Equinor ASA (EQNR) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Statoil Fourth Quarter Earnings Presentation. I would now like to turn over to Mari Thjomoe, Investor Relations. Please go ahead and I shall be standing by for questions.

Thank you. Good morning to everyone listening in from the U.S. and good afternoon to everyone listening in from Europe. Welcome to Statoil's Fourth Quarter 2002 Earnings Presentation. My name is Mari Thjomoe of Investor Relations in Statoil. It is a pleasure for me to introduce to you to the speakers, Executive Vice President and Chief Financial Officer, Mr. Inge Hansen and Senior Vice President for Accounting, Planning and Control, Mr. Eldar Saetre. Mr. Hansen will give the first part of the presentation and Mr. Eldar Saetre will take the final part.

The presentation used today on the conference call can be found and downloaded from our web page and it has been available there since 8.30 CET this morning. Those of you who followed the Analyst Meeting at 10.30 CET via web cast will already be familiar with the presentation. After the presentation, we will be happy to take questions.

Before we start, may I remind you all of the disclaimer you will find on page 2 of our presentation. And with these words, I will leave the call to Mr. Inge Hansen.

Yes, good morning to you listening in from the United States and good afternoon to the others listening in from Europe. We will concentrate the presentation today around the fourth quarter and the 2002 year-end results. In June, we will have a capital market day in Stavanger where we will focus on what we are going to have targets for the full years up to 2007/2008.

The main message we want to convey today is that it has been a good result for Statoil, both in the fourth quarter and also in 2002 due to high production and high efficiency. We are making good progress towards our 2004 targets. At the same time, also, we are strengthening our upstream positions internationally. With the operatorship in Iran, with the production growth in Venezuela that we have had new finds and also production growth in West Africa and improvement of [indecipherable] Phase II and the DPC pipeline in [indecipherable].

Thus, we feel much more confident about our NOC strategy, the corporation with other international companies today that is [indecipherable] 12 months back.

And on the Gas market, first of all, we are very satisfied that we solved the dispute with the EU regarding the abolition of the [indecipherable] in an amicable way, which was a satisfactory solution to Statoil. We are seeing that the UK has developed a very interesting gas market and we are pleased with the new gas contract entered into with Centrica. And also that we have established ourselves in the American gas market through buying back the El Paso contract and getting access to the Cold Point terminal.

So, overall it has been a good year for Statoil in 2002.

If you then go to page 3, a few comments on the fourth quarter. We had a clean EBIT of 12m NOK, that's up 18% over fourth quarter 2001. The net income of 5.1 compared to 3.1 in the fourth quarter, or 64%. And also the EPS of 2.34, that's a 64% increase over the same quarter in 2001.

Production increased by 7%. And the prices were up 14% in NOK. The oil price, we had a record production of 1,170m NOK. Strong assets of 6.2% and have dropped down the unit costs and we had a return to gains on debt of 2b in that quarter.

Now to special items. We wrote down the other 652 completely in the fourth quarter this year, that's 0.8b before tax and 0.6b after tax. In the same quarter in 2001, we wrote down the other 652 by 2b and also get the gain of 1.3b on the Vietnam assets. So that was a net of 0.7. Those are the figures for the fourth quarter.

If you then go to page 4, we see that we have a strong progress towards targets. Record production both for the quarter and also for the year. And we are particularly pleased that the production on the Norwegian [indecipherable] went up by 5% from 940,000 to 989,000. The national production increased by 28%. But first of all that we have an improved efficiency on all three key ratios, the unit costs, finding and developments costs and reserve replacement rate up. And we are also making good progress on our re-improvement program.

And of course we had a large [indecipherable] due to [indecipherable] 2 NOK local value on the dollar and I will be coming back to all these issues. But if you see a clean net result after tax, we had an improvement of 10% over 2001.

I would also like to underline immediately that this high dollar is positive to Statoil because we have all our income in U.S. dollars.

