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Welcome to Statoil's Second Quarter Earnings Presentation. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and a discussion will follow at that time. If anyone should require assistance during the conference, press star, then zero, on your telephone. Just to remind you all, this conference is being recorded.

I will now turn it over to Mari Thjomoe. Please go ahead, madam, and I'll be standing by.

Thank you. Good afternoon, everyone, and welcome to Statoil's Second Quarter Earnings Presentation and Conference Call. I will introduce this briefing, but before we start, please note that we have a disclaimer in front of the presentation material, and that we are going to make forward-looking statements. The presentation materials, is, as you know, hope, on the web. You can find it there, and that is what we're going to use. The call will be chaired by our Chief Executive, Mr. Olav Fjell. He will take us through the main characteristics, and the other brief presentation, we will present for approximately 15 minutes, and then that will be an introduction to a question and answer session afterward. [inaudible] under the Q&A session we also have Senior Vice President, Accounting and Control, Mr. [inaudible]. This said, I leave the work to Olav Fjell.

Thank you, and good afternoon, everybody. We have delivered a good result for the second quarter. It's actually better than it may seem at first glance, and I'll take some time explaining that. Costs are being reduced, capital discipline is being maintained, and development projects are progressing as planned. The net profit for the quarter was NOK 4.4b. This includes a one-off profit of NOK .7b because the state's contribution to covering movement costs on the [inaudible] has been changed. Excluding this one-off item, we have a clean profit of NOK 3.7b. For the second quarter last year, net profit was NOK 6.1b, but that included a one-off currency gain of NOK 2.9b, after-tax, which means that the net profit for this quarter is actually better than that of second quarter last year.

At the EBIT level, our profit was NOK 10.3b, 7% lower than last year. Oil pipe [ph] was down 8% in Norwegian kroner, and [inaudible] oil and gas was down 7%. The lower production was expected and does not reduce our expectations for the year. On the contrary, we have actually increased our production forecast. I'll come back to that.

The return on average capital employed was 18.2% for the last 12 months, or 17.2, excluding the one-off effect. Using fixed [ph] and normalized assumptions, we see that underlying profitability is improving, and it stood at 11.7% for the 12 months ending in June, up [inaudible] with 11.4% as per first quarter. This is partly due to measures taken to reduce costs and improve income, but it is also because of very hard capital discipline.

Then to production -- production is down 10% on last year, and it's more down on the first quarter of this year. This was expected, and one reason why we did not increase our forecast for the year after a very high production in the third quarter of this year. Reasons are two-fold. One, gas volumes down because our customers in the first quarter took record-high volumes, because we knew that prices would increase in the second quarter and oil volumes were down, due to plant maintenance.

We do expect higher gas volumes in the third quarter, due to lower prices and also net flexibility [ph] at the third quarter is the last on the gas year. And we have production quality and the control, and that is the reason why we have increased our forecast production volumes for this year, with 10,000 barrels a day. It's due to the increase gas sales.

Unit costs are coming down, both on the Norwegian shelf and internationally. Our improvement program is on track, after having come halfway through the program, we have realized two-thirds of the targets. That is a performance with which I'm very pleased.

When it comes to our financial position, it's a healthy one. We've had good cash flow from operations throughout the quarter, and the cash from the divestiture of Navigon [ph] has been put on our bank account. This has given us a debt to capital employed ratio of 23%. We plan to pay our Algerian acquisition out of cash, and allowing for this payment, plus our part of the capex in Algeria this year, we still assume that will be below the 35% debt-to-capital employed ratio.

It will also be mentioned that we have reduced the long-term lease obligations from 20b to 11, due to the Navigon sale.

On financial items, we have a high financial income, due to high cash balance. Very limited currency adjustments. Low financial expenses, due to our borrowing floating rate, mainly, and substantial income from the equity and bond portfolio held by our captive insurance company.

A few words about exploration. We completed 12 wells during the first half of this year, eight of which were active discoveries. On the Norwegian shelf, we have two discoveries and the pipe was drilled, small but commercial volumes. Internationally, we had six discoveries out of the seven wells drilled, all six discoveries were off Angola. We forecast an exploration level of 3b kroner this year. That is higher than last year and the previous one, but it is lower than we planned a year ago, mainly due to us not starting exploration in the Barents Sea this year, and also because of the lower dollar rate. We expect to complete 14 wells in the second half, seven internationally and seven on the Norwegian shelf.

