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NIGERIASaipem Sustainability TalentC a s e s t u d y

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C a s e s t u d yNigeriaSaipem Sustainability Talent

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INDEX

SAIPEM AT A GLANCE 6Saipem activities 7Saipem throughout the world 7Main financial results 8Saipems human resources 8

SAIPEM SUSTAINABILITY 9

Sustainability organisation 10Methodology 11Saipems sustainability policy 12Saipems sustainability talent 12

FEDERAL REPUBLIC OF NIGERIA OVERVIEW 13

The country in brief 14

Most of Nigerias - Oil production and Consumption 14The environmental issue 15The social aspect 15

SAIPEM GROUP IN NIGERIA 17

The company 17Saipem Group organisation in Nigeria 18Saipem Group temporary activities in Nigeria 18Recent acquisitions 19Company Organisation and management system 20Mission and policies 20

STAKEHOLDERS RELATIONS 22

Saipem Employees in Nigeria 23Trade unions 23Local communities 23Clients 24Local suppliers and subcontractors 24

PERFORMANCE INDICATORS 25

THE ENVIRONMENTAL PERFORMANCE 25Water Consumption 26Energy Consumption 26Waste 27Gas Emissions 27

THE SOCIAL PERFORMANCE 28Employees distribution 28Training 28Safety 30Health 30

THE ECONOMIC PERFORMANCE 31Saipem contribution to the Local Economy 31Safety expenditures 32Medical expenditures 33Environmental expenditures 33Employees salaries & benefits 33

FUTURE CHALLENGES 34

GLOSSARY & KEY WORDS 35

2 SUSTAINABILITYSAIPEM

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This report is part of Saipem's Sustainabilityprogramme for the years 2003-2005. For thefirst time in its history, Saipem has publishedlocal reports illustrating its socio-economic andenvironmental performance in Nigeria, Kazakhstan,Azerbaijan and Peru. Since 1997, Saipem has been developing HSE reports, providing in-depth analyses of the Saipem Group's

overall performance. The ever-increasing interest by stakeholders in companies' socio-economic data has spurred the Oil&Gas sector

to produce sustainability reports, and Saipem has reacted accordingly. Saipem felt that, by producing a single report for the whole

Saipem Group, it would overlook important country-specific aspects. Therefore, the Company decided to publish several reports on

various countries of operation. In 2004, Saipem focused on operations in Nigeria, Kazakhstan, Azerbaijan and Peru for the period

2001 to 2003. All reports share the same structure, although available data and the individual nature of each site make each document

unique. These reports are prefaced by a general introduction to Saipem's approach in developing operations throughout the world; they

contain an analysis on the environmental, social and economic impact of the company's activities, so as to illustrate Saipem's

endeavour, in quantitative terms, to develop actual Local Content in the Country.

3SUSTAINABILITYSAIPEM

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MESSAGE FROM THE GROUP CHAIRMAN AND THEMANAGING DIRECTOR

The industrial development of the Saipem Group reflects that of the Oil and Gas industry itself inmany respects. This is especially true in frontier areas, where Saipem is committed not only to

resolving technological challenges, but to contributing to social, cultural and environmentaldevelopment. This also responds to the input of a growing number of stakeholders, whose interestis not limited to strict economic or technological performance, but also in the concept of sustainabledevelopment in our business. As clearly reflected in our Mission Statement, globally, Saipem isadopting an approach that combines sustainable development with other business needs. Themethods are based on a simple but ambitious concept: embracing diversity; developing an ever-expanding, truly international organisation comprising multi-local teams working together to achievepredetermined targets. The Sustainability Programme that Saipem started implementing in 2002, isthe result of thoughtful, comprehensive, internal assessment. The diversity of our projects and thespecificity of environments in which they are performed, are the reason for adopting a LocalApproach to Sustainability. Our path towards Sustainability has an over-riding objective: beneficialintegration of our activities within a local context, and leveraging the Company's talents to createbetter opportunities for local communities. We need to evaluate and present our performance to dateto our stakeholders, and to improve it in future. These reports on Saipems Sustainability Initiative in

Nigeria, Peru, Azerbaijan and Kazakhstan are a first step.

Pietro Franco TaliChairman & C.E.O.Hugh James O'DonnellManaging Director

LETTER FROM THE CORPORATE QHSE MANAGER

In 1987, the World Commission on Environment and Development - the Brundtland Commission -defined Sustainable Development as development that meets the needs of the present withoutcompromising the ability of future generations to meet their own needs. But how can we effectively

contribute to sustainable development? This is the question that Saipem has been trying to answerfor some time now. The European Commission recently stated that a business is defined assustainable if it voluntarily encompasses social and environmental factors in its activities andinteractions with the so-called stakeholders, seen as milestones in the development of its activities.Working on the integration of the sustainability issues in the Saipem's day-to-day operations hasbeen a challenge from the very beginning. We started from an in-depth analysis and assessment ofour global activities and realized that both Saipem's business and experience are based on theinvolvement of local communities in the business activity and on our effort to integrate into theirspecific social and environmental context. Our challenge is to strengthen this mutual flexibility andto empower the innovative approach we chose as a corporation, through the principles of CorporateSocial Responsibility (CSR). Sustainability, just like health, safety and environment are of primaryimportance in the development of our operations. These are innovative issues that aim at improvingour relationships with the local communities. Saipem can improve the local economy by favouringthe growth of economic activities, local employment and the spread of professional knowledge. The

local context, in turn, provides opportunities for the optimisation of costs of materials and services.Finally, Saipem's approach has a strategic value in projects acquisition, as the Oil & Gas companiesgenerally require the CSR approach from contractors. These driving forces have led Saipem toinclude in its mission statement the concept of sustainable development, to produce a corporatesustainability policy and realise four local reports that illustrate in detail the work we have beencarrying out in frontier areas for many years. These local reports on Saipem's activities in Nigeria,Peru, Azerbaijan and Kazakhstan represent our proposal for an open dialogue with our stakeholdersat local level; we also welcome their feedback and support in improving our information onsustainability issues. We have set ourselves targets, we'll be able to reach them by the creation ofactual local competences and with the full support of our Stakeholders.

Sabatino De SanctisQHSE Senior Vice President


Saipem Corporate Milan

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LETTER FROM THE MANAGING DIRECTOR OF THESAIPEM NIGERIA GROUP

The Saipem Group started operating in Nigeria over 30 years ago. The going wasn't always easy,but our advantage was the concerted effort we made to understand the country and the approach

we used to develop activities that were compat ible with the local culture. Saipem decided toincorporate and develop two branches of the Saipem Group, which are the points of reference for allNigerian operations. The establishment of Saipem Nigeria Limited in 1967 and Saipem ContractingNigeria Limited in 1989 supported the development of a growing number of onshore and offshoreprojects. Today we are still expanding our operations, performing activities that are increasinglychallenging from a technological point of view and constantly adding new Saipem Group companiesto our Nigerian Operations. Our efforts and the principles that drove the Nigerian operations fromtheir inception are exactly the same as they are today. They are of paramount importance to us andwe refer to them in as Local Content. The local content of our companies in Nigeria has alwaysbeen considerable; however, recently we have been progressively more focused on increasing thenumber of local employees and procuring materials and services locally. Our local content in Nigeriais a best practice for the Saipem Group and of great advantage to our clients. The QHSEdepartment's suggestion to produce this report, with the aim of analysing and describing thesustainability approach to our activities, seems of interest not only in recognition of our efforts but

also gives us the tools to improve. I hope that our Nigerian, Italian and International stakeholderswill find this report useful and believe that it will provide the basis for other Saipem Group companiesto follow the same approach.

Pietro VaroneManaging DirectorNigeria

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SAIPEMS MISSION

Pursuing the satisfaction of our clients in theenergy industry, we tackle each challenge withsafe, reliable and innovative solutions.We entrustour competent and multi-local teams to providesustainable development for our company and the

communities in which we operate.Saipem is one of the world leaders in

supplying services to the oil & gas sector, particularly in offshore engineering and construction. Between 1998 and 2001, the Company

invested heavily to strengthen its offshore fleet, both in offshore construction and in offshore drilling. As a result, Saipem's fleet is

amongst the most technologically advanced and efficient in the sector. In May 2002, Saipem acquired the French engineering company

Bouygues Offshore, this allowed the Company to become a leading contractor in the field of complex EPIC projects (Engineering,

Procurement, Installation and Construction). In addition this operation allowed the consti tution of a group which is a real global

contractor, with relevant local presence in strategic and emerging areas, such as Western Africa, the former Soviet Union, Central

and South East Asia, North Africa and the Middle East.

