Equinor ASA (EQNR) 2003 Q1 法說會逐字稿

Mr. Humsen (ph) and Mr. Setter (ph) will split the presentation between them. The presentation we are using today can be found and downloaded from our website, where it has been available since 8:30 Central European time this morning. Those of you who followed the earliest briefing at 10:30 this morning either in our Florida (ph) web cast will already be familiar with the presentation. After the presentation today, we will have an opportunity to take questions.

Before we start, I'd like to remind you of the disclaimer, that you can find on Page Two in the presentation. And with these words, I will leave the floor to Mr. Ing Humsen (ph).

Thank you, Maya (ph). Good morning, U.S. listeners, and good afternoon, European listeners.

The main message for the first quarter is that there is a star (ph) result and a good start for 2003. And yet at the same time, I have been awarded (ph) to international tradership since the expiration license not affirmative, lock four (ph) in the Mediterranean (ph) and the Shocktenease (ph) midstream and marketing activities, since that was confirmed on the 27th of February. Those two undefending covering national judging (ph).

The quarter has had a high production, high gap of H (ph), and improved market in prices downstream. Financially, we are in hands prop a petition, with a net debt per capita employed down to 22 percent.

We also increased transparency in reporting. You will find that in the MDNA (ph). The normalization and calculation of key economic downturns (ph), and then per capita (ph) employed. And new transfer of prices showing more the real estate of the new press release (ph). Down in the downstream area, we are now profit center reporting. All in all, this quarter confirms our plans and targets for 2003.

We will then go to Page Three. It was an even first quarter, is up 38 percent, and the net result is up 20 percent. There was a high production of 1,159,000 barrels a day; that's an increase by six percent from the first quarter, 2002. The oil price has been up 23 percent in Norwegian corner, compared to gas price that has been down six percent.

Thanks very much.

And oil stores, also - that's a dollar and a quarter - has moved up 28 percent by (ph), and that is good for the income side. But you know also in the - we will then have an unrealized currency loss of about maybe 1.5 billion, because of the reflection of 100 percent long-term debt in the U.S. dollar.

We have had no extraordinary events in the quarter, but there are two special issues. One is that they sold Noril (ph) and they completed the transaction on the seventh of April. They have included the easiest finorials (ph) in the first quarter, and defined federal missile that the transactions. We do not have any effects from the second quarter figures.

Now the other - Riga Cruise (ph) of $700 million (ph), which we'd like to come back to.

On Page Four, it says a recurrent of capital employed (ph) - 16.5, which we consider to be good. And also when you see the normalized (ph), we have had strong results, and we're up to 11.4 percent, up from 10.8 for the previous month period. The 0.6 - at this point, improvement of account (ph), that, first of all, that we've lost a very bad first quarter last year. The guest phase (ph) have improved by some 19 percent, and also has better margin in a dark stream (ph).

There is normalized redundant cap (ph), which should take us to 12 percent in 2004 by completing improvement program and also reaching our production targets.

On Page Four -- Five, you see the production. You see there that we have been very close to the high figures in the fourth quarter last year by 1,159,000. The oil production compared to first quarter last year is approximately at the same level, whereas the gas phase (ph) is up 19 percent; and that's very important. That's a - the high gas phase (ph) as being due to a couple of factors: one is we have had cold weather in the quarter. They also say that they built up of a long-term contract, and automization (ph), that the customers expect high prices to take place in the second quarter. We expect that there's (ph) use the long-term contract to the maximum flexibility that it could take as little as possible in the second quarter, due to higher prices, and also to be - have the third quarter, which is the last quarter in the gas (ph) year, as it has maximum flexibility in the third quarter. So, therefore, we stick to our targets for the year, or 1,060,000, also due to the effects that we have maintenance and turnaround work to be done in second and third quarter.

Although production coincided with the update fate (ph), the out - normally (ph), we are approximately on the same level, and we have the measures and the tools in place, which will take us down to 2.85 in 2004.

First of all, implementing the pilot results from the pilot (ph) on the higher stocks (ph) and especially H (ph), coffee was obtained in production. Also supply and also the procurement in reducing the overhead decreased the production up to one million by 2004.