So, second quarter, there was good financial results, but we also made some important strategic advancements. We completed, on Norwegian shelf, we completed our analysis of how to enhance the commercial life of the Tampen [ph] area. This is important to secure max revenues on the Norwegian shelf. Internationally, we agreed with BP to buy half their assets in Algeria, and become an operator together with BP in [inaudible]. That's important for our building international positions and also for our pan-European gas strategy.

And finally, we were comfortable committing to longer-term profitability and growth targets.

And then I'd like to offer a few comments to each of the business units. First, E&P Norway. An EBIT of 8b kroner, down .7b due to lower lifting and lower oil prices, but I've been encouraged with the efforts to force down costs on the Norwegian shelf. Production was lower, partly due to lower gas uptake, but also because of plant maintenance, 31,000 barrels a day equivalent. And this has given us the confidence to increase the forecast for the year. All the 13 development projects on Norwegian shelf are developing according to cost, budget, and to plan schedule. That also goes for the Giant Snavit [ph] project.

On the Norwegian shelf, we have focused on developing areas rather than individual licenses over the last years, thus driving down costs, focusing EROR and extending lifetimes. Thompson [ph] is the most mature area, and it is one with very large potential. We have actually developed a plan for the next 20 years, through which we'll increase the resources by some 300 million barrels of oil, and we developed a model for how this can be done, and that's now with our partners. A conclusion to be made third quarter of next year.

Internationally, we've had a good quarter. EBIT is up 50%, partly due to 6% higher lifting, but also due to our driving down costs. The acquisition in Algeria is important from a strategic point of view and it's been made on acceptable commercial terms. There is a limit as to how much I can comment on the commercial terms, and the entitlement numbers, in particular, but I can say that production in 2007 will increase 60,000 barrels of oil equivalents per day, as a consequence of this transaction. We'll have between 300 million and 400 million barrels, oil equivalent, in entitlement reserves, and refining and development costs per barrel of oil equivalent will be lower than $6. That means that this transaction also supports our financial targets.

One comment on Angola -- Angola is becoming a very important country for us. It's been a success, and by 2006, will have a production of more than 100,000 barrels of oil equivalents per day. Angola is also the country where we made all our international discoveries during the first half-year, six altogether.

Then to our gas activities. EBIT was down, due to lower gas sales, and also an 18% lower margin, between the prices seen at market and the transfer prices from E&P Norway. We expect higher gas demand during the third and fourth quarter of this year, and this has made us forecast higher gas sales than before, from a more than 19 BCMs to 20.5 for 2003. The illustration on monthly gas volumes is-- sorry, on quarterly gas volumes, shows that we sometimes see third quarter with lower volumes than the second quarter, which is what you would normally expect in the market. But you can also see that two years ago, third quarter was higher than the second quarter, and that will also happen this year, because the customers will take the flexibility that they have under the gas contracts and will buy when price is lower, and buy little when price is higher. They also have limited flexibility in the third quarter, and that is the last one in the gas year.

There has been a lot of discussion on a new pipeline from Norway to the UK. I'm a little more optimistic now than I was three months ago that a contribution will be made within the next few months, but we are looking for opportunities to sell higher volumes to the Continent, so that we should not be too dependent on the timing of the new pipeline.

When it comes to our downstream operations, Novio [ph], the shipping company, was sold, effective early April, has only very, very limited affect on the numbers for the second quarter. We have seen higher margins. Refining margins are up. Methanol prices are up, and we've seen a good-- I assume, operating normal second quarter for our downstream operations.

Capex, NOK 11b during the first half-year. We have made a forecast for this year, which is lower than what has been communicated earlier. It is lower-- the first half is NOK 25b kroner, and it is lower partly because of a cheaper U.S. dollar, but also because we've seen rig savings, both when it comes to long-term investments, but also when it comes to operational investments.

We have communicated a total capex for the years 2001 through 2004 of NOK 95b previously. We are working to assess more accurately what the capex will be for 2004, and we'll come back to that after the presentations of the results for the full year 2003. But total for the full-year period will be lower than the NOK 95b, excluding the Algerian transaction, that is.

When it comes to HSE [ph], the second quarter has been a good one, best ever. We are on our way to deliver on all the 2004 targets, and we were comfortable and are comfortable committing to more aggressive targets for 2007, both with regard to returns and with regard to production volume.

And then, a little guidance, to summarize for the rest of the year. Ten thousand barrel production per day increase, to 1.07 million. Exploration activity, NOK 3b this year, investment NOK 25b this year. All in all, a good result, a result with which we are pleased.

Mari Thjømøe: Thank you, Olav. Operator, we are now ready for questions.

