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Letter to the Shareholders

Dear Shareholders,

2010 saw an initial stabilisation of oil prices, followed by an upward swing driven by an economic recovery, particularly in Asia, and by social and political tensions in a number of important oil producing nations. Rising oil prices and anticipated price developments have made the development of non-conventional reserves an economically viable proposition and have led to a degree of recovery in investments in Canadian tar sands development projects.

In the gas sector, the exploitation of shale gas has caused a significant drop in prices on the U.S. market. Meanwhile, in Europe, relatively weak demand, coupled with the abundant supply of liquefied natural gas has led to the postponement of a number of planned pipeline construction projects. Investments in the oil industry during the year saw a divergence between the National Oil Companiesi, who increased their overall spending in 2010 compared with 2009 and the International Oil Companiesi, who on average invested the same as in the previous year. This created an uneven market situation for contractors, in which the Onshore sector – traditionally dominated by the National Oil Companies – flourished, while the Offshore segment – where International Oil Companies tend to have a stronger presence – performed relatively weakly. Saipem was able to fully exploit the favourable conditions on the Onshore market, posting a 111% increase in new contract acquisitions compared with the previous year, but also managed to maintain steady order backlog levels in the Offshore sector despite the adverse conditions, as a result of a strong competitive position in frontier areas, which are traditionally less exposed to market cyclicality.

The Saipem share grew by 53.6% in 2010, benefiting from the record level of contract acquisitions and the prospect of further improvements in market conditions in the Oil Services Industryi.

The results posted by Saipem in 2010 represented new records in terms of both volumes and profits and were achieved in spite of the impact of the unfavourable market conditions seen in 2009, thus confirming your Company’s strong competitive position and operational efficiency.

Compared specifically with 2009, revenues rose by 8.4%, EBITDAi by 15%, EBITi by 14.1% and adjusted net profit by 13.1%.

In terms of the individual business lines, in the Offshore sector, revenues rose by 3.3% and EBIT was in line with the previous year, with activities concentrated in West Africa, Kazakhstan and the North Sea. In the Onshore sector, revenues rose by 8.4% and EBIT by 27.6% as a result of the recommencement of work on the Manifa project and higher volumes in North and West Africa. In Offshore Drilling, revenues rose by 32.5% and EBIT by 34.4% due to higher fleet utilisation rates and new rigs commencing operations. In Onshore Drilling, revenues rose by 24.2% and EBIT by 32.2% due to new rigs commencing operations in South America and Congo and the refurbishment of two rigs in Kazakhstan owned by a client.



The level of operational efficiency achieved confirmed your Company’s position at the top of its industry. With regard to safety, the LTIFR (Lost Time Injury Frequency Rate) was 0.4, compared with 0.48 in 2009, although the year unfortunately witnessed six fatal accidents. We must respond by making even greater efforts to ensure that all Saipem personnel maintain a high level of safety awareness.

As illustrated in the Sustainability Report, Saipem is continuing to implement sustainability policies and initiatives in the communities in which it operates, particularly in those where – at a time of great political and social upheaval – it is able to make a significant contribution to sustainable development through a local content strategy.

The year saw the continuation of the major investment programme launched in 2006, with an overall annual outlay of € 1,545 million. During 2010, work continued in the Offshore sector on the construction and fitting out of a new pipelayer and a deepwater field development ship, the conversion of an oil tanker into an FPSO vesseli and the development of a new fabrication yard in Indonesia.
In Offshore Drilling, 2010 saw the completion of works on a new ultra-deepwater drillship and a jack-up and the continuation of the fitting out of two semi-submersible rigs. Finally, in Onshore Drilling construction work on three rigs continued.

Oil industry spending is expected to increase in 2011, underpinning expectations of improved market prospects for the oil services industry. Specifically, Onshore sector spending is expected to experience a continuation of the high levels of investment seen in 2010, while the Offshore sector spending is expected to increase. This should allow for a continued positive trend in the Onshore market and a gradual recovery in the Offshore market, a sector that has remained weak over the last two years. In the Drilling sectors, good demand is expected to lead to a gradual recovery of both utilisation levels and daily rates.

As far as Saipem is concerned, the record level of the backlog, its size and quality, and the strong operating performance of the industrial model, underpin expectations of again achieving record results.

Investments for 2011 are expected to be around € 1 billion and will be spent on completing the expansion of the Drilling fleet and further progress towards strengthening the Offshore asset base.

March 8, 2011

On behalf of the Board of Directors



The Chairman
Marco Mangiagalli


            The Deputy Chairman and
               Chief Executive Officer
                  Pietro Franco Tali