Then on page 5 we see the return on capital employed. We had a clean of 14.8% which I will come back to. As you know we have been focusing very much on the normalized return on capital employed, where we made good progress earlier in 2002 up from 9.4% up to 10.8% on this year on a 12 month rolling average.

That is showing that the underlying performance and efficiency of the group is going in the right direction. For 2004 the main element to reach that 12% is to complete improvement programs of 3.5b NOK and also reach the production of 1,120m NOK.

When you go to page 6, we like this picture very much, showing that Statoil is on top as to the ROACE in 2002. Also when we went to the market in June 2001 we focused very much that Statoil should be perceived as an integrated oil and gas company with a strong E & P focus. So the two key elements for this performance, one of course that we are benefiting because we have both of our businesses in upstream, we are benefiting from high oil prices, but also that the underlying efficiency is improving.

Next on page 7, there you see the progress on the improvement program. We have reached already 1.6b out of 3.5b. That means that for the last half year, we achieved 1b. Of course you know when you pick the apples, you always pick the lowest one first, that's the easiest one. We are very pleased that we are where we are at the moment, two- thirds of this improvement will come from cost reduction and one third from income improvements.

The toughest challenge we do have on the E & P Norway, but we have the plans in place where it should bring it up to 1.2b. The main element in this plan is the implementation of the return from the ongoing pilot studies on [indecipherable]. That means how to cope with the tail-end production, including efficiency.

Our activities on improving onshore operation and support; reduced logistics and procurement costs; reduction in corporate administration costs and last but not least increased production. These elements will drive costs down to the targeted levels.

Production on page 8. After the third quarter, we updated and upgraded the production to 1,050m for 2002. And in early December due to high gas up-spike in October and November, we increased our target for 2002 up to 1,070m. We did reach 1,074m due to high regularity, good production and also high gas outtake.

We had certain production constraints in the first half of 2002. That counts for on an annual basis approximately 9,000 boe/day. And also the ongoing exchange last summer accounted for approximately 2,000, just for your information.

We maintain our targets for both 2004 and 2007 organically. But we will not have a straight-line to 2004. We do expect our forecast today for 2003, will be approximately 1,060m. We don't expect the same high gas outtake and also the fact that the decline on the more mature [indecipherable] will not be compensated in the first part of the 2003. The new fields, which will compensate for the decline, which we estimate to be approximately 6% also in 2003, will come by the end of 2003 and in 2004.

Production costs on page 9. E & P Norway went down in NOK by 4% and Internationally down with 37% mainly due to increasing of [indecipherable] and [indecipherable] with high volume. [indecipherable] normalized based on $8.20. We are moving ahead towards our target for 2004 of 32.8.

The next page 10, is a picture of the reserve rate. We actually pointed out earlier, when we acquire to buy assets we became a 50% bigger company and we didn't have in place an organization to replace the same amount. We are very pleased that we announced for this year nearly, we booked the same reserve as we produced. So we are close to 1.98 for the year and the three-year average is 0.8. We are moving ahead to our targets with a rolling average of 1 by 2004.

We are also this year [indecipherable] to verify our own reserves, the total reserves and they are very much in line and we will get the [indecipherable] which will accompany our accounts for the year. As for the [indecipherable] accounting, we are adjusted for the higher oil price. That means that the higher oil price, you get less reserves. We have done that adjustment when we were booking the reserves on the PSA agreement for 2002.

The most important booking this year is Snøhvit. We are approximately [indecipherable] to 180m. [indecipherable] with approximately 50. And we also bought 60m in [indecipherable].

The long term of course is our growth target, we need to replace more than [indecipherable] which we will look into after 2004.

On page 11, you will the see the picture of finding and development costs, which we feel has been re-issued with both the investors and analysts since we went to the market. Because we traditionally have had a high finding and development costs.

One of the main reasons for that historically, was the way we booked the reserves at [indecipherable]. We booked them in 1996 to realize, all the investment took place in 1997 to 2000. If we underlined the reserves and investments, the figures would have gone down with approximately $1.5. But we reached 5.3 in 2002. We [indecipherable] in 2001, so we are making good progress towards our 2004 targets where it is below 6 on the three-year average.