GLANC


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Principal Operating Centers Offshore Offshore Drilling float. Prod. Lng & maritime works Engineering Centers Onshore

Onshore Drilling Maintenance Modification and Operation (MMO) Yards/bases Other Offices/Activities

SAIPEM ACTIVITIESThe new Group is organised in six worldwide business units. It enjoys superior competitivepositioning for the provision of EPIC services to the oil and gas industry, with a particular focus onactivities in remote areas, deepwater environments and gas related projects. Offshore Construction: Saipem is the consolidated leader in offshore construction, with main

activities covering engineering, construction, and installation of platforms, subsea structures,floating production systems, and subsea pipelines. The most powerful asset in Saipem's fleet isSaipem 7000, a semi-submersible vessel capable of lifting structures of up to 14,000 tons andlaying pipelines in ultra deep waters. Other vessels include Castoro 6 and Semac 1, capable oflaying large diameter pipelines, Saibos FDS (Field Development Ship), a specialised vessel usedfor the development of deep water fields and Saipem 3000, a vessel capable of lifting structures of upto 2,400 tons. The company's recent acquisitions further strengthened its engineering andproject management expertise.

Drilling: Saipem's mobile offshore drilling fleet consists of one state-of-the-art drillship (Saipem10000), five semi-submersibles and four cantilevered jack-ups. Saipem drilling operations arecarried out on behalf of the major corporations in the oil and gas sector. Saipem owns 23 drillingrigs and 15 workover rigs capable of operating at depths ranging from 2,500 to 10,000 metersat elevated temperatures and in high pressure environments.

Leased FPSO: Saipem entered this sector in 1996 as a new player offering a unique combination

of the capabilities of a major EPIC contractor with the worldwide presence of an owner of firstclass drilling and construction vessels. Saipem's wholly owned fleet enables the company toprovide a full range of installation, construction and transportation services suited to the mostchallenging floating system installations.

Onshore Construction: Saipem is world leader in the onshore construction sector having laid morethan 60,000 km of pipelines over five continents and built some 100 oil refineries, petrochemicalplants, power plants, oil and water pumping stations and natural gas compression stations.The Company specialises in the laying of large diameter pipelines, above all in adverse climaticconditions and difficult to reach areas.

Liquefied Natural Gas: Saipem entered this high-potential market by establishing a new groupwhich has the necessary technological capabil ities to construct LNG tanks and is experiencedin the construction of offshore and onshore LNG import and export terminals.

Maintenance Modification and Operation: Saipem's presence in the last link of the value chainenables the Company to offer end-to-end solutions to energy service providers. This kind of activity

allows Saipem to streamline processes, increase productivity and offer clients plans of continuousimprovement.

SAIPEM THROUGHOUT THE WORLDSaipem carries out both onshore and offshore operations in a very large number of countriesthroughout the world. As a contracting company operating in the Oil&Gas sector, Saipem's worldwidepresence and the geographical distribution of its backlog are determined by where the Oil Companies'investments are in the world. Saipem's backlog by geographical area shows that 37% of futureprojects will be located in West Africa and 20% in Russia. Others important areas will be NorthAfrica and Asia.

Backlog by geographical area

Data updated at December 2003

North Africa 16%

Asia 14%

Europe 10%

West Africa 37%

Americas 3%

Russia 20%

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MAIN FINANCIAL RESULTS

2001 2002 (*) 2003

Operating revenues 1,923 3,149 4,231

Production costs (1,518) (2,637) (3,658)

Idle costs (41) (48) (78)Selling expenses (27) (56) (66)

Research and development costs (2) (6) (9)

General and administrative expenses (79) (102) (115)

NET INCOME 168 191 196

OFFSHORE CONSTRUCTION 2001 2002 2003

PIPELINES LAID (KM) 781 1,798 1,409

INSTALLATION (TONS) 73,028 55,960 118,211

OFFSHORE DRILLING 2001 2002 2003

METRES DRILLED 106,797 124,761 128,839

ONSHORE CONSTRUCTION 2001 2002 2003

PIPELINES LAID (KM) 552 687 612

INSTALLATION (TONS) 18,120 30,060 23,930

ONSHORE DRILLING 2001 2002 2003METRES DRILLED 189,683 348,040 385,976

(*) Includes Saipem s.a. (formerly Bouygues Offshore) figures from the third quarter

SAIPEM'S HUMAN RESOURCESThe trend in human resources from 1999 to 2002 shows significant growth, culminating in 25,196employees in 2002 following the acquisition and integration of Saipem s.a. (formerly known asBouygues Offshore). In 2003, the new Group was rationalised with the total number of employeesat the end of the year falling to 21,556. Saipem has always been a truly international company,constantly focusing on integration at local level. In 2003, non-European international employeesrepresented 67% of the total workforce. If we analyse Saipem's personnel by nationality, we see

that the majority are French (17%), followed by Italian (11%). The third largest nationality withinthe Saipem Group is Nigerian making up 10% of the total number of employees.

Saipem Group Employees

European Other Nationali ties

0

5000

10000

15000

20000

25000

30000

1999 2000 2001 2002 2003


Saipem Employees by Country of Origin


0%

5%

10%

15%

20%

France Ital

yNig

eriaRus

sia

Azerbaijan

Philipp

ines

Kazakh

stan India

Angola Per

u UKAlgeria

Malays

ia

SaudiA

rabia

Indone

siaCroatia USA

Norway

Other


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Consistent with its policy on continual improvementof the management system, Saipem has undertakena comprehensive assessment of its approach inseveral strategic countries.In particular, Saipem hasbegun analysing the sustainability approach usedon certain projects with the aim of providing information for current initiatives. A dedicated team has been working since May

2002 to identify and raise awareness on all initiatives concerning sustainable development and look at possible areas of

improvement. Their activities focused firstly on the identification of the relevant indicators of Saipem's worldwide operations from the

socio-economic standpoint. This required an assessment of the accounting system and the collection of data both at Corporate and site level.

The identification of indicators was followed by the assessment of social and environmental initiatives at site level. Having analysed

strengths and weaknesses of its sustainability approach, Saipem resolved that the modus operandi to adopt in the future would be

based on the ideals of sustainability. This means achieving the following milestones:

Economical: to increase Saipem's contribution to the local and global economy through its economic results;

Social: to safeguard the development of local communities, human rights, guaranteeing good working condition, freedom of association,

repudiating any form of discrimination, forced or juvenile labour, corruption, safeguarding dignity and promoting health and safety;

Environmental: to minimise any environmental impact Saipem activities may have.

USTAINABILIT

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SUSTAINABILITY ORGANISATIONManaging social issues along with policies on local content have long been a commitment ofSaipem Group. In 2002, Saipem produced a new mission statement which underlined theimportance of a proactive approach to sustainability, concurrently setting up a dedicated teamwith proven experience. The Corporate Sustainability Team's responsibi lity is to propose, assess

and support the development of local level initiatives based on Saipem's mission. The team ispart of the Corporate QHSE Department, which has a long-standing presence within the SaipemGroup organisation. An essential role in sustainability management is played by theSustainability Network, which was set up by the Sustainability Team, bringing together differentdepartments from the various operating companies, which can aid the development of socio-economic initiatives with their own distinctive competencies. Other corporate departments, suchas the Human Resources and Administration and Finance Department, also play a pivotal rolein the Sustainability Network, along with Saipem Sustainability Facilitators who represent SaipemSustainability Team in Key Areas. To streamline efforts related to the development of theSustainability approach, Saipem has identified certain geographical areas of business whichare deemed to be of key importance. The identification of these key areas varies in line with theevolution of the business activities throughout the world. In 2003, the Sustainability Key Areaswere: Algeria, Angola, Azerbaijan, Kazakhstan, Malaysia, Indonesia, Thailand, Nigeria, Peru,Venezuela, Russia, Saudi Arabia, Oman, and UAE (Uni ted Arab Emirates). In each key area,

a Sustainability Facilitator appointed by the Saipem Group Resident Area Manager isresponsible for the co-ordination of sustainability initiatives at local level. The sustainabilityfacilitator mainly promotes and develops, with the involvement of the local seniormanagement, initiatives for the increase and improvement of local content, for the goodrelationships with the local stakeholders and the sustainability accounting.


