Letter to the Shareholders

Dear Shareholders,

oil prices in 2011 remained high, driven by increased levels of consumption, particularly in Asia, and by social and political tensions in a number of important oil-producing nations. In the gas market, the exploitation of shale deposits caused a fall in gas prices in the US, while in Europe, consumption levels, which remained low in spite of an increase, pushed down demand, with the result that gas prices, although experiencing a period of recovery, were still far lower than those recorded in Asia, where demand was more sustained. The trend in oil and gas demand and prices encouraged oil companies to invest on a global scale in upstream oil activities, particularly in offshore markets, as well as in the gas sector in Asia. Gas production and transport projects for Europe, on the other hand, were hit by further by postponements. Saipem was able to fully exploit the favourable conditions on the Offshore market, posting a 33.3% increase in new contract acquisitions compared with the previous year. The acquisitions enabled the Company to maintain its order backlog at the same level as at the start of 2011, which can be considered a good result in the light of the postponements affecting the planned European gas projects, for which the Company enjoys a competitive edge over its rivals on account of their large dimensions and high level of complexity.

With regard to the Saipem share price, the fall of 11.3% recorded in 2011 needs to be seen in the context of the strong appreciation seen in the previous year (+53.6%) and the uncertainty with regard to the global economy, and the European economy in particular.
The results posted by Saipem in 2011 represented new records in terms of both volumes and profits, thus confirming the strong competitive position and the operational efficiency of the Company. Compared with 2010, revenues increased by 12.8%, EBITDAi by 16.3%, EBITi by 13.2% and adjusted net profit by 11.2%.
Meanwhile, in terms of the individual business units, Offshore Engineering & Construction revenues increased by 13.1% and EBITDA by 13.1% over the previous year, with activity concentrated especially in West Africa, Kazakhstan and the North Sea. Onshore Engineering & Construction revenues were up 13.5% and EBITDA by 26.6% due to increased volumes in the Middle East, Canada and Australia. In the Offshore Drilling business unit, revenues rose 11.1% and EBITDA by 10.2% as a result of higher fleet utilization rates and new rigs commencing operations. Finally, in the Onshore Drilling segment, revenues rose by 7.6% and EBITDA by 20.7%, due to new rigs commencing operations in South America and Kazakhstan and higher rig utilization rates.

The level of operational efficiency achieved in 2011 once again confirmed the Company’s position at the top of its industry. In terms of health and safety, the LTIFR (Lost Time Injury Frequency Rate) was 0.31 compared with 0.4 in 2010. The six fatal accidents that occurred during the year, however, serve to remind us that constant effort is needed to ensure that attention to health and safety is kept high at all sites in which Saipem operates.
Meanwhile, the Company continued its commitment to implementing a local content strategy, as illustrated in the document ‘Saipem Sustainability 2011’.

Saipem Board of Directors


The year saw the continuation of the major investment programme launched in 2006, with an overall outlay for the year of €1,199 million. In the Offshore E&C sector, construction work was completed on a deep water field development ship and an FPSO vesseli, while construction and fitting out works continued on a pipelayer and a new fabrication yard in Indonesia. In Offshore Drilling, 2011 saw the completion of construction work on a new semi-submersible rig for drilling operations, while a second is currently nearing completion. Finally, in the Onshore Drilling sector, two new rigs were purchased.
The newly constructed vessels and those whose construction is nearing completion allowed the Company to secure a number of major orders. Indeed, a significant share of the backlog of orders (33% in Offshore Engineering & Construction and 63% in Offshore Drilling) are projects on which the new assets are expected to be deployed.
Oil industry spending is expected to increase in 2012, even though the widespread uncertainty of the global economy might affect the timing in the award of scheduled projects. The market is expected to be buoyant in the following areas: in the Offshore sector, in West Africa (Nigeria and Angola in particular), Azerbaijan, Brazil, South East Asia and Australia and in the Onshore sector in Nigeria, Canada, Iraq and Australia. Furthermore, important projects related to gas field development and transport may be sanctioned during the year – specifically the first phase of the Shtokman project in the
Barents Sea, the Brass liquefaction plant in Nigeria and the Algeria-Italy Galsi pipeline project. Market prospects for the oil services industry are therefore expected to improve in 2012. As far as Saipem is concerned, the distinctive diversity of the fleet, significant local presence and a positive track record underpin expectations that the Company will be able to take full advantage, in terms of new contract acquisitions, of the expected market improvement. With respect to financial targets, the Offshore Drilling sector should benefit from the start of operations of Scarabeo 9 (January 19) and Scarabeo 8 (April), which will be partially offset by upgrading works to be carried out on Scarabeo 6, which should require approximately 6 and a half months. The Onshore Drilling sector is expected to continue the high level of utilization recorded in 2011 and to benefit from slightly increased day rates. In 2012, a modest increase in volumes is also expected in both the Offshore and Onshore Engineering & Construction sectors, with margins similar to those of 2011. The strong order backlog, overall market performance and Saipem’s reliability and operational efficiency underpin management’s expectations of record results in 2012.
Investments for 2012 relate mainly to maintenance, the completion of the pipelayer Castorone, upgrading works on Scarabeo 6 to enable it to operate in water depths of up to 1,100 metres, and the first phase of development for a new construction yard in Brazil. Overall capital expenditure is forecast at approximately €900 million.

March 13, 2012
On behalf of the Board of Directors


Firma il Presidente Alberto Meomartini

The Chairman
Alberto Meomartini


The Deputy Chairman and
Chief Executive Officer (CEO)

Pietro Franco Tali