The main reasons as I pointed out earlier is on the shelf, we are adding new reserves close to existing infrastructures with lower finding and development costs. And internationally adding the reserves from larger projects with lower finding and development costs.

On page 12, you see that our board is recommending to the General Assembly to pay out a dividend of 2.90. That means an increase of 2% over last year. As we have said, our deal of that policy is to pay out 45% to 50% of the US account of the net earnings over the cycle. And we also said it is our intention is to have a stable or slight increase in dividend per share annually and we are following that route.

On page 13, you see the growth investment. We were up 20b last year and we expect to keep our 95b over the four-year period. That means approximately 58b for 2001, 2002, 2003 and 2004 or 29b a year. Approximately 50% of this will be in E & P Norway, 40% Internationally and 10% in Natural Gas and Marketing and Manufacturing.

One page 14, we see the net financial items. And there you will see, first of all the effects of the lower value of the dollar. It went by down by 2 NOK and 5 [indecipherable]. Meaning 9b in unrealized, almost 9b, approximately 1.5b has been realized. In the fourth quarter we booked approximately 2b in unrealized currency expected.

On to financial income, approximately 400m comes from dividends received from the [indecipherable] which we own together with Shell. In the financial expense side, our interest rate, pre-tax adjustment was 4.4% in 2002 and in 2001 they were 6.3%. The tax rate for financial items as we have pointed out earlier is between 45% to 50%. When we add income, it will be in the lower end and that has been the case for 2002.

Interest-bearing debt. As we have pointed out many times, we have a comfort zone of 40%, 45%. We are now down to 29%. That means that we have a good financial position. The debt reduction - We offset the debt reduction of 4.7 in 2002, which came from that lower value of the dollar. Actually we have increased our U.S. borrowings to build up liquidity reserves.

And what we would also to underline that cash is not burning in our pockets. We will continue with a [indecipherable] employed when we analyze what projects to invest in.

Now, I would like to hand over to Dr. Saetre who will take you through the business areas.

Thank you Inge. I will go through each of the individual business areas as mentioned and give some specific comments to the fourth quarter results. And also some comments to the main highlights for each of the business areas.

Starting with E & P Norway on page 16. The EBIT for E & P Norway in the fourth quarter of 2002 was 9b. This is up 31% from the 6.9b in the fourth quarter 2001. There are mainly three factors influencing the change in EBIT. First, the overall oil and gas production has increased by 6% to an average of 1,083m boe/day in the fourth quarter.

In particular gas production is up 35% to a record of approximately 400,000 boe/day in oil [indecipherable]. While on the other hand, oil production is down 6%. However since our internal gas structure price it is [indecipherable] price for oil, we actually see a slight negative contribution on E & P Norway bottom line from this overall production increase or shift in production.

The main factor explaining the increase in EBIT is therefore the fact that oil price in Norwegian Krone has increased by 14%. And also that total expense is down approximately 900m mainly related to the [indecipherable] and reduced exploration expenses.

On an annual basis EBIT is down 23% from 2001, to a total of 31.5b in 2002. The major reason for this is the reduction in oil price in Norwegian Krone again of 9%, reduced debt [indecipherable] gas of 25% and as I mentioned the shift from oil to gas.

Then on page 17 a few highlights or main events for E & P during 2002. First of all we have seen a very positive development in our overall oil and gas production. On an annual basis of 5%, as I mentioned to a total of 989,000 boe/day. The main driver behind this is the increased gas sales to our European customers and also very high and improved regularity on our oil production.

Production regularity has actually increased by 2.6 percentage points to a level of 94.7. Then we have adjusted for maintenance shutdowns, production constraints and also the strikes that took place during 2002.