Nigeria

Peru

Algeria

Angola

Azerbaijan

Kazakhstan

Russia

Saudi Arabia, Oman, UAE

Malaysia, Indonesia, Thailand

Sustainability Facilitators

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METHODOLOGYThe approach adopted in the preparation of this report is the result of several analyses Saipemrecently carried out, together with Eni and the Fondazione Eni Enrico Mattei.Many contributions came from a benchmarking survey of sustainability publications and the followingCorporate Social Responsibility Guidelines: Global Reporting Initiative (GRI) guidelines, International

Network for Environmental Management (INEM) guidelines, World Business Council for SustainableDevelopment (WBCSD), among others. In the development of Saipem local reports an approachconsistent with the GRI guidelines was chosen, in order to adopt indicators relevant to most of thereporting organisations and of interest to most of the stakeholders. The Global Reporting Initiative(GRI) is a multi-stakeholder process and independent institution whose mission is to develop anddisseminate globally applicable Sustainability Reporting Guidelines. These Guidelines are forvoluntary use by organisations for reporting on the economic, environmental, and social dimensionsof their activities, products and services. Begun in 1997, GRI is an official collaborating centre ofthe United Nations Environment Programme (UNEP) working in cooperation with UN Secretary-General Kofi Annan's Global Compact. The aim of the GRI Guidelines is to assist reportingorganisations and their stakeholders in articulating and understanding contributions of the reportingorganisations to sustainable development. The assessment of Saipem's activities in terms ofsustainability allows us to evaluate the merits of each indicator proposed by GRI Guidelines andintroduce more specific ones. The information contained in this report was collected both at site

and corporate level. A specific Sustainability Accounting Standard was created to gather qualitativeand quantitative data from sites. Whenever possible, this report spans a period of three years, from2001 to 2003. This report is one of four Local Sustainability Reports Saipem published in 2004and illustrates Saipem's approach in Nigeria. Data encompasses onshore construction and drillingas well as offshore construction projects performed by two Group companies operating in Nigeria.Environmental data has been separately provided for onshore and offshore activities, whereas socialand economic figures are inclusive of all areas of business.Data was collected from the following sources: Accounting system for HSE data Accounting system for the management of medical expenses Financial Accounting system for the Group Interviews and sustainability accounting system at local levelThis is the first attempt by Saipem to analyse the social, economic and environmental impact ofspecific operations in a particular country; this effort has been supported by the recent introduction

of the sustainability accounting system and the ever increasing involvement of Saipem's personnelin sustainability issues.

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SAIPEM'S SUSTAINABILITY POLICYSaipem's Sustainability Policy was formalised in May 2003, reflecting the senior management'scommitment to attaining specific targets in terms of Saipem's approach.

A network where everybody's commitment contributes to the common well-being

Sustainability incorporates three principles that are of particular significance within Saipem: protectionof environment, respect of social rights of employees and contribution to local economic development.Saipem is committed to promoting Sustainable Development in all facets of its global activities in amanner that is compatible with the socio-economic and environmental needs of its Clients.Saipem employees should have the opportunity to develop while working in an environment that isincreasingly healthy and safe, whether on site or on board a vessel. Saipem's approach to CorporateSustainability is based on the creation of long term shareholder value by contributing to the developmentof the local communities where we operate. Saipem is committed to achieving such developmentthrough environmental protection, economic growth and social progress, attention to local suppliers andprofessional training for local employees. This commitment is managed through these sharedSustainability Practices: Conducting operations and relationships with integrity and honesty, valuing the richness of each

culture and respecting Human Rights;

Managing the Health, Safety and Environmental aspects in compliance with existing HSE Policyand Principles;

Maintaining an open and transparent dialogue in decisions which affect stakeholders; Researching the possible impacts of activities in host countries, both prior to and during, project

execution; Monitoring social, economic and environmental performance with the aim of measuring Saipem's

impact so as to ensure compliance with legal requirements and best practice guidelines; Establishing a reliable verification system for the performance of suppliers according to Sustainability

Principles; Providing training to develop human capital and build competencies in the management of field

of Sustainable Development; Implementing an effective and transparent Sustainability communication network within the Group.Saipem Sustainability Policy and Program will be constantly updated in order to achieve continuousimprovement. The Corporate Sustainability Team assures constant monitoring and co-ordination of this

Policy. The implementation of this Policy is the responsibility of all Saipem Group employees.

SAIPEM SUSTAINABILITY TALENTThe Saipem Sustainability Talent is the program Saipem is currently implementing to increase theprojects' local content, train employees and develop their know-how in addition to establishing acloser relationship with local stakeholders. This slogan and the sustainability logo, that representthe integration of the elements of the triple bottom line (social, environmental and economical),have been developed to spread and root this business approach within all Saipem's world.

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Nigeria has been producing oil since 1958. Itsthe 11th ranked Nation in the world for its reservesand the second in Africa,with estimated provenoil reserves of 22.5 billion barrels. Daily oil

production stands at over 2 million barrels,half ofwhich is produced offshore. The share of offshore production is increasing as all the recently discovered fields and developmentprojects are offshore. Oil and gas companies operate in Nigeria through joint venture contracts with the National oil company, the

Nigerian National Petroleum Corporation (NNPC). Most of Nigeria's crude exports are destined for the United States and Western

Europe, with Asia also becoming an increasingly important market. In 2002, Nigerian crude exports to the United States averaged

567,000 bbl/d (6.27% of U.S. imported crude oil) a decrease versus 842,000 bbl/d in 2001 (9.03% of U.S. imported crude oil).

According to the International Monetary Fund (IMF) and the Energy Information Administration (EIA), in 2002 the oil export revenues

totalled 17.2 billion of dollars; i.e. 90% of total export revenues.

VERVIEF NIGERIA

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THE COUNTRY IN BRIEF

Social Indicators

Population (2003) 133,881,703

Age Structure (2001 est.) 0-14 years: 43.71%

15-64 years: 53.47%65 years and over: 2.82%

Median age (2002) total: 18 years

male: 18.1 years

female: 17.9 years

Life expectancy (2003) 51 years

Population growth rate (2003 est.) 2.53%

Religions Muslim 50%, Christian 40%, indigenous beliefs 10%

Languages English (official), Hausa, Yoruba, Igbo (Ibo), Fulani

Economic Indicators

Gross Domestic Product (GDP) (2002) Purchasing power parity - $112,5 billion

GDP - real growth rate (2002) 3.2%

GDP - per capita (2002) Purchasing power parity - $900

GDP - by sector (2002) Agriculture 45%; Industry 20%; Services 35%

Inflation rate (consumer prices) (2002 est.) 14.2%Industrial production growth rate (2002 est.) 0.4%

Labour force (1999) 66 million

Labour force - by sector (1999) Agriculture 70%, Industry 10%, Services 20%

Unemployment rate (1992) 28%

Environmental Indicators

Area 923,768 sq km

Land use (1998 est.) arable land: 30.96%

permanent crops: 2.79%

other: 66.25%

Total Energy consumption 0,92 quadrillion Btu

COx emissions 23,5 million CO2 eq

Source: Energy Information Administration, Country Analysis, Nigeria 2003 and Central Intelligence Agency (CIA), Theworld Fact Book, N igeria 2003

MOST OF NIGERIAS - OIL PRODUCTIONAND CONSUMPTION

U.M. 2001 2002 2003 % on total % on total

Reserves Reserves

in Africa in the world

Reserves Millions 24,000 27,200 25,000 29% 2%

of barrels

Production Thousand 2,199 2,013 2,275 26% 3%

barrels per day

Source: Eni World Oil and Gas Review 2004

Nigeria's total primary energy consumption has more than doubled since 1980. Owing to itscontinuing population boom and the further development of the country's economy (fuelled by oildevelopment), Nigeria's energy consumption has risen from just 0.42 quadrillion Btu (quads) in1980 to approximately 0.92 quads in 2001. Petroleum consumption accounted for the lion's shareof Nigeria's total energy consumption in 2001, making up 61.4% of the total. Natural gas accountedfor the bulk of the remainder with 31.7%, with hydropower (6.8%) and coal (0.2%) rounding outthe country's fuel mix. In recent years, natural gas has made inroads in Nigeria, up from 22% ofthe country's primary energy consumption in the mid-1990s to nearly 32% today. Nigeria'sgovernment is keen to expand natural gas consumption to relieve some of the pressure on nativeforests, which continue to be burned for fuel in many rural areas. There are four refineries in Nigeria(Port Harcourt 1 and 2, Warri and Kaduna), but the level of output is quite low. While Nigeria'sstate-held refineries are slated for privatization, plans for several small, independently-owned

refineries are being developed. Nigeria has awarded 18 private refinery licences after opening up

Source: Eni World Oiland Gas Review 2004

Nigeria Crude Oil Production

Thousandbarrels/day

0

500

1000

1500

2000

2500

1980 1985 19901995 2000 2001 2002 2003

Nigeria Oil Comsuption

Thousandbarrels/day

1995 2000 2001 2002 20030

50

100

150

200

250

300

Source: Eni World Oiland Gas Review 2004


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the country's downstream sector to private investment. The lack of refinery capacity in the countryhas been a key factor in Nigeria's latest fuel crisis, in February 2003.