On Page Seven, you'll see that the gross expense (ph) is approximately at the same level, whereas significant per capita employment now is down to 22 percent. We expect that there's likely increase for the year. It is a fact that we have very, very long stock figures by the end of March. And we also keep our cappings (ph) for the year.

On Page Eight, it says the "net product realized in - for the quarter." The income side is a billion (ph) of cash for the cash payment by the first of April - 17.6 billion, approximately.

And on the currency side, in other realized currency loss due to the appreciation of the dollar. Presenting as some (ph) and other financial aspects of this quarter, due to the restructuring of our loan portfolio and more flow things (ph) are regressed (ph), as done previously. As we offer some gates (ph) in that respect. And we also have a bad profit on securities. So there has been no other low-month (ph) robbing interest rates pre (ph) is approximately 54.1 percent.

Then I'll leave on to (inaudible) who will take you through the business area.

Thank you, Ing (ph). And I would start with some comments on ENP Norway (ph); that is on Page Nine.

First of all, a few comments to remind you of the changes that they have made in the gas transfer price. We - Now, we have established a 32 areas (ph) per factory mandate (ph) equivalent to the change in U.S. dollar oil price. Any changes would be proportionate between the oil price and the U.S. dollar oil price regarding four (ph) volumes, and there will be a six-month delay between oil and gas prices. And you can see these facts in this graph.

Based on this, we have, on a quarter-to-quarter basis, of 37 degrees in the EBIT. The main price of talent (ph) is an increase in the oil price and a recent groner (ph) of 73 percent, and an increase in the volume of gas production of seven percent to an average of 1,082,000 barrels a day. Almost all of that increase comes from the gas production.

And in this connection, I am going mention that we have analysts (ph) busy in the first quarter, on average 52,000 barrels a day, which means that the extra oil and gas lifting (ph) forth in the quarter have increased by three percent of that, due to a production increase of seven percent.

On the negative side, we have to increase, as I've mentioned, our cost provisions related to our building rate contract, from a level at the end of fourth quarter of 960 million, adding 700 million this quarter to the level of one, and there's 1,660,000,000. This is due to further negative development in the first quarter regarding oversupplying of Reese-Pansky (ph) on SES (ph). In this context, I would mention that this provision is deductible, again, to 78 percent tax, and also that the maximum potential downside, in addition to the provision is addition of 500 million, which includes a total of maximum 2.2 billion.

A few more comments on the ENP Norway (ph) is on Page 10. I will move to Page 11 to comment on the International Coffee (ph). One can see an improvement in the events from - of 66 percent from the same quarter last year, to a level of 425 million. Again, the oil price is the main driver. An average increase from 20 to 30 U.S. dollars. Due to appreciation of the Norwegian groner (ph), we saw an increase in oil price in a weaker groner (ph) of 19 percent.

Production is down 10 percent, from 84 to 76,000 barrels a day, and the same goes for listing from 77 to 70,000 barrels a day. The main reason for this is that we sold our deary (ph) after to Denmark (ph), which contributed to approximately 30,000 barrels in the first quarter last year.

We also have, in this quarter, net revenues of some 100 million a weaker groner (ph) from two carloads (ph) from the other deal, which was actually listed in the fourth quarter; but the timing was not taken over by the buyer before first quarter this year.

Then we move to Page 13, and that's (ph). And, here, I'll just remind you of the changes in the stock price, a similar amount with a negative this time. I think, from this, we saw a reduction in the EBIT of 14 percent, a quarter from four cents for the last year; that is from 2.3 billion to 1.9 billion this quarter.

On the positive side, the main driver is a 60 percent increase in volume to a level of 5.9, easier (ph) from 9.1 VCM (ph).

On the other hand, gas price - average gas price was down from 105 barrels to 99 barrels per day. And at the same time, the transfer price - the new one - was up from 48 barrels to 57 barrels. So the gross margin for our natural gas business was down from 67 to 42 barrel per cubic meter (ph); that is a 37 percent increase.