We have a strong portfolio of 13 development projects and I will come back to that. Another key event during 2002 has been the takeover of the remaining operatorships [indecipherable] in the [indecipherable] area from year-end. And now we are actually the sole operator in this important core area for us. The process of taking over these operatorships have been planned very well and was also executed very successfully.

Finally we have had a comprehensive exploration program of 20 wells and that includes 8 extensions and [indecipherable]. And our [indecipherable] went well, 14 wells have been discovered from new resources. And although the [indecipherable] have been moderate in size, most of the discoveries are very profitable to us, they are located close to the existing infrastructure.

On page 18, we have illustrated in more detail the actual and also improved cost efficiencies that we have seen on NCS during the last couple of years. On the top line of this graph you can see the total operating, general and administration costs for our E & P Norway business. This is divided by the annual volumes of oil and gas lifted. On the next line we have taken out all cost elements, which is not part of the strict production costs as defined by the FAS 69 US standards.

This definition is consistent with the production costs, which were [indecipherable] against our target of 2.8 USD for both.

We have also on the bottom line adjusted for non-recurring items. In this case, this is mainly the [indecipherable] repair cost, to arrive at what we consider to be the actual underlying cost development on our production and operating activities. This shows an underlying cost improvement in nominal terms of 5% from 2001 to 2002, meaning an even higher efficiency improvement in real terms.

We are very satisfied with this development and are working also very hard on specific projects to improve this further as Inge mentioned.

Then on page 19, we have provided some more details on our current portfolio of, actually 13, ongoing development projects, of which 12 of them are operated by Statoil. This portfolio gives us a very good basis for maintaining a production level of 1m boe/day on NCS also beyond 2004. The total cost of the portfolio is 97b of which [indecipherable] 31b.

And then [indecipherable] our biggest and dominant project representing almost half of the costs in this portfolio. It has our highest priority to develop this project within the revised cost estimate of 45.3b. And start the production as planned from 2006.

With the exception of Snøhvit, all the other projects in this portfolio are developing according to plan, both regarding progress and costs.

Then to our International business on page 20. As you can see the clean EBIT for the fourth quarter was close to zero. Which is an improvement compared to the fourth quarter in 2001, the EBIT was minus 500m in that quarter. The main reason for this improvement is the increase in oil and gas production of 24% and in total listing of 65% and this is very much due to [indecipherable] situation in the fourth quarter in the UK.

In addition, the oil prices in Norwegian Krone increased by 7%. As you know, business development costs have also increased somewhat, while on the other hand operating costs and administration costs have been reduced in the same magnitude as the increased business development costs.

It should also be mentioned that the difference between the reported EBIT and clean EBIT in the fourth quarter is an additional write-down of approximately 800m on the LL652 in Venezuela and this was mentioned by Inge.

I should also mention, and this is not a special item for us, that in the fourth quarter last year, we also expensed all costs related to drilling the [indecipherable] well, which actually wasn't [indecipherable] for us. That was due to the planned activities on developing this discovery that were not considered to be firm enough to qualify for a capitalization of these expenses. So they were exempt in our P & L statements.

Then on page 21. We have given some highlights for the year, as a whole for our international E & P business. And in addition to the scheduled production increase, we feel we have taken some important steps outside of NCS, both in developing our existing core areas and also in creating new positions with good potential. In particular, we have agreed to take on the operatorship for the [indecipherable] project in Iran and through this process also develop our relationships in this direction.

In Azerbaijan the ACG Phase II and the BPP pipeline has been sanctioned and also the planning and the decision process for the [indecipherable] is developing including a proposed thorough commercial operatorship for the supply company and the pipeline company.

In Venezuela, [indecipherable] operation and in addition we began operating for the [indecipherable] Block 4 exploration license.

Also internationally, we have had a quite successful exploration process during 2002. With a total of 8 exploration wells, out of which 7 had positive discoveries. 6 of them in Angola and as I mentioned also the discovery in Nigeria. The dry well was in the UK.