Supply and Consumption Production Imports Exports

Coal 39 0 0

Crude Oil 119,115 0 -107,176

Petroleum Products 0 4,802 -1,296Gas 13,285 0 -6,634

Nuclear 0 0 0

Hydro 595 0 0

Geotherm Solar, etc 0 0 0

Renewable and Waste 73,990 0 0

Electricity 0 0 0

Heat 0 0 0

Total 20,7024 4,802 -115,107

Source: IEA Energy Statistic 2001 - in thousand tonnes of oil equivalent (ktoe) on a net calorific value basis

THE ENVIRONMENTAL ISSUEOil has been an integral part of the Nigerian economy since vast reserves of petroleum werefound in the country in the 1950s, but exploration and development of that oil has had severeenvironmental impacts and human consequences. The Nigerian government has indicated adesire to change this situation, and in recent years, it has taken actual measures to effect thischange. In this regard, the Government is promoting the performance of environmental riskassessments, prior to project initiation. Tighter regulation and better enforcement of existingenvironmental laws should help stem the degradation of the environment and prevent the sametype of problems in the future. One of Nigeria's main challenges, similar to many other developingcountries, is how to provide energy to a rapidly growing population in a sustainable manner.The energy choices that Nigeria makes, whether to increase oil exploration, develop its coalresources or move towards development of renewable energy resources, will have a significantimpact on Nigeria's environment in the future. With the country's oil production slated to rise and the

country's population, already the largest in Africa, continuing to increase, the pressure on Nigeria'senvironment is likely to continue. As such, the Nigerian Federal Government, nongovernmentalorganizations and international oil companies will have to work together to slow the degradationof Nigeria's environment and take steps to mitigate the problems that a half-century's worth ofoil production already has caused. The Nigerian Government has now committed to ending theprocess of gas flaring from oil production by 2008. The continued process of gas flaring hasnot only meant that a potential energy source and source of revenue has gone up in smoke, butit is also a major contributor to air pollution and acid rain. The phasing-out of gas flaring has beenconsistently pushed back as Nigeria has focused on boosting oil exploration and product ion inorder to generate much needed revenue for the government, but the 2008 deadline now appears firmas infrastructure to monetize the associated gas from oil production is in place. The end of gasflaring by 2008 should have a threefold positive effect, with a reduction in air pollution fromcarbon emissions, an increase in natural gas available for domestic consumption and export, andan added source of revenue for the Nigerian government from the sale of the natural gas that will

be produced rather than flared. The Nigerian government also is looking to promote the use ofcoal for domestic consumption and industrial uses as a means of combating deforestation andover-reliance on oil. However, the Country has limited coal reserves, much of which are ligniteand sub bituminous, and Nigeria's coal production never very high to begin with has declinedby around 50% since 1997.

THE SOCIAL ASPECTNigeria is a young democracy with a multi-ethnic and multi-religious population. Nigeria is one ofthe countries with the highest growth rates of population, after India and Pakistan. Nowadays, population isaround 133 million, and according to United Nation's estimations will double in 24 years. Nigeriahas the largest population of any country in Africa and the greatest diversity of cultures, ways of life,

cities and terrain. Nigeria became an independent Nation on October 1, 1960, and a Republic in

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Nigeria's Population Trend

0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Target

2027

50

100

150

200

250

300

1963, with a federal structure and three regional governments based on the compass points ofnorth, east, and west. A fourth region, the Midwest, was later added. The Country's political structurewas increased to nineteen states in 1976, with Abuja as the new federal capital. Between 1987 and1991, a total of eleven states were created, and just recently in 1996, six additional states wereadded, bringing the administrative structure of the federation to thirty-six states. The Framework forNigeria's Economic Growth and Development (2003 - 2007), established interesting targets of

improvement in the social issues as stated in the report, the Government will optimize its provisionof an enabling environment, involving the support of basic healthcare, appropriate education, watersupply, sanitation and communication. These services or facilities will be used to ensure support forrobust economic activity from the priority areas identified by Government. Education Governmentwil l suppor t the provision of appropriate education and skil ls for running a private sector ledeconomy. Priority will also be given to facilities that provide training to workers. In the health sector, themain policy objective of Government is the provision of sustainable basic health care delivery systemsto all Nigerians. With this and other facilities, Government will aim at improving the quality of life forthe average Nigerian. Government will also seek to raise the National life expectancy rate from 53years to 65 years and reduce the infant mortality rate.

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The Saipem Group has a structured organisationoperating in West Africa. It has been operatingin West Africa for over 30 years, with Nigeriaserving as the pivotal base for the major projects,resulting in: Drilling: over 350 onshore wells and over 120 offshore wells

Pipelines: over 1000 km of pipe laid

Plants: over 30 EPC Plants Installations

Saipem operates in Nigeria through the following four subsidiaries:

Saipem Contracting Nigeria Limited, involved in Engineering, Procurement, Construction and Fabrication for onshore activities;

Saipem (Nigeria) Limited, involved in drilling activities both onshore and offshore;

Saipem Logistic Services Limited, established in 2002, providing logistic support to group companies in Nigeria;

FPSO Mystras Nigeria Limited, set up to support purchasing and operations of the FPSOs.

Saipem S.p.A., Saipem S.A., Sonsub and Saibos develop specific projects as foreign companies even if registered with the Nigerian

Department of Petroleum Resources (DPR).


N NIGERI

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SAIPEM GROUP ORGANISATION IN NIGERIA

Saipem has been always characterised by a local presence in Nigeria but several years ago,Saipem recognized the need to consolidate the Company's operational requirements. This hasresulted in the construction of a purpose built Operations Base in Port Harcourt. Saipem activities aresupported by three logistic bases and a maintenance centre: The Nigerian Head Office for the Saipem Group, based in a recently constructed building in Lagos

and performs activities of contract administration, cost control and project management. The Saipem Operations Base complex of about 460,000 m2, located on riverside on the Bonny

River at Rumuolumeni and has a production capacity of 100,000 man-hours per month. During2003, it has been expanded and refurbished to increase its capability to support platform constructionand all Saipem Group Nigerian activities.

Onne Free zone Maintenance centre in Port Harcourt

SAIPEM GROUP TEMPORARY ACTIVITIESIN NIGERIA

In 2003, Saipem performed both onshore and offshore operations in Nigeria.Offshore activities in the 2003 were as follows: The semi-submersible platform Scarabeo 4 carried out operations in Nigerian waters on behalf

of NAOC and TotalFinaElf; subsequently it performed in Equatorial Guinea. The semi-submersible platform Scarabeo 7 carried out activities in Nigerian waters on behalf

of NAE in the ABO field; following upgrading works concluded in August, it began operations

on the Erha field, as part of a three-year contract on behalf of Exxon Mobil Nigeria. The jack-up Perro Negro 5 continued drilling operations offshore the Nigerian coast on behalf

of Belbop until November; it was then transferred to Cameroon to undergo upgrade andmaintenance works.

The deep-water drillship Saipem 10000, was transferred to Nigeria where it operated on behalfof NAE (Nigerian Agip Exploration Ltd) on the ABO field.

The production vessel Jamestown operated continuously throughout the year on the Okono/Okpohofields, at depths ranging from 60 to 130 metres. At the end of the year the unit was replacedby the larger FPSO Mystras.

The Okpoho project on behalf of Agip Energy Natural Resources Ltd, comprising engineering,provisioning, construction and commissioning of an offshore platform. The first phase of theproject involving the construction of the platform was carried out by Saipem Contracting(Nigeria) Ltd., Intermare Sarda S.p.A. and Pelfaco Nig. Ltd; installation was performed by SaiBosConstrues Martimas Lda., utilising the derrick pipelay vessel Castoro Otto;

The EPIC project Amenam was completed on behalf of Elf. It comprised the construction of a

Nigerian Subsidiaries

Saipem ContractingNigeria Limited

Onshore EPC, Fabrication,Maintenance, Modification and

Operations

Onshore& Offshore Drilling Operations

Supply & Operator of FPSO

Services and Logistics Support to theSaipem Group activities in Nigeria

Saipem (Nigeria)Limited

FPSO MYSTRASNigeria Limited

Saipem LogisticServices Limited

Joint Joint Venture Company 50%

Saipem Group Nigeria Port HarcourtBase


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platform and its installation using the 'float-over' method. The project was carried out utilisingthe pipelay and heavy-lift vessel Castoro Otto and the work lay barge SaiBos 230;

Preparatory activities have begun on the EPIC project East Area EPC2 on behalf of Exxon Mobil;the project comprises engineering, procurement, construction and installation of three plat forms,in addition to the laying of subsea pipelines. The project will be carried out utilising the derrickpipelay vessel Castoro Otto and the work lay barge SaiBos 230;

On behalf of TotalFinaElf, operations have started on the EPIC project Amenam 2, comprisingengineering, procurement, construction of a platform and its installation uti lising the 'float-over'method. The contract will be performed in joint venture with Technip-Coflexip (30%).

