • on behalf of Eni Congo SA, three-year maintenance and work-over operations to be carried out with equipment provided by the client in Congo.

Onshore Drilling:

The backlog as at December 31, 2006 amounted to 376 million euro of which 175 million are due to be realized in 2007.

Revenues for 2006 amounted to 260 million euro, representing a 23.8% increase compared to 2005, attributable mainly to increased activity in North Africa and Kazakhstan.

Operating profit for 2006 amounted to 32 million euro, versus 21 million euro in 2005, with a margin on revenues rising from 10% to 12.3%. This growth both in absolute terms and in terms of profitability is due to higher margins on rates and increased utilization of rigs.

Average utilisation of rigs in 2006 stood at 94.3% (90% in 2005); rigs were located as follows: 13 in Peru, 9 in Saudi Arabia, 6 in Venezuela, 5 in Algeria, 2 in Italy, 1 in Egypt, 1 in Kazakhstan, 1 in Georgia 1, in Ecuador and 1 in Turkmenistan.

In addition, 5 third-party rigs were deployed in Peru and 3 in Kazakhstan by the joint-venture company SaiPar.

Finally, 1 rig owned jointly with third parties operated in Kazakhstan.

In the fourth quarter 2006, an order was awarded to the Saipem Group by Groupment Sonatrach Agip, which involves the two-year charter of a rig to carry out workover operations in Algeria.

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