Then before moving on to natural gas, we have on page 22 the summed up the total exploration activity for 2002. Total costs for 2002 were 2.3b. 1.4b is related to NCS. So adding it together we have successful exploration of 31 our of 28 wells. And as I mentioned we also expensed the [indecipherable] in Nigeria.

From previous years we have expensed in total 550m NOK, all of this is related to NCS and almost all of it is related and was expensed in the third quarter. And in addition to that we expensed approximately 40m in the fourth quarter related to discovery [indecipherable]. If we add that to the total exploration expenses on our P & L of 2.2b in 2002.

Then to our natural gas business on page 23. And as you can see we had a very good result in the fourth quarter of 2.2b NOK. However this is down 300m compared to the same quarter in 2002. Overall gas volumes have increased from 4.7bcm in the fourth quarter 2001 to a record 6.2bcm in the fourth quarter last year. And this is a 31% increase. However, the increased revenue from this volume growth was more than offset by two factors. The first one being that the external gas price has been reduced from 130 [indecipherable] in the fourth quarter 2001 to 94 [indecipherable] which represents a reduction of 17%. And the internal transfer price paid to E & P Norway is down 5 [indecipherable] to 40 [indecipherable], which means that the overall margins have been reduced by 14 [indecipherable] by cubic meter.

And the second factor to offset the increased revenues is the increased transportation costs of these additional volumes adding up to approximately 300m in increased transportation.

The total EBIT for natural gas in 2002 was NOK8.9b compared to NOK9.6 in 2001. The main reason for this reduction is again that the increased gas volumes of 34% to a record of 19.6bcm in 2002 was more than offset by the reduction in gas prices in NOK of 22%; increased transportation costs from higher volumes and additional reduced [indecipherable] in staff from June 2001 and that accounts for almost 1b NOK.

On page 34 we have shown the quarterly gas volumes, and this underlines both the typical seasonal pattern that exists between the quarters, and the steadily grown volumes driven by long-term contracts to our European customers. The very high sales of NOK6.2b in the fourth quarter is caused by the cold weather, as you know, and most likely also by the fact that gas prices is expected to rise during the first and second quarter this year, due to increasing oil; prices during 2002.

A few more highlights for Natural Gas on page 25. First of all we have strengthened our position in the UK gas market, both through the Centrica gas [indecipherable] in the second quarter, which adds to our [indecipherable] in 2001. And also through the acquisition of rights to a gas board facility in [indecipherable] on the east coast of England.

The evaluation of a new price gas for UK, to take on gas deliveries from Ormen Lange. Gas discovery is also progressing. In general, the concept of a new pipeline looks very attractive, because that will be using existing pipeline systems. We expect that decision to be made during 2003.

By the end of 2002 we have also completed successfully 90% of the price reviews, which were contractually standing from 2001. They represent 70% of our total contract portfolio. And also mentioning that our [indecipherable] expansion and extraction projects at Karsto are developing as planned, both regarding the program and the cost.

Then, on page 26, a few comments on the manufacturing and marketing business. The EBIT has improved within this area consistently throughout 2002, reaching a level of NOK800m in the fourth quarter, moving from a bad and negative start in the beginning of the year. The results is still down compared to the high level of NOK1.2b in the fourth quarter of 2001. The main driver of this is of course, the market developments and also the currency exchange rates and the depreciation of the Norwegian Krone with the US dollar.

Comparing the fourth quarter with [indecipherable] refining is down by approximately NOK450m. All the refinery margins in US dollars have increased somewhat. This has been more than offset by significant [indecipherable] of Norwegian Krone, and also reduced capacity utilization due to planned maintenance shutdowns, mainly in the fourth quarter on both refineries.

Navion is also slightly down by approximately NOK100m, compared to fourth quarter 2001, but has improved significantly since the first quarter of this year.

Oil sales and trading is down approximately NOK200m, quarter-by-quarter, and relates to negative currency effects on our [indecipherable] stocks of 100m, and that adds up to a total negative effects of NOK600m on an annual basis. And also negative 533 effect in the same range of that NOK100m negative.