In addition to projects performed by SaiBos (Saipem Group) and its participation to the Group'sengineering and project management activities, Saipem s.a., directly or through several directsubsidiaries, carried out the following works: On behalf of Esso Exploration & Production Nigeria Limited, involvement in the EPIC project

Erha for the fabrication of pipe racks, power generation module and flare. On behalf of Mobil Producing Nigeria Unlimited, fabrication of the Jacket for the Yoho platform.

2003 onshore activities in Nigeria were as follows: On behalf of NAOC, engineering activities for the NLNG Phase 3 Obiafu/Obrikon project have

been completed, whilst material procurement and construction activities relating to prefabricationand installation works are progressing.

On behalf of NAOC, construction and installation works for the fourth compression module atObiafu-Obrikon have been completed.

On behalf of NAOC, mobilisation of the Construction Project Team has been completed for theOkpai Power Plant project; civil, mechanical and electro instrumentation works are progressing,whilst engineering and material procurement activi ties are underway.

On behalf of NAOC, civil works are progressing in various areas. On behalf of NGC (NigerianGas Company), having completed the Rehabilitation of NGC Gas Metering Stations project,extra works requested by the Client have been carried out.

On behalf of TotalFinaElf, installation operations of two Screw Compressors at the Obaji planthave been completed.

Drilling onshore activities in 2003 were developed by Saipem rigs: Rig 5892, Rig 5832, Rig5823. A high-depth drilling rig concluded operations on behalf of NAOC as part of a contract forthe drilling of four wells; a medium/high-depth rig operated on behalf of NAOC within a one-yearcontract with an option of an additional 12 months; another medium/high-depth rig successfully

completed drilling operations on behalf of Elf Petroleum and was transferred to Algeria at the endof the year.

RECENT ACQUISITIONS

Offshore activities:

On behalf of Elf Petroleum Nigeria Ltd, the EPIC contract for the 'Amenam II' project, comprisingengineering, procurement, construction and installation of a platform and a bridge for theAmenam field. The contract was awarded to the JV comprising Technip-Coflexip (30%);

On behalf of NNPC (Nigerian National Petroleum Corporation)/Mobil, the EPIC contract for the'East Area EPC2 Additional Oil Recovery' project, comprising engineering, procurement, constructionand installation of three platforms, in addition to the laying of subsea pipelines;

On behalf of Exxon Mobil Nigeria, the three-year charter of the semi-submersible drillingplatform Scarabeo 7.

Onshore activities: On behalf of NAOC, the Okpai Power Plant project, involving the construction of a 'combined

cycle' Power Generation Plant. The contract was awarded to Saipem S.p.A. in consortium withAlstom Power I talia (leader).

On behalf of Shell Petroleum Development of Nigeria Ltd., the debottlenecking for Soku LNGGas Supply Plant Facilities.

On behalf of Naoc, GTS-4 EPC project for the gas pipeline in the River State.

Saipem Group Nigeria Lagos Offices


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COMPANY ORGANISATION AND MANAGEMENTSYSTEMSaipem activities in Nigeria are under the responsibility of the Managing Director who issupported by a very well organised structure. Company organisation has been structured inorder to reflect the operational activities. Drilling, onshore and fabrication have their specificdepartments for commercial purpose and operations. All these, are supported by shareddepartments as Human Resources, Organisation and ICT, Security, Administration, Finance andControl, Contracts and QHSE. The sustainability approach is the result of the competentmanagement displayed by all Company's departments. The HSE and the Local ContentDepartment (part of the HR department) are more directly involved in the organisation of thesustainability issues. The HSE team comprises 45 personnel and is responsible for the HSEmanagement for all Saipem projects in Nigeria. The HSE manager is responsible for all activitiesand is supported by HSE project supervisors and safety officers. An HSE training co-ordinatoris also features in this organisation. The HSE system in Nigeria follows the same structureadopted at group level. Saipem Corporate defines policies, guidelines and standards suitable for allthe operative companies inside the Group. Then, the operative companies establish specific policies,targets, organisation, procedures and work instructions. At last, at project level, plan and specificprocedures are set. The Local Content Department was established in 2002 in order to improvethe relationships between Saipem and its local stakeholders and to develop significant localinitiatives to raise Saipem local content percentage. Although this is a new structure, in Nigeriaas well as in the whole Saipem world, the link between this office and the Corporate office areguaranteed by the structure described for the management of socio-economic issues. TheSustainability Facilitator, responsible for the Local Content Department, is part of the internationalnetwork working on these issues.

Saipem Group in Nigeria has a well structured management system covering all company coreand support processes. The system has been designed in line with the Saipem Corporate

Policies, Guidelines and Standards. In order to ensure a proper implementation of the policiesand procedures, dedicated teams have been appointed for the various disciplines such asQuality Assurance, HSE, Local content, etc.

MISSION AND POLICIES

Saipem's business approach is consistent with its mission, policies and procedures which arein force at all Saipem companies worldwide. Each operative company, if necessary, can adoptits own statements and policies following the Corporate requirements.Saipem Group Nigeria Managing Director issued the Group mission and based on this, a seriesof policies statements have been approved (i.e. HSE, quality, security, etc.). Among the other,the most relevant in this reports' perspective are the Community Relations Policy and the Local

Content Policy later on included.

CommercialDrilling

MANAGINGDIRECTOR

HumanResources,

Organisation & ICT

Administration,Finance

and Control

Security

QHSE

Contracts

Procurement,Assets

& Logistic Center

Maintenance,Modification

and Operations

OnshoreCommercial

OnshoreOperations

DrillingOperations Fabrication

HSE Team

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Community Relations PolicySaipem Nigeria is highly committed to developing and maintaining friendly and mutuallybeneficial relationships with its host communities.The Company intends to achieve this objective by: Establishing and maintaining an effective communication channel with host communities Identification and implementation of fair procedures for hiring of local personnel

Establishing a rapid response approach to complains from the communities No interference in local affairs of employees as well as behaviour that could be offensive tolocal traditions, customs or religious practices Participation in some local activities of the communities to promote social integration Assisting the communities in harnessing and developing available local manpower

Local Content PolicyA company with a Human FaceIn line with the Corporate Sustainability Policy, Saipem Logistics Services Ltd has established aLocal Content Policy based on the following principles: Implementation of an effective and transparent sustainability communication network withinthe Group Provide training to develop human capital and building competencies in the management of

field of Sustainable local capacity developments

Maintain an open and transparent dialogue in decisions, which affect all stakeholders Maintain the Health, Safety and Environmental aspects in compliance with existing HSE policy

and principles Protect the Environment, respect of Human and Social rights of employees and Contribution to

local economic development Establish a reliable verification system for the performance of suppliers according to sustainability

principles

Mr Otobo Evi Local Content Manager

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Saipem has always adopted a direct approachwith its stakeholders, especially at operatingsites, such as in Nigeria. This approach oftenresults in initiatives aimed at answering specificrequirements from clients, local communitiesand authorities. So far, no formalisation system for the management of the stakeholders' requirements had seemed necessary. With the

development of the operations and their diversification, Saipem has experienced an increase in the number of stakeholders and of their

requests. The Company, therefore, reached the conclusion that a formalised management system would facilitate the job and simplify

the relationship with stakeholders. Saipem now needs a more formalised approach that would enable it to answer all stakeholders

exhaustively. At Corporate level Saipem is developing guidelines to formalize the mapping, analysis and consultation of local

stakeholders. This procedure will be implemented during major Saipem stakeholders' relationships at local level. In 2003, Saipem

Group in Nigeria improves its external communication through the development of a booklet titled Here to Stay. This brochure presents

the base and the operations, but also Saipem efforts to develop local content. This report is further attempt to achieve a more formalized

relationship with stakeholders. This chapter details several initiatives carried out by Saipem for its major stakeholders.


ELATION

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SAIPEM EMPLOYEES IN NIGERIAAt December 2003, the total number of employees is curren tly 2,506, of whom 2,030 areNigerians and 476 International. This means that the 81% of the Saipem Group employees inNigeria are locals. One of Saipem's targets is to increase the percentage of local employees.

This will be achieved through a local manpower development program and a training program,both described in detail in the following paragraphs. Local employees agreed to different contractualconditions according to the Memorandum of Procedural Agreement, signed by Saipem and bylocal trade unions. These contracts are linked to the different employment categories existingwithin the company: junior staff, senior staff and special workers. These agreements define thebasic salary, detailed conditions, benefits and allowances paid by Saipem and are renewed everytwo years following negotiations between the two parts. Basic salary and benefits will bedescribed in the social performance analysis of this report.

TRADE UNIONSSaipem Group employees in Nigeria are represented by four main trade unions; they act on behalf

of senior and junior staff and for the construction and drilling workers. Trade unions as representativefor Saipem local employees, support Saipem in maintaining positive and strict relationship with workers.Trade Unions sign the contractual agreement, which is updated and revised every two years. The lastagreement was signed in October 2002 and is effective until September 2004. The percentage ofworkers who subscribed to the trade union is 75% of the total local employees, the vast majoritybeing Junior staff (75% of subscribers).