We also had a partner fast (ph) effect of approximately 300 million in the first quarter. While the effect was positive, we had 60 million this quarter.

On the natural gas business, I would also like to point that this 60 (ph) in terms of management, their new contract - the new gas stage (ph) contract - are up, with a volume of 1 VCM (ph) annual volume to the Stayon (ph) French Electricity Company in India (ph). We are very happy with this contract. It goes for 50 years from first October, 2005, displaced if it's a fish (ph) contract, which means around an ST05 (ph), approximately 45 percent spent out (ph). It's a fast contract that has contained six volumes every year, free sourcing, and the delivery point is the same gas house - that's not from (ph).

The pricing arrangement for this contract is very much similar with the other long-term European contracts, that is the strong link to oil.

Then on page 16 on the manufacturing and marketing, just showing you the margins visually. As you can see, we have seen some major improvements in the Dosim audience (ph), also there has been significant volatility, in particular within refining.

On a quarter-to-quarter basis, the XTC (ph) margin on average increased from 1.2 to 5.8 U.S. dollar per barrel from quarter-to-quarter. And this was approximately offset by the apportation (ph) of a Norwegian Crona (ph) of some 20 percent.

Gross margins (inaudible) chemical margins also increased from average of 69 to 99 Euro per ton, or the business still somewhat low level in the more historic perspective. Also the methanol prices have increased significantly, and this has given us the resource that you can see on page 18. Here you can see up 30, and significant improvement since the first quarter last year, rising from a negative of .2 to a positive of 1.4 billion this quarter.

And for the first time (inaudible) we have disclosed the subsegment resource. So now you can see the oil price defraiding (ph) with a profit of .5, 500 million, manufacturing and marketing, that is refining business, and the methanol business with an EBIT of .5. The marketing business, which is all our retail business and our Nordic (ph) energy business, .1, and the other business here, which is the mainly the Navian (ph), 450 million, which was mentioned by Ing (ph).

Just refer to page 58 of this presentation where you will find certification of all previous quarters from this specification. So we (inaudible) on - in the Dawson (ph) area we have had stable and good operations with some high capacity utilization within all our manufacturing. Improving market conditions, and in particular in - within the refining area, and also some good profits from our oil sites.

And in particular we also had a positive pass one to three effect of 100 million this quarter, compared to negative effect of 300 million in the first quarter last year, so that is the main characteristics of the Dow extremely soft.

So now I'll (inaudible) with the presentation.

We will then go to page 20. So before I just summarized that when I was just on the line that we own the Norwegian shelf, are operating 12 (inaudible) project. All 12 are going according to the plan as to the timing, and 11 of them will come in below the PDO (ph) sanctioning. As to (inaudible) you remember that we updated the estimate last fall, and at the moment we see no reason why we should not come in at that level.

Also I'd like to mention that - as you know, that we are showing the results of our improvement program every six months, but it - that program is still going according to the plan in all four business areas.

On page 20 you see our key performance targets, and we are well on our way to achieve our 2004 targets.

On page 21, just to summarize the quarter, strong results, a good progress towards the target. We are now - we are sticking to our production forecast for the 2003 one million and 60,000 Burrs (ph). Total (inaudible) increase are (inaudible) in reporting. And we welcome you all to our strategy update on the capital markets day on the 12th and 30th of June this year.

Mike.

Thank you, Ing (ph). We will now open for questions. Operator, would you enable us to the first question please?

Thank you. We will now poll for questions. If you do have a question, please press the number one on your telephone keypad. It is the number one if you wish to ask a question, and has - or the pound key to cancel it. Once again it is the number one if you wish to ask a question.

The first question today comes from Mr. Albert Anton. Please go ahead, sir, and announce your company name.

Yes, Carl H. Forsheimer (ph) and Company, New York. I noticed that there was a very significant decline in inventories between March 31, '02 and '03. I wonder if you can discuss the industrial reasons for that, and also the financial effect.

I couldn't comment on any - this is not any speculative move from our side, it's still the result of operational sales as we see it. We (inaudible) of course that it's the revenue part of taking it from the stock to actual sales is improving our EBIT accordingly.