All other parts of the M&M business have shown improvements, or [indecipherable] at the same level compared to fourth quarter 2001. In particularly our petrochemical business Boreolis had a result at the same level, even though margins have been significantly reduced by approximately 40%. This is due to a very effective cost savings program, and also increased production capacity of approximately 10%.

Finally a few comments to our M&M business on page 27. We are very happy that we now have finally succeeded in selling our Navion shipping business. This has been a high priority in Strasbourg for some time. We are confident that the end gain is positive for all parties. We expect, therefore, the execution parts of this deal to be concluded during the first half of this year.

During 2002 we have also strengthened our retail networks both in Poland and the Baltics, mainly through acquisitions. We are developing our low-sulphur qualities, both at Mogstad and Kolundburg, and in general are ahead of our EU requirements from 2005 in this area. Our Mogstad project in this area is expected to be completed during this quarter.

Finally, we would also like to mention that we are well on our way, and have achieved significant results from our 2004 improvement program of NOK950m. In particular we have seen positive cost development within our Nordic Energy business as I mentioned, at Boreolis, and also at Mogstad.

So this concludes my part of the presentation, and I will leave it to Inge Hansen to summarize.

Going on over to page 28, we have also pointed out several times, we are having a very strong HSE focus. You will see on the left hand side, that we have a good progress on the total recordable injury frequency, down to 6, and also that the CO emissions falls absolutely [inaudible] has shown positive results in 2002. Both these have been overshadowed by the fact that we had six fatal incidents connected to our activity in 2002, and those are 6 too much. We have therefore established a project together with [indecipherable], which we did also 15 years back, to see how we are carrying out our security work, and how we can improve them further.

On 29 you see the key performance targets. In 2002 we made good progress towards our 2004 targets on all key ratios. And we also have a very good financial situation, a healthy one. We also had a large capital market day in June 2001, before we set up the target for production growth to 1260 in 2007. this June we will have a new capital market day, where we will focus on the targets planned beyond 2004, perhaps to 2007 and 2008, which we will come to at that point in time.

Page 30 you see the outlook for 2003. Production 1,060,000. We keep our target for 2004 at 1, 120,000, and for 2007, at 1,260,000. One million on the shelf and the other one increase coming from international production. All organically.

Six new fields will come in production, but late 2003, and also gas sales are estimated at 19bcm. We maintain our investment level of NOK95b for the period 2001-2004. And we will increase the exploration what we call from business development international, to more exploration.

So, finally on page 31, you see the strategic direction, our 3D. First of all top priority to deliver towards 2004 targets. To develop the 2007 production of 1,260,000 organically, and a direction in balancing international and Norwegian production. Continue to improve efficiency on NCS. Increase exploration efforts, strengthening pan European gas position. That's part gas coming from the NCS, gas [indecipherable] coming from [indecipherable] gas and also looking for opportunities of how to service the southern part of Europe. And finally, improve international base further. This within a framework on performance oriented management incentive schedule, and strict capital discipline.

So the concludes our presentation today, and now we are ready to take any question you might have. Mari?

We will now open up for questions. Operator, would you enable the first question, please?

Certainly. Ladies and gentlemen, we will now poll for questions. If you do have a question today, please press the number one on your telephone touchpad. To cancel your question, simply press the hash or the pound sign. Once again, that's the number one to ask a question.

The first question today is from James Cartwright. Please go ahead announcing your company name.

Good afternoon, James Cartwright here from UBS Warburg. I have two questions. First question is on your CAPEX, you mentioned twice that you're sticking to your NOK95b spending between 2001 and 2004, and rightly highlight that means in the order of NOK29b this year, and next year, per annum. That is nearly 50% higher on what you spent in 2002, and it seems very high, particularly in light of the exchange rates move, that's moved in your favor. Can you give us a bit more -- comment more on why you're still expecting that higher level of CAPEX?

Second question, when do you expect we will start to see a reduction in the business development costs, to help you improve profitability in your international E&P business?