LOCAL COMMUNITIESOne of the main stakeholders of Saipem Nigeria is the local community. A successful relationship withthe local communities is a prerequisite for the success of Saipem's operations, as communities have abig influence in Nigeria's Oil&Gas market. Saipem aims to develop the relationship with the local

communities and find the best balance between local communities' requirements and company's abilityto fulfil them alongside the business needs. Saipem's approach is based on direct contact with the localcommunities. This is the reason why Saipem developed a well-organised internal structure, therebyavoiding the risk connected with the use of intermediaries. Saipem's main considerations are for theneeds of three different communities in the area of Rumuolumeni. Attention is also given to variouscommunities local to the areas where the projects are developed, especially at the beginning of onshoreprojects. Local communities' requirements consist mainly of finding jobs for their members and gainingan advantage for existing industrial and commercial enterprises from Saipem presence. Saipem isimplementing an intense program to maximise local content, in terms of local employment and alsolocal purchasing, as described in the local contribution paragraph. On the other hand, Saipem bound bythe technical and contractual requirements set by the client. Communities' relations are mainly based onmemorandum of understanding, an agreement signed by Saipem and local communities before thebeginning of a project. This sets the percentage of local employment and purchasing and states Saipem'scommitment in the development of the community. In most of the cases a memorandum of understanding

doesn't satisfy the community in the long term and a continuous process of consultation is necessary.In order to facilitate the consultation process with local communities, Saipem regularly involves allthe communities in a consultation forum. During this event, Saipem is used to describe the projectand underline the main socio-economic and environmental effects of the project. This assurestransparency with regard to the real possibilities for Saipem to maximise local content. A consultationforum was organised in April 2002, at the beginning of the third phase on the OB/OB project. With thesupport of the client and the local authorities, Saipem managed to convene all the necessary parties tothe forum. The main communities were represented by over 1,000 people. This interesting also aimedat facilitating relationships with local suppliers. In 2003, Saipem started the construction of a powergeneration plant in the area of Okpai. This plant will supply approximately 480 MW of electricity to theregion and thanks to the 'combined cycle' the project will optimise the power output and minimize gasemissions. Okpai communities are involved for the first time in oil and gas activities and this is the mainreason why negotiations and mutual knowledge will require long process and a high level of attention fromboth parties. After signing the Memorandum of Understanding with the Communities, Saipem

periodically meets communities' representatives by organising consultative forums that aremanaged by Saipem local lawyer.

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CLIENTSDuring the period under consideration, projects developed by Saipem were commissioned by manydifferent clients, such as Eni, Exxon Mobil and Total. Oil companies are operating and producing inNigeria through locally registered branches. Nigerian Branches can often sign joint venture agreementswith the Nigerian National Petroleum Company (NNPC). The Nigerian Government has recent lyintroduced a Production Sharing Contract (PSC) for offshore activities. This agreement implies thatoil companies can invest in exploration and development of new fields, which remain the propertyof NNPC. During the production phase, the operator pays taxes and royalties on products, whereasrevenues are divided between the operator and national government. This contract, which is supposedto be the future in the Nigerian oil and gas sector, lasts 30 years. Oil companies are expected tocomply with local development requirements, measured in percentage of local content. Today, no lawis in force that sets the minimum percentage of local content of the various projects but the NigerianGovernment is expected to change this soon. An official document by the National Committee onLocal Content - Synchronised Report on Enhancement of Local Content in the Upstream Sector ofthe Oil & Gas Industries in Nigeria - already targets improvement for local content percentageat 95% for the multinational operating and service companies. Saipem efforts to improve the localcontent for its activities are seen as an advantage for clients with regard to the local authorities'requirements. Saipem informs its clients about the percentage of local content of its projects andinitiatives important for the local development. Again the relationship between Saipem and its clientsis very close and different departments involved in operations discuss specific issues directly withthe clients' representatives. During new project acquisition, clients' requirements on local content andon the management of socio-economic aspects are increasingly important. Saipem, pursuant to theHSE management system, is developing a formalised approach to be implemented during projectsproposal phase.

LOCAL SUPPLIERS AND SUBCONTRACTORSIncreasing the number of local suppliers and subcontractors is challenging for Saipem; not onlywould it mean an increase in local content but also costs reduction in terms of the overall purchasingactivities, resulting in logistics and custom saving and local based advantages. As stated before, in

2003 Saipem developed a Local Content Policy and organised initiatives aimed at meeting key localsuppliers and subcontractors to discuss mutually satisfactory deals. In October 2003, Saipemconvened a workshop to create room for improvement between vendors/ suppliers and Saipem. Themajority of Saipem's vendors and suppliers were invited and the total number of participants was50. During the forum, Saipem explained its ethical, HSE, quality requirements as well as its paymentprocedures. On the other hand, local vendors and suppliers had the chance to understand betterthe Company and its rules. Saipem also reiterated to local subcontractors the need for completecompliance with Nigerian law on corruption (Corrupt Practices and other Related Offences Act,2000). Following the workshop, an intense schedule of meeting was established for the 2004.Saipem's departments for Local Content, Quality, Safety and Procurement are to meet major localsubcontractors and table each others requirements and expectations.


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NDICATORTHE ENVIRONMENTAL PERFORMANCE

The Nigerian Federal Government established theFederal Environmental Protection Agency (FEPA)in 1988 to protect, restore and preserve theecosystems in Nigeria. The Federal Ministry for theEnvironment is one of theGovernment EnvironmentalAuthorities for monitoring, controlling and coordination environmental issues for companies operating in the Country. Saipem activities

are audited by FEPA as per the regulatory compliance requirements existing in Nigeria. The aim of this section is to show the Saipem

Group's environmental performance in Nigeria. Saipem is implementing a planned and systematic Environmental Management System

at Rumuolumeni operational base. This process is already underway and steps have already been taken to fulfil the requirements of

ISO14001. Saipem is to expand its operational base in Rumuolumeni in order to take into consideration future projects requirements.

As per the existing Regulatory Compliance requirements, new industries and major development projects are to submit Environmental

Impact Assessment (EIA) reports to the local Authority. For this, in 2003, Saipem developed an EIA report and fulfilled all legal

requirements. All environmental data in this section, comes from the HSE accounting system, which has helped Saipem over the years

to develop the accountability for the Corporate HSE report. As already mentioned, Saipem is involved in both offshore and onshore

activities. Sometimes offshore and onshore data are presented separately to emphasise the results from the two different activities.

Whenever possible, environmental data has been integrated with other indicators in order to present a more comprehensive

performance evaluation.


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WATER CONSUMPTION

On Saipem offshore vessels, water is mostly used by the engine cooling systems and ballastingoperations, for which sea water (non desalinated) is mainly utilized. Water is also used for generalservices on offshore vessels. Water consumption for onshore activities mainly involves generalservices. Water's consumption trend is also strictly related to the pipelines commissioning; this activity

requires large amount of water that really influence the early overall consumption. In Nigeria, the mainsource of water comes from ground (47%) rather then other sources. This is clearly evident at theRumuolumeni base where there are two boreholes to cater for the base's entire water requirements. Inthe new camp at Okpai, established for the development of a power plant project, the service watersupply and treatment have been particularly well planned, with the implementation of advanced systems.Most of the onshore projects camps have water treatment facilities which are monitored on monthlybasis. The water analysis data clearly indicates that all the parameters are in strict compliance with thelocal regulations. In 2003, total water consumption for Saipem Group operations in Nigeria isapproximately 120,000 m3. To easily analyse water consumption trend, the data are compared toWorked Man Hours (WMH).

ENERGY CONSUMPTION

Since the electricity supplied from public network is not suitable for Saipem use, power is generatedby power generators using diesel at almost all Saipem projects sites. Approximately 75% of thefuel is used by the power generators and the remaining 25% by vehicles. In 2003, a spillage in thefuel pumping station area in Rumuolumeni occurred. A spillage occurred whilst offloading from thepumping station to the oil tanker, due to a pressure build-up in the pipeline, caused by rags andplastic materials clogging the pipe's fi lter. This resulted in the rubber gasket fail ing and approximately800 l of diesel oil spilling out; as a result; the area in and around the fuel pumping station wasimpacted. HSE Emergency Response Team responded immediately and brought the situation undercontrol. In 2003, total diesel consumption was 25,000 tons. To show the energy consumption

through graphs; TOE (tonne of oil equivalent) are compared to drilling meters for the offshore andonshore drilling activities and TOE versus number of employees to evaluate energy consumption inRumuolumeni base. In 2003, a spillage in the fuel pumping station area in Rumuolumeni occurred.A spillage occurred whilst offloading from the pumping station to the oil tanker, due to a pressurebuild-up in the pipeline, caused by rags and plastic materials clogging the pipe's f ilter. This resultedin the rubber gasket failing and approximately 800 l of diesel oil spilling out: as a result, the area inand around the fuel pumping station was impacted. HSE Emergency Response Team respondedimmediately and brought the situation under control.