Thank you. If you have a question at this time, please press on the one on your telephone keypad. [Operator Instructions] Our first question comes from Martin Rusk [ph]. Please go ahead, sir, and announce your company name.

Yes, hello, Martin Rusk, Morgan Stanley. I had a question regarding the negotiations between the UK and Norway with regards to the gas pipeline, because I assume that the Ormalonger [ph], the booking of the Ormalonger [ph] field is linked to that decision? And I understand you're a bit more optimistic. Could you sort of let us know when you expect a decision and also whether it's going to be sort of before the end of the year, or after, and whether you think you'll be able to book the Ormalonger [ph] reserves this year. And also, I understand that the opening up of the Barents Sea for exploration is going to be sort of slower than expected, and does that have any impact on sort of the amount of capex you're going to sort of direct towards international activities rather than on the NCS [ph]? Thank you.

When it comes to the pipeline to the UK, I am more optimistic, that is correct. There will be a meeting between the English and Norwegian minister of energy towards the end of September, and we hope that a conclusion will be reached then.

When it comes to the Barents Sea, we assume that there will be a decision made by year-end to open up further exploration in the Barents Sea from next year onwards. We are in a situation where we have sufficient funds for our capex, international, so we are not in a situation where we are sort of redirecting funds from the Barents Sea to international sources.

Thank you.

Thank you. Our next question comes from Nicholas Griffin. Please go ahead sir, and announce your company name.

Yes, good afternoon, Mr. Fjell. Quick question,just exploration in Norway. You're currently drilling on the Elita [ph] prospect, and I believe this is the last of your biggest prospects in mid-Norway. You've been sitting on the results for some time. I was wondering if you could give us a little bit more insight as to why you've been sitting on those results for so long, and also as to what other programs you have left for the 16th or 17th round, or is it a case now of just looking forward to the 18th round, which I think is second half of this year?

Well, I can't accept that we're sitting on the results of Elita. We're still drilling, and we're getting more information every day, but the results of the Elita will have to be analyzed carefully before we can communicate anything, and I think it's will take another month until we can be very specific about the results of Elita. And then the question on the 16th and 17th round, what was that?

Yes, sir, the follow-up question -- I mean, the press has you target [inaudible] I apologize. You must have talked [inaudible] there. The other thing I've got was the 16th and 17th round -- this is one of I suppose numerous prospects from the 16th and 17th round. I was wondering if you had any more drilling commitments out of those rounds left, or is it a case of moving forward to the 18th round now?

I haven't got the exact details of the drilling program. Basically, I think, including the [inaudible] sort of the most prospective of the remaining activities. While looking at a few additional wells this year, adding between 10 to 12 wells total on [inaudible] but that's [inaudible] drilling at the moment, is sort of the most interesting one. So we are looking very much forward to the 18th round, that's true.

OK, thanks very much.

Thank you. [Operator Instructions] Our next question comes from Ian Reed. Please go ahead, sir, and announce your company name.

Hello, it's Ian Reed from UBS. Afternoon, Olav. A quick question about Saudi Arabia. I see on Reuters you're quoted as saying that you will definitely bid on gas licenses, gas exploration licenses, in Saudi Arabia. I'm wondering if you can just share with us why you're interested in Saudi Arabia, or what you think Statoil can bring to the party, in terms of involvement there?

Well, interested in Saudi Arabia because of the huge resources. We're talking gas. We think we have some competence in gas which may come to use in Saudi Arabia, and that is why I said that we have attended, we did attend the meeting in London in July, and we're working on this to delivering a bid.

Can I just come back on that? The reputation of the Saudis is to be fairly hard bargainers and to leave very little on the table for the international companies. Have the returns on offer improved a little bit in the recent presentations you attended?

I understand that one reason why one did not conclude positively during the rounds that have been going on for almost four years was that one group together bought upstream and downstream assets, and it therefore became more challenging to everyone on the commercial terms. Now, they have separated the upstream assets and it-- and also divided them into smaller chunks, so it will be more transparent, if you like, and I assume that it will be possible to arrive at commercially attractive terms. We won't participate unless the commercial terms are attractive, or can satisfy our requirements, of course.

OK, thank you very much.

[Operator Instructions] Mr. Fjell, it would appear there are no further questions. I will hand over to you for any closing comments.

Well, I said in my introduction that the results is [inaudible] I hope you agree with me on that and that second quarter was a movement in the right direction. Thank you very much for participating.

Ladies and gentlemen, this concludes this conference. You may now disconnect your lines. Thank you.