Inge Hansen here, I will cover the last question, and Eldar, if you will cover the first question about CAPEX levels. We will see the [indecipherable] change in the years to come in 2003 and 2004, to the national business development. Because the idea is that you should be high on that one in 2002, and also partly in 2003, and then move that into more exploration activities. So it will be a shift from business development to exploration activity in international in the years to come.

On the CAPEX side, the development that we have seen so far came out slightly below our expectations. And there are a few reasons for that. One of them is that [indecipherable] our operational investment that is mainly [indecipherable] production wells have come out and been slightly more efficient than we expected. And we also see that some of our projects have developed pretty well, and some [indecipherable] from a couple of projects which have now major implications for our production targets.

And then we have the currency. When we made our plans of NOK95b prior to the [indecipherable] below, that was based on a currency exchange rate of 820. But that is for the starting point. When you look at this significant increase that we expect to see, the main driver is of course the project that we see. So we have actually portfolio of quite heavy investment projects, development projects, both on the NCF and in our international arena. On NCF we have the service project, as you know, we have the [indecipherable] project. We expect that we will be starting developing on the Ormen Lange project. So we have some very heavy projects, and we also expect that we will have to do investments in the carbon area, on developing that area further as a whole. So there are actually some very [indecipherable] some heavy projects that will drive the cost, the CAPEX on NCF.

And then on the international arena, this is based on assumptions that we will see sanctioning of the Chardonese development, so both developing these things and the pipeline. And in addition we have the ACP development and the pipelines, which was approved last year. And we have some quite heavy activities in Angola. So all in all we have projects, we have plans, which makes it likely that we will be able to sort of -- that we will spend NOK95b. But as Olav mentioned earlier today, the NOK95b might give us a little bit of cushion. We have maintained the number but as clearly indicated, the level of cushion is slightly higher today that it was when the NOK95b target was established.

Thank you very much.

Thank you. Our next question today is from Kathy Arnfield. Please go ahead, announcing your company name.

It's Kathy Arnfield from CSFB. I just wonder if you could perhaps break out in a bit more detail the additions to your reserves this year? How much came from [indecipherable] and how much from the international business? Then, just looking ahead to 2003, what are going to be -- what are the main things in your portfolio where you would expect to book reserves this year?

Okay, on the refer side, we see that there are several elements in developing out. You have the revisions of our previous estimates, improved recovery. Then we have the extensions and the [indecipherable]. So I would like to comment on that part. And the major part in our increased reserve comes from our NCF activities. That is the most significant one, it's a [indecipherable] project, and we have mentioned earlier today that 180m actually is coming from our booking of significant part of the reserves on [indecipherable].

Then we have a couple of additional reserve additions. Smaller business in the [indecipherable], and also the business of extension projects, added reserves of 10m this year. So approximately 200m in extension and discoveries from our NCF business.

Internationally [indecipherable] of the 50m [indecipherable]. Not very much left, 6m, and then [indecipherable]. So we're talking about approximately 70m added reserves from the international business. And then you of course have the effects of the PSAs and high oil price at the end of the year, [indecipherable] on our PSAs that they would have [indecipherable]. And then on the [indecipherable] side also, the high oil price on NCF. High oil price [indecipherable] longer life [indecipherable] some of our fields on NCF, and that sort of [indecipherable] up slightly compared to what it would have been with a lower oil price.

So that's our main driver actually behind [indecipherable] development.

And going forward we are talking about on the shelf Ormen Lange, [indecipherable] and internationally [indecipherable]. Those are the ones we are now looking forward to.

That's great, thank you very much.

Thank you. Our next question is from Alistair Sime. Please go ahead announcing your company name.

Good afternoon Inge, it's Alistair Sime from Merrill Lynch. I just wanted to ask and try and get a sense on the currency translation of the debt. How long is this going to continue to be a feature for, and at what stage does the debt start to roll over, and the currency changes actually just come through at the deadline?