WMH

m3

2001 2002 2003

WMH Water C onsumption

Offshore Water Consumption

0 0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

10,000

20,000

30,000

40,000

50,000

60,000

Onshore Water Consumption

WMH

m3

WMH

2001 2002 2003

Water Consumption

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

0

20,000

40,000

60,000

80,000

100,000

120,000

Rumuolumeni BaseTOE/employees

TOE/employees

2 00 1 20 02 20 03

0

2.00

4.00

6.00

8.00

10.00

12.00

Okpai water conditioning plant

Offshore & Onshore Drilling - TOE/Drilling mt

TOE/drillingmt

OnshoreOffshore0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

2001 2002 2003

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WASTE

In 2003, waste generation decreased versus previous years (1,470 tons in 2002 to 910 tons in 2003).This is true for both hazardous and non hazardous waste. This performance improvement is attributedto better management in the collection and discharge of waste particularly at the Rumuolumeni base,which is also supporting various Saipem offshore units. Waste volumes may increase on account of

various news projects. Since ISO 14001 certification process started in 2003, efforts have been made toimprove waste management. In 2003, 36% of non hazardous waste consisted of ferrous refuses, 14%urban waste and 13% organic cooking waste. All waste were disposed off by local accredited wastedisposal contractors. 76% of hazardous waste comprised exhausted engine oil, 6% was waste fromthe water treatment plant. To describe the waste production trend, waste materials are compared todrilling meters and number of employees in Rumuolumeni Base.

GAS EMISSIONS

Gas emissions from Saipem operations in Nigeria are estimated based on its diesel and gasolineconsumption. Main air pollutants such as CO, NOx, SO2, CO2, are calculated based on the fuelconsumption in the reference period. In 2003 estimated CO2 emissions were 87 Ktons, CO emissionwas 1.2 Ktons, NOx 0.95 Ktons and SO2 0.1 Ktons. Emission's coefficients adopted to calculate gasemission from operations are based on studies and analyses carried out by Saipem. These coefficients

Ton/Drillingmt

Non Hazardous Waste Hazardous Waste

2001 2002 2003

Waste Generation: Offshore activities Ton/Drilling mt

0.000

0.003

0.006

0.009

0.012

0.015

Waste generation: Rumuolumeni BaseTon/Nemployees

Ton/Nemployees

Hazardous WasteNon Hazardous Waste

2001 2002 2003

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2003 Non Hazardous Waste

Offshore 44%Rumuolumeni Base 28%

Onshore drilling 14%

Onshore construction 14%

2003 Hazardous Waste

Offshore 46%

Rumuolumeni Base 21%

Onshore drilling 31%

Onshore construction 2%

CO2 Emissions/WMH

OnshoreOffshore

n.a.

2001 2002 20030.00

Ton/WMH

0.01

0.02

0.03

0.04

0.05

0.06

SO2 Emissions/WMH

OnshoreOffshore

2001 2002 20030.00000

0.00001

0.00002

0.00003

0.00004

0.00005

0.00006

Ton/WMH

n.a.

NOx Emissions/WMH

Ton/WMH

OnshoreOffshore

2001 2002 20030.0000

0.0001

0.0002

0.0003

0.0004

0.0005

0.0006

n.a.

CO Emissions/WMH

Ton/WMH

OnshoreOffshore

2001 2002 2003

n.a.0.0000

0.0001

0.0002

0.0003

0.0004

0.0005

0.0006

0.0007

0.0008


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can be considered, at present, as the most appropriate ones to estimate the emissions produced byoperating activities. Tons of gas emissions are easily compared in the reference period by applying theindicator for tons of emissions versus worked man hours.

THE SOCIAL PERFORMANCEThe aim of this section is to analyse the main data related to the social area of the Saipem Groupoperations in Nigeria. For the first time Saipem is disclosing in a structured document the specificsocial performance information on Nigeria. In particular this section includes employee distribution,training, safety performance and health and safety programs. One of the Saipem's targets for 2004 isthe formalisation of an accounting system through the adoptions of a specific procedure that willensure the evaluation of each projects local Content.

EMPLOYEES DISTRIBUTION

The increase of local manpower is a Top Management commitment for the whole SaipemGroup. The Saipem Group in Nigeria has been endeavouring to increase the number of local

employees since starting operations in this Country. In 2003, Saipem consistently increasedthe number of employees (107%), thanks to new project acquisitions and the high backlogof the Saipem Group in Nigeria. The number of local employees in 2003 increased byapproximately 145% versus 2002, i.e. an even greater percentage than the overall increasein employees. In 2003, local employees made up 81% of the total, versus 68% in 2002..

2002 2003

TOTAL NUMBER OF EMPLOYEES 1,211 2,506

Expatriates 384 476

Local 827 2,030

% of Local employees 68% 81%

Saipem's long term activity in Nigeria has enabled the development of long-standing Nigerianemployees professional skills. One of the main targets of Saipem Group in Nigeria is to improve the

standard of local content as well as the number of local workers. In 2005 Saipem Group in Nigeriaaims to achieve 90% of local workers and to increase this percentage to 95% by 2006. This is avery challenging target that can be attained thanks to a strategic local content development planand an intensive professional training program. Starting from the selection of its subcontractor, aswill be expla ined later on, Saipem is favouring local companies, adopting internationalssubcontractors only where goods are not available locally. Both local and internationalsubcontractors are driven by Saipem to use local manpower and increase their local content. Asconsequence, the number of local employees working for Saipem's subcontractors at theRumuolumeni base is even higher than that of Saipem (84% of local subcontractors employees).

TRAINING

Saipem construction and drilling activities uphold the highest professional and safety standards.

This depth of knowledge can be achieved only through comprehensive training programs. Withregard to professional training, local employees are flanked by their supervisor, who can supportthem in the execution of daily activities. The organisational structure adopted gives expatriatesthe responsibility to teach and transfer knowledge to a small number of local employees whowork under them. Following this on the job training some local employees have the chance todevelop their professional skills further. Saipem couldn't currently quantify the value of this onthe job training but formalisation of the training system is planned for the next year. The efficiencyof the on the job training is demonstrated by employees experience shown below.During 2003 Saipem was focused on an intense HSE training program, spending 17,017training hours on HSE items. The following graph shows HSE training hours for general inductionand technical training for specific operations. Saipem also developed health training courses foremployees focused on: Sexually Transmitted Diseases (STDs), including HIV/AIDS; First Aid training and

Malaria awareness.

Total Employees Distribution

Saipem Subcontractors

Local Non local


0

500

1,000

1,500

2,000

2,500

3,000

N

Local Content Trend and Targets

2002 2003 2005Target

2006Target

0%

20%

40%

60%

80%

100%

Employees Distribution

Expatriates 19% Locals 81%

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Details on the health programs will be described in-depth in the following paragraphs. Saipemtraining activities are also aimed at local students who are undertaking a one year internship atSaipem. This internship gives to some young local graduate the possibility to complete theirbackground with practical and technical skills that will be necessary to be involved in the Oil &Gas sector. In 2002 all trainee students were employed by Saipem at the end of their internship.In 2003 the number of these Industrial Trainees was 13, who were involved mainly in the logistic

department.

INTERVIEW WITH ADENIJI RAMONI - OPERATION MANAGER RIG 5832How long have you been working for Saipem?Since 1988How old were you, when you joined Saipem?I was 27 years oldWhat was your professional role at the beginning?

Tool pusher traineeWhat was your professional skill before enjoying Saipem?I had got some professional experience with an oil company, the then Petroleum Inspectorate now Department of PetroleumResources (DPR).How old are you now?43 years oldWhere do you came from?From the South- west of Nigeria - about 100 km from Lagos. My family still lives there because I prefer them to stay in myoriginal town.What are main steps of your professional development?After four years of working as a tool pusher, in 1992 I was promoted to operation manager for Rig 5847, a mechanical rig thatwas dismissed by Saipem some years ago. Since 1994 I have been operation manager for Rig 5892 and now I'm working forRig 5832. I'm also Logistic operational manager for some Saipem Offshore activities. I've been following the projects fromRumuolumeni Base since 2001.