OK, thank you very much.

Thank you. The next question comes from Katherine Anphiled. Please go ahead, madam, and announce your company name.

Yes, it's Kathy Anphiled from CSFD (ph). I just had a quick question about the Omanlanga PDO (ph). Is the project PDA (ph) dependent on getting the pipeline treaty in place? And how do you sort of see that developing? I mean do you think that there's a significant risk that the PDA (ph) won't take - or won't be delivered in Q4 this year?

No, what we have said is that according to the gas contracts we have in the U.K., there - we can, let's see, deal with those without the new pipeline. But we also definitely - and also (inaudible) needs more capacity by the end of 2006. And in order for that to be a wale (ph) about that point in time, we need this here to - let's call it treaty in place before the summer vacation this year.

OK, thank you.

But the plan for operations of the pipeline was that the U.K. pipe from Slytna (ph) should be in operation in 2006, while after Omanlanga (ph) field will be in operation in 2007 according to the current plan.

So yes, to answer your question very clearly, it's a great interest for the Omanlanga (ph) license to accept all the pipelines - the new pipelines.

Thank you. The next question today comes from Mr. Rickas Franklin. Please go ahead, sir, and announce your company name.

Yes, good afternoon, Ing (ph). I just wanted a quick question actually on natural gas. Running through the numbers this morning, and plugging in what's happened on achieved prices in Norwegian Crona (ph), and also on the volume growth, I'm not able to replicate the quarter-on-quarter change in natural gas EBIT. So I guess the one part of the equation that's missing is whether or not there's any significant change in the tariff structure for the gas transportation side. That's one of the thing I think that Heder (ph) had mentioned in their results. Can you shed a little bit of light on that please?

I could comment, but it is not a major change on the - on the transportation side, it's (inaudible) from transportation all in all 26 percent active (inaudible) last - first quarter of last year to 23 or sort of three early reductions. That is the only thing which can be attributed to the transportation. Besides that, we just remind you that there is a currency situation as these products are linked to very much all contracts, and you have to take it back to Norwegian Crona (ph) to (inaudible).

OK, thank you.

Thank you. The next question today comes from Mr. Ian Reed. Please go ahead, sir, and announce your company name.

It's Ian Reed from UBS Warberg. Ing (ph), just a couple of questions. I wonder if you got datas on Sincor (ph). You said it was back on stream in February, could you tell us what the gross production rates are, and what do you expect that to be for the year now with the shut down in the earlier part of the year? And second question is on your very nice breakdown you've given us on the M&M (ph) division. I noticed you got a big other in there of .4 billion, could you kind of break that down a little bit and tell us what makes that up and where it's going?

Ian, the second question is about other, that's a - the results from Nogam in the first quarter.

Yes, what I wondered was, what's the effect going to be, if any at all, on the - on the rig, which you haven't got sold?

No that was taken out, that is not part of Nogam any longer. It's a (inaudible), that is 50 percent owned by Statoil, and the other 50 percent owned by Smerick. And ESP Norway (ph), I mean Aratotle (ph). So that was taken out on that, now on the - before we started the phase process.

OK, so it's now POENP Norway (ph)?

Yes.

OK.

That's correct. At the Cinco, you remember that there was a lot of discussions about the wealth (inaudible) what will happen when we started billing out the production (inaudible), that has come very well at the Cinco, so that is back on normal production at the moment.

Leveraged production of Cinco was 8,000 barrels a day on our hand, and the expected annual operation is close to 20 - 18 to 20.

On our half.

On our half.

OK, thanks very much.

Thank you. And the next question today comes from Mr. Nick Griffin. Please go ahead, sir, and announce your company name.

Yes, good afternoon, Ing (ph) and the gang. It's Nick Griffin here at Deutsche Bank. Quick question, I know this may have been a comment already, but I'm still looking for a bit of an explanation as to the long-term provision on the long-term rig charters. It was 700 million knots (ph) for the quarter, and you say it could be another 500 million. Could you just please explain to me what triggered the 700 million knot (ph) provision, and what will then trigger the next 500 million?