You mean to say that -- I didn't really understand your questions about it, because as you say, if you -- we have listed the sensitivities in the enclosures. But I'd like to underline that when we are planning on form 48, you will see the sensitivities. We would like to underline that when we [indecipherable] would call it a debt exposure, we like to focus that as a part of our, let's call it risk profile, how we are, let's call it, mitigating and controlling the risk. It's part of the total picture. We have just gone through the whole exercise once more, to see also with this low dollar, whether we should make any, let's call it new adjustments. We are having a three-year horizon on that one, because I like to underline again, that we are focusing very much on cash flow after tax, that is our steering wheel. Cash flow after tax. And we have found out that the structure we have, we see no reason why we should change that at the moment.

Of course the US debt is a natural hedge to our income side, and they didn't advance very much on the oil price, at the $30 level. It's approximately 11-12 months at the $20. It will go up to 18 months.

Did that answer your question, Alistair?

Yes. I'm just trying to get a sense whether this is an effect we're going to see infinitum, or as debt gets renegotiated, are you going to start to give up some of that gain?

We're not going to change [indecipherable].

No, no, we are not going -- but you will see, if the dollar went back up to 820 again, you will see of course that we will have an unrealized loss on the currency on our long-term debt. Just as we have had the positive results [indecipherable]. But that will [indecipherable] immediately when they were a listed company [indecipherable]. This is part of our risk, let's call it profile, and we have found out that we have gained from having that policy.

Okay, Thank you very much.

Once again ladies and gentlemen, that's the number one if you wish to ask a question, and the hash or the pound sign to cancel. The next question today is from Nick Griffin. Please go ahead announcing your company name.

Hi, it's Nick Griffin here, Deutsche Bank. A quick question today, just on South Pars. I noticed you booked some of the reserves here in 2002. What does that mean in terms of booking barrels and in terms of production on South Pars? Will you be booking the barrels produced on South Pars and does it actually make up part of your 2004 production target?

The second question I had was just a simple one just on the foreign currency gains. You said you gained NOK2b of unrealized foreign currency gains in the fourth quarter, yet your net interest line was 2.6. I was just actually enquiring as to what the other 0.6 was?

On the South Pars, the first question. We have booked the reserves, and we have been very specific about that. And there's a note in our accounts specifying this [indecipherable]. And that also will go for our production target. Target production related to South Pars will be included as a part of our production target for 2004.

How big -- of your production target [indecipherable]

I haven't got the number for you. But you know we have production target, international [indecipherable] in 2004, and it will be a part of that.

It's just the production [indecipherable] of oil should be around 70,000 barrels per day, and I'm just wondering if you're going to book all of that?

Yes. When you're talking about the production part, I'm not sure that it will give production in 2004.

No, it's not part of our 2004 figures.

But in principle it will be accounted for as production, but it will probably not be in production in 2004 - I don't think so.

But Nick, to your other question, it was regarding the net financial items for [indecipherable]. That was currency 2.1 [indecipherable], the financial income was 694, and a big part of that were the dividends coming from [indecipherable] 344. We had financial expenses of 247, and we had securities gain of 95, adding up to NOK2.6b. Does that answer your question?

Yes, that did answer my question, thanks very much.

Once again ladies and gentlemen, if you do wish to ask a question on today's call, please press the number one on your telephone touchpad. There appear to be no further questions at this time.

We just thought Nick, that in our plans, South Pars will come in in 2005.

Okay, as we have no more questions registered, I have a few bit of information for you. We'd like to draw your attention to two [indecipherable] presentations that will take place tomorrow, one in the north tomorrow at 7.30 in the morning local time. Our CEO will be there, Mr. Olav Fjell, and give the presentation to analysts. In London as well we will have a presentation with the CFO Mr. Inge Hansen, that will take place at 10.00 am at the Brewery. If you need more information about this you can call us. And there are conference details at the end of the presentations that you have in front of you.

With these remarks we thank you very much for listening, and goodbye.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect your lines. Thank you, and have a nice afternoon.