How many people are working under your supervision?Saipem employed about 114 people working on Rig 5832. About 11 expatriates, 73 local staff, about 30 contractors.How did you improve your professionalism?Saipem was a very challenging experience for me. Saipem gave me the possibility to grow but my own endeavour was verystrong since the beginning. I followed the training courses needed to develop my job skills and I received on job training fromvery enthusiastic people who shared with me the feeling of being part of a great Company. I think the Company can improveand encourage professional growth of locals, focusing more and more on professional training. From my point of view, localworkers must be proud to work for Saipem and this could be achieved if people transmit their commitment to the job and to theCompany itself.What are your future professional target?I'm going to give the maximum I can to this Company as I've been done since the beginning, but I would like also to share myknow-how with other local employees who can grow as I did.Do you think some of your colleagues are following your professional growth?I think same of them can really improve their professional skills but the general number of professionals is falling due to the

decrease in onshore drilling operations. This is a general trend of the onshore drilling operations in this Country; there are many

HSE Training by topics

Basic

Offsh

ore0

1,000

2,000

3,000

Training

Hours

4,000

5,000

Genera

lSafety

Cours

e

Induct

ionCo

urse

Riggin

gand

Lifting

FireFig

htingP

revent

ionOth

ers

Defens

iveDri

ving

Crane

Operati

onFirs

tAid

Occupa

tionals

afetyM

anagem

entCo

urse

Manua

lHandl

ing

JobSafety

Analy

sis

Scaffol

ding

Mr Adeniji Ramoni Operation Manager

Training Center at Rumuolumeni Base


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reasons for this but I think that the main reason is connected to the costs that the contracting companies and the oil & gascompanies have to support working with the communities. Local Communities are asking more and more to the Companiesand operating in certain areas is no longer profitable for them.What initiatives can Saipem take in order to let more Nigerians improve their skills?First of all, expatriates and especially Italian people, should share their passion for working in this sector and the Saipem Group.We need to improve the chances of retaining who we have already trained giving them career opportunities and training them

on additional skills. This will allow us to allocate people to different professional role if necessary.

SAFETY

Saipems commitment to safety is one of the daily targets for all operations personnel. Safety performancehas been recently characterised by an improvement obtained by a huge effort of the HSE staff. The safetytraining developed to almost all employees, the particular care in the use of Personal ProtectiveEquipment (PPE) and the top management's commitment are some of the key issues of the HSEmanagement in Nigeria. The graphs below show the LTIFR (Lost Time Injuries Frequency Rate) of theSaipem Group in Nigeria in 2003 compared with the previous years (2.85 versus 2.93).Although all data points to an improvement in the safety performance, the Saipem Group in Nigeriaexperienced a fatality in May 2003. During maintenance operation on a grader, a team of 3 heavy dutymechanics was removing the right front wheel in order to repairing the bearing of the wheel drum.

Whilst hammering the wheel on the internal side, the rim locking ring blew off striking the left leg of oneof the mechanics, semi-amputating the leg under the knee. The worker died in the hospital. Theinvestigation following the incident underlined ones more the need for ongoing training at all levels and anincreasingly precise assessment of operational risks.

HEALTH

At all Saipem's site and/or project worldwide, medical assistance is internally managed by Saipem'sstaff. The Rumuolumeni base has a clinic and a team of 12, comprising both doctors an nurses,employed to assure medical service to employees and subcontractors working at the base and onnearby operational sites. All other main Nigerian projects involve at least one doctor and in mostcases one local nurse. The total number of people working for the medical department in Nigeria in2003 was 28, 18 of whom are locals. In particular, the Medical Staff is in charge of preventiveactivities, curative, administrative and organizational activities. With regard to preventive activities,Saipem's medical department performs medical examinations (pre-employment medicals andperiodical examinations); immunization and chemoprophylaxis programs; health risk assessmentin addition to hazard identification, evaluation and control (location, biological, chemical, physicaland psycho-social factors). Training and educational programs are also part of the preventiveactivities. The 2003 training programs focused HIV/AIDS, Sexually Transmitted Disease and Malariaawareness. The Sexually Transmitted Disease (STDs) program was developed by Saipem CorporateMedical Department and implemented by Medical staff at local level. The program is based on an

Information-Motivation-Behaviour Skills model and focuses on three fundamental determinants for

Safety Statistic - all operations

WMH

2001 2002 2003

LTlfr

W

MH

L

Tlfr

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

0

1

2

3

4

5

Dr. Prso and Nurse at Saipem Clinic

in Rumuolumeni Base

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STD, HIV/AIDS risk reduction:1. Information regarding STD, HIV/AIDS transmission and prevention;2. Motivation to change high risk sexual behaviour; and3. Behavioural skills for performing specific STD, HIV/AIDS preventive actions/measures.About 60% of the employees were involved in STD, HIV/AIDS training in 2003. The health trainingprogram for 2004 is to be very intense and Saipem strives to achieve at least 70% of overall

targets. Beside the STD, HIV/AIDS, another significant initiative is the Malaria Control Program (MCP)developed by Saipem's Corporate Medical Department and implemented in Nigeria.The program consists of: Awareness - through a specific education program Avoidance of Bites by mosquitoes Compliance with recommended chemoprophylaxis Early Diagnosis and prompt treatmentAlthough information on Malaria risks is widespread among employees, certain diff iculties inconvincing people on the effectiveness of chemoprophylaxis still subsisted. A recent statistic (2003)developed among 623 expatriates, shows that, in spite of information received, 454 decided not toadopt the suggested chemoprophylaxis. Next following table shows justifications given byinterviewees.

Reasons for non-compliance Drug prescribed

Mefloquine Atovaquone+Proguanil1. Adverse effects 17.84% 10.79%

2. Did not consider necessary 56.60% 5.94%

a). Longer stay in endemic area 45.91% 77.77%

b). Ready access to prompt diagnosis & treatment 43.96% 14.81%

c). Confident about the effectiveness of bite prevention 10.11% 7.40%

3. Contraindication due to medical reasons 6.82% 1.98%

The medical department is also responsible for curative activities, the performance of diagnosticprocedures and of the therapeutic methods, both medical and surgical.The referral and/or transport of the sick/injured to a higher level medical if required.Finally, medical staff is also involved in administrative and organisational activities of all issuesrelated to their responsibilities.

THE ECONOMIC PERFORMANCEThe paragraph aims to analyse the economic performance of Saipem Group in Nigeria, which islinked to Saipem's position as a driving force for local development. The data provided comes fromboth Nigerian official economic accounting systems (SAP System) and the HSE accounting system.Saipem companies operating in Nigeria belong in a very strictly way to the Saipem Group. Theyproduce an annual economic report that is used internally to consolidate Nigeria's economic datawith those of the group. Saipem Group Nigeria annual report is best analysed in conjunction withthe results of the Saipem Group, as all their activities and projects are in some way integrated withother companies of the Group or with Saipem Corporate. For this reason, economic data regardingonly Saipem Nigeria are not included in this report. Items described are related to Health, Safety andEnvironmental expenditures; local employees salaries and purchasing of local materials and

services. HSE expenditures data were collected using the HSE accounting system from all sites. Thisdata has been also included in the HSE corporate report. In 2003 we assessed the possibility togather this data from Saipem's financial accounts system. An internal working group (ASTAF -Accounting for Sustainability Task Force) was established in order to identify expenditure related toHSE issues within Saipem's financial accounting system. The working group developed anaccountability report produced by the existing financial accounts system considering HSEexpenditures and investments. This new approach will be available for the 2004 financial year.

SAIPEM CONTRIBUTION TO THE LOCAL ECONOMY

Saipem's long standing operations in Nigeria made it possible for the company to develop in depthlocal market awareness. Saipem now can buy locally most materials and services necessary tocarry out operations. All purchasing activities carried out in the reference period were analysed. This

evaluation showed that Saipem expenditures at local level exceed 93% of the total purchase, with


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Trend of Safety expenditures (Euro/WMH)

2001 2002 2003

0.00

0.03

0.06

0.09

0.12

0.15

Total costs distribution

Leases 5%Raw materials 10%Work 45%

Materials 10%Taxes 8%Services 23%

Local costs distribution

Services 34%

Raw materials 10%

Work 18%

Taxes16%

Materials 7%

Leases 15%

only minor variations over the years. These costs were compared with the overall expenditure of theSaipem Group in Nigeria. This figure includes purchasing of materials and services at local level,labour costs for local employees and local taxes. The cost distribution shows that, in 2003,approximately 30% of the local expenditure is on services, 18% on labour and 16% on taxes.15%of the local costs were on renting of infrastructures and 10% on purchasing of raw materials. Thecosts for materials, subcontracts and training are less significant comparing to other issues.

Comparing the local costs breakdown with the total costs of the Saipem Group in Nigeria, it isevident that most services and taxes costs are local costs, because their percentages decreasewhen included in the total costs graphs. On the contrary, labour costs are mainly non local costs.

SAFETY EXPENDITURES

As part of the Saipem group costs, particular attention is paid to safety expenditures. Saipem safetycosts for 2003 were estimated at 1 million euro. This data refers to safety expenses and not safetyinvestments, which could not be assessed as integrated part of the overall investments done inNigeria. Safety expend

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