Yes, as you know that we entered into long-term contract some years back when it was a scarcity of rigs from the shelf. And because there were - a lot of people were afraid about having the capacity waleable (ph). Over the last, let's say a couple of months, the situation has changed systematically, that's the - there are not too much work to be done. So we have knot (ph) obligation on two such rig for a certain period of time, a remaining part of the time. And that the care of those obligation and what we feel we can, let's say get the - get the reach to Vircom (ph) those kind of rates, we have increased our (inaudible) on that moment, 700, so it's now close to 1.7 billion.

But if we should lay off the rates today, then after that (inaudible) that doing, the maximum - the absolute worst case that we have seen today could be that we could end up with 2.2 billion, that's why we say that there should - there is a risk of another 500, in absolute worst case. ZLOs (ph) pointed we do this evaluation every quarter, and last year also in one quarter we reduced the crude (ph). So we will probably (inaudible) very closely on a course of a target that to use as little as possible on those crudes (ph) (inaudible) of prudent for us to do this now as we see the market at the moment.

So am I - am I correct in assuming that this is an opportunity cost of costs that you could have otherwise reduced rather than a provision for costs that you're otherwise going to incur?

No, we have the obligation - that's right, we have the obligation for a remaining period of two weeks. And if we can not use those rigs for our own purposes, we have to let them out to others. And the question is how much we can get the lease rates there, is that is lower, that we expect that we have obligation on, then we have to take the difference as part of the provision.

I understand. If I've - if I've got time, can I squeeze in one more question? Just - you've managed to sign now three gas contracts I think, since listing one to BP (ph), one to Centrica (ph), and now one to EDS (ph), yet we've seen no upgrades in pipeline capacity. We know there's a big one to come in terms of the Brip pipe, which we've already covered. Do you have any sort of feel as to what is the spare capacity in this system at the moment without Brip pipe? I - how many more of these incomento (ph) contracts do you think you can sign?

Yes, we (inaudible) Nick, we'd rather prefer not to comment on that one at the moment.

OK, thanks a lot, guys.

Thanks a lot to you.

Thank you. Once again, ladies and gentlemen, if you wish to ask a question, please press the number on one your telephone keypad. It is the number one if you wish to ask a question.

Well I'd just like to end the line to the question of Nick Griffin that we had pointed out that we can take care of our present contracts, but four new contracts and new volumes, which come after 2006, 2007, we need more pipe capacity to U.K. And as we have pointed out several times, our - let's call it one of the priorities we have is to increase our market share in the U.K. market in the years to come. So in that respect is of high importance for us to settle the pipe question with U.K.

Thank you. The next question today comes from Mr. David Thomas (ph). Please go ahead, sir, and announce your company name.

Commerce Bank (ph). I have a couple of questions please. Firstly in terms of your production forecast for 2004, could you just confirm that the - your production forecast and your target will be obviously before taking into account any potential North Sea disposal that are apparently being discussed. And the second question is on production costs. Could you give some color on any upward pressure that you're seeing on contract costs that have come about recently due to higher oil prices? Thanks.

First of all let's - we do understand that, you know, the speculation in an (inaudible) about our selling from U.K. for U.K. licenses. As we were pointing out, this is a pure speculation and we do not comment on either sale or purchases. So our 2004 targets are one million, 120,000 Burrs (ph) based on organic growth remains in place. There is no deviation from that target.

As to the cost, we don't see any upward pressure from a contract point of view. Contracts (inaudible) as to our production costs. What we see as to the major ship challenge is to co-bilitalan (ph) production on that - some of the material feeds, and we have already that program in place, and we see confidence that that should help us in getting down to the 2.8 by 2004.

OK, that's fine. Thanks very much.

Thank you. Once again, if you wish to ask a question, please press the number one on your telephone keypad. Appear to have no further questions at this time. Hand the conference back to you gentlemen for any closing remarks.

Well I would then like to thank everyone listening in for their attention, and have a good rest of the day. Good-bye.

Thank you. That concludes today's conference. You may now all disconnect your lines. Thank you.